Ladies and gentlemen, good day, and welcome to the Infosys Earnings Conference Call. As a reminder, this conference is being recorded. [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. Thank you. And over to you, sir.

Thank you, Inva. Hello, everyone, and welcome to Infosys Q4 '13 earnings call. 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. Rajiv Bansal; along with other members of the senior management team. We'll start the call with some remarks on the performance of the company for the recently concluded quarter, followed by outlook for the year ending March 31, 2014. 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 risks 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'd now like to pass it on to Mr. S.D. Shibulal.

Good afternoon, everyone -- actually, good morning, everyone. Thank you very much for joining the call. Our revenues include for -- in U.S. dollar terms grew sequentially by 1.4% including the Lodestone acquisition. Excluding the acquisition, our revenue grew by 0.8%. On the EPS end, we did better than what we predicted. Our EPS for the quarter is $0.78 as against $0.76 last quarter. Our guidance for EPS for the year was $2.97 and we did $3.02. This was done irrespective of the fact that our revenue, we had to recast from 8% to 10% to 5%, pricing dropped by 0.7% in Q4. There continues to be quarterly movements due to changes in the business mix as well as the pricing situation. Part of our business is under pricing pressure especially in the business in IT operation side. Lodestone integration continues to be on track on all important dimensions like go-to-market, delivery capabilities, systems and processes, finance [indiscernible], joint go-to-market proposition has been established in all verticals. This quarter, we have -- and I think after the integration started, we have 5 joint wins. We're tracking slightly behind plans on revenues and cost targets as the focus was on the above-mentioned areas -- that is integration, but which took priority over pure revenue and cost until now. Uncertainty continues in the broader economic environment. We are living in a very fragile environment. The global environment hasn't completely recovered from the downturn and the Eurozone crisis. Though the clients have finalized their budgets, we have to see if it improves the decision-making cycle, including discretionary spending. Today, technology is at the center of many of the key business decisions being made, whether in cost rationalization, productivity improvement, process improvements or future expansion plans. We believe that our [indiscernible] Services, capabilities across…

Good morning, everyone. As Shibu said, our revenues for the quarter grew at 1.4% over last quarter. Revenues, excluding Lodestone, was 0.8% on a sequential basis. Our EPS guidance for the quarter was $0.73 based on annual guidance of $2.97. And we have achieved $0.78, taking the total yearly EPS to $3.02, as against the guidance of $2.97. Our operating margins for the quarter, including Lodestone, was 23.6% and excluding Lodestone is at 24.8%. For the year, we have achieved operating margin of 25.8%, excluding Lodestone at 26.3%, which signifies a drop of about 250 basis points without Lodestone over last year and 300 basis points including Lodestone over last year. Our volumes grew 1.8% sequentially and 8.8% annually. This quarter, we have seen a pricing drop of about 0.7% in the quarter. We believe our utilization is still at about 68.5% including trainees and 71.4% excluding trainees. When we started the quarter, we spoke about the gaps in our guidance, which were to be filled up with planned ramp-ups in the recent wins that we had and the deals that we had the pipeline. Some of the deals ramp-ups didn't happen as we had planned and some of the deal closures which we expected during the quarter got delayed because of the delay in client decision-making. Historically, the fourth quarter has been soft for us and this is also the start of the budgeting cycle for the client, and which probably resulted in the delay in budget release and decision-making. For the year, our pricing has dropped by about 3% including Lodestone and about 4% excluding Lodestone. Our cash and cash equivalents at the end of the year is about $4.4 billion during the year. The rupee has been extremely volatile against all the major currencies, and we also had some impact of cost currencies during the quarter. As Shibu said, we have given a guidance of 6% to 10% for next year on product revenue. And considering that such a volatile and uncertain environment that we're in, with the revenues moving on quarter-on-quarter basis, we felt that it was better not to given an EPS guidance, considering that we need to make a lot of investment in our business in the long run. We are in the middle of execution of our Infosys 3.0 strategy, which requires us to look at business strategy over a long period of time and make those necessary investments. So it was felt that we need to go ahead and make those investments. We have to get the growth, we have to make some adjustments on our cost model. And considering all of the volatility and uncertainty in the environment, it would do better not to give a range of the EPS guidance for the year. With that, I'll throw it open for questions.

[Operator Instructions] Our first question is from Nitin Mohta of Macquarie.

I just wanted to understand, if I look at the low end of your guidance, the growth is going to be quite similar to what we have done in fiscal '13. How do I look at that disconnect? Was this the commentary on discretionary spending better in CY '13? Also, if I look at the last 6 months, the deal wins and the new logo that you have added, I would have assumed that that would give us more confidence for next year. So just your thoughts there.

No. I think the first point on the discretionary spend, actually what I said was that the higher discretionary spend in calendar '13 in 2 -- only in 2 areas, RCL -- that is the retail and manufacturing, there are challenges in other areas. So I did not say that the discretionary spending will be higher in CY '13, in calendar '13 all around. That is one. Now we have seen a volatile 8 quarters for various reasons, whether it is volume or whether it is revenue productivity, we have seen volatility in 8 quarters. Even if you look at the this year, let's take a look at the year just past. We have given a guidance of 8% to 10%, our volume grew by 8.8%. But our revenue only grew by 4.5% because we lost revenue productivity of 3%. So the volume landed right where we thought it will land, and we had assumed the flat pricing in the beginning of the year when we gave the guidance. But the volatility in the revenue productivity created bumps. So in Q3, the volume was 1.5% up and the revenue productivity was 1.8% up. It contributed towards 4.2% growth, whereas in Q4, the volume is up actually more than Q3, 1.8%. But we had a situation where we took revenue productivity down of 0.7%. So if we look at the last 8 quarters, it has been pretty volatile for us because of the portfolio, because of the environment. So we have taken a slightly safe approach to the guidance, broaden the guidance, it's some 6% to 10%. It is true, at the lower end of the guidance, the growth will be only 0.5%, but at upper end it will be point -- 2% [ph] quarter-on-quarter. Given all the information we have at this point, we are confident of meeting the guidance. Where exactly it will end? We will see as we go along.

And if I can squeeze in another one. I understand it's been a tough environment to operate and just the volatility around the business verticals, the service offerings, are there some of them, which are more difficult as you see it now versus 3 months ago, just in terms of the volatility and uncertainty? If you can point out or highlight which are the areas which are causing it to be as a difficult proposition to call out the future?

I clearly see higher issues in telecom, telecom sector, because I think they are starting to see topline shrinkage or they are seeing -- they're continuing to see topline shrinkage. So that is a sector where we have considerable revenue in one of our large verticals. And volatility there will directly impact us. Financial stability continues to be indecisive, for lack of any other term. Indecisive for us and also very cost-conscious. Because when we look at the future, we have to also -- we have looked at it in 2 different ways. We have to look at it from a volume growth perspective, at the same time, impact, because of the revenue productivity changes. So while the decisions are maybe being taken but they are very cost-conscious, that has an impact on our revenue productivity. So I would consider these 2 sectors.

Our next question is from Edward Caso of Wells Fargo.

I was curious about your infrastructure management business, or RIM business. How big a focus is that for you? How are the contracts laying out? Historically, these tend to be lower margin upfront and rising margins over time, is that what you're experiencing? And is that some of the pricing pressure that you're seeing?

So let me say a few words and then I'll hand it over to Kakal. So infrastructure will be a big focus area for us. If you look at the second half of last year, we had the Harley-Davidson win, which we disclosed to the public to which we acquired -- the people and the process have happened in infrastructure both. We have set up a development center in Milwaukee just to support that deal and to expand it for other clients. With that, let me now hand it over to Kakal to give a much better color on infrastructure.

We're not hearing on our end.

Are you able to hear me now? Kakal here.

Yes.

Okay. Yes, I'm just continuing from where Shibu left. On the infrastructure management space, we have seen considerable progress in the last 1 year. Earlier, our positioning was only to remotely manage the infrastructure or the RIMs that we serve which is a marginal play. Whereas now, we have developed the partner ecosystem and we have been able to take the end-to-end responsibility of the infrastructure management starting from data center management to asset management to the remote management of the infrastructure as well. So some of the examples are actual work in Harley-Davidson, BMW and few others are a reflection of our new positioning and ability. In terms of the revenue sharing, the margin and all that, of course, it's an ecosystem partner, ecosystem play, we have to share the revenue with a few other partners as well but that makes us complete in terms of our offering and the clients are looking at us for integrative sourcing which involves infrastructure management as well as application management and in some cases BPO as well, which result in our ability to focus on large deals and have a long-term contract, which is a [indiscernible] and multiyear kind of a thing. In terms of infrastructure management, it is also possible to operate more from offshore. Now on-site percentage will be lower than the other services. So hence, we will be able to gain some margin leverage back from the off-shoring. Otherwise, it's a competitive space and with the end-to-end responsibility that we are taking now, we are trying to manage and the growth -- balance between the growth and the margin in this infrastructure space. I hope that answers your question.

Great. My other question is around the wage assumptions for next year. You gave the wage increases later in the year in fiscal '13. Are you going to go back to a normal cycle of the April cycle? Or what should we assume?

All right. Did you get the answer from Kakal?

I got the answer on infrastructure management, and I was curious what the timing of any wage increases might be in the coming year?

Let me hand it over to Tan Moorthy, Head of HR.

Yes. So we have done compensation changes since last October for various segments of the population. We started with India. We went on to the United States to do market-based corrections. And we'll continue that process throughout the course of this year, both across geographies and across levels of people in the organization. We're also planning a change in the structure of the salary components to bring in much more simplicity in the way it's calculated. Thank you.

Are you planning to go back to the April cycle? But -- or are you sort of out of that traditional cycle given what happened last year?

So since the corrections and changes happen as we look at the data coming in from different markets at different points in time, we are not going through a specific cycle for everybody. It happens as required in the geographies and for the levels.

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

I have 2 questions also. I wanted to go back to the difference between the original guidance of roughly 4% sequential growth versus the 1.4% delivered. Was the primary cause of that -- was it pricing or was it weakness? You called out telecom and financial services. Because you specifically mentioned that volume growth was okay. But if you could just list in order of priority, what were the most material reasons for the variance between the original guidance for the quarter and the results please?

So actually I would like to go back a little further and then start from there. See, in the beginning of Q3, we had given -- we had said that when we look at H2, there are some challenges and there are some revenue gaps, which we will try to address. And we have tried to address it during H2. In Q3, the revenue volume grew by 1.5% and simultaneously, the revenue productivity went up by 1.8%. So it resulted in 2 -- 4.2% growth. We still had some of the gap left, right? When we ended the quarter, we will have visibility probably 95% of the business, and there is about a 2.5 month period in which we need to actually bridge that gap. In Q4, what has happened is that we actually grew volume by 1.8%. But we lost almost 1% of our revenue because the revenue productivity dropped by 0.7% and we took a cross-currency impact of 0.4%. If we had not, on that we will have ended up somewhere around 2.8%, including Lodestone, even though we should have been -- the guidance would have been about 3.4% or 3.5% including Lodestone. So we would still have been in that gap, but we would have been better off. So the volatility of the revenue productivity impacts the revenue even when the volume grows, so volume grows. I'm not saying that the volume growth in Q4 was completely enough, but the 1.8% volume growth itself did not reflect back on the revenue totally because of 2 reasons. Number one, the cross-currency impact of 0.4% and the revenue productivity impact of 0.7%.

So in this space, by the time you gave -- from the time you gave guidance to the time you recorded results was roughly 70 days. How is it that you had such material change in revenue productivity? And was it changing in pricing terms? Or was it just pricing or was there something else? Was there any contracts that you had to incur an unusual loss in? I'm just surprised it was that the big of a variance in the space of about 70 days.

There are no seminal events which led to the revenue productivity. There is no one single event, if you're asking, there is no one single event which has led to the shift. Even in Q3 actually the revenue productivity went up by 1.8%. In fact, if you look at Q1, I think the revenue productivity dropped by 3.5% or so, if I remember right. So the revenue productivity has been volatile. See, if you look at last year, our revenue productivity went up year-on-year by 2.2%. This year, the revenue productivity has gone down by 0.3%. So the revenue productivity has been stable in the past when the environment has been stable. Now the environment is not that stable. There are 2 factors, 2 or 3 factors, that impact our revenue productivity. Number one is the pricing itself. The pricing in our business and IT operations business [ph], some part of that business and IT operation is under pressure, so that impacts revenue productivity. So when you execute on deals where you have a less than average pricing, as the time goes by, they get into the system and shows up. Number two is shift in portfolio, but there was no shift in portfolio -- material shift in portfolio in Q4. So it will have -- most of it will have been pricing. Occasionally, you can see an impact because of overruns and things like that, but there are no such events in Q4 which is material in itself.

Okay. Well I want to just have one more. That was actually my first question. My second is if you could just talk about margins. I think investors are surprised about the margin degradation as well and the forces that drove that sequential change in margins and what investors should be thinking about. Is this -- how should we be thinking about margins if we look at the upcoming quarter in particular? I know you don't want to guide the margins. But if you could just address what are the most material variables that are going to drive margins here in the quarter to help us understand whether margins are going to go up, flat, or down.

So the most important factor which impacts our margin, there are 2 or 3 important factors, but the most important factor is growth. Because growth is a driver for margin, because growth creates the utilization. Utilization creates balance between revenue and cost, and that is one driver for growth. Second one is -- that's one driver for margin. Second one is revenue productivity. And revenue productivity directly impacts margin because a 3% drop will result in a 2.1% impact on margin, depending on plus or minus, it goes either way. So these are 2 or 3 things. And utilization has an impact on margins. We are definitely entering the year with a headwind on margins because of incurred costs which is going to get accounted -- not accounted, that's not the right word to use. These are -- I know -- I'll give you an example. So for example, we did compensation increase in the middle of the year in last year, that means we have only taken cost for half year for compensation increase in the last year, so that the full year impact will show up this year. We are doing a compensation increase in U.S., market correction in U.S in February, which means we have only taken incurred cost for 2 months last year and 10 months will come this year. That is still billable $140 million of impact. Then we are taking a one-time charge for next 12 quarters or so because of the Lodestone acquisition, which is about $40 million for the year. The Lodestone integration is in progress, but driven by -- the Lodestone is a consulting company and their margins will be in single digit. It will become normalized over a period of time when the offshore gets built to support that on-site…

Our next question is from Manik Taneja of MK Global.

I wanted to check, given the fact that manufacturing has been a vertical that's grown significantly ahead of company average for the last 3 quarters -- last 3 years. Do you envisage a similar scenario for FY '14 and also similar comments for the other verticals?

So let me start with manufacturing and engineering. So I think what we have done in the last 1 year is to, obviously, refocus some of our energies into areas where we think we will have the fastest and best return. We have grown our European business, which was lagging on the back of some very large deals. One, of course, is in the public space, which is BMW. And there's a large deal, Harley, in the U.S. as well. So we are focused on large deals. We think -- when we look at the budgets -- keep this short because my other colleagues are also here who can talk about their sectors. If we look at the budgets, it's tending to be flat to slightly lower than last year. But we think that given our presence and continuing expanding presence on Continental Europe, we will see some traction in Germany especially, and we will continue to be quite dominant in the high-tech sector. There are certain sectors that are completely under-tapped for us like resources, chemical business or industrial manufacturing, which again back -- on the back of certain defined strategies, we have been able to break through. So we expect to continue to be -- to continue to grow and be a fairly large contributor to the guidance that we have given. B.G.?

B.G. Srinivas here. Quick view on the financial service sector. As we look ahead, entering the quarter 1 of this fiscal year, we are definitely entering with a decent pipeline in terms of both existing ongoing business, as well as both outsourcing deals and some of the interest our clients have shown in transformation opportunity. So compared to where we stood at this time last year, we are more confident in terms of the growth rate. The sector itself -- banking, capital markets, as well as insurance -- is still going through challenging times in terms of their growth rates. There is definitely opportunities and cost optimization initiatives within the client organization. There is a bit of discretionary spend on 2 areas. One is regulatory income plans. The other area is on the digital transformation, multichannel analytics and right platforming, as the clients call them, in terms of decommissioning legacy and optimizing applications on a newer platform, re-architecting what they have today. So these are the opportunities which we see. And while the market will continue to post challenges in terms of growth rates, but we are relatively well positioned to tap into current opportunities as I outlined.

Sure. And B.G., another question for you with regards to Europe. Last quarter, a commentary from you guys was that you've seen a lot of maintenance spending opening up for Indian IT companies. Do you still continue that view?

In Europe, in a macro environment, yes, there are definitely challenges. But in terms of specific business opportunities across sectors, financial services, manufacturing, retail CPG, energy utilities, we are still seeing opportunities. We have now more than 200 clients within Europe. We continue to invest in the big markets, Germany, France and U.K. We have also seen a significant uplift with acquisition of Lodestone, particularly in Germany and Switzerland, across manufacturing, CPG and life sciences. So given the investments we made and given the existing client sets where we are mining opportunities and also focused on certain key clients, which we want to acquire, we are reasonably confident of increasing our market share within Europe. Also to remember is the fact that Europe continues to be fragmented in nature of its offering -- the maturity curve within each of these countries vary. But we are tailoring our specific go-to-market initiatives within each of these countries and then we do believe that, that is starting to pay dividends. Also, the fact that most of this business, at least in the Continental Europe, is consulting-led. We definitely have a lead in terms of the investments and the capability we developed. So that's where we stand. And again, given the current situation, the pipeline also, while across sectors vary, we do have a reasonably good pipeline at this point in time.

And if I can chip in one more question. This question was for Rajiv. Just wanted to get a sense on the margin decline that one has seen in FY '13, almost close to a 300 bps decline in margins. If you could break that up in terms of impact from pricing, in terms of pricing, in terms of utilization and in terms of impact from Lodestone on a full year basis?

I think if you look at year-on-year basis, primarily it is pricing. Pricing, actually, in Lodestone has dropped about 400 basis points and that impacts the margin by roughly about 280 basis points. And margins, excluding Lodestone, have dropped about 250 basis points. It's primarily revenue productivity and then the pricing. Other than that, we also had impact of cross country. I think during the year, if I look at our cross-country impact, it's roughly about $60 million year-on-year. So -- but all that we have been able to manage with all the cost management that we've done during the year. But I think it's primarily pricing which has driven the margins down.

And what could be the sensitivity to utilization for us in terms of margins?

No, utilization, if you look at -- including trainees, has kind of remained flat year-on-year. So utilization did not really have a large impact on operating margin this financial year though our utilization was low, but including utilization, it was almost similar last year also.

Our next question is from David Grossman of Stifel, Nicolaus. David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division: There's so many factors here that are -- you've mentioned that are impacting the margins today. And perhaps if we step back, this industry has always been able to operate at a higher level than its global peers. And your model's evolving and I suspect others in the industry will as well. And that evolution feels like it's larger -- or migrating, at least directionally, towards the global players like an IBM or Accenture that, obviously, operate with a different margin structure. Can you just help us understand how we should view your model over time vis-à-vis what you're doing with the business, where the industry stands so we can just get a better idea of kind of how this plays out, not necessarily in fiscal '14 but over a longer period of time?

So there is no doubt that our business has evolved because today our business has a lot more discretionary spend in our -- especially in the case of Infosys because if you look at the average industry -- average IT industry from India, you may not see it because the NASSCOM averages somewhere between 17% to 18%, to my knowledge. Whereas, our consulting and system integration revenue is something like 32%, so -- which means that our dependency on the discretionary spend is definitely high. There are some cost pressures in the business and IT operations space. So our strategy is actually to balance growth both -- we have to grow both sides because growth is all around. But at the same time, if we can grow our consulting and system integration space where there is better pricing, probably that will help us increase our revenue productivity. Now regarding the margin, David, it's so important when I said that we had a year of low growth. Growth has been the driver for our margin all these years. Growth creates some scale, growth creates utilization, growth creates onsite/offshore mix, all kinds of things. So there have been -- and so we had a year of low growth. We grew by 4.5%. On top of that, we had a year where the revenue productivity came down by 3%, right? And partially mix change, partially pricing change, so both, right? So I am -- I will not consider this -- I know I will not consider this is a circular [ph] trend for us because I know that in the short term, I have some more headwind to face. I gave the list of things which we are entering the year with, and on certain things which I have in my hand because…

Yes, I'm going to -- Rajiv is going to answer that and then if you need, I'll come back.

No, it's very clear that the traditional businesses or services business is going to see more and more pricing pressure in the coming years. And that is where we started on our journey of Infosys 3.0 where we put our expectation of having 1/3 of our revenues coming from Products, Platforms and Solutions, which will help us keeping the pricing premium and getting higher margins. So those are long-term goals and that is the reason why we started on the journey. But in the immediate future, I think, if the growth comes back, it helps us manage the payment module much better. Today, because the growth today is very choppy and it is kind of very unpredictable, it is very difficult to plan and get the benefits of the economic model that we have. And so I think in the near term, the margins would be under pressure depending on how the growth spans over the next couple of quarters. But I think in the long run, if we are able to execute on our strategy well, I think we should be able to keep the margins at much higher than the industry average. David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division: I see. And just when you were talking about pricing pressure, you said this operation is where you're seeing it most. Is it isolated there? Or are you actually seeing it in other sectors as well?

Well, the pricing pressure, see -- today there's a growth issue. There's a -- discretionary spend has kind of disappeared from the market and the discretionary spend is where we get the pricing premium. So on the commoditized business, there is pricing pressure. I think across the board, we are seeing all deals with -- the clients are also under pressure and clients really want to cut down their cost. They want the maximum service to be delivered. They have to keep their shop running so the pricing is going to be under pressure in that -- in the business operation -- IT operation. But I think as we see the discretionary spend pick up, I think the business mix would take care of the kind of pricing pressure that we see in the business IT operations. David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division: Okay, I see. And just one last question. Obviously, you've got a very, very healthy balance sheet and cash position. Are you thinking more broadly about capital allocation and how you may return more of that to shareholders? Or are you pretty -- kind of happy with where you are right now?

No, so we do debate this. There's a question [indiscernible] for the board our cash strategy and why do we need $4 billion in our balance sheet in cash and cash equivalents. The fact is that we are in the execution phase of [indiscernible] Strategy and our expectation is to have 1/3 of our revenues coming from PPS. Now we also understand that the 1/3 target would not be met only through organic means because that would take decades to meet because other businesses also are growing. So we have to look at acquisitions in that space in a big way. And as you know, that space is where the multiples are pretty high. So I think during the initiatives [ph] of the strategy, the cash is most strategic to us today than it has ever been before. We also said that we have -- we're looking at right targets, we are looking at a lot of companies right now, as we speak. So we believe in the next 12 to 18 months, this cash is very, very strategic for us to accelerate our journey on the PPS part.

Our next question is from Joseph Foresi of Janney Montgomery Scott.

My first question is just on the large deal front. I think you had mentioned that there were some delays in getting those ramped. Could you talk a little bit about what those delays were, what caused them? And then why did -- why -- also on the execution front, on the Lodestone front, it came in, I think, a little bit below what you were expected. Maybe you could talk about why that was lower than you expected as well.

So actually if you look at it, it's true, we had a pretty strong win streak. We have closed about $950-plus million of PCV and large deals and transformation deals. The large deals, which we won in Q2, Q3, went into execution more in Q4. And that is reflected in our on-site effort percentage going up, the effort growth in Q4. What happened was that the offshore has not picked up and that is delayed than what we thought and some of it is client decision making and some of it is the way it happened over a period of time. So while the deals have closed in on-site indicating [ph] has started, the offshore is [indiscernible] pick up and many [indiscernible]. But in answer to that and the second was about Lodestone, Lodestone, we are a public company and they are a private limited company. The funding policies are extremely stringent for us, and we follow very stringent accounting policies. So I think when we consolidated our accounting policies and apply to them, which delayed the recognition of some of the revenue. And we very much focused on integration rather than on -- during the integration process, we focused very much on the integration and really joined deals rather than on the revenue side so that also impacted it by a couple of million dollars.

Okay. So do you expect now, kind of as we look at next year, do you expect that the large deals, the ramp time of those will resume? And do you expect -- I know you used the word delayed with Lodestone. Do you expect that revenue to pick up as well? Are we through that? Or is there some client-specific stuff going on? Because the pipeline seems to be continuing to increase but the execution remains relatively volatile. Just trying to reconcile that.

There are no client-specific issues in Q4 or in Q3. There are no client-specific issues. The execution we are expecting to pick up and that we have factored it in, but we need to win a lot more deals going forward and that is what we are focused on. The pace of ramp-up may be slower in this volatile environment. And I can't say that the pace of ramp-up, which we have seen, which is lower than usual, will materially change in the short term. That means we have to win a lot more deals to create that growth and that is what we are focused on. The Lodestone, now we have moved them fully into our accounting policy so I don't expect that to be -- and we have begun a new process in place, which are very much in line with our own processes, so that we don't have any revenue -- we will use our own revenue recognition policies to recognize the revenue, and we will have the processes to support it. So I don't expect that to be there. The joint venture already happened, so I think we have 5 joint wins over the last 4 or 5 months. After the integration started, I expect that momentum to continue.

Okay. One last one for me, just on the margin front. You had talked in the past about keeping margins in a tight band, I think 100 basis points. And I know you didn't give any guidance on earnings. Should we disregard that commentary or the passage of sort of that margin band? And then as you look of those margins going forward, can you give us some idea of what you're thinking about internally for an investment schedule? And how that would impact the margins as you look at it from a seasonality standpoint, et cetera? Again, we're just looking for color and I wanted to see if that previous margin guidance would hold at all.

No, at this point, I will not hold the previous margin guidance because we are entering a year which is slightly different than what we have done in the past in many years. We have a headwind because of the lack of growth in the previous year plus the commitment which we have made. So we have a $140 million headwind because of the compensation changes we have made, which is going to be newly accounted in the coming year. It is the impact of compensation changes, which we made midway in FY '13, which will show up in FY '14. Then the $40 million charge which we are taking for Lodestone from an acquisition perspective, because we only paid out $200 million. The remaining is being charged under the P&L. We have an impact because of the Lodestone revenue being in the consulting margin band. Consulting revenues usually come within the single-digit margin. And it will take time for the offshore component to get built because the buildup of the offshore component is one is -- something like 1:3 to 1:4 and that will take some time, so there will be an impact because of that. Now these are known things and there are a few unknown factors also. Number one is the investment which we need to make. Because growth is extremely important for us, we want to invest and we will invest into growth. We will not compromise on investments so that the growth will continue to pick up, number one. Number two, there is an uncertainty on visa applications. We have applied for a certain number of visas, but we know that there is a series oversubscription for visas, which means that we will only get a percentage of the visas which we applied, somewhere between 50% to 60%, which will need us to recruit on-site or to subcontract. So that will have an impact, as well as there's a tailwind from the revenue productivity drop. So there are known set of factors, which I clearly quantified. There are unknown factors, which are in the evolution mode and that is the reason. Because of the uncertainty, we decided that we will not give -- and we want to make the investments. So because of the uncertainty -- because of those factors, we decided not to give guidance on the margin at this point.

Shibu, this is Steve Pratt. If I can just add on Lodestone. We're very picky about acquisitions, but the early -- I guess, my early diagnosis of Lodestone is that it's a really great company. The people there are terrific. Ronny [ph], his global leadership team, I think, are very good with the clients. And I think there's -- it's a -- the integration is going very well. We've actually moved some of the people from consulting in the U.K. into Lodestone, and it's a very seamless integration. So I'm very bullish on the prospects of that going forward, but it will take a while for them to get used to our model. And of course, as Shibu said, they're lower margin initially standalone but the long-term intent is for them to drive higher margin work in flow-through.

Because Steve added, I just want to clarify this -- there is absolutely no doubt in our mind regarding the quality of the acquisition or the quality of revenue. When we implement, we have very stringent accounting practices and revenue recognition practices. They are not a public company before. They are now a part of a public operation. We are implementing our stringent accounting practices and revenue recognition practices. That delayed the recognition of some amount of revenue and that could be because of lack of documentation, which is not important to us but it is important to -- it is not important to them, but it is important to us. Otherwise, there is absolutely nothing there which is of any material nature.

Our next question is from Sandip Agarwal of Edelweiss Securities.

Sandip here. One or 2 quick questions. First, on the [indiscernible] Vertical side, almost all the verticals are looking slightly weak, maybe -- although you have given some bit of optimism on the manufacturing and retail, but overall, this 60% to 70% of the vertical outlook, which has been provided, is a little muted. Secondly, as you rightly said, that 1:3 or 1:4 is the follow-on revenue on the offshore side from a consultancy business, which is easier to come. But if our strategy is to continue acquiring small companies necessarily to build up with PPS model and the consultancy model, then obviously this kind of pressure may continue for a longer term than being in short term. So if you can address these 2 issues, it will be great. And thirdly, on the utilization front, I understand that this is not very aggressive of a little of which have been issued. But at the same time, even at the current level absorbing, what [indiscernible] we will get? Will it be okay to assume there is a sharp up move in utilization in the CRM next year?

And so it is true that when we acquire it, it will have some impact on our margins temporarily and then we have to work towards normalizing that margin and it will take time. In the case of consulting, that is even more true because the back end has to be built; that 1:3, 1:4 model, has to occur. [Technical Difficulty] The last thing we did, one of this was expected, some of it in Australia. Today, we get 5% of our revenue from Australia and the 1:3, 1:4 happened over a period of time.

Excuse me, Mr. Shibulal, we lost your voice in between. We couldn't hear you. If you could please repeat.

So which part I...

We have not heard you -- any of your answer.

Oh, really? Let me start again. So on the 1:3, 1:4, it is true it will take time and there will be short-term margin impact. And any acquisition, there aren't many companies with our margin structure, right? So any acquisition which we do will be margin dilutive short term because otherwise we can't do -- there aren't that many companies with our margin structure. There are [ph] smaller companies with our margin structure. I was also saying that we have done one of these before, which was [indiscernible] Australia, and today, we get 5% of our revenue from Australia and we have built the 1:3, 1:4 model. And the margins are -- they are definitely -- in fact, it is above average, which means it has been accretive to us. Are you still on the line?

Yes, yes.

Okay. Now on the recruitment's end, we are not doing recruitment but we are honoring all the offers which we gave, which will add another 10,000 people into the organization. The utilization has inched up. If the growth picks up, our utilization will improve much faster.

Sir, on the vertical side, the question was like 60%, 70% of the verticals are looking, as of now, a bit flat and negative. So what -- how should we see that demand environment coming up?

So when we gave the 6% to 10% guidance, we have factored in most of these things. The demand environment is weak because you can see it in U.S. and in Europe and everywhere else. Significantly, there is also mix. It is not like we are getting a consistency on the demand environment. Some days it looks good, some days it looks bad. And there are cascading effects of any event. So we have to focus on the newer areas, which -- where we are seeing demand in mobility, cloud, analytics, social commerce, consumer activities -- those kinds. Again, that is where we are making the investments. We are making investments into those areas which are either through intellectual property or through capability, we are making investment into those areas.

Thank you very much, sir. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference back to Mr. Sandeep Mahindroo for closing comments.

Thanks, everyone, and thanks for the insightful questions. We look forward to talking to you again. Have a good day. Bye.

Thank you.

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.