Infosys Q4 Earnings Conference Call: Full Transcript

Operator:

Ladies and gentlemen, good day and welcome to Infosys Earnings Conference Call. As a reminder, all participants' lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an Operator by pressing star, then zero on your touch tone telephone. Please note that this conference is being recorded.

I now hand the conference over to Mr. Sandeep Mahindroo. Thank you and over to you, sir.

Sandeep Mahindroo: Investor Relations:

Thanks . Hello, everyone and welcome to Infosys earnings call to discuss Q4 and FY 2016 earnings release. This is Sandeep from the Investor Relations team. Joining us today on this call is CEO and MD, Dr. Vishal Sikka; COO, Mr. Pravin Rao; CFO, Mr.

M. D. Ranganath; along with other members of the senior management team.

We will start the call with some remarks on the performance of the Company by Dr. Sikka followed by comments by Mr. M.D. Ranganath.

Subsequently, we will open up the call for questions.

Before I pass it on to the management team, I would like to remind you that anything which we say with respect 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'd now like to pass it on to Dr. Vishal Sikka.

Vishal Sikka:MD and Chief Executive Officer:

Thank you, Sandeep. Good morning and good afternoon, folks thanks for joining our earnings call. Let me start by saying that I am really proud of our Company that's in my first fiscal year as the CEO of Infosys. We started the year just two quarter into our strategy, to reimagine services and to transform Infosys and over the course of this year we saw that our endeavor which is to bring automation innovation, education and operational excellence.

Relying on our human potential that is emphasized by technology rather than delivering the same work for less, starting to show concrete results. In the organic growth of our client relationships, in our win rates and large deals, and in the types of projects we are seeing in strategic areas where we never participated before. I am proud of what our teams have achieved this quarter and in the year. And yet despite this heartening results, they are still based on metrics of the past in many ways.

Of the way the industry has been. The world of our future looks entirely different it is a world that is being fundamentally reshaped by digital technologies, and it is our endeavor to create great value for every business through solutions built on our AI technology

and open cloud platforms to have Infoscions amplified by intelligent technology, to bring purposeful innovation to life, to drive collaboration and an entrepreneurial spirit from Rubin to confirm our relationship with clients and in that sense, we actually very much on the beginning of this journey.

With this in mind, let me turn the numbers. We ended Q4 of fiscal '16 with the revenue of 16,550 crore Indian rupees or US dollars $2.446 billion and grew in Q4 for the first time in the last three years. This translates to a quarter-on-quarter growth of 4.1% in rupee term, 1.6% in US dollar term, and 1.9% in Q3 constant currency. For the full year, our revenue has grown 13.3% in constant currency and 9.1% in reported terms, ahead of the guidance that we provided in January of this year.

Volumes in Q4 fiscal '16, grew by 2.4% indicating a healthy momentum in the underlying business and setting us up well for fiscal '17. Utilization including trainees was 74.7% and 80.1% excluding trainees. Blended per capita revenue decreased 1.1% and our operating margin from the quarter was 25.5% compared to 24.9% in the previous quarter.

On a full year basis, operating margin was 25%, compared to 25.9% for fiscal '15. While still within our band of 24% to 26%, we believe the results of our initiatives in automation and tighter control of the operating metric will help us improve profitability in the coming years.

We reported Earnings per share of INR15.74 for the quarter, up 3.8% and in US dollar term, earnings per share was $0.23. For the full year earnings per share is INR 59.03 or $0.90.

Attrition for the quarter decreased further to 12.6% and total employees strength is now 194,044 employees. Let me now move to client relationships and large deals. Once again in Q4 of fiscal '16 we had a record quarter in large deal wins. We singed six large deals with the PCB of $757 million, and recently we signed another two large deals in financial services in Americas they are based on the present volume of business we can another $470 million in revenue.

We saw a 45% increase in PCB of large deal signings in fiscal '16 compared to fiscal '15 that is $2.79 billion versus $1.927 billion and this actually excludes other large same contracts that were signed but not included in our reporting. Our large deal win rate has gone up significantly for the whole year. Thanks to our focus on better solutioning that leverages automation and innovation and our AiKiDo services, better articulation of value preposition and focusing more on the clients point of view, the challenges that the client face, even design thinking as the framework in how we create our proposals. These bookings will help secured our revenue base for future years.

The number of 50 million plus clients grew to 52 and the number of 10 million plus clients grew to 177. We added 47 net new clients during the quarter. Our top ten clients grew by 12.3% for the full year and the top 25 grew 9.3% in constant currency terms . Our financial services segment led by Mohit Joshi, saw a strongest traction in the year, along with -- our financial services portfolio grew by 15.3% for the full year.

In our retail and CPG portfolio led by Sandeep, we saw strong traction for our new software and services business.

With this, I wish to congratulate Mohit and Sandeep on being appointed Presidents of our Company. My friends and colleagues Manish and Rajesh continued to lead the effective businesses in healthcare life insurance and hi tech for Manish and energy communication and services for Rajesh. In delivery our global delivery engine under the leadership of Ravi has had an exceptional year. The renewal of our existing service clients had showed tremendous momentum.

Our data analytic, testing and enterprise system practices, specially well. Zero Distance, our program to start innovation in every project it is establishing a new way to achieve project management excellence. Nearly 100% of our projects have proactively proposed incremental innovative ideas. In addition to the opportunity to expand this global new projects this program has a still confidence in our team and help drive a culture of innovation across the Company.

Ravi's extraordinary leadership this year has been instrumental in our growth and our ambiance of innovation and I wish to congratulate Ravi on being appointed as President of our company.

On IIP, we completed more than 220 engagements and announced the availability of our IIP our Infosys information platform on AWS and on IIP our Infosys automation platform more than 125 engagements in IIP have now happened across our segments and 21 additional deployments went out this last quarter across our key accounts. In Q4 we released 1,710 full time employees equivalent worth of work across service lines using our automation platform it brings us to 3,900 released over the course of FY '16 due to automation. These numbers are still small in fiscal '16 but we'll continue to rise as the deployment widened and the tool themselves to involved to handle more complex activities that our today perform manually.

In addition, we did our first major project to bring the power of automation and information platform capabilities internally to review our own financial process under Ranga's leadership. We identify then the massively automated the things and caused latency in our system which back processes and we have created a better user experience across our system, this focus on automation for example, we went from 4 hours to 1 hour in revenue accounting from 2 days to completely automating for that attribute changes from 36 hours to 12 hours for accounting at deposits level and many other dramatic simplification. Congratulations Ranga and their team.

In the coming quarter we'll focus on even more on reconciliation and instant reporting leveraging our Infosys information platform. Continue to gain traction both as a part of the large client engagements so that these product were central to the value preposition as well as standalone deals. This quarter the Edge of our business consistent momentum with 18 wins and 24 go live for both and solution across various market region. In consulting under Sanjay's leadership, we continue to focus on consulting as our tip of the sphere and integrated part of our engagement since strategic initiatives with clients and in growing client relationships.

Specifically in design led services, I am pleased to see design thinking as a key fabric of our work making it rain to every engagement and rapidly reaching all our clients.

Extending the reach of our own work, we continue to make investments in the eco system. This quarter we invested in water line data science to extend what we offer clients in an automated data discovery in governance areas. I am personally very excited to announce -- and awesome plan for our employees, we are starting with managers to drive retention of our highest performing leaders and also to attract the best leaders in the world to Infosys.

Overtime my endeavor is to extend this to all as they used to before and recently we are providing a 6% to 12% compensation increase off shores. It will be towards the higher end of the range at junior level and at senior levels, little bit towards lower end of this range. Of course we'll hire performers, these numbers will be significantly higher. But onsite similarly we are providing a 1.5% to 2% average compensation increase and this will vary across geographies based on prevailing market conditions.

In Q4 the Infosys foundation, continue to invest and support programs in areas of sanitation, HealthCare and rural development. During the quarter the foundation signed a memorandum of understanding with the Asia Heart foundation to enable the adoption of Robotics in HealthCare through a grant of INR8 crore and provide INR5 to Sanstha, a center for collective development to enhance the lively hood of the farming community in the Indian States of Andhra Pradesh and Telangana. It also successfully completed the construction of 365 toilets in 110 schools of Odisha to support the Indian Prime Minister's Swacha Bharat, Swacha Vidyalaya Abhiyan Mission. In the State of Karnataka, it launched the Jaldhara Project in droughted villages on Dharwad and Haweri and Gadag districts by deploying tankers to provide drinking water.

In the U.S., the Infosys foundation USA, continue to engage with the local communities and invest in computer sciences initiatives programs another fundamental to our future. The foundation announced a grant of a $1 million in partnership with the national science foundation, to support computer science professional development for teachers. This collaboration will provide opportunities to as many as 2,000 school teachers and bring value to tens of thousands of students to deepen their understanding of computer science.

Finally our revenue growth guidance for fiscal '17 is 11.5% to 13.5% in constant currency terms based on our visibility at this time. As a year evolves and our visibility improves we will continue to revisit this. And to close I am proud of what we have accomplished this year. Our strategy is starting to show concrete results and we will accelerate this in fiscal '17 and beyond.

More importantly what we have seen, is that our strategy gives us a new path forward for Infosys and brings purpose and passion to our work. It creates a space for a new type of services company and human company that our humanity is amplified by technology to deliver a great value and a great experience for all. The services company that we aspire to be.

Thank you very much and now my friend and colleague Ranga will take you through more details of the financials before Q&A.

Ranganath Mavinakere:

Thank you Vishal, hello everyone. This is Ranga here. Let me first start with Q4 revenue performance. In dollar terms revenue grew sequentially in Q4 '16 extreme by 1.6% on reported basis and 1.9% in constant currency basis.

On a year on year basis when compared to Q4 '15 revenues have grown 13.3% in dollar terms and 15% in constant currency term. Current to full year performance our full year FY '16 reported revenues were $9.5 billion a growth of 9.1%, in constant currency term we grew by 13.3% and at 31 March 2016 rates growth was 9.3%.

Current to volume, volumes grew by 2.4% during the quarter as compared to 3.1% in Q3 '16 on quarter-on-quarter basis Onsite volume grew by 2.7% and offshore volume grew by 2.3%. On a full year basis volume growth for FY '16 was 14.5% compared to FY '15 on a yearly basis On-site volume grew by 16.8% Onsite and offshore volumes grew by 13.6%. On realizations our realization for the quarter declined by 1.41% on reported basis and 0.9% on constant currency basis compared to Q3 '16 realization drop for the full year FY '16 as compared to full year FY '15 was 4.7% on reported basis and 1.1% in constant currency basis. Our utilization including trainings increased by 50 basis points to 74.7% however excluding trainee utilization declined by 60 basis points to 80.1%. onsite mix increased marginally to 29.6%.

Our operating margin for the quarter was 25.5% increase of 60 basis points during the quarter you would recall that operating margin in Q3 was 24.9%, margins for the quarter increased 20 basis points due to increase in utilization which I mentioned earlier, 20 basis points due to drop in subcon cost and 60 basis points due to the depreciation, this was offset by 40 basis drop in margin due to realization decline. Operating margin for full year FY '16 was 25% as against previous year's 25.9%. Operating cash-flow generation was very strong during the quarter, we generated operating cash-flow of $562 million in Q4 as compared to $474 million last quarter. Capital expenditures during the quarter was $115 million.

Our cash and cash equivalents as of March 31 was $5.202 billion as compared to $4.765 billion last quarter.

At the group level we added 9,034 gross employees during the quarter, with the net addition of 661 employees. Attrition continuous to be on a declining trend, at the group level annualize attrition was 17.3% as compared to 18.1% last quarter. The quarterly annualize attrition on a standalone basis was declined to 12.6% from 13.4% last quarter. DSO for the quarter was 66 days as compared to 65 days in previous quarter.

As you all know, we had very volatile currency environment in Q4, we manage to navigate the volatility effectively, rupee depreciated against the dollar by 2.5% on an average basis and 0.2% on period end basis.

U.S. dollar appreciated 6% against GBP, however against Euro and Australian dollar USD depreciated by 1.4% and 1.2% respectively. Our hedge position, as on March 31 2016 was $910 million. Yield and other income was 8% this quarter as compared to 8.6% in Q3 which is this drop is a reflection of softening industries in India. We expect yield for FY '17 to be approximately 7.5% as compared to 8.6% in FY '16, which is a drop of 110 basis points.

The effective tax rate for the quarter was low at 27.9% on account of right back of tax provisions on closure of audits in certain jurisdictions. Effective tax rate for FY '16 was 28% on reported basis. However, normalized stock provision reversal the effective tax rate for FY '16 was 29.7%. Full year effective tax rate projection for FY '17 is expected to be in the range of 29% to 30%.

This is on account of certain software export zone units that will move come 100% exemption to 50% exemption during FY '17.

Our net margins during the quarter was 21.8% and remained unchanged quarter-on-quarter. Our EPS for the quarter was $0.23 EPS grew 1.7% on a sequential basis and 7% on a year-on-year basis. Coming to our top account of growth, our revenues from top five clients increased by 0.2% quarter-on-quarter in reported terms and 1% in constant currency terms. From top ten clients revenues declined 1.7% quarter-on-quarter in reported terms and 1.3% in constant currency terms.

However on a full year basis, our revenues from top five clients grew 11.4% in reported and 12.8% in constant currency. Similarly, for our top ten clients full year, year-on-year revenues grew by 8.3% in reported terms and 12.3% in constant currency's term. These numbers are significantly higher than the previous year.

Coming to segments performance of Q4 '16 amongst verticals, EPS grew 4.6%. Our fuel grew by 2.4%, manufacturing grew by 1%. The financial services and insurance declined 0.3% due to seasoning softness in insurance sector. Overall growth in Q4 was backed by all geographies, rest of the world grew 4.4%, Europe grew 2.4%, North America grew 0.5%, and India grew by 9.1%.

Growth in India should be seen in the context of smaller base which sees changes due to ramp up and ramp downs of several projects.

During the quarter of $100 million accounts increased to 14 from 13 clients in the previous quarter. Number of $75 million plus clients increased to 31 from 28 clients in the previous quarter. We have guiding for the constant currency growth of 11.5% to 13.5% for FY '17. On operating margins we expect our medium term bank to be within 24% to 26%.

As in every financial year in Q1 margins would be impacted by compensation increases and salary increases and visa cost. We expect it to play out this year's Q1 as well.

With that we open the floor for questions.

Question & Answer

Operator:

Thank you very much, sir. Ladies and gentlemen we will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on your touch tone telephone. If you wish to remove yourself from the question queue you'll may press star and two.

Participants are requested to use --asking a question. Ladies and gentlemen we will wait for a moment to compile the question assemble. Thank you. First question is from the line of Keith Bachman from Bank of Montreal. Please go ahead.

Keith Bachman:BMO Capital:

Hi. Thank you very much for taking the question. I wanted to ask, if I could on, you highlighted that you've taken a number of deals won a large number of deals over that really past two three quarters. I was hoping that you could talk about what part of those deals came from shares to take away from your competitors versus deals that might be renewals?

Vishal Sikka:

We include renewals in this number these are deals that we went that and the kind of work that is covered to a large degree comes at the expense of somebody else but in many cases it is also new work that was doing done by the clients' themselves. This is generally the background obviously we've win these deals within an intensely competitive environment and so that's why we are particularly proud of this particular statistic it also gives us a good base for future and I think that as Ranga had mentioned in the press release this there is an every once in a while we hear this thing about winning because of low prices and this is something that is absolutely not true.

When we look back on the deals that we have won and we talk to our clients we find that every deal that we win is because of superior value that we offer and a great experience a great articulation of the value and most importantly a great solution using our innovation and for no other reason.

Pravin you want to add something.?

Pravin Rao:Chief Operating Officer:

I just want , this Pravin here, I just wanted to correct, we do include we don't have the exact data of how much is the renewal a deal indicates revenue in majority of the cases it become that incremental share of the expense of as a .

Keith Bachman:

Okay, but if could just push you a second because it seems like Infosys is certainly doing better over the course of last few quarter if not the last year. Has your win rate against the competitors particularly taking business away from your competitors that they previously I won't say own but certainly enjoyed the benefits of existing relationship, would you characterize that your win rates to take business away from competitors has improved over the last few quarters?

Pravin Rao:

Absolutely and in FY '16 we went into that of $2.8 billion and as compared to FY '15 plus $1.9 billion or 45% growth over FY '15 and definitely in majority of the cases we are definitely taking away business from the competition.

Keith Bachman:

Okay. Just one more for me, if I could. Just financial services was if I look it sequentially financial services was a little bit weaker than the rest of your business. How should we think about financial services as we think about the constant currency guidance of 11.5% to 13.5% of this fiscal year, would you think that financial services would be in line with that guidance better or worse than the overall guidance for the year and that's it for me.

Thank you.

Vishal Sikka:

I think that financial services had in fact a record year Mohit's leadership and Mohit can add to my answer. The high level answer Mohit and then you can add. We are actually very bullish on the financial services even though we continue to see a challenging environment in some banks because of the nature of the offerings and the value preposition that they bring. We did see some slowdown in the insurance area in the last quarter but I am not concerned about that I believe short lived and a transient things and certain plans and so forth.

We actually our work is resonating quite well with a bunch of new engagements that we are involved in and working on. So overall as I look at the year ahead to borrow a same as client from -- we will have we are cautiously up to --

Pravin Rao:

Thanks, Vishal. Vishal mentioned look I think you had a very good year overall and the sort of weakness get to that to getting to the particular quarter is partially because of seasonality and partially because of some slowdown in insurance for the quarter which we believe is it facilitates this quarter only. Overall as Vishal mentioned while there are obviously headwinds in the sector. We continue to be we continually, cautiously optimistic and the fact is that we have one in Q4 itself fairly significant component of the large deal events that Vishal alluded to came from financial services.

I believe that our story of renew that you've build around automation and artificial intelligence resonates with the need for banks to cut down cost and to rationalize operations. I believe that our story around new which is around design thinking, around innovation, around digital is resonating with banks as banks need to dramatically transform their operations. Obviously they're continues to be significant stand in the industry around the risk and compliance area which is an area of strength for us and there are certain areas in the banking sector which are transforming themselves -- if you take the payments portion of the business that is transforming itself and it is an opportunity. On the whole banks today despite headwinds and despite cards are spending significant amounts on technology and therefore for a company like us and with the strategy like us I do believe that the there is an opportunity for us.

Keith Bachman:

Okay, fair enough. Thanks gentlemen.

Operator:

Thank you. Next question is from the line of Rod Bourgeois from DeepDive Equity Research. Please go ahead.

Rod Bourgeois:DeepDive Equity Research:

Yes, great. So I wanted to ask about the operating margin outlook for fiscal '17, to achieve your 25% operating margin mid-point of your guidance, I wanted to ask what is this that still remains in terms of the impact of pricing on your margin. In other words can you quantify the impact pricing is expected to have on your margin in fiscal '17?

Ranganath Mavinakere:

Hi, this is Ranga here. Yes, we guided 24% to 26% last year as well and we are exactly at the mid-point as we close FY '16 and in FY '16 we had a year-on-year full year pricing declined of 1.1% in constant currency and we do not see any significant either upward or downward change at this point in time. We do not see much of a difference in terms of the trend line. Second as you know in terms of operating leavers there were a couple of operating levers that started this quarter beginning to show some especially the subcontracting expenses as a percentage of revenue which was 6.3% last quarter from down to 5.6%.

We give us a benefit of over 20 basis point this quarter.

We'll continued and likewise on utilization, if you look at utilization consistently in the last four quarters is about 80% and we do believe that we all we need work on that a bit more and see what complete the target of utilization in FY '17. Likewise also it effort mix was 29.6% this quarter and this number used to get no 27 a few quarters I would say about two years ago. So we saw some of operating leavers will continue to leverage and optimize in the coming years. In addition of course we had to see how much of automation benefits would kick in during this particular year.

So to answer your question yes last year that was negative 1.1% in constant currency terms, we do not see a significant change in the secular closing decline.

Rod Bourgeois:

Right I mean that 1.1% that's a blended average price what I am enquiring about is what you're expect the impact of pricing to be on your actual operating margin that you're going to realize, can you quantify that?

Pravin Rao:

Yes typically for every 1% decline we do see about 40 basis points.

Rod Bourgeois:

Okay got it. And then in order to offset assuming pricing remains somewhat negative what is your biggest remaining operating margin lever to offset that.

Pravin Rao:

The three principal; one is of course is the onsite effort mix is one that I talked about which is currently at 29.6% and we have seen in some of the earlier quarters had 27 and everyone 1% drop gives us about 35 to 40 basis points than the utilization. Utilization is 80% just about 80.1% then again we have in the earlier quarter we have seen as 83.7 so we need to how much of that need and willing to move. Likewise in onsite role ratio this is another one that we are focusing on. The subcontractor expenses and subcontractor expenses about 20 to 25 basis points and right now this quarter it came down from 6.3% of revenue which was an all-time high to about 5.6%.

So these are the three principal levers. Automation benefits is too early to quantify for this financial year but we will see how that plays in.

Rod Bourgeois:

Okay. Thank you guys.

Operator:

Thank you. Next question is from the line of Moshe Katri, please go ahead. Mr. Katri your line is on mute, did you -- please go ahead with your question.

Moshe Katri:

Yes hi. Thank you. Can you quantify the pluses and minuses that actually impacted or benefited margins for the quarter

Ranganath Mavinakere:

Sure Ranga here. If you look at the operating margins for the quarter the net drop was increase about 16 basis points of which 20 basis points due to increasing utilization 20 basis points due to drop in subcontract of cost and 60 basis points due to rupee depreciation and this was offset by a 40 basis points drop in margins due to realization decline. So that is the math.

Moshe Katri:

Okay and then looking at your margin assumptions for fiscal 2017 are we factoring any sort of moves in FX?

Ranganath Mavinakere:

Yes, at this point in time it is very difficult to predict the rupee moment if you look at recent months rupee has started to strengthen at least in the last three weeks. At this point in time it is difficult for us to predict, I think the key assumptions would really be around the pricing decline and the volume growth as well as some of the operating levers that I talked about. So at this point in time it's extremely difficult to assume which way the rupee would move.

Moshe Katri:

Okay that's it and then final question and this also for Vishal. You've done a really good job in terms of expanding or improving your quarterly booking numbers for the past two years I think you went from $400 million for quarter for in 2015 to about $700 million in '16 and then what sort of assumptions that we have for fiscal year 2017 and then can you talk a bit about the quality of the new business that's coming on board in terms of the blended EBIT margin contribution for the overall business? Thank you.

Vishal Sikka:

The quality of the business is actually getting better because when we go into these deals we bring a lot of the innovation areas into this the AiKiDo services the software's and so forth. So as we realize these projects and start to bring them to life we are going to deploy more and more of that over the course of the project. They do continue to be many aspects of this projects that are more traditional in nature involving transition of resources and on time hiring and so forth. So as much as possible we are bringing innovative ideas through this but I expect to see that the contribution of the innovation to this project will continue to improve as they go forward.

In terms of the visibility we have a pretty a healthy pipeline as we look ahead and the pipeline has improved significantly compared to the pipeline that we have when the year-ago and perhaps Pravin can comment little bit more on that and therefore I mean we don't yet have a forecast on the bookings per quarter over the course of the next four quarter but when we look at all of the way these project ramp up and the revenue gets realized over the course of this quarter. All that is factored into the overall guidance.

Pravin you want to add anything.?

Pravin Rao:

Yes I think in the last as Vishal said in FY '16 we have won 21 slot deals PCB of billion and this quarter because we won 6 slot deals and in addition . we have one two deals as early believe we will add about another 470 million PCB of revenue over the deal period, which we are not reflecting in that deals as its not yet fully committed revenue. Overall this year we have seen good growth in large deals a good convergence of lot deals our pipeline has increase our convergence rate had increased the pipeline is also pretty strong getting into the and more importantly the pipeline is broad base we are seeing good pipeline across both Europe and America as well as across various industries.

Moshe Katri:

Alright. Thank you.

Operator:

Thank you. The next question is from the line of Rishi Jhunjhunwala from Goldman Sachs. Please go ahead.

Rishi Jhunjhunwala: Goldman Sachs:

Yes, thanks for the opportunity. Vishal you talked about eliminating almost 1,700 employees as part of or effort equal into that number of employees in this quarter. Can you just talk about basically what is the nature of the work in which we actually had this automation benefits both in terms of service lines and verticals.

Vishal Sikka:

Sure. So we did 1,700, 1,710 this last quarter about 1100 in the quarter before and about 600 the year before that and so forth so more than 3,000 for the all the portion of the year. The biggest contributor beyond BPO is the biggest contributor is CIS our infrastructure management service the nature of the work there is limited for now to fixed price project so that's the value realized is something that goes into our automation and then TNM develop things so one of things that we are working on the strategic initiatives to proactively transform the TNM projects into fixed price projects so that the benefits from that can be achieved and also to a certain degree of shared with of the clients and so that the inventory have win situation. When you look at the nature of the work beyond the -- so far it has been dominated by L1 infrastructure operation as well as some L2 that we have started to see in the last two quarters.

So that is something also that we are working on. We have a very exciting initiative that we are working on, I am personally working on that at on bringing artificial intelligence techniques to be more advanced from the support the L3 automation areas where we have more than 10,000 developers who work in application maintenance and work on source code maintenance and gaming systems and things of this nature and by using AI to simply some of that work, we believe that we can have a dramatic impact on this.

So overtime the idea and if you look at the 1700 it is not a meaningful part of the P&L yet. 1700 is large number and we're incredibly proud of it and we have been tracking this closely myself, Ravi, Pravin all practice very carefully. But in the overall P&L this is still a kind of a drop in the bucket, because it's a little bit more than 1% of the that. So it kind of get that's lost in the big moments around utilization and things of that nature and the number of hiring that we do and so forth.

But as this number becomes bigger by making the automation wider in terms of the area that it comes through and deeper. This number will consider to become more and more significant for the next several quarters and we will take big bite out of the both the margin as well as the revenue per employee. For now the operational metrics that Ranga talked about will have the share of the effect on margin NRP, but overtime there is no doubt that this will be far dork by automation as automation becomes more significant and finally you have question about the distribution I think Pravin you can add to that. If you I guess obviously was one the biggest funds but also in application development and maintenance in DI and packaged services and especially in verification also we saw significant contribution towards the 1700 Ravi do you want to add anything.

Ravi Joshi:

Yes. I think you've covered pretty much Vishal. The infrastructure business has been leading the show in automation. We have very good momentum on ADM the application development and maintenance space and -- services historically had a lot of automation backed into the model and now we have actually found new ways to add more to it and we use software which is our own software which is familiar to look at automating the enterprise application space.

Rishi Jhunjhunwala:

Containing vertical or skew.

Ravi Joshi:

There is no vertical skew it's applicable pretty much in all service lines across the industries. Of course the ones which have more infrastructure and more application development have more an ability to it. From a standpoint of automation and from a standpoint of using software to drive automation which is primarily deepen our suite of products which we have that's more on the enterprise applications space.

Rishi Jhunjhunwala:

Okay and second is recently the Board and the shareholders approved the compensation structure from Vishal and indeed it seems like it mean linked with revenue margin and renewal per employee targets to be achieved every year. Can you share us the targets for FY '17?

Vishal Sikka:

No we cannot. This is not a question for the management of the company and this is more for the board. I mean generally as have been shared it is linked to the -- in that direction of the 2020 target but some kind of that gets up there and I guess that is something for you to ask the board.

Rishi Jhunjhunwala:

Great. Thank you and best of luck.

Operator:

Thank you our next question is from the line of James Friedman from Susquehanna International Group. Please go ahead. James Friedman your line is unmuted please go ahead.

James Friedman: Susquehanna International Group:

Hi sorry about that. When we look forward to the guidance I was wondering how should we think about the contribution from the top clients seems the great portion of your success has been from mining those clients is that part bit continuously move into this fiscal.

Vishal Sikka:

Yes, I think I mean as you look back over the last year the contribution of the large clients to the growth of the company has been significant within about 12.3% constant currency growth in the top 10 clients and similarly the top 25 as well as the top 50 clients grew significantly. Last year in FY '15 in terms of growth in the top 10 plans of only 1.5% or something like that correct me. So that number has been increasing significantly and we expect to continue to deliver tremendous value to the large clients.

In terms of the depth of no how the depth of the relationship both in the clients account engagement side as well as the delivery side consulting it's quite significant in the bigger clients have a deeper understanding of their business, I engage with them Pravin and our management team. So we expect that we have this is an area that we have addressed well and I am happy with where we think that there is still don't saw a more improvement being more improvement being more proactive becoming more strategic to these clients and we expect to continue to do that.

But at the same you know we had a Company operating now at a scale there they should be able to walk and at the same time so it is not to say that there is any dilution in the focus towards account opening that is incredibly important and it continues to be impact. If you look at the percentage of the revenue coming from the new accounts or new projects versus renewal that has improve which is a good thing and we want to continue to see it go that way and we are also excited about openings at a new market segment, in particular of the smaller businesses and we've been doing great work team on the startup engagement then went in investing and also working Sandeep on building alliances towards market and we expect to share more about that at our conference events later this month.

James Friedman:

Great. Thank you, all the best.

Operator:

Thank you. Next question is from the line of Joseph Foresi from Cantor Fitzgerald. Please go ahead

Joseph Foresi: Cantor Fitzgerald:

Hi first on financial services you mentioned winning some deals I was wondering when financial services you're winning those deals and how would you describe large bank budgets overall?

Vishal Sikka:

So I think the deal size we have won, one of them is basically to do a suite bank and tax suite of applications and doing to support across them automation platform. We've also won couple of large agreements with large global banks. So I think that is where we see opportunity on the market side, we are seeing some volatility but overall the wins have come from across the board.

Joseph Foresi:

Okay and then my second question is just on pricing. Given that some of the business has matured over the years and there is some level of too modernization and talking about may be a little bit of caution around the banks and this is more of a hypothetical thing. But can you could -- how disciplined do you feel like the industry is right now around pricing and if there was a downturn, could we see dramatic price decreases?

Mohit Joshi:

So I think look as far as the banking deals are concerned I think banks have realized that there is a limit to how much you can squeeze out in a per liter basis. So I think and it gives that's can't something that they're looking at. So all of the deals that we have has very significant components of software in them. So you have got people plus software that allows you to give that leverage that directs automation or its artificial intelligence or the use of inverts and tools that is what is allowing us to -- long term cost advantages to our clients, rather than just stock price in that rate reduction because that will not accomplished what the banks are looking for and not -- purpose.

Vishal Sikka:

Let me add to Mohit's great observation. The banks are and especially many of the large banks in certain geographies are in a such severe pressure from a regulatory prospective, from an economic prospective that simply doing the same thing that they have been doing cheaper is no longer enough. A vendor in order to succeed in this climate has to bring capabilities and technologies and innovation that not only away are not able to but the bank themselves is not able to. So you have to be able to do things in new ways that --.

If you look at the large deal that as Mohit mentioned, the automation in this case of maintenance this was a maintenance idea operation support project that we want one of the large deals out of the 757. This will not be possible by simply doing the same management and maintenance cheaper, but you need to bring the capabilities of artificial intelligent to be able to bring a dramatic automation base, economic improvement as well as the quality improvement in the process with the visibility, with the regulatory reporting efforts and so forth.

So in order to be able to successful in order for a vendor to be successful in this climate with the banks, we have to have innovation in the story, we have to have a deep understanding of what is going on in their clients and that is what it takes and it turns out that if you have those then the fact the banks are in the tremendous pressure doesn't matter in fact that is a good thing and it allows us to win more business. So the deal that Mohit mentioned in vision the two family because they did not include in the sound of the -- also both in the financial services industry.

Mohit Joshi:

And I just want to add one final point which is that if you take a US perspective then obviously there has been --banks have been working with us for a many, many years. But we saw the larger amount if I look at Europe, or if I look at Australia for instance or I look at parts of the Asia-Pacific that are still several areas where banks are still struggling with technology. They are still investing sort of fairly -- we ensure that the good applications that the entire environment is up to straight and that also gives us significant opportunity right. So while there is the rationalization fees which is focused on cost reduction, which is focused on efficiencies, which is focused on an automation and platforms.

There is also the entire piece around the renewal of the banking as but around looking a new sort of which clinical borrowings around the opportunities that the new distinct technology allow us. So while there is focused on cost reductions in certain parts of the industry specifically in the capital market space. There is a huge growth opportunity in parts of retail, corporate banking, in the asset management business which are now get the increase in back to back technology and therefore lead to investment and may get changed.

Joseph Foresi:

Got it and then just lastly from we talked about automation and you give some headcount numbers which were obviously on the smaller side. How do you see that pointing out over the next couple of years. Do we hit an inflection point where those numbers become meaningful at the short or long period of time and what's that impact on margin I know you have given color in the past I just wanted to get an update on how you see it pointing out?

Vishal Sikka:

I think another part this number impacting the margin it will still take some more time. If you look at the utilization that Ranga mentioned 80%, 80% to 83% is what a people. So it has same impact for now as it does in the world of automation.

But on the other hand if we are able to get automation to as much larger percentage of our employee population the nature of the work that's the employees do that is the 1/3 of the employee or 40% 50% of the employees work activities can be more and more automated than we'll see a dramatically larger impact of automation to the bottom line then to any of the operational the traditional operational measures. It is somehow like you can feed the horses better and you can the horses and get better horses and so forth that at some point you in automobile and that is sort of it's an horrible analogy probably but this is what comes to my mind.

The other part of it that we quickly realize is that as we bring more intelligence to the operational processes actually the cost simplification from automation becomes across by the value improvement because of automation more straight through processing more integrated processes better improvement of the experience trying to understand the point of a business while also pulling that and that becomes much more about innovation and then creating much larger value and so forth so that has its own unexpected and maybe larger benefits. So all of these I am really excited about all of these playing out I mean one thing that get lost in the middle of all these large deals is that a lot of that has been happening because of the automation and so forth as well. So it is in my view a very fundamental part of the future of our industry and certain industries that of our company and there is only one way forward and that is full speed ahead.

Joseph Foresi:

Thank you.

Operator:

Thank you. Next question is from the line of Arvind Ramnani from Gordon Haskett. Please go ahead.

Arvind Ramnani:Gordon Haskett

Thanks for taking my question. Could you hear me?

Vishal Sikka:

Yes Arvind go ahead.

Arvind Ramnani:

Yes sure. The question is for Vishal, It has been almost two years since you've joined Infosys can you provide a fundamental nature to conversations you had with your clients when particularly when you started you spoke probably a number of your current and prospective clients and they were giving a feedback on the efforts of Infosys and I am sure you're continuing to relations now so can you kind us elaborate how is the perception of Infosys changed among clients and possibly like some of the underlying reasons for changed in perception.

Vishal Sikka:

First of all when I think two years that is really being that long it feels like yesterday. I think frankly my answer to this would be a more not objective and perhaps we went self-serving so it is a little bit awkward for me to answer that especially because I see at conversations have improved dramatically the relationships have become much more elevated and more importantly the nature of the work that we do has become more elevated. The timing of strategic progress that we are starting to do now we'll plans is just extraordinary. We work on the digital future we work on most complex problem.

We recently had a huge company from Europe that what's going through a very structural change and they actually did their entire rebranding exercise in our office in Palo Alto they were the entirely leadership team of this huge company was locked in our office and working on deep questions about their future and then identifying and it was just an unbelievable experience.

We recently have the entire management team of a massive industrial company visiting our office and they were shocked to find small team of the design team that we have growing little plants inside the office and they were like what is the story with these plants and actually these are plants that they were going for an agriculture company one of Sandeep's clients in an instrumented atmosphere of the entire plant the soil that it was in and all of that had some of -- people some this giant industrial company were absolutely shocked to see that.

So I mean those of the two random examples that came to my mind at the end of 14 hour long date but the nature of the relationship the nature of engagement we are designing actually a work space if you can believe it designing an entire building for one of the large companies in the United States because this all of states they were very impressed by our ability to build green and highly open collaborative workspaces on so forth. So there has been an absolutely marked change in the nature of the relationship with the clients suddenly not all of them but with that increasing number of these I would say there is still actions that once they have been able to touch with our strategic message at the strategic level and I suddenly I get back to and I wish to see this our suddenly our goal and our aspiration to see more and more of that

Arvind Ramnani:

Great, congratulation and just quick follow up like has the kind of the that you're seeing have also changed and has there number of deals that are you kind of you kind of get three service ahead in order bit are has that also changed?

Vishal Sikka:

I have no idea is your question that are we winning more deals than at the of competitor or are they also changing their story

Arvind Ramnani:

No are you basically entering situations there you know the kind of your clients basically kind of pre selective that they do not even open up some of the projects to competitor are you winning project where you know you have really like seems to selected versus going through like the entire new process?

Vishal Sikka:

I don't have the statistics on this. But informally I would say that the source of the non-deals numbers has actually from that I see in any attraction of the client base those number probably seems to have increased dramatically.

Arvind Ramnani:

Great, that's very helpful and congrats on fiscal '17 and beyond.

Operator:

Thank you. Ladies and gentlemen, that was the last question. I would now like to hand over to floor back to Mr. Sandeep Mahindroo for his closing comments.

Over to you, sir.

Sandeep Mahindroo:

Thanks again for joining us on this call. We will look forward to talking to you again. Have a good day.

Operator:

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