Infosys Q1FY19 earnings preview: Here's what to expect today

Operational efficiencies and rupee depreciation benefits likely to be offset by wage hikes

TCS surprised the Street by reporting better-than-expected numbers in the first quarter of financial year 2018-19 (Q1FY19), while showing a double-digit rise in dollar revenue for the second quarter. Will Infosys follow suit? The IT major is scheduled to announce its results for the June quarter post market hours today.

In the previous quarter, the Bengaluru-based company had lowered its EBIT margin guidance for FY19 to 22-24 per cent from 23-25 per cent in the previous financial year.  It had reported a 28.2 per cent drop in sequential net profit at Rs 3,690 crore for the March quarter.

On a year-to-date basis, the stock has rallied around 27 per cent and has outperformed the Nifty IT index that gained over 24.85 per cent during this period. In comparison, the Nifty50 index is up 4.69 per cent YTD, ACE Equity data showed.

According to analysts, outlook for verticals like BFS and retail, commentary around margins in lieu of the new investments, deal wins and performance of digital segment and operational performance with increase in onsite investments are key monitorables to look out for with Infosys.

Here is a quick compilation of what leading brokerages expect from Q1FY19 of Infosys:

HDFC SECURITIES

Revenue is estimated at $2,835 million, up 1.1/7.0 per cent QoQ/YoY supported by 2.1 per cent QoQ constant currency (CC) and negative 100 bps cross currency impact. Rupee revenue is estimated at Rs 189.96 billion, up 5.1/11.2 per cent QoQ/YoY. EBIT margin estimated at 23.8 per cent, a fall of 96bps QoQ impacted by wage increase (85 per cent of employees), cross currency mitigated by rupee depreciation. Expect revenue guidance of 6 to 8 per cent for FY19 (CC) to be unchanged.

MOTILAL OSWAL RESEARCH

Profit after tax (PAT) is expected to come in at Rs 37.8 billion, up 2.6 per cent on a quarter-on-quarter basis (QoQ). Given the support of recent INR depreciation, we expect full-year EBIT margin at 24.3 per cent, slightly above its guidance of 22-24 per cent. EBITDA margin is expected to contract 100 bps QoQ to 26.3 per cent, led by wage hikes and increased investments, partially offset by rupee depreciation.

Compared to the weak exit for FY18 (0.6 per cent QoQ CC), we expect acceleration in growth, led by seasonal strength, resulting in 2.3 per cent QoQ constant currency (CC) growth in 1QFY19. Cross-currency headwinds are expected to result in 1.1 per cent QoQ growth in dollar terms.

RELIANCE SECURITIES

Infosys is likely to report margin decline of 185bps QoQ, led by wage hikes. Outlook for key verticals including BFSI, retail and telecommunications, improving FY19E outlook, deal flows and rising deal sizes of new digital deals are critical data points to watch.

EDELWEISS 

Revenues expected to grow 3.2 per cent QoQ in constant currency terms, impacted 90 bps due to cross currency headwinds (dollar growth 2.3 per cent QoQ). EBITDA margin expected to decline 50 bps QoQ as operational efficiencies and rupee depreciation benefits will be offset by wage hikes, higher visa costs, investment in digital. Commentary on demand environment, strategy for digital, client spendings and deal wins will be key monitorables.

EMKAY GLOBAL

Appreciation of dollar against all major currencies in Q1FY19 will lead to significant headwinds to dollar revenues. Peg net profit at Rs 37 billion, up 7 per cent YoY and 1 per cent QoQ. Sales may rise 11 per cent YoY and 5 per cent QoQ at Rs 189 billion.