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Infosys Technologies (INFY)Stock (Investing in India Industry, Technical & System Software Industry, Outsourcing Services Industry)
Infosys Technologies (NASDAQ: INFY) is an Indian IT services firm that develops custom software and provides business process outsourcing (accounting, HR, IT) for large corporations. Infosys has been a prime beneficiary of the outsourcing boom that has taken place in India throughout the 2000s. The company's revenue and employees grew approximately 400% and 500%, respectively, from 2003 to 2007. In recent years, however, Infosys along with other Indian firms have also faced rapid wage inflation, as U.S. corporations have flocked to India in search of inexpensive but skilled labor for their own overseas operations; wages have been growing by more than 14% per year from 2005-2007. [1]. Although Infosys' margins have dropped in recent years, the company is still significantly more profitable than Wipro, its closest competitor. It commands larger, more lucrative projects, resulting in higher revenue per employee. At the same time, it pays its employees, particularly new recruits, less than the industry average. The company's reputation and its best in industry training make it easy for it to attract high caliber candidates, despite lower salaries. Infosys received over 1.3 million applications in 2007, and hired less than 3% of applicants. [2]. In the near term, Infosys' biggest risk is its continued rapid growth. Infosys' business is employee intensive, meaning that the company has to hire large numbers of employees to in order to grow revenue. The company has grown from just over 15,000 [3] employees at the end of 2003 to over 72,000 [4] at the end of 2007. While the company's reputation is a major asset in attracting new recruits, training and integrating increasingly large numbers of new recruits will prove a major challenge for the company.
[edit] Company BreakdownServices: Infosys makes most of its money from the development, maintenance, and implementation of software. Industries: Infosys primarily serves the following industries:
Of the 7 industries that Infosys serves, banking and financial services are the largest accounting for 30.2% of the company's revenue, followed by Telecom at 19.3%.[7] Geography: Infosys is heavily weighed towards North America, and more specifically the US. North America accounts for 63.3% of sales. It is worth noting that Infosys only gets 1.6% of sales from India and only 10.3% of revenues come from outside of North America and Europe. [9] [edit] Trends and ForcesIndia's high wage growth, pushes down INFY's margins. Demand for IT professionals has dramatically increased over the past several years. India has become a primary source for IT professionals leading to salary inflation. Salaries for Indian IT professionals have had an average annual growth of 14%. Although Infosys has seen its operating margins drop by several percentage points from 2005-2007, the company still maintains higher margins than its competitors. The company attracts higher revenue projects than its competitors, resulting in more revenue per employee. The company's reputation as the premier IT services firm in India also allows it to hire new recruits at below market salaries resulting in lower compensation costs. [edit] Lower attrition ratesInfosys' focus on high level recruits and intensive training gives it some of the most productive and effective employees in the industry. Infosys accepts less than 3% of applicants. Infosys is able to attract top level recruits with the promise of best in class training. Their training facility in Mysore is the largest corporate training facility in the world. Moreover, Infosys was one of the first Indian firms to offer stock options to its employees and has a policy of providing all employees with options. The options along with company's emphasis on ongoing training and its reputation as the top IT services firm in India, have helped the it to maintain some of the industry's lowest attrition rates. [edit] Foreign Exchange RisksInfosys gets the majority of its business from outside India, with 63% of its revenues coming from the U.S. in 2007. As a result, Infosys feels the impact of foreign exchange fluctuations more than most companies. In recent years, the dollar has appreciated against the rupee. Although Infosys is able to adjust its fees to compensate for a weaker dollar, continuing weakening of the dollar will make outsourcing to India less attractive to American firms. Infosys is also focused on becoming a more global firm and has hired employees in Eastern Europe as well as other parts of Asia resulting in an increase in currency risk. [edit] CompetitorsWipro (WIT):Wipro is a major competitor for Infosys. Wipro typically earns less revenue per project than Infosys. Wipro had an operating margin of 20% in 2007. Infosys's industry leading cost efficiency helped allow it to achieve an operating margin of 27.57%. [10] Satyam Computer Services (SAY):Satyam is a global IT solutions provider. It had revenues of $1.46 billion in 2007 and an operating margin of 20%. [11] Cognizant Technology Solutions (CTSH):Cognizant provides custom IT consulting and technology services. Cognizant had revenues of $1.42 billion in 2006 and an operating margin of 18.2%. [12] [edit] References
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