INFOTECH ENTERPRISES LIMITED

Analyst/Investor Conference Call October 18, 2006

Moderator: Good afternoon Ladies and Gentlemen. I am Triveni, moderator for this conference. Welcome

to the Infotech Enterprises conference call hosted by Edelweiss. For the duration of the presentation, all

participants’ lines will be in the listen-only mode. I will be standing by for the question and answer

session. I would like to hand over to you Mr. Hitesh Zaveri of Edelweiss. Thank you and over to you Sir.

Hitesh Zaveri: Hello and good afternoon to you all. I welcome you to the second quarter earnings call for

financial year 2007 of Infotech Enterprises. Today, we have with us Mr. BVR Mohan Reddy, Chairman

and Managing Director; Mr. AV Ram Mohan, President of Geospatial Solution Division or GSD vertical;

Mr. Rajeev Lal, President of Engineering, Manufacturing, and Industrial vertical or EMI vertical; Mr. Nataraja, Senior Vice President - Finance & Accounts, and Mr. Surya Kiran from the IR team. The

management team will be dis cussing with us the company’s performance for the quarter end of September

2006, following which we will have a Q&A session for the participants. I would now request Mr. Nataraja

to initiate the proceedings. Over to you Mr. Nataraja.

Nataraja: Good evening Ladies and Gentlemen. Welcome to Infotech Enterprises’ second quarter results

conference call. This is Nataraja, Senior Vice President, Finance & Accounts. Present with me on this call

is our Chairman and Managing Director, Mr. BVR Mohan Reddy; President of our verticals —Mr. AV Ram

Mohan, President GSD; Mr. Rajeev Lal, President EMI.

Before we begin, I would like to mention that some of the statements made in today’s discussion may be

forward looking in nature and may involve risks and uncertainty. A detailed statement in this regard is

available in our investor update, which has been emailed to you and is also posted on our corporate

website. I now invite Mr. BVR Mohan Reddy to provide a brief overview of the company’s performance

for the quarter ended September 30, 2006.

BVR Mohan Reddy: Thank you Nataraja. This is Mohan Reddy, the Chairman and CEO of Infotech

Enterprises. Good evening everybody and thank you for joining us on this call today. First, I would like to

share my perspective on the second quarter results and later my management team and I would be happy, as

usual, to answer your questions.

During the quarter, Infotech reported net revenues of INR 131.3 cr, which is a sequential growth of 12.2%

over the last quarter’s revenue of INR 117 cr This means that we grew from INR 117 cr in Q1 to INR 131.3

cr for Q2. The revenue growth is attributable to significant ramp up in several existing customers and this is

reflected in the number of million dollar clients per quarter going up to eight, as against five in the last

quarter. We now have eight million dollar per quarter clients, against five in the last quarter. We also

observe that some of the clients have ramped up significantly during the past three quarters and one of them

made it to the top 10. We could ramp up a customer into a million dollar quarter account in just three

quarters. This truly reflects the potential of the company to delight the client in the engineering services

space and ramp up in a short period of three quarters.

Salary and other related costs were higher by 9% sequentially, as we added 778 employees (at a gross level) during the quarter. The net addition of course was 460, which effectively means that we lost about

318 people during the quarter. Still, I guess, the attrition levels are definitely below the industry standard.

We also had salary revisions at our Noida facility and also for the senior management team. These were all

absorbed in the Q2 financials. Travel expenses were higher as visits to customer locations were higher.

Also, associated business promotion expenses, given the number of client visits we have, have also gone

up. Other operating and administrative expenses were higher by 18%, as we participated in several

conferences across the globe. We were at the Farnborough Aero Show in UK, at the InnoTrans in Berlin,

and at AIG in London. We had booths at several well-known conferences and many of our associates were

traveling, as a result the administrative expenses went up. We also rented space in Hyderabad as opposed to

our own facilities, which we have in Madhapur. We have now about 40,000 sq. feet of area in the third

tower, which is next door to us. Fortunately, we found it available and we went ahead and rented it. People

have already started moving into it. We did a similar thing at our Bangalore facility.

The most gratifying fact from the results is that the operating margin improved by 290bps to 21.6%, against 18.7% in the previous quarter. We, however, believe that the margins will stabilize in the range of 18.5-

20.5%, as we have been indicating for several quarters in the past.

We have incurred capital expenditure to the extent of INR 19 cr during the past six months, i.e., first two

quarters of this current financial year, which has resulted in depreciation cost being higher. Foreign

exchange fluctuations resulted in other income having a negative impact on receivables. The European

subsidiary has written off all its past losses and hence, has provided tax, which resulted in increase in

taxation component. We believe that tax as a percentage of PBT will be maintained around 21-22%. The

share of profits from our joint venture, which is called Infotech Aerospace Services Incorporated (IASI)

based in Isabelle in Puerto Rico, were higher than anticipated. IASI opened a new facility during the

quarter and expects to hire another 100 people going forward. The PAT was higher by 2.6% sequentially.

We crossed the milestone of INR 20 cr profit in one single quarter, but you also need to look at this PAT in

the light of not having a big other income for the current quarter. While in the last quarter we had

something close to INR 4.2 cr as other income, this quarter it was as low as INR 50 lakhs. In spite of that,

we still had a PAT growth of 2.6%. While both European subsidiaries, i.e., engineering services based out of Stuttgart, which is called Infotech Enterprises GmbH and also Infotech Enterprises Europe for our GIS

services based out of London reported significant growth.

We continue to face challenges in our North American geospatial division. We have taken several steps

during the quarter. The head of operations is also here today with us. He did make a presentation on the

turn around strategy to the board of directors. We certainly believe that the results will improve in the

coming quarters.

On other issues, we strengthened our leadership bandwidth with induction of several senior people from the

industry to address the growing market potential. With the engineering outsourcing business anticipated to

grow, we foresee a huge potential in the areas we address. We scaled up and strengthened engineering

services during the quarter, which highlighted our ability to service demands of this particular market. This,

by and large, concludes the remarks this evening and we will now be happy to answer your questions.

Moderator: Thank you very much Sir. We will now begin the Q&A interactive session. Participants who

wish to ask questions, please press *1 on your telephone keypads. On pressing *1, participants will get a

chance to present their questions on first-in-line basis. Participants are requested to use only handsets while

asking a question. To ask a question please press *1 now.

The first question comes from Ms. Diviya Nagarajan of Motilal Oswal Securities.

Diviya Nagarajan: Hi. Congrats on a good set of numbers. My question is with respect to individual

growth within GIS and engineering services. While engineering services has performed really well during

the quarter, UTG continues to be, you know, slower. What has been the reason for the same? I understand

that North America is not doing very well. Could you throw some light on the same?

BVR Mohan Reddy: Yes. You have got it right. The key challenge we had was growth in North America.

We actually continue to have challenges with our geospatial business in North America. Last quarter, our

revenue was INR 48.3 cr, whereas the current quarter has moved to INR 49.8 cr, which effectively says there is about 3% growth in that particular market space. Two things will happen as we move forward. One

is that certainly we are working very intensely with the leadership team in our Sterling office, which is the

headquarter of our geospatial business, on a turnaround strategy. They are all working very intensely on it.

So I am hopeful that it will turnaround, which effectively would see growth for this particular vertical. The

second reason that makes me feel very confident is the pipeline that we have. We have bid on several large

contracts in the UTG space even in North America. Some of these decisions are to happen in the current

quarter and next quarter. So, we are very optimistic that once these decisions happen we will definitely see

a major turnaround in the operations of our Sterling office.

Diviya Nagarajan: Right. If you split your growth into how much has come from volume growth and from

rupee and pricing, how would that look?

BVR Mohan Reddy: Compared to the previous quarter most of our growth came because of volume. It is

largely from existing customers that we have seen traction from. There has been very marginal difference

in terms of foreign exchange or whatever price increases that we got. I believe two of our large customers gave us price increases in Q1, only one gave it to us in Q2, and that too it came in force from August 15, as

a result it was not something substantial. A large amount of our growth is because of the volume growth

that we saw with our existing customers.

Diviya Nagarajan: Right. What kind of pricing trends are you seeing in both these verticals, both in terms

of new contracts and renewal of existing contracts? What are the kinds of upsides you are seeing in

pricing?

BVR Mohan Reddy: Well, we have seen very positive trends. Our customers understand that we are

creating value for them. So, whenever we have gone back with reasonable numbers in terms of price increases, at logical points of time, they have certainly understood the reasons for it and they have been

very positive in terms of giving us an increase. But the key, as I said earlier, is value creation. What we feel

very good about is that we feel confident that we are in a position to create value for our customers and as a

result we are in a position to get higher prices or price increases from our existing customers. Now getting

to the new customers, certainly I guess it varies from geography to geography and depends upon the

competing environment. But on the whole, we think prices are very stable in GIS as well as engineering

services on the whole.

Diviya Nagarajan: Okay. You spoke about a INR 30 mn plus profit contribution from IASI Puerto Rico. Is

there any one-time element in it like we had in the past or is it all coming down from organic growth?

BVR Mohan Reddy: It is purely coming from organic growth. We had actually forewarned people that

what we saw as profitability in Q4 of last year or Q1 of the current year, they did have an aberration. Last

year Q4 had an aberration on account of one time grant that came from the government of Puerto Rico, whereas last quarter there were some normalizations that were done in terms of time overruns that the

facility had and the customer was kind enough in granting those overruns. But, I think, the current quarters

are a good reflection of the work that is being done and organically coming to us as opposed to any one-

time effect.

Diviya Nagarajan: What has been the utilization rates during the quarter in GSD and EMI?

BVR Mohan Reddy: The utilization levels, I believe, in our GSD was about 73% and in EMI about 78%.

Diviya Nagarajan: You spoke about salary hikes for Noida and senior management. What kind of impact

would that have on margins? If you could just quantify?

BVR Mohan Reddy: Very small. May be it is about 1% or probably a little less than 1%.

Diviya Nagarajan: Thank you so much and all the best.

BVR Mohan Reddy: Thank you.

Moderator: Thank you very much madam. The next question comes from Mr. Rajiv Mehta of India

Infoline.

Rajiv Mehta: Good evening Sir and many congrats on a strong set of operation numbers in the quarter.

My question pertains to margin. We are well above our valid range in the current quarter in Q2 at 21.6 and

with salary hikes you know behind that, then what makes us feel that we will be in the guarded tender

within that 20.5%. Because my feeling is that we should be a little bit above that in the frontier.

BVR Mohan Reddy: The reason why I am very guarded about the margins is that there is tremendous

amount of opportunity and potential in the engineering services market space. We will continue to make

investments for growth in future. This growth, in future, will just not come by adding one or two sales

people, but there would be lots of initiatives that are already on the run in the company. As a result of that

there could be certain amount of cost that we will incur and that might probably make sure that we still go

back to our guided number, which at the highest was a 20.5%.

Rajiv Mehta: Okay. And Sir, one data point that you can give us the forex loss in the quarter in Q2 and

what was gain in Q1, exact amount.

BVR Mohan Reddy: The foreign exchange fluctuation gain in Q1 was INR 3.91 cr., Whereas, the loss in

Q2 was INR 10 lakhs. The other income on account of others was INR 38 lakhs in Q1 and it was INR 53

lakhs in Q2.

Rajiv Mehta: There has been strong ramp up in clients from top 6 to top 10 in the current quarter. It has far

outstretched the company’s growth. So what is the visibility over there going ahead and do we feel that

they will continue to grow at a higher pace in the comp any?

BVR Mohan Reddy: Well, we do not feel that they will grow at a higher pace. We certainly believe that

they will grow at the pace with which they are growing at this juncture. So, we will continue to pose

growth in a very similar manner as what we have done so far in the last two quarters.

Rajiv Mehta: And more or less it is going ahead in the coming quarter, we should be directed and guided

by the top ten clients, the growth in them.

BVR Mohan Reddy: Not necessarily, we are also working with great amount of intensity with some

customers who are much smaller and not in the top 10, but can make it to the top 10. Certainly, a mix of

them will make sure that we will continue to pose the growth we are anticipating.

Rajiv Mehta: Okay. And Sir, if you can throw some light on the new ventures you just entered into like in

marine, automotives, and a couple of other sectors. So, how has the progress been over there?

BVR Mohan Reddy: Well, we only said so far we have entered into marine. Progress has been very

satisfactory. We have unearthed some good prospects. We have pilot engagements, which are on at this

juncture and hopefully once the pilot engagements are successful, we will see more amount of traction

coming from them. The other initiative we are on is not in automotive but on P&ID, process and

instrumentation and on that growth has been very subdued. We have been doing a little bit of work in two

dimension, 2D as it is called. But in the recent past, we have seen more enquiries coming from 3D, which

requires a large amount of investment. We are making those investments at this point of time and hopefully

some time later this quarter or early next quarter, we will see some traction from the P&ID market space.

Rajiv Mehta: Sir, did we have some significant benefit at the operating margin level from the foreign

exchange movement or could you just give us the quantum of the positive change from foreign exchange

movement in the quarter.

BVR Mohan Reddy: At the operating level, we do not put foreign exc hange gain or loss above operating

margins. It is only after the operating margins they come in.

Rajiv Mehta: Okay, and sir, lastly attrition. Attrition for the quarter as well as for the previous quarter?

BVR Mohan Reddy: Previous quarter, I believe it was 14% i.e., 3.5% per quarter. In the current quarter it

was more at 2.67% is what I was told. That will get back to 10.68% or 11%, which is outstanding by every

standard.

Rajiv Mehta: Okay. Thanks a lot sir and best of luck.

BVR Mohan Reddy: Thank you.

Moderator: Thank you very much sir. We have next Ms. Priya Rohira of ENAM Securities.

Priya Rohira: Hi. Congratulations to the management on a good set of numbers. My first question relates

to that in the current quarter you had participated at various forums and industry events. If you could give

some feel in terms of the business pipeline or even in terms of the inward response which has got generated

from these events. One, with respect to the existing service offerings which you already offer and second,

with respect to the inventory which you plan to build up in terms of new service offerings.

BVR Mohan Reddy: I do not know if I can answer this one. If you are saying give me the name of your

probable clients, I may not be in a position to do that.

Priya Rohira: No. I am looking at a more qualitative direction because engineering services is a pretty wide space and you definitely are one of the key players in this space. What I am looking at is if you have a

set of offerings say from A to D or E, where as the set of offerings is from say A to G, H. You did mention

that you are planning to look at some more investments in the existing services plus new services pipeline

which you are looking at rather.

BVR Mohan Reddy: Well, I mentioned earlier that one of the exhibitions we participated in the last

quarter was the Farnborough Air Show, which is very specific to the aerospace domain. The second one

that we participated in is InnoTrans, which is the equivalent of Farnborough Air Show, for rail show. As

somebody was joking, they can sell you from platforms to the fastest trains in this show that is what they do

at InnoTrans. And the third exhibition that we participated in was a show called AGI, which is a GIS show

out of London. But, by a strange coincidence or it reflects something, all the three shows were Europe-centric; Aerospace Show Farnborough was in the UK, Innotrans was in Germany, and AIG was also in the

UK. Certainly, in these three areas we are very strong and we certainly projected a stronger service offering

that we have from the company and as we move forward we will constantly look for not only positioning

and capitalizing on the existing service offerings, capitalization because you already have created traction

with our customers in the existing service offerings, but we are also slowly but steadily discovering newer

ones. As we get more experience, we understand the customer requirement as we get deeper domain

knowledge and move closer to the customer. So, as a result, certainly there are new service offerings and

the existing service offerings, which were demonstrated at these three shows and from the leads that got

generated, we feel very positive about that.

Priya Rohira: Okay. Thanks very much for this. My second question is with respect to the expected share

of IASI. You mentioned last time that you were looking at roughly around INR 80 mn, whereas in the first

half itself we are at around INR 64 mn odd. So, going with the trend, if you could give one in terms of what

is the existing employee base this quarter for 100 additions and how you feel is the business lifeline going forward?

BVR Mohan Reddy: They have not given us anything more than that number called 100 people as an

addition. So, I may not be in a position to comment anything more than that. As I had said in Q1 of this

financial year, we did about INR 3.35 cr profit and we said there was an aberration. Without an aberration

we did about INR 3 cr in the current quarter. Moving forward, it will probably grow from the current

number of INR 3 cr.

Priya Rohira: Sure, that helps a lot. Third question relates to the challenges you mentioned while you were

working in the North American geospatial division. If you could just highlight on what are the challenges

that you are facing over there?

BVR Mohan Reddy: This was a company that we acquired two years back. There is no denying the fact

that it is a GIS Company, but is more focused on local government and as a result they were selling more

amount of photogrammetry services. Now, typically in a photogrammetry service what happens is that you also have several areas which you do not have complete control or specialization in, which includes things

like flying, having the right type of camera on it, or certain amount of field services and so on and so forth.

As a result, what was happening is, they are government customers who like in any other part of the world

are very sticky, fussy, they can tender re-tender, they have all the time in the world.

The second challenge was that a substantial part of the projects that we were winning had to be

subcontracted. That is how you could have recognized that we also have a lot of purchases that occur and

this quarter we saw lower amount of purchases because we certainly did lesser amount of revenue from our

American operation. Now, we believe that this is not completely in line with the business model we have

for the company. What we have as the business model for the company is primarily we are a company

which specializes in offshore outsourcing, but with a global delivery model. It can definitely be anywhere

in the world, a small component can also be onshore. Whereas the model that probably continues to prevail

in our Sterling office is more of subcontracting it out to local vendors. As a result, you do not have control on many of these costs, more importantly your margins are under considerable amount of pressure. What

we are doing now is to transform this business and as we said earlier too, it is not that I am trying to do this

overnight. It will not happen today, it is not an initiative that we have started this morning, it has been

happening for the last four quarters. In terms of the gentleman who actually runs the sales and marketing,

he came from the equity industry sales background. He has been around with us for almost a year now.

Certainly we hope the turnaround is going to be possible only now, because we see lots of big bids that we

are in and hopefully some of them will materialize this quarter and next quarter with that the business

transformation would occur to our Sterling operation.

Priya Rohira: Sure. Thanks very much to the very detailed explanation. My last question relates to the

margin and pricing scenario which you get in the US and Europe geography per se. Is it fair to assume like

what some of the players have opted to say, Europe market typically has better pricing than the US?

BVR Mohan Reddy: I tend to agree with that statement. Certainly, I guess European prices are higher compared to US prices. But you have also to reckon with the fact that European costs are higher compared

to US costs. Then you will get back to margin. I would still say that margins would certainly be higher in

Europe compared to what happens in the US.

Priya Rohira: Sure. Thanks very much and wish you all the best.

BVR Mohan Reddy: Thank you.

Moderator: The next question comes from Jyoti Roy from HDFC Bank.

Jyoti Roy: Hello Sir. My question is, in the last quarter you had talked about certain acquisitions. So,

where do you see, I mean, are you in a position to disclose anything at this point of time or is it still in

progress?

BVR Mohan Reddy: I have always said that mergers and acquisitions are part of a growth strategy of the company. We work on a few things. So, as we speak, we are also working on something, but nothing that I

can say that will happen tomorrow or in the next few weeks or within the next quarter. All these have to go

through some amount of research, thereafter, due diligence before we close on a transaction. I am sure all

of you are familiar with that. As a result, certainly yes, we constantly look at candidates, but we do not

have anything on the table at this point of time to say something will happen tomorrow.

Jyoti Roy: Okay sir. Now coming back to your capex plan, No. 1, you are doing capex at your new campus

at Hyderabad, so that would be housing 1,500 employees, and another one which you have started in

Bangalore. So the total capex plan is INR 64 cr, it includes both the campuses or it just includes

Hyderabad?

BVR Mohan Reddy: It only includes Hyderabad at this point of time. For Hyderabad, we set for 1,500 people. We need to build a facility which is 1,50,000 sq ft. Actually construction is in progress. We should

move into that facility by April 2007, and for Bangalore we have just called for a tender. Once the tenders

are there, then they will get integrated into our capex plan.

Jyoti Roy: So, when do you actually see the capex program starting off for your Bangalore campus? I

mean, what is the tentative date?

BVR Mohan Reddy: We have everything ready. Why we did not put that together is because we still have

some questions about this SEZ. So that is the reason why we have still not pulled the trigger. There are

some debates that are going on within the company and as a result, I may not be in a position to say exactly

how much is the capex or when will I implement it. I have all the plans ready. I have two acres of land

available in Bangalore Electronic City. There are a few things that we need to still look at before we finally

pull the trigger.

Jyoti Roy: Like what would be the seating capacity for the Bangalore campus?

BVR Mohan Reddy: The number that we saw was 70,000 sq ft or 700 people at its peak. Currently, we

have about 350 people there. So, it is not to be for the current requirement, but we are also looking for

future expansion.

Jyoti Roy: Sir, and one trend which we have been seeing. I mean, even if you leave aside the aberrations of

the last two quarters, you know projects not ramping up in the UTG vertical. I mean, engineering services

as a percentage of revenues has been increasing ever since Q3 of last year. So, where do you see this going

forward? Do you see engineering services dominating or do you see the ratio to improve somewhat in

favor of GIS services.

BVR Mohan Reddy: I believe, if you say 40-60, 60 as a dominant player compared to 40, the answer is

yes. But if you say, 40-60 is almost you know they are there together. I think it will stabilize somewhere

around that number. At least for next one or two years, we think that will be the number that we look forward to.

Jyoti Roy: Okay, okay. Yes, I just wanted to know like last quarter you said, you had added some marquee

clients in your EMI vertical and even this quarter also would it be safe to assume that you have had some

big additions in your EMI vertical. So, how do you see the new clients for ramping up over a period of

time?

BVR Mohan Reddy: We gave just one example which is a good reflection of the capability of this

company. We could ramp the client to a million dollars a quarter. In three quarters we did it. So, therefore,

if you have the right client, we do have now the ability to ramp him up to a million dollars in three quarters.

Probably moving forward, we could do it in an even shorter time frame. So, the clients are there, we now

have the processes in place, we need to make sure that we can get those purchase orders to ensure that we

ramp up.

Jyoti Roy: Okay. Sir a couple of final questions like just one you have recently launched a joint venture

with IBM on the PLM site. If you could just throw some light, I mean, as to what kind of work you would

be doing, what would be the verticals you would be catering to, and so on and so forth.

BVR Mohan Reddy: It is not a joint venture, first of all let me correct that. It is a partnership agreement

we have with IBM and this is for both PLM as well as engineering services on a global basis. The first

vertical we have identified is aerospace. We will work together in getting to the clients in this particular

vertical and IBM will provide them all the required consulting services and we will provide all the

engineering services. So, anything to do with design, modeling, FEA, FEM, will all be back-ended by us,

whereas IBM will provide them the front-ending consulting support. We have identified three customers: I

believe one from us, two from IBM, where we are now going and making a joint presentation as a

combined partnership agreement. That is what I can share with you today.

Jyoti Roy: Okay sir. If we look at the client concentration as of now, probably going forward how do you

see it moving because the UTC companies would probably be contributing a significant portion of your

revenues and from whatever press releases that have come up it seems that those accounts would keep on

growing at pretty fast rate. So, do you see contribution from the UTC company increasing or do you think

other accounts would also be ramping up and you know sort of keeping the contribution stable?

BVR Mohan Reddy: Well, UTC accounts will ramp up. That is the fact of life because of two reasons,

they have a good reason to use more of outsourcing, and second they have enormous amount of confidence

in this company. Mr. Louis Chenevert, who is the CEO designate President and Chief Operating Officer,

came to Infotech in the last two months and assured and reassured us that business traction will happen. So,

therefore, UTC growth is a reality at this point of time. But having said that other clients are also growing

at this juncture. If you look at client concentration, it is very stable at the top five. They are roughly around

52% for the last two consecutive quarters. If you look at top 10, actually that is a good sign, because the top

ten has grown to 69% from 66.5% the previous quarter. So the result is that I guess one theory says there is

no harm in terms of having ten customers who are very strong as opposed to having 100 customers who are weak. So, therefore, I think we are doing a very well thought out strategy by which we are consistently

growing just not one customer which is UTC, but we will continue to grow all the top ten customers for

sure.

Jyoti Roy: And going forward do you see any of the customers who are not in the top ten probably moving

into your top ten customers in the near future?

BVR Mohan Reddy: I believe yes. The answer is there are two potential people and may be in two

quarters if the size of the company is any reflection, they should overtake everybody and anybody.

Jyoti Roy: Okay, okay. Thank you, thanks a lot sir.

Moderator: Thank you very much sir. Participants are requested to limit to one question. We have next Mr. Ruchit Mehta from HSBC.

Ruchit Mehta: Hi, good evening sir. Congratulations on the great results. In a sense what we understand,

while GSD is going to take some time to scale up but do you think that it will be stable for the next two

quarters or so and then one can expect a great decent enough number with fiscal 08?

BVR Mohan Reddy: I think I guess I am still very optimistic. It will grow in the next two quarters also,

but there are a couple of large deals which we are waiting to see this quarter and next quarter that will

reflect whether the growth would happen even now, but otherwise for sure 2007-08 looks very positive to

us.

Ruchit Mehta: So, in a sense, even if the last deal say got delayed or you know when forced to do it or

happens, the business would still be stable. The business would lead to a loss of revenues if that happens

per se?

BVR Mohan Reddy: No, no. I do not think. That is absolutely no. Nothing will happen to the business.

We do not see any de growth in the business. If at all we see, we will see a positive growth.

Ruchit Mehta: Okay. Then, how do we see that half of the year is already over and probably the rest of the

year is quite visible to in terms of what can happen in the second half. Quite obviously, we are growing at a

45-50% growth rate for 2007. Would you expect that something may be probably not 50% plus but

something similar can actually happen again in fiscal 2008.

BVR Mohan Reddy: The momentum will continue for sure and we have been saying that we are growing

at about, say last quarter was 9%, this quarter was 12%, quarter-on-quarter. We will probably be in the

same zone in terms of growth from quarter to quarter, and you could then do the rest of the math thereafter

to say where we are and next financial year too we see a very similar positive traction. We are expecting

because of the pipeline that I have with me.

Ruchit Mehta: Okay. So it is basically based upon whatever existing orders you have on hand?

BVR Mohan Reddy: See, there are two things that we always look for. In our engineering business, we

have several annuity contracts that are there, which effectively means that they cannot be just for one

project, they continue for years and years together. And, the second one is the pipeline that we have. A big

difference of course between engineering and GIS is, in GIS we do not have many annuities except for one

which is our largest customer which is Tele Atlas. The rest of them have to be on a bit-to-bit business,

though some of the contracts could be very large contracts. An example is Swisscom Fixnet which we

announced, I think, two quarters backward, Euro 13.5 mn contract that we have which will run into about

3-1/2 years now. There will be some of them. So, it is a mix of all of them which we project back to you

saying that you know, the annuities as well as the pipeline is strong. As a result, we will continue to grow

at the pace of which we are growing.

Ruchit Mehta: Okay sir then, do you expect that some sort of leverage will come about again in the SG&A

effort whereby you should be able to export margins beyond the 20% range? Logically, one would expect

margins to expand during the pace at which you are growing. Yes, quite obviously you want to invest more

into SG&A to sum up growth of energy and further, but there will be some efficiency gains coming around.

BVR Mohan Reddy: Yes, there will certainly be some efficiency gains, but we are also in a fairly strong

growth mode at this point of time. I am just trying to make investments in new service offerings, new

verticals as we discovered. And we also have very high intensity of moving up the value chain. We want to

get more domain knowledge into place. That is where we can definitely bring about a distinctively

different edge compared to our competition. So, all this would mean that there are investments being done

and that is the reason why I am, as I said, earlier willing to say I am willing to operate within this 18.5-

20.5% given that we have already achieved 21.6% or so, we will probably continue to be on the high 20.5%

or so, not saying that it will be any different from that.

Ruchit Mehta: Okay. If you could just let us know what is the kind of hiring done for the rest of the year

and the capex for fiscal 2007.

BVR Mohan Reddy: Fiscal 2007, the capex as has been approved by the board is INR 64 cr which

primarily takes care of our investments in Hyderabad, building a 150,000 sq ft facility, housing 1,500

people, the associated hardware and software for them. In terms of the total number of people that will be

hired during the current financial year is 1,400, out of which we have had about 460 last quarter. The

previous quarter was about a 100 that we did the first quarter, 460 which is the second quarter. We still

think that we will probably hire between 800 and 900, and this quarter I believe the hiring plan is between

400 and 500.

Ruchit Mehta: Okay. Sir, of this 460, is it possible to get a split between the number of freshers and the

number of lateral hire.

BVR Mohan Reddy: I believe 80% of them are freshers, 20% of them are lateral hires.

Ruchit Mehta: Sir, any problem on the hiring front? I mean, obviously, there is a great demand for

engineers, but specifically, on the engineering direct services front, you know engineers with background

of various industries either in the automotive or the aerospace front, is there a very difficult environment in

terms of hiring people and is that leading to greater than average salary cost?

BVR Mohan Reddy: No. I honestly do not feel that it is not very difficult, but it is not very easy either,

because you know, it is especially in the domains that we operate, domain knowledge becomes very

important. There is nothing called huge pool that is available. So, we need to be very careful in terms of

hiring the right people, selecting the right people, and as a result certainly I think it is not very easy to say I

can add 100 aerospace structure engineers tomorrow. Certainly, it is not impossible, but you know, you can

always do it at a pace which is 20, 30, 40 every month, that is still possible.

Ruchit Mehta: Okay, sir. Wish you all the best, thanks.

Moderator: Thank you very much sir. We have next Mr. Shekhar Singh from ICICI Securities.

Shekhar Singh: Hello, sir. Congratulations on very good set of numbers.

BVR Mohan Reddy: Thank you Shekhar.

Shekhar Singh: Sir, I just wanted to, if you can give in detail, what are the factors which led to the margin

improvement during the quarter, the various factors, that will be very helpful.

BVR Mohan Reddy: Yeah. The margin growth of 1.3% came on account of salaries. Our salary cost was

down from 48.6% to 47.3%, and 2.1% came because of decrease in purchases. The purchases were down from 13.3% to 11.2%. There was of course a 0.6% higher administrative cost. The administrative cost went up

from 10.5% to 11.1%. So, therefore, the net impact was moving from 18.7 to 21.6, which effectively is about

2.9%. That is the break up.

Shekhar Singh: Second, sir, in the aerospace vertical, when Boeing and Airbus actually started selling

those aircrafts, there was something like an offset business which was to be given. Are you seeing

something to that extent like the offset business actually starting to come to you or to other players in the

industry?

BVR Mohan Reddy: I guess, there is pressure on them. The first delivery for airbuses I believe started this

quarter. So, therefore, there is pressure on them, but again I do not know how familiar you are with the

offset. Offset has two components to it, one is called direct offset, the other is called indirect offset. Direct

offsets are which have to come from the same industry, indirect offsets can come from any different

business, it can be even commodity trading, is also called indirect offset. There is also a time period to

which we should fulfill the offset program. Indirect offsets have today, I think, on the airbus contract something like T+1, they call it delivery plus one year. So, you can always do commodities without a

problem. Whereas in case of direct offset it has to be from the aerospace business, it could be engineering

services, it could be product and so on and so forth. They are saying last delivery plus five years. Therefore,

the full impact is not being felt as we speak by not only us by anybody else. We are hoping that there will

be a big impact coming very soon.

Shekhar Singh: Perfect sir. Sir, last, I was just doing a very simple calculation on your Hyderabad facility.

Since you said INR 64 cr capex on 150,000 sq ft of facility, now the capex plus profit seems to be very

high actually. It is coming to almost like INR 4,000 per sq. ft.

BVR Mohan Reddy: But this is inclusive of plant and machinery too.

Shekhar Singh: This will basically include some sort of specialized equipment that will be used in the

delivery?

BVR Mohan Reddy: Absolute, 100%. There is actually INR 30 cr which is going for the building and the

next INR 30 cr is going for hardware and software both in new building as well as for our own expansion

here in the older office building. So, only INR 30 cr which is, I mean, I do not want you to get it wrong, it

is only INR 2,000 per sq ft.

Shekhar Singh: Yeah, exactly. This is what I was under the impression that it is around INR 2,000 sq ft.

Okay sir. Thanks a lot, sir. Thank you.

Moderator: Thank you very much sir. We have next Mr. Rahul Chadha from Mirae Asset.

Rahul Chadha : Congratulations sir on a good set of numbers.

BVR Mohan Reddy: Thank you.

Rahul Chadha: I just wanted to understand from you as to from where the growth in the engineering

segment is coming from? If you could walk us through the clients and the name these clients with different

entities. I just wanted to get more comfort on this.

BVR Mohan Reddy: Thank you for the question, but certainly I am not in a position to walk you through

the clients because the doors of the clients are closed. I cannot name my customers, I do have a major

challenge in that. I can only say it is coming from engineering services. We have been as transparent as we

could be in terms of what we can share with you. Beyond that client names cannot be shared.

Rahul Chadha: No, no. That is perfectly fine. What I was asking was within the client, is it multi

geography engagement? I mean, the different entities of the clients in different geographies. Is it increasing

the nature of engagement with the client? Just, without taking the names, if you could give us a qualitative dimension of the thing.

BVR Mohan Reddy: Well, I guess you know, we have different engagements with different clients. I

mean that it is a part of the business profile that we have. There are few clients of ours who have very

centrally located engineering design work which typically happens only from North America. So, we

probably have work coming out from one particular facility, though it could be a multi-billion dollar

company. There are also clients of ours where they are spread all around. We have a customer who signed a

contract with us, 11 of their senior managers are in this facility. They come from Seattle, they came from

France, they came from Netherlands, they came from Germany, they also came from Singapore, I believe.

So, therefore, there are variations of different types. They could be very spread out customers, but they all

say design work has to come from one single outsourcing champion in the company, where everything goes

back to this person before it comes out to us. So, I am not too sure whether I am honestly answering your question, but I do not think I can do anything better than what I am doing currently.

Rahul Chadha: I just wanted to understand, I mean, engineering services is a segment which is growing

across software companies. So how come our attrition rates are so low? I believe we should be the favorite

hunting ground for rest of the players.

BVR Mohan Reddy: You should go and ask them. I am not too sure about the answer.

Rahul Chadha: No but, do we have a ESOP which covers most of the employees? If you could elaborate

on that.

BVR Mohan Reddy: 40% of our employees are covered under ESOP and especially I think 40% is a large

number given there are junior hires in the company. It is the ESOP or it is the quality of work we do, the

way in which we look after our employees, or may be there are several parameters which are there which make them very comfortable to stay in Infotech and grow there, we build a career for them.

Rahul Chadha: Okay. And just one final thing which I wanted to understand from you was, you said out

of 460 employees hired, about 80% were freshers. So, what is the typical road map for a fresher in an

engineering design company? I mean, is he really useful without too much of an experience for engineering

setup of work?

BVR Mohan Reddy: Yes, because you see, after all in engineering, it does not mean that he will come and

start designing an aircraft engine from day one. There are several areas which he could start off in. As he

gains experience, he would be in a position to move to other areas. See, therefore, he has a role to play as a

trainee too in this organization and create value for the company.

Rahul Chadha: And as you said before, you remain confident of maintaining such growth rates in FY08

also?

BVR Mohan Reddy: Yes.

Rahul Chadha: Okay. Thank you and wish you all the best sir.

BVR Mohan Reddy: Thank you.

Moderator: Thank you very much sir. The next question comes from Mr. Dipen Mehta from Dipen Mehta

Shares.

Dipen Mehta: Yes, you were just stating about the new development center in Bangalore. If you could just

clarify, I could not get that properly. Actually, what is your strategy towards that center?

BVR Mohan Reddy: What I am saying is, we think that there could be major upside we could capture in

our bottom line if we went into an SEZ and as a result we are evaluating or reevaluating the options that we

have with us. We will probably decide about it in the course of the next few months.

Dipen Mehta: But you are serious that you want to get an extra stage of expansion in an SEZ?

BVR Mohan Reddy: Well, I guess we certainly want to do that, but there are constraints too if I want to do

it, then I might have to sacrifice something else. So, we are weighing the pros and cons of the situation

before we make an informed decision.

Dipen Mehta: But, why would you not go to an SEZ? Is it because of cost and attracting talent or what are

the kind of thoughts which go? Because the way I look at it, it has to do majority of your expansion and

the planning of which would start in the next 6-12 months unless you have majority of the expansion

coming in from SEZ. Two years down the line, you will straight away go at the higher tax bracket and thereafter you know lot of complications start. EPS growth would suddenly look unattractive because the

tax element comes into play.

BVR Mohan Reddy: Well, you made two points: one is the cost, the second is the ability to hire. Ability to

shift people into those SEZs which are not really in central cities and so on and so forth could be one

challenge. The other point that you need to take into consideration is nothing is now carved in stone as far

as SEZ rules are concerned. I have been talking to several people and actually as NASSCOM stated the

policy on this issue has been that they have been saying SEZ should be applicable to STPIs too because

after all otherwise there will not be a level playing field. There are several issues that are being debated.

What is there as the norm at this point of time is, SEZ as I said is not carved in stone. So the result is, we

are evaluating all those considerations too before we finally make a decision.

Dipen Mehta: All right sir. Thank you and congrats for a great set of numbers and all the best.

BVR Mohan Reddy: Thank you.

Moderator: Thank you very much sir. The next question comes from Mr. Ashi Anand from Prudential

ICICI.

Ashi Anand: Yeah. I think this is it. Most of my questions have already been answered. So thanks a lot

and congratulations for a good set of numbers.

BVR Mohan Reddy: Thank you.

Moderator: Thank you very much sir. The next question comes from the line of Mr. Hitesh Zaveri from Edelweiss.

Hitesh Zaveri: I just wanted your view with regard to the Booz Allen Hamilton report that came out

recently and whether you have found anything interesting and what is your view about where the

engineering space growth could be going in 2009 and 2010?

BVR Mohan Reddy: Thank you Hitesh. The report came in probably about three months now, but more

importantly what is in the report is the tremendous amount of effort which went in from companies like us

and many other companies in India. They actually were a part of an engineering services forum. I chaired

that forum for the last year and a half. So, it was all based on market research reports, the Booz Allen

Hamilton report came from. Certainly, I guess you know there are good findings in the report. What it

reinforces our thinking is that this market space in engineering services, there is a huge potential. Booz

Allen talks about a USD 35 bn opportunity by 2020. We can debated till cows come home on whether it is

USD 35 bn or USD 40 bn, but certainly my belief is that it is a very large number that we have there. The second one is that we also believe that engineering services outsourcing is far different from the pure

play IT outsourcing. There are some commonalities alright, but you need to understand this particular

market space in part which is different from the conventional IT outsourcing. And companies like us, we

believe, have an ability to understand these requirements. As a result, we have an ability to scale up very

well. The report does mention that if this market space is different from the market space on pure play IT

services.

Coming back to your question about what is the potential? We are talking about as I said a USD 35 bn

opportunity by 2020, or by 2010 it is a USD 10.5 bn or a USD 10.8 bn opportunity which of course

encompasses several verticals. The biggest amongst them is high technology and telecom, which consists

of semiconductor design, computer design, and so on and so forth. So, it is a big opportunity and people

like us, who have definitely seen this opportunity for a while, have geared themselves well and we certainly

hope that we will be in a position to grow as we are planning.

Moderator: Thank you very much sir. Participants who wish to ask questions, please press *1 now.

At this moment there are no further questions from participants. I would like to hand over the floor back to Mr. Hitesh Zaveri for final remarks.

Hitesh Zaveri: Well, thank you all for joining and actually I would like pass on the floor for final remarks

to Mr. BVR Mohan Reddy.

BVR Mohan Reddy: Thank you very much Hitesh. We thank you for hosting the call this evening. My

investor relations group, which is primarily headed by Mr. Nataraja who is our Senior Vice President of

Finance and Suryakiran who is our Investor Relationship Manager and Nandkishore Bajaj, who is our

Investor Relations Executive, is available all the time on email for answering any further questions. If you

have any questions, please feel free to send them and we appreciate your support. Thank you.

Moderator: Ladies and gentleman, thank you for choosing WebEx conferencing service. That concludes

this conference call. Thank you for your participation. You may now disconnect your lines. Thank you and

have a nice evening.