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Last Updated : Apr 11, 2019 01:06 PM IST | Source:

Infosys Q4 preview: Brokerages expect dollar revenue growth of 2-2.5%

Brokerages expect Q4 to be better than third quarter due to ramp-up in large deals. According to them, constant currency revenue growth could be in the range of 1.7-2.1 percent for the quarter

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Country's second largest IT services company Infosys is expected to report steady growth in January-March quarter with dollar revenue growth at around 2-2.5 percent over the previous quarter. The company will kick start March quarter earnings season on April 12.

Technology sector has outperformed in the last one year riding on rupee depreciation and strong US economy. Infosys itself has rallied 37 percent in one year period.

Largely brokerages expect Q4 to be better than third quarter due to ramp-up in large deals. According to them, constant currency revenue growth could be in the range of 1.7-2.1 percent for the quarter.


"We expect constant currency revenue growth of 2.3 percent and cross currency tailwind of 30bps," Prabhudas Lilladher said. Reliance Securities expects US dollar revenue to rise 2.5 percent QoQ and CC revenue growth rate to be similar for the quarter.

Kotak said Q4 is a seasonally weak quarter, yet it expects robust growth powered by a large deal ramp in telecom and other verticals.

The key thing to watch out for would be the guidance for the financial year 2019-20. Analysts largely expect constant currency revenue growth guidance at around 8-10 percent but some analysts feel the company could surprise with 9-11 percent guidance for the year, but EBIT margin guidance may see some cut of largely 100bps at 21-23 percent for FY20 against 22-24 percent in FY19.

Prabhudas Lilladher and Kotak expect Infosys to guide a revenue growth of 8-10 percent in constant currency for FY20 while Elara Capital expects an EBIT margin guidance of 21-23 percent for FY20 and revenue growth guidance of at least 9-11 percent in CC terms, given the buoyant demand environment.

"Company should see a 3.6 percent exit rate into FY20 and inspire 9-11 percent constant currency YoY revenue growth guidance," CLSA said, adding, Infosys is poised to become the fastest growing large IT services firm in FY20.

On deals, the global investment firm said Infosys may see another $2 billion worth of deal booking this quarter, making this its strongest close in six years.

At operating level, EBIT margin is expected to contract compared to previous quarter due to large deal ramp-ups costs, cost on hiring digital talent and rupee appreciation during the quarter.

"On profitability, we expect the EBIT margin to decline further due to costs associated with large deal ramp up, retention bonuses and investments to accelerate growth," Kotak said while CLSA expects margin to dip 30 basis points in the quarter ended March 2019.

The fall in margin is expected due to forex headwinds and investments, but margin pressure from supply crunch may be offset by operating leverage, CLSA said.

Q3FY19 margin had a one-off impact of 40 bps from declassification of Panaya and Skava from assets held for sale.

Apart from the FY20 guidance, investors will also mainly focus on total contract value, attrition rate, commentary on the BFSI vertical and progress on catch-up with competition on digital competencies.

 The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.

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First Published on Apr 11, 2019 01:06 pm
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