Infosys Limited Financial Analysis

INTRODUCTION

Company Profile

Infosys Limited is a leading global Consulting and IT services firm. The company provides solutions that span consulting, design, development, software re-engineering, maintenance and systems integration. The company also caters the banking industry and business process management services.

Infosys was incorporated in 1981 as a private limited company. It became public limited in June 1992. Infosys started offering shares on stock exchanges in India (BSE and NSE) in 1993. (See Annexure 1 - COMPANY PROFILE)

Industry Overview

In FY2012, the Indian IT industry weathered uncertainties in the business environment. Aggregate revenue for FY2012 crossed USD 100 billion. Aggregate IT software and services revenue is USD 88 billion. Embracing emerging technologies, increased customer-centricity, deepening focus on new markets, adopting new business models are some successful growth strategies followed by the industry. The country's IT industry grew by 16-17 per cent despite global IT industry went up by 5.4 per cent. (See Annexure 2 – INDUSTRY OVERVIEW)

Credit Rating

The credit rating of Infosys is BBB+ (Standard & Poor's rating).

According to S&P, "a rating of BBB (long-term credit rating) exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation."

The "+" in the BBB+ indicates that the long-term credit rating (6 months to 24 months) may be raised.1

Stock Price Movement

The graph shows the stock price movement of Infosys over the past one year.2

STOCK PRICE VALUATION

Discounted Cash Flow Method (DCF) Method

WACC Calculation

WACC = (Cost of Equity) (E / E+D) + (Cost of Debt) (1 - Tax Rate) (D / E+D)

Risk-free Rate (India)

3 month Treasury Bill Rate3

8.18% NOT USED for WACC

10 year Long Term Treasury Bond Rate4

8.23% USED for WACC

The investor is expected to invest for the long term. Therefore, the risk free rate used for WACC calculation is the 10 Year Long Term Treasury Bond Rate of 8.23%.

Beta

The Beta for Infosys Limited has been reported as 0.63. This means that the returns and the risk of investing in