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INFOSYS TECHNOLOGIES LTD Result Update: Q3 FY 11

BUY

C.M.P: 3204.00 Target Price: 3588.00 Date: 13 Jan 2011

SYNOPSIS

• Infosys designs and delivers IT-enabled

business solutions that help Global 2000

companies win in a Flat World.

• Infosys is India's second largest software

company and is recognized globally for its

world-class management practices and

work ethics.

• Infosys is very focused on creating a

culture and processes, which have became

differentiators for the company today.

• During the quarter, 40 new clients were

added by Infosys and its subsidiaries.

• Total head count of the company as on

Dec. 31, 2010 stood at 1, 27,779 with

utilization rate at 72.6%.

• Revenue from the top10 clients

contributed 25.7% of the revenue of the

quarter third of FY11.

• During the quarter Bombardier

Transportation GmbH has selected Infosys

Technologies as a partner to support its

implementation of SAP ECC 6 software.

• Cash and cash equivalents, including in

liquid funds and certificate of deposits, as

on Dec 31, 2010 was Rs. 15,8970 million.

Stock Data:

Sector: IT

Face Value Rs. 5.00

52 wk. High/Low (Rs.) 3493.95/2333.00

Volume (2 wk. Avg.) 94000

BSE Code 508869

Market Cap (Rs.In mn) 1832688.00

Share Holding Pattern

1 Year Comparative Graph

INFOSYS LTD BSE SENSEX

Years Net sales EBITDA Net Profit EPS P/E

FY 10 227420.00 87950.00 62660.00 109.55 29.25

FY 11E 276057.10 92966.58 68554.87 119.85 26.37

FY 12E 317465.67 107423.06 79493.06 138.97 23.05

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Peer Group Comparison

Name of the company CMP(Rs.)

Market Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/BV(x) Dividend (%)

Infosys Technologies 3204.00 1832688.00 104.05 30.87 8.37 500

TCS 1124.20 220030.78 32.51 34.58 14.65 200

HCL Technologies 463.30 31674.61 13.91 33.31 6.42 200

Wipro Technologies 455.00 111566.00 19.37 23.49 6.41 300

Investment Highlights

• Results Update (Q3 FY11) Infosys Technologies Ltd reported a rise in consolidated net profit for the quarter ended December 2010. During the quarter, the profit of the company rose 12.52% to Rs 17800.00 million from Rs 15820.00 million in the same quarter previous year. Net sales for the quarter rose 23.78% to Rs 71060.00 million, while total income for the quarter rose 23.84% to Rs 73960.00 million, when compared with the prior year period. Company posted earnings of Rs 31.12 a share during the quarter, registering 12.52% growth over prior year period.

Quarterly Results - Consolidated (Rs in mn)

As at Dec - 10 Dec - 09 %Change

Net Sales 71060.00 57410.00 23.78

Net Profit 17800.00 15820.00 12.52

Basic EPS 31.12 27.66 12.52

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Net Sales & PAT Growth

During the quarter, Net sales rose by 23.78% to Rs.71060.00 million from Rs.57410.00 million in the same quarter last year and the Total Profit for the quarter ended December 2010 was Rs.17800.00 million grew by 12.52% from Rs.15820.00 million compared to same quarter last year.

EPS Growth

The basic EPS of the company stood at Rs.31.12 for the quarter ended Dec 2010 from Rs.27.66 for the quarter ended Dec 2009.

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• Bombardier Transportation Selects Infosys for Global SAP

Bombardier Transportation GmbH has selected Infosys Technologies as a partner to support its implementation of SAP ECC 6 software for the company’s production and distribution centers worldwide. Infosys will be responsible for the implementation of SAP at all Bombardier sites. Infosys was chosen for its global delivery capabilities and innovative implementation approach.

• Implementation of Finacle Universal banking in Sri Lanka

Infosys and Hatton National Bank Plc (HNB) have successful implemented Finacle universal banking solution across HNB’s operations in Sri Lanka. Infosys has implemented Finacle core banking, treasury and consumer e-banking solutions across 191 customer centers of the bank. HNB now operates its entire banking operations on Finacle to support over 2.8 million customers.

• Turkland Bank, Turkey selects Finacle from Infosys

Infosys Technologies and Turkland Bank a successful niche bank in Turkey has selected Finacle the universal banking solution from Infosys to strengthen operations across the home country. Infosys will implement Finacle core banking, CRM, e-banking & treasury solutions at T-Bank to drive the bank’s objective of product innovation, client-centricity and scalability for future growth.

• Launches new banking solution Finacle Analyz

Infosys Technologies has launched of Finacle analyz, a comprehensive solution that empowers bank staff to make faster, insight-based decisions to strengthen customer relationships and improve profitability. The solution enables holistic customer analysis for banks with insightful business reports, executive dashboards and rigorous statistical models. It helps banks strengthen customer management strategies across the lifecycle.

• Launches innovative banking solution

Infosys Technologies has launched of Finacle Treasury-in-a-Box, a rapid implementation framework for an integrated front, middle and back office treasury system.

• Set up its second project in Orissa

Infosys will soon set up its second project in Orissa at an investment of Rs 3 billion. Infosys human resource director T V Mohandas Pai conveyed the investment plans to chief minister Naveen Patnaik.

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• Revenue by Service Offering (Q3 FY11)

• Revenue Mix (Q3 FY11)

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• Geography Revenue Concentration (Q3 FY11)

• Client Contribution to Revenue (Q3 FY11)

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• Utilization (Q3 FY11)

• Revenue By Industry (Q3 FY11)

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• Inks MoU The Rural Development Department of Andhra Pradesh government and Infosys BPO signed a memorandum of understanding (MoU) for setting up rural BPO centres in 22 districts across the state. Society for Elimination of Rural Poverty (SERP) chief executive officer T Vijaya Kumar and Infosys BPO, CEO and managing director Amitabh Chaudhry signed the MoU in the presence of chief minister K Rosaiah.

Company Profile Infosys defines designs and delivers IT-enabled business solutions that help Global

2000 companies win in a Flat World. These solutions focus on providing strategic

differentiation and operational superiority to clients. With Infosys, clients are assured

of transparent business partner, world-class processes, speed of execution and the

power to stretch their IT budget by leveraging the Global Delivery Model that Infosys

pioneered. Infosys has over 103, 00 employees in over 50 offices worldwide. Infosys is

the part of the NASDAQ-100 Index and The Global Dow.

The following are the different verticals where Infosys is working are:

• Aerospace and Defense • Airlines • Automotive • Banking and Capital Markets • Communication Services • Consumer Packaged Goods • Discrete Manufacturing • Education • Energy • Healthcare

• High Technology • Hospitality and Gaming • Insurance • Life Sciences • Logistics and Distribution • Publishing • Studios and Networks • Resources • Retail • Utilities

Alliances

The company has alliance with the following companies:

• BEA • Business Objects • FAST • FileNet • HP • IBM • Informatica • Interwoven • Mantas • Microsoft

• MicroStrategy • Netegrity Inc. • Oracle • SAP • Siemens • Sterling Commerce • Sun Microsystems • TIBCO Software Inc. • Wavecom

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Subsidiaries

• Infosys BPO Limited (IBPO) • Infosys Technologies (Australia) Pty. Limited • Infosys Technologies (China) Company Limited • Infosys Consulting, Inc. • Infosys Technologies S. de R. L. de C. V., Mexico

Services

The company Services is divided into four. They are:

1. IT Services 2. Engineering Services 3. Consulting Services 4. BPO Services

SWOT Analysis

STRENGHTS

• They are very focused on creating a culture and processes, which have become differentiators for the company today.

• Excellent project and services execution. • Excellent internal processes.

• Strong Brand and Long-Standing Client Relationships.

• Leadership in sophisticated solutions that enable clients to optimize the efficiency of their business.

Services

Engineering Services

Consulting Services

BPO Services

IT Services

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• Commitment to superior quality and process execution.

WEAKNESSES

• The revenue of the company is largely depends on few verticals.

• Increasing wage level in the country can have an adverse impact on the

financial performance of the company.

• Higher attrition rate.

OPPORTUNITIES

• Geographic expansion to new markets.

• Pursue alliances and strategic acquisitions.

• Enhance brand visibility. THREATS

• Significant rupee appreciation Vis a Vis US dollar, Euro and Pound could lead to revision in earning growth.

• Significant USD depreciation Vis- a- Vis Euro, Pound, and Australian dollar

could lead to revision in earning growth.

• Any significant US and Europe economy slowdown, would possibly lead to IT budget cut, which inherently dampen Infosys’s growth.

• Company failure to complete fixed-price, fixed-time frame contracts within budget and on time may negatively affect on their profitability.

• Company revenues and expenses are difficult to predict and can vary significantly from period to period, which could cause their share price to decline.

• The economic environment, pricing pressure and rising wages in India and

overseas could negatively impact on the company revenues and operating results.

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Financial Results

12 Months Ended Profit & Loss Account (Consolidated)

Value(Rs. in million) FY09A FY10A FY11E FY12E

12m 12m 12m 12m

Description

Net Sales 216930.00 227,420.00 276057.10 317465.67

Other Income 4730.00 9,340.00 10976.00 12183.36

Total Income 221660.00 236,760.00 287033.10 329649.03

Expenditure -144980.00 -148,810.00 -194066.52 -222225.97

Operating Profit 76680.00 87,950.00 92966.58 107423.06

Interest 0.00 0.00 0.00 0.00

Exceptional Items 0.00 90.00 0.00 0.00

Gross Profit 76680.00 88,040.00 92966.58 107423.06

Depreciation -7610.00 -9,050.00 0.00 0.00

Profit before Tax 69070.00 78,990.00 92966.58 107423.06

Tax -9190.00 -16,810.00 -24411.71 -27930.00

Profit after Tax 59880.00 62,180.00 68554.87 79493.06

Extraordinary Items 0.00 480.00 0.00 0.00

Net Profit 59880.00 62,660.00 68554.87 79493.06

Equity Capital 2,860.00 2,860.00 2,860.00 2,860.00

Reserves 194,970.00 227,630.00 296,184.87 375,677.94

Face Value 5.00 5.00 5.00 5.00

Total No. of Shares 572.00 572.00 572.00 572.00

EPS 104.69 109.55 119.85 138.97

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Quarterly Ended Profit & Loss Account (Consolidated)

Value(Rs. in million) 30-Jun-10 30-Sep-10 31-Dec-10 31-Mar-11E

3m 3m 3m 3m

Description

Net Sales 61980.00 69470.00 71060.00 73547.10

Other Income 2,390.00 2,670.00 2,900.00 3,016.00

Total Income 64370.00 72140.00 73960.00 76563.10

Expenditure -44430.00 -48490.00 -49590.00 -51556.52

Operating Profit 19940.00 23650.00 24370.00 25006.58

Interest 0.00 0.00 0.00 0.00

Exceptional Items 0.00 0.00 0.00 0.00

Gross Profit 19940.00 23650.00 24370.00 25006.58

Depreciation 0.00 0.00 0.00 0.00

Profit before Tax 19940.00 23650.00 24370.00 25006.58

Tax -5060.00 -6280.00 -6570.00 -6501.71

Profit after Tax 14880.00 17370.00 17800.00 18504.87

Extraordinary Items 0.00 0.00 0.00 0.00

Net Profit 14880.00 17370.00 17800.00 18504.87

Equity Capital 2860.00 2,860.00 2,860.00 2,860.00

Face Value 5.00 5.00 5.00 5.00

Total No. of Shares 572.00 572.00 572.00 572.00

EPS 26.01 30.37 31.12 32.35

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Key Ratios Particulars FY09 FY10 FY11E FY12E

EPS (Rs.) 104.69 109.55 119.85 138.97

EBITDA Margin (%) 35% 39% 34% 34%

PAT Margin (%) 28% 27% 25% 25%

P/E Ratio (x) 30.61 29.25 26.73 23.05

ROE (%) 30% 27% 23% 21%

ROCE (%) 43% 42% 31% 28%

EV/EBITDA (x) 23.90 20.84 22.80 22.69

Debt-Equity Ratio 0.00 0.00 0.00 0.00

Book Value (Rs.) 345.86 402.95 522.81 661.78

P/BV 9.26 7.95 6.13 4.84

Charts

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Outlook and Conclusion

• At the current market price of Rs.3204.00 the stock is trading at a P/Ex of 26.73 xs for FY11E and 23.05 xs for FY12E.

• The EPS of the stock is expected to be at Rs.119.85 and Rs.138.97 for FY11E

and FY12E respectively. • On the basis of price to book value, the stock trades at 6.13x and 4.84x for

FY11E and FY12E respectively.

• Infosys will soon set up its second project in Orissa at an investment of Rs 3 billion.

• Infosys Technologies has been awarded Rs 387 crore IT project for Karnataka's power distribution utilities.

• Infosys Technologies launched of Finacle Advizor, an integrated platform which empowers banks to deliver products and services through a fully assisted self-service channel.

• A leading manufacturer selected Infosys as its partner to modernize its

business systems by reducing complexity in process applications, minimizing costs and improving responsiveness.

• A global bank has partnered with Infosys to set up a Compliance Center of

Excellence that will enhance its compliance bandwidth while rolling out new strategic programs.

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• Infosys are developing and deploying a mobile sales force enablement solution

to enhance productivity for a global orthopedic solutions company.

• A large US utility is using our services to develop and deploy multiple Smart Grid initiatives that will reduce malfunctions and operational costs.

• Company entered into a strategic partnership with Jive Social Business

Software for the Infosys iEngage™ digital consumer platform.

• A leading European life insurance company engaged Infosys to assess cost reductions through back office policy servicing.

• A large US utility is using Infosys services to develop and deploy multiple Smart

Grid initiatives that will reduce malfunctions and operational costs.

• The Net sales and PAT of the company is expected to grow at a CAGR of 14% and 10% respectively over FY09 to FY12E.

• The company saw demand uptick across verticals led by retail and BFSI and

manufacturing, its anchor vertical and the worst affected during the recession, is showing signs of secular growth. Infosys saw good traction in Germany and France and does not have direct exposure to troubled economies like Spain, Portugal and Greece.

• We recommend a “BUY” on the stock with a target price of Rs.3588.00 for medium to long term.

Industry Overview

Sector structure/Market size The Indian information technology industry has played a key role in putting India on the global map. Thanks to the success of the IT industry, India is now a power to reckon with. According to the National Association of Software and Service Companies (NASSCOM), the apex body for software services in India, the revenue of the information technology sector has risen from 1.2 per cent of the gross domestic product (GDP) in FY 1997-98 to an estimated 5.8 per cent in FY 2008-09.

India's IT growth in the world is primarily dominated by IT software and services such as Custom Application Development and Maintenance (CADM), System Integration, IT Consulting, Application Management, Infrastructure Management Services, Software testing, Service-oriented architecture and Web services. As per NASSCOM's latest findings:

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• Indian IT-BPO sector grew by 12 per cent in FY 2009 to reach US$ 71.7 billion in

aggregate revenue (including hardware). Of this, the software and services segment accounted for US$ 59.6 billion.

• IT-BPO exports (including hardware exports) grew by 16 per cent from US$ 40.9 billion in FY 2007-08 to US$ 47.3 billion in FY 2008-09.

Moreover, according to a study by Springboard Research, the Indian IT services market is estimated to remain the fastest growing in the Asia-Pacific region with a CAGR of 18.6 per cent. Despite the uncertainty in the global economy, the top three IT majors— Infosys, TCS and Wipro—have seen revenue growth from all important sources of income: from the North American and European regions, in the financial services vertical and from application maintenance and development (ADM) offerings between fiscal years 2008 and 2009. At present, there are 60 million Internet users in the country. According to Manufacturer’s Association of IT (MAIT), the number of active Internet entities rose to 8.6 million by March 2009 from 7.2 million units in March 2008. MAIT has outlined 'Goal 511', an ambitious target that talks about 500 million Internet users, 100 million broadband connections, and 100 million connected devices by 2012. A latest study by MAIT estimated that the total PC sale in India is likely to grow by 7 per cent in 2009-10, with total sales expected to cross 7.3 million units. Outsourcing A research by Gartner forecasts India as the undisputed leader in the outsourcing space in the year 2008. India's most prized resource is its readily available technical work force. India has the second largest English-speaking scientific professionals in the world, second only to the US. It is estimated that India has over 4 million technical workers, over 1,832 educational institutions and polytechnics, which train more than 67,785 computer software professionals every year. The enormous base of skilled manpower is a major draw for global customers. According to NASSCOM, software and services exports (including exports of IT services, BPO, engineering services and R&D and software products) reached US$ 47 billion in FY 2008-09, contributing nearly 78 per cent to the total software and services revenue of US$ 59.6 billion. India continues to be the most preferred destination for companies looking to offshore their IT and back-office functions. It also retains its low-cost advantage and is among the most financially attractive locations when viewed in combination with the

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business environment it offers and the availability of skilled people, according to global management consultancy AT Kearney. India has retained its numerous Uno position even as some other well-established outsourcing hubs dropped in their attractiveness to be replaced by new emerging destinations in AT Kearney’s latest ranking of the top outsourcing destinations across the globe. The top three countries in the 2009 Global Services Location Index (GSLI) remain the same — India, China and Malaysia.

Domestic Markets India's domestic market has also become a force to reckon with, as the existing IT infrastructure evolves both in terms of technology and depth of penetration. According to NASSCOM, domestic IT market (including hardware) reached US$ 24.3 billion in FY 2008-09 as against US$ 23.1 billion in FY 2007-08, a growth of 5.3 per cent. India Inc's demand for IT services and products has bolstered growth in the domestic sector with deal sizes going up remarkably and contracts worth US$ 50 million-US$ 100 million up for grabs. The market for enterprise networking equipment in India is estimated to grow from US$ 1 billion in 2008 to US$ 1.7 billion by 2012, recording a compounded annual growth rate (CAGR) of 15 per cent during this period, according to a study by Springboard Research. Investments

• Infosys Technologies Ltd will invest US$ 70 million over the next three quarters of the current financial year towards increasing its sales and marketing staff overseas, building new capabilities and hiring local resources for its international centres.

• The Andhra Pradesh Government expects the IT-related SEZs and Software

Technology Parks of India (STPI) in the State to receive about US$ 3.27 billion investments in the next five years.

• HCL Technologies has entered into a strategic partnership with South Africa’s

UCS Group. As part of the all-cash deal, HCL will acquire UCS’s enterprise solutions SAP practice focused on the retail sector for US$ 7.7 million.

Rural Penetration According to a report of the Internet and Mobile Association of India (IAMAI), rural India has 3.3 million active internet users. Since rural India was mapped for the first time, the year-on-year growth of internet users in rural India could not be estimated.

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The research also notes there are 5.5 million people who claim to have used Internet at some point in time. Government Initiatives

• The government set up the National Taskforce on Information Technology and Software Development with the objective of framing a long term National IT Policy for the country.

• Enactment of the Information Technology Act, which provides a legal framework

to facilitate electronic commerce and electronic transactions. • The government-led National e-Governance Programme, has played an important

role in increasing internet penetration in rural India. Road Ahead The Indian information technology sector continues to be one of the sunshine sectors of the Indian economy showing rapid growth and promise. According to a report prepared by McKinsey for NASSCOM, the exports component of the Indian industry is expected to reach US$ 175 billion in revenue by 2020. The domestic component will contribute US$ 50 billion in revenue by 2020. Together, the export and domestic markets are likely to bring in US$ 225 billion in revenue, as new opportunities emerge in areas such as public sector and healthcare, and as geographies including BRIC and Japan opt for greater outsourcing.

_____________ ____ ____________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of its

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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