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Digital and Core drove the revenue growth: Infosys Revenue came in at Rs 38,318cr, up by 4.9% QoQ and 20.2% YoY. Its revenue in $ was 4,659mn, up by 2.3% QoQ and 9.6% YoY while constant currency revenue grew by 2.3% QoQ and 13.7% YoY. Strong performance in revenue was driven by demand for both digital (62.9% of revenue) and core services wherein they posted growth of 21.7% and 2.4% YoY in constant currency.

EBIT margins remained flat QoQ: Infosys posted EBIT growth of 4.7% QoQ and 10.1% YoY, while margins remained flat QoQ and saw a decline of 198bps YoY at 21.5%. The flat margins were mainly because of the positive impact of currency and cost optimization measures to the tune of 40bps and 70 bps, respectively. On the flip side, there was a 30bps impact because of higher spends on selling and marketing expenses and an 80bps cut due to operating parameters impacted by seasonality and so margins remained flat.

Moderation in Attrition is positive: Infosys attrition saw a decline for the second quarter to 24.3%, a decline of 280bps QoQ from earlier 27.1% in Q2FY23 and 28.4% in Q1FY23 which is positive.

Deal momentum continued for the 8th consecutive quarter: Infosys large deal TCV was strongest during the last 8 quarters worth USD 3.3bn with a growth of 22.2% QoQ and 30.7% YoY. In the previous quarters, the company won deals worth USD 2.7bn in Q2FY23 and USD 2.5bn in Q3FY22. Further, It signed 32 deals out of which 25 deals were from America. Going ahead, deal momentum is expected to continue driven by demand and the company’s capabilities for digital, cloud and automation services.

Management guidance revised upwards, for a second time: For the second consecutive quarter, management revised its revenue growth guidance upwards for FY23 to 16-16.5% from earlier 15-16% in Q2FY23 and they believe strong order book and large deals in pipeline and continuous demand for digital technology mainly supported by Cobalt. Further, it retained its operating margin guidance to 21-22% for Q3FY23. Moreover, management stated there is more demand for automation and would also focus on cost efficiencies and operational improvement programs.

Outlook & Valuation: We remain positive on Infosys growth prospects given strong digital & cloud capabilities, healthy relationship with clients, robust products and increasing demand for automation. Further, deals & order book is expected to be healthy, abating attrition is positive coupled with cost optimization measures will help in margin improvement. On the financial front, the company has a debt free balance sheet with strong cash flow and we have estimated its revenue/EBIT growth of 17/17.8% CAGR over FY22-25E. We maintain a Buy rating on Infosys with a target price of Rs 1,986.

Europe led the growth: Amongst the geographies, Europe was the star performer with growth of 9.5% QoQ and 24.6% YoY, followed by America with growth of 4% QoQ & 20.6% YoY and India with 3.8% QoQ and 14.4% YoY. America and Europe together account for ~88% of revenue and going ahead, the company expects to continue expanding across these geographies which would aid in gaining market share.

Energy & Utilities & Manufacturing aided growth: Amongst, business segments robust growth was seen all its businesses such as manufacturing, Hi-Tech, life science and energy & Utilities, retail and communications in the range of 3.6-10.8% QoQ however financial service just seen a marginal growth of 0.7% QoQ. Going forward, demand from manufacturing, retail and life science segments will lead the growth.

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