What to expect from Infosys Q4FY15 results on Friday

Results of most technology companies – TCS, HCL Technologies and Wipro – for the fourth quarter ended March 2015 (Q4FY15) have failed to excite the Street.

Despite the muted show in the recently concluded quarter, Wipro’s lower guidance Q1FY16 has also made investors nervous about the road ahead for the information technology (IT) sector. For Q1FY16, Wipro expects revenues from IT Services business to be in the range of $1,765 million to $1,793 million, a decline of 0.53% to growth of about 1% over the previous quarter.

Reacting to the results over the past few days, the CNX IT index hit a low of 11,406, its lowest level since January 2015, in intra-day trade on Wednesday. In the last six trading sessions till Wednesday, the index has lost 7.4% against 5% fall in the benchmark index, CNX Nifty.

Infosys was trading flat at Rs 2,130 on the National Stock Exchange (NSE) at 920am on Friday ahead of its results. CNX IT index, too, gained a marginal 0.3% to 11,490 levels compared to around 0.4% fall in the CNX Nifty to 8,369 levels.

Here is a compilation of what leading brokerages and research houses expect from Q4FY15 results of Infosys on Friday:

Nomura

For Q4FY15, we expect USD revenue growth of 0.2% quarter-on-quarter (q-o-q); (constant currency growth of 2.4% q-o-q) and 100 bps q-o-q EBIT (earnings before interest and taxes) margin decline to 25.7% due to cross currency and non-recurrence of provision write-backs. We expect Infosys to guide for 7-10% USD revenue growth in FY16F. Indications of a lower cash payout or a deviation from its medium-term EBIT margin guidance (of 25% +/-1%) due to potential investments could also be taken negatively by the Street.

IDFC Securities

IT services volume growth for Infosys should be around 2.5% with around 250 bps cross currency headwind. Muted growth, investments and cross currency would drive around 110bp sequential margin decline. FY16E growth guidance is likely to range between 8-10% in constant currency terms.

Ambit Capital

The new CEO, Vishal Sikka, has promised to share the details on the much-awaited capital allocation strategy during the March quarter results. We currently expect an increase in the regular dividend pay-out ratio to 50% in FY15E from 40% in FY14A, and an additional special dividend amounting to 1% of stock price. This results in a total dividend of Rs60/share in the March 2015 quarter. We also expect the management to guide to revenue growth of 9-11% year-on-year (y-o-y) in organic constant-currency terms for FY16E. Our current estimates are 11% vs 12-14% for the industry (NASSCOM) and we believe that the management will guide conservatively.

Prabhudas Lilladher

We expect Infosys to report revenue growth of 0.1% q-o-q in USD terms, with volume growth of 2.7% q-o-q and 2.0% lower realization q-o-q for Q4FY15, due to cross-currency headwinds, margins to contract by 31bps due to promotions and bonus given during the quarter. We expect FY16 constant currency revenue guidance to be in the range of 7?9% y-o-y.

Nirmal Bang

Market’s expectation of a growth turnaround is fairly high and probably running ahead of reality, in our view. Q4 has typically been one of the weakest quarters for Infosys in the past. In constant currency terms, we expect revenue to grow by 1%. For FY16, we expect 7%-9% revenue growth. Any growth numbers outside of this range should lead to bearishness or bullishness. We expect the management to announce a clear-cut policy regarding how to deal with the $5.5 billion cash on its books. We expect larger dividends, starting with the March 2015 quarter and larger acquisitions. Would not be surprised if some acquisitions are announced on the day of the result.