Analyst Meet Update | IT

August 18, 2011

Infosys Technologies
Cautious in the realm of rising uncertainty
Infosys Technologies (Infosys) hosted their annual analyst meet on Thursday, August 18, 2011. The essence of the meeting was that macro-uncertainty is increasing but hasnt resulted in any micro-level challenges. Demand is unscathed but cautiousness is increasing: The management clearly stated that the US credit rating downgrade has not resulted into any kind of negative news from the client portfolio side as of now. However, increasing macro-uncertainty is resulting in escalation in cautiousness on spending. The clients are now focusing on one program at a time rather than multiple initiatives. Also each program is broken into various parts typically over intervals of six to eight months to gauge value creation. CY2011 is different than CY2008: The management indicated that nature of IT spending has evolved post the CY2008 financial system crisis. The corporate have moved to much disciplined pattern of spending and not irrational spending like pre-CY2008. The various transformational initiatives undertaken are outcome based. The recovery in IT spending by clients has come back on stringent due-diligence undertaken by them with objectives to enhance 1) cost efficiency, 2) to be compliant to risk management frameworks as well as regulatory issues. Whereas pre-CY2008, the clients were spending on system upgrades, procuring large number of license which were not the need of business or linked to any strategic objective. Also fundamentally, CY2008 was result of sub-prime crisis with US corporate banks failing but this time it is the sovereign-debt which is alarming. Events like 1) a major corporate failure and/or 2) Euro zone government crisis especially in UK, Germany, and France etc can lead to repeat of CY2008 for Indian IT as industry has nil exposure to US government programs. Focus towards evolving business model to prepare for long-term: In 4QFY2011, the management undertook organization restructuring of classifying its business services in 1) Business operation (60%), 2) Consulting & System Integration (32%) and 3) Product, Platforms and Solution (PPS) (8%).This has made the resources fungible and as also enhanced the go-to-market with end to end services even incase of wireline players also. The company is focusing towards growing the non-linear segment PPS and scale it upto one-third of revenues with other two also expected to be at one-third. In terms of the geography, India (currently 2.5%) remains a focus area with outcome based work to protect margin. Outlook & Valuation: The Infosys management who is known for its conservative stance denied revisiting its revenue guidance of 19-21% YoY growth for FY2012 at this juncture as it hasnt seen any signs of budget cut or pricing cut. Also the company stated that there is no change in their hiring plans and they would honor their offers. Infact, the company has already begun its process of campus hiring for FY2013. We believe that amidst the rising macro challenges though FY2012 wont be impacted but rising uncertainty can pose a threat to FY2013 expectation. In CY2008, due to US banking corporate failures, the growth rates fell to as low as 3% (FY2010) and PE multiples contracted by ~45% from 18x to 10x. However, it is too early to expect such a systemic downgrade in demand as
Please refer to important disclosures at the end of this report

BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code IT 135,106 0.8 3,494/2173 180,000 5 16,469 4,944 INFY.BO INFY@IN

`2,362 `3,200
12 Months

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 16.0 9.8 36.9 37.2

Abs. (%) Sensex Infosys

3m (8.9)

1yr (9.8)

3yr 12.4 38.7

(17) (15.8)

Srishti Anand
+91 22 39357800 Ext: 6820 srishti.anand@angelbroking.com

Ankita Somani
+91 22 39357800 Ext: 6819 ankita.somani@angelbroking.com

Infosys Technologies | Analyst Meet Update

no negative news flow has come in the form of clients 1) laying off employees and/or 2) cutting down their growth guidance and /or 3) downsizing their IT budgets or asking of pricing cuts and/or 4) declaring corporate failure like CY2008. Also already the PE multiples have already contracted by more than 42% from 26x to 15x (at CMP) just on the fears of possible global slowdown which is unfair. We may revisit our estimates only incase of negative cues as described above emerges. Hence we continue to value the company at 20x FY2013 EPS of `160 with a target price of `3,200 and maintain a BUY on this stock.

Exhibit 1: One year forward PE(x) chart

4,700 4,100 3,500 2,900

(`)

2,300 1,700 1,100 500

Dec-08

Apr-07

Jul-08

May-09

Mar-10

Aug-10

Sep-07

Feb-08

Oct-09

Price
Source: Company, Angel Research

26x

22x

18x

14x

Jan-11
10x

Exhibit 2: Recommendation Summary

Company 3iInfotech Educomp Everonn HCL Tech Hexaware Infosys Infotech Enterprises KPIT Cummins Mahindra Satyam Mindtree Mphasis NIIT^ Persistent TCS Tech Mahindra Wipro Reco Neutral Neutral Neutral Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy CMP Tgt Price (`) 29 273 521 397 76 2,362 111 152 68 358 357 47 301 962 662 328 (`) 578 88 3,200 145 206 89 445 482 69 424 1,368 783 419 Upside (%) 45.7 15.5 35.5 30.6 35.3 30.0 24.3 35.1 47.8 40.8 42.2 18.3 27.7 Target P/E (x) 14.0 11.5 20.0 9.0 12.0 12.0 11.0 11.0 10.0 11.0 22.0 9.0 16.0 FY2013 EBITDA (%) 21.5 45.6 38.5 17.9 15.1 30.6 16.1 16.1 15.0 13.3 17.6 13.8 19.5 28.9 17.0 18.7 FY2013E 2.5 5.7 8.7 9.6 9.9 14.8 6.8 9.0 9.2 8.8 7.9 6.7 7.8 15.5 7.6 12.5 FY2011-13E (4.3) 18.8 32.5 29.8 63.4 15.7 13.9 21.8 32.7 27.5 10.3 11.2 5.1 18.4 32.7 9.9 FY2013E RoCE (%) 12.0 11.1 13.9 18.1 16.8 24.7 15.2 20.6 11.6 16.9 17.7 12.4 16.6 30.2 14.6 13.8 FY2013E RoE (%) 15.1 15.3 17.1 23.8 17.8 22.7 13.4 17.7 13.8 15.4 17.0 16.6 15.4 31.3 21.2 19.8 P/E (x) EPS CAGR (%)

Source: Company, Angel Research

August 18, 2011

Jun-11

Infosys Technologies | Analyst Meet Update

Profit & Loss statement (IFRS, Consolidated)

Y/E March (` cr) Net sales Cost of revenue Gross profit % of net sales Selling and mktg expenses % of net sales General and admin expenses % of net sales EBITDA % of net sales Dep and amortization % of net sales EBIT % of net sales Other income Profit before tax Provision for tax % of PBT PAT Minority interest Adj. PAT EPS (`) FY2010 22,742 12,078 10,664 46.9 1,184 5.2 1,628 7.2 7,852 34.5 942 4.1 6,910 30.4 990 7,900 1,681 21.3 6,219 6,219 109.5 FY2011 27,501 15,054 12,447 45.3 1,512 5.5 1,971 7.2 8,964 32.6 862 3.1 8,102 29.5 1,211 9,313 2,490 26.7 6,823 6,823 119.5 FY2012E 32,497 18,578 13,919 42.8 1,742 5.4 2,148 6.6 10,028 30.9 965 3.0 9,063 27.9 1,800 10,863 3,044 28.0 7,819 7,819 136.9 FY2013E 39,017 22,638 16,379 42.0 2,115 5.4 2,339 6.0 11,924 30.6 1,160 3.0 10,764 27.6 1,924 12,688 3,553 28.0 9,136 9,136 159.9

August 18, 2011

Infosys Technologies | Analyst Meet Update

Balance sheet (IFRS, Consolidated)

Y/E March (` cr) Current assets Cash and cash equivalents Available for sale financial assets Investment in certificates of deposit Trade receivables Unbilled revenue Derivative financial instruments Prepayments and other current assets Total current assets Non-current assets Property, plant and equipment Goodwill Intangible assets Available for sale financial assets Deferred income tax assets Income tax assets Other non-current assets Total non-current assets Total assets Current liabilities Trade payables Derivative financial instruments Current income tax liabilities Client deposits Unearned revenue Employee benefit obligations Provisions Other liabilities Total current liabilities Non-current liabilities Deferred income tax liabilities Employee benefit obligations Other liabilities Total non-current liabilities Total liabilities Equity Share capital Share premium Retained earnings Other components of equity Total equity Total liabilities and equity 286 3,047 20,668 72 24,073 27,622 286 3,082 23,826 109 27,303 31,263 286 3,100 29,641 100 33,127 36,871 286 3,100 36,773 40,159 43,527 124 171 61 356 3,549 259 60 319 3,960 260 61 321 3,744 260 60 320 3,367 10 724 8 531 131 82 1,707 3,193 44 817 22 518 140 88 2,012 3,641 20 820 25 528 140 90 1,800 3,423 20 737 30 540 140 80 1,500 3,047 4,439 829 56 356 667 347 6,694 27,622 4,844 825 48 23 378 993 463 7,574 31,263 5,079 830 60 23 400 1,000 613 8,005 36,871 5,119 835 60 23 400 1,000 495 7,932 43,527 12,111 2,556 1,190 3,494 841 95 641 20,928 16,666 21 123 4,653 1,243 66 917 23,689 20,644 30 25 5,520 1,425 85 1,137 28,866 25,737 30 25 6,628 1,710 100 1,366 35,595 FY2010 FY2011 FY2012E FY2013E

August 18, 2011

Infosys Technologies | Analyst Meet Update

Cashflow statement (IFRS, Consolidated)

Y/E March (` cr) Pre tax profit from operations Depreciation Pre tax cash from operations Other income/prior period ad Net cash from operations Tax Cash profits (Inc)/dec in current assets Inc/(dec) in current liabilities (Inc)/dec in net trade WC Cashflow from operating actv. (Inc)/dec in fixed assets (Inc)/dec in investments (inc)/dec in sale of financial assets (Inc)/dec in deferred tax assets Inc/(dec) in other non-current liab. (Inc)/dec in other non-current ass. Cashflow from investing actv. Inc/(dec) in debt Inc/(dec) in equity/premium Dividends Cashflow from financing actv. Cash generated/(utilised) Cash at start of the year Cash at end of the year FY2010 6,910 942 7,852 990 8,842 1,681 7,161 (238) 468 230 7,391 (716) (3,746) (302) 74 (243) (4,933) 333 1,673 (1,340) 1,118 10,993 12,111 FY2011 8,102 862 8,964 1,211 10,175 2,490 7,685 (1,808) 448 (1,360) 6,325 (1,267) 3,602 (23) (348) (37) (104) 1,823 (1,256) 2,337 (3,593) 4,555 12,111 16,666 FY2012E 9,063 965 10,028 1,800 11,828 3,044 8,784 (1,288) (218) (1,506) 7,278 (1,200) 89 (29) 2 (167) (1,305) 9 2,004 (1,995) 3,979 16,666 20,644 FY2013E 10,764 1,160 11,924 1,924 13,848 3,553 10,296 (1,637) (376) (2,012) 8,284 (1,200) (1) 113 (1,088) (100) 2,004 (2,104) 5,092 20,644 25,736

August 18, 2011

Infosys Technologies | Analyst Meet Update

Key ratios (IFRS, Consolidated)

Y/E March Valuation ratio (x) P/E P/CEPS P/BVPS Dividend yield (%) EV/Sales EV/EBITDA EV/Total assets Per share data (`) EPS Cash EPS Dividend Book value Dupont analysis Tax retention ratio (PAT/PBT) Cost of debt (PBT/EBIT) EBIT margin (EBIT/Sales) Asset turnover ratio (Sales/Assets) Leverage ratio (Assets/equity) Operating ROE Return ratios (%) RoCE (pre-tax) Angel RoIC RoE Turnover ratios(x) Asset turnover (fixed assets) Receivables days 3.4 70 3.6 78 4.1 78 4.9 78 25.0 58.7 25.8 25.9 56.1 25.0 24.6 56.0 23.6 24.7 60.7 22.7 0.8 1.1 0.3 0.8 1.1 25.8 0.7 1.1 0.3 0.9 1.1 25.0 0.7 1.2 0.3 0.9 1.1 23.6 0.7 1.2 0.3 0.9 1.1 22.7 109 125 25.0 421 119 134 34.9 477 137 154 29.9 579 160 180 29.9 702 21.6 18.9 5.6 1.1 5.2 15.2 4.3 19.8 17.6 4.9 1.5 4.3 13.2 3.8 17.3 15.4 4.1 1.3 3.5 11.4 3.1 14.8 13.1 3.4 1.3 2.8 9.2 2.5 FY2010 FY2011 FY2012E FY2013E

August 18, 2011

Infosys Technologies | Analyst Meet Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Infosys Technologies No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

August 18, 2011