Infosys Limited American Depositary Shares

And welcome to Infosys Limited Q4-FI25 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Mahindra. Thank you. And over to Mr. Mahindra.

Hello, everyone, and welcome to Infosys' earnings call for Q4 and FY25. Joining us on this earnings call is CEO and MD, Mr. Saral Parekh, CFO, Mr. Jayesh Sangrajka, and other members of the leadership team. We'll start the call with some remarks on the performance of the company, subsequent to which the call will be opened up for questions. Kindly note that anything we say which refers to our outlook for the future is a forward-looking statement that must be read in conjunction with the risks that the company faces. A full statement and explanation of these risks is available in our filing with the SEC, which can be found on www.sec.gov. I'd now like to pass on the call to Salil.

Thanks, Sandeep. Good evening and good morning to all of you. Thank you for joining us on this call. We had an excellent year in financial year 2025. Our revenues grew at 4.2% in constant currency terms. Our operating margin was 21.1%. we generated $4.1 billion in free cash flow, and we had $11.6 billion in large deals. In Q4, we had year-on-year growth of 4.8% and operating margin of 21%. We are seeing growing demand from clients to partner with them on AI. They're moving from a use case-based approach to an AI-led transformational approach with AI agents playing a critical role. We're working on AI projects by bringing Infosys Topaz generative and agent AI-powered services and solutions for their benefit. AI work spans a wide spectrum of priority areas like process improvement, engineering, customer service, cybersecurity, and employee productivity. We're helping a large U.S. financial services company navigate the AI transformation to deliver hyper-personalized conversational AI-powered customer experience with accuracy of over 80%. We're working with a Europe-based company to create a master solution driving multiple AI-first transformation projects that is automating 70% of the process landscape. We continue with a strategic expansion with acquisitions, one in energy consulting space in the US, one in cybersecurity in Australia. and with a new strategic partner joining a joint venture in Japan. All of these are areas of interest and strategic focus for the company. We have a set of capabilities that support our clients in their growth areas related to AI, cloud and digital, and in their efficiency areas related to automation, cost reduction, lean and consolidation. Based on what we are seeing in the environment today and building on a large deal wins in the past quarters, our guidance for growth for financial year 26 is 0% to 3% in constant currency terms. The environment is uncertain, and we will execute our plans with agility while keeping a close watch on events as they unfold. Our margin guidance for financial year 2026 20% to 22%. With that, let me pass it on to Jayesh for his views.

Thank you, Salil. Good morning, good evening, everyone, and thank you for joining the call today. We entered financial year 25 with significant uncertainties relating to interest rates, elections in large geos, and geopolitical situations. Over the course of the year, reduction in uncertainties, a strong market position, reflecting in robust deal wins, and improvement in discretionary spends in financial services led to better growth than our initial projections. A year ago, when I started my journey as a CFO of Infosys with a vision to increase our market share, strengthen collaboration with business, drive project maximus to expand operating margins, and improve cash flow, I'm very glad that we have been able to achieve success in each of these parameters. Let me start by talking about the key highlights for the quarter and the year. We closed the year with revenues at 19.3 billion, a growth of 4.2% in constant currency terms and 3.9 in reported terms. Acquisitions contributed 80 basis points to the growth in financial year 25. Financial services, EURS, and manufacturing grew above company average for the year. I'm particularly glad that operating margins for the financial year improved 50 basis points over FY24 to 21.1. after absorbing multiple headwinds. This has been a key focus area over the last year, and I will elaborate over this later. Sequentially, revenue declined by 3.5% in constant currency terms due to reduction in third-party costs and seasonal weakness. Approximately two-thirds of the sequential revenue drop was due to reduction in third-party, with the decline being higher than our expectation. Barron's one-third drop was due to volume decline and lower calendar and working day driven by Q4 seasonality. Revenue increased by 4.8% on a year-on-year basis in constant currency terms in Q4. Europe grew 3x of the company rate at 14% in constant currency terms, driven by our focused approach of client mining, ramp-up of large deals and acquisitions. Europe now accounts for 30% of our revenues. Financial services and manufacturing grew double-digit year-on-year at 12.6% and 14% respectively in constant currency terms. In rupee terms, revenue growth increased for FY25 was 6.1%. Revenue growth accompanied by operating margin expansion led to 8.3% growth in EPS terms on normalized basis, adjusting for interest on tax refunds for FY24 and 25. We closed 24 large deals in Q4 with a TCV of 2.6 billion. 63% of this was net new. For the full year, we closed 96 deals with TCV of 11.6 and 56% net new. DSO reduced by 5 days to 69 sequentially. Further, the DSO including unbilled net of earners reduced by 3 days to 83. Pre-cash flow for FY25 was highest ever at 4.2 billion, 129% of net profit. Adjusted for tax refund, it stood at 3.5 billion, 112% of net profit. Headcount at the end of the year was 323,578, an increase of 6,000 year-on-year. Attrition remained contained at 14.1%. Operating margin for Q4 was at 21%, a decline of 30 basis points sequentially, bringing the financial year margins at 21.1, increase of 50 basis points from FY24 levels. The major components of sequential margin change for the quarter are as follows. headwind of 140 basis points from compensation-related costs, 40 basis points impact from acquisition mainly on account of amortization of intangibles, partly offset by tailwind of 80 basis points from lower post-sale customer support, 30 basis points from maximus, 20 basis points from currency movement, and 20 basis points from lower third-party costs. Higher travel and visa costs were offset by lower other costs leading to a decline of 30 basis points sequentially. Utilization Excluding trainees stands at 84.9. On-site mix further reduced to 23.6. We hired 15,000 freshers this year and expect to hire over 20,000 freshers in FY26. EPS increased by 1.8% in financial year 25 in rupee terms on reported basis and 8.3% adjusted for interest on tax refunds. The increase in margins by 50 basis points over FY24 was achieved despite multiple headwinds from salary increases, higher variable pay, impact from large-deal ramp-ups and acquisition-related amortization. These headwinds were more than offset through combined benefits from various tracks under Project Maximus, especially value-based selling, lean and automation, improvement in critical portfolio, improvement in utilization, etc. We have been able to institutionalize these initiatives and make a structural shift in our approach. We expect Project Maximus to further aid in margin improvements from current levels. Consolidated cash and cash equivalents stood at $5.56 billion at the end of the year. Yield on cash balance was $7.13 in Q4, and ROE stood at 29%. Coming to cash flows, FY25 free cash flows are highest ever at $4.1 billion, increase of 42% year-on-year. Free cash flows, the percentage of net profit for financial year was 129%, and we expect FY26 free cash flows to be above 100% of net profit. Excluding income tax refunds, our free cash flows for the year were at 3.5 billion, up 21% year-on-year. Free cash flows as a percentage of net profit were at 112%. We expect effective tax rate for financial year 26 to be in the range of 29% to 30%. The board has proposed a final dividend of Rs. 22 for financial year 25, including the interim dividend. The total payout for FY25 will be Rs. 43, an increase of 13.2%. once the final dividend is approved by the shareholders. We closed 24 deals in Q4 with a TCV of 2.6 billion, 63% of this net new. Vertical-wise, we signed seven deals in financial services, five in EURS, four in manufacturing, three in communication, two each in high tech and life sciences, and one in retail. Region-wise, we signed 12 large deals, each in America and Europe. Coming to verticals. In financial services, budgets are flat to slightly higher in AI regulatory compliance and cost management. We anticipate steady growth in capital markets and cards and payments in large global banks in U.S. regional banks. Mortgage sector will see an uptick in interest rates going forward. Our investment in AI-related propositions, regulatory compliances, risk mitigation, and cost management is expected to create growth opportunities. We have been selected as an AI partner for many of our clients. Manufacturing sector has grown double digits over the last few years. For CY25, budgets are lower for auto and industrial manufacturing and flat for aero. Recent challenges in terms of tariffs, market uncertainties, and trade barriers are likely to lead to a subdued spend and delayed decision making. Weakness in auto, especially in Europe, continues. We are helping clients in aerospace resolve bottleneck in their supply chain. Pipelines remain healthy with focus on cost takeouts, opportunities in infrastructure transformation and consolidation, and some traction in ERP modernization programs. Retail sector has been impacted by economic uncertainty, resulting in lower consumer spending in core markets. Due to recent tariff announcements, clients' budgets are expected to be tightened, and there is increased caution. Decision cycles are getting stretched for discretionary spend and larger deals. Across GEOS, there is increased focus on AI cloud, estate modernization, cost takeout, and investing in core tech capabilities. Energy utility resources and services sector continues to grow, and we see a strong pipeline of opportunities both from existing and potential clients. Energy prices remain volatile. However, new markets in midstream and downstream energy are opening in the U.S. region. There is an increase in M&A and tax-related work with services clients focusing on cloud migration and vendor consolidation. Utilization is prioritizing AI-driven enterprise transformation and services and is seeing traction in software services and IPD. The acquisition that we announced today will strengthen our vertical expertise and open new buying centers in energy trading and risk management area. Communication sector continues to remain soft. Discretionary spend is under pressure with clients focusing on cutting costs, restructuring and consolidation deals. Our growth will be led by recent deal wins and opportunities in areas like cost reduction, AI and database solutions and cybersecurity. Lower interest rates could improve the profitability of Telco OEMs, which in turn can help increase IT budgets. In high-tech, most clients remain cautious due to the macroeconomic headwinds and tariff announcements, with discretionary spend still remaining under pressure. There is increased margin pressure on account of committed spend on data centers. Exiting FY25, global uncertainties relating to tariff and impact of debt on clients and demands and spend are taking center stage. Bases are assessment of the current macroeconomic environment and the visibility that we have today. We expect FY26 growth to be 0 to 3% in concept currency terms. This excludes the acquisitions that we announced today, and this assumes a reduction in third-party revenues versus FY25 based on existing deals and the new deals in pipeline that we have today. Our operating margin guidance for the year is 20% to 22%. We will continue to keep a close watch on economic environment and its impact on client budgets and reassess our guidance as we progress during the year. With that, we can open the floor for questions.

Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and 1 to ask a question. The first question is from the line of Ankur Rudra from J.P. Morgan. Please go ahead.

Thank you. On the fourth quarter, can you talk a bit about the linearity?

Ankur, sorry to interrupt you. Your audio is not clear. Can I request you to come in a better reception area, please?

Okay. Is it better now?

No, sir. The network is not clear at your end.

Okay. Let me come back. Go ahead. Ankur, go ahead. We can hear you now. All right. Thanks. Okay. So the question was, in terms of the fourth quarter, can you talk a bit about the linearity? Did the softness or the relative missed guidance be out only in March, or was it something you saw over the course of the quarter?

Sankhu, as I said earlier, two-thirds of our decline was on account of third-party costs and the revenue related to that. Some of the deals that we had in the pipeline had slipped, so this decline was higher than what we anticipated. And the balance was the usual Q4 seasonality and the volume decline that we saw. But two-thirds of our 3.5% decline was on the back of third-party cost and revenue.

I appreciate that totally. I was curious if that played out more in March or if that played out over the course of the entire quarter.

Yeah, so generally, you know, these deals happen towards the end of the quarter, and that's where, you know, it slipped from there.

Okay, understood. If I talk a bit about the guidance, it seems to imply something like 0.8 to 1.9% ask it for the rest of the year. Could you highlight if this will be a normal feasibility or is it going to be different given the heightened uncertainty you might be seeing right now? Ankur, sorry, can you repeat the question? It wasn't very clear. The guidance, does it imply a normal seasonality for the year?

Yeah, so, you know, as we said earlier, we do see a heightened, you know, uncertainty in the environment, and that's the reason we have given a three-point guidance. So depending on which end of the guidance you're looking at, the seasonality will also change or the uncertainty will also change. But outside of that, we are expecting normal seasonality.

Okay, understood. Just a last question. In terms of, you spoke a lot about AI-led transformation that clients are expecting from you. Are you infusing AI into existing projects that might lead to any kind of revenue deflation that you have to overcome?

Hi Ankur, this is Salil. So first, AI is part of all the discussions on the new deals. We are using AI in many of our existing programs, but here we are seeing benefits which relate to how we can now use AI with clients in different areas. So as a composite, What we saw last year, 4%, 4.2% growth, we feel pretty confident that we will see benefits from it, even as we see some productivity improvements. So we don't see anything in terms of the revenue on that.

Okay, appreciate it. Thanks, Ambassador.

Thank you. Next question is from the line of Kumar Rakesh from BNP Paribas. Please, go ahead.

Hey, hi, good evening, and thank you for taking my question. My first question was, you spoke about that the third party slipped towards the end of the quarter. So, Abe, how is the volume trend during the quarter, and does that imply that as they come back in the next quarter, in the guidance, you are expecting the third party contribution to be higher in FY26?

If you look at what I said, Through the quarter, we had a softer start at the beginning of the quarter from volumes perspective, but we did see some recovery there in terms of volumes. But on the third party, we are expecting for FY26 third party to be lower than FY25, considering the deals that we have signed and the deals that we have in the pipeline. So that is baked in.

And volume trend during the quarter?

Yeah. the volume trend during the quarter, we had a softer start January, generally the soft month and then the volumes start stacking up and we saw similar trend this quarter as well.

Okay, thanks. My second question was from a longer term perspective over the last two, three years, we have seen all the fraud which was created in many of the deals with very low ROIs being signed. They were reassessed by the clients and Many of them were rammed down and we saw the impact of that in terms of revenue growth. You see there is still some scope left if I start reassessing the projects again if the macroeconomic uncertainty continues for a little longer. There is more of reassessment of the projects which may again start happening the way we have seen over the last year or two. Hi.

First, you know, the changes that we have seen in the economic environment impact have happened very recently and over a short span. Having said that, the discussions we've had specifically on some of the deals we've signed in the recent quarters, we have not seen a change in that, like the trajectory that we were anticipating at this stage. However, we'll keep a lookout on that as we develop it, though.

Thanks for that, sir. Just a clarification. So my question was more around that ROIs now that we are offering in terms of the deals which we are doing for the client, now has it on a portfolio level, has it improved so that we are no longer in a risk if such a reassessment happens? Or you still see that there are some of the projects which is at a risk which could be reassessed?

I mean, what we saw in the past was more of a Sorry, Gopal, what we saw in the past was more of the discretionary spend where the clients had put a stop or there were ramp downs there. If the environment deteriorates significantly from where we are, yes, the clients will re-look at some of that. At this point in time, we are not seeing any of that happening significantly for us.

Okay. Thank you.

Thank you. Next question is from the line of Abhishek Pathak from Motilal Oswal. Please go ahead.

Yeah, hi. Thank you for the opportunity. So my first question was, you know, could you please just expand a bit on the underlying assumptions and the top end of our guidance? Do we assume, you know, an acceleration in deal wins for this to be achieved? Or do you think we achieved or do you think, you know, better than expected ramp ups could probably take us to 2-3%? That's one. And the second question was, which I think is probably partly answered, but considering a few of your peers have called out some deferrals or at least some uncertainty in decision-making, how does the next immediate quarter look in terms of, let's say, deferrals or ramp-downs? And do you see any significant risk in the extreme short-term? And lastly, do the current events kind of push down the recovery in short-cycle deals? a bit more, and do you feel short cycle deals are again something that will struggle to take off? Thank you.

Yeah, so leading up to guidance, we always run multiple models that lead us to the top end, bottom end, or the middle end of the guidance. That's the same process that we have followed even at this point in time. The reason that we gave a three-point guidance was because there is an uncertainty. At the lower end of the guidance, we have baked in some further deterioration in the environment. And at the top end of the guidance, we have baked in steady to marginally improving environment. So that's how the guidance has been spanned out, you know, from the environment perspective. Having said that, on the ramp downs, we've not really seen any major ramp downs at this point in time or major closures of the deeds. You know, we do see Clients being cautious that decision-making is, you know, is delayed in pockets. But as I said, you know, what we see today has been baked in the lower end of the guidance from the uncertainty perspective.

Got it. I think just the last thing on short cycle deals, if you could just clarify that.

Abhishek, do you have any follow-up question?

Yeah, hi, am I audible?

Yes, we can hear you.

Yeah, sorry, no, just the last bit on the wage hike impact for Q1 and, you know, how do we just model that in, thanks.

Yeah, so, Abhishek, you know, most of our employees got the wage hikes in January, and the middle-level to senior-level employees will get wage hike effective 1st of April. The impact of that has been baked in under guidance range that we have given. As you could see, for the financial year 25, we have improved our margins by 50 basis points. We are now at 21.1. Despite all the headwinds, whether it was wage hike, whether it was higher variable pay, the large deal ramp-ups, acquisition-related costs, and our endeavor going forward is to improve from where we are in the current environment.

Understood. Thanks a lot.

Thank you. Next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.

Hi, thanks for taking my question. My first question is on small deal.

Gaurav, sorry to interrupt you. Can I request you to speak a little louder, please?

Hi, am I audible now?

Yes, go ahead.

Hi, my first question is on small-deal environment. Have you seen any change compared to a few months back, and is it fair to believe that the midpoint of guide assumes a stability in the environment on the small-deal front?

So, Gaurav, as I said, there are various models that lead to multiple ends of the guidance. At the lower end, I'll repeat, we have assumed deteriorating environment, and at the upper end, we have assumed steady to marginally improving environment. So in the middle is anywhere between the two.

Okay, got it. Second question is on margins for FI26. Normally what we have always been hearing is that when growth improves, it creates an operating leverage and provides a cushion to improve margins. But, you know, if I take just midpoint of your guide, it's kind of slowing compared to FI25. Is it fair to believe that kind of creates some operating deleverage and creates some pressure on margins? So what would be the levers to offset that and still be, you know, stay within the band within FY25 range? Thank you.

So, Gaurav, if you look at the last year also, we had a large comp impact coming into the year because we had The previous comp was rolled out in November. The comp was rolled out in November. So fully our impact of that came into this year. And then we had additional comp that we rolled out in January. So there was a comp impact. There was an impact of the large deals that we signed in the previous year, 20 pips of impact from the acquisition that we did, and so on. And despite all of those headwinds, we have been able to improve margins by 50 basis points by rewarding our employees better through a higher variable pay through the year. So we are confident at this point in time that there are opportunities where we can double down and, you know, improve margins. At this point in time, the endeavor is to improve margins from where we are for FY26.

Thank you.

Thank you. Next question is from the line of Jonathan Lee from Cunningham. Please go ahead.

Great, thanks for taking our questions. First question, can you clarify what the inorganic contribution is that's contemplated in your outlook for fiscal 26?

Jonathan, the guidance does not include the acquisition that we announced today. We haven't closed them yet. The board has approved the acquisition. We still have to go through the closing formalities. They'll take a few weeks to maybe a month or so. So depending on the closure, we will figure out in the next cycle on the guidance. But at this point in time, to clarify, the guidance does not include the acquisition that we announced today.

Thanks for that clarification. Second, how would you characterize the pricing environment through the quarter, and how does that compare to what you've seen since the beginning of this fiscal year?

We continue seeing Stable pricing even through the quarter, generally at the overall business levels, everything that has changed in the environment has been very recent, so we've not really seen any significant impact coming from them on the pricing environment. Having said that, one of the key pillars on our cost optimization or the margin improvement program is the value-based selling. That's not only pricing. That is everything around pricing, including getting the chain request for the scope creep, rotating our employees, long-tenured employees across projects so that we get better pricing on them, having a differentiated pricing model for different services. So all of that has helped in the last year, and that endeavor continues in this year as well.

I appreciate that, Kaur. Thank you.

Thank you. Next question is from . From BMO Capital Markets, please go ahead.

Hi. Thank you very much for taking the call. I wanted to return to AI on the delivery side. And really, I wanted to go back to the first question, which I wasn't sure I understood your answer, but how is AI changing the nature of pricing discussions and or structure as of late? And how do you think that's going to unfold in FY2026? In other words, does the deflationary nature of AI, is that impacting performance-based contracts or any structure that you're putting in the contract? And is it leading to any different price discussions, and if you could also call out, is there an area, whether it's BPO or deployment or ADM, that you see using AI more in the delivery, or is it all the different areas? Is there any one area specifically within your portfolio or solution portfolio that you think will be impacted more by delivery? Thank you very much.

So on AI and pricing, what we are seeing is there are areas where we have discussions with clients, and this is building up through the last year through the quarters, and we anticipate seeing that going ahead as well, where, for example, if there are large customer service programs, we see that there could be benefits to the clients of 20% to 40%. If there are different areas where generative AI can be applied, those discussions are very much at the forefront on clients' minds. Sometimes the client view may be larger than what we are seeing in realization, and so we have a choice to make there. Many times they're aligned And AI is one component of automation, of lean, then AI, and then consolidation, all of which gives some benefits in a cumulative way to the client. So we see that ongoing. And with that, we also see AI gives us some new opportunities. There are new projects we are doing, for example, in credit risk or AI platform for a telco. These give us new areas for revenue as well. So as a cumulative, while all this was still going on last year, we saw the 4.2% increase in revenue. And that's the way we see it at a composite level. Now, on that, we superimpose the changes in the economic environment which is where we see some differences, as Jayesh was sharing earlier, in the range of the guidance, if that makes sense.

Okay. For my follow-up, when you mentioned there are some situations where AI is generating 20% to 40% efficiency gains, I think that's sort of similar to what IBM and Accenture have said. on a like-for-like pricing in that situation where you can deliver such meaningful efficiency gains to the client, how is that – how are those efficiency gains shared with the customer? In other words, is your – you know, do your revenues go down by 20%, 40%? Or how is that shared in terms of just on a like-for-like basis for a given contract? And that's it for me. Thank you.

So where we've seen that range has been more, for example, on customer service. We don't have a large sort of voice business. We typically bid on a combination of technology and operations, and part of it could be that. So typically these are not our existing book of business, that customer service is not something we have a large book of business in. In terms of sharing, there are different ways these are shared depending on the client situation. Like there are situations where there's a consolidation activity with the client where there's a share in some part where the customer service is not within our portfolio and there's consolidation which gives us some benefits. So it's not like one number which gets shared then with clients. But it is shared, yeah.

Okay. Okay, many thanks for the answers, and I wish you all the best of luck. Thank you.

Thank you. Next question is from line officer Indra Goel from Citi. Please go ahead.

Yeah, thanks a lot. Salil Jai, just one question. You have been calling out improvement in discretionary spending through the course of FY25. What did you see in the month of March and April so far? And I apologize if you have already answered this question before.

So in the March month has been usual. I don't think we have seen a significant change either ways in the environment in terms of volumes. We did have positive volumes in March.

understood. Thank you.

Thank you. Next question is from the line of Abhishek Kumar from JM Financial. Please go ahead.

Hi, good evening. Thanks for taking my question. I have a question on cost of third-party items. First is, when we say some of the booking of the third-party item got spilled over, does that mean that will come back in Q1 and that will help Q1 revenue. And a related question is, is the visibility getting into Q1 similar to what we have seen maybe Q1 of last year, better, worse, any color on that? Thank you.

Sorry, Abhishek, if you could repeat the first question on the third party, I didn't get that well.

Yeah, so, I mean, we said that some of the weakness in Q4 was because, you know, some third party item got spilled over. So is that just a deferral and it will come back in Q1 or that is something that we have lost?

Yeah, so Abhishek, at this point in time, the third-party costs that, as I said earlier, two-thirds of our decline was because of the lower third-party costs and revenue. Some of those deals slipped. It is uncertain at this point in time if and when these deals come back. So at this point in time, they had slipped. You should read that in conjunction of the fact that I also said FY26 third party cost and revenue are going to be lower than FY25 third party cost and revenue.

Okay. And maybe in that context, visibility overall for Q1, given we are in the midst of the uncertain macro, you know, how are we looking at Q1 compared to previous years?

Yeah, so I think both the years had unique factors that led to an uncertainty. I don't know if you can put in quantifiable terms whether it is similar or not. We started the year last time, there were uncertainties around interest rates, geopolitical tensions, half the world was going through elections. So there were uncertainties around that and today we have uncertainties around tariff We don't know to the extent, the rates to the extent to which countries will get impacted, how those countries will retaliate, the timing of that and that downstream impact of that. So I think all of that is uncertain as we speak, Abhishek, but the guidance that we have provided at this point in time is what we see today. You know, our philosophy on guidance has been to reduce asymmetry of information between us and our investors, and we are guiding what we see today.

So one quick question on margin, you know, two-thirds of 3.5% decline coming from third party, but the margin uplift because of that has been very limited, right, around 30 basis points. So I'm just trying to reconcile, you know, why the margin uplift is so low. Thank you.

Abhishek, the margin uplift on that is around 20 basis points. If you look at The reduction in third-party cost is $100 million. Obviously, we make some margin on those deals as well. So, you know, you will only get the benefit to the extent of the delta margin of the company versus those third-party deals, and that is where the margins impact it.

So, thank you. That's helpful, and all the best.

Thank you. Next question is from the line of Sandeep Shah from Equitous Securities. Please go ahead.

Yeah, thanks. Thanks for the opportunity. Salil, just wanted to understand in this uncertain macro environment, if discretionary spend is difficult to predict, but at the same time, clients may not postpone their AI-related investments. So is it fair to assume client may start in terms of going doubling down on the outsourcing cost takeout kind of a deals? Whether same is coming into your discussion and is it fair to assume that the deal pipeline could improve on the cost takeout and the mega deals could be a part of the deal when centering F526 as well?

So there first the Changes in the economic environment are recent and also in a short period. So not everything is understood about that. Having said that, learning from the past, we typically see that this sort of an environment will provide more cost takeout opportunities, consolidation, automation, lead. We have also pivoted our sales strategy activities into focusing and building more proactive pitches to clients on that area. We will now see how that executes and what's the dynamic of the economic environment. But in general, our portfolio has got that ability, which is also on AI cloud and also on cost takeout. So now we are emphasizing much more on the cost takeout.

Okay. And Jaish or Salil, whoever can answer this, whether fair to assume the seasonality of 1H better than 2H may continue even in FY26? What are your guidance assumptions for the same?

So, you know, I mean, typically our 2H is softer because you have furloughs, you have lower working and calendar days, etc., etc. So that kind of, that part of the seasonality will remain. As we see today, I don't expect that seasonality to change. But beyond that, in an uncertain environment like this, it's very difficult to predict how the quarters will look like. As I said earlier, at the bottom and the higher end of the guidance, we have factored various scenarios, and depending on how that will play out, we'll have to see how the quarters progress. Overall, we don't see a significant change in seasonality beyond the uncertainty.

Okay. And just last a bookkeeping question. In terms of your margin walk, you have said the M&A related cost being 40 bps as a headwind to the margin. Is it one-off and may not reoccur in the first quarter of the coming financial year? And if I assume the both acquisition being closed at the end of 1Q and maybe consolidated for 9 months, is it fair to assume it will add 40-50 bps to the revenue growth?

So that's right. The 40 bps of charge that we took on related to the acquisition is one off in a way. If you recall, we had said earlier this year that the automobile sector, especially in the German or European markets, has been seeing softwares. And that is why we have reassessed our customer intangibles, the value of customer intangibles, and we had to take a charge on that. So from that perspective, it's a one-off. Coming to the second question, what was the second question?

The M&A.

Yeah, the acquisition. The impact of the acquisition, if we close in the Q1, the impact would, I mean, the benefit that we would get would be 40 to 50 basis point for the full year, which is not baked in the guidance.

Okay. Thanks and all the best.

Thank you. Thank you. Next question is from the line of Abhor Sengal from Nuama Institutional Equities. Please go ahead.

Hi, thanks for taking my question. Just two quick questions from my side. One is, traditionally, especially over the last few years, we have seen one edge do the heavy lifting for us in terms of growth, and the second half gets marred by the industry season being too quick and our own season being too close. This year, did you see, I mean, I know this is part of the question, but this year, I think one of our peers have called out on something in the past quarter, which also led to one of the peers dying to a very weak quarter, Q1, yesterday itself. Do you see that impacting the entry of growth rate for us this year, which would probably lead to slightly lower growth or, let's say, a smooth trajectory of the growth that

Sorry again, your voice wasn't very clear. It was getting muffled in between. Can you summarize the question again, please?

Sorry, did we lose everybody?

Yes, sir. The line for the participant dropped. We move on to the next participant. The next question is from the line of Nitin Padmanabhan from Investec India. Please go ahead.

Yeah, hi. Good evening. The JV that we signed with Mitsubishi, how is that different from the one that TCS signed in the early part of the last decade? If you could just give some context there.

So Nitin, this is not a JV that we have signed. We have inducted Mitsubishi in the existing JV and we have diluted our share by 2%. So it's an existing JV where we have just inducted a strategic partner in the JV. It's an endeavor to build a long-term relationship with a large giant in Japan.

Got it. And then just one last question is, See, as we entered the last year, which is as we entered fiscal 25, we had a large order book of large deals, which we had to execute, which sort of helped us in the first half of last year. As we enter this year, how would you contrast that in terms of the order backlog relative to last year, right? I'm asking this considering that our organic growth this year is possibly around 3.4%. And in that context, our guidance at the top end is almost similar. So just wanted some context in terms of how it was then and how it is now.

So, Yann, again, you're right. If you look at just the purely the quantum of the deals that were getting ramped up in Q4 of the previous year, and compare that to quantum of deals that are getting ramped up. Quantum of deals that are getting ramped up, you will see a stark difference, or you'll see some difference. But we should also remember that many of those deals were larger deals and longer duration deals versus what we have today. There's a delta between the tenure of the deals, and mega deals are generally a much longer tenure deal. You will see some of the filings with respect to the mega deals that we have done with SEBI also, our stock exchanges also earlier. We should see that in that context.

So it's not that these deals have any anniversary impact at the moment or it is a continued ramp that you're sort of anticipating there? So can you hear us? Yes. No, I think we've lost him.

Yeah. No, sorry. So if you look at, you know, most of the deals that we had talked about earlier, which was signed in FY24, they had ramped up in the Q4 of FY24 and, you know, then we saw the benefit of them in FY25. So they are pretty much at a steady state at this point in time.

Got it. Got it. That's very helpful. Thank you so much and all the very best.

Thank you. Thank you. We take the follow-up question from Lionel from Nuama. Please go ahead.

Yeah, hi. I hope I'm audible this time. Sorry, I got dropped in between. Yeah, sorry. So my question was basically on the growth trajectory that we're expecting. For the last two years, our growth has been pretty much first-half heavy, and seasonality of industry and REO seasonality come in Q3 and Q4. This time, a lot of our peers have called out weakness in Q1, especially because of the uncertain macro. So do you believe that could impact the growth trajectory that we see through the year? It could be more skewed towards Q2 and Q3 or maybe the second half. And the first half might not be as good as we have seen it over the past couple of years. Just some light on that would be really great.

So Vibhar, as I said earlier, from a seasonality perspective, I don't see I mean, the regular seasonality perspective, I don't see a change in seasonality. The working days, calendar days, in fact, will be similar to earlier years. The furloughs will remain. The uncertainty is the only unknown factor, and we'll have to see how that pans out in Q1, Q2, and the implication of that to see whether Q1, Q2 is going to be better or worse off versus earlier years. So, in short, you know, The uncertainty remains. That's the reason why we have given a three-point guidance. At the bottom end of our guidance, we have expected higher uncertainty at the top end of the guidance. If we end up there, then you will see a regular seasonality in H1 and H2 at the top end of the guidance. But yeah, at the bottom end of the guidance, it's going to be unpredictable.

Right, right, got it. So, okay, let me just ask maybe just a follow-up on that. Are you expecting any, let's say, unexpected, I mean, extra weakness in Q1 because of the uncertain macro at this point of time.

Vibhav, we don't give quarterly guidance, unfortunately. So we are going to stick to our overall guidance and that is what we see today.

So yes, I was just saying my luck. Lastly, on the margins front, where do we stand on a project maximum benefit? Do you believe there are still some fruits to be plucked from that or are we mostly done with that project?

So if you look at this year, despite multiple headwinds, we have been able to improve margins of 50 basis points, right? We did absorb the comp that we did in the previous year. Full year impact of that came in FY25. We gave higher variable pay to our employees. We have had ramp-ups of many of the mega deals, which obviously are lower margins at the beginning of the year. We had an impact from acquisition or intangibles of the acquisition. So I think we have absorbed all of that and delivered 50 basis points of margin. you know, there are multiple tracks which are still underway under the project. You know, value-based selling is still delivering value. Lean automation is still creating value. So I think there are opportunities that makes us believe that there is still, you know, opportunity to improve margins from where we are and that's the end of it.

Got it, got it. Great. Thank you so much for taking my questions and wish you all the best.

Thank you. Thank you. Next question is from none of Monica nature from access capital, please go ahead.

Hi, thanks for the opportunity. You made a remark regarding the fact that we should probably be expecting some decline in the cost of pass-through or the pass-through revenues in F526. We've basically seen a very steady increase from this slide item increasing from about 2% of revenues to about close to 8% of revenues in F525, 8% of revenues in F525. Is there anything on the ground which is changing because of which you massage a lower, this number essentially being a drag on revenue growth and how should we be thinking about this number playing out over the next three, four years?

Sorry, Manik, this is, you know, the third party costs are typically the costs which are embedded in a large transformation lease, a multi-year large transformation lease and, you know, we know what the deals that we have signed in the year and we know what are the deals in the pipeline. When we analyze those two components is when we estimate what the cost is going to be. And at this point in time, looking at what we have signed and what we have in the pipeline, we expect FY26 third-party costs to be lower than FY25.

Do we decide this going back to possibly where it used to be FY22 or FY21?

Yeah, I mean, eventually we will have to see where we end up. But, you know, once the large, many of the mega deals that we have signed in the past, those starts, you know, those transformation finishes, we will have significant reductions as well.

Sure. Thank you and all the best for the future.

Thank you. Next question is from the line of Ashwin Mehta from Ambit Capital. Please go ahead.

Hi, thanks for the opportunity. Just one clarification. In our cost of sales line, we have almost a 145 crore negative number for consultancy and professional charges. I haven't seen a negative number ever here. So what is driving this?

So Ashwin, this is an insurance claim that we got with respect to the cyber event that we had, you know, last year. So this is a benefit of $20 million that we got, you know, I didn't call it out in the margin walk because there were other negatives against that, like utilization, et cetera. So those kind of offsets at each other. Utilization.

Can I follow up? In terms of the provision for post support as well, the reversal seems to be pretty high. So is that also related to this as well?

No. Post-sale customer support is typically, you know, there is a seasonality there. So typically, if you look at last few years' trend, you will see, you know, a reduction in Q4 generally on that because many of the projects typically come to an end with the financial year end. So that's one reason. The second reason is of course, you know, there's a lot of things which we are driving under Project Maximus, whether it is in terms of effort optimization, whether it is in terms of chain request, you know, a tighter control of many of those projects, all of that reflects into lesser warranty in terms of SLAs, lesser warranty, lesser costs in future on many of those projects. So all of that reflects NPSC as far as wholesale consumption.

Thanks a lot for the clarification.

Thank you. Thank you. Next question is from the line of Girish Pai from BOV Capital Markets. Please go ahead.

Yeah, thanks for the opportunity. Are there any silver linings to the current macroeconomic situation around tariffs? Are you having any conversations with clients around supply chain solutions or anything like that?

So there, what we see is, you know, we have a portfolio which has got both things for growth, like AI, cloud, digital, but also very good solutions for cost and cost efficiency, automation, productivity from AI lean. We are making sure that those are getting already in this short time period from the changes in the economic outlook. We are making sure those are getting... communicated, discussed with clients. And my guess is we don't know the impact yet, but we are going to make sure that if clients are looking for cost and efficiency, we'll be there. On supply chain, we are working to make sure that we provide, because we have a consulting business which can give some insights. We also have supply chain tech solutions. if clients are rerouting their supply chains or if they want to optimize it, how we can support them in it. So we are positioning for it. We don't know right now what is the potential impact benefit, but we are definitely positioning for the cost and these sort of activities.

Okay, my second and last question has to do with AI and budgets around AI. Do you have a, do clients have a separate budget for Gen AI or AI, or is it coming from savings that you're doing on normal projects? As things stand today.

Yeah, I think, I mean, if I look back at the last year, you know, there's overall tech budgets are there. Now there are some cases where where a client is doing large transformation, we are able to fund that transformation from, let's say, a large opportunity on consolidation or cost efficiency. In some cases, because at the start, AI was a little bit more distributed, not so much central, there were also some sort of distributed within the company, different divisions and budgets and so on. My guess is it will become more and more one budget for the company from which they will be spent on our services for AI and so on. So we will see how that plays out. That's what we anticipate.

Okay, thank you.

Thank you. Ladies and gentlemen, I now hand the conference over to the management for closing comments.

Thanks. Thank you, everyone. And thank you for the detailed set of questions. We can imagine with the changes, we're all looking for insights. Conclusion from my side. First, we are delighted with a strong financial year 25 growth margin, very good cash, large deals, net new. What we see, what we've built over the years is a balanced portfolio within the company with AI, cloud, digital for growth, cost, automation, consolidation, lean for efficiency. And we find that this environment gives us a good ability to work on both and maybe do one more than the other depending on how the environment will unfold. We will support our clients in that ability. We've also taken care to build a guidance with how Jay described with different ends and assuming different scenarios. We feel we are well positioned on the margin side with a lot of the work that's being done in our margin program. So overall, we remain quite confident to support our clients on what they want to drive and to deliver and execute on our business. Thank you, everyone, and look forward to catching up in a quarter. Thank you.

Thank you very much, members of the management. Ladies and gentlemen, on behalf of Infosys Limited, that concludes this conference call. Thank you all for joining us, and you may now disconnect your lines. Thank you.