Rapid rupee appreciation a challenge, says Infosys CEO

BROAD FOOTPRINT: S. Gopalakrishnan (left), Chief Executive Officer and Managing Director, Infosys Technologies, with Amitabh Choudhary, Chief Executive Officer and Managing Director, Infosys BPO, addressing a press conference in Mumbai on Wednesday.

MUMBAI: The challenge for Infosys Technologies is dealing with a rapid appreciation of the Indian rupee against the U.S. dollar. Addressing the media, S. Gopalakrishnan, Chief Executive Officer (CEO) and Managing Director, said, “Actually, it is not a new phenomenon. From 2003, the rupee has been appreciating but in the first quarter of the current year, it appreciated by seven per cent.”

The company’s annual contracts come up for negotiation every January and according to Mr. Gopalakrishnan, “when the billing rates come up for renewal, we can ask for a rate hike. We expect new contracts to come in at 3-4 per cent higher rates and existing contracts to be renewed at 2-3 per cent higher rates. The environment is positive for higher rates.”

Geographical spread

On the impact of the rising rupee on the company’s business, Mr. Gopalakrishnan said, the seven per cent appreciation in the first quarter and nine per cent appreciation during the year takes time to absorb. “Typically, we use levers like utilisation, onsite-offshore ratios, services mix, customer group and regions, rate increases and internal efficiencies.”

Infosys earns around 60 per cent of revenues from the U.S. and it was looking at de-risking measures. “We have a broad services footprint and have a geographical spread. We have been investing proactively in Europe and the contribution to our revenues has gone up significantly from nine per cent of revenues in 1999 to 14 per cent in 2003-04 and to 26 per cent today. European companies have woken up to the need to leverage offshoring opportunities. In terms of geographical mix, going forward ideally, we would like 50 per cent from the U.S., 30 per cent from Europe and 20 per cent from the rest of the world.”

Wages

Wages in the Indian IT industry have, for the last decade, been going up 13-15 per cent annually. “Our model allows us to increase and maintain margins and we believe salaries will continue to rise as the economy is ‘hot’.” Attrition levels in the industry are at 17 per cent according to National Association of Software and Service Companies (Nasscom) and Infosys’ level is 13.7 per cent of which 1.7 per cent is lost in training.

Infosys BPO currently has 30 clients of which the top seven accounts for half the revenues. Amitabh Chaudhry, CEO and Managing Director, Infosys BPO, said the impact of the U.S. sub-prime crisis on revenues “this year is $1 million. The immediate impact is that volume and margins will come down.

China operations

Regarding the possible slowdown of the U.S. economy, Mr. Gopalakrishnan said, “The feedback till now is there is no sign but we are watching and clients will only increase off-shoring. Different sectors behave differently and currently, telecom, energy, retail, utilities and financial services are seeing growth and opportunities.”

Infosys has 700 employees in China with its BPO having 100 employees with offices in Shanghai and Guangzhou. “It is however, growing slower than we expected. Global customers have not taken to China as would have liked. India is still viewed as the ideal location for offshore outsourcing. We are pushing customers to look at China as an option.”

The Infosys CEO admitted that in the longer term, the biggest challenge for the industry was the talent pool crunch. Infosys is working with 330 engineering colleges and has a global education centre in Mysore where 10,000 students can train. There was an increasing sign of a reverse brain drain, he added.

“We are seeing more people coming back and we have programmes not just to attract Indians but foreign nationals here.”

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