Infosys Ltd

NSE:INFY

Earnings Call Transcript 2022-Q1

[Unknown Executive]

A very good evening, everyone, and welcome to Infosys' first quarter results press conference. My name is Rishi and I'd like to welcome all of you on behalf of Infosys. Today, we are taking our very first step towards embracing the new normal with our very first hybrid event with all safety protocols and vaccination protocols followed. All our participants have been fully vaccinated, and we are coming to you live from Infosys' studio at our iconic Bangalore campus with a hope that we all meet physically very soon. Before we commence, I want to take a moment to mention a few guidelines. Our friends from media, you will be on mute by default throughout this press conference. Your name will be prompted and that is when you unmute yourself. We request 1 question from each media house to accommodate everybody over the next hour. In case you get disconnected, please rejoin using the same link. With that, let me invite our Chief Executive Officer, Mr. Salil Parekh, for his opening remarks. Over to you, Salil.

[Salil Satish Parekh, MD, CEO & Director]

Thanks, Rishi. Good afternoon. Thank you all for joining us today. I trust each of you and your families are safe and well. It is wonderful to be back on our campus and also to be with Pravin and Nilanjan in person after 5 quarters, of course, at a safe social distance. I'm delighted to share with you that we've had a landmark first quarter with robust year-on-year growth of 16.9% and sequential growth of 4.8% in constant currency terms. This is the fastest growth we've 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 that has grown stronger with the unwavering commitments of our employees and our differentiated digital portfolio. I would like to thank all our employees for their incredible dedication, especially during another testing period with the second COVID wave in India. Some of the highlights of our results are: Our digital business grew by 42% year-on-year and now constitutes 53.9% of our revenues. We had broad-based growth across all our sectors, service lines and geographies. Financial Services grew by 22%; retail, 22%; life sciences, 21%; manufacturing, 18%; north America geography by 21%. Our large deals were at $2.6 billion. Large deals are deals over $50 million in value. Operating margins were strong at 23.7%. We had tremendous focus on our employees, especially related to the well-being of employees and to new talent expansion. 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. With a strong start to the financial year, good large deals in Q1, strong pipeline, we are increasing our annual revenue guidance for growth from 12% to 14%, moving up to 14% to 16% in constant currency. Our operating margin guidance remains unchanged at 22% to 24%. Let me pause here and hand it back to Rishi, and then let's open it up for questions.

[Unknown Executive]

Thank you, Salil. We will now open the floor for questions. Joining Salil are Mr. Pravin Rao, Chief Operating Officer, Infosys; and Mr. Nilanjan Roy, Chief Financial Officer, Infosys. We will open with the first question. And the first question is from Mukta Variyar who joins us from CNBC-TV18. Mukta, please go ahead.

[Unknown Attendee]

Can you hear me clearly?

[Salil Satish Parekh, MD, CEO & Director]

Yes.

[Unknown Attendee]

Okay. Great. Congrats on a very strong quarter. What a start to the fiscal year, your strongest growth in Q1 in a decade. And Salil, let me come to you then. Is that growth in Q1 that has given you the confidence to increase your revenue guidance? And they're too much higher than what a lot of the street was expecting. And if you can tell us a little bit about your deal wins, the pricing that you're seeing now in the market and the tenure and why your digital growth has been really strong. The core business seems to have degrown year-on-year, if you can tell us what is the weakness there in the core business, because let me come straight to the point about margins with you. If you can tell us what was the margin pressure, which led the margins to be lower than what the Street was estimating. And going forward is where you have called out a few headwinds when it comes to margins, if you can elaborate on that, especially around talent retention, et cetera? And to a specific question about the India business, because we did see that TCS had called out the impact from the India business for Infosys. The India revenue share is about 3%. I think it's come down to 2.9% in this quarter. Did you see any impact of the second wave as part of your India business? Pravin, again, on attrition, you did say that you'll be hiring a lot of freshers, et cetera. But when do we see the next salary hike? What will be the quantum of the salary hike? And if you can just throw some light on the challenges you're facing now in terms of the supply side, given that you're seeing strong demand? And Pravin, of course, lastly, I have to ask about the income tax website issue if it has been completely, resolved, because the finance minister was in Bangalore just 2 weeks ago, and she said a few issues were still unresolved, if you can throw some light on that.

[Salil Satish Parekh, MD, CEO & Director]

So thanks, Mukta for the questions. Let me start off. I think in terms of what we see in the market, the growth, of course, was very strong in the first quarter, as you noted. We also see a good pipeline from where we are working with clients. We see that the digital transformation approach that our clients are looking for is something that we can support them with quite well. And we also saw a good large deals number and wins in Q1. When you put all of that together, that gave us the confidence to increase our revenue growth guidance at the end of the first quarter. In terms of the pricing that you mentioned, we see the pricing to be reasonably stable. We don't see any real constraints in it at this stage or any differences from what we've seen in the past. Let me now pass it to Nilanjan.

[Nilanjan Roy, Chief Financial Officer]

Yes. So the first question, Mukta, you had on margins. As you know that last year, we ended at 24.5%, and we had called out that there were a lot of one-off benefits we had received during the year. Some of them were discretionary in nature, like travel came off, facilities and other discretionary spends have been cut down. And of course, some expenses were deferred, things like salary hikes and promotions, et cetera. And therefore, when we called out our guidance for FY '22, we had actually factored all that in and said it is going to be 22% to 24% versus the 24.5% of last year. Please keep in mind also the pre-pandemic sort of guidance was 21% to 23%, so this was a step up as well from a guidance operating range. And 23.7%, we are at the top end of that guidance. Having said that, on a sequential basis, if you've seen, our margins are down from 24.5% to 23.7%. Out of that, we got about a 10 basis points benefit of currency. We got about 40 basis points benefit of utilization, and this was offset by about 50 basis points of subcontractor and third-party cost as demand has really ramped up, and we've taken up subcontractors to fulfill the demand, and about balance 80 basis points is a combination of various employee debt costs, whether it's retention, hiring, promotions, et cetera. So that's the broad margin walk on a sequential basis. We remain very, very confident in our 22% to 24%. We have a lot of operating levers on taking out costs. So that's comfort zone for us. Your second question on India. As you mentioned, yes, India is a very, very small portion of us. And I think both from the demand and the supply side, we have not seen any impact. And I must call out the fantastic and dedicated work by all the employees across the globe to ensuring that we are able to fulfill our demand during these trying times as well. So yes, in that sense, India really didn't impact us. Over to you, Pravin.

[U. B. Pravin Rao, COO & Whole]

Thanks, Nilanjan. Your first question was on attrition. Attrition for IT services, that's voluntary attrition on an LTM basis, has increased to 13.9%. It was 10.9% earlier. In some sense, it's an area of concern, but at the same time, it's also a reflection of high demand environment out there and shortage of supply. We expect this attrition to continue for a couple of quarters till supply catches up. From our own perspective, as Salil mentioned, we have been able to backfill attrition as well as had a net hiring of 8,000 this quarter. It's a clear reflection of the kind of brand that we have and the ability to attract the right talent. We will continue to focus on that. We have increased our campus hire or refresher hiring from -- to 35,000 globally. We have already recruited more than 10,000 in this quarter, and we are also doing several other interventions. We already had 1 compensation increase in January and the second 1 is effective July. We'll be rolling it out. We have increased the number of promotions. There is a significant focus on retention. There is a lot of employee engagement initiatives, lot of focus on career growth, career opportunities for people and so on. So this is something we'll continue to do so. And hopefully, over the next couple of quarters, we should be able to come to terms with high attrition. The second question was on the income tax project. We are working hard to address all the issues with respect to the portal. Many of the issues raised around performance and stability have been addressed. With the result today, on an average, we have 8 to 10 lakh people signing on to the portal and doing various activities. Many of the new functionalities like e-proceedings, PBS returns, some of the statutory pumps appear to have been released. Today, we have about 10 lakh ITRs filed so far. Yesterday, we had about 1 lakh ITRs filed in a single day yesterday. We have about 1.6 lakh DSE registrations. We have close to 2 lakhs statutory forms filed. We had 31,000 e-proceedings response submitted. We had about -- we have been able to address about 63.5 lakhs other than linking requests and so on. So as you can see, we have made some progress. But having said that, we still have some ways to go. We have to address some of the intermittent issues we continue to face in some of the functionalities that are available. At the same time, we have to roll out new functionalities as well. We are working very collaboratively with the income tax department as well as other stakeholders, and it is our endeavor to address all these issues as expediously as possible. We have also added more bandwidth. We have invested in much more leadership. And I want to assure that the single largest priority for us today, and we are hopeful to address the remaining concerns as well as roll out the remaining functionalities in due course.

[Unknown Executive]

The next question is from Punam Sani, who joins us from ET Now.

[Unknown Attendee]

Salil, congratulations firstly for a very strong quarter, to the entire team. Salil, my question is the deal momentum has been fairly strong. What is the kind of the nature of the deals that you have seen during the quarter? Give us more color on that. Are there more large and small deals? And also, what's the kind of momentum that you're seeing across verticals and geographies in terms of the deal momentum? Secondly, talk to us more about your -- the opportunities that you're seeing on the M&A front. And Pravin, my question to you is that Infosys has retained the 22% to 24% margin band, and you did mention that you have good amount of margin levers there and hence the confidence on the margin front despite several headwinds. So what are those operating levers that you have in terms of margin defense? And one more question is to Salil is, what is the kind of market share gains that you have seen so far? And what is the outlook ahead on the market share gains for you? That's about it.

[Salil Satish Parekh, MD, CEO & Director]

Thanks, Punam. I think starting off first with the discussion on the deals. It's a mix of deals in our large deals portfolio with the midsize and larger amongst the large deals. We see a good pipeline. We see good ability to convert. The type of work really comes from areas which are focused on data and analytics, a lot of work in the cloud side. There's also more and more work that we are seeing, which is taking something, which is a core functionality, a core set of actions and converting, modernizing them into much more digital capabilities. In terms of the sectors, we are seeing good traction from the growth numbers across several of our sectors. In fact, all of our sectors have grown very nicely, but there's good deal pipeline also in what we see in financial services, in retail, in manufacturing, in life sciences. So those are sectors or utilities where we see a good deal pipeline as well. And before Pravin takes the other question, I'll come back to the third one. On M&A., I think our thinking is really quite similar to what we have shared in the past, which is, first, our focus is to look at things which help us accelerate what we are doing in digital. That's what our clients are looking for. Digital comprises of all of the elements, the cloud, the IoT, the cybersecurity, the data and so on. So those are areas we continue to look for and things where there's a fit in terms of culture, there's a fit in terms of what we think we can do with the integration. And then there's a fit in terms of how the value gets aligned. So those are really the same parameters and approach that we continue to look for in acquisitions. Pravin, over to you.

[U. B. Pravin Rao, COO & Whole]

Yes, on the margin levers, we have several levers. First one is to take driving higher efficiencies through adoption of lean and automation. This is something we have been doing for the last 2 years and there is still much more runway there. The second one is in the area of pyramid rolled ratios and pyramid optimization. Again, there is huge opportunities still left there. Third area is in the areas of pricing, particularly on the digital side. So there's an opportunity for us to drive higher pricing. These are, in my mind, some of the critical things. Right now, there are other levers which are probably optimized. Typically, utilization is a lever, but we are already highly optimized there. There is not much scope in the short term. Likewise, on-site offshore ratio is also highly optimized. But the 3 or 4 other levers which I talked about are some of the levers that are available for us to drive and drive higher margins, and we are extremely comfortable with the guidance of 22% to 24%.

[Unknown Executive]

Thank you, Punam. The next question is from Sharad Dubey, who joins us from CNBC Awaaz.

[Sharad Dubey]

[Foreign Language]

[Salil Satish Parekh, MD, CEO & Director]

So thank you, Sharad. The points in terms of what we see in the demand, we very much see the demand, which is focused on digital and cloud areas. Digital itself grew at 42%. We also have our Infosys Cobalt set of capabilities, which are seeing more and more traction with our clients, and we continue to expand that set of capabilities. We continue to build out more industry-specific solutions there and more artifacts, which are being used by our clients as they look at the cloud journeys. So those are areas which are most in demand. The other side that we see are -- where there's a focus on operations and technology coming together and doing a complete transformation from a client's business perspective, and that driving how it impacts their end customers or their employees or how they interact with their partner ecosystem. And those are places where we are seeing more and more traction. So overall, the demand outlook looks quite good, and the pricing looks quite stable at the start of this financial year. Pravin, over to you.

[U. B. Pravin Rao, COO & Whole]

See, on the compensation front, we did the first round of increments effective January of this year. We also announced the second round of increments, which will be effective July of this year, so that is already underway. So that's the compensation plan, and it's already factored in our margin guidance. Likewise, any increased travel due to relaxation on the COVID guidelines and so on, all those things have already been factored in from a margin perspective. In terms of hiring, we are obviously -- as I said earlier, we are looking at about 35,000 college graduate hiring globally. We have already hired 10,000 of this, this quarter, and we will hire the remaining 25,000 over the next 3 quarters. We'll continue to hire laterals as we have been doing in the past in addition to the college graduate hiring.

[Unknown Executive]

Thank you so much, Sharad. The next question is from Sajeet Manghat from BloombergQuint.

[Sajeet Manghat]

Good set of numbers from your end. Salil, my question to you is in FY '21, we saw you gathering nearly 40 -- $14 billion of deals and $2.6 billion in Q1 of this year. What -- can you give us an idea of where is this deal coming from? Which regions are these coming from? And what is the kind of pricing pressure that you may be facing here? Because even though deals are coming in at a much higher rate, we're not able to see that translate into higher margins and your margins are dependent on your domestic levers and efficiency levers, which are there. That's one question. For Nilanjan, you spoke the fact that you have Openreach coming in. Can you give us an idea of when the discretionary spend with respect to travel and marketing expenses kick in? And if that kicks in, by what quarter are we going to see that impact coming into the EBIT margins going forward? And to Pravin, a sense of some of the verticals, how they are doing? BFSI, retail, communications, are we seeing large deals coming in from there? Or is it just discretionary spend, which is coming in from some of your clients?

[Salil Satish Parekh, MD, CEO & Director]

So thanks for those questions. I'll start off. I think what we see with the large deals, as you shared, we had a good outcome last financial year at $14 billion. This quarter, it's starting off well at $2.6 billion. We definitely see these deals being very much part of the change that our clients are looking for, and that's what from our portfolio of services that the clients are leveraging. As I shared earlier, our pricing looks stable at this stage. In terms of how that translates to margin as Nilanjan was sharing, last year, we had several one-offs where travel had come down, where we have been extremely focused on many other costs as we entered the March, April, May time frame. Many of those costs will start up. For example, the salary increases and many other things we've done for the employees. As that has come in, that's where we see the outcome for 23.7% in the first quarter. We still see, from a deal perspective, a good outlook and this 23.7% is very much within the guidance that we had shared at the beginning of the year, and we will continue, as Pravin was sharing. We continue to have confidence that we are in that guidance. With that, let me pass it on to you, Pravin.

[U. B. Pravin Rao, COO & Whole]

Yes. From an industry perspective, we have had a broad-based growth. 7 of the 8 industry verticals had double-digit growth, except communications. And 2 of our largest verticals, FS and retail had more than 20% growth -- year-on-year growth on a constant currency basis. And if you look at the large deal perspective, about -- if you look at -- we had 22 large deal wins this quarter. Out of it, 9 was in financial services, 4, each in retail and energy utility services, 2 in manufacturing and 1 each in other verticals. So Financial Services is obviously had a standout growth this quarter, and this is consistent with what we have seen in the past 4 to 5 quarters. We have had industry-leading growth. Growth has been led primarily in the U.S. and mostly in the subsegments of banking, mortgages, wealth and retirement services. With economy opening up, we expect demand to come back in the payment space as well. We are seeing a lot of uptick on cloud adoption, and we are seeing a lot of opportunities around cloud migration, cloud management, cloud platform implementations and so on. We are well positioned as a full-scale digital transformation player in this space. We have also seen good uptick in demand in retail after a long time, with vaccination than many of the -- and the economy opening up in many of the major markets, we are seeing pent-up demand coming to before. Consumer sentiment is turning positive. This portends well for the retail sector. So clients are aggressively investing in accelerating their digital transformation initiatives. It's a great opportunity for us to help our clients in their omnichannel initiatives and compete with the digital natives. So we are seeing good traction in this space as well. While CMT has been soft on a year-on-year basis, on a sequential basis, we have seen good growth on the back of some of the large deal wins, both in the prior quarter and in the current quarter. In this space, there is a lot of focus on 5G, cybersecurity, edge computing and some of the next-gen technologies like IoT and so on. Energy Utilities was one of the softer quarters and we still see some softness in travel, hospitality, defense and energy space. However, we are slowly seeing some discretionary spend come back in this space. Here, the focus is more on customer service transformation, legacy modernization, smart breed initiatives and so on. Lastly, on the manufacturing, again, we have had industry-leading growth. We have had a tailwind of Daimler win in the previous quarter. We are doing extremely well in all the 3 subsegments of aerospace, automotive and industrial. Here, I think we are seeing a lot of opportunities around R&D, engineering, on industrial IoT and so on. So net-net, the growth has been pretty much broad-based.

[Unknown Executive]

Thank you, Sajeet. The next question is from Kushal Gupta from Zee Business, who joins us on audio.

[Kushal Gupta]

Yes. So my first question is to Mr. Parekh with regards to the digital revenue, which we are having, like now it has gone almost to 54%. So currently, like are we -- like in terms of the market demand, which is coming up, is it more about reaching maybe the Accenture level or maybe reaching it? Because going forward, I think it would more be around a digital particular contracts, which we are getting in terms of deals. I wanted to get a clarity on that. Secondly, to Mr. Rao, I would want to ask like with vaccination now happening and people coming back to office, what's the percentage are we looking at going forward permanently as the hybrid model? And finally, in terms of pricing, I would like to ask Mr. Roy about the pricing. But in like in which vertical can we like put forward our price increase given the kind of demand which we are receiving maybe from the financial services. So which -- what vertical is the key growth area going forward for FY '22?

[Salil Satish Parekh, MD, CEO & Director]

So thanks for your questions. I think on the first one, with respect to digital, what we are seeing is that with all of the capabilities that we have built, one of the examples we discussed earlier was on Infosys Cobalt on cloud. But there are many others, including on what we've done with artificial intelligence, what we're doing on machine learning, where we have strengths in data and analytics. We have today across the board a leading position in 48 categories that are tracked in the digital spectrum by independent market analysts. And that gives our clients the confidence to work with Infosys and to select Infosys for their most critical digital transformation programs. Now where will this go? I think at this stage, we are very happy with the growth of 42%, the overall percentage having become 54%. And we think this will continue because the client demand is very strong for digital. What we have in terms of capabilities, there's high level of relevance of what our clients are looking for. And we are building out the capacity in terms of all of our employees working for these areas, our reskilling going on to support these areas. So from that perspective, we see a good future for the digital growth. Pravin, over to you.

[U. B. Pravin Rao, COO & Whole]

Yes. So in terms of work from office, today, we have about 98% of employees working from home globally. In India, it's much higher at 99%. In terms of vaccination as well in India, we have about close to 58% of our employees in India who have had at least 1 dose of vaccinations. About 10% of the people have had both the doses. But in some of the markets like Europe, U.S. and all, we have had a higher percentage of people getting vaccinated, and we have slowly started seeing economy open up. So we do expect in the course of this quarter, some amount of increased number of people coming to office to work. So one thing is certain that future will be hybrid where people will have flexibility to work from home or work from office. It will depend on the people inclination. It will depend on the client requirement, and it will also depend on the nature of the product. From our perspective, we are very well equipped. In the past, we have demonstrated our ability to switch between work from office and work from home seamlessly. So we are pretty confident that we should be able to deal with the situation. It's very difficult to figure out what percentage of people would like to work from office or work from home, but only time will tell. Our efforts over the next couple of quarters will be to solely start getting more and more people to come from office, even though it could be in a hybrid model.

[Unknown Executive]

Thank you, Kushal. The next question is also on audio from Giri Prakash from the Hindu Business line.

[Unknown Attendee]

Mr. Parekh, you did mention about the fact that this is perhaps the fastest growth in the last 1 decade. I just wanted to -- you have also increased the guidance as well. So just wanted to know whether this kind of growth is maintainable given the fact that the -- especially in Europe and U.S. offices have started reopening. Pandemic has, to a great extent, retreated in several countries in Europe and U.S. Do you think that this growth is maintainable?

[Salil Satish Parekh, MD, CEO & Director]

So there, I think the way we see it is, today, the overall demand outlook as we engage with clients is very strong. To give you an example, I was in a discussion 2 weeks ago with a client where they are asking us to expand the work we do with them in a material way across a variety of their programs, some of them on digital and others on other technologies. These are sorts of discussions me, our colleagues who are interacting with clients are having. So we feel comfortable with the economy coming back in many of the Western markets that this will continue. Of course, what we have done with the guidance is for this financial year, and that is the outlook that we shared with the overall change or the digital transformation that many industries are going through is quite remarkable. Many companies which were not in the digital space, not in the online space, are now shifting at rapid speed, and those are areas that where we can help and support them and many companies that were native digital companies are also growing very fast, where we can help and support them. So from all of those perspectives, today, the demand looks very good.

[Unknown Executive]

Thank you, Giri. The next question is from Chandra Ranganathan from Money Control.

[Chandra Ranganathan]

Yes. Salil, Pravin, Nilanjan, questions for all of you. Salil, to begin with, a lot of companies are talking about how the nature of contracts itself is changing. It's becoming larger and more transformative, and they are now going back to the same plans. During renewal, they are getting bigger ticket size contracts and for longer durations. If you can weigh in on that? Secondly, I would also like your take on the series of Internet IPOs that we are seeing in India, what you make of this new wave of wealth creation, because Infosys has really been the gold standard when it comes to wealth creation for retail investors. Pravin, a couple of questions. You gave an update on vaccination. When we spoke to you in July, you had mentioned 11,000 people were vaccinated. You had placed an order for -- you will place an order for 1.2 million doses to cover all employees and their dependents. So can you give us a sense of whether you're getting the supply? How many -- how much till date? And also in terms of attrition, have you changed it from annualized to LTM? Because the number for March is different compared to what you said last time. So again, can you take us through why you sort of decided to do this?One last question on ITR. You mentioned that it's work in progress. But why does Infosys struggle with government projects in general in India? Is it because the scope keeps changing for these projects because we have seen this in the past with MCA21 as well. So what is -- and GST also. So what is really the reason for this?

[Salil Satish Parekh, MD, CEO & Director]

So thanks, Chandra. Let me start off there. I think in terms of the type of deals that are going on with our clients are broadly across what we see in the market, we don't see that there's a change, whether it's in duration or the terms of going back to the same client to extend. Our approach is much more looking at what is the objective our clients are driving and what is the impact that we can have in helping them achieve that objective. So deals are of different sizes and different durations. And we've not seen a shift if I look back over the last 24, 36 months. Of course, during the very first days when COVID started off, there was a change in what people were looking at. There was a lot more focus on cost efficiency. But as we progress through this, there's an increased focus on digital transformation, and those are the sorts of deals that we are seeing today. With that, let me pass it on to Pravin.

[Chandra Ranganathan]

Salil, your take on all the actions we are seeing on the Internet front.

[Salil Satish Parekh, MD, CEO & Director]

Yes, yes. No, of course, I think there, I follow what I read in the papers and see on social media. This is very impressive what these companies are building, and we wish them all the very best in what they're building. And in any areas in the technology side that we can help, we will absolutely support them.

[U. B. Pravin Rao, COO & Whole]

Chandra, on the vaccination front, so far, we have administered over 230,000 doses, about 120,000-plus employees have been covered. The remaining are the dependents. So this translates to about 59% of our employees having at least 1 single dose and about 10% of the employees having both the doses. And we have already placed ordered for more than 0.5 million doses. So today, the issue is not about supply at least from our perspective. Our issue has been about roughly 50% of our people are no longer in the cities where our DCs are, where homes are in Tier 2, Tier 3 cities. And while we have tied up with hospitals to administer vaccines for those people wherever they are required, they are also relying on vaccine available in their own regions and trying to get vaccinated. So from our perspective, we are not -- I mean we have not seen too much of issue with the supply perspective. Our challenge has been how do you ensure about 50% of our people who are in Tier 2, Tier 3 city get themselves vaccinated, because they are dispersed across multiple cities, and that's where our focus is on currently. Now on the attrition front, we have shifted from earlier we used to do quarterly annualized. Now we have moved to last 12-month basis. So the numbers I gave are comparing relative to last 12-month basis, this is the voluntary attrition for IT services. Last quarter, it was 10.9%, and this quarter, it has moved up to 13.9%. The reason we have shifted is, when we look at all of our peers, a majority of them are using LTM criteria. So we thought it is good for us to also align with what seems to be the common standard in the industry. On the income tax thing, see, at this, our focus is right now on trying to address the issues, fix it expeditiously. We have not really done a postmortem. There will be time for us to do it much later. So right now, our focus is on that. So at some point in time, we have to really take stop to figure out what happened and what can we do differently. As we have said, as we have repeatedly said, we are really proud of all the stuff that we do for India project, kind of work that we do. It's not a question of wanting to or not wanting to do. We are indeed open to do that, and we want to do it. But we definitely need to look at what went wrong here and try to address it in future.

[Unknown Executive]

Thank you, Chandra. The next question is from Shilpa Phadnis from The Times of India.

[Shilpa Phadnis]

My question is for Mr. Pravin Rao. [Technical Difficulty]

[Unknown Executive]

Shilpa, I think there's a bit of a network glitch. Are you able to hear us? Okay. We'll come back to Shilpa. We'll take the next question, which is from Ayushman Baruah from the Mint.

[Unknown Attendee]

First of all, a quick clarification. When you said the fastest growth in 10 years, are you referring to year-on-year fastest growth in revenues? That's number one. Number 2 is that since a lot of these banks, et cetera, financial services institutions are actually setting up their own technology centers here in India or their GICs. Are you actually kind of losing share of work to the GICs?

[Salil Satish Parekh, MD, CEO & Director]

So thanks for your question. I think on the first one, we are seeing both on a sequential basis and on a year-on-year basis. This growth is the fastest we've had in over a decade. So we are extremely delighted that that's the way that our clients are perceiving us. On the -- what some of the banks are doing, as you shared in terms of setting up the centers, what we see is there's a tremendous amount of demand and especially in the banking sector, but in several other sectors where also centers are set up, for example, retail or high tech. And that demand, of course, there are projects which are done by those centers. In several cases, we actually are collaborating with the centers as they're scaling up to make sure that we support a bank or a retail company or others, both in the Western geography as well as in India. So today, we don't see that, that is something that is taking away from the work that we're doing. There's a large amount of work that we still see that's coming straight from many of our clients and many of the projects that we do when they have centers collaborate with them as well.

[Unknown Executive]

Thanks, Ayushman. The next question is from Stuti Roy, and Stuti has sent her questions on text. I will read it out on Stuti's behalf. The questions are for Salil. Two questions. The glitches in the IT portal seem to be continuing. The finance minister had held a review meeting with Infosys officials asking them to resolve them on priority. Which other issues or glitches that users still face on the portal? And by when are they likely to be resolved completely? The next question. Infosys had initiated an internal investigation into an insider trading matter after markets regulator SEBI barred 2 of its employees from the securities market in that case. What is the update on that?

[Salil Satish Parekh, MD, CEO & Director]

So let me take that. Thank you. As Pravin has just shared on the income tax system situation, we are working extremely hard in making sure that all of the features are being delivered. We are working expeditiously, as Pravin shared, several of the functionalities are already working. There's a large number of returns that are being filed, statutory forms that are being uploaded, e-proceedings that are carrying on. And there's work done in making sure that all of the stability and the performance is coming together. We've also augmented the team and the project management. We feel all of this is moving ahead. There is some work that still needs to be done, and we are confident that all of that will be done. We are working very closely with the income tax department and with the Chartered Accountants Associations who have been kind enough to give their input and advice on this matter, working jointly and collaboratively with all the stakeholders. We believe that all of these situations will be addressed in a step-by-step manner, and all of the issues will be resolved. In terms of the insider trading point that was made, this is something where the company, Infosys, is not a focus of any of the activity from SEBI. We are fully supporting in providing data and information, and we will watch what the process entails, and make sure we are in full compliance with all of the guidelines and regulations. Infosys is not part as a company of any inquiry or proceeding in this matter.

[Unknown Executive]

Thank you, Salil. The next question is from Jochelle Mendonca from ET Prime. Jochelle too has sent her questions on text. Question is for Salil and Pravin. She sent 2 questions. Can you give us a breakup on the large deal wins? How much was renewals versus net new deals? The second question is in terms of hiring from campuses, is Infosys looking at compacting its training programs to deploy this talent faster?

[Nilanjan Roy, Chief Financial Officer]

Okay. I will take -- I'll respond to both the questions. In terms of Lode deal, we had, as we said, $2.6 billion TCV, 22 Lode deals across -- cutting across segments, 9 in financial services, 4 each in CRL and EURS, 2 in manufacturing and 1 each in other verticals. Geography wise, we have 14 in Americas, 5 in Europe, 2 in rest of the world and 1 in India, and 30% is net new out of this Lode deal. The second 1 from a campus perspective, I mean, as we said earlier, we are planning to recruit college graduate total number of about 35,000 of college graduates worldwide. And even in the past, we have tried to look at accelerating the training duration and positive deployment for a specific set of college graduates. For instance, if someone has already been trained in computer science, I mean someone is from a computer science graduate or someone has advanced technology experience, in those cases, we have a much condensed training schedule, so that they can be deployed on production in a much quicker way. But for people graduating in some of the other disciplines, we continue to administer. I mean, we continue to take about 4 to -- nearly about 3.5 to 4 months to complete the training duration. We believe that, that is important to lay a very strong foundation. And at the end of it, they become pretty much productive in the products.

[Unknown Executive]

Thank you, Pravin. The next question is from Sankar Patil from Reuters. Sankalp has sent his questions on text. He has a question for Salil and Pravin. 2 questions again. The first question is regarding the opening up of the U.S. economy. How is work coming back? Are big deals in the offering? If yes, which sectors? And the second question, a third wave is predicted in India. Are there any changes to the work from home model or to hiring?

[Salil Satish Parekh, MD, CEO & Director]

So thanks, Sankar, for those questions. I think you're absolutely right. The U.S. geography, certainly many of the European markets are coming back very strongly. We see the economies opening up. Through that, we see a lot of demand for large programs, which look at modernization, look at transformation, look at cloud or look at areas which are focused on data and analytics. We do see large deals in good -- in all of these areas. And especially when things have to be brought together, where all of the capabilities have to work in conjunction. Those are the sorts of deals where we have a real advantage, where all of our thinking and approach of One Infosys comes together. In terms of sectors, we see -- continue to see good demand for those sorts of activities in financial services, retail. Consumer products has come back nicely. We see good demand on the high-tech sector. That's an area which has a tremendous potential going ahead. And many of the other sectors are also in good shape, but these are especially quite strong at this time On the second one, Pravin, do you want to take it?

[U. B. Pravin Rao, COO & Whole]

The third wave?

[Salil Satish Parekh, MD, CEO & Director]

Yes.

[U. B. Pravin Rao, COO & Whole]

Okay. I think -- I mean the nature of the pandemic is we'll continue to see multiple waves, because while India is expecting a third wave, some of the geographies have already had the impact of the third wave and economies have started opening up. In the long run, getting majority of the population vaccinated and following safe practices, at least for the near future, is going to be the only solution. In the interim, the current way of working the hybrid model, those will probably remain true. So whatever we have been doing in the last 4, 5 quarters in terms of hiring, working from home, those things still continue. And in the past as well between the first and second wave, we had about 5% of the population come back to work, but when second wave hit us, we had most of them now started working at home. So we expect that trend to continue for some time. But our own expectation is over the next 6 months or so, assuming that the impact of any subsequent wave is minimal, we will probably expect maybe about 20% to 30% of the people to start coming to work from office. Again, this could vary from geography to geography. And as I said earlier, it will also depend on nature of project, client requirements, individual preferences and so on.

[Unknown Executive]

Thank you, Salil. Thank you, Pravin. The next question is from Alnur Pir Mohamad from the Economic Times. Alnur joins us on audio.

[Unknown Attendee]

My question is to Salil. I'd like to know what do you think will be the impact of the recently signed executive order by U.S. President Joe Biden on the IT services and outsourcing industry.

[Salil Satish Parekh, MD, CEO & Director]

Alnur, which specific order are you referring to?

[Unknown Attendee]

The one to sort of boost competition in the U.S., right, where there's sort of 72 specific orders on various industries, including banks, where they have talked about portability of data of consumers between banks. How could that sort of affect the IT system industry?

[Salil Satish Parekh, MD, CEO & Director]

I think the focus there, as you mentioned, was on the competitiveness of the U.S. businesses. From our perspective, I don't know sort of broadly about the sector. Our own focus in that is we are seeing that as those companies become more competitive, we will certainly benefit. In terms of data and protection, we are already very much supportive of the approach that various of our clients have taken within the insurance companies and the banks where this is of greatest impact. And we feel we'll be able to support them as they go through some of the changes that may be required and that may come from this. The details of this still are being worked out, as you know. And once they get worked out, we'll get a sense of what the impact will be specifically for our clients, and therefore, how that will impact the changes that we have to do to the work.

[Unknown Executive]

Thank you, Alnur. The next question is from Saritha Rai from Bloomberg.

[Saritha Rai]

So my question to Salil is about the conversations that you're having with clients. What are the reasons for optimism, Salil, that you're seeing in -- particularly your major geography in the U.S. as well as your major verticals, the BFSI segment? And the question for Pravin is about challenges that you're facing in scaling, hiring and retaining employees. Just as you see the whole start-up ecosystem and the SaaS start-up ecosystem, as a lot has happened in all of these and these are the brands that compete with you on hiring. How do you expect to see hiring turnout in the coming quarters? And the last question, again to Pravin, is about employees reluctance to come back to office. Have you seen that? Or have you seen indications of that?

[Salil Satish Parekh, MD, CEO & Director]

So thanks for your questions, Saritha. I think the first one, in my discussions, especially with clients in financial services, there are different types of work that we are seeing. One is work that relates to the financial services companies looking to expand or get greater market share with their customer base. What we've learned, what they've learned through this last several quarters is when you leverage digital platforms and cloud that customer, connect, acquisition work becomes much more intuitive for their customers. And we, with our capability set on digital and cloud, are able to support that. Another area that we see is focused on what our clients in the Financial Services want to do in terms of which specific partners they want to work with. We are seeing that with the extreme resilience that we've shown through the work from home move and even supporting clients through all of the changes in the past 5, 6 quarters. There is a tremendous benefit, and we see some discussions where we are getting more and more access to and work with some clients in Financial Services. The third area, there's a regulatory work that we see that clients in Financial Services are doing, and that requires more expansion. And in many of those places, we are present. And the fourth is where clients are looking to combine their operations and technology transform the whole business, make it more efficient, but also much more digital and new age where they can engage with their employees or others customers in a more intuitive way. And when that combines tech and ops, again, we find ourselves in a most strong position to support our clients, because they see that we are able to bring everything together much more effectively as One Infosys. There are multiple areas in financial services and each sector has different aspects that we can see that help us to scale up. With that, let me pass it to Pravin.

[U. B. Pravin Rao, COO & Whole]

See, on the attrition front, you're absolutely right. It's a reflection of the strong demand environment. And in addition to that, the startup is also a very attractive place for many of our employees. And with more and more of refunds out there, that sector is now also increasing OpEx for some of our employees. So obviously, I mean, that's something we are dealing with. From our perspective, there is a 2-pronged approach. One is, of course, we are doing our best to retain people. We are trying to articulate the value proposition, the kind of investment we are doing in terms of their own career being -- ensuring that they're digitally ready, future ready and so on. We are talking about the inclusive culture that we have in the organization. And there are a lot of other investments around employee in terms of job rotations, billing and so on. So those are some of the things we are trying to articulate. There is a lot of deep engagement and a lot of focus on retaining employees. At the same time, we are also looking at attracting new talent as well. We are -- one of our biggest strength has been our ability to recruit college graduates, train them and then deploy them in a productive manner. And from that perspective, I mean, we are one of the most attractive brand in the country, and our ability to attract this kind of talent is very high. I mean even this quarter with higher attrition, we have not only been able to backfill attrition, but we have also had 8,000 of net hire. So that's a reflection of our ability to also recruit talent at scale, train them and deploy them in production. So that is the other area we will focus on. In terms of employees' willingness to come back to work, in some sense, you are right. There is some sense of hesitancy in terms of employees wanting to return back to work. I mean primarily most of it's around safety concerns and so on. And it also varies from geography to geography. One of the things we have realized is where people are in the same city as where our campuses are located, there I think there is much more willingness for people to come. They are looking at some kind of flexibility rather than a big bang approach and which we are also trying to do in a phase manner. But our challenge is mostly for people who are no longer in Tier 1 cities where our campuses are. They have gone back to their hometowns, which will be in Tier 2, Tier 3 cities.There, there's a greater deal of reluctance, because they are not sure whether there'll be an advent of third wave, whether they have to now switch back to work from home and so on. So I think there is a bigger deal of reluctance from that set of population. Our own sense is, I mean, this requires some amount of phase management, and we have to do it in a very phase manner. Our approach is to first start small, 8 to 12 weeks, encourage people who are willing to come on a voluntary basis and creating that safe environment and giving them assurance, creating trust between the employees that they have a safe environment to work on. And based on that learning, we'll fine tune it, and we are pretty much confident over the course of next 3 to 6 months. We should be able to address any concerns employees have and encourage them to come back to office, as said. Well, I mean depending on the nature of work.

[Unknown Executive]

Thank you, Saritha. The next question is from Sai Ishwar from The Informist. Sai is joining us on audio.

[Unknown Attendee]

Just one question to Salil. Sir, could you actually throw us some light on the annual budget? Because compared to last year, in beginning of last year, we had the pandemic. So do you see some of those trends of your clients flowing into this year? And also, could you actually tell us are these spends more in the sense that their cost optimization kind of deals where which might taper down once the pandemic normalizes?

[Salil Satish Parekh, MD, CEO & Director]

So there, Sai, thanks for the question. The way we are seeing today, first, there was some constraints, as you rightly point out last year in the budget's, but that very quickly gave way to what you described as the efficiency cost discussions. But there was also the discussion on what can we do to change our business in terms of becoming much more online, much more digital, much more connected, so that they could expand their own connects in the market. Today, what we are seeing is that both of those continue. There's a huge focus and through our work on automation and artificial intelligence, we are at the forefront of helping our clients be much more efficient with respect to their tech spend. There's also the focus on building out new capabilities on their side, which allow them to be more fluid in the digital online environment. Some of that is a cost. Some of that is a spend for them. But a lot of that is also becoming an investment for them, so it's a different way that they're looking at technology, and that's partially why we see some of the boost, because once large companies look at technology also as an investment, it's a completely different tool from which we're doing or they're looking to do their investment and then the returns that they're looking on it in terms of market growth or business repositioning or efficiency, which is the outcome that they're getting. So those are the changes that we are seeing in the way the budgets are evolving.

[Unknown Executive]

Thank you, Sai. The next question is from Supriya Roy who joins us from TechCircle.

[Unknown Attendee]

My first question has to do with I want to know how -- what fraction of the India business this particular -- this June quarter has been coming from the government sector in the country, India? And if you could compare that to the June quarter of the previous year, so as if you could just relate that to how the -- I understand the pricing is not quite affected by the volatility of the macroeconomic conditions right now. But how does the change in demands from the India plans that you have now and how the kind of plans that you want to have in the near future, who want to retain kind of affect the pricing that you have in the India market, given again the whole backdrop of the COVID-19 situation? And the second question is to do with I want to revisit the problem statement on attrition. So Pravin did mention that as and when supply does catch up, there will be better opportunities on that. And could you just elaborate on what supply catching up is he referring to? I didn't quite catch it. I also just want to further define the problem statement with -- there are a lot of these media reports, right, which want to show data that a lot of these heavily buyback start-ups in the country are paying good engineers to the tune of as much as over maybe 1 crore, 1 crore level, lakhs per annum. And then you have engineers with 2 to 3 years of experience earning as much as 52 lakhs or 53 lakhs? Are these heavily backed start-ups on a per annum basis? So how is Infosys's approach beyond fresher hiring going to capture this sort of talent pool that the start-ups are well positioned to train as well as just go on to balance the same sort of excellent operating margin that is currently goes on to sustain. Yes, those will be my 2 questions.

[Salil Satish Parekh, MD, CEO & Director]

Let me start off and then Pravin and Nilanjan may join in. On the India business, what you mentioned, as you know and Nilanjan was sharing earlier, India business is a small part, just under 3% of our revenue. We don't split out within that any of the sectors and what the percentage of that sector is nor do we split out separately the pricing in that. Suffice it to say what Nilanjan was sharing that we had a growth in all of our geographies, including in our India geography in Q1. We, of course as all of us did, had an intense impact of the second wave. Nonetheless, our work there continued in many ways. In terms of attrition, let me start off and then, of course, Pravin will jump in. The thinking that we have there is we want to make sure that we do everything that we are doing, keeping employees in the forefront. Pravin mentioned a number of different factors that we are looking at. Of course, we have done a lot of work, as Pravin and Nilanjan both mentioned with the January increase in compensation, the one that kicks in, in July 1 with a lot of activity on promotions. All of those things are part of what we are driving with respect to making sure that we are an extremely attractive company for talent. Again, as Pravin mentioned, and I had shared earlier, we had a net hiring of 8,000 people. So we continue to make sure that we fulfill the demand that we are seeing in front of us. In terms of what you said about the start-ups and some of the salary points, what we see today is that we have an extremely good training environment, what Pravin referenced earlier, 3 to 4 months. We also have a career path, which is long with lots of interesting projects, and we are able to attract employees into that talent mix. Of course, we also are looking at what we're doing with compensation. We're also doing things, which give special bonuses where there are digital skills involved. And we work with all of our employees to make sure that holistically, both from an engagement perspective, team perspective and compensation perspective and training, we're doing everything that supports that. Pravin, if there's anything else you want to add?

[U. B. Pravin Rao, COO & Whole]

Yes. I think one of the question -- clarification you wanted was around the supply. If you remember, all of last year, the growth for the industry was muted. People had stopped hiring and many of campus hires joining date was deferred. Only in the last quarter or so with growth coming back, people have started to hire -- resume hiring and many of the deferred dips candidates are being asked to join the company. There is a lead time, because you have to hire, you have to train them. This training could be 4 to 5 months before you can deploy on the project. So that is what I meant supply catching up. More and more people, we hire college graduates, train them and deploy them in project. Then in the whole situation release, and we will be able to meet with the demand in a much more comfortable way. So that's what I was referring to from a demand perspective -- from a supply perspective. Now the other question on the startup, as Salil mentioned, we also have a couple of specialist teams, one we call power programmer and the other one is called digital specialists. We hire people into these teams at a significantly higher compensation than what we do for normal college graduate. So that is one way of -- for us to attract the right talent, and we deploy these people on some of the most challenging projects which are very attractive for these people as well. So that is the other way we try to also -- try to compete and try to get the best of the candidates out there.

[Unknown Executive]

Thank you, Supriya. The next question is from Malavika Malu from Enterprise Story. Malavika is joining us on audio.

[Unknown Attendee]

As you have been talking about retaining talent and hiring, you also said that you'll be looking for better compensation packages and other programs. So do you see the cost of retaining and hiring talent to go up in the coming quarters, especially given that there is a shortage of supply? And what are the other challenges you're facing in this area? My second question has to do with ESG. Are you seeing any factors of ESG which clients are considering while signing deals? And if yes, how do you plan on taking that into account? And how do you plan to improve your ESG factors?

[Salil Satish Parekh, MD, CEO & Director]

Thanks for those questions. The first one with respect to talent compensation and cost. As Nilanjan had shared earlier, these are things that we have factored in as we look at our cost outlook for the full year. We have already worked with a compensation increase, which was rolled out in January. Another one, which is rolled out in July. And there are other mechanisms through promotions to different approaches, which you've done on retentions and as we bring talent in, yes, all of those are costs, but those have been factored in as we provide our guidance for the full year, which is operating margin of 22% to 24%. There are many other levers which we use, some of them that were discussed here, for example, how we work with subcontractors, how we work with role ratios and pyramid, what we do in terms of digital value with our clients, which will help us to make sure that the overall cost and margin equation is how we have committed and how we have forecasted it in terms of the market. For the ESG, I'll request Nilanjan to give a view on that, please?

[Nilanjan Roy, Chief Financial Officer]

So as you all know, we actually rolled out our ESG 2030 vision in October last year. And fundamentally, we realize that our sustainability has to address, all stakeholders, our clients, our shareholders, our employees, the communities we work in. And therefore, I think it's a very holistic ESG vision. And specifically, we've also seen that supply chain for many of our clients. And when we are the vendors for them, they're very interested in our ESG practices and sustainability practices. And in fact, in Europe, it's very common for clients to ask us about our ESG ratings in global indices. So absolutely, this is more and more going to be a long part and a large part in decision-making as well. And I think our credentials over the last 40 years around this is very, very high. We've recently been rated by one of the largest Indian rating houses last month as the #1 company across India in our ESG practices.

[Unknown Executive]

Thank you, Malavika. The next question is from Shilpa. Shilpa had dropped off earlier. We have her back.

[Unknown Attendee]

Your offshore effort increased to 76%, a significantly higher. And recent ISG finding shows that the supply side talent crunch is not impacting the pricing of contracts. So do you think the automation is causing this decoupling? And second question is on attrition. Hiring new talent and rehiring some of them, backfilling them would mean higher cost, especially when there's a war for technology talent. If you can talk about what kind of retention measures have really worked not just for top performers? There's also widening MRE employee gap to the management. Are the benefits more skewed towards senior management and not the junior employees?

[Salil Satish Parekh, MD, CEO & Director]

On the first one, the point with respect to attrition, I think the focus there in terms of how we work with and fill -- make sure that we are fulfilling client need is what Pravin was sharing earlier. We have a program which allows us to bring in a lot of employees that we have now set a target of 35,000 college graduates worldwide that will join us and redeploy. We also have different mechanisms, which are focused on making sure that all of the employees have much greater engagement, a clear career path, a lot more focus on re-skilling as we move to the digital skill sets, specialized programs where there are digital tags, which enable employees to get specialized bonuses, compensation, projects. And of course, the focus that we discussed on promotions. We think all of these things help us, as we shared earlier, with the net increase of 8,000 employees in the quarter to demonstrate that our brand, our approach to bringing talent in is still extremely relevant, and therefore, we are able to fulfill what our client needs are and grow at the pace at which we are growing.

[Unknown Executive]

Thank you, Shilpa. The last question for this evening has been sent by Maya Sharma from NDTV, and I'm going to read out a question, gentlemen, one of you can choose to respond to it. Maya's question is in response to the ongoing Zomato IPO and all the new recent Unicons, broadly, what does this mean for the start-up sector in India?

[Salil Satish Parekh, MD, CEO & Director]

So let me take that and others may have a view. I think it's incredible to see the success of all of these companies, many of them which are based on technology and, of course, in the way that they leveraged it in the digital ecosystem. I think it's going to give a lot of boost to all technology businesses within the country and, of course, give a boost to much more innovation that we see coming over the years increasingly coming from India.

[Unknown Executive]

Thank you, Salil. With that, we come to the end of the Q&A session. We thank our friends from media for being part of this press conference. And thank you, Salil, thank you, Pravin, and thank you, Nilanjan, for being here.

[Salil Satish Parekh, MD, CEO & Director]

Thank you.

[Nilanjan Roy, Chief Financial Officer]

Thank you.

[U. B. Pravin Rao, COO & Whole]

Thank you.

[Unknown Executive]

Before we conclude, please note that the archived webcast of this conference will be available on our YouTube channel and our website later today. Thank you once again for joining us, and have a great evening.