Infosys Ltd. Q4 FY2025 earnings call

• FY '25 was excellent with revenues growing 4.2% in constant currency, operating margin 21.1%, free cash flow $4.1 billion, and $11.6 billion in large deals. - Q4 had 4.8% year-on-year revenue growth and 21% operating margin. - Clients are moving to AI-led transformational approach, using Infosys Topaz for AI projects across various areas. - Strategic expansions via acquisitions in energy consulting (U.S.), cybersecurity (Australia), and a new strategic partner in Japan joint venture. - In FY '25, revenue in rupee terms was 6.1%, EPS grew 8.3% normalized, DSO reduced by 5 days to 69, headcount ended at 323,578 with 6,000 increase, attrition 14.1%. - Project Maximus initiatives contributed to margin improvement despite headwinds like salary increases and acquisition amortization.

For FY '25, revenues grew 4.2% in constant currency terms, operating margin was 21.1%, and free cash flow was $4.1 billion. In Q4, year-on-year revenue growth was 4.8% with an operating margin of 21%. Europe grew 3 times the company rate in constant currency terms in Q4 and now accounts for 30% of revenues. Financial Services and Manufacturing grew double digits year-on-year in Q4 at 12.6% and 14% respectively in constant currency terms. Sequentially, revenue declined 3.5% in constant currency terms due to third-party cost reduction and seasonality.

• FY '26 growth guidance: 0% to 3% in constant currency terms. - Margin guidance: 20% to 22%. - Guidance excludes the recently announced acquisition as it hasn't closed yet.

• Uncertain macroeconomic environment, including tariffs, market uncertainties, and trade issues. - Impact on client budgets and decision-making, with potential delays in discretionary spend and larger deals. - Volatile energy prices affecting certain sectors.

Q: On the fourth quarter, can you talk a bit about the linearity?

A: Two-third of the decline was on account of third-party costs and revenue related to slipped deals, with the balance due to usual Q4 seasonality and volume decline.

Q: The guidance, does it imply a normal seasonality for the year?

A: Yes, but there's heightened uncertainty, so the guidance range accounts for different scenarios.

Q: Are you infusing AI into existing projects which might lead to revenue deflation?

A: AI is part of new deals and used in existing programs, and benefits are seen without significant revenue deflation concerns.

Q: Could you expand on the underlying assumptions and top end of guidance?

A: Guidance is based on multiple models considering different environment scenarios, with top end assuming steady to marginally improving environment.

Q: How is AI changing pricing discussions?

A: AI leads to discussions on efficiency gains in areas like customer service, with benefits shared with clients in various ways depending on the client situation.

Q: What about third-party costs spillover and Q1 visibility?

A: Some third-party deals slipped, and visibility for Q1 is uncertain due to ongoing macro uncertainties, with guidance reflecting current seen conditions.