Infosys Ltd (INFY) 2025 Q1 法說會逐字稿

(video playing)

Very good evening, everyone, and thank you for joining Infosys first quarter financial results. My name is Rishi and on behalf of Infosys, I'd like to welcome all of you. As I always do, I request one question from each media house to accommodate everyone over the next hour. And with that, let me invite our Chief Executive Officer, Mr. Salil Parekh, for his opening remarks. Over to you Salil.

Thanks, Rishi. Good afternoon, and thank you all for being here with us today. We started the financial year with a strong performance in quarter one across multiple dimensions, including broad-based revenue growth expansion in operating margin, 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. I'm particularly pleased with 7.9% growth in the financial services segment, where we are seeing improvement in client spend in North America. All geographies and most industry groups grew sequentially. Volume growth turned positive after several quarters.

We had another strong quarter of 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 and consolidation, cost takeout and efficiency opportunities, this is also a reflection of our leadership strength.

With the mobilization of our margin program, we see positive impact on operating metrics. This resulted in our margin expanding by 1 point sequentially. Free cash flow was highest ever at $1.1 billion. We continue to see strong traction from our clients with generative AI programs delivered through Topaz.

Enterprises are focused on their own data assets that can be used in generative AI large language models, that create huge impact for them. 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 the transformation capabilities around generative AI, have positioned us well in this market.

With respect to our recent acquisition of in-tech, we have received the required approvals and have closed the acquisition transaction. 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 terms. Our operating margin guidance for the financial year remains at 20% to 22%.

With that, let's go ahead with the questions. Thank you.

Thank you, Salil. We will now open the floor for questions. Joining Salil is Mr. Jayesh Sanghrajka, Chief Financial Officer, Infosys.

With that, the first question is from Ritu Singh, CNBC-TV18.

Hi, here, Ritu from CNBC. Thank you for the question. Huge upgrade in the constant currency revenue guidance 3% to 4%. So firstly, while you highlighted in financial services in the US, you're seeing some signs of a pickup and overall given what is your sense on discretionary spend coming back, where the verticals you continue to see weakness?

And was all of this upgrade organic or, have some of your past acquisitions that you've now completed had some role to play in this upgrade that we're seeing? Also your margins are up about 100 basis points over the previous quarter. I just wanted to understand, is there headroom for further growth when you're expecting to take the wage hikes, et cetera?

And just one more question, if I may, on your headcount as we've been asking you for the past several quarters now, six quarters it's been coming down. What are your hiring plans for the year? If you could just throw some light on that.

So, thanks. Thanks for your question. Let me start with the first one. On the guidance, the way we see what's going on in the market and our guidance. First, we had a strong performance in Q1 on volumes as well as the point that we made on financial services in the US.

Second, we had a very strong performance on large deals in Q1, which gives us more visibility into this financial year. And third, we completed the In-tech acquisition, which also helps us in this in this guidance. And Jayesh will give some color on the specifics with In-tech as well. On the margins Jayesh, will you?

Yeah. So if you look at this quarter's margins, we've already expanded our margins by 100 basis points. So if you look at the puts and takes of that up, almost 100 basis points came from last quarter's normalization. Last quarter, we had a one-off which impacted our margins.

We had 80 basis points coming from Project Maximus, so which is out of our margin expansion program on the back of, you know, better pricing, which is value-based selling better benefit from a efficiency parameter, which is utilization, et cetera.

And a 40 basis points came from a one-off benefit that we got in this quarter from one of the clients on revenue side. So those are the positives. On the headwinds, we had 1.2% coming from better variable pay and higher leave and other costs resulting in almost 1% margin expansion for the quarter.

The Project Maximus, as you know, has been -- we were working on it for last couple of quarters and it has started showing results. Our long-term -- medium-term objective on that is to expand margins from where we are. This steers guidance is it continues to remain 20% to 22%.

Coming back to your last question on the headcount. As you know, last multiple quarters, we have moved to the agile hiring base that basically means we hire freshers. But on from on the campus, off the campus. This quarter, we had a 20% net decline, which is lower than the previous quarters. Our utilization is already at 85%. So we have little headroom now left. So as we start seeing a growth, we will look at hiring. We are looking at hiring 15,000 to 20,000 freshers this year, depending on how we see the growth.

Sorry sir. just follow up on the first question, when you say the in-tech acquisition also played a role in you upping your guidance. Could you give us a clear break up how much of it is coming organically and how much inorganically?

Sure. So if you look at -- we don't break up guidance first of all between acquisition and non-acquisition. But if we look at the disclosure that we made when we acquired in-tech, the annual revenue of in-tech was around EUR170 million. So you can in a way back-calculate, but we don't really break up how much of guidance is between organic and inorganic.

Thanks Ritu. Haripriya Sureban, NDTV Profit.

Sir, could you give us a broader sense on the demand environment when it comes to other regions then Americas? And what is happening on the pricing bit? What has changed since the last quarter? What gives you the confidence in terms of like upping the guidance?

So on the -- I go the first point on the demand environment. In other regions and what we see, which we've continued to see good growth -- first, sequential growth was good across all the geographies, but we see good demand in this sort of an environment in the European market where we've had good traction. And we've also had some of our large deals ramping up in that environment. Equally in what we see in the US or the North American market as well. So both of those, we're seeing good traction on. Jayesh will also give a little bit more color on industry later.

And the second point, go ahead Jayesh.

Sorry, what was the second point?

The second point on the pricing.

So pricing environment is pretty much remained stable. But if you look at, again, one of the pillars of Maximus is value-based selling, where we have been able to make an impact, which has helped us improve our overall pricing. But overall environment has continued to remain stable.

Coming to the sectors that Salil wanted me to talk about. If you look at financial services, as Salil mentioned earlier, the US financial services, we have started to see some recovery, especially in the cards payments capital markets areas.

Manufacturing continues to remain strong in the sector. But our manufacturing growth, we expect this year to be lower than last year because last year we had a very strong growth in manufacturing. Retail and URS remains similar to our commentary earlier, and high-tech continues to remain a softer.

Thank you. Veena Mani, The Times of India.

Hi, gentlemen. I have a few questions. Some of your peers who had the sort of same set of numbers with some positive growth. Could give us a give us an outline only after the next quarter, on what things look like. What do you think the next few quarters of this financial year would be? Would you be able to give us -- tell us a little bit more about the -- how the macroenvironment is going to be like and the deal environment is going to be like?

Secondly, I wanted to ask you about how your internal fulfillment goes. Ijp is a huge thing at Infosys. So would that be a focus going on? Or would you again go back to the market and hire extensively? Not just freshers, but even laterals?

And the other thing is about McCamish. So you've called out in your annual report that the cybersecurity is not as adequate as you would want it to be. So are you going to expand that coverage? What is it like you're going to be doing on the cybersecurity front? And with the McCamish incident, does it make it even more pertinent for you to add to your cybersecurity measures? Those are three.

So, let me start with the first on the macro. On the macro, I think the sense we have is the discretionary spend, which is a function of macro as it impacts our clients is still the same as what we were seeing in the past quarter, with the exception that we saw a little bit a better outcome for financial services in the US. But other ways, it's the same. It's a discretionary is still low from where it was several quarters ago.

Now to see beyond -- so the way we do this like at this time in the start of Q2, we'll have an outlook of what we can see into the environment over the next few months. We don't have a view which is, let's say, what will happen at the end of the financial year and so on. So that's how we are seeing it today. But as we see as we've done now, as we see any changes like what we saw in financial services, we then at the end of the quarter come back and update things on that.

On the second point on Ijp, the fulfillment, I think the view is we've always looked at fulfillment from what we have. As Jayesh shared, our utilization is looking at a fairly good level. We will still have fulfillment internally, but we will also potentially, as we see the demand of recruitment, both on-campus and at other levels as well.

On McCamish, I think we issued a statement on April 18, 2024. In addition to that, we've completed the -- the eDiscovery process has been completed and McCamish is in the process of coordinating with its clans to ensure all the notifications are provided. In addition, the US state attorney generals and insurance commissioners have also been notified. That's what we can share with respect to McCamish.

Thank you, Veena. Moneycontrol, Chandra.

Hi Salil. Hi, Jayesh. Salil, in terms of business segments, with the exception of financial services, which has seen an uptick. All the other verticals are more or less flat sequentially. I think retail has declined by some basis points. So give us a sense of what you're seeing there. You've already spoken about how financial services looking up.

And in terms of geography, also, North America has declined sequentially, Europe is flat, rest of the world is flat, But India has seen an uptick. So what's driving the growth for you? Is there a specific project that's helping you?

Also, last month I think during your AGM, Nandan Nilekani mentioned that you have 225 GenAI POC's right, -- projects. So if you can give us a sense of your pipeline, are you going to be giving us a sense of what the sizes? Because TCS has called out $1.5 billion, I think Accenture has called out $2 billion. Will you be quantifying that?

Jayesh, for you, I think utilization has helped excluding trainees, it's gone up by 2-percentage-points. You've also increased offshoring by I think few basis points, which has helped to margins. So will you be utilizing these levers? I mean, can you spread these levers more in the next quarter to keep up margins?

Salil, finally, do you have a view on the reservation bill, that Karnataka moted, and now it's paused, but is one of the biggest oil companies operating in Karnataka, what's your view on resolving jobs to locals? Thank you.

So on the -- there are a few questions. Let me start first with generative AI, Jayesh will talk a little bit about the industries and the geographies. On generative AI, we are making huge impact. And as Nandan shared at the AGM, the sort of work we're doing is massive. We are not at this stage disclosing and quantifying externally, our revenue from it. The work we are doing is quite incredible. The focus is really on what enterprises are doing for generative AI.

And what our enterprise is doing, they're working on their own data assets within the confines of the enterprise and making sure that the benefit of that comes through for them. For example, there's work that's massively going on in customer service. There's work that's going on in software development. There's work that's going on across process optimization, in knowledge.

So there are a variety of areas in which generative AI, work that we're doing for clients is making a huge impact. And there are several examples some of which we also shared in our annual report, some of which with our client names where we're working on for projects, for generative AI.

Let me also -- let Jayesh talk about the industry, then we go to the other ones.

Yeah. So I think Chandra, the numbers that you're looking at our year on year numbers, if you look at the sequential numbers, financial services have grown 7.9%. Manufacturing has grown 3.6%. Almost all segments have grown and all the geographies have grown this quarter. So that's what Salil was referring to in terms of a broad-based growth this quarter sequentially.

Coming to your other question on margins, while utilization has pretty much reached the peak level in our mind, there are other levers, value-based selling more or more offshoring near-shoring, all of those are levers that we have that we will look at in terms of expanding margins from where we are.

These are sequential numbers, the geography split, Jayesh.

The Fact Sheet, you're referring to the fact sheet.

Yeah.

The fact sheet is year on year. Year on year numbers.

Okay. The question was on reservation. The last question.

The last question, -- so on first, we are planning to work with all the regulations that the state and central governments will work on. We support whatever regulations and guidelines they'll come. We'll wait and see what they look like as time develops. But our approach in general, is to make sure we are aligned to the new laws and regulations that come out.

Thank you, Chandra. Beena Parmar, and [Sameer Bakshi] from The Economic Times.

Hi. First, we want to know the guidance that you have revised, how much would be inorganic growth from that? And your India growth has also seen a large jump. Could you give us some clarity on color, on where does it come from? Is it from one large deal or do you see this going forward? Do you see this expanding?

And in terms of fresher hiring you mentioned that you would be going into campuses and also looking at it laterally. How much would be campus recruitment from the number that you shared and have the onboarding process of previous offers been done already?

So on the guidance, what we are seeing today, we had a very strong Q1 with that performance, which focused on specifically volumes on financial services in the US. That gave us more confidence for the year. Than we saw the large deals in Q1 itself. That gave us more visibility for what we're seeing for the full year. And then we had the acquisition with respect to in-tech. Those combined give us the support to increase our revenue growth guidance.

As Jayesh, we don't split out the guidance between organic, inorganic. However, the revenue number for in-tech is something that we have shared, -- Jayesh has shared that. And so from that basis, you can add it's a part of it. The vast majority of it is coming from what we see in the volume, financial services and large deals.

In terms of recruitment, as Jayesh just shared, we will be going to campus between the way we do campus, which is campus hires ongoing and at campus, and that's in the range of 15,000 to 20,000 for this financial year.

Is there a breakup on how much would be from campuses and otherwise?

We generally don't -- sorry, go ahead. We generally don't break up that. It's a combination of in our from the campus and off campus. As we see the demand environment growing, we will look at, which is the best source of.

And has the onboarding of previous offers been done completely or is it still pending.

It's -- I mean, a very small portion of that would be pending. [Everything] has just pretty much done.

And Salil, on the India growth, you can you give us some color?

Yeah, India growth so there -- first, India as a small part of our business. So each quarter with different events, it can go up and down. In general, India business is doing well for us in terms of growth in this specific quarter, as Jayesh said earlier, there was also one-off with respect to in the India business. But in general, it's in good shape. It's a small number and sometimes there is more movement because of small numbers.

One more if I can add, from your existing deals, what kind of percentage would be GenAI projects, if at all, at least a ballpark number?

So on generative AI, we are not sharing externally the value in terms of revenue of the deals. What we are very clear about this, if you look at industry ratings. If you look at what others are saying about Infosys and our generative AI approach, it's leading in the market.

We are also very careful, we are not combining generated AI revenue with AI revenue. AI has been going on for a while. And really today, there's much more interest with clients on what general AI can derive and that's our focus. That's where we believe we have leadership. And that's where there's a huge distinction between what large companies or enterprises are doing and what consumers are doing on generative AI and our focus is very much with the enterprise generative AI.

Thank you, Beena. Padmini Dhruvaraj, Financial Express.

Hi. So you said that you financed acquisition of your ER&D company. So from and do you see it contributing to revenues? And how many POCs of your AI use cases are in production now?

And so this demand you said of BFS space in North America, is it also because the clients want to adopt new technologies? And is bundling AI services in your regular deals or are AI deals are becoming separate from your transformation deals.

Okay. So will go one by one. I think the first one was on what we are seeing with generative AI.

ER&D.

So, ER&D. So the acquisition is complete. I think that was the question or --

From when do you see it's contributing --

When -- it's complete yesterday, so it will start from this quarter. And in fact engineering services is one of those areas which is growing well for us. We are seeing a lot of traction in the automotive space, in the medical devices space, broadly across all elements of engineering services. And we've had now two acquisitions that we've done on that.

And then the second was on demand in FS, if that also includes, is it because of AI or not. So there what we are seeing with the demand in FS, which we are seeing improvement in, is across all of our capability is not only from AI or generative AI. It's also for cost and efficiency, a consolidation plays. It's also sometimes very specialized like in the payments and cards areas where we have some specialized capabilities. We see a demand for those two sort of activities, but it also includes AI in it.

On the percentage of projects which have gone from POC to production. We don't share that externally. But what we do -- what we did say, and we continue to see is we are seeing a lot more work, which is production projects. We are not seeing just POC work, it's real work in production with clients.

For example, we are doing some work on credit risk analysis. And this is a project which is in production with a bank where with generative AI and AI, we are able to improve the quality of the decision making -- help them improve the quality decision making and also the time make it better. So this is a huge real impact that the client is seeing in this area.

Thank you. Haripriya Suresh, Reuters.

Hi, good evening. I think most questions been asked. But for the last few quarters, we've been talking about the delay in TCV to revenue conversion. Does that time line getting better? Or do you still -- is that still as much caution? And are you seeing any sort of transformation deals are you mainly in the on cost efficiency sorry vendor consolidation deals kind of thing?

Also your wage hike cycle last year, I know was delayed. Are you coming back to the old cycle, has the cycle been delayed, what is that environment like? Also in BFS side, I know you called out growth it as cards payments, but are you still seeing any softness that you would want to call out? But yeah, thank you.

On the deals and the conversion, so there was, I think, two or three quarters ago we had spoken about some specific deals which -- it was a slower start than anticipated. Today, we are seeing our large deals converting in as per expectation. So we had already reset that expectation and it's as per that expectation, there's no further slowing and there's no other change in that.

The type of deals, we are mainly seeing that the cost efficiency consolidation deals, there's still not the appetite to spend big on a transformation technology, transformation type of program. On the wage hike and the other one --

So on the on the wage hike, as you will recall, we have done on last wage hike in November last year. At this point in time and every time we do a wage hike, we take multiple factors into account, right from what is inflation when the last time we did the wage hike, what's the peer practice, et cetera. And at this point in time, we are evaluating all of that but at the same time, as I called out in my margin walk, we have improved our variable pay this year versus the last quarter and last year.

Thank you. Jas Bardia, Mint.

Good evening sir. So you started the year with 3.6% sequential growth in constant currency. And you termed it excellent in your prepared remarks. But you outline a full year growth between 3% and 4% in constant currency terms. So are you expecting business to decline in the second quarter over the second half of the year. What explains this tepid outlook despite a strong start?

And so the second question, over the last four quarters, the company has kind of underperformed, what explains this slowdown? Is it a macroeconomic slowdown because fortune 500 companies are doing well. US economy is resilient. So is this a macro economic slowdown, if at all? And or is this because of company-specific issues?

The first one, in fact, my sense is we have done exceptionally well because of Infosys specific reasons. 3.6% sequential growth is extremely strong in any environment, but especially in this environment. The reasons we have a very well-defined approach on large deals which has been working well, we have a very clear approach on generative AI, which is giving us good traction.

We have -- when the market looks at it a very clear approach on digital transformation, which helps clients and in this environment, a strong focus on cloud, which is also doing very well with the work we do in cobalt.

The foundation of generative AI is all of the data and how that's coming together and there, we have huge trend, so that's giving us a tremendous benefit. Then we've had the success on large deals in Q1 and then we've had a strong outcome on the operating margin because of the program we put in place some quarters ago on improving every aspect of how the operations work. And then we have free cash flow, which is at the highest level. All of that combined, give us a very strong start into this financial year.

For the guidance, the 3.6% becomes 2.5% on a year-on-year basis. So the guidance is more on a year-on-year basis, where we've said is between 3% and 4%. And so we'll see that being a supportive of the guidance we are driving for three reasons, a good Q1, which is because of volumes and good FS outcome in US, very strong large deals. And the in-tech acquisition, which got closed in time. So those are the reasons why the guidance has become a 3% to 4%.

Now, if you look at what is going on with the macro, the macro environment, at least in the Western markets with high interest rates has curtailed most companies spending on big programs on digital transformation. And we had -- as we transform the Company move to 65% of our work into digital, and that's where we see the change.

My sense is as and when the macro changes and people accompany their spending on large technology programs, we are the best position to start to get that benefit. And this quarter, we start to see a little bit of that, not in the digital programs but in financial services in the US, which is what we have not seen in the past. So all of that really gives us the confidence from what we're seeing in this year.

Thank you. Sanjana, The Hindu Businessline.

Hello, gentlemen. So Infosys currently has 2.5 lakh employees that are trained in GenAI, so what exactly does this mean and what kind of investments our initiatives are going into this? And if you could tell us if this reduces or increases hiring requirements, because that has been a reduction in headcount from last quarter. It's been around 1,900 employees.

Also, can you talk about how many roles are being added or will be added because of development on the AI front. And if you looking to -- and if you could give a breakup of how many people that have currently hired are for AI related roles. Thank you.

So on the training for AI, we have a program that enables our employees to get trained on different elements of AI and generative AI. So there is training, which is more focused on awareness, there is training, which is more focused on developing and there is training, which is more focused on deep emersion.

And all of that combined gives the total that we share externally for AI training. Our view is all of our service lines are getting changed by deploying AI and generate EVA within each service line. So in any of our offerings, we are deploying it to make sure that we get the full benefit of it and which is what we're driving to become an AI first company. So we had a view when we became digital first, cloud first and now AI first, so that positions us very differently with our clients.

In terms of recruitment, we don't specify how many people are getting recruited for A or B different specific category. But overall, numbers is what Jayesh has shared in terms of people joining from college is between 15,000 and 20,000 for this financial year.

Thank you. The next question is from Sonal Choudhary, from the Deccan Herald.

Hello, gentlemen. Congratulations on the stellar performance. You've already highlighted what has power growth in this quarter. But if there's anything to add to that. Secondly, whether this growth momentum will sustain, if yes, what's providing that confidence? What's boosting that confidence?

So thank you for that. We are extremely pleased with the performance and we think is something very specific to what we have done within the company and for our clients.

The main elements of what is driving the growth is really focused on how we've set up, what we are driving within the generative AI ecosystem, what we are driving with large deals, the intensity with which we are working with our clients across all the industries and then the benefits that we are seeing for example, in Q1 from volumes, from financial services in the US, the overall large deal and the in-tech acquisitions.

As we look ahead, our view is what we see today is what we've translated into the growth guidance as we see the year today. We will see as the year progresses; we believe we have a leading ability with 3.6% QonQ growth in the market. We will see as the year progresses. What other things we see in the environment with different industries like we have seen for financial services in the US, what other industries and what time if they change and so on. And that will give us more and more confidence into the year.

So currently (inaudible - microphone inaccessible)

The way I would say that is the guidance is what we see today. So that whatever we've seen in Q1, we've converted that to our guidance, and that is what we see today in terms of the outlook.

Thank you. With that, we come to the end of this press conference. We thank our friends from media for being part of today's questions and answers. Thank you, Salil and thank you, Jayesh.

Thank you.

Before we conclude, please note the archived webcast of this press conference will be available on the Infosys website and on our YouTube channel later today. Thank you, and please join us for some high tea outside.