Infosys To Report First Earnings Under New CEO Salil Parekh Today: 5 Things To Watch

Infosys, India's second biggest outsourcer, will report its earnings for the fourth quarter ended March 31, 2018.  This will be the first full quarterly numbers under its new CEO Salil Parekh, who took charge of the Bengaluru-based outsourcer in early January. With Mr Parekh completing his first quarter in Infosys, the strategy and vision of the new CEO to drive the company forward will be keenly watched, domestic brokerage Edelweiss said in a note. Infosys is set to report Q4 earnings at 4 pm.
 
Infosys Q4 Earnings: 5 Things To Watch Out For
 
Revenue outlook: With improving economic outlook in key markets like the US and  higher adoption of outsourcing in Europe and digital services gaining scale, fiscal year 2018-19 looks better for Indian IT companies, say analysts. Also, retail and energy and utility verticals have turned around and growth revival in BFSI (Banking, Financial services, and Insurance) fuels strong prospects for IT industry, according to Edelweiss. However, the brokerage expects Infosys to "be fairly conservative in issuing FY19 guidance" considering the downward revision of guidance in FY18. "We expect Infosys to issue a revenue growth guidance of 6.5-8.5 per cent and maintain operating margin guidance of 23-25% for FY19," Edelweiss said.
 
Also read: Infosys To Open Tech Hub In US, Create 1,000 Jobs

At the time of reporting its Q3 numbers, Infosys had maintained its FY18 revenue guidance at 5.5-6.5 per cent in constant currency. It had earlier in October cut its growth guidance for the year to 5.5-6.5 per cent (in constant currency terms), compared to 6.5-8.5 per cent growth as guided earlier.
 
Another brokerage, Kotak, expects Infosys to guide on a conservative note at 6-8 per cent revenue growth on a constant currency basis. "Even as the macro environment is positive, translation of the same into pipeline and deals will materialize gradually," the brokerage said. Kotak also expects Infosys to retain its operating margin in a band of 23 per cent to 25 per cent.
 
New strategy: According to Kotak, investor focus will be on strategy of the new CEO on the following fronts (1) focus on development/promotion of proprietary software versus adoption of third party products/platforms, (2) M&A strategy, and (3) focus and strategy for revival of consulting practice.
 
Q4 numbers: Edelweiss expects Infosys to post a 1.4 per cent growth on a quarter-on-quarter basis in constant currency, aided 100 bps (basis points) by cross currency movements, implying a 2.4 per cent growth in USD terms. EBITDA margin expected to rise 30 bps quarter-on-quarter due to absence of wage hikes and operational efficiencies negating impact of ramping of US workforce, it added.
 
Comments on key verticals: The top management's comments on spending in legacy businesses, traction in digital services and  demand outlook in BFS (banking and financial services) verticals would be keenly watched, according to Edelweiss.
 
Deal wins: "With TCS announcing massive deal wins, all eyes will be on deal wins and large deal renewals during the quarter," said Edelweiss, which has a "buy" rating on Infosys shares. Infosys is also among the top stock picks for Kotak in the IT space. Both the brokerages expect FY2019 to be a better year for Indian IT, led by lesser drags and better deal flow. Infosys shares had ended 3.4 per cent higher at Rs 1,162 on BSE on Wednesday.