New Delhi: President, CEO & Managing Director of Infosys, Nandan Nilekani believes that that markets are poised for growth and therefore robust IT spending is expected in FY07. He further says that customers are looking to hike IT spends.
Nilekani says that operating margins have been hit by rupee fluctuations. The average rupee rate was at 44.22 versus 44.3 in Q3. He believes that the company's hedging policy will see gains if the rupee depreciates.
Going forward, he expects stable margins, and sees a few blips only from forex fluctuations. Customer pipeline of Infosys is strong, he says adding that momentum is strong in Infy's offshore business.
Excerpts from an interview with Nandan Nilekani:
Q: It seems to be an aggressive guidance because it seems to be higher in percentage terms than what you said last year and on a higher base, are you feeling more confident than what you felt last year?
A: Let me not be relative, but fundamentally we think the markets are poised for growth and robust IT spending. We are in an excellent position in terms of our brand and the clients that we have. When we look at the outlook and the business coming from all our customers, I think 28-30 per cent growth in dollar terms, which comes to about 29-31 per cent in rupee terms for the full year looks achievable.
Q: Has there been a subtle shift because last year you started with about 26 per cent revenue guidance and you are ending close to 33-34 per cent. There is a big gap between what you set out to achieve and what you have achieved. This time have you made a concept shift as a management, that you want to be closer to your guidance or are you as conservative as last year?
A: No, it’s just that at this point in time when we look at the deal flow, the kind of growth happening in our clients, when we look at supply chain these are the numbers we are comfortable with.
Q: What has changed since you stepped into FY07 versus FY06, can you genuinely see more volume growth coming or has supply side issues eased out a bit?
A: First, we are seeing robust demand and so the IT sector is poised for growth. Second, we have a great list of good customers, all of whom are planning to increase their spends on IT and we are well positioned to take advantage of that.
I think the Infosys brand has become stronger than ever before and has become well known and clearly identifies with the whole trend. So on the supply side we have people in place to deal with the growth. The supply side is in place, the training in place, the business in place and all this gives us confidence that we can go in for a 28-30 per cent growth.
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Q: There have been a few large deals in the last couple of quarters. Do you expect that to be the trend for the current year as well? Many large deals that you will participate in and what ramifications does it have on margins and pricing specifically?
A: Let me clarify, first of all this guidance we have given of 28 – 30 per cent is not assuming large deals. This is the guidance of the business that we can see in the usual order of things. We believe that we are in a market where there is strong demand and in general when you have strong demand, then you need to optimise your supply side to ensure that you take that part of the market, which delivers the maximum number of value to you as a company as well as builds long-term relations with clients.
We are in favour of locking up huge supplies at lower prices, at the same time there are strategic deals that we are pursuing. So we think that the overall demand is what we should aim at.
Q: But has pricing improved because the volume growth is there but a lot of analysts are concerned that you are not improving it?
A: If one looks at the revenue productivity this quarter, it’s gone up by 0.7 per cent on a blended basis. So there is improvement in revenue productivity, which is normally prices kicking in. If somebody wants to go and sign up a huge deal at abysmal prices, then that is the choice that they can make. But our view is that there is enough demand at good prices for us to get the growth and keep the margins and to get the topline and bottomline that we have committed in our guidance.
Q: So in your volume growth it’s not necessary that you are looking at a bigger size deal. It might be the smaller buckets but it’s just that the volume will be bigger?
A: Yes, as I said 28 per cent to 30 per cent growth for the next quarter does not assume large deals.
Q: How do you see the year progressing in terms of being spread out, your first quarter guidance is conservative, do you expect the growth that you are guiding to be more back ended for the year?
A: Nothing like that. We have given Q1 guidance for about 6.1 per cent in dollar terms. We think it is not going to be unusual in that sense. The signal we are getting from lot of our top clients is that they are keen to increase the spending both in the non-discretionary side as well as on the discretionary side. So I think it is going to be usually about the spread over quarters.
Q: You must be feeling more confident because your guidance on larger base is bigger in percentage terms?
A: Based on the business that we are seeing, we are willing to commit a guidance between 20-30 per cent in dollar terms on a base of $2.15 billion.
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