Infosys Q2 preview: Large deal wins to drive revenue growth, say analysts

Like its peer Tata Consultancy Services (TCS), Infosys, too, is expected to report a strong set of numbers for the quarter ended September 30 of the current fiscal year (Q2FY21), mainly led by the ramp-up of large deal wins. According to Edelweiss Securities, Infosys, being a market leader, will be the key beneficiary of core transformation, higher cloud adoption, and digital adoption. Moreover, the persistent market share loss of key players like Capgemini and Cognizant will also directly benefit Infosys, the brokerage says. The company is expected to unveil its results on Wednesday, October 14.

Shares of Infosys hit a fresh record high of Rs 1,147.65 on the BSE on Tuesday. During the July-September period, the stock rallied 37 per cent as against 34.2 per cent rise in the S&P BSE Information Technology index. The benchmark S&P BSE Sensex, on the other hand, gained 9 per cent during the quarter, ACE Equity data show.

Here's a look at what top brokerages expect from Infosys' Q2 numbers.

Jefferies

The brokerage expects Infosys' revenue to grow 2.9 per cent quarter-on-quarter (QoQ) in constant currency terms, 160 basis points (bps) cross-currency tailwind, and stable margins QoQ. Revenue growth will be driven by ramp-up of large deals, which could also lead to an increase in revenue growth guidance. Deal total contract value (TCV) will be strong driven by the Vanguard deal. The focus will be on growth guidance, margin stability, potential change in onsite-offsite mix and its impact, and consolidation opportunities.

Edelweiss Securities

Edelweiss Securities expects revenue to grow 3.9 per cent QoQ in constant currency terms and 5.4 per cent QoQ in US dollar terms at $3,289 million. On a year-on-year (YoY) basis, it will rise by 2.5 per cent. In rupee terms, revenue is seen at Rs 24,172.4 crore, up 2.1 per cent QoQ and 6.8 per cent YoY. Earnings before interest, taxes, depreciation, and amortisation (EBITDA) is projected to rise 2.2 per cent QoQ and 10.9 per cent YoY at Rs 6,253.1 crore. EBIT margin is likely to show a modest expansion of 20 bps QoQ to 22.9 per cent enabled by strong volume growth, better cost control, and efficient execution. Net profit or profit after tax (PAT) is estimated to come in at Rs 4,453.1 crore, up 4.2 per cent QoQ and 10.3 per cent YoY. "We will be keenly watching the deal momentum, tenure and pricing," the brokerage said in an earnings preview note.

ICICI Securities

It expects Infosys to report 3.3 per cent QoQ increase in revenues in constant currency terms mainly led by the ramp-up of Vanguard deal (that it believed would contribute nearly 1 per cent of revenues ) and other large deal wins. The company is witnessing a healthy deal pipeline led by traction in the cloud, customer experience, and in large deals, which involve cost takeout. With a cross-currency tailwind, we expect Infosys' dollar revenues to increase by 4.7 per cent QoQ at $3,267.7 million. In rupee terms, Infosys is expected to post revenue of Rs 24,311.6 crore, 7.4 per cent YoY and 2.7 per cent QoQ. EBITDA is estimated to rise 16 per cent YoY and 6.9 per cent QoQ to Rs 6,542.2 crore while EBIT margin is expected to rise 113 bps QoQ to 23.8 per cent, led by lower travel cost, cross currency tailwind, and higher utilisation. Net profit is expected to increase 14.7 per cent YoY and 8.9 per cent QoQ at Rs 4,608.9 crore.

The upward revision in revenue and margin guidance, commentary on the external environment, wage hikes, deal decision making, vertical wise commentary, and pricing environment will be the key monitorable.

Centrum Broking

The brokerage expects Infosys to deliver 2.4 per cent QoQ revenue growth in constant currency terms. The company is expected to see a cross-currency movement tailwind of 130bps. Hence, reported US dollar revenues to grow by 3.7 per cent QoQ to $3,236 million. "Infosys has already shown strong margin performance in 1QFY21. We model 2QFY21 EBIT margin at 22.9 per cent up 20bps QoQ," the brokerage said.

In rupee terms, net sales (revenue) is seen at Rs 24,014.7 crore, up 1.5 per cent QoQ and 6.1 per cent YoY while PAT is seen at Rs 4,434.2 crore, up 5.2 per cent QoQ and 10.3 per cent YoY.