Infosys Limited (INFY) Q3 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 presentation all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions at the end of today’s opening remarks. (Operator Instructions) Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Avishek Lath of Infosys. Thank you, and over to you, sir.

Hello. Thanks, Manita. Good afternoon, ladies and gentlemen. I am Avishek from Investor Relations in Bangalore. We thank you all for joining us today to discuss the financial results for the quarter ended December 31, 2011. Joining us today in this conference are the CEO and MD, Mr. S.D. Shibulal; and CFO, Mr. V. Balakrishnan; along with the other members of senior management. We will start with a brief statement on the performance of the company during the quarter ended December 31, 2011, outlook for the quarter and the year ending March 31, 2012, and subsequently we can open up the discussion for Q&A. Before I hand over to Infosys management, I would like to remind you that anything we speak which refers to our outlook for the future is forward-looking statement and must be read in conjunction with the risks that the company faces. The full statement and explanation of these risks is available with our filing with SEC, which can be found on www.sec.gov. I will now pass it on to Mr. Shibulal.

So, good afternoon, everyone. It’s a pleasure talking to all of you. Thank you for your attendance in the call. We had a pretty good quarter. Q3 was pretty good. We grew by 4.4% in constant currency and 3.4% in reported currency. Volume grew by 3.1% from 2.1%. Our margins are up 28% to 31% this quarter. In the last quarter, it’s 28%. Our pricing is stable. Year-on-year, our pricing has gone up by 5%, that means on a year-on-year basis, we have been able to bypass the revenue collection with the increase. Areas of investment are growing fast, nonetheless. Europe, it’s all good growth, life science and healthcare has grown above our average. Client addition has been very strong. We have 49 new clients which we added this quarter out of the six are Fortune 500. Over the last nine months, we have added 120 new clients. We saw very strong client addition. It’s also shows that we have – it also shows that clients are choosing us and that will be a great thing for us when the time comes where they start spending much more aggressively. And they start taking the business when they start spending much more aggressively, we will be the partner of choice. And that is what we are seeing by adding 120 new clients. Pricing as I said, went up by 5% year-on-year. Actually, interestingly enough, if you look at the nine month it has gone up by 6.1%. Our growth in this quarter has been all around. The non-top 25 grew by 2.9%. Attrition came down on a yearly basis. Last year this quarter, it was 17.4%. Right now this quarter, on an interim basis, it is 15.4%. Now, this means that the controller has been coming down. Our new specific area…

Good afternoon, everybody. This quarter has been a challenging –

Excuse me, this is the operator. Sir, I’m sorry to interrupt. There seems to be some disturbance.

Okay. Is it okay now?

Yes. Please go ahead.

Okay. This has been a challenging quarter. In the beginning of the quarter we said revenues could grow somewhere between 3.4% and 5%. But in the events of the quarter, the environment has become much more challenging Our expect early indicates on the budget is that it will be flat to marginally down. Discretionary spend is likely to come under pressure in the near term. We are doing a guidance, a last guidance considering the environment in which we operate. We have seen the clients becoming more cautious. So even though they had a budget, they have not spent on the budget because they try to conserve cash in the volatile economic environment. So in the middle of the quarter, we came and updated the market saying that it could be somewhere closer to the lower end of the range what we guided for. And that is what we ended for the quarter. In rupee terms, our growth sequentially has been close to 15%. The rupee that this should be around 11% this quarter. At the net income level, the growth has been 24%. Our operating margin went up by around 3%, mainly due to rupee. The rupee average was 51.37 this quarter as against 46.30, that means 11% depreciation, which could improve the margin there on 4.4%. But since we have incremental costs coming in at around 1.4%, the net increase in operating margin was around 3%. The non-operating income has been good. We get a yield of close to around 9.7% on our portfolio. Today, we are close to 20,000 crores of cash in the balance sheet and the effective tax rate is around 28.6% this quarter. We always said it could be somewhere in the range of 28%, 28.5%, and that is where it is. Today we…

Thank you. Ladies and gentlemen, we will now begin with the question-and-answer session. (Operator Instructions) We have the first question from the line of Vihang Naik from MF Global. Please go ahead. Vihang Naik – MF Global: Hi, good afternoon, sir. I just wanted to know about the geographical revenue growth that you’ve seen. I mean, more than 80% of your incremental revenues have come from Europe, so, I mean, what is it that is happening in Europe, and why is not the U.S. not really picking up in the same way?

So, I wouldn’t consider that as a secular trend, but at the same time it reflects the investments we are doing in Europe. We have set up offices in Germany and France. The large deals that we have won, I think of couple of them are in Europe, and one of the larger than $500 million deal is also in Europe. So it’s a reflection of these things. Also, always remember that even though there is a lot of volatility in Europe, offshoring in Europe is much lower, and our client that isn’t in Europe has been much stronger lately. So it reflects all of those things, but I wouldn’t consider that as a secular trend unless we see it for a few more quarters. Vihang Naik – MF Global: Okay, and secondly, I mean, your top line has declined in dollar terms by 1.8% here. I mean, are there any project rundowns here, or is it like an orderly acquisition?

No, there is no secular trend here. This year, the growth this quarter, the growth has been driven by the non-top 25. We have seen this in quarter after quarter. Every quarter we have seen this, either it will be top 10, top 25, non-top 10, non-top 10. So if you look at the last eight quarters, you will see that the growth is really widespread. It is secular across between segments of the client. So I wouldn’t leave anything into it. Vihang Naik – MF Global: Okay. And lastly, your pricing in constant currency has gone up by about 0.8% toward, has been like-to-like billing rate increases or is there a mix change to it?

They’re both few occasions they have pricing increase and most of the duration that has been stable. They have not been price cuts and there has been portfolio improvement. Also slight amount of non-linearity, I wouldn’t say this much but very small amount of non-linearity yet in – because of the products in that homework. So if the competence about the – but the most important thing over the last nine months of pricing has gone up by 6.1% and last one year, 5%. That is a reflection of our focus. It is very important, remember, it’s that reflections of our aspiration and our focus. We have always focused on high quality of goods and it is a reflection of our focus on high quality growth, very, very high business value and giving specific partnership, increasing the leverage. These are all foundations for high quality growth, and what you’ll see is the reflection of that. Vihang Naik – MF Global: Okay. Thank you, sir. That’s it for me.

Thank you. The next question is from the line of Ankur Rudra from Ambit Capital. Please go ahead. Ankur Rudra – Ambit Capital: Thanks for taking my questions and congratulation on a strong quarter. My first question is on – if you could just elaborate on the weakness that we saw in the middle of the last quarter where several ramp ups were getting delayed because of the macroeconomic weakness. Was that more specific to certain verticals or certain price?

No. Actually it is, I will revise that but it was – there was no particular trend in any other specific verticals. We have seen weakness – we have seen the velocity of the business decisions marginally coming down. We have seen delays in decision-making. We have also seen – we are seeing delays in ramp ups. That means the programs have just started with an expected design but not ramping up because of signs of lack of confidence. We are not seeing cancellations. We’re not seeing cancellations. So in the middle of the quarter, after the guidance last quarter, we haven’t seen it most recently. That led us to a stage in the middle of the quarter that will be prudent to the lower end. And that is where we ended up. Ankur Rudra – Ambit Capital: And this is just last question on pricing. Again, you mentioned you will be able to get some pricing benefits over the course of last year but expecting the last one quarter after the repeat depreciations, some of your competitors are indicating they might be passing on benefits of depreciation through bearing rate cuts. Have you seen that happened on a competitive basis or that might impact you going forward?

The pricing on what? Ankur Rudra – Ambit Capital: [inaudible]

The currency. The pricing is – that is a completely wrong thing to do because you will not be able to negotiate prices when the currency appreciates, right? And so it’s not viable option for us, it’s not the right thing to do because the pricing is independent of the currency, otherwise you have to be able to go back and to monitor if the currency appreciates, either go back and renegotiate all your prices. That is not viable option. However, I must say that line for two to three years and we also get hit by constant currency movement. So, for example, this quarter, our constant currency revenue is to-date we go average, the revenue is 1,823, which is 4.4% growth, where as we reported 1806. So there is implication of rupee depreciation, at the same time there is the cross currency movements. So I think it’s the appropriate thing to do. Ankur Rudra – Ambit Capital: Appreciate that point. So I was just wondering if you’ve seen any evidence of that in the marketplace?

No. we are not seeing it. We are not seeing evidence of that. Ankur Rudra – Ambit Capital: Okay. Thanks a lot [inaudible] best of luck for the remaining quarters.

Thank you. The next question is from the line of Bhavan Suri from William Blair and Company. Please go ahead. Bhavan Suri – William Blair & Company: Hi guys. Thanks for taking my call. I guess I’m just trying to understand the guidance. If pricing is going up and demand is relatively stable and you’re not seeing cancellations, I’m a little surprised that Q4 is flat. If you could just provide a little more color, that’d be helpful.

So if you take the revenue and do some analysis, 30% of our revenue comes from consulting and system integration work, which is becoming a discretionary spend. In uncertain times, the discretionary spend is scrutinized at a much higher level, that’s number one. Number two, the consulting and system integration work which we do is not annuity based. The average program size would be to anywhere between nine to 18 months. So it means that every quarter, we will have to replenish the work which we do. That will require velocity in decision making to replenish. So these are all factors which will impact our guidance and our growth. At this time here today, there is serious uncertainty in the markets. Budgets are getting closed flat to marginally down. We are not sure about the velocity at which they will take decision to spend the money. Bhavan Suri – William Blair & Company: Just to step back though, you had a whole bunch of transformational deals closed this quarter or last quarter. I’d suspect those flow into special integration consulting. So I’m sort of a little surprised that you aren’t seeing that offset a little bit by all the transformational work, these large $500 million deal that Bala talked about, helped that out?

Actually, the last – so, if you look at the deal closure, it also reflects what I’m talking about. Now as I mentioned, the work closed this quarter is only one. We have closed large deals this quarter. These deals are mostly in the – actually, all in the operational space. They are multi-year deals. They are large but they are multi-year deals. In this quarter we have only closed one transformational deal. One large transformational deal. Bhavan Suri – William Blair & Company: Okay, and then if we go back to last quarter when you talked about budgets, you’ve said marginally flat to marginally up, and now you say flat to marginally down, can you give us a sense of what the tone is and the change and why that is so dramatic in three months?

So, the budget, the things we have and the margins have deteriorated after the beginning of the last quarter, that was reflected in the middle of the quarter when we actually started seeing about the fact that we will be closer to the lower end. You know, when we give a guidance, it’s a statement of fact and we expect to be somewhere in between, right? And by the time they came to the middle of the quarter, we could sense the margin differential in the environment as the budget is being most. And the fact that there is a process going in the decision-making. That led us to a stage in the middle of the quarter that we will be closer to the lower end. Right now, we are at the end of the quarter. We have seen that we are at the end of the quarter; we are in (inaudible). We have seen a number of budgets have been closed. And what we are seeing is mostly flat or marginally down. Bhavan Suri – William Blair & Company: One final one from me, as you look at the number in your revenue, you sort of been – Infosys has been driving growth in that. What is that today, the total percentage of revenue in constant currency?

Actually, this is normally revenue has one simple basis. Now, with every license this term. So the easiest revenue this quarter is 5.1% of the total revenue. Bhavan Suri – William Blair & Company: Right.

That includes connection. Now this then connects to lower revenues and products are naturally quite small. This is quite small actually, to be honest, $30 million or $40 million. Now the important thing is what is the future. This is a different kind of business, this is a business in which you will actually book annuity revenue in large amount and it will flow through in a period of time. So we have closed $300 million of TCV, which will grow into the system over the next four or five years. So it’s a CapEx model. It is an investment from our side which we’ll get return over a period of time. It’s a high TCV model, monthly, year contract. It’s a model annuity-based. So we have $300 million of TCV closed in the product investments stake, other than (inaudible). There is other part of the non-linear revenue which is the revenue in places like Infosys management or in maintenance or in BPO, where we price it differently. Not based on effort, based on either tickets or transaction or device or incident. That actually we are not including in this 5.1%, that was about, it would be about 3% to 4%. Bhavan Suri – William Blair & Company: Okay, thanks, that’s it for me, guys.

Thank you. The next question is from the line of Anup Upadhyay from SBI Mutual Fund. Please go ahead. Anup Upadhyay – SBI Mutual Fund: My question has been answered. Thanks.

Thank you. The next question is from the line of Ashwin Mehta from Nomura. Please go ahead. Ashwin Mehta – Nomura: Hi there, I just wanted to know what explains the flat growth in U.S. and narrowed up to, and are you seeing the same impact in terms of the deal-making dealers and the – as well? And secondly, in terms of our flat growth guidance for the next quarter is the assumption that across geographies you’ll see flattish growth, although in some geographies, that could actually show some declines as well.

Yes, hi, this is Ashok. We have in the U.S. market respective highs, as Shibu said earlier, I don’t think there is too much to be read into the fact that it’s down by a percentage. I think we’ve grown the investment that we have made in emerging markets, are already beginning to yield dividends, as well as Australia where they have a significantly large pipeline with a very high quality of conversion in financial services, whether they’d be spent up in Australia, in – in China which has allowed us to open up Japanese banks space that are close to us. Mexico, we are ramping up. We are already at 600 people; we are setting up another center. Brazil is too early, so I think from a U.S. goal perspective compared to Europe, I think it’s not a secular trend that too much can be looked into. When we are evaluating our – what we would be able to achieve next year definitely look at the aspects of the various product lines, various business lines that we operate in various industries and definitely we also look at the geographies or where the biggest opportunities are coming. And in fact off the strategies that we have in Infosys 3.0, we expect to see significant traction in the products and platforms space not only in the U.S. market but also in our emerging market and similarly there are consulting and system integration practices that ramps up the opportunities that are opening up for us in a non-traditional market if you will are also fairly high. Ashwin Mehta – Nomura: Okay. Just another question in terms of the decision making details that you witnessed from November onwards and the details in terms of ramp ups. In the beginning of this quarter until now, have you see any improvements there or there has been some more deteriorations since then?

If you mix, it would be marginally down. Totally marginally down. Ashwin Mehta – Nomura: Okay. Thanks a lot.

Thank you. The next question is from the line of Nitin Padmanabhan from Motilal Oswal Securities Limited. Please go ahead. Nitin Padmanabhan – Motilal Oswal Securities Limited: Yeah. Hi. Thanks for taking my question. You’d already mentioned that there were five large deals when two of them being 500 million of TCV. If you could just give us some color in terms of which service lines you value, you did mention there from business operations but specifically which areas business operations and the rebate as well? The rebate deal as well specifically which service line that would be?

Yes. This quarter we have seen quite a good growth in the business operations area as plans continue to spend on optimizing their business operations and the infrastructure management came out against the reserves and also on the integrated resourcing with combined – instruction came out and then testing on that, whether that increased and traction that we have seen. A lot of consolidation of – for the provision write-offs and the outsourcing for that deal – for a business on the route of the population increase. Nitin Padmanabhan – Motilal Oswal Securities Limited: Sure and –

Once again, I certainly have –

Just to add to what Bala has said, one large deal is in financial services and the second large deal is in the manufacturing sector. Both of them are in Europe. One is predominantly business optimization through integrated delivery and the other is a combination of that and consulting and system integration. Nitin Padmanabhan – Motilal Oswal Securities Limited: Just two more questions about that, in percentage terms that we had only what was that, Europe is a difficult market to correct in terms of rebuilds because you have people whom you are not able to easily lay off and then basically pay them six to nine months of salary. So that’s basically degrade on margins. Are these used any different from –?

Yeah. As you can see, the lesser rebuild, what I meant was that part of the work which we are already doing is improving the base level of (inaudible). And your rebuild happens in some locations, for example. We have solved situations and we have solved. And then basically what we do is we consolidate the work that what we have, we look at all the future work and everything is sold to us twice. That could happen. There are other situations there that the clients would look at a rebuild plans with – over there, consolidating partners. So both happens. When I say all people, that wasn’t what I meant. Nitin Padmanabhan – Motilal Oswal Securities Limited: Sure. And as these been one and has been dependent this quarterly (inaudible)?

Out of the five there, will be one place that in under consolidation and two of them on new logos. These in out of the five, two are new logos, which means that to a new client with whom we are not first before, but we are going in a very large lean approach. Nitin Padmanabhan – Motilal Oswal Securities Limited: Sure. And just lastly in terms of ramp up, you mentioned that there will be based in ramp ups from new projects, are the ramp up sitting for these new deals any different?

No, I wasn’t definitely expecting we have to go down, slight. These deals and I am hoping that will scheduled. Nitin Padmanabhan – Motilal Oswal Securities Limited: Sure. Thank you so much.

Thank you. The next question is from the line of Sandip Agarwal from Antique Stock Broking. Please go ahead. Sandip Agarwal – Antique Stock Broking: Thanks and congrats on this current quarter. Two queries, one was on the utilization level on those you have mentioned that you are untouchable between the 76%, 30% range, but what is the probability of looking that we will be able to hit the 80% range for us first of all? And second question was more on the application deadline, we are not able to witness as far level to macro expertise but half percent. So if you can throw some light on this, it will be very good.

So on the utilization trend, we are building capacity for the future. Our product lines – 18 months. So because the 70% of it – is from the campus, and that means that you have to be (inaudible). You are taking an offer is 20,000 next year now. So, and also there is a seasonality split. There is a seasonal split, all of the trainees will come out of training. Because they will join myself year ago to the training of this month, they will all start coming out. And so there’ll be a good amount of people we’re getting in this newer system and that will reflect in the utilization. We acquired competence between 76% and 80% because it uses the ability to react in a volatile situation. So in this situation, everything we take that at part, when the client makes a decision, it has to happen tomorrow morning. So we need to have the capacity that we had and that’s very, very important. Now, regarding that issue as efficient over – if you look at quarter to quarter from last year to this year, if you look at the acquisition for last year in Q3, it’s at 17.5%, it’s at 17.49%, and this quarter it is 15.4%. So it has come down by 2.1% on a year-on-year like-to-like basis in the quarter. Sandip Agarwal – Antique Stock Broking: Okay, thank you.

Thank you. The next question is from the line of Pankaj Kapoor from Standard Chartered. Please go ahead. Pankaj Kapoor – Standard Chartered: Yes, hi it’s – just based on what you are seeing in terms of the buying pattern, do you expect going forward the cautionary spend that you are referring to that could have a higher impact on the volume through or do you see that just putting a higher pressure on the pricing?

See, at this point, we’ve believe that the pricing is stable. It is also important to remember that while unemployment in the year-to-date – in the online that in overall reported in the industry in which we operate at the end of – what? It is 3.5%. So it is important to keep this in mind because the unemployment in actually is about 3.5 percentage, very low. So the – that the pricing to remain stable unless there is some totally catastrophic event. And our focus is to create better and better business value for our clients and that will allow us to always have the size in premium which we incurred in the past going forward. Pankaj Kapoor – Standard Chartered: And just in terms of the pricing discipline among the vendors, are you seeing any more detail in terms of some vendor pushing down the pricing just to secure volume on such case is going up?

We are very disciplined and it’s not taking different grade to some people are focused on volume; some people are focused on maybe being the largest. And see, our focus already has been to create quality developed. And it is a reflection of our strategies and it’s the reflection of our idea delivering to our clients. It is not a reflection of rate. It is a reflection of what we are actually – the strategies we are reflecting, adapting and the business in which we deliver to our clients. So we do see occasional aberrations and different take, different path, different strategies. In our case, it’s very clear to us that we need to create a high-quality growth. We need to get better and better business value and with more and more capabilities, do more and more compliment programs in consulting and system integration, drive efficiency in operations and drive evaluation through products and platforms. As long as we do that, we believe we should be okay. Pankaj Kapoor – Standard Chartered: Thank you and all the best.

Thank you. The next question is from the line of Diviya Nagarajan from UBS India. Please go ahead. Diviya Nagarajan – UBS India: Hi, a couple of repeating questions. I was just looking at your gross margins this quarter. It’s gone up about 170 basis points. I’m trying to reconcile, I think Bala spoke about the 400-plus basis points positive because it’s currency. Given that pricing seems flattish, utilization seems flattish, volumes have been more or less in line; I’m trying to understand why the gross margin is up only 170 basis points please? Is there any area that you’ve invested in during the quarter?

Well, there are certain costs like the subcontracted costs during the quarter. And that is the reason you don’t see the full benefit in the gross margin. With the operating margin level, you had seen the impact coming in at around 3% maybe because of currency. So some cost goes up. We do need to make investment. For example, we hired more people than what we budgeted for. We usually have 8,000 people, we hired 9,655. And so all that add to the cost but full benefit of – will be the – they will not come to the margin because we have this installation costs in other areas. Diviya Nagarajan – UBS India: Fair enough. And I also noted that your sales and marketing expense in dollar terms seem to have come off almost 10% QoQ. I’m just trying to understand what’s behind that? Is that – were you making an investment in this area in the last few quarters, and if that’s done and is the current number the level that we should be looking at going forward?

We have more in those certain areas. We have more than 1,000 people in sales and marketing. And we don’t look at the quarterly numbers on all this. If you look at the secular trend, we are still spending enough money on sales and marketing to request for the group. I don’t think we have that or anything. Diviya Nagarajan – UBS India: Fair enough. And this time, with your question on increased hiring vis-à-vis expectations or expectations of volume growth have much really deteriorated from beginning of last quarter to now and its exactly guiding to either both. So why is then the need to hire incrementally more than what you’ve – what you were planning to at the beginning of the year?

We are in the [inaudible] expect short-term challenges. We clearly believe that other strategies and also to move very well with the clients as to be aggressive in spending. We have very close relationships with our clients and then we are really extremely for them. So we are putting in for the future. We have to be ready when they are ready. And in the long term, where we’ve decided to go check if there’s a trend for it. We are delivering superior business value. We are their partner in term of [inaudible]. We do all those things. So in the long term, it’s a very good – well, good opportunities for it. Even today our pipeline is pretty strong. The only thing is that the deals are not getting close in the speed that which it’s made to be closed. So we need to prepare for the future and these are the investments we need to make. Diviya Nagarajan – UBS India: Sure. And lastly, the 0% growth that you’re targeting for this next quarter, you think it’s a bit of a one-off and there’s a sluggish start maybe because of delays and do you expect the rest of 2012 to pick up because you’ve had clients picking up in the last couple of quarter, is that a fair assumption?

The statement of that as we see it today. Our guidance is always a safe number of facts. And we try to be a fast and we’ve got all the information that we have. When we entered the quarter, we need to see about 95% to 96% of the revenue already booked on February. They were only 50 days. Today is January 10, there are only a few days to raise days left. So this is a statement of fact as you see it, and right now we are doing – we have talked about the reasons behind our caution on guidance. We are hoping that we will be able to grow. Our aspiration is that we’ll grow the clear quality growth, so we will continue that therefore then. There is no change in our aspirations, and I also don’t believe there is a change in the secular trend. Diviya Nagarajan – UBS India: Good enough. Thanks, and all the best.

Thank you, the next question is from the line of Srivathsan Ramachandran from Spark Capital. Please go ahead. Srivathsan Ramachandran – Spark Capital: Yes, I just wanted to [inaudible] there’s been some steady growth in the business, and we’ve seen another 10 business deals in the quarter. So I was just wondering any specific intakes into what piece of the cynical that’s being sold or accepted broadly at this point of time in the market?

This is Haragopal, all around, I think we have good acceptance of new growth in the interim of our traditional offerings like core banking. In this specific quarter, it’s, some of these deals are in Tier 2 and Tier 3 space of core banking, and some in channel space. Channel banking space. Srivathsan Ramachandran – Spark Capital: Okay, and then I just wanted to understand there, you did mention that there is some softness I the discretionary spend which should have come on board in the beginning of the quarter. So I just wanted to ask, is it one that we have seen some of the initial or the large, implementation deals from – of multi going some details coming through there.

Actually, what we are seeing is that the roll out with that in progress are actually flourishing well. We are not seeing growth cancellation, we are not seeing previous slowdowns in those thing. What we are seeing is that the new program initiation, the teachings of the new program are being sluggish. So our current programs that actually are going pretty well and what we are seeing in new program initiations being sluggish. Srivathsan Ramachandran – Spark Capital: Okay, thank you.

Thank you. The next question is from the line of Sandeep Shah from RBS. Please go ahead. Sandeep Shah – RBS: Yes, even during the middle of the quarter you said that for the full year also we will be closer to the lower end of the earlier guidance, but if you look at the revised guidance, the lower end of the guidance launched would be in demise downward by close to 0.7% despite you had a nice revenue of 6%, $1 million coming to acquisitions so, what has changed first to your statement during the middle of the quarter?

So to the middle of the quarter, we realized that there is – the relation in the – a lot of it have been come down and this is not taking on that. See for us to continue to grow quarter-on-quarter, you have to normally you need to cover the business even close in our transformations made and sometimes with the operations made and then with new business, right. So as we got closer to the middle of the quarter, we realized that given the decreasing velocity of this might be in the lower end of the guidance. We can see borrowers from Q4 at that point in time to look in the guidance. But once we got to the end of Q3, we had the Q3 in our hand and we could seek performance more closely. Yes, at any point in time when we ended the quarter, we only had a visibility of 95% in ASP, comparing to the non [inaudible], we see in fact in the middle of 45% of revenue every quarter. By then you reach now, which is today, you’ve reached the guidance and we know what happened in Q3. We had great visibility in Q4, and that is what has led to the new guidance which we are in now. Sandeep Shah – RBS: And just for – to the question which (inaudible) asked, despite the utilization is so low, we still like to believe in investing and adding more people despite the visibility in terms of the near-term has been lowered. So why not the strategy of increasing your utilization and going in collaboration in terms of large dealers?

So, we are definitely aggressive in terms of deals, we have no doubt, at the same time we are focused on quality, number one. Number two, increase the numbers. I would also that are already given. More to the people who are lining and lining in our campus recruitment which happened eight, nine months back. So, and we really are in a – we have to honor those offers. It is very, very, very important that we honor the offers because we recruit the best talents in the campus, and if we don’t honor those offers, we could implicate – long-term implications. We need to protect the long-term interest of the business. We have to make sure that we get the right talent, the best talent that anyone in this country could produce. So, the dip in utilization you are seeing is a reflection of the people who are coming out of their training and coming into the workforce. In any case, you’ll see this a bit every year. 10,000 people get released from training into production. In a quarter, you will see a bit in utilization. So you’ll see this year-after-year. This year, it is marginally more significant because of the business situation. Sandeep Shah – RBS: Our [inaudible] business operations is 64%, 65% of our business. What percentage of the business which we define as a commodity business where rising pressure would be at?

See, however, our business operation work and not commoditized. It’s very important to note. There will be parts of that which have been commoditized, right. Our business is not entirely commoditized because if that is true, we will not be able to hold that advertising. There is no way our consulting and system integration work which is 30% of the revenue will offset serious revenue productivity reduction in the business operations space which is 65%. So we do not commoditize. We apply – I mean, we drive efficiency, we drive productivity. We create non-lenient, non-network based pricing models. We create innovation at the introductions of multiple service lines. Today, everything is positive result. We are able to do much more alignment. We are able to create much more alignment between the service lines which we have. I am not disagreeing that some part of that was maybe commoditized. In those areas, we are driving but then as you can see by their productivity and non-network based pricing models. But in general, if you look at overall our revenue productivity were considering system integration, higher than business operations. But both sides, the revenues productivity is stable or marginally up. Sandeep Shah – RBS: And generally Jan through March has always been seasonally weaker in terms of (inaudible) as you expect by mid of February the budgets may be finalized. Do you believe by the later part of Jan, Feb, March or probably start of April, May for (inaudible)?

Yes. So we are hoping that that will happen. That it will happens in the normal situation, but the concern is coming from the uncertainty and the lack of confidence. If there is no catastrophe between now and that point, we believe that the corporations will get adapted to the new normal which is a volatile normal and start taking decisions. Sandeep Shah – RBS: Okay. And just a bookkeeping in the fourth quarter guidance, how much is the revenue being built into from the acquisition of Australian big deal company.

It’s 4 million, very small. Sandeep Shah – RBS: Okay. Okay. And if I’m not wrong, for the next year you have indicated you have given 25,000 campus offers and you are announcing 20,000. So can you –

No, I don’t think there is any change. Whatever we said is what we give. We did not change anything on the campus office. Sandeep Shah – RBS: Okay. And what would be the total plan out of which you have already given 20,000 campus on? Sandeep Shah – RBS: Our campus office for next year is complete. You please remember, our recruitment is 70-70. 70% of the people have to come from freshers, that means they’ve been out of college. Out of that, about 80% or 70% come out of campus, the remaining 20% 30% will come just in time. Sandeep Shah – RBS: Okay, okay. Thank you.

Thank you. The next question is from the line of Viju George from JPMorgan. Please go ahead. Viju George – JPMorgan: Thank you. All my questions have been answered.

Thank you. The next questions is from the line of Mitali Ghosh from Bank Of America Merrill Lynch. Please go ahead. Mitali Ghosh – Bank Of America Merrill Lynch: Yes thanks. Firstly, I just wanted to understand the comment I think Bala made in terms of subcontractor cost having gone up. I just wanted to understand which – why that has been the case that the utilizations have been reasonable?

So you know, we already have some of the [inaudible] is a problem of cost. Actually if you look at the industry norms, I think it’s way below the industry norms, way, way below the industry norms. We already have the requirements on this field to require in certain – in two weeks’ of time. We not have or we may not want to recruit because these are skilled request on a short period of time. We will not be able to utilize those skills going forward, so the use of contracting in those situations and also there are certain cases there, we will partner with company. So for example, we will [inaudible] where we will – we’ve taken responsibility for their stock support which we don’t do. We will partner with somebody for that support. That also comes under the contacting costs. Mitali Ghosh – Bank Of America Merrill Lynch: Yes and just in terms of the 140-basis-point investment that’s been made in the quarter from the benefit of depreciation in terms of margin. Are there any other areas of investments that you would like to call out in terms of where that is coming because pricing is sort of flattish, utilization on floors actually sort of flat, and offshoring as well, so just trying to understand what those other areas the cost were beyond subcontracting?

Well, we have increased the employee addition. We are, even though on the consumer basis, the date and marketing process come down, the head count basis rate actually has gone up. We are contacting our global clients and business group and putting more and more people with our larger clients. So these are only investments that we are making. Mitali Ghosh – Bank Of America Merrill Lynch: Sure. And secondly, just wanted to understand the – if Ashok could provide some color on the Financial Services vertical because I think if we exclude the which has done quite well this quarter, I think the growth in Financial Services will probably be flat to negative excluding insurance. And I think Ashok will give a quite [inaudible] October in terms of the outlook for the market there, just trying to understand the root cause this is something quote is basically have caused something more to be available?

So, Mitali, 3.5% growth in the services business starting on the back of about 8.5% last quarter. Typically a soft quarter for us, especially Financial Services. And the growth that time has been fairly distributed across North America, Europe, and I’m very happy with our performance in the Asia Pacific region, especially as I said earlier, Japan, Australia has been very good. If you look at the large deals, of the five deals that we’ve opened, we have two of them in the Financial Services space. In fact, we are able to leverage the regulatory implications, the regulatory changes that are happening, especially in the installing space. [inaudible] is an area where we’ve had – our whole spend is much smaller than it is in either banking or capital markets. As a result, the opportunity for growth is much higher and that is reflected in that 7.5% growth that we’ve had in that stage. Our perception is notwithstanding something Lehman-like happening or something that happened extremely suddenly, like a Eurozone implosion or just – in our opinion, probably not as possible, we don’t think there is any reason to be bearish on the financial services market. With the investments that we have made, we have built 12 platforms in the company, five of them are in financial services, those are getting traction. Consulting is getting significant amount of traction. So our perception is that financial services sector which is about 36%, 37% of the company today, will continue to be represented at those levels. And as we expand more into Latin America and Asia Pacific region, we will be able to mitigate all the potential risks from some of our large clients, maybe not being able to ramp up as quickly. The other quick thing that I wanted to point out is that the 49 accounts that we have opened this particular quarter, 10 of them are from clinical and a similar number from the services side. Mitali Ghosh – Bank Of America Merrill Lynch: Yeah, thanks, and just to clarify, this 3.5%, is only excluding and is this in dollar terms or constant currency? This includes the German side which is 0.5 that you mentioned?

Yes, in dollar terms. Mitali Ghosh – Bank Of America Merrill Lynch: Good. Okay, so basically you’re saying this quarter’s sluggishness is more specific to a few clients and not really to be extrapolated?

Exactly. I think some of that is born out of the fact that the bonded deals in Q2, we want some deals. The pipeline was there, but you know winning a deal, having a – getting a signup is very different from the point – from actual start. So just to give an example, we had a client, fairly large client that was across a deal and we thought let’s say, let’s start on the first of November. It actually started on the 15th, the 20th of November. So, and as a reason for that is they need a lot of set of signatures. They need to do business, to sign up again and so on and so forth. So we basically last about 15, a good three weeks in a quarter which is significant from a revenue floor perspective. So that happened in a couple of days which is a result behind this poor sluggishness. We have no concerns on the pipeline. We – our only concern is that there is a deferment and delay thing which has crept in. The deal does happen, the deal does signed off, the deal – and the deal gets – it’s often started but not necessarily done because it would happen already or when it should have happened. Mitali Ghosh – Bank Of America Merrill Lynch: Sure, thanks. Lastly for B.G. in terms of Europe, if you could provide some color I terms of what the drivers over there in terms of verticals and the services. First of all, what is sort of concentrated in manufacturing and maybe energy and new opportunities or what is sort of more widespread in anything in terms of services?

See, there’d be addition in last – we added 4 billion accounts in the last quarter in Europe and these accounts have been spread across several sectors, including manufacturing, retail, CPG and financial services. And the large deal – deals we have had during the quarter, one is in manufacturing and one is in financial services. So the growth has been propelled by different sectors and it’s a little broad-based. Again, services, being the business are the operations including BPO services and the two opportunities have been in the transformation space. So overall Europe growth has been more board-based and even if you take the specific countries, really in the continent, it will be in UK. Mitali Ghosh – Bank Of America Merrill Lynch: Okay. And this would apply to this cooperative meant. In terms of the third quarter, the actual growth that you’ve seen would also have been pretty spread across verticals?

That’s right. And in the number of insiders spoke about what happened in the quarter. So all the data points I shared with you in terms of broad base growth as it leads specific to the quarter. But if you look at the full year for Europe, we have had been – Mitali Ghosh – Bank Of America Merrill Lynch: No, right. I meant – I meant the revenue that you’ve already seen in the quarter rather than things that you see ramping later.

No, okay. Even the revenue which should ramp up has been those deals which we – opportunities which we closed in the previous quarter as well as incremental growth with our existing client accounts, and that both has come from three sectors, manufacturing, retail CPG and financial services. Mitali Ghosh – Bank Of America Merrill Lynch: Okay, thank you. That’s all.

Thank you.

Thank you.

Ladies and gentlemen, due to time constraints, that was the last question. I would now like to hand the floor over to Mr. Avishek Lath and the management for closing comments. Please go ahead.