A Corporate Financial Analysis of Infosys 2008-09

Submitted To: Ranjini Matta Submitted By: Aditya Khurana Anil Gupta Puneet Sharma Raghuraj Singh Shailendra Singh Sonakshi Rathi Section H

Infosys 2008-09
The Company's vision is to be a globally respected corporation that provides best-ofbreed business solutions, leveraging technology, delivered by best-in-class people. Infosys Technologies Ltd. (NASDAQ : INFY) was started in 1981 by seven professionals with US $250. Today, they are a global leader in the next generation of IT and consulting with revenues of over US $4.6 billion.

I. Corporate Governance Analysis

Their corporate governance philosophy is based on the following principles: Satisfy the spirit of the law and not just the letter of the law. Corporate governance standards should go beyond the law. Be transparent and maintain a high degree of disclosure levels. When in doubt, disclose. Make a clear distinction between personal conveniences and corporate resources. Communicate externally, in a truthful manner, about how the company is run internally. Comply with the laws in all the countries in which they operate. Have a simple and transparent corporate structure driven solely by business needs. Management is the trustee of the shareholder's capital and not the owner. The Board of Directors is at the core of their corporate governance practice and overseas how the management serves and protects the long-term interest of all their stakeholders. They believe that an active, well-informed and independent Board is necessary to ensure highest standards of corporate governance. The majority of their Board, 8 out of 15, are independent members. Board Composition: The board consist of 15 members, six of whom are executives or whole-time directors, one is non-executive and eight are independent directors. Four of the executive directors are their founders. The board periodically evaluates the need for change in composition of its size. Their current policy is to have a Non-Executive Chairman and Chief Mentor N.R.Narayana Murthy; a Co-Chairman Nandan M. Nilekani; a Chief Executive Officer (CEO) and Managing Director S. Gopalakrishnan; and a Chief Operating Officer (COO) and Director S. D. Shibulal. Board Committees: Currently, the Board has five committees : audit committee, compensation committee, nominations committee, investor grievance committee and risk management committee. All committees consist entirely of independent directors. The Chairperson of the Board, in consultation with the company secretary and the committee chairperson, determine the frequency and duration of the committee meetings. Normally, all the committees meet four times a year. The quorum for meeting

is either two members or one-third of the members of the committee, whichever is higher.

II. Stockholder Composition

Shareholders holding more than 1% of the shares: Details of shareholders (non-founders) holding more than 1% of the equity as at March 31, 2009 are given as follows:
Name of the Shareholder Life Insurance Corporation of India Oppenheimer Funds Inc. Government of Singapore Abu Dhabi Investment Authority Fidelity Management and Research Company No. of Shares 21,602,064 9,945,804 9,036,117 6,351,745 5,800,000 % 3.77 1.74 1.58 1.11 1.01

Share transfers in physical form: Shares sent for physical transfer are effected after giving a 15-day notice to the seller for confirmation of the sale. Our share transfer committee meets as often as required. The total number of shares transferred in physical form during the year was 1,671 as against 2,239 for previous year. Shareholding patterns:
Category Mar 31, 2009 Sharehold Voting No. of ers (no.) strength shares (%) held Founders holding Indian founders Total founders holding (A) Public shareholding Institutional investors Mutual funds Banks, financial institutions & insurance companies Foreign institutional investors Others 254 63 817 3.58 20,519,719 4.16 23,801,421 34.85 199,664,12 4 184 71 563 2.92 16,718,693 4.20 24,036,054 33.36 190,821,91 4 19 19 16.49 94,484,978 16.49 94,484,978 19 19 16.52 94,495,978 16.52 94,495,978 Mar 31, 2008 Sharehol Voting No. of ders (no.) strength shares (%) held

Private corporate bodies Indian public NRIs/OCBs/Foreign nationals Trust Total public shareholding (B) Equity shares underlying ADS (C) Total (A+B+C)

3,520 484,412 7,776 45 496,887 1 496,907

3.51 20,085,568 16.89 96,735,467 0.89 0.50 5,105,579 2,845,557

4,066 542,914 7,696 48 555,542 1 555,562

2.86 16,348,351 17.52 100,192,77 8 2.95 16,869,562 0.50 2,855,406

64.38 368,757,43 5 19.13 109,587,63 0 100.00 572,830,04 3

64.31 367,842,75 8 19.17 109,657,02 2 100.00 571,995,75 8

III. Risk Profile

BSE:

Exchange: BSE Start Date: 1-3-2008 End Date: 1-3-2009 To analyze the risk profile for Infosys, we begin with a plot of Infosys monthly stock prices over the year 2008-09. Infosys's stock prices have been on a downward path over the period. The Enterprise Risk Management (ERM) at Infosys seeks to minimize risks that may affect the achievement of their business objectives and enhance stakeholder value. The roles and responsibilities regarding risk management in the company are summarized as follows: Board of Directors Risk Management Committee (RMC): Comprises of four independent directors Risk Council (RC): Comprises the CEO, COO and CFO Office of Risk Management (ORM): Comprises the network of risk managers

from business units and their group companies and is led by the Chief Risk Officer (CRO) Unit Heads The Infoscion: Implementation of prescribed risk mitigation actions

Strategies

Resources

Industry

Risk Category

Operations

Counter Party

Regulations and compliance

in Rs. Crore
2009 Cost of Capital Return on risk free investment (%) Market premium (%) Beta variant Cost of equity (%) Average debt / total capital (%) Cost of debt net of tax (%) Weighted average cost of capital (%) Average capital employed Economic Value-Added (EVA) Operating profits Less: tax Cost of capital Economic value-added 6343 919 1952 3563 4640 685 1669 2286 3877 386 1369 2122 2654 313 801 1540 2048 326 590 1132 7 7 0.74 12.18 NA 12.18 16025 8 7 0.76 13.32 NA 13.32 12527 8 7 0.99 14.97 NA 14.97 9147 7.5 7 0.78 12.96 NA 12.96 6177 6.8 7 0.98 13.63 NA 13.63 4331 2008 2007 2006 2005

Infosys is a debt-free company. It doesn't have any outstanding debt or fixed deposits. The company presently generates sufficient cash internally to finance all its operational, financing and investment requirements.

IV. Investment Return Analysis

Key Economic Ratios Year-on-year revenue growth (%) Employee cost / total revenue (%) Operating profit / total revenue (%) Return on average invested capital (%) ROCE (PBIT/average capital employed) (%) Basic EPS growth (%) Capital output ratio Price / earning at the end of the year Book value ($) Tax / PBT (%) Value-added to total revenue (%) Technology investment / total revenue (%) 2008-09 12 53 29 67 38 10 1 12 7 13 85 3 2007-08 35 53 28 66 40 33 1 18 7 13 86 3 2006-07 44 51 28 71 41 50 1 33 5 9 81 3

ROCE (PBIT/average capital employed) (%)

72 71 70 69 68 67 66 65 64 63 2007 2008 2009 ROCE

In 2008-09, the global economic crisis impacted the growth of their business. They added 156 new customers, taking the total number of active customers to 579. Revenue

growth during the year was up by US $487 million. Their top 10 customers grew by 1.8% while the rest grew by 15.9%. Their annual profits stood at US $1,281 million and they maintained operating margins at 29%. Their brand value decreased from US $7,207 million for 2008-09 as compared to US $8,562 million in the previous year. The economic value-added (EVA) increased to US $711 million from US $546 million in the previous year. Invested capital output ratio (2008-09) = 3.04 Invested capital output ratio (2007-08) = 2.76

V. Dividend Policy
The company's policy is to pay dividend upto 30% of the net profit after tax of the company. In October 2008, they paid an interim dividend of Rs. 10/- per share (200% on par value of Rs. 5/-). they recommend a final dividend of Rs. 13.50/- per share (270% on par value of Rs. 5/- per share). The total dividend amount is Rs. 1,345 crore, as against Rs. 1,902 crore including Rs. 1,144 crore of special dividend for the previous year. Dividend as a percentage of profit after tax is 27% as compared to 49.8% in the previous year. Dividend per share (2008-09) = 23.50 Dividend per share (2007-08) = 13.25 Dividend payout ratio (2008-09) = 27.03% Dividend payout ratio (2007-08) = 19.83% Dividend per share
25

20

15 dividend per share

10

0 2007 2008 2009

Unclaimed Dividend: Section 205 of the Companies Act, 1956, mandates that companies transfer dividend that has been unclaimed for a period of seven years from the unpaid dividend account to the Investor Education and Protection Fund (IEPF). In accordance with the following schedule, the dividend for the years mentioned below, if unclaimed within a period of

seven years, will be transferred to IEPF.

Year 2002 2003 2004 2005 2006 2007 2008 2009 Type of Dividend Final Interim Final Interim Final Interim Final Interim Final Interim Final Interim Final Interim Dividend per share (Rs.) 12.5 12.5 14.5 14.5 115 5 6.5 6.5 38.5 5 6.5 6 27.25 10 Date of Declaration Jun 8, 02 Oct 10, 02 Jun 14, 03 Oct 10, 03 Jun 12, 04 Oct 12, 04 Jun 11, 05 Oct 11, 05 Jun 10, 06 Oct 11, 06 Jun 22, 07 Oct 11, 07 Jun 14, 08 Oct 11, 08 Due Date for Transfer Jul 7, 09 Nov 9, 09 Jul 13, 10 Nov 9, 10 Jul 11, 11 Nov 11,11 Jul 10, 12 Nov 10, 12 Jul 9, 13 Nov 10, 13 Jul 21, 14 Nov 10, 14 Jul 13, 15 Nov 10,15 Amount (Rs.) 1,076,535 743,130 979,809 886,095 3,702,425 727,305 858,241 674,836 2,559,942 1,073,135 1,302,246 1,727,562 4,566,250 3,309,912

Dividend remitted to IEPF during the last three years:

Fiscal 2009 2008 2007 Amount (Rs.) 649,767 816,489 442,838

VI. Revenue Segmentation

Industry segmentation: in %
2009 Manufacturing Banking, financial services and insurance Banking and financial services Insurance Telecom 19.7 33.9 26.7 7.2 18.1 2008 14.7 35.7 28.5 7.2 21.6 2007 13.5 37.4 30.2 7.2 19.3 2006 13.9 36 28.5 7.5 16.5 2005 14.4 34.6 25.2 9.4 18.5

Retail Energy and utilities Transportation Others Total

12.6 5.7 2.3 7.7 100

11.8 5.2 2.5 8.5 100

10 5.3 2.4 12.1 100

10.1 4.7 5.1 13.7 100

9.8 3.2 7.6 11.9 100

Industry Segmentation 2009

19.7

7.7 2.3 5.7 12.6

33.9

18.1

Manufacturing Banking, financial services & insurance Telecom Retail

Energy & utilities Transportation

Others

Value of earning per share (EPS) = Rs. 101.65 Operating profit margin = 34.1% Return on average capital employed = 42.9% Brand value = Rs. 32,345 crore Market value of equity = Rs. 75,837 crore PAT as % of capital employed = 37.4%