Infosys Ltd (INFY) 2024 Q2 法說會逐字稿

Ladies and gentlemen, good day, and welcome to the Infosys 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.

Hello, everyone, and welcome to Infosys Earnings Call for Q2 FY '24. Joining us here on this call is CEO and MD, Mr. Salil Parekh; CFO, Mr. Nilanjan Roy; and other members of the leadership team. We'll start the call with some remarks on the performance of the company for Q2 followed by comments from Salil and Nilanjan, subsequent to which we'll open up the call for questions.

Kindly note that anything we say which refers to our outlook for the future is a forward-looking statement, which must be read in conjunction with the risk that the company faces. A full statement explanation of these risks is available in the filings with the SEC, which can be found on www.sec.gov. I'd now like to pass it on to Salil.

Thanks, Sandeep. Good afternoon, good evening, good morning to everyone on the call. Thank you very much for joining us. We've had a strong quarter in Q2. Our growth was 2.3% quarter-on-quarter and 2.5% year-on-year in constant currency. Our operating margin was at 21.2%. Large deals was at the highest ever for us at $7.7 billion, and 48% of this was net new. Our Q2 large deals include 4 mega deals.

It does not include the MOU we signed and announced for $1.5 billion. We see that with our large deal wins in the past 2 quarters, we are winning market share in the area of cost, efficiency, automation and AI. This is a testament to our strong position as partner of choice for clients. With a clear focus on client relevance, as the economic environment changed, we rapidly pivoted from delivering transformation projects to also delivering productivity benefits and cost savings at scale.

These large and mega deal wins help us to build a strong foundation for our future. We continue to see the overall environment where digital transformation program and discretionary spends are low, and decision-making is slow. This is impacting our volumes. The adoption of Topaz, our generative AI capability set is helping us deliver more value and to increase market share.

We're currently working on over 90 generative AI programs. Our work is with proprietary and open source large language models. We continue to make investments in generative AI as we look to help our clients navigate the way forward with deep capability. We've trained 57,000 employees in generative AI. We've announced the launch of our compensation review program for all employees effective November 1. Our margin expansion program is being driven comprehensively across the company. We have 5 areas of focus, pyramid, automation, critical portfolio, indirect cost and value, and it has 20 specific tracks within these 5 areas.

We are delighted to welcome Rafael Nadal and Iga Swiatek as our brand ambassadors. We are thrilled to be recognized on Kantar's list of most valuable global brands at #64. With the continued reduction in digital transformation programs and discretionary spend and the ramp-up of our large and mega deals towards the end of our financial year, we are changing our growth guidance for this financial year to be growth of 1% to 2.5% in constant currency. Our operating margin guidance for the financial year remains unchanged at 20% to 22%. With that, let me hand it over to Nilanjan.

Thanks, Salil. Good evening, everyone, and thank you for joining the call. Q2 revenue growth was 2.5% year-on-year in constant currency. Sequentially, revenues grew by 2.3% in constant currency and 2.2% in dollar terms. While we saw continued softness in underlying volumes, revenue for the quarter was supported by stronger growth in the balanced portfolio and improved realizations from one-timers. H1 revenue growth was 3.3% in constant currency terms and operating margins were at 21%, which is the midpoint of our guidance range.

Highlights for Q2 was the large deal TCV of $7.7 billion, of which a sizable, 48% was net new. Consequently, our H1 large deal TCV is at $10 billion, which has already exceeded the total large deal signing for FY '23. I will talk about it in more details later. As announced in the previous quarter, we have launched Project Maximus, which is a margin improvement plan across 5 pillars and over 20 tracks.

This program has been well received across the organization, and we have been able to identify several new opportunities across the pillars. We have also seen some early benefits in some areas like utilization and optimization of overheads. We remain confident that this program will create a more meaningful impact on operating margins in the future. Operating margins for Q2 were 21.2%, an increase of 40 bps sequentially, bringing H1 margins to 21%.

The increase in operating margin sequentially was due to 0.5% from cost optimization benefits, comprising of higher utilization, writing, et cetera, 0.3% from revenue one-timers, 0.1% from (inaudible) rupee depreciation, offset by 0.5% increase due to third-party cost, salary related and other items.

Client metrics remained strong with a number of 50 million clients -- $50 million clients increasing to 80 and $100 million clients at 39, reflecting our strong ability to mine top clients by providing them multiple relevant services. We are rolling out FY '24 compensation hikes for employees effective November 1. Headcount at the end of the quarter stood at 328,000 employees, a decline of 2.2% from the previous quarter.

Our focus on improving operating efficiencies has resulted in an improvement of utilization, excluding trainees, from 81.1% to 81.8%, which we believe has further -- room for further optimization. Long LTM attrition for Q2 reduced further to 14.6%, while quarterly annualized attrition was flat sequentially -- flattish sequentially. Fresh -- free cash flow for the quarter was robust at $670 million, and the conversion to net profit for Q2 was robust at 89%.

Our unbilled revenues dropped for the second consecutive quarter. And consequently, this has partly led to an increase in DSO by 4 days sequentially to 67. Consolidated cash and equivalents stood at $4.2 billion at the end of the quarter. The Board announced an interim dividend of INR 18, an increase of 9.1% when compared to last year.

EPS grew by 1.7% in dollar terms and 4.6% in rupee terms on a year-on-year basis. Yield on cash balances was 6.7% in Q2. ROE was 30.9% an improvement of over 8% under the current capital allocation policy started in FY '20. We had an excellent outcome in our large deal wins, thanks to our strong client relationships and the relevance of our service offering.

We signed 21 large deals in Q2, including 4 mega deals. As mentioned, the total large deal TCV was $7.7 billion with a strong 48% net new. We signed 6 large deals in Retail, 5 in Manufacturing, 4 in telecom, 3 in FS, 2 in Life Sciences and 1 in URS vertical. Region-wise, we signed 12 in America, 8 in Europe and 1 in ROW.

Coming to the vertical segment performance. Outlook continues to remain uncertain in financial services sector with slowdown in areas like mortgages, asset management, investment banking, cards and payments. Q2 growth was impacted by spend reduction in some large clients, which was partially offset by ramp-ups of large deal wins in areas like cost optimization and vendor consolidation.

We remain cautiously optimistic about medium-term outlook due to the movement to cloud led by increased need for real-time insights and analytics. Growth challenges in communication sector continues, coupled with increasing OpEx pressures, risk of inflation, high interest rates and supply/demand imbalances are creating near-term uncertainties, delays in decision-making continues, our strong large deal signings and pipeline will help support growth in medium term.

The recent deal with Liberty Global reinstates our positioning as a leader in partnering with clients to provide significant savings as well as innovative ways to transform the landscape. URS clients are taking a conservative approach to discretionary spend and the trend is likely to continue through the year. In energy, spending remains cautious due to the economic slowdown with focus on cost takeout and ROI. Utilities, especially in North America, continue to feel the pressure from high interest rates, resulting in delays in capital-intensive programs. European utility players are continuing to make investments on legacy modernizations.

With the external -- while the external environment continues to be volatile, manufacturing sector continued to show double-digit growth year-on-year in Q2. Our capabilities in areas like digital transformation, cloud ERP, supply chain, smart factory, et cetera, are resonating well with clients resulting in benefits with vendor consolidation in turn leading to stronger deal signings.

While pressure on discretionary spend continues, there are opportunities in areas like infra transformation, cost consolidation, et cetera, which is resulting into a stronger pipeline. In the retail segment, budgets continue to remain tight as clients continue to focus on budget consolidations, cost and efficiency. Interest on gen AI is growing and clients are evaluating our Topaz offerings to modernize enterprise and refactor, reengineer and deploy code.

While we had a very strong sequential growth in Q2, the underlying softness in volumes and discretionary spends continue. We have revised our revenue growth guidance for FY '22 to 1% to 2.5% in constant currency terms. Our deal signing and strong pipelines lays the foundation for acceleration and growth beyond FY '24. We retained our margin guidance band for the year at 20% to 22%. With that, we can open up the call for questions.

(Operator Instructions) The first question is from the line of Bryan Bergin from Cowen.

So I wanted to just start with the growth guidance reduction. And I'm trying to understand if the reduction is more due to the delay of the large deal ramps versus what you had expected 3 months ago? Or if it's more due to incremental volume cuts and other program efficiencies?

This is Salil. I think it's a combination of those points. There's -- the way large programs start off, there's delays in starting them. There was also -- as we were signing these deals, the cycle was a bit longer in closing them. So that had a bit of slowness. And we are seeing discretionary spend which is coming down, and we saw that continuing on transformation programs being slow, that continuing on in this quarter. So it was a combination of those points.

Okay. I appreciate the color. And then just on margin, and understanding you have the wage increments that you've just announced here, but you also have margin tailwinds through Project Maximus. Can you give us some color on where you're finding comfort within the margin range that you affirmed here today? So I know you're roughly at the midpoint here through the first half. Do you expect to be above or below that as you go through the second half?

Yes. So like I said, we had a good quarter 2. And as I explained in my margin walk, we nearly had a 50 basis points improvement from our project Maximus on cost optimizations. And that gives us comfort for the rest of the year and that the program is, of course -- this is a much longer program, which will take not only into this year into next year as well. We also realize that we have apparent inefficiencies.

Our utilization is still low. So these will go and help us and, of course, offset the wage hikes, et cetera. So we have a good program over the next 18 months to see where we end up. And of course, our aspirations continue to be that -- to improve margins from where we are presently.

The next question is from the line of Kawaljeet Saluja from Kotak.

I have a couple of questions. My first question is that can you quantify the revenue of one-timers? And are these revenue one-timers in third-party items bought for service delivery to clients or those are separate?

In the margin walk we've talked about 30 basis points impact on margin from revenue one-timers. So it's going to be around that figure or slightly more than that. So these are largely will fall through straight to margin. What is the second part, Kawal?

Okay. The second part of the question is that can you detail of the verticals to which the mega deals belong? And the other question related to the deals is that normally, you expect the direction of revenue growth and deal wins to synchronize, whereas actually, they are moving in the opposite direction. So what needs to change for the synchronization to happen again?

Yes. So Kawal, we don't give out which segments the mega deals are falling under. The second part was you're saying where will revenue and the large deal announcement synchronize. Is that the question?

Yes, yes, absolutely. I mean they seem to be moving in different directions. I mean, with the $7.7 billion mega, large deal wins, you would have expected a happier picture on growth outlook, whereas things seems to have changed there. So what needs to change for the synchronization of growth and the deal wins and growth to happen here?

Sure. So I think one is, of course, mega deals, as you know, post signing they have a runway in terms of, firstly, in some cases, they may have rebadging. So that's the time it takes. Sometimes we have regulatory approval, so you can't even do people's transfer. And then, of course, there's a transition period. And then, of course, post transition then, of course, there's a transformation element or a run. So these are all steps in the process. And as you can imagine, being such large deals, these cannot overnight be turned on in terms of us taking over the entire landscape, et cetera.

So they have to be planned through entirely. And therefore, it takes a couple of quarters before they start bleeding into the revenue figures. And like I said, this will set us up well for FY '25 fundamentally. And as Salil said, in the near term, in the quarter, there is, of course, the underlying volume sluggishness. And of course, we have to recognize that part as we build in our forecast for this year.

Okay, what's the deal pipeline like after the recent conversion of pipeline into a mega deal? So how does the pipeline look like? I mean, is it significantly lighter? Or does it stay remarkably strong?

It's a strong pipeline, of course, with $7.7 billion. And I think it can't be higher than the previous quarter, but it's a very strong pipeline. And of course, we will continue to have enough in the funnel to start refilling this.

Just a final question on deals. I think the past experience of mega deals and the transition of that into profitability has not been very encouraging. But if I look at your comments and Salil's comments, all of you have highlighted that your profitability aspiration is to improve your profit, you want to improve your profitability. Now at the same time, you have those mega deals as well. So how does the profitability dynamics play out, especially given the past context?

So Kawal, as you know better than anybody else, when we set out the large deal strategies more than 5 years back, we were close to about 21% margin. We have signed probably $50 billion plus of large deals. And today, we are 21%, 21.2%. So we've not seen any margin erosion because of the large deal strategy, right?

We recognize over all these periods and this experience which we have, we will sign on these large deals. Of course, upfront, they will have margin pressures. And from a portfolio perspective, as you look in the deal tenures, we have in our experience to say how we can improve the margin of the deal from day 1 versus, say, in year 5.

And in a way, that's the portfolio we are able to rotate, go and get deals. At the same time, with our cost optimization programs, make these deals approach portfolio margins. And I mean, like I said, the proof for the pudding is in the eating, $50 billion of large deals later, our margins are where they were.

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

Congrats on very strong TCV bookings for the quarter. So if we're trying to kind of figure out the conversion pace of some of those large deals that I mean, I guess at this point, it seems that we haven't seen a lot of that conversion happen. But when do we start seeing that reflected in better top line growth? Is the March quarter of next year is the kind of could be the quarter or we could actually see better costs for top line growth because of those conversions? Is that the right way of looking at it?

Yes. So there are a number of deals in this pipeline. Some will start in Q4, some which we signed last quarter have already started coming a bit of that into 2Q. So it's not like one day we suddenly have these 21 deals, which, of course, have rebids inside. So they are phased. And in terms of even ramp-ups, you will see it's not that -- you hit the run rate on the day of the revenue booking, right? Some of them take a longer period. So it's a combination of all that.

Okay. And do we -- and these are -- just to be clear, these are deals that are funded with the calendar '23 budget, so you don't need calendar '24 budget to continue funding these deals. Is that the right way of looking at it as well?

Sorry, can you repeat that? I couldn't hear that, Moshe.

Yes. So the deals that you've won this year are funded with calendar '23 budgets. I just want to confirm that, i.e., you don't really need the approval of calendar '24 budgets to continue funding these deals. Is that the right way of looking at it?

Yes. So it's -- they have already come out of existing budgets, but many of these are actually cost takeout programs in this environment, right, vendor consolidation, cost takeout. So actually, we are giving money back in a way to the organization which is why in a way we are winning these deals, right?

Yes. Good. And then the final question. Do you have any view, maybe Salil can talk about that, about calendar '24 budget cycle that probably should start maybe by next month? Do we feel that the budget cycle is going to be on time? Do you think there's going to be budget delays, which is what happened earlier this year? What are you seeing at this point based on some of the client conversations that you're having?

Thanks. This is Salil. The way we are seeing the client conversations today, we don't see a change that's come about. There's a lot of constraints with clients, whether it's on transformation programs or discretionary projects, which are significantly reduced or slowed down. So that thinking is continuing on. As you pointed out, over the next few weeks, we'll get a better sense if that's changing, either improving or not for the following year.

But at this stage, that's the mindset we are seeing. And there's an attention on cost and efficiency, which also continues as we are seeing in discussions. So the conversations that we've been having over the last few months is the same tone we see as they go into the end of the year for next year's budgeting. We don't see a change in that at this stage.

The next question is from the line of Kumar Rakesh from BNP Paribas.

My first question, Salil was...

May I request you to speak up a bit, your audio is little low.

Yes. Is this better now?

Yes, go ahead, please.

So Salil, my first question was around the volume performance during the quarter. You did talk about that it is under pressure and last quarter also, you had talked about it. So during the quarter, how the volume performance you saw through the quarter? Was it further deteriorating since where we saw last quarter? And is your guidance implying that there would be further deterioration outside of the seasonality in the coming 2 quarters?

So the volume specifics -- I didn't share, I mentioned that there was continued constraints or pressure on that. What is happening if you step back a little bit, is there's impact on revenue, which is from slowing or stopping of discretionary work and or the transformation programs. And then we have, on the other hand, with the large and mega deals, some of those starting off, that giving us a benefit on the revenue side. So there, we saw the volume constrained from the first part of that in this quarter.

In the coming quarters, you know that well, we will have in Q3 the usual seasonal impact with the end of the calendar year holidays and so on. And typically, for us, for Infosys, Q3 and Q4 are softer quarters in any case. So we anticipate that. We don't have a view which is different from that. That's how we are looking at it going in. But these things are changing as we go through each quarter.

So we were fortunate, we delivered a very strong quarter. But we are just -- as we look out, we can see the pressures with the clients. And that's what gives us the reason to be watchful on both those sides.

My second question was during the press conference, you did talk about that Infosys is working on proprietary large language models. So clarification is, are these models that you're working are Infosys owned? Or these are for clients or your ecosystem partners? And what kind of models, use cases and data sets you are using for them?

So there, what I was referring to was proprietary models from our partners. So we are not developing a large language model of our own. We are working -- as you know, again, there are a large number of these models, which are already in the market. Some of them are proprietary, and some of them are open source. We are working with both types of those models. Typically, we are working in what's called the narrow transformer approach, which really we start to see data sets, which are a little bit more enterprise focused, which allow enterprise a large client to take advantage of that data set for their own activity.

And the applications, again, you've probably seen that. We are seeing applications on of course, software development, on text, on voice, on video. So we are seeing applications today on all of these areas, actually working on all of these areas. And that is for the clients, and then we're doing some work inside Infosys as well for our own activities.

The next question is from the line of Sandeep Shah from Equirus Securities.

The first question is Nilanjan, in your opening remarks, you mentioned that the mega deal wins and the robust order book signing will help us to accelerate the growth in the -- beyond FY '24. So is it fair to say most of the deal wins of this year will have a solid support in terms of the growth pickup in the FY '25?

Yes. I mean these will translate into revenue one day. So like I said, they will start in FY '25 and like somebody else answered, of course, it is not like on one sudden day they all start together. So they will have a run up. But absolutely, there are -- means some of them will start even sooner in FY '24 towards the [fag end].

We move to the next question. That is from the line of Nitin Padmanabhan from Investec.

I had 2 questions. So one is on discretionary spend. Yesterday, I think your peer had mentioned that they don't think discretionary spends recover even in 2024. Just wanted your thoughts on how are you thinking about this overall. And in the context of this, well, we have seen very strong deal wins this time around. And obviously, those are deals that would have been under the hood for maybe the last 12 months, which have all closed.

When you look at it going forward, do you think that deal activity per se could sort of slow down? Is there a risk there? Or if you could give some context in terms of pipeline versus how it was before these deals closed? And how is it today? Is there a lot of replenishment that needs to be done to reach back the same level? Yes, that's the first question.

So on the first part, we don't have a view on financial year '24 in terms of volume and so on. What we are sharing today is what we've see -- what we've seen, for example, in Q2 and what we observed from that keeping in mind some of the seasonality of this coming quarter and the end of our financial year. On the pipeline of deal activity as Nilanjan was sharing, we see a good pipeline.

Of course, the deals we have closed have come off of the pipe -- come out of the pipeline. But it's still a good pipeline for us. There's a lot of interest from clients in cost and efficiency and automation, which is where many of these large and mega deals have come in. There's a good interest in consolidation, which is where some of those deals have come in. And we continue to gain market share in that. So we feel good about it. And there is that continuing interest in that type of work.

Sure. The second question was the underlying assumption on the guidance, if I understand right, is that the revenue accretion from these large deals will be very miniscule this year, and you have headwinds on the discretionary side. The bigger accretion should really happen maybe next year. So this year is very miniscule. Is that a very fair assumption?

Yes. I mean, the definition -- it can vary. The definition of miniscule can be quite different. But yes, I mean, it's more -- largely in FY '25, absolutely.

Yes. So I meant on a quarterly run rate basis, would it be miniscule of that coming into the revenue versus what you originally thought? That was the context.

Yes.

Sure. Fair enough. And lastly, in terms of the headwinds on discretionary, which verticals really stand out in terms of whether you're seeing the maximum pressure? That's the last question.

Yes. I think we mentioned the 3 verticals. I think you can see it both sequentially. You can see it year-on-year. You can see it with the peer group. It is financial services, it's mortgage, it's asset management, it's parts of retail, it's communication. And I don't think we are any different from any of our peers. I think everybody is calling out these 3 verticals have been soft.

The next question is from the line of Vibhor Singhal from Nuvama Equities.

Salil, just 3 questions from my side. As we started the year with a guidance of 4% to 7% for FY '24. And we've obviously downgraded the guidance second time this time around. So just -- I mean, in the last call, and in this call, you had mentioned that maybe in the first guidance, there were some assumptions which did not play out, and we are -- we had a fair bit of conservative numbers into that, 1% to 3.5% guidance which we had given last time. So I just want to understand that -- I mean we have been winning good deals all along, especially in this quarter. And as you mentioned that some of the deals have in time. So what has changed from the time that we gave the first guidance to this time in terms of the projects that we have -- that were already in the existence? Is the discretionary part of that, which is being put on hold much larger than anticipated? Is there any one single or a couple of large projects which have kind of stopped contributing the amount that we had accepted? Anything on that color would be really helpful.

So there is no one project or one specific client that is where this is coming from. I think as we look at each quarter, we look at the combination of the 2 streams on discretionary work and on digital transformation and other programs. How that's slowing down, where it's slowing down, what the volume implications are. And then we look at how the large and mega deals are coming into the revenue stream.

And that's what's leading us. As we look out, when we see changes in the discretionary work or we see some slowing down of decision-making for closing deals slowing down in the start of ramp up, those are the factors that come into play as we look at the revenue outlook. And then as we come into this time of the year, especially, we look at the seasonality in Q3 and Q4 and how the thinking is in the client buying environment. So that's really the combination of things that we do. There's not any one activity which has led to that change for us, so.

Got it. Any specific pockets of weakness which you have seen deteriorate at a much sharper rate than anticipated? It could be maybe vertical-wise or maybe a specific domain, let's say, cloud adoption or any other domain. Or is it across the board?

So the way we see in terms of industries, we have a similar sort of view from last quarter, the ones that Nilanjan outlined within financial services, mortgages, asset management. If you look at Hi-Tech, telco, some parts of retail. So those are the ones. We've not seen any sort of dramatic changes in that, but those are the ones where we see the impact.

The next question is from the line of Ashwin Mehta from AMBIT Capital Private Limited.

Nilanjan, just one question in terms of the third-party bought-out items that seems to have added almost $75-odd million this quarter. So do you see this item sustaining or it kind of falls off? And is this one of the reasons for your weak guidance?

Yes. So like I said, this is sometimes integral to our strategy as well because we are doing large-scale transformations, and sometimes they have elements of licenses or software, hardware inside. And therefore, I mean, our guidance takes into account both volumes and any impact of any of that kind of the portfolio -- headcount portfolio as well.

Okay, okay. And in terms of wage hikes next quarter, what is the impact on margins that you see or the quantum of wage hikes that you are giving out?

So we have rolled it out. We cannot say what's going to be the impact, but it's like we said, it's effective first of November.

The next question is from the line of Gaurav Rateria from Morgan Stanley.

First one is that does your guidance factor in the current environment remaining similar in the next 2 quarters? Or it kind of further deteriorates from here? Because it's kind of implying a decline sequentially over the next 2 quarters. So just trying to understand what's the underlying assumption on the current environment?

I think the way we're looking at the guidance is, typically, Q3 and Q4 are seasonally weaker quarters. That is something we factored in, in addition to what I was sharing earlier, the slowing of discretionary transformation. And with the large and mega deals, seeing how the ramp-up will look like as it converts. But we've looked at more, what we see seasonally, a weaker Q3 and Q4 from our historical perspective.

Secondly, you closed a couple of mega deals in the last few months. Now when you look at your large deal pipeline, how do you characterize this? Do you still have mega deals that you're pursuing, which can close in the coming months?

So there, we've closed 4 of these mega deals that I referenced earlier. We have a good pipeline. We are not detailing beyond that, the type of deals. What we see is the deals that we have closed have come up. But there's a huge appetite with clients for cost and efficiency. And those tend to be larger within even our large deals pipeline. So yes, we will see some of those larger deals going ahead there.

Got it. Last question to Nilanjan that the Project Maximus that you talked about. Is it fair to say that the full benefit would accrue to the company in fiscal '25 and it just started to kind of trickle into the numbers in recent quarter, but the full benefit will accrue in FY '25?

So like I said, it is a very complex program. There are a number of tracks. So we have no idea as we see each quarter. So you will see an impact over, like I said, maybe 18 months of this program and throughout, as we're tracking it every quarter. And like I said, sometimes you will see a faster benefit like utilization, for instance, that is clearly something which is here and now. So you'll see some of that impact even faster, but some of course, take longer to materialize.

The next question is from the line of Keith from BMO.

This is Keith Bachman from Bank of Montreal. The first question is...

Sorry to interrupt you. Your voice is a little bit muffled. Can I request you to use the handset more closer to you?

Yes, absolutely. So you've mentioned a few times that discretionary spend or discretionary projects are a reason for the revenue guidance and reporting. Can you tell us what percent of your revenues would you characterize as being sourced from discretionary areas? Is it 30% of total revenues, 40% of total revenues? Any rough estimate you could give us on how much of your revenues are generated from discretionary sources.

Yes. So we don't really give that number out in public domain. So I think that's where we are. Of course, generally, we have fixed price projects. We are more committed, the T&M side of the house will have a bit of variability into it. But we don't give the discretionary, really.

Okay. The $7.7 billion -- the second question is the $7.7 billion large deal TCV. Within that number, do the clients have the ability to cancel those contracts? And what is -- if it's yes, what's the cancellation rate been over the last few quarters versus historic norms?

See, these are largely signed contracts. They take time to ramp up. So we have not seen any real cancellations really. They me take longer to ramp up than originally emphasized but there are no cancellations, really.

Okay. Okay. Fair enough. Perfect. And then my last question is, as you think of Infosys and TCS and Accenture and other IT services organizations are experiencing challenges with growth. So it's an industry-wide issue. Against that backdrop, when you think about pricing that your clients are willing to accept, have you seen any changes in like-for-like pricing when you're negotiating with clients for large deals or otherwise, has that changed at all? Or has the like-for-like pricing remained fairly steady even in this weak macro backdrop?

Yes, I think you're right. I think largely, it's been stable. Of course, in some quarters, you can see few clients are coming back and asking for discounts. But I think, overall, even if I look back, it has been in terms of the annual renewals, et cetera, I think pricing has been more stable over the last year or 2 years as a general trend, I would think, in the industry. Of course, deal to deal, yes, it gets competed hard. But overall, I don't see a deteriorating pricing environment.

The next question is from the line of Yogesh Aggarwal from HSBC.

Just one question on large deals, which have been extraordinary, almost 2, 3x of your past run rate. Was curious what is the share of large deals from existing customers versus new? Can you just give some context there?

So there, again, we shared the net new amount, which is 48%, but we don't share what is from new client versus not new client.

Okay. Salil, the reason I'm asking is, it's very intriguing that clients are not spending on small discretionary projects, but awarding such mega contracts. So is it possible since this year, everyone is cautious. They're just clubbing a lot of smaller projects and awarding in larger deals, which means next year, we will effectively have 2 years of catch up on discretionary spend.

Some of these deals have been publicly announced. These large programs are a combination of many times at cost or efficiency automation programs. And sometimes there are programs which take all of that, let's say, the saving that the client is likely to accrue and from that fund some transformation programs. So these don't appear from our interactions to be a consolidation of smaller discretionary work. These are large independent programs. And that's why we feel first, that in that space, which is today really more active, this cost efficiency space, we seem to be gaining market share, and that those with the way they're being set up and what we see give us a good foundation for our future.

The next question is from the line of [Vivek Gedda] from SBI Mutual Fund.

Salil, in fact, based on your comments that you just made, I just wanted to get a sense of the market share gains that you have been talking about currently because of these large deal wins. Could you give us a sense of how these market share gains have been referenced in the past? Are you seeing quite a bit of acceleration out there? And how to think about that?

So there, we are seeing more discussions on cost or consolidation. And when you -- for example, you have a win as we've had over the last few quarters in consolidation of partners with a client, there is a significant change that changes the market dynamic within that client. And then we put all of these things together between some of the large programs you run on cost efficiency and then on consolidation. It looks like we seem to be gaining traction. We have a very good capability set on automation and clients are appreciating that. So that seems to be the reason why we believe or we think that it looks like we're gaining market share in those areas.

Is there a way to think about some of -- what if, is there to quantify from the sense that are you seeing that client budgets are actually not increasing while you potentially are -- you potentially are getting more deals versus what your peer sets are?

Difficult for us to say on a sort of macro level, but I think, generally speaking, the client budgets, at least we don't see those increasing at this stage.

Got that. Secondly, I also wanted to get a sense of tenure of some of these large deals that you've won.

And in the context of how it has been historically. So while there have been probably logical to expect that these are long tenure deals, but if you could give us a sense of how ACV growth has been versus let's say TCV growth.

So there, some of them with the disclosures we have done have that information, but we don't generally speaking, share that information for the aggregate and certainly not vis-a-vis what was going on in the past. But for the specific ones where we've had the disclosures, we've shared that information.

Got that. Just lastly from my side. I just wanted to also get a sense on this third-party items bought-out with almost increased by $75 million. However, we called out that one-time revenue bump up that we got was 30 basis points, which is relatively lesser than what we see here. Is that different items and how to think about that?

Absolutely. They are different items. And in the margin walk, I also talked about the onetime having a positive impact and the license sales, et cetera, having a -- third-party cost having a downward impact on margins, yes, they are different.

The next question is from the line of Abhishek Kumar from JM Financial.

I was also trying to deconstruct this quarter's growth. It seems to me there is a volume decline, just showing by the headcount decline and small increase in utilization and -- so is it the realization which has helped us or some of the one-time which you mentioned and it has been asked in the previous questions also?

Or is it that some of the smaller deals, like $50 million -- less than $50 million, which we don't disclose, the uptick in those deals or kind of inflow of those deals has kind of dried up significantly, which is basically resulting in mega deals needed to kind of sustain the volume growth?

In my opening remarks, I said that we are continuing to see softness in the underlying volumes and the revenue for the quarter was supported by stronger growth in the balanced portfolio and improved realization from one-timers.

Okay. So my question also was, while I know we don't give the numbers out, but the contribution of say less than $50 million deals in our revenue contribution or pipeline how has that changed? The reason why I'm asking is, it seems that without the mega deal or large deal ramping up, there is a sustained pressure on margins. And these deals could be -- it's a bit difficult to time when really these deals will ramp up. So in the absence of that, the contribution of smaller deals, has that really kind of changed as a proportion of revenue over the last few quarters?

So we don't give out this information.

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

Salil, I had a question on the headcount, which -- how should we really think about that progressing over the next few quarters? It's been down 5% over the past 3 quarters with utilizations that have been flat. So how should we expect that to play?

Yes. So you have to triangulate across volume, attrition, new hiring and utilization. I mean the broad message is that even with the utilization increase today to 81.8%, we still have headroom to improve the utilization further.

So that should give you a sense of things to come. And of course, we continue to monitor overall volumes, et cetera. So there is enough headroom, and this is helping us in margins, like I said at the beginning, right? This is a margin lever which we can use.

Right. Let that and secondly, any vertical call out in the one-timer in revenue that you had referred to earlier?

Apurva, do you have any other questions?

Apurva, your line is muted, I guess. Do you have any other follow-up questions. So there seems to be no response from the current participant. Ladies and gentlemen, that would be our last question for today. I now hand the conference back to the management for their closing remarks. Thank you, and over to you.

So thanks, everyone. This is Salil. Thank you for all your questions and the interactions. I just want to close on a few points. First, we've had an incredible quarter on large and mega deals really with $7.7 billion, the largest we've seen in the company for a quarter, and this gives us a good foundation for the future. The quarter itself was great in terms of sequential growth and operating margin.

We've got a comprehensive program on margin expansion, which is in place with several large components and tracks running across the company. And we continue to invest in generative AI, where we're making great connects with clients, especially leveraging Topaz. So those really are the main points from us. And thanks very much again for joining in for the call.

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