Infosys Technologies (INFY)

Basab

Actually what is happening is that the top management of these companies are distracted, and when they get distracted by a compliance related issue that is SOX or Patriot related stuff, they basically slow down decision making on other major IT decisions or any other decisions. So hopefully somewhere down the line, we will get the benefit of all these investment in compliance, because everything gets converted into process and technology, but right now large decisions will be getting put on hold.

Udayan

Kris, what has been the experience from the past, has it happened in the past, a. And when it happens, does it come back in a lumpy fashion because there is only in a sense deferred expenditure or do you think you actually take losses for the period at which the decisions are getting deferred.

Kris

Sometimes it could actually benefit us at a later stage, you know, if you look at what happened, you know, in Fiscal year 2000, what happens when the internet boom happened, so it is possible that this can actually have a positive impact on the future, we have to wait and see.

Udayan

Just one take from you on the net additions in employees, 1,500 odd in this quarter, has it been deliberately slow because of the slow down that you are going through for these two quarters.

Kris

See, we came out actually, you know, a very high number for the Q2 when all the college people join the company and things like that. So there is a seasonality to our recruitment. Going forward we are projecting a gross addition of 12,600. We have already got 6,000 offers made in engineering colleges for the next year. So we are actually looking to add significant number next year.

Udayan

Can you give us some numbers on the wage hike that you seen in this April, how much do you expect to see going forward, and how you can cushion the impact on margins?

Mohandas Pai

Well, this year, for example, fiscal 06, we see offshore salary going up between 14-15%, partly variable, partly fixed, and for onsite, we see it going up by about 3%.

Udayan

Most of it is already being taken in April.

Mohandas Pai

Well, April is announced, so it is factored into the first quarter guidance. It is factored into the first quarter guidance, factored in the yearly guidance. So as far as we are concerned, it is behind us. And this has been the trend for the last two years. The salaries have gone up between 15-17%, and this range is in the same range. We also made sure that the entry level we have increased the compensation because the last two to three years there has been not much increase in compensation. So overall, the compensation increases in India has been what we have seen. Even the BPO industry, there has been some stability in the kind of increases that we are seeing because the people have understood that there is no point going and grabbing somebody’s entry level and paying him highly because you have got to pay the bill later on. Now, expanding the pool of talent, getting people for the places, investing in training, doing all the things that services industry did, but this trend is acceptable.

Udayan

You don’t see any great spike in wage inflation at all in the next four quarters, which might pressure..?

Mohandas Pai

No, because remember two years ago we had the multinationals coming in. That changed the scenario because suddenly they went and wanted to increase capacity dramatically in a short period of time and they were going after good people. So we ramped up our compensation. If you look at some of the grades, the increase in compensation in fiscal 05 compared to fiscal 03 has been between 75 to 100%, and the large part of it has been variable, and the variable compensation plan which we have executed well over the last three years, is helping us tremendously. For instance, in fiscal 05, the total quantum of variable pay was 5% of revenues and people got almost entire kind of variable which we said was available to them based on performance. So the variability of compensation allows us to pay more because it is linked to revenues. It protects us in the event that revenues do not grow to same extent. It enhances the confidence we have in giving salary hike, and it works very well to incentivize people to get more and to earn more. It aligns everybody’s interest. So it is doing very well, and we are through the cycle. Most companies are not through the cycle, we are through the cycle and we have done well on that.

Udayan

Shibu, any other issues on delivery which could be slowing down growth over the next quarter

Basab

The story there is mixed as our portfolio services offered increases, whatever we sell which is value based, we don’t see that much resistance to pricing there. So if there is enough headroom between what our average bill rates are and what other consulting firms we are benefitting from that. However, in the core offshore services of development and maintenance, there continues to be a lot of competition, and we respond to that competition through pricing and balancing our needs for volume growth. So I guess it is a mixed story, but the good news is that we are able to make a mark in the higher value services, and that part of our portfolio is actually working and showing very positive leading indicators.