Infosys share price on Tuesday fell over 2% on NSE. The drop in share price comes after it was reported that Infosys has reduced the variable payout for employees to about 70% for the first quarter of FY23.
Infosys share price on Tuesday fell over 2% on NSE. The drop in share price comes after it was reported that Infosys has reduced the variable payout for employees to about 70% for the first quarter of FY23, a trend seen across the industry, due to pressure on margins, high employee costs. “The average variable payout for Q1 FY23 is 70% at an organisation level,” Infosys said in a letter to employees, a copy of which has been seen by FE. “The performance bonus payout for Delivery and Business Enabling Functions for Q1FY23 is scheduled to take place in the payroll of August 2022.” Infosys shares were trading at Rs 1,540, on NSE, down 2.2% from the previous close of Rs 1,597.10 apiece.
“In spite of rising expenses, Infosys reported a lower-than-anticipated 3.2% increase in net profit for the June quarter. Overall costs had increased as a result of higher subcontracting, travel, and employee benefit costs. However, we now anticipate that in the near future, the trend of rising costs will stop and margins will stabilize. IT businesses’ margins will increase as the USD-INR appreciates. We urge investors to keep their stocks, and even one can accumulate stocks at a price of Rs 1,500 with a stop loss of Rs 1,440 in order to reach the short-term goal price of Rs 1,650,” Rahul Goud, Research Analyst – Equity Research, CapitalVia Research told FinancialExpress.com
Management commentary on salary hikes after Q1FY23 results
Infosys’ operating margin narrowed to 20.1% in Apr-June quarter (Q1FY23) compared to 23.7% in the same quarter of the previous year. During the first quarter earnings, Infosys management said that competitive salary increases were given to majority of employees from April. “Given the supply tightness and high prevailing inflation, salary increases across all geos this year are higher than historical levels. The increases vary based on job levels and performance of employees with top performers getting double-digit hikes. Salary hike for other employees is being done effective July 1,” Infosys CFO Nilanjan Roy had sad during the analyst call post Q1FY23 earnings.
Long-term outlook positive
“The aggressive rate hikes by the various central banks globally have led to a hard landing and an economic slowdown in developed nations, the major clients of Indian IT companies. The recessionary environment has compelled businesses to curtail their IT spending, affecting the future order book growth of Indian IT companies. Additionally, there has been a moderation in the headcount addition. Apart from the demand side slowdown, the IT companies are facing headwinds on the supply and margin fronts,” said Punit Patni, Equity Research Analyst, Swastika Investmart Ltd.
“For the IT major, Infosys, the current order book remains strong which will sustain the near-term growth trajectory, however, the medium-term outlook remains bleak. Further, the stock is trading at a premium compared to its historical average multiples. Thus, we have a cautious stance on the company in the short to medium-term timeframe. Nevertheless, we can’t simply brush off the importance of digitization, cloud computing, machine learning, ease of scaling up, and cost optimizations using technology. In short, there could be turbulence in the short to medium term, but the long-term outlook is positive,” Patni added.
TCS, Wipro also defer or reduce variable payouts
Note that earlier, Tata Consultancy Services (TCS) and Wipro also deferred or reduced variable payouts for the April-June quarter. The pay cuts follow IT companies’ margins coming under pressure due to rising employee costs such as salary hikes, travel, return to office and retention costs due to high attrition levels. At TCS, the performance bonus has been deferred. “Performance bonus for Q1FY23 is yet to be finalised for C3A, C3B, C4 and equivalent grades. This will be paid along with August 2022 payroll,” TCS notified its employees. Meanwhile, Wipro will not be paying out the variable pay to employees in band C and above for the first quarter, and junior-level employees will receive 70% of their variable pay, according to reports.
