SEVENTH DAY ADVENTIS COLLEGE

Fundamental Analysis of Infosys and TCS performance for Financial year 2010-11

Submitted by: PRATIKSHA BAID GB 047 JYOTI MUNOT GM O71 ADITI AHUJA GA 0--

Under the Guidance of PRIYA MAAM

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ACKNOWLEDGEMENT
I am grateful to Mr K.K. Mittal (PMS Department Head, Globe Capital Market Ltd.) for providing me an opportunity to do work at Globe Capital Market Ltd. as a summer trainee. My project guide Mr. Archit Singhal timely support and encouragement helped me to complete the project successfully.

I am thankful to Prof. Neeta Gupta for her guidance at every step of development of my internship project.

It is a matter of great satisfaction to work in Globe Capital Market Ltd. and I thank all the staff of Globe Capital Market Ltd. who directly or indirectly helped me in completing this internship successfully.

Ankit Garg PGDM, FORE School of Management 2010-12 Batch FMG 191126

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CERTIFICATE

This is to certify that Mr.Ankit Garg Roll No.191126 has completed his summer internship at Globe Capital Market Ltd. and has submitted this project report entitled FUNDAMENTAL ANALYSIS OF INFOSYS AND TATA CONSULTANCY SERVICES PERFORMANCE FOR FINANCIAL YEAR 2010-11 towards part fulfilment of the requirements for the award of the Post Graduate Diploma in Management (FMG-19) 20102012.

This Report is the result of his/her own work and to the best of my knowledge no part of it has earlier comprised any other report, monograph, dissertation or book. This project was carried out under my overall supervision.

Date: Place:

----------------------------------Prof. Neeta Gupta (Internal Faculty Guide)

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Executive Summary
Indian IT sector has seen phenomenal growth during early 2000. It has been first choice of institutional and retail investors. However due to increased competition and recent recession, the sector has been facing a lot of challenges. Financial year 2010-11 has produced mixed results wherein large companies underperformed and small companies unexpectedly outperformed the market. The main objective is to analyse financial year performance of Infosys and TCS for investment purposes. In order to analyse these companies, IT sector outlook of last year and various reviews were analysed along with government policies which apply on IT sector. Then trend analysis is performed in order to analyse Infosys and TCS. The results show that TCS though fundamentally strong is less probable to outperform market in coming 2-3 years and Infosys is fundamentally weak which is surrounded by legal issues and change management. Also Infosys still focuses on traditional projects. TCS on the other hand expending its product line and entered into services for cloud computing as well. The growth of Infosys was only 20% much less than expected growth rate of 25%. TCS has been able to meet the market expectations of 25%. Lastly for long term investors, Infosys is recommended SELL and TCS is recommended HOLD.

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Table of Contents
Chapter 1: Introduction ................................................................................................................ 9 Chapter 2: Literature Review ...................................................................................................... 11 Chapter 3: Objective.13 Chapter 4: Methodology of Study.14 Chapter 5: IT Industry Analysis.15 Chapter 6: Common Size Statements.......20 Infosys Technologies20 Tata Consultancy Services22

Chapter 7: Analysis of Financial Year 2010-11: Infosys Technologies...24 Chapter 8: Analysis of Financial Year 2010-11: Tata Consultancy Services Ltd...35 Chapter 9: Conclusion....43 Chapter 10: Recommendation ...45 Chapter 11: References....46 Annexure ...47

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List of Tables
Table 1 Common Size Balance Sheet: Infosys .............................................................................. 20 Table 2 Common Size Income Statement: Infosys........................................................................ 21 Table 3 Common Size Balance Sheet: TCS.................................................................................... 22 Table 4 Common Size Income Statement: TCS ............................................................................. 23 Table 5 Utilization rate: Infosys .................................................................................................. 32 Table 6 Customer Acquisition and Concentration: Infosys ........................................................... 33 Table 7 Customer Acquisition: TCS .............................................................................................. 41 Table 8 Customer Concentration: TCS ......................................................................................... 41 Table 9 Balance Sheet: Infosys .................................................................................................... 48 Table 10 Income Statement: Infosys ........................................................................................... 49 Table 11 Balance Sheet: TCS ....................................................................................................... 50 Table 12 Income Statement: TCS ................................................................................................ 51

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List of Figures
Figure 1 Functioning of Software Segment .................................................................................. 15 Figure 2 Market Share of IT industry ........................................................................................... 15 Figure 3 Porter Five forces Model ............................................................................................ 16 Figure 4 SWOT Analysis: Infosys ................................................................................................. 34 Figure 5 SWOT Analysis: TCS....................................................................................................... 42

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List of Annexure
Annexure I: Company Profile ...................................................................................................... 45 Annexure II: Financial Statements .............................................................................................. 46

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Chapter 1: INTRODUCTION
In an increasingly globalised world, significant complexity and uncertainty is getting attached to the unprecedented economic crisis. The Indian economy has also been impacted by the recessionary trends, with a slowdown in GDP growth to seven per cent. The focus and exponential growth in the domestic market has partially offset this fall and insulated the country, resulting in net overall momentum. The IT-BPO industry in India has today become a growth engine for the economy, contributing substantially to increases in the GDP, urban employment and exports, to achieve the vision of a young and resilient India. During the year, the sector maintained its double digit growth rate and was a net hirer. This growth has been fuelled by increasing diversification in the geographic base and industry verticals, and adaptation in the service offerings portfolio. While the effects of the economic crisis are expected to linger in the near term future, the Indian IT-BPO industry has displayed resilience and tenacity in countering the unpredictable conditions and reiterating the viability of Indias fundamental value proposition. Consequently, India has retained its leadership position in the global sourcing market. While the industry has significant headroom for growth, competition is increasing, with a number of countries creating enabling business environments aimed at replicating Indias success in the IT-BPO industry. Hence, concentrated efforts are required by all stakeholders to address the current challenges, to ensure that India realizes its potential, and maintains its leadership position. The big picture for tier-I Indian IT services remains attractive, with global IT spending (ex hardware) exceeding US$1tn and a directly addressable offshore market of US$500bn. Despite India being the dominant offshore location, the Indian IT market share remains ~6% of global IT spend (excluding hardware). This leaves significant room for growth and significant untapped market space across service lines (Infrastructure management services (IMS), BPO, engineering services and package implementation), verticals (governments, healthcare, energy and utilities) and geographies (continental Europe, Japan). Near-term trends on improvement in developed country macro fundamentals, discretionary traction indicated by Accenture, Oracle and SAP signings and consolidation trends in the industry augur well from a demand perspective for the tier I Indian IT companies. Tier-I Indian IT companies are expected to grow US dollar revenues at a CAGR of 23% over FY11-13F. However, the recovery is not going to be a costless one and we expect EBITDA margins to decline by 80-200bps over FY12-14F (versus consensus expectation of margin stability). Abnormal growth will have to come at the cost of margins because operational scope is largely exhausted, lateral hiring would need to increase, competitive activity from MNCs is intensifying, price increases might not be sufficient and wage inflation will likely be doubledigit, with even a possibility of wage inflation at the entry level in FY13F. Further, tier-I IT
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companies will need to increase their sales spending to target the available growth, given that a large part of growth will come from deal rebids, newer clientele and underpenetrated market spaces over the medium term, in our view. Tier-I earnings are expected to lag revenue growth over FY12-14F. Investing in the IT sector through stocks is advised in those comapnies that benefit from: 1) strong discretionary demand sustenance and possible mix-based pricing upticks on greater skew towards this segment; 2) those better placed to compete with MNCs; 3) those gaining from aggressive MNC offshoring, and; 4) those with higher operational scope to limit the impact of supply-side pressures/growth investments.

Big picture continues to be attractive There is significant scope for the Indian IT services industry to grow and, within the sector, for top-tier IT names to capture a disproportionate portion of that growth, on account of: Huge market potential and big addressable market: Global IT spending (excluding hardware) exceeds US$1tn and the addressable market for offshore vendors is over US$500bn, according to NASSCOM estimates for 2010. This is 5x the offshore IT/Engineering services spending and 6x current offshore BPO spending. Low Indian IT market share: Indias IT market share is at ~6% of global IT spend (excluding hardware), according to NASSCOM estimates for 2010. Significant untapped market space: Across: 1) geographies (continental Europe, Japan and emerging markets); 2) verticals (healthcare, government, energy and utilities); and 3) service lines (IMS, engineering services, BPO). Industry consolidation trends: Top-5 Indian and Top-5 global IT players contribute ~23% of the global IT market according to Gartner estimates for 2010. We see consolidation of the fragmented 77% of the market towards larger players. Consolidation trends already visible in India with the top-5 players increasing their market share by 7% over the past six years to 34%. Current market trends augur well for offshoring: The key trends that we see are: 1) IT spending improving as US economic data recovers; 2) near-term deal renegotiations provide an opportunity for market share shifts; 3) a shift from insourcing to outsourcing; and 4) a shift from custom application development to packaged delivery.

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Chapter 2: Literature Review

Timo Salmi and Teppo Martikainen (1994) This paper provides a critical review of the theoretical and empirical basis of four central areas of financial ratio analysis. The research areas reviewed are the functional form of the financial ratios, distributional characteristics of financial ratios, classification of financial ratios, and the estimation of the internal rate of return from financial statements. It is observed that it is typical of financial ratio analysis research that there are several unexpectedly distinct lines with research traditions of their own. A common feature of all the areas of financial ratio analysis research seems to be that while significant regularities can be observed, they are not necessarily stable across the different ratios, industries, and time periods. Lev and Sunder (1979) This paper point out, using theoretical deduction, that in order to control for the size effect, the financial ratios must fulfill very restrictive proportionality assumptions (about the error term, existence of the intercept, linearity, and dependence on other variables in the basic financial variables relationship models Y = bX + e and its ratio format Y/X = b + e/X). It is shown that the choice of the size deflator (the ratio denominator) is a critical issue. Furthermore, Lev and Sunder bring up the problems caused in multiple regression models where the explaining variables are ratios with the same denominator. McDonald and Morris (1984, 1985) This paper presents the first extensive empirical studies of the statistical validity of the financial ratio method. The authors use three models with two samples, one with a single industry the other with one randomly selected firm from each industry branch to investigate the implications of homogeneity on proportionality. The first model is the traditional model for replacement of financial ratios by bivariate regression, with intercept Y(i) = a + bX(i) + e(i). The above model is central in this area. It is characteristic that the testing for proportionality is considered in terms of testing the hypothesis H0: a = 0. The second model in McDonald and Morris is Y(i) = b'X(i) + e'(i) that is without the intercept to tackle heteroscedasticity. The third model applies a (Box-Cox) transformation on the first model to tackle nonlinearities. While they find support for financial ratio analysis for comparisons within industry branches, in inter-industry comparisons proportionality of financial ratios is not supported.

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Michael E. Porter (1979) This paper presents a framework for industry analysis and business strategy development. Porter's five forces include - three forces from 'horizontal' competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers and the bargaining power of customers. F. Donaldson Brown (1914) This paper presents DuPont model of financial analysis. The DuPont Model is a technique that can be used to analyze the profitability of a company using traditional performance management tools. Bradford Cornell (2010) This paper points out that the performance of equity investments is inextricably linked to economic growth. Nonetheless, few studies on investing have explicitly taken research on economic growth into account. This study bridges that gap by examining the implications for equity investing of both theoretical models and empirical results from growth theory. The study concludes that over the long run, investors should anticipate real returns on common stock to average no more than about 4 percent. Allam & Lymer (2003) This Paper points out the result of a survey of 250 companies in five different countries showed continued progress in the area of internet financial reporting. Their study also showed that there was more voluntary financial information available online. Companies seem to be taking advantage of the internet and are disclosing a greater range of financial as well as nonfinancial information to investors and prospective investors, and other stakeholders. Bollen, Hassink, Lange, & Buijl (2008) This paper suggests that the primary objective of internet investor relations disclosures should be to provide investors with financial information to make capital allocation decisions. As we move into an era where online trading is likely to increase, investors and potential investors should easily be able to get information to make investment decisions. Omaima Hassan and Claire Marston (2010) This is the first study to provide an extensive and critical review of different techniques used in the empirical accounting literature to measure disclosure. The purpose is to help future researchers to identify exemplars and to select suitable techniques or to develop their own techniques. It also provides in depth discussion of current measurement issues related to disclosure and identifies gaps in the current literature which future research may aim to cover.

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Chapter 3: Objective
The objective of this report is to analyse financial performance of Infosys Technologies and Tata Consultancy services Ltd. in fiscal year 2010-11. This report aims to analyse the IT sector and emerging trend in IT sector. The purpose is to analyse whether these two companies have flexibility to adapt to emerging trends in technology. This research report aims to suggest investors whether to invest in stocks of these companies for long term period (essentially 1-2 year time period horizon).

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Chapter 4: METHODOLOGY OF STUDY

A. RESEARCH DESIGN The project work was basically a descriptive research as it is confined to analysis of Infosys and TCS financial statements. B. METHODOLOGY First, background information on the IT sector was obtained. It was analysed using Porters five forces Model and PEST Analysis. Next, financial statements of last five years were assessed and analysed through Common Size Statements and Ratio Analysis. Then SWOT Analysis is being done on Infosys and TCS. Finally, conclusions and recommendations are given as appropriate.

C. CHOOSING METHODS Porters five forces Model and PEST Analysis is used to analyse IT sector. Common Size Statements are prepared in order to perform trend analysis. Ratio Analysis is used to analyse Infosys and TCS various aspects of financial statements. SWOT Analysis is being used to analyse individual companies strengths, weaknesses, opportunities and threats.

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Chapter 5: IT Industry Analysis

Functioning of Software segment is explained pictorially in the figure below:

Figure 1 Functioning of Software Segment

MARKET SHARE

Figure 2 Market Share of IT industry

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Indian IT industry is dominated by few large companies with presence of number of small and medium companies. TCS has the highest market share of 11% followed by Infosys which has 10%. When analyzing an industry, the analyst must recognize that the economic fundamentals can differ among industries. Analysis of the competitive environment with an emphasis on implications of the environment for corporate strategy is known as strategic analysis. Michael Porters five forces framework is the classic starting point for it. PORTERS FIVE FORCES MODEL

Figure 3 Porter Five forces Model

PEST ANALYSIS Political: Political stability: Indian political structure is considered stable enough expect the fact that there is a fear of hung Parliament (no clear majority). - Positive U.S. government has declared that U.S companies that outsource IT work to other locations other than U.S. will not get tax benefit. - Negative Government owned companies and PSUs have decided to give more IT projects to Indian IT companies. - Positive Terrorist attack or war. Negative
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Economical: Global IT spending (demand). (ve) Domestic IT Spending (Demand): Domestic Market grow by 20% Nasscom (+VE). Currency Fluctuation (-ve) Real Estate Prices: Increase in real estate prices has resulted increasing the rental expenditure (-ve). Attrition: Due to recession, the layoffs and job-cuts have resulted in low attrition rate (+ve). Economic attractiveness: Due to cost advantage and other factors (+ve) Social: Language Spoken: English is widely spoken language in India. English medium is the most accepted medium of education.(+ve) Education: Large number of technical institutes and universities over the countries provide IT education. (+ve) Working age population. (+ve) Technological: Telephony (+ve) o India has the world lowest call rates o India has the second largest telephone network after china. o Enterprise telephone services, 3G, Wi-Max, VPN, poised to grow. Internet Backbone: Due to IT revolution in 90s India is well connected with undersea optical cables. (+ve) New IT Technologies: Technologies like SOA, web 2.0, High definition content, grid computing, and innovation in low cost technologies is presenting new challenges & opportunities for Indian IT industry.(+ve) GROWTH DRIVERS OF IT SECTOR 1. Easy availability of Talent pool and cost advantage The sector is human power and knowledge-oriented and this cost accounts for more than 40% of overall cost. Indians are considered to have better mathematical skills required for writing software. The easy availability of this talent pool makes it a long-term advantage. Widespread knowledge of English makes this pool employable, as compared to other countries like China, Japan etc. Also, it is 5 to 8 times cheaper to employ an Indian technologist than one from developed countries and thus the business has been flowing to India over the years. 2. Process and Quality Nearly all the Indian software companies take CMM (Capability Maturity Model) certification, which is the benchmark of quality management. Out of approximately 250 companies reaching supreme level i.e. level 5 of CMM, 60 are from India. This gives the impression of the company being dependable and hence, helps them tap the market easily.
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3. Unique geographic location The major consumer of IT products so far has been the US. The time difference between India and US is 12 hours and it offers economy of 24 hours a day by communication equipment. 4. Emerging technologies: Smartphone technology and cloud computing provides ample of opportunities for Indian IT companies to cater to the demand of these technologies. In order to sustain long term profitability and being in the commanding position, ADM services for these areas has to be looked upon. CONCERNING FACTORS FOR IT INDUSTRY 1. Threat of new emerging service economies Along with India, Israel and Ireland carry most of the benefits for development of IT Sector. These countries are now taking up the market share and posing threat to Indian IT sector. Moreover, software sector of Korea, Taiwan, Philippine challenges India. 2. Emergence of China as substitute China is gradually emerging as a tough competitor in offshore IT services. China has begun offering better rates with reduced operational costs as compared to India, because of its low cost talent pool. The government of China is taking measures to improve the IT sector and to overcome the language barrier. Chinas IT and BPO sector is expected to grow 30 percent annually by 2013. Bill Gates has forecasted that software sector of China would reach Indias in 5 years. 3. Hardware Sector lagging behind India is the leader for Software and ITeS sector. However, the development of hardware sector has been lagging, due to it being a low margin business. Indian companies thus have to depend on foreign countries for their hardware requirement. 4. Poor Infrastructure Greater communication facilities are necessary for software, ITeS, BPO to grow at faster rate. Communication network in India is far behind most of the western developed countries and worse than our closest competitor China. Arrival of 3G however, will give a relief to some extent. 5. Concentrated market and Anti-outsourcing United States and United Kingdom have been the dominant market for Indian IT sector. This dependency and concentration on few markets resulted in sudden fall in demand towards the end of last decade on the aftermath of the recent global crisis. Also, countries have started raising their concerns regarding migration of jobs to India. Diversified client base would help reduce the dependency of the sector on few economies. 6. Domestic consumption Overseas market accounts for 75% of Indian software sector, mainly from software outsourcing. The demand for IT products within India has been very less, as compared to those by other countries. The environment necessary for further growth of software sector would come with domestic consumption of its products.
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7. Exchange rate A major part of the Sector revenue is earned in Foreign currency (due to high exports) but it incurs expenses (e.g. employee salary) in Indian rupees. Thus, appreciation of rupee reduces revenues whereas depreciation increases the revenues. The fluctuating exchange rate brings volatility in operating margins for IT sector. 8. Government policies - The extension of the tax holiday for STP units has been turned down by Indian government and moreover, the contentious provisions in the draft Direct Taxes Code ("DTC") seeking to levy Minimum Alternate Tax ("MAT") on Special Economic Zone ("SEZ") units have also been fast forwarded.

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Chapter 6: Common Size Statements

Infosys Technologies
Table 1 Common Size Balance Sheet: Infosys 2007 SOURCES OF FUNDS : Share Capital Reserves Total Total Shareholders Funds Total Liabilities APPLICATION OF FUNDS : Gross Block Less:Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Sundry Debtors Cash and Bank Loans and Advances Total Current Assets Less : Current Liabilities and Provisions Current Liabilities Provisions Total Current Liabilities Net Current Assets Deferred Tax Assets Deferred Tax Liabilities Net Deferred Tax Total Assets 2.56 97.44 100.00 100.00 2008 2.12 97.88 100.00 100.00 2009 1.61 98.39 100.00 100.00 2010 1.30 98.70 100.00 100.00 2011 1.17 98.83 100.00 100.00

34.84 15.58 19.26 8.57 7.52 20.53 49.01 10.74 80.28 7.89 8.45 16.34 63.94 0.71 0.00 0.71 100.00

33.42 13.62 19.80 9.34 7.15 22.93 47.66 20.05 90.64 8.12 19.54 27.66 62.98 0.73 0.00 0.73 100.00

33.61 12.28 21.33 3.45 5.64 19.04 50.76 17.77 87.56 6.32 12.24 18.56 69.00 0.78 0.21 0.57 100.00

28.85 11.70 17.15 1.86 20.99 14.72 44.46 17.69 76.87 6.30 10.94 17.24 59.63 1.42 1.05 0.37 100.00

28.30 11.75 16.55 2.04 5.41 17.19 55.77 19.86 92.83 5.48 12.29 17.77 75.06 1.66 0.72 0.94 100.00

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Table 2 Common Size Income Statement: Infosys 2007 INCOME : Operating Income Excise Duty Net Operating Income Other Income Stock Adjustments Total Income EXPENDITURE : Cost of Traded Software Packages Operating Expenses Employee Cost Power/Electricity Charges Selling and Administration Exp. Miscellaneous Expenses Total Expenditure Operating Profit Gross Profit Depreciation Profit Before Tax Tax Deferred Tax Reported Net Profit Extraordinary Items Adjusted Net Profit 97.18 0.00 100.00 2.82 0.00 100.00 2008 95.82 0.00 100.00 4.18 0.00 100.00 2009 95.86 0.00 100.00 4.14 0.00 100.00 2010 95.63 0.00 100.00 4.37 0.00 100.00 2011 95.68 0.00 100.00 4.32 0.00 100.00

0.00 8.85 47.86 0.67 9.88 0.49 67.75 35.15 0.01 35.14 3.57 31.58 2.85 28.77 0.05 28.72

0.00 8.28 49.79 0.68 8.71 0.71 68.17 36.20 0.01 36.19 3.49 32.70 4.15 28.57 0.00 28.57

0.00 7.78 49.15 0.62 7.68 2.53 67.76 36.57 0.01 36.56 3.42 33.13 4.43 28.72 0.00 28.72

0.00 9.05 48.91 0.58 6.45 0.19 65.18 39.40 39.39 3.82 35.57 8.02 0.10 27.45 0.23 27.22

0.00 10.38 49.04 0.56 6.83 0.04 66.85 37.67 37.66 2.92 34.75 9.93 -0.56 25.38 0.00 25.38

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Tata Consultancy Services Ltd.

Table 3 Common Size Balance Sheet: TCS 2011 SOURCES OF FUNDS : Share Capital Reserves Total Total Shareholders Funds Secured Loans Unsecured Loans Total Debt Total Liabilities APPLICATION OF FUNDS : Gross Block Less:Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Loans and Advances Total Current Assets Less : Current Liabilities and Provisions Current Liabilities Provisions Total Current Liabilities Net Current Assets Deferred Tax Assets Deferred Tax Liabilities Net Deferred Tax Total Assets 1.51 98.28 99.79 0.18 0.03 0.21 100.00 2010 1.95 97.81 99.76 0.19 0.04 0.24 100.00 2009 1.47 98.23 99.70 0.24 0.06 0.30 100.00 2008 1.79 98.04 99.83 0.08 0.08 0.17 100.00 2007 1.21 98.17 99.37 0.51 0.11 0.63 100.00

30.73 13.29 17.44 6.86 29.54 0.03 24.50 28.56 25.54 78.63 19.69 12.69 32.38 46.25 0.27 0.35 -0.09 100.00

32.15 13.93 18.22 6.21 52.09 0.04 21.99 22.41 26.72 71.17 21.86 25.91 47.78 23.39 0.35 0.26 0.09 100.00

32.32 12.53 19.79 5.08 44.01 0.13 27.68 11.90 28.06 67.76 26.05 9.85 35.91 31.86 0.03 0.76 -0.74 100.00

29.40 11.79 17.60 8.07 40.91 0.16 33.99 4.79 27.56 66.49 21.81 10.77 32.58 33.91 0.50 0.99 -0.49 100.00

28.55 10.54 18.01 9.34 40.10 0.15 34.52 6.87 22.66 64.20 20.22 11.16 31.38 32.83 0.54 0.83 -0.28 100.00

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Table 4 Common Size Income Statement: TCS 2007 INCOME : Operating Income Excise Duty Net Operating Income Other Income Total Income EXPENDITURE : Cost of Traded Software Packages Operating Expenses Employee Cost Power/Electricity Charges Selling and Administration Exp. Miscellaneous Expenses Total Expenditure Operating Profit Interest Gross Profit Depreciation Profit Before Tax Tax Fringe Benefit tax Deferred Tax Reported Net Profit Extraordinary Items Adjusted Net Profit 98.60 0.01 98.59 1.43 100.00 2008 96.38 0.01 96.37 3.63 100.00 2009 98.72 0.01 98.72 1.28 100.00 2010 99.24 0.00 99.24 0.76 100.00 2011 98.34 0.00 98.34 1.66 100.00

0.14 12.79 48.27 0.62 7.25 1.12 70.19 29.81 0.02 29.79 2.27 27.52 2.68 0.12 -0.07 24.79 0.44 24.36

0.24 11.98 49.54 0.71 7.30 1.44 71.20 28.80 0.02 28.78 2.42 26.36 2.32 0.13 0.16 23.76 0.04 23.72

0.23 11.40 51.39 0.72 7.16 4.57 75.48 24.52 0.03 24.49 1.84 22.65 1.65 0.10 0.20 20.69 0.21 20.49

0.10 11.08 50.74 0.86 6.18 1.54 70.50 29.50 0.04 29.46 2.02 27.43 3.72 0.00 -0.48 24.20 0.52 23.68

0.06 12.36 49.46 0.81 5.64 0.58 68.90 31.10 0.07 31.03 1.81 29.23 3.70 0.00 0.10 25.43 0.20 25.23

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Chapter 7: Analysis of Financial year 2010-11: Infosys Technologies

Infosys Technologies Ltd. was started in 1981 by seven people with US$ 250. Today, we are a global leader in the "next generation" of IT and consulting with revenues of over US$ 4 billion. Infosys defines designs and delivers technology-enabled business solutions that help Global 2000 companies win in a Flat World. Infosys also provides a complete range of services by leveraging our domain and business expertise and strategic alliances with leading technology providers. Infosys' offerings span business and technology consulting, application services, systems integration, product engineering, custom software development, maintenance, re-engineering, independent testing and validation services, IT infrastructure services and business process outsourcing Infosys pioneered the Global Delivery Model (GDM), which emerged as a disruptive force in the industry leading to the rise of offshore outsourcing. The GDM is based on the principle of taking work to the location where the best talent is available, where it makes the best economic sense, with the least amount of acceptable risk. Infosys has a global footprint with over 50 offices and development centres in India, China, Australia, the Czech Republic, Poland, the UK, Canada and Japan. Infosys has over 103,000 employees. Infosys takes pride in building strategic long-term client relationships. Over 97% of our revenues come from existing customers. REVENUES: Revenue is the top line of an Income statement. Companies in an industry may use different revenue recognition policies which may affect its revenues figure. However the growth in revenue is what matters most to an investor rather than the method used. But any change in revenue recognition accounting policy might affect the revue figure which needs to be adjusted. Both Infosys and TCS generate revenues primarily on fixed timeframe or time and material basis. Revenues from software services based on fixed price or fixed timeframe are recognized as per the proportionate completion method. On time and material contracts the revenue is recognized as the related services are rendered. Infosys revenue grew to Rs 25385 crore from Rs 21140 crore in the previous year at a growth rate of 20.1%. However this growth rate didnt meet investors expectations due to which Infosys stock saw a major decline of over 9%. The following charts show the revenue and operating income figures of Infosys of last five years.

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30000 20264 20000 10000 0 2007 2008 2009 2010 13149 15648 21140

25385

12000 10000 8000 6000 4000 2000 4622 7410 5664 8329

9562

2011

0 2007 2008 2009 2010 2011

Revenues (in Rs. Crores)

The following line chart shows growth rate of Infosys revenues and operating income for last four years. Infosys margins hit last year as can be seen from lower operating income growth as compared to revenue growth.
35.00 30.00 25.00 20.00 19.01 15.00 10.00 5.00 0.00 2008 2009 2010 2011 4.32 12.40 22.54 29.50 20.08 Revenue growth rate(%) Operating income growth rate (%)

30.83

14.80

Industrial Segmental profitability: Following charts shows the revenue and operating income figures of Infosys by industry.

Segment Revenue (in Rs crore)

Financial Services Telecom Others 2491 1945 3215 2291 5706 2008 3219 2699 3450 3876 7020 2009 3575 2989 3234 3988 7354 2010 Manufacturing Retail 4515 3757 3134 4686 9293 2011

Segmentation (Industry type)

Last year growth(%) 5 year CAGR(%) 11.69 26.29 25.69 22.07 5.40 17.50 21.02 13.42 26.37

Others Retail -3.09 Telecom Manufacturing Financial Services

2598 1386 2409 1805 4951 2007

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Operating Income (in Rs. Crore)

Financial Services Telecom Others 782 624 1010 691 1856 2008 1109 929 1198 1296 2374 2009 Manufacturing Retail 1432 1226 1065 1167 1258 2644 2010 1307 990 1572 3113 2011 -15.17

Segmentation Operating Income

Last year growth(%) 5 year CAGR(%) 16.80 22.72 23.77 4.67 24.96 21.90 17.74 14.70

Others Retail Telecom Manufacturing Financial Services

11.39

835 450 788 584 1568 2007

The above chart shows that financial services contribute a major portion of revenues of Infosys. The growth rate of financial services, manufacturing and telecom sector last year clearly shows that these areas will be main target areas for the company. The same is true for the operating income. However the large decline in telecom operating income as compared to its revenue decline shows that the operating margin in this sector has hit badly. Obviously Infosys should try to disinvest in this sector if this negative growth rate prevails in the sector and the company wants to maintain its margin. Geographical Segmental Profitability: Following pie charts show the segmental revenues and segmental operating income in percentage terms for fiscal year ending 2011.

Segmental Revenues

Europe 21% India Rest of 2% the World 11%

Segmental Operating Income

Rest of India the 2% World 9%

North America 66%

Europe 22% North America 67%

Following bar graph shows the growth rate in geographical segment revenue and operating income over last year. As it can be seen how the margins of the company has hit over last year. Despite the revenue growth of 120% in India, operating income grew only by 40%. This shows that projects in domestic market offer less return for the companies. Also margins in America and Europe have also declined.

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150 100 50 18.7 13 0 North America Europe 13.4 10.4

120.8

39.8

31.7 31.7

India

Rest of the World

Segmental Revenue Growth(%)

PROFITABILITY RATIOS: The ability to generate profit on capital invested is a key determinant of a companys overall and the value of securities it issues. Consequently profitability is considered to be a key aspect in investment analysis. Operating Profit Margin and Net Profit Margin: Infosys operating profit margin has improved but net profit margin has declined as shown in following chart.
40 35 30 25 20 15 10 5 0 2007 2008 2009 2010 2011 28.77 28.57 28.72 27.45 25.38 Operating Margin Net Profit Margin 31.58 32.71 33.14 35.58 34.75

The improvement in operating margin is due to the decline in selling and administration expenses as a percentage of revenues. However the increase in effective tax rate has lowered net profit margin of Infosys. Indian corporate tax rate as of March 2011 is 33.22%. According to companys Annual Report, currently the company is entitled to tax benefit under two schemes of government of India viz., the Software Technology Parks(STPI) and Special Economic Zone(SEZ) scheme. For the current year, 1.61% of revenues came from STP unit at Thiruvananthapuram, which was under tax holiday, 9.60% came from Mahindra City- Unit 1, Chennai which was eligible for 50% deductions and 13.34% came from other SEZs which were eligible for entire deductions. The balance 75.45% was entitled to entire tax rate which is up approximately 5% from previous year. Return on Capital Employed and Return on Equity: ROCE measures the profits a company earns on all of the capital that it employs. ROE measures the return a company earns on its
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equity capital. Due to decline in net profit margin returns of the company has also declined. This trend can be seen in decline of ROCE and ROE of Infosys.
50 40 30 20 10 0 2007 2008 2009 2010 2011

45.99 41.9

41.52 36.26

42.92 37.18

37.76

37.91 27.69

29.13

ROCE (%) ROE (%)

VALUATION RATIOS Earnings per Share: Earnings per share measure the net profit of the company attributable to each share of common stock. The following line chart shows the EPS of the company for last 5 years. It can be seen that EPS grew by 5.6 % in last year against revenue which grew by 20%. This shows how the margins of company have affected due to rising taxes and employee costs.

EPS
120 100 80 60 40 20 0 2007 2008 2009 2010 2011 72.5 64.35 97.74 96.92 102.35

ACTIVITY RATIOS These ratios are also known as asset utilization ratios. These ratios measure how well a company manages various activities, particularly its assets. Since Infosys has no inventory and no accounts receivable there is no need for inventory turnover and accounts receivables turnover ratios. Debtors Turnover Ratio and Number of days of Payables: This reflects the average number of days the company takes to pay its suppliers and debtor turnover ratio measures how many times a year company pays off all its suppliers. Infosys debtors turnover ratio is increasing since last 4 years. Generally this is a negative sign as it means the credit terms are not in favour of the company. But here due to large cash reserves and less investment opportunites,
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the company need not have to avail best credit terms. Following trend line shows the Debtor turnover ratio of Infosys for last five years.
8 7 6 5 4 3 2 1 0 6.9 5.81 6.25 6.37 Debtors Turnover Ratio 6.81

2007

2008

2009

2010

2011

Number of days of payables trend line also supports this trend as the number is decreasing since last 4 years.
64.00 62.00 60.00 58.00 56.00 54.00 52.00 50.00 48.00 46.00

62.82 58.40 57.30 52.90 53.60 Number of Days of Payables

2007

2008

2009

2010

2011

Fixed Assets turnover: May be the company has improved marginally over last year but again its fixed asset turnover ratio lower than its competitors indicates that company has not been able to utilize its fixed assets efficiently. This is largely in part due to the companys policy of using no debt which has made its Cost of Retained Earnings higher. This might have led to decline in number Fixed Assets Turnover Ratio 6 of projects which would have been otherwise profitable. The large cash 4 balance is enforcing company to go for 2 M&As which I personally dont think appropriate. The following chart shows the 0 companys fixed assets turnover for last 5 2007 2008 2009 2010 2011 years. LIQUIDITY RATIOS: These ratios focus on companys ability to meet short term obligations. Liquidity measures how quickly assets are converted into cash. The level of liquidity differs from industry to industry. A particular companys position may also vary according to the anticipitated need for funds at any given time.
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Current Ratio and Cash Ratio: This ratio expresses current assets in relation to current liabilities. Ideal current ratio should be 2:1. However looking at IT industry average this ratio seems to be 2.6:1. Looking at the trend line of Infosys Cash Ratio, it can be seen that company has huge reserves of cash due to which its current ratio is too high. This is a negative sign as it indicates that company doesnt have enough investment opportunities and its cash balances are deteriorating due to the high inflation in India.
5 4 3 2 1 0 2007 2008 2009 2010 2011 Cash Ratio

The following chart shows the cash and bank balances in comparison to total current assets in absolute terms.
25000 22744 20000 15593 15000 10000 5000 0 2007 2008 2009 2010 2011 12227 8961 5470 6429 9039 16939 13665 9797 Cash and Bank (in Rs crore) Total Current Assets (in Rs crore)

On average cash balances accounts for 60% of total current assets which simply means that company lacks investment opportunities. This fact can be further illustrated from the trend line showing dividend payout ratio of the company.
0.60 0.50 0.40 0.30 0.20 0.10 0.00 2007 2008 2009 2010 2011 0.24 0.17 0.22 0.41 Dividend payout 0.51

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OPERATIONAL PERFORMANCE: In service industry, human resource is of utter importance. Changing dynamics and needs of the customer possess challenges for the companies to retain its talent pool. Thus operational performance of the company shows how well the company is able to manage and retain its human resource. Employee cost per unit Revenue: This ratio measures the employee cost per unit of revenue generated. Looking at the trend line of Infosys and IT industry, it is clearly visible that Infosys is in line with IT industry average.

Employee cost per unit Revenue

0.60 0.50 0.40 0.30 0.20 0.10 0.00 2007 2008 2009 2010 2011 0.48 0.45 0.50 0.44 0.49 0.47 0.49 0.48 0.49 0.50

Industry Average Infosys

Revenue per Employee: Following trend line shows the revenue of Infosys per employee. Stable revenue per employee shows that company has been able to maintain its efficiency level. As of March 2011, Infosys had total of 130820 employees (net addition of 17024 over last year).
0.250 0.200 0.150 0.100 0.050 0.000 2007 2008 2009 2010 2011 Revenue per Employee 0.182 0.172 0.193 0.186 0.194

Attrition Rate: This has always been a sensitive issue for all organizations. For Infosys this aspect is of key concern as the attrition rate has climbed up to 17% from 13.4% in the previous year. This means last year 17% of talented workforce left the organization. However

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exact data on the costs associated with these attritions are not available but they can be estimated to be around 15-20% of employee costs. Utilization: Utilization measures the proportion of available time the employees are working. For Infosys, this has increased from 74.4% to 78.9% which might be seen as positive sign. But this is well below its competitors for which utilization rate is well above 80%. Again Infosys lacks behind its competitors in human resource management aspect. The table below shows the utilization rate including and excluding trainees for fiscal year ending 2011 and 2010.
Table 5 Utilization rate: Infosys

CUSTOMER ACQUISITION AND CONCENTRATION In highly competitive IT industry, acquisition of new clients is important for an individual company since the contracts are generally long term. This implies a contract provides economic benefits for several years. Another aspect is the concentration of clients according to the value added by them, i.e. the number of million dollar clients. The following table shows the concentration of clients of Infosys for fiscal year ending 2011 and 2010.

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Table 6 Customer Acquisition and Concentration: Infosys

Looking at above table, one can easily see how well the company has managed to acquire new clients. The performance is deteriorating as can be seen from additions year wise or quarter wise. Also the contribution of top clients has also decreased. The main reason could be high cost of retained earnings leading to high hurdle rate resulting in fewer positive NPV projects which otherwise would have been profitable. Also the aggressive pricing strategies (less profit margin) adopted by other companies like HCL Technologies and Mphasis, has resulted into fierce competition in IT industry.

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SWOT ANALYSIS

Figure 4 SWOT Analysis: Infosys

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Chapter 8: Analysis of Financial year 2010-11: Tata Consultancy Services Ltd.

Tata Consultancy Services Limited (TCS) is an Indian IT services, business solutions and outsourcing company headquartered in Mumbai, India. TCS is the largest provider of information technology in Asia and second largest provider of business process outsourcing services in India. TCS has offices in 47 countries with more than 142 branches across the globe. The company is listed on the National Stock Exchange and Bombay Stock Exchange of India.TCS is ranked at 21 in the list of global IT services ranking of service providers. TCS is one of the operative subsidiaries of one of India's largest and oldest conglomerate company, the Tata Group or Tata Sons Limited, which has interests in areas such as energy, telecommunications, financial services, manufacturing, chemicals, engineering, materials, government and healthcare. REVENUES TCS revenue grew to Rs 29275 crores from Rs 23044 crores in the previous year at a growth rate of 27%. The operating income of TCS grew to Rs 9258 crores from Rs 6849 crores at a growth rate of 35%. The difference in growth rates of two components show the effective management of TCS. The following bar graphs show the revenues and operating income of TCS for last five years.
35000 30000 25000 20000 15000 10000 5000 0 10000 8000 6000 4000 2000 0 2007 2007 2008 2009 2010 2011 Revenues (in Rs crore) 2008 2009 2010 2011 Operating Income (in Rs. Crores) 4518 5466 5565 6849 9258

29275 22404 14940 18290 23044

The following line chart shows the growth rate of TCS revenues and operating income in last 4 years. As it can be seen TCS margins have improved and the companys outlook is looking good for future years as well.

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40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 2008 1.80 2009 2.86 2010 2011 22.42 21.00 Operating income growth rate (%) 27.04 22.49 23.09 Revenue growth rate(%) 35.17

Industrial Segmental Profitability: The following pie chart shows the segmental revenue and segmental operating income as a percentage of total revenue and total operating income respectively.

Segment Revenue
Telecom 16% Retail and Consumer Packaged Goods 12% Manufactur ing 8% Others 24% BFSI 40% Manufactu ring 6% Retail and Consumer Packaged Goods 10%

Segment Operating Income

Telecom 19% Others 22%

BFSI 43%

The following bar chart shows the growth rate of revenues and operating income in different industry sectors.
Segment Revenue growth rate(%) Segment Operating Income growth rate(%) Others 12.35 Telecom Retail and Consumer Packaged Goods 20.82 Manufacturing -9.28 BFSI 21.22 13.63 27.03 21.66 31.54 30.59 33.99

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The above bar chart shows that Retail and Consumer packaged sector posted highest growth followed by Banking, Financial and Insurance sector. However the profit margins have declined implying the lower margins for the company. Also manufacturing sector posted negative growth rate in operating income. This means that profitability has deteriorated in this sector and the company should look to disinvest if its possible. Geographical Segmental Profitability: Following figures show the segmental revenues in percentage terms and growth rate in different geographical segments over last year for fiscal year ending 2011.

Segmental Revenue
Growth rate(%) Europe 24% America 58% 26.26 India 9% Other 9% America 16.16 53.61 43.66

Europe

India

Other

Growth rate predicts that there are opportunities in the domestic sector to which TCS can bank upon. However the profitability in domestic sector as well as other emerging economies will be lower. Comparing it with Infosys, TCS has outperformed Infy in American and European markets. PROFITABILITY RATIOS Operating Profit Margin and Net profit Margin: As shown below, net profit margin is in line with operating profit margin which shows that company still enjoys tax benefits. These tax benefits seem to be available for upcoming year which means TCS will continue to outperform its competitor Infosys.
35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 2007 2008 2009 2010 2011 24.79 23.76 20.69 29.81 28.80 24.52 24.20 25.43 Operating margin Net profit Margin 29.50

31.10

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Return on Capital Employed and Return on Equity: Due to high operating margins and net profit margins, TCS continues to outperform Infosys on the basis of ROCE and ROE. Also since TCS employs less capital as compared to Infosys, its ROCE is comparatively higher than Infosys.
70 60 50 40 30 20 10 0 60.69 52.34 54.98 47.55 42 38.67 44.55 39.5 50.16 43.83

ROCE (%) ROE (%)

2007

2008

2009

2010

2011

VALUATION RATIOS Earnings per share: The following trend line shows the earning per share for last 5 years. EPS grew up by 43% much higher as compared to growth rate of Infosys.
50 40 30 20 10 0 43.69 36.66 25.26 45.53 36.32 EPS

2007

2008

2009

2010

2011

Dividend Payout Ratio: The following trend line of dividend payout ratio shows that the company has reduced its dividend payout ratio over last year which is a good sign for investors as it shows that company has good future projects for which it require cash reserves. Also dividend payout ratio in 2010 was 70% as US and Europe was still facing slowdown due to which there were not enough opportunities for Indian IT companies to grow.

Dividend Payout ratio

0.80 0.60 0.40 0.20 0.00 2007 2008 2009 2010 2011 0.30 0.30 0.29 0.36 0.70

ACTIVITY RATIOS Debtors Turnover Ratio and Number of Days of Payables: Debtor turnover ratio is increasing (or No. of Days of Payables is decreasing) since last 4 years. This is generally
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considered a negative sign but here the company is trying to settle its liabilities as soon as possible.
8 6 4 2 0 2007 2008 2009 2010 2011 5.83 5.59 5.99 6.52 7.19 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 65.30 62.61

60.93

55.98

50.76 No. of days of Payables

Debtor Turnover Raatio

2007 2008 2009 2010 2011

Fixed Assets Turnover Ratio: This ratio was on decline for earlier years as can be seen from trend line. However last year the companys operations has improved and due to high sales growth the fixed assets turnover ratio has also marginally improved.
8 6 4 2 0 2007 2008 2009 2010 2011 7.45 6.58

5.9 4.99

5.37 Fixed Assets turnover Ratio

LIQUIDITY RATIOS: Current Ratio and Cash Ratio: For the financial year March 2010-11, TCS current ratio is somewhat near to ideal ratio of 2:1. Also long run average is also 2:1. The ratio was lower in 2010 due to slowdown in US economy. Also the companys cash ratio is increasing which means that company is accumulating cash suggesting availability of investment opportunities for TCS.
2.5 2 1.5 Current Ratio 1 0.5 0 2007 2008 0.22 0.15 0.47 0.33 2010 2011 0.88 Cash Ratio 2.08 1.99 1.91 1.63 1.92

2009

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OPERATIONAL PERFORMANCE: Employee cost per unit Revenue: For every unit of revenue, TCS incurred on an average Rs .49. As can be seen from the trend line companys employee cost per unit revenue is more than the industry average. This means that either TCS pay-package for employees is higher or TCS employs proportionately higher number of employees.

Employee Cost per unit revenue

0.60 0.50 0.40 0.30 0.20 0.10 0.00 2011 2010 2009 2008 2007 0.50 0.50 0.51 0.48 0.52 0.47 0.51 0.44 Industry Average TCS 0.49 0.45

As of March 2011, TCS employs 175313 employees. This is fractionally higher than what it should be for generating same revenue. This is the reason why employee cost per unit revenue is higher. Revenue per employee: Following trend line shows the revenue per employee of the TCS. The revenue has marginally improved in 2010-11 as compared to previous year. However it still lags behind its peer group.
0.200 0.179 0.150 0.100 0.050 0.000 2008 2009 2010 2011 0.178 0.164 0.167

Revenue per Employee

Attrition rate: TCS attrition rate is lowest in the industry which is 13.13%. This implies that TCS has been able to retain its talent pool effectively as compared to its peer group. However given the revenue per employee figure the attrition rate suggests that company is employing more than what it should have been.
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Utilization rate: TCS utilization rate for fiscal year 2010-11 is 82.14% (excluding trainees) & 75.1% (including trainees). This is way above the industry average of 80% (excluding employees). This shows that company has been utilizing its talent pool effectively. CUSTOMER ACQUISITION AND CUSTOMER RETENTION The following table shows the number of clients added by TCS in fiscal year ending March 2011. TCS has been able to attract more clients as compared to previous year which is a positive sign for the company.
Table 7 Customer Acquisition: TCS

The following table shows the contribution of clients and distribution of clients according to contract size. Contribution of top client has reduced which is a positive sign as it signals a lower risk of losing that client. Also there is large number of additions in small size contracts which means lesser risk for the company.
Table 8 Customer Concentration: TCS

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SWOT ANALYSIS

Figure 5 SWOT Analysis: TCS

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Chapter 9: Conclusion
Infosys and TCS are two major giants of Indian IT industry. Fiscal year 2010-11 has shown mixed results in IT industry. Infosys on one hand underperformed the market whereas TCS met its expectations. Looking closely one would find Infosys fundamentals weak due to several reasons outlined below: 1. Deteriorating cash reserves: High inflation and lack of investment opportunities has resulted in deterioration of cash reserves of Infosys. 2. High Cost of retained earnings: Since company finances all its projects internally, investors expectation of 25% growth means that company must select its projects earning at least 25%. This has resulted in fewer investment projects. 3. High attrition rate: Infosys attrition rate is high compared to Industry average which means it has failed to retain its talent pool. 4. Traditional approach: Infosys still invests in traditional projects. Smartphones and cloud computing require new array of applications which means there are opportunities in newer technology. 5. Geographical segments: Infosys still confines itself to US and Europe whereas its peer group has started diversifying into other geographies. TCS on the other hand sound good as it has entered into cloud computing. Following reasons could be attributed to its strong fundamental position: 1. Lowest attrition rate: TCS has lowest attrition rate in whole industry. Also the utilization rate is among the top companies. This means that company manages its human resources efficiently. 2. Diversification into new areas: After BPO sector, TCS is looking forward to cloud computing which provides a lot of scope to domestic players. 3. Focus on emerging economies: TCS has started focusing on domestic market due to high uncertainties in developed economies. Also in recent bidding process of ADHAAR project of Indian government, TCS looks way ahead of its competitors after HP and IBM has back out. However the whole IT industry is facing a transition where they no longer can work traditionally. Few challenges for whole IT industry are: 1. Government Policies: The extension of tax holiday has been turned down by Indian government which means IT companies will have to pay higher taxes resulting in lower margins. 2. Legal Issues: Tax Authority if India is scrutinizing IT companies for their onshore revenues. It has already sent a legal notice to Infosys to pay Rs 450 crore as taxes for
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their onshore revenue in fiscal year 2008-09. Tax authorities can go 7 years back and make IT companies pay their dues which will result in cash problems for them. 3. High Uncertainty: US and Europe has not overcome recession yet and recent publications suggest that there is going to be slowdown for several years. For most of the IT companies, these two regions contribute over 80% of the business. Also US government is against outsourcing. 4. Higher costs: As Indian economy is developing the input costs for IT companies are also increasing. Since the employees account for a larger portion of expenses, IT companies will face lower margins in the future years. IT sector is now under a lot of trouble which requires better leadership and new avenues so that it can overcome resistance and mark new heights. As of next year, investors should diversify in other areas in order to reduce their risk.

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Chapter 10: Recommendation

Infosys: Looking at the past year performance and weak fundamentals of the company, there is lesser chance that company will be able to outperform its peer group. Also there are chances that company may actually deliver less that past year. An investor should try to reduce their holding in Infosys stock and therefore I recommend SELL rating for Infosys stock. TCS: Even though company is operationally efficient and companys fundamentals also look good, the chances are less that company will outperform its peer group. However it can certainly surprise investors so an investor looking for only returns can gamble on TCS. Also there is no reason why company will underperform its peer group so investors should HOLD their current position in the stock.

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Chapter 11: References

1. Websites www.infosys.com www.tcs.com www.globecapital.com 2. Database Capitaline 3. Parekh Amit, 2008, Indian IT/ITES Industry overview 4. Rajagopalachari Hari, 2011, Changing Landscape and Emerging Trends: Indian IT/ITeS industry, PWC report with Confederation of Indian Industry(CII) 5. Mehta Ashwin; Pinku Pappan, IT services and S/W Outlook 2011, Nomura Anchors Report 6. Illiyan Asheref, 2011, Performance, Challenges and Opportunities of Indian Software Export, Journal of Theoretical and Applied Informational Technology, Vol 4, No 11, pp. 1088-1106

7. Murthy N.R. Narayana. Making India a Significant IT Player in this Millennium in Romila Thapar (ed) India: Another Millennium, Viking Penguin Books, New Delhi, 2000
8. Newspaper articles and other publicly available data

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Annexure I: Company Profile

About Globe Capital Market Ltd.:
Globe Capital is one of the largest growing investment solutions companies that provide a wide range of services to its vast and diversified client base. The company has its corporate office in New Delhi with regional offices in Mumbai, Kolkata & Jaipur and growing network of more than 500+ offices across 150+ locations in India with overseas office in London and Dubai. Globe Capital accounts for more than 10% of NSE clearing volumes in its F&O segment. In 2008, Globe Capital Market Ltd. attracted US$ 42 million of equity capital in Foreign Direct Investment (FDI) from Citi Group and its representative is also on the Board of the Company. Core Values of Globe Capital Market Ltd.: Always be Client Centric Always be Transparent Always be Prudent Always be Foresighted

Globe offers Portfolio Management services (PMS) to address varying investment preferences. As a focused service, PMS pays attention to details, and portfolios are customized to suit the unique requirements of investors.

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Annexure II: Financial Statements

Infosys Technologies
Table 9 Balance Sheet: Infosys

2007 SOURCES OF FUNDS : Share Capital Reserves Total Total Shareholders Funds Total Liabilities APPLICATION OF FUNDS : Gross Block Less:Accumulated Depreciation Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Sundry Debtors Cash and Bank Loans and Advances Total Current Assets Less : Current Liabilities and Provisions Current Liabilities Provisions Total Current Liabilities Net Current Assets Miscellaneous Expenses not written off Deferred Tax Assets Deferred Tax Liabilities Net Deferred Tax Total Assets Contingent Liabilities

2008

2009

2010

2011

286 286 286 287 287 10876 13204 17523 21749 24214 11162 13490 17809 22036 24501 11162 13490 17809 22036 24501

3889 1739 2150 957 839

4508 1837 2671 1260 964

5986 2187 3799 615 1005

6357 2578 3779 409 4626

6934 2878 4056 499 1325

2292 3093 3390 3244 4212 5470 6429 9039 9797 13665 1199 2705 3164 3898 4867 8961 12227 15593 16939 22744 881 943 1824 7137 0 79 0 79 1095 1126 1388 1343 2636 2179 2410 3010 3731 3305 3798 4353 8496 12288 13141 18391 0 0 0 0 99 139 313 406 0 37 232 176 99 102 81 230

11162 13490 17809 22036 24501 1945 2661 2370 2110 2749

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Table 10 Income Statement: Infosys 2007 INCOME : Operating Income Excise Duty Net Operating Income Other Income Stock Adjustments Total Income EXPENDITURE : Operating Expenses Employee Cost Power/Electricity Charges Selling and Administration Exp. Miscellaneous Expenses Less : Pre-operative Expenses Capitalised Total Expenditure Operating Profit Interest Gross Profit Depreciation Profit Before Tax Tax Fringe Benefit tax Deferred Tax Reported Net Profit Extraordinary Items Adjusted Net Profit Adjustment below Net Profit P & L Balance brought forward Appropriations P & L Balance carried down Dividend Preference Dividend Equity Dividend % Earnings Per Share-Unit Curr Earnings Per Share(Adj)-Unit Curr Book Value-Unit Curr 49 | P a g e 13149 0 13149 381 0 13530 2008 15648 0 15648 683 0 16331 2009 20264 0 20264 876 0 21140 2010 21140 0 21140 967 0 22107 2011 25385 0 25385 1147 0 26532

1163.4 1295.37 6293 7791 88 106 1298.6 1363.09 65 111.54 0 0 8908 10667

1576 1913 9960 10340 125 122 1556 1362.72 513 40.28 0 0 13730 13778 8329 2 8327 807 7520 1696 0 21 5803 48 5755 0 10305 2302 13806 1434 0 500

2636 12448 142 1735 9 0 16970 9562 1 9561 740 8821 2521 0 -143 6443 0 6443 0 13806 4658 15591 3445 0 1200

4622 5664 7410 1 1 2 4621 5663 7408 469 546 694 4152 5117 6714 375 650 898 17 17 0 -23 -20 -3 3783 4470 5819 6.11 0.14 0.14 3776.89 4469.86 5818.86 -1 2195 1133 4844 649 0 230 64.35 64.35 195.14 0 4844 2672 6642 1902 0 665 72.5 72.5 235.84 -1 6642 2155 10305 1345 0 470 97.74 97.74 311.35

96.92 102.35 96.92 102.35 383.9 426.85

Tata Consultancy services Ltd.

Table 11 Balance Sheet: TCS 200703 SOURCES OF FUNDS : Share Capital Reserves Total Equity Share Warrants Equity Application Money Total Shareholders Funds Secured Loans Unsecured Loans Total Debt Total Liabilities APPLICATION OF FUNDS : Gross Block Less:Accumulated Depreciation Less:Impairment of Assets Net Block Lease Adjustment Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Loans and Advances Total Current Assets Less : Current Liabilities and Provisions Current Liabilities Provisions Total Current Liabilities Net Current Assets Miscellaneous Expenses not written off Deferred Tax Assets Deferred Tax Liabilities Net Deferred Tax Total Assets Contingent Liabilities 200803 200903 201003 201103

97.86 197.86 197.86 295.72 295.72 7961.13 10806.95 13248.39 14820.9 19283.77 0 0 0 0 0 0 0.05 0.05 0.03 0.03 8058.99 11004.86 13446.3 15116.65 19579.52 41.76 9.27 32.63 29.25 35.87 8.98 8.98 8.41 6.49 5.25 50.74 18.25 41.04 35.74 41.12 8109.73 11023.11 13487.34 15152.39 19620.64

2315.36 854.75 0 1460.61 0 757.85 3252.04 12.06 2799.8 557.14 1837.78 5206.78 1639.5 905.05 2544.55 2662.23 0 44 67 -23

3240.64 1300.11 0 1940.53 0 889.74 4509.33 17.19 3747.01 527.52 3037.85 7329.57 2404.13 1187.44 3591.57 3738 0 54.91 109.4 -54.49

4359.24 1690.16 0 2669.08 0 685.13 5936.03

4871.21 2110.69 0 2760.52 0 940.72 7893.39

6030.16 2607.98 0 3422.18 0 1345.37 5795.49

16.95 6.78 5.37 3732.78 3332.3 4806.67 1605.26 3396.16 5604.52 3784.33 4048.71 5011.48 9139.32 10783.95 15428.04 3513.83 1328.99 4842.82 4296.5 0 3.65 103.05 -99.4 3312.61 3926.61 7239.22 3544.73 0 53.13 40.1 13.03 3863.04 2490.11 6353.15 9074.89 0 52.03 69.32 -17.29

8109.73 11023.11 13487.34 15152.39 19620.64 2253.51 2222.71 2287.26 2177.48 2806.49

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Table 12 Income Statement: TCS 2007 INCOME : Operating Income Excise Duty Net Operating Income Other Income Stock Adjustments Total Income EXPENDITURE : Cost of Traded Software Packages Operating Expenses Employee Cost Power/Electricity Charges Selling and Administration Exp. Miscellaneous Expenses Total Expenditure Operating Profit Interest Gross Profit Depreciation Profit Before Tax Tax Fringe Benefit tax Deferred Tax Reported Net Profit Extraordinary Items Adjusted Net Profit P & L Balance brought forward Appropriations P & L Balance carried down Dividend Preference Dividend Equity Dividend % 2008 2009 2010 2011

14942.09 18292.68 22406.08 23044.84 29275.68 2.12 2.83 2.08 0.39 0.27 14939.97 18289.85 22404 23044.45 29275.41 216.55 689.82 289.87 177.6 494.73 -2.78 -0.04 1.73 -1.38 -0.87 15153.74 18979.63 22695.6 23220.67 29769.27

21.5 1938.66 7314.05 93.89 1099.15 168.97

45.13 52.67 23.73 2272.97 2587.48 2571.72 9401.97 11663.54 11783.19 135.57 164.34 200.49 1384.63 1624.75 1434.81 273.3 1038.23 357.46

17.71 3678.41 14723.6 240 1678.87 172.42

10636.22 13513.57 17131.01 4517.52 3.43 4514.09 343.41 4170.68 406.84 17.75 -11.2 3757.29 66.51 3690.78 2833.3 1670.6 4919.99 1125.39 0 1300 5466.06 3.42 5462.64 458.78 5003.86 440.47 24.65 29.98 4508.76 7.18 4501.58 4919.99 2053.86 7374.89 1370.05 0.08 1400 5564.59 7.44 5557.15 417.46 5139.69 375.59 23 44.89 4696.21 46.7 4649.51

16371.4 20511.01 6849.27 9.54 6839.73 469.35 6370.38 864.3 0 -112.43 5618.51 120.44 5498.07 9258.26 20.01 9238.25 537.82 8700.43 1100.12 0 30.32 7569.99 60.21 7509.78

7374.89 9990.41 10458.13 2080.69 5150.79 3958.92 9990.41 10458.13 14069.2 1370.05 7 1400 3914.43 17 2000 2740.1 11 1400

Earnings Per Share-Unit Curr Earnings Per Share(Adj)-Unit Curr Book Value-Unit Curr 51 | P a g e

36.66 18.33 82.35

43.69 21.84 111.43

45.53 22.76 136.38

25.26 25.26 76.73

36.32 36.32 99.53