Infosys gains 4% on strong Q2 performance, raising FY22 revenue guidance

Infosys raised its revenue growth guidance for FY22 to 16.5-17.5 per cent in constant currency (CC) terms, from 14-16 per cent earlier; stock came within striking distance of its life-time high

Shares of Infosys surged 4.4 per cent to a high of Rs 1,784.05 on the BSE in intra-day trade on Friday after the IT major raised its revenue growth guidance for the financial year 2021-22 (FY22) to 16.5-17.5 per cent in constant currency (CC) terms, from the earlier 14-16 per cent on the back of strong demand-led digital transformation. Fresher hiring guidance increased from 35,000 to 45,000 for FY22.

The stock information technology (IT) consulting & software company had hit a record high of Rs 1,787.50 on September 24, 2021. At 10:39 am; the stock pared its intra-day gain, was up 1.4 per cent at Rs 1,733, as compared to 0.49 per cent rise in the S&P BSE Sensex.

In Q2FY22, Infosys’s revenues increased 6.3 per cent QoQ in CC terms while dollar revenues increased 5.7 per cent QoQ. It reported earnings before interest and tax (EBIT) margin of 23.6 per cent, down 10 bps QoQ, above brokerage estimate of 22.3 per cent, despite the impact of higher subcontracting expenses and wage hike in Q2FY22.

Growth was broad-based across geographies and segments with the largest geography, North America growing at 23.1 per ecnt and the largest segment, financial services growing at 20.5 per cent, YoY in constant currency. Large deal momentum continued with TCV of $2.15 billion in Q2, Infosys said.

The board declared an interim dividend of Rs 15 per equity share. The company has fixed October 27, 2021 as record date for interim dividend and November 10, 2021 as payment date.

Infosys continue to outperform TCS in terms of growth. Infosys hinted at continued fresher’s hiring to cater the demand and to keep subcontractor cost under check, which is expected to support margins in the medium term. Revised revenue guidance reflects strong demand and deal environment, ICICI Securities said in a note.

We were positively surprised by the increase in its FY22 USD revenue growth guidance to 16.5-17.5 per cent YoY CC (from 14-16 per ent), an increase of 200bp at the mid-point v/s our expectation of a 100bp rise. We continue to see scope for a beat and a raise over the next two quarters as Infosys benefits from a better large deal focus and demand tailwind, Motilal Oswal Securities said in results update.

The brokerage firm expects Infosys to be able to sustain margin at the top end of its guidance band, led by strong topline growth and resultant operating leverage, further flattening of the pyramid, and continued operating efficiency measures. While there are near term headwinds from the supply-side, we expect them to normalize over the next couple of quarters, it added.