Infosys Ltd Q1 FY23 Earnings Conference Call Insights

Key highlights from Infosys Ltd (INFY) Q1 FY23 Earnings Concall

Management Update:

• INFY said its quarterly attrition declined by 1 point on a sequential basis, contrary to the 3-4 point declines usually in 1Q. The company also had a net headcount increase of over 21,000 employees.

• INFY increased its revenue growth guidance from 13%-15% to 14-16% for FY23. The margin guidance is kept at 21-23% and with the increased cost environment, INFY will be at the lower end of this guidance.

Q&A Highlights:

• Surendra Goyal of Citigroup asked about contractual provisions largely offset by discounts, if it was to same client or discount in general. Nilanjan Roy CFO replied that the 0.5% increase in RPP is a combination of 3-4 elements. Also it’s not to the same client but generic discounts.

• Moshe Katri with Wedbush enquired about the biggest potential levers to catch up to the margin range mentioned.  Nilanjan Roy CFO replied that with recruitment the company should see benefit coming out of that. Also pricing is another area where INFY has seen less impact on pricing in terms of discounts.

• Moshe Katri with Wedbush enquired what does 100 bp expansion in utilization rate mean to margins in terms of sensitivity. Nilanjan Roy CFO replied that it depends on by which level INFY sees utilization. It’s a bit complicated how the mix changes. To give a large impact, INFY lost about 40 bp in 1Q23 because of utilization and margin.

• Kumar Rakesh from  BNP Paribas asked about the reason in margin decline from 4Q22 to 1Q23 for INFY and in general. Nilanjan Roy CFO answered that the attrition trends are similar across industry. However, it’s coming down and INFY’s quarter figure is below LTM figures. INFY added that it has a sharp cost optimization program which would offset these headwinds.

• Keith Bachman of BMO enquired about the impact of wage inflation on the balance of the year on the GM equation. Nilanjan Roy CFO replied that there will be little carry on effect in terms of middle to senior employees happening in July, but not to the same margin impact of 1Q that was broad based.

• Nitin Padmanabhan from Investec asked that in terms of salary increases if it’s only for the associate level in 1Q23. Nilanjan Roy CFO said that the company has done it for most of its employees up to mid level. More at the senior level is what INFY is going to roll out in July, which will be far less.

• Bryan Bergin of Cowen asked about what mix of INFY business is seeing some slowing. Salil Parekh CEO replied that INFY does not quantify the impact areas. However, INFY is seeing pockets of weakness. But given the pipeline, INFY has increased its revenue guidance. So majority of the business is still seeing good demand.

• Ankur Rudra of J.P. Morgan asked if there were any one-offs in the margin in 1Q23 and if 20% in 1Q23 should be bottom of margins going forward. Nilanjan Roy CFO clarified that from 20%, the company will see the improvement QonQ.

• Pankaj Kapoor of CLSA enquired about the overall order book. Salil Parekh CEO answered that the company shares the large deal win number and not the overall order book. The increase in growth guidance provided should clarify the overall question.

• Gaurav Rateria from Morgan Stanley asked if there is any difference in client decision making behavior in US vs. European clients. Nilanjan Roy CFO said that currently the company is not seeing that which is more geography based. However, INFY is seeing some which is more globally industry based and client based.