Infosys Limited

Infosys said Q1 FY27 revenue was $502 million, up 1% sequentially and 2.4% year over year in constant currency terms. Gross margin improved 60 basis points sequentially, operating margin was 21.1% (up 20 bps sequentially), free cash flow was $955 million, and EPS was INR 19.19, up approximately 15% year over year. AI revenue was 8.2% of overall revenue, large deal wins were $3.6 billion with 61% net new, cash and cash investments were $3.9 billion, and the company returned more than $1 billion to shareholders through dividends. For the full year, management lowered constant-currency revenue growth guidance to 1.5% to 3% and kept operating margin guidance at 20% to 22%; the margin outlook assumes wage hikes, productivity pass-throughs, AI investments, and a 50 bps acquisition impact, partly offset by currency and Project Maximus benefits.

Salil Parekh emphasized that the quarter showed continued progress in AI, with AI services revenue at 8.2% of total revenue and growing double digits sequentially over several quarters. He framed the company’s AI strategy around six value pools, including process AI, engineering, data for AI, and coding tools, and said the long-term relevance of Infosys’ services is being reinforced by client demand. His tone was constructive but cautious, repeatedly noting that macro conditions remain uncertain and that clients are selective on discretionary spend.

Jayesh Sanghrajka said Q1 growth was below expectations because of a one-time 50 bps revenue hit from a program termination, softer volumes, lower-than-expected pricing, higher offshoring, and weaker revenue from a European manufacturing client. He highlighted that gross margins improved 60 bps sequentially and operating margin rose to 21.1%, helped by rupee depreciation, Project Maximus, and amortization benefits, partially offset by AI sales and marketing investment and acquisition-related headwinds. He also cited utilization excluding trainees at 84.9%, DSO at 76 days, attrition at 13%, debt-free status, and $3.9 billion in cash and investments, while maintaining margin guidance at 20% to 22% and tax rate guidance of 29% to 30%.

Analysts pressed on why revenue guidance was cut despite strong large-deal TCV, and management said the weaker Q1 volumes, one-time termination, pricing pressure, and higher offshoring will cascade into Q2 and the rest of FY27. Management clarified that the client termination was in the ERS vertical, that the European manufacturing-related revenue impact was partly a conscious decision not to pursue uneconomic deals, and that the termination was fully absorbed in Q1. On AI, management said external AI revenue refers specifically to the six Hexagon/Topaz-related areas, while AI-augmented revenue is tracked internally but not included in the reported 8.2%; they also said pricing pressure is real but they are still seeing net price increases.