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Infosys Q3 preview: Commentary on BFSI and whistleblower probe report eyed

Topics Markets | Infosys  | Infosys results

Information technology (IT) service provider Infosys Ltd is expected to post revenue growth of 0.9 per cent to 2.1 per cent on a sequential basis (in constant currency terms) for the quarter ended December 31. This could mainly be on account of the company’s cross-currency gains and business transfer of Eishtec in Ireland.

The IT bellwether, which will release its quarterly numbers on Friday (January 10), is also expected to raise its revenue outlook for the 2019-20 financial year. Among other key monitorables in the result will be composition of the total contract value (TCV) — net new contracts and renewals.

Apart from these, any audit committee update on investigation into whistleblower complaints against the company will be keenly watched. According to Centrum Broking Wealth, the outcome of the probe report would be a key catalyst for the stock. The company’s shares underperformed the market in the December quarter. They slipped around 11 per cent during the period, even as the benchmark Nifty50 index rose nearly 5 per cent. The Nifty IT index gained 2.66 per cent during the same period, ACE Equity data show.

Analysts at Nirmal Bang Securities have factored in revenue growth of 0.9 per cent on a quarter-on-quarter (QoQ) basis (constant currency) and negligible cross-currency impact resulting in 0.9 per cent revenue growth in US dollar terms. On a year-on-year (YoY) basis, the company’s revenue is likely to rise 8.4 per cent to $3,239 million. Net sales or revenue in rupee terms are likely to be Rs 23,058.3 crore, up 1.9 per cent QoQ and 7.7 per cent YoY. Earnings before interest and tax (Ebit) could rise 8 per cent YoY — and 6.2 per cent QoQ — to Rs 4,830 crore. The brokerage expects Infosys’ Ebit margin to remain unchanged at 22.6 per cent. Net profit or profit after tax (PAT) is forecast to rise 7.1 per cent QoQ — and 19.2 per cent YoY— to Rs 4,304.8 crore.

In the September quarter of the current financial year, the IT bellwether had reported a 2.2 per cent YoY fall in its consolidated net profit to Rs 4,019 crore. This was against a net profit of Rs 4,110 crore in the same period the previous year. Sequentially, the numbers had grown 5.8 per cent. Revenue in the July-September quarter had risen 9.8 per cent to Rs 22,629 crore, against Rs 20,609 crore in the year-ago period. The company had also raised its lower-end of the FY20 revenue guidance to 9-10 per cent in constant currency terms.

Emkay Global Financial Services, which has built in 1.3 per cent QoQ revenue growth (constant currency) with cross-currency gains of nearly 30 bps, expects an upward reset in FY20 revenue guidance. HDFC Securities expects an increase in revenue guidance to 9.5-10.5 per cent, and no change in the EBIT margin guidance of 21 to 23 per cent.

Analysts at Edelweiss Securities say revenue will grow 2.1 per cent QoQ in constant currency terms, as cross-currency tailwinds from a strong GBP (British pound) would be almost fully offset by a weak euro. In rupee terms, they see Infosys net profit growing 2.4 per cent QoQ and 2.8 per cent YoY to Rs 4,174.9 crore. They expect revenue to rise 3.1 per cent QoQ and 9 per cent YoY to Rs 23,330.4 crore.  

A few other things to watch out for in the quarterly result on Friday will be the company’s commentary on digital growth rates, stress segments in the banking, financial services and insurance (BFSI), retail, and consumer packaged goods (CPG) segments, and progress on initiatives to manage attrition. These apart, outlook on client budgets and spends for 2020 calendar year will also be keenly eyed.

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