Hello everyone, and welcome to Infosys earnings call for Q4 and FY '24. Joining us on this call is CEO and MD, Mr. Salil Parekh; CFO, Mr. Jayesh Sanghrajka and other members of the leadership team. We'll start the call with some remarks on the performance of the company, subsequent to which we'll open up the call for questions. Kindly note that anything we say that refers to our outlook for the future is a forward-looking statement, which must be read in conjunction with the risks that the company faces. A complete statement and explanation of these risks is available in our filings with the SEC, which can be found on www.sec.gov. I'd now like to pass on the call to Salil.

Thanks Sandeep. Good evening and good morning to everyone on the call. For the financial year '24, our revenue growth was at 1.4% in constant currency terms, our operating margin for the full year was 20.7%. For large deals, we had an excellent year and the fourth quarter. For the full year, we were at $17.7 billion in large deals, comprising of 90 deals. For Q4, we had $4.5 billion in large deals. This is the highest ever large deal value in the financial year for us. This reflects the trust our clients have in us. We see good traction in cost efficiency and consolidation deals. For Q4, our year-on-year revenue growth was flat in constant currency and declined by 2.2% quarter on quarter. Our operating margin for Q4 was 20.1%. We had a one-time impact in Q4 that Jayesh will comment on. We're seeing excellent traction with our clients for generative AI work. We're working on projects across software engineering, process optimization, customer support, advisory services and sales and marketing areas. We're working with all market-leading open access and closed large language models. As an example, in software development, we've generated over 3 million lines of code using one of generative AI large language models. In several situations, we've trained the large language models with client-specific data within our projects. We've embedded generative AI in our services and developed playbooks for each of our offerings. We're committed to ethical and responsible use of artificial intelligence. We became the first IT services company globally to achieve the ISO 42001:2023 certification, testifying to a commitment to excellence in AI management. All of our work in AI is part of our Topaz offering. Our cloud work is growing well. We continue to work closely with the major public cloud providers and on private cloud programs for clients. Cloud with data is the foundation for AI and generative AI and Cobalt encompasses all of our cloud capabilities. Data is the other foundation for AI and generative AI. We see data structuring, access, assimilation critical to make large language models and foundation models work effectively, and we see good traction in our offering to get enterprises' data ready for AI. We are delighted to announce a strategic acquisition of a company in the engineering services space this quarter. Some examples of the work we are doing for a large U.S. company, we've engineered an enterprise-grade generative AI platform that has been rolled out to over 60,000 users. We're working with a large bank and helping them roll out an internal enterprise-wide, company-specific generative AI instance of a knowledge assistant. We continue our focus on our margin program. We saw a good impact of this during the financial year. Our employee attrition was low at 12.6%, down from 20.9% in the previous year. As we look at the start of the financial year '25, we see the discretionary spending and digital transformation work at the same level. We see the focus on cost efficiency and consolidation continuing. Our large deal wins in the prior financial year will help us in financial year '25 for our revenue. We also see normal seasonality as we plan this financial year in terms of guidance. With that, our revenue growth guidance for financial year '25 is 1% to 3% growth in constant currency. Our operating margin guidance for the financial year '25 is 20% to 22%. With that, let me hand it over to Jayesh.

Thank you, Salil. Hello, everyone and thank you for joining the call. At the outset, I must say this is an incredible privilege and honor to be the CFO of this iconic organization and would like to thank Salil, Nandan and the entire board for their confidence in me. As I step into my new role, my areas of focus will be further strengthen collaboration with business to increase our market share, work with Salil and the rest of the leadership towards tighter execution and continue to steer Maximus program, expand operating margins and improve cash flow in the medium term. Coming to our Q4 results. Revenues were flat year-on-year in constant currency terms, sequentially, revenues declined by 2.2% in constant currency and 2.1% in dollar terms. During the quarter, we had a renegotiation and rescoping of a contract with one of our financial services clients, which led to a slightly over 1% impact on Q4 revenues. While the part of the work got rescoped, over 85% of the contract is still with us. FY '24 constant currency revenue growth was 1.4%, and normalized for the impact of revenues from the FS client, the revenues for FY '24 were within our guidance range of 1.5% to 2%. Operating margins for Q4 were at 20.1%, a decline of 40 bps sequentially, bringing the FY '24 margins to 20.7%, well within the guidance band of 20% to 22% for the financial year '24. The major components of Q-o-Q margin works for the quarter are as follows: headwinds of 180 bps comprising of 100 bps from the one-time impact of contract renegotiation and rescoping; 80 bps from additional impacts on salary increases, higher brand building and visa expenses, partially offset by tailwinds of 140 bps, comprising of 60 bps from lower post-sales customer support, lower provisions for client receivables, et cetera, 40 bps from Project Maximus and 40 bps relating to Q3 impact from cyber incidents. Headcount at the end of Q4 was over 317,000, which led to a further increase in utilization excluding trainees to 83.5%. LTM attrition for Q4 reduced further by 0.3% to 12.6%. Unbilled revenues dropped for the fourth consecutive quarter to $1.7 billion. This is a reduction of $291 million in FY '24, which is reflecting in increased cash flows. Free cash flows for the year were $2.9 billion, which is a 14% increase over FY '23. Free cash flows for Q4 were extremely strong at $848 million, which is the highest in the last 11 quarters. This is a result of our focus on improving the working capital cycle. DSO for the quarter was 71 days compared to 70 days in Q3. Consolidated cash and cash equivalents stood at $4.7 billion at the end of the quarter. Yield on cash was at 7.1% in Q4 and return on equity improved to 32.1%. ETR for the quarter was 22.2% after accounting for favorable orders, we expect the FY '25 normalized ETR to be within 29% to 30% range. We had another strong quarter in terms of large deal wins, $4.5 billion of TCV from 30 deals including two mega deals. 44% of this was net new. We signed eight large deals in communication, six each in BFSI and retail, four each in manufacturing and life sciences, two in URS. Region-wise, 16 were from North America, 10 from Europe, and four from the rest of the world. We ended FY '24 with our highest ever large deal of TCV at $17.7 billion, comprising of 52% net new and eight mega deals. This is a clear validation of the relevance of our service offering, deep client relationships, and leadership strength. The board has declared a dividend of INR20 for FY '24 along with a special dividend of INR8 per share. With this, the total payout for FY 2024 will be 85% of FCF in line with the capital allocation policy. The Board has approved the capital allocation policy for the next five years. Effective FY '25, the company expects to continue the policy of returning approximately 85% of free cash flows cumulatively over a five-year period through a combination of semi-annual dividends and special buybacks, subject to applicable laws and the credit approvals. Under this policy, the company expects to progressively increase its regular dividend per share. Project Maximus, our comprehensive margin expansion program continued to run well across five pillars. This is reflected in more stability in margins for FY '24 over '23 compared to the previous years despite the headwinds from lower growth in FY '24. Some of the tracks where we have made progress are value-based selling, automation, and AI and sub-tracks within the efficient pyramid like lower sub-cons, higher utilization, and higher ratio. We continue to focus on optimizing various tracks to increase operating margin in the medium-term. Coming to the industry verticals, we continue to see macroeconomic effects of high inflation as well as highest interest rates in BFSI. This is leading to cautious spend by clients who are focusing on investing in services like data, digital, AI, and cloud. Financial services firms are actively looking to move workloads to cloud, pipeline, and deal wins are strong and we are working with our clients on cost optimization and growth initiatives. Manufacturing witnessed double-digit and broad-based growth in FY '24. There is increased traction in areas like engineering, IoT, supply chain, smart manufacturing, and digital transformation. In addition, our differentiated approach to AI is helping us gain mind and market share. Topaz is resonating well with the clients. We have a healthy pipeline of large and mega deals. In retail, clients are leveraging GenAI to frame use cases for delivering business value. Large engagements are continuing S/4HANA and along with infra, apps, process, and enterprise modernization. Cost takeout remains a primary focus. Clients in the communication sector continue to be cautious with growth and challenges. New CapEx allocation remains under check, while the budget remains tight. We see opportunities in cost takeout, AI, and database initiatives. Growth in coming quarters will be led by ramp-ups of previously won deals. URS clients are taking a cautious approach with a focus on cost optimization in AI-driven efficiency. We are witnessing more deals around vendor consolidation and infra-managed services. The deal pipeline of large and mega deals is strong due to our sustained efforts and proactive pitches of our cost takeouts and digital transformation, etc., across the subsectors. Macro concerns in Hi-Tech continue leading to delays in deal closures, decision making, and planned repurposing spend. Discretionary programs are kept on hold. In FY '25, therefore, we expect growth to accelerate from FY '24 levels in financial services and telecom verticals due to large deal wins. The manufacturing sector, while still showing healthy growth, we'll see lower growth than FY '24. Hi-Tech is expected to remain soft. Driven by our current assessment of the business environment, including continued software, discretionary spend, and ramp-ups of mega deals won earlier, we expect FY '25 growth to be 1% to 3% in constant currency terms. Our operating margin guidance for the year is 20% to 22%. Guidance for FY '25 does not factor in today's acquisition of in-tech. With that, let me open the call for the questions.

Thank you very much. The first question is from Moshe Katri from Wedbush Securities. Please go ahead.

Thanks. And Jayesh, welcome and congratulations in terms of your new role and interested…

Sir, sorry to interrupt you, your voice is not coming clearly. May I request you to speak a little louder please?

Yes. So my first question has to do with the June and September quarters that tend to be seasonally the strongest in the industry. Can you provide any color on sequential growth for March and June given your guidance for fiscal '25? Thanks.

So Moshe, this is Jayesh here and thank you for the wishes. If you look at within our guidance range of 1% to 3%, we expect normal seasonality's, which means that H1 would be stronger than the H2.

Okay. And then given focused, you indicated that the fact that - the Fed's cutting rate is going to be kind of delayed and pushed out and that's impacting demand for discretionary spending. Is our clients also talking about the past few weeks, the political instability in the Middle East? That's also kind of one of those negative headwinds there?

Hi, Moshe. This is Salil. I think I understood the question. We spoke a little bit about the outlook in terms of discretionary and digital. And I think your question is, is the current Middle East situation what clients are talking about. So in general, the sense we've had in discussions with clients is on the discretionary work and the digital transformation work. It's about the same mindset as it was in the past financial year recently, like in Q4, Q3. Now, I'm sure we've not specifically heard any commentary on this situation, but I'm sure that's something that people are thinking about. But it's one among many factors that are playing out, is my guess.

Understood. Thank you.

Thank you very much. Next question is from the line of Ankur Rudra from JPMorgan Chase & Company. Please go ahead.

Hi. Thank you and welcome, Jayesh on the new role. So the first question is, Salil, the environment clearly appears disciplined. Now, the main thing that we find a bit difficult to understand despite that, the lack of revenue acceleration, despite very impressive, last contract signings that you've enjoyed for close to a year now. Could you maybe elaborate a bit more on the persistent disconnect and if the large deal signings is something that we should pay attention to if this environment continues?

So thanks, Ankur, it's Salil. What we are seeing first on large deals is especially for cost efficiency and consolidation. We are proving to be a good choice for clients and that's where we are seeing a tremendous benefit for what is going on. The next, in terms of what we've given is guidance. So first, what we see is the digital transformation or discretionary thinking from clients is remaining similar, which was slow in the past, in Q4, in Q3, we see that continuing on. So that gives some of the ways where revenue is less within our guidance outlook. The large deals prove a positive part of that outlook and those are the puts and takes. Now we see in financial services, the coming year appears better. This is not like on digital or discretionary alone, it's across the industry, whereas on manufacturing, we are seeing which we had good growth in financial year '24, we're seeing - we'll still have growth, but a slower growth in financial year '25. Those are the sorts of puts and takes which give us this type of guidance with some things which are supportive and some things which are constraining.

No, thank you for the additional color. I mean, maybe just ask in another way. You just report your large contract signings on your contracts above a certain threshold, if we were to look at the overall contract signing, would that - would the momentum there be more similar to the revenue momentum we see?

So there, we don't, as you know, disclose the other non-large deal signings. Again, the overall color of the pipeline and the deal wins is good. But what it doesn't take into account is when some things on a digital transformation or on discretionary slow down, so that doesn't come into the game when you look at some of the deal wins at whatever sizes. Those are the puts and takes that we see as we build the forecast for next year.

Understood. Just one last clarification. The 100 basis point impact you highlighted, Jayesh, is that revenue impact, combination of the impact of the rescoping, which is probably one-time and a penalty, because the - it seems a lot more than 15% of one client.

Hi, Ankur, and thanks for the wishes at the beginning. You know, that 1% impact or over 1% impact, the revenue is reflecting into the margin pretty much directly in terms of 100 basis points. So that's the majority or vast majority of the impact.

Okay. So that's not a revenue impact, that's a margin impact to clarify that.

No, it's a revenue impact. That's what I said. It's a revenue impact of 1%, which is flowing down to margins directly.

Okay. Let me repeat, my question was 1% seems a lot more than 15% of one client, because I think you've said you've retained 85% of scope. So this seems to be more than the impact of rescoping. Is that a one-time impact which will reverse and then the rescoping only will be part of this? That was the question, essentially.

Yes. So, Ankur, when you descope 15% of the impact, it doesn't mean that the - I mean, 15% of the work doesn't mean that 15% of the revenue goes away in one quarter, right. It depends on how much of work you had done, how much of the impact you are therefore taking, right. There's no penalty per se. It's a question of how much of work I've done and how much of that goes away, it's pretty much.

Okay.

On that area, 15% has gone away in one quarter, right. So it's a 15% of the overall work which got rescoped.

Okay. Appreciate it. Thank you and best of luck.

Thank you. The next question is from the line of Kawaljeet Saluja from Kotak. Please go ahead.

Hi. I have a couple of questions, or maybe slightly more than that. The first question is on the guidance in itself, it has been more of quite a series of misses in FY 2024. What are the learnings you have incorporated when you basically have taken a stance or taken another stab at guiding for FY 2025? That's the first question.

Hi, Kawal, this is Salil. So what we've attempted to do in the guidance is, look at what we have seen, for example, on digital work and discretionary work, which is reducing or slow in the coming financial year, where we don't see the change. And then layer in, what we see in terms of the large deal wins into the financial year '25. And then, as in sort of most years, we have a view of seasonality, where the H1 is stronger than the H2 for us at Infosys, typically we see that impact with a slower Q3, Q4. So that's how we have attempted to build the guidance that we put in 1% to 3%.

Kawal, if I may add, when we started the year last time, we were also coming from a very high growth environment, right? So, we had that - that kind of a exit trajectory that was also helping from a guidance perspective, whether it was getting baked in a guidance perspective. Today, when we are looking at it, we are coming out of a 1.4% growth. And therefore, I believe that - that kind of tailwind is not there in any case in the guidance.

Okay, fair enough. The second question that I had is that, can you detail the reasons or factors that led to the rescoping of projects with a large client? Typically, your large deals do carry execution risks. So what are the learnings from the past large deals that you have signed, which have incorporated in the current crop of large deals here?

This is Salil. First, I think what we have seen across the board is, we have had tremendous success in the large deals and various delivery of that. Some of the learnings we are putting in place, in general, not from a specific deal, is more to do with how we understand complexity, how clients look at complexity and how we make sure that we remain aligned in that. On the specific deal, there is no other comment. We've made a statement in all our press notes, so there's no other comment on that specific situation.

Okay. The final question that I had, it's to you Jayesh, that last year there was a mention that the endeavor would be to expand operating margins. I think the guidance band for FY '25 is unchanged. So is there a timeline when or which - within which you intend to expand or increase your operating margins and what are the factors or the type of environment that is required to push through the margin expansion as such?

Yes. So Kawal, even if you remember the last time as well, we had said our endeavor is to improve margins, our operating margins in the mid-terms, right and we still maintain that. The Project Maximus is in works. We have seen encouraging results as you can see, even from the walk of this quarter or the previous two quarters, we have called out the benefit that we have got from Project Maximus. If you look at FY '25 guidance and the puts and takes of those guidance is, we do bake in the revenue growth that we are envisaging. On top of that, we had a comp flow-through of last year. We did our comp increase from November. So there's a full-year impact or additional seven-month impact coming in, in the next financial year, plus the comp that we will do for this financial year. So those are the headwinds. And in terms of tailwinds, our utilization is still tied below our comfort level of 84%, 85%. We - our subcontractors are still higher from where we think we can operate in an optimum level of 5% to 6% efficient pyramid. We can improve ROE ratios, in an ideal scenario, if the growth is better, the ability to improve ROE ratios is much better. But even in a constrained environment, we are improving ROE ratios. So those are the factors on efficient pyramids. On the GenAI and automation, we have done a lot of progress, and we are doubling down on that. So I think all of those are baked in, in the current guidance of 20% to 22%. But our endeavor is, continues to improve operating margin in the mid-term.

Okay. Thank you for answering my questions and I wish you a good 2025. Thank you.

Thank you. The next question is from the line of Kumar Rakesh from BNP Paribas.

So my first question was on BFSI. So even if we adjust for this contract renegotiation, the vertical seems to have still declined by about 3% to 4% while some of your peers have started talking about recovery in BFSI and they have also saw the recovery in the March quarter. So is there something outside of this contract renegotiation also, which happened in the vertical, which is specific to you?

So Kumar, if you look at BFSI, I think, one, is we have a larger BFSI portfolio. Second is our discretionary share on the BFSI has been higher and that is what is impacting our overall profit from the growth perspective. I don't think it's significantly different from the company's overall headwind. BFSI also has a similar headwind in terms of the discretionary work that we do with the clients. In addition to that, we do have exposure to mortgages, et cetera, which has - as we have called out earlier, which has remained softer in this environment. But as you hear from us, we have called out that we expect BFSI in FY '25 to be better than FY '24. So we do see some encouraging outlook there.

Okay. And from the depreciation part itself, is the impact fully reflected in this quarter? Or there could be more impact going into the next quarter?

The impact is completely taken in this quarter.

Okay. Got that. And my second question was around the margin guidance, which you have spoken about. So your global peers as well as domestic peers, all of them usually have spoken about margin expansion - confidence around margin expansion this financial year itself. So I appreciate your target of medium-term margin expansion. But would you say you are confident of margin to have bottomed out around the levels where you currently are seeing? Or the kind of mix you have in the order book holds you back from giving any directional sense on that?

So I mean, Kumar, we are not guiding which part of the 20%, 22% we will be. As I said earlier, our endeavor is to improve margins from where we are, but we are not giving the financial year '25 guidance. If you go back to the puts and takes, we do have some headwinds in terms of compensation, some of these large deals ramping up during this year as well as we have tailwinds coming from pricing, coming from efficient pyramid, the automation and GenAI we are deploying. So we will not leave any stone unturned on this project, but we have not yet guided in terms of where we will end up in this year within as well.

Got it, Jayesh. Thanks a lot and best wishes in your new role.

Thank you. Next question is from the line of Keith Bachman from Bank of Montreal. Please go ahead.

Hi, good evening and good afternoon. I also wanted to ask two questions that are related and I'll ask them together. The first is, could you just talk about how you see utilization trends unfolding this year? It seemed to me that with the way the market is fairly weak, that the utilization should go higher. And similarly, that wage hikes with the market being fairly weak on the employment front across many parts of tech that it seems to me that wage hikes should be lower. And maybe I'll just stop there and then I'll ask my follow-on question. If you could just talk about those specific puts and takes that would influence margins.

Yes. So Keith, if you look at our utilization, our utilization including trainees was at 77% last year, which has gone up to 80.7% for the full year and we are exiting at 82%. So that clearly shows a significant 5 point increment from the utilization perspective. We have been able to deploy all the freshers - a large number of freshers back to production. So that's on utilization. Our comfort level on utilization, including - or excluding trainees is around 84%, 85%. So we still have some headroom there. On the compensation, whenever we decide on compensation, we take multiple factors in account of inflation, peer practices, et cetera. So we will take all of that into account during the year when we decide on compensation. At this point in time, we haven't decided on the quantum of the timing and we just did our last compensation in November last year.

Okay. Well, this surprises me - I'll make a statement and then I'll ask my follow-up question. For the tepid revenue growth, I'm surprised that margins wouldn't go higher during the course of the year relative to this past year given those forces and others. My following question, though, relates to GenAI and there's two parts to GenAI: there's demand side and supply side. So I'm not asking about demand. My supply side is, are you factoring in increasingly GenAI as you're undergoing software development activities on behalf of your clients? Is that helping your productivity yet or is it still too early? And along with that, if you are using GenAI to facilitate or enhance your efficiency on code development, is that a negotiation that's starting to unfold with your clients that they're asking for lower billing rates, if you will, related to that efficiency. Is that happening yet or is it still too early?

So thanks for that. This is Salil. On generative AI, on the projects we are working on, we are starting to, we have already seen benefits on productivity in software engineering. What we've seen there is, and - so it's really more focused on a narrow data set, in this case, the software capability within an enterprise, within a client base, not sort of broad-based today. And there we are seeing impacts and benefits. What we see is typically, we've not seen so far the rate discussion, but we can certainly see in some instances benefits where clients can do more work in terms of creating more output for the same type of effort. So there is definitely a productivity benefit, but we've not seen something, which has come back on the rates in that sense.

Okay. Perfect. Many thanks for your help, and best of luck during the year.

Thank you. Next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.

Hi, thanks for taking my questions. My first question is with respect to the ramp up of some of the mega deals that were supposed to start towards the back half of the fourth quarter. Have you seen them starting on time, and do you expect these to kind of create some momentum in the coming quarters?

Hi, Gaurav. So what we had envisaged at the beginning of the quarter of the mega deal starting in Q4 have started as planned.

Got it. Secondly, on guidance, visibility, typically when you start the year, you have a certain level of visibility, maybe let's say 65, 70, whatever that number is. Given that you are entering this year with significantly larger deal wins, would you be prepared to say that visibility would be slightly higher than the usual year for FY '25?

So Gaurav, if you look at over the years with the portfolio mix changing, where our discretionary portfolio has become larger in terms of our portfolio mix, the visibility has obviously come down from the annual perspective. Some of these projects are short duration, et cetera, and discretionary in nature. So to that extent, you do have that lack of visibility, if I may use that word, versus the years earlier. But yes, compared to that, if you look at the large deals, large deals do benefit from a long-term perspective. So you do have a foundation of large deals, but at the same time, you do have smaller deals which are discretionary and can be, you know, where we are still seeing some of them being reduced, or being stopped or scaled up.

Last question on your comment on one of the drivers for margin medium-term improvement was GenAI-related automation-related savings. How confident are you to retain these savings as quite possibly these get renegotiated over a period of time, and the clients kind of extract that back from the vendors? So just trying to understand, is this going to be sustainably an important driver for margin improvement in the medium term? Thank you.

So Gaurav, I think there the things will evolve over a period of time. At this point in time, we are able to retain part of the automation AI, GenAI part of the work that we are doing. But yes, you know, how it will evolve over a period of time is yet to be seen.

Gaurav, do you have any follow-up questions?

Thank you. That's all from me. Thank you.

Thank you. The next question is from the line of Bryan Bergin from TD Cowen. Please go ahead.

Hi, good evening. Thank you. First one on the workforce. So understanding you have still some room for utilization to move higher, but do you expect that the June quarter headcount might stabilize, or may that still be declining sequentially?

So Bryan, on the utilization, we are currently at 82% excluding trainees and 83.5% including trainees. So we still have a headroom there as I mentioned earlier. We think, we can go up to 84%, 85% utilization.

Okay. So implying headcount may continue to decline sequentially if that's the case in usual and normal course on attrition?

Yes, and coming back to the other question on headcount, if you look at through the year, we started the year with 77% utilization and the demand environment was different. So, we had a different expectation, through the year that demand environment has changed. So that has impacted the headcount - or the need of the headcount. The attrition has significantly come down. We are now trending at around 12.6%. Plus, we got some benefit from our value-based selling in terms of pricing. So all of that has also resulted in a lesser requirement in terms of headcount. And that's why you see a net negative. Going forward, again, as I said, we still have some headroom on utilization. So we will tap into that. We will look into demand. And over the years, we have moved to an agile hiring model, where we hire large number, we can hire large number of freshers off the campus. So, we will tap into that as required as we go through the year.

Okay. Okay. I appreciate that detail. And then just on backlog. So you continue to post really strong large deal signings, it's clearly not yet converting to revenue at the same pace. But maybe we can dig in a little bit on backlog trends. Has there been any material backlog degradation or leakage? Is it just significant widening in average duration? Just anything you do to help us understand some of the moving parts that are designed to revenue growth?

I don't think there is anything beyond what Salil mentioned earlier in the call in terms of discretionary coming down. There are no material, large deals being stopped, et cetera. So it's just a discretionary ramp-down - that is resulting in this.

Okay. Thank you.

Thank you. Next question is from the line of Ashwin Mehta from Ambit Capital. Please go ahead.

Hi, thanks for the opportunity. Would like to ask this question a different way? You have close to $9.2 billion of net new deals in FY '24. In addition, you will have net new from smaller deals as well, which you do not report. And in addition, there'll be more deal signings in FY '25. Plus, we've indicated most of the 2Q deal flow will ramp in FY '25. So assuming whatever duration, I think the guidance should have been more. But where are the leakages in the existing business, and is discretionary demand worse in FY '25 versus FY '24?

So hi, this is Salil. Let me start. I think the point on the discretionary outlook, or digital transformation outlook, we find it similar to what we've been seeing in this Q4 and Q3. So, we don't see a change in that. And that's what we've factored in to how we've built the guidance, keeping in mind some of the benefits of the large deals.

Okay. My second question was, in terms of the 100 bps impact on margins, because of renegotiation, will that reverse immediately for us in 1Q or will it take time in terms of recovering?

So this is Jayesh here. This is one-time impact, because of re-scoping and renegotiation. There is no reversal happening of this.

Okay. Okay. And the last one, if I can squeeze the agile model of hiring is for freshers, which would typically take six to nine months to get productive. So is there a need to hire lateral as you go forward? Or from this year's perspective, given there - our guidance is lateral hiring will be pretty limited?

So, I mean see, lateral hiring, you don't really need to plan a year in advance, right. In offshore, you can hire technically laterals, two to three months ahead of time. And onshore, you can hire one to one and a half months ahead of time. So that's how we will keep tweaking the model as we go through the year. So there's no, I mean, we have baked in what we see in terms of demand today. And if the demand environment changes, the hiring numbers will change accordingly.

Okay. Fair enough. Thanks a lot.

Thanks, Ashwin.

Thank you. The next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead.

Yes, thanks. Thanks for the opportunity. My question is in terms of the impact on discretionary projects. If you look at the pace, the growth, slowdown for Infosys and maybe for the industry has started from 4Q of FY '23. And most of the reasons cited by you and the others are declining discretionary spend, which is impacting five quarters in a row for the industry, in terms of the discretionary spend. So the question is whether the pace of decline, the leakage in the discretionary projects entering FY '25 would be similar to what we have seen in whole of FY '24 starting with the 4Q, FY '23 weak exit rate?

Hi, this is Salil. I think what we are seeing is the way clients are looking at their discretionary work, or digital transformation work is quite similar to the recent quarter. So we have no comments specifically on things, which were like from three, four quarters back. We are more seeing how it's changing, or not changing in like Q4, Q3 versus what we are seeing today, for the next period in financial year '25.

Okay. Okay. And the second question, Jayesh, just wanted to understand regarding the reversal of 100 bps on the revenue, what could be the impact related to 1Q to 3Q, or earlier quarters, which has been accounted in the fourth quarter, which could have been reversed in the first quarter of FY '25?

Sandeep, this is a renegotiation and re-scoping that has happened this quarter and the impact is taken in this quarter. We haven't broken down into how much of this quarter and how much of the prior quarters.

Okay. But is it fair to say fourth quarter will also include some reversal of the earlier quarters?

We are not breaking it down further, Sandeep.

Okay. Thanks, thanks. And congratulations, Jayesh.

Thank you, Sandeep.

Thank you. Next question is from the line of Vibhor Singhal from Nuvama Equities. Please go ahead.

Yes, hi. Thanks for taking my question. So then my question was mainly on, if I could basically get an idea on a line item, which is your priority items not for service - clients. Now, I know we mentioned in the past that it's become a strategic part of our business, but if I look at this number compared to the last two years, it has gone up from around 4.5% of the revenue to around 7.5% today. It's a sizable number at this point in time for the two years that I'm talking about. And typically these things would come at very little margin. Is this increasing part of this, as part of our revenue, hampering our ability to expand margins to what we could do? So what I mean to say is that this becoming a part of our strategic business strategy, is that in some way hampering our ability to expand margins from the levels that they are?

Vibhor, it was very difficult to hear you. If you could come closer to the mic and repeat your question, please.

I'm so sorry. Am I better now? Is it better audio?

Yes.

Yes. Okay. I'm so sorry. So what I wanted to ask was that if I look at this line item called third-party items for service-delivery to clients, which is essentially what we call - revenues. Now, that has increased significantly over the past three years, from 4.5% to 7.5%. Now, I know in the earlier quarters, you've called it out that it's now a strategic part of our business. Be that as it may, this changing nature of our business in which this is becoming an increasingly higher part of our revenue, does that impact our ability to expand our margins from the levels that they are today? Because as far as we know, these come at very little margin as compared to the overall company margin. And is this a trend that we can expect to continue and this line item to continue increasing as a percentage of revenue going forward as well?

So Vibhor, if you are undertaking transformation, large mega deals, it comes with all the costs. It's not only effort costs; it comes with hardware, software costs because you are taking over the turnkey project from the client. And that becomes an integral part of the project delivery. And as a result, you have to procure some of that, and provide the end-to-end services to the client. And that's where you see this cost. The good part about this is that, these kinds of businesses become very, very sticky businesses with the client and long-term commitments from the client. And so it's a long-term business. So, far as we are making overall margins on the deal, that's how we look at it. We don't look at it, whether it is third-party cost or subcon costs or effort cost only. We look at it whether we are making an overall margin on the deal while deciding whether we want to go for a deal or not. More importantly, most of these deals that we have taken, we have got much more work from them, or significantly more work from them in the surround environment from the client, which is how we look at it as a portfolio of the business.

Got it.

We don't have a view in terms of whether - and whether it will remain at the same level or elevated level. It will depend on the kind and nature of these - and how we sign it in the future.

Got it. I think you preempted my next question. Thanks for that. But just one more question on the subcontractors. Subcontractors have actually come down over the past couple of years, from an overall percentage point of view. But it is still, I would say, higher than what we have historically done pre-COVID numbers. So where do you believe, where are we comfortable with this number? And given that generally at this point of time, given the revenue growth is quite low, the demand environment in terms of our work that we require is not that high, given our guidance of 1% to 3%. Do you believe there is scope for further reduction in the subcontracting cost from the current levels? Or do you believe that 8% that we are today, we kind of hit the number that hit the bottom and it's probably going to stabilize at this level?

Yes, so Vibhor, this is one of the tracks under Project Maximus, under the efficient pyramid of reducing subcontractors. We have reduced subcontractors from the peak of last year by almost 3%. Historically, in the past, we have operated in 5% to 6%. So, we believe there is some headroom to bring that down.

Got it. Got it. Great. Thank you. Thank you so much for taking my questions. That's all from my side. I wish you all the best.

Thank you, Vibhor.

Thank you. The next question is from Surendra Goyal from Citigroup. Please go ahead.

Good evening, everyone. So I joined the call a bit late, so apologies if this has been answered before. But this case of project or a contract restructuring, re-scoping, is this like an isolated instance, or are you seeing multiple examples with this being the only significant one to really call out?

So Surendra, this is one. We have called it out. It's one-time impact of a large contract in financial services plan. It's impacted our revenues by over 1% and therefore, margins are impacted by 1%. It's a renegotiation and re-scoping of an existing contract. But at the same time, if you look at it over the last few years, we have got additional work from the client, and the 85% of the work under this deal is still continuing with us. So that's all I can offer at this point in time to comment on this as we could.

Jayesh, my question was, is this an isolated instance, or are you seeing more such deals getting rescoped and impacted?

So, I mean, the reason I say this is one-off or one-time impact is it's an isolated impact. We have not really seen any other large contract being rescoped or renegotiated.

Right, and does GenAI have any role to play in such re-scoping of contracts?

There is no, I mean, the reason behind this rescoping or renegotiation has nothing to do with GenAI.

And one last question, like how do you really base such things into your guidance process? Right, like would you be kind of baking in some kind of cost into the guidance? Because obviously, re-scoping seems to be a common theme. It was mentioned by another large peer of yours recently. So is there additional kind of impact built in, or this is a risk as it comes along?

So when we give guidance, so when we look at what is visible at this point in time, we bake in everything in terms of, we know that the discretionary is going, so we bake that in. We know the large deals that we have signed, so we bake that in. We don't expect, this is one-off incident, so we don't expect any large incidences like that. So that's not really baked in.

Fair enough. Thanks a lot, Jayesh. Thank you.

Thank you, Surendra.

Thank you. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.

Yes, hi. Good evening. Thanks for the opportunity. So Salil, you mentioned that the discretionary spending environment is similar to that of Q3 and Q4, and there's no change. Is it, considering that Q3 and Q4 have seen higher declines versus the other quarters of FY '24, is it fair to assume that Q3, Q4 from a discretionary spending perspective has been the worst versus the whole of FY '24? And we are basically assuming that that kind of a situation is sort of continuing through FY '25? That's the first question?

So on what we saw in Q3 and Q4, there's obviously in a normal year, the differences between Q1, Q2, which are typically stronger, and Q3, Q4. Those are things to be layered into any view that we have. Looking backwards, we don't have any specific comment on which quarter, where things were. We've talked, as you know, probably on starting with Q1 or even Q4 of the prior year. This sort of a view, but we have not given, let's say, quantification of which quarter was where in that sense. Having said all of that, the general observation we have is things change little by little by industry as well, and things evolve across geography as well, so there's not like one picture that is there. We are more looking at it from that immediacy of the recent sort of discussions we've had with clients to what we're having now for the future work.

And is this discretionary headwind specific to more specific or, let's say, more pronounced in BFSI? Is there any such trend or is it broad-based?

No, nothing which is like that, very specific onto BFSI.

Sure. And lastly, see our utilization is at 83.5%, including trainees, and we think it can go up to 85%. Now, usually, at least over the last many years, the pullback in discretionary has always been pretty sudden, so are we risking opportunity by maximizing on utilization? Is that something to worry about? Is there just a question out there?

Even so, as I was saying earlier in the call, we have moved to an agile hiring model, right. If you look at an FY '23 '22 numbers of fresher hiring, more than half of the freshers were hired through off-campus cycles, right. So, we have that ability to dip into. We are at 82% including trainees and 83.5% excluding trainees for the quarter, so that's why we are exiting. So, we still have - if you look at including trainee numbers, we still have 2%, 3% of headroom. Our attrition is still at a much subdued level of 12.6%, so we don't see that as an additional stress as well. So, we will calibrate this as we go through the quarter and year and take corrective actions. We don't really think that and - of course, if there is a need, we can always dip into subcontractors to capture the demand and replenish that through hiring. So all of those tools are available to us to capture demand, if there is a sudden change.

And lastly, from a margin perspective, at least in the near term, this 100 bps will be a tailwind and non-recurrence EBITDA cost will be a tailwind. So there should be a pickup in margin at least in the near term. That's a fair assumption to make. Or do you foresee any other headwinds?

Yes, so if you look at, I did give a margin walk at the beginning of the call as well. We had some tailwinds in this quarter as well, from the lower provision for doubtful debts it's a provision towards client collectibles as well as for sale customer support. So, those are the headwinds - I mean tailwinds this quarter, which will become headwinds in the near term. So I think you have to factor all of those when you are looking at headwinds and tailwinds.

So perfect. Thank you so much, Jayesh, and all the best - and congratulations for the elevation. All the best for the year. Thank you so much.

Thank you.

Thank you very much. Ladies and gentlemen, we will take that as our last question. I will now hand the conference over to the management for closing comments.

Thank you. So, thanks everyone for joining in. A few comments from my side. This is Salil. First, we are really excited. Our large deals were at $17.7 billion in the year, the largest that it has been in any financial year. Very focused on cost efficiency consolidation with 90 deals overall. Second, we are doing incredible work in generative AI. We are really excited with the opportunities here. We are working across different areas of impact. One of the examples of the 3 million lines of code that we have developed through generative AI, large language model is just amazing, amazing types of results we are seeing, at this early stage of the generative AI opportunity. Next, our margin program is working well. We are excited about it. And we want to keep our focus on it with a view to expand our margins over time. We are really excited about the acquisition we have done in engineering services. It is a phenomenal growth area. It is in a market we understand well. We are doing quite well in the European market. And it's a space, even within engineering services more narrowly in automotive, which looks really good. One of the things we didn't talk maybe a lot about in the call, but I just want to highlight, is we had extremely strong cash generation at $2.9 billion for the full year. With all of that, we are really looking forward to delivering our growth and margin guidance for this coming year. And looking forward to more and more work that we see through all of these different activities. Thank you all for joining us and catch you at the next quarter call.

Thank you very much. Ladies and gentlemen, on behalf of Infosys, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.