Infosys Technologies Limited

Company Profile
Publication Date: 6 May 2011

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TABLE OF CONTENTS

TABLE OF CONTENTS
Company Overview..............................................................................................4 Key Facts...............................................................................................................4 SWOT Analysis.....................................................................................................6

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Infosys Technologies Limited

Company Overview

COMPANY OVERVIEW
Infosys Technologies Limited (Infosys or "the company") is an India-based IT enabled business solutions provider. The company offers end-to-end business solutions, including business and IT consulting, design, development, product engineering, maintenance, systems integration, package enabled consulting and implementation, and infrastructure management services. It serves clients in banking, insurance and capital markets; communications, media and entertainment; energy, utilities and services; healthcare and life sciences; manufacturing; retail, consumer product goods and logistics; and other industries. It also provides software products to the banking industry, through its Finacle suite of universal banking solution. The company primarily operates in North America and Europe. The company is headquartered in Bangalore, India and employs about 113,800 people. The company recorded revenues of $4,804 million during the financial year ended March 2010 (FY2010), an increase of 3% over 2009. The increase in revenues was attributable primarily to an increase in business from existing clients, particularly in industries such as financial services, manufacturing and retail. The operating profit of the company was $1,460 million in FY2010, an increase of 6.3% over 2009. Its net profit was $1,313 million in FY2010, an increase of 2.5% over 2009.

KEY FACTS
Head Office Infosys Technologies Limited Plot No. 44 & 97A Electronics City Hosur Road Bangalore 560 100 Karnataka IND 91 80 2852 0261 91 80 2852 0362 http://www.infosys.com

Phone Fax Web Address

Revenue / turnover 4,804.0 (USD Mn) Financial Year End Employees NASDAQ National Market Ticker March 113,800 INFY

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Company Overview

Bombay Ticker

500209

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SWOT Analysis

SWOT ANALYSIS
Infosys Technologies Limited (Infosys or "the company") is an India-based IT enabled business solutions provider. The company offers end-to-end business solutions, including business and IT consulting, design, development, product engineering, maintenance, systems integration, package enabled consulting and implementation and infrastructure management services. The company has strong brand recognition. The company's strong brand recognition acts as a pitch for new contract wins and attracts new talent. However, intense competition threatens to erode the company's market share and profitability in long term. Strengths Strong brand recognition acts as a pitch for new contracts and attracts talent Robust financial performance enhances brand image Strong base in low cost locations is a cost advantage over competitors Opportunities Positive outlook for health care IT spending ensures steady revenues Growing worldwide IT spending provides growth opportunity Robust outlook for cloud computing provides new revenue opportunity Positive outlook for smartphone market will create demand for Infosys' products Weaknesses Concentrated revenues increases business risk

Threats Intense competition may pressurize margins and shrink market share Employee attrition may increase personnel costs End of STPI regime to increase tax burden affecting operating margins Exchange rate fluctuations may significantly weaken its operations and financial condition

Strengths

Strong brand recognition acts as a pitch for new contracts and attracts talent The company has strong brand recognition. It has developed a strong brand through quality services which allowed it to maintain long-standing client relationships. The company has developed a project management methodology to ensure timely, consistent and accurate delivery of superior quality solutions to maintain a high level of client satisfaction.

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SWOT Analysis

Moreover, the company has benchmarked its services and processes against globally recognized quality standards and received certifications including SEI-CMMI Level 5, CMM Level 5, PCMM Level 5, TL 9000 and ISO 9001-2000. Additionally, Infosys BPO was certified for e-Sourcing Capability Model (eSCM) level 4.0, the eSourcing Capability Model for Service Providers, in 2007, and in 2009 it received the highest rating of Level 5, for the eSCM (SP:v2.0). In September 2010, Infosys BPO received Payment Card Industry's Data Security standards V1.2.1 (PCI-DSS). The company has longstanding relationships with large multi-national corporations built on successful prior engagements. Its track record of delivering high quality solutions across the entire software life cycle and strong domain expertise helps it to solidify these relationships. As a result, the company has a history of client retention and derives a significant proportion of revenues from repeat clients. The total client base of the company is 575, with 338 million-dollar clients, 159 five-million-dollar clients, 97 ten-million-dollar clients, 26 fifty-million-dollar clients and 6 hundred-million-dollar clients. Infosys added 6 additional fifty-million-dollar and 2 new hundred-million-dollar clients in FY2010. The company also added eleven million-dollar clients and 8 five-million-dollar clients in FY2010. During the year, the company won contracts from leading companies, including Elan Pharmaceuticals, Royal Philips Electronics, Georgia-Pacific, British Petroleum, T-Mobile, Alberto Culver, Microsoft and Telstra. Infosys also derives significant brand recognition from the employee community. During FY2010, the company received approximately 4,00,800 applications, of which, 26,200 job offers were made. Infosys's popularity among the employee community is also due to its Global Education Center (GEC) at its Mysore campus, a $120 million facility in Mysore which trains over 15,000 new recruits every year. This facility was further expanded in 2009 with a training facility, GEC II, created to consolidate learning activities across Infosys. The company has also won numerous awards, which have strengthened its image and brand recognition. In December 2010, Infosys was chosen as the winner of the prestigious Global, Asian and Indian Most Admired Knowledge Enterprises (MAKE) Awards for 2010, by Teleos in association with The KNOW Network. This is the seventh year that Infosys has been ranked among the Global MAKE winners, eighth time that it has bagged the Asian MAKE Award and sixth time that it has won the Indian MAKE Award. Also in the month, Infosys was ranked number one among leading IT services suppliers in retail within the 2010 RIS IT Services LeaderBoard, a prestigious annual industry ranking. In November 2010, Infosys BPO won the 2010 Asian Shared Services Excellence Award for "Best New Outsourcing Services Delivery" along with its client P&G. Earlier, in June 2010 Infosys BPO received two awards at Shared Services & Outsourcing Network (SSON) 2010 North American Shared Services Excellence Awards. The company's strong brand recognition acts as a pitch for new contract wins and attracts new talent. Robust financial performance enhances brand image Infosys reported robust financial performance in the period 2006-10. For the period the company's revenues grew at a compound annual growth rate (CAGR) of 22% to reach $ 4,804 million in FY2010, from $ 2,152 million in 2006. Its operating income grew at a CAGR of 25% over the same period to

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SWOT Analysis

reach $1,460 million in FY2010 from $599 million in 2006. Its net income grew at a CAGR of 24% over the same period to reach $1,313 million in FY2010 from $555 million in 2006. Although subdued, the company recorded a 3% growth in revenues to record $4,804 million in FY2010, from $4,663 million in 2009 in the recent tough economic environment. In addition, the company's operating and net income grew 6.3% and 2.5% to reach $1,460 million and $1,313 million respectively. The increase in revenues was attributable primarily to an increase in business from existing clients, particularly in industries such as financial services, manufacturing and retail. In addition, the company witnessed strong growth across all its segments. During FY2010, the financial services division grew 3.2% to $1,633 million, while the manufacturing division recorded revenues of $951 million, an increase of 3.4% over 2009. The retail division recorded revenues of $640 million, an increase of 9.4% over 2009, whereas the others division's revenues grew by 10.2% to $807 million. The company also has huge cash reserves of $2,698 million at the end of FY2010. Huge cash reserves allow the company to make future strategic investments, such as acquisition or expansion to new geographies. Strong financial performance improves the investors' confidence and enhances brand image. Strong base in low cost locations is a cost advantage over competitors The company has a strong base in locations, such as India, which are known for their low-cost and high quality technical talent. Currently, Infosys have 63 global development centers of which 30 are located in India, 15 are in North America, 11 are in the Asia-Pacific region and 7 are in Europe. Besides India, the company also has development centers in various countries including Australia, Brazil, Canada, China, Japan, Mauritius, Mexico, Poland, Philippines, Thailand and at multiple locations in the US and Europe. Strong operations in India have provided the company with a cost advantage over its competitors in developed countries. Strong base in India allows the company to derive a significant portion of its revenues from offshore operations. In FY2010, the company's offshore operations accounted for about 53.9% of total revenues and 77.4% of billable hours. The services performed offshore generate higher gross margins compared to the services performed onsite. The company's strong presence in low cost regions such as India is a cost advantage over competitors, which also enhances investors' confidence.

Weaknesses

Concentrated revenues increases business risk The company's revenues are highly concentrated in North America. In FY2010, Infosys's revenues from North America accounted for 65.8% of the total revenues. By contrast, Infosys's major competitors had relatively lower dependence on North America and generated higher revenues from India than the company. For instance, Tata Consulting Services (TCS) generated about 62% of its

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SWOT Analysis

total revenues from Americas and about 9.3% from India. Moreover, the company's revenues from its domestic market, India, accounted for only 1.2% of its total revenues in FY2010. Also revenue from Europe, which accounted for 23% of the total revenue, decreased 10.2% in FY2010. The company's high dependence on North America combined with lower revenue contribution from India, a place where it has a strong operating base, increases its business risk associated with economic uncertainties in particular market. Furthermore, the company's lower revenue recognition from India, one of the potential markets for IT services in coming years, signifies its inability to capitalize on growth prospects in the market and may be a competitive disadvantage in long term.

Opportunities

Positive outlook for health care IT spending ensures steady revenues The worldwide healthcare IT spending is forecast to grow in coming years. For instance, the American Recovery and Reinvestment Act of 2009 (ARRA) which was signed into law by President Obama in 2009 has allocated approximately $180 billion in federal funding for healthcare-related spending. In Addition, the Federal IT spending is projected to grow positively in the near future. A steady improvement in the macroeconomic environment in 2010 will enable modest growth in overall Federal IT budget. According to industry sources, the US Federal IT spending will grow at a CAGR of 4.7% for the 2011-15 period reaching $116 billion by 2015. The technology segments such as cloud computing, eDiscovery, GIS and geospatial, health information technology and virtualization will see double digit growth in the period. Infosys has a strong presence in the healthcare sector. The company provides ARRA meaningful use optimization services, healthcare claims modernization solution, patient relationship management solution, disease and wellness management solution, modular global sourcing, hospital supply chain and revenue cycle collaboration, hospital information systems center of excellence, healthcare ERP implementation services, claims processing and management, disease management, healthcare data warehousing, healthcare Payor data warehousing and analysis, health plan e-connect, hospital capacity management, hospital information dashboards, icd-10 transition services and pharmacy benefit management services. Moreover, Infosys BPO provides end-to-end Business Process Outsourcing solutions for healthcare. Infosys BPO's healthcare practice serves customers across the value chain, including payers, providers and pharmacy benefits managers. The company has a team of over 1,500 business and technical consultants, including PhDs, MDs, technical architects, developers, business process consultants, and project managers. Positive outlook for health care IT spending will ensure steady revenues for the company's healthcare practice in coming years.

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SWOT Analysis

Growing worldwide IT spending provides growth opportunity The worldwide IT spending is expected to grow in the near future. A steady improvement in the macroeconomic environment in 2010 will enable modest growth in overall IT spending. According to industry sources, worldwide IT spending will reach $3.7 trillion in 2011, a 5.2% increase from 2010. The worldwide IT services spending is expected to increase from $780 billion in 2010 to $818 billion in 2011, an increase of 4.9%. The IT spending growth in emerging economies is leading the way and driving the overall growth of the global IT industry. The Asia/Pacific region grew by 13% in 2010 and is expected to grow by 10% in 2011. Industry sources forecasted double-digit growth in Central & Eastern Europe, Latin America, and the Middle East & Africa regions. IT spending in the US grew by 6% in 2010, and is projected to grow by 5% in 2011. The IT spending growth in the US benefits Infosys as the region contributed the largest share of revenues (65.8% of total revenues) to the company during FY2010. Most of the other mature economies, including Western Europe and Canada are expected to grow at a lower rate. Infosys being one of the leading services, software, BPO and infrastructure management services providers in the world, is poised to capitalize on the positive outlook. Robust outlook for cloud computing provides new revenue opportunity The demand for cloud computing is forecast to record strong growth in coming years. The cloud computing is described as a business model that offers services over the internet. The worldwide spending on cloud computing is forecast to cross a value of over $150 billion by 2013, representing a CAGR of 26% from 2008. The demand for the cloud solutions is being driven by capital and operating cost advantage, resulting from pay-as-you-go subscription model. Infosys has been focusing on cloud computing over the years. The company's professional services for the cloud addresses various aspects of cloud adoption providing companies with business agility while reducing total cost of ownership. Its comprehensive suite of professional services include cloud strategy and adoption, cloud building, cloud services aggregation and migration, cloud services orchestration, cloud applications builder, and cloud sustenance services. The company's services in the cloud enable several business functions such as sales, marketing, customer service, and human resources. Infosys hosts, operates and manages these services on a subscription-based pricing model. In addition, the company offers Flypp and iEngage services on the cloud. Flypp is a white-labeled mobile application marketplace that enables partners to engage with consumers and deliver rich and relevant experience across multiple devices and platforms. Infosys iEngage is a digital consumer platform that provides a comprehensive service to engage with consumers across the marketing, sales and service lifecycle. Infosys' entry into the emerging cloud computing domain will provide it with steady incremental revenues and increasing customer base. Positive outlook for smartphone market will create demand for Infosys' products

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SWOT Analysis

The worldwide smartphone market is forecast to record strong growth in coming years due to strong consumer demand and increased commercial buying. According to industry sources, the shipments for smartphones are expected to exceed 400 million globally. The number is expected to reach approximately 850 million by the end of 2013. Also the demand for tablets is increasing over the years. Globally, tablet shipments are expected to touch 150 million units by 2013. Moreover, the launch of the Apple iPad2 and Google's Android 3.0 (Honeycomb) is expected to boost growth of tablets. Also, the demand for applications for smartphones such as iPhones, iPads and Android-based devices has witnessed exponential growth over the years. According to industry sources, the market for writing smartphone applications represents a $17 billion opportunity. The company's Flypp mobile application marketplace offers mobile service providers an opportunity to leverage the power of an application ecosystem to deliver compelling user experience. Flypp helps mobile application developers and independent software vendors (ISVs) reach out to consumers globally and facilitates monetization of applications and services with a single window for transaction processing. In partnership with leading aggregators and publishers around the globe, Infosys has built a portfolio of over 2,000 applications. Positive outlook for the smartphone market will create demand for the company's solutions in coming years.

Threats

Intense competition may pressurize margins and shrink market share Infosys operates in highly competitive and rapidly evolving IT services industry. The company competes with established as well as evolving IT companies in the regional and global markets. In the technology services segment, the company competes with Tata Consultancy Services, Wipro, HCL Technologies, Mahindra Satyam and IBM. It also competes with consulting firms such as Accenture, Capgemini, and Deloitte, and services segments of large IT companies like HP, Dell and IBM. Some of the company's competitors in the outsourcing services include Cognizant, Computer Sciences Corporation, HP and IBM Global Services. The competition in IT market has further increased in recent times due to consolidation in both Indian and international markets for instance, the acquisition of Mahindra Stayam by Tech Mahindra. Internationally, HP's acquisition of Electronic Data Systems, Dell's acquisition of Perot Systems and Deloitte's Bearing Point has also resulted in significant increase in competition. Also the planned acquisition of Patni Computers by iGate is expected to catapult iGate into the billion dollar league, allowing it to more aggressively compete with majors like Infosys for contracts. Intense competition threatens to erode the company's market share and profitability in long term. Employee attrition may increase personnel costs

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SWOT Analysis

The company is subject to the threat of employee attrition like other companies operating in Indian IT services industry. According to the industry sources, the average attrition rate in 2010 was 10% across Indian companies. The rate is expected to rise to 25% in 2011-12 with improved salaries. Due to manpower intensive business model of Infosys, its success and ability to grow are dependent on its ability to hire and retain talented people. Although the company continues to make investment in employee development initiatives through up-gradation of skills, re-skilling and leadership development, it is facing increasing attrition. In FY2010, the company's attrition levels increased to 13.4% compared to 11.1% in 2009. Moreover, the company's attrition rate on an annualized basis has increased to 17.5%, for the quarter ending December 2010 from 17.01% in the preceding quarter. Although the company maintains a reasonable attrition rate, it may become difficult for it to protect its best employees from being hired by its peers. In light of the improving economic scenario, retaining best employees may turn out to be a challenge and may also increase the costs incurred by the company. End of STPI regime to increase tax burden affecting operating margins The operating margins of Infosys are expected to decline with the end of the software technology parks of India (STPI) scheme. The STPI scheme is a 100% export oriented scheme for the development and export of computer software using data communication links or in the form of physical media including the export of professional services. In March 2010, the Indian government has announced that the STPI scheme will not be renewed after the expiry of exemption to pay corporate income tax ends in March 2011. Most of Infosys' STPI units have already completed the tax holiday period and for the remaining STPI units, the tax holiday will expire by the end of FY2011. These tax incentives resulted in a decrease of $116 million, $325 million and $282 million in the company's income tax expense for FY2010, 2009 and 2008 respectively. The closing of the STPI scheme may significantly affect the operating margins of the company, thus affecting the investor confidence. Exchange rate fluctuations may significantly weaken its operations and financial condition The company is vulnerable to exchange rate fluctuations. Infosys generates a major portion of its revenues in foreign currencies, particularly the US dollar, the United Kingdom Pound Sterling, Euro and the Australian dollar, whereas it incurs a majority of its expenses in Indian rupees. Fluctuations in the exchange rate between the Indian rupee and the US dollar also affect the US dollar equivalent of the Indian rupee price of its equity shares on the Indian stock exchanges and, as a result, will likely affect the market price of its ADSs, and vice versa. The exchange rate between the Indian rupee and the US dollar has changed substantially in recent years and may fluctuate substantially in the future. For FY2010, 2009 and 2008, US dollar denominated revenues represented 73.3%, 71.1% and 69.5% of total revenues of the company. For the same periods, revenues denominated in the United Kingdom Pound Sterling represented 9.2%, 12.7% and 14.9% of total revenues; revenues denominated in the Euro represented 6.9%,

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SWOT Analysis

7.1% and 5.7% of total revenues while revenues denominated in the Australian dollar represented 5.8%, 4.6% and 4.8% of total revenues. The company uses derivative financial instruments such as foreign exchange forward and option contracts to mitigate the risk of changes in foreign exchange rates. By the end of March 2010, the company had outstanding forward contracts of $267 million, Euro 22 million (approximately $31.1million), United Kingdom Pound Sterling 11 million (approximately $17.6 million) and Australian dollar $3 million (approximately $2.6 million) and option contracts of $200 million. These hedging activities by the company have also contributed to increased losses in recent periods due to volatility in foreign currency markets. For example, in 2009, Infosys incurred losses of $165 million in its forward and option contracts. In FY2010, the company recorded a foreign exchange loss of $57 million on translation of other assets and liabilities. Exchange rate fluctuations from time to time may significantly weaken the companys results of operations and financial condition.

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