Venkatesh Ganesh In a seasonally weak quarter, as a result of furloughs and lower billing days, Infosys is expecting to bring some cheer to investors through a possible buyback of shares.

As India's second largest software exporter announces its third quarter earnings on January 11, investors will have their eyes glued on the possibility of a second consecutive share buyback, as a reward to investors. “At a time when growth stagnates, companies have to reward shareholders and buyback is one such option,” said V Balakrishnan, former CFO at Infosys.

Infosys announced at its March-ending annual results that as per the capital allocation policy for fiscal 2019, the board has decided to pay off ₹13,000 crore and a special dividend of ₹10 per share, as part of its plan to pay out up to 70 per cent of its free cash flow every financial year. In fiscal 2018, Infosys bought back shares at a premium of 27.8 per cent at ₹900 per share.

Growth has been volatile at Infosys. It had posted better-than-expected revenue and profit growth in the quarter ending September, compared to the same period in 2017, on the back of strong deal wins.

In contrast, in the quarter ended June, Infosys reported a reduction in net profit, as Panaya and Skava’s acquisitions turned dud, which resulted in recalculations and fair value reduction of ₹270 crore. This impact resulted in Infosys posting a 2.1 per cent degrowth on sequential basis. Revenue, in dollar terms, grew 0.9 per cent on quarterly basis.

However, for the quarter-ending December, analysts that BusinessLine spoke to, expect Infosys to carry on some of the growth momentum from Q2.

According to Harit Shah, research analyst with Reliance Securities, expectations are muted. “US dollar revenue is expected to rise by 1 per cent on a quarterly basis, while constant currency revenue growth is seen at 1.5 per cent,” he said.

Growth to stay same

According to Edelweiss analyst Sandip Agarwal, Infosys is expected to post 1.5 per cent growth in dollar terms and 2 per cent q-o-q growth in constant currency terms. Interestingly, according to some analysts, TCS is expected to post the same US dollar revenue growth of 1.5 per cent compared to Infosys, a first in several years as TCS has more or less outshone Infosys.

While Infosys, under the leadership of new CEO Salil Parekh, who took over exactly a year ago has been bagging some large deals (in Q2 the company clocked deals worth $2 billion), analysts say that fewer working days in the US which accounts for more than 70 per cent of Infosys’ revenues could impact the company’s December-ended quarter outlook. Some help is likely to come from the appreciation in dollar against the pound and euro, though. “During Q3FY19, the rupee on an average depreciated 2.7 per cent against the dollar, which should increase the margin by 40-60 basis points for the quarter,” said Agarwal.

Help via productivity

Besides, with headwinds such as visa costs and wage hike behind, analysts expect Infosys and others to benefit from increasing employee productivity. However, the impact will be limited due to lower utilisation owing to furloughs, investments in digital and localisation, and training of freshly-inducted employees, said Agarwal.

The S&P BSE Information Technology Index has gone up 24.54 per cent in 2018, according to data from Asia Index, a BSE and S&P Dow Jones Indices venture, which indicates the lagging growth amongst large IT exporters.

One area where there seems to be lesser focus is on global economic conditions, which may improve as a result of slowdown in US-China trade war and impact of Brexit, on the decisions of enterprises to increase their IT spend.