Infosys Ltd

NSE:INFY

Earnings Call Analysis

Infosys Revises Revenue Growth Guidance Amid Stable Margins in Q2

In Q2, Infosys reported a revenue increase of 3.1% quarter-on-quarter and 3.3% year-on-year in constant currency. The company is revising its revenue growth guidance for FY25 to 3.75% to 4.5% due to stable discretionary spending in financial services, especially in capital markets and payments. Operating margins remain steady at 21.1%, consistent with the guidance of 20% to 22%. The company is set to onboard 15,000 to 20,000 freshers in FY25 while enhancing its focus on generative AI technologies, which are becoming integral across various projects. However, a slowdown is noted in certain sectors like automotive and retail.

Robust Financial Performance Amid Challenges

In the second quarter, Infosys reported a solid revenue growth of 3.1% quarter-on-quarter and 3.3% year-on-year in constant currency. The company's performance across various sectors was notable, particularly in financial services, which grew by 2%. This growth reflects an upward trend, especially in capital markets, mortgages, and payments sectors, indicating that discretionary spending in these areas persists, creating resilience in the company's overall performance.

Revised Revenue Growth Guidance

Following the strong Q2 performance, Infosys has revised its revenue growth guidance for the fiscal year 2025 to a range of 3.75% to 4.5% in constant currency. This upward adjustment demonstrates the company's confidence in sustaining growth despite challenges in certain industries such as retail and automotive. The revised guidance is encouraging for investors, indicating expectations for continued demand resilience.

Stable Margins and Handling Compensation Costs

The company's operating margin remained stable at 21.1%, showing slight resilience amid compensation increases and external pressures. Infosys maintains its margin guidance between 20% and 22% for the fiscal year, and measures to offset the pressure from wage hikes include initiatives from Project Maximus, which continues to deliver operational efficiencies. The wage hikes will be implemented in a phased manner starting in Q4, with expected costs integrated into their forecast.

Sector-Specific Insights

While financial services displayed strong discretionary spending, other sectors such as retail and automotive are under pressure. Retail continues to struggle with a lack of recovery in discretionary spending, contributing to cautiousness among clients about immediate expenditures. In contrast, the company has seen double-digit growth in contracts under $50 million, suggesting that smaller deals are thriving even as larger deal closures may fluctuate.

Focus on Generative AI Initiatives

Infosys is integrating generative AI into its services, actively developing enterprise-wide platforms and a small language model geared toward various industries. The emphasis on AI indicates a commitment to enhancing operational efficiency and diversifying its offerings. This strategic move aligns with market trends where AI is increasingly viewed as a foundational element of client business transformation.

Targeted Recruitment to Fuel Growth

Looking ahead, Infosys is on track with its plan to onboard between 15,000 to 20,000 freshers in fiscal year 2025. This recruitment drive is essential for meeting the growing demand in technology services, especially in the emerging fields such as generative AI. The company is focused on addressing the specific skill sets required for successfully implementing AI solutions, promoting a more specialized hiring approach.

Navigating Economic Recovery and Client Budgets

The executives noted that economic conditions, particularly in North America, are starting to stabilize, potentially leading to improved client budgets. However, there remains caution as many sectors still prioritize cost-saving measures over new investments. The macroeconomic landscape, including U.S. Fed rate cuts, could facilitate increased spending on technology, particularly in financial services, but a broader recovery across all sectors remains to be seen.

Conclusion and Strategic Outlook

Infosys's recent earnings call highlights its resilience in navigating sector-specific challenges while capitalizing on strengths in financial services and generative AI. The revisions in growth guidance and stable margins position the company favorably in the eyes of investors, while targeted hiring and focus on efficiency initiatives suggest a proactive approach to sustaining future growth. As the global economic environment evolves, Infosys appears well-prepared to leverage opportunities and address challenges in the coming quarters.

Earnings Call Transcript 2025-Q2

[Rishi Basu, executive]

Very good evening, everyone, and thank you for joining Infosys' Second Quarter Financial Results. My name is Rishi. And on behalf of Infosys, I'd like to welcome all of you. This hall that we are in brings back fond memories for many at Infosys. In October of 2001, Mr. Ratan Tata visited Infosys to inaugurate this very hall, which is just named after the Tata Group Founder, Mr. Jamshedji Tata. Mr. Ratan Tata spent almost an entire day on our campus and planted a tree to commemorate this occasion. Over the years, the tree has flourished, a happy reminder of the occasion and all the values that he stood for. And today, it stands as a mark of his legacy at Infosys.

Let me share some of those memories with you. Could we have the video, please?

[Presentation]

[Rishi Basu, executive]

I now request all of you to join us for a minute silence in memory of Mr. Ratan Tata, a titan of Indian industry and a leader to exemplify the spirit of India through his life and work. I request you to put your mobile phones on silent, and I request your eyes.

Thank you. I would now like to invite our Chief Executive Officer, Mr. Salil Parekh for his opening remarks. Over to you, Salil.

[Salil Parekh, executive]

Thanks, Rishi. Mr. Ratan Tata has left an indelible mark on our country and really for each of us to be able to dream large and to stay grounded. He will be missed by all of us. Let me now share with you an update on our results. We had a strong performance in Q2 with robust and broad-based growth, stable operating margins, strong cash generation, strong large deals and increased employee headcount. Our revenue grew 3.1% quarter-on-quarter and 3.3% year-on-year in constant currency terms.

Financial Services grew at 2%, manufacturing, double-digit; Energy Utilities and Services at 5.8% all quarter-on-quarter. We saw growth in all geographies quarter-on-quarter. Our operating margin for Q2 was 21.1%. The Financial Services segment in the U.S. continues to see discretionary spend increase in capital markets, in mortgages, cards and payments. We've seen slowness in the automotive sector in Europe. Apart from these verticals, demand trends remain stable with clients continuing to prioritize cost takeouts over discretionary initiatives. We are deepening our work in generative AI. We are deploying enterprise generative AI platforms, building our own small language model and developing multi-agent solutions for our clients.

With our strong performance in Q2 and our current outlook, we have revised our revenue growth guidance for financial year '25. The new guidance is 3.75% to 4.5% growth in constant currency for the full year. Our operating margin guidance remains the same at 20% to 22%.

With that, let's open up for questions.

[Rishi Basu, executive]

Thank you, Salil. We will now open the floor for questions. [Operator Instructions] Joining Salil is Mr. Jayesh Sanghrajka, Chief Financial Officer, Infosys.

We have the first question from Ritu Singh from CNBC TV18.

[Ritu Singh]

First, on the guidance revision. If you could break down for us, how significantly altered is the demand environment now versus what you saw a couple of quarters ago? And how much of this revision upwards organic versus the contribution that you're seeing because of the in-tech acquisition. One, if you could begin by telling us that. Also, there have been 7 revisions in the revenue guidance in the last 8 quarters. Could you tell us what you have in terms of visibility now in terms of the turnaround that you're speaking about? Financial services is something that you've highlighted but some of the other areas of concern that you've been speaking about retail, high tech, et cetera. What are you seeing there? What are you hearing from clients on discretionary spends?

And if I may, also a word, your headcount has increased for the first time perhaps in 7 quarters. You told us last time you're looking to hire about 15,000 to 20,000 freshers this year. Are you on track to do that? And If I may, sorry, add another question on guidance while we're talking about this. You've maintained the guidance for margins at 20% to 22%, but you've deferred the wage hikes to the third quarter. How much will be the impact from that? And there was no real expansion despite this project Maximus that you've undertaken. Just give us a sense of why, despite what we saw with the rupee, why that didn't happen? And how much of a hit do you anticipate in the coming quarter because of the wage hikes?

[Salil Parekh, executive]

So let me start off with some of the ones that you asked, and then Jayesh will add a little bit on the margins and also on the revenue growth guidance. So first on the revenue growth guidance, the way we look at this is based on what we've done in the quarter, then we look at our pipeline and look at what we anticipate. And based on those factors as we sit today looking out for this financial year, that's Q3 and Q4, we've looked to increase the revenue growth guidance.

Now part of it is the second question you asked on the industries. So we see financial services, discretionary spend is looking stable, strong, especially as we highlighted in capital markets, cards and payments. We also shared that in automotive, we see slowness in Europe. In the other verticals the view, the discussions with clients are similar. So we don't see any change. There's no new discretionary and especially the point the verticals you mentioned, retail or high tech. What we do see is more focused on the cost takeout elements there itself. In terms of the margin piece, let me first hand over to Jayesh and then there may be some other comments on the revenue itself.

[Jayesh Sanghrajka, executive]

Yes. So just to add to the guidance piece that Salil was talking about and to your question on in-tech. If you recollect, last time when we announced the guidance, we had clarified that in-tech is now completely included in the last guidance. So there's no additional impact or additional benefit this quarter on account of in-tech. It was already baked in the last quarter's guidance.

Having said that, there are multiple factors that we look at when we give guidance, a strong H1 performance, how the pipelines in terms of large deals and less than $50 million deals that we have. Our less than $50 million deals have also increased double digit this quarter. So that has also contributed to increase in our guidance.

Coming to your margin question. If you look at our margin, this quarter margin has remained steady at 21.1% similar to last quarter. And if you look at the puts and takes, we got 80 basis points of benefit from project Maximus, 10 basis points from currency. That was offset by 30 basis points on account of acquisition because of the amortization of intangibles. And the 60 basis points is on account of the salary and the variable increase that we provided as well as the other costs.

So project Maximus as has been contributing. It's offsetting by -- it's offsetting the comp increase in the variable additions that we are doing. So that's baked in, in our guidance. We have guided for 20% to 22% for the full year. At this point in time, we are confident of our guidance with the wage hike that we are planning in Q4. The wage hike is going to be in the phased manner. Some part of that will be effective in January and the balance will be effective in April.

Yes. So -- sorry, we are on track to onboard the 15,000-plus fresher that we talked about last time. We have onboarded many of them in the first half, but we are on track to onboard 15,000 to 20,000 at a group level in FY '25.

[Rishi Basu, executive]

The next question is from Haripriya Sureban from NDTV Profit.

[Haripriya Sureban]

Salil, if you could give us a sense on the budgets opening up, right? The U.S. Fed decision and the elections also coming to a close now. More stability is expected at least in the U.S. markets. So how do you see that in conversation with the clients? Do you see more budgets opening up? Does this mean that Q3 and Q4 will be significantly better. Also, give us some sense on the growth you're seeing in the emerging markets because we see that it's an up-and-coming opportunity for other players as well. So how is it panning out for you?

And on the margins, just to double tap on that, you have been on the lower end of your guidance consistently now. So do you think with the markets getting better, demand coming back, that should also translate into better margins and you probably reached the higher end. And on the fresher hiring spec, you have mentioned your goals there. But with the new AI roles coming up and so much of work with generative AI, do you think you will do more specialized hiring? And will the salaries be better there even on your fresher level and the lateral hiring?

[Salil Parekh, executive]

So let me start off, I think, first, on the budgets and then a little bit on the emerging markets. And then Jayesh will add on the margins and it'll come back on what's going on with generative AI. On the budgets, what we see today is, in financial services, we're starting to see the discretionary spend improving. We shared that last quarter, and we see that continuing as we saw this Q2 rollout. In the other industries in automotive, we still see the slowing in Europe, which we referenced before. And then for the other industries, whether you look at retail or high-tech or telco, we still see the discretionary spend part of the budget is constrained and there's still much more emphasis on the cost and efficiency discussions.

On the emerging markets, in that sense, our presence is much more invest in Europe, in U.S., Australia, though for us, some of the newer growth markets we do see good traction in Japan, good traction in Middle East. But relative in terms of size, they are still quite small, but a good outlook in those markets. I want to go on the margin and I'l come on Gen AI.

[Jayesh Sanghrajka, executive]

So on the margins, if you look at where we are for the H1, we have delivered 21.1% for H1 both the quarters as well to the same numbers. That pretty much is slightly above the midpoint of our guidance. Our guidance is 21% -- 20% to 22%, right? If you get contributions from Maximus, as I was saying earlier, I think we have got a lot of benefit. Every quarter, we've been calling out the contribution from project Maximus. If you look at the tracks that has delivered well, the value-based selling has been really consistently delivering.The lean and automation has been delivering. Our utilization is pretty much at all-time high levels, subcontractor has reduced.

So there are multiple tracks which are running well. What the program has delivered at this point in time is that we have arrested the margin decline, and we have offset all the cost headwinds in terms of additional variable pay, et cetera. So despite that, we have been able to maintain our margin. Our aspiration continues to remain to increase our margins in the midterm.

[Salil Parekh, executive]

On the recruitment part with generative AI. On generative AI, we have a huge amount of focus in 3 specific areas. We are building enterprise-wide generative AI platforms. We're building a small language model that will be rolled out across industries. And we've launched already what I call multi-agent solutions. So this is beyond being an assistant. It's really an agent which does a lot more of the solutioning within clients. So we see a huge amount of opportunity, a very deep approach that we've built for generative AI. And so that recruiting will continue with those skill sets.

So there, the distinction will be much more focused on as people mature and get deeper in their career. We have for example, within the company program called Power Programmers, which is focused on different sets of skills. So as those skills become deeper, we will look at those options.

[Rishi Basu, executive]

The next question is from Chandra Srikanth from MoneyControl.

[Chandra Srikanth]

Salil, on the face of it, your numbers are below what the Street was expecting because they were very optimistic of a 3.9% to 4% quarterly growth margins, I think the expectation was around 21.3%. And even the guidance was between 4% to 5% -- and I think the TCV number that brokerages were expecting were closer to the $3 billion mark. So can you take us through if there were one-off factors or some deals did not sort of come through this quarter?

Secondly, why don't you just move to a quarterly revenue guidance instead of revising the annual guidance every quarter because as Ritu said, this is the seventh guidance revision in the last 8 quarters. Is that something that you will consider? And thirdly, can you take us through the contribution from pass-through revenues, third-party software sales this quarter because I think that was a significant component last time around.

Jayesh, despite deferring wage hikes to Q3, you mentioned that the acquisition costs kind of got baked into the margins. So what other tailwinds will you have in Q3 to maintain it at 21.1% or 21.2%? Have all the freshers been onboarded, those who have been hired in 2022, 2023? And finally, Salil, tell us about your small language model. How many parameters is this going to have? When will it go live? And for which industry are you building this first? And are you building this on top of open source platforms? Or are you leveraging your partnership with OpenAI?

[Salil Parekh, executive]

So quite a few questions. Let me see if I can remember them one by one, even better. On the way we've seen our growth, our focus is really on what we are driving in the business. We see a lot of traction that we started to see in financial services, which has given us a good growth last quarter and this quarter. And we've called out last quarter and also now that outside of that, we don't see other industries yet starting to have a change in the discretionary spend. That's the outlook of where we built out our growth guidance. We're actually very positive and delighted that we've gone from 3% to 4% to 3.75% to 4.5%. So it's a huge upward movement in the growth guidance.

Our view is we want to share as we see each quarter, what we see the outlook for the year, we are not looking at whether that's a change or not that sometimes happen, sometimes doesn't happen. But this way, we give a clear color for a full year as best as we know when we close the quarter and look at the parameters. So those are really the factors that have gone into what we have done.

Let me talk a little bit about the Small Language Model and then maybe Jayesh, you can pick up. So there -- it's an incredible approach that we've taken. We are building this on various open source components. We have a narrow set of data, which is from industry and also Infosys proprietary data set that will comprise the small language model. We are working on different industry applications for the small language model. And we believe it will be a huge way for clients to leverage what they can do in terms on top of that, building some business logic on top of this small language model.

So we think it's an incredible differentiated approach, and we are seeing some good discussions on that basis with clients. So that we are not sharing yet. The work has started. The idea was to make sure we share the way we are going about working in generative AI. It's at a very deep level across those 3 areas.

[Jayesh Sanghrajka, executive]

Yes. So if you look at margins, as I said earlier, we have delivered 21.1%, which is slightly above the midpoint of our guidance, which is 20% to 22%. As we get into the H2, we will have headwinds coming from compensation increase. Our last comp increase was in November. So we've decided the next one to start from January in a phased manner in 2 steps. So part of that will be effective January and the balance will be effective April. We will have headwinds in terms of softness, which is regular, which is seasonal in Q2 -- in H2 for us. Furloughs, the lower working and calendar days, et cetera. So that -- those will be the headwinds. The tailwinds will continue from project Maximus, which has been delivering well over the last few quarters.

And at this point in time, we are confident of our margin guidance of 20% to 22% with an escalation to increase in the midterm. Yes, so as I said earlier, we are on track to onboard 15,000 to 20,000 freshers at group level in FY '25. We are not breaking it up between what was the past in this, but we are onboarding on the 15,000 to 20,000 freshers.

Yes. So look, it's -- first of all, it's the third-party cost, which is integral part of all the large deals or many of the large deals that we embark on where we have taken over the turnkey projects for the clients and third-party costs are integral part of that project. And it comes as part of the mega large deals that we signed. So there's nothing specific there. It will come as and when we sign those kind of deals, but it also increases our propensity with the clients and stickiness with the clients.

[Rishi Basu, executive]

The next question is from Beena Parmar from the Economic Times.

[Beena Parmar]

Firstly, the North American geography has seen further de-growth. Could you list out what are the core reasons? And what kind of impact do you see because of the rate cuts that we've seen by global central banks.

Also, the status of onboarding just to follow up. Could you tell us as to if all the onboarding has been done from the previous years, 2022 and 2023. And how many freshers have been added so far maybe in this fiscal year? And what kind of fresher onboarding that you will look at going forward, while you've said it is 15,000 to 20,000, but what is remaining? And what is the impact of the wage hike? Can you quantify it? How much is the wage hike as well? If you can just tell us that?

[Jayesh Sanghrajka, executive]

So on the wage hike, we don't quantify the impact nor have we quantified what will be, as I said, it will be in the phased manner starting from Q4. On fresher onboarding, we will onboard 15,000 to 20,000 freshers during the year.

[Unknown Analyst]

Have been hired so far in these 2 quarters.

[Jayesh Sanghrajka, executive]

We haven't given that breakup, but you can see the net numbers for us have been declining for the last few quarters is the first quarter where we had a net increase. So that's anecdote you can drive, but we will onboard all fresher that we have committed in the past.

[Salil Parekh, executive]

North America, yes. So there, first, quarter-on-quarter, we've seen growth in North America. There, again, financial services was a big part of it. On a year-on-year basis, we saw a negative growth. We see, as you mentioned, the rate cut in the U.S. plus the lower inflation would indicate signs of some more spend. Certainly, in financial services, we've seen that, and we will wait to see in the other industries when that starts to happen.

[Beena Parmar]

Just a follow-up on the mega deals lineup as well. What is the pipeline? And where is the current growth coming from in terms of the deal closures?

[Salil Parekh, executive]

So the pipeline is still quite robust on large deals. The type of large deals are still much more on cost and efficiency and not so much on digital transformation. So that's sort of the lay of the land in terms of the deal outlook. And we are seeing a lot of discussion in cost and efficiency still across all industries.

[Rishi Basu, executive]

The next question is from Jas Bardia from The Mint.

[Jas Bardia]

So your peers have given mixed signals on the future outlook. Now I want to ask whether the current prevailing macroeconomic conditions can dampen any sort of a prospective of demand recovery, especially that aided by the U.S. Fed rate cut. Second, I want to understand, is cloud a part of discretionary spending. And I asked this because over the last 15 to 18 months, Infosys and a lot of its peers have said that cost takeout deals are the priority.

Now do clients consider cloud as an expensive prospect and hence, they are considering it in the discretionary bucket. Last part, sir, are you seeing any kind of a slowdown in the cloud spend over the last 6 to 9 months? And just if I could squeeze in one more question. What percentage of your total revenue could be described as cloud revenue? That's about it.

[Salil Parekh, executive]

So I think the start off was much more on the macro, the first question. I'll go through one by one. On the macro, typically, we have seen, at least in the past cycles, when interest rate cuts start to begin and inflation is more in control, typically, in our end markets, Western Europe and U.S. and also Australia, the interest in spending on large technology programs typically increases. But today, as we've seen -- as we've shared, we've seen this change last quarter and this quarter in the financial services on discretionary. And last quarter, we had an extraordinary growth in financial services. This quarter, very strong growth on financial services. We don't know when the others -- when they'll come, but that's typically the way the macro affects the tech industry. On cloud, I think we have a very strong cloud business. You, of course, know that we have the COBOL set of capabilities where we work with each of the large public cloud players and we build out various tools, templates, industry blueprints, which can work with the cloud provider, with the client to roll out whatever approach our clients are taking. Then we have a private cloud business, which is also part of Cobalt. And then, of course, we do a lot of work with the SaaS providers where that's part of our cloud activity.

We don't break out the cloud number, but it's in good shape within the company.

Cloud, so it depends. Sometimes it could be cost takeout depending on how the cloud TCO looks from a client perspective and what is their usage. For example, when you're doing some work, which is more related to the edge, not just the core, then there are different cost considerations. If you're doing more standard, let's say, migrating a set of applications from on-premise to cloud, depending on your time horizon, you could get some benefit, but sometimes you don't because a lot of times, other services are also mixed in. For example, you could also do Cybersecurity with that and which is separate in some instances. So it's not like all cloud is cost or all cloud is not cost. It depends on which way it's done.

[Rishi Basu, executive]

Thanks, Jas. The next question is from Veena Mani from The Times of India.

[Veena Mani]

So Q3 is usually the quarter of furloughs around December, that's when clients. What does it look this time? Is it -- do you think it's going to be as usual? Or based on your interactions with client, could it be a lot more because discretionary spend is still on the lower side? Also, I'm trying to understand Q4, you mentioned that wage hikes will be rolled out. Now if you could give us the quantum, say, for instance, HCL mentioned that 7% to 8% would be the average wage hike and for top performance, it will be around 14%. Can Infosys give us some sort of a guidance on what the wage hike pattern would be and what the factors considered would be in terms of tenure or other things, what all things would be considered? And if you could tell us a little bit about the generative AI revenues specifically and any -- and the cases that went live in the second quarter, some examples of how the work around generative AI has been done for your clients. And you mentioned that the revenue growth has been broad-based, but any -- I mean, are there any micro factors that -- maybe 1 or 2 factors that really contributed to where the revenue is heading?

[Salil Parekh, executive]

So let me start off. I think most maybe I can address. I think the first point was on the Q3 furlough situation. So first, we don't comment on the specific furlough outlook we have, whatever we have, it's in our guidance, 3.75% to 4.5%. Having said that, it's the start of the quarter. So it's difficult to anticipate what will look like. But we do have typically in previous years, a range of outcomes that we look at. We've considered that same sort of approach in building the guidance, and it's within that guidance. Then on the generative AI example, there are a host of examples, maybe to share something. We built for one client, a multi-agent solution where agents work on a specific business process that they have and do the process almost completely on its own parts of the process. So it changes the way that they can do the process. It changes the way they can scale up what they can do as opposed to doing part of the process.

We have another example with telco where we've rolled out one of the items I mentioned, the enterprise generative AI platform. That platform can now -- so 70,000 of their employees are leveraging that platform to build out their own use cases or benefits for what they want to use generative AI for, whether it's in knowledge area, customer service area or the coding area. So we are doing a host of projects, not POCs, actual projects, projects that are getting completed where clients are seeing some benefits from that.

[Rishi Basu, executive]

Question on wage hikes.

[Salil Parekh, executive]

On the salary increase, we don't comment on the specifics.

[Rishi Basu, executive]

Revenue growth factors. It was the last, I think.

[Salil Parekh, executive]

Specific factors for the growth. I think more of what we discussed before, it's really more focused with what the traction we saw on financial services. And then each of the others, we've seen quarter-on-quarter growth except for retail, if you look at our Q2 performance.

[Rishi Basu, executive]

Thank you, Veena. The next question is from Padmini Dhruvaraj from The Financial Express.

[Padmini Dhruvaraj]

So your large deal TCV has shrunk to 2.4 from 4.1 last quarter. So is this lumpiness because of the fact as you mentioned that other sectors barring BFSI, it's still late to rebound. And so this demand for BFSI is it because your clients want to adopt to AI? And what percentage of your top line came from in-tech's revenue contribution? And your peers, especially in the mid-market space, have said there's a burst in 1 million to 10 million deals. So while your client addition in that space has declined. So are you losing market share there? So are you collaborating with any GCCs here for digital modernization? How many have you partnered with, if yes?

[Salil Parekh, executive]

Okay. So quite a few questions. The first one, where we want to look at what we see with the growth.

[Rishi Basu, executive]

Large deals.

[Salil Parekh, executive]

The large deals growth, right? So there Typically, our large deals are much more lumpy. So if you look at over sort of several quarters, some quarters, a few more, some quarters, a few less. Our focus really is making sure that if you look at all of H1, those are converted and are already into delivery mode. And we are seeing that coming through with the large deals, a lot more focused on cost and efficiency.

On the smaller deals or smaller size programs, in fact, as Jay shared earlier, we have seen for deals below $50 million in value, which is outside of our large deals, which are not in the large deals, we've seen a huge increase, double-digit increase in that pipeline. So we see a lot more traction of that sort of work that we are already seeing. And the point you made on financial services, we do see the discretionary spend there. But in the other industries, not yet.

[Padmini Dhruvaraj]

And your collaboration with GCCs here?

[Salil Parekh, executive]

On the GCCs, so we are working very closely with GCCs all around. We are working with clients when they're setting up their GCCs. We're working with them when they do a build, operate, transfer and we participate in it with the build, operate and when they transfer. We are working with them with GCCs in India to help scale them to help with recruiting. And we're also working in some instances with clients when they are exiting from GCCs when we have programs where we take them and they become part of us. So a very strong connect with GCCs across India.

[Jayesh Sanghrajka, executive]

So in-tech contributed 80 bps to this quarter's revenue.

[Rishi Basu, executive]

Thank you. The next question is from Uma Kannan from The New Indian Express.

[Uma Kannan]

In general, I just want to ask you, like how your acquired companies have performed in Q2? And today, you've announced an acquisition of Blitz, right? So how this will help you in your overall revenue growth?

[Jayesh Sanghrajka, executive]

So we don't specifically give out the performance of each of the acquired entities. But overall, our acquisitions have contributed well both organically as well as in terms of summary over the years?

[Uma Kannan]

So Salil, you wouldn't speak about BFSI, but I just want to understand why there's de-growth in retail. Is there any specific reason in terms of revenue, retail contribution is -- yes?

[Salil Parekh, executive]

No, I think we've talked about retail in the last few quarters. That industry is going through some change. So nothing has changed except to say that it's not actually come back with the discretionary spend. So it's not like we are pointing up something has changed in the behavior there. As opposed to FS where there's better discretionary automotive in Europe, where it's a little bit softer.

[Uma Kannan]

I just want to ask you one question on gen AI. You did speak about gen AI, but I just want to understand how the pipeline looks like. And are you seeing any particular sector growth in, say, for example, whether it is BFSI, retail, like which particular sector you're seeing growth in terms of deals?

[Salil Parekh, executive]

So generative AI, first, it is not in any specific industry or sector. It's across every industry. And part of generative AI work is it's already becoming embedded in everything we do. So any large program or transformation or cost efficiency, productivity, a part of it is generative AI. And then we have different ways of looking at it because, say, you look at a tech and ops deal in customer service, there will be a large part of generative AI. Or if you look at something where we are building out new capabilities, there will be some productivity benefits through generative AI. But it's not the full deal. It's part of almost every deal that we're doing.

[Rishi Basu, executive]

The next question is from Sanjana from the Hindu Business Line.

[Unknown Analyst]

Salil, last quarter, you had mentioned that while these Gen AI projects are not POCs, they're not large revenue projects either. So when do you think this change will come? And also, from what I can see, much of your revenues are divided between North America and Europe, there's been a flat growth like between your revenue shares between the rest of the world and India. So like with emerging markets like LatAm and like Africa, is that something that you're looking at? And is nearshoring a strategy that you're employing? And beyond the margin guidance, say, in the medium term, what is your aspirational margin? That's all.

[Salil Parekh, executive]

So on the generative AI, we don't break out the revenue as we had shared before. What we do see is the work we are doing is quite deep now. We are building enterprise generative AI platforms. We're building a small language model. We're working on multi-agent frameworks. So these are things which are quite deep within the generative AI landscape and where clients are really appreciating the sort of, let's say, thought leadership, industry leadership that we have on generative AI.

In terms of the geographies, we have, of course, a strong focus within North America, within Europe, within Australia. We have -- we don't have a business outside of our Pinnacle business in Africa. So it's a small part of our business. In Latin America, similarly a small part of our business. On nearshoring, we see a lot of traction that we are seeing across different nearshore markets. In Europe, there are certain markets. For North America, there are certain markets. And even in Asia, we have some markets in which we are building nearshore capability. So that's certainly moving along well. On the margin aspiration, we absolutely have an internal aspiration to drive margin higher and higher with all of the approach we're taking, but we have not shared that externally.

[Rishi Basu, executive]

Next question is from Sonal Choudhary from the Deccan Herald.

[Unknown Analyst]

While you've pretty much highlighted everything. There's a few questions that I'd like to ask. Firstly, on the hiring, as everyone has already asked, the 2022 letters that went out and the hiring, which you promised that will be run from October. I just want to know if this 2 year 2022, 2023, the letters which went out in those years, and the hiring that happened now. So was there a lapse or anything on that front?

[Salil Parekh, executive]

WaWas there a what, sorry?

[Unknown Analyst]

Lapse, lapse.

[Salil Parekh, executive]

Lapse? No. I think, first, we are going to hire everyone that has got a letter and an offer from Infosys. We have a phased approach to this hiring, and that is in process right now.

[Unknown Analyst]

Okay. Also, your operating margins, they are flat. They were expected to be at around 21.3%. So is there anything -- any color that you'd like to add to that? Is that something that you were also expecting?

[Jayesh Sanghrajka, executive]

So as I said earlier, our margin guidance is 20% to 22%, and we are slightly above the midpoint of the margin guidance, right? If you look at the puts and takes, we had 80 basis points coming from Project Maximus, 10 basis points coming from currency and 30 basis points of tailwinds from the acquisition that we did, mainly on account of amortization and the balance 60 basis points was invested in terms of salary hikes, in terms of additional variable pay and other costs. So net-net, it offset each other, and we have reported 21.1% at margin. We don't really call out what we were expecting and where we are, I think we have delivered on what we were planning for.

[Unknown Analyst]

And expecting this to go ahead -- I mean increase going ahead, right?

[Jayesh Sanghrajka, executive]

In the medium term, yes.

[Unknown Analyst]

Okay. Also, GCCs, you've spoken about it already. The popular mandate did put out that it's like a competition while you've clearly highlighted that it's not you collaborating rather. So how many GCCs have you collaborated with till now?

[Salil Parekh, executive]

So first, GCCs are doing a fantastic job. We are quite fortunate that we are working with many of the client organizations and their GCCs in India. There's a large number of GCCs here. We don't share specifically which GCCs we are collaborating with. But to give you a sense, in financial services, in telco, in life sciences, we are working with a large number of those GCCs in India and helping them and support them. But we do not give specific the number of GCCs we are working with here. It's part of our overall client relationship. We have teams that work very closely because there are different needs sometimes from what the GCCs are looking for. And sometimes, it's a holistic need across the client between the GCC in India and between the global organization.

[Rishi Basu, executive]

Thank you. With that, we come to the end of this press conference. We thank our friends from media for being here today. Thank you, Salil, and 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. We request all of you to join us for High tea outside. Thank you once again, and have a lovely evening.