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Infosys campus at the Electronics City IT district in Bangalore (REUTERS)
Infosys campus at the Electronics City IT district in Bangalore (REUTERS)

Infosys Q2 earnings today: Five things to watch out for

  • Given the gradual uptick in business and demand environment, analysts and investors will check if Infosys will raise its earlier guidance for 2020-21 from 0-2% in constant currency

BENGALURU: Infosys Ltd, India’s second largest IT services exporter by revenue, will announce its second quarter earnings on Wednesday. Peers Tata Consultancy Services (TCS) Ltd and Wipro Ltd have performed reasonably well compared to the last two pandemic-hit quarters.

Given the gradual uptick in business and demand environment, analysts and investors will check if Infosys will raise its 2020-21 guidance from 0-2% in constant currency. Management commentary on recovery trajectory, salary hikes, and deal pipeline will also be closely monitored.

For the quarter ended June, Infosys’s net profit rose 11.5% y-o-y but declined 2.4% sequentially to 4,233 crore. The closely-watched dollar revenue declined 0.3% y-o-y and 2.4% sequentially to $3.12 billion as challenges continued due to the covid-19 pandemic.

Mint highlights five things to watch for in Infosys’ second quarter results that will be declared after market hours today.

Guidance revision, revenue growth

Analysts will keenly observe if Infosys will revise its guidance upwards from the earlier 0-2% growth in constant currency. “We believe this is the beginning of guidance upgrades by companies and will be followed by consensus upgrades for several quarters to come," Edelweiss Securities said in a note. Most brokerage firms expect Infosys to report 3.3-3.9% q-o-q increase in revenues in constant currency terms mainly led by ramp up of Vanguard deal and other large deal wins. “We believe Vanguard deal would contribute about 1% of revenues….The company is witnessing a healthy deal pipeline led by traction in cloud, customer experience and in large deals, which involve cost takeout. With cross currency tailwind, we expect Infosys’ dollar revenues to increase 4.7% q-o-q," ICICI Securities said.

Demand from key verticals

According to Nomura Research, banking, financial services & insurance (BFSI) and telecom have led the push on outsourcing, followed by retail, healthcare, manufacturing, and energy. “Investors will watch segment commentaries, particularly retail, travel and product engineering services. We would also like to hear from the company on the Hi-Tech side deal momentum," Edelweiss Securities said.

Digital strategy

This year, Infosys is seen betting big on inorganic growth to grow its digital business. It has already made four acquisitions this year – cloud firm Simplus, product design firm Kaleidoscope Innovation, enterprise service management consultancy GuideVision, and most recently digital customer experience and analytics firm Blue Acorn iCi. So, investors will be keen to hear the company’s strategy on the digital business that has been growing during the pandemic. Infosys’s digital revenue grew 25.5% y-o-y in constant currency terms and contributed 44.5% to its total revenue for the first quarter ended June.

Recovery trajectory

Indian IT is expected to recover between Q2-Q3 of FY21 onwards according to most analysts. “Q2FY21 will mark the beginning of robust q-o-q revenue growth of 3-6% (in US dollar terms) for large caps aided by 135-185 basis points cross currency tailwinds…We expect robust commentaries, record deal wins and guidance upgrades by all companies. Revenue growth will be led by strong spurt across all industries, verticals and geographies," Edelweiss Securities said. Investors will parse Infosys’ management commentary on the timelines of recovery in demand especially in its key sectors and markets.

Attrition and wage hikes

Infosys has so far not announced any wage hikes for its employees unlike peers TCS and Wipro. So, analysts and investors will be keen to hear on hiring, hikes, and promotions that have been on hold because of the pandemic. Attrition rates remain a key factor to monitor during the challenging business environment. Infosys’s voluntary attrition rate declined to 11.7% in the first quarter ended June from 15.3% in the previous quarter.

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