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 Q1 FY’20 earnings release. I am Sandeep from the Investor Relations team in Bangalore. Joining us today on this call is CEO and MD, Salil Parekh; COO, Pravin Rao; CFO, Nilanjan Roy, along with other members of the senior management team. We will start the call with some remarks on the performance of the company by Salil, followed by comments from Pravin and Nilanjan, subsequent to which we will 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 risk 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 now like to pass it on to Salil.

Thank you, Sandeep. Good afternoon and good morning to everyone on the call. Thank you for joining us today. Infosys has delivered a strong quarter and I am pleased with our overall performance, as we continue to demonstrate our increasing relevance to clients. Our constant currency growth year-on-year for Q1 was 12.4%, which is the third consecutive quarter of double-digit growth. Our digital revenue growth was 41.9% and our digital revenue now accounts for 35.7% of our overall business. The large deal TCV was the highest ever at $2.7 billion. Our operating margin for Q1 was at 20.5%. We saw broad-based growth across our industry segments, service lines and geographies. In constant currency year-on-year, our telco segment grew 22.6%, our North America geography 13.5%. We continue to benefit from building deeper capabilities across our digital portfolio especially in the areas of experience, data, analytics, cloud, SaaS, IoT, cyber security, AI, and machine learning. Our overall deal pipeline witnessed growth in Q1, and we can see that we are winning market share in this competitive environment. While there are many aspects of our strategy that came together to make these impressive first quarter results possible, I want to focus on how we are scaling our digital business with a few examples. For a telecom major, we are helping to build a new digital customer experience for their clients, which brings together channels such as Alexa, mobile apps, Chatbots, online and contact centers in an omnichannel mode and provide improved customer engagement. We work with a large automotive client to help them navigate their digital transformation journey, delivering for them future-ready, scalable, digital, hybrid cloud platform that is supportive of their digital workspace. We have been engaged to deliver cutting-edge digital capabilities for a leading U.S. insurance company. We are partnering with them to build a digital policy administration services, leveraging our Infosys McCamish platform. We are enabling a large utility to build advanced planning and engineering systems to forecast the dynamic nature of future electricity demand to help them plan and build their grids and leverage green energy policies to make sure there are efficient distributed energy resources. I am particularly pleased that we have opened another Digital Experience, Design, & Innovation Studio, which was last month in Shoreditch in London, where we’re able to co-create digital experiences with our clients. I am delighted to share that our employee reskilling program, Lex, our learning platform now covers a-near 100% of our employees globally, with employees already leveraging the Lex app each week to develop their skills. Also, I want to touch upon some external recognition we have received. Infosys has been recognized as a leader in the SAP, S/4HANA services by NelsonHall for global API strategy by the Forrester Wave and in the Public Cloud Infrastructure Managed Services area in the Gartner Magic Quadrant. Now that we see our clients’ confidence in us increasing with increased market share gains, we are focusing as well on operational efficiency and cost discipline. We have now completed all our investments that we outlined last year when we started our strategic direction program. All future investments will come from within our P&L and they are not specific as one-off investments that we did outlined last year. Over the coming quarters, I am looking forward to see the benefits of these operational improvements reflect in our business. Given the evolution of our business outlook, we are now changing our revenue guidance. We move from 7.5%to 9% in constant currency to 8.5% to 10% in constant currency. We retain our margin guidance at 21% to 23% for the full year. Later on in the call, Nilanjan will share with you our new capital return policy. With that, let me hand it over to Pravin.

Thank you, Salil. Hello, everyone. In quarter one, we saw acceleration in year-on-year constant currency growth to 12.4%. This was supported by our highest ever large-deal TCV. Five of our business segments, Financial Services, Communication, Energy Utilities and Services, Manufacturing and Hi-Tech clocked double-digit year-on-year growth in constant currency. North America, Europe, and Rest of the World also grew double-digits year-on-year in constant currency. Utilization excluding trainees during the quarter improved to 83.1%. Client metrics remain strong. Number of $100 million clients increased by two to 27. We completed the first leg of compensation increases in quarter one. Rest of the employees, barring leadership will receive their comp increases effective July 1. While overall attrition increased, this was largely due to seasonality, since employees leave us to pursue higher studies in quarter one. We continue to focus on strengthening the employee engagement, accelerated career path for top performers, greater learning opportunities, and performance-based differentiation. Large deal win momentum continued in quarter one. We won 13 large deals with a TCV of $2.7 billion, including the recently closed Stater deal with ABN AMRO. Three deals each were in Financial Services and Retail verticals, two deals each in Communication, Energy Utility Resources and Services and Manufacturing vertical, while one deal was in Life Sciences. Geography wise, eight were from Americas, four were from Europe, and one from Rest of the World. The share of new deals in overall large deal TCV was about 55%. We have reached our localization target in the USA and have recruited more than 10,000 local employees. Let me come to the business segments. Financial Services vertical continued its growth acceleration aided by recent Stater acquisition. We are seeing some challenges due to ongoing merger and acquisition situation in some U.S. banks and also in capital market business in Europe and U.S. However, there are also growth opportunities in consumer, corporate and commercial banking, cards and payments and wealth management, driven by digital transformation and technology modernization. We remain reasonably optimistic about growth prospects in FS due to increase in win rates and increase in our large deal pipeline. Stater deal will help in strengthening our mortgage servicing capabilities through digital platforms and enhance our presence in Europe. Growth in Retail is driven by large deal wins, opening new logos [ph] and differentiation on digital deals. There is acceleration in spending towards digital, IT simplification, and modernization to improve customer experience. CPG industry is seeing more consolidation and clients are asking for integrated BPO and technology services. Growth in Communication segment remains strong due to ramp ups of deal wins in earlier quarter. We continue to win large deals within the segment. With the 5G race picking up, the wireless telcos are under pressure to invest and maintain leadership. In 5G underlying technologies such as cognitive radio, small cells and smart antennas are becoming prominent. We are already working with our customers in advanced IoT used cases. Energy, Utility, Resources and Services maintained the strong growth momentum and we expect broad based growth to continue in this fiscal on the back of continued momentum in top accounts and new account openings. Utilities is spending towards customer experience and digital transformation. Resources is spending towards BPO, IT and ERP upgrades. Manufacturing vertical we are seeing some impact from global trade wars especially in Europe with cost cutting initiative being in place in multiple clients. Customers are looking towards digitalization of end-to-end processes with a strong focus on leading mobile, IoT and backend system simultaneously to provide a superior customer experience. In Healthcare, well, we have won some important deals, M&A in the sector and spending cut backs will impact growth. Life Sciences segment also is impacted due to cost cutting initiative like clients due to revenue pressure. Our digital narrative in the market continues to amplify based on the foundation of five pillar, experience, insight, innovate, accelerate and assure and the five accelerator proximity plus, agile plus, automation plus, learning plus and define plus. We are seeing good success in our digital business in terms of revenue momentum and order book. There’s continued demand in data and analytics, cloud, SaaS, user experience, security and IoT. In the last quarter Infosys was selected as leader in six of the digital services related capabilities including in modernization, IoT, experience and security. With that, I will hand over to Nilanjan.

Thanks, Pravin. [Technical Difficulty] FY’20 earnings call. Our revenues in quarter one were $3.1 billion, growing by 12.4% year-on-year in constant currency terms. This was our third consecutive quarter of double-digit constant currency growth. The sequential revenue growth in constant currency was 2.8% including 60 bps from Stater acquisition. Operating margin in quarter one was 20.5%, compared to 21.5% in quarter four. During the quarter the rupee appreciated by 1.1% against the USD, while USD strengthened against other major global currencies, which impacted the operating margin by 40 basis points. In addition margins were impacted by 60 basis points due to compensation increase, 80 basis points due to expenses on new visas largely for H-1B and 20 basis points due to Stater acquisition. These increases were partially neutralized by increases in utilization which help margins by 70 basis points, increase in realization and other cost efficiencies by 20 basis points and the minor impact of IFRS 16 adoption of 10 basis points. This led to a 1% drop in operating margins compared to quarter four. Operating cash flows in quarter one were $630 million and free cash flow was $485 million, off the CapEx of $145 million. The increase in CapEx is in line with our previously announced plans of creating new capacities in SEZs and overseas locations. DSO for the quarter increased by two days to 68 days largely due to the hyper Stater deals. We had similar benefits and creditors in line with the hyper business model. Rupee appreciation continued in quarter one. However, effective hedging program in short, but we had the 16th consecutive quarter of games in non-operating income, our hedge book of $2.5 billion at the end of the quarter. Yield on other income improved to 20.1% from 7.91% in quarter four. Effective tax rate for the quarter was 26.4% versus 26.8% for the financial year 2019. EPS increased by 3.2% year-on-year. We have made further progress on executing our capital allocation program announced in the April 2018, out of the maximum buyback size of INR8,260 crores. We have completed over 70% of the buyback at INR5,934 crores so far. We plan to finish the balance in quarter two, notwithstanding, the recent imposition of taxes and buybacks. During quarter one, we also completed payout of final dividend of INR10.50 per share for FY’19. Cash and cash equivalents declined to $3,570 million due to payout of final dividends and buyback in quarter one of $1,337 million. ROE has increased to 25.8% in quarter one compared to 22.7% in quarter four, an increase of over 3%. As we look to a more diverse company, we have now started including metrics of our gender ratios, which now stands at 37%. Consistent with our previously articulated objectives of enhancing returns for our investors, I am happy to announce that the company has revised its capital allocation policy. As part of the same effective financial year 2020, the company expects to return approximately 85% of the free cash flows to relatively over five year period to a combination of semiannual dividends and our share buybacks, and a special dividend subject to applicable laws and requisite approvals if any. We believe this progressive policy will further improve shareholder returns and provide more predictable cash flow for our shareholders. We have revised our FY’20 revenue growth guidance to 8.5% to 10% in constant currency terms. We are maintaining the operating margin band at 21% to 23%, despite the rupee appreciation. We expect operating margins for the remaining year to improve versus quarter one, subject to a stable currency environment. This margin improvement will be driven by continuous deployment of our operational efficiencies like utilization, rationalizing the payment on-site to offshore mix, automation and other overhead efficiency measures. With that, we can open up the floor for questions.

Thank you very much sir. [Operator Instructions] The first question is from the line of Edward Caso from Wells Fargo. Please go ahead.

Hi. Thank you for taking my call and congrats on the quarter. Could you provide some color on why you are having such success with the large deal wins, and how much of it is price and how much of it is positioning? And maybe split the two, split the wins between legacy and digital? Thank you.

This is Salil to answer the question, Ed. I think, part of what we see in terms of large deals is some of the investments we have made in our digital capabilities, they come together as part of a collective where clients are looking to modernize their tech landscape and us being large incumbent players with longstanding relationships puts us in a place of advantage with these new capabilities combined with some of the areas that are longstanding projects and contracts for us. In addition to that, the way we have looked at segmenting which sectors we go after and in part segmenting, which potential competitors that we should look at differentiating versus those are techniques that have helped us, and overall we see an increased engagement and intensity with our clients that is helping us. However, as you know well, large deals are by design lumpy. We have been fortunate in Q3, Q4, and Q1 to have very strong large deal numbers. These numbers for the year, we are very confident about, but each quarter as you know could be up and down.

My other question is on, you still have close to $4 billion in cash on your balance sheet. I assume that’s more than you need. You raised your sort of deployment of ongoing free cash flow, but what are the thoughts of potentially deploying some of the unnecessary cash on your balance sheet? Thank you.

Thanks. So, the ongoing we have -- as you rightly pointed out, we have made the change on the -- what we have on the balance sheet, as you know we have some part of our buyback that is still to be completed, so that will be used in this current buyback. We have plans over time to make sure that our balance sheet is efficient. As we look around, we will look to see if that means doing more within the laws and regulations buybacks for that or looking at other uses if we find small, appropriate acquisitions that we can look at.

Thank you.

Thank you.

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

Hey. Thanks. Congrats on the very strong TCV numbers. Just going back to some of the metrics that are related to the quarter, we are getting a lot of questions about organic growth, specifically the ABN AMRO contribution? And then how much did that actually add to the guidance raise for the fiscal year. And then our final point here, you have sustained your margin targets, but then what’s embedded there in terms of FX moves in terms of the Indian rupee versus some of the other currencies, and obviously given the fact that we have seen a reversal there in the past few weeks. Thank you.

For the ABN Stater acquisition, this was already built into our guidance at the beginning of the year when we announced -- it takes into account our future acquisitions. So our guidance is only got to do with more organic confidence of what we are seeing in the market. The impact of -- as in my call, I said the impact of the acquisition was 60 basis points on a sequential basis versus in the 2.8%, so that’s embedded in that. The question on, what was the question? On the margin. Yeah. So we have -- see we had given a guidance at the start of the year of 21% to 23% and that was -- and dollar was closer to $69.50 versus the rupee. We have absorbed 40 basis points at this quarter, but we are still at $68.50, remain confident that we will be able to hit our 21% to 23%. Of course, this is predicated on the dollar remaining where it is now. Like I said, we have multiple levers of operational efficiencies you already have seen that kicking in this quarter. Our utilization is up nearly 70 basis points, which had fallen, and of course, we have the automation benefits of how we can make our fixed price projects more productive. We have the whole onsite pyramid. So, the number of levers we continuously deploy, and that’s giving us the confidence that the rest of the year margins of 21%, 23%, we will be able to hit that.

Thank you. Appreciate the color.

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

Thank you. Congratulations and appreciate the increase in payout ratios. To start with, maybe you could comment a bit on what drove the increase in guidance, was this the better than expected deal wins in the quarter or any change in perception of weaknesses in verticals you are going into the year specifically in Financial Services or Manufacturing? Also relatedly is there any reason to narrow the band -- the margin, sorry, the guidance band on revenues so early in the year?

On the guidance itself, the main reason was with the strength of growth in Q1, which was 12.4% year-on-year and then that on the back of two other quarters Q4 and Q3 of last year being double-digit. And what we see in our pipeline, so our large deal pipeline has improved from April 1 through now. That improvement, and of course, some of the wins in the quarter, all of those things put together give us a level of comfort to raise this guidance from 7.5% to 9.5% now to 8.5% to 10%. In terms of specific segments, I think, you heard when Pravin shared the view on segments. Those are we see what we see across different segments. And the narrowing of the band, our thought was given we have one quarter into the year as we change the -- increase the guidance, we felt it was perhaps more appropriate at this stage to narrowing the band given what we were seeing.

Okay. Just a question on your U.S. or local graduate program globally, it’s probably been almost three years now you said you achieved your initial targets. Given that you probably have a lot of learnings about this program now, could you share what’s been the experience here in terms of scalability of this type of supply, the kind of pricing, utilization attrition, kind of parameters you get and also client acceptance, specifically compared to your traditional model on-site?

Hi. This is Ravi her. There have been quite a bit of learnings on how to hire, how to stop on programs, and of course, how to retain. And how do we create a trajectory into building a sustainable model for the future. Our partnerships with colleges to set the training up, going beyond stem, we actually went to Liberal Arts Schools and Design Schools, which is very new to us all across the world. And then we have started experimenting with community colleges as well, which is again pretty new to us and pretty new to the industry. So it’s a pretty exhaustive list of learnings and how we can sharpen this model and continue to sustain it on a long term.

Specifically, could you add some color, Ravi, in terms of how do you -- how scalable do you think this is going forward and what -- where does the pricing and utilization and attrition sit versus your traditional onsite and offshore supply models?

Yeah. So, the -- it is a scalable model. A percentage of our workforce can fit into a pyramid onsite and that’s the learning. If we have to sustain and scale it further, we have to move works to our hubs, so that the work actually moves from a two-tier onsite offshore to an onsite nearshore offshore model. As you are aware, we are also setting up our own training facility, which will help us to sustain this momentum on a long run. The key is to -- the ability for us to retain and actually create a career path for them to continue with us on a long run. So that’s broadly where it is. We do like eight weeks to 12 weeks of training as we hire from schools. That can be optimized and we could further backward integrated the curriculum of the colleges we are hiring from. What we are doing with Design Schools is again a new track which we are learning on. So effectively I don’t want to put a number on it, but what I can actually say that, the mix that the pyramid has to be onsite offshore and we kind of think now you could have a pyramid inside which is only onsite and you could have school graduates who are closer -- in close proximity to clients especially when you have agile work coming away. So that’s what I can kind of tell you at a high level.

Thank you. Appreciate the color. Best of luck.

Thank you. And the next question is from the line of Sandeep Shah from CGS-CIMB. Please go ahead.

Yeah. Thanks for the opportunity and congrats on a good set of numbers. Just if I look at last three quarters Y-o-Y pricing increase on a blended basis, it has been positive and despite no change in the onsite, actually onsite has gone down. So is it -- you believe is it a mix lead or Salil you believe that this is with improving contribution of digital this could be a new tailwind, which to some extent Nilanjan has also not mentioned in one of his positive levers?

I think -- sorry go ahead. You have something else?

Hello?

I think from my perspective we see that as a very critical parameter. It’s something that we think is a function of both of the factors that you mentioned, the mix and the capability, and it’s something that we are working on actively. We think it’s something in the medium-term, not immediately every quarter, but in the medium-term, we think that can be something that can help us to sustain and potentially even expand our margin outlook.

So this -- just a follow-up in terms of order book, is it possible to breakdown the contribution from the Stater deal, as well as, Salil, in the order book, do you believe the recent increase in the global tariff or any impending Brexit is leading to any kind of a scenario where you believe the order book traction may not may slow down in the coming quarters or you believe now that decision making has not getting impacted because of this? And some comments on the pipeline if you can give some color on quantitative how Q-on-Q and Y-o-Y in percentage term it has improved?

On the Stater, we have not stated externally that decoupling of the order book. But Nilanjan shared with you in terms of the quarter, the revenue and the year-on-year revenue impact that we have talked about. In terms of Brexit, we have seen today there are business in the U.K. has remain reasonably in good shape. We don’t see any particular change in our business mix today. We think once all of these Brexit discussions settle down, if anything, we will start to see some acceleration. But we don’t see any change or at least it’s not something we have decoupled to make it something of a concern within our pipeline. The overall pipeline we won’t share the stat externally, I stated to give some color earlier that from April 1 through now, we have seen a good growth in the large deals pipeline that we have and as part of the reason where we see some potentially increased traction in the coming quarters.

Okay. Okay. Thanks and all the best.

Thank you. The next question is from Bryan Bergin from Cowen. Please go ahead.

Hi. This is actually Jared Levine on for Bryan. Can you talk about, I know you discussed prior the sequential drivers to the decline in margins, but could you talk about the year-on-year bucketing of the decline in operating margins please?

I think the big ones which we have continued to mention, which we said in our last call. I think first is the increase in the compared related costs over the year, which was about 200-odd basis points and there’s a combination of investments we have made both in our sales force and that’s something we have ramp up. The other one is the impact of the high subcon cost, which we have seen over the last year, progressing that’s about 50 bps. The offset of that has been the rupee benefit about 40 basis points. We have got another benefit of the IPP, the rate question prior to that which was about 50 basis points. And of course, the special quarter one impact, which was 80 basis point and the higher visa cost, because we did not have that many visas last year, so that’s about 80-basis-point. So that gives us the overall 320 bps. I think if you see the quarter-on-quarter, I think that’s the more situation, which is to understand where we came from, how we ended last year and what is our growth plan in terms of improving our margins to hit our guidance of ‘21, ‘23.

Got it. Thank you. And then just one more quick follow-up, in terms of the digital deals you are winning, are there any kind that digital projects in particular like IoT or cloud deployment, particularly winning, taking a great here or kind of the projects currently?

Sorry, I didn’t follow that. What was the question about the digital?

Yeah. I would say in digital, are there certain particular projects that are accounting for great share of the wins like IoT or cloud deployment? What’s kind of making up the mix of digital wins currently?

So, to share with you, we have five broad areas within digital that we have outlined over the last year or so. Two of those areas we believe are going to start to become very large businesses and we see a lot of traction in those areas. One of them is the area of cloud. This is both cloud services, which are through strategic partnerships with AWS, Azure and Google Cloud or with some of the SaaS leaders such as Salesforce or ServiceNow and another very strong area for us is the area of data and analytics. Having said that, we also have strength in the other areas, for example, in the Digital Designs and Experience, in the area of cyber security and in the area of IoT, each of these are seeing good traction. So there’s no one that stands out, but the first two, I mentioned, I think, we start to see good scale benefit from that as well.

Perfect. Thank you.

Thank you. The next question is from the line of Ravi Menon from Elara Securities. Please go ahead.

Hi. Thank you. So, if you just back out what we think would be a five-year kind of contribution from state. It looks like your TCV is about $1.6 billion or so. And then, if you assume that there are no other kind of refinancing deals in there, surely that should help margins going forward. Would that be concurrent with your view?

So we decoupled large deals in the stats we have shared outside. We do see that a lot of what we are selling in the large deals that Pravin shared a stat earlier are net new and in that sense we feel good about how the margin profile of those deals will evolve.

All right. And Nilanjan said in his comments earlier that, that you are looking at the margins improving gradually over this year, so that’s why I asked this. Secondly, are you worried at all about the attrition being a little high here this quarter, so year-on-year too its up slightly. So given your utilization is also inching up. What -- where do you think you will be comfortable if the utilization given the current levels of attrition?

The attrition is something there is an area of extreme attention for us. We want to make sure that we take all the actions that we need to take to make sure this is within a level that is comfortable for our business going forward. Having said that, in Q1, as Pravin had said, we have taken a very strong measures and some of the attrition that’s in areas what we call involuntary attrition and some of the attrition in the stat is also for individuals who will leave to go for graduate school or higher education and that is somewhat seasonal. If you look at and our attrition stat takes all of our businesses into account is not just the IT services attrition. And so, if you look at the attrition we are focused on, we have a lot of measures we have put in place to start to address that, in addition to making sure that there is all the hygiene factors. We are also focused on really joining the opportunity set for our employees to a broader base and that improves the value connection that employees will have with us and we think over the next -- in the medium term over the next few quarters that should start to see some impact.

Sir, one last if I may, you have spoken about how Stater will actually help you kind of approach in Europe. Given the uncertainties with Brexit up here, this is something that do you see while the mortgage market has still being attractive. I know you are seeing some interest and potentially some please come through already?

Yeah. Hi. This is Mohit Joshi here. I think I should point out that Stater is primarily focused on the Dutch market and the Northern European market, right. So not so much on the U.K. market. So to that extent, I don’t see Brexit is having an impact on-site itself. I think the second thing is we see a huge opportunity globally, not just in Europe, in the entire mortgage servicing market, but also the mortgage origination market. If you look at Europe for instance and Germany, 98% of all mortgages are currently being serviced by the banks themselves. We think that this number overtime we will use to what we see in the U.S. The majority of the servicing is done third parties. Stater is the strongest and largest mortgage servicer in Europe. The Stater is also building up very significant front office. There is origination capability and middle office, underwriting capability. So, we think it will be a powerful proposition for us within Europe. And the capabilities that we have, even if it’s not the platform, the capabilities are applicable globally. Yeah, so that’s my perspective on the opportunities that we have.

Great. Thank you. Best of luck.

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

Hi. Good evening and congratulations on a strong quarter. I have two questions. Firstly, Salil, maybe if you could just talk about the localization efforts in the U.S. and you have done a commendable job in achieving your targets. Just wanted to understand, now that you have got to a reasonable level that your attention is set out for, do you think that that is good enough incrementally to start taking away some of the efforts involved from a subcontracting perspective or do you think that the skill sets are still very different and the subcontractors would still be required to meet the demand that you have won over the last few quarters?

So the localization work has indeed been positive and we are delighted with the progress it’s made. However, it’s the first step of a very long journey and we have plans in the medium-term on how we think our business model will evolve. In terms of subcons, here I think it’s not so much and/or it’s much more that both will exist. The skill sets that we see in the market today for which we are winning work, we have tremendous capacity of those skill set. But there’s always some demand which comes in where the fulfillment needs to be done on a relatively quick basis. We, however, have some operational levers that we are putting in place including localization as one of them that will help us to adjust to the subcon usage, for example, looking at aging of subcontractors that can give us benefits again in the medium-term into a margin.

Okay. Got it. My other question was, my understanding for your margin guidance of 21% to 23% for this year was premised on the usual wage hike cycle that you have already set out on. But given that your attrition rates are running high, is it a risk to your margin guidance if you have to go out for out of turn wage hikes, promotions or other incentives?

We are fully committed to our margin guidance. There will be lot of business situations plus and minus, but we will deliver our margin guidance.

Great. Thank you.

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

Thanks. Congrats on the quarter and other wins you may had. Two questions from my end. If I strip out the Stater contribution, banking seems to have been a little soft, how do you -- you spoke about deal wins being strong, but before that in the last quarter as well, from a reported basis, how should we see the banking as a new organically trend in the year? That’s question number one. And two, what are the pre-concussions do you think that really this year has been sitting down from a more manageable number according to you?

Sorry, I didn’t catch the second question. This is Mohit. Let me address the first question on banking. I think that is not true that banking was soft even after excluding Stater, and obviously, we haven’t broken out the Stater number for this quarter. But if you see the trend in Q1 of last year, year-on-year growth was 3%, this climb to 8.3% in Q4 and even excluding Stater, it continued to climb in Q1, and obviously with Stater it was significant double-digit growth, so that is not true that we had weakness in the quarter even excluding Stater. And could you repeat your second question?

First question I was actually talking from a sequential basis, if that has been…

Yes. Yes.

… exclude. Yeah, and…

No. Even sequentially. Even sequentially, while we haven’t broken out the number I can confirm that we had growth even excluding Stater.

Okay. And on the attrition what are the preconditions under which you think your attrition will come under control. What do we need to see in terms of organizational metrics for you to come to -- what does get you there to a more manageable number in your view?

See in historically -- this is Praveen here. Historically, attrition, we have been comfortable with the attrition in the range of 13% to 15%. These are normal -- and these are during normal times when there are less disruptions. But today we are living in an environment where there is a lot of disruption, technology disruptions happening. There is a increasing adoption of newer technology, there is shortage of skills. So to that extent there -- we are seeing a higher degree of attrition given the shortage of talent. So as Salil had said earlier and as I had also said earlier in my press conference, there are many things we are doing to bring it down. Significant part of the attrition is at lower levels, so during the current con, we have hopefully addressed some of it. There are lot of efforts we are doing in terms of increasing the engagement, increasing rewards, looking at higher performers, creating more opportunities, many initiatives are underway and we are hopeful that over a period of time it should come down. But eventually, I mean, once things stabilizes and once the talent gap actually minimizes then I think we will probably go back to 13% to 15%, but in the short-term, it will be slightly on the higher side.

Sorry, a quick follow-up to that, with acquisition being where it is and your first quarter margins outside the guidance range. Could you give us a sense on which half of the guidance span you would be more comfortable with at this point in time from a margin perspective?

On the guidance, our guidance is 21% to 23%. So at this stage we are not further narrowing or segmenting that guidance.

Fair enough. Thanks and all the best for the rest of the year.

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

Hi. My first question is just around some of the market share shifts. I know you have talked about this a little bit at the beginning of the call. But maybe you could talk about any changes in your approach. What piece of your customers businesses are leaving some of your competitors and going to you and what you have strengthened to kind of strengthen your position in the end market?

So here it’s more with respect to the traction, the comment I have made, there was a with respect to the traction we are seeing for our digital business. To give you one example with Microsoft we have been named as the number one partner globally for this year. It’s a shift where our capabilities on all of their products had, so from Azure to Office365 to all other workplace toolkit. Our approach to driving that into enterprise space is something that’s gaining traction. So it’s not so much taking away from another competitor we think, we are gaining market share in a space that’s growing, but our growth is higher than what the overall growth for that space is and we see similar type of traction in other elements of the five-year as the Pentagon of our digital focus. For example, we see that with some of the SaaS players. We see that in a lot of agile development work that we are doing on different toolkits. We see that even for the work we are doing for S/4HANA. So there are different places where we start to see more and more growth through those investments or capabilities that we are building have built over the past.

Got it. Okay. And then going back to financial services, we have seen a couple of different players, have troubles with some of the banking budgets that they are dealing with at the big banks and then we have seen a lot of news about what’s going on in Europe and the banking system there yet to put up some really good numbers. So maybe you could talk about your positioning in Financial Services and comment a little bit about some of those shaky budgets that we have seen at those big banks?

I think look it’s been a mixed bag. You have seen some weaknesses obviously in the capital market space both on the buy side and the sell side, and you have seen some challenges obviously in Europe. For us through this quarter, we will continue to do quite well in Europe. But on the flip side, some other side of the business like the consumer banking space, the commercial banking space, corporate banking and mortgages, I think these businesses are seeing good traction. I think, as Salil mentioned, look for us, it’s a mix, right. We are obviously seeing significant traction in the cloud space in the entire digital transformation journey for banking. Obviously, the new centers that we are building out, like the studio and shortage are really helping us engage with banks from a branch transformation perspective, from a digital user experience perspective. On the data space obviously there’s a huge focus on data monetization, data mining, banks are starting to move to the cloud and there obviously is a significant revenue opportunity for us. So I’d say it’s a mixed bag, right. You have certain areas of the sector, where you have some weaknesses, actually including the Life and Health Insurance business, but other sides of the business the traditional consumer businesses, the traditional corporate banking and transaction businesses are seeing a lot of investment. Finally, from our perspective, I think, there are two other pieces that are helping us from a growth in a mind share perspective. The first is that we have a very powerful product business in Finacle and Finacle is obviously gaining significant traction globally. We had a great quarter in terms of TCV bookings, expansion in North America and expansion in the European markets. So that is one unique differentiator for us given the strength of the product and the renewed interest in digital engagement, the reduced -- the renewed interest in omnichannel hubs. And the second piece I will point out is the new Stater acquisition. And as I previously mentioned in response to another question, we are really building out sub-sectoral capability in a fairly significant way, and specifically for the mortgages space, and mortgages really are the largest revenue line for our banking clients. The fact that we are building out significant mortgage front to back capability, I think, is another example of a unique differentiator.

Got it. And sorry, I am going to trying to sneak one more in because it builds on what you are saying. Are you taking market share in the U.S. from companies like FIS and Fiserv, how are you getting traction there. And with the lower margin profile, do you feel like you are more competitive in the pricing environment? Thanks.

So look I think you know if you look at the U.S. space, more broadly speaking, absolutely. I think growth in the U.S. in Financial Services has been very strong for us. Most of the time, FIIs and us, we don’t really compete in the same spaces and so, I don’t think that they are a significant source of market chugging for us.

Thank you.

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

Yeah. Hi. Thanks for the opportunity and congratulations on a good quarter. Firstly, maybe Nilanjan if you could take this on the wage hikes impacts in this quarter. The impact was I think close to 60 bps is what you said. And in the media comment, you also mentioned that there was deferral of wage hikes for certain, I think, bottom of the pyramid employees as well into the next quarter. But typically we have seen second quarter’s wage hike impact being lower, but is it expected to be on similar lines or different this time around?

So like Pravin had also said, I think we always have a staggered impact of wage hikes. Some portion of the wage hikes was deferred, but like I said that’s built into what we are seeing as our projections for the rest of the year. So I don’t think there’s anything unusual or aberration in that.

Okay. And secondly, Pravin, as far as the net new share is concerned, I would be assuming that Stater would be entirely in the net new and the percentages would be different if we were to exclude for Stater?

Yeah. Stater would be entirely net new.

Okay. And just lastly from my side, I think, towards the end of the quarter, you would announced a partnership with Pan-American Life Insurance Group, a sort of I think on the policy administration site. So just difficult to throw some light on the nature of that deal and we have seen your peer announce a lot of deals with on the insurance platform of much larger size in the nature. So just wanted to know if this would actually compare into similar space or would be completely different?

So, look, I think, we are seeing a huge interest and this is true for our peer group as well. As you look at the Life Insurance and Annuity business, there is a significant amount of interest in using third-party processors in making sure that the closed book at least is being done by more efficient producer. In reality, what has historically been more of a processing business, now there’s a lot of interest and also a better user experience more of a front-end transmission base. And we feel that this is an area which will see significant growth. We are fairly optimistic about the McCamish platform that we have. We have also modernized it very significantly and there are significant deals that we are seeing in the pipeline, which will allow us to really -- which will really allow us to build on the growth that is being seen in the marketplace.

Thanks for taking my questions and all the best.

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

Yeah. Hi. Thanks for taking my question and congratulations to the management team for an excellent quarter. So, couple of questions, Salil and Pravin from my side. First on the digital side, we are growing at 40%, 42% and our proportion is continuously rising. And I understand that the business has changed and it is not fair to keep apart the growth rates and understand, but just wanted a little bit of clarification on this side. The way we are growing and the way our order book clearly titled towards the newer technologies, are we going to see a phase where you know the leakage from the non-digital piece will come to us, halt and that will lead us -- lead to a much higher growth than what we are seeing structurally going forward, although size obviously is a concern. And I am not asking for a specific guidance, but I am just trying to understand whether the growing proportion of digital will lead to a structurally better growth going forward? And second question, when you meet your client what is your sense. How much they have penetrated in terms of spending on the digital. Is it a very, very early stage or it is a little bit in the medium -- middle phase or how do you foresee that? And another question which I had was on the attrition side. We have generally seen that, when you have two, three, four quarters, good quarters then the attrition rate just should come off and I have seen that in last four or five quarters tremendous amount of effort has been made both on hike side and the promotion side and also to some extent, I think, the stock option side, and still we are not seeing any kind of control on the attrition number, in fact they are worsening. And so my concern is that, is there a substantial portion of involuntary piece in this or you think the voluntary piece is still the high end, I am not asking specifically for this quarter, because if this continues then our dependence on external resource will not come down and subcon cost may remain elevated, which may not allow us to beat top end of our margin anytime soon? Thank you.

Okay. So there are several points that that you share, starting with the structural piece. We have view on the digital addressable market and the growths rate, we will update it in the coming quarters when we have another session for our Analysts Day. If you recall we have shared, it’s about $160 billion market growing at 15%. So that’s the piece that we are investing in and we see some traction. On what you talk about and what we have defined as costs services, we have not declared the growth rates. But I think the market view is available if you look at what’s with third-party agencies who have a lot of data like Gartner and others, and it’s fair to say that that market has more challenged growth environment today. In that context is how we have developed a strategic approach and that’s what we are executing too, we have a view on where this might go medium term, but we have not actually shared any of that externally. We think the way that we are driving this, for example, the 12.4% growth in Q1, that’s a good indication of what other sorts of things possible when many things come together in the fortuitous way for us in the quarter. In terms of the attrition, there is -- we have talked about operational efficiency and we have now more and more intense focused on involuntary attrition as well. There has been some element of what is still on the seasonal because of higher education and when you start to strip that out we see the attrition numbers while not improving they are stable and so we still have work to do to make sure they start to trend down.

Thanks. That’s all from my side.

Thank you. 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 would like to thank everyone for joining us today on this call. We look forward to talking to you again. 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 many now disconnect your lines.