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Last Updated : Oct 10, 2019 03:54 PM IST | Source: Moneycontrol.com

Infosys Q2 profit may grow over 4%, CC revenue 3.5%; FY20 topline may be revised upwards

The stock has given 10 percent return in the September quarter and 22 percent year-to-date.

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Infosys, the country's second largest software services provider, is expected to report strong earnings growth, with likely upward revision in full year revenue guidance, when it announces results for the September quarter on October 11.

Brokerages expect the IT major to report sequential growth across its parameters. They expert more than 4 percent rise in Q2 profit and 3.5 percent increase in constant currency (CC) revenue compared to the previous quarter, partly supported by Stater acquisition and strong deal wins.

The dollar revenue may grow by 3 percent and rupee revenue by around 4 percent compared to the April-June period.

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"We expect Infosys to deliver 3.6 percent QoQ constant currency revenue growth for Q2FY20 (2.8 percent organic revenue growth and rest owing to one and half month consolidation of Stater acquisition). Cross currency movement would be a headwind of around 50bps for the quarter. Hence, reported USD revenues could grow by 3.1 percent QoQ," Centrum Broking said.

PhillipCapital also expects constant currency revenue growth of 3.6 percent and negative cross currency impact of 50bps. Stater acquisition will contribute additional 0.6 percent to the revenue, it said.

The stock has given 10 percent return in the September quarter and 22 percent year-to-date.

Apart from quarterly revenue growth, the key thing to watch out for would be its full year topline growth guidance, expected to see around 50 bps increase over the earlier projection, but earnings before interest and tax (EBIT) margin forecast may be retained.

Infosys had guided for 8.5-10 percent constant currency revenue growth for FY20 and EBIT margin guidance of 21-23 percent for FY20.

Prabhudas Lilladher expects Infosys to raise its full year constant currency revenue growth guidance to 9-10 percent, as strong large-deal momentum will help raise the guidance.

According to HDFC Securities, Infosys could increase the guidance to 9-10.5 percent for FY20 and EBIT margin guidance of 21 to 23 percent is expected to be maintained.

"Infosys' investments to drive increase in localisation (Europe/Australia) are expected to continue following accelerated localisation in US," the brokerage said.

On the operating front, EBIT margin is likely to see expansion of 80-100 bps over the previous quarter, driven by lower visa cost and rupee depreciation.

"We expect sequential EBIT margin improvement of 80 bps and YoY decline of 245 bps. Sequential improvement will be led by (1) lower visa cost tailwind of 80 bps and (2) marginal benefit of rupee depreciation. This benefit will be partly offset by the wage revision impact of 40 bps," Kotak Institutional Equities said.

Infosys deferred wage revision for select employee bands in Q1FY20 to defend margins.

Key things to watch out for would be commentary of US and European BFSI vertical, attrition levels, TCV pipeline momentum, revenue conversion of past deals, benefits on margin due to localisation efforts and benefits from the corporate tax cuts.

 

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First Published on Oct 10, 2019 03:54 pm
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