Infy sales to outperform profit

Firm likely to see 10% rise in topline, 5% in bottomline, say analysts.

Infosys is expected to register a healthy jump in its quarterly revenues, thanks to a fall in the rupee value. However, its margins are likely to take a beating owing to losses on currency hedging positions and salary increases, according to major brokerages.

According to analysts at five big broking firms, the IT major is likely to post a jump in sales between 9 per cent and 11 per cent, three times the last quarter's percentage rise, but profit is likely to grow only by half that.

"The depreciating rupee is likely to drive up both the overall realisations and the EBIDTA of IT companies this quarter, but bottomlines may take a hit owing to the mark-to-market losses on forward currency positions," said Anurag Purohit, IT analyst at city-based Brics Securities.

"In our estimate, the average exchange rate was about Rs 45.48 a dollar against Rs 44.41 a dollar in the previous quarter, a depreciation of about 2.4 per cent. The closing exchange rate was also lower at Rs 46.04 a dollar compared with Rs 44.62 at the end of Q4 FY06," Kotak Securities stated in its preview of IT companies' results for this quarter.

While IT companies, which get more than 90 per cent of their revenues from abroad, will get more rupees in exchange for the foreign currency they earn, not all of the gains will trickle down to their bottomlines.

"Companies, including Infosys, have been entering into forward contracts in which they promise to buy dollars at a particular rate in the future to protect themselves against big downturn in the rupee value. Of late, however, companies like Infosys are also using range-bound options under which you don't have to make any compensation unless the spike is big enough," Purohit said.

"The impact on hedged positions is difficult to estimate this quarter owing to aggressive use of options (of close to $300 million hedge, $200 million has been hedged using options). Overall, we estimate other income of Rs 38 crore against Rs 72 crore in the December quarter," ICICI Securities said in its report.

Another factor likely to prevent the earnings from growing at the same rate as the revenues is the bout of salary increases implemented in the first quarter. "We expect around 12-14 per cent rise in compensations "�even for freshers. Infosys will, reportedly, be paying 2.4 lakh against 2.3 lakh this year," Purohit said.

"EBIDTA margins are expected to be lower q-o-q despite the rupee depreciation because of the salary hikes, which will come into effect from Q1FY07 for most of the companies. In the absence of the rupee depreciation, reduction in margins would have been greater," Kotak Securities said.