Bangalore: Net profit in the first quarter might be down, but Infosys Technologies Ltd’s chief executive Kris Gopalakrishnan radiated confidence about prospects for the year, based on strong volume growth. He reiterated Infosys’ commitment to maintaining margins in an interview. Edited excerpts:
This quarter, you seem to be very confident. What gives you this confidence?
Clearly the growth. This is the highest volume growth in the last two years. After Q2 (second quarter) of 2008, this is the first quarter (where) volume growth is 7%. Plus, we had three quarters of growth. We can see that our clients are more confident about their ability to withstand the downturn. (They are) more confident in the relationship, investing in discretionary spending, investing in offshore, information technology services. All of those, combined together, gives us the confidence (about) where we are and where we need to go.
Despite the concerns about Europe?
(The concern) still continues, it has not gone down. We believe Europe will see muted growth in the foreseeable future, probably (for the next) four-eight quarters being muted... We have offset this with high growth in the US and the rest of the world.
As volume increases, are customers also putting pressure on billing rates?
Not really. The situation is much better than what it was 12 months back, when there was tremendous uncertainty. Today, companies are financially doing well, they have growth, margins, cash flow and hence, they actually feel much better. They also see the costs (here) are going up, like the compensation increase. In fact, it is kind of unprecedented; the October and April increase combined, on an average, we are giving hikes of 21-24%.
What will be the biggest challenge to sustain this growth?
There are two challenges. One is something bad happening in one of the economies or markets. Second is our ability to sustain the growth through our supply chain. We have to make the recruitment happen. It is important for us to make sure the supply chain is robust and is able to scale up for the growth numbers—36,000 (people) is the highest recruitment number in a year.
Analysts say there was pent-up demand from banking and financial services customers, but it could dip affecting Indian firms?
I don’t believe so. There was some apparent demand. Most of this is coming from mergers and acquisitions, demergers, regulatory changes, the need to look at new markets. Most financial services companies are investing into Asia and other emerging markets, and are looking to improve their efficiency. So, lots of different drivers for investment from the BFSI (banking, financial services and insurance) space.
Can the margins be sustained in the long term?
Price is something the market decides, margin is something which you control. We can decide which business to go after, on how to spend our money, decide on expense structure.
We have always believed in profitable growth and hence we can sustain the margins within a band. If you look at this year, in spite of giving one of the highest compensation increases, and increasing our headcount and in spite of currency fluctuations, we have been able to do better in terms of margins.
At the beginning of the quarter, we had projected margins to decline by 3%, but it declined only 1.8%. For the full year also, maximum shrinkage will be 3-5%.