Infosys and HCL Tech flatter on Q3FY23 numbers

On 12th January, two of the leading IT companies in India, Infosys and HCL Tech announced their third quarter results (Q3FY23). While Infosys managed to keep the street happy, there were some concerns on HCL Tech despite good numbers. Let us look at these numbers in greater detail.

What Infosys reported in Q3FY23?

For the third quarter of FY23 ending December 2022, Infosys Ltd reported 13.4% higher consolidated net profits at Rs. 6,586 crore. This compares favourably with the net profit of Rs. 5,809 crore reported in the year ago quarter. If you look at the top line, the consolidated revenues for Q3FY23 came in 20.2% higher at Rs. 38,318 crore. This also compares favourably with the Rs. 31,867 crore revenues reported in the year ago period. Both the top line and the bottom line managed to beat estimates. While Revenues beat estimates by 2%, the net profits beat the street estimates by nearly 3%.

One of the key measures for IT companies is the constant currency growth or the dollar denominated growth in top line and bottom line. In constant currency (CC) terms, revenue growth was at 13.7% on yoy basis and 2.4% sequentially. The positive takeaway is that digital revenues comprised 62.9% of overall revenues and in absolute terms the digital revenues grew 21.7% yoy in constant currency terms. Total contract value (TCV) for Q3FY23 was the strongest in last 2 quarters at $3.3 billion. However, Infosys did witness its operating margins (OPM) slipping by 200 basis points to 21.5% due to cost pressures.

One of the key concerns for Infosys in the last few quarters has been the attrition rate and that has tapered from 27.1% in the year ago period to 24.3% in the current quarter. On the guidance front, Infosys has slightly upped its FY23 revenue growth guidance to 16-16.5% while it has marginally lowered its operating margin guidance to the range of 21-22%.

The Infosys buyback program is still going on through the open market route. As per exchange filings made, Infosys has till date repurchased 31.3 million shares worth Rs. 4,790 crore. That represents nearly 51.5% of the total targeted buyback amount of Rs. 9,300 crore. While the maximum buyback price for the deal was set at Rs. 1,850 per share, the average price of buyback till date has been around Rs. 1,531 per share.
 

What HCL Technologies reported in Q3FY23?

HCL Technologies Ltd reported 19% rise in net profit at Rs. 4,096 crore on a yoy basis for Q3FY23 quarter ended December 2022. This compares very favourably with Rs. 3,442 crore net profit announced in the year ago period. Revenues for the quarter were up by 19.6% at Rs. 26,700 crore on a yoy basis with all-round growth seen across verticals. Dollar revenues or constant currency revenues stood at $3.24 billion, showing a CC growth of 5.3% on a sequential basis and 9% on a yoy basis. For the quarter, the EBIT margins or the operating margins came in 165 basis points better at 19.6%.

The quarter also marked the 80th consecutive quarter of dividend payment amidst the strong results. However, analysts were slightly concerned that the IT Services and ERD segments remained soft with the growth being primarily driven by the strong performance of the Products & Platforms (P&P) vertical. It has also narrowed its revenue guidance for FY23 by 50 bps to the range of 13.5% to 14.0%. The company also narrowed its operating margin guidance by 50 basis points to the range of 18.0% to 18.5%. Most IT companies are expected to feel the impact of the global slowdown and the consequent impact on tech spending, order sizes and the pricing power of IT companies.