Q2 preview: Will Infosys cut revenue guidance for second time in row?

0
74

NEW DELHI: The second largest domestic IT firm, Infosys, is likely to see a 3 per cent sequential growth in September quarter revenues in constant currency terms, while it is seen cutting its FY17 revenue guidance for second time this year to 8-9.5 per cent against 10.5-12 per cent forecast earlier.

“Although we expect higher sequential growth in Q2, the annual guidance is likely to be revised downward,” said brokerage Motilal Oswal Securities.

As per analysts polled by ET Now, the Vishal Sikka-led firm may report a 2.52 per cent quarter-on-quarter (QoQ) growth in dollar revenues to $ 2,564 million against $2,501 million in June quarter. While the cancellation of RBS’ W&G project is seen not to have any impact September quarter revenues, cross currency headwinds may hit impact of 50 basis points (bps) on revenues.

“Results from tech majors such as Accenture and Cognizant have indicated mixed demand environment, with stronger adoption of digital technologies. However, market will be concerned about the impact of Brexit and the resultant impact on demand in the short term. US elections will also create uncertainty for the sector. Structural growth drivers for Indian IT continue to be in place, but in short term, there is increased uncertainty on demand outlook,” Prabhudas Lilladher said in a note.

In rupee terms, the company is seen reporting revenues of Rs 17,189.30 crore for the second quarter against Rs 16782 crore in the first quarter, up 4.48 per cent QoQ.

EBIT margin is likely to expand by 48 basis points to 24.60 per cent in September quarter from 24.12 per cent in June quarter, on account of normalisation of wage hikes, visa costs. Net profit for the quarter may have grown 2.8 per cent at Rs 3,531.50 crore, the poll anticipated.

Analysts believe demand environment, pricing outlook and progress on automation, TCV of deal wins commentary around contribution of newly launched services and the company’s capital allocation policy would be keenly tracked along with FY17 revenue guidance.

“Contrary to Street’s expectation of rising pricing pressure in the commoditised custom application development and maintenance (CADM) space, we believe Infosys will benefit from significant margin levers like utilisation, falling attrition and higher fixed price projects (FPPs) coupled with automation-based offerings in the traditional infra business and faster digitisation. Ergo,further margin improvement will be a trigger for the stock,” Edelweiss Securities said in a note.