Narayana Murthy is good news for Infosys' Q2 earnings: Analysts

P P Thimmaya Posted online: Monday, Oct 07, 2013 at 0000 hrs
Bangalore : As the second-quarter earnings season of the Indian IT-services industry kicks off with Infosys on October 11, analysts are focusing on whether chairman N R Narayana Murthy has been able to put his firm on the growth path after his return.

The Bangalore-based Infosys did deliver a reasonably good performance for the first quarter of the current fiscal surprising the market. The expectation is that it might raise its full-year dollar-revenue outlook in the range of 9-11% as against its earlier projection of 6-10%.

Now it remains to be seen whether the IT major would be able to sustain this momentum in a business environment, which is showing steady signs of growth in matured markets.

“The return of Murthy to Infosys has raised hopes on the medium-to-long term prospects of the company. Based on our expected revenues in 2Q, we expect the company to increase the guidance range,” Dipen Shah, IT analyst with Kotak Securities said in a note.

The market would be looking for management commentary on any uptick in spending patterns and order-booking trends.

“Deal wins and discretionary demand commentary suggesting a pickup in growth will be a positive catalyst for the stock. Margin outlook and update on Murthy’s three initiatives: increase sales efficiency, improve delivery effectiveness and cost rationalisation will be key items to watch," said Ashwin Mehta and Pinku Pappan, analyst with Nomura India in its report, adding that Infosys not raising its revenue growth guidance might be taken negatively, given that growth prospects for the second half are not steep.

At the end of first quarter, Infosys reported a revenue of Rs 11,267 crore with sequential growth of 7.8% while the net profit was Rs 2,374 crore.

In dollar terms, the revenue was $1.9 billion recording a sequential growth of 2.7% with a net profit of $418 million. According to Religare Institutional Research, Infosys is expected to revise its FY14 US dollar revenue guidance by raising the low end to 9% growth (6% previously) and marginally increasing the top end (10% currently).

For the September quarter, the market would watch for operating margins and EPS numbers from Infosys. Angel Broking in its note said, “We expect the EBITDA margin of Infosys to inch up by 19 basis points (bps) on quarter-on-quarter basis to 26.7% as most of the gains of rupee depreciation are expected to be absorbed due to offshore as well as onsite wage hike given by the company during the quarter.”