Infosys Limited American Depositary Shares

Ladies and gentlemen, good day and welcome to Enforcers Limited Q1 FI26 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-down 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 the first quarter of FY26. Joining us on this call is CEO and MD, Mr. Salil Parekh, CFO, Mr. Jayasang Rajka, and other members of the leadership team. We'll start the call with some remarks on the performance of the company. Subsequently, we'll open up the call for questions. Please note that anything we say that 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 complete statement explanation of these risks is available in our filings with 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. We had a strong start to a financial year. Our revenues grew 2.6% sequentially and 3.8% year-on-year in constant currency terms. Growth was broad-based with our large five industry groups and our large geographies growing year-on-year in constant currency. Our large deals were at $3.8 billion. Our operating margin was 20.8% and our free cash flow was at $884 million. The main drivers of our growth were our leadership in enterprise AI and our continued success in clients selecting us for consolidation. We are seeing good demand for AI agents. We built 300 agents across business, operations, and IT areas. Our horizontal and vertical agents are helping our clients drive faster decisions, improve customer experience, and improve operational efficiency. Let me share with you some examples of where we're doing project work on enterprise AI for our clients. And oil and gas majors using Infosys AI agents to enhance production quality in their refinery, orchestrate dynamic pricing in their retail stores, and automate their contract management system for efficient trading. A leading global manufacturing company is using Infosys AI agents across their supply chain to unlock productivity and cost benefits, and using Infosys AI agents to efficiently resolve issues related to malfunctioning equipment. A logistic company is using Infosys AI agents to transform customer care, operations and logistics, and finance and accounting to become more efficient. For a leading North American retailer, we are transforming in-store shopping into a frictionless data-driven experience, boosting customer satisfaction, loyalty, and operational efficiency. This is being done by integrating physical AI through intelligent automation and edge-based computer vision. A global financial services company is using Infosys Enterprise AI solution with a fine-tuned large language model. This system translates code and automates documentation. The solution increased developer productivity by 25% and automated 50% of business requirement creation in support of the modernization plan. Building on 19 leadership ratings we received in financial year 2025, we are now positioned additionally as leaders in Gartner's first generative AI consulting and implement services quadrant. We are the only large India-based technology services company to be positioned as a leader. Based on our performance in Q1 and our current outlook, Our guidance for growth for financial year 2026 is revised from the earlier guidance of 0% to 3%. Now, it's 1% to 3% growth in constant currency terms. Our margin guidance remains unchanged at 20% to 22%. With that, I'd like to invite Jayesh to share his comments. Thank you, Saran.

Good morning, good evening, everyone, and thank you for joining the call today. We have been able to successfully navigate a quarter of global uncertainty, which is reflected in our holistic business performance. We delivered market-leading sequential growth, robust large deal wins with strong net new, resilient operating margins, high single-digit EPS growth, and another quarter of free cash flow to net profits of over 100%. Let me cover the key aspects of the results. Growth was strong and broad-based, revenue up 2.6% sequentially, including 0.4% from acquisitions, and 3.8% on the year-on-year in constant currency terms. Sequential revenue growth was achieved despite a significant reduction in third-party costs by 60 basis points to 7.3% of revenue. Sequential growth was once again driven by increase in realization thanks to progress in the project maximus. Volume growth while muted was positive. Manufacturing grew in double digits and FS and EURS grew above 5% year-on-year in constant currency terms. Among geographies, North America grew ahead of the company at 2.9% sequentially in CC. On a year-on-year basis, Europe grew 12.3%, which is over three times the company average. Operating margins were at 20.8%, down 20 basis points QOQ and 30 basis points year-on-year. Sequential margin resilience was despite absorbing balance comp hike, higher variable pay, and investment in sales and marketing. Utilization including trainees went up 30 basis points QOQ at 85.2 and including trainees up 80 basis points to 82.7. EPS in rupee terms grew by 8.6% and in dollar terms grew by 5.8% YOY. Our relentless focus on cash continues and is reflected in free cash flows of 884 million which is 109% of net profit. This is the fifth consecutive quarter of free cash flows being over 100% of net profit. We expect FY26 free cash flows to be above 100% of net profits. Consolidated cash and cash equivalents stood at 5.27 billion at the end of quarter after paying out final dividend for FY25. Yield on cash balance was 7.2% in Q1. ROE improved by 140 basis points to 30.4 due to dividend payoffs. Large deal wins were robust comprising of 28 deals with a TCV of $3.8 billion and including 55% net new. This includes multiple vendor consolidation deals with a combined TCV of over 1 billion, including a mega deal with one of the largest global banks. This reflects our deep-rooted client relationships and differentiated delivery capabilities. Vertical-wise, we signed nine deals in communication, six in URS, five in manufacturing, four in financial services, two each in high-tech and retail, Region-wise, we signed 20 deals in America, 6 in Europe, and 2 in ROW. Headcount at the end of the quarter was 323,788. Attrition increased marginally to 14.4. Operating margin for Q1 was at 20.8%, decline of 20 basis points sequentially. The major components of sequential margin change for the quarter are as follows. Headwinds of 100 basis points from compensation increased, higher variable pay, partly offset by other salary-related items, 30 basis points from currency movement, and 20 basis points from sales investment. Partly offset by tailwinds of 70 basis points from increase in realization due to maximus and seasonality, 40 basis points on account of lower amortization costs on intangibles, and 20 basis points from lower third-party costs, leading to 20 basis points drop in operating margins sequentially. ETR for the quarter was at 28.9%. The effective ETR rate for the financial year 26 to be in the range of 29 to 30%. While Q1 was steady, business environment remains uncertain due to lack of resolution of tariffs and geopolitical situation. Clients continue to be cautious in their discretionary spending, decisions reflecting in the delay decision making. Near-term visibility remains good and we expect stronger H1 compared to H2 on account of normal seasonality as highlighted earlier. Coming to verticals, financial services saw good momentum this quarter in U.S. with capital markets, commercial banking, and wealth management seeing a lot of transformation opportunities. Agenting AI is playing a pivotal role with focus on areas like KYC, onboarding, and portfolio management. We are now the preferred AI partner for 10 of the top 20 clients in FS with many initiatives getting from POC to production, especially in agenting AI. We are partnering with GCCs both in setup and growth-led deeds. While pipeline is strong, with new opportunities in vendor consolidation, cost optimization, and simplification, clients are cautious about decision-making due to volatile environment. Manufacturing segment continues to face challenges in automotive, industrial, and Europe with decision-making delays and soft discretionary sites. While clients are re-evaluating their supply chains, Due to tariff uncertainty, we are helping them leverage technology across end-to-end lifecycle from design to manufacturing to sales. Pipeline remains healthy with focus on cost takeout and opportunities. We won a large deal in this vertical in Q1 to help a client set up a GCC. In auto, we are helping clients in rationalizing their footprints, and in industrial, we are helping them in cost optimizations. EURS vertical outlook remains mixed due to economic uncertainties. Pipeline for both large and mega deals remains strong. Our investment in industry, cloud, energy, transition, and AI-driven operational efficiency are driving growth and differentiating us in large deals. In energy, high-cost pressures due to oil price volatility are prompting clients to consolidate vendors for savings. In utilities, advancement in renewable energy, smart grid technology, and sustainability regulations are reshaping the markets. In services, clients remain cautious about spending across CapEx and Office. In retail, uncertainty around tariffs has led to muted spending in large geographies, supply chain impact, and procurement disruption. Budgets remain tight and decision cycles elongated. There is a slowdown in amongst clients on discretionary spend though our pipeline is strong. We are seeing strong commitment from clients to engage us as trusted partners for AI-first outsourcing and transformation deals, in both IT and VPN services. Enhanced interest in AI is resulting in budget reallocation with discretionary spend expected to be self-funded through AI-led productivity benefits. Deals in the sector continue to leverage Topaz and AI-MX platform capabilities. Communications is facing growth challenges and increased OPEX measures amidst volatile macroeconomic and political landscape. Clients are focusing on cost take-outs and vendor consolidation. There is strong focus on AI and customization to monetize 5G use cases. So ROI concerns are delaying newer investments. OEMs are aiming to profitable growth and are exploring all levers including tighter and reduced IT budgets and leveraging AI and automation. Growth for us is led by ramp-ups of previously won large deals. Clients in high-tech remain cautious due to macro-advance and geopolitical tensions leading to cost pressures and budget cuts. Discretionary programs are paused because of significant investments in Gen AI, GPU and AI. Driven by our Q1 performance and our current assessments of the rest of the year, we have revised our FY26 revenue guidance to 1 to 3% in constant currency terms. This continues to assume a reduction in third-party revenues versus FY25 based on existing deals and new deals in the pipeline. 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 or they are touched on 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. First question is from Ankur Rudra from JP Morgan. Please go ahead.

Hi, thank you. So, I mean, clearly good to see a refreshing review print here. Key question is on your organic growth momentum on a year-over-year basis for the quarter. It's you know, it's quite strong, probably 3.3 and a half percent, 3.4%. Overall growth was about 5% last quarter. So the question is, you know, why are you still guiding for like 2% at the midpoint? What is it that you're seeing that makes you feel that the year-over-year growth trajectory on constant currency will weaken given the solid signings you've had? Or ask another way, you know, why drop the upper end of the guide here? Thank you.

Hi, Ankur. This is Jaish here. As we had said at the beginning of the year, at the lower end of the guidance, we had baked in heightened uncertainty. At the higher end of the guidance, we had baked in steady to improving environment. While Q1 was strong, if you look at the environment underlying, it hasn't really changed. Q2, we are not really seeing signs of significant environment changes. Tariff situation still remains escalated. The geopolitical situation hasn't really changed. And this is the part of the year Q1 and Q2 put together is the strongest part of our year seasonally. So looking into all of that, our current guidance at the bottom end expects continuing uncertainty or elevated level of uncertainty. And the upper end wakes in a steady environment at this point in time. This is based on what we see today.

Okay, appreciate it. Maybe a couple of questions on AI. Are there any kind of margin or pricing trade-offs you see when you engage with clients on, you know, in renewals or maybe even out of turn where the expectation is some of the benefits of AI is baked into their contracts? Are you also proactively taking this to clients? That's part number one. Part number two is there seems to be a lot of significant increase in vendor consolidation, and I think AI is part of any of those contracts as well. Do you think that is potentially increasing the replaceability of vendors such as yourselves because of more use of generative AI? Thank you.

Hi, Ankur. This is Salil. I think on the first part, What we see with enterprise AI now is there are areas where there's good productivity benefits and especially as they're deploying agents or setting up whole enterprise AI platforms for clients using foundation models. And then there are some areas where we are seeing new opportunities for revenue. On the first part, typically there are productivity gains and those are shared between clients and ourselves. In many cases, those are situations where either the clients are seeking it themselves or we are bringing it to clients in a view to make things more efficient. And in doing so, we typically get an ability because I think our enterprise AI work is quite solid to do other things both in enterprise AI but in other areas with the client. So that's how we are seeing that piece of the work going on.

The other question Saril was on, do you think there's any kind of increase in replaceability of vendors because we hear a lot more of vendor consolidation now and is that helped by AI in any way?

So there, what we're seeing is, at least in the ones that we have benefited from, of which Jayesh mentioned a good number of them in the Q1 last year, and just looking at those as a sample set, we see that clients have looked at where they have seen companies not bringing them good AI solutions in the recent past, solid delivery or where they're looking at some of the smaller companies coming out. So those are the areas where because of our strength of delivery, we feel quite positive that we on net are benefiting from it. I don't think it's making it easier or more difficult, but that track record, whether you brought that AI innovation to the client whether you've delivered in a way that has worked for them over the past, and whether you have scaled to do a lot of different things because clients are looking at multi-service capability. That is helping with the large clients for us.

Thank you. Appreciate it. Best of luck.

Thank you. Next question is from Naif Kumar Rakesh from BNP Paribas. Please go ahead.

Hi, good evening, and thank you for taking my question. Before I get to the question, just a clarification on the guidance part, which you spoke about just now. So your revision of guidance, especially the top end of the organic growth, it's just a reflection of change in the macroeconomic environment assumptions and not necessarily how you look at the deals ramping up or the impact of third party or any of the operational related issues, right?

Yeah, I mean, see, at the beginning of the year, we had already called out the third party and the lower third party of that. So that factor does not change. We had also called out the top end of the guidance. We expect steady to, you know, marginally improving environment. Now, we have not seen the environment improving in Q1. Almost one month of Q2 is gone. The challenges with respect to tariffs, the challenges with respect to geopolitical environment continues. clients still remain on a wait and watch with respect to discretionary spend, you know, or whether it comes to deal signing, the cycles remain elongated. So I think from all of that perspective, what we are saying now is the upper end of the guidance, we are expecting the steady environment. And that is what is baked in the guidance. Having said that, just to clarify, you know, if you look at Q1 and YOY on Q1, the third party costs on a YOY basis was flattish, right? So when you compare a YOY growth and then extrapolate that for the full year, there would be a headwind from that perspective when you look at a full year basis growth on a third-party part.

Got it. Thanks. And just the first question around the revenue piece. So in this quarter, you spoke about that there has been pricing and and productivity benefit of about 70 bps in the first quarter. Can you just give some details around that? Where are we getting that? And through the year you spoke about that the third party will come down on a full year basis further, but from first quarter level, will it further come down from these levels?

So, you know, if you look at the pricing, we've spoken about it earlier. you know, in terms of the Project Maximus, the value-based selling within Project Maximus. There are multiple tracks within Project Maximus, and I think they have helped. The 70 basis points is a combination of both the benefit on the back of Project Maximus as well as some part of seasonality, right, because in this quarter you have higher working calendar days. You know, some part of furlough flashback also happens. So you do get that benefit also. So partly it is on account of seasonality. Partly it is on account of the project maximus that has helped. But, you know, when you look at full year basis, last year we did talk about 3.5% on terms of, you know, pricing benefit that we got. Of course, there was a lot of – there were also low-hanging fruits that we captured. But in my mind, the project maximus is continuing, you know, contribution on this side. On the third party, I don't think we are giving quarterly color on this. All we have said is looking at the deals we have signed and the deals in the pipeline, we expect 26 third party to be better than or to be lower than 25 third party.

Thanks for that. My second question was on Europe performance. For the last four or five quarters, Europe has been consistently outperforming your overall growth. So, A, what is driving that? And, B, how sustainable do you think the self-performance could be or just the strong growth could be?

I think the growth in Europe in last multiple quarters and years is on back of a few things, right? We are one of the first companies a few years back to call out Europe as an opportunity. We have made on back of that hypothesis investments in Europe. and that has helped us win some of the very, very large and mega deals in Europe. So that has definitely helped from the growth in Europe perspective. There are consolidation deals that we have won as well in Europe, so that has helped. And over a period of time, you know, Europe is also opening up from outsourcing perspective. So, you know, that is also helping in growth perspective.

And going forward, sustainability of this strong growth in Europe, do you remain confident on that?

I think there are enough, there are opportunities in Europe. Now, whether it will continue growing, you know, beyond the company growth or not, I don't think we are giving a guide on that. But where we are standing today, we are seeing opportunity in Europe and many of the large states sitting in Europe as well as the pipeline containing good amount of large states in Europe.

Great. Thanks a lot. Thank you. Next question is from Abhishek Kumar from JM Financial. Please go ahead.

Hi. Good evening. Thanks for taking my question. I have a question on vendor consolidation. This has been going on for last at least a couple of years now. Do you think there has been a shift in the vendors we are competing with? Maybe earlier it was the longer tail of small vendors, which these enterprises had added post-COVID. And you think now it has shifted to more larger like peers. And therefore, you know, the fight to hold on to your turf and add more becomes a bit more challenging and kind of puts pressure on our margins.

So on that, hi, this is Salil. I think first on vendor consolidation, what we're seeing is there's a range of options that clients have. And in that sense, it's something that's been ongoing for some time, even beyond the last two or three years. But now what we're seeing is Infosys is benefiting from this from a perspective of the type of work we are bringing to clients and especially what we've done in the last couple of years in enterprise AI and the consistent delivery that we've shown across all of our other offerings over that time frame. That in the past we've talked about we also have today automation and lean. All of those elements come together and that's where we see clients selecting us and these are with respect to some large other companies and some midsize, small other companies as well. In terms of pricing, we see that there's that sort of usual approach which is focused on productivity. So it's not any different when there's a consolidation or when there's something new. But over time, there's an expectation of productivity improvement, and we are in that discussion. What are the benefits we can provide through automation, lean, and all the enterprise AI work we're doing?

My second question is on your seasonality. You're probably the only company who's saying that H2 will be weaker than H1. Most of the others are hopeful of a rebound in second half. So is it just seasonality that is driving this kind of a view, or do you think You know, some of the large deals which are helping us in sectors like communication, they kind of get into steady state and therefore the visibility, given the large deals last year were weaker than the year before, the visibility from deals ramping up in the second half is low.

So, Abhishek, it is also a factor of what you deliver in H1, right? Yes. So, you know, if your H1 is relatively in line with what you are expecting, then the usual seasonality will come in. If you're seeing a higher pressure on H1, then your hope on H2 is better. So I think you have to see that all of those commentary in line of the performance of H1 and H2. I think our Q1 has been strong. You know, if you look at compared to all the results in the market, I think we have delivered strong performance. And that makes us believe that we would have a usual seasonality in the model.

Thank you and all the best.

Thank you. Next question is from Brian from TD Coven. Please go ahead.

Hi. Thank you for taking my question. I wanted to ask on geography. So Europe obviously very strong while North America was strong. Can you comment on if America, do you have visibility to an improvement in growth there?

Brian, I think North America remains an important, you know, part of our business. It's the largest geography for us. At this point in time, we are seeing opportunity in pockets, especially in the financial services in North America, et cetera. But there are pockets of geographies, manufacturing, retail, et cetera, which remain challenging. At the same time, when you look at the large deal wins that we signed this quarter, 20 of them came from North America, six in Europe, and two in ROW. So we do see opportunities here. both in terms of large deals, cuts, takeout, as well as consolidation in North America.

Okay. And then as a relief to the smaller deals, in the past you commented on small deal activity. Can you just give some comments on how that progressed during the quarter?

We do not comment on a small deal activity. On a regular basis, there was one quarter where we saw a heightened activity in the small lead. That is where we did call that out because we thought it was relevant information from an investor perspective. At this point in time, our overall pipeline continues to remain strong. Within that, the large deal pipeline is also strong. We have delivered $3.8 billion, which is 44% increase on a sequential basis, 55% net new. So I think all of those are, you know, positive aspects of the deals and pipelines.

Okay, understood. Thank you.

Thank you. Next question is from now Jonathan Lee from Guggenheim Partners. Please go ahead.

Great. Thanks for the questions. Just a clarification on what you had called out earlier in terms of, you know, what's contemplated in the range of outcome. contemplate slight deterioration in demand environment?

Jonathan, you know, as I said earlier, we build multiple models that lead us to multiple ends of the guidance, right? It's not necessary to converge. These models are not built to converge on a midpoint of the guidance. That's an outcome of it. At the lower end of the guidance, we have baked in, you know, higher uncertainty from where we are today. At the upper end of the guidance, we have baked in, you know, stable environment, and there will be multiple models that will lead us to various middle points of the guidance in between. And that's how the guidance band has arrived at always. The midpoint just becomes an outcome of the two ends of the guidance.

Thank you for that, Connor. And just as a follow-up, can you help decompose what you saw in terms of client demand as you progressed from April through June and whether any of those trends have continued into July?

Hi, this is Salil. I think on client demand, what we see is huge interest in AI and especially what we are providing as agents. and what we are able to do with large enterprise AI platforms, what we're doing with small language models. Those are places where there's discussions and then actual project work everywhere, part of larger programs. Then we saw more and more interest in the consolidations that we have already discussed. We've seen good attention on cost and efficiency discussions We've seen strong interest, for example, in the foundations of enterprise AI on cloud and data and analytics type of areas, especially some of the newer areas on the new SAS data model or data platforms. Then we've seen very good traction on enterprise application areas where there's movement to new generations of SAS platforms on enterprise scale. So those are the things where we're seeing some interest. And then we see because of the economic environment, you know, especially if we look at logistics or consumer products or some aspects of manufacturing, auto and so on, we see some constraints that have come in in this current environment. So it's been the mix of those sorts of things.

Thanks for the call, Salil.

Thank you. Next question is from Land of Surinder Goyal from Citi. Please go ahead.

Yeah, hi. Shalil, Jayesh, good evening. And just one question, and sorry to kind of focus on the same point. So the slight lowering of the upper end of the organic guidance, is it due to taking a more conservative view of the environment or something that you actually saw on the business side? ramp downs, slower ramp ups, discretionary, declining faster, not picking up, something on the business or is just taking a more cautious, conservative view of the environment? Thank you.

No, Surin. I think it goes back to the commentary I gave in Q1, the beginning of Q1. We did say that the upper end of the guidance does take in, you know, slightly improving environment, right? having had a benefit of one quarter gone and a stronger visibility of Q2, we don't see, you know, the environment changing significantly, and that's also visible from all other results. So, all of that factor is baked in in the upper end of the guidance today. Today, what we have baked in at the upper end of the guidance is a steady environment, right? And as I said earlier, the H1 is stronger for us than H2. So, once the stronger part of the period is gone as an uncertain environment, our ability to, you know, change the guidance in a positive manner gets that much more restrained, right?

Yeah, yeah, no, no. So I understand that, but it's a lowering that I'm talking of. Did you, like, how did you kind of arrive at that conclusion? What did you see which tells you that the environment is not improving? I'm just trying to understand the data points behind that.

Yeah, so same thing, right, the client behavior in terms of, you know, decision-making, the discretionary spends that's happening on the accounts, various accounts. So all of those are anecdote data points that we get when we do a ground-up model, you know, in terms of where we stand.

Understood. Thank you.

Thank you. Next question is from the line of Harshishi Junjanwala from IIFL. Please go ahead.

Yeah, thanks for the opportunity. Two questions here. Firstly, if you look at, you know, the overall wage hike impact that has played out over the past two quarters, almost 240 basis points, it seems like it is, you know, relatively higher than where, you know, the industry has been. And, of course, you know, the growth has been fairly muted for us and for the industry as well. So just wanted to understand the thought process behind that kind of a wage hike and is it fair to assume that, you know, With that, we would not see any other action in FY26.

So, Rishi, the wage hike has been phased out, as you know, and it is to mention in two phases. Large part of our organization up to middle level of the employees got a wage hike in January and the rest of the employees got the wage hike effective first April. What I called out 100 basis points in this quarter is a combination of wage hikes as well as a higher variable pay that we paid to our employees. So that's a combination of both of those factors. We haven't really split that out, but that is the overall wage hike. The wage hike, as we said at the beginning of the year, are relatively similar to the wage hike that we have done in the earlier years in terms of percentages, et cetera. And coming to the second part of your question, I think too early, we just have begun the year, we have had the wage hike effective this quarter. We haven't really decided when about the next wage hikes at this point in time. We take all the factors when we consider the wage hikes, including market scenario, inflation, peer practices, et cetera, et cetera. We will take a call at appropriate time.

Fair enough. And the second question is, you know, some of these vendor consolidation and GCC kind of deals that we have won. Just wanted to understand, you know, are these, you know, any different in nature when it comes to the kind of upfront investments that are required either on the P&L side or on the balance sheet side versus, say, some of the large deals we have done a few years ago?

If you look at the commentary that I gave in terms of cash flows, we are still continuing to believe that we will generate 100% plus conversion of our free cash flow to net profit. We've already had five very strong quarters of cash generation, and we're still expecting to that continue for the rest of the year. So obviously these are not impacting our balance sheet or cash flow from that perspective. We expect these to be the regular deals with the regular contours of the deals. These are not significantly different from that perspective.

Understood. All right. Thank you so much.

Thank you. Next question is from Land of Sandeep Shah from Equator Securities. Please go ahead.

Yeah. Thanks for the opportunity and congratulations on a very solid quarter. Just Salim, I wanted to understand the commentary about vendor consolidation deals has been bullish, not by just you or others. And it seems that Infi is winning higher share versus some of the peers. So considering that, and this may continue going forward, one can assume that TCV can continue to remain healthier in the coming quarter as well because vendor consolidation deals are larger in size.

Hi, this is Salil. I think typically we don't give a comment on the large deals value in the future quarters. As Jayesh was sharing earlier, the pipeline for large deals is in a good place. We see that we are benefiting from as you were describing on consolidation and then some of the other areas on AI, enterprise AI. So we don't have like a view on what that value will be for the next three quarters by quarter. But overall, we feel good in where the pipeline is. We see mega deals in that pipeline. But that's where sort of we would leave it. Okay.

Fair enough. And just in terms of what will – change for clients to start spending on discretionary apart from improving macro. Any discussion with the client implies or gives you any hope for green shoots possible on the discretionary side may not be near term, but maybe by the fag end of F526.

So there, again, we have not in that sense have a view on, you know, where or when that would happen. What we do see is clients are quite comfortable in working with us on enterprise AI programs, on cloud, on data analytics, on enterprise applications, and this what we've discussed a little bit in more depth on the consolidation programs. There's still quite a lot of attention on cost and efficiency. So we will see how and when the clients change their thinking on some of the other points you mentioned.

Okay. And the last question, Jayesh, I think in the press you also mentioned that the aspiration to improve EBIT margin in this year over last year continues to remain. With the 1Q being lower than 21.1% which was the margin in FY25, is it fair to assume we can still aspire to improve margin QMQ in the rest of the three quarters. That will take us to better margin on a YOY and FY26. So what would be the levers apart from likely decline in the third party equipment for service delivery?

It's only one-fourth of the year which has gone behind. This is a part of the quarter or part of the year where we also have rolled out a competition increase, right? So that's a large headwind that we have absorbed in the quarter as we got into the year. As we go further down, you know, there are multiple tailwinds in terms of project maximums, you know, value-based selling, et cetera. So that will help for sure. The third party, as it reduces, will help on margins. At the same time, there will be headwinds from the mega deals or the deals that will ramp up in terms of, you know, transition, et cetera, that we'll incur where we don't get revenue but we incur costs, et cetera. So these are factors that one will have to balance as we go through the year. At this point in time, you know, as I said earlier in the press, also our aspiration remains to improve margin from where we are.

Okay. Thanks and all the best.

Thank you. Next question is from Lionel de Boer-Single from Nuama. Please go ahead.

Yeah, hi. Thanks for taking my question and congrats again for a solid growth in this quarter. So, Selen, my question was on basically, again, the outlook that you provided that we haven't seen much things improving and that is why the guidance stands where it is. Now, in your conversation with the clients, I mean, what is the deduction that we have that, look, the tariff was probably one of the most important reasons that we had the guidance when we gave at the end of Q4. The 9th July deadline has come and passed. Now we are looking at the August 1st deadline. We have a trade deal with Japan. Do you think that over the next few months or quarters, maybe if these trade deals get finalized, the client spending could come back quickly and basically they might look at restarting the decision spend also? Or do you think it is more structural in nature? It will also be weighed down upon how the U.S. economic growth picks up, how basically clients are looking to spend on all the other factors. Is it a mix of all or do you think an improvement of the tariff scenario could restart the spend that have been put on hold?

This is Salil. I think those are sort of important questions. What we see is there is an interest with clients across industries to essentially leverage massively the new enterprise AI technology. A lot of that for productivity, a lot of that for new ways of doing business which will spur their own growth and spur and expand revenue for us. The foundation of that is much more attention to be on the cloud, much more attention to have a strong sort of data infrastructure, and then much more attention to have even enterprise companies apps onto the cloud environments. So all that, like, interest is there. And then there is also, you know, the view of where does sort of GDP growth and economic activity go. And so our view is to make sure that we play, you know, today there's an interest in cost and efficiency. We see some benefits of consolidation. We play that as an activity because we have strength there in addition to enterprise AI and the other areas. And we try to make sure that we are well positioned for that. The other points in terms of timelines, you know, we look at it for this year based on what we see. And at the end of next quarter and so on, every quarter as we see things which are different or the same, so we then, you know, update what we are looking at in terms of the overall activity here.

got it got it now since just one last one bit from my side since we touched upon the interest in AI is the current AI cycle very similar in nature to the digital adoption cycle that we saw in 2015-16 do you think clients are the interest of the client the level of interest of clients is pretty much the same the trajectory that the industry took at that point of time in the sense that initially we had our the industry's IMS and other revenues cannibalized by the cloud adoption and then gradually it picked up momentum. Do you think the AI cycle could also play out in a similar manner? Any thoughts on that would be really helpful.

So there, I mean, my view is every sort of big technology shift has a way of enterprise clients making decisions in different ways. So whether it's that cycle or the one before that, with everything on the Internet or the one before that. So each tech cycle has had a way of playing out. So one of the factors we see, because large enterprises have, you know, already a landscape of different technologies. So for anything to make a big impact, it needs, of course, the technology is distinctive, which we think enterprise AI is, and it has to then work with the ecosystem and then make an impact there. So I don't have a view on like, you know, will that be looking like the one in the past or how similar or different it is. But what we do have a view on is we see a tremendous interest in enterprise AI from clients. We see foundational capabilities that they need, which we are good at, cloud data, et cetera, which we think will help. And we are also pretty good at enterprise AI. So we are more prepared, you know, as that plays out. Now, like the timeline of that and the scale at the end, you know, the enterprise tech, let's say, landscape is much larger today than it was in that 10-year-ago period. So there's a lot more things which need a change. So generally speaking, that gives me a good sort of feeling about the future. But, like, you know, to try to put that As it's similar, different is more difficult for me.

Got it, got it. Thank you so much for that comprehensive answer and I wish you all the best.

Thank you. Next question is from the line of Apurva Prasad from Franklin Templeton. Please, go ahead.

Yeah, Salil, the outlook that you have for the rest of the year, more a function of spend velocity related client uncertainty or is it more of the structural AI related productivity prospects?

Can you repeat that please? What was that? Velocity something? Yeah, Pura, if you can repeat the question. Yeah. Am I audible now?

Yeah. Yeah, go ahead. Yeah, yeah. So, Sal, I'm asking if the implied outlook for the remaining part of the year. Is this more a function of macro and client tech overall spend related uncertainty that you're referring to? Or is it more of the structural AI related productivity pass back? You did share some numbers of 5 to 15% related benefits are being passed in through AI programs.

Hi, this is Jayesh here. This is more about the macro uncertainty that we are seeing, right? As I talked earlier, we haven't really seen the environment improving from where we were at the beginning of the year. The tariff-related uncertainty still continues. The geopolitical uncertainty is still there. The client behavior hasn't changed. Many of the clients are still in a wait-and-watch mode when it comes to discretionary spending, et cetera. So we haven't really seen the environment changing in the most strong part of the period, seasonally strong part of our business.

All right. And if I still want to understand the AI-related productivity, the impact that you're facing already, is there any geo or vertical-specific trend that you see here? Perhaps more maybe on North America and high-tech, is there any such trend across geographies and verticals?

On the AI, we see, you know, good adoption in many places. So there's not like one thing which will stand out. But one of the sort of comments we shared earlier was, like in financial services, if you look at our largest clients, half of them now we have become their AI strategic partner. It's a key, I would say, positional advantage that I think Infosys has there.

All right. Thank you. Next question is from Ashwin Mehta from Ambit Cabral. Please go ahead.

Hi. Thanks for the opportunity. Two questions. One, Jayesh, in terms of the depreciation and amortization going down the almost 50 bits, what has been the driver of that? And the second is in terms of SG&A bump-up that we have seen, which is almost 90 bits this quarter. So is it more sales aggression that is driving it, or are there any, say, one-off events which possibly led to a material bump-up?

Sorry, can you hear me? Yeah, I can hear you. Yeah, on the depreciation amortization, if you recollect last quarter, we had a one-off on account of, you know, amortization of intangibles with respect to one of our acquisitions. That has impacted by 40 basis points. So that is what – there's not the reversal of it, but the lack of it, this quarter, you know, on a quarter and quarters walk shows up as 40 basis points and delta pretty much. And the balance has some part of the currency impact as well. On the SG&A, it's a multiple factors. Of course, comp increase that we did in Q1 has an impact. The variable pay that we did has an impact. the hiring for the S&M mainly, you know, to improve our growth trajectory, which is what I called out as 20 basis point as sales investment in a margin work. So that has an impact. The investment that we have done in terms of brand buildings, and we had some events this quarter, so that also impacted. So I think all of that is reflected in this year.

Okay. Thanks, Seth, and all the best for the next

Thank you. Next question is from the line of Abhishek Patak from Motilal Oswal, please go ahead.

Yeah, hi team, morning and congrats on a good quarter. A couple of questions, just the firstly on the inorganic contribution, So the 40 bps impact that you're referring to, is this entirely from the acquisitions that were consolidated in this quarter? Because if I were to assume some residual impact from in-tech, the full year inorganic number comes out to be slightly higher. So just that clarification will be helpful. And the second question is, there was a commentary around how discretionary spends are being kind of bankrolled entirely by the savings made by AI. So just wondering, you know, is this going to be sort of a structural trend where, you know, there is going to be a capitalization going forward regardless of how the demand improves? Will the clients expect us to, you know, just keep self-funding the necessary initiatives based on these gains or not? Or is there sort of, you know, a more structural demand recovery built in, let's say, post the next 12 to 18 months where the clients do need a serious amount of investment in their data and their tech stack to basically modernize? So those are two questions. Thank you.

So Abhishek, the 40 basis points that I talked about is sequential. So 2.6% includes 40 basis points on account of acquisitions. These are the acquisitions that we made in this quarter, the MRE and the missing link in Australia. So that has contributed around 40 basis points out of the 2.6%. India, I think there was a... Right.

I think I was just referring to your comment in the press conference where you said even the full year impact will be 40 bps and hence the confusion.

Yeah, so in-tech was, you know, pretty much 10 out of the 9, I mean, 12 months in the last year. So if you look at full-year basis, it's not significantly. So that's the reason I said it's similar, you know, similar impact on a full-year basis. If you add two months of, two, two-and-a-half months of in-tech and whatever, you know, 11 months of MRE and machine learning.

Yeah, yeah, got it. Thanks. Thank you. Next question is from from BMO. Please go ahead.

Hi. Thank you. This is Keith Bachman from Bank of Montreal. My first question is your headcount was relatively flat quarter on quarter, including software professionals. How do you think about headcount trends through the year?

So, Keith, you know, we were able to increase our utilization this quarter by 30 basis points, so that helped. Part of our growth, as I mentioned earlier, came on back of the pricing increase, including the seasonality in the business. So that has helped as well. But as we go forward, you know, whatever volume growth will come in, considering that we are operating at a peak headcount, that would need – additional headcount, you know, either through subcontractors or our own employees in terms of efforts.

Okay, perfect. And then my second question is, and the reason I asked about headcount, I just didn't know if you'd be able to break the cycle a little bit on growing headcount faster than effort, because AI might help you, but it sounds like in the next couple quarters, answers no. No. The second question is related to your delivery model. How do you think about your delivery model changing over the next year or so in terms of having, A, FTE-based versus, B, more success-based or more fixed-price contracts? Do you think your delivery model may change enabled by, or maybe caused by the advent of more AI capabilities.

So Keith, if you look at the delivery model, I don't think delivery model will change in a short period of couple of quarters. Over a longer period of time on the back of AI, et cetera, we may expect some part of newer pricing models emerging. It could be outcome-based pricing model. It could be, you know, cloud-based or studio-based pricing model, et cetera. So there are various new pricing models that are emerging as we speak. I don't think, you know, over the next year or so, the entire model is going to change. The change will happen gradually in my life.

Okay. Many thanks. Best of luck.

Thank you very much. Ladies and gentlemen, we will take that as our last question. I'll now hand the conference over to the management for closing comments.

Thank you. Thank you, everyone, for joining us. It's been a fantastic quarter for us, strong growth, large deals, a very good focus on enterprise AI consolidation, but also good on cloud and data work. We see this as a differentiated performance with what we have done, which is much more positioning Infosys in that leadership area. and we look forward to a good rest of Financial Year 26 and connecting with you through the quarter and at the end of this quarter as well. Thanks, everyone. Take care.

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