Infy may Cut Guidance Again on Forex Shock

Wild swings in currencies against $ weigh, Re cheers Infosys Technologies may be forced to pare its already low growth guidance due to the wild swings of global currencies, including pound sterling, Australian dollar and euro, against the US dollar — the currency in which Infosys forecasts growth. On the brighter side, however, the revenue reported in rupee will be boosted by a local currency fast depreciating against the greenback.  At least three equity brokerages — BNP Paribas, HSBC and Prabudhas Lilladher — have flagged the possibility of cross-currency fluctuations forcing Infosys to lower its guidance. Based on current exchange rates, analysts estimate that Infosys' sales growth forecast of 8-10% may be impacted between 1% and 1.5%. However, this could change depending on these currencies' exchange rate versus dollar during the course of the fiscal year.  Among the top Indian software services companies, only Wipro provides growth guidance, but only for a quarter and not the full year, like Infosys. New Jersey-based Cognizant Technology Solutions gives full-year guidance, but gets over 75% of revenues from the US. To that extent, the      company is less impacted by cross-currency fluctuations. "At the current currency rates (GBP/USD, EUR/ USD, AUD/USD) the USD top line growth is likely to be impacted by near 1.5% for the full year," wrote Yogesh Aggarwal and Karthik Subramaniam of HSBC Securities in a client note last week. "In that regard, fiscal year 2013 guidance may have to be adjusted downwards."  Industry body Nasscom has guided for a 10-14% growth for the sector while Cognizant recently revised its growth forecast down to 20%, from 23% earlier, in the year to December. Cross-Currency Rates a Shock  Infosys factors in a certain exchange rate for these currencies, but over the past three months, the exchange rates have breached the Bangalore-based company's expectations. Exchange rates against dollar assumed in the guidance are 1.04 for Australian dollar 1.60 for British pound and 1.33 for euro. At current exchange rates, Euro surprised 3.7% on the negative side while Australian dollar and pound moved 3.3% and 1.4% to the negative territory, compared to rates assumed in guidance.  In an email reply to a query from ET,Chief Financial Officer V Balakrishnan said: "Our guidance is always given on a constant currency basis with cross-currency rates clearly provided as part of the guidance."  For the three months to June, the guidance could be negatively impacted by as much as 0.6%, BNP analyst Abhiram Eleswarapu wrote on Monday. Infosys gets a little over 62% of its revenues from North America, about 23% from Europe and 2% from India. "The management could calibrate guidance (by 0-1% downward) to adjust the cross-currency movement," Shashi Bhushan of Prabhudas Lilladher wrote in a client note on Monday. "However, our discussion with the management didn't hint the same." While the dollar guidance may be negatively impacted, Infosys, like other Indian IT companies, stands to gain from the rupee sliding against the dollar. If the current exchange rates persist, the reported revenues may get an 8% boost on account of the depreciating local currency. Infosys may share some of the rupee-related gains with its 1.5 lakh employees, some analysts said. However, the company's management has stoutly denied any such commitments at this point and repeated its earlier stance that the question of wage hikes would be revisited at the end of every quarter.