IT Major Infosys to Post Q2 Earnings Today; Demand Outlook, Share Buyback in Focus

Infosys Q2 preview: Infosys will be in focus on Thursday ahead of its Q2 results. The IT major will also announce a buyback plan and interim dividend for FY23 today. Helped by strong deal momentum and discretionary spending by clients, Infosys Ltd is seen reporting a sequential growth in the topline for the quarter ended September, that is better than peer Tata Consultancy Services

Analysts have projected that the second largest information technology (IT) company of the country will report revenue growth of 24 per cent year on year at Rs 36,747 crore. Net profit is likely to grow 11 per cent to Rs 6031 crore, according to the poll. Sequentially, growth will be in mid-single digits.

“We expect revenue to grow at 5.9 perc ent quarter on quarter (QoQ) aided by strong deal wins,” said analysts at Axis Securities in a note. “Margins likely to expand aided by higher offshoring and favourable currency mix.”

Besides, as per an average of six estimates, the company’s net profit could rise as much as 18 per cent from last year to roughly Rs 5,960 crore.

Most brokerages expect Infosys to maintain its 14-16 per cent constant currency (CC) growth guidance and 21-23 per cent margin guidance for FY23.

Jefferies expects the company to report a 4 per cent quarterly CC revenue growth on deal ramp ups and seasonal strength. Its Ebit margins are estimated to expand 30 bpsQoQ driven by pyramiding, operating leverage and pricing benefits amid supply-side pressures, higher costs and continued investments in growth.

Kotak Institutional Equities said: ” A 20 bps sequential increase and 320 bps YoY decline in Ebit margin are estimated. Margins in the manufacturing vertical are expected to have declined by over 1,390 bps YoY making up for 150 bps of the 320 bps overall EBIT margin decline. The manufacturing margins, however, are expected to improve in Q2 from Q1.”

Among the key things that analysts will be watching for are FY23 guidance, large-deal intake, any delay/deferral/cancellation of projects due to macro uncertainties and high inflation

Investors will also eye update on client conversations–impact of high energy prices, inflation and potential economic slowdown/recession

Another thing in focus will be the management commentary on: (i) steps taken to manage supply-side challenges and available levers to defend margins, (ii) demand environment in BFSI, manufacturing, retail, and communications, (iii) pricing environment, (iv) deals pipeline, pace of decision making, and deal closure momentum.

The street will be keen to know the management’s assessment of the situation in the US and Europe and if clients have started sounding cautious.

Peer TCS had earlier in the week said that the level of uncertainty has increased but clarity on client budgets will emerge over the next three months.

The view on attrition and hiring will be another major monitorable for investors. Attrition is likely to have risen further in Q2 from 28.4 per cent in Q1, but analysts see this moderating in the ensuing quarters.

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