Corporate Finance Infosys

8/9/2019 Corporate Finance Infosys

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Presented byNeelutpal Saha

Chandra Kant Rai

Ankita Sharma

Tarun Sharma

Shan Lal


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About Infosys• Infosys Ltd is a global technology services firm that defines, designs and delive

technology (IT)-enabled business solutions to their clients. The company provibusiness solutions that leverage technology for their clients, including technica

design, development, product engineering, maintenance, systems integration,

enabled consulting, and implementation and infrastructure management serv

• Infosys Ltd is a public limited and India's second largest software exporter com

incorporated in the year 1981 as Infosys Consultants Pvt Ltd by Mr.N.R.NarayaKarnataka. The company was started by seven people with the investment of U

company became a public limited company in the year 1992. The company wa

Indian company to be listed on the NASDAQ at the year 1999. Infosys also form

NASDAQ-100 index. Continuously in the year 2001, 2002 and 2003, the compa

National award for excellence in corporate governance conferred by the Gover

India.


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Business Strategy• Infosys Technologies has 47% of core business assets stagnating. The company

markets of Europe and Japan for acquisitions in the price bands of USD 200 - Uto energies their non-linear business strategy as well as to expand its geograph

• Infosys set up various Special Economic Zone that for the company has an add

benefit. They set up another Special Economic Zone unit in Chandigarh which

for 100 % deduction of profit from exports tax calculation for the first five year

50% deduction for next five years.

•

Infosys has been pursuing their expansion plans over the past few years. The fenhancement of the company is to emerge the developing economies changin

landscape with help of accessible talent pools and the adoption of non-linear g

it is a long term strategy.


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Capital Structure(Rs in Crs)

Year Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010 Mar 2009 Mar 2008 Mar 2

Share Capital 286 287 287 287 287 286 286 28

Reserves Total 41,806.00 35,772.00 29,470.00 24,214.00 21,749.00 17,523.00 13,204.00 10,87

Equity Share Warrants 0 0 0 0 0 0 0 0

Equity Application Money 0 0 0 0 0 0 0 0

Total Shareholders Funds 42,092.00 36,059.00 29,757.00 24,501.00 22,036.00 17,809.00 13,490.00 11,16

Secured Loans 0 0 0 0 0 0 0 0

Unsecured Loans 0 0 0 0 0 0 0 0

Total Debt 0 0 0 0 0 0 0 0

Other Liabilities 364 120 21 25 0 0 0 0

Total Liabilities 42,456.00 36,179.00 29,778.00 24,526.00 22,036.00 17,809.00 13,490.00 11,16

SOURCES OF FUNDS :

Infosys is a wholly equity based company with zero debts. So its Weighted Average C

consists of Cost of Equity only


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Weighted Average Cost of Capital


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Calculation of Cost of Capit• 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 + β(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

http://economictimes.indiatimes.com/markets/money-markets/rbi-to-sell-91-day-treasury-bills-at-8-63-poll/articleshow/39738372.cmshttp://economictimes.indiatimes.com/markets/money-markets/rbi-to-sell-91-day-treasury-bills-at-8-63-poll/articleshow/39738372.cms


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Analysis of last 5 years

• Infosys have never taken any debt from the market so it is zero in all c

• Infosys have not done any stock split in the last 5 years

• From this data it is clear that Infosys bought back shares from the ma

it increased the number of shares in 2012-2013 through FPO. This wa

due to the falling share price in between and to increase the investor’

in Infosys shares

Infosys Equity Full Year Full Year Var(%) Full Year Full Year March 2014 March 2013 March 2013 March 2012

Public Shareholding (No Of. Shares) 390,257,428.00 411,267,871.00 -5.11 411,267,871.00 404,781,601

Public Shareholding (% in Equity) 67.96 71.62 -5.11 71.62 70


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Effect of WACC on Stock Pr

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

equitable charge towards providers of capital. It is the post-tax returnemployed (adjusted for the tax shield on debt) less the cost of capital

Companies which earn higher returns than cost of capital create value

companies which earn lower returns than cost of capital are deemed

shareholder value.


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• Infosys is registered its highest EVA in comparison to its competitors. Comparis

Infosys has been able to add value for its shareholders on a consistent basis. T

create value consistently shows the ability of the firms in earning economic pr

of the cost of capital


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Dividend Policy


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Analysis of Dividend Payout for last 5

Mar '14 (in Cr.) Mar '13 (in Cr.) Mar '12 (in Cr.) Mar '11 (in Cr.)

12 mths 12 mths 12 mths 12 mths

PBT 14,002.00 12,357.00 11,580.00 8,821.00

Tax 3,808.00 3,241.00 3,110.00 2,378.00

PAT 10,194.00 9,116.00 8,470.00 6,443.00

Equity Dividend 3,618.00 2,412.00 2,699.00 3,445.00

Dividend as % of PAT 35% 26% 32% 53%

Dividend Policy

Infosys's earlier policy was to pay

dividend of up to 30% of the PAT. At

the board meeting held on April 15,

2014 the Board decided to increase

the dividend pay-out ratio to up to

40% of the PAT effective fiscal year

2014.

The dividend policy is to

distribute up to 30% of the

consolidated

Profit After Tax (PAT) of the

Infosys group as dividend.

The dividend policy is to

distribute up to 30% of the

consolidated

Profit After Tax (PAT) of the

Infosys group as dividend.

The dividend policy

distribute up to 30% o

consolidated

Profit After Tax (PAT)

Infosys group as divid

30th year special divi

Rs. 1722 Crores

Dividend Paid as per Policy 1,723.00

Dividend as % of PAT 27%


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Effect of Dividend Payout on Stock M

ValuationWhen a dividend is paid, several things can happen. The first of these

the price of the security and various items tied to it. On the ex-dividestock price is adjusted downward by the amount of the dividend by th

on which the stock trades. For most dividends this is usually not obse

the up and down movements of a normal day's trading. It becomes ea

apparent, however, on the ex-dividend dates for larger dividends.

The reason for the adjustment is that the amount paid out in dividendbelongs to the company and this is reflected by a reduction in the com

market cap. Instead, it belongs to the individual shareholders. For tho

purchasing shares after the ex-dividend date, they no longer have a c

dividend, so the exchange adjusts the price downward to reflect this f


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From the dividend announcement date till the record date, the share prices kesince investors buy into such shares to get dividends. But, Share prices fall on t

• Let’s assume that Infosys is currently trading in the market for Rs 3500 per sha

further assume that the company decides to declare a dividend of 60 per cent

date of Monday, September 15.

• The face value of the stock of Infosys is Rs 10. This means the dividend works o

share. Investors buy into the share to be entitled to the dividend. This could ex

in share price when a stock is cum-dividend (trading with dividend before the

• However, the stock market sees the actual payout of dividends as the compan

part of its profits, thereby reducing its cash reserves.

• Also, since buyers on or after the ex-date are not entitled to the dividend, shar

by the amount equivalent to the dividend per share as a way of compensation

Infosys’s share price will probably fall by Rs 6 when the stock goes ex-dividend

dividend).

Effect of Dividend Payout on Stock M

Valuation (CONTD)


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Working Capital Management


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'Debt/Equity Ratio‘ =

A measure of a company's financial leverage calculated by dividing its tota

stockholders' equity.

Here, it indicates that infosys have no proportion of equity and debt so as

its assets.


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'Current Ratio'

A liquidity ratio that measures a company's ability to pay short-term obliga

The trend shows that infosys have enough cash to recover from an

obligation. Which in turn gives a sign of having good financial health.


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'Inventory Turnover'A ratio showing how many times a company's inventory is sold and replaced

period. = SALES / INVENTORY

Since Infosys being an IT company only makes (develops software) on

receives project) its inventory is zero in all cases and Inventory Turnover Rat


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'Receivables Turnover Ratio'

An accounting measure used to quantify a firm's effectiveness in extending

as collecting debts.

Infosys having high Debtor turnover ratio trend shows that By maintaining

receivable, firm is indirectly extending interest-free loans to their clients. A

implies either that company operates on a cash basis or that its extension o

collection of accounts receivable is efficient.


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'Interest Coverage Ratio'

A ratio used to determine how easily a company can pay interest on outsta

Effect on stock price


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Interest Coverage

Any company that finds itself in jeopardy of defaulting on its interest pa

likely to encounter an escalating set of financial problems that are sure

holdings of both shareholders and lenders.

Interest coverage ratio indicates the comfort with which the company m

to service the interest expense (i.e. finance charges) on its outstanding

interest coverage ratio indicates that the company can easily meet the i

expense pertaining to its debt obligations. In our view, interest coverage

below 1.5 should raise doubts about the company’s ability to meet the its borrowings. Interest coverage ratio below 1 indicates that the compa

not generating enough to service its debt obligations.

INFY continued to be debt-free and has maintained sufficient cash to m

strategic objectives which is a positive signal to the stockholders

Effect on stock price


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Corporate Finance Infosys

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