Infosys: Six things to know ahead of Q3 earnings

Infosys will report earnings for the December quarter on Friday. Analysts expect Infosys to announce a downward revision in its dollar sales outlook for 2012-13, but the bad news appears to have been priced in the stock. Infosys shares were down 12.5 per cent in the three months to December underperforming the broader BSE IT index, which fell 6 per cent over the same period. Infosys shares fell despite a sharp depreciation in the rupee in the third quarter.
Here are six things to know before earnings announcement
  1. Sales: Infosys organic sales growth (excluding Lodestone acquisition) is seen between 1.8 per cent (Kotak) and 2.4 per cent (Bank of America-Merrill Lynch). Weak sales growth is expected on account of seasonality (holidays/furloughs), impact of Hurricane Sandy in the U.S. and continued weak spending from BFSI (banking, financial services and insurance verticals), which contributes a third to overall sales.
  2. Margins: Infosys may report an 80 basis point (Kotak) to 130 basis point (BofA-ML) fall in margins on account of wage hikes, low utilization and hit in volumes due to client shutdowns.
  3. Guidance: Infosys needed to grow by 3.5 per cent in the December and March quarters to achieve its target of 5 per cent growth for the full fiscal year, but weak growth may force Infosys to lower FY13 revenue guidance by about 2 per cent, BofA-ML says. Kotak expects Infosys to lower outlook to 3.6 per cent and Barclays at 3.8 per cent.
  4. Earnings per share: The EPS forecast may be cut by 4 to 5 per cent according to BofA-ML. Kotak, however, estimates a 0.6 per cent cut in EPS guidance to Rs 159.7 as the impact of lower than expected revenue growth will be partially offset by a reset of the dollar rupee rate assumed in the guidance (to Rs 55 per USD from Rs 53 per USD).
  5. Employees: Hiring and attrition figures will be keenly watched. Infosys reported a net addition of 2,600 employees in the September quarter, but attrition rose marginally on a sequential basis. Infosys' low utilization rate at nearly 70 per cent will be keenly watched.
  6. Valuations and stock price: Infosys is trading at a 36 per cent discount to its 10-year median price earnings ratio, according to Thomson Reuters' StarMine estimates. Attractive valuations are likely to support stock prices.


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