Infosys surges 5%; Q2 earnings, Rs 9,300 cr share buyback lifts sentiment

The IT major has increased the lower end of the revenue guidance keeping upper end constant i.e. revenue guidance changed from 14-16 per cent to 15-16 per cent in constant currency terms.

Shares of Infosys rallied 5 per cent to Rs 1,487.70 on the BSE in Friday’s intra-day trade after the IT major posted better-than-expected 11 per cent year-on-year (YoY) growth in consolidated net profit at Rs 6,021 crore for the September quarter and announced buyback of shares worth Rs 9,300 crore.

WATCH VIDEO: Will IT stocks survive recession fears?

"Infosys' Q2-FY23 results were ahead of estimates, with revenues in line with esimates, but margins (up 140bps QoQ to 21.5%) surprised positively due to lower subcontracting costs and drove the earnings beat. While the size of the buyback is in line with our expectation, the maximum price is slightly ahead of estimates," wrote Akshat Agarwal and Ankur Pant of Jefferies in a post result note. They maintain 'buy' rating on the stock with a target price of Rs 1,700 per share.

For FY23, India’s second largest IT services company has increased the lower end of the revenue guidance keeping the upper end constant i.e. revenue guidance changed from 14-16 per cent to 15-16 per cent in constant currency (CC). On EBIT margin guidance, it has reduced the upper end keeping lower end constant i.e changed from 21-23 per cent to 21-22 per cent for FY23E. The upward revision in revenue guidance is bouyed by "strong large deals pipeline" and good demand momentum despite global macroeconomic concerns.

Infosys board has also declared an interim dividend of Rs 16.50 per share. The interim dividend payout will be about Rs 6,940 crore, the company said in a statement. The company has fixed October 28 as record date for interim dividend and November 10 as the payout date.

The company’s revenues increased 4 per cent quarter-on-quarter (QoQ) and 18.8 per cent on YoY in CC terms. Dollar revenues increased 2.5 per cent QoQ to $ 4,555 million while rupee revenues were up 6 per cent QoQ to Rs 36,538 crore.

“Infosys’s large deal TCV number was strong and prompted it to increase revenue guidance for FY23. As per our calculation, the company reported 5 per cent CC growth (assuming 100 bps cross currency headwinds, 4 per cent QoQ dollar revenue growth) each for next two quarters to achieve 15 per cent CC growth guidance for FY23, which indicates that seasonality may not be severe as in the past,” ICICI Securities said in a note.

“It could also mean that we are looking at continued strong large deal TCV momentum, going forward. Same confidence was not visible on margins, which could be due to elevated fresher hiring target. Moderation of LTM attrition is a positive trend, which we believe is in line with their earlier commentary. Subcontractor costs are also moderating as it is now 10.1 per cent of sales vs 11.3 per cent in last quarter. Net additions, however, were on the softer side and needs to pick up in subsequent quarters to support strong growth,” the brokerage firm said.

Infosys posted a strong set of earnings in 2QFY23. Demand and the order book remain robust. Its strong FY23 growth guidance and high headcount addition provides further demand visibility, Motilal Oswal Financial Services said in result update. The brokerage firm expects Infosys to deliver margin at the lower side of its guidance band, with strong growth and reduced dependence on sub-contractors as attrition falls.