Infosys Ltd (INFY) 2014 Q3 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 after the presentations concludes. (Operator Instructions)

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

Thanks, Inba. Hello everyone and wish you all a very happy new year. I am Sandeep from the Investor Relations team in Mysore.

I would like to welcome you all to our Q3 FY14 earnings call. Joining us today on this call is CEO and MD Mr. S.D. Shibulal; Presidents, Mr. B.G. Srinivas and Mr. Pravin Rao; CFO, Mr. Rajiv Bansal along with other members of the senior management team.

We will start the call with some remarks on the performance of the Company for the recently concluded quarter before taking up -- before opening up the call for questions. Before I hand it over 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 risk 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 hand it over to Mr. S.D. Shibulal.

Thank you, Sandeep. Good morning, everyone. Let me take this opportunity to wish all of you a happy new year. We had a decent quarter, Q3, as we expected. Our revenue grew by 1.7% in reported terms and 1.2% in constant currency basis. Our on-site volume declined by 3.4% while the offshore volume increased by 2.6%. However, overall volume increased by 0.7%, since our offshore [rev percentage] went up by 1.3%.

Our operating margins expanded by 1.5% sequentially, excluding the impact of the provision of visa-related matters that was made in Q2. We added 54 new clients. The number of million-dollar clients went up by 26. The number of million-dollar clients today stands at 495. Our growth was predominantly in non-U. S. geographies and RCL verticals.

External business environment continued to improve gradually in most business segments. Clients are becoming more confident about spending and are willing to engage more on new initiatives. At the same time, they remain careful when it comes to making large spending decisions.

Budget activity for our clients is moving on a timely basis. Overall, across the vertical, we see mixed trends regarding 2014 budgets. We expect the budgets to be flat across all verticals together. B.G. and Pravin will elaborate on verticals and budgets subsequently.

Pricing continues to be stable. Our revenue productivity went up by 0.7% quarter on quarter this quarter. However, we continue to see pricing pressure on large deals and commoditized services.

Infosys Edge continued its momentum with 14 wins this quarter, eight in platforms and six in products. We continue to invest and see traction in the strategic areas: social, mobile, analytics, cloud.

Across verticals these technologies are opening up newer opportunities. While each of this is individually powerful, the true value of the client is when these technologies come together to drive their business agenda.

A very relevant example is TradeEdge, an insights-driven sales platform that we launched in Q3, which clients are using to sense and fulfill consumer demand in emerging markets. In this platform, we use analytics capabilities to gain visibility across the distribution channels, we use [modern] capabilities to empower the distributors' sales force to [activate] order intake. And lastly, this platform is delivered on the cloud to help the brands drive costs lower and accelerate rapid penetration of new markets.

During the quarter, we are realigning our business portfolio to further enhance our focus on deepening client relationships, increasing market share, creating service differentiation through innovation and agility. We've appointed B.G. Srinivas and Pravin Rao as Presidents. B.G. will focus on global markets; Pravin will focus on global delivery and service innovation.

We are going through a transformation. We had earlier expanded the Executive Council so that the heads of the units and business functions can participate in Executive Council deliberations. As we are going through the transformation, we have been exploring multiple ideas. Once the new President sectors were implemented, it is appropriate to create governance sectors under their respective areas and the Executive Council was disbanded effective April 1, 2014. Based on our performance from Q1 to Q3 and what we expect for Q4, we've increased the revenue guidance to 11.5% to 12% in US dollar terms.

Now, we will ask B.G. to talk about his business segments. B.G.?

Thank you, Shibu; and again, good morning, everyone. I will cover the following business segments, namely financial services, manufacturing, energy, and telco.

Firstly, on financial services, we continued to see clients focusing on cost takeout out of operations and there is a clear direction of those savings into development of new products and services. In terms of focus areas, digital transformation, risk and compliance-related spending is the order of the day. There is a clear focus on modernization of infrastructure and legacy applications are influencing some of the client spending as well. Pipeline is relatively healthy and comprises a good mix of large deals as well as platform deals. We're seeing a significant interest in our platform-based offerings in the last three quarters within the financial services sector. At the sector level, there is definitely pickup of deal momentum and we continue to see this as we enter the next quarter.

In insurance, again, we have seen a mixed bag in terms of client IT budget outlays, while some of our clients have indicated their budgets are going to go up and some of the spending is going to go from nondiscretionary to discretionary as well. In other cases, there is -- the budgets are relatively flat; and in few cases, the clients are looking at a -- bit of a cut.

Switching to the next sector, manufacturing, the overall business momentum remains stable. We are seeing improvements in automotive, commercial aerospace and industrial manufacturing. There is definitely weakness in the high-tech sector, which is putting a lot of pressure on discretionary spend in this vertical.

Information management, analytics, and digital consumers are some of the key themes that are creating transformation in our clients' business. Also, we do expect in the manufacturing vertical the budgets to remain flat overall within high-tech, seeing a decline in budgets due to the impact of reduced PC sales; while in automotive, commercial aerospace and industrial manufacturing, we are clearly seeing the budgets rise.

The telecom industry is continuing to have challenges. The wireline telco sector is severely under pressure for topline growth. The spend levels are muted as clients continue to see revenue challenges and that is definitely keeping a check on both discretionary and nondiscretionary spend. Relatively, the wireless carriers, particularly in Europe, there is definitely signs for investments and deal activity. And the pipeline is only helping in certain pockets in this sector.

Energy sector is definitely doing relatively well. The IT spends will be marginally up for the coming fiscal. We are also seeing activities in oilfield services. This sector is heavily dependent on core ERP applications, namely SAP and there are further opportunities in this area of consolidation and upgrades.

I would now like to pause and hand over to Pravin Rao to cover his business portfolio. Over to you, Pravin.

Thanks, B.G. Good evening. In retail, CPG and logistics, we're seeing increasing spend in the areas of cloud, infrastructure, business intelligence, analytics and ERP-led transformation. We see an uptick in discretionary spend, though they remain in a stop-and-start mode. The deal pipeline has improved marginally over the last three, four quarters.

In the life sciences segment, we see headwinds in terms of patents [list]. This, however, translates into opportunity in terms of large outsourcing deals. In resources and utilities verticals, we see a lot of focus on cost optimization and increasing spend in the areas of cloud, mobility and analytics. In addition, in global resources, we see companies focusing on simplifying their operations and improving supply chain efficiencies. Budgets for the next year are down in the segment due to revenue challenges facing the clients.

In the growth markets unit, comprising of Australia, China, Japan, and Southeast Asia and Middle East, we see different dynamics at play in individual markets. There is focus on cost reduction and consolidation of spend in Australia. In China, clients are investing in ERP and analytics, as they look at centralizing their operations. In Japan, demand is being driven by the need to simplify IT and drive revenue-generating spends. Overall, in the region, deal pipeline is decent, though the ticket size is small.

In the services sector, the new-age information services companies, leveraging digital, are increasing spend, while the traditional print media is cutting spend. In travel and hospitality segment, we are seeing an uptick in spend, driven by economic stabilization and mild recovery in the US.

We have won over 20 engagements in cloud and Big Data. Cloud is driving the IT organization towards more outcome-based, SLA-oriented constructs. Clients are also excited about the possibilities of contactability and open standards that would help eliminate vendor lock-in and maximize performance.

In mobility, we have started over 25 engagements in quarter three in the areas of sales force automation, device management and enterprise productivity. Clients are also looking to establish mobile app factories to cater to their mobility requirements. We see good levels of interest for managed pay-per-use model here as well.

I will now pass on to Rajiv to elaborate on the financial performance.

Thank you, Pravin; and a very good morning to all of you. I'll take you through the financial highlights. Our third quarter revenues were $2,100 million as against $2,066 million in the previous quarter. This is a growth of 1.7% in reported currency and 1.2% in constant currency terms. Our gross margin for the quarter improved by 80 basis points to 36.1%. Operating margin for the quarter improved by 150 basis points to 25%, mainly on account of initiatives to increase efficiency in our operations. Net margin for the quarter expanded to 22.1%, which was at 20.2% last quarter excluding the Visa-related matter.

EPS for the quarter is at $0.81 as against [$0.76] last quarter excluding the Visa-related matter, which is a growth of 11%. Our revenue per person improved by 2.2% sequentially, both on-site and offshore, while our [on-site/offshore] mix has reduced by 1.3% to 29.9%. Utilization is marginally down to 76.9% for the quarter.

Our other income was higher by $36 million in this quarter, mainly on account of ForEx gain of $19 million in Q3, vis-a-vis a ForEx loss in the previous quarter of $14 million. As you will recollect, last quarter, we witnessed extreme volatility in the currency markets which resulted in a loss of $14 million. During the quarter, on the average, rupee was at INR62.03 as against INR62.77, an appreciation of 1.2%. We have outstanding hedges of $1.049 billion as of December end.

Effective tax rate for the quarter is at 27.9%. Our cash flows from operations is at healthy 95% of profits at [$439 million]. After paying dividends of $219 million during the quarter and CapEx of $122 million, our cash and cash equivalents, including available-for-sale assets and certificate of deposits are at INR 27,440 crores.

We have increased FY14 revenue guidance in dollar terms to 11.5% to 12%. This is based on what we achieved in the first three quarters and our expectations for the fourth quarter.

Lastly, I would like to reiterate that while we are seeing early results of our initiatives to increase efficiency, we continue to evaluate our business needs and make investments wherever necessary.

Before I open the floor for questions, I would like to mention that we have Mr. Murthy, our Executive Chairman with us to take questions from you. With that, we will open the floor for questions.

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Moshe Katri, Cowen & Company.

Hey, thanks and congratulations on the quarter. This is a question for Rajiv. Margins were up sequentially. Can we get the pluses and minuses in terms of what drove the margin expansion during the quarter? And then as a follow-up, maybe you could talk a bit about attrition and what are the actions that the management is planning to bring down attrition in the near term. Thank you.

Moshe, during the quarter we had an RPP increase of 2.2%, both on-site and offshore, and also in on-site mix improvement by 1.3% from 31.2% to 29.9%, which both contributed to a margin uplift of 1.8%. At the same time the rupee appreciated by 1.2% which had a negative impact of 0.3% on the margin giving us a net impact of 1.5%.

There were also benefits from efficiency in our operations that we were talking about, the initiatives that we have taken over the last two quarters, but a lot of that money has been flowed back into the business in terms of investment in tools for productivity and quality for enhancing the delivery effectiveness. So, though, the margins have expanded [almost 3] basis points during the quarter, we continue to make investments in our business to ensure that we secure a good growth and a good future for ourselves.

And on the attrition side?

Pravin, do you want to answer that?

Good morning. This is [Stan] Moorthy. On the question of attrition, while in terms of the LTM numbers, the numbers are high. On an absolute basis, the numbers are dropping from Q1 to Q2 to this last quarter. However, given the attrition number, we are looking at several things to curb attrition.

If you look at attrition as a function of utilization, compensation, developmental opportunities, and engagement, we have taken several steps in the direction. For example, on the compensation part, we changed the variability part for our people so that there is much more of a component on the fixed salary that comes in. On the aspect of development, we have created revenues for people to be re-skilled so that they can get into newer opportunities as we find them in the organization and other opportunity comes through.

On the engagement part, again, we have taken several steps to engage people on being in the organization and working together to make a difference. So there are several steps that are being taken to curb attrition and as the utilization goes up, we expect that the attrition will come down as well.

Moshe, this is Narayana Murthy. How are you? It's nice to reconnect with you. I mean, you know our business pretty well. The reality is simply this that the margins in our business depend on, one, of course, growth, because the fixed costs get absorbed better with growth. Second, it depends on the ratio of the effort on-site and effort offshore. And third, it also depends on the role ratio, that is how many people of a certain level we have to the people at next level to the people at next level, et cetera. So I think these -- as we continue to work towards better ratios in these three parameters that I talked about, we can indeed get better margins, but if we don't do a good job, then the margins will obviously get reduced.

Right. Thank you very much.

Edward Caso, Wells Fargo Securities.

Great. Thank you. Good evening. Rajiv, I think on the earlier call you might have mentioned that the operating margin guidance now is sort of in the 25% to 26% range, subject to potential investment. That seems to be a little higher than in the past. Is that the correct interpretation here? And is it because your cost-saving efforts are running ahead of schedule?

Our aspiration continues to have industry-leading growth and superior margins. So our aspiration hasn't changed. What you have seen in the last couple of quarters is that we needed to make investments in our business to get the growth, and as we speak, we continue to make those investments. So our margins will improve, because a lot of initiatives that we took in the last couple of quarters in terms of cost optimization, qualitative productivity, delivery efficiency, sales effectiveness. The cost optimization has started yielding early results and that is the reason you've started seeing the margin being expanded. However, we have to make investments and as and when we get an opportunity to make investments which will help us secure our future, we would do that.

What I am seeing is that in the medium to long term, I see the margins stabilizing around 25% to 26% in the medium to long term and that is a position which I've been seeing for the last couple of quarters.

Right. Thank you. And I'd be curious if -- a second question, last question -- on the sales side, can you talk about has the sales force in the last year or two gotten bigger, gotten smaller, what's the turnover been, what's the profile? I know you've pulled a lot of people back into India and so forth. Can you just give us an update on size, how you're compensating them, where they're located, and what initial impact you're getting? Thank you.

Our sales force is fully on site and they are compensated as per the market compensation. We are investing into sales. We've added sales force last year. Right now, we're looking at adding another set of people into the sales force. We want to have a pyramid structure for our sales force and that means that we will add a lot more people at the lower levels, at the lower grade than at the upper end of the pyramid structure.

This quarter, you've seen some fluctuation, but that is a quarter-to-quarter fluctuation and there's no secular trend. We will continue to invest in the sales force and we will continue to invest at the lower end of the pyramid so that our pyramid structure becomes more healthier and the number of people in the market will continue to increase.

Well, first of all, let me -- let's make it very clear that no salesperson who was efficient has been allowed to leave. Those that were not performing, some of them have left, some others on a performance-improvement program, that's number one. Number two, the people that whatever cost optimization we've done so far is primarily in the area of marketing, where there were lots of senior people sitting outside India doing jobs that could have been done at lower-cost locations and therefore that's what we've done. Third, in fact, there is an initiative to enhance the number of people that are in the market doing selling. And as Shibu pointed out, our desire is to add a considerable number of people at the lower end of the pyramid. Today, it's a diamond structure. We have too many senior people and very few junior people beating the pavement into the market and we are bringing a change in that so that these senior people are indeed helped by the junior people who will beat the pavement. So that's the story about the salespeople.

Thank you. Congrats and it's great to hear your voice again.

Thank you.

Rod Bourgeois, Bernstein.

Okay, great. So I have a strategic question for Chairman, Murthy; and it's also great to have you back on these conference calls. So it appears Infosys has been moving towards reducing its onshore cost structure to some extent and also moving to derive more growth from application outsourcing, its traditional core business. My question is whether these types of moves run the risk in the long run of Infosys losing some ground competitively in terms of its onshore relationships with clients or potentially hurting your ability to be a leader on consulting deals. Are those long-run risks of the strategic moves that are being made today?

No, not really. I'll tell you what. Today, we have an on-site effort to offshore effort of 29.9% to 70.1%. We believe that we need to have people on site who are in close touch with customers, people who bring value to the customer in terms of customer-heavy interactions, like requirement definition, presentation to the customer, and then discussions on architecture, et cetera, et cetera. I think just having people who do programming sitting on-site, I think that's not a very smart thing.

So, therefore, our effort will be to have as many people as are required at customers' site and people who will add value to the customer, people who will add value to the organization while ensuring that all activities that can be done from lower-cost locations are indeed done at lower-cost locations. That's what the global delivery model is all about, that's what we have been doing for a long time. That has changed slightly, but we will ensure that the organization is robust, the organizational future is robust, that we don't lose contact with our customers, but at the same time we will bring better and better value, both to the customer and to the organization.

So does that imply that your assessment is Infosys and your main competitors, the other top Indian firms, does it imply that you feel they have more headcount onshore today than what is necessary to sufficiently serve the clients?

I think you are in a better position to make that comment than me. All that I can say is what we at Infosys want to do, but I can't comment on what our competitors are doing.

But from an Infosys standpoint, you feel like you can serve clients onshore with fewer people, such as doing programming work onshore?

No, I said activities like programming, detailed technical designs, long-term warranty, these are activities that can be done very effectively from lower-cost locations. On the other hand, those activities that have customer-heavy interactions, they have to be necessarily done on-site. That's what global delivery model is all about and that's what we intend doing. B.G. wants to add something.

I also want to bring this in respect to the various services we offer and that's been the distinction to be made. For example, our consulting-led business will continue to be focused and we are driving efficiencies even in those service lines. In the traditional business IT operations, the offshore ratios can be significantly increased and hence we need to make a distinction when we talk about service line specific ratios, both in terms of offshore/on-site ratios and role ratios, and we will at an organization level continue to support our clients on transformation initiatives, support our clients in helping them optimize business processes and the third element of our business, which is the product platform, IT-led business will continue to stay focused. At a strategic level, there is no change in direction as far as Infosys 3.0 is concerned. But we are making distinction in each of the service lines to drive and optimize efficiencies and making sure at the same time we stay relevant to our clients' business, both with respect to the local capability and capacity we need and making sure that the rest of it can be delivered in different centers of excellence around the world. Thank you.

All right, guys. Thank you so much.

Joseph Foresi, Janney Montgomery Scott.

Hi. My first question here is also a strategy question. I believe when Infosys 3.0 was rolled out, part of the point of the change in business strategy was to move away from some of the (technical difficulty) work. Now, we see a new strategy out there where it seems like Infosys is getting back to its fundamentals. Could you help us reconcile what Infy 3.0 was, how your new strategy is different and what was working and what wasn't that you are changing?

I think, first and foremost, Infosys 3.0 was all about increasing client relevance. And under that umbrella, we had broadly categorized three offerings, consulting, system integration, business and IT operations, products and platforms. There was never ever any intention of not growing any one of these offerings. We were very clear that we will have to grow all the three offerings to achieve our goal of industry-leading growth. Some of them, for example, the products and platform would be on a lower base, which means that it will grow faster than our average. That is the strategy behind Infosys 3.0.

Now if you look at the performance, if you look at it -- our consulting system integration business which is a transformational business, which is high revenue productivity, has gone to 33.4% as of this quarter. If you look at the business and IT operations business, we have been very focused on winning large outsourcing deals.

If you remember, business and IT operations give us about 62% to 63% of our revenue. For us to achieve industry-leading growth, there is absolutely no way we can do it without winning large outsourcing deals in business and IT operations. So by creating that offering what we were trying to do was to increase our ability to compete in the market, create better solutions which are more relevant to our clients, create multi-tower solutions which will bring in much more value to our clients and to be price competitive in the market.

If you look at our performance in that space, performance has improved continuously. This quarter we have closed about $500 million of TCB in that space. Last two quarters we have closed about $1.5 billion TCB in that space. Please remember, large outsourcing deals are multi-year deals. They take about five to seven years to realize the revenue. First year the revenue realization is usually about 8% of the total deal closure of the year and next year onwards about 20%. That is the pattern which we have seen. So as I said, we are very focused on winning large outsourcing deals in the business and IT operations space.

Lastly, on the products and platform space, it is about creating intellectual property and either providing it to the clients as a cloud-based offering or on a license-based offering. This quarter, we have 14 new wins in the products and platform space; eight for platforms and six for product licenses. For example, this quarter we launched TradeEdge, which I talked about. So we will continue to focus on all the three offerings. We are very, very clear that for us to create industry-leading growth, we have to win in all of them. One is about transformational capability and helping our clients grow and transform their business. The second one is about operational capability. It is about reducing total cost of ownership, making sure that we win large outsourcing deals annuity based; and the third one is about products and platforms, which is all about intellectual property-based offerings and which will convert our clients' fixed cost to variable cost.

Well, I think as Shibu said, there is nothing wrong with the strategy. Any company that aspires to be the industrial -- industry's leading player, has to have all the three components, but somehow, we didn't do a good job in enhancing the contribution from large fixed and recall projects and that's where we have Mr. Prasad who will be leading [SES] to ensure that he adds considerable value to all our other segment heads. So the reality is that we must have much higher contribution from the strategic global sourcing initiatives; and with Prasad taking that over and working with various segment heads, Sanjay, Mohit, Sandeep, Rajesh, Manish, and Ravi, and others, we believe that we will be in a position to focus much more on contribution from [bits] too.

So I guess my question is, so by -- it sounds like you're getting back to the basics at Infosys, is that correct and you're still maintaining your 3.0 strategy?

I think so. See, the entire Indian software industry was founded on the principle of the global delivery model and global delivery model was founded on the principle of globalization, which is all about sourcing capital from where it is cheapest, sourcing talent where it is best available, producing where it is most cost-effective, and selling where the markets are without being constrained by national boundaries; and that's what globalization is about, that's what global delivery model is about, and that's how you make this a better world. And therefore, yes, I agree with you; I think getting back to basics is extremely important, without losing focus on modern trends, without losing focus on new opportunities. So that's what this Company is doing. (multiple speakers).

Just the last question from me though, is sticking with that train of thought. So I guess the basics brings back into question the amount of commoditization that's taking place, because the whole idea behind Infosys 3.0 is to get away from the commoditized business. By getting back to basics, don't you run the risk of running into more and more commoditization or how do you mitigate that factor when you return to the basics?

Well, I think that's a good question. I mean when Shibu was speaking, he spoke about our forays into transformational projects which contributed somewhere around 33.2% or so, PPS, cloud products, platforms, and solutions, is still in its infancy; along with Finacle, it adds approximately about 6%. Therefore, the reality is that about 70% of our revenue has to come from large business IT services kind of projects.

Now, here, you're right, the reality is that the success in this is conditioned by the adage, the market determines the price, the company determines the cost. So therefore, we have started several initiatives on improving the software delivery effectiveness of this Company. There's still work in progress; and as we move forward, as we see completion of some of these and as we see visible impact from some of these, I'm sure you'll realize that some of these initiatives are indeed in play. At this point in time, we cannot comment on some of those, because they are still work in progress.

Thank you.

Rahul Bhangare, William Blair.

Hi, thanks for taking my questions. I was wondering if you could just discuss a bit about what drove some of the sequential weakness in North America, was it just seasonal or something else that you could point to? And then, conversely, what's driving some of the strength in Europe?

No, there is nothing secular about it, this is just a quarter-to-quarter variation. This quarter, Europe grew much faster than US. But I don't see anything secular.

Okay. And then you've mentioned in the past that the large deals you've been signing have been price sensitive. Can you give us a better sense for the margin profile? Are these engagements you've won over the last 12 months or so maybe relative to your corporate margins?

No, I think, first and foremost, I should tell you that pricing is stable for us at this point in time. In fact, the pricing went up, when the revenue productivity went up by 0.7% this quarter. The large outsourcing deals are price sensitive and [with mostly sales]. These are deals where market determines the price and we need to determine the cost. We are actively looking at various initiatives, which will make sure that our cost is managed on these large outsourcing deals. At the same time, I also believe that it is about solutions. If you actually create a solution which is absolutely relevant to the client, which is the best in the industry, which the client gets the utmost level of confidence and put a team in place, a team in front of them, which they believe will deliver that solution the most effective manner, I still believe that there is pricing power even on these deals.

Then the other piece is, we also have to look at the lifetime profitability of the deal. These are deals, which is the large outsourcing deals are the ones where we will have to invest in the beginning, on transition and maybe some other investments, but we also need to look at the profitability from the life of the deal. So when you look at these deals, when we look at these deals, the first and foremost thing for us to do is to create the best solution for which we can demand a premium. Second is to take a look at the lifetime profitability of the deal and see how after different stage of the deal, once the deal becomes stable, how can we derive efficiency and productivity through which we can achieve our margins.

Okay. Thank you.

Keith Bachman, Bank of Montreal.

Hi, thank you. I'd like to revisit a subject that's been asked earlier but ask it in a different way; and that is, how would you respond to the comment that you're sacrificing growth, both near term and longer term, for profits? If I think about your sequential improvement in operating profit, it's fairly impressive; yet, your growth in the quarter, I think, is going to be below other leaders, such as TCS and Cognizant, and even if I assume that your growth implied for the next quarter, it seems like fairly weak growth. In addition, as mentioned previously, you're moving some of your labor from onsite to offshore; and yet, as we reflect on what the opportunities are for the next wave of opportunities, Cognizant calls them the SMAC stack, that would seem to go contrary to that trend, because it would seem that winning those deals would require more on-site capabilities and expertise than the higher-end consulting areas. So the bottom line on the question is when would you expect to emulate other industry-leading growth companies, or would you expect to be below the growth levels of these other companies as you call it going back to basics, which seems to be more commodity type of work?

So I think we want to be very clear. First and foremost, our aspiration is to have industry-leading growth and industry-leading profitability. We have done it many times in the past. That's very important, we have done it many times in the past. And we still get a premium over many of our peers when we go in front of the clients. That is one part of the answer.

The second piece is, even last quarter, when I talked about Q3 and Q4, I had said that usually Q3 and Q4 are soft quarters for us, especially Q3 because of the holidays and furloughs. And if you look at our guidance, because we had said it is a soft quarter, I believe that we have seen decent performance in Q3.

Going forward, our objective would be to make sure that we achieve growth -- industry-leading growth, at the same time, through the initiatives which we are doing internally, through the initiatives which we are doing internally we drive operational efficiency, we drive cost optimization, we drive more offshore and achieve our margins. We have done this in the past, we clearly believe that we can do it in the future and that is where we are. (multiple speakers).

Let's look at some data points here. Last year we grew by 5.8%. This year we have said that we expect to grow between 11.5% and 12%. That means we will be doubling the growth rate. That I think is pretty good, though by absolute number we would certainly like it to be even higher.

Second, as B.G. pointed out, there are areas where 100% of the effort is delivered on-site. For example, our consulting services, Lodestone et cetera, 100% of the consulting service part is delivered on-site, because we believe that is required. On the other hand, there are areas where we may need anywhere from 35% to 45% of effort being delivered on-site, some of the IMS deals et cetera et cetera, that there we are quite flexible. However, in areas like this, where an ideal ratio could be between 15 to 85 or 20 to 80, certainly I think our aspiration is to move towards creating a very efficient global delivery model so that we have growth and we have margins.

One last comment on this, I just want to clarify, going back to basics would not mean that we will drop the ball on consulting-led services nor PPS. All the three service lines will continue to be the focus area. We are making an increased effort to win large deals, drive automation, drive efficiency so that our ability to win large deals in the core business is enhanced. It does not mean that we will not focus our energies on consulting-led business and transformation business at all.

But also let's look at this. Why don't you people look at the data on the contribution of the so-called consulting-led businesses to Infosys, total revenue and that of other players, and you will notice that that's a much higher percentage for Infosys than our competitors. So there is no truth in the assertion that we are moving away from those. So that's something I want you people to look at it.

Actually, just to continue on what Mr. Murthy has said and give you the numbers, I believe the industry average for consulting and system integration is roughly around 20% where we had 33.4%.

Okay. If I could just ask a follow-up then, A, how would you think about your growth relative to the industry for calendar year 2014? And, B, implicit with what you are demonstrating in terms of moving work from on-site to offshore, how are you thinking about the U.S. immigration issues? It would seem almost implicitly that you are less concerned about that but, I just wanted to hear on those two. A, how are you thinking about your growth relative to the industry in calendar year 2014, what are your targets, what are your objectives relative to the industry if you don't want to give specifics? And B, how are you thinking about the immigration bills versus your move to transition more work offshore versus on-site? Thank you.

So, as I said, our aspiration will be to have industry-leading growth, but I just want to go back to what Mr. Murthy said. Last year we grew by 5.8% and this year our guidance right now is in constant currency terms actually it is 12.4% to 12.9% which is more than double last year's growth rate. And, again, as Mr. Murthy said, we still aspire for more. I think we would still aspire for more. Now next year, I talked about the aspiration, but at the same time it will be too early for us to discuss any specific numbers.

I think we will let you know on April 10.

On April 10, we will have the numbers.

Yes, I wasn't looking for specifics, just relative to the industry, particularly against Cognizant and TCS, if you would aspire to be at relatively consistent growth rates to whatever those companies demonstrate for calendar year 2014 or is that too high of a target?

At this stage we cannot comment. We will certainly talk about it on April 10.

Okay. And then perhaps, just finishing off on the immigration bill and then I will cede the floor. Thank you.

Yes, on the immigration bill, we have not seen any change in status from the beginning of the quarter to current, as of today. We watch it very closely. There are clauses in the immigration bill which could impact our business, which we have acknowledged in the past. But as you know, immigration bill is a very complex process. You have to have two bills passed, one in Senate, one in the House and then it has to go through the Confidence Committee. So we don't know when and what phase it will get signed. We watch it closely and we will, as and when we need to react we will come up with plans to react to it.

I personally believe that no company should stake its future on the immigration bill of any country. Therefore, there are several initiatives which are still work-in-progress. Therefore we are not in a position to comment on it. That will ensure that this Company will continue to be an important player in the global IT services market, no matter what happens to the immigration bill. That's our aspiration and that's what we will certainly do.

Okay, guys. Thank you.

Thanks.

Trip Chowdhry, Global Equities Research.

Thank you and congratulations on good quarter. A couple of questions. There is a lot of emphasis on cloud and Big Data software as a service and definitely that comes at the cost of traditional players. And when I look at your spreadsheet you sent out, we were under the impression like if the business is gravitating towards the newer ITs, the old IT business from SAP and Oracle should suffer, but we are not seeing any weakness in your package implementations. What is the reason for that?

So, I want to just go back about two years and then try to give an analogy. When we started on the journey of package implementation in 1999 and then expanded into consulting and system integration, over the years, one could tend to believe that this will lead into the [bits] business and actually in fact it's true. It did cannibalize part of the business, because once customers start implementing new packages, SAP or Oracle or any other package, they stop building those applications, right? But they still continue to build applications which are very, very unique to them.

Now there is a third wave emerging where actually clients can get software as a service or a platform as a service, so that they don't have to build or buy the package. But this will be a gradual shift and as organizations we have to be relevant to our clients. We want to be in the forefront of the revenues which the clients are looking for. While on one end, over a period of time, it could cannibalize part of the work available; not our revenue, work available in other parts of the industry, it will create its own opportunities. So what we're trying to do is to make sure that we are working with our clients, we are leveraging the new opportunities which are coming along. At the same time, because of our capability and capacity available in other parts of the business, we continue to win very large opportunities in both; in business and IT operations and in business transformation work.

Now, in mobile space, I think it was three years, four years back, you had a very interesting initiative. I think it was called Flypp and I think it was an app store that companies like Dell and other guys were in telco space white boxing it. What is the status of that and do you think that's a sustainable strategy moving forward?

So those kinds of initiatives eventually merged into PPS; and today PPS has seven platforms and seven products in the market. One of them, the Flypp intellectual property got merged into. So for example, if you look at the Airtel Money, that's a slight variation of the Flypp intellectual property. So, finally, that property ended up in products and platforms. Today, they have consolidated that into seven products and seven platforms.

Very good. Last question --

I'm sorry to interrupt, Mr. Chowdhry, may we request (multiple speakers)?

No worries, thank you.

Ravi Menon, Centrum Broking.

Thank you for the opportunity. Gentlemen, as you are changing your strategies, focusing on the basics and winning large deals, how do you think you need to change your employee profile? I mean what sort of talent are you lacking right now or what sort of reorg, or rather I'd say, how would you need to restructure your work force?

First thing, this is the first Indian company that realized the importance of education and research in creating a robust future for the Company; and therefore, I think we believe that recruiting smart people, providing them good training, both in terms of classroom training and in terms of on-the-job training and then giving them an opportunity to grow in their jobs and creating a very robust pyramid is a way to go and that's exactly what we will do.

But, sir, do you think that your existing employee profile is sufficient to cater to your large deals, or is there any specific skill set or skill sets that you think you need to complete, get through lateral recruitment or through internal new training programs?

Well, I mean, we believe that we have a cadre of well-trained professionals that can fully discharge our obligations to our customers as we seek higher and higher growth rates. I don't think that will be an issue as far as this Company is concerned.

Thank you, sir. Appreciate your answer.

Thanks.

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

Thanks everyone for [participating] on this call. We look forward to talking to you again. Thank you and have a good day.

Thank you. Ladies and gentlemen, on behalf of Infosys that concludes this conference. Thank you for joining us and you may now disconnect your lines.