Infosys Ltd (INFY) 2016 Q4 法說會逐字稿

Ladies and gentlemen, good day and welcome to the Infosys earnings conference call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. (Operator Instructions) Please note that this conference is being recorded. I would now hand the conference over to Mr. Sandeep Mahindroo. Thank you and over to you, sir.

Thanks Aruna. Hello everyone and welcome to Infosys earnings call to discuss Q4 and FY16 earnings release. I'm Sandeep from the Investor Relations team. Joining us today on this earnings call is CEO and MD, Dr. Vishal Sikka; COO, Mr. Pravin Rao; CFO, Mr. M.D. Ranganath; along with other members of the senior management team. We'll start the call with some remarks on the performance of the Company by Dr. Sikka followed by comments by Mr. M.D. Ranganath. Subsequently we'll open up the call for questions. Before I pass it on to the management team, I would like to remind you that anything which we say which refers to our outlook for the future is a forward-looking statement, which must be read in conjunction with the risks that the Company faces. A full statement and explanation of these risks is available in our filings with the SEC, which can be found on www.sec.gov.

I would now like to pass it on to Dr. Vishal Sikka.

Thank you, Sandeep. Good morning and good afternoon folks. Thanks for joining our earnings call. Let me start by saying that I'm really proud of our Company's achievement in my first fiscal year as the CEO of Infosys. We started the year just two quarters into our strategy to reimagine services and to transform Infosys. And over the course of this year we saw our endeavor; which is to bring automation, innovation, education, and operational excellence relying on our human potential that is amplified by technology rather than delivering the same work for less; starting to show concrete results. In the organic growth of our client relationships, in our win rates in large deals, and in the types of markets that we are seeing in strategic areas where we never participated before, I'm proud of what our teams have achieved this quarter and in the year.

Yet despite these heartening results, they are still based on metrics of the past in many ways of the way the industry has been. The world of our future looks entirely different. It is a world that is being fundamentally reshaped by digital technologies and it is our endeavor to create great value for every business through solutions built on our AI technology and open cloud platforms to have Infoscions amplified by intelligent technology, to bring purposeful innovation to life, to drive collaboration, and in entrepreneurial spirit from within to transform our relationship with clients. And in that sense, we are still very much at the beginning of this journey. With this in mind, let me turn to the numbers. We ended Q4 of fiscal 2016 with revenue of INR16,550 crore or $2.446 billion and grew in Q4 for the first time in the last three years.

This translates to a quarter-on-quarter growth of 4.1% in rupee terms, 1.6% in US dollar terms, and 1.9% in Q3 constant currency. For the full year our revenue has grown 13.3% in constant currency and 9.1% in reported terms, ahead of the guidance that we provided in January of this year. Volumes in Q4 of fiscal 2016 grew by 2.4% indicating a healthy momentum in the underlying business and setting us up well for fiscal 2017. Utilization including trainees was 74.7% and 80.1% excluding trainees. Blended per capita revenue decreased 1.1% and our operating margin for the quarter was 25.5% compared to 24.9% in the previous quarter. On a full-year basis, operating margin was 25% compared to 25.9% for fiscal 2015. While still within our band of 24% to 26%, we believe the results of our initiatives in automation and tighter control of the operating metrics will help us improve profitability in the coming year.

We reported earnings per share of INR15.74 for the quarter, up 3.8% and in US dollar terms earnings per share was $0.23. For the full year, earnings per share is INR59.03 or $0.90. Attrition for the quarter decreased further to 12.6% and total employee strength is now 194,044 employees. Let me now turn to the client relationships and large deals. Once again in Q4 of fiscal 2016, we had a record quarter in large deal wins. We signed six large deals with a TCV of $757 million. Additionally, we signed another two large deals in Financial Services in Americas that based on the present volume of business, we can get another $470 million in revenues. We saw a 45% increase in TCV of large deal signings in fiscal 2016 compared to fiscal 2015 that is $2.79 billion versus $1.927 billion and this actually exclude other large frame contracts that were signed but not included in our reporting.

Our large deal win rate has gone up significantly for the whole year thanks to our focus on better solutioning that leverages automation and innovation in our IT services, better articulation of value proposition, and focusing more on the client's point of view, the challenges that the client face using design thinking as the framework in how we create our proposals. These bookings will help secure our revenue base for future years. The number of $50 million plus clients grew to 52 and the number of $10 million plus clients grew to 177. We added 47 net new clients during the quarter. Our Top 10 clients grew by 12.3% for the full year and the Top 25 grew 9.3% in constant currency terms. Our Financial Services segment led by Mohit Joshi saw its strongest traction in the year. Along with Finacle, our Financial Services portfolio grew by 15.3% for the full year.

In our Retail & CPG portfolio led by Sandeep, we saw strong traction for our new software and services business. For this, I wish to congratulate Mohit and Sandeep on being appointed Presidents of our Company. My friends and colleagues, Manish and Rajesh, continue to leader their respective businesses in healthcare, life insurance and high-tech for Manish; and energy communication and services for Rajesh. In delivery, our global delivery engine under the leadership of Ravi has had an exceptional year. The renewal of our existing service clients has shown tremendous momentum. Our data analytics, testing, and enterprise system practices do especially well. Zero Distance, our program to spur grassroots innovation in every project, is establishing a new way to achieve project management excellence. Nearly 100% of our projects have proactively proposed incremental innovative ideas.

In addition to the opportunity to expand the scope of these projects, this program will instill confidence in our teams and help drive a culture of innovators, a culture of innovation across the Company. Ravi's extraordinary leadership this year has been instrumental in our growth, in our embrace of innovation, and I wish to congratulate Ravi on being appointed a President of our Company. On IIP, we completed more than 220 engagements and announced availability of our IIP, our Infosys Information Platform, on AWS. And on IAP, our Infosys Automation Platform, more than 125 engagements in IAP have now happened across our segments and 21 additional deployments went out this last quarter across our key accounts. In Q4 we released 1,710 full-time employees equivalent worth of work across service lines using our Automation Platform, which brings us to 3,900 FTEs released over the course of FY16 due to automation.

These numbers are still small in fiscal 2016, but will continue to rise as the deployment widens and the tools themselves evolve to handle more complex activities that are today performed manually. In addition, we did our first major project to bring the power of Automation and Information Platform capabilities internally to review our own financial processes under Ranga's leadership. We identified and then massively automated the things that cause data entry in our system, which is the batch processes, and we have created a better user experience across our systems. This focus on automation for example went from four hours to one hour in revenue accounting, from two days to completely automating project attribute changes, from 36 hours to 12 hours for accounting at the project level, and many other dramatic simplifications. Congratulations Ranga and your team.

In the coming quarter we'll focus even more on reconciliation and instant reporting leveraging our Infosys Information Platform. Panaya and Skava continued to gain traction both as a part of the large client engagements where these products were central to the value proposition as well as standalone deals. This quarter the EdgeVerve business sustained momentum with 18 wins and 24 go-lives for both the Finacle and Edge suite of solutions across various market regions. In consulting under Sanjay's leadership, we continue to focus on consulting as our tip of the spear and integrated part of our engagements in strategic initiatives with clients and in growing client relationships. Specifically in design led services, I am pleased to see design thinking as a key fabric of our work making its way into every engagement and rapidly reaching all our clients.

Extending the reach of our own work, we continue to make investments in the ecosystem. This quarter we invested in Waterline Data Science to extend what we offer clients in automated data discovery and governance areas. I'm personally very excited to announce an RSU, an option plan, for employees that's starting with managers to drive retention of our high performing leaders and also to attract the best leaders in the world to Infosys. Over time my endeavor is to extend this to all Infoscions as we used to do before. Additionally, we are providing 6% to 12% compensation increase offshore; a little bit towards the higher end of the range at junior levels and at senior levels a little bit towards lower end of this range. Of course for higher performers, these numbers will be significantly higher.

For onsite similarly we are providing a 1.5% to 2% average compensation increase and this will vary across geographies based on prevailing market conditions. In Q4 the Infosys Foundation continued to invest and support programs in the areas of sanitation, healthcare, and rural development. During the quarter, the Foundation signed a memorandum of understanding with the Asia Heart Foundation to enable the adoption of robotics in healthcare through a grant of INR8 crore and provided INR5 crore to Sahakara Mitra Samstha, a center for collective development, to enhance the livelihood of the farming community in the Indian states of Andhra Pradesh and Telangana. It also successfully completed the construction of 365 toilets in 110 schools of Odisha to support the Indian Prime Minister's Swachh Bharat Swachh Vidyalaya Abhiyan mission.

In the state of Karnataka, it launched the Jala Dhaara project in drought-hit villages of Dharwad, Haveri, and Gadag districts by deploying tankers to provide drinking water. In the US, The Infosys Foundation USA continued to engage with the local communities and invest in computer science related programs that are fundamental to our future. The Foundation announced a grant of $1 million in partnership with the National Science Foundation to support computer science professional development for teachers. This collaboration will provide opportunities to as many as 2,000 school teachers and bring value to tens of thousands of students to deepen their understanding of computer science.

Finally, our revenue growth guidance for fiscal 2017 is 11.5% to 13.5% in constant currency terms based on our visibility at this time. As the year evolves and our visibility improves, we will continue to revisit this. And to close, I'm proud of what we have accomplished this year. Our strategy is starting to show concrete results and we will accelerate this in fiscal 2017 and beyond. More importantly what we have seen is that our strategy gives us a new path forward for Infosys and brings purpose and passion to our work. It creates a space for a new type of a services company, a human company that our humanity is amplified by technology to deliver a great value and a great experience for all, a services company that we aspire to be.

Thank you very much. And now my friend and colleague, Ranga, will take you through more details of the financials before Q&A.

Thank you, Vishal. Hello everyone. This is Ranga here. Let me first start with Q4 revenue performance. In dollar terms, revenues grew sequentially in Q4 2016 by 1.6% on reported basis and 1.9% in constant currency basis. On a year-on-year basis when compared to Q4 2015, revenues have grown 13.3% in dollar terms and 15% in constant currency terms. Coming to full-year performance, our full- year FY16 reported revenues were $9.5 billion, a growth of 9.1%. In constant currency terms we grew by 13.3% and at March 31, 2015 rates, the growth was 9.3%. Coming to volume, volumes grew by 2.4% during the quarter as compared to 3.1% in Q3 2016. On quarter-on-quarter basis, onsite volume grew by 2.7% and offshore volume grew by 2.3%. On a full-year basis, volume growth for FY16 was 14.5% compared to FY15. On a yearly basis, onsite volume grew by 16.8% onsite and offshore volumes grew by 13.6%.

On realizations, our realization for the quarter declined by 1.1% on reported basis and 0.9% on constant currency basis compared to Q3 2016. Realization drop for the full-year FY16 as compared to full-year FY15 was 4.7% on reported basis and 1.1% in constant currency basis. Our utilization including trainees increased by 50 basis points to 74.7%. However, excluding trainees utilization declined by 50 basis points to 80.1%. Onsite mix increased marginally to 29.6%. Our operating margin for the quarter was 25.5%, increase of 60 basis points during the quarter. You would recall that operating margin in Q3 was 24.9%. Margins for the quarter increased 20 basis points due to increase in utilization which I mentioned earlier, 20 basis points due to a drop in sub-con cost, and 60 basis points due to rupee depreciation. This was offset by 40 basis drop in margins due to realization decline.

Operating margin for full-year FY16 was 25% as against previous year's 25.9%. Operating cash flow generation was very strong during the quarter. We generated operating cash flow of $562 million in Q4 as compared to $474 million last quarter. Capital expenditure during the quarter was $115 million. Our cash and cash equivalents as of March 31 were $5.202 billion as compared to $4.765 billion last quarter. At the Group level, we added 9,034 gross employees during the quarter with a net addition of 661 employees. Attrition continues to be on a declining trend. At the Group level, annualized attrition was 17.3% as compared to 18.1% last quarter. The quarterly annualized attrition on a standalone basis has declined to 12.6% from 13.4% last quarter. DSO for the quarter was 66 days as compared to 65 days in previous quarter.

As you all know, we had a very volatile currency environment in Q4. We managed to navigate the volatility effectively. Rupee depreciated against the dollar by 2.3% on an average basis and 0.2% on period-end basis. US dollar appreciated 6% against GDP. However, against euro and Australian dollar, USD depreciated by 1.4% and 1.2% respectively. Our hedge position as on March 31, 2016 was $910 million. Yield on other income was 8% this quarter as compared to 8.6% in Q3. This drop is a reflection of softening interest rates in India. We expect yield for FY17 to be approximately 7.5% as compared to 8.6% in FY16, which is a drop of 110 basis points. The effective tax rate for the quarter was low at 27.9% on account of write-back of tax provision from closure of audits in certain jurisdictions. Effective tax rate for FY16 was 28% on reported basis.

However, normalized for provision reversal, the effective tax rate for FY16 was 29.7%. Full-year effective tax rate projection for FY17 is expected to be in the range of 29% to 30%. This is on account of certain software export units that will move from 100% exemption to 50% exemption during FY17. Our net margins during the quarter was 21.8% and remained unchanged quarter-on-quarter. Our EPS for the quarter was $0.23. EPS grew 1.7% on a sequential basis and 7% on a year-on-year basis. Coming to our top account growth. Our revenue from Top 5 clients increased by 0.2% quarter-on-quarter in reported terms and 1% in constant currency terms. From Top 10 clients, revenues declined 1.7% quarter-on-quarter in reported terms and 1.3% in constant currency terms. However, on a full-year basis, our revenues from Top 5 clients grew 11.4% in reported and 12.8% in constant currency.

Similarly for our Top 10 clients, full-year year-on-year revenues grew by 8.3% in reported terms and 12.3% in constant currency terms. These numbers are significantly higher than the previous year. Coming to segments performance for Q4 2016 amongst verticals. ECS grew 4.6%, RCL grew by 2.4%, manufacturing grew by 1%; while Financial Services and insurance declined 0.3% due to seasonal softness in insurance sector. Overall growth in Q4 was backed by all geographies; Rest of the World grew 4%, Europe grew 2.4%, North America grew 0.5%, and India grew 9.1%. Growth in India should be seen in the context of smaller base which sees changes due to ramp up and ramp downs of certain projects. During the quarter the number of $100 million accounts increased to 14 from 13 clients in the previous quarter, number of $75 million plus clients increased to 31 from 28 clients in the previous quarter.

We are guiding for a constant currency growth of 11.5% to 13.5% for FY17. On operating margins, we expect our medium-term band to be between 24% to 26%. As in every financial year, in Q1 margins will be impacted by compensation increases and salary increases and visa costs. We expect it to play out in this year's Q1 as well. With that, we open the floor for questions.

Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Keith Bachman, Bank of Montreal.

I wanted to ask, if I could, on you highlighted that you've taken a large number of deals over the really past two, three quarters. I was hoping that you could talk about what part of those deals came from share shifts or takeaways from your competitors versus deals that might be renewals?

We don't include renewals in this number. These are deals that we win new. And the kind of work that is covered to a large degree comes at the expense of somebody else, but in many cases it is also new work that was being done by the clients themselves. This is generally the backdrop. Obviously we win these deals within an intensely competitive environment and so that's why I'm particularly proud of this particular statistic. It also gives us a good base for future. And I think that as Ranga had mentioned in the press release, every once in a while we hear this thing about winning because of low prices and this is something that is absolutely not true. When we look back on the deals that we have won and we talk to our clients, we find that every deal that we win is because of superior value that we offer and a great experience, a great articulation of the value, and most importantly a great solution that we bring to the table using our innovation and for no other reason. Pravin, you want to add something?

This is Pravin here. I just wanted to correct that. We do include renewals here as well. I understood you don't have the exact data for how much is for renewals. Even in the case of renewals in majority of the cases, it will come with incremental share at the expense of other competitors as well.

Okay. But if I could just push you a second. It seems like Infosys is certainly doing better over the course of the last few quarters if not the last year. Has your win rate against the competitors particularly taking business away from your competitors that they had previously I want to say own, but certainly enjoyed the benefits of existing relationships? Would you characterize that your win rates that take business away from competitors has improved over the last few quarters?

Absolutely. In FY16 we won 21 large deals, total TCV of $2.8 billion and that's compared to FY15 of $1.9 billion so 45% growth over FY15. And definitely in majority of the cases, we are definitely taking away business from the competition.

Okay. Just one more from me, if I could. If I look at sequentially, Financial Services was a little bit weaker than the rest of your business. How should we think about Financial Services as we think about the constant currency guidance of 11.5% to 13.5% for this fiscal year? Would you think that Financial services would be in line with that guidance, better or worse than the overall guidance for the year? And then that's it for me. Thank you.

I think that Financial Services had in fact a record year under Mohit's leadership and Mohit can add to my answer. I�ll just give a high level answer, Mohit, and then you can add. We are actually very bullish on the Financial Services even though we continue to see a challenging environment in some banks because of the nature of the offerings and the value proposition that we bring. We did see some slowdown in the insurance area in the last quarter, but I am not concerned about that, I believe that was a short-lived and a transient thing in certain clients and so forth. Actually our work is resonating quite well. There's a bunch of new engagements that we are involved in and working on. So, overall as I look at the year ahead, to borrow a famous line from my friend Mohit, we are cautiously optimistic.

So as Vishal mentioned, I think we had a very good year overall and the sort of weakness that you're attributing to the particular quarter is partly because of seasonality and partly because of some slowdowns in insurance in the quarter which we believe is this quarter only. Overall, as Vishal mentioned, while there are obviously headwinds in the sector, we continue to be cautiously optimistic. And the fact is that we have won in Q4 itself a fairly significant component of the large deal wins that Vishal alluded to in Financial Services. I believe that our story of renew, which is built around automation and artificial intelligence, resonates with the need for banks to cut down costs and to industrialize operations.

I believe that our story around new; which is around design thinking, around innovation, around digital; is resonating with banks as banks dramatically transform their operations. Obviously there continues to be significant strength in the industry around the risk compliance area which is an area of strength for us and there are certain areas in the banking sector which are transforming themselves. If you take the payments portion of the business, that is transforming itself and it is an opportunity. On the whole, banks today despite headwinds and despite cuts are spending significant amounts on technology and therefore for a company like ours and with a strategy like ours, I do believe that there is an opportunity for us.

Okay, fair enough. Many thanks, gentlemen.

Rod Bourgeois, DeepDive Equity Research.

Wanted to ask about the operating margin outlook for fiscal 2017. To achieve your 25% operating margin midpoint of your guidance, I wanted to ask what does this assume in terms of the impact of pricing on your margin? In other words, can you quantify the impact pricing is expected to have on your margin in fiscal 2017?

This is Ranga here. Yes, we guided 24% to 26% last year as well and we're exactly at the midpoint as we closed FY16. And in FY16 we had a year-on-year full-year pricing decline of 1.1% in constant currency and we do not see any significant either upward or downward change. At this point in time, we do not see much of a difference in terms of the trend line. Second, as you know in terms of operating levers, there were a couple of operating levers that started this quarter beginning to show some -- especially the sub-con expenses as a percentage of revenue which were 6.3% last quarter came down to 5.6% which gave us a benefit of over 20 basis points this quarter will continue.

Likewise on utilization. If you look at utilization, consistently in the last four quarters is about 80% and we do believe that we need to work on that a bit more and see what could be the trajectory of utilization in FY17. Likewise, onsite effort mix was 29.6% this quarter and this number used to be around 27% I would say about two years ago. So, these are some of the operating levers we'll continue to leverage and optimize in the coming years. In addition, of course we have to see how much of automation benefits would kick in during this particular year. So to answer your question, yes, last year that was negative 1.1% in constant currency terms. We do not see a significant change in the secular pricing decline.

That 1.1% that's the blended average price. But what I'm inquiring about is what you expect the impact of pricing to be on your actual operating margin that you're going to realize, can you quantify that?

Typically for every 1% decline, we do see about 40 basis points.

And then in order to offset assuming pricing remains at somewhat negative, what is your biggest remaining operating margin lever to offset that?

The three principal ones of course is the onsite effort mix is one that I talked about, which is currently at 29.6% and we have seen in some of the earlier quarters at 27% and every 1% drop gives us about 35 basis points to 40 basis points in utilization. Utilization is just about 80.1%. There again in the earlier quarters we have seen 83.7% so we need to see how much of that needle we need to move. Likewise in onsite role ratios is another one that we are focusing on and the sub-contractor expenses. In sub-contractor expenses straightaway about 20 basis points to 25 basis points and right now this quarter, it came down from 6.3% of revenue which was an all-time high to about 5.6%. So, these are the three principal levers. Automation benefits is too early to quantify for this financial year, but we will see how that plays in.

Okay. Thank you, guys.

Moshe Katri, Stern Agee.

Can you quantify the pluses and minuses that actually impacted or benefited margins for the quarter?

Moshe, Ranga here. If you look at the operating margin for the quarter, the net drop increased about 60 basis points; of which 20 basis points due to increase in utilization, 20 basis points due to drop in subcontractor costs, and 60 basis point due to rupee depreciation, and this was offset by 40 basis points drop in margins due to realization decline. So, that is the math.

And then looking at your margin assumption for fiscal year 2017, are we factoring any sort of moves in FX?

At this point in time, it's very difficult to predict the rupee movement. If you look at recent months, the rupee has started to strengthen at least in the last three weeks. At this point in time, it is difficult for us to predict. I think the key assumptions would really be around the pricing decline and the volume growth as well as some of the operating levers that I talked about. So at this point in time, it's extremely difficult to assume which way the rupee would move.

And then final question and this is also for Vishal. You've done a really good job in terms of expanding or improving your quarterly booking numbers for the past two years. I think you went from $400 million per quarter in 2015 to about $760 million. What kind of assumptions do we have for fiscal year 2017? And then can you talk a bit about the quality of the new business that's coming on board in terms of the blended EBIT margin contribution for the overall business? Thank you.

The quality of the business is actually getting better because when we go into these deals, we bring a lot of the innovation areas into these IT services, the software, and so forth. As we realize these projects and start to bring them to life, they are going to deploy more and more of that over the course of the project. There do continue to be many aspects of this project that are more traditional in nature or involving transition of resources and onsite hiring and so forth. So as much as possible we are bringing innovative ideas to these, but I expect to see that the contribution of the innovation to these projects will continue to improve as we go forward. In terms of the visibility, we have a pretty healthy pipeline as we look ahead and the pipeline has improved significantly compared to the pipeline that we had a year ago and perhaps Pravin can comment a little bit more on that. Therefore we don't yet have a forecast on the bookings per quarter over the course of the next four quarters, but when we look at all of the various project ramp-up and the revenue gets realized over the course of these quarters, all that is factored into the overall guidance. Pravin, you want to add anything?

As Vishal said, in FY16 we have won 21 large deals, TCV of $2.79 billion. In this quarter itself we won six large deals and in addition we have won two deals where we believe we will add about other $470 million TCV of revenue over the period, which we are not reflecting in the large deals as it's not yet fully committed revenues. Overall in this year we have seen good growth in large deals, good conversion of large deals. Our pipeline has increased, our conversion rate has increased. The pipeline is also pretty strong getting into the coming year and more importantly, the pipeline is broad based. We are seeing good pipeline across both Europe and Americas as well as across various industries.

Thank you.

Rishi Jhunjhunwala, Goldman Sachs.

Vishal, you talked about eliminating almost 1,700 employees as part or effort equivalent to that many number of employees in this quarter. Can you just talk about basically what is the nature of the work in which we actually had these automation benefits both in terms of service lines and verticals?

So we did 1,710 this last quarter, about 1,100 the quarter before, and about 600 the year before that, and so forth. So, more than 3,000 over the course of the year. Beyond BPO, the biggest contributor is CIS, our infrastructure management service. The nature of the work there is limited for now to fixed price projects so that the value realized is something that goes into our automation. And in TNM, it is a disruptive thing so one of the things that we are working on is a strategic initiative to proactively transform the TNM projects into fixed price projects so the benefits of that can be achieved and also to a certain degree shared with the clients and so that will create a win-win situation. Now when you look at the nature of the work beyond the fixed price, so far it has been dominated by L1 infrastructure operations as well as some L2 that we have started to see in the last two quarters. So, that is something also that we are working on.

We have a very exciting initiative that we are working on, I'm personally working on that, around bringing artificial intelligence techniques to the more advanced forms of support, the L3 automation areas where we have more than 10,000 developers who work in application maintenance and work on source code maintenance and changing systems and things of this nature. And by using AI to simplify some of that work, we believe that we can have a dramatic impact on this. So if you look at the 1,700, it is not a meaningful part of the P&L yet. 1,700 is a large number and we are incredibly proud of it and we have been tracking this closely. Myself, Ravi, Pravin, Ranga; we all track this very carefully. But in the overall P&L, this is still kind of a drop in the bucket because it's a little bit more than 1% of the delivery force so it kind of gets lost in the big movement around utilization and things of that nature involving transition of resources and onsite hiring and so forth.

But as this number becomes bigger by making the automation wider in terms of the areas that it comes to and deeper, this number will continue to become more and more significant over the next several quarters and it will take a big bite out of both the margin as well as the revenue per employee. Currently for now, the operational metrics that Ranga talked about will have the lion's share of the effect on margin and RPE, but over time there is no doubt that this will be far dwarfed by automation as automation becomes more sophisticated. And finally, your question about the distribution, perhaps Ravi, you can add to that. CIS obviously was one of the biggest ones, but also in application development and maintenance, in BI, in packaged services, and especially in verification also, we saw significant contribution towards the 1,700. Ravi, you want to add anything?

I think you've covered it pretty much, Vishal. The infrastructure business has been leading the show in automation. We have fairly good momentum on ADM, the application development and maintenance space. And testing services historically has a lot of automation baked into the model and now we've actually found new ways to add more to it. And we use software, which is our own software which is Panaya, to look at automating the enterprise application space.

Any vertical skew?

There's no vertical skew. It's applicable pretty much in all service lines across the industries. Of course the ones which have more infrastructure and more application development have more amenability to it from a standpoint of automation and from the standpoint of using software to drive automation, which is primarily the Panaya suite of products which we have. That's more on the enterprise application space.

Second is recently the Board and the shareholders approved on the compensation structure for you, Vishal, and it seems like it's being linked with revenue margin and revenue per employee targets to be achieved every year. Can you share us the target for FY17?

No, we cannot. This is not a question for the management of the Company. This is more for the Board. Generally as has been shared, it is linked in that direction of the 2020 target. There is some kind of a curve that gets up there and I guess that is something for you to ask the Board.

Great. Thank you and best of luck.

James Friedman, Susquehanna International Group.

When we look forward to the guidance, I was wondering how should we think about the contribution from the top clients? It seems a great portion of your success has been from mining those clients. Is that pattern going to continue as we move into this fiscal?

If you look back over the last year, the contribution of the large clients to the growth of the Company have been significant. We did about 12.3% constant currency growth in the Top 10 clients and similarly the Top 25 as well as the Top 50 clients grew significantly. Last year in FY15 for instance, the growth in the Top 10 client was only 1.5% or something like that, perhaps Ranga can correct me. That number has been increasing significantly and we expect to continue to deliver tremendous value to the large clients. In terms of the depth of know-how, the depth of the relationship both in the client account engagement side as well as the delivery side and consulting, it's quite significant in the bigger clients. We have a deeper understanding of their business, I engage with them as well as Pravin and our management team. So, we expect that this is an area that we have addressed well and I'm happy with where we are.

I think there is still room for more improvement, being more proactive, becoming more strategic to these clients. We expect to continue to do that. At the same time, we're a company operating now at a scale where we should be able to walk and do them at the same time so it is not to say that there is any dilution in the focus towards new account opening, that is incredibly important and it continues to be impacted. If you look at the percentage of the revenue coming from the new accounts or new projects versus renewals, that has improved which is a good thing and we want to continue to see it go that way. And we are also excited about opening certain new market segments, in particular for the smaller businesses, and we have been doing great work with the team on the startup engagement and venture investing. And Ravi is also working together with Sandeep on building alliances towards the mid-market and we expect to share more about that at our conference event later this month.

Great. Thank you. All the best.

Joseph Foresi, Cantor Fitzgerald.

First on Financial Services, you mentioned winning some deals. I was wondering where in Financial Services you're winning those deals and how would you describe large bank budgets overall?

So I think the deals that we have won, one of them is basically to look at the bank's entire suite of applications and to support across them using our Infosys Automation Platform. We've also won a couple of large frame agreements with large global banks. So, I think that is where we're seeing the opportunity. On the capital market side, we are seeing some volatility. But overall, the wins have come from across the board.

Okay. And then my second question is just on pricing. Given that some of the business has matured over the years and there's some level of commoditization and we're talking about maybe a little bit of caution around the banks and this is more of a hypothetical thing, but how disciplined do you feel like the industry is right now around pricing and if there was a downturn, could we see dramatic price decreases?

Look as far as the banking deals are concerned, I think banks have realized that there is a limit to how much you can squeeze out on a per unit basis. In any case, that's not something that they're looking at. So all of the deals that we have have very significant components of software in them. So you've got people plus software that allows you to give that leverage whether it's automation or it's artificial intelligence or the use of frameworks and tools. That is what is allowing us to give those long-term cost advantages to our clients rather than just pointing to that rate reduction because that will not accomplish what the banks are looking for (inaudible) purpose.

Let me add to Mohit's great observation. The banks, especially many of the large banks in certain geographies, are under such severe pressure from a regulatory perspective, from an economic perspective that simply doing the same thing that they have been doing cheaper is no longer enough. A vendor in order to succeed in this climate has to bring capabilities and technologies and innovation that not only others are not able to, but the banks themselves are not able to. So, you have to be able to do things in new ways that were not there because if you look at the large deals as Mohit mentioned, the automation in this case was maintenance. This was a maintenance IT operation support project that we won in one of the large deals out of the $757 million.

So it would not be possible by simply doing the same management and maintenance cheaper, but you need to bring the capabilities of artificial intelligence to be able to bring a dramatic automation based economic improvement as well as a quality improvement in the process with the visibility, with the regulatory reporting aspect, and so forth. So in order for a vendor to be successful in this climate with the banks, we have to have innovation in the story. We have to have a deep understanding of what is going on at the clients and that is what it takes. And it turns out that if you have those, then the fact that the banks are under tremendous pressure doesn't matter. In fact that is a good thing and it allows us to win more business. So, the deal that Mohit mentioned and in addition the two frame deals that we did not include in the $757 million are also both in the financial services industry.

I just want to add one point, which is that if you take a US perspective, then obviously there has been banks that have been working with us for many, many years but we serve a larger market. If I look at Europe or if I look at Australia for instance or I look at parts of Asia Pacific, there are still certain areas where banks are still struggling with technology, where they are still investing sort of fairly heavily to make sure that their core applications that their entire environment is up to spec. And that also gives us significant opportunity. So while there is the industrialization piece which is focused on cost reduction, which is focused in efficiencies, which is focused on automation on platforms, there is also the entire piece around the removal of the banking landscape and around making a new sort of footprint for banks around the opportunities that the new digital technologies allow us. So while there is a focus on cost reduction in certain parts of the industry, specifically in the capital market space, there's a huge growth opportunity in parts of retail and corporate banking, in the asset management business, which are now getting increasingly impacted by technology and therefore need to invest to make that change.

And then just lastly from me. We talked about automation and you gave some headcount numbers, which are obviously on the smaller side. How do you see that playing out over the next couple of years? Do we hit an next inflection point where those numbers become meaningful in a short or a long period of time and what's that impact on margins? I know you've given color in the past so I just want you to get an update on how you see it playing out?

I think in order for this number to start impacting the margin, it will still take some more time. If you look at the utilization as Ranga mentioned, 80% to 83% is what, a few thousand people. So, it has the same impact for now as it does in the world of automation. But on the other hand if we are able to get automation to a much larger percentage of our employee population and the nature of the work that the employees do, that is one-third of the employees or 40%, 50% of the employees' work activities can be more and more automated. We'll see a dramatically larger impact of automation to the bottom line than through any of the traditional operational measures. It is somehow like you can feed the horses better and you can whip the horses and get better horses and so forth, but at some point you need an automobile. And that is sort of a horrible analogy probably, but this is what comes to mind.

The other part of it that you quickly realize is that as we bring more intelligence to the operational processes, actually the cost simplification from automation becomes dwarfed by the value improvement because of automation. More straight through processing, more integrated processes, a better improvement of the experience trying to understand the point of the business process and improving that. Than that becomes much more about innovation and then creating much larger value and so forth. So, that has its own unexpected and significantly larger benefit. So, I'm really excited about all of this playing out. One thing that gets lost in the middle of all these large deals is that a lot of that has been happening because of the automation and so forth as well. So, it is in my view a very fundamental part of the future of our industry and certainly the future of our Company and there is only one way forward and that is full speed ahead.

Thank you.

Arvind Ramnani, Gordon Haskett.

Question for Vishal. It's been almost two years since you have joined Infosys, can you provide color on the nature of the conversations you've had with your clients? Specifically when you started, you spoke to probably a number of your current and prospective clients and they would have given you feedback on their perception of Infosys and I'm sure you continue those conversations now. So, can you kind of elaborate how has the perception of Infosys changed among clients and possibly like some of the underlying reasons for the change in perception?

First of all when I think two years, has it really been that long, it feels like yesterday. I think frankly my answer to this would be somewhat not objective and perhaps even self-serving so it is a little bit awkward for me to answer that especially because I see a distinct sense in that converations have improved dramatically, the relationships have become much more elevated and more importantly the nature of the work that we do has become more elevated. The kind of strategic projects that we are starting to do now with clients is just extraordinary. We work on their digital future, we work on bringing AI to their most complex problems. We recently had a huge company from Europe that was going through a very structural change and they actually did their entire rebranding exercise in our office in Palo Alto.

The entire leadership team of this huge company was locked in our office and working on deep [extensive] questions about their future and their identity and it was just an unbelievable experience. We recently had the entire management team of a massive industrial company visiting our office and they were shocked to find a small team of the design team that we have growing little plants inside the office and they were like what is the story with these plants. And actually these were plants that they were growing for an agriculture company, one of Sandeep's clients, in a heavily instrumented atmosphere where the entire plant, the soil that it was in, and all of that had tons of sensors inside and these people from this giant industrial company were absolutely shocked to see that.

So, those are just two random examples that came to my mind at the end of a 14-hour long day. But the nature of the relationship, the nature of engagements; we are designing actually a workspace. If you can believe it, we are designing an entire building for one of the large companies in the United States because they saw our space, they were very impressed by our ability to build green and highly open collaborative workspaces and so forth. So, there has been an absolutely marked change in the nature of the relationship with the clients, certainly not with all of them, but with an increasing number of these. I would say there's still action in the ones that we've been able to touch with our strategic message and the strategic levels. And I certainly expect to and at any rate I wish to say this is certainly our goal and our aspiration which is more and more of that.

And just a quick follow-up. Has some of the competitors you're seeing have also changed and has the number of deals that you get pre-approved (inaudible), has that also changed?

I have no idea. Is your question that are we winning more deals at the expense of competitors or are they also changing their story? What was it?

Are you basically entering situations where your clients basically kind of pre-select you, but do not even open up some of those projects to competitors? Are you winning projects where you're really like being just selected versus going through like an entire RFP process?

I don't have the statistics on this. But informally I would say that the sole source of the non-RFP deals, the number has at least in some where I see is certainly a fraction of the client base and to me it seems to have increased dramatically.

That's very helpful. And congrats for fiscal 2017 and beyond.

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

Thanks everyone for joining us on the call. We look forward to talking to you. Have a good day.

Thank you very much, sir. Ladies and gentleman, on behalf of Infosys, that concludes this conference call. Thank you for joining us. You may now disconnect your lines.