Infosys Technologies: Bottomline Focus

At 32%, Infosys' topline growth is significantly higher than the industry average. But here's the interesting story-this is also its lowest ever growth in five years at a time when most of its competitors-Wipro specially-have seen toplines pick up. According to CEO Nandan Nilekani, there's a reason for it. After getting battered on the bottomline in fiscal 2002-03 (net profits grew just 18.5%), the company concentrated on profits this year more than on anything else. That's the good news.

The bad news is that most of the profits seem to have come from running a very tight ship-cutting down on sales, marketing and general administration expenses for instance. But going forward, these expenses can be cut only so much. In fact, as the company hired at a hectic pace, its software development expenses as a percentage of revenues grew even as per person productivity fell drastically.

Part of this comes from a major increase in the percentage of freshers in the company with less than two years of experience (up from 28% in fiscal 2002-03 to 46% this year). And part of it comes from lower utilization rates as the company built up a pipeline of talent. This has associated problems-a larger bench and higher attrition.