c c c c c

Fundamental Analysis: A study on stock of

Infosys Tech Ltd.
„

 

 „

„  
   
 
„
 
„ „ 
 c c

ccc

 cc
c c
  c
cc !"#c$%c
&c'&&c$"c
µ
 

 
    


 


 ()!c(*c
 


 !
c

c c

c

cc


cc

c
ã

  
c c c c c

((


É


j cÉ




 
ÀcThe Political Equation.
Àc²lobal Recession & Indian Economy.
ÀcEconomic ² owth.
Àc²ove nment Policy.
Àc?udget.
ÀcTax Policy.
ÀcInte est Rate.
ÀcInf ast uctu e.
ÀcInflation.
 cÉ


 
ÀcPast Pe fo mance
ÀcÉompetitive St uctu e
ÀcPe manence
Àc² owth
Àc¯ulne ability

~ É
 
É

 
ÀcThe Éompany P ofile
c c c c c
ÀcThe Management
Àc„nalysis of „nnual Repo t





É




 






c c c c c


„ wise man once said,¶ No man is an island¶ No pe son can wo
and live in
isolation. Exte nal facto s a e constantly influencing an individual¶s action and
affecting him. Simila ly, no indust y o company can exist in isolation. It may have
splendid manage s and a t emendous p oduct. Howeve , its sales and cost a e
affected by many exte nal facto s, some of which a e beyond its cont ol. These
facto s may be The Wo ld Economy, p ice inflation, taxes, and a host of othe s. It
is impo tant the efo e, to have an app eciation of the politico-economic facto s that
affects the indust y and a company and a economy as a whole.
c'$+!!#"+c , "!$
„ stable political envi onment is necessa y fo steady, balanced g owth of a
count y. If a count y is uled by a stable gove nment which ta
es decisions fo the
long- te m g owth of count y, indust y and company will p ospe . On the othe
hand, instability causes insecu ity, especially if the e is the possibility of a
gove nment being ousted and eplaced by anothe that holds diamet ically diffe ent
political and economic beliefs.
P esently India has a stable gove nment at the cent e. The PM, D . Manmohan
Singh led UP„ gove nment is wo
ing efficiently fo the development of count y.
The va ious steps ta
en by the gove nment indicates a steady g owth both in
ag icultu al and indust ial secto . Éu ently indust ial g owth is about 9% , the
²DP is about 7.2%, which is expected to touch double ± digit in 2014 ± 15. The
stimulus pac
ages announced by the gove nment and exemption of ÉTT and F?T
and dec ease in co po ate taxes ensu ed g owth of indust y in ecessional phase.
Now, the decision of withd awing the stimulus in a phased manne in the last
?udget is a encou aging step fo the bette ment of the economy.

+$("+c#--!$c.c!"c #$$)*c

Sta ting f om US Sub-p ime c isis, the Wo ld had seen a wo st ecession afte The
² eat Dep ession of 1930¶s. The Indian stoc
ma
et have hit by the global c isis.
India¶s g owing se vice secto and manufactu ing secto a e adve sely affected by
this. ?ut, still due to ou mixed economy policy and p ope steps ta
en by the
gove nment, Indian economy is least affected by the global meltdown. While most
c c c c
of the developing count ies a e still ecove ing f om ecession, India had al eady
ecove ed f om the downtu n, showing a g eat g owth p ospective in all secto s.
c
c
c
#$$)!#c$/c
Economic g owth is a
ey indicato of development of a count y. It shows the
efficient utilization of the esou ces in a optimal way. The g owth ate of 9.8% in
2007/08 dec eased to 6.2% in last fiscal due o global ecession. ?ut now with a
sign of ecove y Indian economy is g owing at 7.2% which is expected to touch
double ± digit in 2014/15. Pe capita income is also inc eased f om3.7% of 2008-
09 to 5.3% in 2009-10 and the living style of the people is also bette ed. „fte
Éhina, India is second developing nation in the Wo ld. Thus, one can say, the
economic g owth of India is steady and continuous.

$0)c'$+!#*c
²ove nment policy has a di ect impact on the economy. „ gove nment that is
pe ceived to be p o-indust y will att act investment. The libe alization policy of
Na simha Rao gove nment excited the developed Wo ld and fo eign investo s to
invest in India. The initiatives of fo me ? P gove nment in imp oving
inf ast uctu e g abbed the attention of fo eign investo s. F om the last two budget
it is quite clea that the p esent gove nment is also focusing on inf ast uctu e.
Stimulus pac
ages, tax cut, moneta y & fiscal policy measu e ta
en by the
gove nment has p oved, the immense impo tance of gove nment policy.
c
1c
Due to the huge public expenditu e and stimulus pac
ages announced in last fiscal,
India has one of the la gest budget deficit in the Wo ld which was about 6.8% of
its ²DP. Excluding subsidies it amount to 8% of ²DP. „lthough it is fallen a little
which is now 5.8%, but still it is high, which is not a good sign fo the economy. In
the cu ent budget the Finance ministe has given p io ity to two things i.e,
economic development and fiscal consolidation. Thus, it can be stated that, fiscal
deficit in futu e will dec ease and the e will be a obust g owth in Indian economy.
c c c c c
"2c'$+!#*c
Tax policy has a di ect impact on the economy. If tax ates a e low, people have
mo e disposable income, which is a incentive to invest. The ecent tax policy of
gove nment, i.e, inc ease in tax slab, inc ease in Mat f om 15% to 18%, dec ease in
su cha ge f om 10% to 7.5%, se vice tax 10% etc, can be conside ed as a sound
tax policy.
-c"c
„ low inte est ate stimulates investment and indust y. Éonve sely, high inte est
ates esult in highe cost of p oduction and lowe consumption. In India, the
gove nment, th ough Rese ve ?an
of India, is successful in lowe ing the inte est
ates. Inc easing competition among the ban
s also helped. c
c
%"- # c
The development of a count y is dependent on its inf ast uctu e. Indust y needs
elect icity to manufactu e and oad to t anspo t goods. ?ad inf ast uctu e leads to
inefficiencies, poo p oductivity, wastage and delays. This is p obably the eason
why the last two budgets lay so much emphasis on inf ast uctu e.
c
%+"!$c
Inflation has an eno mous effect in the economy. Within the count y it e odes
pu chasing powe . „s a consequence demand falls, which affects the indust y
adve sely. Éoming to Indian scena io, fuelled by ising wages, p ope ty p ices and
food p ices, inflation in India is an inc easing p oblem. The food inflation is about
17.81% and the WPI- inflation is about 9.87% which may touch double digit soon
as stated by R?I Deputy ²ove no , which may affect adve sely the economy of the
count y as well as the indust y.

„pa t f om all these facto s, the othe facto s which play a significant ole in the
development of Indian economy a e,
c c c c c
c Demog aphics of India a e favou able
c The e is much scope fo inc easing efficiency.
c India is well placed to benefit f om globalization and outsou cing.
To conclude, it can be said that Indian economy is g owing and will continue to
g ow. The g owth in se vices secto , indust ial secto , especially IT secto indicates
a significant g owth in futu e.
c c c c c

In inc easing globalised wo ld, significant complexity and unce tainty is getting
attached to the unp ecedented economic c isis. The Indian economy has also been
impacted by the ecessiona y t ends, with a slowdown in the ²DP g owth to 7%.
The focus and exponential g owth in the ma
et has pa tially offset this fall and
insulated the count y, esulting in net ove all momentum. With this momentum the
economy is evived mostly and now g owing at 7.2% ate. The IT indust y in India
has today become a g owth engine fo the economy, cont ibuting substantially to
inc ease in the ²DP, u ban employment and expo t, to achieve the vision of a
µyoung and esilient¶ India. Du ing the yea , the secto maintained its double digit
g owth ate and was a net hi e . This g owth has been fueled by inc easing
dive sification in the geog aphic base and indust y ve ticals, and adaptation in the
se vice offe ings po tfolio.cWhile the effects of the economic c isis a e expected to
linge in the nea te m futu e, the Indian IT indust y has displayed esilience and
tenacity in counte ing the unp edictable conditions and eite ating the viability of
India¶s fundamental value p oposition. Éonsequently, India has etained its
leade ship position in the global sou cing ma
et.
While the cu ent mood is that of ³cautious optimism,´ the indust y is expected to

É


 
witness sustainable g owth ove a two-yea ho izon, going past its USD 60 billion
expo t ta get in FY2011. While the indust y has significant head oom fo g owth,
competition is inc easing, with a numbe of count ies c eating enabling business
envi onments aimed at eplicating India¶s success in the IT indust y.
'"-c'%$)"#c
The IT evolution sta ted in India in 1980¶s and since then it is constantly g owing.
„fte US„, Indian is second in p oducing softwa e. This shows the apid g owth in
IT secto in India. The patte n of sha eholde , evenue ea ned and dividend
allowed a e significant. The g owth ate of IT indust y in 1995 was 1.1%, which is
about 8.7% now. Though the secto is affected by the global slowdown, but the
influence on Indian IT secto is least. Indian It secto has evived f om ecession
and now it is in g owth phase. The g aph shows the patte n of g owth in IT secto .
c c c c c

É$)3!!0c # c
„nothe must be ta
en into conside ationc is the level of competition among va ious
companies in an indust y. Éompetition within an indust y leads to efficiency,
p oduct imp ovement and innovation. The e a e many playe s in the IT secto of
India, which indicates the competitiveness in the indust y. Out of these TÉS,
Infosys, Wip o, HÉ
, Satyam a e the majo IT giants of the count y. While the IT
secto cont ibutes about 30% to the ²DP, these companies cont ibute 80% of that.
„ll these companies a e MNÉs and listed in N„SD„.
')"#c
Éhange in the ai in 2009. Mo e so, in case of IT companies. Ente p ises a e
emba
ing on va ious fo wa d ± thin
ing app oaches and new technologies. „s the
global economy slowed down and the mac o-economic situation continued to be
challenging, IT companies a e loo
ing fo ways to t im spending and imp ove thei
output. Technology t ends in netwo
ing ma
et point out towa d g owth.
„cco ding to M . Na esh Wadhwa, P esident and Éount y manage , India & saa c,
Éisco, the netwo
ing and communication ma
et will p opel the g owth of Indian
IT secto .
While ban
ing, financial se vices & insu ance and telecom se vice p ovide will
emain
ey adopte in the ma
et, the gove nment is li
ely to eme ge as a big
spende due to va ious e-gove nance and state wide a ea netwo
(SW„N),
initiatives. Thus, it can be said that the IT indust y will su vive in long- un.
$/c
The Indian IT indust y has cont ibuted significantly to the Indian economy,
cloc
ing 30 pe cent g owth yea ove yea , ove the last decade. While today, ove
c c c c c
two million individuals a e di ectly employed by the indust y ± anothe seven to
eight million jobs have been c eated downst eam. With expo ts of USD 40.4
billion in 2008-09, the indust y today constitutes 25 pe cent of the count y¶s
expo ts. Ove the yea s, this indust y has continued to expand geog aphically,
added new se vice lines and c eated new business models. Éustome s a e se viced
in ove 80 count ies and significant amount of intellectual p ope ty and new
p oducts and solutions have been c eated by the young and b ight p ofessionals. In
some manne s, the IT indust y has also become the face of the new vib ant India.
.
This g owth has been cont ibuted by Indian se vice p ovide s, multinationals and
a la ge numbe of the global companies, who set up thei esea ch, IT, bac
-office
ope ations and cent es of excellence in India. The indust y has a la ge numbe of
small and medium companies ± that a e c eating innovative solutions and new
business models.

The ecent global c isis which led to an unp ecedented economic c isis the wo ld
affected the Indian IT secto and helped the indust y eme ge st onge and
ope ationally mo e obust. The last two qua te esult of all IT companies showed a
g owth. The g aph below show the ma
et capitalization of IT secto , which
clea ly indicates the g owth p ospective of IT indust y.

 +"(!+!*c
¯ulne ability means to what extent the indust y is dependent on the
ey
commodities li
e oil and to how fashion t end affect the business of the pa ticula
indust y. Now conside ing IT indust y, it can be said that this secto is less
c c c c c
dependent on essential commodities li
e oil. The g owing fashion t end will also
has no di ect influence on the IT indust y. Thus on this basis, the IT secto has a
competitive advantages upon the othe secto .

É
 
É


 
c c c c c
c c c c c

„t the final stage of fundamental analysis, the investo analyzes the company. This
analysis has two th usts;
c How has the company pe fo med vis-à-vis othe simila companies?
c How has the company pe fo med in compa ison to ea lie yea s?
Fo this one should analyze the following aspects,
c The Éompany
c The Management
c The „nnual Repo t
cÉ$)3"*c'$%!+c
Infosys Technologies
imited (Infosys), inco po ated on uly 2, 1981, is a global
technology se vices fi m that defines, designs and delive s info mation technology
(IT)- enabled business solutions to its clients. The Éompany p ovides end-to-end
business solutions that leve age technology fo its clients, including consulting,
design, development, softwa e e-enginee ing, maintenance, systems integ ation,
pac
age evaluation, and implementation and inf ast uctu e management se vices.
Infosys also p ovides softwa e p oducts to the ban
ing indust y. Infosys ?PO
(fo me ly P ogeon
imited) is a majo ity owned subsidia y. Infosys „ust alia,
Infosys Éhina and Infosys Éonsulting a e the Éompany's wholly owned
subsidia ies. In une 2006, Infosys acqui ed the sha es in Infosys ?PO held by
Éitico p Inte national Finance Éo po ation (ÉIFÉ). „s a esult, Infosys effectively
holds 99.98% of the equity sha e capital of Infosys ?PO as of Ma ch 31, 2007.

The Éompany complements its se vice offe ings with specialist suppo t fo clients
using its domain competency g oup that has expe tise in a eas, such as secu ities,
insu ance, telecommunication, ban
ing and cash management, supply chain
management, manufactu ing, etail and dist ibution, ene gy and utilities,
healthca e, and t avel and tou ism. It also uses its softwa e enginee ing g oup and
c c c c c
technology lab to c eate customized solutions fo its clients. In addition, it
continually evaluates and t ains its p ofessionals in new technologies and
methodologies.
.É$c0!#-c
Éustom „pplication Development
c The Éompany p ovides customized softwa e solutions fo its clients. Infosys
c eates new applications and enhances the functionality of its clients'
existing softwa e applications. The Éompany's p ojects va y in size and
du ation.
c The Éompany's application development se vices span the enti e ange of
mainf ame, client se ve and Inte net technologies. „n inc easing p opo tion
of Infosys' applications development engagements a e elated to eme ging
platfo ms such as Mic osoft's .NET o open platfo ms, such as ava 2
Ente p ise Edition ( 2EE) and
inux

"!"#c"c'$ #!$c 33$

c Infosys p ovides maintenance se vices fo its clients' la ge softwa e systems
that cove a ange of technologies and businesses, and a e typically c itical
to a client's business. The Éompany focuses on long-te m functionality,
stability and p eventive maintenance to avoid p oblems that typically a ise
f om incomplete o sho t-te m solutions. While Infosys pe fo ms most of the
maintenance wo
at its global development cente s using secu e and
edundant communication lin
s to its client's systems, it also maintain a
team at the client's facility to coo dinate ce tain
ey inte face and suppo t
functions.
$%/"c41!!1c
c The Éompany's softwa e e-enginee ing se vices assist its clients in
conve ting thei existing IT systems to newe technologies and platfo ms
developed by thi d-pa ty vendo s. Infosys' e-enginee ing se vices include
Web-enabling its clients' existing legacy systems, database mig ation,
implementing p oduct upg ades, and platfo m mig ations, such as
mainf ame to client-se ve and client-se ve to Inte net platfo ms.
'"#5"1c 0"+ "!$c"c)3+)"!$c
c Infosys assists its clients in the evaluation and implementation of softwa e
pac
ages developed by thi d-pa ty vendo s. It also p ovides t aining and
suppo t se vices in the cou se of thei implementation.
c The Éompany specializes in ente p ise esou ce planning pac
ages
developed by vendo s, including O acle, PeopleSoft, Rete
and S„P; supply
c c c c c
chain management pac
ages developed by vendo s, including i2,
Manugistics and O acle; custome elationship management pac
ages
developed by vendo s, including PeopleSoft (¯antive) and Siebel; business
intelligence pac
ages developed by vendo s, such as ?usiness Objects and
Éognos, and ente p ise application integ ation pac
ages developed by
vendo s, such as I?M and TI?ÉO.
%$)"!$c#$+$1*cÉ$- +!1c
c The Éompany's IT consulting p ofessionals assist its clients by p oviding
technical advice in developing and ecommending app op iate IT
a chitectu e, ha dwa e and softwa e specifications to delive IT solutions
designed to meet specific business and computing objectives.
c Infosys offe s IT consulting in the a eas of mig ation planning, institution-
wide implementation and ove all p oject management involving multiple
vendo s unde a common a chitectu e; IT inf ast uctu e assessment, which
includes assessing its clients' IT capabilities against existing and futu e
business equi ements and ecommending app op iate technology
inf ast uctu e, and technology oadmap development, which allows clients
to evaluate eme ging technologies and develop the standa ds and
methodologies fo applying those eme ging technologies.
c$+ !$-c
c Infosys' se vice offe ings including testing se vices, enginee ing se vices,
business p ocess management, systems integ ation, inf ast uctu e
management, and ope ational and business p ocess consulting. The
Éompany offe s end-to-end validation solutions and se vices, including
ente p ise test management, pe fo mance benchma
ing, test automation and
p oduct ce tification.
c Fo each pa ticula client, Infosys focuses on developing a f amewo
fo
ongoing testing in o de to see
continuous imp ovement in the
p edictability of its client's inte nal systems. The Éompany's se vice
p ofessionals a e t ained in test management tools f om develope s, such as
Me cu y Inte active, I?M-Rational and Segue.
!"#+c
c Finacle®, the unive sal ban
ing solution f om Infosys, helps ban
sby
enabling them to shift thei st ategic and ope ational p io ities. It maximizes
thei oppo tunities fo g owth,while minimizing the is
s that come with
la ge-scale business t ansfo mation
c c c c c
c Finacle® cu ently powe s 91 ban
s ac oss 54 count ies, helpingthem se ve
ove 100 million custome s, 150 million accounts, 80,000use s and
suppo ting ove 36 million pea
ban
ing t ansactions pe day sp ead ac oss
multiple installationsc
c*c! -!-c
Infosys se ves va ious indust ies th ough its ve tical business units, such as:
c „e ospace and „utomobile („n„)
c ?an
ing & Éapital Ma
ets (?ÉM)
c Éommunication Se vice P ovide s (ÉSP)
c Resou ces, Ene gy & Utilities (REU)
c Hi Tech & Disc ete Manufactu ing (HTDM)
c Insu ance, Healthca e &
ife Sciences (IH
)
c Media and Ente tainment
c P oduct
ifecycle and Enginee ing Solutions (P
ES)
c Retail, Dist ibution & ÉP² (RET
)
c T anspo tation & Se vices (TnS)
c Independent ¯alidation Solutions (I¯S) - p ovides softwa e testing se vices.
c IT Inf ast uctu e Management Se vices (IMS) - manages co e netwo
s, data
cente s and se ve s of clients.
c Real Estate
c
ife science
In addition to these, the e a e business units aligned to clients' geog aphies, such as
EME„ (Eu ope, Middle East & „f ica), „P„É („sia-Pacific) and ɄND
(Éanada). The e a e also ho izontal business units such as ES (Ente p ise
Solutions), which specializes in ERP and pac
age implementation and wo
s with
clients ac oss indust ies and geog aphies and SI (Systems Integ ation),c which
p ovides integ ation se vices to clientsc
c
""1)c
The single most impo tant facto that one should conside when investing in a
company is its management. It is upon the quality, competence and vision of the
management that the futu e of the company ests. „ good competent management
can ma
e a company g ow while a wea
, inefficient management can dest oy a
th iving company.

The Management of Infosys consist of N.R. Na ayana Mu ty, S. ²opal
ishan,

S.D. Shibulal, D . Om
a ²oswami, and many eminent pe son f om dive sified
field. The name in the management team is well
nown and they a e conside ed as
c c c c c
top management p actitione of the count y. Thus, it can be said that the investo ¶s
money a e in the safe hands of a well expe ienced and p ofessional management.
This also gives Infosys a competitive advantage ove its competito s.

c "+c3$c
The annual epo t is the
ey indicato of the financial health and position of a
company. Thus, it is equi ed to analyse the annual epo t befo e investing in the
company.
F om the annual epo t of Infosys the following info mation can be ta
en into
conside ation,
Àc Income inc eased by 29.5%
Àc Expo t Revenue up by 29.7% of which 65.5% of evenue came f om No th
„me ica, 25.3% f om Eu ope and 9.1% f om est of the wo ld.
Àc Net p ofit inc eased by Rs108 É .
Àc Net fo eign exchange ea ning stands at Rs 578 É .
Àc Rs 582 É t ansfe ed to gene al ese ve and Rs 10305 É is etained.
Àc Infosys has c eated a favou able wo
envi onment that encou ages
innovation and me itoc acy. It adopts scalable ec uitment and Human
Resou ce management. This yea it has added net 12,361 employees.
Àc Infosys set up ³Infosys science Foundation´, to p omote esea ch in
science.
Àc The R & D depa tment of Infosys is quite st ong. „ total of Rs 267 É was
expended on R & D. The ? itish Telecom has signed a MoU with Infosys
fo R & D suppo t.
c
c
c
c
c
c
c
c
c
c
c
c
c c c c c
c
c
c
c
c
c
c
c
c
'$6#c'$%!c.c$--c##$ c%$c$c7c
"#c
c
„ c
cc c
c
c
Pa ticula s  c  c  c ccc  cc
Income c c  c c

Expenditu e c c  c  c

P ofit ?efo e Tax c  c c c

Tax c  c c  c

P ofit „fte Tax c  c c c

?alance ? ought fo wa d  c c c    c

c c c c
?alance c c  c c
c c c c
EPS c c  c c

 -!%!#"!$84c
He e a p ojection of 27% g owth in income is made, the easons a e
c Economic T end is encou aging. The ²DP is g owing at 7.2% and it is
expected to touch double digit by 2014.
c c c c c
c Since the indust y has just evived f om ecession, it is now in a g owth
phase.
c The Ma
et condition is also good.
c Infosys expo ts most of its p oducts and as the wo ld economy is eviving
f om ecession, the e may be a bette oppo tunity fo Infosys.
c Since ban
ing, telecom indust y a e g owing, IT indust y may get some
p ofit out of it.
c ²ove nment is going fo e-gove nance and SW„N, which is beneficial fo
the IT secto .
c Revival of US„ may also a cause fo the g owth of Indian IT secto , as most
of the p oduct and se vices a e expo ted to the e.
„ 27% inc ease in the total expenditu e may occu due to following easons,
c High inflation.
c
abou cost will be mo e.
c Since the company is eviving f om ecession, it may go fo mo e dive sified
investment, which will inc ease the expenditu e.
c Instability in the fo eign ma
et leads to cu ency is
, which may add to
expenditu e of Infosys.

É"+# +"!$c$%c!-!#c0"+ c$%c-"c

If we obse ve last th ee yea s P/E Ratios of Infosys, it is 29.76% in 2007, 18.40%
in 2008, 13.09% in 2009. This dec ease in P/E Ratio is mainly fo the global melt
down. ?ut now, since the global as well as the Indian economy is g owing and
Infosys itself has shown a positive t end in last th ee qua te s, it can be p edicted
that the company can achieve P/E Ratio of 17% in next yea .

Int insic ¯alue of the sha e of Infosys

= P ojected P/E Ratio × P ojected EPS

= 17 × 129.69
=2204.73
The cu ent ma
et p ice of Infosys sha e is 2732.35
 11-!$8c
If we compa e both the values i.e, cu ent ma
et p ice of the sha e to that of the
int insic value of the sha e, it can be stated that the sha es of Infosys a e ove ±
valued. ?ut the cu ent ma
et condition, past qua te esults of Infosys and
economy have showed a positive t end. Thus, it can be suggested that one should
c c c c c
hold the sha es of Infosys. ?uying of Infosys sha e should be avoided. One may
sell his/he holding, but loo
ing at cu ent economic scena io it is advisable to hold
the sha es.