New Game, New Rules Fiscal 2004 brought in not only a billion dollars in revenue for Infosys, it was also a year of unmatched investments and the highest expansion in scale ever |
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NR Narayana Murthy Chairman & chief mentor |
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Nandan Nilekani | ||||||||||
CEO, president & MD | ||||||||||
S Gopalakrishnan | ||||||||||
Coo & deputy MD | ||||||||||
TV Mohandas Pai | ||||||||||
CFO & chairman, Progeon | ||||||||||
K Dinesh | ||||||||||
Head (HRD, IS, quality, productivity & communications design group) | ||||||||||
SD Shibulal | ||||||||||
Director & head (Worldwide customer delivery) | ||||||||||
Srinath Batni | ||||||||||
Global accounts & Asia-Pacific | ||||||||||
Basab Pradhan | ||||||||||
Senior V-P & head (Worldwide sales & retail (North America) | ||||||||||
Akshaya Bhargava | ||||||||||
MD & CEO, Progeon | ||||||||||
Ramesh Kamath | ||||||||||
CFO, & chief risk officer, Progeon | ||||||||||
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1981 Narayana Murthy, Nilekani and five others leave Patni Computer Systems to form their own company with Rs 10,000. Incorporated in Maharashtra. First-year revenues-Rs 12 lakh |
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1991 Revenues at Rs 5 crore. Major makeover, including branding and IPO in 1993. Coincides with Manmohan Singh's landmark budget and liberalization. Takeoff |
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1995 Expansion phase begins-development centers across India and offices across the world |
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1999 Nasdaq listing. Revenues cross $100 million. Two US centers |
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2000 Era of corporate governance. First to comply with US GAAP |
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2001 Revenues $400 million. Tops various 'Best Employer' surveys |
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2002 Revenues $500 million. Becomes the Taj of the south, with every visiting head of state dropping by at the by-now famous campus |
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2003 Nandan Nilekani takes over as CEO from Narayana Murthy. Starts BPO/ITeS subsidiary Progeon |
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Fiscal 2004 was a landmark year for Infosys. It isn't everyday that services
companies in India hit the $1-bn mark in revenues and announce Rs 100-crore or
$23-mn special one-time bonuses to its employees.
Granted that by becoming only the third member of the elite billion-dollar
club of the Indian IT industry it had reason enough to celebrate the way it did.
But that said, FY 2004 will be best remembered at Infosys for three other
reasons-their huge investments, their overriding commitment to scale and an
overall strategy which often looked more conservative than daring.
Some of the conservatism came out of a certain sense of flux in the company.
After its previous marketing head, Phaneesh Murthy moved out, Infosys hasn't
really been able to find a replacement for him. Murthy was high profile in the
US market and fully empowered as a member of the board. Marketing is now headed
by Srinivas Uppalari, who is not a board member, and who reports in to S
Gopalakrishnan. Meanwhile as Murthy moved to iGate Global Solutions, he has
taken a few key people with him including old Infy hand and head of Europe
marketing operations Srinjoy Sengupta, and Mohit Shekhar, who was the delivery
head of a business unit in the US. This has put the board under tremendous
operations pressure. Meanwhile, Hema Ravichandar, the HR head of Infosys has now
become the Group HR Head for all its subsidiaries including Progeon, Infosys
Consulting and Infosys Australia. This has put her and her entire HR team under
high pressure in a year when the company is hiring aggressively (and getting a
million resumes in a year!).
Meanwhile, after over 20 years of sticking to a staunch belief in organic
growth, the company made its first major acquisition in fiscal 2004. Expert
Information Services, Australia, was acquired for $23 mn and all of its assets,
including 300-odd employees, will now function as Infosys Technologies,
Australia. It contributed $7.7 mn to fourth quarter revenues and, according to
the company, is likely to add another $28 mn in fiscal 2005.
During the year, Infosys Consulting was also set up at Texas, US, at an
investment of $20 mn. It will be led by some of the top consulting minds of the
world including, Stephen Pratt, who was senior partner at Deloitte Consulting
for 12 years and Paul Cole, who was senior executive at CGE&Y for 7 years,
among others. It plans to have 75 people by end of the first year and 500 over
the next three years and will eventually help re-brand the company into a
consulting and IT services company. Another $5 mn each went into Infosys China
and the company's Banking Business Unit (BBU), while the company put in its
second tranche of investments, worth Rs 12 crore, in Progeon, their BPO
subsidiary.
In addition, the company took on 9,758 new people overall, 8,021 in Infosys
alone. (The rest went to Progeon). The strength of the company now stands at
23,377, a 45% increase in hiring from fiscal 2003, when they brought in 5,029
employees. Addressing shareholders in the company's annual report this fiscal,
CEO Nandan Nilekani said, "This year, we clearly demonstrated, that scale
was our forte."
Total employee headcount grew by 52%-a trend reflected also among its other
competitors. The downside of this, however, was growing attrition, up from 6% to
about 10.2%-too close to the industry average for a company that has
traditionally had very low attrition rates. The company intends to hire another
10,000 more for the entire group in FY05. Of this, 8,000 will be on the software
business alone.
Better Show
Although on growth rate ranking the company was down at No. 7, there was
good news to go with it. The revenue and profits gap closed a little, as a 31%
growth in revenues was accompanied by a 30% growth in net profits-a huge
difference from last fiscal's 18.5%. There was good news at Progeon as well.
The BPO subsidiary of the company hit revenues of Rs 78 crore, a growth of 271%
from last year's Rs 21 crore. Progeon continues to focus on
transaction-processing work rather than voice-based services and increased its
workforce of 539 last fiscal to 1,878 in fiscal 2004-a growth of 248%.
But in the larger picture, a hiring growth of 52% as compared to a revenue
growth of 31% is not comforting news. Especially when the operating margins have
taken a hit from last year's 35% to 33% and blended revenue productivity has
been going down year-on-year.
Future Positive
The company though remains confident about maintaining its earnings growth
margins for fiscal 2005 barring any further investments or a continuing
appreciation of the rupee. Some of this is likely to be offset by a tighter
ship. The company plans to cut down on its sales, marketing and administration (SGMA)
expenses for fiscal 2005 and get economies of scale for the next few years
starting with a 1.2% reduction in fiscal 2005. Already, its S&M expenses in
fiscal 2004 were increased by just 26% compared to 105% the year before. The
proposed 17% hike in employees' base salaries will not be a major hit as
Fiscal 04 already takes into account the Rs 100 crore one-time bonus.
Meanwhile, Infosys' guidance for top-line and bottom-line growth in fiscal
2005 are 24% and 20%. With history on its side, the company may well beat these
projections yet again.
Sathya Mithra Ashok in Bangalore