Infosys, the country's second-largest IT services provider, is expected to report little more than 3 percent sequential growth in revenue in constant currency and over 3.7 percent growth in dollar terms for the quarter ended December 2020. The company will announce its quarterly earnings on January 13.
The growth could be backed by Vanguard deal, acquisitions and digital deals, brokerages feel.
"We expect 3.2 percent QoQ constant currency growth which will be led by 1) ramp up from Vanguard deal, 2) Strong come back from all verticals (BFSI, Retail, Communication), 3) Ramp up of last sign deals, 4) Contribution from 3 acquisitions Kaleidoscope, Guidevision and BlueAcorn," said Prabhudas Lilladher which sees dollar revenue growth at 3.7 percent for the quarter.
The deal signings are likely to be robust following Daimler deal during the quarter and also the commentary for deal pipeline is expected to strong.
On the operating front, the margin is expected to contract in the range of 40-60 bps sequentially due to cost reversal of previous quarter and ramp of deals, while the profit could rise by 2-6 percent compared to previous quarter.
"We forecast EBIT margin decline of 60 bps QoQ due to — (1) loss from the Vanguard deal and (2) previous quarter had benefit of around 40 bps from cost reversals (20bps reversal as compared to expense of 20 bps). Margin headwinds in the quarter are not meaningful. EBIT margin increase on YoY comparison is a sharp 273 bps driven by lower travel costs, realization improvement and deferral of wage revisions," said Kotak Institutional Equities which expects 2.2 percent sequential growth in profit while Motilal Oswal sees 6.7 percent rise in Q3 profit.
Infosys' current revenue growth guidance stands at 2-3 percent and EBIT margin band at 23-24 percent for FY21.
Sharekhan and Prabhudas Lilladher expects the company to revise its full year constant currency revenue growth guidance upwards to 2.5-3.5 percent and 3-4 percent respectively, but the EBIT margin guidance may remain unchanged.
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Key things to watch out for would be the deal structure, revenues and profitability dynamics of the Daimler deal; commentary on the outcome of client's budget; commentary on the demand environment, especially BFSI, hi-tech, and retail verticals; M&A strategy given sharp increase in transactions in the past two years; commentary on large deal wins and TCVs; margin outlook; pricing for digital services; and longer-term impact from changes in delivery model, contractual structures, composition of IT spending to name a few.