Valuation by

Tanushree Seth

Company Snapshot
Global Headquarters: Bangalore, India Founded: Global Presence: Employees: 1981 36 Sales Offices in 17 countries 37 Global Development Centers 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
Employer Type: Public Company Stock Symbol: INFY Stock 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

Outline
Overview Investment Highlights Business model Investment positives Addressing Key market challenges: Risks Valuation Estimated growth rates of 30% and 25% Comparable company analysis Recommendation

Overview
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

Overview
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 eWeek.com pointed out that the move was a step toward competing in the U.S. consulting market against the big guys like Accenture.

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

Open-door culture Hard work, lots of passion
A piece of heaven in Bangalore

Investment Highlights
Large, Expanding Addressable Market Highly-evolved Global Delivery Model Rapid Differentiation

Scalable Execution
Exceptional Financial performance

Large, Expandable Addressable Market

Offshore Outsourcing is a Mega Trend

Outsourcing benefits: Convert fixed costs to variable Reduce TCO, enhance ROI Improve competitiveness

800 700 600 500 400

$606.00 bn

$728.00 bn

Corporate IT Services Spending Offshore Outsourcing IT Services Spending $18.00 bn $51.00 bn

Offshore benefits: Deliver high quality at great value Highly scalable with no foreseeable supply constraints Proven track record Addressable market has increased

300 200 100 0 CY 2004 CY 2007

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

80 70 60 50 40 30 20 10 0
India

80%

20% 17% 17%

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

Canada

China

Ireland

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
2500 2000 1500 Infosys Revenue 1000
$294.00 mm $2,014.00 mm

500 0
LTM Sep ' 00 LTM Sep '05

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

Global IT Services India IT Exports Infosys 5% 29% 41%

Source: Infosys and Gartner 2004

Business Model: Highly-evolved Global Delivery Model

Highly-evolved Global Delivery Model

Stage 1
Client Requirements Infosys Delivery

Stage 2

Stage 3

Run the business GDM

Grow the business GDM+

Transform the business GDM+ Consulting

Infosys Global Delivery Model

Management Consulting 2005 ________ Business Process Management IT Outsourcing

2001 ________________

Systems Integration

Technology Consulting Technology-enabled BPR

1996 ______________

Enterprise Solutions
Application Development and Maintenance

1981 ____________

Software Engineering
People|Organization|Infrastructure|Process|Quality

Infosys Global Delivery Model

Differentiation within the IT industry

Uniquely Positioned in Global IT Services and Consulting

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

NEED TO:
Replace resources Overcome offshore-is-cost-center mindset Combat revenue cannibalization Provide seamless sales and delivery Reduce SG&A

Applying GDM to Consulting

100 90 80 70 60 50 40 30 20 10 0 Traditional INFOSYS Consulting consulting Model
Business Change IT Implementation
----------------------------------------------------Client Budget

35% lowering total cost

Significantly lower total cost of engagement Lower IT implementation cost = flexibility in solution delivery Greater ability to invest in managing business change

-------|

Drivers of Scalability
Superior Talent Management World Class Processes and Systems Flexible Organization Structure Modular and Robust Global Infrastructure

LEADS TO

SCALABLE EXECUTION

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

World Class Processes and Systems

Quality par excellence: Benchmarked to Global Standards such as EFQM

Supplementing with experienced local hires

Currently hiring people 59 nationalities

Award-winning Knowledge Management Processes PRIDE 2004 Asian MAKE Award

Scalable Execution
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

Exceptional Financial Performance

Superior Revenue Growth

Sustained Industry-leading Profitability

Addressing Key Market Challenges

Challenges
Competitive Pricing Onsite/offshore effort Investment in sales and marketing
Economic Wage inflation US$/Rupee exchange rate

Infosys Strategy
Continue to penetrate high valueadd 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

Valuation
Inputs: Current EBIT = Current Interest Expense = Current Capital Spending Current Depreciation & Amortization = Tax Rate on Income = Current Revenues = Current Non-cash Working Capital = Chg. Working Capital = Cash and Marketable Securities Value of equity options issued by firm = Book Value of Debt = Book Value of Equity = $491,000,000.00 $0.00 $186,000,000.00 $66,000,000.00 14.66% $1,592,000,000.00 $302,000,000.00 $152,852,304.00 $688,000,000.00 $52,000,000.00 $180,000,000.00 $1,253,000,000.00

Valuation
Market Value per share= Number of shares outstanding= Market Value of Debt= Length of extraordinary growth period= Beta of the stock= Risk Free rate= Risk Premium= Cost of Debt=
Estimated Growth=

$75 274,530,000 $180,000,000 10 years 2.03 4.86 6.60% 5.63%

30%

Valuation
Outputs:
Return on capital= Reinvestment Rate= Cost of Equity= Equity/(Debt+Equity)= After-tax Cost of debt= Debt/(Debt+Equity)= 27.20% 11% 18.26% 99.13% 4.80% 0.87%

WACC: 18.14%

Valuation
Current EBIT * (1 tax rate) - (Capital Spending Depreciation) - Change in WC Current FCFF: $146,167,096.00 $419,019,400 $120,000,000 $152,852,304

NPV of FCFF
2006 EBIT * (1 - tax rate) - (CapEx-Depreciation) -Chg. Working Capital $586,198,084.13 $167,877,120.00 $120,490,752.00 2007 $820,077,050.95 $234,856,061.83 $168,563,670.27

Free Cash flow to Firm

$297,830,212.13

$416,657,318.85

Present Value

$252,096,381.22

$298,520,895.88

NPV of FCFF
2010 EBIT * (1 - tax rate) $2,245,357,256.2 2011 $3,141,200,912.8 2012 $4,394,464,688.31 2013 $6,147,750,631.7

- (CapExDepreciation)

$643,031,971.19

$899,586,294.92

$1,258,499,636.53

$1,760,610,787.5

-Chg. Working Capital

$461,524,511.31

$645,661,714.74

$903,265,243.03

$1,263,646,396.6

Free Cash flow to Firm

$1,140,800,773.7

$1,595,952,903.2

$2,232,699,808.75

$3,123,493,447.6

Present Value

$495,677,391.45

$586,958,282.56

$695,048,899.58

$823,044,817.93

NPV of FCFF
2014 EBIT * (1 - tax rate) - (CapExDepreciation) -Chg. Working Capital Free Cash flow to Firm Present Value $8,600,555,587.86 2015 $12,031,970,854.09 Terminal Year $12,633,569,396.79

$2,463,052,237.07 $1,767,810,981.38
$4,369,692,369.41 $974,611,675.13

$3,445,750,966.40 $2,473,125,135.49
$6,113,094,752.19 $1,154,090,149.91

$3,158,392,349.20 $0.00
$9,475,177,047.59

NPV of FCFF
Present Value of FCFF in high growth phase =
Present Value of Terminal Value of Firm = Value of the firm = Cash and Marketable Securities = Market Value of outstanding debt = Market Value of Equity =

$6,052,135,216.05
$13,612,066,744.99 $19,664,201,961.04 $688,000,000.00 $180,000,000.00 $20,172,201,961.04

Value of Equity options issued by the company =

Market Value of Equity/share =

$52,000,000.00
$73.29

Market Value at an estimated growth rate of 25%

Present Value of FCFF in high growth phase = Present Value of Terminal Value of Firm = Value of the firm = Cash and Marketable Securities = $ $ $ $ 4,627,111,697.12 8,458,660,426.31 13,085,772,123.43 688,000,000.00

Market Value of outstanding debt =

Market Value of Equity = Value of Equity options issued by the company = Market Value of Equity/share =

$
$ $ $

180,000,000.00
13,593,772,123.43 52,000,000.00 49.33

Firm is overvalued

Competitive Landscape
Infosys Technologies (INFY) Competitors: 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.

Share Price

Comparable company analysis

Ticker Symbol Company name Indian IT Services vendors ($/shr) INFY WIT 629489 SAY Infosys Technologies (INFY) Wipro (WIT) HCL Technologies Ltd. $75.10 $14.50 $13.47 $38.71 (%) 90.1% 93.6% 85.0% 87.0% ($MM) $20,616.8 $20,649.3 $4,335.6 $6,268.4 ($MM) $1,639.0 $1,574.6 $840.8 $914.8 Share Price* % of 52 week Equity high market cap (2) Book value Cash and equivalents ($MM) $969.0 $773.8 $441.8 $472.0

Satyam Computer Services (SAY)

*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 analysis

Company name Cash % of market cap (%) ($MM) Total Debt Enterprise Revenue EBITDA Indian IT Services vendors

Value (2)
($MM)

FY 07 ($MM)

FY 08 ($MM)

CY 06 ($MM)

CY 07 ($MM)

Infosys Technologies (INFY)

4.7%

$0.0

$19,660.8

$2,622.5

$3,320.0

$846.7

$1,055.9

Wipro (WIT)

3.7%

$32.3

$19,907.8

$2,886.8

$3,613.7

$689.0

$841.3

HCL Technologies Ltd. Satyam Computer Services (SAY)

(2)

10.2%

$41.2

$3,937.5

$1,117.8

$1,418.0

$255.4

$319.1

7.5%

$16.9

$5,834.2

$1,343.6

$1,703.2

$300.1

$377.8

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 analysis

Company name Indian IT Services vendors Enterprise Value/Revenue FY 07 (x) Infosys Technologies (INFY) 7.5 x FY 08 (x) 5.9 x Enterprise Value/EBITDA FY 07 (x) 23.2 x FY 08 (x) 18.6 x

Wipro (WIT)

6.9 x

5.5 x

28.9 x

23.7 x

HCL Technologies Ltd.

3.5 x

2.8 x

15.4 x

12.3 x

Satyam Computer Services (SAY)

4.3 x

3.4 x

19.4 x

15.4 x

Comparable company analysis

Company name Indian IT Services vendors Earnings per share FY 07 FY 08 Price/Earnings FY 07 FY 08 Long-term Growth rate PEG FY 07 ratio FY 08

($/shr)

($/shr)

(x)

(x)

(%)

(x)

(x)

Infosys Technologies (INFY)

$2.38

$2.87

31.6 x

26.2 x

29.4%

1.1 x

0.9 x

Wipro (WIT) HCL Technologies Ltd. Satyam Computer Services (SAY)

$0.38 $0.54

$0.46 $0.62

37.9 x 25.2 x

31.6 x 21.6 x

23.4% NA

1.6 x NA

1.4 x NA

$1.54

$1.85

25.2 x

20.9 x

21.5%

1.2 x

1.0 x

Recommendation: Buy at low

Thank you!