Rank 3: INFOSYS TECHNOLOGIES: Battling Billing Blues

At the annual press meet in 2001, Nandan Nilekani surprised people by
saying that Infosys expected to grow by just 30% during FY 2001-02. Infosys had
just declared 115% revenue growth, and slashing projections by 85% seemed
alarmist.

Performance Highlights Company battles billing pressure, looking for growth from volumes rather than high-end value business Revenues from development and consultancy down. Maintenance, re-engineering and products up Banking, FSI and retail verticals continue to grow. Manufacturing slows down and telecom takes a hit Strengths Company’s brand continues to be a major plus Ability to predict and react quickly to unfolding events is a huge strength Weaknesses Low focus on R&D and high-end, high-value work can be a long-term handicap Non-American revenues not growing fast enough Infosys Technologies Ltd. l Startup: 1981 l Products & services: Software and Business Consulting Services l Branches: 28 l Address: Plot # 44, Electronics City, Hosur Road, Bangalore 561229 l Tel: 8520261 l Fax: 8520362 l Website: infosys.com

Nilekani was right. Though revenues grew 37%, this was the first time that
Infosys’ growth rate fell so drastically. Profit after tax grew by close to
30%, though PAT as a percentage of revenues fell from 32.8% in 2000-01 to 31.03%
in 2001-02–an outcome of billing rate pressure. In fact, the year saw a fierce
downward push on billing rates. If the bottomline has not been affected as much
as it should have, that’s only because the company was prepared for it from as
early as March last year.

Nilekani expects this year to continue to be a low-margin, volumes game and
has forecast a revenue growth of between 19% and 23% for 2002-03.

The slowdown also affected segmental earnings–revenues from development
dipped from 40% to 32%, while maintenance and re-engineering went up. Consulting
was also down. But Finacle, BankAway and PayAway–the company’s banking
products, crossed the Rs 50-crore mark for the first time, and now contribute 4%
of total company revenues.

As part of its belt-tightening measures, the company put the skids on hiring–down
from a whopping 82% growth in employee strength in 2000-01 to just 9%–and got
more cautious with salary hikes. Progeon (its new BPO subsidiary) chairman and
Infosys head of sales and marketing Phaneesh Murthy resigned recently, following
a sexual harassment case against him and the company in the US. His role was
taken over by Basab Pradhan (sales), Sanjay Joshi (marketing), and by CFO
Mohandas Pai who now heads Progeon. The less traumatic but more significant
handover took place earlier on March 31, when COO Nandan Nilekani took over as
CEO, with Narayan Murthy as chairman and chief mentor. In more ways than one,
FY02 marked the beginning of a new era at Infosys.