Um and then on the earnings, of course, you know the reason for this revision downwards. 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 also has 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 on how the revenue is moving. Is it proceeding as per your expectations? Any updates you could share on that front 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, combining the third piece as well, AI services is growing extremely well, double-digit growth. If you look at it quarter on quarter, 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. The 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 there are six of those deals which are consolidation deals that we have been the beneficiary of, as an example. There are four deals which are just under the $500 million range, so just like a mega deal. So we see really good traction. The pipeline there is looking good. So although 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 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. Questions of why he didn't decide to stay on and what the mandate was and you know better, you 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. Having taken the business from about 10 billion to 20 billion, it's been an incredible journey. And 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 that goes into the next phase, making sure the partnerships we have with the various models, the Topaz fabric that we build today on AI. It's important that clients see that their own data remains sovereign to them, and the way we build 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 task like an expensive token cost. 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.
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 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 which you'll have to go and get those deals again. So is that something that Infosys is also seeing? Thank you.
So let me start with the second one. I'll come back to the first. I think 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 spread out, but that's the normal conversion we see. We don't see that it's suddenly changed in the last quarter or a 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 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 Dav 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 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, 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, we have 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. 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 Infosys has incredible values and it's really been a privilege to be associated with that and learn from it and contribute to it. 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 Fadnesses 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. I mean, is there a milestone that you have touched? And secondly, there's also a concern with Vanguard and Dameler 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 the latest developments in overall and also in the AI GCC. So our traction on GCC is looking very strong. We don't like 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 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 addressable market, so that's all new revenue. And 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. And at that pace, it is already becoming a growth engine in a way. So directly said, it's becoming a long-term play.
This is not reclassification in any form, 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 forward deployed engineers, there's a lot of talk in the tech ecosystem about this. But how difficult is it for a services company to plug FDEs 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 now have 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 capabilities 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.
Sal, 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 1.5 and 3.5 and now you cut it down to 3. So which are some of those areas which did not really work according to your expectations? Number two is, would Infy ever at all, at least in the near future, would you want the company to move into the AI infrastructure business, data center, 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 roll out the hikes and with the growth projection 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 that 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, 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 one? I think you know my focus 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 in terms of what was in terms of the tenure and so on. 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%. 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 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, Avi. The next question is from Haripriya 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. Some of your peers have called out some percentage of AI deflation in their portfolio. 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, is it 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 would 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. In energy utilities part of our business, we will see something similar. We still see for example in retail some constraints in terms of growth and we are not yet seeing the pickup in that. There might be other things that Jes will add on. On the compression, we absolutely have 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. On outcome-based pricing, we see clients have a stronger interest in that but typically it's not so much that it's become a large part of our activity, but there is definitely more discussions on it. And typically when the investment needs are heavy for transformation, it becomes more part of that discussion, but it's not that we are shifting massively to it. There is definitely more discussion on it. There is no particular type. It's more a function of are the clients going through a transformation and is there a need for some upfront investment which can then translate into a transformation and then the outcome gives a benefit of that transformation.
Thanks Haripriya. The next question is from
So just to add to what Sal was saying on segments, financial services and sure, both we expect to deliver higher than the company average going forward or for the rest of the year. Manufacturing, while we had an impact coming from one of the clients which we had called out last quarter as well, despite that manufacturing has grown very well at close to 1.5% or slightly over 1.5%. So I think that's commendable considering the headwind that the sector has seen. Life sciences, we will see benefit coming on back of the acquisition in healthcare and life sciences. The only two segments that continue to see challenges is communication and retail from that perspective. And just to add on the outcome-based pricing, that's one of the specific tracks within Project Maximus as well. So there is a leader at the organization level who is working with all the segments and driving outcome-based pricing, and we have a very specific focus on that.
Thanks Haripriya. The next question is from Bina Parmar from the Economic Times.
Just a bit on the consolidation deals, the six consolidation deals. Which spaces are these in and how many of these are large deals? And secondly, Infosys has lost some of the existing renewals, at least three in the no. What are the factors that led to that? On the guidance also, if you could just extend a little bit on the color on why really the upper limit was reduced. Do you see macroeconomic environment further worsening or do you see that conversations have been a little different from last quarter? Are you still looking at acquisitions and investments and which spaces will these be in? And lastly, what next for Salil Parekh?
