5 Key Things to watch out Why Infosys to announce Q3 Earnings on Friday

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The key things to watch out for would be its full-year guidance and management commentary. Overall it is expected to be soft quarter due to seasonality.


Infosys, the country’s second-largest software services provider, will announce its third-quarter earnings on Friday. The key things to watch out for would be its full-year guidance and management commentary. Overall it is expected to be soft quarter due to seasonality.

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The stock rallied 15.6 percent in the quarter ended December 2017, trading at 14.3 times its FY19 EPS.

As it is seasonally a weak quarter for IT companies due to holidays and furloughs in western markets, here are five key factors that investors will focus on:-

Profit

Infosys is expected to report a profit for the quarter at Rs 3,609 crore, down 3.14 percent compared to Rs 3,726 crore in previous quarter, according to an average of estimates of analysts.

Weak earnings before interest & tax (EBIT) and low other income may pull profit lower during the quarter.

Revenue

Analysts expect company’s revenue to grow 1.5 percent sequentially to Rs 17,823 crore from Rs 17,567 crore.

Dollar revenue may grow 1 percent to USD 2,754 million from USD 2,728 million QoQ and constant currency growth is expected to be at 1 percent.

Retail was soft in Q2 and that is expected to be weak in Q3 also.

Operational Performance

Operational efficiency levers have been squeezed materially over the last few quarters so margin expansion might be limited during the quarter.

EBIT margin is likely to contract at 24.1 percent in Q3FY18, compared to 24.2 percent in Q2FY18.

Analysts see negligible cross currency impact on earnings.

Guidance

Full-year guidance is the most important factor to watch out for in earnings.

All analysts expect Infosys to maintain its full-year constant currency revenue growth guidance at 5.5-6.5 percent and EBIT margin at 23-25 percent.

After Q2FY18 earnings, the company had revised its FY18 guidance lower to 5.5-6.5 percent YoY, implying an asking rate of 0.4-1.6 percent for second half of FY18.

With 0.9 percent QoQ growth expectations for Q3 (1 percent in CC), and 1.5 percent in the following quarter, CNBC-TV18 poll expects Infosys to achieve the mid-point of its CC guidance for FY18.

Investor focus will be on:

Strategy of the new CEO Salil Parekh who took charge as MD & CEO of Infosys on January 2, 2018

US H1B norms

CY2018 demand outlook. Infosys had indicated account-specific weakness and also talked about likely budget squeeze at the year-end (instead of budget flush) in its Q2FY18 results conference call

M&A strategy; total contract value of deal wins, focus and strategy for revival of consulting practice, pricing outlook and progress on automation.


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