The fact that Infosys Technologies in the near past has bagged a huge $8 million contract against global competition like Cambridge Technologies of the United States speaks volumes about the companies global competitiveness. Moreover, the company is well on its growth path up the value chain owing to the same. The audited financial results of the company for the half year ended September 30, 1998, have more or less been in line with expectations. Commensurately, the stock price decreased marginally to close at Rs 2,305. Incidentally, while announcing the results for the first quarter itself, the then chairman and managing director NR Narayana Murthy had clearly indicated that Infosys might not be able to sustain high growth rates for the remaining three quarters of the current financial year. In dollar terms the Indian software industry has been growing at an annual rate of 40 per cent to 50 per cent. In this scenario, it is commendable that Infosys continues to grow in line with theindustry.

For the half year ended September 30, 1998, the total income from software development has risen by a whopping 105 per cent. Income from software development overseas continues to contribute a whopping 98 per cent to the total income from operations. The other income as a percentage of PBT has decreased to 2 per cent from around 6.7 per cent in the previous year. Also, operating margins have risen to 33 per cent from 31 per cent owing largely to the increased momentum in order growth and an expansive cost cutting exercise undertaken by the company. All this has translated into a 126 per cent increase in the first-half bottomline to Rs 52.07 crore. The company operates its development centers under two tax concession schemes of the government of India. Under the first scheme, the proportion of the profits of the company attributable to export activities, are deductible from total taxable profit. Most development centers operate under this scheme. However, a few of the company's development centerscome under the second scheme--100 per cent export oriented units, which are entitled to a tax holiday during any consecutive five years in a block of eight years from the date of commencement of operations.

For the first half, the exchange rate fluctuation due to change in the exchange rate compared to that prevalent on March 31, 1998, has led to an increase in total income by Rs 13.50 crore and profit before tax of Rs 5.40 crore. Whilst for the second quarter such exchange rate fluctuation lead to increase in total income of Rs 8.39 crore and profit before tax of Rs 3.36 crore. This dispels all doubts that the company's profitability is owing largely to exchange rate fluctuation. The results are all the more commendable as the company has made a provision of Rs 2.53 crore towards investment in Yantra Corporation. Incidentally, the company had invested around Rs 10.75 crore in this loss-making subsidiary. Around one-third of this liability has already been scaled down.

Incidentally, in the first half ofthe current year doubts were raised on the legality and the risk of doing business with Indian software companies. But considering its buoyant performance it is evident that Infosys has been able to tide over the crisis. It is presently engaged in the implementation of an integrated enterprisewide information infrastructure based on SAP R/3. It has also completed work on InEuro a package designed to cater to the Euro conversion business. All these alongwith with increased revenues from electronic commerce and Internet consulting should help it sustain a healthy growth rate in the future as well. Analysts predict that Infosys bottomline for the current financial year should comfortably cross the Rs 100 crore mark. Commensurately, the Infosys stock should comfortably continue to outperform the BSE Sensex.

Satyam Computers

The most interesting aspect of the Satyam Computers' half-yearly results as on September 30, 1998, is that the net profit for the first and second quarter of the current year arehigher than the net profit posted by it for the first half of the previous year. Moreover, the company has emerged as one of the top 15 exporters and stands as one of the leading software developers. Previously, mainly perceived as a Y2K company, Satyam has diversified into other infotech areas like E-commerce and Internet. The company incidentally has reduced its exposure in the Y2K business from 30 per cent to 28 per cent. A higher exposure to the client server business has translated into higher revenues for the company. This proves that Satyam is weaning away from the highly competitive Y2K business which has been a cash cow till date. The company is gearing up to enter the Euroconversion business which logically should require additional expertise. It is actually still unclear whether Satyam can handle the same. The market reacted skeptically to the company's results with the stock price falling to Rs 560.

For the first half ended 30 September, 1998, the turnover has soared by 152 per cent to Rs 170.79crore. During the period, business from North America accounted for almost 75 per cent of total turnover. The company generates almost 10 per cent of its revenues from Japan. Offshore business continues to contribute around 75 per cent of the total turnover. Due to an accelerated depreciation policy the depreciation has risen to Rs 16.77 crore from Rs 4.49 crore. Owing to a higher debt burden, mainly catering to the expansion projects interest expense has increased to Rs 11.51 crore from Rs 4.44 crore. In spite of all this net profit has zoomed by 123 per cent to Rs 33.7 crore.

Operating margins have marginally risen to 37 per cent from 36 per cent owing to cost cutting measures. But in the future as manpower costs escalate, it remains to be seen whether Satyam sustains its high margins.

(With contributions from AG Krishnan)