Five things to watch out for in Infosys' Q3 earnings

October-December earnings of Infosys to be detailed around noon on Friday

India's second largest information technology (IT) services company, Infosys, will detail its financial results for October-December 2014 (Q3FY15) around noon today.

The Bengaluru-based company, which was once considered a bellwether of the Indian IT services sector, has posted a growth that is lower-than-industry average for several quarters now. Experts and analysts believe that the Q3FY15 performance will be a key in assessing if a turnaround has been triggered for Infosys, or if the same will be further delayed.

In the quarter ended September 30, 2014, Infosys' net profit had grown 28.6% year-on-year to Rs 3,096 crore, while its revenue rose 2.9% to Rs 13,342 crore. On a quarter-on-quarter basis, the net profit rose 7.3% and the revenue increased 4.5%.

In dollar terms, Infosys' net profit increased 6% sequentially while the revenue grew 3.1%, slightly ahead of estimates.

Being one of the first large companies to announce its quarterly results, Infosys is also widely considered to set the tone for the upcoming earnings season.

Here are the top five things that the Street will watch out for in Infosys' Q3FY14 earnings:

1. Guidance revision:
Faced with seasonal weakness during October-December and cross-currency headwinds, most analysts believe that Infosys may lower its revenue growth guidance for FY15. The company had earlier guided for a 7-9% growth in dollar-revenue for FY15. Q3 is a seasonally weak quarter for all Indian IT services companies due to fewer billing days amid festive holidays in key markets, US and Europe. Additionally, with most large Indian IT services companies getting close to 70% of their revenue from the US and around 20% from Europe, any fluctuation in currency leads to a major impact on their performance. During Q3, the euro, pound and Australian dollar depreciated close to 6%, 5% and 7.8%, respectively, against the US dollar. The currency depreciation will affect US dollar revenue, as Indian IT services companies convert the other currency revenues into dollars.

2. Q3FY15 margins:
After HCL Technologies, India's fourth largest IT services company, issued a pre-earnings alert about the impact of currency movement on its financial performance for Q3FY15, analysts have raised concerns over the performance of all the players in the sector. Even as experts estimate that Infosys will be the least impacted tier-I IT services company, the cross-currency headwinds may hit its operating profit margins by 50-100 basis points.

3. Outlook for 2015:
With clients in the US and Europe deciding their annual IT budgets during December-February, investors are looking forward to hearing Infosys' management's comments on how they see spending by their clients during 2015. Infosys has been trying to return to high growth for several quarters now and with a new chief executive officer on board now, analysts are hoping that the company would be able to bid for projects more aggressively.

4. Sikka's execution strategy:
Q3FY15 is the first full quarter of Infosys under the leadership of its new Chief Executive Officer Vishal Sikka. While Sikka has given glimpses of his “new and renew” vision for the company, analysts will watch out for his remarks about Infosys' turnaround. The Street is likely to watch out for details into the steps Sikka has been taking at Infosys and if they have started showing any results. Most analysts have said they would wait for another six months before passing a judgment on the new leader.

5. Attrition:
On the backdrop of slower growth and a slew of top-level exits, employee attrition at Infosys has remained close to all-time high over the last three quarters. During July-September 2014, employee attrition at Infosys was at a record high of 20.1%, as against 19.5% during April-June 2014. Analysts are divided in their estimates for attrition at Infosys during Q3FY15, with some believing that the same would have risen further during the three months and others saying that it would have started tapering off amid the several initiatives launched by the company.