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 Mahendra. Thank you and over to you, sir.
Thanks, Palma. Hello, everyone, and welcome to Infosys earnings call to discuss Q3 FY 2020 earnings release. Happy New Year to everyone on the call with Sandeep from the Investor Relations team in Bangalore. Joining us today on this call is Chairman, Mr. Nandan Millikan CEO and MD, Mr.
Salan Parekh CEO, Mr. Praveen Rao CFO, Mr. Milanjan Roy along with other members of the senior management team. This call will be for 90 minutes and will be divided into 2 parts. For the first 30 minutes, our Chairman, Mr.
Mandan Lekkani, will talk about and take questions on the whistleblower matters and the recently concluded investigation. That will be followed by the regular earnings call format in the next 60 minutes with opening comments by Salil, Praveen and Nilanjan followed by Q and A. Please note that anything which we say which refers to our outlook for the future is a forward looking statement, which must be read in conjunction with the risks that the company faces. A full statement 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 Namdev.
Thank you, Sandeep, and I'd like to welcome all of you to this call. I'm pleased to say that the Infosys Audit Committee did not find any evidence of financial impropriety or executive misconduct. And there is absolutely no change in previously related financial statements. So everything has come out clean. We have had a very thorough investigation done.
This was done by independent legal counsel, Shardul Amuch and Mangaldas, along with Price Waterhouse Hooper's. We also had Ernst and Young as our internal auditors. And as you know, our certifying auditors are Deloitte. So this has gone through the scrutiny of all these various groups. And there is absolutely no issues of restatement or anything of that type.
The Audit Committee has taken this very seriously and they've done a very thorough investigation. Just to give you a sense of the scale of the investigation, 128 interviews with 77 people, 46 custodians for data were nominated. And their review was over 210,000 documents with over 8 terabytes of data, which were processed. This investigation began on when they appointed Shardul Amarchan on October 21 and concluded today. And so it's been a very intense several weeks, which have occupied the investigators as well as our people, our board members, our management team and also our General Counsel in the pit.
Now the investigation review was done for the period from Jan 1, 2018 to September 30, 2019. And the investigative team was given complete unrestricted access to every person and every piece of information that was there. And it was ensured that the company, its director and its employees cooperated fully and extensively in this investigation. Now as so apart from the fact that we had a very thorough investigation, we have also made sure that all the key findings of the investigation are put out in the public domain. So this is not some one statement thing.
This is a detailed thing. We have taken each of the allegations, be it on the business side or be it about the CEO. And on a point by point basis, the allegations have been answered and we have given the answers. And as you will find, it on I would say almost all of it, It's very clear that the allegations are unsubstantiated. There are a couple regarding one large deal where there was a question whether the method of auditing a method of whether it's to use a percentage of completion method for cost or to use the straight line method for revenue recognition and for that.
Now the company as a policy has been using both the SLM method and the POC method, and a very large number of projects are in SLM method. However, the company from time to time based upon the nature of the contract has chosen to operate on the POC method and POC method was selected for this. Both these methods are in line with both accounting standards as well as the policy of the company. And therefore, we are quite comfortable that the company's actions on this have been correct. The other matter, which is also related to the same contract, is some service credit.
And there has been a point made by the investigators about that. And here again, we have reviewed the investigation And this is about whether something could be has to be reversed or non accounted or whatever. And it is very clear that it is neither qualitatively nor quantitatively material to the reported revenues of operating guidance because the cumulative effect of this is in the range of 0.02% to 0.03%. It's a very, very minuscule amount, just a couple of $1,000,000 compared to the multibillion dollar revenue that it has. And therefore, this is not relevant and would have had no impact on any of our revenue, margin guidance, all this stuff.
So these are the only two things which we have there and we have the audit committee has taken a view on both. So overall, we have everything else is some of which were bordering on the comic. Some of which were bordering on the comics. But anyway, we have taken them 1 by 1 and shown clearly that there is no all of them have been addressed. And we are very happy that the CEO has come out of this investigation with flying colors.
And I'm very grateful to Salil because Salil and his team have had to really face a lot of questions. And they are thorough professionals, whether it's Salil, whether it's our CFO, Nilanjan Roy or all the outstanding members of our finance department, Jayesh, Deepak Bala, Sachin Zutte, Amrita Srikanth, Sandeep Mahindru and others. All of them are outstanding professionals and they've had to deal with both closing the books as well as closing this investigation and they have done that brilliantly with high integrity. And therefore, I think we are very, very pleased, the Board, the Chair, the Audit Committee, everybody is pleased that our management team has come out so well. And the Board continues to have the fullest confidence in Salil and his management team.
And we believe that this episode, this distraction has actually made us stronger, more committed to our goals, brought us all together and we are now very, very confident that having put this distraction to rest, we can get on with our business of running a great company. So I will stop at this point and I'll be happy to take questions. And I will take questions and after I finish my session, I'll hand over to Sandeep, after which we'll get down to the real purpose of this call, which is to discuss the business performance of Infosys.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. The first question is from the line of Moshe Katri from Wedbush Securities. Please go ahead.
Hey, thanks. Congratulations on concluding this internal investigation. Two things here. Will there be any changes to the future use of POC accounting down the road? That's number 1.
And number 2, any color on the ongoing SEC investigation in terms of timeline and what to expect? Thanks a lot.
Yes. Thanks, Moshe. It's good to hear your voice. First of all, the company's policy has been to have both these methods, SLM and POCs. It is true that the bulk of the contracts are done with SLM.
But from time to time, the given the sort of unique nature of some contracts, we do use the Poyosi method. So both are part of the policy. And I'm not an expert and maybe I'm getting into dangerous waters, but I don't think there's any going to be any change in this policy. On the second point, you're absolutely right. We are engaging with the SEC.
The SEC, we have we are giving them full cooperation. Over the last several weeks, we have been giving them an update from time to time and we will continue to engage with the SEC and take this to its logical conclusion. In terms of the timeframe, as you know, we cannot say what the timeframe will be that the SEC will see, but we are there ready and waiting and able to engage on any issue and give them the fullest cooperation.
Thanks. Again congrats.
Thanks, Muj.
The next question is from the line of Rod Bourgeois from DeepDive Equity Research. Please go ahead.
Yes. Will there be any changes in your employee base as a result of this investigation? Or are all the employees that were involved remaining with the company at this point?
Now, first of all, that is an assumption which I would like to correct. There is no evidence that this whistleblower was done by employees. Saying that it is employees does not mean it is by employees. Please understand that. And it's entirely equally likely that this was done from outside.
And it has nothing to do with employees, because as I said, we have complete confidence and in faith and in the integrity of our finance team and leadership. So there is absolutely no change. We have a very strong team. They continue to be there and we will continue to build the company as we always were. As you know, under the whistleblower protection policy, we're not supposed to go around looking for who the whistleblower is.
And as Alun said, this could be inside or outside. We think our view would tend towards outside. And therefore, I would not get worried about the issue at all and everybody continues and does their job.
That's a very helpful clarification. One quick follow-up. I mean, as we've moved into the digital era, the nature of deal structures have modified to some extent. Are you making any changes in your approach to structuring deals or your process of approving deals? And did this investigation shed any light on modifications to any processes that might be useful going forward?
No, I think, in fact, if anything, this very detailed investigation, which examined 210,000 pieces of data and which had 8 terabytes and all that has in fact brought out the robustness and detail approach that we have, the way we approach revenue recognition, the way we approach contracts. We of course, we are always willing to learn and improve. And once we get all the details from as you know, we have 3 auditors and 1 law firm here. So we need to really assemble from all that. But once we get all the details, if there is a scope of process improvement, we will do that.
That is the nature of how we do things. We keep improving processes. There's nothing specific. And in fact, after having this extensive investigation, the fact it boiled down to some couple of things itself shows the strength of the company.
Great. Thank you.
Thank you. The next question is from the line of Brian Bergin from Cowen. Please go ahead.
Hi, thank you. Just one for me on the section. Any material costs associated with the actual review process that are worth identifying here? So any financial impact from the actual process that you went through, just to give us a sense of any related margin drag?
No, I'm sorry, financial impact from what?
As far as the process
that the company had, yes.
The investigation itself?
Yes.
No, it's I think the cost has already been factored in our Q3.
Okay. I just was curious if there was a material number that impacted the operating performance? [SPEAKER SWAYAMPAKULA RAMAKANTH:]
No, no, no, no, not at all. I think while it is expensive to hire lawyers, I think on a $12,000,000,000 revenue, we can manage.
Brian Bergin, are you done with your question?
Yes. Thank you.
Thank you. The next question is from the line of Sudhir Gunthapalli from Motilal Oswal. Please go ahead. Yes.
Good evening, sir. Thanks for giving me this opportunity. Going forward, is there a mechanism that we identified to ensure that genuine stakeholders of the company, be it shareholders or employees or clients or even the management team are insulated from any more of such potentially frivolous complaints?
Boss, now if somebody files a whistleblower complaint and if that person chooses to also release it to the media before the company has an opportunity to investigate and come to a conclusion, There is nothing that the company can do. We are committed to higher standards of governance. We will deal with whistleblowers as they come. And we are confident that we will we run business in a clean and ethical manner, and we'll continue to do that.
Sure, sir. And one more question. When we talk to the clients, are there any references to this incident or any clients have expressed any concerns related to this?
No. When this incident happened, we did reach out to clients. We explained to them that we were doing an investigation and our clients, many of whom we have been working for more than 2 decades, were very understanding. And now that the reports have come out and there's a clean sheet for the company and for its leadership, we will make sure that all customers are aware of this development so that if they have any niggling concerns, they will be put to rest.
Sure, sir. Thanks. That's it from
my side.
Thank you. The next question is from the line of Sandeep Agarwal from EDELWEISS. Please go ahead.
Hi, thanks for giving me the opportunity to ask question and congratulation on giving the findings of audit committee very favorably. So, Nandan, I have just one question and I know that you have already answered it in a different way, but I would like to know the immense pain which everyone has to go through in this kind of frivolous and intentional motivated complaints are made and things are made and there is an immense suffering from offer all these stakeholders obviously, the company suffers most, they have to give so much of time to this investigation and do their job. And I understand that you follow this best policies on Richelieu, so you will continue to do that. But the challenge is that if these things keeps on coming, it definitely impacts indirectly the CEO, the CFO, everyone who is on the job. So it impacts our business in a very substantial way.
So is there any way that at least a very limited ones actually can do this kind of disruption? Most of them there is a process which can filter out whether there is any sanctions to that or anything which could be done to at least stop mala fide intentions of this kind of compliance?
Well, you are absolutely right in saying that when you have such a complaint, it creates a distraction in many ways. Number 1, the sheer amount of time. Remember, I talked about the number of interviews and all that. So the sheer amount of time that our leadership team and our finance team has to spend on this is a distraction from their work. Very often, they have to stay in one place to meet do the interview, which means they can't travel to meet customers.
So that's the second issue. 3rd, absolutely, when you take upstanding professionals and make wild allegations about them, it can be it can affect the morale and that's certainly something which we have to be cautious about. Some of our customers may have questions and so on and so forth. So I agree with you on that. But I think it's also the responsibility of you guys and the media because when there is a completely anonymous complaint, which is deliberately leaked before the company has been given the opportunity to process and have an investigation, then you guys also should think.
Part of the problem here is that the reaction of the media and the investors also on very spacious stuff. I think everybody has a role to play to make sure that this kind of weaponizing does not happen.
So, Nandan, if I can add one point only, just we have same view what you have from day 1. Like we have always said that nothing wrong can happen in Infosys at least on corporate governance and those kind of things. We always say that the only challenge is that when this kind of thing happens also there is lot of pain from the perspective that the long term value of the stock means I understand that these things as you don't take short term view and all that. But even in the long term view, if you take the stock there are many parameters which are there when anyone evaluates the stock, those get disturbed very substantially and it impacts the value of the company. So that's the reason I'm asking that there has to be some options or you can at least think of some process by which these things could be from the company side also could be limited or restricted to some
Please, please understand. If look, what are the incentives, yes? Now suppose we have a policy, I'm just saying hypothetical, this is not hypothetically, suppose we have a policy that every time we get a whistleblower, we issue a press release or something, there'll be no end to it. We'll have 10 whistleblowers a day. And no matter how wild allegations and no matter how unsubstantiated they are, we'll have to be issuing stock exchange notices.
I mean, I don't think any company in the world can run like that. So you have to accept that when something is anonymous, unsubstantiated and not backed by evidence. The least you can do is give the management and the Board the space to investigate and get back. Now if you don't have that then what can I say? I mean, what do you want me to do?
Absolutely. Thank you.
But I agree with you. No, I agree with you that, obviously, if something like this is there, then it creates an overhang and all. I appreciate that. But our goal is to minimize this and hopefully reach a point when we will not have any more of these things.
Yes, absolutely. This detailed report which we have published, I think in a term now people will not take this kind of anonymous complaint at all seriously. That is what I hope.
I mean, your hope is we appreciate your hope and we are with you, man.
Thank you. Thank you, Nandar.
Thank you. The next question is from the line of James Friedman from Susquehanna. Please go ahead.
Most of my questions have been answered. I'll go back into the operating. But I do want to ask, Nana, from your prepared remarks, do you have any sense of what the motivation of the whistleblower might have been? Was it nefarious in nature? And are there any repercussions for them?
No, we have to be very, very careful on these things because especially under U. S. Law, the whistleblower is well protected and rightly so because you need strong whistleblower protection to ensure that genuine malpractices and fraud come out. And I appreciate that. But what happens often is that because of those strong protections, we are also not in a position to even speculate on who could it be and so on.
So we are also bound by what we can do. But we will I think once this whole thing is settled down, we will look at the law again and see what is possible. But I think at this point, we are not going to speculate on who it could be.
Okay. Thank you.
Thank you. The next question is from the line of Sandeep Shah from CGSE IMB. Please go ahead.
Yes. Just one question. As a method of investigation, whether the current investigators who carried out the report or whether they had a right to ask for those evidence like video and the e mail, which has been claimed by the whistleblower letter has been just given to the regulator from the regulator or they are not been allowed to do that as per the regulatory hurdles?
No. Look, see, please understand that in this whole episode, the claim on evidence is only in the letter sent to the Whistleblower Protection Office of the SEC. And that letter claims that there is a pen drive with 1 with e mails and 1 with some phone calls. Now we have not received that. We said that also in one of the statements we issued late October, early November.
And as you know, the regulator also says, if you ask the regulator about something, they say we can neither confirm nor deny the existence of this. So you don't get any visibility from the regulators. We don't have the information nor has the whistleblower thought it fit to provide this information the investigators.
So as far as
we are concerned, we don't know if such evidence exists and we'll be happy to see it and look forward to the whistleblower sending us this information.
Okay. Thank you. All the best.
Thank you. The next question is from the line of Keith Bachman from Bank of
Montreal. For this section, my questions have been answered. Thank you.
Thank you. Next question is from the line of Joseph Foresi from Cantor. Please go ahead.
Hi. Most of the questions have been answered, but I just had kind of 2 quick ones. It sounded in your earlier remarks like you thought it might or the whistleblower might have come from outside the company. I'm just wondering why you thought that. And then just as importantly, if the person or entity continues, how do you expect to handle that and or copycats?
Thanks.
Well, first of all, I mean, as I said, beyond a point we can't really investigate where it's coming from. We are seeing that our finance leadership team is innocent. They are the highest integrity. They have not done this. That much I can say categorically.
Now I mean and therefore, we will tend to believe that perhaps there is an external hand in this. But again, because of the fact that we are constrained from actually getting into it, I can't comment more than that. Now if there are somebody wants to do some copycat thing, we'll have to deal with it. I think we are fully prepared. We have nothing to hide.
We run a company with high ethical standards. We run our robust balance sheet here in this whole situation. I mean, just think about it, 3 months of investigation, 210,000 e mails, 7 whatever X terabyte, petabyte of data and all that we have is something which is some $2,000,000 write off. So I mean, so it clearly shows that this company has very, very robust processes and checks and balances. So we are completely confident about the way we run our business.
And I'm sure that once that confidence is there, then even if somebody tries something, then it won't have any credibility.
Yes. No, I guess my concern was like if it was a short seller or somebody else who's trying to create volatility in the stock if they kept doing it, what if you had any plans in place to handle future accusations, but that's why I asked about the copycats. Yes.
I mean, I hung out through there.
Thank you.
Thank you. The next question is from the line of
Do you think this would be sufficient to take care of most of SEC queries?
I'm sorry?
Do you think the internal audit that we have run would be sufficient to take care of most of the SEC queries that would come?
Look, Vas, I can't comment on how the SEC will view this. All I can say is that we have done a very thorough and rigorous investigation. The investigating legal form and the investigating auditing form has been given complete access to every e mail, every conversation, whatever it is. And they have been encouraged to interview. In fact, many people have had multiple interviews so that they get to the bottom of all this.
And over the last several weeks, our legal counsel has been updating SEC about the developments. So I think now it's early for that conversation to happen. I'm really sorry, I cannot read their mind. So I can't say what it is, but we are comfortable that we have a very thorough, extensive and comprehensive investigation, and we hope that will give us in good stead when we engage with them.
So, 1 on the business side, our aggressive sales pitch has helped regain some market share, but there were deals like asset and employee takeover where Infosys was not trading earlier and that has been big contributor of growth in FY 'nineteen 'twenty. So do we see any change in our stance for the same after this episode?
No, I think this is really a business question and I will request Salil to answer it maybe in your session. But fundamentally, whatever strategy that is being followed, whether it is large deals, employee takeover, all the strategies followed by management is completely endorsed by the company. It is the official strategy of the company presented to the Board and the Board fully backs these decisions.
Very helpful, sir.
Thanks a lot.
Thank you. Ladies and gentlemen, now I hand the conference back to Mr. Sandeep Mahendru for further proceedings. Over to you, sir.
Thanks, Sandeep, for providing your comments on this aspect. Thanks for your time. We now move to the 2nd part of this call, which is on the recently concluded quarter and the commentary on business. I'd request Saleh to give a brief remark subsequent to which Praveen and Imanjan will talk before we open up for Q and A.
Thank you, Nandan. Thank you, Sandeep. Good morning and good evening to everyone on the call. This is Sandeep. Before I share with you the update for our strong quarterly results, I'd like to share a few remarks.
I would like to thank the Board and Lambdent for their trust in the way we are driving the business and for the conclusion of the investigation, which showed no financial and proprietary misconduct. I would like to thank all the employees of Infosys and our leadership team for being steadfast in their support of me and the work I'm doing here. I would like to thank my family and friends for their guidance in the last few months. They have been a pillar of strength for me. Going forward, my objective remains to continue working with commitment and integrity and with inclusiveness.
I look forward to working with our clients and helping them transform their business with a new digital future and in that process, build the emphasis for the next decade. With that, let me share our results update. I have a few comments to make there. I'll share earlier a very strong and successful quarter. And we delivered another quarter of all around performance in Q3.
Revenue growth was strong in Q3. Digital revenue share increased 40%. Operating margins expanded for the 2nd consecutive quarter. Cash conversion was very strong. Lead signings were healthy and attrition reduced during the quarter.
We grew 9.5% year on year in Q3 in constant currency terms. Growth in the 1st 9 months of this financial year is comfortably in double digits at 11.1% over the same period for the prior year. In Q3, both the U. S. And Europe geography saw double digit growth and most of our business segments witnessed another quarter of double digit growth in constant currency terms.
Our digital revenue grew by 40% in Q3 in constant currency terms. Digital revenues crossed $5,000,000,000 annual run rate and were at $1,320,000,000 in Q3, constituting 40.6 percent of overall revenues. As we shared with you at the recent analyst meeting, our digital investments across the 5 pillars is deepening our engagement with clients, reflecting a strong growth in this area. We had a healthy quarter of large deals signing in Q3 at $1,800,000,000 The 56% increase in large deal TCV in 1st 9 months of this year over the same period in the prior year is a reflection of our client centricity and the benefits of various investments we've made over the past few years. This is also visible in the growth in client metrics, especially with the $100,000,000 client count increasing by 5 to 28 and a $200,000,000 client count doubling in the last 1 year.
Operating margins in Q3 expanded to 21.9% compared to 21.7% last quarter. Milanjan will elaborate on the margin puts and takes and cash generation during his remarks. I'm pleased with another quarter of reduction in attrition, which declined to 17.6% at a decline of almost 2 percentage points compared to Q2. Within this, voluntary attrition is lowest at 15.6%. Our digital capability along with our large deal engine continues to be the growth driver for us.
Let me share with you a few examples. A leading European telecommunications provider selected us as their preferred IT partner to deliver several digital and data initiatives for the next 5 years. We've been selected by the Australian Federal Government Service in Australia to digitally transform the entitlement calculation engine of the nation's welfare system. The program will replace a significant portion of a 30 year old platform, modernizing the way service in Australia calculates an entitlement for Australians needing government support. A European chemical company has retained our services to digitally transform 19 of their data centers spread across 6 countries.
Such large scale transformation to modernize existing technology investments and make them digital for the future are increasingly becoming a priority for our clients, and we are deeply invested in serving their expanding needs. Driven by double digit growth in the 1st 9 months, we are updating our financial year 2020 revenue guidance. Our revenue growth guidance moves from 9% to 10% to 10% to 10.5% on a constant currency basis. We are retaining our operating margin guidance at 21% to 23% for the financial year 2020. With that, let me hand it over to Sreedhar.
Thank you, Salib. Hello, everyone. Wish you all a very Happy New Year. Our growth momentum continues despite the seasonal weakness with year on year growth of 9.5% and sequential growth of 1% in constant currency terms. 4 of our major business segments saw double digit year on year growth in constant currency.
Both North America and Europe also grew double digit year on year in constant currency. Utilization, excluding Chinese, declined during the quarter by 50 bps to 84.4%, reflecting seasonal weakness. On-site effort mix reduced to 27.7%, a further decline of 15 bps compared to last quarter. Our effort system attrition continued to show results. On a standalone basis, attrition reduced by another 1.8% sequentially to 17.6%.
Voluntary attrition was even lower at 15.6%. Our enhanced focus on increasing employee engagement, performance and skills driven value proposition and improving diversity will continue. Client metrics continue to be strong. We added 84 new clients during the quarter. Number of 100,000,000 clients increased to 28.
We won 14 large deals with a combined TCV of RMB1.6 billion. Out of this share of net new deals was 32%. 7 deals were in Financial Services, 2 deals each in Communication and Manufacturing vertical and one deal each in Retail, Energy Utility, Resources and Services and Other segment. Region wise, 8 West from Americas, 5 West from Europe and 1 from rest of Dubai. Cumulative large deal wins in 9 months stand at RMB7.4 billion, which is 56% higher than 9 months of the last fiscal.
Moving to the business segments, while the headwinds persist in Financial Services, we have seen sequential growth in North America aided by stable customer spend and new deal wins. We saw significant impact of Hello in Europe and Rest of the World regions. The commercial and corporate bank, consumer, cost and payments, wealth management and custody, multi grade portfolios of our business are seeing good traction across geographies. We expect pressure to continue in the near term driven by market volatility and pressure in spending in RANZE Business segment. Retail segment performance remained new tech with continued cautious stance of plans.
The acceleration in spending towards digital, IT simplification and modernization, which are priorities for clients. We are proactively investing in creating assets to help our clients maximize value to price from their digital investments. Manufacturing performed strong with continued momentum from existing clients. Our weakening economic outlook and the effects of trade offs have led to increasing scrutiny on spending plans. Infrastructure cloud services are seeing traction and in application related services, focus is on mobility and data analytics.
Our deal pipeline is strong with good share of large deals and new account openings across geographies. Strength in Communications segment continued due to past large business. Clients are prioritizing funding in their customer reach out and transformation initiatives through digital channels, self-service, omni channel, AI and chatbots. We're also seeing increase in spending around cybersecurity and network virtualization. Momentum in Energy Utilities, Resources and Services vertical softened slightly due to seasonal weakness and some client specific issues.
We continue to win deals in this segment and have a robust order pipeline. Automation, RPA, operational insights and technology led innovation are becoming mainstream in resources and utilities. Service reliability, cybersecurity, compliance and safety are attracting higher spends in this space. Our digital portfolio is growing bigger and stronger. Digital revenues grew by over 40% year on year in constant currency in quarter 3 and now constitutes more than 40% of our overall revenues.
We see increase in demands towards data and analytics, cloud, SaaS, user experience, security and IoT. We have inaugurated a new digital innovation center in Gucseldorf, Germany to focus on next generation business suite such as SaaS format as well as cloud based services, IoT, 5 gs, AI and machine learning. In the last quarter, Inference was ranked as leader in A ratings in the areas of IoT and Engineering Services, Modernization, Makers of Dynamics, ServiceNow and Blockchain Services. With that, I will hand over to Milenjan.
Thanks, Sabine. Good evening, everyone, and welcome to our quarter 3 FY 'twenty earnings call. Let me start by wishing everyone a very happy New Year. Our revenues in quarter 3 were RMB3.24 billion, which is a constant currency growth of 9.5% year on year. The year to date constant currency growth is 11.1% compared to the same period last year.
Similar to prior quarters, growth was broad based with U. S, Europe and many business segments growing double digits year on year. Our revenues from digital crossed 40% during the quarter. Operating margin in Q3 was 21.9% compared to 21.7% last quarter, an improvement of 20 basis points. During the quarter, the rupee depreciated against the dollar by 1%, but was offset by reduced contribution from revenue hedges leading to a net 10 basis point benefit in operating margins due to currency.
Cost optimization measures, including improvement in on-site mix and operating leverage helped margins by 50 basis points. This was offset by a drop in utilization, some of it seasonal and RPP, which impacted margin by 40 basis points, leading to a 20 bps increase in operating margins over quarter 2. We will continue to focus on improving operational parameters like rationalizing pyramid both onshore and offshore, improving on-site offshore mix, lean and automation and other cost optimization measures. DSO increased by 7 days, although unbilled revenues also on the other hand reduced by 4 days. Cumulative cash flow till December was $1,550,000,000 which is a growth of 7.4% over the same period last year, aided by a tax refund of $221,000,000 Cash and cash equivalents at the end of the quarter was 3,420,000,000 dollars Yield on investments was 7.77 percent, 20 basis points lower than Q2, reflecting declining interest rate environment in India.
We paid out $577,000,000 in parent dividend during the quarter, including DDT. Return on equity has increased to 25.9% in Q3 'twenty, an increase of 2 70 basis points year on year. This is due to the completion of share buybacks and increased dividend payout for our shareholders. Driven by our performance in the 1st 9 months of the year, we have increased our revenue guidance to 10% to 10.5% in constant currency terms. Operating margin for 9 months ended December are at 21.4%, strongly within the guidance range of 21% to 20 3%, and hence we are retaining our operating margin band by 2020 at 21% to 23%.
With that, we open up the call for questions.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. The first question is from the line of Avinabh Ganeshan from SBI Pension Fund. Please go ahead.
Yes. Congratulations on a great set of numbers and also for giving the clarity on the resale blower front. Just my only question was, what is the outlook on the BFS space and the retail space?
This is Praveen here. We have I admitted the soft quarter in the US side. On a sequential basis, it was flat. And on a year on year basis, we grew the store 6%. We have seen more than anticipated for low impact in Europe and rest of the world.
However, we have on the positive side, we have seen some growth in North America Banking in North America. So it's been a mixed bag. We expect some degree of softness to continue in the coming quarters. But we have a very strong franchise. We have a very confident that as and when spend when spend we are very confident that as and when we start seeing an uptick, we'll be able to capture it.
Similarly, on CRL space, this quarter after few quarters, we saw growth coming back. We had a 1% constant currency sequential growth, though on a year on year basis, it was about 2% to 3%. We expect hopefully, this will start I mean, this increased and increasing growth will sustain over the quarter. But having said that, this space normally is very volatile and very susceptible to changes in consumer sentiment and so on. And we continue to see record number of store closings and so on.
So we expect some degree of volatility to continue in this space, but hopefully, we have come off a series of weak quarters and hopefully the positive quarter we have this quarter will continue in the next few quarters.
Okay. Thank you. That was helpful. That's all too much. Thanks.
Thank you. The next question is from the line of Divya Nagarjan from UBS. Please go ahead.
Thanks for taking my question. On the contract flows, I think if you look at the 9 months trends that we've seen in net new deals, I think last quarter we did see a low of around 10% of net new deals. This quarter it's about 30% versus been much higher new deals in the last year. That when combined with some of the softness that you've just alluded to in some of your key sectors, I'm trying to understand what will then keep our revenue run rates where it is right now? What is needed to kind of keep this momentum up as the next few quarters come in?
Hi, Anita. It's Sameer. I think the way you're looking at it is the way we are thinking about our business in terms of what are the drivers for our growth as we shared at the Analyst Day and throughout the past year or so. The main focus has been large deals and digital expansion. To continue that momentum, we need to have that working through the next few quarters and obviously in the future.
Our pipeline today is quite strong, so we have a good sense of where that's coming from. There remains significant connect and trust from our clients, and we are engaging with them on several of the new programs. And that's where we think we have to go more and more. But obviously, the way to drive that, our focus is today to close out our financial year in March and then start to think about the next fiscal year and what that's going to look like given the overall environment, some of the comments that Praveen made about banking Financial Services and Retail.
Fair enough. Congratulations to you and Nilanjan and the rest of the management team for a positive closure on the investigations. And I'll come back for follow-up questions if there's time. Have a great day.
Thank you. The next question is from the line of Brian Bergin from Cowen. Please go ahead.
Hi, thanks again. I wanted to ask on the core. Can you comment on the acceleration and the decline of that quarter to negative 5%? Just what are the key drivers there?
So as you saw in the note, our core business had a negative growth for this in this quarter year on year. And we have had in the past few quarters more in the range of 0, 0 plus type of growth. A year ago, it was lower single digits. What we have seen or that's demonstrated to us is the client buying is more and more in the digital area. Our business in the core services is extremely strong and competitive, and we believe that even here we have a situation where we are ahead of where some of our peers are.
But the spending with clients is now focused on digital. And with our reorientation investments
and really market connects in digital
with our partners and with our clients, we start to see some benefits where the digital is growing and therefore helping grow our company.
Okay. That was helpful. And then on margin, as far as the outlook goes and as it relates to your initial 3 year investment and turnaround plan, would you say first that that has progressed to your plan? I'm not asking for formal guidance beyond fiscal 2020, but how should investors think about the margin dryers going forward from here?
So like I just mentioned earlier in
the press call, so this industry forever only faced 2 cost headwinds. 1 is the cost pricing pressure and second is the wage inflation. Usually the wage inflation, especially in India, will get offset hopefully by currency in the long term with the real estate differential, which basically means how do we make up the balance margins, it's cost optimization. We laid out a very aggressive cost optimization plan. We discussed it in detail in the analyst call.
A couple of things which are quite routine for this industry, we all know about the parameterization. We talked about the on-site offshore mix. But few things we are guiding, we think, quite uniquely. One is the setting up of the innovation hubs in the U. S.
I think that's quite unique for us in that space because that allows us to build a full stack pyramid in the U. S. Unlike a very top heavy pyramid, which is there for most players in this segment. The other thing which we are doing very aggressively and you'll see our numbers on subcon costs, which are well below our peer set. Subcons are quite necessary in this industry to make sure that
there is short term demand as
being met or there's special skills. But what we've been doing now is at the tail end of the subcoms, we're trying to replace them either through our own employees, so the hiring lead time, which usually shorter for these, we will meet up with our own employees or replacing these or converting some of these sub cons to our own employees. And you see our sub con costs have been quite moderated on the last few quarters. So we have a host of activities on cost optimization across probably we've been running on track running simultaneously. And this is a treadmill we will have to be on this year in, year out.
We talked about digital pricing as something we are looking at and not that we think we'll command dramatic premiums, but more that we should be leaving any new thing on the table when we're looking at our pricing of digital talent, it is quite scarce. So like I said, this year, we are 21.4 percent for the 9 months. We are sticking to our 21% to 23%. And we'll come back to you next year as we look at it when we set up a new FY 'twenty one plan.
Thank you.
Thank you. The next question is from the line of Tithin Patwanathan from Investec. Please go ahead.
Yes. Hi. Thanks for taking my question. A couple of questions actually. One is, how much did the acquisition of IceTech contribute for this quarter?
I think 3,000,000.
3,000,000, sure. Thanks. The second is in terms of the cost savings that you alluded to Nilanjan, you had mentioned $150,000,000 of cost saving target for the year. How much of that have we sort of achieved in the 1st 9 months?
Well, I think we are well on
our way to achieve the annual target. So maybe hopefully we can be slightly above that, but we'll be
quite confident in the 150 number.
Sure. And the other thing was on the DSO, it's been sort of trending up over the past many quarters. Anything is that a reflection of the large deals? Or how should one think about it? Should we assume elevated levels of DSOs going forward?
No, no. So I think last quarter, we were cash size to increase in unbilled.
So if you see
in this in conjunction with unbilled and unknown, this actually the overall DSO on the unearned AR is actually only a one day. So a lot of this is as we build the client, we will
just collect it in the future. So we have about, I think, $100,000,000 reduction in unbilled as well. So it has to be in conjunction with that.
Yes, I'm looking at that, but over a longer period. So if I take a 4 quarter rolling period, it seems that it's sort of improving, sort of increasing every quarter?
Yes. There has been some increase.
And I think if you see
in the industry as well, there has been a little bit of increase as we are seeing clients asking for a little bit more headroom, but I
think there's nothing unduly concerning about it. This.
Sure. Fair enough. And thank you so much. I think I'll come in for a follow-up.
Thank you. The next question is from the line of Keith Bachman from Bank of Montreal. Please go ahead.
Yes. Thank you. I wanted to ask 2 questions if I could. I wanted to go back to margins for a second. You've had this is your 2nd straight quarter of sequential margin increase is still down year over year.
And should we therefore assume that as we look forward margins, if you continue to have flat to up sequential margins that you can hold these levels as we look into the next fiscal year? And any specific comments you want to offer on the March quarter on how we should be thinking about the puts and takes associated with the operating margins? And then I have a follow-up please.
Yes. And earlier, we are still holding on through 2021 to 2023, and I think at 21.4, that's the way we look at the overall margin for the year. So I don't think at this stage we'll be able to give an outlook on where we're going to end up this year in the quarter 4 or next year. By next quarter, we will give you an outlook into 'twenty one, FY 'twenty one, but that's premature now.
Okay. Any puts and takes you want to call out for the March quarter in particular on operating margins?
No, nothing really.
Okay. Okay. Then as I think about the revenue guidance that you've provided, you have raised it per this quarter. But if I still look at what's implied for the March quarter, it still suggests sub seasonal growth relative to the last 2 fiscal years for the March quarter on a sequential basis. Is there anything you want to call out on why you've talked about the pipeline being pretty rich, but any reason why it would be some seasonal growth March quarter?
This is Salil. The way we look at the guidance is given the trends we had in the 1st 3 quarter
of the year
and the current pipeline deconversions and the revenue outlook we see internally for this coming quarter, Q4, we felt comfortable to raise our guidance for the full year and of course also narrow the band. The specific quality on the segments is more I would say refer back to what Karim said, the comments on Financial Services and Retail, which gave you some more color on and then the real strength we have in several other of our segments, which are all very double digit or more and the color that we share on those as well.
Okay. All right. That's it for me. Thank you.
Thank you. The next question is from the line of Pankaj Kapoor from J. M. Financial. Please go ahead.
Yes. Hi. Thanks for the opportunity. Gilanjan, Salil had mentioned in the press meet that there are plans to replicate the on-site for Ahmed that we have developed in the U. S.
Now also to Europe and Australia in the coming year. So I was just wondering if you can elaborate on this in terms of what kind of a scale we are looking at and what kind of investment this will require? And what's the plan of funding this investment? Will it be through the normal PRN? Or will there be any incremental investment that will be going into this?
This is Praveen here. Similar to what we did in U. S, we have started the journey in the rest of the world as well as in Europe. In Europe, in April, we started a hub in Romania. And in October, we opened and we filled up Germany.
Similarly, in Australia, we will start with Melbourne and Sydney, where we already have a presence. We are not looking at any significant incremental investments.
We will probably do it
at a much slower pace than what we did in U. S. U. S, we have a context here. More and more we will do in the context of the client, where we have a client concentration or client requirements, and that's why we will do it.
So this will probably take slightly longer than what we did in U. S. With very minimal investment.
Got it. And second, just on a structural basis, as we get into 2020, your attrition rate are, of course, coming down and looks like there have been some work on the pyramid as well. The subcontractor costs appear to be also stabilizing. So is it fair to assume that the supply side pressure this year are far lower compared to what we had last year?
This is Salil. On the supply side, there's definitely a significant demand a significant demand for people. I think the attrition improvement is frankly a function of the program that we launched and we shared some details in the earlier session, but we also shared that at our Analyst Day, which clearly comprehensively looks at how we engage with our employees in this new era where the value proposition to repify employees is very different. So that's really what's driving it. I think other approach of subcontractors is much more tailored to make sure that as Milan mentioned, we're replacing subcontractors with recruits as we see more demand stability.
So we see supply pressure as fairly strong. I don't put it a little bit too at this stage yet, but we'll see how the next year or 2 look in terms of demand moving from clients and that will also give a benchmark for the supply side.
Okay. So I just wanted to basically clarify. My question was more in terms of the kind of outlook on the wage hike do you expect this year. You think it will be relatively lower compared to what we had last year? And any kind of intervention that we had to do last year in terms of specific skill sets, those kind of interventions may not be required?
Okay. I follow what you asked. In terms of the salary increase, the decision will be made a bit later. So we are now in a position to comment on the next fiscal year salary increase yet.
Okay. Thank you and all the best.
Thank you. The next question is from the line of Joseph Foresi from Cantor. Please go ahead.
Hi. Two questions for you. 1 on demand. Any thoughts on the sustainability of the growth rate within digital? And do you feel like the business has reset at this higher high single digit annual growth rate?
So again, we are this is Salim. The thinking we have is more focused on how we are working with our clients and fulfilling their digital needs. We understand that the digital market as a collective is growing in the range of 15% or so. So our target would be to gain market share based on the last few quarters. Clearly, we are this quarter, we're 40%.
I don't have a sense today of, for example, in financial year 2020, what our growth approach is going to be. And certainly, we've not outlined externally what our 3 year growth outlook could be. What is clear though is we seem to be winning market share in digital, and now that's again demonstrated over the past at least 6 or 7 quarters. So my sense is if we can continue that,
we will have the benefit
of gaining market share overall. And then all of the other factors, for example, what Praveen shared in Financial Services and Retail, Global Macro and so on will come into play. And that will drive how the overall growth phase will look.
Okay. And then my second question is just again to go back to margins. Any reason to think that margins would not decline over a longer period of time? I mean, you cited the pricing pressure in probably most of your business, wage inflation. And then clearly, you've got the need to invest to handle the digital movement.
So, from these levels, even though you're not giving any color or guidance on it, any reason to think that margins would improve or stabilize here? Thanks.
So like I said, our first task of this year as we entered FY 2020 was basically stabilization of margins. You saw how we came up at the end of quarter 4, and that was on the back of a lot of investments we have made both on the sales side. We have seen the dividends of that playing out. The impact of that is on large deals on new account opening, how we split our hunting and farming teams. So we really see those investments paying out.
We've talked about the innovation hubs and setting that up and how they're leading to an
improved cost structure for us as well as being
a magnet for attracting client business. So I think this year's target was basically coming to a stabilization mode, and I think that's where we are looking ahead is how we make sure we are consistently delivering. Like I said, this is a treadmill. We need to ensure that the cost optimization tracks continue to deliver year in year out. So there's no reason why we think that strategically or in the long term, this business should have lower margins.
We've seen we've talked about a lever of pricing. We probably talk about scarce digital talent. So we should be able to price digital talent appropriately, get appropriate premiums related to the cost. So these are some of the things we are looking at. And like we said, we'll come back in the next
year. The next question is from the line of Moshe Katri from Wedbush Please go ahead.
Hey, thanks. A couple of questions here. Given the fact that you're the 1st company in the space to kind of report this quarter, maybe you can share with us some color that you're getting from clients about spending intentions to calendar year 2020? Maybe some rough numbers in terms of what do you expect spending to look like year over year? And then also maybe some color on the budget cycle for 2020 as well?
Thanks.
Moshe, this is Salim. We started to get a sense with our discussions with clients that it's relatively early in the calendar year 'twenty. And our own cycle, we are now starting to build our own financial model for our next fiscal year starting in April. So we don't have a sense today that is robust that I can share with you of what that external view is. We should have a better sense when we come back to you in the April cycle.
All right. That's fair. And then second question is, I think the biggest highlight for the quarter was the growth in digital that you had, some pretty big and impressive numbers. Is there anything to call out here in terms of what's driving that? I mean, this seems to outperform some of your other peers in terms of growth in digital.
Are you doing things differently? Are you getting better traction, win rates, etcetera? And maybe that maybe you can comment on that. Thanks a lot.
Sure. The thinking for us on digital,
as you may know, there are
5 areas of digital we are focused on. 3 years there, we see incredible traction today, the 3 being what we call experience of really how clients and end users connect with technology. And we've won, I think, beyond sort of more run of the mill experience to really intuitive human experience thinking with digital studios all across the U. S. And Europe and Australia.
The second is the area of theta, which is from our insights capability on the our digital pentagon. We see extremely good traction on the data side. We see clients really responding well to our capabilities there. And we also see an extremely high margin business with the good growth. And the third is cloud, where we've built, I think, very strong partnerships with the 3 big cloud players globally.
We've also built very strong partnerships with the SaaS players. And those their own growth is in some ways reflecting on us and giving us tremendous traction. So those are the 3 big areas for us today that are getting the most impact in terms of growth.
Thanks for the color.
Thank you. The next question is from the line of Sandeep Shah from CJS CIMB. Please go ahead.
Yes. Thanks for the opportunity. Just wanted to understand, if you look at the new business wins of Q2 and Q3, looks lower versus what it used to be in the earlier quarters. So is it an early indication that entering CY 2020 clients are more cautious in terms of IT spend, especially on the new initiatives?
I'm not sure where you are drawing that conclusion because next year, if you look at large deal, if we win, the next year was 32% was much higher than what it was the previous quarter. So and obviously, I mean, if you look at the last few quarters, there are some quarters where we had higher net new and some quarters where renewals have been higher. As Sandeep mentioned earlier, there are primarily 2 drivers for our growth. 1 is large deals and we not only have to win our fair share and defend win the last part of the rainbow but also new net new. And we also have to capture as much of share on the digital side.
And as long as we
are able to do that,
we feel that the momentum will continue.
Okay. And just to follow-up, is it any change in trend of deal closure where decision Not
Not at this stage, I mean, exhibition cycles have remained the same in the last few quarters. We have not seen any changes.
Okay. Okay. And just the last bookkeeping question, the tax rate has gone down. So I do agree there is a refund angle as a whole. But is there any apart from that benefit coming out of the new tax regime in India?
And what could be the normalized tax rate going forward?
As we said at the beginning of the year, our
overall guidance on EPR was between 27 to 28. We got 2 benefits here this year. One is that in the last quarter, there was a clarification on the U. S. Beef tax.
So we got a one off benefit there.
Plus in India, in one of our subsidiaries,
we have decided to go for the new tax regime, which is the 25% lower tax rate. So we got a benefit of, think, approximately about $24,000,000 between these 2 during the quarter. So our normalized would be about 27%, but these are 2, 1 offs, we bought this quarter.
The next question is from the line of Arvind Ramani from KBCM. Please go ahead.
Hi. Thanks for taking my question. So I have a couple of quick questions over here. When you look at your client conversations this year versus last year, there's certainly been a lot more changes. Your mix towards digital has changed quite a bit.
How are you feeling? I'm not looking for necessary guidance for next year, but how are you feeling about kind of the demand environment this year relative to next to last year?
Again, as we shared earlier, is Saleem, the real work on that will start to happen in this next few weeks for us. We will start to put together a little bit more systematic view from all of our segments and our service lines to understand what that looks like for the full year.
It's a
little bit early in our cycle for me to comment on that.
Okay, great. And then, I know this was already asked the previous question. The previous question already asked about this being impact on elections. And any color you can provide? I mean has this come up at all in any client conversations or about sort of planning?
Do you expect any near term delays?
I think you're referring to U. S. Elections, right?
Yes, yes.
For us, nothing has come into our sort of planned discussion mix to suggest a change in direction as a result of that at this stage. So we don't have any specific client shift that we can tell. Maybe as the year progresses, we'll see something.
The next question is from the line of Babur Singhal from Philip Capital. Please go ahead.
Yes. Good evening, sir. Thanks for taking my question. Sal, I just had one question on the manufacturing division. So our manufacturing division has reported quite strong growth in the last 6 quarters on a Y on Y basis.
So just wanted to check any headwinds or early signs of any weakness that you might see because of the slowdown in the auto segment that we have seen especially in the European markets? Or is it like we're not seeing anything of that sort as of now in our client base?
Overall, we have had a good run-in manufacturing this quarter. It was one of the segments where we saw much higher sequential quarter on quarter growth. And for the year, as well, it's had a double digit growth. So we have seen very good traction. I would say that we do see some softness particularly in the auto sector given all the trade wars.
Even though there has been some slowdown on the trade war side, some resolution, but still there is some uncertainty. And this is also impacting the industrial segment where there's dependency. On the other hand, when you look at aerospace, there's a huge auto backlog and then the pipeline is strong. But despite the softness, the softness has existed in last 1 or 2 quarters, but we have done well in this segment on the back of our wins that we have had in the recent past. So while there is softness, we feel comfortable At least we feel that we are in a good space in this segment, and we expect that trend to continue.
Sure. That's really helpful. Thanks for my questions. That was all from my side. Wish you all the best.
Thank you. The next question is from the line of Apoorva Prasad from HDFC Securities. Please go ahead.
Thanks for taking my question. I had a question on the core services and products piece that seems to be declining at a faster pace. So I mean, can you attribute anything to that? Is there probably increased competitive intensity in renewals?
I didn't follow the question. You said it's about the core services, or the decline in the core services?
Yes, yes. The decline in the core services, that seems to be increasing, which was flattish about a couple of quarters back that it's gone to almost 6%?
Yes. So we talked a little bit earlier about the cost of which is outlook.
What we are seeing today is very
a reflection of where we see our clients spend. Our clients spend more and more on the digital portfolio. And there with that spend, there's less on the cost services. Our sense is that what we see here is still much more robust in terms of our differentiation in cost services vis a vis some of our peers. Having said that, we remain going ahead a function of what we see in the market in terms of the increasing to digital, which seems to be the secular trend and that will drive the core services.
As you rightly said, the last few quarters, we've seen something in the 0, 0 plus range or maybe a year ago in those single digits. So we do need to watch it carefully and see where it goes. But we also want to reposition our portfolio towards of our digital business, which today, as we shared in earlier calls, has a higher margin profile. So Net Net, we think this helps us to reposition our company as also the clients when they're getting repositioned.
Right. That's helpful. Thank you.
Thank you. The next question is from the line of Sudhir Guntapalli from Motilal Oswal. Please go ahead.
Yes, sir. Thanks for giving me the opportunity again. If you look at the sequential growth in the top client and top 10 clients and even top 25 clients, Growth looks pretty muted, especially in the top client. So growth in this quarter seems to be largely driven by clients below top 25. So any color on this will be helpful.
So I think in this quarter, given the FURNO impact, I don't think it's right to draw any inference. But we are not really concerned about this because they say and the funding costs vary from sector to sector and plants to plant.
Sure, sir. And second question is we have ramped up our U. S. On-site headcount over FY 'nineteen and we have been talking about the potential back ended productivity improvement among these employees, which can drive up margins. Any qualitative insights into this will be helpful?
I think the attempt is I mean, that's 2 things. One is we are trying to de risk our business by doing more local hiring, having a much larger local presence. And secondly, from cost perspective, just making sure that while we ramp up on the local side, we build up the pyramid. So we have done reasonably well. As we have mentioned in the past, we have recruited more than 10,000 people and a good percentage of them are associates from campuses.
And so far, the utilization of these people in projects have been decent and it's in it's probably much better than what we had anticipated earlier. So we feel confident. And with our unique model of having hubs, we are able to look at these associates and deliver projects quickly, and we feel reasonably confident that this model is working. So not only are we able to reduce the risk that we have, but we are also able to contain the cost structure by building a pyramid. And I think that effort will continue.
But difficult to quantify at this stage because this early in the journey, we are just about well, I think, in the journey, it will take some time for this to stabilize.
Sure, sir. Thanks and all the best for the rest of you.
Thank you. The next question is from the line of Dipesh Mehta from SBI Cap Securities. Please go
ahead. Yes, thanks for the opportunity. So if one look at the growth number from Q1 to implied Q4 kind of thing, we are seeing almost 4 percentage deceleration from Y o Y perspective in constant currency despite very healthy strong deal win during these periods. If you can help us understand how one should look the momentum desolation entering into next year? That is question 1.
Second question is about Energy and Utility. In earlier your prepared remarks, you indicated about some client specific issues. If you can provide some more color around it, whether it is likely to sustain or it is temporary, whatever color, if you can provide something? Thank you.
On the first part, this is Samil. As you might know, in some of our earlier calls, we shared that the first half of the year growth was higher year on year than the second half of the year, and that's really the way this is progressing. We don't see any change in the traction with clients, There is some base effect that starts
to peak in into Q3
and then in the ongoing quarters. But we don't see any change in the communicating connect with our clients at this stage. For the following year, we'll be in a better position to comment at the end of this quarter when
we come back in April.
On the second part, Praveen will just give you a number.
On the Shiloh segment, we have had a successful several quarters of successful double digit growth. This is the Q1 where we have seen negative growth on a quarter on quarter basis and less than double digit growth. And partly because of, as we said earlier, it's partly because of the seasonal weakness that's a low impact. And in couple of plants, one is we have de scoping in a particular large program. And in other account, we have seen some level of infosing.
But having said that, given the traction that we have seen in the past, this is not a secular trend, and we expect the growth to come back in the coming quarters.
The next question is from the line of James Friedman from Susquehanna.
Praveen, I just want to make sure I understand your message, your observation with regard to North American BFS. You were going kind of quick there. Are you saying it's getting better? North because you talked about the geographic region of BFS. Is North what was your comment again about North America, specifically banks?
If you look at our performance this quarter,
a big impact has been from Europe and rest of the world, partly higher than expected for low and slowdown, particularly in Europe due to uncertainties around Brexit. On the other hand, if you look at North American Banking segment, we have seen growth. So that's what I meant. And in the last couple of quarters, we have seen growth come back in North American banking space, and that was the comment I made.
Got it. Okay. That's right. And then with regard to communications, is that 5 gs or is that is it too early to conclude that? I know 5 gs according to you populates a lot of different verticals, but is that related or is there something else going on?
Thank you.
I think in communication, it's at least the growth has been largely contributed by some of the large deal wins that we have had in the past, and that's contributing to the growth. We do find a lot of investment in 5 gs. Obviously, there's tremendous pressure for everyone who invests in 5 gs. We see opportunities there, but the ticket sizes are still small. Most of them are in pilot spaces and so on.
The growth risk coming from traditional businesses as well as the digital transformation opportunities. But in this segment, if you look at it on one hand, there is tremendous pressure on them to invest in 5 gs. At the same time, their revenue per customer is the TRPU is decreasing. They have to compete with digital natives and OTT providers. So there's a significant amount of investment in digital channels and services, AI, tech bots and so on, particularly in customer service space.
And that's where the investment is. And today, I think the growth is coming through those investments, not necessarily from 5 gs. While investment is there, but from a ticket size perspective, it's been small.
Smart.
Great. Appreciate the color. All the best. Thank you.
Thank you. Ladies and gentlemen, this was the last question for today. I now hand the conference over to Mr. Sandeep Mahendru for his closing comments. Over to you, sir.
Thanks, everyone, for joining us on this call. We really like your questions and answers coming to time with us. Look forward
to talking to you again.
Have a good day.
Thank you. Ladies and gentlemen, on behalf of Infosys, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.