In a result preview report for the sector, analysts at Jefferies said that Infosys may disclose a repurchase along with its financial performance for the July-September 2022 quarter of fiscal 2022-23 (FY23). However, the size of the buyback the business could announce has not been determined. On October 12, Infosys is expected to release its financial results for Q2 of Fiscal Year 23.
According to Jefferies, markets will be listening closely to management’s comments on the demand climate and other topics such as the deal pipeline, sales process, kind of deals & deal tenure, cost, and vendor consolidation.
“There will be a strong focus on commentary around client budgets or reprioritization of client spends. While revisions to FY23 guidance of Infosys, HCL Tech, and Coforge will also be closely watched, we don’t expect this to be revised in Q2. Infosys could announce a buyback along with its Q2-FY23 results,” wrote Akshat Agarwal and Ankur Pant of Jefferies in a recently co-authored note.
A stock buyback plan’s principal purpose is to halt a stock’s decline in value by reducing the stock’s float, hence increasing the share price via a more favorable price-to-earnings (P/E) multiple. Analysts have argued that buybacks are preferable to dividends because the latter is taxable, while the former is not. Individuals, Hindu Undivided Families (HUFs), partnerships, & private trusts with dividend income in excess of Rs 10 lakh must pay tax at the rate of 10%.
Infosys, meanwhile, has underperformed at the bourses, down 25% so far in CY22 compared to a drop of only 1.5% for the Nifty50. However, according to statistics provided by ACE Equity, the Nifty IT index has dropped by more than 30% over the same time frame.
With contract ramp-ups & seasonal momentum, Jefferies anticipates a robust 4 percent Q-o-Q increase in revenue for Infosys in Q2-FY23 in constant currency terms (CC). They predicted that despite supply-side constraints, more significant costs, and ongoing investments in growth, profits before interest and tax (Ebit) margins would likely increase by 30 basis points (bps) from quarter to quarter (QoQ) thanks to pyramiding, operating leverage, and pricing gains.
“We expect Infosys to retain its 14-16 percent year-on-year (YoY) revenue growth guidance and 21-23 percent margin guidance. Revenue is expected to come in at $3,998 million, up 14.2 percent YoY, while the net profit is seen at $54,210 million, up 7.2 percent YoY,” Agarwal & Pant wrote.
FY23 revenue & margin outlook; attrition level & trends; large deal wins and project pipeline; vertical-wise outlook; and commentary on the probable hazards of the high inflation rates in the US amid geopolitical tensions in Europe. According to IDBI Capital’s Devang Bhatt & Dhawal Doshi, these are a few of the other most important factors the market will consider while evaluating Infosys.
