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Steady quarter; subdued H2 guidance

Infosys delivered an in-line operating performance in Q2. Revenue grew 2.2% CC QoQ, aided by ~20bps contribution from M&As and improved realizations from Project Maximus amid soft volumes. EBITM expanded by 20bps QoQ to 21.0%, coming in slightly lower than our estimate. Large deal TCV in Q2 was strong at USD3.1bn, of which 67% is net new. In addition, Infosys signed a USD1.6bn mega-deal with NHS (100% net new) after the end of Q2; the deal will start ramping up within the current fiscal year. The company has narrowed its FY26 revenue growth guidance to 2-3% CC (earlier 1-3%), implying CQGR of -0.2% to -1.5% in H2. H2 is expected to be seasonally softer due to fewer working days, furloughs, and calendar effects, and the revised guidance incorporates elevated uncertainty at the lower end and a stable environment at the upper end. The guidance does not include any revenue from the Telstra JV (expected to close in H2; Versent reported FY25 revenue of AUD211.4mn). It has retained EBITM guidance range of 20-22% for FY26. We largely retain FY26-28E EPS, factoring in an in-line Q2. We retain BUY on the stock with TP of Rs1,650 at 21x Sep-27E EPS.

Results Summary

Revenue grew 2.7% QoQ (2.2% CC) to USD5.1bn, in line with our estimate of USD5bn (2.1% CC). EBITM expanded by 20bps QoQ to 21%, a tad below our expectations of 21.3%. This increase was owing to tailwinds from Project Maximus (30bps; via RPP increases, value-based selling, and lean automation), and currency movement (60bps), partially offset by higher post-sales customer support, subcontracting spends, and other expenses (-70bps). Among verticals, BFSI (5.4% CC YoY), Manufacturing (6.6%), EURS (2.1%), Communications (4.7%), and Hi-tech (8.6%) saw growth, while Retail and Life Sciences declined 2.3% and 10.5%, respectively. Infosys signed 23 large deals with total TCV of USD3.1bn, of which 67% is net new. Headcount was up 2.5% QoQ, to 331,991. LTM attrition was flat QoQ at 14.3%. The company has declared a dividend of Rs23/sh. What we liked: Broad-based revenue growth, healthy large deal intake. What we did not like: EBITM miss; implied CQGR guidance for H2.

Earnings call KTAs

1) In BFSI, momentum is visible in mortgages, capital markets, commercial banking, and wealth management. The mortgage sector is showing signs of acceleration due to the recent interest rate cuts. 2) Manufacturing faces macro and trade uncertainties, with continued focus on AI and automation-led productivity and app/infra rationalization. 3) ERS clients emphasize cost reduction, vendor consolidation, and AI in tech operations; utilities are investing toward DC-driven electricity demand, including grid modernization and AI optimization. 4) Retail remains cautious amid tariff uncertainty; clients are seeking productivity improvements to counter inflationary pressures…(contd)…5) In Hi-tech, cost reduction remains a central theme, leading to budget cuts and program closures with selective opportunities in semiconductors and GenAI. 6) Communication continues to face growth challenges and high capex pressures. 7) GCCs are emerging as key buying centers and could potentially create new opportunities for IT companies, to support their ongoing transitions. 8) The management highlighted that while easing interest rates provide some cautious optimism, geopolitical tensions and tariff-related risks continue to contribute to an uncertain environment. 9) Infosys signed 23 deals in total, in Q2 – six in BFSI; four each in Communication, Manufacturing, and Retail; three in EURS; and one each in Hi-tech and other sectors. Geographically, 14 deals were signed in America, seven in Europe, and one each in India and RoW. 10) The deal pipeline and signing momentum remained strong, as reflected in the signing of six large deals during the quarter. 11) The management reiterated reduced dependence on US H-1B visas via localization, nearshore expansion, and local hiring, and expects a gradual shift in mix, toward more nearshore/offshore projects, which could thereby boost margins. 12) The company added 8,203 employees in Q2, with over 12,000 freshers onboarded in H1.

Update on AI / Gen AI

1) Infosys Topaz underpins two frameworks—Services.ai to accelerate IT and operations with integrated human/AI agents’ and Client.ai to drive enterprise-wide transformation; these are supported by 22 industry blueprints and more than 400 tailored agents. 2) The company has delivered over 2,500 AI and GenAI projects and >200 agentic AI initiatives for clients globally. 3) Infosys has been deploying GenAI at every stage – from transformation planning to largedeal operational scaling in client engagements. 4) The company has been incorporating AI for various use-cases, which are driving productivity benefits for clients. 5) The management sees modernization powered by AI as a major growth opportunity, especially as tools mature.

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