Infosys Q2 results 2015: Upbeat projection on Infosys is based on the fact that the IT major has witnessed a steady inflow of deals.
Infosys Q2 results 2015: Last quarter, Infosys had put up a strong showing after months of some ordinary scores and now analysts expect the second quarter too to be a robust one for the IT major. The brokerage houses are predicting a 4% plus sequential revenue growth and a marginal rise in operating profit margins.
Infosys reported a 4.5% sequential rise in revenue growth in the first quarter of this fiscal which was its highest in the last 15 quarters and also a volume growth of 5.4% again its highest in past 19 quarters. If Infosys can maintain that momentum in the second quarter, then it could be said a turnaround is in the offing.
Credit Suisse in its quarter preview note on Infosys said, “The company had a great start to FY16 with 4.4% constant currency growth and looks well set to come at the upper end of its FY16 guidance of 10-12% constant revenue growth.”
The upbeat projection on Infosys is based on the fact that the IT major has witnessed a steady inflow of deals while also being aggressive on its pricing strategy. Kotak Institutional Equities in its report said that Infosys would be the company among the top tier players with the highest growth on a constant currency basis of 4.6%. “We recognise that the recent spurt of growth at Infosys is partly from capturing low-hanging fruits of greater focus on top-15 accounts and pricing aggression-led build-up of order book,” it said, adding, “however, we also find several steps of effectiveness of sales and delivery creditable, which will boost medium-term growth.”
Infosys has stepped up efforts to mine more business from its existing accounts and putting more feet on the grounds in terms of sales and marketing personnel. On the earnings before interest and tax (EBIT) margin front, Infosys is expected to perform marginally better given the depreciation of the rupee against the US dollar and lower visa costs. Added to this, there is no pressure of wage hike. BofA Merrill Lynch in its note on Infosys said, “EBIT margin is likely to expand 110 basis points quarter on quarter to 25.1% helped by absence of visa costs, favorable forex and operating leverage.”
According to Kotak Institutional Equities, the 2.5% rupee depreciation, lower visa costs and absorption of wage increase are tailwinds for margins that would be offset by higher provisioning for variable payouts and sharp decline in pricing. It has forecast 40 basis points sequential increase in EBIT margin.
Infosys reported an EBIT margin of 24% for the first quarter of FY16 and expects this to be in the range of 24-26% during the fiscal. Credit Suisse has projected an 80 basis points expansion in EBIT margins.
The IT major has demonstrated its flexibility on the pricing front and lowered its price points to win large deals. It remains to be seen how much of this pricing pressure is going to impact the operating profit margins.
Investors would also be keen to understand the digital strategy of Infosys as this segment is expected to be a big growth driver in the near future.