Infosys Q1FY17 results: Key expectations

Vishal Sikka
TCS kicked-off the Q1FY17 earnings season for information technology (IT) companies on Thursday. Net profit at Rs 6,317 crore for the quarter ended June 30, 2016 grew 10.6% year-on-year, while revenues surged 14.1% at Rs 29,304 crore, from Rs 25,668 crore in the same quarter last year.

Infosys is set to report its numbers for Q1FY17 on Friday. Will they be able to beat the Street? Here's what leading research and brokerage houses expect:


Expect constant currency (CC) growth of 3.5% q-o-q. FY17 CC revenue growth guidance could be cut to 11% - 13% (11.5% - 13.5% earlier). Margins will likely fall across companies, driven by wage hikes, visa fees or acquisitions. For Infosys, this is pegged at 140 basis points (bps) q-o-q. Key factors to watch would be any demand impact of Brexit, BFSI commentary given client financials are continuing to show a deterioration, any flow-through impact of global growth moderation on other verticals and changes in the margin outlook.

Also Read: Demand worries for IT companies


We expect c/c revenue growth of 4.2% and cross-currency tailwind of 20 bps. We expect Infosys to maintain 11.5-13.5% constant-currency revenue growth and 24-26% EBIT margin band for FY2017E


We expect Infosys to report Q1FY17 CC revenue growth of 4% q-o-q, while USD growth will be 4.3%/4.1% q-o-q. We expect Infosys to retain FY17 CC revenue growth guidance of 11.5?13.5%; however, USD guidance may be cut by around 60 bps. Expectations for Sales: Rs 17,070 crore; EBITDA: Rs 4,438.3 crore; Margin(%): 26; PAT: Rs 3,399.9 crore. Infosys, NIIT Tech and Hexaware are our top picks in the sector.

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We build in 3.6% q-o-q US$ revenue growth with around 30 bps cross currency tailwinds (around upper end of company's guidance of 1-2.5% q-o-q US$ revenue growth for Mar'16 quarter). We expect EBIT margins to decline by around 150 bps on account of wage increments and higher visa expenses during the quarter. Expect Investors to focus on (1) any potential changes to growth outlook and annual revenue guidance given macro uncertainty, (2) spending trends in key verticals like Financial Services and Retail, (3) outlook on margins, (4) potential impact of new ESOP's to be issued in July. 

Also Read: IT industry braces for uncertain times as Britain decides to exit EU


Delivery on this guidance depends on continued market share gain against its other peers in large deals. With TCS as well as HCL Technologies signalling that they are willing to drop margins a tad, it remains to be seen if Infosys can deliver the same outperformance which it achieved in FY16. Large deal TCV has become a big monitorable in this context. Any reduction in the Full year revenue or margin guidance range because of some factors like Brexit will evoke an adverse stock reaction.

Also Read: Rising costs to hurt India Inc in Q1


Infosys has guided for FY17 revenue growth of 11.5-13.5% y-o-y CC, implying a CQGR (compounded quarterly growth rate) of 2.95-3.7% over the course of FY17. During the quarter however the company cited likelihood of quarterly bumps in key sectors that it hadn’t anticipated earlier, while maintaining its annual guidance. Given these conditions, we expect lower growth at Infosys in 1QFY17, compared to 1QFY16, at 4% Q-o-q in USD terms (3.7% Q-o-q CC). Growth in the previous year was 4.5% Q-o-q. We expect EBITDA margin to decline 150bp Q-o-q to 26.5%. The factors that we expect to play on margins are wage hike, pricing pressure, INR appreciation and visa expenses.

Also Read: India Inc's Q1 revenue growth to hit a 2-yr high


After an in-line January-March quarter, the April to June quarter is expected to be a good quarter on account of strong seasonality. However, the sector’s investment sentiment has weakened in the recent months, owing to the negative impact of ‘Brexit’, fragile demand and cautious pricing commentary from top-tier IT companies. Additionally, election rhetoric in the US ahead of the presidential election will restrict the stock’s outperformance in the near term. Preferred picks: Infosys, TCS and HCL Tech (in large-cap space) and Persistent Systems (in mid-cap space).

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