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Infosys,which undertook a cost-optimisation drive including streamlining its onsite workforce in the last few months,is expected to see a positive impact on its operating margin by 40-50 basis points (bps) during the October-December stretch.
The third-quarter earnings season of the $108-billion Indian IT-ITeS industry will kick off on January 10 with Infosys declaring its results. The overall expectations are muted as the December quarter is a seasonally weak period due to the holiday season,though brokerage houses believe that the IT-services exporter is on track to meet its full-year dollar revenue guidance.
It will be easy for them to achieve the dollar revenue guidance of 10% growth even if the revenue remains flat for Q3 and Q4. So beating the guidance and achieving 11-11.5% is easily achievable. If the outlook goes beyond 11.5%,it will be a positive surprise, said Ankita Somani,IT analyst with Angel Broking.
For FY14,Infosys expects its dollar-revenue growth in the range of 9-10%. The IT firm upgraded its full-year guidance during the September-quarter results from its earlier estimate of 6-10% this fiscal.
According to Sanjeev Hota,assistant vice-president,IT research,Sharekhan,the IT firms revenue growth during the October-December period is projected to be muted. The third quarter is relatively a soft period. We expect the revenue growth rate to be lower than Q2 but Infosys is expected to post cross-currency gain of 60-70 bps in Q3. The company has posted a cross-currency loss of 40 bps in Q2.
During the second-quarter ended September,Infosys posted a dollar-revenue growth of 3.8%. According to Somani,the Bangalore-based IT firm is expected to grow its dollar revenue at 2-2.5%. The growth will still be led by TCS and HCL Technologies while Infosys and Wipro are only expected to follow them for the current quarter as well, she added.
Analysts feel that the current utilisation rates at 77.8% of Infosys is way below the optimum levels when compared with its peers and some are of the opinion that the current initiatives undertaken by its chairman NR Narayana Murthy like trimming of onsite resources,cost cutting,efficiency improvement may take longer to yield results.
In a recent interaction with Japanese investment bank Nomura,the IT company indicated that the challenges to growth were more internal rather than external,as it would take time for the company to absorb the recent organisational changes.
Internally,the company has seen management transformation in the last several quarters,including reshuffle of top executives and a string of high-profile exits.
It also pointed out that despite an uptick in demand in its largest market US,Indias second-largest IT services firm sees revenue growth in the last two quarters of the current fiscal likely to be choppy.
According to the Nomura report,the management pointed out that the company needs more sustained order booking before turning positive on growth,as the total contract wins of $2 billion over the past four quarters is not sufficient.
Though the external economic environment remains challenging with foggy visibility into client spends,Infosys performance over the last two years never really matched with the peers or industry. The Bangalore-headquartered IT company has not been able to shake off its prolonged spell of sluggish growth even while its larger rival
Tata Consultancy Services (TCS) continued to grow thereby widened its revenue gap. TCS has also overtaken Infosys in margin terms over the last one year.
However,a recent report by brokerage house Prabhudas Lilladher pointed out that Infosys is expected to see an uptick in earnings momentum in calendar year 2014 due to improvement in its order book and sales cycle.
