Analysts expect Infosys to revise its full year dollar revenue guidance

The Indian IT industry is gearing up to report a tepid June quarter replete with headwinds. Amidst macro uncertainty, discretionary spending on technology has slowed, deals are taking longer to close and cross currency movements are negatively impacting revenue in US dollar terms. The result will be muted volume growth for all the top tier firms. Management commentary is likely to be peppered with generous doses of caution.  

India's second largest IT services exporter Infosys will open the earnings calendar for the sector on Thursday morning. Investors are eagerly awaiting the firm's outlook for the September quarter as well as the full year. Most analysts BT spoke to expect Infosys to revise its full year dollar revenue guidance downwards from an already sober 8-10 per cent to 6-8 per cent given the moderation in volumes and questions over whether customers will be willing to buy the company's premium services given the uncertain economic climate.

Sanjeev Hota of brokerage house Sharekhan says that he would closely watch the company's September quarter guidance. "Anything less than 3-4 per cent growth in dollar terms would be very negative for Infosys. The September quarter has always been the best quarter for Infosys and the IT industry," he says.

 "With continuing uncertainty on decisions, largely discretionary spends, Infosys' guidance may remain conservative. With cross currency fluctuations playing out during the quarter, the company may reset the guidance lower to account for these fluctuations. However, if it reduces the volume growth guidance, it will be negative for the stock," Dipen Shah of Kotak Securities wrote in a report.

As for the June quarter, industry watchers expect most of the top tier firms, barring TCS, to report flattish sequential inch-up in dollar revenues. IDFC, for instance, sees Infosys, Wipro and HCL to report 0-1 per cent quarter-on-quarter dollar revenue growth primarily because of the delayed release of IT budgets by global customers.

TCS, India's largest IT firm, will also declare results on Thursday, albeit in the evening. The firm will continue to be the leader of the pack with analysts expecting the company to report dollar revenue growth of 2.5-3 per cent on a sequential basis and far higher volume growth compared to Infosys.

"We expect TCS to outperform on volume growth (estimate of 4 per cent quarter-on-quarter) on strong deal wins in verticals like telecom and BFSI. Infosys and Wipro would be laggards, given the residual impact of ramp-downs witnessed in BFSI towards the end of the fourth quarter at Infosys and weakness in the India business at Wipro," brokerage house Motilal Oswal said in a report.

 In terms of profitability, top-tier IT firms are expected to rake in higher EBIDTA margins due to rupee depreciation during the quarter. Nevertheless, the gains may be limited as higher visa expenses and wage hikes can offset the rupee benefits.

An analyst neatly summed up the scenario: "This season, we don't expect any positive surprise."