Infosys Q1 results today: Here's what to expect

India’s second largest software services exporter in India, Infosys, will kick start the first quarter earnings season by announcing its April-June results this morning.

The company is expected to post flat revenue growth in the first quarter and maintain its full year revenue guidance of 7-9 percent.

“We expect Infosys to report 2.3% sequential revenue growth,” said Kotak Institutional Equities in a research report. “Infosys will benefit from the seasonal improvement in business as well, but spillover of some of the challenges it faced in 4QFY14 will mean it will trail peers in terms of growth.”

According to CNBC-TV18 poll estimates, profit after tax of the company is seen declining 10.8 percent sequentially to Rs 2,667 crore on revenues of Rs 12,814 crore that may fall 0.4 percent compared to the March quarter (FY14). However, dollar revenue is likely to increase 2.29 percent to $2,140 million in April-June quarter as against$2,092 million in the previous quarter.

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Earnings before interest and tax (EBIT) may fall 10.9 percent at Rs 2,924 crore and margins may decline 270 basis points quarter-on-quarter to 22.8 percent due to rupee appreciation (3 percent) and a wage hike (offshore wages hiked 6-7 percent and onsite 1-2 percent) in the last quarter. After the end of Q4FY14 earnings, the management had indicated that Q1FY15 margin will hit by 250-300 basis points wage hikes.

while Infosys’ operating profit margin may be impacted due to wage hike and currency appreciation, whether the company will maintain its dollar revenue guidance for FY15 or not will be key factor to watch out for.

Generally, Q1 is a seasonally strong quarter for IT companies due to pick up in client spending and revival in North America. Hence, growth (dollar revenue) is likely to pick up too. But Infosys has been facing some challenges which could spill over into April-September period of FY15, and hence the company’s growth may under perform peers. TCS and HCL Technologies are expected to report a growth of 5 percent and 3.8 percent, respectively.

Analysts believe the software services provider is likely to maintain its FY15 dollar revenue guidance at 7-9 percent as against Nasscom guidance of 12-14 percent for the whole industry.

“We expect Infosys’ revenues to become more predictable over the next 12-18 months.,” noted Esprito Santo in a research note.

Meanwhile, Infosys is in the midst of a CEO transition and hence no change is expected in the company’s strategic guidance. In June, Infosys appointed Vishal Sikka as chief executive officer and managing director with effect from August 1, replacing SD Shibulal.

“Appointment of Sikka as CEO bodes well, as it could alleviate ambiguity associated with the hiring process and improve junior level employee morale. Further, board level restructuring could provide breathing space to the incoming CEO for his rebuilding exercise,” said ICICI Direct in a note.

Esprito Santo too echoes this view. “With new CEO being an outsider with strong client connects across most 500 organizations, Infosys is likely to see its revenue growth rates improve,” it said.

The key things to watch out for are margin expansion led by cost optimisation, deal wins that provide revenue visibility, attrition rate, weakness in North America, cash balance of $5 billion and revenue from top 10 clients.

With inputs from moneycontrol.com