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Infosys: Will it meet expectations?

Oct 9, 2000

Infosys, benchmark of the Indian software sector, will declare its quarterly results tomorrow. Not surprisingly the company is expected to continue its high growth trajectory by doubling its sales and profits for the second quarter. We present here an interesting quarter over quarter analysis of its financials, profit margins and change in valuations. Surging exports, higher prices for its services and a large proportion of e-commerce services will help the company to keep up the scorching pace of growth.

Financial Trend Analysis
Year End March 31 FY00 FY01
(Rs m) 1Q 2Q 3Q 4Q 1Q 2QE
Sales 1,703 2,083 2,264 2,774 3,555 4,083
Total Income 1,841 2,179 2,335 2,860 3,706 4,264
Operating Profit 779 859 985 1,166 1,528 1,769
Interest - - - - - -
Depreciation 93 107 145 187 177 180
Profit Before Tax 686 752 840 979 1,350 1,589
Net Profit (Before EOI) 606 657 738 859 1,213 1,399
EOI – Extra ordinary income

Increasing opportunities in e-commerce would drive the company’s future revenue growth. In the first quarter of FY01, the Internet services accounted for 28.7% of its total revenues. E-transforming Fortune 1,000 companies have significantly contributed to its revenue growth. The high margin e-commerce business will enable the company to maintain its operating margins. During the quarter ended September 2000, Infosys’ is expected to gain considerably from depreciation in the value of rupee, which might lead to higher realisations for the company.

Profitability Ratios
Particulars FY00 FY01
  1Q 2Q 3Q 4Q 1Q 2QE
OPM (excl. Other Inc.) 37.7% 36.7% 40.3% 38.9% 38.7% 38.9%
Tax / PBT 11.7% 12.6% 12.1% 12.3% 10.2% 12.0%
NPM 32.9% 30.2% 31.6% 30.0% 32.7% 32.8%
Cash EPS (Rs) 42.3 46.2 53.4 63.2 84.1 95.7
Fully Diluted EPS (Rs) 36.7 39.7 44.6 51.9 73.4 84.8

Infosys has always received premium valuations in the markets due to its ability to maintain the high growth rate. The company has de-risked its revenue model by diversifying the business mix and limiting the client concentration. Its strong growth and a high quality management are driving its market valuations.

Valuations Measures
Particulars FY00 FY01
  1Q 2Q 3Q 4Q 1Q 2QE
CMP (Rs.) 1,814 3,570 7,258 8,902 8,319 7,344
P/E 49.5 89.8 162.7 171.4 113.4 86.6
Growth Ratios*            
Sales 12.1% 22.3% 8.7% 22.5% 28.2% 14.8%
Operating profit 22.9% 10.3% 14.6% 18.4% 31.0% 15.8%
Net profit 40.6% 8.4% 12.3% 16.4% 41.3% 15.3%
* Growth compared to quarter over quarter


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