Infosys Technologies is expected to beat its own revenue guidance, out do peers in margin expansion and revise its full year guidance a tad upwards in the second quarter performance which will be revealed on October 15.
Analysts expect the firm to report strong volume growth on the back of revival in discretionary spending and secular upturn in the demand for IT services. September quarter revenues in rupee terms are likely to grow 8-10% over the previous quarter.
Brokerage houses also expect a strong showing in dollar terms in Q2. Although IT services firms have been reporting strong volume growth over the last couple of quarters, dollar revenues had been muted because of less favourable cross-currency movements. Angel Broking notes that in Q2, it expects revenues to surge on robust volumes, stable pricing and favourable currency impact.
Keeping to its reputation for being a strong bottom line player, Infosys is seen expanding its margins 170-200 basis points while most of its peers could struggle to report even flat margins for the quarter. ?We expect Infosys to post expansion in its EBIT margins by 175bp qoq as wage hikes are behind, the periodic visa cost will be lower, rupee depreciation to the tune of 2% will cushion margins by 70 basis points and higher offshore efforts will aid them,? Angel Broking stated in a report.
TCS, Wipro, and HCL Technologies on the other hand may see its margins contract due to promotion related hikes and other expenses. Citigroup expects TCS?s margins to decline 40 basis points due to wage hikes and one offs in Q1; partly offset by currency tailwinds. HCL Tech?s margins are seen decreasing 240 basis points due to wage hikes and continued losses in BPO, partly offset by currency.
Almost all brokerages seem to believe that Infosys would revise its full year revenues upwards based on the current momentum in its business and favourable cross currency movements. Dollar revenue guidance for FY11 is seen revised to 20-22% from 19-21% guided earlier. One of the more optimistic projections comes from Kotak Institutional Equities that sees the firm raising the dollar growth guidance to 23.5-25.5%.
HSBC says Infosys remains well poised to grow revenues at a +20% CAGR in FY10-12, much above the 15% growth rate expected for the IT services sector. However, it warns of downside risks as well. ?Although we do not expect any more industry pricing pressure, Infosys may still face some pressure owing to its premium pricing,? the firm said in a report. The other headwind could be IT budgets for 2011 not growing as expected.