Infosys Ltd. Q2 FY2025 earnings call

• Strong Q2 performance with robust and broad-based growth, stable operating margins, strong cash generation, strong large deals, and increased employee headcount. Revenue grew 3.1% QoQ and 3.3% YoY in constant currency. - Large deals were $2.4 billion, pipeline of deals below $50 million saw double-digit QoQ increase. - Operating margin for Q2 was 21.1%, free cash flow $839 million, employee attrition 12.9%. - Launching employee compensation increase in two phases. - Deepening work in generative AI, working with clients to deploy enterprise generative AI platforms, building small language model, launching multi-agent capabilities. - Partnering with clients to build data foundation for generative AI, e.g., working with logistics major using Topaz for operational efficiency.

In Q2, revenue grew 3.1% quarter-on-quarter and 3.3% year-on-year in constant currency terms. Financial services grew at 2%, manufacturing had double-digit growth, energy, utilities and services at 5.8% quarter-on-quarter. All geographies saw quarter-on-quarter growth. Europe is approximately 30% of revenue. The financial services segment in the U.S. has discretionary spend increase in capital markets, mortgages, cards and payments, while there's slowness in the automotive sector in Europe.

• Revised revenue growth guidance for FY25 to 3.75% to 4.5% in constant currency. - Operating margin guidance remains 20% to 22%.

• Political conflicts and higher interest rates influencing spending patterns, causing clients to focus on cost optimization. - Slowness in the automotive sector in Europe. - Retail sector impacted by economic and political uncertainties, with cost takeout efficiency and consolidation as key priorities for clients.

Q: Reasons for changing revenue guidance?

A: Multiple factors including H1 performance, broad-based Q2 performance, momentum in volumes and financial services, and increase in smaller deals below $50 million.

Q: Gen-AI adoption and large deals?

A: Gen-AI is part of large deals, focusing on productivity, not driving large deals alone but a component of them.

Q: Margin tailwinds in H2?

A: Tailwinds from Project Maximus, including pricing, realization ratios, optimization, etc.

Q: Traction on gen-AI work?

A: Building generative AI platforms, agents, small language model, with some good traction with clients but adoption in early stages.

Q: Seasonality and guidance?

A: H1 stronger than H2, H2 has seasonality factors like furloughs, lower working and calendar days, baked into guidance.