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Infosys Q1 preview: Revenue may dip 4%; magnitude of pricing pressure eyed

Analysts at Antique have forecast a CC revenue decline of 4 per cent QoQ in Q1FY21.
After peers Tata Consultancy Services (TCS) and Wipro, Infosys is scheduled to release its financial results for the April – June quarter of the fiscal year 2020-21 (Q1FY21) on Wednesday, July 15. The IT major is expected to report subdued numbers due to disruptions caused by the Covid-19 pandemic. Meanwhile, the fall in the earnings before interest and tax (EBIT) margin could be limited due to the benefit from rupee depreciation, cut in travel costs, and optimisation on variable costs, according to analysts.

Further, analysts expect Q1FY21 to be the peak pain quarter for the IT firms as already lockdowns have been relaxed to a certain extent in India and abroad as well. “While new deal wins will be challenging until economies open up completely, we believe Q2FY21 onwards revenue growth will stabilise and Q3/Q4 will probably be quarters of recovery and that too stronger than historical averages,” said Edelweiss Securities in result preview note.

Here's a look at what brokerages expect from Infosys' Q1 numbers

Edelweiss Securities

The brokerage expects revenue in constant currency (CC) terms to decline by 3.7 per cent on a sequential basis where cross-currency headwinds from a weak Pound Sterling (GBP) / Rest of the World (ROW) currency will have an impact of 30 basis points (bps). In rupee terms, revenue is expected to decline 1.1 per cent quarter-on-quarter (QoQ) to Rs 23,006.5 crore. On yearly basis, the numbers are expected to rise 5.5 per cent. Earnings before interest, taxes, depreciation, and amortisation (EBITDA) is seen at Rs 5,505.5 crore, up 6.9 per cent YoY and down 3 per cent QoQ. Core PAT (profit after tax) or net profit is expected to come in at Rs 3,823.8 crore, up 0.7 per cent YoY and down 11.8 per cent on a sequential basis.

Emkay Global

It has built-in a 4.2 per cent quarter-on-quarter (QoQ) fall in US dollar revenues, with negligible cross-currency impact on a sequential basis. Net sales in rupee terms is expected to come in at Rs 23,251.1 crore, up 6.6 per cent YoY and down 0.1 per cent QoQ. EBITDA is projected to fall 9.6 per cent YoY and 0.6 per cent QoQ to Rs 5,645.1 crore. EBITDA margin is expected to rise 65 bps YoY and fall 13 bps QoQ to 24.3 per cent. Net profit is seen at Rs 4,006.6 crore, up 5.5 per cent YoY and down 7.3 per cent QoQ. The brokerage expects investors' focus on whether Infosys provides full-year guidance. "We believe that Infosys may guide for -4 per cent to -2 per cent YoY CC growth outlook in case it provides one," it says.

UBS

The global brokerage firm expects dollar revenue to reduce by 6.5 per cent QoQ and 4.5 per cent YoY. Constant currency revenue is likely to decline by 6.4 per cent QoQ and 3.7 per cent YoY, while EBIT margin is expected to drop 54bps QoQ to 20.6 per cent.

ICICI Securities

Infosys, as per ICICI Securities’ estimates, is likely to report 5.2 per cent QoQ decline in dollar revenues in CC terms. In rupee terms, revenue is projected at Rs 22,902.3 crore, up 5 per cent YoY and down 1.6 per cent QoQ. EBITDA is seen at Rs 5,553.3 crore, up 7.8 per cent YoY and down 2.2 per cent on QoQ basis. Net profit is pegged at Rs 4,066.4 crore, up 7.1 per cent YoY and down 5.9 per cent QoQ.

“In the absence of annual guidance, we believe there will be investor interest on the external environment, improvement in decision making & discretionary spend, deal pipeline, key impacted verticals, the magnitude of pricing pressure and revival trend,” ICICI Securities said in a preview note.

Antique Stock Broking

Analysts at Antique have forecast a CC revenue decline of 4 per cent QoQ in Q1FY21. It expects US dollar revenue decline of 4.1 per cent QoQ, with a cross-currency headwind of 10bps. "We incorporate marginal contribution of around 40bps coming from Simplus’ acquisition during Q1FY21. The revenue decline will be led by the impact of Covid-19 leading to a deceleration in BFSI tech spending on lower interest rates and retail revenue on record store closures and demand pressure," it said. The brokerage further expects margins to contract by only 20bps to 21 per cent as the impact of lower utilisation and lower revenue growth will be offset by benefits coming from rupee depreciation, variable pay cuts, savings from travel cost, and cut in subcontracting cost.


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