Infosys Q2 24/25 (Media) Earnings Call Transcript

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Provided by Quartr
October 17, 2024

There are 14 speakers on the call.

Operator

behalf of Infosys, I'd like to welcome all of you. This award 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.

Operator

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.

Operator

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? I now request all of you to join us for a minute silence in memory of Mr. Radhan Tata, a titan of Indian industry and a leader who exemplify the spirit of India through his life and work.

Operator

I request you to put your mobile phones on silent and I request your eyes.

Speaker 1

Okay.

Operator

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

Speaker 2

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.

Speaker 2

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%.

Speaker 2

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.

Speaker 2

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 a 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%.

Speaker 2

With that, let's open up for questions.

Operator

Thank you, Salil. We will now open the floor for questions. As always, we request question from each media house to accommodate everyone over the next hour. Joining Salil is Mr. Jayesh Sankarajka, Chief Financial Officer, Infosys.

Operator

We have the first question from Ritu Singh from CNBC TV 18.

Speaker 3

Hi. 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 is organic versus the contribution that you're seeing because of the Intech acquisition? 1, if you could begin by telling us that. Also, there have been 7 revisions in the revenue guidance in the last 8 quarters.

Speaker 3

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, etcetera. 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.

Speaker 3

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 3rd quarter. How much will be the impact from that?

Speaker 3

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? Thank you.

Speaker 2

So let me start off with some of the ones that you asked and then Jayash 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.

Speaker 2

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 is no new discretionary and especially the point, the verticals you mentioned retail or high-tech. What we do see is more focus on the cost takeout elements there itself.

Speaker 2

In terms of the margin piece, let me first hand over to Jayesh and then there may some other comments on the revenue itself.

Speaker 4

Yes. So just to add to the guidance piece that Salil was talking about and to your question on Intech, if you recollect last time when we announced the guidance, we had clarified that Intech is now completely included in the last guidance. So there is no additional impact or additional benefit this quarter on account of Intech. It was already baked in 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, the pipelines in terms of large deals and less than 50,000,000 deals that we have.

Speaker 4

Less than 50,000,000 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 has been contributing.

Speaker 4

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 January and the balance will be effective April.

Operator

Thank you.

Speaker 4

Yeah. Go ahead. Yeah. So sorry. The we are on we are on track to, you know, onboard the 15,000 plus fresher that we talked about last time.

Speaker 4

We have onboarded many of them in the first half, but we are are on track to onboard 15,000 to 20,000 at a group level in FY 'twenty five.

Operator

Thank you. The next question is from Hari Priya Suribhan from NDTV Profit.

Speaker 5

Hi, guys. 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.

Speaker 5

More stability is expected at least in the U. S. Markets. So how do you see that in your conversation with the clients? Do you see more budgets opening up?

Speaker 5

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 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 that the market is getting better demand coming back that should also translate into better margins and you probably reach the higher end?

Speaker 5

And on the fresher hiring specific 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 the fresher level and the lateral hiring?

Speaker 2

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 we'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.

Speaker 2

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 in Western 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.

Speaker 2

You want to go on the margin or come on Janai?

Speaker 4

Yes. So on the margins, if you look at where we are for the H1, we have delivered 21.1 percent for H1 both the quarters as well as the same numbers. That pretty much is slightly above the midpoint of our guidance. Our guidance is 20% to 22%, right. If you look at contributions from MAXIMUS, as I was saying earlier, I think we've got a lot of benefit.

Speaker 4

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 consistently delivering. The lean and automation has been delivering. Our utilization is pretty much at all time high levels. Subcontractor has reduced.

Speaker 4

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

Operator

Thank you. The next?

Speaker 2

On the recruitment part with the 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 are building a small language model that will be rolled out across industries. And we've launched already what are called multi agent solutions. So this is beyond being an assistant.

Speaker 2

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 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.

Operator

The next question is from Chandra Srikanth from Money Control.

Speaker 6

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 3,000,000,000 mark. So can you take us through if there were one off factors or some deals did not sort of come through this quarter?

Speaker 6

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 7th 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, 3rd party sales this quarter because I think that was, a significant component last time around. Jaish, despite differing wage hikes to Q3, you know, you mentioned that the acquisition costs kind of got baked into the margins.

Speaker 6

So what other, tailwinds will you have in Q3, you know, 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. You know, how many parameters is this going to have? When will it go live?

Speaker 6

And, you know, for which industry are you building this first? And are you building this on top of you know open source platforms or are you leveraging your partnership with OpenAI? Thanks.

Speaker 2

So quite a few question. Let me see if I can remember them 1 by 1 even better. On the way we've seen our growth, our focus is really on what we're 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.

Speaker 2

That's the outlook of where we built out our growth guidance. We are 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 happens, sometimes doesn't happen.

Speaker 2

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've done. Let me talk a little bit about the small language model and then maybe Jaish, you can pick up. So, there it's an incredible approach that we have taken. We are building this on various open source components.

Speaker 2

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.

Speaker 2

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 three areas.

Speaker 4

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.

Speaker 4

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, purlows, the low working calendar days, etcetera. 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 2022 with an escalation to increase in the midterm.

Speaker 4

Yeah, so as I said earlier, we are on track to onboard 15,000 to 20,000 freshers at group level in FY 'twenty five. We are not breaking it up between what was the past in this, but we are onboarding all the 15,000 to 20,000 freshers.

Operator

Thanks, Chandra.

Speaker 4

Yeah. So, look, it's first of all, it's the 3rd 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 return key projects for the clients and, you know, 3rd party costs are integral part of, you know, that project. And it comes as part of the mega large deals that we signed. So there is there's nothing specific there. It will come as and when we sign those kinds of deals, but it also increases our, you know, our propensity with the clients and stickiness with the clients.

Operator

Thank you, Chandra. The next question is from Bina Parmar from the Economic Times.

Speaker 1

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 20222023?

Speaker 1

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 have 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?

Speaker 4

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 phase manners starting from Q4. On fresher onboarding, we will onboard 15,000 to 20,000 freshers during the year.

Speaker 1

We have been hired so far in these two quarters.

Speaker 4

We haven't given that breakup, but you can see that the net numbers for us have been declining for last few quarters in the Q1 where we had a net increase. So an anecdote you can drive, but we will onboard all the freshers that we have committed

Speaker 1

in the past. North America.

Speaker 2

North America. Yeah. So there 1st 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 negative growth.

Speaker 2

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.

Speaker 1

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?

Speaker 2

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.

Operator

Thank you. The next question is from Jasbhardia from The Mint.

Speaker 7

Good evening. 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 prospect of a demand recovery, especially that has been aided by the U. S. Fed rate cut?

Speaker 7

2nd, I want to understand, is cloud a part of discretionary spending? And I ask 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?

Speaker 1

That's about it.

Speaker 4

So I

Speaker 2

think the start up was much more on the macro, the first question. I'll go through 1 by 1. 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.

Speaker 2

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 in financial services. We don't know when the others when they'll come, but that's typically the way this macro affects the tech industry.

Speaker 2

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.

Operator

Thank you.

Speaker 8

Does it

Speaker 2

come to cost takeout? Cloud, so 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 are doing some work which is more related to the edge not just the core, then there are different cost considerations. If you are doing more standard, you know, 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.

Speaker 2

For example, you could also do cyber security 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.

Operator

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

Speaker 9

Good evening, gentlemen. 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, would 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.

Speaker 9

Now if you could do 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 1 or maybe 1 or 2 factors that really contributed to where the revenue is heading?

Speaker 2

So let me 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.

Speaker 2

When we do have typically in previous years 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 build for 1 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.

Speaker 2

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.

Operator

Question on wage hikes.

Speaker 2

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

Operator

Revenue growth factors? That was the last, I think.

Speaker 2

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.

Operator

Thank you, Veena. The next question is from Padmini Dhruva Raj from the Financial Express.

Speaker 10

Hi. So your large deal TCV has shrunk to 2.4 from 4.1 last quarter. So is this lumpiness because of the factors you mentioned that other sectors barring BFSI, that it's still yet 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 index revenue contribution?

Speaker 10

And your peers, especially in the mid market space, have said there's a burst in 1,000,000 to 10,000,000 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 AVS?

Speaker 2

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

Operator

Large deals.

Speaker 2

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 Jayesh shared earlier, we have seen on deals below $50,000,000 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.

Speaker 2

So we see a lot more traction of that sort of work that we already see. And the point, you made on financial services, we do see the discretionary spend there, but in the other industries, not yet.

Speaker 10

And your collaboration with GCC is here?

Speaker 2

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're working with them, with GCCs in India to help scale them, to help with recruiting. And we are 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.

Speaker 2

So a very strong connect with GCCs across India.

Speaker 4

So Intech contributed 80 bps to this quarter's revenue.

Operator

Thank you. The next question is from Umer Kanan from the New Indian Express.

Speaker 11

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

Speaker 4

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 synergy over the years.

Speaker 11

So Salil, you did speak about BFSI, but I just want to understand why there is degrowth in retail. Is there any specific reason in terms of revenue retail contribution is, yeah.

Speaker 2

No, I think you know 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're pointing out 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.

Speaker 11

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

Speaker 2

So generative AI first 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. Then we have different ways of looking at it because say you look at, you know, a tech and ops deal in customer service, there will be a large part of generative AI.

Speaker 2

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 parts of almost every deal that we are doing.

Operator

Thank you. The next question is from Sanjana from The Hindu Business Line.

Speaker 12

Good evening, gentlemen. Sali, last quarter you'd mentioned that while these 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 between your revenue shares between the rest of the world and India.

Speaker 12

So with emerging markets like LatAm and Africa, is that something that you're looking at? And is Neosharing a strategy that you're implying and beyond the margin guidance in the medium term, what is your aspirational margin? That's all. Thank you.

Speaker 2

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 are building a small language model, we are 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.

Speaker 2

We have we don't have 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 business. On near shoring, we see a lot of traction that we are seeing across different near shore markets. In Europe, there are certain markets.

Speaker 2

For North America, there are certain markets. And even in Asia, we have some markets in which we are building near shore 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 are taking, but we have not shared that externally.

Operator

Thank you. Next question is from Sonal Chaudhry from The Deakin Herald.

Speaker 13

Good evening, gentlemen. While you have 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?

Speaker 2

Was there a what, sorry?

Speaker 13

Labs. Labs.

Speaker 2

Labs. Yeah. 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.

Speaker 13

Okay. Also your operating margins, they're 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?

Speaker 4

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 percent 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.

Speaker 13

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

Speaker 4

In the medium term, yes.

Speaker 13

Okay. Also GCC, you've spoken about it already. The popular mandate did put out that you know, 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?

Speaker 2

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 collaborate 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.

Speaker 2

It's part of our overall client relationship. We have teams that work very closely because there are different needs sometimes for 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.

Operator

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

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Earnings Conference Call
Infosys Q2 24/25 (Media)
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