Infosys Limited – Are we getting a discount or no?

Infosys Q3 FY23 Concall Summary

Highlights:

• Strong Q3 performance with stable operating margins and broad-based growth.
• Large deal value 3.3 billion USD with growth in digital revenue.

Margin and growth:

• Strong Q3 performance with 13.7% YOY and 2.4% QOQ growth in a seasonally weak quarter
• Stable operating margin at 21.5%. This because of cost optimization benefits plus healthy revenue growth.
• Margin for 9 months FY23 at 21%, in line with guidance
• Margins for FY23 remains between 21-22% with anticipation at lower ends.
• Subcontractors reduced over last 3 quarters.
• Growth in Q3 has been broad based with most industries and geographies growing in double digits.
• Continue to gain market share, vendor consolidation underway. When there are 6-7 vendors and client want to narrow down to 1, 2 or 3, Infosys seems to be benefitting from these discussions.
• Revenue growth guidance revised from 15-16% to 16-16.5%

Large deals, clients, and business outlook:

• Large deal value 3.3 billion USD, 32 large deals, highest in 8 quarters.
• 7 in retail, 6 in financial services and communications, 5 each in EURS and manufacturing, 2 in life sciences and 1 in high-tech.
• Region wise, 25 in the Americas, 5 in Europe and 2 in the rest of the world.
• Digital revenue grew at 22% in the quarter and is close to 63% of overall revenue.
• Very good new client acquisitions in Q3, with 134 new clients added in the quarter.
• Number of $50 million clients increased by 15 to 79. Number of $200 million clients increased by 5. Number of $300 million clients increased by 3.

Utilization and attrition:

• Attrition reduced by 6 percentage points sequentially, reaching below 20% levels.
• The attrition numbers are the lowest quarterly annualized attrition rates in the past 7 quarters. Attrition expected to reduce further in the near term.
• Utilization levels (excluding trainees) reduced to 81.7%. This is due to seasonality and employees re-joining bench.
• On-site assets mix stable at 24.5%

Cashflow, dividend and buybacks:

• FCF for the quarter is $576 million, 72% of net profit conversion. YTD FCF $1.8 billion, conversion of 81% of net profits.
• Q3 marks 30th consecutive quarter of positive forex income
• Consolidated cash and investments declined from $4.79 billion last quarter to $3.91 billion. $1.32 billion returned to investors via interim dividend and ongoing buyback program.
• Buyback program: initiated on December 7. So far 31.3 million shares worth INR4,790 crores or 51.5% of the total authorization of INR9,300 crores have been bought back. Average price of Rs. 1,531 per share (max. buyback price is Rs. 1,850 per share)