Infosys Ltd (INFY) 2015 Q3 法說會逐字稿

Ladies and gentlemen, good day and welcome to 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 after your presentation concludes. (Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Mahindroo. Thank you and over to you, sir.

Thanks, Inba. Hello everyone and welcome to Infosys call to discuss Q3 2015 financial results. I'm Sandeep from the Investor Relations team. Let me start by wishing everyone a very Happy New Year. Joining us today on this call is CEO and MD, Dr. Vishal Sikka; COO, Mr. Pravin Rao; CFO, Mr. Rajiv Bansal; along with other members of the senior management team. We'll start the call with some remarks on the strategy and performance of the Company by Dr. Sikka, followed by comments by Mr. Pravin Rao and Mr. Rajiv Bansal. Subsequently, we'll open 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 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'd now like to pass it on to Dr. Vishal Sikka.

Thank you, Sandeep. Good morning and good evening and let me be the first to convey my best wishes to all of you at the beginning of this New Year. I would like to begin with a few comments about our progress towards our strategy that I have previously outlined before I get into some details of our Company's performance for the quarter ending December 31, 2014. In October and then again in December of last year, I described broadly our strategy and the areas that we will focus on in the coming years to enable our clients to transform their businesses through software. Over these past three months in my meetings with more than 500 client executives and several industry analysts, I am very encouraged to see strong resonance with the direction that we have embarked upon.

The duality of renewing the core systems and processes and at the same time innovating into new frontiers founded on a culture of learning, creativity, and purpose is indeed through for pretty much every business today. It is a challenging duality, one that requires the talent and resources of our Company to simultaneously address two distinct challenges, two distinct opportunities. Success and longevity comes from embracing these dual goals and treading a carefully chosen middle path, one which reaches towards the vision of the future without disrupting or ignoring the reality of today. For us at Infosys, it means that we offer our clients the best palette of services and solutions that fit their strategy. It also means fundamentally transforming ourselves while we help to transform each one of our clients.

Over the holidays and in other forums, I have articulated a message to each of our employees to live this strategy and to contribute to this strategy, every single employee in everything that they do; every project, every client account, every service line, and every unit of the Company. Over the last several weeks, we have been actively planning and executing the elements required to realize this strategy and we are already witnessing progress along several fronts. Let me give you some examples. Deutsche Bank has selected Infosys as one of its strategic partners to help consolidate and renew its enterprise application landscape with the benefits of cloud re-platforming, mobility, analytics on big data, and other operational efficiencies.

ICA Gruppen, Sweden's leading retailer, announced a major partnership with us to outsource its IT operations, both IT infrastructure and application-related areas. In addition to cost savings, this change is expected to provide better conditions for business development projects within IT, simultaneously renew and new their systems. Infosys has been a partner to Aimia, the leading loyalty program management company for many years. This partnership is a great example of renewing the core and at the same innovating the new. Infosys helps Aimia renew their existing core systems for Nectar, UK's largest loyalty program and intelligent shopper solutions, and also helping build new innovative loyalty and consumer engagement products.

Discover Financial Services in the US had successfully migrated to Finacle core banking platform. Fully real time, this solution will help Discover bring new products to market faster, automate compliance, and deliver a great banking experience and enhance their operational efficiency. Our Finacle Payment solution set a new global benchmark processing over 75 million payments per hour or over 21,000 payments per second. This capability, which we believe is essential for banking systems of the future, supercedes known interbank payment transaction volume requirements of banks of all sizes and is almost five times the known volumes processed by the entire US banking systems.

Our Infosys Information Platform continues to gain traction. We have already built a pipeline of more than 56 projects across industries and geographies in innovative applications for big data on our open Infosys Information Platform. A Europe based banking and financial services company is implementing Infosys Information Platform to be able to scale the data infrastructure required for its regulatory reporting to handle large volumes data flows cost effectively. [It's also] a dozen or so projects at customers that use Artificial Intelligence technologies to deliver next generation solutions for complex new problems. We have established new partnerships with Tableau and DreamWorks Animation to help enter into new areas.

During this quarter, our volume growth was 4.2%. This is the highest sequential volume growth in the last three years over any quarter and the highest third quarter volume growth in the last (technical difficulty). But at the same time, we saw a drop in the realized revenue per billed employee. I am confident that the measures that we are taking to renew our traditional services and to introduce new ways of doing things is the best way and perhaps the only way to compensate for the commoditization so we can do more with less for more. Our absolute revenue per employee grew from $52,300 per employee for the 12 months ending September 30, 2014 to $52,740 per employee for the 12 months ending December 31, 2014.

As we increase our momentum on building out an ecosystem of partners globally, we are pleased to announce that we have expanded our Innovation Fund from the current $100 million to $500 million to support the creation of a global ecosystem of strategic partners and start-up companies. This capital will be used to invest into young companies, innovating in areas that are strategic to the future such as Artificial Intelligence, automation, Internet of Things and sensor-based technologies, collaboration and design, and innovative new enterprise applications in these areas. Let me now talk about the foundation that we are setting for this change through learning and employee engagement. I am most excited about what we have done in the last quarter to take our learning and education capability to new levels.

We will do much more on this in the coming months and years. Infosys is a learning knowledge-driven company. Our ability to learn new capabilities is crucial to our future success and I'm excited that we are putting our great education in training infrastructure to use to develop these new capabilities. I have spoken at length about design thinking. I'm happy to report that to-date we have covered over 9,000 employees across the Company with design thinking training with 400 of our senior most employees recently doing these workshops at our University in Mysore and other places trained by educator from the Stanford Design School and others. 70% of our front-end consultants have already been trained and this has now been made a part of our fresher training curriculum.

We have gone further and brought our clients to embrace design thinking concepts. We currently have a pipeline of workshops for over 25 clients. We believe this to enable a fundamental shift in the way that we approach solving client problems and solving our own challenges through innovation. Our Artificial Intelligence class that went into effect in October has already trained 1,000 people and we want to train an additional 500 people in AI technologies per quarter. We are working with Stanford Graduate School of Business to design and deliver a customized strategic leadership development program for our Company's executives. In this last quarter we have taken several steps to increase engagement with our employees in our vision to make Infosys a great place to work.

We have set up dedicated teams that are working on and are already implementing several changes to simplify policies while stressing accountability and values. Some of these include Bring Your Own Device, more than 14,000 employees have already availed of this benefit to date; more flexible work from home and maternity leave policies; increased team engagement budgets; and easier transfer policies across our development centers. We announced a 100% bonus payout for Q2. For Q3, we have announced a 100% average bonus payout across the employee base as well as a special holiday bonus to high performing employees. We want Infosys to be a place that each one of us can pursue a dream career.

We have launched an expert track to create a great platform for specialist technologies to emerge, perform, and grow and achieve their full potential. This in turn will translate into high impact value for our clients. With all of this, we are seeing a reduction in absolute monthly attrition numbers. For the quarter, our absolute attrition was 8,927 for the Group; down from 10,128 in Q2, almost a 12% drop, and 10,627 in Q1. Rajiv will talk more about this in his remarks. We are happy to announce the expansion of the Infosys Foundation activities in the Americas through the Infosys USA Foundation focused on making quality computer science education and computer literacy widely and easily accessible. For the fiscal year 2015, Infosys Foundation pledged INR254 crores towards corporate social responsibility initiatives in India.

Perhaps you have read about the Infosys Prize ceremony that was held in Kolkata, India earlier this week. We are very proud to be associated with the Infosys Science Foundation that recognizes and encourages fast breaking research in the country. I am also delighted that Professor John Etchemendy, the provost of Stanford University, has joined our Board of Directors this quarter. John is a great teacher and his vast know-how of teaching technology and information will be of immense value for us for the road ahead. Our financial performance in Q3. Our dollar revenue growth in Q3 was 2.6% in constant currency and 0.8% in reported currency. Q3 is a seasonally soft quarter due to holidays, far lower number of working days so we are very happy with our performance. Rajiv will share additional aspects of our financial performance shortly.

With that, let me pass this on to Pravin and I will come back for the Q&A session. Thank you.

Thanks, Vishal. Hello everyone and Happy New Year. Let me provide the recent trends in various segments, including our initial expectations on planned budgets for calendar year 2015. In financial services, we had over 3% sequential growth during the quarter. There are different trends across regions with US banks not spending as aggressively as their European counterparts. Budgets in US banks are expected to be flat to marginally down while they are expected to grow in European banks. Spending is predominantly driven by new channels around digital, security, and analytics and in addition, continued spend on compliance. Deal pipeline in the vertical is strong and decision cycles are stable.

In Insurance, our growth in quarter three was driven by significant improvements in deal pipeline over the last one year. Insurance companies are focusing on modernization programs and on more sophisticated data analytics based risk assessment programs. They're also talking to us about telematics and integrating with AutoCAD manufacturers to measure and influence driver behavior and associated risks better. Budgets are expected to grow low-single digits, in line with the past. In Cards and Payments, digital and technology modernization are the top trends. Clients are also increasing spends in digital platforms that leverage social and mobile for marketing and customer services. Budgets are expected to be flat.

Retail and CPG continues to see challenges. Our growth during the quarter was impacted by ramp downs in a few clients, along with impact from delaying commencement of projects won earlier. While spending has been volatile, we see lot of opportunities in retail and CPG, particularly strong interest and great conversations in driving a differentiated digital strategy for retailers not just for their online and mobile world, but also to revitalize their brick and mortar stores leveraging digital. We are taking a strong proactive point of view to market in this space. Apart from the above; we see spend in analytics, digital marketing, and ERP rollouts. It is early for the next year budgets [so that firmed up] since retailers normally start their budgets post closure of their holiday season.

Growth in manufacturing was impacted during the quarter due to furlough. Spending patterns are mixed, good in high-tech and auto, mixed in industrial. There is an improvement in discretionary spend in North America towards customer experience; digital, analytics, and ERP upgrades. Non-discretionary spend is likely to be flat. Overall deal pipeline has reduced over the last one year especially in Americas. We have seen some slowness in decision cycles in aerospace and industrial as many clients are going through challenging times. At the sector level, budgets are expected to be flat over calendar year [2014] except for a modest increase in automotive and deduction in aerospace. Telecom sector continues to struggle with declining topline and bottom line, which is [decreasing] spend and triggering consolidation.

Clients are focused on operational efficiency and cost reduction. This is likely to pressure IT budgets in calendar year 2015, which coupled with significant M&A activities in the sector will impact our growth potential next year. In Energy, due to the drop in oil prices, there is a significant ship towards cost savings and efficiency across the entire value chain. Capital projects as well as on-support projects are likely to see large reduction in budgets across US and Europe. Decision cycles have also been severely impacted. On the positive side however, large deal pipeline is healthy. We are trying to accelerate growth through proactive features focused on new markets and bolstering our capabilities.

Life Sciences sector is witnessing longer sales cycles due to significant M&A activities and the impact of patent cliff. Americas is expected to perform better than Europe. There is pressure on non-discretionary spending with most deals in this area focused on cost reduction, technology rationalization, and risk management. Overall pipeline has improved over the past 12 months. Clients have still not finalized their budgets, but early indications suggest tight budgets with increased spend in ERP implementations, cloud, SaaS-based solutions, analytics, and compliance. In growth markets, there is reasonably good momentum in the market though reported growth is impacted due to declining local currencies against the US dollar.

We are seeing increased emphasis in adopting digital strategies, ERP modernization. Deal pipeline and decision cycles remain steady. There is a budget pressure on clients especially on discretionary spend. In BPO, client conversations are around transformation of the business processes with clients looking up to service providers to take [entire] ownership of that processes. This is driving a shift from FTe based pricing to output based and fixed pricing. Though cost continues to drive outsourcing, discussions around value and domain expertise are becoming predominant. Decision cycles continue to be longer for large deals. Finacle had a growth rebound during the quarter. We expect increased demand in calendar year 2015, especially in channel modernization, analytics, mobility, compliance, and payments.

Pipelines in Europe is looking healthier with a number of banks trying to gain flexibility and economies of scale by our infrastructure products and process standardization. Demand from Tier 2 segment in the US is improving and some banks are having conversations around core banking replacement. However, due to discretionary profile of the spend, decision cycle remains protracted. With regards to digital, it continues to be amongst the top three agenda for most clients. At this point of digital transformation, customers are focused on portfolio simplification, cloud apps, marketing operations, building online presence, and et cetera. Our pipeline is getting stronger and deal conversion is steady. Though digital is discrete spend, decision making is reasonably quick. We continue to invest in consulting capabilities, improve balance through training, and forging partnerships and innovation to create business solutions.

I will now hand over to Rajiv to talk about the financial highlights.

Thank you, Pravin. Good morning, everyone. Our revenues for the quarter were at $2.218 billion, which is sequential growth of 0.8%. As you are all aware, during the quarter major global currencies depreciated against the US dollar. For example, euro depreciated by 5.3%, Australian dollar by 7.5%, and GBP by 5.1% against the dollar. This impacted our revenue growth by 1.8% without which the constant currency growth is at 2.6%. Q3, as you all know, is traditionally a weak quarter due to furloughs, holidays, and lower working days. Considering that, I believe 2.6% is a good growth for this quarter. As Pravin mentioned, retail and CPG continues to see challenges and has declined by 0.7% in constant currency during the quarter.

Our gross margin for the quarter increased by 20 basis points to 38.7%. Operating margins for the quarter went up by 60 basis points to 26.7%. This is the highest level of gross and operating margin in the last 10 quarters. Our net margin for the quarter was at 23.5% and EPS for the quarter was at $0.46. On some of our operational parameters. Utilization, excluding trainees, increased to 82.7% during the quarter. This was the highest level of utilization that we have seen in the last 11 years in any quarters. Utilization, including trainees, was at 75.7%. On-site mix improved from 28.7% to 28.5% during the quarter. As Vishal mentioned, we have taken multiple measures on attrition front. During the quarter, we had given 5,000 promotions and we have also announced 100% variable payout to our employees.

We have also done selective salary corrections for certain skills and technology streams. As a result of all these measures, our attrition on an annualized basis is down from 21.3% at the Group level to 18.1%. We contributed $10 million during the quarter on CSR activities. We have outstanding hedges of $1.076 billion as of December 31, 2014. Our effective tax rate for the quarter was at 28.2%. Our collections during the quarter were very good as a result of which the DSOs dropped to 61 days as compared to 63 days last quarter. Our cash and cash equivalents, including available-for-sale assets and certificate for deposits, were at $5.532 billion as of the quarter end.

Let me now talk about our outlook for FY15. As I mentioned earlier, during the quarter all major global currencies depreciated significantly against the US dollar. Even in the last one week we have seen similar volatility in global currencies with the euro depreciating by another 2.5%, Australian dollar depreciating by another 0.9%, and GBP by another 3.1%. We therefore believe that it is prudent not to take a view on the currencies and are maintaining the guidance at 7% to 9% at September 30 rates. These are same rates that we used for giving our guidance on October 10, 2014. We expect our Q4 operating margins to be in the narrow band of 25% plus/minus 1% subject to currency movements.

With that, I'll open the floor for questions.

(Operator Instructions) Moshe Katri, Cowen.

Congratulations on very strong volume growth numbers. I just wanted to focus on a couple of things and the first thing is related to your commentary regarding the financial services vertical. Our survey in December also indicated some challenges there. Pravin, I think it will be helpful if you talk a bit about what's really driving the cautiousness that you're seeing in the financial services part of the business in North America. Our survey talks about much longer sales cycles, much longer (technical difficulty) and I think some color here would be helpful.

I will request my colleague, Mohit Joshi, to respond to this.

I think overall for financial services we've had a good quarter and I think we are seeing both broad-based momentum. In the US specifically I think we are seeing challenges in some clients, especially very large global clients, are starting their IT budgets as they come to the New Year. I think it's partly because of the fairly significant fines that have been levied and obviously that is having an impact on the technology budgets. But overall, I just want to stress that the themes that we spoke about at our Analyst Conference; which is industrialization, digital, and risk and compliance; still continue to be the focus areas. And like Pravin mentioned, we are seeing a pickup in activity in the smaller the regionals and the super regionals. So for some of the larger banks, especially the very large global banks, they are cutting or they are being cautious about to tech spend because of the fines and the need to attain target return equity and cost to income ratios. So, I don't know if that answers your question or if you have any follow-up to this?

This is fine.

Moshe, this is Vishal. I would add that digital and especially big data continue to be areas that all bans are looking heavily at investing in. So while there are secular pressure from the more traditional services on IT budgets, there are areas that are in significant demand and therefore building world-class solutions and competency in those areas; for example around reporting, regulatory reporting, risk analytics, digital; is something that we continue to see tremendous interest in. And also I would like to ask Ravi to comment on this from an insurance perspective.

So, the two segments I work on is insurance and cards and payments. In insurance, there is a standard refresh cycle which happens pretty much every three years and as long as we're positioned on those refresh cycles if we aren't an incumbent, we would gain some effect. So, there's a fair bit of refresh which happens on a regular basis. In addition to it, there is a lot of money spent on risk analytics, telematics in P&C, and to a large extent in health insurance the entire transformation from B2B to B2C. In cards and payments, I think there is a fair bit of legacy infrastructure most card companies carry and they're actually now transforming themselves into digital wallets and the ability to do payments through mobile devices. So, their entire infrastructure is going through a huge renewal and we are seeing significant uplift of technology spend in that space.

Just as a follow-up, guys. You've indicated that your pipeline is robust. I know it's too early to talk about fiscal year 2016, but do you think that's unrealistic for us to assume that topline growth could improve from 2015 into 2016? Thank you.

Moshe, we will have a better handle on how the strategy that we have laid out will impact quantitatively and what assessment we can therefore give to you in April as I have said before. My sense is that if you look longer term, the more traditional services will continue to see pricing pressure, downward pricing pressure, and therefore we believe that renewing our existing services to improve productivity through better automation with use of more Artificial Intelligence and things like this is going to continue to be beneficial. However at the same time, the next generation services that are necessary. In almost every industry there is a tremendous disruption going on and as far as I can see, all businesses are looking for ways to continually innovate in new areas and in those areas where we continue to see heavy demand.

So, our general sense is that whatever downward pressure we see will be more than compensated by the improved productivity that we see due to renewals in our way of delivering these services as well as the new solutions that we offer. So generally, I continue to be quite optimistic about the future. However, we will share more details about what this could mean quantitatively and what kind of guidance we are looking at when we are together in April. And also of course, I earlier mentioned the Deutsche Bank example; this is a great example of this particular phenomenon coming to life.

Thank you and congratulations.

Joseph Foresi, Janney Montgomery Scott.

My first question here is I wonder if you could give us some idea of how we should think about growth given the move to new technologies and the new client additions. In other words, will more growth be driven by new clients and how does these shorter digital projects impact what your standard seasonality is?

We do see growth in both existing clients as well as new clients. As Vishal talked about the duality, we have opportunities for renewing the existing landscapes of our clients as well. At the same time, we can partner with our clients in terms of transforming their businesses and coming up with taking advantage of some of the newer areas like cloud, analytics, Big Data, and so on. So, we do see growth coming both from mix. We have a lot of opportunities of mining the accounts and growing within our existing client base. At the same time, we also have opportunities for acquiring new accounts and growing those accounts as well.

And maybe I can add to that that generally the opportunities to the new existing practices and existing projects as well as bringing new projects to existing clients is of course a huge opportunity. And in parallel, of course there is a large portion of the Global 5000 that we have not yet penetrated and we are quite excited about going after that opportunity both within the United States as well as in other growth markets. And then additional dimension of that that I want to bring up is I mentioned the $500 million fund that we are adding to our portfolio. I believe that that is an area of growth as well over the longer term because start-up companies in growth areas need help in scaling themselves and we believe that we can provide that help in bringing them to market and bringing their solutions to scale, but also in helping amplify their engineering and development abilities, their operational abilities, as well as and of course participating in their financial success. So, we expect that that will be another dimension of our growth as we go forward.

Okay. And maybe you could give us an update on some of the progress you're making on the attrition front and when we can expect to see that rate I think come down? I think you've given earlier targets on attrition. And any color you can give us on the recruiting side and why you think those people may be leaving or coming in?

Joe, can you repeat the question please, we couldn't catch it?

I was wondering if you could give us an update on attrition. I think you had given us targets on when you're planning on getting the rate down before and any color you can give us on sort of what the personnel is thinking from both an exit and entry standpoint?

I think on an LTM basis, attrition was marginally up. But from a absolute head count perspective, this is the second successive quarter of reduction in number of employees quitting. We had about 12% reduction in number of quits, about roughly 8,900 in quarter three versus 10,100 in quarter two. And again in quarter two it seems we had 5% reduction over quarter one. And also if you look at it from a quarterly annualized attrition perspective, we are seeing a 3% decrease in attrition. So I think from a trend perspective, we are comfortable. We believe that many of the things we have done on the attrition front have slowly started seeing the results. At the same time, we are still not comfortable with where it is today and we believe that we'll be comfortable with more of 12% to 14% attrition and we believe it will probably take another couple of quarters before we reach that. But many things that we have taken I think we are seeing a positive impact. We're engaging with employees in multiple ways with employee engagement communications and outreach activities.

Okay. And then the last question from me, I wonder if you can give us an update on just two other metrics. Utilization continues to be sort of on the upper end of the scale. What can we expect from that and what are your thoughts on pricing?

On the utilization front, we are looking at about operating around 80% to 82%. Historically we have operated around 78% to 80%, but this year we are looking at 80%, 82%, and upwards. We still believe that (technical difficulty) room, but on a quarterly basis we could see some volatility because in some quarters we have large influx of trainees coming from campuses where we could see some dip in utilization; but we are fairly comfortable with operating at the current range and our target is also around this range. On the pricing front, pricing is stable, but at the same time for some of the traditional services given the competitive environment we are under pressure particularly on a deal specific basis.

And it also varies based on sectors. In some of the sectors or in some of the areas where we are able to come up with transformational opportunities or opportunities to newer areas, we are seeing some uptick in pricing; but by and large in some of the traditional areas we are seeing pressure. And more recently in the energy space, given the challenges around oil prices and other things, we're seeing tremendous focus by the clients on cutting costs and there we are seeing some increased pressure. But by and large, I would assume it's stable, but we will continue to operate in a competitive market and we will continue to be challenged on pricing at least on the existing services.

Thank you.

Keith Bachman, Bank of Montreal.

First I wanted to talk about margins and the specific question is if you can talk about the various puts and takes in the most recent reported quarter, the December quarter, on what impacted margins? Specifically addressed, I think you mentioned it in the prior call to this one, how much did FX help in terms of the margins? And as you look at the upcoming quarter, I know you don't want to get into FX predictions and I certainly understand that; but if FX rates are where they are today, if you look at the March quarter, how much help would you get in margins out there? But also in the context of not only just FX, but if you could talk about how much pricing is also impacting margins and then I have a follow-up on revenue, please.

Keith, you were breaking in and out, but our sense is that your question is about margin and how do we see this change going forward. Perhaps Rajiv, you can answer this.

So Keith, let me try and answer it. Margins for the quarter went up by 60 basis points primarily because we saw 2.5% depreciation of the rupee during the quarter. Some of it was set off again because of the cross-currency movement. We also saw operational improvement in terms of our utilization going up to 82.7%, strong volume growth of 4.2%, on-site mix coming down by 20 basis points. So we saw all around good operational performance, which helped us on the margin front. At the same time, we also had in our provisions for doubtful debt coming down in the quarter. So, these things helped us on the margin side. At the same time, we invested money back in the business based on whatever benefits we got from the operational benefit in terms of what I spoke about 5,000 promotions that we rolled out to our employees.

We also gave selective hikes to people in certain technology streams and we also invested in technology and software assets. So, our strategy on margin is very straight. We want to keep margin in a narrow band. We still have to invest back in the business, we have to accelerate our growth. So, we believe a margin of 25% plus/minus 1% is what we will target for the coming quarters. It may vary quarter-on-quarter depending on the need to make investments. So I would believe that that's the right margin for the coming quarters, but at the same it may vary quarter-on-quarter depending on when there is an opportunity to make investment and we will make those investments.

Okay. I don't know if you can hear me any better now. But if you look at the March quarter as you think about it, I would assume FX is going to be a help to the March quarter at the same time as you're trying to make investments. So when you say 25% plus or minus, would you anticipate being above that as you look at the next quarter or so, below that given the forces of investment combined with FX and pricing in particular?

As I said, during this quarter we had the benefit of a provision for doubtful debt. So if you go through the detailed financial statements, we had a provision for doubtful debt provision last quarter and this quarter we had a reversal. I was just talking about 60 basis points on the margins alone which we have invested back. There are many headwinds in the margin as we speak on a quarter-to-quarter basis. It will be very difficult for me to give you an exact projection of where the margins are likely to be next quarter, but I would still say the same thing. We believe that 25% plus/minus 1% is the right margin. If there's an opportunity in a business area to make investments which will help us grow and accelerate in that business, we would make that investment.

That [doesn't mean] we're talking about a range. I think our growth rates are still far below the industry average and we want to accelerate our growth, we have been investing back in the business, investing in employee attrition, a lot of big concerns that we had. We have over the last two, three quarters invested heavily back with our employees and some of the early results have started showing up in terms of attrition coming down. So there's still a lot of areas for making investments, which were not made for many, many quarters in the past and that's the reason I'm saying though the margins are 26.7% this quarter, I still believe that 25% plus/minus 1% margin is the right margin for the future.

And I would add, Keith, that our strategy as a company has always been as Mr. Murthy used to say consistent profitable growth and I hope that the last two quarters have demonstrated that we are sticking to that. We will do what is necessary to invest in areas that are necessary to grow the Company, to grow the business, to transform our various areas of capabilities; but we will stick to that philosophy of consistent profitable growth. And I think the rest is as Rajiv has already talked about.

Okay. If I could sneak in one follow-up on the revenue side and you mentioned that you're investing for future areas including analytics. I was wondering how long you see the maturity process unfolding. In other words, you're investing in these areas now; when do you think you could see improvement in the topline growth? Is this towards the end of this calendar year? When do you think we will see some of the benefits associated with the investments that you're making now? And that's it from me.

My sense is that, especially in the analytics area, there is an entirely new reality at hand. The industry has sort of so far addressed analytics using more traditional proprietary platforms in the enterprise and I believe that those solutions are no longer adequate for the emerging needs of the enterprises in the future. And therefore, we have been working heavily on what we call the Infosys Information Platform, which is a collection of open source based technologies and projects which are Hadoop based and new emerging projects in this area which are quite exciting. And we have been investing heavily in this area and working with our clients. We started this work in late September, early October and we already have 56 projects going on with clients in the area of new kinds of applications on Big Data. I already mentioned banking and risk analytics, risk reporting, regulatory reporting on trades, massive volumes.

We have been working on projects in the areas of predictive maintenance for manufacturing and mining companies. We have been working on projects in the areas of analytics for retail type companies, for fraud detection, and things of this nature. So, I believe over time my expectation is that every single one of our clients is going to be using these technologies. However, specifically what this will mean in terms of revenue and how we will see the emergence of each project and the monetization of each project, we will have more to say quantitatively about that in April. But you can see that the approach that we are following has been followed before by other companies in the open source world; the Red Hats and Hortonworks and companies like that; which have basically built enterprise-ready capabilities around open source stacks and the markets have helped value those kinds of things.

Okay. Gentlemen, that's it from me. Many thanks.

James Friedman, SIG.

I wanted to ask first about utilization. How soon, Pravin, might we see the utilization come down towards your target?

I think what we are operating is around the targets and we are comfortable with the level of utilization that we've said, 80% to 82%, we are comfortable. It's slightly above 82%. We are comfortable operating at this level. There are some quarters when we have large infusion of fresh graduates, the utilization may drop down. But we believe the levels which we are operating today is fairly comfortable.

Next question is with regard to the cash position of the Company. Could you share with us your updated philosophy with regard to acquisitions or potentially buybacks?

We continue to be excited about the possibility to acquire companies. As I have mentioned before, we are very interested in acquiring next generation capabilities and technologies. We're not interested in acquiring yesterday's capabilities and technologies. Next generation things would be things like Artificial Intelligence and automation, new ways to do collaboration across boundaries, new design oriented technologies and services, capabilities of that sort. There is a tremendous emerging world of industry [furlough] and sensors and so forth and rethinking the product engineering world with digital technology. So, we are quite excited about that area and we are actively looking for great opportunities that we could use to bolster our capabilities so you could expect to hear from us over the next weeks and months as we make progress on these dimensions.

Beyond M&A, we are quite excited once again as I have said before about the investment fund that we are launching to invest in start-up companies and participate in their growth both financially as well as from a business perspective and we expect to take better utilization of our cash towards that dimension as well. Beyond that, we are working through these details. In fact these days, tomorrow we have an off-site on these topics. So over the next 80 or so odd days, we are going to continue to refine and quantify our aspirations and our expectations and so forth including our capital allocation plans and things like that and we look forward to sharing that with you with the April earnings.

Thank you, Vishal, for the complete answers.

Ravi Menon, Elara Securities.

One, you have already elaborated lots about the Infosys Information Platform. But if you could give some more color on the (inaudible)? And secondly, would you regard this go as an option to Finacle (inaudible) recent benchmark tests that you did as [impetus] for accelerating adoption in the US by mid-size banks? Thanks.

Could you repeat your first question on IIP? I could hear that it was about the IIP, but not what the question was?

The size of the project, if you could give some color on that, that will be great.

Across the industry, there are about 56 projects right now, little bit more than 56 right now. They're across industries and across geographies. They are for various different kinds of problems. Some are (inaudible) existing that we have been doing with clients, some are mostly or completely new, some are being priced based on value that is delivered by the project, some based simply on the effort required. So, we want to see how this evolves. We expect that over the course of this quarter that we are now in in Q4, we will conclude several handfuls of these projects and then we'll have a better ability to identify which buckets various projects fall under. But the way we are treating these is these are new generation projects, these are extremely agile projects where we deliver value to clients very, very quickly. We do four week POCs, 8 to 10 week projects, and so forth and they are relatively high value. So beyond that, it is too early to tell in any kind of a meaningful quantitative way what nature these projects will have. And on Finacle, I would like to ask Michael, who is the head of our Finacle, to answer the question.

This is Michael speaking. So basically on Finacle, we had a good quarter. In general the business recorded a quarter-over-quarter growth. We had 18 wins and 20 go-lives across the different regions of EMEA, Americas, and APAC. I guess more importantly, the momentum is getting better. We are seeing good uptick in our demand, particularly in the Western markets. The banks who have delayed their modernizations program for the last few years due to the lack of a budget and limited appetite for especially large transformational programs are now actively exploring these kind of options.

Today we are very well placed with our services and our advanced platform. You might have seen the announcement coming out from the analysts, Finacle has been awarded as being the Leader in the Magic Quadrant from Gartner. And also recently we have released our performance benchmark, which basically means that we have broken the world record in the number of transactions we are processing and the excitement about that is that the number of volumes we are able to process is exceeding five times the entire volume of payments we are seeing in the entire US market right now.

Thank you.

Edward Caso, Wells Fargo.

I had a question around your Innovation Fund. How are you going to manage any conflicts both internally on deciding what technologies to work with and externally not having Group see you line up with another firm and so forth? How will you work through those conflicts? Thanks.

Well, we are purely a services company. We have lived for the last 33, 34 years on this idea of being open to every single choice that customers have made and so the more the merrier. And as many of you perhaps have heard me argue before, I would love to be in situations where we have this great problem of multiple competing technologies and solutions to the same problem. I think that kind of a situation to be in is a wonderful situation to be in and we look forward to being more and more in that kind of a situation. But seriously I share that with a tongue-in-cheek, but openness is what it is all about. Assembly of great solutions out of many, many different possibilities is something great to look forward to and we will never see a situation where choices like that hamper our ability to deliver great value to clients.

My other question is on the earlier call you mentioned the desire to move utilization up to the sort of 83%, 84% level. Is that part of what's necessary to maintain operating margin around 25% given the ongoing pressure on the traditional offerings?

I don't think so. My sense of it is that I mean originally when I started here, of course this was all new to me so it was somewhat of a desire to see how far can we go and how high can this go. Pravin of course has been at this for a long time and our sense is that there is still headroom here. We see that more as a sign of a healthy operational efficiency in the Company to see how high it will go. Of course, there are structural limits here that we are running into; the amount of time people have to take on vacations and training and then other factors that apply. However margins, there are lots of other factors that contribute to margin as well. This would be one of these, but certainly not the only one. We are measuring the productivity, the value delivered, new kinds of business models IP-based products, and so forth as other contributors to revenue productivity and to margin. And again as I mentioned earlier, if you strictly look at the revenue per FTE that we have delivered, that number has gone up from $52,300 per employee at the end of Q2 for the last 12 months leading up to the end of Q2 to now $52,700 per employee at the end of this last quarter.

Thank you.

Anil Doradla, William Blair.

This is Matt on for Anil. I was just curious about kind of you speak about these technologies of yesterday and the emerging technologies. Can you kind of give us a breakdown percentage wise of the revenue that would still be yesterday's and then the percentage that is new and then kind of the growth that is coming with both of those buckets?

Not yet, but I mean that's something that we are working through that we'll share with you in April. I have to say that when we say renew of our existing services; that means bringing automation, bringing innovation to all the existing services that we deliver today whether it is business process outsourcing, business process management, IMS, our infrastructure management, our verification service, package implementations, product engineering, application development and maintenance. All of these existing services can be significantly improved, productivity can be improved by the better use of automation, bringing in new technologies into these existing services.

So it is all about taking the existing services that we have been offering, the bread and butter services, and helping transform these incrementally without disruption to the business as we go. When I say yesterday's services, I basically mean an unrenewed service of today. So, we are very interested in renewing all of our services and we have no interest in leaving any of our services unrenewed per se. And then the new things are of course completely new things that we don't offer today that we did not offer until recently and that is an additional area of growth that we foresee. But how this will break down and which part do we expect to contribute what, this we will share more details in April.

Okay. And then can you just provide a little update on just the overall competitive landscape and kind of the competition that you're seeing throughout the different parts of your business? Thank you.

We see competition both from global [SIs] as well as some of our large India peers. At the same time, in some of the newer areas particularly in the areas of digital, we are also seeing competition from agencies. In some of the other areas, we are seeing competition from some of the start-ups. So in general, but by and large for some of our traditional services, the competition remains the same; but in new areas, we do see competition from start-ups, digital agencies, and so on.

Rishi Jhunjhunwala, Goldman Sachs.

Firstly on the attrition side, we have clearly seen a downtick in the attrition rates in this quarter. Just wanted to understand how much of that is related to the quarterly aberration because this is a quarter where the attrition is seasonally lower and how much is on the back of the various measures that you have taken? And as a result of those measures that you have been talking about earlier in the call as well, how has that impacted your overall employee cost because that seems to be pretty much flat on a quarter-on-quarter basis as well?

I guess the question was about attrition and the lowering of the attrition rate. We believe that the many initiatives that we have taken that both Rajiv and Pravin talked about as well as I talked about are showing results as we have expected. Many of these decisions that people take tend to be longstanding decisions that they had already taken several months ago so we see sort of a residual momentum of these. We definitely want this to improve further and we want the attrition levels to come down to this 12% to 14%, 15% ranges that are more common in the industry. And we expect that we will get there over the next couple of quarters, in the next couple or three quarters. The month-by-month as well as the quarter-by-quarter actual numbers have come down significantly and that is something that we see as an encouraging sign, but clearly we don't want 8,900 people or something to the tune of that leaving every quarter and we want this number to continue to come down.

The second question is on you have been talking, Vishal, about automation and Artificial Intelligence and other disruptive technologies. Just wanted to understand how far an outsourcing IT services company is from having these kind of technologies contributing prominently to the overall revenue growth? The reason I ask is just trying to understand as to how much of the capability acquiring is going to come from internal development of skills from employees and how much may potentially come from direct M&A.

I didn't catch the last part of your question. What was the two different options that you mentioned?

Internal development of skills in the employee base versus M&A.

My sense is I mean this is still very early. I mentioned we have around 12 or so of these what we could call purely AI-based projects that are going on. These are awesome and very exciting. We are working on for example testing the stresses on an airframe of an aircraft under extreme pressure using neural network technology or for one client in retail we are building a probabilistic network to detect fraud in transactions and things of this nature, which are extremely exciting and high value and necessary for the future. But I think you have to keep in mind that these are 12 projects out of more than 20,000 projects that we have going on in the Company right now. And so, it is even too early to tell how quickly these things will start to have what kind of an effect and we expect to have a more precise and quantitative answer for you for these types of things in April. To your other part about acquiring these skills from inside versus outside, we expect to see a mix of that.

My tendency right now is again, this is too early to tell and you want to be very open and nimble on a decision like this. Whenever you see something that makes sense, you want to be in a position where you can quickly move to acquire it. But having said that, my sense is that over the longer term, much more of this will be done organically and our sense is that M&A will complement that rather than having M&A be the basis to build this kind of a thing on. And we have put together a state-of-the-art Artificial Intelligence class in our Mysore campus as well as in our DCs. A little bit more than 1,000 people have already taken that class. These are the ones that we are putting on some of these projects around machine learning and things like this. And we expect that we'll train 500 people on these technologies every quarter going forward. That means that the kind of scale that we can achieve in building competency in this area organically will continue to be quite substantial.

And just a very quick follow-up. If I remember correctly, Infosys had entered into a partnership as well with one of the companies which does a lot of Artificial Intelligence, I think it was IPsoft. Just trying to understand is that partnership going anywhere or you're trying to look at building it internally?

We have not really found much traction in the partnership so we are building that internally. We already have a platform for automation and we have seen some decent tractions both on the application maintenance as well as infrastructure management space and we'll continue to invest in that platform.

All right. Thank you so much.

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

Thanks, everyone, for joining us on this call and spending time with us. We look forward to talking to you again. Have a good day.

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