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Infosys on PER of 13x - Views on News from Equitymaster
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  • Apr 12, 2000

    Infosys on PER of 13x

    Well, it will be. In the year 2005, that is five financial reporting years from now. As long as the company maintains a sales growth rate of 80% per annum compounded. And a net profit margin of 30%. That is not out of the question. It is mathematically possible.

    After all in the three financial years between March 31, 1997 and 2000, the company has shown an average annual growth rate of 86% in sales and all we need is just 80% per annum growth rate for the next 5 years. On the profit front, we need Infosys to show us a 78% per annum growth till the year March 31, 2005 and even that looks possible given the fact that Infosys has shown a net profit growth of 106% over the past 3 years.

    If the industry were to oblige with these growth rates (we have no doubt about the capability of the management of Infosys which we rate as one of the best in the world!), your expensive-looking Infosys trading at Rs. 10,626 as of the close on April 11th is actually trading at a p-e ratio of 13x March 2005 earnings.

    Infy on the cheap?
    year-end March 31 1997 2000 2005 2000/1997
    (% growth)
    (% growth)
    Sales (Rs m) 1,438 9,210 174,029    
    growth in sales   80% 80% 85.7% 80.0%
    Net Profit (Rs m) 337 2,935 52,209    
    growth in net profit   122.9% 80.0% 105.7% 77.8%
    net profit margin 23.4% 31.9% 30.0%    
    shares in issue (m) 14.6 66.1 66.1    
    EPS (Rs.) 23.1 44.4 789.8    
    Diluted EPS 5.1 44.4 789.8 105.7% 77.8%
    share price April 11th 10,626        
    P E Ratio (x) 2,001 230 13    

    So, are we saying that you should be selling your house, your gold, and even your Sify to buy a bit of Infy? Well, if you believe in mathematics and the power of mathematics as most of the sattawallas on Nasdaq do these days, sure Infy looks like a “safe bet”. But for those of you who really want to know what we believe, we will steal a quote and remind you: There are only two certainties in life: death and taxes.



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