Infosys' new services lines keeps margins engine running

Infosys Technologies Limited has improved its margins fuelled by new service lines in which the company is investing aggressively. It is also banking on repeat businesses and is mining effectively to grow business from existing clients.

Net margins were 26.41 per cent in the reporting quarter, compared to 25.67 per cent in the previous (Q106) quarter and 25.57 in the corresponding quarter (Q205) of last year.

Said Kris Gopalakrishnan, director, Infosys: "New services lines, besides our strong base in the financial services vertical, are shaping up pretty well. For example, in a continuing partnership with a Swiss market leader in IT outsourcing and business service provisioning, we are providing a core banking services platform to the private banking sector in Europe. Our recently started vertical validation services is enhancing the synergies which we already have with our clients and are starting to make a good impact in the marketplace."

While billing rates are stable with an upward bias after declining in FY04 and flat in FY05, these new services lines are being built with strong growth opportunities and are expected to have higher billing rates than the traditional application development and maintenance work.

Said Mohandas Pai, CFO, Infosys: "We are already seeing a 3 per cent increase in our billing rates from our new clients. The repeat business is in the high 90 per cent range and services such as validation services will help us expand a client's business with us."

He added that Infosys Consulting is the business in which they are investing aggressively and should be seeing good growth.

"This business has grown by 63 per cent on a sequential QoQ basis contributing close to $9 million during Q2FY06 as against $5.5 million in Q1FY06. We are hiring aggressively and this should yield good margin growth for us over the next few years," he said.

The company, which has posted a 39 per cent topline CAGR during FY01-05, is expected to leverage on its domain expertise, aggressive ramp-up plans to deliver a CAGR of around 32 per cent during FY05-08. Expanding service lines such as Consulting, BPO, independent validation services are enhancing the competitiveness of its key clients across industries.

Infosys Technologies presently serves more than 190 odd clients with revenues exceeding a million dollar and its dependence on its top client is to the extent of just 4.4 per cent.

Up IIT intake

Infosys said that for every billion dollar it adds to its topline, which it will do in the rest of the year, it will need to add approximately 20,000 professionals to its payroll. So will Wipro and TCS, followed in varying proportions by IBM, Accenture and Satyam. But where are that many quality people?

According to Infosys, there aren't and it has a solution. It is pushing the government of India to increase the intake into IITs from the present 5,000 to 30,000 a year. The same with IIMs but not in this scale.

Said Mohandas Pai, CFO and Director - HR, Infosys: "We need quality people year on year to keep our business growing and so does the industry. The outsourcing trend is increasing and we should be prepared. We are talking with the government of India to increase the IIT intake."

The company is also urging the government to increase the salaries of teachers at the other engineering colleges in the country so that the quality of manpower graduating from them is also upto the mark.

"We have a programme called Campus Connect, through which we are in constant touch with the professors at these colleges and we are updating them about the latest technologies. In addition to this, our trainee programme is also on an upswing and we should be able meet the demands of our business."