Q3 2025 Infosys Ltd Earnings Call
[inaudible]
Ladies and Gentlemen
Good day and welcome to Enforcers Limited Q3 FY25 Earnings Conference Calls.
As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes.
If you do need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone.
Please note that this conference is being recorded.
I now hand the conference over to Mr. Sandeep Mahindroo. Thank you and over to you Mr. Mahindroo.
Thank you. May God bless you. All the best.
Hello everyone and welcome to Infosys Earnings Call for Q3 FY25.
Let me start the call by wishing everyone a very happy new year.
Joining us on this call is CEO and MD Mr. Salil Parekh, CFO Mr. Jayesh Sanghrajka, and other members of the leadership team.
We will start the call with some remarks on the performance of the company, subsequent to which the call will be opened up for questions.
Please note that anything we say that refers to our outlook for the future is a forward-looking treatment, which must be read in conjunction with the risks that the company faces.
A complete statement and explanation of these risks is available in our filings with the SEC, which can be found on www.sec.gov.
Salil Parekh: I would now like to pass on the call to Salil.
Salil Parekh: Thanks, Sandeep. Good morning and good evening to all of you. Wish you a happy new year. Thank you all for joining us on this call.
Salil Parekh: All verticals and most geographies grew year on year. We saw double digit growth in Europe and India and in our manufacturing business.
Large deals were at $2.5 billion, operating margin at 21.3%,
Salil Parekh: Free cash flow for the quarter was at an all-time high of $1.26 billion.
Salil Parekh: Headcount grew by over 5,000 sequentially to now over 323,000 employees worldwide.
Salil Parekh: Financial services in the U.S. continues to grow strongly in this quarter and over the past few quarters.
Salil Parekh: We have seen a revival in European financial services during Q3.
Salil Parekh: We are seeing an improvement in retail and consumer product industry in the US with discretionary pressures easing.
Automotive sector in Europe continues to remain slow.
Salil Parekh: Demand trends remain stable in other industries with clients continuing to prioritize cost takeout over discretionary initiatives.
Salil Parekh: Clients are turning to us as a partner of choice when it comes to enterprise AI to transform their business for growth and to manage operations more efficiently.
Salil Parekh: With Infosys Topaz, our generative AI-powered services and solutions, we are deepening our enterprise AI capabilities.
Salil Parekh: We have built four small language models for banking, for IT operations, for cyber and for enterprises broadly.
These small language models have 2.5 billion parameters.
Salil Parekh: These models are built using some of our proprietary data sets.
Salil Parekh: We are developing over 100 new generative AI agents for deployment within our clients.
Salil Parekh: We are working closely with the Generative AI partner ecosystem to develop joint solutions for our clients, several of them on the platforms of the partners.
and Sandeep Mahindra.
Salil Parekh: Here are some examples of the work we're doing for our clients in the generative AI area.
Salil Parekh: We developed a generative AI powered research agent that generated comprehensive solutions within seconds for requests made for the product support teams of a large technology company.
Salil Parekh: We have created three audit agents to intelligently automate multiple tasks for a professional services company.
Salil Parekh: Based overall on our strong performance in this quarter and a view for the rest of this financial year, we are revising our revenue growth guidance to growth of 4.5% to 5% in constant currency.
Operating margin guidance remains unchanged at 20% to 22%.
With that, let me request Jayesh to share his views.
Thank you. Thank you.
Jayesh Sanghrajka: Thank you Salil. Good morning, good evening everyone and thank you for joining the call today. I wish you all a very happy new year.
Jayesh Sanghrajka: We had another strong quarter of all-around growth across verticals. This was backed by relentless execution, resulting in improvement in multiple operating parameters, leading to expansion in margin and cash conversion.
Jayesh Sanghrajka: Financial services saw third consecutive quarter of volume growth reflecting continued positivity we are seeing in the sector.
Jayesh Sanghrajka: Our 50 million clients increased by 7, large deal TCV for the quarter was at 2.5 billion dollars, 63% of this being net new, which is an increase of 57% in net new deal TCV.
Our large deal pipeline has become stronger in Q3.
Jayesh Sanghrajka: Coming to margins, Q3 margins are at 21.3%, 20 bps higher sequentially after absorbing impact of furloughs and higher third-party costs. Margins were up 80 basis points year-on-year.
Jayesh Sanghrajka: We saw double digit Viva increase in EPS of 11.4% to Ruki 16.43.
Jayesh Sanghrajka: Our razor sharp focus on cash flow resulted in very strong free cash flows of 1.2 billion for the quarter and 3.2 billion for 9 months.
Jayesh Sanghrajka: This is an increase of 90% on YOY basis and 57% on 9-month basis.
Jayesh Sanghrajka: DSO was at 74 days, however, DSO including Unbuilt Net of Unknown was down by 6 days at 86.
Jayesh Sanghrajka: Our net unpaid revenues declined by 323 million sequentially to lowest level in last 12 quarters.
Jayesh Sanghrajka: Net headcount addition continues for second consecutive quarter. We added 5,591 employees this quarter.
Jayesh Sanghrajka: Let me now talk about some of this in greater detail.
Jayesh Sanghrajka: We had a strong revenue growth of 1.7% sequestrary and 6.1% on YOY basis in constant currency terms in a seasonally weak quarter.
Jayesh Sanghrajka: For the 9 months, revenue grew at 3.9%, both in constant currency and reported terms, with double-digit growth in manufacturing.
Jayesh Sanghrajka: Operating margins expanded to 21.3%, which is an increase of 20 bps sequentially and 80 bps year-on-year.
Jayesh Sanghrajka: The major components of sequential margin work for the quarter are, tailwinds of 40 basis points from currency movement, 30 basis points from project maximum, 20 basis points from lower cost relating to provisions for poor sales, customer support and expected grade loss provisions, offset by higher third party cost.
Jayesh Sanghrajka: Headwinds of 70 basis points from furloughs and lower working days offset by higher leave utilization and others.
Jayesh Sanghrajka: Utilization excluding trainees was strong at 86% despite the low volume growth environment.
Jayesh Sanghrajka: We are very pleased with the continued success of project maximum, which has resulted in benefits across various tracks. One such area is that realization, which has increased by 3.6% over 9 months, resulting from strong performance emanating from value-based selling track.
Jayesh Sanghrajka: This has helped expand YTD margins by 30 basis points despite additional headwinds from FY24 comp increase, higher variable payouts, impact due to amortization of intangibles from recent acquisitions and large deal ramp-up.
Jayesh Sanghrajka: Headcounts at the end of quarter stood at 323,000, growing sequentially by approximately 5,600. This is the second consecutive quarter of headcount addition.
Jayesh Sanghrajka: Adhesion remains low at 13.7%. Coming to cash flows, our nine-month free cash flows has surpassed full-year free cash flows for the last financial year. For the quarter, our free cash flows were at 1.26 billion up 51% over last quarter and up 90% over same period last year.
Jayesh Sanghrajka: FCF as a percentage of net profit for 9 months was 136%.
Jayesh Sanghrajka: Excluding income tax refunds, our free cash flow for the quarter was at Rs.996 million up 27% over last quarter and up 50% over Q3-24.
Jayesh Sanghrajka: Our free cash flow excluding tax refund as a personal net profit for the quarter is at 123% and for the nine months is 109%, which is the highest conversion in over two decades.
Jayesh Sanghrajka: Yield on cash balance was 6.91% in Q3. ETR was at 29.5% for both Q3 and 9 months. We closed 17 large deals with a DCV of 2.5 billion. 63% of this was net new.
Jayesh Sanghrajka: Vertical wise, we signed 5 deals in financial services, 4 in communication, 3 in manufacturing, 2 each in retail and EURS and 1 in high tech. Region wise, we signed 11 large deals in South America and 6 in Europe. This also includes a BOT deal with a client to set up a GCC in India.
Jayesh Sanghrajka: For 9 months, large deal win stood at 72 deals with TCV of 9 billion and 55% of this is net gain.
Jayesh Sanghrajka: Coming to verticals, financial services in the US continues to see a decrease in capital markets, mortgages, cards and payments, which led to another quarter of volume growth. We have also seen a revival in Europe, leading to Q3 backed by some large deals.
Jayesh Sanghrajka: Our expansion beyond the U.S. specifically into Nordic, Middle East, and Southeast Asia is also contributing positively to our growth.
Jayesh Sanghrajka: Clients have started to view IT investments more favorably post-election-related uncertainty and interest rate cuts in recent months, while the focus remains on cost optimization, tending towards new growth areas like AI, cloud adoption, cybersecurity data, and analytics is observed.
Jayesh Sanghrajka: Manufacturing continues to see weakness in the automotive in Europe, however there is a continued momentum in areas such as engineering, IOT, supply chain, cloud ERP and digital transformation.
Jayesh Sanghrajka: The benefits of vendor consolidation are being more apparent, contributing to the growth of existing accounts and the establishment of new relationships. The pipeline is healthy, with a mix of large and small deals, and a focus on cost-according portfolio rationalization.
Jayesh Sanghrajka: We are seeing some signs of recovery in discretionary expenditure retail and CPG verticals in the US. There is a pickup in deal activity backed by improved consumer sentiment and strong holiday season sales.
Jayesh Sanghrajka: companies are looking at investing in brand and technology initiative as for HANA migration deadline is driving budget allocation to make enterprise workload compliant. We are leveraging Infosys Topaz to showcase enhanced business value in predictive analytics and real-time insights and strategy decision, strategy decision making.
Jayesh Sanghrajka: Communication sector continues to face volatile macro environment leading to growth challenges and rising op-ex pressure. Discretionary spending continues to be soft and current year growth is driven mainly by recent large yield winds focused on efficiency and consolidation.
Jayesh Sanghrajka: In the EOR sector, macro headwinds and supply-demand imbalances continue to influence spending patterns. Growth in demand for electricity to cater to data centers is expected to bring in more investment in energy. Resources clients are most watchful about the changing geopolitical dynamics impacting the supply chain.
Jayesh Sanghrajka: Discretionary spend remains muted. Our investment in industry, cloud and energy transition solutions have helped us win multiple deals.
Jayesh Sanghrajka: Hi-tech continues to remain soft. Some clients are reducing the run cost and pausing discretionary investment. We are seeing opportunities in cost take-out deals, including legacy product management and managed services-based business operations.
Jayesh Sanghrajka: Programs are driven by cloud computing and new tech like AI and ML.
Jayesh Sanghrajka: Driven by our performance and outlook for the rest of the year, we are revising our FY 2025 revenue guidance to 4.5% to 5% in constant currency terms. Our operating margin guidance remains at 20% to 22%.
Speaker Change: Thank you very much. We will now begin with the question and answer session.
Speaker Change: Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2.
Participants are requested to use handsets while asking a question.
Speaker Change: Ladies and gentlemen, we will wait for a moment while the question queue assembles.
Participants?
You may press star and 1 to ask a question.
Speaker Change: The first question is from the line of Ankur Rudra from J.P.Morgan. Please go ahead.
Ankur Rudra: Thank you and nice friend. Can you comment a bit about if there were any one-time items in your revenues or margins this time?
Speaker Change: I do notice that your third-party costs moved up quite a bit perhaps ahead of levy 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 will be better than last year.
Speaker Change: and if there's any impact of AI impacting the volume of work. Thanks.
Ankur Rudra: Thanks, Ankur. So, you know, you're right, our third-party costs were higher this quarter. There is a bit of seasonality in every Q3, but yeah, it's even considering that it was higher than that.
and that has impacted both cost as well as revenue.
Ankur Rudra: that has helped both causes, I mean both on the revenue as well.
Thank you.
Ankur Rudra: It aligns with our cycle, our annual cycle, so we will be able to give a clearer picture in April, you know, as we announce the guidance for the full year. There were no other one-offs either on revenue or cost in this quarter.
Thank you.
Speaker Change: 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, it 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 baked into the guide this time?
Speaker Change: There are two parts as you rightly said. One is of course the third party seasonality which is baked in in Q4 guidance because Q3 was significantly higher and Q4 also has lower working days and calendar days. So that's a headwind that we face in Q4. So both of that is baked in in the guidance.
Speaker Change: the volumes of your work, the need for productivity passed back, and if this will be net additive or dilutive to the amount of work Infosys can do for its clients.
Speaker Change: There, what we're seeing is good traction with clients where we've already deployed. The couple of examples I mentioned, there are several live or production examples, not just proof-in-concept. What we're seeing is...
Speaker Change: The agents are helping clients to achieve benefit whether time reduction, cost reduction or greater impact in their customer base and growth.
Speaker Change: and they're being done in a broad-based way within the client.
So, the way we are seeing it today, the...
Speaker Change: which expands the opportunity that we have to do this sort of work. So at this stage it looks to us like this will give us over time more growth. On small language models
Speaker Change: There the usage of that small language model is to create some activity sometimes
Speaker Change: software development, sometimes customer service, sometimes the knowledge objects within the client and make a positive impact in that. And those all have some elements of, for them to get additional market share and for them to be more efficient.
Speaker Change: So, the more they are deployed, again for us, we see possibility of driving growth through that as they get deployed. So, one of the examples on a small language model, we are working with a client where they want to build their own small language model.
Speaker Change: based on one of the four that we built, the Enterprise one.
Speaker Change: and that then translates into their industry and for them to drive it more within the company. So for us, it's like having the model as a service. So for us, it's an expansion of work in the more of those that clients are looking at.
Speaker Change: So at this stage, we're seeing a broader set of opportunities while overall scale is small, but it's
Looking like there will be more opportunities in this area.
Salil Parekh: Thank you. And would you classify this nature of work, Salil, under cost-oriented, efficiency-oriented work or is this more discretionary-oriented work?
Many clients are doing different different programs.
Salil Parekh: The traditional tech which you know had that sort of a view and where you know when Industries were getting back the discretionary was increasing and otherwise it was more cost so today
We see the spend
That is going on now.
Okay, I appreciate it. Thank you, Ambassador.
Thank you.
Speaker Change: Next question is from the line of Yogesh Agarwal from HSBC Securities, please go ahead.
Yogesh Agarwal: Hi, just have one question on 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,
Yogesh Agarwal: Will this line item continue to grow with the top line or is there a limit like this?
Yogesh Agarwal: One can expect like around 9-10% will settle down or this is a new reality that for every new deal, new work, the pass-through revenue will grow in line with the overall revenues.
Speaker Change: So Yogesh, at this point in time, we don't expect this to change significantly, but it's also a factor of, you know, the large deals or the mega deals that come in.
at times, right? So, it's dependent on...
Speaker Change: As a result, you do incur those costs on your P&L because you are providing...
and Jayesh Sanghrajka.
Okay, thanks. Thank you.
Thank you.
Next question is from the line of Brian Burgin.
From T.D.Koven, please go ahead.
Hi, thank you for taking the question.
Speaker Change: I wanted to start on pricing, so I think you mentioned a 3.6% nine-month realization tail and very solid. I'm 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?
Speaker Change: So, Brian, as we had talked earlier, this is one of the pillars under our Margin Improvement Program and there were multiple tracks beneath that and those tracks are yielding results.
Speaker Change: It is difficult to predict from here, whether this will be this kind of growth year-on-year will be certain or not, but I never had to keep improving and keep getting the best from where we are.
Speaker Change: very difficult to give a guidance there. Having said that, coming to your second question, the pricing environment, per se, across what we are seeing in the industry is stable at this point in time.
Speaker Change: Okay, and then on utilization, you know, remains modestly above your normalized range, around 86% ex-trainees. Can you comment, is this a new normal? Will this move lower as hiring continues? Where do you see that progressing?
Speaker Change: Yeah, so we have generally said 83-85% of utilization is the range that we are more comfortable with. 86% is a little bit above our comfort level, but we don't expect it to change significantly either way. So yeah, 83-85% is where we would like to be.
Okay, thank you.
Thank you.
Speaker Change: Next question is from the line of Rishi Jhunjhunwala from India Info Line, please go ahead.
Thank you.
Thank you.
Thank you.
Speaker Change: So Rishi, the sequential change in the top 5 clients is pretty much furloughs, largely because you do see furloughs impacting many of the large clients.
Speaker Change: And of course, these are also reported numbers, so there could be a bit of currency impact as well, depending on which geography the top five clients are.
Speaker Change: The year on year will be client specific, there would be some deals which would have ramped up, ramped down, there could be multiple reasons. I don't think there is anything sectoral here in a way to decipher from here in my mind.
Speaker Change: Okay, and just secondly, you know, clearly last year we had a pretty big year in terms of overall deal going to almost 17.6 billion, this year currently we are annualizing it around 12. I just wanted to understand, you know, in terms of proportion of revenues that comes through, comes via pass-through, you know, has that changed in the amount of deals that we have won in totality this year versus last year?
Speaker Change: The large deals, we have been, outside of the mega deals, the large deals, we have been consistently in the range of 2.5 to 3 billion dollars. If you look at this quarter, our 2.5 billion dollars has 63% net new, which means that the net new sequentially has grown by...
Thank you very much.
Okay, thank you so much.
Thank you.
Next question is from the line of Jonathan Lee.
from Gangam Partners. Please go ahead.
Speaker Change: Great. Happy New Year. Thanks for taking our questions. Now, 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?
Speaker Change: Jonathan, you know, as we said, our overall deal pipeline has grown because this quarter our large deal pipeline has also become stronger.
Speaker Change: and the pipeline outside of the large deals have remained stable.
Speaker Change: So that has reflected in the overall deal pipeline has grown. There is also a reflection of everything that Salil talked about in terms of...
Speaker Change: The positivity in certain sectors that we are seeing, especially the financial services in the U.S. and Europe, the positivity in retail in the U.S., and the cost take-out opportunities in some of the other segments that continue.
Thank you. Thank you.
Speaker Change: Yeah, so it's across the, you know, the deals that we have signed, it's more about, you know...
Speaker Change: We are not seeing a sectoral change in a way, but we are seeing a large number of deeds that we assign benefiting us.
Speaker Change: In terms of the positivity in the coming quarters, it's across cloud and consolidation of some of the vendors that we have seen that should help us in the coming quarters.
Appreciate it. Thanks for that level of detail.
Thank you.
Speaker Change: Next question is from the line of Sir Inder Goyal from Citigroup, please go ahead.
Goharan.
Goharan: 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?
In general, what we see is, whenever there is...
Goharan: There is always sharing with clients, so in the AI driven or outside of AI driven, we are not seeing a difference in the way it is being treated.
Goharan: or some other examples we've done in the past where we've looked at...
Goharan: the foundation models doing software development or customer service. Typically, some benefits will go with the client and typically we'll get to keep some benefits.
Goharan: Okay, maybe I'll ask the question more specifically, the top five client performance, has that been impacted by any such productivity pass-through?
Thank you. Thank you. Be blissful.
Speaker Change: No, Suren. It's more of, as I said earlier, it's more of furloughs this quarter. Some part of that is currency, you know, because some of the clients are in the different geographies and non-US geographies.
So, be aware, we are seeing that.
Sure, thanks a lot.
Thank you.
Queries please, go ahead.
Yeah, thanks for taking my question.
Speaker Change: I have a couple of questions. The first question is on the...
Thank you very much.
Speaker Change: If you look at Q3, it was benefitted by some of the third party revenue. To that extent, there is an additional seasonality versus what we generally see in Q3 and Q4 as a seasonality.
Thank you.
Speaker Change: Historically if you look at our first half is always been stronger than the second half and the within second half you know depending on how the the calendar days and working days play out you would see you know one quarter better than the other quarter. This this year we have low working and calendar days both in Q3 and Q4 and that is why
Speaker Change: Q3 and Q4 are impacted, plus Q3 has larger furlough, Q4 will have some furlough. So you will see overall, you know, some furlough flashback offset by a working day and calendar day impact and, you know, a reversal of the benefit that we got in terms of the third-party revenue.
Thank you.
Speaker Change: Yeah, that is how generally it is, right, in Q3 you do see many of these deals, you know, having a larger volume.
Speaker Change: Got it, got it. Great one. So, last question is on the retail vertical. I am sorry if I missed out in the opening parts. I mean, what is the outlook in that vertical overall that we have seen? I mean, we've alluded to this initially spent picking up here. I think a couple of your competitors also have had basically seen the vertical bottling out. How is this vertical playing out for us and our outlook for this incoming quarters?
Speaker Change: So Vibhor, what we have said is we are seeing positivity in retail and CPG in the US.
Speaker Change: that is reflecting you know from the fact that the the sales in in the holiday seasons is better, the consumer sentiment is getting positive so all of that is starting to reflect in in the deal pipelines etc and the clients you know behavior in terms of decision making etc.
Speaker Change: So we are seeing that positivity, you know, in next one or two quarters we should start reflecting in terms of all this.
And the green pipeline in the vertical also remains strong.
as well.
Speaker Change: Thank you so much for taking my question and wish you all the best.
Thank you.
Speaker Change: Next question is from the line of Ashwin Mehta from Ambit Capital, please go ahead.
Speaker Change: Hi, thanks for the opportunity. Just wanted to check in terms of impact of the wage hikes. Will it be full impact next quarter or will it be staggered and what is the margin impact that you see of wage hikes?
Speaker Change: So Ashwin, as we have said earlier, our wage is going to happen, our wage rollout, account rollout is going to happen in two phases.
Ashwin Mehta: First phase starting 1st January and the second phase will start from 1st April. The India wage increases would be on an average 6-8%. Of course, the high performers would get much higher, etc. And the overseas would be low single digit. We haven't really called out a margin impact.
on account of that.
Most of the employees will get comp increase in Q4.
Speaker Change: Okay, thanks. And just one follow-up to an earlier question. So you indicated that the top five client decline was largely furlough led. So ideally, this should recover in the next quarter itself, right?
Yeah, I mean, likely yes.
Jayesh Sanghrajka, Sandeep Mahindroo, Jayesh Sanghrajka, Sandeep Mahindroo, Jayesh Sanghrajka,
Speaker Change: We don't give the projections by the brackets of clients, but furlough should reverse for sure.
Speaker Change: okay okay so the decline is beyond it is much higher than because you 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 kept.
Speaker Change: So, Ashwin, it's going to be, you know, as I said earlier, it's going to be furloughs, it'll be currency, plus it can also be factors like third party, if one of those clients had third party, last quarter versus this quarter, so there could be those things, I'm not seeing any, you know, sectoral behavior in those brackets, which is where the client is behaving differently.
Thanks for the clarification.
Speaker Change: Thank you. Thank you, Ashwin. Next question is from the line of Jamie Friedman from Sasquatch National Group. Please go ahead.
Hi, good evening. Nice print.
Jamie Friedman: Suveel, how are you characterizing linearity, the linearity narrative now, because I see you're taking up the headcount, which seems quite constructive, was wondering the automation impact, contemplation, relative to linearity.
So, on linearity...
We see currently...
Speaker Change: There's benefits coming, as you stated, from automation. There's also benefits that Jayesh was sharing earlier from pricing.
Speaker Change: But broadly speaking, I mean at the scale we are operating at today, we still see benefits
Speaker Change: when with the employee headcount increased. So for us, that's a good signal on a net basis because it's showing that we're expanding the work that we're doing overall.
Speaker Change: In the medium long term, there are different sort of views that could develop, but right now we are positive with the employee growth and we do see the pluses and the minuses with some of those elements you referenced internally.
Thank you.
Speaker Change: A separate question with regard to the net new number, which...
It was quite robust.
Does the net new...
Speaker Change: reflect either the similar like vertical operating group or service lines as the current base of business or is there something...
Speaker Change: that is like net-net new going on in the new bookings.
We don't sort of...
Speaker Change: At a macro level, it's sufficient to say that we see very good traction on areas like cloud. We see good traction in a small way on what we were discussing earlier on generative AI.
We are seeing good traction on areas like
getting into the specifics on the 63%.
Thank you.
Perfect. Thank you. I'll jump back in the queue.
Thank you.
Speaker Change: Next question is from the line of Sandeep Shah from Equatorial Securities, please go ahead.
Speaker Change: Thanks for the opportunity. When we entered FI25, we had a lot of support from the big teams.
Speaker Change: which have ramped up in the first nine months of FY25. With those largely into the ramp-up stage and might fall into a steady state, do you believe FY26 we may have to...
Do you believe FI26 could be better than FI25?
So there...
Speaker Change: As I think you know, we don't have a comment externally on the next financial year.
What we are very clear is, you know, with this...
Speaker Change: A better view on financial services, so the first was U.S., now financial services Europe.
Speaker Change: The Better View on Retail and Consumer Products U.S. We are starting to see some positivity on the discretionary.
we have with a net new of 60%
Speaker Change: looking good with where that brings us into the next cycle.
Guidance, we feel confidence going into Q4.
We also see the deal pipeline for large deals.
Looking more robust than it was,
Speaker Change: Any color in terms of deal pipeline below 50 million, which has grown 10% QOQ into 2Q? Any update on the same?
Second, in terms of Martin, Jayesh...
Speaker Change: 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 we throw colour? Is it more pressure driven or is it more lateral driven?
Sorry Sandeep, what was your first question?
Speaker Change: The small deal pipeline remains stable as compared to last quarter. As Salil said, the large deal pipeline has grown, so our overall pipeline therefore...
So that's point number one.
Thank you.
And the last question on recruitment.
Speaker Change: So I think recruitment is combination of both freshers and laterals, again we have not broken up this number, but for the year we have hired, we will hire 15,000 plus freshers in line with our original commentary.
and for the next year we are expecting 20,000 plus.
Thanks and all the best.
Thank you.
Speaker Change: Next question is from the line of Sumeet Jain from CLSA India. Please go ahead.
Sumeet Jain: Yeah, hi. Thanks for the opportunity. If I recall correctly, last quarter you mentioned that sub 20 million dollar deals.
had a very strong pipeline.
Sumeet Jain: and how does that deal pipeline look like at this stage.
Speaker Change: So Sumit, what we said was the sub 50 million dollar deals which had grown 20%
Speaker Change: We haven't really, you know, called it out how much of that is converted, how much of that is not. And in any case, you know, whatever we convert in this quarter will start showing up results in, you know, in Q4 onwards.
Speaker Change: so more likely than not so that is how it runs out the idea of last giving that data point last quarter was we saw a significant change there which we thought it was important with you know to share it with investors but you know we're not breaking that up further as to you know how much of that got converted and not
Speaker Change: At this point in time, we still continue to see that the table, the large-scale pipeline has become stronger.
Speaker Change: All right, got it. That's helpful. And secondly, in terms of, sorry actually I forgot my second question. Maybe I will come back in the queue.
Thank you.
Speaker Change: Next question is from the line of Keith Backman from BMO Capital. Please go ahead.
Hi, thank you very much. My question is on...
Speaker Change: 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?
Speaker Change: So there, in terms of AI and our cost to serve, what we are seeing some of these elements we we've discussed in the past at the level of what our activity is
Speaker Change: We see applying, for example, some of the small language models and large language models within the company for areas like software development.
Speaker Change: and we've seen some benefits accrue from that. Now, the place where this becomes the most relevant is when we have clients...
Speaker Change: A large common sort of foundation of approach, a common foundation of data infrastructure.
Speaker Change: or for example, where we have our own business of finical, where we've started to apply these.
We are now rolling this out where we see...
Speaker Change: common elements across our own internal business and those are benefits that will support us.
Speaker Change: It will be one of the levers that will help us over time on our margin activity and is part of our program.
Speaker Change: on that area, on area of customer service, and other areas where Gen-AI can be applied within InfoSec.
Thank you. Thank you.
Speaker Change: Let me ask my follow-up related to that. You called out SAP as being a strong area for you, and I think it's candidly strong for a number of different vendors or suppliers.
Speaker Change: 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...
and more robust capabilities for Infosys. [inaudible]
Speaker Change: 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 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?
So I think if I understood what you are asking...
software development when we are doing it for our clients.
In that instance of today...
Speaker Change: The demand as we were sharing earlier on S4HANA or even on RISE which is the cloud migration piece is strong in the SAP area.
Speaker Change: Now that work is more implementation or migration, so it's not typically software development.
Speaker Change: Some elements of the agents that we discussed before, especially in the finance process which is where we are seeing the biggest impact today in like invoicing and other finance activities, we will see some impact and benefit.
However, stepping back...
Speaker Change: all of that let's say benefit will eventually at least from past experience is almost always shared with the client in some way so I don't see
Speaker Change: that approach of sharing will change and which to us means we will get some benefit and the client will get some benefit.
Okay, I will see the floor. Thank you.
Speaker Change: Thank you. Next follow-up question is from the man of Sumit Jain from CLSA India. Please go ahead.
Sumit Jain: 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 U.S.
Sumit Jain: So we saw pretty strong sequential growth here, how do you see the sustainability of growth in CY25?
Sumit Jain: and post the US election outcome, do you see any client sentiments changing particularly in this vertical?
Sumit Jain: So Sumit, the Q3 growth in retail was also helped by some of the third-party you know deals that we talked about earlier but as I said and Saril said as well
Sumit Jain: The retail in the U.S. and CPG in the U.S., we are seeing a revival in terms of the growth on the back of, you know, the strong holiday season sales, as well as the consumer sentiment changing.
Sumit Jain: At this point in time, we are seeing a revival in interest from client in terms of spending, which should ideally reflect into growth in the next few quarters.
Sumit Jain: Secondly, in terms of the JNI rollouts, are you seeing any specific verticals where the impact is slightly higher in terms of volume gains or increase in pricing?
Thank you.
So some of the examples that...
Sumit Jain: We were discussing earlier, like in a technology company, we are doing a lot of work in the telco area.
and of course, in financial services.
Sumit Jain: where we discussed you know overall segment and the retail point we discussed. But generative AI discussions are more broad based. Every, almost not every, but let's say a lot of clients are quite actively looking at doing something. Most clients have some internal and then with us some external activity going on there.
Thank you. Thank you.
Speaker Change: Got it. That's helpful. Solid. And lastly, just want to understand the 3.6% YOY increase in pricing you mentioned in the first nine months. What has been the primary factor behind that very strong increase in pricing?
Jayesh Sanghrajka: This is Jayesh here. This is the program that we've been running on margin expansion and there is one dedicated pillar which is value-based selling.
Jayesh Sanghrajka: and there are multiple tracks beneath that, I think many of those tracks have started yielding results.
Jayesh Sanghrajka, Sandeep Mahindroo, Jayesh Sanghrajka, Sandeep Mahindroo, Jayesh Sanghrajka,
Jayesh Sanghrajka: Of course, even lean automation is also reflected in pricing eventually, right, because they're able to deliver the same output with lesser people, it will reflect in pricing. So all of that would show up in pricing.
Speaker Change: All right, that's helpful. So that's all I had. Thanks for the opportunity again and all the best.
Thank you.
Abhinav Ganesan: Next question is from the line of Abhinav Ganesan from SBI Pension Funds, please go ahead.
Hello, thank you for the opportunity.
and congratulations to the great set of numbers.
Speaker Change: I think in your comments you alluded to retail vertical taking up some of that. If you can give some more color, are there any more verticals you would like to call out and also geographies?
Speaker Change: So Abhinav, we don't really split this by geographies and verticals, that was one specific question that Sumit asked and I was responding to that question, but we can't really break this by geography or verticals.
Speaker Change: One day to understand if it can give a broader colour. Now if you have looked at it in the recent last two years, if you look at it.
Speaker Change: Our cost take-out deals have gone up compared to the discretionary spending. Now discretionary spending is returning. This number has trended up from around 6% to 9.5%. Once discretionary comes back, do you feel that this will stabilize and maybe then trend down later if you can?
Speaker Change: As I said earlier in the call as well, this is going to be dependent on many of the large deals that we sign and what are the contours of those large deals. If the large deal is a deal where we are taking over...
Thank you.
Speaker Change: You know, it is going to depend on, you know, in the future, what part of the deals or the larger deals come through as a, you know, as a lock, stock, barrel kind of a program where we are taking over everything from the client.
Speaker Change: and how would we get there, if we can get some color.
Thank you for joining us.
Yeah, I can, I can. Yeah.
Thank you.
Am I audible?
Yes, sir.
Speaker Change: I just wanted to understand some color neutralization if you can give that. That's it. Thanks.
Satsang with Mohanji Satsang with Mohanji
for the management be connected.
Yeah, transfer the main line.
Hello.
I hope I am audible. Yes, you are audible.
Speaker Change: Now your utilization has reached around 86%, so just wanted to understand what would be your comfort zone for the coming quarter and the coming year and how would we get there?
So you can give some color. Thanks.
Speaker Change: I appreciate the call. That's all from my side. Thank you and all the best.
Thank you very much.
Speaker Change: Thank you, ladies and gentlemen. We will take that as the last question.
Speaker Change: I will now hand the conference over to the management for closing comments.
Salil Parekh: Thank you. This is Salil. So, first, thank you, everyone, for joining in. I just wanted to share a couple of observations. Very strong growth in this quarter, especially financial services U.S., financial services Europe now starts to see traction in discretionary retail consumer products U.S. All of those good signs for us. Very strong cash generation, good large deals with very good net new.
Jayesh Sanghrajka, Sandeep Mahindroo, Jayesh Sanghrajka, Sandeep Mahindroo, Jayesh Sanghrajka,
Salil Parekh: Thank you very much. Thank you. Thank you members of the management.
Speaker Change: Ladies and gentlemen, on behalf of Infosys Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.
Thank you.