INFOSYS LTD. SYNOPSIS. C.M.P: Rs Target Price: Rs Date: Jan. 21 st 2012 BUY. Share Holding Pattern. 1 Year Comparative Graph

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1 INFOSYS LTD Result Update: Q3 FY12 C.M.P: Rs Target Price: Rs Date: Jan. 21 st 2012 BUY Stock Data: Sector: IT Face Value Rs wk. High/Low (Rs.) / Volume (2 wk. Avg.) BSE Code Market Cap (Rs in mn) Share Holding Pattern 1 Year Comparative Graph SYNOPSIS Infosys Ltd. is a global leader company in the "next generation" of IT and consulting Services & is recognized for its world-class management practices and work ethics. During the quarter ended, the robust growth of Net Profit is increased by 33.26% to Rs million. During the quarter, 49 new clients were added by Infosys and its subsidiaries. Infosys BPO becomes the first company in India & the Third Company Globally, to be Re-certified a Level 5 escm-sp Provider by IT Services Qualification Center (ITSqc). Infosys subsidiary Infosys BPO Ltd has signed a definitive agreement to acquire all of the outstanding share capital in Australia-based Portland Group Pty Ltd. INFOSYS LTD. BSE SENSEX Infosys has been awarded the Global (MAKE) award 2011 for the 8th time. Net Sales & PAT of INFOSYS are expected to grow at a CAGR at 21% and 16% over 2010 to 2013E respectively. Years Net sales EBITDA Net Profit EPS P/E FY FY 12E FY 13E

2 Peer Group Comparison Name of the company CMP(Rs.) Market Cap. (Rs. mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) Infosys Ltd TCS HCL Wipro Technologies Investment Highlights Q3 FY12 Results Update INFOSYS Ltd. has reported net profit of Rs million for the quarter ended on December 31, 2011 as against Rs million in the same quarter last year, an increase of 33.26%. It has reported net sales of Rs million for the quarter ended on December 31, 2011 as against Rs million in the same quarter last year, a rise of 30.85%. Total income grew by 31.42% to Rs million from Rs million in the same quarter last year. During the quarter, it reported earnings of Rs a share. Quarterly Results - Consolidated (Rs in mn) As At Dec-11 Dec-10 %change Net sales % PAT % Basic EPS % 2

3 Net Sales & PAT Growth During the quarter, Net sales rose by 30.85% to Rs million from Rs million in the same quarter last year and the Total Profit for the quarter ended December 2011 was Rs million grew by 33.26% from Rs million compared to same quarter last year. EPS Growth The basic EPS of the company stood at Rs for the quarter ended December 2011 from Rs for the quarter ended December

4 Break up of Expenditure Segment Revenue 4

5 Infosys BPO signs Definitive Agreement to acquire Portland Group Pty Ltd in Australia Infosys BPO Ltd, the business process outsourcing subsidiary of Infosys Ltd. has signed a definitive agreement to acquire all of the outstanding share capital in Australia-based Portland Group Pty Ltd, a leading provider of strategic sourcing and category management services. The purchase consideration for the deal is AUD 37 million, subject to customary post-completion adjustments. The acquisition is expected to be completed by early January This acquisition would significantly deepen its capabilities and domain expertise in Sourcing and Procurement practice. Infosys BPO becomes the first company in India and the Third Company Globally, to be Re-certified a Level 5 escm- SP Provider Infosys BPO Ltd has been awarded the highest rating and has been re-certified at capability Level 5, for the e-sourcing Capability Model for Service Providers (escm- SP) by IT Services Qualification Center (ITSqc). The escm-sp is a quality model which addresses critical issues related to the BPO spectrum & is increasingly being adopted by clients in the IT-enabled outsourcing industry worldwide to evaluate, select and monitor service providers. Infosys BPO proactively enhances client value across each of their delivery centres in Bangalore, Jaipur, and Pune in India & has continued to sustain that delivery excellence over an extended period of time. Infosys unveils XBRL Filing Solution Infosys Ltd has launched of XBRL Filing Solution, a solution for Indian companies to file financial statements in XBRL (extensible Business Reporting Language) format. This solution is aimed at addressing the requirements of Indian companies who are required to file their financial statements in XBRL format starting the financial year based on the Ministry of Corporate Affairs (MCA) mandate. XBRL Filing solution developed by Infosys, is a 'Ready to Use' tool, in which users can convert their excel-based financial information into XBRL format in a few simple steps. This standalone solution can be easily integrated into a Microsoft Excel format, post which it can be used immediately after installation. 5

6 Infosys wins 2011 Global Most Admired Knowledge Enterprises (MAKE) Award Infosys Limited has been recognized as one of the winners of the esteemed Global Most Admired Knowledge Enterprises (MAKE) Award 2011, by Teleos in association with The KNOW Network. The 2011 MAKE Panel has recognized Infosys as a leader in creating a learning organization amongst leading institutions worldwide. This is the eighth time that the company has been awarded the Global MAKE award. Syngenta selects Infosys as its Global Transformation & Business IT Services Partner Infosys has signed a multi-year Transformation and Business IT services contract with Syngenta AG, one of the world leading agribusiness companies based in Switzerland. In a landmark contract that will provide consistency and predictability of service delivery, Infosys will consolidate Syngenta s Global Business IT services landscape under a single shared services engagement. This engagement will enable Syngenta to roll out standardized processes, platforms, tools and ways of working across 90 countries. Revenue by Service Offering (Q3 FY12) 6

7 Revenue Mix (Q3 FY12) Geography Revenue Concentration (Q3 FY12) 7

8 Client Contribution to Revenue (Q3 FY12) Utilization (Q3 FY12) 8

9 Revenue by Industry (Q3 FY12) Company Profile Infosys Limited, formerly known as Infosys Technologies Limited is a global technology Services Company headquartered in Bangalore, India. The company has changed its name to Infosys Ltd. on June 16, It is the second largest IT exporter in India. Infosys Limited was started in 1981 by seven people with US$ 250. Today, it is a global leader in the "next generation" of IT and consulting with revenues of US$ billion (LTM Q3-FY12). Infosys defines designs and delivers technology-enabled business solutions for Global 2000 companies. Infosys also provides a complete range of services by leveraging its domain and business expertise and strategic alliances with leading technology providers. Infosys pioneered the Global Delivery Model (GDM), which emerged as a disruptive force in the industry leading to the rise of offshore outsourcing. The GDM is based on the principle of taking work to the location where the best talent is available, where it makes the best economic sense, with the least amount of acceptable risk. Certification The company constantly benchmarks its services and processes against globally recognized quality standards. Our certifications include SEI-CMMI Level 5, CMM Level 9

10 5, PCMM Level 5, TL 9000 and ISO In February 2007, Infosys BPO was certified for escm level 4.0, the esourcing Capability Model for Service Providers developed by a consortium led by Carnegie Mellon University's Information Technology Services Qualification Centre. Global presence Infosys has a global footprint with 64 offices and 68 development centers in US, India, China, Australia, Japan, Middle East, UK, Germany, France, Switzerland, Netherlands, Poland, Canada and many other countries. Infosys and its subsidiaries have 145,088 employees as on December 31, Products and Services offered by the company: The Company s offerings span business & technology consulting, services, systems, product engineering, custom software development, maintenance, re-engineering, independent testing and validation services, IT infrastructure services & BPO. IT Services Application Services Architecture Services Enterprise Quality Services Independent Validation Services Information Management Services Infrastructure Services Packaged Application Services SOA Services Systems Integration Services Engineering Services Mechanical Product Development Electronics/ Hardware Development Software Product Development Embedded Systems Value Analysis/ Engineering & Benchmarking Manufacturing Engineering & Digital Manufacturing Industrial Automation & Controls Tooling & Commodity Management Professional Services 10

11 Product Ownership & End of Life Product Lifecycle Management (PLM) Knowledge-based Engineering Manufacturing Execution Systems Contact Center & Unified Communications Engineering Consulting Engineering Segments Aerospace Automotive Industrial Manufacturing High-Tech Software Energy Utilities Communication Services Retail Consumer Packaged Goods Life Sciences Financial Services BPO Services Business Platforms Customer Service Outsourcing Finance and Accounting Human Resource Outsourcing Knowledge Services Legal Services Order Management Sourcing and Procurement Outsourcing Product and Platforms Finacle Flypp Infosys Edge Infosys CommerceEdge Infosys SocialEdge Infosys TalentEdge Infosys HIMI Infosys iprowe 11

12 Infosys MaskIT Infosys mconnect Infosys Research on Demand itransform Supply Chain Visibility Infosys Unified Communications and Collaboration (UC) Subsidiaries of the company: Infosys BPO Limited Infosys Technologies (Australia) Pty Limited Infosys Consulting Inc. Infosys Technologies (China) Company Limited Infosys Technologies S. De R.L. De C V., Mexico Infosys Technologies (Sweden) Infosys Tecnologia Do Brazil Infosys Public Services Inc. Infosys Technologies (Shanghai) Co Ltd Alliances Global Alliance Partners The partnership focuses on developing solutions that incorporate Infosys IP and the alliance partners' technology and services. We jointly deliver and market Infosys' solutions to clients across multiple industries and geographies. Microsoft Oracle SAP 12

13 Alliance Partners CA Technologies Hewlett-Packard (HP) IBM Informatica Salesforce.com Schlumberger Siemens TIBCO Software Inc. Autonomy Corporation Sterling Commerce Pegasystems Xerox OSIsoft Cloud Cloud adoption is a complex process and the multiplicity of available options has led to confusion over how to embark on a viable Cloud Journey. IT and business teams follow different approaches to Cloud adoption. Infosys continues to see strong momentum with its Cloud practice having delivered over 125 engagements till date. It continues to strengthen Cloud ecosystem, with over 30 partners delivering a trusted system for our clients. A large hi-tech client has selected Infosys to develop a Cloudbased monitoring solution, using technologies such as Hadoop and Exadata, to manage and meter its enterprise infrastructure. The company is working with a large railroad client in North America on its strategy to move mainframe-based legacy applications to the Cloud. A leading healthcare provider has selected Infosys as a partner to migrate its existing workload to Microsoft Office 365 as its primary messaging and collaboration platform. This provides the client productivity improvement and high asset optimization. For large financial services major, it has defined a technology modernization roadmap to migrate its mainframe-based loyalty platform to the Cloud. 13

14 Financial Results 12 Months Ended Profit & Loss Account (Consolidated) Value(Rs.in.mn) FY10 FY11 FY12E FY13E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Exceptional Items Profit Before Tax Tax Profit after Tax Extraordinary Items Net Profit Equity capital Reserves Face Value EPS

15 Quarterly Ended Profit & Loss Account (Consolidated) Value(Rs.in.mn) 30-Jun Sep Dec Mar-12E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Exceptional Items Profit Before Tax Tax Profit after Tax Extraordinary Items Net Profit Equity capital Face Value EPS

16 Key Ratios Particulars FY10 FY11 FY12E FY13E No. of Shares (in mn) EBIDTA % 38.67% 33.86% 34.22% 33.96% PBT (%) 34.73% 33.86% 34.22% 33.96% PAT (%) 27.34% 24.81% 24.51% 24.33% P/E ratio (x) ROE (%) 26.98% 26.27% 24.45% 22.03% ROCE (%) 35.60% 29.76% 29.36% 27.14% Debt Equity Ratio EV/EBIDITA (x) Book Value (Rs.) Price/Book Value Charts: Net sales & PAT 16

17 P/E Ratio (x) Debt Equity Ratio 17

18 P/BV (X) EV/EBITDA(X) 18

19 Outlook and Conclusion At the current market price of Rs , the stock is trading at x FY12E and x FY13E respectively. Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 21% and 16% over 2010 to 2013E respectively. On the basis of EV/EBITDA, the stock trades at x for FY12E and x for FY13E. Price to Book Value of the stock is expected to be at 4.43 x and 3.45 x respectively for FY12E and FY13E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment. Industry Overview Over the past few years, the Indian information technology (IT) and IT enabled Services (ITeS) industry has been on a steady growth trajectory. The IT industry, alone, has played a pivotal role in placing India on the world map as a major knowledge-based economy and outsourcing hub. The major sub-segment, that entails Business Process Outsourcing (BPO), is re-inventing itself and experiencing a paradigm shift from being a volume-oriented proposition to a value-oriented proposition by expanding its scope of services and providing substantial high-end solutions in the areas of Data Analytics, Legal Process Outsourcing, etc. The number of internet users in India crossed the 100-million mark in September 2011, growing 13 per cent over last year's figure of 87 million, according to the latest report of the Internet and Mobile Association of India (IAMAI) co-prepared with research firm IMRB. The study anticipates India's internet population to grow to 121 million by December Further, the country's broadband subscriber base stood at 19

20 12.69 million in August 2011, according to data released by the Telecom Regulatory Authority of India (TRAI). Competitive Landscape After personal computers (PCs) and laptops, tablets are mushrooming as a major competitive avenue wherein vendors are striving hard to launch more affordable devices for the Indian market. Second quarter of 2011experienced the release of the ipad2 in India in less than 50 days after its US launch while Samsung is scouting for 40 per cent share of the Indian tablet market in In the enterprise software segment, US giant Oracle claims to cater around 7,000 clients across the Indian government and private sectors; recent wins being Punjab National Bank (PNB) - India's second-largest public sector bank and Hindustan Petroleum Corporation (HPCL) - another Indian public sector organ. Meanwhile, Indian IT companies like Wipro, Infosys, TCS, HCL and Mahindra Satyam are developing their technologies to entail cloud computing applications and solutions for various segments ranging from financial services and banking to manufacturing. IT & ITeS - Key Developments and Investments Between April 2000 and August 2011, the computer software and hardware sector received cumulative foreign direct investment (FDI) of US$ 10,787 million, according to the Department of Industrial Policy and Promotion (DIPP). Monster India has launched an online campus hiring initiative - 'Monster College' wherein it will collaborate with educational institutions across India and connect them with over 20,000 employers for campus placements. Investor Relations Global Rankings (IRGR), a New York-based organisation, has ranked Technology giant Infosys as the country's best company for corporate governance practices, financial disclosure procedures, IR website and online annual report. There were more than 80 companies that registered themselves for the rankings. Tower infrastructure company Indus Tower is looking for a partner to provide end-to-end IT solutions and Indian tech-biggies like Infosys, IBM and Wipro are 20

21 in discussions with the former for the same. The contract, potentially in the range of Rs 2,430-2,916 crore (US$ 500-US$ 600 million), would involve areas such as infrastructure management, application development and other related managed services and would span for 8-10 years. Indus Tower, a joint venture firm between Bharti Group, Idea Cellular and Vodafone Essar, owns 110,000 towers and operates 16 out of the 22 telecom circles. Google, with its partner web hosting firm HostGator, has announced that it will offer free web domain names to small and medium businesses (SMBs) in India in order to boost internet usage in Asia's third largest economy. The company will maintain the websites for a year without any charges and at the end of the first year, users will be asked to pay a nominal fee if they wish to renew their domain name. India is shelter to around 8 million SMBs of which about 400,000 have a website and 100,000 have active online presence, said Google. Hence, the market poses a great potential for growth. Cloud Computing The Emerging Technology The model of cloud computing has attracted attention of organizations of all sizes as the technology offers lower operational costs, scalability and mobility at every level. Indian companies are increasingly adopting 'hybrid cloud' (a mix of private and public cloud) to address their concerns of data privacy as well. Indian businesses and government agencies are expected to create huge demand for guidance in the usage of cloud computing services. There are already more than 50 cloud computing service providers in the Indian market. Meanwhile, Indian internet services providers (ISPs) and data centre service providers including Bharti Airtel, Sify, Trimax, and NetMagic are investing applications and bandwidth to support new cloud service offerings. NTT Communications Corp plans to invest US$ 1.58 billion in Europe and India over to develop its cloud computing business at a faster pace while AWS, the world's largest cloud-based service provider, that forms about 2 percent of Amazon's revenues, is projected to become the online retail giant's next most-profitable business in India. 21

22 Soaring e-commerce The US$ 10 billion Indian e-commerce market is expanding exponentially (it grew 47 per cent in 2011 to reach the present size) as rising internet penetration is making customers buy more and more stuff online. Investors are also betting high in the industry; they poured around US$ 200 million into Indian e-commerce start-ups in last couple of years. As a result of such growth, e-retailers, who want to focus on their core functionalities, are expected to outsource bulky back-end operations (such as customer care, order processing, invoice processing, finance and accounts et al) and emerge as a substantial source of revenue to BPOs. Retail brands are expected to bring a great transformation in online space. Women's apparel retail brand Biba and tyre brand Bridgestone have become available online recently. IAMAI expects online advertising to increase by per cent in on back of increased internet usage by retailers. Government Initiatives The government of India is leaving no stone unturned to accelerate growth of IT & ITeS sector in the country. Earlier in 2011, the ministry had revealed its intentions to launch e-governance initiatives that would facilitate rolling out mobile governance and electronic service delivery bill. Sufficient funds have also been earmarked to connect Indian villages and classrooms across the country with knowledge centres wherein the government aims to provide broadband connectivity to all the village panchayats by Mr Sachin Pilot, Minister of State for Communications and IT believes that broadening connectivity in such a manner would improve the way government interacts with people. Further, the Ministry of Communications and Information Technology has revealed its intentions to attract higher investments for IT sector in smaller cities and make 22

23 software services sector grow more than three times to US$ 300 billion by The government also wants to increase the IT exports from US$ 59 billion currently to US$ 200 billion by The projections and focus areas were laid in a draft national policy which also stated that the government will endorse innovation, research and development (R&D) in advanced technologies and application development in areas such as cloud computing, mobile value-added services and social media. The policy also aimed at employing additional 10 million skilled people in the information communication technology sector. The sector currently has manpower strength of 2.5 million skilled people. IT & ITeS in India - Road Ahead The Indian market for IT products and services is expected to consolidate its growth achieved in 2010 and increase from US$ 19.7 billion in 2010 to US$ 41.2 billion by 2015, according to India Information Technology Report for the third quarter of 2011by Business Monitor International (BMI). BMI estimates that the Indian market for PCs (including notebooks and accessories) will be worth around US$ 8 billion in 2011, higher from US$ 6.8 billion in 2010 while it projects IT services market at around US$ 7.5 billion in 2011 which would further swell to a size of US$ 16.9 billion by The report has estimated a compounded annual growth rate (CAGR) of 18 per cent for Indian software market over the span of Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. 23

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