Infosys Ltd (INFY) 2012 Q4 法說會逐字稿

Ladies and gentlemen, good day and welcome to the Infosys earnings conference call. As a reminder all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions). I would now like to hand the conference over to Mr. Sandeep Mahindroo of Infosys. Thank you and over to you, sir.

Thanks, Marina. A very warm welcome to everyone on this call to discuss Infosys financial results for the quarter and year ended March 31, 2012. I'm Sandeep from the Investor Relations team in New York. Joining us today on this earnings call is CEO and MD, Mr. S.D. Shibulal, CFO Mr. V. Balakrishnan, along with other members of the senior management team. We'll start the proceedings with some remarks on the performance of the Company for the recently concluded quarter followed by the outlook for the quarter ending June 30, 2012 and year ending March 31, 2013. Subsequently we'll open up the call for questions.

Before I pass it on to the management team I would like to remind you that anything that we say with reference to our outlook for the future is a forward-looking statement which must be taken in conjunction with the risks that the Company faces. A full statement and explanation of these risks is available in our filing to the SEC which can be found on www.sec.gov. I would now like to pass it on to Mr. Shibulal.

Good morning, everyone. Thank you for attending the call. I will start with some color on the previous quarter. Q4 was a difficult quarter for Infosys. It was a very challenging quarter for us. We knew it going into the quarter a bit; we had adjusted our guidance in the beginning of the quarter to be flat or marginally up. During the quarter we faced an unprecedented convergence of a number of events.

Our guidance -- when we give a guidance as we have mentioned in the past we have visibility for 95% of the revenue of the quarter which means that we have to make approximately $90m during the quarter. The first two months progressed pretty okay, it was not exceptionally well but it was on track, barely on track, okay. In the third month we were faced with a number of challenges. Number one was a set of contractual closure delays, delays in closing contracts. Number two was unanticipated ramp-downs, predominantly in the FS segment in the US. This is not a single client specific situation; it was a multi-client situation with multiple clients' ramp-down in a very surprising manner during the month of March predominantly. Then we had anticipated a bunch of ramp-ups in wins we had in Q3 and many of them got delayed.

So in that situation and the way it happened during the quarter and the time in which it happened and the timeframe in which it happened we were not able to make up then the gap of $90m of visibility we had in the beginning of the quarter. That led to a situation where we did not meet the guidance. Our guidance was $1.806b to $1.810b. We delivered a revenue of $1.771b. On the EPS (inaudible) we were able to deliver the number. The EPS guidance was $0.81 and we did $0.81. We were able to manage the expenses, we were able to manage the costs and deliver the EPS.

So that is about the quarter. For the coming year we have given a guidance of 8% to 10%. The events which I talked about happened predominantly at the end of the last quarter and that means the later part of last quarter and many of them in March. There is of course an overhang of those events entering into this quarter. For the quarter we have given a guidance of 0% to 1% growth and for the year we have given a guidance of 8% to 10% growth.

We have not changed the principles of giving guidance. We have always believed that there should be symmetry of information between the external world and the internal world. On that belief we have given the guidance. It is definitely a much more volatile environment today than in the past. We believe that this will be a new normal and this will be the normal in which we will need to operate. Even then we have not changed the principles of guidance. We have given the guidance, our visibility for the coming quarter, the current quarter is as usual 95% and for the year it is 65% and it is a statement of facts as we see it today.

We have done quite a few -- quite a number of -- we have done a lot of diligence to arrive at this guidance and this guidance reflects all the information, all the facts we know at this point in time. At the same time I want to point out that it is a volatile environment and we have taken the bold step of giving the guidance.

There have been a number of good things which happened on Q4 and across the year. In Q4 we added 52 new clients, eight of them in Fortune 500 US and four of them in Fortune 500 global. That takes our client list to 694. During the year we got a revenue productivity increase of 4.7%. It was a difficult period, even then we got a revenue productivity increase of 4.7% which is a clear reflection of our strategic direction, our strategic direction of building tomorrow's enterprise and focusing on three parts of clients' business, transformation, operation and innovation, is definitely seeing traction with our clients and that is the way we are providing higher and higher business value, client value to our clients.

We had good deal wins actually in Q4. We had five large deals, three of them more than $100m closed in Q4. Seven transformation programs were won in Q4. The third part of our business, product and platform side, also has seen improvement in Q4. The revenue from product and platform was 6.2% in the quarter. We have in the revenue from platform, which is an interesting thing to look at, was $25m for the year but we exited the year with a $350m book business.

So our model is also evolving, our portfolio is evolving, our model is also evolving. The product and platform space is predominantly about investing and actually booking revenue which has a lot of future potential, a lot of future revenue into it.

Recruitment, we recruited 1,200 people in US and in Europe over the last 18 months. We are recruiting another 1,200 people in US and Europe over the next 12 months. This will be new employment, new jobs created in the local countries. This is also very much in line with our strategic direction of increasing our revenue in consulting and system integration. That definitely requires more local talent.

So from a strategic perspective we are definitely building a balanced portfolio, balanced from a client perspective by adding a large number of clients predominantly in the Fortune 2000 space, from an offering perspective by balancing increasing our revenues in product and platform and solutions, trying to build a balanced portfolio across transformation, operation and innovation. Our European revenues have marginally gone up. Again it's about balancing our portfolio across the globe from US, Europe and rest of the world. Our long-term aspiration is to have a much better balanced portfolio geographically.

So I clearly believe that our investment, our strategic direction, our offerings, our focus is all towards increasing client relevance, strengthening our partnership with our clients and more and more adding higher and higher client value for our clients. And I believe that that will definitely benefit us in the medium to short term.

With that now let me hand over to Bala.

Good morning, everyone. We have done well under the circumstances that we are in. Sequentially there was a decline in revenues but year on year we have seen revenues growing by 11% and EPS growing by around 16%. The operating margin, there was a slight decline in the fourth quarter as compared to third quarter, our operating margin came down by around 1.1% and that is basically due to rupee because the rupee/dollar rate which was INR51.37 in Q3 has come down to INR49.96 in Q4 resulting in appreciation of 2.7% which impacted the margin by 1.1%. Except for rupee the margin has been stable from Q3.

If you look at the full year, our operating margin came down by around 70 basis points from 29.5% to 28.8%. Again, rupee had a favorable impact of around 2.3% but utilization came down from 73% to 69% which impacted the margin by around 2%. We had some decline in our results of around 70 basis points so net-net for the full year we have seen the margin declining by around 70 basis points.

If we take the full year our revenues grew close to 16% and the EPS grew close to 15%. So we have done well under the circumstances that we are in. We had a hedging position of $889m. As at the end of March the currency volatility continues to be a factor and we are not changing our hedging policy, we are going to hedge for the next two quarters at any point of time.

On the utilization front our comfort zone is somewhere between 76% to 80%. Excluding trainees our utilization today is around 70% so we have enough buffers in the system to take on growth when it comes.

If you look at the other financial metrics, the DSO, DSO is [60] days which is one of the best we have seen in the industry. Our return on capital employed is around 40%, 42%. Our operating cash flows continue to be very strong, it is at 25% of revenues. So if you look at the other metrics too we have done well. The unbilled revenues have slightly gone up this quarter, that is because we are doing some large transformational projects where the billing milestones are elongated. And this is the trend we have seen even in the fourth quarter of last year so it's nothing unusual there.

Coming to next year's guidance, we have given an 8% to 10% growth in revenues and around 4% to 6% growth in EPS. We have assumed 35,000 addition in employees for next year which includes around 13,000 employees for our BP operations. We are assuming the revenue productivity to remain the same for the rest of the year, we are not assuming any increase. And we are also assuming the rupee/dollar rate at INR50.88 which is what we have seen as a closing for the March quarter. We are assuming the full year operating margin to behave between a band of 50 to 100 basis points, that is what happens in any normal year.

In the first quarter the operating margin could decline by around 200 basis points mainly because of two reasons. All the visa cost gets bunched up in the first quarter because the window for visas opens up in April and that is the month we spend more on visas. And number two, like we did in the last two years even this year we are going to add some 1,200 employees in the US which are local hires -- that is because we want to localize our operations in all parts of the world -- and most of the hiring could get bunched up in the first quarter. So for these two reasons the operating margin could decline by 200 basis points in the first quarter but over the year we will see some improvement in operating margin and net-net for the full year the decline could be maybe around 50 to 100 basis points.

Our guidance is a statement of fact based on what we are seeing at this point of time. Of course some conservatism is built into our guidance because we are coming out of a tough year and a tough quarter but it is more realistic based on what we are seeing as clients' budgets and what they are saying to us about their spending.

So net-net we have done well for the year, we have given a guidance based on facts what we are seeing today and we hope if the environment stabilizes it will look much, much better. With this I open up the floor for Q&A. Thank you.

Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. (Operator Instructions). The first question is from Moshe Katri from Cowen and Company. Please go ahead.

Thanks. Shibu, I think it would be helpful if you get us maybe dig a bit deeper in terms of some the things that you've seen towards the end of the last quarter in financial services. I'm assuming that a lot of those issues happened in the capital markets area, that's based out of North America, out of the US? And then maybe also talk about whether that impacted also your commercial banking business or the insurance part of the financial services as well? So maybe we can start with that.

Moshe, let me request Ashok to give you a very detailed rundown. He's here and he can give you a very detailed rundown.

Thank you.

So, Moshe, we had a couple of things happen to us in the financial services space in the US. First and foremost, we had some large deals that we had closed in the previous quarter whose transition basically took much, much longer and actually did not start or ramp up in this quarter. And the expectation was that this would ramp up and then the transition would happen and the staffing would begin and that actually got delayed for a variety of reasons, the most important one being that the client was not prepared for the magnitude of the transition that they had to undertake.

The second was that we saw some of our programs in our capital markets space actually get terminated or not get -- get ramped down in this particular quarter and that actually happened. Some of them were expected but there were a lot more unexpected ones that happened to us, especially for some of the larger names on the street. These programs were in the area -- mostly in the fixed income area, there were a few in the regulatory compliance area.

In the insurance business again in Europe we had opened some large deals in the insurance space and that -- also the ramp-ups were very, very slow to minimal.

The budgets did come on time, maybe a week or so later, they're flat to slightly negative. But the expensing or funding of the programs as we saw were happening on a month-to-month basis or actually happening in a way that some of these programs were just not getting funded. If we had a six-month program they were funded for the first part and the expectation is that they will continue to get funded for the next six months but they were inadvertently terminated or deferred for a couple of months or actually were terminated.

The other thing that we also saw was a combination of a lot of these things happening. The other thing that we saw in some of our very large client base, there was a significant shuffle in the C suite and we lost a couple of very prominent sponsors. And that also delayed decision making as for a period of time we were awaiting a new CS or a new line -- president of the line of business and once that person came on board the program was not immediately renewed and was referred back for approvals again.

So -- and lastly I think on the insurance sector in the US we actually had some challenges in terms of that. It's not an area -- a very large book for us, area of strength, so the property and casualty business saw declines, actually their budgets came in so low that they actually had to terminate some of the programs. Overall I would say in the financial services space most of the impact was in the capital markets -- in the capital markets clients and in the insurance clients and there were about three of them in the capital markets and the same number in the insurance space as well.

Okay. And in that respect did anything change since the end of the quarter, are we in the same mode of a lot of these -- a lot of that volatility since the end of March?

So the ones that got terminated are not coming back but a few of them that got deferred, about 40% -- about 30% have actually restarted again. The ones in Europe on the insurance side we expect to actually kick off by the third week of April on the insurance side but both on the capital markets and the insurance side the programs that got ramped down or got actually terminated we don't actually expect them to come back in.

Just another quick point is that -- so that we will have to go find programs to replace them. So the other quick point is that of the 12 accounts that Shibu talked about, the Fortune 500, five of them are from the financial services clients. So this quarter we're actually -- we continue to see new client additions, five of them, four in the US and one in Europe, from financial services sector which are Fortune 500 clients.

Okay. And then just two very quick questions here going to Bala. Do you -- the numbers in your projections for fiscal year 2013 incorporate any wage comp increases for the fiscal year?

So right now we are not factoring in any wage increase for the coming year. We will revisit this as we progress through the year and we get better visibility. We have factored in some promotions. We have factored in some promotions to be done during this year.

All right. And then your hiring plans are staying intact despite some of the slowdown and the uncertainty that you're seeing out there?

Our hiring plan is 35,000 people for the year. Out of that 13,000 people are meant for BPO and the remaining for Infosys Ltd. We believe the net addition because of this in Infosys Ltd will be 6,000.

Understood. Thank you very much.

Thank you.

Thank you. The next question is from Keith Bachman from Bank of Montreal. Please go ahead.

Hi, thank you. Could you talk about your assumptions regarding pricing versus volumes as you look at your forecast please?

So our pricing, if you look at our revenue productivity over the year it has gone up by 4.7% year on year in the last financial year. It is clearly a reflection of our aspiration, our strategic direction and our portfolio and the way we deliver value to our clients. We have done that in a very difficult year. For the coming year we have assumed as usual flat pricing and in constant currency so that's what we have assumed.

Okay. Just to push a little bit on that, given the backdrop of what you mentioned, the challenging year, are there scenarios where you envision pricing actually declining as a consequence of weaker demand?

Actually right now we are not seeing major pricing renegotiations. See, of course as usual at any point in time you have renegotiations, positive and negative, both going on. So when we look at the overall portfolio we don't -- at this point we don't see any reason to change our assumptions. And pricing also has a lot to do with supply and demand and various other factors and portfolio, that's an equally important factor. Our portfolio is -- our aspiration is to make it more and more balanced and actually if you look at the direction, it is moving towards more and more balance but it will take years to completely balance. That is one. So we are balancing high revenue productivity, or services in a volume [service] as well as non-effort based offerings together.

So due to all those reasons we have assumed flat pricing for the year at this point.

Okay. I'll ask one more question then. I understand you mentioned, I think you said the net hiring's going to be 6,000 people and at the same time you're trying to change some of the workforce balance to get more consultants on site. My question is and related to that is why if your utilization rates are down excluding trainees to 73%, why not slow hiring more to reflect the weaker demand and take your utilizations and presumably your margins up?

So if you look at what we are doing to achieve the growth which we presented 8% to 10% we need to hire, right, because we have attrition. Attrition has come down actually; the attrition now is 15%, 14.5% or so. Even if we assume a 15% attrition in Infosys Ltd, I will lose approximately 15,000 to 20,000 people. Then in the BPO side the attrition is definitely higher than Infosys Ltd. So we have to backfill attrition as well as add it back from attrition. We need so many people even if -- even with, not if -- even with the utilization going up. So with this recruitment and with the attrition to achieve our goal of 8% to 10% our utilization has to go up. That is number one.

Number two, on the consulting system integration trend our focus is more to hire locally so the 1,200 people we are talking about recruiting in the US and in Europe is to (inaudible) and meant to increase our capability and capacity in consulting and system integration.

Okay. My final question and I will cede the floor is do you think you'll lose share in calendar year '12?

Please repeat the question, I didn't hear it.

Do you think you'll lose market share in calendar year '12? Based on your projections, you're growing call it 8% to 10%, NASSCOMs numbers are higher than that. Do you think you'll (multiple speakers)?

I don't believe we have lost market share. We are growing 15.8% year on year. So given the fact that we are growing 15.8% year on year I don't think we have lost market share.

Okay, thank you.

Thank you. The next question is from David Grossman from Stifel Nicolaus. Please go ahead.

Hi, thank you. Either for Bala or Shibu, it sounds like you're not raising wages, utilization hopefully goes up during the course of the year, you've got a bit of a [loopy tail] on this (inaudible) yet it sounds like overall that it's possible your margins could be down year over year. Can you help us understand where that excess margin is going and where you're investing over the course of the year?

David, we couldn't hear it clearly but is your question that when the utilization rate goes up what will happen to the margin or -- is that the question?

No, what I was I guess pointing at is if you're not raising wages and utilization theoretically should be improving over the course of the year and you also have a loopy tail onto margin, if you bundle all that up your margins according to your guidance could be down year over year in fiscal '13. So with that said, where are you investing all those tailwinds that would result in a margin overall being down for the year?

So I think I got the question, I will answer then ask Bala to add to it. I think for the quarter on quarter I think Q1 is when we will apply for our visas. So that has an impact on -- that has an impact. And I think Bala is going to give you a lot more color on this actually, I'm going to ask Bala to explain this clearly.

So David, this year, that is fiscal 2012, our utilization is 69%. Next year we are adding 35,000 people more. So utilization could fall to maybe 67%, because we are talking about the 8% to 10% growth. So the impact of that on the margins could be around 70, 80 basis points. That is what we are talking about for the full year. Operating margins could decline within a band of 50 to 100 basis points.

Of course, [hopefully] it will give a benefit, but we do make investment in terms of hiring people in all the global markets. We are making investment in our platform product solution business. We are increasing the spending. We are increasing some of the hirings in sales and marketing.

So, we are making those investments, so [rupee] benefits gets reimbursed in some of this. And the impact you saw still on the margins is basically the utilization impact.

So, Bala, could you help us understand better I think this amount, one of the other questions is with revenue decelerating across the board in the business, why would you continue there to hire at that rate to drive utilization down again year over year in fiscal '13?

So, David, there are two aspects to it. One I said is we want to grow 8% to 10%, see Bala's numbers reflected including trainees, so without trainees we have a utilization rate about 70%, 71%. Our comfort level is about 70% to 80%.

So if you look at that, and then if you are planning to grow at 8% to 10% you still need an additional number, so the net addition in hirers that is Infosys Ltd, due to all this is 6,000 people, so the net additions, the net addition is 6,000 people. So, in -- on one side is the [request].

There is a second factor also, David, that, you know, many of these people have been given offers in campuses last year or last year itself. But it can be clearly seen that the net addition is only 6,000 people.

And when you move the utilization with 72% to 78% all you are getting is about 10,000 people extra, so 16,000 people is what it is. And you are looking at about 10% growth.

Okay. Thank you. And perhaps we can follow that up off line. Just one other question is in terms of the client-specific stuff that you talked about, I think you mentioned that some of them were just being terminated outright. But do you think that the programs at the clients where you are seeing duress, you think you are seeing the bottom more or less in terms of the client-specific fundamentals you're seeing this year. Or do you think that those clients are still in a period of the transition that you could see incremental deceleration as you look (inaudible).

David, again due to some reason your line is not clear. I got bits and pieces of that question. So I think one question you were asking was that do you see do you believe we are seeing the bottom. See, please -- please remember what we said, what I said that many of the vents actually came together only during the very later part of last quarter. So in that sense there is a bit of overhang which is continuing.

We have looked at -- we have done a lot of analysis just for giving the guidance to make sure that our principles are not violated. We have evaluated the situation of all of our clients. We have talked to all of our client partners and the master client owners who actually look after those clients. We have looked at our book business. We have looked at our clients where we have looked at the budgets while the budgets are closed, we are not seeing a spending velocity.

We have considered all these for giving the guidance. And so given all the facts which we know at this point in time this is the number. And we believe that unless something totally surprising happens this is the number we see at this point in time.

Okay, thank you. If I could just sneak in one more, just on the wages, is your sense that the wages are going to be relatively flat throughout the industry for the year? Or do you just feel that you're that much above the industry that you don't feel that you would be competitively compromised by holding them relatively flat?

I think different people will react in different ways. So because of the volatility we have seen in Q4 and because the volatility we have seen coming into Q1 and the overhang I talked about, we felt that it's the right decision for us to do it to delay the compensation increase at this point in time. Look at it again in Q2 or Q3. That is what we foresee.

If you look at the history we whenever we have done this in the past, as and when the situation moved -- got more -- got better and more clearer, we have totally gone ahead and done compensation changes. That is what we have done in the past.

Eventually actually there are years in which we did extremely -- actually high compensation increases, actually after delaying. So we always believe that we have to be fair to all the stakeholders. And we believe given where we are this is the right decision to make.

At the same time, as I said, we are rolling out promotions. We are rolling out promotions in -- effective July 1, for a large number of people. And we also rolled out in -- actually in October, we did 7,700 promotions.

So, we just did one cycle of promotions about four to six months back. And we'll be doing a pretty large number of promotions beginning of second quarter. So I believe we have taken the right decision.

Okay. Thank you very much.

Thank you. The next question is from Joseph Foresi from Janney Montgomery Scott. Please go ahead.

Hello. This is Jeff Rossetti in for Joe. I was just wondering if you could provide an update on your growth assumptions for financial services for the year, and how you expect some of the Q3 ramp-ups that were delayed to progress.

So let me request B.G. Srinivas to give you that information.

Hello. Yes, so given the fact that we are exiting the quarter with shrinkage in the quarter-on-quarter revenues and the fact that even the Q1 number is a little muted, for the full year the outlook for financial services will be marginally below the Infosys overall growth rate at this point in time.

At the same time as we see opportunities during the quarter there are a couple of deals in the pipeline depending on both deal conversions as well as decisions on these decisions for us, deal closures, we could be revising this. But at this point in time it is still muted.

Okay. And -- thank you. And any detail on the change in leadership in the financial services and manufacturing verticals? And if there is any -- could you talk about any impact that you are seeing from accelerated visa rejections in the US if that's impacting any of your business in the US at all.

No, the transitioning between ma and Ashok between the manufacturing sector and financial services has started a couple of months ago and it's -- transition is going through pretty smooth. There are no issues with respect to any of this, to the business as usual, because the respective teams continue to run the business so -- and this is not something unusual. So there is no impact on the business because of the new -- change. We will continue to build on the respective unit strategies, and focus on furthering the growth.

The second part of the question was related to delays in visas. Again this year we have planned for visas ahead of time. We have already started to process the visas. We have filed visa applications. And we should see now a number of visas coming in time, though there have been some queries on some of these applications across the industry. But by and large we have sufficient numbers filed to take care of the eventuality.

Thank you.

Thank you. The next question is from Trip Chowdhry from Global Equity Research. Please go ahead.

Thank you. I've got a question on your intellectual property portfolio. I think in the last quarter you did -- I'm sorry, in your Analyst Day you mentioned about 2,000 patents in work. And if you look at the companies like IBM they run their IP as a profit center not as an insurance policy or as a cost center. They run it as a profit center. And we have done some patent analysis on your applications as well as the granted patents. And I think they are extremely, extremely strong both in cloud as well as in social media.

I was wondering have you been approached or are you approaching companies like Facebook or other companies to exclusively license those patents or, enforce your patents on violators so that companies -- just look at there's $1b being spent for 800 patents that AOL sold to Microsoft. So I'm just thinking other than just granting insurance for the first small (inaudible) on losers' proposal, proposition, have you thought about enforcing your patents and any thoughts about how do you intend to monetize that? That's all from me. Thank you.

So -- and thank you. Thank you for the question. I will request Sanjay Purohit, who heads our Products, Platforms and Solutions Group to respond.

Hi. When we are looking at our intellectual property base strategy we essentially are looking at it from two perspectives. One is how do we develop intellectual property that we can use to improve quality and productivity of the services across our suite of services in the Consulting Systems Integration and Business IT Services. And second is how do we use our intellectual assets and intellectual property to actually create new products and platforms that we can take to the market as how to make the offerings to our clients.

Now obviously in all of these basis we have identified specific areas where we want to make investments. And whenever you do a landscape analysis of such an area you formulate an IP strategy which includes what will we develop, where will we partner, where will we build, what will we do with our patents. And we are pursuing in line with that line of thinking.

In that context, when we look at individual spaces, the offerings we have in that space in the products and platforms we take decisions as to how do you want to leverage our intellectual property for either internal or commercial use or look for partnering with other people who have intellectual property that we can actually leverage together to take new offerings to the market.

Thank you.

Thank you. The next question is from Shashi Bhushan from Prabhudas Lilladher. Please go ahead.

Thanks for taking my question. During the call you attributed the weakness to challenging macro and then changing leadership for clients and project ramp-up basis. Are these the only reasons or we are also seeing weakness because of protectionism by the Western world and competitive bidding by peers, or our stickiness to quality there than quantity.

So, I think it's predominantly the fact that as we mentioned and that is lack of confidence in the global economy, and some leadership change in our clients and regulatory things being pushed out. In the financial services the regulatory requirements, regulatory and compliance requirements are being pushed out. That removes that (inaudible) in some of the programs. So, those same two factors. We are not seeing, we are not seeing our client base responding to -- responding to protectionism or things like that.

Now our philosophy always has been looking at quality growth and that is superior financial performance, which is a balance of above industry average growth and superior profitability. And, of course, there is no doubt that, -- that is the aspiration. So our aspiration is not to be the largest volume, right? That's not our aspiration. So our aspiration actually drives the strategic direction, the investment which we made, the choices which we make and the performances we get.

I firmly believe that, a drop in price -- I firmly believe that a drop in price is not going to actually drive growth in the long term. It may have a blip.

See, if you look at the different services lines which we have, Consulting and System Integration we are not the pricing [umbrella]. There are the global SIs who are operating who are the pricing umbrella for us. If you look at Business and IT Operations for the India, Indian industry probably we are the pricing umbrella. I don't believe that we can drop price and get higher volume, because of the simple reason that it is a closed loop system and the industry itself will be forced to the edges.

And again the last point I want to make is that the value which we deliver, and this is an important point to remember, the value which we deliver is worth a lot to actually get that premium.

It is not, it is not that we just hold onto the price. It is all about appropriate client values. So as long as we delivering value, as look as we are continuously improving our performance, our productivity, our investment and investing in the right place, and being innovative engine of the clients, I believe that we will continue to get the premium. So I don't think one should think of giving up the premium to get volume, and I don't think it will work either.

So did it happen past that, either client walked out of -- from -- away from, or we walked out of contract just because there was a pricing issue even though the client was premium or a, say, Fortune 500 client?

There is no doubt that we have lost deals on price. That happens to anybody in the world. That is part of the business life. In any business you lose some opportunities because of price.

No, see the important thing is that when it's a strategic customer, when it's a strategic client, when it's a large relationship. So these are choices you make not at the corporate level, these are choices which you make at into the client level or into the deal level. When it is a strategic client then if they are going through a tough time, it is our responsibility to respond to it. Our responsibility is to make sure that their total spend, total cost of ownership comes down.

And there are various mechanisms of doing it. It can be -- not be price at all, it can be more offshoring, it can be more moving the managed business, it can be converting into a fixed price, it can be moving to a platform. There are many ways of doing this. So when a strategic client is going through a tough time, we have a responsibility towards it. And we try and deliver that through various mechanisms.

So to answer the question, it's losing a deal or a price is something which is part of every business. I am sure it has happened to us also. But winning the deal is actually not on price. Winning the deal is based on the solution, based on the client value which you provide. And that is where we focus the highest.

Sure, sir. Now if we look at our clients win over the past four quarters, a strongest development in our Tier 1 peers, moreover the (inaudible) has been also the strongest we have ever witnessed. And that was across the buckets.

But when we are seeing quarter on quarter growth, it is only turning out to be more anemic in nature. So where are things going wrong? Are these clients which we are winning are not ramping up, or is it just the ramp down from some of our existing clients is creating the problem.

So, actually our client wins are predominately in the right place. They are mostly Fortune 500. If you look at the two wins we had, two additions we had this quarter eight of them are US 500 and four of them are global 500s.

We have a must-have client list, which is predominantly the Global 2,000. And that is where we spend most of our energy adding clients. See, during -- because of the environment, in many situations we are actually starting very slow. And that is leading to the observations which you are making.

But these are strategic clients. These are the clients we really want to have. And we really want to have -- one way to actually manage the bumps and manage the volatile environment is to actually expand the portfolio in all dimensions.

One dimension is client. During the last downturn one of the things we noticed was that some of our global competition have client base of 2,000. And so it's very important that we have a large client base. And we -- that will allow us to mine the client base. That will allow us to manage some of the down -- some of the volatility as we go along.

We are applying the same principal to other parts of our business. So we are actually expanding in Europe. It is about -- again about having a balanced portfolio across the globe. Our offerings are also meant to create a balanced portfolio across different kinds of strengths which the client has.

So just I was -- maybe one more. If you look at our G&A in the quarter it is [down] dramatically over the previous quarter, any specific reason for this?

That is the quarter-on-quarter fluctuation; one cannot look at it as a secular trend.

Okay, sir, thanks that's all from my side.

Thank you. (Operator Instructions). The next question is from Rod Bourgeois from Bernstein. Please go ahead.

Yes, so do you think the month of March, in terms of demand, was weak across the entire industry or -- and also do you see reason that demand trends would improve later in the year to support a backend-loaded growth outlook for Infosys?

So, our demand trend in the later part of last quarter was more weaker in FSI segment than any other segment. And in a little bit in manufacturing, but predominantly FSI and that is where we saw the weakest situation.

Now, we have looked at our client base over the -- looking at it from the next one year perspective, we have taken into account any kind of fluctuations we could go through as far as we know, to best of our knowledge. And most of that has been factored into our guidance process.

Now if things improve we will definitely be ready to take advantage of it. It things don't improve we will continue to do our best, take advantage of the situation even if it doesn't improve. But, if it improves later we will -- we are the ones -- we will be the ones who will benefit because we will be prepared, we will have the capacity, we will have the relationship, we will have the clients. And I believe that will help us.

Okay, great. And then the weakness that you saw in the financial services vertical you've given some good color on the specific things that happened, but do you believe those things are due to financial services industry-wide trends or could it possibly have been just due to some specific issues you happen to encounter in your particular client base?

So I think across the board in financial services there is a structural change that we are noticing. But the speed and rapidity with which it impacted us this quarter is specific to a few clients in the capital markets space and in the insurance space.

But Shibulal was also mentioning that, the amount of investment, dollar investment and time that was being diverted to ensure meeting regulatory and compliance issues that pressure seems to be a little off from a technology and process perspective. But we do -- we are seeing -- the fact that there is -- some of this has an impact on our competitors as well, in some of the accounts where we have an impact and they are also present.

Okay. And then, Ashok, on the -- you mentioned earlier today as well that there were some particular weakness in the area of risk management and compliance. Is that a market-wide issue or is that due to some client specific factors where leadership change has occurred and some important work was essentially delayed or pushed out.

So this is specific to a couple of actually three capital market clients where we had significantly large programs in risk management and compliance. We have not seen that to be a secular situation across, but this is specifically in the area of capital market clients in the US.

Okay, great. And then one final thing, you talked a little bit earlier about the wage inflation and the decision to give wage hikes this year. If you see some issues with employee attrition or particularly an issue in moving some of the higher potential talent in the organization because of the absence of a wage hike, particularly if competitors decide to go through and actually give wage hikes, is that a decision that you would reconsider very, very quickly? Or is this something that is probably going to be in place for the next several months regardless of what happens?

No, I think it is important to note that we are not taking a decision not to give wage hikes this year. We have taken a decision to delay the wage hikes. We will revisit it in the beginning of Q2 or beginning of Q3 again to see what is the right thing to do based on where we are. So it is not about delay -- not having a wage hike this year it is about delaying the wage hike given the volatility we are in.

We are explaining this to our employees. Our employees do understand the challenges which we are going through. And -- and also please remember our value to our employees are multi-faceted. It is not based only on compensation, it is based on capability building. It is based on the kind of work which they do and various other factors. So, -- and our attrition has actually come down over the last two, three quarters.

Now I cannot rule out the fact that there could be a small hike, a small spike in attrition because of this. But that is part of life. We believe that is the right decision to take at this point in time.

All right, thanks guys.

Thank you. Ladies and gentlemen, due to time constraints that was the last question. I would now like to hand over the conference back to Mr. Sandeep Mahindroo for closing comments.

Thank you, all, for joining us on this call. We look forward to talking to you again, over to Shibulal for some closing remarks.

So once again thank you very much for joining the call. We look forward to seeing you again next quarter. Thank you. Bye.

Thank you very much, members of the management team. Ladies and gentlemen, with that we conclude this conference call. Thank you for joining us and you may now disconnect your lines. Thank you.