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Strong deals wins & moderating attrition led growth

Revenue was in-line: Infosys revenue in constant currency came in at 4% QoQ which was in-line with our expectation. Revenue stood at Rs 36,538cr, up by 6% QoQ and 23.4% YoY while $ revenue came at USD 4,555, up by 2.5% QoQ and 13.9% YoY. The revenue growth was largely driven by its digital and cloud services business which was supported by Cobalt capabilities. ~61.8% was contributed by digital while the remaining was from the core segment.

Margins seen improvement: Infosys reported improvement in its EBIT by 13.9% QoQ and 12.9% YoY to Rs 7,873cr. Its EBIT margin came in at 21.5% as against 20.1% QoQ, an improvement of 149bps. Further, currency tailwinds helped margins to improve by 60bps while cost optimization measures led to 90bps improvement.

Abating Attrition is positive: Infosys attrition witnessed a moderation of 130bps from 28.4% in Q1FY23 to 27.1% in Q2FY23 aided by decreasing supply side constraints.

Deal wins remains strong: Infosys differentiated digital and cloud solutions for clients supported the company to win a deal worth $2.7bn which was highest in the last 7 quarters. The company won deals worth USD 1.7bn in Q1FY23 and USD 2.2bn in Q2FY22.

Approval of Buyback: In-line with the capital allocation policy, the board has approved the buyback of equity shares worth Rs 9,300cr via open market route at a price not exceeding Rs 1,850 /share. In addition, it also declared an interim dividend of Rs 16.5/equity share.

Revision in management guidance: Management revised its revenue growth guidance upwards for FY23 to 15%-16% from 14-15% on the back of strong order pipeline and continuous demand for cloud and digital technology. Further, it revised its operating margin guidance to a low band of 21-22% from earlier 21-23%.

Outlook & Valuation: Infosys is well placed given its differentiated digital & cloud capabilities, strong client base, robust products and platforms and strong emphasis on one Infosys model. Going ahead, a healthy order pipeline from digital, cloud and automation will drive top-line while abating supply side constraints, moderating attrition and cost optimization measures to aid margin improvement. We have estimated revenue/EBIT growth of 17.8%/17.8% CAGR over FY22-24E and maintained a Buy rating on Infosys with a target price of Rs 1986..

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