Result Analysis-Infosys

Result Highlight:

• Infosys Consolidated Revenue rose 12% QoQ and 20.48% YoY to ₹ 29602 crore – higher than the estimates of ₹ 29570 Crore. Other income fall 15.76% QoQ to₹524 Crore.

• Operating Profit Margin contracted to 55% from 23.67% last quarter due to the lack of wage hike.

• Net profit rose 11.59% YoY to ₹5421 crore for the September quarter compared with ₹ 4858 crore in the same quarter last Reported strong free Cash flow of ₹ 5272 Cr in Q2.

• Attrition rate continues to be very high at 20.1%.

• All Verticals Grow 10%+ YoY; digital growth Y-o-Y is 42.7%, digital revenue at 56.1% of total revenue.

• All major markets showed strong growth, with growth led by North America (+23.1%). Europe (+22.8%), India (+4.2%) and Rest of World (+8.3%).

• The company won 22 deals worth $2.15 billion in the July-September period, compared with $2.6 billion in the previous quarter.

• The company approved an interim dividend of ₹ 15 per

• Company Announce merger of WongDoody Holding Company, Inc. (“WHC”) and WDW Communications, Inc. (WDW) with WongDoody, Inc. (WDI). WHC is a wholly owned subsidiary of Infosys Limited and WDW and WDI are wholly owned subsidiaries of WHC. Post-merger, Infosys Limited will be issued shares in WDI in lieu of shares in WHC. The merger would be accounted for at carrying value and will not have any impact on the financial statements.

Management commentary: 

• Salil Parikh MD and CEO of the company said “Our stellar performance and robust growth outlook continue to demonstrate our strategic focus and the strength of our digital offerings. As we witness a strong market opportunity with global enterprises rapidly accelerating their digital journeys, our sustained investments in expanding capabilities, including the differentiated cloud play, Infosys CobaltTM, has uniquely positioned us to continue serving our clients effectively, gain market share and emerge as the preferred cloud and digital transformation partner in the market.”

• Pravin Rao, Chief Operating Officer , said: “have been able to meet client requirements without any issue, undertaken several initiatives for attrition rolled out skilled based compensation, have started requesting senior leaders to come to office at least once a week”. In order to harness the full potential of the market opportunity, we are expanding our college graduates hiring program to 45,000 for the year. Simultaneously, we continue to strengthen employee value proposition including health and wellness measures, reskilling programs, appropriate compensation interventions and enhanced career growth opportunities”

• Nilanjan Roy after 2^nd quarter said operating margins for Q2 were resilient; the impact of enhanced employee value proposition initiatives was offset by strong operating parameters, cost optimization and operating leverage, will continue to invest in employees to remain a preferred employer-of-choice and seamlessly fulfill client demand”, Cash generation remained robust.

• Guidance: Infosys raised its constant currency guidance to 16.5-17.5 percent for FY22, from 14-16 percent. However, it maintained the guidance for EBIT margin at 22-24 percent.

• Operating margin was resilient at 23.6%, despite wage hike by the company. The company’s long-term cost structures are well placed to maintain margins.

• Infosys recently launched Infosys Equinox to help enterprises securely deliver hyper-segmented, personalized Omni channel commerce experiences for B2B and B2C buyers

• CEO on Income Tax portal said we are seeing steady progress on the income tax system. As of yesterday we had over 1.9 crore returns that have been filed using the new system and is confident of ensuring a seamless experience for all the taxpayers. 

 OUTLOOK

Infosys Q2FY22 result was better than expected on all front, Revenue grew 20.48% and Profit growth came in at 11.59% on YoY basis and with digital contributing 56% of the total revenue margin are expected to be maintain in coming years, EBIT margin decline was restricted to 10basis point qoq despite multiple headwind of wage revision The Deal value of the company is broad based across markets and verticals with $2.15 billion in this quarter. Infosys services attrition rate still continues to be very high when compared to the industry. As demand environment continues to be strong with deal pipeline increasing every quarter, Infosys raised FY22 revenue guidance to 16.5-17.5% YoY CC from 14-16%. We believe margin may come under little pressure due to wage hike, travelling cost and as employee come back to office, but focus on high margin digital business will offset cost increase Infosys investment in cloud and sales is paying off. The company is seeing healthy traction in cloud, cybersecurity and experience. This coupled with healthy client mining, winning large deals, healthy pipeline, multi-year tech growth and increase in hiring to 45000 fresher all indicate strong revenue growth in coming quarters. At the CMP of ₹1709, Infosys is trading at PE multiple of 31x. Valuing the company at 32x FY23E EPS, we recommend buy on Infosys at CMP of for the Target Price of ₹ 2050.

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