Key things to watch out for in Infosys Q3 earnings

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Key things to watch out for in Infosys Q3 earnings

Infosys' third quarter earnings this week will set the pace for the results season. The tech bellwether is the first to report among India's software service providers and so its results will be keenly eyed by analysts and investors, given the sharp rupee depreciation in recent months, and the macro economic headwinds in US and Europe.

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Infosys ' third quarter earnings this week will set the pace for the results season. The tech bellwether is the first to report among India's software service providers and so its results will be keenly eyed by analysts and investors, given the sharp rupee depreciation in recent months, and the macro economic headwinds in US and Europe.

Among the key things to watch out for will be its third quarter US dollar revenue growth, given the rupee depreciation in Oct-December quarter. Infosys has guided for 3.2-5.4% sequential USD revenue growth in the third quarter.

Guidance for the fourth quarter and any revision if any in the full year guidance will also be among things to look out for.

"Even as we do not see a material slowdown in volume momentum entering calendar 2012, non-closure of IT budgets at certain clients, ongoing IT budget rationalization at BT, and general macro uncertainty has the potential to reflect in subdued fourth quarter revenue growth guidance from Infosys," Kotak Securities said.

One must also look out for any commentary on pricing. Although third quarter pricing would not be an indicator of ongoing pricing discussions for clients' IT budget formulations for calendar 2012, it will indicate if Infosys has passed on a part of the rupee depreciation benefits to clients and its impact if any, and any impact of ongoing rationalization at BT, Kotak notes.

The brokerage expects Infosys will revise its full year revenue growth guidance to 17-17.5%, down from 17-19% earlier. The recent rupee depreciation should, however, lead to an upgrade in earnings per share guidance.

"On the EPS guidance front, the Rupee depreciation should take the upper-end of the fiscal 2012 guidance to at least Rs148; any number lower than this would be a negative. A number above Rs152 would be a positive surprise," feels Kotak.

Bangalore-based Infosys has forecast full year EPS in the range of Rs 143.02-145.26, up 19-7-21.6% year-on-year.

Infosys has consistently followed a short-term hedging policy, and thus stands to gain from sharp currency movements.

Given the macro economic concerns, led by the eurozone debt crisis, many will look out for employee and client additions during the three-month period. Infosys added 45 clients in the second quarter and had net hired 8,262 employees during the period. Lateral hiring numbers in particular tend to be a good indicator of activity in the market and would indicate the extent of the impact of the macro issues on the business.

Infosys shares were up 0.8% at Rs 2,858.85 on NSE on Tuesday. The stock has risen 12% since September 30, significantly outperforming the broader Nifty index, which has slipped 4% over the same period.

Nachiket Kelkar
nachiket.kelkar@network18online.com