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

Hello, everyone, and welcome to Infosys earnings call for Q1 FY ‘24. Joining us here on this call is CEO and MD, Mr. Salil Parekh; CFO, Mr. Nilanjan Roy and other members of the senior management team. We will start the call with some remarks on the performance of the company for the quarter by Salil and Nilanjan, subsequent to which the call will be opened up for questions. Kindly note that anything which 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 explanation of these risks is available in our filings with the SEC, which can be found on www.sec. gov. I would now like to pass it on to Salil.

Thanks, Sandeep. Good evening, and good morning to everyone on the call. Thank you for joining us. We had a strong quarter in Q1. Our Q1 growth was solid at 4.2% year-on year and 1% quarter-on-quarter in constant currency. We have 21% growth in manufacturing, 14% in life sciences. Our Europe region grew by 10%. Our operating margin for the quarter was strong at 20.8%. We generated robust free cash flow of $699 million in Q1. Our large deals value for Q1 was $2.3 billion, 56% of this was net new. We had one mega deal win in Q1. Our value of deals for financial services was 50% of the overall large deal value in Q1. We announced a mega deal of $2 billion value after the close of Q1, and before our results report today. With a strong large deal and mega deal wins, we are building well for the future. Our pipeline of large deals is strong and we continue to have mega deals in our pipeline. We are delighted that Topaz, our AI and generative AI platform is resonating well with our clients. We are working on 80 generative AI projects for our clients at this time. The work we are doing encompasses large language models for software development, text, document, voice and video. Internally, we have developed generative AI tools using an open source model for software development. We are working with open source and proprietary generative AI platforms and models. We have trained 40,000 employees on generative AI. We see opportunities for new work and for productivity improvements through this technology. All of these elements are available within our Topaz set of capabilities. We see this area of generative AI and Topaz being really transformative for our clients. As we look ahead with our large and mega deal successes and our strengthen in cost efficiency, automation and consolidation we feel confident. In the short term, we see some clients stopping or slowing down work on transformation programs and discretionary work. This is especially so in financial services, in mortgages, asset management, investment banking and payments, and in the telecom industry. We also see some impact in the high tech industry and in parts of retail. Even as we've won two mega deals recently and have a strong pipeline of large and mega deals, we've received revenue from some of these and other large deals towards the later part of our financial year. Keeping that in mind, we are changing our revenue growth guidance for this financial year to growth of 1% to 3.5% in constant currency. As a consequence of our mega deal wins overall traction and cost efficiency, automation and differentiated digital cloud and generative AI capabilities, we are well positioned for the medium-term and especially towards the end of our financial year and the period after that. We have launched a broader and comprehensive margin expansion program. The program will work across five areas; pyramid efficiency, automation and generative AI, improvements in critical portfolios, reducing our indirect costs and communicating and deriving value across the portfolio. As senior leadership is mobilized on this, we are working on this program with our clients, our employees and partners, and we're taking steps for the short, medium and long term, while keeping the overall strategic direction of the company in mind. We have an ambition to improve our operating margin in the future periods. Our operating margin guidance for the financial year remains unchanged at 20% to 22%. With that, let me hand it over to Nilanjan.

Thanks, Salil. Good evening, everyone, and thank you for joining the call. We entered FY ‘24 on the backdrop of uncertain macroeconomic environment, with clients reassessing their IT spend and continued to focus on cost and efficiency programs. Q1 revenue growth was 4.2% on a Y-on-Y basis in constant currency. Sequentially revenue grew by 1% in constant currency and 1.4% in dollar terms. Operating margin for Q1 was 20.8%, 20 basis points lower sequentially. This was primarily due to a 70 basis points of benefit from cost optimization, including utilization, automation, which was offset by a balance 90 basis point impact from employee related costs, including higher variable pay, promotions et cetera. Client metrics remained strong with a number of $50 million clients, increasing to 79, and $200 million clients at 15, reflecting our strong ability to mine top clients by providing them multiple pay -- multiple relevant services. Headcount at the end of the quarter stood at 336,000 employees, which is a decline of 2% from the previous quarter. A substantial portion of attrition has been backfilled by training and reskilling existing pool of talent and deployment of freshers. Consequently, our utilization, excluding trainees improved to 81.1%, which has further headroom for growth. We will calibrate the hiring for FY ‘24 based on available pool of employees, growth expectation and attrition trends. Free cash flow for the quarter was robust at $699 million and the conversion to net profit for Q1 remained strong at 96.6%, led by strong collections. DSO increased by one day sequentially to 63. Consolidated cash and equivalents stood at $4.5 billion at the end of the quarter. This is before the payout of final dividend that happened in the first week of July. EPS grew by 6.6% in dollar terms and 12.4% in rupee terms. Yield on cash balance was 6.71% in Q1. ROE increased to 32.8% in Q1, a 1.8% increase year-on year, which is a reflection of our strong cash generation and capital allocation policy. Large deal momentum continued and we signed 16 large deals in Q1. TCV was $2.3 billion with 56% net new. Three deals each were in FS, EURS and communication, four in retail, two in manufacturing, one in life sciences vertical. Region wise this was split by 11 in America, four in Europe and one in ROW. Coming to vertical segment performance, financial services vertical witnessed continued softness in areas like mortgage, asset management, investment banking, cards and payments. Large and super regional banking clients in the U.S. have been resilient during this quarter. Large banking clients are focusing on vendor consolidation, cost takeout and self-funding transformation program. Many financial institutions are looking at outsourcing their non-core business that includes taking over existing employees across technology and operations. While delayed decision-making is impacting the vertical, our recent deal wins and the strong pipeline will help create momentum and opportunity for future growth. In retail, cost efficiency and consolidation continue to remain top priority for our clients. There is intense focus on leveraging AI to accelerate digital transformation for enhanced customer and employee experience, predictive analytics and real time insights. While decision cycles are long, large deal pipelines remain healthy in infra (ph), apps and process modernization, cloud and workload migration. Communication sector is witnessing continued impact from budget cuts, delayed decision making for newer spends and slow ramp up. Growth challenges for the client such as due to increasing OpEx pressure. Cost optimization and vendor consolidation are top priorities for clients who are open to innovative solutions and are asking for AI to amplify productivity. OEM clients are showing greater interest in revenue generating services, decreased time to market, increased product quality and improved customer experience. Large [Technical Difficulty] vertical remains very healthy. Outlook for the energy utilities, resources and services vertical continues to be positive though there is slowdown in decision making. Energy clients are coming to us for large scale transformation programs such as business capabilities for energy transition and journey to net zero. Utilities clients are focused on in-flight transformation programs or those required for regulatory compliance. Service clients are focused on consolidation and M&A, cloud cost optimization and legacy transformation. Our investment in industry cloud and solutions in the energy transition area had helped us differentiate in these sectors, in multiple deals and build a very strong pipeline. Manufacturing clients are focusing on controlling the spend and awarding deals which are focused on differentiation. Despite the volatile environment, deal pipeline is strong. Areas like engineering, IoT, supply chain, cloud, ERP and digital are seeing increased traction. There's a need to increase paper migration to cloud, increasing productivity by transforming to smart factories and transitioning to smart products. We are seeing opportunities across auto, aerospace and industrials. We have revised our revenue growth guidance for FY '24 to 1% to 3.5% in constant currency terms. This was due to lower-than-expected volumes, which will ramp down in discretionary spend, coupled with lower mega deal volumes arising from delayed timing and longer ramp-up times due to regulatory approvals and transitions. Margin guidance remains at 20% to 22% for FY '24. We continue to aspire for higher margins over the medium term with the razor sharp focus on cost optimization and efficiency improvements. As Salil mentioned, we have launched a new margin maximization program across the five pillars comprising over 20 tracks. With that, we can open up the call for questions.

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Kawaljeet Saluja from Kotak. Please go ahead.

Yeah. Hi. Thank you. My first question is the fact that either on the prepared remarks, both Nilanjan and Salil were both of you mentioned that the guidance cut is partly due to a delay in volumes or a bit delay in singing off a mega deal. But as far as I remember, your guidance at the lower end was not predicated at -- or not predicated from mega deal project, which is 4%, and 7% was predicated on mega deal projects and volumes flowing through. So I'm just trying to understand, if you can just [indiscernible] your guidance basically just highlight what percentage of the cut is attributable to your perception of change in view in the external environment and what percentage is really the delayed signing of mega deals here?

Yes. So Kawal, as you know, there was a guidance of 4% to 7%. Of course, the higher end of the guidance had a larger amount of the mega deals. And the 4%, of course, was predicated a lot on the base volumes, which by default would be in quarter one, quarter two. And this is where we have seen discretionary spend cuts in quarter one in some client, and of course, in Q2 as well, some of that softness continues. I mean, as you know, if you have to meet the year, quarter one and quarter two are very critical for that really to happen. So fundamentally that's the base reason. As we exit the year, of course, at the higher end, there was the impact of mega deals. And our guidance on both ends have come down. And one of the reason the top end that has come down is also largely also due to the delay in mega deals signing and the transition time. But the pipeline, as Salil said, is very healthy. We’ve got two under the belt and we are confident as we exit the year.

But Nilanjan, just to try to know, when you basically spoke in the last quarter, you did highlight that 1Q would be weak and we expect pickup in 2Q, whereas right now, you're saying that 1Q and 2Q are strong quarter. So I'm just trying to understand the disconnect in commentary. The second part of the question Nilanjan is that two consecutive quarters, two consecutive misses. I guess last time around as well, there were a lot of pushback saying that the environment has deteriorated and how you built any extra cushion into your guidance, et cetera. So what are your learnings in the last two quarters? And what are the steps you have taken to ensure that the forecasting process is a little bit more robust than what the guidance cut in the last two quarters indicate?

Yeah. So Kawal, see as when we give the guidance, we see the outlook at that point of time. We have a semblance of what is a pipe. We assume some convertibility. There's an existing book of business. But like I just said, in Q1, from a sequential basis, we are lower than where we thought we would end up to be, right? Because like I said, Q1 and Q2 was critical for us to meet that guidance. And we have seen these discretionary cuts in clients in some sectors which we've just called out, right? And that's, what I would say, the base business. And on the other side, there is the mega deal impact. We've got a good pipeline and some of these deals, which was supposed to kick in earlier are getting delayed later into the year as we speak.

Okay. That's clear. Just a final comment on how is the pipeline after the conversion of the $2 billion mega deal as such? Can you just comment on the pipeline? That would be useful.

So Kawal, this is Salil. The pipeline, we still have a good pipeline of both large deals. We have some mega deals in the pipeline as well. We see a lot of the work that we're doing on cost, on efficiency, automation in consolidation, those are tracking well with clients. There are some transformation programs, which are funded from within the cost efficiency. Those are also something that we're tracking through. So we do see, with two mega deals signed, a good pipeline today of large deals and we have mega deals in the pipeline as well.

Right. And just one thing, is the upper end of the guidance band in any way predicated on future mega deal closures or it's based on the deals closed up to now?

So here, the way we build this guidance or our view of the 3.5 is based on what we have closed today in large and mega deals. And then, we have a way of estimating based on what we see into the future as an aggregate not as a one-off or not as a binary discussion, but in aggregate with what we see as a probabilities and also the probability of when that work will transition in the revenue side. So those are what we see in the pipeline a bit into it.

Thank you.

Thank you. The next question is from the line of Yogesh Aggarwal from HSBC. Please go ahead.

Yeah. Hi. Thanks for letting me come. Salil, just a couple of questions. Firstly, on banking, your banking weakness has been there for a few quarters and now most of the companies are showing weakness as well. Whereas if you look at the clients itself, most of their financial reserves, the tech commentaries and the data is not that weak. So where is the disconnect, you think? Are they spending more with captives or smaller subcontractors? Where is this market share loss coming from?

Yogesh, I think what we see in our financial services or banking part of financial services, there are different clients of ours that have different patterns in terms of their own pressures within their business. Some of our clients have had good results, but there are some which will add more difficult economic situations. Also with the mix from geography between Europe, Asia Pacific and U.S., when we break it down into specific subindustry areas, when you look at asset management, when you look at investment banking, when you look at payments or mortgages, those are the ones where we're seeing the impact. Our sense is generally our clients are not spending on those projects. It's not that they're spending somewhere else. Typically, they're choosing not to spend at this time. And as the environment changes, we will see how that pattern changes.

Okay. Thanks. And just a quick follow-up, the revised guidance now at the lower end, I wanted to ask you, we have already won two mega deals and the lower end of the guidance suggests almost negative or flattish growth for the next three quarters, which would also mean that for six, seven quarters now revenues will be flat. So what are the assumptions for the lower end of the guidance, I wanted to know?

So here, as Nilanjan were sharing about the guidance, the approach is really focused on what we've seen in terms of volumes, discretionary projects in quarter in Q1 and an overlay then of the actual mega deals and large deals we have already won and the estimate that we're looking at. So we are -- some of those deals, they have start dates have moved out, whereas the volume and discretionary project slowing. It's still in quarter. So our view is based on how that plays out between those trends, we saw the 1% in terms of the lower end of the guidance when you combine that and then, of course, the high end we talked about earlier.

Fair enough. Thanks, Salil. Thank you.

Thank you. The next question is from the line of Ankur Rudra from JPMorgan. Please go ahead.

Thank you. Salil, thank you for the updated guidance. I just wanted to get a sense of, obviously, the ask rate (ph) for the next three quarters has now moderated from, maybe it could have been 2% to 4%, with the same old guidance, it's 0% to 1.5% as discussed. Just curious about the discretionary cuts and the delays you referenced in your guidance change description. Has this happened more towards the latter half of the quarter? Has there been a linear change over the course of the quarter?

So there, Ankur, the way we've seen it is there will be no difference in the pattern at the beginning or the end of the quarter. It's more focused on the industry that we’ve referenced in our opening remarks between Nilanjan and me. We have seen in different places the discretionary work and some transformation work where it will either slowed or stop based on different industries.

Okay. And also, I just want to get a sense of maybe asking this in a slightly different way. Obviously, the guidance change is quite drastic. Is this just the change in environment of spending over the course of last three months or is this also a difference in the way you measure the likelihood of success of when the deal ramp up or the win rate of future deals? Just curious about that and if this guidance is more conservative anyway versus the last time you said it.

So there, it's a combination, as you pointed out of the environment in terms of the discretionary or transformational projects in the quarter. And then some of the mega deals and large deals, we saw a delay in decision-making in closing and also delay changes in the start time or ramp-up of the profile of that business. We've actually not seen any change in the win rate. And in fact, internally, we had a good win rate in Q1, and we continue to see good traction, whether it's consolidation, cost efficiency on the win rate side.

Appreciate that. Just one clarification, if you could. I know this $2 billion framework agreement that you referenced is the second large deal. Could you clarify if this is fully contracted and is this type of deal historically also been disclosed in your PCVs over the last few quarters or years?

The deal, we have first made the announcement, as I'm sure you've seen, we have completed the contract signing of the deal, that's when the deal was announced. These types of deals were also included in the past within a large deal mix. Of course, in the past, there was no requirement of disclosing the specific values.

Okay. Understood. Last question, if I can. On margins, they were obviously flat at this time and doesn't -- I mean it seemed like you've done well given what the growth has been. The 5-point margin maximization plan you've highlighted, is this you playing offense or defense on margins? In other words, is Infosys confident of potentially expanding margins in F '24 or is more for margin defense because growth outlook doesn't look very strong at least at the lower end of guide?

Yeah. So like we said, I mean, this is a two-year program we have started. It is quite comprehensive. It's just not looking at cost, it's looking at portfolio. And this is now being led personally by JS (ph) with 20 tracks, 30 leaders. Of course, our aspiration continues to be that we will aspire for higher margins than where we are today. So I mean from that perspective, it is offensive -- on offense, I would say offensive, but on offense, this thing to increase our margins that to intent.

Appreciative. Thank you and best of luck.

Thank you. The next question is from the line of Apurva Prasad from HDFC Securities. Please go ahead.

Yeah. Thanks for taking my question. Salil just wanted to broad further on the guidance. In the last quarter, you had referred to achieving top end basis, the strength of pipeline and factors that are binary. So are those binding factors still in the pipeline or just converted the transition is taking longer? So what I'm trying to get at is, how should we really reconcile the change in revenue guide in the last three months, between delay and volume cuts, which is as largest 600 million?

So there, we've already announced two mega deals, so which is a positive. We have large and mega deals in the pipeline. The way we've seen it is really the two points you mentioned, which is the volume discretionary work in quarter and the delay in the start of the realization transition of some of the large and mega deals, those are what have translated to the change in the guidance.

Any way that you could split those factors, how much of an impact does that has been?

We will not be in a position to quantify that further between those two, unfortunately.

So -- okay. And just how would you characterize the business environment and your client conversations at the end of the quarter as compared to how it was at the beginning of the quarter?

So there, it's really -- the way we see it is, our pipeline for large and mega deal is in excellent shape as we’ve closed the quarter. We see good traction for mega deals and our large deals. The focus is much more when we're talking to clients on efficiency or cost or consolidation. We have a real traction with them. We see less discussions on digital transformation. And then, in general, across the client base for those industries that I referenced in the opening remark, we see where there are discretionary programs where the client feels that they can slow them or pause them for some time, we see that action. So those are the two sort of actions we are seeing, very good traction, in fact, on the large mega deals.

Apurva, does that answer your question?

Yes. Thanks.

Thank you. The next question is from the line of Kumar Rakesh from BNP Paribas. Please go ahead.

Hi. Good evening. Thank you for taking my question. My first question was more of a clarification. So can you just confirm the process of deciding the revenue growth guidance? Is it the same, which was last fiscal year versus this year or have you changed some of the assumptions for the processes that you follow?

Hi, Rakesh. This is Salil. Should we’re following the same approach that we’ve followed over the last several years as we build sort of outlook of our guidance that we share with the market.

Got it. Thanks. My second question was on the margin side. So this quarter, we had a slight decline on the margin sequentially. Now wage hike has yet to be given out. So how confident are you on holding on to the current margin or the margins which we had last year? And the cost saving program also you're going to be running or there would be more of headwinds than tailwinds on the margin side?

As you saw my margin walk, right? We actually had a 70 basis points benefit from utilization, cost optimization. So we are seeing the tailwinds of that. And the big part of that, we’ve actually put back into employee related compensation, which is variable pay, that's a big part promotion. So it's not that we are losing that to the market, that's a conscious decision for us to plow it back towards our employee. So as we look ahead, we are actively considering compensation hikes as well we've announced in our press conference earlier. And the new program that kicks in, we think in optimization will give us the necessary tailwinds to be well within the margin guidance band.

Okay. Thanks for that. My last question was around the volume commentary which you gave. So last quarter in April, when we had the discussion, you had talked about that volume through the quarter, you were seeing signs of improvement. However, in this quarter, you have seen performing much below your expectation. So what has -- which are specific pockets you are seeing the weakness specifically? Is it more time specific or the entire – specific industry you are seeing a much sharper weakness?

It is a client-specific like this time, in fact, we saw slightly more resilience in the U.S. based clients. Europe turned out to be slightly weaker. So it is very client specific actually across. I mean, it's not sort of a leaking bucket in a number of clients. There's no large sort of a drop-off. And this is largely, that said, the discretionary part, right? So it is some programs which can be pulled back and our discretionary in the nature, those are the ones we are seeing.

Thanks for that.

Thank you. The next question is from the line of James Friedman from Susquehanna. Please go ahead.

Hi. Thank you. Salil, I think many investors are wondering, so I would appreciate your thoughts. Does it seem to you that the soft demand was primarily due to macro factors, which are presumably temporary or is it potentially something more profound like perhaps related to the relevance of services or Lion's share? So is this just macro it's going to go away or is it a question of service in itself?

So this is Salil. Thanks for the question. The way we see it today, we see this demand environment, especially on discretionary that we've been discussing so far, as a function of the macro environment, we can see, for example, if you look at different industries, manufacturing, growing at 21%, other industry is doing well, whereas financial service is weaker. So our service portfolio, we believe works well. We've already transformed the company, moved it predominantly into a digital business. We are very strong on cloud with our cobalt offering. And now with generative AI and broadly with AI, we've launched our Topaz offering. My sense is, those are resonating well with clients. And the places where we see the constraints have been more with the macro. Even some of the large and mega deals we are winning, we're winning against a fairly intense competition where we are demonstrating our capabilities, whether it's some transformation or on cost or efficiency or consolidation.

Okay. Thank you for that context. So I’ll jump back in the queue.

Thank you. The next question is from the line of Abhishek Bandari from Nomura. Please go ahead.

Yeah. Thank you. I have two questions. First of all, Salil, congrats to you for this $2 billion mega deal. And if you could share some more details around this project given that it is probably the largest announced anywhere globally. Is it pure services deal or there is an element of any hardware purchase along with it? And do you think this will get into revenue translation more in the second half of this year?

So thanks for the question. On this specific deal, what we have shared in the public domain is as per the filing with the stock exchange, it really focuses on work that we are doing related to AI and automation-led development, modernization and maintenance services. We don't have anything more to add to that comment.

Sure. Do you think this goes into revenue translation in second half?

Yeah. So again there, we don't have anything more on the specific deal. It's not the general comments we've talked about the large and mega deals. We do see, in general, across our large and mega deals, the revenue coming through in terms of the transitions and revenue realization more towards the later part of the year.

Got it. Thank you, Salil for that. Nilanjan, my final and second question is to you. So you commented that the salary hikes are under active contribution. So do you think this year, the hike cycle could differ compared to a usual cycle? And it could be more linked to when the growth comes back, we probably will be in a better position to give the hikes for employees?

No. Like I said, we are considering everything. Nothing to add more than that really in terms of timing or anything like that.

Okay. Got it. Thank you and all the best.

Thank you. The next question is from the line of Moshe Katri from Wedbush Securities. Please go ahead.

Thanks. In general, I think that Europe has been holding up really well...

Moshe, may I interrupt you? Sorry. Please use the handset. You're not very clear.

Yes. So far Europe has really been holding up well much better than the U.S. Can you talk a bit about what you're seeing in Europe, maybe areas where you are seeing some strength in terms of verticals? I'm assuming the U.K. is a big part of it. Is that trend continues based on what you're seeing, i.e., is Europe still holding in there or is it also slowing down? That's my first question. Thanks.

So thanks to your question. This is Salil. We saw good traction and we've seen that over the last several quarters in Europe, as you pointed out. We've seen that, especially in the manufacturing segment. We've had good traction in multiple geographies in Europe. So we have a good traction in the Nordics. We also announced a strategic win in the Nordics, which was public a few weeks ago. We have good traction in Germany, as you referenced, a good traction in the U.K. So we've had good traction so far. Now the macro environment, we feel, as Nilanjan also pointed earlier is definitely something that is affecting overall in Europe. So we are seeing within the segments we referenced, for example, Financial Services and the subsegments there in Telco, in some parts of retail, those being impacted in Europe as well and we'll see how that plays out into the future.

Okay. And my follow-up is about an article that came out just recent in the local media in India, suggesting that there is an uptick in demand for lateral hires in the industry. And these hires will probably start happening in the month of October and on. Does that make sense to you versus what you're seeing out there in terms of demand and pipeline and the ramp that's kind of -- as you said, it's going slower than expected.

So for us, my sense is, again, some of the comments you might have heard earlier from Nilanjan, our utilization has gone up. Our total headcount number is reduced and we believe we have some headroom for the utilization to go up further. So that would be the context in which we are operating.

Understood. Thanks for the color.

Thank you. The next question is from the line of Mukul Garg from Motilal Oswal Financial Services. Please go ahead.

Yeah. Hi. Thanks. Salil, just wanted to kind of probe a bit further on the change in the guidance and I'm just focusing on the lower end of your previous guidance. When it does not look like the miss in Q1 from what you are kind of thinking about last quarter was that meaningful for the guidance at the lower end to come down so drastically. So is it fair to assume that the incremental slowdown which you have witnessed is more front-ended i.e. in Q2 or was there an expectation of a meaningful pickup in the business in the second half, which is now no longer there?

So on the guidance again, some of the comments that Nilanjan shared earlier, we saw in Q1, the volume and discretionary projects slowing. And based on that, plus the delay in some of the large or mega deals starting up in terms of revenue, we felt that, that has given us the view of the lower end of the guidance. What we see really the function of the way the volume in the discretionary project evolves. The macro environment, as we look out, is changing as we see things which are from U.S. to Europe to Asia, keeping those factors in mind is how we build that lower end of the guidance.

Sure. And similarly, on similar track, is there something we need to kind of see, visualize in terms of entity of large DLTC (ph), which we disclosed. The commentary on pipeline and large deal wins continues to remain very robust. But there is a fair bit of pain which you are kind of talking about from a discretionary side, which would be coming out of the large deal number. So can you share the impact on overall TCV or is that something which you would kind of start reassessing simply because it's giving an excluding picture when you look at only the large deal win?

So there, there are some distinctions what we are seeing in the large deals, mega deals, wins in the pipeline. And what's more recent in the past quarters was more on cost of efficiency or consolidation and so that work is continuing. What we referenced on the slowdown is more on discretionary projects, which are projects or transformation projects which are from before, which could have been paused or slowed down by the client and specifically in the industries where we referenced the impact. Those are the ones we are seeing. So they're not, in a sense, correlated with the large deals that we're looking at today.

Sure. And if I may just ask for clarification. Is there any impact in terms of your growth guidance from any client-specific issue, specifically as Nilanjan kind of in Europe, in terms of client in-sourcing or kind of slowing down business to you in any vertical?

So there, what Nilanjan was referencing to is not that it is client specific as it has one or two clients. It was more in terms of clients within that industry vertical and more now shifting what we had in the U.S. to the European market. So it is not that we have specific one or two clients where we have seen this impact showing up from.

Sure. I think that’s helpful. Thanks for taking my question. [indiscernible].

Thank you. The next question is from the line of Surendra Goyal from Citigroup. Please go ahead.

Yeah. Good evening. I know that you don't share this data point, but could you give us a directional sense of how ACV annualized contract trends would have moved or would compare Y-o-Y, given the changing nature of it towards the large and mega cost takeout deals.

Thanks for the questions, Surendra. We are not in a position to share that information.

Okay. And on this recently announced mega deal in terms renewal versus new?

The one that was announced after the quarter before the results?

Yes, yes.

Okay. So again, we are not announcing the net new in a specific deal. What I mentioned earlier was the type of work and that's what we can say in addition to what we filed with the stock exchange.

Sure. Thanks, Salil.

Thank you. The next question is from the line of Prashant Kothari from Pictet. Please go ahead.

Yeah. Hi. A couple of questions. One is, I mean, looking at the revenue growth guidance this year, it seems will be going maybe worse than the peer group that we track even in terms of the deciding on management compensation, how do we think about that? I mean are there things that we need to do in order to regain the kind of competitiveness in the market so we can continue to outgrow out there or do you think it's all down to discretionary demand being weak and therefore, there's nothing much that we can do and we just need to wait for the cycle to come back? That's the first question.

So there, we have a view with our portfolio. There is a portfolio of services that works well with our clients. We absolutely have the intensity in the client environment with a large and negative wins to be back into the growth mode that we've been in for the last several years. We also have, as you know, a high base for comps. Q1 of last year was a 21% growth year-on-year in the previous year, whereas the environment of other peers were not there. So all of those factors coming into play. We are very much of the view that we have what we need and we are continuing to go into new areas like generative AI or continued investments in cloud to build out what we want, what our clients are looking for to continue with the growth situation.

Okay. Thank you. So if it is kind of more about the external to figure out this week discretionary demand phases kind of come to an end?

So internally, we have several elements we look at. These are not typically data we share externally. But in terms of the overall sort of translation of that is what we translate into the guidance there.

All right. Yeah, which is presenting a bit of a big picture as of now. All right. Okay. Thank you very much.

Thank you. The next question is from the line of Bryan Bergin from TD Cowen. Please go ahead.

Hi. Good evening. Thank you. I wanted to ask on the margin expansion program. So I understand this is a two-year initiative. Can you give us a sense of materiality to just how are you thinking about the potential cost savings or an approximate margin expansion potential that you expect to achieve from these pillars?

Yeah. So we can't really quantify it. These are five we're seeing critical track pricing and a more holistic sort of value-based selling approach. That's a big one. We know from a pyramid perspective, we have a lot of scope as well. We understand the generative AI and our ongoing automation projects, which we have, that continuously and actually with generative AI, we think we can up the productivity from baseline even more. Some of our portfolios in our mix, how do we improve margins that who are dedicated [indiscernible] team looking at these accounts. And finally, the embedded cost side and how do we keep the cap on that, looking at more efficient buying, procurement savings, et cetera. So it's a quite a holistic approach, like I said, across 20 tracks. And these are bringing fixed cost. I can't quantify the number at this stage. But like we said, aspiration continues to be to improve our margin in the medium run.

Okay. And then my follow-up, I understand you've got a lot of questions here on the fiscal '24 growth outlook. Just trying to clarify maybe here and maybe tie all these questions together. Is it right to say that at the low end of your '24 growth guidance that you're assuming a worsening of volume reductions and a worsening of decision making pace for the balance of the year? And then at the upper end, that the decision making improves? Just trying to really get to the point of are you assuming more of the same in the improvement or further deterioration within this range?

There, the way we've constructed this guidance, we see that there is a change or a difference in the environment, in the decision making. We have seen some of the impact in some of the industries that we shared earlier. And we will see how that volume, discretionary work translates itself over time. So we've baked in some range of possibilities into that. We also see how those possibilities play out.

Thank you.

Thank you. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.

Yeah. Hi. Good evening. Thanks for the opportunity. So Nilanjan, the employee headcount is down 3% over the last two quarters, but the absolute employee cost is up 2%. So what explains that dynamic?

Yeah. So like I said, this time, we have put about 90 bps, I think of impact. We don't see the entire thing in employee cost because even third-party costs have come down. But if you see about 90 basis points -- actually, more than 120 and then 90 basis points is actually in employee costs. Variable pay is a big one, which we have upped consciously in this quarter, a little bit of promotion, then there are other items, balancing items.

So just a clarification there. So in the context of the deteriorating environment and attrition sort of falling, the assumption was that employee cost would be something relatively easier to manage. And obviously, because the performance -- company-wide performance itself is lower, the variables also should be lower. So what's driving the dynamic on higher variable pay and the compensation?

So we look at this holistically, I think, I mean we are here, and we don't look at just one quarter and besides these decisions. We're looking at the overall environment and attrition, et cetera. And that's a decision we collectively take. It's just not on a quarter-to-quarter basis. We have enough headroom in our utilization to grow volumes. And therefore, the attrition, which we see is not entirely replaced by lateral hiring. A part of that happens to lateral hiring, and we continue to reskill and move up our fresher bank and rotate people through projects. So that benefit, we continue to get. And like I said, the 70 bps benefit, which we are seeing is coming partly because of improved utilization, right?

Sure. And lastly, the $2.1 billion deal that we announced, in which vertical is that? If you could clarify, that would be helpful.

No, we don't mention that really on what vertical here.

Thank you so much and all the very best.

Thank you.

Thank you. The next question is from the line of Vibhor Singhal from Nuvama Equities. Please go ahead.

Yeah. Hi. Good evening. Thanks for taking my question. So Salil, two questions from my side. One on the talking on the guidance part again. I mean, for long, I think the guidance that Infosys gives is kind of seeing a benchmark of the industry and a read across for the entire sector as well. I mean and the share that we had at this time. So just wanted to understand the putting on hold of discretionary spend and other issues that you mentioned that caused us to lower the guidance, do you see that as a very Infosys specifically or do you see it more of an industry across the whole that maybe other companies are not seeing it right now, they might be following suit in the next few quarters or is it something in the nature of our portfolio because of which you probably feel that it was cyclical? I mean, in the last three months or because the other companies that have reported, there might not have been such number on difference in the guidance here. Is the kind of $600 million [indiscernible] that we have seen, we haven't seen that kind of a change in commentary over the past three months by any other player out there. So would like to basically give some color on how reliable is this environment that has caused us for this deterioration to the other companies in the sector of the industry.

So there, my sense is, if you look at our Q1 number, we have 1% quarter-on-quarter growth, which from what I have seen across the industries, maybe one of the strongest quarter-on-quarter growth. We have a clear view of what we see as we've been discussing on large and mega deals, giving us a strong growth orientation later in the year with some discretionary work, which is slowing in Q1. So I don't have a sense for the other players. That's how we see it. And if I look at Q1, we have a good outcome in terms of a solid quarter and looking at the industry, maybe higher growth Q-on-Q than many others.

Got it. And in terms of conversations with the clients, just a follow up on that, in terms of the conversations with the clients, I think you mentioned it before on the call as well. I mean how -- I mean, what is the overall general conversation like when they put this dictionary part of the release on hold? I mean, do they want to do it given the weak macro at this point of time? Is there any rethinking on the part of whether they need this kind of spend at all? Are those original decisions being questioned itself start to begin with. What exactly is the nature of the conversation with the clients, which are putting these spends on hold?

So here, what we've seen is, again, in the industries, we referenced before, whether it's financial services or telco or high tech, like clients the industries are going through a difficult environment themselves in the macro. They're looking for help or support from their partners like us, where they put some projects which they perceive to be not immediately relevant for them on a pause or slowing. Those are the discretionary works that slow down and we will see as the environment changes, what happens there.

Got it. Great. Thanks for taking my questions and wish you all the best for the rest of the year.

Thank you. Ladies and gentlemen, that will be our last question for today. I now hand the conference back to the management for their closing remarks. Thank you and over to you.

Thanks. This is Salil. I just want to close out. Thank you, everyone for joining us. In summary for us really we've had a solid Q1, very good Q-on-Q growth, solid margins, excellent large deals and mega deals wins. This sets us up very nicely with some of the delays and the volume slowing more for the later part of the year. We've also got incredible traction in generative AI with AT projects and the Topaz work resonating with clients. We now put in place a stronger program on margin expansion, which is in play. Putting all of that together, we see this is a year where we'll make that difference translate into mega deals and large deals and as we come towards the later part of the year, showing the realization of all of those. So thanks again, everyone for joining in, and look forward to catching up at the next quarterly call.

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