L&T Info's FY03 margins shrink

By SiliconIndia   |   Thursday, 21 August 2003, 07:00 Hrs
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Larsen & Toubro Infotech (LTITL), the infotech subsidiary of Larsen & Toubro, has reported a rather disappointing performance for the year ended March ’03.

NEW DELIHI: Its sales have declined 3% during the period under review while overall software services and exports have grown by 18% over the same period, according to Nasscom. The overseas business, constituting 90% of the company’s sales, has been the cause of the decline.

The sales of the overseas segment have declined about by 6% over the year, even while domestic sales have surged about 37%.

A leading business daily quoted senior officials at LTITL as saying that the reduction in total income and margin is mainly the fallout of the slowdown in the US, which has driven rate realisations down by more than 10% as compared to the previous year. This has pulled down the topline, since 51% of the company’s software exports cater to the US market.

The shift in revenue mix between onsite and offshore from 75:25 to 61:39 has also impacted the total revenue, despite volume growth. Onsite billing rates are much higher than those for the offshore business. The decrease in the onsite contribution thus reduces the turnover. This brings it closer to the mix of some of the leading players. Wipro has an onsite contribution of 56% to its total revenues; the services business for i-flex has an onsite component of 62%.

The operating profit of LTITL has also reduced by 41% to Rs 32.6 crore, resulting in the operating profit margin going down from 21% in FY02 to 13% in FY03. Expenditure on certain items has also increased steeply.

The consulting charges, a component of software development expenses, have shot up by more than 5 times from Rs 139 lakh in FY02 to Rs 734 lakh, in FY03. The company officials declined to comment on this. Even though the company has gone slow on advertising, its total sales and marketing expenses have gone up from Rs 73.8 crore to Rs 79 crore over the year.

The expenditure on advertising has come down from 0.78% of the revenue to 0.54% of the revenue. Sources say this is because front-end marketing teams drives its major sales and marketing expenses. The spend on this element has gone up by 12% to Rs 21.6 crore.

On the positive side, by leveraging on its parentage, LTITL has been able to position itself for certain large outsourcing deals inspite of not being comparable in size to the top players in the infotech industry. (source: ET)

It also looks forward to increased business from the ERP business next year. In view of the increasing number of deals struck and certain value-adding measures like skill building exercises undertaken to meet the demands on the account managers, solution architects and global project leaders, LTITL hopes to substantially better its performance next year.

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