Key factors to watch out for are dollar revenue guidance, wage hikes, attrition, margin decline due to currency headwinds, and cash utilisation
Infosys, which has begun the hunt for a new chief executive officer (CEO), will miss all fireworks on Tuesday, when the fourth-quarter earnings of the IT major get announced.
Analysts tracking the IT sector see India's second-largest software firm reporting flat revenues and a decline in net profit growth in the January-March quarter. Analysts on average expect Infy to cut its guidance to 9.5-10% for 2013-14, looking at flattish dollar revenue growth of 0.5%- .4% in the fourth quarter.
As per average estimates of 35 analysts, the company is expected to report revenues of Rs 12,978 crore, quarter on quarter (QoQ), a decline of 0.4%, operating profit of Rs 3,610 crore, a QoQ decline of 0.3% and net profit of Rs 2,808 crore, a QoQ decline of 2.3% in Q4.
Infy had already predicted dismal results, saying it would meet only the lower end of its 11.5-12% fiscal 2014 guidance, due to late deal closures in key verticals, delays in decision making, slowdown in the domestic market on account of elections and forex headwinds – that include rupee appreciation and dollar/euro volatility.
Sashi Bhushan and Hussain Kagzi of Prabhudas Lilladher Securities said, "We are expecting Infy to guide for 6-9% for fiscal 2015. We expect total contract value (TCV) of deals signed in the quarter to exceed $500 million as deal closure improved in 2014. Moreover, our interaction indicates improvement in deal pipeline for Infosys. We expect a commentary soon on the recent churn in the senior management, and how this has impacted attrition. On the wage hike front, we are expecting Infy to announce wage hikes of 6-10% for offshore and 2-3% for onsite. Further, we are expecting margin expansion of 20 bps on account of cost efficiency."
Harit Shah of Nirmal Bang Securities is expecting Infy to guide for 7-9% for fiscal 2015, with offshore wage hikes in the range of 8-10%, and onsite wage hikes in the range of 3-4%. Shah estimates a 100 bps decline in margins on account of flattish revenue growth, while attrition will be key to look out for with the number of recent exits growing.
"Apart from this, we are also expecting some colour on cash utilisation in terms of a special dividend, as well as commentary related to whether the predicted slow growth till H1 of fiscal 2015 has bottomed out and whether the shortage of skill sets that the management spoke about last month has been filled."
The dismal outlook for Infy comes after the company reported two quarters of better-than-expected results, clearly showing that the spate of nine senior management exits in the past 8-9 months has impacted deal wins and client decision making.
On Friday, Infy announced that it was on the lookout for a new CEO to replace outgoing CEO SD Shibulal before his official retirement on January 9, 2015.
In terms of guidance, too, Infy has consistently made changes to its guidance in the last year, and for the second time this year, Infy is expected to further cut its guidance due to inability to match growth expectations. Wage hikes, too, are expected to be lower than industry due to growth pressures, even as attrition continues to soar.
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