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Transcript of the conference call held on July 11, 2000 at 6:00 p.m. (IST), 8:30 a.m. (ET).

Coordinator

I will now turn the meeting over to Mr. Ganapathy. Sir, you may begin when ready.

Ganapathy

Thank you, Kathy. Good morning, ladies and gentlemen in America, and good day, ladies and gentlemen who are joining us from other parts of the world. I am P. R. Ganapathy and I handle Investor Relations at Infosys Technologies, out of their Fremont, California office. It gives me great pleasure to anchor today's call on the results of the quarter ended June 30th, 2000, the first quarter for our fiscal year, which ends March 31, 2001.

As always, this call integrates callers from around the world, a host in California, and the senior management team in a conference room in India's Silicon Plateau, Bangalore.

I have with me Mr. N. R. Narayana Murthy, Chairman and CEO and members of the company's management council, who will help in answering any questions that you may have. This conference call, of course, will be archived, a transcript will be available on our Web site, http://www.infosys.com/, and a replay will be available on the numbers mentioned in our press release.

Before handing over to Mr. Murthy, I must caution that during the call we might make statements that refer to our outlook for the future, and I would be grateful if you'd disregard them, and instead, refer to the specific risk statements that the company has mentioned in its filings with the SEC and elsewhere.

Without further ado, Mr. Murthy, Chairman and CEO, Infosys Technologies.

Narayana Murthy

Thank you. It is a great pleasure to welcome all of you to this teleconference. It's probably rather early for you people out in California. And let me just give the highlights of the Q1 performance.

First, of course, we recorded 100+% growth, both in the top line and bottom line. I'm sure all of you have the spreadsheet; I don't need to get to the quantitative data there. The other interesting thing is, for the first time in the history of this company, we added over 1,000 people this quarter, net; in fact, it was 1,056, to be precise. 1,256 people joined, and there were 200 separations.

The other interesting highlight is the fact that the contribution of e-commerce went up to 28.7% of the total revenues, and that item is a very, very encouraging sign. And what is even more interesting is this: that out of this 28.7% of the total revenue coming from e-commerce, as much as 17.8% came from e-enabling of the old economy, traditional Fortune 1000 companies. Of course, there are fairly high-tech companies in Fortune 1000, but the point is that the majority of them are still the brick-and-mortar companies. And the fact that Infosys garnered as much as 17.8% from this segment is very encouraging, because I have believed for quite some time that the real market opportunity will be, at least for the next few quarters, will be in e-enabling of the traditional economy companies .

And another interesting thing is we've added 32 new customers this quarter, and of course we made some strategic investment in Cidra Corporation, we put in about 3 million and we incubated Onscan, a wireless enabled Web notification product company started by two Infoscions.

And the other interesting thing is that on May 27th, we expanded the board of Infosys by bringing in three eminent senior management staff onto the board. The new board members who joined the board are, of course, Mr. Phaneesh Murthy, who is in charge of Sales and Marketing; he is based in Fremont, California, and of course right now he is here. He attended the board meeting this morning. And Mr. Mohandas Pai, the CFO. He is now on the board. And Mr. Srinath Batni, who is from the Customer Delivery area, and he is also here, he also joined the board on May 27th .

So at this point of time I would request Mr. Nandan Nilekani, President, Chief Operating Officer and the Managing Director, to take over from me and then give a more detailed account of the performance.

Nandan Nilekani

Thank you, Mr. Murthy. I think one of the features this quarter has been the improvement in the utilization rate. Now, the utilization rate, excluding trainees, has grown from 80.5% in the last quarter to 85.6% in this quarter. Now the utilization rate including trainees has come down from 76.6% to 74.9%, but as Mr. Murthy mentioned, this quarter was a landmark in terms of adding more than 1,000 employees, a net of 1,056 employees to the workforce of Infosys.

We also had a significant expansion of services and projects. We have added 32 new clients, including several clients, to the business base. We also had customers like Gateway Computers, we did a consulting assignment for ISPAT International, one of the world's leading steel companies. We have several new clients in the communications area, like Warwick Systems and Syndesis. Another big area for us is the financial service area where we have clients like New York Life and Abu Dhabi Commercial Bank and several others.

In the retail space also we have done a lot of work in area of point-of-sale. We also just announced that Hollywood Entertainment Corporation has selected Infosys to build its next-generation business systems and be its information provider. This is the second-largest video rental chain in the US, with over 1800 stores.

So I think there is a significant growth on the business side. There is significant improvement in the productivity, there has been a lot of increase in the recruitment, and also in infrastructure, and all these have contributed in this quarter of Infosys. I would like to request Mr. Mohandas Pai to go through the financials.

Mohandas Pai

I just want to make a couple of points. The first is that the gross margin sequentially has grown at 37.84%, as against the growth in head-line revenues of 26.16%. The operating income too has grown by 47.64% in this quarter compared to the last quarter of the last financial year. Despite the fact that we had a hike in salaries effective this quarter, the margins have gone up compared to the previous quarter, and the margins are on par for the same quarter last year.

Narayana Murthy

Well, at this point in time, we would like to take questions from you. What I'll do is I will request the relevant function heads to answer the questions that you people put, and wherever I can add value, I will do that too.

Coordinator

Our first question comes from Subas Nandy.

Subas Nandy

This is a question for the senior management team. Why is the Infosys stock languishing in the US, in the NASDAQ market, if your performance is so good?

Narayana Murthy

Well, let me say that we believe that our job is to make sure that we satisfy our customers. We add new customers. We provide quality service on time within budgeted costs. It's our job to control costs; it's our job to strategize and make sure that the future is secure.

What happens in the stock market, I don't know if we care to comment on that. I think there are many analysts, there are many people in the area, in that relevant field, to comment on that.

Coordinator

The next question comes from Sandeep Shroff.

Sandeep Shroff

Hi, great quarter guys. A small question regarding the onshore and offshore revenue mix and the percentage of revenue from repeat customers. Thank you.

Mohandas Pai

We have seen an increase in the onsite effort, this quarter, compared to the same quarter last year. The onsite effort has been 37% this quarter compared to 29% the same quarter last year. This is because enhanced market opportunities in the e-biz space. Our e-commerce revenues have gone up to 28-odd%, and therefore more of the e-commerce work is being done onsite. Repeat business is at 91.6% in this quarter. Typically we see that repeat business going down to something like 85, 86% as the quarter wears on, because the new customers that we add in the first quarter give us greater business flows in the third and the fourth quarter.

S. Shroff

Thank you.

Coordinator

The next question comes from Jackie Moss.

Jackie Moss

Hi. Congratulations on a great quarter. It looks like your strongest quarter of sequential revenue growth in a long time. I have a couple of questions. First of all, I'm wondering, on the revenue side it looks like other income was way up, and I'm wondering if that's your consulting business. And I'm also wondering how much the translation of the rupee contributed to revenue growth.

Narayana Murthy

Yes, I think that Mohan, the CFO will talk about both the other income and the translation difference. Mohan?

Mohandas Pai

Yes. The other income that you see in the US GAAP, the non-operating income, is basically arising because of two factors. One is the interest income on the surplus funds that we have; and second is because of the translation difference arising out of monies kept abroad in dollars. We have had income of $1.66 million due to the difference in translation of foreign currency deposits. When the rupee goes down against the dollar, when we convert the dollar back into rupees, we have an excess of rupees. And that, when we translate for US GAAP purposes, it has gone up to $1.66 million this quarter; and at the same quarter last year, it was $1.90 million. The second question you asked was about…

Narayana Murthy

You answered it. Well, that other income does not include any consulting revenues at all.

Jackie Moss

No, just "Others" as a part of the revenue mix.

P R Ganapathy

Yes, I think she's talking about "Other Services".

Kris Gopalakrishnan

The consulting revenue for this quarter was $4.66 million.

Jackie Moss

How much?

Kris Gopalakrishnan

$4.66 million. Yes. 5.8%…of revenue.

Jackie Moss

I'm sorry?

P R Ganapathy

Jackie, let me walk you through those numbers. Off the other services, which were a total of 25.2% of the company's revenue. 8.6% was from package implementation services; 5.8% was from consulting. And the rest came from services like engineering services, testing, etc.

Jackie Moss

Okay. One other thing: As far as your unearned revenue, which went way up-I know we were expecting that, but I'm wondering if you guys are actually holding back revenues from dot-coms, and how you're managing your revenues from startups.

Narayana Murthy

Let me say, we are not holding back any revenues from any company, let alone dot-coms. We have an unearned revenue of about $14.5 million or so, and at the start of the quarter it was somewhere around $4 million. So what we have done is brought $10 million that we have added to unearned. But there's really nothing holding back. Do you want to comment about what we do with dot-coms?

Phaneesh Murthy

Jackie, is your question whether we are exposing ourselves to dot-coms or limiting our exposure? Is that your question?

Jackie Moss

I was just wondering how you were managing your dot-com customers, as far as recognizing revenues.

Phaneesh Murthy

Okay, at the company level what we are doing is that we are managing the credit risk by basically collecting the money in advance. And the overall levels, we have a cap on the total amount of revenues that we're taking from dot-coms.

Nandan Nilekani

I think as Mr. Murthy mentioned, out of the 28.7% revenue from e-commerce, only 10.9% is from e-commerce startups. But the bulk of the revenue from e-commerce for Infosys is not coming from startups; it's coming from traditional economy Fortune 1000 companies, which are in the process of e-enabling their operations.

Narayana Murthy

There is a good de-risking model of business at Infosys.

Jackie Moss

Okay, thanks. Thank you.

Coordinator

The next question comes from Mr. Ahuja.

Mr. Ahuja

I have a couple of questions. Again, concerning the revenues coming from startups, I believe 10.9% of the revenues were from startups. Could you let us know how many clients contributed to this 10.9% of total revenue? And if you could provide the figure what the maximum contribution by any one of these clients is. And the second question, if you have seen any trends in terms of how the average size of these startup projects have moved over the last couple of quarters. Thank you.

Narayana Murthy

Let me first request that Mr. Shibulal answer the first part, and the second part will be answered by Phaneesh Murthy.

S D Shibulal

I think we have today about 20 customers in that area, and the largest customer contributed around $1.6 million that is around 1.6% and most of the balance customers are below a million dollars on the average.

Phaneesh Murthy

On the second part of the question, what we are doing now is that we are saying all the dot-coms that we are starting business with, we want a minimum engagement of $1 million, else we are really not interested in the transaction. So the size is starting to go up. Although in the past we have taken smaller engagements, we are saying that pretty much the engagement size has to be $1 million.

Mr. Ahuja

Thank you.

Coordinator

The next question comes from Greg Gore.

Greg Gore

Yes, good morning. Congratulations. I have a couple of questions. I want to make sure that I understood the utilization rate, at 85.6%? Is that correct?

Nandan Nilekani

The utilization rate, excluding trainees, has gone up from 81.5%, to 85.6%. The utilization including trainees has actually dropped from 76.6% to 74.9%, but this has to be taken in the context of the fact that we have added 1,056 net new employees to our work force.

Greg Gore

Of course. Which gets to the next question: Could you please give the ending billable head count as well as the ending total head count?

Nandan Nilekani

Infosys increased its total employee strength to 6,445 as of June 30th, up from 5,389 as on March 31st, 2000. The strength of total personnel increased to 5,594 from 4,623. Of these 5,594 software professionals, 662 are still undergoing training, and 112 belong to the banking products ground. And overall we added 1,056 net new employees.

Greg Gore

Great. The next question relates to the average billing rates. Could you please give the breakdown in the US versus offshore?

Mohandas Pai

The average billing rate this quarter for onsite work on an annualized basis is about $115,000, and offshore, it's $60,900. And the weighted average for the actual mix is $81,000. The onsite has gone up by 11% sequentially for this quarter; offshore has gone up 11.1% sequentially; and the blended has gone up by 13.1% sequentially.

Greg Gore

Do you have the actual hourly billing rates broken out?

Mohandas Pai

Greg, we have to work this out by the number hours in the day.

Narayana Murthy

Actually, we have that. We think later Mohan will call you and give you those; we have it.

Greg Gore

Great. Thank you. And then the final question relates to the revenue mix between services and products, please.

Mohandas Pai

We have in this quarter 2.4% coming from products, and 97.6% coming from services.

Greg Gore

Thank you. And then finally, I want to make sure that I understand the explanation for the increase in the gross margin. It jumped materially. Can you please explain the rationale for that again.

Mohandas Pai

Yes. The gross margin in quarter 4 of last year was 43.67%; has gone up to 47.72% in quarter 1. But in quarter 3, we had something like 2.4% because of the one time charge on account of pension costs. So if you remove that, the margin was 46%, has gone up to 47.72%. And the reason for the increase despite the salary hike kicking in, is that depreciation has come down from 6.78% to about 5%, a reduction of 1.75% . So if you factor in the position coming down, it basically means that the salary hike, which is effective in the first quarter, had been neutralized by the increase in the per capita revenues.

Greg Gore

Great. Thanks a lot.

Coordinator

Okay, sir, we have a question from the conference room in India.

Questioner

Can you please give some idea about the sustainability of your e-commerce revenue growth?

Phaneesh Murthy

Actually, there are two big trends that we are seeing. One is that the Fortune 1000 companies are investing in the e-business side quite furiously. And the second thing is that, more important, most of this is going as external spend other than internal spend, in the sense that they don't have the requisite skills and the resources in-house to do this. So we are actually quite bullish about the market in terms of growth in e-commerce.

Coordinator

The next question comes from David Grossman.

David Grossman

Hello. I was wondering if you could just follow up two questions. One was, Mr. Murthy, you said that a certain percentage of your revenues came from e-enabling legacy applications. And I'm wondering if you could, number one, repeat that percentage, and number two…

Narayana Murthy

I said, out of the 28.7% from e-commerce, 17.8% of the total revenues came from e-enabling of applications, customer interface, vendor interface, and employee interface applications in Fortune 1000 companies.

David Grossman

And how do you expect that to accelerate throughout the year? Are we just seeing the beginning on the spending on that type of endeavor, or are you expecting an acceleration as we go throughout '00 and into calendar 2001?

Phaneesh Murthy

David, most of the new work we are getting is all in the e-side. I mean, this is the bulk of the spending for Fortune 1000. We have good case studies, we have a good track record, good references right now. So we are actually quite bullish about this.

David Grossman

But is it primarily enabling existing applications, or is it the bulk of…

Phaneesh Murthy

It's not really enabling existing applications; it's really building new Web applications for the Fortune 1000. It's basically in the e-transformation space, moving from brick-and-mortar to click-and-mortar. That's what we're talking about.

David Grossman

I see. And then one other question-I guess it was asked earlier-about the unearned revenue on the balance sheet. It had a fairly significant sequential increase. Mohan, I'm wondering if you could just revisit that in terms of, help us understand why the unearned income increased so dramatically on a sequential basis.

Mohandas Pai

Yes. David, we have a non-operating income of $3.40 million this quarter. It consists of interest income of $1.68 million…

David Grossman

No, Mohan, I'm talking about on the balance sheet, the unearned income on the balance sheet.

Mohandas Pai

Okay. Unearned income on the balance sheet; I'm sorry, yes, I got you. Unearned income is basically the billing that we have made to existing clients for fixed price contracts in advance of the services delivered to them. As you are aware, when we have a fixed price contract, the billing is done in advance to collect more money, to reduce our credit risk. For this quarter, we have seen more customers join us, we bill it once, and balance is taken to unearned revenue.

Narayana Murthy

Also I think that part every project we do get certain percentage as advances. And that is included in that. Yes, do you want to comment? Does that give you a perspective, David?

David Grossman

Right; so basically we're saying that the increase in number of customers, the vast majority of them were on a fixed price basis, and that accounted for the big increase sequentially?

Phaneesh Murthy

No. Even with Time-and-Materials customers we are taking advance money from some of the smaller customers, to protect ourselves.

David Grossman

I see. Okay, and then just the last question I think is, it came up earlier as well, and maybe I just didn't catch it, was the impact of the rupee on the quarter.

Mohandas Pai

David, this is an old issue. We had it, the same issue, in the first quarter of last year. In the first quarter of last year too, the rupee went down against the dollar by about 2.5 to 3%, and we hold a substantial part of a liquid fund, a $100 million fund plus, in foreign exchange in dollars abroad. So at the end of the quarter, we have to convert that back into rupees, make up a balance sheet, and then translate back into dollars. So when you convert the dollars back into rupees, we get more rupees. And when we translate it back into dollars, we happen to have a translation difference, which is positive. And that is what has come this quarter in the form of about $1.6 million. In the same quarter last year, we had a translation gain of $1.9 million.

David Grossman

Great. Thank you.

Coordinator

We have a question from Anoop Sondhi.

Anoop Sondhi

Yes. I had a couple of questions. We just wanted to know whether the hiring will continue at the same rate. Do you expect that?

Narayana Murthy

Well, let me put it this way, I think we have said that we'll continue to grow at industry-compatible growth rate, based on the market trends that our technical marketing gurus will tell us, and the other trends that we see. We will continue to evaluate and at this point of time we have hired 1,000 people this quarter, and we will keep updating our plans for hiring as we move forward.

Anoop Sondhi

Okay. And the hourly rate, what is it now as opposed to what it was last quarter?

Phaneesh Murthy

We have done roughly about a 13% increase from the last quarter, on a blended level.

Anoop Sondhi

Okay. And what are the plans for acquisition?

Narayana Murthy

You know, as we have often said, we are looking at opportunities. If we find a candidate, which we find to be very attractive, we'll certainly go ahead and take the appropriate steps. But right now, I think we still don't have anything on the horizon. So it's difficult to say, except to say that we are interested. We will do it when we have a good candidate.

Nandan Nilekani

Just two points on the recruitment: One is that, while we have hired 1,000 people this quarter, it is difficult to say what it will be; it is very totally based on the business and all that, so we can't really make a comment on future hires. The second thing we would address is that there is a considerable lead-time between recruitment and the people being utilized in the business because of training and other things. So all this has been taken into consideration.

Anoop Sondhi

Right. Okay, thank you.

Coordinator

The next question comes from Joseph Buttarazzi.

Joseph Buttarazzi

Just a quick question, one question. Who are you most frequently running up against competitively? Maybe you can say who your top three competitors are these days, both in the US and in the Asia markets.

Phaneesh Murthy

In the US, for the e-business work, we are seeing Sapient, Viant, Proxicom kind of guys. In Asia its mostly the system integrators in those countries. I think it's more our ability to convince the customer that we can execute the work in that language and that culture, because some of our Asian work is in Japan, some of our Asian work is in Korea. And I think that there the issue is from the local consulting companies, from the local system integrators in those markets. And our job is really to convince the customer that we can execute in that environment.

Joseph Buttarazzi

Okay. Thanks a lot.

Coordinator

The next question comes from Sandeep Dhingra.

Sandeep Dhingra

Hi. I just wanted to know two things. Firstly, if your onsite expenses, onsite work as a percentage of total revenues has actually increased, why has travel cost as a percentage of sales not grown as significantly, in the sense that travel cost as a percentage of sales has declined by two percentage points. Any particular reason for that?

Mohandas Pai

Travel costs, Foreign Tour and Travel in terms of US GAAP has gone up from 3.96% in the same quarter last year to 4.21%. So there's been an increase in the travel cost.

Mohandas Pai

Yes, according to Indian GAAP it has fallen from 10.5% to-yes it's fallen down for the simple reason that that pertains to,…. people have been staying longer onsite this time compared to the last period. Last period, they went for shorter terms and they came back; now they've been staying for longer terms. So the revenues have gone up proportionately.

Sandeep Dhingra

Okay. I have another question. The number of people you recruited this quarter, 1,056 people, what kind of entry level inflow have you seen and what kind of lateral inflows have you seen? And in each of these markets, what kind of constraints are you facing?

Hema Ravichandar

At the entry level, we have recruited 674 people; at the junior lateral level, we've recruited 424 people; and at the senior and middle, it's about 70 people. Now, at the trainee level essentially the challenge is to find the pool itself. So we are "Day-One" at most campuses and we have been able to attract very aggressively at campuses, but the challenge will continue. As far as the laterals go, of course, it's an aggressive competitive market, but as you can see, the numbers have been quite good.

Sandeep Dhingra

Okay, thank you, but I just want to ask one additional question allied to this. You generally publish the number of people who applied versus the number of people you finally recruited, and how is that ratio moving now during the last couple of quarters?

Hema Ravichandar

For this quarter, we have 66,000 people who have applied, and we have made 1,385 offers. But we must also consider that this is a campus season, so we get a large number of applications from campuses, and some campuses have aggressive conversion ratios. Some do not have as aggressive.

Sandeep Dhingra

Just on the same point, how do you see manpower costs going up? I mean, NASSCOM is making a lot of statements saying that three years down the line we're going to be facing a real crunch. What do you see as the scenario?

Narayana Murthy

Well, certainly the industry is growing at 50% compounded annual growth rate for the last couple of years. And if that growth rate continues there will be more and more competition for talent. But I think companies like Infosys, which are really in the top-you know, we were voted the most admired company in January this year-we are likely to say we don't expect any problem now. Probably three, four years from now, yes, we may see a crunch. But you're right, it is becoming more and more competitive. But what the industry is doing is, as it is primarily engineer-specific, now they are looking at other graduates. And that increases the pool. So if you include other graduates I think the industry will be able to manage for the next few years. I don't see any problems.

Nandan Nilekani

And I think while there's industry level competition, I think what is really important is that Infosys is now the company of choice for prospective employees, both in the engineering colleges and business schools. And its also the most admired company in India as per the Economic Times. So while the industry as a whole may have a crunch, I think Infosys is much better placed.

Sandeep Dhingra

That's all from us. Thank you very much.

Coordinator

The next question comes from Satish Kumar.

Satish Kumar

Hi. I'm calling from Florida, USA. Right now, the technology boom in Bangalore, it's picking up. A lot of startup companies you see there, and as the time goes, what's the Infosys plan in sustaining this competitive advantage?

Narayana Murthy

Well, we are in the business of software services, which is really new development, re-engineering and Internet. I think here, this is all about people's business, and given the fact that we have established tremendous brand equity as the company of choice of prospective employees, company of choice for its customers, there is no doubt at all that Infosys can continue to be the leader. And most of the dot-com companies and other small companies that you see are really not in the software services area. So this is about erecting a huge physical and technological infrastructure; this is about putting quality processes; this is about attracting a large number of high-quality employees. So it's a different game.

Satish Kumar

And my second question is, right now there's a heavy expectation on Infosys in terms of their performance because of your entry into this NASDAQ market, and it's really doing well. And what are the different steps you guys are taking which you were not taking before, to totally revolutionize your processes? And then is there any new business model you guys are approaching towards to meet this huge expectation?

Narayana Murthy

Well, I think management of growth is the major issue. That includes all, you know, everything functions right. How to make sure that there is quality throughout the organization; how do you make sure the culture permeates throughout the organization? How do you ensure productivity? How do you make sure that technology permeates across the entire organization? I think the there are multiple ways… we have started development centers in different parts of the world. We have created training programs, continuous training as well as entry training. We have made sure that the training encompasses all the advancements of the organization.

And then they have been putting in place new systems to enhance both quality and productivity. I would say these are the various things; and of course as you know, we have brought on the board three eminent people. Right in the beginning I talked about it. And I think these are some of the mechanisms whereby we will be able to handle the management of growth.

Satish Kumar

Okay. But I have last question. You know the recent announcement of Oracle in Bangalore and then the announcement of Sun; they're all planning to invest in Bangalore and around Hyderabad and different places. And as you see Oracle, they are also in services business in the USA, and they may step into that area even in India at any time. Do you see any competitive threat from them?

Narayana Murthy

You know, in India we are only in the area of selling our banking package. But even Nandan pointed out, I also said we were voted as the most admired company in India among public and private companies in the organized sector as number one. Not number two, number ten; number one amongst all these companies, even well known organizations like the ones that you talked about: Lever's, American Express, Citibank, etc., etc. So competition merely is for human resources. And given the fact that we are the number one company here, we believe that we'll have much less friction to recruitment than other companies.

Satish Kumar

Okay, thank you, sir.

Coordinator

Sir, at this time I'm showing no further questions.

P. Ganapathy

Okay. I have some questions that came via e-mail. First question is on the balance sheet. The debtors and creditors have increased, and loans and advances have come down. Were there any specific reasons for that?

Mohandas Pai

Debtors have gone up double, to something like Rs. 228 Crores (1 Crore = 10 Million) from Rs. 106 Crores. And loans and advances only go up to Rs. 196 crores or Rs. 123 crores. The reason is that loans and advances consist of loans to employees, taxes paid in advance, and obviously they don't grow as fast as debtors, which are directly correlated to the growth in revenues. So I think there is no connection between the two.

P. Ganapathy

The next question is about investments. Is Infosys abandoning plans for acquisition, and replacing it by making small but strategic investments? If so, in which area or segment of the company, and the questioner also wishes some more clarification…

Narayana Murthy

I understood your question. I think we will continue to pursue opportunities in every possible area of growth. I don't think we will abandon acquisitions in favor of incubation or in favor of strategic investment. I think we will continue to do strategic investment if it makes sense, we will continue to look at acquisitions. So we will fire on all cylinders.

P. Ganapathy

Thank you. The next question is: Why has the effective tax rate declined?

Mohandas Pai

Well, the effective tax rate has come down slightly from the same quarter last year, and the reason is we have more of the business being done in India, which is totally exempt from tax. In India, we have two sections of the Income Tax Act, 80 HHC, sub-section 10A and 10B. And 10A and 10B are totally exempt from tax. 80 HHC depends upon other income, the proportion of other income to revenue, and that's the reason we are finding this.

P. Ganapathy

And the next question is: There is significant capital expenditure this quarter, Rs. 858 million. What levels of capital expenditure are expected in the remaining three quarters?

Mohandas Pai

Well, we have said in the beginning of the year that we expect capital expenses to be around $15 million. $15 million is about Rs. 2.25 billion. We had to spend about Rs. 850 million in the first quarter, due to the fact that we have taken some decisions in the previous year, and those campuses had been completed. We also recruited heavily, so we will probably see a slight increase over the $15 million that we budgeted to spend as the year wears on.

P. Ganapathy

Okay, the next question is: With your having set up facility to train 1,000 people simultaneously, what levels of people addition are you targeting for this financial year?

Nandan Nilekani

Well, as we said in the first quarter, we added 1,056 people. Going forward its based on the business growth, and recruitment and there are a number of factors that impact that.

P. Ganapathy

And the last question that has come on the e-mail is: "Your revenue growth has been the highest in the last eight quarters, and quarter-on-quarter, highest in the last 11 quarters; per person revenue growth highest in the last ten quarters. Is this quarter an aberration, or would you attribute it to branding and marketing efforts, and can we expect similar growth going forward?

Nandan Nilekani

Well, I think that certainly this quarter has been quite good on all these fronts. But I think a lot of things came together this quarter in terms of business opportunity, capacity utilization and branding. And going forward, we will have to see whether these things come together for similar things to happen. P. Ganapathy

Thank you, sir. Kathy, if you have no more questions, we can conclude the call.

Coordinator

Okay, sir. I'm showing no further questions.

P. Ganapathy

Thank you very much, ladies and gentlemen, for joining this call. A transcript will be available on our Web site within the next three days, and if you have any questions or queries, you can give me a call or send me an e-mail. Thank you, and have a good day.

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