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Infosys’s 2QFY23 results were broadly in line with expectations as a slight miss on revenue growth was marched with a higher than expected 140 bps sequential margin increase aided by multiple factors that include forex gains, operational efficiencies(which includes improvement in segmental margins for Manufacturing which alone would have added ~100 bps QoQ help) . Company’s revenue growth moderated in key verticals like Financial Services and Retail though was strong in Europe. Large deal TCV wins were strong at USD 2.7 bn(28%YoY, +62% QoQ) with company saying that pipeline remains solid but also suggested some client caution emerging in certain pockets due to which company expects 2H growth to be in check. Infosys narrowed it’s FY23 outlook both on revenues and margins. Infosys expects 15-16% YoY c/c growth for FY23 (V/s 14-16% earlier, guidance implies a 0- 1.3% CQGR through 2HFY23). Margin band was tightened to 21-22% with company expecting margins to improve through 2HFY23 though expecting them to be closer to the lower end , as expected earlier. Company announced an open market buyback of INR 93 bn at a maximum buyback price of INR 1,850.We make marginal tweaks to estimates and retain BUY with an unchanged TP of INR 1,650.

* Broadly In line operating performance: Infosys reproted a 4%QoQ /18.8% YoY c/c revenue growth for 2QFY23 , marginally lower than our expectations of 4.5% QoQ c/c revenue growth. Revenues came in at USD 4,555 mn(+2.5% QoQ) with cross currency headwinds being a tad lower than expectations and thereby aiding reported USD growth. EBIT margins improved by 140 bps sequentially to 21.5%, coming in ahead of expectations aided by forex gains(70 bps), cost optimisation including large deal profitability and realization improvement (+90 bps), lower subcontracting (+40 bps) offset by wage hikes for a small section of people. We note that the segmental margin improvement in the Manufacturing vertical alone would have aided overall margin increase of 100 bps during the quarter. Order booking was strong at USD 2.74 bn (+28% YoY) with company continuing to suggest solid pipeline albeit adding that client caution was emerging in certain pockets and deal closures. Headcount addition at 10k+ was decent though lowr than the recent strength in hiring.

* Guidance range tightened on both revenue and margin outlook: Infosys tightened it’s revenue guidance to 15-16% YoY c/c growth for FY23(V/s 14-16% earlier) with the guidance implying a modest 0-1.3% CQGR through 2HFY23. Similarly the margin outlook was updated to 21-22% range(V/s 21-23% earlier) with company exuding confidence in further margin recovery through 2HFY23. Infosys also announced an open market Buyback of INR 93 bn at a maximum buyback price of INR 1,850.

* Slight tweak to estimates; BUY stays intact: We make slight tweaks to our FY22-25E EPS after 2QFY23 results and maintain BUY with an unchanged TP of INR 1,650. Infosys remains on track to retain growth leadership amongst Tier I techs notwithstanding the macro volatility. 2Q margin improvement strengthen’s confidence in margin recovery for company/Tier I peers through the rest of FY23 inline with our thesis.

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