Q2-FY23 INFOSYS

Q2 performance was strong with year-on-year growth at 18.8% and sequential growth at 4% in constant currency. Growth in constant currency in the first half of financial year ‘23 was 20.1%, compared to first half of financial year ’22. This momentum is accompanied by a strong pipeline of large deals and the highest large deal value in the last seven quarters of $2.7 billion. 54% of this was net new. Digital revenues are at 61.8% of our overall revenue and grew 31.2% in the quarter in constant currency terms. In Q2, our cloud revenue was larger than $1 billion, showing tremendous strength of our cloud services, especially our industry-leading Cobalt capabilities. A European telecommunications company is closely engaging with us to accelerate their business growth and prepare for a digital future. In aviation, Giant is working with us to digitally advance the engineering of their product development and emerging aircraft programs. Fast-growing logistics company is working with us to secure their cloud environment and build greater resilience into their operations. Operating margin expansion of 150 basis points. The operating margin for the quarter was 21.5%. This would because of cost efficiencies, optimization in large deals and currency benefits. Our H1 operating margins are 20.7%. Our attrition has now been decreasing for the past three quarters, including this Q2. on a quarterly annualized basis. While the overall demand environment continued to be healthy, as reflected in broad-based growth and robust large deal pipeline, we also see signs of cautious behavior by clients due to macro concerns. Apart from slowness in the mortgage segment of Financial Services and the retail industry segment we talked about last quarter, we see emerging concerns in high-tech and telecom industry segments in the form of reduced spend, especially towards discretionary programs. In keeping with our capital allocation policy, the Board has announced a share buyback 1850 & dividend Rs 16.5 pershare. Our H1 performance of 20% growth in constant currency and robust large deal signings in Q2 give us the confidence to change our revenue growth guidance, which was at 14% to 16% earlier to 15% to 16%, even as we are seeing emerging concerns that we talked about earlier. Margin guidance for financial year ‘23 only for this year to 21% to 22%, which was earlier 21% to 23%. We anticipate we'll be at the lower end of this range. Nilanjan Roy Q2 revenues grew by 18.8% year-on-year and 4% sequentially in constant currency terms. All business segments and geos grew in double-digits year-on-year in constant currency. North America grew by 15.6%, Europe by 28.5%, manufacturing by 45%, EURS by 24.3%, communication by 18.4% and retail by 15.4%. Digital revenues constitute 61.8% of total revenues and grew by 31.2% year-on-year in constant currency. Revenue growth was 20.1% in constant currency terms in H1 ‘23 over H1 ’22. Number of $50 million clients increased by 15 to 77, while number of $100 million clients increased by four to 39. Number of $300 million clients increased to five from two in the quarter two last year, reflecting our strong ability to mine top clients by providing them multiple services. Employee counts increased by approximately 10,000 to 345,000. Utilization, excluding trainees, was 83.6%. On-site effort mix remained flattish at 24.4%. Quarterly annualized voluntary attrition came down further by another 2.5% during the quarter. This is also reflecting -- starting to reflect in reduction in our LTM attrition numbers, which reduced to 27.1%, compared to 28.4% in Q1. We expect attrition to reduce further in the coming quarters. Q2 operating margin stood at 21.5%, an increase of 150 basis points Q-on-Q. The major components of the Q-on-Q margin movements were as follows. The margin tailwind comprising of 70 basis points comprising of rupee depreciation, partially offset by cross currency; 90 basis points from cost optimization, including large deal optimization; RPP increase, et cetera., partially offset by lower utilization, 40 basis points from reduction in subcon spend, these were offset by headwinds of approximately 40 basis points from compensation-related increases and impact. Q2 EPS grew by 11.5% in rupee terms on a year-on-year basis. Our balance sheet continues to remain strong and debt-free. Consolidated cash and investments were $4.8 billion at the end of the quarter. Free cash flow for the quarter was $589 million, client conversion of 79% of net profit. Free cash flow generation is typically low in Q2, due to higher tax payouts in both India and the U.S. ROE increased by 1% year-on-year to 30.8%. Yield on cash balances increased to 5.8% in Q2. DSO increased by two days sequentially to 65, reflecting higher billing done during the quarter. Coming to segmental performance. We signed 27 large deals in Q2 with a TCV of $2.74 billion, with 54% net new. Five large deals were in financial services, four each in retail, communication, energy utility, resources and services and high-tech segments, three in manufacturing, two in life sciences and one in other vertical. Region-wise, 18 were in the Americas, six in Europe, one in India and two in the rest of the world. Growth in Financial Services and acceleration in cloud adoption in the FS sector and are working with many of our clients in cloud migration, cloud management and other cloud-related platform deals. Ssome pockets of slowdown in different cycles, especially for fashion apparel retail and general merchandisers. Energy, Utility, Resources & Services segment reported robust and steady growth. Manufacturing segment growth continues to remain strong and broad-based along with steady flow of new deals. we have been ranked as leader in 19 ratings in the areas of public cloud, SaaS, design experience, automation and data and analytics. We remain committed to maximizing our total shareholder returns and in line with the capital allocation policy of returning 85% of free cash over the period. The board has recommended the following, an interim dividend of INR16.50 per share for FY ‘23 versus INR15 per share for FY ’22. This is a 10% increase in dividends per share. Buyback of equity shares of up to INR9,300 crores through open market route post approval of shareholders at a maximum buyback price of INR 1850. We believe our progressive caption allocation policy continues to provide predictability to our shareholders. Question-and-Answer Session We have a very strong internal cost program which we and the team have put in place and that will continue to give us benefit. James Friedman The revenue per full-time employee, it looks like it's trended lower for multiple quarters now ? Nilanjan Roy The revenue per employee is across the entire headcount of the company and we have put so many freshers in -- both in our training programs in Mysore and on the bench, so just to get a mathematical number around revenue per employee is not indicating anything about pricing really. 65% odd of our revenues are in dollars, 35% are in currency outside dollar than those have depreciated, so this is pure metric, we will also automatically come down.