Infosys Ltd (INFY) 2013 Q2 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, Merina. Good morning, everyone, and a very warm welcome to all of you to discuss Infosys' financial results for the quarter ended September 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 and other members of the senior management team.

We'll start the proceedings of the call 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.

So good morning, good afternoon, good evening, everyone, thank you very much for joining the call. I'll give a brief update on the quarter and then hand it over to Bala for giving a lot more color. It has been a decent quarter for us. Revenue grew by 2.6%, volume by 3.8%, pricing stable, marginally down by 0.2% but mostly stable. Then good client addition, 39 new clients added, 14 of them in the BFSI segment. And the growth has been all around, the top five has grown, top 10 has grown, top 25 has grown. Many of the clients are in the Fortune 500 space. We did an acquisition this quarter, the Lodestone acquisition, which will get consolidated as we go along, it has to be closed.

So if I look at any of the early indicators of Q2 it's a clear sign that the Infosys 3.0, which is in execution mode, is starting to show results. When we started the transformation we were definitely in -- we were in a different time. By the time the transformation was complete we are in a challenging environment. That does impact our ability to realize early results and early benefits from the transformation but at the same time even I look at Q2, if I look at the indicators they all show sign that the 3.0 execution is starting to yield results.

Let me go through that one by one. We have closed six large deals in Q2, six deals in the Business and IT Operations space, two of them more than $200m and both of them in the infrastructure space, infra-led deals.

In the Consulting and System Integration space we have closed eight business transformation deals in Q2 and many of them pretty reasonable size.

In the Products and Platform space we have closed $100m TCV, close to $100m TCV, in Q2. Our total TCV today stands close to $500m, close to $0.5b.

So the results in all the three dimensions, whether it's in Consulting and System Integration, Business and IT Operations or in Products and Platforms, show signs that our execution is showing results.

At the same time, also some of the new service lines like cloud, mobility have shown strong client wins as well as analyst endorsements. We have also seen analyst endorsements during the quarter. There have been a number of reports which endorse the strategic direction we have taken, endorsing the fact that the approach towards an IP-led service offering is appropriate for the time, things like that.

Having said all that, we are operating in challenging environment. The environment between last quarter beginning when we talked to all of you and today has not really changed. It is as challenging as it was in the beginning of last quarter. Of course, the details are known, the US environment is challenging, the European environment is uncertain, financial services is going through turmoil, so all of these points are known and we have not seen any material change in the environment between the beginning of last quarter and this quarter.

We continue to hold our guidance at at least 5% and the EPS at $2.97 after adjusting for the currency movement. Our visibility matrices have not changed. Usually we see 95% in the beginning of the quarter for the quarter and 65% for the year in the beginning of the year. So if I actually recompute that for this point in time it's about 85% to 87%. So we still have to catch up the remaining revenue during the next six months.

Now we are very confident about our strategic direction, the early indicators are very positive and we are very confident about our strategic direction. We clearly believe that the platform which we are building will perform extremely well when the environment gets better.

We are investing for the future. We are investing into Products and Platform. For example, we have filed a number of patents during the quarter and over the last six months.

We are investing into Consulting and System Integration. We have done the acquisition, it's a strategic acquisition.

We are investing into Europe. Europe is a strategic market for us. While Europe is undergoing turmoil we believe that because our revenue from Europe as a percentage is comparatively smaller it is a market with great opportunities for us.

We are investing in the people. We have given a compensation increase of 6% average offshore and 2% to 3% average onsite during this -- we have just announced this, offshore will become effective this quarter and onsite will become effective next quarter.

So to summarize, we have seen positive signs to indicate that our strategic direction is yielding results and execution is starting to yield results. We are operating in an equally challenging environment as it was in the beginning of last quarter. Our visibility metrics remain the same, our visibility for the year is at this point about 85% to 87% and we still have a catch up to do.

We are very confident about our future and investing for the future. We are investing by creating intellectual property, by creating capacity through acquisitions, as well as we are investing into our people. So while I believe there will be challenges in the short term, I clearly believe that the long term will be fine. With that, now let me hand over to Bala.

Good morning, everyone. It has been a decent quarter looking at the environment where we are in. The revenues grew by 2.9% sequentially(sic-see press release "year on year"). Our EPS grew by around 5% sequentially.

If we look at the gross margin, gross margin came down by something around 1.6% during the quarter from 39.5% to 38% or so, and this was clearly envisaged when we gave our guidance during the last quarter because we felt that during the year our costs could slightly go up when the growth comes down, so we had factored in that. But if you look at the yearly guidance we had retained that 5% guidance for the revenue.

But on the EPS side we had made sure that the impact of currency is felt so the guidance has been revised from $3.03 to $2.97. However, we are able to absorb the increase in wages which we are announcing from October 1 for all the employees offshore in India and some of the employees outside India. So after absorbing that wage increase we are still able to retain our EPS guidance for the year because we are able to pull out some of the cost levers we have.

So for the quarter the operating margin came down by 1.6%. It's basically because some of the costs went up, the currency has been neutral in Q2 as compared to Q1. On the net margin we had seen a slight uptick, mainly because other income went up.

Our effectual tax rate continues to be at the level of 28%, 29%. We are able to get a yield of 9.6% on our cash surplus during the quarter. Our DSO days are 65 days. And we have a hedging position of close to $1.1b. We believe that currency could remain volatile for some time to come, so we are retaining our policy of hedging for the short term, we are not changing that.

And we added some 10,420 employees during the quarter, we guided for 9,000. Our attrition is under control, is at 15%. Our CapEx guidance remains the same.

So overall I think we have done well during the quarter. It is as per the plan we envisaged at the beginning of the quarter. For the full year we are retaining the guidance on the revenue side. Of course, it requires us to deliver some 3.6%, 3.7% sequential growth in the next two quarters. We believe this is doable looking at the client conversation what we have and also looking at the clients' budget. We believe it's doable, that's why we are retaining the guidance on the revenue side.

On the EPS side we made a small correction mainly to account for currencies because in the beginning of Q2 when we gave the guidance for the full year we assumed the rupee/dollar at INR55 for the rest of the year. Now since the rupee has appreciated we calculate it at INR53, so the closing rate at the end of Q2. So except for the adjustment for the rupee/dollar variation, the EPS guidance still remains the same in spite of a wage increase.

So I think with this I'll conclude, we'll 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, my first question here is you talked about revenue guidance and how it's looking at 3.7% sequential growth the next two quarters, and I guess your impression is obviously that it's doable. Can you give us some more color on that? Are you seeing some large deal ramps, are there contracts that you have visibility on? What gives The Street more confidence that revenue is actually going to accelerate in the tough macro environment?

So at this point and then usually now and traditionally we have visibility about 85% to 75%. We will always have a catch up to do during the quarter because we never have 100% visibility at this point in time for the year, and we have not changed our visibility metrics.

This quarter there has been actually substantial large deal wins. The one which is in the public space is Harley Davidson which we closed. It's a $200m-plus deal, infrastructure-led. Another deal which we have not disclosed the client name, it's around again a $200m-plus deal infrastructure. Both of them included, actually, taking more people. There are four other deal wins including India Post and Ministry of Corporate Affairs in India, all substantial large wins.

On the transformation space there are eight wins and on the Products and Platform space we have booked a $100m TCV.

Having said all this, I also said that we are operating in a challenging environment but based on where we are today, based on the visibility metrics which we are looking at, based on some of the deals which we have closed this year, we do not feel the need to go back and revisit the guidance. It is a statement of facts as we see it today.

Okay. Then my second question on the margin front, as we look at the -- what's the impact of the acquisition and is that built into guidance? And why did costs spike in the quarter?

So the impact of the acquisition is not factored into the revenue nor the margin because it's not closed, it will get closed early next week.

We have seen the spike because of the increase in subcontracting costs, we had a need for subcontracting in certain parts of the organization and we have seen a need for subcontracting costs and that has led to the change. Bala, any --

Hello? Yes, so just on the acquisition, my last question just as a follow-up to that one, can you give us a rough estimate of what the impact would be on the margin front?

We will do that next quarter because integration will only start after we close because according to European law the integration should start only after we close. We were waiting for antitrust clearance from Germany which has now come, so next week we will probably close it and then we will consider that for the next quarter guidance.

Okay, but the margin profile is dilutive, correct?

There will be some impact but please remember that they are a $200m corporation we are a $7b corporation.

Okay, thank you.

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

Okay thanks. Bala, can you comment on your decision to submit your resignation, maybe just us some background on that and was that kind of under some sort of a long-term planning process?

So, I want to clearly state this, Bala has not resigned, he has not submitted a resignation. Bala is one of the finest [CEOs] which this country and everyone else has seen. He has done an excellent job as the CFO of Infosys. In fact he has received numerous awards during his tenure. He also started looking after business portfolios about a year back, one year back, He took over three business portfolios one year back, all three of them strategic to Infosys; Infosys BPO, Finacle and India. All three are extremely strategic to Infosys. India, I talked about two wins this quarter which I think he has a very, very significant part in structuring them. BPO is growing at 18% whereas the company was growing at 5%. Finacle is the flagship product which we have. So he stepped out or passed down his role as the CFO to Rajiv Bansal, he has not resigned. Bala, do you want to add?

Nothing much really, you can't escape me, so I'll meet you (inaudible).

I'm sorry the line got disconnected we'll move on to the next question. The next question is from David Koning from Baird. Please go ahead.

Yes, hi, guys. First of all, I wanted to pursue on the margin side. We're getting about a half a year impact this year of the appreciated rupee and about a half year impact of the wage increases, so it is fair to say that next year when we have a full impact of those things, assuming that the rupee doesn't move back, doesn't depreciate back, is it fair to say that next year when we have a full year of those impacts that margins should go down a bit further next year?

Well, if you assume the world is going to remain static next year also if we don't see the growth, what you say is right. The whole thing we are doing is to make sure that when the growth environment becomes better we are well positioned to take that growth.

Of course, this year you'll see the impact of wages only for half year, next year it will come for the full year and, again, currency is going to be too volatile, I mean it's not going to be one way, because even if you look at the recent trade data of India, the trade data is something around $18b as month and, of course, the oil price is still high, India is still fighting high inflation.

So I think currency will move both ways, it's not going to be one way and we are going to see volatility and we have to make sure we do proper hedging to minimize the impact.

Okay, great, so there's not necessarily a multiyear margin decline necessarily if revenue growth can come back?

I don't think so, I think the whole idea of doing all this is to make sure we are well prepared and I think growth this will come back, I mean it's not, we have seen this kind of a downturn even in the past, whether it's 2000 or 2008, and in time the spending do come back. Without bringing efficiency, without using technology, corporates cannot grow so spending will come back and we'll be right there when it comes.

Okay, thanks. My follow-up question is really on the other income line, it was quite a bit higher this quarter and I think on the last call you talked about $25m gain in there. Maybe you can just give us a little context about what you think that line will be in Q3.

It depends because we have seen a sharp movement in the currency during the quarter. If I remember it was something around INR55 to a dollar in the beginning of the quarter, at the end of quarter it's almost close to INR53. That means something around 4% to 5% appreciation in rupees. That's why all our hedges gave some positive impact, that's why you saw a big gain.

So if you take -- it depends on how the rupee is going to move, we have a hedging percentage now close to $1.1b, our policy is to hedge for the next two quarters at any point of time. So it depends on the currency movement. If it moves by another 5% again we will have to see what the impact is.

Okay that's great. Thank you.

Thank you. The next question is from Edward Caso from Wells Fargo. Please go ahead.

Hi, good evening. I was wondering if you could remind us what your gross hiring targets were at the beginning of the year and then how you're progressing, both on the freshers and on the lateral side? Thank you.

We are progressing as planned, our number for the year was 35,000, we recruited 10,000 people gross this year -- this quarter. The gross number was 35,000, I think we're on track. Our onsite number for the year was close to 2,000, I think we are on track on that also.

And help me with the -- you mentioned you had to hire more contractors, is that just a dislocation in certain skill, high-propensity skill sets or certain geographies?

Yes, it's the need to have certain skills in Consulting and Systems Integration because of new skills as well as the new programs starting.

Right, thank you.

Thank you. The next question is from Moshe Katri from Cowen & Company, please go ahead. Mr. Katri your line is unmuted, if you have a question please go ahead. There is no response from this line, we'll move on to the next question. The next question is from Rod Bourgeois from Bernstein. Please go ahead.

Hi guys, I just wanted to enquire about your revenue trends among banking clients. You've had pretty soft quarter-to-quarter revenue growth among your banking clients segment in each of the past two quarters, and so I've got a couple of questions on that. To what extent has pricing concessions hurt your revenue growth among banks in the past two quarters? And then should we expect revenues among banks to turn the corner as we move into the back half of the fiscal year?

This is BG. In the last two quarters, again, there have been a few cases where there were discounts in a couple of banks, including in capital markets, but apart from that it's not a cyclical trend, we're not seeing that kind of request across the board. This quarter on the services alone, that's in Q2 we have a sequential growth of 2.2%. So the revenue while it's still slow it definitely is picking up.

The sector is definitely going through one of the most challenging times so there is a lot of effort to be put on cost-cutting measures which the banks are doing and there is also an effort further, with the consolidation efforts within our clients. So we are seeing some of these initiatives resulting into growth in some areas within our client base.

At the same time, there are challenges still, there is going to be significant cuts further as we move into the fiscal year which is going to start in Jan. While the budgets are not frozen it is still early for that but early indications there will be cuts to budgets.

So we need to closely watch this but at the same time we are preparing ourselves for taking proactive proposals to our clients to help them in cost-cutting measures and simplification efforts. And also even in current environment there are pockets where investments are being made, Risk income clients is one area, the other area is client-centric applications, so these are the areas where there is some amount of spend, discretionary spend even in today's environment and we are capturing a part of that as well.

All right and, BG, just to follow-up on that, is the worst of the impact of the price concessions now behind you?

And then the second part to the follow-up is, to the extent that you're able to drive better growth going forward in the banking client segment, is that more likely to come from new client wins or from existing clients starting to spend a little at a better pace?

So the first part is, what's happening, is the worst of the pricing over? And then what's the key driver of growth going forward, new clients or existing clients?

It's not just about pricing, there are other reasons why there was revenue ramp down in the last two quarters, including the ramp downs. So to some degree, yes, that is over and behind us. Of course, nothing stops clients from coming back on new requests but for now we're not seeing that. So to answer your first part of the question the answer is yes.

On the second part of the question, yes, while we will continue to add new clients to the portfolio we are reporting in the last quarter, we still see opportunities within our existing client base where the revenue growth is happening, even in FS some of our top clients did grow last quarter. So we will focus on both, we will have to leverage existing client relationships. It's still a large revenue base we have and so we will continue to focus on both the trends in terms of revenue growth.

All right and then one other question just to broaden this, are there other verticals where we might see some meaningful effect from price concessions or was the price concessions in Financial Services more of sort of an isolated set of events in your overall view?

See, if you look at our Q4 to Q1 revenue productivity of 3.7%, now from Q1 to Q2, it has remained somewhat stable, 0.2%. We're not seeing a secular price renegotiation trend. We're not seeing a secular (inaudible) pricing renegotiation trend. We are seeing sporadic ones, which is very much in line with maybe 5% more than what we would have seen in a normal situation.

Now, as far as the revenue productivity drop also is a reflection of the portfolio shift. That's part of the consulting and system integration portfolio dropped, right, dropped. So, it's a reflection of the portfolio shift also.

So, at this point in time, generally, when I look at it, I see sporadic pricing on renegotiations. But, we expect it to be some -- to be stable, looking at where we are today.

All right. Thank you, guys.

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

Hi. I was wondering if you could just talk a little bit more about the gross margins trend in terms of providing some color on the forces of impact or breaking down pricing versus the rupee versus the wage hikes, what the impact is, say, in the upcoming quarter and most recent quarter, but really the upcoming quarter. But more importantly, is this the right gross margin structure going forward, or do you see the ability to recover some of those forces? Thank you.

Well, we'll always have the ability to recover. We always say that we have that high aspiration on the operating margin side. We want to retain our operating margins.

There'll be times when some of the factors go against you like particularly this year, since we hired more people than required, it is hurting us on the utilization side. So, we are cutting close to maybe around $500m of cost because of non-billable employees sitting in the system. That is hurting us. Probably when the growth comes back, that'll be the biggest lever for us because, when the utilization improves, we will look better.

And all this will -- are moving parts, like currency, we don't know how it's going to move. Utilization is a function of growth. So, growth is the biggest lever we all have. And if that comes back, our cost will get adjusted and we will get back the margin.

So, secularly, I don't see any changing of our margin profile. These are all short-term things we go through when the environment goes against you And that is what we see as the impact.

But if we look out the next couple quarters, it seems like you're assuming fairly muted gross margins. Are you assuming that the gross margins stay at these levels?

Well, in the next two quarters, it will have an impact because we are giving a wage increase. And that is why we said an operating margin on a full-year basis could decline by 200 basis points. The wage increase will be there. We're also using some other levers to get some efficiency on the cost side.

So, net-net, I think it will be within a range from what we have see in the second quarter and, for the full year, probably it will be a decline. If the growth comes better, probably some of the decline we can bring it back.

Okay. That's it for me. Thank you.

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

Thanks. I'm wondering if I could just go back to a question that was asked earlier but maybe ask it more broadly. My recollection was that you had certain sequential headwinds to the top line in the fourth quarter and in the first quarter that ranged from the earlier discussion about pricing to large customer consolidation, if you will, and runoff, as well as a cancelation in Europe in the first quarter.

Number one, am I remembering this right? And if I am, if you aggregate all those things, how should we think about the sequential headwinds diminishing as we go into the second half of the year, or do we really don't get that benefit at all? In fact, we're in a stable environment sequentially?

So, actually, when the Q4 and the Q1 actually lower the base, right? We are now trying to climb out of that base. I'm hoping that that's the question you asked because, when the base comes down, when we do, our growth is on the base. Is that the question you're asking?

Right. So, I guess what I'm asking is, did the base -- the headwinds that were pressuring the base sequentially, whether it be pricing, customer, lots of customer momentum with certain large clients or the large PO that was cancelled in the first quarter, when you aggregate all that, is the pressure from those events behind us so that we're in more of a steady state mode to grow sequentially entering the third quarter?

So, I think I'm not expecting a similar event to happen unless something really goes wrong with the environment. So, in that sense, we are in a steady state to start a new trajectory. That is correct.

Okay. And can you give us a sense for how much of a headwind those items were in the fourth quarter or I guess in the first and the second quarter?

Hold on one second.

Actually, Shibu, what I was asking was the --

No, no, I'll give it to you. So, in Q4, if you look at the Q4, we grew by 1.9%, and in Q1, we delivered 1.1%, in dollar terms because, in Q3 of last year, we were $1806m. And then it dropped to $1771m to $1752m. So, now, we are back at $1797m.

Okay. But, when you aggregate all those factors, was it a 1% sequential headwind to growth? Was it 2%? Is that a number that you can -- that you have?

It's actually more than that because the degrowth in Q4 was 1.9%. And in Q1, it was 1.1%. So, that's a total of 3%. But, it is not a percentage computation because, when the base goes down, you are growing from that base, right?

Right. Okay.

If the degrowth had not happened, that's a completely different number you will end up with.

I see. And let me ask you just one other question just philosophically in terms of growth and profitability. Historically, you've been kind of very consistent in terms of where you've kind of targeted the margins vis-a-vis growth. Given all the changes that are going on in the company, should we think differently about that going forward?

So, from an aspiration perspective, nothing has changed. I want to be very, very clear. From an aspiration perspective, nothing has changed. We believe that we should create high-quality growth. We should grow above industry average. We should have one of the leading industry margins. There's no doubt about the aspiration.

See, one needs to remember aspirations and mission leads to strategies. And those strategies leads to execution. Execution leads to results.

We also believe that the strategic directions we have taken, the Infosys 3.0, creating a balanced portfolio, operating on both cost and revenue side of the client, having a strong products and platform business, all of those is meant to meet our aspiration to have high-quality growth, right, as I defined.

The results, I -- when we went on this transformation, we were in a different time. We are in a different time today. The environment is very challenging. That means the ability to realize results from those transformations are definitely lower today and it will take some time.

So, in the short term, we will see a choppy environment. We will see a bridge. But we clearly believe that our 3.0 strategy and now that we are in execution in the long term should deliver our aspiration. There are no guarantees, right? But, they -- we believe that it should deliver our aspiration of high-quality growth.

All right. Very good. Thank you very much.

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

Yes, thanks for taking my questions, sir. So, has our visibility improved for the back-ended growth today compared to where it was at the beginning of the year because we have mentioned that the stance from April that our growth is going to be backend loaded?

No, I clearly stated that the environment has not changed from last quarter to this quarter. We have had a decent quarter, there's no doubt. But from a volatility perspective, which is ongoing in the developed market, the environment does not -- there's no material change in the environment. There's no material change one way or other in the environment between the beginning of last quarter and this quarter.

Okay. And (inaudible) your deals over the last four, five months that involve taking clients employ on our payroll, do our current employee costs include full impact of were the same, or would there be some spillover in the next quarter?

The numbers are quite small. And I think [absorb] we have taken over is already included. There will be a few more. But, the numbers are quite small.

Okay. And for our Harley deal that we have signed the last quarter, you've spoke in the morning conference call that we are taking -- talking to three more clients for utilizing the same asset. So, at what stage of the negotiation are those -- for those deals? And if you could give some more color on the size and the vertical as well?

Harley deal, where are we on asset utilization across clients? Ashok will respond to that.

Yes, hi. So, the Harley deal, we are building a DC in Milwaukee as part of the deal. And the idea is that we will be using that development center for some of our other clients in Wisconsin as well as in the Greater Chicago area. So, from -- and the investment and the CapEx that we will be putting into that will actually therefore get distributed.

But for the deal itself, there are certain specific investments that we have to make, ranging from people rebadged to certain asset purchases and software, etc., and creating a development center.

Okay. Sir, also, my question pertains that has all investment is captured in the current margin profile, or is it going to be -- it will be spread over the next few quarters?

It will be spread over the next few quarters. It is a transition that is going on the larger infrastructure part of the deal. But, some of the application development work, etc., has already kicked off, which requires very minimal investment. So, there is not necessarily a complete offset. But, some amount of it, but we do expect the margins from this particular deal to continue to be below company average for awhile until we actually build that up to stream, which should happen in the fourth quarter next year.

And so, we spoke in the morning conference call about three more clients who we are talking to, to utilize this asset. So, at what stage of negotiation and in terms of size and vertical, if you could give some more color?

Yes, this is Basab Pradhan. So, we have a pretty big pipeline, not just three or four deals, of large outsourcing opportunities. Many of them, I'd say maybe a third of them include infrastructure outsourcing. And the expectations of our clients and the way we are dealing with these don't always include asset utilization like the way Ashok described the Harley deal was.

For sure, no, I was talking about the Harley assets that we are building.

Sorry, can you state your question again, please?

So, what I was saying that, for the Harley assets that we are building, so we were talking to three more clients in utilizing the same assets or (technical difficulty).

Yes, so, these are not -- the large deals that Basab was talking about are not going to leverage or capitalize the assets we're building for Harley. But we have three other -- not three, but some clients in the Greater Chicago area that will be leveraging this capacity and investment that we're making.

Sure. Thanks. That's all from my side.

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

Thank you. Shibulal, you did a very good keynote at Oracle World, very impressive. I had a few questions from a strategic perspective and what our research is indicating. Every indication of our research is showing is the next year will be worse than this year in terms of IT spend.

And it seems to us the strategy that Infosys is taking on needs some alteration. I think the focus and investment should be more on demand generation and competitive wins. Are there any discussions within your company -- say, you guys are portfolios. What I am trying to understand is, are there any discussions happening within your company maybe to replace or change the Board? That's all from me. Thanks.

Change what?

Change the Board.

The Board, the Board of Directors at Infosys.

Look, Trip, we have a strategy, and we are going as for the strategy. We believe that the industry has got bigger challenges in terms of commoditization and scalability.

What you say is right. Now, global economic indicators show some weakness. But it doesn't mean the IT spending is going to come down because, if you talk to any large client today, they're all talking about bringing in efficiency, bringing in innovation and there are also some of the regulatory things which are driving the IT investment. You could see a short-term impact this year because of what is happening in the global economic environment.

I think we're also seeing some stability in the environment. And we believe that the growth will come back. And we are positioning ourselves for that. We don't change the Board just because you have a few bad quarters.

Thank you.

Thank you. (Operator Instructions). The next question is from Shashi Bhushan from Prabhudas Liladhar. Please go ahead.

Yes, thanks for taking my question again. Sir, you have spoken about margin levers in place to return our guidance of 200 basis point decline for the full year.

Now, if we look at H1 FY '13, the first half, we are at [27%] operating margin, which is already 200 basis points lower than we were in FY '12. Now, we have a headwind from (inaudible) and project transition cost. So, can you please elaborate on some of the tailwinds that could offset this?

Well, we have to improve the utilization. We have to focus more on revenue productivity. We have to bring some more efficiency on the operation side. We always have been talking about some 10 levers on the cost side, which we had to use. It may be utilization. It may be on-site/offshore mix. It may be the revenue productivity.

So, we are trying to use all of those levers to make sure the impact has minimized in the second half. We can't get into granular details of how much basis points we are going to get from each of it. But correctly we are working together to make sure we get those efficiency to fund the incremental cost.

Sure. Thanks.

Thank you. The next question is from [Vikram San] from Swastik Investment. Please go ahead.

Yes, hello, sir. I would just like to know if you are looking for some more acquisitions and which space you are more interested.

And the second question pertains to your client view and if you can throw some light on the project [durations] your clients have opted this quarter.

The first question is about acquisition. We have done one which is very strategic to us. It's in the area of consulting and in Europe. No, there is any other investment. Can you please repeat your second question?

Yes, and if you can just throw some light on the project durations your clients have opted this quarter.

Project duration there's no change in the project duration time. We do not like the change from the past. They're similar to what we have in the past.

And I'd just like to know if you are looking for some more acquisitions, in which space you are more interested.

We'll continue to focus on our strategic areas. It is with Products and Platform, Infosys public service, country penetration to any other countries across the globe. Then in life sciences, so there are identified areas which are in line with our strategic direction.

Thank you very much. That's all from my side.

Thank you. The next question is from Mitali Ghosh from Bank of America. Please go ahead.

Yes, hi. Thanks. A couple of things, Shibu, we discussed in the morning today that your top five, 10, and 25 clients have grown much faster than the company at between 6% and 8%. And this is basically what this reflects is that I guess some of your other existing clients have probably grown much slower or perhaps declined. So, what I wanted to understand is that your current top five, 10, and 25, if these are sort of more recent deal wins, what is the kind of stage of ramp up at which we are, and therefore, is there much more runway for them?

And secondly, the decline that we have seen in some of the existing clients, perhaps over the last couple of quarters as well, are we somewhere nearing the bottom for those?

So, Mitali, I want to make a correction to the morning statement because, actually, after the statement, we went back and looked at these numbers once more. There was a misquote from my part in the morning. So, I want to give you the new numbers to correct the morning ones.

Sure.

Our top five grew by 4.8%.

Okay.

Top 10 grew by 3.1%. Top 25 grew by 2.6%, top 50 by 3.5%. All the others other than top 50, 1%. And on -- so, that adds it up to 2.6%.

Okay.

It's a balanced growth. That is a balanced growth. Our top clients came down by about a percent. That's why the $300m clients went down.

So, it is balanced growth across. And I had a slightly different set of numbers in the morning. But from a trend line what I said is right in the morning.

Yes, so, just from that, like you said, the trend line perspective, I guess top five, for instance, has grown slightly faster. And there has been churn I guess in the top five. So, are we -- is there -- are these clients, which you've added recently, which you see a lot more room for growth? And the clients which have declined, are we sort of at the bottom there? I guess some of these are financial services clients in any case.

So, these clients move up and down. But one interesting number I have is the number of $1m clients. Those will all be clients whom we have added recently. And that has gone up to 413.

If I am right, if I am -- I don't have in front of me -- but if I'm right, I think there are 10 new clients in the $1m range, which means that our new clients are definitely growing.

Okay. And I mean, just sorry to pursue, but the clients which have declined in the last few quarters, and maybe (inaudible) wants to comment on this, do you think some of these are -- do you think some of these have reached a bottom now?

Again, there's no -- this is BG -- no secular trend. The quarter-on-quarter movement for some clients could be up or down. But in terms of serious ramp-downs, which we saw in Q4 and Q1, that has definitely got arrested. We have not seen any serious ramp-downs at least in the last quarter.

Thanks. And just two quick questions for Bala, as you said, you can't escape us either. One is on the product side that has obviously seen some decline this quarter. And that's definitely a lumpy business. But if you could give some comment on how you see the outlook over the next few quarters?

Well, I can escape you, Hara.

See, overall, we're seeing a good trend in some of the markets. But, some of the markets, like Europe, needs to improve over the next few quarters. The deal cycles are longer. And also, the different revenue model in terms of pay-per-use kind of a thing is becoming more prevalent in some segments. So, overall, we need to watch few more quarters. Otherwise, right now, we see we are pretty much on target for this, yes.

Okay. So, next couple of quarters, you would at least expect it to be somewhat stable?

We need to watch and comment about it after a few quarters.

Right. And -- sure. And one last question, in terms of BPO, which saw a bit of decline, what is that looking like?

Yes, hi. It's Swami here. The decline is very, very marginal but it's because of the fact that the clients that we acquired in the last quarter are now in a transition stage. But, having said that, the growth is fairly robust. This was covered the first half. And as compared to the fiscal of last six months of last year, the growth is about 17.5%. So, good client acquisitions in this quarter. We've had five new clients joining. And we believe that they will all start to get transition in the third and the fourth quarter.

Sure. Thank you.

Thank you. As there are no further questions from the participants, I now hand the conference back to Mr. Sandeep Mahindroo for closing comments.

Thanks, everyone, for joining us in this call. We look forward to talking to you again during the course of the quarter or meeting you at one of the conferences. Thanks. And have a good day.

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