The News International Team
Infosys , the second largest software services exporter in India, is expected to report a 1.9 percent growth in profit at Rs 3,157 crore (excluding forex loss/profit) for the quarter ended December 2014, according to average of estimates of analysts polled by CNBC-TV18. Profit in the previous quarter was Rs 3,096 crore. The IT exporter will announce its third quarter earnings on Friday.
Revenue may jump by 3.3 percent sequentially to Rs 13,783 crore and dollar revenue may increase by 1 percent quarter-on-quarter to USD 2,222 million during October-December quarter.
Analysts believe the quarterly performance of the company may be impacted by seasonal weakness and cross currency headwinds.
The street will closely watch Infosys earnings as TCS had already pointed out weak outlook. However, Accenture reported good earnings driven by better-than-expected demand led by infra management and digital/SMAC in the November quarter.
As weak Q3 outlook of TCS has already tempered expectations of any positive surprise by IT companies, dollar revenue growth at 1 percent by Infosys may be lower than constant currency growth of 2.5 percent.
Earnings before interest and tax (EBIT) may grow 2.7 percent quarter-on-quarter to Rs 3,576 crore but margin may be flat at 25.95 percent in the quarter ended December 2014 compared to 26.1 percent in previous quarter.
Analysts say slight positive impact of rupee depreciation (of 2.2 percent) on margins may be offset by lower utilisation (Q2 utilisation was 82.3 percent, highest since June 2003) during the quarter.
Also Infosys, during the quarter, signed a number of large deals for undifferentiated ‘bread and butter’ services, where pricing pressures are higher. Hence, the company may see realisation pressure due to execution on these projects.
According to the poll, FY15 guidance could be cut to 6-8 percent or 6.5-7.5 percent in Q3FY15 from 7-9 percent due to cross currency impact. However, constant currency growth guidance may be maintained at 7-9 percent.
Analysts feel the likely muted performance in Q3 may have already priced in. The street will watch for cues for CY15. They believe Infosys is likely to lay out its near-to-mid term strategy and targets in its conference call post Q3 results as the company in the December analysts’ meet said it will provide quantitative objectives with third quarter results.
Vishal Sikka, CEO and MD, in December analysts’ meet already laid out long term targets, saying Infosys should be able to grow 15-18 percent for the long term and can have margins of 25-28 percent over the long term.
Analysts say its long term strategy is great, but the company needs to show gaining market share in core IT to address near term challenges. However, Sikka’s failure to address attrition may be seen negatively by the street.
Even commentary on timely closure/spend of IT budgets and deal pipelines will be important to watch out for.
Analysts expect Sikka to reiterate his focus on New and ReNew. As he highlighted in his December analysts’ call, company focus is on achieving software led transformation of the company over the long term. That is Renew the core and innovate it into new business.