Infosys beats peers with 19% business growth in Q2

BENGALURU: Despite the global economic slowdown, Infosys put up a solid show in the September quarter, with a robust order book and tight control on expenses leading to an improvement in operating margin. Revenue in constant currency rose 18. 8% year-on-year and 4% sequentially. The year-onyear growth was well above that of peers. The performance pushed Infosys ADRs up 5% to $17. 9 apiece in early trades on the NYSE.
“Growth in Q2 was broadbased with all industries and geographies growing in double digits in constant currency,” said CEO & MD Salil Parekh. This momentum, he said, was accompanied by a strong pipeline of large deals. More than half of these were net new contracts. The company recorded its highest large deal this quarter at $2. 7 billion, up from $1. 7 billion in the June quarter. “These elements reflect deeply differentiated digital and cloud capabilities we have developed that are highly relevant for a clients’ strategic priorities,” Parekh said.
Infosys announced an open market share buyback of Rs 9,300 crore, and an interim dividend of Rs 6,940 crore. This will be the company’s fourth buyback in less than six years. The buyback (excluding buyback tax) will be at Rs 1,850 per share, a 30% premium to the current share price.
Parekh said while digital continues to grow, Infosys is seeing acceleration in core services, aided by industry leading automation capabilities and clients’ interests in running cost-optimisation programmes. Digital revenue grew 31. 2% year-on-yearin constant, and it made up 61. 8% of the revenue. “In Q2, cloud revenue was larger than $1 billion, showing strength in our cloud services Cobalt,” Parekh added.
The company narrowed the revenue guidance for FY23 to 15-16%, from 14-16%. It also tightened its margin guidance to 21-22% from 21-23%. “Last time we mentioned that we saw caution in mortgages in financial services, and retail, and we are now seeing some caution in hi-tech and telecom, and these are more on the discretionary part of the pipeline. Keeping these factors and global macro factors, we have decided to make our guidance narrower,” Parekh said.
Operating margin rose 1. 5% sequentially to 21. 5%, while it dropped 2. 1% year-onyear. CFO Nilanjan Roy said operating margin expanded due to cost efficiencies, optimisation in large deals, and currency benefits. “We also saw a 40-basis-point (100bps =1percentage point) reduction in subcontractor costs, but this was offset by 40bps due to compensation-related hikes rolled out on July 1,” he said. Roy said he expects to be at the bottom end of the margin guidance of 21-22%.
“Demand metrics were robust, reflected in the strongest win rates in seven quarters, of which over 50% were generated from new logos, while utilisation rates were down sequentially,” said Moshe Katri, MD of Wedbush Securities.