BENGALURU: Infosys Ltd, India’s second largest IT services exporter by revenue, will announce its June quarter earnings on Wednesday, after peers Tata Consultancy Services (TCS) Ltd and Wipro Ltd. This being the first full quarter when the impact of the covid-19 pandemic will be visible, investors will closely monitor the revenue growth as well as management commentary on the way forward.
TCS has already indicated that it sees some recovery by Q2 and Q3 driven by optimism in the European markets. While Wipro has not given a recovery timeframe, the company too expects a gradual pick-up in demand.
The net profit of Infosys for the quarter ended March was down nearly 3% q-o-q at ₹4,335 crore, even as revenues grew 0.8% sequentially to ₹23,267 crore.
Here are the five things to watch out for in Infosys’ first quarter results today:
Revenue growth and guidance
Given the business uncertainty, analysts believe IT companies will refrain from giving any annual guidance until the next two quarters or so. ICICI Securities expects Infosys to report a 5.2% q-o-q decline in dollar revenues in constant currency terms. “In addition, with cross currency headwind of 30 basis points, we expect dollar revenues to decline 5.5% q-o-q to $3021 million." In rupee terms, revenues are expected to decline 1.6% q-o-q.
H1-B visa ban impact
The US president through a proclamation on 22 June suspended the H-1B and other work visas aimed at protecting local American jobs. As companies like Infosys use these visas to send their skilled employees to work onsite in client locations, management commentary on the impact will be closely watched. To negate the impact of any visa ban, Infosys has been locally hiring talent in the US and as part of its localization efforts, and it currently employs more than 10,000 Americans on its payroll. So while the impact is not expected to be huge, it will be interesting to observe if the company takes a strong position on the political issue just as TCS as termed the visa ban as “unfortunate".
Commentary on layoffs
Globally IT companies have been in the news for undertaking massive layoffs as business slows down due to the impact of the pandemic. While Infosys has so far maintained that it has no intention of any mass layoffs, its attrition rates will be closely watched by investors and analysts. The consolidated attrition rate rose to 20.7% in the quarter ended March as against 19.6% in the December quarter.
Demand from key verticals
Analysts suggest technology spending in the banking, financial services & insurance (BFSI) sector to show some buoyancy despite slowdown. Some recovery in US retail is expected with technology spend priorities in areas such as building omni-channel business models and in-store analytics. Recently, Infosys signed a multi-year, multi-million euro contract with ABN Amro Bank to accelerate its cloud and DevOps transformation journey. Investors will watch if more such deals will be announced or are in the pipeline.
Recovery trajectory
Indian IT is expected to recover between Q2 and Q3 of FY21 according to most analysts. “While the severity of the economic impact has been reasonably factored, the trajectory of recovery is uncertain. We expect the demand trajectory to rebound sharply based on our top-down industry scenario analysis, primary checks, resilient dynamics in core verticals and strong digital playbook," HDFC Securities said in a note.
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