Ladies and gentlemen, good day and welcome to the Infosys Earnings Conference Call. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Mahindra.
Thank you, and over to you, sir.
Thanks, Margaret. Hello, everyone, and welcome to Infosys earnings call to discuss Q1 FY 'twenty two earnings release. I'm Sandeep from the Investor Relations team in Bangalore. Joining us today on this call is CEO and MD, Mr. Salil Parekh CEO, Mr.
Kaveen Rao Thank you, Mr. Milamjan Roy along with other members of the senior management team. We'll start the piloting call on the performance of the company by Salil, Praveen and Milamjan Please note that anything that we say that's separate 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 complete statement explanation of these risks is available in our filings with the SEC, which can be found on www.sec.gov. With that, I would now like to pass it on to Salim.
Thanks, Sandeep. Good evening and good morning to everyone on the call. Thank you for joining us today. I trust each of you and your families are safe and well. I'm delighted to share with you that we've had a landmark first quarter with robust year on year growth of 16.9% sequential growth of 4.8 percent in constant currency terms.
This has been the fastest growth we have seen in 10 years. We continue to gain significant market share with this growth being essentially organic and especially in the area of digital transformation. This is a clear reflection of Infosys' resilience and client relevance It has grown stronger with the unwavering commitments of our employees and our differentiated digital portfolio. I would like to thank all of our employees for their enormous dedication and contribution, Especially during another testing period with the 2nd COVID wave in India. Some of the highlights of our results are revenues were RMB 3,870,000,000, It is growth of 16.9% year on year and 4.8% sequentially in constant currency.
Our digital business grew by 42% year on year and now constitutes 53.9% of our overall revenues. We have broad based growth across all of our sectors, service lines and geographies. Financial Services grew by 22%, retail 22%, life sciences 21%, manufacturing 18%, The North American geography by 21%. Our large deals were at $2,600,000,000 Large deals are deals over $50,000,000 in value. Operating margins were strong at 23.7%.
We have a tremendous focus on our employees, especially related to the well-being And to the new talent expansion approach that we have with employees. Free cash flow was strong at 8 $3,000,000 18.5 percent higher than the same quarter in the previous year. Attrition increased to 13.9%. We had a net headcount increase of 8,000 attracting leading talent from the market. We remain comfortable with our ability to support our clients in their digital transformation journey.
Our sustained approach in building differentiated digital capabilities is helping us enable our clients to move with speed, Becoming agile and creates value as they connect with their customers, employees and partners with new digital constructs. For example, with the cloud becoming a strategic priority for businesses, more clients across industries Are engaging with us to take advantage of Infosys Cobalt solutions and services specialized on the cloud. With a strong start to the financial year, good large deals in Q1, strong pipeline, We are increasing our annual revenue growth guidance, which was at 12% to 14%. We increased it to 14% to 16% growth in constant currency. Our operating margin guidance Remains unchanged at 22% to 24%.
Last week, Infosys completed 40 years. I am delighted to share with you the vision of our founders and all the leaders that have helped shape the company Contributing to us being well positioned for growth and being a strong and consistent partner for our clients in their digital transformation journey. I'd like to thank the founders, employees, clients, shareholders and all our stakeholders for their ongoing guidance, support and contribution. With that, let me turn it over to Karim. Thank you, Salim.
Hello, everyone. Hope you and your family are well, safe and healthy. After a period of extremely concerning medical situation Caused by the 2nd wave of pandemic, India is gradually returning to normalcy. We have been extremely focused on employee well-being, Extending every possible help to overcome any medical situation of our employees. We have ramped up vaccination drive for employees and their families and so forth, we have vaccinated 58% of our employees in India with at least One shot.
We saw sustained growth acceleration in quarter 1 with year on year constant currency growth of 16.9%. Growth was broad based with 7 industry segments reporting strong double digit growth, Including the 2 largest financial services and retail growing more than 20% year on year. Operating parameters continued to improve during the quarter. Replication improved further to new all time high of 88.5%. On-site CapEx reduced further to a new low of 24.1%.
Overall sub count costs increased by 120 bps Due to stronger than expected growth, high attrition and demand for niche skills, we won 22 large deals In quarter 1, totaling RMB2.6 billion, RMB9 billion in Financial Services, 4, each in Retail and Energy, Utilities, Resources and Services, 2 in Manufacturing and 1 in Communications, High-tech and Life Sciences segments. Region wise, 14 were from America, 5 were from Europe, 2 from rest of the world and 1 from India. The share of new deals in quarter 1 was 30%. Client metrics improved meaningfully with 100,000,000 client counts Increasing to 34, an increase of 9 year on year. We added 113 new clients in the last quarter.
With growth coming back, demand for cost balance has also increased. Voluntary last 12 month attrition completely, but also added another 8,300 employees on a net basis, which is a testimony the strength of recruitment engine at Infosys and our status as a short after employer, we are taking all necessary measures Enhance employee value proposition and improve both talent acquisition and retention. However, we expect attrition to be high in the near term due to strong demand. In quarter 1, we onboarded over 10,000 college graduates And for the full year, we have increased the college graduate hiring target to 35,000 globally to ensure unconstrained planned deliveries. As communicated earlier, the salary revision for fiscal 2022 will kick off from July for majority of our employees.
Moving to business segments. Industry leading performance in Financial Services continued with steady increase in growth momentum, Aided by signings during the quarter, growth is led by U. S, especially in subsegments like Banking, Mortgages, Wealth and Retirement Services. With the gradual opening of the economy, we are also seeing significant improvement in the payment sector. There is visible acceleration in cloud adoption, and we are working with many of our clients on cloud migration, Cloud Management and other cloud related platform deals.
With the combination of our domain plus spec plus ops plus digital capabilities, We are well positioned as a full stack digital transformation player. Performance of the Retail segment improved meaningfully with both new deal signings During the quarter, as well as ramp up of previous deal wins, we are seeing aggressive investments by clients to uplift their digital capabilities. There is a huge opportunity for us to help them build omni channel capabilities to compete with the digital natives and right size their cost structure. Alliance continues to invest in analytics across supply chain, trade promotion fulfillment, personalization using new apps tools that drive Analytics with attraction of cost. Communications segment performance improved compared to the previous quarter Due to combination of fast signings and ramp up of prior one deals, with COVID accelerating the need for better connectivity, We are seeing improving deployment of 5 gs across the world.
We are working with our customers in advanced IoT use cases and products. Energy Utility Resources and Services vertical grew strong double digits along with impressive deal wins during the quarter. The overall outlook is improving across sub sectors and geographies we operate. Clients are slowly getting back to normalized levels of discretionary spending, Especially in areas involving customer experience, operational efficiency and associated legacy transformation, Digest security is also becoming important with recent incidents in Energy and Utilities segment. Growth in Manufacturing segment was Along with tailwinds from deal wins in the past few quarters, Infosys grew market share through the pandemic across all sectors in automotive, aerospace and industrial.
We see emerging opportunities on various fronts in the ER and D space, resulting from increased spending on digital in areas like industrial IoT, Cloud adoption, ITOT integration, making the manufacturing value chain smarter and faster. As mentioned earlier, We expect Bandlight deal to start ramping up in the weeks ahead. Life changer segment also continued to grow at strong double digit rates. Our recent offerings like personalized medicine solution for complex biocurative, commercial insights platform to help drive commercial efficiencies And digital health platform for patient engagement initiatives would help in accelerating digital adoption across pharma value chain. AirTag Digital to overall revenues increased further to 53.9% in quarter 1 with a very strong growth of 42 point 1% year on year in constant currency terms.
There is a pent up demand to restart delayed projects in addition to the continuation of the pandemic related drive So it's digital transformation of enterprise infrastructure and customer experience. Plans have recognized that some of the adoptions Made to their business are going to be permanent and they are increasing their investment in digital channels and self-service products and tools. In the last quarter, Infosys was ranked as leader in 10 digital service related capabilities across cloud services, Modernization, artificial intelligence and supply chain by industry analysts. With that, I will hand over to Nilanjan. Thanks, Navin.
Hello, everyone, and thank you for joining the call. I trust each of you and your families are safe and well. We are encouraged with our quarter one performance, which has significant and broad based acceleration in growth as we began the year. At 4.8% cc growth, we clocked the highest sequential quarter 1 revenue growth in the last 11 years. On a year on year basis, revenue growth equated to 16.9% in constant currency terms, which is the highest growth in any quarter over the last 10 years.
This growth is on the back of a relatively strong Q1 2021 performance, which was the peak of pandemic induced revenue impact. Operating margin for Q1 was 23.7 percent and increased by 100 basis points over quarter 1 'twenty one, Whilst being 80 basis points lower compared to quarter 4 'twenty one, the major components of the sequential movement were A 10 basis points benefit due to currency movement, a 40 basis points benefit due to increase in utilization, And these benefits were offset by a 50 basis points impact due to increase in subcon and third party costs and another balance 80 basis points impact Due to all of the costs primarily related to employee hiring, promotions, retention and well-being costs, EPS grew by 26 0.1% in dollar terms and 22.6% in INR on a year on year basis. BFO for the quarter improved by 1 day to 70 On the back of robust collections, consequently, free cash flow continued to increase and was €863,000,000 in quarter 1, An increase of 18.5% year on year. FCS convergence stood at 122 percent of net profit. Driven by healthy cash generation, Consolidated cash and investment was $5,070,000,000 after returning approximately $1,000,000,000 of final dividend and initiation of buyback.
Consequently, ROE increased to 29.3% in quarter 1 compared to 27.4% in quarter 4. I'm happy to share that ROE has increased by over 3.4% in last 2 years, driven by a robust capital allocation policy. Lease on cash balance continued to decline. The yield was 4.9% in quarter 1 compared to 5.1% in quarter 4 and 6.1% in quarter 1 last fiscal. Now let me talk about the progress made on the buyback plans.
We initiated share buyback on June 25 After securing shareholder approval during the ADM on June 29, out of the maximum buyback size of INR 9200 crores, Since June 30, we have completed INR 6.90 crores or approximately 7.5% of the buyback by end of quarter 1. During this period, we bought back 4,400,000 shares at an average price of INR 15.72. Since date, we have completed INR INR 15.42 crores of share buyback and bought back 9,800,000 shares at an average price of INR 15.69. As the pandemic situation is improving in many parts of the world and businesses slowly return to normalcy, we expect some of the discretionary costs, including travel etcetera to start normalizing in the coming quarters. In quarter 2, we will also roll out compensation hikes for majority of employees.
With the talent market remaining heated, we are anticipating continuing costs relating to employee retention, acquisition and well-being in the short term. However, given our focus on structural levers to improve efficiency and cost structure, we remain confident of our margin guidance span of 22% to 24% for the full year. Given that strong quarter 1 invisibility, driven by deal signings, backed by robust deal pipeline, we are increasing our revenue growth
Thank you very much. We will now begin the question and answer session. Participants are requested to use handsets while asking a question. The first question is from the line of Moshe Katri from Wedbush Securities. Please go ahead.
Hey, thanks and congrats on very strong results. So most of the questions we're getting this morning were around margins And the levers in the model, and I guess there's a lot of focus on wage inflation that's picking up and attrition that's picking up. Maybe you can talk a bit about the levers in the model and how do we get that comfort that the 22% to 24% EBIT margin range is sustainable beyond this year. And then should we assume that, I guess, the second half should have Maybe some less pressure on margins given some of the normalization on the bench. Is that the right way
to look at it? Thanks a lot. Yes. So, Moshe, so I think as we had given the guidance at the beginning of this year Of 22% to 24% and coming on the back of 24.5% last year, I think you were very clear that there would be some headwinds, which We had got the one off benefit during FY 2021 and we articulated that clearly in terms of travel, facilities, some other discretionary costs. The deferred costs like wage hikes, promotions, etcetera, which were put on hold, and we had clearly That will be an impact and a headwind as we look into FY 2022, and that was really factored into the 22% to 24% Margin as well.
What has changed slightly has been, of course, the demand which has picked up. And like I always say, it's better that demand chases supply and supply rather than supply chasing demand because in the long run, it's much better to fulfill demand as it comes. We can continue to work on our cost optimization levers and that's why, of course, our guidance also goes up. We have seen these small headwinds during the Your end in terms of retention costs going up, some impact on subcons. But for instance, we just announced We will take now 35,000 valid graduate sites that will help us to fuel the pyramid, help us in cost optimization, and of course, we continue To look at the other avenues of automation, on-site offshore mix, etcetera.
So I think our 2022 to 2024 is we're quite confident on that. Waz, there may be these short term impacts, but I think some of them like subcons, etcetera, once hiring comes back on our own, We should see some benefits there. So I think in our overall model, we remain quite confident within the 2022 to 2024. But like I said, I mean, the most important thing is that demand is chasing supply. This is a situation we really want to be in rather than the other way around.
Understood. And just as a follow-up, given the fact that digital is almost 54% of revenues, Should we assume any sort of pricing power coming up from that part of the business, especially based on some of the
Yes. So I think, as you know, there's been 2 structural impacts, I think, with pandemic. 1 is, of course, the entire workforce transformation and ability basically to work any part of the world, whether nearshore, offshore, on premise. And the other one is, of course, this whole digital transformation impact, which is very, very fundamental to how the clients of our consumers are interacting with Dan, this is just not about mainline brick and mortar retail. This extends to manufacturing.
It extends to financial services, insurance. And I think a lot of our clients fundamentally realize that to support and fuel the spend towards new digital transformation, A lot of that can come from cost optimization, which in a way speaks to the on offshoring trend. And COVID has demonstrated that We can then strengthen this requirement from any part of the world. And that savings can be fueled back into digital transformation. So that's very The demand level is very, very good news.
And also, I think now a lot of our conversations is also more navigating towards value and that The value we are deriving for our clients, right, whether it's on the consumer side, it's on retention side, it's on supply chain logistics and how we position ourselves, Not just about rate side of the price per hour, but more about more innovative ways of pricing, where it's Linked to outcome, linked to results of our clients, and that's the way we think in future this can help us in pricing. This is just about started the work we are doing. And we think over the next few quarters and more structurally, we may be able to get some details around this.
Thanks for the color.
Thank you. The next question is from the line of Divya Nagarajan from UBS. Please go ahead.
Thanks for taking my question and congrats on a very strong quarter and the guidance, Dave. Just a follow-up to the earlier question on pricing. I noticed that you are talking about structural movements in pricing, but At the press conference, I think Salil had pointed out that pricing was more or less stable. Am trying to understand why we wouldn't be seeing a better pricing environment given how strong demand is and the fact that there is a fair amount of supply pressure across Pretty much every part of the digital value chain. That's my first question.
Thanks, Divya. This is Salil. I think the point you make Earlier in the press conference, the question was on how we've seen the pricing in Q1 from what we see in terms of And also building on the previous question. I think as Nilanjan was sharing with you, we believe we have An extremely differentiated digital portfolio, and we believe that, that creates a lot of value for our clients. We are very active in making sure that we demonstrate and communicate that value.
We will now see over time also because of the supply constraint, but also because of the digital value, how that translates. We don't want to create that's one of the strategic levers that Anil Anjal has talked about, we've all talked about in the past. We feel that, among others, gives us good comfort for our guidance band, 22%, 24% on operating margin. We will see how that plays out and especially with the supply constraint. If that gives us more Leverage in the future, of course, that will become reflected in what we see in the business.
Got it. And I noticed that the net new deals were a little bit on the lower side Well, I do appreciate this is a quarter and you could have fluctuations. How do you see the deal pipeline on your net new TCV for the rest of the year, please.
So, Bhai, you're absolutely right. I think these are Quarterly fluctuations, we look really to those sort of stats on a longer time frame. We saw last year The net new was significant as we looked at the overall annual number. The pipeline looks good and strong. There's good focus on new deals.
There's also, of course, good focus on ensuring we continue where we are and expand into that portfolio. So no visible markers to change that. We will probably look to replicate what we've done in the past few years Net new has been a critical factor and it remains something we look at proactively into the pipeline.
Sorry, but just a quick follow-up to that. Has the number of mega deals in the pipeline gone up since in the last few quarters?
So, Bahir, we don't provide some more color on the specifics of the pipeline. Suffice it to say that the Overall value of the pipeline is extremely good, nice increase from the previous quarter, and we see that continuing to increase. And the pipeline is comprised of a mix of the different types of large deals, the let's call it medium, the large and the very large.
Thank you. And I'll come back for follow-up if there is time. I wish you all the best for the rest of the year.
Thank you.
Thank you. The next question is from the line of Sudhir Goontapalli from ICICI Securities. Please go ahead.
Yes. Good evening, gentlemen. Congrats on a great quarter. My first question is to Saleel. Saleel, until DSP or so, Infosys was holding the pole position in the IT industry in terms of growth, but the next decade has not really I doubt the way one would have hoped for.
Again, over the last couple
of years, even before the start of COVID and of course, after the start
of the pandemic as well, Infosys has been outperforming competition on growth and that too by a wide margin. And you have been talking about very confidently talking about market share gains from competition. So how confident are you on sustainably driving the company to the pole position once again over the next decade?
So thanks for your question. I think that the way we are looking at this is this growth, 16.9%, 4.8% is Really the fastest in the past 10, 11 years. It's essentially organic growth, so we feel extremely good Because that's a good metric as of course you know well that clients are preferring Infosys And that's the ultimate test in this market. So we feel comfortable that the capabilities that we have built In that digital portfolio and this extreme dedication of our employees in a very difficult period over the last several quarters It's combining to give us that outcome. So the focus remains on client relevance And therefore, the outcome metric is growth.
We will see how the pole position thing plays out over time.
Certainly. And my second question, actually over the previous decade, whenever things started looking up, we say some of the other hiccups, How confident are we that this time around it will not be the case and the entire focus will be in terms of exceeding the industry leadership?
I didn't follow that question, sorry. Could you just Rhee, can you repeat the question? You can't follow it.
Yes, yes. I was saying over the previous decade, whenever things started looking up,
we faced some of the other hiccups.
But this time around, how confident are we that it
will not be the case
and there will not be any such risks? And probably the entire focus will be on achieving industry leadership.
So there, if I follow it, it's still a little bit unclear with the sound, I mean. Our focus is to keep our attention to clients. We have an extremely motivated leadership team. The Board is extremely supportive, very strategically minded and really give good guidance And support to the management team and the broad leadership. So my own sense is we keep this attention to our clients and building out the digital capability and the rest will follow from that.
Okay. Thanks, Harish. All the best.
Thank you. The next question is from the line of Pankaj Pappur from CLSA. Please go ahead.
Hi, thanks for the opportunity. Salil, my first question is also on this net new deal ECV. I think in the press meet you had mentioned that the focus of Clients are now shifting away from cost optimization. So does it mean that clients are now taking longer on the To decide on the deals as well as in terms of the deal construct, is that what is leading to maybe a softer legacy deal for us?
The
quarter on quarter view of that percentage is always A little bit up and down. What we see in the pipeline is Significant amount of activity where clients are looking at moving on the digital transformation program As also working on areas which relate to cost efficiency, as also we are seeing Opportunities which we've discussed in the past are vendor consolidation. We don't see that the timeline has changed In terms of deal movement, nor do we see some different sort of criteria in terms of The types of deals or the pricing, what is clear is the broad economic growth In our end markets, which is coming back rapidly, is allowing for many industries to go through the transformation, Companies within industries are accelerating, companies which had lower digital presence are going faster to catch up and leapfrog, So all of those things bode well for The technology spend where we are positioned quite nicely in that technology spend. Pankaj, is your question answered?
We just lost this line, sir. We'll move to the next question. The next question is from the line of Ashwin Mehta from Ambit Capital. Please go ahead.
Hi, thanks for the opportunity. One question in terms of the guidance. So if I presume Daimler has not contributed to revenues till now, And even if I build in the numbers that are appearing in the press for that deal, the implied CQGR over the Next three quarters appears to be pretty soft at between 0.6% to 1.8%. So are we building in some Conservativeness in terms of our guidance or anything
that makes us a little cautious here?
So on the guidance, as you've seen on revenue growth guidance, we've increased it by 2 points, 12 to 14 to 14 to 16. It's, I think, demonstrating our confidence in what is going on With respect to the demand outlook and with respect to the deals that we have done for this quarter and also in the past, On the specific clients and their revenue mix, I won't comment, but I will say that we don't see really any softness in what we see in the coming quarters.
Okay, okay. Thanks a lot. And just one more. Given the fact that you've largely We added the pressures this quarter. Do you think and you are expecting the supply side pressures or attrition to increase further.
Do you think the subcontracting expenses will further get elevated from where they are?
So on the subcontractors, we today have an extremely Attractive talent proposition where, as you saw with the 8,000 sorry, with the 8,000 people we added, Net additions, we are managing extremely well to attract good talent. What we will ensure to do over this next Quarter and, of course, in the quarters to come is to make sure that we are at the forefront of fulfilling the demand. In terms of subcontractor, we don't specifically model or forecast that whether it's up or down, but we have the flexibility To do all of that, plus our cost levers and margin levers, to ensure that our guidance will be in the range that we have given of 2022 to 2024.
So, Sahil, just a follow-up to this. You had around 8,000 people get take added. From what I heard, if I heard it correctly, there were 10,000 freshers onboarded this quarter. So essentially, the hiring seems will be largely freshers and they'll possibly take some time in terms of becoming productive. So, do you think near term the hiring will be much more Towards lateral to fulfill the demand that we are seeing?
Yes. So the by 8,000, while you're seeing the figure of pressure of 10,000, I think there's a big lateral hiring as well. And the attrition, of course, is a way later because pressures won't reside. So in that sense, we have a very strong engine. The first one is, of course, pressures.
That's after that followed by laterals. And then in a way, in a case, the top up in a way is the subcons. So all the 3 will accelerate. Like I said, it's very, very important to meet demand now, right? That is absolutely critical.
And the good thing is we have not let down any of our clients. And Salil, you talked about earlier that we are seeing strong demand outlook and a lot of clients who we've met, as Ben had mentioned. And therefore, very important to get that Out of the door and then figure out our cost structure, subcons, etcetera, in due course. And I think that's something we're quite comfortable with. We continue to remain a brand of choice for new talent, and that's a very strong proposition which we have.
Thanks a lot and all the best.
Thank you. The next question is from the line of of Keith Bachman from Bank of Montreal. Please go ahead.
Hi. Thank you very much. I wanted to ask about The margin guidance for the current fiscal year, if you take the guidance range of 22% to 24%, I just wondered if you could break down what are the key drivers for the year over year decline from what you Already reported for FY 2021. So I just wondered if you could break that down into the bigger pieces. And what I'm really trying to understand is How much wage inflation is impacting margins guidance for the year Versus other factors such as mix and particularly of the ramping of the large new deals, if there's any Kind of comments you could help us understand.
And then I have a follow-up question, please.
Yes. Sure. So I think, again, like I said, it's important, firstly, to go back even before the pandemic into FY 20 in a way when we had given this comfort range of 21 to 23. And as we moved into FY 2021, like I mentioned earlier in the call, We saw a lot of these one off benefits, right? It was the discretionary spend, travel came down quite sharply, Facilities cost of people started working from home, marketing, some suspicious spend like that, the deferral of the pay hikes in last year, The promotions and therefore, although we were at 24.5%, we were very clear at starting the guidance at the beginning of the year that this would fall With the headwinds coming up of this year as many of these costs reverted back to normal, we would roll out our pay hikes in January and in July, both of which packed again.
And therefore, our guidance of 22% to 24% versus the 24.5% was clearly reflective of these headwinds coming up, right? I think more than once we've talked about it. As we look ahead, we've factored in both the wage hikes. Yes, Wage is always the number one player in margins. We don't split out the impact of wage or deal mixes.
But nevertheless, the largest impact on the margin movement on a year on year basis will be on wages. But despite this, we know we are very comfortable within the 22% to 24%. The levers which we Continue to employ automation is a massive lever in terms of our cost optimization of taking our people from projects and redeploying them. The on-site offshore mixes, I think we are very unique in creating an on-site pyramid. Historically, Most IT services companies have a very, very steep on-site pyramid.
Our 6 hubs in the U. S, Nearshore businesses, I think that helps us build a much more flatter pyramid in a way it's semi mimicking what we have in the offshore geographies. We are going to hire 3,000 players and we're going to hire special accounts outside of India. So all these will help us in the future in terms of Taking some of the wind out of these headwinds which are coming our way.
Okay. Thank you very much. And my follow-up question, if I could, is similar. As you think about the year unfolding, Do you think attrition moves lower from here or stays the same or goes up? And similarly, as you think about the on-site mix, Has continued to move lower, so your offshore mix continues to move higher.
Does that how do you think that Unfolds through the year, does that mix of onshore, on-site stay where it is, becomes more favorable or any comments on how attrition and on-site, onshore mix Might move as we look for the balance of the fiscal year. That's it for me, many thanks.
Yes. So I think on the attrition, like I said, I'd rather be in a situation where demand is saving supply than the other way around. And therefore, that's fundamentally a good news for the industry. And I think it's important to realize that it takes time for the supply chain of the industry to catch up. Fundamentally, the only way new net demand can be In a way, it's all of this through pressure counts, right?
Otherwise, it's a zero sum game. My attrition is somebody else's lateral and somebody else's attrition is my lateral. So Fundamentally, the only way this demand can be serviced is through freshers. And as you know, most of the freshers historically, the college campus freshers are In a way, contracted 6 months to a year out. It is only now that we as demand assembly surged that we are looking at new ways of Getting freshers on, in the last call, we had only mentioned we would take 25,000 freshers.
We've upped that up to 25,000 freshers and started a completely new Currently, pressure hiring program off campus through the legal services. So I think there will be some gaps in the short term gaps in terms of once the supply chain But like I said, this is good news. It fundamentally there is this large explosion of demand which you're seeing across. From that sense, we our job is fundamentally to continue feeding the demand, whether it is through the pressures, it's through subcons or through the laterals. And I think we've already hired 8,000 net despite the attrition high attrition in the quarter.
The second part of the question was Yes, on-site, also, Amit. Yes, I think, again, we've seen this massive change over the last 3 years. Firstly, it came from 30 To 27 and within 1 year, from 27 to 2024. And again, we talked about it earlier in our guidance that we would probably see a little bit of This easing out as travel, etcetera, opened up. But I think the secular trend definitely is it should continue in the long run.
And a big Impact of the COVID has been that clients have been able to see that work can be performed across the globe. It doesn't necessarily doesn't have to be seen in their own workforce. It's with us that work doesn't have to necessarily be performed in front of them on-site. On time, it can be same time zone, Different locations, same time zone, near shore, it can be offshore. And I think that's in the long run, I think very, very positive for the So, it's housing industry.
So, we think, technically, this should improve. But in the short term, there can be these stops and gaps as well. Okay. Thank you.
Thank you. The next question is from the line of Gaurav Flateria from Morgan Stanley. Please go ahead.
Hi, congrats on great execution. The first question is on the BFSI. We have seen a very sharp Recovery in North America Financial Services revenues compared to pre COVID level, whereas Europe is still just about recovered to the same level. So Is it fair to say that our entire market share gain is largely concentrated in North America? Why there is a dichotomy?
Any color on that would be helpful.
Yes, this is Praveen here. A big part of the growth has definitely come from North America. And primarily in sub segments like banking, mortgages and wealth and retirement services.
Hello.
Okay. I thought I had responded. I mean, I'm confirming that most of the growth has been primarily from Why there is a dichotomy
in the performance between Europe and North America?
I think it's mostly to do with maybe it's lesser demand in some of the Banking plans in Europe and in some cases, we have won the deals, there is a delay in ramp ups as well. I don't think it's a secular trend because in this space in the last 6 to 8 quarters, we have demonstrated very strong growth consistently. There have been times when we have seen growth led by U. S. Side of the equation and there have been times when we have seen much So I don't think I mean, it's not a secular trend.
We are not seeing any specific softness or anything with any specific plans in Europe. It is more a question of delayed ramp ups and Thanks like that.
Okay. Second question is on margins. What really are the drivers that can take you to the upper end of the guidance For the full year, what would be those 2 or 3 key factors? Is it growth coming towards upper end of the guidance? Is it digital growing continuing to grow at This kind of a rate, just trying to understand what are the variables which can take you to the upper end of the guidance?
Thank you.
So I think we've given overall guidance of 2022 to 2024 and not what is going to be the quartile of that, And we remain quite confident that we operate within this. Our levers are quite well known. We've mentioned about automation, the mix, The pyramid, subcon, operating leverage, we've seen a lot of benefit of operating leverage over the last year itself So on our bottom line, so there remain multiple levels. And like I said, for us, it's to stay within that, We're quite confident without giving any quartile targets, etcetera. Thank you.
Thank you. The next question is from the line of Ankur Rudra from JPMorgan. Please go ahead.
Thank you and congrats on a
good start to the year. On the first question, do you
think looking at the demand environment that you'd want to be a bit more flexible On where your margins land and how you're optimizing for growth in investments compared to
the plans we had at the start of the year? Ankur, this is Salil. Thanks for the question. I'm not sure I fully Follow it, but just to first respond, then we can clarify. The way the demand environment is shaping up, Which I know you see very well, is extremely strong.
And our approach is to make sure that the Capability sets we've built are available to our clients to help them with their digital programs and their Automation programs, within that, we, at this stage, are not trying to fine tune What part will go more or less? We see that demand as a holistic picture, and we are driving to make sure We work with our clients in doing that. What is clear, as Nilanjan shared a little bit earlier, is That we have several levers in the operations toolkit, if you can call it that, Which we are deploying so that each of the streams of work, wherever they start from, Are then further optimized and that gives us the confidence because of those levers that we will land Fairly well, fairly clearly within the margin band. That's the approach that we have in place today.
Thank you, Salil. I think part of my question which has not been probably completely addressed was, do you think for example the margins came in lower in 1Q versus what you And hence, you are being a bit more flexible in what you said, chasing demand as opposed to optimizing for margin?
No, I think my sense is We had shared over the last year and I know Nilanjan had also shared that many of the actions we took Last year, we're giving us or many of the outcomes last year were one time benefits. For example, on the travel, Of course, the on-site offshore mix has moved much more in a secular way. The fact that We reviewed several other cost line items in the March, April, May time frame last year with us. Different view to where things are going. So we didn't think, at least in our minds, that the margin was going to be different.
We started the year also with 22% to 24%, even as we closed out the previous year, 24.5%, Because we could see the salary increase, which we had done later than originally planned in January, The 2nd salary increase of July, all of those were coming up. So in that sense, we are not changing, As you call it, chasing something more because this margin has come in low, we had this view of the margin as we started the year. The demand outlook has actually become stronger. So we feel what we started with 12 to 14 with what we are seeing in the way These deals are working and there's a lot of activity where clients are coming to us. To give you one example, 2 weeks ago, I was in a client discussion where they want us to expand what we do within that Our client portfolio, within this one client, it could be 30%, 40% expansion.
And these are just anecdotally which add up and my colleagues, all of our sales team are having those sorts of discussions.
Appreciate the color. Just one follow-up if I can. Do you think the supply situation that you're facing in the market, which you elaborated on, you think that had any bearing on the signings in the quarter? That's part 1. And part 2 is, is that having an is the supply situation having an impact on the
What we are seeing on the supply situation, again, If you look back over the last 5 or 6 quarters, and this is something I've heard from many clients, We feel that we have really consistently supported and delivered without any Real constraint. And so we are seeing a benefit of clients saying, look, we'd rather you scale up with us. So the supply situation, however we put it, I feel is coming to a benefit to us Because we have, as Praveen has shared in other forums, an incredible brand which attracts talent. We have an incredible training capability and all of those things are not short term things. These you cannot develop over a quarter.
That helps us to bring in the talent. That's what clients see. And so, yes, there is a supply Constrained because there is a huge demand, but we are still seeing good growth and in fact expanding improving our growth guidance. Thank you, Mr. Nagar.
Thank you. The next question is from the line of Sandeep Shah from Acura Securities.
The question is Sorry to again halt on the margin. Just wanted to understand, is it the guidance factoring in some amount of pricing 3 is maybe in the later part of this financial year or the margin guidance is independent of this? Because if I look at rate hikes I have still not come into the numbers. Accuracy is going up. Utilization at all time high.
Even the offshoring looks at So just wanted to understand the guidance is baking in surprising increase or it's independent of the same? And second, just a bookkeeping question. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] If I look at the unbilled revenue in this quarter, on a Q on Q basis has gone up by 12 percentage point. Anything to read in the same though free cash flow generation Yes. So I think on the margin side, like I said, there are continuous levers which we have, The pyramid, on-site offshore, pricing, subcon, upgrading leverage, and I think all of that is built into Our models and how we look for the quarter ahead.
And in that basis, I think we are quite comfortable in the 22% to 24 Range that some of these box headwinds come as well. So I think that we're quite clear on that. The second question on the unbilled, I think there is Some seasonality always which we see in quarter 1 always if you see that. And usually that starts So nothing really concerning. I mean, I think the overall free cash flow, our DSO has come down as well.
So I think Yes, I think on percentage of revenue, we are same as the previous year as well. So that's the year we indicated. So, Milans, just a clarification. So in your guidance on the margins, you are beginning with some pricing increase for FY 2018. Yes, I mean, a lot of things are going.
It's not like I know what will be the pricing environment to the key in the Q4. We know some of the initiatives on pricing. You know some of them will come through, some of them won't come through. There will be some new cost pressures. There will be other levers.
So you have to be very dynamic and fleet footed in our industry To continue to manage that and you use probabilities of what can work, what won't work, something some levers will over deliver, some So all that is factored in as we forecast for the year ahead. Okay. Well understood. Thanks and all the best. Thank
you. Thank you. The next question is from the line of Dipesh Mehta from MK Global. Please go ahead.
Yes. Thanks for the opportunity and congratulations for strong execution. First question is about the margin related thing. Now, Daimler deals, can you quantify what will be the impact of Playtech and Daimler deal in Q2? 2nd question is also related to margin, but slight medium term.
Now 22% to 24% margin trajectory, which We are confident to defend for this year, but if 1, 1, 2, 1 question from medium term perspective, do we think On the margin question, Daimler, large deal is all factored in. We don't break out the impact of Daimler. We look at Cost optimization across projects, we look at the various levers we've talked about, and that in a way is all built in To our 22% to 24% guidance as well. On the digital, the question was On digital, with respect to this is Salil. I think your question was because it's becoming larger, Will that give us the opportunity to have a different higher margin?
We certainly I see that the digital business is at a higher margin than our company average today. However, the guidance that we are giving for this financial year for operating margin, which is 22% to 24%. There are many levers as Nilanjan shared. And of course, there are several areas which increase the cost as well. All of those will balance out.
And at the end of this year, we will provide the view for the following year, But we don't have any particular view on that different number at this stage.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Thank you. This is Salil. So first, thank you, everyone, for joining us for this session. I wanted to reiterate just a couple of points. 1, On the demand side, we see a good environment and with all of the points we've discussed and the way we see the market, We've increased our growth guidance with from 12% to 14% to 14% to 16% for this year.
On the margin, we have a set of levers which we have deployed and are continuing to deploy across the board, whether it's the mix, Whether it's the utilization, whether it's a subcontractor usage, whether it's the overall role mix and pyramid, Whether it's now more value and pricing on demand for higher demand skills, plus There are some factors which relate to employee costs and some of the travel coming back. When we mix All of that together, we have confidence that we will be in the margin guidance of 22% to 24%. We will continue to drive the business in that direction keeping in mind our clients, employees and shareholders. We look forward to a very exciting and successful year. And thank you again for joining us.
Thanks. Look forward to connecting with you again. Have a good day.
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.