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.

Thanks, Karuna. Hello, everyone, and welcome to Infosys’ earnings call to discuss Q3 FY19 earnings release. Let me start by wishing everyone a very happy New Year. This is Sandeep from the Investor Relations team in Bangalore. Joining us today on this call is CEO and MD, Mr. Salil Parekh; COO, Mr. Pravin Rao; Interim CFO, Mr. Jayesh Sanghrajka; Presidents and other members of the senior management team. We’ll start the call with some remarks on the performance of the Company during the quarter by Mr. Parekh, followed by comments by Mr. Pravin Rao and Jayesh, subsequent to which we’ll open up the call for questions. Please note that anything which 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’d now like to pass it on to Mr. Salil Parekh.

Thanks Sandeep and good evening and good morning everyone on the call. Wish you a very happy New Year. We had a strong performance in Q3 with 2.7% sequential growth in constant currency terms and 2.2% growth in reported terms. The revenue growth year-over-year is 10.1% in constant currency. This is a reflection of a unwavering focus and the needs of our clients and the clients’ trust in Infosys. Digital revenues had another good quarter with 5% sequential growth and 33.1% year-on-year growth in constant currency terms. Our core services had a robust performance this quarter with 1.8% sequential growth in constant currency terms. In terms of geography, North America had a growth of 2.6% sequentially, 8.7% year-on-year; Europe 3.8% sequentially, 9.8% year-on-year, all of this in constant currency terms. We saw a strong growth in our business segments, to give you a few examples, in financial services 3.6% sequentially, 9.4% year-on-year; energy, utilities resources and services, 7.4% sequential, 17.3% year-on-year; manufacturing 7.6% sequentially, 16.2% year-on-year, all in constant currency. Once again, we saw a good momentum in large deal signing. We had $1.57 billion in that in Q3, which was a good trend over the past three quarters, stemming from our increased investment in sales and a clear focus on the portfolio that supports our clients. Operating margins were at 22.6% in Q3. This included a continuing investment trajectory in sales, localization, agile and re-skilling that we've indicated from the start of the year. It also included a catch up in compensation, all of this is as per our plan and remains a very strong focus for us as we reorient what we are driving in the future portfolio of the Company. It also includes an additional charge and the impact of acquisitions. Jayesh will cover more details on the operating margin during his comments. Attrition declined by 2 points this quarter. We’re continuing on the path of increased employee engagement. Our subsidiaries Panaya and Skava, based on evaluation of proposals received and progress of negotiations with potential buyers, we concluded that it is no longer highly probable that sale would be completed by March 31, 2019. We now plan to repurpose Skava’s business and refocus Panaya’s suite of products. Earlier in the year I talked about our three-year roadmap. While the results so far are encouraging, these are still early days and we are focused on executing on our three-year plan. There are macro level concerns in the environment but we have not seen as of now clients alter their spending plans or trajectory. We’re keeping a close watch on external developments and simultaneously focused on steadfast execution of our plans. Our broad suite of digital services and these client relationships and strong deals wins give us confidence as we head into the New Year of 2019. With the strong performance during the year, we're revising our full year revenue guidance -- revenue growth guidance to 8.5% to 9% in constant currency terms. We retain our operating margin guidance of 22% to 24% for the full year. With that, I will request Pravin to give detail on the business segments and other key areas.

Thanks, Salil. Hello, everyone. Let me extend my wishes to everyone for a great 2019 ahead. We had broad-based momentum during the quarter, which led to year-on-year growth crossing 10% in constant currency terms at overall level and also for retail, energy, utilities resources, and services, manufacturing and hi-tech at the company’s level. Volume grew 2.6%, which is good considering that quarter three is a seasonally weak quarter. Client additions were particularly strong with 101 new client additions partly aided by Fluido acquisition. Top client metrics were stable during the quarter. Attrition, which has been an important area of our focus declined by 2.1% to 17.8% at the standalone level and 2.3% to 19.9% at the group level. Gross addition of employees was over 18,500 in quarter three, almost similar to quarter two level. Employee count at the end of the quarter was over 225,000. We had 14 large deals during the quarter with the PPE of near $1.57 billion. 7 deals were in Americas, 3 in Europe, and 1 in rest of the world. Vertical wise, 4 deals which were in FSI and manufacturing; 2 in communications and 1 is in retail, life sciences, EURS and other business segments. Planned budgets for 2019 are progressing as per normal timeline in most large verticals. Overall budgets are expected to be flattish with higher allocation towards newer areas focused on same business segment. Now, let me give some color on the various business segments. Financial services sector continued to grow on the back of sustained momentum in client spend and the ramp up of previous wins. We are seeing momentum in new account acquisitions and the expansion of accounts opened recently. Growth in Americas was driven by robust deal wins and market share gains in our top accounts. However, Europe performance was weaker in the last quarter, primarily due to impact of the loans. Clients continue to increase spend in digital, analytics, cloud, cybersecurity and other new technology domains. Sequential performance in retail segment was affected by Q3 weakness. Our increasing focus on digital transformation with deals in sub-segments of CPG, transportation, logistics, apparel, consumer tech et cetera is resulting in steady increase in deal wins and deal pipeline. We are seeing increased client interest in cybersecurity, cloud, analytics, retail store ops, and infrastructure outsourcing. Clients are countering the Amazon effect by implementing multiple strategies focusing on customer experience and convenience. Communication sector remains under pressure with the sector specific headwinds. However that also opens up new opportunities for outsourcing to improve efficiency and reduce costs. Our performance remained relatively stable even in a seasonally weak quarter due to ramp up of previous deals wins, and we expect further momentum in the coming quarters. We are seeing increased interest in areas like cybersecurity, customer experience, IT, analytics, cloud computing, et cetera. Energy, utility, resource, and services segment continued its strong momentum with ramp-up in the previous deal wins and thus led by utilities in Europe and services in America. While energy and resources segments are feeling the pinch of lower oil and commodity prices, our growth was supported by strong client spend. Customer service and digital experience transformation remains the top agenda for utilities sector along with focus on cloud migration, RPA, digitization of legacy systems and smart grid. Energy companies continue to invest in IoT, RPA and digital context to enhance efficiency and reduce costs. We had strong growth in the manufacturing segment despite seasonality. The spending is being directed towards digital, e-commerce, analytics, cloud. Also companies are focused towards investment in autonomous technology, electric vehicle technologies and green initiative. Aerospace and defense companies are optimally spending in core areas while industrial manufacturing companies are spending towards integration of digital platform, modernization of legacy systems and IoT. We have a healthy pipeline of deals and newer contract wins across geographies. Life sciences performance remained flattish due to seasonal factor and weakness select key plans, health care witnessed stronger performance. Coming to digital, we’re seeing good traction in our digital strategy. And this portfolio is progressively consuming larger share of overall revenue. Digital is already growing at a faster rate across client verticals and geographies. We’re accelerating our digital journey through focused investments in learning [indiscernible] and by building a team of digital strategists. We have been rated as leaders in many of the services across the digital pentagon in recent analyst ratings, which is a testimony for the quality and the overall offerings. With this, I’ll pass on to Jayesh.

Thank you, Pravin. Hello, everyone. Wish you all a very happy New Year. Let me start by giving few highlights for the quarter three. During the quarter, we had strong sequential revenue growth of 2.7% in constant currency terms and 2.2% in reported terms. This is also the highest sequential growth in Q3 in last six years, driven by growth in all geos and most business segments. Our year-on-year growth in constant currency terms crossed 10% after 10 quarters. Operating parameters in Q3 were healthy. Utilization excluding trainees was at 83.8% compared to 85.6% in Q2. The drop in utilization is mainly on account of furloughs. Revenue productivity per employee was stable sequentially despite furloughs. Onsite mix improved by 30 basis points to 28.7% as a result of deal won in recent quarters. We had another quarter of solid large deal wins of $1.6 billion, which took the total for nine months to $4.7 billion. This is more than double of $2.2 billion that we won in nine months for FY18. Operating margin in Q3 was 22.6% compared to 23.7% last quarter. During the quarter, drop in utilization and higher onsite mix impacted operating margin by 80 basis points, compensation increases impacted margin by 30 basis points, continued sales investments impacted margin by another 30 basis points and acquisitions impacted margin by 20 basis points. Further, due to the reclassification of Panaya and Skava from assets held for sale, we had an additional depreciation charge of 12 million, impacting margin by 40 basis points, pertaining to nine months when these were held for sale. This was partly offset by benefits of rupee depreciation revenue hedges of 50 basis points and benefit of lower lead cost and reduction in other expenses of 40 basis points, resulting in 1.1% decline in operating margin over Q2. Operating margins for nine months were at 23.3%, which is the upper half of the FY19 guidance of 23 to 24%. Q3 witnessed significant currency volatility with rupee depreciating by 1.6% against U.S. dollar on quarter average basis, but appreciating by 3.7% on a period-end basis. Our effective hedging program ensures that we have consecutive quarter of gains in operating -- non-operating income. We had a hedge book $2.1 billion at the end of the quarter. Yield on other income was 7.81% in Q3 as compared to 7.53% in Q2. DSO for quarter stood at 67 days compared to 66 days in Q2 and 70 days in Q3 of last year. Cash generation in Q3 continued to be strong with operating cash flows at $610 million and free cash flows at $534 million. Operating cash flow for the first nine months were at $1,679 million and free cash flows were $1,446 million. Cash generation for the nine months have declined compared to the same period last year, mainly an account of lower interest income as a result of $2 billion share buyback concluded in December 2017. Let me now come to capital allocation. In April 2018, we had announced distribution of 13,000 crore to investors for FY19 out of the cash and balance sheet. Out of this, we had already paid out 2,633 crore through special dividend in June 2018. Out of the remaining 10,357 crore, the Board has recommended a buyback of 8,260 crore at a maximum buyback price out of Rs. 800 per share. The balance amount of approximately 2,100 crore will be paid as special dividend amounting to dividend per share of Rs. 4. Turning to guidance, driven by better than expected 8.1% in constant currency growth in the first nine months of the year, compared to nine months of FY18, we have revised FY19 guidance to 8.5% to 9% in constant currency terms. We are maintaining our FY19 operating margin guidance at 22% to 24%. We expect Q4 operating margin to be impacted due to rupee appreciation, targeted communication correction, continued investment in business, and initial margin impact to transition and impact of recently won deals. With that, we’ll open the floor for questions.

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Edward Caso from Wells Fargo. Please go ahead.

Good evening. Thank you for taking my call. Two questions. One, if you could update us on your localization efforts, how far are you along? Have you increased, decreased your targets, now that you have some experience rolling out the new facilities? And my other question is, if you could just give us more color on the Skava, Panaya moves, what changed, what are the plans going forward? Thank you.

Hi. This is Ravi. I am going to take the question on localization. So, we’re on track to what we said in May of 2017. We said we’re going to hire 10,000 U.S. jobs. We have pretty much done 7,600 plus. So, we opened the five hubs now. We announced the six of them and we’ve opened five of them. And we've hired 2,000 plus school grads, campus hires. So, it's all on track. We've not changed our original estimate which we have set for. So, this is going pretty well. And a lot of learning in the last 18 months or so has been essentially on track because we have to get them on-board, get on campus hires on-board, train them with partnerships, almost like a school and then move them in to live projects. The main thing we have established is to transition work into agile development teams and go to the plan. So that has happened really well as well. So, we are on track on localization. I'm going to hand over for the second question to Salil.

Thanks, Ravi. On Panaya and Skava , the approach we've taken, as I said in my statement earlier is as we look at tables we have, we came to the conclusion, it will not be until by March 31, 2019. With that in mind with the accounting guidelines, we’ll classify this outside of assets held for sale. We are now refocusing the work that we do in Skava and we are reorienting the products within Panaya.

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

Just a quick follow-up on Panaya and Skava. Was there a revenue impact from the quarter, now that they’ve been reclassified? And then, the depreciation impact, is that one time, meaning the catch up from prior periods or is this an ongoing expense now, the level you see here?

Hi. This is Jayesh here. There is no additional revenue coming out of Panaya and Skava on account of declassification, revenue from Panaya and Skava which will always be part of our revenue, even though they don't held for sale. So, there is no change there. The depreciation and depreciation on the intangibles, when we hold an asset for sale, we don't really charge depreciation on that, so we have to do a catch up for nine months when these assets are held for sale. And the $12 million or 40 basis points represents the depreciation. That's a one time.

Okay. Thank you for the clarification. And then, I wanted to ask on BFSI. Can you give us details on the banking vertical across key regions for you, the demand drivers and the outlook?

Hi. This is Mohit here. Yes. So, look, I think as is mentioned in the introductory notes, growth was fairly consistent across geographies and across sub verticals. I think, we saw some -- bit of a slowdown in Europe because of some end-of-quarter furloughs. Insurance was very strong; Finacle was extremely strong, right. We had double-digit growth in Finacle. The only place where we’re seeing some sort of a slowdown is already buy side, because of the significant drop in assets under management just in Q3. Otherwise, strong growth across geographies, across sub verticals, and a very significant opportunity for us, especially given Finacle presence as well as a large number of banks across the world look at fundamental business model changes. So, that's it. That's the sort of short summary.

Thank you. The next question is from the line of Abhishek Bhandari from Macquarie. Please go ahead.

Good evening to the team. And wish you a very happy New Year. My question is more around the margin. When the 9 months margin has been 23.4%, we have let the full year guidance unchanged at 22 to 24. That leaves a very wide range for the fourth quarter. I understand you mentioned some of the incremental wage corrections you have to do. But, if you could give us some more color of the reason behind getting such a wide range which is almost 4-percentage-point from the lower end to the higher end.

Hi, Abhishek, this is Jayesh here. We really not change margin guidance every time, in the past as well as. What we will say right now as well is at the beginning of the year we gave a guidance of 22% to 24%. That was after taking into account all the investments and deliveries. The first 9 months of the year is at 23.3% and I’ve already laid out some of the headwinds in terms of competition continued investments and so on, but can't really give a specific guidance for the quarter.

Okay. My second question continuing over here is, Ravi mentioned that you’ve hired close to 7,600 out of targeted 10,000 people in U.S. So, is it fair to assume that bulk of our U.S. investments would probably be done over two or three quarters?

Not really, this is a sustained effort. And as a part of our operating model, we would like to continue hiring in the U.S. from schools, building a training infrastructure around it, and then actually building a natural pyramid onsite as well. So, this is a sustained effort, we want to continue as we go forward.

Thank you. The next question is from the line of Ashish Chopra from Motilal Oswal Securities Limited. Please go ahead.

Hi. Thanks for the opportunity. I wish to -- wanted to get some color on the investments, if Salil you could help. So, what we've seen is that while the localization efforts have been resetting the cost base at a higher level, how should we really think about the operating leverage from some of these investments kicking in? Because when we see the margins, we see a lot of one-offs and we see a lot of investments, but not as much of an impact from coming in from pricing. So, do you see that there’ll have to be a longer gestation before we start seeing a good growth feeding to the margins, or could that happen maybe sometime in a few quarters?

In terms of the investment and then leading into your question, the view on the margins going ahead. First, for the fiscal ‘19, we’ve set out early definitive investment plan. We started tracking to it much better by Q2, and in Q3 we are now very well tracking to those investments. These investments we have planned at that stage for fiscal ‘19. We don’t see that we're going to do incremental investments in fiscal ‘20. We see the benefits on sales and on localization already start to come true as you’ve seen in our sales trajectory and our revenue guidance. For fiscal ‘20, at this stage, we’re not giving any view on what the margin or indeed the revenue outlook is. We have been quite clear that these are investments that bring us in a mode which is building more relevance to our clients now, and that they are not investments that are incremental and that keep happening over a period of time.

Got it. That's helpful. And just one more question from my side. I think Pravin was alluding during the media briefing on the change that is happening in onsite in the form of lower utilization and in the form of pyramid that is in building up. So, if you could just shed some additional color on -- quantitatively how would the utilization rates now compare versus in the past as a result of this exercise?

We have not seen -- in the onsite, we have not seen too much change in the utilization so far. We typically operate, it’s a very high level utilization. My response to the question was around the impact of margins on onsite, my response was primarily on that account I was responding to state that earlier in the -- earlier model relates to the people [ph] compared to onsite, but we were paying the same contracts, [ph] they look alike. So, there is no margin impact because of gaining that. In addition only difference would be if in the earlier model it’s in a slower economy we have the ability to send people back to India during bench time. Whereas in the new model are increasingly reliant on more local hires, probably it will carry a larger benefit. But to build that we’re also building a pyramid onsite and we talk about -- cleared the business with people, we have been able to deploy them at a fairly good utilization. So, as long as we have good growth, I don’t see any impact on utilization, utilization rate remains high onsite.

Thank you. The next question is from the line of Parag Gupta from Morgan Stanley. Please go ahead.

Hi. Good evening, everyone. So, I just had two questions, first one to Salil. Salil, when you talked about your strategy last year and also in your analyst day, you talked about the Company going through the phase of consolidation, stability and then acceleration, and acceleration being in the third year. Now, given the kind of demand environment you’re seeing today, which is also evident from pretty strong deal wins that you've been seeing over the last three quarters, is there a possibility that that acceleration can actually happen faster than you were earlier expecting or would you still hold on to your third year, being the year of acceleration? And a second related question is, you did mention about some sluggishness in Europe, especially in BFSI due to end of quarter furloughs. But, are you also seeing clients holding back on spends or taking longer to make decisions because of what they're seeing in the marketplace or do you think that's not really the case and these spends can actually come back pretty quickly? Thank you.

On the first one, first question, we’re still very much planning to execute on that three-year plan. We're seeing that we've been fortunate to build client trust and build significant views in Q2 and Q3. There is a comprehensive three-year plan, which we’ll go through in a very systematic way to execute upon. So, we stick with that plan in that sense. Of course, as some of the deals have come in Q2, Q3 and we see a good pipeline today for Q4, we’ve raised our revenue guidance for the full-year and fiscal ‘19. Outside of that the focus will remain on making sure that we’re watching out for all of the macro developments as I said in my opening comments as well as entirely we execute upon that three-year plan. For financial services, I request Mohit to give a quick comment on the European point.

Thank you, Salil. So, look, I think on financial services, the only comment that I made was that we saw relative to the very strong performance in the Asia-Pacific region and relative to the very strong performance in the U.S., we saw relative weakness in the Europe portfolio. And that was not because of a drop off in volume or a drop off in orders. That was largely because of some unanticipated furloughs towards the end of the quarter. I don’t expect as of now for this to be a trend for us to see this as a sign of ongoing weakness in Europe.

The next question is from the line of Viju George from JP Morgan. Please go ahead.

Thank you for the opportunity. Happy New Year to the management team. I had a couple of questions on financial services. Mohit, you have alluded in the past that interest rates moving up can be made positive for clients and therefore your business. If there tragically interest rates soften in the U.S. during the contrary [ph] can happen that there could do some pressure that could possibly -- or softness that could surface in through CY19?

No. Absolutely, Viju. I think that is absolutely possible. If there is sort of the dark lot changes and if the expected rate hikes don’t happen, then banks will clearly need to take a relook at their budgets. Again, like we’ve said that the spend will depend on the broader macroeconomic environment and the interest rates are clearly one part of it. The second part, which I referred to in response to an earlier question, you’re really seeing a fairly significant drop in assets under management, just because of the downward pressure on indexes. And we see that for some buy players, they are taking a relook at the budgets.

The other question was more on large integrated deals. I’m not trying to be subtle here, but I think that the big difference broadly in growth rate in this year has been the ability to stick together very large platform base to make digitally integrated deals. Clearly, that’s where Infosys is putting in resources. How satisfied are you with the efforts made in that direction so far and what do you think needs to be done to close the gap?

What we are doing in this regard specifically, first, we’ve made significant investments in streaming up our sales capacity, putting together digital specialists, driving skill set and portfolio in the 5 elements of the pentagon that define our digitally approach. We believe that some of what we’re seeing in terms of traction is coming from our ability to do multiple components of digital and in many cases build upon core services and platform to win some of these large deals. We think our capabilities are quite strong. In terms of how satisfied I am, of course, we've seen the performance is strong and I'm never really fully satisfied because there is always more to do. And we want to make sure that we keep our focus on that to make sure we have larger and larger deals both on core services and on digital.

Sure. And lastly, Jayesh, on margin headwind possibly in Q4 for the bunch of factors, is it something that is additional to Q4 of this fiscal versus the normal Q4 that you see?

That’s correct, because we have as I said targeted compensation this Q4 which wasn’t the last Q4. Salil talked about investments and we have said earlier that H2 -- the rate element in H2 is higher than the rate element in H1 and the initial margin impact due to transition and also recently won deals. So, all of these three factors that I talked about are additional.

Sure, thanks. And Salil, just to clarify, you did mention that you will not see incremental investment of this magnitude for FY20?

What I shared earlier was of course we are not commenting on specifically fiscal ‘20 in this discussion. What we've made clear is the investments we are making today. We are not looking in a midterm perspective of just incrementally investing. We made a series of investments in fiscal ‘19. We see good return from those investments. But we don't have a view, and this is going to keep on increasing as time goes on. I wanted to be clear we're not making any specific comment on our fiscal 2019.

Thank you. The next question is form the line of Keith Bachman from Bank of Montreal. Please go ahead.

Hi. Thank you very much. I had two questions, please. The first is on currency in your operating margins. I understand you made a comment about Q4, but I just wanted to say if you could speak more philosophically about the impact of currency on your margins. And that is to say, if the rupee appreciates, should we assume that that will impact your margins and you'll just let it flow through over time, or how should we think about the less favorable environment, at least recently of the rupee-dollar exchange rate and the impact of margins over time? And then, I have a follow-up please.

Hi, Keith. This is Jayesh here. So, coming this quarter first, this quarter, we got a benefit of rupee depreciation of 50 basis points. And as we get into the next quarter, rupee is already appreciated from 71.5 to -- 70 now? Yes. So, that will automatically impact margins. Every 1% appreciation or depreciation in rupee impacts margin across about 25 basis points that gets offset by cross currency appreciation or depreciation.

Okay. But sorry, over the last -- just to clarify, the last two years, the rupee’s been a source of margin help. If the rupee stays where it is, at a minimum, it won’t be a help, right? It'll probably end up being a headwind over time. So, should we just think about that being a potential negative to your operating margins or do you change behavior in terms of pricing or something along those lines to offset it?

Over the longer period of time, rupee appreciation or depreciation automatically gets right in rebidding and so on. So you won't be able to see a long term impact of rupee appreciation or depreciation. We typically see that only on quarter-by-quarter or half-year-by-half-year in fact the rupee appreciates. If you look at it, rupee used to be at Rs. 55 earlier, and we are now Rs. 70, going by that largest margin, the ratio has gone up significantly, but all of that gets priced in the bids that we do.

Okay. Many thanks for that answer. My follow-up question relates to just wanted to clarify in your comments around operating margins, so we look at ‘20. You said there wouldn't be incremental investments consistent with what's happened over the last year. And so, should investors assume that the level of investments will stay the same? In other words, the current range for margin is probably appropriate range as we think about FY20?

What I said was to the answer to Viju, where he asked as compared to Q4 of last year is the investment and incremental investment and incremental costs. Therefore, it is what I replied to saying that, yes that is because -- at the beginning of the year, when we articulated our strategies, we had very clearly called out the investments that we are making in the business, investment in terms of sales, investments in terms of digital services, investments for re-skilling and retraining our employees and investment in localization strategies. And by very nature, most of these investments are investment in people, and that's why the H2 investments are supposed to be higher than the H1 investments.

Thank you. The next question is from the line of Srinivas Rao from Deutsche Bank. Please go ahead.

Hi. Thank you very much. Sri here. Happy New Year to the management. Two questions. First on your verticals. In your disclosure, what comes out is the share of fixed price contracts and digital is significantly higher for your retail and communication verticals compared to BFSI. First question is, if you can comment as to why that's happening, why that is the case? Secondly, when you have fixed price contracts, is there any element of flexibility to change pricing? And in that context, how do you think you manage the risk, if your expected efficiencies don't come true? What has been your experience as the fixed price contract share has gone up? Secondly, a smaller question, the acquisition of Hitachi's business in December, just give some feedback as to what it is would be helpful. Thanks.

Salil here. On the first question, there is no correlation between fixed price and segments. Because we find fixed price projects where costs [indiscernible] over and beyond secular trend. So, it would be -- it's not what really we get. [Indiscernible] coming to any conclusion. And on the fixed price projects, the whole idea is that if we are able to drive better efficiency, then we can capture the benefits there, whereas in the time and materials project, we pass on the benefits to customer. But that is a connection with fixed priced projects. But in any fixed projects, sometimes we’re not able to do that, in which case we obviously have to take that hit. But there are also times when there are also when there are scope changes in which we get changes and so on and so on. So, in general in a fixed price project, only in the case of scope change, we get the benefits of increased pricing or increased revenue, but otherwise we have to manage within whatever we’re committed and that there is potential for us to capture the benefit if we’re able to execute on that.

Yes. Hi, Srinivas, this is Ravi here. I’m going to give you a quick view on Hitachi. So, it’s a joint venture between Hitachi, Panasonic and local HR firm called Pasona in Japan. What we’re simply doing is, we’re taking over subsidiary of Hitachi, which drives indirect procurement end-to-end and we’re going to take it over and run it as a joint venture with Infosys. Infosys has the majority stake. And the idea is directly expand this into -- indirect procurement into the larger Hitachi organization across the world, then to Panasonic which is equally big player, it’s pretty historic. The large manufacturing hi-tech electronics producers are coming together for one common cause, which is indirect procurement. And we’re going to actually apply technology on it and make it powerful enough to generate value. And thereafter we’re going to use this joint venture to go to other manufacturers in Japan. Their indirect procurement is a big category of spend.

Understood, this is really helpful. If I’ll just ask a small rejoinder, I mean the increase in the fixed price contracts is happening, is it driven by your clients or is it more driven by Infosys?

It’s primarily driven by Infosys. I mean, some of the products like large deals, large maintenance projects, lend itself to fixed price for clients. So, they expect you to bid with fixed price on that for the -- but good percentage of our projects typically are time and material, and clients are probably okay with that, and time and material. And that is where the opportunity is for us to try to convert it into fixed price.

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

Yes. Hi, thanks for taking my question. Jayesh, I just had a question on the 20 bps impact on margins due to acquisitions. From what I understand, Fluido is pretty small to land that kind of an impact. So, is there -- is that a one-time thing there or is there something to do with Hitachi as well?

Yes. So, acquisitions have couple of aspects when you talk about impact on margin, one is on the consolidation, the impact on account of these margins of the entity that we acquired. The second is, when you acquire some part of the budget side also gets accounted as intangibles and that gets amortized over a period of time. So, that also impacts consolidated margins. In addition to that, there could be earn-outs and retention payout. So, that would be factored in the deal that’ll also impact the margins.

Sure. So, how much of this would be on a running basis?

So, you’ll see this -- sequential impact from the last quarter to this quarter, but on a quarter-to-quarter, you won’t see an impact, because that becomes a base.

And secondly just wanted now to understand, there were a couple of bankruptcy announcements in the U.S., both in utilities and retail. Anything you’d like to call out there going into the next quarter or next year? And second, if you could, as always, highlight what the proportion of net new TCV would be of the total TCV that we won for the quarter?

So, the net new TCV that 30% of the total TCV, and coming to the bankruptcy, et cetera, whatever we are aware of, we have taken care of in the books, in terms of provision as adequately as required. There is nothing that we know which has not been taken care of.

This is Pravin here. In fact, in retail there have been some number of stores closings this year compared to last year. So this, I mean these are all things which we can’t predict, but there is no negligence.

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

Just to go back on the investments. Salil, I’m trying to understand what your comments really mean. So, should I take it to understand that this year there is certain intensity of investments, which could vary or not repeat or occur every year? Is that how we should think about it or are you saying that at this point all you can comment on is that this year is what it is and you might still end up looking at investments fresh next year?

So, first, we’re not making any comments about fiscal ‘20, in specific terms. What I was attempting to say earlier is, we have investments in sales, which are enabling us good results. And that’s the plan we have put in place at the start of fiscal ‘19 and that’s the plan we’re executing upon. We don’t see that there will be incremental investments in the mid-term period on an ongoing basis. I’m not commenting specifically on fiscal ‘20 in this call. We’re now going to work through on Q4, what our plan will look like in terms of our budgets or the market environment will look like, but we see the growth dynamics. And therefore, what we see in terms of revenue to focus our investments if any in terms of incremental investments for fiscal ‘20. So, no specific comment on that with more a broad based comment on the incremental nature of the question that has come before.

And secondly on the margin front, I think, Jayesh, you’ve alluded to some costs coming in next quarter as well. But from a large deal ramp-up perspective, are we looking at any contracts that you have taken the costs upfront but the revenue ramp-up is yet to happen or is that something that’s more -- from a timing perspective, is there any mismatch between cost and revenue is what I’m trying to understand here?

Well, there’ll always be large deals, and there’ll always be transition in addition when the margin happens. You typically have a higher onsite and that tapers off as you get into the deal. So, that is what I was referring to.

The last question from my end. Could you just run us through the potential push and pull that you saw in the telecom sector this quarter? And thanks for taking my questions and all the best.

The growth in the telecom sector this quarter has been moderate, only 0.5%. However, in the last couple of quarters, we've had few large deals wins in the segment. We expect that trajectory to change in the coming quarters. Having said that, from the industry perspective, definitely the sector is under stress, but at the same time it also opens up new opportunities for outsourcing, to improve efficiencies and reduce costs. And on the back of this, we have been able to win through deals in the recent quarters, and we expect momentum to pick up in the coming quarters.

Thank you. The next question is from the line of Joseph Foresi from Cantor Fitzgerald. Please go ahead.

Hi. So, my first question here is how would you describe the 2019 outlook, calendar year 2019 outlook for IT budgets? Are they the same, better, or worse than 2018, and any commentary that you could add to that would be helpful.

The planned budgeting is progressing and it is likely to conclude in the next month or so. But, the early indications are the budgets are expected to be flattish, at a percentage level and probably greater emphasis on moving budget from around the business, within the business. We are not seeing any indications of changes, either geography wise or sector wise. There will always be all clients -- in any budget, but by and large, early indicators are it will be flattish.

Go it. Okay. And then, my second question is, it seems like your revenue growth rates have accelerated. I'm wondering what you would attribute that to. Is that revitalizing the digital engine? Are you participating in large deals? Do you feel like you are taking market share? I’m trying to get a sense of what's causing the acceleration and then just as importantly, do you think it’s sustainable?

Well the 10.1% growth we've seen in this quarter on a year-on-year basis, where it’s coming from, we think the way we’ve put our focus on our strategic direction, working with our clients and what is relevant to them, to building out a digital portfolio on the one hand with the five elements of digital that we've outlined and started the year. We see really strong traction for example in the cloud space; we see good traction on the SaaS; we see very good traction for the digital studios, the digital marketing piece; we see good traction on analytics and we see good traction on IoT. Those areas are what are contributing to this over 30% growth in the digital space. We also see our services business is growing. So, both large components of our business are growing. Of course this is even though at a smaller growth rate, it’s growing because of the investments we’re making in artificial intelligence in new platform and that’s resonating with our clients. As Pravin was sharing earlier, the push from clients to move more efficient their core tech platforms and invest for growth differentiation or speed in the digital platforms. With our portfolio, we have the ability to play on both of those dimensions. In addition, we’ve put in place programs to look more carefully at account dealing to look more carefully at how new work can be generated, look more carefully at what are the specific things we have to do to introduce digital specialists into each of our large accounts. We have also then expanded our sales capacity from the start of the year through to Q3. All of these things have helped and comprised what we've been calling the investments that we’ve put in place in sales. We’ve also taken a lot of effort to re-skill our employees into the new technologies, and reconfigure our spaces into the future agile workspaces. These also have been investments we’ve made in this year to be more aligned to where our clients are going. This thus can increase intensity with our go-to-market effort in field, and the longstanding trust that clients have had with Infosys over past 30 years has helped us to start to drive this growth. We think if we can continue to execute on that and the macro remains the way it is, we see with this approach, we will be more and more relevant for our clients.

Got it, okay. I’m going to sneak one last one in here. People have tried to ask you about margins long-term, probably about six or seven different ways on this call. Why don't you seem to give long-term outlooks on margins or next year's outlook on margins, because clearly the market is quite a bit focused on the sustainability. And if you can't give us next year, do you think that margins will be flat, up or down over the long term, and why? Thanks.

So, on margin, my view today is we are in the start of our three-year plan. We've got a sense of how we can drive our go-to-market and planned traction. We will now in our fiscal year fourth quarter start to build a more comprehensive view of how the next fiscal year, starting in April, will look like for us. Internally, we will also start to put some thoughts on a more specific basis on how this outlook will work on multiple-year basis. At this stage, we're not ready to come and say specifically what fiscal ‘20 will look like, and certainly what the midyear trajectory on margins will look like. However, we are very clear that we are focused on driving value with our clients on digital. Internally we know that our margin for that business is higher than the average margin of the company. We have a strong focus on driving that margin acceleration operationally. However, we are not ready at this stage to speak specifically on fiscal ‘20 or indeed the mid-term in terms of margin.

Thank you. The next question is from the line of Georgios Kertsos from Berenberg. Please go ahead.

Thanks for taking the question. Can you please reconfirm the level of profitability in digital relative to the rest of the business? I think in the past you’ve disclosed this. So, an update on that one would be helpful. Thank you.

We are not specifically giving the number in terms of the operating margin of digital versus rest of business. My comment today and most likely in the past was more qualitative, which is that it is higher than the average margin of the Company.

So, if my memory serves me right, last set of results I think it was quoted approximately couple of percentage points higher margin in digital relative to rest of the business. But, maybe I'm wrong. Anyway, okay, fine. And a quick follow-up for me. Is there any -- is that constant currency revenue growth all organic or is there any sort of M&A contribution there?

Sorry. I didn’t follow. Are you talking about contribution in Q3 or for the future?

Contribution of any M&A in Q3 constant -- Q3 revenue growth, is the 10.1% this year revenue growth in Q3 all organic, or is there a bit of M&A in that number?

Yes. So, Q3 had impact of small acquisition that we did which was on Fluido of around 30 basis points which is inorganic. Apart from that everything was organic.

Thank you. Ladies and gentlemen, this was the last question for today. I now hand the conference over to the management for their closing comments. Over to you.

Thanks everyone for joining us on this call. We look forward to talking to you at the end of the quarter. Have a good weekend ahead.

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