Infosys Limited (INFY) Q2 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 today's opening remarks. Please note that this conference is being recorded. (Operator Instructions) I now hand the conference over to Mr. Sandeep Mahindroo of Infosys. Thank you, and over to you Mr. Mahindroo.

Thanks, Rochelle. A very warm welcome to everyone on this call to discuss Infosys earnings release for the quarter ended September 30, 2011. I’m Sandeep from the Investor Relations team in New York. Joining us today on this conference call is CEO and M.D., Mr. S.D. Shibulal; CFO, Mr. V. Balakrishnan, along with other members of the senior management team. We’ll start the proceedings with a statement on the performance of the company for the recently concluded quarter, followed by outlook for the quarter ending December 31, 2011 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 risk that the company faces. A full statement and explanation of these risks is available in our filings with the SEC, which can be found on www.sec.gov. I’ll now like to pass it on to Mr. S.D. Shibulal.

Thank you. This is Shibu. I will give you a color on the quarter performance and then give it to Bala for more details on the numbers. We have seen overall growth in Q2. We have delivered $1.746 billion in revenue which is 4.5% growth in reported currency and 5% growth in constant currency. Actually in rupee terms we have grown 8.2%, volume growth is 4.5%. Pricing, blended pricing has gone by 0.5% and the utilization is at 78%. Margins have improved and we have added 1.9% to the margin, 26.1% to 28%, at the operating margin. Overall client additions have been very strong this quarter, 45 new clients. 19 of them in our new investment areas which is in utilities, life science, healthcare. Million dollar clients have 388 and our repeat business is 98.5% this quarter. Now let me give you some color on our strategic direction and our new organization structure. We have seen very good traction for Building Tomorrow’s Enterprise. Clients are acknowledging that this is very relevant to them. They are acknowledging that it is through thought leadership in the teams which we have chosen. We are wining deals in those teams. We have closed a deal in the Smarter Organizations team with a European client in transforming them from a country focused to a client centric approach. From a country centric approach to a client centric approach and build their next generation organization. We are working on another deal in creating new consumer experience in the store with a major retailer, that’s it’s in the digital consumer space. And in the emerging market space we are working with a client in creating engineering innovation in the emerging markets. So these are examples of opportunities and deals which we are seeing in our Building Tomorrow’s Enterprise teams. As far as Infosys 3.0 concerned, we have completed the realignment. We have reorganized 100,000 people. We have four major go to market verticals. We of course have Finacle, BPO and the Engineering service. We have new leadership, new executive council in place and new sectors in place, which will allow us to move towards our aspirations. We are also investing in new areas. We have new units for enterprise mobility, sustainability and cloud. Those units are also seeing good traction. Our products and platform strategy is planning out well. We have launched Infosys Edge, which is a Infosys family of platforms. Nine of them. We have 20 clients operating on them, we have 10 new clients this quarter. $200 million in TCB closed. Good traction in that direction. Consulting and system integration is doing well for us, 31% of our revenue. It has grown quarter-on-quarter and we are seeing -- we are at this point -- our pipeline for transformational programs is 27 at this point. We have been recognized with the industry and by our partners. We are rated in the leadership quadrant by Gartner and Forrester. We received the Titan award, 3rd year in a row at -- Oracle Titan award, 3rd year in a row. We are rated number 15 in the most innovative company list in the world by Forbes. So we are recognized by the industry and our partners. With that let me now hand it out to Bala to give you more color and more numbers.

Good morning. In the beginning of the quarter we said our revenue could grow somewhere between 3.5% to 5%. We had actually grown at 4.5%, adjusted for cross currency. In constant currency terms we had grown at 5%, that has come out what he had planned. If you look at the gross margin, the gross margin went up 38.8% last quarter to 41.3%, mainly tracking the movement in the currency. Our operating margin went up by 1.9% and there is a beneficial impact of 1.5% due to rupee-dollar movement. Rupee depreciated against the dollar by 3.4%, so it had positive impact of 1.5% on the margin. Utilization went up by 1%, so it contributed another 40 basis points. So net-net the operating margin went up by 1.9%. On the non-operating income side we had $90 million of tertiary income. We had a $6 million negative impact because of currency because when we do hedges, when the currency moves in either direction we’ll have some impact on the non-operating income. So there was a $6 million impact because of the currency on non-operating side. Our effective tax rate, slightly gone up during the quarter. It is around 28.6% for the quarter, it was 28.1% for the last quarter. Today we get around 29% of the revenues in SEZ. If you look at revenue growth this quarter, it has been all round growth. Our top client grew by 6.6%. Top 25 clients grew by 7.1%. We added 15,350 employees. Our guidance was 12,000 for the quarter. So I think we had seen good revenue traction and the currency movement to some extent helped us to better our margins. So quarter has come out well. Going forward for the full year, earlier we had given a guidance of 18% to 20% growth in revenues. Now, if you re-cast it for the movement in cross currency, our new guidance is at 17.1% to 19.1%. So the assumption on volume growth, pricing growth remains same. The change in guidance is purely because of the cross currency movement. And for the full year, in the beginning of the year we said our operating margin could decline by 3-percentage point. In the last quarter we said it could decline by 2.5 percentage point. Now we are talking about somewhere between 50 to 100 basis point decline because the rupee has depreciated against the dollar and if you take the average rate for the full year, I think we will get a beneficial impact of around 1.5% on the margin. Of course utilization will have a negative impact on the margin but because of the currency movement, I think our overall operating margin for the full year could decline only within a range of 50 to 100 basis points. So I think we had done well this quarter and we are maintaining our guidance. For the third quarter we are talking about a growth of 3.2% to 5.4%. That is based on the visibility we see in the marketplace today. As we said earlier, this year our growth could be evenly spread out across the four quarters. Typically, in a normal year we could see the growth coming in the first two quarters and third fourth quarters are always soft quarters. But this year probably it will be evenly spread out across all the four quarters. With this I will conclude. We will now open it for Q&A.

Thank you very much. (Operator Instructions) The first question is from the line of Jason Kupferberg of Jefferies. Please go ahead.

Thanks. I appreciate the time. I wanted to just ask a question, as we start to look out the back half of your fiscal year, it looks like the implied sequential revenue growth guidance for the March quarter is roughly 4%, I believe at the mid-point. And I wanted to know if the accounts for any potential delays at the start of the new calendar year in terms of new projects getting ramped up or does it assume a more normal start to the New Year. And as part of that if you can just talk about what you have been seeing most recently in terms of any changes in client decision making patterns? It doesn’t seem like there’s been anything severe in that front despite the macro environment but would love some color there. Thank you.

So our guidance is a statement of fact as we see it today. We look at what we see today, our pipeline, booked revenue, our clients. What we are seeing with the client base and that’s how we come up with the guidance. And as I said it’s a statement of fact as we see it today. Your numbers are accurate in the mid-point it will be 4% numbers and that is based on what we see today. From an environmental perspective we are definitely -- we need to be very cautious. We are seeing challenges in Europe, in U.S. There is unemployment, there is economic uncertainty. Financial industry is going through challenges. The Euro Zone is turbulent. There are multiple scenarios which people are talking about. So the environment is definitely challenging for our clients and for ourselves. There is currency uncertainty, currency volatility, regulatory volatility. So we are very cautious. We need to remain cautious. And at the same time, if you look at our strategic direction of Building Tomorrow’s Enterprise and Infosys 3.0, it is all about strengthening our strategic partnerships. It is about increasing relevancy for our clients. It is about operating globally for our clients. It is about aligning in front of our clients as one Infy. So we believe that these strategic directions and these steps which we have taken should stand up in good terms in the medium to long term. But that short-term we can be impacted by the environment because we are in an eco-system and the eco-system is definitely undergoing -- is faced with challenges. Last point, we are seeing delays in decision making and higher scrutiny of larger investments. We are not seeing project cancelations or program cancelations at this point in time. We are not seeing budget cuts for the current year. Next year budgets are yet to be finalized and we will only know it by the end of this year of Jan.

Okay. That’s helpful. And just as a follow-on to that, can you clarify, are you more cautious on the demand environment now then you were during your last earnings call and you may have just covered this at the end of your last answer but I couldn’t exactly hear, but with regard to the ‘012 budgets we have started to hear that in some cases there are some signs of potential delay in budget setting processes. Are you picking that up as well?

Well, we are always cautious. If you look at our commentary for the last two quarters we are one of the very few in the industry talking about all the macro challenges and what impact it could have on our revenues. But the whole global economic environment is evolving. It is only getting worse every day. But having said that, as Shibu said, we have not seen any project cancelations. We are not seeing any plans changing the budgets or reducing the budget. So clients are spending money. They are cautious and we are also cautious on the macro-economic environment. I don’t think we are seeing any drastic change in client spending behavior from what we saw last quarter, but definitely the evolving economic environment is a concern for us and we are watching it closely.

Okay. That makes sense. And just last one for me, just on the supply side. I think you are still planning to hire 45,000 folks this year, if I am not mistaken. Can you remind of how many of those will be freshers and just any commentary you can provide in terms of quality among the campus talent pool in India that you look to recruit. Has there been any changes there? Any incremental challenges on the hiring front? Thank you.

So we are hiring 45,000 people this year. It will be probably a 70:30 split. 70% from campus and 30% from laterals. We have given 23,000 offers in the campus for people to join next year. This quarter we added 15,000 people gross and 8000 people net. Next quarter we will be adding 8000 people. The quality of talent remains as a concern. While India produces 700,000 engineers, we need to do a lot of effort in making them industry ready or multinational ready. And that is where our investments in Mysore, where we have the global education center. With 14,000 people residential capacity helps us in creating the talent and taking the talent to the next level. We believe for the industry in the long term, recruiting very large number of highly talented individuals will be a challenge. And again that is where our strategic direction of Building Tomorrow’s Enterprise with the products and platform play as well as the consulting system integration revenue, consulting system integration space, should give us some relief in the linearity.

Okay. Thank you for the color.

Thank you very much. Our next question is from the line of Joseph Foresi of Janney Montgomery Scott. Please go ahead.

Hi, my first question here is just -- you mentioned some delays, I wonder if you could point to where your biggest areas of concern are, right now on the delay front. Maybe you could just talk about geographies or services?

So, actually, there is really no difference between U.S. and Europe in the decision making delays. We are seeing it in both parts of the world. And these are delays in decision making because the clients are uncertain about their future or uncertain about their environment. As I said multi-year programs go under a lot more scrutiny than before. And of course that delays them also, those decision making gets delayed. At the same time clients are looking for better business value. They are looking for better solutions. They are looking for efficiency in operations. That is where our business operation service makes perfect sense because we are driving business where we are delivering business value as well as higher productivity in those service lines.

The potential delays on discretionary spending and new business awards in existing projects, I am just trying to get a full color for it.

So existing projects are running as usual. We are not seeing project cancellations. There is no question of a delay in an existing program for most part because once it is committed -- in fact once it is committed they want to accelerate it. So that it can be done. So this is not about existing programs or projects. It’s about new programs and project awards.

Okay. And if I look at the growth rates this year, they seem to be sort of smoothed out. I was wondering if you could give us some color on what causes the sequential growth to be a little less lumpy than past years. Are you seeing -- was there a delay in the start-up projects at the beginning of the year? How should we think about it because traditionally I think December started to slow and then March of course is the decision making process?

So this is an unusual year because of all the environmental issues. Clients are investing in the short-term but not taking decisions on the long-term ones or taking more time to do it. So that is why in the beginning of the year itself we were saying that it will be evenly paced growth rather than a cyclical growth which we have seen in the past, and that is what we expect at this point in time.

Just one last quick question. Just if you can give us a little color on the pricing environment as it is now and what your expectations are going forward? Thanks.

We expect the pricing to be stable. We have seen 0.5% increase in the blended pricing this quarter. 1.3% down on-site and 3.1%, up offshore. We expect the pricing to be stable at this point.

Okay. Thank you.

Thank you very much. Our next question is from the line of Moshe Katri of Cowen and Company. Please go ahead.

Yeah, thanks. Shibu, going back to discussion over calendar year 2012 budget, when do, in our view, do we get visibility on this budget? Should we assume that budgets get finalized in the January, February timeframe rather than in December?

So I would expect the budgets to get finalized in December-January timeframe. Because see while there are environmental factors, corporations have gotten used to operating in this environment. They understand that they need to close it sooner than later. So, I expect that it will close by end of Jan.

So we’re talking about maybe a slight push out, but not a big one at this point?

At this point, we’re not. At least my judgment and my team’s judgment we feel that it will be mostly January end.

Understood. And then you had a nice sequential uptick in Europe and BFSI, this is in constant currency. Can we get details on the main drivers for these improvements? And in this context maybe you can specifically comment on clients buying behavior in Europe and BFSI? What are they buying? What are they funding in this environment?

Let me ask BG to give you some color on Europe followed by Ashok to give you some color on the BFSI space?

Hi. In the last quarter, we have added 10 new clients in Europe, and this cuts across the various key industry verticals we focus on including FSI, manufacturing, energy utilities, retail and pharma. So, we have had a pretty good client acquisition in a challenging environment in Europe. Our focus and strategies with respect to both building local capability in Europe, understanding and making sure we are very relevant in the client context with respect to the solutions we bring to bear. And also in each of the countries where we’re clearly focused on building local capability has helped us acquire clients. We continue to expand business within our existing client footprint. We have also had in the last six months several co-creation workshops on our Building Tomorrow’s Enterprise brand promise. And in that context we have actually engaged with few of our key clients on actually shaping a client’s destiny in terms of reshaping their internal operations, helping them improve. And we have had some two transformation -- business transformational wins. The business is usual in terms of outsourcing deals. We are not seeing too many of them but there are few deals in the pipeline. This is in financial services, pharma, energy utilities. So, in spite of the macro-environment, we are seeing a relatively stable environment within our client businesses. While the decision making is relatively slower, but decisions are being made, investments are being made at this point in time. We have so far not seen any project cancellations or withdrawal of budgets and then that is something we see continuing for this quarter. However, we are cautious. The budgets which will get cast for the coming fiscal year in the month of Jan, will let us know how the next fiscal year is going to shape up. But we’re well positioned both in the UK and in the Continental market in terms of our local capability. And we are hopeful that if the Euro Zone holds and there is no real panic, while we will see in the short-term to medium-term the fact that there will be slow demand, we should still be able to leverage our growth in the current market environment. Ashok, you would like add something on the financial services?

Sure. Thanks, B.G. I think from the financial BFSI perspective if you look at our numbers, we have done about 4.5% growth this quarter. Of that, the professional services has grown about 8.5% quarter-on-quarter. So this is coming on the back of two very strong quarter growths that we’ve already had. In terms of a geographical distribution, BFSI has -- about 20% of its revenue comes from the European market. So given that we had such a small footprint, we were actually fairly happy with the kind of penetration that we are seeing in Continental Europe which has not been a market which has been very big for us given language issues or labor regulations etcetera. But all the accounts that we have opened in BFSI this quarter have come from Continental Europe. So we’re seeing a resurgence or a significant surge in terms of our clients or prospects wanting to engage with us and going deeper and wider in terms of the services that they buy from us for those accounts that -- those -- companies that work with us. We’ve seen good growth in BFSI in the U.S. as well, especially in the insurance sector. That is an area of big focus for us again. Certain regulatory changes in the U.S. market and in Europe are driving some of the increased desire of insurance companies to work with companies such as ourselves, such as us. Our focus on the Asia Pacific market is beginning to yield dividends. Our Australian business is doing very well, our forte into Japan, our foray into China etcetera is also beginning to reap big dividends. The focus continues to be on risk management compliance which continues to be the big money spinner if you will. We’re seeing a lot of traction in mobility. We’re seeing traction in the area of data quality in management and in the BPM space. So a lot of the investments that we had made as part of our Building Tomorrow’s Enterprise, whether it’s in pervasive computing, whether it’s in digital commerce, whether it’s making smarter organizations. Those investments, as I said earlier, are now beginning to turn around and give us the kind of traction in the market as well as driving the profitability up for the financial services sector. Thank you.

Last question just for Bala. Big improvements in margin sequentially, can you give us a typical breakdown in terms of the kind of pluses and minuses that kind of move the margin sequentially?

Well, the operating margin went up by 1.9% in Q2 as compared to Q1. It’s mainly because of the rupee, because the average rupee dollar rate in the first quarter was $44.78. The average for the second quarter was $46.30, which means around 3.4% depreciation in rupee which contributed to 1.5% improvement in margin and the utilization went up by 1.1%. That contributed another 40 basis points. So net-net, the margin went up by 1.9%.

Thank you, very much.

Thank you very much. Our next question is from the line of Bhavan Suri of William Blair and Company. Please go ahead.

Hey guys, thanks for taking my call. Just a question on pricing, at the Analyst Day in the past quarters you’ve talked about some of the pricing challenges you faced in some of the commodity work. Obviously you saw a nice pricing increase this quarter. How do we reconcile those two?

See these pricing increases are very marginal, right, 0.5%. In fact, on-site has declined by 1.3% and offshore has gone up by 3.1%. So, these are very marginal shifts. We are expecting the pricing to be stable. And some of the pricing difference -- the revenue productivity improvements come from the shift, that portfolio shift, right. But from a rate perspective, from a rate negotiation perspective, we are expecting it to be stable.

Okay. And then talking about the shift in services, you’ve been making the investments in SaaS and non-linear revenue, but if I go back even a few quarters that part of the revenue base has remained roughly stable, and the app dev piece of it has remained roughly stable. What’s been growing nicely obviously is the package implementation system integration. How long do you think before this transition that you’ve been talking about for a while now, starts to become more material?

See, please remember our strategy is five to seven years. If you look at, today we have consulting revenue and system -- consulting and system integration revenue of 31%. But we started in 1999 and then I’m sure same questions we answered. So these are long-term strategies. Infosys 3.0 and Building Tomorrow’s Enterprise is a strategic direction for us on the next five to seven years. It is the foundation which we are laying for our next phase of transformation. So, today we have 20 clients on our platform. We have TCV of $200 million, because the platform revenue is over a period of time. We invest upfront but the revenue comes over a period of time. So, we have TCV of $200 million, but the revenue is only $30 million. But when you look at the platform revenue, when you look at the revenue in the new service areas like enterprise mobility or cloud, when you look at our new investment areas like life sciences or healthcare, we are very confident that it will grow above our average. It will grow much above our average. That is only thing we can focus on.

Sure. It’s fair enough. And then the questions have come up about the budget cycle. You guys survey your top, you know, sort of 100 customers. As you talk to them, any sense of sort of, while they have started the budgeting process, what budgets might look like next year? Obviously, I know you guys survey them regularly, so I was wondering if you could provide any color based on those conversations.

So, it is early, because our survey actually what we do with the clients happened in Jan. It’s not before that. It happens in Jan. This year we are not seeing budget cuts. It is too early for us to predict about the next year and we do the survey only in Jan.

Okay. Thanks for taking my questions guys.

Thank you very much. Our next question is from the line of Rod Bourgeois of Bernstein. Please go ahead.

Okay, guys. So over the past three quarters, your growth results and also your commentary about market demand trends have been somewhat less positive than your peers such as TCS and Cognizant. And I wonder if you could give some color on what’s causing that discrepancy? And do you feel like that’s a temporary phenomenon that has just something to do with the timing of your pipeline, but if you can give us some color on what’s causing the discrepancy in both your growth results and in your market commentary, especially since that same scenario may occur again this quarter as it did last quarter?

So, we’re the ones who have been talking about caution and the macroeconomic challenges and the environment not being stable. In fact, while we are talking the environment has become more unstable, more challenging and more problematic over the last couple of quarters. Now, I think it is important to look at our performance in the context in which what we are trying to do. We are truly trying to create the next generation consulting system, integration and services corporation. So it’s a different path. It’s a different path which we’re taking. Our aspiration is to have superior financial performance, and we define it as above industry average growth and industry leading or one of the leading industry margins, right. That is our aspiration. So, our investments are in that direction. So, when we talk about Building Tomorrow’s Enterprise when we took our Infosys 3.0, those are the foundations which we are laying down to achieve that superior financial performance which is high quality growth. So if you look the industry, industry is going through some challenges. Number one, some part of the industry is getting commoditized. Number two, in the long-term, getting large number of highly qualified people will be a challenge. Number three, competition is actually accelerating the commoditization in some cases. If you look at our strategy, it is meant to counter some of these things in the medium to long-term. So, we clearly believe that our strategies will allow us to have superior financial performance as defined by us.

All right. It seems like maybe you’re in somewhat of an investment transition mode given the longer term aspirations and that definitely makes sense. You also indicated in your comments today that clients are looking for business value and efficiency. And so given this seemingly increased demand for value and efficiency due to the macro trends, does this change in anyway your go-to market approach and the type of offerings and proposals you’re currently presenting to clients?

So actually, we have just gone through a very big transformation in our offerings, right? Because we used to have wide set of offerings. We have brought everything under three broad categories. Consulting system integration is number one, business operations is number two, number three, products and platforms. It’s a huge transformation. And these are very much in line with the industry standards, right? Because what industry considers as consulting and system integration is what we consider as consulting and system integration. And these offerings are totally aligned. Our go-to market is through the industry verticals. Our capability building is through the horizontals. So we have totally aligned these offerings in front of the client, right? And these offerings are seeing extremely good tractions. So today we have capability to do end-to-end system integration for our clients. Today, we have capability to put together a proposal which is IMS and IVS and ITO together. Today, we have capabilities to do ITO plus BPO together. We also -- this current structure also allows us to do different things in different offerings. So, in the case of business operations offering we can drive productivity improvements, we can do automation, we can drive business value articulation. In the consulting and systems integration space we can drive better capabilities, better deep domain capabilities, we can do end-to-end transformational work. We can use Building Tomorrow’s Enterprise teams for identifying opportunities. In the platforms and products space, we can do non-linear growth, non-effort based pricing, pricing per usage. So, these are three different models and Infosys 3.0 will allow us to actually do the best in each of those different offerings.

That’s helpful. Just to expand on that though, I mean, with clients more focused on business value and efficiency, does that change in any way the financial profile of the type of business you’re pursuing. I mean does it affect your visibility over the next couple of quarters? Does it affect the margin profile at all of the type of deals you’re trying to sign just because of the shorter-term and value efficiency focus that you’re seeing more with clients?

See, business value, when I talk about business value, I’m talking about the impact what we’re delivering is having on their business. It is not about pricing, it’s about having a better solution, it is about having better predictability, it is about driving efficiencies. It is not about pricing. Clients are looking for better value for the money which they spent. Clients are looking for reducing the total cost of operations. So as long as we can provide relevant solutions, as long as we can provide unified solutions, as long as we can provide better value for the money which they are spending, we are fine. So, I don’t expect any impact on our financial model or any impact on our margins because of this. The other point is, there are delays in decision making but that has nothing got to do with this. That has something to do with the environment and the caution from the -- uncertainty from the environment.

I agree. Thank you, Shibu.

Thank you very much. Our next question is from the line of Keith Bachman of Bank of Montreal. Please go ahead.

Hi, thank you. I had a couple as well. In terms of the financial services in particular, you commented that you’re not seeing cuts. I just want to be clear, are you suggesting that you’re not seeing cuts in the dollars being allocated to you or to service providers versus the broader IT budgets. Because there’s been more mixed comments from a broader set of technology related companies on current demand patterns from the financial services. So, I just want to get a clarification of your comments, please?

So, let me ask Ashok Vemuri to answer that.

So, that comment was addressed more towards the addressable space that we are engaged with all the projects or work we are engaged with. We have heard that there has been a deduction to an extent for hardware and software product companies, but we’re only interested in what is our addressable space and we have found no cuts or cancelations there.

Okay. Fair enough then. In the last cycle though, if you look back at what happened in ‘08 and ‘09, the hardware, the transaction companies and software transaction companies saw reduced spending before the service providers, including yourself. And a quarter later, a little bit more than a quarter later, then the service providers indicated they also saw some reduction in allocation of dollars. What’s different now?

So, in fact, in the 2008 time period we actually saw the reductions approximately at the same time as the software companies and/or the infrastructure companies did. So in fact, I would say in some cases we were ahead because we were easy to manage in terms of these not long-term contracts. So, there is no annuity contracts or license agreement etcetera. So it was on a work to hire basis and it was easy to negotiate the rates downwards with technology service providers such as ourselves. This time basically what’s happened is, in 2008 as we read it, 2008, Lehman Brothers happened. There was a period of paralysis followed by a flight to procurement. This time around, we’ve not seen a flight to procurement. There is more time that our clients have in terms of determining what their overall cost structure should be and they are engaging with us in two areas. One, on trying to change their overall cost structure, not just the rates. So they are looking for more higher productivity, they are looking for optimization. On the other side, they are also engaging with us much more than they have ever done before and definitely much more than they did in 2008. They are engaging with us on the revenue side of the balance sheet which is essentially about creating products, which is about creating services, improving the services for customer centricity, CRM investment, investments in mobility etcetera, on the back of infrastructure and software packages of products that they have already either procured or that they already have. So, more and more decisions that we’re seeing are tending towards the build option rather than the buy and implement option. Which is why we feel that this time around, given the amount of time that they have had to prepare for this and the time that this kind of uncertainty will exist for, and they are looking at us for more fundamental changes in their overall cost structure. They are looking at us more on the revenue side of the balance sheet. So, if you look at our numbers for this particular quarter, a bulk of that has come from risk management, governance and compliance. A year ago, we probably made maybe a tenth of what we did this quarter on this particular thing. Last quarter, we made some amount of it. It is still not scaling up. But this quarter the bulk of it has actually come from these initiatives.

Got it. Okay, thank you. Let me just get two more shorter ones in. Why was on-shore pricing down? I would have thought mix would have helped and the trend in the last couple of quarters has been positive for on-site pricing?

See our pricing increases have been marginal. It is not because our rates have gone up, it is because our portfolios have shifted.

So when you said, when you suggested that pricing would be stable, does that suggest that on-site pricing will also be stable over the next couple of quarters?

Yes. On-site, offshore and blended, all three will be stable other than portfolio shifts.

Okay. My last one then is your lateral hiring was down a bit at least compared to past quarters. When you think about targets for CY12, maybe you could talk more broadly about your hiring thoughts and in particular address, how you’re thinking about the mix including laterals? And that will be it for me, thank you.

No. There is no secular trend. That is a quarter-to-quarter operation. It is also because of the -- truly it is also because of the transformation we were going through. Our philosophy is to do 70/30. 70% from freshers and 30% from laterals.

Got it. Okay, thank you.

Thank you very much. Our next question is from the line of Shashi Bhushan of Prabhudas Liladhar. Please go ahead.

Yeah. Thanks for taking my question and congrats on a great quarter. When we started the year, we guided for 18% to 20% growth coming entirely from volume growth. But we have witnessed modest uptick in pricing in the past two quarters despite that we maintained our guidance. So even through marginally where we have witnessed negative surprise that we didn’t upgrade our U.S. dollar revenue guidance?

We started out the year with 18% to 20% guidance based on a certain volume and pricing assumptions. The volume and pricing assumptions have remained the same. We have not changed it at this point in time. At the same time, the currency has moved. So, we have re-casted our guidance for the year at 17.1% to 19.1% based on the currency movement.

Okay. Also second part of my question is you’ve mentioned earlier in the call that we have given 23,000 fresher offer for FY ’13. Are we going to give more offer or are we done with the fresher hiring for the next financial year?

We’re done with the fresher hiring for the next financial. I think it’s in progress. We will give 23,000 and that is the number.

And we have mentioned that we’re going to have 70 to 30 fresher lateral mix. In that case, we’re looking for approximately 33,000 gross hiring for FY’13. Any reason for deceleration in hiring in FY’13 compared to that in FY’12?

Please remember these are all guidelines, right, 70/30. There are multiple ratios which we try to keep. It will never be absolutely 70/30. It will be based on the environment; it will be based on growth, various other factors, right?

Sure, sure.

And your question was -- can you just repeat the question once more?

Yeah, as we mentioned that we’re going to give 23,000 fresher offer for FY’13, and we have also mentioned that the fresher to lateral ratio would be somewhere in the range 70 to 30, 70% fresher and 30% lateral. Now if we work with that number that means we’re looking for almost 33,000 gross hiring for FY’13. I was wondering that why there is deceleration in hiring in FY’13 compared to that in FY ’12 --

Actually there is one more thing, because even when we do freshers there is a percentage of the freshers which we do hire -- which we will hire on time.

Yes.

Okay. So, there is campus and non-campus hiring even for freshers.

Okay. So, just-in time hiring for fresher also in that, that is possible.

Right. Right.

Okay. Thanks, that’s all from my side.

Thank you very much. Our next question is from the line of David Grossman of Stifel Nicolaus. Please go ahead.

Thank you. So, Shibu, your hiring plan looks like or it looks like you are a little ahead of planned hiring for the year. Pricing has remained relatively stable if not improving slightly. Can you help us think about or should we think about these metrics as leading indicators, lagging indicators or coincident indicators of overall demand trends?

So, we do things as we -- when we give a guidance, when we do these things, it’s always on our current understanding of the environment, current understanding of our pipeline demand, what our clients are looking for. So, I would think that these are all simultaneous indicators. And when we talk about next year and when we say we are hiring 23,000, we have given 23,000 offers, it is based on a projection which we have but it also has things baked into it like off-campus hiring that is just in-time hiring out of campus, lateral recruitment and things like that. So, this year, 45,000, we are already behind by 27,000 or so, more than that actually. So, these are indicators of where we are today and the guidance we have given as of this point.

So maybe another way to think about it is as you go back in time through other cycles. For example pricing degrade in front of demand starting to drop precipitously or was really pricing more of a lagging indicator of where demand is heading?

Can you please repeat the question, David?

Sure, just curious whether in prior cycles, did pricing start to come under pressure in front of demand, dropping fairly significantly or did in fact pricing represent more of a lagging indicator?

Okay. David, the thing is I think the environments are quite different because I think when we were in -- if you look at 2003 we were in a pricing bubble. 2008 was a real turmoil and there was some amount of pricing pressure. But right now, at least our understanding and what we are seeing is that clients are more focused on driving business value and better solutions than focusing on the pricing. We are not seeing at this point a go back to procurement kind of situation. So, if there is an indicator which we will start seeing because of the environment, I would think that it will be in the volume rather than price in phase I.

I see. Okay. I got that thank you. And then just maybe a quick question on the margins. It seemed that the assumption underlying guidance for the rupee would drive a more significant increase in the margins and I think Bala said that utilization perhaps would mitigate some of the increase from currency. Is that the only offset going forward for the balance of the year, or are you capturing, are you providing for perhaps some degradation of the rupee or taking the opportunity to increase the pace of investments, given the excess margin that you may have from the change in currency?

David, right now we’ve given a margin guidance based on the currency level at the end of September. If it remains so, we’ll have offset on the margins. Even if the currency moves against us we always had certain levers on the cost side, right. We have a variable cost structure. We have the onsite offshore mix, if we can push more work offshore, that will be beneficial for our margins. So in utilization, I mean, if we are able to push it up that could be beneficial to our margin. Business mix if you change that, if we move more into consulting enterprise solution kind of business, margins could be better. So you always have a lot of cost levers and if the currency moves actually against us, probably we can use some of the levers. Right now we’ve given the guidance based on the currency level what we are seeing. That is a big upside for our guidance on the margins for the full year.

Right. So is there, are you taking any incremental down to the investment line there, Bala, in terms of taking advantage of the excess margin from currency and perhaps accelerating the pace of some of the investments you talked about earlier in the year?

No, we always do whatever investments is required for the business. I don’t think we have cut down anything and our guidance is after factoring in all those investments. And if there is any incremental benefit we get because of currency or otherwise, and if we have investment opportunities, we’ll definitely look at it.

Okay. Great, thank you.

Thank you very much. Our next question is from the line of Mayank Tandon of Needham. Please go ahead. Mayank Tandon - Needham & Company: Thank you. Good evening, everybody. I had a quick question, Shibu, in terms of the insurance vertical and the telecom vertical, they’ve been soft spots for you guys for a couple of quarters. It seemed to held out pretty well this time around. Maybe just give us some sense of -- has the worst been behind for these two sectors or just maybe an update in terms where the trends are for these two verticals?

So, actually we have focused on these areas. We have put in leadership and we have invested. So, let me ask Prasad to comment on the telecom space and Ashok to comment on the insurance space.

Yeah. So this quarter, we did have a good performance on telecom. One of the conscious things that we’ve done over the last couple of quarters is to try and reduce our percentage of spend on our posted revenue on wireline and move it more into the cable and the wireless. So, from a wireline perspective which is under quite a bit of pricing pressure -- not so much pricing pressure, I’m sorry, it should be more cost pressure of our customers. We’ve actually reduced our wireline business from about 80% to 74% this quarter, but we have increased our cable and our wireless business substantially. Wireless, actually grew 70% quarter-on-quarter and then the cable grew about 40%. So, that’s where we’re focusing. So, we’ve seen some good traction. We’ve also won a transformation program this quarter on telecom. So, overall our strategies are beginning to work, the focus on business transformation and focus on the Building Tomorrow’s Enterprise based platforms are beginning to work for us. So, I think it’s definitely a good place where we are in right now, we feel good about where we are on telecom.

Hi, this is Ashok. On the insurance and healthcare part of the question, what we’ve essentially done is to allow us to recruit talent in these areas, to focus and build capabilities in these two particular sub-verticals. We have taken healthcare and put that for the U.S. market into our subsidiary called IPS, so as to provide much more focus and capability building there and platform building, which is a very big play. So, we’ve -- actually the three accounts that we have opened -- we opened three accounts, in the healthcare sector in the U.S. Insurance is actually beginning to find significant traction in the European market. Some of the regulatory changes there are driving more usage of the global delivery model and we are also consolidating our portfolio in the U.S. market on the insurance side and beginning to see some traction build up there as well. Mayank Tandon - Needham & Company: Thank you. I just have one follow-up on the healthcare front. I mean, when I compare Infosys with some of your larger peers, it seems like your healthcare practice is relatively small. I know there has been some talk about potential acquisitions; maybe just give us some sense of what the game plan is to scale that business up to take advantage of some of the regulatory changes that are coming down the pike?

Yeah, undoubtedly the healthcare practice for us is much smaller than our peer group. I think we got off the blocks kind of late. And even though we got off the blocks late, we lost our way somewhere again. So now we have consolidated all of that and it is a big focus area because we see that having a significantly large potential and opportunity in the U.S. market. So, we have put it in IPS which is our subsidiary company. We are in not only for healthcare, but across the board we are looking at inorganic options which will allow us to pursue the strategies that we’ve adopted which is in the space of consulting, system integration and definitely in the space of product platforms and solutions. But we clearly do understand that we have catching up to do in the healthcare business and we are fully prepared from our strategy and action plan perspective, we are more than ready and we should be able to see some of those results, tangible results, as we progress the quarters. Mayank Tandon - Needham & Company: Great. Thanks. Just one last question to Bala, can you just remind us about the specifics on the hedging in terms of, at what rate are you hedged and what is the timing of the hedges in place? And what impacts have you built into your other income item in terms of the hedging impact?

Well, we had taken a view that because the currency environment is too volatile, we’ll take a very short-term view on the currency movements and we’ll hedge up to next two quarters of net exposures at any point of time. The time horizon for our hedging is not more than one year. So, currently we have around $742 million of hedges, last quarter it was $745 million. In the current quarter, we had some impact on a non-operating level of around 6 million or so because of the hedging impact and we mark-to-market all our hedges at the end of quarter at the closing rate. So, the closing rate for September was 48.98, so all the hedges were mark-to-market at that rate. For December and March quarter guidance, we have not assumed any impact on the non-operating level because of the hedges. Because it is mark-to-market at the current level, any incremental move happens that could impact which we don’t know. So we have not factored in any currency impact on non-operating level for Q3 and Q4. Mayank Tandon - Needham & Company: Got it. Thank you.

Thank you very much. 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.

Thanks, everyone for being on this call. We look forward to talking to you again during the course of the quarter. Thanks and have a good day.

Thank you, Mr. Mahindroo and members of the management team. Ladies and gentlemen with that we end this conference call. Thank you for joining us. You may now disconnect your lines.