Infosys Ltd (INFY) 2025 Q1 法說會逐字稿

Ladies and gentlemen, good day and welcome to Infosys earnings conference call. (Operator Instructions)

Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Mahindroo, thank you, and over to you sir.

Thanks, Niraj. Hello, everyone, and welcome to Infosys earnings call for Q1 FY25. Joining us on this call is CEO and MD Mr. Salil Parekh; CFO Mr. Jayesh Sanghrajka and other members of the leadership team.

Will 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 which refers to our outlook for the future is a forward-looking statement, which must be read in conjunction with the risk that the company faces a full statement and explanation of these risks is available in our filings with the SEC, which can be found on www.sec.gov. I'd like to pass the call to Salil.

Thanks, Sandeep. Good evening and good morning to everyone. On the call, we started the financial year with a strong performance in Q1 across multiple dimensions, including broad-based revenue growth, expansion above revenue, growth expansion, operating margins, strong large deal wins and strong cash generation.

Our revenues for the quarter grew 3.6% sequentially and 2.5% year on year in constant currency terms and particularly pleased with 7.9% growth in Financial Services segment, where we are seeing improvement in client spend in North America, all geographies and most in the industry groups grew sequentially. Volume growth turned positive after several quarters.

We also had an improvement in realization. We had another quarter of strong large deal wins, with 34 large deals at a total contract value of $4.1 billion. Our clients see us as a preferred partner of choice for consolidation, cost takeout and efficiency programs. This is also a reflection of our leadership strength.

With the mobilizing position of our margin program, we see positive impact on our operating metrics and pricing. So this resulted in a margin expanding by one point sequentially. Jayesh will elaborate on margin puts-and-takes later on the call.

Free cash flow was highest ever at $1.1 billion. Our employee attrition rate was at 12.7%, and we continue to see strong traction from our trials with generative air programs delivered through Topaz enterprises are focused on their own data set that can be used in generative AI large language model.

As an example, we are partnering with the telecommunications leader to transform the product engineering practices with AI and to elevate both the customer and employee experience. And another example is how we are optimizing and modernizing IT infrastructure services and transforming the IT operation operating model with an eye for a leading bank.

We're helping several of our clients prepare for the AI transformation journey by building strong data foundations with robust cloud capabilities using our global cloud services industry and analysts acknowledge our leadership in the domain of Enterprise generated AI. We continue to invest in strengthening our AI capabilities and building AI for solutions for clients.

During the quarter, we launched after a marketing suite of AI amplified solutions for our clients to create brand experiences with enhanced marketing efficiency and accelerated performance effectiveness. Our investment in nurturing a global workforce with AI first skills and expertise continues as over 270,000 of our employees and our well chain in building a wide range of AI Power solutions for our clients.

We are today uniquely positioned as a digital-first, cloud-first and AI first brand in the market and a continued differentiation has helped us being recognized around 100 Most Valuable block brands in the world by Cantor brands.

We have also been ranked among the most trusted brands across US and India, along with our overall robust performance in Q1 and strong opportunity pipeline, we are seeing early signs of improvement in financial services vertical in the US while discretionary spends continue to be under pressure, a highly differentiated offerings around driving efficiencies at scale and transformation capabilities around generated AI acquisition as well in the market.

With respect to our recent acquisition of Intec, we have received the required approvals and have closed the acquisition. Given our strong performance in Q1 and our current outlook, we have revised our revenue growth guidance for the full financial year to 3% to 4% growth in constant currency. Our operating margin guidance for the financial year remains at 20% to 22%.

With that, let me hand it over to Jayesh to share his update. Thank you.

Thank you, Salil. Good morning and good evening, everyone, and thank you for joining the call today, we entered FY25 focusing on key strategic priorities, including market share gains to accelerate revenue growth and drive margin improvement through Project Maximus.

I'm delighted to highlight results that we have achieved across different business dimensions this quarter, including strong and broad-based revenue growth across all geos and most verticals year-on-year in constant currency terms.

Sequentially, positive volume growth after several quarters, coupled with improvement in Europe realization, Financial Services returned to positive sequential growth after six quarters with 7.9% growth in constant currency terms, 34 large deals signed during the quarter, which is a record number of deals in any quarter. Large-deal TCV at $4.1 billion, including for 58% net new deal pipeline continues to remain strong 1% operating margin expansion sequentially, improvement in operating margin operating parameters, including 1.8% increase in utilization and lowest on-site mix in 10 quarters.

Highest ever free cash flow generation in the quarter with free cash flows normalized for tax refunds at 104% of net profit, fifth consecutive quarter of reduction in unbilled attrition has remained stable and increase in return on equity by 1.5% Q-o-Q to 33.6%, primarily resulting from higher payouts to investors.

With that, let me now elaborate with details. Revenue for Q1 was $4.7 billion, up 3.6% sequentially and 2.5% year on year. In constant currency terms this included benefit from improved realization from one-timers of 0.5%.

Operating margin improved by 1% sequentially to 21.1%, led by 1.4% improvement in gross margins on account of strong operating performance across different dimensions. The major components of sequential margin walk are as follows tailwinds of 2.2% comprising of normalization of Q4 one-timers of 1%, 0.8% benefit from Project Maximus, largely from higher utilization and value-based selling 0.4% from the improvement in utilization mentioned about partly offset by headwinds of 1.2% from higher variable pay, higher leave costs offset by currency and others.

We continue to drive Project Maximus across the organization with strong intensity head count at the end of the quarter stood at over [3,15,000] with utilization further increasing to 85.3% and the attrition was stable at 12.7%.

Unbilled revenues dropped for the fifth consecutive quarter to $1.7 billion. Free cash flow for the quarter was highest ever at $1094 million a sequential increase of 29%. DSO for the quarter was 72 days compared to 71 days in Q4.

Consolidated cash and cash equivalents stood at $4.3 billion after factoring in pay-out of $1.4 billion towards dividend declared in Q4. Consequently, return on equity increased sequentially to 33.6%. Yield and cash balances was 7% in Q1.

EPS for the quarter was 29.4%, which is in line with our expectation for the year, EPS grew by 7% in I&R and by 5.4% in dollar terms on a year-on-year basis, we closed 34 large deals with TCV of $4.1 billion, 58% of this was net new vertical wise, we signed eight deals each in retail and communication, six in URS, five in financial services for manufacturing, two in high-tech and one in licenses.

Region-wise, we signed 21 large deals in America, 12 in Europe and 1 in RW. Coming to verticals. [BFSA] returned to positive growth after six quarters, led by ramp-ups of large deals and absent the one-off last quarter in the US, we see some recovery in areas like mortgage, capital markets and cards and payments. Overall, clients still remain cautious on spending and are focusing to deliver maximum business value through deals. Combining transformation, technology and operations pipeline remains strong, and we are working with the clients to accelerate their adoption of gen-AI for modernizing legacy platforms, fraud detection, credit process, simplification, et cetera.

In manufacturing growth was broad-based across geographies and verticals like industrial and automotive and aerospace, while pressure on discretionary expense persists, we see increased benefits of vendor consolidation opportunities around resolving supply chain bottlenecks and rationalizing infrastructure and applications.

We see strong interest on gen-AI with deep client engagements, our capability and pipeline in the United States will be solidified by acquisition of [Intec], which will help us accelerate the segment growth in FY25.

Growth in communication was led by ramp-up of recent large deal wins overall environment, however, remains cautious with continued OpEx pressure and delayed decision making telcos, despite challenges are navigating their way by focusing on rapid distribution, digitization and reprioritization of spend.

And certainly the retail sector continue with clients focusing on cost take-outs to fund their business transformation journey. There are opportunities around areas like customer and employee experience, predictive analytics, digital marketing and landscape modernization while the pipeline remains healthy, decision cycles continue to stay longer.

Environment and US continues to be impacted by high interest rates and geopolitical conflicts, which are influencing the spend patterns while pressure on discretionary expense persist. Our differentiation in areas like energy transition, integration business and human experience is helping us build a strong pipeline.

Hi-tech vertical continues to remain soft, driven by our strong all-around performance in Q1, improvement in US financial services, strong larger closures and Intech acquisition, we are increasing the revenue guidance to 3% to 4% in constant currency terms we are maintaining our operating margin guidance at 20% to 22%. And with that, we can open the call for the questions.

Thank you very much. We will now begin the question-and-answer session. (Operator Instructions)

Ankur Rudra from J.P. Morgan. Please go ahead.

Hi, thank you, and good to see very good numbers after a while. Up just wanted to get a sense of selling, you know, what's the breakup of the very strong momentum this quarter, if you could, between the large deals that you've won over the last year or any kind of improvement in execution of short-cycle business or discretionary business and potentially better execution? And also when you answer that, if you can talk about how client conversations are changing if there's anything turning a bit more positive. And, you know, any change in the momentum of the short-cycle event largely continues growing at a strong? Thanks.

Thanks, Ankur. The view on discretionary on short cycle. What we are seeing is in financial services in the US, we've seen that a shift that we have highlighted and we saw that during the quarter outside of that, the discretionary still remains similar to where we were when we started the year, which is it's still in a difficult situation. So that's the one that we have seen the change in.

The client conversations, in general, there's a lot of talk and discussion with generative AI. But the programs, even though they're not POC, actual projects are not large revenue projects and transformation. It's not so much what we are seeing driven in a large deals. The vast majority is still our cost take-out efficiency, consolidation, automation, that type of work.

And in some instances where there is these are funded massively through cost takeout. The transformation is so there's not really big, large spends there. So that's how we are seeing the discretionary work at this time.

Thank you, you know from here on. I mean, you've seen this change in financial services in your client conversations. Do you sense anything in particular client, especially in Europe, maybe the high-tech space or energy and utility where you highlighted enough problem still persists or even manufacturing, which might change the client behavior, maybe not this year but into next year. One of the main things clients may be waiting for?

So the first one, energy utilities, we've had a good outcome last year we've seen sort of similar discussions now are not huge chain manufacturing, again, good outcome. Last year, the group will be decent growth. This is slower than the losses are not likely big change there on high-tech. It's still a still difficult as you point out.

I don't know what the trigger could be, of course, on a on a macro level there is not with clients. Generally speaking, I view that US inflation and interest rate and all of those discussions change that that will change something that we don't know what will that or what will that trigger be.

Okay, appreciated. Maybe just one question for Jayesh. This great performance on the margins. Could you maybe talk about how do you think about the puts and takes from here on our utilization, especially including trainees, seems to be high, I guess that indicates fewer trainees in the system. What sort of headwind will we see from this.

Secondly, I'm guessing there will be wage hikes at some point in the next couple of quarters. So how are you thinking about what will help you maintain if not improve margins from here on an extent Project Maximus?

Yeah, Ankur so and could the, thank you for that first of all, and if you look at the Project Maximus, and we've talked about the five pillars of Project Maximus of many of them are starting to show results a year of what, which is value-based selling is one of them efficient made by utilization and other factors or other part of it, lean and automation is the third piece in that.

So there are many of these tracks which are showing results. And we still believe there is a there is a more meat there. Of course, in terms of if you look at the headwinds, you will have a comp a review at some point in time during the year, that could be a headwind.

We have at this point in time, not decided the timing, et cetera of that. So that would be headwinds. Some of the large deals that we have signed in the transition and ramp-up of that would be a headwind. So we will have to balance the two as we go through the year. At this point in time, we are very confident of our margin guidance.

Appreciate it. Thank you, and best of luck.

Thank you.

Keith, BMO.

Hi, thank you very much. A first I wanted to do get some additional feedback on financial services. You indicated that you thought that business outcomes or Business Energy had improved. I just wanted to hear a little bit more about that. It's certainly something we haven't heard from some of our software related companies, but what do you think is the driver of the improvement in financial services in particular?

So Keith, if you look at your commentary on that, we are seeing some recovery in US financial services specifically in areas like mortgages, capital markets and card payments of the larger clients less. So we are seeing some volume coming in and some recovery, some early signs of recovery in those areas.

Do you think that emphasis or do you think that's in other words, are you winning share in those accounts for if you think that's a more broader base and say not North American banks, but there is a general trend towards recovery.

So I think it's combination of various factors. It's where you know where I mean there are there are instances where we are consolidating. There are instances where we have one new and larger businesses in, as I talked about, some of the large deals wins also in the financial service sector. So I think there are multiple combination of those factors.

Okay. Okay. And then on just on the margin guide in terms of puts and takes you highlighted some on the previous question, but how is the you closed the deal that's adding almost $200 million in revenue on a run rate basis.

How is that impacting margins and or any other issues you want to call out, including any comments on FX impact as you see it today in terms of margins? And that's it for me. Thank you very much.

I didn't get question clearly, if you could?

How is the M&A the recent transaction that you closed, how is that impacting margins? And then also, how do you see the exchange rate impacting margins as you look out over the next couple of quarters, FX rates?

So Keith, there be an acquisition that we have done a, you know, compared to the size of the company is relatively a smaller to have a material margin impact. And as you know, as you have seen from our five filings, also, the main tech is coming with healthy margins and there are opportunities, et cetera, in a synergy. Coming to the ForEx. The ForEx has remained range-bound for last couple of quarters at this point, any point in time, we don't really see an impact. But as you will appreciate, ForEx is range-bound. I mean, ForEx is unpredictable and it can have a be a margin benefit of our impact depending on which way it goes. But at this point in time it is remaining range-bound.

Okay. All right. Many thanks. Congratulations on solid results.

Thank you.

Kumar Rakesh, BNP Paribas. Please go ahead.

Hi, good evening. Thank you for taking my question. My first question was reduced, just for clarification. Sorry, due to the press briefing, you talked about 40 bps of one-off impact in the margins. So can you just helps us understand, the revenue and the margin impact coming out of that? And I understand it is a recovery which you have made from one of the customers based in India, if that is correct? Thanks.

So that's right, this is from a customer base in India, it's one of the revenue and therefore, most of that has flown into margin directly. So 1.5% on revenue, pretty much impacting 40 bps on margin.

Great. Thanks for that. My second question was to Salil, if hyperscalers, we are seeing the growth is accelerating and also at the EA demand, especially for some of the chip makers such as media has been quite strong.

So it doesn't seem like the discretionary demand is entirely missing in the market. So is that a transformation in the underlying business mix, which is happening where possibly discretionary demand for now at least is moving towards platform and hardware makers and not coming to services company.

So there the view we have is what we saw and we've highlighted so far the shift in financial services in the US shows is it some of that type of demand is coming now we will wait and see across all the industries, the if that's what you are describing or whether tech services project, discretionary work also comes back, whether they'll be transformation programs and tech, which will also come. We are definitely seeing more and more discussions in enterprises on generative AI programs.

Jayesh also shared a couple of examples. I shared a couple of examples. So we do see and these are not POC. These actual projects where we are participating. So we do we do see that.

My own sense is this USFS is one data point we will wait and see what some of the other data points look like.

So selling, what I was trying to understand was that is there a decoupling of discretionary demand, which is happening or is this a sequence in which we will see first, the hardware and platform meters, getting the discretionary demand and eventually coming to services?

Is that a decoupling or a sequence of event which eventually comes to services as well. What do you think would be the chain of events?

It's difficult to say. So again, it's not just for this year one quarter, what we saw was that in financial services, US, some of that discretionary work is there and whatever decoupled of following on from something difficult to say. But we did see some evidence of that.

Thanks a lot sir.

Thank you.

Nitin Padmanabhan Investec. Please go ahead.

Yeah, hi. Good evening. Congrats on the quarter. And I just wanted your thoughts on one, the financial services space. You did mention that you saw growth from mortgages, cards, payments and obviously a capital market, when you think of the sustainability of this recovery, how should we think about it because mortgages for it to continue to give you what else would require rates to come down meaningfully. And from a COGS perspective, it looks like delinquencies in the US are rising like a mixed data point that we see on the outside.

But just wanted your thoughts on how you're thinking about the sustainability of the recovery on the financial services space? And then I had one more quick question?

So, what we are seeing right now is early signs, as I said in our recovery, of course, you know, it's early signs, so we don't know how sustainable it at this point in time. It is going to remain, but the fact that we saw unit volume growth of them after many quarters, we saw strong growth in financial services after again, six odd quarters.

So I think those are the positives that we are taking, we are seeing large deals, but the ones that we assign and once we are there, the pipeline. So all of that put together gives us a little bit of confidence on that. But yes, we have to see more data points to see how the year progresses.

So one of your smaller peers characterized it as of financial services of web, sort of multiple projects in the past and having sort of not spent for almost six quarters are having to make those spend because they're that's causing problems and thereby that seeing a pickup with short-cycle projects on those deals? Would you characterize it, similarly, are you seeing something similar?

I wouldn't say that the need to be very honest, we are seeing this not specific to one of clients. It could be limited to one of clients for that player. I can't comment on that, but we are not seeing it concentrated in one client, et cetera.

Correct, and lastly, on the guidance, I think if you include the acquisition and normalize the earlier guidance for the acquisition, I think the earlier guidance would have been in the 2% to 4% range and now it looks like them narrowed it to 3% to 4%, including the acquisition on both cases, despite the strong beat in the current quarter.

So is it just that you are being very watchful and careful about it? Or is there something more to add to that are you specifically worried about?

We don't really break up the guidance into a, you know, what is organic and what is true for a specific a specific acquisition that we have done. Having said that, if you look at our filings, the impact revenue for the last year was one [EUR170 million]. And we I mean, we just closed it.

So we'll only get part of that revenue. So you can do a back-of-the-envelope calculation and the rest of it is going to be all the factors that Salil talked about, you know, the Q1 performance, including large deal wins or the volume and US financial services, while the discussion is still continues to remain challenging.

So Perfect, that's all from my end. Thank you and all the best.

Thank you.

Thank you.

Vibhor Singhal, Nuvama Equities. Please go ahead.

Yeah, hi, good evening. Thanks for taking my question and congrats on a very solid start to the financial year. So there's two questions from my side. One is we have seen that in not in all the almost all verticals have done really well for us this quarter, but for the retail sector. And I think retail sector is something which is lagging the almost entire industry of your peers also have kind of spoken about it.

What is the outlook on the SME sector? I mean, what do you think the clients are waiting for to restart their spend? And where could those trends be coming in from in terms of the domains that we are looking at. And then I have a follow-up question.

So we were I think there I think it's a sectorial challenge at this point in time, the whole sector has is going to go into Czech challenges. And you know, it's not specific to us and I said it was mentioning earlier, one of the factors could be a US interest rates are recovering, et cetera, but it's hard to predict what will lead to recovery in the sector at this point.

I mean just to develop a little further on that, what exactly is happening. So we know that a couple of macro overhang is on most of the BFSI companies and all at this point of time. Any specific thing that you think could be a trigger about, let's say, I mean, of course, the interest rates that you mentioned that could possibly see these companies reporting this or difficult to all of that again?

So they did typically has higher exposure to discretionary as well, right? So and that is going to be linked to the macro environment, a largely a reversal in. I think that would be one of the key reasons. Otherwise outside of that we are, but we are winning are the if you look at this quarter also, we have a we have won eight large deals and in retail as well. But so discretionary spending has to come back.

My second question is I think at the end of the last quarter, we had mentioned that we are expecting the first half to be better than the second half. Any change in that outlook, given we believe in this quarter has been quite strong. So you if those were to suggest slightly ramp up in the second half and would you we would it be correct to say that maybe we can expect second half to be slightly better than what we were.

But we were two parts, where we still continue to believe our first half is going to be better than the second half. And I think Q1 is just a testimony of that from that perspective, we've delivered from there of course, the fact that we have increased guidance is also a proof that we are seeing that the three quarters better than what we envisaged earlier.

Got it, thank you so much for taking my questions and wish you all.

Thank you.

Gaurav Rateria, Morgan Stanley. Please go ahead.

Hi, thanks for taking my question. So Salil, the first question is on revenues alone.

(Operator Instructions)

Can you hear me better.

Yeah, go ahead?

Yes. Salil, the first question is for you on revenue. Looks like it has surprised you positively, which is why you've raised the guidance. So is it led by the ramp-ups on the deals happening faster than you expected? Or is it all led by leakage in the discretionary improving compared to the last few quarters?

So this is Salil, the way this quarter has gone what we have seen is the volumes have been strong. We then seen that a change in the financial services in the US which has given us more a positive outcome for the quarter.

Then some of the work that we're doing in terms of working with our clients on value and pricing has also translated overall into the mix for our revenue. And then the way we saw the outlook as you as we did some other large deals in this quarter, which was a good outcome and that gives us a little bit more visibility into the year. So all of those things lead us to I look at this as being a strong outcome,

Got it, any reason to believe that this momentum could decelerate in the near term, any data point to suggest that or as of now you would think the momentum to continue from a near term perspective.;

So what we have done is we've taken what we have seen in this quarter across the different industries and service offerings. And then put in, as Jay shared, what is more typical, which is our second half is usually it looked lower than our first half. And with that, we have created the outlook for the year, but we didn't take into account any other trigger a bit beyond what I just shared.

Thank you. Last question for Jayesh. What would be the incremental levers for margins from here on utilization is near peak [subcontractor] has already stabilized. Just trying to understand what could be the additional levers over the coming quarters. Thank you.

It's about if you look at the, you know, again, across all the pillars of Maximus. There are multiple of them are firing value-based selling. We have seen, as we talked earlier, we have seen improvement in realization. So that's one lever that we do have we continue to have we did talk about hiring some freshers as we go through the year. So that would help in getting some better ratios are better roll mixes, et cetera, nearshoring in only in automation.

So there are multiple levers we still have to, you know, improve or offset the headwinds. The headwinds that we see as today as I said earlier, again, as you know, comp, which is which decision will take as we progress through the year and the ramp-up of the deals won towards the end of last year as well as this quarter.

Thanks you very much.

Thank you.

Bryan Bergin, TD Cowen

Yeah, hi, good evening. Thank you. First question I had on is that on generative of AI. Can you provide some detail on how gen-AI may be impacting your delivery productivity and whether it may be changing any nature of the contracting conversations with clients yet?

Thanks for the question. On delivery and generative AI, so what we've done, we have taken all of our service lines and start to put in place the impact of generative AI and broadly AI into this. And that change is ongoing lot of it has happened where we are seeing some of the benefits on delivery relate to areas, for example, software development of process optimization.

There's also a large benefit on productivity for more customer service type of areas that we have already demonstrated. Proof of. We don't have a lot of footprint on that within our current mix that we know for new work. That's something that is being discussed with clients in each of these for the contracting and the way our clients are looking at it within their own enterprise on their own data set.

When there's a client where we see and where they have, let's say, for software development, a single uniform approach across the whole company, which is not that frequent because of acquisitions and different decisions in different divisions and departments, then the range of benefits is potentially higher and the contract in this discussions around what of those benefits will accrue with the client. So a lot of these discussions are in that period. There is some benefits that accrue to us and some to the client.

But there are very few clients within their own data assets, which have large, consistent tech landscapes, which can give the full benefit of generative AI right away.

Many clients also need that data infrastructure to be put in place where sometime that is not in place today between structured and unstructured data. So we the work actually started building a data program and when they're able to spend that on a data program and then to have the cloud capability in place.

So that a lot of part of the data part of the apps on the cloud for the clients. So the discussion is typically on here's the road map for generative AI in an enterprise given the landscape of tech. And here are the first steps, data and cloud. And then here's something that can actually deliver impact today, which could be more, let's say smaller area of the company. But these are all discussions which are done and which eventually relate to how contracting is sone

Okay, that's helpful. Thank you for the color. My follow-ups and clarification, just on the 1Q one-time, I think you cited 40 bps quarter-over-quarter op margin benefit and a similar revenue impact. Was that expected in your prior guidance? Or was that a surprise or a new item that wasn't expected before on the plan?

That wasn't expected enough at a guidance, that was a new item.

Okay, thank you.

Thank you.

James Friedman, Susquehanna International. Please go ahead.

Hey, good evening, and let me echo the congratulations. So really in terms of banking, is the improvement contemplated to continue?

In terms of what sorry?

(Operator Instructions)

Oh, I'm sorry. In terms of the banking vertical, the BFSI vertical is the growth contemplated to continue.

So what we see today is this this change in the US financial services, we don't the way we've constructed our outlook is we and we are assuming that that will be the way it will progress. So we have not assume that it will change will also assume that it will become much larger. We've not also assume that this will move to some other geography in financial services.

So we don't know, but that's what the assumption is in into our guidance, although client discussions seem to indicate that that US financial services, we will have this sort of attraction, but that's the way we've built outlook.

Got it. Thank you. And then in terms of Europe, it has been an important source of growth for the company this cycle, could you I'll unpack some of the trends that you're seeing in Europe?

On Europe, what we are seeing is different things in different places. So for example, in the Nordic countries, we've had good traction over the last few quarters and even a little bit before in our we've engaged with clients. And we've seen some good expansion of a large degree programs.

We've seen some of that in Continental Europe broadly, if you look at some of the large deals across telco, we've seen that a different type of a positive traction in Germany where we are seeing some of our local Europe competitors are having more constraints and where we are benefiting from those constraints as we are expanding.

So it's different in different geographies and our focus or even industry, our focus has been to be a little bit more fine tune into that market. And then trying to get the benefit of it.

Got it. Thank you. So I'll jump back in the queue.

Thank you.

Sumeet Jain, CLSA. India Please go ahead.

Yeah, thanks for the opportunity. Firstly, I wanted to check, you know, in your previous guidance of 1% to 3% you gave in April was the intake acquisition part of the guidance?

So Sumeet, Jayesh here. We had clearly called out at that point in time that Intec acquisition has been part of it because we were I mean, we it was pending approval from various regulatory authorities.

Right. So maybe impact acquisition now being closed and the 50 basis-point impact on revenue in the India business, can we assume these are the two primary factors for your revision in the guidance?

Not necessary. Again, as I said, we don't break out our guidance between a, you know, the tech and non-impact from that perspective. But if you if you look at, you know that the numbers that we printed now when we when we announced the acquisition impacts, our revenue was around EUR170 million and it's only going to be part of the year considering we just concluded a close the transaction and there are other factors in our Q1 performance volume, financial services, growth offset by the continuing softness in the discretionary part of the business.

Got it. That's helpful. And secondly, I wanted to check in on your cost line item that third party items bought per service delivery is significantly down this quarter or almost 1-percentage-point of your revenue and also down on an absolute level. So can you just give us a sense as to, you know, from a bookkeeping perspective, how to look at this line expense going forward?

So Sumeet, as we have said earlier, as the of the third party hardware software costs is an integral part of many of the large deals where we take over a turnkey projects from the clients, including technology landscape of that.

And that is therefore dependent on the kind of deals and how the ramp-up of and ramp-down of the deal depends deal happened across the quarter. So it is going to be to that extent, dependent on which deals and how it ramps up and down.

Got it. And lastly, just on the India business, can you give us a sense what kind of project it was because of the pretty sharp jump you have seen this quarter. So any large deal ramp-up we are seeing there are some government contract. What exactly is the nature of this one-time impact?

So Sumeet, first of all, the India businesses is relatively much smaller. So anything that happens in that business shows up in percentage terms much larger. But having said that, it was a one-time impact on one of our India clients a year on its one-offs. I think we should just take it as well.

Got it. Thanks for the opportunity and all the best.

Thank you.

Thank you.

Kawaljeet Saluja, Kotak Securities. Please go ahead.

Hi, thank you everyone, great to see a well-rounded performance congratulations. I just had a couple of questions. The first is for Jayesh, Jayesh, you know 40 bps. So a company that you see, does it show up in either ACL or a provision for both sales and client support or it's just basically a direct flow-through from revenue?

It's 40%, 50% revenue coverage, which is impacting 40 bps on margin.

Okay, and does it tie-in with tax provisions, proposed sales, client support on that contributed separate?

No, it's separate.

Okay, got it. And second thing is wage revision. You're not I mean the I guess the cycle of wage revision was achieved last year. Do we get back into wage revision cycle, which is a lot more normalized, which is, let's say, starting second quarter or that's something on which you have not taken a call yet?

So if you recall last year, we did our wage revision effective November. So at this point in time, we haven't really decided we are evaluating considering all the factors that we always consider, including the inflation, including when the large last wage revision was taken the environment, the macro environment as well as the peers peer practice. And we will we will take a call a considering all of these factors.

Having said that, as I called out in the margin walk us also, we have increased our variable pay during the quarter versus last year as well as last quarter.

That's very helpful. And final question for Salil. And so there's a lot of you have articulated the fact that you want the profitability to improve in the medium term. And then there are a number of structural levers that will be utilized to drive that expansion?

I mean, what kind of an environment and what kind of levers does one need to see to gain back that extra comfort of profitability improvement from here on as such.

If you if you look at our margin works across the last three or four quarters since we launched the Project Maximus, you would see consistently, the contribution from the project might maximize across various layers pillars, you know, from L&A and lean and automation from value-based selling zone in on the parameter, et cetera, or things like that.

So you will see I mean, you have seen that and our endeavor is to continuously focus on all of that. But at this point in time, they are offsetting the headwinds to a large extent, the endeavor is to more than offset the headwinds in them in the middle.

Okay, cool. Thank you and all the best.

Thank you.

Jonathan Lee, Guggenheim Partners. Please go ahead.

Great, and thanks for taking our question.

(Operator Instructions)

Hey, great evening and thanks for taking the questions, a lot of moving parts here on the margin side, can you remind us how we should be thinking about seasonality through the year, especially as you think about the impact from Project Maximus and large deal ramps.

So a margin on, Jonathan, a margin, one of the headwinds would be comp decision as and when we take there are seasonalities in our business model, which is the furloughs that impact us in Q3 and Q4, that also impact the quarter in our pricing to some extent and margin, therefore, but those are the large seasonalities that we have in our model outside of that, our margins are going to be dependent on, you know, our acceleration on Project Maximus as well as a gain on the revenue and volume growth, which helps, as you know, flattening our parameters, therefore, a benefit from the pyramid.

Appreciate that color. And second, can you help us think through what's contemplated in your outlook, both below and at the high end as it relates to vertical performance based on your expected large-deal ramps or what's in your pipeline?

I'm sorry, your question didn't come across as clearly would you repeat that please?

Can you help us think through what's contemplated in your outlook as it relates to vertical performance based on expected large-deal ramps and what's in your pipeline, both at the low end and the high end of the range?

So, Jonathan, it's very difficult to a to call out which vertical performance will end up to low end and high end of our of a range. I think we run various models internally to get to the margin band. Some of them, you know, get us to the lower end of the band and some of the assumptions will get us to the higher end of the band. I don't think there is any secular segment that is going to drive either way.

Got it, appreciate the color. Thank you.

Thank you.

Girish Pai, BOB Capital Markets. Please go ahead.

Yeah, thanks for the opportunity. The 3% to 4% guidance, if I do my math, comes to about 1% to 1.5% [CAGR] from here on it seems way too conservative because that also includes the Intech acquisition. So I'm assuming that the 2H FY25 is going to be pretty bad?

So given that, let me give a little more color on the math. If you look at the first quarter a year on year on year, growth has been 2.5% and 50 bps, as I said of that is one-off so that that's the first point we have always maintained that of H1 is going to be better than the H2 and that the guidance bakes in on that. And then there is a there is intact. So all of that put together makes up for our guidance of 3% to 4%.

Okay. The next question is on US financial services. Do you think this is more a Infosys specific situation? Or do you think this a much more broad based that the other vendors who have US financial services exposure would also be doing well. Well, this is something very specific to you.

So this is a little difficult for us to say like for the other companies, we can see that some of that benefit on financial services in card in payments, we see some of the benefits which came through with some of our clients, but I'm not able to tell if it's just enforces or not we do feel we have a very strong set of capabilities from digital cloud, generated real cost and efficiency. So we do see a much more connected clients, but difficult to say for the others.

If I may squeeze in one last question, Salil, you mentioned that the interest rates are one point factor, which could probably be driving on demand so are the customers looking at the start of a cutting cycle? Or are they looking at us a certain level of Fed funds rate before they kind of start spending in a much bigger fashion?

So there I think my point in the prior comment was more on what is the macro environment. So first, we don't know if that sort of if that's a trigger or not a trigger. We have typically seen that large digital programs, large programs even now in generative AI, where our clients are still not ready to launch on them. So, you know, the sort of more specific point you make difficult for us to a take a view on that.

Okay. Thank you very much.

Thank you very much.

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

Thank you. So thank you, everyone, for joining us. It's really wonderful to get all the questions. We are delighted with the strong first quarter growth margin, cash, large deal volume, so very good to see that outcome for our business. We have a good outlook. So the change in guidance gives us a sense of what we see in the outlook 3% to 4% growth of the whole, the margin 20% to 22% good to see in our financial services in the US, I have that change.

We feel extremely strong in what we're building in generative AI, and we can see the traction to that in the projects and programs we're doing and we believe we are well positioned in all really as a company where we are benefiting from a variety of areas, whether it's in digital, whether it's in cloud, whether it's in technology transformation or cost efficiency.

All of these are something that we can support our clients with. And we remain well positioned to do that through this year and the future. So thank you again for joining us and catch up the next quarter call.

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