Infy’s growth for 1QFY02 was volume led. While the company increased the quantity of business by 11%, the blended billing rates actually came down by 2.8%. This was due to a fall in the offshore billing rates by 6%. Obviously, there is a pricing pressure on the company. However, for the onsite services the company managed to increase its billing rates by 1.2%. The onsite revenues contributed 50.5%, while offshore revenues contributed 49.5%. According to the company, in the current environment the billing rates will stay in a narrow band i.e. will remain stagnant. However, the concerns are that they might decline further. In such a scenario Infosys will have to ramp up volumes to maintain the earnings forecast it has given earlier.
Infy’s geographic mix for 1QFY02 has a pleasant surprise. The maximum growth has come from the India region. Revenues from India have grown by 67%. Thus, increasing India’s contribution to total revenues from 1.7% (4QFY01) to 2.6%. During the quarter Infosys added PNB (Punjab National Bank) to its client list. PNB will deploy Infy’s Enterprise Banking E-platform - Finacle, BankAway and Bancsconnect. Interestingly, Infy’s product sales have shown a growth of 50% in a single quarter. Revenues from North America saw a growth of 10% followed by 5% for Europe and a fall of 5% in revenues from rest of the world. The company is planning to increase market penetration. It has increased the number of people involved in sales and marketing from 105 in 4QFY01 to 122 in 1QFY02. Also, it is focusing on non-US markets. Infosys has opened offices in Argentina and Singapore.
Other than revenues from e-commerce that declined by 3%, Infosys saw a growth in all other service offerings. However, development segment that dominates total revenues has shown a marginal growth of 4%. The revenues from mission critical jobs like re-engineering and maintenance have shown higher growth due to the fact that in a tough environment spending on these areas have been dominating IT budgets. However, the positive news is that revenues from areas like consulting too have shown equally strong growth. This is positive for the company due to the fact that consulting is at the highest end of the IT value chain and therefore, commands highest billing rates. The company is planning to add to its portfolio two new offerings, business process outsourcing (BPO) and systems integration (SI).
Service offerings (as a % of revenues)
Internet / E-commerce related
Fixed price projects grew by 3%, while time and material projects grew by 11%. In the current market environment, clients prefer fixed price projects, as the costs are known and limited. But with more mature organisations like Infosys, clients enter into time and material projects due to their confidence in the company’s ability to deliver value for the price.
Business from the telecom vertical declined by 0.5% in 1QFY02. Infosys has not made any specific comments about rumors regarding decline in business from Nortel and Lucent. The insurance and transportation verticals saw the highest growth. Due to a strong earnings growth from the BFSI (banking, financial services and insurance) vertical, the share of this vertical has grown to 36.8% of Infy’s revenues.
Industry verticals (as a % of revenues)
Insurance, banking & financial services
Banking & financial services
Transportation & logistics
The performance has been outstanding considering the tough market environment that the software sector is facing. For the second quarter the company has given guidance for a flat topline growth. The growth patterns could be identical for the service offering and the industry verticals. However, it might just do a repeat performance – under promise and over deliver.
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