Date:14/04/2004 URL: http://www.thehindubusinessline.com/2004/04/14/stories/2004041401540700.htm

Back Strong rupee to shave one pc off margins

Our Bureau

Bangalore , April 13

A STRONG rupee is likely to shave 100 basis points off Infosys Technologies' operating margins for the current financial year, Chief Financial Officer, Mr. T V Mohandas Pai, has said.

A hard rupee eats into the company's revenue as it erodes the value of cash earned outside the country. Indian rupee has appreciated close to 8.5 per cent this year against the dollar. Infosys, like traditional software exporters, earns most of its income from the US and North Amercia contributed close to 71.2 per cent of its revenue in its last fiscal's revenue.

The robust rupee has chewed close to Rs 111 crore off Infosys' bottom line in 2003-04 and accounted for Rs 272 crore in revenue loss in the same period, Mr Pai said. For the fourth quarter, the company's revenue loss stood at Rs 109 crore and profits shrunk by Rs 41.2 crore tracking the strong rupee.

"We have factored in one per cent exchange rate difference", Mr Pai said. The company has bought forward covers of $203 million at Rs 44.6 to a dollar. The company, which hedges its receivables only in dollars, said that it was bound by regulations in its bid to hedge its risks to the "extent we want".

However, a stable pricing environment coupled with increasing volume would help the company maintain its margins as it drives to push more work offshore. "Pricing has been stable over the last three quarters and we expect it to be stable in the current year," its CEO, Mr Nandan Nilekani said.

"While there is a concern at the operating level, customers continue to endorse the outsourcing plan. Our global delivery model has been well accepted and people see us as the leader, with global companies as followers".

Mr S.Gopalakrishnan, COO, said, "We will look at proactively growing our non-US business and reduce dependence o the North American market". The company which forayed into consulting recently through a new subsidiary aims to take the battle into "competitor's camp" to gain more business.

Moreover, the company expects to benefit from "money reallocation" towards outsourcing vendors like Infosys in a market where clients are chasing avenues across globe to shrink their costs.

"We have successfully maintained our margins, despite the drop in price realisation during the year and an appreciating rupee. Free cash flows have been the highest on record. We have absorbed the cost of a 52-per cent increase in our employee base," Mr Pai said.

"We continue to balance the cash required for growth with that of enhancing returns to the shareholders. Our special one time dividend payment is a reflection in this direction", he added.