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Executives

Sandeep Mahindroo - Principal of Investor Relations

S. D. Shibulal - Co-Founder, Managing Director, Chief Executive Officer, Director and Chairman of Infosys Technologies (Sweden) AB

Rajiv Bansal - Chief Financial Officer

Stephen R. Pratt - Managing Partner of Worldwide Consulting & Systems Integration and Senior Vice President

Ashok Vemuri - Head of Americas Operations, Global Head of Manufacturing & Engineering Services, Director, Chairman of Infosys Technologies (China) Co. Limited and Chairman of Infosys Technologies (Shanghai) Co. Limited

B. G. Srinivas - Head of Europe Operations, Global Head of Financial Services & Insurance and Director

Analysts

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division

Keith F. Bachman - BMO Capital Markets U.S.

Glenn Greene - Oppenheimer & Co. Inc., Research Division

David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division

Jesse Hulsing - Pacific Crest Securities, Inc., Research Division

Infosys (INFY) Q1 2014 Earnings Call July 12, 2013 8:30 AM ET

Operator

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

Sandeep Mahindroo

Thanks, Inba. Hello, everyone, and welcome to Infosys Q1 '14 earnings call. I'm Sandeep from the Investor Relations team in Bangalore.

Joining us on today on this 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 a brief remark 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 hand it over 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 would now like to pass it on to Mr. S.D. Shibulal.

S. D. Shibulal

Good evening, everyone. Welcome to the earnings call. Thank you very much for joining the call.

Let me begin by giving an overview of the recent quarters, Q1. We have done reasonably well in Q1. We had 2.7% growth quarter-on-quarter on reported basis. In constant currency terms, growth was 3.4% quarter-on-quarter. Our growth was driven by retail and CPG segments and manufacturing, amongst verticals, and Americas by region.

Our top 10 clients grew by 4%. We added 66 new clients during the quarter. We added 10,000-plus employees, gross additions, during Q1. Our attrition during the quarter was 16.9%.

Our margins were flat sequentially from Q4 to Q1. The benefits of a weaker rupee was offsetted by the residual impact of our last year's compensation increases and investments we made in the business.

I will now talk about some of the key drivers and opportunities that we see in different verticals. Financial services continues to see challenges with the downsizing in the industry, creating pressure on budgets and spending. Cost reduction continues to be the primary focus area, leading clients to focus on optimization and consolidation of IT and operations spend. Focus on compliance-related spending, vendor consolidation, infrastructure modernization, information management and cloud are the key initiatives visible in this sector.

Insurance companies are focusing on customer centricity with a strong focus on business and technology programs concerning digital and information management. Pricing trends in this sector are challenging as clients continue with belt tightening in schedules. With the industry still seeing tough times, we believe we will continue to see volatility in this sector.

In retail and CPG, we see increased vendor consolidation and focus on reducing cost of operations in Americas region. In Europe, we see demand for omni-channel commerce in retail and demand for SAP, mobility and platform capabilities in CPG. In APAC, retailers are focusing on omni-channel integration and expansion in the regional markets. In Life Sciences, we have seen continued activity towards mergers and demergers, and business and IT initiatives being taken in support of the same. Overall, in retail and CPG, due to continued focus on reducing nondiscretionary spend, even though there are opportunities to work with clients in many areas, we are seeing more aggressive procurement practices and requirements from vendors to have a higher risk appetite.

Coming to manufacturing. We see various trends by subverticals, either companies are focusing on cost optimization, asset-light operating models and expansion into emerging markets. ISCs are focusing on process transformation to enable new license models and subscription commerce. Auto companies are focusing on connected cars, connected vehicles, digital consumer and leveraging the power of emerging economies. Aerospace companies are focusing on increasing production levels to meet order backlog. Clients are looking at doing more with less and looking for quantifiable ROI for spending programs. Even in this segment, discretionary spending is under pressure. Pipeline of large deals in manufacturing is not as robust as we would like it to be.

In energy, utilities and communication services space, spending is under pressure in most of the areas, primarily due to revenue challenges faced by the clients. Pressure on IT spending is visible in the form of focus on cost reduction and the operational efficiency in telecom, steep reduction in budgets in some large energy clients and inability of larger utility companies to drive rate card increases, thereby hurting their revenues. Pricing in this segment is broadly stable, though large deals are coming at the lower margin due to competitive intensity in the market.

Coming to large deals, most of the pipeline is driven by clients looking to restructure existing spends with a bias towards ADM and infrastructure management. We won 7 large outsourcing deals in Q1. 6 of the 7 deals were in Americas, 3 of the 7 were in financial services, 2 were in manufacturing. The pipeline of large outsourcing deals continues to be stable, though closer rates and pace of ramp-ups on these deals are uneven.

We continue to operate in an uncertain macro environment. As I mentioned earlier in my vertical commentary, client's willingness to spend in discretionary areas is limited. Key leading indicators like decision cycles and pipeline of deals have improved, but at the same time, not point to a sustained improvement in discretionary spending. There is an acute focus on cost cutting and optimization, which creates a downward bias on realization of -- per-person realization. There is uncertainty on the political path, final outcome and timelines of the immigration bills in U.S. We have not seen the bill impacting clients' decision making. Though some clients are focused on mitigation plans, they have expressed their optimism about our ability to provide them uninterrupted services.

Cross currency challenges have become more acute since last quarters. This quarter, we have lost $13.7 million in revenue due to cross currency challenges. Because of the above factors, we have kept the full year guidance unchanged. Even though we grew faster in Q1 than the 0.5% to 2% growth, which was needed a quarter back to meet the upper and lower end of our guidance, it is too early to upgrade guidance after just one quarter.

With that, let me now pass it on to Rajiv to give you details on financial highlights.

Rajiv Bansal

Thank you, Shibu. Good evening, everyone. As Shibu said, we had a reasonably good quarter. Our revenues for the quarter grew sequentially by 2.7% in dollar terms. On a constant currency basis, our revenues grew 3.4% quarter-on-quarter. Our EPS for the quarter is at $0.73 as against $0.76 last quarter. Our gross margin in Q1 were flat at last quarter's level of 34.9%. The operating margin for the quarter were at 23.5%, same as Q4 '13 levels.

The rupee depreciated by 4.9% quarter-on-quarter to INR 56.56 from Q4 levels of INR 53.93. The benefit of rupee depreciation was offset by an additional one-month impact of last year's onsite salary waging -- or hikes, and we simply announced hikes for sales employed effective May 1.

We continued making investments in the business, which also had impact on the margins. Our net margins were 21% in dollar terms this quarter compared to 22.9% in Q4. The decline in net margin was due to lower exchange gains on the nonoperating side of the income and the R&D tax credit, which was taken last Q4, and also because the increases in active tax in India from 32.445% to 33.99%.

Volume growth was at 4.1% quarter-on-quarter, though realizations dropped by about 0.7% during the quarter due to adverse cross currency moves. Though inflations have moved up this quarter, it is still low which gives us some leverage for the future.

Our replenishments for IT services, including trainees, increased to 70.7% in Q1 as compared to 68.5% last quarter. Excluding trainees, it increased to 74.3% in Q1 as against 71.4% in Q4.

We have given 8% competition increase with sales folks effective May 1, 8% increase to onsite-offshore staff effective July 1 and 3% onsite workforce also effective July 1, except for people who have already been covered in the last cycle's wage hike. This will put an additional pressure on the margins for Q2 to the extent of roughly about 300 basis points. However, utilization is a lever to offset some of this. Also, there's a 5% depreciation in currency from Q1 realized rate of INR 56.56 to the Q2 assumed rate of INR 59.39, which should provide an upside of 125 basis points on the margins.

Our cash and cash equivalents, including available-for-sale assets, were at $4.054 billion. Cash realization continues to be strong. Our operating cash flow as a percentage of net profit this quarter was 100%, though the DSOs have marginally gone up to 66 days.

We saw significant volatility in currency during Q1 with the rupee depreciating by 9.4% against the dollar from end of March to the end of June. Our hedging strategy has resulted in a net positive impact of $3 million. We had outstanding hedges of $1.173 billion as of June end. We saw U.S. dollar appreciate against -- across-the-board on fear of stabling by Fed Reserve and better-than-expected economic data from the U.S. But GBP and euro were fairly stable. Australian dollar was the biggest loser, depreciating 11.4% from March end rate.

We are maintaining our guidance at 6% to 10%. Our current guidance is restated based on April guidance x currency rates, will be 7% to 11%, since the impact of currency over the last 3 months on FY '14 revenues is roughly about $72 million. Our current guidance is stated based on FY '13 cross currency rates, will be 7.4% to 11.4%, since the impact of currency on FY 2014 revenues is $114 million compared to the rate as -- in FY '13.

With that, I'll open it up for questions.

Question-and-Answer Session

Operator

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

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

I guess my first question here is we've seen some inconsistent execution over the last, I would say, 2 or 3 quarters. Any sense on whether that inconsistency is starting to level out? And if you could provide any color on why you feel that way, that'd be helpful.

S. D. Shibulal

So it is true that our performance has been volatile over the last 2, 3 quarters. We do have a higher level of dependency on discretionary spend. But as you rightly said, it has been volatile over the last 2, 3 quarters. In fact, I would like to say it again, I -- we will not consider one quarter as a secular trend. We are operating with certain number of challenges, which I outlined. And these challenges does create volatility in our performance. This quarter, we have done reasonably well. We will not change our guidance. We are cautiously optimistic about the coming quarters. We -- I would like -- we would like to see a couple or more quarters before we consider this as a secular trend.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Okay. And then on the margin front, could you just walk us through the puts and takes on what you could be impacting margins over the next 2 or 3 quarters? I know you talked about wage increases. I know we've got the rupee moving a certain way. I think you've talked about investments in the past. So I'm just trying to get a feel for what the margin outlook is for the business.

Rajiv Bansal

If you look at our margins this quarter, we inevitably spoke about certain headwinds in our margins for the quarter. And to some extent, that has been negated by the depreciating rupee. So rupee has helped us to the extent of about 1.2% this quarter. Rupee depreciated on an average by about 4.9%. We had wage impact -- a full quarter wage impact of wages that the -- hike has been given separate of last year -- of this financial -- of last financial year. We had a cross currency impact because last gain that we got from rupee were negated by the cross currency movement. As I was saying, our growth in constant currency basis this quarter is 3.4% as against reported number of 2.7%. We lost roughly about $13.7 million of revenue, primarily with the cross currency movement, which also impacted the margins. We have given promotions in January, which -- and the linked hike for that was given effective April, which has impacted our margins in the end of first quarter. We also had realized rate drop of 0.7% during the quarter, which impacted my margins by roughly about 0.5%. So there have been many factors which have contributed to margin increase or decrease. But I think we have done this reasonably well in terms of keeping our margins at 23.5% for the quarter in spite of the headwinds that we spoke about in April. As we move into the next quarter, we have -- as I mentioned, that we have given wage hike effective July 1 to majority of our people. And that is going to have an impact of roughly about 300 basis points on the margins, but it could get negated by a depreciating rupee. My average rupee rate for the first quarter has been INR 56.56, and the closing rate as of 30th June has been INR 59.39, which is a 5% depreciation of rupee, which should help me on my margin front by roughly about 1.2%, 1.3%. And also, when I see growth, there would also be an uptick in utilization and some of this margin impact that we're talking about, headwinds we're talking about could get negated by the utilization uptick. So I think though we have some elbow room on the margin front, we still have some upsides which we can -- and some positives that we can look at in terms of increasing our margins. But I think the wage hike would impact the margins in the coming quarter. And also if you look at our utilization, it's at 74.3%. We would like our utilization to be more 80%, 81%. So I have clearly about 5.72% or 6.7% or -- elbow room on the utilization. So a large margin would depend on how much is the growth for the year. And if we see sort of big growth for the year, I think a lot of the impact that we're talking about right now, headwinds could be managed in terms of utilization went up and it'd be the depreciation that we're talking about.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Great. And then just one last quick one for me. On the visa reform stuff, can you share with us any contingency plans that you may have in place, or that you -- I think you mentioned in your commentary that maybe clients are starting to put in place.

S. D. Shibulal

So on the immigration trend, I mean, as you know the details and the Senate has passed the bill, the House bill is actively presented. And finally, they will have to be consent. There is quite a lot of uncertainty around the shape or form in which the bill will finally come through. All we can do at this point is plan for it. Plan for various contingencies. The first and foremost thing from our side is to make sure that our service do not get interrupted to our clients. That definitely requires close cooperation with our clients. We are talking to a lot of clients, especially the major clients. We are discussing with them the various aspects of this bill. We have not seen any impact on the decision making because of the bill at this point in time. Our relationship with our clients are very long term. They understand that this is not a Infosys issue. This is an industry issue and -- which needs to be tackled. Now the contingency plans can include the changing the onsite-offshore ratio, going into a 3-tier approach of delivery. That means very few people on the client site. You can have developments entered in the same time zone or in the same region, along with offshore. We're recruiting more people onsite, which are local nationals applying for green cards or a certain set of people. So there are multiple mitigation ideas and plans which one can formulate, and some of them we are discussing with our clients. We are in the process of hearing out how to execute. But the most important thing is to make sure at this point that we are in close contact with the clients, continue with the discussions on various aspirations of the bill, various aspects of the bill and watch the progress of the bill very closely.

Operator

Our next question is from Rod Bourgeois from Bernstein.

Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division

Yes. I want to ask a question about high-level strategy, especially with Chairman Murthy returning to the company. Can you just articulate the latest strategic plan to drive improved earnings and revenue growth at Infosys? And if you could also -- as you speak to the high-level strategy, if you could articulate what the investment and longer-term margin implications of that strategy would be, that would be very helpful.

S. D. Shibulal

As you know, Mr. Murthy's focus is always to create superior financial performance. He has done that in the past, and his current focus will also be the same, which has 2 parts to it. One is to create high-quality growth. Second is to have leading margins. So let me add the growth phase first. We have 3 segments of growth, 3 segments of -- 3 offerings in the market, and the #1 thing is to provide higher and higher customer value through these offerings. At the same time, growth is important in these 3 offerings in various dimensions. Let me start with the smallest so that I can answer the rest. If I look at products and platforms space, even if it grows at a very large percentage, it is on a smaller base. That alone -- that is not enough for us to actually reach -- meet our aspirations. Consulting and system integration has grown above average of our company average for the last, I should say, 2 quarters. Business and IT operations has grown below our company average. That is the largest segment which we have. That is 62% of our revenue. And if you don't create growth there, we will not be able to meet our aspirations. Over the last 2, 3 quarters, you have seen the deal wins pick up in that space. Now this quarter again. So -- and the growth in this space comes through large outsourcing deals. We are -- we have made investments, and we will continue to make investments in winning large outsourcing deals. This quarter, we had 7 wins totaling to $600 million of revenue in large outsourcing space. Now the challenge in this space is, #1, this is a space in which differentiation is difficult. So we need to invest in building solutions. We need to invest in automation and productivity improvement, creating efficiencies and use of tools and technology to make sure that we differentiate. #2, it is a price-sensitive space. If you see some of the industry report, a fair part of this space is rebates. That means rebates are deals where clients are rebating at the end of the contract, and they are even more price sensitive. So we have won $600 million of deals, 7 deals this quarter. At the same time -- and in the beginning of the deal, these deals are margin dilutive. Our objective is to make sure that they are margin neutral through the life of the deal. And that is where we need to focus, we need to put in energy, and that is achieved through some of the levers I talked about. So that is the focus on growth. On the margin trend, there are multiple levers which we need to modify. #1 on the large outsourcing deals, we need to drive automation productivity improvements and things like that to make sure that on the lifetime, margin is margin neutral. Second is to look at other costly works like onsite-offshore ratio, reducing nonproductive spend, changing various other levers, varying -- driving various other levers to make sure that we take out costs in the system and drive towards better financial performance in the margin dimension. So these are the areas in which there are discussions and action plans. It is definitely too early because some of them have been here only for the last -- less than 2 months now. And these are the areas where the discussions and action plans are being prompt. But as I said in the beginning, his -- as in the past, his priority is always superior financial performance, which is high-quality growth and leading margins.

Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division

Okay, great. That's extremely helpful. And just -- if I can clarify the financial implications. What I heard there is that you're adding focus to winning large outsourcing deals. And if I heard you correctly, that is probably going to cause margin pressure in the short and medium term. But in the long run, if you can work on things like automation and other efficiencies, you can make those margin neutral. Is that an accurate summary of what I heard on the financial implications?

S. D. Shibulal

Yes.

Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division

All right, wonderful. And then can you just define the timeframe there? Is -- short and medium-term pressure on margins, is that a 1- to 2-year type of a timeframe before you'd have time to drive the efficiencies to make that margin neutral? Or is it a shorter period or a longer period than kind of 1 or 2 years?

S. D. Shibulal

So there is one other dimension, which I want to add when I talked about it. It's not only about the large deals where we will create automation and other productivity improvements to create margin neutral -- neutrality over the life of the program. There are other thoughts, optimization measures which have been put in place. I mentioned some of them: that is removing nonproductive spend, whether it is onsite or offshore; driving a performance culture, #2; #3, there are other levers, right. For example, utilization is a lever. It has gone up from 71% to 73%. So if I can drive the utilization up through better planning, better recruitment and better deployment, that's a margin lever. You have onsite-offshore ratio as a lever. It has actually gone up. And I understand that it has gone up because of some of the project starts and things like that. But if I can move it -- we can move it back by, I don't know, maybe 5 points, 7 points over a period of, let's say, next 5, 6 quarters, then that is a margin lever which we can look at. So there are multiple cost-optimization opportunities for us. And Mr. Murthy, as I said, is very focused on performance on growth and on margin.

Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division

Okay. And then just one other quick clarification. I mean, you went through the puts and takes on margins in the upcoming quarters. Your current operating margin is at 23.5%. Are you roughly expecting your fiscal '14 operating margin to be around 23.5%, given the move in the rupee that has been experienced over the last 3 months? Are you thinking margins will be relatively stable for the full year?

Rajiv Bansal

No, as I said, we have not given a margin guidance or an EPS guidance for the year. And the reason being, a lot of our margin would be driven by the growth that we see during the year. I had clearly laid out the headwinds and the tailwinds that I see on the margin as we move to the next quarter. And we clearly articulated about the headwinds that we saw at the beginning of the financial year. So as I said in the first quarter, we have been able to maintain our margins as seen as what was in Q4, primarily, because of the rupee depreciation and also the utilization benefit, which helped us -- which gave us the benefit on the margin. But that was negated [ph] by the wage hike, the promotions and the productivity drop that we saw. As we move in the next 2 quarter, we have headwinds in terms of the salary hikes that we are giving effective July 1. As Shibu was saying, in the light of choosing deals, there's more competition, there's more price-sensitive deals, so there would be some pricing pressure unless we see the discretion spend come back. To that extent, I think depreciating rupee helps negating some of the impacts of the headwinds that we're seeing in the margin. And I'm seeing clearly about -- if the rupee is doing at about 59.39 or up, I'm clearly seeing about 1.2%, 1.3% uptick in the margins from there, which will help mitigate some of the margin negatives on the salary hike. So I think I would not like to say where our margins are going to end up in the next 2 or 3 quarters, because a lot of it will depend on what the growth is, how much is the utilization uptick that I can get, and that will help in negating some of the impact of the salary hikes. So we are all trying to increase our growth, trying to see how to get computer [ph] growth that we spoke about. And any growth would help us in increasing our utilization, which should helped us in maintaining our margins.

Operator

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

Keith F. Bachman - BMO Capital Markets U.S.

I'd also like to ask a couple. First, you mentioned that you're subject to discretionary spending. Your consulting package implementation areas actually had some good growth in increase as a percent of total revenue. How were you thinking about that business? And what's driving it, particularly, given that's more of a discretionary item. How are you thinking about that business in terms of the growth for the balance of calendar year '13?

S. D. Shibulal

I'm really sorry, the line was not clear. Will you please kindly repeat the question?

Keith F. Bachman - BMO Capital Markets U.S.

Yes, no worries. The consulting package and implementation revenue by service offering was strong. Can you talk about what drove that? And how you anticipate the growth of that going forward, particularly, since the consulting side in particular is more subject to discretionary areas? And you highlighted that as a risk, so it did well. Is that going to continue to do well? And if so, why?

S. D. Shibulal

So first of all, I think we are well regarded in that space -- definitely well regarded in that space, especially, in certain verticals like retail and manufacturing. #2, some of the revenue growth, which we're seeing this quarter is at Lodestone. The Lodestone integration is now complete. And we are getting much more closer to their plan -- the interim plan to growth. And the synergies of Lodestone is allowing us to win better deals in Europe. You see the environmental challenges do exist in that space, but we have a strong base. We have a strong presence in consulting and system integration in U.S. in 2 or 3 verticals. Retail, for example, we worked with 10 out of the top 10 retailers in U.S. in the digital transformation space. In manufacturing, we work with many of the high-tech manufacturers on their transformation and the after implementation space. We do get deals where it is being -- we do actually get failed deals, the lack of any other term, where we take over deals -- we takeover transformational programs, which are not done well or clients trying to do it for the second time. I think -- let me ask Steve to add to this.

Stephen R. Pratt

Yes, thanks, Shibu. Yes, it's interesting. We developed a little bit of a specialty over the last few years of picking up projects that's other consulting firms have failed to do and then doing them successfully. There's some notable examples. And one of the major CPG companies in the world of a major program to help them completely redesign their strategy processes, business and technology for how they did order to cash in their supplier interface. One -- another company in Europe. It's a agribusiness company, very large agribusiness company, where, again, one of the other major consulting firms had done a roughly $100 million failure and took that over and made it very successful. So I think that we really come into our own in consulting and can go head-to-head with anyone. We're especially proud of the fact that we think we pioneered the use of global delivery as upside [ph] to management consulting and the implementation of all those recommendations, starting in the 2002, 2003, 2004 era. And I think that right now, we're working very hard to break down the barrier between strategy, consulting and implementation. And so on every one of our programs, we link every business activity to the creation of business value, either through free cash flow or the increasing shareholder value. And so it's working in the market. I think the clients are seeing the value that we're delivering to them. We're cost competitive. We have great people. And that's why you're seeing us, I think, outperform some of our competitors at both the top line and the bottom line.

Keith F. Bachman - BMO Capital Markets U.S.

All right, fair enough. And the second question I wanted to ask is about headcount growth objectives. What are your targets? And, specifically, you mentioned utilization. How do you balance your growth objectives on headcount? And I think you said target -- increasing utilization. If you could just talk about where you think -- how you think your headcount's going to increase. And then what do you anticipate, or what would you like to achieve, say, by year end, in terms of utilization rates?

S. D. Shibulal

So our utilization has moved up from 71% to 74% quarter-on-quarter. We have added 10,000 people during the quarter. At the same time, the net addition has been 565. Out of the total 10,000 which we added, 5,000 people -- 5,000-plus, I'm giving approximate numbers. 5,000 people joined Infosys Limited. Now our aspiration of utilization is somewhere between 78% to 82% -- that will be somewhere between 78% to 82%. That will be our optimum utilization. So we do have some way to go to get there. Meanwhile, there are about 5,000 offers, which we have given for people to join this year. This was done last year. If we play 80% conversion rate, somewhere between 3,500 to 4,000 people will join during the year. Finally, utilization is a reflection of growth, right? Divided the utilization growth quarter-on-quarter, because our volume went up by 4.1%. So it is definitely a reflection of growth. And growth -- there are 3 aspects to utilization: growth, intake and attrition. So with better planning and better growth, we are hoping that utilization will get closer to our aspiration range of 78% to 82%.

Operator

Our next question is from Glenn Greene of Oppenheimer.

Glenn Greene - Oppenheimer & Co. Inc., Research Division

I just wanted to go back to business operations for a second. And I know the last few quarters we talked about pricing pressure there. And you kind of looked at your aggregate realization and it was, overall, kind of flattish. And I suspect that was largely mixed with CSI increase as part of the mix with the benefit from Lodestone, so I just wanted to clarify that. But really wanted to get -- to drill down and sort of get a better understanding for what you're seeing in like-for-like pricing within business operations. And is it any better or worse than it's been the last 3 quarters?

S. D. Shibulal

So the business operations space is definitely difficult to differentiate and more commoditized than other areas. Even in business IT -- business and IT operations, there are certain areas, even more difficult. So I would -- certainly the business operations space is more difficult. The large outsourcing deals, especially, in the rebid ones are price sensitive. They are margin dilutive in the beginning. It will also require us to invest in one way or other. So for example, if you look at the Harley-Davidson deal, we build developments in Milwaukee for that deal, so things like that. Our aspiration is to make the margin neutral during the life of the program through all the interventions I talked about. At the end of the day, one needs to look at these things as a portfolio. That means the consulting and system integration, business and IT operations, products, platforms, cloud and mobility, engineering, all of this as a portfolio. And our objective is to see -- make sure that we can meet our aspirations by managing it as a portfolio. I don't want to comment on what percentage difference we see. And that is the -- it's a very deal-specific decision to make. It depends upon the size of the deal, the longevity of the deal, whether it's a strategic customer whom we are trying to defend, all of these factors go into the deal pricing.

Glenn Greene - Oppenheimer & Co. Inc., Research Division

Okay. And then another question, different direction, but the public services area. So a couple of quarters in a row, a very nice sequential strength. Maybe you could comment on what's kind of driving that? And has it been a few large deals? And is this sort of a sustainable sort of going forward trend from here?

Ashok Vemuri

Yes, this is Ashok. The basic growth in our health care business has been on the back of the large District of Columbia health exchange program. After that win, based on that performance, we've had a couple of other wins in the health care sector. So we think that in the short to medium term, this is fairly sustainable, the growth that we have seen in that. But, of course, the fact that many of the states are unable to meet the time line to build their exchanges and, therefore, require to pass themselves onto the federal exchange will diminish some of the volumes that we anticipated as we hit the end of the year. But, overall, with one of the larger deals that we have won that Shibu was alluding to earlier, and being in the health care space, that has also given us some traction, which we will build on through the course of the year.

Operator

Our next question is from David Grossman of Stifel.

David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division

So, while I understand your commentary about the scale of the core outsourcing business and the need to recapture, share and grow it, this segment by your own admission is commoditizing. So that said, perhaps you could help us better understand, what your longer-term objective is in investing in this segment, given that once the utilization dynamic plays out and the business becomes more difficult to grow profitably, particularly, if the currency trend reverses. So, perhaps, again, you could help us understand again what the longer-term objective is, as you kind of re-up, if you will, in this segment of the market?

S. D. Shibulal

So we have -- when you look at our offerings to our clients, there are 3 major offerings, right? Consulting, system integration, business and IT operations and products and platforms. We have to get growth in all of them to achieve our aspiration. I don't believe that we can grow one segment to counter or to balance the lack of growth in another segment. I don't believe it is possible. Products and platform, even if it is growing fast, let's say, even if grows 30%, it did not go into -- make the necessary move. Business and IT operations is about 62% of our revenue. All that is not commoditized -- there are certain areas like, for example, application management is getting commoditized. To create aspirational growth, and we need to grow all the 3 segments. Now in consulting and systems integration, that growth will be at higher revenue productivity, bigger on-site and probably better margins. And in business and IT operations, what we need to do is to drive efficiency, productivity, higher utilization, right scaling, automation and other things to make sure that our margin aspirations are met. At the end of the day, margin is a reflection of the price and the operational efficiency we bring to the table. So in this space, where pricing is more -- there are pricing challenges, we have to drive more operational efficiency to make sure that we meet our margin aspirations. So that is what we are trying to do in that space. Even long term, I'm very clear that all of these 3 segments have to grow. Product and platform will grow at a higher percentage, and it will eventually catch up to a more balanced portfolio. But until that happens, I think, all the 3 segments have to grow and we have to come up with strategies to drive operational efficiency in the business and IT operations space, which will give us -- which will allow us to realize our margin aspirations.

David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division

So just to clarify a little bit. As you probably know, Shibu, the traditional asset-based outsourcing business went through that cycle as well, and it became very difficult over a period of time to not only realize those efficiencies but also to pass them through or realize those yourself without passing through those savings to the customers. So perhaps you could elaborate on why you think this segment will be different and play out differently than it did in the asset-based game? And then secondly, when you look at those growth initiatives in your current base of business, how much of that is with existing outsourcing clients versus perhaps just new logo sort of just buying those newer services?

S. D. Shibulal

So as you can see, we have -- in over the last 10 years -- so in over the last 10 years, we have invested heavily into building a very strong consulting and system integration capability. And I would tend to believe that while we have established, we have a long way to go and a long run rate for us to execute on that strategy. If you look at our consulting and system integration revenue, which is 54% of our revenue today, the industry average is probably 18% to 20%. Probably 18%, that's the number I remember, which means we are way ahead of the industry in creating an offering which will, in a sense, counterbalance some of the challenges which we have in there which were in IT operations. That we have done over the last 10 years. In the last 18 months, we have started on our journey of products and platform. We have $730 million of booked business in products in the platform space, 46 clients on-boarded, 79 clients, including products, not including Finacle. It is that business in the investment phase. Over the coming years, as we execute on our strategic direction, that percentage of revenue will go up. So as we have articulated in the past, eventually, these 3 offerings will balance out, one providing higher revenue productivity, one providing higher -- and also, when you look at business and IT operations, today, our on-site offshore ratio for business and IT operations is very similar to consulting and system integration. While I see the consulting and system integration probably going up a bit, we can look at business and IT operations coming down. Platform and product businesses, predominantly, offshore business. So the whole strategy is about creating a portfolio, which will provide -- which has various differentiated characteristics, and which will allow us to meet our aspiration as a portfolio. So if I look at it 5 to 7 years out, because these kinds of changes do not happen overnight, our aspiration is to make sure that our portfolio balances itself out, and it will allow us to realize our aspirational margin. Now by then you'll have another set of challenges and we have to come out with another set of strategies. But from here to there, this is what I see.

Operator

Our next question is from Jesse Hulsing from Pacific Crest.

Jesse Hulsing - Pacific Crest Securities, Inc., Research Division

Shibu, to come back to your commentary around larger deals and the pricing trends within that segment of your business, do you see any signs that the decline in pricing that's been occurring over the last few years will ever stabilize? And what would be the driver of that if so?

S. D. Shibulal

So I think the pricing, apart from any strategy-specific characteristics, also it's like the demand-supply environment. So the demand we accept and the pricing power comes back in all service lines, some service lines better than other, that's #1. I don't see any secular trend in the reversal of that trend. At the same time, I'm also seeing that we're able -- we are able to bring in innovation. So for example, if you look at our alliance with IPsoft, which is a very innovative thing to do. That allows you to actually differentiate in the market and get better pricing power. So even in commoditized services, you have an opportunity to be innovative and get pricing power. Even -- in some of our solutions, which are multi-tower solutions, where we combine infrastructure and application management or where we do a random transform kind of a program in the interest of the space. Because of the uniqueness of the solution, we are able to get -- we always get a pricing premium, but we are unable to get a better pricing premium. So even in commoditized services, if you can bring in innovation, if you can bring in unique solutions, you are able to demand pricing premium. So when I look at the future, 2 aspects: One is demand supply balance; second is innovation, which will allow you to create pricing power. I'm going to ask B.G. to add to this.

B. G. Srinivas

Thanks, Shibu. To give a specific example, one of our large investment banks' particular opportunity was about research and publishing reports. And this opportunity came by while clients were looking at consolidation of the services. There are 3 other vendors doing it. And they had their own captive [ph]doing, carrying out these services. Then we were allowed to bid for the 3, not only came out with the response of how Infosys has the capability to carry out this kind of research and publish. But more importantly, the position of platform which is subject, which actually differentiates the way, not only referred to as carry out but published in real time. And none of the other vendors had anything close to what we called demonstrate in terms of differentiation, because we were able to position our platform to service this operational need. So this involve particularly IT and BPO, so this offering, which is typically commoditized. And when we were able to showcase our platform in lieu of just offering a pure-play service dimension, there was simply no competition. And this is how we will be able to drive differentiation if we are able to bring in our IP to bear on even traditional outsourcing services.

Jesse Hulsing - Pacific Crest Securities, Inc., Research Division

That's great color, B.G. And to follow-up kind of on the -- along the same lines, the rupee depreciating is great for supporting near-term margins, but it also creates the risk that dollar pricing can come down, because your offshore labor costs are going down. Have you had any conversations like that with customers, where they see the rupee at 60 to the dollar, and are wondering where their rate negotiation is? And have you seen any competitors start to use that, I guess, freedom or wiggle room that rupee depreciation creates as a means to get more aggressive with pricing, particularly, on these larger deals?

Ashok Vemuri

This is Ashok. Typically, we have not found any of our customers wanting to engage with us in situations where there is any change in the currency. I mean, they spend in the currency -- the local currency and we build them in the local currency. And it's a fairly slippery slope, if you start negotiating, if the client starts negotiating every contract based on where the FX rate is, because they could lose some and they could win some. We have not been invited to any conversation of this sort. I don't think they necessarily pay attention to a depreciating rupee and ask us to come back to the table to renegotiate a contract.

Jesse Hulsing - Pacific Crest Securities, Inc., Research Division

Great. And I guess as kind of a final -- looking at this from a bigger picture perspective. Shibu, I know your strategy is to land larger deals and increase the available volume, I guess, to your company and then drive efficiency through scale over the long run. This isn't a new strategy within the industry. Your competitors have been doing this for a while. I guess, looking at where pricing is trending, do you think there's a limitation to how much efficiency you can squeeze out of these larger deals? And I mean, if I look at the industry, you have been a $1 billion company for almost a decade now. How much more innovation on your delivery is there left to drive the type of efficiency necessary to make these contracts profitable in the long run?

S. D. Shibulal

So please remember that is not totally strategy, right? So we have different strategies and in different parts of our business in the outsourcing space, and when it comes to large outsourcing deals, I agree with you, that's the strategy. And so in consulting and systems integration, in products and platforms, in cloud, in mobility, in Big Data, in appliance technologies, that is not the strategy, right? So strategy which you're talking about is -- and this strategy does not apply to all the deals in that space. It applies to a certain number of deals in the large outsourcing space, where either we want to win it, or it is strategic to us, or it's in strategic client. That's #1. #2, there is a limit to what you can do. There is no doubt. But as time goes by, there are no limits being found. So for example, in interest of the management, with the IPsoft lines, we are able to take that to a new level, right? In some of the large outsourcing deals, by applying 1 of the platforms that B.G. talked about, this could not have been done -- actually, we could not have done it 2 years back. So there are new levels of innovation, which we can bring. But I agree with you that there is a limit to which you can go. But the important point is to know that it is only a part of our business, where we are trying out that strategy.

Operator

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

Sandeep Mahindroo

Thanks, everyone, for being a part of this call. We look forward to talking to you again. Have a good day.

Operator

Thank you very much, 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.

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