Infosys: A Success Story

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Formerly known as Infosys Technologies Limited, Infosys (NYSE: INFY) is the second largest IT exporter in India. It provides business consulting, technology, engineering, and outsourcing, etc. The company has 64 offices and 68 development centers around the globe, including in the US, India, China, Australia, Japan, Middle East, UK, Germany, France, Switzerland, Netherlands & many other countries. It has some global giants as its alliance partners, including Microsoft, Oracle, and SAP, and during Q2 2012 Infosys added 23 new clients in its customer base.

Finacle, a banking product of Infosys that offers solutions to address core banking, mobile banking, and e-banking needs of retail, corporate, and universal banks globally, and areas, such as cloud computing, enterprise mobility and sustainability, is widely used in the Indian banking industry.

<table> <tbody> <tr> <td> <p><strong><span>Fig in US$ million</span></strong></p> </td> <td> <p><strong>Q2 Sep '12</strong></p> </td> <td> <p><strong>Q2 Sep '11</strong></p> </td> <td><strong>Percentage</strong> <strong>Change</strong></td> </tr> <tr> <td> <p><strong>Net sales</strong></p> </td> <td> <p>$1,815</p> </td> <td> <p>$1,491</p> </td> <td> <p>21.7%</p> </td> </tr> <tr> <td> <p><strong>PAT</strong></p> </td> <td> <p>$436</p> </td> <td> <p>$351</p> </td> <td> <p>24.3%</p> </td> </tr> <tr> <td> <p><strong>EPS</strong></p> </td> <td> <p>$1</p> </td> <td> <p>$1</p> </td> <td> <p>27.3%</p> </td> </tr> <tr> <td> <p><strong>EBITDA</strong></p> </td> <td> <p>$1,945</p> </td> <td> <p>$1,562</p> </td> <td> <p>24.5%</p> </td> </tr> </tbody> </table>

Nasscom recently predicted that industry will grow by $225 billion by 2020, which means that the industry’s CAGR will be somewhere around 25%. Also, Indian corporations have changed a lot in the last two decades. They are ready to install & accept IT products in a big way to improve their efficiency in operations. On the basis of this it can be said that there will be a huge expenditure on IT upgrades in the coming period. This should be one of the biggest opportunities for companies like Infosys in terms of growing organically. Its gross addition of 10,420 employees (2,610, net addition) in the recent quarter further validates this point.

The company is also trying to grow inorganically. On Jan. 4, 2012, Infosys BPO Limited acquired Portland Group Pty Ltd, a strategic sourcing and category management services provider based in Australia. The company believes that this will strengthen Infosys BPO’s capabilities and domain expertise in its sourcing and procurement practice, and its service offering in the strategic sourcing and category management functions. Continuing with its expansion strategy, Infosys also acquired Lodestone Holding AG, a global management consultancy.

Infosys expects that for FY 2013 its revenue will be $7,343 million, a growth of 5% if exchange fluctuations are removed. It expects that its EPS will be $3.03, a higher figure than what it predicted in its earning release of July 12, 2012 ($2.97). 

The recent economic slowdown has forced companies to reduce costs while maintaining their operational efficiency and quality; this has opened the door for outsourcing. As such, Infosys has been able to achieve high (relative to the industry) levels of growth by moving rapidly up the software value chain. 36% of the company's revenues are derived from high-end services, which reduces the the maneuvering space for its rival IBM (NYSE: IBM).

Accenture’s (NYSE: ACN) market cap is just one third of Infosys', because Infosys’ business model of outsourcing is the best in the world and is the reason the market is ready to pay a high premium for its stock. Also there are about 3,000 employees in US working on H-1 B visas, whereas that figure for Accenture is much lower. Given the size of the US market, Infosys' cheaper well-trained staff gives the company an additional advantage over Accenture.

In Q2 2012 Infosys witnessed a healthy increase in sales and profitability. All this happened because of combination of powerful exciting products, an enhanced store network, and a robust infrastructure. I believe that the company will continue with a similar trend for two to three more years. Hence, shares can be bought for the purpose of medium and long term investment.

akgupta88 has no positions in the stocks mentioned above. The Motley Fool owns shares of International Business Machines. Motley Fool newsletter services recommend Accenture Ltd. and International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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