Infosys Q4 PAT seen down 2.2% at Rs 2316cr: IIFL

IIFL has come out with its earnings estimates on Infosys for the March quarter FY13. According to the research firm, the company's Q4FY13 sales are likely to go up by 2.9% at Rs 10,722.5 crore, quarter-on-quarter (QoQ) basis.

The company's Q4 net profit is seen down 2.2% at Rs 2316.6 crore, QoQ.

IIFL report on IT sector Q4 earnings:

Due to seasonally lower spending and higher focus on finalization of IT budgets for CY13, Q4 is historically a soft revenue growth quarter. In the current quarter, there is an additional negative impact due to adverse GBP/USD movement leading to reported dollar revenues lower than the expected volume growth. We expect the organic reported dollar revenue growth for the Top 4 players to be in a narrow range of 2‐ 3% qoq. The pricing for is expected to be stable on a sequential basis. Amongst the Tier 2 players in our coverage, the reported sequential dollar revenue growth is expected to be ‐2 to 2.5%.

Inorganically, additional revenues from Lodestone for Infosys as well as those of Comviva and HGS for Tech M are expected to boost their consolidated dollar revenues. Resultantly, the dollar revenues for Infosys and Tech M are expected to grow 4.2% and 2% qoq respectively. The recent acquisition of Complex IT by Satyam is expected to accrue only beginning FY14 and hence would not impact Q4 FY13 reported revenues.

Operating margin performance for most players is expected to be weak impacted by tepid volumes, hiring, cross currency impact (GBP depreciated ~3.5% versus USD) and various company specific factors. For instance there is onsite wage hikes as well as Lodestone consolidation impact at Infosys, one‐time employee law suit settlement impact on TCS, Strong BT (Top client) de‐growth at Tech M, robust employee addition and sales investment at Mindtree which is expected to impact their respective OPM performance.

We believe caution on discretionary spending as well as client decision making to weigh on Infosys management leading to a lower‐than‐Industry dollar revenue growth guidance of 10‐12% yoy for FY14. Despite material margin lever in the form of utilization, we anticipate EBIT margin guidance for Infosys to be lower by ~100bps on yoy basis. Wipro IT services guidance is expected to come in 2‐4% qoq growth in dollar terms.

An expectation of a better FY14 over FY13 post stronger‐than‐expected Q3 results and commentary, higher Nasscom guidance for FY14 and improvement in macro indicators (especially from the US) are the key reasons for the recent strong stock performance for Indian IT. We continue to be positive on the sector on a long term perspective but in near term valuations and lack of credible sign of sustained discretionary spending keep us neutral. Wipro, HCLT, Mindtree are our top picks from the sector.

Key monitorables from Q4 FY13– Guidance for FY14/Q1 FY14 by Infosys/Wipro and management commentary on client budgets, hiring and demand pipeline across business segments.