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Infosys to report Q1 numbers today; profit may decline in double digits

Infosys is unlikely to announce full-year guidance due to uncertainty amid rising coronavirus infections and a fear of another round of lockdowns.
Jul 15, 2020 / 07:23 AM IST

The country's second-largest IT services provider Infosys is expected to report around 5 percent sequential decline in June quarter profit, hit by COVID-19-led lockdown, when it announces the result on July 15.

Brokerages expect around 20-30 bps cross-currency headwind on dollar revenue growth, which could be down around 5.3-5.5 percent compared to the March quarter. The Bengaluru-headquartered company may see its profit dip 10-11 percent QoQ, partly due to lower other income.

"We expect revenue decline of 5.1 percent QoQ on constant currency basis and cross-currency headwind of 20 bps on dollar revenue growth. This includes $13 million incremental revenue from its inorganic initiative (Simplus acquisition). In USD terms, revenue is expected to decline by 5.3 percent QoQ," said Sharekhan, which sees a 10.8 percent sequential fall in Q1FY21 profit.

Kotak Institutional Equities, which also expects an 11 percent drop in profit, said the decline in revenue in retail could be sharp, moderate in banking and stable in communications.

Infosys is unlikely to announce full-year guidance due to uncertainty amid rising coronavirus infections and fear of another round of lockdowns.

"Infosys had deferred annual guidance in Q4FY20. Infosys may not resume annual guidance due to potential risks from the second wave of lockdowns. Nonetheless, we expect Infosys to reassure investors on organisational readiness to capitalise on growth opportunity at relatively stable medium-term margins," Kotak said.

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On the operating front, weak operating leverage and lower revenue may impact EBIT margin by 40-80 bps sequentially in but may find support in rupee depreciation.

"EBIT margin is expected to decline by 48 bps QoQ but improve by 19 bps YoY. Margin QoQ will be hit by lower revenue and lower realisation, partially offset by rupee depreciation, lower travel costs, and lower overhead costs owing to work-from-home," Sharekhan said.

Key things to watch out for would be the commentary on the external environment, demand environment, especially banking and retail verticals, deal pipeline, pricing pressure, if any, involuntary attrition and impact on DSO days considering the requests from clients for longer credit cycle.
first published: Jul 15, 2020 07:23 am
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