Operator Ladies and gentlemen, good day, and welcome to the Infosys earnings conference call. [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 Aparna. Hello, everyone, and welcome to Infosys earnings call to discuss Q4 and FY2019 earnings release. This is Sandeep from the investor relations team in Bangalore. Joining us today on this conference call is CEO and MD, Salil Parekh; COO, Pravin Rao; CFO, Nilanjan Roy, 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 Salil, followed by comments from Salil and Nilanjan, subsequent to this 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'll now pass it on to Mr. Salil.

Thanks, Sandeep. Good evening and good morning to everyone on the call. I'm really delighted to be hosting this call with all of you today. We are extremely pleased with the progress we have made during fiscal 2019, and our results demonstrate that. Our increased client relevance led to strong full year growth of 9% and further acceleration in Q4 of 11.7%. Our quarter-on-quarter sequential growth constant currency was 2.1%. Our clients see the value of our digital portfolio, driving full year growth of digital to 34% and quarter four to 41%. With those growth numbers, we end the year with 34%, just over third of our business revenue coming from digital. We’ll give you an example, we're really delighted to see our digital banking platform gaining increased traction in the market with further new major global logos adopting the digital platform in fiscal 2019. Across the board, we've seen our clients select us for critical work in areas of data analytics, cloud, SaaS, user experience, security and IoT among several other areas of digital. Some examples of those are shared in our press statement from earlier today. Our large deal wins were also impressive at $1.6 billion for the quarter and $6.3 billion for the full year, which is twice the value of what we did in fiscal 2018. Our engagement with large clients continues to grow. Our number of clients with $100 million of revenue increased to 25 from 20 at this time last year. Our planned investments in sales and in building business model resilience via localization in our key markets that forms a strategic part of our transformation program are yielding results. Our margin for the full year was 22.8% and for Q4 was at 21.5%. Going forward, we see the ability to drive operational efficiency more and more into our business. Overall, we now see our business as being more stable and better positioned to benefit from the shift to digital in the years to come and taking the first steps to build business model resilience. With that, our guidance for fiscal 2020 is revenue growth of 7.5% to 9.5% in constant currency; margin in the range between 21% and 22%. Thank you, and with that, let me hand it over to Pravin.

Thanks Salil. Hello everyone. We finished fiscal 2019 on a strong note with growth across verticals and geographies. Quarter four sequential revenue growth in constant currency was a healthy 2.1% in the [indiscernible] this quarter. On a year-on-year basis, quarter four marked the second consecutive quarter of double-digit constant currency growth at 11.7% helped by ramp-up of building in the recent quarters. Quarter four segment Retail, Energy, Utility, Resources & Services, Manufacturing and Hi Tech grossed double-digit growth in constant currency in FY2019. Digital revenues grossed $1 billion in quarterly run rate and now constitutes one third of our total portfolio at 33.8%. In quarter four, we won 13 large deals totaling about $1.6 billion. Three of these deals were in Financial Services, Manufacturing and Life Sciences, two in Hi Tech and one is in Retail and other segment. Geography wise seven were from America, five from Europe and one from India. Total large deal wins in FY2019 was about $6.3 billion, more than double of FY2018. The share of new deals with overall large deal TCV was 3.4 times compared to FY2018 levels. We are giving compensation increase for employees as per our normal time line. 85% of our workforce will get compensation increase of approximately 6% offshore and 1.5% onsite effective April 1, with the increases for outperforming employees being higher than average. Balance 15% of the workforce will get compensation increases in the subsequent quarter. Gross addition of employees was about 14,200 in quarter four and over 70,000 for FY2019. We are in the final stages of our localization effort with over 9,100 American workers hired since March 2019 vis-à-vis our target of 10,000. Our approach to U.S. hiring is very differentiated. Our deep investments and inclusive approach by engaging with local colleges, partnering with universities and the administration in the U.S. is making us a vital part of local ecosystem. We have announced our localization plans in Australia already and are planning to expand that to Europe as well. Attrition has ticked up slightly by 0.8% to 18.3% at stand-alone level and to 20.4% at the group level. We are continuing with our recent focus and initiative towards bringing it down. We are seeing some macro concerns in certain pockets of our business, including new clients from U.S. Financial Services, Europe Manufacturing and Healthcare and Life Sciences vertical globally. Clients are monitoring the global situation closely, and any negative development may lead to curtail spend. However, this also opens up opportunity for us to help clients in accelerating their transformation agenda and further strengthening our relationship. Our deal pipeline remains strong across verticals with a good share of digital and large deals. So let me give some color on the business segments. Financial Services vertical declined sequentially most recently this quarter due to some U.S. clients seeing earlier business driven by the budget constraints. However, our deal wins in Europe enabled us to have growth in quarter four. I should also mention that we have had a very strong quarter three and quarter four exit rate. As we entered FY2019, in quarter one, our year-on-year growth was less than 5%, but as we exit quarter four, its 8.5%, which gives us good comfort on the prospects of Financial Services going forward. Our scale in other digital and integrated software platform services category is resonating extremely well. Customer acquisition, digital banking, cybersecurity and lending are expected to be key areas of strategic focus and spending in the current year. The recently announced strategy will help in strengthening our mortgages servicing capabilities through digital platforms and enhance our presence in Europe. In Retail, we continue to see significant pickup in digital, cloud, analytics, modernization and M&A-related business and IT integration. 2018 saw significant number of new store openings aimed at providing different and industry experience to customers. B2B industry is seeing higher consolidation as clients are becoming more price competitive, and we see more demand for post-merger integration capabilities. Growth in Communication segment was as expected due to ramp-up in previous buildings. Despite the sectoral issues affecting this sector, we expect steady performance in fiscal 2020. Most investments in this sector is around adoption and deployment of 5G leading to advancement in enterprise IoT. Ongoing momentum in the industry is leading to integration opportunities. Energy, Utility, Resources & Services growth were supported mainly by utility segment, which received strong demand due to investments in the pipeline modernization initiative and digitalization of legacy stacks. Growth in services sector was driven by ramp-up of large deal wins. Strong growth continued in Manufacturing segment, despite some concerns amongst automotive and industrial manufacturing plants due to macro issues, especially in Europe. Aerospace and defense clients are enjoying good order book and are focusing on core areas such as engineering, system integration, MRO and the ERP back book. Hi-Tech vertical had a strong performance with increased client spend from past buildings, roughly focused in areas like automation, analytics, VPN, cloud area and ERP implementation. Performance of Life Sciences segment remains muted as clients are facing slowing growth and increased cost pressures. Finally, on digital, we see especially strong interest for our offerings in cloud area, in data and analytics, in IoT and in the areas of experience. Digital demand remains strong across regions and especially in client segments like telco, energy, utilities, retail, insurance and manufacturing. Clients are investing in modernization for digital transformation, artificial intelligence, automation and automation to drive new service customer value and to future-proof their business against economic downturns as well as competition. Our focus of both on investments and other digital is helping us win more clients' mind share, which is evident in the superior growth profile of this portfolio. With that, I hand over to Nilanjan.

Thanks, Pravin. Good evening, and welcome to our quarter four and full year FY2019 earnings call. I feel privileged and honored to talk to you all in my new role as CFO of Infosys, truly an iconic company. At the same time, I'm excited to be part of this journey of transforming the company by helping our clients navigate their next. I look forward to interacting with you all in the coming weeks and months. Let me start by talking about our quarter four performance. Our revenues in quarter four crossed $3 billion. Revenues grew sequentially by 2.1% in constant currency terms. This is the highest constant currency growth in Q4 in the last nine years. On a year-on-year basis, quarter four revenues grew 11.7% constant currency. This is our second consecutive quarter of double-digit growth, which is also our highest year-on-year growth in constant currency in the last 11 quarters. Operating margins in quarter four was 21.5%, compared to 22.6% in quarter three. During the quarter, operating margins were impacted by 70 bps on account of lower utilization, partly due to impact of ramp-up of recently won large deals, 30 bps due to continuous strategic investment in sales and localization and 30 bps due to rupee appreciation. This was partly offset by lower bad debt of 40 bps and other one-off in quarter three, which helped margin by another 30 bps, resulting in an overall 1.1% decline in Q4 operating margins. Our revenue productivity per employee was sequentially flat in constant currency terms and up by 0.7% on a year-on-year basis despite pricing headwinds. This was due to our relentless efforts on automation and improving digital mix, which comes at better price points. Utilization, excluding trainees, was 82.3% compared to 83.8% in quarter three in anticipation of conversion of our robust deal pipeline. Quarter four reflects a rupee appreciation of 1.7% on quarter average basis. However, our effective hedging program ensured that we had our 50th consecutive quarter of gains in non-operating income. We had a hedge book of $2.2 billion at the end of quarter four. Yield on other income was 7.91% in quarter four as compared to 7.81% in quarter three. DSO for the quarter improved to 66 days compared to 67 days in quarter three and similar level for quarter four 2018. Operating cash flow in quarter four was 583 million, and free cash flow was 467 million. CapEx for the quarter was 116 million, an increase from prior quarters due to additional capacity we created largely in U.S. events and overseas results. Hence, we expect CapEx to remain at these elevated levels for FY2020 as well. Effective tax rate for the quarter was 22.7% versus 29.7% in quarter three 2019. Tax rate was lower on account of benefits received with the timing of advanced pricing agreement with an overall fee reduction and relative to tax provision as a result of completion of assessments in certain overseas jurisdiction. We expect the tax rate for FY2020 to be between 27% to 28%. With that, let me summarize our performance for the full financial year 2019. Our strong revenue performance through FY2019 led to 9% growth in constant currency, which was the upper end of our higher revised guidance of 8.5% to 9% and well above the 6% to 8% that we provided at the start of the year. As we have mentioned at the start FY2019, we have operating margin for the year will be between 22% to 24%, due to targeted investments in sales and marketing, actual localization, employee reskilling and agile digital. We believe these investments are necessary to build a robust and sustainable business model. The impact of these investments is visible and acceleration in our revenues was decreased and also, our overseas local hiring. We now have opened five innovation and technology hubs in the U.S. and two in Europe as we embark on our journey to intimacy with our clients. Consequently, operating margin for FY2019 was 22.8%, near the midpoint of the guided margin band of 22% to 24%. Operating cash flow for fiscal 2019 was $2.262 million, and free cash flow were $1,913 million. FY2019 EPS stood at INR 35.44 and $0.51. EPS for FY2019 versus FY2018 non-LIFO write-off and APA has increased 12% in INR terms and 3% in dollar terms. We are well on our way toward successful execution of our capital allocation program announced in April 2018. During quarter one, we completed payment of special dividend of INR 5 per share or INR 2,606 crores. And in Q4, we completed special dividend payment of INR 4 per share or INR 2,098 crores. We initiated a buyback for March 20 after receiving all requisite approvals. Out of the total buyback of INR 8,260 crores, we have bought back shares worth approximately INR 1,546 crores, equivalent to mere 20% of the size. For fiscal 2019, the Board has announced a final dividend of INR 10.50 per share. After including the interim dividend of INR 7 per share, the aggregate dividend for FY2019 stands at INR 17.50 per share compared to INR 16.75 per share in fiscal 2018. Coming to FY2020 guidance, driven by robust revenue momentum and guidance for FY2019, our FY2020 revenue guidance stands at 7.5% to 9.5% in constant currency terms. This includes that the operating margin guidance for FY2020 will stand at 21% to 23%. While our margin band reflects the already made investments in various initiatives, we are also focused on deploying various cost optimization levers like onsite to offshore mix, utilization, onsite permit mix, automation and better digital pricing for our differentiated offerings. To conclude, in line with our Navigate Your Next road map, FY2019 has been a year of stability. We returned to accelerated growth and making the necessary investments for building a sustainable future-proof organization that are creating value for our shareholders, augmented further through our capital allocation policy. With that, we can open up the floor for questions.

We’ll start the Q&A.

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

Hi, good evening. I was hoping to drill down a little bit on your very strong award activity. Could you talk a little bit about how much is traditional work? How much is sort of digital-related work? And then could you also talk about, excuse me, the margin impact, both the margins over time and how much of a drag on the upfront these are? So trying to sort of understand the award impact and also understand the impact on your margin guidance. Thank you.

Hi, this is Salil. If I understand, you're asking about our new large deal wins. The way a lot of these are being constructed today, there is significant large components of digital in most of the wins that we have. What I mean is our digital approach consists of doing work across the five dimensions that we've previously defined. There’s also a huge aspect of tech landscape modernization that comes into many of these digital programs. And that is pervasive across most of the large deal wins that we reported. In terms of the margin profile of our current business, our digital portfolio is higher margin than the average margin of the company, and we see that continuing into the large deal wins that we report from the digital component of our business.

My other question is around, your attrition is up a little bit. Curious if some of that is related to your efforts in the United States and elsewhere to localize. Maybe you could sort of talk about the attrition in those sort of localization areas. Thank you.

Hi, this is Pravin here. As we said, the attrition has marginally gone up from 17.8% to 18.8% on a stand-alone basis. A big part of the attrition is for people with three-year to five-year experience. To this set of people earlier value proposition was onsite opportunity that was a big thing. But given on the mobility side and just due to restrictive [indiscernible] the opportunities are poor. So that’s probably one of the reasons why they look forward – I mean, they are able to look forward to move forward to other opportunities. They are either able to get higher compensation or different kind of jobs. So from our perspective to address this, we have looked at a new employee value proposition, which really focuses on engaging the people better, enabling them, assisting them with new skills and rewarding them and giving them very good experience. So there are many, many initiatives on the ground to address this. We have some right areas on the compensation, which we are also addressing for this set of people as well. And for people who have excellent digital skills, we are rolling out an incentive scheme this coming year. And we’re also looking at a much more aggressive redeployment and have products so our people also get opportunity to work in new technologies. So some of these initiatives obviously will take time to bear fruit, but we are confident that over a period of time, the attrition should come down to a manageable13% to 15% level. But this remains a focus area for us, and we continue to investment in some of these initiatives and hope that over a period of time this will come down. Our localization efforts, on the other hand, is something we attribute to being resilient in the business and reduce payments. And this is something we have done fairly successfully in the last one year. And to that extent, our business is probably much more resilient and less susceptible to [indiscernible] done in the past, and this is an effort we need to continue in the coming months.

Thank you.

Thank you. The next question is from the line of Kawaljeet Saluja from Kotak. Please go ahead.

Hi. My question is on profitabilities. Infosys margins have been declining now for the last 10 years, earlier than we would think it would. How should one think about the current margin band of 21% to 23%? Is it just on the size, 2020 band? Or is it something more dependable on the medium term? And second is that, at the end of the day, a good business would have certain investment plans, but there are ways and means of generating operational efficiencies or having some driving power to fund those investments. Does, I mean, Infosys have any goals to give us – or so basically one expect margin valuation to continue in the medium term? So…

Hi, Kawaljeet, this is Salil. The question on what’s our view with respect to this margin band and going forward I suspect beyond fiscal 2020. Our thinking is that our objective is to build a high-margin business, and that really is the drive we have. We have taken a step in fiscal 2019 to build something with Infosys, which is ready for the next several years. We made investments, which are very specific on sales. We’ve called that out at the start of the fiscal year 2019 on digital and on localization. And we made some adjustments on compensation, which were a catch up in fiscal 2019. In terms of what we do with the investment, our investments with sales are now complete. The way we have our positioning in Q4, that’s how we will run the business in fiscal 2020. And any future investments there will be funded, as you guys you put it through operational efficiencies. There are some investments in localization, which have a significant focus in fiscal 2019. Most of those are behind us and complete. However, there’s been small ones in that which we will drive through in fiscal 2020. Beyond that, our objective now is to – in addition to driving growth, which we start to see the double-digit growth in Q4 and Q2 and the strong pipeline coming back into play for us in fiscal 2020 as we started looking, we will now start to focus on operational efficiencies and operational levers to start to drive what we want to be as an aspiration of our margin. So we don’t have a view today of what we will be driving in fiscal 2021 or 2022, but this is the approach that we taken in place to help us secure and drive an operational strengthening as we go through fiscal 2020.

Got that. The second question that I have is that how does your – the mid-year guidance, what is the contribution included from the Stater acquisition? And second is that there are [indiscernible]. Did that have any role related to the guidance? And if yes, can you just detail out that if you have built up any additional buffer into the guidance number relative to what you had done in the past?

The first part, I could follow, which is, I think, what is the composition of your guidance, our guidance with respect to acquisitions. The second part, I couldn’t follow, so let me address the first part. The way we put our guidance today is it includes everything that we’ve announced. However, there are some – there’s one that’s required is regulatory approvals, which are not in place today as we speak. So we’ve made an estimate of that, and that’s built into our guidance. If there’s anything that changes on that, and we don’t anticipate it, we’ll come back to you. But our guidance is for our full revenue with everything that we announced so far. Kawaljeet, can you repeat the second part of the question?

The second part of the question is that there appears to be economic slowdown. Did that have any role pertaining to your guidance? And if yes, answer detail out that we have built up any additional buffer into the guidance revenues relative to what you had done in the past?

So in terms of, as I understood again, if there any economic slowdown, has that been factored into the guidance. Is that’s the question? You see, overall, revenue is robust environment for what we are doing. While our Q4 year-on-year growth was faster than our full year revenue growth, we see a good traction in the business. However, we do see, for example, our Manufacturing business in Europe would see some headwinds. We do see some concerns in what we see in Healthcare and in Life Sciences. There are then some other more sort of specific element, which we don’t call out as a macro event at all. But we do see all of the three things that I mentioned. And all of that has been factored into what we see in the guidance. Of course, we don’t see any macro slowdown that has been discussed, I guess, broadly in the economic environment. We don’t see that today. If that starts to show up in the second half of the year, we’ll see how that plays out. But our guidance remains with what we see in the environment today. This is the guidance we are giving. Okay, thanks all the best.

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

Hey, thanks. Going back to the margin question, I guess the real concern that people have is that this is going to be another reset in margins down the road. Maybe you can give – you can address that concern? And then from a long-term perspective, what do you aspire to in terms of the company's EBIT margins hypothetically once you're done with this investment cycle that you're saying, once you're scaling your digital business and once you're done going through the on-site kind of expansion that you're going through? And then as a follow-up, there are some concerns about the fact that the guidance seemed to be a bit lighter. And internally, I mean, not internally, but what do you think about getting to that double-digit top line growth down the road in terms of again aspiration, et cetera? Thanks.

On the margin, we certainly have a view in terms of being a high-margin business. And internally, we have some clear targets for driving through that. We will not share them outside beyond the guidance for fiscal 2020. To be clear, as I was sharing earlier on the investments that we've started to talk about in fiscal 2019, some of those, for example, what we've done with sales, we're now at the close, so we closed that investment cycle. There we were – there we are at Q4, where we will run the business going ahead. Anything more, we look through without calling out an investment. There are some material vulnerability concluded for localization and then there is some smaller ones which will come through at the flow through in fiscal 2020. And now we start to look much more at the operational levers. So we don't have a view today to share with you, what we look at fiscal 2021 and how do we see the margin there. Let me be very clear that we're now – the majority of our investments are behind us, and we now start to put real focus on operational levers. On the revenue side, we had a question if I understood well, the implication was our guidance was presumed as light. Again and the double-digit point, our view is that we will drive the business with the changes we are making as rapidly as we can and to drive that growth as aggressively as we can. However, the guidance puts into picture everything that we see in our business and the growth outlook. As you saw in fiscal 2019, we started with 68 and as the year progressed, we were fortunate enough to increase the guidance through the middle of the year.

Thank you.

Thank you. The next question is from the line of Parag Gupta from Morgan Stanley. Please go ahead. Mr. Gupta, just moved out of the queue. We move to the next question in the meanwhile, that's from the line of Bryan Bergin from Cowen. Please go ahead.

Thank you. I was hoping you can quantify the categories of margin changes on a year-on-year basis during the quarter?

So for the full fiscal year like we said we have given a guidance of 22% to 24%. We ended fiscal 2018 with 24.3%. And we ended fiscal 2019 with 22.8%. So that was a 150 basis points decline. So if I start one by one, I think the two investment areas that Salil talked about, these are largely on three buckets. One of the entire sales and VPN, and I think we've already seen the impact of that in terms of our large deal wins through the year. The second investment was localization, which had three buckets under that around global talent. We have structure and re-skilling our employees. And the third one of that was a subcontractor cost, which has a very good ramp up and volume filled up. We have to temporarily take subcons on. So the big investments in these three were about 140 basis points, 90 on the sales and the large localization sense. We've got about 70 bps on a year-on-year basis on operational efficiencies through automation, the onshore/offshore mix, utilization, onsite services and digital pricing. The currency benefit for the year was about 210 bps, which we passed on largely with the collections to our employees through digital talent and attrition that we have targeted for certain high talents and other corrections we made through the year. So that was about 270 bps. So all in all, these are the five real buckets of the decline of the 150 basis points on a year-on-year basis.

Okay. Thank you. That was helpful. And then can you talk about the type of pricing fluctuation that you're experiencing in infrastructure-related areas versus app dev and product engineering work? Any notable differences in realizations there?

Pricing on the infrastructure services continue to be very competitive, but it's a lot of commoditization in that space. And from our perspective, we have been able to defend by primarily focusing a lot on investing in automation and other efficiencies. So we have been able counter that impact. And if you notice from a realization perspective, we have been – pricing has been flat year-on-year. So that's a reflection that we have been able to manage the pricing pressures through automation and other efficiencies.

Thank you.

The next question is from the line of Ankur Rudra from CLSA. Please go ahead.

Hi. Thanks. So your fourth quarter growth was about close to 12% in constant currencies. Your full year growth in FY 2019 was about 9%. However, at the midpoint of your guidance, you're pointing to a slow down both on the full year 2019 number and the fourth quarter number, even though I feel it bakes in a higher inorganic component. So could you maybe elaborate where the difference in your feeling that this is a better year versus your guidance comes from?

So for us, the way we've seen the year developing, we see a lot of traction in the way the large deals have flowed. We see a lot of traction in the way many of our sectors have performed. We also see there is ongoing discussion with clients on the way the contracts are evolving. And we also see that there is changes sometimes in scope of some of the contracts in year. And we also see, as I shared earlier, some areas of concern which was on Manufacturing in Europe, on Healthcare, Life Sciences. When taking all that into account, we built a guidance which gives a range between 7.5% and 9.5% and that's how we see today the business evolving. Of course, as I shared earlier, we started the year in fiscal 2019 with a view of what we could see then. And as the year evolved and as we have more clarity, we are more comfortable to do things with, including our guidance.

Fair enough. And does the slow down – we would see this in the first half of the year because the momentum is stronger than where you're pointing it to? Or do you think this year from a trajectory might be different from what we saw last year?

From what we see in the first half, we see a fairly clear way to grow in Q1, Q2. In terms of trajectory, difficult to say. We had a very strong Q4 in fiscal 2019, which traditionally has not been the case over the past few years. So it's difficult to say how that will look specifically into Q4 of next year.

So Ankur, it's Pravin. Just wanted to add that from a guidance perspective you're asking the normal seasonality, what we typically see both in mid term [indiscernible].

Okay, that's helpful. Just another question on the margins. Your margins are down year-over-year over 300 basis points. I know you've been highlighting what the reasons were. But it would help for you to maybe articulate what the definition of – you know, our high-margin businesses are worth your long-term aspirations are? And also on the same note, if you feel that Infosys was previously structurally higher than what's sustainable and hence the investments you need to make to stay relevant over the next decade is higher than what you expected before you began these investments. Because it seems that the investments are taking a bit longer to wind out and for the business to stabilize.

I think in terms of what we see structurally in terms of aspiration and what we mean by high margin, we clearly have those definitions internally. These are articulated then because we've not given any guidance beyond fiscal 2020 at this stage. But what we see in terms of the investments coming into fiscal 2019 many of those investments many of those investments, as we started to make them across the quarter, several of them came more back ended in Q3 and Q4. And started what we see is a trajectory clear out from Q4 into fiscal 2020. The idea for us is, repeating what I said earlier I understand, that is to really make sure that we are building eventually a high-margin business and that's something that we are driving through a medium term, long term sustainable business model. That's really the objective with which we're working.

And among the multiple levels you mentioned, localization I think was a cost center last year. Would this be a potential operating margin lever in FY2020? Or is it too early for that?

Well, I think in localization as we mentioned earlier, there is a – in localization as we mentioned in the medium term we actually treat it as a cost lever as we get at the lower end of the pyramid, so we're creating an onsite pyramid and the localization is higher share of the lower levels and then starting them onsite neutral. I think that's the right margin. So I think we will see that our levers going forward.

So this could help your margins in FY2020 then?

It’s a bit early now. I think the training programs, et cetera, so the utilization is still lower but as the year progresses later on, maybe toward the end of the year or the year after, we will see the benefits.

Understand. Thank you.

Thank you. The next question is from the line of from Diviya Nagarajan from UBS. Please go ahead. Diviya Nagarajan, your line is unmated. Please forward with your question.

Hi, thanks for taking my question. We've already gone through the margin and revenues and kind of leave it at that. Could you run what really went through the banking financial services vertical this quarter and what your outlook is for the sector for fiscal 2020? And ditto for the retail CPG segment as well, please.

I think from a banking and financial services perspective, it was a mixed quarter. I think that the quarterly momentum there was weaker. This is a seasonally weak quarter, right? And we had a very robust Q3. In banking, in certain markets specifically we've done well. I think we saw some weakness on the insurance side of the business. We saw growth in the U.S. specifically. And in our Rest of the World portfolio. Finacle, as we've mentioned last time, had an exceptionally strong Q3 a double digit growth and we've already [indiscernible] likely to see some slow down there. Our insurance business has done extremely well for the past three quarters and there was a little bit of a slow down in Q4. So overall, as I look at it from an FY2020 perspective, keep in mind that we're exiting Q4 much more strongly than we've entered the year. So when we entered to the year, we had a year-on-year growth of sub 5%. We are exiting at a growth rate of 3.5%. This is a very large global business overall. There is pockets of strength and weakness. We see strength in the retail banking side. We see strength in our cards and payment business. We see strength in pockets of insurance. But on the other hand, for some of our regional banking clients where there's been some M&A activity or there've been some leadership change, we've seen a little bit of a slow down. Our [indiscernible] business is doing extremely well, and we expect that to continue to the next year. On the insurance side again, on the back of some M&A, some leadership changes, some large projects running down, we do see that it will be slower than it was in FY2019. But overall, this – the deal activity we've had, with the strength that we've seen in large portions of our U.S. portfolio. We're optimistic that the trend that we've seen this year of entering sort of sub 5%, we see the trend of improving strength continuing.

Pravin here. I'll just cover the retail segment. In the retail segment, we continue to see good pickup in the digital area. There is start-up investment in cloud and then it takes modernization and so on. In fact, in 2018, we saw a significant number of new store openings. Retailers are now trying to provide [indiscernible] experience to the customer. In quarter 4, we saw big growth but for the year, retail had a double-digit growth. We've a very strong first half and second half, the things have tapered down. But retail by the very nature is because a volatile business. So we remain optimistic about this business in the coming year.

And Salil, just going back to your earlier commentary. You did talk about how this year versus the initial guidance we were able to kind of raise the guidance and deliver at the higher end of that raised guidance. What are the pre-conditions under which we can expect a similar performance in fiscal 2020?

As we said, Diviya there are no preconditions in our mind. My comment was more we are giving a guidance as we did last year based on where we see the business today. But as we see things changing in the business as we did in fiscal 2019, we will make those sort of changes in the guidance as we go through the year. But there are no preconditions in our mind as it is today.

Fair enough. Thanks. I will come for follow up if there is time…

Thank you.

Thank you. The next question is from the line of Viju George from J.P. Morgan. Please go ahead.

Yes. Thank you for the opportunity. I just had this question on margins. Q4 margins, you're probably telling us not to take that as a base going forward. But Q1, you're certainly going to see a little bit of hit because of wage hikes. So can just walk us through how you expect the trajectory to improve to get to – comfortably to your guidance band of 21% to 23%? because I would assume that one should look at significant YOY improvement to get there in Q4 2020 versus Q3 2019. So just can you help us with that direction, please?

Yes, thanks. So I think as we mentioned earlier when we looked at our guidance for next year of 21% to 23%, we were exiting the year which is at 21.5%. And like we said that Q1 is going to be slightly slower from a margin perspective because of the compensation hikes, but that is all factored into our margin guidance for the year. And therefore as the year accelerates, as we go through the year, you should see that improvement in margins within the guidance range. So I think one is soft as we mentioned. But you should see the robust neck of our margin levers increasing. And also we will see some headwinds as we see today in terms of the rupee appreciation that we develop from a Q4 to Q1 perspective, so that was something which is staring at us. But all in all, like I said, we are quite confident within the range.

Okay. Just as a follow-up to that. Your attrition still stays high while you sort of say that your sales investment cycle is pretty much done. Would you think that there would be higher cost of attrition management that you might still have to bake in the model going forward? And is that adequately factored in for FY 2020 in case attrition doesn't sort of come down in line with your expectation?

Viju, sorry, this is Salil here. I didn't follow it. Can you repeat that point follow it. Can you repeat that point, please?

Yes, sure. So Salil, what I asked is your attrition is still quite high. And certainly, attrition management is a fairly reasonable expense and that expense one part of the margin investments or margin dip, if you will, in FY2019. Your sales investment cycle is down, but if your attrition does not come down in line with expectation, then would we expect that there could be an extra expense management towards that?

This is Pravin here. Right now we are factored some developed attrition improvement in the guidance that we have given. In general, partly – part of it we can arrest attrition through from expense management but to a large extent, we believe it's much more engaging more about giving them opportunities, much more about any new narrative around some of these clean initiatives that we are doing, giving and enabling them on their carrier progression and so on. So there are multiple levers to arrest attrition, the cost is only on one element of it. The only direct impact of attrition not coming down could be on [inaudible] to fulfill some of the immediate demands. That probably is the only area which will probably have some correlation to attrition. But we have done some – we have made some assumptions, I think, we have factored in for the kind of attrition we are seeing today. So we are comfortable and I don't think that should be a big impact from a margin perspective.

Sure thank you, Praveen. All the best for FY 2020.

Thank you.

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

I just have one question, if I may. Salil, Mohit talked about the reasons behind banking slow down in the quarter. In general, were you disappointed with the quality of growth in the quarter specifically because U.S. telecom broadly contributed almost entire incremental revenues on a sequential basis? So you think rest of the vertical you were disappointed? Or this is what you expected?

In general, my view is I'm always disappointed every quarter with the growth that we get because we should be getting more. Having said that, -- there's some specific situations in a couple of the segments. We are a good showing in the telco segment. We have a good showing in what we call our source, utilities, resource and energy segment. We had some specific client situations which came in Q4 in a couple of the other segments. But overall, we're extremely happy because the 11.7% growth is a real difference double digit for the second quarter and 2.1% sequential and traditionally, which for us, for Infosys, has been not a strong quarter in Q4.

Right, thank you.

Thank you. The next question is from the line of Rod Bourgeois from DeepDive Equity. Please go ahead.

I just want to talk about one specific margin factor, which is the impact of large deals ramping. I think you cited that as one of the margin challenges that you're dealing with. And if I just kind of go back to the past, in the past, you've had many large deals ramp-up over time and those deals have either been neutral, and in some cases, even accretive to margins, at least as the levers have been talked about it from a historical perspective. So I guess what I want to ask here is, what has changed with contract structures and contract terms that make large deals ramping now a headwind for margins?

Yes, so I think this is only a particular large deal which we won this quarter had the [secure] impact because it also came with revising of the existing employees. And therefore we called it out specifically in this quarter. But this is not normally in any of the large deals and actually, we've never had this before so we just called it out in this particular case. So I don't think this cause of concern as we go into large deals going forward.

Okay. And then just two other real quick ones. Clearly, in the U.S., the H-1B visa policy is making the availability of those visas more constrained. Can you just talk about how that's impacting your growth and/or your margin outlook? And then just a very small one. Just – can you just state your assumption about the rupee over the next year as you consider your guidance?

I think in terms of availability of talent, I think the overall demand environment is strong and therefore, the talent availability is constrained across the Board, especially -- in the U.S. and with some changes in regulation even more so. Having said that, we've been able to fulfill the demand through fairly aggressive recruitment. We had over 50,000 new hires join us in fiscal 2019. We also had, as you see in our numbers, an increase in subcontractor cost. So we ensure that some of those levers that were needed to underwrite the growth we were able to put in place. And those are exactly the levers we put in more efficiency into our business, we think will help us potentially gain back some margin points as we drive efficiency into deals.

Got it. And then just the rupee assumption for this year?

We've kept the rupee pretty much where we are today, so we don't make any forward projection on the rupee, so this is – the guidance is based on where we are.

Alright guys thank you.

Thank you. The next question is from the line of Sandip Agarwal from Edelweiss. Please go ahead.

Hello, thank for taking my question. Salil, just one small question on the digital side. We saw a robust growth in this quarter and we're breaching $1 billion mark in the digital services. So just wanted to know what kind of talent hunt is going on in this space because this is growing at a phenomenal pace and the – in spite of you know, we're re-skilling our talent and all, there was some mismatching between demand and supply. So is that impacting our cost to some extent right now? And secondly, are we seeing at least early signs of better pricing in digital? And also on the growth front, which particular segments you'd say that are growing much faster than the others at least when digital is concerned?

On the first one, I think the talent is clearly a huge constraint. We are also looking in additional points I made before of how we are getting digital talent in into first internally a massive re-skilling program, what we called out at the start of fiscal 2019 and then we also detailed in some of the comments Nilanjan made about how that becomes another investment we had in fiscal 2019. And that is something as to whom we really beneficial the re-skilling platform we have internally and the approach we have to that re-skilling. Also recapturing program has been driven from outside for adjacent skills that in fact, that is driving in the U.S. but also now globally where we take skills which are not into traditionally areas of tech but slightly adjacent and not those refactored more into digital talent. So those are some of the mechanisms. But there is a constraint in that talent. In terms of segments which are more digital-oriented today, which we really see in banking, a huge push in digital, we see that in retail. We see more and more in even segments like utilities. There's a huge shift into that in manufacturing but more on our definition of IoT. So these are some of the segments where we see more and more retail work into our mix of portfolio.

Thanks, that very helpful.

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

We'd like to thank everyone for joining us today on this earnings call. We look forward to talking to you again and may be over the course 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.