Sales in the three months ending December 31, 2006 rose 47% to $821m, and net profit increased 52% to $218m. The appreciation of the rupee against all other major currencies was a factor in the company’s operating margin falling slightly from 29.3% to 28.5%.
Infosys said it expects revenue for its year ending March 31, 2007 to rise 43.6%, with earnings per ADS predicted to grow 44.1%. However these forecasts failed to excite the market, with Infosys’ shares up just 1% in trading on the India’s National Stock Exchange.
BG Srinivas, head of Infosys’ European operation, told Computer Business Review: We are not seeing any sign of a slowdown. We are in the first quarter of the budgeting cycle for most of our clients, so we are not reading too much into it.
Organizations are entrusting larger, more complex deals to Indian services suppliers as their confidence increases in global delivery models to deliver quality work at a lower price. Infosys ended the quarter ending December with 35 clients that contributed more than $20m in revenue during the previous 12 months, compared to 25 in the year ago period.
One of Infosys’ largest accounts in Dutch financial services company ABN AMRO, for whom it is providing application development and support services under a five-year deal signed in September 2005. Srinivas said that the roll out of new systems in progressing according to plan.
Companies such as Infosys are aiming to become less reliant on the relatively commoditized application development and maintenance on which they initially made their fortunes, and have been expanding in higher-value areas such as consulting, infrastructure management and business process outsourcing.
Srinivas that the company made 43% of its revenue from non-ADM work during the quarter, which is up from a level of 20% five years ago. Sales from testing services accounted for 7% of third-quarter sales, up from 5.5% in the year-ago period, while revenue from packaged application implementations rose to 17.9% of total sales from 16.3%.
One of the other big challenges facing India’s big services vendors is to recruit and retain sufficient quality staff to meet client demand. Infosys added a gross total of 6,062 new employees during the last quarter, taking its total headcount to over 69,000 at the end of December. To put the company’s rapid growth into perspective, Infosys had just 10,000 staff six years ago.
Srinivas said that Infosys doubled the size of its consulting team last year, and also revealed that the company is constructing a new facility in Mysore that will be capable of training some 50,000 people during a calendar year.
Europe now accounts for 27% of Infosys’ revenue, with the UK representing the bulk of that total. Srinivas said: We are seeing signs of growth in the Benelux and Nordic regions, but Germany and France are a little more challenging.
There was a significant increase in the amount of M&A activity involving Indian services providers in 2006, and Srinivas said that this is likely to continue this year but ruled out a major move by his company. I don’t think that we will do something that would upset our business model, but we will look at niche targets in particular geographies and vertical markets.
