Earnings

Infosys Cuts Revenue Outlook To 1% To 2% As Clients Demand A Share Of AI Savings

The CFO tied the lower forecast to softer volume, pricing pressure, more offshoring and a European deal the company chose not to pursue.

Matteo Parrino Jonathan Ponciano

Matteo Parrino, Jonathan Ponciano

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Infosys Cuts Revenue Outlook To 1% To 2% As Clients Demand A Share Of AI Savings

Infosys lowered its revenue growth guidance to 1% to 2% in constant currency, down from 1.5% to 3%, and executives said on the second-quarter earnings call that price competition and client demands for AI productivity gains are part of the reason. CEO Salil Parekh also said the company will only take contracts that meet its economic guidelines.

Several pressures behind the cut

Chief Financial Officer Jayesh Sanghrajka said the quarter was softer and volume stayed soft. The company also saw "pricing pressure on the back of competitive intensity and higher ask on productivity," he said. He added that retail and high tech are weaker, with discretionary spending lower than expected.

Sanghrajka said a higher offshoring mix, set against the 1% impact flagged at the start of the year, and a large European manufacturing deal the company did not pursue because it "did not meet our return expectations" together weigh on guidance by roughly 2%. Operating margin guidance stays at 20% to 22%, and margin was stable at 21% for the quarter.

Parekh said some client asks for AI-driven productivity "are much higher than what we can derive," which is where deals stop fitting the company's economics. Asked whether management has internal views on how large the AI-related reduction is, he said the company is "much more focused on where the growth is." He also said the productivity effect is finite.

AI growth and big deals

Infosys, the Indian IT services company, said revenue grew 1.5% year on year and 1.2% from the prior quarter in constant currency. AI revenue reached 10.5% of the total, growing 29% from the prior quarter, against 8.2% last quarter. Free cash flow was $922 million.

Large-deal wins totaled $5.2 billion, including a net-new mega deal of over $2 billion with a large international company over seven years, and a $1 billion renewal. Parekh said the net-new deal should add over 1% to revenue growth in the coming financial year. Sanghrajka said it only ramps from later in the fourth quarter, so this year's benefit is minuscule.

Shares were down about 5.5% at $12.49 in Friday trading, as of 9:46 a.m. ET, giving the company a market value of $53.5 billion.

Hiring, attrition and the dividend

Attrition runs at about 13%, Sanghrajka said, which means roughly 45,000 people leave in a year and must be replaced. Utilization is 85%, which he called very optimum, and he said the company plans to hire 20,000 or more people this year. Net headcount rose by 4,000 in the quarter.

He said compensation costs will be a margin headwind in the second half, alongside continued pricing intensity, which the company will try to offset through its Project Maximus cost program.

The interim dividend rises to 26 rupees from 25. Sanghrajka said the company has committed to return 85% of free cash flow to shareholders over five years through dividends and buybacks.

Reuters reported that clients are increasingly tying fees to technology-led productivity gains rather than hours worked, a shift that challenges traditional revenue across India's IT services industry.

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