As if the strong rupee wasn't a big enough headache for the Indian software firms, the Indian IT segment's biggest source of revenue, has come to plague the industry.
MUMBAI: Misery loves company. As if the strong rupee wasn't a big enough headache for the Indian software firms, a subprime crisis in the US, the Indian IT segment's biggest source of revenue, has come to plague the industry. Little wonder that the sector has been a laggard on the bourses lately.
On Wednesday, Infosys Technologies CEO S Gopalakrishnan tried to quell many fears.
"There is no change in our earlier guidance," he said.
He said the deal sizes are not getting shorter or vanishing. "There is no slowdown in deals from the US as yet. Sometimes these things (such as subprime crisis) take a bit of time to make an full impact. Right now, there is no slowdown in the deal size or the type of work we do," he said.
The company has less than 0.5% exposure to the US subprime market and hence, Gopalakrishnan said, the fears are overdrawn. Its BPO subsidiary has only a million dollar exposure out of its $150 million revenue.
On the contrary, it expects to be a beneficiary as a slowdown would force US companies to increase outsourcing to cut costs.
The company has accepted the other devil, the strong rupee, as a necessary evil. "The Indian economy is growing faster than ever before and our view is that rupee will continue to appreciate. But when it appreciates quickly in a short period of time, like it did this earlier year, it's a cause of concern," he said. The rupee has risen 6.8% against the greenback in the three months ended June 30, the biggest quarterly advance in over three decades.
"Infosys has managed margins in spite of a strong rupee. Wage and rupee would have impacted margins by 9% but we were able to bring down to only 3%," he said.
The margin levers the company has are increase in utilisation rate, changing service metrics, distributing revenue geographies across multiple currencies, billing rate increase and increasing internal efficiencies. Infosys said a stable billing environment was allowing the company to raise rates by 3-4% for new contracts and 2-3% for existing ones coming up for renewal. It is aiming to increase utilisation to 79% from 75% currently.
Gopalakrishnan said, ideally, Infy should earn 50% from the US and 30% from Europe. It's 63:26 in favour of the US now.
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}