Give me a lever and I can move the world,? said Archimedes, the Greek genius. In the context of the Indian corporate world Infosys Technologies seems to have several levers that keep its profitability moving.
So even when times were tough, especially in financial year 2008-09, the company managed to move its revenues by 30%, over the previous year to take it to Rs 21,693 crore. And, during the same period, the net earnings were up by 28.8% to Rs 5,988 crore. Interestingly operating profit margins grew to 34% levels from the 32% levels recorded in the previous year, and the return on capital remained strong at 42% levels.
?Our goal is to have the best margins in the industry and we have demonstrated time and again that we have probably the best set of levers or the best way of controlling our margins,? said S Gopalakrishnan, CEO and MD in an analyst call recently. In a letter to shareholders, Gopalakrishnan and SD Shibulal, CFO and director, mention that they continued to grow their business despite lower velocity. They attribute to the growth in business to their model which is built on enduring relationships and this has enabled their clients to remain with them despite the upheavals. They have built relationships and are now leveraging them to generate revenue growth. But this too comes through some innovative thinking and commitment towards clients.
Moreover, even the manner in which ?If we look at on the drivers for margins?onsite-offshore ratio, utilisation, the business mix we have, some service lines have a better margin than some other service lines, some geographies, some customers. So it is a portfolio approach and that is why we have been able to manage this better than anybody else,? said Gopalakrishnan in a call.
Moreover, the company has been experimenting on different pricing models. As Gopalakrishnan pointed out, ?We are experimenting with ticket-based pricing in maintenance where we have a history from the client, we know the data on how many tickers are expected etc. In development projects, of course fixed price is the way t o go. We are also experimenting with outcome-based pricing which means that the (in consulting we are doing this) we will give them a fixed price and an upside, a bonus if the outcome was achieved?
A mix of all this and an improvement in the business outlook saw the December 2009 quarter report strong numbers. Total income at Rs 5,741 crore was 2.8% higher than the September 2009 quarter. And operating profit was at Rs 2,038 crore, up 6%, sequentially and for the same period the net profit was at Rs 1,582 crore, up 2.7%. Around 32 clients were added during the December 2009 quarter and there were 4,429 net additions to the team during the quarter. There are now around 1,09,582 employees with the company and its plans more additions.
?Global economic recovery seems to be led b the US and the financial services,? said Gopalakrishnan, while announcing the December 2009 results. He also mentions, ?Even though IT budgets are expected to be fat in 2010, offshore outsourcing is expected to benefit from this recovery.? At the moment, with the rupee remaining volatile, Infosys margins could be under pressure. However, it still has a lever that could support margin steadiness. The employee utilisation in the December quarter was at 68.8% (including trainees) and this could easily be increased and safeguard the margins, as the management aims.