Infosys could announce a buyback along with its Q2FY23 results: Jefferies

Infosys could also announce a buyback while unveiling its financial performance for the July - September 2022 quarter of fiscal 2022-23 (FY23), said analysts at Jefferies in a result preview note on the sector. However, they have not specified the quantum of the buyback the company could announce. Infosys is scheduled to announce its Q2-FY23 numbers on October 12.

Amidst macro uncertainty, markets' focus will be on management commentary on the demand environment, Jefferies said, while the commentary around deal pipeline, sales cycle, nature of deals and deal tenure, pricing, and vendor consolidation will also be keenly watched.

“There will be a strong focus on commentary around client budgets or reprioritization of client spends. While revisions to FY23 guidance of Infosys, HCL Tech, and Coforge will also be closely watched, we don't expect this to be revised in Q2. Infosys could announce a buyback along with its Q2-FY23 results,” wrote Akshat Agarwal and Ankur Pant of Jefferies in a recent coauthored note.

The primary objective of a share buyback program is to arrest the fall in the value of a stock by reducing the supply, which essentially pushes up the share price through a better price to earnings (P/E) multiple. The buyback route, analysts say, is a better way to reward shareholders rather than paying a hefty dividend, as the latter is subject to tax. As per law, income by way of dividend above Rs 10 lakh is chargeable at the rate of 10 per cent for individuals, Hindu Undivided Family (HUF) or partnership firms and private trusts.

Meanwhile, at the bourses, Infosys has been an underperformer and has lost 25 per cent thus far in calendar year 2022 (CY22) as against a 1.5 per cent fall in the Nifty50. The Nifty IT index, on the other hand, has slipped over 30 per cent during this period, ACE Equity data shows.

For Infosys, Jefferies expects the Q2-FY23 revenue growth to be strong at 4 per cent quarter-on-quarter (Q-o-Q) in constant currency terms (CC), driven by deal ramp ups and seasonal strength. Earnings before interest and taxes (Ebit) margins, they said, are likely to expand by 30 basis points (bps) QoQ, driven by pyramiding, operating leverage and pricing benefits, amidst supply side pressures, higher costs and continued investments in growth. 

"We expect Infosys to retain its 14-16 per cent year-on-year (YoY) revenue growth guidance and 21-23 per cent margin guidance. Revenue is expected to come in at $3,998 million, up 14.2 per cent YoY, while the net profit is seen at $54,210 million, up 7.2 per cent YoY," Agarwal and Pant wrote.

FY23 revenue and margin outlook; vertical-wise outlook; large deal wins and project pipeline; attrition level and trends; and commentary on the potential risks due to high inflation rates in the US amid geopolitical tensions in Europe are some of the other key things that the markets will watch out for regarding Infosys, according to Devang Bhatt and Dhawal Doshi of IDBI Capital.