Infosys Limited American Depositary Shares 2027 Q2 Earnings Call

Very good evening, everyone, and thank you for joining Infosys's second quarter financial results. My name is Rishi, and I would like to welcome all of you. One question? With that, I am going to hand it over to Salil for his opening remarks.

Over to you, Salil. Thanks, Rishi.

It is good to see that everyone listens to you so well. So good evening, and welcome everyone. Thank you for joining us. Our revenue growth for Q2 was 1.5% year-on-year and 1.2% sequentially in constant currency terms. AI revenue was a standout at 10.5% of our revenue, growing at 29% sequentially. Last quarter it was at 8.2%. Large deals were another standout at $5.2 billion for the quarter. This includes two mega deals. One of these mega deals was for over $2 billion with a large international company for a period of seven years, and this is net new. This deal is expected to contribute over 1% revenue growth in the coming financial year. The second mega deal was for $1 billion for a renewal. Our large deal pipeline is healthy and includes some other mega deals in this pipeline.

Operating margin was stable at 21%. Free cash flow was strong at $922 million for the quarter. As enterprises adopt AI at scale, another quarter of strong growth in AI revenues is a recognition of our differentiated market positioning and client confidence. As an ecosystem integrator, we continue to work closely with the frontier model companies, both open weight and closed models. Our deep investments in Topaz Fabric help our clients seamlessly navigate between models to ensure token optimization and value realization. Infosys continues to gain market share, especially where economics of the program is aligned to the stakeholder interests. We remain the preferred AI strategy and deployment partner for our top clients. As AI remains central to enterprise transformation in the years ahead, Infosys is well-positioned to help navigate this shift.

Based on our Q2 performance and revised outlook for rest of the year, our revenue growth guidance is 1%-2% year-on-year in constant currency terms. Our operating margin guidance remains at 20%-22% for the year. Thank you. With that, we can open it up for questions, Rishi.

Thank you, Salil. We will now open the floor for questions. Joining Salil is Mr. Jayesh Sanghrajka, Chief Financial Officer, Infosys. The first question is from Meghna Sen from CNBC TV18.

Let me start off with some of them, and Jayesh will also jump in with some of the other ones. First, AI is really an incredible performance for us. It is 10.5% of our revenue, growing sequentially 29%. We had laid out the AI approach in the hexagon with six different areas of focus, and in this revenue mix, we see each of those areas growing well, especially things that we do where we are building agents, where we are doing legacy modernization, where we are doing process AI, where we are doing data AI. Those are growing exceptionally well, but all of them are doing well. Then we have the partner ecosystem with that is really gaining momentum. I think in terms of the global AI, what you asked, our attention is really much more on the large enterprises with which we are working.

For them, this is starting to become more and more relevant. With the investments we made and built the Topaz Fabric and the capabilities we have, plus all the training that we have done for all of our people, which many and more are certified now, ready to do work with different partners of the frontier companies. That is where we are getting the good traction with the enterprise clients. I will spend a couple of minutes on the industries. I think what we see, and Jayesh will add more to that, we see really good strength on the financial services. We see good strength on energy utilities. We see good strength on the manufacturing. We see some weakness on the retail, and we see some weakness on the high tech. It is a mix of all of those that we have put together in how we see this.

Then on the guidance and the margin.

Yes. If you look at our guidance, our current guidance or our last guidance was at 1.5%-3%. We had clearly called out at 1.5%. We expect even more uncertainty. Our Q2 has been softer, and our volume continues to remain softer. We have also seen pricing pressure on the back of competitive intensity and higher ask on productivity. All that is baked in our revised guidance as we look forward. On top of that, as Salil said, some of the sectors we see softness, retail, high tech. Where discretionary is lower than what we are expecting. All of that is reflected in our guidance on the revenue, and which is where it's 1%-2% now. Our margin continues to remain at 21%. I think it's a strong performance on the back of all the efforts that we have put in Project Maximus.

If we look at last many years, we have been able to maintain margins despite investment in business, whether it is sales and marketing, whether it is AI-led investment, talent investments, and all of that. If you look at put and takes of this quarter, the margins have remained flat. We had a 70 basis points of impact on post-sale customer support, which is a delta between two quarters. Last quarter, we had a reversal. This quarter it's an impact, so it's a difference in that. We had a 20 basis points coming from our acquisition, so one month additional impact. Last quarter, only two months of impact, so one month additional on account of amortization, et cetera. That was offset by tailwinds of currency, 40 basis points coming from the currency, 20 basis points coming from a higher calendar and working day, and 20 basis points from the Project Maximus.

That kind of sums up the margin work. As you look forward, the next half, which is H2, we will have impact coming from compensation, as you rightly said. That will have a headwind. We will see continued intensity on pricing. We will see that as a headwind. And we will continue working on Project Maximus to offset as much as possible from there.

Thank you. The next question is from Mansee Dave from ET Now.