Infosys Ltd (INFY) Q4 2018 Earnings Conference Call Transcript

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Infosys Ltd (NYSE: INFY) Q4 2018 Earnings Conference CallApril 13, 2018 9:00 a.m. ET

Contents:

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  • 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] 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 -- Investor Relations

Thanks so much. Hello, everyone, and welcome to Infosys earnings call to discuss Q4 of '18 earnings. I'm Sandeep from the investor relations team in Bangalore. Joining us today on this call are CEO and MD Mr.

Salil Parekh; COO Mr. Pravin Rao; CFO Mr. M.D. Ranganath; presidents and the other members of the executive management team.

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We'll start the call with some remarks from Mr. Salil Parekh and Mr. Ranganath on the recently concluded quarter and the year as well as remarks on the upcoming year. Subsequent to this, we'll open up the call for questions.

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 and 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 Mr. Salil Parekh.

Salil S. Parekh -- Chief Executive Office and Managing Director

Hi, Sandeep, and good morning and good afternoon to everyone on the call. This is Salil, and with me are Pravin, Ranga, and several of our leadership team here are on the call reporting our results for fiscal '18 and for the Q4 updates. I would like to share with you these results and to share with you highlights from our strategic -- for our direction going forward and share with you the guidance for fiscal '19. In Q4, we had strong revenue growth of 9.2% year on year and 1.8% quarter on quarter in reported terms.

Our operating margin in Q4 was 24.7%. For fiscal '18, we had revenue growth of 7.2% in reported terms while operating margin was 24.3%. Our financial services business grew 7.2% year on year in Q4, energy and utilities 16.1%. And then Europe [ph] geography grew 22.5%.

These highlights of our results show the robustness, demonstrate the underlying strength of our business, the trust of our clients and the dedication of our employees. Now let me share with you something about our strategy going forward. The main inputs for our strategy have come from our interactions with our clients, our leadership, our employees, and a review of our business portfolio. The four key pillars of our strategy are: first, scale Agile digital.

We will focus on the digital services business, of which we already have $2.8 billion in our current portfolio, which represents 25% of our revenue for fiscal '18, and it's growing at a very strong pace, much ahead of the overall growth of the company. This is an area that we plan to invest in and expand and become more and more relevant for our clients' future.The second is energize our core, apply intense automation and artificial intelligence to improve productivity in this area. Here we will apply our market-leading Nia platform across all of our business groups. Third, reskill our employees.

We will provide anytime-anywhere tools for enabling our employees to be ready for the client needs of the future. And fourth, we will expand localization in our markets, especially in the U.S., by building delivery centers, training centers, and hiring locally, for example, what we've done in Indiana recently and in Connecticut. And we have plans in the -- for several others that are upcoming. And also, we'll use the same approach for localization in Europe and in Australia.These four elements -- these four pillars of our strategy are then centered around what we do with our clients, which is navigate your next.

We help our clients navigate their journey to their digital future. Now for our guidance. Our guidance in constant-currency terms for fiscal '19, revenue growth between 6% and 8% and operating margin between 22% and 24%. With that, let me hand it over to Pravin.

Pravin Rao -- Chief Operating Officer

Thanks, Salil. We had a good quarter on the operation front as well. Our share of revenues from digital services increased to 26.8% in Quarter 4, and for the year FY '18, percentage of revenue from digital services stood at 25.5%. During the quarter, we had 10 large-deal wins with TCV of $905 million.

Six of these were in U.S., three in Europe, and one in rest of the world. Utilization, excluding trainees, remained stable at 84.7%. Volumes grew 1.1% while the realization was flattish in constant currency, aided by higher proportion of new services in our portfolio mix. Attrition has increased slightly to 16.6%, as compared to 15.8% in Quarter 3.

However, our high-performer attrition is significantly lower at 9.4%, compared to 14.1% last quarter. We are pleased to announce compensation revision for approximately 85% of our workforce effective April 1, both on-site and offshore. The rest of the employees, managers, and leaders will see their revisions effective July 1, 2018. We will continue our focus like we did last year on the job pool differentiation based on performance and contribution.

Most of the people could see increases ranging from mid to high single digits -- mid to high single digits. Variable pay for the quarter is 100%, highest in the last 10 quarters. In addition, we have earmarked $10 million special incentive to employees. Now let me give some color on some of the sectors.

Demand in financial services is strong in new services like digital, cloud, RPA, AI, and automation wherein -- but these were being diverted from the bank and regulatory spending within the bank in cities [ph]. Banks are engaging with us strategically in digital transformation and new services. It is helping us increase our wallet share. Certain top accounts in U.S.

are witnessing some softness, however, premium banks in U.S. and Europe continue to be strong growth drivers for us. We have a strong franchisee in investment management, cost containment, and market servicing. We have won several large vendor-consolidation deals in Europe.

Our large-deal pipeline is healthy, and pipeline for new deals is showing a steady increase. In insurance, we have seen tremendous growth in the last year. The insurance industry continues to be impacted by changing technologies and consumers' behaviors. And insurance companies are under pressure to innovate fast and reduce spend.

However, our service combination of design technology with implementation expertise meet critical needs of the insurers to modernize their digital experience. We expect growth for us in the vertical, driven by large deals, new account openings, and our offerings around McCamish and Nia. Demand in manufacturing sector remains moderate, coupled with flat to low planned spending budgets, driven by cost-cutting objectives. The sector is looking toward digitization of end-to-end processes with focus on integrating mobile IoT and back-end systems.

There is higher activity in Europe that is going through an outsourcing wave. Our deal pipeline in this sector is healthy, and we have also generated new logos in this industry. Healthcare is witnessing increasing demand, driven by population growth, aging population, and increased sickness. There's a strong focus on pay-for-performance with operating modules -- models being linked to specific outcomes and technology-led personalization of care.

Legacy modernization, digital help and amenities, and care management are the other key drivers. Discretionary spend is flat while nondiscretionary spend is focused on cost optimization and consolidation. Retail sector in the U.S. continues to see a slowdown, especially due to store closures and Amazon effect.

However, growth momentum in Europe and rest of the world is better, as clients accelerate their digital transformation agenda, plans for investing toward cloud adoption [Inaudible] outsourcing, and transformation around digital and omnichannels. Growth in that vertical was led by the inputs in large-deal wins of last few quarters, coupled with traction in key accounts. Demand continues to be strong on the back of opportunities in newer areas like analytics in energy, IoT in communications, cybersecurity in telcos, and smart-meter opportunities in utilities. Overall demand for BPM is moderate, driven by commoditization on one hand and automation and AI on the other.

Among segment forces with missing traction [Inaudible] some softness. Clients are expecting increased automation with productivity gains led by RPA. The set of vertical solutions and capabilities created to provide customized solutions to the industry vertical are proving a major differentiator for us versus peers. We cite a number of these.

Both are witnessing an upward trend. Our strategy of reimagining BPM and strong focus on analytics, RPA, and digital will help counter the commoditization impact and grow at above-industry rates. Retail transformation is one of the top agenda for all plans with increased focus on customer centricity, client satisfaction, increased loyalty, and lower cost of service. Clients are increasingly seeking [Inaudible] navigating retail transformation to create more relevant and durable solutions in the complex world.

We are making significant investments in new services scaling our digital capabilities to support extreme automation and [Inaudible], organization and infrastructure modernization and advisability, cybersecurity and digital experience. Acquisition of design competencies, coupled with both the onshore and offshore [Inaudible] will translate to improved time to market, accelerated into volume and optimized cost for clients. Opening of design and innovation have been rolled out and will help both [Inaudible] design and billing context schemes in technology teams. Moving forward, we expect [Inaudible] budget toward modernization of legacy systems and increased focus on digital transformation to meet IT customer expectations and deliver digital experiences at scale.

Over to Ranga to provide some color on the financials.

M.D. Ranganath -- Chief Financial Officer

Thanks, Salil and Pravin. Hello, everyone. Before I go to the details of Q4 performance, let me step back and look at the overall performance of the company in fiscal '18. In fiscal '18, the company delivered good performance and resilience on multiple fronts.

Let me talk about a few key aspects of fiscal '18. First, the annual growth of 7.2% in reported currency and 5.8% in constant currency and 3% in rupee terms was on the back of good growth in digital revenues. The digital revenues exceeded 25% of the total revenues of the company. Further, we increased the number of $100 million clients to 20.

Second, our operating margin for the year was resilient at 24.3%, driven by broad-based improvement in several operational parameters, productivity improvements, and automation benefits. Revenue per employee increased by 6.3% during the year and crossed $54,400. This was primarily driven by the fact that the revenue growth during the year was after the headcount growth due to the higher utilization and productivity improvements. While revenue grew by 7.2%, the headcount growth was just 1.9%.

Our operating margin for the year was above midpoint of our guided range of 23% to 25% at 24.3%. Our operating margin for the quarter improved by 40 basis points to 24.7%. I'll be providing more color on this shortly. Third, our cash generation for the year was robust at $1,947 million, a growth of 15.3%, as compared to 7.2% of revenue growth.

Coming to capital allocation. During the year, the company successfully executed the capital-allocation policy that was announced in April 2017. As part of the policy, the company completed successfully share buyback of up to $2 billion. Today, the board in its meeting has reviewed and approved the capital-allocation policy of the company after taking into account the strategic and operational cash requirements of the company in the medium term.

The key aspects of the capital-allocation policy are 1) the board has decided to retain the current policy of returning up to 70% of the free cash flow of the corresponding financial year in such manner as may be decided by the board from time to time. In addition to the above, out of the cash balance on the balance sheet, the board has identified an amount up to $2 billion to be paid to shareholders in the following manner: A) a special dividend of INR 10 per share, resulting in a payout of approximately $400 million; B) the board has identified an amount of up to approximately $1.6 billion to be paid out to shareholders for the financial year 2019 in such manner to be decided by the board, subject to applicable laws. Further announcements in this regard will be made as appropriate in due course. Now let me talk about Q4 revenues.

Our revenues in the quarter were $2,805 million. This is a sequential growth 1.8% in dollars terms, 0.6% in constant-currency terms. In rupee terms, the revenue for the quarter was INR 18,083 crores. This is a sequential growth of 1.6%.

As compared to Q4 of last year, revenues grew 9.2% in dollar terms, 6.4% in constant-currency terms, and 5.6% in rupee terms. Let me talk about volume growth and price realization. Sequential wallet growth for the quarter was 1.1%. As compared to Q4 of last year, the year-on-year volume growth was 6.2%.

Pricing realization for Q4 improved by 3.5% on year on basis -- year-on-year basis. For the full year, as compared to fiscal '17, this is a better indicator of price realization. The price realization improved by 1.5% in reported terms and by 0.2% in constant-currency terms. We ended the quarter with a total headcount of 204,107 employees.

This is a net increase of 2,416 from last quarter. In fiscal '18, the net headcount increased by 3,743 employees, as compared to the net addition of over 6,000 employees in fiscal '17. Coming to operational efficiency, our relentless focus resulted in improvement of several efficiency parameters in fiscal '18. Utilization, excluding training for the year, improved to 84.6% from 81.7% in the previous year.

Similarly, our efforts toward moderation of on-site mix resulted in on-site mix decreasing to 29.3% this year. In Q4, this further reduced to 28.7%. It is the lowest level in 12 quarters. Our focus on optimizing on-site employee costs, including sharper focus on productivity, on-site pyramid, and other localization and cost-optimization measures, led to a decrease in the on-site employee costs as a percentage of revenue to 38.3% in fiscal '18, as compared to 38.7% in previous year.

The subcontractor expenses this quarter stood at 6.1% of revenue, as compared to 5.9% of revenue last quarter. As you know, that -- the contractor expenses are driven primarily by utilization levels and on-site talent demand. Our operating margin in Q4 was 24.7%, which increased sequentially by 40 basis points. Currency movement helped the margins by 20 basis points, which was fully offset by a drop in utilization and price realization.

Further, reduction in on-site mix and other expenses improved the margin by 70 basis points. This was partly offset by higher variable pay and increase in compensation cost by 30 basis points. So overall, this led to an improvement of 40 basis points sequentially. Cash generated from operating activities in Q4 as per IFRS consolidated was $515 million, and we paid USD 74 million of taxes as per the APA entered into with the United States IRS.

Free cash flow, which is operating cash flow less capex, for the quarter was $418 million. For the full year fiscal '18, free cash flow was robust and increased by 15.3%, as compared to the revenue growth of 7.2%. Cash and cash-equivalents, including investments, stood at $4,073 million, which converts to approximately INR 1,31,765 crores. For fiscal 2018, the board announced a final dividend of 20.5 shares after including the interim dividend of INR 13 per share, the aggregate dividend for fiscal '18 amounts to INR 33.5 per share.

The total payout amounts to approximately 70% of free cash flow for the financial year, which is in line with the capital allocation policy announced by the company in April 2017. The debt outstanding for the quarter decreased by three days to 67 days, compared to 70 days last quarter. Capital expenditure for the quarter was $97 million, which is INR 624 crores. Yield on cash for the quarter was 7.29%, as compared to 6.9% last quarter, slight improvement in the yield.

Our hedge position as of March 31 was $1,513 million. In fiscal '18, the EPS growth was strong at 17.8%. EPS for the year was $1.10, and this includes positive impact of $0.09 on account of APA, which was concluded with the United States IRS during the year. In the quarter ended March 31, 2018, on conclusion of the strategic review of its portfolio of businesses, the company-initiated identification and evaluation of potential buyers for its subsidiaries, Kallidus, Skava, and Panaya.

On reclassification, an impairment loss of $18 million in respect of Panaya has been recognized in the consolidated profit and loss for the quarter and year ended March 31, 2018. The current corresponding writedown in the investment value of Panaya and the stand-alone financial statements of Infosys Limited is $90 million. Coming to operating margin guidance for fiscal '19, we guide operating margins in the range of 22% to 24%. This is primarily on account of focused investments in digital to leverage digital opportunity in underinvested areas, enhancing our investments in U.S.

talent model further to foolproof our future business, revitalizing sales for tapping market opportunities and repurposing of talent. At the same time, as in the last year, we continue our relentless focus on productivity, operational efficiency and cost optimization while focusing on digital growth. With that, we will open the floor for questions.

Questions and Answers:

Operator

[Operator instructions] The first question is from the line of Joseph Foresi from Cantor Fitzgerald. Please go ahead.

Joseph Foresi -- Cantor Fitzgerald -- Managing Director

Hi. I wanted to ask about margins first. I think while the revision's lower, and I think there have been a couple of revisions lower over the last couple of years, do you feel like you've taken them down far enough?

M.D. Ranganath -- Chief Financial Officer

Hi. This is Ranga here. I think if you look at last year, we gave -- guided 23% to 25%. We ended up at 24.3%, higher than the midpoint.

I think one of the -- I want to emphasize that we'll continue our relentless focus on all the parameters that I talked about as well as the productivity and the cost optimization. What we have done really is as part of our business review that we did, we looked at areas with -- digital areas, especially where we need to invest more to leverage the opportunity, point one. Second, on the U.S. talent model, we have plans for additional investments so that the growth is not compromised in the United States.

Third, we also looked at revitalization of sales fee, especially in the aspect of pursuit of large deals, and conversion of the fee. And also, repurposing a couple of our talent -- some of our talent in the digital areas. While -- I think what we will do is as the year progresses -- there's a range we had given, but as the year progresses, we'll certainly -- we'll be able to provide more color on how we are progressing on those four investments. But nevertheless, our relentless focus on the optimization and productivity will continue.

Joseph Foresi -- Cantor Fitzgerald -- Managing Director

Got it. So let me ask kind of in a different way. Do you feel like you're at your natural long-term level of margins exiting next year? And if not, what -- utilization has obviously gone up, so I'm wondering what leverage you have to continue to maintain the margin level that you have.

M.D. Ranganath -- Chief Financial Officer

I think we're confident of retaining the guidance range with the current 23% to 24%. We're confident about it because we also believe that some of these investments are required for leveraging the digital growth in the near term. So we are confident of the range in the medium term.

Joseph Foresi -- Cantor Fitzgerald -- Managing Director

OK. And then the last one for me. Can you give us some color on how fast digital grew for you and what your expectations for growth rate in that business are going forward?

Salil S. Parekh -- Chief Executive Office and Managing Director

Hi. This is Salil. In terms of digital, we started to really track and look at it very carefully for this fiscal -- for fiscal '18, we disclosed that in Q4, digital has grown 3.6% over Q3. And we see that that sort of a trend is something that we would push for.

We see the market certainly growing at a large level, overall digital number of $2.8 billion, as we've tracked it and looked at it carefully in fiscal '18. We'll start to see comps in fiscal '19 as the quarters roll in. We also see that the overall addressable market for this business is somewhere in the range of $180 billion to $200 billion, and that market is growing quite strongly. So we expect this to be one of the growth drivers for us in the future.

Operator

Thank you. The next question is from the line of Anantha Narayan from Credit Suisse. Please go ahead.

Anantha Narayan -- Credit Suisse -- Director

Thank you, and good evening, everyone. I had a couple of questions as well, and the first one is to Ranga again on the margin issue. So Ranga, when you spoke about those investments being the reason for ratcheting down your margin range, are there any one-off elements in those investments? Or should we sort of expect such investments to continue just given your size and growth? And if the latter, then what sort of top-line growth would be required to get your margins back to that 23% to 25% range?

M.D. Ranganath -- Chief Financial Officer

Hi. This is Ranga here. I think -- sorry, you were saying something?

Anantha Narayan -- Credit Suisse -- Director

Yes, sorry. Just to clarify, this question was related more from a three-, four-year perspective rather than just for FY '19.

M.D. Ranganath -- Chief Financial Officer

Yes. I just think that really, we ended the year at 24.3% and Q4 was robust at 24.7%. And the guidance that we have given, 22% to 24%, primarily takes into account Saudi investments. They're not one-off, big -- you get -- see the investment that we need to do.

It is not like that. It is not really a chunky investment. We're looking at all these top accounts and also the service lines where we have more potential to grow, primarily investing in the capabilities, primarily investing in certain IP where we're required to drive the additional growth. It is not really a large, chunky investment that we're looking at.

And of course, this will be very gradual and progressive during the year depending upon how those investments pan out during the year. Certainly, it will have a necessary impact on the margin. But at this point in time, what we have assumed is really all these investments that we are going to make throughout the year. But of course, we are conscious of the fact that for the overall EPS and earnings growth, the margin date has to be more than be compensated by the revenue growth to retain the EPS growth.

I think that's in the medium term. So I think we are very conscious of that fact. I think this is a balance between how we need to really look at focused investments in digital areas where we feel that there is a large opportunity that we need to leverage.

Anantha Narayan -- Credit Suisse -- Director

And on the second part of that question, Ranga, say, over the next three or four years, would a single-digit growth suffice for you to manage your margins at the existing levels?

M.D. Ranganath -- Chief Financial Officer

Well, I think one of the factors that I would like to emphasize, the market levers that we are looking at here is not necessarily the cost optimization levers alone. One of the things is the digital revenue that we have talked about, 25.5% for the year, is coming at higher price points. And not only higher price points, it is also delivering us better gross margins than the core IT services. So our emphasis or endeavor would be to drive that price point and gross margins in digital better during the year, and that is something that we are also working on.

So our overall objective is that a combination of faster growth in digital services, which will be at -- which could be at higher price points and gross margin, it will offset the other impact of the margin growth on the EPS. To answer your question, I think we are comfortable with this range, and we will watch during the year. This is the range that we have made certain investment assumptions to drive growth. And we are comfortable that even this kind of band broadly, the earnings in the medium term need to be protected through multiple levers, including digital profitability.

Anantha Narayan -- Credit Suisse -- Director

And then just one more question just to Salil. First, Salil, on this real -- I think look at it on paper, both Panaya and Skava seem to fulfill some of the criteria among those four elements of your strategy that you laid out. So maybe could you just detail for us the reasons why you decided to get rid of them?

Salil S. Parekh -- Chief Executive Office and Managing Director

Hi. This is Salil. I think the approach we've laid out in the four elements with Agile digital, energize the core, reskill people and localize, those are the go-forward strategic elements we'd then drive to, building out our digital services revenues base, the $2.8 billion that I talked about before. And within that, we reemphasized what we have on a platform basis.

For example, Nia or McCamish, what we have in insurance. Also, lead products such as Finacle and Edge. When we adopted Panaya and Skava, the approach we have taken is we've initiated a process for evaluating, identification of a potential buyer for these. There are several criteria internally that we looked at that we would need for all of our businesses to fit for them to skew.

And there were some of those criteria that Panaya and Skava did not meet at this time. The commitment we have with our clients is to ensure that those two product areas are something that the current clients are working with; and clients in the future that are using this, they've committed to it. And that's the approach we've taken in terms of the strategic review we've put in place today.

Operator

The next question is from the line of Keith Bachman from Bank of Montréal. Please go ahead.

Keith Bachman -- BMO Capital Markets -- Analyst

Hi. Thank you. I had two questions, if I could. The first is also on margin, but I wanted to just understand the strategy as it relates to on-site and offshore.

In the March quarter, your offshore effort and revenues actually went up a little bit. But I would assume, pursuant to some of the strategy elements you laid out that, in fact [Audio gap]. What are the implications to margins as you pursue more digital activities given the weighting of on-site and offshore? And then I have a follow-up, please.

M.D. Ranganath -- Chief Financial Officer

Yes. Hi. Let me take the question. Yes, I think one way to look at it is really segregate our on-site revenue into two components.

One is digital and non-digital. And even if that -- the overall company, we're looking at 25.5%. And when you looked at the gross margin of this 25.5% of the business, it is higher than the core IT services and it is higher than the -- of course, higher than the company's gross margin. So we -- the areas -- of course, digital is not a homogeneous kind of business mix because we've got a very wide range of services there.

But with the pricing discipline that we have, we are confident of achieving better price points in the digital revenue. Even if it is a higher on-site component at this stage, based on what we see, we do believe that the gross margins will still be higher than the core IT services. So to answer the question, the emphasis on digital revenue growth not necessarily mean that those revenues, because of higher on-site component, are coming at gross margins. And today, that is not the case.

So I think that the primary focus of the margin is really to drive further digital without diluting the gross margins that we are making in digital with better price points and, at the same time, make sure that we are leveraging the opportunity across our top accounts and in [Audio gap].

Keith Bachman -- BMO Capital Markets -- Analyst

Capital allocation versus M&A. And you've laid out a strategy where you're paying out 70% of your free cash flow and also going to pay a special dividend. With that said, Infosys, like a lot of the Indian-based IT providers -- service providers rather, is facing structural challenges. And if you look at -- Accenture over the last five to seven years has put a heavy emphasis on M&A to rebalance or remix the portfolio.

And it just seems to me the risk you're running is weighted toward the capital allocation and has not been able to remix your portfolio at a rate that allows you to either maintain or accelerate your revenue growth. So the -- while this is a tricky balance admittedly, it just would, on the surface, seem to suggest that perhaps you should be weighing more to the M&A side. So if you could just speak to the capital allocation strategy that you've laid out today and what emphasis that you're going to place over -- on M&A over the next 12 to 18 months to try to help rebalance your portfolio.

Salil S. Parekh -- Chief Executive Office and Managing Director

Hi. This is Salil. I think in terms of the capital-allocation policy, there's two components to it. First, up to 70% of our free cash flow from our ongoing cash generation; and then the second one being two big wins from what we have on the balance sheet today.

That's going to leave us with quite a significant amount on the balance sheet, in addition to the ongoing cash generation that we will continue to drive into. We developed today at least a view or first view of what are the opportunities in the M&A stream, and we are proactively looking to see what are those we could leverage into the digital service architecture around the definitions that we did already for our future scale-up. And you also saw the announcement today of the acquisition that we did in what we call experience-based digital -- related to the digital-created agency. We want to continue to do those types of acquisitions and, indeed, ironing across that digital landscape that can help us and position us in this transformation.

However, we are also conscious that we have a significant amount of cash on our balance sheet, and that's the reason for the capital-allocation policy as it relates both to the ongoing cash generation and what's sitting today on the balance sheet.

Operator

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

Moshe Katri -- Wedbush Securities -- Managing Director

Can you talk a bit more about some of those investment buckets? I think you mentioned three or four on some of your earlier interviews. And then in that respect, maybe you can talk for a bit what's your perspective about strategy for the next three or four years. Are we going to see any deviation from what we've seen in the past? Maybe a couple of pointers here could be helpful. Thanks a lot.

Salil S. Parekh -- Chief Executive Office and Managing Director

On the investment buckets, the approach we've taken in planning for our fiscal '19 relate to investments in four areas. First, building out digital capabilities, our own internal investments in scaling up, training and recruiting and, in general, giving utilization benefits to building digital capability. Secondly is to expanding our sales capability and allowing that to become more focused in the growth areas, both in the sectors, geographies and also in the service offers. The third relates to our localization approach in the first instance in fiscal '19, investments in localization in the U.S.

both for talent and also for building up our abilities and the capabilities and training capabilities within the U.S. And the fourth relates to refactoring and reskilling of our employees and that cost as it relates to aligning to our future direction, namely on the digital and cloud platforms that they are working toward. In terms of the second question on direction for the next, I think, three or four years as you described, it's centered around four pillars for us. The first is the scale-up of our digital -- Agile digital business, which is today $2.8 billion and growing rapidly.

The second is to energize our core with AI and automation. The third relates to reskilling our employees for this future digital road map. And the fourth relates to expanding localization in the U.S. and in other geographies that we operate.

That direction is there. That is the direction that we've set now for the go-forward period, and we expect to stick with it in the coming years.

Moshe Katri -- Wedbush Securities -- Managing Director

Great. And then just final question. This is a big-picture question. There's a lot of optimism, I guess, among the sell side, the buy side that we may see that uptick in demand this year.

Based on conversations that you're having out there with clients, are we kind of getting there? Or at this point, this is still kind of up in the air just given the fragility of the environment and given the geopolitical uncertainty out there? Thanks a lot.

Salil S. Parekh -- Chief Executive Office and Managing Director

If I understood it well, well, in terms of clients' demand and optimism, what we see today is there are segments where there is significant optimism and growth. For example, on energy and utilities; geographies, for example, the European geography for us or, even more predefined, the rest of the world. Overall, in the areas you defined, Agile service architecture, there's significant optimism and quite a lot of opportunity for growth, and those areas become scaled for us and our investments start to yield return. That's the area where we see the most dynamic growth and opportunity in the market.

And hopefully, we'll leverage that as we execute on it.

Operator

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

Diviya Nagarajan -- UBS Investment Bank -- Analyst

Hi. Thanks for taking my question. Actually, two questions. One is on the direction of M&A.

Your latest acquisition seems to be taking your M&A in a different direction, especially when coupled with the exits that you're looking for with Panaya and Skava. Could you run us through your outlook for how you're looking at M&A going forward? And my second question, again coming back to the margin, now given -- now, Ranga, could you just run us through at the lower end of your margin guide and high end of the margin guide? What are the key elements that really contribute to the margins? I understand that you've probably reached a certain limit on utilization expansion. We're already seeing headcount addition pick up. So if you could just break it down into utilization, pricing and then the investment impact on your margins for the next 12 months, that'd be very helpful.

M.D. Ranganath -- Chief Financial Officer

This is Ranga. On the margin front, I think in the last year, we guided 23% to 25%. We reduced by 1%, and you could -- primarily on account of rupee and, to some extent, the U.S. talent model.

However, we delivered 24.3%. Now this time, the primary reason for guiding 22% to 24% is to tap the opportunities in digital and for the investments that we need to make to tap those opportunities as well as in repurposing the sales engine for some of the large deal pursuits. Third, of course, is the additional investments that we need to make in the United States. These are the three principal pieces.

Now the -- we will -- we do not want to kind of totally exclude these things from a planning standpoint. You can see how these investments pan out during the year. And maybe after Q1 or Q2, we'll get like a perspective, but we want to make sure that we keep the range at 22% to 24% so that -- no [Inaudible] investments we have to make. And as we make during the year, we'll address the margin aspect.

Salil S. Parekh -- Chief Executive Office and Managing Director

On the M&A question, I think the approach we want to take, in fact, the announcement of the acquisition today is clearly centered on the digital services space. One of the components of that is the experience area, which is where this acquisitions currently fits in. We started to look at what the landscape is for acquisitions and services across the many digital components, whether it's data, analytics, IoT, cloud. Those are the areas which are the detailed components of a digital service architecture where we'll examine activation opportunities.

And there will be services plays that we will start to look at.

Diviya Nagarajan -- UBS Investment Bank -- Analyst

I'll come back for more if we still have time. And all the best for the year.

Operator

Thank you. The next question is from the line of Parag Gupta from Morgan Stanley. Please go ahead.

Parag Gupta -- Morgan Stanley -- Executive Director

Hi. Good evening, everyone. So just two questions out here. Firstly, if you look at the deal trajectories that you announced today, they seem to be pretty strong.

Now looking at the numbers itself, we still probably haven't seen any significant pickup in growth rates across U.S., BFSI or retail for that matter. So just want to get a sense that, is the deal trajectory signaling an improvement in the demand environment going forward? So is it more forward-looking rather than the numbers, which are possibly backward-looking? Or do you think there are some parts of the business that are actually dragging down the overall growth? So that's my first question. And just a second question on the margins part again. What I'm just trying to understand is you made one point that there is going to be a lot more investments in digital, especially in areas that have seen underinvestments in the past.

What I'm just trying to understand here is that is this being driven by what you're seeing in the market and what clients are demanding for? Or are some of these investments something that you're making in advance given the way market is beginning to shape up? So just trying to get some clarity on that.

Pravin Rao -- Chief Operating Officer

Hello. This is Pravin. I will respond to the first part of the question. For this year, we have seen tremendous growth in insurance services.

We've seen tremendous growth in energy and utilities and in the telecom space. We're also seeing good growth in the light sensors and healthcare space. On the -- there was growth on the manufacturing side and on the BFS side of BFSI. As well as on the retail side, growth has been moderate.

In the coming year, we expect to see continued growth in energy and utilities. We expect to see the momentum continue in telecom as well. We also expect to perform better in BFSI than what we did this year. This year, if you ignore the impact of one of the large product cancellations last year at BFS, if you normalize the growth of BFS, it would have on a single line, so concrete growth rate.

And in BFS, we have a much-diversified portfolio. We have a strong presence in Europe. We have a strong presence in Indian banks as well. So while we are seeing some softness in large banks in North America, not in terms of spending but more in terms of diverting more spend internally rather than through outsourcing the thing.

Other than that, I think there is definitely continued spending in BFS space. We remain optimistic about this space, but it remains to be seen, particularly in North America, whereas we have seen good growth in both Europe as well as rest of the world. From a large-deal perspective, as I said earlier, we have done 10 large deals, $902 million in revenues. Four of these deals are in financial services and three in CRM space.

And time and time again, it's -- the [Inaudible] in this quarter for this particular year and total TCV was about $3 billion from large deals. The pipeline continues to be healthy, and it's across different sectors as well as service lines. Well, net-net, while we see -- we have seen good growth in a few verticals, we have seen good growth in some of the geographies like Europe. We have seen some softness in North America, but that's not related to any macro environment issue.

So we are hoping that spend will start coming back to North America this year. Now coming back to where we have seen some drags from a sectors perspective, we expect continued [Inaudible] in the retail space from our perspective. Apart from that, some of our businesses like consulting in the last year or two, we have had some [Inaudible] in consulting. We are still working on stabilizing and bringing growth back in this area.

And it remains central to our strategy. We still feel that it's still work under progress, and we expect fewer quarters of challenges before it stabilizes. I'll pass on to Salil to respond to the other question.

Salil S. Parekh -- Chief Executive Office and Managing Director

Hi. This is Salil. In terms of where we're investing in digital, we're, in fact, as was outlined before, we're in the piece of digital we have internally of detailed digital service architecture that we built. This comprises of five elements.

And from that, we're investing in some places, for example, investing in the area of cloud, investing in the area of modernization of application landscapes, investing in the area of IoT, investing in the area of experience. So we've picked a few select areas within the digital landscape where we will look to invest and scale up our capability. We start to service the need that we see with our clients going forward.

Operator

Thank you. The next question is from the line of Edward Caso from Wells Fargo. Please go ahead.

Edward Caso -- Wells Fargo Securities -- Managing Director

Hi. Good evening. I have a question around some of the accounting with the acquisitions. Are Panaya and Skava going to be treated as discontinued operations, and therefore, taken out of the historical numbers? Or have they been taken out?

M.D. Ranganath -- Chief Financial Officer

Hi. This is Ranga here. On, let's put it, the IFRS standards, once we identify an asset held for sale, which is driven by the management's intention to sell. We have to reclassify all the assets and liabilities as assets held for sale and liabilities associated with that.

After that, we have to do a fair-value assessment, and we undertook fair-value assessment from an independent value. And the $18 million of impairment loss has been recognized in the consolidated financial statement. And to answer your question, these are not discontinued operations. I mean, these assets will continue to be generating because they have revenues and they have cash flows associated with these assets.

But we are classifying them as per IFRS as assets held for sale. And so accordingly, what has happened is in the consolidated balance sheet, we have called it out, both the assets and liabilities, and we have taken the impairment loss.

Edward Caso -- Wells Fargo Securities -- Managing Director

So the next related question is, how important were Panaya and Skava to some of your existing revenue such that now you've indicated that it's for sale, could it impact some of your existing revenue run rate?

Pravin Rao -- Chief Operating Officer

Ed, this is Pravin here. We will continue to partner with them based on the -- irrespective of whatever outcome [ Inaudible ] it takes. And we'll continue to support our existing clients. And if we did open for new prospects or clients, if there's a need or applicability of Skava or Panaya, we will continue to support that.

Edward Caso -- Wells Fargo Securities -- Managing Director

And my last question related again is the WongDoody, if I said that correct, acquisition. If you got about one -- if you gained about one times revenue, call it, 75 [Inaudible] that's about 2.5% growth. Within the 6% to 8% guidance, are you assuming 2% to 3% from this acquisition?

M.D. Ranganath -- Chief Financial Officer

You're talking about the recent acquisition? Now, this is what we have given. 6% to 8% is the organic growth.

Edward Caso -- Wells Fargo Securities -- Managing Director

It's organic growth?

M.D. Ranganath -- Chief Financial Officer

That's right.

Edward Caso -- Wells Fargo Securities -- Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Ashish Chopra from Motilal Oswal Securities Limited. Please go ahead.

Ashish Chopra -- Motilal Oswal Securities Limited -- Vice President

Yeah, hi. Thanks for the opportunity. Just one clarification on the previous question as well, Ranga. So while 6% to 8% is the organic growth, does it also bake in the goals of revenues from Panaya and Skava as and when they get sold? Or currently, that is not updated in the guidance?

M.D. Ranganath -- Chief Financial Officer

Well, I think we have taken into account that possibility. Clearly, this is the organic growth.

Ashish Chopra -- Motilal Oswal Securities Limited -- Vice President

OK. And the second question was to Pravin. So Pravin, you mentioned that overall spending in BFSI remains healthy, but there's this trend on -- in certain clients in North America where they're taking the work back in-house. So if you could just elaborate on how secular or sporadic this is as to if it is still a very small set of clients.

Or do you see it happening across a wider set?

Pravin Rao -- Chief Operating Officer

It's a -- first thing, it's a -- normally a cyclical trend we have seen in the past, I'll call it, back like the last 10, 15 years. There have been and we have seen times when we have seen acceleration of in-sourcing and -- or a period of time that stabilized, and we have seen periods like when they've also divested also those captives. But today, we have seen this primarily in -- to some extent in digital experience and also, to some extent, in RCM space. It's -- I mean, it's something we have been seeing in the last couple of years, I would say.

There are two primary reasons from our perspective. One, obviously being under the technology exceptions [Inaudible] sometimes [Inaudible] they want to tap on to that [Inaudible], I think. But again on this, as part of the unit transformation, one part -- one element of transformation is modernizing their legacy and that's [Inaudible] and working on their [Inaudible] legacy systems, so we have seen trends increasing. So it's the same It's a combination.

Difficult to predict how long this trend will continue, but it's -- I mean, part of this, in some sense, where it has impacted growth to some extent. We also work very closely with captives. We also help in many cases in terms of helping [Inaudible] sort of captive, providing training assistance, recruitment assistance and so on. And in many other cases, we have seen our [Inaudible] has also improved with the increase in captive.

Ashish Chopra -- Motilal Oswal Securities Limited -- Vice President

Got it. And just lastly, some insight on one of the investment areas you articulated for the margin guidance on revitalizing the sales. If you could just maybe throw some more light on that with respect to, are we talking about having more feet on the ground? Or are we looking at changing the kind of mix within our sales team or what exactly would entail around that? Do we think we are probably substaffed? Or is it a quality issue?

Salil S. Parekh -- Chief Executive Office and Managing Director

On [Inaudible], what we'd like to do is expand what we have in terms of our security [Inaudible] very strong. However, there are areas and pockets where we can go out to more subsectors. We could probably look something in a few European geographies. We could also -- we also plan to do something where we'll introduce more digital specialists into our sales mix and also to look at how we could work on account expansion programs within our sales mix.

So we're trying -- the real focus is to expand the sales capacity into newer areas, some of which are sales and client-based and some, which are sector geography-based.

Operator

Thank you. The next question is from the line of Rod Bourgeois from DeepDive Equity Research. Please go ahead.

Rod Bourgeois -- DeepDive Equity Research -- Analyst

Hi there. During Vishal's time as CEO, he set a vision for Infosys that was more product-focused. And I guess, my question at this stage is, is Infosys now planning to move back to more of a service orientation or will Infosys maintain the general vision that was set by Vishal on the product and software front?

Salil S. Parekh -- Chief Executive Office and Managing Director

So the approach we've made out really talks to scale out our digital services space today. And we have a huge strength in services, both in Agile, digital and our core services. That's the primary focus where we're driving the business. In addition to that, we have what I call scaled platform like -- scaled products and platforms like [Inaudible], like Aimia, which is a strong platform that we will expand, like McCamish in the insurance space, like Edge.

Those continuing to be part of our future approach where we absolutely want to be driven to build out our digital services business, which is the primary focus for where our clients are going in the future.

Rod Bourgeois -- DeepDive Equity Research -- Analyst

Got it. And hopefully, we'll learn more about that in the Analyst Day. If I may, my last question is related to the margin guidance. Your guidance implies some potential for some margin contraction based on the investment plans that you've outlined here.

I guess, I also wonder, if the margin contraction outlook is partly accounting for risk that could stem from contract profitability issues given that your pricing has been somewhat more aggressive over the past couple of years, I'm wondering if the guidance is accounting for potential contract profitability issues that could stem from that.

M.D. Ranganath -- Chief Financial Officer

This is Ranga here. No, that's not the reason. In fact, if we look at two aspects, right? You look at the pricing this year in the constant-currency basis year on year, price realization has improved by 0.2%. I mean, it's broadly stable, unlike the midyears where we used to see pricing declining constant currency between 1% and 1.5%.

Second, this is not due to any contract contraction, either in the sales or in the margin. This has not account of any of those. It's primarily our uptaking of investing into some areas to drive in some growth and the sales revitalization in the U.S. talent model.

This has not to do with -- in specific contract, contraction either in sales or margin.

Rod Bourgeois -- DeepDive Equity Research -- Analyst

So maybe the follow-up to that, just real quick, is you mentioned the price realizations being up year to year, how much of that is due to mix and how much of that is due to price improvement on apples-to-apples deal?

M.D. Ranganath -- Chief Financial Officer

I think it's very difficult to put a number on both the buckets. Price realization is a combination of two factors. One is, of course, the rate parts in the T&M. T&M is straightforward.

It's the -- it is rate [Inaudible]. In case of a fixed price project, it's also a factor of the productivity that we achieve in a fixed price project after the commencement of the project, which is either through on-site mix changes and the total headcount in a particular recipe due to better productivity management in a fixed price project. So I'd say now roughly 50% of our revenues, maybe all 50% of revenues come from fixed price, and they have the on-site part as well. The second reason for uptake in price are [Inaudible] not as much of a downward trend that we saw two years ago.

Also, we are seeing the digital, which is about 25.5% for revenues, coming at better price points. So it's a combination of both.

Operator

Thank you. The next question is from the line of Ankur Rudra from CLSA. Please go ahead.

Ankur Rudra -- CLSA -- Analyst

Hey, thanks. Certainly at a high level, Infosys has been espousing a strategy focusing on new services, artificial intelligence, automation and also rescaling employees. So from a -- from your strategy reappraisal, are you sort of re -- are you sort of endorsing that direction, or are you making any kind of reprioritization areas? Any clarification there will be helpful.

Salil S. Parekh -- Chief Executive Office and Managing Director

Hi, Ankur. This is Salil. The approach we laid out really is focused on building Agile digital-services portfolio. That portfolio today, which is approximately $2.8 billion in revenue, is where we see quite a strong demand from our clients and a large market opportunity.

It's then combined with revitalizing or energizing our core automation and AI and rescaling. So our focus -- and the localization of the U.S. Our focus today is really very centered on the services aspects, plus scaling platforms and products like silicon, McCamish, Aimia, and Edge. The objective here is to be building relevance for where our clients' digital journey is taking and making sure that we are investing in and building up with capabilities [Inaudible] with that.

But again, very much in the services space.

Ankur Rudra -- CLSA -- Analyst

OK. And just as a follow-up on your guidance. I understand over the course of last year, the commentary on banking perhaps changed a bit. We were all hoping for a business end recovery, which we're [Indiscernible] with several times.

Are you seeing the new guidance you're still baking in a recovery in BFS spending, or is that actually an upside to the guidance you had laid out?

Salil S. Parekh -- Chief Executive Office and Managing Director

Ankur, this is Salil here. We have factored all the estimates or assumptions we had are reasonably factored. And as we have said in Quarter 3, in the coming year, our expectation is a little much better. It remains to be seen how much it is, but right now, our order of visibility, we have factored that in the guidance.

Ankur Rudra -- CLSA -- Analyst

OK. So your comment -- just to understand your commentary on banking, I think banking spending should improve in FY '19, is that the comment?

Salil S. Parekh -- Chief Executive Office and Managing Director

We do -- I mean, today, when you look at banking, there is some softness in Americas. There is spending, but as I explained earlier, some of the spending is being directed to -- internally, to captives setup. So that's in the Americas side. On the Europe side, we continue to see good traction.

We are looking on other spending [Indiscernible] and union banks in North America where we have good presence there. So it's a mixed bag. We believe that our portfolio mix, our diverse portfolio mix will help us in capturing whatever spend that's out there toward outsourcing. So from our perspective, in this year, I've explained right here, I think you said growth.

But I mean, if you normalize the impact of RBS, then our growth will be in line with the company growth. We do expect next year growth to be better and spend to come back [Inaudible] and revert. It remains to be seen. But those are our estimates.

What I've said is our guidance factored into all these [Inaudible] as well. We have made some estimates and that's factored in the guidance.

Ankur Rudra -- CLSA -- Analyst

OK. And just for the margin guidance for next year, Ranga, if you could clarify. Obviously, you've baked in a lot of things here. I think you're baking in stronger wage hikes, bonuses, variable components as well.

But how much of the lowering of the guidance is because of the step increase in local mix, new skills, and investments versus the lack of operating leverage from existing levers that we had in prior years like utilization on [Inaudible].

M.D. Ranganath -- Chief Financial Officer

Hi. This is Ranga here. I think, two aspects. One, of course, is really the priority areas of investment that I've talked about.

That is the primary one. And we do believe that digital revenue, which is 25.5%, is coming at higher price points and also higher gross margin as well. We do believe that the rate of growth in digital should kind of minimize the impact of the core IT services pieces that you mentioned. Even if you look at -- in the core IT services, the three things that we've been able to successfully do, of course, the utilization, which is we already said that the current level we are comfortable.

Coming to on-site mix, it has come down below 29 this quarter, and we do believe that we will continue to focus there. The third piece is really in the core IT services. We are looking at the on-site part of [Indiscinerible]. And we do believe that they are [Inaudible] in terms of bringing more productivity and get some margin benefits there.

So I think while we're focusing on the core aspects, on the dimensions that I've talked about, digital revenue growth, the higher gross margin is also an important factor for us. And this time, we've also advanced all the salary hikes to April, as you have seen, and we've also kind of planned for higher variable pay in terms of inflating the targets that we've set ourselves. So all these elements are part of our guidance.

Operator

Thank you. The next question is from the line of Yogesh Aggarwal from HSBC. Please go ahead.

Yogesh Aggarwal -- HSBC -- Director

Hi. I just have one clarification. Ranga, in FY '17, Panaya and Skava were around $100 million revenues. So assuming they were down, let's say, 20% in FY '18, so around $80 million.

Are you assuming any revenues in FY '19 in your 6% to 8% guidance? Or are you -- maybe for six months, are you not assuming any numbers?

M.D. Ranganath -- Chief Financial Officer

No, let me clarify. I think both Panaya and Skava, put together, their revenues are not material for us.

Yogesh Aggarwal -- HSBC -- Director

OK, OK. So it doesn't matter that you've include...

M.D. Ranganath -- Chief Financial Officer

Yes, not material for us. And that does not impact the guidance that we have given. And in fact, the 6% to 8% that we've given takes into account the extremely organic. And Panaya and Skava revenues are not material for us.

Yogesh Aggarwal -- HSBC -- Director

Got it. Thank you, Ranga. Thank you.

Operator

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

Bryan Bergin -- Cowen & Company -- Director

Yes, hi. My first question, can you talk about your expectations for the flow of revenue growth throughout the year as it relates to the 6% to 8%? How do you expect that to progress throughout the year?

M.D. Ranganath -- Chief Financial Officer

If you look at the Q4 revenue growth, just concluded quarter, the year on year had been 9.2%. And if you compare to -- and during the course of fiscal '18, we have seen improvement in the year-on-year growth quarter on quarter. So for example, Q2 -- Q3 was 8%. Now we have -- Q4 is more than 9%.

I think that is -- and also, we have got a decent exit rate that we have seen unlike some of the previous years for Q4. We've had a decent exit rate. And typically, as you know, we were looking at -- given the -- given our earlier profile, Q1 and Q2, typically our first half, typically happens to be stronger than the second half. That has been the past pattern.

But we don't even -- I didn't want to give us any [Inaudible] look that that is going to continue. But having said that, the good exit rate that we have gives us confidence saying that, look, Q1 and Q2, or the first half, would be broadly in line with the pattern that we have seen in the earlier years. So we -- to answer your question, it is not back-ended. The question is if it is primarily Q3 and Q4 growth is where it is, that's not how we have planned for 6% to 8%.

Bryan Bergin -- Cowen & Company -- Director

And my next question. Can you discuss your plans as it relates to augmenting the strategic consulting capabilities?

Salil S. Parekh -- Chief Executive Office and Managing Director

Hi. This is Salil. In terms of consulting, the approach we want to put in place is we expect a significant amount of growth coming from consulting given that's the area that works closest with the business user. We're working on our consulting business of having shared with you at fiscal '18 and fiscal '17, which will typically [Indiscinerible].

We now put in place a turnaround plan to get back consulting really focused on where our market is growing in terms of some of the digital element and quite a lot of the business linkages that we need to scale up with the [Indiscinerible] on the business side. And that is the level of consulting activity that we have, which is what we need to enhance in fiscal '19. And we hope to do that over the next 12 to 18 months.

Bryan Bergin -- Cowen & Company -- Director

Thank you very much.

Operator

Thank you. The next question is from the line of Girish Pai from Nirmal Bang. Please go ahead.

Girish Pai -- Nirmal Bang -- Analyst

Yeah. Thanks for the opportunity. I just had a couple of questions. One was regarding the capital return.

Is there any regulatory issue that could prevent you from making a buyback this of $1.6 billion in FY '19?

M.D. Ranganath -- Chief Financial Officer

Well, if you look at the 2017 policy based on when we did the buyback, right? We did the buyback of up to $2 billion. We just concluded. There are no restrictions. Of course, we had to go by the guidelines in India and SEBI guidelines that's very specific on periodicity and etc.

But there is no restriction. But what the board has said, it has is identified $1.6 billion, and the mode of [Indiscinerible], we will decide later. So that's the thing. It's not about any restrictions.

Girish Pai -- Nirmal Bang -- Analyst

The periodicity part, does -- would that prevent you from making a buyback in FY '19, or will it be a 4Q FY '19 event?

M.D. Ranganath -- Chief Financial Officer

In India, of course, there's a time gap that is there between two successive buybacks as for the SEBI guidelines. Typically, runs about 12 months. That has been the broad timeline. So that's one aspect.

But beyond that, there are no restrictions. But as the board has clearly said in our capital allocation policy, we have earmarked, and the mode of the assessment, we have kept it as flexible and that will be decided by the board at some time.

Girish Pai -- Nirmal Bang -- Analyst

OK. My second question is with regard to the mix between you and bringing of this $3 billion large-deal TCV number. So you can, like -- you mentioned -- Pravin, you mentioned a certain number for 4Q, by this, can you, full year, how much the number is?

Salil S. Parekh -- Chief Executive Office and Managing Director

It's Salil. The number is above $3 billion. So for Q4, it was $905 million. [Inaudible] about [Inaudible] three quarters.

Girish Pai -- Nirmal Bang -- Analyst

No, no. The mix between you and renewal?

Salil S. Parekh -- Chief Executive Office and Managing Director

OK, sorry. [Inaudible] or of the 905, for the year, it's about 30%.

Girish Pai -- Nirmal Bang -- Analyst

OK. Thank you. Thank you.

Operator

Thank you. The next question is from the line of Pankaj Kapoor from JM Financial. Please go ahead.

Pankaj Kapoor -- JM Financial -- Executive Director

Yeah, hi. Thanks for the opportunity. So on the digital, it seems that there is some kind of a realignment in your priorities and the portfolio which you are not going to target. Is that, I'll be assuming, more closer to what your peers have been focusing on for some time? So my question is that do you think that you could be at a disadvantage here as others have already moved much ahead on this?

M.D. Ranganath -- Chief Financial Officer

First, what was interesting to see is the existence of our digital capabilities today. So today, we already have $2.8 billion of digital work in the detailed digital services architecture that we've begun. And it's now growing, as I said earlier, quarter on quarter, and at a quite a rapid pace in fiscal '18, and we see that continuing ahead. We very much are focused now future as this becomes the growth engine for us given our client's future relevance to this sort of work.

We want to make sure that we invest and build this out so that we have all the full life cycle of digital capabilities available for where our clients are going.

Pankaj Kapoor -- JM Financial -- Executive Director

OK. And Pravin, in the $3 billion deal with the SEBI, were there any digital dealers who were a part of that?

Pravin Rao -- Chief Operating Officer

I'm sorry?

Pankaj Kapoor -- JM Financial -- Executive Director

Of the $3 billion deal with SEBI that you announced [inaudible], yes.

Pravin Rao -- Chief Operating Officer

Each of these large deals happen in element of digital. We know the deals are an element of cloud migration and negative transformation and so on. We have not segregated or computed how much percentage of digital is there. What about the extent of the digital that is accounted toward the 25.5% of our $1.8 billion that Salil talked about? We have not tracked that deal [Inaudible] is digital.

Pankaj Kapoor -- JM Financial -- Executive Director

Sure. I understand. And lastly, just a clarification. The investment in digital and this deal that you are talking about for the margin's outlook, is it building any impact of any acquisitions also in those areas as part of this?

M.D. Ranganath -- Chief Financial Officer

No. We have not looked at the acquisitions impact on this. It's primarily on the investments that we need to make either by way of service and investments, either through the employee-based investments or some of the IP-based investments. It doesn't take into account any acquisition costs attributable to these areas.

Pankaj Kapoor -- JM Financial -- Executive Director

Thank you, and all the best.

Operator

Thank you. The next question is from the line of Ashwin Mehta from Nomura. Please go ahead.

Ashwin Mehta -- Nomura Financial Advisory -- Executive Director

Yeah, hi. I have one question. You seem to be indicating a higher wage hike this year. Do you think this could be an industry phenomenon? Or this is more Infosys-specific?

M.D. Ranganath -- Chief Financial Officer

The wage hike is in the same range as that we did last year, so I don't see any difference. For, like, last year, we come here differentiate. And majority of the people, as we said earlier, will see rate increases, particularly in India between mid-single-digit to price, single-digit. It's the same with we have seen in the last year.

And it's in line with what we're seeing in the market.

Ashwin Mehta -- Nomura Financial Advisory -- Executive Director

OK. And as a second question, in terms of contract expenses, that depressed your margins by almost 50 bps in FY '18. Do you think this will go up further given the differentiation-based restrictions that are coming up on visas?

M.D. Ranganath -- Chief Financial Officer

One of the things, as you know, the need for subcontract has come essentially when -- it's primarily, of course -- it's more than 95% on-site. And it comes primarily when we do not have the required skill set manpower to start a particular project on time due to non-availability of -- the person not being available to start in some of the projects and so on. I think [Inaudible] cost of year, we have taken actions in terms of making sure that subcontractor [Inaudible] is something in the last option after exhausting other options. And at the same time, there are several projects, with lack of availability of couple of resources, especially in digital kind of projects, will decrease the ability of the company to go after those projects.

And what we have also done during the course of the year results of that the price point at which these subcontract large enough projects are higher to make sure that there is a fair amount of diligence and discipline on the market for the subcontractors. So this is something that we are addressing on management. And the second time, the U.S. talent model is really the core vehicle that we are looking at to make sure that the supply chain aspects that I talked about, ability to staff engagements on time, it was really getting impacted by the visa issues in the second lever.

I think both are important for us. But in the short term, I think we are comfortable with the current level and as we move much more toward the year [Inaudible].

Ashwin Mehta -- Nomura Financial Advisory -- Executive Director

OK. Just one small one. In terms of digital, you talked about all your Q-o-Q growth as well. Can you share what the Y-o-Y growth in digital was this quarter?

M.D. Ranganath -- Chief Financial Officer

At this point in time, we've been able to share Q-o-Q. And from Q1 onwards, we will be providing more color on the digital revenues. So that's where the trajectory that we could depict for all the investments and [Inaudible] right now.

Ashwin Mehta -- Nomura Financial Advisory -- Executive Director

OK. Thanks a lot, and all the best.

Operator

Thank you. The next question is from the line of Sandeep Shah from CIMB. Please go ahead.

Sandeep Shah -- CIMB Securities -- Director

Thanks for the opportunity. Salil, just want to understand what all three, four parameters you will look for to measure the achievement of your strategy, which you're putting forward starting from FY '19?

Salil S. Parekh -- Chief Executive Office and Managing Director

So for that, externally, the measure that we will start to be very focused on is this $2.8 billion revenue that I've mentioned, in fiscal '18, and how that trajectory expands specifically in fiscal '19 and in the years to come. Internally, we start to look at how, if I can call it that, the digital index works across all sectors, across all accounts, what the percentage of rescaling is within employee base, how we're looking at our account expansion parameters internally and what percentage of that is focused and coming from digital, whether gross margin and pricing that we see in a digital business. So internally, we define six or so parameters that show me where we all drive this business. It's a way where we're more focused on the growth of this absolute value on the $2.8 billion.

Sandeep Shah -- CIMB Securities -- Director

OK, OK. And second on the large deals, just on the traditional IT, you've been achieving this mark of close to $1 billion is achievable or it will be still a work in progress?

Pravin Rao -- Chief Operating Officer

Our ambition is to reach that. We are almost there. On an average, we are -- have been doing about some [Inaudible] and then [Inaudible] but sometimes, the talent is -- some of the cycle times are longer than the [Indiscinerible] some of the [Inaudible] gets pushed to the subsequent quarter. But looking at the pipeline, we feel that it's achievable and that's where we are focusing now.

Sandeep Shah -- CIMB Securities -- Director

OK. Just last question on the margin guidance of 22%, 24% based on the -- tied to the earlier question, it does not relate to contractual profitability. So it looks like it's an investment to guide the growth. So is it fair to say that because you have growth [Indiscinerible] of 6% to 8%, it's not materially different than the 5.8% in FY '18, so that shows the margin compromise that's not leading to kind of a growth in FY 2019? But is it fair to say that once this investment is there over the next two to three years, the growth comes back to high single digit to low double digit and your margin can be leveraged because of the growth?

M.D. Ranganath -- Chief Financial Officer

Well, I think as what we said earlier, this is not on account of any particular contractual contraction, either on volume or on price, on anything of that size is not due to any of those factors. It is clearly based on our intention to invest in digital areas, to accelerate growth in those areas and revitalize our sales to make sure that we are better placed to capture the growth in the coming years. I think that's the whole intention. At this point in time, we have guided for 6% to 8% in FY '19.

At this point in time, we do not want to comment beyond FY '19. But our [Inaudible] would be that these investments of growth and they're not one-off chunky investments or chunky constructs at any particular contractual contraction.

Sandeep Shah -- CIMB Securities -- Director

And just one clarification. Does guidance on a constant currency or when the rupee depreciates, I don't know how you believe the pressure, in terms of this guidance, would be slightly lower?

M.D. Ranganath -- Chief Financial Officer

Well, I think the 6% to 8% is certainly constant currency. So that the rest of the margin -- and when we give margin guidance, we always assume certain currency momentum [Indiscinerible] rupee. So that has been baked into the model.

Sandeep Shah -- CIMB Securities -- Director

OK. Thank you, and all the best.

Operator

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

Sandeep Shah -- CIMB Securities -- Director

Thank you, everyone, for joining in for this call. In terms of our closing, really delighted we've had a strong Q4 and a strong closing of the year. Q4 starting to see growth at 9.2% and a strong operating margin performance. In terms of looking ahead, we're clearly focused on the four pillars of our strategy.

First, scale out the Agile and digital business, which is 2.8% today, which grew Q4 on Q3 by 3.6%; second, energize our core, apply automation and artificial intelligence, and really drive productivity improvement into that on an ongoing basis; third, reskill our employees; and fourth, localizing our markets starting especially in the U.S. with the talent and capability. We believe this is a strategic direction that is going to give us more and more relevance with our clients' future, and we're looking forward to execute that with the investments that have been outlined for those growth areas. With that, our guidance for fiscal '19 reconfirms that's what we've discussed today, 6% to 8% in constant currency in terms of growth revenue growth, 22% to 24% operating margin.

And thank you, everyone, again, and look forward to catching up on the Analyst Day/Investor Day and the future calls.

Operator

[Operator signoff]

Duration: 90 minutes

Call Participants:

Sandeep Mahindroo -- Investor Relations

Salil S. Parekh -- Chief Executive Office and Managing Director

Pravin Rao -- Chief Operating Officer

M.D. Ranganath -- Chief Financial Officer

Joseph Foresi -- Cantor Fitzgerald -- Managing Director

Anantha Narayan -- Credit Suisse -- Director

Keith Bachman -- BMO Capital Markets -- Analyst

Moshe Katri -- Wedbush Securities -- Managing Director

Diviya Nagarajan -- UBS Investment Bank -- Analyst

Parag Gupta -- Morgan Stanley -- Executive Director

Edward Caso -- Wells Fargo Securities -- Managing Director

Ashish Chopra -- Motilal Oswal Securities Limited -- Vice President

Rod Bourgeois -- DeepDive Equity Research -- Analyst

Ankur Rudra -- CLSA -- Analyst

Yogesh Aggarwal -- HSBC -- Director

Bryan Bergin -- Cowen & Company -- Director

Girish Pai -- Nirmal Bang -- Analyst

Pankaj Kapoor -- JM Financial -- Executive Director

Ashwin Mehta -- Nomura Financial Advisory -- Executive Director

Sandeep Shah -- CIMB Securities -- Director

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