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Infosys foresees flat growth rate in second quarter

Fakir Chand in Bangalore

Infosys Technologies Ltd, the Bangalore-based global IT consulting and software service provider, is beginning to feel the heat of the meltdown in the technology sector, especially in the US.

As a direct fallout of the slowdown, Infosys chairman and CEO N R Narayana Murthy on Tuesday projected a flat growth rate during the second quarter over the just-concluded first quarter of the current fiscal year (2001-02).

"Though the growth rate during the first quarter of this year has been remarkable over the corresponding period of the preceding fiscal (2000-01), our revenue and net profit projections for this (second) quarter are likely to be what it has been at the end of June 30, 2001," Murthy told rediff.com while giving an account of the latest quarterly performance.

Disclosing the outlook for the quarter ending September 30, 2001, Murthy said the total income was expected to be between Rs 6.25 billion and Rs 6.40 billion, and earnings per share was likely to be around Rs 28-29.

Earlier in the day, the company had announced its financial results for the first quarter of the current fiscal year, which has shown a total income of Rs 6.26 billion and a net profit of Rs 1.90 billion, registering an increase of 68.9 per cent and 49.88 per cent respectively over the corresponding period of the last fiscal (2000-01). Similarly, the EPS shot up to Rs 28.72 from Rs 19.17 at the end of Q1 last year.

At the same time, Murthy has not ruled out the performance in the second quarter exceeding the projections being made on the basis of the prevailing market scenario, including pricing pressure and global competition from its peer players.

"The outlook is being made on our estimates of the market. They may be, as before, conservative and modest. The figures may either exceed or remain more or less the same," Murthy affirmed.

Nevertheless, Murthy is optimistic about an upswing in the company's performance during the subsequent quarters of the current year. "We are sticking to the projections made for this fiscal year in April, when we announced the financial results for the previous year and said the growth over the corresponding period would be about 30 per cent during the current fiscal. There is no change in that. We expect, however, to make up for the foreseeable flat growth rate in Q2 during Q3 and Q4 of 2001-02."

Giving an update on the global scenario in the IT industry, Murthy said the economic environment continued to be challenging and companies around the world were seeking to realise higher returns on their technology investments.

"Our ability to provide high-value solutions to our clients is key to our success in this marketplace. While we have exceeded our earlier guidance for the first quarter, we have not seen any material change in the external environment to revise our annual growth forecast of 30 per cent for fiscal 2001."

As against a total revenue of Rs 19.60 billion posted during the previous fiscal year (2000-01), Infosys is projecting a gross revenue of around Rs 25 billion at the end of the current fiscal (2001-02).

Presenting the highlights of the first quarter, managing director, president and chief operating officer Nandan M Nilekani said unlike during the past several quarters, revenue from domestic sales has shot up phenomenally to register record growth rates.

"Income from domestic sales for the first quarter of this fiscal year has soared to Rs 160 million from a mere Rs 40.5 million posted in the corresponding period (Q1) of last fiscal year, registering a phenomenal growth of 263 per cent," Nilekani stated.

On quarter-to-quarter basis, income from domestic sales has gone by 73 per cent during Q1 of current fiscal year over the last quarter (Q4) of the last fiscal with a revenue generation of Rs 90.40 million.

On the contrary, income from export of software products and services has seen a growth of around 7.93 per cent over the previous quarter (Q4) of 2001, and way below 70 per cent registered during the first quart of last year.

Deputy managing director S Gopalakrishnan has admitted that the company had experienced pricing pressures from existing and new customers, especially in new, large-scale offshore initiatives. "We, however, have a yield-management system which enables us to maintain our overall productivity above a stipulated level," he added.

Besides over all cost cutting, including foreign travel for onsite work, the company has taken timely strategic decisions to de-risk dot.com and venture-funded businesses. As a result, a sharp decline in revenues from e-business engagements, start-ups, and venture-funded companies has been witnessed. Around 5 per cent against 17.2 per cent registered in Q1 of last year.

Allaying fears over retrenchment and large-scale benching of its employees, Nilekani said the utilisation rates, including trainees was around 69.5 per cent during the quarter under review against 64.9 per cent during the fourth quarter of the last fiscal year, but below 74.9 per cent over the corresponding quarter, ending June 30, 2000.

The company has acquired 26 new clients against 32 during the corresponding quarter of last fiscal, and down by 9 clients from the previous or last quarter (Q4) of 2000-01.

Similarly, revenue from offshore projects has gone up marginally to 49.50 per cent from 47.50 per cent over the first quarter of last year, while revenue from onsite projects has declined to 50.50 per cent from 52.50 per cent.

On the human resources front, the company has decided to phase out the joining schedules of campus recruits to align them with its business requirements. "Our plans for adding 1,500-2000 employees on a gross basis in the current fiscal year remain unchanged," said K Dinesh, director for Infosys' human resources development, information systems, and quality and productivity.

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