A very good evening everyone and thank you for joining Infosys's first quarter financial results. My name is Rishi and on behalf of Infosys, I'd like to welcome all of you today. I would first like to invite our chairman Mr. Nandan Nilkani and our chief executive officer Mr. Salil Parik for an important announcement which will then be followed by our business updates. Kindly note Nandan will not be taking any questions. Sir, over to you.
Thank you Rishi and it's great to be here with all of you and I thought I would take this opportunity to make an important announcement. As you know, Salil has been the CEO of Infosys for almost 10 years. He came, I don't know how many of you were there 10 years back, but he came at a time when things were slightly unstable and he brought in calmness, focus, took the company from 10 billion to 20 billion, completely did the transformation for the digital era and has started the AI differentiation and transformation. But Salil's term comes to an end on March 31st, 2027 and Infosys has been looking at his succession and today I'm delighted to tell you that the board has appointed his successor, a new CEO who will take over on April 1st, 2027. He's from Infosys. He's been somebody who is a true blue Infosysian. He has worked in Infosys for 31 years. He's worked in every part of Infosys be it in delivery, be it in sales, be it in account management, starting a new DC in Bhubaneswar, everything. And he's someone who I think everybody likes, respects. He's an uncomplicated guy who focuses on what needs to be done. His name is Ashish Dash.
So Ashish is based out of LA. He's been there for some time. He will move back to India and he will in the next two three months he will get some CEO coaching or whatever and then from October 1st Salil will take him on as his mentee and prepare him for the role so that he can take on this role of managing a complex 20 billion company in a very transformational time. So I just wanted to let you know that Ashish will be the new CEO and I'd now like to request Salil to say a few words about Ashish.
Thanks Nandan. So first welcome everyone. This is an incredible time for us as Nandan shared. I've known Dash for a very long time working closely with him. A huge congratulations to him and in making sure everything he does works well into the future. He's had an amazing portfolio the way he's built it, the way he's crafted it in terms of the clients he's worked with, in terms of the people he's worked with and there's a tremendous set of opportunities from that onto the overall company, the learnings from that as we apply to the overall company. Ashish Dash also a very collaborative individual working well with all of the various components within Infosys and having been here for a long time has made sure he's learned everything and also understood how all different parts of the company work. So huge huge congratulations to him and looking forward to working with him as we do the transition over the next few months.
I now invite Jes to join Salil on stage to commence the quarter updates. As always for this section, I will request one question from each media house. But with that, let me invite Salil for his remarks. Over to you, Salil.
Thanks Rishi and thanks Nandan for that. So good afternoon everyone. Thank you for being here. Our revenue growth for Q1 was at 2.4% year-on-year and 1% quarter-on-quarter in constant currency terms. We had a one-time revenue impact of a client decision during the quarter. Our AI services revenue was 8.2% of overall revenue in Q1. Our large deals $3.6 billion at 61% net new, operating margin at 21.1%, free cash flow at $955 million. Earnings per share were up 15% year-on-year in rupee terms. We saw strong acceleration in our AI work as I shared earlier with AI revenues at 8.2%. This is growing at double digit quarter on quarter for the last several quarters. With this momentum, we see long-term relevance of our services for our clients which are all driven through AI. From our delivery team, over 80,000 employees are working on coding tools such as Claw Code or Codex or several others for our clients for our work inside. We see strong traction across the six areas of growth. The new growth that we see in AI are hexagon for AI strategy. We see client work for example in building agents for processes, work on data modernization and using coding tools. We are building a team of frontier engineers to support our client work. Our plan is to have 6,000 frontier engineers over the next few years. We built a platform Topaz Fabric that enables our clients to get the benefits of AI while keeping the sovereignty of their own data within their company. Our clients are able to work with any foundation model closed open weight or on the cloud on their own servers. Clients are able to optimize token cost which has become very critical now to make sure it's appropriate for the type of work they're doing and not out of hand. Overall we continue to see the macro environment remaining uncertain. With our Q1 results and a view for the rest of the financial year we are changing our revenue growth guidance to 1.5% to 3% year-on-year growth in constant currency terms. Our operating margin guidance remains the same at 20% to 22% operating margin. Thank you and with that let's open it up for questions.
Thank you Salil. We will now open the floor for questions. The first question is from Ritu Singh from CNBC TV8.
Thank you very much. I know you've asked for one question but if I may, Salil, you've given us a big news in this quarter. To begin with, since you speak about how you've brought and Mr. Nilani spoke about how you brought in calmness at a time when the company was going through quite a bit, even now you're speaking of this global uncertainty because of which you've had to again pull down your guidance as well, why decide to leave at a time like now instead of perhaps looking at an extension? I wanted to understand and with the new CEO coming in, any mandate for the new CEO that you could highlight for us more clearly and perhaps that's something the investors would also want to know. And then on the earnings, of course, the reason for this revision down, if you could give us a little more color on what you're seeing in the environment, where's the weakness, where's momentum picking up. Some of your competitors like TechM have been talking about irrational competitive pricing. Wipro's also spoken about that a bit. So what are you seeing in the environment and with a 1% kind of growth in the first quarter, do we assume the second half will be meaningfully better if you're to reach that upper end of the 3% guidance you're speaking about? And just on AI if you could update us how the revenue is moving, is it proceeding as per your expectations? Any updates you could share on that front as well as far as revenue contribution from AI is concerned.
So let me start with the first one. I think you've had that question collectively for some time now. We have the answer. As I look at it, I'm really delighted with the role I've played here. We've taken the business as Nandan said from 10 billion to 20 billion. It's working very well. The digital transformation, now the AI transformation is launched. So I'm really delighted working well with our clients and with an incredible team that we have inside. So that's what I would like to say on the first one. On the second, I think what we are seeing is an environment where a little bit sort of combining the third piece as well. AI services is growing extremely well. Double-digit growth if you look at it like quarter on quarter. If you look at it over several quarters in the past, we see that those six areas that we have identified like the process, the agents, the data, the engineering, all of those are working extremely well with our clients. So we are now looking at revenue growth in each of those areas. Our pipeline is even larger than the 8% which is the revenue today. So we see good traction in that. Therefore, we feel there's a good long-term relevance of our services to our clients because this is going to continue to grow as we look out into the future. Now the question on the guidance, we had a one-time impact that I shared with a client decision. There are factors related to what is going on in the macro environment which we talked about. There are factors related to the volumes in the quarter. But we look at the large deal number $3.6 billion, 61% net new. So we see a lot of support in that. We see I think there are six of those deals which are consolidation deals that we have been the beneficiary in as an example. There are four deals which are just under the $500 million range just like a mega deal. So we see really good traction. The pipeline there is looking good. So when we balance, we decided to look at our guidance in a different way. The upper end of the guidance was really based on if the macro was improving. We now see the macro it may improve but not at the level that we were thinking initially and so that's how we really constructed the guidance. But we have tremendous view that this is a good place for Infosys to operate with AI the way it's looking and all of the work that we're doing on large deals gives us continued traction.
Question, why didn't the mandate, you know, better? Could clarify all of those points.
So there, I think as I shared earlier, my sense is we've had a tremendous, I've been fortunate to have a tremendous opportunity and what we've done at Infosys over the last many years and having taken the business from about 10 billion to 20 billion. So it's been an incredible journey. And that with the team we have and with the client work we've done, that's been a fantastic outcome. On the mandate, I think our AI strategy is well put together and Dash has been part of that. So our thinking is that strategy we want to execute on. Of course there will be some things which we will look at in terms of fine-tuning but that's a natural course of evolution. But the strategy is very well in place to make sure that goes into the next phase, making sure the partnerships we have with the various models, the Topaz Fabric that we built today on AI, it's important that clients see that their own data remains sovereign to them and the way we built fabric it allows for the clients to do that no matter which model they're using. And so that's a very big differentiator we have. For example in AI, the token cost will be an important factor we think in the future and we have built fabric in a way that depending on the task you are using the foundation model for, it will use the right model so you don't have to pay for the most simple tasks like an expensive token cost and so on. So we think we're in good position in that. In terms of second half, first half, I think we have the guidance for the full year. We expect the normal seasonality that will come. We're not expecting anything unusual there.
Competitive pricing in the market that some of your peers have spoken about.
Yeah. So maybe they are seeing that. You should check with them.
Thanks. Thanks Ru. The next question is from Rishab Shaw from money control.
Salil, if you could tell us your biggest achievement and what will you miss the most and what's next coming for you? On the performance, quarterly performance, how has been the TCV conversion because that's a worry that investors have. And the second and the third question is two of your peers have highlighted that AI revenue is slightly lumpy and it could be one or two quarters post rich you'll have to go and get those deals again. So is that something that Infosys is also seeing? Thank you.
Let me start with the second one. I'll come back to the first. The TCV conversion we see pretty good way of converting. Now what tends to happen is like when you have a consolidation deal the conversion comes a little bit quicker. When you have a transformation deal it's a little bit more spread out. But that's the normal sort of conversion we see. We don't see that it's suddenly changed like in the last quarter or couple of quarters. On the AI revenue, I think it's moving so quickly that it is a bit up and down on a quarter by quarter basis. So our thought is that's why we're saying look at over the last several quarters we see that double digit type of growth quarter on quarter and we will see sometimes it could be a little bit faster but it's growing nonetheless. Meaning if you look at the secular trend we see that is pretty strong and that gives us a little bit of the view that long-term there's a relevance of what we are doing on AI for the clients. For me, I think I'm very focused on what we have to do here at Infosys. We have a lot of things to get done. I want to make sure we remain in the leadership position. We win in the market. We are leading in AI and I get a smooth transition done. So that's really my focus and after that I'll see what else happens.
Thanks Rishab. The next question is from Mani Dway from ET now.
Hello. Good afternoon Sal and Jes, nice talking to you Sal. My questions are on client spending, large deals and competitive positioning. So talking about the client spending, client budgets remain selective across industries. Have you started seeing any improvement in discretionary technology spending or are enterprises still prioritizing cost optimization over transformation? Talking about the large deals, Infosys has maintained a healthy large deal pipeline. So how confident are you that these deals will convert into faster revenue growth? Also, every global IT company today is talking about AI. What would you say is Infosys's biggest competitive advantage in this AI technology cycle? And please start with this one. Which moment during your tenure best reflects the values and culture of Infosys? Thank you.
Okay, there was a few. So I'll start with the first was a conversion of the TCV discussion. I think we see that the large deals we see a good traction of those. The values over the last few quarters have been strong. This quarter was pretty good. We see the pipeline to be pretty good on the large deals and we feel there's a benefit of the consolidation that we are seeing in some of the large deals which is definitely helping us as we go through it. The conversion whether it's faster or slower it's more I think it's at the same type of a level and we will convert those into revenue. With 61% net new it already looks pretty strong in terms of the net new work which we'll see and obviously the renewals are going pretty okay as well. On AI, I think there's a huge differentiation that I find from what we are working on. First we have a very clear AI strategy with the six areas of focus. We are investing in it. We've actually taken and Jes has shared in the past he'll share also today that we've invested in building out AI capability. We have as I shared earlier 8% revenue growing double digit Q on Q over the last several quarters. We have a good pipeline in that area. Then you look at some of the stats. We have 80,000 people working on the tools today for client work. It's not just training and so on. Then what we built with Fabric I feel is very differentiated because it allows clients to maintain control of their data, maintain control of what they want to do with the AI and still use the different models, use lower cost. We have a harness through which they can leverage what they want to achieve with the foundation model. So that is a significant move up in terms of differentiation that we've seen. I think in terms of values, my sense has always been in Infosys is has incredible values and it's really been a privilege to be associated with that and learn from it and contribute to it. And so in many ways it's a great fortunate thing that could happen in the way that it has happened.
Thank you. The next question is from Shilpa Fadnes from the Times of India.
Sir, can you please give us some color on how your GCC portfolio is doing because some of your peers who are slightly late starters are catching up. They're already looking at a billion dollar in revenue run rate. So I just wanted to understand from you how it's doing, is there a milestone that you have touched and secondly there's also a concern with Vanguard and Daimler and a lot of other companies are chipping into the space, they're setting up their own GCCs. How much of that compression are you seeing in the market?
So GCC, in fact my sense is you might have seen we launched the AI GCC concept some time ago and that we had a client event a few months ago where all the leading GCCs of the country their leadership teams were here in Bangalore on our campus and we did a one-day session sharing with them what the latest developments were in overall and also in the AI GCC. So our traction on GCC is looking very strong. We don't externally share the milestone but our revenue growth is good. Our work with them is good. In the GCC there's always a life cycle. So there are some which are expanding well and there are some in the past where they have exited, we've sometimes participated in that and so on and that continues. But the overall GCC work both within the GCC and the work we are doing with them I think both are growing pretty nicely.
I had two questions sir. When do you think AI revenues will be material enough to offset productivity-led compression that customers are seeing in the market?
So I think my sense is the AI revenues are extremely significant at 8% already and if you look at the growth trajectory and if we execute on that well and the growth trajectory continues we can see now a long-term relevance of AI revenues to our clients from what we are doing. The productivity will also continue but I think it's both of those things because when we share our strategy and that hexagon, we had outlined like a $300 billion market opportunity addressable market. So that's all new revenue and also the productivity will happen but the significance I think already we can start to see and if I can just add, if you look at when we launched our hexagon in February of this year, our AI revenue for Q3 was 5.5% of our revenue. Today it's already at 8.2%. So it's already significant. It's growing at a very fast double digit over double digit growth right and at that pace it is already becoming a growth engine in a way. So that I will say it's becoming a long-term play.
This is not reclassification in any format, right?
Okay, okay. One last thing sir. On the status of hikes, Infosys has not called that out yet. So where are you on that? And secondly, also on frontier deployed engineers, there's a lot of talk in the tech ecosystem about this, but how difficult is it for a services company to sort of plug FDs into the existing workflows? There are several challenges that companies are facing.
Let me start with the second one. We'll come back to the first. On frontier engineers, we have now a very good plan which has been put in place some time ago to scale that up. We have a lot of capability within Infosys which are doing similar work. We are making sure that it works in the way that the frontier engineer needs to work with clients. Today we've set the objective of 6,000 to make sure that the teams can work with different clients to make the impact. We feel we have a good understanding of how that works because the capability is really the engineering plus the business context and that's something that Infosys was good at even before the AI wave of work had started and so we are making sure that that becomes very much part of the future. On the compensation increases, we will roll out our compensation increases in October and January in two parts and that's part of something internal that we have announced now.
Yeah. With most of the employees getting increase in October and the senior employees will get it in January.
Thanks Shilpa. The next question is from Avi Das from business standard.
Salil, good afternoon. Just three quick questions and one for Jes. You talked about how the macro perhaps hasn't improved over the last 3 months that you perhaps would have wanted to. Just wanted to understand which are some of those parts of the macro that led you to first increase it between 1 and a half to three and a half, now you cut it down to three. So which are some of those areas which did not really work according to your expectations? Number two is, would Infy ever, at least in the near future, would you want the company to move into the AI infrastructure business, data centers, something that HCL and TCS has already done? And the last question is, what would you classify, at least in your tenure, as the most challenging period? Was it the COVID or was it the AI transformation for Infosys? And Jes, one question on the margins. Once you obviously roll out the hikes and with the growth projections sort of tapered now, do you think you would be able to maintain the 20 to 22% band at least for this year? Just wanted to know that. Thank you.
Let me start off on the first one. I think a little bit later Jes can also add a bit of color. I think on the macro it's more, what we see in the environment, we had a sense that the macro was settling down so we had a guidance where the upper end looked at maybe things would settle down in the second half. Things are a little bit more uneven but at the same time it's not, it could easily stabilize over time. So we've kept the option and we always have that ability because tech spending discretionary spending can also come back if that happens. So we are sharing more what we see today as opposed to a prediction of what is going to happen exactly in a certain time frame. On the data center piece, in fact we've internally reviewed what we want to do in terms of our balance sheet. We've had a discussion with the management team and also with our board and we have decided to not do anything in that space at this stage. What was the third? ... I think my focus in that is making sure that we are very much focused today on what we need to do for this part of the work that I have to finish. I'm very much enjoying that and we'll come to that at the right time. On the margin, Jes will have it but we will hold the guidance.
So at this point in time we have given a guidance of 20 to 22%. If you look at our first quarter we are at 20, 21.1%. Right? If you look at puts and takes of where we are, the currency will be a tailwind at least where we see today. Project Maximus is working well. If you look at last 3 year period, we have been consistently able to hold or improve our margins despite investments in business whether it is AI, whether it is talent or whether it is sales and marketing and we believe the project will continue to deliver value from pricing, from utilization etc. So that given of course we'll have headwind coming from...
uh you know the compensation in the second half of the year but we are very confident at this point in time of the guidance band that we have given.
Thank you Aik. The next question is from Harip Priya Suresh from Reuters.
Good evening gentlemen. One is I wanted to get some color on each of the verticals as well within financial services retail has seen some sort of hit this quarter as well. And some of your peers have called out some percentage of AI deflation in their portfolio. I mean obviously that's growth coming from AI but also existing portfolio sees some sort of deflation. If there's any number you can provide for that and also on outcome based pricing becoming a larger part of your portfolio and are there certain deals that tend to see more outcome based pricing than others if there's any kind of quantification you could do that that'll be very helpful.
I'll start on the industries Jes will add a little bit and then let me address the other one which is on what we see on the outcome based pricing and the compression piece that you mentioned. On the industries, what we see right now is for example financial services we see the growth in that part of our business will be higher than the average growth within the company like in energy utilities part of our business we will see something similar. We still see for example in retail some constraints in terms of the growth and we are not yet seeing the pickup in that and there might be other things that Jes will add. On the compression, we absolutely had said in the past we do see that in some places across our portfolio but we've not externally quantified that compression at this stage. Was there anything else?
