Stellar results in June quarter raised expectations that September quarter is likely to be another better quarter for Infosys. The country's second largest IT company is expected to report a 7 percent sequential growth in profit after tax at Rs 3,244 crore, according to average of estimates of analysts polled by CNBC-TV18.
As far as revenue is concerned, expectations are high. Analysts believe that the company is likely to lead in terms of dollar revenue growth. Dollar revenue may rise 3.6 percent quarter-on-quarter to USD 2,337 million and rupee revenue is seen rising 5.9 percent to Rs 15,210 crore in the quarter ended September 2015.
Even second quarter is a seasonally strong quarter for IT companies and currency may provide margin tailwinds during the quarter. Analysts expect constant currency growth at around 4.2-4.3 percent. A sub 4 percent growth in constant currency revenue may be seen as a disappointment by the street.
There may be around 50 basis points impact due to cross currency headwind (Australian dollar depreciation). Full contribution from SKAVA (acquired in previous quarter) may be seen in Q2 against just 1 month of revenue contribution in Q1FY16.
Analysts expect Infosys to maintain its FY16 guidance of 10-12 percent in constant currency (11.5-13.5 percent in rupee terms) and 7.2-9.2 percent in dollar terms (that was increased in previous quarter from 6.2-8.2 percent).
During the quarter, in CLSA Hong Kong conference, Infosys said it continued to see stronger traction in financial services and retail, adding growth continued to be driven by active participation in infrastructure management services deals and digital areas.
Earnings before interest and tax (EBIT) may climb 10.2 percent to Rs 3,798 crore and margin may expand 100 basis points sequentially to 25 percent. Benefit from rupee depreciation and absence of wage hike/visa costs in margin may be partly offset by higher provisioning for variable payout and pricing pressure.
The company sees EBIT margin in 24-26 percent range for FY16. This may be doable given rupee depreciation, say analysts. The rupee has depreciated by around 2.5 percent against US dollar in Q2FY16.
But at a time when there is so much pricing pressure, achieving a 30 percent target by 2020 may be difficult and for that company may need extremely high automation, feel analysts.
As far as deal wins is concerned, the company during the quarter said win rates in large deals doubled compared to year ago. In Q1FY16, deal wins stood at USD 688 million (USD 2 billion in FY15 and USD 2.25 billion in FY14). Analysts feel deal wins is likely to help improve investor confidence on the company.
They believe sales aggression may give revenue momentum. Infosys's top-10 accounts get direct attention from the CEO’s office which seems to have reflected in top-10 account growth of 5.9 percent quarter-on-quarter in Q1FY16 (USD terms) against company growth of 4.5 percent. There has been a 43 percent increase in the size of its sales force over FY15 which may drive revenue acceleration, feel analysts.
The stock outperformed, rising 16 percent year-to-date against 4.5 percent rally in CNX IT index. It surged around 14 percent after Q1 earnings annoucement.
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