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Bet on Infy raising the bar

Mumbai, Jan. 5: The third-quarter earnings season may begin on a positive note with Infosys likely to revise its dollar revenue growth guidance for the fiscal while announcing its results on January 10.

Analysts are of the view that the Bangalore-based company will raise its dollar revenue growth forecast to around 11.5 per cent. In the second quarter, Infosys had raised its revenue growth guidance to 9-10 per cent from an earlier estimate of 6-10 per cent.

Expectations of such a revision are high even though the third quarter is projected to be a modest affair sequentially for the IT sector, with the holidays and furloughs impacting revenue growth.

In the past couple of quarters, Infosys has beaten Street expectations, and its numbers and outlook are keenly awaited this time.

Moreover, it has implemented various measures to rationalise cost since the return of N.R. Narayana Murthy at the helm. The Street will also be observant of the impact of these steps on the performance.

October-December is seasonally a weak quarter and this could get reflected in the revenues of IT services companies, market circles maintain.

“The third quarter will be marked by weak constant-currency revenue growth for Indian IT on account of low volume growth owing to the impact of holidays and broad-based furloughs across verticals. Tier-1 IT companies are likely to report constant-currency revenue growth of 1.4-3 per cent, with Infosys having a disappointing quarter of revenue growth,” Kawaljeet Saluja of Kotak Institutional Equities said.

Saluja expects Infosys revenues at Rs 13,035 crore, a growth of 25 per cent over the corresponding period of last year. In dollar terms, he expects the company to report a growth of 1.8 per cent on a sequential basis at over $2.10 billion. Net profit is likely to grow 16 per cent to Rs 2,752 crore.

Experts maintain that Infosys will be able to meet the growth guidance for the current fiscal even if the fourth quarter is a muted one.

However, many expect the company to raise its guidance, on account of the cross-currency benefits as units such as pound sterling and the euro strengthened against the dollar.

According to Saluja, the company’s operating margins are likely to increase 110 basis points during the quarter as the benefits of cost-optimisation measures will start getting reflected in its performance. It is also likely to gain from cross-currency benefits.

The brokerage expects Infosys to project revenues of $8,249 million for the year, an 11.50 per cent increase over $7,398 million in the previous year. According to the company’s current guidance, revenues will be between $8,064 million and $8,138 million.

Looking forward

■ Analysts expect Infy to raise revenue guidance for fiscal

■ Muted results expected for October-December period

■ October-December marked by holidays and furloughs, which impact numbers

■ Guidance may improve because Infy is likely to benefit from strengthening of currencies
such as pound sterling and euro against the dollar

 
 
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