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Rediff.com  » Business » Infosys: Its secret potion

Infosys: Its secret potion

August 17, 2004 12:46 IST
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The most important and authentic source of information about a company's financial performance is its annual report. But these reports serve many other important purposes as well, apart from just elucidating on the finances.

One such purpose is to indicate to investors what is the macro environment in which the company is operating in a particular year. More often than not, a few statements or paragraphs speak out the entire story.

However, if one were to go through the last four annual reports of the software major, Infosys, there is a quotable quote every year – one that indicates the theme of the annual report and the overall environment that the company is performing in.

Let us understand the import of the quotes that appeared in Infosys' last four annual reports, starting from FY01.

Annual Report 2000-01: 'The future depends on what we do in the present.' - Mahatma Gandhi

This annual report was released in the aftermath of the dot-com bust. The central idea as represented by the above thought, rightly captures the spirit of that time for Indian software companies.

What this quote indicates is the Infosys has to improve upon its present (2000-01 at that time) for if it does so, what comes later would be better. The quote rightly captures that the company would have to take initiatives that would help it to come out of the slowdown and help it move towards higher and sustainable growth in the future (post 2000-01).

Annual Report 2001-02: 'Adversity has the effect of eliciting talents, which in prosperous circumstances would have lain dormant.' - Horace

This quote signifies the changes going through Infosys during the period concerned that were to help the company in facing adverse times, as global technology spending was on a downturn.

The company was rapidly evolving its global delivery model, building up physical infrastructure to accommodate its large manpower base in the future and trying to derisk its revenues from a single large geography and some particular domains.

In short, Infosys was trying to build up a base from where it can launch for a higher and sustainable growth in the future. While the company is still in the process of building up the much important base, 2001-02 can be said to be the year when the company began aggressively in its pursuits towards higher growth.

Annual Report 2002-03: 'I must govern the clock, not be governed by it.' - Golda Meir

This quote emphasizes the core advantage that India in general and Infosys in particular have with regards to the fast growing IT outsourcing space. It indicates the importance of time difference that India enjoys over the US,

the largest market for Indian software services. Being a pioneer of the global delivery model whose basis lies in providing seamless round-the-clock services across all geographies, Infosys has gained global recognition in its abilities on the project execution and project delivery fronts.

Fascinated by this aspect (and others like cost arbitrage) of the GDM, the global technology majors are trying to replicate the Indian offshoring model.

Annual Report 2003-04: 'One cannot manage change. One can only be ahead of it.' - Peter Drucker

Now, this thought represents how Indian software companies like Infosys are trying to fight off the challenges posed and changes brought about by the global technology majors replicating the Indian outsourcing model.

The Indian companies are doing this through a counter-attack in the form of penetrating the high-end domains of these global MNCs. Infosys, for instance, is continuously increasing revenue contribution from high-end services like IT consulting, systems integration and package implementation.

And it has to continuously do so, for its growth to attain higher speed and sustainability. Moving up the value chain would also ensure closer and long-term ties with clients.

What next?

Over the past decade, Infosys has performed brilliantly on almost all quantitative and qualitative factors like revenue growth and profitability, management competency, project delivery and execution and managing scale. The company has indeed outperformed the industry in all these aspects.

However, the company's growth momentum seems to have gathered some speed only post 2000, the year when excessive euphoria and worthless investments had left the global technology industry in a state of turmoil.

Now, as Infosys tries to consolidate its position as the domestic market leader, builds up scale and competitive advantages, and continuously moves up the value chain, the annual report for FY05, to be released next year, might very well capture an idea that could be something like this: "When I dare to be powerful, to use my strength in the service of my vision, then it becomes less and less important whether I am afraid." - Audre Lorde.

Equitymaster.com is one of India's premier finance portals. The web site offers a user-friendly portfolio tracker, a weekly buy/sell recommendation service and research reports on India's top companies.

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