Ladies and gentlemen, good day and welcome to Infotus Earnings Conference Call. As a reminder, all participant lines will be in listen only mode and there will be an opportunity for you to ask questions after the presentation 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, Margaret. Hello, everyone, and welcome to Infosys earnings call to discuss Q4 and FY 'twenty one earnings release. I'm Sandeep from the IR team in Bangalore. Joining us today on this call is CEO and MD, Mr. Salil Barrick COO, Mr.
Praveen Rao CFO, Mr. Nilanjan Roy along with other members of the senior management team. We'll start the call with some color on the performance of the company by Saliv Praveen and Nilanjan Before we open up the call for 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 rest that the company faces. A full statement explanation of these risks is available in our filings with the SEC, can be found on www.sec.gov. I'd now like to pass it on to Salil.
Thanks, Sandeep. Good evening and good morning to everyone on the call. Thank you for joining us for this session. I trust you and your families are well and safe. We've had an exceptional year and an exceptional quarter.
Our year on year constant currency growth was at 9.6% for Q4. Our volume growth for Q4 was at 4.6% quarter Reflecting accelerating momentum in the business. Revenue growth was at 2% in constant currency quarter on quarter With 1 point higher offshore effort mix, lower contribution from 3rd party deals and our typical week is Carrying on in my opening statement, for the full year, our growth in constant currency was at 5%. Our digital business grew by 34% year on year in Q4, representing 51.5% of the overall business. Our large deal wins were at $14,000,000,000 for the full year, a growth of 57% from the previous year And we're at $2,100,000,000 for Q4.
Our net new percentage for FY 2021 was at 66%, are helping us set up for strong growth in financial year 2022. With these exceptional results, We had industry leading growth in financial year 2021. We continue to gain market share. I'm grateful for the trust our clients have in Infosys as we partner with them for their digital transformation programs. Our growth was broad based with several of our industry segments showing strong growth year on year and stems from our market leading capabilities In digital, cloud, cybersecurity and in data and analytics, this is what allows us to be the most critical partner for our clients' digital transformation programs.
Our operating margins for FY 2021 improved by 320 basis Points to reach 24.5 percent for the full year. It was also at 24.5 percent for Q4. Our free cash flow was close to $3,000,000,000 a 39% larger than in the previous financial year. Our cash and balance sheet was at $5,300,000,000 at the end of the financial year. I'm extremely proud of our employees And their enormous commitment, especially during this past year, but in general across the years, we will launch a second Compensation review in a phased manner starting in July 2021.
Our employees And our entire leadership team work cohesively and for the benefit of our clients. This approach of 1 Infosys has really enabled us I'm able the company to have a successful financial year in financial year 2021. Looking ahead, we see continued strong demand from our clients, especially in digital, cloud and in data. And we have a strong foundation of our large deal success in financial year 2021. Hence, our constant currency full year revenue guidance For financial year 2022, it's growth between 12% 14%.
For operating margin, our superior margin performance In financial year 2021 was in part because of improvement in our strategic cost levers and in part because of cost avoidance and deferment. With normalcy returning gradually across the world, we anticipate some of the costs to return. With that, our guidance for operating margin for financial year 2022 is between 22% 24%. In keeping with our capital allocation policy, we propose to increase the total dividend per share by 54% over the previous financial year for a full year dividend at INR 27. In addition, we propose a buyback of equity shares Up to an amount of INR 9,200 crores, which is approximately $1,200,000,000 through the open market method.
With that, let me pause and thank you. And let me pass it on to Praveen for his update. Praveen, over to you.
Thank you, Salil. Hello, everyone. Hope you and your family are doing good, safe and healthy. Growth accelerated further in quarter 4 with year on year constant currency growth of 9.6%. Growth momentum was strong across various business segments with 3 of them Financial Services, High-tech and Life Sciences reporting double digit growth.
Volume growth was strong despite quarter 4 traditionally being a soft quarter. Most of the critical operating parameters continued to improve during the quarter. Utilization increased further To a new all time high of 87.7%. Onshore effort mix reduced further to a new low of 24.3%. Subcon costs increased further by 50 bps Due to growth acceleration and high utilization, we won 23 large deals in quarter 4, totaling $2,100,000,000 6 each were in Financial Services and Retail, 3 in Life Sciences And 2 deals each in communications, manufacturing, energy utility resources and services and high-tech segments.
Region wise, 16 were from Americas, 6 were from Europe and 1 from rest of the world. The share of new deals in quarter 4 was a healthy 52%. For FY 2021, the large deal ECV crossed 14,000,000,000. Share of new deals within this $14,000,000,000 was $9,400,000,000 higher than TCV of all large deals signed in FY 2020. Client metrics remained robust with 100,000,000 client count increasing to 32, an increase of 4 year on year.
We added 130 new clients in the last quarter. Net employee addition during the quarter was over 10,300 and share of women employees increased to 38.6%. Warranty attrition for IT services calculated on annualized basis increased to 15.2% as demands for talent increase. We have implemented salary increase effective January 1, 2021, And as mentioned by Saleel already, the next cycle will kick off from July 2021 in a phased manner with start date of July 2021 for majority of our employees. Moving to business segments.
Financial Services continued to report industry leading performance with growth momentum improving further. In the last few quarters, we have seen strong demand uptick in areas that banks have had to significantly invest in post COVID, Such as customer experience transformation, front to back digitization, mortgages transformation, Call center technology and operations, lending services as well as higher investments in large end to end digital transformation programs. In FY 2021, we have won 25 lot deals from this segment, including fixed in quarter 4, which provides a solid base for growth in the coming year. Sequential improvement continued in the retail segment along with improvement in deal activity. While many of the sub segments in retail remain challenged, We see opportunities in areas like intra and apps modernization, adoption of microservices architecture, Cloud strategy and workload migrations and cybersecurity.
Given the pace of recovery since Q2 of FY 2021 And net new large deal wins in second half of FY twenty twenty one, we remain optimistic about this sector as we look ahead into FY twenty twenty two. Communications segment weakened marginally in the last quarter. However, with the deal wins, We expect the performance to improve in the coming quarter. Digital led transformation, consolidation, 5 gs, edge computing, Cyber security, next gen technologies like AI, IoT will be the disrupting themes in CMP. Energy, utility, resources and services vertical remained soft for most of FY 2021 due to constrained spend in the oil and gas, Travel and Hospitality and Resources sector.
However, we see signs of stability returning to various sub segments Given some of the recent JV hard deal wins and quality new account openings, we see opportunities in the areas of cost takeout, vendor consolidation, Cloudless transformation and asset monetization, smart grid initiatives and userization of services. We have a strong deal pipeline despite pressure on discretionary budgets in some of the impacted customer industries. Manufacturing was one of the most adversely impacted sectors because of COVID. While automotive and industrial segments are emerging strongly As the economies open up, aerospace sector will take few quarters to get back to previous capacity. We have seen significant traction and momentum as evidenced by the new wins throughout the year, including the largest ever deal in Infosys' history signed in quarter 3.
We are very positive on the sector on the back of strong relationship built during the pandemic and continued net new wins throughout the year. Even as the effects of pandemic continue and as companies emerge from crisis, our pipeline in the sector is strong and we are confident of gaining market share. Infosys BPM has grown at double digit rates With clients investing significantly in digital transformation to enhance efficiency, effectiveness and experience in business processes within their enterprise and global shared services environment. Lot of this growth is driven through combined IT plus VPN deals, Capital carve outs, lender consolidation and managed services. The digital portfolio contribution to overall revenue increased further to 1.5% in quarter 4 with robust growth of 34.4% year on year in constant currency terms.
In FY 2021, digital revenues have grown by 29.4% in constant currency terms. We continue to expand these digital capabilities, especially with Infosys Cobalt Cloud Portfolio. In the last quarter, we announced a partnership with LivePerson for conversational AI to help brands manage AI powered conversation with Consumers and employees, we also launched Infosys Cortex AI First Cloud First customer engagement platform And Applied AI Cloud built on NVIDIA DGX-eight 100 systems. We completed a definitive agreement to purchase In quarter 4, Infosys was ranked as leader in 9 services related capabilities across digital pentagon areas by industry analysts. With that, I hand over to Nilanjan.
Thanks, Praveen. Good evening, good morning, and thank you, everyone, for joining the call. We entered FY 2021 with 3 focus areas: operational agility, liquidity and cash management and cost takeouts. We maintained razor sharp focus on each of these areas throughout the year and our FY 2021 results are testimony to that. We closed the year with 5% revenue growth in constant currency terms and 24.5% operating margins.
This was backed by the largest ever deal closures of $14,100,000,000 growth of 57% year on year, 29.4% growth in digital revenues, Improved operating parameters with both utilization and offshore effort mix at all time highs of 34.7% and 74.2%, respectively. Operating margins for FY 2021 increased by 3.2% over FY 2020. As mentioned earlier, this was due to a combination of factors comprising of strategic cost levers, cost deferrals and other cost benefits, some of which are expected to normalize ahead. Record free cash flows for FY 2021 of approximately $3,000,000,000 an increase of 38% over FY 2020 were driven by strong focus on DSO and CapEx Optimization. DSO for the year was 71 days.
We had a specific focus on CapEx reduction during the year. Although there was some increased technology related CapEx, largely to support remote working, we continue to optimize on CapEx related to physical infrastructure creation. CapEx for FY 2021 reduced to $285,000,000 compared to $465,000,000 last year Despite the higher technology enabled spend, consequently, FCS conversion as a percentage of net profits was 113.4% for FY 2021 compared to 91.8 percent in FY 2020. FY 2021 EPS grew by 12.5% in dollar terms And 17% in INR on a year on year basis, driven by strong top line and margin expansion. Return on equity for FY 2021 Improved by 1.6% to 27.4% over the last year.
Coming to quarter 4 performance, We saw another quarter of revenue acceleration with growth accelerating to 9.6% year on year in constant currency terms. After absorbing the effects of salary increased across job levels, operating margins in Q4 stood at 24.5% versus 21.1% in Q4 FY 2020 and expansion of 3.4%. This compares to operating margins of 25.4% In quarter 3, the sequential margin movement is primarily due to a 1.3% impact due to the compensation increases rolled out effective Jan 1, 0.3% impact due to increase in G and A costs, partially offset by lower lease costs, improved operating Our balance sheet continues to remain strong, liquid and debt free, Cash and cash equivalents increased further to $5,280,000,000 at the end of FY 2021. Yield on cash balances continued to decline. The yield was approximately 5.1% in quarter 4 compared to 6% in quarter 3.
Quarter 4 also marked the 23rd consecutive quarter of positive ForEx income Despite significant currency volatility across the globe, as you know, we have been increasingly emphasizing on total shareholder returns And increasingly aligning our executive compensation to TSR creation. I'm happy to share that TSR for our investors in FY 2021 Was in the top quartile of our peer group and ahead of market indices. In line with our capital allocation policy of returning 85% of FCF over 5 years, The Board has recommended the following: a final dividend of INR 15 per share, which will result in a total dividend of INR 27 per share for FY 2021 This is INR 17.5 per share for FY 2020. This is a 54% increase in dividend per share for the year. Buyback of equity shares of up to INR 9,200 crores through open market route post approval of shareholders in the AGM.
Final dividend along with share buyback would lead to cash payouts of INR 15,600 crores excluding taxes In the coming months, another step to demonstrate our commitment of consistent TSR generation for our investors. This would mean total payouts of approximately 83% of our FCF for FY 2020 2021 through dividends and buybacks compared to the 85% over 5 years that we announced during the rollout of our capital allocation policy in July 2019. Coming to guidance, with the strong exit momentum and the ramp up of landmark large deal wins, we have built a solid base for double digit growth in FY 2022. We expect FY 2022 revenues to grow by 12% to 14% in constant currency. Operating margin guidance for FY 2022 is 22% to 24% After considering the impact of compensation reviews, transition impact of large deals and partial rebound of costs like travel, etcetera.
With that, we can open up 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. Good to see the progressive capital return policy announced. I just wanted to check on your visibility for the year ahead, Say compared to earlier pre COVID years, F 2018 2019, how is it different compared to that? And are you baking in any level of Consolidated and perhaps into the range based on supply pressures you alluded to and perhaps normalization of timing momentum we
have seen earlier in the year? Thank you. Thanks, Ankur. This is Saleel. In terms of what we're seeing in the demand Environment, I think it's one of the strongest demand environments that we've seen for a while.
The revenue growth guidance 12% to 14% gives a very clear indication of the comfort we have in the growth outlook. I think in terms of supply pressures, yes, there are always supply pressures across the market. But as we have shared earlier, we recruited over 20,000 people from campus in the financial year 2021. The plan for financial 2022 is at about 26,000 today, which could increase. And we have overall capacity With what we see both in college hiring and lateral hiring to fulfill the full fiscal year with demand.
So overall, we feel it's extremely strong growth outlook and we feel comfortable at this stage to conclude
Thank you. The next question is from the line of Divya Nokarajan from UBS. Please go ahead.
Thanks for taking my question and congrats on a good year in a very difficult environment. Two questions from my side. One is, how should we think about normalized growth rates for you from here on? I know this year you've guided very strongly, but there are some spikes coming into some of your large deals, specifically your largest ever deals. Expat, it looks like we are looking at much more subdued sequential growth rates compared to what we saw in September December.
So how should we think about that? That's question 1. 2, in your margin guidance, how should we think about progress? We normally have a pattern to margins where You have wage hikes impacting and then things pick up. How should we think about the seasonality of margins going into this year?
And again, specifically, Q2 is when I believe your largest deal is also ramping up and you just talked about additional wage hikes as well. So should we expect a slightly different seasonality in Q2? How should we think about that, please?
Thanks, Vijaya. This is Salil. I'll start on the first So I'll then Anil Anjan will comment on the seasonality of the margins. In terms of what we are seeing In terms of the pattern or steady state growth, today our focus really is on this financial year and the growth guidance Of 12% to 14% for this year. We currently see demand in very good shape.
It's of course a function of how that demand plays out. As you pointed out in the last financial year, We had 5% growth in an extremely difficult year where we've seen many Within the industry shrinking, so we believe we are gaining market share. We believe we are the industry leading growth At this stage and with what we see in the guidance, if the demand environment stays the way it is And a very little indication that it will given the broad economic recoveries In most of the markets that we serve our clients in, we anticipate that this looks like a good demand environment for some time. However, our guidance is only for this financial year. Praveen, over to you sorry, Nilanjan, over to you, please.
Yes. So I think, Dhivya, we don't really give a color on the trajectory of the margin. So it's the guardrails for us, like we mentioned, between 2022 to 2024. We have factored in the 2nd rate hike from 1st July. So yes, in quarter 2, you may see some margin pressure there.
And later on in the year, there is, of course, some things like travel, etcetera, will open up. But underlying all this, of course, we continue to work on our strategic cost levers, Which are each quarter in terms of the mix and the pyramid and the automation. And that's an underlying cost which we keep on neutralization which we keep on happening. So I think like I said, 22% to 24% is a comfortable range which we're operating in and have factored in The increase of cost of travel and the wage hike.
Thank you. The next question is from the line of Moshe Katri from Wedbush Securities. Please go ahead.
Hey, thanks for taking my question. I have 2 points Related to the quarter and maybe one that's more broad based. So any specific callouts on Q4 sequential growth numbers? Obviously, there's a delta here between volume growth that was very strong and the actual sequential growth. And you mentioned A 100 basis points expansion in offshore mix, which probably had some sort of a cannibalizing impact.
And he also said something about less Contributions from 3rd party deals, maybe you can specify on that. And then Appreciate the fact that quarterly bookings can be lumpy, but from a broad picture perspective, can we get some color On pipeline trends, directionally, are we up? I think that could be kind of helpful. Thank you.
Sure. Thanks for your questions. On the quarter 4, As you pointed out and we shared I shared in the earlier statement, the volume growth was 4.6% Where the revenue growth constant currency was 2% quarter on quarter, we saw about 1 point Increased offshore effort mix as you rightly indicated that would show that would show up in the difference between volume and the actual revenue. Our 3rd party deals are deals where we work with 3rd party hardware software Partners and those deals typically have a cycle that we've seen across the quarters in the past year. In Q4, it was somewhat lower than what we had originally anticipated, most of them coming through in Q1.
And then there is typical seasonality that we've seen over the years in Q4 with what we've shared And that came into play a little bit. However, the demand outlook for us remains exceptionally strong, Our large deal wins with 66% net new for the full year last year give us a very strong base For growth for next year. And so 12% to 14% is a strong guidance for us for growth for next year. On the second one, Nilanjan, do you want to go ahead on that one, please?
Moshe, can you repeat the second question?
Yes. The second question was more about bookings and Appreciate the fact that these can be lumpy on a quarterly basis, but just to get a grasp a better feel on bookings maybe From a pipeline perspective, maybe we can get some color on that. Directionally, have you been able to replenish a lot of The pipeline that turned into bookings and our bookings up year over year, just to get a feel on where we are directionally.
Let me start, sorry, Giovanni. On the pipeline and Sravin, if you want to add anything. On the overall pipeline, first, the bookings, we had 2,100,000,000 of large deals In Q4, which is a very strong healthy mix, over 50% healthy. So we consider that Cost of $7,000,000,000 of Q3 was incredible, but that's not sort of a sustainable rate in the way we look at our business. The pipeline is, yes, starting to get replenished quite well after an exceptional A set of large deal wins.
So we see the pipeline coming back robustly. We see good demand again across different Industries and we feel quite good going into this financial year that both the deals we've closed will support the revenue growth, Very quickly, the pipeline will also start to come back and give us good traction for large deal wins in financial year 2022.
Thank
you very much. Thank you. The next question is from the line of Apoorva Prakash from HDFC Securities. Please go
ahead. Salim, just to probe further on the medium term Look, that you spoke earlier. So I would imagine improving visibility on medium term with a greater sense of scope from enterprises as they are Accelerating the digitization milestone plus vendor consolidation and improving pipeline that you mentioned. So What are your thoughts beyond FY 2022 and your confidence of keeping on to double digit type of trajectory? And also is the FY 2022 guidance revenue guidance imply a higher offshore component?
So does it mean better volume growth compared to the 12% to 14%?
So on the multiyear The overall theme for us is we see Very strong demand from clients, good traction on the cloud, good traction on data analytics, Very good work on AI, automation, a good traction across cybersecurity. So all of the elements in which we build capabilities, We feel comfortable that clients are moving ahead quite aggressively in those areas. We don't have ever have a guidance So even an outlook at this stage, which is multiyear, as you know. We have the 1 year guidance in terms of everything. But everything we see indicates that the buying from clients is fairly strong.
So really it's more a function And then on the overall macro in terms of GDP, if that holds up multi year, that will still give us a good outlook. But at this stage, we see good demand, good pipeline, good traction. So nothing to change anything in the way we are seeing business. Of course, the guidance is only for 1 year.
Sure. And just the second part of that, is there a higher off So component built into that guidance for FY 2022?
So there again sorry, yes, I didn't address that. We don't The volume component in the guidance, we do have Once we complete the year, we will have a look at it, but it's not part of our overlooking guidance On the volume which will be set in terms of the revenue for next year.
All right. And finally, how do you expect the core to deliver, Which has declined almost double digit this year, so no views on that?
So there what we are seeing is large enterprises are looking at their core escape And applying tremendous automation to it and looking for efficiency. Our own approach is To help them achieve that automation and efficiency and that benefit, which they are then taking And investing in their digital growth agenda items. We continue to see that sort of a movement. Again, we don't have a specific guidance on the evolution of the core for the full year, So that's the broad trend we've seen in the past few quarters and we continue to see that going ahead. Thank you.
Thank you. The next question is from the line of Pankaj Kapoor from CLSA. Please go ahead.
Yes. Hi. Thanks for the opportunity. So first question, Salil, are
you seeing a spend coming back On the longer term payout kind of deals or project or do clients continue to spend more Still on those cost takeout, cost savings, cloud migration kind of projects? And second Question is that how do you see the mix in your pipeline in terms of say less than 500,000,000 and more than 500,000,000 TCB kind of deals?
On the first part, I think there's both types of work that you referenced, the Cost focused work, the efficiency focused work and also the digital transformation type of work that we get from our clients. If you look back in financial year 2021, if you look at The sort of work we announced that we're doing with Vanguard, it's a digital transformation that starts from the business, Looks at technology and looks at operations. Equally, we are doing other programs with other clients, which are more focused on cost Takeout and some even on consolidation. So they are quite well represented in what we are seeing in the outlook today.
In terms of the size,
we don't specifically comment on the breakup of the pipeline. Having said that, the pipeline, the actual wins last year were quite well distributed and the pipeline has a similar Type of distribution. Of course, as Praveen mentioned, last year we had one specific deal, Which was the largest in the history of company, those are deals which happened every now and then. So those are not really predictable in that type of a horizon.
Understood. I have just one more question for Nilanjan.
Nilanjan, do you see any impact of the recent tax changes that are proposed in the U. S. Impacting your effective tax rate in the coming years? Thank you.
Yes. So as you know, again, this is just proposals and there are some papers out. This, of course, has to go through both the houses, Senate and Congress, there are 2 things that people are talking about. 1 is, of course, the minimum alternative tax, which is largely for U. S.-based corporations Who have international subsidiaries.
So that's a different impact and not doesn't impact us. The other, of course, is the rate increase which we're proposing on corporate tax itself From the 21% to 28%. Now having said that, our most of operations are run through a U. S. Branch.
We don't have a U. S. Subsidiary through which we run Most of operations and therefore increase in any tax rate there. One is, of course, you will get a set off in India from a foreign tax credit partially And there can be a minor impact if there's any flow through over and above that. But like I said, we run it through a branch structure and therefore the impact will be less.
Understood. Thank you.
Thank you. The next question is from the line of Jamie Friedman from Susquehanna. Please go ahead.
Saleel, in your prepared remarks, You had mentioned cost avoidance and deferments as Sorry, instrumental in 2021 narrative. I was hoping you could elaborate on that. I wasn't sure if you were referring to The costs within Infosys or at on the client side, is that what you mean?
No, I think
yes, so I think like we've been over the last 4 quarters, If you're in the call as well, right, so last year as COVID hit, we were very clear looking at the volatility and uncertainty in the economic environment That we had to do certain cost postponements. So for instance, salary hikes, which were due in June of July last year, that was postponed in Q4, we just announced that in the beginning of January, so that was one of them. Even the promotion cycles were delayed In FY 2021 when we started that only in Q3, similarly things like recruitment, etcetera. So that was one part of it. And those are the costs which will come back now in FY 2022.
So the full year impact of the compensation hike of quarter 4 Will be felt into FY 2022. We've also just announced that we will look at another compensation cycle commencing 1st July That will impact 3 quarters of FY 2022. So those are the cost deferrals where I call. There are other cost reductions like travel, etcetera, and part of that will start coming back As the world opens up probably closer in the second half and travel looks better, of course, the first half, we don't see much of change there. So these are what we're calling of costs coming back and some of the tailwinds in last year becoming headwinds.
And of course, underlying that we have an underlying cost optimization program Around our strategic levers of off-site on-site offshore mix, around the pyramid, around automation, we continue to press on every year as well.
Got it. Thanks for that clarification, Laljan. Thank you.
Welcome. Thank you. The next question is from the line of Pradeep Buntupalli from ICICI Securities. Please go ahead.
Yes. Good evening, gentlemen. Thanks for giving me this opportunity. First question, Nilanjan, between the 3 options of Open market buyback, tender buyback and dividend, if I were a shareholder and of course subject to our individual capital, my understanding is that the tax Transmission loss on open market buyback is higher than in the other two cases, given the applicability of CIGI. So just curious on the thought process of returning this
Yes, sir, we are completely guided by our capital allocation policy of returning 85% over the 5 year period from FY 2020 to FY 2024 and that talks about a progressive dividend policy And supplanted by buyback or dividends, any special dividends, I think consistently the message back from the market and investors They don't prefer one off special dividends. They would like to see a consistent progressive dividend policy, underlying dividend policy And backed by, like I said, these one offs. So the Board considered the buyback as the best way to return. And now versus open market and tender, Of course, the choices are the reason for them are different. Of course, in tender, you are committed to a maximum price as well, in fact, a premium, Which you actually lock on to whereas in an open market, you are committed only to a maximum price and you buy over the next few months, Subject to the maximum as well.
So the opportunity for EPS accretion is potentially we have seen going by the Trade we have done is higher in case of an open market. As regards to the tax implication, we understand that SEBI has now mandated The stock exchange is to indicate even in an open market, the benefit in terms of buyback because the company has paid will pay buyback tax. So in the hands of shareholders, Sebi, I believe, has told the stock exchanges to indicate deals where the company is buying back these shares. So that was available in the tender offer previously. Believe that we have now rolled it out across 2 comments, but this is we don't have any notification with this line formal understanding.
Sure. So you meant to say, Milunjan, that it will not be further capital gains will not be taxed in the hands of shareholders. Is that correct? That's
what we understand. We don't have any that's what we informally understand. We don't have anything in writing.
Yes, thanks, Nikhar.
The investors will have to see that. The investors will have to see their individual cases. We can't comment on that.
Sure, sure, Nilanjan. And a follow-up question is that tender buybacks have been very effective price signaling mechanisms in the case of Infosys itself and some of our competitors earlier. On the On the other hand, open market buybacks have a typical defensive connotation, where the objective is more price support rather than price signaling. In that defensive context, actually the maximum buyback price of $17.50 looks very aggressive. So just based on the thought process of arriving at this $17.50 number, Should this be read as a management signal like an attendant buyback or we are just looking for an extra buffer because markets are being very volatile both sides and this is a long drawn process of 6 months?
Yes. So as you know that this is the maximum price unlike in a tender where you actually give a premium and commit to the premium, this is the maximum price And this gives you a headroom. And since the from the date of announcement, there's a process where it will get approved in the shareholder meeting in sometime in June and then the open buyback The runway over this price is over the next maybe 7 to 8 months, which is a much more longer so that's the headroom which we created. And of course, the Board also looks at And any possible EPS accretion, etcetera, etcetera, while deciding this price?
Sure. Thanks. That's it from my side. Thanks for giving me the opportunity.
Thank you. The next question is from the line of Sandeep Shah from Equinor Securities. Please go ahead.
Yes. Thanks for the opportunity. My question is what further do Pankaj has asked? So if you look at the FY 'twenty one, You guys have set up a large threshold in terms of Omega deal wins. So do you believe in FY 'twenty two looking at the pipeline, You are not actually disappointed in terms of the mega deal pipeline shaping up as a whole.
Hi, thanks for the question. This is Savi. The pipeline is looking in good shape today. The pipeline has been replenished as we were discussing earlier from some of the wins. It's always difficult when you're looking at 1 which is the largest win in the history of our company.
But having said that, we feel quite comfortable The overall pipeline is in good shape and we'll continue to create market share gains by winning a large percentage of the digital transformation programs.
Okay. And second question to Nilanjan, Do you believe, Niraj, in FY 'twenty two, the large deal ramp up cost as a headwind could be higher than FY 'twenty one or it may be almost similar And this may not be an incremental headwind to the margin in FY 'twenty two. And just a follow-up on attrition. Despite giving a wage hike starting from January, a 500 basis points improvement in increase in the attrition looks Hi, Arun, because seasonality in terms of higher education doesn't comes in Q1, Q2. So what has led despite a weak hike with such a high increase in the attrition?
Yes. So quickly on the large deal, we mentioned in FY 2022, there will be actually a headwind like I mentioned in my opening commentary. There will be some marginal initial headwind as we ramp up on the large deals as well. So that's factored into the margin.
But, Guanyin, you believe that could be incremental versus FY 'twenty one or it's almost similar to FY 'twenty one?
No, since it's going to impact my margins for next year, Right. On a year on year basis, so Innovate is incremental.
Okay. On the this Praveen here, on the attrition, There are two factors, right? One is, of course, growth has come back to play after the Q1 After India, Q1 of last year due to pandemic growth was very subdued, but since then the growth has picked up not only for us but for completion as well. And second one is the growth also is largely in India, right? I mean, offshore On-site percentage has decreased dramatically for us.
Our on-site percentage is 23% is 24.3% and it was around 27% 4 quarters back. So it's a combination of both. One is growth itself has picked up and on top of it most of the growth volumes are happening out in India and Consequently, there is tremendous demand for talent and others still helping in higher attrition.
Okay, okay. Thanks and all the best in the line.
Thank you. The next question is from the line of Rishi Parekh from Nomura. Please go ahead.
Okay. Thanks for taking my question. Just one from my side. Obviously, assuring is preferred has improved significantly over the last year, right? Do you think this will sustain over a longer And if you could just help us understand the more longer term impact on revenue growth and margins as a result of this.
That's one and just a second piece as an extension of the earlier question. Cat rate tax rate increase in the U. S. From 21% to 28%. Do you See any impact on the budget?
Obviously, it's a long time away, but any earlier indication if you can provide in the leverage budget sentiment in general? Thank you. Thanks for your question. This is Salih. Let me start.
I think as you pointed out, we've seen a shift in the On-site offshore mix, especially in the last year, as Travin and Landon were sharing, it's a huge shift for the last few quarters. Looking forward, in the medium term, it's difficult to say. I think there are several factors Which will support it because it enables really the remote working to be applied in a broader context. But there are other factors where there's a lot of digital transformation work that we engage from our digital centers, from our digital studios, There are proximity centers that we built in Europe and the U. S.
And those have huge amounts of demand as well. So we don't have a sense today what will be this outlook going forward. There are both sides of what this can look like. At this stage for this financial year, given where the COVID situation is, My sense is at least in the 1st few quarters we will continue to see what we've seen in the last few quarters. In terms of the client spend, we have not seen any impact at this stage On the client IT spend, with respect to the tax change, we will as Lalande was sharing, Once the concept becomes converted into whatever regulation that is being put forward, we will see that affects it.
At this stage, you've not seen any change from clients. Do you foresee a potential impact or
Still very difficult to say even we're in the up cycle from a tech perspective.
We don't see we don't have a way of understanding whether there will be impact from that specific point or not. However, the overall theme is very positive in terms of tech spend as we were discussing in earlier Question response, there is huge amount of interest from clients on digital transformation And we see that our market share is improving and we are more and more connects with clients that we Gaining growth momentum on that basis.
Okay. Thank you.
Thank you. The next question is from the line of Ashwin Mehta from Ambit Capital. Please go ahead.
Hi, thanks for the opportunity. Yes. Just one question. What's the currency assumption that we've taken for our margin guidance?
Just give our overall margin guidance, we don't Okay. So would it be more on a
constant currency basis or say compared to last year or how should we think about it?
Tim, his margin is always on a reported basis. So all that is factored into our margin guidance.
Okay. Okay. And the second question was in
terms of attrition. So typically, we've seen historically a bump up in terms of Trishan, once the salary hikes are rolled out, so how should we think about the near term trends in terms of attrition? And In that context, how are
we looking at utilization which
are running at historical highs?
This is Praveen here. Given the high demand situation, that patient will probably be around this level For the next couple of quarters or so. On the utilization side, we are recruiting
Aggressively, we are also making hires from
the campuses and so on. So as we start getting in touch of pressures into the mix, the utilization will come down. The current utilization of 87.7 percent is very high and not what we are comfortable with. But over the year over the quarters, it will
Thank you. The next question is from the line of Mukul Gaut from Motorola Luthwal. Please go ahead.
Thank you. Nilanjan, just wanted to dig in a little bit on the margin guidance for FY 2022. Besides the impact of wage hike, How should we see the potential shift in subcon expenses? In Q4, it was running at a 5 year high level Despite continuous increase of ship to offshore and build up locally in U. S.
And will there be a material change in the cost of third party items for clients in FY 2022? It was around 3% level in FY 2020?
Yes. So I think the subcon cost The increase is largely coming out of the higher demand environment like Salyal said 4.6% demand. And unlike in the past, we've seen also a subcon increase more towards offshore because of this higher demand and requirement Not that much on-site. Of course, as now our recruitment engine kicks in, we get more attrition into control Looking at also the rate hikes as we see paring that down, this hopefully over the next few quarters, we can start moderating that as well. In the other part regarding the 3rd party costs, I think they are very, very small in the overall mix as well.
So really no color on Where that will go, it's a very small part of our revenue mix.
Sure. And Salil, qualitatively, You have been repeatedly mentioning that the demand environment remains one of the strongest in a while for you. Now is the broader macro environment who is on and again I'm not asking for guidance. You Think the opportunity for growth remains as strong as what you are seeing beyond near term or do you think
Yes. Again, as we discussed earlier, the guidance is for this financial year, but the demand environment The technology spend is really very strong. There's also a lot of large enterprises Shifting their tech spend to improve connects with their customers, improve their supply chain, improve connects with their employees. And so it's becoming in addition to cost on the P and L and investment as well. That gives us a lot of confidence The tech spend on digital with large enterprises is looking very robust and all the capabilities we have built Over the past several years, positions us well to continue to benefit from it.
So overall, my sense is This is a good environment. We are well positioned in that space and The connect with clients on digital technology spend is in a very good place on process.
Sure. Thanks for answering my question and best of luck for FY 2022. Thank you.
Thank you. The next question is from the line Ritesh Shathur from Nippon India Mutual Fund. Please go ahead.
Yes. So can you speak something, Are
there any areas of spend which got cut back in post COVID or pandemic and which has yet not come back, which can come back in the coming years? This is particularly in key large verticals.
Sorry, I didn't follow it. You mean from a client spend perspective or own internal spending? Client spend perspective, in your key large verticals, are there areas of spend which have
got cut in pandemic And which has yet not come back, which you think can come back in coming years?
So there, and Praveen might add, as Praveen had shared earlier, The several industries, for example, retail manufacturing saw some very early impact in Q1 Last year, almost every industry has each quarter improved Their positioning, their spend, at this stage, most of those are that. We have overall lower On the delivered exposure in that sense to some of the travel hospitality areas. So those will probably come back if we don't have Exposure lag. From our own industry exposure, most have come back through each quarter of last year. Praveen, if you want to add anything, please?
Yes, I think Praveen has probably responded to the question. The only thing is, as you said, In some sub segments, we continue to do some business, but in every sub even in those cases, brands are looking at some kind of spend just From a resiliency perspective and also in terms of coming up with new ways of engaging with the stakeholders, right? So even in those cases, the trend is coming back. But some of the like for instance, in manufacturing, I talked about the sub segments. It was one of the verticals which was mainly impacted.
But in the last couple of quarters, we have seen some spend come back, Both in industrial and automotive segment, whereas aerospace segment continues to be distanced. So our sense is it might take several quarters Before we see normalcy in aerospace, similarly in the services side, trial and after testing probably takes some time with Multiple days of pandemic happening. But even in those cases also, there is some amount of spend coming back As compared with 43, 44, 45.
And maybe your outlook on pricing, particularly within the digital segment given the kind of value addition you are giving to the client, if you can give us not next year, but more on medium term, is there a possibility of getting a price better pricing year on year going forward?
Let me start and then Lanjan may also ask Alana on it. We think the digital capabilities That we are providing and working with our clients are really high end and high quality. And we are working with our clients to Ensure that, that becomes more and more visible and then over time demonstrate that value, which can convert to I'm saying on the pricing. But as you pointed out, this is more a medium term view for us as we start to Demonstrate more impact on the digital areas. Anything you want to add, Nilanjit?
No, I think you covered it as well, Salil.
Okay. Thank you. That's all I have.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Hi. Thanks for that. So thank you everyone for joining us. We are extremely delighted with the full year performance In financial year 2021, 5% growth, which we believe is industry leading growth in this market, very strong margin And all of our parameters including free cash flow, dividend, share buyback, all pointing to Extreme care and concern for the business, our clients, employees and shareholders. Looking ahead, we feel this is a strong year for us, 12% to 14% growth, a really repositioned business focused on digital services where Infosys is recognized For these services and a strong outlook on margin, 22% to 24% for the full year.
I should look forward to that being the foundation of yet another successful year for our clients, our employees, the company and the shareholders. Thank you, everyone, for joining, and catch up at the next call.
Thanks, everyone, for
joining us on this call. Look forward to connecting.
Thank you very much, members of the management. Ladies and gentlemen, on behalf of Infosys, that concludes this conference call. Thank you for joining us and you may now disconnect your lines.