Infosys'
first earnings announcement after the return of N R Narayana Murthy is
expected to put the retired cofounder under a sharp spotlight as
analysts seek clarity on milestones that could signal the company's
return to health.
Murthy, who was recalled by
the board last month, may have the unenviable task of paring the growth
forecast for India's second largest software services exporter as
cross-currency swings shave off gainsthe rupee's depreciation against
the dollar. The industry veteran has sought three years to "rebuild a
desirable Infosys" but an anonymous ET poll of 15 brokerages shows that
analysts would want to know sooner that the rebuilding is indeed taking
roots.
Analysts said that they expect signs of
revival and return of growth momentum in about three quarters. The
majority of analysts said that they expect the software exporter to pare
its growth guidance6-10% given at the beginning of the fiscal. That
pales in comparison with Nasscom's projection of 12-14%.
"Infosys
guidance is likely to take centre-stage," wrote Rumit Dugar and Udit
Garg of Religare Institutional Research in a note to clients on earnings
expectations. For the April-June quarter, Infosys' revenue reported in
dollars is expected to grow at a tepid pace of 1-1.5%, which is
estimated to be well below that of Tata Consultancy Services, Cognizant
and HCL Technologies but likely better than Wipro.
Given
Murthy's philosophy of predictable growth, there is also an expectation
that Infosys may bring back the practice of giving earnings guidance,
which it stopped last quarter. At least two analysts polled said they
expected Infosys to reintroduce earnings guidancethe next quarter, if
notthe current one.
Despite the currency
depreciation, which is expected to trickle down to the bottomline,
Infosys is expected to report a marginal fall in net profit as it
absorbs the effects of an unexpected June wage hike. Falling pricing
will also add to pressure on profitability, analysts said. Given that
rivals such as Cognizant and TCS are capturing a larger share of the
market, Infosys is unlikely to be able to maintain pricing levels,
leading to erosion in profit margins.
While the
expectations are high, it is not so much about the first quarter
numbers, but about visibility into future growth. "NRN's return implies
that any disappointment in first quarter may be overlooked," said
Sandeep Muthangi, an analyst with IIFL. "What analysts will be watching
out for is details on the roadmap and the specifics on the changes that
Murthy is seeking to bring about."
The ET poll
showed that only a few analysts expect Infosys to return to industry
leading growth before the next fiscal or the one after that. Accenture
and Oracle performing below expectations has also sobered expectation
levels among industry observers.
"Accenture's
weak consulting growth indicates that there is still no improvement in
the discretionary spending environment, which is likely to hurt
companiesInfosys more due to its relatively high exposure to
discretionary segments," Nomura analyst Pinku Pappan wrote in a recent
note to clients.
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