Despite the fact that Infosys Technologies has reported a first ever year-on-year drop in net profit, the quarter ended December 2009 has been the best ever for the company in many years. While the market situation improved, a favourable currency and better employee utilisation added to the company?s margins. However, S Balakrishnan, chief financial officer of Infosys, told FE?s Surabhi Agarwal that more than 5% appreciation of the rupee in a quarter could hurt once again. Excerpts:

The second quarter saw Infosys posting a year-on-year growth in both revenue and profit numbers. However, during Q3, while revenue and profit have grown sequentially, they are down year-on-year. Why?

Yes, it is true in rupee terms. Last year, in the third and fourth quarters, rupee had depreciated and touched 52 against the dollar. So, the year-on-year decline this quarter is mainly a currency factor.

Your margins have increased by 1.1%. How have you factored in the wage hike and the currency impact?

The revenue this quarter grew by 6.7% and when you have a high revenue growth, it gives you scope for absorbing things like wage hike. Also our utilisation grew by 1% this quarter and that had a positive impact of 60 basis points on our margins. The pricing also went up by 1.1%, which is very close to our margins. Pricing and utilisation are the main factors for margin improvement. Other cost cutting measures also contributed to better margins.

What has driven growth in revenues?

Our volume growth this quarter has been 6.1%. And the growth is mainly from the financial services sector because we are seeing clients growing across the board in financial services, especially in insurance and retail and commercial banks.

What has been the currency impact this quarter?

The rupee appreciated by 3.7% in the third quarter and we made some gains out of it. We recorded a forex gain of around Rs 20 crore in the third quarter. We believe that currency will appreciate further in the next quarter.

How much can the rupee appreciate before it starts hurting margins?

As long it happens over a period of time it is fine. It could hurt if the appreciation is abrupt and happens in a short period of time. More than 5% in one quarter will hurt. Currently, we have $609 million of hedges in place and we mark to market it at the closing price which is around Rs 46.53. But, we will continue to take a short-term view in terms of hedges and will not exceed the exposure to more than two quarters.

All sectors barring retail have shown sequential growth this quarter. Is this rebound sustainable?

It definitely looks like sustainable. Generally, the confidence level has gone up in the environment. Retail is still bad as the consumer buying sentiment is still to pick up. The BFSI sector will lead the recovery, as the maximum amount of spending is happening in this sector. As far as other verticals are concerned, telecom could grow faster. Manufacturing is stable, but it will only grow if retail grows. Other verticals like energy and utilities are doing well but they are still small in size.