Last Updated : Jan 10, 2019 10:58 AM IST | Source:

Infosys to announce Q3 earnings on Jan 11; Here's what brokerages are expecting

EBIT margin is expected to contract by around 20-30 bps sequentially despite rupee depreciation, brokerages said

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Infosys, the country's second largest IT services provider, is expected to report marginal growth in profitability for the quarter-ended December 2018, but revenue growth could be an average 1.5 percent considering a seasonally weak quarter.

The software firm will announce its October-December quarter earnings on January 11. Overall, brokerage houses expect profit growth in the range of negative 3.8 percent to positive 5.2 percent.

Motilal Oswal expects profit to decline 3.8 percent QoQ primarily led by higher translation losses and CIMB expects 1.7 percent sequential degrowth. Edelweiss expects 5.2 percent sequential growth in profitability, followed by Jefferies, PhillipCapital and Emkay's around a percent growth estimates.

On an average, brokerages see around 1.5 percent QoQ growth in revenue in constant currency terms. The same could be around a percent in dollar terms and in rupee terms, it could be around 3 percent for the quarter.

PhillipCapital, Jefferies, Emkay and Motilal Oswal expect constant currency revenue growth of around 1.5 percent and negative cross currency impact of 50bps. It means the dollar revenue growth of around 1 percent QoQ. Edelweiss expects 2 percent growth in CC revenue and 1.5 percent in dollar terms.

"We expect acceleration to continue aided by a healthy demand environment and deal wins, especially in BFSI and retail. This will be partially offset by seasonal furloughs indicated in manufacturing, Hi-Tech and life sciences," Motilal Oswal said.

Brokers are mixed in their opinion on full-year revenue growth guidance as some expect an upward revision in the lower end of guidance range of 6-8 percent whereas some expect it to be maintained. EBIT margin guidance is expected to be maintained at 22-24 percent.

CIMB, Motilal Oswal and JM Financial expect Infosys to revise lower end of revenue growth guidance in constant currency terms to 7 percent from 6 percent earlier while keeping upper end of guidance at 8 percent amid increasing order book.

EBIT margin is expected to contract by around 20-30 bps sequentially despite rupee depreciation, brokerages said.

"We expect EBIT margins to decline 21bp QoQ largely due to wage inflation for senior employees, investments to curtail attrition, improve/increase sales growth/digital capabilities and local recruitment. Ramped up cost for increasing large deal wins will be partly compensated for by net currency benefits," CIMB said.

Jefferies said EBIT margin could be around 23.4 percent for the December quarter, down 30bps QoQ, based on management guidance of higher investments in the second half of FY19.

Key things to watch out for

> Any revisions to FY19 USD revenue guidance and FY19 EBIT margin outlook

> Outlook on sub-contractor costs and employee attrition.

> Commentary around investments in the next fiscal.

> Growth outlook in discretionary/digital services spend (esp. in BFSI, Retail, US and UK)

> Total contract value of large deal wins (which could be normalised in Q3 QoQ).

> Update on potential buyback.
First Published on Jan 10, 2019 10:58 am
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