Infosys Ltd (INFY) 2018 Q2 法說會逐字稿

Ladies and gentlemen, good day and welcome to the Infosys Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode 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'll now hand the conference over to Mr. Sandeep Mahindroo. Thank you and over to you, sir.

Thanks, Farina. Hello everyone, and welcome to Infosys' earnings call to discuss Q2 FID results. This is Sandeep from the Investor Relations team in Bangalore. Joining us today on this call is Non-Executive Chairman Mr. Nandan Nilekani; Interim CEO and MD Mr. Pravin Rao; CFO Mr. M.D. Ranganath; Presidents and the other members of the senior management team.

This call is for 90 minutes and will be split up into two parts. The first part will begin with Mr. Nandan Nilekani giving some updates on the Board matters, followed by which we'll open up the call for questions to Nandan on the areas that he talked about. This part of the call will be for 30 minutes. The second part of the call will be for 60 minutes and will commence with opening remarks by Pravin and Ranga on the performance of the company during the quarter, subsequent to which we will once again open up the call, this time to the management team, for questions.

Please note 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'd now like to pass it on to Mr. Nilekani.

Thank you, Sandeep, and good morning and good evening to everyone on this call. It's really great to be back on the call talking to you. I spoke to all of you last on 25 August when I had just taken over as the Non-Executive Chairman. And during that call, I'd outlined various priorities that the Board would focus on, so let me give you an update of that as well as what basically came out of the strategy refresh.

In terms of the process of identifying the next CEO, that process has begun. And a series of actions are being taken on that and things are progressing well. And we will get back to all of you once we have a decision to report on that matter.

On the shareholder consultation, one round of meetings have happened with shareholders, and we have paused that and the second round will start after our results. And we expect to complete the shareholder outreach either through meetings or through online questionnaire, and we hope to have the full report ready for you by January results.

We had also said that the nominations and remuneration committee would present a long term governance structure, which they have presented a preliminary one in the Board meeting today. We hope to have a final one by the time we meet in January.

On the buyback, I think it's progressing as expected. And later on our CFO, Mr. Ranganath, will give you more details of the status of the buyback.

On the investigation into the Panaya matter and the Rajiv Bansal severance issue, we had said last time that the Board, under my leadership, would conduct a detailed investigation and talk to all the investigators and find out what's happening. We have done that, and you'll see in our press release we have given a detailed statement of the outcome of that investigation.

And finally, the company, as you know, has declared an interim dividend which is as per the capital allocation policy of 70% of free cash flow being allocated for payouts. So that, broadly, are some of the decisions or progress reports on the various items that we had outlined in the 25 August meeting.

Now let me come to you on the strategy side. I think, first of all, let me say that our management team, led by Pravin, have done an amazing job in a quarter where there was a lot of events happening and a bit of turbulence and so on. The fact that they were able to remain on course, they were able to deal with the changes, they were able to deal with changes of the CEO, change of the Chairman, and perform so well I think is a great accolade to our organization and the resilience and strength of our people. So I think as I finish this part of the call, in the second part of this call you will be able to engage with management and they'll talk about the performance of the quarter and anything else that is relevant on that.

But one of the other things we did this quarter, and this was done as part of the commitments we had spoken, was that we did what we called as a strategy refresh. And the strategy refresh was really to understand exactly what we need to do, whether we were doing all the right things, whether we had to do something differently, whether we had change the emphasis and so on.

And I'm really delighted to say that we had an excellent strategy refresh which has now given us complete clarify on what we need to do going forward. This strategy refresh was done in a very collaborative and consensus driven way.

It was conducted by Deepak Padaki, who is the Head of Strategy. We had the committee of directors, Mr. Ravi Venkatesan and Mr. Prahlad, actively engaged in this process. And of course, all the Presidents, Ravi Kumar, Mohit, Rajesh, were all involved. Ranganath was involved. Everybody was involved in this, and we also reached out to all the senior leadership, the top people who do sales, the top people in delivery, the top people in business enabling functions and so on.

And finally, after conducting hundreds of interviews and getting the feedback and also talking to our customers, our management team had a three day conference about 10 days back where they met and really fleshed it out. So let me explain briefly what we see is happening.

As you know, our business is providing business and IT services to the world's largest corporations, many of whom are market leaders in the segments that they serve. And as you know, our strength has been the long term strategic multiyear relationships that we have with these companies and that we play such an integral and essential role in their journey and their use of technology. That is really the core strength. And just this morning we had a customer survey feedback, and we were really delighted to find that our customers ranked us very highly for the quality of services that we offer.

Now, we know that our customers, who are these large companies across the world, Fortune 500 or Global 2000 companies, are facing various simultaneous and disruptive challenges. They are being disrupted by digital competition. There are new tech savvy digital competitors, and there's a rapid substitution of legacy products with new technology.

The big change of the last 10 years has been the rise of the consumer-led innovation with the iPhone and Android phones and so on. And 15 years back, businesses did the innovation and then it come to consumers, but today it's the other way around. Innovation happens with consumers and then these migrate to the business. And now therefore, a big part of the challenge that our customers face is how to provide their employees and the customer the same digital experience, ease of use that they get used to on the apps on the phone. So that's a big challenge that our customers face.

The other big development has been the rise of distribution. So many industries, be it media, be it television, filmmaking, those who have customers are the people who have control. And therefore, you have people who have distribution to a wide number of customers, and then leveraging that to build content or to channelize content through their distribution channel and make money through subscription or advertising.

Then of course we have seen the rise of Internet of Things centers everywhere and the whole role of data in transformation, and data business models have become very big in the last 10 years. And the thing about data is that it has a winner take all behavior where those who have more data can understand more about their customers. Those who understand more the customers can design now products and services for these customers. And then they -- and because the products and services are so well designed, they get additional customers. So data is a virtual cycle, and therefore the nature of business is changing because of data.

Also, with the rise of machine learning and deep learning, it's possible to run these machine learning algorithms against large troves of data to draw insight. And to that extent, domain knowledge itself is getting commoditized.

And then we are also in an era where applications developed by incumbent customers originally designed to be behind the firewall are now being exposed to the Internet. And if these are not adequately secured with encryption and so on, they are likely to be cybersecurity issues and hacking and so on. So a big challenge is how do you ensure that new systems are designed with rigor and all system are made more secure through various interventions.

And then of course we are seeing new technology platforms emerging, like clouds, AI platforms, and so on. And our customers are facing the challenge of how to get more for the dollars they spend on technology. Even as they are adding budgets to the spend, they are looking at how to become more efficient.

So really, we see two things happening for us. One is a huge demand for new services. And later on, my colleagues Ravi Kumar and others will talk about how new services are really growing at a great pace. And therefore, our job is to build these new services, make them hugely -- grow very fast and provide the growth for the future.

At the same time, our customers who are investing are trying to make sure that their investment in their traditional services is optimized. They want to use more automation and more streamlining, straight through processing, process automation and so on. And therefore, they're simultaneously looking at us to provide new services as well as make sure that the earlier, traditional services are automated. So we are facing both these challenges at the same time.

We also have the issue that how do we think about solutions -- how do we think about our services. And there we believe strongly that our strategy of software plus services is very valid because it's not about services alone. It's about having a platform which is basically built using a lot of open source components and then put together to a harness which puts all the components together, and then configuring these products to solve specific needs of our customers.

And that's exactly what we are doing with the Nia platform. We have done a detailed thorough analysis of Nia both internally and externally. There are many good things. There are things that need to be improved, and we are working systemically on improving them so that they can be scaled up and made applicable to a large number of our customers as well as the way we approach it to our customer, the go-to-market. We are looking at how to make that more efficient.

So we are completely committed to the software platform or software product plus services model. But the important thing is that we are looking at complete integration between the two, because ultimately it's about our customers who are wanting these large transformations combining the products, combining our various services and actually transforming. And that is really where the big opportunity for us is, and so we expect to do that very well.

We are also seeing that a big challenge for us will be reinventing and re-skilling our people. We have to -- just as we modernize and offer new services, it's important that our team, whether they be the people in the front in sales or the people in delivery or the people supporting business or the people in consulting, they all have to be completely up to date and current with the latest trends in technology, software architecture, open source, machine learning, analytics, whatever it is.

And therefore, having a very agile, anytime, anywhere learning platform is something that we think is key to our competitive advantage. And we have a team working under Tan Moorthy and Cyril [ph] fundamentally to see how our learning platforms can be completely upgraded so that people can get access to learning wherever they are on whatever device they have for whatever length of time they are free.

So all these things are being put together. We are also looking at how to make sure we are organized more agile, because our customers expect us to solve problems quickly, to be able to respond to market needs, to be able to prototype and offer solutions and then rapidly iterate them, to use new kinds of integrated DevOps where software is released every day and there's a full automated testing of it and single version control on the cloud. Lots of things of that nature have to be done, and we are looking at doing that. And I think we are looking at how to get our leadership fully aligned so that we get our customers going forward.

So I think this is something which has been done. Specifically, we are rapidly scaling up our new digital services. As you can see this -- and later on when you speak to management, they will show you how there is rapidly growing double digit quarterly growth in our new digital services, and we are rescaling at the same time. We are evolving our platform, so we are looking at how our flagship AI platform Nia, along with the automation platforms of AssistEdge, how they can come together to create a complete range of automation and machine learning capabilities for our customers.

And we have today a large number of places where we are looking at both, where they are being used either -- being used to solve some problem or they're doing proof of concept. And we are taking a systematic look and see how we can scale that across the company.

We also are integrating and evolving our design capability so that we can accelerate the digital businesses. And we have -- as I said when I began, our strength is trusted relationships which have spanned multiple years with some of the world's largest and most iconic companies. And I think the fact that we have these relationships, the fact the relationships have often lasted for decades and the fact that these customers come to us for a significant part of what they have to do is really the source of our strategic advantage.

And we believe that, as we continue to offer them more and more of the new kind of services, as we are able to give them the kind of thinking and ability to configure and put things together to transform themselves, we only will see more growth with these customers. At the same time, our new way of doing things with this combination of software and services will also be -- enable us to get access to customers who are not currently with us, so both our ability to grow our business with existing customers as well as a way for us to differentiate as we get new customers on board.

And increasingly, what we are finding is that the kind of solutions we have to offer have a significant impact on business outcomes. And therefore, we are able to see how we can offer these as business solutions where it's not just about technological cost savings but making an impact on customers or increasing sales or increasing profits, or whatever it is that is required by the customer on the business side.

Let me also say that we are embracing automation aggressively. We have both automation in our services to offer our customers business transformation (inaudible), as well as automating our traditional services so that our customers are able to get better value. We are able to get better value and we can remain competitive. They can become more productive. So we have a complete initiative now to not only just look at automating in pockets, but how to apply it across the firm.

And then we are also addressing diversity. We have now a plan. As you know, we announced a plan to hire several thousand people in the U.S. We are setting up local hubs. We are working closely with the U.S., the state governments, in doing that. And that is another big differentiation that we are seeing. And the customers are also welcoming our initiative to do this and want to partner with us to leverage these kind of centers that we have, which are also in the same time zone and which give them rapid flexibility.

So I think we are very excited by what we are doing. We have taken complete stock of our product thing. We are bringing the Nia and Edge platforms together. We are looking at all our other investments within Finacle, Panaya, or with Skava, so we'll continue to push that. But we look at both closer integration between our products and our services so that the combined thing gives us the solutions that our customers want and is keeping integration between the two.

So I think this is the strategy which has come about by a process of both top down and bottom up work. It's a strategy which everybody has bought into. And we are very -- we have a sufficient depth of technology, engineering, and management expertise to execute on the strategy.

So we are very excited by the possibility of the future. And I think when we talk to you again in January and then in April, we'll be able to report more progress on this implementation. The good news is that we have complete alignment among all our internal stakeholders to work on this.

So now I'll stop and take questions on any of the Board decisions and updates as well as anything on strategy. And I'll do that for about 10 minutes and then I'll hand over to Sandeep to then continue the call with management.

So now I think, Sandeep, we can open it up for questions. But my request here is the business performance questions, please reserve that for management and limit your questions to me on Board issues, governance issues, and the strategy I just outlined.

Thank you, sir. Ladies and gentlemen, we will now begin with the question and answer session. (Operator Instructions) The first question is from the line of Anantha Narayan from Credit Suisse. Please go ahead.

Yes, thank you. Good evening everyone. And Nandan, belated Diwali wishes to you and to the management team. I had two questions, my first question on a little of the strategy that you just outlined. So as you went through this strategy refresh process, were there any elements of the strategy under Vishal which were significantly modified?

Yes, I don't want to get into a comparison of strategies. I think the experience that all of us have had is how to build a strategy which is built both bottom up and top down. And so we have done that systematically. We have looked at elements. We have been very agnostic. Where there is something good, we have kept it. Where there's something which is not working, we have said this need not be done. Where there is something good and needs work to be done in tuning it, we are doing that.

So a lot of that is that kind of stuff. And I think the important thing is that clear commitment to extend this, scale it across the company and execute well. That's really -- I think for a large services company like Infosys with $10 billion in revenue, annual revenue, and 200,000 employees, how do we take this out to everyone? How do we make sure the customer in New Zealand or in Dubai has access to this? How do you make sure that every employee has access to the latest skills? These are really fundamental block and tackle issues that have to be done at scale and speed.

And we really looked at that, identified any gaps and also made sure that our alignment between product and service is very tight, because finally the customer doesn't really care which part of the solution is a product, which part is a service. He doesn't care which part is an open source product, which part is a proprietary product. All he cares about is our ability to configure these various things and provide him business benefit.

And I think that requires a huge amount of coordination internally between our various service owners, between our sales team and between the product guys. And that is something we are focusing on.

Thanks, Nandan. And my final question was then on the review of investigations. So have you or the Board had a chance to engage with Mr. Murthy after this process was completed? And is he now sort of completely satisfied with the review?

I think that's a question you need to ask of him.

Okay. Thank you.

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

Good evening. Thank you. I was curious if the company's approach to mergers and acquisitions might change, may accelerate, reduce. It sounds like maybe you're trying to step up the pace of shifting the company to be more digital, and a lot of your competitors have used acquisitions to do that, if you could give us your thoughts. Thank you.

Sure. I think that's a great question. I think absolutely you're right. Our endeavor now in the next 12 to 18 months is to accelerate our pace of change to aggressively embrace automation both for the traditional services as well as use automation to make our new services more compelling. And so that's the fundamental driver.

Now, you have to realize that if we have to do that, we also need to make sure that the current organization is capable of delivering on it, which is why we need to invest in learning, education, training, building new products, service, etc. So that part has to be done anyway.

In addition to that, if there is some acquisition which is going to help us to accelerate this, absolutely we will make those acquisitions. But those acquisitions have to fit into the strategic envelope that we are talking about, and I think you will see that this time we did one acquisition on the design side. So absolutely if there's a particular part of the -- piece of the puzzle which requires a company which is there which has the right knowledge, skill set, technology or whatever, and if that fits in and that's going to accelerate it, definitely we will do acquisitions.

Great. My other question is, to be honest, I really didn't hear any change in strategy, so I'm a little confused on that. Is it a little less biased to sort of software aspect than maybe in the prior administration, if you could give some sense on that? And the company's center of gravity was sort of shifting to Silicon Valley. Is it now going to shift back to Bengaluru? Thank you.

Well, I think when you talk about strategy at this level, a lot of it is how to execute that at scale and speed, how to integrate it across the company, how to bring different parts together, etc. And I think it's not something -- it looks superficially the same. But actually, in reality when you get into the details the nuances come out, but I won't really be able to get into all of those details.

The second thing is that I think our Palo Alto office continues to be a very vital part of our future. We see Palo Alto office as a listening post to the latest developments in technology happening in Silicon Valley about the latest developments in machine learning, AI, deep learning, virtual reality, automated reality, self-driving cars, whatever it is that's coming out of that area.

So we will have a strong presence in the valley. We will have a strong team of long term horizon technologists looking at the latest developments. We will also have a process by which -- as and when we understand these new technologies, we will have a process by which we can bring them to our enterprise customers so to how they can use this well, because the real challenge is how do we take these technologies that are emerging and how do we use that to create business benefit for our customers.

So I think our presence in Palo Alto will be a very critical presence going forward, and we'll have the right team and the right leadership to take advantage of that location.

Thank you.

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

Yes, I want to try to follow on Ed's question in a different way. Your current revenue growth is around 5% currency. You're guiding revenues, round numbers, to 6% constant currency. Is that a level that you're satisfied with? Because it seems to be underperforming the industry. And the corollary of that is, if you're not satisfied with that level of revenue growth -- and that was the FY '18 guidance, rather, plus or minus 6%, call it, for round numbers -- how do you anticipate changing the revenue growth rate to improve it and/or emulate what would be the growth rate of your competitors?

Well, we are satisfied with the performance. I think we delivered excellent growth and very good margins. Obviously, we have to look at what we have achieved in the first half year and look at what we expect to achieve in the second half, and the guidance is based on that.

But the important thing is that we are investing a lot of our time and energy in building the capabilities, building the pipeline for the future. And I think that's what you'll be seeing in the coming months.

Sorry, just to push back, how are you concluding that the revenue growth that you just reported in the guidance is excellent? If the constant currency revenue growth is 6%, is that what you think industry growth is?

I think -- first of all, I think as you know we had a quarter which was fairly eventful. We had a change at the CEO level. We had a change at the Chairman level. We had a third of the Board resigning and so on.

Yes.

So we had a lot of turbulence right in the middle of the quarter. I think it is to the credit of our management team under Pravin's leadership that they continued to focus on customers, deal with any questions customers raised, continued to win new deals. So yes, I think -- in the circumstances, I think it's an excellent performance.

Okay, fair enough then. Just to --.

This is Pravin here. I would like to add I don't think we have really underperformed. If you look at both quarter 1 and quarter 2, on the constant currency basis our growth has been higher than our peers, the majority of our peers. Even in quarter 2, a couple of peers have announced their results. And our constant currency numbers, which we announced today, is higher than what has been reported by our peers.

So I wouldn't agree that our performance -- industry growth rate is anyway as of the end of the year. At the beginning of the year, there was some sense of what the industry growth rate would be. And at the end of the year, you will really see where we will land. So we'll have to wait and watch.

Okay, fair enough; many thanks.

Thank you. We have the next question from the line of Viju George from JP Morgan. Please go ahead.

Yes, thank you for taking my question. Nandan, I was just curious about this integration you talked about between products and services. What does this mean? Does this mean that, while products are important as platforms, they will not really have an independent mandate insofar as they may have had in Vishal's time? And what's the interplay you're seeing with services there?

No, I think a difference in the product. For example, we have a product like Skava which is for digital e-commerce, mobile first and all that. And that would require both independently that being sold, because that requires a particular type of product sales approach, as well as integrated as part of some combined offering. So that would be true of, say, something like Skava.

On the other hand, something like Nia, which is really a platform of reusable open source components put together with a harness, a scaffolding of development environment tools, and which has very good capabilities on data analytics, machine learning, that is more likely to be provided along with a set of services, because our customers will expect us not only to provide those capabilities, they would expect us to provide those services so that we can take a particular business problem and solve it.

So I think it depends on the products. Some products will have both standalone sales as well as integrated sales. Some products are more likely to be part of only integrated sales.

Sure. Thank you. And just as a follow on, in several of these products do you think that product architects, people capable of go-to-market for these products, that talent can come from within Infosys, or do you think they have to necessarily come from product companies like Vishal had attempted to do?

Oh, absolutely one of the things -- I have now been 60 days here and I have spent a lot of time. I am very happy to see the talent depth in Infosys. There are thousands of people who have experience in open source. There are thousands of people doing data scientist work. There are thousands of people with cloud experience. There are hundreds of people with architecture expertise.

And also, I think you must realize that the architecture requirements in this new world are not necessarily the way traditional products were designed. The architecture requirements in the new world require deep understanding of open source and scale. I don't that you guys know, but when they built the Aadhaar platform, which has a billion people on it which does 1.5 billion transactions a month, it was entirely built on an open source stack.

So I think we know the people who do these things. We have many people in Infosys who do that. I am very comfortable that we have a deep management -- or talent technical bench to do the new kind of technology architecture. At the same time, if on any particular dimension we need people, which we can do either through hiring or actively hiring or so on, we will do that. There's no issue.

Sure. Thank you and all the best, Nandan.

Thanks.

Thank you. The next question is from the line of Joseph Foresi from Cantor. Please go ahead.

Hi. My first question is just maybe you can give us an update on the search for the new CEO. And then along those lines, do you feel like this is, given the strategy refresh, going to be somebody who has to have a software background?

Well, I think first of all, let me say that we have a very elaborate and exhaustive process on the CEO selection. The process is anchored by the nominations and remunerations committee chaired by Kiran Mazumdar-Shaw, the Chairman of Biocon. And she's assisted on that with Mr. Prahlad, Mr. Ravi Venkatesan, and Mr. Sundaram. And they have done an excellent job of identifying what are the attributes of the CEO as well as systematically meeting many prospective candidates, both internal and external.

So I think that process is going well. I would hesitate to give you a timeline for this because, as you know, this has -- there are many steps in it. But I think -- I am satisfied that the process is being done thoroughly and we can take it to closure in a reasonable amount of time.

In terms of the person itself, I think we have prepared an ideal list of attributes, and we'll have to take it as it comes. And obviously, knowledge of the software would certainly be one attribute. But there are other attributes too as you think about it, because it's about leadership. It's about transformation of an organization. It's about customer connect, so lots of dimensions that we have identified in our search.

Got it, okay. And then it sounds like the strategy is to maximize the digital opportunities while increasing productivity on the maintenance side. Is that still the case? And if it is, that strategy is fairly similar to some of your competitors, so I'm wondering how your strategy, you feel, differs from those competitors? Thanks.

Well, yes. First of all, I think that aspect of strategy, which is increasing your share of revenue from new high growth services which are in demand and automating your traditional services, there is no other strategy. That's the only thing that large services companies have to do.

The question is, A, how well you can execute on that, how well you are able to reposition yourself to be considered as a provider of new services, how well you are able to use automation in both the old and the new, how well you are able to re-skill and reinvent your people to be able to deal with this challenge and so on. That's where the real challenge is, not in the -- it's not in the 2X2 metrics or something.

At the same time, I think because of our investment in Nia, we think that -- and with certain tweaks on Nia because there are certain things -- and I'm doing another review of it on Monday, I think there are a lot of good elements. There are some things we have to do differently, so we will look at doing that.

So I think the fact that we have invested in an AI platform using the latest open source components which have built in machine learning, data extraction, data analytics tools, I think gives us a serious competitive advantage which -- we have to take it to the next level to realize those benefits, but that's what we are committing to do now.

So I think the broad strategy, which is automate the old and build high growth new services, that everybody will have. How well you execute and how well you build the intellectual assets to do it, that is going to be the differentiator.

Got it. Thank you.

Thank you. The next question is from the line of Diviya Nagarajan from UBS. Please go ahead.

Hi. Thanks for explaining your strategic initiatives. I am kind of trying to approach it from a slightly different angle here. There were two elements that we had to the software plus services model. One was to kind of build software in-house through a set of people, many of whom have left the company in the last, say, 12 months. The second was M&A. And I did hear you talk about potentially accelerating that. But given where things are today, how do you think we can get this strategy back on track? That's the first part of my questions.

And second, I think, well, the idealistic kind of build a software plus services model, this is something that we have heard from service companies, including Infosys, in the last several years, and success in this has somehow been elusive. What do you think that we need to do differently this time to kind of succeed in actually building a successful software plus services model?

I think not only the strategy is on track, what we will see is an acceleration of what we are doing. So I don't agree with this not being on track kind of thing.

We have ample talent. We have people who have experience in building these things. Many of the projects we are doing today use these sophisticated approaches. The GSTN architecture is state of the art. So I think we have a lot of capability, and I have no doubt that our people will be able to do that. So I am very comfortable that the strategy is on track. And if anything, we are going to accelerate this whole thing.

On the other thing, finally it boils down to how well you can execute; how well do you articulate your value proposition, how well you build the software plus service approach, how well you solve the internal problems so everybody is aligned, how well you re-skill your people, etc., etc. So I think finally it boils down to how well you execute. And I am confident that Infosys, with its ability to execute, along with a CEO who I am sure will provide the right leadership, will be able to do this transformation in the next -- in the coming years.

Thank you.

Thank you. I now hand the floor back to the management for further proceedings of the conference call. Over to you, sir. Thank you.

Thanks, Nandan. Hello everyone, and thanks for joining us on this call. I will give you a brief update on our quarter 2 performance.

As you are aware, quarter 2 saw significant changes in the company at the management and Board level. We responded quickly to these changes through proactive communication with all stakeholders, including clients and employees. This ensured that the impact on the business in quarter 2 was minimal.

We continued our steadfast focus on execution, leading to a satisfactory performance in quarter 2. Our revenues grew sequentially by 2.9% on reported dollar basis and 2.2% on constant currency basis. We saw growth in all the four large verticals and delivered strong growth in emerging verticals like energy and utilities, life sciences, transportation and logistics.

Volumes grew by 1.6% quarter-on-quarter. Realization grew 1.3% quarter-on-quarter on reported basis and 0.7% on constant currency basis. Both on a year-on-year basis as well as a (inaudible) of fiscal 2017, realization was flat in the constant currency terms, reflecting stability in the pricing environment as well as continuous improvement in our service mix towards higher value offerings.

In terms of service offerings, we had notably strong growth in infrastructure management, testing and BPO services. Our new offerings in areas like cybersecurity, cloud, big data, IoT, etc., again contributed to approximately half of incremental growth in quarter 2, thereby improving their share further to 9.4% of revenue from 8.3% last quarter.

We had another quarter of extremely strong operational efficiencies during the quarter. Utilization, excluding and including trainees, reached the all-time high levels of 84.7% and 81.8%. Onsite/offshore mix improved during the quarter by 0.7%. Revenue per FTE improved to $52,684, which is a growth of 1.5% quarter-on-quarter and 3.3% year-on-year. Attrition increased marginally to 17.2% on a standalone basis and 21.4% on a consolidated basis.

Effective July, we gave compensation increase to the 85% of our eligible employee population in India. Effective October, we have also rolled out compensation review for middle management employees across India and some overseas markets. The compensation review program for the senior management and leadership levels and other overseas locations is currently in progress.

During the quarter, we won 5 large deals with a TCV of $731 million. Both the TCV of deal wins and share of new deals improved over quarter 1 '18. For our software-led offerings in quarter 2, Infosys Nia, our flagship AI and automation platform, continued its positive momentum, driving several deal wins. The platform has been levered across diverse business solutions, including loan on-boarding, fraud management, demand sensing, predictive costing, contact complaints, and procurement automation. We are working more than 100 clients on close to 200 engagements, and see tremendous potential for the platform and business solutions going forward.

Coming to some of the verticals, in financial services growth in quarter 2 was in line with our expectation. We expect seasonal softness in quarter 3, driven by frontloads in spending cuts. On a mid/longer term basis, however, we remain optimistic about tech spend in BFSI and our strong competitive position, which is reflected in our large deal wins as well as pipeline.

Manufacturing vertical is seeing some insourcing and cost optimization initiatives by a few clients. There is some pick up in activity in ERP space driven by M&A in the sector in the last 12 to 18 months. High tech companies are changing their business models to capture new sources of revenue.

In retail and CPG, nondiscretionary spends are being impacted due to slowing growth, leading to cost pressures. On discretionary spend and new technology adoption, there is growing interest to embrace digital, AI, RPA, analytics, etc. Telecom is seeing significant industry consolidation to achieve diversified product offerings and monetize the network traffic in a better way.

Coming to digital, clients are looking at renewing their legacy landscapes and investing in customer experience, new commerce models and in digitally connecting their enterprise. Digital experience, content management, field force management and digital marketing are some of the key trends we are witnessing across verticals. Retail and finance services industries are leading the transformation towards digital and are looking at consolidation of services, automation, improved customer experience and eliminating supply chain issues.

This quarter we further strengthened our digital expertise with the acquisition of Brilliant Basics, a London-based digital innovation and customer experience studio known for its world-class design thinking-led approach and experience in executing global programs. This acquisition extends our digital design services network to include Europe and Middle East, and enhances our capability to deliver digital innovation.

We further enhanced our global footprint by opening a new office in Netherlands. Additionally, we have made good progress in our commitment to hire 10,000 America workers over the next two years, and announced that we will open our North Carolina technology and innovation hub in Raleigh.

Beyond business as usual, Infosys has been inducted into the prestigious Dow Jones Sustainability Index and is now part of the DJSI World and DJSI Emerging Markets Indices. This recognition is a testimony to Infosys' corporate sustainability leadership in the IT services and Internet software and services industry.

During the quarter, Infosys Foundation signed a memorandum of understanding with the Indian Institute of Science Bangalore to enhance infrastructure and broaden research activities at the Centre for Infectious Diseases Research at the institute. Infosys Foundation USA continued its focus on training new computer science teachers. Working with our grantees Code.org and Donorschoose.org, the foundation supported training of over 1,000 teachers at various locations across the U.S.

Coming to guidance, based on our performance in first half of the year and seasonal softness that we typically see in H2, we have revised our revenue guidance to 5.5% to 6.5% in constant currency terms.

I will now pass it to Ranga to talk about the financial highlights.

Thank you, Pravin. Hello everyone. Pravin has talked about overall stability on multiple dimensions.

At the outset, I would like to highlight 3 key aspects of the quarter. These are, first, broad-based improvement in operational efficiency parameters; second, healthy and stable operating margin, net margin and EPS growth; and third, steps taken towards the implementation of capital allocation policy.

Our relentless focus on improving operational efficiency parameters continued to yield results in this quarter. We had continued improvement in multiple operational efficiency parameters like utilization percent, onsite mix percent, revenue productivity per employee, onsite employee cost as a percentage of revenue, total employee cost as a percentage of revenue, leading to a healthy and stable operating margin. Our operating margin for the quarter was steady at 24.2%. I'll be providing more details on this shortly. Net margin improved to 21.2% compared to 20.4% last quarter.

Coming to capital allocation policy, several steps were taken during the quarter. As you are aware, during the quarter the Board approved the buyback of equity shares of the company amounting to INR 13,000 crores, approximately $2 billion. Shareholder approval for the buyback of equity shares was obtained through a postal ballot, and a public announcement was made on October 10, 2017 on buyback of equity shares. Draft letter of offer for the buyback has been filed with the regulators for their comments.

The company announced today an interim dividend of INR 13.00 per share, approximately INR 0.20 per ADS, as compared to an interim dividend of INR 11.00 per share announced last year. As announced earlier, the record date for both buyback and interim dividend is November 1, 2017.

Now let me talk about revenues. Our revenues for the quarter were $2,728 million. This is a sequential growth of 2.9% in dollar terms and 2.2% in constant currency terms. In rupee terms, revenues for the quarter were INR 17,567 gross. This is a sequential growth of 2.9%. As compared to Q2 of last year, the revenues grew 5.4% in dollar terms, 4.6% in constant currency, and 1.5% in rupee terms.

When we compare rupee growth -- revenue growth in half year, that is H1 '18 revenue as compared to H1 '17, the revenue growth was 5.7% in dollar terms and 5.5% in constant currency terms, and 1.6% in rupee terms.

Sequential volume growth for the quarter was 1.6%. As compared to Q2 of last year, volume growth was 4.7%. Pricing realization on a sequential basis improved by 1.3% in reported terms and 0.7% in constant currency terms. On a year-over-year basis, for H1 of this year as compared to H1 of last year, which is a better comparison, pricing realization was flat.

Revenue per employee improved further this quarter to $52,684, a sequential growth of 1.5% and year-on-year growth of 3.3%. While the revenues grew 5.7% in H1 this year as compared to H1 of last year, the net headcount declined by 0.7% during the same period. This is primarily on account of lower net headcount addition due to higher utilization and productivity improvements.

We ended the quarter with a total headcount of 198,440, which is a decrease of 113 from last quarter. During H1 of this year, the net headcount decreased by 1,224 employees as compared to a net addition of 5,785 employees in H1 of last year.

Coming to operational efficiencies, utilization excluding trainees increased further to an all-time high of 84.7%, as compared to 82.5% in Q2 of last year. You would recall that the utilization has been consistently above 80% for the last 10 quarters in a row.

Efforts towards moderation in onsite mix has led to onsite mix decreasing to 29.4% in Q2, which is the lowest level in the last 8 quarters. Onsite mix stood at 30.1% last quarter. Our focus on optimizing onsite employee costs, including a sharper focus on productivity, onsite pyramid, and other cost optimization measures led to a decrease in employee cost as a percentage of revenue from 54.4% in Q2 this year from 55.4% in Q2 last year, a drop of 1%.

Subcontractor cost as a percentage of revenue was 6.2% this quarter as compared to 6.3% last quarter. Subcontractor expenses are driven primarily by higher utilization and onsite talent demand.

Our operating margin for Q2 '18 is at 24.2%, which increased sequentially by 10 basis points. Reduction in onsite mix helped margins by 20 basis points. Improvement in utilization helped margins by 30 basis points, while improvement in price realization helped margins by another 30 basis points. However, this was offset by higher compensation costs due to compensation review in Q2 and higher variable pay, which put together impacted margins by 80 basis points.

Other benefits, including cross currency and cost optimization, was partially offset by increase in provision for the year, increase in professional charges, and impact of hedges, resulting in 10 basis points improvement as compared to Q1.

Our earnings per share for the quarter was $0.25, representing a sequential growth of 7% and a year-on-year growth of 7.3%. On rupee terms, EPS was at INR 16.35, showing a sequential growth of 7% and a year-on-year growth of 3.3%.

Due to continued healthy cash generation, cash and cash equivalents including investments stood at an all-time high of $6,340 million, which converts to INR 41,392 crores. As mentioned earlier, planned outlay for buyback is up to INR 13,000 crores, which approximately is $2 billion. Further, outlay for interim dividend to be paid out during the quarter is $524 million, including dividend distribution tax. Cash provided from operating activities as per consolidated IFRS was $441 million and INR 2,831 crores.

DSO for the quarter increased to 71 days as compared to 68 days last quarter. CapEx for the quarter was $63 million, or approximately INR 406 crore. In H1 '18, operating cash flow increased by 8% in dollar terms and 3.6% in rupee terms. Free cash flow increased by 19.1% in dollar terms and 14.3% in rupee terms. Yield on cash for the quarter was 6.97% as compared to 7.07% last quarter. Our hedge position as of September 30, 2017 was $1.4 billion.

We reiterate our FY '18 operating margin in the range of 23% to 25%. With that, we'll open the floor for questions.

Thank you very much. Ladies and gentlemen, we will now begin with the question and answer session. (Operator Instructions) We have first question from the line of James Friedman with Susquehanna International Group. Please go ahead.

Thanks for taking my question. Good evening. I'll just -- I'm going to ask two up front, one more strategic and one more financial. The first one's for Pravin, the more strategic. Pravin, could you comment, in your opinion, about how you view the relative strength of offshore versus onsite delivery at this stage in the development of the company and the industry? That's the first one.

And then Ranga, I'll just ask you up front. Thank you for the incremental disclosures. They were very helpful. I wanted to ask you about the commentary that you made with regard to the onsite pyramid. How should we be thinking about the journey of onsite costs as a percentage of total costs going forward? So the first one onsite/offshore strategy, and the second one more onsite/offshore financials. Thank you.

In my mind, I don't think there is any difference between an onsite or a offshore thing. Typically whenever a new service gets incubated and wherever it calls for a lot more understanding of the market or domain in which the service is being evolved or much more client interface, we do see a lot more of onsite presence there. People are working closely with the clients in the co-creation more than developing the solution.

But once the technology matures or when the solution matures, then there are opportunities for scaling. And that's where we typically leverage our onsite and offshore model as well. So I don't really see too much difference. Both have a role to play.

And also there is also this element of talent and skill. Today when you look at insourcing, a lot of clients setting up their captives in India. The primary reason they are doing is not from a cost perspective, but more from a talent availability perspective. And that we continue to see on an ongoing basis.

So I am not sure whether I really understand your question. But from our perspective, we work on a global delivery model where there is a seamless integration between onsite and offshore. And depending on the services, the nature of work done onsite and nature of work offshore is also clearly distinct.

Apart from that, I don't see much difference. There are times in the product life cycle or in the service evolution stage you may have stronger onsite presence. But over a period of time, anything -- we believe that anything can be executed in the onsite/offshore model.

Thanks, Pravin. On the other point, currently our onsite employee cost as a percentage of revenue is around 38%. I think the focus on the pyramid is -- coming back to the pyramid question is really on how do we kind of look at the pyramid model onsite. For example, we recruited close to 300 people from the universities, the freshers. And how do we infuse some of them into some of these projects is one aspect of looking at it.

And the second one is also looking at the fixed price projects. Due to the productivity improvements, etc., how do we look at especially the senior roles in those projects and how do we kind of redeploy them in some other projects is another way to look at it.

And the third aspect is also we are evaluating the dollar contribution per employee at the senior roles and seeing is there a concomitant increase in the billing rates to reflect the underlying salary cost. And if that is not there in a particular project, could we look at that employee -- senior employee getting billed at a better rate in another project, either in the same client or a different client?

I think we are looking at multiple approaches to this. At this point in time, I think there is no one lever we need to press in looking at all this. But one point that we want to ensure is that we don't want to look at onsite pyramid in isolation, and it should not be looked in isolation to the revenue opportunities that we have onsite. I think we need to have a delicate balance between the two.

Okay. Thank you for the details and the perspective. All the best.

Thank you. The next question is from the line of Ravi Menon from Elara Securities. Please go ahead.

Thank you for the opportunity. The first question is about the realization improvement here. So we saw a nice increase in fixed priced projects as well. Is this a key factor that has helped realization, and should we say that the realization improvement is sustainable except for factors like fewer working days in Q3?

I think you are right. In this quarter, of course, we had a sequential pricing realization improvement of 1.3%. I think quarter-to-quarter, there is always volatility depending upon the -- there are also certain projects. The recognition pattern is not really linear. But however, overall I think a better indicator would be really on the year-on-year growth. How has the pricing performed?

If you look at the first half of this year as compared to first half of last year, we have seen flat pricing in terms of pricing, which is also, in a way, kind of as compared to earlier periods -- typically we used to have in terms of constant currency 1% to 1.5% decline in pricing year-on-year. But this half year versus last half year, it has been flat. To that extent, it is stable.

And what would you say would be your optimal onsite/offshore effort mix? You already lowered the onsite ratio a little. Do you think there is room to go further, or do you think we are pretty much close to an optimal level already?

I think the way we look at onsite mix is really by service level, right? I think certain services are more amenable for onsite mix reduction, for example. Some of the commoditized services like testing, for example, or maintenance, for example, are more amenable. But some of the new services like the digital user experience, low agile or prototyping kind of work, typically have a larger onsite component; similarly consulting will have and so on.

And our approach has been to see by service line. And this quarter from -- it was 29.4% from the highest, 30.2%, last quarter, which is the low in the last 8 quarters. In the past, we have had -- about three years ago or so, we have had the onsite mix at 27%, around 27%.

But it's not to say that, look, that is what that we'll ultimately aim for, etc. But I think this is a continuous journey that we have to focus on, service line by service line focus, and see where are the opportunities. I think it's really a grounds up exercise rather than the top down exercise.

Great. Thank you.

Thank you. The next question is from the line of Shankar Singh [ph] from XLCR ph Capital. Please go ahead.

Yes, hi. It was more related to the strategy which Nandan claimed. Now, if we talk for base services, then what are the parameters as investors that we should track now going forward to see what is the sort of investment which is happening in this area and what was the outcome of it? And secondly, who will be new competition as such?

On the software productized services, the parameters, some part of the productized services we will probably be looking at more going into a SaaS kind of model. So one of the parameters should be, in terms of only for that piece of it, the amount of subscription revenue kind of thing.

But today as a percentage, it is a very small percentage of the business. So at this stage, it may not make too much sense to track or have any inference around it because given this small size we will continue to have some volatility. But in the long term, I think that would be probably the better measure from a productized services perspective.

But in the short term, I think -- we continue to talk about the number of wins we have had, number of deals. And the percentage of revenue contribution from software and -- that, at least in the short to medium term until we have some scale, may be a better measure.

And so just in terms of, say, when we saw a product offer base services or software plus service, there are two things which again come to mind. One is are we targeting any vertical, or is it going to be more like a horizontal then?

No, Nia is a horizontal platform, but we are really building vertical solutions on top of it. So going forward, that will be the differentiator because at some level over a period of time you will always have competing horizontal platform; difficult to monetize a horizontal platform beyond a particular point in time.

So our view is to build vertical solutions on top of it. And as I said earlier, we have seen some interesting use cases around fraud management, procurement optimization, and so on using Nia. So more and more we do use cases across different verticals. We'll be able to get a better appreciation of the kind of use cases that lends itself and is much in demand in those verticals, and will be able to make it as part of our product going forward.

Okay. And so lastly, can you give, say, any example of which company or which competitor of yours is what you look like maybe five years later or 10 years later with this change of strategy?

I think we'll be Infosys Plus-Plus or whatever. So I don't think --.

Got you.

The landscape is changing, the competitive -- and the nature of competition is changing, so it's difficult to predict. I don't think we'll tailor ourselves on any competition or anything. We have our own strategy.

We continuously look at how we can differentiate from others. And execution is a key element of it, because at a high level most strategies may look similar. But the end of the day, it boils down to execution. So our focus is more on making sure we do the right things in terms of execution. We'll probably Infosys Plus-Plus, but I don't think we'll be aping or copying any competitor out there.

So will you want to let something like Salesforce or something like SAP in?

I don't -- both are in -- SAP is a purely product thing. Salesforce is in some sense a software as a service kind of thing. SAP is also morphing into it. We are more a services company whose service is enabled by software, so that is our difference. There are two things you should compare, ourselves between SAP or a Salesforce.

Perfect. Thanks; congrats.

Thank you. The next question is from the line of David Grossman from Stifel Financials. Please go ahead. David, you may go ahead with your question, please.

As there's no response from the line of David, we'll move to the next question. That's from the line of Moshe Katri from Wedbush Securities. Please go ahead.

Hey, thanks. This is a question for Ranga. Can we talk a bit about what's left in terms of some of the levers for sustaining your EBIT margin range? And you've done a really good job in terms of getting some of those benefits, but what can we expect for the next three to five years?

Hi, Moshe. How are you? I think if you recollect last 8 or 9 quarters, we have been pretty much in this band between 23% to 25%. That has been the band, steady band, that we have kept. There have been -- despite the pricing challenges and some currency and other -- the compensation hikes and many other headwinds. I think this year we clearly said it will be in 23% to 25% because we had to invest in the U.S. talent model and so on.

I think our focus always has been, without diluting the business investments, without diluting securing our future, what will we need to do? What is the cost optimization that we need to do without hurting the business? That is both in the short term and the medium term. That has been our focus.

Now, if you look at the first two quarters and the half year, we are pretty much at 24.1%, which is the midpoint of 20% to 25%. In the short term, I think especially for fiscal '18, we are comfortable in this range. And as you know, there are multiple levers. Of course, the utilization is already at 84.7%, so I think the headway there is shorter than the other levers.

We are looking at overall project plus, project kind of approach, project focused cost optimization, aggregating to account level and then to the company level, the unit level and the account -- and the unit and the company level. If you look at the levers I was alluding to earlier or referring to earlier, one is certainly we are looking at the onsite pyramid.

And over the last couple of quarters, we have seen some improvement there, including the hiring of about 300 to 350 fresh graduates in the United States from the campus as part of our American hiring program. And they're also getting very quickly deployed into the production projects. So that is one lever which we want to kind of further optimize.

And the second one, as I was saying earlier, in the fixed price projects, we are really looking at per employee dollar contribution at the senior levels and see whether it is concomitant to the billing rate that they are getting charged in that project, and trying to see how much of that could be realized at the higher level.

Onsite mix is one which had both sides of the equation, right? And typically when the onsite mix comes down drastically, it could have impact on the revenue because onsite revenue to offsite, $1.00 on onsite we need to kind of have 3 times effort offshore and so on. But there again, a judicious approach would be to look at the service levels. Some of the services are more amenable, like testing and maintenance, rather than consulting and some digital services.

So we are kind of looking at instead of saying that, look, this is only lever that we will do, we are looking at a project level approach aggregated to an account level approach, because each account profile and possibilities are different. So each of the account managers and leads have been tasked to be looking at this from all the three dimensions. Some of them probably could be using the pyramid lever more than the onsite mix lever. Some of them -- someone else could be using another lever.

So we are kind of looking at -- but to answer your question, I think in the short term we are comfortable with this band.

Understood. And then just also very briefly, in your opening remarks you spoke about account specific softness as one of the reasons you've reset guidance for the second half of the year. Can you elaborate on that, maybe some color on verticals? That will be helpful. Thank you.

Moshe, this is Pravin here. We didn't talk about any account specific softness. What we said is historically in quarter 3 for the industry it's a soft quarter. We have lesser working days. We have the impact of falloffs and so on. So it's nothing account specific affects us. It's the impact we typically see across all verticals. So that's what we meant.

And from a guidance perspective, we looked at our performance in H1. Then we looked at the -- typical softness that we typically see in H2. We kept that in mind and looking at our own pipeline. And that is the basis on which we gave our estimates.

I will just pass it on to a couple of our Presidents to give some color on the verticals. I'll have Mohit give some color on financial services, and Navit [ph] can also give some color on this from the service line perspective.

Thanks, Pravin. So Moshe, I think, look, from a financial services perspective, as you'll see from the numbers we had a good quarter. Especially in insurance we really had a knockout quarter this time around.

And overall, I am very happy with the progress that we made in terms of organic growth, in terms of traction in AI and automation software, new client acquisition. We added 13 new clients in the financial services space. We signed -- one of these account openings was a large deal, right? So we opened an account through a $50 million plus deal, so that was good.

I think, as Pravin mentioned, the second half of the year is a seasonally weak period for us. We see it follows across the board, including in financial services. And there will be, as has been there in the previous years, end of the year budget squeezes for some clients, right? So we have tried to bake all of that into our guidance for the second half of the year.

But as of today, if you see our performance for Q1 and Q2, it's been strong in the financial services, healthcare, life sciences across the board. And we are very comfortable with our competitive positioning, right? So this does not -- the guidance that we have given in no way reflects the fact that we are slipping. We feel that our competitive position is very strong in financial services, healthcare, life sciences, and actually improving.

Yes. So I'm going to give you a cut on the services. Our new services, as you've seen in the fact sheets, has moved from 8.3% of revenues to 9.4%. So that's a reflection of how much wallet share we're gaining in the digital transformation agenda of our clients. It's an indication of how well we are doing on these new areas.

And a lot of it is devoted on digital experience, API economy, cybersecurity, cloud migration services, enterprise cloud applications, Internet of Things, and data analytics. These are the broad categories of where the new services are. We would see a significant growth in new services as we go forward, and we hope that the percentage of our revenues continues to go up on it.

Specifically on the service lines, we had an extraordinary quarter for business process management. In fact, we are powering it with a digital focus, reimagining process experience powered by innovation and automation. So that's taken off very well. Infrastructure services has grown significantly this quarter, and this is a significant part of what clients are doing on migrating workloads to the cloud. So overall, these are the areas where we are seeing great traction, and in line with client spend.

Thanks.

Thank you. The next question is from the line of Ashish Chopra from Motilal Oswal Securities Limited. Please go ahead.

Hi. Thanks for the opportunity. Pravin, firstly just wanted to understand in the new services that you called out divided into 5 or 6 service lines, would it be fair to assume that the biggest chunk of that is really the cloud ecosystem bit and that this will be relatively small? Where I am really coming from is the coinciding of the revenue contribution from there with the growth in IMS that we have seen in the past couple of quarters.

Yes. So not really. Cloud is an important part of the journey. In fact, a majority of the digital transformation agenda is driven by the text to optics shift of workloads, and cloud -- migrating to the cloud is a fairly big part of the digital transformation agenda of clients.

However, all the other areas which I spoke about are picking significant traction. API economy is an important part of a digital agenda as you expose legacy applications and legacy systems for newer purposes. Internet of Things is very early, but -- it has a small installed base, but we all know that unstructured data around physical objects, machines, is going to be the future.

So it's going to pick momentum up in the future, but it's a small installed base. Most customers are experimenting. They're prototyping. They are platformizing their unstructured data which is there between machines. So that has a runway, I would say.

Data and analytics is very mainstream now. It's probably all-pervasive across industries, across domains. We see a huge traction out here. Enterprise cloud applications is the next big thing. A majority of our clients are moving from on-premise to transitioning to enterprise cloud applications, either on their existing stacks like Oracle, SAP, or moving into newer areas like Salesforce.com Workday kind of applications; Microsoft Dynamics, but Dynamics has actually now come up with Dynamics 365.

So I would say there is traction in all quarters. Digital experience, the frontend of all the digital agenda, all the digital spend for our clients, while a significant chunk of it is in retail, but all the other industries are picking up momentum there as well. So there is overall quite a bit in areas which are not related to cloud migration as well.

Got it; got it. That's helpful. And just lastly from my side, I had a question on the strategy you shared earlier during the day, so just wanted to understand that. While we've identified the areas of focus and the fact that execution obviously is the imperative, could you share the readiness or the glaring gaps across various pockets where you think that the need to -- the challenges perhaps could be higher? It could be the DevOps ready workforce. It could be automation or on the sales front maybe around consulting led design, thinking-led sales, or maybe the business models around the whole product plus software services offerings. Really, where would you think we are really ready to hit the ground running versus where we still would have to really focus on building capabilities sooner rather than later?

Yes. I think from a services perspective, as we look at services strategy there are many areas where we have started making progress and scaling that (inaudible). In the end, we are extremely comfortable with it. We have always invested in education and learning, re-skilling and so on. So there I think it's more a question of sharpening the focus rather than going after 20 different things; sharpening the focus, identify a few things, and put your might in terms of scaling it.

On the software side and the productized services side, right now we are seeing good traction in our option from a horizontal capability perspective, but I think the future is if we are able to bring in vertical solutions on top of it. And that is where we are probably in the least areas, and that's where we would probably need to accelerate our focus.

Got it. That's helpful, Pravin. Thanks on all of this.

Thank you. The next question is from the line of Jay Doshi from Kotak Securities. Please go ahead.

Yes, hi. Pravin, I am not absolutely clear on the rationale for guidance cut. Is it largely the deterioration in demand environment, or is it the function of CEO exit and consequent disruption that we have seen the last few months?

The second question I have is largely on the change side of the business, which is platforms, product automation. As all these areas were handled by a team which was brought on board by Vishal and many of them have exited the company, how is the management thinking about these exits? Are their roles being reassigned internally? Are you looking to recruit externally? Just some thought around it.

And finally, has there been any fine-tuning of the organization structure after Vishal's exit? And if yes, then can you just strategize the key changes (inaudible) from core tech?

Yes. Thanks. So I will answer the last part first. There has been no organization or structural changes since Vishal left, so that's the easy one.

The first part is the guidance is nothing to do with Vishal's exit. Guidance is actually based on -- we have always said it's based on what we see. If you look at our first half performance, we took that into account. We looked at our pipeline. We looked at the visibility, and we also kept in mind the typical softness we see in quarter 3 for us and the rest of the industry. And in particular for us, in particularly in quarter 4, if you look back over the last few years, we have always, for whatever reason, had very minimal growth. So we kept all these factors in mind, and that's how we arrived at the guidance.

The other data point you need to recognize is -- when we look at our own quarter-on-quarter on a constant currency basis, based on whatever our peers have declared so far, our growth has been much higher. And our growth in quarter 1 as well on a constant currency basis has been higher when compared to many of our peers.

But if you look historically, quarter 2 typically would have been a good quarter for the industry. But for whatever reason, this year it seems to be a little bit unusual. Not really our growth, but our competition's growth in quarter 2 has also been on the much lower side. So all these factors in some sense contributed to our revised estimate on the guidance. And while we'll continue to endeavor to do better than the guidance, but today based on the reality we felt that would be the appropriate one at this stage.

Okay. And just some thoughts around the change side of the business, the continued exists that we have seen on the leadership side on that count? And are you trying to replace that with external recruits or have the roles been reassigned internally, and just some thoughts around that? I guess that's one I asked.

Yes. If you look at the key people -- some of the key people who left, we had -- Sanjay was heading our -- what we call as the corporate design group, but he used to handle multiple functions. So we have redistributed the responsibility to appropriate people who were already doing part of that function.

So for instance, while Sanjay was here associated with the design thinking, but subsequently we have built a strong design thinking practice. It is now integral to our consulting practice. And even our ETA [ph] teams are trained to teach people design thinking, and our consultants have always been using design thinking in their consulting services, particularly in their late stages of the life cycle. So that has always been always been integral and mainstream, so we have not had any issues there.

Sanjay was also responsible for our corporate design group. We have -- now we have it reporting to our marketing function. And Sanjay was also responsible for some parts of the large deal design elements of the large deal process. Now that we have folded into our large deal group with an area to report to Mohit. So we have -- Sanjay used to manage multiple things at a very high level, so we have been able to take pieces off it and logically assign it to where it made sense.

On the product side, we had Pervinder who had joined us a few months back at CEO on the Edgeverve side. He left recently. He wanted to go back to his entrepreneurial roots. So there we have brought in the Nitesh Banga, who is a 20 year veteran in Infosys.

But most importantly, he has been integral to our product strategy from the beginning. He was part of earlier product and platform group which we formed during Shibu's reign. And subsequently, when Edgeverve was formed a month before Vishal came onboard, he was part of it. He was heading the sales for Edge. So we have brought him onboard as CEO because we believe -- at least on the interim CEO, because he brings in the context and has been the most vocal champion and he has been driving and pushing the software curve that we have so far. We felt he would be the right person.

And for people like Abdul, the people under them are still part of Infosys. We have a strong team. So it's a mixed thing. So we have had a few exits, but we have been able to quickly replace them with very minimal impact.

Okay, thank you. All the best.

Thank you. The next question is from the line of Ashwin Mehta from Nomura Securities. Please go ahead.

Yes, hi. Thanks for the opportunity. I had one question in terms of salary hikes. So are the onsite salary hikes done? And you indicated the middle management salary hikes would be given out in the next quarter, so if you can quantify the impact of the rest of those salary hikes.

I think if you look at the salary hikes, we clearly said for junior employees up to midlevel we will do effective July, which we rolled out. And afterwards, all the operational efficiency improvements this quarter when into funding most of the compensation hikes for midlevel to senior.

I think we have covered most of the employees. Onsite, typically we have people moving from here, there, and it is also driven by the location preference -- location of the employee, especially people in the production. So they're all governed by the prevailing wages as well as when they move from one project to another. For example, if somebody moves from Chicago to California, automatically this salary gets rebased on the California salary. So there I think the primary focus is really the engagement driven, the location driven and so on.

However, for the senior employees there from sales, consulting and others, we are clearly effecting that effective January of this year. So I think with that we will have covered all the employees.

Okay, fair enough. And just one follow up on the BFSI side. We've actually seem the BFS portions decelerate for you, while insurance has been pretty strong. Do you see further runway in terms of insurance continuing to compensate for the BFS slowdown? What exactly is driving the insurance uptake for you?

I think, look, the insurance business is relatively small for us, so we have a lot of headroom for growth. There is a degree of anti-incumbency in that sector, and that gives us an opportunity. I think we have also been very strategic about entering the insurance space, not with standard sort of legacy solutions but using the opportunity to, let us say, work with clients to reimagine the future of a claims administration system or reimagine the building of a policy administration platform.

We have worked with a number of startups and new players in this space who are taking creative solutions to clients. So I think we have a really well thought out strategy, and I believe that we will have headroom for growth in that business. We also have a platform there in terms of McCamish. We have strong BPO capabilities, emerging consulting capabilities. So I am quite bullish about the future of that business.

Our core banking and capital markets business also is, I believe, quite strong. Obviously there are variations that happen from quarter-to-quarter in that business. This quarter, because the banking and capital markets number also included the Finacle number, and you know from previous quarters that that business is slightly lumpy, the number also appears to be slightly lower because of a negative impact of Finacle.

Hopefully, that answers your question. If you'd like any additional color, I'm happy to provide that.

No, that's helpful. Thanks.

Thank you.

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

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

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