Infosys Ltd Q2 FY2026 Earnings Call

A very good evening, everyone, and thank you for joining Infosys' second quarter financial results. My name is Rishi. And on behalf of Infosys, I'd like to welcome all of you. As always, we request one question per person. And with that, let me invite our Executive Officer, Mr. Salil Parekh, for his opening remarks. Over to you, Salil.

Thanks, Rishi. Good afternoon. Welcome, everyone, to the campus here, and welcome to our press conference event. We had a strong performance in Q2. Our revenues for the quarter grew 2.2% sequentially and 2.9% year-on-year in constant currency terms. Our operating margin was 21%. Our large deals were at $3.1 billion, out of which 67% was new or net new work. In addition, we announced a mega deal worth $1.6 billion after the close of the quarter, before today before our results announcement. We've added 8,000 employees during the quarter. Our client interactions are showing a strong focus on deploying AI across the enterprise, both for growth and for cost efficiency programs. In doing this, we are continuing to scale our team of forward deployed engineers. With a strong performance in Q2, we changed our revenue growth guidance for the financial year. The new guidance is growth between 2% and 3% in constant currency terms for the full year. And our operating margin guidance remains the same as in the past quarter at 20% to 22% for the full year. With that, 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.

Salil, firstly, on the guidance, the fact that you've tightened it, but not really increased it from 1% to 3% to you've gone to 2% to 3%. And with a 2.2% growth this quarter as well, at the current run rate, you'll at most have a flat growth for the rest of the year for Q3 and Q4 with the current guidance, you'll easily get to the top end. So I wanted to understand, are you not seeing a meaningful recovery, especially when it comes to your manufacturing, retail, these kind of verticals? What kind of headwinds do you continue to see? Because for Infosys, the contribution to revenues is slightly larger than peers. That was one. Also on the H-1B visa issue, if you could give us some details on how many employees you deployed on this visa for this year and the previous maybe a couple of years? And whether you see now this as being something unviable, sending freshers on H-1B visas to work in the U.S. If I may also ask, your peers like HCL Tech have also started to quantify their AI revenues. We've been asking you this for several quarters now, and we understand AI cuts across services and sectors. Could you give us a sense of what exactly you're seeing there? And finally, the Versent Group acquisition, what exactly was the contribution to revenues and whether you're looking at further M&A in the region or outside?

So let me start, and Jayesh will add in a couple of things. First, on the guidance and the environment. So in the guidance, typically, we have the second half of the year is slower than the first half. That's the normal pattern. So we've continued with that pattern. Having said that, we've seen good traction, and that's how we've actually increased the guidance. The previous guidance was 1% to 3% and now it's 2% to 3%. So in a sense, we have much more confidence with the lower end being increased in what we see into the outlook for the year. In terms of the specific industries you mentioned, we had a good performance on manufacturing, on financial services. We still see constraints in retail. We do see a good pipeline there, and we will see how that plays out in the coming quarters. Keeping all those things in mind and the global environment in terms of the macro, we decided to keep the guidance at 2% to 3% with all of those factors that I mentioned. On the H visa, what we've shared in the past, what we've shared recently, first, our U.S. workforce, the number of people that require Infosys sponsorship for immigration is a minority. So the majority of the people don't require it from our perspective. Second, we've built a large number of centers and hubs, which are focused on digital, on innovation, on technology and AI in the U.S. We have relationships with universities. We have a training facility there. With all of that in mind, we are clear today that we will work with our clients without any disruption to their services and into the future. We don't have any specific information to share on the numbers that you had suggested.

When you say a minority was dependent on the H-1B visa, could you give us in percentage terms, how many of your employees that you were sending abroad were on these visas? And when you say there won't be any disruption, how exactly would that play out?

While we don't disclose specific numbers, the majority of our U.S. employees do not require any Infosys immigration support. In working with our clients, we reached out to each of them to ensure delivery continuity is on track and will remain so. Regarding Versent, there is nothing in this quarter; they are going through the usual regulatory approvals, which we expect to occur in the coming months. We are actively looking at other acquisitions and have a strong pipeline; we do not know when they will materialize, but there are opportunities we are pursuing.

Sorry, the question on Versent was going forward, what kind of contribution to revenue do you expect? And in M&A, what are the areas? What are the geographies where you're looking to fill the gaps?

On the contribution, we don't have anything to share now. When it closes, we will be in a position to give that information. Is there anything more on Versent?

I think we have given the last year's numbers of Versent already in the stock exchange filings that we did last time when we announced that. So you can make an estimate based on that. But just to add to what Salil was saying on the guidance as well, if you look at the commentary last time when we gave a guidance, we very clearly said that the upper end of the guidance is where we are expecting stability in the environment and the lower end of the guidance is where we are expecting worsening in the environment, right? As we stand today, the environment still remains uncertain. And despite that, on the back of Q2 performance, we have tightened our guidance where again, we are very clearly saying that at the lower end, we expect the worsening of the environment and the upper end, we are expecting stability in the environment, right?

Okay, thank you.

On AI, I think we are scaling up massively on AI. We have a large team of FTEs. We are doing a lot of projects on enterprise AI with clients, on growth, which is focused like in the sales function or marketing function, on cost, which is focused on many of their processes, optimizing them on customer service, on code development. So there's a broad set of AI work that we are doing with our clients. There's a large number of clients for which Infosys is today the AI partner of choice. So we're going quite well. We have strong partnerships with a lot of different large tech companies. We believe there's a huge amount of opportunity in the enterprise AI space. And with our experience on how to navigate within the enterprise landscape, we are quite well positioned to help with that.

The next question is from Jude from ET Now.

Salil, congratulations on that performance. You spoke about scaling up on the AI front. Could I get you to throw some light on what those specific deals are like? What is the AI order book shaping up to be at this point in time? And more importantly, what will your hiring trends be like for the rest of FY '26? And I know for a fact that you have the confidence, which is why you've raised the lower end of the guidance, but what is the overall demand environment shaping up to be like for the fiscal?

So on AI, I think what we see today is a lot of interest where there's deep work going on, whether it's on a specific knowledge process or it's in credit risk or there's work doing on software development or there's work going on, on customer service. So a broad area of AI projects that we are working on. In some cases, we're working across an enterprise on transforming that enterprise from an AI perspective and making them the leading enterprise in their industry in AI. So good traction there. In fact, we have more and more of this that we want to start to share in the sense of what are the approach that we are taking, how it's working, and you'll see that as we go through in the next few months. On the environment, as Jayesh was sharing, the environment is still uncertain. And what we see today is some changes in where the global environment macro is looking. We still see in some of our large markets that there is growth, but there's also some inflation, there's job creation, which is constrained. In some other markets, there are cost constraints, some industries are seeing that. So that's a mix. Equally, we are seeing a lot of strength, for example, in financial services. Our client base is doing very well. We see extremely good growth. We've seen good growth in manufacturing in this quarter. We have a portfolio where we are across all of these different industries, which helps us to deliver the kind of performance that we've delivered for this quarter. On terms of hiring...

Yes. So if you look at our hiring for this quarter, our net addition is already at 8,000. We had given a guidance in terms of the fresh hiring for the year, and we had said 15,000 to 20,000 what we expect. We have hired in the first half, 12,000-plus freshers already. So we are well on our track to hire close to 20,000 this year.

The next question is from Uma Kannan from Deccan Herald.

In the last couple of years, Europe has been constantly outperforming for you. So what are the factors driving that? And can you give us some update on Project Maximus and its impact on your performance? And one more on fresher hiring. Have you onboarded all freshers whom you have offered?

On Maximus and hiring, Jayesh will follow up. Europe has done extremely well for us. We made good investments across several European countries. Especially over the past two years, many companies in Europe have begun to adopt the services we offer, focusing on both transformation and cost efficiency, and we've performed well in those markets. That said, the U.S. market remains very strong, and we will continue to grow, make acquisitions, and invest in both markets and other regions around the world.

Yes. So on hiring, as I said earlier, we have hired net 8,000 employees, and we have hired 12,000 freshers this half already, and they're already being onboarded as we speak. In terms of Project Maximus, I think Project Maximus is continuing to deliver. If you look at last year, we expanded margins by 50 basis points despite multiple headwinds, compensation related. We had a higher variable pay. We had impact coming from the acquisition and multiple mega deals that we signed in the year before they were ramping up. So we absorbed all of those headwinds, and we were able to expand margin by 50 basis points. Even this quarter, if you look at, we expanded margin by 20 basis points sequentially and the Project Maximus has delivered 30 basis points out of that, where pricing gave us a tailwind and that was offset by higher subcontracting and lower on-site utilization. So the project is in works.

The next question is from Beena Parmar from The Economic Times.

Salil, you've seen some reduction in your contribution from your top five and ten clients. Could you give us some sense why that is happening, and how do you see that over the next two quarters? Regarding hiring, what outlook do you have overall for campus and off-campus hiring, especially given current dynamics where the deal pipeline has been strong but the market remains uncertain? In terms of the pipeline, where is the growth coming from, which sectors and which geographies? And finally, in terms of margins, what levers do you have given that you've already implemented wage hikes and also plan to onboard freshers?

Let me start with the pipeline view and some of the other points; Jayesh will look at the rest, and you can combine those. Our pipeline remains very strong right now on large deals. What we are seeing is many of our clients are quite focused on cost optimization and consolidation. We are benefiting from consolidation plays around automation and using AI for efficiency. That's the big focus we see from our clients across industries, and I'll come to the specific industries. We also see attention to using AI for some growth activities and for what we can do with an AI transformation. Within that, some of our industry segments have pipelines doing well. For example, in financial services we see good traction with clients. We see good traction in manufacturing. Our pipeline in retail looks good, and we are working on converting that. The overall sentiment is a strong large-deal pipeline with much more focus on cost efficiency, automation, and similar activities.

On the client contribution...

Margin and hiring.

Yes. If you look at client contribution, those changes are very marginal. There's not much to read into it because certain projects always ramp up and ramp down. In terms of margin tailwinds and headwinds, as we get into the second part of the year, which is the seasonally softer period, we have lower working days, furloughs, etc., which will be a headwind. We also have Project Maximus across multiple tracks that will continue delivering. Pricing is one track, and lean and automation continues to deliver value. We are running and optimizing large portfolio programs, which will become a tailwind. As the newer hires get onboarded to projects, the pyramid starts to deliver benefits as well. I think all of those will become a tailwind.

In terms of the acquisitions, how much has it contributed? And how much will it contribute in terms of the guidance that you've given?

So this quarter it's only 20 basis points of the 2.2% because two months were already baked into last quarter. That is already included in the guidance; there is nothing additional newly baked into it. The Versent project we talked about, the joint venture in Australia, will only be included once we close it.

In the guidance also, you expect it to be around 20 bps in the Q3 and Q4?

No. That's already in the run rate. So it's already in the run rate. There's nothing additional that we are baking in from that perspective.

One last thing. In terms of the AI talk that's going on, your larger rival has kind of announced their AI, sorry, your immediate smaller rival has announced AI contribution to the revenue. Could you tell us if you would be looking at anything of this sort this year in the next quarter or fourth quarter? And when do you see that happening, if at all?

So there, our focus has been to mainly share what we are doing on AI externally, and that's what we are doing. We, of course, track all of that internally. And as the right time comes, we will start to share that externally.

The next question is from Jas Bardia from LiveMint.

Just a couple of questions. As per your AI strategy, would you continue with the current asset-light model of embedding AI in your software services? Or are you looking at entering the AI infrastructure play and probably deploying huge amounts of capital? Second question, as part of the legacy modernization deals, are you seeing more business on a net-net basis because of AI tools being used to modernize those applications?

So on the modernization first, I think, in fact, modernization is a huge opportunity because of AI. So what's happening with modernization is in the past, without the AI tools, you could do modernization, but clients needed a longer time horizon. With some of the AI tools, the time horizon becomes less. And as a consequence, the ROI for the client on that program is much better. So what we anticipate now is, as the AI tools mature, we will see more and more of them being deployed on the modernization programs. On the first part, I think we are comfortable with the strategy that we have today.

The next question is from Veena Mani from The Times of India.

I want to understand this against the backdrop of the H-1B issue. Over the past few years Infosys has been strengthening its nearshore centers. Could you give me a sense of how those centers have grown? At this point, how many of your employees are based in nearshore locations? What will your nearshore strategy be now that the U.S. has made H-1B rules much stricter? You mentioned a mega deal — can you tell us which sector it is in and what AI element is embedded in it? Regarding the fresher hiring of 12,000, what proportion of those freshers are premium talent, meaning they already have skills rather than being plain vanilla?

So on the mega deal first, I think there, we've already announced it. It's with U.K. NHS. That's the one you're referring to. We made the announcement just after the close of the quarter. It's a complete transformation of what they are doing. We're supporting it with many new technologies, and AI is very much part of it. It's a huge program in the way that they have trusted us to deliver it. And we work with many different partners to make sure that all of this is delivered effectively for them, but it's just the start. As we go through it, more of that will become public. On the nearshore, so nearshore has been a huge success for us. Many years ago, we started the approach within our strategy of localization in each of our geographies so in Europe, in Australia, in U.S. and that has really matured a lot. So part of that is we are hiring local people in each of the geography. And part of that is we are building the nearshore centers, whether those are in the U.S. and around the U.S. like Canada or Mexico or other places in Latin America or in Europe and so on. So that part has really gone extremely well, and we feel quite confident that, that will scale even further with all the changes there.

There is a question on fresher hires...

Yes. So on the freshers, we don't really split out how many of them are higher skills and how many of them are the regular skills, but every fresher will go through the certain trainings depending on the requirement and depending on the skill set. So we will execute on that.

The next question is from Rukmini Rao from Fortune India.

Salil, at the board level I wanted to understand: in extremely uncertain conditions when you don't know what will happen tomorrow, what discussions are taking place at the boardroom table about how to deal with that? Are you making additions to your contingency plans? Also, you disclosed a DOJ investigation related to H-1B matters and an internal investigation—can you provide clarity on what is happening and the nature of the inquiry within the company? Finally, on AI and the partnerships you have with hyperscalers, especially given what happened with Deloitte and the relative novelty of these technologies, what kinds of indemnities are included in those contracts if something goes wrong with a hyperscaler platform? Is the entire risk on you, or do they share any of the risk? If things go wrong, the monetary impact can be huge for any party.

So on the first one, I think we are fortunate with our Board to have people, of course, with Nandan there, who are really very experienced in looking at global situations and looking at things over the years. So the Board is quite well prepared. The type of environment is different. But equally, the Board is well prepared to understand and work with what those uncertainties are. The Board looks at different ways and scenarios of what could play out, not from a quarterly business perspective, but much more from how we should look at overall. We, of course, have a risk committee that works extremely well. And in that, many of these different scenarios are looked at carefully and evaluated on a regular basis, but with a lot of attention, as I said, with someone like Nandan being on the Board and many of the other Board members that we have. On the partnerships, so there's a lot of new things happening in AI, and the questions that you ask on liabilities and so on are still not fully clarified from a legal perspective. So we've been quite clear and careful in making sure that we can take on the responsibility for what we have control for. Beyond that, it's difficult to show whether it's in a discussion with the client or with the partner, that's the sort of guideline that we use. And on the investigation, we have no comments at this stage.

The next question is from Sanjana from The Hindu BusinessLine.

I want to understand: you’ve made several acquisitions this calendar year. Can you comment on the organic initiatives you are pursuing and their contribution to overall growth? Also, some of your peers and you announced a major public sector deal, and peers are announcing many deals—will you be examining the public sector more closely across your geographies? Regarding the recent buyback announcement, could you elaborate on the contours of the buyback and how the size and pricing were determined? Finally, can you provide commentary on the outlook for H2 FY '26?

Okay. Let me start with that. On the public sector, we've always paid attention, and now we're even more focused across different markets. We've done well in Australia, have a decent small business in the U.S., and are beginning to expand more in the U.K. So we absolutely have a focus on it. We also find the public sector is opening up to this change and the capabilities we bring, showing much more interest. In India, we have done impressive work with income tax and GSTN, so we have strong experience there that we can now leverage globally. On the inorganic side, our focus is on ensuring the business grows well organically while maintaining a strategic view on acquisitions. Acquisitions are a main driver of growth in that sense, particularly when they add capability in an industry, a skill area such as a service line, or a geography where we want to expand. Examples include energy and consulting, cybersecurity, and recent deals focused on digital, AI, and cloud. These are the areas we focus on, and we will continue at that scale, with organic work with our clients remaining the primary priority.

The buyback?

The buyback, yes, let me just start and you can add. So the primary approach, we have a capital return policy, and that guides all of our decision-making on that. So in that, we have a policy where we return 85% of our free cash flow over a 5-year period. And then we have in that each year, our regular dividend, and then we have other ways of returning. So that's the guideline. And then Jayesh, you can add more.

Yes. So within that guideline, if you look at we are in the second year right now. Last year, we had a very strong cash flow on the back of tax refund that we got. So we had a headroom in terms of returning additional capital back to the shareholders. And as part of that, we looked at various options, and one of that was buyback, which is what we're executing. The amount is INR 18,000 crores at INR 1,800, which we will be executing. At this point in time, we are awaiting shareholder approval. The postal ballot is already out.

Salil, Ritu again from CNBC. Since we haven't got a very clear response in terms of your outlook for what happens with these H-1B visas. I mean, very simply to just answer the question, do you think it's viable to continue sending your employees on these visas? Are you going to participate in the next cycle? Or is there going to be a significant pullback even in this minority number that you currently have?

So, as I shared earlier, today in the U.S. the majority of our people do not require any Infosys immigration support. What we do in the future will be guided by how we work with our clients and how we scale up what we've been doing there in terms of nearshore, local hiring and the localization efforts we've been working on. That's the approach we will take. We've been working with our clients over the last few weeks to make sure that service delivery continuity and business continuity remain intact.

Are you as a company required to pay that large sum of money to send your employees to the U.S. anymore?

Regarding the H visa, the response I have is what I've shared earlier, and that's what we can share.

On the Egypt subsidiary, is that anything got to do with the North Africa market? Or just broadly wanted to understand why that? And also, Jayesh, the subcontracting cost has gone up. So is that very niche? Is that AI skill sort of people that you are adding to this, just to understand?

So the Egypt subsidiary was set up to meet the needs of a specific project. We had to establish an entity because the client is based in Egypt and we needed to send people, and that's how we expand globally. Subcontractor costs keep going up and down depending on the requirement, the demand environment, and the talent we need to fulfil those needs. Some of that is for new-age skills like AI, and some is for regular skills depending on the project and location.

Thank you. With that, sorry, okay, go ahead.

Your fact sheet, yes, your voluntary attrition has marginally dropped from the previous quarter. But if you look at it from the previous year, it has increased. In this sort of a market, what is leading to this increase in the voluntary attrition? That's number one. The other thing is about your Hubli campus. You've been giving your employees cash incentives to move to the Hubli campus. But have you directly recruited there? From what I hear is that Infosys is not directly hiring at the Hubli campus and is going to wait until the next year to get people locally into that campus. If you could tell me a little bit about that?

Yes. In terms of campus movement, you need certain senior people to relocate to those campuses to meet demand. We incentivize selected employees to move to those campuses and then build the team beneath them. There is nothing beyond that, and we have been and will continue hiring locally in Hubli as well.

Not yet hiring locally?

We have. We have hired few people in the Hubli.

At what seniority level?

We don't give out numbers by campus. So yes.

Is the hiring done in January and April?

So yes, we just did it in January and April. We will decide soon. It's generally an annual cycle. So we will look at it in future. We have not decided anything for this year at this point. Yes.

With that, we come to the end of this Q&A session and the press conference. We thank our friends from media. Thank you, Salil, and 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.