Large hiring might impact Infy margins: analysts

Written by Rachana Khanzode | Pune, Oct 10 | Updated: Oct 11 2008, 07:19am hrs
Despite the global meltdown, Infosys Technology will maintain its plan to hire 25,000 people in the current financial year. This might impact the companys margins next year by 1 to 1.5%, say analysts. During a conference call, Infosys chief executive officer and managing director, S Gopalakrishnan, said, We want to target a utilisation rate of 77-80%. However, we are okay even if the utilisation goes down. But analysts feel that the industry will not see the end of crisis at least till the next financial year.

Thus, the combined impact of slow revenue growth, inability to increase billing rate and a large number of people on bench will increase cost pressures for the companies. Manoj Mohta, head at Crisil Research said, If companies continue with a high base of employees on the bench, it will have increased cost pressure resulting in contract of margins next year by at least 1 to 1.5% for tier-I companies and about 2% for tier-II companies. Infosys reduced its guidance to 13 to 15% from 19 to 21% initially, saying the 3% decline comes due to currency movement and another 3% due to economic conditions.

Also, Infosys gets a repeat business of 99.8% from its existing clients and therefore analysts feel that the company might require an incremental work force immediately but might see at lower hiring in FY10. Gaurav Dua, head of research at Sharekhan, said, Since the decline in guidance is not due to reduced volumes, we feel there would be a need of incremental workforce but the larger impact will come in FY10 resulting in lower hiring.

However, the company said that it expects its FY09 profit margins to be stable and is not seeing any big project cancellations. However, it is experiencing delays in decision and additional due diligence being done by clients.

The company also said that it is seeing some attraction from Latin America, Japan and Australia in the BFSI vertical. Currently, rest of the world, under which these countries come, contributes 9.1% of the total revenues.