Infy may revise EPS guidance to Rs 164 for FY13: Kotak

Ahead of Infosys Techonologies' Q2 report card, Kawaljeet Saluja, ED & Head of Research at Kotak Institutional Equities feels the IT major's September quarter would be inline or slightly ahead of the implied guidance to achieve 5 per cent revenue growth for FY2013.

"The September quarter would be better because the ramp downs that the company had from select banks, financial services & insurance (BFSI) clients would be more or less over. The company did have reasonable deals wins over the last three-six months, which will start ramping up," Saluja explained.

Also Read: Will Infosys cut FY13 EPS guidance?

Furthermore, Saluja said the market disappointment would be significant if the revenue growth is anything less than 3 per cent. Saluja added that

"The company may lower its rupee EPS guidance for FY13 because of the currency reset maybe to around 53 from 55, which was the basis of guidance for FY13. We expect the guidance to be reduced to around an EPS of Rs 164 for FY13."

Below is the verbatim transcript of the interview

Q: After a string of disappointments, do you expect Infosys to turn out a better quarter?

A: I guess the September quarter would be better than what the June quarter was. There was a guidance miss by the company. The September quarter would be better because the ramp downs that the company had from select banks, financial services & insurance (BFSI) clients would be more or less over. The company did have reasonable deals wins over the last three-six months, which will start ramping up.

So yes, September quarter would be better and pretty much inline or slightly ahead of the implied guidance to achieve 5 per cent revenue growth for FY2013.

Q: Won’t the market be disappointed if Infosys does not turn out more than 3 per cent dollar revenue growth this time?

A: I think the disappointment would be significant if the revenue growth is anything less than 3 per cent. The company is getting the benefit of low base effect. In FY13, the company took a USD 15 million charge on cancellation of a particular contract. The revenue of the previous quarter did get depressed. I would say anything less than 3 per cent in this quarter will be a serious disappointment.

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Q: How do you map the currency impact on the stock because we had a big depreciating run and then the rupee appreciated; do you see anything cropping up in the current quarter or in the December quarter?

A: The rupee depreciation towards the end of the quarter could potentially read to some losses on receivables or the revenues in the month of July and August. But I guess every company has got a hedge programme to take care of such issues. There could be forex losses of around USD 10-12 million, which is something which we have baked into our estimates.

As far as the currency benefit is concerned, on a year-on-year (YoY) basis, over the last three quarters, there has been a big divergence in the dollar revenue growth of IT companies and rupee earnings growth. This divergence has been on account of significant depreciation of the rupee. I guess the benefit of that rupee depreciation would start to wear off by December 2012 quarter. You would have a situation wherein companies would report would report more normalized YoY earnings growth of 10-15 per cent.

Q: Do you expect it to lower its rupee guidance for the full year?

A: Yes, we do expect the company to lower the rupee EPS guidance for FY13 because the currency reset maybe to around 53 from 55, which was the basis of guidance for FY13. We expect the guidance to be reduced to around an EPS of Rs 164 for FY13.

Q: Do you think there will be no change in the dollar revenue guidance for the full year?

A: Dollar revenue guidance would go up to the extent that the company includes Lodestone acquisition into the financials. But as far as the organic revenue growth guidance is concerned, we expect that to be unchanged at 5%, maybe with Lodestone acquisition, the revenue guidance maybe revised to 6.5%.

Q: How are things on the ground with IT demand because we have seen a few disappointments in the earnings of the US technology companies this week? Has demand conditions improved or they remain unchanged from when we spoke at the beginning of the quarter?

A: There has been a marginal improvement. There have been few deal closures for IT companies, which would help the September quarter numbers. I think the demand conditions were pretty weak at the beginning of the year due to delay in decision making. However, the demand has not really improved for these companies to start reporting a mid-teens or 20% kind of growth. Whatever demand is there would basically, at best, facilitate around 8-10% growth for the industry as a whole. Some companies like Infosys and Wipro will be below that number and you would have companies like TCS and HCL Tech marginally better than our forecast view of industry revenue growth of 8-10%.