Infosys Q2 net profit rises 11% to Rs 6,021 cr, raises its FY23 guidance

Infosys, in the course of declaring its results for July-September 2022 on Thursday, raised its revenue guidance for FY23 to 15-16 per cent from the 14-16 per cent earlier. The company also announced a buyback of shares worth Rs 9,300 crore.

The board has fixed the buyback price at Rs 1,850 per share, which is a premium of 30 per cent over Thursday’s closing price of Rs 1,419.7. The firm’s board has approved an interim dividend of Rs 16.50 per share.

Nilanjan Roy, chief financial officer, said: “This is an open market offer. Hence it’s limited to 15 per cent of the share capital and reserves.”

Infosys reported net profit at Rs 6,021 crore for the quarter, up 11.3 per cent year-on-year and 12.3 per cent sequentially.

Revenue for the second quarter was at Rs 36,538 crore, up 23.4 per cent year-on-year and 6 per cent sequentially. The company’s revenue was in line with the Bloomberg estimates, and bettered them on profit. Bloomberg had estimated revenue to be Rs 36,564 crore and net profit at Rs 5,902 crore.

Though the company reported a strong deal pipeline, the highest in the last seven quarters, it took cognisance of the macro environment and narrowed the higher end of the revenue guidance.

Infosys total contract value (TCV) for Q2 came in at $2.7 billion. Of that, 54 per cent were net new deals. For Infosys large deals are ones above $50 million. A big positive was operating margins seeing an improvement of 150 basis points (bps) at 21.5 per cent.

The margins saw a favourable impact of currency movements (70 basis points) and cost optimisation (90 basis points) benefits.

“Our Q2 performance is a very strong performance, the TCV of $2.7 billion gives us a very good platform for future growth. 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,” said Salil Parekh, chief executive officer and managing director.

The growth drivers were broad-based with verticals and geographies showing double-digit increases.

However, the management sounded cautious on global uncertainties, and said verticals such as mortgage, financial services, retail, hi-tech and telecom could see softness. On these verticals Parekh added: “We see more caution in the way the clients are looking at services. We also see some impact on discretionary spend.”

Infosys hired in a big way in the second quarter even though its peers are cautious about fresher addition.

It added 10,000 freshers in the second quarter, and in the first quarter it was 20,000. The company hinted in FY23 the 50,000 target may be surpassed.

“The company’s revenue performance was lower than our expectations but increasing (the) lower end of (the) revenue guidance was encouraging, which we believe could be on the back of strong large deal TCV …,” said ICICI Securities in its first cut analysis.

In comparison with the top four IT services players, Infosys leads the pack on almost all parameters.

While all the companies managed to perform well, given the global macro environment, Infosys’ TCV grew 58.8 per cent over Q1 FY23. HCLTech recorded TCV growth of 16 per cent QoQ. TCS managed to hold on to the same levels of TCV at $8.1 billion. In margin performance too Infosys did better than the rest.

Sanjeev Hota, head of research, Sharekhan by BNP Paribas, said: “While revenue growth fell short of expectations at 4 per cent sequential growth, digital revenues, which constitute around 62 per cent of the total, were up 30 per cent year-on-year. Further, Infosys’ raising the lower end of the revenue guidance is a positive surprise, given the volatile macro environment. However, it tightened the margin guidance and narrowed it to 21-22 per cent. We believe Infosys’ decent Q2 numbers, coupled with management comforting demand commentary and margin sustenance despite supply side challenges, allay investor fears …. We have a ‘buy’ rating on the stock.”

Infosys announced a buyback of shares worth Rs 9,300 crore. The board has fixed the buyback price at a premium of Rs 1,850 per share. This is a premium of 30 per cent from today’s closing price of Rs 1,419.7 per share. Infosys also announced that the board also approved an interim dividend of Rs 16.50 per equity share for its shareholders.

While explaining the size of the buyback, Nilanjan Roy, CFO said: “This is an open market offer. Hence it’s limited to 15% of the share capital and reserves which is about Rs 9,400 odd crores so the board has decided the figure of Rs 9,300 crore.” The company also said that it has a predictable capital allocation policy for five years, from FY20 to FY24. Under the policy the company has stated that it will return 85 per cent of free cash flows.