Infosys Q2FY23 results out, Revenues up by 23%

On October 13, IT services major Infosys reported a 11% rise in its consolidated net profit for the quarter ended September 30, 2022 on the Y-O-Y basis. The company also declared an interim dividend of Rs 16.5 per share and sees 15 – 16 per cent growth in revenue in constant currency for the current fiscal year.

Revenues rises by 23%, Net profit soars by 11% on Y-o-Y Basis 

On Thursday, IT major Infosys Ltd reported 11% jump in consolidated net profit at Rs 6,021 crore for the quarter ending September 30, 2022, helped by strong demand for its digital services. It reported consolidated net profit of Rs 5,421 crore in the year-ago period.

The company’s consolidated revenue from operations rose 23% to Rs 36,538 crore in Q2FY23 as against Rs 29,602 crore in Q2FY22. Infosys has also announced a share buyback worth Rs 9,300 crore. Under the buyback programme, the price will not exceed Rs 1,850 per equity share. The price is 30% higher than the company shares’ closing price of Rs 1,422 apiece on Thursday. Sequentially, revenue grew 6 percent while net profits rose 12.3 percent over the previous quarter.

The large deal total contract value (TCV) for the quarter was $2.7 billion – the highest in the last seven quarters.

Margin & Expenses 

Total expenses stood at INR 27,636 crore, up 27% YoY. The company depicted stellar margins with net and operating margins at 16% and 24%, respectively, in Q2 FY23. 

Attrition:

The company’s voluntary attrition rate stood at 27.1% at the end of the second quarter, 1.3 percent less than the previous quarter. The company’s total headcount stood at 3,45,218. 

Dividend:

Infosys will also pay an interim dividend totalling Rs 6,940 crore to the shareholders at Rs 16.5 per equity share.

Sectoral mix

In terms of sector mix, Infosys derived 30.5% of its revenue from Financial Services, 14.2% from retail and 12.3% from Communications. Top 10 clients contributed around 20.2% to its revenue. In the quarter, 62.5% of the revenues came in USD currency and 24.7% in Euro

New deals and clients:

1. Currys plc entered into a strategic collaboration with Infosys for technology and business process services, to help accelerate profitable growth of their business across key UK and European markets. 
2. Spirit AeroSystems entered into a five-year collaboration with Infosys to co-innovate Aerostructure and Systems Engineering Services by leveraging Infosys’ next-gen technologies.
3. Infosys collaborated with Telenor Norway to accelerate their IT modernization and establish Telenor as a product-based organization through a co-managed model.

Balance Sheet Position 

As of September 30, 2022, total assets stood at INR 1,27,231 crore compared to INR 1,17,885 crore as of March 31, 2022. Cash and cash equivalents were Rs 14,869 crore. Operating cash flow came in at INR 11,388 crore. 

Management Commentary: 

“Our strong large deal wins and steady all-round growth in Q2 reflect the deep relevance and differentiation of our digital and cloud solutions for clients as they navigate their business transformation”, said Salil Parekh, CEO and MD. 

“While concerns around the economic outlook persist, our demand pipeline is strong as clients remain confident in our ability to deliver the value they seek, both on the growth and efficiency of their businesses. This is reflected in our revised revenue guidance of 15%-16% for FY23,” he added.

“Operating margins in Q2 expanded sequentially by 150 bps, helped by our operational rigor. While supply side challenges are gradually abating as reflected in the reducing attrition rates, they continue to exert pressure on our cost structure,” said Nilanjan Roy, Chief Financial Officer. 

“In line with the capital allocation policy, the Board has announced an interim dividend of Rs 16.5 per share, an increase of 10% over FY 22 interim dividend and an open market share buyback of Rs 9,300 crores,” he added.

Growth Outlook

Infosys said it now expects revenue growth of 15%-16% for the financial year to March, higher than the 14%-16% increase it forecasted in July.

The company trimmed its operating margins guidance for the year to 21%-22%, from the forecast of 21%-23% it gave in July. Infosys’ raised forecast is in contrast to its rivals, who have issued cautious outlooks so far due to the challenging macro-environment and fears of an economic meltdown in their major markets of the US and Europe.

Our Viewpoint 

In the current times when global recession is overhead, Infosys gave stellar results for the quarter compared to its peers. We at AlphaStreet maintain a buy viewpoint on the stock witnessing the fair valuation of the share price compared to its peers. Management highlighted the demand environment remains robust, and the large deal pipeline is even larger than last couple of quarters. We predict that this Tech Upcycle would greatly benefit Infosys’s growth.