Infosys Limited (NYSE: INFY) Q4 2021 earnings call dated Apr. 14, 2021
Corporate Participants:
Sandeep Mahindroo — Vice President, Financial Controller & Head – Investor Relations
Salil Parekh — Chief Executive Officer and Managing Director
Pravin Rao — Chief Operating Officer and Whole-time Director
Nilanjan Roy — Chief Financial Officer
Analysts:
Ankur Rudra — JPMorgan — Analyst
Diviya Nagarajan — UBS — Analyst
Moshe Katri — Wedbush Securities — Analyst
Apurva Prasad — HDFC Securities — Analyst
Pankaj Kapoor — CLSA — Analyst
Jamie Friedman — Susquehanna — Analyst
Sudheer Guntupalli — ICICI Securities — Analyst
Sandeep Shah — Equirus Securities — Analyst
Rishit Parikh — Nomura — Analyst
Ashwin Mehta — Ambit Capital — Analyst
Mukul Garg — Motilal Oswal — Analyst
Ritesh Rathod — Nippon India Mutual Fund — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Infosys Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Sandeep Mahindroo. Thank you and over to you, sir.
Sandeep Mahindroo — Vice President, Financial Controller & Head – Investor Relations
Thanks, Margaret. Hello, everyone, and welcome to Infosys earnings call to discuss Q4 and FY ’21 earnings release.
I’m Sandeep from the IR team in Bangalore. Joining us today on this call is CEO and MD, Mr. Salil Parekh; COO, Mr. Pravin Rao; CFO, Mr. Nilanjan Roy; along with other members of the senior management team. We’ll start the call with some color on the performance of the company by Salil, Pravin and Nilanjan before we open up the call for Q&A.
Please note that anything which we say which refers to our outlook for the future is a forward-looking statement, which must be read in conjunction with the risks that the company faces. A full statement 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
Thanks, Sandeep. Good evening and good morning to everyone on the call. Thank you for joining us for this session. I trust you and your families are well and safe.
We’ve had an exceptional year and an exceptional quarter. Our year-on-year constant currency growth was at 9.6% for Q4. Our volume growth for Q4 was at 4.6% quarter-on-quarter, reflecting accelerating momentum in the business. Our revenue growth was at 2% in constant currency Quarter-on-quarter with 1 point higher offshore effort mix, lower contribution from third-party deals and our typical weak seasonality [Technical Issues].
Hello. Can you hear me?
Sandeep Mahindroo — Vice President, Financial Controller & Head – Investor Relations
Yes, Salil, we can hear you. Margaret, can we go ahead?
Operator
Yes, sir. Please go ahead.
Salil Parekh — Chief Executive Officer and Managing Director
Okay. Carrying on my opening statement, for the full year, our growth in constant currency was at 5%. Our digital business grew by 34% year-on-year in Q4, representing 51.5% of the overall business. Large deal wins were at $14 billion for the full year, a growth of 57% from the previous year and were $2.1 billion for Q4. Our net new percentage for FY ’21 was at 66%, helping us set up for a strong growth in financial year ’22.
With these exceptional results, we had industry-leading growth in financial year ’21. We continued to gain market share. I’m grateful for the trust our clients have in Infosys as we partner with them for the digital transformation programs. Our growth was broad-based with several of our industry segments showing strong growth year-on-year and stems from market-leading capabilities in digital, cloud, cybersecurity and in data and analytics. This is what allows us to be the most critical partner for our clients’ digital transformation programs.
Operating margins for FY ’21 improved by 320 basis points to reach 24.5% for the full year. It was also at 24.5% for Q4. Our free cash flow was close to $3 billion, 39% larger than in the previous financial year. Our cash on balance sheet was at $5.3 billion at the end of the financial year.
I’m extremely proud of our employees and the enormous commitment, especially during this past year, but in general, across the years. We will launch a second compensation review in a phased manner starting in July 2021. Our employees and our entire leadership team work cohesively and for the benefit of our clients. This approach of One Infosys has really enabled us and enabled the company to have a successful financial year in financial year ’21.
Looking ahead, we see continued strong demand from our clients, especially in digital, cloud and in data and we have a strong foundation of our large deal success in financial year ’21. Hence, our constant currency full-year revenue guidance for financial year ’22 is growth between 12% and 14%. For operating margin, our superior margin performance in financial year ’21 was in part because of improvement in our strategic cost levers and in part because of cost avoidance and deferment. With normalcy returning gradually across the world, we anticipate some of the costs to return. With that, our guidance for operating margin for financial year ’22 is between 22% and 24%.
In keeping with our capital allocation policy, we proposed to increase the total dividend per share by 54% over the previous financial year for a full-year dividend at INR27. In addition, we proposed a buyback of equity shares up to an amount of INR9,200 crores, which is approximately $1.2 billion, through the open market method.
With that, let me pause and thank you and let me pass it on to Pravin for his update. Pravin, over to you.
Pravin Rao — Chief Operating Officer and Whole-time Director
Thank you, Salil. Hello, everyone. Hope you and your family are doing good, safe and healthy.
Growth accelerated further in quarter four with year-on-year constant currency growth of 9.6%. Growth momentum was strong across various business segments, with three of them, Financial Services, High-Tech and Life Sciences reporting double-digit growth. Volume growth was strong despite quarter four traditionally being a soft quarter. Most of the critical operating parameters continued to improve during the quarter. Utilization increased further to a new all-time high of 87.7%. Onshore effort mix reduced further to a new low of 24.3%. Subcon costs increased further by 50 bps due to growth acceleration and high utilization.
We won 23 large deals in quarter four, totaling $2.1 billion, six each were in Financial Services and Retail, three in Life Sciences and two deals each in Communications, Manufacturing, Energy, Utility, Resources and Services and High-Tech segments. Region-wise, 16 were from Americas, six were from Europe and one from rest of the world.
The share of new deals in quarter four was a healthy 52%. For FY ’21, the large deal TCV crossed $14 billion. Share of new deals within this $14 billion was $9.4 billion, higher than TCV of all large deals signed in FY ’20. Client metrics remained robust with $100 million clients count increasing to 32, an increase of four year-on-year. We added 130 new clients in the last quarter.
Net employee addition during the quarter was over 10,300 and share of women employees increased to 38.6%. Voluntary attrition for IT services calculated on annualized basis increased to 15.2% as demand for talents increased. We have implemented salary increase effective January 1, 2021. And as mentioned by Salil already, the next cycle will kick off from July 2021 in a phased manner with start date of July 2021 for a majority of our employees.
Moving to business segments. Financial Services continued to report industry-leading performance with growth momentum improving further. In the last few quarters, we have seen strong demand uptick in areas that banks had to significantly invest in post-COVID, surpass customer experience transformation, trend to back digitization, mortgages transformation, call center technology and operations, lending services as well as higher investments in large end-to-end digital transformation programs. In FY ’21, we have won 25 large deals from this segment, including six in quarter four, which provides us solid base for growth in the coming year.
Sequential improvement continued in the Retail segment, along with improvement in deal activity. While many of the sub-segments in retail remain silent [Phonetic], we see opportunities in areas like infra and apps modernization, adoption of microservices architecture, cloud strategy and workload migration and cybersecurity. Given the pace of recovery since second quarter of FY ’21 and net new large deal wins in second half of FY ’21, we remain optimistic about this sector as we look ahead into FY ’22.
Communications segment weakened marginally in the last quarter. However, with the deal wins, we expect the performance to improve in the coming quarter. Digital-led transformation, consolidation, 5G, edge computing, cybersecurity, next-gen technologies like AI, IoT will be the disrupting themes in CMT.
Energy, Utility, Resources and Services vertical remained soft for most of FY ’21 due to constrained spend in the oil and gas, travel and hospitality and resources sector. However, we see signs of stability returning to various sub-segments given some of the recent large deal wins and quality new account openings. We see opportunities in the areas of cost takeout, vendor consolidation, cloud-less transformation and asset monetization, smart grid initiatives and uberization of services. We have a strong deal pipeline despite pressure on discretionary budgets in some of the impacted customer industries.
Manufacturing was one of the most adversely impacted sector because of COVID, while automotive and industrial segments are emerging strongly as the economies open up. Aerospace sector will take few quarters to get back to previous capacity. We have seen significant traction and momentum, as evidenced by the new wins throughout the year, including the largest-ever deal in Infosys’ history signed in quarter three. We are very positive on the sector on the back of strong relationships built during the pandemic and continued net new wins throughout the year. Even as the effects of pandemic continue and as companies emerge from crisis, our pipeline in the sector is strong and we are confident of gaining market share.
Infosys BPM has grown at double-digit rates with clients investing significantly in digital transformation to enhance efficiency, effectiveness and experience in business processes within their enterprise and global shared services environment. A lot of this growth is driven through combined IT plus BPM deals, captive carve-outs, vendor consolidation and managed services. The digital portfolio contribution to overall revenue increased further to 51.5% in quarter four with robust growth of 34.4% year-on-year in constant currency terms. In FY ’21, digital revenues have grown by 29.4% in constant currency terms. We continue to expand these digital capabilities, especially with Infosys Cobalt cloud portfolio.
In the last quarter, we announced the partnership with LivePerson for Conversational AI to help brands manage AI-powered conversation with consumers and employees. We also launched Infosys Cortex, AI-first, cloud-first customer engagement platform and applied AI cloud build on NVIDIA DGX A100 systems. We completed a definitive agreement to purchase assets and onboard employees of Carter Digital, one of Australia’s leading and award-winning experienced design agencies. In quarter four, Infosys was ranked as leader in IX [Phonetic] services-related capabilities across digital pentagon areas by industry analysts.
With that, I hand over to Nilanjan.
Nilanjan Roy — Chief Financial Officer
Thanks, Pravin. Good evening, good morning and thank you everyone for joining the call.
We entered FY ’21 with three focus areas, operational agility, liquidity and cash management and cost takeouts. We maintained razor-sharp focus on each of these areas throughout the year and our FY ’21 results are a testimony to that. We closed the year with 5% revenue growth in constant currency terms and 24.5% operating margins. This was backed by largest-ever deal closures of $14.1 billion, a growth of 57% year-on-year, 29.4% growth in digital revenues, improved operating parameters with both utilization and offshore effort mix at all-time highs of 84.7% and 74.2% respectively. Operating margins for FY ’21 increased by 3.2% over FY ’20. As mentioned earlier, this was due to a combination of factors comprising of strategic cost levers, cost deferrals and other cost benefits, some of which are expected to normalize ahead.
Record free cash flows for FY ’21 of approximately $3 billion, an increase of 38% over FY ’20, were driven by strong focus on DSO and capex optimization. DSO for the year was 71 days. We had a specific focus on capex reduction during the year. Although there was some increased technology-related capex largely to support remote working, we continued to optimize on capex related to physical infrastructure creation. Capex for FY ’21 reduced to $285 million compared to $465 million last year, despite the higher technology-enabled spend. Consequently, FCF conversion as a percentage of net profits was 113.4% for FY ’21 compared to 91.8% in FY ’20. FY ’21 EPS grew by 12.5% in dollar terms and 17% in INR on a year-on-year basis, driven by strong top line and margin expansion. Return on equity for FY ’21 improved by 1.6% to 27.4% over the last year.
Coming to quarter four performance, we saw another quarter of revenue acceleration with growth accelerating to 9.6% year-on-year in constant currency terms. After absorbing the effects of salary increase across job levels, operating margins in Q4 stood at 24.5% versus 21.1% in Q4 FY ’20, an expansion of 3.4%. This compares to operating margins of 25.4% in quarter three. The sequential margin movement is primarily due to a 1.3% impact due to the compensation increases rolled out effective Jan 1, a 0.3% impact due to increase in G&A costs, partially offset by lower lead costs, improved operating parameters and cost optimization and other one-offs.
Our balance sheet continues to remain strong, liquid and debt-free. Cash and cash equivalents increased further to $5.28 billion at the end of FY ’21. Yield on cash balances continued to decline. The yield was approximately 5.1% in quarter four compared to 6% in quarter three. Quarter four also marked the 23rd consecutive quarter of positive forex income, despite significant currency volatility across the globe.
As you know, we have been increasingly emphasizing on total shareholder returns and increasingly aligning our executive compensation to TSR creation. I’m happy to share that TSR for our investors in FY ’21 was in the top quartile of our peer group and ahead of market indices.
In line with our capital allocation policy of returning 85% of FCF over five years, the Board has recommended the following: a final dividend of INR15 per share, which will result in a total dividend of INR27 per share for FY ’21 versus INR17.5 per share for FY ’20. This is a 54% increase in dividend per share for the year; buyback of equity shares of up to INR9,200 crores through open market route post-approval of shareholders in the AGM; final dividend along with share buyback would lead to cash payouts of INR15,600 crores, excluding taxes in the coming months, another step to demonstrate our commitment of consistent TSR generation for our investors. This would bring total payouts of approximately 83% of our FCF for FY ’20 and ’21 through dividends and buybacks compared to the 85% over five years that we announced during the rollout of our capital allocation policy in July 2019.
Coming to guidance. With the strong exit momentum and the ramp-up of landmark large deal wins, we have built a solid base for double-digit growth in FY ’22. We expect FY ’22 revenues to grow by 12% to 14% in constant currency. Operating margin guidance for FY ’22 is 22% to 24%, after considering the impact of compensation reviews, transition impact of large deals and partial rebound of costs like travel, etc.
With that, we can open up the call for questions.
Questions and Answers:
Operator
Thank you very much. [Operator Instructions] The first question is from the line of Ankur Rudra from JPMorgan. Please go ahead.
Ankur Rudra — JPMorgan — Analyst
Thank you. Good to see the progressive capital return policy announced. I just wanted to check on your visibility for the year ahead, say, compared to earlier pre-COVID years at ’18 and ’19. How is it different compared to that? And are you baking in any level of conservatism perhaps into the range based on supply pressures you alluded to and perhaps normalization of signings momentum we have seen earlier in the year? Thank you.
Salil Parekh — Chief Executive Officer and Managing Director
Thanks, Ankur. This is Salil. In terms of what we’re seeing in the demand environment, I think it’s one of the strongest demand environments that we’ve seen for a while. The revenue growth guidance at 12% to 14% gives a very clear indication of the comfort we have in the growth outlook.
I think, in terms of supply pressures, yes, there are always supply pressures across the market. But as we had shared earlier, we recruited over 20,000 people from campus in financial year ’21. The plan for financial ’22 is at about 26,000 today, which could increase. And we have overall capacity with what we see both in college hirings and lateral hiring to fulfill the demand. So, overall, we see it’s extremely strong growth outlook and we feel comfortable at this stage to conclude the fulfillment as required for this demand.
Ankur Rudra — JPMorgan — Analyst
Thank you. And that’s fine.
Operator
Thank you. The next question is from the line of Diviya Nagarajan from UBS. Please go ahead.
Diviya Nagarajan — UBS — Analyst
Thanks for taking my question and congrats on a good year in a very difficult environment. Two questions from my side. One is, how should we think about normalized growth rates for you from here on? I know this year you’ve guided very strongly, but there are some spikes coming in with some of your large deals, specifically your largest-ever deals. Expect it looks like you’re looking at much — more subdued sequential growth rates compared to what we saw in September and December. So how should we think about that? That’s question one.
Two, in your margin guidance, how should we think about progress? We normally have a pattern to margins where you have wage hikes impacting and then things pick up. How should we think about the seasonality of margins going into the field? And again, specifically Q2 is wherein I believe your largest deal is also ramping up and you just talked about additional wage hikes as well. So, should we expect a slightly different seasonality in Q2? How should we think about that, please?
Salil Parekh — Chief Executive Officer and Managing Director
Thanks, Diviya. This is Salil. I’ll start on the first part and Nilanjan will comment on the seasonality on the margins. In terms of what we’re seeing in terms of the pattern or steady-state growth, today our focus really is on this financial year and the growth guidance of 12% to 14% for this year. We currently see demand in very good shape. It’s of course a function of how that demand plays out. As you pointed out, in the last financial year, we had 5% growth in an extremely difficult year, where we’ve seen many within the industry shrinking. So we believe we are gaining market share. We believe we have the industry-leading growth at this stage. And with what we’ve seen in the guidance, if the demand environment stays the way it is and there is every indication that it’s really given the broad economic recoveries in most of the markets that we serve our clients in. We anticipate that this looks like a good demand environment for some time. However, our guidance is only for this financial year.
Pravin, over to you. Sorry, Nilanjan, over to you, please.
Nilanjan Roy — Chief Financial Officer
Yeah. So, I think, Diviya, we don’t really give a color on the trajectory of the margin. So, the guard rail for us like we mentioned between 22% to 24%, we have factored in the second wage hike from July 1, so yes, in quarter two, you may see some margin pressure there. And later on in the year, there is of course some things like travel, etc, will open up, but underlying all this, of course, we continue to work on our strategic cost levers, which are — each quarter in terms of the mix and the pyramid and the automation. And that’s an underlying cost which we keep on — neutralization which keep on happening. So, I think, like I said, 22% to 24% is a comfortable range which we are operating in and have factored in the increase of cost of travel and the wage hike.
Operator
Thank you. The next question is from the line of Moshe Katri from Wedbush Securities. Please go ahead.
Moshe Katri — Wedbush Securities — Analyst
Hey. Thanks for taking my question. I have two — I have two points related to the quarter and maybe one that’s more broad-based. So, any specific call-outs on Q4 sequential growth numbers? Obviously there is a delta here between volume growth that was very strong and the actual sequential growth. And you mentioned a 100-basis-points expansion offshore mix, which probably have some sort of cannibalizing impact. And you also said something about less contribution from third-party deals, maybe you can specify on that? And then, appreciate the fact that quarterly bookings can be lumpy. But from a broad picture perspective, can we get some color on pipeline trends directionally, are we up, I think that could be kind of helpful. Thank you.
Salil Parekh — Chief Executive Officer and Managing Director
Sure. Thanks for your questions. On the quarter four, as you pointed out and we shared — I shared in the earlier statement, the volume growth was 4.6%, where the revenue growth constant currency was 2% quarter-on-quarter. We saw about 1 point increase offshore effort mix as you rightly indicated that would show up in addition to the volume and the actual revenue.
Third-party deals are deals where we work with third-party hardware/software partners. And those deals typically have a cycle that we’ve seen across the quarters in the past year. In Q4, it was somewhat lower than what we had originally anticipated, most of them coming through in Q1. And then, there is typical seasonality that we’ve seen over the years in Q4 with what we have shared. And that came into play a little bit. However, the demand outlook for us remains exceptionally strong. Our large deal wins with 66% net new for the full year last year give us a very strong base for growth for next year. And so, 12% to 14% is a strong guidance for us for growth for next year.
On the second one, Nilanjan, do you want to go ahead on that one, please?
Nilanjan Roy — Chief Financial Officer
Moshe, can you repeat the second question?
Moshe Katri — Wedbush Securities — Analyst
Yes. The second question is more about bookings. And I appreciate the fact that these can be lumpy on a quarterly basis. But just to get a grasp — a better feel on bookings, maybe from a pipeline perspective, maybe we can get some color on that. Directionally have you been able to replenish a lot of the pipeline that turn into bookings and are bookings up year-over-year, just to get a feel on where we are directionally?
Salil Parekh — Chief Executive Officer and Managing Director
Let me start that — sorry, Nilanjan — on the pipeline and Pravin, if you want to add anything. On the overall pipeline, first, the bookings, we had $2.1 billion of large deals in Q4, which is a very strong healthy mix, over 50% net new. So we consider that, of course, the $7 billion of Q3 was incredible, but that’s not sort of a sustainable rate in the way we look at our business. The pipeline is, yes, starting to get replenished quite well after an exceptional set of large deal wins. So we see the pipeline coming back robustly. We see good demand, again, across different industries. And we feel quite good going into this financial year that both the deals we’ve closed will support the revenue growth, but equally the pipeline will also start to come back and give us good traction with large deal wins in financial year ’22.
Moshe Katri — Wedbush Securities — Analyst
Thank you very much.
Operator
Thank you. The next question is from the line of Apurva Prasad from HDFC Securities. Please go ahead.
Apurva Prasad — HDFC Securities — Analyst
Right. Thanks for taking my question. Salil, just to probe further on the medium-term outlook that you spoke earlier. So I would imagine improving visibility on medium-term with a greater sense of scope from enterprises as they are accelerating the digitization milestone plus vendor consolidation and improving pipeline that you mentioned. So, what are your thoughts beyond FY ’22 and your confidence of keeping on to a double-digit type of a trajectory? And also, is the FY ’22 guidance — revenue guidance imply a higher offshore component? So does it mean better volume growth compared to the 12% to 14%?
Salil Parekh — Chief Executive Officer and Managing Director
So, on the multi-year view, the — sort of the overall key for us is, we see very strong demand from clients, good traction on the cloud, good traction on data analytics, very good work on AI, automation and good traction across cybersecurity. So all the elements in which we built capabilities, we feel comfortable that clients are moving ahead quite aggressively in those areas. We don’t however have a guidance or even an outlook at this stage, which is multi-year, as you know. We have the one-year guidance in terms of revenue. But everything we see indicates that the buying from clients is fairly strong. So, really it’s more a function of the overall macro in terms of GDP as that holds up multi-year and that would still give us a good outlook. But at this stage, we see good demand, good pipeline, good traction, so nothing to change anything in the way we have seen business. Of course, the guidance is only for one year.
Apurva Prasad — HDFC Securities — Analyst
Sure. And just the second part of that, is there a higher offshore component in — built into that guidance for FY ’22?
Salil Parekh — Chief Executive Officer and Managing Director
So, there again — sorry, I didn’t address that. We don’t specify the volume component in the guidance. We do have a view once we complete the year, we will have a look at it. But it’s not part of our forward-looking guidance on the volume, which will be split in terms of the revenue for next year.
Apurva Prasad — HDFC Securities — Analyst
All right. And just finally, how do you expect the core to deliver which has declined almost double-digit this year, so your views on that?
Salil Parekh — Chief Executive Officer and Managing Director
So there what we have seen is, large enterprises are looking at their core escape and applying tremendous automation to it and looking for efficiency. Our own approach is to help them achieve that automation, that efficiency and that benefit, which they are then taking and investing in their digital growth agenda items. We continue to see that sort of a movement. Again, we don’t have a specific guidance on the evolution of the call for the full year. But that’s the broad trend we’ve seen in the past few quarters and we continue to see that going ahead.
Apurva Prasad — HDFC Securities — Analyst
Thank you.
Operator
Thank you. The next question is from the line of Pankaj Kapoor from CLSA. Please go ahead.
Pankaj Kapoor — CLSA — Analyst
Yeah, hi. Thanks for the opportunity. So, first question, Salil, are you seeing your spend coming back on the discretionary longer-term payout kind of deals or projects? Or do clients continue to spend more still on those cost takeout, cost savings, cloud migration kind of a project? And second question is that, how do you see the mix in your pipeline in terms of, say, less than $500 million and more than $500 million TCV kind of deals?
Salil Parekh — Chief Executive Officer and Managing Director
On the first part, I think there is both types of work that you referenced, the cost-focused work, the efficiency-focused work and also the digital transformation type of work that we get from our clients. If you look back in financial year ’21, if you look at the sort of work we announced that we’re doing with Vanguard, it’s a digital transformation that starts from the business, looks at technology and looks at operations. Equally they are doing other programs with other clients, which are more focused on cost takeout and some even on consolidation. So they are quite well represented in what we are seeing in the outlook today.
In terms of the size, we don’t specifically comment on the breakup of the pipeline. Having said that, the pipeline, the actual wins last year were quite well distributed and the pipeline has a similar type of distribution. Of course, as Pravin mentioned, last year we had one specific deal, which was the largest in the history of the company. Those are deals which happen every now and then. So those are not really predictable in that type of a horizon.
Pankaj Kapoor — CLSA — Analyst
Understood. I have just one more question for Nilanjan. Nilanjan, do you see any impact of the different tax changes that are proposed in the US impacting your effective tax rate in the coming years? Thank you.
Nilanjan Roy — Chief Financial Officer
Yeah. So, as you know, again, this is just proposals and there are some papers out. This of course has to go through both the houses, Senate and Congress. There are two things, of course, a lot of people are talking about. One is of course the minimum alternative tax, which is largely for US-based corporations who have international subsidiaries. So that’s a different impact and that doesn’t impact us. The other, of course, is the rate increase which they’re proposing on corporate tax itself from 21% to 28%. Now having said that, our — most of operations are run through a US branch. We don’t have a US subsidiary through which we run most of our operations. And therefore, increase in any tax rate there, one is, of course, you will get a set off in India from a foreign tax credit partially, and there can be a minor impact if there is any flow through over and above that. But like I said, we run it through a branch structure and therefore the impact will be less.
Pankaj Kapoor — CLSA — Analyst
Understood. Thank you.
Operator
Thank you. The next question is from the line of Jamie Friedman from Susquehanna. Please go ahead.
Jamie Friedman — Susquehanna — Analyst
Salil, in your prepared remarks, you had mentioned cost avoidance and deferment as sort of instrumental in 2021 narrative. I was hoping you could elaborate on that. I wasn’t sure if you were referring to the costs within Infosys or on the client-side. Is that what you mean?
Nilanjan Roy — Chief Financial Officer
No. I mean…
Salil Parekh — Chief Executive Officer and Managing Director
Yeah, go ahead.
Nilanjan Roy — Chief Financial Officer
Yeah. So I think like we’ve been saying over the last four quarters, if you — in the calls as well, right, so last year, as COVID hit, we were very clear looking at the volatility and uncertainty in the economic environment that we had to do certain cost postponements. So for instance, salary hikes, which were due in June of — July last year, that was postponed into quarter four. We just announced that in the beginning of January, so that was one of them. Even the promotion cycles were delayed in FY ’21 when we started that only in Q3, similarly things like recruitment, etc. So that was one part of it. And those are the costs which will come back.
Now in FY ’22, so the full year impact of the compensation hike of quarter four will be felt into FY ’22. We’ve also just announced that we will look at another compensation cycle commencing July 1 that will impact three quarters of FY ’22. So those are the cost deferral that I call. There the other cost reductions like travel, etc, and part of that will start coming back as the world opens up probably closer in the second half and travel looks better. Of course, the first half, we don’t see much of change there. So these are what we’re calling of costs coming back and some of the tailwinds in last year becoming headwinds. And of course, underlying that, we have an underlying cost optimization program around that strategic levers of offsite — onsite-offshore mix around the pyramid, around automation, we continue to press on every year as well.
Jamie Friedman — Susquehanna — Analyst
Got it. Thanks for that clarification, Nilanjan. Thank you.
Nilanjan Roy — Chief Financial Officer
Welcome.
Operator
Thank you. The next question is from the line of Sudheer Guntupalli from ICICI Securities. Please go ahead.
Sudheer Guntupalli — ICICI Securities — Analyst
Yeah. Good evening, gentlemen. Thanks for giving me this opportunity. First question, Nilanjan, between the three options of open market buyback, tender buyback and dividend, if I were a shareholder and of course subject to our individual tax rates, our limited understanding is that the tax transmission loss on open market buyback is higher than in the other two cases, given the applicability of CG. So just curious on the thought process of returning this INR9,200 crore capital through open market route and instead of, let’s say, tender or dividend route and will this be a recurring mechanism?
Nilanjan Roy — Chief Financial Officer
As I said, we are completely guided by our capital allocation policy of returning 85% over the five-year period from FY ’20 to FY ’24 and that talks about the progressive dividend policy and supplanted by buyback or dividends — any special dividends. I think, consistently the message back from the market and investors have been, they don’t prefer one-off special dividends. They would like to see a consistent progressive dividend policy, underlying dividend policy, and backed by, like I said, these one-offs.
So, the Board considered the buyback as the best way to return. And now, versus open market and tender, as far as the choices are — the reason for them are different, of course, in tender, you are committed to a maximum price as well, in fact, a premium, which you actually lock onto, whereas in open market, you are committed only to a maximum price and you will buy over the next few months subject to the maximum as well. So, the opportunity for EPS accretion is potentially we have seen going by the past trade we have done is higher in case of an open market.
As regards to the tax implication, we understand that SEBI has now mandated the stock exchanges to indicate even in an open market the benefit in terms of buyback because the company has paid — will pay buyback tax. So in the hands of shareholders, the SEBI, I believe, has told the stock exchanges to indicate deals where the company is buying back these shares. So that was available in the tender offer previously. I believe SEBI has now rolled it out across [Indecipherable]. But this is — we don’t have any notification, but this is a informal understanding.
Sudheer Guntupalli — ICICI Securities — Analyst
Sure. So you meant to say, Nilanjan, that it will not be further — capital gains will not be taxed in the hands of shareholders? Is that the…
Nilanjan Roy — Chief Financial Officer
That’s what we understand. We don’t have any — that’s what we informally understand. We don’t have anything in writing.
Sudheer Guntupalli — ICICI Securities — Analyst
Yeah. Thanks for that.
Nilanjan Roy — Chief Financial Officer
The investors will have to see that. The investors will have to see their individual cases, we can’t comment on that.
Sudheer Guntupalli — ICICI Securities — Analyst
Sure. Sure, Nilanjan. And a follow-up question is that, tender buybacks have been very effective price signaling mechanisms in case of Infosys itself and some of our competitors earlier. On the other hand, open market buybacks have a typical defensive connotation, where the objective is more price support rather than price signaling. In that defensive context, actually the maximum buyback price of INR1,750 looks very aggressive. So just curious on the thought process of arriving at this INR1,750 number or should this be read as a management signal like in a tender buyback? Or we are just looking some extra buffer because markets have been very volatile both sides and this is a long-drawn process of six months?
Nilanjan Roy — Chief Financial Officer
Yeah. So, as you know that this is the maximum price, so unlike in a tender where you actually give a premium and commit to the premium, this is the maximum price and this gives you a headroom. And since the — from the date of announcement, there is a process where it will get approved in the shareholder meeting sometime in June and then the open buyback will offer. The runway over this price is over the next maybe seven to eight months, which is much more longer. So that’s the headroom which we created and across the Board also look at any possible EPS accretion, etc, etc, while deciding this price.
Sudheer Guntupalli — ICICI Securities — Analyst
Sure. Thanks. That’s it from my side. Thanks for giving me the opportunity.
Operator
Thank you. The next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Sandeep Shah — Equirus Securities — Analyst
Yeah. Thanks for the opportunity. My question is what further to Pankaj has asked. So if we look at the FY ’21, you guys have set up a large threshold in terms of a mega-deal win. So, do you believe in FY ’22, looking at the pipeline, you are not actually disappointed in terms of the mega-deal pipeline shaping up as a whole?
Salil Parekh — Chief Executive Officer and Managing Director
Hi. Thanks for the question. This is Salil. The pipeline is looking in good shape today. Pipeline has been replenished as we’ve been discussing earlier from some in the wins. It’s always difficult when you’re looking at, one, which is the largest win in the history of our company. But having said that, we feel quite comfortable that the overall pipeline is in good shape and we will continue to create market share gains by winning a large percentage of the digital transformation programs.
Sandeep Shah — Equirus Securities — Analyst
Okay. And second question to Nilanjan. If you — do you believe, Nilanjan, FY ’22, the large deal ramp-up cost as a headwind could be higher than FY ’21 or it may be almost similar and this may not be an incremental headwind to the margin in FY ’22? And just a follow-up on attrition. Despite giving a wage hike starting from January, a 500-basis-point improvement in — increase in the attrition looks higher because seasonality in terms of higher education generally comes in Q1, Q2. So what has led despite a wage hike with such a high increase in the attrition?
Nilanjan Roy — Chief Financial Officer
Yeah. So, quickly on the large deal, we mentioned in FY ’22, there will be actually a headwind. Like I mentioned in my opening commentary, there will be some marginal initial headwind as we ramp up on the larger deals as well. So that factored into the margin.
Sandeep Shah — Equirus Securities — Analyst
But Nilanjan, do you believe that could be incremental versus FY ’21 or it’s almost similar to FY ’21?
Nilanjan Roy — Chief Financial Officer
No. Since it’s going to impact my margins for next year, right, on a year-on-year basis, so in a way it’s incremental.
Sandeep Shah — Equirus Securities — Analyst
Okay.
Pravin Rao — Chief Operating Officer and Whole-time Director
On the — this is Pravin here. On the attrition, there are two factors, right. One is, of course, growth has come back in a big way after the first quarter — after in the first quarter of last year due to pandemic, growth was very subdued. But since then, the growth has picked up not only for us but for competition as well. And second one is, the growth also has largely in India, right, I mean, the offshore — on-site percentage has decreased dramatically for us. Our on-site percentage is 23 — it’s 24.3% and it was around 27% four quarters back. So it’s a combination of both. One is, growth itself has picked up, and on top of it, most of the growth volumes are happening of in India. And consequently, there is tremendous demand for talent and that’s resulting in higher attrition.
Sandeep Shah — Equirus Securities — Analyst
Okay, okay. Thanks and all the best to the management.
Nilanjan Roy — Chief Financial Officer
Thank you.
Sandeep Shah — Equirus Securities — Analyst
Thanks.
Operator
Thank you. The next question is from the line of Rishit Parikh from Nomura. Please go ahead. Rishit Parikh from Nomura, your line…
Rishit Parikh — Nomura — Analyst
Hi. Yeah.
Operator
Yes, we can hear you. Please go ahead.
Rishit Parikh — Nomura — Analyst
Okay. Thanks for taking my question. Just one from my side. Obviously offshoring is preferred as improved significantly over the last year, right. Do you think this will sustain over a longer-term even after normalcy resumes? And if you could just help us understand the more longer-term impact on revenue growth and margins as a result of this? That’s one.
And just a second piece as an extension of the earlier question. Corporate tax rate increase in the US from 21% to 28%, do you see any impact on the budget? Or obviously it’s a long-time, I’m aware, but any earlier indication if you can provide and will that hurt budget sentiment in general? Thank you.
Salil Parekh — Chief Executive Officer and Managing Director
Thanks. Thanks for your question. This is Salil. Let me start. I think, as you pointed out, we’ve seen a shift in the on-site offshore mix, especially in the last year. As Pravin and Nilanjan were sharing, it’s a huge shift for the last few quarters. Looking forward, in the medium-term, it’s difficult to say, I think there are several factors which will support it because it enables really the remote working to be applied in a broader context. But there are other factors where there is a lot of digital transformation work and that we engage from digital centers, from our digital studios and then our proximity centers that we built in Europe and the US and those are huge amounts of demand as well. So we don’t have a sense today what will be this outlook going forward. There are both sides of what this can look like. At this stage, for this financial year, given where the COVID situation is, my sense is, at least in the first few quarters, we will continue to see what we’ve seen in the last few quarters.
In terms of the client spend, we have not seen any impact at this stage on the client IT spend with respect to the tax change. We will — as Nilanjan was sharing, once the concept becomes converted into whatever regulation that is being put forward, we will see if that affects it. But at this stage, we’ve not seen any change from clients.
Rishit Parikh — Nomura — Analyst
But do you foresee a potential impact or still very difficult to say given you’re in the up-cycle from a tech perspective?
Salil Parekh — Chief Executive Officer and Managing Director
We don’t see — we don’t have a way of understanding whether there’ll be impact from that specific point or not. However, the overall theme is very positive in terms of tech spend as we were discussing in an earlier question response. There is a huge amount of interest from clients on digital transformation. And we see that our market share is improving and we have more and more connects with clients that we are gaining growth momentum on that basis.
Rishit Parikh — Nomura — Analyst
Okay. Thank you.
Operator
Thank you. The next question is from the line of Ashwin Mehta from Ambit Capital. Please go ahead.
Ashwin Mehta — Ambit Capital — Analyst
Hi. Thanks for the opportunity. Just one question.
Operator
I’m sorry to interrupt you, Mr. Mehta. We cannot hear you very well.
Ashwin Mehta — Ambit Capital — Analyst
Can you hear me all right now?
Operator
Yes, now it is. Thank you. Please go ahead.
Ashwin Mehta — Ambit Capital — Analyst
Yeah. Just one question. What’s the currency assumption that we’ve taken for our margin guidance?
Nilanjan Roy — Chief Financial Officer
To just give an overall margin guidance, we don’t really say on how we model the currency. So, I think that’s something which we historically look.
Ashwin Mehta — Ambit Capital — Analyst
Okay. So would it be more on a constant currency basis or, say, compared to last year or how should we think about it?
Nilanjan Roy — Chief Financial Officer
This margin is always on a reported basis. So all that is factored into our margin guidance.
Ashwin Mehta — Ambit Capital — Analyst
Okay, okay. And the second question was in terms of attrition. So typically we’ve seen historically a bump up in terms of attrition once the salary hikes are rolled out. So how should we think about the near-term trends in terms of attrition? And in that context, how are we looking at utilizations which are running at historical highs?
Pravin Rao — Chief Operating Officer and Whole-time Director
This is Pravin here. Given the high demand situation, the attrition will probably be around this level for the next couple of quarters or so. On the utilization side, we are recruiting aggressively. We are also making hires from the campuses and so on. So as we start getting in such freshers into the mix, the utilization will come down. The current utilization of 87.7% is very high and not what we are comfortable with. But over the quarters, it will trend down. That’s our plan.
Ashwin Mehta — Ambit Capital — Analyst
Okay. Fair enough. Thanks a lot and all the best.
Operator
Thank you. The next question is from the line of Mukul Garg from Motilal Oswal. Please go ahead.
Mukul Garg — Motilal Oswal — Analyst
Thank you. Nilanjan, just wanted to dig in a little bit on the margin guidance for FY ’22. Besides the impact of wage hike, how should we see the potential shift in subcon expenses? It’s — in Q4, it was running at a five-year high level despite continuous increase or shift to offshore and build up locally in US. And will there be a material change in the cost of third-party items for clients in FY ’22 that was around 3% level in FY ’21?
Nilanjan Roy — Chief Financial Officer
Yeah. So, I think, the subcon costs increase is largely coming out of the higher demand environment like Salil said 4.6% demand. And unlike in the past, we’ve seen also subcon increase more towards offshore because of this higher demand and requirement and not that much on-site. Of course, as now recruitment engine kicks in, we get more attrition in pipe — into control, looking at also the wage hikes as we see pairing that down. This, hopefully over the next few quarters, we can start moderating that as well.
In the other part, regarding the third-party costs, I think they’re very, very small in the overall mix as well. So really no color on where that will go. It’s a very small part of our revenue mix.
Mukul Garg — Motilal Oswal — Analyst
Sure. And Salil, qualitatively you have been repeatedly mentioning that the demand environment remains one of the strongest in a while for you. Is the broader macroenvironment was on — and again, I’m not asking for a guidance. Do you think the opportunity for growth remains as strong as what you’re seeing beyond near-term or do you think scale at some point of time will start within a constraint?
Salil Parekh — Chief Executive Officer and Managing Director
Yeah. Again, as we discussed earlier, the guidance is for this financial year, but the demand environment and the technology spend is really very strong. There is also a lot of large enterprises are shifting their tech spend to improve connects with their customers, improve their supply chain, improve connects with their employees. And so, it’s becoming, in addition to cost on the P&L and investment as well, that gives us a lot of confidence that the tech spend on digital with large enterprises is looking very robust. And all the capabilities we have built over the past several years positions us well to continue to benefit from it. So, overall, my sense is, this is a good environment. We are well positioned in that space. And the connect with clients on digital technology spend is in a very good place for Infosys.
Mukul Garg — Motilal Oswal — Analyst
Sure. Thanks for answering my question. And best of luck for FY ’22.
Salil Parekh — Chief Executive Officer and Managing Director
Thank you.
Operator
Thank you. The next question is from the line of Ritesh Rathod from Nippon India Mutual Fund. Please go ahead.
Ritesh Rathod — Nippon India Mutual Fund — Analyst
Am I audible?
Operator
You are audible, sir, but you’re not very clear. Can you please speak on the handset mode?
Ritesh Rathod — Nippon India Mutual Fund — Analyst
Yeah. So can you speak something — are there any areas of spend which got cut back in post-COVID or pandemic and which has yet not come back, which can come back in the coming years, particularly in key large verticals?
Salil Parekh — Chief Executive Officer and Managing Director
Sorry, I didn’t follow it. You mean from a client spend perspective or own internal spendings?
Ritesh Rathod — Nippon India Mutual Fund — Analyst
Client spend perspective in your key large verticals, are there areas of spend which got cut in pandemic and which has yet not come back which you think can come back in the coming years?
Salil Parekh — Chief Executive Officer and Managing Director
So there — and Pravin might add. As Pravin mentioned earlier, several industries, for example, retail, manufacturing saw some very early impact in Q1 last year. Almost every industry has each quarter improved their positioning, their spend. At this stage, most of those are back. We had overall low or minimal exposure in that sense to some of the travel hospitality areas. So those will probably come back but we don’t have excludes in them. From our own industry exposure, most have come back through each quarter of last year.
Pravin, if you want to add anything, please?
Pravin Rao — Chief Operating Officer and Whole-time Director
Yeah. I think, Salil has probably responded to the question. The only thing is, as we said, in some sub-segments, we continue to see some business, but in every sub — even in those cases, clients are looking at some kind of spend just from a resiliency perspective and also in terms of coming up with new ways of engaging with the stakeholders, right? So even in those cases, the spend is coming back. But somehow, the — like for instance, in manufacturing, I talked about the sub-segments, it was one of the vertical which was majorly impacted. But in the last couple of quarters, we have seen some spend come back both in industrial and automotive segment, whereas aerospace segment continues to be digital. So our sense is, it might take several quarters before we see normalcy in aerospace. Similarly, in the services side, travel and hospitality will probably take some time with multiple waves of pandemic happening. But even in those cases also, there is some amount of spend coming back as compared with what we thought three, four quarters back.
Ritesh Rathod — Nippon India Mutual Fund — Analyst
And maybe your outlook on pricing, particularly within the digital segment, given the kind of value addition you’re bringing to the client, if you can give us, not next year but more on a medium-term, is there a possibility of getting a price — better pricing year-on-year going forward?
Salil Parekh — Chief Executive Officer and Managing Director
Let me start and then Nilanjan might also add some color on it. We think the digital capabilities that we are providing and working with our clients are really high-end and high-quality. And we are working with our clients to ensure that that becomes more and more visible and then over time demonstrate that value which can convert to something on the pricing. But as you pointed out, this is more a medium-term view for us as we start to demonstrate more impact from the digital areas.
Anything you want to add, Nilanjan?
Nilanjan Roy — Chief Financial Officer
No. I think you covered it well, Salil.
Ritesh Rathod — Nippon India Mutual Fund — Analyst
Okay. Thank you. That’s it from me.
Operator
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Salil Parekh — Chief Executive Officer and Managing Director
Hi. Thanks for that. So, thank you everyone for joining us. We are extremely delighted with the full-year performance in financial year ’21, 5% growth, which we believe is industry-leading growth in this market with very strong margin performance for the year. And all of our parameters, including free cash flow, dividend, share buyback, all pointing to extreme care and concern for the business, for clients, employees and shareholders.
Looking ahead, we feel this is a strong year for us, 12% to 13% growth, really repositioned the business, focused on digital services, where Infosys is recognized for these services and a strong outlook on margin of 22% to 24% for the full year. And so, looking forward to that, being the foundation of yet another successful year for our clients, our employees, the company and the shareholders. Thank you everyone for joining and catch up at the next quarter.
Sandeep Mahindroo — Vice President, Financial Controller & Head – Investor Relations
Thanks, everyone, for joining us on this call. Look forward to connecting.
Operator
[Operator Closing Remarks]