Profit & Loss account FY 03 FY 04 FY 05 (Rs.

mn) FY 31st March Total Revenue 36,400 48,530 71,300 Software Development & Business Process Management expenses 18,230 25,387 37,650 Gross Profit 18,170 23,143 33,650 Gross Margin % 49.9 47.7 47.2 S & M Expenses 2,717 3,509 4,610 G & A Expenses 2,757 3,692 5,690 Total Cost 23,704 32,588 47,950 EBIDTA from Operations EBIDTA % Depreciation Operating Profit Non-Operating Income Extraordinary Income Provision for Investments Profit before Tax Tax MAT Entitlement Defferred Tax Total Effective Tax PAT before Minority Interest Minority Interest Profit after Tax after Minority Interest Net Margin % Dividend Dividend Tax Retained Profits EPS Basic Diluted 12,696 34.9 1,903 10,793 1,003 0 238 11,558 2,136 0 -126 2,010 9,548 0.0 9,548 26.2 1,788 123 7,637 15,942 32.8 2,367 13,575 1,234 0 97 14,712 2,285 0 -10 2,275 12,436 0.0 12,436 25.6 8,625 1,105 2,707 23,350 32.7 2,870 20,480 1,240 450 0 22,170 3,350 0 -90 3,260 18,910 0.0 18,910 26.5 3,100 422 15,388

FY 06 95,210 50,660 44,550 46.8 6,000 7,640 64,300 30,910 32.5 4,370 26,540 1,390 0 10 27,920 3,350 0 -220 3,130 24,790 210.0 24,580 25.8 12,380 1,740 10,460

FY 07 138,930 74,580 64,350 46.3 9,290 11,150 95,020 43,910 31.6 5,140 38,770 3,720 60 20 42,530 4,130 0 -270 3,860 38,670 110.0 38,560 27.8 6,490 1,020 31,050

FY 08 166,920 92,070 74,850 44.8 9,160 13,310 114,540 52,380 31.4 5,980 46,400 7,040 0 0 53,440 8,840 -1,770 -220 6,850 46,590 0.0 46,590 27.9 19,020 3,230 24,340

FY 09 216,930 117,650 99,280 45.8 11,040 16,290 144,980 71,950 33.2 7,610 64,340 4,730

FY10

69,070 9,190

9,190 59,880 0 59,880 27.6 13,450 2,280 44,150

18.03 17.86

23.43 23.13

35.22 34.31

45.02 43.76

69.25 67.73

81.54 81.27

104.60 104.42

No. of Shares- Basic mn No. of Shares- Diluted mn Balance Sheet (Rs. mn) FY 31st March LIABILITIES Equity Capital Reserves & Surplus Total Equity Preference Share Capital Net Worth Minority Interest Deferred Tax Liability (Net) Capital Employed

530 535 FY 03

531 538 FY 04

537 551 FY 05

546 562 FY 06

557 569 FY 07

571 573 FY 08

572 573 FY 09

331 28,244 28,575 490 29,065 0 -368 28,697

333 32,163 32,496 936 33,431 0 -400 33,032

1350 50,900 52,250 940 53,190 0 -450 52,740

1380 68,280 69,660 69,660 680 -650 69,690

2860 109,690 112,550 112,550 40 -920 111,670

2860 135,090 137,950 137,950 0 -1190 136,760

2860 179,680 182,540 182,540 0 -1260 181,280

ASSETS Gross Block Less: Depreciation Net Block Capital WIP

12,790 5,785 7005 774

16,337 8,098 8238 2081

22,870 10,310 12560 3180

29,830 13,280 16550 5710

46,420 18,360 28060 9650

54,390 19,860 34530 13240

70,930 24,160 46770 6770

Investments Current Assets Sundry Debtors Cash and Bank Balance Loans and Advances Total Current Assets Less: Current Liabilities and Provisions Sundry Creditors Provisions Provision for Tax and Others Provision for Dividend Others Provisions Total Current Liabilities Check Net Current assets Capital Employed Check

210

9455

12110

7550

250

720

5,187 13,465 9,135 27,787

6,515 17,215 7,211 30,940

13,220 15,760 10,240 39,220

16,080 34,290 12,970 63,340

24,360 58,710 12,140 95,210

32,970 69,500 27,710 130,180

36,720 96,950 32,790 166,460

1,224 2,922 961 1,972 7,078

3,150 4,201 7,664 2,668 17,682

2,960 6,010 1,760 3,600 14,330

3,820 3,510 10,610 5,520 23,460

4,770 3,100 3,710 9,920 21,500

7,360 7,200 15,590 11,760 41,910

5,700 10,950 7,730 14,340 38,720

20,708 28,697 0.00

13,259 33,032 0.00

24,890 52,740 0.00

39,880 69,690 0.00

73,710 111,670 0.00

88,270 136,760 0.00

127,740 181,280 0.00

Revenue Model-Basics #Revenue of Infosys is a combination of revenue from BPO, Product Business and IT Services & Consulting Busine #Revenue = (No of Person months Billed /12) * No of hours in the year * Billing rate (this is specifically for IT Servic #Revenue is divided in to onsite and offshore (this is specifically for IT Services and Consulting). #Total Billed Person Months = Total Billable Months * Billed Percentage. #Use the average of historical growth for progeon and product businesses.

Using the information given above and below, compute the billing rates per hour for Infosys. Assuming the employee addtion of 15000, project the revenue for next year. Assume, 2% rupee depreciation. Assume billing rates are declining by 1% both onsite & offshore. Infosys Revenue Model Total Revenue for the period ended ($ mn) Growth Total Revenue for the period ended (Rs mn Growth USD - INR rate Realized Progeon Revenue ($ mn) Growth Product Revenue ($mn) Growth IT services and consulting ($mn) Onsite Revenue Growth Offshore Revenue Growth Total Revenue Growth 2007 3,036 2008 4,177 37.60% 166,920 2009 4,663 11.64%
216,930

2010

138,930

45.77 113.70

39.96 235.20 106.86% 149.88 54.51%

46.52 279.46 18.82% 180.94 20.73%

97.00

1,533

2,012 31.22% 1,780 37.80% 3,792 34.23%

2169.51 7.83% 2,033 14.22% 4,203 10.83%

1,292

2,825

Growth Drivers
Effort and Utilization (IT services and Consulting) Effort (person Months) - BILLED Onsite Offshore Total Billed Non Billed
165,595 357,196 181,811 415,550

134,767 274,989 409,756 129,559

522,790 167,187

597,361 226987.741

Trainees Total (Sales n Support excluded) Sales n Support Total Workforce Billed (% of billable) Theoretical Billable Max (based on no of billable emp)

65,859 605,174 34,142 639,316

63,606 753,583 38,484 792,067

62756.937 887,106 48997.7286 936,103 72.12% 828,300

64.73% 67.63% 633,012 773,064.00

Billed Effort Mix Onsite Offshore Hours Onsite Offshore Billing Rates Onsite Offshore Employee Metrics S/W Proffessionals Billable Banking Product Group Trainees Sales n Support BPO

32.89% 67.11%

31.68% 68.32%

30.44% 69.56%

1980 2208

1980 2208

1980 2208

72,241 57,493 52,751 2,053 2,689 3,522 11,226

91,187 69,569 64,422 2,053 3,094 5,323 16,295

102,931 79,402 69,025 2,349 8,028 6,449 17,080

ices & Consulting Business. specifically for IT Services and Consulting).

FY 03

FY 04

FY 05

FY 06 50,660 34.6 53.21

FY 07 74,580 47.2 53.68

Method 1 Software Development & Business Process Management expenses 18,230 25,387 37,650 Growth 39.3 48.3 Direct Cost (% Sales) 50.08 52.31 52.81
Hint: Project Direct Costs as % of revenue going up by 40 bps in FY10.

Method 2 Total Employees

FY 03

FY 04

FY 05

FY 06

FY 07

15,356

25,255

36,750

52,715

72,241

Hint: Use direct cost per employee as basis. Keep it same for next year, and project.

Indirect Costs
FY 03 FY 04 FY 05 FY 06 FY 07

Selling & Marketing Exp % Growth % of Sales G&A Expenses % Growth % of Sales

2,717

3,509 29.1 7.2 3,692 33.9 7.6

4,610 31.4 6.5 5,690 54.1 8.0

6,000 30.2 6.3 7,640 34.3 8.0

9,290 54.8 6.7 11,150 45.9 8.0

2,757

Hint: Increase selling & Marketing Expenses by 100bps and keep G&A expenses % of sales constant.

FY 08 92,070 23.5 55.16

FY 09 117,650 27.8 54.23

FY10E 0

FY 08

FY 09

FY10E

91,187

104,850

FY 08

FY 09

FY10E

9,160 -1.4 5.5 13,310 19.4 8.0

11,040 20.5 5.1 16,290 22.4 7.5

ses % of sales constant.

Projecting Current Year Depreciation: Ideally, one should look at each and every asset, its useful life, and based on which method the company uses to depreciate these assets, one should forecast the depreciation.

For beginners, one should compute depreciation as % of gross block.

Process for Forecasting Current Year D

1 Forecast Gross Block for next Year. 2 Based on this Gross block and last year gr

Forecasting Gross Block: Method 1 Gross Block is forecasted by addiing to it a Method 2 Use gross block turnover as a parameter to Pls check GB turnover ratio to avoid signifi

a b

Forecasting CWIP: Forecast CWIP as difference between Cap Forecast it as % of capital expenditure.

Forecasting Capital Expenditure Computing Capital Expenditure =Change in GB + Change in CW

b c d e

Capital expenditure is an incremental phen Forecast it based on the incremental 'key p Most of the times mnagement will give you Moreover, it can not to be just forecasted lo One will build mastery in forecasting this on

Project Depreciation for FY11, FY12 and FY13.

FY 03 FY 04 FY 05 FY 06 FY 07 FY 08

Depreciation Depreciation % of Avg GB

1903.4

2367.3 16%

2870 15%

4370 17%

5140 13%

5980 12%

Hint: Keep, Depreciation as % of GB as constant.

FY 03 FY 04 FY 05 FY 06 FY 07 FY 08

Gross Block CWIP Compute and forecast: Capital Expenditure

12,790 774
FY 03

16,337 2,081
FY 04

22,870 3,180
FY 05

29,830 5,710
FY 06

46,420 9,650
FY 07

54,390 13,240
FY 08

4,853

7,633

9,490

20,530

11,560

Addition to GB 3,546 Addtion to GB over CWIP of last year 2,772 Addtion to GB over CWIP of last year % Capex 57%

6,534 4,453 58%

6,960 3,780 40%

16,590 10,880 53%

7,970 -1,680 -15%

Hint: Forecast Capital expenditure for FY10 as 15000mn to last year capex.

r Forecasting Current Year Depreciation

ross Block for next Year. his Gross block and last year gross block, forecast depreciation.

g Gross Block: k is forecasted by addiing to it a portion of Capital Expenditure and total CWIP of last year. block turnover as a parameter to forecast the gross block. GB turnover ratio to avoid significant deviations.

WIP as difference between Capex and direct addition to gross block. as % of capital expenditure.

g Capital Expenditure Computing Capital Expenditure: =Change in GB + Change in CWIP + Change in Intangibles

enditure is an incremental phenomenon. based on the incremental 'key parameter' of the company for next year like capacity expansions, no. of towers added, addition times mnagement will give you guidance on this. t can not to be just forecasted looking at next year but vision of management over the years. ld mastery in forecasting this only over a period of time.

FY 09

FY10E

7610 12%

FY 09

FY10E

70,930 6,770
FY 09 FY10E

10,070

16,540 3,300 33%

f towers added, additional employees, etc.

Taxes

As % of PBT
FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY10E

Net Tax ETR

2,010 17%

2,275 15%

3,260 15%

3,130 11%

3,860 9%

6,850 13%

9,190 13%

Hint: Assume Effective Tax Rate to be 20% in FY10.

Dividend Payout

Dividend is projected as % of PAT or as % of Equity Capital. Preferably, project the dividend as % of PAT.
FY 03 FY 04 FY 05 FY 06 FY 07

Dividend PAT Dividend (% of PAT)

1,788 9,548 19%

8,625 12,436 69%

3,100 18,910 16%

12,380 24,580 50%

6,490 38,560 17%

Dividend Distribution Tax Dividend Distribution Tax (% of Dividends)

123 7%

1105 13%

421.7 14%

1740 14%

1020 16%

Equity Capital.

FY 08

FY 09

FY10E

19,020 46,590 41%

13,450 59,880 22%

3230 17%

2280 17%

Project Debtors based on debtor turnover ratio. Key Points: Collection Period = CP09= 365/Revenue*Average Debtors 365/Revenue09*(D09+D08)/2

Typically, do not increase or decease the collection period significantly.

Debtors Collection Period

FY 03 5,187

FY 04 6,515

FY 05 13,220

FY 06 16,080

FY 07 24,360

FY 08 32,970

Hint:

Assume, CP10 = 60 Days

FY 09 36,720

FY10E ?

Project creditors based on creditors turnover. Key Points: Creditor Period= Creditor Period09= 365/Purchases*Average Debtors 365/Purchases09*(D09+D08)/2

Typically, do not increase or decease the collection period significantly.

FY 03 FY 04 FY 05 FY 06 FY 07

Sundry Creditors Creditor Days

1,224

3,150

2,960

3,820

4,770

FY 08

FY 09

FY10E

7,360

5,700

Provision for Tax and Others Provision for Tax and Others (% of Taxes)

FY 03 2,922

FY 04 4,201

FY 05 6,010

Provision for Dividend Provision for Dividend (% of Dividends)

961

7,664

1,760

Project provisions for taxes as % of current year taxes. Project provisions for dividends as % of dividends for current year.

FY 06 3,510

FY 07 3,100

FY 08 7,200

FY 09 10,950

FY10E

10,610

3,710

15,590

7,730

Other Income/ Non-Operating Income

It includes dividends received on the investments, interest earned on the saving bank account cash. Sometimes, it also includes foreign exchange gains and losses and extrordinry items. Ideally, one should break up the other income into dividend income, interest earned, foreign exchange gains and extraordinary items and then project individually. As a beginner, however, It is projected based on cash & equivalents and liquid investments.

Key determinants are:

a Your view on the interest rates in the econom b Key Tips:

1 This item should be projected at the last. 2 Because, it is projected based on cash and e However, the logic for circular reference is rig 3 To fix the circular reference, go to Office Butt Computations to be done before projecting:

Other Income or Non-Operating Income as %

Solve to project Non-Operating Income for FY10 and FY11: Non-Operating Income Non-Operating Income % of Cash & Equivalents Cash & Cash Equivalents
FY 03 1,003 FY 04 1,234

6.12% 13,675 26,670

Hint:

Interest rates in the economy may be expec year. After that it will increase by 75bps in FY

n the interest rates in the economy in the coming years.

ould be projected at the last. s projected based on cash and equivalents, it will involve circular reference. e logic for circular reference is right. cular reference, go to Office Button, Excel Options, Formulas and Tick Iterative Computations options.

e or Non-Operating Income as % of Average(Cash & Equivalents and Liquid Investments)

FY 05 1,240

FY 06 1,390

FY 07 3,720

FY 08 7,040

FY 09 4,730

FY10E

27,870

41,840

58,960

70,220

96,950

es in the economy may be expected to go down. RBI has hinted that it may reduce the repo rates by about 150bps over next hat it will increase by 75bps in FY11 to curb the inflation.

ut 150bps over next