Infosys Limited American Depositary Shares earnings calls

Outlook for organic growth and subcontractors

Q (Kumar Rakesh · BNP Paribas Mutual Fund): Analyst asked if organic growth can recover next year given recent headwinds, and asked why subcontractor use remains high versus pre-COVID levels.

A: Management said AI growth and a large new deal give confidence that organic growth should be in good shape next year. On subcontractors, they said use varies with utilization, skill needs and geographies, and they aim to keep subcontractor costs within a band; reducing subcontractors by 1% could add about 15 to 20 basis points to margin.

"We feel good that the organic be in a good shape in next year." — Salil Parekh (CEO)

Drivers of revised growth guidance

Q (Bryan Bergin · TD Cowen): Analyst asked which factors changed most versus last quarter to drive the guidance revision, and then asked whether AI-driven productivity demands have intensified recently.

A: Management said pricing pressure from increased competitive intensity, softer volume growth, and weaker discretionary spend in retail and high tech were the main drivers. They added that AI productivity expectations are spreading across the client base, with awareness rising as AI revenue grows, but the intensity of that expectation hasn't changed recently.

"Therefore that pricing expansion that we are expecting at the beginning of the year, that has not materialized." — Jayesh Sanghrajka (CFO)

Sector differences and near-term risks

Q (Yogesh Aggarwal · HSBC): Analyst asked why banking and some sectors are strong while high tech is weak, and whether there are risks to the guidance midpoint over the next two quarters.

A: Management said many industries beyond banking—energy, parts of manufacturing and healthcare—are showing good traction and AI adoption, while high tech weakness is largely tied to one U.S. client and retail reflects client footprint changes. They warned seasonally weaker H2 and said their guidance already bakes in higher uncertainty at the lower end and improvement at the upper end, so they cannot say exactly where they'll end up.

"We think that that is more of what is likely to happen across the entire set of industries." — Salil Parekh (CEO)

Nature and margin effect of mega deal

Q (Surendar Gaur · Citi): Analyst asked what kind of work the new mega deal involves and whether there will be margin effects or asset/person takeovers.

A: Management said the deal is a business transformation using AI across tech and ops and that their teams helped shape it with the client. They said they do not see any material margin impact during the transition this year, there are no asset takeovers, and there will be some people taken over.

"We don't see any real margin impact on the transition in this year at all on this one." — Salil Parekh (CEO)

What keeps margins above/below midpoint

Q (Jonathan Lee · Yuchen Hotels): Analyst asked what will keep FY2027 margins above the 21% midpoint or push them below, how long Maximus savings last, and what other levers can help if savings slow.

A: Management noted they have historically maintained steady margins while investing in sales, AI talent and tech, but flagged headwinds: acquisition dilution (about 50 basis points), upcoming compensation rollouts and acquisition amortization. They said Project Maximus will partially offset these headwinds and they are confident in their full-year guidance.

"Having said that, if you recall at the beginning of the year, I did call out that the acquisition that we have made will have 50 basis points impact on our margins overall." — Jayesh Sanghrajka (CFO)

Pricing pressure and AI deal margins

Q (Ankur Rudra · JP Morgan): Analyst asked whether pricing pressure is broad-based or client/sector specific and what pricing assumptions are baked into second-half guidance; also asked about margin profile of AI revenues and large deals.

A: Management said pricing pressure is coming across clients because many clients are requesting AI-driven productivity benefits, and at the lower end of guidance they assume deterioration while the upper end assumes improvement. They said margins on the large deals signed are similar to prior deals and they remain disciplined on economics; they do not disclose AI-specific margins externally but say they are getting good pricing and competitive cost points.

"On the large deals signed, the margin profile is similar to what we have signed." — Salil Parekh (CEO)

AI use in winning large deals and go-to-market

Q (James Friedman · Susquehanna International): Analyst asked if the AI use cases in the prepared remarks are helping win large transactions and how the AI go-to-market has evolved.

A: Management said almost every large transaction today includes AI elements and many large deals are AI-driven business transformations impacting customer service, quality, growth and cost optimization. They described a multi-component go-to-market: partnerships with AI companies, dedicated client-facing AI teams in segments, delivery specialists, trained personnel on models, and an architecture group to design transformations.

"In general, the AI is forming part of almost every large transaction that we are looking at today, where there is an impact on customer service levels, improvement in quality internally, driving growth for the client, doing the cost optimization or modernizing technology, putting agents in for processes and so on." — Salil Parekh (CEO)

Introduced two questions (audio issues)

Q (Vibhor Singhal · Nuvama Institutional Equities): Analyst said he had two questions but was cut off; he asked to proceed after audio issues.

A: No management response in this exchange; the analyst was preparing questions and apologizing for audio issues.

Operator asked to improve reception

Q (Vibhor Singhal): Operator asked the analyst to move to better reception; no analyst question.

A: No management response in this exchange; this was an operator prompt about audio quality.

Analyst confirms audibility

Q (Vibhor Singhal): Analyst checked if they were audible after improving connection.

A: No management response in this exchange; the analyst confirmed audibility before asking questions.

AI growth, legacy deflation, competition

Q (Vibhor Singhal · Nuvama Institutional Equities): Analyst asked for year-on-year growth on the GenAI revenue, whether AI revenue can offset legacy deflation, and whether pricing competition is broad-based or from a few players.

A: Management said the AI percentage is growing strongly, the 10.5% AI revenue they reported is net new revenue, and that it is scaling and addressing productivity impacts; they did not share a YoY percentage but confirmed strong year-on-year growth. They added that some peers are more aggressive on pricing but pricing pressure is also across the board due to the environment and AI productivity discussions.

"So the revenue of 10.5% AI we are sharing is new revenue." — Salil Parekh (CEO)

Conversion of deal wins and AI cycle position

Q (Gaurav Rateria · Morgan Stanley): Analyst asked whether conversion of large net-new wins into revenue faces leakages that have peaked, and where Infosys stands in the AI cycle versus prior digital/cloud cycles.

A: Management said net-new conversion is happening and is similar year-to-year, and that parts of the portfolio have already seen productivity impacts so they are less likely to see further hits. They said they feel positive about next year, cited the mega deal giving about 1% revenue growth outlook, and noted AI growth is strong though they would not give a year-by-year timing of the cycle externally.

"We feel quite good now that the next year, that is why we were sharing that from the mega deal, we estimate something like a 1% revenue growth outlook of that one deal that we have signed in Q2." — Salil Parekh (CEO)

Question about AI deal tenure and velocity

Q (Sandeep Shah · Equirus): Analyst began asking whether AI-led deals have lower tenure and faster revenue conversion below $50 million and asked about uptick in deal velocity.

A: No management response in this exchange; the analyst was interrupted and the question was not answered here.

Operator asked analyst to use headset

Q (Sandeep Shah): Operator requested the analyst speak through a headset for clarity; no analyst question.

A: No management response in this exchange; this was an operator prompt about audio quality.

AI deal velocity, Q4 impact, differentiation

Q (Sandeep Shah · Equirus): Analyst asked if AI deals are shorter, whether a manufacturing client impact will hit in Q4 and affect third-party costs, and what differentiates Infosys's AI strategy versus peers.

A: Management said AI deals vary across their six defined areas and they are not specifically calling out velocity or duration. They confirmed most of the impact of the manufacturing client will come in Q4 but would not quantify client-specific third-party splits; they also said their AI revenue comes from the six areas outlined and highlighted their Topaz Fabric and foundation model choices as distinct elements of their strategy.

"The AI revenue, what we are sharing, is coming from those six areas, which is a net new." — Salil Parekh (CEO)

Operator request initiated

Q (Sandeep Shah): Operator initiated a request and noted how to cancel; not a question to management.

A: No management response in this exchange; this was an operator system message about request cancellation.

Insourcing and changing competition

Q (Keith Bachman · BMO): Analyst asked if AI is causing clients to insource more and how competitive dynamics may change into 2027, noting Infosys results differ from some peers.

A: Management said they do not see AI causing more insourcing versus prior periods; insourcing decisions reflect other factors and in many cases clients want vendors to run AI-enabled work. They added Infosys has consistent organic growth, strong AI capabilities, higher offshore percentage effects, and has been disciplined on deal economics, and they reiterated the offshoring and the large deal they did not pursue account for about 1.8%-2% of the year's revenue difference versus peers.

"We don't see a pattern that more insourcing is happening because of the AI." — Salil Parekh (CEO)