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Company Report

INFOSYS

Though in line with expectations, Infosysí fiscal 2002-03 performance was eclipsed by what it promised for the next year. It ended the year with total revenues of Rs 3,722.39 crore (Rs 2,669.99 crore), up 39 per cent from last year. Against this the total spending was up 48 per cent and so net profit rose by only 19 per cent, as expected. However, as we had feared, there is no let up in pricing pressure and Infosys has projected just 11 per cent growth for the future.

Operational income for the year was Rs 3,622.69 crore (Rs 5,603.58 crore) up 39 per cent from last year. North America has been the highest contributor with 73 per cent of the revenues, followed by Europe (accounting for 18 per cent of revenues), while the balance was generated in India and the rest of the world.

Operational costs at Rs 2,350.65 crore (Rs 1,565.96 crore) went up by 50 per cent over last year. Software development expenses were up 48 per cent, while the general & administrative expenses were up 28 per cent. But the biggest hit came from a 106 per cent rise in the selling and marketing expenses.

Though volumes have been increasing, rising costs and pressure on pricing has been evident. Operating profit rose 23 per cent against 36 per cent during last year at Rs 1,272.04 crore (Rs 1,037.62 crore). After having maintained its OPM at 40 per cent for two years, this year its OPM has slumped to 35 per cent.

Other income was up 50 per cent to Rs 99.61 crore (Rs 66.41 crore), while depreciation went up 18 per cent to Rs 188.95 crore (Rs 160.64 crore).

Tax provision went up by 66 per cent over last year to Rs 224.77 crore (Rs 135.43 crore). Infosys reported a net profit of Rs 957.93 crore (Rs 807.96 crore), up 19 per cent from the year-ago period.

For the next year the company expects slower growth in revenues and profits. With pricing pressure set to continue in the next year and the US economy still weak, total revenues are expected to be in the range of Rs 4,484 crore to Rs 4,565 crore for the next year, which would bring in a profit of Rs 1,078 crore. This means a top line growth of just about 22 per cent and a PAT growth of 13 per cent. The stock has lost more than 35 per cent since the declaration of its results. It currently trades at around Rs 2,600 discounting its fiscal 2003-04 guided EPS of Rs 163 by 15 times. While downside risk is limited the stock is fully valued at these levels.

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