Presented by

Neelutpal Saha
Chandra Kant Rai
Ankita Sharma
Tarun Sharma
Shan Lal

Content

About Infosys
Business Strategy
Capital Structure
Calculation of Cost of Capital
Analysis of last 5 years
Effect of WACC on Stock Market Valuation
Analysis of Dividend Payout for last 5 years
Effect of Dividend Payout on Stock Market Valuation
Working Capital Management

About Infosys

Infosys Ltd is a global technology services firm that defines, designs and delivers information
technology (IT)-enabled business solutions to their clients. The company provides end-to-end
business solutions that leverage technology for their clients, including technical consulting,
design, development, product engineering, maintenance, systems integration, packageenabled consulting, and implementation and infrastructure management services.

Infosys Ltd is a public limited and India's second largest software exporter company was
incorporated in the year 1981 as Infosys Consultants Pvt Ltd by Mr.N.R.Narayana Murthy at
Karnataka. The company was started by seven people with the investment of USD 250. The
company became a public limited company in the year 1992. The company was the first
Indian company to be listed on the NASDAQ at the year 1999. Infosys also forms a part of the
NASDAQ-100 index. Continuously in the year 2001, 2002 and 2003, the company wins the
National award for excellence in corporate governance conferred by the Government of
India.

Business Strategy

Infosys Technologies has 47% of core business assets stagnating. The company scanning the
markets of Europe and Japan for acquisitions in the price bands of USD 200 - USD 300 million
to energies their non-linear business strategy as well as to expand its geographic reach.
Infosys set up various Special Economic Zone that for the company has an additional tax
benefit. They set up another Special Economic Zone unit in Chandigarh which will be eligible
for 100 % deduction of profit from exports tax calculation for the first five years followed by
50% deduction for next five years.
Infosys has been pursuing their expansion plans over the past few years. The future
enhancement of the company is to emerge the developing economies changing the business
landscape with help of accessible talent pools and the adoption of non-linear growth model,
it is a long term strategy.

Capital Structure
(Rs in Crs)
Year
SOURCES OF FUNDS :
Share Capital
Reserves Total
Equity Share Warrants
Equity Application Money
Total Shareholders Funds
Secured Loans
Unsecured Loans
Total Debt
Other Liabilities
Total Liabilities

Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010 Mar 2009 Mar 2008 Mar 2007 Mar 2006 Mar 2005
286
287
287
287
287
286
286
286
138
41,806.00 35,772.00 29,470.00 24,214.00 21,749.00 17,523.00 13,204.00 10,876.00 6,759.00
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
42,092.00 36,059.00 29,757.00 24,501.00 22,036.00 17,809.00 13,490.00 11,162.00 6,897.00
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
364
120
21
25
0
0
0
0
0
42,456.00 36,179.00 29,778.00 24,526.00 22,036.00 17,809.00 13,490.00 11,162.00 6,897.00

135
5,107.00
0
0
5,242.00
0
0
0
0
5,242.00

Infosys is a wholly equity based company with zero debts. So its Weighted Average Cost of Capital
consists of Cost of Equity only

Weighted Average Cost of Capital

Calculation of Cost of Capital

Step 1: Calculation of beta

According to the excel sheet beta value is 0.43 approximately

Average Sensex return is 20%
Risk free return = RBI 91 day treasury bill at 8.63%
Therefore Cost of Equity: Ke = Rf + (Rm- Rf)
= 8.63+0.43(20-8.63)
= 13.52 %
Here Weight of Equity We = 1
Thus Weighted Average Cost of Capital(WACC) of Infosys is (13.52*1)=13.52%

Analysis of last 5 years

Infosys have never taken any debt from the market so it is zero in all cases
Infosys have not done any stock split in the last 5 years
Infosys Equity
Public Shareholding (No Of. Shares)
Public Shareholding (% in Equity)

Full Year
Full Year
Var(%)
Full Year
Full Year
Var(%)
March 2014
March 2013
March 2013
March 2012
390,257,428.00 411,267,871.00
-5.11 411,267,871.00 404,781,601.00
1.6
67.96
71.62
-5.11
71.62
70.49
1.6

From this data it is clear that Infosys bought back shares from the market, though
it increased the number of shares in 2012-2013 through FPO. This was probably
due to the falling share price in between and to increase the investors confidence
in Infosys shares

Effect of WACC on Stock Price

Economic Value-Added is the surplus generated by an entity after meeting an

equitable charge towards providers of capital. It is the post-tax return on capital
employed (adjusted for the tax shield on debt) less the cost of capital employed.
Companies which earn higher returns than cost of capital create value, and
companies which earn lower returns than cost of capital are deemed harmful for
shareholder value.

Infosys is registered its highest EVA in comparison to its competitors. Comparison among
Infosys has been able to add value for its shareholders on a consistent basis. The ability to
create value consistently shows the ability of the firms in earning economic profits in excess
of the cost of capital

Dividend Policy

Analysis of Dividend Payout for last 5 years

Mar '14 (in Cr.)

Mar '13 (in Cr.)

Mar '12 (in Cr.)

Mar '11 (in Cr.)

Mar '10 (in Cr.)

12 mths

12 mths

12 mths

12 mths

12 mths

PBT

14,002.00

12,357.00

11,580.00

8,821.00

7,520.00

Tax

3,808.00

3,241.00

3,110.00

2,378.00

1,717.00

PAT

10,194.00

9,116.00

8,470.00

6,443.00

5,803.00

Equity Dividend

3,618.00

2,412.00

2,699.00

3,445.00

1,434.00

Dividend as % of PAT

35%

26%

32%

53%

25%

Dividend Policy

Infosys's earlier policy was to pay

dividend of up to 30% of the PAT. At The dividend policy is to
The dividend policy is to
The dividend policy is to
The dividend policy is to
the board meeting held on April 15, distribute up to 30% of the distribute up to 30% of the distribute up to 30% of the distribute not more than
2014 the Board decided to increase
consolidated
consolidated
consolidated
25% of PAT as dividend. This
the dividend pay-out ratio to up to Profit After Tax (PAT) of the Profit After Tax (PAT) of the Profit After Tax (PAT) of the is applicable to standalone
40% of the PAT effective fiscal year Infosys group as dividend. Infosys group as dividend. Infosys group as dividend.
Indian GAAP.
2014.
30th year special dividendRs. 1722 Crores
Dividend Paid as per Policy

1,723.00

Dividend as % of PAT

27%

Effect of Dividend Payout on Stock Market

Valuation
When a dividend is paid, several things can happen. The first of these is changes to
the price of the security and various items tied to it. On the ex-dividend date, the
stock price is adjusted downward by the amount of the dividend by the exchange
on which the stock trades. For most dividends this is usually not observed amidst
the up and down movements of a normal day's trading. It becomes easily
apparent, however, on the ex-dividend dates for larger dividends.
The reason for the adjustment is that the amount paid out in dividends no longer
belongs to the company and this is reflected by a reduction in the companys
market cap. Instead, it belongs to the individual shareholders. For those
purchasing shares after the ex-dividend date, they no longer have a claim to the
dividend, so the exchange adjusts the price downward to reflect this fact.

Effect of Dividend Payout on Stock Market

Valuation (CONTD)

From the dividend announcement date till the record date, the share prices keep moving up
since investors buy into such shares to get dividends. But, Share prices fall on the ex-date.
Lets assume that Infosys is currently trading in the market for Rs 3500 per share. And lets
further assume that the company decides to declare a dividend of 60 per cent with a record
date of Monday, September 15.
The face value of the stock of Infosys is Rs 10. This means the dividend works out to Rs 6 per
share. Investors buy into the share to be entitled to the dividend. This could explain the spike
in share price when a stock is cum-dividend (trading with dividend before the ex-date).
However, the stock market sees the actual payout of dividends as the company giving up a
part of its profits, thereby reducing its cash reserves.
Also, since buyers on or after the ex-date are not entitled to the dividend, share prices drop
by the amount equivalent to the dividend per share as a way of compensation. This is why
Infosyss share price will probably fall by Rs 6 when the stock goes ex-dividend (without
dividend).

Working Capital Management

'Debt/Equity Ratio =
A measure of a company's financial leverage calculated by dividing its total liabilities by
stockholders' equity.
Here, it indicates that infosys have no proportion of equity and debt so as to use to finance
its assets.

'Current Ratio'
A liquidity ratio that measures a company's ability to pay short-term obligations.

The trend shows that infosys have enough cash to recover from any short term
obligation. Which in turn gives a sign of having good financial health.

'Inventory Turnover'
A ratio showing how many times a company's inventory is sold and replaced over a
period.
= SALES / INVENTORY
Since Infosys being an IT company only makes (develops software) on order (when
receives project) its inventory is zero in all cases and Inventory Turnover Ratio is zero

'Receivables Turnover Ratio'

An accounting measure used to quantify a firm's effectiveness in extending credit as well
as collecting debts.
Infosys having high Debtor turnover ratio trend shows that By maintaining accounts
receivable, firm is indirectly extending interest-free loans to their clients. A high ratio
implies either that company operates on a cash basis or that its extension of credit and
collection of accounts receivable is efficient.

'Interest Coverage Ratio'

A ratio used to determine how easily a company can pay interest on outstanding debt.

Effect on stock price

Interest Coverage
Any company that finds itself in jeopardy of defaulting on its interest payments is
likely to encounter an escalating set of financial problems that are sure to affect the
holdings of both shareholders and lenders.

Interest coverage ratio indicates the comfort with which the company may be able
to service the interest expense (i.e. finance charges) on its outstanding debt. Higher
interest coverage ratio indicates that the company can easily meet the interest
expense pertaining to its debt obligations. In our view, interest coverage ratio of
below 1.5 should raise doubts about the companys ability to meet the expenses on
its borrowings. Interest coverage ratio below 1 indicates that the company is just
not generating enough to service its debt obligations.
INFY continued to be debt-free and has maintained sufficient cash to meet its
strategic objectives which is a positive signal to the stockholders