Directors report

To the members,

We are delighted to present the report on our business and operations for the year ended March 31, 2010.

1. Results of operations

in Rs. crore, except per share data
  2010 2009
Income from software services and products 21,140 20,264
Software development expenses 11,559 11,145
Gross profit 9,581 9,119
Selling and marketing expenses 974 933
General and administration expenses 1,247 1,280
Operating profit before interest and depreciation (PBIDTA) 7,360 6,906
Depreciation 807 694
Operating profit before tax 6,553 6,212
Other income, net 919 502
Net profit before tax 7,472 6,714
Provision for taxation 1,717 895
Net profit after tax and before exceptional item 5,755 5,819
Income on sale of investments, net of taxes(1) 48
Net profit after tax and after exceptional item 5,803 5,819
Profit and Loss account balance brought forward 10,305 6,642
Less : Residual dividend paid 1
Dividend tax on the above
Amount available for appropriation 16,108 12,460
Interim 573 572
Final 861 773
Total dividend 1,434 1,345
Dividend tax 240 228
Amount transferred to general reserve 580 582
Amount transferred to capital reserve 48
Balance in Profit and Loss account 13,806 10,305
EPS before exceptional item(2)    
Basic 100.37 101.65
Diluted 100.26 101.48
EPS after exceptional item(2)    
Basic 101.22 101.65
Diluted 101.10 101.48
Notes : 1 crore equals 10 million.
(1) Income from sale of investments in OnMobile Systems Inc, USA, net of taxes and transaction costs.
(2) Equity shares are at par value of Rs. 5/- each.

2. Business

Our total income increased to Rs. 21,140 crore from Rs. 20,264 crore in the previous year, at a growth rate of 4.3%. Our software export revenues aggregated to Rs. 20,871 crore, up by 4.3% from Rs. 20,004 crore in the previous year. Of these, 67.9% of the revenues came from North America, 22.2% from Europe and 9.9% from the Rest of the World.

Our revenues from the Rest of the World have increased from Rs. 1,821 crore to Rs. 2,068 crore, with a growth rate of 13.6% which is higher than that of the other regions. The share of fixed-price component of the business was 40.8%, compared to 37.6% during the previous year.

Our gross profit amounted to Rs. 9,581 crore (45.3% of revenue) as against Rs. 9,119 crore (45.0% of revenue) in the previous year. The onsite revenues decreased from 49.3% in the previous year to 48.7% in the current year. The onsite person-months comprised 26.1% of the total billed efforts, compared to 28.4% during the previous year. The Profit Before Interest, Depreciation, Taxes and Amortization (PBIDTA) amounted to Rs. 7,360 crore (34.8% of revenue) as against Rs. 6,906 crore (34.1% of revenue) in the previous year. Sales and marketing costs were 4.6% of our revenue for the years ended March 31, 2010 and March 31, 2009. General and administration expenses decreased from 6.3% in the previous year to 5.9% in the current year. We continue to reap the benefits of economies of scale. The net profit after tax was Rs. 5,803 crore (27.5% of revenue) as against Rs. 5,819 crore (28.7% of revenue) in the previous year. The net profit for the year includes income from sale of investments in OnMobile Systems Inc, USA, of Rs. 48 crore, net of taxes and transaction costs.

We seek long-term partnerships with clients while addressing their IT requirements. Our customer-centric approach has resulted in high levels of client satisfaction. We derived 97.3% of our revenues from repeat business. This means that our valued and sustainable client partnerships have contributed to revenues during the previous fiscal year also. We along with our subsidiaries added 141 new clients, including a substantial number of large global corporations. The total client base at the end of the year stood at 575. Further, we have 338 million-dollar clients (327 in the previous year), 159 five-million-dollar clients (151 in the previous year), 97 ten-million-dollar clients (101 in the previous year), 26 fifty-million-dollar clients (20 in the previous year), and 6 hundred-million-dollar clients (4 in the previous year).

During the year, we added 28.61 lakh sq. ft. of physical infrastructure space. The total available space now stands at 255.04 lakh sq. ft. The number of marketing offices as at March 31, 2010 was 65 as compared to 55 in the previous year.

3. Subsidiaries

We have eight subsidiaries : Infosys BPO Limited, Infosys Technologies (Australia) Pty Limited, Infosys Technologies (China) Co. Limited, Infosys Consulting Inc, Infosys Technologies S. de R. L. de C. V., Infosys Technologies (Sweden) AB, Infosys Tecnologia DO Brasil LTDA and Infosys Public Services Inc, USA. We have six step-down subsidiaries : Infosys BPO s.r.o., Infosys BPO (Poland) Sp.Z.o.o, Infosys BPO (Thailand) Limited, McCamish Systems LLC, Mainstream Software Pty Limited and Infosys Consulting India Limited.

During the year, Infosys BPO acquired 100% voting interests in McCamish Systems LLC (McCamish), a business process solutions provider based at Atlanta, U.S. The business acquisition was conducted by entering into Membership Interest Purchase Agreement for a cash consideration of Rs. 173 crore and a contingent consideration of Rs. 67 crore. The acquisition was completed during the year and accounted as a business combination which resulted in goodwill of Rs. 227 crore.

As per Section 212 of the Companies Act, 1956, we are required to attach the Directors' report, Balance Sheet, and Profit and Loss account of our subsidiaries. We had applied to the Government of India for an exemption from such an attachment as we present the audited consolidated financial statements in the Annual Report. The Government of India has granted us an exemption from complying with Section 212. Accordingly, the Annual Report does not contain the financial statements of these subsidiaries. The audited annual accounts and related information of subsidiaries, where applicable, will be made available upon request. These documents will also be available for inspection during business hours at our registered office in Bangalore, India. The same will also be hosted on our website,

4. Finacle™

Finacle™ from Infosys partners with banks across the globe to power their innovation agenda, enabling them to differentiate their products and services, enhance customer experience and achieve greater operational efficiency. Finacle solutions address world-wide banking needs such as core banking, wealth management, Customer Relationship Management (CRM), Islamic banking and treasury requirements of retail, corporate and universal banking. Finacle solutions also empower banks with multiple sales, service and marketing channels including e-banking, mobile banking and call centers. Recently, Finacle™ has launched a slew of innovative offerings including Finacle Advizor, Finacle Treasury-in-a-box, Finacle Core Banking for regional rural banks, and Finacle Financial Inclusion solutions. These offerings make Finacle™ a strong innovation-facilitator enabling banks to accelerate growth, while maximizing value from their large-scale business transformation.

Finacle™ is the chosen solution in over 130 banks across 65 countries, helping them serve more than 30,000 branches. These include over 2,000 branches of regional rural banks in India which are leading the financial inclusion initiative in the country. Independent reports by renowned research firms have positioned Finacle™ among the leaders in the global evaluation of retail core banking solution vendors. Finacle™ is one of the most scalable core banking solutions in the world with an unparalleled performance benchmark of 104 million effective transactions per hour (29,010 ETPS).

5. Quality

We continue our journey toward excellence with a critical focus on Quality and Productivity with significant investments in quality programs. In May 2009, Infosys BPO was certified for eSCM – SP ver 2.0 level 5, the eSourcing Capability Model for Service Providers developed by a consortium led by Carnegie Mellon University's Information Technology Services Qualification Center. We were the fourth in the world to receive this certification. We continue to focus on surveillance audits in ISO certifications such as ISO 9001-TickIT, ISO 27001, ISO 20000, ISO 13485, ISO 140001, OHSAS, TL 9000 and AS 9100.

Our quality department manages large change management initiatives to drive Quality and Productivity improvements across the organization. The institutionalization of these large initiatives are managed through the balanced scorecard and Infosys Scaling Outstanding Performance (iSOP) program.

The quality department in collaboration with multiple stakeholders across the organization developed a framework called Business Value Articulation which ensures alignment of our approaches to deliver value to our customers. Some of the key improvement initiatives are :

6. Software Engineering and Technology Labs (SETLabs)

SETLabs at Infosys is the center for applied technology research in software engineering and enterprise technology. SETLabs leverages emerging technologies for improving engineering effectiveness and developing client-focused business solutions. During the year, SETLabs built and enhanced several solutions, frameworks, tools and methodologies in the areas of software engineering, high performance and grid computing, cloud computing, convergence technologies, knowledge-driven information systems and Web 2.0.

During the year, more than 60 articles were published by SETLabs researchers in leading journals, magazines and conference proceedings. SETLabs Briefings, a highly respected peer-reviewed journal, published multiple issues related to areas like Next Generation Enterprise Packages, Cloud Computing, Enterprise Level Business Architecture, Knowledge Engineering and Management, Collaboration, Web 2.0, and Performance Engineering in this fiscal year. SETLabs collaborated with leading national and international universities such as the University of Southern California, Indian Institute of Technology, Bombay, and Monash Research Academy.

During the year, SETLabs' IP Cell filed 31 patent applications in the United States Patent and Trademark Office (USPTO) and Indian Patent Office. We now have an aggregate of 224 patent applications pending in India and the U.S. and the USPTO has granted nine patents.

7. Branding

We believe that the ‘Infosys’ brand is one of the most important intangible assets that we own. During this fiscal year, we have been appreciated by the following bodies as a recognition of how we operate and conduct business :

Industry analysts rated us highly in reports on our key services and markets. The services for which we were rated highly include Service Oriented Architecture, Oracle Service providers, Comprehensive Finance and Accounting Business Process Outsourcing, and also for the Finacle™ product suite.

We had over a million visits to our blogs on business and technology related topics on our website during the year. Our employees contributed and published several thought leadership articles across various industry fora and publications. We leveraged social media platforms and engaged with our stakeholders and investors on YouTube, SlideShare, Twitter and Facebook.

Leading global publications wrote about us, our leadership, our talent and our performance. We continued to have leadership presence at premier industry events like Oracle® Open World and Sapphire. Our annual client events in the U.S. and Europe were well attended, and highly appreciated. At the World Economic Forum in Davos, Switzerland, our lunch panel discussion witnessed a full audience and the evening get-together hosted by us was attended by some of the most influential and powerful global business leaders.

8. Awards and recognition

As we pursue excellence relentlessly, we are delighted to receive several global recognitions and awards. This fiscal year we were :

9. Capital expenditure

During the year, we capitalized Rs. 787 crore to our gross block comprising Rs. 140 crore for investment in computer equipment and the balance of Rs. 646 crore on infrastructure investment, besides Rs. 1 crore on vehicles. We invested Rs. 43 crore to acquire 161 acres of land in Hyderabad, Jaipur, Mysore and Mangalore.

During the previous year, we capitalized Rs. 1,822 crore to our gross block, including investment in computer equipment of Rs. 273 crore, Rs. 1,536 crore on infrastructure investment and Rs. 12 crore toward intangible asset acquisition.

10. Liquidity

We continue to be debt-free, and maintain sufficient cash to meet our strategic objectives. We clearly understand that the liquidity in the Balance Sheet has to balance between earning adequate returns and the need to cover financial and business risks. Liquidity also enables us to make a rapid shift in direction, should the market so demand. During fiscal 2010, internal cash flows have more than adequately covered working capital requirements, capital expenditure, investment in subsidiaries and dividend payments, leaving a surplus of Rs. 4,515 crore. As at March 31, 2010, we had liquid assets of Rs. 14,804 crore as against Rs. 10,289 crore at the previous year-end.

These funds have been invested in deposits with banks, highly rated financial institutions, certificate of deposits and liquid mutual funds.

11. Increase in share capital

During the year, we issued 9,95,149 shares on the exercise of stock options under the 1998 and 1999 Employee Stock Option Plans. Due to this, the outstanding issued, subscribed and paid-up equity share capital increased from 57,28,30,043 shares to 57,38,25,192 shares as at March 31, 2010.

12. Appropriations


Our policy is to pay dividend up to 30% of the net profit after tax of the Company.

In October 2009, we paid an interim dividend of Rs. 10/- per share. We recommended a final dividend of Rs. 15/- per share (par value of Rs. 5/- each).

The total dividend amount paid out is Rs. 1,434 crore, as against Rs. 1,345 crore in the previous year. Dividend (including dividend tax) as a percentage of profit after tax before exceptional items is 29.1% as compared to 27.0% in the previous year.

The register of members and share transfer books will remain closed from May 29, 2010 to June 12, 2010 (both days inclusive). Our Annual General Meeting has been scheduled for June 12, 2010.

Transfer to reserves

We propose to transfer Rs. 580 crore (10% of the net profit for the year) to the general reserve and another Rs. 48 crore to capital reserve. An amount of Rs. 13,806 crore is proposed to be retained in the Profit and Loss account.

13. Corporate governance

We continue to be a pioneer in benchmarking our corporate governance policies with the best in the world. Our efforts are widely recognized by investors in India and overseas. We have undergone the corporate governance audit by ICRA and Credit Rating Information Services of India Limited (CRISIL). ICRA has rated our corporate governance practices at CGR 1. CRISIL has assigned CRISIL GVC Level 1 rating to us.

We have complied with the recommendations of the Narayana Murthy Committee on Corporate Governance constituted by the Securities and Exchange Board of India (SEBI). For fiscal year 2010, the compliance report is provided in the Corporate Governance section of the Annual Report. The auditors' certificate on compliance with the mandatory recommendations of the committee is provided in the Annexure to the directors' report section.

We have documented our internal policies on corporate governance. In line with the committee's recommendations, the Management's discussion and analysis of the financial position of the Company is provided in this Annual Report.

During the year, we continued to fully comply with the U.S. Sarbanes-Oxley Act of 2002. Several aspects of the Act such as the Whistleblower Policy and Code of Conduct for senior officers and executives have been incorporated in our Company policy.

During fiscal 2009, we adopted the International Financial Reporting Standards (IFRS) for our Securities and Exchange Commission (SEC), U.S. filings.

On November 9, 2009, SEBI issued a press release permitting listed entities having subsidiaries to voluntarily submit the consolidated financial statements as per IFRS. Further, on April 5, 2010, SEBI issued a circular amending the Listing Agreement to allow listed companies having subsidiaries to prepare and publish consolidated financial statements as per IFRS. Accordingly, for the quarter and year ended March 31, 2010, we voluntarily prepared and published unaudited consolidated IFRS Financial Statements (in Indian Rupees) in addition to preparing and publishing audited standalone and consolidated financial statements in accordance with Indian GAAP. The audited IFRS Financial Statements are available on our website,

14. Conservation of energy, research and development, technology absorption, foreign exchange earnings and outgo

The particulars as prescribed under Sub-section (1)(e) of Section 217 of the Companies Act, 1956, read with the Companies (Disclosure of particulars in the report of the Board of Directors) Rules, 1988, are provided in the Annexure to the directors’ report section.

15. Particulars of employees

In terms of provisions of Section 217 (2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, the names and other particulars of employees are set out in the Annexure to the Directors' Report. However, having regard to the provisions of Section 219 (1)(b)(iv) of the Companies Act, 1956, the Annual Report excluding the aforesaid information is being sent to all the members of the Company and others entitled thereto. Any member interested in obtaining such particulars may write to the Company Secretary at the Registered Office of the Company.

16. Directors' responsibility statement as required under Section 217 (2AA) of the Companies Act, 1956

The financial statements are prepared in accordance with the accounting standards issued by the Institute of Chartered Accountants of India and the requirements of the Companies Act, 1956, to the extent applicable to us; and guidelines issued by SEBI on the historical cost convention;
as a going concern and on the accrual basis. There are no material departures from prescribed accounting standards in the adoption of the accounting standards.

The Board of Directors accepts responsibility for the integrity and objectivity of these financial statements. The accounting policies used in the preparation of the financial statements have been consistently applied except as otherwise stated in the notes accompanying the respective tables. The estimates and judgments related to the financial statements have been made on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner the form and substance of transactions, and reasonably present our state of affairs and profits for the year.

We have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

17. Directors

During the year, we recommended the induction of K. V. Kamath to the Board. A person of extraordinary capabilities, Kamath has had an illustrious career in the banking industry. We thank you for your support in confirming his appointment as director liable to retire by rotation in our Annual General Meeting held on June 20, 2009.

The Board of Directors appointed Prof. Marti G. Subrahmanyam as the Lead Independent Director. Prof. Subrahmanyam succeeds Deepak M. Satwalekar in this role. Satwalekar became the first Lead Independent Director in India, when he was appointed in May 2003.

Nandan M. Nilekani was invited by Honorable Prime Minister Dr. Manmohan Singh to take charge as the Chairperson of the Unique Identification Authority of India (UIDAI), in the rank of Cabinet Minister. Nandan accepted the invitation and consequently relinquished the position of Co-Chairman and Member of the Board.

The Board placed on record its deep sense of appreciation for the services rendered by Nandan M. Nilekani as a co-founder, Chief Operating Officer, Chief Executive Officer and Managing Director, and as the Co-Chairman of the Board of Directors.

Rama Bijapurkar resigned as Independent Member of the Board. The board placed on record its deep sense of appreciation for the services rendered by Rama Bijapurkar as an Independent Member of the Board.

As per Article 122 of the Articles of Association, N. R. Narayana Murthy, Prof. Marti G. Subrahmanyam, S. Gopalakrishnan, S. D. Shibulal and T. V. Mohandas Pai retire by rotation in the forthcoming Annual General Meeting. All of them, being eligible, seek re-appointment.

18. Auditors

The auditors, B S R & Co., Chartered Accountants, retire at the ensuing Annual General Meeting and have confirmed their eligibility and willingness to accept office, if re-appointed.

19. Fixed deposits

We have not accepted any fixed deposits and, as such, no amount of principal or interest was outstanding as of the Balance Sheet date.