INFOSYS REPORTS STRONG NUMBERS ON REVENUE; TCV REVENUE GUIDANCE INCREASED FURTHER FOR FY23

Infosys – Q3FY23 First Cut

(CMP - Rs 1480, MCap - Rs 6,23,027 crore)

Guidance for FY23: The company has increased revenue guidance changed from 15-16% to 16-16.5% in CC. On EBIT margin guidance, it has maintained at 21-22% for FY23E.

Infosys’ revenue numbers were ahead of us as well as street expectations, however margin was flat compared to street expectation of expansion on QoQ basis. The company’s revenues increased by 2.4% QoQ and 13.7% on YoY in CC terms (vs. our estimates of 1% QoQ growth in CC terms). Dollar revenues increased by 2.3% QoQ vs our estimate of 0.8% QoQ while Rupee revenues were up 4.9% QoQ (vs. our expectations of 3.3% QoQ growth). It reported flat EBIT margin at 21.5% (vs our estimate of 21.7%) due to higher than expected employee as well as SG&A expenses. In terms of geographies in CC term, revenue growth was led by Europe which grew by 25.3% YoY while growth in North America was slower at 10.5%. In terms of verticals the growth was led by Communication, Energy, manufacturing which grew by 14.0%, 15.2% and 29% YoY in CC terms while growth in BFSI & Retail was moderated to 2% and 8.1% YoY in CC terms. Digital revenues now forms 62.9% of the revenue mix grew by 4% QoQ/17.8% YoY while core revenues reported a minor decline on QoQ basis. The net additions were softer this quarter at 1,627 employees taking its total headcount at 3,46,845. LTM attrition declined by further 280 bps QoQ to 24.3%. Large deal TCV came in strong as it grew by 22.2% QoQ/ 30.4% YoY to US$3.3 bn.

Q3FY23 Earnings Summary

Constant currency (cc) revenues increased by 2.4% QoQ while US$ revenues increased 2.3% QoQ to $4,649 million (higher than our estimate of 0.8% QoQ increase to US$4,591 mn)

Rupee revenues grew 4.9% QoQ to Rs 38,318 crore (vs. our estimate of 37,751 crore and 3.3% QoQ growth)

Reported EBIT margins were flat QoQ to 21.5% (vs. our estimate of 21.7%). Tailwinds were +40bps currency, +70bps cost optimisations while headwinds were (-30bps) higher SG&A costs and (-80bps) seasonality impact in terms of furloughs

Reported PAT was at Rs 6,586 crore vs. our expectations of Rs 6,301

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The revenue performance was much stronger than our estimates however margin performance was lower than expectations. In BFSI some of the subsectors like mortgage are facing slowdown issues which must have had a reflection on BFSI as well as US growth moderation, which in our opinion, is a contrast commentary vs TCS. TCV number was pretty strong and which must have prompted the company to increase the guidance. Despite strong TCV, hiring has been lower which suggests that there could be some moderation on revenues in the medium term. 80bps seasonality impact on margin likely to reverse in the next quarter and we may see strong EBIT margin expansion in Q4. We are positive on the company on strong growth, continued strong large deal TCV and moderation of attrition which suggests ease of supply side pressure.

Impact: Positive