Ladies and gentlemen, good day, and welcome to Infosys Limited Earnings Conference Call. [Operator Instructions] Please note that the conference is being recorded. I now hand the conference over to Mr. Sandeep Mahindroo. Thank you, and over to you, sir.

Thanks, Inba. Hello, everyone, and welcome to Infosys earnings call to discuss Q1 '23 financial results, with Sandeep and the IR team in Bangalore. Joining us today on this call is CEO, Mr. Salil Parekh; CFO Mr. Nilanjan Roy; and other members of the senior management team. We'll commence the call with some remarks on the performance of the company by Salil and Nilanjan subsequent to which we'll open up the call for questions. Please note that anything which we say, except as to our outlook for the future, is a forward-looking statement that 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. It can be found on www.sec.gov. I'd now like to pass on the call to Salil.

Thanks, Sandeep. Good morning and good evening to everyone on the call. Thank you all for taking the time to join us. We've had an excellent start to the financial year with 5.5% sequential growth and 24.1% -- sorry, 21.4% year-on-year growth in constant currency terms. We continued to gain market share with our Cobalt cloud capabilities and our differentiated digital value proposition, driving a significant pipeline of opportunities for us. For example, a premier online retailer in the U.S. leveraged Infosys Cobalt to embark on a cloud-driven transformation journey to enhance the customer experience and improve the security posture. Another example is a European manufacturer who's reimagining their digital workplace and best-of-breed network security with IT infrastructure powered by Infosys Cobalt. There are examples like this all across the spectrum in different sectors that are driving Infosys Cobalt into the market. Clients continue to place an immense amount of trust and confidence in Infosys to help accelerate their digital transformation agenda, both on efficiency and the growth dimension of their business. The strong growth we have seen in the quarter lays a robust foundation for the year. Growth continues to remain broad based across the segments, service lines and geographies. Each of our business segments grew in double digits, with several of them growing at 25% or higher. In terms of geography, the U.S. geography grew at 18.4%, and Europe grew at 33.2%. This indicates a healthy demand environment and is a reflection of how our industry-leading digital capabilities are relevant for our clients. Our digital revenues were 67% of the total and grew at 37.5% in the quarter in constant currency terms. Within digital, our cloud work continues to grow faster with our Cobalt cloud capability seeing significant traction with our clients. Our overall pipeline remains strong. We do see pockets of weakness, for example, in the area of mortgages in financial services. We keep a close watch on the evolving macro environment in terms of the changes to the pipeline. Within our pipeline, we also have focus in addition to the growth areas of cloud to the cost areas through automation and AI. Our operating margins were at 20%. We have completed the majority of our compensation review for this year. Nilanjan will also provide more details on the overall margin update. Some other highlights of our results are we signed 19 deals with a large deal value of $1.69 billion. This comprises of 50% net new work. Our on-site mix was at 24.3%. As we build capacity for the future, our utilization was at healthy levels of 84.7%. Our free cash flow was strong at $656 million. Our quarterly attrition declined. And historically, Q1 attrition increases 3 to 4 points sequentially on a quarterly annualized basis. However, our attrition declined by 1 point on a sequential basis, reflecting the impact of various initiatives we have put in place. We are a net headcount increase of over 21,000 employees, attracting leading talent from the market. This is a reflection of our enhanced recruitment capabilities, solid brand and deeper penetration into various talent markets. Our Cobalt cloud capability continues to be market leading. We have 360 technology and domain solutions. Five of our assets have over 50 clients each. We have 150 industry-focused solutions, 20 Infosys living labs, 50 experimentation playgrounds and 60,000 knowledge assets. Our One Infosys approach is serving us well to bring the best of Infosys and service to our clients' needs. Earlier this month, we announced the acquisition of BASE Life Sciences, a Denmark-based technology and consulting firm in the life science industry. BASE brings to Infosys remain expertise in medical, digital marketing, clinical and regulatory areas. With a strong growth in Q1 and our current outlook on demand opportunity and pipeline, we increased our revenue growth guidance, which was at 13% to 15%, now to 14% to 16% for the full year. We keep our margin guidance at 21% to 23%. With the increased cost environment, we will be at the lower end of this margin guidance. Thank you. And with that, let me hand it over to Nilanjan for his update.

Thanks, Salil. Good morning, everyone, and thank you for joining this call on an early Monday morning. We had a strong start to fiscal '23 with a robust year-on-year growth of 21.4% in constant currencies. All our business segments and major geos recorded double-digit growth, with manufacturing, communication and shore, along with Europe region recording 25%-plus growth. Sequentially, revenue growth was 5.5%, which was led by a healthy volume growth and some RPP benefits. Digital revenues now constitute 61% of total and grew by 37.5% in constant currency. Client metrics were strong with increase in client count across revenue buckets compared to the previous year. The number of $50 million clients increased by 10 to 69, creating the next potential [Indiscernible]. The number of $100 million clients increased by 4 to 38, and the number of $200 million clients has grown by 6 in the last 1 year. This reflects our ability to deepen mining across our large clients. We had another quarter of strong employee addition of over 21,000 to cater to the growth opportunities ahead. The fresher addition was particularly strong, which resulted in drop in utilization to 84.7%. Onsite effort mix inched up to 24.3%. Voluntary LTM attrition increased marginally to 28.4%. Quarterly annualized attrition declined by another 1% from Q4 levels despite Q1 you'll be seeing an uptake due to seasonality. As announced earlier, we have given competitive salary increases for majority of employees on April. Given the supply tightness and high prevailing inflation, salary increases across all geos this year are higher than historical levels. The increases vary based on job levels and performance of employees with top performance getting double-digit hikes. Salary hike for the employees is being an effective July 1. Q1 margin stood at 20%, a drop of 150 basis points versus previous quarter. The major components of the sequential margin movement were as below: headwinds of 1.6% due to salary increases; 0.4% due to drop in utilization as we create capacity for future; 0.3% due to increases in subcon third-party other costs. These were offset by tailwinds of 0.5% due to increase in RTP from higher working days, a reversal of our client contractual provision in our FS segment, partially offset by discounts; 0.3% benefit from rupee depreciation benefits, partially offset by cross currency headwinds. Q1 EPS grew by 4.4% in rupee terms on a year-on-year basis. Our balance sheet continues to be strong and debt-free. Consolidated cash and investments were $4.4 billion at the end of the quarter after returning more than $850 million to the shareholders through dividends, which has led to an increase in ROE to 31%. Free cash flow for the quarter was $656 million, which is a conversion of 95% of net profit. Yield on cash balance remained stable at 5.3% in Q1. DSO declined by 4 days sequentially to 63 DSO, including net unbilled was 82 days of increase of 1 day versus Q4. Coming to segmental performance. We signed 19 large deals in Q1 with a TCV of $1.69 billion. This comprises a 50% net new. We had 5 large deals in retail and CPG, 4 in Hi-Tech, 3 each in financial services and energy utility resources and services, and 2 each in manufacturing and communications verticals. Region-wise, 15 were in Americas and 2 each in Europe and ROW. In financial services, clients have continued to focus on building customer experience, contact center transformation and virtual branches aimed at improving customer engagement. While the order pipeline remains strong across regions, we are seeing some slowness in mortgage industry and lending business due to increased interest rates. We remain watchful of impact of emerging global developments on budgets of clients. In the retail segment, the pace of digital transformation, large-scale cost takeouts and improving business resilience continues to be on the rise across various subsegments. Our focus on proactive engagement has a track in creating a robust pipeline. Clients are monitoring their emerging macro situation and the impact of that on their business. In Communications segments, clients are focused on rapid digitization and protecting their assets from cyber threats. We see enormous potential to partner with them, both on the business transformation agenda as well as in the cost takeout trend. These pipelines in energy, utilities, resources and services segment comprise of opportunities around cost takeout, vendor consolidation, digital transformation, cloud-led transformation and asset monetization across industry sub-verticals. Manufacturing segment is seeing broad-based growth across geographies and industry sub-verticals. The sector is seeing traction across energy, IoT, supply chain, cloud ERP and accelerated cloud adoption. In quarter 1, we have been ranked as leader in 9 ratings in the areas of Oracle Cloud, SAP HANA, public cloud, Industry 4.0, employee experience and automation services. In this supply-constrained environment, we continue to invest in our growth momentum, which requires us to hire premium skill talent while simultaneously investing in existing employees with competitive compensation increases across geos. Additionally, we expect normalization of costs like travel and other overheads. We will continue to focus on various cost-optimization measures, including rationalization of subcons, flattening of the pyramid, increasing automation, reducing on-site mix and increasing pricing. Whilst we retain our operating margin guidance of 21% to 23%, we expect to be at the bottom end of the range. Revenue guidance for the year has been revised to 14% to 16% from 13% to 15% earlier. With that, we can open the call for questions.

[Operator Instructions] Our first question is from the line of Surendra Goyal from Citigroup.

Just a couple of questions from my side. Firstly, a clarification. Salil, I believe you said that the contractual provision was largely offset by discounts. Could you please clarify, you're a bit resuming discounts to the same client or discounts in general? Curious, because on one hand, we are talking of a strong demand environment and potential price hikes and at the same time, we are also talking of discounts.

Surendra, the comment was that it's not 0.5% increase in RPP. It's a combination of 3 to 4 elements: the higher working days, the client contractual provision reversal benefit, partially offset by discount. So it's not a direct linkage of discounts and client contractual provisions. It's not for the same clients, but this is generic discount. And these automatically keep on coming, but we are -- like I said, we come down less as we've started negotiating with our clients in terms of pricing. But that's a net impact of all these.

Okay, sure. And just another question on margins, down 360 bps year-over-year. Operating profit is -- growth. Y-o-Y is worse than historical trends despite all the strong demand and the growth we are talking about. So if you just think about the 360 basis point decline, how much of that is really investment which you think can be recouped as we go forward from here?

Yes. So like we said -- we knew we were having some benefits in a way of the back end of COVID. Our utilizations were very high. We were really -- 88%, which we've never operated before, the benefits of travel, et cetera. Now we are seeing that more and more. That has been coming back. So that's something which we were well aware of in last year. But as we see the demand volume ahead, I think we are very clear that in terms of our ability to support this demand, we certainly have to hire. We have to pay competitively. So we actually did actually 2 wage hikes in calendar year 2021. And now this year, we've already rolled out in March, yes. So within 1.5 years, we've done 3 substantial CRs. And actually, September last year also we did a skill base. So we've been continuously investing behind that. And we know that to capture this demand, we have to pay for premium skills. We have to go behind volumes. In some cases, subcons for us from an industry, I think leading 6.5 position. We are close at 11%. But again, these are some things we know over a period of time. We have a lot of optimization levers, right? And we don't want to leave a 5-year demand on the table because of short-term cost pressures. And these, we can optimize over this year and over the future as well. So in that sense, we are quite confident, and that's why we have talked about -- we will be in the 21% to 23%, at the bottom end of the range. And of course, if we have 20% today, we will see that improvement as the year progresses.

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

Spectacular numbers, especially on the revenue side of the business. Just a follow-up to the last kind of topic or question about margins. We're getting a lot of pushback on that. From your perspective, looking at the levers that you kind of highlighted, what do you think is the biggest potential lever here for you to be able to kind of catch up to the margin range that you mentioned? And then I have a follow-up after that.

Yes. So Moshe, so I think, firstly, if you see our margin profile, how it has changed, right? So what the cost has been the utilization and, in fact, higher 21,000 net adds during the quarter, which is well above our volumes. And that is to create the buffer so that when we put in fresher, we are able to train them, and then over a period of time, able to put them into production, right? So you can't get hire fresher and expect them to start contributing from day 1. And we are very vigilant about that. They go through our mandatory training and Mysore and then we put that. So that's one big part of where we think we can start improving. As the hiring has brought up automatically, you see the stabilization of subcon costs, right. As a percentage of revenue, we are seeing this increase every quarter. Now you see sort of flattening out. And over the future, as we got our recruitment track together and being able to hire fresher, we should see benefits coming out of that. The remit benefits will continue to happen for us. Whilst we have seen some adverse impact of the on-site movement, this is largely as travel overseas has picked up, but we think this is more of an aberration in terms of uptick because the inherent story of -- we're taking costs out and having a more offshore mix in the entire cost optimization. That should come into benefits, especially in this environment, where cost takeout is becoming a big theme across that line. So we know we can have multiple areas. Pricing is another thing we've been talking about. We have seen less impact of pricing in terms of discounts, et cetera. We are going back to clients in terms of COLA, in terms of when our renewals happen. Now again, these are much more longer-term impact decision. But I think at least the conversations have started in right earnest across all the segments, and you can hear a similar commentary across. So I think these are the areas we continue to focus on, and that's something we've done over the years. You've seen that we continue to be very forceful in terms of our cost-efficiency exercises.

Okay. And just as a follow-up, just remind us what's the sensitivity for margins versus utilization rates, i.e. 100 basis points expansion in utilization rates? What does it mean to margins in terms of sensitivity?

Yes. So I think it depends on by which levels we see utilization. So it's quite complicated. You have a different utilization in on-site, different in offshore and then the impact of pressures in the pyramid in that utilization. So it's a bit complicated how the mix changes. I just can't give you off the number of what 1% will lead to. But to give you -- a large impact. We lost in this quarter, I think, 40 basis points become of utilization and margin.

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

My first question was continuation on the margin side. So at the end of the fourth quarter, and not just Infosys but across the industry, what the management commentary had indicated compared to that, the margin performance appears to be a sharper decline. Nilanjan, what do you think could be the reason behind that? Isn't this driven by higher-than-expected demand and higher use of subcontracting that than what you were planning early? Or is it more supply side-driven that the pressure was higher than what we had planned for through the quarter?

Are you talking about us in particular about the industry?

Anything, whatever you could give us color on. Because the trend has been very similar for you and the industry.

I think we don't -- yes, so we don't operate in a vacuum and the industry doesn't operate in a vacuum. The attrition trends are pretty much very similar across industry. But the good news, like we said, is that attrition is coming down. Our quarter attrition figure is actually below our LTM figures. And as Salil said, we're already 1% down. On a sequential basis, we were 5% down in the previous quarter, and we were flat. So I think this is more -- the reported LTM, of course, is more of a catch-up effect. And in that sense, you will see start stabilization. The fresher will start coming in and getting terminated. So that benefit in a way starts seeping into the cost structure, right? Because at the end of the day, if it's putting pressure, you have less attrition. The fresh hires which you have to get or lateral hires have come down. They have bonuses. In fact that, that impact should come down. So these are the things which will play, I know, in our favor. And like I said, you've seen these numbers of declines pretty much across industries. But we have, I think, a very, very sharp cost optimization program in a way which will go and offset these headwinds.

Got it. So it appears the supply side pressure was higher than what we were expecting. My second question was on the...

I think there's no question about that in terms of -- if you see our attrition and our net adds, the gross hiring has been very high, of course, and that tells in terms of fast action and all we have to offer. So it is that overall industry issues led from the demand side.

Sure. My second question was on BASE acquisition. So we already have a pretty strong life sciences structure with more than $1 billion scale. So what exactly we are looking and targeting to get help from this acquisition?

On BASE, there are multiple things. This is a business which is very high end in the life sciences area. When we launched our strategy a few weeks ago, just at the start of the quarter, we had shared also a new focus -- or expanded focus on Europe. And Denmark for us is a very strategic market. The whole Scandinavian market is a very strategic market for us. So that's the second area that it benefits us. And we also see clients are using the capabilities of BASE as a starting point. And then that leads to large technology transformation, digital transformation. That helps us overall in terms of scaling up that segment. That's a segment which we feel is a strong segment for the future and where we are underweight in percentage terms. So we want to enhance that with our deep existing capability.

Our next question is from the line of Keith Bachman from BMO.

My first question is I wanted to get your views on how you think wage inflation will impact the balance of the year, and what are the tensions on that to your margin model. So you mentioned that attrition has, in fact, moved lower. Do you think, a, attrition continues to be lower? And how do you think wage inflation will unfold over the next, call it, 3, 4 quarters and be a force in the gross margin equation? And then I have a follow-up.

Yes. So I think like we started last year, we were very clear that we have to be competitive in the market. So we did the first hike in January of '21. Then we did the next hike in July. Then we had a follow up on our talent in September of '21. And in a way, we have not waited 1 year. We've actually gone ahead and done our -- majority of our wage hike from 1st of March -- 1st of April this year. There's a little carry-on effect in terms of the more -- we see the higher middle to senior first, which will happen in July, but not in the same margin impact of quarter 1, which was very broad-based. But other than that, I think we think these are quite competitive. And of course, if you see in the mix, we also get a lot of laterals and there's a hidden cost of hiring laterals because they come at sector. So in a way, compensation overall -- weighted average compensation, in any case, is going up across. But I think overall -- I think this is a very competitive hike in terms of -- in India, it's more like high single digits. And in overseas geos, also because of high wage inflation across, we have given very competitive hikes, something which we've not done in this kind of wage environment, inflation environment before. So these are very much higher than what we do in the past. But we think this is something which will stand us in good stead in terms of attrition. And like I said, we've seen like sort of 3 quarters of the efficient benefits over a period of time going in.

Okay, okay. We cover a number of software companies. And software companies have started to say they're seeing pockets of weakness with demand elongation on sales cycles. It doesn't sound like -- I know you made one very specific industry comment, but it doesn't sound like you're seeing the same any kind of iteration on the demand side, particularly on the negative side. But if you could just clarify, are you seeing any elongation on the new business front? And yes or no. And if the macro does weaken, will that, in fact, help your wage situation? And that's it for me.

So thanks for that. This is Salil. A couple of points that you raised. I think what we see on the demand, the pipeline that we have today for our large deals is larger than what we had 3 or 6 months ago. Having said that, we, of course, recognize what is going on in the global environment. And we mentioned a couple of areas. Nilanjan talked within retail. He also mentioned our share within financial services, mortgages. So we see pockets where we see some impact. On the overall deal discussions, we see a little bit where it's slowing in the decision making. However, the pipeline remains strong for us today. We've also got 2 types of deals. One is deals which are on digital transformation or cloud, which are growth orientated for clients, driving to what they want to do with their customers. Or in their supply chain, how they want to make an impact there. And the second is on cost. We have a very strong play on cost and efficiency through our automation work, through our artificial intelligence work, where we can really impact the cost base in the tech landscape of our clients. So those are areas which we are already very active within this environment. And given our positioning, we feel good that those will start to come into play as and when the environment changes. But today, this is how we are seeing the demand situation. Now your other question was, will that have a change on the wage or if the macro was? We don't have a clear view on where that would go because it's a function of how the macro evolves and what happens. Of course, we are seeing attrition starting to come off a little bit, and that will clearly have a positive impact for us with respect to compensation. But the time line is not clear. It depends on how the macro evolves.

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

I had 2 questions. So one is from a margin perspective. Whatever we saw as one-offs in the previous quarter, which included Visa and these contract provisions, both of them have been sort of offset in this quarter. Is that a fair understanding? That's the first. The second is in terms of salary increases, is it only for the associate level this quarter? And if so, then the question is that we have 145,000 associates general team below and some 130,000 people in the mid-level. And general understanding is mid-level, obviously, the -- as a percentage of the employee comp cost, it should be higher. So the thought process, shouldn't your margin headwinds be higher next quarter? If you could just help with that thought process, that will be very helpful. Those are 2 questions.

As I said in the margin walk, we had a benefit of 50 bps from -- in RPP, which is a combination of work with clients' contracts and provision reversals, partially offset by discounts. So we've seen a benefit there. There's no, in a way, what you said that has been eroded. We have got the benefit of client contraction provisions clearly. The other one on Visa travel, I think, they were largely offset against each other? And what is the other question? On the outlook on wages. Like I said, we've done it for most of our employees, right? It is up to mid-level. And more at the senior level is what we want to roll out in July. And that impact will be far less than 1.6%, which we've done, which is a much more broad-based across.

Sure. So both associates and mid-level happened this quarter itself. It's not only associated? That's...

No, no, no. Associate and mid-level, correct.

Our next question is from the line of Bryan Bergin from Cowen.

I wanted to just dig in on the commentary around pockets of weakness. So I heard you mention mortgages. You mentioned, I guess, the subcomponent of retail. Can you just give us a sense, maybe quantify what mix of your business is actually seeing some slowing decision-making? Is it 5%? Is it 10%? Is it less? Anything could just to help frame or quantify areas that are seeing pockets of weakness.

So thanks for your question. This is Salil. We don't quantify typically what part of our financial services, mortgages or the other areas which are impacted. We're now seeing pockets. This is not across our whole business. And the way I would sort of look at it is, with all of that, given our pipeline, we've increased our revenue guidance. So the majority of our business is still seeing good demand. It's really pockets without quantifying. That's how I would give a context to it.

Okay. And then just a follow-up on margin. You gave sequential changes. Can you give us what the year-on-year changes in operating margin in the different categories?

So largely, we know it was the comps-related hike I said earlier, about 350 basis points. That was in the biggest ones. And this was offset by some rupee benefits, which was also a benefit, but there was cost currency as well, which offset probably half of that. And then we got some benefits of cost optimization because of [net] on lower utilization. So these are the broad things, but the biggest one was comp, which was about 370 bps.

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

I have just one question on margins. Ideally, the strong growth at the headline level should have translated into some operating leverage, but that doesn't seem to be happening. And Nilanjan, we seem to be of the view we'll chase growth for now and focus on margin optimization at a later date. What is the risk to that hypothesis? Because this growth margin paradox seemed to be a mere reflection of what is happening in U.S. and U.K. now, a very tight job market, very high nominal growth, but very little benefit trickling down to the bottom line level. So sooner or later, this nominal growth rates may cool off and on-site job markets and some supply costs may or auto recalibrate. But back in India, job market may not be as much of a free market as it is in U.K. and U.S. There may be some sticky elements both at headcount and wage level translating into negative operating leverage as demand moderates. So what is the risk that margins will remain structurally lower than even the pre-COVID levels going ahead? Because demand tends to be more cyclical while some of the supply costs tend to be more sticky.

So a couple of things. One is that many of these cost increases can be passed on the client on day 1, right? So if I have to give a wage hike on all my existing base, right, they will come up for renewals, right? That's the time when you have a base discussion. When we are doing new deals, automatically, we will build it and the industry, in a way, will build it into their wage profile. So we think will automatically be flow back. There's no free lunch for anybody, right? So that's one thing which will happen over a period of time. But that's more of a generic point I'm making. But in terms of subcon, right, we've operated at 6%, 6.5% of subcon. Today, we're sitting at, what, 11.1%, right? There's no reason for us to be at these levels because we know what wage market, the overall demand environment, our recruiting picks up. We can replace these account with our own headcount, put more pressure into projects. And this is something we've been doing very well in the past as well. So I think these levers are well known for us. We know how utilization works. We know how [Indiscernible] work. So we are quite confident in the go-forward model of taking out cost from structure.

Just one more question, if I may. So when we say the pipeline is larger now, just curious if the pipeline is getting bigger and bigger because some of the decision-making is getting slower, is there any correlation related between the two?

Sudheer, this is Salil. The pipeline, what we are seeing is there is appetite and we go by different industries for digital transformation programs for large cloud programs, for programs, which start to relate to cost and efficiency. That's what is in the pipeline. It's not a function of the time line, which the delay that you referenced, which is causing an increase. It is where we see traction with more and more client discussions as of today that we see. Now we will see how that evolves, but that's the outlook we have today.

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

First question is what the level of conservatism or realism infused into both the revenue and the margin guide this time? Part of that is on the revenue guide, given the potential macro headwinds ahead of us and the ask rate from the second half of this year. And similarly, on margins, we still have another round of wage hikes, which could impact margins by maybe as much as 100 basis points, if I look at the wage hike impact so far and a similar ratio between the first and the second rounds in the previous years and also keeping up travel and facility costs.

Thanks for the question. This is Salil. Let me start off and then Nilanjan will have a few points to add. On the guidance for growth, as we've shared in the past, the approach we take is we see how things are as we look at the financial year today. What we saw is in Q1, we had extremely strong revenue growth, 5.5%. We also had underlying volume growth that Nilanjan referenced, which was very strong. When we see the outlook where we have clarity looking ahead for some period of time and then a set of estimates that we have for the rest of the financial year and also looking at how typically H2 works versus H1 and then putting in some views on where the end of the year could be. Based on that, we felt comfortable to increase the revenue growth guidance. Whether it's conservative or realistic, that is the approach we take to make sure that we then share what we think the revenue is going to look like for the year. On the margin, I'll start off and then Nilanjan will talk a little bit about the wage component and what we've done. Overall, on the margin, we've made sure that we work to get all of the levers in place. So the approach to driving cost efficiency is in place. Several levers that Nilanjan mentioned, one of the bigger ones we've got the bulk, the vast majority of our compensation increase already done in Q1. So yes, there's a small component, but it's not really a huge component that will come up. And then we see steadily other areas which will help us. There are areas where we can focus on how the subcontracting works, there are areas where we can focus on discussions with clients, the wage increases and COLA. There are areas where we're doing work, which is driving significant impact from clients. So we think there are a set of those levers that can help us through the margin discussion that will be focused on this financial year. Our approach very much is to make sure that we remain a high-margin business. And that's the underlying theme that we are working with. Given where we are, given the inflation around the world, we saw it was clear to make sure that we communicated that in the way we see the market. Anything else if you want to add?

No, no, that's good.

Okay. Just a quick follow-up, if I may, on margins. Nilanjan, are there any one-offs in the margin this time? Asked another way, what would be the pro forma margins if the provision reversal was not to happen? And related to that, can you say that 20% in Q1 should be the bottom of margins going forward so that we can get -- you can get back to 21% for the year realistically?

Yes. So I think we've mentioned the margin walk at the beginning of the call. So we had 20 and we are riding at the bottom end of '21, so mathematically it says that this improves going forward, so absolutely. In '23, we will see the improvement quarter-on-quarter.

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

Congratulations on a good set of numbers. Just wanted your thoughts on how broad based in North America, you not seeing, I think, such progress sustained for a long time. And though you call out some headwinds in BFSI, even that still added quite a bit of revenue. So if you could give us some color about how sustained the parameters there. And secondly, the pyramid, we've obviously seen a large impact of freshers last year. So I had hoped that some of that would have come into production and have helped us offset the margin headwinds through this quarter. But it looks like, given the current utilization as well, it doesn't look like much of that has happened. So if you could give some color.

Ravi, this is Salil. I didn't catch the first part of the question. I think it was about demand, but maybe you can just say the first part.

It was around the demand, how broad -- we've seen broad-based revenue addition across verticals in North America, and if you're seeing the pipeline also along similar lines? Or are there any specific verticals where you see some softness starting to come in?

Yes. So the softness, we are -- as we referenced, we -- in see some pockets of softness within our overall business. So we want to be very clear that, that is something that is visible. A couple of examples you shared, financial services and retail, but there are areas where we see that weakness. However, once we say that, we also have a view and we see it in our pipeline. The overall pipeline is stronger. So there are areas where we see some good traction as well. And it's a mix of the growth and the cost opportunities within our pipeline. And I think the second one was about the pyramid, I think.

Yes.

Yes. We've hired a lot of freshers last year, and many of them also have gone into training pipeline because, as we had the previous year, there was something really in the pipeline in terms of hiring. So in fact, if you see our utilization, there's a 2% gap between the excluding trainees and including trainee numbers on a year-on-year basis as well. We continue to deploy them into projects. And like I said, you can't overnight. In all projects, put freshers in, and that's why it's important to build the pipeline in advance, make them go through the trainings or enter them into production bench and then move them into projects as well. So that benefit will come in, and we are seeing that slowly coming in. But it's important to invest ahead, right? If you just have just in time, it'd be probably sub-optimizing in terms of how fast you can deploy. So that's why we have made these investments because we know it will take time for these freshers to go in, but it's important to make that investment ahead.

And one follow-up of this last quarter's contractual revenue. So did you recognize all of that this quarter? Or is there still something pending?

Yes, it was all recognized this quarter.

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

Salil, can you give some color on the overall order book since the reported TCV, what we gave. That covers only $50 million plus deal and may not really be representative. So any quantitative or qualitative comment on the scale and how the overall order book has grown? That will be helpful.

Thanks for the question, Pankaj. As you know, we share the large deals win number. We don't publish the overall deal win. Having said that, the main sort of context I would put is the increase in the growth guidance that we provided. That factors in, in that sense, all of the inputs that you may be looking for, which then comes from essentially a very strong Q1 execution, the 5.5%, 21% growth. And then a view that we have on what we see in the coming quarters and then an overall view of how we look at H1, H2 in our mix within the company. That is sort of broadly how we looked at it. On the large deals, we shared this in the past. Typically, this is a number which is a little bit more volatile because we only report deals which are larger than $50 million in our large deals. And so that's really the way we look at it.

Fair enough. My second question is on the profitability in the manufacturing vertical, where the margins have been coming down. And in fact, the last 3 quarters, probably they have halved despite a very strong revenue growth. I understand this could be because of a very large deal, which is still ramping up there. Can you give us a sense how the profitability curve in this vertical put shape over the next 2, 3 quarters? What I'm trying to understand is that has it bottomed out now? Or you think that this would potentially go down further?

Yes. So I think without specifically commenting, I think on any particular deal. I think, firstly, there is -- we've seen the revenue growth, which has been quite spectacular in this segment. This has been led by large deals. And as we talked about a large deal approach from day 1, a lot of clients would like to see savings, but we are very clear that over a period of time, that we have a lot of cost optimization because on day 1 you can start -- not on the cost structure, right, whereas clients pay half of the savings. But we know over a period of time the levers which we continue to deploy on all these large deals. And if I go back to the last 3 years, 4 years, in fact, when the large deal sort of strategy started, we've actually seen an increase in margins over that. So there's no historical correlation in terms of saying that large deals are dilutive. Because we continue working on taking out cost to the system. And we have factored into our entire bid progress. We look at how we're going to optimize on-site offshore. Many of these projects require dramatic automation. We can inject that through all our services, which we are providing. We know how the pyramid works. So these are things which we know over the lifetime of these large deals, and that's something we can deploy. So that's something, without getting into specifically manufacturing, what we do well.

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

So firstly, is there any difference in the client decision-making behavior in U.S. versus European signs. And the reason is that I'm asking is U.S. is seeing a fair bit of broad-based growth across segments. But when we look at Europe, there is a weakness, specifically in retail and communication vertical, whereas the other 2 verticals energy side, Hi-Tech has grown very, very well. So just trying to understand, are there any client-specific pockets, especially in Europe, where you kind of see decision-making behavior has changed compared to the U.S. market?

Thanks for that question. Today, we are not seeing that, which is more geography based, as you are describing. We see some which is more globally industry based. And our client base, as you know well, is mainly U.S., Europe and Australia. So not so much color, which is more geography related.

Okay. Second question on margins. Your margin outlook at the lower end, you explained very well the supply side and cost-related factors, which has led to this. But is there also an element of expectation of pricing increase that has been tapered down, which has led you to now take the margin outlook to the lower end? And is it fair to say that with all the cost levers that you have in place, the exit margin should be better than the lower end of the guidance?

Yes. So I think, when we do our sort of margin forecast, there's a combination of factors we look at. And that equation keeps on changing, and it's so dynamic, what happened in the previous quarter, what do we see as outlook, what's happened on subcon, wage inflation. So that mix continues to change and evolve. Sometimes, we have to push harder on some pages in terms of accelerating some programs, but -- and going back to the whole -- today at '20 and we are saying when we at the bottom end of '21, I think that should give you a good sense of the margin trajectory for the rest of the year.

Our next question is from the line of Ritesh Rathod from Nippon India.

Just on this margin, within a quarter, you have to lower your guidance on the margin side. So this is despite rupee depreciation benefit, despite attrition coming down in the last 2 quarters. So what has surprised internally in your expectations that you have to bring it down with the lower end?

Yes. So I think like I just mentioned, this is a very dynamic and moving, I could be the forecast completely what is the impact of attrition, how much wage hike will come in for new hires. So it's very dynamic how does pricing play out. So in that sense, this is a very fluid situation, but the '21 to '23, we said we are within that but of course, at the bottom end of it. And we remain committed from where we are today at '20 to do all our various cost optimization, factoring the cost impacts of what we see. In terms of wage inflation, there could be potential benefits of the rupee, et cetera. So it's a combination of all this into their forecast.

And what would have been a bigger surprise element? Would it be the wage? Or would it be the pricing benefit not coming through? Any one highlight compared to what you expected in the start of the year?

It's a combination of various things. And I won't say surprised. I think like I said, it's a fluid situation and we can remain agile, that's more important rather than anything else.

And coming to pockets of weakness, which is pointed out retail, mortgage, can you give some color? Are clients taking -- or the decision-making -- are the new deals not getting converted? Or are the existing deals which have been won, they are not getting ramped up? What's the exact sense on the weakness over there?

So there, within the areas of the pockets that we described, where we see a slowing. For example, if you look at the mortgage situation, the volume there in the market, meaning the client volume at the macro level, has gone down in the Europe and U.S. market. So our work there is proportionally reduced. But the overall point, which I shared earlier, we see some slowing in decision-making, but nonetheless, the pipeline remains today in a good position, and that allows us to increase the guidance.

And maybe last one on your deal wins. On LTM basis, your deal wins are down sharply, if you see large trailing 4 quarters versus. The previous 4 quarters. And even if I adjust the base because of the high value deals which you won in a couple of quarters, 4 quarters back, you're still down minimum by 15%. What -- how do you connect those 2 dots that your LTM-basis deal wins are down, but your deal pipeline is all-time high? Are the deal conversion ratios dropping than what it was historical?

There, on the large deals, we typically -- we always shared, we've seen some volatility because these are deals which are larger -- the ones we share in this number, which are larger than $50 million in value. We do see the pipeline being larger than where it was. And what we referenced in some areas a slowing of it, but we don't see any change in the other parameters on the pipeline.

Our next question is from the line of Manik Taneja from JM Financial.

Sorry for harping on the margin question once again. I just wanted to understand how should we be thinking about the segmental -- or the improvement in segmental margins in the manufacturing vertical given the sharp drop that we've seen over the last 3 quarters. And how does that feel in terms of the overall margin outlook.

Yes. Like I -- somebody else has asked a similar question. And like -- without going into any specifics, we have seen that growth coming out of large deals in manufacturing. And like I said, as we look at the tenure of these large deals, in some cases, they start off with lower than portfolio margins because clients may ask for savings upfront, but we have a very -- started plan in terms of quarter-on-quarter, what do we need to do to bring back profitability. Because from day 1 clients come to us because they know we can optimize their cost structure. So that's something which is definitely what we've been doing since we started the large deal strategy, right? And we've seen margin improvement over that period. So I think we are quite confident of the future profile of these businesses.

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

Salil, this is on mega deals. While the industry frequency tends to be low, and it's been a while for Infosys, it'd be good to know your comments on mega deals from a pipeline perspective. And secondly, on pricing, how is the ability to get price increase versus last quarter? Do you see any changes to that?

On the mega deals, I think -- again, we don't share anything specific in terms of what we publish. The color from our side is, we have mega deals in our pipeline, if that gives you a context. On the pricing, we've seen pricing currently holding in our deal values for this -- for Q1. My sense is we have seen examples that Nilanjan was sharing earlier where we are working -- we have worked with clients to demonstrate to them the impact of compensation increases, and that has translated to COLA price benefits. We've had examples where we've had increases which are related from more of the digital high-value work that we are driving for clients. We now have to make sure we take that across our whole portfolio and see the benefit coming into our business. Typically, the salary increase happens at a periodic time. And these things where we've not seen a high inflation environment like this for over 40 years in the Western markets, that takes longer time. And that's what, as Nilanjan said, is part of what we've put in place to support our margin as we go ahead there.

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

So thank you, everyone. This is Salil. Thanks again for joining for this call. I just want to summarize with a few points. First, we've had industry-leading growth in Q1, 5.5% quarterly, 21% year-on-year. We clearly see tremendous market share gain driven primarily by the strength of our digital and the cloud Cobalt capability set that is resonating with our clients. We highlighted there are pockets of weakness, and we are aware of the environment around us. We see in our pipeline, both growth opportunities in digital cloud and cost opportunities in automation. With all of that, we increased the growth guidance for the full year. We are now seeing attrition coming down on a quarterly basis. We see many of the initiatives we put in place starting to create some impact. We have levers for the margin, several that Nilanjan shared. Large programs will transition to a steady state, COLA, because of increases in compensation costs to pricing, pyramid adjustments as we have college hires driving the production environment, subcontractor usage and then several others on the cost side. Given all of that, we feel we are really well positioned to work with clients on their growth and cost opportunities, and have a margin profile that is something that sustains the high-margin approach of the company. So we are looking forward to this year with strength and optimism. And once again, thank you all for joining us and catch up in the next quarter. Thank you.

Thank you, 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.