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One of India's managed companies - Views on News from Equitymaster
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  • Jan 29, 1999

    One of India's managed companies


    • Infosys Technologies Limited, was established in 1981, when eight software professionals quit their regular jobs and pooled a capital of Rs 10,000. Six of the eight pioneers now form part of the top management. Infosys' management has always been pro-active as far as keeping pace with technology is concerned. Last year, the company was declared as Indiaís best-managed company by Asia Money.
    • Currently,Infosys is the fifth largest software exporter with nearly 96% of its total revenue coming from software exports. Over the last four years, itís sales and net profit have grown at a CAGR of 78% and 76% respectively.†
    • In 1994,Infosys became first Indian company to offer an Employee Stock Option Plan (ESOP), with 750,000 convertible warrants. With the proposed ADR issue Infosys will also allow employees to hold dollar-denominated stocks. This is primarily why the companyís employee turnover rate is only 14%, as compared to the software sector average of 30%.
    • Infosys is also among the few non-FMCG, non-consumer product companies to have established a brand name. In 1997-98, its brand value was pegged by the company at Rs 5 bn, up 192% from the previous year when it was Rs 1.7 bn
    • Infosys' customer base is highly fragmented. Only one customer out of 105 contributes more than US$ 6 m. There are four others who contribute between US$ 3-4 m each. The remaining 100 contribute, at an average about US$ 400,000 each. Given its emphasis on high quality and timely delivery, the company has managed to build strategic partnerships on a long term basis and in FY98, 83% of its revenues came from repeat orders.†
    • Current productivity of an Infosys'employee is US$ 50,000 as against a US industry average of US$ of 100,000,and US$ 190,000 for Cambridge Technology Partners, the US industry's most productive company.
    Main products
    • BANCS2000 - a banking software,†
    • In2000 for the Year 2000 problem,†
    • PorteNT - an application to port applications from OS/2 to WindowsNT,†
    • Webse'tu - a suite of products for enabling Internet-based electronic commerce using traditional, On-Line Transaction Processing (OLTP) application engines,
    • BankAway! - an Internet-enabled front-end to BANCS2000 functions.
    • During FY98,Infosys became the 21st company in the world to achieve Level 4 of the capability maturity model (CMM) of the Software Engineering Institute (SEI), Carnegie Mellon University, USA.†
    • The company clocked an 85% rise in sales growth, while net profit increased sharply by 79%.†
    • Yantra, Corporation, the company's US subsidiary posted a loss of US$1.2 m on revenues of US$ 1.4 m. R&D expenditure constituted US$ 0.9 m of the loss.†
    • All its products did not do well. For instance, sales of BANCS2000 (its flagship product) declined by around 50%. Its other products WMS Yantra and DMAP haven't been extremely popular either. WebSetu has yet to take off.†
    • The explosive growth posted by the company in FY98 was largely due to the dramatic rise in Y2K revenue, which grew 458% to move from Rs 107 m in FY97 (7.5% of sales) to Rs 598 m in FY98 (23% of sales).
    Future plans
    • To virtually double its staff from the current 2,600 to about 5,000 over the next five years.
    • To establish software development centres in America, Asia (Far East), and Europe. This will give the company 24-hour software development capability, as it will be operating in multiple time zones.
    • To raise money through a $75m ADR (American Depository Receipts) issue to fund its acquisition and marketing plans. The company plans to acquire brands/companies in other markets to fuel growth. Another objective is to attract global talent by issuing stock options in convertible currency. While the company's move to acquire brands/companies abroad could reap rich dividends over a period of 4-5 years, it also carries an inherent risk of danger, if the product/company fails.†
    • Infosys' management believes that it can show a net profit growth in line with international companies. This implies a 40%-50% net profit growth over the next 3-4 years. Given the high growth rate clocked by the company over the past few years, this appears achievable.†



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