Ladies and gentlemen, good day and welcome to the Infosys Third Quarter Earnings Conference Call. As a reminder, for the duration of this conference all participants' lines will be in the listen-only mode and there will be an opportunity for you to ask questions at the end of today's opening remarks. (Operator instructions) Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Sandeep Mahindroo of Infosys Technologies Limited. Thank you and over to you Mr. Mahindroo.

Thanks, Rochelle [ph]. Good morning, everyone, and wish you all a very Happy New Year. Welcome to this call to discuss Infosys earnings release for the quarter ending December 31, 2010. I'm Sandeep from the Investor Relations team in New York. Joining us today on this call is CEO and MD, Mr. Kris Gopalakrishnan; COO, Mr. S. D. Shibulal; and CFO, Mr. V. Balakrishnan, along with other members of the senior management. We will start the call with a brief statement on the performance of the company for the recently concluded quarter, followed by the outlook for the quarter and year ending March 31, 2011. Subsequently, we'll open up the call for questions. Before I pass it on to the management team, I would like to remind you that anything that we say, which refers to our outlook for the future is a forward-looking statement, which must be read in conjunction with the risks that the company faces. A full statement and explanation of these risks is available in our filings with the SEC, which can be found on www.sec.gov. I'll now like to pass it on to the Mr. S. Gopalakrishnan.

Thanks, Sandeep and first, let me wish all of you a very Happy New Year. May this decade be much better than the last decade. Coming to the quarter three financial year 2011, we had all-round good performance. Our revenue for the quarter was $1.585 billion and this is higher than the upper end of our guidance, which was $1,562 million. So the revenues grew sequentially by 6%; in constant currency terms revenue increased by 4.7%; volume increase was 3.1%. We had revenue per employee increase of 1.6% in blended terms. We added 40 new clients; last quarter it was 27. The top 25 clients grew by 4.3%, non-top 25 by 7.4%. We added 11,067 employees against our projection of 11,000. For the year we are looking at 40,000. Attrition has come down. If you look at the attrition for the last three quarters, it has been steadily declining. Two quarters back it was 5,400 and now it's about 3,500. So, attrition in absolute terms have come. We have been able to maintain our margins, utilization is still high and utilization will have an impact in the future, but utilization is about 81.9% in Q3; last quarter it was 82.7%, and including trainees it is actually now low, so it's 72.7% and that's actually good for the future. When we told our customers and talked to them about the budgets, the indication is that the budgets are up slightly. So, it is a positive environment. They are all saying that the offshore allocation should increase and nothing bad happens, we believe that next year is going to be a normal year for the IT services industry. If we look at client additions, if we look at growth – broad based growth, if we look at the various industry segments for Infosys, if we look at service lines, if we look at our positioning in the market in terms of how analysts perceive Infosys, our clients perceive Infosys, our own relationship with them, we believe that we are in a good position to take advantage of the growth opportunities provided and we're continuing to build capacity. We will recruit 40,000 people this year as we have projected, and so we'll continue to build capacity. We are already recruiting for the next financial year, and we will update you as we go along on that. So, we are optimistic about the coming year. And this quarter one of the interesting things that we saw happen was that there was no budget flush. Normally, there would be a budget flush in the third quarter. Though third and fourth quarters typically are slow quarters for us, we would have seen a budget flush, but we didn't see that this quarter, because we believe the companies had spent their money in the earlier quarters, and we saw that. We saw good volume growth in the last three quarters. So there was no budget flush this quarter. That was very interesting in this quarter. So, now let me pass it on to Shibulal to give you more details by segment, by industry, et cetera. S. D. Shibulal: Good evening, everyone. Happy New Year. Let me add to what Kris talked about. Our growth has been all around. Our top 25 clients grew by 4.3% and revenue from the non-top 25 grew by 7.4%, which adds up to 6% in constant currency terms, which means that the growth is wide-based and both the top 25 and the non-top 25 clients grew in Q3. The million-dollar clients, which were 337 last quarter, in Q3 it is 350, which also shows the quality of clients which we are adding. Today our focus is to add clients, which are of high quality, mostly Fortune 500 or Global 2000 and that is showing up in our million-dollar clients going up. This quarter we have added 40 new clients and most of them are in the categories, which I just mentioned. 29 clients contribute more than $50 million in revenue right now in Q3 on an LTM basis, and this number was 27 last quarter. Our penetration into the Fortune 500 clients have gone up. It stands at 134 for Fortune 500 U.S. and 149 for Fortune 500 Global, which is also a good improvement. Our DSO is better. It is 62 days compared to 63 days last quarter. Now, let me give you some color on the region and the segment-wise growth. North America has marginally come down and rest of the world has gone up marginally. I believe it's a reflection of our increase in product sales. Finacle is doing very well and some of the other small products, which we have in the markets, is also finding traction. Our revenue from products has gone up to 5.2% and some of it is reflected in the rest of the world. Fixed price is up from 39.9% to 41.2%, again in line with increasing our fixed price and also new models of engagement. Number of clients, active clients is 612, that's an increase of 20 from the last quarter; last quarter it was 592. Our largest client is 4.6% and our repeat business is 97.6%. We are expanding in all our three service lines, Transformation, Operation, and Innovation. On the Transformation front, we are running multiple Transformation programs across the globe for our clients and the pipeline is also very strong. On the Operations side, we have a very strong large-deal pipeline. We design our large deals anywhere from $50 million to $300 million, and we have a good pipeline. Last half, we had closed nine of them. We have closed a couple of them in Q3 and we're expecting more closures in Q4. We're also seeing good traction with our Innovation side of the business, which is mostly products, platforms, and solutions and new models of engagement. New models of engagement, today is very well accepted with the client, and more and more deals are being restructured under the new models of engagement. With that, now let me hand over to Bala. V. Balakrishnan: Good morning, friends. This quarter has come out much better than what we had guided for in the beginning of the quarter. The revenue grew by 6%. The volume growth is 3.1% and the pricing went up by 1.6%, mainly because of the cost currency moves. In constant currency, the pricing went up by 0.5%. This quarter the rupee appreciated by 3.5%. The average rate for last quarter was 46.48; it was 44.83 for the quarter. So, there was appreciation of 3.5%, which impacted the margin by close to 1.5%, 1.6%, but due to the pricing going up by 1.6% that impact had been offset. So, the gross margin came out similar to what we have seen in the second quarter. Even the operating margin remained at the same level at 30.2%. The other income was slightly up because the yield has gone up during the quarter. The effective yield we got for the current quarter was 6.8%. We have a hedging position of $587 million. We have seen the cross currencies moving again this quarter and we are continuing with our program of hedging up to next two quarters at any point of time; we are not changing that policy. During the current quarter the Australian dollar appreciated against U.S. dollar by around 9%, euro appreciated by 5%, and GBP appreciated by 2%. Net-net, the effective tax rate for the quarter went up to 27%. For the nine months, it is around 26.5%. The tax rates slightly up during the current quarter, mainly because of the increase in other income. Otherwise, for the full year, it could be closer to 26.5%. We had guided for 1% to 2% growth for next quarter, because typically, the third and fourth quarter are soft quarters for us. And looking at the environment, we want to be cautious. Our guidance for EPS is almost same as what we have seen in the third quarter, I think it is increasing by only $0.01. We started the year with 16% to 18% growth in revenues, now we are guiding for 26% growth in revenues for the higher end. So, I think we have done well. The things have improved from the beginning, but looking at the environment, we want to be cautious. If you look at all the budgets from the clients, most of them happened on time, and most of them are talking about a flat to slightly increase in budget. So, looking at all that, we are optimistic about next year, but we are challenged in the near-term because of uncertainty. With this, I will conclude. Now, we'll open up the floor for questions.

(Operator instructions) Our first question is from the line of Joseph Foresi of Janney Montgomery Scott. Please go ahead.

Hi, gentlemen. My first question here is, just on the IT budgets, I think you talked about the budget cycle being maybe more normalized next year. Does that mean that your visibility will increase and would the derivative from that be an increase in discretionary spending? I am just trying to get a little color on what '11 budgets look like?

Yes. We will have normal visibility. See, typically, we have for the next quarter almost 95%, 96% visibility, for the next four quarters, 65% to 70% visibility. That's the model we use to compute our guidance and things like that. Our guidance is a bottom-up computation. We know from each of our clients what are their budgets and what they propose to spend with us. About 4% to 5% is new business, that is, from customers we don't have it today, new customers that come in. So, we have a way of building up the model bottom up, with this particular visibility and things like that and that's the model we use. To your second question, yes, discretionary spend is clearly back. We have seen, one, discretionary spend come back. We've had Transformation projects, large programs, multiyear rollouts and things like that. Second, we are seeing investment in technologies like cloud and things like that. So, again, to me that is discretionary spend. Third, we are also seeing large deals back on the table. Of course, this quarter we have had some small amount of wins, but typically towards the end of the year, you don't sanction any large project. But if you look at the last three quarters, we have had 10 large deals, few of them $100 million and plus. So, large deals are back on table. These are – of course, 40 new clients added this quarter, 27 last quarter. Out of this 40, several of them are actually Fortune 500 or Global 1000. So, a good indicator to say that we are in a normal environment.

Okay. And just maybe you can help us reconcile, the headcount guidance had gone up, but it seems like your expectations is that discretionary spending coming back and the large deals coming back, that the environment will be better next year. Maybe you could just help us reconcile sort of what we saw this quarter and the headcount guidances and your positive commentary going forward?

Our headcount guidance is for this fiscal, the fiscal, which ends on March 31, 2011. We said at the beginning of the year, we will hire 25,000 people. We are ending the year, which is March 31st, hiring 40,000 people. So, we've gone up significantly from what we said we will start at the beginning of the year. Also, for the next year, we are proposing to offer 25,000 in the campuses. Already about 20,000 have been already offered. So, we will give you the number for next year in April, but it's an indication that we are looking at growth in the next year or so.

Okay. And just my last question here just on pricing, it looks like it's been going up over the last couple of quarters, and your margin guidance annually has been improving. May be you could just talk a little bit about the trend in pricing you're expecting next year, and then anything on the margin side. Thanks.

Again, I will give you our current position on pricing. We believe pricing will be flat and it's stable. Having said that, we have been able to get some price increases in certain cases, which we believe is positive, because, again, clients are willing to consider price increases. We have been able to get some price increases and that has also had positive impact this quarter. Out of the revenue per employee increase of 1.6%, if you take it in constant currency terms, it's only 0.5%, but that is based on rate increases also.

Thank you.

Thank you, Mr. Foresi. Our next question is from the line of Moshe Katri of Cowen and Company. Please go ahead.

Thanks. Kris, you're talking about a normal growth here next year for the industry. Can you kind of define what normal kind of means in terms of numbers? And then given some of the deceleration in revenue growth metrics we've seen whether it's North America and Europe and also on the service line and package implementation, was there anything unusual in the demand picture for the quarter? Thanks.

So, Moshe, when you look at what NASSCOM came up with about a year or so back, they said that the industry will grow approximately 11% compounded over a 10-year period 2010 to 2020. The industry in the last one year has been growing around mid-teens, 15%. So, when I say a normal year, I'm assuming that the industry would grow at around 15% – mid-teens, maybe high-teens actually. So, that's the range that I'm looking at when I say normal year for the industry. Now, what percentage will Infosys get out of that, we will give you that guidance in April. In the past we have been able to capture growth, and try and grow beyond industry average, but we will see. Even based on, as you said, where we are today, the momentum, et cetera, we'll give you a guidance in April for next year. Then the second part of the question is, why I believe it's – and I gave you data points in terms of number of customer wins, the number of large deals, number of – the growth in top 25, rest of the pack, various data points we have, which, again, point to a normal year for next year for us.

Okay. And what about some of the deceleration and the revenue growth metrics you've seen for the quarter, North America was up 4%, the quarter ago it was up 8%. We've seen a deceleration, a kind of similar deceleration in Europe. We've seen some of those trends also by service line. Was there anything unusual in the demand picture during the quarter or this is purely related to just seasonality?

Partly, seasonality, number of working days, one working day less, we had some client closures based on holidays between December 21st to January 1st. We had projected only 4% growth this quarter. So, some of those things. Also our utilization has been high for two, three quarters now, more than 80%. Actually that will have an impact on growth at some point, because our inability to start the projects right, et cetera. So, we have taken action. At the end of the quarter, actually, the utilization was closer to 78%. So, we have considered all these factors.

Okay. That’s fair enough. Thank you.

Thank you, Mr. Katri. Our next question is from the line of Shashi Bhushan of Prabhudas Lilladher. Please go ahead.

Yes. Thanks for taking my question. I wanted to ask, is there any change in IT budget spend by our top 20 clients in calendar '10, including budgetary flush compared to what they are budgeting for calendar year '11?

What I will do is, I will ask Ashok who handles the largest portfolio from an industry perspective to comment and that will give you an indication of what we see in retail, manufacturing, et cetera.

Yes, hi, this is Ashok. So, from a budgetary perspective, overall, the budgets are slightly higher than where they were last year. Of course, the interesting thing is that for our top accounts as well as on an average basis, the commentary that we are hearing is that CapEx will actually go up, which is from a services perspective is good news, but on a deferred basis it will take – there is a phase lag between that investment and the translation to services. The other is that the offshoring component again has been validated to that – that it will be higher, so they have ratified that. There is an expectation of continuing to essentially use the budget in the same fashion that it was done in the previous year. So, of course, having a budget is one thing, getting it on time is one thing, but the spending is a completely different matter altogether. And so that will be, we understand, will be done in the same way as last year, as FY'10 in terms of the discipline, et cetera. So, basically from what we hear, our large accounts, our top 20 accounts and on the average for the sector in the North American market, across industries, this is essentially how it looks.

Also, earlier in the conference call, we said that because of some customer closure between Christmas and New Year, we have some man-days loss and also because of one day lower working days we lost out some part of revenue. However, for the next quarter, we are guiding for 1% to 2% quarter-on-quarter growth, which means if we adjust for these holidays, we are guiding for nearly muted quarter four FY '11. Any specific reasons for such softness in the demand all of a sudden?

See, historically, Q3 and Q4 are slow quarters for us. Q3, because of the holidays, Q4 because the timing of the spend after the budgets are finalized is very, very important. And we have seen that sometimes they take a little bit of time before the spending starts, and that's why our Q1 of the next fiscal and Q2 of the next fiscal are actually much better quarters, and then Q3 and Q4 muted. That's the historical data we have. So, that's the reason why we are cautious about Q4.

Okay, sir. That’s all from me, sir. Thank you.

Thank you. Our next question is from the line of Joseph Vafi of Jefferies. Please go ahead.

Hi, gentlemen, good evening. I was wondering if we could get a little more color on your commentary around the percentage of budget going for offshore increasing in calendar '11, the types of potential projects where you could see a positive mix shift, and any other color you want to provide there?

So, as we said, majority of the budgets have closed and they are either flat or marginally up, which means on an average it is marginally up. We are also seeing continued interest in Global Delivery Model. Most of our clients have told us that they will continue to increase their spend and activity with us. We also believe that there is a reason to spend for our clients. So, if you look at the banking and capital markets space there is risk and compliance, which will drive discretionary spend. If you look at manufacturing, it is about efficiency, building a smarter organization and productivity improvements. If you look at retail, it is about the digital consumer and the new consumer experience. If you look at telecom, there is a regulatory change, which is coming through of Net neutrality, which will mean that the industry has to spend. And all of these transformations, whether it is risk and compliance, whether it is digital consumer, smarter organization, it will require services starting from consulting all the way to implementation. So, that gives us confidence at this point that the budget will be spent and we stand a very fair chance of getting a very good share of this spend.

Okay. And then secondly, it sounded like Finacle was pretty strong. What's driving that exactly now, is it better penetration of the product, is it perhaps a better demand environment coming from banks, some more color there would be appreciated as well?

So, this is Haragopal. Yes, in a way, there are two drivers to the growth s we see. One is our Transformation capability as a differentiator is being acknowledged in the market, particularly in the segment two, in regional segment one banks. And so we are scoring there and there is good growth there. Second, as an Innovation partner, the initiatives, which we have taken, and the solutions, which we launched, including the one like, mobile banking and the direct banking, and rural banking suite, et cetera, are well received in the market and we are seeing the growth on that dimension as well.

Thank you.

Thank you, Mr. Vafi. Our next question is from the line of Mark Zgutowicz of Piper Jaffray. Please go ahead.

Thank you. Just a question on the mix of your hiring plans, it looks like last couple of quarters laterals have been higher than normal and I'm just curious what that trajectory looks like entering FY'11? And if we assume higher wages and attrition is supported by more stable environment over that period, I'm just curious how the mix of freshers and laterals look, meaning, do we have to see a continued up-trend in terms of freshers as a overall percentage of your mix higher than we've seen just over the last few quarters? Thanks

Last year has been very unique for the fresher-lateral ratio, because we started with 30,000 people, and we anticipated that we could add 70% freshers, but as the year went by, we had a higher attrition and we increased the number to 40,000. So, the fresher-lateral ratio was very different. Out of 40,000 people, we're probably hiring about close to 10,000 for the BPO. That means 30,000 for services. Out of 30,000, we're going to have a fresher ratio of something like 50%. 50% is going to be lateral. And for next year, hopefully, the fresher ratio to go close to 60% to 65%, because we have enough time to plan for next year and for next year we're making 26,000 offers in colleges, which should translate into something like maybe 18,000 to 20,000 coming in from the fresher side for next year. We don't have a number for the full of next year, because we give a number in April, but certainly for next year the ratio of fresher to lateral should go up in favor of freshers. Also, I'd say, going up the value chain, we could see increasing hiring of laterals for the consulting and enterprise solutions level.

Okay. That’s helpful. Thanks very much.

Thank you. Our next question is from the line of David Grossman of Stifel Nicolaus. Please go ahead.

Thank you. I was wondering if we can go back just the pricing for a minute. Just looking at it over the last several quarters, it appears that this is the first sequential increase in offshore constant currency pricing that we have had in several quarters, perhaps as many as eight or nine. Is there anything you can tell us what may be changing in the environment that's maybe driving that and any other insights into perhaps what may be going on in the employment front and some of these (inaudible) or wage increases that maybe impacting pricing?

So, pricing went up by 3% last quarter and 1.6% this quarter. Last quarter, majority of the pricing was driven by portfolio shift because when we do more of transformational work, the average revenue productivity goes up and even when we do more of consulting – if you do the advisory services work, the per person revenue productivity is higher. So, it was driven by that. Even this quarter, there is – we've had some pricing increases, some of the yearly COLA, the yearly pricing increases have kicked in now, and that is showing up slowly in our revenue productivity. Even this quarter, our consulting revenue has considerably gone up. So that also has contributed towards it. Now, regarding the compensation increase, we have done some very strong compensation increase over the last 18 months or so. We expect the compensation increase to be moderate in the coming year, but according to the industry standard.

Okay. So, again, just looking at the offshore constant currency increase in revenue productivity, is it fair to assume that a big chunk of that is related to the wage increases or is it all these other factors that you mentioned being the primary driver? S. D. Shibulal: David, it is not related to the wage increase. Of course, we can say that costs are going up, but we have to look at individual contracts. This cost of living increase is actually a contractual term. It's built into our contracts, and sometimes, the client allows us to activate that or allows us to increase. Sometimes, they will come back and negotiate and say, don't increase it. So, we were able to get those increases – some of those increases this year and that has helped us.

Okay. And then, secondly, Kris, I think in your opening comments, I think you said that attrition was moderating. And as I recall the number that you've put in your release is an LTM number. So, can you give us a sense just quarterly what the attrition rates have looked like and how they have trended over the course of the year?

So, on the services business side, the attrition in the last three quarters, including this quarter – this quarter's attrition number, absolute number is around 3,500. 4,200 is last quarter and the previous quarter was 5,400. So, 5,400, 4,200, 3,500, so you can see that it is actually coming down.

I got it. Great. Thanks very much.

Thank you, Mr. Grossman. Our next question is from the line of Trip Chowdhry of Global Equities Research. Please go ahead.

Thank you and congratulations on a very good execution. First, the impact of higher oil prices on your business, if you look two years back, oil was at $34 a barrel and today it is $90 a barrel. We are in a very high global inflation environment and our research has historically said – indicated that higher oil prices have a second derivative impact on IT budgets. And I am not – I will not be surprised if over the next six months, even through currently the IT budgets seem to be the same as before or probably a little higher, it doesn't take much time for IT budgets to just collapse. What my question is, are you seeing any symptoms, any difference in the way customer is engaging you, which may indicate possible collapse of IT budgets? For example, are they asking you to write more documentation that is relatively more documentation of the work that you may do or spending more time relatively on say, planning processes or asking you to shrink your large implementation into very, very small chunks, with a definite start-date and a definite end-date or anything you're seeing, which is little bit different or unexpected from the customer than before, that’s all for me?

Very, very interesting analysis, maybe I should get a copy of this, because the correlation you're creating is actually very, very interesting and first time, I'm actually hearing that. But strangely enough, some of the things you've talked about, customers looking at the return on investment, doing detailed planning, sometimes taking a large Transformation project into smaller chunks, six months period and things like that, the multi-year, multi-million dollar projects broken into smaller chunks, many of these things are happening. But we attribute that to the environment in which we are. We have just come out of a downturn, customers are still conscious about cost. They're unwilling to make long-term investments at this point or long-term commitments, not investments, long-term commitments at this point. They want to make sure that they're getting returns in short periods or they get benefits in shorter periods of time and things like that. So, many of the things you said, we are seeing, but we attribute that to the environment in which we are. The overhang from the downturn is still there, there is still uncertainty in the environment. We, of course, did not connect this with the oil price. It will be interesting to maybe get a detailed analysis of that. That will be a very interesting study.

Thank you.

Thank you, Mr. Chowdhry. Our next question is from the line of Nabil Elsheshai of Pacific Crest.

Hi, guys. Thanks for taking my question. So, previously, telcos have been weak, it looks like. I think you had commented last quarter there were signs of it improving, but that obviously hasn't materialized. So, could you talk a little bit more about what you're seeing in that vertical? And then you mentioned Net neutrality potentially driving spend. I was hoping you could maybe provide a little more color on that comment.

Yes, hi, this is Subhash Dhar. You are right. I think our expectations in calendar year 2010 was that telco would bounce back, but apparently they did not and it was a surprise for us also, but if you look at what happened with this – the big debate around Net neutrality and why I pick on that is because telcos have been very clear that they don't see any monetization opportunities for their investments and they have been holding back on their CapEx among other reasons. This is one of the biggest reasons they have been holding back. This is not just in the U.S., it's there in most developed countries, where the net is seen as an area where they cannot price differently. So, that has come to an interesting point at the end of December when the FCC actually ruled that there is a limited authority now for the telcos to charge differently for the usage and charge based on the usage for the kind of data that gets transported over the network. That by itself is not enough for them to get new revenue streams. They will also have to develop new revenue models, new services and so on, but from a regulatory perspective, I think it's a big relief. So, once again, I think in 2011, I am more optimistic and so are many other industry people like me, but we'll see. I mean, there are a few other things, which need to come and fall in place over the next one or two months, especially the budgets, as they get finalized, will determine – especially, the CapEx budgets will tell us whether or not this has encouraged the phone companies to spend more, and not just phone companies, also the cable guys. And if that happens, we believe it will be a couple of quarters down the road when the OpEx will open up to support that CapEx, which is when we will see our spends coming in. Having said that, we are already seeing some more up-take on the wireless side, as the wireless industry is maturing. Their behaviors are becoming similar to the wireline industry, because they have need for efficiencies and cost containment and so on. Although it's just a few big large ones that are taking to the Global Delivery Model at this point, but it is an increasing trend, especially in Europe. Not sure if I answered your question, but that's where we are.

Yes, it’s helpful. Thank you. I was wondering, and I apologize if I missed this earlier, but on the price increases, I was wondering if you could clarify if that improvement is due to mix, maybe more shift to discretionary or application development versus maintenance or if it’s like-for-like price increase that you are seeing?

So, last quarter was about business mix change. This quarter was actually in our contracts, we have cost of living increase – yearly cost of living increase included. So, some customers allowed us to take advantage of that. And so automatically the rates went down and that's what is reflected.

And then last question. I guess, by each vertical you commented that the high level reasons for continuing to spend, maybe if you could provide a little more color, particularly in your largest ones like financial services on what project priorities, what are the highest priorities in terms of technology or application that you are seeing in those verticals?

So, in financial services across the board, especially in the American market we are continuing to see M&A spending that is continuing. We're seeing a lot more traction build up on operational efficiency, which has moved now from just cost-cutting to making the client more competitive, so, it's actually more investment on the revenue side of the balance sheet. And the one thing that is different that we're seeing traction on and expect to see a lot more of, going forward is on three items, one is fraud prevention; the second is risk management and the third and probably one of the largest that we will see for a while is the entire area of regulatory compliance. So, whether it's in the area of the new technology implications or the implications for the business arising from Dodd-Frank or whether it is from Basel III or FSA regulations, et cetera, we are seeing – beginning to see traction in conversations, and we do believe that that will be as big for us as M&A was in the last 18 months.

Thank you, sir. The current participant is no longer in the question queue. We will take the next question, which is from the line of Mitali Ghosh of Merrill Lynch. Please go ahead. Ms. Mitali Ghosh, your line is now unmuted. If you have a question, please go ahead now. There is no response from the line of this participant. Our next question is from the line of Ed Caso of Wells Fargo. Please go ahead.

Good evening. I was wondering if you could talk a little bit about your business process management area, particularly what types of service are of interest, say financing accounting or what verticals are showing the most growth? And also sort of where are the margins in this group now and where could they go? Thank you.

Hi, Swami here. Yes, we've had a fairly good quarter. The third quarter we grew about 7% over the previous one, and on a year-on-year basis, around 23%. The demand continues to be reasonably strong in the last two quarters. As we speak, we are in dialog with about six odd prospective clients with whom we believe we should be able to close our contracts in the next quarter. Having said that, the margins have also had a uptick in the sense that we have been able to move our margins up by a three percentage points on quarter-on-quarter. Basically, the growth is coming in from a couple of industry verticals, which is really in the manufacturing vertical and also on the BFSI space. On the horizontal service offerings, we are seeing fairly strong growth in the financing and accounting area and as well as on the sourcing and procurement side, which includes strategic sourcing as well. Very clearly the expectations of clients have moved on. It's moved on from depending on transcational processing to a much higher value-added services. And you would see that in the last quarter, though we have had a revenue growth of 7% the headcount has actually come down by three percentage points. And that is really because of the fact that the revenue productivity per employee in this business it has steadily gone up, and as we speak, revenue productivity on a quarter-on-quarter basis has also gone up by about 5%. The reason for this is really about our having migrated in fairly good numbers from the routine commoditized services to high end value-added services in the financing and accounting space, for instance moving away, not just moving away, but also extending say from a traditional account receivable or an account payable to the full – the whole nine yards of general ledger accounting, fixed assets, and also in terms of analytics and CFA reporting and analytics. So, that's clearly the move that we're seeing in the marketplace at this point in time. We had also become fairly globalized in a sense as we speak today we have more centers outside of India than in India. In India, we have five centers, outside of India, we have seven as we speak. The new centers that we established in China, Mexico and Brazil last year have seen fair amount of growth from companies and multinationals who are operating in those territories. That obviously has enabled us to see a fair amount of growth in areas outside of India. Very clearly the better utilization, operating efficiencies, scaling up on value-added services has really led to the kind of growth that we are seeing. And we believe that this focus and this expectations of clients to sort of move from pure play commoditized services to a consolidated IT BPO service offering, specialized platforms that we have been able to rollout in the last couple of quarters is enabling us to move both on the revenue productivity side, on the margin side, and also on the growth side.

Thank you. My other question revolves around the resetting of the pyramid. You mentioned that you thought utilization was a little high at the moment. You hope to bring that down a little bit. Will the sort of the filling in with more freshers and therefore resetting the pyramid, will that be sufficient to offset from a margin perspective the desire to bring utilization down little bit?

The line was not very clear. Kindly repeat the question.

Yes. Kris, you mentioned the desire to reduce utilization from current levels. And I guess my question is, will the addition of freshers and a sort of a resetting of your consulting pyramid, is that sufficient enough of an offset for us to continue to assume that your operating margins can stay right around 30%?

We have traditionally operated between 78% to 80%. And we have been able to achieve the margins in that range, that's number one. Number two, higher utilization, above 80%, reduces our ability to staff programs on time or even to bid very confidently for very large and very fast ramp up programs, so we need that. And please also remember, when we say our utilization is 82%, there is only 8% left, because the 10% goes in the leave, travel, training, recreation, customer closures, all kinds of other things, holidays, so it's only 8% which is kind of small. So to answer the question we have comfortably operated between 70% to 80% in the past; that's number one. Number two, see if you look at the utilization including trainees, it's 71%, so cost of those people are already in the system. It is that they are in training and once they come out the utilization will come down. So, the people are already in the system even today. We have 11,000 people in training and that is what – the trainees once they come into the production, the utilization excluding trainees will come down. So, the point I wanted to try and make is that the cost is already there.

Okay. Thank you.

Thank you, Mr. Caso. Our next question is from the line Bhavan Suri with William Blair and Company. Please go ahead.

Hi, guys. Just a quick question on the non-linear initiatives. Obviously, Finacle had a nice move in its 5% revenue. If you combine that or broke out the non-linear initiatives, could you tell us sort of how they are growing and what percent of revenue they contribute?

Yes. So, we break it down into three broad areas. One is, the intellectual property where we will include Finacle, then the platforms and products, other products, and then the third area is, what we call unit of work based pricing models, which is a large services business. Finacle will be approximately four percentage points out of the 10 percentage, but that 10% of our revenues that we talk about in our non-linearity. The rest of the 6% is coming from the unit of work, about 4.5% will be coming from unit of work based pricing, about 1.5% comes from the other intellectual properties and business platforms.

And then, Subhash, what sort of platforms are you seeing traction, and you've had Hire-to-Retire out there for a while, you've had Flypp there for a while, you've had the Newspaper-In-A-Box, sort of any color on how adoption is going and sort of customer traction in those?

Yes, I think the platforms will – I would call them filling the incubation phase in spite of the fact that we do have quite a few customers, because there is a larger roadmap which needs to be in place. We need to dig deeper in order to make more sales in the markets. So, at this point, I don't think we are counting the revenues significantly within that 10 percentage points. One of the biggest contributor is, the unit of work and some of the license revenues that we are getting from other intellectual properties that we have built over time. We think FY'12 would probably be our first significant year for the platforms to start notching up noticeable revenues.

Okay. And with that, is the margin on the platforms similar to Finacle where it's better than the services business and so could that help to offset some of the headwinds you face?

The margins right now are in the development phase. And I think when they become mature, they should be, let us say, ahead of the services business, that's our expectation, because right now there are four clients who have gone live and two of them are in their development phase, they have just gone live maybe a quarter ago, and it has to come to full utilization when we will begin to see margins. Our anticipated margin right now is as per our budget.

Okay. Great. Thanks, guys.

Thank you, Mr. Suri. Our next question is from the line of Anthony Miller of TechMarketView. Please go ahead.

Yes, good evening, gentlemen. I'd just like to understand better what was dragging back growth in Europe, because if I looked at the Q2 sequential growth, Europe kind of led the pack? But in quarter three just gone, European growth rather lagged the other geographies. What was the reason for those changes?

Europe last quarter was $325 million versus $346 million, 6.3% growth. So, Europe is growing, but as a percentage it's in line at this point, but when you look at what is driving it, it is proactive investment is what is helping us at this point. Even though we find that Europe is lagging behind U.S., by proactive investment we are actually trying to increase the traction in Europe. Does that answer the question?

Not entirely. First I would like to understand what you mean by proactive investments. And perhaps you could highlight if there are any major differences between your major country markets in Europe?

Yes. So, naturally U.K. is the largest market, because it is easier for us to work or do business in U.K. because of the English language. France, Germany, other countries in Europe require us to invest in recruiting local talent so that we can interact with clients in the local language, and things like that, which we are doing now. We are investing significant headcount in France, Germany, et cetera, and that's the proactive investment I said. In continental Europe, Belgium, the Nordic countries, France, Germany, Switzerland, these are some of the markets we are proactively investing at this point. In Nordic countries, again, we are able to support from India, but for France and Germany, et cetera, we are able to support provided we have a local front-end.

Okay. And just finally, when would you expect then growth in the European markets to be roughly in line with growth in the U.S. markets?

Our goal ultimately is that Europe should grow faster than U.S. We want to kind of have a balanced portfolio from a geographic perspective. So, long-term actually, we want to grow Europe faster, and that is the reason for proactive investment into Europe. Europe as a market is as large as U.S., as a country – as a region, it's as large as U.S. as a country, and so proactively, we're investing, so that we can take a better percentage of that market.

Okay. So, that will be organic growth or inorganic?

So, currently all our models, our guidance, et cetera, assume organic growth. Proactively, we are looking at acquisitions in Continental Europe that is our strategy to accelerate the growth in these markets, but we have very strict parameters for acquisition. We want to acquire the right company at the right price and with the right set of services and right fit, et cetera. We should be able to integrate the people, retain the people. So, because of that, you will find that there is probably some challenge or let me say, we're cautious about acquisitions because history has shown that 70% of the acquisitions do not deliver the value they are supposed to deliver. So, we're actually little bit cautious about acquisitions.

Thank you very much indeed.

Thank you, Mr. Miller. Ladies and gentlemen, that was the last question. I now hand the conference over to the management to add closing comments.

So, thank you all very much. Really appreciate all the questions and your participation in this call. Our investment relationship managers are available. We are also available for any calls, any discussions during the quarter and looking forward to interacting with you during the quarter or as part of next quarter's results. Thank you again.

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