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* Analysis of the FY23 annual report of Infosys suggests that despite the adverse macros, enterprises continue to re-evaluate their cost structure and strengthen their business resilience. Additionally, they are adopting technological investments to foster agility.

* Enterprises are shifting their attention toward improving the personalized experience for their customers and delivering distinct value propositions by introducing new products and services.

* Key spending areas include Cloud, Generative AI, Cyber Security, IoT, and Immersive Technologies.

* In this economic downturn, the company continues to maintain close proximity to its clients with its near-shore delivery capabilities and localization strategy.

Digital revenue demonstrates resilience

* In FY23, INFO reported CC revenue growth of 15.4% YoY, led by Manufacturing & Energy segments (up 38.8% YoY and 22.8% YoY).

* The digital revenue (~62% of revenue) growth stood at 25.6% YoY CC, which has moderated over peak FY22 growth of 41.2%.

* After experiencing a decline in core (non-digital) revenue due to a shift in spending toward digital channels, the company has reported positive growth of 1.9% YoY CC for the first time since 2020.

Near-term headwinds drag FY23 performance

* The margin pressure continued throughout FY23, reaching 21.1% (down 200 bp YoY). This was primarily due to factors such as an increase in headcount, higher compensation costs, and an increase in expenses related to third-party items (software & hardware).

* On a segmental basis, major margin dilution has come from the Retail segment at 30.2% (down 440 bp YoY), although the vertical grew 15.2% YoY CC.

* However, the cost of subcontracting remained under control (9.6% of revenue v/s 10.4% in FY22). This was partly due to the deployment of freshers, as an alternate source of talent, into projects.

* The company has given out an EBIT margin guidance of 20-22% for FY24.

Robust cash conversion with improved return profile

* Cash conversion remained strong; while pre-tax OCF/EBITDA came in at 90.2%, FCF/PAT stood at 84.8%.

* The company generated ROE and ROCE of 32% and 26% in FY23 v/s 29% and 24% in FY22.

* INFO has maintained a robust payout ratio and has given out 114% of FCF against its payout policy of at least 85% of FCF.

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