People costs weigh down margins
Engineering services company Infotech Enterprises Ltd reported a 28 per cent decline in net profit to Rs 36.98 crore for the quarter ended March 31, 2011, compared with Rs 51.34 crore in the same period last year. At Rs 325.83 crore, its revenues were up 33.5 percent from Rs 244.06 crore in the corresponding period.
On a year-on-year basis, net profit witnessed an 18 per cent slide to Rs 139.69 crore, though revenues grew 25 per cent to Rs 1,188 crore. The respective figures for the year ended March 2010 were Rs 170.84 crore and Rs 953.12 crore.
Announcing the financial results here on Wednesday, company managing director BVR Mohan Reddy attributed the 'erosion of margins' to a combination of factors including salary increases, unplanned lateral recruitments, investments in sales and marketing, and acquisition of domain experts. Its total expenditure was Rs 1,056.25 crore (Rs 788.42 crore last year).
Reddy said, “In the last two years, we added less than 100 trainees. If inflow changed from laterals to trainees, costs would come down. We are trying to correct this middle-heavy structure.” He said the company had recruited 600 trainees and 400 more were in the pipeline. It plans to have trainees and laterals in a 1:2 ratio.
On the outlook for next year, he said, “Salary increases will happen again and Q1 would be a tough quarter. We can’t go back to 18 per cent margins overnight ... Business momentum continues to be fairly strong and margins are expected to improve in the next four quarters. Nasscom has forecast 18-20 per cent growth for the industry. We expect to exceed that rate.”
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The company, which currently has 8,711 employees equally divided between its two businesses of engineering and aerospace, and network and content engineering, reported a 37 percent increase in employee costs to Rs 746.57 crore (from Rs 542.72 crore).
It plans to take this number to 10,000 and would recruit 1,000 professionals this year. The company’s current attrition rate is 16 per cent. It would also expand its facilities here and at SEZs in Kakinada and Visakhapatnam to add 1,700 seats this year.
Krishna Bodanapu, who heads the aerospace and engineering business of the company, said the deal pipeline was strong with the quantity the same as last year. He said it was looking to improve quality by pursuing larger deals from fewer clients to save on the costs of acquiring and servicing customers.
The company, whose aerospace revenues crossed $100 million in the year, is still in talks to buy an aerospace company in Europe, according to Reddy. The deal size is 25-30 million pounds, he said.
Its acquisition of US-based Wellsco in August last year led to an increase in the share of North America in total revenues to 52 per cent (from 47 per cent), while that of Europe declined to 43 per cent (36 per cent) and Australasia to 8 per cent (from 9.1 per cent).
John Renard, head of Infotech's Europe subsidiary and NCE business, said there were record orders from North America and Asia Pacific markets for its smartgrid and telecom services, and they had acquired 35 new customers. The company shifted its focus from digitisation of geo-spatial systems, where the addressable market is on a decline.
New CFO
Reddy said the company appointed Ajay Aggarwal as its chief financial officer with effect from today, and plans to have a “much younger management team for future.” It declared a dividend of 25 per cent, or Rs 1.25 per equity share of Rs 5 face value.