Will Infosys cut FY13 EPS guidance?

Moneycontrol Bureau

Will Infosys cut its earnings per share guidance for the full year, is a key question the street is asking as India's second largest software services exporter announces its second quarter results on Friday.

"We expect Infosys' Q2 revenue growth to accelerate (3.4% quarter-on-quarter) but FY13 EPS guidance is likely to be lowered due to sharp appreciation in rupee – guidance now likely at Rs 53 per US dollar levels versus Rs 55 per USD at the end of Q1," said Citigroup analysts Surendra Goyal and Rishi Iyer.

Furthermore, among the IT companies, Infosys has yet not given any pay rise to its employees and some analysts feel it could announce some hike in the third quarter, and that could mean more cut in EPS.

Infosys shares have recovered from the hammering post the disappointing first quarter numbers, but lag those of peers like TCS and HCL Tech, and also the CNX IT Index. Over the last three months, Infosys has risen around 1.5%. Among frontline IT shares, TCS has gained around 3%, HCL Tech around 15%, while Wipro has fallen over 3%.

"We believe there is a high likelihood of a wage hike in Q3 as growth comes in line with guidance," said Ashwin Mehta and Pinku Pappan of Nomura Financial Advisory and Securities India.

The Nomura analysts expect Infosys to cut its FY13 EPS guidance by 2% to Rs 163.

The company had already shocked the street post first quarter results as it cut the full year guidance to well below street and industry body NASSCOM expectations and also stopped giving quarterly guidance. The stock is down near 13% so far this financial year, still some analysts fell it would be better to stay away from the stock, with no significant positive announcements in sight.

"We still do not see the merit of owning Infosys as our interaction with the company and channel checks outline no discernable change in the pace of decision making in discretionary segments and the last vestiges of the ramp downs might lead to tepid performance this quarter," says Pralay Das of Elara Capital.

For the second quarter, analysts on average expect Infosys' net profit in July-September to rise 3.1% sequentially to Rs 2,359 crore. US dollar revenue will go up 3.3% to USD 1.81 billion, while rupee revenue is seen up 3% to Rs 9,910 crore, according to a CNBC-TV18 poll.

ICICI Securities expects the Bangalore-based company's earnings before interest and taxes (EBIT) margins will be stable at 28.1%, up about 10% sequentially, due to absence of visas costs (seasonal) and absence of USD 15 million one-off revenue reversal hit in the first quarter.

KEY THINGS TO WATCH:

-- Margins, pricing and utilisation levels in the second quarter

-- EPS and US dollar revenue guidance for the full year

-- Client additions

-- Views on client budget spends and the general commentary on the demand scenario in Europe and elsewhere

-- Growth, especially in the banking and financial services vertical

-- Any commentary on wage hikes

-- Attrition rate in the last quarter, especially since there has not been any wage hike

-- Hiring plans for the rest of the year

Infosys shares were down 0.6% at Rs 2,488 on NSE in morning trade on Thursday.