Home > Business > Business Headline > Report

Can anything go wrong with Infosys?

Priya Ganapati in Mumbai | April 13, 2004 15:00 IST
Last Updated: April 13, 2004 15:03 IST


Is there anything that can go wrong for Infosys?

No, say information technology analysts from leading equity research companies.

Infosys is clearly on a roll and its results declared on Tuesday morning have beat market expectations. Despite, an appreciating rupee, volatility in the United States over the outsourcing issue and margin pressures, Infosys has managed to show a 31 per cent growth in revenues and has issued a glowing forecast for the forthcoming fiscal.

Infosys earned a thumbs up from the stock markets when within a few hours of the announcement, its share prices went up by over 5 per cent.

Analysts say that the results were in line with market expectations.

"In the past, Infosys results have always been good. We have been expecting them to beat their guidance, as they always do. The market is looking at the forward direction that will be set by the company and that looks very positive," says Chetan Shah an analyst with Quantum Securities.

In its guidance for the forthcoming fiscal, Infosys has forecast that revenues would rise 30-31 per cent and earnings by around 27 per cent.

The aggressive forecast, say analysts is a sign that the company is not deterred by the recent protests against outsourcing that have swept the US.

The launch of Infosys Consulting, a subsidiary in Texas, last week is also likely to help the company move up the value chain in the services space.

"It positions the company to increase the strategic relationship with its customers and drive incremental revenue opportunities in its customer base as well as with new customers," says Sameer Nadkarni, a technology analyst with WR Hambrecht, a financial services firm headquartered in San Francisco, in a research note put out a day before the results were to be announced.

Infosys Consulting is expected to have 75 professionals this year and up to 500 professionals over three years.

"The subsidiary will leverage existing Infosys infrastructure and facilities, and we expect that in the near term a majority of the incremental expense is likely to be related to headcount additions. We expect the subsidiary to start generating revenues in the near term since the founding executives are active consultants and bring a rich set of customer relationships with them," says Nadkarni in his research note.

Revenue mix: Infosys' top five clients contributed 23.3 per cent to its total revenues in 2003-04, a number that has pretty much remained stable over the last three years.

The company's growing scale and also helped it attract larger clients. In the last quarter of 200304, Infosys added one more fifty-million-dollar-plus client to its existing client of two such clients as of the previous quarter.

Infosys has helped bring down to a small extent its dependence on the North American market for its revenues. In Q4 of fiscal year 2004, it 65.5 per cent of its revenues came from the North American market as compared to 72.2 per cent in the previous quarter, Q3.

It has also be able to double its revenue generation from areas apart from the key markets of North America, India and Europe. Infosys's revenues from the 'rest of the world' as the company chooses to classify it doubled to 13 per cent in Q4 from 6.5 per cent in the previous quarter of FY 2004.

However, on a cumulative note, the company could manage to keep its revenues from the North American and the other markets almost same in FY 2004, as compared to the previous year.

Infosys added 36 clients during the last quarter of FY 2004. The retail group saw a number of additions with a leading consumer electronics retailer from the US, speciality retailer for children in the US and a Europe-based multinational retailer sign up with the company.

Employees: Infosys added 2,425 employees during the last quarter compared to 3,052 in the previous quarter.

As of March 31, 2004, Infosys had 25,634 employees compared to 23,209 in December 2003.

During the entire year, Infosys added an astounding 11,900 employees.

Analysts say that they are confident that Infosys can manage its growing flock.

"The business model and the management are capable of handling these issues. Infosys has proven that it can handle large scale employee training and retention issues," says an analyst with a Mumbai-based equity research firm.

A billion dollar company: With the announcement of these results, Infosys has also managed to achieve another milestone - become a billion-dollar company.

Apart from Infosys, the Mumbai-based Tata Consultancy Services is the only other company to touch the billion dollar mark in revenues.

The scale will definitely help Infosys compete on a global canvas against established players like IBM and EDS, says analysts.

"Today, we have the required size, brand, compelling value proposition and ambition to build the next generation software services and consulting company," declares S Gopalakrishnan, COO, Infosys proudly.


Article Tools
Email this article
Print this article
Write us a letter
Discuss this article



















Copyright © 2004 rediff.com India Limited. All Rights Reserved.