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Infy: Its different - Views on News from Equitymaster
 
 
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  • Jul 21, 2001

    Infy: Its different

    When Infosys Consultants Private Limited was incorporated on the 2nd of July, 1981 not many realized that it was the start of something big, as big as Rs 19 bn, known as Infosys Technologies Limited, twenty years down the line. Infosys’ sales in 1981 were Rs 1.2 m, and the return on capital employed was at 98 percent, the highest ever in its history. Then began the arduous task of building a world-class organisation meticulously, with the utmost commitment to quality and of course, very quietly.

    More than anything, Infy’s financials have spoken about its performance time and again. And the management’s bare all attitude has let the pessimists take as deep a look as possible only to find that the dream like performance of the company was actually real. What has made Infosys different?

      No of
    employees
    Growth
    (%)
    Revenue
    (Rs m)
    Growth
    (%)
    PAT
    (Rs m)
    Growth
    (%)
    1995 903 58 577 92 133 65
    1996 1,172 30 934 62 210 58
    1997 1,705 45 1,438 54 336 60
    1998 2,605 53 2,604 81 604 79
    1999 3,766 45 5,127 97 1,329 120
    2000 5,389 43 9,215 80 2,860 115
    2001 9,831 82 19,599 113 6,234 118

    It is due to the fact that Infosys has been built on a vision based on a deeply held value system. A value system that the company understood a long time ago that services business was all about people. Thus the organisation grew by heavily investing in its human resources, some thing that was very uncommon in the Indian industry. And Infy finally got its due when Business Today-Hewitt Study voted Infy the ‘Best Employer of India’. The Infosys success story is not about managing money but its ability to manage growth (people).

    There is a very old acronym in the software industry ‘GIGO’ that stands for garbage in garbage out. This is what Infosys has been weary of. ‘The company believes that its continued success will depend upon its ability to recruit, train and retain highly talented IT professionals’. Infosys focuses its recruiting efforts on the top 20 percent of the students from the engineering departments of Indian universities.

    But the argument that is against Infosys is that it had a first mover advantage and its growth has been during the boom time of the software industry. What lies ahead in the future? The tough times the software sector is facing will separate the boys from the men. Despite the challenging market environment the company managed to post a strong sequential growth (9 percent) for the first quarter of the fiscal FY02 and managed to add 26 new clients.

    Infy’s growth for the first quarter for fiscal FY02 was volume led. While the company increased the quantity of business by 11 percent, the blended billing rates actually came down by 2.8 percent. This was due to a fall in the offshore billing rates by 6 percent. 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 percent.

    Other than revenues from e-commerce that declined by 3 percent, Infosys saw a growth in all other service offerings. However, development segment that dominates total revenues has shown a marginal growth of 4 percent. 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 (5.1 percent of 1QFY02) too have shown equally strong growth (13 percent quarter on quarter). 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 performance is outstanding considering the tough market environment that the software sector is facing. And now Infosys is planning to add to its portfolio two new offerings, business process outsourcing (BPO) and systems integration (SI).

    Increasingly, organisations are relying on information technology for efficient operations, improved delivery mechanism and of course qualified decision-making. But the paradox is that technology gets more and more complex, as ability to deliver increases. Therefore, there is an increasing need for a partner who understands the technology and more importantly how the technology can help the organisation realize its mission and vision. Companies like Infosys go a step further. They can, not only provide the strategy but can deliver the solution too.

    In the fourth quarter of fiscal year 2001 Infy signed a MoU with the government of Andhra Pradesh, to set up a software development campus in Hyderabad. The facility will employ 1,300 software professionals in the next three years. The investment by Infosys will be in the range of Rs 800 million. For its part, the Government of Andhra Pradesh has agreed to provide Infosys 30 acres of land in Manikonda village, Hyderabad. But it is interesting to note that this facility will be located near the Indian School of Business (ISB) campus. Bottomline, Infosys won’t have to go far to look for world-class talent.

    As per another MoU, Infosys will set up a second software development campus at Hinjewadi (near Pune), and in the first phase of the project, spread over 3 years, invest Rs 600 million in facilities to seat about 1,200 software professionals. In the second and third phases of the project, within 5 years from the date of the MoU, Infosys will invest another Rs 600 million in facilities to accommodate an additional 1,500 software professionals. Infosys already has a development center at Pune Infotech Park, Hinjewadi, seating over 1,200 software professionals. For FY02 the company plans to recruit about 1,500 to 2,000 software professionals and has planned capex of US$ 80 million. These moves are certainly not of a company that sees a bleak future. Thus, what differentiates Infy from the pack is its HR focus and its ability to manage growth. Looking forward the company has just the right kind of skills to dominate the IT sector. But there are concerns regarding the prospects of the software sector. In the future the mankind will not be very different. People will still consume food, automobiles, financial services, consumer goods and so on. But the way industry produces these things has continually changed. The industries will use IT increasingly, to be as efficient as possible.

    Infact, the value proposition of IT services is increasing with each passing day. Bottomline IT is here to stay for a very long time. So is Infosys.

     

     

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