Will Infosys surprise D-Street with a buyback today?

Here is what leading research houses expect from Infosys' Q4FY17 numbers later in the day today

The fourth quarter results season for financial year 2016-2017 (Q4FY17) kicks off this week, with Infosys set to announce its numbers today. It has been a doubble whammy for Infosys that not only has been grappling with a tough business environment, but also had to deal with salary-related conflict between the management and the company’s co-founders.

Against this backdrop, here’s what leading brokerages and research houses expect from Infosys’ Q4FY17 results:

JEFFERIES

We expect revenue growth of 1.2% quarter-on-quarter (+0.9% in constant currency (CC), +5.5% YoY). Growth outlook for next year will be the focal point of results and we expect Infosys to guide for a 7 – 9% year-on-year (y-o-y) growth for FY18E in CC terms. Margins would decline 40 basis points (bps) q-o-q due rupee depreciation in the quarter and higher variable pay-outs versus the previous quarter. Market has been expecting a significant buyback and capital allocation strategy to be announced and announcement related to these would be important from stock price perspective.

HDFC SECURITIES

Revenue expected at $2,577 million, a growth of 1% q-o-q and 5.3% y-o-y basis. FY17E revenue/EPS growth expected at 7.5/7% and FY17-19E revenue/EPS CAGR estimated at 9.4/7.5%; FY17E revenue guidance of 7.2-7.6% growth in FY17E (8.4-8.8% constant currency terms).

RELIANCE SECURITIES

Key factors to watch out for: FY18 guidance (if any), automation impact, deal wins

MOTILAL OSWAL RESEARCH

Infosys is the only remaining company among the top-tier that is yet to reward its shareholders with a buyback, dispensing some of the idly-lying cash (apart from Wipro, which cannot announce a buyback before June). That could be likely on April 13, 2017.

Watch out for the performance in top clients following a shocker in the third quarter, over which the management alleviated investor concerns by terming it as one-off without any significant concerns on the same.

ANTIQUE STOCK BROKING

While FY17 is at most a forgettable year for Indian IT, FY18 does lend optimism riding the improvement in US economy, particularly US financials, consumer confidence index, retail sales, new home sales, employment etc. If the trajectory sustains, we believe there could be an upside to our and consensus revenue growth estimates of 8 – 10% for the next two years.

Key monitorables: i) commentary for FY18 budgets particularly in the BFSI vertical; ii) outlook for discretionary spending; iii) capital allocation policy, iv) pricing pressure; and v) measures to offset the risks related to changes in visa policy, if any.

EDELWEISS RESEARCH

Though the second half of the financial year is weak for Indian IT companies, we expect modest q-o-q revenue growth in Q4FY17 on improving activity in the BFSI space. We believe, Infosys’ revenue guidance will be 9 – 11% for FY18, higher than Cognizant’s CY17 guidance of 8-10% in CC terms. Also, we expect Infosys’ margin to expand 90bps during the quarter led by higher share of FPP and higher automation.

ICICI SECURITIES

Revenues (US dollar) may increase 1.7% q-o-q to $2,594 million, led by deal ramp-ups. Constant currency revenues are expected to grow 2% q-o-q, while those in rupees may decline marginally by 0.5% to Rs 17,358 crore. EBIT margins may remain unchanged q-o-q to 25.1%, led by operational efficiency offset by currency headwind. We expect Infosys to guide for 7 – 9% CC revenue growth, pricing trends, M&A strategy and deal pipeline.

AMBIT CAPITAL

We expect Infosys to guide for 7 - 9% y-o-y growth for FY18 in CC terms versus 9MFY17 growth of 9.4%. Apart from the outlook, the Street will look out for management commentary on capital asset allocation policies, impact of US protectionist action and cost control measures to offset rupee appreciation.

ELARA SECURITIES

With cash & financial investments of $5.3 billion as on December 31, 2016, Infosys had cash equivalent to 73% of the trailing 12-month cost, excluding depreciation versus 46% for TCS (27% after factoring in the Rs 160 billion buyback announced on February 20, 2017). We believe a buyback of up to $2 billion is possible and will help Infosys reduce the EV/EBITDA discount of over 40% to TCS.