Information technology (IT) bellwether Infosys will kick off the December quarter earnings season today and the pundits expect a muted report card. Generally, Tata Consultancy Services (TCS), the country's largest software exporter, begin the earnings season and is followed by Infosys, but, this time, the former's earnings announcement has been delayed due to certain reasons. The December quarter is generally considered as seasonally weak quarter for IT companies due to holidays and furloughs.
In Q2FY20, Infosys reported a 2.21 per cent decline in its consolidated net profit at Rs 4,019 crore, as opposed to Rs 4,110 crore reported during the corresponding quarter last year. Consolidated revenue from operations was Rs 22,629 crore, nealry 10 per cent higher than Rs 20,609 crore seen during the corresponding period last year. The company had increased lower end of FY20 revenue guidance at 9-10 per cent in constant currency terms. The company maintained its FY20 operating margin guidance range of 21-23 per cent.
Here's what to expect from Infosys Q3 earnings:
Seasonality, weakness in European banking system to affect top and bottom line growth
According to market analysts, Infosys is expected to report revenue growth of 0.9 per cent to 2.1 per cent on a quarter-on-quarter basis (in constant currency terms) for the third quarter ended December 31, 2019. In rupee terms, the IT major is seen posting profit growth of 6-8 per cent on sequential basis and 4-7 per cent on year-on-year basis. Earnings before Interest and Taxes (EBIT) margins could expand be in the range of 40-60 basis points. This could be attributed to IT major's cross-currency gains, while weakness in capital markets and subdued European banking system may offset gains.
Sharekhan expects Infosys to report 4.5 per cent QoQ and 3.5 per cent YoY in its net profit at Rs 4,201 crore and 8.3 per cent (2.4 per cent QoQ) sales growth at Rs 23,166 crore.
Edelweiss Securities expects IT major to post 2.1 per cent QoQ growth in sales in constant currency terms. It expects EBIT margin to expand 50 bps QoQ.
Motilal Oswal expects Infosys to post net profit at Rs. 4,297.9 crore up 6.9 per cent QoQ and 19.1 per cent on YoY basis. Net Sales are expected to rise by 2.9 percent QoQ (up 8.8 per cent YoY) to Rs 23,292.2 crore. Earnings before interest, tax, depreciation and amortisation (EBITDA) are seen increasing by 5.4 per cent QoQ (up 9.8 percent YoY) to Rs 5,941.7 crore.
FY20 revenue guidance
Infosys could revise its lower end of the revenue guidance upward to 9.5-10 per cent from 9-10 per cent, according to Sharekhan. The brokerage expects the IT major to maintain margin growth guidance.
Management's commentary on whistleblower complaints
Investors and analysts will keep an eye on the management's commentary on the progress or outcome of investigations into whistleblower complaints, which was reported by the media in October.
Growth of BFSI business
Investors will keep an eye on Infosys' banking, financial services and insurance (BFSI) business, which accounted for 38 per cent of revenue in second quarter. The company's digital revenue in July-September rose 10 per cent sequentially to $1,230 million from $1,119 million in the quarter ended June. So, investors will closely watch out for growth in digital revenues.
Attrition rates and retention measures
During September quarter, the attrition rate at Infosys stood at 21.7 per cent, slightly higher than 23.4 per cent in the first quarter. However, this figure was much higher than that of its rival TCS which reported an attrition rate of 11.6 per cent in the second quarter. Investors and analysts will keep an eye on the company's ability to retain top talent and contain attrition.
By Chitranjan Kumar