See Infosys Q1 FY14 $ revenue growth at 1.3%: Nirmal Bang

Harit Shah of Nirmal Bang Institutional Equities expects IT giant Infosys' (EBIT) margin to fall another 100 basis points due wage hike impact, higher visa costs and low Lodestone margins. Infosys will announce its first quarter earnings for FY14 on Friday.

"Last quarter, earnings before interest, tax (EBIT) margin was at its all time low and this time also it go further to all time low," he told CNBC-TV18 in an interview.
He expects the company to see a 1.3 percent sequential dollar revenue growth. "The street is expecting above 1-1.5 percent dollar revenue growth and that should not be a problem since expectations are not very high, but if Infosys fail to deliver, it will be a big negative for the stock," he added. Below is the verbatim transcript of Harit Shah's interview on CNBC-TV18 Q: Will the company be able to come up to its own guidance? Are you looking beyond the numbers suggested by several people?
A: I am not expecting any cut. Possibly at the upper end you may see 100 basis points (bps) cut but 6-10 percent is current guidance, they may at best go to 6-9 percent. I do not think they should cut the lower end of the guidance.
As far as expectations are concerned, we are expecting around 1.3 percent dollar revenue growth and margins should fall by about 100 bps because of the wage hike impact and higher visa costs. More than the numbers, the street will look at steps that Narayana Murthy would take in order to get the company back on higher revenue growth track.
Given the fact that he has recently joined, it should take at least two-three quarters before we see any material impact as far as the return on revenue growth is concerned. Meanwhile, there are a number of headwinds. Environment remains very challenging.
Last month Accenture had cut guidance for the second successive occasion in FY13, which indicates a stressed discretionary environment. Therefore, it is one headwind that we may not necessarily see an immediate improvement in revenue and secondly the margin impact, there are numerous headwinds on the margin front.
The rupee should provide some respite from these margin pressures. In the midst of all these numerous headwinds that the company is facing, the weak rupee is definitely a positive and should provide some positive improvement on the margin front at least. Q: I did not get what your expectation is on the margin front exactly because last quarter they did a historic low of a little over 23 percent because of the recent salary hike, lower realisations, how much do you think the margins could drop?
A: I am expecting a further 100 bps of drop. Last quarter, earnings before interest, tax (EBIT) margin was at its all time low and this time also you see a further all time low because of the wage hike impact, higher visa costs and Lodestone’s margins are also a little lower.
We will see a pricing cut as well. These three-four factors should pull down the margins although weak rupee should offset the impact not entirely, but at least to some extent. So maybe in the next one-two quarters, we may not necessarily see a huge jump in the margin front but we need to look at this in context of the fact that revenue growth needs to come back. Q: What is the dollar guidance that you are expecting and what is the street pricing in?
A: We are expecting 1.3 percent sequential dollar revenue growth. Rupee will come in higher because of the depreciation. Overall, the street is expecting above 1-1.5 percent range and so, I do not think that should be a problem. Expectations are not very high. So hopefully on that front, they should be able to deliver. If they do not deliver on expectations then that will be a big negative for the stock.