Infosys Q2 Results Highlights: Net profit rises 3.17% to ₹6,212 crore, revenue up 7%; dividend declared

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Shares of Infosys will be in focus in tomorrow's trading session after the IT major reported its Q2FY24 results today, exceeding D-Street estimates in terms of profit and revenue growth. The company trimmed its FY24 revenue guidance.

“The fact that the deal wins have been fairly recent and the conversion probably hasn’t yet kind of taken off because of the kind of hesitation that most of these new contracts, new deals have been coming with, so it is quite understandable why they have cut the guidance," said market analyst Prakash Diwan

"If TCS numbers we were interpreting as some sort of bottoming out in Q2FY24, Infosys is saying it is not probably the bottom, we will probably see weakness continue in the next two quarters as well. So there is nothing very convincing about the numbers beyond the fact that they have just managed to get some growth and eke out some margins," he added.

Among the business segments, revenue from financial services and communication declined 7.3 per cent and 4.3 per cent YoY, respectively, in CC terms. However, revenues from life sciences, manufacturing and retail rose 18.4 per cent, 12.6 per cent and 9.2 per cent in CC terms respectively.

Among the client geography, revenue from Europe grew 5.4 per cent YoY and from India, it grew 2.6 per cent in CC terms. Revenue from North America grew 1 per cent YoY in CC terms.

Prashanth Tapse, Senior VP (Research), Mehta Equities said, “Infosys Q2 earnings are in line with market expectation but the company trimming its revenue guidance would be negative for the stock. Overall results are not so bad but discounted in prices.''

‘’FY24 Guidance - revised downwards would put pressure on prices to sustain while it has maintained margins. Technically the last minute fall in prices shows that results were not in favour of bulls, hence a gap down opening between ₹1400-1420 could be seen in the opening trade,'' said Tapse.

The attrition rate came down to 14.9 per cent in the September quarter, while headcount was lower by 7,530. The total headcount in Q2FY24 stands at 3,28,764, compared to 3,36,294 in the previous quarter.

Based on the recommendation of the Audit Committee, considered and approved a five-year extension of its successful joint venture collaboration with Temasek, a global investment firm headquartered in Singapore, said Infosys in ist exchange filing.

Infosys recently launched the Infosys Cobalt Airline Cloud (ICAC), a first-of-its-kind industry cloud offering designed for commercial airlines to help them accelerate their digital transformation journey. Fernando Rocha, CIO, Aeroméxico Airline, said, "We are excited to collaborate with Infosys to leverage the solutions, reference architectures and blueprints of the Infosys Cobalt Airline Cloud. We believe that this platform will enable us to quickly adapt to changing market dynamics, enhance customer experiences, and drive profitable growth.

Infosys collaborated with Microsoft to accelerate and democratize industry-wide adoption of generative AI. Nicole Dezen, Chief Partner Officer, Microsoft Corp, said, “We’re pleased to expand our collaboration with Infosys to deliver innovative solutions, utilizing Azure OpenAI Service and Azure Cognitive Services, that will help customers develop new business models, and realize new revenue streams. By harnessing the power of generative AI, Infosys will help customers accelerate growth and innovation.”

“Strong H1 performance with significant large deal wins, builds a solid foundation for the future. The growing adoption of our Generative AI offering, Topaz, is helping us deliver consistent value and expand market share”, said Sahil Parekh, CEO & MD, Infosys

Infosys and NVIDIA collaborated to help enterprises boost productivity with generative AI. “Generative AI will drive the next wave of enterprise productivity gains,” said, Jensen Huang, Founder and CEO, NVIDIA. “The NVIDIA AI Enterprise ecosystem is ramping quickly to provide the platform for generative AI. Together, NVIDIA and Infosys will create an expert workforce to help businesses use this platform to build custom applications and solutions.”

"Our Q2 operating margin of 21.2 per cent demonstrates the early benefits of recently unveiled margin improvement plan and is a clear reflection of our ability to continuously identify opportunities for improving operational efficiencies," said Nilanjan Roy, CFO.

The operating margin for the September quarter was 21.2 per cent, a sequential rise of 40 basis points. Infosys has retained operating margin guidance at 20 per cent-22 per cent, as per the company's statement.

"We had our highest large deals value at $7.7 billion in Q2 spread across all verticals and geographies. This, in an uncertain macro-environment, is a testament to our ability to pivot and stay relevant to the evolving client needs, by delivering the benefits of transformation as well as productivity and cost savings at scale," said Salil Parekh, CEO and MD.

Infosys declared an interim dividend of ₹18 per equity share while delcaring its September quarter results and fixed October 25 and the record date, while the November 6 is fixed as the payout date. Nilanjan Roy, CFO, Infosys said, “In line with our capital allocation policy, the Board has announced an interim dividend of ₹18 per share, an increase of 9.1 per cent over last year.''

Infosys stock has gone up by 10.80 per cent during the previous three-months (from ₹1,348 to ₹1,494) while the Nifty IT index rose 11 per cent in the same time period. Analysts had an optimistic outlook to the company's operational performance, with the expectation of 1.34 per cent increase in operating profit sequentially, projecting it to reach ₹8,089 crore compared to the prior quarter's ₹7,982 crore.

Infosys narrowed its revenue growth guidance for the full year at the upper end, and has now guided for revenue growth of 1-2.5 per cent, as per its statement. The reduction in revenue guidance comes after it sharply slashed the guidance last quarter to 1-3.5 per cent from 4-7 per cent.

‘’Nitin Paranjpe has no relationship with any member of the Board of directors and meets all the criteria for being appointed as an independent director under applicable laws including circulars issued by the stock exchanges from time to time,'' said Infosys in its regulatory filing to the stock exchanges.

Infosys reported a 3 percent year-on-year (YoY) rise in net profit at ₹6,212 crore in the second quarter of FY24. The revenue rose 7 per cent to ₹38,994 crore in the September quarter, compared to ₹36,538 crore in the corresponding period last year.

Analysts of domestic brokerage firm Motilal Oswal see a muted revenue growth of 0.8 per cent in constant currency terms for Infosys due to the demand slowdown and lack of a meaningful contribution from recently signed mega deals. Though deal total contract values (TCVs) look attractive amid mega wins in recent days, analysts noted that they would closely monitor the ramp-ups of the deal wins.

Ahead of the Q2 results, shares of Infosys settled 1.95 per cent lower at ₹1,464.55 apiece on the BSE. On Thursday, shares of Infosys opened at ₹1,490.50 and hit an intraday high of ₹1,504.50 and an intra day low of ₹1,452 during the session today.

Infosys will declare Q2FY24 results shortly. Analysts believe that the continued rationalisation of discretionary programmes, along with extended timelines for the execution of existing ones is leading to the loss of revenues and weak trends. Brokerages expect the IT major to report weaker revenue on the back of macroeconomic concerns that impacted software services during the quarter.

Infosys is expected to report soft numbers for the July-September quarter of the current financial year (Q2FY24) mostly because of demand slowdown in key markets. Experts and brokerage firms expect Infosys to report a single-digit year-on-year (YoY) growth in revenue. On a quarter-on-quarter (QoQ) basis, revenue could come flat. Management commentary on deal pipelines and the ramp-up of deal wins would be in focus. Read full report here

HDFC Securities expects Infosys to report 1.5% sequential revenue growth at ₹38,493 crore in the September quarter. In USD terms, revenue is expected to rise 0.9% QoQ to $4,660 million. 

The IT major is likely to see net profit growth 4.1% QoQ to ₹6,186 crore. EBIT is expected to increase 2.4% to ₹8,077 crore, while EBIT margin may expand by 18 bps sequentially to 21%, as per HDFC Securities’ estimates.

Infosys share price traded marginally lower on Thursday ahead of the release of Q2 earnings. Infosys shares opened at ₹1,490.50 apiece as against previous close of ₹1,493.65 apiece on the BSE. The stock made an intraday high of ₹1,504.50 and a low ₹1,477.05 apiece.

In the last three months, Infosys shares have gained 11%, while they have eased 1.8% year-to-date (YTD). This is as compared to Nifty IT index’s gains of over 10% in the last three months and more than 12% YTD.

At 1:45 pm, Infosys shares were trading 0.77% lower at ₹1,482.10 apiece on the BSE.

Large deal TCV stood at $2.3 billion in Q1FY24 and Nirmal Bang believes that Q2FY24 TCV number will be much higher at $5 billion+ as Infosys has announced multiple mega deals.

Also, third-party items in the P&L statement will be keenly watched as these have been much higher compared to peers (~6-7% run-rate) and have been margin dilutive for the company.

“Contradictory statements have been made by the company, which on the one hand indicate that it will improve margins from FY23 levels, but on the other hand, they imply that the company is not hesitant to take on large integrated deals (margin dilutive because of third-party pass-through elements) to drive growth,” Nirmal Bang said.

Brokerage firm Motilal Oswal Financial Services expects Infosys to report muted revenue growth of 0.8% QoQ CC due to continued demand slowdown with no meaningful contribution coming from the recently signed mega deals. Deal TCVs should look attractive due to multiple mega wins recently. We would be closely monitoring the rampup of these wins and the formation of a deal pipeline.

Operating margin largely remains stable due to weak topline growth with no wage hike this quarter. We expect the company to maintain its guidance on the back of healthy deal wins, which should provide strong footing in H2,  said teh brokerage house.

Infosys reported an 11% year-on-year (YoY) rise in its consolidated net profit for the fiscal's first quarter ended June (Q1FY24) to ₹5,945 crore. Sequentially, the consolidated net profit was down 2.9%.

The IT company's consolidated revenue from operations stood at ₹37,933 crores during the quarter ended June from ₹34,470 crore in Q1FY23. Sequentially, up 1.3% from ₹37,441 crore in Q4FY23. The company's consolidated total income for the quarter ended June surged 9.5% year-on-year to ₹38,494 crore, and sequentially rose by 1%. In constant currency terms, revenue grew by 4.2% year over year, and by 1% sequentially. 

Infosys, the second largest software service exporter in India, is likely to post earnings growth for the quarter ended September 2023. The revenue growth for the whole IT sector is likely to be modest, dragged by lower discretionary tech spends and delay in execution of deals, analysts said.

However, demand stays solid—likely to show up in strong deal flows yet again— which should translate to a strong recovery in H2FY24.

Infosys’ rival Tata Consultancy Services (TCS) reported a muted set of earnings a day before, which were in line with street estimates. TCS posted a 2.4% QoQ rise in its consolidated net profit for the fiscal's second quarter ended September (Q2FY24) to ₹11,342 crore. 

The IT company's consolidated revenue from operations rose 0.5% to ₹59,692 crore in Q2FY24, from ₹59,381 crore, QoQ. EBIT increased 5.3% to ₹14,483 crore from ₹13,755 crore, while EBIT margin expanded by 110 bps to 24.3% from 23.3%, QoQ.

TCS also approved share buyback up to ₹17,000 crore at ₹4,150 per share, and second interim dividend of ₹9 per equity share.

Things to watch out for in Infosys Q2 results:

(1) When will salary hikes kick in, if any? 

(2) Will execution of large contracts mean that margins in FY24 will come in at the lower end of the EBIT margin band of 20-22%? 

(3) Demand commentary for 2HFY24 

(4) Commentary around BFSI, Retail and Telecom demand 

(5) Usage of Gen AI to improve productivity 

(6) Have the large deals been ‘priced to win’ and will the subsequent margin expansion be dependent on usage of Gen AI? 

(7) What are the chances that execution of these mega deals won will not be pushed back if macro turns worse? 

Infosys had reduced its CC growth guidance for FY24 from 4-7% to 1-3.5%. Brokerage firm Nirmal Bang does not expect a change in the guidance either regarding revenue or margins. It expects Infosys to report revenue growth at 1.7% QoQ in CC terms and with no cross-currency impact.

EBIT margin is expected to contract by 30 bps QoQ to 20.5% due to the start of execution of some mega deals won, which will be in the transition phase and employee rebadging. We believe no salary hikes have been announced and hence have not incorporated that in our numbers.

Nuvama Wealth Management believes Infosys' Q2FY24 revenue to grow by 1.2% QoQ in CC terms and 1% QoQ in USD terms. It expects net profit to rose 8% QoQ, while EBIT to increase by 2.3% and EBIT margin by 14 bps QoQ.

“EBIT margin to remain flat - wage hike is yet to be given in Q2. We expect steady deal-wins and conservative commentary on demand environment. We expect Infosys to maintain its revenue (1-3.5%) and margin (20-22%) guidance for FY24,” said Nuvama.

According to the estimates of Motilal Oswal, Infosys' Q2 revenue may grow 5.2% YoY in the Indian rupee terms. Profit after tax (PAT) can climb 3.1% YoY. EBITDA margin for the quarter could come at 23.4% against 24.4% in the same quarter last year.

Motilal observed Infosys' operating margin largely remained stable due to weak topline growth with no wage hike this quarter.

"We would be closely monitoring the ramp-up of these wins and the formation of the deal pipeline. We expect the company to maintain its guidance on the back of healthy deal wins, which should provide strong footing in the second half," said Motilal Oswal.

Brokerage firm Sharekhan expects Infosys to report revenue growth at 0.7% in CC terms due to discretionary spend rationalisation, with ~20 bps cross-currency headwinds to result in reported USD revenue growth of 0.5% QoQ. EBIT margins are likely to decline by ~20 bps q-o-q, impacted by higher travel and back-to-office costs.

Infosys share price opened tad lower on Thursday ahead of the release of Q2 earnings later today. The stock began trading at ₹1,490.50 apiece on the BSE, lower than previous close of ₹1,493.65 apiece. On NSE, Infosys shares opened at ₹1,491.90.

Infosys is likely to report a net profit of ₹6,422.5 crore in Q2Fy24, registering a growth of 8% from ₹5,945 crore in the April-June quarter of FY24. The net profit is expected to grow 6.7% YoY.

"We expect steady deal-wins and conservative commentary on the demand environment. We expect Infosys to maintain its revenue (1-3.5 per cent) and margin (20-22 per cent) guidance for FY24," said Nuvama Institutional Equities.

Infosys is expected to report soft numbers for the July-September quarter of the current financial year (Q2FY24) mostly because of demand slowdown in key markets. Experts and brokerage firms expect Infosys to report a single-digit year-on-year (YoY) growth in revenue. On a quarter-on-quarter (QoQ) basis, revenue could come flat. Management commentary on deal pipelines and the ramp-up of deal wins would be in focus.

Infosys may report a muted revenue growth of 0.8% QoQ in CC (constant currency) terms due to continued demand slowdown while the recently signed mega deals may not contribute significantly as of now. However, analysts believe Infosys’ deal TCVs (total contract values) should look attractive due to multiple mega wins recently. Infosys' Q2 revenue may grow 5.2% YoY in the Indian rupee terms. 

Infosys, the second largest software services exporter, is set to announce its earnings for the second quarter of FY24 today, on October 12.