Scouting for small buys: Infosys CFO

Infosys CFO V Balakrishnan has a tough job at hand. Rising attrition, wage hikes, rising rupee and more taxes, all are trying to hit the Infosys balance sheet. But despite the rising rupee, Infosys managed its reputation of beating analyst forecast and delivering higher bottomline and topline growth. He talks on the problems the company is facing due to the rising rupee and related issues.

By how much has the rupee hurt Infosys balance sheet this quarter?

Our net margin in the past quarter (Q4 FY07) was about 27%. In Q1 FY08, our margins were hit by 7%. Wage hikes (of 12-15% offshore and 5-6% onshore) eroded margins by about 2.5%. A hit of about 1% was suffered due to the visa costs. But an appreciation of 6.8% in the rupee gave us the maximum hit, of 3.5%. However, better employee utilisation and flexible financial model enabled us to overcome it. All our subsidiaries are doing well except Infosys Consulting and Infosys China which are in losses. In IT services, we have a natural hedge with about 26.2% revenues coming from Europe vis-a-vis 64% from North America.

But you decreased your rupee EPS guidance for the year?
We increased our dollar guidance but decreased the rupee guidance to factor in hit due to the rising rupee. Nevertheless, we have hedged for almost $925 million. But hedging can only curtail the hit by currency appreciation to a certain extent. We are trying to increase our geographical spread and increase our non-dollar clients.

Should the government do something to curtail the rupee rise?

The government cannot control inflation, interest rates and currency fluctuation at the same time. A certain appreciation in rupee is fine but a large amount (about $5 billion) of speculative and arbitrage money which flows in every month in India is creating the problem. The government should control it.
Rupee appreciation in IT firms can be countered by its natural hedge of working in different currencies. But BPOs which work at a thin margin (Infosys BPO margin is about 17%) are certain to take a hit due to rupee rise. If the government does not control it, India may lose its cost advantage in BPO sector.

Is linearity between revenues and employees hurting you? How are you trying to tackle with it?

Managing scale is an issue which Infosys has been grappling with for quite some time. We are about 76,000 employee strong as of June 30, 2007. We plan to hire about 26,000 employees this fiscal which may make us a one lakh plus employee company. To tackle this problem, we are diversifying into newer services which offer better revenue per employee.

Is Infosys scouting for large sized acquisitions? Are you bidding for Capgemini?

We cannot comment on rumours. But what I can tell you is that Infosys is scouting for acquisitions. Instead of large, we will focus on small-sized buyouts which come as a strategic fit. The acquisition will be either to penetrate new service lines or acquire capabilities in infrastructure management, testing, BPO services etc. Else, the buyout will be driven to penetrate a different geography or market.

Are you renegotiating contracts at higher billing rates due to rupee rise? How many of the 35 new clients added this quarter came at higher billing rates?

A significant portion of the 35 new clients we acquired in Q1, came at an increased billing rate, of about 3-4% higher. We are in constant dialogue with our clients to increase billing rates. But most of the re-negotiation happens at the end of the of the contract. In return we have to add more value. It’s a give and take relationship. But the client has to agree.

Infosys Forecasts Over 29 Percent Annual Revenue Growth

India's outsourcing industry continues to do well despite higher staff costs.
John Ribeiro, IDG News Service
Wednesday, July 11, 2007 6:00 AM PDT

India's outsourcing industry continues to do well despite the appreciation of the Indian rupee against the U.S. dollar and higher staff costs.

India's second largest outsourcer, Infosys Technologies Ltd., Wednesday revised slightly upwards its revenue forecast for its fiscal year to next March 31. The company said it expects revenue to grow by 29 to 31 percent during the year to between US$4 billion and $4.05 billion.

Infosys, of Bangalore, said in April that it expected its revenue to grow by 28 to 30 percent to about $4 billion during the year.

The company, which is listed both on Indian and U.S. stock exchanges, has however revised downward its revenue forecast in rupees, to take into account the appreciation of the rupee.

India's software and services exports are projected to grow by 26 to 29 percent to about $40 billion in the fiscal year to next March 31, India's National Association of Software and Service Companies (NASSCOM) said this month. The country's revenue from exports of software and services and business process outsourcing (BPO) grew 33 percent to $31.3 billion in the fiscal year to last March 31, according to NASSCOM in Delhi.

The appreciation of the Indian rupee against the U.S. dollar pushes down rupee realizations for revenue earned abroad by Indian companies, even as staff costs in India are going up. The U.S. is the largest market for Indian outsourcers, accounting for about 66 percent of export revenue.

Indian outsourcing companies seem to be holding out well against the pressures.

Infosys of Bangalore has maintained its net margins despite the rupee appreciation, higher wages, and costs of visas to the U.S., the company said Wednesday, while announcing its results for the quarter ended June 30.

iGATE Global Solutions Ltd., a mid-size outsourcer in Bangalore, also said Wednesday that it had nearly doubled its operating margins in the quarter over the same quarter last year, despite a stronger rupee, on account of higher rates from customers, higher utilization, and increased use of offshore delivery of services.

In the quarter ended June 30, Infosys posted revenue of $928 million up by 40.6 percent over the same quarter last year. The company's profits for the quarter were $263 million up by 51 percent from the same quarter last year.

Infosys' results are in compliance with US GAAP ( Generally Accepted Accounting Principles).

The company added 35 new clients and 3,730 employees during the quarter taking the total number of employees as on June 30 to 75,971. Infosys plans to hire 26,000 more staff during the current fiscal year.

Infosys and other Indian outsourcers compete with multinational services companies such as Accenture Ltd. and IBM Corp. which have set up offshore services delivery centers in India to take advantage of the lower cost of staff in the country.

There is, however, enough business going around for both Indian and multinational companies, according to Indian outsourcers. The crunch comes in relation to hiring new staff.

Wipro Ltd., India's third largest outsourcer will be announcing its results for the quarter next week.

Infosys to hire 26,000 people this fiscal

IANS[ WEDNESDAY, JULY 11, 2007 02:01:36 PM]

BANGALORE: Infosys Technologies Ltd will be on a hiring spree this fiscal (2007-08) too.

In a bid to stem the growing attrition rate due to competition from the booming IT industry, especially the multinationals, the company plans to hire a whopping 26,000 people this fiscal.

"Hiring continues to be strong and attrition is under control. We plan to hire 26,000 people for the year. In the first quarter (April-June), the gross addition was 7,004 employees and net addition 3,730," Infosys head for HRD and education and research TV Mohandas Pai said in a statement here on Wednesday.

As a result, by the end of the quarter under review (Q1), the total number of employees in the company and its subsidiaries worldwide stood at 75,971, compared to 58,409 a year ago and 72,241 a quarter ago.

The attrition rate during the last 12 months has gone up marginally to 13.7 per cent in Q1 from 11.9 per cent in the same quarter a year ago.

"Our investments in training and education are giving us enhanced capabilities to make our clients more competitive and meet our growth objectives," Pai claimed.

Of the total headcount, 71,018 are software professionals, including 63,895 billable and 5,070 trainees. There are 1,859 lateral employees.

In terms of utilisation rate, the percentage has declined to 73.9 per cent from 76.1 per cent a year ago, excluding trainees. Of the total software professionals, 73.7 per cent are deployed offshore and 26.3 per cent onsite.

"Revenues from our onshore-offshore operations continue to remain in the same range (49-50 per cent) as in the last four quarters, with offshore slightly higher," Pai added.

IT stocks plunge as Infosys estimates lower growth in 2007-08

Mumbai, July 11 (PTI): Technology stocks fell like nine pins on the bourses today after Infosys, the country's second biggest software exporter, estimated lower-than-expected revenue and profit during 2007-08.

Infosys scrip fell 4.47 per cent or Rs 90.25 on the Bombay Stock Exchange to settle at Rs 1,929.70. Its bigger rival, Tata Consultancy Services, saw its shares dip 3.34 per cent of Rs 39.60 to Rs 1,146.90.

Shares of Wipro, the third-biggest software services exporter, declined two per cent to Rs 510.25, while the fourth largest player, Satyam fell 3.28 per cent to Rs 480.85. Overall, the IT index declined 3.34 per cent to close at 4,868.77 points from 5,036.99 yesterday.

Only two companies - I-Flex and Patni Computers - out of the total 12 stocks on the index managed to stay in the green.

The fall in IT stocks led the near 100-point decline in the BSE's benchmark Sensex, which settled below 15,000 after staying above the mark for two days.

Bangalore-based Infosys Technologies, however, reported better-than-expected results for the first quarter of this fiscal. Its consolidated net profit rose over 34 per cent to Rs 1079 crore and revenue grew 25 per cent to Rs 3,773 during April-June 2007.

The company estimated income is expected to be in the range of Rs 16,238-16,433 crore during 2007-08, with a growth rate of 16.9-18.3 per cent. In dollar terms, it expected consolidated revenue to be between 4-4.05 billion dollars, with a growth of 29-31 per cent in 2007-08.

Indian IT companies earn more than half of their revenues from the US market and have been facing a margin squeeze as the rupee has gained over 9 per cent against the dollar since the beginning of 2007.

Quitting Infosys - Jayson

After a stint of over 2 and half years, I have decided to quit from Infosys. Today is my last day in office. Unlike the day I left TCS, I feel quite happy today!

There isn’t much to write about Infy experience. I did meet a couple of good guys, but the overall experience can be hardly called “intellectually challenging”.

No, I am still in the rat race. You see, I have a family to feed So I am onto a smaller company, with the hope that I will find some really challenging technical stuff and would be able to make “some difference”.

From Tech, Life and Jayson!

India's Infosys Says It Needs to Increase Oveseas Presence

According to Business Week, India's second largest IT company, Infosys Technologies, has always experienced growth, unlike other competitors in India's technology arena which have gobbled up in acquisitions.Unlike its competitors, Wipro Technologies and Tata Consultancy Services who have been looking for acquisition in the U.S. and Europe, according to Business Week, Infosys, a Bangalore-based company, until recently had no reason to seek out acquisition. They have been steadily growing over the last five years at a rate of 40%.

However, per Business Week, as reported by Reuters on June 28th, Infosys was eyeing Europe's largest IT consulting and services firm, CAPP, Paris-based Capgemini. As rumors hit the marketplace, CFO, V. Balakrishnan of Infosys, denied the gossip because CAPP has a market capitalization of $10.5 million and Infosys is seeking acquisitions from companies whose worth is in the $100 to $200 million range.

As noted by Business Week, Infosys views consulting as a part of the market that could boost their bottom line and add value to its need for growth in its consulting services. Even though Infosys has experienced a rapid growth over in the past three years since its inception, and its sales were $111 million, the consulting side of the business lost $27 million this year through March, 2097. According to Business Week, VP of research firm Frost & Suillivan's IT practice in Mumbai, Alok Shende, said that as far as Infosys' stream of revenue, Infosys' consulting services have been sorely lacking.

The dollars to rupee currency swings have also had an effect on Indian outsourcers, even as U.S. accounts for over 70% of their revenue. The rupee, so far this year, has only grown 8% against the dollar. Unlike the U.S., Europe, per Business Week, has been unwilling to utilize Asian outsourcing which means, for Infosys, making major inroads in Europe is far more difficult.

Infosys, as reported by Business Week, is committed to bringing consulting competitors into the company on an executive level. For example, they approached Paul Cole, CAPP's former chief of global operations, Stephen Pratt, a former senior partner at Deloitte Consulting, and Romil Bahl, from EDS (EDS Consulting Services).

When CAPP acquired Kanbay International, it doubled its Indian workforce last year. This is significant in that if there were a deal between Infosys and CAPP, there would be an overlap in the workforce of about 18% of CAPP's global head count. According to Business Week, CAPP has already been struggling to find cost-cutting measures. Regardless, Infosys' desire to boost its share prices in the marketplace will still be seeking to make some kind acquisition deal.

Infosys May Miss Rupee Sales Target

By Chitra Somayaji

July 6 (Bloomberg) -- Infosys Technologies Ltd., India's second-largest computer-services provider, will probably miss its local-currency sales forecast because of the stronger rupee, which lowers the value of overseas revenue, Credit Suisse said.

The company will probably post 38.36 billion rupees ($948 million) in sales for the fiscal first-quarter ended June 30, analysts Bhuvnesh Singh and Sunil Tirumalai wrote in a note dated today. That's below the Bangalore-based company's April projection for 38.96 billion rupees to 39.13 billion rupees.

The value of earnings repatriated from the U.S., the software-maker's biggest market, fell after India's currency posted the biggest quarterly gain in more than three decades, appreciating 6.8 percent against the dollar during the three months ended March 31.

Infosys will be able to exceed and raise its forecast in U.S. dollars, the analysts wrote.

For the year, Infosys may cut its earnings forecast to 77 rupees to 80 rupees a share, from an earlier forecast of 80.29 rupees to 81.58 rupees, because of the currency, they said.

Shares of Infosys, which will report results for the quarter on July 11, rose 0.9 percent to 1,934.3 rupees as of 12:08 p.m. on the Bombay Stock Exchange. They have declined 15 percent this year, compared with an 8 percent gain in India's benchmark Sensitive Index.

Infosys Q1 result will decide market direction: Vishwas Agarwal

As expected, the Sensex touched 15,000 levels before July 9; going forward the first quarter events will be a big event for the market, particularly the Infosys Technologies, which planned to declare their first quarter next week that will determine market direction, said technical analyst, Vishwas Agarwal.

Currently the market is in comfortable zone without any higher expectation after reaching 15,000 levels and shows balanced long position.

On Friday, good movement was observed in technology stocks. Agarwal has given some levels for trading for IT majors like Infosys Technology Rs 1,975, Wipro Rs 525, Satyam Computer Rs 475 and TCS Rs 1,165. Above these levels, the shares are in stronger zone and advice traders to trade accordingly.

One should catch important basic support levels for Nifty 4,286, Reliance Industries Rs 1665 and State Bank of India Rs 1,525 to determine the market mood.

Disclaimer Clause: These recommendations are on a technical basis and myiris.com and the technical analyst are not responsible for any losses suffered. The analyst has no open positions in the above-recommended stocks. Such reports shall only be taken as a source of information.

Changes ahead at Infosys

By Nandini Lakshman, BusinessWeek

Unlike its acquisitive contemporaries in India's information technology sector, Infosys Technologies, India's second largest IT company, has long preferred organic growth.

Even as rivals Tata Consultancy Services and Wipro Technologies have scoured Europe and the United States for deals, Bangalore-based Infosys, which has been growing 40 percent a year over the last five years, until recently had little reason to go shopping.

Yet on June 28, it was reported that Infosys was eyeing Paris-based Capgemini, Europe's largest IT services and consulting outfit. The markets took the story seriously, despite management denials. Notably, Infosys Chief Financial Officer V. Balakrishnan dismissed the story as speculation, arguing that Infosys was looking at acquisitions in the US$100 million to US$200 million range, while Capgemini has a market capitalization of US$10.5 billion.

Nevertheless Capgemini's share price rose 3.7 percent on June 28 and a further 2.9 percent the following day. The French company's stock has only retreated slightly since. Stock movements at Infosys have been less spectacular. Since the story broke its share price has edged up 0.87 percent to US$47.40. Infosys has annual sales of US$3.1 billion and a market cap of US$29 billion.

Challenge for Consulting Arm
However this rumor plays out, Infosys will probably have to make a bold move soon. Consulting--the systematic examination of a company's IT problems and how they fit into a strategic corporate vision--has long been the coveted preserve of Western firms, most of them U.S.-based (Capgemini is the notable exception). The Indians see consulting as the next prize to conquer and another way to leverage their lower-cost software-writing power.

Infosys for one is desperate to grow its consulting arm. While outsourcing remains its core business, accounting for most of its sales, Infosys top brass see consulting as a way to add more value and boost profitability. "The challenge here is to grow the (consulting) business," Infosys co-founder Nandan Nilekani told BusinessWeek in an April interview.

Infosys' consulting business could do with a boost. Although the company as a whole has been experiencing rapid growth, its three-year-old U.S.-based consulting business actually lost US$27 million in the year through March, 2007, and had sales of just US$111 million. "Consulting has been a lacuna in Infosys' revenue stream," says Alok Shende, vice-president of research firm Frost & Sullivan's IT practice in Mumbai.

Wooing Big Names
Infosys also has to make major inroads in Europe, which has been more resistant to the attractions of Asian outsourcing than the United States. The United States. accounts for over 70 percent of revenues for Indian outsourcers and, while that has been a huge source of growth, it leaves them vulnerable to dollar-rupee currency swings. So far this year the rupee has appreciated 8 percent against the dollar.
What's more, there's no getting away from the company's commitment to bringing in consulting expertise at an executive level. Infosys has already wooed some big names from consulting competitors in the United States. These include Stephen Pratt, formerly a senior partner at Deloitte Consulting; Romil Bahl, from EDS Consulting Services; and Paul Cole, Capgemini's former head of global operations.

If an Infosys-Capgemini deal were to happen, experts warn that making it work would be a mammoth achievement. One possible problem would be the considerable overlap in India, which accounts for 18 percent of Capgemini's global head count. Last year Capgemini doubled its Indian workforce when it acquired Kanbay International which, while U.S.-based, has a large Indian presence.

Yet Capgemini so far has been struggling to find savings. "Capgemini doesn't have the cost advantage of Indian companies," says Ashish Basil, a partner in transaction advisory services at Ernst & Young, in Mumbai. Infosys would have to cut costs by restructuring, not just relying on a low-cost Indian workforce.

Even if a Capgemini deal doesn't materialize, Infosys has the cash and cash flow to make some sizable moves. The Bangalore company may also want to boost share prices in the long run. Though Infosys stock has performed heroically over the last five years, in the last 12 months it has trailed the Bombay Sensex index, rising 23 percent versus a 38 percent increase for the index. One way or another, action is likely at this paragon of Indian tech.

Trade Unions in IT not desirable: Infosys chief Kris Gopalakrishnan

Thiruvananthapuram, July. 2 (PTI): Asserting that perception and image of the IT sector was a vital factor for its growth, Infosys Technologies CEO and MD Kris Gopalakrishnan today said trade unions were not desirable in the IT sector at this point of time.

"It may not affect the Industry, but there would be change in the perception and image of the industry if trade unions are introduced," Gopalakrishnan told a meet-the-press programme here.

Justifying his stand, Gopalakrishnan said the IT sector was a well-paid industry and employees were happy. "What is the reason for trade unions now in the IT sector," he asked.

"We must seriously consider whether it is the right time to have trade unions in the IT sector. It might hurt the industry," he added.

However, he said problems in the IT sector, if any, should be addressed through discussions. IT bodies should take the initiative in this regard, he said.

Stating that the IT sector employs 10 lakh people now and was growing fast, generating two to three lakh jobs every year, he said IT jobs were well-paid and very attractive.

On merger and take over of foreign IT companies by Indian companies,he said it would integrate the Industry with global economy and it also showed the strength and confidence of the IT sector in the country.

Welcoming the Centre's move to abolish tax holidays in the IT sector, he said all companines have to pay tax.

However, he added that as long as such a scheme existed, "we will also take advantage of it."