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Last Updated : Jan 09, 2020 11:30 AM IST | Source: Moneycontrol.com

Infosys to announce Q3 earnings on January 10; here are key things to watch out for

Brokerages expect the company's profit in Q3 to grow in the range of 2-7% compared to previous quarter on better operating income and revenue growth.

 
 
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The country's second-largest software services provider Infosys will kick off the earnings season on January 10.

The stock was one of biggest underperformers during the third quarter (October-December), falling more than 9 percent as against Nifty IT, which was up 0.72 percent, and Nifty50 tat gained 6 percent, mainly due to a whistlblower complaint. Otherwise, fundamentals of the company remained positive and most brokerages have a buy call on the stock.

Revenue

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The IT company is expected to report more than 1 percent growth in constant currency revenue during the period on a sequential basis and 1.2-1.5 percent growth in dollar revenue for the quarter as compared to September quarter.

The growth is likely to be driven by ramp-up of large deals and contribution from acquisitions, but furloughs and holidays in the US may have some impact on growth.

Edelweiss expects a revenue growth of 2.1 percent QoQ in constant currency terms. "Cross currency tailwinds from a strong GBP will be almost fully offset by a weak EUR," the brokerage said.

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Profit

Brokerages expect the company's profit in Q3 to grow in the range of 2-7 percent compared to previous quarter on better operating income and revenue growth.

"Net profit is expected to grow 4.5 percent QoQ during the quarter," said Sharekhan. Meanwhile Motilal Oswal sees the same growth at 6.9 percent QoQ.

Profit for the quarter is expected to grow 3.8 percent QoQ, primarily owing to higher other income (including one off in Q3FY19 worth of Rs 451 crore on reduction in the fair value of Panaya and further depreciation charged on it worth Rs 88 crore), Narnolia said.

Operating Performance

Earnings before interest and tax (EBIT) margin is likely to see more than 50 bps expansion sequentially due to weak rupee, lower pace of investments and cost optimisation, most brokerages feel.

"Margins are expected to expand 60bps qoq due to depreciation of INR against USD and GBP," said PhillipCapital which expects EBIT at Rs 5,154.9 crore (up 4.9 percent QoQ) and margin at 22.3 percent for the quarter.

Edelweiss feels EBIT margins may expand by 50 bps owing to weak INR, and cost optimisation. It sees EBIT at Rs 5,180.4 crore (up 5.5 percent QoQ) and margin at 22.2 percent for the quarter.

Full Year Guidance

Most brokerages feel the company is unlikely to change constant currency revenue growth guidance of 9-10 percent for FY20.

The possibility of change in guidance is only likely if Q3 revenue growth beats expectations, said PhillipCapital.

Then some of them expect Infosys to raise its constant currency revenue growth guidance to 9.5-10.5 percent from 9-10 percent currently. "Strong large deal momentum will help to raise the guidance," Prabhudas Lilladher said.

They expect the company to retain its EBIT margin guidance at 21-22 percent for the year.

Key things to watch out for 

Progress on investigation related to whistleblower complaint, commentary on digital growth rates, BFSI and progress on initiatives to manage attrition, total contract value (TCV) pipeline momentum, revenue conversion of past deals, benefits on margin due to localization efforts, etc.

"Strong deal wins and robust pipeline should set Infosys up firmly on a sustained growth trajectory, going forward," Edelweiss said.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Jan 9, 2020 11:30 am
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