Vishal Sikka-led Infosys may lower FY15 revenue guidance

Infosys, the country’s second-largest IT services exporter, is likely to lower its revenue guidance for FY15 — largely due to the impact of cross-currency movements while managing to hold on to the operating profit margins in the October-December period, which is seasonally a weak quarter for the software exporters, according to brokerage houses.

Infosys, at the end of the second quarter of FY15, had reiterated its revenue guidance at 7-9% in US dollar terms for the fiscal. Kotak Institutional Equities in its report said, “We expect Infosys to narrow guidance to 7% in USD terms for FY2015.” Even brokerage house Nomura said, “We believe Infosys could cut lower end (which is at 7% year on year) of the FY15 US dollar revenue growth guidance, due to currency headwinds in third quarter and likely further impact of cross currency moves in fourth quarter.”

The biggest red herring for the industry has been the cross-currency movement and this has negated any positive gains from the depreciating rupee against the US dollar.

Kotak Institutional Equities said that the third quarter will see cross-currency headwinds of 160-220 basis points besides the usual seasonal weakness resulting in a muted 0-1.2% US dollar revenue growth for the industry

Infosys, under its new CEO Vishal Sikka, has chartered a different path with concepts like design thinking and employee engagement being put into action at the IT major.

Brokerage house Credit Suisse believes it would report a 1% sequential revenue growth for Q3 taking into account 180 basis points currency headwinds. On a constant currency basis, it expects the IT major to post a growth of 2.8% sequentially.

However, the key things to watch out for Infosys during the third quarter results would be the management commentary on the deal pipeline and measures taken to bring down employee attrition. At the end of the second quarter, Infosys had reported an attrition of 20.1%, raising concerns on its ability to retain employees.

Credit Suisse said the key factors to watch out for would be an update on the new CEO’s strategies, progress on the management’s initiatives to address employee attrition and account mining challenges. It added that any quantification of the new strategies is most probably only in the month of April.

The operating margins of Infosys for the third quarter is expected to be either flat or marginally decline by 50 basis points. The margin was 26% at the end of the second quarter. According to the brokerage houses, the IT major has little room for improvement in margins as the utilisation rate is already at a high level and it is now focused on growth.

The revenue growth for the tier-I Indian IT services companies is expected to be muted at 1.5% sequentially for the third quarter of the fiscal though the expectation is that situation may improve during 2015, especially from its largest market, the US.