Ranganath Mavinakere - Executive Vice President and Chief Financial Officer
Thanks, Salil, and Pravin. Hello everyone. Welcome to the Q2 earnings call. We had a strong performance in Q2. Several key financial metrics and operational metrics saw multi year highs during the quarter. Revenue growth, digital share, top-line growth, calculation and margins saw good trajectory during the quarter. Salil and Pravin have already talked about the revenue metrics, client metrics and business outlook.
Let me start with a few outcomes during the quarter. First, on a first half year-over-half year basis, our revenues grew 6.9% terms and 7.1% in constant currency terms. In rupee terms, the H1 growth was 14.7% over the last year H1.
Second, our EPS in dollar terms grew sequentially in Q2 by 8.8% and year-on-year by 5.7%. After normalizing for the Panaya charge that we took in Q1, sequential EPS growth in Q2 works out to 1.4%. In Rupee terms, EPS growth in Q2 as compared to Q2 of last year was 16%.
Third, our operating margin for the quarter was heading at 23.7% at the higher end of margin guidance of 22% to 24%. I will provide more color on this shortly.
Fourth, our return on equity, ROE was healthy at 24.7%, an increase from 21.2% in Q2 of last year and an increase of 3.5% over one year.
Fifth, our relentless focus on operational efficiency parameters continued this quarter. Utilization excluding trainees continued to be high at 85.6%. On-site mix which I have been talking about for last few quarters further moderated to 28.4% which is one of the lowest we have seen in several years.
Due to continued productivity improvements, stable utilization and increase in digital share, revenue per employee increased by 3.8% year-on-year to $64,663.
Sixth, free cash flow was at $360 million for the – and for the half year the free cash flow was $912 million. In H1 of 1999 we had higher tax payments due to ATA that was concluded earlier in the year and more other income due to the share buyback which we concluded of $2 billion in December 2017 as compared to H1 2018.
Now let me come to revenues, price realization and margins. Revenues in Q2 2019 were $2921 million, a sequential growth of 3.2% in dollar terms and 4.2% in constant currency terms. In Rupee terms, the revenue growth for the quarter, revenue for the quarter was 20,609 crores. This is a sequential growth of 7.7%.
As compared to Q2 of last year, revenues grew 7.1% in dollar terms, 8.1% in constant currency terms and 17.3% in rupee terms. Price utilization in Q2 in constant currency terms was stable on a year-on-year basis and improved by almost 1% in constant currency terms quarter-on-quarter basis, we will believe that year-on-year, change in price is a better indicator.
Blended revenue, blended volume growth in Q2 was 2.8% on a quarter-over-quarter basis. In first half year, H1, our blended volume growth stood at 78.8% as against the constant currency growth of 7.1%.
However, our focus on optimizing on-site employee cost including sharper focus on productivity, on-site pyramids, localization and optimization measures led to a decrease in the on-site employee cost as a percentage of revenue to 37.4% in Q2 as compared to 37.9% previous quarter. This is one of the lowest we have seen in several years.
However, our sub-contractor expenses as a percentage of revenue increased to 7.4% of revenue in Q2 as compared to 6.8% in the last quarter and 6.2% in Q2 of last year which is an increase of 1.2% year-on-year. During Q2, we made further investments in expanding our localization initiatives and other areas as we have outlined at the beginning of the year. These investments will continue till rest of the year as we had outlined in the beginning of the year.
Operating margin in Q2 was 23.7%, same as last quarter. During the quarter rupee distribution net of cross currency provided a benefit of 80 basis points including in operating parameters, including higher pricing and lower on-site mix which I talked about and to some extent even lower cost, head the margins sequentially by another 70 basis points.
This aggregate benefit of 150 basis points was offset by compensation increases and higher variable pay amounting to 100 basis points and certain interventions that is yet to address the attrition. Further, increase in our sub-contractor cost on-site localization and investment impacted the margins by 50 basis points.
So overall, operating margins remains flat sequentially. We ended the quarter with a total headcount of 217,739 employees which is an increase of 3.7% from last quarter. Gross headcount addition increased to 19,721. We had 11,887 employee quits during the quarter as compared to 11,911 quits last quarter. We continue to focus on measures to mitigate attrition.
Cash generated from operating activities in Q2 as per IFRS consolidated was 438 million, which was after the 76 million of taxes paid after the APA entered with the United States IRS earlier in 2018.
Capital expenditure for the quarter was $78 million, which is approximately INR554 crores. Cash and cash equivalents including investments stood at $4,185 million, which converts to approximately INR30,366 crores. Debtor days outstanding for the quarter stood at 66 days due to superior working capital management. Q2 continue to witness huge volatility in currency markets and we managed to navigate the same effectively. Yield on cash for the quarter was 7.53% as compared to 7.2% last quarter. Hedge position as on September 30 was $1,966 million.
The company today announced an interim dividend of INR7 approximately $0.10 per ADS as compared to an interim dividend of INR6.5 per share after a bonus share at this month announced same quarter last year. This is in line with the capital allocation policy as articulated earlier in the year.
We plan to make further investments as we outlined in the beginning of the year on employees, trying to address attrition in the coming months towards residual salary included for package holders and targeted increases for some part of our workforce.
Coming to operating margin guidance for fiscal 2019 retaining our operating margin in the guidance range of 22% to 24%. Coming to revenue guidance in constant currency terms, we continue to retain 68% based on March 31, 2018 rates.
Lastly, I would like to thank each one of you in the investor community for the wholehearted support that I received over the last three years in my role as CFO of this iconic company. During the last three years, the company delivered its strong and resilient financial and operational performance on multiple strides, free cash flow, return on equity, growth in digital, execution of capital allocation policy and significant improvements in productivity parameters like per capita revenue and utilization.
Between fiscal 2015 and 2018, while the revenue increased by 26% in dollar terms and the free cash flow expanded by 40% utilization interest high level 5% and return on equity improved and we executed capital allocation policies with a share buyback of $2 billion. Unwavering focus of the entire management team made these outcomes possible.
I am happy that the company’s financial performance is strong and resilient as I pass the baton to my successor. Thank you very much for you support all these years and we will open the floor for questions.
Infosys Limited, Inc. (INFY) CEO Salil Parekh on Q2 2019 Results - Earnings Call Transcript | Seeking Alpha
