This summary is based on the second quarter fiscal 2008 earnings call conducted by Infosys Technologies Ltd (INFY) on October 11, 2007.
CEO and Managing Director: S. Gopalakrishnan
COO and Member of the Board: S. D. Shibulal
Chief Financial Officer: V. Balakrishnan
Member of the Board and Director-Human Resources: T.V. Mohandas Pai
Senior Manager – IR: Sandeep Mahindroo
Key Investors Issues
- Earnings per American Depositary Share grew to 48 cents from 36 cents in prior year.
- Quarterly revenue increased 37% over prior year to $1.02 billion.
- The firm added 48 new customers this quarter, taking the total customer count to 520.
Second Quarter Fiscal 2008 Financial Highlights
The record revenues of $1 billion represented a significant milestone for Infosys.
The sequential growth was 10.1%. Out of that, the volume growth contributed 7.7% and revenue productivity growth contributed 1.9%. The firm has seen overall growth in almost all segments. The BFSI segment, which is the firm’s largest segment, has grown 11.4%; manufacturing grew 13.2%, retail grew 27.3% quarter-on-quarter; energy and utility segment grew 19.5% quarter-on-quarter. In services, package implementation and consulting has grown. Consulting is now 5% and the package implementation, which is also consulting oriented, is 18.7%. Last quarter it was 18.4%. The company’s total consulting revenue, if you look at it in the industry standard rate, today is 24%. About $241 million of revenue we derived from consulting this quarter. The Independent Validation Services has grown 13.6% quarter-on-quarter.
The firm’s
fixed price has gone up by a couple of 100 basis points to reach 31.5%. The on-site has remained stable, marginally decreased from last quarter and it is 31.7% in Q2.
The
revenue productivity has gone up 1.9% blended. The on-site revenue productivity increased 2.9% and offshore revenue productivity increased 2.6%. This is the sixth consecutive quarter in which the firm has revenue productivity increase. Last year, the firm had gained 4.7% year-on-year revenue productivity increase.
The billing rate continued to be stable with an upward bias. New clients, new contracts are coming at around 3% to 4% higher than the average. Contract renegotiations are also coming at 2% to 3% above average. The top 10 customers grew by 2.7% quarter-on-quarter, but if you look at it on a year-to-year basis, you will see strong growth in the top 10 customers. Non-top 10 grew 13.7% sequentially.
The gross margin went up to 42.2% from 38.7% last quarter.
The operating income has gone up to 27.5% from 24.7% last quarter. The firm saw improvement in operating margin of 2.8%, which came in because the visa cost, which was around $16 million in the first quarter, has come down to $3.5 million because there was a window of opportunity to apply for H1 visas in the first quarter. That contributed positively to the margin by around 1.2%.
The G&A cost came down by around 90 basis points. Because of the bill rate increase of 1.9% on blended basis, the firm got a positive impact on margin of 1.1%. Rupee impacted the margin by around 50 basis points. It was appreciated by 1.2% during the quarter. Hence, the net operating margin went up to around 2.8%.
The improvement in the operating margins shows the resilience of the company’s model and the firm’s ability to leverage what levers it has in its business in order to sustain a margin. The company sees margins in a narrow band of 50 basis points to 100 basis points for the remainder of the fiscal and its philosophy of having one of the highest margins in this industry continues to be a goal for Infosys.
The effective tax rate slightly went up this quarter.
Last quarter, the firm had a tax reversal of $13 million. If you normalize that, the effective tax rate last quarter was 13.9%. This quarter it went to 15.1% because the firm had seen some improvement in the profits on-site. In all the countries it operates, Infosys does pay taxes and the tax rate has gone up because of that.
The firm has added about 8500 employees gross this quarter.
Though Infosys had said that it will add 11,500, it had to postpone the joining dates for about 2,500 employees to October as its facility was not yet ready. The company had some issues with the contractor for completion date. They could not procure cement for completion. However, the firm will be adding those employees in October and in fact, it is looking at a gross addition of 30,000 employees for the full year.
The firm has added 48 new customers this quarter.
The total number of clients is 520. The number of $1 million clients has also gone up from 285 to 295 clients. About 16 clients contribute more than $50 million of revenue on the LTM basis, 5 more than 90 and three more than 100. The firm has 113 Fortune 500 clients. This quarter, out of the 48 clients, which it added, 3 of them were Fortune 500.
