The Ultimate Growth Stock
Though Infosys Technologies has posted good results, the momentum of growth will not be maintained.
A looming equity dilution will also affect sentiment. A reportInfosys Technologies has posted a net profit of Rs 60.37 crore for the year ended March 31, 1998 up 62 per cent from 1996-97. Its total revenue increased 81 per cent to Rs 260.37 crore while total expenditure rose 85.81 per cent to Rs 171.75 crore. Its reserves have increased in 1998 to Rs 156.94 crore from Rs 105.58.
Income from software exports doubled in 1998 from Rs 125.28 crore to Rs 250.94. But income from domestic software dropped 37.44 per cent to Rs 8.72 crore. Infosys has underperformed in domestic market this year. Its banking solution package, called Bancs 2000 has not picked up as the banking sector was passing through a tough time. In the domestic industry, Infosys has an exposure by way of Bancs 2000 only.
The contribution from Y2K solution, In2000, is 23 per cent and 59 per cent of the sales accrues from offshore exports. The balance comes from onsite component of exports. It added forty new clients to its list while seventy per cent of its business comes from old clients.
Infosyss depreciation cost shot up 116.25 per cent from Rs 10.52 crore to Rs 22.75 crore. As per its new accounting policy in 1995-96, Infosys has decided to provide for depreciation on the computer systems and associated peripherals by taking its useful life in the band of 2-5 years.
In 1996-97 its operating profit came down as several of its new development centres were started. This year operating profit has increased 73 per cent. This is due to tighter cost controls.
In the third quarter of 1997-98 total income and profit before tax rose substantially due to the rupee devaluation. Infosys also converted outstanding foreign currency balances and account receivable for a one time gain of Rs 1.32 crore.
The company is friendly towards its shareholders. It has paid a one-time custodial fee of Rs 44.43 crore to NSDL so that its shareholders do not have to pay any fee to NSDL when they trade in demat Infosys shares. 35 per cent of its shares have been dematerialised.
In 1999 it plans to evaluate opportunities for setting up new software development centres outside India and to increase the number of such centres in India. Infosys has allocated Rs 150 crore for capital expenditure in 1998-99 and plans to increase its work force by 1350 employees. Currently, its work force stands at 2622 employees out of which 2182 are software professionals.
NR Narayan Murthy, CMD, Infosys says that the growth was mainly driven by focusing on offshore software development mode coupled with branding some of its services. He adds that the revenue growth for next year may not maintain the same momemtum.
Infosys has launched several new services this year. Primary among them was the new offerings for engineering services, internet and intranet solutions and enterprise package solutions. It is also taking necessary steps to address the Euro conversion issue.
Infosys specialises in customised software development, software maintenance and in developing, selling and supporting its products. Its business strategies are establishing offshore software development centres, competing on quality and productivity and getting into productised services.
Market sources says Infosys needs to balance its portfolio as most of its products cater to the overseas markets. Apart from Bancs 2000, all its products are for the overseas markets. Its warehousing package Eagle is marketed exclusively overseas through its US-based subsidiary Yantra. Yantra made a loss of $1.56 million for 1997-98 because of an R&D expenditure of $1.22 million and amortization of products of $0.42 million.
The other products of Infosys yet to make a dent in the Indian markets are Websetu, a suite of products that enable internet based electronic commerce using on-line transaction processing application engines. It also has a product in what the industry considers an emerging area, PorteNT, which is a methodology to port applications from OS/2 to Windows NT.
After an excellent performance by the company in the third quarter of 1997-98, the company decided on a $75 million ADR issue to be listed on either the New York Stock Exchange or Nasdaq. It is also making a provision to issue employee stock options up to $50 million and it may also issue stock swaps of $50 million. This includes acquisition of a US-based software company. But the plans are as still on hold as the company is yet to obtain necessary permissions.
The stock price has risen from Rs 1117 in mid-February to Rs 2075. The 1997-98 EPS of Rs 37.68 discounts the market price 55 times making it quite expensive for any new investor. Moreover, the impending equity dilution will constrain price appreciation to an extent. Hold.