‘E’ to drive Infosys’ revenue growth - Views on News from Equitymaster

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‘E’ to drive Infosys’ revenue growth

Sep 5, 2000

India's leading software service company, Infosys Technologies Ltd. is expecting e-commerce to be its main revenue driver. The company is increasingly focussing on e-enabling Fortune 1000 companies to encash the available opportunities. One of the potential revenue drivers for Infosys is the increasing proportion of high value-added and high-margin e-commerce service business in the total revenue mix. The major opportunities in e-commerce are in three segments, in e-enabling, Internet infrastructure companies and dotcoms or start-ups. The contribution from Internet services has seen a substantial jump over the past few years. Internet services, which accounted for mere 1.3% of revenues in 1QFY99 now accounts for 28.7% and are expected to grow steadily. Although e-commerce projects are high margin business, it requires more interactions with customers and a greater onsite presence. Since Infosys has forayed into this segment ahead of its competitors, it has developed an excellent skill set in this business.

E-commerce revenues
FY99 FY00 FY01
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
1.3% 3.6% 4.3% 5.0% 6.4% 10.3% 15.6% 18.8% 28.7%

However the risks perceived by investors in e-commerce services is exposure to dotcoms. There are two possible risks associated with dotcoms for the Indian software sector. One, debtor levels may increase and there may be incidences of payment defaults. Secondly repeat business may suffer if the dotcom does not do well. Most of the larger Indian companies are limiting their exposure to dotcom-related revenue and are insisting on advance payments. But as the client wins are increasing each quarter, repeat business from dotcoms is not critical. Infosys derives 17.8% of its business from Fortune 1000 companies, of the total 28.7% revenue from e-commerce services. The remaining 10.9% was from 20 clients, with the largest order size being US$1.6 m.

At the current market price of Rs 8,531, Infosys is available at a P/E of 116 times its 1QFY01 annualised earnings and 100 times its FY01 projected earnings. The fundamentals of the company are continuously improving. Also the inorganic growth will enable the company to maintain its spectacular growth rate year over year.

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