Infosys Ltd Q2 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Gaurav Rateria - Morgan Stanley - Analyst : First question is the reasons for change in guidance for revenue growth. Is it largely because 2Q came in better than your expectations? Or is it because the outlook for 2H has improved versus your prior expectations because of better pipeline of the smaller deal?

Question: Gaurav Rateria - Morgan Stanley - Analyst : Got it. Second question on gen AI adoption. Have you seen the gen AI actually triggering a large transformation project and leading to a multimillion-dollar deal or multiyear deals? Just trying to understand that is this going to lead to a wave of a larger IT spend and increase the overall addressable market for us? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2024 / 12:30PM, INFY.NS - Q2 2025 Infosys Ltd Earnings Call

Question: Gaurav Rateria - Morgan Stanley - Analyst : All right. And last question for Jayesh. What would be the tailwinds from a margin point of view in the second half, which could help us to offset the impact of the wage hike?

Question: Bryan Bergin - TD Cowen - Analyst : I wanted to ask, just as you think about how you built the forecast forward and the discretionary view, aside from the improvement you've cited in US, the FSI, have you basically held everything else muted in your discretionary review as you go through the December and the March quarters?

Question: Bryan Bergin - TD Cowen - Analyst : Okay. And then just a follow-up, just to make sure I understand the furloughs. Can you just -- how do you think about composing the furlough activity that you're embedding in the year-end? Any difference than what you saw from last year or historical levels? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2024 / 12:30PM, INFY.NS - Q2 2025 Infosys Ltd Earnings Call

Question: Jonathan Lee - Guggenheim Partners - Analyst : Can you share further detail around what you're hearing in the pricing conversations, both around new deals and any potential rescoping of deal terms, particularly given continued focus on cost optimization for clients?

Question: Jonathan Lee - Guggenheim Partners - Analyst : And how should we think about large deal TCV momentum going forward? Are we seeing any changes to client preferences around signing of large deals perhaps maybe towards smaller deals, given some of what you called out around smaller deal strength?

Question: Vibhor Singhal - Nuvama Institutional Equities - Analyst : So Salil, I just wanted to pick your brains mainly on how the BFSI vertical is looking at this point of time, post the interest rates have been -- change in conversation in -- any change in the approach of the clients towards discretionary spend that they might be picking up in upcoming quarters. How do you see that playing out? And then I have a follow-up. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2024 / 12:30PM, INFY.NS - Q2 2025 Infosys Ltd Earnings Call

Question: Vibhor Singhal - Nuvama Institutional Equities - Analyst : Got it. Okay. My second question was on the PCB side. PCB of this quarter a bit on more softer side. Would you attribute that to anything specific? Is the planning policies at this point of time on the side pushing the deals out because of the pending US elections? How would you read that? And how do you see the deal flow in the upcoming two quarters and the rest of the year?

Question: Vibhor Singhal - Nuvama Institutional Equities - Analyst : But we would have liked a better deal flow, I'm assuming, for the quarter. Do you see maybe Q3 or Q4 deal flow will end up picking up? Or it will -- again will depend on how the macro factors play out?

Question: Vibhor Singhal - Nuvama Institutional Equities - Analyst : Okay. Just one question if I could squeeze in for Jayesh. Jayesh, what is the feeling behind we pushing out the wage hikes to Q3? And -- I mean, in fact, Q4 and Q1 of next financial year. I mean you find out (inaudible) to some part of the organization, we would actually be setting FY25 particularly in terms of wage hike. So is this multiple (technical difficulty) with demand environment or the kind of price that we had given last year, a breakup? Just wanted to pick your brains on that.

Question: Kumar Rakesh - BNP Paribas Securities - Analyst : My first question was to understand how is the traction on your gen AI work? So you have the Topaz platform, which you have launched. You earlier had, for cloud, a similar platform, Cobalt, to build an accelerator to help customers set up the new technology. So relative to how it was at that time when Cobalt initially was launched and how it was first year of traction in terms of how many customer engagements are happening, how many customers signed up for that? Related to that, how do you see Topaz panning out?

Question: Kumar Rakesh - BNP Paribas Securities - Analyst : And any insight on the customer adoption? How many customers have signed up for that? How many transactions are happening or how many accelerators you have run on that?

Question: Kumar Rakesh - BNP Paribas Securities - Analyst : Got it. My second question was on -- during the press conference, you did talk about the small language model for industry-specific use cases and the data that you are working on. My understanding is that at least the bigger models that we look around are either for consumer space or for enterprise generally for more of generate use cases, not for industry-specific use cases. This could be a wide space from the product perspective. How do you want to position this in the end market? Would it still be just an accelerator built on top of what the other tools are there? Or you would want to eventually look at this as a set product as well?

Question: Kumar Rakesh - BNP Paribas Securities - Analyst : Okay. So this will also work as an accelerator in deployment of AI applications. Is that fair?

Question: Rishi Jhunjhunwala - IIFL Institutional Equities - Analyst : Just one question. So you -- your growth in this quarter as well as last quarter has been fairly broad-based across verticals. There has been the commentary that you've given also suggests that discretionary is seeing some sort of pickup in some verticals. But the guidance that you've provided for the second half effectively means that there is a considerable slowdown in the overall growth momentum. Now I understand there is some bit of seasonality that comes through. But given the nature of broad-based growth that you've delivered for two consecutive quarters at the midpoint of the guidance not having growth seems to be a little bit counterintuitive versus what you have commented on the demand environment. So I just wanted to understand how you're thinking about it.

Question: Rishi Jhunjhunwala - IIFL Institutional Equities - Analyst : Got it. And just very quickly, given where your utilization levels are right now, is it fair to assume that going forward, the hiring trends will largely reflect how you end up growing on revenues as well since a lot of the moderation on utilization is probably behind us?

Question: James Friedman - Susquehanna Financial Group - Analyst : Congratulations on the continued improvement. But a number of the questions you're getting there about what your assumptions are about the seasonality of the year. I know you said in your previous -- [past years] that the year is typically super seasonal in the first half. In terms of what you're contemplating for the second half, what -- if you could share maybe what your assumptions are on, say, the cost takeout narrative versus the discretionary narrative. Is that rate of change changing? And maybe some color on the verticals because I see it's great to have the two consecutive quarters in banking, but the retail was a little bit more volatile than expected. So any comments on the typical super seasonality and why this year looks a little heavier?

Question: Abhishek Kumar - JM Financial Ltd - Analyst : I wanted to double click on the nature of the --?

Question: Abhishek Kumar - JM Financial Ltd - Analyst : Yeah. Hi. I hope this is better.

Question: Abhishek Kumar - JM Financial Ltd - Analyst : Yeah. So I just wanted to double click on the nature of smaller deals. You had mentioned in the prepared remarks that discretionary spend is restricted to certain subsegments of financial services. So in that context, are these smaller deals mostly in those subsectors or these deals are also nondiscretionary, essentially, smaller POs that the client is releasing against a large lump-sum contract? That's my first question.

Question: Abhishek Kumar - JM Financial Ltd - Analyst : All right. So okay. Second question is on wage hike. Could you quantify the impact that we should bake in from wage hikes in 4Q and in 1Q of next year?

Question: Keith Bachman - BMO Capital Markets - Analyst : I wanted to ask two questions, if I could. The first is for the annual guidance, what is the embedded expectations for the inorganic contributions for the year?

Question: Keith Bachman - BMO Capital Markets - Analyst : Okay. Perfect. And my second question is it is interesting what you said about discretionary spend coming back in the smaller deals contributing to TCV growth. I just wanted to get your perspective on why you think there was a change in this category. And the reason I ask is, as you said, these deals -- all deals can be lumpy. And so I'm trying to understand what do you think the durability is of the pipeline increasing in the small category? Do you think it's sustainable at this point or durable as we look out over the next number of quarters? And that's it for me.

Question: Keith Bachman - BMO Capital Markets - Analyst : Okay. But no -- that is the category that I was interested in is the smaller deals. But no comments on whether you think it's durable or not, whether it stays in place. Okay. But any -- was there any commonality in the type of deals in there? I know you said it was across the industry verticals. So I heard that. But any commonality in the type of deals within that smaller category?

Question: Prashant Kothari - Pictet Asset Management - Analyst : My question is around like the new deal wins. This was a bit of a soft quarter, but that is okay. I'm more kind of concerned about the input on that, which is when I look at the sales and support employees, that's gone down by 9% YoY. Can you just explain what is happening? Is it more on sales or on support side and whether [this being] such a large reduction because I think that you still need to keep engagement with your customers high so that as and when the discretion demand picks up, then next we'll start getting projects also. So how do you kind of think about that versus, obviously, the short-term kind of margin management, which might have been the right time to do reduction on the employee side?

Question: Prashant Kothari - Pictet Asset Management - Analyst : So this is more of a temporary blip, is it? Like the number of sales people will actually increase in the coming quarters.

Question: Manik Taneja - Axis Capital - Analyst : Question with regards to segmental margin performance. If you could help us understand the factors that have driven the sharp decline in margins in verticals like energy utilities as well as other segment and the improvement that we've seen on the manufacturing side.

Question: Manik Taneja - Axis Capital - Analyst : And the last one was with regards to wage hikes where you suggested that they will be effective across to period starting January 1. Could we get to a sense -- could we get some sense on the quantum of these hikes, the likely impact in Q4 and how should -- how is that split up across the workforce between January and April?

Question: Sandeep Shah - Equirus Securities Pvt Ltd - Analyst : Congrats on a good execution. Most of my questions have been answered. Just wanted to understand how to lead this double-digit increase in a smaller deal below $50 million. Is it first broad-based across verticals?And can it -- if it continues as a trend, can it be a precursor of a better demand in the calendar year 2025? Why I'm asking this is one of the reasons for Infosys' better performance in FY22 and FY23 being a lot many conversion of deals, which were below $50 million in terms of faster conversion to revenue.

Question: Sandeep Shah - Equirus Securities Pvt Ltd - Analyst : Okay. And is it broad-based across verticals and markets? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2024 / 12:30PM, INFY.NS - Q2 2025 Infosys Ltd Earnings Call

Question: Girish Pai - BOB Capital Markets - Analyst : My first question is regarding mega deals. Across the industry, even when I look at the peers, you've not seen any mega deals being signed. So are there similar number of mega deals in the pipeline compared to 2023? Or have the mega deal number kind of come down? That's my first question.

Question: Girish Pai - BOB Capital Markets - Analyst : Okay. My second and third question. Second question, TCV to revenue conversion, has that changed versus what it was in the previous quarter or six months back? That's question number two. Question number three is, you talked about value-based pricing being one of the key levers in Project Maximus. Can you just give us some examples as to how this is being practiced right now?