This summary is based on the third quarter fiscal 2008 earnings call conducted by Infosys Technologies Ltd. (INFY) on January 11, 2007.
Chief Executive Officer and Managing Director: S. Gopalakrishnan
Chief Operating Officer: S. D. Shibulal
Chief Financial Officer: V. Balakrishnan
Chief Executive Officer and Managing Director, Infosys BPO: Amitabh Chaudhry
General Manager, Investor Relations: Sandeep Mahindroo
Key Investors Issues
- The earnings per ADS rose from 39 cents in last year to 54 cents.
- Quarterly revenue rose 17% from last year to $1.08 billion.
- The company has added 47 new clients in this quarter.
- For fiscal 2008, the company projects earnings per ADS of $2.02.
Third Quarter Fiscal 2008 Financial Highlights
The revenues were $1.08 billion, up 17% from the prior year quarter.
For the nine month period of fiscal 2008, the revenues crossed $3 billion. With this, the company has completed last year''s full year revenue in nine months.
Earnings per ADS increased to 54 cents from 39 cents in the previous year.
The net income over the last four quarters has crossed a $1 billion and also last 12 months basis, net income is over a $1billion, and Europe also has crossed a $1 billion on a last 12-month basis.
The firm had three one-off events during this quarter.
- The first one was the settlement made in California. The firm did a one-time voluntary settlement with the statutory authorities there for around $26 million. That impacted the margin by around 2.4%. This is relating to the past few years and the wages could be paid to the employees in due course.
- The reversal of insurance costs. The firm has been providing the books on a gross liability basis and it has reconciled for the last three years. The company found some excess provisions of around $18 million, which it reversed during the quarter. That positively impacted the margin by around 1.7%.
- The tax reversals, which relates to the earlier years where the assessments got over or the statutory limitation period got over. That was around $13 million.
Gross margin was at 42%.
Operating margins slightly increased. It was 27.5% last quarter. This quarter it went up to 28.7%. On the operating margin side, there is a California settlement which impacted 2.4% and there was a reversal of insurance of around $18 million, which positively impacted 1.7%. There was an impact due to rupee of around 0.8%, because the rupee appreciated by 1.9% during this quarter, and the firm had the benefit of increase in per capita revenue, which offsetted the impact due to rupee.
The company had scale benefit coming on the SG&A side.
Last quarter the firm had the earn-out payment for the partners in Infosys Consulting of around $11 million to $12 million that was not there this quarter. The SG&A cost came down. It positively impacted the margin by around 1.4%. The flow to the operating margin of around 1.2%.
The effective tax rate was 15.1% last quarter. Excluding the tax reversal during the quarter, it is at 15.6%.
Infosys saw significant customer additions.
The firm saw significant wins, about nine large multi-year, multi-service projects. Looking at the various industry verticals, the company saw growth in BCM, Banking and Capital Markets, telecom, manufacturing. All the firm’s parameters regarding customers saw growth in terms of million dollar customers, $10 million, $50 million, $100 million. Overall, the company has not seen any cancellations of projects. The firm has witnessed consistent improvement in revenue per employee of about on an average 1 percentage point. This quarter it was 0.8%.
The only concern or area where the management is watching is how do the budgets for next year look like. Most of the budgets should have been typically completed by now, but the firm is seeing some customers at least delaying it to the end of the month or early part of February. Even where the budgets have been closed or completed, on an average, the company is seeing 6% increase in IT budgets for calendar year 2008 and also continuing to get a higher proportion of this growth. That trend continues.
The firm’s top five customers have grown by 19%, top 10 by 16% and top 25 by 9.3% sequentially. More importantly, the BFSI segment has grown ahead of the company average. Also, the Telecom segment has grown ahead of the company average. As far as the demand and revenue is concerned, the firm is not seeing any change at this point in the IT spending environment as of right now. Most of the clients continue to be bullish about increasing their offshore IT spend within their overall IT budget. This quarter, the firm has signed a multi-million dollar, multi-year contract. The firm has signed nine such contracts this quarter. Most of them between $50 million to $100 million range.
