Fundamental Analysis

“A study on Stock
Stocks
tocks of Infosys Tech Ltd”
Ltd”
A REPORT SUBMITTED TO UTKAL UNIVERSITY IN PARTIAL FULFILLMENT
OF THE DEGREE OF MASTER OF FINANCE AND CONTROL
(2009 – 11)
Submitted by
Dillip Khuntia
Roll No. 1370V091011
Under the Guidance of
Dr. P.K. Hota
Reader, P.G. department of Commerce
Utkal University

Master of Finance & Control

P.G. Depart of Commerce
Utkal University
CONTENT
CONTENT…………..
TENT…………..
1. Chapter One
Economic Analysis

The Political Equation.

Global Recession & Indian Economy.

Economic Growth.

Government Policy.

Budget.

Tax Policy.

Interest Rate.

Infrastructure.

Inflation.
2. Chapter Two
Industry Analysis

Past Performance

Competitive Structure

Permanence

Growth

Vulnerability

3. Chapter Three
Company Analysis

The Company Profile

The Management

Analysis of Annual Report
 Chapter One
EconomicAnalysis
INTRODUCTION

A wise man once said,’ No man is an island’ No person can work and live in isolation.
External factors are constantly influencing an individual’s action and affecting him.
Similarly, no industry or company can exist in isolation. It may have splendid managers and a
tremendous product. However, its sales and cost are affected by many external factors, some
of which are beyond its control. These factors may be The World Economy, price inflation,
taxes, and a host of others. It is important therefore, to have an appreciation of the politico-
economic factors that affects the industry and a company and a economy as a whole.

THE POLITICAL EQUATION

A stable political environment is necessary for steady, balanced growth of a country. If a
country is ruled by a stable government which takes decisions for the long- term growth of
country, industry and company will prosper. On the other hand, instability causes insecurity,
especially if there is the possibility of a government being ousted and replaced by another
that holds diametrically different political and economic beliefs.
Presently India has a stable government at the centre. The PM, Dr. Manmohan Singh led
UPA government is working efficiently for the development of country. The various steps
taken by the government indicates a steady growth both in agricultural and industrial sector.
Currently industrial growth is about 9% , the GDP is about 7.2%, which is expected to touch
double – digit in 2014 – 15. The stimulus packages announced by the government and
exemption of CTT and FBT and decrease in corporate taxes ensured growth of industry in
recessional phase. Now, the decision of withdrawing the stimulus in a phased manner in the
last Budget is a encouraging step for the betterment of the economy.

GLOBAL RECESSION & INDIAN ECONOMY

Starting from US Sub-prime crisis, the World had seen a worst recession after The Great
Depression of 1930’s. The Indian stock market have hit by the global crisis. India’s growing
service sector and manufacturing sector are adversely affected by this. But, still due to our
mixed economy policy and proper steps taken by the government, Indian economy is least
affected by the global meltdown. While most of the developing countries are still recovering
from recession, India had already recovered from the downturn, showing a great growth
prospective in all sectors.
ECONOMIC GROWTH
Economic growth is a key indicator of development of a country. It shows the efficient
utilization of the resources in a optimal way. The growth rate of 9.8% in 2007/08 decreased
to 6.2% in last fiscal due o global recession. But now with a sign of recovery Indian economy
is growing
rowing at 7.2% which is expected to touch double – digit in 2014/15. Per capita income is
also increased from3.7%
% of 2008-09
2008 to 5.3% in 2009-10 and the living style of the people is
also bettered. After China, India is second developing nation in the World. Thus, one can say,
the economic growth of India is steady and continuous.

GOVERNMENT POLICY
Government policy has a direct impact on the economy. A government that is perceived to be
pro-industry will attract
ract investment. The liberalization policy of Narsimha Rao government
excited the developed World and foreign investors to invest in India. The initiatives of former
BJP government in improving infrastructure grabbed the attention of foreign investors. From
Fro
the last two budget it is quite clear that the present government is also focusing on
infrastructure. Stimulus packages, tax cut, monetary & fiscal policy measure taken by the
government has proved, the immense importance of government policy.

BUDGET
Due to the huge public expenditure and stimulus packages announced in last fiscal, India has
one of the largest budget
et deficit in the World which was about 6.8% of its GDP.
GDP Excluding
subsidies it amount to 8% of GDP. Although it is fallen a little which is now 5.8%
5.8%, but still it
is high, which is not a good sign for the economy. In the current budget the Finance minister
has given priority to two things i.e, economic development and fiscal consolidation. Thus, it
can be stated that, fiscal deficit in future will decrease and there will be a robust growth in
Indian economy.

TAX POLICY
Tax policy has a direct impact on the economy. If tax rates are low, people have more
disposable income, which is a incentive to invest. The recent tax policy of government, i.e,
increase in tax slab, increase in Mat from 15% to 18%, decrease in surcharge from 10% to
7.5%, service tax 10% etc, can be considered as a sound tax policy.

INTEREST RATE
A low interest rate stimulates investment and industry. Conversely, high interest rates result
in higher cost of production and lower consumption. In India, the government, through
Reserve Bank of India, is successful in lowering the interest rates. Increasing competition
among the banks also helped.

INFRASTRUCTURE
The development of a country is dependent on its infrastructure. Industry needs electricity to
manufacture and road to transport goods. Bad infrastructure leads to inefficiencies, poor
productivity, wastage and delays. This is probably the reason why the last two budgets lay so
much emphasis on infrastructure.

INFLATION
Inflation has an enormous effect in the economy. Within the country it erodes purchasing
power. As a consequence demand falls, which affects the industry adversely. Coming to
Indian scenario, fuelled by rising wages, property prices and food prices, inflation in India is
an increasing problem. The food inflation is about 17.81% and the WPI- inflation is about
9.87% which may touch double digit soon as stated by RBI Deputy Governor, which may
affect adversely the economy of the country as well as the industry.
Apart from all these factors, the other factors which play a significant role in the development
of Indian economy are,
Demographics of India are favourable
There is much scope for increasing efficiency.
India is well placed to benefit from globalization and outsourcing.
To conclude, it can be said that Indian economy is growing and will continue to grow. The
growth in services sector, industrial sector, especially IT sector indicates a significant growth
in future.
 Chapter Two
Industry Analysis
INTRODUCTION
In increasing globalised world, significant complexity and uncertainty is getting
attached to the unprecedented economic crisis. The Indian economy has also been impacted
by the recessionary trends, with a slowdown in the GDP growth to 7%. The focus and
exponential growth in the market has partially offset this fall and insulated the country,
resulting in net overall momentum. With this momentum the economy is revived mostly and
now growing at 7.2% rate. The IT industry in India has today become a growth engine for the
economy, contributing substantially to increase in the GDP, urban employment and export, to
achieve the vision of a ‘young and resilient’ India. During the year, the sector maintained its
double digit growth rate and was a net hirer. This growth has been fueled by increasing
diversification in the geographic base and industry verticals, and adaptation in the service
offerings portfolio. While the effects of the economic crisis are expected to linger in the near
term future, the Indian IT industry has displayed resilience and tenacity in countering the
unpredictable conditions and reiterating the viability of India’s fundamental value
proposition. Consequently, India has retained its leadership position in the global sourcing
market.
While the current mood is that of “cautious optimism,” the industry is expected to
witness sustainable growth over a two-year horizon, going past its USD 60 billion export
target in FY2011. While the industry has significant headroom for growth, competition is
increasing, with a number of countries creating enabling business environments aimed at
replicating India’s success in the IT industry.
PAST PERFORMANCE
The IT revolution started in India in 1980’s and since then it is constantly growing.
After USA, Indian is second in producing software. This shows the rapid growth in IT sector
in India. The pattern of shareholder, revenue earned and dividend allowed are significant. The
growth rate of IT industry in 1995 was 1.1%, which is about 8.7% now. Though the sector is
affected by the global slowdown, but the influence on Indian IT sector is least. Indian It
sector has revived from recession and now it is in growth phase. The graph shows the pattern
of growth in IT sector.
COMPETITIVE STRUCTURE
Another must be taken into consideration is the level of competition among various
companies in an industry. Competition within an industry leads to efficiency, product
improvement and innovation. There are many players in the IT sector of India, which
indicates the competitiveness in the industry. Out of these TCS, Infosys, Wipro, HCL,
Satyam are the major IT giants of the country. While the IT sector contributes about 30% to
the GDP, these companies contribute 80% of that. All these companies are MNCs and listed
in NASDAQ.
PERMANENCE
Change in the air in 2009. More so, in case of IT companies. Enterprises are
embarking on various forward – thinking approaches and new technologies. As the global
economy slowed down and the macro-economic situation continued to be challenging, IT
companies are looking for ways to trim spending and improve their output. Technology
trends in networking market point out toward growth. According to Mr. Naresh Wadhwa,
President and Country manager, India & saarc, Cisco, the networking and communication
market will propel the growth of Indian IT sector.
While banking, financial services & insurance and telecom service provider will
remain key adopter in the market, the government is likely to emerge as a big spender due to
various e-governance and state wide area network (SWAN), initiatives. Thus, it can be said
that the IT industry will survive in long-run.
GROWTH
The Indian IT industry has contributed significantly to the Indian economy, clocking
30 per cent growth year over year, over the last decade. While today, over two million
individuals are directly employed by the industry – another seven to eight million jobs have
been created downstream. With exports of USD 40.4 billion in 2008-09, the industry today
constitutes 25 per cent of the country’s exports. Over the years, this industry has continued to
expand geographically, added new service lines and created new business models. Customers
are serviced in over 80 countries and significant amount of intellectual property and new
products and solutions have been created by the young and bright professionals. In some
manners, the IT industry has also become the face of the new vibrant India.
. This growth has been contributed by Indian service providers, multinationals and a
large number of the global companies, who set up their research, IT, back-office operations
and centres of excellence in India. The industry has a large number of small and medium
companies – that are creating innovative solutions and new business models.
The recent global crisis which led to an unprecedented economic crisis the world
affected the Indian IT sector and helped the industry emerge stronger and operationally more
robust. The last two quarter result of all IT companies showed a growth. The graph below
show the market capitalization of IT sector, which clearly indicates the growth prospective of
IT industry.
VULNERABILITY
Vulnerability means to what extent the industry is dependent on the key
commodities like oil and to how fashion trend affect the business of the particular industry.
Now considering IT industry, it can be said that this sector is less dependent on essential
commodities like oil. The growing fashion trend will also has no direct influence on the IT
industry. Thus on this basis, the IT sector has a competitive advantages upon the other sector.
Chapter Three
Company Analysis
At the final stage of fundamental analysis, the investor analyzes the company.
This analysis has two thrusts;
 How has the company performed vis-à-vis other similar companies?
 How has the company performed in comparison to earlier years?
For this one should analyze the following aspects,
 The Company
 The Management
 The Annual Report

THE COMPANY PROFILE

Infosys Technologies Limited (Infosys), incorporated on July 2, 1981, is a global

technology services firm that defines, designs and delivers information technology (IT) -
enabled business solutions to its clients. The Company provides end-to-end business
solutions that leverage technology for its clients, including consulting, design, development,
software re-engineering, maintenance, systems integration, package evaluation, and
implementation and infrastructure management services. Infosys also provides software
products to the banking industry. Infosys BPO (formerly Progeon Limited) is a majority
owned subsidiary. Infosys Australia, Infosys China and Infosys Consulting are the
Company's wholly owned subsidiaries. In June 2006, Infosys acquired the shares in Infosys
BPO held by Citicorp International Finance Corporation (CIFC). As a result, Infosys
effectively holds 99.98% of the equity share capital of Infosys BPO as of March 31, 2007.

The Company complements its service offerings with specialist support for clients
using its domain competency group that has expertise in areas, such as securities, insurance,
telecommunication, banking and cash management, supply chain management,
manufacturing, retail and distribution, energy and utilities, healthcare, and travel and tourism.
It also uses its software engineering group and technology lab to create customized solutions
for its clients. In addition, it continually evaluates and trains its professionals in new
technologies and methodologies.
CORE SERVICES
Custom Application Development
  The Company provides customized software solutions for its clients. Infosys creates
new applications and enhances the functionality of its clients' existing software
applications. The Company's projects vary in size and duration.
 The Company's application development services span the entire range of mainframe,
client server and Internet technologies. An increasing proportion of Infosys'
applications development engagements are related to emerging platforms such as
Microsoft's .NET or open platforms, such as Java 2 Enterprise Edition (J2EE) and
Linux
MAINTENANCE AND PRODUCTION SUPPORT
 Infosys provides maintenance services for its clients' large software systems that
cover a range of technologies and businesses, and are typically critical to a client's
business. The Company focuses on long-term functionality, stability and preventive
maintenance to avoid problems that typically arise from incomplete or short-term
solutions. While Infosys performs most of the maintenance work at its global
development centers using secure and redundant communication links to its client's
systems, it also maintain a team at the client's facility to coordinate certain key
interface and support functions.
SOFTWARE RE-ENGINEERING
 The Company's software re-engineering services assist its clients in converting their
existing IT systems to newer technologies and platforms developed by third-party
vendors. Infosys' re-engineering services include Web-enabling its clients' existing
legacy systems, database migration, implementing product upgrades, and platform
migrations, such as mainframe to client-server and client-server to Internet platforms.
PACKAGE EVALUATION AND IMPLEMENTATION
 Infosys assists its clients in the evaluation and implementation of software packages
developed by third-party vendors. It also provides training and support services in the
course of their implementation.
 The Company specializes in enterprise resource planning packages developed by
vendors, including Oracle, PeopleSoft, Retek and SAP; supply chain management
packages developed by vendors, including i2, Manugistics and Oracle; customer
relationship management packages developed by vendors, including PeopleSoft
(Vantive) and Siebel; business intelligence packages developed by vendors, such as
 Business Objects and Cognos, and enterprise application integration packages
developed by vendors, such as IBM and TIBCO.
INFORMATION TECHNOLOGY CONSULTING
 The Company's IT consulting professionals assist its clients by providing technical
advice in developing and recommending appropriate IT architecture, hardware and
software specifications to deliver IT solutions designed to meet specific business and
computing objectives.
 Infosys offers IT consulting in the areas of migration planning, institution-wide
implementation and overall project management involving multiple vendors under a
common architecture; IT infrastructure assessment, which includes assessing its
clients' IT capabilities against existing and future business requirements and
recommending appropriate technology infrastructure, and technology roadmap
development, which allows clients to evaluate emerging technologies and develop the
standards and methodologies for applying those emerging technologies.
OTHER SOLUTIONS
 Infosys' service offerings including testing services, engineering services, business
process management, systems integration, infrastructure management, and operational
and business process consulting. The Company offers end-to-end validation solutions
and services, including enterprise test management, performance benchmarking, test
automation and product certification.
 For each particular client, Infosys focuses on developing a framework for ongoing
testing in order to seek continuous improvement in the predictability of its client's
internal systems. The Company's service professionals are trained in test management
tools from developers, such as Mercury Interactive, IBM-Rational and Segue.
FINACLE
 Finacle®, the universal banking solution from Infosys, helps banks by enabling them
to shift their strategic and operational priorities. It maximizes their opportunities for
growth, while minimizing the risks that come with large-scale business transformation
 Finacle® currently powers 91 banks across 54 countries, helping them serve over 100
million customers, 150 million accounts, 80,000users and supporting over 36 million
peak banking transactions per day spread across multiple installations
KEY INDUSTRIES
Infosys serves various industries through its vertical business units, such as:
 Aerospace and Automobile (AnA)
 Banking & Capital Markets (BCM)
 Communication Service Providers (CSP)
 Resources, Energy & Utilities (REU)
 Hi Tech & Discrete Manufacturing (HTDM)
 Insurance, Healthcare & Life Sciences (IHL)
 Media and Entertainment
 Product Lifecycle and Engineering Solutions (PLES)
 Retail, Distribution & CPG (RETL)
 Transportation & Services (TnS)
 Independent Validation Solutions (IVS) - provides software testing services.
 IT Infrastructure Management Services (IMS) - manages core networks, data centers
and servers of clients.
 Real Estate
 Life science
In addition to these, there are business units aligned to clients' geographies, such as
EMEA (Europe, Middle East & Africa), APAC (Asia-Pacific) and CAND (Canada). There
are also horizontal business units such as ES (Enterprise Solutions), which specializes in ERP
and package implementation and works with clients across industries and geographies and SI
(Systems Integration), which provides integration services to clients
THE MANAGEMENT
The single most important factor that one should consider when investing in a
company is its management. It is upon the quality, competence and vision of the management
that the future of the company rests. A good competent management can make a company
grow while a weak, inefficient management can destroy a thriving company.

The Management of Infosys consist of N.R. Narayana Murty, S. Gopalkrishan, S.D.

Shibulal, Dr. Omkar Goswami, and many eminent person from diversified field. The name in
the management team is well known and they are considered as top management practitioner
of the country. Thus, it can be said that the investor’s money are in the safe hands of a well
experienced and professional management. This also gives Infosys a competitive advantage
over its competitors.

THE ANNUAL REPORT

The annual report is the key indicator of the financial health and position of a company. Thus,
it is required to analyse the annual report before investing in the company.
From the annual report of Infosys the following information can be taken into consideration,

Income increased by 29.5%

Export Revenue up by 29.7% of which 65.5% of revenue came from North America,
25.3% from Europe and 9.1% from rest of the world.

Net profit increased by Rs108 Cr.

Net foreign exchange earning stands at Rs 578 Cr.

Rs 582 Cr transferred to general reserve and Rs 10305 Cr is retained.

Infosys has created a favourable work environment that encourages innovation and
meritocracy. It adopts scalable recruitment and Human Resource management. This
year it has added net 12,361 employees.

Infosys set up “Infosys science Foundation”, to promote research in science.

The R & D department of Infosys is quite strong. A total of Rs 267 Cr was expended
on R & D. The British Telecom has signed a MoU with Infosys for R & D support.
PROJECTED PROFIT & LOSS ACCOUNT FOR ON 31 MARCH 201
All Figures are in Cr.

Particulars 2007 2008 2009 2010 E

Income 13522 16331 20776 26372.82

Expenditure 9393 11231 14052 17846.04

Profit Before Tax 4129 5100 6714 8526.78

Tax 346 630 895 1108.48

Profit After Tax 3783 4470 5819 7418.29

Balance Brought forward 2190 4844 6614 10305.00

Balance 5973 9314 12460 17723.29

EPS 59.73 78.24 101.65 129.69

JUSTIFICATION:-
Here a projection of 27% growth in income is made, the reasons are
Economic Trend is encouraging. The GDP is growing at 7.2% and it is expected to
touch double digit by 2014.
Since the industry has just revived from recession, it is now in a growth phase.
The Market condition is also good.
Infosys exports most of its products and as the world economy is reviving from
recession, there may be a better opportunity for Infosys.
Since banking, telecom industry are growing, IT industry may get some profit out of
it.
Government is going for e-governance and SWAN, which is beneficial for the IT
sector.
Revival of USA may also a cause for the growth of Indian IT sector, as most of the
product and services are exported to there.
A 27% increase in the total expenditure may occur due to following reasons,
High inflation.
Labour cost will be more.
Since the company is reviving from recession, it may go for more diversified
investment, which will increase the expenditure.
Instability in the foreign market leads to currency risk, which may add to expenditure
of Infosys.

CALCULATION OF INTRINSIC VALUE OF SHARE

If we observe last three years P/E Ratios of Infosys, it is 29.76% in 2007, 18.40% in 2008,
13.09% in 2009. This decrease in P/E Ratio is mainly for the global melt down. But now,
since the global as well as the Indian economy is growing and Infosys itself has shown a
positive trend in last three quarters, it can be predicted that the company can achieve P/E
Ratio of 17% in next year.
Intrinsic Value of the share of Infosys

= Projected P/E Ratio × Projected EPS

= 17 × 129.69
=2204.73
The current market price of Infosys share is 2732.35
SUGGESTION:
If we compare both the values i.e, current market price of the share to that of the intrinsic
value of the share, it can be stated that the shares of Infosys are over – valued. But the current
market condition, past quarter results of Infosys and economy have showed a positive trend.
Thus, it can be suggested that one should hold the shares of Infosys. Buying of Infosys share
should be avoided. One may sell his/her holding, but looking at current economic scenario it
is advisable to hold the shares.