IT services exporter Infosys' third quarter earnings are expected to be subdued due to seasonal weakness and RBS's contract cancellation. All eyes are on its full year guidance that had been changed twice from the start of current financial year.
Profit is seen falling 1 percent quarter-on-quarter to Rs 3,569 crore and dollar revenue is also likely to slip 1 percent to USD 2,560 million in the quarter ended December 2016, according to average of estimates of analysts polled by CNBC-TV18.
Revenue in rupee terms during the quarter is expected to be flat Rs 17,313 crore against Rs 17,310 crore in previous quarter.
Analysts will closely watch Infosys' full year revenue guidance as its revenue growth momentum has been lost when it saw the contract cancellation at RBS (that contributed 1.4 percent of revenue).
Some analysts expect the company to revise FY17 guidance lower against its current guidance of 8-9 percent in constant currency due to dollar strength.
BNP Paribas expects it at 7.5-8.5 percent and CLSA at 7-8 percent while Deutsche Bank, UBS Nomura, Credit Suisse, CIMB and Bank of America Merrill Lynch expect organic constant currency guidance to be unchanged at 8-9 percent.
In start of the year, the revenue guidance was 11.5-13.5 percent that has been revised to 10.5-12 percent in Q1FY17 and 8-9 percent in Q2FY17.
Analysts expect RBS's contract cancelation to impact revenue by around 1-1.5 percent and 3,000 staff which will impact utilisation. They see seasonal weakness in sectors such as retail, hi-tech and manufacturing.
Earnings before interest and tax during the quarter may fall to Rs 4,235 crore from Rs 4,309 crore and margin may contract by 40 basis points to 24.5 percent compared with year-ago period due to lower revenue and lower utilisation that may offset benefit of rupee depreciation.
Analysts say Infosys is expected to maintain its margin guidance of 24-25 percent for Q4FY17. Any cut in growth guidance or EBIT margins below 24 percent levels would be taken negatively.
Key factors to watch out for would be its commentary on client budgets for 2017, company's strategy against possible adverse H1-B visa rules, deal pipeline, thoughts on FY21 aspirational goals and segmental growth (retail, consulting, BFSI).