At a point when growth projections of the Indian economy are undergoing downward revisions for 2008-09, IT bellwether Infosys Technologies Q4 result carries more than the usual hoopla that surrounds its figures. To that extent, the line to look out for is its earnings guidance. Infosys has projected a consolidated revenue guidance of $5.05 billion for 2008-09, projecting a year-on-year growth of 21% over FY 2008 as per GAAP. If someone were to use this as a barometer for this year, this would reinforce slower growth projections. The company guidance was for a 31% growth last year. The growth rate recorded by the company has pleasantly surprised the stock markets. At a time of yo-yo movement in forex markets owing to the derivatives implosion and the build up of recession in the US economy, the company has delivered an over 20% topline growth. If this trend persists for other companies, Q4 could turn up some pleasant surprises. This means the first impression from the results is that the impact of the rupee movement and the US slowdown is thinner than anticipated.
The one worry line in the balance sheet is the 5 basis point quarter-on-quarter fall in EBITDA margins of the company due to a rise in employee costs. This is emerging as a major constraint for India Inc, and especially for IT companies. It is amazing that an Indian company in the IT sector should face this crunch. The eroding of India Inc?s competitive strength in labour costs can be more severe than the impact of external factors like the US slowdown. Government and industry must rapidly move to broadbase skill development to smaller towns to reverse this trend. The employee issue is particularly important for outsourcing companies. It remains to be seen how other companies have sailed through this diffcult combination of rising employee costs and falling realisations. Could Infy results be taken as a basis to predict other results? Will it be okay to project the results on the earning season? Unlike in the past, when the Infosys outlook moved the market, the guidance this time is likely to speak for the technology sector rather than the overall market. As the other mega IT companies including TCS, Wipro, Satyam release their results shortly, we will know more.