Five things to watch out for in Infosys Q3 results

Five things to watch out for in Infosys Q3 results

Representative image. (Reuters Photo)

Bengaluru-based IT major Infosys gets set to announce its third-quarter results today. According to analysts, the company is expected to post revenue growth of about 2.1% and increase the lower end of revenue growth guidance band to 9.5%-10%. They state that Infosys is likely to see a 3.5% uptick in profits.

Here are the five things to look out for:

1. Whistleblowers’ letter: In October last year, letters from whistleblowers accusing the CEO Salil Parekh and CFO Nilanjan Roy of financial impropriety had surfaced. The letters had also alleged racism and misogyny against certain members of the board by Parekh. Analysts and investors will be keen on knowing whether the investigation conducted by law firm Amarchand Mangaldas has been completed and the corresponding action the company will take. Interestingly, it will be the first time the Parekh will formally meet the board after the letters surfaced.

2. Revenue: Infosys had raised the revenue growth forecast for FY20 to 9-10% in constant currency terms. Brokerage firm Sharekhan expects the company to raise the lower end of the revenue growth guidance to 9.5%. According to a note by Sharekhan, revenue growth is likely to be impacted by weak tech spends by financial firms in the US and Europe, especially in capital markets and banking sectors and a delay in decision making for IT owing to macro uncertainties. The note also says that the sluggishness in retail and auto segments and moderation in digital growth will also be impacting the margins.

3. Global factors: Since most of the company's clients are in the US and Europe, the impact of global macros on the company's overall performance is also a key factor to watch out. According to the brokerage firm Sharekhan, demand from global BFSI clients is expected to remain weak in the near-to-medium term, owing to weakness in capital markets and negative-yielding bonds across key developed markets (particularly in Europe). Moderation in spending by retail clients in Europe owing to slowing economic growth in Europe and Brexit is expected to impact the growth of Indian IT companies. The firm also expects the upcoming US elections and increased scrutiny of applications under new visa rules to delay deal closures.

4. Attrition: The attrition rate has always been an issue with Infosys. Though it showed an improvement in the last quarter and stood at 21.7% from 23.4% in the first quarter. In terms of competitors such as TCS (11.6%) continues to remain on the higher side. The company has said that it is offering incentives to skill its workforce, the attrition levels will be watched for the company's ability to retain top talent.

5. BFSI: The growth in banking, financial services and insurance (BFSI) segments will be of a lot of interest as the BFSI sector contribute close to 32% of Infosys’ revenue. Though the sector performed well in the last quarter, growing 10.3% year-on-year in constant currency terms, much of it was attributed to the Stater acquisition. In a note, Motilal Oswal had said, "Discretionary IT spends in key verticals like BFSI and retail will likely remain subdued over the next year due to the waning impact of US tax reforms and the policy uncertainty in the US in light of impending elections."

 

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