Infosys: What is important? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Infosys: What is important?

Apr 12, 2004

For some in the stock market, tomorrow is the d-day, as Infosys is expected to announce its full year results. This is expected to set the tone for the year ahead when it comes to technology stocks. And for some, this would be yet another confirmation day! Amidst speculation about what Infosys will provide as guidance for both topline and net profit for the fiscal year 2005, we take a step back and access in brief the long-term prospects of the industry in general and Infosys is particular.

To start of with, the long-term prospects of the Indian software industry remains promising for two fundamental reasons. One, we have skilled English speaking manpower in abundance and as year passes by, the pool is only increasing. And secondly, the cost of manpower is lower compared to global standards, even after the kind of raises that we have seen in the software sector. Therefore, the pillars of the Indian software sector are on a strong footing. The most important question however, is who will benefit the most from this trend?

This is a very tricky question and to get an answer, history is a good starting point. Among all the software companies (listed), Infosys, Wipro and Satyam are considered the top-rung companies. There are also companies like Hughes Software, Geometric and i-flex that specialize in niche areas. Among these, Infosys has proved time and again that it has the management depth and scalability in its operations. These two are also very vital factors for long-term investors because technology is a vibrant sector and a visionary management at the top is of significance. Considering the rapid pace of employee additions and a geographically spread presence, scalability is another critical factor. Infosys scores high compared to its competitors.

So, having looked the fundamentals in brief, what should one look for in Infosys' results?

  1. Till now, the growth in revenues for Infosys has largely come from increasing the head count (estimated at 23,000). If one maps the number of employees and revenue growth over the last five years, there is a strong co-relation. So, investors have to watch out what Infosys has to say on this front.

  2. At the same time, revenue per employee for Infosys has also increased in the last ten years from Rs 0.5 m to Rs 2 m. We believe this is where the crux lies. If the recent announcement of setting up of a separate consulting company is any indication, we are looking at revenue per employee growing at a faster rate than employee addition in the future. This means that the company is gradually moving up into high value-add services. So, retail investors have to keep a close eye on what the company has to say about this factor.

While billing rates, onsite-offshore mix and so on may be of importance, we suggest investors to focus on these two factors i.e. pace of employee addition and possibility of high revenue per employee. Whether Infosys gives 20% or 30% topline growth guidance for FY05 is not as important, in our view. Yes, there may be disappointments in the short-term. But if you are a long-term investor, ascertain the growth prospects of the sector and the company from a fundamental perspective and then take your investment decision. Ultimately, there is a price to be paid for the quality of the management.

Equitymaster requests your view! Post a comment on "Infosys: What is important?". Click here!

  

More Views on News

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

ONGC to NMDC: Here are 5 Stocks Value Investors Should Closely Track (Views On News)

Nov 26, 2021

Before investing in value stocks, research the company and gain insight into why the market is discounting it.

Top 5 Stocks FIIs Bought and Sold Recently (Views On News)

Nov 25, 2021

FIIs have largely stayed on sidelines for the past few months, withdrawing money across emerging markets.

Do You Know Certain Less Popular Mutual Funds Can Help You Build Solid Wealth? (Outside View)

Nov 29, 2021

PersonalFN explains why you should not ignore less popular mutual fund schemes when you create your investment portfolio.

The Best Investing Strategy in a Market Crash (Profit Hunter)

Nov 29, 2021

We go back to the 2020 crash to find which stocks offer the best protection.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

Don't Sell these Stocks if the Market Falls (Profit Hunter)

Nov 17, 2021

These are the 3 types of stocks that you should not sell in a market crash.

How to Find Your Next 10-Bagger in this Market (Profit Hunter)

Nov 19, 2021

The #1 make or break factor in your portfolio you shouldn't ignore.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Nov 29, 2021 (Close)

MARKET STATS