Expect EBIT margins around 20% for H2FY14: Infotech

Infotech Enterprises' EBIT margins rose from 16.6 percent to 18.2 percent in the second quarter. But a fair amount of it is because of currency depreciation, says President and COO Krishna Bodanapu. Though about 50 basis points was on account of operational efficiency, he says. He believes margins will be closer to 20 percent in the second half of the year.

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As far as the pricing environment goes, according to him, the days of the automatic price increases are over. "If you look at the price at which the new deals are coming in, they are about the average of what the past deals are and therefore we believe that pricing is stable," he adds. Below is the verbatim transcript of Krishna Bodanapu's interview on CNBC-TV18 Q: Let me start with what was most impressive about your earnings like in most technology companies, EBIT margins rising to 16.5 from 12.8 in the previous quarter, how much of it is due to currency and how much of it is a genuine improvement in margins?
A: Our EBIT margins increased from 16.6 percent to about 18.2 percent I believe over the last quarter. So we believe that a fair amount of that increase obviously is because of currency depreciation that we have had or currency appreciation depending on how you look at it. But we also believe that there is about 50 bps or so of that improvement that came because of operational efficiency or operational improvements. Q: Do you think you can persist with that, will you be able to squeeze out more margin improvements in the second half?
A: We will be able to. We believe that our margin will be closer to 20 percent at least for the second half of the year. We also have some investments that are planned around some longer-term initiatives around branding and some organizational efficiency. So, while we make these investments we believe that at least for the second half of the year, assuming that the currency remains approximately where it is that is about 61-62/USD will be at about 20 percent margin for the second half of the year. So we will get a little bit better in terms of margins. Q: I had a question with regard to your revenue growth for this year FY14, there is a bit of a mix reaction that we are getting in from brokerages so what is the revenue growth that you are targeting for FY14?
A: We don't give guidance for the year but if you look at what happened then Q1 was essentially a flat quarter for us. I think the growth was 0.1 percent. In Q2 we had about 2.3 percent or so constant currency growth and what we believe is Q3 and Q4 will get pretty much better or much better than what it was in Q1 and Q2. Therefore overall will be better than what happened in H1 but we don’t give guidance for the year per se. Q: What about the pricing environment, take us through that one, has it been stable, is it improving, what is your take on that front?
A: Pricing has been quite stable over the last six months or so. We believe that some of the things that used to happen previously such as automatic price increases etc are obviously not happening at this point. We are having to earn our price increases which typically comes because of productivity increases or operational efficiency, but we believe that pricing in general is fairly stable.
If you look at the price at which the new deals are coming in, they are about the average of what the past deals are and therefore we believe that pricing is stable. The days of the automatic price increases are done but I think there is still some opportunities around efficiency and productivity that will help us claw back some of the challenges that we will or some of the pressure that we will have because of wage increases and therefore while the automatic price increases are gone, there are still some good opportunities to keep margins where they are. Overall price increase is quite stable at this point.