Infosys Reports 4% Revenue Growth in Constant Currency, Announces Share Repurchase Worth 9,300 Crore

• India’s second-largest IT services company Infosys reported 4% sequential growth in revenue at constant exchange rates, in line with analyst expectations.
• The company revealed $2.7 billion in major deal profits — the best in the past seven quarters.
• Apart from this, Infosys also announced a share buyback program of 9,3000 crore and announced an interim dividend of ₹16.5 per share.

Infosys chief Salil Parekh began commenting on its quarterly results on a very optimistic note when the company reported its September quarterly results. He said Infosys witnessed strong growth in the US and European markets. Armed with this and strong big deal gains worth $2.7 billion in the quarter, the company has further narrowed its outlook for revenue growth for FY23.

“Our vision is that in this macro environment we are ready for all types of customer work. Whether it’s digital and growth, or costs,” said Salil Parekh, CEO and MD of Infosys.

“We had big deals of $2.7 billion and strong momentum of 18.8% growth in the quarter. We saw some caution in mortgages in financials and high tech and telecoms. With these factors in mind, we decided to narrowing the guidance between 15-16%,” says Parekh, who explains why the guidance was tightened.

For context, Infosys had posted revenue growth of 13-15% in FY23 at the beginning of this fiscal year.

Parekh not only sounded optimistic about the company’s upcoming quarters but also announced a share buyback program worth ₹9,300 crore. The company has capped at ₹1,850 per share, which is a 30% premium to today’s closing price (October 13). It also announced an interim dividend of ₹16.5 per share.

Infosys revenue growth at constant exchange rates was 4% sequentially and 18.8% year-over-year, in line with analyst expectations. Digital revenues, which account for 61.8% of total revenue, grew 31.2% year-over-year in constant currency.

Infosys reported revenue growth of 6% consecutively to 36,538 crore, while net profit rose to ₹6,021 crore in the same period with an increase of 12.3%.

Here are Infosys’ latest earnings at a glance:

Source: Company Reports

The company saw moderate growth in its net margins after being under stress in the previous quarter. While there has been a sequential improvement, net margins are still down 180 basis points year over year.

Demand issues on the horizon – but Infosys not worried

“In terms of the demand environment, we had indicated that we saw concerns in financials and mortgages. This time around, there are some concerns about high tech, which is more on the discretionary side of the deal pipeline. We’ve seen growth in core and digital, showing that our engines are doing well. We saw strong growth in Europe and the US,” added Parekh, sounding generally positive.

Infosys also noted that it closed major deals with a total contract value of $2.7 billion in the September quarter, the highest in the past seven quarters. The $100 million+ customer base saw a net addition of one customer – the company now has 39 $100 million+ customers, up from 38 at the end of the previous quarter.

Most additions were in the over $1 million range, which rose to 895 from 877 in the previous quarter.

Moonlighting employees let go

Infosys had stood firm – it sent a letter warning that employment could be terminated if a violation was found.

Today Parekh repeated it, saying: “We are not in favor of dual employment and where we have seen workers blatantly work for two specific companies, we have let them go.”

Aside from moonlighting, Infosys reported a moderation in its attrition to 27.1%, from 28.4% in the previous quarter. The total workforce was 3,45,218, up from 3,35,186 in the previous quarter, implying a net addition of 10,032 employees to the roster.

Much of the pressure on margins comes from personnel costs, which accounted for 54% of the company’s total revenue in the September quarter. It means Infosys spent 54 for every 100 it earned on these expenses during the quarter.

This is an increase of 53.2% in the June quarter. Interestingly, Infosys’ CFO Nilanjan Roy had said in the previous quarter that wage increases could help reduce turnover.

North America remains Infosys’ bread and butter, contributing more than 60% to the company’s total sales. India remains a fringe market for the IT services giant. The company said it continues to see strong demand in several geographies, especially in the US.

On a sequential basis, Europe shrank marginally, and despite US recession concerns, North America reported marginal gains.

Source: Company Reports

One concern for Infosys could be marginal growth in key segments such as financial services and retail. Energy posted healthy growth, but communications and manufacturing recovered from a decline in the previous quarter.

Source: Company Reports

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