Infosys Limited (INFY) on Q2 2022 Results - Earnings Call Transcript
Operator: 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. . 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.
Sandeep Mahindroo: Thanks, Margareth. Hello, everyone, and welcome to Infosys earnings call to discuss Q2 FY '22 earnings release. I'm Sandeep from the Investors Relations team in Bangalore. Joining us today on this call are CEO and MD, Mr. Salil Parekh; COO, Mr. Pravin Rao; CFO, Mr. Nilanjan Roy; along with other members of the senior management team. We'll start the call with some color on the performance of the Company by Salil, Pravin, and Nilanjan before opening up the call for questions. Please note that anything that we say which refers to our outlook for the future is a forward-looking statement, which must be read in conjunction with the risks that the Company faces. A complete statement and explanation of these risks are available in our filings with the SEC, which can be found on www.sec.gov. I would now like to pass it on to Salil.
Salil Parekh: Thanks, Sandeep. Good evening, good morning to everyone on the call. Thank you for joining us today. I trust each of you and your families are safe and healthy. I'm delighted to share with you that we had another exceptional quarter with increased market share gain in demonstrating more and more trust that our clients have put in with us, and the strength of our digital and cloud capabilities. Our growth was 19.4% year-on-year and 6.3% quarter-on-quarter in constant currency terms. I would like to thank the entire 223,000 employees of Infosys for their incredible dedication and world-class spirit.
Sandeep Mahindroo: That made the work we do for our clients so impacting. Our year-on-year growth was the fastest we have seen in 11 years and built on the quarter that was a great quarter this time last year. Our growth has been accompanied by resilient operating margins at 23.6%. We delivered these margins while we kept in the forefront our focus on employees with increased compensation and benefits. Our digital business grew by 32% and is now 56% of our overall revenue. Within our Cloud work is growing even faster and our global cloud capabilities are resonating tremendously with our clients. We are working with a large global Company, for example, on their private cloud deployment. We are working with a large bank on the public cloud expansion. We're working with several of our clients on sat cancellations and cloud-native developments. Some of the other highlights of our results are: Revenues were 3.998 billion, which is a growth of 19.4% year-on-year and 6.3% sequentially in constant currency, our digital business grew by approximately 6.4%
Salil Parekh: year-on-year now constitutes 56.1% of our overall revenues. We had broad-based growth across all our sectors and service lines. All asset sales reported double-digit growth. Financial services grew by 20.5%. This of course is our largest sector of growing exceptionally well, manufacturing grew at 42.5%, retail by 17.2 life sciences by 26.1, in terms of geography, North America grew by 23.1% reordered by 19.6%. Our large deals were strong at $2.15 billion, our
Sandeep Mahindroo: onsite mix moved to 23.6% and our utilization at 89.3% and operating margins were resilient at 23.6%. Free cash flow was strong at $712 million. Our attrition moved up to 20.1% and we will talk a little bit more about that later in the call with Pravin. We had a net headcount increase of 11,664, attracting leading talent from the market. We remain comfortable with our ability to support our clients in their digital transformation journeys. We are rapidly expanding our global talent pool and an increase of college graduates are in the 45,000 for this year. Last quarter, we had this number of 35,000 people. I'm also delighted with our increased focus on. As many of you know, we have already being carbon-neutral since 2020. Our ambition for 2021 is articulated, and we are building on the momentum to create impact by accelerating our growth with the launch of Infosys Springboard, which visibly scales to millions of students. With the strong start to the financial year, good deal momentum in Q2, robust pipeline, we are increasing our annual revenue growth guidance which was at 14% to 16% previously, now we're moving to 16.5% to 17.5% growth in constant currency. Our operating margin guidance remains the same, 22% to 24%. We have a very special moment in this quarter, which will be Pravin's, last full quarter before he retires, after an incredible journey of 35 years with Infosys. Pravin's contributions to the Company are innumerable. Reason in that I will dreadfully miss his tremendous depth of knowledge of the business and his contagious sense of humor. My best wishes to Pravin in all his future plans. We will announce our future structure in the coming weeks, well before Pravin steps down. With that note, let me hand it to Pravin for his updates.
Pravin Rao: Thank you, Salil. Hello, everyone. Hope you and your family are doing good, safe, and healthy. Growth accelerating continued in quarter two with year-on-year constant currency growth at 19.4%. quarter 2 with next broad-based double-digit growth across all business segments and both North America and Europe. Operating parameters continued to improve further. Your client-facing improved to a new all-time high of 89.2%. Onsite FX mix reduced further to a new low of 23.6%, driven 22 large built up over 15 million totaling 2.2 billion TCV, 5 each in financial services and net view resources and services, 3 in retail and manufacturing, 3 each in communication and high-tech, and 1 each in lifetime interests and other segments. Within my 15 debt from America, 6 debt from Europe, and 1 from the rest of the world. The share of the new builds in quarter two was 37%. Client metrics improved with over $100 million client accounts increased to 35, an increase of 5 year-on-year. We added 117 new clients in the last quarter. the last 1-month attrition increased 20.1% while attrition has increased on the backup height industry growth and supply tightness, especially in the niche areas. We continue to fulfill client commitments through increased hiring, balance rescaling, and of higher usage of We have stepped up our hiring program and have added more than 11,600 employees on a net basis, the highest of several in a single quarter. In we onboarded over 25,000 college graduates; and for the full year, we have increased the college graduate hiring target to 45,000 globally. Our activation rate for our employees and their dependents across locations continued unabated. Currently, over 86% in portion targeted at least one dose of vaccine. Moving to business segments. Starting with financial services, I'm happy to share that in the last quarter, Infosys was ranked number 1 by FX in the Banking and Financial Services Providers' top 10 2021. As we unveil our year-on-year growth was over 20% on a constant currency basis this quarter and this industry-leading growth has of the past several quarters. There has been strong demand and momentum across all regions. North America continues to lead growth as we execute on large transformation programs and win market share. Also increasingly focusing on upscale branches, improved customer experience through AI and analytics, and begin some transformation lead cost agenda. Our focused investments in building strong sub-vertical and platform capabilities in regional banking, retirement services, mortgages, asset management, and payments are working at the differentiated in miming, not big and visitors transformation programs. We are ready for the send-out food strike digital transformation player with a combination of our domains, that technology plus operations, that digital transformation capabilities. Performance of retail segment remained strong as plans continued to make investments in new digital capabilities in commerce, marketing, and supply same areas. We are seeing a focus on areas like a digital consumer, analytics, digital promotion, but no labor security, et cetera. Our recently launched cleanup platform seems significant traction from both our existing and prospective plans. We have a strong pipeline and expect steady performance for the segment in the coming quarters. Communication segment performance improved meaningfully on both sequential and year-on-year basis. On the bank upon the back-off ramp up a new building. We're witnessing increasing momentum for CapEx roll-out for 5G deployment across regions. Our 5G leading gaps with its capabilities and the promise of future renovations is a key differentiator in the 5G space for the DSPs and OEMs. Energy utility resources and services vertical growth accelerated further with continued large buildings. Clients in various sub-segments are paying retentive and are prioritizing products and on cloud transformation, customer experience, data analytics, automation, cybersecurity, etc. In a nutshell, we have made good progress in developing the integrated energy as a service solution, which aims to enable clients to access renewable low-carbon energy, use energy more efficiently and optimize supply and demand across multiple users and assets without having to invest in additional energy infrastructure. Growth in the manufacturing segment accelerated significantly, with the downloading starting to ramp up. Growth in the last quarter was broad-based across Europe and the U.S., as well as across industrial, automotive, and aerospace industries. We are seeing traction in engineering, IoB supply chain, cloud DRP, digital transformation, and cloud migration areas. The pipeline continues to be strong and this directs the confidence that growth in manufacturing for Infosys will continue to be market-leading. Infosys BPM performance remained stable as most of the geographies are witnessing a slow return to normalcy. We see a good bid pipeline with a healthy share of digital deals. Share of digital to overall revenues, increased to 56.1% in quarter two, with continued strong growth of 42.4% year-on-year in constant currency terms. We continued to see a big focus on digital transformation, especially around cloud, commerce, and employee experience. As customers addressed to determinant dangerous in both shopping head expense hybrid working. Cost takeouts have been surpassed by the improvement of digital experiences, with increased sales and great customer employee loyalty. In the last quarter, we have been ranked the best leader in nine digital services-related capabilities in the areas of cloud services, experience and design, big data and analytics, ILPM engineering, modernization, and artificial intelligence. To conclude, I want to thank you for the role our tech support and because you have extended our services through the year. I wish you all the success in your future and the rest. With that, I will hand it over to Nilanjan.
Nilanjan Roy: Thanks, Pravin. Hello, everyone, and thank you for joining the call. Hope all of you and your families are safe and well. The revenue growth accelerated program quarter 2 on the back of a very strong quarter 1. We had strong double-digit growth in all the business segments led by manufacturing and financial services, which grew at 42.5% and 20.5% respectively year-on-year in constant currencies. Our largest geography North America also grew year on year at 23.1% on constant currency. Consequently, constant currency year-on-year growth increased to 19.4%, which is the highest growth in any quarter in the last 11 years. Sequential growth in Q2 also draw an activation to 6.2% in constant currency, which is the highest sequential revenue growth in any quarter in the last 6 years. Q2 margins remained resilient at 23.6 despite headwinds from salary increases for most of our employees, higher upfront costs, and supply site challenges, which are largely offset by an improvement in operational parameters and scale benefits resulting from growth. The major components of the sequential margin movement are as follows: 1.1% in taxes due to comp hikes will be effected July to most of our employee base, a 0.5% decrease upfront costs which were offset by 80 basis point benefit due to cost optimization and improvement in operating parameters, 50 basis points as unit scale benefits, and a 30 basis point benefit due to and cost currency movements. leading to attend basis for jobs and sequential operating margins. Q2, EPS grew by 13% in dollar terms and 12.7% in return on a year-on-year basis. The IPO for that 66 days on the improvement of 4 days versus the last quarter on the back-off to the best collections. Free cash flow for the quarter was 10 million. And as it definitely the net profit was 97.1% for Q2 and 109.5% for each one. The yield on the cash balance of 5.1% compared to 4.9% in Q1. We have completed the buyback over 29,200 growth on September 8th, at an average size of approximately 1649 per share compared to a maximum buyback price of repeat 1750 per share, leading to a 1.31% of active. With this, the Company has returned approximately 82% of the free cash flow buy-side 2021 with dividends and buybacks, close to the 85% in our 5-year capital allocation policy. Even after the capital return, we continue to maintain a very strong debt-free and liquid Balance Sheet. Consolidated capital investments at the end of last quarter were $4.42 billion. Return on equity increased further to 29.8%, an improvement of 3.1% over Q2 last year, driven by consistent performance and increased capital requirements. The board has also announced an interim dividend that will be 15 per share, an increase of 25% will acquire interim dividends and equal to the final dividend of the prior year. We feel a robust demand environment coupled with tightness in the supply side, which will result in higher recruitment, compensation, and sensing costs in the near future, along with seasonal headwinds relating to. However, we remain confident of our ability to partially offset some of these cost headwinds through the factory cost efficiency improvements measures and deliver well within our margin guidance for the year. With a strong Q1 and a robust pipeline, we are increasing our revenue growth guidance for the year to 16.5% to 17.5%, from 14% to 16% previously. We reiterate our operating margin guidance of 22% to 24% for the full year. With that, we can open the call for questions.
Operator: Thank you very much. We will now begin the question-and-answer session. . The first question is from the line of Ankur Rudra from JPMorgan. Please go ahead.
Ankur Rudra: Thank you. First of all -- Clearly, very good results. It's nice to see the margin execution on the guidance upgrade. To start off with -- Salil, if you could give us a sense about how you feel about demand visibility given innovator visibility in increasing guidance, but we continue to see a drop in the large deals size. So how do we think about that?
Salil Parekh: Thanks, Ankur, this is Salil. In terms of demand, we continue to see a good pipeline in terms of large deals. We are participating more and more in areas which relate to digital transformation, which relate to cloud work, which relate to data and analytics work. We see this across all industries and we see that large enterprises are accelerating their spend. Their trust in us is strong because of the capabilities we have built. So the demand from that piece, which is the large deals, is looking good. Then there is the demand which is from our existing client base, where we're seeing a tremendous expansion in all of our large clients. Some of the stats on this are the number of clients over 100 million and number of clients over 50 million, both of which are expanding quarter on quarter and as you look back to this time last year, year-on-year. With that, we feel good today to increase the revenue growth guidance and that's the clearest indication that the demand is looking quite good right now. So overall, still in good shape with the demand and feeling quite confident with the way we've increased the guidance.
Ankur Rudra: Thank you. Just a one thing on the talent supply side, how do you feel about the ability to meet with this continued strong demand? Maybe a comment on the graduate onboarding, have you been, for example, able to reduce the time taken to for that part of the supply?
Pravin Rao: Pravin, here. I think we have been -- I mean, if you remember earlier, last quarter we had talked about this year, but based on the demand outlook can increase We are able to quickly ramp up to 45,000 for this year and in fact this quarter, we added about 15,000 campus recruits, which was probably the highest ever in Infosys history. So today, we have the ability to recruit campus types because of the investments we have made in attachment platforms, the InfyTQ and another things. It allows us to access talent anywhere in India or even globally for that matter and the turnaround time is much faster. So we are pretty confident and if there's the need to revise it for that build or needs, we are more than equipped to deal with it.
Ankur Rudra: Understood. And just a last question on margins, Nilanjan, clearly very good execution this time. In terms of the headwinds and the tailwinds you see for us now, would it be fair to assume the headwinds are behind us? And could you also comment about why not narrow the margin band, while the revenue band has been narrowed?
Nilanjan Roy: So I think as we've talked about, we've done this compensation hike in Q2 and we will continue doing what is necessary, and in fact, Pravin also mentioned in Q3, we have also rolled out skill-based plans, also, cost of hiring is going up so we will see some headwinds along with the seasonal headwinds of, far lows and working days in the future -- near future. But overall, I think for the margin guidance perspective, we're quite comfortable to stay within the 22 to 24. And I think historically, as we received, we've never chain the margin guidance little more of an operating band. We're comfortable to be. And so we don't narrow that down historically.
Ankur Rudra: Thank you .
Operator: Thank you. The next question is from the line of Moshe Katri from Wedbush, please go ahead.
Moshe Katri: Thanks. Also congrats on very strong results and Pravin, we're going to miss you. It's been really a great experience working with you and best of luck. Two questions, one can you talk a bit about what we're doing to contain -- the attrition rates have been pretty high. maybe there's a way to also break down attrition by voluntary and involuntary? Then the other question is more broad-based, Salil. Looking at the budget cycle for calendar '22, maybe a bit too early, but are you getting any specific indications about budgets for next year? And in the contacts, the strong growth that we're seeing this year, do we feel that this is still part of that multi-year spending cycle that the NC has been talking about for a couple of quarters? Thanks a lot.
Salil Parekh: thank you very much for the wishes. From a volunteer attrition perspective, we mentioned on an LTM basis, it was increased to 20.1. Most of the attrition has been for people in lower between 3 to 6 year first experience. And this has been the trend in this industry, because in this experience, people are still not emotionally connected with the Company and sometimes, it's easier to have more around and that's what we are seeing this time around as well. And as I mentioned earlier that this is -- I mean, cost of visits altered due to unprecedented demand, as well as the income geography Tier 114, lack of talent, mobility that has altered attrition in some of the countries. What we have done -- I mean, obviously we expect this to probably perhaps continue for a couple of quarters or so, but once we have more talent available in the lead back to the real level. But having said that, we have done significant into instance to contain this, we had two rounds of compensation that reviews skill base correction for high demand skills, targeted retention for new skills, a higher number of promotions, and so on. We are also focused a lot on mobility of people, we have had a lot of IDPs, we have focused a lot on employee engagement, over close to 5,000 employee connect stations, a lot of focus on carrier development, continuous learning. We have introduced new career paths like digital specialists, we have big programs as well, and we also launched several wellness initiatives as well. And as we talked about, we are also ramping up our entry-level, hiring in an aggressive way so that we are able to meet some of the demands that are out there. In the long term, we are also taking a fresh look at the current strategy approach. There's not only -- given the current high attrition, but also our belief is that the fundamental shifts in employee thinking behavior in the post-COVID world. And that means that you have to re-look at the employee value proposition and fine-tune that. So that's something we have started taking a hard look at it. That's from an attrition and talent perspective. In terms of the budgets, I think in the current context, budgets are no longer realizing that pent, because there is a lot of pent-up demand. And at least this will continue for a few quarters, if not years. And there are various reports we talk about that intensity increasing from 3-5 impact. One of the guards net report talked about the kind of spending the next 2 to 3 years, will probably either go back to 2010 to see that kind of demand and form. In that context, My own sense is I'm invited by this, maybe, an operations thing that people will actually do that. But it may not have the 11 because there is enough and more demands at least for the next few quarters.
Moshe Katri: Thanks for the color.
Operator: Thank you. The next question is from the line of Diviya Nagarajan from UBS. Please go ahead.
Diviya Nagarajan: Thanks for taking the questions and congrats on a strong execution in the quarter. Just a couple of questions from my end. Could you kind of talk about the puts and the takes that you had for margins this quarter, I believe there are some headwinds in there. So run us through how your managed to maintain margins in terms of the percentage. Please, take question number 1.
Salil Parekh: I think with my opening remarks that quite straightforward in the margin walk. The with growth broad-based across the whole sequentially that was 1.1%, in fact, we had a 50 basis points upon cost going up due to higher fulfillment. These were offset by about 80 basis points due to cost optimization and adulterating parameters. 50 basis points on team benefits on . And finally, a 30 basis benefit on rupee and cross-currency movements. I think the comp-highs and sub-comps, were negated by cost optimization and benefits.
Diviya Nagarajan: And from -- I think, Pravin, you talked about the daily contracts having started on our softest quarter. Could you kind of give us some sense on how many months a week of revenue contribution came in from that, and was there any impact at all from that contract on margins? Was there any pass-through revenues or anything that is yet to come, or how should we think about that going forward?
Salil Parekh: So I think, of course, between during the quarter, and it is intact like you can see all the manufacturing. But even if you strip that out, we can't get the numbers, rarely, but even if we strip that out, we can see a very broad-based growth across all sectors, both on a sequential and a year-on-year basis. So like I said earlier, it's more than icing on a cake, impacting the underlying growth.
Diviya Nagarajan: For my last question is, how should we think about seasonality going into December and March? Which should we expect some kind of nominal seasonality or guidance seems to suggest that we're looking up a fair amount of seasonal slowdown coming in at the top brands as well. Is that something that's driven by holidays and welcome, or do you think that's a normalization of demand that's coming in also?
Salil Parekh: Hi, this is Salil. There's always seasonality that you reference which I know you're aware of in Q3 and Q4, especially in Q3, we will typically see some level of furloughs. And typically that, at least at Infosys in our Q4 less -- our less trend, historically. Having said that, the demand environment today looks extremely strong. So we've tried to balance those two things, in increasing guidance significantly. From 14, 16 to 16.5, 17.5, yet, making sure that we have everything that we know of today to deliver to that high level of growth. So we will see some seasonality. There is a good overall demand outlook as well, yeah.
Diviya Nagarajan: Thanks for taking my question. Pravin, it's been a pleasure working with you. Hope to stay in touch. And I'll come back in the queue if there's time. Thank you.
Pravin Rao: Thank you Diviya.
Operator: Thank you, the next question is from the line of Sandeep Agarwal from Equirus.
Sandeep Agarwal: Hi, Good evening. Thanks for taking my question. Congratulation on a great set of numbers and best of luck and for your long, what a great stint and for . I have only one question announced that really fits our composition of business we have more than half of the business coming in from digital. And the way the growth is coming, it looks like that next couple of years we will be publicity for --
Operator: I'm sorry to interrupt you Mr. your voice is breaking up, sir. We cannot hear you well.
Sandeep Agarwal: Can you hear me now? I'm actually on hand phone-only, my question is that by the next couple of years with the same growth continuing in digital, we will probably 3/4 in digital. So does that not mean that actually the industry is moving towards high-growth, if we see it from a longer-term perspective or you're seeing that there will be some saturation also in the digital growth, which we see after a couple of years; any thought on that front?
Salil Parekh: So thanks for your question, this is Salil. In terms of what we are seeing with clients to the capabilities that we have built outs, for example, Cobalt. We've also launched and announced and other capability called Equinox, which is relating more to everything which is online in the e-commerce space. Other areas of digital, which we have invested in scaled up over the past few years, those areas we are seeing the demand very strong in today. It's difficult to see in that 2 year horizon that you're mentioning. Our good guidance really is for this year, where we expanded it, but everything would indicate to me that this scaling up, this digital work transformation is something which is ongoing. And many large enterprises are at the early stages of their digital and Cloud journey. So I don't see -- I don't get the sense that we are in the late stage, but in terms of really the guidance we are focused on this year. But overall, I'm quite optimistic that this is a good place to be in terms of the future.
Sandeep Agarwal: Thanks a lot. That all from my side and best of luck for the current quarter. Thank you.
Salil Parekh: Thank you.
Operator: Thank you. The next question is from the line of Pankaj Kapoor from CLSA. Please go ahead.
Pankaj Kapoor: Yeah. Thanks for the opportunity. Pravin, this increase in the fresh shedding period to 45,000. Is this a one-time because of the current situation or you think there is a structural shift in the way we are going to hire? If you can give some sense of what kind of hire plans you have for our first next year?
Pravin Rao: Yes. It is obviously based on the current demand outlook that we're seeing and high attrition. It's too early to comment
Salil Parekh: But if whatever we're seeing and hearing that this demand continues for the next several quarters then you could potentially see, given the shortage of talent the you will probably see a higher number of such a recruitment globally. It's a bit early to think about next year, but at this stage, we believe that they'd be on similar lines that they're profitable this year but we'll take a look at it on a quarter-on-quarter basis. And as I mentioned earlier, to one the question, today, our ability to recruit on a dynamic basis, it's my payers vehicle investment in platform, the ability to assess candidates all through the online platform. So we'll take look at it. So at this stage of attentive, next year answer would be on similar lines, and difficult to comment beyond that.
Pankaj Kapoor: Understand. And Salil my question was also on the renewal that we have been seeing which have been obviously pretty dominating in the last 2, 3 quarters. Our new deal wins seems to be just around less than 40% of the deal against. Any sense in terms of what is -- what could be the reason behind it? Are you seeing fewer number of those legal contracts which were there, say 4 quarters back Our clients taking slightly longer-term in time to decide on them, or amusing then getting restructure more than 2 solid context.
Salil Parekh: They're -- this is Salil. They're on the renewals, that we look at it, is first, where do we have an existing relationship and long-term work. We are very clear that we want to make sure that the clients trust in us gives us a longer stay extension and typically some level of expansion. And that's why it's more critical for us to need to look at the renewals in absolute value because that is -- depending on when those contracts come up, we want to make sure that that continues. In terms of the new work, what we are seeing, Pravin shared earlier, we had 22 large deals. Large deals, so that's being deals over 50 million in this quarter. And that number is very robust. When we compare the number for each one versus last each one, that's very robust. The one distinction is a mega-deal that we had last year in this quarter. Those things in terms of mega-deals are things which are difficult to predict which quarter they will show up in. In our pipeline, we have a good representation of those. Overall, the pipeline is quite strong. So at this stage, given all of those things, we've chosen to increase our guidance and therefore remain quite positive on our -- the outlook is there for our businesses.
Pankaj Kapoor: Understood. Thank you and wish you all the best.
Salil Parekh: Thank you.
Operator: Thank you. The next question is from the line of James Friedman from Susquehanna. Please go ahead.
James Friedman: Hi, and let me echo the congratulations Pravin, I've learned a lot from you over the years and I appreciate it. I know you keep getting asked about this, but we do to. Any sense at this point when or if you would see stabilization in the attrition at the industry level? And where is the industry losing the people to? Are they going to tech pure plays, to your customers, to captives, we're just wondering about that. Thank you.
Pravin Rao: Thank you, it's Pravin here. I think at this stage, maybe in the next 2 to 3 quarters, perhaps the attrition will stabilize given touching flex-ups of our talent. The demand is far outstripping talent supply that's available even globally, and that's why we're seeing this phenomenon not only with us, but across the industry, and we're seeing this even in other industries as well. In terms of where they're going, I mean, it's is a common thing, right? Typically we lose people to competition and we also recruit from competition, so one part of it. But again, we are also seeing losing people to captives, we're losing people to -- on the hyperscale, we have also started recruiting, we're seeing losing candidates and of course, in India startups now again have become very attractive with a lot of unique content. that's a combination of things. I think the this to influx more into the next, and that we believe that probably in the next 2-3 quarters, that will happen with aggressive . We should be able to bring it back under control.
James Friedman: Thank you, Pravin, all the best.
Pravin Rao: Thank you.
Operator: Thank you. The next question is from the line of Sudheer Guntupalli from , please go ahead.
Sudheer Guntupalli: Good evening gentlemen. Thanks for giving me this opportunity and congrats on a good quarter. Firstly, Nilanjan on effort mix site onsite-offshore a third split. I'm just curious as to why the on-site share of efforts has come down in this quarter, despite. didn't ramp up. And in the beginning, in the initial phases, I would have expected that the ramp-up would show up as higher share up on-site. And that is number 1. And in general, a little bit of travel has also opened up. It's not completely, so despite these to reasons I think you're able to show higher offshore, acquired offshore share of in this quarter. Anything on what might be there?
Salil Parekh: Yes, I think, like I said, Daimler's market's one fact we have. It's a large business which we run and we worked like Daimler ramp-up in the last quarter, it's not suddenly that everybody is on fact on one day. So you would see these Lipson onsite-offshore mix and last quarter it was more TACNAV, but now you've seen movement. But I think more importantly to see secular trend, like I said, there's demand at a global level. I think greater than going to get really sustain some, in the long run if it's going to be from talent here because that's quantity and skill and digitally skill talent is largely available in India. So while we continue to hire locally in large numbers,
Nilanjan Roy: In our localization, the U.S. has already reached 70%. We announced more than 10,000 additional hires over 2 years. But despite that, you will see the volume growth and the mix within that if you continue to technically move towards more offshore.
Sudheer Guntupalli: Okay. And Salil, my second question, if you actually look at the experience market is for cable where we had seen the highest seclusion, which is in the 2 to 6-year bracket. So at this level or perhaps the entry-level of last 10 years, industry has not seen much of salary revisions. On a real basis if you see, real basis, if you see, perhaps it could help deal in the negative territory. I'm not talking just about the entire industry. Now given the kind of demand we're seeing for this experience bracket, can we expect some sort of structural increase in the salary levels, which can have a longer-term impact on margins, let's say 1 or 2 years down the lane, when the demand might not be as robust as it is today?
Pravin Rao: I think -- See on the salary entry-level and it's a function of because they may recruit people in this lot in training and enabling them to take a ride before they become productive. But as the more business in increased dramatically. So the people between 2 different shifts really quitting, they would have got a good salary gem along the way as well. So I don't see the entry-level , then actually -- I mean, there'll be some connections here and there, but at the same time, at least some other perspective. We have also started differentiating at entry-level extensions. They're created to set up things, one is -- one called follow-up programmers and other one is called . And these print s, we are recruiting them at the higher compensation. And we're also attracting and it's a very stringent criteria for selecting this candidate. There's none that background as well as passing a couple of thoughts. If people are able to pass that, then we recruit them in these groups screens and mathematics higher compensation. So going forward, rather than -- because at the entry-level, we are recruiting in skill, right? But within that we are trying to differentiate, and where we feel that people come with very strong skills capabilities they can be declared immediately, and we are looking at the different compensation rates.
Sudheer Guntupalli: Thanks, Pravin, As always, interactions with you have always been very insightful. Congrats and all the best for your future endeavors.
Pravin Rao: Thank you.
Operator: Thank you. The next question is from the line of Keith Bachman from BMO Capital Markets. Please go ahead.
Keith Bachman: Hi, thank you very much. I wanted to also ask about attrition. And you did make the comment that you think attrition improves next year. And I wanted to -- I don't disagree with you, but I wanted to understand your thinking and more specifically, is it because demand slows across the industry? And as you referenced, it's an industry issue. And that allows attrition to improve or there's some something fundamentally that you think demand can stay at these levels or maybe moderate a touch, but you can continue to hire more freshers to meet that. But it is an industry problem. Your numbers increased substantially quarter-to-quarter on attrition. And so just wanted to understand a little bit more about, why you think attrition improves, because there is such a significant industry problem, not just an emphasis issue. And then I have a follow-up, please.
Pravin Rao: Yes. This is Pravin, I think it's -- I mean we're the attainment that attrition will stabilize primarily because of infrastructure of the demand will continue we're not seeing at least in, in yet to take demand coming down by all account. But today that's our paid-off problem. And particular in some of the geography because of we are not even able to deploy people from India in those geographies where there's need.
Salil Parekh: But for a period of time, I think not only in Infosys, but almost every Company, many of 4PLs have also started announcing, talking about aggressive hiring some campus as well. So that will result in higher availability of talent and once we are able to hide these talents and skill them appropriately, then they will be available to be deployed and to meet the demand, and that's when we expect the attrition to come down. Right now, demand far out supplies our biggest supply and that's where the challenge is.
Keith Bachman: Okay. Do you think this suggested different headcount management strategy, in other words, do you think you need to diversify? Because it sounds like it's -- the problem is much more significant in India versus other markets. Does this -- you think suggests a broadening of your reach in terms of supply capabilities, Eastern Europe or otherwise? Does it suggest a different strategy on managing your headcount?
Pravin Rao: A couple of things right? One is of course, in terms of talent availability, in terms of skill and quantity, I don't think any other country can match that. So that so -- From that extent I think most of the noise and other things you are hearing from in India only. So that is only one part of it, because I didn't see any other countries being able to provide that kind of talent with skill, so that's why we're saying . And the second one is, this very unusual phenomenon. We have not clearly seen this kind of lot of our talent stuff for a long period of time and have been -- might have been in the industry for our 35 years, have an object think of the time when we have seen this kind of thing. And despite everything, many people when we talk to them and they're leaving, most of them are very complimentary about Infosys better ideally about the culture, the kind of training, kind of opportunities they get, and other things. But they're also saying at the same time, the kind of compensation they're being offered is significantly higher, and the standard today, despite all the HR interventions and other things, compensation seems to be a very big criteria. And particularly for some of the companies who are just scaling up or are stepping up from they have no option but to go aggressive on compensation to attract and get good talent. So I would say that is a reason. And this is an unusual thing, that some of you don't seem to welcome. People do up mandate that data. but like end of offered, they're getting. That will direct correctly for them. And before all, we get people that are not really, emotionally, fully connected with the Company. Wherever that senior-level -- mid-level and senior-level, they are much more connected with the Company, they understand the culture, they understand the industry and other things. So they're -- some of your works better but at a junior level lightly . what they felt that is attractive and that becomes the challenge.
Keith Bachman: Okay.One more then I will see the floor.You mentioned a number of times that you don't see attrition improving over the next couple of quarters. But does your reported number get worse over the next couple of quarters, just so we can manage investor expectations?
Pravin Rao: I didn't get because , but I just want to clarify that. If you probably take a couple of quarters before a recent meeting, because that them, train them, and everything. That will take some time before that really available to be clouding products. That is a time that will take before attrition that's what I meant, but I didn't get your question, so if you can repeat I'll be happy to respond.
Keith Bachman: Does attrition -- does your reported attrition number get worse in September and December than -- excuse me than the December and March quarters, does it -- can attrition get worse before it gets better?
Pravin Rao: It's difficult to predict that. We hope it's not big yet, but it's difficult to predict. But as I said earlier, and the client's expectations through hiring, through reskilling and through using the subcontact. At this stage, we are comfortable to meet other planned commitments.
Keith Bachman: Okay. Many thanks and congratulations on solid results.
Pravin Rao: Thank you.
Operator: Thank you. The next question is from the line of Kawaljeet Saluja from Kotak, please go ahead.
Kawaljeet Saluja: Hi, everyone. Pravin, I have learned a lot from you. So please stay in touch. I have a couple of questions, one for Pravin and one for Nilanjan. Nilanjan for you, the question is that you mentioned that the impact of wage increase, approximately a 110 basis points to represent to the back order and is up Math, your offshore wages, that percentage of revenue is 20%. So that equates to just over 5% wage increase effectively. I mean, is that sufficient in the current environment?
Nilanjan Roy: So a couple of things, one is of course the whole onsite and offshore, both, there's a mix of that and it is only up to JL6s. We've planned for the senior entire key holders in October, also from October, we are rolling out more skill-based intervention compensation changes. So as you know, we did something in January then we've done something in June. And like we said, we are going to do something in September as well. Not at the same level, but like I said, we need to do whatever is required. It will of course keep key talent back, higher laterals as well, because as we mentioned, even the cost of lateral goes up, I mean, the churn is rotational in the industry, we lose, some gain. Somebody else's lateral is somebody else's churn. somebody else's John. So we will do whatever is required to even onboard less effective at the end of the day, I think from an industry perspective, it's only wants to pressure come in can you really start investing, really easing up. But we are quite comfortable in that sense in terms of our guidance, in terms of fulfilling what the clients are asking for. And one of the ways is of course, the is not the best from the margin perspective, but we have seen a preference of points actually going up difficult , yeah.
Kawaljeet Saluja: Wonder, do they impact of wage revision? Let's say in December because going back to be lower there, I can see new levels. So it would impact or rather -- I mean, the impact of that would be a higher percent page offshore overall the competition number. So what is the impact of redoing it in December?
Nilanjan Roy: Because we don't call out but the overall wage impacts on the senior level is definitely lower than -- the headcount is at much, much smaller amount than what you have rolled out but we can't really give a number of what's the margin impact.
Kawaljeet Saluja: Got that. And the second -- thanks for that, Nilanjan. The second question I had is for Pravin. Now, Pravin, we have been wired your career performance historically that whenever the attrition rates go up, your utilization rates go down. But this time around this seem to be moving in the same direction, which is rather unusual. When do you think that this guy wouldn't really start paying out, the way logically it has done historically?
Pravin Rao: Thanks Kawaljeet, for that question. I'm not sure about the co-relation you're talking about and as the attrition goes up, the natural co-relation will be with latency improving for if we're to meet the fulfillment, right? So I'm not sure where -- I mean, you are talking about contrary, so I'm not sure of deprecation, but
Kawaljeet Saluja: Sorry. I'm sorry to interrupt you, Pravin. Sorry about that. But in a logical, straightforward, I think that when attrition is higher, normally you require greater project bench to fulfill customer demand. And it also indicates a healthy growth environment -- a high attrition growth environment also indicates a healthy growth environment, so again, which needs a larger bench. So that was the logic behind that statement.
Pravin Rao: Okay. But anyway in the current situation, there is no supply, right I mean as I said you have? to include people train them and then deploy, that will take some time. To look at your existing reskill them and deploy that is the fastest thing for you to do. That means higher utilization and wherever there are gaps we also look at Subcon and we have seen increased Subcon as well. For the high utilization is differency of function of -- lack of availability of talent and we are as much as we can to meet the demands of our customer.
Kawaljeet Saluja: Okay. Fantastic. Thanks and congratulations to all of you for a great quarter.
Pravin Rao: Thank you.
Operator: Thank you. The next question is from the line of Gaurav Rateria from Morgan Stanley, please go ahead.
Gaurav Rateria: Hi, congratulations on big performance and all the best to Pravin. Two questions. The first question is to Nilanjan on margins. We just want to understand the puts and takes on margins in the second half. When we look at the various headwinds, they are continued rising attrition rates, higher travel expenses, potentially, very high for a section of employees, full impact of the large deal ramp-up, which is like you take place in 3Q, as well. So just trying to understand what are the tailwind that can help to offset some of these impact in margin within the bag.
Nilanjan Roy: For I think you answered half the question yourself because it makes it easier for me, but we're going to have these headwinds like you said, I mean on retention, on hiring, etc. But I think demonstrated this quarter as well, I think we have a very strong cost optimization program, also ongoing automation. Onsite offshore mix, broad base, both onsite and offshore. Like I mentioned among the 2 companies will have these DCs in global DCs now in the west. Where we can compensate I mean actually, because we would not have had shares in an onsite business, but now we are having more than 3,000 a year in the onsite location, so this also helps in the and as you know, 75% of our people cost is onsite, so unless we really address onsite costs, you can't really make an impact on the overall cost. So all this is going on, we're also looking at pricing much more holistically at this time, although it's not easy to go and get price hikes I guess on a greater rate stock. But basically working with our sales force on how to sell on value, how to sell on more innovative commercial constructs. And the idea is not to leave those 10,10 pennies on the table and in this market be a bit more bold in terms of our pricing. But it is a long haul, but I think if there was any time to start something on this, it's now.
Gaurav Rateria: My second question is to Salil. With respect to visibility as we enter Calendar 2022, is it fair to say that when we entered Calendar 2021, the visibility was higher than usual given the large amount of the new deals already in the bag, which may not necessarily be the case, as we get into the current year 2022. Fair to say that the visibility will be relatively lower than Calendar 2021, which was at a very, very high and a liberty level. Thank you.
Salil Parekh: Hi, thanks for the question. This is Salil, I think the way we see business, we look at it from the financial year perspective. When we started this financial year, you will recall the COVID situation was quite relieved within all of us in all the geographies. And while we had a healthy pipeline because of the digital world, that was always something often overhang that was there than you've seen that from initial guidance. We increased the guidance last quarter. We've now further increased the guidance this quarter. So we have extremely good visibility for this financial year with the guidance we've given. Now, as we finish Q3 and start to get into Q4, we will start to have a good idea of what the following financial year will look like. My own sense is the demand that we have is really quite comprehensive. And that will certainly continue to help us as long as we build out the new capabilities well, and be part of the clients digital and Cloud journey. So the increasing guidance gives us more confidence now for this financial year.
Gaurav Rateria: Got it. Thank you so much.
Operator: Thank you. Ladies and gentlemen, that was the last question for today. And now I'll hand the conference over to the management for closing comments.
Salil Parekh: Thank you, everyone. This is Salil, so I'm just going to spend a couple of minutes in closing. First, we've had the best quarter in terms of growth, 19.4% that we've had in 11 years. So we are extremely delighted with that outcome. The demand is strong. There are multiple components or demand, one in large deals, which is still looking good with the pipeline we have, including the 2 billion that we have sold in this quarter. There's a huge amount of existing client base that we have revenue seeing incredible demand. This doesn't come into the large deals bucket. It will be in different sizes. Some are large, some are not, but every client that I talk to last week in a meeting with the CIO, we were looking at multiple housing people expansion at a client where we already have an account base of over a 100 million today. Then we see the capability set in our demand in digital and cloud. Clients are really extremely thrilled with our capabilities and we see good traction in that. Second, the operating efficiency is strong, the margin resilience that we talked about, we advanced really well. In doing that, of course, as Nilanjan mentioned, we do see some additional costs that will come and we're very comfortable with our margin guidance that we've given. Third, we talked a lot that Pravin gave a lot of detail. We are expanding our supply capacity that we're taking in, and that is the medium-term play that we have because the demand is long-term. And we will make sure the supply with our incredible brand and training will continue. Fourth, we've increased the guidance, so we are extremely optimistic and bullish with 16.5-17.5 on growth. And overall, I personally remain positive about the future in our tech services business growing at 19%. So thank you everyone for joining us and please stay safe and healthy.
Operator: Thank you very much members of the management. Ladies and gentlemen, on behalf of Infosys, that concludes this conference. Thank you for joining us and you may now disconnect your line.
