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Infosys Ltd. is likely to maintain its financial year 2023 revenue and margin guidance when it reports the September quarter results on Thursday, October 13. The company expects revenue to grow between 14-16 percent in constant currency terms while margin guidance is between 21-23 percent.

The management has guided for margin to be on the lower end of the range. A CNBC-TV18 poll indicates that the company's rupee revenue and operating profit is likely to grow in high-single-digits while net profit may grow in the mid-single digits.

Infosys is likely to report revenue growth of 4.6 percent in constant currency terms, the highest among its major peers. Contributions from the Oddity and BASE Life Sciences acquisitions may aid topline growth. The company completed the acquisition of both these companies in April and September respectively. The BASE acquisition will expand the company's presence within the consumer health, animal health and MedTech segments.

Also Read: India's top tech earnings preview — slower revenue, margin squeeze and more

Margins Capped

Infosys reported a decline of 150 basis points in its EBIT margin during the June quarter. Over the last two quarters, overall margins are down 340 basis points. Margin during the June quarter was impacted as the company awarded wage hikes to junior employees.

This time around, mid and senior level employees have received wage hikes. Despite this, margin is likely to improve nearly 50 basis points from the previous quarter owing to better utilisation and better manufacturing margin.

Broking firm Jefferies expects Infosys margin to expand due to operating leverage and pricing benefits. However, the expansion will be capped due to supply-side pressures, higher costs and growth investments.

A Buyback On The Horizon?

Infosys has a capital allocation of returning 85 percent of its free cash flow until fiscal year 2024 through a combination of dividends and buybacks. Until fiscal year 2022, the company has returned nearly 73 percent of its free cash flow to its investors.

Now that the cool-off period has ended, analysts are hoping that the company may announce a buyback to achieve its policy target. It has previously conducted three share buybacks - the most recent being in 2021 (Rs 9,200 crore), while the other two being in 2019 (Rs 8,260 crore) and 2017 (Rs 13,000 crore).

A cool-off period means there has to be a gap of one year between the completion of the last one and before a new one is announced. The cool-off period for Infosys ended on September 8 this year as its last buyback completed on that day in 2021.

Jefferies expects Infosys to announce a buyback that may be valued between Rs 8,700 crore and Rs 9,500 crore. The firm expects a potential buyback announcement to support the stock price amidst uncertain macros.

Attrition Outlook

Infosys has also been in the line of fire over reports of delaying hiring and revoking letters of appointment to freshers. The company's attrition during the June quarter stood at 28.4 percent, increasing 70 basis points from the March quarter.

Axis Securities has also highlighted employee addition and further outlook among the key monitorable for the quarterly results.

Also Read: Infosys employees found moonlighting can lose their jobs

Recent Management Commentary

Cautious on mortgage and essential retail business for the near term

Client conversations indicate caution on macro but no impact on strong deal pipeline

Pace of decision making has slowed down at a few clients

Growth in the second half of financial year 2023 will be impacted by the usual seasonality

Shares of Infosys are down 25 percent this year, nearly in-line with the Nifty IT index, which has declined nearly 30 percent year-to-date.

Also Read: Infosys sued by former US hiring executive on issue of biases

First Published:Oct 10, 2022 12:33 PM IST