Infosys Financial Analysis

Financial analysis of infy with risk and return analysis

1. INFOSYS Presented By - GROUP 2 Anirban (MP13011) Atul (MP13019) Shwet (MP13057) Viraj (MP13068) Vishal (MP13069) Ramesh ( MP13074)

2. INFOSYS LTD HISTORY OF INFOSYS Narayan Murthy along with his six software engineers namely Nandan Nilekani , N S Raghavan , S Gopalakrishnan , S D Shibulal , K Dinesh and Ashok Arora registered the company on 2 nd July 1981. Initial startup capital was $250.Infosys co-founder N S Raghavan's house in Matunga , north central Mumbai, was its registered office. It was then known as Infosys Consultants Pvt Ltd. Established in 1981, Infosys is a NYSE listed global consulting and IT services company with more than 161,000 employees. From a capital of US$ 250, we have grown to become a US$ 8.39 billion (LTM Q1 FY15 revenues) company with market capitalization of approx. US$31 billion. Change in name: It changed its name to "Infosys Technologies Private Limited" in April 1992 and to "Infosys Technologies Limited" when it became a public limited company in June 1992. It was later renamed to "Infosys Limited" in June 2011

3. INFOSYS LTD INDUSTRY: IT Services & IT Consulting HEADQUARTERS: Banglore , Karnataka, India PRODUCTS: Finacle (A Universal Banking product) SERVICES Information Technology Consulting Service Solutions and Outsourcing System Integration Application Services LISTING OF INDICES Sensex Nifty BSE-100, BSE-200 CRISIL-500 NYSE Bangalore Stock Exchange BUSINESS MODEL Provides consulting and IT services to clients globally Use a low-risk Global Delivery Model (GDM) to accelerate schedules Work based on high degree of time and cost predictability

4. Corporate Governance Analysis Infosys, India’s second largest IT services company recently appointed Vishal Sikka , the former chief technology officer and member of executive board at enterprise software maker SAP, as the new CEO & MD. He has replaced S D Shibulal as one of the founders who was the CEO and MD of the company on August 1 2014. Dr. Sikka is the first non founder CEO of the company. He was inducted as a whole-time director of the Board and CEO & MD (Designate) of Infosys on June 14.   Under the compensation structure for Sikka , he is entitled to an annual grant of restricted stock units (RSUs) covering either the company equity shares or American Depository Shares (ADS) with a value of $2 million. The annual base salary of Sikka is $900,000 with variable component being $4,180,000 ($4.18 million), making him the highest paid executive in the Indian IT services industry. Sikka has been appointed as CEO and managing director of Infosys for five years from August 1, 2014, till June 13, 2019.

5. Board of Directors Name Designation N R Narayana Murthy Non Executive Chairman U B Pravin Rao Chief Operating Officer Carol M Browner Independent Director Jeffrey Sean Lehman Independent Director, VC and CEO of startup joint venture  New York University, Shanghai Kiran Mazumdar Shaw Independent Director, Chairman & MD of Biocon Limited Vishal Sikka Whole Time Director,CEO & MD S Gopalakrishnan Non Executive Vice Chairman, President of CII K V Kamath Independent Director Omkar Goswami Independent Director, Founder and Chairman of CERG Advisory Private Limited R Seshasayee Independent Director, Chairman Indusland Bank Limited Ravi Venkatesan Independent Director, Chairman Social Ventures Partners India

6. INTERESTS IN INFOSYS CAPITAL The following table sets forth as of March 2012, certain information with respect to the beneficial ownership of Infosys Equity Shares by each shareholder or group known by it to be the beneficial owner of 5% or more of our outstanding Equity Shares The Shares beneficially owned by the directors include Equity Shares owned by their family members to which such directors disclaim beneficial ownership The Share numbers and Percentages listed below are based on 574,230,001 Equity Shares outstanding, as on March 31, 2012 Name of the Beneficial Owner Class of Security No of shares beneficially held % of class of shares March 31, 2012 Shareholding of all Directors and officers as a Group -33,690,992 5.87 1. Comprised 19,555,717 Equity Shares beneficially owned by S Gopalakrishnan, representing 3.41% and 12,628,911 Equity Shares beneficially owned by S D Shibulal, representing 2.20% 2. Comprised of 1,506,364 shares owned by non-founder directors and officers. The % ownership of the group is calculated on a base of 574,237,430 Equity Shares which includes 7,429 options that are currently exercisable or exercisable by all the optionees within 60 days of March 31,2012

7. Having founded the INFOSYS FOUNDATION , the company strengthened its commitment to social causes like aiding the destitute and the disadvantaged people. One percent of Infosys’ profit goes to the foundation annually(post taxation). The foundation emphasises on healthcare, education and promotion of arts & culture In 2003-04 Infosys initiated 3 social programmes to improve the computer literacy among rural people, including the teachers in those areas. Along with Microsoft, Infosys launched a programme, computer@classrooms , giving away old computers to educational institutions . Infosys Fellowship Program. Rural Reach program. Catch Them Young. Train the Trainer. Philanthropy: The Infosys way

8. Capital Structure of Infosys Capital Structure (Infosys) Period Instrument Authorized Capital Issued Capital - P A I D U P - From To (Rs. cr) (Rs. cr) Shares (nos) Face Value Capital 2013 2014 Equity Share 300 285.7 571402566 5 285.7 2012 2013 Equity Share 300 287.08 574151559 5 287.08 2011 2012 Equity Share 300 287.08 574151559 5 287.08 2010 2011 Equity Share 300 287.08 574151559 5 287.08 2009 2010 Equity Share 300 286.91 573825192 5 286.91 2008 2009 Equity Share 300 286.42 572830043 5 286.42 2007 2008 Equity Share 300 286 571995758 5 286 2006 2007 Equity Share 300 285.6 571209862 5 285.6 2005 2006 Equity Share 150 137.78 275554980 5 137.78 2004 2005 Equity Share 150 135.29 270570549 5 135.29 2003 2004 Equity Share 50 33.32 66641056 5 33.32 2002 2003 Equity Share 50 33.12 66243078 5 33.12 2001 2002 Equity Share 50 33.09 66186130 5 33.09 2000 2001 Equity Share 50 33.08 66158117 5 33.08 1999 2000 Equity Share 50 33.08 66150700 5 33.08 1998 1999 Equity Share 50 33.07 33069400 10 33.07 1997 1998 Equity Share 30 16.02 16017200 10 16.02 1996 1997 Equity Share 10 7.26 7259600 10 7.26 1995 1996 Equity Share 10 7.26 7258600 10 7.26 1994 1995 Equity Share 10 7.26 7258600 10 7.26 1993 1994 Equity Share 4 3.35 3352100 10 3.35 1992 1993 Equity Share 4 1.98 1976100 10 1.98

9. CAPITAL STRUCTRE

10. Announcment Date Effective Date Dividend Date Dividend(%) Remarks 28-08-2014 16-10-2014 Interim 600% Rs.30.0000 per share(600%)Interim Dividend 15-04-2014 29-05-2014 Final 860% Rs.43.0000 per share(860%)Final Dividend 26-09-2013 17-10-2013 Interim 400% Rs.20.0000 per share(400%)Interim Dividend 12-04-2013 30-05-2013 Final 540% Rs.27.0000 per share(540%)Final Dividend 24-09-2012 18-10-2012 Interim 300% Rs.15.0000 per share(300%)Interim Dividend 13-04-2012 24-05-2012 Final 640% Rs. 22.00 per share (440%) Final Dividend & Rs.10.00 per share (200%) Special Dividend 22-09-2011 20-10-2011 Interim 300%   15-04-2011 26-05-2011 Final 400%   29-09-2010 21-10-2010 Interim 800% Rs.10.00 per share(200%)Interim Dividend & Rs.30.00 per share(600%)Special Dividend. 13-04-2010 26-05-2010 Final 300%   22-09-2009 15-10-2009 Interim 200%   15-04-2009 04-06-2009 Final 270%   25-09-2008 16-10-2008 Interim 200%   15-04-2008 29-05-2008 Final 545% (Final Dividend 145% + Special Dividend 400%) 26-09-2007 18-10-2007 Interim 120%   13-04-2007 06-06-2007 Final 130% AGM 28-09-2006 19-10-2006 Interim 100%   14-04-2006 25-05-2006 Final 770% Silver Jubilee special dividend of Rs. 30 per share (600% on par value of Rs. 5 per share) & final dividend of Rs. 8.50/- per share (170% on an equity share par value Rs. 5/-). 23-09-2005 17-10-2005 Interim 130%   14-04-2005 01-06-2005 Final 130% Final dividend of Rs. 6.50 per share (130% on an equity share par value Rs. 5/-). 01-10-2004 18-10-2004 Interim 100% (100% on a par value of Rs.5/- per share) 13-04-2004 26-05-2004 Final 2300% Final dividend of Rs . 15/- per share (300% on an equity share par value Rs . 5/-) & Special one-time dividend of Rs . 100/- per share (2000% on an equity share par value of Rs . 5/-). (Revised) Dividend Declared by Infosys

11. Analysis of Dividend Payout

12. Effect of Dividend Payout

13. Definition of Stock Stock : A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. There are two main types of stock: common and preferred . A stock is represented by a stock certificate . For example, if a company has 1,000 shares of stock outstanding and one person owns 100 shares, that person would own and have claim to 10% of the company's assets. Common stock usually entitles the owner to vote at shareholders' meetings and to receive dividends. Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. For example, owners of preferred stock receive dividends before common shareholders and have priority in the event that a company goes bankrupt and is liquidated.  Stock Holder Analysis

14. Share Holding Pattern 16% 15% Promoters Institutions Others Non Institutions

15. Promoter Group and Public Shareholding

16. Besides the managers and directors, anyone with more that 5% of share holding is treated as an insider. For Infosys the insiders are : 1.) Insurance Companies(10.83%) 2.) FII (Foreign Institution Investors) (39.93%) 3.) Individuals (7.02%) Category Number of Share Holders Number of Shares % of Total Shares Number of Share Holders Number of Shares % of Total Shares Share Holding Pattern Institutions 2014 2012 Insurance Companies 199.00 62,176,372 10.83% 185 67933107 11.86% FIIs 808.00 229,275,165 39.93% 928 224063432 39.12% Non-institutions             Individuals holding nominal capital up to 1 Lakh 374088.00 40,303,022 7.02% 446,510 45802825 8.00% Insider Holding

17. Equation of the regression Line: Y = 0.5574X + 0.0102 The intercept of the line is 0.0102, which is also known as the alpha value, and it basically signifies that how much better the equity has performed than the predicted CAPM of 12.85%, which implies that the equity has performed 1% more than the predicted CAPM value. R-Square value of 0.2097 implies the fact that only 20% of its risk exposure is measured by the Beta value of 0.5574. y = 0.5574x + 0.0102 R² = 0.2097 Beta = 0.5574 Alpha = 0.0102 Regression Analysis for Beta Calculation Risk & Return Analysis

18. The Overall Risk for the Equity is 6.33%, out of which the systematic risk is 2.90%, which is because of the market factors . The unsystematic risk for the equity is 3.43%, which is purely dependent and attributed to the business factors. High business factor risk of 3.43% as against that of the Market factor risk of 2.90% is solely because of the fact that the Infosys business is majorly dependent on the Foreign clients. Risk & Return Analysis (Contd.)

19. Cost of Capital 2009-10 2010-11 2011-12 2012-13 2013-14 Return on risk free investment (%) 8.5% 8.50% 8.5% 8.50% 8.5% Return on Market (%) 13.00% 13.50% 14.00% 14.50% 15.00% Market Premium (%) 4.50% 5.00% 5.50% 6.00% 6.50% Beta 0.23 0.53 0.75 0.68 0.72 Cost of Equity (%) 9.53% 11.13% 12.60% 12.58% 13.18% Average Debt/Capital --- --- --- --- --- Cost of Debt - Net of Tax N/A N/A N/A N/A N/A Weighted Average Cost of Capital (WACC) 9.53% 11.13% 12.60% 12.58% 13.18% Average Capital Employed 20,041.0 22,621.0 27,303.0 32,878.0 37,589.0 Economic Value Added 2009-10 2010-11 2011-12 2012-13 2013-14 Operating Profits 7362 8414 10061 11015 12527 Less: Taxes 1717 2378 3110 3241 3808 Less: Cost of Capital 1,910.69 2,516.71 3,439.86 4,136.05 4,954.23 Economic Value Added (EVA) 3,734.31 3,519.29 3,511.14 3,637.95 3,764.77 The EVA of the Infosys stock has been almost constant since last 5 years. However the ratio between the EVA and the Average capital employed has been steadily decreasing since last 5 years. Risk & Return Analysis (Contd.)

20. Debt Equity Ratio

21. Turnover Ratio

22. The recent Rating of Infosys is A- Interest coverage ratio >  ≤ to Rating is Spread is 8.50 100000 Aaa/AAA 0.40% 6.5 8.499999 Aa2/AA 0.70% 5.5 6.499999 A1/A+ 0.85% 4.25 5.499999 A2/A 1.00% 3 4.249999 A3/A- 1.30% 2.5 2.999999 Baa2/BBB 2.00% 2.25 2.49999 Ba1/BB+ 3.00% 2 2.2499999 Ba2/BB 4.00% 1.75 1.999999 B1/B+ 5.50% 1.5 1.749999 B2/B 6.50% 1.25 1.499999 B3/B- 7.25% 0.8 1.249999 Caa /CCC 8.75% 0.65 0.799999 Ca2/CC 9.50% 0.2 0.649999 C2/C 10.50% -100000 0.199999 D2/D 12.00% Rating, Default Spread & Interest Rate

23. Year Tax Diff of tax Tax Rate (w.r.t base year) 2014 3808 594 18.48% 2013 3214 104 0.033440514 2012 3110 732 30.78% 2011 2378 661 38.49% 2010 1717 Avg. MTR 22.77% Infosys is a debt-free company. It doesn't have any outstanding debt or fixed deposits. So no long term bonds are available. Marginal Tax Rate & Yield to Maturity

24. The EVA of the Infosys stock has been almost constant since last 5 years. However the ratio between the EVA and the Average capital employed has been steadily decreasing since last 5 years which indicate increase in the cost of capital employed. Company has no debt which is very strong point. Company has low interest coverage ratio. Conclusion

25. Infosys is the incredible story of success and successful execution of business model, the company has entered red ocean market with insignificant stake and power in market, but because of successful market re-definition company managed to achieve to be the first among the first ones and be remarkable example for rivals.