On Friday, Infosys Ltd ADR (NASDAQ:INFY) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared with investors.
Moshe Katri – SG Cowen: Shibu, I think it will be helpful if you give us, may be dig deeper in terms of some of the things you are seeing prior to the end of the last quarter end financial services. I am assuming that a lot of those issues happen in the capital markets area that’s based out of North America, out of the U.S. and then maybe also talk about what if that also impacted your commercial banking business or the insurance product financial services as well? So maybe we can start with that.
S. D. Shibulal – Co-founder, CEO and MD: Also let me request Ashok to give you a very detailed run down this year and he can give a very detailed run down.
Ashok Vemuri – Head of Americas; Global Head of Manufacturing, and Engineering Services: We had couple of things happened to us in the financial services space in the U.S. First and foremost, we had some large deals that we had closed in the previous quarter whose transition basically took much, much longer and actually did not start or ramp-up in this quarter and the expectation was that this would ramp up and then the transition should happen and the staffing would begin and that actually got delayed for a variety of reasons. Most important one being that the transition – the client was not prepared for the magnitude of the transition that they had to undertake. The second was that we saw some of our programs in our capital market space actually get terminated or actually ramp down in this particular quarter and that actually happened. Some of them were expected that there were a lot more unexpected ones that happened to us, especially for some of the larger names on the street. These programs were in the area – mostly in the fixed income area, there were few on the regulatory compliance area. In the insurance business again in Europe we had opened some large deals in insurance space and that also the ramp ups were very, very slow to minimal. The budgets did come on time, maybe a week or so later they were flat to slightly negative. But the expensing or funding of the programs that we saw were happening on a month-to-month basis or actually happening in a way that some of these programs were just not getting funded. So, we have a six-month program, they were funded for the first (part). The expectation is that they will continue to get funded for the next six months, but they were inadvertently terminated or deferred for a couple of months or actually as I said terminated. The other thing that we also saw is the combination of a lot of these things happening. The other thing that we saw in some of our very large client base, there was a significant shuffle in the C-suite and we lost a couple of very prominent sponsors. That also delayed decision making as we – for a period of time, we were awaiting a new CXO, a new line, a President in the line of business, and once that person came on board, that program was not immediately renewed and was referred back for approvals again. Lastly, I think on the insurance sector in the U.S. we actually had some challenges in terms of – that’s not maybe a very large book for us, or maybe of strength, so on the property and casualty business some of the clients actually did their budgets for – came in so low that they actually had to terminate some of the programs. Overall I would say in the financial services space, most of the impact was in the capital markets clients and in the insurance clients. They were about three of them in the capital markets and same number in the insurance space as well.
Moshe Katri – SG Cowen: In that respect, anything changed since the end of the quarter, are we in the same mode of a lot of these kind of lot of that volatility since the end of March?
Ashok Vemuri – Head of Americas; Global Head of Manufacturing, and Engineering Services: So the ones that got terminated are not coming back, but few of them that got deferred about 40%, about 30% have actually restarted again. The ones in Europe on the insurance side, we expect to actually kick-off by the third week of April. On the insurance, but both on the capital markets and in the insurance side, the programs that got ramped down or got actually terminated, we don’t actually expect them to come back again. Just another quick point is that – so that we will have to go far in programs to replace them. So, the other quick point is that of the 12 accounts that Shibu talked about the Fortune 500, five of them are from the financial services class, so this quarter we were actually – we continue to see new client additions, five of them four in the U.S. and one in Europe from financial services sector which are Fortune 500 clients.
Moshe Katri – SG Cowen: Just two very quick questions here going to Bala, the number do your projection for the fiscal year 2013 incorporate any wage comp increases for the fiscal year?
S. D. Shibulal – Co-founder, CEO and MD: So, right now we have not factored in any wage increase for the coming year. We will revisit this as we progress through the year and we get better visibility. We have factored in some promotions. We have factored promotions to be done during this year.
Moshe Katri – SG Cowen: Your hiring plans are staying in fact despite some of slowdown in the uncertainty that you’re seeing out there?
S. D. Shibulal – Co-founder, CEO and MD: Our hiring plan is 35,000 people for the year. Out of that 13,000 people are meant for BPO and the remaining for in Infosys Limited. We believe the net debt issuing because of this in Infosys Limited will be 6,000.
Keith Bachman – BMO Capital Markets: Could you talk about your assumptions regarding pricing versus volumes as you look at your forecast, please?
S. D. Shibulal – Co-founder, CEO and MD: So, our pricing if you look at our revenue productivity over the year it has gone up by 4.7% year-on-year in the last financial year. It is clearly a reflection of our aspiration of strategic direction in our portfolio, and the way we deliver value to our clients. We have done that in a difficult year. For the coming year, we have assumed as usual flat pricing and in constant currency. So, that is what we have assumed.
Keith Bachman – BMO Capital Markets: Just to push a little bit on that. Given the backdrop of what you mentioned the challenging year, are there are scenarios where you envision pricing actually declining as a consequence of weaker demand?
S. D. Shibulal – Co-founder, CEO and MD: Actually right now we are not seeing major pricing renegotiation. See, of course, as usual at any point in time you have renegotiation positive and negative both going on. So, when we look at the overall portfolio we don’t – at this point, we don’t any reason to change our assumption. Pricing also has a lot to do with supply and demand and various other factors and portfolio that’s been – and that is equally important factor. Our portfolio is – our aspiration is to make it more and more balanced. And actually, if you look at the direction, it is moving towards more and more balance but it will take years to completely balance. That is one. So, we are balancing high revenue productivity of services in the volume services as well as non-effort-based offerings together. So, due to all those reasons we have assumed a flat tracking for the year at this point.
Keith Bachman – BMO Capital Markets: I’ll ask one more question then. I understand you mentioned, I think you said the next hiring is going to be 6,000 people and at the same time, you’re trying to change some of the workforce balance to get more consultants on-site. My question is related to that is why – if your utilization rates are down excluding trainees to 73%, why not slow hiring more to reflect the weaker to demand and take your utilizations and presume that your margins up?
S. D. Shibulal – Co-founder, CEO and MD: So, if you look at what we’re doing, to achieve the growth which we have projected 8% to 10% we need to hire, right, because we have attrition. Attrition has come down. Actually, the attrition now is 15% 14.5% or so. Even if we assume a 15% attrition in Infosys Limited, I will lose approximately 15,000 to 20,000 people. Then in the BPO side, the attrition is definitely higher than Infosys Limited. So, we have to backfill the attrition as well as – to backfill the attrition we need so many people even with the utilization going up. So, with this recruitment and with the attrition to achieve our goal of 8% to 10%, our utilization has to go up. That is number one. Number two, on the consulting system integration trend, our focus is more to hire locally. So, the 1,200 people we are talking about recruiting in U.S. and in Europe is to a large extent meant to increase our capability and capacity in consulting and system integration.
Keith Bachman – BMO Capital Markets: My final question and I will see the floor is, do you think you’ll lose share in calendar year ’12?
S. D. Shibulal – Co-founder, CEO and MD: Please repeat the question. I didn’t hear it.
Keith Bachman – BMO Capital Markets: Do you think you’ll lose market share in calendar year ’12? Based on your projections you are growing, call it, 8% to 10% (indiscernible) comps numbers are higher than that.
S. D. Shibulal – Co-founder, CEO and MD: I don’t believe we have lost market share. We are growing 15.8% year-on-year. So, given the fact that we’re growing 15.8% year-on-year, I don’t think we have lost market share.