Infosys Ltd (INFY) 2023 Q3 法說會逐字稿

Good day, and welcome to the Infosys Limited Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Mahindroo. Thank you, and over to you, sir.

Thanks, Inda. Hello, everyone, and welcome to Infosys earnings call to discuss Q3 FY '23 financial results. Let me start by wishing everyone a very happy New Year. Joining us here on this call is CEO Mr. Salil Parekh; CFO, Mr. Nilanjan Roy and other members of the senior management team.

We'll start the call on the [last] underperformance of the [company] by [Salil] and Nilanjan. Subsequently, we'll open up the call for questions. Kindly note that anything which we say that refers to our future outlook is a forward-looking statement that must be in conjunction with the rest of the company [faces]. A full statement and explanation of these [listings] is available in our filings with the SEC, which can be found on and www.sec.gov. I'd now like to pass it on to Salil.

Thanks, Sandeep. Good evening and good morning to everyone on the call. Thank you for joining us. We are delighted to share with you that our Q3 performance was strong with year-on-year growth of 13.7% and quarter-on-quarter growth of 2.4%.

This is a seasonally weak quarter for us and [a low] achievement in global economy. We continue to gain market share. Growth in Q3 was broad-based, with most industries and geographies growing in double digits in constant currency.

Growth in constant currency for 9 months of FY'23 was 17.8% compared to the same period of FY'22. Our large deal value was $3.3 billion, our highest in 8 quarters. With 32 large deals, this is the largest number of large deals in our history. 36% of this is net new.

Our pipeline of large deals remain strong. Our digital revenue grew at 22% in the quarter at constant currency and are now close to 63% of our overall revenue.

Our core services revenue grew at 2.4%. We're seeing growth in both areas of our business, digital and core services. This is a testament to our industry-leading digital capabilities, including our Cobalt cloud capability and our industry-leading automation capabilities, both of which are resonating with our clients.

Our large deal pipeline is seeing increased traction for automation and cost efficiency programs. Our results reflect our deep-created client relationships, coupled with client-centric strategy, differentiated digital and cloud capabilities, strength in automation and the ability to pivot our business rapidly to changing client needs.

Our cloud revenues continue to have healthy growth this quarter. Our [plans] is to focus on accelerating the digital and cloud transformation, both to grow and to be a more operationally efficient. They trust us to partner with them through the complexity of managing this change because of our differentiated capabilities.

Our industry-leading cloud offering, Cobalt, is playing a key role in helping them navigate the digital transformation. Two examples of this, Cobalt is helping accelerate business growth and resilience for a large telco and making the decision-making more data driven.

We're supporting a leading aerospace company by automation of their customer experience, leveraging our modernized technology infrastructure, driving material cost efficiency. Strong growth in the company by stable operating margin at 21.5%. This was driven by healthy revenue growth and cost optimization benefits.

Our operating margin for the first 9 months of FY '23 are at 21%, in line with our margin guidance. Our voluntary quarterly annualized attrition continues to decline steadily and reduced by 6 percentage points sequentially to well below 20% for this quarter. We are encouraged by the immense confidence and trust that clients have in us. The signs around us around the slowing global economy are visible.

Some areas such as mortgages and investment banking and financial services industry, telco, high-tech and retail are more impacted, and that is leading to delays in decision-making and uncertainty in spending in these areas.

We are confident that the strength of our digital and cloud capabilities and our automation capability will continue to position us well in the market. We are keeping a close watch on the global economy.

Driven by our growth of 17.8% in constant currency for the first 9 months of FY'23 and strong large deal value for Q3, we're increasing our revenue growth guidance, which was at 15% to 16% earlier, to 16% to 16.5% despite the change in global economic conditions. We are returning our operating margin guidance for FY'23 at 21% to 22%. We anticipate to be at the lower end of this range.

Thank you. And with that, let me request Nilanjan to share other [articles].

Thanks, Salil. Good evening, everyone, and thank you for joining this call. Let me start by wishing everyone a very happy and safe 2023. Q3 was another quarter of resilient performance. Our revenue grew by 13.7% year-on-year and 2.4% sequentially in constant currency terms, despite seasonal weakness. Most of our business segments and deals grew in double digits year-on-year in constant currency.

Specifically, manufacturing grew by 36.8%, [EURS] by 25.9% and Europe grew by 25.3%. Digital revenues constitute 62.9% of total revenues and grew by 21.7% year-on-year in constant currency.

Core revenue saw another quarter of growth, reflecting the accelerated client focus on cost takeout. Client metrics [consistently] remained strong, with year-on-year increases in client counts across revenue buckets, number of 50 Million clients increased by 15 to 79, number of 200 million clients increased by 5, while number of 300 million clients increased by 3 over the same quarter last year, reflecting our strong ability to mine top clients.

During the quarter, we added 134 new clients. Utilization, excluding trainees, reduced to 81.7%, reflecting seasonality and employees joining the bench, both completion of the training, on-site asset mix remained stable at 24.5%.

Quarterly [unrealized] attrition continued to trend downward and reduced further by another 6% during the quarter. This is the lowest quarterly annualized attrition in the past 7 quarters. Consequently, LTM attrition reduced to 24.3% as compared to 27.1% in Q2. We expect attrition to reduce further in the near term.

Revenue growth was 17.8% in constant currency terms at 9 months FY'23. Operating margin for the same period was 21%, in line with the lower end of our full-year guidance called out earlier. Q3 operating margin remained ready at 21.5%.

The major component of Q-on-Q margin movement as follows: The were tailwinds of approximately [40] basis points due to benefits from rupee depreciation and cross currency, offset by lower benefits from revenue hedging, 70 basis points from lower cost -- cost optimization, including our subcons.

This was offset by headwinds of 30 basis points from higher SG&A and the balance 80 basis points due to seasonal weakness in operating parameters, higher third-party costs, furloughs, et cetera.

EPS grew by 13.4% rupee terms on a year-on-year basis. DSO increased by 3 days sequentially to 68, reflecting higher billings during the quarter. Our balance sheet continues to remain strong and debt-free.

ROE increased by 2.2% year-on-year to 32.6%. Free cash flow for the quarter was $576 million, a conversion of 72% of net profit. However, YTD FCF was $1.8 billion, which is implying a conversion of 81% of net profit. Yield on cash balances increased to 6.3% in Q3.

Q3 marked the 30th consecutive quarter of delivering positive ForEx income, despite the volatile currency environment. Consolidated cash and investments declined from $4.79 billion last quarter to $3.91 billion, consequent to $1.32 billion we returned to investors towards interim dividend and buyback.

We initiated the buyback on December 7 and till date has bought back 31.3 million shares versus INR 4,790 crores or 51.5% of the total authorization of INR 9,300 crores at an average price of approximately INR 1,531 per share compared to the maximum buyback price of INR 1,850 per share.

Coming to segment performance. We signed 32 large deals in Q3, which is the highest ever. TCV was $3.3 billion, the highest in the last 8 quarters, with 36% net new. 7 large deals were in retail, 6 deals in financial services and communications, 5 each in EURS and manufacturing, 2 in life sciences and 1 in hi-tech.

Region-wise, this was [assisted] by 25 in the Americas, 5 in Europe and 2 in the rest of the world. Growth in financial services was impacted due to a higher-than-nominal furloughs and some specific project closures. These pipelines continue to be strong and oriented towards cost takeout and tech of transformation.

Our competitive position in the industry, as demonstrated in the past years, remains very strong. Retailers are seeing uncertainty on consumer spending as a result of high inflation, high interest rates and softer economy.

However, at the same time, direct-to-consumer and digital [e-commerce] are opening up many new opportunities on the back of our growing presence and leading e-commerce platform and are also our very own Infosys [mix].

We have healthy deal flow in the Communications segment, along with continued steady pipeline However, cost pressures and economic concerns continue on the client side, impacting discretionary budgets. Energy, Utility, Resources & Services segment reported strong growth along with healthy level of large deal wins during the quarter.

The deal pipeline is strong and on an increasing trend versus the previous quarter, giving medium-term growth visibility. Manufacturing segment continues to be robust, supported by healthy pipeline of deals in both traditional and new technology areas.

We are helping clients across engineering, IoT, supply chain, cloud ERP and digital transformation, including helping client accelerate their journey to cloud. We continue to see caution around budget and spending for consumers in the Hi-Tech segment, especially around discretionary spend areas.

For digital service capabilities in quarter 3, we have been ranked as [leader] in [7] ratings for our cloud services, digital engineering services and salesforce implementation services. We have also been positioned as a major player in 7 ratings for our IoT and engineering, security and automation services.

We believe our [structural lever] for medium to long-term growth for the industry remain intact and emphasis is well positioned to support the customers in their transformation journey.

With strong revenue performance in the first 9 months of the year, the revenue guidance for FY'23 has changed to 16% to 16.5%. Operating margin guidance band remains at 21% to 22% for the year. And as mentioned previously, we expect to be at the lower end of the range. With that, we can open the call for questions.

(Operator Instructions) The first question is from the line of Moshe Katri from Wedbush Securities. It looks like Mr. Katri line has dropped. In the meanwhile, we'll move to our next question, that's from the line of Nitin Padmanabhan from Investec.

My question was around the increase in cost of software packages that's up by almost $69 million sequentially. How should we think of this cost? Do you think this increment of 69 will be a sticky number out there?

Or you think it's sort of represents a headwind on a going -- it sort of comes off, going forward? And is this sort of a pass-through in nature? There's the second sort of clarification on the .

Yes, Nitin. So I think we -- the $69 million is a combination of software, other deals, which we do have (inaudible), et cetera. It could be infrastructure. So these are part of our integrated services offering, right? So we've come with both manpower component and sometimes we also come with an attachment of these services. So that's the way we do it.

It's an integral part of our service offering. And I think looking at, we'd have to see where we end up for the quarter [4], but I think this is part of our overall offering that is actually giving us traction in the market in many of our service [clients].

Sure. There is this sort of -- so it is a pass-through in nature, in a way. Is that correct? And basically, at least earlier in the past, you had suggested that the new level would sort of sustain. So in the new operating model, this is sort of sticky thing that continues, is that fair, longer term?

An integrated offering. Like I said, this is integrated with our services offering. So they are not just stand-alone deal we do, they are coming with the service element as well, right? So that's the way you have to look at these deals.

Next question is from the line of Bryan Bergin from Cowen.

Why don't you just clarify some comments around demand? So I'm curious if you would say there's a material change in the way that clients are behaving now versus 3 months ago in the quarter 2Q? The areas you're citing weakness, I think, were the same ones, the pockets of weakness that you talked about.

I'm just trying to understand, do you think there's been a real change to spending and contracting there or more broadly the same?

Thanks for the question. This is Salil. What we have seen today in addition to what we said last quarter, for example, in financial services beyond mortgages, we see the investment banking side of our clients as well showing an impact of the economic environment and are in telco, hi-tech and retail in some clients. So we don't see a material change.

There are within financial services, one more area that we see some of the impact coming in. Having said that, we have, for example, clients in energy or utilities or manufacturing, those industries are still looking quite strong in terms of the outlook.

Okay. Okay. That's helpful. And then on the large deals, the renewals were a big component of that TCV and you've also cited benefits from consolidation in the commentary, are you taking any different approach as it relates to proactive renewals to try to drive more vendor consolidation opportunities?

So on large deals, as you pointed out, we've had a very strong result, $3.3 billion and 32 deals. We see the focus which we had on transformation continue. But outside of the industries that we discussed before, where there is some impact, we see huge cost automation, cost efficiency players across all industry segments.

And there, we have, we believe, very strong capability, which is helping us. And within all of those discussions, we see areas where there's vendor consolidation. The approach we put in place is similar to what we've had in the past.

However, we see, given our market share gain over the last several quarters, many clients are looking at us then when they start to narrow the list in the vendor consolidation.

The next question is from the line of Apurva Prasad from HDFC Securities.

Salil, I'm not asking for any guidance for '24 or ahead, but would appreciate your comments. And then the visibility that you have for the year ahead, so how different would it be versus typically this time of the year. So perhaps any comments on pipeline or pipeline-to-TCV conversion?

I think, as you rightly said, we are not in a position to provide the guidance for the year, which starts in April. Pipeline, we have a very strong large deals pipeline. So we are feeling good that the pipeline is at a level which is in good shape.

We see good traction on large deals, and we've seen more in the sort of relevance, connect with our clients on the cost efficiency and automation [plays] and in the areas, in the industries where there's economics support, a good traction of Cobalt and the digital transformation. So the pipeline is looking quite good today, based on what we see in the deals flow.

Got it. And sorry, you called out [IB] mortgage in parts of telecom, hi-tech and retail, is there any vertical trend for deals between transformation -- the ones that are transformation in nature and deals that are more on the cost optimization across verticals?

And the second part to that is, do you see any moderation in new client acquisition channel with more vendor consolidation deals happening? This was something which we had very strong traction more recently.

In the first part, we see some of the growth transformation plays impacted in those industries that we talked about, for example, mortgage, investment banking, retail, hi-tech, et cetera. The cost efficiency plays everywhere. So we see that even in programs there and, let's say, in the energy sector or manufacturing.

There -- in many places, we see essentially clients looking to use the cost efficiency to fund the transformation because in many cases, they still need to drive digital or cloud transformation to keep their market growth or the client connect, customer connect going. So that's how we see that play right now.

And Salil, on the other part on the new client acquisition, with more vendor consolidation rates.

Yes, there on -- sorry, on new clients, we've seen -- while we don't disclose the number, we've seen a very good new client acquisition in Q3. And then the consolidation of discussions where -- so there's no contradiction in there to at least -- both are carrying on within our sales expansion, new client acquisition continues to be important as well. Then

the consolidation, what we are seeing is on several discussions, clients are looking, especially if they have 6 or 7 vendors, they want to narrow it down to 1 or 2 or 3, and we are appearing to the beneficiaries in quite a few of those discussions.

Our next question is from the line of Mukul Garg from Motilal Oswal Financial Services.

(inaudible).

Sorry to interrupt, your audio is a bit muffled. If you are on a hand speaker phone, please switch it to handset or something on your phone.

I hope this is better.

Yes, sir.

Sure. So Salil, I have two questions. First, on the strong TCV wins this quarter. Can you at least let me qualify how much of the strength was on account of share gains, which you guys have made, versus the resilience, which is there on the technology spend?

Because if you look at the broader market commentary, and you have also highlighted retail as one of the weaker areas, whereas you got 7 large deals in retail. So if you can just help us break out these two to get a sense of the deals in momentum?

So there -- I'll start with that. This is Salil. I think the large deal momentum for us is really a function of what we've seen that we've put in place, we still, within this mix of $3.3 billion, have digital transformation deal, and we have cost efficiency automation deals.

What we mean by some of the industry callouts, for example, retail or telco, is, there are some clients -- not everyone in that industry, but there are some clients which are getting impacted by the economic environment. We've been quite focused. We have a broader portfolio.

So for example, we showed up in retail, we have those large deals and the -- it's a mix between transformation and cost efficiency automation.

And so many times when clients feel an impact of the economic environment, there might be a greater need of the cost efficiency play as well. So we are ensuring that both of those engines continue to work well with our clients.

Right. And my other question was on the margin side. You guided for margins '21 to '22 bands, with margins towards the lower end. Can you just help us with the -- what are the pools which you are seeing on profitability, given that the supply scenario is easing rapidly?

Is there some portion of the pressure which is on account of the higher share of cost efficiency deals, which you guys are winning with initial ramp-up cost? Because if you look at Q4, obviously, Q3 also had the pass-through business, which got impacted. I'm assuming, as Nilanjan mentioned, there was some seasonality into that.

Yes. So I think like we mentioned, the reason for Q3 margins, we've already given the breakdown. So as we look ahead to those levers which we have, one is, of course, utilization, right? And we've seen about, I think, 81.7, this is probably, I think, at least in the last 3 to 4 years since I've been here. It's been the lowest. So that's one lever which we'll have.

And as we start putting these pressures onto the production floor, you will get a pyramid -- automatically a pyramid benefit right? So that will be a double [raving] impact for us.

We also have subcons today, we've dramatically reduced our subcons literally in 3 quarters. We were 11% plus, we are at 8.7%. Historically, we've been at 7%.

If you look at our pricing, it has been quite stable. And historically, this is one lever which we always drag down, repeatedly, which is at discounts and renewals, et cetera. And as of now, we haven't seen that at all. We continue to push with clients and -- where all we can get price increases.

So these are things in automation in terms of our own workforce continuing to upgrade that and that's a steady lever which we have. So we are continuing to see these levers in our armory [so to] speak as we look at, and we will continue to deploy them.

Is it fair to assume that we should see at least better profitability in the next quarter, given that we have a number of levers with us?

So we've given a guidance for the year. You've seen in the first 9 months, and that should give a good indication of what could Q4 be.

Our next question is from the line of Sudheer Guntupalli from Kotak Mahindra Asset Management.

Congrats on a good quarter. Salil, during some of the previous macro uncertainties like Brexit, within a few weeks of the vote, we had seen some of our large clients canceling and ramping down projects. This time, even on the tough comps, the pace of growth in moderation is much lower than what many people have been anticipating. And many forward-looking indicators like deal wins, pipeline and CIO surveys still continue to be very strong, even 11, 12 months into this macro concerns.

So are you seeing the previous 3 to 4 macro downturns? How do you move on to the current cycle, especially on the variable of the resilience of IT service spends?

It's always difficult to sort of compare across cycles. From the perspective of Infosys, my sense is what you mentioned earlier, which is we are still seeing the pace of change when there is change within an industry or a client to be not rapid.

And we are also seeing that the opportunities for cost optimization and efficiency are expanding within the work that we are doing. So in many ways, we are in a good position to be able to work on both sides.

And so while it's difficult to predict where the situation in the economy will evolve, we feel quite balanced. Our sales team is quite agile. We've pivoted quite quickly and developed various sort of points of view on different efficiency scenarios in different industry that we feel comfortable that the pipeline will be -- is looking good at this stage, and we will continue to work on that.

Sure. So is it a right understanding to say that we are now in a much better position to navigate this macro weakness probably through more than a compensation from the cost efficiency deal and vendor consolidation deal? Is that a correct interpretation?

The way we see it is we have both components of -- at least the two last [components] of clients are looking for -- we have good industry-leading capability. So it's really a function of how a specific industry, subindustry or a client will evolve. But we have positioned ourselves to make sure that we can support our clients in that area.

Our next question is from the line of Moshe Katri from Wedbush Securities.

Happy New Year, and congrats on strong execution in a pretty tough environment. I have a three-part question. First, March guidance upgrades is pretty unusual from a seasonality perspective and given the macro concerns. So it seems like you have better visibility now.

Can you share any views on the budget cycle itself? We were kind of concerned over slippages, maybe a month or two, budget delays. Are you seeing any of that? Or you think the budgets will be awarded or finalized as on time this time?

This is Salil. On the budget, so far, we've seen, in some clients and especially in the industries we've called out, some areas where there has been slowness in deciding or some sort of changes, especially on some discretionary work. So we mentioned hi-tech, for example, mortgages, a bank -- investment banking. So all of those ones that we mentioned before.

But we don't see a broad-based change. Equally, we do see good -- let's say, the area with the budgets moving ahead as in the past, with energy, utilities, manufacturing. So we've got like one answer that it's a little bit by industry or subindustry somewhat different.

Understood. And then you -- in the press conference, you mentioned that about 1/3 of your new -- 1/3 of TCV came in from new logos. Can you remind us, is this within the range of what you've seen in the past in terms of mix of new logos versus renewals?

Sorry, referring the large deals, $3.3 billion, that was [36%] net new. That's in the range where we do some quarters it's lower, some quarters higher, but not -- these numbers are not unusual.

Okay. And then the final question is for Nilanjan. When we met in Bangalore back in December, you pointed to pivot in the nature of the new deals flow towards, as you said, cost optimizations and your consolidation. Obviously, this is what you're seeing.

Are these deals typically less dependent on clients' budgets, given the fact that you're kind of taking over a specific function with the objective of kind of reducing delivery costs?

And is there any difference in profitability levels here in terms of these projects versus some of these projects that you've been doing in the past few years?

So in that, I think the way you described it, these are not fully correlated with the budget of a client. In many instances, these are areas where, given the evolving economic situation, clients are looking to reduce their tech spend across the enterprise, in many cases, use some of that savings to fund transformation programs.

It sometimes hs coupled with vendor consolidation. So let's -- there are clients you may have 5 or 6 vendors. And when we benefit from the consolidation, we see tremendous efficiency that can be created. Our automation tools become quite useful. We've typically add automation on our ongoing programs, which gives an annual benefit. But when we see something of scale where have not been involved earlier, we have an ability to provide a much greater benefit.

In aggregate, the profitability of these deals is within the range of the rest of our company and especially has been more and more over time, leverage the automation tools and our capabilities, we see these becoming stable, high-profit deals.

Our next question is from the line of Pankaj Kapoor from CLSA.

So my first question is on the smaller deals, which are less than, say, 50 million TCV. If you can give some qualitative color on how your win and pipeline in that basket has been moving? Is it higher, lower versus, say, what it was 6 months back?

So on that -- thanks for the question. We don't typically disclose much about those deals. Overall, we have a good, healthy pipeline when we publicly disclose more about the larger deals.

Understood. And Salil my second question is on these cost takeout deals. Can you give some sense on how the pricing in such deals is behaving? Are you seeing the pressure there more than normal, either because clients are pushing for more discounts or because of competitive intensity?

So there, the pricing in Q3, we've seen quite stable within the mix, we've not seen a change. Typically, it's really a function of what type of focus that clients have, which industry they're in, as we've not seen, at least in Q3, in the deals that we have closed in the discussion we have had, a big change on that. It looks stable at this stage.

Our next question is from the line of Ankur Rudra from JPMorgan.

Strong numbers there. Just a couple of questions to understand some little bit better. I think one of the comments that you made earlier on the question (inaudible) you mentioned on previous calls over the last year that the mix of deals was changing in favor of smaller deals, and that was showing up [stronger], despite headline TCVs declining.

We can't -- we couldn't hear. We'd have to go now -- handset or something. Your voice is very muffled.

Is it better?

Yes.

Okay. So I was saying that -- I'm going to try Pankaj's question in a different way. You mentioned in previous calls that the mix of deals was changing in favor of smaller deals. And that's why the headline. TCV was declining, but growth was still quite healthy. This time, of course, both have done well. Do you think the mix of deals is still the same as it was in the last year before this quarter?

This is Salil. I'm not clear on the mix of deals on the previous discussions. But just looking macros, we see the mix of deals remaining in good shape across the board. There are some quarters in which there are disproportionate number of larger-size deals. But in general, we don't have a pattern in that, at least that's evident in Q3 here.

Okay. All right. The next question I wanted to check, Salil, again, was on the U.S. business. The headline growth seems to sort of slipped down to close to low double digits, whereas the [CAGR] growth has been led by very strong performance in Europe and manufacturing.

Do you worry about the U.S. business, it's sort of slower than Europe, it is not the case in the rest of the industry and then of your peers?

So there, Ankur, we've had very strong growth in the U.S. at over 10% in Q3 in constant currency. Europe, of course, has been a standout in the growth that we've had. We see the traction, the pipeline, the work remains pretty strong, as we've described earlier, across the two dimensions, transformation and cost across the geographies.

If you look at the economic situation, we do see the European side a little more impacted, but we see good traction on the pipeline on both sides. We had a very successful Europe program in the last 18, 24 months, and that's also helping us with the growth in this quarter.

I mean out of our 32 large deals this quarter, 25 were actually in the Americas. So I think -- just to go, so that we have a very strong pipeline there.

Understood. Maybe a last question over here was on pricing and contract profitability in the projects you are winning right now, especially the large number of big deals this time you signed. How is that trending? Is that improving, staying the same or maybe becoming a bit lower than before?

These are for the new deal signings?

Yes, new deal signings this quarter. How is that trending versus before?

No, I don't think anything is unusual. Yes, absolutely new deals, I mean since many clients want the productivity, efficiencies upfront. So we always see that the initial part of the deals would be lower-than-portfolio margins.

But like we have shown in the past, at the same time, our existing deals are reaching higher profitability, and that offsets some of this pressure which is coming from the newly signed deals, where the margins will typically be lower. But nothing unusual on the trends.

Our next question is from the line of Vibhor Singhal from [Novama] Equities.

Congrats on a solid quarter. So my question -- I have just two questions. One, I wanted to basically get an idea on -- I mean you've seen attrition coming down in this quarter quite sharply. And as you mentioned in your opening remarks as well, so I mean how do you see the trend of this attrition going forward, of course, [downwards]? And how do you believe the benefit of this could actually calculate to our margins?

Again, not asking for objective guidance of a number. But in terms of the direction, do you think it is going to aid our margins? Or do you think most of the impact of this is already built into the numbers that we have currently?

And my second question was mainly on the geography of Europe. So just wanted to pick your brain on how the conversations with the clients are happening in that part of geography, specifically if you could maybe break up between Continental Europe, Eastern Europe and in the U.K.?

And which pockets of those geographies do you think are looking more softer? Or is there more of delayed decision-making in that part of the geography?

I'll take the first one on the lower attrition. Absolutely, we have seen this coming down. And like we said, even in the future in the next quarter, at least until -- what we're seeing the latest initial figures we are seeing this coming down.

Absolutely, this should have a positive impact on margins. I mean during the year, whether it was stretched hiring on laterals, whether it was the compensation hikes we did, that really impacted our year-on-year margin story.

So as looking ahead in attrition, has an impact both the macroeconomic and also the internal policies we are doing in terms of promoting within, et cetera, should benefit us, looking ahead.

On Europe, I think the way we see some color for 25% of our business in Europe, and we have a few countries -- in the country we operate in, we see some slowing -- some economic impact in Germany. There is some in the U.K., less so in the moderate countries at this stage.

But overall, the coloring is a little bit more by the industries that we mentioned earlier in the call, which are across sort of on a global perspective. But relatively, Europe seems a little bit more impacted today than certainly the U.S.

Got it. Got it. If I can just maybe drill down just a little bit more, any specific color that you can provide on European Retail and European Manufacturing segments?

So there, we don't necessarily provide that much sort of granularity, same comments on a global level of manufacturing that we mentioned earlier and for energy, which is looking stronger, and more sort of, let's say, attention to the economy on retail in this case.

Got it. And the softness in retail, do you believe it is, as of now, confined to the retail stores and what maybe circulate, and you could in your discussion with clients, do you see percolating down to the CPG companies and probably other ones as well? But as of now, if you looked to the more of the retail stores that we're talking about?

So within retail, we've not called out any specific subsegment, at least in our commentary. We've not gone down to that granularity in our public statements.

Our next question is from the line of Samir (inaudible) from ICICI Prudential Asset Management.

Just one question around Europe again. If you look at your commentary around regions in North America and Europe, Europe looks more cautious overall. But if i look at performance for the last few quarters, I think Europe has been performing better than North America.

So do you think this impact of the cautiousness is you have yet to reflect in the numbers and you see more growth trajectory will be a little more affected, going forward, in your thoughts around that?

I think, in Europe, there is two different things. We've had a very strong Europe program, both in transformation and cost over the last 18, 24 months. So some of that comes through in the benefits we see, even in this quarter.

The commentary or the view is more to share what we're seeing just in the economic activity. And again, we see the coloring more by industry, which is a little bit global as, opposed to just specifically across the board in a geography.

So the outlook -- I mean, do you think the outlook that you're giving will reflect in the numbers in medium term in the next 2 quarters because till now, it has been an portfolio?

So there, we've given a view on outlook only up until March this year, so we will come up with a guidance for the next financial year at the end of this quarter.

Our next question is from the line of Girish Pai from Nirmal Bang Equities. Mr. Giri, could you please unmute and go ahead with your questions? As there is no response from this connection, we'll move to our next question, that's from the line of Rahul Jain from Dolat Capital.

Firstly, we commented that manufacturing is doing well for us, but actually the vertical is doing exceedingly well in European region, where it's up [60%] Y-o-Y, but is much weaker in the U.S., where it's up 7% Y-o-Y.

So what is that we are doing so well in Europe? Is it lead by a few very crucial deals? Or it's more holistic? And why it's different in the U.S.?

Within the industry, we don't typically comment on a client (inaudible) level activity. But we do have good traction, as you pointed out, within a European business in manufacturing.

Okay. And another thing was on digital revenue. For the quarter, it's up [17%] Y-o-Y or let's say, CC would be 20% or 21%. This is like our slowest ever since we've been giving this time savings on digital revenue. So is this a bit worrying? Or is it more because of the furlough and any other factor?

So there, it's partially due to some of the changes that we were discussing earlier on in certain industries and sub industries. We see much more attention to the economic environment. And there, we see some of the digital transformation work being slower, where we see much more focus across the board on the cost and automation plays.

Got it. And lastly, if I can, the margin impact flow was too high in the quarter. How has this shaped up in the current month? Are these clients resumed to normalcy now? Or the pain remains extended in Q4 as well?

So we have to see how it goes, it's a bit too early to say what's going to be the Q4 outlook on that.

Our next question is from the line of Girish Pai from Nirmal Bang Equities.

I just wanted to understand with cost optimization deals more in the pipeline and in the TCV, has the average deal tenure gone up in the last couple of quarters?

So the question, we don't typically comment on the deal tenure in terms of public statements.

Okay. I can say that the third-party items, I think, have given you a lot of traction in terms of getting deals. Now the number has gone up from about less than 2% of revenue to almost like -- I think this quarter is -- in this quarter, it comes to almost [6.5%] of revenue. Do you see this number going up in the coming quarters and years?

Like I said, we are offering it quite holistic. In some cases, like I said, many of the cloud-based deals come with services, there could be licenses, there could be [DAS] services. So more and more integrated deals.

And then you go to IT-as-a-Service, which is really sort of very holistic, we could see this. But I mean, it may vary from quarter to quarter, you could have some quarters with DAS . But there's nothing to say that in the long run where this is going. It's a bit early to say that.

Okay. And lastly, from a competitive landscape perspective in the vendor consolidation deal, who are the ones moving out? Are these the global MNCs or these are typically Tier 2 vendors?

Again, on those, we don't specifically comment on where we're giving the benefit of the consolidation. We are seeing some benefits coming through with large clients.

Ladies and gentlemen, that was the last question. I now hand the conference back to the management for closing comments.

Thank you. So thank you, everyone, for joining us. This is really fantastic to have our Q3 close out, 13.7% growth, 21.5% operating margin, $3.3 billion in large deals, very happy with our outcome.

We can see a guidance increase on our growth for that. And we can see both sides of our business on transformation, digital work and core services, cost automation working well.

And so we feel good with the current environment and how we can play and support our clients on both sides. Thank you all for joining us, and we look forward to catching up during the quarter. Thank you.

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