LIVE: Infosys Conference Call

Excerpts from the analyst's conference call

SD SHIBULAL

• Guidance 6-10% reset it to 9-10%
• In constant currency guidance at 9.9-10.9%
• Cost optimisation, large outsourcing deals, focus on growth markets but they will take time to yield results. Large deals will yield results only in 3-4 quarrters
• New deal vertical created and will function as a seperate profit and loss segment. New vertical for growth market focused on MENA, Jap, China and SE Asia.
• Q3 & Q4 weak for Infosys and so cautious guidance

What kind of medium-term margins are you targeting? Your utilization has gone up to 78%. Where could it go to in coming quarters?

Margins, as I said, this year if you see last few quarters, we have initiated in terms to improve margins which will give high quality growth at suprior margins. I am not too worried about Q-o-Q on margins and we are investing in tools to improve margins so our growth is healthy. Med and long term we will have good margins.

Our utilization has improved but we have a lot of headroom there and target 82% levels and we believe we have headroom of 4.5% improvement.

What factors that impact margins?
Margins remained at 23.5% flat Q-o-Q even though we got 250 bps improvement due to 11% currency fall. But it has been offset by wage hikes and cross currency movement.  Investment in sales and employee wages have offset the gains.

What worries you in terms of growth as your guidance looks weak?
There are two factors. One is seasonality and (the other is) Q3 and Q4 are weak for us. We are seeing internal changes and are putting foundation for future growth and they require changes and investments. They will yield result in long-term. These drive us to remain cautious. We are analysing how verticals are behaving and US shutdown too will imapact us too and we have concerns on holiday spends. There is no specific client issues we are worried about.

How much attrition is involuntary?
Attrition has come down in absolute but in percentage terms it is not downand remains a concern for the us. We have given wage hikes and commiunication has been a big part of this. Involuntary attrition would be 1.5%.

Demand environment?
There is improvement and there may be difference between verticals. We are seeing early signs in new prod and services, financial services. Manufacturing and high tech buss are showing positive momentum. Area not seeing changes is energy, utilities and commnucations. Europe is showing some signs of improvement but US is better. Environment is volatile In general there is positive momentum.

Will market-share change now with growth picking up?
We have focused on new revenues rather than rebid and this will show up in next few quarters. We have won large deals from traditional competition and even focused on new businesses and large deals. Lodestone has also helped us see traction. TCV in this quarter was higher than last quarter which shows that our ability to win has improved but we have a long way to go. It's too early to say when the results will show.

Do you feel a deal pipeline in H2 of FY14 or will it stay at H1 level?
Pipeline remains similar to last year. Velocity of wins will be lower in H2 FY14 as environment is weaker for large deals.

Sectors like telecom have recovered. Are you willing to call this a secular trend?
The pressure on wireline buss continues and we are trying to offset this by moving to wireless nd cable business. We will continue to see challenges and this will drag telecom growth even though cable and media are growing well.

Volumes are on the lighter side and onsite business is slowing in Q2?

Volumes grew 3.1 in Q2 and earlier we saw onsite was growing faster but we are more focused on offshore growth. This is also internal change that is showing as we want more offshore growth but it will yield results down the line.

Is it fair to assume you will invest only when currency gains into business or will you invest without currency movement too?
Investment will give returns and we will continue irrespective of currency. We gave wage hikes without factoring in currency.

Mr Murthy had mentioned one of the things on agenda would be onsite cost but it has gone up from 36% to 46%. Can you give a sense on how much time will it take to bring down cost?

A lot is happening on this but they are long-term plans. Utilization level at onsite is high and we will continue to push but it will take time.

Can you help reconcile performance with cautious commentary? You were cautious on manufacturing but it has seen a positive uptick.
Quarter-on-quarter growth in revenue is not very important, though we have seen growth over 4-5 quarters. But what is important is that we have taken measures to improve growth and margins. We see some positive development in US and Europe. Our statements are statements of fact. We have seen volatility in performance.Overall we have seen higher spending by automotives and high tech. We see good momentum across verrticals.

Should we expect higher levels of sales and marketing spends?
We have made good investments and it should stabilise at these levels.

What are your new initiatives to drive growth?
We have created new industrial verticals to drive growth and new people are taking up leadership positions. We have sharpened growth focus by creating new verticals and a new deal vertical which will function as separate profit and loss segments. We have a new deal vertical for growth markets and will focus on Middle East, Japaan, China and SE Asia.

Are you expecting more furloughs and which is why cautious guidance?

We are not assuming this into our projections. We have considered what we considered in the past. Over the last 8-10 quarters we have seen volatility and our measures we have taken would take time to yield. Most of the changes we are making to achieve stability we are remaining cautious.