Infosys Q2 EBIT seen up 6% at Rs 2854 cr

By Reema Tendulkar, Research Analyst at CNBC-TV18

Software bellwether Infosys - the first company among largecaps - is set to declare its earnings today for the July-September quarter of financial year 2012-13. Analysts on an average expect the profit after tax to grow by up 3.1 percent quarter-on-quarter to Rs 2,359 crore in the quarter gone by.

This quarter is expected to be an average one for the company after negative surprises in three quarters and negative dollar revenues in last two quarters.

Revenues (in dollar terms) are likely to go up by 3.34 percent to USD 1,810 million from USD 1,752 million while (in rupee terms) revenues are expected to go up by 3 percent to Rs 9,910 crore from Rs 9,616 crore during the same period.

Earnings before interest and tax (EBIT) are seen going up by 6 percent QoQ to Rs 2,854 crore but the EBIT margin is expected to be unchanged at 28.8% compared to previous quarter.

Analysts see earnings per share to grow by Rs 1.03 to Rs 41.09 in the quarter ended September 2012 from Rs 40.06 in June quarter.

The stock fell over 3 percent ahead of earnings this week while in the quarter, it was marginally up.

What is expected to move the stock during earnings?

Analysts feel the negative surprise could be the dollar revenues growth of lower than 3 percent in second quarter and full year EPS guidance cut to Rs 160 a share as against Rs 166.46 guided by the company in previous quarter. The dollar revenues at sub 3% may result in miss of full year 5% guidance.

But the dollar revenues more than 4 percent in September quarter, an organic guidance upgrade (above 5 percent) and increase in full year EPS to Rs 165 would lead to a perception that the company is back on track. Then, the discounts on valuations with TCS, country's largest software services exporter, will likely narrow.

Infosys has been discontinued practice of giving guidance given for the quarter due to business volatility and missing of guidance for last quarters. Therefore, the guidance for third quarter (December quarter) is unlikely.
 
Infosys post Q1

The stock crashed 8.5 percent on the day results announced by the company (July 13th) from Rs 2,471 to Rs 2,264 and slid further up to Rs 2101 in intraday trade (on July 26th) over the next few days.

But post that crash due to results, the stock had rallied to Rs 2,632, a growth of 25 percent from Rs 2100, in mid September during defensive rally. During the same period, its rival TCS rose 20 percent, HCL Technologies gained 26 percent and Wipro shot up 20 percent. And since then Infosys has seen mild profit taking to Rs 2507.

Valuation discount to IT major TCS increased to 30 percent post Infosys crashed from historical discount of around 15 percent, which is now at around 20 percent discount.

Analysts expect the revision in full year guidance

Dollar revenues guidance for FY13 is expected to be raised by the company to 6-6.5 percent from atleast 5 percent (6 percent in constant currency) on Lodestone acquisition. Organic guidance growth is likely to be maintained at 5 percent.

Earnings per share is likely to be lowered to Rs 161-164 from Rs 166.46 due to currency appreciation. If there are wage hikes then that may be further reduced to Rs 161-162.

Rupee-dollar exchange rate at the end of second quarter was at 52.86 to the US dollar as against 55.5 a dollar at the end of previous quarter for guidance calculation, an appreciation of around 4-5 percent

In the June quarter, the company raised EPS guidance to Rs 166.46 from Rs 158.76-Rs 161.41. However, this was lower than street expectations of Rs 175-185.

Earnings per share (in dollar terms) is expected to be jumped to 3.5-5 percent to USD 3.10 -3.15 from USD 3.03 due to Lodestone acquisition 

FY13 guidance

Infosys said the dollar revenues would grow by 5 percent to USD 7.343 billion (6 percent in constant currency terms), that was a cut from 8-10% last quarter.

But the revenues in rupee terms would grow by 19.7 percent to Rs 40,364 crore (increased from 13.9 percent-16 percent at Rs 38,431-Rs 39,136 crore from last quarter), the company said.

Software bellwether raised EPS by 14.4 percent at Rs 166.46, which was upped from 9.1-10.9 percent last quarter.

But the dollar EPS would rise by 1% to USD 3.03, the company said (that was cut from 4%-5.7% at USD 3.12 to USD 3.17).

Investors should watch out for current rupee appreciation (that hit low of 57.3 against the US dollar on June 22 while yesterday it closed at 53.05 a dollar), margins and wage hike (if happens).