analysis infy
Tuesday, April 29, 2003

It was on 21st April 2003, we had a video presentation module as a part of our training program. Everyone was asked to speak on some non-technical and an interesting topic. I spoke about the stock market situation on 10thApril @ 4th quarter . infosys . com

Here's the exact way I prepared for my presentation. The presentation was scheduled for 5 minutes and I finshed it by 4.45 minutes with just 15 seconds to spare.

"I hope many would have heard about this news and may be eagerly waiting to know exactly wht happened on that day. Moreover we people are very much interested in knowing what happened to our competitor. Fine…

Now let me start few things about infy stock history and the 4 quarters . Infosys shares became public in the year 1003. Since then continuosly for 41 quarters the stock were increasing and the company profits were rising. But why did the companies 42nd quarter had a sudden sharp fall which was totally unexpected.. Even the market experts were stunned by Infy's result. The scrip fall has jolted the market and plummented many IT firms a lot.

Many would be knowing about the 4 quarters. To sum up, the months April, May, June belong to first quarter, July, August, September in 2nd quarter, October, Nivenmber, December in 3rd Quarter amd the months Jnauary, February, March in 4th Quarter. Quarters are like a procedure followed by the companies to announce their growth result. Each quarter release shows the companies outcome and the level that the company achieved in the last 3 months.

As the Infosys 4th quarter hype among the investors, experts, stock holders and many continued, there were lots of expectations among them too. Finally, the company indicated 12% growth in its 4th quarter of the current financial year which was much below the market expectations. It was expected that the growth would reach Rs.275-280 crores. But the result announced by the company was Rs.259 crore which set a major setback and blinked a big question mark in the stock investors and experts mind.

Apart from the expectations shock among the Indian investors, not only Infosys stock holders suffered but the entire Indian software IT firms suffered and was stunned. The experts could not spot out the exact reasons immediately as soon as the results were announced. The next day this was the main headline news in Business column of all leading newspapers.

I would like to quote the two day scrip here.

  • Infosys scrips crashed by 27% to Rs.3045, which was a fall of over Rs.1000 from the previous day.
  • Carrying on with this slump on the next day, it still reduced by 15% to Rs. 2617.

Approximately, Rs.1500 per share was lost in just two days. Immagine the case of lakh of investors future and this major setback is rising the question of WHY among lakh of investors.

Now let's see the actual reason by analysling using a small statistics.

1. The year 2001-02 showed the revenue growth of 12% and EPS (Earning per share) growth of 18% which was one of the reasons to suffer a sharp decline.

2. But in this year(4th quarter,2003), the revenue growth of 21-23% and EPS growth of 11-12% has jolted the market.

3. After a mindset margin maintenance of 34-36% by the company, Infosys for the first time indicated margins suffering a sharp fall.

4.Further the offshore development also affected the result of the 4th quarter. In 2001-02 it was 49.2%; 2002-03 it was 45.3%; next year it was 44.5%.

The other reasons quoted by the company which are not considered as a major cause are the slow down in US economy which is a potential in long term impact, Iraq War, SARS infection.

As a result of Infosys result in 4th quarter, the loss estimates from SEBI (Securities and Exchage Board of India) was high. In just 4 trading sections, the entire market loss was Rs.65000 crores, the IT scrip loss was Rs.25000 crores and the Infy scrip loss was Rs.12000 crores. But now the market is improving from this huge loss.

Thought the Infosys stocks has faced a major downfall, the Infy Chairman and CEO Mr.Narayana Murthy said that:
" It is better to lose a billion dollar rather than a good night's sleep".

Future of Infofys by the predictors and experts:

Intense pricing pressure tracking increased competition and external uncertainities would continue to cramp growth for Infy Tech in the current fiscal year.

The Hindu
The Economics Times
Business Line "

This is all about my presentation on Infosys in its 42nd quarter.

History repeats: analysts fail!
April 12, 2001
Ajit Dayal

Ajit is the founder of Quantum Advisors Pvt Ltd, an India-focused investment advisory firm that manages money for FIIs and for domestic investors through its 100% subsidiary Quantum Asset Management Company Private Limited and the Quantum Mutual Funds ( Ajit is also the co-founder of and

"History created: Infy disappoints" screams the headline at Similar messages are posted in newspapers, websites, and in the emails coming from the analysts hours after blue-chip Infosys declared results. But did Infosys really disappoint? Or were the analysts on some high-flying steroids and white powder when they had their "expectations" of Infy.

Lets examine the facts and the expectations based on those facts.

1. According to numbers from Bloomberg, the mean estimate for Infosys’ earnings per share (eps) for the 12-month period ending March 2001 was Rs 95.7. Infosys reported a number of Rs. 94, a slippage of 1.2% versus the expectation.
2. It should be noted though, that this expectation or estimate from the analyst community of Rs 95.7 eps for the full year March 2001 was increased from approximately Rs 70 in April 2000. Obviously the analysts recognized that the company was doing better than their estimates and so began to increase their estimates. Better quarterly performance led to an even higher expectation of analysts from the mighty giant, Infosys. You have heard of Microsoft? Good. In that same time period, analysts tracking that stock were bringing down their estimates for the June 2001 eps numbers for Microsoft. Yes, Infosys and Microsoft are different animals but they are in the same breed of companies: software business.
3. In December 2000 when concerns over the order books of Indian software companies was raised, most analysts said nothing would happen and that the order book was safe. Representatives from the tech industry also kept that mantra. Infosys always maintained that they would grow faster than the industry, but they did not know what the industry would grow at. So, looking out for the year March 2002, the analysts made estimates of an eps number of Rs 152 for Infosys. Using their consensus estimates of Rs 95.7 for March, 2001 as a base, this represented a growth of 59.7% for the year ending March, 2002.

Now lets see what Infosys has said:

1. Based on their understanding of the situation in the global markets and in the global technology industry, their revenue growth will be 30% for the year ending March 2002. This will still be better than industry growth rates.
2. Profit growth will also be 30%
3. They will hire 1,500 to 2,000 people and continue to build more facilities for those people
4. Their total capital expenditure will be about Rs 350 crores (US$ 80 m)
5. Although this is the target for the full year, the first 3 months ending June 30, 2001 will see no growth
6. They believe in the long-term business potential of the company, its products and services, and its pricing advantages relative to the global majors.

So, what happened?

1. The stock collapsed 16%, hitting the circuit on the lower limit
2. The headlines read, "Infy disappoints"
3. The analysts will now rework their numbers and show eps estimates for the year ending March 31, 2001 to be closer to the Rs 120 number that the company has indicated. They will write sell notes (where were they 12 months ago?) and fund managers (not known for their creative genius) will follow the analysts and dump their Infosys shares.

What will happen over the next 12 months?

1. The management team at Infosys will carry on their job of building one of the leading software companies in the world. And one of the more profitable ones, given their low cost manpower advantage. By the way, this is something that the management has been doing ever since I first met them in 1992, before they were listed.
2. Analysts will continue to change their business model every day - as frequently as they change their jobs – and be wrong most of the time.
3. Fund managers will continue to buy and sell depending on whether visa quotas in USA are at capacity or not, or whether the monthly data suggests that flights to USA are empty or full, or some such leading indicators that helps them be as brilliant as they are.

But maybe what investors should do is to buy the business and you buy the business by buying the stock. There is an important point here that I will repeat. If you wish to trade the Infosys stock, best of luck: log on to your favourite web site or pink and white newspaper and do what you have to do. If you wish to buy the business, think of what Mr. Murthy and his team are doing and see if they have failed. One year ago, my view was that this business is good value at Rs 6,000 and overvalued at above Rs 9,000. Being below Rs 3,300 the stock is nearly 50% below what I was personally willing to buy the business for. Maybe with some near term uncertainty, the value of the business has declined but, as Mr. Murthy said, if Infosys is going to be around in the next century (thank god many of the analysts will not) this one year blip won’t make any difference to the estate of Infosys shares I may leave behind!

So, if you meet a banker, not willing to get into a scam but willing to lend money to an honest person like me for the fully disclosed reason of buying the business of Infosys, please let me know. Meanwhile, I intend to start small by selling some property that I own and put the sale proceeds into Infosys. In the meantime, every time you read a headline that tells you how Infosys has failed remember: Infy doesn’t fail, analysts do!

Infosys stock split, bonus issue on April 13 likely

New Delhi, April 6
Infosys Technologies is expected to split its stock and offer bonus to its shareholders.

The Board of Directors of Infosys will meet on April 13, when the company will announces its result for 2003-04, to consider the recommendation of the issue of bonus share and stock split.

If the board gives go-ahead for the stock split, it will be the second in the history of the company. In January, 2000, Infosys had split its share of face value of Rs 10 each to two shares of Rs 5 each.

The report of bonus and split fired up the price of Infosys scrip on the stock exchange. On the Bombay Stock Exchange (BSE) Infosys’ share price jumped 2.8 per cent to close at Rs 5,322 after touching a high of Rs 5,580.

As many as 259.23 crore shares of the company changed hands on the exchange.

Sharp fall in metal, oil, bank and tech stocks on the back of global slide The steep fall in Sensex is partly attributed to a lower than expected earnings guidance by Infosys for the current year.

Saturday, Apr 16, 2005

MUMBAI: Aligning with global markets, the Indian stock markets crashed on Friday following a sharp fall in the metal, oil, bank and technology stocks. This is the biggest stock market fall since May 11, 2004, which took place in the aftermath of general elections.

The benchmark Bombay Stock Exchange 30-share sensitive index (Sensex) lost 219.58 points or 3.39 per cent, at 6248.34 and the 50-share NSE Nifty closed down by 69.15 points at 1956.30. From its all time high of 6954.86 touched in the intra-day trades on March 9, the Sensex has lost 606.52 points.

"It's not just India, It's not just Asia, It's a global sentiment", said Andrew Holland, Executive Vice President of DSP Merrill Lynch. The fall in the market was a "combination of negative outlook on global growth coupled with so many disappointments in U.S. like IBM's lower earnings guidance and general uncertainty over oil prices, rising interest rates and a low demand for commodities", said Mr. Holland. Further, low demand in commodities resulted in weakness in global metal prices.

While rest of Asian markets were down by 3 to 3.5 per cent, in this week, due to global negative outlook, the Indian markets were holding its fort, but fell sharply as the sentiment weakened by the tepid financial results of Infosys Technologies, a bellwether of the technology sector, which was below market expectations. Much to the surprise of the market, it also issued a lower than expected earnings guidance for the current financial year. It was a meltdown throughout the global markets, While the U.S. markets lost on Thursday 1.2 per cent, today Germany lost 1.6 per cent, France 1.53 per cent and the U.K. lost around one per cent. The Asian markets too recorded a fall today as Japan lost 1.7 per cent, Hong Kong one per cent, Singapore one per cent and South Korea 0.7 per cent.

Pointing to the future, Mr. Holland said, "We might see some more nervousness throughout the markets, but this probably a good opportunity to buy quality companies."

Inflation rate announced today also rose to 5.26 per cent for the week ended April 2 from 5.05 per cent in the previous week and well above market expectation of below 5 per cent.

This pushed up bond yields to a four month high of above 7 per cent, which is a pointer to the central bank to raise interest rates. Higher interest rates are bad news for stock markets as it will raise corporate costs and also discourage spending by consumers.

While index heavy weights contributed significantly to the fall of markets, the sector indices also lost heavily as BSE's Public sector index lost 118.13 points and its banking index lost 115.77 points. "It is in line with what is happening in the international market. As compared to other markets, this was a sudden fall. While Infosys results and guidance is not as bad as it is made out to be, I think it worked as a trigger", said Abhay Aima, Equity Head, HDFC Bank.

"While international factors continue to have an impact, one should not forget the domestic story which still looks pretty good. Basically there is no need to be panic.

"Most results will be in line with the market expectations. But in the current year one should not expect the same percentage growth as last year given that the base is much higher." Mr. Aima added.

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