Question-and-Answer Session
Unidentified Participant
What’s your longer term operating margin target percentage-wise?
Vikram Gulati
I think from an operating margin --
Joe Lambert
Please repeat the question for the --
Vikram Gulati
Sure. The question is, what is your longer term operating margin target? I think we want to be more and more in line with where the larger players are from an operating margin. And I think we get into the mid-teens, we would be -- we would think that is a good place to be in from an operating margin perspective. Last year, we closed at about 9% and we have to improve that to the mid-teens, as we go into the year.
Clearly ’09 has been a reset in some ways because of revenues. And I think what we have done is we have cleaned up our act [ph] more. There was a financial turnaround till ’08. What ’09 helped us do in a way is to go and question those things that we had not questioned until ’08. And -- you know, things like utilization, things like G&A, we were able to push those things harder. And as the uptick comes back into the market from an entire IT services perspective, we think it will be easier for us to deliver that operating margin that would have been if it had not been for the downturn. Yes, sir.
Unidentified Participant
Hi, yes. (inaudible).
Vikram Gulati
What is the margin -- so the question here is, what is the margin difference between the onshore and offshore delivery model? I will give you the margin numbers at a gross margin level, which is typically what is important. Offshore delivery gives you margins anywhere between 50% and 60% from a gross margin perspective. Onsite margins will be between 25% and 35%. So, on a combined basis, you come back with a 42%, 43%, and then you back away the utilization, which affects both onsite and offshore to give you a 33%, 34% net gross margin.
Unidentified Participant
(inaudible) your long-term operating margin. You said that mid-teens, but does that fall (inaudible)?
Vikram Gulati
I think there is -- the question is that your operating margins are still -- even at the mid-teens will be significantly lower than some of the bigger boys, and that’s absolutely right. The bigger guys, like Wipro, Infosys, have been delivering operating margins in the mid-20s for many, many quarters. I think it’s a question of size. I think you will find that the G&A that we have will be constant for a foreseeable time to come. So, as the revenues improve, there is more money dropped into the bottom line than it would be [ph] for the larger companies. Yes.
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