Market voice: Shashi Bhusan

'Infosys may maintain a cautious stance'

With information technology (IT) bellwether Infosys set to announce its December 2010 quarter results today, Shashi Bhusan, senior research analyst, Prabhudas Lilladher, tells Sunaina Vasudev that the company may revise its revenue guidance upwards on strong demand. Edited excerpts:

What are your expectations from the quarterly performance of IT companies in your coverage?
We expect volume growth of five-six per cent for Tier-I companies and four-five per cent for the Tier-II ones. Realisations may improve by 0-0.5 per cent for IT stocks under our coverage.

Cross-currency benefits are also expected to give a tailwind of 0.6-1 per cent. Overall, we expect revenue growth of six-seven per cent (in dollar terms) for Tier-I and five-six per cent for Tier-II Indian IT services companies.

What is your outlook on demand for IT services, especially over the longer term? What are you expecting from the guidance given by IT companies?
We are positive on the overall demand environment of Indian IT services and have recently revised our volume estimate for Tier-I companies to 26-30 per cent from the earlier 22-25 per cent. For Tier-II, the estimates have been revised to 22-27 per cent from 16-22 per cent.

The recent interactions with the management have increased our confidence in the sustainability of demand environment. We expect Infosys to revise its dollar revenue guidance upwards to 25-27 per cent year-on-year and earnings per share guidance to Rs 117-119. We expect the company to maintain its cautious stance.

Guidance above 27 per cent will make a strong statement to investors, whereas any downward revision in the dollar revenue will be a dampener, as expectations of a strong result is already reflecting in the price.

How do you expect margins to move during the quarter? What is the outlook on supply-side factors?
We expect margins to be eroded by 20-30 basis points, as the rupee appreciated 3.7 per cent sequentially against the dollar in the December 2010 quarter. Management should give positive commentary on the overall demand environment.

Also, attrition pressure may ease a bit in the current quarter. But, it will remain above 20 per cent (quarterly annualised basis). We expect supply-side pressures to ease in the next two quarters.