Infosys may raise margin guidance for rest of year buoyed by performance and sliding rupee, say Analysts

As Infosys looks to announce second quarterly numbers, the market expects the software services major to maintain its revenue guidance in constant currency and raise its margin guidance for the remaining quarters.

This comes in the backdrop of the quarter, being a seasonally strong one for the IT industry, withoutsourcing projects are bagged. There is also the tailwind from a depreciating rupee.

At the beginning of 2018-19 financial year, Infosys gave a guidance of 6-8 per cent for the year. Industry body Nasscom has projected a 7-9 per cent growth for the industry.

Analysts that BusinessLine spoke to said that India’s second largest software exporter is expected to clock $2.9 billion revenues, a 2.7 per cent increase on a sequential basis and a 6.5 per cent increase year-on-year. However, it is the annual guidance and a higher margin projection that analysts are looking forward to. A Sharekhan report said that it expects Infosys to maintain revenue guidance.

Infosys had said in beginning of the year that its expects EBIT margins for the fiscal to be in the range of 22-24 per cent, lower than TCS’ margins which came in at 26.5 per cent.

Urmil Shah, Research Analyst- Institutional Equities, IDBI Capital, said “We expect upward revision in guidance to the tune of 100 basis points (1 per cent) due to rupee depreciation which will be offset the 100 basis points investments that the company has outlined for its growth.”.

Infosys’ performance also needs to be seen in the backdrop of its CFO MD Ranganath resigning in August.

A Motilal Oswal IT analyst said, the seasonal strength, coupled with the benefits from a favourable currency, is likely to drive a continued recovery for the technology sector. The analyst expects Infosys to raise its margin guidance by 50 basis points (0.5 per cent) considering the depreciating rupee.

TCS, which kicked off the earnings a few days back, delivered a steady performance helped by revenues from retail sector and banking, financial services and insurance clients but faced some EBIT margin pressures.

Analysts are also keeping an eye on Infosys management commentary regarding deal win ramp ups.

Abhishek Shindadkar IT Analyst with Equirus stated that TCS leads by a mile in terms of (client) account management.-”The $50 million+ client additions are higher than Infosys, Wipro and HCL put together,” he said. While additions in $ 1-20 million bucket were twice that of Infosys.

“Transition to $50 million+ clients have been tepid,” added Shindadkar.

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