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Nilekani on Infosys results
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July 12, 2006

Nandan Nilekani, MD and CEO of Infosys [Get Quote], says that increase in business volume, rupee and a strong Q1 has helped upping Infosys' FY07 guidance.

Excerpts from CNBC-TV18's exclusive interview with Nandan Nilekani:

Every analyst almost fell of the chair this morning when you said Rs 125 per share, why did you change your guidance so dramatically?

Definitely, there has been an improvement in business performance and the outlook is looking better. We almost had a 15% growth in the rupee, so we have been able to revise our dollar guidance from 28-30% to something like 34.5-35.9%. So there is an improvement on that. On the rupee side, the depreciation of the rupee has also contributed, which is why we have revised our rupee guidance to 40%.

So I think our overall business performance improvement, plus rupee depreciation has contributed to this quite a bit change in guidance.

In dollar terms also, we had said 28-30% and now we are saying 34.5-34.9%, so there is a significant real increase in the business and that is reflected in the first quarter results where even in dollar terms we have grown over 11%.

Do you see that kind of significant volume growth this early in the year for you to change your guidance so dramatically?

We have done much better in the first quarter itself than we had anticipated, so that creates a base for future growth. We have looked at growth for the second quarter, we have looked at the incremental growth that we expect in the third quarter and fourth quarter and factored all that in our guidance.

What has changed from last quarter to this quarter, aside the rupee because you started off with Rs 115 and then you are upping it to Rs 125, have things changed so significantly?

The fact is that we have selected largely an organic model of growth, Infosys certainly has been much less into acquisitions than other firms and all that is beginning to pay off because I we believe that the wind is behind us. We believe that the trend is at the early stages.

Our investment in brand building, our investment in client acquisitions, our investment in strategic account planning to ensure that we do what we can, coupled with the fact that we have extended our services, brought in new services, made it end-to-end, our investment in consulting, domain knowledge, all are old fashioned things that you do on the ground and all these things are coming together very well.

That is one of the reasons why it is all coming together. Plus, we are seeing strong growth in telecom and we have seen strong growth in financial services, manufacturing, we have seen strong growth in Europe too. It is just that all of it came together this quarter.

Are you saying that you get more sure visibility because you don't depend on companies, which you have acquired, but since it is an organic model you have a better feel of what your own engines of growth are growing at?

No, it is partly that. But more importantly our strength comes from our business model because we think our business model is innovative, it's a new way of doing things, it is faster but cheaper than the legacy guys and in that model how well you fine tune the execution engine is a very important criterion

One of the advantages of organic growth is that the entire execution engine is entirely in your hands and therefore one can fine tune it much better.

Some people have been a bit apprehensive about how this sector will pan out because there is a lot of talk about the US economy slowing down and how that may translate into weakness for you but your guidance is diametrically opposite from those kind of signals, what do you pick up from the ground then?

At the business level, when you talk to business leaders they are extremely buoyant and bullish about the future. When I talk to economists, they have some worries about the future because they feel this fundamental imbalance in the global economy is not sustainable, so there is a slight disconnect there.

Having said that, remember that our business is defensive because while we get benefits of increased spending when there is buoyancy, then even when things slow down there is a huge pressure on our client firms to reduce costs and improve productivity.

Therefore, we have a hedge there, so in that sense we have a defensive play if the economy slows down and all the reports indicate that proportion of spending of global companies on offshore models will go up even if the total Budget comes down. It is a transition shift and in a sense you are less vulnerable to cyclical behaviour of the economy.

So you are saying that even if there is a bit of a slowdown in the US, IT spending as such may not suffer?

Even if IT spending suffers, IT spending on people like us won't suffer.

For Q2 your guidance is positive but somewhat conservative and Q2 is your best quarter, do you think you will again surprise?

Whatever we do, you want us to do better than that.

But one would have expected it, having come out with a quarter like this to give more positive guidance?

One must remember that we are talking about growth and even if is your best quarter, your base has gone up and we have to grow on that base.

Do you think it will be evenly spread out for the remaining three quarters or Q2 will again be the prime quarter for this year?

I think whatever guidance we have given for Q2 is what we abide by and whatever guidance we have given for the year is what we abide by.

Has there been surprises for you as a company, from what you said three months back and where you find yourself now?

Obviously, the performance has been better than what we anticipated, otherwise we would have given a higher guidance. But also as, everything came together, the rupee movement came in our favour, not only against the dollar but also pound and euro.

The growth happened in verticals as well as in Europe and so the multiple engines of growth all got fired together and frankly now the Infosys brand is so strong, in terms of what we do that large companies are very comfortable with giving significant part of their spends to us. That is a more strategic thing but it is now paying off.

Infosys Q1 net up at Rs 794 crore

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