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Satyam Computer Services Ltd. (SAY)

F3Q07 Earnings Call

January 19, 2007 8:00 am ET

Executives

V. Srinivas - CFO

B. Ramalinga Raju - Founder and Chairman

Ram Mynampati - President, Commercial & Healthcare Businesses

Venkatesh Roddam - CEO, Nipuna

Analysts

Sandeep Shah - Motilal Oswal

Sameer Goyal - Alchemy

Priya Rohira - Enam Securities

Mithali Ghosh - DSP Merrill Lynch

Sarvottam Kumar - Brics Securities

Shekhar Singh -- ICICI Securities

Shailesh Vijay - Mutual Fund

Harmendra Gandhi -- Brics Securities

Shiv Choudhary - Global Equity

Julio Quinteros - Goldman Sachs

Bryan Keane - Prudential

Rod Bourgeois - Bernstein

Joseph Foresi - Janney Montgomery

George Price - Stifel Nicolaus

Jamie Friedman - Susquehanna

Anthony Miller - Arete Research

Ashish Thadhani - Guilford Securities

Presentation

Operator

Good evening ladies and gentlemen. I am Pratiba the moderator for this conference. Welcome to the Satyam Conference Call. For the duration of the presentation, all participants lines will be in the listen-only mode. After the presentation, there will be a question-and-answer session for participants connected to WebEx India, followed by Q&A session for participants at the international center.

I would now like to hand over to the Satyam management. Thank you, and over to Satyam.

V. Srinivas

Thank you, Pratiba. Good morning and good evening to you all and thank you for joining us to discuss our third quarter results.

Joining me on this call are Raju and Ram from Satyam; and Venkatesh, CEO of Nipuna. Before we start the discussion, I would like to draw your attention to the fact that during this call, we may make certain forward-looking statements concerning our future growth prospects. Such statements involve a number of risks and uncertainties associated with our business. Please refer to our various periodic filings with the SEC for a description of such risks. The company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the company.

This is Srinivas Vadlamani, CFO of Satyam. I now hand over the session to Raju.

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B. Ramalinga Raju

Thank you, Srinivas, good morning and good evening. Thank you for joining us on the call today. I take this opportunity to wish all of you a very happy New Year. I am pleased to report that the company has achieved 7.7% sequential revenue growth in Q3 in US$ terms. This translates to 3.7% growth in rupee terms under consolidated Indian GAAP.

The growth differential is in view of this 3.7% rupee appreciation against the US dollar in Q3. The revenue growth was accentuated by a 11% offshore volume increase. This has resulted in increase of offshore contribution to revenue for the sixth consecutive quarter. A significant positive development in Q3 performance is the expansion in EBITDA margins by over 200 basis points on account of enhanced operational efficiency and reduced cost of delivery. Consequently, EPS at Rs. 5.14 was higher than the guided figure of Rs. 5.11.

We are encouraged by the continued expansion of our business in Europe. In Q3, the contribution of the region increased to 19%. Q3 was yet another quarter, which saw an increase in the contribution of consulting and enterprise business solutions, which now is 42% of the revenue. Satyam's ability to architect innovative and extensible solution frameworks in this area has led to higher growth, enhanced customer intimacy and strong brand equity. It is also a reflection of our increased involvement in partnering with customers to deal with transformational issues effectively.

The top 10 customers of Q3 have witnessed a sequential growth of 14% on the back of large deals won by us during the year. This is a testimony to the maturity of our processes and service offerings to successfully transition the projects to our globally integrated delivery models. We are considering a strong pipeline of deals in every major vertical industry we serve in the Americas, Europe, as well as the rest of the world. We are also seeing significant strategic opportunities beyond traditional IT in our integrated engineering services business, further strengthening our large deal capabilities.

Our net addition of associates in Q3 was 2,746. While our associates are being compensated well, we continue to focus on their overall development through initiatives such as experiential learning and mentoring. Our commitment to learning led to our being awarded the BML Munjal Award for Excellence in Learning and Development for year 2006. We are also pleased to report the Satyam has been adjudged as one of the top three in the BT-Mercer-TNS Survey of India's Best Employers, 2006.

We believe our focus on associate development helped reduce the trailing 12-month attrition for the second successive quarter while annualized attrition for the quarter stood at 15.9%. We remain positive about the demand in marketplace, which we believe is fuelled by increasing budget for IT spend and a rising number of global outsourcing deal. Against this backdrop, we are revising our US GAAP revenue guidance upwards. However, in view of the rupee appreciation, we now expect revenue as per Indian GAAP consolidated financials to grow between 34.3% and 34.4%. The corresponding EPS growth for fiscal 2007 is revised upwards to 37%.

We expanded our global delivery centers in Asia to capitalize on the growth potentials in the region and harness emerging talent for tomorrow. This includes opening of a third development center in China, a 2,000-seat facility in Malaysia, and another development center in Cairo, Egypt.

During the quarter, we have entered into a definitive agreement with investors in Nipuna, for redemption of 50% of the preference shares held by them and the balance 50% to be converted into equity shares. The agreement provides for Satyam to buy out their equity stake for a consideration in the range of $35 million to $45 million by May 2007.

Some time ago, there was rumors that Satyam was in dialogue with a large systems integrator for being acquired. We had vehemently denied having considered such an option directly or indirectly ever in the past. Subsequently, there was speculation on the part of some analysts about shareholder value on account of acquisition of the company. We would like to take this opportunity to put to rest any such speculation in the future. We firmly believe that enhancement in shareholder value is best when we continue to pursue the already successful global delivery model that we specialize in. Satyam, therefore, shall not indulge in any such pursuits of being acquired. We would continue to focus on aggressively expanding our business globally as an independent company.

I now request Srinivas to discuss the financial highlights for Q3.

V. Srinivas

Thank you, Raju. Our detailed financials have been posted on the website, and I assume that most of you would have got an opportunity to go through the same. I will now share some highlights.

As Raju, mentioned, the highlight of this quarter is 205 basis points improvement in operating margins under consolidated Indian GAAP, despite a negative impact of 120 basis points on the margins because of a 3.7% rupee appreciation. The initiatives taken by the company in the past to improve operational efficiency and reduce average cost of delivery have helped post this improvement.

Sequential volume growth for the parent company was 8.2% with offshore volumes growing at 11%. During the quarter, rupee appreciated by 3.7% presenting a revenue loss of rupees 65 cores. Consequently, revenue for the quarter grew at 3.7% sequentially to rupees 1661 cores, lower than our guidance of 1666 cores to rupees 1674 cores. This is entirely because of the rupee appreciation. In US dollar term, the revenue growth was 7.73%. EPS for the quarter was rupees 5.14 after factoring in a loss of rupees 35 cores on account of accent fluctuation. Next then manpower addition was 2,746 in Q3 for the parent company and includes 2,141 freshers. We expect the gross manpower addition for year 2007 to be around 14,000.

The parent company’s cash and bank balance increases by rupees 193 crore, that is $43 million during this quarter. CapEx for the quarter was $22 million. CapEx for FY '07 is estimated to be around $30 million. Last quarter, as all of you are aware, we have informed you of the company's decision to issue RSU to select employees. The same has been finalized and will be issued in Q4. The charge for RSU in Q4 is expected to be $4.5 million.

Our guidance is based on an exchange rate of rupees 44.3 to a US dollar. Revenue guidance for fiscal 2007 is lower than the guidance given at the end of the last quarter as the same factors in the revenue loss of around 142 crores due to rupee appreciation in Q3 and Q4. On the margin trend, in spite of the steep rupee appreciation witnessed in the second half of this year, we expect operating margins for FY '07 to be around 60 basis points lower than the last year. This is against the 100 basis points drop guided earlier.

Turning to US GAAP, our revenue for this quarter grew at 6.7% sequentially to the $375.6 million, which is higher than the higher end of the guidance of $373.4 million. Net income for the quarter was $71.1 million after factoring in a stock compensation charge of $2.8 million on account of FAS123R.

For fiscal 2007, revenue under US GAAP is revised upward and is expected to grow between US $1.443 billion to US $1.445 billion, a growth of between 31.6% to 31.8%. Debit margins for fiscal 2007 are expected to be at similar levels as last year. We have also increased or revised upward our earnings per ADS guidance, which is now expected to be around $0.88 as against $0.86 guided last quarter.

Thank you and now we throw open the session to the Q&A.

Question-and-Answer Session

Operator

Thank you very much Sir. We will now begin the Q&A interactive session for participants connected to WebEx India. (Operator Instructions). First in line, we have Mr. Sandeep Shah from Motilal Oswal.

Sandeep Shah - Motilal Oswal

Yes sir, just one question. Why the RSU funds being deferred to fourth quarter? It was supposed to come from the third quarter. And second is what will be the RSU charge in the year FY'08 and FY'09. Is there any change in the RSU charge, because if you convert $4.5 million, it comes to around 200 million rupees, and earlier we were saying that the charge in the third quarter and fourth quarter of this year will be close to around 180 million rupees respectively?

V. Srinivas

Yeah, this is Srinivas here. We basically were thinking of doing it in Q3, because we thought that we should use the RSUs to be linked to the performance measurement in a better manner. So we thought that we will come up with a right incentive policy and to that extent, we thought that it is appropriate to come up with the incentive policy linked to the performance management and then issue the stocks. So to that extent that thing is happening in Q4. Coming to the charge for FY '08 and FY '09 that will not get changed, only the charge gets deferred by a quarter. Otherwise the charge that we were expecting in FY '08 will remain at the lower level of roughly around $13 million, and FY '09 roughly around $9 million.

Sandeep Shah - Motilal Oswal

Okay. And sir, the revenue from the infrastructure management and -- it has declined by double digit sequentially in Indian Rupees, close to around 22% decline. And similarly the BFSI revenue growth in Indian Rupees has also declined by 7%. Can you cite the reason for the same and in the analyst meet, you we were saying that the infrastructure management pipeline will help us to bid for more large deals? So is there any change in the trend and our expectation --

Ram Mynampati

Sandeep, this is Ram Mynampati here. As far as the infrastructure management service is concerned, we remain upbeat about the potential. The reason why you see a decline is probably as a consequence of the projects that we were executing coming to a logical end, and the fact that there is a gap that exists between the endpoint and the start point of the other contracts that would indicate the growth. So, there is no change in our outlook, there is no change in the way we are approaching that market. We remain very positive, not only about the growth potential, but infrastructure management services, which you are right, but also the fact that that can be a significant enabler for us in pursuing large deals. So there is absolutely no change in the way we are looking at infrastructure management services.

Similar situation is the case with BFSI, as we have shared with you all earlier, there are always going to be cases where variations, quarter-on-quarter from a customer, either due to the fact that there is the budget flush or the fact that budget should have reached at end, given the calendar year was in Q3, would have resulted in the variations that we have seen, and also the fact that few engagements have come to a logical end. Those are the reasons. There is no other trend that we have been witnessing in BFSI. In fact, we are as upbeat as what BFSI today as we were going into Q3. So, these are more operational and other matters contributing to specific set of numbers, but there is no other trend that we are witnessing, we are very positive about the sector.

Sandeep Shah - Motilal Oswal

Sir, if you link this decline in the revenue, we see lower onsite volume growth. Is there any slow down in the project ramp-up that you are witnessing?

Ram Mynampati

Not really Sandeep, again if we look at the overall business sentiment, let me also state that we are very upbeat and positive about the growth opportunities that are available for us across the board not just limiting to BFSI. The fact that the volume growth in off-shore is disproportionately larger indicates that we are very successful in converting some of the opportunities to the contribution from off-shore either according to the plan or perhaps ahead of the plan in some instances. So, the volume growth that you would have seen that on-site would have resulted otherwise if the off-shore growth was not as much as what we had witnessed in this quarter. So, there is a positive in terms of our ability to contribute -- to create greater contribution from off-shore that would have resulted in the on-site number being lower, but in fact the project ramp ups that we have seen, as Srinivas was alluding and Raju was alluding during the remarks, the fact that the two large deals that we've got – two of the large deals that we have won have ramped up so sufficiently large that two customers figure in the top 10 customer list in this quarter. It's a clear indication that project ramp ups are happening and there is a significant activity across the board that is resulting even in the churn of soft-end customer that is again a positive indication of the potential for growth, as well as the pipeline.

So I don't -- I feel we are not seeing anything dramatically different, we remain a very upbeat about the growth potential.

Sandeep Shah - Motilal Oswal

And just the last question is despite the RSU charge to come from the fourth quarter, the -- that growth guidance for the fourth quarter is higher than the sales growth guidance. Can you at least say why are you expecting operating margin to improve in the fourth quarter? And, sir, what will be the equity dilution because of the convertible preference shares in Nipuna?

V. Srinivas

Yes to take your second question first--

Sandeep Shah - Motilal Oswal

Yeah.

V. Srinivas

The equity dilution today, I mean basically it is -- there will not be any equity dilution in Satyam Computer.

Sandeep Shah - Motilal Oswal

Okay.

V. Srinivas

We will be paying cash and buying out the 25% stake in Nipuna.

Sandeep Shah - Motilal Oswal

Okay.

V. Srinivas

To an extent, there is no dilution. If you're asking from Satyam’s point of view, there will not be any dilution in equity in Satyam.

Sandeep Shah - Motilal Oswal

Okay. So sir, what about the fourth quarter guidance?

V. Srinivas

Fourth quarter guidance, in terms of margin, we are factoring in the -- basically one important thing is the RSUs, which we will be issuing in this quarter. And that will have definitely an impact on the margins. The second important thing is our guidance is at 44.30. So that extent, we have not factored in any loss. If you look at Q3, there is a translation loss of roughly around 35 crores in the other income line whereas that will be taken as zero from the -- for the guidance purpose. So that is another reason for whatever EPS guidance we have given.

Sandeep Shah - Motilal Oswal

Okay. So that means the margins in the fourth quarter might be sequentially down because of the RSU charge?

V. Srinivas

Yes.

Sandeep Shah - Motilal Oswal

Okay. And sir, the salary cost is absolutely down non-Q, can you explain the same?

V. Srinivas

Yeah, sure. Before I do that on the margin front let me -- again I spoke about it, let me also clarify that the year-on-year margins when you look at, we are now saying that the margins are going to decline by around 60 basis points as against to 100 basis points. So the, whatever improvement we have shown so far in the three quarters, that kind of helped us in putting up a better performance on the margin front than what we have originally guided.

Coming to your second question on the salary front, this quarter what really happened is the leave encashment charge has come down when compared to last quarter because of the leaves being availed by the associated because of Christmas and other holidays. The charge we have taken to P&L this quarter that is in Q3 is only 10 crores as against 35 crores in Q2. Q2 again the charge was higher because have announced some increments and all that. So that is why we -- there was a higher charge-off of around 35 crores that has come down to 10 crores. So, net, - there is a saving of around 25 crores.

Similarly on the gratuity front also, there is a lesser charge of around 8 crores. The last quarter it was 11 crores. That is in Q2. This quarter, the charge is only 3 crores. So, there is a lesser charge of around 8 crores. These are the two reasons, plus of course the rupee appreciation has kind of resulted in rupee -- the salary figure coming down by 20 crores in absolute terms. As you know, 60% to 65% of our salaries are in US dollars denominated. So when I convert them into rupees, the rupee charge will be lower. So that's contributed to roughly 20 crores. So, these are primary reasons for the salary figure coming down in absolute numbers.

Sandeep Shah - Motilal Oswal

Despite the onsite employees have gone up quarter-on-quarter from the first quarter to the third quarter, you have witnessed this 20 crores gain?

V. Srinivas

Yes, in leave encashment.

Sandeep Shah - Motilal Oswal

No, in the on-sight which you have mentioned because of the rupee appreciation?

V. Srinivas

Yes, that’s right. This is only between Q2 and Q3, I am not talking from Q1.

Sandeep Shah - Motilal Oswal

Okay. Yes sir, thanks very much.

V. Srinivas

Thank you.

Operator

Thank you very much sir. Participants are requested to kindly restrict to one question in the initial round. Next in line, we have Sameer Goyal from Alchemy.

Sameer Goyal - Alchemy

Yes hi, just wondering, I just observed today's performance, loss has expanded this quarter to the next, could you elaborate a better more on that, especially on Citisoft front?

B. Ramalinga Raju

Yes, let me take the Citisoft question and I would request Venkatesh will talk about Nipuna later on. Citisoft, as you know we have been managing the Citisoft integration very well with Satyam. But just as we have seen growth being impacted because of the fact that it is Q4 in a calendar year, there is an impact in Citisoft revenue as well because of the fact that the Q4 calendar year tends to be fairly a lean period for constructing charges. So, there is an impact on the revenue. The second thing is, the expectation as far as revenue growth that we were anticipating in Q3 of our financial year is more likely to happen in Q4 of our financial year. Those are two reasons why Citisoft revenues are lower than what we had expected. But again, we expect the situation to correct itself in Q4 of the year.

Venkatesh Roddam

Yes, this is Venkatesh here. On the Nipuna front on the revenue story, I think we are well on our way to exceeding guidance given of 36 million and have visibility on our full year EBITDA positive performance during the course of the year. More importantly I think the journey on quality continues, obviously which is extremely encouraging in terms of some of the external certifications that we have received besides the eSCM certification from last year, which is the Rajiv Gandhi National Quality award which we received as the first BPO in our last year service providers for (inaudible) and also being ranked as one of the top ten in the KPO space, in the more recently published listing. More importantly there is a significant shift from in the balance between voice and non-voice business, which is for the first time in the history of the company. Non-voice business actually is taking the lead over voice business, which actually is giving us a fairly healthy portfolio of 40% revenue coming from voice and 60% coming from non-voice. So, in summary, I think verticals which has actually aligned with these larger Satyam verticals in manufacturing, healthcare, and telecom are leading the way and awfully as we have seen increased fraction in animation, that is more recently, above $25 million, second large deal in the animation space, with 4K Animation.

Sameer Goyal - Alchemy

Thanks a lot and the other question was on the margins front. I was just wondering you gave some numbers on the impact of leave encashment, gratuity and rupee appreciation, which comes to around 53 crores. If I just adjust that to your guidance, it shows an 80 point impact on the guidance. Would that mean that your info would have changed by, thus if I do 80 from 140 bits decline, if this wouldn’t have happened.

B. Ramalinga Raju

No, your voice is breaking. Can you repeat the question please?

Sameer Goyal - Alchemy

Sure. I am audible now?

B. Ramalinga Raju

Yes.

Sameer Goyal - Alchemy

Yes, you gave that -- you gave some 53 cores of one time impact on the salary cost front for the quarter. So, if I do that, some rough calculations of that 53 crore to your full year guidance of the year, it comes to 80 basis point impact as on a one time basis. So, would that mean that your margins this year, if this wouldn’t have happened would have declined by 140 basis points?

V. Srinivas

No, I don’t know from where you are getting this 53 crores, are you talking of leave encashment and gratuity.

Sameer Goyal - Alchemy

Yes, I was just talking about 25 crore of leaving encashment, 8 crore of gratuity and 20 crore of rupee appreciation.

V. Srinivas

Okay, rupee okay.

Sameer Goyal - Alchemy

So this leads to an amount of 53 crores.

V. Srinivas

No, that is not how we should look at it. See, let me tell you what really happened in Q3, our margins have gone up by 205 basis points.

Sameer Goyal - Alchemy

Okay.

V. Srinivas

And the implied rupee appreciation impact is roughly around 100 to 120 basis points. This because rupee appreciated by 3.7% it would have in the normal course pulled down on the margins by roughly around 120 basis points.

Sameer Goyal - Alchemy

Okay.

V. Srinivas

And then there is an increase in SG&A of roughly 100 basis points.

Sameer Goyal - Alchemy

Yes.

V. Srinivas

So, if you add up all this, roughly it comes to around 410 or 420 basis point improvement which we got on the C&B front, in this quarter. This 420 basis points, we have roughly around 200 basis points improvement coming in because of leave encashment and gratuity being lower than last quarter.

Sameer Goyal - Alchemy

Okay.

V. Srinivas

So, they are lower by around 33 crores compared to last quarter. That contributes roughly around 200 basis points. Then, this quarter another significant thing happened is the offshore-onsite shift, roughly around -- the offshore revenues have gone up by around 152 basis points, which would have contributed roughly around 50 to 60 basis points to our margins. Then, the balance 160 to 170 basis points improvement we through various other revenue optimization and costs, optimization and revenue enhancement measures, like fixed bid management, employee rotation, and the ELTP, that is what we call the associate mix, thereby reducing the average cost of delivery. So this is how the entire thing turned out in this quarter.

Sameer Goyal - Alchemy

No, but if I look at the absolute number for the quarter, the margins were largely driven by lower wage costs. And the SG&A has moved above, so if we look at the initial guidance, what has been given at the start of the year, a bulk of this wage cost increase was not built into the structure, while the SG&A cost efficiencies were built into the structure. Am I right in thinking?

V. Srinivas

No, no definitely not. In fact we have factored in lot of operational efficiencies, and we also talked about our average cost of delivery coming down. So we are actively pursuing various initiatives within the company to reduce our average cost of delivery. For example, in the last six quarters, we have added around 10,000 ELTPs. There in the system, even if you factor in for the attrition, at least roughly 7,000 to 8,000 ELTPs are in system and they are productive. So these kind of increases ELTPs in the overall system. Today we have roughly around 35,000 associates. Of that even if you take roughly, there are 8,000 ELTPs who got added in the last six quarters. That we will have a profound impact on the average cost of delivery. To this, we have been talking about it, all these things have been factored in, when we decided to give an increment of 18% offshore and 6% onsite, which accounted roughly around 420 basis points. We basically didn't guide that our margins are going to come down by 420 basis points, year-on-year, we guided it will come down by only 100 basis points, which implies that we are factoring in some of these operational efficiencies into the model.

Sameer Goyal - Alchemy

Okay, fine. Thanks and best of luck.

Operator

Thank you very much sir. Participants are requested to kindly restrict to one question in the initial round. Next in line, we have a question from Ms. Priya Rohira with Enam Securities.

Priya Rohira - Enam Securities

Yeah, good evening to the management team. My first question relates to the business section we have seen among the client base. It largely shows that the client 6 to 10 profile has grown at a pretty good rate. If you could highlight some of the factors which has contributed to this ramp up. And secondly, if you could give us the business momentum on the large deals and the engineering service especially?

Ram Mynampati

Yeah, this is Ram Mynampati here. One thing to recognize here is that the top 10 customers is not a static list of customers that we track every quarter.

Priya Rohira - Enam Securities

Sure.

Ram Mynampati

We gauge the customers in the descending order of revenues contributed to the company and that's how the top 10 customers come up. So the fact that there is a disproportionately higher growth in the [backed up] of customers, implies that those customers have grown faster than the customers that they have replaced in top 10. It does not imply that the customers that got replaced did not grow. So if you look at the broader number, you would see a fairly broad based growth across the customer base. It's just that the customers that got into top 10 this quarter have grown faster to one entry into the top 10 list.

Priya Rohira - Enam Securities

I think there was a change in the mix, in the top 10 more or so, in the 6 to 10 bracket?

Ram Mynampati

As I was saying earlier, in fact it is related to your large deals question. We have won about four large deals in the last three quarters or so. Particularly, two of those deals, we have ramped up very rapidly, so much so that two of those customers find themselves in the top 10 today, and those are in 6 to 10. So, there is a clear demonstration of number one: a large deal that we have won, contributing quite substantially, in line with our expectation as far as revenue flow concerned. Number two, is our ability to ramp up these customers aggressively to derive the benefits of the investments that we made in pursuing these needs. So what you are seeing is that accelerated ramp up in some of the customers that are representative sample of the large deals that we have won, entering into top 10. And as with any set of customers, our relationship management strategy would result in the customers obviously taking advantage of many more service offerings and thereby growing larger -- faster than other customers. So that churn would be a fairly natural occurrence in my opinion quarter-on-quarter, it would be very unlikely that we would deal with a static set of customer list in top ten.

Priya Rohira - Enam Securities

Sure. When you mean implying, that it's because of the aggressive ramp up which you've seen on your effort as well? Would it be implying that the large deal progress has been faster than anticipated?

Ram Mynampati

No, I don't mean that. Well, large deal progress is satisfactory, in my opinion, very much in line with what we had anticipated. But the very fact that their large deals say that we are expecting significant revenues from them, that's what qualified them as large deals. So, it should not surprise us that large deal customers find themselves in software. So, that's just a natural consequence of the fact that they are large deal customers. But I wouldn't say the ramp up has been faster than anticipated, I would say the ramp up has been in line what we had expected.

Priya Rohira - Enam Securities

Sure. And also if you could highlight on your leadership status -- on your leadership status in the engineering services, which you plan to carry forward immediately?

B. Ramalinga Raju

While we are doing very well in engineering, purely in terms of volume and number of the revenue that contributed to our top-line space, we would not say that we are the leader. Qualitatively, we have leadership position in pockets of engineering services, but we're obviously focused quite a bit few quarters in accelerating the growth in engineering services. This quarter engineering services has grown quarter-on-quarter and we remain very positive about the engineering services potential. The good thing about engineering services today is that the opportunities are available across fairly disparate and distributed market segments. And you would think engineering services as only in manufacturing, but what we are finding as we make investments is that opportunities exist in manufacturing, retail, transportation, logistics, high-tech, telecom, and a whole bunch of industries where if we innovate, if we are able to invest in the right service offering, the opportunities are plenty in this space. And the second thing where we are very excited about the engineering services is, the next wave of off-shoring opportunities in our opinion come from innovation and R&D and increasingly many customers are making investment in this space and our investments in engineering particularly have resulted in fairly good pipeline as far as innovations and opportunities are concerned. So, we remain very positive about engineering services.

Priya Rohira - Enam Securities

Sure. Coming on the supply side, just coming on the lower cost of delivery, which has been effected well, would it be fair to assume that [doting] of the employee pyramid, moving work onsite to offshore and rising attrition, these at least will be accounting 90% of the lower cost of delivery or would you like to substantiate it more with solutions based offering?

B. Ramalinga Raju

I am sure that I would put a percentage, but they would contribute a large portion of managing the cost of delivery. But there are other areas as well, the ability to redeploy some of the practices and processes that we have invested in earlier engagements across various other customers reaping the benefits solutions that we have built, the framework that we have deployed and that is generating greater returns on those investments would also bring down the cost of delivery. But the three things that you have said certainly contributed very large portion.

Priya Rohira - Enam Securities

And, I would like to question.

B. Ramalinga Raju

My suggestion is, will you please give up?

Priya Rohira - Enam Securities

I will take it up to it, sorry.

B. Ramalinga Raju

You can come back again.

Priya Rohira - Enam Securities

No, thanks very much.

Operator

Thank you very much ma’am. Participants are requested to kindly restrict to one question in the initial round. Next question comes from the line of Ms. Mithali Ghosh with DSP Merrill Lynch.

Mithali Ghosh - DSP Merrill Lynch

Yes, hi good evening. Post the nice margin uptick that we saw this quarter, how should we expect margins to trend going forward?

V. Srinivas

Yes Mithali, this is Srinivas here. At least for Q4 because of the RSUs that we are planning to give, we expect the margins to trend down. But again, we hold on to our year-on-year guidance of 60 basis points decline. And then, if you are asking beyond that, as you know, there are various variables here, some of them are not within our control. How the volume situation turns out, how the pricing situation, and how the -- what kind of wage inflation we are going to witness, these are some of things about which are this point in time very difficult to make a guess. So maybe next -- next quarter when we come up with our guidance, I think we will be able to talk about it. Otherwise, for this year, I think whatever guidance we are giving of the 60 basis points decline, we are quite comfortable with that.

Ram Mynampati

So what it means is we're improving the guidance by 40 basis points as compared to last quarter?

Mithali Ghosh - DSP Merrill Lynch

Sure. No, I appreciate that. My question was really, I mean, while there are all these uncertainties, which you outlined, I mean at this point in time if we have to try and think about the margin trend going forward, you know not really going to a guidance for a next year, what should we think in terms of how much levers you may have left in offshoring for instance or utilization or what you are seeing in the pricing environment? So, how should we think about margin trend going forward, if there is some qualitative color you can lend us, it would be helpful?

V. Srinivas

Well, this is one area on which the organization has spent quite a lot of quality time. There are something like 15 to 20 levers that are identified and tracked right from the pricing to how you manage differently to several other things. And therefore, it is -- at this time, I am surprised to say that there are opportunities for us to preserve and enhance margins. But we do not want to anticipate what guidance we may want to give for the next year ahead of time.

Mithali Ghosh - DSP Merrill Lynch

Sure. Secondly, on the --.

Operator

Ms. Ghosh, I am sorry to interrupt ma'am, could you please come for the follow-up question?

Mithali Ghosh - DSP Merrill Lynch

Okay. You should have enforced that in the first half of the call, but thanks.

Operator

Thank you, ma'am. Next in line, we have a question from [Sarvottam Kumar with Brics Securities].

Sarvottam Kumar - Brics Securities

Hi, sir could you tell, what have been gross additions for this quarter and for this year so far?

V. Srinivas

You mean manpower?

Sarvottam Kumar - Brics Securities

Yes, manpower addition, gross addition.

V. Srinivas

Gross addition so far, for the nine months is around 12,000.

Sarvottam Kumar - Brics Securities

And for this quarter?

V. Srinivas

For this quarter the gross addition is 4,000.

Sarvottam Kumar - Brics Securities

Okay. And sir, how many offers has been made in the campus for the coming fiscal year.

V. Srinivas

We are in the process of doing it. Well, I will not be able to give any specific number here. But definitely this is one of that as we were mentioning, taking more and more ELTPs and basically broadening the associates to permit one of the important initiatives. So, to that extent we are making efforts to bring in as many trainees as possible, as many campus recruits as possible.

Sarvottam Kumar - Brics Securities

Okay. Thanks.

Operator

Thank you very much sir. Participants are requested to kindly restrict to one question. Next question comes from the line of Sheetal Singh with ICICI Securities.

Shekhar Singh -- ICICI Securities

That is Shekhar Singh basically. Sir just one thing like, as far as Infrastructure Service is concerned, my understanding was that it is more of an annuity business. So, a sudden drop in revenues over there, does it indicate a loss of client? Because otherwise it's not a project based business, so why should the revenues be coming over there?

Ram Mynampati

Shekhar this is Ram Mynampati here. I am not sure the entire space that we categorize under infrastructure management services is an annuity business. In fact there are tier project type opportunities that’s there we service today.

Shekhar Singh -- ICICI Securities

Can you highlight some of those basically, what I am saying?

Ram Mynampati

We can do that perhaps may be offline in another call. The annuity type of services that you are referring to, predominantly deal with services that are closer to hardware. There are many types of services that are under infrastructure management, security management, administration services. Lots of things that we believe lend themselves well, for example we have a roll-out opportunity, a new software across the entire enterprise. That’s not at the annuity business, there is a specific begin and end to that service. It is leveraging the capability that is available in an area that it's closer to hardware but it's not annuity, it has a specific begin and end. I wouldn’t subscribe to the theory all IMS services are annuity.

Shekhar Singh -- ICICI Securities

Okay, so just can you give me break up of ForEx cost in terms of what is the translation loss and what is the ForEx service gain?

V. Srinivas

Translation loss, this is Srinivas here, is roughly around 65 crores and the hedging gains is roughly 20 crores. So, net-net there is a 35 crore hit to the other income line.

Shekhar Singh -- ICICI Securities

Thank you, sir.

Operator

Thank you very much, sir. Next question comes from the line of Mr. [Shailesh Vijay, Mutual Fund].

Shailesh Vijay - Mutual Fund

Hi, my question has being answered. Thank you.

Operator

Thank you very much, sir. Next question comes from the line of Mr. Harmendra Gandhi with Brics Securities.

Harmendra Gandhi -- Brics Securities

Hi good evening. When do we see steady ramp up in Nipuna? One quarter we see good growth and another we see swing down of growth, in quarter-to-quarter basis. Do you think some time in -- by what time in future we may see that kind growth where as we have a steady quarter-on-quarter growth in Nipuna?

Venkatesh Roddam

This is Venkatesh here. I think the reason why you see the ups and downs, that is on account of ramp up that we have currently undergoing on a quarter-on-quarter basis. For example, if you look at the growth in Q3 versus Q2, that is purely on account of our [600 FD] engagements that we are ramping up to during the course of Q3. So, that is the reason exactly why you are seeing an up and down in the ramp. However when you look at the revenue forecast and the EBITDA forecast for the year, the trend is extremely positive and I think from Q1 of next year onwards you will see a steady growth rate on a quarter-on-quarter basis.

Harmendra Gandhi -- Brics Securities

Okay. And again same for the losses also, actually, net profits or net losses, they are fluctuating so much from quarter-to-quarter.

Venkatesh Roddam

It is primarily driven by investments made during the course of the year to support the revenue that has come in. Most of this is not that has been booked in the course of Q2, Q3 and Q4 of this year that is in the pipeline will yield results during the course of Q1 onwards for next year. So, in that context these are investments leading to revenues and profits moving forward. So, it is a conscious decision that we have taken in term of what needs to get invented for future growth.

Harmendra Gandhi -- Brics Securities

Okay, so for Q1 next year you will see steady growth and steady margins also.

Venkatesh Roddam

I would anticipate so.

Harmendra Gandhi -- Brics Securities

Okay thanks a lot.

Operator

Thank you very much sir. At this moment I would like to hand over the floor to Christie to conduct the Q&A session for participants at WebEx International Center. Thank you, and over to Christie.

Operator

Thank you moderator. We will now begin the Q&A session for participants connected to the WebEx International Bridge. (Operator Instructions). Your first question is from [Shiv Choudhary] with Global Equity.

Shiv Choudhary - Global Equity

Thank you. And again a good execution, I should say in a difficult exchange of market. I think, two quick questions, first regarding the infrastructure business. I was wondering like, can you give us split between two processes; one is usually built and maintained, other is usually built and transfer. And since there is a drop, I believe that most of the implementation may be built and transfer it back to the client, rather than built and maintain it yourself. Any thoughts on that?

Ram Mynampati

This is Ram Mynampati here. It does goes back to the discussion related to, whether the service is annuity type, or whether it is rather finite period, in which the service becomes valid. If we take over, let's say maintenance of a specific service, not necessarily the infrastructure, but services for that infrastructure. That has to be longer term in nature, and that is what you referenced as building and operating, if you will. But if there is, let's say an engagement that calls for a software rollout or a migration of some kind, across the infrastructure. That is going to be an instance where we are taking responsibility for a specific thought, and we will turn over the responsibility of executing our operation if you will of that, back to the organization, because our job ends with bringing the infrastructure up to a certain level, where we have been contracted to do so. I am not so sure whether there are going to be instances where we are building an infrastructure and turning on the infrastructure, because that's not what we refer, doing infrastructure management services. I think it is more in the way the services are defined around us to.

Shiv Choudhary - Global Equity

That's all. Second is regarding the banking and financial sector. It does seem like the competition may have got heated up in that space, because of Oracle's acquisition of i-flex and then Infosys having its own Finacle product line, and TCS having its own banks offering which is more asset leveraged kind of a solution. I was wondering, does Satyam have any initiatives in that space, where they have already, say a prepackaged solution that they can deliver, and probably be a little more competitive. And thanks again, and congratulations on good execution in a difficult exchange environment.

V. Srinivas

Thank you. The answer to that is we don't have any current plans of bringing out the exposition of our own banking and financial service space. While that is a stated strategy for [conglomeration], our strategy is to remain product agnostic and to find the right alliances with the right product vendor, the customer, to enable us to deliver the best solution to our customers in a consultative way. So we have not invested in building a solution of our own, we would like to remain product agnostic and that's the way those services that are the best services in the market. Can we move on to the next question please?

Operator

The next question is from Julio Quinteros with Goldman Sachs

Julio Quinteros - Goldman Sachs

Hey guys. My question is actually related to pricing. Can you talk about what the environment is like for you guys in pricing? What are you saying on new clients? I haven't heard you guys really discuss the environment for pricing, so I would like to get some clarity on your thoughts there. But before doing that, can I just -- Srinivas, can you just from a housekeeping perspective, I just wanted to clarify that, you are now saying a 60 basis points decline in operating margins, whereas before you were saying 100 to 150 basis points is that correct?

V. Srinivas

Not really. From the US GAAP perspective, what I told, Julio, is basically in the Indian GAAP, there we have what we call EBITDA. At the EBITDA level, what we said is 60 basis points, earlier we said 100 basis points, and now we are saying 60 basis points. Now coming to US GAAP, you guys focus on EBIT, so if I want to talk about EBIT, year-on-year I think that is gong to be kind of flattish. So, we are not expecting any decline at the EBIT level. Maybe, I mean, it will be flattish kind of a situation we are expecting.

Julio Quinteros - Goldman Sachs

And before -- and what were you thinking for today?

V. Srinivas

Before we were thinking it will be roughly around 40 to 50 basis points.

Julio Quinteros - Goldman Sachs

Got it. Okay, thank you.

Operator

Your next question is from Bryan Keane with Prudential.

B. Ramalinga Raju

Before we do that, should we answer Julio's first question on pricing?

Julio Quinteros - Goldman Sachs

Yes, sure.

B. Ramalinga Raju

Unless you are not interested anymore, Julio. I think in general Julio, our experience is that the pricing environment is, for a few quarters, we have seen a fairly stable pricing environment, also pricing environment that is somewhat positive. We are positive about the potential for prices. That is backed up by our experience to-date. The new customers that we are getting, we are able to attract higher prices than our average pricing and that is roughly in the range at about 3% to 5% as per the average price increase is concerned. We are also seeing increased in Sensex rate. We are able to renegotiate existing contracts not only as and when the contracts come up for the renewal, but also proactively negotiate sub-contract and we are able to in many instances negotiate prices of course for those contracts as well. So as far as average contract and prices are concerned, our experience is stable to positive as far as pricing is concerned. Now, as we have mentioned earlier what we need to do is convert that increase into similar increase in realized prices and there are a few variable that we had discussed earlier about how to manage that well and endeavor continues to be to manage that and -- but we remain fairly comfortable about the pricing environment. Number one, remaining stable, and number two [reach the target].

Yes, can we move on to the next question please?

Bryan Keane - Prudential

Okay, it's Bryan Keane, I just want to follow-up on that the prior question about EBIT being more flattish now, first it was expected to be more of 40 to 50 basis points decline. What exactly are the reasons for the improvement that you are expecting?

V. Srinivas

Whatever the improvements we have seen in Q3, which we talked about in terms of various operational efficiency and other cost optimization initiative have yielded towards in Q3, that is the primary reason for this.

Bryan Keane - Prudential

Okay. Is there a way to quantify the different leverage there?

V. Srinivas

I talked about it. We have the levers like the ELTP and then there is what we call broadening the associates pyramid thereby reducing the average cost of delivery, that is one very important significantly lever. Then, we have better fixed bid project management whereby getting higher yield from each project, higher profitability from each project. And then, we have other initiatives like employee rotation, between onsite and offshore. So, these are some of the levers we have apart from of course the SG&A, controlling the SG&A. While this quarter we have seen some increase, but we expect to control that and bring in some efficiencies there as well.

Bryan Keane - Prudential

Okay. Yeah, that's helpful. I just want to get that down. And then, my last question is just on the demand environment. We have seen ERP vendors report some weakness in sales, do you guys see any weakness in the environment, I guess, both in US and in Europe?

Ram Mynampati

Bryan, this is Ram Mynampati here. In fact, as you can see our consulting and enterprise business solution has reported increasingly in this quarter as post (inaudible) revenues concerned. Our enterprise solutions practice obviously is distributed among many product lines and many service lines, not just limited to one ERP vendor. While there is certain talks by few vendors about some slowdown in licensing, we don't see any specific impact on our business because our business is not entirely dependent on the volume of licenses. There are integration projects that we do. There are implementation projects that we do. In spite of the talk about some licensing slowdown, our view is that it is not going to impact our business negatively.

Bryan Keane - Prudential

Okay. Thanks a lot, and a good quarter.

Ram Mynampati

Thank you.

Operator

(Operator Instructions). The next question is from Rod Bourgeois of Bernstein.

Rod Bourgeois - Bernstein

Hey guys. I just wanted to take a big picture look at demand from a couple of different angles. Clearly, this is an important part of the year as your clients start to reset budget and plan their spending intentions for the next year. Are you picking up anything noteworthy from your clients about future spending intentions as you talked to them about what they're going to do over the course of the next year? Is there any incrementally positive or sort of incrementally negative data points from those discussion or is it for a normal course trajectory from what you can tell at this point?

Ram Mynampati

Rod, this is Ram Mynampati here. As we've discuss with many of the decision makers at least, what I sense is guarded optimism, through that end -- through that end it is relatively more of positive environment related to IT services and that is being witnessed in the market. We have heard some mention of about 5% to 6% increase in IT service budget. While there are some executives that are somewhat skeptical about some slowdown in the market and soft lending and stuff like that. But the majority of our discussions seem to give us confidence that IT budget would experience moderate increase. But what is clear in our discussions is that, there is a greater desire on the part of many of the executives, to direct about significant portion of this trend towards global delivery model rather than try to control spending towards global delivery model. And we see that as a very positive sign. I have not picked up any specific negatives. There are one odd client situation that perhaps is impacted by a specifically and unique business situation. But if I paint broad picture of what we are hearing in the market, I would characterize that as more positive than what we heard last year.

Rod Bourgeois - Bernstein

And just related to that question about the demand pipeline, are you seeing in your pipeline for the shift towards larger deals or is it a similar mix as is in the past with large deals and projects. As I look at your client metrics, there was some indication that you are really seeing a big shift towards larger deals at this point. And I am wondering if that the pipeline reflects the trend that might be more big deal oriented than what you have seen in the recent history?

V. Srinivas

I would say this Rod, that we have seen both. We are seeing fairly good interactions with our existing clients, indicating a good appetite to consider large deals. We are also seeing good pipeline in large deals without the clients necessarily being our existing clients. So, we can discuss large deals as a different area with a separate focus because we seen that pipeline fairly active and we are clearly very positively inclined in light of our experiences of operationalizing the large deals that we have won, that we are fairly confident of being able to manager those deals well. So, the pipeline on the large deals side certainly healthy. But we are also seeing the existing customers, some of the larger existing customers considering, converting a set of opportunities in an integrated fashion as a large deal. So, I would not necessarily say that these are mutually exclusive. I would say that there are few customers that are fairly large customers of ours that are considering larger deals as the next course of action.

Rod Bourgeois - Bernstein

Alright, that’s helpful. Thanks guys.

V. Srinivas

Thank you.

Operator

The next question is from Joseph Foresi, of Janney Montgomery.

Joseph Foresi - Janney Montgomery

Hi, guys. My first question is sort of on the margin side and just the first part of its housekeeping. Did you say the RSU charge was 4.5 million and that that is going to move to the fourth quarter?

V. Srinivas

Yes, you are right. But now that will be coming in Q4.

Joseph Foresi - Janney Montgomery

Okay. And my second part of sort of a margin question is, you guys have talked about sort of flattening the employee pyramid being able to reduce the overall cost of employees. I am wondering if you guys could just tell us, do you think you have hit an inflection point where you will actually start to see a benefit on the margins or is that more of a catch-up type thing where you are trying to just offset your employee base versus the other one? So, in another words, next year, could we see a benefits from that on a margin side?

V. Srinivas

Yes, broadening the associate pyramid is going to be an initiate to which we are going to continuously focus on. We have been focusing on it for the last one year and also we will definitely continue to focus on next year as well. So, to some extent the economies are the benefits that this initiative is going to give will flow towards even during the next year as well.

Joseph Foresi - Janney Montgomery

Yes so we haven’t not hit an inflection point there, you still see some upside to that.

V. Srinivas

No, not really.

Joseph Foresi - Janney Montgomery

Okay and just one last question if I could. One the demand side, I know you guys talked about earlier in the call there being four large deals which you guys have signed and there are some potential for large deals on the way. Are we seeing all four of those deals in the numbers or do you expect to ramp up to them within in the next two quarters. Can you just guys us some clarity on that and thanks again?

V. Srinivas

All we said was that, two of those large deals have ramped up enough to figure in the top 10. Obviously we have ramped up the other two also, but not sufficiently large to have them figure in the top10, so that’s the only distinction. But we have obviously operationalized all the four deals. Two of them have accelerated sufficiently to be of substantial size.

Joseph Foresi - Janney Montgomery

So I guess on a general sense than, could we expect to see the other two in the next twelve months. Is that usually how it works or is there more of a timeframe? If you can--

V. Srinivas

That’s the third expectation, but the other two would see a ramp up in the twelve months. It is very difficult to put a definitive timeframe because it can happen in two quarters as well. Obviously that would get to a level of detail related to planning of each deal that we don’t want to get into this call. But it is a fair expectation that you will see that during the next 12 months, yes.

Joseph Foresi - Janney Montgomery

Sure, I appreciate it guys. Thanks.

V. Srinivas

Thank you

Operator

The next question is from the line of George Price of Stifel Nicolaus.

George Price - Stifel Nicolaus

Hi, thanks for taking my question. Most of my questions have been answered. I would like to circle back around and push you, if I could, a little bit on one area, and that is just the near-term revenue growth outlook and specifically what we are seeing in the second half of fiscal '07 in the quarter then what we are expecting in March. Notwithstanding, the comments about projects having a natural end and timing and so forth. Clearly, demand indicators have been very strong, other reports have been very strong, and yet the revenue growth, while visually attractive is still little, I think below expectations going to the March quarter. How, I guess, can you give us a sense may be your timing of the -- of some of these projects that have ended and the things you see ramping up. I mean, I still don't fully understand, why may be the revenue improvement shouldn't come sooner?

B. Ramalinga Raju

Hi, this is Raju here and I would like to just remind you that last year, we have resisted highest growth in the industry and the last quarter for example, we had close to about 10% growth sequentially. I would like to just state that 7.7% growth is fairly a healthy growth. May not have matched the best in the industry, but then again the one may should not draw conclusions based on what happens in just 60 working days in a quarter. We continue to be quite upbeat about the growth prospects. We have also stated, going forward, its not just about general volumes, but the opportunities for improvement in sizes as well; because we have clearly entered a new environment of fairly sizeable days and taking up greater responsibility in many instances, at the level of business transformation exercises being carried out by us and there are many ways where we can continue to deal with both top-line and bottom-line issues. So generally speaking, we are quite upbeat about the future. We believe that we have done fairly well this quarter, particularly on the bottom-line matters.

George Price - Stifel Nicolaus

Just a point of clarification on some of the timing comments that you had. Do you expect that those will -- is sort of the outlook that these will be largely done with as you move, say into the beginning of fiscal '08? Is that a reasonable assumption?

B. Ramalinga Raju

It goes without saying that we may not be in a position to give any guidance for the next year. But all we are saying is that we find the environment positive and [outlook is] being well placed to reap benefits from a positive marketplace as it is existent.

George Price - Stifel Nicolaus

Okay. Thank you.

Operator

Your next question is from James Friedman of Susquehanna.

Jamie Friedman - Susquehanna

Thanks. It's Jamie Friedman with Susquehanna. I just had a housekeeping question, may be for Hari. What was the operating margin at Nipuna? And was it at all impacted by the 4-K transaction, I know you had a large transaction in animation in the quarter. Thank you very much.

V. Srinivas

This is Srinivas here. The margin -- the operating level, or the EBITDA level is roughly 2.35% in this quarter. This is kind of flattish than compared to last quarter. The last quarter is around 3% and this quarter it has come down to 2.3% or so, this is primarily because of the reasons of various investments as Venkatesh explained a little while earlier. That is the reason why the EBITDA has kind of came off a little bit quarter-on-quarter. Otherwise if you look at the overall trend, on year-on-year basis, definitely there is a considerable improvement on the revenue front as there is almost over 80% growth we are looking at year-on-year on -- at the EBITDA level, at the operating margin level last year, there is a huge loss, this year we are saying we will be EBITDA positive. And similarly, at the net level as well, while there is going to be loss this year as well, but then it is going to be considerably lower than the last year. So, overall, I think Nipuna's performance, there is a considerable improvement this year, when compared to last year and looking into the various prospects, the future prospects, we expect the performance to be much more better in FY '08.

Jamie Friedman - Susquehanna

Thank you very much Srinivas, that's all I have got.

Operator

Your next question is from Anthony Miller of Arete Research.

Anthony Miller - Arete Research

Yes, thanks gentlemen. I am sorry if it seems like I am throwing a bucket of cold water over the proceedings, but there are many things about today's results which do slightly concern me. It is the fact that you are reducing your full-year guidance in key terms, as the best I could recall. I don't think any other major player has done that. We have got your RSUs originally scheduled for Q3, the charge now going to Q4 which is good in one way, bad in another. We have this somewhat surprising decline in infrastructure management revenues, but I don't truly understand why that wasn't guided if at all, because you would clearly know when contracts were coming up to termination and I would have thought that would have been a higher annuity contact -- content because BFSI was coming down. We have got Citisoft and Nipuna with higher losses and I don't recall you sort of giving indications of these things might happen last quarter. And I am just wondering is it just that this quarter was a particularly unlucky quarter for Satyam where always sort of bad influence on payment line or are there underlying execution problems or do you think there maybe some opportunities to improve your planning and forecasting (inaudible)?

B. Ramalinga Raju

This is Raju here, and I would like to offer some comment on what you have stated. We have given a dollar guidance of 6%. We have done 7.73%, and that we believe is a wonderful performance. Last quarter, we grew by almost 10%. Last year, I would like to restate that we had recorded the highest growth. The rupee guidance, obviously, has -- the performance has been lower primarily on only one count and that is the exchange rate fluctuation. The fact that we may have seen a certain decline in a somewhat proportionately lower business called infrastructure is not indicative of any trend. In fact, there have been many instances where we have done in given segment, phenomenally well. We would have grown by 25% in a quarter and the next quarter we may find a slight decline. And there are instances where there is a decline in the next quarter and there is a phenomenal increase because the base is relatively lower. And Nipuna has given a guidance of 80%, and we are doing significantly higher than that. We have always given our guidance attempting to be as realistic as possible, and I believe that we have maintained fair amount of consistency. I would suggest that you may not view this as a reflection of company’s performance going forward. This quarter we have done well by any parameter particularly when it comes to the margin improvement. And then we believe that our ability to continue to do well as we have done in the past, as we have done even in this quarter, going forward is as high as ever.

Anthony Miller - Arete Research

Okay. Thank you very much.

Operator

The next question is from Ashish Thadhani of Guilford Securities.

Ashish Thadhani - Guilford Securities

Yes. Good evening and congratulations on the margin performance. Satyam has about 150 as the largest companies as clients, but revenue for a client doesn’t do full justice to this. How should we view this and what is your assessment of the situation as well as the opportunity? Thank you.

V. Srinivas

While we may have more than 500 plus clients, significant proportion of business comes from the Fortune 500 companies and given number of companies that we are engaged in. The 80/20 principle that seems to apply in most instances, and applies here as well. In the Fortune -- no, in the clients with the more than $10 million, $5 million or $1 million of revenue, we have generally seen an enhancement in business and that continues. Now, the question is as to how we compute the average revenue? It so happens that in the last few years we have significant grown Asia-Pacific region and Asia-Pacific region operations are such that they are more project based. So, the number of clients that you add may not necessarily result in commensurate increase in revenue. But if you were to normalize and check as to what kind of growth we have witnessed with existing clients and particularly those who are sizeable clients, we believe that we have done fairly well. While that is the case, it goes without saying that we will continue to focus on managing our existing clients better. As we have stated earlier, one advantage that we have, is the fact that we have proportionately higher level of consulting and enterprise business solutions business and that has resulted in my opinion disproportionately higher number of larger client's access, and we are focused on taking advantage of it and growing that business. Therefore, while we have done reasonably well in managing growth at individual business levels, going forward we have an opportunity to significantly enhance that.

Ashish Thadhani - Guilford Securities

That’s very helpful. Just one quick clarification, what percentage of your revenue actually comes from Fortune 500 type clients?

V. Srinivas

We have 160 Fortune 500 clients that we work for. But we have not given out specific numbers for this segment. But it goes without saying that this is quite significant and it follows as I have stated the 80-20 principle.

Ashish Thadhani - Guilford Securities

Fair enough, thank you very much.

Operator

Thank you. I will hand the call back over to India.

Operator

Thank you very much Christie. At this moment I would like to hand over the floor back to the Satyam Management for final remarks.

V. Srinivas

Thank you, I would like to thank every one of you for your active participation in the call. If you further have any questions please do contact us or e-mail us, we will be more than pleased to clarify your doubts. I would like to thank all of you once again.

Operator

Ladies and gentlemen, thank you for choosing WebEx Conferencing Service. That concludes this conference call. Thank you for your participation. You may now disconnect your lines. Thank you and good night.

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Source: Satyam F3Q07 (Qtr End 12/31/06) Earnings Call Transcript
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