Currency fluctuations continue to pose a major challenge, observes Gopalakrishnan

Information technology bellwether Infosys Technologies on Tuesday reported revenues of Rs.22,742 crore in 2009-10, an increase of 4.8 per cent over the previous year. The company made a net profit of Rs.6,219 crore, rise of 4.1 per cent over the previous year.

Announcing the results, Infosys CEO and Managing Director S. Gopalakrishnan said “We have done very well. We are in a much better situation than where we thought we would be last year. We have done better than the competition in terms of organic growth.” However, he admitted that currency volatility continued to be a major imponderable in the business.

The company board has recommended a final dividend of Rs.15 per share for 2009-10.

Forecast for 2010-11

The company expects revenues to be between Rs.24,796 crore and Rs.25,239 crore in 2010-11, an increase of between 9 and 11 per cent, when compared to revenues earned in 2009-10. In dollar terms, the company expects revenues to grow 16-18 per cent — between $5.57 billion and $5.67 billion. Earnings per share in the current year are expected to be in the -2 to 2.1 per cent, in rupee terms. Mr. Gopalakrishnan said this was largely as a result of the expectation that the rupee would appreciate by a little over 6 per cent in 2010-11.

He said the guidance for the current year was based on the assumption that the average rupee-dollar exchange rate would be Rs.44.50 in the current year, compared to Rs.47.43 in 2009-10.

Mr. Gopalakrishnan said that although the “global environment continues to remain challenging, our clients are investing in growth from which we are benefiting.”

Senior officials of the company admitted that earnings and profitability had been affected by the 6-per cent appreciation of the rupee last year.

He said that although client budgets “are either flat or slightly higher than last year, they are now better than last year.” However, he said businesses still remained focused on short-term projects.

Chief Operating Officer S. D. Shibulal said Infosys' “deal pipeline” had improved during the year. “This was a tough year for us. For the first time we started the year with a negative outlook,” he remarked.

Margins under pressure

The company's operating margin declined from 31.1 per cent in the third quarter to 30.1 in the fourth quarter of 2009-10, Chief Finance Officer V. Balakrishnan said.

The decline in margin in the last quarter was mainly because the rupee appreciated by 150 basis points, which resulted in margins being 70 basis points lower than in the third quarter, he said.

However, Mr. Balakrishnan said the margins improved to 30.4 per cent during the full year, from 29.5 in 2008-09. In the current financial year the margins were expected to fall 150 basis points.

The company's forex cover (hedging) was $515 million at the end of the last quarter, he added.

Mr. Mohandas Pai, Director, Human Resources, said Infosys planned a capital expenditure of Rs.1,200 crore in 2010-11, compared to Rs.650 crore in 2009-10.

The company planned to add 12,000 seats in Pune, Hyderabad, Mysore, Bangalore, Mangalore and Thiruvananthapuram. The company planned to hire 30,000 persons in 2010-11, compared to 27,000 persons in the previous year.

During the year the company implemented a salary restructuring scheme, which cost Infosys $134 million.

Mr. Pai said the wage increase was the “largest career architecture transformation ever undertaken in the history of the Indian IT industry.” “We have changed the dynamics of human resources management in the IT business in India,” he remarked.

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