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Valuation by Tanushree Seth. Company Snapshot. Global Headquarters: Bangalore, India Founded: 1981 Global Presence: 36 Sales Offices in 17 countries 37 Global Development Centers Employees: 49,422 LTM Dec ’05 Revenue/ 5 Year CAGR: $2,014 million/ 41%

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valuation by tanushree seth
Valuation by

Tanushree Seth

company snapshot
Company Snapshot

Global Headquarters: Bangalore, India

Founded: 1981

Global Presence: 36 Sales Offices in 17 countries

37 Global Development Centers

Employees: 49,422

LTM Dec ’05 Revenue/ 5 Year CAGR: $2,014 million/ 41%

LTM Dec ’05 Net Income/ 5 Year CAGR: $530 million/ 37%

company statistics
Company Statistics

Employer Type: Public Company

Stock Symbol: INFYStock Exchange: NASDAQ

Market Share price: $74.98*

Key Executives

President, CEO, MD: N. R. Narayana Murthy

Nandan M Nilekani

T. V. Mohandas

PaiS. Gopalakrishnan

V. BalakrishnanK.

DineshS. D

ShibulalSrinath Batni

*As of 4/14/2006

CEO, President and MD: N.R. Narayan Murthy

  • Overview
  • Investment Highlights

Business model

Investment positives

  • Addressing Key market challenges: Risks
  • Valuation

Estimated growth rates of 30% and 25%

  • Comparable company analysis
  • Recommendation

Smart investments

  • In 1999, the firm became the first Indian company to list on NASDAQ
  • In 2002, Infosys started a recruiting and marketing blitz
  • The firm registered sales of $740 million, up 50 percent over the previous year, 2002
  • In 2004, , the firm hit its first billion

The U.S. dream team

  • The company turned its attention to the U.S. consulting market in April 2004, forming Infosys Consulting
  • Stephen Pratt, who was named CEO of the subsidiary; Romil Bahl, former head of EDS' consulting practice; Pal Cole, former head of global operations at CGE&Y; and Raj Joshi, former CEO of Deloitte Offshore.
  • In April 2004, the publication pointed out that the move was a step toward competing in the U.S. consulting market against the big guys like Accenture.
moving forward
Moving forward
  • In 2003, Infosys launched a business-processing subsidiary, Progeon, and secured a five-year, $30-million contract from U.S. mortgage firm GreenPoint.
  • In November 2004, Infosys and Microsoft announced an enterprise IT transformation initiative
  • In December 2003, the firm announced its intentions to acquire Expert Information Services, an Australian IT services firm, for around $23 million.
infosys work culture
Infosys Work Culture
  • Open-door culture
  • Hard work, lots of passion
  • A piece of heaven in Bangalore
investment highlights
Investment Highlights
  • Large, Expanding Addressable Market
  • Highly-evolved Global Delivery Model
  • Rapid Differentiation
  • Scalable Execution
  • Exceptional Financial performance
offshore outsourcing is a mega trend
Offshore Outsourcing is a Mega Trend

Outsourcing benefits:

  • Convert fixed costs to variable
  • Reduce TCO, enhance ROI
  • Improve competitiveness

Offshore benefits:

  • Deliver high quality at great value
  • Highly scalable with no foreseeable

supply constraints

  • Proven track record
  • Addressable market has increased

Source: Infosys

india 1 offshore destination
India: #1 Offshore Destination

Corporate Executives’ Preferred Destinations for Offshore IT Services

The India Advantage:

Strong Track Record

  • High quality delivery
  • Significant costs benefits
  • Strong government support
  • Mature industry
  • Man Power
  • Education system
  • 24 x 7 working model advantage

Source: Infosys: IDC Offshore Best Practices Enterprise Survey, 2004

infosys is a premier global it services firm
Infosys is a Premier Global IT Services Firm

Key competitive advantages

  • Extensive domain knowledge and expertise
  • Comprehensive offerings
  • Long-term relationships with blue chip clients
  • Proven Global Delivery Model
  • Execution excellence
  • Competent leadership and management team

Source: Infosys and Gartner 2004

5 year CAGR (LTM Dec 00-LTM Dec 05)

Global IT Services 5%

India IT Exports 29%

Infosys 41%

highly evolved global delivery model
Highly-evolved Global Delivery Model

Stage 1 Stage 2 Stage 3

Client Requirements

Infosys Delivery

infosys global delivery model
Infosys’ Global Delivery Model

2005 ________

2001 ________________

1996 ______________

1981 ____________

uniquely positioned in global it services and consulting
Uniquely Positioned in Global IT Services and Consulting


  • Consulting + Solution mindset
  • Build stronger brand
  • Strengthen Board-level relationships


  • Replace resources
  • Overcome “offshore-is-cost-center” mindset
  • Combat revenue cannibalization
  • Provide seamless sales and delivery
  • Reduce SG&A
applying gdm to consulting
Applying GDM to Consulting

----------------------------------------------------- Client Budget


35% lowering total cost

drivers of scalability
Drivers of Scalability



scalable execution
Superior Talent Management:

Hiring the Best

Able to simultaneously evaluate 10,000 people across 7 cities in India

Augmenting talent through new geographies

China, Eastern Europe

Supplementing with experienced local hires

Currently hiring people 59 nationalities

World Class Processes and Systems

Quality par excellence:

Benchmarked to Global Standards such as EFQM

Award-winning Knowledge Management Processes


2004 Asian MAKE Award

Scalable Execution
scalable execution1
Flexible Organization Structure

Integrated platform for delivery of end-to-end solutions from Consulting to BPM

Self-governed business units

By domain

By Market

By Service

Modular and Robust Infrastructure

37 Global Development Centers (“GDC”)

Ability to rapidly scale new engagements

Flexibility to distribute engagements and capacity across centers worldwide

Scalable Execution
addressing key market challenges



Onsite/offshore effort

Investment in sales and marketing


Wage inflation

US$/Rupee exchange rate

Infosys Strategy

Continue to penetrate high value-add segments

Leverage GDM+

Enhance internal productivity

Leverage economies of scale and brand

Move to variable salary structure and role-based compensation

Proactively hedge currency exposure

Addressing Key Market Challenges


Current EBIT = $491,000,000.00

Current Interest Expense = $0.00

Current Capital Spending $186,000,000.00

Current Depreciation & Amortization = $66,000,000.00

Tax Rate on Income = 14.66%

Current Revenues = $1,592,000,000.00

Current Non-cash Working Capital = $302,000,000.00

Chg. Working Capital = $152,852,304.00

Cash and Marketable Securities $688,000,000.00

Value of equity options issued by firm = $52,000,000.00

Book Value of Debt = $180,000,000.00

Book Value of Equity = $1,253,000,000.00


Market Value per share= $75

Number of shares outstanding= 274,530,000

Market Value of Debt= $180,000,000

Length of extraordinary growth period= 10 years

Beta of the stock= 2.03

Risk Free rate= 4.86

Risk Premium= 6.60%

Cost of Debt= 5.63%

Estimated Growth= 30%



Return on capital= 27.20%

Reinvestment Rate= 11%

Cost of Equity= 18.26%

Equity/(Debt+Equity)= 99.13%

After-tax Cost of debt= 4.80%

Debt/(Debt+Equity)= 0.87%

WACC: 18.14%


Current EBIT * (1 – tax rate) $419,019,400

- (Capital Spending – Depreciation) $120,000,000

- Change in WC $152,852,304

Current FCFF: $146,167,096.00

competitive landscape
Competitive Landscape

Infosys Technologies (INFY)


  • Wipro (WIT)
  • HCL Technologies Ltd.
  • Satyam Computer Services (SAY)
  • Cognizant Technology Solutions Corp.
  • Syntel Inc.
  • Tata Consultancy Services Ltd.
  • i-flex
  • Patni Computer Systems Ltd.
comparable company analysis
Comparable company analysis

*Share price as per 4/10/2006

(2) Includes in-the-money outstanding options, warrants and convertible securities, treasury-adjusted. Enterprise value is market capitalization plus total debt and other value, less cash and equivalents.

comparable company analysis1
Comparable company analysis

(2) Includes in-the-money outstanding options, warrants and convertible securities, treasury-adjusted. Enterprise value is market capitalization plus total debt and other value, less cash and equivalents.