Infosys Posts 11% Jump In Net Profit

Bengaluru-based Infosys will spend as much as ₹9,300 crore to buy back 1.19% of its shares outstanding at a maximum price of ₹1,850 each, a 30% premium to the stock’s closing price of ₹1,419.75 on Thursday. The board also agreed to pay an interim dividend of ₹16.50 per share.

View Full Image

The company raised the lower end of its full-year revenue forecast as order flow remained robust, but lowered the upper end of its operating margin guidance on higher wage costs. It now expects constant currency revenue to grow in the range of 15% to 16% in the year to 31 March and operating margin in the range of 21-22%.

In the September quarter, profit grew 11.1% to ₹6,021 crore from ₹5,421 crore a year ago. Revenue rose 23.4% ₹36,538 crore from ₹29,602 crore.

Dollar revenue rose 13.9% to $4.56 billion, compared with $4 billion a year ago. In constant currency, sales grew 18.8% on the back of 31.2% growth in digital services.

Order inflows remained strong despite fears that clients may slash discretionary tech spending because of a potential recession in the US and Europe, Infosys’s two biggest markets.

Large deal wins rose to a seven-quarter high of $2.7 billion in the September quarter, with one new order valued at more than $100 million annually and eight new deals that will result in sales of more than $50 million a year.

“Our large deal wins and all-round growth in the second quarter reflects the relevance and differentiation of our digital and cloud solutions for clients. While concerns around the economic outlook persist, our demand pipeline is strong both on the growth and efficiency of their businesses. This is reflected in our revised revenue guidance of 15-16% for FY23," said Salil Parekh, managing director and chief executive of Infosys.

Analysts said Infosys’s second-quarter performance beat market expectations by a wide margin. “We had expected an improvement of 40 basis points in operating margin, while Infosys delivered a 140 basis point improvement," said Omkar Tanksale, an analyst at Axis Securities. “Even the large deal bookings have been strong. Cloud transformation remains resilient, and enterprise expenditure in this sector will continue despite economic uncertainties."

Tanksale added that so far, there is no indication of spending cuts by most of Infosys’s clients. “Sectors such as banking, financial services and insurance, manufacturing and other verticals have steadily become more system-driven, as opposed to adopting IT services solely for cost optimizations, thus making the IT sector more resilient," he said.

However, pressure on margins continued to hurt earnings, much like its rivals, as companies raised salaries to arrest employee turnover. Infosys’s operating margin narrowed to 21.5% for the September quarter from 23.6% in the year earlier. Infosys reported an attrition rate of 27.1% in the second quarter, higher than Tata Consultancy Services, Wipro and HCL Technologies.

The financial services sector contributed 30.5% of Infosys’s September quarter sales, followed by retail at 14.2% and communication at 12.3%. Among markets, North America led with nearly 62.5% share of the revenue, followed by Europe with a 24.7% share.

The depreciation of the Indian rupee, which weakened 3% in the September quarter, helped IT companies that earn most of their revenue in dollars.

Larger rival Tata Consultancy Services, too, beat analyst expectations to post 8.4% growth in profit to ₹10,431 crore, and also posted a 15.4% rise in its order book. Wipro reported a 12.9% growth in IT services revenue, but its net profit fell 9.6% to ₹2,649 crore. HCL Tech reported a 7.1% rise in net profit to ₹3,489 crore and also raised its guidance.

Analysts, however, cautioned about a potential slowdown due to global headwinds, particularly in North America, in the coming quarters.

Akshara Bassi, an analyst for global cloud and servers market at Counterpoint India, said, “There are very fine signs of weakness—for instance, the number of clients added during the quarter dropped to 103 from 117 in Q2 last year, a near-12% drop. This shows signs of a potential slowdown."