Infosys Limited (INFY) Q2 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, good day, and welcome to the Infosys Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Sandeep Mahindroo of Infosys. And over to you, sir.

Thanks, Rina. Good morning, everyone, and a very warm welcome to all of you to discuss Infosys financial results for the quarter ended September 28, 2012. I'm Sandeep from the Investor Relations team in New York. Joining us today on this earnings call is CEO and MD Mr. S.D. Shibulal; CFO, Mr. V. Balakrishnan and other members of the senior management team. We'll start the proceedings of the call with some remarks on the performance of the company for the recently concluded quarter, followed by the outlook for the year ending March 31, 2013. Subsequently, we'll open up the call for questions. Before I pass it on to the management team, I would like to remind you that anything that we say, which refers to our outlook for the future, is a forward-looking statement, which must be read in conjunction with the risk that the company faces. A full statement and explanation of these risks is available in our filings with the SEC, which can be found on www.sec.gov. I'll now like to pass it on to Mr. S.D. Shibulal.

So good morning, good afternoon, good evening, everyone. Thank you very much for joining the call. I'll give a brief update on the quarter and then hand it over to Bala for giving -- and add more color. It has been a decent quarter for us. Revenue grew by 2.6%, volume by 3.8%. Pricing's stable, marginally down by 0.2%, but mostly stable. Then good client relations, 39 new clients added, 14 of them in the BFSI segment. And the growth has been all around. Top 5 has grown. Top 10 has grown. Top 25 has grown. Many of the clients are in the Fortune 500 space. We did an acquisition this quarter, the Lodestone acquisition, which will get consolidated as we go along. It has been closed. So if I look at the, any of the early indicators of Q2, it's a clear sign that the Infosys 3.0, which is in execution mode is starting to show results. See, when we started this transformation, we were definitely in the -- we were in a different time. By the time the transformation was complete, we were in a challenging environment. That does impact our ability to realize early results from -- the early benefits from the transformation. But at the same time, if I look at Q2, if I look at the indicators, they all show sign that these -- those executions are starting to make real sense. If we go through that one by one, we have closed 6 large deals in Q2 -- 6 deals in the business and IT operation space, 2 of them more than $200 million, and both of them in the Infrastructure space, infrared deals. In the consulting and system integration space, we have closed 8 business transformation deals in Q2, and many of them, really, reasonable size. In the Products and Platforms space, we have closed $100 million TCV -- close to $100 million TCV in Q2. Our total TCV we've been trying to close for $500 million. We are close to $0.5 billion. So the result in all the 3 dimensions, whether it's in consulting and systems integration, business and IT operations or in Products and Platforms show signs that our execution is showing results. At the same time -- and also some of the news that we plan to make cloud mobility, strong client wins and analyst endorsements . We are also seeing analyst endorsements during the quarter. There has been number of reports that are on the strategic direction we have taken, endorsing the fact that the approach towards an IT-led service offering is appropriate for the time, things like that. With all that, we are operating in a challenging environment. The environment between last quarter beginning when we talked to all of you and today, has not really changed. It is as challenging as it was in the beginning of last quarter. Of course, the details are known. We know why the U.S. environment is challenging, we know that the European environment is uncertain, financial services is going to turmoil. So all of these points are known, and we have not seen any material change in the environment between the beginning of last quarter and this quarter. We continue to hold our guidance at, at least 5% and the EPS at 2.97% adjusting for the client's currency movement. Our visibility metrics have not changed. Usually, we see 95% in the beginning of the quarter -- for the quarter, and 65% for the year -- in the beginning of the year. So if I actually recompute that for this point in time, it's about 80%, 85% -- 85% to 87%. So we still have to catch up with the remaining revenue during the next 6 months. Now we are very confident about our strategic direction. The early indicators are very positive, and we are really confident about our strategic direction. We clearly believe that the platform which we are building will perform extremely well when the environment gets better. We are investing for the future. We are investing into products and platforms. So for example, we have filed a number of patents during the quarter and over the last 6 months. We are investing into consulting and system integration. We have done the acquisition -- strategic acquisition. We are investing into Europe. Europe is a strategic market for us. While Europe is undergoing turmoil, we believe that because our revenue from Europe as a percentage is comparatively smaller, it is a market with great opportunities for us. We are investing in the people. We have given a compensation increase of 6% average offshore and 2% to 3% average on site during this -- we have just announced this; offshore will become effective this quarter and on site will become effective next quarter. So to summarize. We have seen positive signs to indicate that our strategic direction is yielding results and the execution is starting to yield results. We are operating in a equally challenging environment as it was in the beginning of last quarter. Our visibility metrics remained the same. We still -- visibility for the year is, at this point, about 85% to 87%. We still have a catch up to do. We are very confident about our future and investing for the future. We are investing by creating intellectual property, by creating capacity but through acquisitions, as well as we are investing into our people. So while I believe there will be challenges in the short term, I clearly believe that the long-term will be fine. With that, now let me hand over to Bala.

Good morning, everyone. It has been a decent quarter, looking at the environment where we are in. The revenues grew by 2.9% sequentially. Our EPS grew by around 5%, sequentially. To look at the gross margin. Gross margin came down by something around 1.6% during the quarter from 39.5% to 38% or so. And this was clearly admitted when we gave our guidance during the last quarter, because we felt that during the year, our cost could slightly grow up when the growth comes down, so we have factored in that. But if you look at the yearly guidance, we have retained that 5% guidance for the revenue, but on the EPS side, we had made sure that the impact of currency is felt. So the guidance has been revised from 3.03% to 2.97%. However, we were able to absorb the increase in wages, which we are announcing from October 1 for all of the employees offshore in India and some of the employees outside India. So after absorbing that wage increase, we are certainly able to retain our EPS guidance for the year, because we are able to pull out some of the cost levers we have. So for the quarter, the operating margin came down by 1.6%, basically because some of the cost went up. The currency has been neutral in Q2 as compared to Q1. On a net margin, we have seen a slight uplift, mainly because other income went up. Our effective tax rate continues to be at the level of 28%, 29%. We are able to get a yield of 9.6% on all our cash [indiscernible] during the quarter. Our DSO days are 65 days, and we have a hedging position of close to $1.1 billion. We view that currency could remain volatile for some time to come, so we're returning our policy of hedging for the short term. We're not changing that. And we added some 10,420 employees during the quarter. We guided for 9,000. Our attrition is under control, it's up 15%. Our CapEx guidance remains the same. So overall, I think we have done well during the quarter. That's [ph] for the plan we initiated in the beginning of the quarter. For the full year, we are retaining the guidance on the revenue side. Of course, it requires us to deliver some 3.6%, 3.7% sequential growth in the next 2 quarters. We believe it's doable, looking at the client conversation that we have and also looking at the clients' budget. We believe it's doable, that's why we are retaining the guidance on the revenue side. On the EPS side, we made a small correction, mainly to account for currency, because in the beginning of Q2, when we gave the guidance for the full year, we assumed the rupee-dollar at INR 55 for rest of the year. Now sale of the rupee has appreciated. We characterize with past [ph] INR 53, so the closing rate at the end of Q2. So the -- except for the adjustment for rupee-dollar variation, the EPS guidance too remains the same in spite of the rate increase. So I think with this, I will conclude. We'll open up the floor for Q&A.

[Operator Instructions] The first question is from Joseph Foresi from Janney Montgomery Scott.

My first question here is you talked about revenue guidance and how it's looking at 3.7% sequential growth the next 2 quarters. And, I guess, your impression is, obviously, that it's doable. Can you give us some more color on that? I mean, are using some large deal ramps? Are they contracts that you have visibility on? What gives the Street more confidence that the revenue's actually going to accelerate in the tough macro environment?

So at this point, and then usually in our inflation, and visibility of about 85% to 87%. We will always have a catch up to do during the quarter, because we now have 100% visibility at this point in time through the year. And we have not changed our visibility metrics. This quarter, there have been, actually, substantial large deal wins. One, which is in the public space, with Harley-Davidson, which we closed. It's a $200 million plus deal we entered a certain leg. Another deal, which we will not disclose the client name, we've said that again, $200 million plus deal intercepted [ph]. Both of them included actually taking more people. There are 4 other deal wins including India Post and Ministry of Corporate Affairs in India. All substantial, large wins. In the transformation space, there are 8 wins. And on the Products and Platforms space, we have booked $100 million TCV. Being said all this, I also said that we are operating in a challenging environment, but based on where we are today, based on the visibility metrics which we are looking at, based on some of the deals, which we have closed this year, we do not feel the need to move our convenience in the guidance. It is a statement of fact as we see it today.

Okay. And then my second question, on the margin front, is we look at the -- what's the impact of the acquisition? And is it -- is that built into guidance? And why did costs spike in the quarter?

So there is -- the impact of acquisition is not factored in the revenue nor the margin, because it's not closed. It will get closed only next week. We have seen less buying because of the inflation [ph] of contracting cost. We have -- have a need for subcontracting in certain parts of the organization, and we have seen the need for sub-contracting costs, and that has led to the change, [indiscernible].

And so just on the acquisition, my last question, just as a follow-up to that one. What -- I mean, can you give us a rough estimate of what the impact would be on the margin front?

We will do that next quarter, because integration will only start after we close, because according to European law, the integrations will start only after we close. We are waiting for [indiscernible] to spin [ph] from Germany, which has now come. So next week, we will probably close it, and then we will consider that for the next quarter guidance.

Okay, so margin profile is dilutive, correct?

There will be some impact, but please, remember, they are a $200 million corporation, we are $7 billion corporation.

The next question is from Moshe Katri from Cowen and Company.

Bala, can you comment on your decision to submit your resignation? Just give us some background on that. And was that kind of under some sort of a long-term planning process?

I want to clearly state this, Bala has not resigned. He has not submitted a resignation. Bala is one of the finest [indiscernible] that this country and everyone else has seen. He has done an excellent job as the CFO of Infosys. In fact, he was able to receive numerous awards during his time here. He also started looking after the business portfolios about one year back, right Bala? One year back -- he took over 3 business portfolios, 1 year back, all 3 of them strategic to Infosys. Infosys BPO, Finacle and India, all 3 are extremely strategic to Infosys. India, I talked about 2 wins this quarter, which I think he has very, very similar guidance factoring them. BPO is growing at 18% rate. The company is growing at 5%, connectively, it's the flagship product which we have. So he has stepped out and will pass on his role as the CFO to Rajiv Bansal. He has not resigned. And Bala, do you want to add?

Nothing, Moshe [ph]. You can't escape me, so I'll [indiscernible].

The next question is from Dave Koning from Baird. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: I guess, first of all, just -- I wanted to pursue on the margin side. We're getting about a half year impact this year of the appreciated rupee and about a half year impact of the wage increases. So is it fair to say that next year, when we have a full impact of those things, assuming that the rupee doesn't move back, doesn't depreciate back -- is it fair to say that next year, when we have a full year of those impacts that margin should go down a bit further next year?

Well, if you assume the world is going to remain static next year, also, if we don't see the growth, what you say is right. The whole thing we are doing is to make sure that when the growth environment becomes better, we are well positioned to take that growth. Of course, this year, you'll see the impact of -- which is only for half year, next year, it'll come for the full year. And again, currency is going to be too volatile. I mean, it's not going to be one way, because even if you look at the recent trade data of India, the trade it's something around $18 billion a month. And, of course, the oil price is still high. India is still fighting the high inflation. So I think currency will move both ways. It's not going to be one way. And we are going to see volatility, and we have to make sure we do proper hedging to minimize the impact. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: Okay, great. So there's not necessarily a multi-year margin decline necessarily if revenue growth can come back?

I don't think so. I think the whole idea of doing all this is to make sure we are well prepared. And I think growth will come back. I mean, there's no -- we have seen this kind of a downturn even in the past, that is 2000 or 2008. And in terms of spending, do have comebacks. I mean, we thought bringing efficiency, we thought using technology, corporate cannot grow, so spending will come back, and we'll be right there when it comes. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: Okay. And my follow-up question is really on the other income line. It was quite a bit higher this quarter. And I think on the last call, you talked about a $25 million gain in there. Maybe you can just give us a little context about what you think that line will be in Q3?

It depends, because we have seen a sharp momentum in the currency during the quarter. If you remember, it was something around INR 55 per $1 in the beginning of the quarter. At the end of the quarter, it's almost close to INR 53. That means something around 4% to 5% appreciation in rupee. That's why all of our hedges gives some positive impact. That's why you saw big gain. So if you take -- it depends on how the rupee is going to move. We have the hedging position close to $1.1 billion. Our policy is to hedge for next 2 quarters at any point in time. So it depends on the currency movement because most [indiscernible] 5% by gain. We have to see what the impact is.

The next question is from Edward Caso from Wells Fargo.

I was wondering if you could remind us what your gross hiring targets were at the beginning of the year, and then how you're progressing both on the freshers and on the lateral side?

We're progressing as planned. Our number for the year was 35,000. We recruited 10,000 people gross this year. This quarter, the gross number was 35,000. I think we're on track. Our on-site number for the year was close to 2,000. I think we are on track for that also.

And how many were they -- you mentioned you had to hire more contractors. Is that just a dislocation in certain skill -- high-propensity skill sets or certain geographies or...

Yes, it's a need to have certain skills in consulting and system integrations, because of new skills, as well as the new program starting.

The next question is from Moshe Katri from Cowen and Company. There is no response from this line, we'll move on to the next question. The next question is from Rod Bourgeois from Bernstein. Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division: Just wanted to inquire about your revenue trends in the -- among banking clients. You've had pretty soft quarter-to-quarter revenue growth among your banking client segment in each of the past 2 quarters. And so I've got a couple of questions on that. To what extent has pricing concessions hurt your revenue growth among banks in the past 2 quarters? And then should we expect revenues among banks to turn the corner as we move into the back half of the fiscal year?

This is B.G., in the last 2 quarters, again, there have been few cases where there were discounts in a couple of banks, including in capital markets. But apart from that, it's not a secular trend. We are not seeing that kind of [indiscernible] across-the-board. This quarter, on the services alone, that's in Q2, we had a sequential growth of 2.2%. So the revenue, while it's still slower, it's definitely picking up. The sector is definitely going through one of the most challenging times, so there's a lot of effort we put on cost-cutting measures, which the banks are doing and there's also an effort to conduct further on the consolidation approach between our clients. So we are seeing some of these initiatives moving into growth and in some areas within our client base. At the same time, there are challenges. There's going to be a significant cuts for -- there as we move into the fiscal year, which is going to start in Jan. While the budgets are not closed on, it's still early for that, but early indications are there will be cuts to budgets. So we need to closely watch this, but at the same time, we are preparing ourselves for taking proactive proposals to our clients to help them in cost-cutting measures, in simplification efforts. And also, even in current environment, there are pockets that in this case are being met. Risk and compliance is one area, the other area is client-centric applications. So these are areas where there is some -- more of spend -- the position we spend, it includes environment and we are capturing a part of that as well. Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division: All right. And B.G., just to follow up on that, I mean, are the -- is the worst of the impact of the price concessions now behind you? And then the second part to the follow-up is to the extent that you're able to drive better growth going forward in the banking clients segment, is that more likely to come from new client wins or from existing clients starting to spend a little -- at a better pace? So the first part is, what's happening is the worst of the pricing over? And then what's the key driver of growth going forward, new clients or existing clients?

It's not just about pricing. There are other reasons why there was revenue ramp down in the last 2 quarters, including the ramp down. So to some degree, yes, that is over and behind us. Of course, nothing stops clients from coming back on new requests, but for now we aren't seeing that. So and to answer your first part of the question, the answer is yes. The second part of the question, yes while we will continue to add new clients to the portfolio, we added 14 in the last quarter, we still see opportunities between our existing client base where the revenue growth is happening even in essence, some of our top lines did grow last quarter. So we focus on both. We will happily wage existing relationship. It's still a large revenue base we have, so we will continue to focus on both the trends in terms of revenue growth. Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division: All right. And then one other question just to broaden this, are there other verticals where we might see some meaningful effect from price concessions? Or was the -- the price concessions and financial services more of sort of an isolated set of events in your overall view?

If we look at our Q4 to Q1, revenue product really dropped 33.7%. Now from Q1 to Q2, it has remained somewhat stable, 42%. We are not seeing a secular pricing negotiation trend. We are not seeing a secular trend on pricing negotiation spend. We are seeing sporadic ones, which is very much in line with maybe 5% more than what we would have seen in a normal situation. Last quarter, revenue product really doubled, so it's the reflection of the portfolios in the last quarter, [indiscernible] in the recent portfolio dropped, slightly dropped. So it's a reflection of the portfolio shift also. So at this point in time, generally, when I look at it, I see sporadic pricing and renegotiations, but we expect it to be stable looking at where we are today.

The next question is from Keith Bachman from Bank of Montréal.

I was wondering if you could just talk a little bit more about the gross margin's trend in terms of providing some color on the forces of impact of breaking down pricing versus the rupee, versus the wage hikes, what the impact is, say, in the upcoming quarter or the most recent quarter, but really the upcoming quarter? But more importantly, is this the right gross margin structure going forward or do you see the ability to recover some of those forces?

Well, all these have the ability to recover. See, I can always say that we have that high aspiration in the operating margin side. We want to retain our operating margins. In weak times when some of the factors were these 2, particularly this year, since we hired more people than required, it is hurting us on the accreditation side, so we are carrying close to maybe around $500 million of cost because of non-billable employees sitting in the system, that is hurting us. Probably when the growth comes back, we'll have the biggest lever for us because when the utilization improves, you will look better. And all these will have more impact. Like currency, we don't know how it's going to move. Utilization is a function of growth. So growth is the biggest lever we all have and if that comes back, our cost of sale will get administered and we will get back the margins. So actually, I don't see any changing of our margin profile. These are all short-term things you go through when the amendment grows against you. And that is where you see the impact.

But if we you look out the next couple of quarters, it seems like you're assuming fairly muted gross margins. Are you assuming that the gross margins stay at these levels?

The next 2 quarters, we see other impact because we are giving a wage increase. That is why I said operating margin on a full year basis could decline by 200 basis points. The wage increase will be there. We're also using some of the levers to get some efficiency on the cost side. So net-net, I think it will be reaching a range from what we have seen in the second quarter. And for the full year, probably it would be a decline. If the growth comes back up, probably some of the decline, we can bring it back.

The next question is from David Grossman from Stifel, Nicolaus. David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division: I'm wondering if I could just go back to a question that was asked earlier, but maybe ask it more broadly. And my recollection was that you had certain sequential headwinds in the top line in the fourth quarter and in the first quarter that ranged from the earlier discussion about pricing to large customer, consolidation, if you will, and runoff, as well as a cancelation in Europe in the first quarter. Number one, am I remembering this right? And if I am, if you aggregate all those things, how should we think about the sequential headwinds diminishing as we go into the second half of the year? Or do we really not get that benefit at all, in fact, in a stable environment sequentially?

So actually what we know the Q4 into Q1 actually lowered the base, right? We are now trying to climb out of that base. I am hoping that, that will [indiscernible]. Because when the base comes down, then when -- our growth is on the base. Is that the question you were asking? David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division: Right. So, I guess, what I'm asking is did the base -- the headwinds that were pressuring the base sequentially, whether it be pricing, customer, lots of customer momentum with certain large clients or the large deal that was canceled in the first quarter, when you aggregate all that, is the pressure from those events behind us so that we're in more of a steady-state mode to grow sequentially entering the third quarter?

So, I think I'm not expecting a similar event to happen unless something really goes wrong with the environment. So in that sense, we are in a steady state to start a new trajectory. That is correct. David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And can you give us a sense for how much of a headwind those items were in the fourth quarter or, I guess, in the first and the second quarter?

$0.26. We didn't [Audio Gap] in the first quarter. Hold on one second. David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division: Actually, Shibu, what I was asking was...

No, no. According to Q4, in Q4, if you look at it in Q4, we grew by 1.9% and in Q1, we delivered 1.1% in dollar terms. If we will include 3 of last year, we were 18 06 [ph]. And then we dropped to a 17 71 to 17 52 [ph], so now we are back at 17 97.[ph] David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division: Okay. But when you aggregate all those factors, was it a 1% sequential headwind to growth, was it 2%? Is that a number that you can -- that you have?

We did actually more than that because the growth in Q4 was 1.9% and in Q1, it's around 1.1%, so that's a the total of 3%. But it is not a percentage computation because when the base goes down, you are growing from that base, right? So -- if the big order [ph] does not happen, that's a completely different number you'll end up with. David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division: I see. And let me ask you just one other question, just philosophically in terms of growth and profitability. Historically, you've been kind of very consistent in terms of where you've kind of targeted the margins vis-à-vis growth. Given all the changes that are going on in the company, should we think differently about that going forward?

So from an aspiration perspective, nothing has changed. I'm very, very clear, from an aspiration perspective, nothing has changed. We believe that we shall create high-quality growth. We shall grow over industry average. We still have one of the leading industry margins. There's no doubt about the aspiration. See [indiscernible] aspiration leads to new strategies. And those strategies lead to execution, executions leads to results. We also believe that the strategic directions we have taken, the influence we have seen are creating a balanced portfolio. Operating on both cost to revenue side of the client, having a strong Products & Platforms business. All of this is meant to meet our aspirations. To have high-quality growth, right, as I defined. The result, when we -- with all these aspirations, we're in a different time, we're in a different time today, the environment is very challenging. That means the ability to realize the results from those transformations are definitely lower trend, it will take some time. So in the short term, you will see choppy environment. You will see bleeps, but we clearly believe that our own $3 [ph] strategy, and now that we are in execution, in the long-term should deliver our aspirations. There are no guarantees, right? But we believe that it really shall deliver our aspiration of a high-quality growth.

The next question is from Shashi Bhusan from Prabhudas Lilladher.

So how has the visibility improve for the back ended growth today compared to where it was at the beginning of the year? Because you have mentioned that the [indiscernible] our growth is going to be back-end loaded?

I clearly stated that the environment has not changed a lot contrary to this quarter. We had a decent quarter, there's no doubt. But to me volatilityis expected, which is ongoing in the developed markets. The environment, there's no material change in the environment. There's no material change in the environment, in the regulatory environment, the beginning of last quarter and this quarter.

And so if you struck a few deals over the last 4, 5 months, [indiscernible] taking clients employed on our payroll, do our current employee cost include full impact of were [ph] the same or will there be some spillover in the next quarter?

The number is quite small and employees we have taken over is already included. There may be a few more, but the numbers are quite small.

Okay. And for our Harley deal that we have signed last quarter, you spoke in the morning conference call that we are talking to 3 more clients who are utilizing the same asset. So at what stage of the negotiation are [indiscernible] for those views? And if you could give some more color on the size and the vertical as well?

Harley deal, where are we on -- I said utilization across clients? [indiscernible] will respond to that.

So the Harley deal, we are building at D.C. and Milwaukee as part of the deal. And the idea is that we will be using that development center for top other clients in Wisconsin as well as in the greater Chicago area. So from -- and the investment in the CapEx that we will be putting into that will actually be properly distributed. But for the deal itself, there are certain specific investments that we have to make ranging from people rebadge to certain asset purchases and top grades, et cetera, and creating a development center.

Okay. So my question pertains that has all investments is captured in the current margin profile? Or is it going to be evenly spread over the next few quarters?

It's evenly spread over the next few quarters. It is a transition that is going on and -- on the larger infrastructure part of the deal. But for the application, development work, et cetera, it's already kicked off which requires very minimal investments. So there is not necessarily a complete offset, but some amount of it. But we do expect the margins from this particular deal to continue to be below company average for a while until we actually build that up to some attrition, which should happen in the fourth quarter next year.

And so you spoke in the morning conference call about 3 more clients who we are talking to. Do you float these assets, so at what stage of negotiation and in terms of size and vertical, if you can give some more color?

Yes. This is Basab Pradhan. So we have a pretty big pipeline, not just 3 or 4 deals of large outsourcing opportunities. Many of them, I'd say maybe 1/3 of them include infrastructure outsourcing. And the expectations of our clients in the way we are dealing with these don't always include asset utilization like the way I shall describe the Harley deal was.

[indiscernible] in the Harley assets that we are building?

Sorry, can you state your question again, please?

So what I was saying that for the Harley assets that we have really -- so you are talking to 3 more clients in utilizing those same assets or [indiscernible]?

Yes. So these are not the -- the large deals that Basab is talking about are not going to leverage or capitalize the assets we're building for Harley. But we have 3 other -- not 3 -- but some clients in the greater Chicago area that will be leveraging this capacity and investments that we're making.

The next question is from Trip Chowdhry from Global Equity Research.

Shibu now you gave a very good keynote at Oracle World (sic) [Oracle OpenWorld], very impressive. I had a few questions from a strategic perspective and what our research is indicating, every indication, our research is showing that next year will be worse than this year in terms of IT spend. And it seems to us the strategy that Infosys is taking on needs some alteration. I think the focus on investment should be more on demand generation and competitive wins. Are there any discussions within your company? See, you guys have portfolios. What I'm trying to understand is are there any discussions happening within your company maybe to replace or change the board?

No. Change what?

Change of board.

The Board, the Board of Directors at Infosys?

Look, Trip, we have a strategy and we are going after that strategy. We believe that the industry has got bigger challenges in terms of commoditization and scalability. What you say is right. The global economic indicators show some weakness but it doesn't mean the IT spending is going to come down. Because if you talk to any large client today, they are talking about bringing in efficiency, bringing in innovation. And there are also some of the regulated things which are driving the IT investment. You could see a short-term impact this year because of what is happening in the global economic environment. I think we are also seeing some stability in the environment. And we believe that the growth will come back and we are positioning ourselves for that. You don't change the Board just because you have a few bad quarters.

[Operator Instructions] The next question is from Shashi Bhusan from Prabhudas Lilladher.

So you have spoken about margin levers in place to attain our guidance of 200 basis point decline for the full year. Now if you look at H1, FY '13 in the first half, we are at constant percent operating margin, which is already 200 basis points lower than where we were in FY '12. Now we have a headwind from wage hike, [indiscernible] running, project transition cost. So can you please elaborate on some of the tailwinds that could offset these?

Well, we have to improve the utilization. We have to focus more on revenue productivity. We have to bring some more efficiency on the operations side. We always have been talking about some end levers on the cost side, which we have to use. It may be utilization, it may be on-site offshore mix, it may be revenue productivity. So we are trying to use all of those levers to make sure the impact is minimized in the second half. We can't get into granular details of how much basis points we are going to get to [indiscernible] to offset, but characteristically, we are working together to make sure we get those efficiency to fund the incremental costs.

The next question is from Vikram San [ph] from Swastika Investment.

Yes. I would just like to know if we're looking for some more acquisitions? Then it feels -- which feels we have more [indiscernible]. I mean you want more [indiscernible]. And the second question pertains to your client, and if you can shed some light on the project deals your clients have opted this quarter?

The first question I heard it was about acquisition. We have done one, which is very strategic to us. It's in the area of consulting and in Europe more than in the areas of investment. Can you please repeat your second question?

Yes. And if you can just shed some light on the project deals your clients have opted this quarter?

No, I think there is no change in the project duration trend. They do not like -- the ITs in the past, they are similar to what they have in the past.

Yes. And just like to know if you are looking for some more acquisitions, in which space you are more interested?

We'll continue to focus on our visibility in the offset within Products & Platforms in terms of public service, country penetration, any other countries across the globe. Then in Life Sciences, so there are identified areas which are in line with our strategic direction.

The next question is from Mitali Ghosh from Bank of America.

Yes, a couple of things. One, Shibu, you discussed in the morning to do that your top 5, 10 and 25 clients have grown much faster than the company at between 6% and 8%. And this is basically -- what this reflects is that, I guess, some of your other existing clients have probably grown much slower or perhaps declined. So what I wanted to understand is that your current top 5, 10 and 25, if these are sort of more recent deal wins, what is the kind of stage of ramp up at which we are and therefore, is there much more runway for them? And secondly, decline that you have seen in some of the existing clients perhaps over the last couple of quarters as well. Are we somewhere nearing the bottom for those?

So, Mitali, I want to make a correction to the morning statement because actually after that statement, we went back and looked at the number [indiscernible], we've caught some [indiscernible] in the morning so I want to give you the numbers to correct the morning one. Our top 5 grew by 4.8%. Top 10, grew by 3.1%. Top 25, grew by 2.6%, top 50 by 3.5%. All the others and even top 50, 1% and on -- so that averages to 2.6%. So it's a balanced growth. That is a balanced growth. Our top clients came down by about 1%, that's why the $300 million client went down. So it is balanced both across. And I had a slightly different set of numbers in the morning. But from point line, what I said is right in the morning.

Yes, so just from that stage, like you said the trend line perspective, I guess, top 5 for instance has grown slightly faster and there has been shown, I guess, in the doc side. So are we -- is there -- are these clients which you have added recently, would you see a lot more room for growth and the clients which had declined obviously at the bottom list. I guess some of the other financial services clients in any case?

So the clients move up-and-down but one interesting number I have is the number of million dollar clients. These are largely clients who we have added recently and that has gone up to $4.13 million. If I'm right, I don't have in front of me, but if I am right, I think there are 10 new clients in the $10 million range, which means that our new clients are definitely growing.

Okay, I mean just -- sorry to pursue, but the clients which have declined in the last few quarters and maybe you want to comment on those? I mean, do you think some of this -- do you think some of this have reached the bottom now?

This is B.G. No secular trend. The quarter-on-quarter movement for some clients could be a put on, but in terms of previous ramp downs, which we saw in Q4 and Q1, that has definitely, what I have said, we have not seen any serious ramp downs in the last quarter.

And just 2 quick questions for Bala. As you said, you can't escape us either. One is on the product side that has obviously seen some decline this quarter, and that this can be a lumpy business. But if you could give some comments on how you see the outlook over the next few quarters?

Well, I can escape you either. See, overall, we are seeing that the good trend in some of the markets, but in some of the markets like Europe needs to improve over the next few quarters. The deal cycles are longer. And also, the different revenue model in terms of pay-per-use kind of thing becoming more prevalent in some segments. So overall, we need to watch few more quarters. Otherwise right now, we see here we're pretty much on target for this year.

Okay. So next several quarters, you would at least expect it to be somewhat stable?

We need to watch and comment about it after few quarters.

Right, sure. And one last question in terms of BPO, which saw a bit of decline, what is that looking like?

Yes, it's on here. The decline is very marginal. But it's because of the fact that the clients that we acquired in the last quarter are now in a transition stage. But having said that, the growth is fairly robust. This is clearly the first half, the most competitive fiscal of last 6 months of last year, the growth is about 17.5%. So good client acquisitions this quarter. We have had 5 new clients joining in. And we believe that they would all start to get transitioned in the third and fourth quarter.

As there are no further questions from the participants. I now hand the conference back to Mr. Sandeep Mahindroo for closing comments.

Thanks, everyone, for joining us in this call. We look forward to talking to you again during the course of the quarter or meeting you at one of the conferences. Thanks, and have a good day.

Thank you, members of the management team. Ladies and gentlemen, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.