The Hindu Business Line : Infosys expects margins to remain stable

LOOKING UP: Mr Nandan Nilekani (left), CEO and MD, Infosys, and Mr S. Gopalakrishnan, COO, at a press conference in Bangalore on Friday. - G.R.N. Somashekar

Bangalore April 13

The equity dilution on account of employee stock option plans will cut Infosys Technologies' earnings per share (EPS) in financial year 2007-08 by 3 per cent, said the Chief Financial Officer, Mr V. Balakrishnan. Infosys has guided a 20-22 per cent growth in EPS for FY2007-08 at between Rs 80.29 and Rs 81.58.

The rush to beat the fringe benefit tax (FBT) regime saw Infosys employees exercising about 13 million ESOPs in the March quarter, while a total of 20 million ESOPs were exercised in 2006-07. The company still has outstanding ESOPs to the tune of 2.1 million under 1998 ADR plans and 1.9 million under the 1999 plan, Mr Balakrishnan said.

Increased Productivity

The salary hike for both offshore and onsite employees would impact the margins by 100 basis points in the coming quarter, which would be offset through increased productivity and controlled (SG&A) sales, general and administrative expenses, Mr Bala said. "However, we expect the margins to be stable and range-bound," he added.

A strong rupee impacted the operating margins in March quarter by about 100 basis points, he said. Sequentially, the operating profit margins declined to 27.5 per cent.

Further, Mr Balakrishnan said the pricing outlook was stable with an upward bias. "New clients were coming in at 2-3 per cent higher billing rates," Mr Balakrishnan said adding: "For guidance, we are not assuming the hike in rates." The company is also negotiating with the existing clients for higher rates. In FY07, Infosys got an average rate hike of 5 per cent, while it was 1.7 per cent in the fourth quarter.

Good Growth

Infosys has bought forward covers worth $470 million as on March 31, 2007 and has pegged the capital expenditure for FY08 at between Rs 1,800 crore and Rs 1,900 crore, Mr Balakrishnan said. The cash and cash equivalents including investments in liquid mutual funds stood at Rs 6,073 crore as on March 31, he said.

Infosys, Mr Balakrishnan said, got two new deals worth over $50 million in the March quarter, including a deal from ABN Amro. "At any point of time, we are chasing 10-12 deals ranging between $50 million and $200 million," he said. Infosys saw good growth in the verticals such as telecom, banking and financial services, manufacturing and retail. The meltdown in the US mortgage industry would not have any impact, Mr Balakrishnan said adding the company derived less than 1 per cent of its revenues from mortgage sector.

Utilisation Rates

The COO, Mr S. Gopalakrishnan, said Europe continues to grow at a much faster pace than the rest of the world for Infosys. Europe accounted for 26.4 per cent of Infy's revenues, while the North America contributed 63.3 per cent.

Employee utilisation for Q4 stood at 73 per cent excluding trainees. "High utilisation rates allows us to take advantage of the favourable business conditions and accelerate growth," Mr Gopalakrishnan said, adding the company was maintaining strategic bench to bid for projects.