Operating profit margin is sacrosanct for Infosys but, in changed market conditions, the $8.2-billion IT services exporter believes it will strike a balance between the need for investments to accelerate revenue growth and profitability. In an interview with PP Thimmaya, Infosys CFO Rajiv Bansal says that while the company is far from the Nasscom growth guidance of 13-15%, bridging this gap tops its priority. Excerpts:
Will you be able to improve OPm in FY15?
Our margins in FY15 would be in line with those in FY14. The full-year margin for FY14 is 24%, and that is what I would expect with a revenue guidance of 7-9%. It is a question of how much you want to cut costs and how much you want to invest back in the business. Our guidance is still quite far from Nasscom’s, and our first goal is to bridge the gap.
We have to accelerate growth and be prepared for market opportunities that require us to hire ahead of time. We need to invest in our sales engine, delivery operations and technology. If you focus only on margins and not on growth, you will not be able to sustain it.
We need to get a certain level of growth to sustain the margins; till that happens, performance will be choppy. I would expect annual margin for FY15 to be around 24%.
What challenges do you see on the margin front?
We have looked at the revenue and investments required during the fiscal, and I believe the margins will be around the same range. If there is a need to invest, I would not shy away from it. The idea is to focus first on accelerating growth, get the momentum and then look at margins.
How is the pricing environment?
It is stable, with about 1% movement up or down. There is no pricing pressure. However, in large outsourcing deals, pricing is very competitive. In FY15, we expect pricing to remain flat.
How do you see the rupee moving in FY15?
Honestly, I don’t take a call on the rupee as we follow a policy of short-term hedges. We have a very active treasury team that tracks currency movements and hedges appropriately so that the impact on P&L is negligible.
Today, there is a lot of expectation that the next government will be stable. If there is a stable government, the rupee may come down to the 57-58 level against the dollar. Otherwise, it could depreciate with some amount of short-term volatility. However, if you look at the long-term fundamentals, especially on the export front, we have many challenges. Unless we encourage exports and reduce the dependence on oil imports, I don’t see the rupee appreciating beyond a certain point.
Will Infosys continue with its cost-optimisation drive?
It is a continuous process. As the organisation grows, there will be areas where we can cut costs and increase efficiency.
We have to invest back into the business and also deliver margins. Cost-optimisation is important for us. However, what is also important for us is to invest more in the business and become more price-competitive.
In the near term, there will be certain low-hanging fruits in cost cutting where one gets benefits immediately. However, there are some other fundamental things, such as the onsite-offshore ratio and utilisation level, which will take longer to come down to optimum levels.
How do you plan to utilise the $5-billion cash reserves?
Our cashflows are very healthy. Our operating cashflow is 114% of net profit, and we continue to generate a good amount of cash every quarter.
We look at our cash reserves and see what our requirements are in terms of investments and acquisitions over the next five years. We have decided to increase the dividend pay-out ratio to up to 40% of post-tax profits in FY14.
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