SD Shibulal, chief operating officer (COO), Infosys, tells DNA that the company will protect its margins by using various levers and by refocusing on Fortune 2000 clients.
Infosys Technologies is facing not only pricing pressure, but its volumes are also under strain. In the quarter ended December 31, the second-largest tech company’s rate of client acquisition dropped 36% on a yearly basis — 30 customers were added compared with 47 during the same quarter last year. In the quarter, the company lost three customers and its billing rate dropped 1.8% in constant currency.
SD Shibulal, chief operating officer (COO), Infosys, tells DNA that the company will protect its margins by using various levers and by refocusing on Fortune 2000 clients.
How do you plan to grapple with the slowing customer acquisition rate?
We are refocusing on the Fortune 2000 companies, which still have the potential to spend on technology.
Till now, we were also looking at customers outside this boundary, but now we will fundamentally focus on the Fortune 2000 clients. Besides, we also have a fairly large base of existing customers, who give us repeat business. This quarter, our revenue from repeat business was 97.1%. These (existing) customers spend substantially on technology, but our portion in that (client’s tech spend) is still small. Therefore, there is potential to increase our revenue from them.
Also, our service base of infrastructure management, independent validation and system integration has deal sizes ranging from $250 million to $300 million. These deals have potential to become larger.
The clients we have lost in this quarter were transactional in nature, which means that they did not have the ability to stay with us year after year. In that sense, they are not material to our growth.
What is the way forward for Infosys, with lower billing rates and slowing volume growth?
There are price renegotiations happening. Many customers are asking for price cuts but we are focusing on total cost of ownership of a customer. We have increased our fixed-priced projects (grown from 32.8% in Q3, 2007 to 36.3% in Q3, 2008). To see that our revenues are not impacting by price reduction, we are linking revised price to higher volume. Our average price realisation is down 1.8% in constant currency but we are comfortable with that in the current scenario. But if the situation worsens, there could be more pricing pressure in the coming months.
How will you maintain your current high margins with falling pricing?
Price is just one of the levers of margins. If you see, we have increased our offshore revenues (from 52.7% to 54.7%). Offshore revenues offer us better margins (because of labour arbitrage and lower cost of operation in the domestic market). We have also increased utilisation (of workforce). Then, we have also brought down our sales and general administration cost (S&GA) by 5.6% over the last quarter (from Rs 430 crore to Rs 406 crore). But we have maxed out on the S&GA cost reduction. We will be using all these levers to keep the growth or reduction in our margins within the narrow band of 50-100 basis points.
){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}