0

0

0

0

0

0

0

0

0

earnings | IST

Analysts expect Infosys to post positive earnings, but questions over demand pickup loom

Mini

The stock has outperformed the broader market by 8 percent in the quarter ended March, boosted by optimistic outlook for the banking and financial services this calendar year.

Analysts expect Infosys, the bellwether for India’s IT industry, to post decent quarterly earnings on Friday, with the growth in dollar revenues accelerating to 9- 9.5% year-on-year compared with 8% last quarter.
The stock has outperformed the broader market by 8 percent in the quarter ended March, boosted by optimistic outlook for the banking and financial services this calendar year. Analysts expect the company to report a dollar revenue growth of 2 percent in the March quarter, with EBIT margins being maintained sequentially.
Conservatism in Infosys Guidance
Analysts peg the Infosys FY19 growth in constant currency (exchange rates that eliminate the effects of exchange rate fluctuations when calculating financial performance numbers) at 6 -8%. This effectively means the company’s growth will be comparable to FY18 (constant currency guidance at 5.5 -6.5%) at the low end of the range and acceleration at the top end. This would be marginally lower than the Nasscom forecast of 7-9% for the financial year.
Anything lower could disappoint the markets. By keeping the upper end at least at 8%, bulls will be happy because of the hope of acceleration this financial year compared with the last.
As for the forecast of sales growth, it is also quite likely the chairman Nandan Nilekani and CEO Salil Parekh will be a tad conservative to avoid negative surprises in the latter’s first year at the helm. Remember that in the past six years, Infosys has managed to match its guidance only once, with downward revisions pretty frequent. The annual margin guidance is expected to be maintained at 23-25%.
At the company’s meeting of investors on April 23, the street will watch with anticipation the strategic direction and capital allocation that Parekh, who was previously a senior executive at French outsourcing company Capgemini, has laid out for the company.
Some Worries Remain
That said, there are several questions about the overall demand environment that clarity from Infosys is awaited. Here are some:
  • Is FY19 going to be a year of accelerated growth?
  • Has client spending really picked up?
  • The outlook by Infosys and competitor TCS on the banking financial services (BFS) sector has been divergent so far, with the former sounding positive and the latter cautious. Ergo, the street awaits a broad-based pickup given that BFSI contributes 35-40% to the overall revenues for the sector.
  • Deal flow commentary 
    • Whether US tax reform will provide a spending kickerand any adverse impact of BEAT (base erosion and anti-abuse tax)?
    • Can margins improve from here on given that most companies are operating at peak utilisation?
    • Is there a case for wage inflation given headcount addition is limited and companies are operating at peak utilisation and the need to retain the skilled staff?