Infosys Q1 2026 slides: modest growth amid sector-specific challenges

Introduction & Market Context

Infosys Ltd ADR (NYSE:INFY) presented its first quarter fiscal year 2026 results on July 23, 2025, showing modest growth amid varying performance across business segments and geographies. The company reported 4.8% year-over-year revenue growth (3.8% in constant currency), with an operating margin of 20.8% and an 8.6% increase in earnings per share.

The Q1 results come as Infosys navigates a challenging macroeconomic environment that has impacted client spending patterns, particularly in discretionary areas. The company’s stock has been trading near its 52-week low of $15.82, reflecting investor caution despite meeting performance expectations. In pre-market trading on November 3, 2025, Infosys shares were up 0.72% to $16.69.

Quarterly Performance Highlights

Infosys reported consolidated revenue of $4.94 billion for Q1 FY26, representing a 4.8% increase year-over-year and a 4.5% increase quarter-over-quarter. In constant currency terms, growth was more modest at 3.8% year-over-year and 2.6% quarter-over-quarter. The company secured large deals with a total contract value of $3.8 billion during the quarter, with 55% representing net new business.

The company’s operating profit reached $1.03 billion, maintaining a healthy operating margin of 20.8%. Net profit came in at $809 million, with basic earnings per share of $0.20, representing an 8.6% increase compared to the same period last year.

As shown in the following financial highlights:

Free cash flow for the quarter was $884 million, down from $1.09 billion in the same period last year. This represents a concerning trend, although the company’s consolidated cash and investments remained strong at $5.27 billion, up from $4.31 billion year-over-year.

Segment and Geographic Analysis

Infosys’ performance varied significantly across business segments. Manufacturing emerged as the standout performer with 14.8% year-over-year growth (12.2% in constant currency), contributing 16.1% to total revenue. Energy, Utilities, Resources & Services also showed strong performance with 7.2% growth (6.4% in constant currency), accounting for 13.6% of revenue.

Financial Services, the company’s largest segment at 27.9% of revenue, grew by 6.3% year-over-year. However, Life Sciences experienced a concerning decline of 6.6% (7.9% in constant currency), and the "Others" category fell by 14.9%, indicating challenges in these areas.

Geographically, Europe was the growth engine with an impressive 16.2% year-over-year increase (12.3% in constant currency), while North America, which accounts for 56.5% of revenue, showed minimal growth at just 0.5%. This regional disparity suggests shifting market dynamics that could impact future performance.

The following segment breakdown illustrates these trends:

Employee Metrics and Operational Efficiency

Infosys reported a total workforce of 323,788 employees as of June 30, 2025, representing a slight increase from 323,578 at the end of the previous quarter and up from 315,332 year-over-year. The company maintained a healthy offshore-onsite mix with 76.4% offshore and 23.6% onsite effort distribution.

Utilization rates remained strong at 85.2% excluding trainees and 82.7% including trainees. However, voluntary attrition increased slightly to 14.4% from 14.1% in the previous quarter and up significantly from 12.7% year-over-year, suggesting potential challenges in employee retention that management may need to address.

The company continues to make progress on diversity initiatives, with women comprising 39.1% of the workforce, nearly unchanged from previous periods.

The following employee metrics provide additional context:

Financial Position and Income Statement

Infosys’ consolidated statement of comprehensive income shows a solid financial position with gross profit of $1.53 billion on revenues of $4.94 billion, resulting in a gross margin of approximately 31%. Total operating expenses were $497 million, leading to the aforementioned operating profit of $1.03 billion.

The company’s income tax expense was $329 million, representing an effective tax rate of approximately 29%. This resulted in net profit of $809 million for the quarter, compared to $764 million in the same period last year, demonstrating year-over-year improvement despite challenges.

The detailed income statement provides further insight into the company’s financial performance:

Forward-Looking Context

While the Q1 FY26 presentation focuses on historical performance, Infosys’ subsequent Q2 FY26 results provide important context for the company’s trajectory. In Q2, Infosys achieved revenue of $5.08 billion, indicating continued sequential growth from the Q1 figures presented here. The company also improved its operating margin to 21% in Q2, up from the 20.8% reported in Q1.

Notably, Infosys has been accelerating its focus on artificial intelligence, delivering over 2,500 generative AI projects for clients. This strategic emphasis on AI capabilities appears to be yielding results, though the company has revised its FY26 revenue growth guidance to a more conservative 2-3%.

The modest growth seen in Q1, particularly in North America, aligns with the broader narrative of macroeconomic uncertainty affecting client spending patterns. While manufacturing strength continued into Q2, the challenges in discretionary spending noted in subsequent earnings calls were already becoming apparent in the Q1 segment performance.

Investors should consider these Q1 results in the context of Infosys’ overall FY26 trajectory, which shows resilience amid challenging market conditions but also highlights the need for continued innovation and strategic positioning in high-growth areas like AI to offset weaknesses in segments such as Life Sciences.

Full presentation:

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