Infosys to announce Q4FY18 results today: What leading brokerages expect

Infosys building in Mangalore
Infosys is set to announce its fourth-quarter numbers on April 13. On a year-to-date basis, the stock has rallied around 10 per cent and has outperformed the Nifty IT index that gained around 9 per cent during this period. By comparison, the Nifty50 index slipped around 2 per cent YTD.

Analysts expect information technology (IT) firms to report an improvement in earnings before interest and taxes (EBIT) margins in Q4FY18, aided by currency, operational efficiency and automation. Key monitorables for the Street include FY19E revenue guidance/outlook, along with sustainable margin trends. For Infosys, analysts are also keeping a tab on the strategy roadmap by the new chief executive (CEO), Salil Parekh.

“Deal flows and progress on rising deal sizes of new digital deals are also critical data points to watch. Vertically, the key BFSI and Retail verticals will be watched. The increasing role of automation and other margin levers are other critical factors,” said Harit Shah, senior analyst - IT at Reliance Securities.

Here is a quick compilation of what leading brokerages and research houses expect from Infosys on Friday.

NOMURA

Expect constant currency (CC) growth in revenue of 1 per cent quarter-on-quarter (q-o-q). Likely FY19F guidance of 5.5 per cent - 7.5 per cent year-on-year (y-o-y) in CC terms and retention of EBIT margin guidance of 23 per cent - 25 per cent; Outlining of strategy under new CEO 3) Outlook on BFSI where it is positive and trends in retail / manufacturing / telecom segments and the wage hike cycle.

Also Read: First quarter show! Infosys CEO Parekh in action mode after initial watch

EDELWEISS RESEARCH

Revenues expected to grow 1.4 per cent q-o-q in CC terms, aided 100 basis points (bps) by currency movement (USD growth 2.4 per cent q-o-q). EBITDA margin expected to rise 30bps q-o-q due to absence of wage hikes and operational efficiencies negating marginal impacts of ramping of US workforce and rupee appreciation. Guidance for FY19, CEO's strategy and long term roadmap for Infosys and deal wins will be key monitorables.

MOTILAL OSWAL RESEARCH

We expect EBITDA margin to expand by 20 bps q-o-q to 24.5 per cent. Execution on profitability has been above expectations over the last few quarters, primarily driven by higher utilisation. However, we expect the improvement to slow down as this lever has peaked out.

Also Read: Infy Q4 results on April 13; investors keen on growth outlook for FY19

With this, we expect full-year EBIT margin at 24.3 per cent, above the midpoint of the profitability guidance range of 23-25 per cent. Our profit after tax (PAT) estimate is Rs 38.1 billion (up 3 per cent q-o-q), adjusted for the $225 million exceptional reversal of income tax expense provision in the previous quarter.

KOTAK INSTITUTIONAL EQUITIES

We expect Infosys to guide for CC revenue growth of 6-8 per cent and maintain EBIT margin guidance band of 23-25 per cent for FY2019. Expect investor focus on strategy of the new CEO, especially on the following fronts (1) focus on development/promotion of proprietary software versus adoption of third-party products/platforms, (2) M&A strategy and (3) focus and strategy for revival of consulting practice.

EMKAY GLOBAL

Expect operating profit margin (OPM) decline of about 35 bps q-o-q on account of lower volume and pricing normalisation. We expect adjusted net profits to grow by 4.5 per cent q-o-q on account of lower effective tax rate. Expect Investors to focus on (1) Strategy update from the new CEO; (2) Expect revenue guidance of 5-7 per cent y-o-y constant currency growth for FY19; (3) Feedback from client budget plans.

Also Read: IT shares in focus; Tech Mahindra, Mastek hits fresh 52-week high

IDBI CAPITAL

We forecast revenue in CC to grow by 1.1 per cent q-o-q and a cross-currency tailwind of around 90 basis points (bps). We expect EBIT margin to remain flattish given muted revenue growth. Would watch for: 1) strategic road-map by Salil Parekh; 2) Expect CC revenue growth guidance of 6 per cent-8 per cent and EBIT margin guidance to be maintained 23 per cent-25 per cent, 3) Commentary on CY18 client budgets, 4) Strategy to mitigate risks of US tax code, 5) Large deal wins (expect total contract value of $0.6 billion) and pipeline/pricing environment; 6) Growth in digital services. 


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