Infosys expected to post muted earnings

Street mellow post Shibulal's earlier comments

Faced with weakness in client spending, ramp-down of projects and exits of key senior executives, city-based Infosys is expected to post muted earnings for the quarter ended March. It is felt the company will barely meet the lower end of its annual revenue growth forecast for FY14. Amid the weak business momentum, Infosys is also likely to forecast tepid revenue growth for FY15, say analysts and experts.

The information technology company will announce its March quarter and 2013-14 earnings on Tuesday. For 2013-14, it had estimated 11.5-12.0 per cent growth.

Most analysts feel Infosys’s FY15 revenue growth estimate might not exceed 11 per cent. “Given the recent management commentary, we expect Infosys’s guidance to be cautious at seven-nine per cent (in dollar terms) revenue growth for FY15, as the management factors in a slow start to the year and doesn’t risk a back-end loaded guidance,” said Rumit Dugar and Pranav Kshatriya, analysts at brokerage firm Religare Institutional Research.

WATCH LIST

• Guidance for FY15
• De-merger of PPS arm
• Remarks on CEO succession
• Outlook on client spending
• Attrition rate
• Utilisation of cash in hand

For FY15, Nasscom has pegged overall growth in the sector at 13-15 per cent.

At an investor meet in mid-March, company’s Chief Executive S D Shibulal said Infosys had seen weakness in client spending and ramp-downs and cancellations in projects across verticals. He had added the company might only meet the lower end of its revenue growth forecast for FY14. “At the broad level, some of our clients have seen slowdown in businesses; these are happening across various verticals, leading to unanticipated project ramp-downs and cancellations in the fourth quarter,” he had said.

“We have also seen some challenges in skill mismatches between the skills clients need and those we have, which have led to a slowdown in ramp-ups. These factors are leading to a decline in business momentum for us during the quarter,” he added.

The Street will keep a close eye on Infosys’s operating margins, as the company has taken several initiatives, including cost-cutting, to ensure higher margins after the return of co-founder N R Narayana Murthy as executive chairman in June last year.

Attrition, which stood at 18.1 per cent in the December quarter against peers TCS’s and Cognizant’s nine-10 per cent, will also be watched for. In the December quarter, the company’s overall headcount had declined by 1,823 to 158,404.

Analysts said they would watch for an announcement on the de-merger of Infosys’s products and platforms business, speculated for long. Sources said the company had been working to form a separate subsidiary (likely to be called Edge Works), which will include all the company’s IT products, except Finacle, its flagship core banking platform.

Some analysts said they would track the comments of the company’s management on likely acquisitions, as the company has been sitting on a huge cash pile for several quarters. As on December 31, 2013, Infosys held cash and cash equivalents of Rs 27,440 crore.

“Many of Infosys’s peers have been active on the acquisitions front. So, we expect the company to take similar action,” said a Mumbai-based analyst with a domestic brokerage. “An acquisition at this point could help Infosys match the industry growth to some extent.”

While a few analysts said the company might make an announcement on bonus share issue, others said they didn’t expect any such development.