>INFOSYS TECHNOLOGIES (RBS)

■ Increasing traction from new engagement models underpins long-term targets
Infosys showcased its thrust on new engagement models, where output/pricing are not directly co-related to manpower. The company aims to earn a third of its revenues from these models in five to seven years (vs 5-7% currently, ex-Finacle). It has closed about a 100 such deals in FY10 ytd of TCV of US$165m. Discussions are on for 150 more projects worth US$528m. Growth from these models is significantly higher- bookings and revenues are up 75% and 50%, respectively, vs a 4% yoy decline in overall revenues in 1HFY10. Apart from customers' demand for outcome-based pricing, a key driver is to side-step rate card negotiations, typical of time and material based contracts.

■ New operating model to drive productivity, while client-partner role focuses on mining
Infosys has increased the minimum number of years an employee needs to put in technical roles to eight (typically six earlier). While this is in line with clients' insistence on experienced technical staff, it also increases the average billability of an employee by about two years. A larger span of control of 1:3:9 (from 1:2.4.5 earlier) also helps spread overhead costs wider. Infosys plans to increase its sales headcount by 30% in FY10, particularly to deepen large client relationships through dedicated client-partner roles.

■ Near-term outlook unchanged; valuations price in growth expectations, in our view
Management reiterated its near-term demand outlook given in October 2009. It does not expect the usual budget flush to play out in December 2009, as clients are still strictly monitoring spending levels. While most 2010 budgets are likely to be finalised in time, recent interactions with clients indicate budgets will likely be flattish yoy. Infosys expects discretionary expenses to be curtailed. We maintain about 20% growth for FY11F is already built into current valuations and that this would be difficult to surpass.

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