Infosys, the second largest software services exporter in India, will begin third quarter (October-December) earnings season on Friday. According to a CNBC-TV18 poll, analysts expect the company to report 14.33 percent growth in profit after tax at Rs 2,752 crore compared to previous quarter.
Adjusted profit after tax is expected to be at Rs 2,626 crore, a growth of 9 percent sequentially. Its profitability was impacted by visa cost of Rs 219 crore (one off item) in the quarter ended September 2013.
October-December period is a seasonally weak quarter for technology companies due to holiday season and project furloughs, which has already been factored in, say analysts.
Earnings before interest and tax (EBIT) may jump over 11 percent sequentially to Rs 3,154 crore and EBIT margin is seen rising 243 basis points Q-o-Q to 24.15 percent. Adjusted EBIT growth is expected to be at 7.7 percent and EBIT margin 58 basis points as wage hike impacted margins in September quarter.
The company has also undertaken cost cutting initiatives, hence there is a possibility of margins positively surprising. Many believe margins have bottomed out.
According to the poll, Infosys' revenue may rise 0.7 percent quarter-on-quarter to Rs 13,055 crore during December quarter while dollar revenue is expected to jump 2.08 percent Q-o-Q to USD 2108 million. Dollar revenue growth includes 50 basis points of cross currency due to dollar depreciation against Euro/GBP.
July-September was the second consecutive quarter of good revenue growth for the company, which suggested that Infosys’ revenue engine is getting back on track after 18 months of severe flux. It had reported dollar revenue growth of 2.7 percent in Q1 and 3.8 percent in Q2.
FY14 dollar revenue guidance
Analysts believe the full year dollar revenue guidance (FY14) is the key to watch out for. According to them, if the company does not increase the guidance then the stock may see knee-jerk reaction.
They expect Infosys to raise its FY14 dollar revenue growth guidance to 11-12 percent from 9-10 percent that was raised at lower end in September quarter from 6-10 percent.
Poll suggested that Infosys needs to do 1-1.5 percent in Q3 and Q4 to meet full year growth of 11-12 percent. JP Morgan in its earning expectations report said the current stock price had already discounted a 1-2 percent increase in FY14 revenue growth guidance.
Management rejig
Meanwhile, Infosys has seen a lot of reshuffle at management level since June 2013, especially after Narayan Murthy joined the company again.
Nine heads of different segments exited in the last seven months including Basab Pradhan, Ashok Vemuri, Sudhir Chaturvedi, Stephen Pratt and the latest being V Balakrishnan - Head, BPO, Finacle and Chairman Infosys Lodestone.
The company has appointed B G Srinivas and U B Pravin Rao as presidents of the company, who report directly to S D Shibulal. Srinivas will be heading the sales function in the organisation and Pravin Rao will be heading the delivery operations. Also, the Executive Council will cease to exist as a forum with effect from April 1, 2014.
Murthy had himself appointed 12 new members to the Executive Council only a couple of months back (October 25), in addition to three in August. Hence, the decision to discontinue the forum is yet another indicator of the degree of flux in the system, feel analysts.
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