Infosys Limited (INFY) Q1 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, good day and welcome to the Infosys Earnings Conference Call. As a reminder, for the duration of this conference, all participants’ lines will be in the listen-only mode, and there will be an opportunity for you to ask questions at the end of the opening remarks. Please note that this conference is being recorded. (Operator Instructions) I would now like to hand the conference over to Mr. Sandeep Mahindroo of Infosys. Thank you, and over to you Mr. Mahindroo. Sandeep Mahindroo – Investor Relations: Thanks, (Rochelle). Good morning, everyone and welcome to this call to discuss Infosys earnings release for the quarter ended June 30, 2011. I am Sandeep from the Investor Relations team in New York. Joining us today on this conference call is CEO and M.D., Mr. Kris Gopalakrishnan; COO, Mr. S. D. Shibulal; and CFO, Mr. V. Balakrishnan, along with other members of the senior management team. We’ll start the call with a brief statement of the performance of the company for the recently concluded quarter, followed with outlook for the quarter ending September 30 and year ending March 31, 2012. Subsequently, we will open up the call for questions. Before I pass it on to the management team, I would like to remind you that anything that we say which refers to our outlook for the future is a forward-looking statement, which must be read in conjunction with the risks that the company faces. A full statement and the explanation of these risks is available in our filings with the SEC, which can be found on www.sec.gov. I’ll now like to pass it on to Mr. S. Gopalakrishnan. Kris Gopalakrishnan – Chief Executive Officer and Managing Director: Thank you, Sandeep. Good morning, good afternoon, good evening to every one of you. The top headline is we have exceeded the upper end of our guidance. Our guidance for the quarter was $1.643 billion to $1.659 billion. Our revenue for the quarter was $1.671 billion. The revenue grew sequentially by 4.3%. The volumes increased sequentially by 4%, onsite volumes increased by 6.8%. This typically happens when there is an acceleration of growth because most projects start onsite. There is all round good performance by the company. So, revenue per employee increased by 1.2% on blended terms. We added about 9,900 employees this quarter. We said we will add 6,500. Because of that, of course, our utilization is slightly lower. Utilization, excluding trainees is 73.3%. Last quarter, it was 73.4%. But given that we want to be prepared to take advantage of growth opportunities that we see. We had decided to actually recruit ahead of demand. And so this was in some sense planned. In fact, we planned to recruit another 12,000 people in the second quarter. We had three large deals closed this quarter, three transformation deals this quarter. We added 26 clients. The top five clients grew at the rate of 8.2% sequentially. We had five platform deals closed this quarter. As part of Infy 3.0, product platforms and solutions is a key thrust area for the company. It takes advantage of some of the trends that we see in the market in terms of cloud, mobility etcetera. It takes advantage of emerging engagement models like pay-for-use because most of these are sold as services to our clients, takes advantage of the IT that we develop, sometimes co-create with our clients. So, an inventory of the IT, it shows that we have an increasing portfolio today. And lastly, this also is part of our strategy to look at a non-linear growth engine, where the growth happens disproportionate to the number of employees being added, because the traditional model is that growth is proportional to the employee is added. So, this addresses that also. So, it is very strategic for us and I am very happy to report that we have five platform wins in this quarter. Shibu will talk about what some of these platforms are. The revenue per file as we move to these kind of solutions are different from our traditional revenue streams because you invest upfront and then you derive revenue on a continuous basis across several quarters. So, your revenue per file is very different. Our EPS for the quarter was $0.67 versus the guidance of $0.63. We’ve exceeded our guidance. We have kept our annual guidance the same 18% to 20% growth. There is a slight improvement in the margin side. We’ve projected a decline of 300 basis points in operating margin, but now we project 2.5% or 250 basis points, a slight improvement on the margin side. Given that the environment is uncertain, given that this may impact the timing of decisions being made by our clients, we tell that it is better to be cautious in this environment and that’s why we have not revised our guidance for the entire year at this point, even though we have exceeded our guidance in Q1. So, all-round good performance in the different parameters we used to measure the company. So, I will now pass it on to my colleague S.D. Shibulal to give you more details about the performance in this quarter. Thank you. S. D. Shibulal – Chief Operating Officer: Thank you, Kris. Let me start with Infosys 3.0. Our strategic direction has been rolled out to the market and we are seeing good traction with our clients. We have identified specific focus areas, which we believe are important to our clients. So, it is all about being relevant to the clients. It is all about being strengthening our strategic partnership with our clients. It is all about operating with them globally. It is also all about being relevant to all their parts of the business, operations part of their business, transformation piece, as well as where they do innovation for their clients or their customers. We have realigned our organization completely to our strategic direction. We have created four go-to-market industry verticals. These are global verticals. They will operate globally with our clients. And these are FSI, manufacturing, retail and lifesciences and energy utilities and services. They are headed by people who have been with us for the last many years, who understand the clients as well Infosys very well. We have also created three offerings at a very broad level, starting with the first one, business operations, which is application, development and maintenance, infrastructure management, independent validation, and business process management. Mostly the lights-on work which we do with our clients, here our focus will be to build efficiencies to increase productivity, to increase the business value which we deliver to our clients during these engagements. The second large piece will be the consulting and system integration piece. We have created this offering by combining our enterprise solutions, consulting and system integration. That piece gives us 31% of our revenue today. And we are seeing good traction with our clients. The third piece is what Kris talked about. It is a new area of focus for us, product platforms and solutions. It also includes the new models of engagement, which we do with our clients. So, on the platform space we have the HRO platform, the B2B platform, iEngage digital marketing. So, out of the five deals, which we’ve got, actually most of them are iEngage deals. There are so different scenarios of iEngage, actually five different scenarios of iEngage, which are already in the market and we are seeing good traction. We have multiple models when we want to create this platform, some cases we create our own platforms like Flypp or digital marketing, some cases we build it on other people’s intellectual property like for example iEngage uses one of the other Jive right, when iEngage uses Jive as the basic platform on which we have built it. In other cases like HRO, P2P we are hosting a third-party intellectual property. HRO uses Oracle and P2P uses SAP. So, they are different modules, which we are adapting to deliver this to our clients. These are delivered on pay-per-user. These are delivered on the cloud and it truly converts clients’ fixed cost to variable cost. Now let me give you some color on various other parameters this quarter. U.S. has marginally grown ahead of Europe and rest of the world. U.S. revenue this quarter is 64.2%. Our segmentation has changed. Our revenue from business operations is 60% this includes business process management, consulting and systems integration gives 31.8%, product, platform and solutions 8.3%. And actually all the service we have grown this quarter. Business operation by 4%, consulting and systems integration by 4.5%, and product platforms and solutions quarter quarter-on-quarter by 5.3%. Our segmentation in the verticals reflect our go-to-market structures. FSI, which is banking financial services and insurance, was 35.4%. The growth was led by retail, which grew by 10.1% quarter-on-quarter. As Kris said, our onsite percentage has marginally gone up, while volume growth is 4% across it was 6.8% onsite. We generally indicate higher levels of project start. We added 26 new clients this quarter, couple of them in the Fortune 500 Global and U.S. Number of clients, number of $1 million clients have gone up to 374. Number of $50 million clients went up from 28 to 34. Growth has been led by the top five this quarter. The top five grew by 8.2% and the non-top five grew by 3.6%. We have a 142 U.S. Global 500 and 154 Global 500 clients working with us. With that, let me now hand off to Bala for the financial highlights. Thank you. V. Balakrishnan – Chief Financial Officer: Good evening friends. This quarter has come out much better than what we expected in the beginning of the year. The revenues grew by 4.3% and the revenue productivity went up by 1.2%. On constant currency basis, the revenue productivity is almost flat. As you remember, in the beginning of the year, we said the operating margins this quarter could decline by around 4% and for the full year could decline by around 3%, mainly because of one, wage impact in the first quarter. We increased wages in India by around 10% to 12%, onsite by around 2% to 3%. It typically impacts our margins in the first quarter. The first quarter came much better than what we expected. The margins declined only by 3%. The operating margins declined from 29% last quarter to around 26.1% this quarter mainly factoring the wage increases what we have given this quarter. The non-operating income is slightly higher in this quarter because the yield has gone up, yield has gone up to around 9.5% and also we had a exchange gain of around $10 million in the non-operating income this quarter, which may not be there next quarter. The effective tax rate is close to 28%. We always said it could be somewhere between 27% to 28%, but it will be closer to 28% and the EPS came much better than what we expected. For the next quarter, we are giving a guidance of around 5% growth on the upper end. We are also assuming the operating margins to remain at the same level as Q1, but the non-operating could be lesser because we won’t get the exchange gains of $10 million, what we saw in the first quarter to the extent the net margin could be slightly lesser than the first quarter. And for the full year, we are retaining the guidance at 18% to 20% growth, because we believe the environment is still volatile. Plans are still cautious about the spending. So, it’s too early for us to re-look at the yearly guidance. And we also assuming that the operating margins for full year could decline by around 2.5% instead of 3% we predicted in the beginning of this year and 2.5% is basically due to three reasons. One is the currency. The average rupee dollar rate last year was 45.54, this year it could be 44.72, because for rest of the year, they are assuming at 44.50, which means appreciation of around 1.8%, which could impact the margin by around 80 basis points. Utilization could come down from 72% to 70%. As we add more people, we are adding 45,000 more people this year and 12,000 in the second quarter that could impact the margin by around 90 basis points and the balance 0.5 is mainly due to salary impact, which is not fully absorbed at the growth level of 18% to 20%. The foreign exchange, it has been very volatile this quarter. Almost all the currencies appreciated against US dollar, while the rupee also appreciated against the US dollar. We believe the currency environment will be very volatile. We want to take a short-term view. We are not changing that. We have a total cover of $745 million at the end of Q1. It was $620 million at the end of last fiscal. So, we had increased slightly our hedging position, but we still believe the rupee could depreciate in the short-term. We are also assuming that the effective tax rate could be closer to 28% for the full year. The cash position has been extremely good. We have a cash and cash equivalents of $3.8 billion at the end of this quarter. Our DSO days are 63 days similar to what we have seen last quarter. So, overall I think this quarter has come much better than what we expected in the beginning and the margins for the full year also we believe it will be slightly better than what we predicted in the beginning of the year. The revenue productivity, it is stable, because in constant currency terms, we are not seeing any increase in the first quarter and we are assuming it will remain flat for rest of the year. So overall, I think that it turned out better than what we expected, but we are cautious because the economic situation, all the markets we are operating still not recovered and our plans are very cautious. With this, I will open up the floor for Q&A.

Thank you very much sir. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Our first question is from the line of Joseph Foresi of Janney Montgomery Scott. Please go ahead. Joseph Foresi – Janney Montgomery Scott: Hi. I was wondering if you could take a little time to maybe frame for us what you are seeing on the demand side that causes the caution. Has there been any cancellations, any push out of projects or just maybe extrapolating what you are seeing on the headlines in the general economy?

We are not seeing any cancellations. As you can see, our Q1 results show that we have done better than guidance. But given that there is uncertainty about the overall environment, sometimes you can see very short-term delays in decision-making. So, we want to be cautious because of that actually rather than anything specific that we see in our client behavior. So, we are not seeing any cancellations. Joseph Foresi – Janney Montgomery Scott: And then – but it seems like you are taking a longer term approach in the business in general by putting – by increasing hiring, maybe you can help us reconcile sort of the cautiousness over the short-term versus your increasing of headcount?

So, we are definitely taking a very long-term view of the business. We are recruiting ahead of demand. We believe that we need to have a strategic bend, so that if the demand picks up we are in a better position to take advantage of that. The recruiting ahead of demand, so that we can train and prepare this workforce to provide value to our clients, remember that our training is one of the best at the entry level. We train our people for 23 weeks at our corporate education facility, Global Education Center. So, we prepare our people. We are also thinking long-term by looking at the needs of our clients. The clients have three sets of needs actually. One to optimize to reduce the cost in business operations and we are trying to add this, that has been our traditional business. Second, we are looking at the need for our clients to transform their business, to grow their business, to become more competitive, the transformation-related services. These are the consulting system integration services. And the third piece is when the clients look at new technologies emerging, new ways of engaging with their service providers may be moving to a platform model, a Cloud-based model. And we are offering those services also today. This actually also helps us to look at nonlinear models of growth. So, we are thinking long-term. We are adding a thought leadership piece to our value addition to our clients. This is the whole thought leadership around building tomorrow’s enterprise. Here we look at what are the themes that are emerging? Where are companies spending money today? Where are they looking at new opportunities for transforming their business, to create new revenue engines, sales engines, new markets, and things like that. So, we are definitely thinking long-term. And we are also thinking long-term from a leadership development and leadership bank’s perspective. Joseph Foresi – Janney Montgomery Scott: One last question for me, I just want if you could update us on the pricing environment and the general deal size and remind us if what’s built into that revenue growth guidance. And has anything changed on that side?

So even though we have seen a slight uptick this quarter also in terms of revenue per employee, we have assumed flat pricing and we have assumed the same revenue productivity for the rest of the year. So, we have not built in any revenue productivity increase for the rest of the year. It’s the same as Q1. And then what is the second part of your question, sorry? Joseph Foresi – Janney Montgomery Scott: Yeah. I just wanted to know in general is pricing trending upwards and what is deal size like at this point?

So, large deals are back on the table. Even this quarter we have had three large deals, one more than $100 million. So, we see large deals coming back in the strategic global sourcing space as well as in the transformation space. Joseph Foresi – Janney Montgomery Scott: Okay. And is pricing, you are still getting price increases storm upward bias there?

So, we have assumed flat revenue per employee. I think the pricing will be stable at this point. Joseph Foresi – Janney Montgomery Scott: Okay, thank you.

Thank you, Mr. Foresi. Our next question is from the line of Jason Kupferberg of Jefferies. Please go ahead. Jason Kupferberg – Jefferies: Thanks. Hello guys. I just wanted to build on the last question a little bit, just to make sure that everyone is clear as far as what you guys are actually seeing versus what you guys think you may actually start to see at some point in time. And it sounds like what you are saying is that you are not really seeing or actually observing slower client decision-making at this point in time. You are simply incrementally cautious that that dynamic could start to occur on a more prevalent basis over the course of the next quarter and therefore you are taking a more measured view of your September quarter guidance? Is that a fair assessment or are you actually observing a slowdown in client decision-making versus the time of your last earnings call?

What we are seeing is, maybe it’s temporary, that is for example, what I mean by this is let’s say a deal is supposed to be signed today. The client sees something in the market in the morning when they come in. They may delay actually that decision by two or three weeks till they fully understand the implications of that. The overhang of the global economy is in everybody’s mind today. Are we going to see something dramatic happen suddenly? So, even though we are not seeing a reduction in IT budget for example, we are not seeing a reduction in the IT budget. We believe that the money will be spent, but it may be delayed spending for the year. That is what we are cautious about. Jason Kupferberg – Jefferies: Okay. And so, you are a little bit more cautious about that versus how you felt three months ago.

It’s almost the same. Actually, we said three months ago also that we have to be cautious and we are still saying be cautious and that’s why we have not revised our guidance. Even though our first quarter performance has been better than what we’ve guided. Jason Kupferberg – Jefferies: Okay, okay, understood. The new client adds in the quarter, I know it’s just one-quarter data, you can’t really extrapolate it necessarily, but obviously a bit lower in some recent trends. Do you read that as more of a timing issue or have you see any material change in your win rate in pursuing the customers?

There is no material change in win rates or client additions. Last year we had very, very strong client additions. In fact we added close to 130 clients last year. This quarter we have added 26 clients net eight new clients. There is no secular trend to be taken out of this one-quarter number. I think we need to see – and also when you 130 new clients and even if the net is 40, there is a lot of mining to be done on those 40 clients. So, we have to balance both, but there is nothing secular which I can say about this quarter’s number. Jason Kupferberg – Jefferies: Okay. And just last question from me, your balance sheet obviously remains in a tremendous shape with a terrific flexibility. Has the aperture opened at all in terms of types of acquisitions Infosys might consider just in this organic growth environment or any appetite to do acquisitions larger than what we’ve seen in the past and can you just make some general comments around what your M&A pipeline looks like right now and any changes there?

So, we look at M&A from a strategic perspective. We want to add capability. We want to add capability in some of the new areas that we are looking at. So, for example one of the last acquisitions we did was McCamish. It provided us a platform for policy management. We do an extremely small – it’s a minute acquisition in New Zealand. It opened up the New Zealand market for us. So, we look at acquisitions very strategically, typically smaller acquisitions. We have an active pursuit team in place. They look at maybe 5, 10 companies at any point of time. It doesn’t mean that all or any of them will close, actually, because that we have a pursuit team, as and when we see opportunities, as and when we see a company that wants to be part of Infosys. We are looking at friendly acquisitions. So, once we thought it’s a strategic fit, we feel that we can leverage that, then you will see us make an acquisition. Jason Kupferberg – Jefferies: Okay. Thanks guys for the comments.

.: Nabil Elsheshai – Pacific Crest Securities: Hi, guys. Thanks for taking my questions. I guess to followup on the macro questions and specifically on the Financial Services in the US. There is a lot of headlines about cut backs and word going around of them under spending their IT budget. So, could you give a little color on what you are seeing in that vertical, particularly since it’s little bit less than the company overall in this quarter.

Yeah, so, Financial Services actually grew about 3.3% this quarter. But, if you break down that into various components, our capital markets business, which is a fairly large chunk of our overall Financial Services, grew about 5.5%. Our banking business on the services side grew about 5.2% and insurance, which has been fairly muted in the past couple of quarters also showed fairly robust growth. We obviously lost out in terms of some amount of discretionary spend delays, Kris was alluded to earlier on, not cancellations, but some delays which did not allow us to capture that revenue in the first quarter. By having said that, I think what we are seeing in the Financial Services space is increased spending in the compliance and regulatory space, significant amount of interest and traction for our products platforms and services space, especially in the area of analytics, mobility and securities trading and processing, etcetera. We, at the same time, are hearing increasing concerns or commentary from our clients, let me put it that way about sovereign risk issues of the fact that because of increased requirements for capital that is associated cost will trickle down, nothing that we can put a finger on today, but could trickle down to impact IT budgets, but nothing that we – as I said earlier, we can put a finger on. So, I mean, overall, I would therefore say that the news on the Financial Services notwithstanding a fairly positive performance in the first quarter is a mixed bag. We have had no cancellations. We have had one large deal of the three that Shibu was mentioning in Financial Services. We have seen fairly significant growth in the non-U.S. and non-European markets, that’s essentially, Australia. We see good traction in the Asian markets. And we continue to see strong demand for our business operation services in the Financial Services space in the U.S. Nabil Elsheshai – Pacific Crest Securities: So, given what you had mentioned in terms of the regulatory constraints, what have you – I mean, you are closer toward the math. So I mean what are you assuming for the second half from IT spending, are you expecting them to pullback a little bit?

Well, we do expect some pullback in some of the areas that we are engaged with, but that would be compensated, we believe given the commentary and the traction that we have in areas like regulatory and compliance. And these two specifically we have seen very good traction. Also in wealth management space, we are seeing very good traction due to some of the regulatory changes, process and systems changes in the cards business. So, at this point in time, I don’t think it would be – we would call that we would see a deterioration in either spend, but this is a space that we are going to watch very, very closely. Nabil Elsheshai – Pacific Crest Securities: Okay. Last question on the regulatory, is that a result of Dodd-Frank or is it related to how it impacts (albeit) from that?

Some multiple things, Dodd-Frank, which got delayed, so lot of preparatory work on Dodd-Frank. We are seeing work as a result of, for example Volcker rule so operating going away to wealth management investment. We are seeing rule from a compliance perspective, just basic, we are doing projects, for example, on taxonomy. We are doing projects and programs on just compliance reporting, both in and audit service. So, the whole slew of work that’s actually coming in. And our expectation is that last two years or about 18 months, we made significant revenue on the M&A part of the business. And as that is tapering off, we think that this is the one that would actually replace it. And from our estimates and from our conversations with the clients, we actually expect to see at least two or three times increase in spend in this particular space as compared to what we saw in the M&A space. Nabil Elsheshai – Pacific Crest Securities: Okay, great. Just real quick on the service lines, this SI work is particularly strong, maybe a little less in the packaged implementation. So, in terms of kind of new application plus development and implementation, what are you seeing going forward there in terms of your customers’ appetite for investments and kind of discretionary application expansion?

Well, application development is approximately 16% of our revenue. And our consulting system integration side is about 31%. Yeah, I think clients are more and more deciding towards package solutions rather than developing Greenfield applications, but there are occasions where they do decide on a Greenfield application, and that is what you see in the application development space. We are seeing traction in application development space, but you can clearly see that our revenue from consulting and system integration, which includes the package implementation space, has grown faster than the application development space over the last many quarters. Nabil Elsheshai – Pacific Crest Securities: Thank you, guys for taking my questions.

Thank you, Mr. Elsheshai. Our next question is from the line of George Price of BB&T. Please go ahead. George Price – BB&T: Hi. Thanks very much. I guess I just wanted to kind of clarify your response to the question before just kind of understand, where your general sense of mindset is that, back to Jason’s question, when you said you are basically – your view on the broader demand kind of what’s happening on there. Basically the same in terms of caution it was three months ago, but as I recall last quarter you said you were looking fiscal ‘12 be more of a “normal year” and clearly that doesn’t seen like what’s you are saying right now. That it seems to imply that there is some more fundamental change in the market during the quarter and I guess I would like to hear a little bit more about, it’s a very temporary delay basis, that could we see something, you know, more fundamental happenings here in the demand environment in terms of what’s going on, if I could get your views on that?

From an IT budget perspective we have seen no change. IT budgets, where up by about 3%, 4% and that’s why we said normal year and the IT budgets continue to be the same. There is no reduction in IT budgets that we can see. But given the overall economic environment and remember that we are now at least some analysts are even talking about double-dip in certain economies. We believe that if something were to happen there maybe a pullback, there maybe. We are not seeing any at this point, but there maybe pullback and that is the reason why we want to be cautious. Now the way it is being reflected is sometimes a temporary delay in decision making that is what we are seeing on the ground right now. No cuts in budgets. No cancellation of project. But we want to be cautious that’s all we are saying. George Price – BB&T: Okay. And I guess can you just be maybe specific as possible in terms of two things, one with the delays that you are seeing, when do these start to become apparent? What’s the major driver that started off these delays and then related to that, what portion of things that you have seen delayed have since been restarted I mean I guess in another word to say, what’s kind of visibility do you have that these things when they get started up again shortly?

So, these delays are temporary in nature. So, for example the deal, which is supposed to close last quarter, may close this quarter actually. It’s a temporary delay. It’s just not anything more specific than that. It is not attributable to any one thing. Something happens in the environment, which raises a concern suddenly a decision is taken to be cautious. That’s it. So, there is nothing specific I can point to. These are temporary delays we see occasionally in decision making. George Price – BB&T: Okay. Just to be clear have you seen are these delays still I guess occurring or these things started up again. So, you just basically assuming a push out of be it a month or whatever, which is actually maybe these initiates that again started so you are just going to see that move to revenue, when you are cautious to make sure that, you don’t see that again or are you still waiting for the majority of these initiatives that have been delayed to actually start up. You are hoping that this start surely, that’s the clients telling you. But you don’t have concrete visibility on that at this point?

There is nothing is permanent. So, it just is a delay for a week, two weeks, sometimes. So, these are not permanent. We are not waiting for something to close within an uncertainty. If the clients say, yes everything is fine, but I will sign next week. That’s the kind of thing, nothing more alarming than that at this point. George Price – BB&T: Okay. And again when did these really start to become apparent?

During the course of Q1 that’s it, on the last three months. Especially when the Greece situation happened, that’s when we saw concerns and even in the financial services actually. Ashok mentioned this actually. So, that happens suddenly there maybe a week or two of delay before they asses the situation or see whether it’s going to deteriorate further or for example, when France decided to actually renegotiate the loans outstanding. There is a temporary feeling of normalcy coming back right. So, those are the things I’m talking about. George Price – BB&T: Okay. Thank you.

Thank you, Mr. Price. Our next question is from the line of Moshe Katri of Cowen and Company. Please go ahead. Moshe Katri – Cowen and Company: Thanks. Top one customer was sequentially flat excluding the impact from that top one customer about sequentially revenues were up 5% for the quarter. Couple of things, one can you give us some details on what happened there that’s number one. Number two, should we assume that the weakness from the top one client also had impacted the sequential growth coming out of Europe. And then final question that’s related to the final few questions that came onboard is, whether you see some of the delays towards the end of the quarter specifically during the month of June? Thanks.

See there is nothing particular in the top one client. Quarter upon quarter some clients grow, some clients don’t grow. So, there is nothing particular I can talk about in the top one client. This is the quarter, where there is not much change in the top one client that’s all Moshe. Moshe Katri – Cowen and Company: Okay. Did that impact European sequential growth? Was that one of the issues why sequentially Europe was up, but slower pace in the overall company rate?

No, Europe in generally is flat for us because I see the impact of whatever is happened in the global economy being felt in Europe more than anywhere else actually. So, our strategy in Europe has been to broaden our client base. So, we are practically investing in France, Germany. We are having sales capacity on the ground adding more clients and things to that. So, Europe is slower to recover and is more concerned about whatever is happening in the European region than other regions. We do have (inaudible) issues, but they are actually turning around in Europe. Moshe Katri – Cowen and Company: Going back to your revenue concentration question, you had that uneven performance coming in from your top five and top 10 customers and top one customer during the past quarters and see that has been impacting your sequential growth as a whole. I think it will be beneficially if you kind of give us an update on what’s going on with your top five or top 10 clients. Again top one customer 5% or 11% sequentially flat had pretty significant impact on sequential growth in your company?

, : Moshe Katri – Cowen and Company: Understood and telecom down 7% is that attributable also to one or two customers or this is a cross currency, you have across the board weakness?

Telecom is customer related, plus in telecom we have been primarily in wireline side of the business rather than wireless. So, we are now proactively moving in to wireless and cable, that’s where the investment is going. And so, proactively we are actually focusing more on the wireless and cable. And we have added clients. We have added business in that space and hopefully we will see now growth come back into telecom space also because of the shift in focus to wireless and cable. Moshe Katri – Cowen and Company: All right, and should we assume that the deferrals that you spoke about started taking place during the month of June. This is when some of the negative economic data started coming out, I mean spook in the markets.

Yes, that is also part of what is happening. Yes. Moshe Katri – Cowen and Company: Thanks.

Thank you, Mr. Katri. Our next question is from the line of Rod Bourgeois of Bernstein. Please go ahead. Rod Bourgeois – Bernstein: Okay, great. There is definitely some evidence that there are increased obstacles for getting U.S. visas approved and I know NASSCOM is also trying to address this issue with the U.S. So, can you give us any update on how many additional U.S. visas you've been able to secure in the last month or during the June quarter, or any sort of general update on how that U.S. visa approval process is going for the company?

No, I cannot certainly give you those details. All I can say is that this quarter we grew. So, we are able to grow the business in this environment. Rod Bourgeois – Bernstein: Okay, great. And can you give us any outlook in the U.S. visa approval process, I mean to the extent that you agree that the approval process has become tougher, rejection rates are higher and information request has been up and so on. I mean do you expect that to be resolved over the next several months or could this be an ongoing issue from what you can tell so far?

NASSCOM which is a industry body necessarily talked about higher degree of rejection for the industry. They also talked about delays in getting visas for some of the companies. I think large companies like us who have credibility, we’re able to get our visas. We have enough visas in the system. We also plan in advance and make sure we get visas on time, so it doesn’t hurt us our business. So, we are not seeing any material disruption on the visa front, which will affect our business plans. Rod Bourgeois – Bernstein: Okay, great. So, when your inventory of visas you have enough of the right visas for the right types of skillsets, so that cannot be a disruption any time soon. Is that the way to look at it?

Yes, we plan in advance. We make sure we have the visas for the right skill of people that it doesn’t impact our business. Rod Bourgeois – Bernstein: Okay, great. And then are you continuing down the path of, I know you talked about on the last couple of conference calls your desire to lower utilization to prepare for the upcoming growth that you expect to improve. We had a lot of discussions in this conference call where people are asking about sort of demand weakening. But it seems like the strategy is to lower utilization to get ready for better growth. So, is that strategy still fully in tact to try to drop utilizations to get ready for better growth that apparently has been signaled in your pipeline?

Let’s look at it as the clients’ budgets are still firm. I don’t think anybody cut down their budgets. So, budget looks good. So, our strategy is to make sure we have enough capacity in the system. So, we are still growing ahead with the early hiring plan of 45,000 gross additions for the year. So, that could naturally impact the utilization if the growth is only what we are projecting for, that is 18% to 20%. So, we are keeping the model ready. The budget looks good, the environment stable, clients could possibly spend the budgets. That could give us incremental growth. So, we are hiring those people, creating the capacity and keeping the model ready for growth. Rod Bourgeois – Bernstein: Right. So, you’re saying you haven’t changed your, lower your – you haven’t changed the plan to lower your utilization over the last three months.

Yeah, the utilization could naturally be lower if the growth doesn’t come. But if the growth comes, utilization will look up. Rod Bourgeois – Bernstein: Okay, great. Thank you guys.

.: David Koning – Baird: Yeah, hey, guys. I was just wondering if we could talk just a little bit about the margins again and I know you improved your margin forecast to down 250 basis points this year. I’m just wondering if you consider this year kind of a one-time step down in margin given a few different items that you mentioned before or if you feel like the wage pressures et cetera might contribute to a longer-term pattern of margin decline. If you are not able to leverage some utilization or currency continues to be a headwind, maybe you could just talk through, whether it does feel like a one-time or maybe more of an ongoing?

Well, the way to look at it as two things. One is the currency, which is external growth. The currency moved quite faster in a very short timeframe, you can't do much. It could hurt our margins. But if gradually appreciates over a period of time probably you can pull in some of the levers to offset the impact. The other two, the utilization and also the wages is more internal to us. If the growth comes better than what we expect, I think growth is the biggest lever we have and if the growth comes better than what we expect, probably some of its impact we could absorb. So, the way to look at it is, we are in an industry with a lot of opportunities for growth. Of course, we will be subject to economic cycles, sometimes it could hurt our growth. But if you're taking a long-term view and where growth opportunities are possible, some of the internal things like the wages, and also the utilization can be taken care of. The external thing as I said, the currency, as long as a moment is over a period of time we will be able to absorb, but in a short period of time it could impact us. David Koning – Baird: Great, thanks and then just a couple of quick modeling questions as well. The other income line, I think you mentioned $10 million of Fx gains in there. So, is the best way to think about that going forward just to take for next quarter, are we just to take $10 million out sequentially?

Can you please repeat, I've not got your question? David Koning – Baird: I think, within the other income line, it was higher than the spend, in the last several quarters it was $99 million, and I think in the prepared remarks you said $10 million of that was from FX gains, I believe something around that. So, is the best way to think about that in next quarter just to take $10 million out of the Q1 number?

Yes. Naturally, the yield has gone up this quarter. It was around 9.5%, but I think in the next few quarters, probably the interest rate in India could moderate. So, for the guidance purpose, we assume that the yields could make easier a little bit maybe somewhere between 8.5% to 9% for the rest of the year. So, I think naturally the other income will proportionately come down. The first quarter we had a $10 million positive impact, because of the movement in currency in the non-operating income. That naturally will not be there for rest of the three quarters. David Koning – Baird: Great. And then just finally the tax rate, you said I think, you might have been in your first call this morning, you said it was going to be about 28% this year. Is that sustainable at 28% or was there something one-time in nature that pushing it higher this year that might subside in the next couple of years?

No, there is no one-time in that impact. Even last year, we had a small proportion of revenues coming from our Software Technology Park unit, there is only unit. That also has gone out of tax holiday this year. So, I think we always said it could be somewhere between 27% to 28% and it could be closer to 28% that is what we have seen in the first quarter. David Koning – Baird: Great, thank you.

Edward Caso – Wells Fargo: Good evening. I want to ask a little bit about the labor market, particularly in India, it looks like your attrition is starting to come under control. Is that effort on your part or is it also sort of the market kind of settling out at this point. And do you sense that there might be needs for interim compensation adjustments as we might have seen in the last 18 months or so or are we sort of beyond that now?

No, I don't expect any interim comp increase is necessary. I think there is enough supply attrition has come down. The blip we saw was when growth accelerated, everybody is scrambling for resources. We had done long-term planning and so we were probably more of a target. We were not scrambling, because we had actually continuously recruited during the downturn, but things are stabilizing and our own attrition is also coming down. Our comp increase is behind us. So, this is the quarter and it impacted us and it is already behind us. Edward Caso – Wells Fargo: Can you talk a little bit about your win rates and your trends? I think you talked about slippage within the quarter, but how sort of over, say, a year or two timeframe, could you talk about your win rates and maybe your pipeline trends?

So, let me request my colleague Pravin. Retail is one of the fastest growing segments and our win rates there is very strong there and I’ll also ask Prasad who heads our energy utilities, communications, services group actually to talk to about win rates in the ECS segment. Pravin?

Hello. In the retail space we are seeing lot of traction in the transformation, consulting and system integration space. So, our win rate is anywhere upward 60% to 70%. We have this win rate over the last couple of quarters and the kind of growth we are seeing this quarter is currently because of many deals that we have won in the last couple of quarters. We continue to see a healthy pipeline in this space and we are also having two or three large deals in the pipeline, which we expect to close sometime towards the end of quarter two. So, the overall pipeline is fairly good, mostly around transformation, mostly around platforms, consulting and system integration and about 60% to 70% conversion.

Prasad?

Hi, this is Prasad. Yeah, let me comment about the energy, utilities and services sector. Q1 if you take the communications part of the energy, utilities and services-

I'm sorry to interrupt. May we request the current speaker to move closer to the microphone please.

Can you hear me now?

Yes, please go ahead.

Yeah, so let me repeat what I said. I’m going to comment on how energy, utilities and services performed last quarter. We grew 7.6% quarter-on-quarter and this is on the basis of strong pipeline. We had good conversions in Q1. We’re continuing the momentum. And the pipeline continues to look healthy. There are transformation deals involving package implementations, involving a very deep domain consulting capabilities that, for example, enhances hydrocarbon accounting capabilities of our oil companies, our smartgrid for our utility companies, etcetera. So, the pipeline is strong, the outlook is pretty good in this sector. Edward Caso – Wells Fargo: Yes, my last question is, are the management changes at this point pretty well baked in and what’s your view on replacing the COO role?

Well, the management changes are fully done. We have the realignment completed. The business operations space is completely done. 55,000 peoples are realigned without looking at date. The consulting and system integration space realignment is going on. It is also almost done. It will be finished by the end of this month. And there will be some residual work, which we need to do next month. So, before the end of next month, definitely we would have completed the full realignment. The four industry vertical heads are in place. Two operating heads are in place and we have a new person looking after sales at the corporate level. We have one slot to be filled which is the Corporate Head for products and platforms. We have the process in progress. As far as the COO position is concerned, I think given the changes we have made, we will wait for a while before we look at that. We will look at assigning somebody as a COO. Edward Caso – Wells Fargo: Thanks very much.

Thank you, Mr. Caso. Ladies and gentlemen, due to time constraints that was the last question. I now hand the conference over to Mr. Sandeep Mahindroo to add closing comments. Please go ahead. Sandeep Mahindroo – Investor Relations: Thanks everyone for joining us on this call. We look forward to talking to you again during the course of the quarter. Have a good day.

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