Infosys Ltd (INFY) 2013 Q1 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. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions). Please note that this conference is being recorded.

I would now like to hand the conference over to Mr. Sandeep Mahindroo of Infosys. Thank you and over to you, sir.

Thanks, Marina. Good morning, everyone, and a very warm welcome to all of you to discuss Infosys' financial results for the quarter ended June 30, 2012. I am 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 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 which refers to our outlook for the future is a forward-looking statement which must be read in conjunction with the risks that the Company faces. A full statement and explanation of these risks is available in our filings with the SEC which can be found on www.sec.gov.

I would now like to pass it on to Mr. S.D. Shibulal.

Thank you, Sandeep. This is Shibu. We have done fairly well in a challenging environment. On dollar terms, on year on year, we have grown by 4.8%. We have achieved our EPS guidance for the quarter. We have added 51 new clients during this quarter. Our $1m clients have crossed 400. Top 10% grew by 2.4% and top five grew by 4% this quarter.

Our quarterly guidance was $1.771b to $1.786b. Our revenue came at $1.80b but there are two events which happened. Number one was the currency impact which was $13m for the quarter. Number two we took a one-time reversal of revenue, reversal of accrued revenue as a matter of prudence on a large transformation program which got cancelled during the quarter. This happened in Europe in the energy and utilities space. So we took a one-time reversal of $15m. So that put the revenue in reported terms at $1.752b. That's a de-growth in constant currency terms of 0.4%.

Apart from these two events, we would have ended up in the middle of the guidance for the quarter. This is a one-time reversal and we don't expect this to happen on a frequent basis in the future.

Our client additions as I said has been quite strong. We are continuing to execute on our Infosys 3.0 strategy. We have completed the transformation. We have the new leadership in place. We are purely in the execution mode. The early signs of successes are clearly there.

This quarter we have closed four transformational deals, four large deals in the BIT space, one of them more than $300m, multiple deals in the Products and Platforms space. We added 10 new clients in the Products and Platforms space. We launched BrandEdge, a new platform along with Fabric in this quarter. Our SocialEdge platform has more than 10 clients today. And our book value in Products and Platforms has crossed $380m.

Our new areas are doing well. Cloud we have 3,000 people working in cloud. Revenue is growing above Company average. We have 150 engagements in Cloud. Mobility we have 1,200 people working with 60 clients and we are seeing very good traction.

We are also seeing very good traction with our Building Tomorrow's Enterprise innovation framework with our clients. We had numerous conversations during the last two quarters which have now converted into opportunities or deals for us.

So as I started saying we have done fairly well in a challenging environment. The environment continues to be challenging. We have high exposure to the financial services space. We also have high exposure to the discretionary spend because of our large percentage of revenue coming from Consulting and System Integration.

That makes our ability to predict -- that challenges our ability to predict. We had given a guidance of 7% to 8%. Now we have revised it to at least 5% growth for the year. There are three factors which have gone into this revision. Number one is the currency impact which is 1% to 2%. Number two is the pricing decline which has been in this quarter of 3.7%. And number three are business reasons. All of these have been factored into revising the guidance to at least minimum 5% for the year.

If you look at the volume growth it has remained somewhat similar to what we had predicted. Because of the pricing decline, while the revenue is growing at 5% the volume has to grow around somewhere between 8% to 9% for the year.

Now the pricing decline came from two factors. Number one is the portfolio change. We have seen a decline in percentage terms in Consulting and System Integration. That has impacted our revenue productivity.

Number two, we have seen sporadic pricing renegotiations or discount demands predominantly in the FSI segment during this quarter. We are not seeing a secular trend. But we have seen sporadic instances of pricing renegotiations or discount demands. Both of them have contributed towards the pricing decline.

From a volume perspective this quarter we have grown by 2.7%.

With that, let me conclude and hand over to Bala.

Hi, it's Bala here. If you look at the gross margin, gross margin has slightly declined this quarter from 41.2% to 39.6%. The SG&A is almost same like last quarter.

Operating profit has come down from 29.8% to 27.9%. It is as we planned in the beginning of the quarter, when we said the first quarter operating margins could decline by 200 basis points because we are making those investments, both on hiring people onsite and also increased investment in visas.

Rupee has depreciated by around 9.7% this quarter. That could have benefited the margin by around 3.9%. But we have seen the pricing decline by 3.7%, so more or less the rupee benefit has been offset by the pricing decline and we have made those investments like what we planned in the beginning of the quarter. So the operating profit has seen a decline of something around 200 basis points.

If you look at effective tax rate, the effective tax rate has come down this quarter to 26.7% from 28.8% or so in Q4. It has come down because one, we have seen some increase in our SEZ operations and number two, the overseas taxable income has come down during the quarter. Both had an impact.

We added around 51 new clients. Our DSO days is 64 days as compared to 60 days last quarter. I think DSOs are under control.

And we have a hedging position of close to $1.1b. Last quarter we had $889m. We continue to have a hedging strategy of short term, looking at next two quarters at any point of time, not go beyond that.

Our utilization has come down during the quarter. It is 69.5% as compared to 70.7% excluding trainees and including trainees it's around 64.7%.

So net-net the EPS has come at $0.73. That is what we guided for. We're ending the quarter with $3.7b of cash. As I said earlier, receivables have slightly gone up this quarter but we don't see a trend there.

For the year, we have revised our guidance to 5% minimum growth for the full year. Our EPS growth for the full year is predicted to grow at 1%. Our pricing, we are assuming the first quarter pricing to continue for the rest of the year. On currency we are assuming that rupee/dollar rate to continue at INR55 for the rest of the year.

And we are also assuming that we'll be adding some 35,000 employees gross for the full year. We added around 9,236 in the first quarter. And the CapEx estimated for the full year remains at the same at INR2,000 crores which is close to $400m.

With this I conclude. Now we can open up the floor for Q&A.

Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. (Operator Instructions). The first question is from Joseph Foresi from Janney Montgomery Scott. Please go ahead.

Hi guys. My first question here is just on the guidance. You've changed the methodology a couple of times over the last couple of quarters. Maybe you could talk about why you changed it again this time.

And also it seems like you're not giving quarterly guidance anymore, maybe why you decided not to give that guidance as well.

So the first principle of guidance is to remove [asymmetry of] information. That is the basic principle on which we have always acted and we have always done the guidance. We, in the beginning of the year, had visibility for 65% of the revenue for the year and 95% in the beginning of the quarter for the current quarter.

What we are noticing now is that while we have visibility for the clients' budget and we understand some of the areas where they will spend, we are not able to predict some of the movements of large programs which we are involved in. Because we have dependency on the discretionary spend -- 30% of the revenue comes from that space -- that unpredictability matters a lot.

So at this point in time when we look at all the facts we know, we are fairly confident that we can do a minimum of 5% growth for the year. We are not able to predict the quarterly revenue in the fashion in which we used to in the past given the uncertainties we are faced with.

So we have communicated, we have stuck to this principle to make sure that we communicate the information and the facts as we know it and that is the yearly guidance. Given the volatile environment, given some of the challenges which we are faced with, we decided that we will not give the quarterly guidance at least at this point in time. We will revisit that decision once the environment stabilizes.

Okay, thanks. Moving on to pricing, I think you said in your prepared remarks that the pricing issue is not secular. But you seem to be putting in your guidance that pricing is going to decline for the full year. Are you expecting more renegotiations as you go throughout the year? And if it's not secular, why would you include the same pricing degradation for the full year?

So we have seen a pricing decrease this quarter because of the portfolio change as well as the sporadic pricing renegotiations which we have experienced during this quarter. See when you prepare the guidance for the rest of the year we take the current revenue productivity at the end of the quarter because that is where the revenue productivity is today. So we have to factor in the current revenue productivity for the rest of the year for the guidance purpose.

It is in a sense very similar to the currency. We have taken the current currency for the rest of the year, right. That is the information which we have and that is the information we need to use for the rest of the year. It is a reflection of where we are today. There is no other secular trend. We have a new revenue productivity. We have used that to compute our guidance for the next three quarters. Did I answer that?

Just as a follow-up, do you expect -- I understand it's a snapshot of the quarter. But do you expect more renegotiations throughout the year?

We are not seeing a widespread demand for renegotiations at this point. We have seen only sporadic ones in the financial services space. We have seen some sporadic discount demands in the financial services space. But clients are going through tough times. But at this point in time we are not seeing it as widespread or secular.

Okay. One last quick question. In the past when business has slowed, you've moved utilization higher, pushed up hiring and protected the margins. What can we expect this time around? Will that pattern repeat itself?

So we model our recruitment to the demand definitely. At the same time a lot of the recruitment which we do, which is of freshers in the colleges, are done early on. So the cycle time is about 18 months. So we had already given offers to 26,000 people last year to join this year starting now, starting July.

And as our principle is to honor all the commitments which we have given, we are going ahead with joining of those employees. They will be in training for the first six months. We have spaced it out in a way which is relevant to us. The conversion rate is usually about 80%, which means that we will have about 18,000 to 20,000 people join between now and the next 12 months and they will be training for six months. We will continue to recruit laterals to enhance our niche capabilities or to fill in any areas where we have shortage.

Thank you.

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

Thank you. I think in the last call we talked about hiring in the local markets, I guess primarily in the US and in Europe as well. Can you -- I may have missed it in the release, but can you tell us what your plans are for the year as well as what you hired locally in the quarter.

So hiring in the local markets is very much in line with the push which we are doing with Consulting and System Integration. If you want to put the revenues in that space that means if you want to build capacity we have to hire in the local markets. There have to be people who understand the local business practices and have local domain expertise.

We hired 600 people last quarter. We hired 600 people the quarter before. I think this quarter we will hire 550 people. These will be local hires and that is the plan right now. The rest of the year also we will hire as we go ahead.

Okay. And Shibu, let me ask you just about the dynamic about the rupee and pricing. So if the rupee starts appreciating relative to the dollar and pricing stays relatively flatter, revenue realization stays flat, how should we think about the margin outcome for this year under that scenario?

So if I look at that, if the change in rupee is gradual then we have managed. We have operated the business at INR54 and at INR44. So in the past we have been able to manage our business across the rupee rates as long as the appreciation or the depreciation is gradual, as long as it doesn't happen at the end of the quarter. In fact, we have seen it once before at the end of the quarter. That makes it very tough to adjust.

We have multiple levers all said and done. So if you look at the volume growth this quarter of 2.7%, if the volume continues to grow and the utilization goes up, there is a lever right there. You have the onsite/offshore ratio which is another lever. You have the freshers joining into the system. That means the pyramid structure changes, so the average compensation comes down. We have deferred the compensation. We have postponed the compensation increase this quarter. We just rolled out the current margin factors in the 20,000 promotions and the progressions which we just rolled out.

So there are multiple levers to margin. It is not the rupee alone. And we have operated at different spectrum of the rupee rate. So I believe that as long as it is not a cliff which happens at the end of the quarter we should be able to manage within a small range and make sure that our margin aspirations are met.

Right. But historically I don't think you've been going through the same investment cycle that you are right now. So do you have the same point of view that you can manage it and continue the investment trajectory that you're on right now?

See we have invested continuously in our business. But it has been in different parts of the business. That is an important distinction to make. So for the last many years we have been investing in building our Consulting and System Integration practice. We created Infosys Consulting. We hired local talent. We had some of the best people in the industry join us. And now that investment has yielded results in many ways.

Today our revenue from that space is 30%. It is at about 15% to 20% revenue productivity higher than the rest of our business. So, we do some of the most interesting work.

So the point I'm trying to make is we have always invested in our business. Now the focus has shifted. The focus has shifted to a new area, Products and Platforms, Cloud and Enterprise Mobility and Sustainability. These are new areas. So we are able to shift part of the investments which we do -- which we did in some of the maturing parts of the organization to the newer areas. It is true that in Products and Platforms you invest upfront and you reap benefits over a long period of time later on. We are already investing into it. It is all factored into the current guidance. So I don't expect this to drastically go up overnight. I also expect the revenues from some of our new investments to pick up.

Okay. And then let me just ask you about the revenue guidance. If my math is right it would seem to imply a little over 3% sequential growth on average if you straight line it through the balance of the year. Can you help us understand how much visibility you have on that based on -- it sounds like you've got 10% unit volume baked into your guidance? How much visibility do you have on that now versus what you would typically have at this point in the year?

So beginning of the year we had 65% of visibility for our revenue. Now we are into the second quarter so we should be approximately somewhere between 75% to 80%. For the quarter usually we have 75% -- sorry, 95% visibility. This time we have not given a guidance. So with all the information which we have we are fairly confident about the minimum 5% growth for the year.

There are a couple of wildcards like if you get a huge pricing change then that will have an impact. But with all the information which we have today we are fairly confident about the 5% minimum growth which we have predicted for the year.

Okay, very good. That's all from me, thank you.

Thank you. The next question is from Moshe Katri from Cowen and Company. Please go ahead.

Yes, thanks. I have three specific questions and maybe the first one is a clarification. There are some people out there coming out with a call saying that Infosys is starting a pricing war and at this point this is going to be hugely disruptive to the sector. What would your comment be on that statement?

Well, it is a reality that we do give pricing [cover] for the offshore industry. But we are not in that game. We always want to have balanced growth. We have not seen any across the board price reduction in any of our portfolio. There could be some sporadic price reductions depending on customer situation. And most of the price change is due to portfolio change, either services or customers. So we are not seeing any across the board price reduction at this point of time.

And at this point this is not your strategy to try to regain some of that topline growth by reducing bill rates, is that a correct statement.

S.D. Shibulal. Yes, you are right. We always want to have balanced growth. We don't want to play one against other. In short, we don't want to be a commodity player.

Okay, that's fair. And then can you also take us -- bridge the change or the reset in guidance from the 8% to 10%, that level, to the 5% level? Maybe talk about the impact of currency, what you're factoring there or the impact of pricing, maybe a lower blended bill rate and then on top of that, the impact from the macro whether it's cancellations or project deferrals, etc.

So if you look at the 8% to 10% on where we are today, there are three factors which are going into it. Number one is the currency impact, somewhere around 1.5%. Number two is the pricing impact. For the same volume growth when there's a pricing decline of 3.7%, that impacts your revenue. So even though we don't change our volume growth we are seeing an impact on our revenue. Number three is the business environment in which we operate. We are definitely seeing unpredictability and lack of visibility in the deal closures. We are also seeing delays in these deal closures and postponement of ramp-ups. So all of these three factors have gone into that 8% to 10% becoming minimum 5%.

All right and then the final question, I think Europe has done about 8% sequentially. Is there a way to get the actual number in constant currency and also ex the contract cancellation that you mentioned during the call?

See in Europe overall currently we're seeing the business environment reasonably stable even though we had a challenge in the last quarter. One was of course about the cancellation of a large program and also in the UK one of our large clients, there was ramp downs in a couple of programs. So that was the reason it is -- definitely again which impacted the quarter.

But overall if you look at the current pipeline in the last three to four months there is no significant change. The macro environment uncertainties continue. However in our client environment we continue to see a fair degree of stable. The fact that clients continue to spend, continue to invest there's no change to that. There is definitely a little slowness in the decision making. So that's the reason why we are saying for the full year we continue to invest in Europe; we continue to see business growth in line with the guidance we have given. What happened last quarter was a one-time.

Let me give you some color on the numbers which you asked. Last quarter the revenue from Europe was $408m. This quarter the revenue is $375m -- $375.723m or $376m. $15m of that, that difference came from the one-time revenue reversal we did. So that is $15m. There is a currency impact afterwards. So it's mostly these two and the pricing. There is nothing else.

Because if you look at the constant currency revenue as I said for the company we are in the middle of the guidance. We are at $1.780b. So in constant currency terms if I remove the $15m impact, the revenues have gone up from $1.771b to $1.780b. So that in a sense reflects everywhere. So here also you will see the impact of the currency and the impact of the $15m directly in Europe.

So excluding these factors, Europe would have been flat, might have been up?

We would have been right in the middle of the guidance or at the upper end of the guidance in fact. That's very important to remember because our guidance was -- last quarter our revenue was $1.771b. This quarter if I look at the revenue in constant currency terms, without considering the $15m one-time impact, our revenue would have been $1,780m.

Out of that we lost $13m because of currency, $15m because of the one-time reversal of revenue and we ended up at $1.752b. So if you eliminate those two, we will end up at somewhere at the mid to upper end of the -- mid of the guidance.

All right, thank you.

Thank you. The next question is from Rod Bourgeois from Bernstein. Please go ahead.

Okay. Great, guys. So you explained on the earlier conference call that the pricing decline that you experienced was mostly due to business mix changes. As I look at the margin change in the quarter, it seems the quarter to quarter drop in your margin by 190 basis points, it seems to imply that something more fundamental besides mix hurt your margins versus your guidance. You probably received about 260 basis points of margin boost from the rupee depreciation. So is it accurate that your margin was hurt below expected pricing on like-for-like deals?

Not really. If you look at the operating margin the decline was something around 190 basis points. In the beginning of the quarter we clearly said we are hiring more people outside India to localize our operations and we intended to hire some 600, 700 people in the United States. And actually we hired 700 employees in the first quarter. And we also said there could be a bunching up of visa costs in the first quarter as we need to apply when the window opens. Both of that had an impact of something around 160 basis points on the margins in the first quarter.

To some extent the pricing decline in the first quarter has been offset by the benefit of the currency we got in the first quarter. So that has not impacted the margin. The margin got impacted because of planned investments on hiring employees in the United States and also the bunching up of visa costs.

So, but Bala, let me just clarify. So if your guidance assumed a 200 basis point decline and your actual decline was 190, so almost in line with guidance. But you received an unexpected rupee benefit of probably [260] basis points. And it seems that your investments onshore were expected and already planned in your guidance. So it seems that there's another fundamental factor that wasn't assumed in your guidance that occurred in the quarter. And I guess I'm wondering is that additional fundamental factor is that the impact of effective utilization or is it the impact of a pricing effect on like-for-like deals? I guess that the reason I focus on that is if it was a business mix change that caused the pricing decline, then it seems that the impact on the margins would not have been so significant.

No, no, it's like this. Rupee depreciated by around 9.7%. That means a benefit of around 3.9% on the margin side. On a portfolio basis, the pricing declined by something around 3.7%. So to some extent the benefit we got from currency, which was not planned in the beginning of the quarter, was offset by a pricing decline we saw, which was also not planned in the beginning of the quarter.

So the impact you are seeing on operating margin is due to planned investment of hiring people onsite in the US and also because of the bunching up of visa costs. See you have a pricing decline because of portfolio mix change. But the end of the day the blended pricing is what matters. And if that declines it has got an impact on the revenue and it has got a impact on the margins. So to some extent the offset happened because of the currency.

All right. So I'll move on to another margin related question. It seems like you're going to make a decision on the wage inflation in the month of October. What are you assuming in your latest EPS guidance related to wage inflation? Are you -- is your guidance subject to change later in the year if you decide to move forward with salary hikes?

No, we have not decided on the wage increase as of now. We wall review it whenever we have a comfort on the environment, whenever we see some uptick in the revenue growth. Right now we have not taken a view on that and that is not part of the guidance.

Okay. So how are you evaluating that? Are you intent on trying to provide a salary hike? I'm sorry my voice keeps cutting out, I've got a cough. Are you trying to provide a salary hike if there's any way possible in your financial plan or are you feeling like you can make it through the next year competitively and in terms of a morale issue without actually following through with a salary hike? Thanks.

I think we'll take a view. I think today, if you look at the whole offshore industry, our per capita average employee cost is the highest, both offshore and onsite. So there's no pressure on us to do even if some of the competition do some increase. That could be more like a catch-up. So we will review the situation. We'll see how the environment pans out. We'll see how the revenue growth kicks in. If we have greater comfort on that, probably we'll look at that. Otherwise we can wait. I don't think there's a hurry to do it.

Okay, great. Thanks, Bala.

Thank you. The next question is from Jesse Hulsing from Pacific Crest Securities. Please go ahead.

Hi, guys. Thanks for taking my questions. Can you talk a little bit about the mechanics of the deal delays that you're seeing? Are these push-outs primarily driven by more levels of sign-off and diligence required on the client side or are you seeing a pause in spending while clients try to figure out what is occurring on a macro level? And when do you see these deals, if they're being pushed out, finally coming back in and being executed?

So maybe I will request B.G. to answer this. He's handling the Financial Services segment where the impacts are much higher.

Thank you, Shibu. The financial services industry as such across capital markets, banking and insurance is definitely under cost pressure. In the current environment we see a mix of decisions being taken. On one hand there is a re-look at the operating model with respect to further vendor consolidation initiatives within our client environment. Again to consolidate business, drive up volumes for the partners and look for discounts. So that is definitely happening in today's environment.

Number two, in terms of other actions being taken in terms of reducing costs is a re-look at the programs which can be put off. And we are seeing some of the existing programs being further thought through before a decision is taken. And they've not really clearly said no, but at the same time they've not taken a decision yes as well.

Number two, they're also looking at infra. In fact, in the last three to four months, we have seen more opportunities which are being put out in terms of outsourcing on the infrastructure management services side.

The third element which we see a little bit of slowdown is on the investments which were being planned on the regulatory and compliance. There are still investments being made, but at the same time decisions are not being taken that quickly.

These are some of the elements we're seeing. In the Europe, particularly again there is a mixed reaction. In the Nordics, we're seeing some of banks looking at offshoring initiatives which was not there in the past. We have seen at least two or three large banks putting out bids for offshoring. This is not a generic trend across all the banks, but we see for the first time this sector in Nordics opening up.

In Australia, particularly, we are seeing more efforts to drive work offshore as compared to the traditional model of doing more work onsite.

So these are some of the activities we're observing in the financial services sector.

Thanks, B.G. And just to dive a little bit deeper, if you look at financial services growth for the tier one outsourcing group over the last few quarters, it's been on a fairly steep decline. Do you feel like the pie has shrunk to an extent because of secular challenges within the financial services industry or is this just a short-term blip in your view? What -- is growth going to come back or has it gotten much tougher for a multi-year cycle?

I would say, in the near term there are challenges the sector is going through. So I would not say there will be a reversal of this trend unless the macro environment stabilizes and we see any kind of topline growth. If you take the capital markets, both trading volumes are down, M&A activity is down, so topline under pressure. The commercial wholesale banks similar challenges on the topline. So we do not see a significant shift. There is definitely cut in spending. There has been a re-look at the IT budgets even midway during the year.

So I would definitely agree to the fact that, yes, the overall pie is a bit shrunk. Question is again as the Company goes through further optimization initiatives -- there will be opportunities. It's not that there are no opportunities. But, yes, the overall size of the pie has definitely shrunk and that is something we will continue to see in the next two quarters.

And with the pie shrinking, are you seeing competitors get more aggressive with their pricing and getting more aggressive with terms to win business and stretching out deal lengths and lowering profit after tax. What's the competitive dynamic in an environment where there's really -- it sounds like there's not much from a low-hanging fruit perspective.

See on the traditional Application, Development, Maintenance, Infrastructure, these are the areas competitive pressure is definitely high. And we are also making efforts to make sure our solution which we provide is equally competitive. In other words we're trying to drive down effort to deliver the same programs. So that is definitely becoming more acute in the current environment.

At the same time, in areas where there is still some spend and business undertakes in areas where clients are really looking at some of the applications to move on cloud, (inaudible) ecosystem there is investments happening. These are areas where, because of the very nature of the work, there is a little bit of pricing premium even in today's environment.

Great, thanks.

Thank you. The next question is from Dave Conning from Baird. Please go ahead.

Yes. Hi guys. You talked a lot about margins already. And when we do look at it though, margins this quarter were the lowest of the last four quarters despite the rupee being by far the most attractive in the last four quarters. And I guess I'm just wondering as we look out longer term, two, three, four years out, do you think margins are biased lower or do you think they can stay in this 28%, 29% range.

Well, see on the margin front a lot of things play out. One is the currency but you also have other factors, other levers on the cost side, whether utilization or onsite/offshore mix or the difference in portfolio itself. So it will all play out. We'll see how it evolves. Right now we had a benefit. I think to some extent the benefits were offsetted because of the pricing movement. I think over a period of time if the currency changes, we have to see how to utilize some of the other levers to make sure the margin is not impacted. And if you look at the past few years, you have seen that we are able to maintain the margins at different currency levels. So I think we have enough flexibility in the model to manage that in case the currency appreciates.

Okay. So it wouldn't be out of the question to think that margins could be stable going forward from here?

Even if you look at the current year we are talking about stable operating margin within a band of 50 to 100 basis points.

Yes, okay. And then the other thing, there are some comments in the press about you potentially looking at bigger acquisitions. I'm just wondering, if you would make an acquisition, is it something that we could expect to be accretive pretty near term? I know the interest rates you get on the cash are so attractive, you're getting 9%, 10% type interest rates, that makes it a little harder for deals to be accretive. So I'm just wondering if that is a threshold for any acquisition.

Well, it depends on the kind of company we acquire. Our intention is to make sure any acquisition we do it becomes EPS accretive at least one year down the line and maybe cash EPS accretive at least a couple of quarters down the line. So we'll see. We are pursuing certain targets. We don't know whether it will happen or not. It depends on the target which we pursue and do actually.

Okay, great. Thank you.

Thank you. The next question is from Mayank Tandon from Needham. Please go ahead.

Thank you. I just had one quick question. This is for Shibu and Bala. Looking at your portfolio of services, I think one area that you're missing relative to your peers is the healthcare segment, just in terms of scale and capability. Maybe you could talk a little bit about what the initiatives are in terms of expanding that vertical over time. Do you build, do you buy or there's some form of combination?

Hello. This is B.G. again. The healthcare sector again we have formed a separate group headed by Eric Paternoster looking to the sector. Couple of things we're doing. One is we're also looking at specific platforms to offer to the sector in terms of entering. We are expanding current relationships in the sector. We are also actively looking at options for inorganic growth in the sector. Currently our footprint is relatively smaller compared to competition, but we are exploring on all the three dimensions in terms of expanding our footprint.

In terms of some of the regulatory changes that are going on and impacting business, can you talk about what are some of the key areas that you're focused on? And is that starting to help your growth or are you just too small right now to really benefit from some of these changes?

So on the regulatory challenges our clients are facing, particularly in financial services, there's always a challenge for our clients to fund some of these investments which are required. And the clients are definitely doing two things. One is they're trying to take costs out on the routine, run-the-bank businesses and -- so that they will be in a better position to fund.

On the other hand we, as Infosys, we are looking at specific areas within regulatory frameworks where we have built accelerators to help our clients to implement these controls as well as specific systems. We have [point] solutions for most of the current frameworks, Basel III, Solvency 2, in all of these areas. We are actually engaged, working with several clients, both in capital markets and in the banking industry, helping clients do this.

At the same time we have been able to help reduce the total cost of implementing these systems and frameworks because of the accelerators and of course because we are able to deliver our offshore model. So on both the fronts we are actively engaged.

Yes, in terms of volume of business from services rendered in this particular area it's not that material yet compared to the big volumes in the traditional application outsourcing, but definitely the traction is picking up. And we have specific practices with capability to understand, not only the sector's business, but more importantly the regulatory -- regulations themselves so that we can add value to our clients' business. So we are pretty active in this area.

That's helpful, but I was actually referring to also the healthcare side, especially the conversion from ICD 9 to ICD 10, if you have exposure on the payers side of healthcare insurance and is that going to be an incremental driver?

See our overall footprint in healthcare is small. While we're definitely investing in capability to address the regulatory as well, it is still too early days to say how much of that will capitalize in the short term.

Great, thank you.

Thank you. The next question is from George Price from BB&T Capital Markets. Please go ahead.

Hi. Thanks very much for taking my questions. Just a couple of things I wanted to follow up on. You mentioned delays and closures, postponement of ramp ups. And I wanted to ask, more specifically, what did you see with respect to these as the quarter progressed. Did they accelerate as the quarter went on, were they fairly even, have we seen pick-up of this toward the end of the quarter? And maybe you could comment on that from a geographic and vertical basis as well. Thanks.

So -- this is Shibu. As the quarter went on, we have seen a deterioration in the environment due to multiple events which happened which we didn't -- which we could not have predicted in the beginning of the quarter. So that has led to further lack of confidence, especially in the financial services segment during the quarter. And these events are all public events so it has led to further lack of confidence in the financial sector.

The large deals, if you look at some of the reports which came out, for example if you look at the TPI Index, the number of large deals have come down quarter on quarter, number of $1b plus deals have come down drastically quarter on quarter. So the number of deals in the market, especially the large ones which will give you large growth, also have come down according to the reports. So both have happened during the quarter.

Okay. Okay. And I know you commented on trends in the quarter in BFSI. And I know healthcare and life sciences are both relatively small parts of the business, but, at least on a quarter-over-quarter basis, they seem to be relatively weak versus other parts of the business. And I was just curious, if you could comment, was there any trend behind that that you could comment on?

Life sciences and healthcare both we are investing. Life sciences I think we've added numerous clients over the last few quarters. But we have large dependency on a few clients. Some of them are going through challenges due to patent lift and other related issues. But we are investing more and more into life sciences. But when I look at the future, I believe we should be fine. The same thing applies to healthcare. It is a smaller portfolio for us so any changes will drastically show up in that portfolio.

See the verticals which are doing good for us, number one is manufacturing, number two is retail which is stable and doing well for us. Financial services and health care, financial services is weak. And the energy and communications space, the ECS space is also comparatively weak for us at this point in time.

Okay, okay. And then last question. I know you've talked a little bit about the pricing decline impact, the main factor there the portfolio shift and then the renegotiation impact. If I missed it I apologize, but did you quantify the two of those or could you quantify the two of those or at least give a rough sizing of which one is having the bigger impact? Thank you.

I would tend to believe that the portfolio shift is having a bigger impact because the pricing renegotiations which we have seen are more sporadic than anything else. So we did not quantify, but I tend to believe that the portfolio shift has a bigger impact.

Great. Thank you very much.

Thank you. Ladies and gentlemen, due to time constraints we will take one last question from Shankar A.V. from MarketStar Capital. Please go ahead.

Hi. My question is how is Infosys planning to use the $3.7b cash assets as a weapon for getting back growth if and when the economy improves, say four to eight quarters from now? What I would like from you is to understand what gives you the confidence that Infosys is fully ready to go on the offensive when the opportunities arise? Like you're saying pie is shrinking, but when the pie expands, how will you ensure that you won't get shoved out by competition?

No, no, look, we don't want to play more and more on the commoditized space. It is very easy for us to use the cash to buy large services firm, but it could be commoditizing more of the business. The whole game is to look more on the product platform solutions space which will give us the non-linearity in the revenues and also help us to have a better portfolio of business. So our whole acquisition focus is to look at companies in the product platform solutions space. If we find a right fit we'll definitely do it. But again we're not going to be in a hurry and do a wrong acquisition. We are very careful in our acquisitions and we'll do it only if it makes strategic sense for us to do it.

A quick part two of that question would be how much revenue percentage, or net profit percentage, would you expect, let's say, eight quarters from now in the products and platforms business which you're alluding to?

No, no we have clearly laid out a medium to long-term strategy of getting one-third of our revenues from that.

All right.

We can't precisely tell you how much it will be four quarters down the line --

Sure.

Or three quarters down the line.

Okay, okay. Thanks.

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

I would like to thank everyone for joining us on this call and spending time with us. We look forward to talking to you again over the next few days. Thanks and have a good day.

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