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May 17, 2013, 04.37 PM IST | Source: CNBC-TV18

Q4 traditionally weak quarter, Q3 strong: Infinite Computer

Upinder Zutshi, chief executive officer & MD, Infinite Computer Solutions India says that historically, Q3 has always been a very strong quarter, and Q4 has been a weak one for the company.

From a quarter-on-quarter basis for the last three years, our Q4 has been traditionally weak and Q3 has been quiet strong.

Upinder Zutshi

CEO & MD

Infinite Computer Solutions India

The last quarter has been weak one for Infinite Computer Solutions India . Dollar revenues are down, margins have contracted and profits have slipped 13 percent. But Upinder Zutshi, chief executive officer & MD, Infinite Computer Solutions India says that historically, Q3 has always been a very strong quarter, and Q4 has been a weak one for the company.

Talking to CNBC-TV18, he says that the reason for that is in most of the revenue share deals that the company has with its customers, the financial year ends in December. So as all the revenues are recognised in that quarter, traditionally it becomes a very strong quarter. So from a quarter-on-quarter basis for the last three years, our Q4 has been traditionally weak and Q3 has been quiet strong.

Q: Your dollar revenues are down, your margins have contracted sequentially, profits have slipped about 13 percent. What happened in the quarter gone by?

A: We had a fairly decent year. Our revenue in INR terms grew by about 32 percent to Rs 1391 crore. Our dollar revenue grew by 16 percent to USD 255 million. Margins growth has also been fairly good as far as the year is concerned. Our margins grew by 19 percent in INR terms and about 5 percent in USD terms.

As far as Q4 is concerned if you see the history of our company Q3 has always been a very strong quarter, and Q4 has been a weak one. The reason for that is in most of the revenue share deals that we have with our customers, our financial year ends in December. So all the revenues are recognised in that quarter so traditionally it becomes a very strong quarter and then in Q4 we start based on the new forecast. So from a quarter-on-quarter basis for the last three years, our Q4 has been traditionally weak and Q3 has been quiet strong.

Q: This 12-14 percent dollar revenue growth that you are guiding for is lower than the 16 percent you did. Is it entirely on base effect and also is there is any guidance that you have on the net profit front?

A: We are looking at this year as a year of transformation. We are all aware that the market place is challenging, market is changing, expectations of the customer are changing, the business of IT services is completely commoditised. What we are trying to do is and what the customer is expecting from companies is that they want to engage with who can provide them solutions to their business needs, rather than give them cost arbitrage. We are all aware of the immigration situation that is going on in the US.

If that is cleared, that will have a major impact on that kind of business.
This year we are making significant investments and further reinventing ourselves. We are investing close to about USD 12 million in building frameworks, platforms as well as in sales and marketing to launch the products and platforms that we have.

So from that point of view, after a very sustained growth in the last four years where we gave a Compound Annual Growth Rate (CAGR) growth of about 30 percent, this year is going to be a little muted. The revenue will grow by about 12-14 percent, profits will actually be down compared to last year.

Q: You also indicated that margins would be a bit soft in FY14. Could you tell us in percentage terms what the impact would be?

A: It is little early but we probably think that it will be an impact of about 15 percent and then the reason for that is largely not because of the business but because of the fact that we have decided to invest close to about USD 12 million this year and entire investment is being expensed down and that is the hit we are going to take in the P&L. If we take that investment out then on an apples to apples basis margins will be reasonable compared to the last year. So it is essentially because of the investments and we believe those investments are essential for us to continue to grow in the years to come because the market place is changing and our customers are expecting that investment from us.

Q: Will you keep investing this year after year, is it a constant thing now?

A: Significant part of this investment which we are talking about is kind of a one time investment which we are investing in building the platforms, frame works and center of expertise. There is some investment that has gone into sales and marketing. We are significantly increasing the global sales and marketing we are starting off which is in UK and Germany. Now that kind of money obviously will be a recurring expense, it is not just one time but a significant part of this investment is one time expense for this year.

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