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During Infosys’ results press conference on October 23, CEO and MD Salil Parekh revealed a new seven-year mega contract worth over $2 billion with a major global financial services institution. The deal ramps up only from the “later part of Q4 and Parekh noted that it will add over 1% to revenue growth in the following year. Infosys booked $5.2 billion in large-deal total contract value (TCV), 62% of it net new, while artificial intelligence (AI) revenue rose 29% sequentially to 10.5% of the total. Yet it cut FY27 constant-currency (CC) growth guidance to 1%-2% from 1.5%-3%, its second cut in a row. The midpoint has fallen from 2.5% in April to 1.5%. The market reaction was swift. At least four analysts downgraded Infosys on October 26, including Axis Capital, Arihant Capital Markets and IIFL Capital Services, according to Bloomberg. Three others cut their recommendations over the weekend, taking its consensus rating to 3.7 out of 5, the lowest since January 2024. Infosys shares have fallen 28% this year amid concerns over its ability to withstand AI disruption. Praveen Bhadada, CEO and Managing Director of advisory firm Neovay Global, tells AIM that the gap between deal wins, AI demand and growth reflects the industry’s difficulty in converting bookings into revenue. A $2 Billion Deal That Barely Counts This Year The second mega deal, worth $1 billion, was a renewal. According to Chief Financial Officer Jayesh Sanghrajka, Infosys has historically averaged about $3 billion in large deals a quarter, and guidance already assumed as much. Many large deals cut clients’ costs and consolidate vendors. They “make revenue more secure, but they start slowly,” Bhadada says, as clients expect a share of the savings. Wipro’s large-deal bookings fell58.6% sequentially, illustrating the challenges of sustaining deal momentum. HCLTech’s $1.14 billion contract with a European company adds no revenue for two quarters, CEO and MD C Vijayakumar said. Wipro, meanwhile, is waiting on two unsigned deals. Its large-deal bookings fell to $674 million in Q2 FY27, while IT services revenue remained flat sequentially in constant currency, according to its quarterly results. Anmol Garg, Senior Vice President and Lead Analyst at DAM Capital Advisors, had expected Infosys to cut guidance again after July’s trim. The Cut Is Partly a Choice Sanghrajka said two decisions together weigh on growth by roughly 2%: higher offshoring, which Infosys had flagged at the start of the year as a 1% drag, and a large European manufacturing deal it chose not to pursue because it missed return expectations. The company cited the same client in July. Parekh says Infosys takes contracts only when the economics fit. Some client demands for AI-driven productivity exceed what it can deliver, leaving work that “doesn’t fit our economic profile”. Operating margin held at 21%. Sanghrajka’s margin walk puts the impact of post-sale customer support at minus 70 basis points (bps) and the additional impact from acquisitions, due to one extra month of consolidation, at minus 20 bps. These were offset by 40 bps from currency, 20 bps from working days and 20 bps from Project Maximus, the company’s margin programme. Garg had flagged the weaker rupee as margin support before the results. The second half brings a wage hike and continued pricing pressure, Sanghrajka added. Free cash flow of $928 million fell 15.7% year on year in dollar terms, though it remained at 113.3% of net profit. Infosys has also stayed out of the data centre race that TCS and HCLTech have entered. Infosys does not disclose AI margins, making it difficult to assess whether its AI business is improving profitability. TCS says some AI businesses earn above-average margins, while HCLTech says its advanced AI services generate margins 7%-10% higher than traditional services. HCLTech’s latest results showed Advanced AI revenue reaching $219 million. Asked about a peer’s claim of better AI margins, Parekh declined to share Infosys’ own figures. Tech Mahindra’s margin performance and plans for AI disclosure offer another point of comparison. AI Is Growing, and So Is the Compression AI-linked revenue rose from 8.2% of Infosys’ total in Q1 to 10.5% in Q2, up from 5.5% in February. Based on the disclosed shares and rounded figures, AI revenue increased by an estimated $120 million sequentially, while total revenue rose about $63 million. That implies the rest of the business was approximately 1% smaller than in Q1. The calculation is approximate because Infosys does not disclose the underlying AI revenue base. Parekh says AI is contributing to growth, but productivity gains are also putting pressure on revenue as clients seek lower costs. He rejects the idea that Infosys is relabelling legacy work as AI revenue, describing AI-led modernisation as “new work”. Infosys counts revenue from work that fits one of six focus areas in its AI framework. Tech Mahindra plans to report AI revenue from H2 FY27 on a basis it says can be reconciled to its financial records, while Accenture stopped breaking out its own figure after Q1 FY26. Tech Mahindra’s planned AI revenue disclosure could give investors a clearer view of AI’s contribution to growth and profitability. Gaurav Vasu, Founder and CEO of market intelligence firm UnearthInsight, tells AIM that AI at about 10% of revenue is ‘not reflected in higher growth or margins or revenue per employee’.” Quarterly revenue per employee was about $15,470, marginally below Q1’s $15,490. Vasu remains optimistic that Indian IT firms have embedded AI in their offerings and continue to win AI-embedded deals. In a comment sent to AIM, Shubham Singh Rathore, Principal Analyst at Gartner, says Infosys’ 29% jump reflects enterprise AI moving “from standalone proofs of concept toward integrated agentic workflows”. HCLTech is also pursuing new AI spending through its mid-market business. North America Is Soft. Infosys Is Hiring Anyway North America, which accounted for 54.6% of services revenue, fell 1.5% in CC. Europe grew 4.6%. Retail fell 7.7% and high-tech 17.3%, while life sciences grew 32.5%. Sanghrajka attributed the high-tech decline to a single US client ramping down. Infosys added 4,480 employees to reach 332,542, including about 8,000 campus graduates in the quarter. It still targets around 20,000 hires for the year. Sanghrajka says utilisation is 85% and freshers take six to eight months to deploy. By contrast, Wipro cut 6,716 employees, according to its Q2 results. Bhadada says firms are increasingly “relying on AI and productivity to deliver new work rather than hiring ahead of demand”. Infosys’ headcount is roughly flat from a year ago, he notes. The US green card pause affecting several Indian IT firms has not changed attrition, now 12.7%, or costs, Parekh said, since most of Infosys’ US staff are local hires. The January quarter should show whether large-deal TCV holds near $3 billion, North America and high-tech stabilise, and AI revenue continues to outpace revenue per employee. The mega deal’s first revenue arrives in the March quarter.
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