A very good evening, everyone, and thank you for joining Infosys' first quarter financial results. My name is Rishi, and on behalf of Infosys, I'd like to welcome you today. As always, we request one question from each media house so that we can accommodate all of you over the next 45 minutes or so. With that, let me invite our Chief Executive Officer, Mr. Salil Parekh, for his opening remarks. Over to you, Salil.
Thanks, Rishi. Good afternoon, and thank you all for joining us. We had a strong start to our financial year. Our revenues grew 2.6% sequentially and 3.8% year-on-year in constant currency terms. Growth was broad-based, with our large five industry groups and our large geographies growing year-on-year in constant currency. Our large deals were at $3.8 billion. The main drivers of our growth were our leadership in enterprise AI and our continued success in clients selecting us for consolidations.
We are seeing good demand for AI agents. We have built 300 agents across business, operations, and IT areas, and they're now deployed within our clients. Our horizontal and vertical agents are helping our clients drive faster decisions, improve customer experience, and improve operational efficiency. Based on our performance in Q1 and our current outlook, our guidance for growth for financial year 2026 is revised from where it was 0%-3%. Now it'll be 1%-3% in constant currency terms. Our margin guidance remains unchanged at 20%-22%. With that, Rishi, let's open it up for questions.
Thank you, Salil. We will now open the floor for questions. Joining Salil is Mr. Jayesh Sanghrajka, Chief Financial Officer, Infosys. The first question is from Ritu Singh from CNBC TV18.
Hi, gentlemen. Thanks very much for the question. You know, we are talking about how the numbers have been very strong. The performance has been good. The first quarter revenue is above what the street had factored in. Two questions on this: if the numbers are so good, why have you not raised the upper end of your guidance? Why just the marginal revision from 0.3% to 1% to 3%?
And how much of this, you know, upward revision that we're seeing, including the kind of constant currency growth, 2.6% in this quarter, has come from your inorganic, you know, from your acquisitions that you've made? That's one part of the question. Also, you know, how would you guide the street to look at these numbers? Would you really say this is a turnaround that you're seeing, you know, in the current macro environment, that going ahead, this kind of performance would be sustained?
A word, you know, last time we didn't hear much from you on the whole tariff conundrum and how that is impacting discretionary spend, you know, specifically in sectors like manufacturing, retail. You know, what's your sense on, you know, the clients? If you could also add a word on your hiring plans for the year. Thanks very much.
Thanks. First, on the guidance, what we have seen this quarter is a strong performance in terms of where we have delivered the 2.6%, as you pointed out. With that and with the current outlook, where we have seen a lot of the discussions on the economy worldwide having come to more stable situations, but still seeing that it's not fully settled. Given that we've increased the lower end of our guidance as we go closer into the, like, progress into the year, closer towards the end of the year, we typically narrow our guidance.
That's the first part of what we've done, which is increase the lower end. We still see things within our guidance where we look at some things which will give us good traction. For example, what we've seen in the consolidations, we've seen very strong work that we've done on AI with agents, and we see that. We also see the economy globally, both in Europe, U.S., going through changes. Keeping that in mind, we've narrowed the guidance and increased the lower end. On the inorganic part, I'll let Jayesh mention how much of it is inorganic.
Yeah, so inorganic in this quarter has been around 40 basis points. Within our 2.6% that we reported, and f or the full year also, it'll be a similar number.
Back on the sort of economy, we talked about it last quarter and also in addressing it today. There are overall changes in the economic environment, and we mentioned last quarter. We share that again. We see some of that impact, for example, in logistics. We see some in consumer products and some in manufacturing. Equally, we have seen benefits, especially because we've seen good traction with the work we're doing with agents in AI and a benefit from consolidation that we've looked at, that clients have looked at us and been positive. That has given us some of the positive growth that we've seen in this quarter.
[audio distortion] Would you call it a [audio distortion].
There on the acquisition, as Jayesh shared, it's a small part of it. Even if you keep that aside, we are well over 2%, 2.2% in terms of constant currency growth in the quarter. The way I would look at it is it's very differentiated performance because we have what we believe to be one of the best ways that we are deploying AI, enterprise AI, into our clients. These are active projects where we are using agents, different types of agents that clients are leveraging, whether it's in their supply chains, in their customer experience, where they're getting productivity benefits, where they're getting improved customer service. That's one aspect of it.
The other aspect is we are seeing clients are selecting us more and more when they're looking at consolidation because inherently we see clients see Infosys' delivery as very strong and stable and also providing new ideas, especially on AI for improvements into their business. That's the differentiated performance that we are seeing in the way that we see it.
If you look at our hiring numbers, our overall headcount has remained constant at this point in time. Our utilization is at its peak at 85%. We will continue hiring, and you know, we expect to continue hiring in line with what we have announced at the beginning of the year. There's no change there.
Thank you, Ritu. The next question is from Haripriya Suresh from Reuters News.
Good evening, gentlemen. One quick, I wanted to understand. America has not, growth has been sort of flattish, but Europe has grown really well. Just some color on those specific markets. Is Europe client-specific? What is happening on that end? You know, in terms of the employee headcount, like you mentioned, I know it's been flat, but is, I know there's a lot of talk about how Infosys is using AI. Do you see if utilization's at its peak?
Do you see productivity increasing where you don't need to hire as much going forward? Will this sort of be the level that we will see it at? I wanted to get some color on what the wage hike scenario will be for this quarter as well. Thank you.
Coming to your second question on headcount, as I said earlier, headcount has remained flat. Despite that, we have been able to deliver 2.5%-2.6% on growth. A large part of that came from the RPP increase or the pricing increase that we got and the seasonality benefit that we got. Forty bps came from the acquisition, and the balance came from the volume increases, which we have been able to manage within our current headcount through utilization.
Now that we are at a peak, any further volume increase will need to be, you know, we do need to come from the hiring, right? That is where we are. In terms of U.S. and Europe, I think Europe has been strong footing for us for many quarters in the past. That is on the back of the investment that we made a few years back in Europe. We had identified Europe as a geography to invest into, and you know, all of that I think is working well across sectors. And sorry.
[audio distortion]
Because Europe is growing faster versus America. To that extent, it's changing, but still U.S. remains, you know, the largest sector for us, largest geography for us. Sorry, you had a third question.
Wage.
Yeah, so we did a wage hike already. First wage hike, I mean, first part was that effective January. The second phase is already rolled out effective April 1. The impact of that is already baked in in the margin of this quarter. We had 100 basis points of impact on account of wage hike, as well as the higher variable pay that we paid to our employees this quarter. That's already done. Having done the wage hike very recently, you know, next year, next one we'll have to decide when.
Thank you, Haripriya. Next question is from Beena Parmar from The Economic Times.
Hi, Salil. You mentioned about, you know, the revenue being stronger. Some of your peers have pointed out that there has been some revenue cannibalization that they are seeing. Are you also witnessing it, and are you seeing some productivity gains, benefits that you're passing on to your customers? Is that also leading to change in pricing? I think we spoke about it briefly, but you know, has there been any change in the first quarter? Secondly, is that also impacting your margins? You know, what were the factors that led to the margins? Because I think it has declined. Could you?
Let me start on the revenue one. I think we are seeing with AI a lot of productivity benefits. We also saw productivity benefits that we were already working on from automation and lean, which were coming through. Typically, all productivity benefits, a part of that is shared with clients, and a part of that is shared with us. We see, if you look at the overall level, what Jayesh was sharing, we have seen our productivity of our revenue, the way our own pricing is working at a macro level, improving.
This is more because we are doing work which is creating more impact. In addition to the productivity, which is making some of that benefit being shared with clients. These are two different factors, but on balance, we see an impact into the quality of the revenue that we are seeing now.
What kind of productivity gains are you passing on?
There we are not discussing the amounts we are passing on, but in terms of what we're seeing as a benefit, we are seeing between 5% and 15% through. AI programs where we are working with clients where typically there are disparate systems. Internally, there are some things we have done which are slightly higher than that, but those are on internal, like if you look at our Finacle product, it's one uniform sort of code base in which we can get better productivity.
On the margin. Yeah, and on the margin work, if you. The 20 basis points of decline, the puts and takes of that. 100 basis points of headwind came from compensation-related factors. Hike that we gave in April, as well as the higher variable pay that we pay to our employees, or we'll pay to our employees for this quarter. 30 basis points was a headwind on account of currency. And, you know, 20 basis points for other factors. This was offset by 70 basis points of pricing benefit that we got both seasonally as well as, you know, the benefit that Salil was talking about from productivity and, you know, everything that we've been doing under Project Maximus.
40 basis points came because of the acquisition-related. Impairment that we did in the last quarter that was a one-off in the last quarter. So that was a benefit this quarter. And 20 basis points because our third-party cost was lower. Just to highlight, you know, our 2.6% of growth was despite the fact that our third-party revenue and cost were lower by 60 basis points.
Just [audio distortion] conversations with the clients? Has it improved in terms of the business demand? You know, are you seeing that tariff-related uncertainty or the caution is now over and they are starting to kind of, you know?
On a macro basis, what we see is there are clients, all clients are quite focused on enterprise AI, where we can share what is working, where it's working, especially with agents. There are industries, specifically logistics, consumer product goods, manufacturing, where we see the impact of the changes in the economic situations. Where we were at this time last quarter, there's also been several things which have been done, which gives more view and focus into what's going on.
Yet there are still some open items which are going on. We see, for example, from clients, there is quite a lot of attention on cost and efficiency of their own operations, even if they're not impacted by the changes in the economy. That is all going on, including some of the benefits that we are seeing from AI. Finally, on a macro level, we at this quarter in our large deals, we've seen a lot of deals where we benefited from clients making consolidation decisions.
Thanks, Bina. The next question is from Reshabh Shaw from Money Control.
Hi, gentlemen. Congratulations on a good set of numbers in a difficult quarter, in a difficult macroeconomic environment. I have a couple of questions. First on financial services. You know, two fiscals back, you had close to 28%. Now it's down to 27%. Is this a new normal? Is this a change in composition or are you losing market share?
Second, your active number of clients has reduced in the last, you know, two fiscals. This comes on the back of revenue growth in this quarter. Is there a pricing change? What are the benefits? What's driving this? Also, we see in the last two quarters that you have added in three-digit numbers. You know, is this a beginning of moving from pyramid to IP-led businesses? Thank you.
Let me start with some of that. Jayesh will add in. I think financial services, we are seeing a very strong traction. One of the things we've benefited from in financial services is if you look at, let's say, a large 20 clients, we have in half of them, we are the AI partner of choice with those clients. In many of those clients, we see benefits from consolidation. In many of those clients, we are in the forefront when there's regulatory change or big transformation, which includes tech and ops. Senses, we are well positioned in financial services. We are starting to gain much more traction, and we have a broad set of coverage both in geography and in capabilities within financial services.
On the clients, on the active clients, you know, you always have a long take. They come for small projects, and you know, some of them eventually become larger projects. Some of them, you know, eventually fall out, and after a few quarters, a few months, they come back in a way. I don't think the active client is a big matrix. Of course, it's a matrix to track, but more important in our mind is the $100 million, $50 million clients, how they grow and how they mind that once they become a sizable client.
On the IP, so there, what we are seeing is there's definitely a growth focus in what we are driving. What Jayesh mentioned earlier, we have a clear plan of recruiting people into this year, in this financial year, into the company, both from college, both laterally. We are also seeing some of our programs, for example, what we're doing in our insurance platform, what we are doing in our financial services banking platform in Finacle. Those are definitely areas where we see more and more IP.
We are also seeing places where, for example, in some of our work that we do in BPM, these are not IP, but they're more outcome-driven. There is a difference between what happens in the rest of the company, which is much more headcount than outcome. We don't see that there's a huge change in that. We still see that we have a plan of recruiting for this year, and it's on track with that.
Thank you. The next question is from Jas Bardia from Mint.
Good evening. I have a couple of questions. One is, has there been some sort of revenue cannibalization or probably a reshuffling of employees because of AI? Second is, more on a macro scale, if we look at eight years of your tenure and purely [audio distortion] Infosys under you has performed better than the peers. Third consecutive year where the industry has started to slow, including Infosys. Now, considering there's been a dearth of mega deals for the company, has the company run out of steam? If so, what is it because of? Macro uncertainty, client-specific issues, or just AI in general?
Thank you. That's good to know. The large deals are working very well. I think for us, the $3.8 billion is incredible. We have so many deals in there, one mega deal. We have deals which are focused on AI, deals which are focused on transformation, deals which are focused on consolidation. My sense is that whole approach is in good shape. We remain, I would say, at the forefront with clients on that. A part of where we see some of the changes is the overall economic environment.
My sense is that when that is in a place where we see more and more of the AI movement, which is happening well, and more of our other work, which is digital transformation, cloud, we are seeing, for example, tremendous traction on enterprise applications and how they're being driven in new changes. Those are the ones that will support the future, the next stages. AI itself, there's a whole piece which is around enterprise AI and productivity. We are also seeing there are new things that we can do with enterprise AI with clients.
For example, much deeper level of analytics, much deeper level of assessments, much deeper work on how they can optimize their business, not just for productivity, but for growth. Those will give us new revenue streams. There is a view that we've seen from the analysis internally where some of the addressable market in those areas is growing and quite good. We feel quite positive that over this approach that has worked, as you described for the last several years for Infosys, will continue to work for the next several years.
Thank you.
The next question. Veena Mani from The Times of India.
Good evening, gentlemen. A couple of questions here. We've heard reports at the end of April and through May that there were more freshers fired from the Mysore campus. Were these from the 2022 batch, if there's any merit to that? Also, does it say anything about the quality of freshers coming out of colleges in the last couple of years?
The second question is, Infosys moved to a hybrid form of interview process. Is that also related to how talent is being fleshed out from the market, lateral and freshers? Does it also have to do with the fact that because of virtual interviews, there have been people who misused that format? Now, Tata Consultancy Services has made its bench policy a lot more stringent by saying that people can be on the bench only up to 35 days. Is Infosys heading there, given that the market is not all that great?
Also, your ESG report had mentioned capability caution, that Infosys is moving from a digital caution to capability caution to mark the progress of its employees. How will that have an impact on the appraisal, on the hikes, and also the movement, you know, through maybe IJPs or also taking up projects on accelerate and other things, if you could help me with some of these? Again, Tata Consultancy Services, we've reported recently that there have been onboarding delays for laterals. Is that something that we see even at Infosys, given that the market is not all that great?
Thanks. There are several. Try to get through them. The first one was on the Mysore. I think there, you know, we have a rigorous process for hiring college graduates. They then go through a very focused foundational training at the campus. We expect that they meet assessment standards. All of the people who join us, they get three attempts to meet those standards. After the third attempt, if they do not meet, they do not continue with the company. This is a process that has been in use for the last 20 years.
It is something that is sort of important because we want to make sure that the quality that we are providing to our clients is based on these internal assessment standards that we have set. That is the approach that we followed there. On the bench point, I think was one of your other ones. We have no comment on the other company bench at Emphasis. You know, the way we have looked at this is employees are provided opportunities for training and through learning projects. Then they are deployed onto client projects when they are ready. That is the process we follow all through, and we have been following for a long time now.
Hybrid point of view.
Yeah. There, I think. We want to make sure that we put in place an approach that works well for the prospective employee and for the company. That's in part why we made some of the changes, keeping in mind. Even on our employee side, we have a very flexible approach. With respect to where employees are coming in. Every quarter for the last many quarters, we've seen an increase in the number of employees on campus. Overall, at a company level, we have a flexible approach. That's sort of one of the elements of that.
I think ESG report. ESG report. Yeah. On the ESG report, the digital versus the capabilities matrix that we have been using, I think, I do not think that is something that we use for the IGPs, et cetera. That is a matrix that is important from the ESG perspective. That is where we have started publishing that, but that is not necessarily imposing on the IGPs, et cetera, internally. The last question that you had was on the lateral hires. We have not stopped any of the lateral hires or deferred any of the lateral hires.
Thank you, Veena. The next question is from Avik Das from the Business Standard.
Hi, Salil. Two questions and one for Jayesh. Manufacturing seems to have really stood out in terms of the growth. You did point out that manufacturing, logistics, as well as consumer packaged goods seem to be under stress for all the obvious reasons. I just wanted to understand what really worked in your favor. Was it client-specific or what really went your way?
If you can also provide some outlook on North America. The growth has been nothing compared to Europe, but I just wanted to get your feedback on the biggest market. How is it performing, especially from the BFSI side? On the margins front, while the guidance has been narrowed, the margins still remain the same. Are you anticipating any margin constraint or pressure going ahead? Thank you.
Let me start with the first. Jayesh will also comment a little bit more on the industry, but let me start with the industry and North America. Financial. North America, we see very good traction across all businesses in financial, all geographies in financial services. Just in North America, if you look across all industries, while we have shown the growth where it is, we see that market, which is the largest for Infosys, in a very strong position. Yes, there are changes in the economic situation, but equally, there's good traction that we have. We have several other industries outside of logistics, outside of consumer product.
We see good activity, for example, in energy, utilities, for example, some of the work we're seeing in telco and so on. The market is quite strong. We see good traction with enterprise AI there as well, and good traction. Some of the consolidation wins that we have seen on the large deals have come from that market. Maybe on manufacturing and margin.
Yeah. So on manufacturing, you know, while we have called out softness in some part of the manufacturing, especially the auto industrial and Europe, I think we have benefited from the consolidation and we have benefited from the large deals that we have won in the past. We continue seeing softness or the concerns in terms of client spending in the areas that we have identified within manufacturing.
On the margins, I did give a walk earlier in terms of, you know, the puts and takes of 20 basis points decline this quarter. You know, 100 basis points was on account of comp and variable pay. 30 basis points was currency. 20 basis points was on account of investment that we made in sales. That was offset by, you know, the benefits that we got from Maximus, 70 basis points because of the pricing increase and the seasonality benefit.
40 basis points was one-off in the Q4 last quarter and 20 basis points was lower third party. As we go forward, I think the project Maximus is still running. The proof of that was, you know, you saw last year we delivered 50 basis point expansion despite multiple headwinds. We still see, you know, the project Maximus delivering on multiple counts. That will be offset by, you know, the headwinds like, you know, lower growth. We are now talking about 1%-3% growth.
The fixed cost will play out. The fixed cost to the growth areas will play out. The compensation-related things will play out because now we'll have a fuller impact on the compensation, et cetera. Some of the large deals will start ramping up and there'll be transition effort, et cetera, where we incur cost, but we do not get revenue in the first few months or weeks when the transition happens. All of that will be the puts and takes. We still aspire to increase margins from where we are.
Thank you, Avik. The next question is from Sanjana from the Hindu Business Line.
Good evening, gentlemen. Do you see any change in projects, you know, either ramping up or ramping down due to the geopolitical uncertainties or any reassessment on the client's end? Also, do you think that in FY2026 third-party cost and revenues will be lower than in FY2025? Because I think there was a, it contributed to a significant decline, at least in the last fiscal or last quarter. Coming to hiring, I can see that the headcount has increased marginally between Q4 and Q1 this year. Do you at all see any impact of AI and automation on hiring? Yeah, just these. Thank you.
On the first one, I think we see the changes in the economic outlook with all of the changes going on in the U.S. and Europe. We have not seen any change in a specific client or a specific project situation. It is more overall what we were sharing earlier. First, there is more emphasis on cost and efficiency across. There is some impact at an industry level if you look at logistics or consumer products or some parts of manufacturing like auto. We see a lot of benefits that we are seeing also because in this, like a cost or consolidation discussion.
We did quite a bit when clients have made some of those decisions. There we are okay overall from the perspective, which is partially what has helped us with the growth. I think on the hiring, recruiting, and people, we first have a plan for recruitment for this year for college and lateral. Revenue, we see with AI that there have been benefits that we see in terms of productivity. With AI, especially enterprise AI, there are more things that we are doing with clients because even things like the cloud transitions get accelerated or data and analytics foundations get accelerated.
Those programs are fundamental to making enterprise AI successful with clients. Those things give us more newer work. On balance, we see that overall that continues to be supporting our growth activity now, plus the consolidation side or the cost efficiency side. We will continue with our hiring plan for this year.
Thank you. The next question is from Ayanti Bera from the Financial Express.
Hello. Hi. I'm not sure if this has been talked about already. Just give us the underlying reasons that encouraged you to increase the lower end of your revenue growth guidance.
Yeah. If you look at last guidance, we had clearly called out that at the lower end of our guidance, we are expecting higher heightened uncertainty, right, in the environment. At the upper end of the guidance, we are expecting a steady to marginally improving environment. One quarter gone by [audio distortion] q uarter, we have a strong deal with. That is the reason why we have increased our lower end from 0% to 1%. At the same time, on the upper end, we still see possible uncertainty on the back of tariff and on the whole of macro environment. At the lower end, you know, the quarter performance and the deals that we have won gives us better confidence at this point in time.
Thank you. With that, we come to the end of this press conference. We thank our friends from media for being here today. Thank you, Salil. Thank you, Jayesh. Before we conclude, please note that the archived webcast of this press conference will be available on the Infosys website and on our YouTube channel later today. Thank you, and please join us for some high tea outside.