INFY Q4 Call Highlights: Revenue Dip, Profit Rise & AI Strategy!

Infosys Ltd, a global leader in next-generation digital services and consulting, in its Q4 earnings call attributed the 3.6% quarterly revenue decline largely to slipped third-party deals while providing cautious FY26 guidance of 0-3% growth based on varying economic scenarios. Despite market uncertainties, company highlighted successful margin improvement of 50 basis points to 21.1% in FY25 through Project Maximus initiatives including value-based selling and lean automation. Management has strategically pivoted toward cost takeout opportunities while maintaining AI capabilities, noting that while AI creates significant efficiency gains of 20-40% in areas like customer service, it also generates new revenue streams. Management anticipate lower third-party costs in FY26 based on their current deal pipeline, with most previously signed large deals now reaching steady state performance.

Infosys reported its Q4 FY25 results, with a consolidated net profit marking a 12% year-over-year decline, though it increased 3.3% quarter-over-quarter. Total revenue was up 3.6% year-over-year but down 2% quarter-over-quarter. The operating margin for the quarter was 21%, an increase of 0.9 percentage points year-over-year but a decrease of 0.3 percentage points quarter-over-quarter. For FY26, Infosys guided for revenue growth of 0–3% in constant currency and an operating margin of 20–22%. In recent developments, Infosys has been focusing on strengthening its enterprise AI capabilities, particularly in generative AI, which has led to strong large deal wins. The company has also resumed hiring, adding 5,591 employees in the December quarter compared to the previous quarter.

Continue Reading: Unearth the Vital Insights from Infosys Ltd’s Earnings Call!

Financial/Operational Metrics:

• Revenue: INR42,115 crore, up 3.6% YoY.
• Net Income: INR7,038 crore, down 11.7% YoY.
• EPS: INR16.98, down 11.8% YoY.
• Large Deal Bookings: $2.6 billion.
• LTM Voluntary Attrition Rate: 14.1%.
• Headcount: 323,578, up 5591.

FY26 Outlook:

• Revenue Growth: 0-3% (Constant Currency).
• Operating Margin: 20-22%.
• Free Cash Flow: To remain >100% of net profit.

 

Analyst Crossfire:

 • Q4 Revenue Decline Drivers & FY26 Guidance Seasonality (Ankur Rudra – JPMorgan)? Two-thirds of the 3.5% quarter-over-quarter revenue decline was due to lower third-party costs and related revenue, with deal slippages occurring towards the end of March, while the remaining decline was attributed to typical Q4 seasonality and volume reductions. The 0-3% revenue growth guidance for FY26 reflects heightened uncertainty, with normal seasonality expected, though outcomes vary depending on the guidance range, factoring in potential environmental deterioration or improvement (Jayesh Sanghrajka – CFO).

 

• Volume Trends and Third-Party Costs, Project ROI and Reassessment Risk (Kumar Rakesh – BNP Paribas)? Q4 saw a softer volume start in January, with recovery later, but third-party costs and revenue are expected to be lower in FY26 compared to FY25, reflecting deal slippages and pipeline dynamics. Recent economic changes have not altered the trajectory of recently signed deals, but significant environmental deterioration could prompt clients to reassess discretionary spending, though no major reassessments are currently observed (Jayesh Sanghrajka – CFO, Salil Parekh – CEO).

 

• Guidance Assumptions and Short-Term Risks, Wage Hike Impact on Margins (Abhishek Pathak – Motilal Oswal)? The 0-3% guidance assumes a deteriorating environment at the lower end and a steady-to-improving one at the top, with no major ramp-downs or deal closures seen, though cautious client decision-making is factored into the lower end. Wage hikes for most employees in January and for mid-to-senior levels in April are included in the FY26 guidance, with FY25 margins improving by 50 basis points to 21.1% despite headwinds, aiming for further improvement (Jayesh Sanghrajka – CFO).

 

• Small Deal Environment & Margin Levers for FY26 (Gaurav Rateria – Morgan Stanley)? The guidance midpoint does not explicitly assume small deal stability, with the lower end factoring in a deteriorating environment and the upper end a steady-to-improving one, reflecting varied scenarios. Despite potential operating deleverage from slower growth, FY25 margins improved by 50 basis points despite wage hikes, acquisitions, and large deal costs, with confidence in further margin improvement through operational efficiencies (Jayesh Sanghrajka – CFO).

 

• AI’s Impact on Pricing and Delivery & Discretionary Spending Trends (Keith Bachman – BMO, Surendra Goyal – Citi)? AI discussions, especially in customer service, yield 20-40% client benefits, driving new revenue opportunities like credit risk and telco AI platforms, without significant pricing structure changes, balancing efficiency and growth. March showed usual volumes with no significant change in discretionary spending, maintaining positive volume trends, indicating stability in the short term (Salil Parekh – CEO, Jayesh Sanghrajka – CFO).

 

• Seasonality Expectations for FY26 & Growth Trajectory Amid Q1 Uncertainty (Sandeep Shah – Equirus, Vibhor Singhal – Nuvama)? Typical seasonality with a softer second half due to furloughs and fewer working days is expected to persist in FY26, though uncertainty makes quarterly predictions challenging, with guidance reflecting various scenarios. Regular seasonality is expected, but macro uncertainty could skew growth toward Q2/Q3 if Q1 weakens, with guidance reflecting high uncertainty at the lower end and normal seasonality at the top end (Jayesh Sanghrajka – CFO).