In Q2FY23, Infosys garnered a consolidated net profit of ₹6,021 crore up by 11% yoy, while revenue from operations came in at ₹36,538 crore higher by 23.43% yoy.
During the quarter, Infosys reported strong Q2 performance with year-on-year growth at 18.8% and sequential growth at 4.0% in constant currency. Year-on-year growth was in double digits across all business segments in constant currency terms. Digital comprised 61.8% of overall revenues and grew at 31.2% in constant currency. The operating margin for the quarter increased sequentially by 140 bps to 21.5%. Large deal TCV for the quarter was robust at $2.7 billion, the highest in the last 7 quarters.
Further, the company's attrition rate stood at 27.1% in Q2FY23 versus 28.4% in Q1FY23. While the company made a net addition of 10,032 employees in Q2 -- taking the total headcount to 3,45,218 compared to 3,35,186 employees as of June 30, 2022.
Also, the company announced an interim dividend of ₹16.50 per equity share. It has fixed October 28 as the record date for the dividend, while the payment date is set on November 10, 2022.
Meanwhile, the company's board approved a share buyback plan aggregating to ₹9,300 crore. The floor price for the buyback is set at a premium of ₹1,850 per equity share.
Should you invest in Infosys shares post-Q2?
Emkay Global Financial Services expect Infosys stock to react between 'Neutral' to 'Positive on exchanges after the Q2 earnings. The company's revenue was a tad below estimates, however, the EBIT margin surpassed expectations. Among key positives of Infosys Q2 are --- EBITM recovery in Q2, Large deal intake of $2.7 billion, FY23 revenue growth guidance narrowed to 15-16% CC, and LTM attrition moderated by 130bps QoQ.
Meanwhile, JP Morgan expects the stock to react 'moderately positively' reflecting the EPS upgrade.
In its first cut report, JP Morgan said, "Infosys had the highest margin beat in the industry at the cost of a slight loss in growth momentum. Infosys’s 2Q23 print missed on revenues but beat sharply on margins. CC QQ growth of 4% was 60/50bps below JPMe/ consensus. Ebit margins however expanded 150bps QQ to 21.5% and came 140bps/100bps ahead of JPMe/consensus. Large-deal TCV at $2.7bn, up 27% YY. FY23 CC revenue guide narrowed to 15-16% (from 14-16%) and margin guide also narrowed to 21-22% from 21-23% earlier."
JP Morgan highlighted key positives of Infosys to be significant margin beat coupled with large deals, the reiteration of the upper-end of revenue guidance, and narrowing of EBIT margin guidance.
Among the key negatives, JP Morgan believes would be revenue miss as it signals growth has begun to slow down. Also, the size of the buyback was at the lower end of expectations.
In its investment thesis, JP Morgan said, Infosys has aggressively realigned its strategic focus to scale digital transformation projects over the last couple of years. This includes significant investments in sales, increased large deal participation, and increased flexibility on deal structure. This has been rewarded with a sharp increase in large transformation deals around DX projects, hybrid cloud adoption, and automation. It has also ramped up partnerships across tech ecosystems. While Infosys was traditionally a laggard in infra services, the shift to as-a-service and its realignment has come at an opportune time.
"We estimate double-digit earnings growth over FY22-24. We see Infosys as a key winner in a market for scale DX projects. We however rate the stock N as we believe at 23x 1 yr fwd PE it is at full valuations," JP Morgan's note added.
JP Morgan has set a price target of ₹1,600 on Infosys for September 2023 based on a 24x one-year forward P/E, which is its three-year average. It added, "We believe this is justified by a relatively strong growth outlook vs peers, high sustained payouts, and stronger competitive positioning."
Further, Jefferies in its first cut report said, "Infosys' 2QFY23 results were ahead of estimates, with revenues up 4% QoQcc in line but margins up 140bps QoQ to 21.5%, which surprised positively due to lower subcontracting costs and drove the earnings beat. Large deal TCV at US$2.7bn was healthy, and net hiring, though lower at 10k, was higher than peers'. Infosys raised the lower end of its growth guidance by 100bps to 15-16% and lowered the upper end of its margin guidance by 100bps to 21-22%."
On the buyback, Jefferies stated that the size was in line with their expectations, however, the maximum price of ₹1,850 per share is slightly ahead of their estimates.
Jefferies has set a buy rating on Infosys with a target price of ₹1,700.
On the valuation, Mitul Shah, Head of research at Reliance Securities said, "Infosys reported a strong 2QFY23 performance. Margins were above our expectations. Moreover, management raised its FY23 revenue growth guidance range from 14-16% to now 15-16%, bit narrowing down the range and revised its EBIT margin guidance to 21-22% (vs. earlier 21-23%), indicating better performance during the balance of 2H of FY23. Considering the industry-leading double-digit revenue growth, rising share of digital business (61% of revenue), likely improvement in EBIT margin levels from current levels, declining attrition rate, and record high new TCV, we maintain our BUY recommendation on the stock."
On BSE, Infosys shares closed at ₹1,419.75 apiece down by 0.64%. The company's market cap is around ₹5,97,406.31 crore. In the Q2 of FY23, Infosys shares plunged by more than 3% on Dalal Street. However, so far in October, the shares have made an upside of nearly 2%.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
