Infosys can revise FY20 revenue guidance upwards: ICICI Securities

The country’s second-largest IT services firm Infosys has scope for further revision of its revenue guidance for the ongoing fiscal on the back of a strong deal pipeline.

In a note, ICICI Securities said despite talk of a slowdown, macroeconomic factors have not adversely affected the decision making process of its clients.

“Assuming status quo on global macro, we see Infosys’s current revenue guidance of 8.5-10 per cent in constant currency terms as conservative and is primed for another upward revision,” the research note said.

It added, “Stronger pipeline, despite strong conversions through FY19 and in Q1 of this fiscal, speaks regarding the structural benefit drawn from its investments made in account management, re-skilling and strategic relationships.” The brokerage firm has come out with this note after meeting Infosys’s top executives, including deputy chief financial officer Jayesh Sanghrajka, at its investor conference on Monday.

Uptick in demand for its digital services, apart from momentum in large deal space, had prompted Infosys to increase revenue guidance for the fiscal to 8.5-10 per cent in July this year from 7.5-9.5 per cent guided earlier.

According to the report, apart from sound revenue conversion, overall deal pipeline improved on aggregate basis and pricing environment for legacy services also remained stable.

“Infosys has seen no incremental impact of declining yields on banking, financial services and insurance (BFSI) fundamentals or falling oil prices on energy and utilities revenues,” the report said.

“Within BFSI, strong positioning in multiple sub-segments like cards and payments as well as stock exchanges is helping defend growth,” it added. While the Bengaluru-headquartered company’s communications and hi-tech verticals continued to be healthy, demand volatility is expected in the retail sector.

ICICI Securities also noted that Infosys is likely to report margin improvement in all the remaining three quarters owing to less visa costs and better calendar.

It, however, said the impact of wage hike on the margin would be higher than 60 basis points in the current quarter. Infosys’s margin stood at 20.5 per cent in the June quarter and guided for 21-23 per cent margin for the fiscal.

On attrition, the report noted that it has peaked in the first quarter and is likely to come down in the coming quarters.

“Infosys has applied for meaningfully higher visas in FY20, availability of which should help create higher opportunities for onsite deployment of associates, which should help lower attrition in FY21,” it said.

In the June quarter, the company’s overall attrition stood at 23.4 per cent, a 300 basis points rise over the preceding quarter.