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Infosys Limited (NYSE:INFY)
Q2 2020 Earnings Call
Oct 11, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, good day and welcome to the Infosys Earnings Conference Call. [Operator Instructions]

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

Sandeep Mahindroo -- Financial Controller and Head, Investor Relations

Thanks Karima. Hello, everyone and welcome to Infosys earnings call to discuss Q2 FY '20 earnings release. This is Sandeep from Investor Relations in Bangalore.

Joing us today on this call is CEO, Mr. Salil Parekh; COO, Mr. Pravin Rao; CFO, Mr. Nilanjan Roy, along with other members of the senior management team. We'll start this call with some remarks on the performance of the company for Q2 by Salil followed by comments from the Nilanjan and Pravin, subsequent to this we'll open up the call for questions.

Please note that anything which we say which refers to our outlook is considered as forward-looking statement which must be read in conjunction with the risks that the company faces. A full statement explanation of these risks is available in our filings with the SEC, which can be found on www.sec.gov.

I'd now like to pass it on to Salil.

Salil Parekh -- Chief Executive Officer and Managing Director

Thank you, Sandeep. Good afternoon and good morning to those on the call, and thank you for joining us today. Infosys has delivered another strong quarter. I'm happy with our performance in the second quarter which was robust across multiple dimensions. One double-digit growth for the fourth consecutive quarter; two, continued strong growth in digital; three, expansion in operating margin; four, improvement in operational parameters, especially in utilization and onsite offshore mix; five, large deal signings; and six, reduction in attrition.

We grew 11.4% in Q2 year-on-year in constant currency or 3.3% quarter-on-quarter. Six of the seven business segments and both US and Europe grew double-digits constant currency year-on-year. Pravin will provide more color on different industry verticals in just a few minutes.

Digital revenues in Q2 were $1.23 billion, constituting 38.3% of overall revenues and witnessed over 38% growth year-on-year in constant currency. Operating margin in Q2 saw a healthy improvement of 21.7% compared to 20.5% in Q1. Operating margin improvement was despite compensation increases provided to employees and was driven by significant improvement in utilization, onsite mix, employee pyramid improvement and tight overall cost management. Nilanjan will elaborate on this during his remarks.

Large deal signing in Q2 was extremely strong at $2.8 billion, while a large part of this was renewals. These renewals solidify our position significantly in our existing client base. Large TCV is up by 75% in H1 '20 compared to H1 '19.

I'm also pleased with the reduction in attrition, which declined to 19.4%, a decline of 2 percentage points compared to Q1. Within this attrition voluntary attrition is lower at below 18%. With our clients continuing to leverage digital to drive growth there are three areas within digital transformation that I want to highlight with examples of our work with clients. These are experience, data analytics and cloud. A global confectionery Company we created Digital Asset Management platform that help them deliver a superior personalized and intutive experience for the end user. To our digital studios, we develop this platform and in short faster campaigns and product launches, and could also efficiently manage multiple brands in the associated digital assets.

For a global consumer products company, we helped them create data architecture to support the sales team forecast, future orders from retail outlets, the model cluster stores and loans for better performing stores to project assortments from other stores. Such a model minimized subjectivity and dropped [Phonetic] data science to eight sales teams in all the recommendations.

In the period, handling company in the US, we're implementing a cloud-based IoT Telematics product, to power transformation in drawing upon our experience and presence in the connected vehicles space to help them manage data and draw relevant insight survey [Phonetic], to provide better service and after sales experience for their customers. These examples, among others, and our strong performance in the quarter demonstrate our increasing relevance to our planned agenda.

We continue to make good progress on our localization approach as we strengthen the differentiated model to deliver digital services. During the quarter, we launched the Arizona Digital Center to accelerate the pace of innovation for US companies. We also launched a digital cyber security center in Bucharest in Romania, this past quarter.

I'm also delighted to share with you a recognition that each one of us at Infosys is extremely proud of. We were rated number three on the Forbes list of The World's Best Regarded Companies for 2019.

In closing, I would like to share that we are updating our guidance, our revenue growth guidance moves from 8.5% to 10% and 9% to 10% for the full year on a constant currency basis. We reconfirm our operating margin guidance for 21% to 23% for the full year.

With that, let me hand it over to Pravin.

U.B. Pravin Rao -- Chief Operating Officer and Whole-time Director

Thank you, Salil. Hello, everyone. We had another quarter of double-digit year-on-year growth in constant currency. Growth was broad based with fixed business segments, financial services, communication, energy, utility, resources and services, manufacturing, hi-tech and life sciences all clocking double-digit year-on-year growth in constant currency.

Similarly, both North America and Europe grew double-digit year-on-year in constant currency. Utilization excluding trainees during the quarter improved by 180 basis points sequentially to 84.9%. Onsite effort mix reduced further to 28.2%. The second leg of compensation increased was affected in the last quarter. With this, we have covered the entire employee base except IP holders who will be covered in quarter three.

I'm also pleased with the reduction in attrition which declined to 19.4%, a decline of 2% compared to quarter one. Within this, voluntary attrition is even lower at below 18%. High perfomer attrition also continues to be well below company average. The decline in attrition is due to multiple initiatives spanning across more active employee engagement, performance based differentiation, promotion and growth opportunities for employees.

Client metrics remained strong. We added 96 new clients during the quarter by number of 50 million clients increased by 261. We won 30 large deals with a TCV of $2.85 billion, which is the highest ever. Four deals which were in financial services and retail, two deals in communication and one deal each in energy, utility, resources and services, Hi-tech and Life Sciences.

Geography wise, six were from America, five were from Europe and two from rest of the world. While a large part of this was renewals, this large renewal solidify our positon significantly in existing clients. Large deal TCV is up by over 75% in H1 '20 compared to H1 '19.

Let me come to the business segments. Financial Services vertical continued its growth momentum aided by recent Stater acquisition. We expect performance in the vertical to be affected in the next couple of quarters, driven by seasonality, the business in capital market and European banking space. The recent deduction in interest rates in major geographies can have an impact on client revenue, it may also impact their IT spending. Our strong positioning across the digital and core services spectrum along with diversified portfolio is helping us mitigate risks and grow this business.

I'm happy to share that Infosys was rated number one player in the HFS Top 10 BFS Sector Service Providers 2019. The ranking showcases our maturity across banking, capital markets, risk and compliance and across all BFS cross-function.

Retail segment performance was muted as plant stand cautious due to increase in per sale risks, stemming from trade wars and geopolitical developments, while business volatility is causing division delays in some of our key plants in the sector, we also see this as a clear opportunity in the medium to long term to increase our plant relevance. We expect to witness uptick in consumer experience, digital marketing, insights and investments in platform and remain cautiously optimistic given recent deal wins and steady order pipeline.

Coming to manufacturing, that is [Indecipherable] vertical, especially in Europe. Impact of trade wars and weakening automobile segment is affecting supply chain. Plants are looking to leverage new technologies to bring the next layer of efficiencies in their supply chain and manufacturing operations through digital platform, smart manufacturing and IoT. Dispite the sectoral challenge, we have healthy pipeline of deals, as well as new account openings, both in Europe and America.

Communications segment remained strong for us, due to large deal wins. The traditional business models of communication players are being balanced by digital native and OTT players. These customers are keen to drive up thier digital cost takeout journey in order to stay relevant in the market. We are seeing increasing pipeline for deals with a strong share of large deals.

The momentum in Energy Utilities Resources & Services vertical incur further on the back of continued momentum in top accounts and new account openings. The growth is being led by utilities in Europe and Energy with resouces seeing challenges due to M&A and [Indecipherable]. The digital portfolio continues to grow strong and it's now over 38% of the total revenue, up from 31% a year ago.

In our agile digital business, we see strong traction for the work we are doing in the cloud area, in data and analytics, in IoT and in the area of experience. User experience, client experience and employee experience, in the last six -- in the last quarter Infosys was ranked as leader in six ratings in the area of modernization, IoT, experience and design, AI services, cloud services and SAP services which recognizes our digital capabilities in the market. At the end, I'm very happy to announce that Infosys from the [Indecipherable] United Nations Global Climate Action Award in the 'Climate Neutral Now' category. Infosys is the only corporate from India to earn the recognition by its efforts to combat climate change.

With that, I will hand over to Nilanjan.

Nilanjan Roy -- Chief Financial Officer

Thanks, Pravin. Good evening, and welcome to our quarter two FY '20 earnings call. Our revenues in Q2 was $3.21 billion growing by 11.4% year-on-year in constant currency terms, which was our fourth consecutive quarter of double-digit growth. Sequential revenue growth in constant currency was 3.3%, including 90 bps incrementally contribution from data [Phonetic]. Operating margins in Q2 was 21.7% compared to 20.5% in Q1.

During the quarter, the benefit of rupee depreciation was offset by cross currency impact and revenue hedges. Higher utilization, lower on-site mix and other cost optimization measures helped operating margin by 110 basis points. While lower visa and travel cost, helped another -- booster the margin by 110 basis points. These are partially offset by compensation increases, which impacted margin by 70 basis points and increases in donation and other costs of 30 basis points, leading to an overall 1.2% increase in operating margins compared to quarter one.

DSO for the quarter decrease by 2 days to 66 days to the trades receivable management. Operating cash flow in Q2 was $522 million, which is a year-on-year growth of 19.2%, free cash flow in Q2 was $397 million, which was year-on-year growth of 10.3%. For H1 '20, operating cash conversion to net profit was 103% compared to 96% in H1 '19. Cash and cash equivalents declined during the quarter due to the completion of buyback and still at a healthy level of $3.35 billion. Yield on other income was 7.9% marginally lower than the 8.1% in Q1. Effective tax rate for H1 '20 was 36.5% versus 27.3% in H1 '19.

We completed the capital allocation program announced in April, 2018. The plan buyback of INR8,260 crores was completed on 26th, August. Completion of buyback and higher shareholder payouts have led to the increase in ROE from 23.1% in Q2 '19 to 25.8% in the current quarter. Driven by our performance in H1, we have increased our revenue guidance for FY '20 to 9% to 10% in constant currency terms.

Q2 operating margin performance -- H1 operating margin at 21.1%, within our guidance band. Subject to a stable currency environment, we remain confident about the operating margin band guidance for FY '20 at 21% to 23%. We will continue to deploy various measures to enhance operational efficiencies like rationalizing the pyramid, on-site offshore mix, automation and other overhead efficiency levers. Consitent with the new capital allocation policy of paying approximately up to 85% of the free cash flow cumulatively over a five-year period to investors, our Board has declared an interim dividend of the INR8, which is a 14% growth over the interim dividend of FY '19.

With that, we open up the floor for questions.

Questions and Answers:

Operator

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) The first question is from the line of Edward Caso from Wells Fargo. Please go ahead.

Edward Caso -- Wells Fargo -- Analyst

Thank you. Good evening. I wanted to drill down a little bit on the banking and capital markets sector, which you clearly are doing very well and considering the headwinds. I was hoping you could break it between digital strength and core strength if your -- what kind of ships is the digital growth still strong there? Or is there added pressure on the core side? And maybe couch those comments within the context of North America versus Europe? Thank you.

Mohit Joshi -- President, Head, Banking, Financial Services & Insurance (BFSI), Healthcare and Life Sciences Head

Sure. Right. So look, I think -- this is Mohit here. I think clearly on the core side, the focus is very much on consolidation and on the traditional ADM business or testing business, there is clearly the focus area, right. If you look at digital, on the other hand, there is money being spent, I'd say broadly in three areas. The first is transformation of user experience. Specifically, for the retail and the wealth management businesses. There is a focus on data across the enterprise. And finally, we are starting to see the beginnings of a fairly significant cloud migration journey. So that's the sort of the positive news, right. We see these trends clearly more in the US now than we do in Europe, even though we are starting to see a fair degree of public cloud migration among European banks.

The other piece I'd mention is, we see a lot more strength on the corporate banking side of the house. So, specifically, payments transformation, trade transformation, lending transformation, these continue to remain fairly strong areas across the board. Right? So, whether you're looking at large global banks or if you're looking at the regional banks. The areas of weakness clearly are in the capital market space.

The second point I'd mention is that especially in Europe the way the yield curve is looking, right, especially with the rate cuts. If you look at our bank in Belgium for instance, that we spoke with recently, we're making about a negative 80 basis points on their deposits right? At the same time they are paying out something like between 10 basis points to 15 basis points to their depositors. So we feel that this interest rate regime is going to put pressure on banking revenues and may have a downstream impact. So, hopefully that gives you a broad enough global sense.

Edward Caso -- Wells Fargo -- Analyst

My other quick question here is, given the tax law change around repurchases, are we more likely to see special dividends going forward as opposed to repurchase? Thank you.

Nilanjan Roy -- Chief Financial Officer

Yeah. So Ed, as we had announced the new capital allocation issue policy in July that we had increased it to 85%, we think that gives us clear runway for investors to look at a predictable cash flow regime through dividend and get some -- leaving some money aside for tuck-in acquisitions. So I think, the scope of one-off buyback or a special dividend definitely will be receivables.

Edward Caso -- Wells Fargo -- Analyst

Thank you.

Operator

Thank you. The next question is from the line of the Diviya Nagarajan from UBS. Please go ahead.

Diviya Nagarajan -- UBS -- Analyst

Thanks for taking my question. Congrats on the solid quarter. Salil, my question is on the guidance that you had given at the top end. We've had a very robust 12% kind of a first half number and the top end kind of suggest, you're kind of looking at an 8% in the second half. Could you kind of run us through the assumptions that you've baked in for that kind of a revenue trajectory in the second half. Is this because of what you're seeing in banking and retail so far. Any surprises that you've had in any of the sectors, either on the upside or the downside in the first half of the year? That would be helpful.

Salil Parekh -- Chief Executive Officer and Managing Director

On the various segments, if you look at what we did in Q2, we see a lot of strength for example in Energy Utilities, Services segment that we shared. We see a lot of strength in -- what we saw in Telco Hi Tech. So those are positives, as we've gone through this year and from some of the large deal wins over the last few quarters.

Mohit shared his color on Financial Services, both from the European banking perspective and overall capital markets perspective. The way we look at the guidance, we try to fraction typically as I know you're well aware, our Q3 is the December quarter with furloughs, and we typically see some seasonality into that, and that's really what we tried to bake into the forecast -- the guidance.

We've of course increased the lower end of the guidance and as we progress through the year and we get through next quarter and so on, we'll see where we end up. So that's really what we've baked in. The commentary you heard from Mohit, the positive things we shared with you on some of the other segments, what you heard about retail when Pravin shared his remarks. So all of those put together plus the typical seasonality of Q3 and H2, that's what gives us our view of the guidance.

Diviya Nagarajan -- UBS -- Analyst

Okay. And I think the margin recovery seems to suggest that you're well on track to kind of read the benefits and operating leverage from those investments that you've made in the last few quarters. How should we think about the potential for recovery versus revenue growth? What I'm trying to understand here is that, is there an opportunity for us to kind of continue to improve on this trajectory? And if you're looking at a slight moderation either because of the base effect or some of these factors that we've discussed, does that allow for that kind of a trajectory to continue?

Salil Parekh -- Chief Executive Officer and Managing Director

On the margin, I think you saw what Nilanjan shared. There is a real focus and attention on cost and operational parameters, and Pravin shared with you some of the specific parameters that were improving in the quarter. We also shared I think last quarter, all the investments are complete and behind us [Phonetic]. So there is no one-off in that sense and that we had launched about a year or so or 1.5 year ago those are complete. There's no new investments. There are investments in the ongoing business with more new one-off investments. Having said that, we have a very high quality franchise and we feel comfortable that as we get the operational efficiency back, we will see those levers kick-in. Therefore, we remain confident again as we run in shares, our H1 margin is now within the band, 21% to 23% and we remain confident as the year progresses to be within the band 21% to 23%.

Diviya Nagarajan -- UBS -- Analyst

Fair enough. My last book-keeping, as part of the tax rate regime change, is there any -- what is the thinking on the tax holiday exemptions and what should we be modeling in going forward for that?

Salil Parekh -- Chief Executive Officer and Managing Director

Yes. I think we just looked at it currently for the India stand-alone -- for Infosys stand-alone, the India effective tax rate is less than 25, we are close to about 23 to 24. So I think at the moment we are staying at the current regime. We will start evaluate as we look ahead through the next few years of when we make the transition, but for now, we're continuing with the existing tax holiday regime.

Diviya Nagarajan -- UBS -- Analyst

Thanks and have a good rest of the year.

Salil Parekh -- Chief Executive Officer and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.

Nitin Padmanabhan -- Investec -- Analyst

Hey. Hi, thanks for taking my questions. Just wanted your thoughts on BFSI and retail put together, because if we look at the second quarter in terms of growth excluding Stater, it appears that it's relatively weaker than the earlier Q2s that we have seen in the past. So from that perspective, do you think that both BFSI and retail have been relatively weaker versus what you would have thought earlier?

U.B. Pravin Rao -- Chief Operating Officer and Whole-time Director

This is Pravin here, I'll talk about the retail and then Mohit will comment on the BFSI. On retail has -- we believe that, I mean, this is one sector which is probably much more very closely linked to the consumer sentiment. Even on the macro challenges that we're seeing our macro talks that's going on as well as reduction in consumption, trade wars and so on, I think there is a -- we see a sense of nervousness in the retailers, and we have seen the spend come down. And this segment, in general will continue to be volatile. Last year for us retail was a fantastic year. We had double-digit growth. But first quarter was soft and second quarter continues to be soft. It's difficult to predict when the sector will revive [Phonetic] because it's purely dependent on the marco as well as the sentiment, but there is something we have to wait and watch.

At the same time we also see a lot of opportunities in the sense that retailers are trying to compete aggressively against the likes of Facebook and all the new age companies, so they invest -- they continue to invest while trying to take out cost in other parts of the business. So we continue to stay engaged with them and earn our highly preposition and spends on the digital. We remain confident that we will be able to capture the spend that's there in the sector. But in terms of the growth its expected to be volatile till there is some clarity on the macros.

Mohit Joshi -- President, Head, Banking, Financial Services & Insurance (BFSI), Healthcare and Life Sciences Head

Yeah. Hi, this is Mohit. So look, I think when speaking to Ed's question, I think, I'd given you a perspective on the sub-sector and the geographic distribution that we see. The reality is that there is a lot of volatility, right. There is a lot of volatility. And I would add that, this is also a sector that is heavily concentrated. So even if you have a couple of clients for instance that are looking at the [Indecipherable] spend more closely or they are looking at reducing the spend on the core, it amplifies the impact on us. We've already identified the areas of weakness in terms of European banking or in terms of the very low spend in the capital market space. So hopefully that gives you a -- that gives you a perspective.

Nitin Padmanabhan -- Investec -- Analyst

Sure. Thank you, Mohit and Pravin. Just one more. Are we -- what would be the proportion of net new deals on the total TCV?

U.B. Pravin Rao -- Chief Operating Officer and Whole-time Director

The rebid is close to 90%. So the net new will be about 10% this quarter.

Nitin Padmanabhan -- Investec -- Analyst

Sure. Thank you so much. And all the best.

Operator

Thank you. The next question is from the line of Vibhor Singhal from Phillip Capital. Please go ahead.

Vibhor Singhal -- PhillipCapital India -- Analyst

Good evening sir. Thanks for taking my question and congrats on a solid quarter. So, just one question from my side. In terms of hiring, we've seen very strong hiring in this quarter, adding around close to 7,000 software professionals. So just wanted to basically understand your perspective on how it's going to impact -- I mean, I'm sure we are looking at significant growth going ahead because of, if we -- given the kind of hiring that we've done. So basically, how is it -- how do you believe the growth is going to pan out? And also what could be the margin impact? I mean, given that we would have probably hired these guys, spread over the quarter. Could we expect some sort of, let's say, pressure on the margins, going quarters? Or do you think that's all baked in into the guidance as well?

Salil Parekh -- Chief Executive Officer and Managing Director

I think, I mean, as we've said the -- Nilanjan has reiterated that the margin will remain in between 21% to 23% band. So there is no change to the guidance and we are comfortable with that. In terms of hiring, this quarter we hired about 14,000 people, roughly about 6,000 freshers in India and about 700 to 800 people in, US, from colleges. And lateral, we hired close to 7,000 again, about 5,000 from India and about 1,500 to 2,000 in other parts of the world. It is consistent with what we have done in the past, so I don't see any material change to that. Our hiring will be dependent on the growth and we have already factored that in the guidance.

Vibhor Singhal -- PhillipCapital India -- Analyst

Sure sir. And sir, any -- just lastly, if any -- I mean the attrition has definitely cooled off from the last quarter, but we know that first quarter is generally seasonally quite weak in terms of attrition. So given that we've already taken so much measures to thought [Phonetic] the attrition level that it is, but I still -- as it still remains about 21%. Any for -- further levers or steps that we intend to take to probably bring down the two sub 20 levels? Or maybe something which is -- which we are more confortable with?

Salil Parekh -- Chief Executive Officer and Managing Director

See the attrition for Tech Services is about 19.4% with both voluntary and in-voluntary. If you look at voluntary alone, it's about 18% and when we compare with quarter two of last year, it is lower than that. So definitely we are seeing some marked improvement, but at the same time, some of the intervency that we have done to address this in the last one or two quarters or further should be something we have to continue to do on an ongoing basis. This is an area where we will continue to watch out and focus on. And -- but at this stage, we are very encouraged with the progress [Phonetic] that we have seen and we're hopeful that it will continue to turn in the right direction in the coming quarter.

Vibhor Singhal -- PhillipCapital India -- Analyst

Sure sir. Thanks for taking my questions. Wish you all the best.

Operator

Thank you. The next question is from the line of Joseph Foresi from Cantor. Please go ahead.

Joseph Foresi -- Cantor -- Analyst

Hi. So my first question is just around the revenue growth acceleration, you've seen an uptick for the last couple of quarters. Do you believe that, you're taking maybe market share from some of your competitors? Or is it the fact that digital is growing as strong as it is right now. I'm just trying to get a sense of what seems to be causing the uptick in the numbers and should we be thinking of this a high-single digits, low-double digits, more low-double digits business?

U.B. Pravin Rao -- Chief Operating Officer and Whole-time Director

I think, on the growth -- part of what we are seeing in the growth is, we have a set of offerings, which are really close to what the clients want to spend in their digital transformation journey, and will relate to specifically areas we've highlighted in the past, whether it's data analytics or cloud or experience or IoT or cyber and so on. And that's where we've seen growth which is possibly higher than where the overall market for those sort of service is growing.

We also see a strong push on automation, which is helping, where we have good strong core businesses with clients, and they see a benefit from this coming into -- for us to come into their enterprise and display the value of the automation. Having said that, we know that all of those things also require an intense focus as we put in -- into the large deal program and an ongoing activity to execute against that. We genuinely believe today, that we have a very strong position within the minds of our clients deck and now sometimes the marketing executive spend, which is helping us to drive our growth. In terms of what this means as an ongoing business, we are not sharing any view at this stage, beyond the end of this fiscal year. But as we come to the end of the year, obviously we'll start to talk a little bit more explicitly on the next next fiscal year.

Joseph Foresi -- Cantor -- Analyst

Okay. And just a couple of quick follow-ups. Are these new engagements? Or are you taking market share from others when you talk about the digital practice? And how much is pricing a factor across both the digital business and your traditional business?

U.B. Pravin Rao -- Chief Operating Officer and Whole-time Director

So, in terms of digital work, typically, these are new projects or new mid-term, long-term contracts. They are definitely things that we are winning in a very competitive environment. In terms of the pricing, I think we'd shared maybe in the last quarter's discussion on margin for our digital business is higher than the margin for that company overall. So we feel confident as we shift more and more of our portfolio to digital, that should be a benefit to margin.

Joseph Foresi -- Cantor -- Analyst

Okay. And then just lastly, the business that -- or the pieces of the business that aren't digital? Are you seeing pricing pressure on the traditional maintenance stuff? And maybe you can give us an update on the non-digital business and how that's performing? Thanks.

Salil Parekh -- Chief Executive Officer and Managing Director

So there we believe we have an extremely strong set of capabilities across all of our service offerings, that still comprises 62% of our business. It's a very strong business, a long foundation there. However, the automation play allows us to ensure that the clients are getting an ongoing productivity benefit. We do see some pressure, which comes into play in pricing or discounts on an ongoing basis. And especially, when we start to see medium-term and long-term renewal contracts that come up for a discussion.

Joseph Foresi -- Cantor -- Analyst

Thank you.

Operator

Thank you. The next question is from the line of Viju George from JP Morgan. Please go ahead.

Viju George -- JP Morgan -- Analyst

Yes. Thank you for taking my question. I had a question on your unbilled sales. The last four quarters through FY '19, it was like tracking at between 21, 22 days. It shot up to 27, 28 days in the first half of this year. I just want to try to understand what really caused such a massive jump for the company of your size in H1?

Nilanjan Roy -- Chief Financial Officer

Yes. So, actually the way we look at revenue, these are based on activity and effort, whereas billing milestones are agreed with clients in advance based on delivery dates. And that's the way billing actually happens. So, there are certain times mismatches between the revenue and the billing milestone. These are largely client-specific. So they have their pluses and minuses. And therefore, that's one of the reasons we also had because of the Stater and HIPUS acquisitions. There was also an increase because their business model had also an increase on the unbilled. So these are two large reasons for this increase.

But if you see our collections overall, I think that's the number to look at. Our collections continue to be very, very strong. Our DSO for the quarter actually was down by two days. So I think that's the key metric to show the health of the business.

Viju George -- JP Morgan -- Analyst

Yes. But Nilanjan, I just think when you look at this in terms of incremental sales, it has jumped to almost 24%, 25% in H1, whereas in the four quarters through FY '19, it was like kind of 10%, 11%. So, as a percent of incremental sales annualized, it's doubled. So is that possible -- I mean, how is it practically possible for the large company of -- for the company as large as Infosys? Has there been a change in policy or are you sort of trying to recognize with clients far more often revenue recognition milestones in a way different from what we used to do earlier?

Nilanjan Roy -- Chief Financial Officer

No, nothing like that. So, in fact, we monitor very, very closely inside all the unbilled of the previous quarter as mostly billed in the next quarter, and there are new set of milestones that sum to it. It's not as if it's a legacy which is increasing. We look at the aging of this very, very carefully. And like I said, this is a combination of -- in a few clients where you have a difference in the billing milestone versus the revenue recognition, and like I said HIPUS and Stater.

Viju George -- JP Morgan -- Analyst

Sure. And one more question on your TCV. I think Pravin indicated that maybe 10% of the TCV is net new, which means that 90% is renewals. How does this sort of -- this sort of compare with maybe averages of the recent past?

Nilanjan Roy -- Chief Financial Officer

I don't have the exact number. But in general, I mean there is a metric which is volatile. In some quarters, we have lot of net new, in other quarters, we have good percentage coming from renewal. The way we look at it is -- it's important for us to win renewals, because it helps in retaining our business and qualitifying our percent. At the same time, winning net new will also help in capturing market share. We focus on both, but general -- and it varies from quarter-to-quarter and for the half year -- for this half year, I think the net new was about 35%.

Viju George -- JP Morgan -- Analyst

Net new is 35%. Okay. Would it be fair to...

Nilanjan Roy -- Chief Financial Officer

We did 2.7 in quarter one, 2.8 in quarter two and about 35% was net new.

Viju George -- JP Morgan -- Analyst

Got it. So would it be fair to say, at least for this quarter, the percentage of net new is generally a lot lower than it might have been in the recent past? Hello?

Nilanjan Roy -- Chief Financial Officer

Yes. I mean you're right, I mean if you look at the last few quarters probably the 10% net new is probably on the lower side.

Viju George -- JP Morgan -- Analyst

Okay. Sure. Thank you and all the best.

Operator

Thank you. The next question is from the line of Apurva Prasad from HDFC Securities. Please go ahead.

Apurva Prasad -- HDFC Securities -- Analyst

Thanks for taking my question. So I want to know what's really constraining us to increase the top end of our guidance despite the strong momentum across verticals. Are there any client-specific issues that you're looking at? I'm looking at the top 2 to 10, it seems like a decline for this quarter. So anything which is incrementally different?

Salil Parekh -- Chief Executive Officer and Managing Director

As we shared, we've increased our guidance on the lower end from 8.5% to 9%. We think the overall discussion with the segments which you heard from Mohit in terms of financial services, you heard what Pravin shared on retail, and that is something that you have to be watchful about. Then we have strength, which we shared earlier on Energy, Utilities, on Telco Hi Tech and those are positive, and then we shared typically the second half in sector -- our second half, so Q3 and Q4 is typically softer than the first half and especially Q3 with the discussions around furloughs and so on.

So given all of those factors in mind, we took advantage to increase the lower end of the guidance keeping in mind that this is really where we see the rest of the year going. And as the quarter progresses, we will see -- as Q3 progresses, we will see where we end up and come back to you at the end of the quarter on the next steps.

Apurva Prasad -- HDFC Securities -- Analyst

Thanks for that Salil and Nilanjan on the margins, how do we see that, I mean the second half trending within the band. Any headwinds, tailwinds that you're looking at or perhaps you can call out the title holder impact which will be coming in third quarter.

Nilanjan Roy -- Chief Financial Officer

Yeah. So I think, like we said, we are at -- H1 we are at 21.1%. We are within the band and I think this is a good place to go from here and that's what we are looking at. From the title holder it is not a material impact. Most of that you know -- this is less than probably a percentage of the overall headcount. So it's a relatively small impact. Otherwise, I think we have a very robust, like I said, the cost takeout program, like I said on multiple utilization pyramid and I think we are quite confident that this is a machinery, which had to and literally churn out every quarter. So there is, there will -- this continue to be headwinds in terms of discounts or wage hikes. But I think we -- seem to have gone to rhythm of making sure that we are able to take out these costs in time. So that's where we are.

Apurva Prasad -- HDFC Securities -- Analyst

Okay, thanks. And all the best.

Operator

Thank you.

Salil Parekh -- Chief Executive Officer and Managing Director

Thank you.

Operator

The next question is from the line of Moshe Katri from Wedbush Securities. Please go ahead.

Moshe Katri -- Wedbush Securities -- Analyst

Thanks. Congrats on very strong execution. Going back to BFSI, is there any way to figure out what -- if you're looking at the organic growth numbers, I know you haven't disclosed these. But organically was the sector up sequentially year-over-year. At least sort of color here will be helpful. And then if you do want to disclose us, how much the acquisition add to growth during the quarter? Thanks.

Nilanjan Roy -- Chief Financial Officer

Look, I think, we haven't really disclosed the two numbers separately, because, you also have to keep in mind that Stater was a client of ours prior to the acquisition. So there were certain revenues that accrued to the entity to emphasis prior to the joint venture as well. So we are not breaking out the numbers separately.

Moshe Katri -- Wedbush Securities -- Analyst

Okay. And then, kind of looking at this on a forward basis. Has anything changed, since the end of the quarter in terms of sales cycles, pipeline conversion rates, any sort of spending or project in terms of project funding? Maybe you can talk a bit about those trends since the end of the quarter. Thanks.

Salil Parekh -- Chief Executive Officer and Managing Director

When you say end of the quarter, you mean the last couple of weeks, right?

Moshe Katri -- Wedbush Securities -- Analyst

That is correct.

Salil Parekh -- Chief Executive Officer and Managing Director

Okay. No, no, no, we don't see any change in the last couple of weeks from what we are discussing, which is our quarter end view. Of course, it's only two weeks. So we don't expect to see any change in that time frame.

Moshe Katri -- Wedbush Securities -- Analyst

All right. And then the last question, obviously the renewal number, in terms of bookings, was pretty high this quarter. On a forward basis during the next two quarters looking at your pipeline, I'm assuming that's going to be a trough in terms of mix. And during the next two quarters, we should see a larger mix of renewals, in terms of bookings, is that correct?

Salil Parekh -- Chief Executive Officer and Managing Director

No, I don't think, -- we have seen any seasonality in the renewal. So it varies from quarter to quarter depending on the context. So, I don't think there is any seasonality to granular making.

Moshe Katri -- Wedbush Securities -- Analyst

All right. Thank you.

Operator

Thank you. The next question is from the line of Abhay Moghe from Bajaj Allianz. Please go ahead.

Abhay Moghe -- Bajaj Allianz -- Analyst

Congrats on sustaining good execution. I just had two questions. First is on the revenue growth. If I see over the last four to five quarters, your revenue growth year-over-year had been increasing, whether you see dollar terms or CC terms. This quarter, it is lower than the last quarter and the way you have given the guidance, it is likely to be couple of percentage points even lower by the time we reach Q4.

Now, my question over here is, this trend that you are seeing, is it like you have the revenue visibility and do you see the trend going down in year-over-year growth? Or it is more like a cautiousness or a conservativeness because of macro concerns and you want to have give a conservative guidance? So what is it like, lower revenue visibility and some conservatism? Or do you have the visibility and you're saying that, no, it will be trending down? That's question number one.

And second is on the margins, like, overseas, you are running a good cost cutting program and over the next four to six quarters in a constant currency terms, you know next year also cost of cutting will be there. But over the four to six quarters, do you think margin would look up from current levels? Or you think that whatever the headwinds are, whatever cost cutting programs you have it will like neutralize? Those are the two questions from my side.

Salil Parekh -- Chief Executive Officer and Managing Director

On the revenue, as we've shared earlier, I think we have a good set of growth over the last four quarters. We know that typically there is some seasonality in the last quarter of the calendar year, or Q3. We also know that there'll be some difficult comps for Q3, Q4 versus previous Q3, Q4 based on [Indecipherable] 12 months to 18 months ago.

Keeping all that in mind, is where we've come with the guidance. Our large deal wins is still robust. It is lumpy. Of course, the large deal wins, we've had several good quarters on that. But it's not a predictable view in terms of where the large deal numbers go and how the renewals versus the net new payout. We do see more and more net new in the coming quarters, in the pipeline. So we have confidence that as we get into the next fiscal year, as we are starting to build a base of deals that can help us for that. And beyond that, there is no other sort of color on the revenue from our side. That's how we built the guidance. In terms of margin, we have a very clear view, which is for Q3 and Q4 and for the full year. We have no view today on the next four quarters to six quarters, which is in that sense in the next fiscal year. For this year, we believe our operational efficiency approach is working well and will deliver good benefits. We believe that we have essentially a high quality franchise and the investments are behind us. So, we will see the benefits of that and we will be within our margin guidance. Already for H1, we are well -- we are within the margin guidance and we will have that for the full year as well.

Abhay Moghe -- Bajaj Allianz -- Analyst

Thanks a lot.

Operator

Thank you. The next question is from the line of Ravi Menon from Motilal Oswal. Please go ahead.

Ravi Menon -- Motilal Oswal -- Analyst

Gentlemen, congratulations on a good quarter. Two questions. First on margin levers. Your utilization is already close to the highest [Indecipherable]. So, do you think that we can actually push those any further? Or you know what other margin levers are we looking at near-term?

Secondly, related to that, [Technical Issues] like for the quarter. And one more question, a follow-up after this.

Salil Parekh -- Chief Executive Officer and Managing Director

Yeah, on the utilization front, we are comfortable, where we are -- 84.8%, that's where we landed. In the past, we have had quarters where the utilization upwards of 85% plus. So, if we're going to tend to operate in between 83% to 85%. So at this stage we're comfortable, but whenever there is a need, we have shown the ability to increase the utilization for us, so as to not to leave behind business on the table. But at this stage, we are comfortable and we are not really planning to increase it further, but we have the flex available incase if we need it.

Ravi Menon -- Motilal Oswal -- Analyst

And on the variable payout for the quarter?

Nilanjan Roy -- Chief Financial Officer

No, I don't think we comment on it.

Operator

Mr. Ravi Menon, are you done with your questions?

Ravi Menon -- Motilal Oswal -- Analyst

Sorry, I was waiting for the answer for that. So you would not comment on the variable payout in the quarter? Is that right?

Nilanjan Roy -- Chief Financial Officer

Yes. I think we don't, we normally don't disclose the variable.

Ravi Menon -- Motilal Oswal -- Analyst

Sorry, sorry, I didn't quite hear that. Yes, sorry. And then just a clarification on why do you think that you should include Stater within the SRI metric side, I think, that's what -- that's where the revenue has fallen in. So you know I thought it's primarily a BPO, there was a software [Technical Issues] using for the BPO but why classify this revenue to digital?

Salil Parekh -- Chief Executive Officer and Managing Director

Sure. So if you look at the Pentagon that we've been working on as our key strategy for digital for the past 18 months, you will see that vertical platforms is clearly called out as one key element in digital. And this is very clearly a vertical platform. It is not a -- it is not a BPM offering. There is a mortgage origination and mortgage servicing platform. So there is significant IP in the platform and the pricing like any vertical platform is very clearly outcome linked.

Ravi Menon -- Motilal Oswal -- Analyst

All right, great. Thank you and best of luck.

Operator

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

Sumeet Jain -- Goldman Sachs -- Analyst

Yeah. Hi, thanks for the opportunity. So, firstly, I wanted to understand in your revenue growth guidance of 9% to 10%. Are we including the recently closed Eishtec with the Irish BPM acquisition? And if yes, can you quantify that?

Nilanjan Roy -- Chief Financial Officer

So first that work is a business transfer approach. So, it's very much part of our business going forward. And we have not disclosed the specifics on that. Nonetheless, it's a very small part of our BPO business.

Sumeet Jain -- Goldman Sachs -- Analyst

Got it. So it won't have any material impact on your revenue growth trajectory in December quarter?

Nilanjan Roy -- Chief Financial Officer

That's right.

Sumeet Jain -- Goldman Sachs -- Analyst

And secondly, wanted to understand on the subcontracting cost, like we have seen for the last three to four quarters, it has been in the range of 7.3% to 7.5% levels. So going forward, do you think that -- did you think subcontracting cost will be one of the margin levers given that we have now a full strength of local hires in US?

Salil Parekh -- Chief Executive Officer and Managing Director

So, I think subcontracting is an integral part of the business model. I think as we look for talent overseas and especially talent that immediate requirements we need subcontractors, but as you see for this quarter, we have had -- actually been able to hold down our subcontractor costs. So what we actually do is also rotate many of these subcontractors back onto our payroll. And therefore, we continue to get a new set of fresh subcontractors that we've to take them back. So, I think if we get this -- it's going as a strong model, we will be able to keep the cost under control and yet able to hire talent on demand. So, that's one of the levers we've operated this quarter on margins very well.

Sumeet Jain -- Goldman Sachs -- Analyst

Got it. That's it from my end and all the best for the remainder of the year.

Salil Parekh -- Chief Executive Officer and Managing Director

Thank you.

Operator

Thank you. Our next question is from the line of Bryan Bergin from Cowen. Please go ahead.

Bryan Bergin -- Cowen & Company -- Analyst

All right. Thank you. I wanted to ask on the progression of your strategic relationships. If you think back two to three years ago, the prior management team had commented that it thought it was having strategic discussion -- conversations around, I think it was around 50 clients at the time when there was a 1000 plus, where do you think you are today as far as the mix of clients, where you are really having strategic discussions and how do you expect this progress?

Salil Parekh -- Chief Executive Officer and Managing Director

I'm sorry, I didn't follow the question, it was about strategic relationships we have with our clients?

Bryan Bergin -- Cowen & Company -- Analyst

Yeah. Will you think you are perceived as a -- a change in a strategic partner in your client base. Before you kind of started on this journey, it was a small percentage of the client mix, I'm curious how you perceive that today.

Salil Parekh -- Chief Executive Officer and Managing Director

We may be a bit optimistic in how we look at it, but, we absolutely perceive that we are more and more part of the strategic thinking of our clients. One of the things we've observed in the recent past is some -- many of our clients are looking at us more than they are looking at some of our competitors and especially with some of the investments we've made in digital, some of the focus areas on automation and the relationships that we have built in terms of the alliances that we have with our strong partners in the tech world, that's helping us to be perceived more and more central to the agenda of our clients.

Bryan Bergin -- Cowen & Company -- Analyst

Okay. And then I wanted to ask as far as digital contributing to large deal TCV, can you give us any metrics there -- maybe give a sense of how digital deals are changing in size and scope?

Nilanjan Roy -- Chief Financial Officer

No, we don't really break up the percentage of digital in the large deal. Digital is definitely a part of large deal in the sense that every large deal -- there is business as usual, but there is also expectation we transform and migrate to cloud and so on. So there is definitely a digital element, but we don't really break out a lot of the percentage of the digital in the large deal.

Bryan Bergin -- Cowen & Company -- Analyst

Okay, that's fair. Just last one here, within BFSI, can you just comment on how insurance and US regional bank performance is?

Mohit Joshi -- President, Head, Banking, Financial Services & Insurance (BFSI), Healthcare and Life Sciences Head

Yeah, I think, look, on the whole regional banking continues to be an area of growth for us, really where there is some M&A activity going on. There is a little bit of a freeze on the legal thing happens, but we feel that regional banks are fairly robust. We feel that there is a lot of technology investment that's going into the sector, as they look to compete with the larger universal banks. And finally, I feel that, for regional banks, we also have a very compelling story in terms of our services, our platforms like the Stater platform in Europe and the fact that we have the world's largest banking software platform in Finacle, right, which is really gaining fairly significant traction. So the regional bank story continues to be a good one for us.

Bryan Bergin -- Cowen & Company -- Analyst

Okay.

Mohit Joshi -- President, Head, Banking, Financial Services & Insurance (BFSI), Healthcare and Life Sciences Head

And insurance, I think, I'm sorry. Did you have a question on insurace?

Bryan Bergin -- Cowen & Company -- Analyst

Yeah, if you could just touch on how your performance is on that sub vertical?

Mohit Joshi -- President, Head, Banking, Financial Services & Insurance (BFSI), Healthcare and Life Sciences Head

Sure. So, look I think insurance continues to be -- continues to grow steady. I don't think we're seeing any significant acceleration or any significant growth beyond the average in that sector but it's a means of strong and stable sector for us. We also feel that the headroom for growth continues and again like in banking, the [Indecipherable] platform has been gaining fairly significant traction and we have a -- we have a fairly sizable pipeline of opportunities there.

Bryan Bergin -- Cowen & Company -- Analyst

Okay, great, thanks.

Operator

Thank you. The next question is from the line of Dipesh Mehta from SBICAP Securities. Please go ahead.

Dipesh Mehta -- SBICAP Securities -- Analyst

Yeah, thanks for the opportunity. Couple of questions. First about, if one look rest of world, after couple of years of healthy growth, growth rate seems to have moderated. So if you can help us what is playing out there and how you expect rest of world to grow? Second question is about margin. Earlier INFY used to have a industry-leading margin, now considering the specific investment fees and one-off investment fees, which we invested to written back to industry laeding growth by, if you can provide some color by when you expect industry leading margin also to be achievable or now we are fine with where we are and focus would be more on growth than margin? Thank you.

Salil Parekh -- Chief Executive Officer and Managing Director

On the rest of the world, there is India and then the rest of the world. India is a very small part of the business and our focus is on very limited projects, we are very selective on what we bid for India. So that we will continue to see a volatility there. On rest of the world, we have had good run over the last few quarters, as we said. Before that we have been slowdown or a negative growth, but there is not a secular trend. We expect, I mean, at least at this stage, we are not seeing any -- anything material. So, hopefully the growth should come back in the coming quarters. What was the other question?

Nilanjan Roy -- Chief Financial Officer

On margin.

Dipesh Mehta -- SBICAP Securities -- Analyst

So growth -- yeah, maybe I can repeat. Now we achieve industry leading revenue growth and revenue growth trajectory seems to be at least last four quarters, we returned to double-digit growth rate. But if one look at margin profile, we still not achieved industry leading kind of goal first. So if you can help us understand now, whether we will stick with where we are or we have aspiration to again achieve industry-leading margin for it? Thank you.

Nilanjan Roy -- Chief Financial Officer

So on that, my -- our view is very much that a lot of the operational measures that we've talked about in this call are getting in place and giving us benefit, which gave us a nice improvement in our margin in Q2. We have a clear guideline and then the guidance for this year. Beyond this year, we will come back and have a discussion at the end of the year, when we talk about our guidance for next year.

Dipesh Mehta -- SBICAP Securities -- Analyst

Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for their closing comments.

Sandeep Mahindroo -- Financial Controller and Head, Investor Relations

We would like to thank everyone for joining us on this call and spending time with us. Look forward to talking to you again. Have a good day.

Operator

[Operator Closing Remarks]

Duration: 62 minutes

Call participants:

Sandeep Mahindroo -- Financial Controller and Head, Investor Relations

Salil Parekh -- Chief Executive Officer and Managing Director

U.B. Pravin Rao -- Chief Operating Officer and Whole-time Director

Nilanjan Roy -- Chief Financial Officer

Mohit Joshi -- President, Head, Banking, Financial Services & Insurance (BFSI), Healthcare and Life Sciences Head

Edward Caso -- Wells Fargo -- Analyst

Diviya Nagarajan -- UBS -- Analyst

Nitin Padmanabhan -- Investec -- Analyst

Vibhor Singhal -- PhillipCapital India -- Analyst

Joseph Foresi -- Cantor -- Analyst

Viju George -- JP Morgan -- Analyst

Apurva Prasad -- HDFC Securities -- Analyst

Moshe Katri -- Wedbush Securities -- Analyst

Abhay Moghe -- Bajaj Allianz -- Analyst

Ravi Menon -- Motilal Oswal -- Analyst

Sumeet Jain -- Goldman Sachs -- Analyst

Bryan Bergin -- Cowen & Company -- Analyst

Dipesh Mehta -- SBICAP Securities -- Analyst

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