Infosys margins badly hit in US, Europe

Infosys Technologies has done well by posting its third consecutive quarter with a double-digit growth in dollar terms and increase in operating margins by 0.6 per cent.

This was despite a rupee appreciation of around 2 per cent during the quarter-ended December 2006.

However, things are not well for the company if its performance is compared on a year-on-year (YoY) basis. The rupee appreciated 2.31 per cent against the dollar over the last one year to touch an average of 44.36.

This has impacted the YoY operating margins of Infosys by 128 basis points from 34 per cent in the December 2005 quarter to 32.72 per cent for the December 2006 quarter.

Moreover, the break-up of revenue on a geographic basis shows that the margins were badly hit in North America (down 278 basis points) and Europe (320 basis points). India and rest of the world showed improvement in margins, but they account for only 10 per cent of the company's business. 
 

GLOBAL BLUES
	Quater ended	America	Europe	India	ROW	Total
Growth in revenues	Dec 06	40.36	55.56	85.71	35.59	44.35
Growth in expenses	Dec 06	46.22	63.59	28.00	16.35	47.16
Growth in OP	Dec 06	29.20	42.50	230.00	84.13	38.91
OPM %	Dec 06	30.53	34.90	50.77	38.54	32.72
OPM %	Dec 05	33.31	38.10	28.57	28.38	34.00
Share in revenues	Dec 06	63.17	26.81	1.78	8.24	100.00
Share in revenues	Dec 05	64.97	24.88	1.38	8.77	100.00

North America and Europe have driven Infosys' growth, as 90 per cent of the company's revenues come from them. North America accounts for 63.2 per cent of the company's revenue while Europe 26.8 per cent. The rest of the world accounts for 8.2 per cent, with India's share in the total revenues at 1.8 per cent.

An analysis of the performance of industry segments reveals that the decline in operating margins of the telecom and manufacturing segments is higher than that of the financial services segment, which accounts for a 38.6 per cent share in the Infosys' revenue.

It witnessed 1 per cent decline in YoY operating margins at 32.10 per cent. The operating margins in the telecom segment (18.36 per cent share in revenue) saw a sharp decline of 706 basis points at 32.19 per cent while the manufacturing segment (12.83 per cent share) witnessed a 131 basis points reduction in margins at 30.06 per cent.

The margin in retail segment (10.48 per cent share) was up 216 basis points at 34.99 per cent while the other segment (19.73 per cent share) showed 90 basis point improvement in margins at 34.94 per cent.

The earnings and expenditure in foreign currency indicate that the exports' revenue during the quarter has gone up 43 per cent at Rs 3,321 crore, while the expenditure in foreign currency revenue was up substantially by 80.7 per cent at Rs 1,426 crore. The cause of worry was expenditure on overseas software development, which was up 87.8 per cent at Rs 1,224 crore.