Infosys Ltd Q4 2025 Earnings Call Transcript

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

Question: Ankur Rudra - JPMorgan - Analyst : On the fourth quarter, can you talk a bit about --

Question: Ankur Rudra - JPMorgan - Analyst : Okay. So question was in terms of the fourth quarter, can you talk a bit about linearity? Did the softness or the relative miss to guidance pay out only in March? Or was there something you saw over the course of the quarter?

Question: Ankur Rudra - JPMorgan - Analyst : I appreciate it totally. I was curious if that played out more in March or exactly over the course of the entire quarter.

Question: Ankur Rudra - JPMorgan - Analyst : Okay. Understood. If I talk a bit about the seems to imply something like 0.8% to 1.9% as for the last year. Could you highlight that this will be a normal seasonality? Or is it going to be different given the high uncertainty you might be seeing right now?

Question: Ankur Rudra - JPMorgan - Analyst : The guidance, does it imply a normal seasonality for the year?

Question: Ankur Rudra - JPMorgan - Analyst : Okay. Understood. Just the last question. In terms of -- you spoke a lot about the AI-led transformation that clients are expecting from you. Are you infusing AI into existing projects that might lead to any revenue deflation which you have to overcome?

Question: Kumar Rakesh - BNP Paribas Exane - Analyst : My first question was you spoke about that the third-party slip towards the end of the quarter. So how has the volume trend during the quarter? And does that imply that as they come back in the next quarter in the guidance you are expecting the third-party contribution to be higher in FY26?

Question: Kumar Rakesh - BNP Paribas Exane - Analyst : And volume trend during the quarter?

Question: Kumar Rakesh - BNP Paribas Exane - Analyst : Okay. My second question was from a longer-term perspective over the last two, three years, we have seen all the fraud which was created in many of the deals with very low ROIs being signed. They were reassessed by the clients. And many of them were ramped down, and we saw the impact of that in terms of revenue growth. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 17, 2025 / 12:00PM, INFY.NS - Q4 2025 Infosys Ltd Earnings Call Do you see there is still some scope left if times start reassessing the projects again if the macroeconomic uncertainty continues for a little longer, there is more of reassessment of the projects, which may again start happening the way we have seen over the last year or two?

Question: Kumar Rakesh - BNP Paribas Exane - Analyst : Just a clarification. So my question was more around that ROI is now that we are offering in terms of the lease which we are doing for the client. Now has it on a portfolio level, has it improved so that we are no longer in a risk if such a reassessment happens? Or do you still see that there are some of the projects, which is at risk, which could be reassessed?

Question: Abhishek Pathak - Motilal Oswal Securities Ltd. - Analyst : So my first question was, could you please just expand a bit on the underlying assumptions and the top end of our guidance? Do we assume an acceleration in deal wins for this to be achieved? Or do you think a better-than-expected ramp-ups could probably take us to 2%, 3%? That's one. And the second question was, which I think is probably partly answered. But considering a few of your peers have called out some deferrals or at least some uncertainty in decision-making. How does the next immediate quarter look in terms of, let's say, deferrals or ramp-downs? And do you see any significant risk in the extreme short term? And lastly, do the current events push down the recovery in short cycle deals a bit more? And do you feel short cycle deals are, again, something that will struggle to take off?

Question: Abhishek Pathak - Motilal Oswal Securities Ltd. - Analyst : Got it. I think just the last thing on short cycle deals, if you could just clarify that.

Question: Abhishek Pathak - Motilal Oswal Securities Ltd. - Analyst : Yes, sorry. No, just the last bit on the retake impact for Q1 and how do we just model that in time?

Question: Gaurav Rateria - Morgan Stanley - Analyst : My first question is on small --

Question: Gaurav Rateria - Morgan Stanley - Analyst : My first question is on small deal environment. Have you seen any change compared to a few months back? And is it fair to believe that the midpoint of guide assumes a stability in the environment on the small deal front? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 17, 2025 / 12:00PM, INFY.NS - Q4 2025 Infosys Ltd Earnings Call

Question: Gaurav Rateria - Morgan Stanley - Analyst : Okay. Got it. Second question is on margins for FY26. Normally, what we have always been hearing is that when growth improves, it creates an operating leverage and provides a cushion to improve margins. But if I take the midpoint of your guide it is slowing compared to FY25. So is it fair to believe that creates some operating deleverage and create some pressure on margin? So what would be the levers to offset that and still be stay within the band within FY25 range?

Question: Jonathan Lee - Guggenheim Securities LLC - Analyst : First question, can you clarify what the inorganic contribution is that's contemplating your outlook for fiscal '26?

Question: Jonathan Lee - Guggenheim Securities LLC - Analyst : Thanks for that clarification. Second, how would you characterize the pricing environment through the quarter? And how does that compare to what you've seen since the beginning of this fiscal year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 17, 2025 / 12:00PM, INFY.NS - Q4 2025 Infosys Ltd Earnings Call

Question: Keith Bachman - BMO Capital Markets - Analyst : I wanted to return to on the delivery side? Or -- and really, I wanted to go back to the first question, which I wasn't sure I understood your answer. But how is AI changing the nature of pricing discussions and/or structure as of late? And how do you think that's going to unfold in FY 2026? In other words, does it does the deflationary nature of AI? Is that impacting our performance-based contracts or any structure that you're putting in the contract? And is it leading to any different price discussions? And if you could also call out, is there an area whether it's BPO or deployment or ADM, that's being -- that you see using AI more in the delivery? Or is it all the different areas? Is there any one area specifically within your portfolio or solution portfolio that you think will be impacted more by delivery?

Question: Keith Bachman - BMO Capital Markets - Analyst : Okay. But just when -- and for my follow-up, when you mentioned there are some situations where AI is generating 20% to 40% efficiency gains. And I think that's similar to what IBM and Accenture have said, on a like-for-like pricing in that situation where you can deliver such meaningful efficiency gains to the client, how is that -- how are those efficiency gains shared with with the customer? In other words, is your -- your revenues go down by 20%, 40%? Or how is that shared in terms of just on a like-for-like basis for a given contract? And that's it for me.

Question: Surendra Goyal - Citi - Analyst : Salil, Jay, just one question. You have been calling out improvement in discretionary spending through the course of FY25. What did you see in the month of March and April so far? And apologies if you have already answered this question before.

Question: Abhishek Kumar - JM Financial Institutional Securities Limited - Analyst : I have a question on cost of third-party items. First is, when we say, some of the booking of the third-party item got spilled over. Does that mean that it will come back in Q1 and that will help Q1 revenue? And a related question is, is the visibility getting into Q1, similar to what we have seen maybe Q1 of last year, better, worse, any color on that?

Question: Abhishek Kumar - JM Financial Institutional Securities Limited - Analyst : Yes. So I mean we said that some of the weakness in Q4 was because some third-party item got spilled over. So is that just a deferral and it will come back in Q1? Or that is something that we have lost?

Question: Abhishek Kumar - JM Financial Institutional Securities Limited - Analyst : Okay. And maybe in that context, visibility overall for Q1, given we are in the midst of the uncertain macro, how are we looking at Q1 compared to previous years?

Question: Abhishek Kumar - JM Financial Institutional Securities Limited - Analyst : So one quick question on margin. Two-thirds of 3.5% decline coming from third-party, but the margin uplift because of that has been very limited, right around 30 basis points. So I was just trying to reconcile why the margin uplift is so low?

Question: Sandeep Shah - Equirus Securities - Analyst : Sir, just wanted to understand in this uncertain macro environment, if discretionary spend is difficult to predict whether -- but at the same time, clients may not postpone their AI-related investment. So is it fair to assume client may start in terms of going -- doubling down on the outsourcing cost takeout deals? Whether same is coming into your discussion? And is it fair to assume that the deal pipeline could improve on the cost takeout and the mega deals could be a part of the deal wins entering FY26 as well?

Question: Sandeep Shah - Equirus Securities - Analyst : Okay. And Jayesh or Salil, whoever can answer this, whether it's fair to assume the seasonality of 1H better than 2H may continue even in FY26? What are your guidance assumptions for the same?

Question: Sandeep Shah - Equirus Securities - Analyst : Okay. And just last bookkeeping question. In terms of your margin work, you have said the M&A-related cost being 40 bps as a headwind to the margin. Is it one-off and may not reoccur in the first quarter of the coming financial year? And if I assume both acquisition being closed at the end of 1Q and maybe consolidated for nine months, is it fair to assume it will add 40, 50 bps to the revenue growth?

Question: Sandeep Shah - Equirus Securities - Analyst : The M&A.

Question: Vibhor Singhal - Nuvama Group - Analyst : Just two quick questions from my side. One is traditionally, especially over the last few years, we have seen an editing for us in terms of growth and the second half gets marred by the industry season being 2.3 and our own season being 2.4. This year, do you see -- I mean I know this is part of the question But in this year, I think a lot of our peers fallen down on something in the past quarter, which also led to one of their peers going through a very weak quarter, Q1, yesterday itself. Do you see that impacting the entry growth rate of products this year, which would probably lead to at least slightly lower or, let's say, a skewed trajectory of the on that we have seen over the past two years?

Question: Vibhor Singhal - Nuvama Group - Analyst : I hope I'm audible this time. Sorry, I got dropped in between. So my question was basically on the growth trajectory that we're expecting. For the last two years of our growth has been pretty much first half heavy and seasonality of industry and ROCEs have been coming in Q3 and Q4. This time, a lot of our peers have called out weakness in Q1, especially because of the uncertain macro. So do you believe that could impact the growth trajectory that we see through the year, it could be more skewed towards Q2 and Q3 or maybe the second half, and the first half might not be as good as we have seen it over the past couple of years. Just some light on that will be really great.

Question: Vibhor Singhal - Nuvama Group - Analyst : Right. Right. Got it. So okay, let me just ask maybe just a follow-up on that. Are you expecting any, let's say, unexpected -- I mean, extra weakness in Q1 because of the uncertain macro at this point of time?

Question: Vibhor Singhal - Nuvama Group - Analyst : I was just trying my luck. Lastly, on the margin front, where do we stand on the project Maximus benefit? Do you believe there's still some fruits to be plucked from that? Or are we mostly done with that project?

Question: Manik Taneja - Axis Capital Limited - Analyst : You made a remark regarding the fact that we should probably be expecting some decline in the cost of pass-through revenues in FY26. We basically see a very steady increase from this line item increasing from about 2% of revenues to about close to 8% of revenues in FY25. Is there anything on the ground which is changing because of this envisage? Or lower -- this number essentially being a drag on revenue growth? And how should we be thinking about this number playing out over the next three, four years?

Question: Manik Taneja - Axis Capital Limited - Analyst : Do we start this going back to possibly where it used to be FY21?

Question: Ashwin Mehta - Ambit Capital Pvt Ltd - Analyst : Jayesh, one clarification, in our cost of sales line, we have almost INR145 crore negative number for consultancy and professional charges. Haven't seen a negative number ever there. So what is driving this?

Question: Ashwin Mehta - Ambit Capital Pvt Ltd - Analyst : And I had a follow-up in terms of the provision of support as well the reversal seems to be pretty high. So is that also related to this as well?

Question: Girish Pai - BOB Capital Markets Ltd. - Analyst : Sir, are there any silver linings to the current macroeconomic situation around tariffs. Are you having any conversations with clients around the supply chain solutions or anything like that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 17, 2025 / 12:00PM, INFY.NS - Q4 2025 Infosys Ltd Earnings Call

Question: Girish Pai - BOB Capital Markets Ltd. - Analyst : Okay. My second and last question has to do with AI and budgets around AI. Do you have a -- clients have a separate budget for GenAI or AI? Or is it coming from savings that you're doing on normal projects?