Sales: The March quarter is seasonally weak as clients freeze and allocate annual budgets, but Nomura expects Infosys to lead revenue growth. Infosys is likely to growth at 3.6 per cent sequentially (organic growth of 2.3 per cent) according to Ambit estimates.
Margins may decline due to onsite wage hike, currency fluctuation and Lodestone acquisition. Infosys margins may fall 60 basis points quarter on quarter, Nomura added.
Volume and pricing: Ambit says Infosys' volume is likely to grow at 1.6 per cent, while pricing may rise by 2.1 per cent due to onsite shift and average rupee-dollar rate of Rs 54.5 for the quarter (cross-currency impact of negative 3 basis points).
Guidance: Nomura says Infosys may guide for 11-13 per cent dollar sales growth in FY14 and earnings per share for FY14 may rise to Rs 173-175. Ambit expects Infosys to guide to at least 12 per cent revenue growth for FY14. ICICI Securities and Barclays expect Infosys to guide for "at least 10 per cent" organic dollar revenue growth for FY14.
Low utilisation has been a big overhang on Infosys, but Ambit expects 90 basis points improvement in utilisation, which may somewhat offset headwinds from onsite wage increase of 2-3 per cent.
Management commentary: The outlook on demand seasonality, deal wins, discretionary spend and margins - especially wage hike indications are key items to watch. Barclays says the management is unlikely to be bullish and will likely be more cautious than other Indian IT companies.
Key risks: Lower-than-anticipated guidance and any indication of a slow start to the year might be taken negatively, Nomura said.
Discretionary spending and BFSI spend: 37 per cent of Infosys' revenue come from products, consulting and system integration. Ambit says discretionary spending in the U.S. continues to remains weak as indicated by Oracle's sluggish licence sales growth and management commentaries of prolonged decision cycles. Weak guidance from Cognizant and moderating outsourcing revenue growth of Accenture in the quarter-ending February 2013 also do not indicate a material demand improvement.
Valuations: Infosys is still trading at a huge discount to its historical average, Nomura values Infosys at 15-times FY15-forward EPS, which is a 25 per cent discount to its long term average valuation.
Stock view: Infosys shares have rallied sharply ahead of the earnings announced. The stock rose 1.7 per cent on Wednesday and traded with over 2.5 per cent gains on Thursday after falling 6 per cent over the previous five sessions. Nomura prefers Infosys over TCS on valuations and lower expectations. Most other brokerages have a positive to neutral coverage on Infosys going into the results. (Read: How to trade Infosys ahead of earnings)