- Infosys guidance on operating margin disappointed some analysts
- Infosys expects operating margin at 22-24 per cent range in FY19
- It had reported operating margins at 24.3 per cent in FY18
For FY19, Infosys guided for a revenue growth of 6-8 per cent in constant currency, which met some analysts forecast. But it fell slightly short of Macquarie's expectation of 6.5 per cent to 8.5 per cent. The growth guidance was also below the expectations of domestic brokerage Edelweiss, which had expected Infosys to guide for 6.5-8.5 per cent growth. India's software services exports are expected to register revenue growth of 7-9 per cent in constant currency terms in the fiscal year to March 2019, according to industry body Nasscom.
On operating margin front, Infosys guidance for FY19 also disappointed some analysts. Infosys expects operating margin at 22-24 per cent range in FY19. In FY 18 Infosys revenues grew 5.8 per cent in constant currency terms, with operating margins at 24.3 per cent.
Domestic brokerage Motial Oswal however expects Infosys to raise operating profit guidance during the course of the year. "Infosys cut its FY19 EBIT margin guidance to 22-24 per cent v/s the FY18 band of 23-25 per cent. This will largely factor in investments in localized talent, revitalizing sales, Digital capabilities and delivery staff. The 1% revision amounts to $120m, and considering that these are investments in people, which will only come gradually, we see the lower end of the margin band as conservative, and expect it to be raised during the course of the year," says domestic brokerage Motilal Oswal in a note. Motilal Oswal has a buy rating on the stock.
The margin forecast was a disappointment, says Nomura. "Infosys missed our growth forecast in Q4 and internals were weak, with developed markets (US/Europe) being flattish and key verticals BFSI/Retail) showing flat to declining revenues. The outlook on BFSI (in US), retail and manufacturing was cautious and telecom could slow," says the brokerage. "The bigger disappointment was that despite a margin beat in 4Q, FY19F EBIT margin guidance was cut by 100bp to 22-24%, which indicates to us: 1) a need to up sales/digital investments; 2) a need to realign onsite resources in light of US immigration tightening; and 3) normalising wage hike cycles and possible higher pay-outs."
Infosys net profit rose Rs 3,690 crore in the three months ended March 31, compared with Rs 3,603 crore a year ago, the IT major said. Eighteen analysts had on average expected net profit of Rs 3,709 crore, according to Thomson Reuters data.
Software major Infosys will hold a meeting with market analysts in Mumbai on April 23 to brief about its business operations.