At 32%, Infosys' topline growth is significantly higher than the industry average. But here's the interesting story-this is also its lowest ever growth in five years at a time when most of its competitors-Wipro specially-have seen toplines pick up. According to CEO Nandan Nilekani, there's a reason for it. After getting battered on the bottomline in fiscal 2002-03 (net profits grew just 18.5%), the company concentrated on profits this year more than on anything else. That's the good news.

The bad news is that most of the profits seem to have come from running a very tight ship-cutting down on sales, marketing and general administration expenses for instance. But going forward, these expenses can be cut only so much. In fact, as the company hired at a hectic pace, its software development expenses as a percentage of revenues grew even as per person productivity fell drastically.

Part of this comes from a major increase in the percentage of freshers in the company with less than two years of experience (up from 28% in fiscal 2002-03 to 46% this year). And part of it comes from lower utilization rates as the company built up a pipeline of talent. This has associated problems-a larger bench and higher attrition.

To deal with some of the margin pressure, the company decreased both onsite billed man months and onsite revenues. However, its dependence on the US continues to be very skewed-up from 52% in fiscal 2000-01 to just over 70% this year. While Europe has picked up a bit, Japan has disappeared and the banking business unit (BBU), which sells in the domestic market, has taken a big hit. In fact, despite organizational verticalization, there seemed to be a certain lack of focus on some key verticals. BFSI remained stable, but manufacturing and telecom, which have been key verticals this year for the rest of the sector, haven't really picked up at Infy. The billion-dollar landmark apart, some of these are old challenges that just refuse to go away.