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Q1-2026 Earnings Call
AI Summary
Earnings Call on Jul 23, 2025
Revenue Beat: Infosys reported first quarter revenue growth of 2.6% quarter-over-quarter and 3.8% year-over-year in constant currency, which was above market expectations.
Guidance Nudged Up: The company raised the lower end of its FY26 constant currency revenue growth guidance from 0-3% to 1-3%, citing improved outlook but ongoing uncertainty.
Strong Deal Wins: Large deal signings totaled $3.8 billion, including a mega deal, with strong traction in enterprise AI and client consolidation.
Margins Unchanged: Margin guidance remains at 20–22% for the year, but Q1 margins declined primarily due to compensation and variable pay increases.
AI & Productivity: AI-driven productivity gains (5–15%) are benefiting both Infosys and its clients, with over 300 AI agents deployed.
Hiring Steady: Headcount was flat during the quarter, with utilization at a peak of 85%; hiring plans for the year remain unchanged.
Regional Trends: Europe outperformed the US in growth, benefiting from prior investments, while the US remains the largest market.
Infosys delivered revenue growth of 2.6% quarter-over-quarter and 3.8% year-over-year in constant currency, exceeding analyst expectations. The company modestly raised its revenue growth outlook for FY26, shifting the range from 0-3% to 1-3%, reflecting confidence from deal wins and a somewhat improved macro environment, though management cautioned that uncertainty remains.
Large deal signings reached $3.8 billion this quarter, including one mega deal. These wins were attributed to strong demand for enterprise AI, client consolidation projects, and success in transformation initiatives. Management described the deal pipeline as healthy and a key driver of their improved guidance.
AI was a central focus, with Infosys deploying over 300 AI agents for clients across business operations and IT, driving 5–15% productivity gains. Management said these advances are benefiting both Infosys and clients, with some productivity gains shared with customers. AI is also helping Infosys differentiate in client consolidation and transformation projects.
Q1 saw a 20 basis point margin decline, mainly due to wage hikes and higher variable pay (100 bps), currency headwinds (30 bps), and sales investments (20 bps). These were partially offset by a 70 bps pricing benefit and other cost reductions. Margin guidance for the year remains at 20–22%. Management says ongoing productivity initiatives like Project Maximus and pricing improvements will help offset headwinds from compensation and ramp-up costs on new deals.
Europe outpaced the US in growth, a result of earlier strategic investments in the region. Management noted Europe’s strong multi-sector performance, though the US remains the largest market. In North America, momentum continues in financial services, energy, and telco, though certain sectors like logistics and consumer products are experiencing softness.
Employee headcount stayed flat, with utilization hitting a peak of 85%. There is no change in hiring plans for the year. Infosys will continue campus and lateral recruitment, but management indicated that further growth will require additional hiring since current utilization is at its limit.
Client conversations are increasingly focused on enterprise AI, cost, and efficiency. While some industries—especially logistics, consumer products, and manufacturing—are cautious due to macro uncertainty and tariffs, consolidation projects and AI initiatives are generating new business. Management sees no major project ramp-downs due to geopolitical or macro issues, but remains watchful.
Infosys rolled out wage hikes in January and April, with the impact already reflected in margins. The company maintains its rigorous training and assessment process for campus recruits. There have been no onboarding delays or changes in lateral hiring policy. The company also continues to adapt its hybrid interview and work models for flexibility.
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 you today.
As always, we request one question from each media house so that we can accommodate all of you over the next 45 minutes or so. 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 joining us. We had a strong start to our financial year. Our revenues grew 2.6% sequentially and 3.8% year-on-year in constant currency terms. Growth was broad-based with our large 5 industry groups and our large geographies growing year-on-year in constant currency.
Our large deals were at $3.8 billion. The main drivers of our growth were a leadership in enterprise AI and a continued success in clients selecting us for consolidations. We are seeing good demand for AI agents. We have built 300 agents across business operations and IT areas, and they're now deployed within our clients. Horizontal and vertical agents are helping our clients drive faster decisions, improve customer experience and improve operational efficiency.
Based on our performance in Q1 and our current outlook, our guidance for growth for financial year 2026 is revised from where it was 0% to 3%, now it will be 1% to 3% in constant currency terms. Our margin guidance remains unchanged at 20% to 22%.
With that, Rishi, let's open it up for questions.
Thank you, Salil. We will now open the floor for questions. Joining Salil is Mr. Jayesh Sanghrajka, Chief Financial Officer, Infosys. The first question is from Ritu Singh from CNBC TV18.
We're talking about how the numbers have been very strong. The performance has been good. The first quarter revenue is above what the Street had factored in. Two questions on this. If the numbers are so good, why have you not raised the upper end of your guidance? Why just the marginal revision from 0-3% to 1% to 3%? And how much of this upward revision that we're seeing and including the kind of constant currency growth, 2.6% in this quarter, has come from your inorganic -- from your acquisitions that you've made? That's one part of the question.
Also, how would you guide the Street to look at these numbers? Would you really say this is a turnaround that you're seeing in the current macro environment that going ahead, this kind of performance would be sustained? And a word, last time, we didn't hear much from you on the whole tariff conundrum and how that is impacting discretionary spend, specifically in sectors like manufacturing, retail, what's your sense on the clients? And if you could also add a word on your hiring plans for the year?
Thanks. So first, on the guidance, what we have seen this quarter is a strong performance in terms of where we have delivered the 2.6%, as you pointed out. With that and with the current outlook where we have seen a lot of the discussions on the economy worldwide having come to more stable situations, but still seeing that it's not fully settled. Given that, we've increased the lower end of our guidance as we go closer into the -- like progress into the year closer towards the end of the year, we typically narrow our guidance.
And that's the first part of what we've done, which is increase the lower end, but we still see things within our guidance where we look at some things, which will give us good traction. For example, what we've seen in the consolidations, we've seen very strong work that we've done on AI with agents, and we see that and we also see the economy globally, both in Europe, U.S. going through changes. So keeping that in mind, we've narrowed the guidance and increased the lower end. On the inorganic part, I'll let Jayesh mention how much of it is inorganic.
Yes. So inorganic in this quarter has been around 40 basis points within our 2.6% that we reported. And for the full year also, it will be a similar number.
And then back on the sort of economy, we talked about it last quarter and also in addressing it today. There are overall changes in the economic environment, and we mentioned last quarter, we shared that again. We see some of that impact, for example, in logistics. We see some in consumer products and some in manufacturing. But equally, we have seen benefits, especially because we've seen good traction with the work we're doing with agents in AI and a benefit from consolidation that we've looked at, that the clients have looked at us and being positive, and that has given us some of the positive growth that we've seen in this quarter.
Would you call [indiscernible].
So there, on the acquisition, as Jayesh shared, it's a small part of it, even if you keep that aside, we are well over 2%, 2.2% in terms of constant currency growth in the quarter. The way I would look at it is it's very differentiated performance because we have what we believe to be one of the best ways that we are deploying AI, enterprise AI into our clients. So these are active projects where we are using agents, different types of agents that clients are leveraging, whether it's in their supply chains, in their customer experience, where they're getting productivity benefits, where they're getting improved customer service. That's one aspect of it.
And the other aspect is we are seeing clients are selecting us more and more when they're looking at consolidation. Because inherently, we see clients see Infosys' delivery as very strong and stable and also providing new ideas, especially on AI for improvements into their business. So that's the differentiated performance that we are seeing in the way that we see it.
And on hiring part?
So if you look at our hiring numbers, our overall headcount has remained constant at this point in time. Our utilization is at its peak at 85%. So we will continue hiring and we expect to continue hiring in line with what we have announced at the beginning of the year. There's no change there.
The next question is from Haripriya Suresh from Reuters News.
One quick, I wanted to understand, America has not -- don't -- growth has been sort of flattish, but Europe has grown really well. Just some color on the specific markets. Is Europe client-specific, what is happening on that end? And in terms of the employee headcount, like you mentioned, I know it's been flat. But is -- I know there's a lot of talk about how Infosys is using AI, do you see -- if utilization at its peak, do you see productivity increasing where you don't need to hire as much going forward? And will this sort of be the level that we will see it at? And I wanted to get some color on what the wage hike scenario will be for this quarter as well.
So coming to your second question on headcount. As I said earlier, headcount has remained flat. Despite that, we've been able to deliver 2.5%, 2.6% on growth. Large part of that came from the RPP increase or the pricing increase that we got and the seasonality benefit that we got. 40 bps came from the acquisition and the balance came from the volume increases, which we have been able to manage within our current headcount through utilization. Now that we are at a peak, any further volume increase will need to be -- we do need to come from the hiring, right? So that's where we are.
In terms of U.S. and Europe, I think Europe has been strong footing for us for many, many quarters in the past. That's on the back of the investment that we made a few years back in Europe. We had identified Europe as a geography to invest into. And all of that, I think, is working well across sectors. And sorry...
[indiscernible]
Because Europe is growing faster versus America. To that extent, it's changing, but still U.S. remains the largest sector for us, largest geography for us. Sorry, you had a third question.
Wage hike.
Yes, so we did a wage hike already. First wage hike -- I mean, first part was that effective January, the second part already rolled out effective April. First the impact of that is already baked in, in the margin of this quarter. We had 100 basis points of impact on account of wage hike as well as the higher variable pay that we paid to this -- to our employees this quarter. So that's already done. Having done the wage hike very recently, next one, we'll have to decide when.
Next question is from Beena Parmar from The Economic Times.
You mentioned about the revenue being stronger. Some of your peers have pointed out that there has been some revenue cannibalization that they are seeing. Are you also witnessing it? And are you seeing some productivity gains, benefits that you're passing on to your customers? And is that also leading to change in pricing? I think we spoke about it briefly, but has there been any change in the first quarter? And secondly, is that also impacting your margins? What were the factors that led to the margins, because I think it has declined? So could you...
Let me start on the revenue one. I think we are seeing with AI, a lot of productivity benefits. We also saw productivity benefits that we were already working on from automation and lean, which were coming through typically all productivity benefits. A part of that is shared with clients and a part of that is shared with us.
We see, if you look at the overall level, what Jayesh was sharing, we have seen our productivity of our revenue the way our own pricing is working at a macro level improving. And this is more because we are doing work, which is creating more impact in addition to the productivity, which is making some of that benefit being shared with client. So these are 2 different factors. But on balance, we see an [Technical Difficulty] into the quality of the revenue that we are seeing now.
So what kind of productivity gains you've been passing on?
So there, we are not discussing the amounts we are passing on. But in terms of what we're seeing as a benefit we are seeing between 5% and 15% through AI programs where we are working with clients where typically there are disparate systems. Internally, there are some things we've done, which are slightly higher than that. But those are on internal -- like if you look at our Finacle product, it's one uniform sort of a code base in which we can get better productivity. And the margin...
Yes. And on the margin work, if you take the 20 basis points of decline, the puts and takes of that. 100 basis points of headwind came from compensation-related factors and hike that we gave in April as well as the higher variable pay that we paid to our employees -- or we will pay to our employees for this quarter. 30 basis points was a headwind on account of currency and 20 basis points for other factors. This was offset by 70 basis points of pricing benefit that we got both seasonally as well as the benefit that Salil was talking about from productivity and everything that we've been doing under Project Maximus.
40 basis points came because of the acquisition-related impairment that we did in the last quarter, that was a one-off in the last quarter. So that was a benefit this quarter and 20 basis points because our third-party cost was lower. So just to highlight, our 2.6% of growth was despite the fact that our third-party revenue and costs were lower by 60 basis points.
Just one macro question. What are the conversations with the clients, has it improved in terms of the business demand? And are you seeing that tariff-related uncertainty or the caution is now over, and they are starting to kind of [Technical Difficulty]?
So on a macro basis, what we see is there are clients -- all clients are quite focused on enterprise AI, where we can share what is working, where it's working, especially with agents. Then there are industries, specifically logistics, consumer product goods, manufacturing, where we see the impact of the changes in the economic situations, where we were at this time last quarter, there's also been several things which have been done, which gives more view and focus into what's going on. And yet, there is still some open items, which are going on.
So we see, for example, from clients, there is quite a lot of attention on cost and efficiency of their own operations, even if they're not impacted by the changes in the economy. So that is all going on including some of the benefits that we are seeing from AI. And then finally, on a macro level, we -- at this quarter, in our large deals, we've seen a lot of deals where we benefited from clients making consolidation decisions.
The next question is from Reshab Shaw from Moneycontrol.
Congratulations on a good set of numbers in a difficult quarter, in a difficult macroeconomic environment. I have a couple of questions. First on Financial Services. Two fiscals back, you had close to 28%. Now it's down to 27%, so is this a new normal? Is this a change in composition or are you losing market share?
Second, your active number of plans has reduced in the last 2 fiscals. So -- and this comes on the back of revenue growth in this quarter, so is there a pricing change? What are the benefits? What's driving this? And also, we've seen in the last 2 quarters that you have added in 3-digit numbers, so is this a beginning of moving from pyramid to IP-led businesses?
So let me start with some of that, Jayesh will add in. I think financial services, we are seeing a very strong traction. So one of the things we've benefited from in financial services is, if you look at, let's say, large 20 clients. We have, in half of them, we are the AI partner of choice with those clients. In many of those clients, we see benefits from consolidation. In many of those clients, we are in the forefront when there's regulatory change or big transformation, which includes tech and Op. So my sense is we are well positioned in financial services. We are starting to gain much more traction and we have a broad set of coverage both in geography and in capabilities within financial services. On the clients...
So on the active clients, you always have a [indiscernible] come for small projects and some of them eventually become larger projects, some of them eventually fall out. And after a few quarters, a few months, they come back in a way. So I don't think the active client is a big metric. Of course, it's a metric to track, but more important in our mind is the 100 million -- 50 million clients, how they grow and how we mine that once they become a sizable client.
On the IP, so there what we are seeing is there's definitely a growth focus in what we are driving. What Jayesh mentioned earlier, we have a clear plan of recruiting people into this year, in this financial year into the company, both from college, both laterally. But we are also seeing some of our programs, for example, what we're doing in our insurance platform, what we are doing in our financial services, banking platform in Finacle, those are definitely areas where we see more and more IP.
Then we are also seeing places where, for example, in some of our work that we do in BPM, these are not IP, but they're more outcome-driven. And so there, there's a difference between what happens in the rest of the company, which is much more headcount than outcome. But we don't see that there's a huge change in that. We still see that we have a plan of recruiting for this year, and it's on track with that.
The next question is from Jas Bardia from Mint.
I have a couple of questions. One is, has there been some sort of revenue cannibalization or probably reshuffling of employees because of AI? Second is more on a macro scale. If you look at 8 years of your tenure and purely on Infosys, Infosys under you has performed better than the peers. And third consecutive year where the industry has started to slow, including Infosys. Now considering there's been a dearth of mega deals for the company, has the company run out of steam? If so, what is it because of macro uncertainty, client-specific issues or just AI in general?
So thank you. That's good to know. The large deals are working very well. So I think for us, the $3.8 billion is incredible. We have so many deals in there, one mega deal. We have deals which are focused on AI, deals which are focused on transformation, deals which are focused on consolidation. So my sense is that whole approach is in good shape. We remain, I would say, at the forefront with clients on that. A part of where we see some of the changes is the overall economic environment.
And my sense is that when that is in a place where we see more and more of the AI movement, which is happening well and more of other work, which is digital transformation, cloud, we are seeing, for example, tremendous traction on enterprise applications and how they're being driven in new changes. Those are the ones that will support the future, the next stages.
AI itself, there's a whole piece, which is around enterprise AI and productivity. But we are also seeing there are new things that we can do with enterprise AI with clients. For example, much deeper level of analytics, much deeper level of assessments, much deeper work on how they can optimize the business, not just for productivity, but for growth. And those will give us new revenue streams.
So there is a view that we've seen from the analysis internally, where some of the addressable market in those areas is growing and quite good. So we feel quite positive that over -- but this approach that has worked, as you described for the last several years for Infosys will continue to work for the next several years.
The next question to Veena Mani from the Times of India.
A couple of questions here. We've heard reports at the end of April and through May that there were more freshers fired from the Mysore campus. Were these from the 2022 batch, if there's any merit to that? And also, does it say anything about the quality of freshers coming out of colleges in the last couple of years?
Also, the second question is Infosys moved to a hybrid form of interview process. Is that also related to how talent is being fleshed out from the market, lateral and freshers? Does it also have to do with the fact that because of virtual interviews there have been people who've misused that format? Now TCS has made its bench policy a lot more stringent by saying that people can be on the bench only up to 35 days. Is Infosys heading there given that the market is not all that great?
Also, your ESG Report had mentioned capability quotient that Infosys is moving from a digital quotient to capability quotient to mark its -- mark the progress of its employees. How will that have an impact on the appraisal, on the hikes and also the movement through maybe IJPs are also taking up projects on Accelerate and other things if you could help me with some of these? And again, TCS, we've reported recently that there have been onboarding delays for laterals, is that something that we see even at Infosys given that the market is not all that great?
Thanks. So there are several, I'll try to get through them. The first one was on the Mysore. I think there, we have a rigorous process for hiring college graduates. They then go through a very focused foundational training at the campus. And then we expect that the meet internal assessment standards. So all of the people who join us, they get 3 attempts to meet those standards. After the third attempt, if they don't meet, they don't continue with the company.
This is a process that's been in use for the last 20 years, and it's something that is sort of important because we want to make sure that the quality that we are providing to our clients is based on these internal assessment standards that we've set. And that's the approach that we followed there.
On the bench point, I think, was one of your other ones, we have no comment on the other company bench. At Infosys, the way we have looked at this is employees have provided opportunities for training and through learning projects and then they are deployed on to client projects when they're ready, and that's the process we follow all-through, and we've been following for a long time now.
Hybrid point of view.
Yes. There, I think we want to make sure that we put in place an approach that works well for the prospective employee and for the company. And that's in part why we made some of the changes keeping in mind, even on our employee side, we have a very flexible approach with respect to where employees are coming in. Every quarter, for the last many quarters, we have seen an increase in the number of employees over on campus. But overall, at a company level, we have a flexible approach and that is sort of one of the elements of that.
So on the ESG report, the digital versus the capabilities, metrics that we have been using, I think -- I don't think that is something that we use for the IJPs, et cetera. That's a metric that is important from the ESG perspective, that's where we have been -- we've started publishing that, but that's not necessarily imposing on the IJPs, et cetera, internally. The last question that you had was on the lateral hires. We haven't stopped any of the laterals or deferred any of the lateral hires.
The next question is from Avik Das from The Business Standard.
Two questions and one for Jayesh. So manufacturing seems to have really stood out in terms of the growth and you did point out that manufacturing, logistics as well as consumer packaged goods seem to be under stress for all the obvious reasons. Now I just wanted to understand what really worked in your favor? What is it, you're client-specific or what really went your way?
And if you can also provide some outlook on North America. Well, the growth has been nothing compared to Europe, but just wanted to get your feedback on the biggest market, how is it performing, especially from the BFSI side. And on the margins front, while the guidance has been narrowed, the margins still remain the same. So are you anticipating any margin constraint or pressure going ahead?
So let me take the first two and Jayesh will also comment a little bit more on the industry, but let me start with the industry and North America. So financial -- North America, we see very good traction across all businesses in financial -- all geographies in financial services. And then just in North America, if you look across all industries, while we have shown the growth where it is, we see that market, which is the largest for Infosys in a very strong position. So yes, there are changes in the economic situation. But equally, there's good traction that we have. We have several other industries outside of logistics.
So outside of consumer product, where we see good activity. For example, in energy, utilities, for example, some of the work we're seeing in telco and so on. So the market is quite strong. We see good traction with enterprise AI there as well and good traction, some of the consolidation wins that we have seen on the large deals have come from that market. Maybe on manufacturing and margin.
Yes. So on manufacturing, while we have called out softness in some part of the manufacturing, especially the auto industrial and Europe, I think we have benefited from the consolidation and we have benefited from the large deals that we have won in the past. But we continue seeing softness or the concerns in terms of client spending in the areas that we have identified within manufacturing.
On the margins, I did give a walk earlier in terms of the puts and takes of 20 basis point decline this quarter, 100 basis points was on account of comp and variable pay, 30 basis points was currency, 20 basis points was on account of investment that we made in sales that was offset by the benefits that we got from Maximus, 70 basis points because of the pricing increase and the seasonality benefit. 40 basis points was one-off in the Q4 last quarter and 20 basis points was lower third party.
As we go forward, I think the Project Maximus is still running. The proof of that was you saw last year, we delivered 50 basis point by expansion despite multiple headwinds. We still see the Project Maximus delivering on multiple accounts. That will be offset by the headwinds like lower growth. We are now talking about 1% to 3% growth, so the fixed cost will play out -- the fixed cost of the growth areas will play out. The compensation-related things will play out because now we'll have a full year impact of the compensation, et cetera.
Some of the large deals will start ramping up, and there will be transition effort, et cetera, where we incur costs, but we do not get revenue in the first few months or weeks when the transition happens. So all of that will be the puts and takes, we still aspire to increase margins from where we are.
The next question is from Sanjana from The Hindu Businessline.
Do you see any change in project either ramping up or ramping down due to the geopolitical uncertainties or any reassessment on the clients end? And also, do you think that in FY '26 third-party costs and revenues will be lower than in FY '25 because I think there was a -- it contributed to a significant decline, at least in the last fiscal or last quarter? And coming to hiring, I can see that the headcount has increased marginally between Q4 and Q1 this year. So do you at all see any impact of AI and automation on hiring? Yes, just these.
So on the first one, I think we see the changes in the economic outlook with all of the changes going on in U.S. and Europe. We have not seen any change in a specific client or a specific project situation. It's more overall what we were sharing earlier. First, there is more emphasis on cost and efficiency across. There is some impact at an industry level, if you look at logistics or consumer products or some parts of manufacturing like auto.
And then we see a lot of benefits that we are seeing also because in this like a cost or consolidation discussion, we -- quite a bit when clients have made some of those decisions. So there, we are okay overall from the perspective, which is partially what's helped us with the growth.
I think, on the hiring, recruiting and people. So we first have a plan for recruitment for this year for college and lateral avenue. We see with AI that there has been benefits that we see in terms of productivity. We see with AI, especially enterprise AI, that there is more things that we are doing with clients because for even things like the cloud transitions get accelerated or data and analytics foundations get accelerated. And those programs are fundamental to making enterprise AI successful with clients.
So those things give us more newer work and on balance, we see that overall, that continues to be supporting our growth activity now, plus the consolidation side, the cost efficiency side. So we will continue with our hiring plan for this year.
The next question is from Ayanti Bera from the Financial Express.
Not sure if this has been talked about already. Can you just give us the underlying reasons that encouraged you to increase the lower end of your revenue growth guidance?
Yes, so if you look at last guidance, we had clearly called out that at the lower end of our guidance, we are expecting heightened uncertainty, right, in the environment. And at the upper end of the guidance, we are expecting steady to marginally improving environment. One year gone by, we've got a -- we have a strong deal with -- that is the reason why we have increased our lower end from 0% to 1%.
At the same time, on the upper end, we still see possible uncertainty on the back of tariff and on the whole of macro environment. But at the lower end, that the quarter -- the quarter performance and the deals that we have won gives us better confidence at this point in time.
With that, we come to the end of this press conference. We thank our friends from media for being here today. Thank you, Salil, and thank you, Jayesh.
Before we conclude, please note that 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.