Notes from Infosys Q2FY24 concall.
Revenue growth is low at 2.5% YoY in constant currency terms which has slowed down due to global slowdown which includes low spending towards digital transformation and slow decision making by clients.
Except manufacturing vertical, management sees uncertainty of growth pick up on all other verticals.
Management reduced the guidance for FY 24 revenue growth to 1% to 2.5%. It was previously 1% to 3.5%.
Operating margin was 21.2% which increased by 40 bps over the last quarter. Cost optimization and better utilization led to the margin increase.
FY 24 compensation hikes are going to be rolled out from November 1st. It means Q3 and Q4 margins may be down unless utilization improvement compensates for it.
Current utilization is at 80.4% (including trainees). In past the company has managed to bring it up to ~82.5% which happened in FY22. Net headcount is negative compared to last quarter.
All in all a dull quarter apart from headroom to improve utilization slightly. Growth in NA and in BFSI are key factors to watch out for.
Peter Lynch defines a “stalwart” business as a large, mature business growing earnings at 10% to 12% with negligible debt (from his book “One Up on Wall Street”). In my opinion, this is a classic example of a business that fits in the bucket of a “Stalwart”. I feel comfortable getting into Infosys either when the growth comes back or when it falls significantly below its 10-year PE of ~25.
Just an opinion, I could be wrong.
Cheers,
Mahesh
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