Infosys Results Q3FY19: Indian Rupee's free fall days to drive earnings; should you invest in stock? Check share bazaar investment tips
The period of depreciating Indian rupee played a major role for Infosys, as IT sectors are seen the biggest beneficiary when the currency weakens. Hence, some good impact of weak rupee will be witnessed in Infosys.
After TCS Q3FY19 result, all eyes are now set on Infosys who will be presenting their December 2018 (Q3FY19) result anytime today. Ahead of the quarterly performance, investors are trading cautiously at Infosys stock price, as it was trading at Rs 675 per piece down by Rs 4.75 or 0.66% on BSE at around 1211 hours. Infosys' rival TCS in its Q3FY19 result, posted 24.10% growth in consolidated net profit to Rs 8,105 crore compared to the profit of Rs 6,531 crore witnessed in the same period a year ago. Thereby, many investors are looking forward to how Infosys will perform during this quarter and investment calls will be made accordingly.
Guess what! Many analysts believe Infosys earnings will be boosted due to Indian Rupee's free fall days. In the last three months of last year, Indian Rupee has given sleepless nights to the government, RBI and even investors as it clocked all-time low of over 74 per dollar. In fact, the domestic currency was staring right in the eye of 75-mark in 2018. However, courtesy of international crude oil drop has eased down the weakening in Indian rupee, as now it trades between 69-70 level against US dollar benchmark indices.
But it would not be wrong to say, the period depreciating Indian rupee played a major role for Infosys, as IT sectors are seen the biggest beneficiary when the currency weakens. Hence, some good impact of weak rupee will be witnessed in Infosys.
Analysts at Edelweiss Securities said, " While INR depreciation should help margins by 50bps, other efficiencies would lead to mere 30bps expansion due to investment in digital and localisation. Commentary on-demand environment, growth in digital, new deal wins will be key monitorables."
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Similarly, IDBI Capital said, "We expect EBIT margin to remain unchanged QoQ and forecast benefits from INR depreciation and operational efficiencies to be offset by salary for senior-level employees and transition of large deals."
Edelweiss added, "We expect revenues to grow 2.0% QoQ in cc terms, impacted 50bps due to cross currency headwinds (USD growth 1.5% QoQ). EBITDA margin expected to rise 80bps QoQ."
Meanwhile, IDBI forecasts revenue in CC to grow by 1.8% QoQ and a cross-currency headwind of 40bps.
In IDBI's view, there are five key factors that one must watch in Infosys result during Q3FY19.
- FY19 guidance - Expect CC revenue growth guidance of 6-8% and EBIT margin guidance of 22-24% to be maintained.
- Commentary on CY19 client budgets, especially for large deals.
- Large deal wins (expect TCV of US$1bn+) and pipeline/pricing environment.
- Growth in digital services and the outlook for the near and medium term.
- Commentary on capital allocation.
Coming back to stock performance, Mustafa Nadeem, CEO, Epic Research on Q3 results said, "Infosys is seeing a less volatile move as compared to its previous range since we are nearing the event. Yesterday, stock saw an inside day while the volatility also remains muted. The stock is in a very tight range of 665 - 690. Derivatives data suggest a range for the stock to be 700 to 640 and we expect this to be very crucial."
Mustafa adds, "Given its overall trend, and move beyond this range would give a directional view in the medium term. The trend is likely to emerge once the stock closes above 700."
During Q2FY19, Infosys posted a consolidated net profit of Rs 4,110 crore in Q2FY19, which was up by 10.30% from Rs 3,726 crore in the corresponding period of the previous year. On the other hand, Infosys consolidated revenue came in at Rs 20,609 crore, registering growth of 17.32% from Rs 17,567 crore a year ago same period.
Q2FY19 revenues grew year-on-year by 7.1% in USD terms; 8.1% in constant currency terms. Digital revenues at $905 million (31.0% of total revenues), a year-on-year growth of 33.5% and sequential growth of 13.5% in constant currency terms.