2QFY02 is not likely to bring much of a surprise as far as Infosys’ results are concerned. However, surprises if any will be on the pleasant side. Beating its own guidance has come to be a habit with the software giant. More than anything, the second quarter was a proof of Infosys’ maturity in software development.
Infosys appointed two companies, Telesis Technologies and Software Technology Group (STG) International, as a service partners for its flagship product ‘Finacle’. These companies will deliver training and implementation services to Infosys' customers for the product Finacle. Companies in general can hope to achieve this feat after a considerable amount of stability comes into their products. There is hardly any software company in India that has comprehensive products, which can be independently implemented. Till date, large companies like SAP, Ariba, Siebel had products which Indian companies (including Infosys) used to implement. Infy is graduating up the value chain by creating successful products. Meanwhile, Infosys managed to add another client from Africa for Finacle, Kenya Commercial Bank.
The company continued its growth story with opening of an office in Singapore and inauguration of its development centre in the Mangalore (India). The campus at Mangalore can accommodate 950 employees. Projects for top global firms like Apple Computers (USA), Northwestern Mutual (USA), Adidas (Germany/France), Reebok (France), Toshiba (Japan) and Dell (Japan) are serviced from Mangalore. Infosys plans to focus on Singapore as a key market. According to Gartner, Singapore's IT market is expected to grow from a current size of US$ 8 bn to US$ 12 bn by 2004.
However, the slowdown continued to take its toll on the company. Infosys has delayed the joining dates for its fresh recruits from colleges over the country. This is a move to align the capacity with the demand. And after the September 11 attacks on the US, the uncertainly has prolonged. Infosys has however reiterated its earnings guidance issued at the beginning of the year.
Another significant event in the quarter was the inauguration of Infosys-Intel e-Business Solutions Lab. The Infosys-Intel Lab will focus on the e-business solutions area and will work on building practices on Intel architecture platform for the enterprise customers. Under the e-Business Solutions Provider programme, Infosys will work on enterprise performance engineering solutions based on Intel based platforms and architectures. Intel will provide the necessary hardware, software and technical information to enable Infosys customise its solutions according to Intel architecture.
Infosys also launched its Legacom Service, which enables companies to migrate their legacy systems to open standards-based distributed architecture like Intel platforms. A significant number of corporates have their information systems running on very old IT infrastructure. These need to be migrated to newer technologies without disrupting the availability of information. Companies like Infosys with the Legacom framework focuses on identifying, extracting and repackaging business value in legacy systems. Already Infosys earns a significant amount of its revenues from maintenance of legacy systems. Once the economy turns around in the US, migration from legacy to newer technologies is one area that will see strong growth.
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Infosys also entered into an agreement with TIBCO to provide integration of TIBCO's entire product line, development and support of essential enterprise application integration adapters. This move will help Infy to gain a presence in the enterprise application integration (EAI) space. To know more about this please read EAI: Infosys moves in
We expect Infosys’ topline to grow by 4.5% for 2QFY02. The key metric to watch will be the operating margin. This quarter, the company’s operating margins could decline due to pressure on billing rates. Thus, to be conservative we have assumed a marginal decline in operating margins. At the current market price of Rs 2,460, the stock is trading at a P/E multiple of 21 times its FY02 estimated earnings.
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