Saturday, July 04, 2009

Infosys Analysis

In this account, we will take a look at Infosys, the Indian outsourcing giant that has continued to do well inspite of the economic turmoil in the last two quarters.

Infosys is an Indian outsourcing company that has done remarkably well in the past ten years. The net income after income taxes has increased from 61.5 million dollars in 1998 to 1.281 billion dollars in 2008. The EPS has also grown from 0.12 cents a share to 2.25 dollars a share in the same period. The number of shares has increased from 526 million to 570 million in the same period. The growth in the number of shares has diminished somewhat from 2008 till now primarily because of the elimination of stock option grants to employees.

The cashflow and balance sheet at Infosys is very sound. Infosys has about 1.1 billion in free cash flow yearly with about 2.7 billion in net cash in the balance sheet. Although the current economic climate may last for sometime, Infosys is well equipped to weather the storm.

Infosys employs about 100,000 people world wide with more than 75 nationalities represented. Infosys revenue grew by 35% in 2008 and 12% in 2009 in dollar terms. However, in Rupee terms, it grew by 20% in 2008 and 30% in 2009. Since most of Infosys employees are based in India, the depreciation in the value of the Indian currency has played to Infosys's advantage. During fiscal 2009, Infosys has added more clients (579) compared to the year before (538) with average sales per client coming in at 8.05 million dollars. The average sales per client has increased in 2009 compared to 2008. The revenue mix from the top ten clients has increased in 2009 compared to 2008.

From a price/cashflow basis, Infosys stock is cheaper than Google, RIMM and Amazon. However, it is also slightly more expensive than Microsoft and Apple.

Comparing companies in the outsourcing business, Infosys is cheaper than Wipro and Cognizant. However, it is more expensive than Accenture, Hewlett Packard and IBM. In the general market, there may also be better value plays than Infosys at the moment.

From a business model perspective, Infosys has fewer risks compared to tech giants such as Google, RIMM, Microsoft and Apple. Changes in technology are unlikely to hurt Infosys in any major way and may infact help increase Infosys revenues significantly.