Infosys Q3 results: Five things to watch out for

BENGALURU: Infosys' third-quarter results announcement on Friday will be watched closely on Dalal Street and by technology industry observers for the numbers could presage what to expect from the results of other large homegrown software exporters. Although Infosys is least impacted by cross currency fluctuations – as bulk of business comes from US and Europe unlike for TCS and Wipro which also get considerable business from other geographies – nonetheless, analysts believe the country’s second largest software firm’s number will be a little smudged.

This will be the second quarter for Vishal Sikka, who took over as the first non-founder CEO on August 1. From employee attrition to sales team effectiveness, ET looks at things what you should watch out for when Infosys kicks off earnings season:

Q3 growth and commentary on business:

Infosys is expected to report 2.3% to 2.8% sales growth in the September-December quarter of fiscal year 2015, according to brokerage houses. Analysts and investors will watch closely for commentary on deal wins and client spending during the quarter. Management commentary on the traditionally soft third quarter, and for the fourth quarter will be watched as well as clarity on deal pipeline will be critical.

Employee attrition:

At a little more than 20%, Infosys has the highest employee attrition rates among IT services companies. The management is already seeing Sikka’s engagement with employees helping arrest attrition as the company said that they are seeing fewer people leave the organization, month-on-month. The management commentary on attrition will be important to see if Infosys can bring down the attrition rates to 13-15% by the end of June 2015, as earlier outlined by UB Pravin Rao, chief operating officer. Though credit is due to Sikka for Infosys has not seen any senior executive quit in the last five months.

Margins:

Infosys is expected to report a marginal dip in margins on account of cross currency impact. However, the company should report operating margins better than its peers, thanks largely to earlier cost saving measures implemented by Narayana Murthy, who cut costs at both onsite as well as offsite work locations. Sikka embracing next generation technology initiatives, including automation and artificial intelligence, should boost operating efficiency in the coming quarters.

Business from existing customers or client mining:

Infosys under Sikka has for the first time tied up with three training firms to improve its sales team's efficiency, as reported by ET last month. As Infosys adapts to the rapid pace of change in the way technology services are delivered, Sikka wants the sales team to be able to articulate the company's ability to deliver cutting-edge and tailored solutions. This paper understands that about a third of Infosys' workforce in the sales unit has already undergone the training and the company expects to finish this exercise in the coming two quarters. It will be interesting to see how this initiative is helping company get more business from its more than 900 clients.



Fiscal 2015 sales growth guidance:

As economic growth improves in the United States and Europe, large enterprises in these markets are expected to spend more on information technology services. Nonetheless, the joker in the pack is the fluctuation in cross currencies, thereby making the management cut current guidance of dollar revenue growing 7-9% in the fiscal year through March. Most brokerage firms expect the company to take a hit of 150 basis points in the third quarter and an additional 80 basis points impact in the January-March period. Nasscom has guided for 13%-15% export growth in fiscal 2015.