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Infosys Sustainable growth with attractive valuation

April 24, 2012

Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.

Please refer to important disclosures and disclaimers at the end of the report

Compa

ny Upd

ate Shashi Bhusan

[email protected] +91-22-66322300

Pratik Shah [email protected] +91-22-66322256

Rating BUY

Price Rs2,311

Target Price Rs2,940

Implied Upside 27.2%

Sensex 17,097

Nifty 5,201

(Prices as on April 23, 2012)

Trading data

Market Cap. (Rs bn) 1,377.0

Shares o/s (m) 572.0

3M Avg. Daily value (Rs m) 4032.8

Major shareholders

Promoters 16.04%

Foreign 36.66%

Domestic Inst. 10.71%

Public & Other 36.59%

Stock Performance

(%) 1M 6M 12M

Absolute (19.6) (15.1) (20.6)

Relative (18.0) (17.0) (7.8)

How we differ from Consensus

EPS (Rs) PL Cons. % Diff.

2013 167.5 181.1 ‐7.5

2014 191.4 212.8 ‐10.1

Price Performance (RIC: INFY.BO, BB: INFO IN)

Source: Bloomberg

0500

1,0001,5002,0002,5003,0003,500

Apr-

11

Jun-

11

Aug-

11

Oct

-11

Dec

-11

Feb-

12

Apr-

12

(Rs)

The knee-jerk reaction to Q4FY12 results pushed the Infosys stock to trough valuations. We believe that the current market price is factoring in most of the negative sentiments; however, it is not accounting for positives. Our “BUY” rating is based on five pillars.

Weak Q4FY12 ‐ Not entirely company specific problem: Infosys’ management commentary for Q4FY12 was not entirely a company-specific problem. The cautious behaviour of client has pushed project ramp-ups across the vendors. Results from IBM and HCL Tech resonate well with Infosys’ commentary.

Strong client addition – Not captured in performance: Infosys added highest number of clients among the peers over the last four quarters. However, the quarterly performance didn’t add-up to the same. We expect ramp-up of projects from the client win to result in a positive surprise. Moreover, anaemic guidance for seasonally strong Q1 has further raised doubts about back-ended growth. But, 1-2pp beat due to project ramp-up could give further upside risk to consensus expectation.

Ramp ‐ down likely to be bottoming out in H1FY13: Top client’s ramp-down which troubled Infosys through H2FY11 are bottoming out. The consistent underperformance from top clients is reaching a nadir. We expect ramp-down to spill over in H1FY13. We are factoring 2% negative impact due to the same.

Consensus expectation not factoring margin levers: Post Q4FY12 results consensus expectation came spiralling down by 3-4%. Moreover, consensus is factoring in margin dip despite multiple margin levers. We expect consensus upgrade post Q1FY13 results.

Inexpensive valuation, retain “BUY”: Infosys is currently trading at 12.1x FY14 earnings estimates, one of the lowest valuations that the company has witnessed since Lehman crisis. We are still not able to envisage a scenario similar to that. Moreover, the delay in project ramp-up will only create projects along the sidelines, which would start once there is more clarity on macro-uncertainty. We reiterate “BUY” with a target price of Rs2,940.

Key financials (Y/e March) 2011 2012 2013E 2014E

Revenues (Rs m) 275,010 337,340 386,420 433,711

Growth (%) 20.9 22.7 14.5 12.2

EBITDA (Rs m) 89,640 107,160 124,780 139,119

PAT (Rs m) 68,230 83,160 95,821 109,463

EPS (Rs) 119.3 145.4 167.5 191.4

Growth (%) 8.9 21.9 15.2 14.2

Net DPS (Rs) 26.5 31.5 37.9 44.9

Profitability & Valuation 2011 2012 2013E 2014E

EBITDA margin (%) 32.6 31.8 32.3 32.1

RoE (%) 27.1 27.4 25.8 24.3

RoCE (%) 26.9 27.2 25.7 24.2

EV / sales (x) 4.2 3.3 2.7 2.3

EV / EBITDA (x) 12.9 10.4 8.5 7.1

PE (x) 19.4 15.9 13.8 12.1

P / BV (x) 4.8 4.0 3.2 2.7

Net dividend yield (%) 1.1 1.4 1.6 1.9

Source: Company Data; PL Research

April 24, 2012 2

Infosys

Q4FY12 weakness – not entirely a company‐specific problem

The recent results from technology majors like IBM, Intel, SAP and EMC clearly indicated that the problem cited by Infosys’ management is not specific to the company. The commentary from the management of global technology majors are at unison to Infosys’ citation. The reasons cited by tech‐giants were different from each other, but the underlying weak demand was evident in the result.

IBM: The growth momentum of Global Services and Software sales have slowed sharply in Q1CY12 (JFM-12) results for IBM. Moreover, North America and Europe (-2.6% YoY, 1% @cc) also moderated in terms of momentum. According to IBM’s management “…Europe on balance looks stable, with growth from UK, Germany, Spain, and weakness in France and Italy…“. IBM’s backlog declined 2% YoY (-1% YoY @cc) and ended the quarter at US$139bn. Outsourcing backlog was also down 4% YoY.

Exhibit 1: IBM (YoY Growth): Momentum slowing down significantly

-20%

-10%

0%

10%

20%

Q1C

Y09

Q2C

Y09

Q3C

Y09

Q4C

Y09

Q1C

Y10

Q2C

Y10

Q3C

Y10

Q4C

Y10

Q1C

Y11

Q2C

Y11

Q3C

Y11

Q4C

Y11

Q1C

Y12

North America Europe Global Services Software

Source: Company Data, PL Research

Intel: Intel reported Q1CY12 results better than expected, with revenue at US$12.91bn (Cons.: US$12.84bn, Guidance: US$12.3-13.3bn). Despite the reduced level of inventory as cited by the management, the guidance for the next quarter at US$13.1-14.1bn (Cons.:$13.5bn) was largely in-line with the consensus. According to Stacy Smith (CFO), “…guidance for Q2 just include end demand…it's anticipation of a good Q4, where you have lots of catalysts in the marketplace that we think are driving a reasonable amount of excitement for how sales could go at the end of this year…”

SAP: SAP reported Q1CY12 license/SSRS/total revenue at €637m/ €2.63bn/ €3.36bn against the consensus at €693m/ €2.66m/ €3.40bn with a growth of 4%/ 10%/ 10.5% YoY, respectively. The weaker-than-expected performance was attributed to issues in North America, and some European markets (incl. UK and France) are off to a weaker start.

April 24, 2012 3

Infosys

EMC: EMC reported results touch below analyst expectation. According Mr. Joe Tucci (CEO) “In Q1, we saw IT spending in our business unfold pretty much as we expected and predicted. Overall IT spending growth was fairly good in the Americas and APJ. In Europe, I believe that overall IT spending growth was at best flat. …looking at Q1 year over year IT spending growth from a vertical industry point of view, we saw some softness in the banking sector; average growth in retail, manufacturing, telecom and information technology verticals; good growth in insurance, government, healthcare, education and media.”

Microsoft: Microsoft managed to buck the trend by delivering better-than-expected numbers. The better-than-expected performance on Servers & Tools and Enterprise Sales of PC, gave a ray of hope that it’s not all dried out in terms of tech investment.

Expectation running low – scope of outperformance high

The consensus downgraded the expectation for FY13 and FY14, post result, by 3-5%. Currently, the consensus expectation has been moderated to 12% growth for EPS for FY13 despite 8-10% volume growth guidance.

Exhibit 2: Despite strong margin tailwinds, consensus estimates witnessed margin decline

Pre Result Post Result Revision

FY13 FY14 FY13 FY14 FY13 FY14

Sales (Rs m) 397,245 453,168 384,844 431,265 -3.1% -4.8%

EBITDA (Rs m) 125,507 139,414 121,260 132,944 -3.4% -4.6%

Margin 31.6% 30.8% 31.5% 30.8% ‐9 bps 6 bps

EPS (Rs) 169.1 191.0 163.0 181.1 -3.6% -5.2%

Source: Bloomberg, PL Research

Despite flip-flop at revenue guidance, Infosys’ ability to guide for EPS has only improved. The beat post FY08 crisis has been more consistent and magnified.

Exhibit 3: EPS Guidance outperformance – More consistent post crisis

2.2%0.8%

15.0%

22.9%

5.6%

16.5%

-1.9%

10.3% 10.2% 9.5%

14.5%

-2%

3%

8%

13%

18%

23%

-

30

60

90

120

150

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

Actual EPS (Rs) Guidance Outperformance


April 24, 2012 4

Infosys

The consensus is factoring in flattish margin for the company in FY13 despite having multiple margin tailwinds like lowest utilization, limited impact of wage inflation and currency depreciation.

Exhibit 4: Utilization (excl. trainees): 5‐7pp lower than peers

73.0%

81.0%

77.0%

79.0%

70%

74%

78%

82%

Infosys TCS Wipro HCL Tech

Source: Company Data, PL Research, TCS & Wipro: PLe

Exhibit 5: Utilization (incl. trainees): To withstand attrition pressure

67.2%

73.0%72.5% 72.2%

66%

68%

70%

72%

74%


Source: Company Data, PL Research, TCS & Wipro: PLe

Subdued wage hike can only aid to margin

The wage-hike for FY13 has been deferred. However, the company has handed over promotions to ~16k professionals (10% of total workforce) and wage hike related to that. We are not ruling out wage hike completely during the year. Nevertheless, the wage hike for the sector is expected to be in low-to-mid single digit (2-5%). We are factoring in impact of wage hike as 100bps in our model.

Exhibit 6: Wage hike for this year is going to be lowest in the recent years

FY09‐10* FY10‐11 FY11‐12

Wage HikeOffshore:~8%,

Onsite: 2% Offshore:~14%,

Onsite: 2-3% Offshore:10-12%,

Onsite: 2-3%

Impact ~200bps ~180bps ~300bps

Source: Company Data, PL Research, *wage hike in Q3FY10

Attrition unlikely to shoot‐up like FY10

Deferred wage hike, sudden spike in volumes and weak bench-strength in FY10 resulted in sudden surge in attrition. However, benign growth, stronger trainees’ pipeline and stretch margin levers are unlikely to push for the musical chair game of talent. We see limited scope of higher attrition in FY13.

April 24, 2012 5

Infosys

Exhibit 7: Attrition (Annualized): Unlikely to have déjà‐vu experience in FY13

7%

12%

17%

22%

27%

Q2F

Y07

Q3F

Y07

Q4F

Y07

Q1F

Y08

Q2F

Y08

Q3F

Y08

Q4F

Y08

Q1F

Y09

Q2F

Y09

Q3F

Y09

Q4F

Y09

Q1F

Y10

Q2F

Y10

Q3F

Y10

Q4F

Y10

Q1F

Y11

Q2F

Y11

Q3F

Y11

Q4F

Y11

Q1F

Y12

Q2F

Y12

Q3F

Y12

Q4F

Y12



Exhibit 8: QoQ volume momentum in H2FY10 taken everyone by surprise

-4%

2%

8%

14%

Q1F

Y09

Q2F

Y09

Q3F

Y09

Q4F

Y09

Q1F

Y10

Q2F

Y10

Q3F

Y10

Q4F

Y10

Q1F

Y11

Q2F

Y11

Q3F

Y11

Q4F

Y11

Q1F

Y12

Q2F

Y12

Q3F

Y12

Q4F

Y12



Exhibit 9: Utilization (incl. Trainees): Preparedness of the companies are relatively better than what it was post

67.3%

73.6%

78.2%

76.0%

68.8%

77.2%

80.7%

76.4%

69.3%

74.3%

79.3%

76.2%

67.2%

73.0% 72.5% 72.2%

65%

69%

73%

77%

81%


Q2FY10 Q3FY10 Q4FY10 Q4FY12*

Source: Company Data, PL Research, * PLe: Wipro and TCS

April 24, 2012 6

Infosys

Ramp‐down bottoming–out in Q1FY13

Infosys’ trouble with top 20 clients is very evident in their quarterly performance and had a bearing on their guidance misses over the last 5-6 quarters. Top clients for Infosys have consistently underperformed the overall revenue growth over last 8 quarters. Top clients, despite change from BT to BAML, have consistently underperformed overall growth. Moreover, few insurance clients are still in the process of ramping-down. However, we expect Q1FY13 to have a pinnacle of the ramp-down impact.

Exhibit 10: Few BFSI clients in Top 10 brackets may not have bottomed out in Q4FY12

-9%

-1%

7%

15%Q

2FY1

0

Q3F

Y10

Q4F

Y10

Q1F

Y11

Q2F

Y11

Q3F

Y11

Q4F

Y11

Q1F

Y12

Q2F

Y12

Q3F

Y12

Q4F

Y12

Revenue Growth Top Client 2-5 Clients 6-10 Clients


The company has witnessed ~$500m (~7% of revenue) ramp-down over the last six quarters from top 10 clients. Despite such a sharp ramp-down by some of the top clients, Infosys managed to grow their volumes by ~10.8% YoY for FY12. However, Tier-1 peers have delivered high-teen growth.

Exhibit 11: Despite ~7% ramp‐down, Infosys managed ~11% volume growth in FY12

10.8%

23.6%

12.0%

19.2%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%


Source: Company Data, PL Research, TCS & Wipro – Ple, HCLT – Taken March year end

Clients like BT is now creating trouble for IT vendors who won at the cost of Infosys.

April 24, 2012 7

Infosys

Strong client addition still not captured in performance

We are cognizant of the fact that ramp-down from key Financial Services and Insurance clients have yielded negative surprise in the quarter. We are factoring 1‐2% negative impact because of spill‐over of those ramp‐downs in Q1FY13. However, a seasonally strong quarter would be accompanied by project ramp-ups offsetting much of those.

Q1 – Seasonally strong quarter has always sprung a positive surprise

The weakest performance by Infosys in Q1 was in FY09 & FY10, when the company managed to grow only 1.1% and 0.1% QoQ, respectively. We expect current guidance of 0-1% for Q1FY13 is factoring in ramp-down impact of ~2%. We expect narrow beat in Q1FY13, however, mid-single digit growth for Q2FY13.

Exhibit 12: Narrowest beat was FY11 & FY12, weakest performance was FY09 & FY10

11.7%11.4%

7.9%

10.6%

4.6%

11.3%

7.5%

1.1%

0.1%

4.8% 4.3%6.0%

10.0%

5.6%6.6%

3.3%

5.0%

2.7%

1.0%

4.6%

1.8% 1.2%

0%

4%

8%

12%

Q1F

Y02

Q1F

Y03

Q1F

Y04

Q1F

Y05

Q1F

Y06

Q1F

Y07

Q1F

Y08

Q1F

Y09

Q1F

Y10

Q1F

Y11

Q1F

Y12

QoQ Growth Outperformance (mid-range)


Strong client addition still not captured in growth

Client addition and net new client addition has been really strong compared to its peers. We do understand that most of these clients are added towards the smaller buckets. The management cited two reasons for delayed ramp-up for the company

Macro uncertainty and weaker-than-expected performance of clients (revenue) are resulting in delay of these project ramp-up

Delay in regulatory deadline has pushed-out the urgency further in FY13 for some these clients to abide by the new framework

However, strong client win definitely does not put the strategy of the company at question. We believe the company’s ability to win new client still remains among the best in the industry.

April 24, 2012 8

Infosys

Exhibit 13: Strong client addition compared to peers

45

35

44

66

49

40 39

5752 52

30

40

50

60

70


Q2FY12 Q3FY12 Q4FY12


Exhibit 14: Net client addition is even better among peers

19 20

-7

1318

-7

23

36

29

0

-10

0

10

20

30

40


Q2FY12 Q3FY12 Q4FY12


How we differ from the consensus

We still believe that consensus is not factoring in the possibility of strong margin performance despite weaker volume performance. We are factoring in 10% volume growth, 4% impact due to currency, 5% increase in utilization, -0.5% impact due to S&M investment and -2% impacts because of realization

Exhibit 15: Water‐fall impact on EPS of FY13 due to various factors

145.30

145.30

159.83

170.80

180.99

167.40

167.40

14.53

10.97

13.59 -3.40 -13.59

140

150

160

170

180

190

FY12 Volume Currency Utilization & Pyramid

S&M Inv. Realization FY13


Exhibit 16: Consensus is more bearish on margin

Consensus PLe Variance

FY13 FY14 FY13 FY14 FY13 FY14

Sales (Rs m) 384,844 431,265 386,420 433,711 0.4% 0.6%

EBITDA (Rs m) 121,260 132,944 124,780 139,119 2.9% 4.6%

Margin (%) 31.5% 30.8% 32.3% 32.1% 78 bps 125 bps

EPS (Rs) 163.0 181.1 167.7 190.0 2.9% 4.9%

Source: Company Data, Bloomberg, PL Research

April 24, 2012 9

Infosys

Best cash conversion among peers

Infosys’ ability to generate cash remains best among the peers. The bigger question, however, remains about the cash usage. The company’s strategy of conservative stance in M&A can be analyzed in conjunction with the success of other M&A in the industry.

We remain less confident about the success of large M&A; however, ‘string‐of‐pearls’ strategy may work well for Infosys. The smaller acquisition like McCammish and Portland have added competencies but failed to make any material difference to EPS. We believe that Infosys needs to eye for more opportunities of similar size in order to boost their performance.

Exhibit 17: FCF/EBITDA: lesser volatility and better than peer performance

0%

25%

50%

75%

100%

Q1F

Y07

Q2F

Y07

Q3F

Y07

Q4F

Y07

Q1F

Y08

Q2F

Y08

Q3F

Y08

Q4F

Y08

Q1F

Y09

Q2F

Y09

Q3F

Y09

Q4F

Y09

Q1F

Y10

Q2F

Y10

Q3F

Y10

Q4F

Y10

Q1F

Y11

Q2F

Y11

Q3F

Y11

Q4F

Y11

Q1F

Y12

Q2F

Y12

Q3F

Y12

Q4F

Y12

Infosys TCS Wipro


Exhibit 18: Op. Cashflows/EBITDA: Cash conversion never in question

20%

40%

60%

80%

100%

120%

Q1F

Y07

Q2F

Y07

Q3F

Y07

Q4F

Y07

Q1F

Y08

Q2F

Y08

Q3F

Y08

Q4F

Y08

Q1F

Y09

Q2F

Y09

Q3F

Y09

Q4F

Y09

Q1F

Y10

Q2F

Y10

Q3F

Y10

Q4F

Y10

Q1F

Y11

Q2F

Y11

Q3F

Y11

Q4F

Y11

Q1F

Y12

Q2F

Y12

Q3F

Y12

Q4F

Y12

Infosys TCS Wipro


April 24, 2012 10

Infosys

Inexpensive valuation – Make compulsive case for a BUY

Infosys is currently trading at the cheapest valuation since Lehman crisis. Infosys is not an expensive technology stock on a relative basis. The shares are trading at a 13x FY14e earnings estimates, a 10-20% discount to Wipro and TCS. Given that we think it has 14% earnings CAGR and sustainable growth prospects, we do not believe this discount is warranted. Infosys now has traded at a discount to TCS for sustainable period, which is going to see margin pressure in the near term and discount with Wipro, whose recovery is already in the price.

Exhibit 19: 1yr forward PE Band

12.0x

16.0x

20.0x24.0x28.0x

0

1,000

2,000

3,000

4,000

5,000

Apr

-06

Oct

-06

Apr

-07

Oct

-07

Apr

-08

Oct

-08

Apr

-09

Oct

-09

Apr

-10

Oct

-10

Apr

-11

Oct

-11

Apr

-12


Exhibit 20: 1yr forward PE

19.2x

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12

1-Yr Forward PER Average PER


Exhibit 21: Current P/E: Steep discount to peers

Coverage Company

CMP EPS (Rs) P/E

Rs FY12 FY13 FY14 CAGR FY12 FY13 FY14

TCS 1,064 54.4 65.0 72.7 16% 19.6 16.4 14.6

Infosys 2,311 145.4 167.5 191.4 15% 15.9 13.8 12.1

Wipro 424 22.7 26.9 30.7 16% 18.7 15.7 13.8

HCL Tech 496 34.5 42.8 48.9 19% 14.4 11.6 10.1


April 24, 2012 11

Infosys

Income Statement (Rs m) Y/e March 2011 2012 2013E 2014ENet Revenue 275,010 337,340 386,420 433,711

Raw Material Expenses 150,540 188,710 214,137 241,319

Gross Profit 124,470 148,630 172,283 192,392

Employee Cost — — — —

Other Expenses 34,830 41,470 47,503 53,273

EBITDA 89,640 107,160 124,780 139,119

Depr. & Amortization 8,620 9,370 11,913 13,129

Net Interest — — — —

Other Income 12,110 19,040 20,218 21,933

Profit before Tax 93,130 116,830 133,085 147,923

Total Tax 24,900 33,670 37,264 38,460

Profit after Tax 68,230 83,160 95,821 109,463

Ex-Od items / Min. Int. — — — —

Adj. PAT 68,230 83,160 95,821 109,463

Avg. Shares O/S (m) 572.0 572.0 572.0 572.0

EPS (Rs.) 119.3 145.4 167.5 191.4

Cash Flow Abstract (Rs m) Y/e March 2011 2012 2013E 2014EC/F from Operations 59,070 82,120 99,483 114,090

C/F from Investing 22,310 (20,610) (16,616) (17,782)

C/F from Financing (35,830) (22,260) (21,705) (25,703)

Inc. / Dec. in Cash 45,550 39,250 61,162 70,605

Opening Cash 121,110 166,660 205,910 267,072

Closing Cash 166,660 205,910 267,072 337,677

FCFF 74,800 69,810 84,836 98,214

FCFE 74,800 69,810 84,836 98,214

Key Financial Metrics Y/e March 2011 2012 2013E 2014EGrowth Revenue (%) 20.9 22.7 14.5 12.2

EBITDA (%) 14.0 19.5 16.4 11.5

PAT (%) 8.9 21.9 15.2 14.2

EPS (%) 8.9 21.9 15.2 14.2

Profitability EBITDA Margin (%) 32.6 31.8 32.3 32.1

PAT Margin (%) 24.8 24.7 24.8 25.2

RoCE (%) 26.9 27.2 25.7 24.2

RoE (%) 27.1 27.4 25.8 24.3

Balance Sheet Net Debt : Equity (0.6) (0.6) (0.7) (0.7)

Net Wrkng Cap. (days) — — — —

Valuation PER (x) 19.4 15.9 13.8 12.1

P / B (x) 4.8 4.0 3.2 2.7

EV / EBITDA (x) 12.9 10.4 8.5 7.1

EV / Sales (x) 4.2 3.3 2.7 2.3

Earnings Quality Eff. Tax Rate 26.7 28.8 28.0 26.0

Other Inc / PBT 13.0 16.3 15.2 14.8

Eff. Depr. Rate (%) 10.6 10.4 11.1 10.5FCFE / PAT 109.6 83.9 88.5 89.7Source: Company Data, PL Research.

Balance Sheet Abstract (Rs m) Y/e March 2011 2012 2013E 2014EShareholder's Funds 273,030 334,610 408,726 492,486

Total Debt — — — —

Other Liabilities 3,190 1,210 1,210 1,210

Total Liabilities 276,220 335,820 409,936 493,696

Net Fixed Assets 48,440 54,090 60,763 67,322

Goodwill 8,730 11,660 11,660 11,660

Investments 2,100 3,770 3,770 3,770

Net Current Assets 198,380 251,030 318,473 395,674

Cash & Equivalents 166,660 205,910 267,072 337,677

Other Current Assets 68,130 92,780 103,751 114,666

Current Liabilities 36,410 47,660 52,350 56,669

Other Assets 18,570 15,270 15,270 15,270

Total Assets 276,220 335,820 409,936 493,696

Quarterly Financials (Rs m) Y/e March Q1FY12 Q2FY12 Q3FY12 Q4FY12Net Revenue 74,850 80,990 92,980 88,520

EBITDA 21,750 25,160 31,350 28,900

% of revenue 29.1 31.1 33.7 32.6

Depr. & Amortization 2,230 2,350 2,360 2,430

Net Interest — — — —

Other Income 4,430 3,870 4,220 6,520

Profit before Tax 23,950 26,680 33,210 32,990

Total Tax 6,730 7,620 9,490 9,830

Profit after Tax 17,220 19,060 23,720 23,160

Adj. PAT 17,220 19,060 23,720 23,160

Key Operating Metrics Y/e March 2011 2012 2013E 2014EVolume (persons month) 998,425 1,106,473 1,222,653 1,393,824

Pricing (US$ / Hr) 6,051 6,321 6,321 6,416

Currency (USDINR) 45.5 48.2 50.0 48.5

SW Devp. Cost (% of sales) 54.7 55.9 55.4 55.6

SG&A (% of sales) 12.7 12.3 12.3 12.3

Revenue (US$ m) 6,041 6,994 7,728 8,943

EBITDA Margin Expansion/(Erosion) (bps) (197.1) (82.9) 52.5 (21.5)

Tax Rate (%) 26.7 28.8 28.0 26.0Source: Company Data, PL Research.

April 24, 2012 12

Infosys

Prabhudas Lilladher Pvt. Ltd.

3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India

Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209

Rating Distribution of Research Coverage

19.6%

55.4%

23.6%

1.4%0%

10%

20%

30%

40%

50%

60%

BUY Accumulate Reduce Sell

% of Total Coverage

PL’s Recommendation Nomenclature

BUY : Over 15% Outperformance to Sensex over 12-months Accumulate : Outperformance to Sensex over 12-months

Reduce : Underperformance to Sensex over 12-months Sell : Over 15% underperformance to Sensex over 12-months

Trading Buy : Over 10% absolute upside in 1-month Trading Sell : Over 10% absolute decline in 1-month

Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly

This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as

information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be

considered or taken as an offer to sell or a solicitation to buy or sell any security.

The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy

or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information,

statements and opinion given, made available or expressed herein or for any omission therein.

Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The

suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an

independent expert/advisor.

Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or

engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication.

We may from time to time solicit or perform investment banking or other services for any company mentioned in this document.

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