Infosys Limited American Depositary Shares

Good day and welcome to Infosys Limited Q3 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-tone phone. Please note that this conference is being recorded. And I'll hand the conference over to Mr. Sandeep Mahindra Thank you, and over to you, Mr. Mahindra.

Hello, everyone, and welcome to Infosys' earnings call for Q3 FY26. Let me start by wishing all of you a very happy new year. Joining us on this call is CEO and MD, Mr. Falil Parekh, CFO, Mr. Jayesh Sangrajka, along with 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. Please note that anything we say that refers to our future outlook is a forward-looking statement that must be read in conjunction with the risks that the company faces. A complete statement and explanation of these risks is available in our filings with the SEC, which can be found on www.sec.gov. I'd now like to pass on the call to Salil.

Thanks, Sandeep. Good evening and good morning to everyone on the call. Thank you for joining us. Warm wishes to you for the new year. We had a strong performance in Q3. Our revenues grew 0.6% sequentially and 1.7% year on year in constant currency terms. Our large deals were at $4.8 billion with 57% net new. This was across 26 deals. Our adjusted operating margin was 21.2%. We generated free cash flow of $915 million. One of the most significant large deals we won was with the National Health Service in the UK. This $1.6 billion deal expands our work in the healthcare sector. We will help NHS leverage AI to streamline operations and improve patient care for UK citizens. We've deepened our Topaz AI capability with an agent services suite called Topaz Fabric. This suite helps our clients manage and implement AI agents across the enterprise. We are expanding our strategic partnerships with AI companies. We recently announced a partnership with Cognition. Here we will combine Cognition's Devon software agent with Infosys' knowledge of the client landscape and industry expertise. We are already working with them across clients. Industry analysts recognize Infosys for its leadership in AI. In financial year 2026, we were recognized as a leader across 12 ratings. We had strong momentum in AI adoption across our client base. Today, we work with 90% of our 200 largest clients to unlock value with AI. We are currently working on 4,600 AI projects. Our teams have generated over 28 million lines of code using AI. We've built over 500 agents. We are scaling our forward deployed engineer team. Our clients are turning to us as trusted partners to drive value realization from AI investments. Some of the areas they focus on are fragmented data, legacy application landscape, and business workflows, that are not conducive for AI. We bring together a deep understanding of clients' technology landscape, strong data engineering, and process reimagination capabilities to help them capture value at scale from AI. We aspire to make AI work for clients delivering business outcomes for cost, revenue growth, and innovation. We are witnessing six AI-led value pools emerging that could unlock a large incremental opportunity for us. We also see productivity-led benefits that compress some legacy areas. The six value pools of opportunity in AI services we see are AI engineering services, data for AI, agents for operations, AI software development and legacy modernization, AI in physical devices, and AI services. We believe we are uniquely positioned to capture market share across these value pools and emerge as the leading AI value creator for global enterprises. We will share a comprehensive view on our approach at an investor day later this quarter. In financial services, we see good traction in large deals and discretionary projects. In financial services and in energy, utilities, resources, and services verticals, we expect acceleration in financial year 2027 over financial year 2026. This is based on good deal wins and AI partner status with 15 of our largest 25 clients in each of these verticals. With a strong performance in this quarter, we have revised our revenue guidance for the financial year. The new revenue growth guidance for this financial year is 3% to 3.5% growth in constant currency. Our operating margin guidance for the financial year remains the same at 20% to 22%. With that, let me hand it over to Jayesh for his updates.

Thank you, Salil. Good morning, good evening, everyone, and thank you for joining the call today. First of all, a very happy new year to all of you. Coming to the quarter, our Q3 performance demonstrates continued momentum we saw in the last two quarters, underscoring resilience of our business model, relevance of our offerings, and our discipline execution. We had another quarter of growth despite seasonal weakness and reduction in third-party costs. The results for Q3 FY26 include charge associated with change in labor codes in India, which had an impact on operating profit, net profit, EPS, free cash flow for the quarter. Reference to the adjusted numbers exclude the impact from the same. Revenue for Q3 was 5.1 billion, up 0.6% sequentially, and 1.7% year-on-year basis in constant currency terms. Operating margins include the impact of change in labor codes, stands at 18.4%, adjusting for the same, it is at 21.2%. The highlights of the quarter are as follows. We achieved strong revenue growth despite seasonality and low third-party costs. Third-party has a percentage of revenue reduced by 0.3% sequentially and approximately 2.4% on a year-on-year basis. With three strong quarters of performance, our revenue growth in nine months stood at 2.8%, which is at the higher end of our earlier guided range. This is despite the lower third party which has reduced by approximately 1% compared to the same period last year and now stands at 7.3%. Momentum and financial services continues with 3.9% year-on-year in constant currency terms. Among GEOs, Europe continued to lead the growth by 7.2% year-on-year in constant currency terms. Volumes continued to remain soft for the quarter and the year. On a nine-month basis, RPP increased reflecting continued momentum of value-based selling and productivity increases that we have achieved. Existed operating margins increased by 20 basis points sequentially to 21.2%. We continue our investments in sales and marketing, which has increased by double digits this year to date and impacting margins by approximately 50 basis points. Utilization excluding trainees was down by 1% sequentially at 84.1%, and including trainees was down by 2.2% to 80%, as we continue to create capacity for future growth opportunities. Our adjusted margins for nine months are at 21% at midpoint of guidance after absorbing accelerated investment in sales and marketing, as well as lower utilization. On-site mix further reduced by 10 basis points Q3, and by 70 basis points in 9 months FY26. Investment in talent continues. Net headcount increased by 5,000 to 337,000 employees. LTA matriculation declined by 2% sequentially and 1.4% on a year-on-year basis, reflecting both market conditions and our focus on employee retention and upskilling. Large deal TCV was robust at $4.8 billion in Q3 with 57% net new. Total large-deal TCV for nine months stood at $11.7 billion, exceeding the total large-deal TCV of full-year FY25. Net new deal TCV for nine months was up by 40% as compared to the same period last year. Large-deal pipelines continues to be healthy. Our razor-sharp focus, aided by the deployment of AI agents on our order-to-receivable cycle, has resulted in decline of five days in DSO, including net and will, to 82-day sequential. Driven by strong collections, free cash flow generation adjusted for labor codes remained robust at 965 million, which is 113% of adjusted net profit. Adjusted free cash flow conversion for nine months stood at 118%. Adjusted EPS in rupee terms for nine months, FY26, grew at double digits at 11.5%. During the quarter, we successfully completed our largest ever buyback, returning 18,000 crores to our shareholders, which will help EPS accretion. We also paid our interim dividend for FY26 in line with our capital allocation policy. Adjusted operating margins for Q3 expanded by 20 basis points to 21.2% sequentially. Major components of changes are as below. Tailwinds of 40 basis points from currency movement, 40 basis points from maximus comprising primarily of value-based selling, critical portfolios and lean and automation. Offset by 70 basis points impact from furloughs and lower working days. The impact of higher variable pay was partly offset by one-off benefits during the quarter. Consolidated cash and investments were at 3.9 billion at the end of the quarter after returning 3 billion to the shareholders in the form of dividend and buyback. Yield on cash balance was at 6.19 and ROE stood at 32.8%. We signed 26 large deals during the quarter, including two mega-deals. This includes 10 in financial services, 4 in retail, 3 each in life sciences and manufacturing, 2 each in communication, EURS, and high tech. Region-wise, we signed 16 deals in America, 9 in Europe, and 1 in the rest of the world. Coming to verticals, we see continued momentum in financial services with approximately 5% growth in the last 9 months, led by large yield wins and uptake in discretionary spend. Across sub-verticals like banking, payments, mortgages, along with assets and wealth management. There is elevated interest in AI-led transformation, platform modernization, and vendor consolidation. We are seeing a shift from compliance to business growth. Significant core transformation across all FS sub-vertical is creating strong long-term strategic pipeline, providing good IP platform partner opportunities. We are now a preferred AI partner for top 15 out of 25 banking clients. Uptake in discretionary spend in aforementioned sub-verticals and deal wins in recent quarters positions us favorably for better growth in FY27. Manufacturing vertical is also impacted by tariff uncertainties, which is preventing clients from committing to long-term investments. Discretionary spend is under pressure and decision-making is slow. Industrial and aero are doing well, but auto sector remains challenged. Clients are prioritizing cost discipline, consolidation and efficiency. and we are supporting them through digital rationalizations and AI-led productivity initiatives. Overall pipeline remains healthy and focused on cost takeouts, infrastructure consolidation, and ERP modernization. EURS companies are increasingly allocating budgets towards AI, infrastructure, data readiness, cloud, and software platforms. There is demand for setting up GCCs across sectors, with most clients looking at SIs to complement the GCC strategy. We are a preferred AI partner for top 15 out of top 25 clients. We are seeing an increase in discretionary demand in utilities and energies, which should lead to growth accelerations in FY27. Utility sector is witnessing increasing in demand driven by massive investments in infra and AI data centers. While discretionary demand in energy sector is focused on decarbonization and low carbon solutions, there is also focus on cost optimization and consolidation due to enterprise AI adoption. Retail and CPG clients continue to experience uncertainty due to the ongoing tariff negotiations and evolving geopolitical equations. Clients are prioritizing cost takeouts and AI-led productivity deals while discretionary expense remains soft apart from SAP, DNA testing, and AI augmented services. We continue to leverage Topaz and our AI Next platform to deliver measurable business value with robust guardrails around privacy, governance, and augmenting customer and employee experiences. Communication sector continues to be impacted by geopolitical uncertainty. However, our deal wins in prior quarters are helping us driving growth acceleration year on year over the last few quarters. Telcos are prioritizing AI automation and transformation productivity increases, while traditionally IT remains under pressure. Clients are increasingly seeking partnerships with SIs for scaling and innovation within complex ecosystems. Focus is on outcome-based engagement models rather than traditional effort-based pricing models. Our stellar execution in a seasonally weak quarter is a clear reflection of our ability to navigate the uncertain environment effectively. Strong year-to-date performance and robust deal wins have enabled us to revise our revenue guidance for FY26 upward to 3 to 3.5%. This does not include any revenues from the joint venture with Telstra, as we still await the regulatory approvals. Our operating margin guidance remains at 20 to 22%. With that, we can open up for the questions.

Thank you very much. We'll now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants, while asking a question, are requested to use handsets and not on speakerphone or any other mode to avoid any inconvenience. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press Start and 1 to ask a question. The first question is from the line of Ankur Rudra from JP Morgan. Please go ahead.

Hi, thank you and happy new year to you too. Good to see a nice print here. Just first couple of questions on the revenue and the demand side. You know, the signings have been quite strong for the last couple of quarters and momentum has been quite strong as well. I'm just curious why the outlook, the implied outlook for fourth quarter can't be stronger than it is. And secondly, I just want to confirm that your comment is for a growth acceleration in F27 for the overall business and not for a segment alone. And are you seeing any signs of, you know, short cycle projects or discussion spending expanding beyond financial service and energy also, especially when you think about F27? Thank you.

Hi, I'm good. This is Salil. So first on What we are seeing in terms of the momentum and the deals, all of that has led to the increase in the guidance, keeping in mind the overall picture. So we mentioned, Jayesh mentioned a little bit about financial services, about energy utilities, the overall deal. And then if you look at some of our other sectors, we are still seeing those sectors starting to come up but not at that level so keeping all of that in mind we've increased the guidance for what we see in q4 on the numbers for next year so what we have shared today is in the two verticals energy utilities resources and services and in financial services we see that the the growth on financial year 27 to 26 will be good, and that is because of the deals we have won, large and other deals, and the EI where we are partners with 15 of our large 25 clients. So those two things especially are giving us that view. We are not making a comment on the overall. We are not seeing anything on the overall at this stage.

And, Ankur, if I can just add to what Saleh was saying on guidance and your question on why Q4 guidance cannot be elevated more. You should also remember that there is a lower working day calendar day impact in this quarter, which is usually seasonally there, so that is also and a headwind from the guidance perspective.

Appreciate it. Just a question for you, Jaish. As well on the margin side, margins appear to be down 20 basis points if I adjust the gains from the sale, property sale this time. Could you highlight if you're seeing any kind of pricing pressure and also how do you see the percentage going forward? Also given a lot more disclosure on the AI side, which is appreciated, I'm curious if AI is a headwind or a tailwind on your margins when you do these 4,600 AI projects?

You're right, there was a benefit that we got this quarter and I did call that out that benefit was largely offset by the higher variable pay that we also provided in the financial statement this quarter. That's the put and take of the margin. On the pricing, if you look at our consistent pricing commentary has been that our pricing is accurate. We have seen consistently a pricing going up on back of various factors, including AI, including project maximums. New gen pricing is part of the project maximums, which includes how do you price these new AI projects, et cetera, the agents, et cetera. So we don't really see an impact or a headwind coming because of the AI projects on pricing especially.

Understand. Thank you, Ambassador Trump.

Thank you. Next question is from Land O'Brien. From TD Coven, please go ahead.

Hi, good evening. Thank you. I wanted to ask on North America. So just your comment on your view going forward here, at least in the coming quarters, you see it just tip down to a contraction of minus 1% on a year-on-year basis. Was that due to any particular industries? And just how do you see that progressing here as you go through March and beyond?

This is what we had called out at the beginning of the year when we provided our original guidance that looking at the deals in the pipeline, looking at the projects that we have and the projects or large deals that were under execution, we expected this year the third party cost and therefore the third party revenue to be lower than the last year. It's across segments. Of course, the impact of it by segment could vary, but the impact is across segments.

Okay, understood. And then just as it relates to the commentary on budgets going forward, you just comment on the conversations you're having with enterprises now as it relates to their calendar 26 budgets. As you think about this right now versus this time last year, any key changes worth noting?

So, hi, this is Salil. I think what we see now is First, the comment that we made earlier on energy, utilities, vertical and financial services. In financial services, we also see discretionary work that is more prevalent. And then we see much more activity on AI. And in the AI area, what we are starting to identify as the six value pools areas where we can drive faster growth. We are seeing traction on that, and with some of the partnerships we've announced and some others that we're already working with companies on, we see good momentum. So those are the two things that we are seeing. Some of the discretionary in FS, good momentum in those two, energy utilities and financial services, and then in AI, more activity, which is different from this time of last year. Thank you.

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

Yeah, hi. So just one question in terms of healthcare. It seems to have done pretty well this quarter, almost 44 million of incremental revenues, which is nearly double of our overall incremental revenues. So what is the driver of the healthcare growth? And secondly, was there any contribution from the NHS deals? in this quarter.

Yeah, Ashwin, so healthcare did benefit from the contribution from the NHS deal that we signed.

And we expect the residual contribution as you get into the next quarter, or this is kind of scaled up?

So, Ashwin, we don't provide deal by deal, you know, the revenue estimates per se, right? But yeah, healthcare did benefit from the NHS.

Fair. And the second question is in terms of wage hikes. I missed the initial comments, but any decision in terms of the wage hikes and are they expected in 4Q?

Yeah, so on the wage hike, you know, whenever we decide that, we've always considered multiple factors. When was the last wage hike was done? What are the market scenarios, the inflation, etc., etc.? ? If you look at this calendar, we've already done rolled out wage hikes in two stages effective. One part was effective January, the other one was effective April, like we always do. So we haven't decided the next cycle yet.

Okay. Fair enough. Thanks a lot and all the best.

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

yeah hi uh hi team progress in a good quarter uh so uh a couple of questions firstly uh you know do you think uh this is the year when uh you know clients kind of move from uh the ai strategy being good to have to do something of a necessity right which means that this is a year when foundational ai work starts getting taken seriously across verticals that's the first one And secondly, on the cognition deal, you know, a very, very interesting sort of, you know, partnership, sort of very curious to know how you're pricing this, how you're taking it, you know, to clients. I mean, is Devin kind of initially leading to a bit of cannibalization in revenues and sort of how are those contracts structured? And over the next one to two years, how do you expect a typical deal with, let's say, an agent like Devin and yourself sort of, you know, structured? So those are two questions.

So on the first one, what we are seeing is there's more and more interest in AI work across different industries. So we will continue to see that going through the year. We will now watch and see, because every quarter so far, and especially in Q3, we've seen that interest, our pipeline, the number of projects. our penetration of our last 200 clients with AI work, all of that is going up and it's across those different verticals. There is much more activity there which we called out in financial services, but we also see that in telco, we see that in pharma, healthcare, we see that in energy utilities, we see a little bit in life sciences. It's not like only one sector, but yes, in FS, it's quite a bit more. On cognition, the way that works is basically the Devon software agent and our work, we are doing joint work in clients already today. So what tends to happen is there are certain sets of activity. For example, we see some things on legacy modernization, where in the past that was large long commitment for clients with this sort of combination between a software agent and Infosys and our knowledge of the client landscape and of the industry those things become much more addressable and so those sorts of newer areas those are the six value pools that I referenced earlier this is one of them those are the new areas that start to come into play and And in this particular case with Devin, that's one example. There are others where that agent can be used in different places. And that's the type of growth we are seeing because that's new work that would ordinarily not have been done at all but now can be attempted in a combination.

Got it. Thanks, all the best.

Thank you very much. Next question is from the line of Jonathan Lee from Guggenheim Securities. Please go ahead.

Great. Happy New Year and thanks for taking my questions. Can you speak to the level of visibility and certainty you have in your implied fiscal 4Q revenue growth relative to the visibility you've had in prior years around this time?

Hi, Jonathan. Whenever we have looked at the guidance, we do take into account multiple factors, the deeds that we have signed. the deals that are ramping up and the usual factors affecting the quarter like calendar days, working days, etc. So I think that is what has gone into guidance this time as well. What I can tell you is that the lower end we have baked in a higher amount of uncertainty and the higher end we have baked in a better macro environment.

That's a good color. Thank you. And a follow-up, can you help us reconcile what you're seeing around subcontractor usage in the quarter versus the downtick in utilization you're seeing? Is there a skills gap that you might be facing, and how should we think about that dynamic going forward?

Yeah, so subcon, historically, you're right, you know, is always a factor of where the skill gaps are, where the skills that you need depending on the geography, depending on the tenure of the requirement, etc. And that is how the subcon uptake or down take happens in the market in our scenario and that is what has happened this quarter as well. There are some of the large deals, there are some of the deals which would have started ramping up and we would have, we needed to dip into the subcontractors to fulfill those requirements which is what is reflected in the uptake.

Appreciate that, thank you.

Thank you very much. Next question is from Lenovo Boris Angle from Nuama, please go ahead.

Hi, thanks for taking my question and congrats on a solid performance. So my question was on two key verticals, manufacturing and the high-tech division. So manufacturing just wanted to pick your brains on how are you seeing the traction in this vertical given the kind of headwinds the auto companies are seeing globally in terms of their EV loadouts and the competition. How are different parts of the manufacturing vertical looking like at this point of time? And do you expect the momentum to pick up in that? On the high-tech vertical, just again, I think we saw a sharp drop in this quarter, might have been due to seasonality or furloughs, but anything that you're looking at, this vertical has been around $370, $380 million, kind of around it for us for quite a while now. What are you looking at in this vertical in terms of next drivers of growth, and are we seeing any momentum building up in this near future?

On manufacturing, as you mentioned, there is weakness in automotive and in some parts of industrial across Europe. We see some sense in some elements where the manufacturing, and this is partially in US, partially in Europe, is supplying a capability which is coming for the build out of the data centers and so on. So there are some of those companies which are benefiting from that. But the automotive side, as you mentioned, we see that continuing to be weak. We are focused on expanding our base there, so we are looking at and have successfully worked now with multiple automotive companies. And we also see that going beyond automotive in the broader manufacturing, which is supplying capabilities to the boom in AI and data center activity, not the services, is what is going to help us in manufacturing. On high tech, similarly, there's groups of companies which are strong. There are groups which need more attention, and we have a portfolio of those companies. Overall, there is still cost pressure in high tech, and we will push. There is a lot of productivity activity that is going on there. where clients are looking for productivity benefits, and they are also looking, some of them, for where they will get their growth into, again, some of the companies which are supplying servers, et cetera. We are seeing those are doing pretty well with the AI boom. The others are looking for where are the growth elements that are going to come, and we are supporting that work. And high-tech also at this stage, we see some constraints in that industry here.

But just to further on that, do you see this vertical maybe picking up for us, not in immediate term, but let's say in the medium to long term, given that the widespread adoption of AI should be, and these companies should be at the forefront, some of these companies should be at the forefront of that. Do you think this vertical could be a good road driver for us, maybe sometime down the line?

So I think in the medium term or longer, my sense is high tech is a good industry. We are very comfortable to be in it, as you pointed out, with different ways of AI impacting it across different value pools, they will also go through those changes. But we have to make sure that we are providing them the services that they're looking for and in a way that they have a lot of cost pressures today that becomes manageable in their cost structure. There's no timeline in my mind, but yes, in the medium term or beyond, high tech is a good industry for us.

Got it, got it. Just one last question for Jaish. Jaish, this quarter we took this exceptional item on the labor law impact. I would assume that the entire impact that we had to take has been taken and for next quarter there wouldn't be any exceptional item anymore. And what would be the recurring impact of this new labor laws on our P&L in terms of margins?

Yeah, so whatever is known at this point in time on back of the regulation that has changed is being taken this quarter. We don't expect, unless of course there are changes in the regulation, we don't expect any further impact going forward as one of. The recurring impact of this would be 15 basis points on an ongoing basis approximately.

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

Thank you very much. Next question is from Keith Backman from BMO Capital. Please go ahead.

Yeah, thank you very much. Could you speak to how you anticipate revenue for employee changing over the next couple of years? And the spirit of the question is driven by trying to better understand how you see emphasis in the industry. One of the core value propositions has been managing people. and growing in terms of managing agents instead of managing people?

It is similar to what we have seen in any other technology wave. If you are ahead of the curve, you will see an increase in your productivity because of the premium that you can keep with you. If you are behind the curve, then you probably will see a dip. the only measurement that would change here is, you know, the premium is measured now in terms of productivity. So if you are delivering better productivity, you would be able to keep some of that with you, which will get reflected in pricing, better pricing. If you are behind the curve in delivering the productivity, you would see a dip in pricing. So that's how you will see, you know, in a traditional environment, the only change I would say is the pricing models per se are also changing and emerging. There are newer and newer pricing models emerging. How do you price agents? How do you price the underlying platform, et cetera? But early days to say at this point in time, how will that, you know, reflect in terms of linearity or non-linearity?

Okay. Okay. And the second one is more micro. Could you speak to, there's been some recent press reports about your relationship with Daimler. in terms of maybe that moving away. Could you speak to anything you could comment on, Don, and or is the Q4 guidance reflecting any attrition in contracts, large contracts, or should we be thinking about, if we look over the horizon into FY27, should we be considering any major attrition, any attrition from any major contracts? And that's it for me. Thank you.

Yeah, Sukit, our current contracts are valid until December 26th. So we don't really see any contracts within that expiring at this point in time. Beyond that, we don't really give a color on our client-specific or our project-specific details.

Okay. All right. Thank you.

Thank you. Next question is from . From Morgan Stanley, please go ahead.

Hi, happy to hear. My question is on the deal renewal cycle. Any color that you can share on what has been the experience on your renewals in last several quarters? Specifically, you did mention about a comment that legacy part of the business, e-seeing, some compression on refresh because of the AI cycle. So any trend on which service lines are seeing that most visibly in your experience? And does that also mean that your overall renewals may have a little bit higher leakage than usually that you used to have, let's say, in the past because of the whole narrative around AI deflation that is coming on the legacy services. Thank you.

I'm sorry, Gaurav. We actually got dropped off. Would you be able to repeat the question, please?

Yeah, hi. My question is on the deal renewal cycle. Your comment did allude to significant productivity benefit on the legacy services. So anything that you could share from what you have seen on the renewals of your larger deals, specifically using some of the AI tools, what has been the learning there? Has there been some amount of leakage which has been higher than usual?

Hi, this is Salil. So on the large deals, we are typically seeing whether it's renewals or also deals which we are winning from other companies where we are beneficiaries of consolidation. Typically, across the board, there is large expectation from clients on AI productivity benefits. What we have done is we have modeled in what we are seeing today and build a path to that because these are typically three, five-year deals. But we are also not in a position where sometimes the client expectations over five years are very different. So we have what we are seeing and where we can view what that sort of a benefit is that we can provide because these are multi-year sort of deals. Having said that, we don't see, in fact, we are winning on large deals quite a lot. If you look at the numbers on the three quarters, we have done more than the full year the previous year. And Q3 was already $4.8 billion. We've seen some net new deals, for example, NHS. Yes, there is that productivity, but yes, we are also benefiting from consolidation and winning things across the board where my sense is we are gaining on the market share side.

Got it. My next question on your visibility for CY26, fair to say that looks better than the last year because last year you entered into the year where you had a big decline in the fourth quarter because of some specific issues and this year your guidance alludes to kind of a much better fourth quarter outlook. So the exit rate is much better than the last year. Does it mean that it gives you a little bit of a tailwind when you get into the FY27 compared to last year when you got into FY26? Thank you.

I think the way you've described it, you have done the math on that one because what we can see is the Our guidance for the full year, we have the range which gives us a good traction on Q4 with a lot of the good deals that have come and what we saw in Q3. Then we are seeing the discretionary coming back in financial services. Then we are seeing energy utilities and financial services looking better in the next financial year than this financial year. And then we are seeing in AI services the six value pools where we see a good growth opportunity. So all in all, that gives us a good view of next year.

Thank you, Salil.

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

Yeah, thanks for the opportunity and congrats on a good set of numbers. Salil, first question, are you witnessing the average size of AI-led deals going up materially on a YOY basis across sectors? And just a follow-up, if answer to this is being yes, one can say clients are now in a state of mind where they don't fear in terms of modernization of legacy application. And if that is true, can it lead to a better discretionary spend on that side of the services in CI26 versus last year?

On the AI part, so there are two things. One is there are like these which are only AI. One is where AI is pervasive in a service we are offering. So it's difficult, therefore, to say the size of the deal. But in general, the usage of AI is much more across all our services. And the actual only AI, if you can call it like that, deals are also going better. So that's what's happening. I think on that modernization, if I understood, yes, we are seeing that across the board because AI can open up that and make it a little bit more efficient for the client and therefore more like they'll have a better return on that. And then will the discretionary come after that? That one we don't know, meaning it depends on the industry situation also for that. Like what we see right now is in financial services we are seeing it, but at the other industries we'll see how they play out as each one will be given some color. That will be different for different industries is what we think.

Okay, okay. And just a follow-up to this, is there a traction in terms of number of billions below $50 million is now started increasing and this could be a trend to continue rather than volatile trend earlier? And just a few questions to Jayesh. Is it fair to assume third-party items as a cost line, as a percentage to revenue for this year, which we guided at the start of the year, may be stable hereon or may further decline beyond FY26? And this 165 crore profit on property, plant and equipment, will it be a win in the fourth quarter?

Let me start on the first piece. Typically below that 50 million we are not sharing because only the large deals data we are sharing externally. The only sort of comment we can share is overall wins are looking good and also we are doing work with smaller accounts, which is not to comment on the overall 50 million below deal, but on smaller accounts, there we are also seeing some good growth. And then Jaish on the other parts.

Yeah, so Sandeep, this is Jaish here. If you look at the third-party deals this year, beginning of the year, we had said we expect the third-party cost to be lower than the previous year. On back of the deals that we signed in last year that were getting rammed up, the deals that we saw in the pipeline. So that's a combination that we need to look out for when we guide for that. We don't have all the details at this point in time for the next year. We will get into next year and we will let you know on that at that point in time. So that was one. You had a second question on the 165 crores. I didn't get the exact question on that if you could repeat.

Yeah, what I meant is these kind of line items may not reoccur every quarter. So is it fair to assume 35-36 bids which has been a benefit in this quarter could be a headwind in next quarter?

Yeah, so there are always some one-offs, right, that you get some headwinds, some tailwinds. Sometimes it's a revenue line item, sometimes it's a cost line item for a company of this size. So that is always there. As I talked about in my margin work also, this was largely offset by or more than offset by the increase in variable pay as well. Okay.

Thanks and all the best. Thank you.

Thank you very much. Next question is from Jamie Friedman from Susquehanna International. Please go ahead.

Hi. Good evening. I had two questions. I'll just ask them up front. Salil, it's great to see the improvement in discretionary and financial services. I was wondering if you have any comment as to whether you're seeing that or anticipating that expand into other verticals. And you mentioned energy and resources. And then my second question is, in terms of your thinking about the journey between AI and gentrification, it seems like your thinking has evolved more towards the gentrification. I imagine you'll address this at the analyst day, but if you could describe how you are thinking about the productization of your AI initiatives relative to those two dimensions, so first AI and then agentification. Thank you very much.

So on the first, I think on financial services, we are absolutely seeing that, which we shared earlier, on energy utilities because of the deals and the fact that we are in the in our top 15 of 25 clients doing ai work we see clearly next financial year will be growth over this financial year we are looking in other places as that discretionary will start to come back and as it does we will absolutely uh share that we we do feel that overall uh from what we see on AI, what we see with possibilities on the economic growth, GDP growth and so on in the US, that those signs will give us, the clients, the ability to spend on tech. But as we see it, we will share that for sure on the other industries. So what we built within Topaz is fabric. Topaz fabric, we called it, is a set of purpose-built agents which work with many different native AI companies' interfaces and can support a lot of different functions within clients, horizontal and vertical. So that suite is going to be our agent suite. Then there are agents of the other companies which we will integrate, implement, expand, make it work because we know the tech landscape of a client and we know the industry depth. So there we feel quite good that we are in a better position than many people to put that. In terms of productization, we have built four small language models. In our own product suite, In finical, we will be much more AI orientated. But we are not at today's stage planning to do large scale foundational model work. We are going to do small language model work. We will do other things. For example, there are set of AI wrappers or orchestration modules that we can build which will enable clients to switch between foundation models, switch between agents, do a selection of agents, but those are not – so that's a different type of product platform, which is all in Topaz. So that is the way we are thinking about it today. We may in the future have something more, but that's like the current view.

So the line for the participant dropped. We move to the next participant. Next question is from the line of Dipesh Mehta from MPA Global. Please go ahead.

Yeah, thanks for the opportunity. Two questions. First about the six areas of AI services pool which you referred to. Can you provide some sense about the potential growth opportunities and where let's say Infosys is currently and how you expect it to evolve in maybe next three to five years?

uh maybe if you can say some participation metrics how where we are and how we expect it to evolve second question is on the cy26 budget if you can provide some early indication how you expect it to safer thank you so on the first one what we are thinking is in that six areas today we are starting to do work in many of those areas but what we want to do is in our investor day go into a little bit more depth. For example, we will share like in several industries what we are doing in some of the areas. We will share like we have AI labs on campus and we want to do a little walkthrough to show like actually the work that is going on. And we will also share like the scale of what we think that opportunity is and the possible growth dynamics in that. So that's our planning for that investor day. And the second one, what did you ask? So that will come to it in the April timeframe. When we finish the year, we are now in the process of working on that. We will share that in that April call.

Okay. Thank you.

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

Okay. Thank you, everyone, for joining and for such a detailed and insightful set of questions. I just want to leave a few comments. First, we've had a strong quarter, good large deals, increase in our guidance. A nine-month margin sits at 21%. We've actually done that after absorbing a very strong increase in our sales cost of 50 basis points and with some lower utilization, which we are building capacity for the future. We also see a huge shift on AI, which we shared in some of the six areas plus some of the partnerships. We start to see discretionary coming back in financial services and in energy utilities and financial services we start to see that next year looking better than this year. So overall, we feel good as we go into the fourth quarter with our increase in guidance. Thank you, everyone, and catch you at the next quarterly call.

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