Infosys Initiating Coverage Note - Myirisbreport.myiris.com/MR1/INFTECHN_20110822.pdf · Infosys Limited Initiating Coverage Note Sector: I T Rating: STRONG BUY Target Price: `3,066

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Infosys Limited

Microsec Research 22 August 2011

Analyst: [email protected]

Infosys Limited

Initiating Coverage Note Sector: I T

Rating: STRONG BUY Target Price: `3,066

Research Analyst: Nitin Prakash Daga

AVP Research

Microsec Capital Limited

[email protected]

+91 33 3051 2172

INVESTMENT THESIS

Continued demand for offshoring

Well Established Brand

Strong Balance Sheet

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Infosys Limited



Table of Contents:

S. No. Contents Page No.

1. Investment Case……………………………………………………………………………………………………………………… 03 - 03

2. Company Background……………………………………………………………………………………………………………… 04 - 04

3. Business Segments…………………………………………………………………………………………………………………… 05 - 06

4. Industry Overview…………………………………………………………………………………………………………………… 07 - 09

5. Investment Thesis…………………………………………………………………………………………………………………… 10 - 12

6. Peer Group……………………………………………………………………………………………………………………………… 13 - 14

7. Key Management Personnel……………………………………………………………………………………………………… 15 - 15

8. Valuation………………………………………………………………………………………………………………………………… 16 - 16

9. PE Bands………………………………………………………………………………………………………………………………… 16 - 16

10. Key Risks………………………………………………………………………………………………………………………………… 17 - 17

11. Financials………………………………………………………………………………………………………………………………… 18 - 18

12. Disclaimer……………………………………………………………………………………………………………………………… 21 - 21

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We rate Infosys Limited (INFY) a ‘STRONG BUY’. Our rating underpins the

continued demand for offshoring services by global players, INFY’s strong

brand image and its healthy cash reserves of over `15,000 Crores. However,

the ongoing debt crisis in Europe, currency headwinds, and slowdown worries

in the developed world impede our optimism a bit.

Investment Case

The urge to cut costs and remain flexible in different business scenarios is

expected to keep driving the offshoring demand in upcoming years as well.

INFY being one of the largest players in the Indian software industry is

expected to benefit through this trend.

Based on generic brand-earnings-multiple model, the company’s brand

value stood at $8.87 Bn at the end of the year. This is ~1.47 times of INFY’s

FY2011 revenues and more than 25% of its market capitalization. The

company’s strong brand is expected to help it retaining existing customers

and maintain margins in the upcoming quarters.

In addition, INFY’s management continues to reward shareholders with

regular dividend payouts, which add on to their returns periodically. The

company has a policy to distribute 30% of its earnings as dividends.

Furthermore, INFY’s healthy cash position is expected to support its

earnings growth and keep its cost structure immune to the hawkish interest

rates.

Based on target P/E multiple of 20.1x on FY2013E EPS of `152.68, we

arrived at a target price of `3,066 per share for the stock. This represents

an annualized upside of 24.7% from CMP of `2,194.05.

INFY – Financials at a glance (all data in ` Crores unless specified)

INFY – Strong brand at an attractive price

STRONG BUY Sector- Information Technology

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Company Background

With an initial capital of just $250, INFY was established in 1981 by Mr. N R Narayana Murthy and six

engineers. The company, initially headquartered in Pune, also signed its first client – Data Basic

Corporation, during the same year. INFY relocated its headquarters to Bangalore in 1983. Since then,

the company grew leaps and bounds clocking $500 Mn revenue mark in 2002 and $1 Bn milestone in

2004. From the initial capital of $250 INFY has rose to become a $6.35 Bn, TTM revenues as at Q1

FY2012, organization with a Market Capitalization of over $25 Bn. The company with a base of more

than 133,000 employees at the end of Q1 FY2012 is also among the largest employers of the country.

Under its strategy to follow Global Delivery Model, INFY became the first IT company from India to be

listed on NASDAQ. A brief of the company’s progress over last thirty years is reflected in the following

exhibit:

INFY has emerged as the second largest software exporter in the Indian IT industry. The company’s top

line touched $6.04 Bn in FY2011 while it reported Net profits of approximately $1.6 Bn during the year.

INFY is present across the globe with 64 sales offices and 63 global development centers in 75 cities

across 32 countries. Moreover, the company had over 620 clients and 6,500 projects at the end of the

year. In ` terms the company’s top line stood at `27,501 Crores whereas its bottom line remained at

`6,835 Crores. INFY earned more than 90% of total revenues from the global markets during the year.

Furthermore, the company has an impressive record of completing 99% of its projects on time and

96% of the same within the stipulated budgets.

• Established by Mr. N R Narayana Murthy and six engineers in Pune

• Signed up first client - Data Basics Corporation, New York

• Relocated headquarter to Bangalore, opened office in Boston - US

• Went Public, introduced Employee Stock Option Program

1981 - 1993

• Opened first European office in UK and development offices at Toronto and Manglore

• Assessed at CMM Level 4 in 1997 followed by CMM Level 5 certification in 1999

• Started Enterprise Solutions practice

• Clocked $100 Mn revenue mark, got listed on NASDAQ

1994 - 1999

• Opened offices in France and Hong Kong, expanded existing presence

• Launched Finacle and Progeon

• Sponsored secondary ADS offering

• Clocked $1 Bn revenue mark

2000 - 2005

• Net profits crossed $1 Bn mark

• Employee strength passed 100,000

• Was selected as a member of The Global Dow

• Cash reserves piled up to more than `15,000 Crores

2005 Onwards

Source: Company Data, Microsec Research

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Business Segments

INFY divides its revenues on the basis of geographies it caters to. The company reports segmentation

based on earnings from different industry verticals and Service Offerings as well.

On a geographical basis, INFY primarily reports four segments – North America, Europe, India, and Rest

of the World (RoW). While North America continues to account for a large chunk of the company’s top

line, business from Europe, India, and RoW are gaining momentum. As a result, the share of these

three geographies, on a y-o-y basis, increased in INFY’s top line whereas contribution by North America

witnessed a decline in Q1 FY2012. The company generated revenues of over $1 Bn from North

American region during the quarter. The following exhibit reflects geographical revenue break up of

INFY in Q1 FY2012 and Q1 FY2011.

The industry verticals, which INFY caters to, are broadly divided into 5 heads, which are – Financial

Services, Manufacturing, Telecom, Retail and Others. Financial Services remained the most prominent

industry in the company’s revenue pie with a lion’s share of 35% in Q1 FY2012. However, its share

has declined, similar to Telecom vertical, over the last year. Nevertheless, Manufacturing and Retail,

registered an enhanced revenue share, on a y-o-y basis, in Q1 FY2012. This is shown in the exhibit

below:



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As per Service Offering segmentation, from Q1 FY2012, INFY started reporting three broad segments

of its top line – Business Operation Services, Consulting and System Integration Services, and Products,

Platforms and Solutions. Business Operation Services include Application development and

Maintenance, Infrastructure Management, Testing Services, and Business Process Management. While

Consulting and System Integration Services comprise of consulting and package implementation

Products, Platforms, and Solutions represent products as well as products engineering services.

Business Operations, accounting for 60% of INFY’s top line, continues to remain the top revenue

contributor in Q1 FY2012. The company’s revenue spread across the Service Offerings is depicted

below:

Trend of change in geographical mix is expected to continue in the upcoming quarters as well. While

share of matured economies such as Europe and North America is expected to decline gradually, India

and RoW may witness incremental share in top line. Among Industry verticals, Manufacturing and

Retail may continue to beat the company’s average growth. On the business services front, we believe

that INFY will report a significant increase in share of Consulting and System Integration services in its

top line. Focusing on the same and better reveal the company as a consulting player as well, INFY

recently dropped the word ‘Technology’ from its name. Consequently, the name of the company

became ‘Infosys Limited’ from ‘Infosys Technologies Limited’, earlier.


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Industry Overview

Global Scenario

According to National Association of Software and Services Companies (NASSCOM) estimates, global

spending on technology and related products and services augmented 4.0% y-o-y to $1.6 Tn in 2010.

IT Services spend increased 1.4% y-o-y to $574.0 Bn while BPO spend jumped 3.9% to $158.0 Bn

during the year. Among the geographies America remained on top followed by Europe and Asia Pacific

(APAC) Region. A brief overview of the same is depicted in the graph below:

Global IT Services Spend – Geographical Break up

Global BPO Spend – Geographical Break up

The global industry trends remained positive in 2010. Although a short term imbalance can’t be ruled

out due to ongoing concerns in the western globe, the offshoring trends are expected to remain steady

in the long run. Players in some of the favorable IT destinations such as India are expected to

Source: Nasscom, Microsec Research


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Infosys Limited



significantly benefit from the same. The country’s dominance is likely to continue with its expertise

and ability to offer quality services in the IT and ITES domains.

Indian IT Industry

The Indian IT industry remained a key contributor to India’s overall economic development. According

to NASSCOM IT BPO sector strategic review 2011, Indian IT sector is estimated to clock revenues of

$88.1 Bn in FY2011. While a major part of the same is expected to continue coming from overseas

software markets, hardware and domestic markets also account for a sizable portion of industry.

Of total revenues of $88.1 Bn, $12 Bn came from Hardware segment while IT Software and Services

accounted for the remaining $76.1 Bn. Moreover, exports contributed for ~78% of the total revenues

of IT Software and Services segment. Aggregate direct employment from the IT space is estimated to

reach 2.5 Mn in FY2011. In addition, the industry created ~8.3 Mn indirect jobs as per NASSCOM

estimates. The sector’s share in total Indian exports grew from just 4% in FY1998 to 26% in FY2011.

Furthermore, the industry’s revenues as a percentage of GDP increased from 1.2% to an estimated

6.4% during FY1998-2011 period.

Among geographies, US is likely to remain the largest contributor whereas Banking Financial Services

and Insurance (BFSI) is estimated to be the largest vertical in the country’s export pie. Additionally, IT

Services segment represented 57% of total exports followed by Business Process Outsourcing (BPO),

0.0%

10.0%

20.0%

30.0%

1998 2011E

Share in total Indian Exports

0.0%

3.0%

6.0%

9.0%

1998 2011E

Revenues as a % og GDP



Indian IT Sector Software Revenues

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and Engineering Design and Products Development segments. We expect this analogy to remain intact

in medium term as well.

Outlook

In its Strategic Review 2011, NASSCOM predicted the global IT Services spend to increase to $684.0 Bn

by 2014 from current levels of $574.0 Bn. BPO spending is also expected to grow to $201.5 Bn by

2014. Furthermore, spending on both IT Offshoring and outsourcing is likely to support the growth in

overall spending in IT services. The following charts show the growth predicted by NASSCOM for the IT

Services and BPO spend over 2010P-2014E periods.

Among the concerns over visa issues and adverse geopolitical environment in Europe, a short lived

slow down may be witnessed in the industry. However, the industry body expects a growth of 16-18%

in IT exports from India. According to NASSCOM president Mr. Som Mittal, “The US private sector is

doing reasonably well. So, we are not too worried. The problem is in the macro-economic scenario and

unemployment. There are also concerns over the debt situation in Europe and whether tax rates will

go up. But, by and large, the private business is doing well. So we will not revisit our forecast, unless

there is a major economic upheaval.”

Our view coincides with the current view of the industry body; however, we strongly anticipate that

NASSCOM may tone down its estimates for the near term sighting current developments in the

developed part of the world. Slowdown worries in Europe and the US may defer the discretionary

spending decisions of the companies. Nevertheless, in the long run we expect the industry to remain

on the growth path with cost cutting forces driving the demand for offshoring activities. We believe

that a large part of overall growth of the sector will be contributed by major Indian IT exporters. As a

result, our view remains positive on the sector. Among the top four players – Tata Consultancy

Services (TCS), INFY, Wipro Ltd (Wipro), and HCL Technologies Ltd (HCL), TCS and INFY being the

largest could capture the largest part of the growth.

0.0

150.0

300.0

2010P 2014E

158.0 201.5

BPO Spend

CAGR 6.3%

500.0

600.0

700.0

2010P 2014E

574.0

684.0

IT Services Spend

CAGR 4.5%


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Investment Thesis

INFY is the country’s second largest software exporter. The company’s top line grew at a Compounded

Annual Growth Rate (CAGR) of 18.6% over the five years ending FY2011 to `27,501 Crores. Over the

same period, INFY’s bottom line increased at a CAGR of 15.4% to `6,835 Crores. Considering the sub-

prime crisis phase remaining in between this period, the company’s performance stayed impressive.

INFY’s strong brand image, healthy balance sheet, and revived demand for its services kept driving its

performance in the last five years. These factors, we believe, will remain the key levers of the

company’s performance in the upcoming quarters as well. A detailed analysis of the same is presented

as follows in our investment arguments for the stock.

Continued demand for offshoring to lift performance

After a modest y-o-y revenues growth of 4.8% in FY2010, the improved business environment and

continued demand for offshoring helped INFY report strong 20.9% y-o-y increase in top line during

FY2011. A large part (~63%) of the incremental sales came from North America. Revenues from the

geography jumped 19.9% to `17,958 Crores during the year on a large base. India and RoW also

contributed to the top line growth with a y-o-y enhancement of 124.8% and 33.5%, respectively, in

FY2011. However, sales from Europe, growing by just 13.0%, limited the overall increase in revenues.

All the geographies reported better y-o-y growth during FY2011 compared with FY2010, which is

reflected in the exhibit below.

Among the business verticals, the growth was mainly contributed by Financial Services, Manufacturing,

and Retail verticals. While Financial Services revenues increased 27.6%, top line of Manufacturing and

Retail segments grew 19.7% and 28.4% in FY2011. However, a frail performance by Telecom vertical

partially offset this growth. Sales from the segment declined y-o-y by 3.1% in FY2011. A glimpse of the

same is depicted in the following charts.


Common Sized Geographical Revenues (%) Absolute Geographical Revenues (` Crores)

Common Sized Business Vertical Revenues (%) Absolute Business Vertical Revenues (` Crores)


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With benefits of low cost ownership of IT infrastructure, flexibility, improved quality, low labor cost, and

improved efficiency, offshoring is expected to remain a key factor for companies across the globe to

reframe their cost structure in a better way. Indian IT industry, comprising all these features, provides

a one stop solution to these companies. INFY being one of the largest players in the industry is likely to

benefit from the same. Consequently, we expect the company to report top line growth 21.0% and

18.5% respectively in FY2012E and FY2013E. However, a higher effective tax rate and pricing

pressures may limit the growth in bottom line growth, remaining in lower teens.

Strong Brand Image bodes well

Despite visa related issues in the US and its founder Chairman Mr. N R Narayana Murthy stepping

down, INFY reported a 12% jump in the brand value during FY2011. Based on generic brand-earnings-

multiple model, the company’s brand value stood at $8.87 Bn at the end of the year. This is ~1.47

times of INFY’s FY2011 revenues and more than 25% of its market capitalization. The company’s brand

has helped it to command high prices and margins historically. Although the sustainability of the same

may not be ascertained in current competitive environment, we believe that its brand will help INFY

continue to command high proportion of repeated business. The company continuously reported 95%

or above repeat business in last sixteen quarters as depicted in the exhibit below.

We believe that INFY’s strong brand will continue help it gain repeat business from its existing clients.

In addition, although the company may report margins in line with its top tier competitor TCS, its

margins are expected to remain above HCL Technologies Ltd and Wipro Ltd, in our view. INFY’s brand

will also remain supportive in its blue ocean growth strategy.

Strong balance sheet enables dividend payments and support growth in income

INFY’s cash and cash equivalents rose at a CAGR of 26.8% over the last five years to `15,095 Crores in

FY2011. The company has utilized its cash balance to provide healthy dividends to its shareholders. In

addition INFY reported a continued increase in the other income over last five years mainly led by

interest on these balances. A glance of the company’s cash reserves, per share dividend, and other

income in last three years is depicted as follows.


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As per INFY’s dividend policy, it distributes 30% of its net income as dividends. This could continue to

provide accretive returns to the company’s shareholders. Furthermore, in current scenario, when RBI

continues to hold a hawkish stance on interest rates, INFY’s cash balances can generate healthy

returns in the near term. Additionally, the company’s cash reserves may help it easily execute the

strategic inorganic moves and support its blue ocean strategies.


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Infosys Limited



Peer Group – INFY versus TCS – ‘The Bellwether Race’

Considering INFY’s size, its presence across the globe, and market capitalization, we selected Tata

Consultancy Services (TCS), its nearest competitor, in the peer group. These two account for more

than 15% of the total Indian IT exports. Furthermore, the giants are the trendsetters for the entire

industry as well. A brief overview of both the companies’ operations is reflected below:

We analyzed the performance of INFY and TCS based on the following five fundamental parameters

over the last twelve quarters’ reported numbers:

1. Sequential growth in Revenues

‐4.0%

0.0%

4.0%

8.0%

12.0%

16.0%Revenues Growth over the period

INFY TCS

‐10.0%

‐5.0%

0.0%

5.0%

10.0%

15.0%

20.0%PAT Growth over the period

INFY TCS

75,000

100,000

125,000

150,000

175,000

200,000 Headcount over the period

INFY TCS

10.0%

13.0%

16.0%

Attrition over the period

INFY TCS

‐20.0%

‐6.0%

8.0%

22.0%

36.0%

50.0%

64.0%Returns over FY2011

INFY TCS

1,300.0

1,600.0

1,900.0

2,200.0

2,500.0 Market Capitalization (in ̀ Bn) over FY2011

INFY TCS

15.0%

18.0%

21.0%

24.0%

27.0%

30.0%PAT Margins over the period

INFY TCS

15.0

18.0

21.0

24.0

27.0

30.0

33.0 PE (x) over FY2011

INFY TCS

Source: Company Data, Microsec Research, Bloomberg

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2. Q-o-Q increase in Net Profit

3. Total Headcount

4. Attrition Levels

5. PAT Margins

We found that INFY has underperformed TCS from Q2 FY2009. However, its consolidated performance

remained above other peers. While its revenues growth outpaced Wipro, the company’s margins were

well above both Wipro and HCL.

We also analyzed both the companies’ stock performance over FY2011, which represents the period

when TCS outperformed INFY on most of the fundamental factors. For this, we selected three

parameters:

1. Price-to-Earnings (PE) Multiple

2. Stock Returns

3. Market Capitalization

The gap in PE multiple, between INFY and TCS, narrowed down, to almost ‘nil’, during FY2011.

Furthermore, TCS provided returns of 48.5% over FY2011 vis-à-vis INFY’s 22.6%. Additionally, TCS’

market capitalization, 3.1% higher than that of the company at the beginning of the year, had a 24.5%

premium over the same at the end of the year.

Though above comparisons suggest that INFY has underperformed TCS in FY2011, we believe that new

management, the company’s strong brand and more than double cash reserves than that of TCS may

help it maintain the growth momentum at the net margins level. Moreover, considering the attractive

valuation levels and market dominant position of both the companies, INFY and TCS may outperform

their peers, going forward.

Peer Group Table: FY2011 Data (In ` Crores)

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Key Management Personnel – Transformational Wave

INFY is led by well educated and highly qualified professionals and industry veterans. The company’s

management helped it ride through the sub-prime crisis waves successfully by implementing right

strategies and frameworks at the right time. Following the retirement of Mr. N R Narayana Murthy and

new management taking charge post 21 August 2011, INFY witnessed a significant transformation at

top level. A glimpse of the same is depicted below:

Mr. N R Narayana Murthy named as Chairman Emeritus

Mr. K V Kamath became the new Chairman of the company’s board taking charge from Mr. N R

Narayana Murthy

Mr. S Gopalakrishnan was elevated as Co-chairman of the Board

Mr. S D Shibulal took over as INFY’s Managing Director and Chief Operating Officer (MD & CEO)

Together with Mr. Sibulal, The company’s executive council now comprises of Mr. Basab

Pradhan, Mr. Stephen Pratt, Mr. Ramdas Kamath, Mr. Prasad Thrikutam, Mr. U B Pravin, Mr. B

G Srinivas, Mr. V Balakrishnan, Mr. Ashok Vemuri, Ms. Nandita Gurjar, and Mr. Chandra Shekar

Kakal

The performance of new management will remain vital in INFY’s performance in the upcoming

quarters. With industry veterans and people with ample experience on the company’s executive

council, we believe that INFY may continue report a healthy performance, going forward.

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Valuation

We adopted a comparable valuation method to value INFY based on Price-to-Earnings (P/E) multiples.

Historically, the company traded on a five year average P/E multiple of 26.6x. This reveals a premium

over the peer group average P/E of 25.4x for the same period. In the longer run, we expect the

company to trade at a discount over the peer group average P/E based on its underperformance vis-à-

vis TCS. With this, we anticipate the P/E gap, of INFY and Industry to stand at -0.5x in subsequent

years. Consequently, to arrive at a target P/E multiple for INFY we applied a 19% discount to five year

average P/E of peer group. Deducting the discount, this resulted in a targeted P/E multiple of 20.1x for

the company, which on FY2013E EPS of `152.68, reflects a target price of `3066, inclusive of dividend

payments, for the stock. Our target price translates a 39.7% upside over INFY’s current stock price. On

an annualized basis, this translates into returns of 24.7%. Following table represents the sensitivity of

our target price to variation of target PE multiples and EPS levels.

PE Bands (Price in (`))

3,066 18.1 19.1 20.1 21.1 22.1

142.7 2,580 2,722 2,865 3,008 3,150

147.7 2,670 2,818 2,965 3,113 3,261

152.7 2,760 2,913 3,066 3,218 3,371

157.7 2,851 3,008 3,166 3,324 3,481

162.7 2,941 3,104 3,267 3,429 3,592

Source: Microsec Research, Bloomberg

P/E x

EPS (`)

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Key Risks

INFY has been able to report a modest growth in top line and profits despite a dull global environment.

However, there are certain internal risks and external factors, which could impact INFY’s performance

in the near term, which may lead to a downward revision in our share price. These factors are depicted

below.

Management changes at INFY happened recently. The smoothness of the functional transfer is

most desirable at this moment. Considering the global slowdown worries, the task may be

challenging for the incoming veterans.

INFY’s core competitor TCS performed well on all parameters vis-à-vis the company in FY2011.

Moreover, INFY had to sacrifice some of its margins to cope up with the emerging competition.

These factors, if remaining there in upcoming quarters, may affect the company’s

performance.

Slowing economic growth momentum in Euro zone – especially in Germany, may affect INFY’s

top line growth as Europe contributes a significant part of its top line. Germany reported a GDP

growth of just 0.1% in quarter ended June 2011, over the previous quarter.

Visa issues in the US could also impact INFY’s performance. As the rejection rate of Visas in the

US has increased significantly, it may force the company to hire local talent for servicing its

customers. This factor is can elevate INFY’s cost structure and subsequently thereby trim its

bottom line growth.

Currency movements continue to remain a key driving force of the company’s performance.

Appreciation of ` against other global currencies adversely affect its performance whereas

depreciation of the same remains favorable. As a result, a higher than expected appreciation

in the `, particularly against $, may impact INFY’s overall performance adversely in our view.

Although these factors may impact the performance of INFY in short to medium term, the long term

prospects of the company remain intact. The need for cost cutting in a slowing business can even pose

some new business opportunities for the company in upcoming quarters. Furthermore, under

Enterprise Risk Management (ERM), INFY identify, assess, monitor and mitigate various risks concurred

in normal business activities. In addition, we believe that INFY’s large size, diversified geographical

presence, and revenues’ spread across various industry verticals will remain supportive for the

company in countering these risks.

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Financial Statements

Income Statement FY2009 FY2010 FY2011 FY2012E FY2013E

Net Revenues 21,693 22,742 27,501 33,276 39,432

Gross Profit 9,928 10,671 12,447 14,309 16,759

Selling and Marketing Expenses 1,104 1,184 1,512 1,996 2,562

General and Administration Expens 1,629 1,626 1,967 2,496 3,155

EBITDA 7,195 7,861 8,968 9,817 11,042

Depreciation and Amortization 761 905 854 891 849

EBIT 6,434 6,956 8,114 8,926 10,193

Other Income (Net) 475 934 1,211 1,846 2,269

Provision for Taxes: 919 1,681 2,490 3,016 3,739

Net Profit after Tax 5,988 6,218 6,835 7,756 8,723

Income from Sale of Investments - 48 - - -

Net Profit after Tax & EI 5,988 6,266 6,835 7,756 8,723

Diluted EPS 104.42 109.72 119.63 135.74 152.68

Balance Sheet FY2009 FY2010 FY2011 FY2012E FY2013E

Total Net Worth 18,254 23,049 25,976 30,736 36,132

Deferred Tax Liabilities 37 232 176 176 176

TOTAL SOURCES OF FUNDS 18,291 23,281 26,152 30,912 36,308

Fixed Assets 5,354 5,355 5,760 5,628 5,630

Investments - 3,702 144 144 144

Deferred Tax Assets 163 432 497 497 497

Net Current Assets 12,774 13,792 19,751 24,643 30,037

TOTAL USES OF FUNDS 18,291 23,281 26,152 30,912 36,308

Cash Flow FY2009 FY2010 FY2011 FY2012E FY2013E

Operating Cash Flow

Net Profit before Tax MI and EI 6,907 7,899 9,325 10,772 12,462

Depreciation 761 905 854 891 849

Interest and Dividend income (876) (881) (1,154) (1,846) (2,269)

Changes in Debtors (375) 194 (1,159) (817) (1,012)

Change in L&A (514) (438) (758) (606) (1,096)

Change in CL 429 187 489 1,361 1,341

Income taxes paid (902) (1,753) (2,846) (3,016) (3,739)

TOTAL OCF 5,325 6,187 4,752 6,739 6,536

Investing Cash Flows

Capital Expenditure (Net) (1,327) (658) (1,305) (759) (851)

Interest and dividend income 1,056 871 1,148 1,846 2,269

TOTAL ICF (213) (3,603) 3,398 1,087 1,418

Dividends paid (2,131) (1,346) (3,140) (2,571) (2,857)

Dividend taxes paid (363) (228) (524) (424) (471)

TOTAL FCF (2,430) (1,485) (3,640) (2,995) (3,328)

Changes in Cash 2,758 1,068 4,555 4,831 4,626

Cash Carried to BS 9,695 10,556 15,095 19,926 24,551

Source: Company Data, Microsec Research RoE is calculated on Closing Basis All data in ` Crores unless specified Shaded part reflects estimates

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Microsec Research: Phone No.: 91 33 30512100 Email: [email protected]

Ajay Jaiswal: President, Investment Strategies, Head of Research: [email protected]

Fundamental Research

Name Sectors Designation Email ID

Nitin Prakash Daga IT, Telecom & Entertainment AVP-Research [email protected]

Naveen Vyas Midcaps,Market Strategies AVP-Research [email protected]

Nitesh Goenka BFSI,Metal & Mining Sr. Research Analyst [email protected]

Abhisek Sasmal BFSI Research Analyst [email protected]

Sutapa Roy Economy Research Analyst [email protected]

Gargi Deb Agriculture & Pharma Research Analyst [email protected]

Technical & Derivative Research

Vinit Pagaria Derivatives & Technical VP [email protected]

Ranajit Saha Technical Research Sr. Manager [email protected]

Institutional Desk

Rajiv Lilaramani Institutional Equities Sr. Manager [email protected]

Dhruva Mittal Institutional Equities Manager [email protected]

PMS Division

Siddharth Sedani PMS Research AVP [email protected]

Sarmistha Rudra PMS Technical Research Analyst [email protected]

Research: Financial Planning Division

Shrivardhan Kedia FPD Products Manager Research [email protected]

Research-Support

Subhabrata Boral Research Support Executive [email protected]

MICROSEC RESEARCH IS ACCESSIBLE ON BLOOMBERG AT <MCLI>

Rating Scale

Recommendation Expected absolute returns (%) over 12 months

Strong Buy >20%

Buy between 10% and 20%

Hold between 0% and 10%

Underperform between 0% and -10%

Sell < -10%

‐ 20 ‐

Infosys Limited



‐ 21 ‐

Infosys Limited



The investments discussed or recommended in this report may not be suitable for all investors. Investors should use this research as one input into formulating an investment opinion. Additional inputs should include, but are not limited to, the review of other. This is not an offer (or solicitation of an offer) to buy/sell the securities/instruments mentioned or an official confirmation. Microsec Capital Limited is not responsible for any error or inaccuracy or for any losses suffered on account of information contained in this report. This report does not purport to be offer for purchase and sale of share/ units. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation discussed herein or act as advisor or lender I borrower to such company (ies) or have other potential conflict of interest with respect to any recommendation and related information and opinions. The same persons may have acted upon the information contained here. No part of this material may be duplicated in any form and/or redistributed without Microsec Capital Limited’ prior written consent.

Disclaimer

Documents

Infosys Initiating Coverage Note - Myirisbreport.myiris.com/MR1/INFTECHN_20110822.pdf · Infosys Limited Initiating Coverage Note Sector: I T Rating: STRONG BUY Target Price: `3,066