Infosys Q2 FY27 call: AI reaches 10.5% of revenue as mega deals support FY28

Infosys said AI-first revenue reached 10.5% of total revenue in the September quarter, up from 8.2% in Q1 and growing 29% sequentially, as clients expanded enterprise-wide adoption.

Revenue grew 1.5% year on year and 1.2% sequentially in constant-currency terms. Operating margin was 21%, free cash flow was $928 million and large-deal wins reached $5.2 billion, including two mega deals. Of the total contract value, 62% was net new.

Management revised full-year constant-currency revenue growth guidance to 1%–2%, while retaining the 20%–22% operating-margin range. CFO Jayesh Sanghrajka said revenue had been below expectations because volumes were softer, expected pricing increases did not materialise amid competition and discretionary spending remained weak in retail and high technology.

Positives

• AI moved from pilot work toward a material revenue line. CEO Salil Parekh said AI revenue accounted for 10.5% of total revenue after 29% sequential growth.
• Large-deal wins provided forward visibility. The $5.2 billion quarterly total included a net-new, seven-year deal worth more than $2 billion that management expects to contribute over 1% to FY28 growth.
• Cash conversion remained strong. Free cash flow of $928 million represented 113% of net profit, and the company ended the quarter with $4.7 billion of cash and equivalents and no debt.
• Financial services led deal activity. Infosys won more than $3.5 billion of large deals in the vertical during Q2.

Watch-points

• FY27 growth expectations moved down. Management cited pricing pressure, softer volumes and cautious discretionary spending.
• Second-half margins face several headwinds. Compensation increases, acquisition-related costs, seasonality and the sharing of AI-productivity benefits with clients will be partly offset by Project Maximus.
• The mega deal benefits are back-loaded. Transition is expected to begin in the second half of Q4, with the more visible growth contribution expected in FY28.
• Retail and high technology remain soft. Management linked the weakness to lower third-party revenue, client budget pressure and delayed discretionary programmes.

Source: Infosys Q2 FY27 earnings conference call transcript.

This is a summary of a company earnings call, published as general information. It is not investment advice or a recommendation to buy or sell any security. Read the full transcript before relying on any point.