Burning up the track

It took Infosys Technologies 23 years to achieve a turnover of $1 billion, and 23 months to add another billion; now it will take just 12 months to add a third billion if it meets its guidance of $3 billion in the current financial year. This is exponential growth of a dramatic nature. Conventional wisdom would suggest that as a firm keeps growing, its ability to grow rapidly must diminish. But Infosys, along with other top Indian IT firms, is scripting a different story. The latest quarterly results of Infosys are exceptional for two reasons. Not only has the year-on-year top line growth reached a scarcely believable 50 per cent, net margins have also improved to an exceptional 26.9 per cent. The slight depreciation in the rupee's exchange rate vis-à-vis the US dollar has undoubtedly helped, but net margins are likely to remain very satisfactory even if they are affected slightly adversely if the exchange rate moves in the opposite direction.

So impressive are the results that it is difficult to find any serious chinks in the company's armour. The attrition rate has gone up slightly, the excessive dependence on the US market remains unchanged and price realisation maintains a near horizontal trajectory. Obviously, like the other industry leaders, Infosys is having to maintain growth by adding numbers and in this situation, when there is an all-round premium on upscaling, staff acquisition and retention become key issues. As for prices, they have gone up slightly after several years. But the industry leaders have been able to counter this medium-term stagnation by raising productivity and delivering consistently better value for the same price. This explains the high level of customer satisfaction reflected in the equally high level of repeat business, at 95 per cent. The proportion of fixed price business, which is supposed to be a proxy for better margins and higher brand equity, has gone down slightly but that is inevitable if the bread and butter business (development and maintenance) keeps growing so rapidly.

Going by these numbers, it should not be difficult for Indian IT services to achieve the goal of $50 billion exports by 2008, first mentioned in the Nasscom-McKinsey study at the turn of the decade. This is a testimony to the efficacy of the distributed development model which the Indian IT leaders have invented and which is now being actively emulated by the global incumbents. The exponential growth also bears testimony to the level of client satisfaction and loyalty that the IT players have been able to achieve. Going by current indications, the relentless pressure on global business to keep cutting costs and the facilitating role that offshoring has been able to play in it should enable Indian IT leaders to look forward to very bright prospects in the medium term. In the long term, the firms will have to acquire far deeper technology skills and business knowledge in order to become clients' business transformation partners. For that they will have to become truly global players. To achieve this end and get included in leading global stock indices, Infosys has announced a fresh round of equity issue overseas which will raise its foreign holding by 5 percentage points to 19 per cent. By becoming more of a global brand, the firm will be able to make the right niche high-tech acquisitions and recruit the best international talent.