Reports & Filings Investor Focus Transcript of the chat with Nandan M Nilekani hosted bymoneycontrol.com on October 10, 12:00 (IST) Hello everyone, welcome to the moneycontrol.com chat with Mr Nandan Nilekani, COO, MD and President, Infosys Technologies, following the announcement of the company's half-year results. This chat will start at 12 noon. In the meantime please fire away your qs . Before the chat starts, here is a brief note on Infosys half-year results - Infosys Technologies Q2 net profit has risen to Rs 1.54 billion from Rs 657 million in Q2 last year, diluted EPS has increased to Rs 22.49 from Rs 9.90. The total income for Q2 has gone up to Rs 4.66 billion from Rs 2.18 billion. Infosys has announced an interim dividend of Rs 2.50, up from Rs 1.50. The first half net profit has risen to Rs 2.81 billion from Rs 1.26 billion. The H1 total income has gone up to Rs 8.36 billion from Rs 4.02 billion. Please fire away any questions you have for Infosys. Mr Nilekani will join us at 12 noon. A few more minutes, please. Mr Nilekani will be with us shortly. Nandan MN Hi, Hi everyone! Welcome to an exclusive moneycontrol.com chat with Mr. Nandan Nilekani, COO, MD and President, Infosys Technologies, following the announcement of the company's half-year results. Mr. Nilekani, congratulations on your (as usual!) excellent results. We will be taking in questions from all the chat participants (these will show in the Your Questions box below). I will moderate these questions and file them in the Experts Answers box above. Everyone please fire away your questions! Mr. Nilekani's answers will be visible in the Experts Answers box along with the moderated questions. Mr. Nilekani First question for this chat kot Congratulations on having had a great quarter. however, could you spell out how will you be able to sustain such a growth? or, is this growth a fortuitous windfall? Guest2362 Do you expect the same momentum for rest of the quarters? Nandan MN Our De-risked business model which ensures that we have a broad set of clients, technologies and service offerings has enabled us to have all round revenue growth. Guest2377 Mr. Nilekani the software industry is growing at a rate of 56% , how would your company maintain the same growth rate in the increasing competition? Nandan MN On the one hand there is a large business opportunity for IT services. On the other hand we have built a strong execution engine which leverages the enormous pool of resources that we have in this country. We feel that the Indian software industry will grow at 40 - 45% a year. equitywiz What are the gross margins for onsite & offshore activities? Nandan MN The margins for offshore activities are higher by about 15% over the onsite activities. Guest2365 Will the E-com fall out in the US affect the Infosys, or is Infosys safe from e-com and US recession? Nandan MN Lot of the e-commerce softness that you are seeing in the US is really in the dot.com sector. Out of the 31.4% revenue that we have from the e-commerce segment only 9.5% is from dot.com. hence 2/3rds fo our e-business is from transformation of the global 1000. swaminathan What are the plans for Yantra Inc (your US subsidiary) - what are the revenue growth targets and do you have any listing plans for this subsidiary? A lot of international sites/ analysts are praising Yantra's fulfilment package - how do you evaluate the long - term potential for this product? Nandan MN We will have to contact Yantra on answers on their future plans. Yantra is an independent board managed company. Guest2377 On the front of takeovers, your company hasn't found the appropriate candidate, what about the huge cash you are holding and the opportunity cost lost? Nandan MN Our cash position is based on strategic requirements. We will look at acquisition when we find a suitable candidate that meets our strategic objectives. Guest2373 WHATS YOUR ORDER BOOK POSITION AS ON 30/09/00? Guest2394 WHY HAS THE REVENUES FROM PROP TELECOM COME DOWN, ITS A GROWTH AREA WHY R U NOT FOCUSSING UPON IT? Nandan MN WE have visibility of 60% for the next four quarters. Our revenue from telecommunication is 19.4% for the quarter up from 14.5 for the same quarter last year. This is driven by growth in internet infrastructure. Guest2406 Apart from one major product, why are you not focusing on product development in a big way? Nandan MN We believe that we have a great opportunity to build a globally respected IT services company providing end-to-end solutions to the world's largest corporations. Guest2391 Are there enough projects in the pipeline to absorb the ever-increasing manpower? Guest2384 How confidant are you in maintaining the historical growth in your US$ offshore billing rates? What three-to five year trend do you see in this and in onshore billing rates? Nandan MN Billing rate is a function of our ability to get new customers and go up the value chain. WE believe there is a large global opportunity for the kind of service we provide. Guest2365 There was a rumour in the markets that the company is looking at Alpha Networks in a consultancy take over bid. Is that true Are u looking at Alpha networks? Guest2362 How is Infosys doing with it's it recent entry in Australia? Nandan MN We cannot comment on any specific company. Our strategy on acquisitions has been already articulated. With respect to Australia we just added an office in Sydney apart from the one we have in Melbourne. Vaibhav Sanghavi How do you expect to maintain the growth rate when the software industry is growing at an average growth rate of 56% and also the competition is on rise? What will be the driving factor for growth in Infosys? How do you justify the valuation in the world of increasing competition? Nandan MN We believe that our DE-risking model and our focus on execution is the way forward. Our intention is to grow at the industry compatible rates. Guest2384 Considering the recent volatility in the stock market, there is a growing fear that ESOPs may increasingly not hold the same value for employees as they did earlier. What is Infosys doing to tackle something like this? Do you expect your employees costs to increase more than they did historically? Nandan MN ESOP; is an additional incentive over the salary. All our employees have a long term relationship with the company and we believe that they are all tremendously motivated to build a globally respected IT services company. Guest2406 analyst reports indicate that ur net margins are under pressure in this quarter. Why has this happened? Nandan MN Net margin as per Indian GAAP is 33.1% as compared to 32.7% in Q1 of this fiscal 2001. equitywiz Do you view labour cheap countries like Korea, Indonaisa as a threat to your margins? Nandan MN The focus at Infosys is on building a global brand, going up the value chain and long term strategic relationship with our clients. Guest2394 MR NILEKENI THOUGHTHE REV SHARE FROM TELECOM INDUSTRY HAS INCREASED STILL SHARE OF PROIP TELECOM HAS COME DOWN REASONS PLEASE Nandan MN There is a global move towards internet infrastructure based on open IP protocols. hence our telecom revenue is increasingly from open systems. Guest2362 After Y2K, Ecommerce, what next according to you can be a big boon for IT industry?? Guest2351 Do you plan to get into new tech areas like broadband and DTH? Nandan MN E_Commerce is transforming the world's large businesses and it is a secular trend which is expected to continue for several years. we have also made several forays into broadband and wireless which are part of this transformation. Guest2384 Nanda, congratulations for this spectacular performance. Infosys has added 1480 employees to its strength in the last quarter. Can you tell me how many employees have quit in the same period? How does your attrition rate compare with others? Have you ended ties with any existing clients/customers? Guest2429 DOES INFY PLAN TO SPIN OFF ITS ECOM PRACTICE INTO A SEPERATE COMPANY? Nandan MN During this quarter 255 employees have left the company. The attrition for the quarter is 14%. Infosys has no plans to spin off its e-com practice. Guest2436 Most of the internet consulting companies issued revenue slowdowns from the scorching pace at which they are growing at. Do you think this slowdown which was attributed to the dot com tragedy is not impacting Infosys or has the company's e-commerce revenue been impacted by the same. How many people are working in e-commerce for the company. Guest2436 Do you perceive a threat from consulting companies like Anderson which are adding renewed thrust and getting more aggressive in their approach. Nandan MN Out of the 31.4% of revenue from e-commerce only 9.5% is from dot.coms. we do not see any slowdown from the dot.com softness as the majority of our revenue in e-commerce is coming from the transformation of the fortune 1000. we also believe that we have an unique offering which makes us very competitive in the market place Guest2362 How is the first Baby of Incubation Program "OSCAN" doing? Nandan MN It is too early to talk about Onscan since the organization is being built now. We'll wrap up in about 5 minutes now, please put in any more questions you have. Mr. Nilekani, please answer this qs Guest2404 Major revenues for Infosys come from software development, which means Infosys acts as a Outsourcing Vendor for Global companies. But today Information Technology is becoming "A MAJOR SOURCE OF COMPETITIVE ADVANTAGE". Thus, global companies are realizing the fact that they can build their CORE COMPETANCIES only if they are strong in IT. How will this change affect Infosys revenue model? Is IT outsourcing business slowing down globally? Nandan MN The complexity of today's solutions, the shortage of global resources and the time to market requirements is actually increasing IT outsourcing globally. Guest2449 Why have you not used the ADR proceeds yet for acquiring companies? Dont you feel that 1 year is too long a period in IT space to keep the funds unutilised? Guest2394 WHATS THE SYNERGY WITH ASIANET SINCE IT INTO MEDIA AND BROADCASTING? Nandan MN We will acquire companies for strategic reasons when we are able to find a suitable candidate. Our investment in AsiaNet media gives us access to that company and related companies as new customers. Guest2406 While sify is busy acquiring portal after portal why is infy being rather soft in its approach Nandan MN We have a clearly articulated strategy - we are a globally respected IT services company. sandhyad In the recent past we have seen some of the Major IT related companies like Intel. Apple, Dell and so on downsizing their expected third or fourth quarter earnings. How would this affect projected growth of software industry in general and Infosys in particular? Guest2362 Do you think that something like Arzoo.com can pose any kind of serious threat to companies similar to Infosys?? Nandan MN We believe that with our de-risking model we are able to have all round opportunity. Guest2406 is infy planning to focus on the ASP model Nandan MN WE are looking at other service models and when it makes sense, we will look at other models. OK, last question for this chat swaminathan Should I invest in Infy shares at this level? Nandan MN No comments. Thanks, Mr. Nilekani. This chat has now ended. Thank you everyone for participating. Thank you Mr. Nilekani for giving us an insight on Infosys Technologies, we hope to see you more often with us at moneycontrol.com. Participants who wish to continue chatting between yourselves, you can do so for the next half-hour, after which we will close this chat. Nandan MN Thank you all for participating! The transcript of today's chat will be available on moneycontrol.com in the next 5 minutes! Bye everyone. If you have any suggestions/ questions on this chat you can send an e-mail to . Thanks again everyone. Thank you Mr Nilekani.