Equity Research on IT Companies

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A Summer Project Report on

EQUITY RESEARCH ON IT COMPANIES

At Asit C Mehta Intermediates.

Submitted in partial fulfillment of the requirements forMaster of Management Studies (M.M.S.)

University of Mumbai

By -Ghotgalkar Shantanu Sadanand

Roll No. 1075Batch of 2010-12

Oriental Institute Of Management

Plot No.149, Sector 12, Vashi, Navi Mumbai400703.

July 2011


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Acknowledgement

I take this opportunity to thank Ms.Saryu Pathania, (Project Guide), for her commitment,

guidance, contribution and close supervision though being very busy in their daily schedule. We

together have done every possible effort to make this presentation error free. However if you find

any mistakes, please let me know, because that will help me to improve further.

I would like to thank equity researchers ofAsit C Mehta for their constant inputs which made

the task interesting. It was a pleasure working with them.

I would also like to extend my gratitude to our Director General, Dr. M.G. Shirahatti, who gave

us this opportunity and platform to explore our abilities and conquer new horizons. No formal

word is sufficient to convey my sincere thanks and heartiest gratitude to Prof. Rashmi Soni

(Project Guide) for giving valuable time and precious suggestions. Her motivation has really

been a great help in developing this project. Last but not the least; our Librarian has always been

helpful whenever I needed reference books to gather relevant information for my project work.


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Declaration

I, Mr. Ghotgalkar Shantanu Sadanand Roll No. 1075 student of MMS 1 st Year hereby certify that

this project work titled Equity Research on IT Companies carried out by me, in partial

fulfillment of the requirements of the program is an original work of mine under the guidance of

Industry mentor Ms. Saryu Pathania &Institute mentor Prof.Dr Rashmi Soni.

I further declare that it is not a reproduction from any existing work of any person and it

has not been submitted to any other university or institute for the award of a degree or diploma or

any other similar title of recognition.

_____________________

(Student`s Signature)

Date: .. July 2011


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Certificate

This is to certify that, Mr. Ghotgalkar Shantanu Sadanand Roll No. 1075 is a fulltime bonafide

student of Oriental Institute of Management and pursuing Masters Of Management Studies

(MMS). The project report titled Equity Research on IT Companiesis completed by him/her

under the guidance of Prof.Dr Rashmi Soni in the partial fulfillment of the requirements for the

award of the degree of Master in Management Studies of Mumbai University is an original work

done.

________________________ __________________________

(Signature of the Project Guide) (Signature of the Director)

Oriental Institute of Management, Oriental Institute of Management,

Vashi, Navi Mumbai 400703. Vashi, Navi Mumbai 400703.


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Table of Contents

1. Objectives and Need of the study. 2

2. Scope and Limitations of the study ...........................................................................3

3. Introduction ................................................................................................................4a. Industry Analysis

b. Company Analysis

4. Research Methodology.......19a. Collection of Data

b. Sample Design & Method

5. Data Analysis and Interpretation of the study 21

a. IT Industry Analysis

b. Infosys Company Analysis

c. TCS Company Analysis6. Comparative Analysis and Valuation.42

7. Suggestions and Conclusion.. ............50

8. References...... 51


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Executive Summary

The Project titled Equity Research on IT companies involves the study of IT industry of India using

the fundamental analysis and to study the stocks of two major IT companies i.e Tata ConsultancyServices Ltd & Infosys Technology Ltd.

In the initial part of the study we discuss the current scenario of IT industry with regard to various

parameters like the sources of revenues, the macro economic factors affecting the business of IT

industry, the required man power, etc. Also we try to study the future outlook of the industry with regard

to its growth rate and global economic factors affecting that may affect the industry.

In the second part we study the company profiles of Infosys and TCS. Here we take into consideration

every aspect of company i.e the journey of the company right from its inception, its business model, the

products and services offered by them, their achievements, and milestones.

We also try the financial data like their EPS, Revenues, Market capitalization, etc. of both the

companies. Also the ratio analysis of both the companies has been done in order to get the idea of the

actual financial position of these companies.

In the comparative analysis we try to compare the stocks of both the market companies with respect to

BSE sensex. Through these comparison we can analyze how the stock prices of both the companieshave performed from last five years i.e from 2007-2011.

In the last part we try evaluate estimated intrinsic value of both the companies using the Earning

Multiplier Approach of valuation of stocks. Based on these intrinsic values the suggestions and

conclusions for the investment in these stocks has been made.


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Objectives of the study

To study the concept of equity research

To study the techniques of equity research and its implications

To analyze the stocks of TCS and Infosys.

Need of the Study

The Indian it industry is the one of the most booming sector of the Indian economy. It is growing at a

CAGR rate of around 22% as per NASSCOM reports 2011. Hence the IT companies are the most

preferred stocks by investors in their portfolio. Hence the continous study of IT companies is required.

Therefore the project Titled Equity research on IT Companiesis done in order to study the IT sector

and the compare the stocks of the top IT companies as per as Market Capitalization listed in the Bombay

stock Exchange.


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Scope of the Study

This research primarily focuses on software services companies in India

IT-hardware &IT-ES domains are excluded from the ambit of this research

Limitations of the study This research was carried out for limited period of 2 months.

The fundamental analysis is based on the secondary data collected only during period of 2007-2011


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Industry Analysis

OVERVIEW OF STOCK MARKET

Right from the beginning the stock broking industry has undergone a drastic change. Gone are the days when the

individuals were acting as a stock broker & just were serving a limited region. The industry structure has changed

so much as the corporate giants entered in the stock broking industry.

Broking Insights

The Indian broking industry is one of the oldest trading industries that have been around even before the

establishment of the BSE in 1875. Despite passing through a number of changes in the post

liberalizations period, the industry has found its way towards sustainable growth. With the purpose of

gaining a deeper understanding about the role of the Indian stock broking industry in the countrys

economy, here are some of the Industry insights gleaned from analysis of data received through primary

research.

In tune with the global stock markets that began to recover from the second half of 2003; Indian stock markets

too witnessed rapid growth. Indias two leading indices, the most popular BSE Sensex, and the one most used by

the markets the National Stock Exchanges S&P CNX Nifty rose to record levels. Both primary and secondary

market activity experienced sharp surge. Much progress was made in further strengthening and streamlining risk

management, market regulation and supervision. A few aspects of the major developments in the Indias stock

markets are described below.

Indian securities market is fairly large as compared to several other emerging markets. There are 22 stock

exchanges in the country, though the entire liquidity is shared between the countries two national level

exchanges namely, the National Stock Exchange of India and the Bombay Stock Exchange Ltd. The regional

stock exchanges are in pursuit of business models that make them viable and vibrant. Meanwhile, these

exchanges have become members of the national level exchanges through formation of subsidiaries whose

business is showing continuous growth and progress.


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The number of brokers in various stock exchanges rose from 6,711 in 1994-95 to 9772 in FY10. The number of

brokers in all the exchanges together peaked to 10,213 in the year FY01 but gradually declined thereafter when

the regional stock exchanges began to lose business in the light of wide ranging market structure reforms

introduced since then. In FY01, when the markets were in upswing, several regional stock exchanges were

generating business owing to the availability of deferral products, such Badla and different settlement calendarsprevailing at that time in these exchanges. For instance in FY01, the Delhi Stock Exchange registered cash

market turnover of Rs 838.71 Bn; Uttar Pradesh Stock Exchange, Rs 247.47 Bn, Ludhiana Stock Exchange Rs

97.32 Bn, Pune Stock Exchange Rs 61.71 Bn as against Rs 13,395.11 Bn of the turnover at the National Stock

Exchange and Rs 10,000.32 Bn turnover at the Bombay Stock Exchange. With the abolition of the deferral

products and introduction of uniform T+2 settlement cycle, the liquidity in these exchanges flowed to the national

level system consisting of NSE and BSE.

Terminals

Almost 52% of the terminals in the sample are based in the Western region of India, followed by 25% in

the North, 13% in the South and 10% in the East. Mumbai has got the maximum representation from the

West, Chennai from the South, New Delhi from the North and Kolkata from the East.

Mumbai also has got the maximum representation in having the highest number of terminals. 38%

terminals are located in Mumbai while 12% are from Delhi, 10% from Ahmedabad, 9% from Kolkata,

4% from Chennai and 27% are from other cities in India.


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Branches & Sub-Brokers

By the Western region, with 31% branches. Around 24% branches are located in the South and East

constitutes for The maximum concentration of branches is in the North, with as many as 40% of all

branches located there, followed 5% of the total branches of the total sample.

In case of sub-brokers, almost 55% of them are based in the South. West and North follow, with 30%

and 11% sub-brokers respectively, whereas East has around 4% of total sub-brokers.

Mumbai38%

Other Cities

27%

Delhi

12%

Ahmedabad

10%

Kolkata

9%

Chennai

4%

% of terminals in major cities


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In tune with the global stock markets that began to recover from the second half of 2003; Indian stock markets

too witnessed rapid growth. Indias two leading indices, the most popular BSE Sensex, and the one most used by

the markets the National Stock Exchanges S&P CNX Nifty rose to record levels. Both primary and secondary

market activity experienced sharp surge. Much progress was made in further strengthening and streamlining riskmanagement, market regulation and supervision. A few aspects of the major developments in the Indias stock

markets are described below.

% of branches in each region

0

5

10

15

20

25

30

35

40

EAST WEST SOUTH NORTH

region

percentage

Series1

% of sub brokers present in each region

0

10

20

30

40

50

60

SOUTH WEST NORTH EAST

Region

Companies%

Series1


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Indian securities market is fairly large as compared to several other emerging markets. There are 22 stock

exchanges in the country, though the entire liquidity is shared between the countries two national level

exchanges namely, the National Stock Exchange of India and the Bombay Stock Exchange Ltd. The regional

stock exchanges are in pursuit of business models that make them viable and vibrant. Meanwhile, these

exchanges have become members of the national level exchanges through formation of subsidiaries whosebusiness is showing continuous growth and progress.

The number of brokers in various stock exchanges rose from 6,711 in 1994-95 to 9,335 in FY06. The number of

brokers in all the exchanges together peaked to 10,213 in the year FY01 but gradually declined thereafter when

the regional stock exchanges began to lose business in the light of wide ranging market structure reforms

introduced since then. In FY01, when the markets were in upswing, several regional stock exchanges were

generating business owing to the availability of deferral products, such Badla and different settlement calendars

prevailing at that time in these exchanges.

For instance in FY01, the Delhi Stock Exchange registered cash market turnover of Rs 838.71 Bn; Uttar Pradesh

Stock Exchange, Rs 247.47 Bn, Ludhiana Stock Exchange Rs 97.32 Bn, Pune Stock Exchange Rs 61.71 Bn as

against Rs 13,395.11 Bn of the turnover at the National Stock Exchange and Rs 10,000.32 Bn turnover at the

Bombay Stock Exchange. With the abolition of the deferral products and introduction of uniform T+2 settlement

cycle, the liquidity in these exchanges flowed to the national level system consisting of NSE and BSE.

List of Stock Exchanges in INDIA:

There are 22 stock exchanges in India. These are shown below

Bombay Stock Exchange

National Stock Exchange

Bangalore Stock Exchange Bhubaneswar Stock Exchange

Calcutta Stock Exchange

Cochin Stock Exchange

Coimbatore Stock Exchange


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Delhi Stock Exchange

Guwahati Stock Exchange

Hyderabad Stock Exchange

Jaipur Stock Exchange

Ludhiyuana Stock Exchange

Madhya Pradesh Stock Exchange

Madras Stock Exchange

Magadha Stock Exchange

Mangalore Stock Exchange

Meerut Stock Exchange

OTC Stock Exchange

Pune Stock Exchange

Saurasthra Stock Exchange

Uttar Pradesh Stock Exchange

Vadodara Stock Exchange


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CCoommppaannyy OOvveerrvviieeww

About Asit C. Mehta

The company is jointly promoted by noted stock market professionals Mr. Asit C. Mehta and Mrs.

Deena A. Mehta, and is a part of the Mumbai-based Nucleus Group of Companies. The founders have

over 25 years of experience in the fields of finance, investments and technology. The other group

companies are engaged in IT and IT-related services such as database development, back-office

applications for banks, insurance and finance companies, content acquisition and corporate document

management solutions.

Mr. Asit C. Mehta, the Group Chairman is a Chartered Accountant and a Seasoned Capital Market

Professional. He also has several shot-term/ diploma courses in management, securities laws &

investment management.

He started his career in the corporate finance markets in the year 1983 by associating with the leading

Government Security broker of those times. He concentrated on Corporate Debt comprising of ICDs,

Bill Discounting, Syndication of Loans, Issue of commercial papers, Short-term debentures,etc.

Mrs. Deena Mehta, a Chartered Accountant and an MBA, is a co-promoter of Asit C. Mehta Investment

Interrmediates Limited (ACMIIL). Currently, she is on the board of ACMIIL as its managing director.Over the last 25 years, she has successfully developed the capital market investment business of the

Nucleus Group. Her core functions include the supervision of the Retail and Institutional Equities and

Derivatives Businesses, MF distribution, Business Development, Marketing, Strategic Planning & MIS,

Company accounts, Compliance, Operations, Software Development, HR and Administration. She has

been actively involved in various capital market-related reforms in the country and is currently a

member of the governing board of the Bombay Stock Exchange as its trading member director. In 2001,

Mrs. Deena Mehta became the first woman president of the Bombay Stock Exchange prior to itscorporatization.


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Vision:

To be a Trusted Financial Intermediary

CorporatePurpose:

To reach appropriate financial products, services and solutions to every Indian entity.

Reach & Access

Presence in all major cities including Tier-II and Tier-III locations in 26 states

Over 100 branches across India

Over 700 Business Associates

Over 315,000 Client accounts with almost 140,000 unique Clients

Over 950 Employees

Board of Directors

Chairman : Asit C. Mehta

Managing Director : Mrs. Deena A. Mehta

Whole time Director : Kirit H. Vora

Independent Directors : Mr. Shirish Shah (Former MD of Shah Constructions, an

International constructions company.

Prof. N. Venkiteswaran (Former Professor at IIM Ahmedabad

and Director at Thiagarajar School of Management

Mr. Shashidhar Ullal (Former Vice-Chairman of HECL Ltd.)

C. L. Jain (Former Finance Director of Hoechst Ltd.)


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Membership & Licenses

NSE: Capital, Derivatives, Debt & Currency Derivatives.

BSE: Cash & Derivatives.

FEDAI: Foreign Exchange. SEBI: PMS & Merchant Banking Category I.

Commodities: NCDEX, MCX,DGCX

CDSL: Depository Participant

Corporate Social Responsibility

Investor Education newsletters in various regional languages

Medical camps at remote locations in Gujarat

Earthquake relief camps at Bhuj, Kachchh

Detection-cum-corrective surgery for the physically challenged

Achievements

One of the first limited liability Companies to acquire membership on Bombay Stock Exchange

(BSE). One of the first multiple seat holders and multiple exchange members.

One of the first private VSAT network users.

The first to utilize a franchisee business model for Associates.

The first to achieve the ISO quality certification for business processes from SGS. Currently we

are an "ISO 9001:2008" certified company.

The first to receive a CRISIL grading for quality of operations and services. Currently we are at

the highest broker quality grading "BQ1". Company Managing Director Mrs. Deena A. Mehta was the first lady to be elected to the

governing board of the BSE and first and only lady to be the President of BSE.

Mrs. Deena A. Mehta is also currently the First lady as the Trading Member in the BSE

Governing Board (post corporatization).


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ACMIIL Advantage

Investor First -Unbiased investment advise as per investors financial goals

Transparent and fair dealing Financial Market expertise & vast experience of Founders & Top management

Full-service full-product range brokerage house with a larger & sharper market view

Wider options for investments - All financial instruments through all technology mediums like

Internet, Broadband, Call-2-Invest, VSAT, etc.

An ISO 9001:2008 certified company reflecting high quality standards of service

Graded BQ1 highest quality grading BQ1 from Crisil reflects the quality of operations &

services

Best risk management systems in the industry by grading clients and providing VAR-based

margining system (as followed by exchange) for risk exposure

We are present in 26 states and over 700 locations across India.


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Business Strategy

Continuously assimilate, analyse and apply knowledge to power superior financial decisions.

Focus on core competence in financial services.

Ensure de-risked business through multiple products and diverse revenue streams.

Customer Strategy

Drive stickiness through high quality research & service.

Maintain cutting-edge proprietary technology.

Wide, multi-modal network serving as one-stop shop to customers


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People Strategy

Attract exceptionally talented and driven people .

Ensure conducive environment.

Liberal Ownership-sharing.

Business Model


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Managerial depth

Promoted by first generation professional entrepreneurs.

Highly qualified and experienced Management team with an impeccable track record.

Distribution reach

Presence in 26 states and over 715 locations.

Buy and sell in BSE & NSE in both cash and derivaties.

Multiple segments : Cash,Derivatives, Commodities & Forex.

Pay through the internet payment gateway connected to 15 banks.

24*7 online access to account information.

Owner-mindset

The top management is driven by pride and reward of ownership .

To think and work like an owner is part of organizations DNA.

Technology edge

Uniquely placed with proprietary front, mid and back office software.

Effectively harnessed technology to facilitate processes and provide superior customer experience.

De-risked

De-risked and diversified business model across multiple revenue streams.

Multiple products across all segments of financial services.


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RESEARCH METHODOLOGY

Collection of primary data:

Analysis of this project is based on secondary data i.e Income statements and balance

sheets etc. therefore primary data has not been considered

Collection of secondary data:

1. The information is collected through secondary sources during the project. That information wasutilized for calculating performance evaluation and based on that, interpretations were made.

2. Most of the calculations are made on the financial statements of the company providedstatements.

3. Referring standard texts and referred books collected some of the information regarding

theoretical aspects.


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Sampling Method

The sampling Method used in these report is Judgement Sampling method

In Judgement sampling, the researcher or some other "expert" uses his/her judgementin selecting the units from the population for study based on the populationsparameters.

The reason for selecting Infosys & TCS are that these companies are having the most

market capitalization in the computer software industry market. Hence the collectionof data and analysis is easier.

39%

27%

34%

MARKET CAPITALIZATION OF TOP IT

COMPANIES

TCS INFOSYS OTHER BSE IT INFO COMPAINES


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IITT IInndduussttrryy AAnnaallyyssiiss

The Indian information technology (IT) industry has played a key role in putting India on the global

map, the IT industry has grown fast over the last 15 years. India is a preferred destination for companieslooking to offshore their IT and back-office functions. It also retains its low-cost advantage and is a

financially attractive location when viewed in combination with the business environment it offers and

the availability of skilled people. The Indian IT industry has witnessed a strong recovery over last few

quarters after facing a bleak outlook following the onset of global economic slowdown in the last quarter

of 2008. The industry faced a difficult year but started moving towards recovery by second half of the

last fiscal and operating atmosphere for the industry has continuously improved since then. The recovery

which started with pent up demand and cost cutting initiatives by large MNCs is now progressing as

major companies across the world start hiking IT budgets gradually. The performance of industry

leaders has been particularly on the upside of estimates and while recovery is slower in the mid-cap

space, here too things are better on a year-on-year basis.No twithstanding the fact that IT majors have

historically generated better part of their revenue from exports, the industry is set to renew its focus on

opportunities at home. Indias domestic market has become a force to reckon with and the existing IT

infrastructure is evolving in terms of both technology and penetration. In fact, in the developed

economies, the government is a major buyer of IT. Even in emerging nations, governments are

becoming major client for IT companies. China has for long had a software industry larger than India

despite the fact that it compares nowhere with Indias IT exports. This is because its IT industry is

powered mainly by domestic demand that is far larger than that of India. From a long term point or

view, the Indian IT industry is slowly decreasing its dependence on the US economy. While it is looking

at other opportunities in Europe and Japan, the next big driver for the industry in the long run will come

from the domestic demand. Indian economy is close to reaching the threshold level where demand for

the IT services takes-off in a big way and over the next few years the inflexion point will be reached

which provides strong growth visibility in the longer run.

World-wide spending on technology and related products and services is estimated to have crossed US$

1.6 trillion in 2010, a growth of 4.0% over 2009, with growth driven by emerging verticals and


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emerging geographies in addition to USA. Global IT services spend increased from US$ 566 billion in

2009 to US$ 574 billion in 2010. The geographic revenues break-up for IT services was as follows:

- Americas share 43.0% in 2010 (42.8% in 2009)

- Europe Middle-East and Africa revenues 39.7% in

2010 (40.2% in 2009)

- Asia-Pacific revenues 17.3% in 2010 (17.0% in 2009)

Global Business Process Outsourcing (BPO) services spend has increased from US$ 152 billion in 2009

to US$ 158 billion in 2010. The geographic revenues break-up for BPO spend was as follows:

- Americas share at 55.3% in 2010 (55.8% in 2009)

- Europe Middle-East and Africa revenues 25.9% in

2010 (26.0% in 2009)- Asia-Pacific revenues 18.8% in 2010 (18.2% in 2009)

Trends in global sourcing remained positive and showed a growth rate of 10.4% in 2010 over 2009 and

the global sourcing market size was in the range of US$ 102 to 106 billion in 2010. IT sourcing grew at

10.3% to a market size of US$ 62 to 64 billion and BPO sourcing grew at 10.6% to a market size of US$

40 to 42 billion. There is enough potential for growth. Estimate of the addressable global sourcing

market is in the range of US$ 500 billion (US$ 280 billion for IT services and US$ 220 billion for BPO

services). (Source: NASSCOM Strategic Review 2008 - 2011) One of the major beneficiary countries of

the global sourcing trend continues to be India whose expertise and capability in the area of Information

Technology (IT) and Information Technology Enabled Services (ITES) has made it a leading destination

for global corporations looking for technology partners.

Growth forecasts for IT Services Industry

IT services spend is expected to increase from US$ 566 billion in 2009 to US$ 684billion by 2014 at a CAGR2 of 3.9%.

US$ 225 billion in 2009 to US$ 239 billion in 2014 at a CAGR of 1.1%. US$ 31.1 billion in 2009 to US$ 42.8 billion in 2014 at a CAGR of 6.6%. BPO spend is expected to increase from US$ 152.1 billion in 2009 to US$ 201.5 billion

in 2014 at a CAGR of 5.8%.


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IT spend forecasts by global technology analyst firms like Gartner, Forrester, IDC andothers indicate a growing market for IT and ITES for industry verticals, service offeringsand geographies of interest to the Company and excellent prospects for growth in thefuture


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INFOSYS TECHNOLOGIES

COMPANY PROFILE

Introduction

Infosys Technologies was set up in 1981 by seven people with $250. Today it is one of India's largest IT

companies with 130,820 employees covering 88 nationalities. Headquartered in state of the art facilities

in Bangalore, it has offices in 32 countries and development centres in India, China, Australia, the UK,

Canada and Japan. Recent times have been characterized by remarkable growth: a frequently quoted

statistic, well worth mentioning, is that it took 23 years for Infosys to reach its first $1bn in revenues and

only 23 months to hit $2bn. It expects sales of more than $4billion in 2011.

Infosys was the first company to successfully provide computing services from India to clients around

the world, often at much lower cost. As the pioneer in IT outsourcing, it has paved the way for what has

now become a $41bn industry. Today, the company handles a wide range of IT contracts for many of

Europe and Americas leading corporations from software development to system maintenance for

multiple clients. It also provides back office support to many more, extending from order processing and

customer support call centres through to high-end actuarial analysis for the insurance industry

Infosys employs an ever-expanding army of low-cost but highly educated Indian engineers and attracts

the best of the best by offering relatively high salaries and significant perks. It is creative in the way it

sources talent, drawing on the top graduates from smaller colleges. Many employees have less than 3

years experience which, given their ability and intellectual rigour, allows the company to provide its

clients with a very cost-effective, yet efficient service

Some have argued that Infosys should focus on greater intellectual property creation and move beyond a

conventional service model where payment is largely made for time and material inputs. They see an

opportunity to move to payment for outputs, the basis of gains that their IT services can deliver. Perhaps

they will: it is noticeable that Infosyss Software Engineering and Technology Labs which spearhead the

companys commitment to innovation and Intellectual Property development, generated over 80


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invention disclosures and filed over 20 patents in 2007.

More significantly in terms of its value chain, Infosys is moving into higher value-adding services such

as establishing an R&D partnership to jointly create next-generation solutions for the power sector with

ALSTOM, a global leader in power generation and rail transport infrastructure.

Its canny ability to see change and adapt to it means that Infosys is keeping ahead of the game. As it has

quickly migrated from support service to value-creating software development and outsourced R&D, it

has consistently been able to compete with the likes of Accenture and IBM and pre-empt new

developments. For example, it has opened offices in China and Mexico to counter the wage inflation and

skills shortage it is facing in India and is mitigating the possible threat of competition from other

developing countries. It is also now considering acquisition and, as several other Indian firms in recentyears have done, there have been rumOurs that it will acquire a large European firm to further underpin

its future global growth ambitions.

Business

INFOSYS GLOBAL DELIVERY MODEL

new

engagement

model

- Saas

- Learning

- Consulting

- Business Process Management

-

IT Outsourcing

Systems Integration

Independent Valuation Services

Infrastructure Management

Product Lifecycle Management

Technoloagy Consulting

Technology Enabled BPR

Enterprise Solutions

Application Development and Maintainence

Software Re-engineering


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Products and Services offered by the company:

IT Services

Application Services Architecture Services

Enterprise Quality Services

Independent Validation Services

Information Management Services

Infrastructure Services

Packaged Application Services

SOA Services

Systems Integration Services

Engineering Services

Product Engineering

Manufacturing Process and Plant Solutions

Lifecycle Management

Consulting Services

Information & Technology Strategies

Product Innovation

Next Generation Commerce

Core Process Excellence

Learning & Complex Change

BPO Services

Business Platforms

Customer Service Outsourcing

Finance and Accounting

Human Resource Outsourcing


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Knowledge Services

Legal Services

Order Management

Sourcing and Procurement Outsourcing

Product and Platforms

Collaborative Analytics

Finacle

Infosys ActiveDesk

Infosys mConnect

Infosys Unified Communications and Collaboration (UC)

Subsidiaries of the company:

Infosys BPO

Infosys Consulting

Infosys Australia

Infosys China

Infosys Mexico

Milestones

1981-Infosys was incorporated by N R Narayana Murthy and six engineers in Pune, India with

an initial capital of $250. In the same year, the company received an order from its first client

Data Basics Corporation of New York.

1999- The company generated revenues of $100 million. In 1999, Infosys was listed in

NASDAQ. Later in the year 2006, the company became part of NASDAQ-100; it was first

Indian and only the company to be part of any of the major global indices. It achieved a CMM

Level 5 certification. The same year the company commissioned various offices in Germany,

Sweden, Belgium, Australia, and two development centers in the US. The company launched

Infosys Business Consulting Services.


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2000- The companys revenues touched $200 million mark. Infosys opened offices in France

and Hong Kong, a global development center in Canada and UK, and three development centers

in the US. It company re-launched its universal banking solution- Banks 2000 as Finacle.

2001- The company touched $400 million revenues mark. It set up offices in UAE and

Argentina, and a development center in Japan. Infosys was rated as the Best Employer by

Business World/Hewitt

2002- Infosys touched $ 500 million revenues mark. Nandan M Nilekani takes over as CEO from

N R Narayana Murthy, who is appointed Chairman and Chief Mentor. The company opened

offices in the Netherlands, Singapore and Switzerland. Infosys collaborated with the Wharton

School of the University of Pennsylvania to set up The Wharton Infosys Business

Transformation Awards (WIBTA). The same year, company launched Progeon, that offers

business process outsourcing services. 2003- The company established subsidiaries in China and Australia. It expanded its operations in

Pune and China and established a Development Center in Thiruvananthapuram

2004- The company touched $1 billion revenues mark. Infosys Consulting Inc was launched.

2005- The company records the largest international equity offering of $1 billion from India.

2006- Infosys celebrated 25 years of its existence. The company touches $2 billion revenues

mark. The employee strength grew to 50,000+. N R Narayana Murthy retired from the services

of the company and board of directors appointed him as an Additional Director. He continues

Board of Directors appoints him as an Additional Director.

2007- Infosys crossed revenues of $3 billion. Employees strength grew to over 70,000+. Kris

Gopalakrishnan, COO became CEO and Nandan M Nilekani was appointed as Co-Chairman of

the board of directors. The company set up a new subsidiary in Latin America.

2008- Infosys crossed revenues of $4.18 billion.


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Achievements/ recognition:

Certification

The company's certifications include SEI-CMMI Level 5, CMM Level 5, PCMM Level 5, TL 9000 andISO 9001-2000.

Awards

Infosys was ranked among the top 50 most respected companies in the world by Reputation

Institutes Global Reputation Pulse 2009.

Infosys won Sears Holding Corporation's Partners in Progress award for the second consecutive

year. Infosys also won HDS' Diamond Award for 'Best Virtualization Strategy' and Platinum Award

for 'Best Green Strategy for a Data Center'.

Infosys was also listed in the Most Admired Knowledge Enterprises (MAKE) 2008 study and

Forbes' Asian Fabulous 50 for the fourth consecutive year.

The company was conferred with the NASSCOM gender inclusivity award and the Asset

magazine acclaimed their Corporate Governance, acknowledging their corporate policies and

practices as amongst the best in the industry


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DATA ANALYSIS AND INTERPRETATION OF INFOSYS:

The EPS of INFOSYS in 2011 was Rs 112.25 as against Rs 100.26 in year 2010 a growth rate of 12%.

In year 2010 due to global economic crisis the revenues of the company had got effected hence there

was decline in EPS in 2010.

Infosyss total income increased to Rs 25,385 crore from Rs 21,140 crore in the previous year, at agrowth rate of 20.1%. Their software export revenues aggregated to Rs 24,791 crore, up by 18.8% fromRs 20,871 crore in the previous year. Out of the total revenue 66.2% came from North America, 20.7%

66.03

78.15

101.73 100.26

112.25

0

20

40

60

80

100

120

2007 2008 2009 2010 2011

EPS of INFOSYS (Rs)

1314915648

20264 21140

25385

0

5000

10000

15000

20000

25000

30000

2007 2008 2009 2010 2011

REVENUES(RS)

FINANCIAL YEAR

REVENUES OF INFOSYS


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from Europe and 10.7% from the Rest of the World. Their revenues from India have increased fromRs 269 crore to R 594 crore, with a growth rate of 120.8% which is higher than that of the other regions.

The current market price as on 31st mar 2011 was Rs 3236 as against Rs 2049 on 1st april 2007. Thus the

market price has grown at the rate of 12.10% CAGR.

115307

82362 75837

150110

186100

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

200000

2007 2008 2009 2010 2011

MARKETCAPITALIZATION

FINANCIAL YEAR

MARKET CAPITALIZATION OF INFOSYS

0

500

1000

1500

2000

2500

3000

3500

4000

01/04/2009

01/05/2009

01/06/2009

01/07/2009

01/08/2009

01/09/2009

01/10/2009

01/11/2009

01/12/2009

01/01/2010

01/02/2010

01/03/2010

01/04/2010

01/05/2010

01/06/2010

01/07/2010

01/08/2010

01/09/2010

01/10/2010

01/11/2010

01/12/2010

01/01/2011

01/02/2011

01/03/2011

INFOSYS


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Ratio analysis of Infosys

2007 2008 2009 2010 2011

Operational & Financial Ratios

Earnings Per Share (Rs) 66.03 78.15 101.73 100.26 112.25

DPS(Rs) 11.5 33.25 23.5 25 60Tax Rate(%) 8.53 12.35 13.33 22.98 26.96Dividend Pay Out Ratio(%) 17.42 42.55 23.1 24.93 53.45

Margin Ratios

EBIT Margin(%) 31.41 32.6 33.14 35.35 34.75Pre Tax Margin(%) 31.4 32.59 33.13 35.35 34.75PAT Margin (%) 28.72 28.57 28.72 27.22 25.38

Performance Ratios

ROA (%) 41.83 36.26 37.18 28.89 27.69ROE (%) 41.83 36.26 37.18 28.89 27.69ROCE (%) 45.74 41.38 42.92 37.52 37.91

Asset Turnover(x) 1.46 1.27 1.29 1.06 1.09Inventory Turnover(x)Debtors Turnover(x) 6.9 5.81 6.25 6.37 6.81Sales/Fixed Asset(x) 3.91 3.73 3.86 3.43 3.82Working Capital/Sales(x) 1.84 1.84 1.65 1.61 1.38

Efficiency Ratios

Fixed Capital/Sales(x) 0.26 0.27 0.26 0.29 0.26Receivable days 52.88 62.8 58.39 57.27 53.6Inventory Days 0 0 0 0 0Payable days 0.86 0.93 0.67 0.23 0.4

Growth Ratio

Net Sales Growth(%) 45.65 19.01 29.5 4.32 20.08Core EBITDA Growth(%) 46.75 22.79 31.22 11.75 15.47EBIT Growth(%) 51.56 23.51 31.66 11.29 18.04PAT Growth(%) 56.01 18.35 30.18 -1.1 11.95EPS Growth(%) -24.72 18.35 30.18 -1.44 11.95

Financial Stability RatiosTotal Debt/Equity(x) 0 0 0 0 0Current Ratio(x) 4.91 3.28 4.72 4.46 5.22Quick Ratio(x) 4.91 3.28 4.72 4.46 5.22Interest Cover(x) 0 0 0 0 0


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TATA CONSULTANCY SERVICES LTD

COMPANY PROFILE

INTRODUCTION

Established in 1968, Tata Consultancy Services a member of the Tata Group has grown to its currentposition as the largest IT services firm in Asia based on its record of outstanding service, collaborativepartnerships, innovation, and corporate responsibility.

It was founded by Jamsetji Tata in 1848 and it is one of Indias most respected institutions today. Theirmission reflects the Tata Group's longstanding commitment to providing excellence. To help customersachieve their business objectives by providing innovative, best-in-class consulting, IT solutions and

services, and to actively engage all stakeholders in a productive, collaborative, and mutually beneficialrelationship.

TCS' ability to deliver high-quality services and solutions is unmatched. They are the worlds firstorganization to achieve an enterprise-wide Maturity Level 5 on both CMMI and P-CMM, usingthe most rigorous assessment methodology - SCAMPISM. Additionally, TCS Integrated QualityManagement System integrates process, people and technology maturity through various establishedframeworks and practices including IEEE, ISO 9001:2000, CMMI, SW-CMM, P-CMM and 6-Sigma.

It is largest IT employer in India ,having total manpower strength of 1,21,610 employees. It providesservices to wide range of segment like banking & financial services, energy ,resources & utilities,

government ,telecom, media & information services, etc.TCS acquired Citigroup Global Services(CGSL), India based BPO for $505 million. The acquisitionbroadened TCSs portfolio of end-to-end IT and BPO services in the global Banking and FinancialServices (BFS) sector. TCSs enhanced scale and expertise will be providing service improvements toCiti and Citis customers. CGSL has more than 12,000 employees located in India and expected togenerate revenues of approximately $278 million in 2008.

Tata Consultancy Services is an IT services, business solutions and outsourcing organization thatdelivers real results to global businesses, ensuring a level of certainty no other firm can match.TCSoffers a consulting-led, integrated portfolio of IT and IT-enabled services delivered through its unique

Global Network Delivery Model, recognized as the benchmark of excellence in software development.TCS has over 143,000 of the world's best trained IT consultants in 42 countries. Revenue of $6.0 billion(fiscal year ending 31 March, 2009).


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Products and services offered by the company:

Technology Products

Exegenix Intelligent Document Conversion Solutions

Support Central - Business Social Productivity Platform TCS Digital Certification Services / Public Key Infrastructure (PKI) Suite TCS Tax Mantra Integrated Tax Solution TCS Data Cleansing Framework TCS Business Rules Engine TCS Experience Based KM (Knowledge Management) TCS Call Management Solution TCS Certificate Validation Server TCS File Authentication Solution TCS eLearning Effectiveness Measurement Solution TCS Code Generator Framework

TCS Saakshi (Time Stamping Solution) TCS Form Authentication Solution TCS eVOLv Multimedia Authoring Solution TCS Direct Metal Deposition CAM

Other Products -

TCS Clin-e2e TCS Hospital Management Solution TCS Silicone Ambulatory ECG Device and Solution TCS Enterprise Integration and Control Environment Solution/ Energy and Utilities

TCS Bio-informatics Solution VERICUT - Machine Simulation Software

Services:

IT Services-

Custom Application Development Application Management Migration & Re-engineering System Integration Testing Performance Engineering


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Infrastructure Services-

Infrastructure Readiness Assessment IT Service Desk Data Center Management

End User Computing Services Database Services Application Management Services Command Center Services Managed Security Services

Enterprise Solutions

Supply Chain Management Master Data Management Customer Relationship Management

RFID Call Management Oracle SAP

Consulting

Business Consulting IT Consulting Business Solutions

Business Process Outsourcing Customer Interaction Management (CIM) Finance and Accounting Human Resources Outsourcing Knowledge Process Outsourcing Supply Chain Management Reconciliations Benefits Administration Payroll Industry-specific Offerings

Business Intelligence & Performance Management-

Business Intelligence Business Process Management Enterprise Data Management Integration Services


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Knowledge Management / Enterprise Content Management

Engineering & Industrial Services-

New Product Development Solutions

Product Lifecycle Management Plant Solutions & Services Geospatial Technology Solutions Industry-specific Offerings

Small and Medium Business

Subsidiaries:

TCS' directly-held subsidiaries include:

AP Online Limited (India) C-Edge Technologies Limited (India) CMC Limited (India) Diligenta Limited (UK) Tata Consultancy Services Canada Inc. (Canada) Tata America International Corporation (USA) Tata Consultancy Services Asia Pacific Pte Limited (Singapore) Tata Consultancy Services Belgium S.A. (Belgium) Tata Consultancy Services Deutschland GmbH (Germany) Tata Consultancy Services France S.A. (France) Tata Consultancy Services Netherlands B.V. (Netherlands)

Tata Consultancy Services Sverige AB (Sweden) Tata Consultancy Services Switzerland Ltd (Switzerland) Tata Infotech (Singapore) Pte. Limited * (Singapore) Tata Infotech Deutschland GmbH * (Germany) TCS FNS Pty. Limited (Australia) TCS Iberoamerica S.A. (Uruguay) WTI Advanced Technology Limited (India)

Achievements/ recognition:

TCS is the only IT services organization to be a part of ISO 15926 real time interoperability

network grid (iRING) Version 1.0.0 TCS achieves Gold status in Business in the Community's (BitC) Corporate Responsibility Index(CRI) 2007-08.

Largest IT services firm in Asia. They are the worlds first organization to achieve an enterprise-wide Maturity Level 5 on both

CMMI and P-CMM, using the most rigorous assessment methodology - SCAMPISM.


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TCSs Integrated Quality Management System integrates process, people and technologymaturity through various established frameworks and practices including IEEE, ISO 9001:2000,CMMI, SW-CMM, P-CMM and 6-Sigma.

TCS tops the Data Quest DQTop20 list of IT Services providers in India for 2008 TCS ranked among Top 25 in Business Week's 2007 Information Technology 100

TCS awarded top position in 2007 'Global Services' 100 ,Top 10 Best Performing IT Servicesproviders category


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DATA ANALYSIS & INTERPRETATION OF TCS

18685

22620

2781330029

37325

0

5000

10000

15000

20000

25000

30000

35000

40000

FY 2007 FY2008 FY 2009 FY 2010 FY 2011

REVENUE

YEAR

TOTAL REVENUE OF TCS

8850

12300

15700

18467

24505

0

5000

10000

15000

20000

25000

30000

FY 2007 FY2008 FY 2009 FY 2010 FY 2011

NETWORTH

YEAR

NET WORTH OF TCS


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21.12

25.39 26.87

36.06

46.73

0

5

10

15

20

25

3035

40

45

50

2007 2008 2009 2010 2011

EPSRs

FINANCIAL YEAR

EPS of TCS

EPS

0

200

400

600800

1000

1200

1400

MARKETPRICE

TCS

TCS


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121

79

53

157

232

0

50

100

150

200

250

FY 2007 FY2008 FY 2009 FY 2010 FY 2011

MARKETCAPITALIZATION

FINANCIAL YEAR

MARKET CAPITALIZATION OF TCS

0

500

1000

1500

2000

2500

3000

3500

4000

MARK

ETPRICE

PERIOD

TCS

INFOSYS

COMPARISON OF TCS & INFOSYS


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RATIO ANALYSIS OF TCS

Year End 2007 2008 2009 2010 2011

Operational & Financial

Ratios

Earnings Per Share (Rs) 21.12 25.39 26.87 36.06 46.73

DPS(Rs) 11.5 14 14 20 14

Adjusted Book Value (Rs) 45.22 62.33 79.71 93.84 124.69

Dividend Pay Out Ratio(%) 26.71 27.26 26.1 56.05 30.25

Margin Ratios

EBIT Margin(%) 26.37 25.98 22.22 27.66 29.6

Pre Tax Margin(%) 26.32 25.84 22.11 27.61 29.53

PAT Margin (%) 22.77 22.37 19.1 23.62 24.62

Cash Profit Margin (%) 25.12 24.86 21.12 25.82 26.59

Performance Ratios

ROA (%) 53.69 44.9 36 39.99 41.8

ROE (%) 57.3 48.07 38.21 41.76 42.97

ROCE (%) 62.18 52.15 41.88 46.83 50.25

Asset Turnover(x) 2.36 2.01 1.89 1.69 1.7

Inventory Turnover(x) 305.71 538.37 703.86 1104.21 1838.19

Debtors Turnover(x) 4.95 4.68 4.83 5.01 5.31

Sales/Fixed Asset(x) 5.38 4.61 3.79 3.2 3.61

Working Capital/Sales(x) 4.31 4.07 3.69 4.06 2.61

Efficiency Ratios

Fixed Capital/Sales(x) 0.19 0.22 0.26 0.31 0.28

Receivable days 73.75 78.07 75.54 72.87 68.72

Inventory Days 1.19 0.68 0.52 0.33 0.2

Growth Ratio

Net Sales Growth(%) 40.87 21.06 22.96 7.97 24.3

Core EBITDA Growth(%) 41.33 19.97 4.71 32.98 31.4

EBIT Growth(%) 40.16 19.24 5.15 34.42 33.01

PAT Growth(%) 41.95 18.93 4.97 33.54 29.57

EPS Growth(%) -29 19.31 4.45 -33.48 29.69Financial Stability Ratios

Total Debt/Equity(x) 0.06 0.04 0.04 0.01 0

Current Ratio(x) 2.24 2.24 2.26 1.88 2.88

Quick Ratio(x) 2.23 2.23 2.26 1.88 2.87

Interest Cover(x) 521.45 195.8 215.59 515.88 417.19


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COMPARATIVE ANALYSIS

-0.25-0.2

-0.15-0.1

-0.050

0.050.1

0.150.2

0.25

%change

Period

% change in infosys

% change in

infosys

-0.7-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

0.4

Date

03/05/2007

02/07/2007

03/09/2007

01/11/2007

01/01/2008

03/03/2008

02/05/2008

01/07/2008

01/09/2008

03/11/2008

01/01/2009

02/03/2009

04/05/2009

01/07/2009

01/09/2009

03/11/2009

04/01/2010

02/03/2010

03/05/2010

01/07/2010

01/09/2010

01/11/2010

03/01/2011

%change

Period

%change in TCS

%change in

TCS


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-0.3

-0.2

-0.1

0

0.1

0.2

0.3

Date

03/05/

2007

02/07/

2007

03/09/

2007

01/11/

2007

01/01/

2008

03/03/

2008

02/05/

2008

01/07/

2008

01/09/

2008

03/11/

2008

01/01/

2009

02/03/

2009

04/05/

2009

01/07/

2009

01/09/

2009

03/11/

2009

04/01/

2010

02/03/

2010

03/05/

2010

01/07/

2010

01/09/

2010

01/11/

2010

03/01/

2011

%change

Period

% change in BSE SENSEX

% change in BSE

-0.7-0.6-0.5-0.4-0.3-0.2-0.1

00.10.20.30.4

Date

03/05/2007

02/07/2007

03/09/2007

01/11/2007

01/01/2008

03/03/2008

02/05/2008

01/07/2008

01/09/2008

03/11/2008

01/01/2009

02/03/2009

04/05/2009

01/07/2009

01/09/2009

03/11/2009

04/01/2010

02/03/2010

03/05/2010

01/07/2010

01/09/2010

01/11/2010

03/01/2011

%change

Period

COMPARISION OF INFY & TCS

% change in

infosys

%change in

TCS


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-0.3

-0.2

-0.1

0

0.1

0.2

0.3

Date

03/0

5/2007

02/0

7/2007

03/0

9/2007

01/1

1/2007

01/0

1/2008

03/0

3/2008

02/0

5/2008

01/0

7/2008

01/0

9/2008

03/1

1/2008

01/0

1/2009

02/0

3/2009

04/0

5/2009

01/0

7/2009

01/0

9/2009

03/1

1/2009

04/0

1/2010

02/0

3/2010

03/0

5/2010

01/0

7/2010

01/0

9/2010

01/1

1/2010

03/0

1/2011

%change

Period

COMPARISION OF SENSEX &INFY

% change in

BSE SENSEX

% change in

infosys


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VALUATION

The Earning Multiplier Approach

In the Earning Multiplier the Goal is to find out the value anchor which is nothing but the intrinsic value

of the share in appropriate terms.

Step 1 We need to find the estimated figures for the next year. This can be done by calculating the

CAGR of all the required parameters. Once the CAGR is calculated then this represents an appropriate

growth figure which can give us the projected figures. Going in the normal flow the PAT can be

calculated. Once the PAT is figured out we can subtract preference dividend from it and divide it by the

number of outstanding shares to calculate the estimated EPS.

Step 2 We need to calculate the P/E ratio for the estimated year. As a result we use the formula of

Dividend payout ratio divided by the difference of required return on equity and the Expected growth

rate in dividend.

Price earning ratio = (Dividend payout ratio) (Required return on equity Expected growth rate individend)

d. The Dividend Payout Ratio can be calculated by dividing the dividend / share by the

earning /share.e. Required return on equity = Risk Free Return + ( Beta of equity x Expected Market Risk

Premium)f. Expected Growth Rate in dividend= Retention Ratio x Return on equityg.

Step 3 We have both the Projected EPS and the Appropriate P/E. Multiplying them will give us the

Value Anchor which is the intrinsic value of the share.


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ESTIMATED PROFIT & LOSS ACCOUNT OF TCS LTD

Year End 2007 2008 2009 2010 2011 CAGR 2012 E

Operating Income 186852.1 226195.2 278128.8 300289.2 373245.1 0.188842 443729.3

EXPENDITURE :

Power & Fuel Cost 1158.6 1582.2 1962.3 2505.9 3020.8 0.270712 3838.567

Employee Cost 89959.8 113999.7 144704 150657.5 187127.9 0.200943 224730

Cost of Softwaredevelopments 3182.2 4662.3 4235.1 4642.4 5241 0.132848 5937.257

Operating Expenses 28077 32652.9 34647.3 34684.7 44972.2 0.124989 50593.24

General and AdministrationExpenses 12374.2 15354.3 19494.3 18586.2 21614.1 0.149622 24848.04

Selling and MarketingExpenses 325.8 357.1 305.2 65.9 203.7 -0.11078 181.1344

Miscellaneous Expenses 386 487.4 8896.2 4148.9 685.3 0.154312 791.0503

Less: Pre-operative

Expenses Capitalised 0 0 0 0 0 0Total Expenditure 135463.6 169095.9 214244.4 215291.5 262865 0.18026 310919.3

PBIDT (Excl OI) 51388.5 57099.3 63884.4 84997.7 110380.1 132810

Other Income 2290.5 7297.4 3543.7 4668.5 7443.5 0.342647 9993.99

Operating Profit 53679 64396.7 67428.1 89666.2 117823.6 122816.1

Interest 94.5 300.1 286.6 161 264.8 0.293813 342.6017

Gross Profits 53584.5 64096.6 67141.5 89505.2 117558.8 122473.5

Depreciation 4401.7 5637.1 5640.8 6608.9 7352.6 0.136855 8358.841

Profit Before Taxation &Exceptional Items 49182.8 58459.5 61500.7 82896.3 110206.2 114114.6

Exceptional Income /

Expenses 0 0 0 0 0Profit Before Tax 49182.8 58459.5 61500.7 82896.3 110206.2 114114.6

Provision for Tax 6639.6 7863.1 8389.5 11969.7 18308.3 0.288625 23592.53

PAT 42543.2 50596.4 53111.2 70926.6 91897.9 114114.6

less:-Minority Interest 1214.5 909.9 540 344.2 427.7 -0.22965 329.48

NET PROFIT 41328.7 49686.5 52571.2 70582.4 91470.2 113785.1

EPS 21.12 25.39 26.87 36.06 46.73 58.13


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Analysis Table

The following table will give us the Appropriate Figures.

EPS 58.13

Dividend Payout Ratio 33.274

Risk Free Rate (Rf) 7.5

Beta of TCS () 1.04

Expected Market Risk Premium 18.45

Required return on equity 26.688

Retention Ratio 58.15

ROE 43.2

Expected Growth Rate of dividend 25.1208

Estimated P/E 21.33

Value Anchor 1239.73

Current Market Price 1182.5

The Market return has been calculated by taking into consideration the average return of all the listed

stocks on sensex and turns out be around 18.45%. The Value Anchor turns out be around 1239.73

compared with the market price as of today 1182.5 as a result we can conclude that this share is highly

undervalued. I recommend a strong buy call since its value anchor is higher than the current market price

& hence investor can expect returns on the investment. All the above figures have been reconfirmed with

other professional research report and are more or less the same. Hence we conclude that all these figures

are true to the date.


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ESTIMATED P&L A/C OF INFOSYS

Year End 2007 2008 2009 2010 2011 CAGR 2012 E

Operating Income 138930 166920 216930 227420 275010 0.186146 326202

EXPENDITURE : 0

Power & Fuel Cost 970 1220 1470 1450 1670 0.145477 1912.946

Employee Cost 71080 88530 112450 120750 148460 0.202169 178474

Cost of Software developments 5180 5160 7570 7250 10920 0.204962 13158.18

Operating Expenses 7070 8500 10660 7550 10250 0.097302 11247.34

General and Administration Expenses 7570 8800 10290 9960 12210 0.126951 13760.07

Selling and Marketing Expenses 2110 1000 1020 930 1210 -0.12979 1052.958

Miscellaneous Expenses 1050 1340 5900 920 590 -0.1342 510.8198

Less: Pre-operative ExpensesCapitalised 0 0 0 0 0 0

Total Expenditure 95030 114550 149360 148810 185310 220116.3

PBIDT (Excl OI) 43900 52370 67570 78610 89700 106085.7Other Income 3720 7060 9140 9450 12110 0.34323 16266.51

Operating Profit 47620 59430 76710 88060 101810 122352.2

Interest 10 10 30 20 20 20

Gross Profits 47610 59420 76680 88040 101790 122332.2

Depreciation 5140 5980 7610 9050 8540 0.135334 9695.753Profit Before Taxation & ExceptionalItems 42470 53440 69070 78990 93250 112636.4

Exceptional Income / Expenses 0 0 0 0 0 0

Profit Before Tax 42470 53440 69070 78990 93250 112636.4

Provision for Tax 3860 6850 9190 16810 24900 0.593687 39682.8

PAT 38610 46590 59880 62180 68350 72953.62

EPS 67.31 96000 104.69 108.71 119.49 0.154285 127.7647


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Analysis Table

The following table will give us the Appropriate Figures.

EPS 127.76

Dividend Payout Ratio 32.29

Risk Free Rate (Rf) 7.5

Beta of Infosys () 0.94

Expected Market Risk Premium 18.45

Required return on equity 24.843

Retention Ratio 66.61

ROE 34.37

Expected Growth Rate of dividend 22.894

Estimated P/E 16.57

Value Anchor 2116.59

Current Market Price 3236.75

The Value Anchor of Infosys turns out be around 2116.59 but the market price as of today is around

3236.75 as a result we can conclude that this share is highly overvalued. Its nothing but the demand and

the market forces that have taken the share to so much heights. I recommend a strong sell call since its

value is highly hyped and the stock price can a take a beating anytime in the near future. . All the above

figures have been reconfirmed with other professional research report and are more or less the same.

Hence we conclude that these figures are true to the date.


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Conclusion

Infosys and TCS are the blue chips companies of Indian IT industry. They are having the most market

capitalization in BSE INFOTECH Index. The intrinsic value of Infosys is lower than its current market price.

Hence we can conclude that it is overvalued and hence would recommend to sell the Infosys stocks in the

long run. While on the other hand the intrinsic value of TCS is higher than its current market price(CMR).

But the the difference between the intrinsic value and the CMR of TCS is very less i.e around 50. Hence we

would recommend the investors, in the short to buy the stocks of TCS but in the long run not to purchase

the stocks of TCS.


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Books and magazines

Damodaran on Valuation (second edition) .by Aswath Damodaran

Securities and Portfolio Management.....by Fisher and Jordon

Websites:

www.nseindia.com

www.investopedia.com

www.bseindia.com

www.moneycontrol.com
http://www.nseindia.com/http://www.bseindia.com/http://www.bseindia.com/http://www.nseindia.com/

Equity Research on IT Companies

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