Infosys reports 4% revenue growth in constant currency, announces ₹9,300 crore worth buyback of shares

• India’s second largest IT services company Infosys reported a 4% growth sequentially in its revenue in constant currency terms, in line with analyst expectations.
  
• The company revealed $2.7 billion worth large deal wins – its best in the past seven quarters.
  
• Apart from this, Infosys also announced a ₹9,3000 crore share buyback programme and declared an interim dividend of ₹16.5 per share.
  

Infosys chief Salil Parekh kicked off the quarterly earnings commentary on a very optimistic note, as the company reported its September quarter results. He said that Infosys witnessed strong growth in the US and European markets. Armed with this and strong large deal wins worth $2.7 billion in the quarter, the company further narrowed its revenue growth guidance for FY23.

“Our view is we are ready in this macro-environment for all types of client work. Whether it focuses on digital and growth, or costs,” said Salil Parekh, CEO and MD of Infosys.

“We had large deals of $2.7 billion and strong momentum of 18.8% growth in the quarter. We saw some caution in mortgages in financial services and high tech and telecom. Keeping these factors in mind, we decided to make the guidance narrower between 15-16%,” said Parekh, explaining why the guidance was tightened.

For context, Infosys had issued a guidance of 13-15% revenue growth in FY23 at the beginning of this financial year.

In addition to sounding optimistic about the company’s next few quarters, Parekh also announced a share buyback programme worth ₹9,300 crore. The company has set a ceiling of ₹1,850 per share, which is at a premium of 30% over today’s (October 13) closing price. It also declared an interim dividend of ₹16.5 per share.

Infosys’ revenue growth in constant currency terms came in at 4% sequentially, and 18.8% on a year-on-year basis, in line with analyst expectations. Digital revenues, which account for 61.8% of its total revenues, grew 31.2% year-on-year in constant currency.

Infosys reported a 6% growth in revenues sequentially to ₹36,538 crore, while its net profit surged to ₹6,021 crore in the same period at an increase of 12.3%.

Here’s Infosys’ latest earnings at a glance:


Source: Company reports

The company saw a moderate growth in its net margins after being under stress in the previous quarter. While there is a sequential improvement, net margins are still down 180 basis points year-on-year.

Demand concerns on the horizon – but Infosys is not worried

“On the demand environment, we had indicated that we saw some concerns in financial services and mortgages. This time there are some concerns on high tech which is more on the discretionary side of the deal pipeline. We have seen growth in core and digital, which shows our engines are doing well. We saw strong growth in Europe and the US,” Parekh added, sounding a positive note overall.

Infosys also noted that it closed large deals at a total contract value of $2.7 billion in the September quarter, the highest in the past seven quarters. Its $100 million+ client base saw a net addition of one client – the company now has 39 $100 million+ clients, up from 38 at the end of the previous quarter.

Most of the additions were in the $1 million+ range, which increased to 895 from 877 in the previous quarter.

Moonlighting employees let go

Infosys had put its foot down on moonlighting – it sent out a letter warning that employment could be terminated if violation is observed.

Today, Parekh reiterated it, saying, “We don't support dual employment and where we have observed employees blatantly working for two specific companies, we have let go of them.”

Apart from opposing moonlighting, Infosys reported a moderation in its attrition rates to 27.1% from 28.4% in the previous quarter. Its total headcount stood at 3,45,218, up from 3,35,186 in the previous quarter – implying a net addition of 10,032 employees on its roster.

A lot of the pressure on the margins comes from employee expenses, which stood at 54% of the company’s total revenue in the September quarter. It means Infosys spent ₹54 for each ₹100 it earned on these expenses during the quarter.

This is up from 53.2% in the June quarter. Interestingly enough, Infosys’ CFO Nilanjan Roy had said in the previous quarter that wage hikes could help reduce attrition.

North America remains Infosys’ bread and butter, with a contribution of over 60% to the company’s total revenue. India remains a marginal market for the IT services giant. The company said it continues to see strong demand across geographies, especially in the US.

On a sequential basis, Europe shrunk marginally, and despite the recession concerns in the US, North America reported a marginal increase.


Source: Company reports

A cause for concern for Infosys could be the marginal growth in key segments like financial services and retail. Energy posted a healthy growth, but communication and manufacturing rebounded after declining in the previous quarter.


Source: Company reports

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