Software: Fleet footed performance - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Software: Fleet footed performance

May 10, 2002

Undoubtedly, FY02, the year that went by was perhaps one of the most challenging for the Indian software industry. Due to the huge demand supply gaps the companies had been to a great extent insulated from the ‘dynamics of cut throat competition’. But as the going got tough, the tough got going, while the not so tough fell by the way side. The broad patterns seen over the industry were decline in lower growth in volumes, decline in billing rates, clients shifting to more onsite projects, elongation of sales cycles, pressure on margins and decline in attrition. As the promise of a IT revolution turned to more of a evolution and business environment got tougher the clients, took a hard look at what they were paying for the IT services being provided to them. Also, giving into competitive pressures some companies started under cutting. This triggered a billing rate slide. Many like Wipro held on to the their rates and even let projects go for in favour of billing rates.

FY02: Life in the slow lane
Infosys FY01 FY02
Revenue growth 115.4% 37.0%
Operating profit margin 40.2% 39.9%
Net profit growth 114.2% 28.5%
Revenue growth 81.3% 42.0%
Operating profit margin 36.5% 33.6%
Net profit growth* 134.4% 55.0%
* Excludes extra-ordinary items for FY01 and FY02

Infosys in FY01 had achieved a 103% topline growth. This came from a 62% growth in volumes and a 41% growth in realisations. However, for FY02, the company’s 37% growth came from a 41% growth in volumes and a 3% decline in billing rates.

The volumes declined primarily due to the fact that in wake of the economic slowdown in FY02, companies were focused on keeping existing systems running. Thus, there were not many takers for development services, which accounts for a significant part of the revenues for a majority of Indian software companies.

Less of bread and butter business
Development FY01 FY02 Change
Infosys 40.0% 32.0% 9.6%
Satyam 63.9% 52.1% 15.9%

However, the fleet footedness of the software companies once again came to light with the fact the companies quickly ramped up business from traditional strong holds like maintenance. The demand for maintenance related services saw a sharp surge as corporates directed their IT budgets for the year towards keeping existing systems up and running.

Maintenance FY01 FY02 Change
Infosys 25.4% 29.0% 56.4%
Satyam 21.1% 29.7% 99.4%

The significant growth in revenues from package implementation was a pleasant surprise. Corporates have spent huge fortunes on various kinds of solutions like ERP (enterprise resource planning), SCM (supply chain management) and CRM (customer relationship management). In many cases these solutions are ‘islands of information’ i.e. one system cannot talk or exchange data with the other. However, for meeting the information need of an organisation in real time all these solutions have to be seamlessly integrated. The process of integrating disparate systems is known as ‘enterprise applications integration’ or EAI. The demand for implementation of SCM, ERP, CRM and integration packages known as middle ware got a boost as companies focused on improving the return on investment from their existing IT solutions.

Packaged software
FY01 FY02 Change
Infosys 7.2% 9.8% 86.5%
Satyam 6.4% 13.9% 207.3%

Considering the fact that Infosys closed the year with a 37% topline growth and Satyam closed the year with a 42% topline growth even as their most dominant revenue stream (development) grew by 10% and 16% respectively speaks volumes of ability to tap emerging opportunities. Thus, the highlight of FY02 performance was the agility on part of the software majors. The new buzzword is business process outsourcing (BPO). It will not take a wizard to guess that the Indian software majors will do a good job once again.

Equitymaster requests your view! Post a comment on "Software: Fleet footed performance". Click here!


More Views on News

If You had Invested Rs 1 Lakh in TCS in 2011, this is how Much You Would have Today (Views On News)

Nov 30, 2021

Did TCS perform better than the market and its peers?

India's Top 4 IT Companies are Struggling. Here's Why... (Views On News)

Oct 22, 2021

As attrition rates are unbelievably high, top Indian IT companies are going for big-ticket raises, and much more hiring this year.

Infosys had an Exceptional Quarter Buoyed by Huge Deal Wins. Revenue Guidance Boosts Stock (Views On News)

Oct 14, 2021

Infosys raised its forecast for annual revenue growth to 16.5-17.5% from the earlier 14-16%, predicted in July 2021.

Info Edge: The Anatomy of an Indian Internet Behemoth (Views On News)

Oct 2, 2021

Info Edge is very popular in the Indian startup ecosystem due to its active participation in funding events.

This Indian Company is Tapping into the Huge Autonomous Driving Opportunity (Views On News)

Sep 14, 2021

Despite many challenges, Indian companies and startups have not shied away from entering this space.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

The Biggest Winners and Losers in India's Transition to Electric Vehicles (Profit Hunter)

Nov 26, 2021

How India's EV transition could be a major headwind for the incumbents.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 7, 2021 12:31 PM