Infosys announces ₹93 bn buyback, interim dividend. 5 Takeaways from Q2 result

TCS results received mixed views from global brokerages. The street was also of the same view as shares of the company moved nowhere post result declaration.

What about HCL Tech? Results declared on Wednesday were above estimates and the market rewarded with more than 3% gains the next day.

Wipro on the other hand, not so much. Wipro shares tanked 6% to hit a 52-week low post result declaration.

Now, it was time for Infosys to show some skin in the game.

Post market hours on Thursday, Infosys reported its quarterly results.

The street was expecting Infosys to post better results than TCS, on the back of strong deal momentum and discretionary spending by clients.

A depreciating rupee was also expected to offer some support as it has depreciated 3.6% against the greenback in July-September quarter.

There were some looming concerns too. The company has seen a sharp erosion in profitability in the last few quarters.

In the June 2022 quarter, Infosys' margins fell 150 basis points sequentially to 20.1%, dragged down by salary hikes.

Also, the company’s president Ravi Kumar S resigned from his post earlier this week without giving any reason.

So, how did Infosys fare this quarter?

Here are five key takeaways from Infosys’ Q2 results.

• Infosys reported a 23.4% YoY jump in consolidated revenue to ₹365.4 bn for the quarter under review. The company’s net profit rose 11% to ₹60.2 bn.

 

In constant currency terms, revenues grew 18.8% YoY compared with 21.4% growth in the June 2022 quarter.

 

Revenue and profit both were above street expectations.

 

• The company’s operating margin improved to 21.5% from 20.1% in the June 2022 quarter. Chief Financial Officer (CFO) Nilanjan Roy said cost optimisation helped margins to improve.

 

• Yesterday, HCL Tech had surprised analysts by raising its revenue guidance. On similar lines, Infosys too raised its constant currency sales growth guidance for financial year 2022-23.

 

Infosys now sees revenues growing 15-16% against the earlier predicted 14-16%.

 

• Apart from revenue guidance, deal wins were the highlight for this quarter.

 

Large TCV deal wins for Infosys stood at US$2.7 bn, compared with US$1.7 bn in June 2022. The deal wins were the highest in the last 7 quarters.

 

• Infosys saw attrition levels coming down to 27.1% from 28.4% in June 2022.

 

Infosys Buyback and Dividend

In August this year, we wrote to you about the five Indian companies that could announce big buybacks soon.

When listing out Infosys in the editorial, we wrote:

In an interview, Infosys chief executive Salil Parekh said the company was committed to returning a share of free cash flow to shareholders via a combination of dividends and buybacks.

 

As of March 2022, Infosys has a cash and bank balance of ₹174.7 bn and free cash flow of ₹220.4 bn.

 

In 2022, Infosys paid total dividend of ₹31 per share as against ₹27 per share for 2021.

 

IT companies usually have huge amounts of cash and they reward shareholders by buybacks. So don't be surprised if Infosys comes out with its buyback soon.

Turns out, Infosys has finally come out with its fourth buyback.

The Bengaluru-based company has announced a ₹93 bn share buyback through the open market route. 

The maximum buyback size is of ₹93 bn, excluding buyback tax, at a price not exceeding ₹1,850 per share.

That’s not all. Infosys also announced an interim dividend of ₹16.5 per share. The total amount of interim dividend will be approximately ₹69.4 bn.

Infosys has a payout policy to return 75% of its free cashflow to shareholders for the next five years.

 

How Infosys has performed recently

Ahead of its results, Infosys share price gained in early trade yesterday. However, as the session progressed, the stock ended 0.6% lower on the BSE.

Infosys has a 52-week high quote of ₹1,954 touched on 17 January 2022 and a 52-week low quote of ₹1,355 touched on 26 September 2022.

In 2022 so far, shares of Infosys have fallen 25%.

Infosys Share Price in 2022

Data Source: Ace Equity

Infosys share price is falling this year owing to the same reasons why other IT stocks are falling. The reasons are not very hard to guess…

At the current price, Infosys trades at a PE ratio of 26.8 times and a price to book multiple of 7.5 times.

 

About Infosys

Infosys is a large Indian IT services company, offering a range of digital and traditional IT services.

From humble beginnings in 1981, the company now counts itself among the largest and most respected global software firms. It's known around the world for its quality management, work ethics and corporate governance standards.

The company caters to industry verticals such as financial services, retail, communication, manufacturing, hi-tech, life sciences, energy, utilities, resources, and services.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. 

This article is syndicated from Equitymaster.com