BackInfosys shares rise ahead of earnings announcement
Analysts expect the firm to post sound revenue growth in March quarter on the back of deal wins; margins may drop
Premium(Aniruddha Choudhary/Mint)
Mumbai: Shares of Infosys Ltd surged on Thursday ahead of its quarterly earnings announcement on 12 April on hopes of a robust earnings display by the country’s second largest software exporter in the quarter ended 31 March.
Analysts expect the company to post sound revenue growth in the March quarter on the back of deal wins, following its flexibility in pricing and deal structures even as they acknowledged that margins could have taken a hit.
Infosys’ results announcement typically heralds the earnings season every quarter, and its guidance is keenly watched by analysts. Some analysts, however, believe the company may stop providing guidance from the March quarter. JPMorgan analysts, for instance, expect Infosys to withdraw guidance, “but if the company decides to go through with guidance, 10-12% USD (US dollar) revenue growth for fiscal 2014 (below Nasscom’s FY14 growth estimate) should be fair. We believe discontinuing guidance is not necessarily negative for the stock/company".
“Infosys could miss FY13 revenue growth guidance in reported terms, but should meet guidance in constant-currency terms," said the 2 April JPMorgan report. It added Infosys needs to deliver 2.7% sequential organic revenue growth in the March quarter to meet its fiscal 2013 revenue growth guidance of 5% year-on-year growth.
Kotak Institutional Equities analysts, too, expect “Infosys’s flexibility on deal structures and pricing has led to strong wins over the past 6-9 months", which may lead to strong revenue performance even as margins could take a hit in the near term.
“We do not expect absolute stock price returns for Infosys over the next 12 months. However, stock performance in the near term would be a function of stance that the company may take on guidance," said Kotak analysts in a 1 April report. They expect “Infosys to guide for revenue growth of at least 13% (11% organic)".
Infosys’s guidance, according to Barclays Equities Research analysts, could lead to volatility. “First, given the low visibility in the IT services market, there remains a possibility that Infosys does not give any formal guidance for the full year. Second, even if the company gives guidance, we expect it to remain conservative (10-12% full-year revenue growth in USD terms and flat to negative on EBIT, or earnings before interest and taxes, margins). We also believe that management is unlikely to be bullish in the conference call and will likely be more cautious than other Indian IT companies," the analyst said in a 4 April report.
They expect India’s largest software exporter Tata Consultancy Services Ltd (TCS) and HCL Technologies Ltd to continue to lead sector growth with 2.9% sequential growth for both. “TCS could witness 100 bps (around 100 basis points; one basis point is one-hundredth of a percentage point) negative impact on operating margins due to one-off expenditure of $30 million in a recent settlement with employees. We expect both companies to maintain their constructive stance on operating environment and large deal flows," the analysts said.
Wipro, the Barclays analysts said, could continue to suffer from a reduction in the number of small clients while large clients deliver a decent growth. “Revenue growth could still remain muted for another one-two quarters," they added.
In an 8 April report, Motilal Oswal Securities Ltd analysts forecast “some convergence in Infosys’ revenue growth with peers on the back of much improved deal signings in 2HCY12 v/s 1HCY12 (second half of calendar 2012 compared with first half of the same year), better pipeline y-o-y (year-on-year), a function of Infosys’ increased flexibility in its growth pursuit, and possible growth in the acquired entity, Lodestone".
“We believe managements will indicate a better outlook for FY14," JM Financial Institutional Securities Pvt. Ltd said in a 5 April report. The analysts expect Infosys to guide for full-year 2014 dollar revenue growth of 10% on an organic basis and EPS (earnings per share ) of ₹ 176. Infosys shares rose 3.7% to close at ₹ 2917.85 per share on Thursday on BSE, while the benchmark index, Sensex rose 0.7 % to close at 18,542.2 points.
TCS gained 0.4% to close at ₹ 1,536.30 per share. Wipro Ltd closed almost unchanged at ₹ 402.30, HCL gained 3.1% to close at ₹ 789.80 and BSE IT Index gained 2% to close at 6,794.2 points. The IT sector has been the best performing sector on the bourses, and the BSE IT index has gained 19.5% year to date. In contrast, the benchmark 30-share index has shed 4.6%. So far in 2013, Infosys and TCS have gained 25.6%, and 22.1% respectively, while Wipro gained 2%, IT Index gained 19.5% and Sensex lost 4.6%.
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