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Low Utilisation Levels, Seasonality To Hurt Infosys’ Margins In Third Quarter

Expect A Weak Third Quarter For Infosys

The algorithm will also help the company with programs aimed at  grooming and developing leaders across various levels of the company. (Photo: iStockphoto)
The algorithm will also help the company with programs aimed at grooming and developing leaders across various levels of the company. (Photo: iStockphoto)

Curtailed client spending, furloughs and low utilisation levels are likely to weigh on Infosys’ earnings in the third quarter of the current financial year. Revenue is expected to decline marginally by 0.1 percent to Rs 17,294 crore and net profit is likely to see a deeper 1.2 percent cut to Rs 3,561 crore quarter-on-quarter. Earnings before interest and taxes (EBIT) margins are expected to contract by 60 basis points to 24.3 percent sequentially.

Low Utilisation Levels, Seasonality To Hurt Infosys’ Margins In Third Quarter

Estimates project an adverse cross currency impact of 60-100 basis points on the revenue. Fewer deal wins will likely slow revenue growth. Analysts expect utilisation levels to fall owing to loss of contract from Royal Bank Of Scotland (RBS). This along with furloughs is likely impact operations which could lead to contraction in margins.

What To Watch

  • FY17 revenue guidance which was cut to 8.5-10.5 percent in the second quarter.
  • Updates and implementation of company’s ‘New and Renew’ strategy.
  • Commentary on client budgets in 2017.
  • Update on demand and sentiment in the banking and financial segment.
  • Comments on potential changes in H-1B visa norms and plans to counter adverse impact on workforce, margins.

(Expectations have been compiled from reports by Ambit Capital, Kotak Institutional Equities, IDBI Capital, Edelweiss Securities, Phillip Capital, and Religare Institutional Research.)