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Infosys, once the benchmark for the Indian IT industry in terms of having superior operating margins, has seen a very steady decline on this front. Now the IT major aims to scale back to that level by making investments in various areas without being bogged down by short-term implications, chief financial officer Rajiv Bansal tells PP Thimmaya. Edited excerpts:
What steps are Infosys taking to improve the operating margin, which has remained flat for two quarters in a row?
Our margins have remained flat at 23.6% in the quarter and this has remained the scene for quite sometime now. During this quarter, though we had the impact of wage hikes, this was negated by currency movement and increase in utilisation levels. Today, it is very important for us to invest back into business, whether it is in sales, variable pay or developing new tools and technologies. For the short term, we are not that worried but in the medium to long term we would target industry leading growth with superior margins.
Do you think higher growth will aid operating margins?
Margin is dependent on growth. The improvement in profitability is a combination of both internal and external factors and we have certain levers to bring about this increase. We can increase our utilisation level to 82-83% from 77%, which is what many of our peers are doing. We could also have a better onsite:offshore mix to bring in better margins. The idea is to make everybody productive. In this financial year, we would be making all the investments to deliver growth from next fiscal.
What kind of benefit is Infosys seeing from the cost optimisation drive?
We started the optimisation drive in July. We expect some benefits to flow in the next quarter and it would be much better from the fourth quarter.
How does the company view the currency market?
The currency market has been volatile. This kind of uncertainty has not helped anyone. Overall in a macro view, the rupee should stabilise at 61-62 level.
But, we have not changed our hedging strategy of taking a cover for one quarter of net asset. This has worked well for Infosys in such a volatile environment and in the last 15-16 quarters.
Rupee deprecation will hurt every industry in the long run. If the rupee remains stable, we can plan better.
Are clients asking for discount due to the falling rupee?
Clients budget is in local currency