Ladies and gentlemen, good day, and welcome to the Infosys Earnings Conference Call. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Mahindra.
Thank you, and over to you, sir.
Hello, everyone. We wish you all a very happy New Year. Welcome to this earnings call of Infosys to discuss Q3 FY 'twenty one earnings release. This is Sandeep from the Investor Relations team in Bangalore. Joining us today on this call is CEO and MD, Mr.
Salil Barek CEO, Mr. Praveen Rao CFO, Mr. Milamjan Roy along with other members of the senior management team. We'll start the call with some remarks on the performance of the company by Salil, Craveen and Nilanjan before we open up the call for questions. Please note that anything that we say that's helpful to our outlook for the future is a forward looking statement, which must be read in conjunction with the risks that the company faces.
A full statement explanation of these risks is available in our filings with the SEC, which can be found on www.sec.gov. I'd now like to pass it on to Sarel.
Thanks, Sandeep. Good evening and good morning to all of you. I trust each of you has had a great start to the New Year and continue to be safe and healthy. I'm delighted to share that we have had an exceptionally strong quarter across multiple dimensions. This was made possible by the enormous trust of our clients and the extreme focus we have built for digital and the enormous client relevance that has created and helped support digital and cloud transformation journeys for our clients.
Let me share with you some of the highlights. We achieved the highest large deal wins in our history with a deal value of $7,100,000,000 this includes the largest deal we signed in our history and what we believe is the largest in the IT Services Industry in India. This will continue to expand Our strong presence in the continental European markets.
Our overall deal value for
the 9 months of Financial year is over $12,000,000,000 and the net new large deal value for the 9 months This financial year is over $8,000,000,000 positioning us very strongly for the quarters ahead. Revenues in constant currency grew 6.6% year on year and 5.3% sequentially On the back of a very strong momentum we saw in H1 and large deal wins secured earlier, Further establishing our market share gains, digital revenue grew at 31.3% year on year in constant currency, And we have now crossed an important milestone in that digital is now over 50% of our revenues. We delivered operating margin of 25.4 percent, which is an expansion of 3 50 basis points year on year And flat sequentially. Our operating cash flow was robust at $829,000,000 for the quarter. Our balance sheet remains solid with cash and investments at $4,500,000,000 which is stable sequentially After the payout of Entrance division, recognizing continuing performance of the company and contribution from employees during these times, we are paying out valuable pay For the quarter 100%, as announced earlier, we are initiating salary increases for our employees, which will be effective January 1, 2021 and we are expanding our promotion cycle across all levels in this quarter.
In Q3, we reached a significant milestone in our environmental, social and governance journey by Becoming carbon neutral. This is 30 years ahead of the 2,050 global target Debt and Multinational Agencies refer to reiterate our commitment to the causes of ESG by announcing our ESG 2,030 vision and ambitions. Looking ahead, we continue to see momentum in our business, strong market share gain and increased speed digital transformation at our clients. Keeping that in mind, we increased our revenue growth guidance for the full year From 2% to 3% to the new guidance at 4.5% to 5% growth in constant currency, We increased our operating margin guidance for the full year from 23% to 24% previously To 24% to 24.5 percent for the full year. That concludes my update.
Thank you for your time. And now let me request Praveen to give you an update on our operations. Over to you, Praveen.
Thank you, Salil.
Hello, everyone. Wish you
a very happy, healthy and safe New Year. While there is increasing optimism due to the commencement of COVID-nineteen vaccination, we have also seen a renewed surge of infection In various parts of the world, consequently, majority of our delivery centers are operating in BCP mode with 97% of our employees globally continuing to work from home. Growth acceleration continued with sequential revenue growth of 5.3% in constant currency, accelerating further from the momentum seen in the Half of the year. Year on year growth rate increased to 6.6% in constant currency for quarter 3. 3 business segments, Financial Services, High-tech and Life Sciences reported double digit growth.
We have seen several operating parameters improving during the quarter. Utilization was at 86.3%, With this all time high level, onshore effort mix was lowest ever at 25.2%. RPP declined slightly on a sequential basis due to seasonal factors like lower working days, furlough, etcetera, But increased on a year on year basis. Subcon costs increased by 40 basis points on a sequential basis As growth picked up meaningfully, let me talk about the large deal Vince, which was key highlight of our quarter 3 performance. Large deal TCV crossed quarter 2 levels And mark the new all time high at RMB7,130,000,000.
Share of new deals in quarter 3 was 73%. The net new deals we signed in quarter 3 is more than 1.5 times of what we signed in the entire fiscal 2020. As Salil said, in quarter 3, we signed what is probably the largest deal signed in Indian IT Services Industry. Apart from this, we signed another deal of RMB500 1,000,000. Overall, we won 22 lot deals in quarter 3, 8 in Financial Services, 4 deals each in Manufacturing and Energy Utilities Resources and Services sector, 3 deals in communication and one deal each in retail, high-tech and other segments.
Region wise, 13 were from Americas, 7 were from Europe and 2 were from rest of the world. With this, our large deal wins for 9 months It's over RMB12 1,000,000,000, an increase of 63% over the comparable period in the last year. Net new large deal wins for 9 months have increased 2 44% year on year. While quarter 3 deal signings were very strong, A large value of these deal signings will start contributing to revenues in the Q2 of the next fiscal Due to transition involved, net employee addition during the quarter was more than 9,100 And share of women employees increased to 38.3%. Voluntary attrition for IT services reached up to 10%, Although lower than our comfort band of 14% to 15%.
We will be implementing salary increase across levels set up since January 1, 2021. Budget planning for calendar 2021 is progressing normally, And we expect clients to continue to focus on their digital transformation agenda. Moving to business segments, Growth momentum accelerated in financial services with ramp up of past deal wins, focus on accelerating the digital P. Vijay Kumar:] transformation agenda for many of our large clients and opening of new accounts across various sub verticals like mortgages, Regional Bank's Wealth and Retirement Services. We see multiple opportunities in cloud, data services And creating new digital bank capabilities as things improve post COVID.
Pinnacle continues to grow steadily And have firmly established itself as one of the best banking platforms in the industry for digital transformation. Retail segment continued to improve with increased volumes in quarter 3 despite seasonal softness And year on year growth turning positive. The deal pipeline remains healthy and we are seeing opportunities around vendor consultation and Performance in Communication segment also improved sequentially, although Media, Entertainment, Advertising and OEM segments remain under pressure. We have won 3 deals in this segment in the last quarter and continue to have strong pipeline of deals. Parts of Energy, Utility, Resources and Services vertical continue to face a difficult environment Due to stress in segments like oil and gas, education, publishing, travel and hospitality, etcetera, while utilities remained relatively steady.
Based on the recent deal wins and deal pipeline, we expect to see stable performance in the coming quarters. Manufacturing had a standout quarter both in terms of bill signings and revenue momentum, which improved meaningfully Despite continued disruptions across subsegments, as deals ramp up over the coming quarters, We will see superior revenue momentum for this segment. We expect spend to grow in the newer areas of digital, data, cloud and security And reduction in run the business areas. Infosys BPM has grown at double digits with strong pipeline of both The digital portfolio also saw strong growth of 31.3% year on year in constant currency And cross 50% share of overall revenues. In the last quarter, we have launched Infosys Modernization Infosys live enterprise application management platform, both part of Infosys Cobalt and Infosys Applied AI.
3 acquisitions completed in the last quarter: GuideVision, 1 of the largest ServiceNow Elite partners in Europe BlueEcon, Adobe Platinum Partner in the U. S. And Kaleidoscope Innovation will further enrich our capabilities and offerings in the digital space. We also have been rated as leader in 17 services The global pandemic has Gone from threat to opportunity as clients have gained confidence in their own resilience and now embrace the opportunity to accelerate an often Radicals and Reimagination of their own businesses. Infosys with its strengthening capabilities and expanding array of offering It's becoming the preferred choice for customers in that journey.
With that, I will hand over to Nilanjan.
Thanks, Praveen. Good evening, good morning, everyone. I would like to wish you all and your families a pleasant greetings and a safe and healthy 2021. Q3 was another successive quarter marked by continued acceleration in revenue with the highest Q3 sequential revenue growth in the last 8 years. Our undaving execution over the past 3 years against our navigating our next strategy with clients relevant at the core, Supported by digital, operational excellence, cost and cash management is clearly the driver of this all rounded performance And reflecting in our total shareholder return appreciation during this period, revenue for the quarter stood at RMB3.52 billion, a growth of 5.3% This translates to 6.6% growth year on year and 3.5% growth for 9 months in constant currency.
Operating margin stood at 25.4 percent, were up by 3.5% year on year and stable sequentially. Sequential margin movement in Q3 comprised of 100 basis points improvement due to better operating parameters like utilization and on-site mix And other cost levers, 20 basis points benefit due to cross currency movements, partly offset by rupee appreciation. These benefits were negated by a 50 basis points impact of transition and rebadging costs or recently won deals, 20 basis points increase in costs relating to employee promotions and compensation corrections and the balance 50 bps Impact due to a combination of higher subcon, one offs and others. Operating margin for 9 months stood at 24.5%, It is 3.1% higher compared to the 21.4% margin for 9 months of the last fiscal. As mentioned last quarter, we will see higher costs in Q4 As we implement the salary hikes for our employees effective January, Q3 EPS grew by 12.5% in dollar terms and by 9 month EPS grew by 10.6% in dollar terms And 16.9 percent in INR on a year on year basis.
Return on equity increased further to 27.4%, An improvement of 130 basis points over the last year. DSO measured on an LTM revenue basis remained stable year on year, While increasing 4 days quarter on quarter, collection remains strong and helped in generating operational cash flow of 829,000,000. Coupled with lower CapEx of $57,000,000 STF for quarter 3 increased to a record $772,000,000 a growth of 15.1% year on year A growth of 40% on YTD basis. Free cash flow conversion remained strong at 109% of net profit and 113% for the 9 months. We continue to maintain a strong debt free and liquid balance sheet.
Cash and investments at the end of quarter 3 were $4,500,000,000 in line with the previous quarter, Despite paying $687,000,000 of half yearly dividend during this period, yield on cash balances continued to decline due to moderating interest regime in India. The yield was approximately 6% in quarter 3. Quarter 3 also marked the 22nd consecutive quarter of positive ForEx income Despite significant currency volatility across the globe, driven by strong deal wins and revenue performance in the 1st 9 months, We are again increasing revenue guidance for FY 'twenty one to 4.5% to 5% in constant currency terms and 2% to 3% guided earlier. We expect operating margins for the full year to be in the range of 24% to 24.5% compared to the previous guidance of 23% to 24%. Amid these numbers, it will be remiss of me not to mention the landmark achievement in quarter 3 of attaining carbon neutrality as a company 30 years ahead of the Paris Accord.
This was a journey we embarked in 2010, and we are extremely proud of the commitment shown in achieving this goal. In the last quarter, as Salil mentioned, we also announced our first ESG Vision of 2,030, a holistic approach of integrating our business model with the extended stakeholders impacting environment and climate, Communities and societies, employees and shareholders, we believe our robust and measurable targets towards the pillars of Environment, social and governance will help us setting new standards in this area. With that, we can open the call for questions.
Thank you very much. We will now begin the question and answer session. The first question is from the line of Ankur Rudra from JPMorgan. Please go ahead.
Thank you. Exceptional quarter yet again. Just starting with a question on budgets perhaps, Salil, a large part of your exceptional strong deal and momentum appears to be catalyzed, Perhaps with cost takeouts and consolidation you had alluded to at the beginning of this year. And I was wondering if this implies that enterprise tech budgets might actually Think or shrink or stay flat as opposed to going up in C21? And also, whatever is freed up by these cost How do you see yourself participating in those sort of freed up tech budgets?
Thank you.
Thanks, Ankur. The The way we are seeing it today is there is definitely some element of cost takeout. If you look at the wins that we have seen this past quarter and for this financial year and the 3 quarters, We see those are both cost takeout, but also what you all described in the second part As large enterprises looking to invest that amount into their own Digital infrastructure landscape for their growth with their end customers. So the overall budgets are always difficult to estimate, as you know, and We have a number of other agencies we all depend on for those sorts of estimates. Those are all positive estimates at this stage for calendar year 'twenty one.
But the key is, 1, To have the capabilities for digital and cloud and the transformation that these enterprises are driving, so those investment monies Can be sent with us and to have the automation capability and the efficiency capability For the cost takeout, which we have. So it's a dual approach, and we feel we are playing quite Both sides of that.
Thank you for that. Just a follow-up on revenue conversion, clearly very strong momentum here. Was wondering if you've seen an acceleration of the conversion from signing to recognition in the last few quarters, perhaps due to virtual onboarding and would you
We've not seen Anything different in the way these are converting? There are some deals which convert faster, some have a Slower sort of transition, Praveen shared in his comments that some of the transition from what we see In Q3, we'll start to show up a bit later in Q2 of next year. So That pattern has not changed. Some deals do have a faster conversion and some are more slow. Nothing changed because of the virtual onboarding and so on.
Okay. Thanks for the color. Just lastly on margins, should we expect A significant impact perhaps in F 'twenty two as these large deals come through like you've seen in the current quarter? Thank you.
On margins, I'll request Milunjan to step in. Go ahead, please.
Yes. So Ankur, as you know, I mean, we run with a portfolio. We have large deals. We have small deals. We have The new deals coming into the pipeline also we are maturing large deals.
So we run with the portfolio and if you actually see our history over the last Even as we've accelerated the large deal pipeline and the revenues, our margins also have gone up. And that's a couple of reasons. One is, of course, The strategic cost levers we continuously deploy each year, and we talked about that in our Analyst Day, Around the on-site offshore mix, the pyramid, automation, and this is something we relentlessly focus on. When we pick up large deals, we also start Seeing the life cycle of the deals and of course initially these have higher costs in terms because they would not have enough automation or process improvement. They may not be Enough in terms of on-site OXO mix.
And therefore, when we look at the portfolio entirely, we also realize there are deals which will be maturing and hitting near Portfolio margin, the new deals will enter the portfolio at lower margins initially. And that's the way we manage our overall portfolio. Yes, every quarter you could have Plus or minus, and in fact, this time, we've had this mention in the margin, a one off on a rebadge deal. But I think the flow of the green, I think we are quite comfortable with our overall performance as we are. And as we look into next year, of course, we will have the quarter 4 impact of The wage hikes across some of the costs may come back in next year in terms of travel and all, but that may be a bit further away.
But like I said, again, the cost optimization which we have and as we approach this, we're quite confident.
Thank you, investor. That's the year.
Thank you. The next question is from the line of James Friedman from Susquehanna. Please go ahead.
Hi. Congratulations on the extraordinary results. Praveen, in your prepared remarks, and I know you reflected this in the previous response, Salil, You're suggesting that large deal wins that were currently Addressed start to bill in the Q2, I realize that that can vary, but is there any Can we think about those boarding linearly or would that be a mistake in terms of our future modeling exercise?
Yes, as I said, all these large deals We will involve a period of transition and revenue starts kicking in only in the Q2 of next fiscal. Again, the trajectory of revenue also will vary on the nature of the deal. In some large deals, it's finally Initially taking over providing services to the clients and then maybe over a period of time modernizing. In some other cases, it could be taking over, but at the same time, in parallel, doing the transformation. So the nature of the beams actually vary.
So I don't think we can have it. How many options to say how revenue will pan out?
And then, Praveen, you also mentioned, quote, a good pipeline of deals. I think you were talking about the communications vertical. You said despite weak media, you see a good pipeline in that vertical overall. Could you give us some context for that? Is the opportunity in that vertical equivalent to the Say strength that you're seeing in manufacturing deals.
When you say good pipeline about that vertical, what's that about? Some context would be helpful.
I think number of opportunities
in the communication segment, as I said, is fairly good, defense. And it's primarily in the telecom space because when you look at communication, it's not only about telecom, it's also media entertainment OEM. So we do see find softness in media and entertainment and OEM, but we are seeing a lot more traction from the telecom segment. We have already won 3 deals in this segment in this quarter and the pipeline, as I said, it continues to be healthy. I mean, given the pandemic, we have seen a lot of volumes implement in Telco, but it has so far not really Translated into impact on their own revenues, but we expect this to probably change going forward.
At least on the telecom side, we remain optimistic given the deal wins as well as
Thank you. The next question is from the line of kabaljeet Saluja from Kotak. Please go ahead.
Hey, guys. Fantastic quarter. A couple of questions. First is that there was a very healthy conversion of Pipeline into PCBs in this quarter and actually in the last two quarters, has this conversion left the pipeline a little bit lighter or does it continue to be as robust as it That's the first question.
Thanks, Kaval. This is Salim. Yes, the conversion at that instant, it comes out of the pipeline as you rightly point out, The overall health of the pipeline is extremely robust. Of course, with this level of large deals in Q3, We will have that impact in the immediate outlook. However, we see across the different industries Still significant opportunities and the pipeline overall seeing that level of health and robustness, Sushant, feeling quite good about the pipeline.
Thank you, Salil. The second question I had is on profitability, and It's the same question I asked in the previous quarter to Nilanjan. Nilanjan, your margin band in the last every year has changed. This year, it has been a good thing that it has increased. But what's the real sustainable level of band of operating margin, taking into consideration the large deals, possibility of 2 rounds of wage increases and possibly cost normalization as well.
How should one really think about your
Thanks, Gaval. I'm not sure you'll get a separate answer each quarter. So on a serious note, I think like where we are today at 24.5% On a 9 month basis, I think last time, we were at 21.4%. We have seen about a 310 basis points improvement On a year on year basis, for 9 months, I think this is a combination, like we said, of some of the discretionary cuts, Which we have done, which is largely the impact of the compensation hikes, and that will come back in Q4. Also, if you look at the separate cuts which we've done, which some of them work on travel or the brand side, etcetera, Some may open up, but that's yet to be seen how fast the post vaccine world normalizes.
But I think we are very, very confident, and you continue to see very metrics on our cost optimization, right? So the on-site offshore mix improvements in the last 1 year has been something which took 3 years in the past. And these will open up a lot of opportunities as clients see and are open to more offshoring With 98%, 97% of our teams working from home literally over the last year, I think the confidence of clients as well to offshore will increase, and that could be a lever we will Stefan, our localization and local hiring in the U. S. Had a pyramid, something very unique to Infosys, Creating the 6 digital hubs, recruiting from universities, community colleges.
Historically, you know the IT industry has had a very Deep pyramid on-site and 75% of employee cost actually is on-site, whereas only 25% of your headcount sits there. And therefore, if you don't address the on-site pyramid, you really have a battle up to hand. And I think what we've been doing Over the years, with our localization drive, putting in our hubs and hiring pressure is helping us negate some of this. So Without giving any numbers into next year, I think we are entering with some levers up our sleeves. Yes, there may be some impact of
Just a final question. It's on the largest Deals that you have won, I mean, is it just typical large deals like the ones you have signed with Vanguard or maybe others? Or is there something unique, which you want to call out maybe in the form of a higher pass through element or anything of that sort? Any color on this deal would be very, very helpful. And thank you so much.
That's my last question.
Let me try that, Kavan and Salil. In terms of the Large deals, I think your question wasn't a specific deal. The way I would characterize it is, It's a deal which relates to cloud and really huge movement to both Public cloud, private cloud, infra as a service and bringing together an ecosystem to make all of that happen. The primary driver for parts of it is what we built in Infosys Cobalt, Which is all of our cloud assets. And of course, we are working very strongly with ecosystem of partners
Thank you so much and have a great
day ahead.
Thank you. The next question is from the line of Yogesh Agarwal from HSBC. Please go ahead.
Yes. Hi. Good evening, everyone, and happy New Year to the team as well and a good quarter. Just two questions from me. Firstly, on large deal wins, which have been so impressive.
Saril, is there From an execution perspective, are there the executions is different than a normal deal or they are almost Similar. So in that context, do you need to make any SLA or milestone related contingencies since These are lot more complicated, Deane. And secondly, from a guidance perspective, the 4th quarter guidance It is much weaker compared to what you achieved in the Q3. So was there some kind of a budget flush in Q3 or Any specific weakness which is leading to slower growth in 4th quarter? I have a follow-up after that on margins, please.
Okay. On the first two points, I think the delivery risk profile Across our large portfolio, if I look at the last 9 months, the last quarter, it's not any different from Delivery risk of those type of deals in the past, now we're doing larger deals in this Last year or last year. And so with that, the capacity increases. However, there is no provisioning In our books with regard to specific situations on SLAs as we start out the delivery of the deal. In that sense, this is something where we've built out capabilities and we are now putting together the approach can deliver on the various large deals that we've talked about.
The second point, sorry, can you just repeat that, please?
Sorry, I was trying to understand the
guidance For Q4, which looks much weak, yes.
Yes. So on the guidance, as you probably know, Historically, Q3 and Q4 financial year are always softer quarters For the industry and for Infosys, so there is nothing different. In fact, this particular Q3 has been extremely robust. We had a phenomenal growth in terms of the revenue on same currency growth that we have shared, But there is nothing unusual in that to point to any weakness in Q4. However, seasonally, Q2 and Q3 have always been software across the industry and for Infosys over the years.
Okay, okay. Thanks. Just another question on margins. Bilaljan, Most of your operating metrics have improved quite smartly, as you said, utilization, offshore mix, etcetera. But the employee cost is still up around 5%, 6% sequentially.
We have seen with other companies, The wage hike, it's been largely flattish. So what is leading to the employee cost increase, if I may?
Yes. So like I mentioned in the margin walk sequentially, we have this 50 basis point Transition and rebadging of a recently won large deal. So that's something clearly we called out. And the balance we had talked about a combination of higher subcon, one off and others, which was explaining about 100 basis points of the
Great. Thank you so much.
Thank you. The next question is from the line of Keith Bachman from Bank of Montreal. Please go ahead. Keith Bachman, your line is in the talk mode. You are requested to go ahead with your question.
Yes. Thank you very much. I had two questions as well. The first, your cash flow was also Very impressive this quarter. Was there anything that you wanted to call out that might have been unusual or one time in nature?
And anything that you want to call out on the cash flow that we should be thinking about over the next Quarters, but certainly next quarter in particular.
Yes, thanks. So I think as we've been Showing for the entire year, quarter after quarter, we have had very strong collections because I think that was our first Concern when COVID sucked is the ability of our clients. And of course, the reality of our clients are Fortune's 500 clients and very, very strong balance sheets as well. And across the three quarters, we have not seen any impact At all in terms of our collection ability, and that's remained strong. One reason for the cash flows improving is of course the lower CapEx.
As everybody is now working from home, I think that automatically has come down. And in fact, we repurchased some of our CapEx spend towards So nothing really to call out on a cash So basis, yes, here and there, we have received some deferrals of some indirect taxes, but nothing material really. I don't I mean, I think this on an underlying basis, we are still above 100% of net profit.
Yes, yes. Okay. Then the second question, I wanted to go back to the deal signings. Again, impressive deal signings, particularly 73% being net new. If you took out the 1 large deal that you said was the largest History, any growth rates that you can provide just
to give some dimensions? And then B,
I'm just curious of The distribution, is there any dimensions you could give around what was in the digital versus legacy The signings this quarter or if you want to say over the last few quarters, but I'm just curious that the signings, The distribution between the legacy and the digital side. Thank you.
Let me start. This is Saleem. And then Saleem might be able to add a bit more color on the distribution. In terms of what we did in Q3, we don't have a view to give a specific number for the 1 deal. What I would say is, even outside of that, we were running at an extremely robust Overall, in terms of the sort of averages we have had over the last several quarters For large deal filings, so while it was a large specific deal, that was not the only one.
And as Praveen also mentioned, there were 22 deals also referencing the one another deal, which was At $500,000,000 just to give some color. Praveen, over to you for anything else.
Yes. I think there is an element of digital in every large deal because end of the day, large deal is not only about taking over and delivering the services, But it's also transforming over a period of time. So in that sense, it's a combination of digital plus And we don't really give a breakup of that. And the nature of these deals also varies. I mean, there are some deals around infra modernization, Cloud and Infrastructure as a Service, there are some deals around ops transformation.
There are some deals where we have Taken over the whole IP and delivering it back as IP as a service. There are deals which are truly ADM where we are providing next gen ADM services. There are deals there, which is platform led, where we have taken over some products, not only maintaining, but also go to market with those products, I've been some captive forwards as well. Engineering also a strong element in many of these large deals. Of course, VPN is also a part and parcel of Most of these deals.
So the nature of these deals vary, but there's always an element of digital limits. And we I mean, as I said earlier, we will have David's call out how much is digital and how much is non digital.
Okay. Well, congratulations on the signings. Many thanks. Cheers.
Thank you.
Thank you. The next question is from the line of Divya Nagarajan from UBS. Please go ahead.
Thanks for taking my question. Quite a few of my questions have been discussed already, but to kind of go back to this Large deal that you talked about. Could you just kind of explain how this deal like this at this scale can is typically structured and Anything that you would like to call out on how we should model some of these ramp ups in these deals? 2nd part to that is that For a contract like this and I think we've also seen some dilution that came in because of the large deal ramp up in Q3. Nilanjan, you spoke about a portfolio approach.
When you think about this portfolio, what kind of a timeline do you typically price in for these deals to mature and then for margins to
Let me start with the first part, Sameer, we've not given anything more specific beyond what Karim shared earlier In terms of sort of broadly on the ramp ups from the Q3 bookings, what I can say is the way This has been put together where we have a lot of the work that relates to Data centers and the workplace transformation and all of that underlying with Cloud transformation to private cloud. We see that once this is not into steady state, It's really the foundation of many things that we can do, which run through on a steady basis over a number of years. The timing of that, we've not given anything more specific, which can give you a sense today When specifically the revenue will come up beyond the comment that Kavi made on Q2. And let me now pass it to Nilanjan for the margin profile on Formdish SAR deals.
Yes. So like I mentioned earlier, we have various kinds of large deals. Some of them come initially with Margins which I'm buying with portfolio are tagged below portfolio. Some may be initially ones which require dramatic transformation because they are 100% on-site. There's no automation which has been done.
Client expects savings from day 1. So once we go in, we are very, very clear over the deal cycle. Typically, these are 5, 7 year deals that we model literally on a quarter basis what is going to be done in terms of an intervention Moving work on-site offshore, putting automation inside, the pyramid side of it. And I think we look at it very, very holistically as Part of the bid process so that we are very clear that there is a trajectory in the margins as well. So That's an ongoing process.
And like I mentioned, we've been winning large deals over the last 3 years, accelerating them quite sharply. But yet, we've seen an improvement in margins because The way we've talked about it is these elements start kicking in. And at the same time, new deals come in at lower margin, whereas the existing deals Start maturing and changing portfolio margins. But it doesn't mean that every deal will be exactly be in line with what your operating margin of the company is. David, we have deals above the operating margin profile of the company, and there are deals which are below that.
So it's a portfolio which we continuously look through and focus on the cost side.
Got it. And you spoke about potential margin levers, we want to fix the offshore mix. Praveen earlier alluded to how it's one of the lowest offshore mixes that we've seen in a while. What is the room here that we have for further offshore mix shift, Sorry, lower on-site mix so far. So what's the potential there?
And secondly, on utilization, has anything structurally changed How we look at utilization as a result of remote working and better employee allocations over various locations. And My question here is, can these mid-80s utilization structurally move up from where they are?
Yes. So I think on the on-site offshore mix, yes, there has been some firstly temporary benefits because of We know curtailed travel, and therefore, people have not been able to travel overseas as well. But having said that, I think the bigger Strategic, I think, opportunity is that with work from home clients are now seeing over the last year SLAs have been delivered on par. There has been no impact Whether signing deals or delivering and therefore the confidence of clients in terms of offshoring has also started improving. And in fact, we are also now solutioning ourselves so that we can give near shore facilities.
So Canada It's a near shore base for the U. S. We have Mexico and both have seen dramatic growth in this time as well and Mexico being a low cost location. So it's a combination of remote working in our hubs where we can trade a pyramid, that's 1 lever, Then move on to nearshore and then finally on to offshore. So I think these are 3 things which we can continuously press on, and I think These opens up large opportunities.
Of course, if travel comes back, there could be some temporary lull, but particularly, I think this The downward decline is quite
clear. On the slide, please. In fact, Yes. Let me add on the reflection. It's Praveen here.
I think utilization, as I said, is a record high. This is not where we want to be. In the past few quarters, I think we are hard comporting operating between 83% to 85%, and that's where we want to be. So we will look at much more aggressive hiring over the next few quarters and try to bring down the utilization to manageable levels.
Thanks for taking my questions. Congrats on a good quarter and all the best for the rest of 2021.
Thank you.
Thank you. The next question is from the line of Moshe Katri from Wedbush Securities. Please go ahead.
Hey, thanks for taking my question and congrats on very strong results. I have 2 follow-up questions. Wanted confirmation regarding margins. Praveen, I think during the last call, you indicated that some of the margin gains that you've In fiscal 2021 will not be sustainable into fiscal 2022. Given some of the commentary that you made today, Is that still the case?
Because it seems that you're talking about some margin leverage, you're talking about some encouraging signals of an accelerating The offshore trend, and one of your former executives suggested in a call that we hosted last Tweed that he hasn't seen this acceleration into offshoring in about 10 years. And the second question It's more about the sustainability of what we're seeing right now in terms of the demand trends, the pipeline and etcetera. Maybe you can give Some color on both of these. Thank you.
Yes. So I'll take the first question, Mohit. So like I said, we are at In the 1st 9 months at 24.5 percent, and we have the wage hikes coming up in quarter 4. So that clearly will have an impact. And as we look into next year, there could be some easing off of travel, etcetera, which will have some cost pressures.
Now having said that, we said we also parallelly will work on our cost optimization levers, which is something we continuously work on. So we are not at this stage saying that there is a margin guidance out there for FY 2022, but just the color of what's coming ahead. We will have these cost pressures, but we will also work on the cost optimization priority.
And on the second question regarding at this point what you're seeing in terms of sustainability, some of the trends that you're seeing in terms of Pipeline strength, and maybe also, maybe you can elaborate on what percentage of the mix in terms of the bookings came in from new logos
Praveen, mix, go ahead. Okay. Let me start on the sustainability trend Then on the mix, Hari, you can go ahead. I think the way we see the pipeline and the movement We still see a good demand environment across all the industry segments as we had referenced At the start of the call, there are some where the strength is quite exceptional, but overall, all of the existing segments I'm moving in a positive direction. On the mix, I think to your point on the offshore mix, There we've seen good movement this year.
Of course, with some of the Travel restrictions coming off, we will see some more movements from offshore to on-site, but our recruitment Engine on-site is very strong as well. And so we wait and watch how that plays out. We don't see that it's immediately P. Vijay Kumar:] Well, it changed because fundamentally, clients are seeing that delivering remotely From whichever location is more feasible for a broader set of functions. So we feel quite comfortable that over a period of time That will work to your benefit in terms of the mix and therefore in terms of March.
Sorry, Tim, you mean
Yes. Yes.
On the mix, again, we normally call out only what is net new and What is rebates? And in this quarter, it's 73% net new. And if you look at for the 9 months of the year, Well, the total TCV is RMB12 1,000,000,000, the net new is RMB9 1,000,000,000 of the How's that? So from that perspective, I think in the last past 9 months, we have seen a significant percentage of revenues coming from net new, which Yes. I feel so good comfort on the growth momentum in the coming few quarters.
Obviously, there is also a mix of New logo, as part of this mix, like for instance, last quarter, we had Vanguard, which was one of the large deals we announced and which was a new logo. But we particularly don't call that out. I mean, we normally look at what is next new and that gives us a sense of
Thanks for the color.
Thank you. The next question is from the line of Pankaj Kapoor from CLSA. Please go ahead.
Yes. Hi. Thanks for the opportunity. So Niranjan, I had two questions for you. First is On this very large transaction that we have now signed again, are the commercial terms of these deals any different from the regular deals that we do?
What I'm trying to basically understand is that how is the cost statement
done on the call?
Sorry, I
interrupt you, Mr. Kapoor, but your audio is not very clear, sir. Mr. Pankaj Kapoor, your audio is not very clear.
Yes.
We will request you to check.
Sure. Is it better now?
Yes, it is. Thank you.
Okay. So my question was for Nilanjan. So what I was trying to basically understand is the commercial structure of these very large transactions At a generic level, are cost in such deals typically flow through the P and L? Or do we have like we do Typically in a regular deal or can some of these be capitalized also? So that is one thing which I'm trying to understand.
And my second question is on the Next year's wage revision, I mean, one of your peers, of course, is talking about FY 'twenty two be a normal year. So are you also expecting that the wage hike for next year will follow the regular pattern of being in April or sometime midyear? These are the 2 questions I had. Thank you.
Yes. So on the first question, I think all deals like and even Praveen mentioned, they are all Some of them may have rebadging elements, some of them may have a comprehensive infrastructure with software. So it depends on deal to deal. I think there's no And do you know answer how or a generic way we can answer that question? And some of them may have a pass through and some of them may So it depends, service elements versus our entire transformation element.
So that's quite different across deals. So I don't think There's anything specific we can say more than that at this stage?
So on the second one, let me address that With respect to the wage hike, we've announced the salary increase effective January 1 this year, we've not made any comments with respect to the next year situation. We will come to that Once we conclude this and start the next year, and at that stage, we will share with you what the approach is.
Puneel, I just wanted to also call out
this and I wanted to make
a correction to my last Thanks to Moshe, I think. As I said, total TCV of large deal wins for 9 months of SEK 12,000,000,000 is correct. And the
total net new out of
it is €8,000,000,000 I think I said €9,000,000,000 it's not €9,000,000,000 it's €8,000,000,000 I just want to clarify that.
Understood. Thank you and wish you all the best for the year.
Thank you. The next question is from the line of Prasiv Sundupalli from ICICI Securities. Please go ahead. Yes.
Good evening, gentlemen. Congrats on a good quarter and thanks for giving me the opportunity. Salil, regarding the large deal, for a deal of this type, we assume almost All the Tier 1 vendors might have aggressively completed. Some of them might be native European companies, some of them might have larger revenue base in Europe or in the infrastructure kind of service offerings. So can you help us understand what are the, let's say, 3, 4 variables that have given Infosys that extra H2V to win this deal over the competition?
So there you're right. This is an extremely competitive situation With several European, U. S. And Indian companies Competing on this work. One of the elements that really stood out that I could see and we could see was what we understood from the clients to be the Technical strength of our solution.
And this is a solution which is based on something We've shared before the Cobalt suite in the cloud. The approach that we put together to give the clients A solution which was both flexible, scalable and secure, while globally spread out Operations of theirs could enable it was really valued by them. We also benefited, I think from the way that we made sure that all the different elements of their business Objectives in how they wanted to focus on the business and how they wanted to perform the cloud journey, We incorporated quite fully into the solution. But this is really To win in that sense from a technical capability perspective, and that's why we are Extremely delighted because it opens up a new area for us, something in which we were previously doing Well, and now we can do further better as we go ahead.
Sure, Salil. And second question is on the gross client addition during the quarter, Which seems to be significantly higher than the typical run rate in the previous quarter. I think we are at around 139 odd clients. Can you please throw some more color on what has given the strong addition, nature of these clients' potential scalability and this has to do with the entry into new sub segments that Praveen has spoken about in his opening remarks.
Let me request Praveen first to
Sure, sir.
So basically, if you look at the gross line condition during the quarter, it seemed to be significantly higher than the typical run rate in the previous quarters. So my question is, if you can throw some more color on what has driven this strong addition and the nature of these clients' potential scalability And if this has to do with the entry into some new sub segments you spoke about in your Fresh Meet and in Europe in the North as well?
I think we had seen strong new account openings, new logo openings across sub segments. I don't think there is any secular trend. We have seen good openings across many of our segments, and we have been consistent over the past few quarters as well. So I don't see any pattern in this or any specific thing. And again, the opportunities also vary.
In many of them, we are opening The deals with transformation opportunities, some of them are few of them are opening with large deals. So it's a combination of There is no specific pattern or anything specific to a particular subsegment.
Yes. Just to add to Praveen, I think there's also some client additions we've had due to the new acquisitions we made.
Sure, sir.
Thanks. That's very helpful and all the best for the future.
Thank you. Ladies and gentlemen, that was the last question for today. Now hand the conference over to the management for closing comments.
Pavan, do you want to give some closing comments, please?
Yes. Thanks, Sandeep. First, thank you, everyone, for joining us for this session. As you can see, we are extremely delighted with the performance for this quarter. Standout being an exceptional Large deals win, phenomenal growth at 6.6% year on year and a strong operating margin performance Backed up by extremely robust cash collection and conversion that was noted, we feel confident to revise the guidance Upward as we shared on both revenue and margin, and we have a strong outlook as we go into the next financial year, which will start for us in April.
So overall, extremely delighted with this. And thank you again, everyone, for joining us.
Thank you very much, members of the management. Ladies and gentlemen, on behalf of Infosys,