Sandeep Mahindroo - Principal of Investor Relations S. D. Shibulal - Co-Founder, Managing Director, Chief Executive Officer, Director and Chairman of Infosys Technologies (Sweden) AB Rajiv Bansal - Chief Financial Officer Stephen R. Pratt - Managing Partner of Worldwide Consulting & Systems Integration and Senior Vice President Ashok Vemuri - Head of Americas Operations, Global Head of Manufacturing & Engineering Services, Director, Chairman of Infosys Technologies (China) Co. Limited and Chairman of Infosys Technologies (Shanghai) Co. Limited

Ankur Rudra - Ambit Capital Pvt. Ltd., Research Division Moshe Katri - Cowen and Company, LLC, Research Division Yogesh Aggarwal - HSBC, Research Division Sandeep Muthangi - IIFL Research Pankaj Kapoor - Standard Chartered PLC, Research Division Mitali Ghosh - BofA Merrill Lynch, Research Division Viju K. George - JP Morgan Chase & Co, Research Division Rahul S. Bhangare - William Blair & Company L.L.C., Research Division Ashwin Mehta - Nomura Securities Co. Ltd., Research Division Edward S. Caso - Wells Fargo Securities, LLC, Research Division Sandeep Shah - CIMB Research Nimish Joshi - CLSA Limited, Research Division

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, Mr. Mahindroo.

Thanks, Linda. Hello, everyone, and welcome to Infosys Q1 Earnings Call. I'm Sandeep from the Investor Relations team in Bangalore. Joining us today's on this earnings call is CEO and MD, Mr. S.D. Shibulal; CFO, Mr. Rajiv Bansal, along with other members of the senior management team. We'll start the call with some remarks on the performance of the company for the recently concluded quarter, followed by outlook for the year ending March 31, 2014. Subsequently, we'll open up the call for questions. Before I hand it over to the management team, I would like to remind you that anything that we say, which refers to our outlook for the future, is a forward-looking statement, which must be read in conjunction with the risks that the company faces. A full statement and explanation of these risks is available in our filings with the SEC, which can be found on www.sec.gov. I would now like to pass it on to Mr. S.D. Shibulal. S. D. Shibulal: Good morning, everyone. Welcome to the earnings call. Let me begin by giving an overview of the current quarter, the recent quarter, Q1. We have reasonably -- we have done reasonably well in Q1. We had 2.7% growth quarter-on-quarter on reported basis. In constant currency terms, growth was 3.4% quarter-on-quarter. Our growth was driven by retail and CPG and manufacturing, energy verticals and Americas region. Our top end clients grew by 4% in Q1. We added 66 new clients and 10,000 employees growth during the quarter. Our attrition during the quarter was 16.9%. Our margin was flat sequentially as the benefit of a weaker rupee was offset by material impact of last year's compensation increase and other investments in the business. I will now talk about some of the key drivers and opportunities that we have seen in different verticals. Financial services continues to see challenges with the downsize in the industry, creating pressure on budgets and spending. Cost reduction continues to be the primary focus area, leading clients to focus on optimization and consolidation of IT and operation spend, focus on compliance-related spending, vendor consolidation, info system modernization, information management and cloud are the key initiatives with several in the financial services sector. Insurance companies are focusing on customers in the city, with a strong focus on business and technology programs concerning digital and information management. Pricing trends in this sector are challenging as clients continue to tighten their belt. With industry still seeing tough times, we believe that we will continue to see volatility in these sectors. In Retail and CPG, we see increased vendor consolidation and focus on reducing cost of operations in the Americas region. In Europe, we see demand for omnichannel commerce in retail and demand for ASP, mobility and platform capabilities in CPG. In APAC, retailers are focusing on omnichannel integration and expansion in the regional markets. In Life Sciences, we have seen continued activity towards mergers and demergers, and business and IT initiatives being taken in support of the same. Overall, in retail and CPG, due to continued focus on reducing nondiscretionary spend, even though there are opportunities to work with clients in many areas, we are seeing more aggressive procurement practices and requirements from vendors who have higher risk appetite. Coming to manufacturing, we see various trends by sub-verticals. [indiscernible] companies are focusing on cost optimization, asset-light operating model and expansion in the emerging markets. ISCs are focusing on process transformation to enable new license model and subscription commerce. Other companies are focusing on connected verticals, digital consumers and leveraging power of the emerging economies. Aerospace companies are focusing on increasing production levels to meet order backlog. Clients are looking at doing more with less and looking for convertible [ph] ROA for spending programs. Discretionary spending is under pressure for small projects in Europe. Pipeline of large deals in manufacturing is not as robust as we would like it to be. In energy, utilities and communication services space, spending is under pressure in most areas, primarily due to revenue challenges facing the clients. Pressure on IT spending is visible and the foremost focus on cost reduction and the operational efficiency in telecom, steep reduction in budgets in large energy clients and in the ability of large utility companies to drive recurring increases, thereby, helping their revenues. Pricing is broadly stable through -- though large deals are coming at a lower margin due to competitive intensity in the market. Coming to large deals, most of the pipeline is driven by clients looking at restructuring existing spend with a bias towards ADM and infrastructure management. We have won 7 large outsourcing deals in Q1: 6 of the 7 deals were in Americas, 3 of the 7 were in financial services, 2 were in manufacturing. The pipeline for -- of deals continue to be stable though closure rates and pace of ramp-up on the deals are uneven. We continue to operate in a volatile environment. As I mentioned earlier and during the vertical commentary, client willingness to spend on discretionary areas is limited. Key leading indicators like decision cycles and pipeline of deals are improving, but not pointing to a sustainable improvement over a long period of time. There is an acute focus on cost cutting and optimization. Many of the large deals, as I said, are rebates and rebates usually come at a very price-sensitive range. There are uncertainties in the political path. We have seen the immigration bill in the U.S. take shape over the last few months while there is a long way to go. We have seen regulatory changes in Canada. We have seen regulatory changes in Australia [indiscernible]. While these changes are going on and clients are interested in these changes, they will not express any change in their decision-making. Cost currency challenges are also impacting us. This quarter, we have lost $13.7 million because of cost currency movements. Because of several factors, while we have done reasonably well in Q1, we have not changed our yearly guidance. Our yearly guidance is 6% to 10%, and we remain cautiously optimistic about our future. Now let me pass on to Rajiv to give you details on financial highlights.

Thank you, Shibu. Good morning, everyone. Just to give you highlights of the financial performance. Our revenues for the quarter grew by 7.8% sequentially in rupee terms and 2.7% in dollar terms. On a constant currency basis, our revenues grew by 3.4% quarter-on-quarter in dollar terms. Our EPS for the quarter is at INR 41.54 paisa, a growth of 3.7% quarter-on-quarter. In dollar terms, our EPS was at $0.70 as against $0.76 last quarter. The operating margin for the quarter was at 23.5%, same as Q4 '13 levels. The rupee depreciated by 4.9% quarter-on-quarter to INR 56.56 for the quarter as against INR 53.93 last quarter. The benefit of rupee depreciation was offset by residual impact of last year's salary hike and recently announced hike for sales employees, effective May 1. We continue making investments in the business, which also had an impact on our margins. Our net margin for the quarter was 21.1% in rupee terms as compared to 22.9% in Q4. The decline in net margin was due to lower exchange gains on nonoperating side of the income and also because of tax reversal that we got last quarter because of R&D benefits. We had very strong volume growth this quarter. Our volumes grew by 4.1% quarter-on-quarter though our realizations dropped by 0.7% during the quarter due to adverse cross-currency impacts. Realizations are flat on constant currency basis. Our utilization for IT services, including trainees, increased to 70.7% in Q1 as compared to 68.5% in Q4. Excluding trainees, we are at 74.3% utilization in Q1. We are given 8% compensation increase to sales force, effective May 1. We have also announced 8% increase for our offshore employees, effective 1st, July and 3% on-site folks, effective 1st, July, other than who are already covered in the last quarter's salary hike cycle. This is likely to put an additional pressure of roughly about 300 basis points on our margins for the coming quarter. Our cash and cash equivalent, including available-for-sale asset, was at INR 4.054 billion. Cash initiative continues to be strong. Operating cash flow, as a percent of net profit, is at 100% this quarter. We saw significant volatility in currencies during Q1, with the rupee depreciating by 9.4% against the dollar from end of March to end of June. In spite of that, we were able to limit the impact of currency on our nonoperating income to positive $3 million. We have outstanding hedges of $1.173 billion as of 30th, June. We have maintained our guidance at 6% to 10%. Our guidance, if restated based on our predictions rate, will be at 7% to 11% since we lost roughly about $72 million in FY '14 revenues due to exchange rate movement between what we assumed last quarter versus this quarter. Our current guidance is restated based on FY '13 exchange rates, would be at 7.4% to 11.4% since we have lost roughly about $104 million between year-to-year cross-currency movements. Our rupee guidance of 13% to 17% is at an exchange rate of INR 59.39 for the next 3 quarters. With that, I'll open it up for questions.

[Operator Instructions] Our first question is from Ankur Rudra of Ambit Capital. Ankur Rudra - Ambit Capital Pvt. Ltd., Research Division: My first question is on realizations or employee productivity. If I break it up in terms of offshore productivity and on-site productivity, they should have -- there seems to have been a decline in offshore productivity despite a mix change in favor of more discretionary line like ADM consulting. Can you help me with why the mix change will not lead to an increase, if not, flat offshore realization?

If we look at the mix change, the mix has changed from 31.4% last quarter to 32% this quarter, and if we look at realizations in constant currency, they're at -- they don't change from last quarter. They are 0%. Since there has been momentum between onshore and offshore, our on-site volume growth is 5.8% this quarter as against offshore volume growth of 3.3%. This will result in an on-site per capita gain, 0.1% increase on constant currency basis and a decline of 1.6% in offshore per capita. I think these are quarterly movements. I think on a quarter-to-quarter basis, depending on the project starts, which projects starts, which project are ramping up, which projects are ramping down and which -- what are the realized rate of the new project that we signed up, I think you will see quarterly movements between onshore and offshore realized rates. Ankur Rudra - Ambit Capital Pvt. Ltd., Research Division: Okay, so nothing to read from here despite the fact that consulting and AD grew -- they should have increased? I mean, I was talking about excluding the on-site share.

Yes, if you look at the consulting growth, that is actually what has led to the very high on-site volume growth, and if you look at our on-site per capita, realizations have remained the same, reasonable offshore. So we have signed -- as we have announced, we have signed a couple of large outsourcing deals in the last couple of quarters, which are on the ramp-up right now, and those are the ones where you'll see some impact showing up on the offshore realization rates. Ankur Rudra - Ambit Capital Pvt. Ltd., Research Division: Fair enough. On those deals, the deals that are ramping up right now, I understood they had greater component of some of the more commoditized service lines such as application, maintenance and infrastructure, which however, were relatively muted this quarter. Should we understand that those deals will take longer to ramp up, and hence, you don't see the full impact this quarter? S. D. Shibulal: So if you look at our large deal this quarter, we had 7 wins in the second half of last quarter. We had about $1 billion of win, but it is important to note that these wins get realized over the period of 3 to 5 years. So the $1 billion win of last year, if it gets fully realized this year, will be about 20% of the revenue which is $200 million. We have seen occasional slowdowns in the ramp-ups, but the ramp-ups have happened, as we thought, for most of the large deals from last year, but the realization is over a period of 3 to 5 years. Ankur Rudra - Ambit Capital Pvt. Ltd., Research Division: Okay. Just lastly on the demand scenario, I know you highlighted that it remains a bit volatile. But if I look at the commentary from -- for example, last night, from some of the industry consultants, highlighting the fact that there is a bit more of optimism around the project pipeline right now for the second half of CY '13, your guidance for the remaining quarter does not reflect that fully. S. D. Shibulal: So even if you look at our own performance, we have done reasonably well this quarter and our wins are also pretty good. We have large deals, 7 large deals this quarter that's roughly at $1 billion. And the challenge is if you look at our last 3 quarters, we have seen volatility in our own performance: Q3, Q4 and Q1. One quarter is not a secular trend in our mind. There is a journey to be taken. There are multiple initiatives in progress. Growth with -- high-quality growth is our focus. We are definitely focused on it and enthused about it. But at the same time, it is a journey to be taken. We have seen volatility over the last 3 quarters. We also articulated some of the volatilities. For example, the Australian change in regulation will actually create a delay and a stop in our ability to staff. The lead times of staffing will go up. So there are some such implications also we need to consider. Considering all that, we are cautiously optimistic about the year and our guidance, we did not reset, but as Rajiv said in constant currency terms, it will be 7% to 11% or 7.4% to 11.4%. Ankur Rudra - Ambit Capital Pvt. Ltd., Research Division: Okay, just lastly on the debtors side, I noticed that your debtors have increased quite a bit. I understand part of this could be because of the quarter end rates versus the full year rates, but it still seem to have gone up about from a quarter ago and a year ago period. Is this because of the India contribution rising or was there something else?

No, it's -- I think it's not only because of the India business. Our day sales outstanding has gone up from 64 days last quarter to 66 days this quarter and that is what is showing up on our debt is going up. Again, I think we are very focused on keeping our DSOs low and this quarter was an aberration of that. I think we are very focused on collecting our money on time from the clients. I would also like to say that this also includes a credit period that we give the client. This is not from the date when the invoices are due, but this is from the date when we retain work for the client. And to that extent, I think considering where the environment was, I think in some of the large outsourcing deals and some of the clients in certain segment have been asking for a high credit period of late, and that is having effect in our DSO. But I think we, as a company, are very focused on ensuring that we collect our receivables on time, and I think we would see a lot more return in that in the coming quarters.

Our next question is from Moshe Katri of Cowen and Company. Moshe Katri - Cowen and Company, LLC, Research Division: Can we get a -- maybe some color on margin trends, I guess, for the next view quarters? And then maybe you can also talk about the leverage and the model that will help you -- would help you sustain marginal levels down the road? S. D. Shibulal: So our margin this quarter is 23.5%, the same as Q4. We had brought some benefit out of the rupee depreciation, but that was adjusted towards the residual impact of the on-site compensation, which we gave last year, and we have given a compensational hike for our sales force staff starting May 1. So the benefited was offset by these 2 factors. We have given another compensation increase this year, which is 8% offshore and promotions, and that will have an impact of $260 million for the entire year minus the sales impact, which we have already taken, which means for the next 3 quarters, there will be a $187 million impact, and that would have an impact of 300 basis points to our margin unless we do other actions to negate it. We have multiple rewards. We are focused on making sure that the nonproductive effort in the organization is reworked. On-site, offshore ratio is a lever. Our on-site ratio has gone up to 32% right now, which is -- it has gone up by 2% over the last 3 to 4 quarters. The more offshore work which we do, we will have better margins. Our utilization is moving up. It has moved up from 71% to 74%. Our optimum utilization can be anywhere between 78% to 82%. That should give us a lever on the positive lever on our margins. As trainees come in, our average compensation goes down. That's some of the levers. We have about 4,000 trainees right now and a few more to join over the next 1 year. So these are the levers which will allow us to adjust our margins. But as I said, the compensation increase will be immediate. The Q1 compensation itself has impacted us, and the remaining impact will happen immediately. These levers will get adjusted only over a period of time. Pricing is stable quarter-to-quarter. We have seen a 0.7% drop, but that is because of the cost currency movements. So these levers will have to be worked. This a journey to be taken. This is a lot of work to be done. We have action plans in place, but we have to realize them over the next few quarters. Moshe Katri - Cowen and Company, LLC, Research Division: And just a small a follow-on. I saw that Europe was down sequentially in a constant currency basis. Was that mainly because of the telecom vertical? Is there anything -- can you add some color on that? S. D. Shibulal: There is no single event which will cause that. It is not a secular trend in my mind. It's a quarter-on-quarter aberration and a few couple of projects that will come to an end in Europe, but there is no secular trend.

Our next question is from Yogesh Aggarwal of HSBC Securities. Yogesh Aggarwal - HSBC, Research Division: I just have 2 questions if I may. Firstly on Lodestone, the revenues increased sharply from $70 million to $90 million, and in constant currency, I'm sure it will be even higher. And that it seems like largely a realization per head increase because people have increased by only 100. So can you just please elaborate on that? Last quarter, you mentioned some accounting policy differential between Lodestone, and overall, Infosys. Was it something to do with that or there's anything else? And secondly on attrition, it's almost running at all-time high, excluding the 2 quarters of hiring, so just wanted to get some sense how do you -- is it -- how do you make sure it doesn't impact client satisfaction and delivery? And since the wage increase announcement, has there been a drop in attrition. So just provide a help on these 2 questions.

I think Lodestone has been doing quite well for us. As per plan, we acquired it about 2 quarters back and we have integration plan in place and we have a roadmap for how we are going to synergize that in terms of how to get downstream revenues and upstream. So I think, we -- as per plan, I think we have seen good traction with our clients -- with our current strategy with Lodestone and Infosys. In terms of the revenue growth this quarter, I think some of them that is talked about last quarter in terms of the accounting policy integration -- because of integration and the accounting policy impact and -- but Lodestone has done well this quarter and we hope to see Lodestone continue to do better as we go along. On the other part, I'll ask Steve to answer. Stephen R. Pratt: Yes, so just a little more color on Lodestone. So first of all, we're excited about the acquisition. That's a key part of our strategy to expand our consulting expertise in the Continental Europe to have a seamless set of services to our clients in Europe. What we did is to combine the management consultants that we had in the U.K. into Lodestone. We saw a onetime increase in revenue. But even despite that, Lodestone is doing well. We have some work to do on integration and in cleaning things up a little bit. But we have a lot of confidence in the acquisition, and it's already paying dividends with our clients as we have a lot of joint wins in Continental Europe, and I think our clients are excited about it and their clients are excited about it. S. D. Shibulal: On the attrition side, Q1 is generally when we see a spike in attrition because of the -- because people leave for education, higher education in Q1. Our absolute number of people leaving in this Q1 is same as the last year Q1. We have given compensation increase on-site, offshore. We have given promotions. We have addressed many of the employees' concerns. So I'm hoping that the attrition trend will be negative going forward. But generally, Q1 is when you see a spike because of a higher education attrition.

Our next question is from Sandeep Muthangi of IIFL. Sandeep Muthangi - IIFL Research: Sorry to follow-on with Lodestone thing a bit, but a clarification will be very helpful. So the $20 million incremental revenues that you fined [ph] Lodestone during the quarter, are you saying that, that -- part of it happened because of this incremental revenues from adding U.K. consultants into Lodestone because I thought it happened last quarter?

No. See, some of it is because of the accounting that is -- of our last quarter. I think we had an impact of roughly about $3.5 million, $4 million last quarter because of accounting issue, which has kind of come up this quarter. And the-- another thing is because we are moving people and we're integrating as we go along so there has been some people movement in U.K. last quarter. There have been some movement of people in Germany, in U.S. So I think we are integrating our operations with Lodestone as we speak, and there is a people movement happening. There's some projects being delivered out on both Lodestone and Infosys. So some of the Infosys work would get delivered out to Lodestone. They had low utilization so the utilization had started going up, and last, it is getting affected, the revenue numbers for this quarter. Sandeep Muthangi - IIFL Research: Right. So why I'm asking this question is because Lodestone is part of Europe. If I want to look at the performance of Europe without Lodestone because I cannot quantify the impact of all these changes, Europe looks particularly bad x Lodestone. It looks as if it is down some 8%, which the worse performance for Europe. It's not that bad even during FY '09 and '10. So I just wanted your comments on Europe's performance x all these Lodestone-related changes. S. D. Shibulal: This quarter, that's really -- U.S. has done much better than Europe. We had a couple of large transformation programs coming to an end in Europe and -- but at the same time, as I said, I will not consider this is a secular trend. We have not lost any -- we will not -- had any single client issue or multiclient issue or industry-specific issue in Europe in this quarter. So we have done better, really better, number one. Number two, a few programs in Europe came to an end, and there are other programs on the way, but we are seeing a blip. I will not consider this as a secular trend. Sandeep Muthangi - IIFL Research: Just one more question if I may. I was noticing the performance of Infosys Public Services absolutely has been quite good. Can you give me some color on what's happening over there? What are the kind of the deals that you have won in the ramp-up?

This is Ashok. So on the back of our District of Columbia health exchange program, we have also been able to gain traction on some of the other health care transactions, one, of course, is in the public space. So we've had a good traction. Of course, the entire Affordable Care Act itself is going through significant changes, and some of the states may actually decide to go back onto the federal exchange, which will actually mean that health exchanges by themselves, as an opportunity, will get reduced as compared to where we thought it would be.

Our next question is from Pankaj Kapoor of Standard Chartered Securities. Pankaj Kapoor - Standard Chartered PLC, Research Division: So just want to get a view on the rupee depreciation that we have seen in the last quarter. Do you intend to reinvest all that potential currency gain this year also, or should we expect some kind of a pass through into margins?

No. If you look at the rupee, rupee has been very, very volatile this quarter. If I look at on an average-to-average basis, rupee depreciated by about 4.9%. If I look back on a closing rate between March 31 to June 28, it has depreciated about 9.4%. If I look at intra-quarter movement, the depreciation is about, what, 12.4%. By the way, this will take a view on rupee to a -- as we speak. Some -- it has helped us in some way in our margins this quarter because of all the headwinds that we spoke about at the beginning of April. I think some of it has got negative by the rupee depreciation. We have -- at this point of time, our subsequent guidance that we have given is at INR 59.39 for the next 3 quarters. We'd have to see -- wait and see how the rupee plays out in the subsequent quarters, but it will definitely help us negate some of the impacts of the wage hike that we announced effective 1st July. But some of the rupee benefits also were negative on a cross currency movement. If you look at Australian dollar, on a quarter-to-quarter basis, it depreciated about 5.5%. On a period end, this has depreciated by 11.4%. So I think some of the rupee benefits are also getting negative by the cross currency movement, and what's always left is kind of slowing -- is helping us manage our cost in terms of this wage hike that we have announced. Pankaj Kapoor - Standard Chartered PLC, Research Division: So Rajiv, like we had a similar kind of a movement last year as well and we didn't see that coming and reflecting in the margins. So my question was that this year again, if rupee went -- hypothetically stays at INR 59 also, does this still would be close to 4.5%, 5% kind of appreciation -- depreciation in the currency? So I was just wondering that if you will use the rupee lever to counter out some of the headwinds that we see. So that's what I understand I believe you will do. The second is that, I think in the TV interview, Ashok mentioned that we are trying to mitigate any kind of a potential fall out of the immigration bill. So in this area again, should we expect some investment in terms of increased on-site hiring going forward?

Let me take that. Yes, I think the point being made is that, the immigration bill, it's a comprehensive immigration reform which has probably found the most traction in the U.S. after a very long period of time. It has passed through the Senate. It is in the house in a very different form. It's obviously very hard to predict what the U.S. Congress will do, and we definitely cannot go into the Congress and decide what that particular bill will be. And there are certain provisions in that bill, especially on outplacement which have an implication for us. And we have to be -- obviously, we are forewarned about it in the sense that it's public knowledge about the loss provisions, and we have to prepare ourselves for the eventuality that, that will become a reality. And that's essentially what we are doing in terms of our planning and strategy. But I think it is a little difficult to call out and say what is the kind of investment that we would need to make. Clearly, we are going to continue to progress on investing to stay relevant to our clients. We have to drive towards profitable growth, and therefore, that will mean changing, to a certain extent, some of the ratios that we have which have gone up from an on-site perspective. Pankaj Kapoor - Standard Chartered PLC, Research Division: Okay. So Rajiv, just then again, like trying to sum it up in terms of a margin picture for the next 3, 4 quarters, do you think that we are at that trough level, or do you think that the margins can slide further? Of course, next quarter, we have the headwind of the wage hike, which can possibly get neutralized by the currency. But over the next three quarters, do you think that the margins can bounce back and be at a similar 23.5% kind of a level or you see further down cycles?

The very fact that we haven't given a margin guidance or EPS guidance was that it's very difficult to -- because we have a lot of headwinds on the margin and it's very difficult to predict how the currencies would move. If we look at the wage hike that we announced in the month of July, effective July, it will impact margins by roughly about 300 basis points. We had spoken about some of the headwinds in terms of the pricing because a lot of large outsourcing deals which are coming out, which are apparently rebids, are coming at lower price points. The discretionary spend of the government, the budgets for discretionary spend are coming down. And the business mix change would also impact your realized rates, which would also put a pressure on the margins. If you look at my on-site effort mix this quarter has gone up from 31.4% to 32%, which also impacts the margin. Now the positive side of the rupee depreciation and the utilization uptick, because if the growth is good, then we should be looking at utilization going up further in the subsequent quarters. Now how much of the negative will get offset by the positive is something that we'll have to wait and see. So it's very difficult to put a number, but I would say that we have headwinds in the margin front. We are very focused on high margins and superior margins, but I think that is something that we'll have to do. They're the last initiative that we've undertaken to help improve our margins. But I think -- I would not take a guess on the margins for the subsequent quarter at this point of time, but all I can say is that we would -- we are trying our level best to ensure that the impact of the margin is minimal because of all the headwinds that we have. And, to that extent, the rupee is helping us, the cross currencies are not really helping us on that front. Pankaj Kapoor - Standard Chartered PLC, Research Division: And just one last one, small clarification. Can you put a TCV to the 7 large deals that we spoke of? S. D. Shibulal: So that will be somewhere between $600 to -- $600-plus million.

Our next question is from Mitali Ghosh of Bank of America. Mitali Ghosh - BofA Merrill Lynch, Research Division: First is just a follow-up on the question that you've been asked earlier. Just on Lodestone, I wanted a clarification that you mentioned about $3.5 million to $4 million from the accounting issues -- the accounting-related revenue recognition from the previous quarter. But could you also call out how much was -- was there also some kind of inorganic growth from like you said the U.K. consultants joining on? S. D. Shibulal: No. See, now that we have integrated, it's very difficult to track revenues by which employee is delivering how much revenue and who's moving from where to where. And that's the whole idea of running it together. We are approaching the clients together, we are selling together and we are delivering our services together. And it's not very proper to break that revenue between how much is getting delivered from Lodestone original employees who moved to us and employees who have moved to them, because to date IL [ph] is using Lodestone for a lot of front ending Projects. They're using them for staffing on certain projects. So I think it's not appropriate to look at revenues from that perspective going forward. Mitali Ghosh - BofA Merrill Lynch, Research Division: Sure. But there's no inorganic component because some additional people joined? That's the only point I wanted to clarify. S. D. Shibulal: No. See, there would be movement because when we said that we are integrating the 2 companies, there are movement of employees happening. So as we had said in earlier quarters, that we'll have a European consulting practice merged with Lodestone, and the movement is happening as we speak. So there was U.K. which was transferred in last quarter. Some part of Germany front offices got moved from this quarter. So that integration is part of the integration roadmap that we have, and we are on our integration roadmap. So you would see some movement of people happening back and forth. But I think the way we are looking at business is not in the perspective of how the revenue is moving depending on the original people and the people who have moved. I think it's one integrated company and we are looking at revenues and revenues growth from a complete integrated model. Mitali Ghosh - BofA Merrill Lynch, Research Division: Okay. And in terms of where they're aware of how the different revenue buckets grew, I think it would be useful if you could call out maybe how the quarter panned out versus your expectations going into the quarter in terms of ramp up or any verticals or discretionary spend? And I understand that a quarter's trend cannot be extrapolated, but it would be useful to understand how it was versus your expectation. S. D. Shibulal: On the IL [ph] side, see, as we said, this quarter we have done reasonably well. If you remember our guidance, it's up 6% to 10%. We have the growth somewhere between 0.5% to 2% quarter-on-quarter for 4 quarters to retail at upper end. And that in Q1, we have done 2.7%, actually, 3.4% in constant currency terms which is higher than the 0.5% to 2%. But as I said, there are some headwinds so we remain cautiously optimistic.

[Operator Instructions] Our next question is from Viju George of JPMorgan. Viju K. George - JP Morgan Chase & Co, Research Division: My question again pertains to Lodestone. I mean, you've had this jump of $30 million which is almost a 30% -- $20 million, which is almost a 30% increase Q-on-Q on Lodestone. Now one is that, what has led to this? Because at the same time, you are also cautious about consulting discretionary spending, et cetera. That's one. Two is that, how has this come about because the manpower addition seems to be just about 10%, 12% on Lodestone. So I'm just curious to understand what drove this -- in more concrete detail. Stephen R. Pratt: So Lodestone is doing well. As Rajiv said, it's on plan and there's a lot of people movement happening in these quarters, so I wouldn't expect that percentage of growth going forward in quarters, but we're confident in the strategy. Overall, for consulting and systems integration, on a constant currency basis, we grew 6.3% quarter-over-quarter. In U.S. dollars, we grew 5.5% quarter-over-quarter. So it's -- it were -- it was a reasonable quarter. We're -- I think it was a good beginning to a new future. And -- but the thing that we're most excited about is if you look at the business value that we're adding to clients that we're -- we are actually creating more and more business value and that ultimately lead -- will lead to better financial results for us. And so -- and Lodestone is a key part of that. Because for us to serve global clients, we need to be strong in Continental Europe. S. D. Shibulal: See, I think that Lodestone number -- let me just clarify it once more. The Lodestone growth of $20 million has come from 3 different aspects. Number one, as Rajiv said, because of the integration which was in progress over the quarter, there has been some accounting-related shift which happened. But please remember when something gets shifted, there's double the impact. So a $4 million shift actually will true up at $8 million this quarter, that's number one. Number two, people getting moved don't reflect completely in that quarter. So for example, last quarter, some people who are moved maybe at the second half or the end of the quarter and that will get reflected much more in this quarter. So that's the second part. Third part is the growth itself, right. As Steve said, they are on plan with the growth. So there are 3 aspects which contributed to this. Number one is the accounting leadership, and it actually shows up as double. And then, people movement which have happened during the quarters, through the quarter last quarter, but the full impact will be seen this quarter. And the third is the additional revenue.

Our next question is from Rahul Bhangare of William Blair & Company. Rahul S. Bhangare - William Blair & Company L.L.C., Research Division: Just a quick one. Rajiv, can you help us quantify the puts and takes, the individual puts and takes, to the operating margin this quarter?

Could you just repeat it once again? Rahul S. Bhangare - William Blair & Company L.L.C., Research Division: Can you help us quantify the individual puts and takes so utilization increase, the rupee depreciation on the operating margin?

Sure. If you look at the margin this quarter, the operating margin has been at 23.5%, same as last quarter. The rupee depreciation on an average basis by about 4.9% could mean uptick of about 1.2% on operating margin. I had a wage increase of last quarter, the full quarter impact coming this quarter, which was about negative 0.6%. The promotions that we gave in Q4 of last year, the wage hikes related to that was given this quarter which has an impact of 0.2% negative. We gave sales hikes to salespeople this quarter which was a negative of 0.2%. RPP [ph] drop of 0.7% having impact of about 0.5% on the margin, [indiscernible] this quarter which has an impact of about minus 0.4% on the margin. The utilization went up from 68.5% to 70.7% which helped us in the margin about 0.9%. So if we look at all of these, being able to manage our margins and being able to keep it flat. So there has been some positives in terms of rupee depreciation, in terms of utilization uptick. There have been some negative in terms of the full impact of the wage hike given last quarter coming this quarter and also the wage hike and the promotion hike that we gave this quarter. So I think these are just how the market [indiscernible] concerns.

Our next question is from Pavin Shah [ph] of Ecura [ph] Securities.

Yes, can you talk or lay on what's your plan for headcount growth and the BPO performance, there's been a big drop in profitability, so what's going on there?

This is Gotham. I think from a revenue standpoint, we grew about 14.5% from the first quarter of last year to this quarter. We were -- we maintained our operating margins at about 21%. I think typically, we've actually added close to about 8 new clients and a lot of the transition work has started. So in this business, as you probably know, in the initial phases, there is some amount of impact. But I think, over the course of the year, we remain reasonably optimistic about maintaining the margins that we have. S. D. Shibulal: On the headcount growth this quarter, we have added 10,138 crores and 575 crores net into the group. In IL [ph] alone, we added out of that 10,138 crores, IL added 5,251 crores, and the net addition 1,182 crores. As you know, our utilization is still below our expected range, so we will continue to recruit based on utilization and business needs.

Our next question is from Ashwin Mehta of Nomura. Ashwin Mehta - Nomura Securities Co. Ltd., Research Division: Yes, I had a question on our offshore pricing trend. Given that we are indicating that the deal pipeline is more rebid-related and which could come at lower realizations, and we have already seen, over the last 6 quarters, a declining trend in our offshore pricing. Do we see that trend continue especially in light of the cautiousness on the discretionary side of things? S. D. Shibulal: So quarter-on-quarter, blended pricing has remained stable, but offshore has declined marginally. It is true that most -- if you read the industry reports, you can clearly see that most of the large outsourcing deals most -- not most actually, a fair percentage of the large outsourcing deals which are out there are rebids, and rebids are generally price sensitive. In any case, what happens with the large deal is that they are margin-dilutive in the beginning, or revenue productivity dilutive in the middle -- beginning. Our objective is to make sure that they are margin neutral over the life of the program. And there is a lot of focus in doing that through automation, reuse, optimization of talent, on-site/offshore ratios, and various other levers which we can use. So when you have a large number of large outsourcing programs starting up. And as you can see, we have $1 billion in the second half of last year and about $600 million in this quarter. It will have an impact but we are focused on interventions which would make the margin neutral over a period of time. Ashwin Mehta - Nomura Securities Co. Ltd., Research Division: Okay. And my second question is on the fact that discretionary services application development and consulting have done pretty well for us, but we seem to be sounding cautious on them going forward. So if you can just give an idea in terms of the nature of work in these and whether that's not of a recurring nature that makes us cautious? S. D. Shibulal: So discretionary spend is not recurring, right? Discretionary spend is not recurring. In fact, we have very large programs which will run its course over a period of 12 to 18 months. These will be large transformation programs. Today, we will start our consulting, go on to mostly implementation, one of the ERP packages. And eventually, we will continue to maintain those packages over a period of time. But the large transformation rupees will come to an end. So it's moved, that 34% of the revenue, we will have to continuously feel on an ongoing basis. We have done reasonably well this quarter and that reflected in multiple services. Our focus is to make sure that our growth is balanced across our large offerings. And you will see that 2.7% growth flowing into all of them. But when we look at our own performance over the last 3 quarters, we have seen volatility in our own performance and some of the challenges we outlined. So that is what -- that is the basis on which we should remain cautiously optimistic. And we felt that 1 quarter is not a secular trend and this will be premature for us to declare that it's a secular trend and change our guidance.

Our next question is from Edward Caso of Wells Fargo. Edward S. Caso - Wells Fargo Securities, LLC, Research Division: I was curious if the -- your competitors have changed their approach to business given the potential for immigration reform in United States. I mean, if they have been using that threat of immigration reform competitively against you in pitching deals in the U.S.? S. D. Shibulal: So our plan, we do understand that this is an industry issue. This is not an issue for a specific organization, specific company or organization. It as an industry issue. We have been very focused on having conversations with our clients. Our focus will be to make sure that there is no service interruption. That requires a joint action plan between the client and us. As you know, this immigration bill is in flight so we can only plan at this point in time. We are not -- at this point in time, we don't know what will be the final bill, what shape the final bill will be. At the same time, we are creating contingency plans with ourselves and with our clients. And our clients do understand that this is an industrywide issue. Edward S. Caso - Wells Fargo Securities, LLC, Research Division: My other question is around applications outsourcing. What kind of pricing are you seeing in this run business at this time? S. D. Shibulal: So if you read the industry reports, there is a fair share of large outsourcing deals which are rebids. And rebids usually come at -- rebids are price sensitive. So as I said, our focus is to make sure that, while they may be margin dilutive in the beginning, they are margin neutral over the life of the program. That require us to focus on increasing productivity, increasing quality of deliverables, increasing efficiency, doing automation, implementing reuse and tools. So yes, they are price sensitive, but our focus is to make sure that they margin neutral during the life of the program. But they do show up. When there are multiple offsite programs in the ramp-up stage, they do show up in our margins.

Our next question is from Sandeep Shah of CIMB India. Sandeep Shah - CIMB Research: Just firstly, can you break down how we are looking at a 300 basis point recall of the wages in the coming quarter because as per my calculation, it looks like it's much lower. It should be lower than this because some part of the wage inflation has already been covered in the May. And even from the coming quarter, the on-site wage inflation is not for the 100% of the employees, but part of the [indiscernible].

So if you look at beginning, 8% wage hike in offshore this year, and that is effective July. So if we look at my total Indian expenses, they're roughly at about 15.5% of revenues and 8% of that is what I can recall. And then you also have lateral hires this year which would typically come [indiscernible] wages post hike. So on the on-site, you're getting 3% wage hike for your on-site folks. And if you can just add up the numbers in addition to plus all the new people who have be going out for the on-site, for the revenue growth will be going at higher wages compared to what they were. It will typically come to about 300 points impact. Sandeep Shah - CIMB Research: And is it possible to give us a color, percentage of the on-site employees -- is it possible to disclose the percentage of the on-site employees getting hike effective July? S. D. Shibulal: It's -- we're not giving numbers of employees who are getting hikes in July but the whole of offshore, everybody has been covered in our year cycle, sales folks and all the people in substreets [ph]. So I think and so that average hike is 3% on-site and offshore is 8%. Average hike in sales is 8%. And it will add up to about 300 basis points impact in the subsequent quarter. Sandeep Shah - CIMB Research: And just the last question, discretionary business, earlier, we were saying that it was in a stop-and-start mode, but it looks like the commentary is a little better versus Q-on-Q. So do you believe the predicability on the discretionary side of the revenue has improved a bit, may not be to a maximum level, but it has been much better versus what it used to be 3 to 5 months back? S. D. Shibulal: I wouldn't say that there is a material improvement because there is -- if you look at different segments, different segments are going through different set of challenges and while we have seen a reasonable growth in Q1. And maybe there is a marginal improvement. In U.S., there is definitely commentary of positiveness, but in our mind, we would like to see a few more quarters of secular trends before we declare it as a material improvement in the environment.

Our next question is from Nimish Joshi of CLSA. Nimish Joshi - CLSA Limited, Research Division: One question. I mean, last 3 quarters you've see a lot of volatility on either side, and in terms of performance, in terms of what's the stock price and result. So is the management really worried about this volatility which happens because this tends to keep away a lot of long only investors away from the stocks? And also do you think that you, yourself, are surprised at what came up at the end of the quarter because each time probably what has come up has been at variance to what has been the management commentary to the quarter? S. D. Shibulal: So I mean, there are 2 parts to this. We are looking for predictable performance. That is if you look at our business, one of our business pillars is predictability and we are definitely hoping for predictable performance. But the fact -- the reality is that we have 34% of our revenue coming from discretionary spend. Discretionary spend business needs to be continuously filled. We need to have that business because we have to build million dollar[ph] clients which means we have to have that business on a continuing basis. So that creates some volatility and volatility, because of the discretionary spend, [indiscernible] if the environment is volatile. So that is one. Then, for example, this quarter, we took a hit of 0.8% of the growth just because of the cross currency movements. Otherwise, our growth in reported currency would have been 3.4%. So there are these challenges, but I can tell you, our objective is to create predictable growth. Now talking about the commentary, in Q3, and I said the same thing that 1 quarter is not a secular trend. And we need to see a few quarters before we declare this as a secular trend. And that is true even in this quarter. Yes, we have done reasonably well. We remain cautiously optimistic. I will not consider 1 quarter as a secular trend. Our -- we are working -- our focus is to create predictability. But the reality is these factors I have laid out but we will continue to focus on creating predictability. Nimish Joshi - CLSA Limited, Research Division: And just a quick one, another one question, is obviously we've seen some top layer changes where Basab has left. So do you foresee more such changes or do you think this is a one-off and then you will be announcing a replacement whatever is the new plan? S. D. Shibulal: So in the interim, Ashok has taken over Basab's responsibility and right now, he's handling it. The rest of the questions that you asked are matters internal to Infosys. And when there is a change, you will be the first to know.

Ladies and gentlemen, due to time constraints, that was our last question. I now hand the conference back to Mr. Sandeep Mahindroo for closing comments.

Thanks, everyone for being a part of this call. We look forward to talking to you again. Have a good day.

Thank you, members of the management Team. Ladies and gentlemen, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. S. D. Shibulal: Thank you.