The $60 million staggered payment translates to Infosys improving its current growth by at least 1% each in the December and March quarters
Bengaluru: Infosys Ltd can expect about $60 million (Rs.400 crore) in incremental revenue over the third and fourth quarters as part of the Rs.1,380 crore Goods Services and Tax Network (GSTN) project, as the Bengaluru-based company readies to buy and install the hardware required for the project.
This new or incremental business should cheer Infosys as the company’s revised lower growth target for this year has been put to test after the management disclosed earlier this month that it had lost a large order from Royal Bank of Scotland Plc.
Significantly, this $60 million staggered payment translates to Infosys improving its current growth by at least 1% each in the December and March quarters, thereby offsetting slowdown blues in the torrid second-half of the year.
Traditionally, starting October, Fortune 1000 clients of India’s $150 billion outsourcing sector defer their technology spending on account of holidays, leaving home-grown technology companies with anaemic incremental growth. Last year, Infosys reported 0.6% and 1.6% dollar revenue growth in the third and fourth quarter, respectively, even as the company posted industry-leading 9.1% growth to end the year with $9.5 billion in revenue.
Under the ongoing GSTN project, Infosys has started importing hardware, including servers and network equipment devices, payment for which will be made by GSTN starting October, according to a senior GSTN official. “The payments (Rs.400 crore) will be based on various milestones set as per the agreement,” Navin Kumar, chairman of GSTN, told Mint. “Payment for the hardware will be done between October and March depending on how the work progresses” Prime Minister Narendra Modi’s government has decided to implement GST for the entire country from 1 April 2017. GST will dismantle inter-state barriers to trade in goods and services, subsuming a slew of existing levies, and will create a common market of 1.25 billion people.
The centre awarded Infosys the five-year GSTN project in September last year, and over the last year, Infosys has already been paid close to Rs.150 crore for software-related work, according to a company executive. Kumar declined to comment on the payments made to Infosys over the last year but said that the government asked Infosys to start work on the hardware a day after the Rajya Sabha passed the Constitutional Amendment Bill for GST on 3 August.
“This equipment (hardware) has to be imported, then installed and tested and then the software will be put on that. We are hoping this will happen by December and by February we will have the beta version. One should buy hardware only when needed. If we had bought it earlier, its life would have come down by one year,” said Kumar.
For now, it is not clear if Infosys factored in this payment of $60 million from the GSTN project when the management first gave its annual growth outlook, expecting a dollar revenue growth of at-best 13.8%, in April. Infosys revised this sharply to at-best 12.3% last month, after the company reported a poor 2.2% sequential dollar revenue growth in the April-June period.
Infosys declined to disclose details, including the money it has been paid, and it expects to be made in the coming months.
“Infosys is excited to be a part of the GST journey. We are working with GSTN and other government agencies towards implementing the system in a timely manner. We are in the development stage of the system,” said a company’s spokeswoman. The current GSTN project is unlike most technology contracts won by companies in the past.
Historically, an IT vendor completes a project won from the government under the build-own-operate-transfer (BOOT) mode, which required a technology vendor to spend money to buy and install the hardware and earn it back through user charges over the life of the contract.
Infosys maintains the website of the ministry of company affairs under the BOOT model.
For the current GST Network project, around Rs.400 crore for hardware costs and Rs.150 crore for software-development related costs have been earmarked. The remaining Rs.800-odd crore will be paid to Infosys by the government over five years for operations.
Considering the complexity of the GST project (which will be used by over 6.5 million small businessmen), Infosys is in the middle of completing what the management claims is the largest open source technology platform to help complete tax returns in a secure manner.
Infosys’s head of architecture and technology, Navin Budhiraja (who is also a former SAP colleague of chief executive officer Vishal Sikka) is already doing once-a-week reviews of the software development done by a team of close to 250 engineers. A dozen of these engineers of this team have been hired by Infosys from the country’s top engineering schools, including the Indian Institutes of Technology (IITs) and National Institutes of Technology (NITs), under its Expert Track programme, according to an executive familiar with the development who spoke on condition of anonymity.