Financial Analysis 2010-2012

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Company’s Backdrop

19992000

20012004

20062008

20102011

010002000300040005000600070008000

Revenue (in million $)• Started in 1981 by 7 people with Rs 12,000• 1987 - First international office setup in Boston • 1993 - Goes public• 1999 - Became the first Indian company to get listed in NASDAQ• 2004 - Revenue crosses $ 1 billion• 2008 - Annual net profit crosses $ 1 billion• 2012 - Forbes ranks Infosys among the world's most innovative

companies

INFY from investors POV

2005 2006 2007 2008 2009 2010 2011 20120.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

2,099.00

3,000.00

2,242.00

1,758.00

1,125.00

2,606.00

3,449.00

2,763.90

Share Price History

• Current share Price BSE: Rs 2495.90NSE: Rs 2495.30

• Market Cap – Rs 1,43,322 crores• No. of shares – 57, 42, 29, 742• Income 2012 – Rs 33,567 crores

Ratios

Category Ratios 2012 2011Overall Perform

ance Measur

e

Price / Earning 28.34x 19.24xReturn on Assets 27.09 % 19.01 %Return on Invested Capital 32.59 % 29.45 %Return on Shareholders’ Equity 28.48 % 26.29 %

Profitability

Measures

Gross Margin Percentage 34.58 % 35.36 %Profit Margin 25.60 % 24.28 %Earning Per Share Rs 147.50 Rs 112.22 Cash Realization 1.03x 1.09x

Test of Investm

ent Utilizati

on

Asset Turnover 0.87x 0.87xInvested Capital Turnover 1.04x 1.03xEquity Turnover 1.05x 1.03xCapital Intensity 7.72x 6.25x

People were willing to pay 19.24 times the actual earnings per share in 2011, which

increased in 2012 to 28.34 times which is a very good sign.

The ROA ratio has increased in 2012 as compared to 2011 which is a positive

indication, it also indicates higher earning power & low interest costs.

ROI of Infosys is high indicating that invested capital has been efficiently used. The increase from 2011 to 2012 by 3.14 % only goes on to

show the capital has been used ably to generate higher income.

The ROE has increased as compared to 2011 which indicates that Infosys is profitable,

thereby benefiting the shareholders. This value is higher than the industry standards, indicating

Infosys’ good use of debt to increase the returns for equity holders.

A drop of 1% the gross margin is not a major concern as the sales revenues have increased by

23% over the previous year.Despite of marginal fall in gross profit margin,

the net profit margin has grown by more than 1 % point. The company is retaining more amount

of it sales revenue.

Net Income has increased by 31% rendering the shareholders with more money. A ratio of greater than 1 is considered as safe. It

has dropped because accounts payable has decreased. But it’s still healthy.

For both the years the fixed asset turnover ratio has remained the same. It’s a healthy value.

The ratio has been maintained at a healthy level.

There is a minimal increase in the turnover. It indicates that the company is profitable & the

shareholders are benefitting.

Capital intensity is increasing because of increase in sales revenue.

Ratios continued..

Category Ratios 2012 2011Test of

Investment

Utilization

Days’ Cash 326 DaysDays Receivables 63 Days 61 DaysWorking Capital Turnover 1.39x 1.45xCurrent Ratio 4.72 4.94Acid-test Ratio 4.72 4.94

Test of Financia

l Conditio

n

Financial Leverage Ratio 1.20x 1.18xDebt / Equity Ratio 20.36 % 17.77 %Debt / Capitalization Ratio 0 % 0 %Times Interest Earned 7.45x 9.12x

Test of Dividend

Policy

Dividend Yield 1.08 % 2.08%Dividend Payout 23.76 % 48.98 %

337 Days

The day’s cash has increased when compared to 2011. This does hold much

of a value as the company instead of retaining cash, should have invested in

securities to get better returns.

When compared to local competitor Tech Mahindra, it was seen that the days

receivables was lesser.

The working capital turnover declined marginally due to increase in cost of sales.

This value is very healthy as compared to industry standard. This means company can easily meet the current liabilities.

. The value is pretty healthy, either current liability is less or current assets

are high. It has enough short-term assets to cover its immediate liabilities.

Infosys has a lower financial leverage ratio indicating that it has a long financial base and hence it would easily be able to pay

its debts.

This value is healthy as compared to industry standard. The percentage of

equity & debt that the company uses to finance its assets has increased.

The value is zero because the actual value is infinitely small. This means that the

company is completely funded by equity which is a good sign.

The ratio has decreased when compared to 2011, which indicates that it may face difficulties in future if this ratio further

drops down. Infosys is covering the interest charges by a relatively low margin of safety.

Thus if it attempts to borrow additional funds, it may face difficulties.

Despite a decrease in dividend payout and yield percentage as compared to the

previous year, the EPS has increased by 31%. Hence shareholders have been benefitted.

This has been reflected in the price per earnings ratio which has substantially

increased from 19.24 times to 28.34 times.

DuPont Equation

Profit Margin * Asset Turnover * Equity Multiplier

2012 2011

25.60 * 0.87 * 1.20 = 26.72 24.28 * 0.87 * 1.18 = 24.92

• Infosys made 25.60% on each rupee of sales for 2012 while in 2011 it was 24.28%. The profit margin has increased by 1.32 % as a result of a whooping increase in sales.

• While the asset turnover remains unchanged, the common equity marginal increased by 0.02

• The change in profit margin has lead to a positive change and indicates the assets & shareholders equity is being used effectively and profitability.

SWOT Analysis

STRENGTHS• High skill level in IT• Strong financial position• Positioned as high-end differentiated player• Large work force of 1,51,151

WEAKNESSES• Struggles to grab high profit US Federal govt. projects• Much smaller(revenue) than its global competitors(HP, IBM, Accenture)• Weak in high-end management consultancy, Accenture rules this space

OPPORTUNITIES• New emerging market in China, Korea• Greater scope for product innovation• Domestic demand for IT products growing at 20 %

THREATS• Global economic slowdown• Management transition from founders to professionals• Increased competition from low-wage countries like China, Indonesia

Infosys Financial Position

• Despite the dividend yield & dividend payout has decreased the earnings per share has increased by 31 % as compared to 2011. Thus overall the shareholders’ have benefited & hence the price per earning ratio has increased significantly in 2012.

Conclusion

• In the year 2012, the ROA ,ROIC ,ROE, and Profit margin has increased. Hence the net income of Infosys has increased by 21% as compared to 2011. Thus Infosys has been profitable.

• Infosys has also retained maximum form of its profit in the form of cash, thus increasing days cash. Considering the global slowdown, its decision of not investing is wise.