2010

Shoubhik Sen PGPM/0911/018

2009-2011

Infosys

International

Academy

of

Management

&

Entrepreneurship

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Introduction

IT services brands in Europe. As we expand our operations in the UK and Europe, our presence in

London is critical to our success as it allows us both to leverage the global talent pool, and to utilise the

excellent physical and communications infrastructure required to rapidly scale up our operations.”

- B G Lahiri, Head EMEA

History

Infosys was founded on July 2, 1981 by N. R. Narayana Murthy with six others Nandan Nilekani, N. S. Raghavan, Kris Gopalakrishnan, S. D. Shibulal, K. Dinesh and Ashok Arora.

N. S. Raghavan officially being the first employee of the company.

Murthy started the company by borrowing Rs 10,000/-.

The company was Incorporated as "Infosys Consultants Pvt Ltd.“

Company Background

Infosys Technologies Limited, incorporated in the year 1981 provides consulting and IT services. Infosys has been a pioneer in offering innovative solutions to its clients. The company offers a wide range of software services, namely application development and maintenance, corporate performance management, independent validation services, infrastructure services, packaged application services and product engineering and systems integration.

Achievements

1. Infosys was the first Indian company to be listed on the NASDAQ Stock Exchange. The company reported a consolidated net profit of US$ 152.1 million for the quarter ending March, 2006.

2. It has five subsidiaries globally – Progeon Limited, Infosys

Technology (Australia) Pty. Ltd., Infosys Technology (Shanghai) Co. Ltd., Progeon S.R.O. (Czech Republic) and Infosys Consulting Inc. It has presence across the globe with 30 offices spread over USA,

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Europe, Australia and Asia. It currently employs people from 53 different nations.

3. Infosys has a growth rate of over 50% and more than half a billion

dollars in revenues in EMEA (Europe, Middle East and Africa) region, Infosysis one of the fastest growing Consulting and IT Services organisations in EMEA region

Factors for Success

Delivering locally relevant business value Infosys has been able to customise its services and solutions to the requirement of its clients. Infosys has delivered enhanced customer value to its UK clients- evidenced by the 90 per cent plus repeat business that the company generates. Understanding client-specific needs and the value proposition has been key to this. An example is the creation of specific services around regulatory compliance that are region specific.

Growth Strategy of Infosys

Infosys Technologies (Infosys), one of the fastest growing companies in India is growing at an annual rate of over 40%. Infosys believes it has a strong and resilient business model, which has been successfully adapted to the changing market requirements over the years. Infosys has added services like independent software testing and enterprise applications to its offerings. It has also re-organised itself along verticals or industries compared to the geography-specific orientation it had conformed to earlier.

To maintain its scorching pace of growth Infosys has devised a new business model. It intends to build a super-efficient platform that could offer the entire range of software services, from consulting to business process outsourcing, and layer it over with new initiatives, such as the emphasis on business solutions, to ensure that the company does not fall into a commodity trap. "Scalability is the name of the game," points out N.R. Narayana Murthy, chairman and chief mentor.

Pedagogical Objectives:

The case discusses Infosys’ earlier business model – the global delivery model, its growth strategy and its efforts to become a globally competitive company

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It discusses the growth of offshore software development, the challenges faced by such developers and their future

The case also discusses Infosys’ ‘scalability model’.

The project Management in Infosys

Infosys Technologies Ltd. (NASDAQ: INFY) was started in 1981 by seven people with US$ 250. Today, they are a global leader in the "next generation" of IT and consulting with revenues of over US$ 3 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 pioneered the Global Delivery Model (GDM), which emerged as a disruptive force in the industry leading to the rise of offshore outsourcing, to ensure the distribution of application and business process lifecycle activities and resources, while ensuring their integration. 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. It has several Key Drivers, which are Process, Quality, Tools, Knowledge Management, Program Management, and Risk Mitigation. In this way, the project management in Infosys is a key part of GDM, and to support the whole business of Infosys. The project Management in Infosys will be fully introduced in this page. Because of the success of Infosys in business, its project management becomes a successful case of project management of Software Outsourcing. Infosys Project Process will be explained from three parts, the structure of Infosys Processes, Key Elements of Infosys Project Processes, and Process Infrastructure. The structure of Infosys Processes The structure Infosys Processes is a pyramidal structure of 4 stages. Each stage presents a level of Infosys Processes. The higher the level, the more rigorous the process is.

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In Stage 4 which is the lowest level at the bottom, only records are needed in the process. In Stage 3, which is a level higher than Stage 4, reference document are built as process product basing on records in the process. In Stage 2, which is higher than stage 3, Department and Process Manuals are needed. At last, in Stage 1, the top level, all documents and records in the process should be organized as Quality Manual and Organizational Manual, which is a full dimensional guide in process of the whole organization. Besides, Process Frameworks in PRIDE System are provided to support management. Project Management, Support Processes, Engineering Processes and Process Management are 4 parts of Process Frameworks. When being used in a certain project, a project Process will be checked out from the Process Frameworks and will be tailored into a list of activities according to customer needs/requirements and project objectives. A typical project life cycle in Infosys contains Development Process and Project Management Process. Development process uses V model and Waterfall model. The process begins from the Requirement and ends at User Acceptance Test. Requirement Phase is corresponding to System Test. Design phase is corresponding to Integration Test. Implementation Phase is corresponding to Unit Test. Project Management Process is started parallel with Development Process, which includes Risk Management, Change Management, Communication/Status Reporting, and Tracking.

HRA in Infosys

Infosys used the Lev and Schwartz method to value Human Resource According to this model the present value of future earning capacity of an employee, from the time of joining the organization till retirement was estimated. Infosys used this model based on the following assumption

An employee’s salary package included all benefits, whether direct or otherwise, earned both in India and in a foreign Nation.

The additional earnings on the basis of age group were also taken into account. The method is as follows.

All the employees of Infosys were divided into five groups, based on their average age .Each group’s average compensation was calculated.

Infosys also calculated the compensation of each employee at retirement by using an average rate of increment.

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The increments were based on industry standards, and the employee’s performance and productivity.

Finally the total compensation of each group was calculated. This value was discounted at the rate percent per annum which was the cost of capital at Infosys to arrive at the total human resources of Infosys.

Ratio’s of Infosys Technology ltd

Ratios (in crores)

Mar '09 Mar '08 Mar '07 Mar '06 Mar '05

Per share ratios

Adjusted EPS (Rs) 108.08 78.06 65.42 90.65 68.38

Adjusted cash EPS (Rs) 120.19 87.61 73.63 105.50 78.30

Reported EPS (Rs) 101.58 78.15 66.23 87.86 70.38

Reported cash EPS (Rs) 113.70 87.69 74.44 102.70 80.30

Dividend per share 23.50 33.25 11.50 45.00 11.50

Operating profit per share

(Rs)

120.59 86.78 73.98 108.51 85.97

Book value (excl rev res)

per share (Rs)

27.51 25.96 29.13 26.56 28.91

Book value (incl rev res)

per share (Rs.)

27.51 25.96 29.13 26.56 28.91

Net operating income per

share (Rs)

353.75 273.57 230.20 327.63 253.53

Free reserves per share

(Rs)

305.80 230.74 190.30 245.07 188.51

Profitability ratios

Operating margin (%) 34.09 31.72 32.13 33.11 33.91

Gross profit margin (%) 30.66 28.23 28.57 28.58 30.00

Net profit margin (%) 27.52 27.37 28.05 26.17 27.28

Adjusted cash margin (%) 32.57 30.69 31.19 31.43 30.35

Adjusted return on net

worth (%)

34.76 33.09 33.47 36.21 35.29

Reported return on net

worth (%)

32.67 33.13 33.89 35.10 36.33

Return on long term funds

(%)

39.80 37.77 36.64 40.62 41.52

Leverage ratios

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Long term debt / Equity - - - - -

Total debt/equity - - - - -

Owners fund as % of total

source

100.00 100.00 100.00 100.00 100.00

Fixed assets turnover ratio 3.39 3.47 3.38 3.18 3.20

Liquidity ratios

Current ratio 4.71 3.30 4.96 2.75 2.80

Current ratio (inc. st loans) 4.71 3.30 4.96 2.75 2.80

Quick ratio 4.67 3.28 4.91 2.73 2.77

Inventory turnover ratio - - - - -

Payout ratios

Dividend payout ratio (net

profit)

27.03 49.77 19.85 58.32 18.48

Dividend payout ratio

(cash profit)

24.15 44.35 17.66 49.89 16.20

Earning retention ratio 74.60 50.17 79.91 43.48 80.98

Cash earnings retention

ratio

77.16 55.60 82.15 51.43 83.39

Coverage ratios

Adjusted cash flow time

total debt

- - - - -

Financial charges

coverage ratio

3,891.00 5,642.00 4,559.00 3,211.00 2,243.01

Fin. charges cov.ratio

(post tax)

3,257.50 5,017.00 4,253.00 2,831.00 1,994.21

Component ratios

Material cost component

(% earnings)

0.09 0.11 0.16 0.17 0.19

Selling cost Component 0.40 0.56 0.47 0.60 1.20

Exports as percent of total

sales

97.88 92.59 92.44 95.86 88.99

Import comp. in raw mat.

consumed

- - - - -

Long term assets / total

Assets

0.25 0.28 0.30 0.33 0.42

Bonus component in

equity capital (%)

93.58 93.58 93.58 93.65 95.53

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CONSOLIDATED FINANCIAL STATEMENTS

in Rs. crore

Consolidated Balance Sheet Schedule December 31, 2009 March 31, 2009

SOURCES OF FUNDS

SHAREHOLDERS' FUNDS

Share capital 1 286 286

Reserves and surplus 2 22,122 17,968

22,408 18,254

MINORITY INTEREST - -

22,408 18,254

APPLICATION OF FUNDS

FIXED ASSETS 3

Original cost 8,035 7,093

Less: Accumulated depreciation and

amortization

3,072 2,416

Net book value 4,963 4,677

Add: Capital work-in-progress 424 677

5,387 5,354

INVESTMENTS 4 5,273 -

DEFERRED TAX ASSETS,

NET

5 286 126

CURRENT ASSETS, LOANS AND ADVANCES

Sundry debtors 6 3,369 3,672

Cash and bank balances 7 7,625 9,695

Loans and advances 8 4,000 3,279

14,994 16,646

LESS: CURRENT LIABILITIES AND PROVISIONS

Current liabilities 9 2,431 2,004

Provisions 10 1,101 1,868

NET CURRENT ASSETS 11,462 12,774

22,408 18,254

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Consolidated Profit and Loss

2009 2008 2009 2008

Income from software services,

products and business process

management

5,741 5,786 16,798 16,058

Software development and

business process management

expenses

3,009 3,075 8,887 8,720

GROSS PROFIT 2,732 2,711 7,911 7,338

Selling and marketing expenses 314 274 851 834

380 406 1,221 1,200

694 680 2,072 2,034

2,038 2,031 5,839 5,304

Depreciation 231 187 685 533

1,807 1,844 5,154 4,771

Other income, net 231 40 736 223

Provision for investments 1 2 1 2

Net profit before tax and

minority interest

2,037 1,882 5,889 4,992

15 455 241 1,240 617

Net profit after tax and

before minority interest

1,582 1,641 4,649 4,375

Minority interest - - - -

Net profit after tax and

minority interest

1,582 1,641 4,649 4,375

Balance Brought Forward 12,957 8,892 10,560 6,828

- - - 1

- - - -

12,957 8,892 10,560 6,827

14,539 10,533 15,209 11,202

Interim dividend - - 573 572

Dividend tax - - 97 97

Amount transferred to General

Reserve

- - - -

Balance in profit and loss

account

14,539 10,533 14,539 10,533

14,539 10,533 15,209 11,202

EARNINGS PER SHARE

Basic 27.75 28.66 81.53 76.44

Diluted 27.72 28.63 81.43 76.30

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Consolidated Cash Flow statement

Consolidated Cash Flow statement Schedule 9 months ended Dec 31

2009 2008

CASH FLOWS FROM OPERATING ACTIVITIES

Net profit before tax and minority interest 5,889 4,992

Adjustments to reconcile net profit before tax to cash provided by operating

activities

(Profit)/ loss on sale of fixed assets - -

Depreciation 685 533

Interest and dividend income (654) (615)

Profit on sale of Investments - -

(41) 28

65 (32)

Changes in current assets and liabilities

Sundry debtors 16 319 (213)

Loans and advances 17 (296) (498)

Current liabilities and provisions 18 286 457

6,253 4,652

Income taxes paid 19 (1,391) (557)

Net Cash Generated By Operating Activities 4,862 4,095

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of fixed assets and change

in capital work-in-progress

20 (489) (1,015)

Payment for acquisition of business, net of cash

acquired

(169) (16)

Investments in/ disposal of securities 21 (5,273) (121)

Proceeds from disposal of fixed assets - -

Interest and dividend received 22 674 783

Net Cash Used In Investing Activities (5,257) (369)

CASH FLOWS FROM FINANCING ACTIVITIES

60 48

Dividends paid including residual dividend (1,345) (2,131)

Dividend tax paid (228) (362)

Net Cash Used In Financing Activities (1,513) (2,445)

Net (decrease)/ increase in cash and cash

equivalents

(1,867) 1,253

Cash and cash equivalents at the beginning of the

period

10,993 8,235

Cash and cash equivalents at the

end of THE PERIOD

23 9,176 9,488

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SWOT ANALYSYS OF INFOSYS

Strengths

Since the company is based in India its competitive advantage is enhanced. The Indian economy, despite weak economic indicators such as relatively high rates of inflation, has low labor costs. The workforce has relatively high skills levels in Information Technology. Couple these two elementstogether and you have an operational basis that offers low-cost based, highly skilled competitive advantage. Trained Indian personnel often speak very good English and are sensitive to Western culture, underpinned by India's colonial past.

Infosys is in a strong financial position. The business turned over more than $4 billion in 2008. This means that it has the capital to expand, and also the basis to leverage potential investors.

The company has bases in 44 global development centres, most of which are located in India, although the company has offices in many developed and developing nations. This means not only that Infosys is becoming a global brand but also that it has the capability to support the global operations of multinational clients.

Weaknesses

Infosys on occasion struggles in the US markets, and has particular problems in securing United States Federal Government contracts in North America. Since these contracts are highly profitable and tend to run for long periods of time, Infosys is missing out on lucrative business. Added to this is the fact that its competitors do well in terms of securing the same Federal business (and one should also take into account that many of its competitors are domiciled in the US and there could be political pressure on the US Government to award contracts to domestic organizations).

Despite being a huge IT company in relation to its Indian competitors, Infosys is much smaller than its global competitors. As discussed above, Infosys generated $4 billion in 2008, which is relatively low in comparison with large global competitors such as Hewlett-Packard ($91 billion), IBM ($91 billion), EDS ($21 billion) and Accenture ($18 billion).

It is sometimes argued that Infosys is weaker when it comes to high-end management consultancy, since it tends to work at the level of operational value creation. Competitors such as IBM and Accenture tend to dominate this space.

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Opportunities

At a time of recession in the global economy, it may appear that some companies will reduce take up of services that Infosys offers. However, in tough times clients tend to focus upon cost reduction and outsourcing - with are strategies that Infosys offers. So hard times could be profitable for Infosys.

There is a new and emerging market in China as the country undergoes a huge industrial revolution.

The strategic alliance between Infosys and Schlumberger gives the IT company access to lucrative business in the gas and oil industries.

There has been a trend over recent years for European and North American companies to base some or all of their operation in India. This is called an offshore service. Essentially there is a seamless link between domestic operations and services hosted in India. Examples include telecommunications companies such as British Telecom and banks such as HSBC that have customer service and support centres based in India. Think about the times that you have made calls to a support line to find that the adviser is in Mumbai or Bangalore and not in your home market.

Threats

India is not the only country that is undergoing rapid industrial expansion. Competitors may come from countries such as China or Korea where there are large pools of low-cost labor, and developing educational infrastructures such as universities and technology colleges.

Customers may switch to other offshore service companies in other countries such as China or Korea.

Other global players have realised that India has the benefit of low-cost, highly-skilled labor that often speaks English and is culturally sensitive to Western practices. As with all global IT players, Infosys has to compete for skilled labor and this may have the effect of driving up wage levels, and making it more difficult to recruit and retain staff.

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SUPPLY CHAIN OF INFOSYS

Infosys’ supply chain practice provides best of breed packages that addresses supply chain functional areas, such as Supply Chain Planning, Sourcing & Procurement, Supply Chain Execution, and Enterprise Asset Management. The key solutions showcased across functional areas are Forecast to Plan (F2P), Procure-To-Pay (P2P), and Warehouse Advanced Visibility Enterprise Solution (WAVES). The Forecast to Plan (F2P) solution addresses complex demand prioritization requirements. Since the success of any supply chain planning is dependant on the plan quality, the prioritization goes a long way in addressing it. The other differentiator for this solution is the ease in extracting required reports even after the plan run along with its scalability and configurability. The P2P solution of Infosys is designed to address every step in indirect procurement process to help companies support growing business needs. This end-to-end indirect procurement solution managed by Infosys is designed to deliver the required levels of performance, availability, and business value realization quickly. This platform-based solution can provide significant cost and operational savings. While the P2P and F2P provide clear value in the supply chain planning and Sourcing & Procurement space, Warehouse Advanced Visibility Enterprise Solutions (WAVES) addresses the execution part of supply chain. The key driver for this solution occurs from the need for warehouses to increase visibility into their processes and to enhance responsiveness without disrupting their operations. Some of the key advantages of this solution include non-intrusive integration into the existing IT infrastructure and non-disruptive global visibility across multiple warehouses. The solution also avoids information silos and guides the user with right information at right time. Infosys’ strategy is to essentially leverage the company’s information technology skills and its rich supply chain implementation experience which would be watched with keen interest. The company’s expertise in the supply chain domain includes providing integration services covering process sourcing and procurement, inventory and order management, warehousing, logistics, and distribution. Infosys has been leveraging its partnership with product vendors, such as Maximo, Oracle, SAP, and Sterling Commerce.

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Products designed by Infosys

Products designed by Infosys

Infosys has designed and developed products across industries. If you do not see a product similar to what you require, contact us to discuss your needs.

Aerospace

Design of A380 Inboard Fixed Trailing Edge Design of Fuselage Frame Installations Design of Nose Landing Gears Doors and associated mechanism

elements Design of Floor panels Complex composite and metallic structures Knowledge-based engineering

Automotive

Seating system design Door and Pillar trims Instrument floor consoles Overhead systems Model for Combustion Pressure inside Engine Test Automation for Dashboard SW Embedded control development of Electro Hydraulic Breaking,

Adaptive Cruise Control and Fuel Injection system Design and development of software in Antilock Breaking Systems Body control module Platform Porting and Optimization

Business Software & Enterprise Products

Enhancement of Business Intelligence Product Development of Retail server product Development of Enterprises Integration platform components Design and development of Internet security product suite Development of leading MNP and LNP solutions

Computing Peripherals & Office Automation

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Product development of high-speed label printer, host system drivers and middleware components

Design and development of device drivers, core printer controller firmware, testing, roll-out and support at sites for pilot installations

Solution development for POS product vendor

Consumer Electronics, Mobile & Handheld Segment

Design and development of an interactive TV application for a European cable service provider

Development of an embedded multimedia framework and audio/video components for various platforms and operating systems

Development of next generation handheld scanners that integrate with web applications in near real-time for a US package delivery giant.

Digital Media Technologies

Digital media products in broadcasting, distribution and play out Set-top box development and integrated DTV solutions Network and Element Management solutions for telecom and data

communication products Product services in 2G, 2.5G and 3G services IPTV Solutions including solutions with Microsoft's IPTV Platform

Discrete manufacturing

Electric Injection Molding machines Re-engineering for improved efficiency of Air conditioning

compressor KBE for Optimization and Automation of Design of Oil Well

Screens Hydraulic systems for Industrial machinery Mechanism Synthesis, Analysis & Optimization CFD analysis for Gas turbines Sizing and Selection Machine Elements Next generation HMI for power plant SCADA

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Energy & Utilities

Equipment sizing and selection Effluent treatment system layout Piping analysis and drawings Oil Well Monitoring system Implementation of advanced process control in crude line refinery

Hardware

Professional Video Deck for real-time video and audio editing Reference Platform for High End Cell phone Processor Board redesign for RoHS compatibility keeping the old

form factor, and minimizing software impact Optical Channel Monitor using DSP for control of tunable optical

filter, piezo-electric sensors and signal processing Oil Well Monitoring system to compute oil flow rates, bulk

velocity, and measurement of pressure and temperature; based on industrial PC running Windows NT

Medical Devices

New software products in the Patient Tracking and Health Information Management areas

Web-enablement of payor product suite including sustenance and maintenance

End-to-end product development for respiratory devices End-to-end development of comprehensive healthcare monitoring

applications Innovation in all aspects of medical image-analysis platform and

biochemical- markers in drug development for a CRO New product development, regulatory testing and support of

several medical devices

Networking & Communications

Development of a WLAN switch for a leading networking company Development of VOIP calls manager, Media gateway and

Softswitch Complete product ownership of a leading enterprise L2-L7 switch

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Development of a leading DSLAM switch Development of EMS & NMS systems for wireless and optical

networks

Product Development (Hardware & Software)

Product development of digital video processing card Development of key mobile phone components including MMI

modules, entertainment modules, Codecs, etc.

Semiconductors, Scientific & Industrial Equipment

Design of reservoir monitoring system Development of silicon wafer inspection solution Development of monitoring solutions for chemical processing

industry Development and sustenance of defect tracking and diagnostic

systems for railway tracks

Storage & Services Segment Solutions

Development of ISCSI host and target modules & SCSI drivers Development of performance tools for disk mirroring Development of a NMS configurator for FC-SAN switch Development of Recovery & Storage manager Re-engineering of multi platform space manager

QUALITY CONTROL AT INFOSYS

We strictly follow quality control norms and deliver software solutions that surpass your expectations. Our team provides you top quality services with reliability and security that will have various steps like business integration, process improvement, performance testing, software publication, training, environment management.

Systems Development & Integration

We are complying global standards, use key resources and tools to cater to your systems development and integration needs enabling you meet long term business objectives. A thorough study on your businesses focusing on tools, equipment, technologies, manpower, policy,

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implementation of projects and investments, environment etc., will help our team to suggest you needed solutions to sustain in the business.

We provide Services in:

Systems Conversion Project Management ERP Solutions Content Management Concept, New Requirements e-Business

CONCLUSION

With the outsourcing story expected to gain momentum, and with the company’s focus on improving its business mix through moving up the value chain, and also diversifying into new markets to de-risk its business model and grow revenues, the outlook for the next few years seems bright. Given its scalable business model and globally recognized execution and delivery capabilities, we believe that Infosys will be at the forefront of the Indian offshoring story in the future. Investors may stay invested at current levels.

Since near-term valuations are at the higher end of the spectrum (31 times expected FY05 earnings), potential investors need to exercise caution at current levels, as the risk-reward balance is skewed towards risk. However, if one is to take a long-term view (3 years or more), Infosys remains one of our top picks from the sector.

The growth achieved over the years (even in times of turbulence) clearly shows that the company’s management is highly competent, visionary, can anticipate future trends, and one that can be trusted. And this is one of the foremost factors that need to be considered before investing in a software stock.