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Informist, Wednesday, Jul. 23, 2025

 

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--Infosys: Recent acquisitions contributed 40 bps to revenue growth Q1
--CONTEXT: Infosys' management's comments in post-earnings investor call
--Infosys: Higher realisation, lower third party costs aided Q1 margin
--Infosys: Near-term visibility good
--Infosys: Retail vertical clients spending muted in large geographies Q1
--Infosys: Underlying uncertainty in global environment unchanged Q1
--Infosys: US tariffs situation still escalated
--Infosys: Clients still on wait and watch in discretionary spending
--Infosys: See third party costs lower in FY26 vs FY25
--Infosys: Revenue growth, deal opportunities in Europe good currently
--Infosys: Growth in Oct-Mar may be lower than Apr-Sept due to seasonality
--Infosys: Clients in logistics, consumer products, auto constrained Q1
--Infosys: May face margin headwinds ahead from mega deals ramping up
--Infosys: Pricing model will not change in short term due to AI

 

By Rajesh Gajra and Ashutosh Pati

 

NEW DELHI/MUMBAI – The revenue growth in the June quarter was steady but underlying business environment remained uncertain due to lack of resolution on both US tariffs and geopolitical situation, the management of Infosys Ltd. said in a post-earnings call with investors and analysts. The underlying macroeconomic environment has not really changed and the US tariff situation still remains escalated, it said.

 

The Infosys management said clients are continuing to be cautious in their discretionary spending as reflecting in delayed decision-making. The near term visibility for the company is, however, good and the first half of 2025-26 (Apr-Mar) is likely to be stronger than the second half, it said. The revenue in the second half of FY26 may be lower than the first half on account of "normal seasonality", the management said.

 

The company's expectations of a good revenue growth of the June quarter to continue into the September quarter is based on the order pipeline and strong client demand for enterprise AI programmes. "At this point in time, our overall pipeline continues to remain strong (and) within that, the large deal pipeline is also strong," the management said in the investor call. It said it is difficult to take a longer term view beyond the first half.

 

In the June quarter, Infosys' consolidated revenue rose 3.3% sequentially, with acquisitions during the quarter contributing 0.4% to the overall revenue. An increase in realisations due to ongoing cost cutting and optimisation project Maximus and lower third-party costs aided the margin, the company's management said.

 

Among the verticals, Infosys signed nine deals in communications, six in energy, utilities, resources, and services, five in manufacturing, four in financial services, and two each in high-tech and retail, its management said. Uncertainty around US' tariffs led to a muted spending by clients in the retail vertical in large geographies. "There is a slowdown amongst clients on discretionary spend, though our pipeline is strong," the management said.

Infosys management said they see some constraints in logistics, consumer products, and some aspects of manufacturing such as automotive because of the current economic environment. "Manufacturing segment continues to face challenges in automotive, industrial, and European markets with decision-making delays and soft discretionary spending," it said. "In auto, we are helping clients in rationalising their footprints and in industrial we are helping them in cost optimisation," the management said.

 

The financial services vertical was the biggest contributor to Infosys' overall revenue during the quarter at INR 117.96 billion, up around 2% sequentially. The manufacturing segment's revenue rose over 4% to INR 68.04 billion, and the retail segment's revenue rose nearly 4% to INR 56.51 billion.

 

In terms of revenues by client geography, Infosys recorded a 30-basis-point on-quarter increase to 31.5% in the revenue share of Europe in the June quarter, while on a year-on-year basis, the share was even higher at 310 basis points. At the same time, the revenue share from North America came off to 56.5% in the June quarter from 57.1% in the previous quarter and 58.9% in the year ago quarter.

 

Infosys was one of the first companies to call out Europe as an opportunity a few years back, the management said. The company believes currently, too, there are opportunities in Europe with many of the large deals sitting there, it said. The company's deal pipeline, too, contains good amount of large deals in Europe, it said.

 

MARGIN HEADWINDS

Infosys' operating margin declined 20 basis points to 20.8% in the June quarter from 21% in the previous quarter. The management said in the remaining three quarters of the current financial year, the company aspires to improve its operating margin but is likely to face some margin headwinds.

 

 

"There will be headwinds from the mega deals or the deals that will ramp up, in terms of transition... where we don't get revenue but we incur costs," the management said. "So, these are factors that one will have to balance as we go through the year," on the margin front, it said.

 

On other hand, the management expressed confidence in third party costs being lower in the whole of FY26 compared with FY25. This will positively impact the operating margin of the company, according to the management.

 

To a question on whether the delivery model of the company will change due to advent of more AI capabilities, the management said this will not happen in the short term. But over a longer period of time, newer pricing models may emerge, it said. There could be outcome-based, product-based, and studio-based pricing models, the management said. The entire model, however, will not change over the next one year, it said.

 

Infosys released its quarterly results after market hours Wednesday. Its shares closed up 0.2% at INR 1,574.50 on the National Stock Exchange.  End

 

Edited by Akul Nishant Akhoury

 

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