Infosys Ltd Q3 2025 Earnings Call Transcript

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

Question: Ankur Rudra - JPMorgan Chase & Co. - Analyst : Thank you. And I spent, -- Can you comment a bit about if there were any onetime items in your revenues or margins this time? I do notice that your third party costs moved up quite a bit perhaps ahead of revenue growth and also volume growth was quite soft. So if you can talk a bit about how you think about volume growth into fiscal '26 I know you mentioned you think that that will be better than last year and if there's any impact of AI impact in the volume of work. Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 1:00PM, INFY.NS - Q3 2025 Infosys Ltd Earnings Call

Question: Ankur Rudra - JPMorgan Chase & Co. - Analyst : Appreciate the colleges. If you could talk a bit about the guide. Now the guide increase is positive, but if you look at the implied number for Q4 implies a negative number. Is this primarily due to seasonality or also partly from the third party sales led business which might shrink which you make into the guide this time?

Question: Ankur Rudra - JPMorgan Chase & Co. - Analyst : Appreciate it. This last question. You mentioned a lot about, small language modeling agentic AI, can you talk a bit about how on a structured basis, this might impact the volumes of your work, the needs of productivity passed back. And if this will be net additive or diluted to the amount of work Infosys can do for its clients.

Question: Ankur Rudra - JPMorgan Chase & Co. - Analyst : Thank you. And would you classify this nature of work? Salil, under cost oriented efficiency, oriented work or is this more discretionary oriented work?

Question: Ankur Rudra - JPMorgan Chase & Co. - Analyst : Okay, I appreciate it. Thank you.

Question: Yogesh Aggarwal - HSBC Securities - Analyst : Hi. Just have one question the third party items, the past two revenues. Jayesh, you talked about seasonality, which is for the fourth quarter. But in general, if you step back, will this line item continue to grow with the top-line or is there a limit like one can expect like around 9%, 10% it will settle down? Or this is a new reality that for every new deal you work, the pass through revenue will grow in-line with the overall revenues?

Question: Yogesh Aggarwal - HSBC Securities - Analyst : Got it. Thanks.

Question: Bryan Bergin - Bryan Bergin - Analyst : Hi. Thank you for taking the question. I wanted to start on pricing. So I think you mentioned a 3.6%, nine month realization tailwind and very solid. I'm just curious how you think that progresses from here as you pursue this value based pricing strategy and what is a reasonable level of potential pricing impact you'd expect going forward? And then just more broadly, can you comment on the competitive pricing situations in the market?

Question: Bryan Bergin - Bryan Bergin - Analyst : Okay. And then on utilization, remains modestly above your normalized range around 86% [trainees]. Can you comment? Is it, is this a new normal? Will this move lower as hiring continues? Where do you see that progressing?

Question: Rishi Jhunjhunwala - IIFL Institutional Equities - Analyst : Yeah, thanks for the opportunity. I'm --, I had dropped for a minute. So in case I'm repeating the question, just wanted to understand, the growth in top five clients, right? So it has declined pretty sharply in this quarter down more than 6% Q-o-Q in dollar terms. And even on a year-on-year basis, there hasn't been much growth. So just trying to understand what exactly is happening there?

Question: Rishi Jhunjhunwala - IIFL Institutional Equities - Analyst : Okay. And just secondly, clearly last year, we had a pretty big year in terms of overall deal wins almost $17.6 billion. This year, currently, we are analyzing it around [12]. I just wanted to understand, in terms of proportion of revenues that comes through, -- comes by a pass through, has that changed in the amount of deals that we have won in totality this year versus last year.

Question: Rishi Jhunjhunwala - IIFL Institutional Equities - Analyst : Okay. Thank you so much.

Question: Jonathan Lee - Guggenheim Partners - Analyst : Great, Happy New Year. Thanks for taking our questions. Last quarter, you called out improvement in your smaller deal pipeline, but it doesn't sound like that continued into this quarter. What do you think is driving that difference? Particularly given some of the improvement you called out in discretionary demand.

Question: Jonathan Lee - Guggenheim Partners - Analyst : Appreciate that color. On the European BFI front. Can you help us unpack some of the strength you called out there? What is it that you're seeing in your conversations there and how durable is that strength? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 1:00PM, INFY.NS - Q3 2025 Infosys Ltd Earnings Call

Question: Jonathan Lee - Guggenheim Partners - Analyst : Appreciate it. Thanks for that level of detail.

Question: Surendra Goyal Participant - Citigroup Global Markets - Analyst : Yeah, hi, good evening. One of the industry players called out AI driven productivity pass back to a large client of theirs. Have you seen any such instances in any of your large clients?

Question: Surendra Goyal Participant - Citigroup Global Markets - Analyst : Okay. Maybe I'll ask the question more specifically, the top five client performance has that been impacted by any such productivity passthrough?

Question: Surendra Goyal Participant - Citigroup Global Markets - Analyst : Sure. Thanks a lot.

Question: Vibhor Singhal - Nuvama Institutional Equities - Analyst : Yeah, hi. Thanks for taking my question. Mike, I have a couple of questions. So the first question is on the expected growth rate for Q4, which as for the guidance comes in the negative territory, now you need a little bit to the point that it's only from the seasonality. So should we assume that this is the reality (inaudible) for the overall business that we have at this point of time, in general Q4 is going to be sharply lower than what the Q3 does, despite the fact that Q3 itself would be lower because of the (inaudible) and the decision that we see that. And then I have a follow up question.

Question: Vibhor Singhal - Nuvama Institutional Equities - Analyst : Got it. But the third party revenue will also have the seasonality of maybe picking out in Q3, and then maybe tempering down the following quarters is that also pay to believe.

Question: Vibhor Singhal - Nuvama Institutional Equities - Analyst : Got it. Just one last question is on the retail vertical. I'm -- if I missed out in the opening part. I mean, what is the outlook in that vertical overall that we see? I mean, we've alluded to the things we spend picking up here. I think a couple of the competitors also have had the basically the vertical watering out how is this vertical playing out for us and our outlook for this incoming quarters?

Question: Vibhor Singhal - Nuvama Institutional Equities - Analyst : And the green pipeline is vertical (inaudible). REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 1:00PM, INFY.NS - Q3 2025 Infosys Ltd Earnings Call

Question: Vibhor Singhal - Nuvama Institutional Equities - Analyst : Got it. Thank you so much for taking my question, and I wish you all the best.

Question: Ashwin Mehta - Ambit Capital - Analyst : Yeah, hi. Thanks for the opportunity. I just want to check in terms of the impact of the wage hikes. Will it be a full impact next quarter or will it be staggered? And what is the margin impact that you see of wage hikes?

Question: Ashwin Mehta - Ambit Capital - Analyst : Okay, thanks. And just one follow up to an earlier question, you indicated that the top five client decline was largely furloughed. So ideally, this should recover in the next quarter itself, right?

Question: Ashwin Mehta - Ambit Capital - Analyst : Okay. So the decline is beyond is much higher than because you had almost a 1% drag because of these top five clients. And in terms of our guidance, there's a decent enough decline built in. So essentially the decline is much more than -- more and more is the understanding.

Question: Ashwin Mehta - Ambit Capital - Analyst : Okay. Thank you. Thanks for the clarification.

Question: James Friedman - Susquehanna Financial Group - Analyst : Hi. Good evening. Nice presentation. So how are you characterizing linearity, -- the linearity narrative now because I see you're taking up the head count which seems quite constructive. I was wondering the automation impact contemplation relative to linearity.

Question: James Friedman - Susquehanna Financial Group - Analyst : Thank you. And a separate question with regard to the net new number which was quite robust. Does the net new reflect either the similar like vertical operating group or service lines as the current base of business or is there something that is like net-net new going on in the new bookings?

Question: James Friedman - Susquehanna Financial Group - Analyst : Perfect. Thank you. I'll drop back in the queue.

Question: Sandeep Shah - Equirus Securities Pvt Ltd - Analyst : Yeah, thanks for the opportunity. Salil, just the first question. When we entered FY25 we had a lot of support of the large deals which have ramped up in the first nine months of FY25. With those largely into the rampant stage and might fall into study state. Do you believe FY26, we may have to worry or do you believe FY26, as some of the industry peers are calling out better than FY25. So do you believe that for the industry, FY26 could be better than FY25.

Question: Sandeep Shah - Equirus Securities Pvt Ltd - Analyst : Okay. Just other questions, any color in terms of deal pipeline below $50 million which has grown 10% Q-on-Q in the 2Q, any update on the same. Second, in terms of margin, Jayesh, do you believe the likely reversal in the third party could be enough to offset the wage hike impact in the third quarter? And also in terms of the recruitment which we have done in this quarter? Can you throw color, is it more pressure driven or is it more lateral driven?

Question: Sandeep Shah - Equirus Securities Pvt Ltd - Analyst : And the last question on recruitment?

Question: Sandeep Shah - Equirus Securities Pvt Ltd - Analyst : Okay. Thanks and all the best.

Question: Sumeet Jain - CSLA - Analyst : Yeah, hi. Thanks for the opportunity. If I recall correctly last quarter, you mentioned that sub $20 million deals had a very strong pipeline. So can you just comment, did you actually see the positive impact of that in 3Q? And how does that deal pipeline look like at this stage?

Question: Sumeet Jain - CSLA - Analyst : All right, got it. That's helpful. And secondly, in terms of -- actually, I forgot my second question. Maybe I will come back to with the -- in the queue.

Question: Keith Bachman - BMO Capital Markets - Analyst : Hi, thank you very much. My question is on cost to serve your clients. And what I mean by that is, how is AI changing your cost to serve today? And I'm not talking about AI deals, I'm talking about the broader or questioning the broader portfolio. And how do you envision that changing say a year from now.

Question: Keith Bachman - BMO Capital Markets - Analyst : Okay. Well, let me ask my follow up related to that you call out SAP as being a strong area for you. And I think it's candidly strong for a number of different vendors or suppliers. Presumably, Gen-AI will help with deployments over time because there's a notion of software development as the SAP/ECC customers migrate to the Cloud. And so as that develops into a more robust capabilities or emphasis, how does that change your pricing to the customers? Say a year from now for deployment of SAP work? Because if you're getting a benefit, presumably as you, the customers will want to share in that benefit. So how do you think it, is it a source of deflation for you or how do you think that unfolds particularly from the software development side?

Question: Keith Bachman - BMO Capital Markets - Analyst : Okay, I will see the floor. Thank you.

Question: Sumeet Jain - CSLA - Analyst : Yeah, hi. Thanks for the opportunity again. My second question is actually around the retail vertical growth sustainability. I think last entire year we mentioned that because of high interest rates and inflationary environment in the US, this vertical had a pretty subdued growth. So we saw pretty strong sequential growth here. How do you see the sustainability of growth in FY25 and post the US election outcome? Do you see any client sentiments changing particularly in this vertical? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 1:00PM, INFY.NS - Q3 2025 Infosys Ltd Earnings Call

Question: Sumeet Jain - CSLA - Analyst : And secondly, in terms of the Gen-AI rollout, are you seeing any specific verticals where the impact is slightly higher in terms of volume gains or increase in pricing.

Question: Sumeet Jain - CSLA - Analyst : Got it. That's helpful. Salil and lastly just want to understand the 3.6% Y-o-Y increase in pricing you mentioned in the first nine months, what has been the primary factor behind that very strong increase in pricing?

Question: Sumeet Jain - CSLA - Analyst : All right, that's helpful. So that's all I had. Thanks for the opportunity again and all the best.

Question: Abhinav Ganeshan - SBI Pension Funds - Analyst : Hello. Thank you for the opportunity and congratulations on a great set of numbers. I just wanted some more clarity, on this third party software packages which are present to around 9.5% of revenue for the current quarter. I think you in your comments, you alluded to retail vertical, taking up some of that. If you can give some more color. Is there anymore, -- are there any more verticals you would like to call out and also geographies?

Question: Abhinav Ganeshan - SBI Pension Funds - Analyst : Okay. Just -- follow up on this, but I just wanted to understand if you can give a broader color. Now, if you looked at it, in the recent last two years, if you look at it, our cost takeout deals have gone up compared to the discretion, now discretion are returning. So this number has trended up from around 6% to 9.5%. So once discretionary comes back, do you feel that this will kind of stabilize and maybe then trend down later? If you can comment on that?

Question: Abhinav Ganeshan - SBI Pension Funds - Analyst : Got it. So I appreciate the same. One last question from my side. If I look at the utilization, it's around 86%. So what would be your comfort zone going forward at least for the next quarter and the next year? And how would we get there? If you can give some color. (technical difficulty) -- Yeah, just wanted to get a clarity on utilization is touching 86%. So can you just give some more color on how this will go? This will -- how this will pan out going forward? (technical difficulty) So I just wanted to understand some color on utilization if you can give that. That's it. Thanks.

Question: Abhinav Ganeshan - SBI Pension Funds - Analyst : Hello, I hope I'm audible. Yeah, I just wanted one last question. Now, your utilization has reached around 86%. So I just wanted to understand what a comfort zone for the coming quarter in the coming year would be and how will we get there. So you can give some color? Thanks.

Question: Abhinav Ganeshan - SBI Pension Funds - Analyst : I appreciate the color. That's all from my side. Thank you and all the best.