Infosys Ltd Q3 FY2026 Concall Summary

Key Takeaways

• Guidance raised, demand broadening: FY26 constant-currency revenue growth revised up to 3.0–3.5%, with Financial Services and Energy/Utilities/Resources/Services showing clear discretionary recovery and expected to accelerate in FY27.
• Large-deal engine at full throttle: \$4.8 bn of TCV in Q3, including two mega deals, pushed 9-month TCV to \$11.7 bn, already exceeding all of FY25. Net-new TCV for the nine months is up 40% YoY.
• AI is pervasive but not yet a disclosed revenue line: 90% of the top 200 clients are engaged in AI work, 4,600 projects are live, and 500+ agents have been built, but management declined to quantify AI revenue, pointing instead to engagement metrics.
• Margins held despite investment ramp: Adjusted operating margin expanded 20 bps sequentially to 21.2%, absorbing 50 bps of higher sales spend and lower utilization, aided by currency and Project Maximus benefits.
• What to watch next quarter: The FY27 growth commentary beyond the two named verticals, any quantification of AI revenue at the upcoming Investor Day, and whether the Retail and Manufacturing pipelines convert as hoped.

Demand Environment

• Where strength is concentrated: Financial Services grew ~5% over nine months, driven by large deal wins and a shift from compliance to business-growth spending across banking, payments, mortgages, and asset management. Energy/Utilities/Resources/Services is seeing discretionary demand rise on AI infrastructure, data-center build-out, and decarbonization work.
• Where weakness persists: Retail and CPG clients remain uncertain from tariff negotiations and geopolitics, prioritizing cost takeouts and AI-led productivity over discretionary projects. Manufacturing is held back by tariff-driven investment hesitation, with automotive especially challenged, though industrial and aero sub-verticals are doing well.
• The macro bet: Management sees no deterioration in other verticals and points to possible U.S. interest-rate cuts as a tailwind; the Q4 guidance embeds higher uncertainty at the low end and a better macro environment at the high end.
• North America contraction explained: The minus 1% YoY decline reflects the impact of third-party cost reduction across segments, not a single vertical or client issue. Energy, Utilities, and Financial Services remain strong in the region.

Jayesh Sanghrajka: "What I can tell you is at the lower end we have baked in a higher amount of uncertainty. And at the higher end, we have baked in a better macro environment."

Deal Wins & Order Book

Two mega deals closed in Q3, contributing to 26 large deals overall. The pipeline remains healthy, and the book of large deals signed in prior quarters is now ramping, which drove an uptick in subcontractor usage to fill skill and geography gaps.

• Large-deal margin profile unchanged: Large deals carry slightly lower margin than the company average, but the portfolio effect compensates as new work comes in at better margins. No shift in that dynamic.
• Third-party costs structurally declining: Third-party as a percentage of revenue fell 0.3% sequentially and ~2.4% YoY, reflecting the ramp of previously signed deals and the shape of the pipeline.

AI & GenAI

Scale and positioning

• Engagement depth, not revenue, is the disclosed metric: 90% of the largest 200 clients are engaged in AI work; 4,600 AI projects are underway; over 500 agents have been built; and 2.8 crore lines of code were generated using AI. Management declined to provide a revenue number, unlike some peers.
• Six value pools identified: AI engineering services, Data for AI, Agents for operations, AI software development and legacy modernization, AI in physical devices, and AI trust and risk services. Management believes these unlock a large incremental opportunity over the next several years.
• Investor Day coming: A comprehensive view of the AI approach, including industry-specific work, AI labs on campus, and the scale of opportunity, will be shared at an Investor Day later this quarter.

Agentic AI in production

• Topaz Fabric launched: A purpose-built agent services suite that helps clients manage and implement AI agents across the enterprise, working with many native AI company interfaces and supporting horizontal and vertical functions.
• Four small language models built within Infosys' own product suite; Finacle will become more AI-oriented. AI wrappers and orchestration modules enable clients to switch between foundation models and agents.
• Legacy modernization unlocked: Using software agents plus Infosys' expertise and client knowledge makes the economics better for clients, allowing projects that were previously uneconomic to now start happening.

Pricing and billing evolution

• Multiple new models being tested: Outcome-based, agent-specific, and platform-based pricing are all emerging, but management says it is too early to call out a specific evolution. Value created will drive billing over time, with traditional models persisting for now.
• No margin headwind from AI projects: Management stated that pricing on AI engagements is accretive and there is no headwind from AI on pricing, though the question of whether AI projects are a net margin tailwind or headwind was not directly answered.

Partnerships and build-vs-buy

• Cognition (Devin): Joint work already happening with clients; creates new addressable areas in legacy modernization that would not have been attempted before.
• Acquisition approach: Management sees few pure-play AI services companies to acquire today; the partnership model with AI-native companies (agents, models, foundational tools) is the primary path, though AI services acquisitions will be considered as that landscape matures.
• Productization strategy: Infosys is not planning large-scale foundational model work; it will focus on small language models and AI wrappers/orchestration modules, with the possibility of more in the future.

Salil Parekh: "It is not the case of something which was being done, which is now being done differently, that will also happen. But this is more a case of something which was not being done, which will now start to happen."

Vertical Performance

Margins

• Investment intensity rising: Sales and marketing spend increased double digits year-to-date, impacting margins by approximately 50 bps. Utilization excluding trainees fell 1% sequentially to 84.1% as the company builds capacity for future growth.
• Labor code impact: A one-time charge of INR 1,289 crores was taken through Q3 for the regulatory change; the ongoing annual impact is approximately 15 bps.
• Wage hikes completed: Rolled out in two stages effective January and April; the next cycle has not yet been decided.
• One-offs normal: An INR 165 crore profit on property, plant and equipment was largely offset by an increase in variable pay accrual; management characterizes such items as normal for a company of this size.

Jayesh Sanghrajka: "A little early in my mind in terms of calling out specifically what are the pricing models going to evolve on this. But everybody is testing new pricing models at this point in time."

People & Operations

• Headcount growth reflects confidence: Net headcount increased by 5,000 to 337,000, partly driven by fresher hiring; ~18,000 of the planned 20,000 campus hires for the year have been onboarded, many still in training. Utilization including trainees fell to 80% as capacity is built ahead of demand.
• Attrition benign: LTM attrition declined 2% sequentially and 1.4% YoY, reflecting market conditions and the company's focus on retention and upskilling.
• Specialized AI compensation: A new compensation approach has been launched for high-caliber software engineers working in AI, with materially higher pay levels.
• On-site mix continues to fall: Reduced by a further 10 bps in Q3 and by 70 bps over nine months of FY26.
• DSO improvement via AI: DSO including net unbilled declined 5 days sequentially to 82 days, aided by deployment of AI agents on the order-to-receivable cycle. Free cash flow adjusted for labor codes was \$965 mn, or 113% of adjusted net profit.
• H-1B incident clarified: One employee was denied entry into the U.S. and sent back to India a few months ago; no employee has been apprehended by any U.S. authority.

Salil Parekh: "No Infosys employee has been apprehended by any U.S. authority. A few months ago, one of our employees was denied entry into the U.S. and was sent back to India."

Guidance & Commitments

Key Metrics