- Infosys reported Q2FY24 revenue of USD4,718mn, a 2.3% QoQ and 2.5% YoY growth in constant currency (CC), beating estimates.
- EBIT margin improved to 21.2%.
- Total Contract Value (TCV) reached USD7.7bn, a significant 185% YoY increase.
- The company lowered its revenue guidance for FY24 to 1-2.5% from the previous 1-3.5% due to discretionary spend postponement and project ramp-downs.
- FY24E and FY25E EPS were reduced by 2% and 4%, leading to a target price of INR1400, maintaining a 'HOLD' rating.
- Net headcount reduced by 7.5k QoQ, while utilization increased to 80.4%.
- Despite better-than-expected results, Infosys trimmed its guidance, likely impacting its performance compared to peers in the near-to-medium term.
Change in Estimates:
- Revised estimates for FY24E and FY25E: -0.8% and -2.8% for revenue, -1.3% and -4.1% for EBITDA, -2.2% and -3.9% for adjusted profit, -2.1% and -3.8% for Diluted EPS.
Earnings Call Highlights:
- Strong deal-wins but slowdown in discretionary spending.
- Announcement of a wage hike from November 1st.
- Infosys launched Project Maximus to reduce costs and improve margins.
- Pricing remains largely stable.
- Challenges in Financial Services and Communications sectors.
- Strong deal pipeline with interest in cost efficiency and automation deals.
Revenue Growth:
- Q2FY24 revenue increased by 2.3% QoQ, led by higher pass-through and exceptional revenue.
- Strong growth in Life Sciences and Retail, while Financial Services remained flat.
Guidance and Performance:
- Infosys lowered its FY24 revenue growth guidance to 1-2.5%.
- Weak exit rate in FY24 might impact FY25 growth.
- Infosys may underperform peers in the near-to-medium term.
Key Ratios:
- RoE: 31.0% (FY24E), 30.5% (FY25E)
- P/E: 24.4 (FY24E), 22.2 (FY25E)
- EV/EBITDA: 16.5 (FY24E), 15.6 (FY25E)
- Dividend Yield: 2.7% (FY24E), 2.9% (FY25E)
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