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Mahendra K Patidar / PGDM BIF 017 / Fundamental Analysis Assignment / 29 Oct’10 1

Fundamental Analysis

 Economy Analysis : The economy of India is the eleventh largest economy in the
world by nominal GDP and the fourth largest by purchasing power
parity (PPP). Following strong economic reforms from the socialist
inspired economy of a post-independence Indian nation, the country began to develop
a fast-paced economic growth, as free market principles were initiated in 1990 for
international competition and foreign investment. India is an emerging economic
power with a very large pool of human and natural resources, and a growing large
pool of skilled professionals. According to the book 'Contours of the World Economy,
1-2030AD' by Angus Maddison, India was the largest economy from the year 1 AD until
the colonial period whereupon it was taken over by other countries such as China and
the U.K. Economists predict that by 2020, India will be among the leading economies
of the world. According to the BRIC report, published by Goldman Sachs, India will be
the second largest economy after China by 2043. India's large service industry
accounts for 55% of the country's Gross Domestic Product (GDP) while the industrial
and agricultural sector contribute 28% and 17% respectively. Agriculture is the
predominant occupation in India, accounting for about 52% of employment.
The service sector makes up a further 34% and industrial sector around 14%. The labor
force totals half a billion workers. Major agricultural products include rice, wheat,
oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep, goats,
poultry and fish. Major industries include telecommunications, textiles, chemicals,
Food processing, steel, transportation equipment, cement, mining, petroleum,
machinery, information technology enabled services and pharmaceuticals.

 Important Economic Indicators:

Rank 11th (Nominal) 4th (PPP)

Fixed Exchange USD=44.5400
Fiscal Year 1 Apr to 31 March
Trade Organizations WTO, SAFTA, G-20 and others
$1.235 trillion (nominal: 11th; 2009)
$3.526 trillion (PPP: 4th; 2009)
GDP growth 8.8% (2010, Q1)
GDP per capita
$1,032 (nominal: 142th; 2009)
$3,015 (PPP: 127th; 2009
GDP by sector Agriculture (18%), industry (22%), services (60%) (2009)
Mahendra K Patidar / PGDM BIF 017 / Fundamental Analysis Assignment / 29 Oct’10 2

Inflation (CPI) 8.62% (September 2010)

Population below poverty line 37% (2010)[5]
Labor force 467 million (2nd; 2009)

Labor force by occupation Agriculture (52%), industry (14%), services (34%) (2009 est.)

Unemployment 10.7% (2010 est.)

Main industries telecommunications, textiles, chemicals, food

processing, steel, transportation, cement,
mining, petroleum, machinery, information, pharmaceuticals
Ease of Doing Business Rank 133rd

 Information Technology Industry Analysis: The Indian information technology (IT)

industry has played a key role in putting India on the global map. Thanks to the success of the
IT industry, India is now a power to reckon with. According to the annual report 2009-10,
prepared by the Department of Information Technology (DIT), the IT-BPO industry is
expected to garner a revenue aggregate of US$ 73.1 billion in 2009-10 as compared to US$ 69.4
billion in 2008-09, growing at a rate of over 5 per cent.

The report predicts that the Indian IT-BPO revenues may reach US$ 225 billion in 2020.
According to DIT, the Indian software and services exports is expected to reach US$ 49.7
billion in 2009-10 as compared to US$ 47.1 billion in 2008-09, registering an increase of 5.5 per
cent in dollar terms. Further, the IT services exports is estimated to grow from US$ 25.8 billion
in 2008-09 to US$ 27.3 billion in 2009-10, showing a growth of 5.8 per cent.

Moreover, according to a study by Springboard Research published in February 2010, the

Indian information technology (IT) market is expected to grow at around 15.5 per cent in 2010,
on the back of growing investor confidence and favorable initiatives taken by the government.

The data centre services market in the country is forecast to grow at a compound annual
growth rate (CAGR) of 22.7 per cent between 2009 and 2011, to touch close to US$ 2.2 billion
by the end of 2011, according to research firm IDC India's report published in March 2010. The
IDC India report stated that the overall India data centre services market in 2009 was
estimated at US$ 1.39 billion.

As per a report by the Internet and Mobile Association of India (IAMAI) and market research
firm IMRB, the total number of Internet users in India reached 71 million in 2009. The number
of active users increased to 52 million in September 2009 from 42 million in September 2008,
registering a growth of 19 per cent year-on-year, stated the report.

According to IDC India, during January-March 2010, total PC sales in India reached 2,240,000
units registering a year-on-year increase of 33 per cent over the same period in 2009. Desktop
Mahendra K Patidar / PGDM BIF 017 / Fundamental Analysis Assignment / 29 Oct’10 3

PC sales witnessed a year-on-year increase of 18 per cent during January-March 2010, over the
corresponding period last year to reach 1,436,000 units. The sales of Notebook computers also
increased by 72 per cent year-on-year, clocking 803,000 shipments.\

 Outsourcing: India is a preferred destination for companies looking to offshore their

IT and back-office functions. It also retains its low-cost advantage and is a financially
attractive location when viewed in combination with the business environment it
offers and the availability of skilled people.

Some big deals in the outsourcing space include:

 Wipro Ltd, an IT services company, has entered into a strategic collaboration with
Hitachi Data Systems, to offer co-branded products and services on Hitachi
Technology in India.
 Software company, Tata Consultancy Services (TCS) has won a multi-year
outsourcing contract from Norway-based telecom company, Telenor Norway to
provide application maintenance and development services.
 HCL Technologies has entered into a five-year IT infrastructure outsourcing deal
with Singapore Exchange (SGX) for US$ 110 million. The company has also won a
US$ 500 million strategic IT outsourcing contract from US-based drug
manufacturer, Merck Sharp and Dohme (MSD).
 Computer services firm, Mahindra Satyam has signed a four-year offshore contract
with Denmark-based IT company, KMD for US$ 48 million.
 Software exporter Patni Computer Systems won a five-year IT and back-office
contract potentially worth around US$ 200 million from US-based health
insurance provider Universal American.

 Domestic Markets: The market for enterprise networking equipment in India is

estimated to grow from US$ 1 billion in 2008 to US$ 1.7 billion by 2012, recording a
compounded annual growth rate (CAGR) of 15 per cent during this period, according
to a study by Springboard Research titled ‘Epicenter of Growth–Indian Enterprise
Networking Equipment Market Report' released in December 2009.

 Investments :

 Between April 2000 and March 2010, the computer software and hardware sector
received cumulative foreign direct investment (FDI) of US$ 9,872.49 million,
according to the Department of Industrial Policy and Promotion.
Mahendra K Patidar / PGDM BIF 017 / Fundamental Analysis Assignment / 29 Oct’10 4

 The total investments of EMC Corporation, a leading global player of information

infrastructure solutions in India, will touch US$ 2 billion (over US$ 2.01 billion) by
 Syntel, an IT company, plans to invest around US$ 50 million in its global
development centre in Chennai.
 Russian IT security software provider, Kaspersky Lab, will be investing US$ 2
million in its India operations at Hyderabad during the next financial year.

 Government Initiatives :

 The government has constituted the Technical Advisory Group for Unique Projects
(TAGUP) under the chairmanship of Nandan Nilekani. The Group would develop
IT infrastructure in five key areas, which includes the New Pension System (NPS)
and the Goods and Services Tax (GST)
 The government set up the National Taskforce on Information Technology and
Software Development with the objective of framing a long term National IT Policy
for the country
 Enactment of the Information Technology Act, which provides a legal framework
to facilitate electronic commerce and electronic transactions
 Setting up of Software Technology Parks of India (STPIs) in 1991 for the promotion
of software exports from the country, there are currently 51 STPI centres where
apart from exemption from customs duty available for capital goods there are also
exemptions from service tax, excise duty, and rebate for payment of Central Sales
Tax. But the most important incentive available is 100 per cent exemption from
Income Tax of export profits, which has been extended till 31st March 2011
 Government is also setting up Information Technology Investment Regions
(ITIRs). These regions would be endowed with excellent infrastructure and would
reap the benefits of co-siting, networking and greater efficiency through use of
common infrastructure and support services

Moreover, according to NASSCOM government, IT spend was US$ 3.2 billion in

2009 and is expected to reach US$ 5.4 billion by 2011. Further, according to NASSCOM,
there is US$ 9 billion business opportunity in e-governance in India.

 Road Ahead: The Indian information technology sector continues to be one of the
sunshine sectors of the Indian economy showing rapid growth and promise..

According to a report prepared by McKinsey for NASSCOM called 'Perspective 2020:

Transform Business, Transform India' released in May 2009, the exports component of
Mahendra K Patidar / PGDM BIF 017 / Fundamental Analysis Assignment / 29 Oct’10 5

the Indian industry is expected to reach US$ 175 billion in revenue by 2020. The
domestic component will contribute US$ 50 billion in revenue by 2020. Together, the
export and domestic markets are likely to bring in US$ 225 billion in revenue, as new
opportunities emerge in areas such as public sector and healthcare and as geographies
including Brazil, Russia, China and Japan opt for greater outsourcing.

 Company Analysis:

Key Financial Ratios of Infosys Technologies Ltd

Mar ‘06 Mar ‘07 Mar ‘08 Mar ‘09 Mar ‘10
Current Ratio 2.75 4.96 3.30 4.71 4.28
Quick Ratio 2.73 4.91 3.28 4.67 4.20
Dividend Per Share 45 11.50 33.25 23.50 25
Operating Profit Per Share 108.51 73.98 86.78 120.59 128.64
Debtors Turnover Ratio 6.52 6.90 5.81 6.25 6.37
Dividend Payout Ratio Net 58.32 19.85 49.77 27.03 28.84

Current Ratio = CA / CL
Current Ratio
Interpretation: We can see from the
graph that current ratio is fluctuating
YOY. But company is maintaining
2 Current Ratio higher ratio than industry average
1 which is 2.50. It shows that company is
0 maintaining their Liquidity.
Mar Mar Mar Mar Mar
‘06 ‘07 ‘08 ‘09 ‘10
Mahendra K Patidar / PGDM BIF 017 / Fundamental Analysis Assignment / 29 Oct’10 6

Quick Ratio = CA-Inventories / CL

Quick Ratio
Interpretation: As graph shows that
4 quick ratio is also fluctuating YOY. But
3 company is maintaining between some
2 Quick Ratio specific range almost around 3-4. It
1 shows that company is maintaining
0 their Liquidity.
Mar Mar Mar Mar Mar
‘06 ‘07 ‘08 ‘09 ‘10

DPS = Dividend paid / No of shares in

Dividend Per Share issue

50 Interpretation: We can see from the

40 graph that DPS is also fluctuating YOY.
But company is able to provide DPS to
shareholders, which is a good move
20 Dividend Per
Share towards profit of the company and
10 improve the interest of the investors in
0 the company.
Mar Mar Mar Mar Mar
‘06 ‘07 ‘08 ‘09 ‘10

Operating Profit Per Share

Interpretation: As graph shows that
140 company’s operating profit per share is
120 increasing YOY except Mar’07. It means
company is doing good at operation
60 Operating Profit side or we can say that company is able
40 Per Share to reduce their operating expenses to
20 its minimum.
Mar Mar Mar Mar Mar
‘06 ‘07 ‘08 ‘09 ‘10
Mahendra K Patidar / PGDM BIF 017 / Fundamental Analysis Assignment / 29 Oct’10 7

Debtors Turnover Ratio = Total Sales /

Debtors Turnover Ratio Debtors

7 Interpretation: Debtors’ Turnover

ratio indicates the number of times the
6.5 debtors are turned over a year. The
higher the value of debtors’ turnover
6 Debtors Turnover
Ratio the more efficient is the management of
5.5 debtors or more liquid the debtors are.
Here, company is doing good at debtor
management side.
1 2 3 4 5

Dividend Payout Ratio = Dividend/Net

Dividend Payout Ratio Net Income

Profit Interpretation: Dividend Payout

Ratio provides an idea of how well
50 earnings support the dividend
40 payments. More mature
Dividend Payout companies tend to have a higher
Ratio Net Profit
10 payout ratio.
Mar Mar Mar Mar Mar
‘06 ‘07 ‘08 ‘09 ‘10