Infosys Limited

In Financial Services, discretionary spend is improving. We see good traction in emerging markets like Japan and the Middle East, though they are still small. Margins have been steady at 21.1%, and we aim to increase them in the midterm. We are focusing on specialized hiring for generative AI roles.

We have seen good growth in Financial Services, but other industries are not changing in discretionary spending. We prefer to provide annual guidance based on our outlook rather than quarterly revisions. The contribution from pass-through revenues is tied to large deals. We expect tailwinds from Project Maximus and are confident in maintaining our margin guidance.

North America saw growth in Financial Services, but year-on-year there was negative growth. Rate cuts and lower inflation may lead to increased spending. We are on track to onboard 15,000 to 20,000 freshers this year, and we do not quantify the impact of wage hikes.

Typically, interest rate cuts and controlled inflation lead to increased spending on technology programs. We have a strong cloud business, and while cloud can be seen as discretionary, we do not break out specific cloud revenue numbers. Overall, our cloud business remains in good shape.

We do not comment on specific furlough outlooks, but it is factored into our guidance. We have implemented generative AI projects, including a multi-agent solution for a client and a platform for a Telco that 70,000 employees are using. We do not comment on specific wage hike percentages.

Our large deals are typically lumpy over several quarters. We are focused on converting deals from H1 into delivery mode, with a significant increase in smaller deals below $50mn. We see traction in Financial Services, but other industries have not yet rebounded.

We are working closely with GCCs in India, assisting them in setting up, scaling, and even in some cases when they exit. We have a strong connection with GCCs across various industries.

The Retail industry is undergoing changes and has not returned to discretionary spending levels, unlike Financial Services which is seeing better discretionary spending.

Generative AI is being embedded across all industries. We are seeing significant work in tech and ops deals, particularly in customer service, and building new capabilities.

We are deeply involved in building enterprise generative AI platforms and small language models. Our focus remains on North America and Europe, with some traction in nearshoring across various markets.

We are hiring everyone who received an offer, and we have a phased approach to this hiring process.

Our margin guidance is 20% to 22%. We reported 21.1% margin due to various factors including salary hikes and acquisition impacts, which offset each other.

We work with many GCCs across various sectors in India, but we do not disclose specific numbers as it is part of our overall client relationships.

There are multiple factors that led to increase of our guidance. Of course, the H1 performance or the Q2 performance, as you said, and more importantly, the broad-based Q2 performance was one factor. We saw continued momentum in volumes as well as the momentum in financial services. Our increase in the smaller deals pipeline which is less than $50 mn deals, as we said earlier, which has had a strong double-digit growth, I think all of these factors contributed to increase in the guidance.

On Generative AI, what we are seeing is, first, we built the capability set, three examples that I shared of how we are doing it with platforms, with agents and a small language model. It is also very much focused on productivity and growth as clients are looking at it. Any of our large deals, now large deals today are not that much focused on transformation, more focused on cost and efficiency, so more of the Gen AI focus is productivity. Any of the large deals that we are looking at, there is a Generative AI component to it. Now is it driving the large deal, not in itself, but it is very much a part of that large deal.

The headwinds will come from compensation increase in Q4 that we talked about. The Q3 and Q4 will have regular seasonality in terms of furloughs, in terms of lower working day in calendar, etc. And tailwinds would be all the things that we are doing in the Project Maximus, whether pricing, whether you are talking about role ratios, subcon optimization, etc., all of those would be part of the same bucket of Project Maximus.

There are various factors that has led to margin expansion. Our guidance change starting from the Q2 performance, the increase in volumes that we saw across multiple sectors, including Financial Services. Our pipeline, which is strong large deal pipeline as well as the smaller deals, which are less than $50 mn deals, which have grown double digit. So, I think all of these have been baked in. Of course, there will be seasonality in H2 as we all know about in terms of furloughs, in terms of lower working days, etc. So all of that at this point in time is baked in, in our guidance.

The pricing overall, the environment has remained stable. However, within the pricing environment, we have been able to make a lot of progress in terms of getting benefits on the track that we are running under Project Maximus, which is value-based selling. Many of those tracks have started kicking in benefits, which is visible in our numbers. If you look at our volume growth using a proxy of the headcount, you will see there will be a delta between the revenue and the volume growth which is contributed by the pricing significantly.

The large deals, the way we are seeing it is the pipeline remains quite good for us today. There is a much more focus on the cost efficiency, automation and consolidation type of work. These are lumpy. So in some quarters, we see a little bit more, some a little bit less, but we do not see a change in that outlook for large deals. The point on the smaller deals that Jayesh shared was a little bit additive. We are seeing more activity there as well, which is different from what we have seen before.

The BFSI vertical is seeing changes in conversation and approach towards discretionary spend, particularly in the context of the interest rate cut. However, further details on the specific impacts were not provided in the transcript.

We saw last quarter a good improvement in discretionary spend, and we continue to see that in Q2. The results from large U.S. banks look strong, and we see good traction on the discretionary side across capital markets, mortgages, cards, and payments.

We have not seen a change in behavior from Q1 to Q2 in terms of deal timelines. Large deals can be lumpy, and while we see some quarters with more deals and some with less, the pipeline looks good.

We consider various factors for compensation hikes, including the demand environment and market practices. Our last increase was in November, and we have also increased variable pay this quarter.

Cobalt had strong partnerships and offerings at launch, while Topaz is in the early stages of adoption with several use cases. We are seeing deeper capabilities in Generative AI today, and clients are responding positively.

We have not publicly shared specific adoption metrics for Generative AI, but our projects are actual implementations rather than proofs of concept, delivering impact in that space.

We have consistently stated that H1 will be stronger than H2 due to seasonality factors like furloughs and lower working days. Our guidance reflects these seasonal impacts.

While the pipeline for smaller deals has improved, we have not seen a significant change in the decision-making process or closure rates in the current quarter.

The smaller deals span various verticals, and we do not break them down into discretionary or non-discretionary categories.

We saw a good increase in smaller deals, but we do not know if it is durable. We will get a sense over the next few quarters. There is no specific commonality in the type of deals within that smaller category.

The reduction is due to attrition, and we have a large pipeline of new employees joining in sales. This is not related to a margin program, and we will continue investing in sales as required.

Multiple factors such as utilization, on-site mix, and business mix have affected margins. There is no significant change on a trend basis, but short-term fluctuations are expected.

We have not specified the quantum of wage hikes. They will be in two phases: junior employees in January and the rest in April, with the majority getting it in January.

The increase in smaller deal pipelines reflects discretionary spending. If the win rate remains the same, it could lead to revenue growth, but it's too early to determine if this is a sustainable trend.

We do not share specific data on mega deals in the pipeline, only discussing our overall large deal approach.

There has been no significant change in TCV to revenue conversion. We continue to gain market share consistently on a quarter-on-quarter basis.