Infosys Q2 result: Profit may jump over 9%, revenue 23%, attrition data likely to soar

Ahead of its second-quarter (Q2FY23) results on Thursday, analysts estimate that IT major Infosys Limited is likely to report healthy consolidated earnings for the quarter ended 30 September 

Infosys’ peers TCS, Wipro, and HCL Tech have already presented their earnings for the quarter ended 30 September and it has largely been a mixed bag. In Q2FY23, Infosys is likely to continue its revenue growth momentum, as expected by brokerage firms. As per estimates by several brokerage firms, the consolidated revenue for the quarter is expected to rise 23-24% and the consolidated profit may rise to 6-8% range on a yearly basis.

The second-largest IT firm, in terms of market capitalisation, is also likely to report revenue growth of 4.6% in constant currency (CC) terms, the highest among its key contenders. However, as margins are expected to improve, Infosys' attrition rate is expected to shoot further up, said analysts.

Contributions from German-based digital marketing company Oddity and Denmark-based life sciences consulting and tech firm BASE Life Sciences acquisitions may help attain top line growth. The company completed the acquisition of both these companies in April and September respectively. The BASE acquisition will expand the company's presence within the consumer health, animal health and medtech segments.

On EBIT (Earnings Before Income Tax) front, analysts estimate that the company may witness a consolidated growth of 7.8% to ₹7,450 crore (estimate) in Q2FY23 against ₹6,914 crore in the last quarter of FY23, while the margins are likely to come stable at 20.3% versus 20.1% QoQ. Margin during the June quarter was impacted as the company awarded wage hikes to junior employees.

In their Q2 preview report, Sameer Pardikar and Sujay Chavan Research Analysts at ICICI Direct on Infosys told Mint, "Revenue growth momentum is expected to continue on strong deal execution while margins are expected to improve sequentially as wage hike is behind now.”

According to the analysts, Infosys is expected to register 5% quarte-over-quarter (QoQ) growth in CC led by continued momentum from financial services, retail, communication, energy, and manufacturing, despite it witnessing weakness in some pockets of BFSI and Retail. Cross currency headwinds of 150 bps would lead to 3.5% QoQ growth in dollar term.

Motilal Oswal said that in CC terms, Infosys should deliver a revenue growth of 4.3% QoQ, although adverse cross-currency movements will pull down reported growth. Motilal analysts, however, expect weaker-than-expected margins as supply-side challenges continue to remain elevated.

Broking firm Jefferies expects Infosys margin to expand due to operating leverage and pricing benefits. However, the expansion will be capped due to supply-side pressures, higher costs and growth investments.

Along with the results announcement, Infosys is also scheduled to consider a share buyback scheme at a meeting today, the company said in a release on Monday. Hence, analysts are hoping that the company may announce a buyback to achieve its policy target going by the trends in previous years. It has previously conducted three share buybacks - the most recent being in 2021 (₹9,200 crore), while the other two being in 2019 (₹8,260 crore) and 2017 (₹13,000 crore).

This year, Jefferies expects Infosys to announce a buyback that may be valued between ₹8,700 crore and ₹9,500 crore. “The firm expects a potential buyback announcement to support the stock price amidst uncertain macros,” it said.

In terms of attrition, Infosys has been under the fire over reports of delaying hiring and revoking letters of appointment to freshers. The company's attrition during the June quarter stood at 28.4% increasing 70 basis points from the March quarter. Axis Securities has said that employee addition and further outlook among the key highlights for this quarterly results.

On the whole, analysts indicate caution on macro but no impact on strong deal pipeline, even though the pace of decision making has slowed down at a few clients. They further expect growth in the second half of financial year 2023 will be impacted by the usual seasonality.