Management's discussion and analysis


The financial statements have been prepared in compliance with the requirements of the Companies Act, 1956, guidelines issued by Securities and Exchange Board of India (SEBI) and Generally Accepted Accounting Principles (GAAP) in India. Our Management accepts responsibility for the integrity and objectivity of these financial statements, as well as for various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, so that the financial statements reflect in a true and fair manner the form and substance of transactions, and reasonably present our state of affairs, profits and cash flows for the year.

A. Industry structure and developments

Changing economic and business conditions and rapid technological innovation are creating an increasingly competitive market environment that is driving corporations to transform their operations. Consumers of products and services are increasingly demanding accelerated delivery times and lower prices. Companies are focusing on their core competencies and are using outsourced technology service providers to adequately address these needs.

The role of technology has evolved from supporting corporations to transforming them. There is an increasing need for highly skilled technology professionals in the markets in which we operate. At the same time, corporations are reluctant to expand their internal IT departments and increase costs. These factors have increased corporations’ reliance on their outsourced technology service providers and are expected to continue to drive future growth for outsourced technology services.

1. Increasing trend toward offshore technology services

Outsourcing the development, management and ongoing maintenance of technology platforms and solutions has become increasingly important. The effective use of offshore technology services offers a variety of benefits, including lower cost of ownership of IT infrastructure, lower labor costs, improved quality and innovation, faster delivery of technology solutions and more flexibility in scheduling. In addition, technology companies are also recognizing the benefits of offshore technology service providers in software research and development, and related support functions and are outsourcing a greater portion of these activities. This has also increased diversification in the range of services delivered offshore.

2. The India advantage

India is widely recognized as the premier destination for offshore technology services. According to the NASSCOM Strategic Review 2010, IT services exports (excluding exports relating to business process outsourcing (BPO), hardware, engineering design and product development) from India are estimated to grow by 5.8% in fiscal 2010, to record revenues of US $27.3 billion. This review also estimates BPO exports from India to have grown by 6% in fiscal 2010 to record revenues of US $12.4 billion. There are several key factors contributing to the growth of IT and IT-enabled services (ITES) in India and by Indian companies. Some of these factors are high-quality delivery, significant cost benefits and abundant skilled resources.

3. Evolution of technology outsourcing

The realm of technology outsourcing is changing. In an environment of rapid technological change, globalization and regulatory changes, companies are looking at outsourcing approaches that require their technology service providers to develop specialized systems, processes and solutions along with cost-effective delivery capabilities.

4. Global Delivery Model (GDM)

Our GDM allows us to execute services where it is most cost effective and sell services where it is most profitable. The GDM enables us to derive maximum benefit from our large pool of highly skilled technology professionals; 24-hour execution capabilities across multiple time zones; the ability to accelerate delivery times of large projects by simultaneously processing project components; cost competitiveness across geographic regions; built-in redundancy to ensure uninterrupted services; and a knowledge management system that enables us to re-use solutions where appropriate.

Our GDM mitigates risks associated with providing offshore technology services to our clients. Speedy and effective communication being the key, we use multiple service providers and a mix of terrestrial and optical fiber links with alternate routing. In India, we rely on two telecommunication carriers to provide high-speed links interconnecting our global development centers. We rely on multiple links on submarine cable paths provided by several service providers to interconnect our development centers with network hubs in other parts of the world.

5. Our end-to-end solutions

We complement our industry expertise with specialized support for our clients. We also leverage the expertise of our various Centers of Excellence and our software engineering group and technology lab to create customized solutions for our clients. In addition, we continually evaluate and train our professionals in new technologies and methodologies. Finally, we ensure the integrity of our service delivery by utilizing a scalable and secure infrastructure.

We generally assume full project management responsibility in each of our solution offerings. We strictly adhere to our SEI-CMMI Level 5 internal quality and project management processes. Our project delivery focus is supplemented by a robust knowledge management system that enables us to leverage existing solutions across our Company. We use in-house tools for project management and software lifecycle support. We believe that our processes, methodologies, knowledge management systems and tools reduce the overall cost to the client, mitigate risks, enhance the quality of our offerings and allow clients to improve time-to-market for their solutions. Revenues attributable to custom application development, maintenance and production support, product engineering, package-enabled consulting and implementation and technology consulting services represented a majority of our total revenues in fiscal 2010.

B. Financial condition

Sources of funds

1. Share capital

At present, we have only one class of shares – equity shares of par value Rs. 5/- each. Our authorized share capital is Rs. 300 crore, divided into 60 crore equity shares of Rs. 5/- each. The issued, subscribed and paid up capitals as at March 31, 2010 and March 31, 2009 were Rs. 287 crore and 286 crore respectively.

During the year, employees exercised 6,14,071 equity shares issued under the 1998 Stock Option Plan and 3,81,078 equity shares issued under the 1999 Stock Option Plan. Consequently, the issued, subscribed and outstanding shares increased by 9,95,149 and share capital increased by Rs. 1 crore. The details of options granted, outstanding and vested as at March 31, 2010, are provided in the Notes to the consolidated financial statements in this Annual Report.

2. Reserves and surplus

2.a Capital reserve

The balance as at March 31, 2010 amounted to Rs. 54 crore. The addition to capital reserve account of Rs. 48 crore during the year is on account of transfer of profit on sale of investments in OnMobile Systems Inc, U.S. of Rs. 48 crore, which is included in the net profit.

2.b Share premium

The addition to the share premium account of Rs. 97 crore during the year is primarily on account of premium received on issue of 9,95,149 equity shares, on exercise of options under the 1998 and 1999 Stock Option Plans of Rs. 87 crore.

An amount of Rs. 10 crore (Rs. 10 crore in the previous year) was credited to the share premium account arising due to tax benefits in overseas jurisdiction of deductions earned on exercise of employees' stock options, in excess of compensation charged to the Profit and Loss account.

2.c General reserves

An amount of Rs. 580 crore representing 10% of the profits for the year ended March 31, 2010 (previous year Rs. 582 crore) was transferred to the general reserves account from the Profit and Loss account.

2.d Profit and Loss account

The balance retained in the Profit and Loss account as at March 31, 2010 is Rs. 13,806 crore, after providing the interim and final dividend for the year of Rs. 573 crore and Rs. 861 crore and dividend tax of Rs. 240 crore thereon. The total amount of profits appropriated to dividend including dividend tax was Rs. 1,674 crore, as compared to Rs. 1,573 crore in the previous year.

2.e Shareholder funds

The total shareholder funds increased to Rs. 22,036 crore as at March 31, 2010 from Rs. 17,809 crore as of the previous year end. The book value per share increased to Rs. 384.01 as at March 31, 2010, compared to Rs. 310.90 as of the previous year-end.

Application of funds

3. Fixed assets

3.a Capital expenditure

We incurred a capital expenditure of Rs. 581 crore (Rs. 1,177 crore in the previous year) comprising additions to gross block of Rs. 787 crore offset by a decrease of Rs. 206 crore on account of decrease in capital work-in-progress. The entire capital expenditure was funded out of internal accruals.

3.b Additions to gross block

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 and Rs. 1 crore on vehicles. We invested Rs. 43 crore to acquire 161 acres of land in Hyderabad, Jaipur, Mysore and Mangalore.

The expenditure on buildings, computer equipment, plant and machinery, furniture and fixtures and vehicles increased by Rs. 346 crore, Rs. 140 crore, Rs. 177 crore, Rs. 80 crore and Rs. 1 crore respectively.

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 assets.

3.c Deductions to gross block

During the year, we deducted Rs. 416 crore (net book value of Rs. 1 crore) from the gross block comprising Rs. 387 crore on retirement of assets, Rs. 8 crore on donation of computer systems and Rs. 21 crore on disposal of various assets. During the previous year, we retired / transferred various assets with a gross block of
Rs. 334 crore (net book value of zero).

3.d Capital expenditure commitments

We have a capital expenditure commitment of Rs. 267 crore, as at March 31, 2010 as compared to Rs. 344 crore as at March 31, 2009.

4. Investments

We made several strategic investments aimed at procuring business benefits and operational efficiency for us. During the year, the Company sold 32,31,151 shares of OnMobile Systems Inc, U.S., for a total consideration of Rs. 53 crore, net of taxes and transaction cost.

4.a Majority-owned subsidiary

Infosys BPO Limited

We established Infosys BPO Limited as a majority-owned and controlled subsidiary on April 3, 2002, to provide business process management services. Infosys BPO seeks to leverage the benefits of service delivery globalization, process redesign and technology to drive efficiency and cost effectiveness in customer business processes.

On December 4, 2009, Infosys BPO acquired 100% of voting interest in McCamish Systems LLC, a business process solutions provider based at Atlanta, U.S., for a cash consideration of Rs. 173 crore and a contingent consideration of Rs. 67 crore.

4.b Wholly-owned subsidiaries

During the year, the investments in our subsidiaries are as follows:

In foreign currency Rs. crore
Infosys Consulting Inc US $10 million 50.0
Infosys Public Services US $5 million 24.0
Infosys Technologies S. de R. L. de C. V., Mexico MXN 50 million 18.0
Infosys Technologies (Sweden) AB SEK 100,000 0.1
Infosys Tecnologia DO Brasil LTDA BRL 10.72 million 28.0

During the year, Infosys Consulting Inc incorporated a wholly-owned subsidiary, Infosys Consulting India Limited and invested Rs. 1 crore in the subsidiary.

5. Deferred tax assets / liabilities

We recorded deferred tax assets of Rs. 313 crore as at March 31, 2010 (Rs. 139 crore as at March 31, 2009) and deferred tax liability of Rs. 232 crore as at March 31, 2010 (Rs. 37 crore as at March 31, 2009).

We assess the likelihood that our deferred tax assets will be recovered from future taxable income. We believe it is more likely than not that we will realize the benefits of these deductible differences.

6. Sundry debtors

Sundry debtors amounted to Rs. 3,244 crore (net of provision for doubtful debts amounting to Rs. 100 crore) as at March 31, 2010, compared to Rs. 3,390 crore (net of provision for doubtful debts amounting to Rs. 105 crore) as at March 31, 2009. These debts are considered good and realizable. Debtors are at 15.3% of revenues for the year ended March 31, 2010, compared to 16.7% for the previous year, representing a Days Sales Outstanding (DSO) of 56 days and 61 days for the respective years.

Our largest client constituted 2.8% of sundry debtors as at March 31, 2010. The age profile of debtors is as follows :

in %
2010 2009
0-30 60.7 58.5
31-60 31.9 32.8
61-90 3.8 4.7
Above 91 3.6 4.0
  100.0 100.0

Provisions are generally made for all debtors' outstanding for more than 180 days as also for others, depending on the Management's perception of the risk. The need for provisions is assessed based on various factors, including collectability of specific dues, risk perceptions of the industry in which the customer operates and general economic factors that could affect the customer's ability to settle.

The movement in provisions for doubtful debts during the year is as follows :

in Rs. crore
  2010 2009
Opening balance 105 40
Add : Amount provided (1) 74
Less : Amount written-off 4 9
Closing balance 100 105

Provision for bad and doubtful debts as a percentage of revenue is nil for the year ended March 31, 2010, as against 0.37% for the year ended March 31, 2009.

The unbilled revenues as at March 31, 2010 and March 31, 2009, amounted to Rs. 789 crore and Rs. 738 crore respectively.