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Infosys shares fall nearly 6% ahead of its June quarter earnings next week

Infosys share price lost as much as 5.6 percent Thursday ahead of its June quarter earnings next week. This could be on account of profit-booking as the stock rallied 15 percent in the quarter-ended June but underperformed its peer and country’s largest IT services exporter Tata Consultancy Services, which surged more than 27 percent. Infosys will announce its March quarter results on July 13 after TCS  (July 10). Analysts expect sequential growth across parameters in Q1, except margin which is likely to be impacted by wage hikes. But the same will be partly offset by a sharp rupee depreciation versus the dollar.

However, analysts remain cautious on its FY19 revenue guidance.

We have collated Infosys earnings expectations of several brokerage houses, which are:-

Motilal Oswal

Compared to the weak exit for FY18, we expect acceleration in growth, led by seasonal strength, resulting in 2.3 percent QoQ CC growth in Q1FY19. Cross-currency headwinds are expected to result in 1.1 percent QoQ growth in USD terms.

EBITDA margin is expected to contract by 100bp QoQ to 26.3 percent, led by wage hikes and increased investments, partially offset by INR depreciation.

Given the support of recent INR depreciation, we expect full-year EBIT margin at 24.3 percent, slightly above Infosys’ guidance of 22-24 percent.

Infosys should continue to guide for 6-8 percent YoY growth in constant currency. However, its USD revenue growth outlook may be trimmed to 6-8 percent from 7-9 percent after depreciation of AUD, GBP and EUR v/s the USD.

We expect Infosys to raise its margin guidance by 50bp, considering a more benign currency.

Key issues to watch out for are update on internal stability of the company and strategy under the new leadership, outlook for verticals like BFS and Retail; and commentary around margins in lieu of the new investments.

Kotak Securities

We expect constant-currency revenue growth of 2.7 percent and cross-currency headwind of 100 bps. Q1 is a seasonally strong quarter due to higher billing days and allocation of budgets to programs.

We expect EBIT margin decline of 100 bps due to wage revision and higher visa costs. This will be offset to some extent by rupee depreciation.

We expect Infosys to maintain constant currency revenue growth guidance of 6-8 percent and EBIT margin guidance band of 22-24 percent.

We expect investor focus on (1) growth from financial services vertical, (2) TCV of deal wins that has been rather weak, (3) leadership attrition that seems to have reached worrying levels, (4) account mining metrics and (5) pricing outlook and progress on automation.

Edelweiss Securities

We estimate Infosys to post 3.2 percent growth QoQ in constant currency, impacted 90bps by cross currency (cc) headwinds, implying 2.3 percent growth in USD. All eyes will be on growth in digital services, BFSI & retail commentary, deal wins and large deal renewals during the quarter.

Margin is likely to decline 70bps QoQ on account of wage hikes (120bps), higher visa costs (50bps) and higher investment in sales & digital, which will be partially offset by INR depreciation and operational efficiencies.

We expect management to maintain FY19 revenue growth and margin guidance. We maintain our positive stance on Infosys anchored by strong fundamentals and attractive price.

JM Financial

Constant currency growth could be 2.5 percent QoQ and IT services volume growth 1.2 percent QoQ.

Key issues to focus in Q1FY19 results are:

1) Revision to FY19 USD revenue guidance. We expect no change to the constant currency revenue growth guidance (6-8 percent) but reported USD revenue growth guidance could be lowered to 5.5-7.5 percent

2) Update on FY19 EBIT margin outlook. We expect INFO to retain the lowered band (22-24%) though it could indicate a bias to the upper-end given the recent INR depreciation.

3) Scale/growth of digital business (Infosys has promised disclosures of additional metrics) + TCV of large deal wins (that have been stable in $750-800 million per quarter range.

Dolat Capital

We expect the company to maintain its CC revenue growth guidance of 6-8 percent YoY for FY19 which is tad below the NASSCOM guidance for the Indian IT sector is (7-9 percent YoY).

However, given Q1 will be slightly weaker as indicated by the management, we expect their CC revenue growth for FY19 towards the lower end of the guidance range.

US dollar revenue growth is likely to be 1 percent, rupee revenue growth at 5 percent in Q1 QoQ and margin may dip 101 bps to 23.7 percent.

At 15:19 hours IST, the stock price was quoting at Rs 1,284.25, down Rs 60.35, or 4.49 percent on the BSE.

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