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Infosys: Onsite engagements, outsourcing deals drive growth

Krishnan Thiagarajan

A SHARP rise in onsite engagements and growing number of strategic outsourcing deals appear to have been the key driver of the revenue growth of Infosys in the second quarter of 2002-03. The robust volume growth has helped Infosys clock double-digit volume sequential (quarter-on-quarter) growth for the second consecutive quarter. But the post-tax earnings growth has remained relatively subdued on account of provision for investments and higher provision for taxation.

The robust revenue growth in the first two quarters has aided the Infosys management in increasing the revenue guidance for the year 2002-03. It has revised the projected income from software development services and products to between Rs 3,433 crore and Rs 3,467 crore from the earlier projection of Rs 3,108-3,195 crore. This effectively means that the projected income has been upped to 31.8-33.2 per cent range from the earlier projection in the 19.3-22.7 per cent range. But the per share earnings guidance has been pegged at almost the same range of Rs 142-145.

As the business environment continues to remain challenging, Infosys has projected a relatively flattish income from software development at Rs 890-904 crore (1.2-2.8 per cent) and higher per share earnings at Rs 37-38 (obviously, without the provision for investments made in this quarter).

The salient features of the earnings performance for the second quarter were:

  • An increase in the onsite contribution by around two per cent (maybe sparked off by the 400-odd projects initiated in the first quarter) helped Infosys register a 15.03 per cent sequential rise in revenues to Rs 879.57 crore in this quarter. It was significantly higher than the projected revenues of Rs 762-781 crore. The post tax earnings stood at Rs 225.77 crore (after provisions), a modest sequential growth of 4.1 per cent.

  • For the second consecutive quarter, the operating profit margins dipped by over three percentage points to settle at 36.75 per cent on a year-on-year basis. This was attributable to the higher onsite contribution and additional increase of investments in selling and marketing expenses.

  • However, the biggest trigger for the likelihood of future offshore growth was the net addition of 1,806 employees, which follows the addition of 566 employees in the first quarter of 2002-03. The employee utilisation rates continued to be strong at 78.1 per cent as compared to 78.9 per cent in the first quarter of 2002-03.

  • In respect of strategic investments made by Infosys in the past, the company has made provision for investments in Workadia Inc, OnMobile Systems Inc, US, Jasdic Park, Japan and Asia Net Media. The aggregate provision worked out to Rs 23.76 crore.

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