A very good evening everyone, and thank you for joining Infosys' second quarter financial results. My name is Rishi, and I would like to welcome all of you.

One question. With that, I'm going to hand it over to Salil for his opening remarks.

Over to you, Salil.

Thanks, Rishi. It's good to see that everyone listens to you so well.

Good evening, and welcome everyone. Thank you for joining us.

Our revenue growth for Q2 was 1.5% year-on-year and 1.2% sequentially in constant currency terms. AI revenue was a standout at 10.5% of our revenue, growing at 29% sequentially, and last quarter it was at 8.2%.

Large deals were another standout at $5.2 billion for the quarter. This includes two mega deals.

One of these mega deals was for over $2 billion with a large international company for a period of seven years, and this is net new. This deal is expected to contribute over 1% revenue growth in the coming financial year.

The second mega deal was for $1 billion for a renewal. Our large deal pipeline is healthy and includes some other mega deals in this pipeline.

Operating margin was stable at 21%. Free cash flow was strong at $922 million for the quarter.

As enterprises adopt AI at scale, another quarter of strong growth in AI revenues is a recognition of our differentiated market positioning and client confidence. As an ecosystem integrator, we continue to work closely with the frontier model companies, both open-weight and closed models.

Our deep investments in Topaz fabric help our clients seamlessly navigate between models to ensure token optimization and value realization. Infosys continues to gain market share, especially where economics of the program is aligned to the stakeholder interests.

We remain the preferred AI strategy and deployment partner for our top clients. As AI remains central to enterprise transformation in the years ahead, Infosys is well positioned to help navigate this shift.

Based on our Q2 performance and revised outlook for the rest of the year, our revenue growth guidance is 1% to 2% year-on-year in constant currency terms. Our operating margin guidance remains at 20% to 22% for the year.

Thank you, and with that, we can open it up for questions, Rishi.

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 Meghna Sen from CNBC-TV18.

Thank you very much. My first question is on your guidance.

You have narrowed both the lower and upper end. Could you help us understand why?

Explain the margin performance, the benefit of rupee depreciation, any offset, and loss due to deflation, etc. Did your salary hike also impact your margins in the second half?

Third is, your AI revenue is 10.5% of your Q2 revenue. How many deal-won have AI element?

With AI jitters globally, is there a change in business? Fourth, how are your December quarter furloughs shaping up versus last year?

Which sectors look the most vulnerable?

Let me start off with some of them, and Jayesh will also jump in with some of the other ones. First, AI is really an incredible performance for us.

It's 10.5% of our revenue, growing sequentially 29%. We had laid out the AI approach in the hexagon with six different areas of focus.

In this revenue mix, we see each of those areas growing well, especially things that we do where we're building agents, where we're doing legacy modernization, where we're doing process AI, where we're doing data AI. Those are growing exceptionally well, but all of them are doing well.

Then we have the partner ecosystem with that, that is really gaining momentum. I think in terms of the global AI, what you asked, our attention is really much more on the large enterprises with which we are working.

For them, this is starting to become more and more relevant. With the investments we made and built the Topaz fabric and the capabilities we have, plus all the training that we've done for all of our people, which many and more are certified now, ready to do work with different partners of the frontier companies, that is where we're getting the good traction with the enterprise clients.

I'll spend a couple of minutes on the industries. I think what we see, and Jayesh will add more to that, we see really good strength on the financial services, we see good strength on energy utilities, we see good strength on the manufacturing, and we see some weakness on the retail, and we see some weakness on the high-tech.

It's a mix of all of those that we have put together in how we see this. Then maybe on the guidance on the margin.

If you look at our guidance, our last guidance was 1.5% to 3%. We had clearly called out at 1.5% we expect even more uncertainty.

Our Q2 has been softer and our volume continues to remain softer. We have also seen pricing pressure on the back of competitive intensity and higher ask on productivity.

All that is baked in in our revised guidance as we look forward. On top of that, as Salil said, some of the sectors we see softness: retail, high-tech, where discretionary is lower than what we were expecting.

All of that is reflected in our guidance on the revenue, and which is where it's 1% to 2% now. Our margin continues to remain at 21%.

I think it's a strong performance on the back of all the efforts that we have put in in Project Maximus. We have, if you look at last many years, we have been able to maintain margins despite investment in business, whether it is sales and marketing, whether it is AI-led investment, talent investments, and all of that.

If you look at put-and-takes of this quarter, the margins have remained flat. We had a 70 basis points of impact on post-sale customer supports, which is a delta between two quarters.

Last quarter we had a reversal. This quarter it's an impact, it's a difference in that.

We had a 20 pips coming from our acquisition, one month additional impact. Last quarter only two months of impact, one month additional on account of amortization, etc.

That was offset by tailwinds of currency: 40 basis points coming from the currency, 20 basis points coming from a higher calendar and working day, and 20 basis points from the Project Maximus. That kind of sums up the margin walk.

As you look forward, the next half, which is the H2, we will have impact coming from compensation, as you rightly said, so that will have a headwind. We will see continued intensity on pricing, we will see that as a headwind.

We will continue working on Project Maximus to offset as much as possible from there.

Thank you. The next question is from Mansi Dave from ET Now.

Hi, good afternoon. Starting with the guidance, which is revised downward from 1.5% to 3% to 1% to 2% on a constant currency growth basis, how much is the weak demand and market pressure affecting, and what has changed in the demand environments, plans ahead, if I may ask?

AI monetization: well, the AI as a percentage of revenue for Infosys this time is quite strong, and greetings to you all for that. AI is helping clients improve productivity, but it can also reduce traditional billable work.

Is Infosys managing to monetize AI-led opportunities fast enough to offset pricing pressure as its traditional services business? Lastly, hiring and productivity: so can hiring plans coexist with margin protection?

Because plans to hire around 20,000 graduates in FY27, if I'm not wrong, how do you balance investments in talent with margin discipline? Thank you.

On the AI first, I think the AI revenues have been outstanding, as you pointed out. We have exceptional growth in that, and that shows really how we've put together the AI approach within Infosys, which is resonating with the clients, and the six dimensions of the hexagon in which each area that we are investing and scaling up in, and then the foundation that we built on the Topaz fabric that helps our clients.

There we see many examples of projects that are going extremely well. These are scaled projects.

Even in the large deals that we referenced, almost all of them have some component. One or two of them have really full business transformation driven by AI as the fundamental element of the large deals.

That large deals has been quite exceptional as well, which has helped us in a way to give a support even for the next financial year with the expected revenue growth support that the large mega deal will provide. In terms of guidance, we continue to see what Jayesh was sharing in terms of the competitive intensity.

There is the AI which is giving us the growth. There's AI which is also seeing the compression, and we continue to see that.

There's competitive intensity because of that, and we have been extremely clear that we will only take on the contracts where it meets our economic guidelines. With that in mind and all of the margin work that's been done in terms of the initiative, we've been able to keep our margin at this level.

That is what's reflected into our guidance, where we see that competitive intensity and the changes that are going on. Now the macro environment is also equally in a place where there is continuing different wars, there were some interest rate increases, there was also the 10-year yield which is now neighboring to 5%, and there's continuing some element of tariffs, which creates a different type of an environment for the global economy, and therefore for the type of clients that we work with, which is essentially the Global 2000.

All of those put together, we feel extremely good that the AI is going well, that the large deals are good, and then we also see the competitive intensity in the market.

On the hiring, I'll start off, Jayesh, you have some views on productivity. First, we had 4,000 net increase in the headcount, which is very strong, which shows that our continued confidence into the future.

Second, we have 8,000 college graduates we hired in the quarter. For the full year, target remains clear at approximately 20,000, around 20,000 like last year.

We've already done more than half in the first half of the year. We think this dynamic will continue in the way we scale.

We are doing work, of course, in AI, the 10%, but we also do work in other areas, and all of those areas are growing. That's why the hiring looks pretty strong there.

Then the productivity... Just to add to what Salil was also saying, see, hiring is a function of what is the attrition that you have, what is the utilization that you have, and what is the demand in terms of volume that you see, and the productivity benefit, right.

We have, give or take, 13% attrition. That means roughly 45,000 people in a year, they leave us, and that needs to be backfilled either laterally or freshers.

The fresher kind of makes up a little bit of that. We are working at 85% utilization, which is in our mind very optimum utilization, there's not much headroom left there from the optimization perspective.

Then there is a net new demand that you are seeing. Fresher typically takes six to eight months by the time we train them and deploy them to the project, we do have to plan ahead of the time to make that.

That's the reflection that you are seeing today in the net headcount increases. One more point on the overall guidance perspective, I think our guidance for the year should be continued to seen at the back of the fact that we did at the beginning of the year say we will have offshoring impact of 1%, we are looking at higher offshoring through the year.

We did call out an impact of large deals, European manufacturing client, where we did not pursue the deal because it did not meet our return expectations. Both of that put together impacted our overall growth guidance by 2%, or continues to impact roughly that, and it should be always seen in that context.

Yep.

Thank you. The next question is from Chandra R.

Srikanth, Moneycontrol.

Hi Salil, hi. Just wanted to get a sense on the guidance cut.

I don't know if it's been asked. Despite a healthy TCV, why did you sort of narrow the guidance band?

Secondly, this week there've been a lot of talk about cyber attacks because of AI. Half of these cyber vulnerabilities are being uncovered by employees or by agents.

I just want to know what opportunity does Infosys see there in terms of securing systems for enterprises, and what are the challenges going forward? Thank you.

I'll start on the guidance, Jayesh will have something more to add on it. What we are seeing in the business today is very strong growth on AI, which was at 10.5%, growing at 29% quarter-on-quarter, and a very strong large deals with one mega deal at over $2 billion, which is contributing to our growth also into the next financial year.

That is then combined with what we see in terms of the AI productivity and competitive intensity in the market, plus, as Jayesh shared, what we are seeing in terms of the offshore ratios, which are changing with the changes in the US-India dynamic, plus what we see in terms of the choices we are making, where, in the case of particular contracts, we are extremely careful to take the ones that meet our economic thresholds and guidelines. Putting all of that together is where we put the margin guidance.

Our attention really is to build out at a faster and faster pace the AI activity, which is going very well with regard to the hexagon strategy that we've developed in each of the six areas, and making sure that we are participating in the large and mega deals, which are business transformation deals underpinned with AI. That's the sort of deal that we won, where it was something that our teams proactively identified and pursued, and then the client selected us.

That's the sort of work that we want to focus on. We know there'll continue to be the productivity challenges that will go on, but those will go through in some time period.

The AI is here for a very long time, where we want to build a very strong foundation in that. On the cyber part, the first thing, we have a strong cyber business where we are already working with several of our clients in working to use some of the frontier model capabilities to ensure that we are helping them to protect against, or helping build agents which will protect against.

Some of the ones that have come out this week, we have some defenses for, which we are sharing with our clients. If you recall, a few, two or three months ago, there was another week or so where there was a lot of this coming up with a new frontier model that had come out, and the same thing, we had been working very closely with that lab.

The one model before that, it was already with us, and we had built out the cyber defense with that. It's a strong part of our business.

It's something that we're looking to scale up even more. We did a small acquisition, you may know, in the cyber in Australia a few quarters ago, which is also building out very strongly, because that is helping us to do things in an ethical way to make sure that we can unearth the vulnerability that clients are seeing with the agents, with this approach that we're taking.

We see some good growth on both of those areas.

Follow-up, Salil. Would you draw parallels with what is happening with cyber with what happened during Y2K in terms of the opportunity this opens up for Indian IT service providers?

Will they take up the work of finding vulnerabilities in existing systems, and can it potentially become a very big business model?

I think the cyber, not looking at the previous one, but the cyber one is a huge opportunity for Infosys. The capabilities have to be very strong.

We need to make sure we've built our own capabilities, which are both agent-based and human-based combined, and working with different frontier models, because each frontier model is unearthing different things on the application layer, which needs to be addressed in a different way. You may have seen in the recent ones where some of the government sites had to be redone and so on.

Those are things that are working, which our teams have an understanding of, and it is a large opportunity. We think this will continue to be a growth area for Infosys.

Thank you. The next question is from Haripriya Suresh from Reuters.

Hi, good evening, gentlemen. One on AI revenues, I wanted to understand, obviously, it's on a low base, but it is growing fast, and you've said that it'll be half in the next two to three years.

How realistic do you see it, also because of how much deflation is in your traditional services business, how do you see that play out? Also, after the PERM suspension and the changes that have happened with H-1B, do you see an increase in talent retention and hiring costs in the US generally?

Over the next couple of years, it might not be immediate, but as it goes forward. On high-tech and retail, what exactly happened?

Because high-tech this quarter, YoY has seen quite a fall as well. What happened in those particular verticals?

Thank you.

On the AI, my sense is the growth, I think, is quite exceptional in the way the AI is building out, and we see that being sustained. Now, you're absolutely right, it is on a low base, and it is a small amount, and so there will be some volatility, but still growing very nicely over the coming quarters.

It's not like every quarter will be exactly like the previous; there'll be some volatility in that, on a small base. I think what we are seeing and what our attention is on is making sure that we fully deploy and leverage that opportunity for our clients.

Building out, for example, if you look at the partnership network that we have, every frontier lab we are working closely with, and they're working closely with us. We're also working with open-weight model companies.

In Topaz fabric, there are 15 different models a client can take advantage of. We can do token cost optimization, and, of course, capability, meaning even the way we're doing, let's say, legacy modernization is changing quite quickly from what it was even 12, 18 months ago to what it is today.

All of that is moving at a rapid pace, and that's our attention. The second piece of the attention is really on these large transformation mega deals, which we feel we're quite well positioned on, where clients are coming to us.

It's more something that our teams are working with them jointly and uncovering. It's not like an RFP that someone is responding to, and making sure that's an AI transformation mega deal.

Then the continuing of the AI productivity that is impacting the revenue also goes on, and that will carry on through the different parts of our portfolio. At the end, that's for a finite time.

Once it is done, the productivity through the portfolio, it'll be done.

[unclear]

That's something that we have looked at internally, but we are making sure that our focus on AI growth is where our attention remains. All of that being said, that gives us more and more confidence that the way we're looking at it for AI is where the clients are going for, and that AI transformation is where we will work more and more.

What was the other?

PERM.

The cost. A majority of the employees that we have in the US are local hires.

We had already taken some steps several years ago, which had brought us to this position. We feel we have a ratio in terms of bringing people on and in terms of cost efficiency.

We don't see a change in that. We will continue to grow that as that evolves.

Having said that, in the recent quarters, we've also seen our ratios change between onsite and offshore. I'll start on that.

We have seen different client situations both on the retail and both on the high-tech specifically in one. We don't see this across all of our industries.

For example, in financial services or energy utilities or manufacturing, we see really strong growth and discretionary growth. However, in these two industries, we've seen some impact.

You want to just answer the high-tech and then they'll come back to that. I think both high-tech and retail, like Salil said, we had some discretionary-related ramp-downs and some client-specific slowdowns in a way.

Retail also was impacted because of the third party. We had a larger third-party component in the previous quarters, which on a quarter-on-quarter, therefore, shows up as a negative.

Those were the impacts on both of that. I think from a geography perspective, it's been broadly similar across the geography.

At least retail, high-tech has been more specific to the US.

US.

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

Hi, Salil. Just a follow-up on the cyber incidents.

You have large set of clients which are Fortune 500 companies, and also in the public sector space. What is the level of preparedness that Infosys or companies like yours have?

Do you also see IT budgets increasing, given that you said that you will plan to scale it up further? Secondly, on the deal wins, the two mega deals were in which sectors?

Since you, despite the healthy wins, you still lowered the guidance, does it mean that the AI deflation is still continuing to impact, and when do you see that really going away? In terms of the hiring, besides the wage hikes, I think you're still seeing some impact on the margins.

Are you seeing any increase in employee costs, given that the hiring is changing, you're also looking at more specialized hiring, and does that really lead to employee costs going up in the next, say, few quarters?

On the cyber, I think there it's more a question of building out the capabilities that we're driving to and scaling that up, and so that demand will continue. We, like all organizations, I think we are well prepared, sort of both internally and in terms of supporting our clients.

What we sort of share with our clients is, these are things that are happening new every day. It's not something you can predict of what is the likely outcome, but it's better to be more prepared, or also build out in this specific vulnerabilities, agents, and agent-plus-human, which can address them, which is being done for many clients.

It's more a question of building out that capability. The next was in terms of the mega...

IT budgets, will you have...

The budgets of our clients will go up, but at the end, it's not like it'll go up in one place. It's not that overall will go up disproportionately; overall will go up as a normal sort of a rate, but not disproportionately just because of that, because also they need to manage their own budgets in a careful way.

On the large deals and the guidance, I think the question on productivity and AI deflation impact, I think we continue to see that, as Jayesh and I mentioned earlier, which is really multiple effects. One is the effect of the AI productivity with our clients are seeing.

One is the effect that Jayesh also mentioned about how the onsite mix is changing. Another is the effect of the competitive intensity and how we've been, I would say, disciplined in taking on contracts which meet our economic guidelines and profiles.

All of that comes together in this environment. That creates what you call the AI constraints or the AI productivity.

The more critical element really is the growth of the AI, because that is a secular trend which is here. The way we are now seeing it, this is a very fast pace of growth, and even with some volatility, you're going to continue to see a very good pace of growth over the next several quarters.

Compensating for the revenue growth, right? The traditional services growth.

How long do you see this really lasting?

There, we have some internal views on what the mix of these two will be. It's not something where we are more focused on what the reduction is.

We're really much more focused on where the growth is, because that is going to stay for a very long time. Whether this stays for a short time or a long time, we know that with that growth over time, we will see the overall business in a much better shape.

If I can just add to what Salil was saying, while our large deals have been very strong, historically, we've been on an average signing $3 billion of large deals, so that was always there in the guidance that we baked in even earlier. The two mega deals that we signed, one of that was renewal, the other one is a net new, and the net new is only going to ramp up from later part of Q4.

In this year, there's going to be a very minuscule amount of benefit that you will get from that deal. The next year, as Salil said earlier, it will contribute over a percent in our revenue.

Thank you. Hiring and employee costs, yeah.

Which costs? Sorry?

Employee costs.

Employee costs. Look, we hire across the pyramid, as we have said earlier.

Even we are hiring at the bottom of the pyramid, which is a freshers, and we're going to hire 20,000-plus employees over the year. We are very conscious about what we are hiring and hiring the right talent to meet the right requirement.

If you're hiring at a higher cost, generally it reflects in the pricing. From that perspective, we don't really see a margin impact.

If you see last couple of years, we have been able to maintain our margin at 21% despite all the headwinds while investing in the business, whether it is sales and marketing, whether it is talent building, AI talent, or technology investment that we have done. We've been able to offset all of that through very meticulous operational rigor.

Thank you, Beena. The next question is from Shilpa Phadnis from The Times of India.

Sir, as much as Indian IT companies are denying any impact on PERM residency, if you can help us understand, will it trigger a fresh wave of attrition for you in your primary market, client market? Secondly, will your subcon expenses go up substantially on this?

My second question is around, as much as AI is driving productivity, do you think this will also lead to margins being squeezed in your existing contracts?

On the first one, I think our overall attrition number that Jayesh shared is lower this quarter than the previous quarter, in the range of 12% to 13%. We don't see any real impact on the attrition from any of those activities.

Neither do we see a cost impact because we already have within the US a mix where the majority of the people are local hires. That's something that has been in motion for several years.

That's something that we feel good about, how we can bring in more people and how we can maintain delivery excellence with our clients with that sort of a team. The second one?

Margins.

On the margin, I think what we see is there is a tremendous sort of desire from clients to have the AI create a benefit in terms of productivity for their activities, for their work that we do with them. We know that many of those things based on the investments we made, we can make it real for our clients.

Given the investments we've made in things like Topaz fabric, we can make those benefits real for the clients while maintaining, as we have done over the last several quarters, the margin profile, without doing any other activity below the line and so on. We are very much focused on making sure that the productivity benefit we derive from AI, and that it matches to what the clients asking.

Now, there are some times the asks are much higher than what we can derive from the AI productivity, which is where we say that it doesn't fit our economic profile. We are much more disciplined about that.

Next question: as much as you're doubling down on GCCs, how far are you from a billion-dollar milestones? Second, it involves a lot of upfront investments from your side—people, software, takeovers.

If you can help us understand where you are on that journey.

GCCs is an incredible growth area. I think this current phase, we announced, I think, just last week a very large financial services client publicly discussing our work we've done with them on the AI GCC.

There, GCCs have been being built for many years by different companies. In the last two, three years, there's been an increased push of the AI infusion into the GCC itself.

That's where we have built an even stronger specialization where we can help, if you've built the GCC five, seven years ago, to help you to transform it, and if you're building it now, to help you to create it with that AI inside it. Because the recruitment is different, the training is different, the type of people are different, the pyramids are different, we have an ability to build and scale that up.

Which is why clients are working with us more and more, where the GCC business is growing quite nicely for us.

Thank you, Shilpa. The next question is from Poulomi Chatterjee from The Financial Express.

Good evening. I'm just curious.

You underlined the high competitive pressure when it comes to large deals. Do you have any intention of entering the mid-market?

There's some of your peers who are already turning their focus to the segment. Also with regards to your FDE team, you had shared a target of 6,000.

I'm curious what is the progress on this, and what proportion of your hiring do these roles comprise of currently?

On the first one, we typically work with companies, enterprises, organizations which have a huge need for some level of technology transformation. It so happens that many of them are large organizations because they have complex needs.

Even today, and even in the past, we've always worked with organizations which are not only large, which can also benefit from these activities, and that will continue. There are several examples of that which are long-standing clients of Infosys.

The predominant focus is large companies because they have that large need for the tech transformation. On the FDEs, the progress is strong.

We're also building the internal with the training, and we're also going with the external with the recruitment, and is progressing along. What I think we had shared was the 6,000 was over the multiple years, and that's exactly how the planning is going right now.

Thank you. The next question is from Uma Kanan from Deccan Herald.

Hi, good evening. Salil, you did speak about cyber security, but mine is very specific.

This is regarding eMudhra breach. You are using eMudhra solutions, if I'm not wrong.

I think so. Though eMudhra said the incident has no connection with its eSign services, what kind of measures are you taking, can you explain a bit more about it?

Will you be migrating to other certified providers in the wake of this incident?

There, I don't have any specific comments on it right now. I have to look into it a little bit more depth and come back to you.

Okay. This is with regards to North America and India market.

It's kind of your revenue, if I look at this in Q2, it has come down. Any specific reasons, and how H2 will be for you, FY27?

If you look at India this quarter, the revenue has actually gone up. Typically, there's a little bit of a seasonality because one of our contracts, you do get revenue, it's related to the returns, etc., that's being filed in the quarter.

The US has been softer over last few quarters, and that's pretty much of the industry phenomenon. The Europe and the rest of the market has been stronger, and when you look at the growth from that perspective, US generally has that.

Then there are nuances, like we said earlier, one of the sectors, which is high-tech, slowdown was from a specific client in the US because the client was looking at ramping down, etc. All of that does impact geographies.

One more question. Last time you said 80,000 employees are working on coding tools.

What is it happening now? Are there any increase in numbers?

That number is increasing. Also what we're doing is the certification numbers are going up, the people who are getting trained are going up.

Our partnerships with the frontier model companies are going up. The large two frontier models, plus new ones, which are both cloud and frontier models, plus the open-weight model companies, all of that is expanding.

We had given that as one example, but those numbers are all growing in the terms of the work we're doing.

Thank you, Uma. The next question is from Jas Bardia from Mint.

Hi, good evening. Just a couple of questions.

If I look at the Q2 guidance that the company's issued this quarter, if we look at this the guidance issued during the second quarter, it's, I think, the weakest in seven years, for the full year, that is. This points to if I do the math, it points towards the fact that the company might grow at its slowest pace in at least 3 years in in in FY27.

In the short term, considering there are furloughs in the second half, the mega deal ramps up next year, and also that there is pricing competition amongst amongst for large deals, what is the company doing to sort of arrest this slowing growth? Second, with reference to your ambitions on the AI work in the next 3 years that Infosys expects to get, do you expect a lot of this AI spending to come from to be net new, or do you expect it to come from existing IT budgets?

If you can just throw a little more light on that. Second, in continuation to this question, what will the impact be on the company's margins?

Yeah.

On the first, I think what we're doing in terms of where the attention is in revenue and growth is a focus essentially on what we're seeing as the large opportunity for AI services. We shared a few months ago that this opportunity is approximately $300 billion addressable market.

We identified six broad areas, and then we started to make sure that we invest in building the capability, training our people, and building the partnerships to make that whole ecosystem work, the foundation of which is fabric. Then that growth is now looking very good.

That part is moving quite well. What we're also seeing, as you pointed out, is that there is the AI productivity benefits that clients are looking at, and that is also impacting other parts of our business.

We want to make sure that the first continues to grow well, and we continue to be the leaders with investment. The second, we want to make sure that we have the tools to support it, because at the end, it's a finite process, because once you finish with all the work that you're doing through productivity, it's done.

That is important, but the real critical thing is, where does the AI growth go, because that is where the leadership comes in terms of what the market and what the clients are looking for. That's the way we're looking at it.

We will see over time how this develops. The other point that we are focusing on is what you described, the mega deals, the large deals, because there, where you're doing business transformation, AI-led work, other consolidation, other cost work, that is work that gives us more support for the future in terms of the growth, which is what we shared, that this mega deal will give us, it's estimated to give us about 1% of growth next year.

There are two big dimensions: AI, which is a very long-term, secular trend; the mega deals, which we have a unique positioning on because we believe with the business transformation and something which we can help craft, that we are well positioned; and then, of course, there is the finite amount which will go through in the productivity.

The impact on margins?

On the margins, what I think we have done is the program that we started some years ago that Jayesh has led, which is working very well, that's part of the reason that we have maintained our margin. In fact, last year, I think we increased our margins from that.

There's a continuous attention upon making sure that we are taking contracts from clients which meet our economic guidelines. That has obviously an impact that we don't take every contract, but it also has the impact that our margins are better protected, and therefore you see, I would say, fairly consistent margin over the last several quarters, even as the industry has seen some wobbles.

We have a very strong cash flow generation machine, which has produced this quarter 900 over $900 million. That's more supporting of the fact that our margin is a real margin.

Thank you, Jas. The next question is from Sanjana from The Hindu Businessline.

Good evening, gentlemen. Can you give us an update on the North India market?

I think it's seen some softness during the quarter, any factors to sort of explain this? Also, Jayesh, you mentioned that you're ramping up your offshore presence.

Can you talk a little bit about that, which countries are you exploring? Recently, many smaller GCCs in India have shut shop because of issues related to scaling.

Have you seen instances where a lot of these companies have come back to outsource their work to IT services companies like yourself? Thanks.

Let me start with the second one and then the geography and margin Jayesh will answer. On the GCCs, I think our approach has been to work with the GCCs to help them scale up, do a big AI transformation, or build the new AI ones as they're coming online.

There have been companies that, as you mentioned, are looking to do something different with their GCCs, and we are also in discussions with some of those where we can either help them or either we can take them and transform them. Those are ongoing discussions that are there.

On the segments, if you look at North America, as I said earlier, there have been certain segments which were impacted because of the lower discretionary spend and client-specific ramp-downs that were mainly from North America, and therefore you see softness in North America. At the same time, other segments like Europe and rest of the world has done really well for us, so that's the balance there.

In terms of offshoring, most of our offshoring is to India. We do use some of the nearshore locations, at times, Mexico, Canada, etc., but when we talk about offshoring, it's always towards India.

Thank you. The next question is from Rukmini Rao from Fortune India.

Sure. Thank you.

Jayesh, one, if you're looking at the cost of technical subcontracting, probably from H1 of last year to H1 of this year, it's about 15%, 16% or so increase. Would it be fair if we are to look at the AI growth story at Infosys, would a lot of this be fair enough to sort of infer that it is from AI-related technical subcost that are coming up?

No, on the contrary, our technical subcontractor as a percentage of revenue has remained in the range of 8.9% of the revenue for most of the year, last year as well as this year. It's been between 8% to 9% of the revenue, and we expect it to remain in the same range.

Jayesh, just to understand, if subcontracting costs are going up, and if this is related to AI kind of deals that you may require, what I wanted to understand is, if you're actually training a lot of people on the AI side, where is the need of expertise coming in from, and if Infosys has to fill this gap, would you be looking at probably an acquisition, which might be a lot more sensible if it is a long-term kind of engagement that you'd be looking at?

No, look, subcontractors for us has been in this range for a long period of time. There are multiple reasons why it is, because at times you need certain skills in certain geography for a short period of time, right?

At times you need certain skills immediately by the time you ramp up the projects, and or you hire the people, there's a lead time to hire people, but the client expects somebody to be on the project immediately, and then you get subcontractors, deploy them on the project, and then, over a period of time, once you hire somebody, you replace that. That's a process that goes in.

It's a whole planning cycle that goes behind how and what kind of subcontractors we need and where are they needed. That's it.

I don't think it is so much about only AI, which has led to the subcontractor. It's been there even a pre-AI days.

Our subcontractors has been between around 8% for a long period of time.

Salil, also in terms of the whole AI story that we are looking at, for you, when it comes to margins from this incremental AI plugins probably in existing contracts that are coming up or even new AI contracts, some sense of how do you see these margins from especially AI-led deals sort of heading towards? Is this what you are probably banking on to sort of defend your margins if, let's say, pricing pressure or external uncertainties sort of continue for the next 12 or 18 months, or we don't know how?

Is that something that you're banking on to protect your margins?

On the AI, we first don't disclose the margin externally separately on the AI versus the other type of projects. Having said that, we are very comfortable with how the clients are seeing the value that we are providing on the AI, and so we are good with where that is going.

The margin of the company overall, not just the AI, we are very comfortable with the guidance of 20% to 22%, which has been consistent for a number of years now. We see that as critical and important.

In fact, our whole attention of the margin program is, as we see the macro changing and other factors stabilizing, this becomes supporting our ambition that margin should be premier in this approach. We feel good about the margin guidance.

Overall, Salil, if you have to look at future, do you see AI projects coming up in better margins for you, given that one of your peers already said that AI projects are coming at a better margin for them? Just to understand how you stand.

I don't know about the other comment, but for us, the margin of the AI versus the non-AI, we're not externally sharing. However, the overall margin of the company is very high, and so you could see some people whose margins are low overall might have a different view on it.

Thank you, Rukmini. The next question is from Pooja Patil from Businessworld.

Good evening. There is definitely an AI-related revenue growth that we are seeing, but I wanted to understand that how much of this represents genuinely incremental business, rather than existing services being reclassified or replaced by AI-led delivery?

Also, is AI beginning to put pressure on the traditional billing and pricing models? One more question with regard to dividend is that what factors determined this ₹26 interim dividend, particularly with the company lowering its revenue growth, and how is Infosys balancing shareholder returns with investments in AI capabilities, acquisitions, and talent?

I think the first one was related to the AI...

Revenue growth.

Revenue growth part of it. I think what we see on that is that the AI revenue growth continues with a lot of strength.

It's not something which is replacing what we have. There's a lot of new work that we're doing.

For example, one of the areas among those six which are growing well is where we do work on modernizing a client's environment using AI capability. That is new work.

It's not that that was something that we were doing in the past. The approach we have taken is the work has to fit into one of those six areas, and that's the work then that we share outside as this 10.5%, which is growing quite well.

What was the other one, sorry?

The dividend.

The dividend one, what factors led to this much, and how is the company planning, especially with a lowering revenue growth? Thanks.

I think if you look at our capital allocation policy that we rolled out almost two years back, we had very clearly said that 85% of the free cash flow that we generate, we will return back to shareholders over a five-year period. It will be a combination of dividend and buyback, and within that, it will be a progressively increasing dividend.

We have already committed what is the money that we will pay back to shareholders over a five-year period, right? We are executing on that.

Last quarter's dividend was 20 ₹25, and therefore we have increased that from that to ₹26 now. We are just executing on that at this point in time.

We have had a robust cash flow generation, as Salil said, all of that is reflecting in the increasing dividend that the board has recommended.

Thank you. With that, we come to the end of this press conference.

Thank you, our friends from media. Thank you, Salil.

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.

Please join us for some high tea outside. Thank you, and have a very good evening.