FY14 margins expected to be flat: Infotech Ent

Operating margins for Infotech Enterprises slipped by 120 bps this quarter, says Krishna Bodanapu, Infotech Enterprises, the reason being a shift in the company’s business from onshore to offshore. Talking to CNBC-TV18, he says he expects operating margins to be flat for FY14, assuming that the rupee holds where it is. The company has witnessed a slowdown in its customer base.

Here is the edited transcript of the interview with CNBC-TV18 Q: What kind of a trajectory are you hoping to see for your operating profit margins through the course of this calendar year? A: For the course of the year we believe that operating margins will at least be flat assuming that the rupee holds where it is. Obviously there will be changes if the rupee changes. So we closed FY13 at 18.2 percent, and we believe FY14 will be in the same range. Q: Can you first take us through how exactly the margin picture panned out for Infotech Enterprises this quarter, because we do understand there was a bit of a deceleration in the EBIT margins on a sequential basis? A: The margins went down this quarter by about 120 bps or so. The reason for that is we had a little bit of shift in our business from on-shore to off-shore. What that meant is while the number of hours, which is the true measure of volume, was higher than what it was last quarter. Revenue was lower by about 2.2 percent, which was because of this shift. That translated into lower margins. So margins were lower by about 120 bps this quarter compared to Q3. Q: FY13 seem to be a little muted for you all in terms of your dollar revenue guidance which you completed for the year. Can you take us through any client-specific issues that you all might have faced this quarter and how exactly would you be possibly resolving it? What guidance would there be on that front going into the next fiscal? A: We had a couple of issues, some of them were known and what we had previously talked about. They were related to two things, one is we did see some slowing down in some of our customers and that was expected. However what we believe is a positive for our business is we are seeing a shift in the business from the revenue being onsite to offshore. So last year, the mixed increased by about 300 bps that is the offshore content of our revenue increased by almost 300 bps and next year we believe we will do a little bit better than that.  While we have had some client specific issues in Q4, most of them expected, we believe that the shift is happening more towards offshore. That is actually very good for our business because that is where we have better margins and ultimately deliver better value to our customers. So taking that into account, we believe that FY14 will be better than FY13. We don't give guidance but we believe that FY14 will be significantly better than FY13. In FY13, constant currency we grew 9.2 percent or so. Obviously in dollars it was little bit more muted because of the exchange rate fluctuation between other currencies and dollars, but 9.2 percent was really the constant currency growth and we believe we will do better than that in FY14. Q: Do you see the worst of your client ram down behind you, the kind of ram downs that you have seen in Hitech and the telecom business? A: We believe we have seen the worst of it. I would wait for at least a quarter to be absolutely sure but as we look at it and at our pipeline and forecast because the other indicator is the backlog that we carry in the business at the beginning of every quarter. And the backlog this quarter is much better than the backlog that we had at the end of December or January 1. So looking at those things, we believe that the worst of the ram downs are over. We believe that just the fact that the offshore business actually grew at a very healthy number in Q4 compared to Q3, gives us the confidence that there is some really good growth ahead of us. Q: Could you expand more explicitly in terms of possible numbers for FY14 in dollar revenue guidance, or may be constant currency guidance? You did speak about the margins briefly. A: We don't give guidance. I can just say that the backlog is looking much better, the business is looking much healthier, so we will have a better FY14 than FY13.