Infosys earnings: Six things to watch out for

As Infosys announces financial results for June quarter, investors and stakeholders will be keenly searching for signs of confidence returning to management’s commentary on growth. Being the first earnings announcement after the return of Narayana Murthy, analysts will also want more specifics of his plans and the way forward as he seeks to “rebuild a desirable Infosys.”

Organisational Changes

With Murthy’s return, some changes have been anticipated. A few days before earnings, global sales head Basab Pradhan put in his papers, raising speculation that there might be more changes in the offing, especially portfolio changes among top executives such as V Balakrishnan, Ashok Vemuri, Rajiv Bansal and BG Srinivas.

Growth Guidance

The software exporter has given an annual guidance of 6-10% growth but analysts expect it to be lowered because of the cross currency swings. However, over the past two years, analysts have been off the mark when it comes to Infosys on more than one occasion, sometimes by a wide margin.

Protecting Margins

Profit margins are expected to shrink some more because of salary increments. Expect this to continue in the second quarter as the impact of salary increments spills over. Falling pricing will be another factor eroding margins, at least in the short term. Watch out for commentary on what levels the company expects margins to stabilise.

Predictability in Earnings

Naryana Murthy has been a great believer in predictability and there are expectations that Infosys might go back to giving an earnings guidance sooner than later. Part of the reason for stopping earnings guidance was because of the various pulls and pressures on the company that were making it harder to accurately predict profitability levels.

Details on Road Ahead

Murthy has asked for three years to take the company back to its bellwether status but beyond the broad parameters that he outlined in his speech to the shareholders at the recent AGM, analysts want to know more specifics about his plan. They will be watching for triggers that could kick-start growth several months down the line. Some of these could be investments in sales to win renewal deals, new recruitments that could infuse fresh thinking, investments in nimble startups with innovative technologies etc. Signs of willingness to take bets and change its risk-averse approach, would under watch.

Succession Planning

With less than two years to go before SD Shibulal need to be replaced, Infosys is left with little choice but to demonstrate that leadership succession is being planned in a professional manner. The need for this is more than ever with the return of retired cofounder Murthy as executive chairman, with a term of five years.