Infosys Q2 preview: IT major may further increase FY20 revenue guidance

Infosys may further upgrade its revenue guidance for the financial year 2019-20 (FY20) when it releases its September quarter (July-September) results on Friday. The Bengaluru-headquartered IT company, as per analysts, remains on a firm footing given the recent deal momentum, strong positioning in clients and favourable arithmetic (revised guidance implies a 1-2 per cent compounded quarterly growth rate through Q2-Q4FY20) – hence creating the room for more upgrades. 

Infosys, in its June quarter results announcement, had revised its FY20 revenue guidance to 8.5-10 per cent year-on-year (YoY) in constant currency (CC) terms. Analysts at Emkay Global have built in 11 per cent year-on-year (YoY) CC revenue growth for FY20, while those at Sharekhan see growth guidance at 9.5-10.5 per cent.

For the quarter under review, Infosys is expected to post a 3.5 per cent QoQ revenue growth in CC terms, while growth in US dollar terms will be dragged down by cross currency headwinds (USD growth 3 per cent QoQ), according to Edelweiss Securities. The brokerage expects revenue to come in at Rs 22,676.6 crore, up 10 per cent YoY and 4 per cent QoQ. Ebidta (Earnings before interest, depreciation, tax and amortisation) is seen at Rs 5,581.5 crore, up 8.3 per cent QoQ and 4.2 per cent YoY. PAT (profit after margin) or net profit is seen at Rs 3,954.6 crore, up 4 per cent QoQ but down 3.8 per cent YoY.

Nirmal Bang Securities has factored in 3.9 per cent QoQ CC growth and nearly 55 basis points (bps) cross-currency headwind, resulting in revenue growth of 3.3 per cent in US dollar terms. In rupee terms, the Bengaluru-headquartered IT services company is expected to report net sales of Rs 22,726.3 crore, up 10.3 per cent YoY and 4.2 per cent QoQ. 

EBIT, according to Nirmal Bang, should come in at Rs 4,824 crore, up 7.9 per cent QoQ and down 1.4 per cent YoY. Earnings before interest and taxes (EBIT) margin is expected to fall to 21.2 per cent against 23.7 per cent in the year-ago period. Reported PAT is seen at Rs 3,961.2 crore, up 3.2 per cent YoY and 4.3 per cent QoQ.

During the three-month period (July-September), Infosys has outperformed the market by surging 10 per cent as compared to 2.67 per cent decline in the Nifty50 index. The Nifty IT index, too, has declined 2.49 per cent during the period, ACE Equity data show.

"We expect 3.6 per cent QoQ revenue growth on CC basis and cross-currency tailwind of 60 basis points (bps) on dollar revenue growth. Growth is expected to be driven by ramp-up of large deals, broad-based growth across verticals, and full-quarter revenue contribution from Stater’s acquisition (nearly 70 bps)," said analysts at  Sharekhan.

The brokerage firm expects Ebidta margin to improve by 60 bps QoQ, led by lower investments on sales and marketing, absence of visa expenses and rupee tailwind. The benefit will be partially offset by wage revision of middle-management and higher subcontracting expenses, it added.

Commentary on large deal wins and TCVs (total contract values), contribution of digital business, demand environment outlook across verticals and geographies, benefit from reduction in corporate tax rate, and progress on arresting the attrition rate are some of the key things to watch out for.