Bangalore: San Francisco: Since he took over as chief executive of Infosys Technologies Ltd in June 2007, S. “Kris” Gopalakrishnan has been fighting fires—at least, that’s how it looks. In 2007, software services firms such as Infosys had to cope with the appreciation of the rupee at the cost of the dollar, the currency in which they bill. Then came the credit crunch and fears of a slump in information technology (IT) spending in the US, the world’s largest market for IT products and services. Indian IT firms, Infosys included, haven’t done badly despite this. For instance, Infosys, which closed 2007-08 with revenues of Rs13,893 crore and a net profit of Rs3,850 crore, has issued a guidance of up to a 19.2-21.1% growth in revenue and 16.3-18.3% in earnings per share in 2008-09.
Gopalakrishnan, who is in San Francisco to attend the Intel Capital CEO Summit, spoke to Mint on the challenges before Infosys and the industry. Edited excerpts:
View from the top: Infosys chief executive S. Gopalakrishnan (Photo by: Hemant Mishra / Mint )
Does the recent depreciation in the rupee give you an advantage because you had planned for it to be at a higher value?
Always, when the rupee depreciates, it is beneficial to the IT services industry and export firms. Typically, for every percentage point of appreciation, the impact is close to 0.5 percentage point. When this happens, we would reinvest that (money) in the business. So, you will not see improvements in our margins, but it becomes easier for us to make investment decisions. If growth slows, your ability to invest in new initiatives goes down as you want to sustain your margins. We still continue to invest in growth; it will become easier to make those (investments) if we get some slack in terms of margins.
So, has it become easier to make those investments?
We have to wait. It is a very volatile situation. Only in the last four-five weeks have we seen the rupee depreciating. If this (trend) sustains, of course, it helps us. From last year to this year, in dollar terms we’ve gone from 36% growth to 20%. Growth has slowed. We’ve given (predicted) a flat first quarter. If the situation improves, we have to adjust our growth but, right now, there is concern about slowdown in the US and its impact on firms like Infosys. The first milestone is the (first) quarter’s result in July.
Has the slowdown affected hiring?
Hiring is a function of growth, not of (the rupee’s valuation). We have said we will grow by 20-21% and recruit 25,000 people. That’s the kind of hiring we expect this year.
How is your consulting business doing?
We’re doing reasonably well. Overall, it is 24% of our business, almost $960 million. It is one of the fastest growing parts of our business.
Which are the others?
More than 50% of our revenues come from new services started in the last five years. We started BPO (business process outsourcing), consulting, infrastructure management and system integration. (All this) has let us grow our revenues significantly. This year, we are starting learning services, legal process outsourcing and software as a service.
Your last spin-off OnMobile had a successful IPO this year. Are you looking at incubating more firms?
When we come up with IP (intellectual property), one of the options we look at is a spin-off, but it really depends on the idea. Both OnMobile and Yantra, which was bought by Sterling Software, a part of AT&T, were not investments we made, but spin-offs on the product side. We’ve created lot of services, which have a synergy with the firm so we keep it inside. We have developed a lot of tools, but again, they have a synergy. We haven’t co-me across anything that could be spun off into an independent business. We work with smaller firms, where we build a solution around their product and go to market together.
Can you give me an example?
We just did a (project) with Relativity Technologies. In this case, the productivity tool is legacy modernization. A lot of firms have a significant amo-unt of legacy code. They find it expensive to maintain code and can’t get people to work on older technologies, don’t have skilled personnel. That itself is the business problem. If we can automate that using a tool, it’s very valuable.
What market trends do you see this year for the industry?
Industry is expected to grow at 20%, that is what Nasscom (India’s software lobby group) has also projected. The trends (I see) clearly are global expansion and focusing more on developing not just developed countries. More industries are looking at offshore (delivery of services) as a way to optimize their costs, both from IT and business process perspective. Lastly, in terms of size, scale and maturity, Indian companies have shown they can provide leadership and the model has become mainstream.