Infosys Limited American Depositary Shares

Ladies and gentlemen, greetings and welcome to Enforcers Limited Q1 FY27 earnings conference call. As a reminder, all participant lines will be in the listen only mode and there will be an option today for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by texting SRAH BIN0 on your personal phone. Please note that this conference is being recorded. And now in the conference, over to Mr. Sandeep Mahindroo.

Thank you and over to Mr. Mahindroo.

Thanks everyone and welcome to this morning's call to Dispatch Infosys Q1 FI 27.9 TV Rides. Joining us on this call is Chairman of the Board Mr. Nandan Nilekani, CEO Member Mr. Salil Parekh, CEO for Mr. Jayesh Sanghrajka along with other members of the leadership team. We'll start the call with some remarks by Nandan followed by remarks by Salil and Jayesh on the performance. Subsequent to that, we will open up the call for questions with Salil and Jayesh. Kindly note that anything we say which refers to our future outlook is a forward-looking statement that must be written in conjunction with the risks that the company faces. A full statement explanation of these risks is available in our pilot with the SEC which can be found on www.sec.gov. I would now like to pass on the call to Nandan.

Thank you Sandeep and it is really a pleasure to talk to all of you. I joined this call to make an important announcement. As you know, Salil has done a stellar job as the CEO for almost 10 years. And under his leadership, the company has grown from 10 billion to 20 billion. He's done the transition to the digital era. And he's laid the foundation for a differentiated AI strategy which will serve the company in good stead for many more years. However, his term is coming to an end on March 31, 2027. and the board has decided today to appoint a CEO, a new CEO who is coming from inside Infosys from within an internal candidate. His name is Ashish Dash. Ashish Dash has been in Infosys for more than 31 years since he joined as a software engineer from IIT Kharagpur and he has all round experience of Infosys He has worked in delivery for many years. He has worked on account management. He has been involved with starting a DC in Bhubaneswar. He has been in sales and of course he has been a sales and segment head for many years running the Shur practice which has many verticals. And he is an outstanding person. He is very good at his job. He is very collegial. He is very good collaborative. He is accepted and liked by everybody in the company. He has quintessential Infosys values. At the same time, he is focused on the market and being able to get good deals at good revenue and good margin. And because of his technical background, he understands the AI, what is happening in AI, and that will help him in the future. So the board has appointed Mr. Dash as the next CEO designate. He will work with Salil over the next few months. Next 2-3 months he will focus on getting more coaching and training on being a CEO and then for 6 months he will work as a mentee under Salil's leadership who will groom him for the complex job of managing a $20 billion company at a very transformational time. So we are all very excited by the choice. It has got a very good response internally and with customers. And you will get to see him in a few months. So you can maybe keep that in mind. Maybe now I'll ask Salil to add a few words on Dash.

Thanks, Nandan. Good morning, good evening, everyone. It's an absolute pleasure for me to have... Dash be the next CEO of the company. I have had the opportunity to work with him over the last several years. In my mind, he is a fantastic leader and very good with the people around. He has worked very closely with clients and built a portfolio which is, I think, quite strong and exceptional on the growth dimension and the way it is managed Anur Gurugopala Suryanarayana Manikantha, Anur Gurugopala Suryanarayana Manikantha, Anur Gurugopala Suryanarayana Manikantha, Anur Gurugopala and as Nandan said you will get to meet Dash in the coming quarters as well.

So thank you and I excuse myself and Salil and Jayesh and the team will continue the quarterly call.

Thank you very much.

Thanks Nandan. Good evening and good morning to everyone on the call. Thank you for joining us Let me start off with the update for the business in this quarter. Our revenue growth for Q1 was 2.4% year on year and 1% quarter on quarter in constant currency terms. We had a one time revenue impact of a client decision during this quarter. Our AI services revenue was 8.2% of overall revenue. Our large deals were at 3.6 billion with a net new of 61%. Our operating margin was 21.1%. Free cash flow at 955 million dollars. And our earnings per share were higher by 15% in Q1 in rupee terms. We saw a strong acceleration in our AI business as I shared earlier with AI revenues for the quarter at 8.2%. This is growing at double digit quarter on quarter over the last several quarters. With this momentum, we see long-term relevance of our services for our clients. From our delivery team, over 80,000 employees are working today on coding tools such as Cloud Code or Codex for our clients and for some projects inside. We saw strong traction across the six areas of growth in our AI strategy hexagon. Client work for example in building agents or processes, work on data in AI, in modernization and of course in coding tools. For a healthcare company, we implemented AI agents to automate Medicaid eligibility verification and operation support. The solution reduced eligibility verification time from which was about 6 to 8 days to approximately 4 minutes. We are building a team of frontier engineers to support our client work. Our plan is to have 6000 frontier engineers over the next few years. We have built a platform Topaz Fabric that allows our clients to get benefits of AI while keeping the sovereignty of their data and company knowledge with themselves. Our clients are able to work with any foundation model, closed, open rate, on cloud, on their Topaz Fabric provides the harness to our client to enable them to more fully deploy the benefits of the foundation models into their organization. Our clients are also able to optimize their token cost by ensuring appropriate models are used for appropriate tasks. Overall, we see a good pipeline for AI services and that gives us a good view for continued AI work with our clients. Outside of that, we continue to see the macro environment remaining uncertain. With our Q1 results and a view of the rest of the financial year, we change our revenue growth guidance to 1.5% to 3% year-on-year growth in constant policy curves. Our operating margin guidance remains the same at 20% to 22%. Thank you and with that, let me hand it over to Jayesh for his update.

Thank you, Karel. Good morning, good evening everyone and thank you for joining the call today. We enter FY27 against a backdrop of a dynamic and evolving business environment which is reflected in lower than expected volumes. Clients continue to prioritize investments in AI, modernization, cloud and productivity initiatives while remaining selective in discretionary spending. Our focus remained on discipline execution, supporting clients' transformation agenda and delivering sustainable financial performance. Q1 revenues were at $5082 million, increase of 1% sequentially and 2.4% year on year in constant currency counts. Acquisition contributed approximately 1.1% sequentially. Our AI revenue momentum is very strong with AI revenues at 8.2% of our overall revenues, Anur Gurugopala Suryanarayana Manikantha, Raghavendra Rao Mannepalli and weaker than expectations and also versus the historical Q1 trends. Additionally, client expectation on productivity along with high competitive intensity is resulting in softer for increase in price versus our expectations. Sequential revenue growth was also impacted by higher offshoring to de-risk our business model along with lower revenues from European manufacturing clients as I mentioned in the last earning call. Despite lower than expected growth, gross margins improved by 60 basis points sequentially. Offering margin improved by 20 basis points sequentially to 21.1%. Major components of the change are as below. Tailwinds of 70 basis points from rupee depreciation, 20 basis points from project maximum, 20 basis points net benefit due to amortization of cost on intangibles incurred in Q4, offset by impact of new acquisitions in Q1. Headwinds of 50 basis points from investment in AI sales and marketing, 40 basis points from one-time revenue impact arising out of program termination. We also had one-time cost benefit of approximately 30 basis points which was offset by 20 basis points due to increase in various other expenses. Our tight focus on improving operational efficiency led to utilization excluding trainings improving by 1.9% to 84.9%. On-site mix excluding new acquisitions dropped by 30 basis points however including acquisitions it remained flat. We expect onset mix excluding new acquisitions to reduce by 75% to 1% over further years. DSO reduced by 4 days sequentially to 63. DSO including unbilled net of unearned was 76 days versus 78 in Q4. Headcount reduced by 500 employees after adding over 2000 employees from acquisition. Attrition increased slightly to 13% versus 12.6% sequentially in line with Q1 seasonality. We plan to give salary hikes to most of our employees effective October, while the rest of the employees will be covered in January 27. We expect effective tax rates for the year to be in the range of 29-30%. EPS for the quarter stood at 19.19 rupees, up approximately 15% year-on-year. Q1 yield on cash investment balance was at 6.8%. Our balance sheet continues to be strong and debt free. Consolidated cash and cash investments were at $3.9 billion at the end of the quarter after returning more than $1 billion to the shareholders through dividends. Pre-cash flows were strong at $9.55 million at 116.5% of net profit. Large deal wins were strong at $3.6 billion with high net new of 61% reflecting the relevance of our value proposition. Out of the 22 large yield ones, we had 3 deals worth 400 million each. We have been on the positive side of vendor consolidation with 20% of the total large deals CCV being from new vendor consolidation deals. Vertical wise, we won 5 deals in financial services and communication, 4 in EURS, 3 in manufacturing, 2 in retail, 1 each in life science, high tech and others. Region wise, we signed 11 deals in North America, 8 in Europe and 3 in the rest of the world. Coming to verticals, in financial services, uncertainty and geopolitical instability is causing some clients' hesitancy as spending patterns are taking a more cautious approach. Client priorities are centered on efficiency, productivity, and modernization, with discrete spending being evaluated more carefully. We see momentum across banking, payments, capital markets, and wealth management. AI adoption has been incremental and additive. With client increasingly engaging us to support their AI journeys across strategy, platforms, engineering and operations. This is reflected in our strong deal win this quarter. With approximately 1 billion in large deep TCV or large deep net new TCV, GCCs continue to expand and we are partnering with our clients both in setup and growth of GCCs. Growth in manufacturing continues to be impacted due to lower revenue from a large client. Clients remain cautious on discretionary spending and decision making is elongated. The impact of tariffs, geopolitical uncertainty and energy costs is keeping budgets tightly controlled. While AI adoption is creating new opportunity areas, it is also raising productivity expectations from clients. We are getting better pricing on AI skills and consulting. We remain focused on supporting clients through digital AI modernization and consolidation initiatives while balancing growth opportunities with discipline, deals selection and sustainable pricing. EURS segment was impacted by one-off client termination, adjusted for which the growth was strong. Macroeconomic uncertainty continues to influence client spending patterns and decision-making timelines. Clients are driving business priorities, including cost optimization, operational resilience, productivity improvements, and regulatory compliance. Generative AI is emerging as a strong growth catalyst, driving process reimagination and productivity initiatives. Our partnership with hyperscalers and AI native companies is allowing us to experiment and ideate faster. In retail and CPG, consumer spend remains muted and budgets are tightly controlled due to geopolitics, inflation and tariffs. Spend is shifting towards AI modernization and productivity-led program funded through operational efficiency and cost optimization. Clients are asking for AI-led productivity commitments leading to new pricing structures. We are leveraging our native knowledge of the client's business processes and technology landscapes and augmenting it with AI. Large yield pipeline is healthy but increasing cycles are longer. In communications, operating environment remains challenging as clients continue to exercise discipline on discretionary spending and closely scrutinize investment decisions. AI is resharping spending patterns. Enterprises are increasingly prioritizing initiatives that deliver near-term gains. Telcom is undergoing significant transformation with consolidation and M&A with increased investments especially for OEMs. We remain focused on aligning our offerings to these evolving client priorities and helping enterprise realize measurable business outcomes. Considering lower than expected Q1 revenues and revised view of the rest of the year, we are revisiting our revenue guidance to 1.5 to 3%. This includes Approximately 1.7% contribution from recently closed acquisitions of Optimum Healthcare and Stratus Slightly over 1% impact from large European manufacturing clients due to reduced client spend along with our conscious decision to not pursue certain deals that were not aligned to our return expectations Approximately 0.75 to 1% impact from shift towards offshore Overall business environment continues to remain volatile Lower end of the guidance assumes further deterioration in macro Top end of the guidance assumes an improvement in macro, though lower than what we had assumed in April guidance. FS and URS are expected to grow higher than the company average. The underlying condiments of our business remain strong. We continue to see heavy client engagements leading to a robust pipeline. We are taking decisive actions to capitalize on the opportunities ahead, especially on six identified AI value pools. Spending is shifting towards areas with clear Business cases such as AI-led modernization, cost transformation, cybersecurity, cloud optimization, and vendor consolidation. As we look at the rest of the year, we remain confident in our strategy, discipline in our investments, and focus on delivering stronger performance. Margin guidance is maintained at 20-22%. This assumes headwind from wage, high productivity, pass-throughs, AI investments, and 50-phase fund impact from acquisitions of optimum healthcare and strategies. These handouts will be partly offered by initiatives under Project Maximus and Currency Benefits. With that, we can open up for the questions. Thank you.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press R and 1 on their touch-tone telephone. If you wish to unmute yourself from the question queue, you may press R and 2. Participants are requested to use handsets while asking a question. A kind request to all the participants. Kindly use handsets while asking the question.

Ladies and gentlemen, we will wait for a moment while the questions are being answered. First question is from Linus Kumar Rakesh from BNP Paribas. Please go ahead.

Hi, good evening and thank you for taking my question. My first question was a bit of clarification around the guidance, especially the life-to-life guidance, what we had done last quarter versus this quarter. So I'm looking at the new guidance that is at the midpoint suggesting 2.25% sort of a growth, which I understand you indicated includes acquisition of about 1.7%. So that would imply an organic growth of about half a percent or slightly higher than that versus 2.5% which was in the last quarter.

So is that about 2% point of cut at the midpoint in the guidance or am I reading that wrong?

Hi Kumar, so the last quarter would be midpoint would be around 2% in the guidance because as you remember we had said 20 basis points was the status which was already baked in in the guidance which was 1.5 to 3.5.

Okay, got that.

So in that case, like to like this time, it would be about 0.8 point sort of a number, excluding the incremental acquisition that we have baked in.

Yes.

Got that. And looking into the second quarter, given some of the impact that we have seen in this quarter with lower than expected volume and one-time client-related decision as well, how much of that you are expecting that to flow into second quarter as well? and how you are looking at the demand environment and the growth momentum.

So Kumar, as you know, typically whatever happens in Q1, it will have a cascading effect in Q2 and especially if the volumes have been softened through the Q1, automatically it will have some impact on Q2 and therefore the rest of the year. That kind of largely explains the guidance change. As I said earlier, the multiple reasons on the change in guidance is first of all one of that we had in one of the URS clients. The volume that was softer with the cascading is like the ask of productivity from clients and increased competitiveness. Competition in pricing that reflected in a lower than expected pricing this quarter which will again have Anur Gurugopala Suryanarayana Manikantha, Anur Gurugopala That is an additional headline as well. So all of that is baked in the revised guidance.

Thanks a lot Jayesh for that. Just one clarification around the one-time client decision which you spoke about. If you could give some context to that, that would be great. That's all from my side.

Thank you. Thanks Kumar. So this is with respect to a client which has terminated a project in the EURS verticals.

Go ahead. Thank you.

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

Great. Thanks for taking my questions. You mentioned the softer volumes of hyphen contributed to Q1 alongside the current germination, and that the upper end of the prior guide assumed macro stabilization that's not materialized. Can you walk us through how the course progressed relative to internal expectations whether April, May and June trended differently when the program termination was communicated to you and whether decision making velocity and discretionary spend deteriorated or stabilized through the quarter and what have you seen in the first few weeks of July that may inform your shape of QQ?

So, Jonathan, sorry I wasn't very clear with the question but from whatever I understood the question is, you know, Whether we saw the change through the quarter and, you know, the increase in volatility. The softness that we saw in terms of volumes was through the quarter. The one-off impact that we saw, you know, was mainly on account of a client domination which happened towards the end of the quarter. And the additional, you know, the deal that we talked about, European Triumph, that was also towards the end of the quarter. So I think all of those factors

Reflected in the revised guidance, if that is what you're looking at.

Thanks for that, Kaur.

And given your commentary on pricing, particularly around the competition, has been building for several quarters, and Maximus explicitly includes value-based selling, why were pricing headwinds not more fully contemplated in the E4 outlook? You know, what has changed over the last three months? Is the pressure concentrated in specific verticals or deal types or renewals versus the view? and the 150 visibility that pricing may actually stabilize from here.

Jonathan, we are not saying that we are not seeing a price increase. What I am saying here is we haven't seen as much price increase that we envisaged at the beginning of the year on the back of the AI productivity ask of the clients plus the intensifying competitiveness in the market

But we are still seeing the net increase in the pricing.

I appreciate that clarification.

Thank you very much. Next question is from Manav Gaurav Ratiria from Morgan Stanley. Please go ahead.

Hi, thank you for taking my question. My first question is on, you know, the The multiple client specific issues, one is the European Automotive that we highlighted last quarter, then this quarter on the EURS vertical. How should we think about all these like are completely disconnected issues and just happen to have, you know, take place at the same time coincidentally or there are certain common links which basically could be, you know, early renewals, you know, comparative pricing etc. going on because of the technology change. So, just trying to understand how much of it is

led by underlying changes in technology happening and you know driving clients to take these decisions and creating competitiveness in the market or is are they completely disconnected events so there are two parts to the question one is the european manufacturing client that you talked about uh it you know we knew sudden certain part of the leaves that we had We knew at the beginning of the year, which was in April, and there were additional deals that happened in Q1 of this year. Both of these were the deals where we did not, we decided not to pursue the deals beyond a certain point because it was not economical, it did not make economic sense for us, economical sense for us. And that is, that's the reason, that has nothing to do with, you know, the client behavior or, you know, in terms of AI, etc., The other deal is a contract where the client has terminated the contract for various reasons. Again, nothing to do with AI here. It's a termination of the contract and therefore, you know, a reduction in the agreement.

Got it. My second question is on your margin outlook. I know that you maintained your outlook on the band, but now that, you know, you have announced the wage hike for the second half for the company as a whole, So, there will be incremental headwinds around that. So, just want to understand what would be, you know, some levers that will help you to offset these pressures in the second half and would it be fair to say that our aspiration will be to just hold on the margin level compared to the last year and this year. Thank you.

So, Raghav, at this point in time, we have given a guidance of 20-22%. Let me say that at the outset, we are very confident of that guidance. Of course, as I called out at the beginning of the year, we will have an headwind coming out from the acquisition that we have done from, you know, in terms of amortization of intangibles and retention period to the founders or the management team, etc. or the acquired entities. But we also have tailwinds coming from Currency coming from Project Maximus. As you see this quarter also we've got 20 basis points of tailwind from Project Maximus, 70 basis points of Currency. So all of those are tailwinds. As we look forward, you know, as I said earlier as well in the call, we will have 75 to 1% reduction in on-site mix. So that is a tailwind. So all of those are tailwinds. Put them, take them, all of that put together, we are still very confident of, you know, maintaining our margin guidance.

Thank you all the best. Thank you.

Thank you very much.

Next question is from the line of Abhishek from Othelan Oswal. Please go ahead.

Hi, Anand.

Yeah, Abhishek. Yeah. Yeah, hi, hi. So, I think my question is on deal wins.

It does look like we've had a, you know, pretty decent quarter on GEDCV. Net New seems to be decently strong as well as compared to historical levels. But, clearly, that's not kind of transferring into kind of, you know, guidance. So, How is the TCV versus ACV dynamic playing out? Are we seeing extended TCV sort of you know or extended 10 years right now which is leading to lower ACV or are we seeing sort of you know delayed ramp ups but clients are still coming in to spend?

That actually we need to understand with regards to the conversion of the deals that we are doing. So Abhishek if you look at you know the deals typically the

The terms of the large deals have not gone on. They still remain on an average between three to five years. Of course, when you look at some of the mega deals, the terms could be longer. But in the current year's deals, we have most of the deals which are not mega deals. The deals that we signed, most of them were less than $500 million. We did have some deals between $400 to $500 million, three of them. What we also need to remember is whenever the deal comes up for renewal, we always used to have the additional productivity asked from the client, which is how traditionally this industry has been. On the back of AI, there is additional deflation on the AI-led deflation, as we call it. So that's the headwind that's there. That's only on the large deal portion. That's also there on the non-large deal portion. So that is what is getting offset by the net new business that we are seeing.

Understood.

And could you quantify the deflation if you can?

You know, I know it's, I mean, it's very dynamic, but just a quantification of what the deflation entails would be helpful. And lastly, how do we define AI-led revenues? You know, is this AI implementation or AI-infused?

Just a broad sort of sense of that will also be very helpful. Thanks. That's all from my side.

So, hi, this is Salil. On the AI, I'll come to the other one after that. I think what we are seeing on the AI revenues is these are revenues which are coming from the strategic framework we described at the investor day which is the six areas that we see new growth, the new addressable market of 300 billion. For example, process AI. For example, making AI engineering strategy work. For example, data which is needed, the data layer for AI. And each of those six areas we see a good growth. This revenue is 8%, 8.2% growing double digit Q on Q over the last several quarters. And that's the primary AI revenue. Internally we also look at AI revenue which you referenced like infused or augmented or where AI is and part of an existing work stream that becomes more AI. But this specific one that we shared externally is what we see from the AI strategy that we put together. On the... So, on the quantification, we don't quantify that compression part externally, but we acknowledge, of course, there is a compression, and internally we track it to see how that works. Now, in many cases, when there is a compression, we typically, given the work we are doing with clients, have the opportunity to do more work in other areas, so the contract terms scope etc gets redefined and in many cases we see adjacent to that other pieces of work not not related to that which comes through so it's very it's not easy to simply say like for like in many cases but there definitely we see a compression the AI first revenue is is everything that is around the hexagon

and AI Augmented Revenue is what we presented on the AI Day also. That is not part of this. While we track it internally, that is still not part of this. So AI First is everything that we do in terms of X11 and the sub-services that we called out at X11. We have a very robust process inside the company of identifying these web-style sub-project levels and tracking it and monitoring it. It is growing at a very strong double-digit growth.

Thank you very much, all the best. Thank you very much. Next question is from the line of Ankur Rudra from JT Morgan, please go ahead.

Thank you.

I was just curious to start with on the demand environment worsening, especially from AI products to pass through demand-reducing data. Can you talk about how secular this is across your industries and geographies? I am sorry to interrupt you.

We are losing your audio in between. Can I request you to please come in a better reception area? Is it clear now?

Is it very clear now?

Yes, go ahead.

Okay. Sure, thank you. So, my question was on reversing demand development from an AI productivity perspective. How secular is this across industries and governments? And how often do clients ask for productivity increases in the middle of a contract as opposed to on delivery?

Hi, this is Salil Ankur.

I think what we are seeing is there is a demand for AI productivity which is across most industries. Now, if you look at Where AI is most getting used, we probably see telcos, we see financial services, we see even on retail utilities. That's where their usage is pretty high, especially with the foundation models, the modernization, the coding tools. On the productivity side, it's a broad sort of coverage that we see and Typically, at least in the recent past has come up, you know, as there's progress made by the AI foundation model companies, there is a perception that that sort of a benefit can be achieved. The discussion starts and of course, at the renewal time is definitely there. Sometimes it does come in between the time frame of the contracts renewal as well though.

Okay, thanks for clarifying that.

I just wanted to sort of follow up on AI reviews which has been going at a very hard pace as we've been highlighting. If we think this out a few years, at what size of your overall portfolio do AI reviews have to be so that you can overcome the AI deflation of the compression in the rest of the portfolio in broad sense? So, we... We don't have a view in that sense externally on what you are sort of referencing. But I think if we are able to execute on this AI transformation as we have done in the last few quarters, we get this sort of a momentum. It's not that difficult to see that in the coming few quarters, It will start to become more and more larger part of our overall revenue and that will drive the growth of the overall company. If I go back to how we saw it, not that it's the same thing but there's some lessons maybe on the digital. We saw that there was a way that at one stage we were at 20% and then over a few years We then went to 60% of our revenue becoming digital. If that sort of a path becomes followed, you can see, you know, a big, big sort of a transformation and a long-term sort of support to the view that what we are doing remains relevant in terms of services for our clients. Now here, there are strong partnerships with the foundation model companies. There is extremely strong internal work on topaz fabric. We are building things where clients can use multi-model scenarios within our topaz fabric where they can use different models for different types of work so the token cost is optimized. We have an ability to provide a harness so that they can build what they want to build and keep the sovereignty of the data and like the knowledge of the company more within themselves. So to me all of that points to that it's a nice growth area for the long term and we are now looking at at 8% is fairly sizable and we are looking at it becoming more and more sizable in the quarters to come.

Is this one last clarification?

Sure. One adjacent data point I would want to add is if you remember in February we talked about our AI revenue which was 5.5% for Q3 and in two quarters it's already become 8.2% so you can imagine the rate at which it's growing and even if you look at a longer 5-6 quarter view it's growing at a strong double digit and that kind of gives us the confidence that this is becoming I appreciate it.

Can you give us one clarification Jayesh? Can you confirm that the program termination was fully involved in Q1 or will it have an impact in the second quarter also on a sequential basis?

So Ankur, the program has been terminated. What we know has been you know has obviously been taken in Q1 at this point in time.

So, no follow-through in Q2 in January. That's the back program specifically.

Yeah. What we know at this point in time is that January and December.

Okay. Thank you very much. Thank you very much. Next question is from Brian Bergen from TD Coventry. Please go ahead.

Hi. Thank you. Good evening and first of all, congrats to you and congrats to Ashish Dash. My first question is on AI talent and in competition. I'm curious what your view is on hyperscalers like AWS. Microsoft is announcing new investment in their own FTE practices. Just considering the use of the services channels around cloud, it seems to be a bit more surprising than an IRM project doing this. So what are your thoughts there? and you've announced plans to add 6,000 frontier engineers but it seems everyone is looking to add that base of talent. Can you just talk about how you plan to navigate that element of competition for top tier channels?

So first, thank you. I think on the you know, with other companies launching services companies to help Thank you very much. We have over 300,000 employees. We have deep knowledge and context of the select clients that we work with and that becomes the way to really ensure that AI gets leveraged into that environment which is typically quite complex. We are also in a position where we are partnering with some of the companies you named and I have spoken with them as they have launched their programs and the intent and the idea is really in terms of scale of few hundred or a couple of thousand is not going to be the same as 300,000 from Infosys but there is a way to partner and make all of that work for the benefit of the client. That's how at least we are looking at it for now. and a similar type of models existed as you probably know well in the past when they were software companies which had their own small services businesses. In terms of talent, first we have already people within Infosys who are operating at the level of frontier engineers and so We have put together a program to bring all of that together to make them at the same type of a global level. Then we have training for the people that we will recruit and build out to be like that frontier engineers. And then of course we will look externally but the primary method is recruitment in college training and taking internal people who are doing some of that type of work and making sure they are fully deployed into the frontier Engineer work. So we feel that we have a decent start to it. It's not that we are going to tomorrow morning recruit 6,000 from the outside. But equally, we also have, as has been always the case with Infosys, the approach of training the people from ground up, so building out that skill set, which is slightly longer, and that's why I have sort of said, it's not, you know, it's over a few years, we want to build it out and make sure that we support our clients in that.

Okay, okay, that's clear.

My thoughts on AI productivity, can you just give us a sense of how much of your existing backlog has been replaced under the higher levels of market productivity? I'm trying to understand how long the company may face outside compression as you renew the installed base of work where there wasn't any meaningful Gen AI driven efficiencies before.

So, As you can imagine, it's something we look at internally, but it's not something we share externally.

Okay, understood. Thank you. Thank you very much.

Next question is from Lana Weber, single, from Muama, please go ahead.

Yeah, hi. Thanks for taking my question. Just two questions from my side. One question, Salil, on basically the overall environment in which we are operating. Some of our peers have kind of called out and I think it's kind of what is also the conservative gauge in traction is that more and more believe that enterprises might not just basically look to deploy the premier large language models for their enterprise needs and they might be now going more towards more like customized small language model DSLM which can be basically catered to their own specific needs. and to that extent more and more deals and large deals specifically are basically making their way into the market towards big players. Is that also what they are also seeing on our conversations with the clients? Do we see some of those kind of deals on the horizon? And do you see that basically coming out over the next few quarters?

There, I think the way you described it, what we are seeing it is The large companies, large enterprises are becoming more sensitive to what is a foundation model like best equipped for and for the various tasks and activities and processes that they have inside their company, which model should be used for which thing. So can we use like a company might think like a let's Parameter model also less expensive model like even an older version of some of the big company models for some tasks and the most recent one for like some very specific let's say high end type of tasks which needs it. So that optimization is going on and that's where we think what we have built in Topaz Fabric allows the company to do this in a very efficient way. Then it also looks at companies also looking at okay I will use for the simpler task a slightly older model or less expensive then let me also then look at the cost of token usage for that model and even there there is a way for the same effectiveness you can get a lower token cost approach in a model. So this whole approach of this multi-model is critical For the task and the cost, at least we are seeing the large companies are being sensitive to that. And that's where what we have built and how we can work with them. Today we are working in fabric topaz with 15 different models. So let's say you come as a large company, global 100, and you want to do something, you don't even have to decide by looking at the task. We will decide between the 15 where to put it. and give you the most efficient outcome. So those are things like that will help the companies to do the things in a better way we feel.

Got it, got it. So overall this should basically, I mean if I were to take a copy of this, this would mean that there is an increasing level of customization that or let's say a specific requirement that each client would require rather than more of a standardization to begin with.

It depends also little bit like some companies might, this is available, but some companies might take a look, I want model X, I want to build deep capability in that, model X, like a company X will have three models, they can go with an older model in the company X. So you know, it's not like there's one answer, meaning people are all doing different things, but the flexibility exists today, so depending on how a company wants to do it.

Got it, got it. Just one last question on the margins front. Jayesh, I could just bother you on that. In FI26, we had the wage rate which was spread over Q4 FI25 and Q1 FI26. So, we just saw we had a basically half of the impact of the wage hike in FY26. In FY27, we are going to give the wage hike in Q3 and Q4. So, the entire impact is going to be absorbed by this year itself. Thus, we have the acquisition impact which you called out in the call. So, are we looking at more headwinds this year on the margins than FY26? I know we are in the same guided range of 20 to 22 percent. But because of FY26, are we looking at more headwinds than FY26?

So Vibhor, if you look at FY26, we had a full year impact of the wage hike that we gave in January as well as in April, right? Right. Of course, whatever we gave in January, the flow through of that was for three quarters. But whatever we gave in April, the full year impact of that came in the year. Versus in FY27, we have only half year impact of whatever we do in October and one quarter impact of whatever we do in January. So to that extent, The relative impact is going to be lower in FY27 versus FY26. And of course, there will be a 50 basis point impact on account of the acquisition that we have called out. But if you look at the tailwind that I called out, there is a currency tailwind at least as we stand today versus the last year. The project maximum is still creating value. We have seen pricing benefit. Albert, a little lesser than what we estimated at the beginning of the year. Utilization has gone up quarter on quarter significantly. Our on-site mix is going to go down. So I think there are push and takes from both sides.

Got it, got it, got the match. Thanks a lot for taking my questions and each one.

Thank you.

Thank you very much. Next question is from Raina Patman from BMO Capital Markets. Please go ahead.

Good evening, good morning. I wanted to ask about your thoughts on headcount growth trends through FY27. I'm not looking for specifics, but just generalities. Is headcount going to grow, be flat, reduce as you look at the next 12 months? And even if you opined on the next few years, how do you see the headcount growth in relation to revenue growth?

Hi this is Salil. So first what we saw in the last financial year as you know is we recruited 20,000 college graduates for the full year. This year we have a plan to recruit 20,000 college graduates. In the first quarter we have recruited over 4,000 already. Our plan is to continue to bring in talent Make them more and more AI well-worked and then have them work with our clients. What we are seeing with the 8% revenue of the AI is that to make many of these things work, it's a combination of foundation model, agents and people. Of course, there is more efficiency. So, the same amount of work can be done. With fewer people but there is more work so overall at least right now we are seeing that. We don't have an exact external view on the end year headcount but we continue to look at recruitment. We think it looks like it will be part of, you know the headcount will be part of our future as our revenue grows as well.

Okay, okay, it'll be interesting to see how, I understand the recruitment process, it'll be interesting to see how your net headcount runs unfold. Can I go to the dislocation? You talked about 26% of your CCV was vendor consolidation deals. Could you provide some context on really the economics associated with those deals? What do you mean by, you know, what was the leverage that enabled you to win those deals In particular, you talked about price was a little more aggressive this quarter. How were pricing trends during this enabling you to win those deals? Did any kind of attributes that you could throw out, such as was it more competitive or was price down, anything along those lines? That depends on anything.

I'll start and Jayesh will add a little bit more to it. What we saw like in the reasons for winning a consolidation deal typically what we are noticing is there is a complex tech environment and the clients are seeing that what we have done for them over the past in terms of delivering value is very significant, more reliable and that's typically when we are the beneficiaries of the consolidation deal. In terms of pricing for those specific deals, there's always productivity benefits because that is in the nature of the discussion in this period. But the reason primarily for the wins are more about the depth of delivery, understanding of technology.

Just to add to this, what Sanil said, you know, On an aggregate level, all of these consolidated deals came at a very healthy margin, even when you compare to our overall large deals portfolio. As I said earlier, we will compete aggressively in the market, but we are not going to underwrite an economic productivity assumption. And in those cases, we would prefer to not pursue those deals further when it doesn't make economic sense to us.

Okay, perfect. Thanks. Thank you.

Next question is from Lionel Jamie Friedman from Setswana. Please go ahead. Come on.

Hi. Good evening. Salil, well done piloting the company in Nash. We look forward to working together. I had a bigger picture question back to the strategy Hexagon. The interest in your perspective, on the supply side, what sort of re-skilling does that require? And on the demand side, so you mentioned what you're finding is resonating most, obviously it's performing well. Is there anything, though, that needs to be adjusted? So supply and demand question about the strategy hexagon. Thank you.

Thank you for that. On the... Supply side, first, we have taken a view, and I'm sure you know that, we have not done any staff restructuring in the company. We have done essentially all refilling. And that is a significant work for the company, but I think we see a benefit of that over time. What we are seeing is and as another reason for doing the college graduate hiring because what we see from colleges are people coming in with a lot more native understanding of the AI landscape and the tool set and then building like training them on our fabric and topaz is the next step after that and also training them on our tools with the free AI so that They have a sense of how software development works. So we think we will be able to manage a lot of that supply side with the people we bring in. But there are also specialized things where there will be some accelerations needed when a specific tool is very much in demand. And for that, of course, we have some recruitment which is more natural as well. Even there we need a little bit of reskilling or training but not massive. There is good understanding but that of course is in short supply. So we will still rely more heavily on the bringing in from college training which by design is a longer duration process. On the demand side, we are now tracking each of the six areas pretty granularly as Jayesh mentioned earlier. We have good traction on the process AI side is going pretty well. On the AI engineering is going pretty well. Meaning in terms of scale, all of them are growing very fast but those things are pretty scale already. The data AI part is going pretty well. And so, you know, the whole work of building agents, doing the coding, doing the modernization, doing the data, those things are really Scaling up, meaning have a decent scale today and we think those will continue going pretty well.

Okay, thank you. Thank you very much.

Ladies and gentlemen, we will take that as the last question. With this, I now hand the conference over to the management for closing comments.

Thank you. So first, thanks everyone for joining. A couple of points to summarize from my side. Overall in the quarter, we had mutual revenues, strong margins, strong free cash flow, and very strong large deals. The more critical thing, AI services revenue, 8% growing across quarters, Q on Q, double digit, and becoming... More and more of scale for us and showing us therefore that there is a long term relevance of what we are doing for our clients and that gives us a tremendous benefit given the client connects that we have across the different industries and across the different markets. So thank you all for joining in and we will catch up at the next quarterly call.

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