Financial Daily from THE HINDU group of publications
Wednesday, Apr 14, 2004
Financial Daily from THE HINDU group of publications Wednesday, Apr 14, 2004 |
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Info-Tech
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Bonus Announcements Columns - Microscope Infosys: Bonus points for taking the stock Krishnan Thiagarajan
IN a striking vote of confidence, Infosys Technologies has announced a 3:1 bonus and a special one-time dividend of Rs 100 per share. By announcing this in a year in which it crossed a historic milestone of $1 billion in revenues, the Infosys management is sending out a signal that the stock will be more affordable and be less susceptible to price swings in future. Moreover, as a growth stock, the bonus will ensure that it conserves the capital and retains it for operational requirements and strategic acquisitions in future. The three trends that were visible from the financial performance and recent events for the latest quarter and year ended March 31, 2004 are: Management guidance: Infosys has chosen to remain conservative in its management guidance for the year 2004-05. Sensing the recent appreciation in the rupee and the prospect of an outsourcing backlash from the US, Infosys has chosen to peg the consolidated revenue growth at 24 per cent and per share earnings growth at 20 per cent. The closer alignment of revenues with per share earnings growth suggests that margins may remain relatively stable in the coming year. Moreover, Infosys has traditionally revised its financial projections along the year and this year may be no exception. Financial contours: Despite adding nearly 2500 employees in the fourth and latest quarter, Infosys has managed to improve its operating profit margin by 0.8 percentage points. However, the gross profit margin (after other income) has declined on account of a sharp drop in other income to Rs. 3.18 crore vis-à-vis Rs 27.38 crore in the corresponding period of the previous year. This is attributable to rupee appreciation in this quarter and has been accounted under exchange differences. For the full year, both the operating and gross margin have declined by around 1.8 percentage points. The consulting foray: The consulting subsidiary set up by Infosys last week is the first strong signal that it is attempting to move up the software value chain. Setting up a subsidiary offers it the flexibility to create a global workforce, offer higher compensation relative to its India-centric operations and even tide over an initial period of low margins till the operations stabilise. Outlook: Despite these encouraging signs, Infosys remains exposed to medium term challenges on three fronts. First of all, Infosys has to gear for stiff competition from multinational vendors such as IBM and Accenture . Secondly, while consulting is a good foray, Infosys will have to increasingly focus on delivering outsourcing solutions to its clients which demand greater domain expertise and deeper technical skills than in the past. And finally, there is a need to become a multicultural organization operating out of multiple geographies with a global workforce.
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