NSE Symbol: | BSE Code: | ISIN: | Sector:
- Add to Portfolio
- Add to Watchlist
- Add to Alert
I am happy to share with you my thoughts on the performance of your Company during the financial year (FY) 2011–12 and also on what the future holds for all of us.
Macroeconomic Environment and Industry Overview
The second half of 2011 witnessed a sluggish global economy owing to deepening Eurozone crisis, sharp slowdown in China and lower than expected growth in the UK and US. A weak post–tsunami recovery in Japan and volatility, in most emerging–market economies is a matter of concern. Globally, there would be challenges for countries, industries and businesses due to the declining growth rate. Managing uncertainty and the risks associated with it will be the key challenge.
The global sourcing industry landscape has also altered in line with changing economics, demographics, consumer connectivity and rise of emerging economies. At the same time, there is a fundamental shift in customers buying behaviour, with a greater emphasis on complete ownership, standardization, time–to–market and delivering business outcomes. Also, in this global, interconnected world, not everything can be accomplished centrally from a single location. Languages, skills, proximity to customer, business continuity and local market opportunities have created a compelling need for a network of delivery centres across the globe. We are witnessing globalization through M&A as well as local hiring. Specialization has become a key priority.
The business models have also undergone a paradigm shift. From contracts that were based on per hour pricing, the measurement is now based on business outcome. Focus on intellectual property creation and end–to–end processes / products enables the customer to realize top line benefits.
These challenges, in conjunction with an extremely volatile macroeconomic environment, present an opportunity for growth. In line with the words of a famous author, What Got You Here Won't Get You There – we recognize that capabilities, which made us a leader in the past, may not ensure success in the future. Operational excellence, innovation, IP creation and leadership development will be critical to the success. The companies who understand and adapt to these challenges will prosper in these tough times.
According to a NASSCOMBooz Global Engineering R&D report released in May 2010, offshore revenues of both traditional (Aerospace, Automotive, Telecom,
Semiconductors (HiTech), Consumer Electronics and Construction/Heavy Equipment) and emerging verticals (Computing Systems, Energy, Infrastructure, Industrial Auto–mation and Medical Devices) are expected to reach USD 90–100 billion globally. Of this, India will garner a share of around 40 percent by 2020, equivalent to USD 40–45 billion. The growth of the addressable market for your company remains sound and strong.
In spite of the macroeconomic uncertainty around the globe, we had a very good year in line with our expectations. We posted robust growth and higher profits because of customer centricity and long term growth strategy.
Revenue for the year was at `15,531 million, a Y–o–Y growth in rupee terms at 30.7% and a Y–o–Y growth in $ terms at 24%. Operating profit was at ` 2,704 million, an increase of 50% Y–o–Y. The operating margin for the year was at 17.4%, an increase of 220 bps over last year. Profit After Tax (PAT) for the year was ` 1,614 million, an increase of 15.5% over last year. Our strength grew to 9,334 from 8,711. Our cash and bank balances stood at ` 4,782 million.
Our relentless focus on key margin drivers like efficient onsite– offsite–offshore mix, right sizing the organizational pyramid and improving the productivity and utilization drove our operating margins up to 17.4% (a 220 bps increase over last year).
Talent engagement and retention have been a key focus for our Human Resources (HR) management team. HR excellence has been brought into the organization through innovative initiatives. Our initiatives were judged to be creative and innovative with a human touch. Your organization has improved ASAT score (Associate Satisfaction score) to 53% compared to 49.3% a year ago.
Building Robust Scalable Systems
With rapid growth, we recognize the importance of building one global company and support the same with robust scalable systems for accurate and timely decision making. We are putting in a lot of effort to instill a "One Infotech" culture, also being supported by robust scalable systems.
We have rolled out organization wide initiatives for strengthening our finance, delivery, human resources and sales processes. For our finance and accounting, we have completed the implementation of SAP across all our global locations. After extensive study of our delivery processes in different CoEs and in different verticals, we are currently implementing a unified delivery management system, e3 (enterprise execution excellence) to address operational requirements of all our business establishments, worldwide. We are also implementing a Global HR system to ensure one global database of all associates with automated work flows for recruitment, transfers, training, separation, performance appraisal and planning. With this implementation, we will have one platform for all our employee information to facilitate timely decision making. Sales automation system is being further enhanced for accurate and timely forecasting of sales data and monitoring sales performance.
Organization Restructuring and Leadership Development
Over the years, one of the key differentiators and growth accelerators has been our organization structure. The structure has enabled us to maintain focus on key markets and customers, while driving efficiency through operational excellence and standardization. We have ensured that the spirit of entrepreneurship is encouraged and rewarded in the organization structure. Over the last six months, the board of directors, the leadership team and I spent a considerable amount of time on identifying the structure that will allow us to continue our growth momentum and focus on meeting expectations of key stakeholders. To reflect the markets we address and the solutions we provide, the companys business has been realigned into the following four business units (BU):
1. Aerospace (AERO) Providing product engineering solutions to aerospace customers
2. Heavy Equipment, Transportation & HiTech (HTH)
Providing product and process engineering solutions to non–aerospace customers in manufacturing, high technology and process engineering industries
3. Utilities Telecom (UT) Providing network engineering and related solutions to telecom and utility customers and their suppliers
4. Content (C) Providing spatial solutions to a range of industries including mining, oil and gas and content publishing
In the context of this realignment, we created a position of President and Chief Operating Officer to head all business operations including delivery, sales, marketing, strategy and organizational excellence. Towards developing the next generation leadership, we have promoted Krishna Bodanapu as the President and Chief Operating Officer of the Company.
Quality and Innovation
In the first two decades of Infotechs existence, the focus was to ensure that quality becomes a key element of the companys DNA. We were successful in delighting our customers with continuous improvement in our execution methodologies and refinement of processes. We are now in the process of making innovation as a part of our DNA. We have taken steps to foster innovation as a culture in the company. Innovation, as it happens in product, process and business model is being recognized, rewarded and celebrated. Having initiated the journey of innovation in 2010 we hope to see innovation as a key element of our DNA in the near future.
Your organization recognizes that it has three distinctive businesses within the company. The Aero and HTH focus on the product and process engineering, the UT focuses on network centric solutions including engineering, the Content business is more into spatial data related solutions including aggregation, analysis and business intelligence. All the three need to be treated differently and specific strategies are being continually developed for each of them. While they are different, they also have tremendous synergies in terms of common customers and a commonality in delivery excellence and entry level resource pool.
The Aero and HTH business is likely to upgrade to an art to part proposition as opposed to our current offering of art to print. The UT business will shift towards comprehensive network solutions that will include engineering, consulting, software and implementation. The Content business will need to build capabilities to manage "Big Data" in the coming years.
As the landscape evolves in terms of new markets, new industries and value chain, it is getting increasingly critical for your company to augment its existing capabilities. It also needs to enter into engagements that lead to end–to–end product development, in order to reach its set targets.
The future is indeed bright for the engineering services sector, the core of your company. Recent trends show that ER&D activities are moving closer to emerging markets and the confidence among global customers in Indias supply base capabilities is growing too. Growth in local markets and the emergence of new verticals is further driving the growth of your company.
While we are very confident of the future, we are fully aware of risks emanating from:
Uncertainty in global economies leading to protectionism and trade barriers
– Wild fluctuations in foreign exchange
– Slow down in creating robust infrastructure in India, coupled with run–away inflation that can put pressure on our cost structure
We started FY 13 with a strong order pipeline and a large order backlog. We are confident of an equally good FY 13.
I thank the Board of Directors for their support and guidance for the growth of our business year after year. I also thank all stakeholders for their continued confidence in us and also their support without which, it would not have been possible for us to deliver results.
B.V.R. Mohan Reddy
Chairman & Managing Director