Shares of Infosys Ltd surged nearly 5% to ₹1,487 apiece on the BSE in Friday’s opening deals after India’s second largest IT services company posted better-than-expected 11% year-on-year (YoY) rise in consolidated net profit at ₹6,021 crore for the second quarter ended September 2022 and announced buyback of shares worth ₹9,300 crore via open market route, for a price of up to ₹1,850 per equity share.
Infosys board has also declared an interim dividend of ₹16.50 per share. The interim dividend payout will be about ₹6,940 crore, the company said in a statement. Meanwhile, operating margin for the quarter increased sequentially by 140 basis points to 21.5%.
Infsoys’ Q2 results were above estimates driven by margin expansion. Deal wins at a seven quarter high and healthy hiring trends offer comfort on growth. Infosys’ strong deal bookings and consistent execution provide comfort amidst an uncertain macro. While valuations at 23x are still at a premium to 10-year average levels of 19x, we believe it is justified given the superior growth outlook,” said global brokerage Jefferies while maintaining Buy rating on Infosys shares with a target price of ₹1,710 apiece.
The Bengaluru-headquartered company raised its FY23 revenue growth guidance to 15-16%, pushing the forecast towards the higher end of previously-projected 14-16% band. However, the company has lowered the upper end of operating margin guidance and is now expecting the operating margin for FY23 in the band of 21-22% as compared to 21-23% cited earlier.
The IT company’s management stated deal-wins and pipeline augur a healthy demand environment, although they are witnessing increased caution from clients. Margins improvement is driven by cost-optimisation and FX benefits, among others.
Management highlighted the demand environment remains robust, and the large deal pipeline is even larger than last couple of quarters. We reiterate that this Tech Upcycle would greatly benefit Infosys’s growth,” said brokerage and research firm Edelweiss while retaining its ‘Buy’ tag on the IT stock with a target price of ₹1,891 based on a valuation rollover.