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Infosys Limited (NYSE:INFY)

Shareholder Analyst Call

November 4, 2011 8:00 am ET

Executives

S. D. Shibulal – Chief Executive Officer, Managing Director and Executive Director

V. Balakrishnan – Chief Financial Officer

Manish Tandon – Head, Business IT Services-FSI

Stephen R. Pratt – Head-Consulting & SI, Member-Executive Council

Subhash Dhar – Senior Vice President and Head, Innovations

Sanjay Purohit – Head-Products, Platforms & Solutions

Analysts

Trip Chowdhry – Global Equity Research

Unidentified Company Representative

Good morning everyone and a very warm welcome to all of you at the 2011, Analyst Meet. We are very glad to see you here and appreciate you taking the time and effort to join us. We would also like to extend a warm welcome to all the people accessing this events webcast through our investor website. A various presentations and transcripts on today’s event would be made will available on our website for replay.

In our efforts to Go Green, we are not distributing hard copies of today’s presentation. Instead, you’ll find USB drives on the tables, which are preloaded with all the presentations that will be made during the course of the day. You’ll also find agenda of the day kept on the table.

This room has been WiFi enabled for your convenience. The SSID code is, Infosys. There are also charging points below the tables for you to charge your laptops or cellphones. There is also code check facility on the other side of the elevator.

We’ll start the event with an address on Building Tomorrow’s Enterprise by CEO and M.D., Mr. S.D. Shibulal. After that, we’ll follow with the presentation on financial highlights by CFO, Mr. V. Balakrishnan. Subsequently there will be presentations on the three-service cluster at Infosys. At the end of individual presentations by the three service clusters, you’ll also get an opportunity to ask questions. There will be no Q&A at the end of the first two sessions by CEO and CFO, since you can ask questions to them and other EP members during the open house session, which starts at 11:50 am.

If you want to ask a question kindly raise your hand and we will provide you with the microphone. Since this event is being webcast, we request you to speak into the microphone. We also request you to mention your name and the name of your organization before asking the question. You’ll also find feedback forms kept on the table. We request you to take some time and complete the form at the end of each presentation as we value your feedback on the proceedings.

Your feedback will help us improve this event and give valuable suggestions to the speakers on various aspects. Please use the copy in the lunch break as an opportunity to interact with various members of our Senior Management team.

I now invite Mr. S. D. Shibulal, our CEO to kick-start the proceedings with his inaugural address.

S. D. Shibulal

Good morning, everyone. Let me welcome all of you to the Analyst Meet. This is actually my first analyst meet after taking over as Chief Executive Officer, so once again, thank you very much for coming. It’s a great pleasure for me to talk to all of you.

2011 is an important year for us. We have completed 30 years, and many of you have known us for the last 10 or 15 years. So, in many ways you have seen this organization evolve over the last many years. Probably, some of you have seen us in what we call Infosys 1.0, which was in 80s and early 90s where we invented or innovated the global delivery model, which has now become the de facto standard. And some of you, I’m sure has visited our facilities in Bangalore, seen our wonderful technology and physical infrastructure.

Some of that started in early 90s then we decided that going forward we will focus on talent, technology infrastructure and quality. So you are 30 years later, you can clearly see the results of some of those strategic directions we took as early as 90s. And later on we moved on to Infosys 2.0, which is late 90s to 2000. Actually, until now, in the last couple of years and we have transformed our self in multiple ways.

I will touch upon this once again, but before I start, I have four things to talk about. Number one, I will touch upon our last quarter performance very, very briefly, because Bala will go over them in detail. Number two, I will continue the opening conversation, I just had regarding Infosys 1.0, 2.0, and now what we call Infosys 3.0. Then I will talk briefly about the guidelines and some of the things, which we have given, followed by a brief mention on some of the industry challenges, which we have seen and what are our responses to these challenges.

So, let me start with the quarter. It was a fairly good quarter for us. Our revenues closed at $1.746 billion, quarter-on-quarter growth of 4.5%. More important things, because I will leave the details to Bala, the more important things that – it was a quarter were we added the largest number of clients. Over the last five, six quarters, we added 45 new clients last quarter. And about 12 of them if I’m right are, yeah, I think about 10 or 12 are in the Fortune 500 space.

So, our program of having must have accounts, which we created about 12 months back is yielding very good results and actually, it is not 12, 7 of the Fortune 500 space. So, many of them – the clients whom we are adding are really in the areas in which we need to add new clients.

19 of the new client additions are in the areas where we are investing. We have identified the multiple areas for investment and those include healthcare, life sciences and utilities. So, 19 of the 45 clients we added in last quarter where in the areas where we are focused on investing, which is good news. We closed the quarter with 142,000 people, grew an addition of 15,000 people last quarter.

More importantly, it was a quarter in which we were recognized as the 15th most innovative company in the world by Forbes. We are very glad to get this recognition. 15th in the world, the most innovative company in the world by Forbes, Forbes magazine survey, and this is not in IT industry this is across the world and across all industries. So that is a brief mention about Q2.

Now I want to move on to the transformation journey which we are taking, that is what we call, Building Tomorrow’s Enterprise. Actually it is not about building our enterprise of tomorrow; it is actually about building the client’s enterprise of tomorrow. Even though, we applied to ourself it is the journey, which we are taking is about building client’s enterprise of tomorrow.

So, let me shift back and talk briefly about the history before I continue. I talked about Infosys 1.0, which is between 80s and early 90s. Two major things happened. One is innovation of the global delivery model, second is a focus on quality people and infrastructure. So even today, if you look at many of the things that we do, you can clearly see this linkage to do strategic directions, which we took in the early 90s.

Later on in the mid-90s or late-90s, we started on what we call Infosys 2.0 and that started out by we taking a decision that we will move out of our comfort zone of application, development and maintenance and expand our service line. So we started on the journey of building an end-to-end service corporation. The results are very, very clear. (Inaudible), which used to give us 90%, 95% of our revenue in ‘99, today is 38% or 40%, and the company has grown from probably $500 million to $6 billion or $7 billion. So while the company grew so much, we were able to expand our other service lines and create that kind of growth.

That is number one. That is part A of the 2.0. The part B was about building, consulting and system integration capabilities. So, we started out in a very small manner in 2002 and then later on started with Infosys Consulting in 2004 and an absolutely unique model, where we really put in some inputs strongly with local leadership, with talent acquisitions and with a heavy amount of investment, which we did over the last six years or so. And now, if you look at the consultancies alone, we are the fastest-growing consulting operation for the last many years.

Now we have integrated it back into Infosys. I'll come to that. So if you look at 2.0, there were two parts to it. One was the expanding our service lines, becoming a true end-to-end service corporation. Second was building a deep consulting program management and domain capabilities. And we have done fairly well in both these dimensions. Numbers are there to speak.

About two years back, we started on the new journey, what we call Infosys 3.0, and that is centered around this – our strategic direction called Building Tomorrow's Enterprise. As I said, it is about building the client’s enterprise of tomorrow. So it is about partnering with our clients to build their enterprise of tomorrow.

There are four key drivers for this journey. There is new strategic direction and new structural changes or structural realignments, which we did. Number one was we strengthened our strategic partnership with our clients. We are considered as a strategic partner by most of our clients, but at the same time it is a journey, which we need to continue. So the number one was about strengthening our strategic partnership with our clients. Number two was about increasing the relevance. How do we increase the relevance to our clients? How do we increase it in their budget? That means, how do we participate in every part of their budget. How do we increase it globally? How do we make sure that we can operate with them truly global in all parts of their operations?

So the second point was increasing the relevance, and third one was, you know, of course the clients are demanding higher and higher business value. So how do we create new offerings, new solutions, new thought leadership, which will deliver higher and higher business value to our clients. And that was the third one.

And the fourth one was about aligning in front of our clients. Some of you are familiar with the organizational structure and the service lines, which we had. So when we created this end-to-end service capability, we launched service lines for information purpose and they grew over the last many years.

So for example, enterprise service was about probably close to $1 billion. It was close to $1 billion. Or in this management was close to $400 million. So we had service lines, which have grown and they were operating horizontally. We wanted to bring all of them into the industry vertical, so that it will align in front of the clients.

So there are four key drivers for this transformation. Number one was about strategic partnership. Number two was about alignment. Number three was about increasing relevancy and about creating value for our clients. So, we also believe that if we can achieve this, if we can actually achieve this all the platforms, which we have built on global delivery, on consulting and now the cloud phenomena, if you can achieve these objectives on the platform of global delivery, consulting and cloud, we will create a next generation global consulting and IT services organization.

So that is the aspiration towards, which we are going to build a truly global next generation consulting and IT services corporation on a platform of global delivery model, consulting and cloud. So this strategic relation has two parts, one is the Building Tomorrow’s Enterprise thought leadership [fees], it is extremely client-centric, we have created it putting the clients right in the middle. We started out with the clients, talking to them, trying to understand their priorities. We looked around the world and tried to understand what are the changes, which is going on in the world. So from the client’s perspective, irrespective of which industry they are coming from, they are looking for growth, profitability under their (inaudible) investment. So that is one part.

On the demand perspective, when we look at the emerging demand trends, we clearly believe that clients need to have the ability not only to fulfill the demand, but they need to have the ability to predict the demand to sense where the demand is going to come, influence it and fulfill it.

So if you put these two together on one side, clients are looking for growth, profitability and better investment. On the other side, the world is changing and our clients need the ability to sense, predict and influence and fulfill the demand. We believe that we need to come up with the framework, which will allow them to do it. So our Building Tomorrow’s Enterprise same as which has identified seven trends, seven global phenomena’s, which we clearly believe will allow our clients to do this. We are resonating extremely well with our clients, the seven trends are Digital Consumer, Emerging market, New Commerce, Healthcare economy, Sustainable Tomorrow, Pervasive Computing and what we call Smarter Organizations. These are the seven global trends, which we have identified.

To enhance our thought leadership, we have setup a center of renovation for Building Tomorrow’s Enterprise. Over the last 18 months, many of us myself, Sanjay is here, (inaudible) many of us have had a number of conversations with our clients. And importantly, we’ve done tier two conversations, which is not an IT conversation. We are talking to our client about leveraging the disruption, which is going to happen in the industry, because of mobility or microcommerce. It is the extra conversation.

I actually want to give you one very interesting example, which I came across. In fact, I was talking to a client of ours near Connecticut, an insurance client, one of the largest insurance corporations in US, and I was talking to the CEO. So I genuinely expected that he will talk to me about healthcare economy, the changes in healthcare, how is it going to get personalized, how is it going to get – how are you going to make it affordable and things like that, but he was interested was talking about New Commerce.

And the reason was, he said that in the new healthcare situation, as compared with the modern civilized, the traditional distribution of the results which you have which are into the pharmacies, actually they are mass distribution mechanisms they are not virtualized distribution mechanisms, but he was interested in talking about how will that civilization will lead to micro commerce and mobility and the new commerce world.

And of course these kinds of conversations what happens with those is that it of course puts us in a completely different product number one, it allows us to partner with them on their organizational transformation and the way we do is we will follow that up with what we call a discovery workshop, a co-creation workshop which is usually led by somebody from our strategy and planning department or somebody from consulting going forward and we will then identify organization as well as some opportunities.

We have another example where we are looking at a client of ours to move them from a country centric approach to a client centric approach. For example, there is a large client of ours and actually I think it is prospect of ours who had a very country centric approach. We had PMLs in France and in Germany and in US but when we look at their clients, it is most global clients and the clients we’re looking for global, one thing is global television.

So we don’t have smarter organization feel, we told them that look your approach is wrong, you need to move towards the client centric approach, you need this one single view of your clients across the globe. Today you are getting the view of the clients in Germany and in France and you don’t even have to think of client code, and that has now led to work, which we are doing. So these conversations are extremely important and relevant to the [CXO] for the organization and we have so far engaged with about 40, 50 clients in various stages.

In fact, there is another example where we are working with the client of ours on engineering and arrangement in the emerging market, we have not leveraged in the emerging markets for engineering innovation. We are working with them on the engineering innovation in their money market. But the important thing is it all started out with the [SE] Suite and our conversation on building the models enterprise which is leading to a discovery workshop which then lead to work which is the downstream.

These are wrong information process, this is not a deal making process than many, in most times it originates with (inaudible) for Bala or one of us actually having the initial discussions with our clients.

So that is one part of the new strategic direction, the second piece is that once we realized that the theme is right and the direction is right and our strategic direction is regulating with our clients, we wanted to realign ourself to support this earnings, we have always believed that the biggest value which we bring to the table is that the intersection of technical capability and demand capability and it’s not new to us, in fact if you look at it, we verticalized US probably eight years back and Europe about three or four years.

We have not verticalized the rest of the world, so rest of the world was more dual centric. So in the new realignment we have done multiple things, number one is that we have verticalized globally, and today we have global verticals which deal with our clients globally, which we believe that is the right way to do because we can, one single group of people can deal with the clients completely globally.

Second one is that we emerged most of our horizontal capabilities into the verticals, if you go back and look at our original reason for doing it individual strategic partnership are writing in front of the clients, so by merging all the horizontals into the verticals we believe that that will create alignment in front of our client, so that we have done.

So finally, we have four global vertical headed by Ashok, B.G., Pravin and Prasad, I think only Pravin is here and under each vertical and in the global manner we have three offerings, number one is Consulting and System Integration offering which today gives us about 31% of our revenue, we are expecting to grow faster than the company average, this is mostly discussed we work, this is mostly transformational work and as a Global Head for that (inaudible) of the Consulting and System Integration is here, the purpose of having it there is a two metric organization.

On the industry vertical side you have people focus on the client, on revenue, on profitability on the horizontal side you have people focus on capability, talent, methodology, productivity, standardization, commonality across organization.

The second piece is actually the biggest piece which is what we call business operations or business IT and that is headed by four offering head within the organization actually one of them is here Manish he will talk to you today and globally it is headed by Kakal and the third one is a new space which we created called product and platform but we are clearly seeing a shift because of cloud in the platform space, we have 20 clients on boarded on our eight or nine platforms which are already in the market.

This is a great opportunity for us and for our clients. It’s a great opportunity for our clients because it allows them to convert fixed cost to variable cost; it is a great opportunity for us, because it allows them to give a set of services, which are truly transaction based.

Our platform size based on number of transactions, number of users is a completely non-linear model. If you are not – we are not pricing it based on effort, so it’s a great opportunity for both clients and us. And that is why the Global Head for that is Sanjay Purohit he is here and there has been good wins in platforms; we call it the brand name for that is Infosys Edge.

We launched all the platforms under the common brand called Infosys Edge and we had significant wins in that space. But one has to remember it is a completely different business model, here in products and platform we invest first and then we reap the benefits.

So we have to build the platform before we provide it to the clients, we do three things number one we use our own intellectual property to build, so we have filed all the patents which we filed today are in the Building Tomorrow’s Enterprise space, so we are filing patents, creating intellectual property, second we have to launch it, so it is totally our responsibility, so some of it is using our intellectual property, some use it third party intellectual property like SAP and Oracle but we created our own intellectual property and hosting service.

We are not building data centers, we can of course use third party data centers to do this. And some of it we may build, but predominantly we don’t have to and the second, third part is we co-create the platforms along with our clients, so for example there is a platform that we created in the retail space called digital marketing, it is co created with one of our clients.

So to summarize we have done two things, number one we have launched the new strategic direction Building Tomorrow’s Enterprise, it is resonating extremely well with our clients, number two we have restructured, It’s completely behind that. As of September 30, we have completed the restructuring the leadership is all in place the four industry vertical has Ashok, B.G., Pravin, Prasad plus two other heads, that is three other heads actually BPO Headed is Swamy, Finacle headed by Hara, and India Unit headed by Raghupathi then the four horizontal heads which is Steve looking after consulting and system integration, Kakal looking after business operations, Sanjay Purohit for product and platform and Basab Pradhan looking after Global Sales. So it is a way to organization. It is fully in place. It is completely operational, and I personally feel, I'm sure all of us feel, we feel extremely good about where we are with our new specific direction and the new section alignment.

So, there will be some settling down, which is in progress, but other than that is complete. Then so that is the second piece. The third one I wanted to briefly mention on the guidance. Again I think Bala will discuss it. We had given a guidance of 18% to 20%. We have of course changed it to 17.1% 19.1%.

This year we had expected a balance growth, and we believe that’s what we will see. There are challenges in the environment of course, all the challenges are known, so I don’t have to go through those challenges of unemployment, uncertainty, lack of confidence within clients and various other things.

So we are definitely cautious, we have given a range for Q3 and that reflects the caution which we have in our guidance. So that is about our Q3 and Q4 guidance and lastly I want to touch up on the challenges which we see in the industry, there are four important challenges which we see for the industry, and I will list them.

Number one, which we believe is the commoditization which will happen to some part of the business. So some part of the business will get commoditized as we go along.

Number two will be that – there will be competition which we will try to take the low hanging fruit in such a situation and that as rate discloses.

Number three, is that the clients will expect more and more values from our side. So business value, there will be higher demand for business value from the partners and from the clients.

Number four is, in the long run if you look at it in the very long run, it will be difficult to recruit higher and higher numbers of extremely good talent. So this is not tomorrow but in the long run if you want to recruit larger and larger numbers of extremely good talent, it will becoming challenging. And it will definitely become challenging in India in the long run. So if you look at the response we have put in place, the strategic direction as well as the new facility and the things which we are doing. We’ve been clearly see that we are addressing these challenges.

The number one about commoditization; we do more and more work in consulting and system integration, which is definitely a higher revenue productivity. It is decreasingly spent. It is not like onward, it is decreasingly spend, so you have that issue to deal with, but at the same time it is of higher and higher revenue productivity. It is more on the revenue side of our client rather than on the cost side of the client.

The transformation work which we do is meant to create revenue and differentiation for our clients rather than return on investment. So it is more on the revenue side of the client. So we will continue to have sale and do more and more consulting and system integration work, so that is our specific direction is meant for us.

Number two is, in the (inaudible) commoditizing, product commoditization or we expect commoditization. We have consolidated all those offerings our services under the business operations we are offering. We are driving efficiency, productivity rights and different pricing models in that space.

So maintenance based on ticket based pricing, It is management based on device based pricing or independent validation based on text case base pricing, these kind of pricing models allow us to actually drive efficiency and productivity. So we’re applying, we have consolidated, we have created global leadership. We are driving this in that space.

Number three; if you look at things which we are doing in the products and platform space as well as in the consulting space, it is meant to create some amount of non-linearity between effort and revenue. So on the consulting and system integration space, we will operate about let’s say 15% higher on the revenue productivity or 30% revenue, that should give me about 7% non-linearity on effort.

Now if you look at the product and platform space, it is a very small base. Today we have 5.6% of our revenue coming from product and platform space. We are of course looking at growth. It will grow by you know we are hoping that it will grow faster than our rest of the service lines, it is what we have seen historically with new things.

But we will also look at inorganic growth in this space. So that’s an option, so we have also expanded our inorganic at visible space to include products and platform. So when you look at that space, you know ultimately I hope today it is too small to have any kind of predictions but if we get about 50% non-linearity in that space and the revenue reaches nearly 20% giving another 10% non-linearity. It is still a small number because this is after all a people based business. So we are looking at the talent which you are trying to create non-linearity through our consulting and system integration service in a limited and in a linear manner with our products and platform space.

Of course we are also looking at global talent. So today we recruit people in China. We have 2,300 people. Mexico is getting somewhere between 500 to 1,000 people. We have people in Czech Republic and Poland and Philippines and we are recruiting 1,000 people in the US, 500 people in Europe. So we are truly looking at global talent

So to summarize, if you look at, and one of the other challenge I talked about is client expectation going up, and they are looking for better and better business value. So if you look at the Thought Leadership team, if you look at our Building Tomorrow’s Enterprise getting us center of innovation all that is, and stronger consulting and system integration work, all that is meant to provide better and better business value to our clients. Now if you look at everything that we're doing I firmly believe that this addresses the industry challenges which we see.

So to summarize, I talked about the four things. Number one was the Q2 performance, number two was Building Tomorrow's Enterprise and Infosys without zero transformation which is now complete and in front of the client. Number three was about the guidance and of course Bala will touch upon and this in much more detail. Number four was the industry challenges as we see it and our response to those.

And now let me conclude, as I said, we feel very good about where we are. We expect short-term challenges because of the environment we have been and the macroeconomic situation, but we feel very good about where we are regarding the long-term. With that confident, let me welcome all of you to this analyst meet. It’s wonderful to have you. Thank you very much for spending time with us. Thank you.

V. Balakrishnan

Good morning, friends. It is my pleasure to talk to all of you again. Let me touch upon some of the financial highlights. To recap, last quarter our revenues grew by 5% in constant currency. It is at a higher end of the guidance we gave for the last quarter. Our margins expanded by 190 basis points, and even we're seeing some increase in prices, on a constant currency basis our price went up by 100 basis points. We added 15,000 employees. We grew 6.3% sequentially in US, Europe grew by 2.1%. Our growth has been more balanced both short-term and longer term grow at the same pace, and our employee turnover has come down. In fact, the employee turnover has come down by two percentage points the last one year.

So, what we did? We reset some of our guidance, because the currencies globally have moved up and down. To factor in the currency volatility we raised our guidance and avenues from somewhere between 18% to 20% to, 17% to 19%. And we have increased the guidance for our EPS to factor in the rupees appreciation. The employee addition target has been kept at the same level of 45,000 for the year.

So, what are the major challenges facing the industry today. Global economic uncertainty is a big thing. All over the world, the economic uncertainty is only increasing day-by-day. US is in a big mess, the growth is coming down unemployment is still high. There is no political bill to put money into the economy and make it grow.

Europe is in a much bigger mess. Everyday it is evolving and nobody knows which direction it is going to take. China, the PMI is 50.4; if it comes below 50 is the recession. India has got its own problem. So there is no cover in any part of the world. So the economic uncertainty is a big challenge.

Currency volatility, last quarter, we have seen the Indian rupee at both 52-week high and 52-week low. We have never seen the currency volatility like this in the past. Currencies are moving around 6% to 10% every quarter. So it is part and parcel of the business today.

And the regulatory changes, more economic uncertainties, which means probably countries will become more protective both in movement of labor and also the regulation could become more rigid. But I think all this three large global economic challenges is going to continue for some time and our industry, we have to live with this.

What are the micro challenges? India has got a huge pool of people. India produces around half a million engineering graduates every year, but the quality of pool is coming down. We have one of the most stringent entry barrier in the whole industry.

In fact, we get more than half a million application for jobs and we end up hiring some 40,000, 45,000 people every year. But even after that, at the end of the training, we see a 5% drop out. So the quality of input is coming down in the country. That is going to be a big, big challenge for the industry when it grows very rapidly like this.

And scaling up could become a challenge. This year, we are adding 45,000 people and if we grow like this, probably in the next five, six years we have to hire 100,000 people a year. It is going to be a big challenge. It may be possible, but it is going to be a big, big challenge. Growing on such a large scale and hiring employees on such a large scale is going to be a big challenge for our industry.

And of course the commoditization is increasing. Most of the competition is like in the low hanging fruits and trying to grow faster and in the process they are commoditizing the business more and more. Already, some part of the business is commoditized and it will only accelerate in the near future. And of course the client expectation has changed.

Clients want today an IT partners, they don’t want cost reducers. If you go and participate in RFPs, it’s a commoditized business. If you go to a client and create RFP, may be the value of business that’s what we want to do. So I think as an industry, this industry will face challenges on quality of input, scales of hiring people and also the commoditization of business in the near future.

So what we had done. We had reorganized the company, we made four large industry verticals, because earlier our structure is we have multiple verticals, multiple service units and we also have the geo structure.

Because of that each one of them had their preamble responsibilities. It created friction in the marketplace so we verticalized the company across the world, so instead of so large verticals, only the vertical head (inaudible) responsibilities, it helps us to response to the client’s need much more efficiency while at the same time reducing friction internally.

We also said we have to target all areas of spending. And as a company, we always want to be a high quality player then inform company we said we will be most respectable corporation in the world. We never said we will be number one in revenue, number one in market cap, we said we will be the more respectable company in the world. So for us all this number one, number two game is not important. We have to build a high quality company in the medium to long term.

So we said we will focus on getting one third of the revenue from Consulting & System Integration, why? Because we saw high value added revenues, profitability is high, our ability to scale is very high and clients view as IT partner.

One third of the revenue should come from platform solutions and product. Today we hardly gets around 6% or 8% of our revenues from this. Majority of it is from product called Finacle which we sell basically in India and some other developed markets today.

So this non-linear growth is very important for us. This will help us to grow the revenue with less dependency on people, and there is also high margin, if it comes to (inaudible) and balance one-third should come from a traditional business, the ADM, BPO kind of business, which will give us stability in the business, because you need the stability in the business.

In the medium to long-term, we are targeting this portfolio of business. If we get this right, I think we would have built a high-quality company with better revenue growth, better revenue productivity, and best margin in the industry and Infosys 3.0 is all about that.

Under the micro challenges, we increased our training period. Earlier we used to train our employees, all the freshers for three months, now made it six months. Even after six months training, we see a 5% drop off. That’s why we are worried about the quality of inputs coming into our industry and we’re also using more and more consulting as a front-end, because when you sell a consulting assignment, we get for every $1, we get $3 to $4 of slowdown business with something at a much better price points.

So they have to use more and more of consulting as the front-end in our business. We are also investing in new emerging areas like Cloud, Mobility, Sustainability that Shibu has spoke about. And for us mergers and acquisitions is a medium to enhance our capability.

We are not going to do acquisition, just for the sake of acquisition. We are not going to buy revenues. For us acquisitions should make strategic sense. It has to enhance our capability, it has to [depend] to the portfolio of business, which we are targeting in the medium to long-term. So we’re not going to go and buy some capsules just to grow business and show a high growth in one quarter, two quarters.

So our aspiration is to have a high-quality growth, to be the best in the industry, which means we’ll have the best revenue growth, best revenue productivity, and best margin in the industry. There is no discussion on that. We are not going to dilute our margin. We are not going to trade-off our margin for revenue growth.

One other things, which is keep loading it, our margins will come down. I have said this in all conversation and most of the analysts. Look at the margins in the last five years, we are said except for one or two years but they are mainly because of currency. So we always say that we have a flexible financial model.

We have multiple levers on the costs side. We have utilization, we have on-site off shore mix. We have portfolio of business. So we use some of these levers at some point of time to make sure the impact on the margins is limited and we have done that consistently in the past many years.

And we are not going to dilute margin for growth. Margin is very important for us of course, growth is also important, but they will not trade out, we are going to balance both and try to achieve both.

If you look at the currency rate, we are seeing currency with different rates from 45.06 to 47.43, but still we are able to maintain our margins in spite of this currency volatility. So what it means is our cost structure is much more flexible today. We should be able to reduce some of this impact and until we saw a better margin in the industry.

On the currency side, the currency volatility is going to continue, but we are not going to go away. We set our exposures up to the next few quarters at any point of time. We are not going to take any long-term view on the currency, so it’s difficult to take. We are going to take a short-term view.

Most of our hedges are for a term of less than one year. They are not going beyond one year and we believe that India rupee is going to be depreciated so that India has got a biggest challenge. India was predicted to grow at 8.5% this year, but I think now the consensus is that it will grow at 7%, 7.5%. And India is also slowing down and India has got a huge trade deficit, fiscal deficit is having a concern and capital flows are coming down.

Capital flows are biggest buffer for the currency and that is coming down. So that in India, it is seen as an emerging market risk. So if we put all that, we believe that rupees will be under pressure in the short-term and rupee, the chances of it gets depreciated is much, much higher than the chances of it appreciating the short-term.

So we have $742 million of hedges at the end of September. We’ll continue to take a short-term view, we’re not going to change our hedging policy. If you look at the revenue mix, 70% of the revenues comes in US dollars and we get 7% of the revenues from GBP, Euro and Australian dollars. If you look at the impact on the net margin, because of the currency changes, it is hardly less than 1% of the revenue. So, I think in the whole industry we manage the currency volatility much, much better, because it took a short-term view in the last two years, the impact on the net margins, because of currency changes is very, very low.

On the tax side, today our effective tax rate is 28.4%, we are almost at the peak of the (inaudible). Today, we get around 28% of our revenues from SEZ. And that is clearly growing, but most of the SEZs, I mean, all of the SEZs today are taxable, so balance 72% of the revenues are fully packed in India today and we believe that tax – effective tax rate could be somewhere between 28 to 28.5% in the near-term and if we are able to grow the SEZ proportion of our revenues in the near future.

Probably the effective tax rate could come down, but as a company, we are very particular about putting only the new business, which means new employees, new contracts, new business into SEZ. We can’t shift the existing business from the STP to SEZ. Of course, some analysts wrote saying that we don’t know how to do tax planning. For them, I told them that we don’t do tax evasion. We have to pay the tax, our effective tax rate is 28.4, which is higher than the industry, but still we delivered the highest net margin in the industry.

So, with this, I conclude. Overall, the message is, we are focused on high quality growth. There is no discussion on that. We are not going to thread out margins of growth. There is no discussion on that. We will continue to focus on having the better portfolio of business, which will make us the most respectable company, which has got high quality revenues, it grows faster, there was a dip in new productivity and which has got the best margin in the industry. Thank you.

Manish Tandon

Good morning everyone and thanks for being here. It is my pleasure to talk to you about Business IT Services, which is core of Infosys as you know it. Let me start by defining what we mean by Business IT Services. In a single umbrella, we have put together application services, validation services, infrastructure services and business process outsourcing.

This has given us the capability to do end-to-end stuff right from building, testing, maintaining and operating large platforms for our clients. We can do it end-to-end, soup to nuts in any corner of the globe, the power of one.

If we look at Business IT Services, it forms the bulk of Infosys revenue. It is about 60.4% of Infosys revenue over 79,000 talents, 525 active clients, 20 clients with greater than $50 million revenue just from this single service offering. Six clients with greater than $100 million in revenues from this single offering on a zone. And that fortunately was not the end. This offering obviously is spread across industry segments, about 43% of this offering is from financial services, this offering is particularly strong in financial services. It has representation in other verticals also and it has spread fairly consistently across geographies, consistent with the overall revenue mix of Infosys.

We are proud to have some market clients for these offerings again across industry segments be it banks, be it communication providers, be it utilities, be it retailers, pharmaceuticals or auto majors.

A lot of people think that this offering is a slow growth offering. I would like to disagree with you on that notion primarily because the penetration of this service offering as far as Infosys is concerned is not very high, not even 1% of the global market size that exist. And in this service offering Infosys has been consistently growing faster than the industry (inaudible). There is a bit difference, as you can see from the numbers.

So what’s new, what is happening in this service offering and what are we really trying to do to differentiate ourselves and to make this a much more compelling offering for our clients than what it has been now.

If you look at what clients want, obviously, want much more value for their existing ideas. They want things to be done much faster and as we are seeing more and more applications become revenue generating applications instead of just being at the – in the back office or the mid office, the new trend is to focus on reliability of applications and user experience.

So what we are doing in Infosys is creating a compelling value proposition for our clients where they can do more with less, they can do it much faster than what they have been able to do in the past and they can do it in a way that enhances the user experience.

In a nutshell, we are trying to make sure that through this service offering, we can optimize so that our clients can extract much great asset efficiency from their existing IT assets, which in an uncertain economic environment is what the clients are asking for besides doing transformation programs.

So let’s take the first lever, do more with less. What is Infosys doing about it. I talked about the power of one I think the first thing that we are doing is we are bringing our 25 years or close to 30 years of experience in building, maintaining and running IT systems together into integrated platforms and work benches so that we ourselves can optimize the way we are delivering these services.

There are lots of investments that was going on in brining these platforms together be it the integrated work bench for application development or application maintenance, building tools and accelerators to enhance the productivity internally. And hence they were better value to our clients.

We are doing lot of work on competency enhancements because if we are to give better value to our clients for their assets, we need to understand more deeply the business problems that those assets are solving and hence we are making a lot of investments on competency enhancements, certification programs, specifically on domain capabilities.

And we have always believed that innovation happens at the edges and we are creating newer offerings, which combine, which expand these traditional boundaries of the application development was the testing or testing versus infrastructure management et cetera. So that one it differentiates us in the market and two it creates a more compelling value as far as clients are concerned. So for example, a client had an issue on availability of systems and availability as we know is a function of not just the application but also the infrastructure.

So we have created an offering around infrastructure testing, which combines the needs, combines the skills from testing and infrastructure management with the soul purpose of improving availability of client assets for our clients.

The second area is obviously clients expect to do things much faster than before. Again, the near shift from an application profile which is focused on back and mid office to the front office time to market is an extremely critical component. It helps you beat the competition and any delays lead to real revenue losses.

We are also seeing a trend where clients are trying to see if they can use their IT assets again for differentiating against there competition especially in the web space and mobile space. And in a lot of cases, they are especially for their front office applications, they are not looking at standard industrial packages, but they are looking at solutions where we can assemble, rebuilt component to give them a faster time to market and also gives them differentiation vis-à-vis their competition. So we are investing in those – on those feeble components also.

The second component of reducing cycle time is obviously automation, increasingly and I think Bala talked about the correlation between revenues and head counts and we believe that automation of processes not only helped in breaking that correlation to some extent but also helped in a faster time to market. So we are doing a lot of work around automation be it investing be it in on infrastructure management or creating pre built pre baked components for reuse.

The third area obviously is on usability features as I said shorter time to market is not just about creating something fast. It is also about rolling out something fast enough and getting the change in the organization done quickly enough. And I think we are perhaps one of the only service provider that I know of which has a specific offering around training and user adoption that we bring to [bear] to our engagements.

The last area is enhancing client experience I think with democratization of IT assets specifically due to mobility. We are finding that the user experience is becoming more and more critical. In the past our IT assets were used by maybe 500 people internally but today our IT assets are being used by millions of users across the globe, across time zones on multiple devices. And we are seeing a significant demand and traction in terms of how – what all we can do to enhance the user experience both in terms of scale and form factor and look and feel and also, in terms of usability and accessibility. So, we are investing in user experience solutions and of course service performance management solutions, which focused on enhancing the end user experience.

Net optimization, this offering is all about optimization. It’s about – all about optimizing asset efficiencies for our clients. And the thinking is that [department] should be able to help our clients, stretch their IT budgets by doing more with less and the fastest time possible. We believe that if we do this well, then the mix of IT spend will shift towards more change the business rather than run the business, which we believe will be positive for our business transformation and consulting and system integration growth. And finally we believe that with this offering, we can really deliver revenue-generating applications and focus more on the client budget on the revenue side of their house rather than just on to run the business side of house.

Couple of case studies, which start off reinforced some of the points that I have tried to cover. This is the case study of our property and casualty insurance company. There they had significant process and operation problems that they ask us to address. And just look at the business impact that was created in this study.

First of all we’re making the conscious effort to measure the business impact and show it to our client. Combined ratio actually improved by three to four percentage points from 68 to 64, because of the process optimization. The policy issuance time reduced from 46 days to 13.4 days and the industry average is about 15 days.

As per the client this has resulted, because we were able to free up their underwriting capacity, it has resulted in 5% increase in written premium, and the court conversion ratios improved from 53% to 78%. This is the power of the service offerings, this is what we want to achieve to this service offering.

Another case study is for a telecom client. Again as I said, we make a conscious attempt measure these parameters and demonstrate it to our clients. This was creation of a self service wholesale customer portal, where we wanted – the client wanted its wholesale distributors to be able to troubleshoot problems on their own, so that it is faster and cheaper and leads to a better client experience.

Again look at the business impact. We were able to reduce the time to market by 12 months. We achieved cost reduction of $1.12 million due to lower development efforts by best using some of the pre-built components that we had. And the client was able to reduce about $13 million in cost through self-service portal capability is that we are developed.

Net cash flow, positive cash flow for this program for the client was of the order of $2 million and I think [they stated] it was about $3.6 million overall. We are talking about a leverage ratio of 1:9. And that is what we want to achieve through this service offering for our client.

With that I will take a pause and I leave the floor open for questions.

Question-and-Answer Session

Trip Chowdhry – Global Equity Research

Trip Chowdhry, Global Equity Research, I was wondering in your specific area, have you filed any patterns and how many may be in the application process? (Inaudible) have a follow-up.

Unidentified Company Representative

Yeah, I don’t have the number handy with me. I think we have filed about 200 plus patterns. We can get you the exact number. I think I have quoted somewhere. And there is a lot of work that we are doing on the IP side and making sure that we are not only doing this innovation, but also protecting our intellectual property as far as the generations are concerned.

Trip Chowdhry – Global Equity Research

Perfect. Thank you.

Trip Chowdhry – Global Equity Research

I’m just curious about your BPO offering. How strategic it is for you? And also there was conversation earlier about commoditization in this space, your thoughts on that? And also are you thinking of having services as a platform in that area?

Unidentified Company Representative

Okay. So the first question is how strategic BPO is, right, the first part of the question? Well, it’s a strategic offering for us. We have seen tremendous growth in that offering. We will continue to invest in that offering. We have industry-leading margins in that offering. We continue to grow significantly in that offering. And more than anything else, if you realize the vision of a bit, it is the capability to do end-to-end stuff right, from building, maintaining, testing and operating.

We cannot afford to be non-strategic about RBC offering because we want to be a one-stop shop for our clients. And we want to be able to go and tell a client that, hey, we can do this, we can manage your entire card authorization platform globally from (inaudible). So it’s an important part of the puzzle. So it’s a very strategic offering for us. What is the second part of your question?

Unidentified Company Representative

Yes so (inaudible) is a very good example of platform play in BPO space. This is a life, [close book] of business management platform that we are charging our clients based on number of policies that are being serviced on a per transaction basis. And I think Sanjay is going to talk more about that PTS offering. But we want to do more and more stuff around platforms.

In fact we are even in BITs offering we are saying that – we are telling our clients that we can take your IT assets and do the entire platform thing, as if it is your own private platform and still charge you on a per transaction basis instead of the traditional time and material kind of thing and because that any productivity benefits that we can generate flow to our bottom line.

Trip Chowdhry – Global Equity Research

(Inaudible) and that related to just the commoditization of same itself, and before that do you sort of lead with the BPO offering? Would you go into a client and offering exclusively BPO?

Unidentified Company Representative

We lead by understanding clients need. We don’t lead with offerings. So we understand we look at what the client, what the problem is and we leave it at that. We don’t leave this service offerings.

Commoditization, my view is that, if you keep selling something the same thing over and over again it will get commoditized. So I don’t believe that BIT services are being commoditized. What we did 10 years back is being commoditized and 10 years from now when we talk about consulting and system integration may be that also will be commoditized, if they continue to do the same thing that they did 10 years back.

And that’s why a lot stuff that I talked about was creating newer offerings. That’s what we have and we have seen this in our offerings where either through specialization or through creating accelerators we are able to get higher price points and higher revenue productivity. Because if we can do something, first of all, if we can link it to client value and if we can get the – if we can convince the client that we can get you there faster, the client is willing to pay more. So commoditization, I would say is about you need to keep innovating to get out of that commoditization cycle and that’s what we are trying to do across the board in the company, but particularly in BIT services.

Trip Chowdhry – Global Equity Research

Manish, just back on the BPO segment as well again, can you help us understand what sort of the vertical mix looks like within that? And then as you think about specifically around verticalizing some of your offerings what is sort of the industry factors that you are more focused on and where you feel you need to make investments over the next sort of the medium term.

Manish Tandon

I don’t have the BPO mix by vertical handy, but I think it reflect the overall vertical mix of Infosys. In BPO offerings what we are trying to do is go after wide spaces which we believe are under serviced today. For example, trying to do a payroll processing platform today is a meaningless exercise. There are several players out there who are doing this kind of stuff. But going to a client and taking a process for example a policy management process and selling them that we can variablize this cost for you instead of having it fixed. That is the play that we want to have in BPO. How can we move our clients from a fixed cost model to a more variable cost model that is what we are focusing on as far as our industry play and BPO is concerned.

Unidentified Company Representative

Any further questions on this. Okay, so we’ll have a nice couple of 15 [minutes]. We will wait for coffee and reconvene the session at 10.30, Thanks.

(Break-Out Session)

Unidentified Company Representative

Can I request everyone to take their seats, please?

We have the next session on Consulting and Systems Integration by Steve Pratt. Over to you, Steve.

Stephen R. Pratt

Hi everybody. Thanks for being here again. You know, for a guy from California probably it’s good to come to New York. In fact this is my second week in a row. Last week, I was here, and had a really funny experience. We had a manufacturing client, who said that, they wanted to tour the world's most innovative companies. And they went to Google, NASA and Infosys, and they met us here and we talked about all the innovative things that Infosys has done over the last 30 years, and including just the, the idea of Infosys in the business model to begin with, the way we've transformed the company from basically an outsourcing company to a full services company and the way we do innovation on a day-to-day basis.

And to me that was a great time that we are advancing towards our mission, which is the globally respected Corporation. And one of the objectives that we have of Infosys 3.0 is to not just be a globally respected company for 30 years, but for the next hundred years as well. And so that brings us to Consulting and Systems Integration, which is the part of the organization that I run.

It's about a $2 billion organization, with about 25,000 people in it. And I think it's really a key component of the service offerings that Infosys has to build value and clients. If you look at what we are trying to do in Consulting and Systems Integration, consistent with the overall vision of Infosys is to earn global respect. And if you think about it it's a very interesting vision statement as Shibu said, it's not about being the biggest or most profitable. Those things will come if you get respect but we are 100% focused on earning respect from clients for delivering the best business value for a dollar invested in a consulting firm.

We want to be respected as a great place to work, that is a real talent magnet and brings in people from the outside and people really are dying to work as consultants of Infosys, and respect for our financial results. And of course that being the fastest-growing and most profitable consulting organization in the world is something that I think we already are, but something that we continue to strive to do.

To me, the concept of respect was really driven home. I don't know if any of you had seen the latest Harvard Business Review. There is an article in there, in-depth interview with Narayana Murthy, really the founder of Infosys that talks about in the very early days when Shibu and Narayana and five others were sitting in their apartment, and deciding what kind of company they wanted to build, that this is the kind of company they wanted to build.

So, I’ll go through quickly and talk about what we are doing for clients, for our people, and for our financial results to gain that respect. So, first and most importantly is focusing on value for clients. So, basically, as I said, what we are trying to do is to reinvent the consulting profession and to make it in a way that is fundamentally better for clients, something that delivers more business value, is more tailored to business value.

In fact when I joined in Infosys eight years ago, the reason I left my previous firms after working for a strategy firm than one of the big five for a total of 20 years before I came here was that I fundamentally thought that the consulting profession was broken, and then it need to be reinvented, it needed to number one, focus on linking the projects that we do for our clients with the business value created, which is something that I think was lost, that there was really a separation between the strategy firms and consulting firms that was a ridiculous notion in today’s world.

I also thought that consulting had become way too expensive and the whole concept of using global talent and the fact that there was globalization and you could share work globally had not yet come to the consulting profession, and so we’d like to think that we were really the catalyst for globalization in the consulting world. So, what we’ve done is to have our practice in consulting and systems integration that really bridges the barrier between strategy and strategic thinking and focus on free cash flow and shareholder value to actually the implementation work that we do. And these are really the areas in which we are focused.

Number one, is we have a strategy consulting capability, we are, it’s interesting because clients want to talk to us because they want to become more like us, and when they talk about how does Infosys do what Infosys does? Tell us the secret sauce in that and we can give very practical advice on the things that they should be doing in changing the strategy of their company, and to innovate and constantly really be a leader in growth and margins in their profession.

We also focus on digital transformation, I think we are the leading consulting firm in the world around specific areas like digital marketing, where if you look at most of the worlds top retailers we are the people who have come in and set up their digital marketing strategy, and their capabilities to implement, basically how you mange digital content, digital messages, digital channels and target the right messages, through the right channels, to the right customer segments. And so we’ve branched now from retail going into life sciences and then going into other verticals, but I think we have absolutely the pioneering capability when it comes to digital transformation of our clients.

Also organizational transformation, that we’ve done some amazing work around the, really the hard edge of the soft side of change. A lot of our competitors talk about, when they talk about organizational transformation, it’s focused on just basically training and communication, we really branch that out to organizational design, performance management to really get the hard edge of accountability and adoption and alignments when it comes to organizational change.

And then next in information transformation, what we do is to really look at the way companies manage information and use information to make better decisions. This is around data governance, which a lot of our clients really have not really paid that much attention to. In fact, consulting firms in general, I think have been one of the leading causes of data chaos in clients, where they would do a project for one client and set up their own data model, they do another project for that same client in a different area, and set up a different data model and pretty soon you don’t have any enterprise, you have data.

And so we are focused on enterprise data governance and data visualization. We think that there is a revolution that is happening and will only accelerate about the way that executives consume information to make decisions around data visualization, focus on metrics, performance management and alignment of those things across the organization.

And then finally around process transformation, which is one of our larger areas. This is really looking at the core assets of how a company runs itself all the way from sales, marketing, service, manufacturing logistics, distribution, research, development, HR, finance, IT of helping clients really become innovative in these areas, and to transform themselves. Most of these projects are enabled by the core ERP packages which is SAP and Oracle. And then of course the other services are supported by advanced technologies, so what we’ve done as part of Infosys 3.0 is to really align the vectors where we had these in separate parts of the organization. We brought it all together to really simplify and to accelerate our leadership in this area.

And I think that if you look at from a client perspective, and if you look at Infosys you get a better return on your investment because you get better strategic thinking aligned to the technology implementation, and you get it in a way that’s delivered at a lower cost. In fact our rates are not lower but the fact that we can do it in a more globally distributed manner, in a more highly efficient manner that we can actually be a lower cost alternative and a higher value alternative, which translates to our growth into our margins.

If you look at the revenue mix of consulting and systems integration it’s fairly evenly distributed among the four vertical, four main verticals of Infosys and you can see it here by geography we are still little, America is heavy that we are focusing on growing Europe and the rest of the world. And by services, again that’s fairly balanced. You will see that MCS is Management Consulting Services. Management Consulting Services really drives a lot of the other revenue, and the way we go to market and the way we deliver things is as an integrated consulting and systems integration unit. So you will see management consultants working side by side with people from SAP, Oracle and advanced technologies to really create value for our clients.

From a client mix perspective, we have four clients that are between $50 million and $100 million, representing 15% of our revenue. Then right now, there is really the core of our client base which is in the $10 million to $15 million range. This is a little over half of our revenue. And then we have a very large number of clients under $10 million.

What we find is even though consulting and systems integration is not an annuity business, where mostly you go in, you do a program and then you leave. When clients use us for consulting, they tend to use us again for consulting. And so we have to re-earn, again we get the respect of the client to go in and hire us again and again.

And you’ll see that the clients that have been, our consulting clients, remain our consulting clients for a very long time because they see our model and they like our model. And the days where I remember the early days when we went in and talked to the clients and they said, there’s no way Infosys could possibly do consulting because we don’t think of Infosys that way. But that has changed dramatically. And especially for the clients in which we are working, they see Infosys as one of the leading, or the leading consulting firm for their companies.

One of the other things we’ve done is, and we thought it was very broken in the consulting profession is the way that programs were led and the way they were structured and the way that consulting companies managed collaboration and managed intellectual properties.

So what we have done that we don’t believe any other consultant firm has done, has actually combined an online framework for how we do our transformation programs with a knowledge repository, with a collaboration tool. So it’s all one thing. And the power of that is immense, that as we do each program with a client that we feedback into impact and it learns and it gets smarter and smarter. There is a peer rating system for content, so that the best content flows to the top continually and it’s actually linked to the compensation of our people, that our people get paid on collaboration and intellectual property contribution.

And so what we do is we are a constantly learning organization and getting smarter and smarter each program. In contrast, a lot of our competitors have methodologies that are very stag that they were developing some team a long time ago, it’s been published and it’s a step-by-step method of how to do things and it’s not a continually evolving process.

And so this is one of the things of which we’re very proud, and there’s really a key to day-to-day client service. Though if you are a consultant somewhere in the world, and you’ve been assigned a deliverable as part of that that you will know who else in the world is working on a similar deliverable for another client, and you can create the collaboration network to trade off what’s working, what’s not working and to get better over time. And again you get a significant part of your compensation to contribute to impact and you get more and more points as people reuse your content. It’s a clear differentiator of how we serve the clients.

The next is talent. So this is a slightly bigger slide because there is 25,000 people now but we have 25,000 people around the world. You can see the geographic distribution here. Again what we do is we leverage on-site high talent, very senior management consultants. The average age of the management consultant is 38, supported by technology delivery around the world, where the average age is 27.

And so you’ll see that though we have fairly good geographic coverage. One of the exciting things to me about Infosys is that the future and the growth potential is very clear. When I look at this map, I get excited about the possibility of expanding geographically because it’s very clear where the future is. It’s very clear, how we will grow and what is the key to our strategy.

Again, if you look at our competitors, they are pretty much everywhere they can be. And unless you want to advent to Mars or to the Moon, geographic expansion is not really an option. And so for us, even though we’re $2 billion entity within Infosys, the future expansion to me is very, very exciting.

So one of the things, as I say, why would a consultant join Infosys because Infosys traditionally has not been known as a consulting firm. Well, what we do is, we’ve really attracted what we like to think as the rebel consultants if someone who wants to challenge their status quo, people who are not happy with their current firms, people who are tired of being in a static organization and people who realize that being part of the winning team is the place to be, and that growth create opportunities. Because we are growing rapidly and because we are winning and have a winning business model, that we are able to attract, retain and develop top consulting talents in the world.

The main place where we recruit talent is from really in two places, one is from the entry level, which is mostly at the top MBA schools in the U.S. and Europe and somewhat in India, and then also we have lateral recruiting, where we hire a lot of people from consulting firms.

And again, we are looking for that individual that's looking for a truly global experience and wants to really break the model of consulting and really at their core is a great management consultant, meaning that they are focused on the client and client value and that's what's most important to them.

We've also had extensive investment in professional development. If you look at the investments that we make in training our people and continual professional development and in our counseling network and the whole professional development feedback process, it is very expensive. I think that this is one of the key strategic processes of any consulting firm, and we are very proud of what we've done there.

We also offer career flexibility. And this is one of the things that's very exciting about Infosys 3.0 is by bringing all of this together that we offer a different career paths, different ways that people want to go in the organization, and can really help people advance and stay in the organization and really reach the limit of their potential.

And then finally on performance management, I talked about this a little bit, that I think we have one of the best, if not the best, way of doing performance management in the consulting profession. And obviously, this is a key to being fair, recognizing people and coaching people under development.

Financial results. So in Q2 we were at $545 million in revenue. One of the things that consulting and system integration does is, as consulting and system integration grows, that also the revenue per professional grows as well for overall Infosys. And this is strategically important for us, as we talk about breaking the linear connection between growth and revenues and growth and headcount because obviously one of the things that we need to do is to figure out, over the next 30 years to the next 70 years of how do we make sure that we don't run out of people in the planet, right, to do this.

And obviously there is lot of things that we need to do from a society point of view to graduate more engineers and more business talent, but also focusing on this. So the other thing that of course Infosys is known for is operational rigor, and we will continue to accelerate operational rigor and to drive the results that we are talking about.

So in conclusion, the message that is very clear to me is, if you get the client value part right, and you get the talent part right and you manage with operational rigor, then good things happen, right, and the results will follow. And that if we do these things, we will be the most respected consulting and system integration firm in the world when it comes to client value for being a great place to work and for generating great financial results.

Thank you, and be glad to take any questions.

Question and-Answer Session

Unidentified Analyst

I wonder if you could frame for us sort of the positioning in the market for the consulting practice. Who do you normally come up against in normal deals, what do you consider to be a competitive advantage? Any color on win rates? And I have one follow-up.

Stephen R. Pratt

Sure, sure. We have a lot of different services, but I would say if you were to categorize our main competitors, they would be Accenture, IBM, Deloitte, Capgemini in Europe are the people that we go up against. And it's very important to say with that however that we do not aspire to be them, right, we aspire to be different from them and to be better than them, focused on the client and on our people.

And if you look at our key differentiators, they are really based on that that one of the ways that we differentiate is again to have this combination of focus on business value realization and implementation programs. And it seems like a relatively obvious thing, except the fact that really nobody else does it affectively.

A lot of our competitors, if you want to talk strategically or you want to talk about free cash flow or shareholder value, you talk to their strategic services group, and if you want to talk about implementation, you talk to their group that focuses on implementation. And what happens if you focus on a program that way is there is a huge disconnect between what actually happens on a program and the original intent. So we from the very beginning created something of a value realization method, which in a very rigorous way maps at a detailed level what are the activities that each person on the program is doing, how does that focused on changing a process metrics in that company, how does that process metric change a value metric in the company, and how does that create free cash flow and shareholder value for the company.

So if you ask any consultant from Infosys anywhere in the world, what are you doing? They will likely not say, I am implementing technology X, they will say, what I am doing is I am changing, I am reducing the inventory or I am increasing the inventory turns from X to Y, which drives up after efficiency, which drives a free cash flow. And basically that so that I would say our key differentiator is that end-to-end linkage of our programs on the creation of business value, which is something that has been absent from the consulting profession for a very long time.

Our other differentiator is that from a talent perspective that we hire very experienced people to be the consultants, right. If you look at a lot of our competitors, they hire people form undergrad, they send them to a training school, they get promoted up and they become a consulting partner. We mostly hire people in that organization that has at least five years of industry experience, goes to a top MBA school, graduates and comes to us with a rich set of experiences.

So that from a talent perspective, our people, I think are better and more experienced than our competitors. And because we combine that with the delivery efficiency and the technology efficiency of Infosys and the global delivery model that, that we just have better people, right. And what that also does at the same time is it leads to a lower cost model for clients. And again that’s not at the expense of compensation of our people, it’s not at the expense of anything, right, it’s just a better business model. Yeah.

Unidentified Analyst

Yeah, thanks. Can you talk a bit about the profitability of the business? That’s number one. And number two, if you're really trying to replicate Ex-Centris model, how would you be able to do that without actually impacting the cost base of Infosys as a whole i.e., impacting the probability of the business?

Stephen R. Pratt

Yeah, well, I mean we’re not trying to replicate the Ex-Centris model, right. They are trying to replicate our model. And so, I think a lot of consulting firms have a really big challenge to get from, what I call the old model to the new model, and mostly because they have the wrong people in the wrong location. And that’s a very, very tough problem to fix, it’s going to take a very long, long time to fix.

And so if you look at our organization, I mean, we will be accretive to the Infosys margins and we'll continue to be so and hope to be even more so. So it will be higher than the Infosys' average, and I won’t get into the specific numbers, i.e., service area for margins. But the way to drive margins in our business is that if you’re selling value and you’re selling results to the clients that clients are willing to pay, right, if you can convince them that you’re going to do it and you actually deliver. And so, we have the large team usually based in remote locations, which is very high margin, and then the people onsite are also a slightly lower margin, but more than make up for by charging by the people in the lower cost locations.

So, I don’t think our goal is to drive growth and margins, right, and the model works. I mean, it’s been working for a long time and it will continue to work. For the other guys, I am surprised that they haven’t been able to execute as quickly. I mean one thing that our competitors have been successfully doing is hiring the best people in India, but there is a big difference between on the tennis players, just because you buy a tennis racket doesn’t make you Roger Federer, right. And so you are learning how to use the people in India and how that works into the model and how you do that is a very tricky if it's a very long time.

So we are not looking at anyone's taillights, right, we like to think that they are looking at our taillights, right, and that we are pioneering the new model of consulting that is better for our clients and for our people, and of course a lot of thing we drive better growth and margins.

Trip Chowdhry – Global Equities Research

Trip Chowdhry with Global Equities Research. I was wondering if you're paying two years back, the set of capabilities you had in your practice, who had the changes today, have you added some more capabilities and if you can highlight a few that will be helpful?

Stephen R. Pratt

Sure, yeah two years ago, may be even I’ll go back five years, I mean five years ago, we were really at the heart of changes of Infosys. I mean it’s been a very interesting journey for, if you want to change a big company, a big successful company from what that was to what it wants to be, it’s a very interesting strategic question of how do you do that? And the approach that Infosys took is and Shibu references briefly as we decided to incubate consulting through the subsidiary called Infosys Consulting, and then to invest in that to grow that up.

So incubate, cooperate, which is worked side-by-side with Infosys, so you get to know each other, and then to integrate. During that incubate in cooperate phase, there are necessary inefficiencies. Right, because it is a separate organization that Infosys Consulting working together with the, the more of a technology oriented part of the business, there was the vectors were not completely aligned.

And so if you look at today, what we’ve done is that Infosys Consulting have grown up with enough success and earn the respect from the rest of Infosys, and we got to know each other well enough, that now integrating all of them together it works, right. And so what we’ve done is basically align the vectors, right. So whereas five year ago and two years ago, the vectors were slightly have skew, and there was some internal tension, now we’ve made at one change and that’s a dramatic unleashing of potential in the organization and so that, I would say that’s the main difference.

Trip Chowdhry – Global Equities Research

Thanks for putting up some of those revenue numbers there on the consulting side. How should we think about the revenue growth in consulting itself, relative to the total company growth that’s number one, and can you give any color on how consulting is leading to follow up implementation work, and how much of your implementation is coming from consulting for example?

Stephen R. Pratt

Yeah, so, what we’ve done is actually put the consulting and the, the delivery part of consulting into one organization, so when we do a transformation program for a client, for instance, we just finished one of the most complex transformation programs in the retail consumer goods by life sciences in that portion of industries, in fact the CEO of one of the top companies in that says that this is the most complex transformation their company had ever gone through and maybe ever in their industry.

So, to pull off that transformation of the company, right required a tremendous amount of consulting talent to drive the entire transformation all of the process designed, all of the organizational transformation, everything working side by side with the people who are helping implement the underlying capabilities in the company including the technology. So, a lot of our competitors think you do consulting and then the consultants leave and then you, and then the technology guys take over an implement technology.

That’s the wrong way to do it. I mean that traditionally has been a coin flipping whether you get the results that you want it’s been 50-50. And to me that’s unacceptably poor performance, poor professional services company. So what we’ve done is through the value realization effort is ensure very tight end-to-end linkage of this and that’s what driven the result. And so we don’t think about it as you have consulting and then have flow through, right. That’s not the way it works. It’s all one thing working together from beginning to end. It is true that when we, sometimes when we finish a transformation program that the client has taken you support that’s going forward, right. And that happens quite often and then that would lead to follow on annuity work for that client. Does that answer your question or do you have another? Yeah.

Trip Chowdhry – Global Equities Research

(Inaudible)

Stephen R. Pratt

You are talking about the split of management consulting and the rest.

Trip Chowdhry – Global Equities Research

Yeah

Stephen R. Pratt

Well I mean they have different. There are different capabilities you need in the organization working together. I think where you are looking is that’s right? That was just, what’s that?

Trip Chowdhry – Global Equities Research

(Inaudible)

Stephen R. Pratt

Right, this is revenue mix by services, but if you look at on the bottom there. So these advance technologies management Oracle, HAP and others, right. So it is one thing, you have there are different purposes on professional development and performance management and the way you build a world class SAP, Oracle, Microsoft and Amex, right. You develop world-class professionals differently there, then if you’re developing a strategy of consultants, right. And so we’ve broken them into practices, but it’s all one consulting and system integration practice, they works together on almost every program, is the way it works. Is that what you are looking for? Okay.

Unidentified Company Representative

Any more questions?

Stephen R. Pratt

No questions.

Unidentified Company Representative

Okay, thanks Steve. We now move to the last session of the day on Product, Platforms and Solutions by Sanjay.

Sanjay Purohit

Good morning and welcome once again to this discussion. For the next few minutes, I will share with you, how we are approaching our Products, Platforms and Solutions line of business. And I thought that it would be a good place to begin by talking about where are the key drivers and what are the key opportunities that we are seeing into the future. At the different instances in time, we have shared with you our perspective on the key themes that we are seeing that would drive growth, profitability and asset efficiency of business going into the future. Let me just break this down a little bit to make it more specific to how it applies for our business.

When we look at the trends in Digital Consumers, where our focus is on enabling self-service, micro-fertilization and consumer co-creation with our clients. There lies the opportunity of doing many things differently in new ways, using different kinds of new Products, Platforms, and Solutions capabilities. I’ll give you examples, as we go down the line.

When we look at New Commerce, the focus is on how do you leverage trends in mobility, how do you leverage trends in micro-commerce and how do you leverage trends in inclusive commerce and that again presents a lot many new and interesting exciting opportunities about what we can do with our clients going into the future.

Of course, Healthcare is a subject that everybody has sort of discussed to death, but what is more important is, looking at new ways to create a more affordable, more preventive and a more patient-centric healthcare environment in different geographies, in different place.

When we look at the subject of sustainability, there are the key dimensions of how do you actually leverage trends and how companies manage their social contracts with their communities and the society at large, how do they focus on resourcing density including areas like Smart Grid and those kind of capabilities and how do people look at the subject of the green innovation, which is coming out with new products, which will make the world a better place to live in. And again, there are many new things, many interesting things that are happening across the world. And as we look into the future, we see there many opportunities to do exciting and new things for our clients.

Market organizations. Our focus is on organizational simplification, because organizations over time have become fairly complex. Our focus is on how do you actually create new collaboration and learning environments within corporations and how do you actually work with corporations to help them adapt to the rapid changing business cycles that everyone is seeing in front of them. Again, as you would observe, very interesting opportunities to do things differently in here.

Emerging economies, I don't need to potentially expand, but the question is that when we take different kinds of products and services and solutions that are developed in developed economies and then you size and scale the business within emerging economies, there are other different kinds of challenges.

So our focus is on working with our clients to see how we can help them gain growth momentum. How can we help them really understand how to create innovation hubs in the emerging economies, and how do we ensure that they are able to create much more smarter supply chains in those parts of the world. And again, many interesting possibilities of what kind of products and platforms that you can leverage to create new capabilities for our clients.

And lastly of course is the rate of computing; where our thinking is, how do you leverage smart sensors and the latest interesting things that are happening in technology. How do you leverage intelligence analytics, predictive analytics in those kinds of areas and how do you actually leverage areas to do with cloud to be able to create new capabilities for our clients.

So what I wanted to actually share with you in this is, that when we look into the future, because the business of production platforms is actually working towards preparing our clients for the future. It’s very, very important that we understand what are the different new interesting capabilities that our clients could need as they walk into their future and build their tomorrow's enterprise.

Obviously when we walk into this space with the mindset of creating new capabilities, which could be in the form of products, platform or solutions in these kind of areas, it is important to understand how do we synergize and create the Infosys advantage. And we believe that our focus is very, very strong and clear on creating best of the products which we would do through incubation, co-creation with our customers and partnerships with other kinds of technology and business providers, and couple that with our best-in-class service capabilities, whether it be in domain, whether in technology and whether in business processes, and bring it together essentially to create a multiplied effect. Because we believe that all this entire strategy of products, platforms and solutions should be focused on helping our clients accelerate their growth, maximize their profitability and drive asset efficiency in their business.

So that is a broad sort of mindset with which we are approaching this line of business. Obviously at the heart of it, it's about creating intellectual property led offerings that will help our clients drive growth, profitability and asset efficiency, and at the same time it is about accelerating the innovation and doing this in a much faster fashion, which we could either develop by ourselves through our R&D or we could actually co-create with clients, alliance, partners and others and essentially drive non-linear growth for Infosys.

As Shibulal mentioned, our place in the Forbes list of Most Innovative Companies and we believe that we have a fairly strong innovation culture, innovation capabilities to be able to drive forward in the journey.

Let me also spend a little bit of time on some definitions because many a times when you talk about products, platforms, solutions, everybody gets confused as to what we are talking about. It’s important to sort of touch ground on some of the fundamental definitions. When we're talking of products, we are talking of licensable systems. That’s a very, very important intelligence Infosys intellectual property, which we licensed to our clients and it delivers that in functionality that the clients value. It can by used standalone as a product, it can be customized in certain cases to fit into the client’s context or it can be used as a building block in a larger enterprise application or a larger enterprise strategy that the client is trying to execute.

What is also important is it drives the business model that encompasses larger service engagements around the product license, it’s not only that your set top box like many product companies do, but in non-enterprise space we actually are looking at how do we use the product and create a larger service environment around it, so that you are able to and typically if you would see this kind of a strategy, this kind of an idea, it’s typically 1:3 or 1:4 where if you do a license sale or a product sale of X, then you end up doing a service environment around this which is 3X to 4X in its composition.

Excuse me. When you look at business platforms where you simply put these are managed offerings with guaranteed and measurable business outcomes for our clients. They are of course powered by best-in-class domain expertise because when you do platforms, you actually have to run parts of client’s business, so it is important for us to invest significantly into domain capabilities, intellectual property as well as leverage the phenomenon and the capabilities of cloud to be able to offer multi-tendency, fast deployment kind of environments for our clients.

We focus on different kinds of clients, platforms, for example, functional platforms, vertical platforms, and what we call as bridge platforms. And down a few slides, I will share with you specific examples of which of those platforms are already active, now in our phase.

Essentially our platform typically is composed five components of a stack. At the heart of it, at the base of it is infrastructure where you host the platform. And on top of it is the core IP. This core intellectual property could be from a partner or it could be Infosys intellectual property. For example, in the case a source to say platform we collaborate with SFE and there is a core IP that comes from SFE and there is a core IP that comes from Infosys, on top of this infrastructure. It could be, for example, in the human resource optimization platform, which we call as TalentEdge, it is the core intellectual property that came from Oracle and there is a core intellectual property that we have built on top of it and that is hosted together on top of this infrastructure.

And on top of this what we call is the differentiated IP because when you go to the market with these kind, this is not about hosting licenses of other product vendors, because of us created differentiated capabilities in the context of what the business is trying to do and that is differentiated in liquid property is built by Infosys.

And then on top it, of course is customizable services, which essentially fixing of fitting the platform in the context of the organization has been then aligning with different countries, different global rollouts and those kind of things. And at the top of these operations, because we are not only offering same platforms, there you go and do what you want, but we have to run the platform and deliver outcome for our clients. So in definition terms, this is what we mean by business platforms very, very clearly.

When we talk of solutions, business solutions, essentially, solutions is a very wide word, and so it's very important again to get a very clear definition. We are looking at specific business opportunities or the challenge and most of them are actually vertical specific, whether they are pertaining to how clients do digital marketing, whether they pertain how clients do retail fulfillment, whether they pertain to how clients do next generation supply chain management and manufacturing, but essentially it's a stack which includes unique viewpoint as to how we should do things differently when we look into the future, a method for value delivery, and the original accelerators which essentially are Infosys intellectual property basis.

What is very important for us to understand is that solutions are typically early out of future products platform and our best call created with clients. So these are not repackaging of our services, but we are looking at new capabilities which potentially over time could become good strong products or good strong platforms.

So the definition sort of laid aside, let me talk about a few factors. Fundamentally, products are not new to Infosys. Of course we were aware of our finical product, which currently is operating with a 150 banks across 75 countries with 48,500 branches, has been recognized with multiple awards, continues to see steady growth trends. They are about 290 million in consumers who actually are on top of finical and it enjoys about 70% market share in India. So it's very important for us to understand that doing products or even doing platforms is nothing new to Infosys, the question is how do we focus created as a strategic dimension of the company and drive growth through this strategy.

When you look at accelerating our product momentum, it is also very important that we are focusing on what are the new trends and how our clients are driving growth, and we are observing is that clients across different industry segments, different industry verticals are essentially looking at what are the new kinds of capabilities required to sense demand, given that demand is changing in the markets given the way the economies of different countries is evolving.

Second important aspect is influencing demand, how do you really influence the demand in the market in a different fashion. For example today 43% of shoppers use mobile for shopping reviews, then how do you actually create production platform that can change the way a standard traditional corporation influences a demand in the market. And the third aspect is how do you fulfill demand globally? And for example, mobile payments are expected to cross $1 trillion, and if you do that, then what are the new kinds of production platforms required to do this thing again in a very differentiated passion.

What we have done over the years is invested into a family of different kinds of products, which actually are also active in market. For example our shopping to 360 product, which looks at transforming the way retail environments operate or if you look at the flip product, which you would have seen essentially is an application marketplace for our communication services providers as well as enterprises, which essentially focuses on how do you create a differentiated environment on the mobile platform to be able to transact business as well as create a different user experience for your clients. If you look at the supply chain visibility and the collaboration products suite, which is essentially in the manufacturing space, this is a product that is focused on creating the next generation supply chain and creating new capabilities and how do you sense influence and fulfill demand using your supply chain in a differentiated fashion.

Our objective is to go and continue to develop a family of products focused on different spaces, different verticals and to scale the business as we go forward. This is a quick view into our platforms, and what we have done, the industry trends that I shared with you. We have started working on setting up platforms across this I’ll share a few of them. Digital consumers is a space, smart organization is a space and emerging [economy] is a space.

Today in digital consumers, we already have a four active platform essentially one is called social edge, which is essentially the platform to enable the social connection of the enterprise. Second is the commerce edge which is essentially is about e-commerce and social commerce, it’s a brand edge, which is a digital marketing platform. We’re also working on a platform in digital distribution because that again is an emerging area in a very, very strong fashion. I did speak about flip, which also interestingly is a product and a platform at the same time because in the product side you can actually license it to a client, and on the platform side you can actually operate the ecosystem, where all the app stores and the new kinds of apps and mobile devices can be build and delivered on top of a platform.

Smart organization we have focused on the next generation talent management to a platform called TalentEdge, very active in the market already. There is a platform called procured edge, which essentially is a source to procure platform, which I spoke about in collaboration with SAP. There is a new platform that we have launched recently, which is on asset edge, which is essentially is a platform to manage assets of a corporation. There is a billing hedge platform, which essentially looks at next generation paradigms and how do you manage multi-service billing and those kinds of factors. There is a portfolio edge platform, which essentially looks at how do you go ahead and manage portfolio of your different kinds of businesses using a platform.

On the emerging economies, an interesting case where we created a platform called trade hedge in collaboration with one of the world’s most successful CPG Company, essentially focused on how do you distribute in a very differentiated fashion, specifically across the emerging markets. We are also working on new capabilities and what we call as distributor in a box or bank in a box, which essentially is an extension of Finacle.

We’re also looking at what is the specific platforms, for example, creditors platform in the financial services space, which essentially is how do you sort of progress transactions differently in the area of credit management. And we are also in the process of coming up with certain platforms in manufacturing, energy, utilities and communication service providers as well as retail CPG and logistics.

These platforms are very interesting because these are essentially platforms, which are at the intersection of different industries. One interesting case here is the mobile water platform that we are working on, which is essentially is and I’m sure you are aware of that what kind of new technologies are evolving in the area of mobile commerce, but essentially this platform is focused on creating an environment where you can actually do transaction between different industries, leveraging eco capability of mobile commerce.

Let me dive into some of the platforms, all the platforms are under a single end umbrella called Infosys edge and hence let me talk about Infosys social edge, which essentially is about monetizing digital demand. Here the objective is to hardness the power of social media to increase revenue and customer satisfaction for our clients. It concludes a social dashboard ability to build communities, content distribution, engagements to customers, as well as social analytics.

These capabilities are very interestingly something that many organizations today aspire to build but of course they would take a very long cycle time and the core value proposition here is to quickly allow that environment in a very short period of time that can onboard our platform and take these capabilities to market because one of the biggest advantages of the platform strategy is shorter cycle time in going to market.

If you look at custom development and try to build up capabilities in the organization, it may take you six to nine months to actually go to market and we should be able to do that in a much, much, much shorter time and operate that. So this platform again very successful, working with multiple clients today as we speak.

Regarding marketers channel commerce which we call it’s a CommerceEdge platform. Essentially, the focus here from a client perspective is to maximize scales and lower cost of consumer engagement. It again has multiple components within the platform. It has a component that works on what we call a social influence, which essentially brings in capabilities to do social reviews, ratings and recommendation engines that drive revenue. Also it allows you to manage different kinds of product combinations, so that you can look at increasing the average order value through a social product combinations.

You look a guy in merchandising, personalization as well as Cross-Channel Commerce because it could be mobile enabled social or transaction commerce all coming together. On the commerce front, again I still have some different clients; is a very good success that we have had in the area of platforms.

The third one, let me illustrate is the deepen employee engagement, dimension of an organization. Objective of TalentEdge is to simplify HR lifecycle and drive deeper employee interaction with our clients. This platform essentially focus again on Social Engagement, how do you engage employees through our social environment within the corporation.

Advanced Analytics, specifically allowing HR to make timely decisions about where to build capabilities, how to go ahead and keep the organization agile and so to say, tooled-up all the time.

Lot of Self-Service, because lot of employee services are actually increasingly moving towards more and more self service, where people can do things what they need to do by themselves on this platform, rather than going through different administrative processes to conclude different kinds of transactions.

Of course the most significant element of Mobile Workforce, where this entire access, how do you access the functionalities of organizational processes on mobile devices anywhere, at home, at office, on the go, and how do you do this off a platform.

And of course, an Integrated Solution, because in the end the talented platform looks at the hire-to-retire cycle, so the entire process of what goes through in the lifecycle of an employer, how to create an integrated seamless experience on top of this platform. And in this platform, active with clients in Australia, Europe, as well as in the U.S., successful platform launch that we have had.

We are aware of course of the insurance and retirement services on top of the McCamish Systems platform, which we acquired some time back, which essentially focus on Life and Annuity Services, Producer Management Services, and Retirement Services in the context of insurance industry.

So essentially what we are focusing on, is to build strong growth momentum. Finacle of course had 28 new wins in the last half. Was the leader in Magic Quadrant for International, Retail and Core Banking. There are 20-plus clients which are active on our platforms, currently clocking around $200 million of Total Contract Value on top of our platforms.

We are rapidly expanding the footprint, introducing newer and newer platforms; we launched two in the last half, there are six live products. We are building what we call as experienced centers, because with products and platforms we have experience in real time environments. So we already have an active Experience center in India, there is one in Europe, which is almost ready to go live and there is one that is being put together in the U.S.

Of course, as per the whole issue of continuous innovation, somebody earlier in the day asked questions about patents et cetera. We have got 424 inventions that we have filed as disclosures. Thirty patents have been granted, and there almost 100 ideas which are under evaluation in different areas of life.

Financial banking solution version 11 got launched. And the last and very important facet of this whole thing is to build a new kind of a talent base which can do innovation and which can do product development in a very, very different fashion. It goes without saying that if you work this up, then you have to look at assembling a very different capability in product management, product engineering, product marketing and all those kind of areas. That’s a very, very important factor. And that's what I thought I would share with you to give you a view into how we are approaching this space. Questions, comments are welcome.

Question-and-Answer Session

Unidentified Analyst

And what is the margin profile?

Sanjay Purohit

Total size of business and…

Unidentified Analyst

The margin profile?

Sanjay Purohit

The margin?

Unidentified Analyst

Yeah.

Sanjay Purohit

Okay, margin profile. So the total size of business as we speak is a very interesting factor because there is a license component, there are service components. And if you put all of it together from different perspectives then typically it's close to about 8% of company's business, which includes Finacle, which includes all our production and platforms, which includes services in the area which are associated with production platforms, engineering, et cetera.

The second interesting question is a marketing on the margin profile, and there what I would like to mention is that this business is currently in the investment mode and because it is in the investment mode the margin sometimes could be something not that is very easily discernible. This is not yet into a stable mode. Wherever we are doing at if you talk about margin at the B level or at the transaction level where there are active platforms et cetera but not at the overall portfolio level, then we have seen margins which are better than the traditional overall margin profile of the company. But if you look at on an overall basis being an investment mode we are not yet in a position to see the margin profile very clearly because it will take some time before the platforms reach a certain level of maturity and we are stable on our investment when the margin profile would be a right thing to look at.

As an aspiration, obviously if you were into this business, our objective is to create margins which are much more robust than classical service businesses, we have best initiative of the product business and that's the aspiration that we are going for.

Unidentified Analyst

So you should think of a more on a software-like margin profile?

Sanjay Purohit

At the moment, it is better than software-like margin profile, but from once it crosses the investment stage, we have to get to more like a product like margin profile because you are very well aware that product like margin profile is very different from a classical service like margin profile.

Unidentified Analyst

Okay. Just one last one, is your goal is to be a third of the business?

Sanjay Purohit

Yes, that’s what Bala says in everyday.

Unidentified Analyst

Yeah. Is that a three year goal? You think what do you think the realistic?

Sanjay Purohit

I think since we are set ourselves as an aspiration to be a third of our company business, I'm not going to try and put a timeline on it because in the end it's a function of many, many factors but from a directional statement point of view, our objective is to get a third whether it's three, five, seven we will have to see what we get there, but that's the entire aspiration that we are driving towards.

Trip Chowdhry – Global Equities Research

Okay. Again Trip Chowdhry over here?

Sanjay Purohit

Hi.

Trip Chowdhry – Global Equities Research

I have questions on your patterns, first I have to give an observation then I have questions and probably a suggestion.

Sanjay Purohit

Sure.

Trip Chowdhry – Global Equities Research

First, definitely I do believe that patterns are more valuable than even having oil in your country. Secondly, I did check your USPTO filing and you rightly said you have 30 patents. And at least three or four of those have more than 30 forward references. This tell your patents are very strong at least three or four of them, and if I look at the breakout about 40% of them on Middleware, 30% on Mobile, another 20% in other categories. Only one patent is in – than this undertakes in determining which is weak.

Getting back to what I am suggesting is, at least three to four patents you have – have about 30 forward references. If you use industry norm that means at least three people, three entities are violating your patents. Do you have any enforcement mechanism in your company where patents are not like a cost center, but it becomes a profit center similar to what Microsoft has patents at our profit center, similar to what IBM has and now even there are many other companies who are using patents not just as a production mechanism, but also as a revenue generating mechanism. Any thought you have that will be helpful.

Unidentified Company Representative

I am very aware that there are corporations, which have business units, which are focused on generating revenues after swing people for patent violations. And at the same time, the firms like IBM was filed about 5000 patents a year. So what our objective is again very, very clear what we are looking at is that look at what are the relevant pieces of intellectual property in the context of the seven themes that I spoke about. And how do you create a robust patent all more of intellectual property production strategy that is focused on monetization and commercialization of patents to creating value for our clients.

Before we get down into how do you create value out of your patents by depending preventing, as well as pushing other people who are violating some classes of course we take violations of patents very carefully. But at the moment, the single minor focus is how do you use this intellectual property to create value for your customers and see how do we create more and more patents and more capabilities, because intellectual property depending intellectual property is creating intellectual property is a very important project I completely give it to you, but it's very, very critical to actually and even if we look at the recent patent loss that Obama brought in, again the question is that it's more central to commercialize the intellectual property then to only depends and create an environment where neither do you commercialize, not you let anybody else commercialize intellectual property.

So long and short of it, we are focused on how do you use intellectual property and go ahead and create value for your clients as the primary focus of our intellectual property strategy.

Trip Chowdhry – Global Equities Research

Sanjay, you talked about a lot of these platforms, you are sort of putting together you are working with your clients on building them. Could you walk us through the process so some of the technology is proprietary for the clients? They don’t want you sharing it with other clients. How do you sort of decide what is client’s specific, what is not. What you want to invest in, because you want to control the IP which you don’t. So what is sort of your thought process around – around sort of figuring out, which are the key technologies for you and sort of which ones, you want to get the benefit of the client to work with, but the trade off there is declined wants to control of them.

Unidentified Company Representative

Right. So, firstly whenever we pick up an area for building a platform, the first important thought process is build by our partner, because that’s a starting point, because partner consideration also depend on what are the certain partner capabilities, whichever we expect in the market or which partner capabilities can give us very rapid time to market, similar consideration for buy and similar consideration for bill.

In bill there are multiple modes in which you could do bill, you could do a sales bill you could do a co-creation which declined or you could in some cases to co-creation with the larger ecosystem bringing multiple organization together to build a plan. For example, if you take the flip kind of an example, which is a large ecosystem kind of a bill rather than only a co-creation kind of a bill.

When we get into co-creation right upfront from the very beginning it is important and that’s what we do is very important for us to work with the clients and understand. What is the landscape of intellectual property that we have created out of this effort?

And to understand what Infosys would own and what the clients would own and why its so, because the time to the intellectual property depends our protection aspect, it is also aspect of who is going to manage the life cycle of the product and the entity that is going to manage the life cycle of the product should be one that should actually own the IP because that’s the best way to do it.

So if you believe Infosys is the one which will actually further advance this product and take a too much higher capabilities than as intellectual property beats that in position owned, but if it is so client specific, that the client would actually invest and take the roadmap forward than that’s a piece of intellectual property that potentially. These are all sorted out at the beginning, because it’s also very important for us understand that our intellectual property is build on our resources and not built on our client resources. And so, all those things are worked out in terms of the initial terms of agreement and engagement with the client that this is the way we will approach. Many a times, clients may ask us to give them periods in which we should not be taking this intellectual property out to other customers, because they want to have a market edge which is again something that we contractually discuss and agree upon because it’s also very important for our clients to get a comfort. But if they are bringing their capabilities and their domain knowledge into the game, then they would like to ensure that they keep a certain amount of market edge in that area.

The customers also very clearly understand that there is nothing called as permanent advantage and hence you can’t (inaudible) value in asking for permanent intellectual property sort of [refinancing] because at the end, once we go to the market, those things will obviously get automatically developed or intimated by other clients. So all this kind of considerations are the ones that come into the beginning when you are actually setting up this environment with the clients and we are going to co-create and in this co-creation, this is what we will build, this is what we will partner, this is what we should potentially buy and when we build, this is what we’ll co-create with you, this is what we’ll co-create with ecosystem, this is what Infosys will build, these are the terms of engagement and then onwards it is entire journey because many a times clients also interested in saying, can we do a joint go-to-market. There is large communication services provider in U.S. where we have done one of the products which is in a co-creation mode where they are very, very interested in taking it to market and they also want to create their brand identity around that market while they’re also intelligent and so how do you solve those kind of questions? What is best done right at the upfront when we are trying to visualize what is it that we are trying to create with this product.

Trip Chowdhry – Global Equities Research

That’s great. Thank you, sir. And then just a follow-up, on the – so then as you think about the 8% going to potentially 30% of your business over time, is the idea that the revenue model will continue to be sort of a per transaction model for the majority of that business maybe identical.

Unidentified Company Representative

So again coming back to that definition point, where the entire revenue model in the product space would be license oriented, primarily surrounded by a series of services is potentially are integration, implementation and maintenance management services model. In the platform space, it is going to be more outcome oriented, transaction oriented and those kind of business outcome oriented. And solutions like I said are essentially pretty close to us to either a product or a platform, so then they could assume any of the forms depending on what is the shape of solution that. So but predominantly licensee oriented, transaction oriented and services would be anyway in the tropical services model that you would put around in products in life time.

Trip Chowdhry – Global Equities Research

I just wanted to get some further clarification here on where you are in the – where your target market is in the Spectrum of pure services customer on one end and out of the box software on the other, where you’re targeting and historically when service companies try to create QuASI software, every client goes and says, please customize it for me and you loose at leveragability of the soft wear component follow-on question would be, Where cloud fit into this? I mean, you’re going try to do some of this on a – as a service basis.

Unidentified Company Representative

So last part of the question, platforms are on as a service basis, so obviously they’re on the cloud. Currently we are posting them on cloud that we have put together and overtime we show see the strategy evolves in terms of how we want to this, but all the platforms that you are currently looking at are either hosted on perhaps own enterprise cloud, so Infosys’ own enterprise clouds. That’s a very important factor.

Second important aspect of what – how a go-to-market at Infosys is virtualized and hence it is about the manufacturing about retail logistics and life sciences, it’s about energy utility and the communication services. Obviously all the platforms technically – this is an early stage of evolution, you put plenty of [subset] by taking all of these offerings, all of these verticals. So what we are doing is, when you go back to the very first line I talked about the fees, you will find certain things are very, very powerful in certain industries. For example, digital consumers is very powerful in retail and the services businesses. At the same time when you look at new commerce kind of a thing, it is very powerful in the SSi phase. So where we are driving fraction, just to ensure that we keep our focus in the short term while we are getting after zone or vertical of these things is to go after the industries where the platform has a very dominant need if you will. Though the platform is engineered to be cross industry but you actually a bonus and see if you can create and that’s what we are seeing actually, if you look at the commerce kind of a platform, similar kind of, so you’re right, but we are going to go for vertical costs and we are trying to bake the platform where that platform has the most dominant demand because of the nature of that industry. It’s not that that platform is not important for other industries. But the nature of the piece of that industry is that it’s very central to the way that industry is evolving and that’s a good place to start.

Trip Chowdhry – Global Equities Research

I’ll follow-up just on Ed’s question related to the cloud. So you talked about some of the functional platforms you’re building and this is really on Infosys’s stack. I’m just curious if you have thought about building some of the functional cloud, functional platforms on some of the public clouds being coming up, being offered which possibly are open and some of your large customers maybe already in the journey of adopting that.

Unidentified Company Representative

Sure. I mean, a very important facet is even in the overall cloud journey, while we all understand that cloud is a mega trend and that’s the way and direction in which the technology investors is evolving, but also it’s very important that even client organizations are highly undecided in terms of whether they are ready to go themselves, whether they want to put that employed on to a public cloud or whether they want to put their commercial transactions on to a public cloud.

So what is very important for us is to develop this in line with the comfort of our clients rather than develop this in the context of any specific financial considerations. So it’s very important for us to understand that we have to have the ability to actually deploy this on Infosys cloud, that’s why we’ve set up an environment in Australia, we have a set up now in the U.S. On top this, we host these platforms and actually work in the context of the client’s comfort rather than actually work because it’s still evolving, even the jury is still out as to when and how the overall cloud environment is. People may be comfortable hosting the e-mails and other simple business applications. But when it comes to complex organizational transactions and fundamental platforms on which they either manage their people or transact their products and services, the comfort levels are not necessarily questions of security, questions of reliability.

And when we think the responsibility for business outcomes, it’s important for us to also understand that we are very clear that we are running a very stable and a very typical environment when it comes to the base infrastructures. At the moment, all of our deployments are all on top of these kinds rather than public clouds. But jury is out, we will see over time how that evolves and whether the public cloud environment gains enough stability for the clients to get the comfort that it is hoping. And if the clients get the comfort that this is something that is relevant to them, then things will potentially change over time. But as of now, we are holding back on the client platform, so are public clouds.

Trip Chowdhry – Global Equities Research

Hi, I have a question on how do you get there and you’ve indicated a couple of things that about 8% of your revenues are from these general areas, and you want to get to a third. But if you look at it, number one, you’re trying to, your strategy is to develop with clients. So you don’t presumably incur the R&D expenses associated with creating your products. At the same time, your base business is growing at mid-teens. It just doesn’t seem like you have any scale to get there without turning to M&A to get a broader set of products that should generate enough meaningful revenue. But the math just doesn’t seem to work. So can you really get this to a third of the business without focusing on M&A?

Unidentified Company Representative

Obviously not. So in the overall context of our M&A strategy, products and platforms again is a very, very essential conversation in our M&A strategy because you’re right, it’s not only from a client perspective, but even from a time-to-market perspective, it’s not that everything you can build and get to market on time. So M&A is very much a component of this overall thinking of getting to a third of the business. At the same time, in this area, intellectual property and the M&A is primarily driven by focusing on can we get leveragable intellectual properties that we can build this entire strategy around rather than acquire a platform and run it as an additional revenue channel. So certainly short answer to the whole thing, of the overall aspiration being a third of the business, M&A is a very essential component to that.

Trip Chowdhry – Global Equities Research

Right. Just to follow-on, what I think the (inaudible) would need to fairly material again in order to reach a third of the revenue.

Unidentified Company Representative

Yes. And here it is coming from two perspectives. One is it’s not only that you buy a large piece of intellectual property, because many a time, in this gain, the leverage is much higher rather than in the context of a services gain, because the services gain what you acquire and what it grows up to be is a very different equation then where in a [foreign] platforms what you acquired and what it grows up to be, and so its not the size of the acquisition that actually will defines, but actually the leveraging capability of that fees that will have to define how quickly then it can actually scale up.

So thank you so much. Thank you for your questions.

Unidentified Company Representative

Thanks Sanjay. We’ll wait for a few minutes before we start to the open hours, we’ll wait for the chairs to put down on the podium.

Introduction I think most of the members have been here, you’ve seen them during the day. We also have Praven Rahul sitting in the far corner, right side of the podium, he heads Retail CGB Logistics and Life Sciences vertical for Infosys and we also have Basab who heads the Global Sales and Marketing operations for the company. Its time, we’ll start to open out now.

Question-and-Answer Session

Unidentified Analyst

Thanks maybe we can shift a bit more to talk about the demand environment, and we are getting closer to the December I think it will be helpful if you can kind of share with us some of the feedbacks you are getting from clients regarding the budget cycle? When do we get some visibility into next years budgets? And maybe just in general what are they staying about IT budgets kind of up down even compared to 2011?

Praven Rahul

As far as the demand was, as I said actually our guidance also reflects caution because we have given you a range. The demand – what we are seeing is that we have not seen any project cancellations or program cancellations. I think most of the programs and projects, which are implied continuing. At the same time we are seeing delay in decision-making. People are taking longer to take decisions, and also large investments are getting revisited so we are seeing that. This year we [exquisite] a evenly spend budgets over the full quarters and so far we have seen it then we expect to see that.

When we enter a quarter usually it is about 94 to 96% visibility, which we have, revenue 94 to 96% and that has really not changed. Now when we look at next year, the budgets are, we expect the budgets to close by end January – mid of January, we don’t expected to close by December. We are very much in touch with our clients. We are very, very close relationships and very much in touch with our clients.

If you read some of the analyst reports we have seen predictions of maybe somewhere between 2% to 3%, 3% to 4% increase in the budget. But our expectation is you know almost in the same way the marginal improvement in the budget, but we expected to close only by mid Jan – mid Feb.

Unidentified Analyst

Right, and then Bala just a question for you. You spoke about the – your ability to sustain margins in the long run and we said at that the bunch of this levers I guess these are levers that we heard about a lot and pretty consistently. How much do you have left in each one of these levers that kind of continue to kind of use them to be able to sustain margin. I think that’s probably a relevant question?

V. Balakrishnan

Well. There are multiple levers for example if you take utilization. We are at 76% excluding the trainees. Our comfort zone is 76% to 80% at the peak we went to 81%, 82%. Similarly, onsite offshore makes then the world is so uncertain even if the budgets are cut. I think offshore as a proportion of the budget will go up. If that goes up it will be beneficial for us. So there are multiple levers some of that you have to use at some point of time that’s what we have done in the past.

And the biggest lever you will have is on the revenue growth. The revenue growth comes beyond 20%, 25%. Your ability to certain margin is very high. Of course, if we look at the cost structure 55% of the revenues growth were the employee’s salaries.

Unidentified Analyst

Right,

V. Balakrishnan

The revenue growth doesn’t come in. we don’t need to increase our wages it happened in 2008. But I think the system will get adjusted automatically. We have a variable cost structure. We have flexible cost structure. We try to use some of the levers and if the revenue growth doesn’t come through, probably the costs will not increase proportionately, because extended ability to maintain margin is very high.

For example in 2008, when the recession happened, we had the best margin in the industry, I mean we are in fact improved the margins ideal. So we have to use some of these levers. We have a good cost structure we have to manage it. I can’t tell you I’m going to use this lever next quarter or next quarter, but we have still lot of levers left.

Unidentified Company Representative

Really believe that we need to run the corporation good in good times so that we can run in better in bad times. And that’s exactly what we try to do. So you have seen us do it in 2008, we are very well prepared because we run it good in good times. We are well prepared to adjust to the environment. The levers we have many of them by later at some one, some of them we have onsite offshore ratio utilization costs the service portfolio, customer portfolio than we have a variable expense structure scale benefits so they acquired few of them.

Unidentified Analyst

The question on your capital allocation philosophy. So you have incubated consulting business for last eight years. You are incubating the product platform business now. As an outsider looking in I can’t really say whether the return on capital employed and the consolidating businesses superior or inferior to touch with the business. And I’m not sure what the return on the capital employed and the product in the platform business would be. Can you talk a little bit about how you make those capital allocation decisions and a related question to that is had been this is a little bit of a hypothetical, if you are not incubating the consulting business over the last eight years how high year margins were now been and what is the drag because of the production platform business in the margins right now? Thank you.

Unidentified Company Representative

Well, we are actually not answers the hypothetical questions, because if corporation stand still they will not exists in the long run. So if – these are all many hypothetical because in corporations decide to stand still and stay where they are they won’t exist.

In this industry, especially in this industry where changes are a daily event. You really need to reinvent your delivery little every year is not every so investment is a part of life and we have to continuously invest in people in process and technology and infrastructure and building new capabilities and every one of those questions which you asked is relevant for every other service line, which we've been. If you it’s not about consulting when we build enterprise solutions, if we don’t build it we will not have $1.2 billion revenue. So we have to continue to invest. We have to make those right choices. The important thing is what are the choices you are making. So last, if you look at the last 12 years, from a service perspective and a capability perspective, we invested in building endurance service capability, as well as consulting capability.

Now if we look at the next few years, we will have to invest, for example, we are investing in China. We took a decision to invest build the campus there. And we are in the process of building a campus that will cause this probably $100 million. So from a strategic direction perspective, once you chose a strategic direction, and you have chose those right investments and make them. And the result of that shows up year-on-year and in the long run. So I clearly believe that all the investments we have made in the last 12 years and we ended the result and that is the reason why we are here. And Bala can come under the return on investment, return on employed capital investment.

N. Balakrishnan

Well, if that is noted on the owned investment I mean we are not a foolish. Also and if you at consulting for example, we started that [factor was] on six years back. Initial years it was under loss. But today the impacts of consulting is so high for example is between 2002 to now, our ADM pricing would have fallen. But our costs have gone up, if they are not grown consulting to 31% of our revenues, probably we would have more commoditized business, but margins could have got more in factor.

So strategically it’s a great investment, initially probably the returns are low, but we are in longer period. It is in the right direction and it enhance the return, similarly, why they are getting into product solutions and platforms, because this industry has got a challenge on scaling up. The quality of input is back, we have to dealing revenue growth to manpower growth, and it’s very important for us to do this, if we have to do their dealing thing. And businesses in the long run the enhanced returns because it will be more profitable, it is all transaction based not people based, right.

So initial years probably the returns could be lower, but it’s not the ability to absorb that, that’s what we are saying. We have a flexible model, we have portfolio of business, which allows us to take some of this impact and still deliver better margins. In the medium to long-term, once it comes to a scale, it will definitely it will be high rate on business. So that our focus to handling a portfolio making certain strategic changes at some point of time, it could impact you on the short-term, but medium to long-term and the right direction for the company to get high quality revenue.

Unidentified Analyst

Reading what’s happening in the paper on the macro level would be just to believe that maybe its not, it’s seasonally unusual to see that in December. Can you help us understand why taking place? Do you have specific visibility on contracts that are ramping now, and why would happen this late in the year, as opposed to other years?

Subhash Dhar

Well, in the beginning of the year, it sounds we have – this year we are expecting to be have more even if that we have said that its raise in the beginning given our knowledge of the client, and what we have understood in the market. Yeah, well I didn’t already the statement of that, when we enter a quarter we see visibility between 94%, 95%. We still have to build the 5% during the quarter. So that is important to remember. And for the year we usually have visibility for about 60%, 65% that is the ballpark number, this is not a hardcore number.

So when you give guidance, as I said it’s a statement of that we have looked at all the current quarter we did. And but on top of that, usually at the end we [matter] not our range, and we have not done that this quarter, we have given a wide range three point to five point so which is a wide range, this reflects the caution which we have regarding the situations, regarding the environment. So it is cautious optimism, it is a reflection of the fact that as we see it, it is very inline with what we talked about in the beginning that this year will be and even this third year, and but it is a range.

This time, if we talked about the three pieces that Infosys 3.0, you got obviously the consulting work and now you got the products platform. It’s in the broadest if this plan is executing on towards the upside on the margin profile, because consulting is doing better than the consolidated company. And the products platform should as you delink it from human capital produce higher margins. So is this a bias over the long-term to higher margin profile?

Unidentified Company Representative

So first of all, please remember that our strategy is usually about 6 to 8 years and it takes time to execute, it’s a long-term strategy, it is not for next quarter or next to next quarter. And so it is always, our strategies are meant to do two things. Actually fundamentally to provide superior financial performance and what is superior financial performance, as Bala said it is not the biggest or the largest, it is actually to grow and lot of the industry average from the growth perspective and to have leading margins, if not the leading one of the leading, but hopefully the leading margins.

So our strategies are meant to do it. That’s why we come up with these strategies and as Bala said our previous strategies have allowed us to do it. So our current strategies are meant to do as you rightly asked to provide superior financial performance in the future meant to do means, hopefully to do it. And that is above industry average growth, and leading or one of the leading margin performances

Unidentified Analyst

Just one last question, on the margin – on the guidance side for the full year I think this is the first time that you’ve adjusted guidance for a currency movement. What is the thought process on guidance going forward would you adjust it upwards if there is a currency movement and why at this particular point in…?

Unidentified Company Representative

As in, first of all I think the moment has been substantial, so that is one of the reasons we adjusted. Our guidance is on constant currency, right Bala?

V. Balakrishnan

See we give guidance and we also put the assumption on currencies. So the currency Rupee depreciates beneficial, Rupee appreciates it will be negative to what we guided. That’s why we give the assumption of rupee dollar. Typically when we give a guidance we take the quarter-end rate to continue for rest of the year, that’s why we give guidance. So tomorrow the Rupee goes to 45 probably it will our margin, the Rupee goes beyond 50 it will be more positive to our margins. That’s why you have to look at it.

Unidentified Analyst

I have two questions. First, does the management changes earlier this year, is there any change in your decision making process at the very top of your [revision] and secondly you have industry leading margins among your peer group, but your revenue growth have sort of trailed few of them, do you think you have maximized profit growth and looking out a year or two, do you think you can catch up a little bit more and get closer to your leading competitors in terms of top line growth?

Unidentified Company Representative

So on the first question, the Infosys belong to these consensus based decision making that has been our traditional lasted over many years. We debate, we discuss, we arrive at a decision and once the decision is made we move on, and then we don’t really – we work as a team, so if there is debate and the discussion and any disagreement that is put behind once the decision is made. That’s number one.

Finally as through the second point is from an organization perspective all the final operating decisions and strategic decisions are made by the CEO and the final decision maker is the CEO. Until that point, there is lot of debate and discussion and there is no change in philosophy with the current management changes.

Third point on that is, we are moving towards more of a decent light approach, you can clearly see it. In Infosys (inaudible) when we create this global industry verticals we are moving towards many P&Ls for the global industry vertical, which means that they will have more autonomy, more involvement and more decision making within the unit. We clearly believe that that’s the right way to do, because as IT’s is getting larger, number one. Number two, they are closer to the time and they should have more ability to take critical decisions. So that is the answer to the first question.

The second one is our aspiration is to have as I said superior financial performance, which will depend as above industry growth and profitability. I think – we only believe that we can drop the margins and create growth. In fact we are the pricing umbrella in many ways for the industry. So I don’t really believe that we can just grow. But if we drop the margins and create growth I’m sure everyone else will create and drop the margin. So that is not a short-term blitz, but it will not be a long-term sustainable model. So, which means that we have to create quality revenue, and that is where all this strategies and investments coming into big sales, that is where we are making this path making strategic decisions.

When we decided to build the strong enterprise solutions and consulting capability 12 years back, we knew that it was required because we could see it and not if not 100% that needs most of repayment as we go along this path. You need to have all these capabilities and these things will happen. Similarly, when we look at the next 10 years and industry challenges, which I articulated, we believe that those are the realities and that is what these strategies have been put in place. So our focus will continue to be to create the quality growth, and superior financial performance.

Unidentified Analyst

For Steve, you gave that revenue number for the consulting business about $2 billion, the employee number for 25,000 employees. If we equip that, it’s about $80,000 for employee. Does it imply that you play in the low end of the consulting market? Do you have any kind of challenges to scale up that business, but can you talk about that?

Stephen R. Pratt

Sure. Its 25,000, not 125,000. No we don’t play this low end with the consulting market at all. We play at the top end of the consulting market. That we are going after the most covenants most important business transformation programs [through or] anywhere, for the most important companies in the world. And if you look at our client list, it’s the who’s who of the industry.

And as I said before, I think we just have a better business model, that we can charge good rates, right competitive rates sometimes even higher than our competitors on site and offshore, but because we do more in lower cost locations. The overall cost of the client is lower. For instance, if you look at the management consulting organization the average rate was $230 an hour average. Right and of course it’s much, much lower, right in lower cost location. So there is a big difference between if you spend an hour at $203 an hour versus an hour at much lower than that.

And our competitors don’t that mix rate. But they are struggling because they have the legacy of having most of their workforce being in the expensive places in the planet, which drives our concept, it does not drive their value up. So we are looking both ends, we are looking to be more cost effective, because the blended rate is lower and to offer more value right, which is the other thing because the most expensive project is a project that fails, right. And so our focus on getting the results to the client.

Unidentified Analyst

Just one last question, Bala and you repeatedly mentioned about you will not be trading up margins for growth. Does that imply that you might be walking away from some business, which might be initially low margin, but it can be long-term in nature and that can be recurring in nature? Thanks.

Stephen R. Pratt

You please remember this is we [manage] that portfolio, there is no business which will not walk away from the business, this that from a terrible deal. And it is definitively possible that we do walk away from deals there we really believe that it will not provide us the required financial metrics in the long run. That doesn’t mean that because it’s a daily affair right. So – on a strategic plan, for example, let’s say you have a client, which is the strategic client for you then the rules, which you apply maybe slightly different.

Right, so you have to manage it as a portfolio. You have to manage it as a portfolio of clients. You need to manage it as a portfolio of service lines. You need to manage it as a portfolio of deal. So, all of this have to be considered, when you consider a deal. At certain point, we will say this didn’t make sense, is a target example what we did with you for example many years back. Because at certain point it didn’t make sense, right certain point it didn’t make sense. Actually myself and Bala I think I clearly believe what the ideal key points that revenue without profit is a distraction. Why don’t we focus on quality revenue? So we do walk away from deals, it’s not a daily affair, and we will not be able to just have strategic client because it’s way too important. We also have ways in which we can improve our margins over a period of time, right. So when we look at all of these, if we don’t see anything in the long run, then that is when the decision becomes more relevant.

Unidentified Analyst

About the decision delays that you talked about, is there any trend on kind of projects that are being delayed and are the number of delays materially higher than normal like you experienced since early 2008?

Unidentified Company Representative

Actually, I think the delays we are seeing are two kinds; on the discretionary decision, the delays, which are time bound and more time being taken. And on large decisions, it is more on the choice of the investments, and when to do it kind of thing. But it was very difficult in 2008. 2008, the bigger problem was that the leadership was not stable at all. So Mr. Saju is sitting here, every time Saju walks to the client, he had a different set of leaders to deal with. Those kinds of situations, we are not seeing at this point in time. So it is a different kind of situation that we are definitely seeing. And I feel the problem with delay is that when you, when something doesn’t close this month, then it moves right, it is moving, the chart is moving right, so it will have an impact on you.

Unidentified Analyst

Another question on 3.0, given that you talked about verticalization, and you have clearly defined your service mix. Has there been any change in your client-facing organization?

Unidentified Company Representative

So there has been some change in the client-facing organization, but none of the clients have been impacted; very, very minimum number of clients have really seen any change on the ground. We had (inaudible) where the production side and client-facing side was mixed, we have desegregated that. So if you look at it, the client-facing side is one layer, which is desegregated and the delivery side is different there. We are also increasing our breadth and depth in the client-facing side. So we are moving towards more and more partners for our strategic clients. We have a program (inaudible) I will give it to you. We have a new program in place, which we call star accounts, much have been talked about, then in those products, we are moving towards much more deeper and senior level relationships.

Unidentified Company Representative

So we’ve identified a set of accounts, which are not just some of our largest accounts, but also our highest potential accounts so that about 50 of them over the next two, three years, we think it will go to 100 accounts. And as a company, we get the vast majority of our growth from a select number of accounts, which are hopefully these higher potential accounts, which is the way we’re selecting that.

And the idea of creating a program around these accounts is to be able to preferentially invest our management attention, focus and of course dollars into these accounts to slow growth where that is external spend available to be able to do that. So these are obviously some of the spenders on IT, and as we all know, IT spend does tend to aggregate at the top of every industry because they have bigger operating profits and bigger SG&A.

The kind of investments we’ll make will be for instance dedicated client partners with a certain profile, seniority, connections and industry experience. We will also, what we are hoping to achieve in this is like for instance we spend something on marketing on these accounts is to be able to build relationship specifically with certain clients or leaders within the client organization. If we spend something on supporting these accounts, it will give them more face time or more time for face time with clients. So that's the way we are looking at the – our program as it’s an investment program or some of our highest potential accounts.

Unidentified Analyst

Following the discuss, some of (inaudible) margins, what are the things that impacted your margins. A couple of quarters ago was great pressure probably see as (inaudible). We talk about the 2008 and 2009 (inaudible) it was. Now the inflation in India is pretty stubbornly high, and so I know that you're just working through the great (inaudible) you and other participants in the industry has doing discount, are you looking out the next fiscal year. Do you have this inability as in 2008, assuming that the volumes are lower than expected to control the rich presence your margins?

Unidentified Company Representative

I think the wage increase next year could get moderated. Last year the industry came out of recession and most of the players doesn’t had enough capacity, and that their growth came back. They were all scrambling for resources, that’s why the attrition for the whole industry went up. As I said earlier, our attrition in the last one year has come down from 17% to 15%, dropped by 2%. So I think now the industry is coming to normal level and with all the uncertainty in the world where the growth in all the economies are going to be very slow for some years to come. And there is so much of uncertainty in the global economic environment. I think the wage increase next year could get moderated. I don't know how much it will be, it’ll definitely not be 15%, 16% like what happened in 2010. It could come into normal level, maybe 10%, 12% or slightly less than that.

Unidentified Analyst

I was curious I haven't heard much on the visa front both in the U.S. and in Europe of late, is that mean that things are starting to get calmer now or have you just adjusted your models to the industry adjusted their model to more challenged these environment?

Unidentified Company Representative

So actually, many of the matters related to visa (inaudible) so I don't want to comment on those. If you look at our model today, if you look at the push we are doing in consulting and system integration. And that requires global talent, because I don't believe that you can go into Germany and say, a retailer and say we will reform – we will reoccupy your base on without local German talent. So within as to one year and even in the current year, there was a lot of push in recruiting local talent, and in case, the Infosys consulting has been fully locally recruited anyway. So this year, we will recruit the fair number of talent in U.S., and good a number of talent in Europe. We also have country strategies in place in Germany and France where have been doing front office capabilities. So we have applied for these even this year and we are not seeing any material change in the rejection rate.

Unidentified Analyst

As of these a situation impacted your ability to either get business executed on business or impacted your margins in the last year?

Unidentified Company Representative

We have a fair number of results with us. We have a very, very fair number of results with us. So it is not materially impacted.

Unidentified Analyst

I have questions on China. You are making a big investment there? Is it to help multinational go into China? Is it to help the Chinese clients or is it as an outsourcing destination?

Unidentified Company Representative

So actually it is the third one because it is one of the industry challenges they have to fill it and that the longer run, it will be become more challenging. They recruit large number of highly qualified talent in the long run, if you look at the country other than India, we said the scale to provide that kind of talent. It is China. More countries (inaudible) year, but the Chinese talent is not English speaking eventually we believe it will be become English speaking, but right now it is not, so these turnaround operation in China about five years back and they have been scaling it up year-after-year. Today we have 3,300 people in China where 10,000 Shanghai, (inaudible) in Beijing, so this continuation of that. This is predominantly for the global market. I think about 90% of the revenues it comes from global market and maybe only about 10% from the local market, at this point. It is a branch, it is not a, if it is a subsidiary, it is not a joint venture. So, we do get excluded from the PSU spend in China.

Unidentified Analyst

Sanjay, you have a large staffs to grow from 8% of revenues to one-third of the Infosys revenue. Have you identified the segments or the verticals where you want, which would be the most profitable for your business for next three to five years? And what kind of deals you would have to make in order to grow that business. Can you give an approximate range of the deal size, is that you might be intending for it in the future?

Sanjay Purohit

As we get into this area, there are potentially two models in which we could approach this. One is, what is called as a typical idea based model, where you look at a funnel of ideas, short list, identify the ones that will make sense developed into market. But the way, we are approaching this whole subject is what we call as the space play and operating model, which is that you identify large spaces and understand what’s the play of Infosys in that space. And create a family of offerings that go after those business.

For example, if you look at the area of retail fulfillment or if you look at the area of smart grades, these are by themselves large basis not mostly addressed by one individual product, but were addressed by a family of products and platforms. When we look at, raising ourselves towards that aspiration of being the part of business. The question is defining large spaces in which we need a family of production platforms to go after. So we have identified for ourselves by vertical, which are there are large significant spaces that we would go far. Now we have some of the products, we have some platforms many more that would need to be build obviously. And so that’s the best way we are approaching the whole thing.

In terms of deal size, it’s an interesting question. Because like I said that in the space the deal size, when it comes to platforms is a very different game, when it comes to product except next times, the previous times, [product] times kind of a equation where you have a license component and you have services component.

And obviously, if we have to make that kind of a place in the deal sizes have to be significant, but not only the deal of the license. But the overall business that you create around a license or so far. So, but this is early days and still the deal sizes are fairly wide in range that we are seen. But overtime we expect them to stabilize to a decent size of per transaction business, if you will. But I still believe the deal size is second order question, the first order question is that if you have a family of products going after a space. Then what is the size that the family delivers with the context of a client situation rather than A product sell or A platform sell in the context. So that’s the way we are approaching this, space play and offerings is the way to look at by respective industry verticals.

Still like I was asking to our previous question the area of acquisition, acquisition essentially we are looking for acquisitions, which will give us very high leverage, very high multiplication factor, because of the core capability of that acquisition. It’s not the size of the acquisition potentially what it is more, what can it create. Because of the core intellectual property, because this is an intellectual property or interchange.

Unidentified Analyst

So you can go down acquisition size more than a $1 billion, $2 million stand off, because you just mentioned that the size of the acquisition will be much or less so, acquisition is very profitable for you?

Sanjay Purohit

The only thing which you can understand is that if you go for an acquisition of $1 billion amendment, it’s good that you are asking a question, which is set as the hypothesis for that limit. Then the question is that can you get a 5X, 10X return on that. And I don’t see too many leverageable organizations around the market of that size that you can buy and create a 5X, 10X acquisition leverage.

Unidentified Company Representative

Okay, so with that we’ll end open house. We will now going for lunch. So once again thank you very much for coming. It has been a pleasure for all of us. We are all here during the lunch. So thank you once again, bye.

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