Hyderabad-based engineering design and geospatial solutions provider Infotech Enterprises had a strong revenue growth and equally strong margin expansion in the July-September quarter of 2011. In fact, it had the highest ever revenues and operating profit in a quarter in the history of the company. The growth and margin expansion has been across the verticals spread through various geographies. Bullish on its growth, Infotech CMD BVR Mohan Reddy explains to BV Mahalakshmi that the budget for further acquisitions is about R400 crore and the company is scouting for more which are complimentary to its existing services. Notwithstanding the challenging global economic outlook, the R1,200 crore company has not seen any signs of its customers cutting down projects or giving indications of contraction in business. Excerpts:

Take us through the history of Infotech and key milestones.

Infotech was started in 1992 with a vision to provide engineering services to global markets. We were ahead of our times with the market indicating high resistance to engineering outsourcing and with serious concerns about intellectual property. We, however found an immediate opportunity in an adjacency?geographic information system (GIS) services (the underlying technology for CAD and GIS are similar). So we started off with GIS services in 1992 with a focus on UTG (utilities, telecom and government) markets.

We continued to pursue engineering services and with greater comfort to outsourcing and IP protection as a result of which we got a major breakthrough in engineering services in 2000. We focused on product and process engineering in industry verticals such as aerospace, rail transportation, off-road heavy vehicles, hi-tech, consumer electronics, nuclear power plants, etc. As a result of consolidating our engineering services, in the last two years we have slowly introduced service offerings such as telecom engineering, SCADA, smart grid, smart metering, content engineering, etc, along with geospatial services in utilities and telecom markets. Following this we re-branded these services as network and content engineering (N&CE). While N&CE?s share of our revenues is about 31% of revenues, 69% of revenues come from product and process engineering.

Aerospace, the practice, achieved revenues of over $100 million last year largely led by our service offerings in engine, structures and avionics. We won the most prestigious Supplier of the Year award from Boeing for the year 2010. The market opportunity for aerospace vertical is to the tune of $4 trillion and we hope to capture a sizeable pie from this industry. Our biggest clients in this vertical include Pratt and Whitney, Boeing and Airbus among others.

What is your strategy for expansion into various geographies?

The revenue mix is 57% from the US, 34% from Europe and 9% from APAC. The budgets for outsourcing spend as indicated by our customers in USA and Europe is quite robust. The product and process engineering revenues crossed $100 million for the first half of this year. Our associate strength crossed the 9,000-mark, another milestone in the history of the company, following a net addition of 400 during the quarter.

The order backlog and pipeline have been the best in the history of the company. In the second half of the year, we would hire 1,000 additional resources to cater to growing business. We are aggressively pursuing acquisitions to improve our footprint in geographies.

We will continue to focus on operational excellence and are confident of improving margins further in coming quarters. We will see continued revenue growth and margin expansion in coming quarters but we are taking all our decisions on capital investments, hiring etc. with cautious optimism.

We expect the FY2012 margins to be between 15% and 16%, a turnover of over R1,500 crore with a growth rate of 25% and with employee strength of around 10,000.

At present, we are seeing a lot of traction in North America in the utilities space. Acquisition, for acquisition sake, is not our policy. It has to be EPS (earnings per share) accretive. We are aggressively pursuing acquisitions to increase our footprint in geographies.

How many new centres are planned for next fiscal? What would be your capex for the new proposed centres?

We currently have five development centres in India and we will continue with the same for the current year. We , however will expand development centres located in SEZs in Vizag, Kakinada and Noida. In India, we have invested about R31 crore in the first half of the financial year. We will try to move maximum amount of new work to SEZs for they provide us tax relief. Under 10A/10B income tax laws which were applicable till March 2011, we were paying 22% tax on PBT. Now that STPI benefits are no more available, we pay 33% tax. For every 300 employees in SEZ, we get IT relief of 1%. We will be investing another R30 crore for SEZ expansions in Kakinada, Vizag and Noida during the current financial year.

Has the slowdown impacted the company?s EDS expansion plan? What is the company?s expertise for the thrust areas along with the domain expertise?

Infotech hasn?t experienced any slowdown so far with any of our large customers. However, as part of our growth strategy, the company is focusing on new geographies like Japan and South Korea.

Our expertise lies with product life cycle support from conceptual design to aftermarket support encompassing all areas of engineering – mechanical design, electronics design, embedded software technical publications and engineering software development. We have domain expertise covering many industry verticals: aerospace, transportation, hi-tech, consumer electronics and oil and gas.

Given the current volatile situation in the global markets, are there any kind of pricing pressure or contraction in the business volumes?

The global economic outlook has changed significantly in the last two years, which is challenging to the IT industry. We have however seen that whenever the western world is under pressure for cost reduction,they look towards outsourcing more seriously. Also, the current unemployment and under employment in western counties is manifesting into protectionism by the local governments.

In the current scenario, the industry continues to perform well but is moving with caution. Prices are stable and the industry is not experiencing any severe pricing pressures.