Infosys Technologies beat its own revenue guidance with better-than-expected second quarter (July-October) results, indicating an overall improvement in business and demand.
The company also said both its offshore and overseas employees would get a wage hike, effective October 1. S Gopalakrishnan, chief executive officer and MD of the company, while speaking to Bibhu Ranjan Mishra and Ravi Menon, elaborated on how the changing demand landscape could improve the company's fortunes. Edited excerpts:
Are you satisfied with the company's quarterly performance?
Our business model has proved that it works quite well in this kind of environment. Despite the economic slowdown, we managed the business and retained our employees, despite lower utilisation rates of 73 per cent.
We are making continuous investments in strategic initiatives, and continue to recruit. And, we have been able to sustain our margins. Volumes have gone up by 3 per cent as compared with declines in the trailing quarter.
Does the improvement in volumes signify that demand is picking up?
We have given a guidance of sequential (Q-o-Q) growth for the next two quarters, which indicates that we are cautiously optimistic about the environment.
Your account receivables (collections) position looks good. It has fallen to 56 days this quarter...
Absolutely. In fact, we view this as a very significant development as far as the economic recovery is concerned. Our collection system has been streamlined to improve billing efficiencies and reduce time lags in payments. Please also remember that this is the way we have been calculating this from the invoice day. Typically, our clients are given a minimum of 30 days to pay up after the invoice is submitted. This (56 days) is actually a very good number.
Do you expect changes in client budgets?
Client budgets this year were lower than last year by 6-8 per cent. But budgets next year are expected to be flat. We will get a better idea about next year's budgets towards the end of 2009 when these are actually finalised. Normally, clients try to finish up the budget towards December every year. But this year, this may not happen. They will carry that forward to the next year, given prevailing market uncertainties.
Looking ahead, which sectors could drive growth?
We are seeing growth across all industry verticals, with the exception of manufacturing. We have seen growth picking up in North America and we are optimistic about Europe, which will see a time lag and will start picking up soon. We are seeing improvement in some service lines like remote infrastructure management, systems integration and business process outsourcing. Considering all this, there is indeed improvement in the business environment. Clients are now more confident and proactive in starting projects and closing deals.
Is pricing pressure now bottoming out?
Pricing pressure is lower now. Of course, we will see occasional renegotiations. But we will not see improvements in pricing in the near term because the environment has to significantly improve for that to happen. Inflation is very low or almost zero in most developed markets. So, pricing increases will happen when inflation rates start picking up, when unemployment comes down and when the overall business environment improves.
Why have you changed your mind on giving increments to your offshore and onsite employees?
At the beginning of the year, we had told employees that if things improve we will look at an interim hike, and we have done that now after the situation has improved. On an average, we are giving increments of 8 per cent to our Indian employees and 3 per cent to those overseas. This is not a move to merely retain employees, but also to reward them in the light of the turnaround in our fortunes.
Has your India business started picking up?
Indeed. And margins in domestic deals are a function of how selective you are with the deals you go after, and how you structure the deals. We believe that if you structure the deals in a way where you offer value to the customers, as well as Infosys, then we should be able to get similar margins in India also.
But more than half of your India portfolio lies in government projects...
We have always adopted a portfolio approach for India. Some deals we have closed here will give us volume growth, some will give us the visibility and experience to bid for future projects, while others will give us margins. We are banking on the government sector to boost our growth in the Indian market. We have decided to enter the government sector in the US also.
