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FINANCIAL EFFICIENCY OF
INFOSYS
B13143- BIJOYINI GANGULY
B13168 - ROOPAN JOHN
B13169- SAIYAM SANGHVI
B13170- SANTANU MALLICK
B13175 – SUHAS KINI
Analyst reports and Credit worthiness
Note on market reaction to information
Board of Directors & Shareholding Pattern
A Note on the CEO and compensation
Dividend distribution and EPS plot
Comparison with peers and sensex
General Information on the Company‟s stock
Shares issue , ADR, ESOP etc
Strategies of Infosys
Reaction to acquisition and takeover
General Information about the company
Transparency, Compensation, Social Image
Topic 1
Topic 2
Topic 3
Topic 4
Topic 5
Topic 6
AGENDA
Internal Directors
• N.R. Narayana Murthy –Founder,Executive Chairman
• S. Gopalakrishnan - Co-Founder,Executive Vice Chairman
• S.D. Shibulal - Co-Founder, Member of the Board, CEO & Managing Director
• Srinath Batni-Member of the Board, Head of Delivery Excellence (since 2000)
• Pravin Rao- President and Member of the Board (since 2014)
• B.G. Srinivas- President and Member of the Board (since 2014)
BOARD OF DIRECTORS
Independent Directors
• K. V. Kamath- Lead Independent Director, Infosys, Non Executive Chairman,
ICICI Bank
• Ann M. Fudge – (On the boards of GE, Novartis, Unilever)
• Dr. Omkar Goswami – Founder and Chairman, CERG limited
• Jeffrey Sean Lehman – Vice Chancellor , NYU Shangai
• R Seshasayee – Executive Vice chairman, Ashok leyland
• Kiran Mazumdar Shaw – Chairman and Managing Director , Biocon
• Ravi Venkatesan – Director, member of Board, AB Volvo (Former Chairman ,
Microsoft India)
BOARD OF DIRECTORS
COMPENSATION 2011
Total calculated compensation: $242,815
* Salary: $75,549
* Bonus: $124,391
* All other compensation: $42,875
* Total annual cash compensation:
$242,815
* Total short term compensation: $199,940
* Other long term compensation: $42,875
Shibulal's monthly salary comes to
around .083 paisa on his annual salary
of Re 1
COMPENSATION 2014
• S.D. Shibulal (Shibu) is Co-Founder, Member of the Board, CEO and Managing Director
of Infosys.
• Prior to becoming Chief Executive Officer and Managing Director, Shibulal served as
COO between June 22, 2007 and August 20, 2011.
• Instrumental in the development of the Infosys Global Delivery Model services. CEO
since May „11
CEO’S COMPENSATION
Holder's Name
No of Shares % Share Holding
Promoters 91508078 15.94%
ForeignInstitutions 229275165 39.93%
FinancialInstitutions 62442997 10.87%
GeneralPublic 60326712 10.51%
NBanksMutualFunds 30344521 5.28%
ForeignNRI 6745327 1.17%
Others 3541291 0.62%
Other Companies 3000408 0.52%
Custodians (ADRs) 15%
• The institutional investors consist
of mutual funds, FII and insurance
companies. These are primarily
growth seeking investors.
• The non institutional investors
consist of corporate bodies,
NRI/OCB , trusts etc..
• Here the marginal investor would
be the FII as they hold a major
chunk of the shares.
• It is assumed that the marginal
investor in case of an FII would be
well diversified and hence it would
be the non diversifiable risk that
matters.
Since the major returns given by the company are in form of capital
gains majority of the investors holding this stock would prefer a buyback
over a dividend. Also dividends are taxed at a higher rate.
SHAREHOLDING PATTERN
INDIVIDUALS (PROMOTERS &FAMILIES)
PUBLIC INSTITUTIONS
SHAREHOLDING PATTERN
Fiscal Bonus issue Stock split ratio
1994 1:1 2 for 1
1997 1:1 2 for 1
1999 1:1 2 for 1
2000 - 2 for 1
2004 3:1 4 for 1
2006 1:1 2 for 1
• Infosys had an IPO in February 1993 at a face value of Rs. 95 which was quoted at
Rs. 145 in the Market.
• Since then Bonus Shares have been issued 6 times.
• Hence an investor who purchased a share in 1993 would own 128 shares of the
company and his Capital Gain would be approximately Rs. 4,86,400.
• An investor who held a share for the last 5 years would earn Rs. 2637.4 by the way
of Capital gains and would have received a Total Dividend of Rs. 207.5 during these
years.
IPO/ ISSUE OF BONUS SHARES
Criteria Value
Share price 3782.70
52-week high Rs 3799.00
52-week low Rs 2190.00
EPS for quarter ended
December 2013.
Rs 167.46 per share
P/E) ratio 22.59
Book value Rs 627.95 per share
Price-to-book value 6.02
INFOSYS STATS (25TH FEB, 2014)
• Market Cap: Rs 217.8k Crores
• FCFEs:
2013 – Rs.79600 Cr
2012 – Rs. 69810 Cr
• Current cash balance = Rs. 21832 Cr
• Transparent ownership
• Strict separation of ownership and the management.
• Stockholders cannot legally vote by post or the internet and have
to show up.
• Informs stockholders of upcoming meetings sufficiently in
advance to consider and execute their votes.
• Maintains a comprehensive website and presents its financial
statements according to multiple accounting standards.
• Discloses its financials and non-financials as if it were a US-
incorporated, SEC-registered company.
• Disclosure includes an exhaustive corporate governance review,
financial reports in four languages and reconciliation to eight
accounting standards
TRANSPARENCY AND STANDARDS
SOCIAL RESPONSIBILITY
• Accused of committing visa fraud by using B-1(visitor) visas for
work requiring H-1B(work) visas.
• Allegations initially made by an American employee of Infosys in
an internal complaint and subsequently sued the company,
claiming that he was harassed and sidelined after speaking out.
• Settled the civil suit with US authorities by paying US$ 34 million
but refused to admit guilt.
• Claimed that agreed to pay the fine only to avoid the nuisance of
'prolonged litigation.
SOCIAL CRITICISM – VISA FRAUD
• Variable compensation structure for all of employees.
• Consists of performance incentives payable upon the
achievement by the company of certain financial performance
targets
• Also based on individual performance.
• Starting salary at about 3.5 lakhs for fresh graduate engineers.
• Rohan's term as executive assistant is co-terminus with that of
Narayana Murthy and had requested a token compensation of one
rupee a year.
COMPENSATION
• In March 1999, it issued 20,70,000 ADSs (equivalent to 10,35,000
equity shares of par value of Rs. 10 each) at US $34 per ADS
under the American Depositary Shares Program
• The same were listed on the NASDAQ National Market.
• In the event of a matter submitted to the holders of ordinary
shares for a vote, the ADS holders on record as on a particular
date will be allowed to instruct the depositary bank to exercise
the vote in respect of the equity shares representing the ADS
held by them.
• Otherwise normal shares have voting rights.
ADS PROGRAM
1993- Infosys introduced ESOP. It was the
first Indian company to offer stock options
to employees the year it went public
68,600 shares reserved for allotment in
preferential basis to employees of the
company and group company (only 10,3000
shares taken up).
Balance 13,07,200 shares along with 58,500
shares not taken up by employees were
issued to the public (all were taken up).
A total of 16,237 employees benefited until
ESOPs were halted in July 2003.
• Infosys pioneered the
employee stock option
programme (ESOP) in the
country and famously made
thousands of its employees
crorepatis and millionaires,
has officially suspended its
ESOP scheme.
• Infosys's ESOP scheme was
in the limelight because it
made people ranging from
company chairman NR
Narayana Murthy to his
chauffeur and executive
assistant millionaires many
times over.
ESOP PROGRAM
1,152,522 on NasDaq 90 day average daily volume on Feb 24.
TRADING VOLUME ON NASDAQ
TRADING VOLUME STATISTICS
Period Average Volume Total Volume No. of Trading Days
Weekly 45225 226123 5
Fortnightly 39068 351610 9
Monthly 45750 869247 19
Quarterly 72600 4501197 62
Half Yearly 84222 10443520 124
Yearly 101240 25208875 2
TRADING VOLUME ON BSE
• 67 analysts follow this firm as per Bloomberg
• 12 month target price is 3979.25 (60/67)
• Infosys‟ 3rd quarter seems to be promising
with a better YoY and QoQ growth seems to
have propelled this.
Buy 47 70%
Hold 15 22.4%
Sell 5 7.5%
ANALYST OPINIONS AND CREDIT RATINGS
MARKET REACTION TO DIVIDEND PAYMENTS
MARKET REACTION TO EARNINGS
3 major acquisitions:
• McCamish-38
million
• Lodestone-330
million
• Portland(38.8
million)
Recently, the day before Narayana Murthy’s return, Infosys stocks went up by 3.32%
though Sensex failed This is a sign of people inside knowing well in advance of the move.
MARKET REACTION TO ACQUISITIONS
• Looking into the past data of 5 years, the company
has announced a minimum dividend payout of
200% and a maximum of 800%
• This shows that the company is quite cash rich and
hence going on dividend distribution spree.
• Being an IT company (service based), its
inventories are zero and cash is its major asset.
DIVIDEND DISTRIBUTION
EPS MOVEMENT AMONG IT INDUSTRY STOCKS
EPS MOVEMENT AMONG SENSEX COS.
Lodestone : $350m
EMEA (2012)
McCamish -38 million
ACQUISITIONS
EIS: $22m - Australia(2003)
“We were looking for a
company whose values
were similar to those of
Infosys. We have seen
these qualities in EIS“ – NR
Narayanamurthy
Traditional BPO Models Have Run Their Course and Traditional Outsourcers
Must Act Quickly Or Suffer
INFOSYS INVESTMENTS : PROVIDER TO CREATOR
• There are, presently,no explicit anti-takeover provisions in the
company‟s Articles.
• The company has removed from its Articles protections regarding Mr.
Murthy‟s position that may have been invoked during a takeover.
• Section 107 of Company Charter Amended
• “We are very focused on growing in the continent of Europe,
so that would be a good place for us to do an acquisition. We
are very focused on increasing our consulting and system
integration revenue. If you put these things together we want
to create a balanced portfolio, which means we need to grow
our product and platform revenue faster than the rest of the
revenue. If we want to enter the US public service market we
have to set up a subsidiary”
-S.D Shibulal
ANTI TAKEOVER AMENDMENTS - REMOVED
VIEW ON ACQUISITION
INFOSYS: A GROWTH STOCK
Infy‟s Vs Related IT cos. : Cash – MarketCap Ratio
• Already facing tax demands worth USD 214 million for fiscal 2005 to
fiscal 2008.
• "mainly on account of disallowance of a portion of the deduction
claimed by the company under Section 10A of the Income Tax Act."
• Income Tax department has slapped a fresh $106 million (Rs 582crore)
tax demand notice on Infosys, for 2009 fiscal.
TROUBLED TAX MANAGEMENT
• According to regression analysis beta=0.58
• Expected return by shareholders = RF + beta*(RM-RF) = 12.74%.
• The return on equity for 2013 = 27.2%.
• The average return on equity for last 10 years = 35.35%
• Since the company has zero debt the return on firm is same as
return on equity.
• Source-Moneycontrol.com
EXPECTED RETURN OF SHAREHOLDERS
DIV/FCFE DIV/OCF
AVG 0.3 0.21
STD DEV/Avg value 0.27 0.28571429
YEAR
FY
2013
FY
2012
FY
2011
FY
2010
FY
2009
FY
2008
FY
2007
FY
2006
FY
2005
FY
2004
FY
2003
Operating cash flow
per share 163.5 142 103.3 122.9 111.5 81 68.7 46.7 27.7 32.5 18.6
Free Cash Flow per
Share 126.9 115 80.45 111 88.28 54.9 41.6 26.7 12.2 24.5 14.4
DPS 42 37 30 38.4 23.5 13.3 11.5 7.5 5.75 3.69 3.38
DPS/FCFE 0.331 0.32 0.373 0.346 0.266 0.24 0.28 0.28 0.47 0.15 0.24
DPS/OCF 0.257 0.26 0.29 0.312 0.211 0.16 0.17 0.16 0.21 0.11 0.18
DIVIDENDS AND FREE CASH FLOWS
Source- bloomberg
COMPANY NAME
AVG CASH EQ/BV of
Assets(10 YRS)
STD DEV/MEAN OF
FCFE
Average payout
ratio for 5 years
INFOSYS LTD 0.3 0.59 0.27
TATA CONSULTANCY LTD 0.05 0.62 0.32
HCL TECHNOLOGIES LTD 0.05 0.94 0.29
WIPRO LTD 0.11 0.76 0.23
TECH MAHINDRA LTD 0.07 1.44 0.06
MPHASIS LTD 0.05 0.86 0.25
DIVIDEND POLICY IN COMPARISON TO PEERS
1. From analysis, Infosys has maintained an almost constant
payout ratio.
2. The div/FCFE ratio has increased over the last few years. One
inference over here could be that they are now returning more
to investors in form of dividends due to lack of investment
opportunities.
3. Also the cash flows of infosys are least volatile as compared
to its peers. It has a very high cash/ BV of assets ratio. Hence
Infosys is in a position to return more to its investors. This it
can do either in form of a buyback or extra dividends.
DIVIDEND POLICY
Running a regression on the dividend(DPS) and EPS
for the mentioned competitors we got,DPS = 0.06*
(EPS) + 5.14,
However the Rsquare value = 0.138, indicates that EPS
is not the main criteria for deciding dividend payment.
According to our model we found that the DPS for 2013
is 14.64 whereas Infosys paid 42.
Source- bloomberg
REGRESSION MODEL FOR COMPARISON WITH PEERS
• The annual report mentions that the cash reserves have been
invested in safe & sophisticated financial instruments.
• They earn a return of around 8%.
• Now WACC = Re = 12.74%
• Assuming that they have the same cash/BV as the industry
average in 2013 = 7.17%
• Excess cash as on march = (0.47- 0.0717)* (bv of assets) = 18.51
thousand crores.
• Assuming that 5 thousand crores are kept for exigencies
excess cash = 13.51 thousand crores.
• Therefore cost of excess cash = (12.74- 8) * (13.51 thousand
crores) = 877.4 crores
COST OF EXCESS CASH
• There has been no major buyback since the
company went public.
• There have been rumours at different points of time
and many analysts have also suggested buyback as
a good way to return to the shareholders.
• However it must be noted that the marginal investor
in infosys are FIIs. These are growth investors and if
Infosys continues with giving high dividends then
these investors will start selling the stock. Giving
high dividends would signal lack of significant
investment opportunities.
• These investors would prefer the company to go for
buyback.
BUYBACK
TOTAL RETURN FOR AN INVESTOR SINCE
INCEPTION
This represents the total gain of an
investor since inception
• Infosys is currently sitting on a large cashpile. It
needs to return a part of this to the investors. The
analysis shows that it is paying a high cost for this
cash.
• The investors would prefer a buyback because
Infosys is essentially is a growth stock. They will to
time the buyback appropriately and a large buyback
can also improve EPS.
• If a buyback is not feasible then it should pay excess
dividends.
CONCLUSION
THANK YOU

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Financial Efficiency of Infosys

  • 1. FINANCIAL EFFICIENCY OF INFOSYS B13143- BIJOYINI GANGULY B13168 - ROOPAN JOHN B13169- SAIYAM SANGHVI B13170- SANTANU MALLICK B13175 – SUHAS KINI
  • 2. Analyst reports and Credit worthiness Note on market reaction to information Board of Directors & Shareholding Pattern A Note on the CEO and compensation Dividend distribution and EPS plot Comparison with peers and sensex General Information on the Company‟s stock Shares issue , ADR, ESOP etc Strategies of Infosys Reaction to acquisition and takeover General Information about the company Transparency, Compensation, Social Image Topic 1 Topic 2 Topic 3 Topic 4 Topic 5 Topic 6 AGENDA
  • 3. Internal Directors • N.R. Narayana Murthy –Founder,Executive Chairman • S. Gopalakrishnan - Co-Founder,Executive Vice Chairman • S.D. Shibulal - Co-Founder, Member of the Board, CEO & Managing Director • Srinath Batni-Member of the Board, Head of Delivery Excellence (since 2000) • Pravin Rao- President and Member of the Board (since 2014) • B.G. Srinivas- President and Member of the Board (since 2014) BOARD OF DIRECTORS
  • 4. Independent Directors • K. V. Kamath- Lead Independent Director, Infosys, Non Executive Chairman, ICICI Bank • Ann M. Fudge – (On the boards of GE, Novartis, Unilever) • Dr. Omkar Goswami – Founder and Chairman, CERG limited • Jeffrey Sean Lehman – Vice Chancellor , NYU Shangai • R Seshasayee – Executive Vice chairman, Ashok leyland • Kiran Mazumdar Shaw – Chairman and Managing Director , Biocon • Ravi Venkatesan – Director, member of Board, AB Volvo (Former Chairman , Microsoft India) BOARD OF DIRECTORS
  • 5. COMPENSATION 2011 Total calculated compensation: $242,815 * Salary: $75,549 * Bonus: $124,391 * All other compensation: $42,875 * Total annual cash compensation: $242,815 * Total short term compensation: $199,940 * Other long term compensation: $42,875 Shibulal's monthly salary comes to around .083 paisa on his annual salary of Re 1 COMPENSATION 2014 • S.D. Shibulal (Shibu) is Co-Founder, Member of the Board, CEO and Managing Director of Infosys. • Prior to becoming Chief Executive Officer and Managing Director, Shibulal served as COO between June 22, 2007 and August 20, 2011. • Instrumental in the development of the Infosys Global Delivery Model services. CEO since May „11 CEO’S COMPENSATION
  • 6. Holder's Name No of Shares % Share Holding Promoters 91508078 15.94% ForeignInstitutions 229275165 39.93% FinancialInstitutions 62442997 10.87% GeneralPublic 60326712 10.51% NBanksMutualFunds 30344521 5.28% ForeignNRI 6745327 1.17% Others 3541291 0.62% Other Companies 3000408 0.52% Custodians (ADRs) 15% • The institutional investors consist of mutual funds, FII and insurance companies. These are primarily growth seeking investors. • The non institutional investors consist of corporate bodies, NRI/OCB , trusts etc.. • Here the marginal investor would be the FII as they hold a major chunk of the shares. • It is assumed that the marginal investor in case of an FII would be well diversified and hence it would be the non diversifiable risk that matters. Since the major returns given by the company are in form of capital gains majority of the investors holding this stock would prefer a buyback over a dividend. Also dividends are taxed at a higher rate. SHAREHOLDING PATTERN
  • 7. INDIVIDUALS (PROMOTERS &FAMILIES) PUBLIC INSTITUTIONS SHAREHOLDING PATTERN
  • 8. Fiscal Bonus issue Stock split ratio 1994 1:1 2 for 1 1997 1:1 2 for 1 1999 1:1 2 for 1 2000 - 2 for 1 2004 3:1 4 for 1 2006 1:1 2 for 1 • Infosys had an IPO in February 1993 at a face value of Rs. 95 which was quoted at Rs. 145 in the Market. • Since then Bonus Shares have been issued 6 times. • Hence an investor who purchased a share in 1993 would own 128 shares of the company and his Capital Gain would be approximately Rs. 4,86,400. • An investor who held a share for the last 5 years would earn Rs. 2637.4 by the way of Capital gains and would have received a Total Dividend of Rs. 207.5 during these years. IPO/ ISSUE OF BONUS SHARES
  • 9. Criteria Value Share price 3782.70 52-week high Rs 3799.00 52-week low Rs 2190.00 EPS for quarter ended December 2013. Rs 167.46 per share P/E) ratio 22.59 Book value Rs 627.95 per share Price-to-book value 6.02 INFOSYS STATS (25TH FEB, 2014) • Market Cap: Rs 217.8k Crores • FCFEs: 2013 – Rs.79600 Cr 2012 – Rs. 69810 Cr • Current cash balance = Rs. 21832 Cr
  • 10. • Transparent ownership • Strict separation of ownership and the management. • Stockholders cannot legally vote by post or the internet and have to show up. • Informs stockholders of upcoming meetings sufficiently in advance to consider and execute their votes. • Maintains a comprehensive website and presents its financial statements according to multiple accounting standards. • Discloses its financials and non-financials as if it were a US- incorporated, SEC-registered company. • Disclosure includes an exhaustive corporate governance review, financial reports in four languages and reconciliation to eight accounting standards TRANSPARENCY AND STANDARDS
  • 12. • Accused of committing visa fraud by using B-1(visitor) visas for work requiring H-1B(work) visas. • Allegations initially made by an American employee of Infosys in an internal complaint and subsequently sued the company, claiming that he was harassed and sidelined after speaking out. • Settled the civil suit with US authorities by paying US$ 34 million but refused to admit guilt. • Claimed that agreed to pay the fine only to avoid the nuisance of 'prolonged litigation. SOCIAL CRITICISM – VISA FRAUD
  • 13. • Variable compensation structure for all of employees. • Consists of performance incentives payable upon the achievement by the company of certain financial performance targets • Also based on individual performance. • Starting salary at about 3.5 lakhs for fresh graduate engineers. • Rohan's term as executive assistant is co-terminus with that of Narayana Murthy and had requested a token compensation of one rupee a year. COMPENSATION
  • 14. • In March 1999, it issued 20,70,000 ADSs (equivalent to 10,35,000 equity shares of par value of Rs. 10 each) at US $34 per ADS under the American Depositary Shares Program • The same were listed on the NASDAQ National Market. • In the event of a matter submitted to the holders of ordinary shares for a vote, the ADS holders on record as on a particular date will be allowed to instruct the depositary bank to exercise the vote in respect of the equity shares representing the ADS held by them. • Otherwise normal shares have voting rights. ADS PROGRAM
  • 15. 1993- Infosys introduced ESOP. It was the first Indian company to offer stock options to employees the year it went public 68,600 shares reserved for allotment in preferential basis to employees of the company and group company (only 10,3000 shares taken up). Balance 13,07,200 shares along with 58,500 shares not taken up by employees were issued to the public (all were taken up). A total of 16,237 employees benefited until ESOPs were halted in July 2003. • Infosys pioneered the employee stock option programme (ESOP) in the country and famously made thousands of its employees crorepatis and millionaires, has officially suspended its ESOP scheme. • Infosys's ESOP scheme was in the limelight because it made people ranging from company chairman NR Narayana Murthy to his chauffeur and executive assistant millionaires many times over. ESOP PROGRAM
  • 16. 1,152,522 on NasDaq 90 day average daily volume on Feb 24. TRADING VOLUME ON NASDAQ
  • 17. TRADING VOLUME STATISTICS Period Average Volume Total Volume No. of Trading Days Weekly 45225 226123 5 Fortnightly 39068 351610 9 Monthly 45750 869247 19 Quarterly 72600 4501197 62 Half Yearly 84222 10443520 124 Yearly 101240 25208875 2 TRADING VOLUME ON BSE
  • 18. • 67 analysts follow this firm as per Bloomberg • 12 month target price is 3979.25 (60/67) • Infosys‟ 3rd quarter seems to be promising with a better YoY and QoQ growth seems to have propelled this. Buy 47 70% Hold 15 22.4% Sell 5 7.5% ANALYST OPINIONS AND CREDIT RATINGS
  • 19. MARKET REACTION TO DIVIDEND PAYMENTS
  • 20. MARKET REACTION TO EARNINGS
  • 21. 3 major acquisitions: • McCamish-38 million • Lodestone-330 million • Portland(38.8 million) Recently, the day before Narayana Murthy’s return, Infosys stocks went up by 3.32% though Sensex failed This is a sign of people inside knowing well in advance of the move. MARKET REACTION TO ACQUISITIONS
  • 22. • Looking into the past data of 5 years, the company has announced a minimum dividend payout of 200% and a maximum of 800% • This shows that the company is quite cash rich and hence going on dividend distribution spree. • Being an IT company (service based), its inventories are zero and cash is its major asset. DIVIDEND DISTRIBUTION
  • 23. EPS MOVEMENT AMONG IT INDUSTRY STOCKS
  • 24. EPS MOVEMENT AMONG SENSEX COS.
  • 25. Lodestone : $350m EMEA (2012) McCamish -38 million ACQUISITIONS EIS: $22m - Australia(2003) “We were looking for a company whose values were similar to those of Infosys. We have seen these qualities in EIS“ – NR Narayanamurthy Traditional BPO Models Have Run Their Course and Traditional Outsourcers Must Act Quickly Or Suffer INFOSYS INVESTMENTS : PROVIDER TO CREATOR
  • 26. • There are, presently,no explicit anti-takeover provisions in the company‟s Articles. • The company has removed from its Articles protections regarding Mr. Murthy‟s position that may have been invoked during a takeover. • Section 107 of Company Charter Amended • “We are very focused on growing in the continent of Europe, so that would be a good place for us to do an acquisition. We are very focused on increasing our consulting and system integration revenue. If you put these things together we want to create a balanced portfolio, which means we need to grow our product and platform revenue faster than the rest of the revenue. If we want to enter the US public service market we have to set up a subsidiary” -S.D Shibulal ANTI TAKEOVER AMENDMENTS - REMOVED VIEW ON ACQUISITION
  • 27. INFOSYS: A GROWTH STOCK Infy‟s Vs Related IT cos. : Cash – MarketCap Ratio
  • 28. • Already facing tax demands worth USD 214 million for fiscal 2005 to fiscal 2008. • "mainly on account of disallowance of a portion of the deduction claimed by the company under Section 10A of the Income Tax Act." • Income Tax department has slapped a fresh $106 million (Rs 582crore) tax demand notice on Infosys, for 2009 fiscal. TROUBLED TAX MANAGEMENT
  • 29. • According to regression analysis beta=0.58 • Expected return by shareholders = RF + beta*(RM-RF) = 12.74%. • The return on equity for 2013 = 27.2%. • The average return on equity for last 10 years = 35.35% • Since the company has zero debt the return on firm is same as return on equity. • Source-Moneycontrol.com EXPECTED RETURN OF SHAREHOLDERS
  • 30. DIV/FCFE DIV/OCF AVG 0.3 0.21 STD DEV/Avg value 0.27 0.28571429 YEAR FY 2013 FY 2012 FY 2011 FY 2010 FY 2009 FY 2008 FY 2007 FY 2006 FY 2005 FY 2004 FY 2003 Operating cash flow per share 163.5 142 103.3 122.9 111.5 81 68.7 46.7 27.7 32.5 18.6 Free Cash Flow per Share 126.9 115 80.45 111 88.28 54.9 41.6 26.7 12.2 24.5 14.4 DPS 42 37 30 38.4 23.5 13.3 11.5 7.5 5.75 3.69 3.38 DPS/FCFE 0.331 0.32 0.373 0.346 0.266 0.24 0.28 0.28 0.47 0.15 0.24 DPS/OCF 0.257 0.26 0.29 0.312 0.211 0.16 0.17 0.16 0.21 0.11 0.18 DIVIDENDS AND FREE CASH FLOWS
  • 31. Source- bloomberg COMPANY NAME AVG CASH EQ/BV of Assets(10 YRS) STD DEV/MEAN OF FCFE Average payout ratio for 5 years INFOSYS LTD 0.3 0.59 0.27 TATA CONSULTANCY LTD 0.05 0.62 0.32 HCL TECHNOLOGIES LTD 0.05 0.94 0.29 WIPRO LTD 0.11 0.76 0.23 TECH MAHINDRA LTD 0.07 1.44 0.06 MPHASIS LTD 0.05 0.86 0.25 DIVIDEND POLICY IN COMPARISON TO PEERS
  • 32. 1. From analysis, Infosys has maintained an almost constant payout ratio. 2. The div/FCFE ratio has increased over the last few years. One inference over here could be that they are now returning more to investors in form of dividends due to lack of investment opportunities. 3. Also the cash flows of infosys are least volatile as compared to its peers. It has a very high cash/ BV of assets ratio. Hence Infosys is in a position to return more to its investors. This it can do either in form of a buyback or extra dividends. DIVIDEND POLICY
  • 33. Running a regression on the dividend(DPS) and EPS for the mentioned competitors we got,DPS = 0.06* (EPS) + 5.14, However the Rsquare value = 0.138, indicates that EPS is not the main criteria for deciding dividend payment. According to our model we found that the DPS for 2013 is 14.64 whereas Infosys paid 42. Source- bloomberg REGRESSION MODEL FOR COMPARISON WITH PEERS
  • 34. • The annual report mentions that the cash reserves have been invested in safe & sophisticated financial instruments. • They earn a return of around 8%. • Now WACC = Re = 12.74% • Assuming that they have the same cash/BV as the industry average in 2013 = 7.17% • Excess cash as on march = (0.47- 0.0717)* (bv of assets) = 18.51 thousand crores. • Assuming that 5 thousand crores are kept for exigencies excess cash = 13.51 thousand crores. • Therefore cost of excess cash = (12.74- 8) * (13.51 thousand crores) = 877.4 crores COST OF EXCESS CASH
  • 35. • There has been no major buyback since the company went public. • There have been rumours at different points of time and many analysts have also suggested buyback as a good way to return to the shareholders. • However it must be noted that the marginal investor in infosys are FIIs. These are growth investors and if Infosys continues with giving high dividends then these investors will start selling the stock. Giving high dividends would signal lack of significant investment opportunities. • These investors would prefer the company to go for buyback. BUYBACK
  • 36. TOTAL RETURN FOR AN INVESTOR SINCE INCEPTION This represents the total gain of an investor since inception
  • 37. • Infosys is currently sitting on a large cashpile. It needs to return a part of this to the investors. The analysis shows that it is paying a high cost for this cash. • The investors would prefer a buyback because Infosys is essentially is a growth stock. They will to time the buyback appropriately and a large buyback can also improve EPS. • If a buyback is not feasible then it should pay excess dividends. CONCLUSION