Infosys Q2 Results Preview: Margin To Expand On Delayed Wage Hike; To Recommend Dividend On October 12

The second largest IT firm in India, Infosys is preparing to announce its Q2 results for FY24 on Thursday. Infosys' earnings will come after its biggest rival TCS' financial performance for the quarter. During the September 2023 quarter, Infosys is expected to witness a steady quarter driven by large deal wins, while EBIT margins are also likely to expand. However, revenue growth is broadly seen as muted. Apart from Q2 earnings, Infosys will also declare dividends for the fiscal.

Ahead of its earnings, Infosys shares are trading in red on Wednesday. The stock performed at Rs 1,483.35 apiece, down by 0.8% on BSE, which was also near its intraday low of Rs 1,481.60 apiece. Currently, its market cap is over Rs 6.16 lakh crore.

On October 12th, the Infosys board of directors will meet to approve and take on record the audited consolidated and standalone financial results for the quarter and half year ending September 30, 2023, in both Indian Accounting Standards (INDAS) and IFRS.

Further, the company informed earlier that it will also consider the declaration of interim dividend, if any on Thursday. Infosys has a consistent track record of rewarding its shareholders with hefty dividends. In FY23, the company paid a dividend of 680% amounting to Rs 34 per share to investors.

While in Q1FY24, the company posted a consolidated net profit of Rs 5,945 crore, up by 10.9% YoY but declined by 3% QoQ. Revenue from operations stood at Rs 37,933 crore, registering a growth of 10% or 1.3%. In constant currency, the company's revenue growth stood at 4.2$ YoY and 1% sequentially. Its operating margin was at 20.8%.

Also, Infosys recorded a large deal TCV for the quarter at $2.3 billion, with a net new of 56.1%. While ROE improved by 180 bps to 32.8%. Attrition declined further to 17.3%.

In July month, Infosys FY24 revenue guidance was revised to 1.0%-3.5% and operating margin guidance was retained at 20%-22%.

Here's what to expect from Infosys Q2 earnings:

In its Q2 preview note, IIFL Securities on Infosys said, "We forecast 1.3% cc QoQ revenue growth for INFO, as volumes remain subdued and discretionary spend is yet to pick up. Deal momentum has further accelerated, given the mega-deal announcements during the quarter."

IIFL's note further said, "We expect margins to expand 20bps QoQ, as wage hikes have been delayed, potentially to 3Q. INFO should maintain FY24 guidance of 1.0-3.5% cc YoY revenue growth and 20-22% EBIT margin."

Along the lines, Incred Equities expect Infosys to witness a slowdown in discretionary projects, especially in FSI, telecom and hi-tech verticals and some parts of the retail vertical impacting growth partly offset by large deal ramp-up.

It further said large deal transition cost is a key headwind to EBIT margin while focus on a margin expansion program and moderation in sub-contractor expenses are tailwinds.

Whereas brokerage JM Financial has built in a 1% QoQ c/c revenue growth for Infosys with ~20 bps cross currency headwinds translating into a 0.8% QoQ USD revenue growth. It expects EBIT margins to improve by 24 bps QoQ aided by rupee depreciation and operational efficiencies.

Adding, JM's note said, "We have not built any wage hike in Q2 as the company has deferred wage hike; though it is baked in FY24 margin guidance."

In key numbers, HDFC Securities expect Infosys to report revenue of Rs 38,493 crore in Q2FY24, up by 1.5% QoQ and 5.4% YoY. While adjusted PAT is forecasted to come at Rs 6,186 crore, rising by 4.1% QoQ and 2.7% YoY. EBIT margin is factored to expand by 18 bps sequentially to 21%, however, likely to contract by 56 bps year-on-year.

Among key comments to watch for on Thursday as per IIFL's note are --- 1) Ramp up times lines for recently announced large deals. 2) Deal wins and pipeline. 3) Competitive intensity. 4) Margin impact from mega deals. 5) Capital allocation.

Disclaimer:

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