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Infosys Q2 earnings: IT major likely to revise FY20 guidance upward

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A weaker rupee, visa cost tailwind and wage hike absorption are likely to boost margins of information technology (IT) major Infosys for the quarter ended September, 2019.

Analysts also believe the IT major would revise its guidance upward for FY20 in view of the revenue visibility ahead. Brokerage Edelweiss Securities expects Infosys’ revenue to grow 3.5 per cent QoQ in terms of constant currency, whereas in dollar terms the growth is likely to be dragged by cross-currency headwinds to around 3 per cent QoQ. The IT firm will announce its Q2 numbers on Friday, October 11. “EBIT margin is likely to expand by 90 basis points QoQ, driven by rupee depreciation (30 bps).

The absence of wage hikes and visa costs vis-à-vis Q1FY20 should further aid margin improvement.

This would be, however, partially offset by staggered wage hikes in to Q2FY20,” Edelweiss said. Market participants should focus on the company’s commentary on US and European BFSI verticals, attrition levels, TCV pipeline momentum, revenue conversion of past deals and benefits on margin due to localisation efforts. With an 8 per cent rally, shares of Infosys have outpaced those of other IT majors, including HCL Technologies (up 2.37 per cent), Tech Mahindra (down 0.13 per cent) since the beginning of the second quarter.

Tata Consultancy Services (TCS) shares dipped 8.34 per cent during the same period. Infosys hit its all-time high of Rs 847 on September 6.

On a year-to-date basis, the Infosys stock is up nearly 19 per cent till October 7, while HCL Technologies and TCS have gained 12 per cent and 8 per cent, respectively.

On the other hand, smallcap IT stocks such as Tanla Solutions, D-Link and NIIT Technologies have advanced 20-55 per cent during this period. Commenting on the IT players, Prabhudas Lilladher expects revenue guidance to improve for Infosys and HCL Technology led by a strong past large deal wins, which should help provide better visibility. “Infosys may raise its guidance to 9-10 per cent from 8.5-10 per cent YoY for FY20 in constant currency terms.

We expect 1.3-6.5 per cent QoQ revenue growth in constant currency terms for the tier-1 IT companies.

Q2 is a seasonally strong quarter, but YoY revenue momentum will be muted for most IT companies and deal closure will be muted due to an uncertain global environment,” Prabhudas Lilladher said. An assessment done by the brokerage showed Infosys may post 3.70 per cent rise in adjusted net profit, 103 basis points growth in EBIT margin and 3.90 per cent rise in revenue on a quarter-on-quarter basis.




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