Infosys grew the slowest among all the top groups in our list. The reason is not difficult to understand. The domestic (India) business, which acted as a stabilizing factor for others, is not just insignificant for Infosys it remained almost flat in a year that the company would have wanted it to grow the fastest. The result: as a percentage of total group revenue, it showed a decline.

That is the immediate conclusion that any analyst would arrive at. However, from the perspective of Infosys as a group, which puts so much stress on predictability, sustainability, profitability, and derisking, that raises a far more important question: how derisked is Infosys? One can possibly ignore the fact that it grew the slowest, as compared to others. In the long-term evolution of the company, one years growth is not too important a measure. Important, however, are the reasons behind this: the drastic change in exchange rate and the slowing US business environment in the last quarterboth external factors. For a company of Infosys stature, allowing these to affect its performancewhen everyone knew the possibility of both happening at the beginning of the yeardoes not speak highly of its emphasis on predictability and derisking. From a 45% growth in FY 07 (highest among all major services players in India), it dropped to 20% in FY 08 (the slowest among all): predictability is not just about meeting guidance. A single acquisition of significant size (say like Wipro did with Infocrossing) or better still, possibly one in India, would have changed the picture completely. A strong India business is sound long-term business strategy for any IT company, from a growth perspective. Now, as it has proved in the case of Wipro, it is a sound derisking strategy as well.

Acquisition Averse?
Last year, there were strong rumors that Infosys was seriously considering buying out Capgemini, that pushed the stock price of the latter. A lot of analysis, media stories later, Infosys denied that it was bidding for the European major.

RANK 3
Narayana Murthy chairman & chief mentor	Nandan Nilekani co-chairman
In FY 08, Infosys generated over 102 invention disclosures and filed an aggregate of 10 patents in India and the US, taking the total patent filed till last year to 119, with two grants. Infosys BPO was recognized by the Indian Ministry of Social Justice and Empowerment as the best employer of disabled individuals Its campus recruitment program outside India, InStep, has become a fairly sought-after program, with over 4,000 applications received for 126 positions in FY 08

It is difficult to discuss hypothetically what that would have done to Infosys. As CEO Kris Gopalakrishnan told Dataquest, We are not looking at very large acquisitions like that; not at least in the near future. And his logic is sound. Services business is all about people; all the acquisitions will not have any value if we cannot keep the key people. And doing that depends largely on integrating the two cultures, which is difficult to achieve in a large acquisition, he explains.

Most Indian companies have steered clear of large acquisitions targeted at just scaling up. And that has been sound business strategy. But most have done acquisitions to add skills and/or getting into geographies. Infosys has not even done that in the last few years. The ones that it acquired earlierincluding Infosys Australiahave been integrated. That means Infosys is not a group per se. It does not even have many subsidiaries, to make corporate governance challenging. In fact, the largest subsidiary, Infosys BPO, contributes less than 6% to its total revenue and has been an almost organic growth, leave aside a large people/asset transfer deal.

Group Performance
A better way to measure Infosys performance, hence, as a group, would be to examine how coherently have different units and subunits within the group (irrespective of whether they are separate legal entities or not) gone to market and delivered services to the customer.

Infosys One Infy offering (where one client lead is responsible for selling different services to a customer), which it started some time back, was targeted at just that. Initially planned with just IT services offerings, the company in FY 07 added BPO to that.

Infosys BPO has been a success story. Not only has it grown much faster than the overall group, it has managed to leverage Infosys strengths and customer relationships fairly effectively. It has even built productized platforms in F&A.

The progress is showing in the results of Infosys BPO. In FY 08, it grew 43.5%, more than double the growth recorded by Infosys as a whole, and more than any other subsidiary. This is the second straight year in which it has recorded spectacular growth. (75% was the growth in FY 07).

If Infosys BPO carried its good performance from the previous year to FY 08, Infosys Consulting, started in 2004 with a few ex-Deloitte consultants, carried its struggle to break even from the previous year to FY 08. It still made losses of Rs 52 crore on a revenue of Rs 246 crore, though that was a little better than the FY 07 performance when it made losses of Rs 110 crore on a revenue of Rs 208 crore. However, that was probably achieved at the cost of growth. The growth slowed downeven on that small baseto just 18.3% as compared to 49% in the previous year.

On the integration front, it is still at an arms length from Infosys. It maintains its separate website, has a very different employee composition than Infosys (more than 70% non-Indians) and tries to sell itself as a serious strategy consulting firm. CEO Gopalakrishnan reasons that it is necessary to attract talent, but points to Infosys success in consulting as an area, as opposed to performance of Infosys Consulting as a company.

One thing is clear: the value addition that it was supposed to make to Infosys overall portfolio has clearly not happened.

Yet, Infosys took some steps to better align its different divisions and strengthen the One Infy approach by significantly reorganizing its business units in November. It created a total of six vertical and five horizontal business units. In a step that took it closer to being a more integrated global business, it integrated its European business (that is growing much faster) into the vertical business units, called IBUs.

It also formed a unit called NGE (New Growth Engine) to expand business in Australia, China, Japan, Middle East, Canada, and Latin America. Infosys finally formed an IBU as well.

In India, it is focusing on large deals in both government and enterprise segments. It is focusing on some selected growth verticals and has won a few contracts.

The exchange rates, which have already reversed the trends this year with dollar already touching Rs 43, will help Infosys rupee growth and margins, for the same reasons it affected it badly in FY 08. In the short-term, that will probably make Infosys performance look good to analysts focused on quarter-to-quarter. The fact that it has not let its margins get affected by the external factors also will add to the positive.

But two major parameters in which Infosys will be judged this year for its long-term growth will be how it plays out its inorganic strategy and how it fares in the India business.

Shyamanuja Das
shyamanujad@cybermedia.co.in

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