Indian information technology consulting firm
has a lot going for it: strong growth, a 30% operating profit margin and success that symbolizes the rise of the Indian IT industry. But its president still can't explain Infosys' stratospheric valuation.
The high price of Infosys stock, which trades both in India and as American depositary receipts in the U.S., is a continuing saga that reflects investor faith reserved mostly for B2B e-commerce companies. Though the ADRs fell 10% Monday to close at 297, they're still more than 12 times higher than they were when they started trading a year ago. But in an interview with
on Monday, President Nandan M. Nilekani avoided all opportunities to pump the company's stock.
Close to the Vest
paid a visit to Infosys and two other tech firms in Bangalore on Sunday. But Nilekani, who wasn't present at the weekend meeting, didn't have much to report after talking with the home office. "I think he's just trying to get a sense of what's happening in India," Nilekani says.
Nilekani also avoided commenting on a report issued by
Credit Suisse First Boston
last month which, while not exactly justifying the firm's share price, sought at least to itemize some of the assumptions behind the firm's valuation. Among those assumptions for the next decade: Head count will jump to 53,000 from 5,000; annual revenue will rise from $200 million to $9 billion; and productivity will rise from $60,000 to $200,000 per worker-year.
U.S. companies, while loath to make predictions about their financial performance, often are happy to comment on sell-side analysts' numbers -- usually saying they're "comfortable with analysts' estimates." But not Nilekani. Are CSFB's assumptions reasonable? "I really can't comment on something which is so forward-looking," he says.
And that's just a set of assumptions based on the price of the company's Indian shares, which are up nearly 8% from when that report was issued. As
reported last month, U.S. investors are valuing Infosys far more richly than their Indian counterparts: The U.S. capitalization was about $39.3 billion on Monday, compared with $16.3 billion in India. But Nilekani demurs when asked for rational reasons for the price differential -- or even irrational ones. "Sorry," he says. "I'm no expert on the markets."
What Nilekani will say is that one of the Bangalore-based company's clear advantages over U.S. IT consulting firms -- labor costs for skilled employees -- is on its way to narrowing, though he doesn't believe that poses a problem for the firm.
Salaries in India are growing 25% to 30% annually, Nilekani says, but he adds that cost is no longer the main selling point for the company. Rather, it is the value that Infosys offers its customers, and the speed at which it works, he says.
As the company competes on a global basis, Nilekani isn't shy about discussing what he terms India's particular strengths. One of those is what Nilekani calls "a very strong education bias" that focuses people's analytical skills. Sitting in with Nilekani, Phaneesh Murthy, head of sales and marketing for Infosys, refers to an Indian-bred ability to survive in chaos.
It's also probably useful to be in a country where age-discrimination suits don't pop up as often as they do in the U.S. The
reported in February that the company has banned employees over 35 from addressing its annual brainstorming conference.
That story was "slightly exaggerated," Nilekani says. The truth is, he says, that about two dozen employees below the age of 30 were asked to go off by themselves and prepare a presentation for the strategy conference. What they came up with, he says, were proposals to develop application service providers, as well as to incubate companies within the company.
Infosys already was doing the incubation, Nilekani says; so far, the company has announced
, a service that notifies users when anything of interest to them changes on the Web, and
, an e-commerce fulfillment-system developer that presented at the
conference last week.
"We find that young people are very savvy," Nilekani says. The trick is to complement young people's skills, he says, with those of "old guys like us."