Ladies and gentlemen, good day, and welcome to Infosys Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Mahindroo. Thank you, and over to you, sir.

Thanks, Margaret. Hello, everyone, and welcome to this earnings call to discuss Q4 FY22 earnings release. I'm Sandeep from the Investor Relations team in Bangalore. Joining us today on this earnings call is CEO and MD, Mr. Salil Parekh; CFO, Mr. Nilanjan Roy; along with other members of the senior management team. We'll start the call with some remarks on the performance of the company by Salil and Nilanjan. Subsequently, we'll open up the call for questions. Please note that anything that we say that 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'll now turn it over to Salil.

Thanks, Sandeep. Good morning, good afternoon and good evening to everyone joining on the call. Thank you for taking the time to join us today. We've had an exceptional year with annual growth of 19.7% in constant currency terms, which is the fastest growth we've seen in 11 years. We're gaining market share. We're building on a leadership in cloud and digital, and we are a part of more and more programs that our clients are looking at digital transformation. Growth was broad-based across business segments, service lines and geographies. Each of our business segments grew in double digits. The top 3 grew in high teens. U.S. and Europe grew over 20%. The North America region crossed $10 billion in revenue, while Financial Services crossed $5 billion in revenue milestones. Our digital revenues now account for 59.2% and grew at 41.2% for the year. Our digital revenues crossed $10 billion annualized on a run-rate basis. Within digital, our cloud work is growing faster, and our Cobalt cloud capabilities have seen significant traction with our clients. Our growth has been accompanied by robust operating margins of 23%. We delivered these margins while maintaining focus on our employees with increased compensation and benefits. Our large deal wins were at $9.5 billion for the full year and were $2.3 billion for Q4. Our net new percentage was 40% for the year and 48% for Q4, helping us set up a strong growth foundation for financial year '23. Our Q4 revenue growth was 20.6% year-on-year and 1.2% quarter-on-quarter in constant currency terms. Our industry-leading performance in FY '22 would not have been possible without the relentless commitment from our employees. I'm extremely proud as well as grateful for the extraordinary efforts in delivering success for our clients. Our last 12 months' attrition increased to 27.7%. Our quarterly annualized attrition declined by approximately 5 points on a sequential basis. We recruited 85,000 college graduates in this financial year. In the fourth quarter, we had a net addition of 22,000 employees. We have an overall strong recruitment program. This is a reflection of our enhanced recruitment capabilities, solid brand and deep penetration into various talent markets. This increases our comfort to support clients in their digital transformation agenda as we look ahead. We've initiated our compensation review exercise for this financial year. We plan this exercise so that we can focus on employee segments that need greater attention while also covering a broader group with regular increases. As in the past, we will look at individual performance, skills and market benchmarks while determining individual compensation increases. We will focus on accelerated career growth targeted development and opportunity to work on cutting-edge digital innovation globally. Our strategy launched 4 years ago has served us well. We've delivered industry-leading growth and industry-leading TSR. Looking ahead to the next phase to further enhance our leadership on the digital innovation curve, we plan to expand our capabilities in scaling our cloud business, expanding digital capability, expanding on our automation work and increasing relevance with our large clients and tech-related and also strengthen our employee value proposition. Our focus on staying ahead in the cloud and digital ecosystem, a focus on our employees and our cost give us strong confidence for the future. Our sustained momentum in FY '22, large deal wins, robust deal pipeline and client confidence give us comfort to guide for 13% to 15% growth in FY '23 in constant currency. Our focus now as we look ahead as we build our new strategy, that is looking at cloud and the digital ecosystem, our focus on employees and the costs related to the post-COVID work environment result in our operating margin guidance to be at 21% to 23% for FY '23. In terms of our business segment performance, let me go through the highlights by segment. Financial Services segment grew at 14.1% in constant currency, with 8 large deal wins during the quarter and 27 large deal wins in FY '22 as U.S. business continues to lead the growth as we work on large transformation programs. Our overall large deal pipeline in Financial Services is healthy across the regions. Retail segment growth was at 16.5% in constant currency as clients focus on digital and cost takeout programs. We're seeing integrated outsourcing deals and transformation programs in the areas of e-commerce, revenue growth management, supply chain, product life cycle management. We won 16 large deals from the segment in the last year and continue to have a healthy deal pipeline. The Communications vertical grew strongly at 29.2% in constant currency. We see customer experience, IT and network simplification, lean and automated zero-touch operations, time to market and integrated data for digital enterprise as the key themes for clients in this segment. Energy, Utilities, Resources and Services segment growth increased further to 17.8% in constant currency. We see continued increased emphasis on digital transformation, especially around customer experience, operational efficiency and associated legacy transformation. We won 4 large deals in the last quarter and 18 large deals in FY '22 from this segment. Growth in Manufacturing segment increased to over 50% in constant currency. There were 6 large deal wins in this segment in the last quarter and 13 wins for the last year. We are helping clients across engineering, IoT, supply chain, cloud ERP and digital transformation areas. Hi-Tech growth accelerated further to 20.9% in constant currency. We've seen an increase in deals based on edge computing, digital marketing and commerce. Cybersecurity is another area of focus for clients due to increased theft perception. Life Sciences vertical grew by 16.2% in constant currency. Clients are driving digital transformation of clinical trials to reduce cycle times through direct data capture, digital patient engagement to accelerate drug discovery and reducing costs. In the last quarter, we were rated as a leader in 11 ratings in the areas of cloud services, big data and analytics, IoT and engineering, modernization and artificial intelligence. We launched the acquisition of oddity, a Germany-based digital marketing and experience and e-commerce agency, together with brand building, which will further strengthen our creative branding and experience design capabilities. With respect to capital allocation, the Board has proposed a final dividend of INR 16 per share, taking the total dividend for financial year '22 to INR 31 per share, an increase of 14.8% over the past year. I want to express Infosys' support for all the people impacted by the humanitarian crisis in Europe. The company advocates for peace between Russia and Ukraine. Our Infosys does not have any active relationships with local Russian enterprises. We have a small team of less than 100 employees based in Russia, which service a few of our global clients. In light of the prevailing situation, we made a decision to transition these services from Russia to our other global delivery centers. To support this humanitarian assistance initiatives in the region, Infosys has committed $1 million towards Ukrainian relief efforts and is launching a program to digitally reskill up to 25,000 individuals. With that, let me hand it over to Nilanjan for his update.

Thanks, Salil. Good evening, everyone, and thank you for joining the call. We navigated yet another year of a challenging environment with strong growth of 19.7% in constant currency, which is highest in a decade. The incremental revenue added this year was higher than the incremental revenue added in the previous 3 years together. This was backed by broad-based growth across segments and robust growth in our digital portfolio at 41.3% in constant currency. Operating margin for the fiscal stood at 23%, which were at the midpoint of our guidance band of 22% to 24%. In the backdrop of various supply side pressures, we rolled out various measures to reduce attrition, higher compensation increases, higher promotions, skill-based interventions, et cetera in addition to higher subcons. Free cash flow for FY '22 crossed $3 billion. DSO reduced by 4 days to 67 days. CapEx increased margins to $290 million on the back of continued focus on optimizing the infra creation-related spend. Consequently, FCF conversion as a percentage of net profit was 103% for FY '22. FY '22 EPS grew by 14.3% in dollar terms and 15.2% in INR. Return on equity at 29.1% improved by 1.7% over the prior year. Coming to quarter 4 performance. Revenues grew by 20.6% year-on-year in constant currency and 1.2% sequentially. Growth was broad-based across verticals and fields and grown in double digits. Although volume growth remained healthy in quarter 4, revenue growth in Q4 was impacted by user seasonality, slightly COVID impact during the early part of the quarter and the client related contractual provision, which we expect to recover in the future. This also impacted quarter 4 margins. Mining of large deals -- large client was extremely strong in FY '22. 100 million client count increased to 38 compared to 32 in FY '21. We had 10 clients giving $200 million annual revenues compared to 7 in FY '21. We have added 22,000 net employees, including trainees during the quarter, the highest ever in the company's history, as we made headroom to capture the robust demand environment ahead. Consequently, utilization in quarter 4 declined to 87% while on-site effort mix is up to 24%. Voluntary LTM attrition increased to 27.7%. While LTM attrition continues to increase due to the tail effect, quarterly annualized attrition saw a decline of approximately 5% after a flattening in the previous quarter. Quarter 4 margins stood at 21.5%, a drop of 200 basis points versus previous quarter. The major components of the sequential margin movement was follows: 1.6% [RPC] impact due to lower calendar working days, client contractual provision as explained above and other pricing percentage; 0.6% impact due to lower utilization as we create capacity for the future; 1% due to higher visa costs, third-party costs and other one-offs, which we benefited in Q3, and these were offset by approximately 1.1% benefit due to salary-related benefits, including lower working days, lead costs and others. Quarter 4 EPS grew by 9.2% in dollar terms and 13.4% in rupee terms on a year-on-year basis. Our balance sheet remained strong and debt-free. Consolidated cash and equivalents increased further to $4.9 billion at the end of the quarter. Free cash flow for the quarter was roughly at $761 million, and yield on cash balance remained stable at 5.29% in Q4. In line with our capital allocation policy, the Board has recommended a final dividend of INR 16 per share, which will result in a total dividend of INR 31 per share for FY '22 versus INR 27 per share for FY '21, an increase of 14.8% per share for the year. Including the final dividend and recently concluded buyback over the last 3 years, we have returned 73% of FCF to shareholders under our current capital allocation policy. Our accelerated investments in the last few years in strengthening our digital systems, enhancing large deal capabilities, localization, talent building has enabled us to gain consistent market share. With the activation of digital disruptions across industries, we see further step to engage more closely with clients and capitalize on the expanding market opportunities. We have identified areas of investments, including doubling down our focus on digital portfolio, cleaning our cloud offerings and further enhancing our capabilities in emerging technologies. We also remain committed to offer a compelling value proposition to employees through refilling incentivization and a holistic career growth. We plan to neutralize some of these through aggressive cost optimization and value-led pricing driven by service and brand differentiation. This, along with post-pandemic normalization of some expenses, like travel facilities, et cetera, is reflected in the revised margin guidance for FY '23 of 21% to 23%. With the pandemic hopefully behind us, we hope to see many of you in person over the next few months. With that, we can open the call up for questions.

[Operator Instructions]. The first question is from the line of Ankur Rudra from JPMorgan.

The first question is on the revenue guidance. Last year, at this time, Salil, the revenue guidance was a bit lower at the beginning of F '22. And at the time, you had much stronger, I would say, deal -- I would say at least the order book was a lot stronger. You had a mega deal in the order book and perhaps a stronger exit rate. So I'm curious to what gives the confidence of giving a slightly higher guidance at the beginning of this year, given maybe a more volatile macro situation?

Ankur, thanks for your question. This is Salil. What we see today is the demand environment from what we can see for our client base is strong. We have, for the year, $9.5 billion in large deals, 40% net new for the quarter, $2.3 billion or 48% net new and a strong basis of expansion in dimensions relating to new client work and related to actual expansion across different strata plans within client expansion. Given all of those factors, we came to a view that we could see growth in the range of 13% to 15% for this financial year.

Understood. Does this bake in any kind of reversal that you alluded to from the client situation in fourth quarter?

The client situation of the fourth quarter will reverse over some period of time. We've not specified that in which this is -- that was also in any case, is not in the range of the full year when it make a huge impact. We see this coming really from the strong demand that we are seeing within the market. From what we're seeing in the existing base of business that we have and the expansion within clients that we are seeing and some of the new client acquisitions that we are witnessing. So putting all of those factors, we came to this view.

Okay. I appreciate the color. Just a follow-up question is on margins. Maybe to start with, could you elaborate the third-party costs, which went up very sharply this quarter and last quarter? Is this the sticky new level given the nature of deals we are signing? And as a connected question, could you elaborate the sort of costs that have been baked into the F '23 guidance on margins, including the wage inflation levels, the -- extended the pace of the reversal of -- or normalization of the cost base.

Yes. So I think one of the large deal momentum which we get is to bundling our services with new software and the like services, and that gives us a multiplier effect in the client landscape, and that is also -- you've seen that over the last few years. So that's one of the reasons also we've seen the cost increase and has helped us in the quarter and in the year going forward. From a year-on-year perspective, for FY '23, we don't call out these impacts. As Salil said, it will be a competitive compensation hike. We will differentiate high skilled talent, and in some cases, it will be more broad-based. And of course, around that, we have a lot of cost optimization, which we usually do. Some of them in the year past were catering to for instance the on-site offshore mix. But subcon became a headwind for us last year and some of it in a way will start going the other way in the following year. Of course, the wage hikes will hit us early on in the year as well in quarter 1 itself. So that will be initially a headwind, but we have seen the overall -- we have seen the overall impact of our cost optimization. So I think we have started the discussions, as Salil said in earlier, which our clients -- and of course, this is much more longer haul. It's -- on the T&M side, et cetera, it happens, on renewals, et cetera, but more FC side -- on the FC side of the business. These are much more longer-term discussion than a cost. These are also competitively bid. But I think the discussions have started. All our sales people have actually engaged in this and looking at the overall demand -- the supply front on this talent, we have started making some headway on this.

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

It will be great if you can give us some more clarity on the client specific contractual provision that you mentioned. You're getting a lot of questions on this from investors. How does that impact the revenue numbers for the quarter? Was there a margin impact as well? I think any clarity is going to be really helpful. And then just as a follow-up. Looking at the margin guidance for fiscal '23, obviously, you’ve got down the lane about 100 basis points. Are we assuming a significant wage inflation here? And then are you also assuming lower pricing power, which is something that actually did help in terms of levers for the past 6 to 12 months.

Yes. Moshe, we couldn’t hear you clearly. I heard the first question on the -- that client contraction provision. I mean just to clarify this, the numbers are very small. These are less than a percentage. So it's not a big impact overall as people are making it out to just want to close that out. It's not a big impact, but it's less than 1%. But if we are looking at revenue growth and sequentially, I just really wanted to call it out. What is the larger question?

The third question had to do with your margin guidance for fiscal '23. And we're asking if this actually factors an acceleration in wage inflation into fiscal '23 and maybe a lower pricing power also kind of not factored into those numbers?

Okay. So again Moshe, we’ve lost bit of it but I could make out something you said about wage inflation as well. So yes, in quarter 1, we will do a compensation hike as well, both offshore and on site. And like I said, it will be competitive. We will benchmark this, differentiating on talent side as well. And that's something we have seen over the last year has helped us, especially towards people are the highest sales side, so that is working for us. The overall margin guidance reflects the number of events, right? So one is, of course, we talked about some of the normalization of the pandemic benefit we have got on travel and facilities, and some of that we're seeing is going to come back as well. And secondly, of course, we are seeing some of the headwinds in terms of on-site offshore, which we think we got a large benefit last year. So we have to see how this opens up in the rest of the year as a result. But on the other hand, with our recruitment building really kicking up now, subcon cost we have seen has actually plateaued during this quarter, and have probably seen over the rest of the year. We should be able to pull back costs on subcon lines. Operation remains very core to us, cost optimization every year. We've taken out between 3,000 to 4,000 people automating and putting in bots, and this is fourth quarter I'm talking about. So I think we have a very comprehensive plan, and we talked about pricing as well. And 21% to 23% is a reasonable margin band we think we are comfortable to operate in for next year as well. If you recall, even pre-pandemic in a way we were at 21% to 23%. We ended FY '21, which was a year before pandemic at 21.3%, if I'm not mistaken. So we are in the 21% to 23%. And it's a comfortable range we are happy to be in.

The next question is from the line of Nitin Padmanabhan from Investec.

Just 2 questions from my side. The first one was on the guidance. So if I understand right, typically, you have very high visibility for the next 2 quarters. And if I look at the last year net new deal wins, it's actually lower than the prior year. So I was just wondering is the mix of much smaller deals was don't reflect within the overall large deal win numbers that you are talking about? Is that a much higher number? Is that how we should think about -- about it? And second, there -- is it the pipeline of larger deals that could come through that's giving the confidence? Or is it a smaller deal? So that was the first question.

Thanks for the question. This is Salil. We are not specifying today the different types of deals within the mix. A few points to give some color on it. First, the pipeline that we see today is the largest pipeline we have in terms of large deals. So that gives us a good confidence. Our net new for the year is strong. We have good momentum exiting this year, financial year '22, which gives us a good foundation for next year. And we see continued traction within clients as we're expanding, as we're consolidating as we are gaining market share. So that gives us an added boost. Hopefully, that gives you a little bit more color on that.

Sure, sure. The second question was in terms of the -- how are you seeing on-site wage inflation broadly when you compare the prior year? Do you see that at a much higher level for the industry in the U.S.? I just wanted your thoughts on that. And finally, any specifics on the Financial Services space, which are relatively softer, and Life Sciences, we actually saw a sharp drop for the quarter?

On the wage inflation, outside India is definitely higher than what we were seeing last year, and that will become part of how we factor in our overall compensation increase. Those inflation numbers in most of the Western geographies, which are higher today than they were 12 months ago. On Financial Services, while in the quarter, we saw the Q-on-Q was lower, the overall demand environment remains very strong for us in the segment. We see good pipeline there. There were significant large deal wins for the year and in the quarter, and we remain confident with the growth in Financial Services. In Life Sciences, conversely, we had in the previous quarter several onetime large deals that have come in, and that's what came through. It's a smaller unit for us. So there's much more volatility in that. With the underlying business in Life Sciences, the demand still looks in good shape.

The next question is from the line of Keith Bachman from BMO Capital Markets.

I wanted to ask a question about what are your assumptions on both attrition and utilization? How should we be thinking about those trends over FY '23? And specifically, what -- if you could correlate it, what's the impact in terms of your margin guidance that you've provided here today of 21% to 23%?

Yes. So I think, firstly, on the utilization, we are still higher end at 87.5. We want to bring this down. Now having said that, a lot of this will happen through the influx of freshers, right? So it's not a dollar for a dollar in that sense. The utilization will start impacting more by putting freshers, right, at the lower profit. We still have a margin headwind. But if you're looking for the math behind it, there's no straight correlation because it's not one for one in that sense in terms of wage cost versus utilization, it’ll be at the lower end. So that's thought. On attrition, yes, we think that this should come down in the following year. The impact of what we are seeing now, the impact of putting freshers in, not only by us but by the entire industry, because it is a bit rotational churn issue across the industry. And as the industry puts in freshers, there is a new source of supply across the industry as well, and of course, finally, the interventions, which we are doing now as well. So that's all factored into our 21% to 23%. Of course, we are also looking at investments, like Salil said, around cloud, around digital capabilities, and therefore, that's also baked in into the next year.

Okay. Just to clarify, and then I will see the floor, does attrition come down for the industry or Infosys or both?

It will be both. I think we are -- I don't think we are in a silo in the ecosystem. We are all interconnected. My attrition is somebody else's lapses, and somebody else's attrition is my lapses. And therefore, if the industry has to come out of this, it is fundamentally through -- volume has to be through fresher, there is no other source of volume, right? Volume in the industry in the long run has to be only freshers. And therefore, as we start pumping in more freshers, send them for training, put them into the bench, then lead them into production, I think that probably still takes time, and you're seeing all the benefits of this, not only with us, we're also seeing that with the industry as well.

The next question is from the line of Sudheer Guntupalli from Kotak Mahindra AMC.

Nilanjan, you made a comment that pre-pandemic, we were at 21.5% margin, and our current margin guidance plan is also somewhere around that. So should we read this margin downgrade as more of a structural reset in the company's aspirational profitability going back to pre-COVID margin levels? Or should we see this more of a onetime downgrade for FY '23 led by transient supply-side pressures?

Yes. So as you know, we only give the margin guidance for the year, 21% to 23%, and 21% to 23% of course have the same guidance range. But FY '23 -- FY '20 was 21.3%. So that we're not saying it's going to end up, but comfortable range we are in, for FY '23, 21% to 23%. So I think nothing more than that. And we've talked about the investments we are going to make not only on the talent. This is a robust demand environment. We don't want to lose highly skilled talent. So we are rolling out interventions there. We are rolling out intervention on the sales side, on the marketing side, on the digital cloud. So we have multiple interventions. And we've seen the success of that over the last 4 years, I mean, the results are in front of you. And that's something which we've looked at and baked into the margin for next year.

Sure, sir. An extension of this question, the current exit margin rate in March '22 and margin downgrade for FY '23, it gives a bit of a déjà vu feel of the exit margin and guidance situation exactly 3 years ago in March '19. In fact, we were not staring at so many margin headwinds like we are now, barring a bit of an admitted attrition at that time. So my question is, is it fair to assume that for the next 4 quarters, margin trajectory will trade somewhat of a similar path like during FY '20, where the current data in growth will likely take care of the delta in margin headwinds? Or do you see any major divergences in terms of how the pattern may play out over the next 4 quarters?

I think you are 5 steps ahead of me now on this. So I think, like I said, on the margin side, we know there's going to be a quarter 1 impact, right? We know there are more longer-term cost optimization we can put. There are shorter term is what will happen here. So I think it will be a multiple impact of all this. And of course, growth will always help. And you've seen that the impact of growth on the operating leverage also has helped in the past. So it's a combination of all this.

The next question is from the line of Diviya Nagarajan from UBS.

Thanks for taking my question and congrats on what's been a great year overall. Looking forward, I think this question has been attempted in different ways by some of the earlier questions that came through. But if you were to kind of think about your guidance on revenue for the full year and as you think about what are the puts and takes in terms of any delta that you might see on demand how comfortable do you feel that you have a push in? I think if I also look at your past track record, you've taken up guidance pretty much consistently multiple times during the year. Is there room for -- is there enough buffer on both sides of the equation is my first question.

Hi, Diviya, thanks for the question. This is Salil. The way we look at our growth guidance, we really tried to take a look at where is the demand today, where is -- what we have done with large deals, what we are seeing across many of our accounts. For example, if you see some of the statistics that we share, number of accounts over 100 million or 50 million, we have seen big movements over the last 12, 24, 36 months. So we have some view of how that will move in the coming year and then how we are working on new account acquisitions and focus. Those are the things we built in to build the guidance. And that's the approach we take every year and on April -- in April as we look ahead. And then as the year moves as we get other information, we try to then see how best to communicate what we are seeing in the demand environment. It's the same approach that we'll follow. So it's difficult, for example, to say what does it mean, it's a cushion or not cushion. Because at this stage, what we see is what we are sharing, which is a 13% to 15% on the growth. And then every quarter, with the broad-based connections we have with clients and interactions across the industry, we will continue to share what we see with respect to the demand environment.

Got it. Got it. And on the margin side, I think you've spoken repeatedly about investments and investment for future growth. Could you kind of -- if you were to split your margin, you've taken your guide down roughly by 1%. Could you split it into what would be the contribution of the investments? And what is really the contribution of all the other metrics that you talked about that are likely to reverse.

Yes. So we have a lot of, like I say, every year, since we have headwinds on compensation, we have headwinds like I said in the past -- that's the biggest one. We have headwinds on the first now this year coming on the travel, on the facility side as things open up. On the other hand, we have the cost optimization program, which has been running quite well across all the years, automation, on-site offshore, subcon again, we close against us. And then on all the investments which we are going to make, and we will start during the year, this will be behind sales side this will be behind the makers, this will be behind cloud capabilities, this will be behind people incentives on higher sales side. So it's a combination of all this, so we're not really calling out the separate impact, and all of that has been considerably well into the margin sector.

Got it. My last question, if I may. So should I assume that your increased visa costs that you've had almost like 1% impact in the quarter, the higher visa applications is to kind of offset some of the subcontracting pressures that you've had now with traveling opening up in the Russian market?

Yes. So as I mentioned, the impact was a combination in the margin walk of visa. It was third-party costs and other one-offs which we enjoyed in quarter 3. That was 1% in the margin walk we’ve had…

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

The question again is on margins and the investment that you spoke of. I was just wondering, are these similar to the investment that you had done in 2018, '19, so more of onetime kind of investment? Or these are more regular investment, which any way you keep doing in the business?

Pankaj, thanks for the question. This is Salil. I think the way we are looking at it is we put in place that strategy a few years ago. We built out deep capability across multiple areas. That was what we did in the first sort of 6 months, a year or so we are now seeing over the last 4 years, a good impact of that approach. We now want to -- we see a tremendous demand environment, which we see across cloud, areas of digital, automation and some of the new digital tech companies. We want to take that and build the capability deeper in those areas. We consider that now a onetime approach in this next few quarters to get it mobilized. It's not something which is going to be a continuous new activity for us. And then we want to, again, like we did last time, a shift into building capability from the operating business itself. But since we see an inflection point in what we see as the opportunity set, we want to make sure we take advantage of that, keep our leading position with market share growth that we've had over the past 3, 4 years and try to build on that for the coming 3 to 5 years.

Understand that. And the other question also was on your guidance for the -- on the revenue side. What kind of outlook you are building in on the macro concerns around what's happening in the Eastern Europe or even the larger macro worries around the inflation in your end markets? Are you taking any impact of that maybe in the second half of the year? Or the guidance is more on an as-is basis? And in case if there is any incremental deterioration in the macros, that would be probably incremental to whatever the guidance that we've given?

Today, what we see is the points that you mentioned are in the macro environment. But as we look at our demand environment, we don't see any impact to it. And we don't have a clear view of how to make an estimate for, let's say, Q3, Q4, if it will be at what level and so on. Based on that, we have built the guidance today, and we will evaluate as we go through. We feel comfortable given what we are seeing in the environment that this is a sort of growth that we will see in the range of 13% to 15%. We have not -- we don't see really an impact today in many of those factors in the demand environment today.

The next question is from the line of Vibhor Singhal from PhillipCapital.

So a couple of questions again on the European part. So my first question is that as you have already mentioned that our exposure to Russia and the -- to other geographies now is very limited. But I just wanted to take your vein on the -- basically understand as we work for a lot of multinational clients who have operations across countries and in parts of Russia and Eastern Europe as well, so what are the conversations with those clients like? I mean, are they looking to -- I mean, is there a possibility of them maybe curtailing down this and to some extent? Or is there some negativity in the conversation that is creeping in? And second, a more longer-term question on the same geography is that, over the last 2 to 3 years -- I mean, in fact, more than that, last 4, 5 years, we have seen Eastern Europe evolved as a destination for hiring for a lot of companies, maybe in data analytics and many other domain. Do you believe this situation, the current war situation has pushed that back by maybe a few quarters or years? Or do you think it's a temporary situation, and once it resolves, the attractiveness of Eastern Europe is hiring for, those specific domains will still come back as it was before?

So I think I caught both the questions. Let me just repeat, so I've understood first was, is the situation in Ukraine impacting any demand in European clients, if that's your question? Currently, our conversations and discussions with clients in Europe don't see any impact on the demand environment for us because of this situation. Of course, as we go through the next few quarters and so on, we will see other plays out depending on the duration and so on. On the second one, the recruitment situation we have centers, for example, in countries in Eastern Europe, and we see that growing quite well for us. Today, we have, of course, no center in Ukraine. The other areas we've been expanding in, and that has developed quite well, we don't see today an impact for what we are seeing. There might be obviously impact with centers in Ukraine. So our centers, which are in other geographies in Eastern Europe, we are seeing good growth in those centers.

So if I understand, specifically in other countries like Hungary, Poland, Austria, they will continue to remain attractive business for us to hire and grow our businesses there.

Poland and Romania are the locations where we have centers and we are actively recruiting and scaling up in those locations.

The next question is from the line of Ravi Menon from Macquarie.

Just for to clarify on this pass-through costs. Should we not think of this as like a margin tailwind whenever these pass-through costs reduce? Because I assume that your customers have the option, let's say, if it's ServiceNow software, they can procure it themselves. So I would assume that these are done at zero markup. Would that be correct?

Yes. So these are long-term contracts, and I think the value proposition, which we have, is highly bundled services with these software. So it is not sort of a one-off sale. I think that's the proposition with us, is that we can integrate this into the cloud, into the vertical stack, et cetera, and bundle that with the services that we have. So that's the way we look at.

But my question was whether what should we assume for the -- as a margin for this? I mean, should we assume that this is a margin tailwind? Should we think of this and adjust for the margins accordingly? I assume that this is a zero margin because the client can actually procure that and just ask you to implement it, correct?

But as you see the overall market for Software as a Service, this is growing dramatically, right? And that's something where we can come in and add this value. So there's not 1 client with 1 software, there are multiple clients who have horizontal software of various kinds as well. So I think, like I said, this is a proposition which we have, which is quite unique for us. So we just can't see it as a one-off intervention with 1 client.

Are you saying these are software that you own? This is your intellectual property? I thought these are third-party items bought for service delivery?

No. These are -- like I said, these are software, which are of course owned by the SaaS vendors, but the bundling of services, which we do with it, that is the value proposition we give to our clients.

I'll take this offline. That's fine. Then second question is on, if you look at the incremental revenue this quarter, we've added about [$30 million]. Last quarter, we added north of $250 million, if I remember correctly. And this quarter the increase in pass-through costs is $40 million. So if I adjust for that, your services revenue has actually dropped in a surprisingly strong demand environment. So how should we think about it? I mean, has it -- is it that certain projects have come to an end? And this is across the board, right? I mean we've seen decline in Life Sciences more than out in North America and Europe, but it's not there is 1 vertical that you -- drag you down or a particular client. I mean, it seems to be revenue increments across the board. So what -- how should we think about that?

Yes. So I think like we said, firstly, volume growth sequentially has been very strong first time. Second point, if you see year-on-year, it is 20.6% versus 19.7% for the year, right? Our numbers for exits year-on-year higher than average for the year. Number two, volume was sequentially higher. We've added 22,000 people this quarter. And I'm assuming many of these are being hired to look for center demand, right, and they put them into production. So that's the third signal you’ve got. For what you see from a revenue perspective versus the volume sort of increasing theme, we've talked about the seasonality of quarter 4. And if you look back on the last 5, 6 years, we've always had a seasonality of revenue versus volume in quarter 4 because of the working day calendar impact. We've seen some initial part of the COVID lead in the initial part of January impacting us. We had this one-off we just talked about with the commercial contract for 1 client. And therefore, there are some other puts and takes. So I think -- I don't think we can just see quarter 4 in isolation. We won't have given a guidance of 13% to 15%, which is probably the highest guidance we have ever given at the start of the year for any part in the last 10 years at least. So I think all the demand indicators and landmarks are looking very good.

Hello?

Yes.

I'm sorry, Nilanjan. I think I lost it. I had a technical difficulty here. So one last question, utilization, you're talking about cooling it down a little. What would be a good range that we should think about? Would it coming down to about 85% or so, would that be sufficient? Or should we think a lot lower?

Yes. So around about, 85% is a number where it go up down in the quarter, but that would be somewhere where we would be more in the comfort range as well.

The next question is from the line of Jamie Friedman from Susquehanna.

Nilanjan, I believe that you mentioned in your prepared remarks that you are anticipating that the subcontractor costs are plateauing. I was just wondering why you're concluding that? Is that visa related? Or is there something else we should be aware of?

Members of the management, we cannot hear you.

Ravi, did you get that? You didn’t get the answer?

Now we can hear you, sir. We cannot hear the answer. May I request you to repeat?

Okay. All right. So like I mentioned, our subcon costs are pretty much plateaued at around 11.1, 11.3. I think in this quarter, the percentage of revenue or higher from an exit -- from a headcount perspective, it has actually come down. And one of the reasons for the whole ramp-up of subcons is our recruitment engine actually was a bit behind. So we were hiring 11,000, 12,000 people each quarter, and the balanced demand was being fulfilled by subcon. With us now getting into the mode of hiring freshers, we added 22,000 people which are on our exit basis, close to about 7% of the exit headcount already. And therefore, as we look ahead, we will continue to push on the penny in terms of recruitment and replace many of these subcons either through a replacement system or what we call a program of subcons hired, which you offer them a full-time employment within the company. So we've been doing that. We have been at the lowest of the industry in 2019, '20. So we know where we have to get at. It may take us some time, a few quarters, but we know that's the margin lever we can press on.

And then I believe, Nilanjan, you also had quantified the client contract provision. I'm afraid that the call was a little muffled. Could you repeat the percentage impact if you stated it?

Yes. It's less than a percentage. And we think in a period of time, this should come back.

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

My first question was more around the margin and the guidance which we have reduced a bit. So is this a reflection of some of the transient impacts which we are seeing, especially about some of the things which you talked about, supply side constraint and investments which we are making? Or is there a structural change in some of the cost structure of the deals which we are making? So while we have strong growth, some of the additional cost which comes along with that through third-party and other things, are essentially pushing our margin down.

Maybe the last part is I think quite clear. If you've seen actually our large deal strategy, which we announced I think in FY '19 or beginning of '18, and we were doing about $3 billion large deal and that their margins were at 20%. So we went from $3 billion to $6 billion, to $9 billion to $14 billion. So while these large deals actually went up, even our margins went up. So some of that impact which we can share. Of course, when we go into large deals in the initial part of the year, of the pricing, of course, headwinds are there because clients want cost savings upfront. But once we have the deal tenure, how do we price the deal so that over a period of time, we are able to take out costs lever which we have and comes close of the portfolio margin. So that's something we've been doing for the last 3, 4, 5 years, 10 years in this industry. I think the impact we're talking about is much more about the investments we want to make around the -- what we've seen in the past, et cetera, so we've done. And we think that this robust -- the demand environment, we have these capabilities we should invest in as the year progresses. And of course, the usual headwind, which we talked about, the big differentiation is the pandemic cost normalizing, right? I mean I think you all have the numbers in terms of travel and utilization, on-site, offshore. So some of those you already have subcon costs. And you can start triangulating what is going to come back on returns in normal.

Our large deals which we report have been steady between $2 billion, $2.5 billion for the last few quarters. I understand a lot of the deal activity is also happening in the smaller size, which is not getting reflected here. So would you give a sense on the overall deal size, how that’s been trending? Or would you consider sharing data on an ongoing basis?

So this is Salil. Thanks for that question. I think at this stage, we are not sharing that data outside. Our focus was to share some of the areas which we have made sort of a change in a few years ago, for example, the digital revenue percentage and the large deal value. What you mentioned, of course, is accurate. We have tremendous activity across all deal sizes. We have a very robust overall pipeline and also a very robust conversion with net new debt, which also feeds a little bit into the earlier discussion on our revenue growth guidance.

Great. One final thing is, I think I heard that you talked about 85% fresher hiring, which you have done this fiscal year. Any target which we have set for next fiscal year?

For next year's campus recruiting, we've not communicated that beyond saying that we will do more than 50,000 campus recruits for next year. As we go through the year, we will communicate more on that. But today, we see an active campus recruitment program.

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

Most of the questions answered. Just wanted to understand the gap between the utilization, including trainee and excluding trainees as big as 700 basis points. And you are adding freshers for last seven quarters. So is it fair to say -- and with that, you are also expecting subcontracting cost savings. Is it fair to say second half of FY '23 margin may have more upward bias to pricing, the lag may also be a tailwind versus first half?

Yes. I think like I said, these trainees have to go through the whole match towards skills et cetera, then they go through the bench, they get reskilled on specialty skills, and then they lead them into production. So it takes some time as well, and this is why one is, of course, excluding trainees and including trainees, as well you see the gap. So we have, of course, an increase in the overall trainee count as well between quarter-to-quarter, have not been deployed in projects. But from a margin perspective, I'm not sure this is a big part of the headwind of H1, H2. I think it's probably H1 because of the comp is upfront, one which happens, right, that -- and you can go back 2 years and see that as well. But overall, for the year, at 21, 23, we are quite comfortable.

Okay, okay. And just a clarification, Nilanjan, just further to what Ravi has asked. So even if you look at the revenue growth, [excluding pass-through], marginal decline, but at the same time, you are also saying the volumes have gone up. So is it the offshore effort in this quarter has not actually gone down. So why the volume growth is not getting reflected in the revenue growth ex pass-through as a whole? So is it the realization in this quarter is slightly lower?

No. There are some routine puts and takes. I guess one is always if you go back, you will always see the seasonality of working calendar days, right? That's a straight revenue without volume, correct? Because that's just the rate cut impact. The second one is the COVID initially part of the year. The third one is the 1 contract -- this thing -- contractual provision that we made for the client. So I think these are the areas where you've not seen that volume benefit flowing into revenue, if you're trying to correlate that. And like -- Salil also said, we have seen strong sequentially quarterly volume.

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

Thank you. This is Salil. Thank you, everyone, for joining us. I want just to reiterate a couple of points we all discussed and mentioned. First, FY '22 was an extremely strong year for us, close to 20% growth, 23% margin. We're clearly taking market share and really connecting very strongly with our clients for all the digital and cloud work. As we go ahead, we want to focus on the ever-expanding opportunity set in cloud, digital, data, analytics, automation. And in doing that, we want to make sure that we remain a leader in the pack and continue the market share taking that we've been doing. We also want to focus on our employees with increased engagement and increased methods of working with the compensation increases and career progressions. Putting all of that together, we come to a growth guidance of 13% to 15% for this financial year '23 and a margin guidance of 21% to 23%. We have a strong outlook, and we look forward to working with our clients and employees for this outlook to be delivered in financial year '23. Thank you, again, everyone, for joining and look forward to catching up during any of the one-on-ones in the quarter. Take care.

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