Shobhana Subramanian & Sarath Chelluri / Mumbai Oct 10, 2009, 00:39 IST
A better operating performance and favourable currency movements help fetch the tech major better margins.
Infosys posted a 50 basis points increase in operating margins in the September 2009 quarter to 34.6 per cent, surprising the Street which had pencilled in a drop in margins, anticipating higher investments in sales and marketing. A better utilisation rate, up 300 basis points, together with a more favourable offshore:onsite ratio helped push up margins.
The Infosys management, however, remains cautious on margins, indicating it’s possible the 8 per cent increase in wages and salaries for offshore employees and the 2 per cent hike for onsite employees could hurt margins by about 200 basis points over the next couple of quarters. That is, however, not something to be concerned about, because with volumes recovering — up 2.3 per cent sequentially — compared with a fall in the June 2009 quarter, the outlook for the top tier technology firms now appears distinctly brighter.
Better volumes and favourable currency movements helped Infosys post an increase in dollar revenues of just under 3 per cent in the September 2009 quarter. Pricing, which came off by about one per cent, is still a bit of a concern, with the management indicating an upside could be some time away though right now pricing was stable. Nevertheless, the fact that Information Technology (IT) budgets aren’t coming off and are either flat or seeing a slight increase, has perhaps prompted the Infosys management to up its revenue guidance for 2009-10 by about 3 per cent to between $4.6-4.62 billion.
Even if budgets aren’t upped, it’s possible, say industry watchers, that Indian IT firms will gain as customers consolidate vendors. The good news is that the BFSI vertical, to which the bigger IT firms have a fairly large exposure, seems to have seen off the worst. Moreover, there’s traction in some other spaces, like telecom.
That was evident in the fact that Infosys managed to add 35 new clients during the quarter; at the same time the firm was also able to mine its top clients better. At Rs 2,178, the stock trades at 18.8 times estimated 2010-11 earnings and unless the rupee strengthens significantly or is very volatile, does hold at least a 15 per cent upside from current levels.
The spectacular and outstanding performance of Infosys will be a good sign for the IT industry across the world. Infosys has been able to obtain new clients and it has strengthened its presence the world over. Infosys believes in transparency at all levels and is committed to bring value to its shareholders and customers. With recession being given a goodbye, the positive results of Infosys should pave way for other industries to follow Infosys' footsteps and march forward to combat slowdown and thus raise the standard of living of the people. The fundamentals of Infosys will continue to be the guiding factor for its future growth and the Founders of the Company have made the country proud by taking appropriate actions to contain the evils of depression and recession which were plaguing the economy. If Infosys has done well, much credit should go to the team and its employees.
K.V. Suryanarayanan
Flat No. 116, A Block
Raheja Enclave
Race Course Road
Coimbatore 641 018
Content Guide
