Infosys Technologies (INFY)

Kris Gopalakrishnan

Thanks Nandan and good morning to every one of you. We have seen a dip in the revenue from North America from 66.6% last quarter to 63.9%. We have seen an increase in revenue from Europe as well as rest of the world. Actually Europe has gone up from 22.1 to 23.3% and rest of the world has gone from 9.2 to 10.8%, India remains constant.

Our utilization is in the range we target, we look at high 70s, low 80s as our range for utilization. So the utilization excluding trainees is 76.6%, and including trainees is 73.2%. Remember that we have had significant additions to employees this year.

Revenue by project types, slight decline in fixed price projects, consequently the time and material has gone up little bit. Our revenue from onsite has come down to 48.1%. Offshore has increased, and this is a clear trend. Over the last four quarters we have seen onsite going down and offshore going up.

The distribution across clients, the top client is 6.3% of revenues. Top 5 clients is 21.2%. Top 10 clients is 33.8%. More importantly, the number of million dollar relationships have gone up from 156 to 166, and if you look at everyone of the numbers below, you see an improvement. Five million dollar relationship going up from 65 to 71; 10 million, 37 to 42; 20 million, 18 to 19; 30 million....etc… and we have one relationship which is $ 80 million plus.

We have added, as Nandan already indicated, 37 new clients. Total number of clients is 438. Across all the industry verticals, we have seen significant additions. Here are some examples, I will not go through each one of them, but from a technology perspective we have invested in RFID and we have started some very interesting assignments in this area. Large projects will take some time to happen in RFID, but as Infosys is one of the early adopters of this technology, we are seeing now projects in this area and from a diversified set of industry.

In distribution and retailing, we are doing some interesting work. For example, for a leading food distribution corporation, we are doing an end to end supply chain transformation solution. Our focus is to do more and more end to end solutions, and this is an example of that.

For telecommunication service providers, we are doing very interesting work across the globe. This is one of the fastest growing industry verticals. We saw a decline in the financial services vertical and an increase in the revenue from, especially the communication service provider space.

In the mortgage and insurance services, we are doing a web-based risk management program. The whole area of risk management is actually, across the financial services, is very active, especially with Sarbanes-Oxley implementation etc. And some interesting work has started in this area, and we hope that some time in the future this is going to result in some more spending on IT, from risk management side.

Finacle continues to do well and has had significant wins across the globe, and in developed markets, we are seeing some wins for Finacle - Australia, Western Europe, etc.

The gross addition for this quarter was 2506, out of which 969 people were experienced people. The total number of employees is 36,750 as of March 31. 1,240 employees belong to the banking business unit. We incurred Rs. 244 crores during the quarter as capital expense. Currently we have capacity for 33,511 employees, and we are constructing, under completion we have space for 16,615 professionals, so we have kind of accelerated our build out in creating space for employees.

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Nandan Nilekani

Let me go into the outlook for the future. Now for the quarter ended June 30, 2005, we expect income from ordinary activities to be between Rs.2002 crores to Rs.2020 crores. On an annual basis, this is a growth of 32-33%, that is on a year to year basis. But on a sequential basis, this is essentially flat. We are given a guidance of sequential growth between 0.7 to 1.6%. The earnings per share from ordinary activities is expected to be Rs.19.30, which is year to year growth of 33%. On a quarterly sequential basis the earnings is flat. For the year, we expect income from ordinary activities to be between Rs. 8890 crores to Rs. 9029 crores which is a growth rate of between 25-27%, and the earnings per share from ordinary activities is expected to be Rs.84.6 to 85.9, which is a growth of 23-25%. Now in dollar terms, we expect the dollar growth to be between 28-30%, and we expect our annual revenue for the year to be between $ 2.038 billion to $ 2.07 billion, and the growth in dollar terms is 28-30%, growth in rupee terms is 25-27%, because essentially we have converted at a conversion rate of 43.62, which is slightly higher than the average of last year’s rupee-dollar, and therefore the rupee growth is lower than the dollar growth.

So I think, in substance we expect the first quarter to be flat. We have articulated a couple of reasons for that. One is the fact that our customers are preoccupied with compliance issues which is causing some kind of a pause in some of the projects that are starting up, and it is also because we have some of our large customers have some organizational things happening. We believe both these things are temporary, it will show itself up in the first quarter with a flat performance, but we expect second and third and fourth quarter to pick up, which is why we are very comfortable with our annual guidance of 25-27% in rupee terms or 28-30% in dollar terms, whichever way you want to look at that.

So to summarize, I think we have been proactive in taking steps in transforming the way we manage our large accounts. As you know, you saw the data on the large accounts we have. We have to continue to see how we weave all our intellectual capital, all our services together, so that we get the best possible benefit. The good news for us is that increasingly more and more of our customers are not seeing us just as a vendor, but they are seeing us as a long term strategic partner who is integral to their success, who can offer a wide range of services, who can bring business value to the table. We also expect the pricing to be stable. This quarter we had a small uptick in pricing, but when we take a view of the next year, we expect pricing to be stable. The other important thing is that, over the last couple of years, as you know, we have brought in fairly dramatic improvements in the way we do compensation. We have brought in a lot of variability in compensation, and this is now kicking in, and we believe that we now have a good model to align employee benefit, employee cost, as well as the growth of the business, and as you know we have invested back in the business to develop engines of growth. We have invested $20 million in Infosys Consulting. We have invested in China. We have invested in Australia. We have invested in Progeon. And we have invested in our own verticals, new services like IVS, IMS, SI, and so forth. Infrastructure management for example we have a major center in British Telecom in Pune, so we are doing a lot of things to develops engines of growth, and we think that our investments in growing all this have yielded returns both in terms of revenue as well as valve differentiations.

With that I come to the end of the presentation, and we will be happy to take questions. Thank you.

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Kris Gopalakrishnan

Thanks Nandan. To add to what Nandan said about clients, we added 37 new clients in this quarter taking the total number of client additions in this year to 136, which was a good year in terms of client additions.

The Banking, Insurance and Financial Services segment of our business has declined slightly from 35.2% of revenues to 33.8% of revenues. We have seen a good growth in the telecom side from 18.1% to 19.4%, and we have seen actually improvement in some of the other verticals also. Europe has shown a growth this quarter from 22.1% to 23.3%, and rest of the world has picked up from 9.2 to 10.8%. Now we have been proactively investing in sales and marketing in Europe and rest of the world, and so that impact is being seen.

This year, we had net addition of 11,116 employees across the group companies and we are ending with 36,750 employees. We are projecting to add about 12,600 employees across the group companies in financial year 2006. We have already made 6,000 offers in the various campuses. We are actually investing in physical infrastructure in this year to create an additional capacity for 16,000 employees. So just to add to what Nandan said, we are confident about the projections and we are investing in the company to make sure that we are ready for this growth. Mohan.

Mohandas Pai

Thank you Kris. The margins in the fourth quarter have been stable. We have seen a small run up, but it is not the beginning of a trend. The run up has happened because of a change in some mix. Even for the year going forward, we estimate the margins to move in a narrow band. We have said that pricing has been stable, even though we have seen a small uptake in the fourth quarter, we estimate for the pricing for the next year would be stable. For the new business that has come in during this year, we have seen a pricing uptake of 4% on an average, but for this to have an impact on the entire base, it is going to take some time because if we look at the portfolio of customers that we have, the customers who come in at different years grow at different bases in different years, and that is going to make calculating the mix extremely difficult, but the good news is that pricing is stable.

For the current year, we are increasing salaries by about 14-15% for offshore and onsite for about 3%. It will impact the margins in the first quarter by may be about 1.8 to 1.9% of revenues and we hope to neutralize that by reducing SG&A by about 1% and reducing discretionary expenditure by about 0.6%. Attrition has been 9.7% LTM for this year as against 10.5%.

Our days of sale outstanding has gone up to 69 days as of 31st March, 2005 as against a normal average of 53 to 55 days, that’s because one large client did not pay us for sometime because of internal reorganization and we got a large cheque on April 5 and 6 and that cheque was equivalent of 12 days. So if you remove 12 days from 69 days, our DSO should be about 57 days, which is in a very normal range.

If you look at our guidance for next year under Indian GAAP, we have said that revenue would be between 8,890 crores to 9,029 crores. There is a differential in the growth rate between the US GAAP numbers of 28% to 30% and the Indian GAAP numbers of 24.7% to 26.6% and a large part of this gap is due to the exchange rates. For instance in fiscal 05, the average US dollar rate was about 44.87, and for this year, we have taken the closing rate as of 31^st of March of 43.62 to remain constant for the whole year. So rupee has appreciated in the beginning of this year by 2.8% on an average compared to the entire last year, and this 2.8% has impacted the growth rates and is the major cause of difference between the US GAAP growth rates and the Indian GAAP growth rates. Going forward, we estimated a USD rate of 43.62. We have about $353 million of forward cover outstanding as of 31^st of March 2005. We have marked to market our entire forward cover and we will take forward cover as and when required.

We estimate our tax rate in our guidance to be around 14%, slightly lower than the previous year, because we do not see any greater increase in tax liability. We have not factored in the FBT into tax calculation. We are encouraged by what the Finance Minister has said that legitimate business expense will not be taxed under FBT. The taxation of cost to company is very close to what is being paid, excluding item like superannuation fund for Infosys, we do not make any voucher payments for people or reimbursement. We pay people CTC and they get it in the form of a cheque, either monthly or quarterly if it is variable. Hopefully, we will see some more clarity on this issue as we go forward.

Like Kris said, we are ramping up. We are going to spend Rs. 950 crores to Rs. 1100 crores in this year as against Rs. 831 crores the previous year. So with this folks, I leave the floor open to you for your questions. Thank you very much.

Moderator

Thank you very much sir. At this moment, I would like to hand over the floor to Zaini at SingTel to conduct the Q&A session for participants connected there. After this, we will have the Q&A session for participants connected to the India bridge. Thank you and over to Zaini.