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Infosys: Set to miss FY13's 5% revenue growth guidance

Source : BUSINESS_STANDARD
Last Updated: Mon, Jan 07, 2013 19:36 hrs
An employees walks past a signage board in the Infosys campus at the Electronics City IT district in Bangalore

The earnings season is expected to start on a muted note, as revenue growth estimates of Infosys for FY13 hit a speed-breaker. The month of December has seen too many "furloughs", analysts claim, with Hurricane Sandy forcing several days of shut-down and clients ramping down projects. The market, as a result, is expecting the IT major to cut its revenue growth guidance of at least five per cent for FY13 because it is unlikely to be able to deliver sequential growth rate of 3.7 per cent in both the third and fourth quarters. In the third quarter, the Street is expecting Infosys to report an organic revenue growth of two per cent quarter-on-quarter in Q3. Credit Suisse believes that the extent of the cut in guidance or the lack of it could be a driver for the stock.

With new deal signings in Q3 being muted, Q4 will have to deliver six-seven per cent growth to meet with the full year revenue growth guidance of five per cent. This is unlikely given the weak macro, says Enam Direct.

Margins are also expected to be muted for the quarter as volumes are likely to be lower than expected and salary hikes will increase costs. The company has given hikes of 6 per cent to offshore employees and two-three per cent to onsite staff, plus intake of freshers will also increase employee costs. Besides, the rupee appreciation will also prevent any margin uptick in last quarter. The rupee appreciated by 1.87 per cent in the third quarter over the second quarter. JP Morgan is expecting Infosys' Ebit (earnings before interest and taxes) margins to decline by 50 basis points as impact from offshore wage hike, modest rupee appreciation and dilution from Lodestone acquisition (marginal) will likely be partially offset by increase in utilisation.

Over the past three quarters, Infosys has shown a consistent decline in constant currency realisations as it has decided to adopt an aggressive pricing strategy. The high margin days of the past are clearly coming to an end. Kotak Institutional Equities also expects Infosys' Ebit margins to decline by 50 basis points as impact. However, most of this is a given and it is factored in the current stock price. The market will watch out for management commentary on the demand environment and client ramp-ups.


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