..gets tough, the tough get going. That’s what the company has proved with significant 15% sequential growth in topline. The biggest positive that has come out from the company’s performance this quarter is that the company has proved its ability to ramp up volumes in such a weak business environment.
Not only did the company manage a strong topline growth, but it also managed to improve operating margins. However, due to a significant number of projects (290 projects) starting this quarter the company saw the onsite-offshore ratio moving in favour of onsite projects. Since onsite projects tend to have lower operating margins, the improvement in margins was suppressed to a certain extent. Projects generally tend to start onsite and then move offshore. The company for the past two quarters has seen significant number of project starts. Going forward these projects could be transferred offshore and will thus, result in better operating margins.
On the marketing front, the company added 18 news clients. This has been significantly lower as compared 23 added in 1QFY03. The list of new clients added include Security Benefit Group of Companies from the financial services vertical, Arrow Electronics - a distributor of electronic components and computers products and Prosche AG from the manufacturing sector.
During the quarter the company saw a strong growth in revenues from development and maintenance that account for 63% of the company’s revenues. But services like re-engineering, package implementation and consulting services clocked double-digit growth rates sequentially. The revenues from its products that mainly consist of sales of its flagship-banking product Financle grew by a steep 66% sequentially. The numbers point to the fact that not only is the company doing very well in its existing business lines, its making significant headway in to the new focus are like consulting and products. In 1HFY03, while revenues from consulting and products have grown by 22% and 75% respectively, the chunk of growth has come from its dominant revenue streams development and maintenance. The revenues from development have grown by 29% in 1HFY03 and the growth in revenues from maintenance is a notch higher at 32%.
The industry mix for Infosys’ revenues has not changed significantly on a sequential basis. However, the 1HFY03 numbers reveal a very strong growth in revenues from verticals like energy & utilities and logistics and transportations. Thus, the company has been making efforts to penetrate in verticals that have a relatively lower use of information technology in their operations. The company has seen a strong growth of 40% in revenues from banking and financial services, in 1HFY02. This comes at a time when the financial services industry is pasting through a rough patch.
Banking & financial services
Energy & Utilities
Transportation & logistics
*Banking & Financial Services
The revenues growth in 2QFY03 was mostly due to increased business from the US geography. Revenues from Europe, however, declined on a sequential basis. The European economy too has been slowing down partly due to the slowdown of the world’s growth engine, the US economy. The revenues from India grew by a strong 60% sequentially. Infosys’ banking product, Finacle has significant market share in India. The growth is likely to have come from the sales of its banking product.
The company provided for Rs 238 m towards investments in 2QFY03. Excluding the provision, the company’s topline growth would have translated to bottomline growth. Infosys, as on 31st March 2002 had Rs 444 m of investments. Of this Rs 238 m has been provided for and therefore, the company still has Rs 209 m in its books. There is a possibility that the management could further write off the remaining investments. The company’s in which investments were written of were Onmobile Systems USA (100% of Rs 90 m written off), Workadia USA (70% of Rs 103 m), Jasdic Park Company Japan (100% of Rs 7.5 m) and Asia Net Media (BVI) Limited (100% of Rs 68 m). Infosys still has investments are Cidra Corporation (Rs 134 m), M-Commerce Ventures (Rs 18.4 m), Stratify (Rs 23.3 m) and Workadia (Rs 31 m). Further, the company is facing a lawsuit for sexual harassment and this could significantly impact the company’s financials.
The future growth of the software industry will be based on volume growth. Due to intense competition from Indian companies, western IT services companies are setting up offshore development centres in India. Effectively, the global IT services majors will be able to counter the pricing pressure of the Indian software majors, thus reducing the cost leadership of the Indian software sector. Further, they also compete for talent, which will put pressure on expenses in terms of increased employee costs. Thus, the companies that will be able to do well will be the ones that have strong marketing infrastructure and are able to ramp up volumes significantly. Infosys, with the performance for 2QFY03, has proved that it is more than prepared for the eventuality - war with the global IT services majors
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