Infosys, India's second largest software services exporter, is likely to disappoint the street yet again with a 4.8 percent sequential decline in third quarter net profit. Organic revenue growth will also be disappointing as the overall business environment remains challenging, with clients going slow on discretionary spends.
Overall the Bangalore-based company is expected to report a net profit of Rs 2,255 crore for Oct-Dec, compared with Rs 2,369 crore in July-Sep, according to a CNBC-TV18 poll.
Infy's rupee revenue for the quarter is seen up 2.4 percent at Rs 10,090 crore, while US dollar revenue is expected to be up about 4 percent at USD 1.87 billion. However, this will also include USD 40-45 million contribution from Lodestone, the Zurich-based management consultancy firm it had acquired in September 2012.
Excluding Lodestone, the company's organic growth is likely to be a tepid 1.5-2 percent.
Recent commentary also suggests that Infosys has started becoming more flexible on pricing to get volumes back on track, a marked change from its earlier strategy to focus more on margins.
JP Morgan analysts Viju George and Amit Sharma said in a report last month that Basab Pradhan, Infy's head of sales & marketing, had confirmed that it was relatively more focused on volume growth and it had taken initiatives to change clients' perception that it was relatively rigid in negotiations.
Analysts therefore don't rule out a 25-50bps sequential decline in pricing. Volume growth is likely to be between 2-2.5 percent.
Further, Infosys gave a 6 percent wage hike for off-shore employees, effective Oct 1. That coupled with the near 2 percent average rupee appreciation could led to 80 bps EBITDA margin contraction.
Will Infy Cut Organic Guidance?
Infosys has guided for a 5 percent growth in USD revenue growth this financial year, much lower than the 11-14 percent growth expected by industry body NASSCOM.
Analysts say the company would need to report at least 3.7 percent quarter-on-quarter growth in Dec as well as March quarters to meet the organic guidance. But that is looking uncertain.
"Infosys' near-term organic revenue outlook has weakened over the past month due to higher-than-usual December 'furloughs' this year and client ramp-downs. We believe that the street expects FY13 revenue guidance to be cut," according to Anantha Narayan and Sagar Rastogi of Credit Suisse.
Key things to watch
-- Guidance for FY2013
-- Comments on calendar 2013 IT budgets
-- Any pickup in deals and decision-making by clients across verticals
-- Outlook on pricing and operating margins
-- Employee hiring targets for FY2014
Infosys shares were down 0.5 percent at Rs 2,320 in afternoon trade on NSE on Thursday.
Since it announced its Q2 results on Oct 12, the stock is down 2.7 percent, underperforming the wider Nifty index, which has gained 5.2 percent.