Confident of maintaining margins at 18-20%: Infotech

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Due to a strong pipeline, Infotech 's chairman and managing director, BVR Mohan Reddy tells CNBC-TV18 that they are confident of maintaining margins around 18-20% in the next few quarters. "We feel our pipeline is good and next few quarters are going to be equally strong as what we have done in the last quarter," he said.

The company added about six customers in our engineering business and five customers in our N&CE business.

Infotech surprised the street with better-than-expected margins of 20.6%, mainly aided by foreign exchange. "Compared to the last quarter, we grew about 550 basis points; 400 of those came from the foreign exchange tailwinds and about 150 basis points came because of our operations," explained Reddy.

Below is an edited transcript of his interview with Sonia Shenoy. Also watch the accompanying video.

Q: Can you just start off by taking us through the earnings this time around? How has the topline and the bottomline looked?

A: I believe for the quarter ending 31st December we did Rs 417 crore of revenue, which is about 11.8% compared to the previous quarter. If you compare with the same quarter the previous year we are about 33% up. The 11.8%, a part of it came because of foreign exchange tailwinds, about 9.5% of it; 2.3% of it came because of our volume growth.

In terms of our margins, we grew about 550 basis points for the last quarter compared to the previous quarter and 400 of those came from the foreign exchange tailwind and about 150 basis points came because of our operations.

The PAT grew by about 10.5%, which is from Rs 30 crore to about Rs 30.5 crore. We have had a challenge in terms of foreign exchange losses, but please note that these are very notional losses. We did forward covers for about 21 months for the next financial year, which means that we already have covered ourselves at about close to USD 50. For the balance six months of this next financial year we have covered ourselves at about USD 54.

So to that extent, we had a very strong quarter, our result seem to be very good and more importantly our pipeline looks to be very strong at this point of time.

Q: Last year was quite pressurizing for you because of a whole host of issues like wage hikes and low margin acquisitions sort of dampen your margin picture. But from here, do you think this 20.6% is sustainable and how do you see the next fiscal pan out?

A: 20.6% came because of the foreign exchange situation. Foreign exchange gave us about 400 basis points out of the 20.6%, so what we really did is more like 16.6%. We have always told the market that our company operates at about 18% margin and we are very confident that we will maintain ourselves in that band of about 18-20%.

Q: How does the deal pipeline look in terms of customer additions, what outline can you give us for the next couple of quarters?

A: The customer pipeline at this point of time looks very strong. We haven't had a stronger pipeline than what we have at this point of time, both in our engineering business as well as in our network and communication (N&CE) business. We added about six customers in our engineering business, five customers in our N&CE business.

But more importantly our top 10 customers continue to grow. Outside the top 10 the growth was higher, it was I think 8.6% for the top 10 customers and 15.7% outside the top 10 customers, which is a very balanced growth for us resulting in about 11.8% growth.

So in terms of pipeline, in terms of the deals that are there at this point of time it looks very positive. All the same if you look at the macro economic issues globally, there is certain amount of concern, but we feel our pipeline is good and next few quarters are going to be equally strong as what we have done in the last quarter.

Q: So in terms of your engineering business where a big chunk of your revenue comes from, it's been quite healthy for many quarters now. What kind of a topline growth you think you can cull out in the next couple of quarters because of the traction that you are seeing in this segment?

A: At this point of time estimating that next financial year will continue to grow around 20% number. Our budgets are getting done at this point of time, give or take 2% plus or minus, around that number is a growth in the dollar terms because we don't know where the rupee is going to end. So the result is that in dollar terms, as a business, we think that we will probably grow around 20%.

But certainly we have seen our engineering business having a little more traction compare to our N&CE business, so the engineering business maybe in the 20-25% range whereas our N&CE business could be 18-20% range that's what our current projections are for the next financial year.

Q: Just one worrying point for your business has been a ramp down of your clients in Europe. What kind of worries are you seeing from there, how much does it come as a contribution to your business and do you expect more scale down from those clients?

A: No, not really. Actually if you look at our business profile, I believe this quarter we increased our European presence by 1%. It used to be 57,33,10, it's become 56,34,10; that's 56 from North America, 34 from Europe and 10 from Australasia including India.

There was only one customer where there has been a ramp down that has happened, one of the large customers that we have had, and we are not very concerned primarily because it will give us some relief on margins because this was a customer who was putting too much of pressure on us in terms of margins. Now that that customer has gone, I believe that we will make it up with other customers, so more importantly it will certainly give us relief in terms of margins. So Europe is not a worry at all for, certainly the pipeline is good and we will continue to grow at what we have done in the last quarter.