The April-June quarter was a tough one for Infosys Technologies Ltd, a company that prides itself on its ability to predict its revenues with precision as much as a year in advance: for the first time, the company on Wednesday lowered its revenue guidance (in rupees).
For chief executive S. Gopalakrishnan, who took over the company’s reins in the quarter gone by, it was business as usual. Infosys, he said in an interview with Mint at the company’s headquarters in Bangalore, had performed remarkably but for a weakening dollar. In the course of the interview, Gopalakrishnan talked about relatively bigger buyouts (“$300-$500 million revenues”, or Rs1,212-2,020 crore) that the tech service firm could target.
The last overseas acquisition Infosys made was in Australia where it acquired Expert Information Services Pvt. Ltd for $22 million in December2003. Edited excerpts from the interview:
In the long term, how are you going to manage the appreciating rupee and rising wages in India?
The rising wages are not a new phenomenon. Over the last several years, compensation in India has been going up some years by 17-18%, and this year by 12-15% (over the existing wages).
Our model allows us to factor this in. Salaries paid to employees in India are around 16-18% (of revenue) and a 15% salary increase is about 3% increase overall. We have managed to offset this. If the rupee had not appreciated, you would have seen a very good quarter even in rupee terms. So, we are able to manage this.
An appreciating rupee is also something that can be managed if it happens slowly. What has happened is that the rupee has appreciated 7% within 90 days and that’s what caused the challenge for us.
On the earning per share side, we met our guidance this quarter.
Will you be looking to increase doing work out of locations such as China and Mexico, where the local currencies are not rising as much against the US dollar?
The volume, at least in the near future, will continue to be India. Those (the volumes of work done out of the other locations) are going to be small compared with the size of India. These international operations are either long-term investments or these are specifically targeted.
For example, Mexico is specifically targeted at Spanish-speaking customers, China is targeted for building the Chinese market. We will have some impact, but it will be small. What we really need to do is over time balance the portfolio better, more work to Europe, considering the lower appreciation of rupee against the euro.
You should also look at services mix and efficiencies. There are still various levers we can play around with and try and manage this. Ultimately, we should also look at rate increases also.
Do new clients who come in bring in better profit margins?
It really depends on the services that we offer to them. It is not given that all new clients will be better off. We also need to look at how competitive it is.
Definitely, in every new contract, we are shooting for a 3-4% increase compared with our average.
Depending on the competitiveness, in some cases we are able to get that, some cases better than that and some cases lower than that. On an average, we are able to get 3-4%.
There’s been a lot of buzz on your acquisition ambitions in the market. What kind of firms will you be looking to acquire? Will it be to add to scale or add niche competencies or industry expertise?
Generally, we would look at focused, targeted acquisitions that will enable us to enter a market faster or create a new capability within the company like in consulting or a BPO (business process outsourcing) business. It will be a focused acquisition. But, in business, you should also keep your eyes and ears open; you should also look at opportunities that come to your table. Exceptions are always possible but generally targeted, focused acquisitions are what we look.
What could be the size of these potential targets?
When we talk about acquisitions, we talk about $300 million to $500 million revenue or looking at companies with 2,000 people or so. Again, these are not rules; exceptions are always possible.