Should you Invest in Indian IT Giant Infosys Technologies ($INFY)?

An article by Varun Walia

Stance: Cautious bull on Infosys

Infosys is not a new name in the stock market. It is the second largest exporter of IT services in India. This company has a big name in the global market as-well. Infosys, along with the Indian IT industry has seen a quick turnaround in growth over the last six-nine months. The value of rupee is slipping down and companies like Infosys are getting profit.It is positive for the whole IT space indeed and at this point of time market is also not moving anywhere. Infosys has proven to be a stable friend even though in tough times and has the tendency to recover at a faster pace than the stock markets.

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The company has seen a major jump in consolidated income up to rupees 21693 crores which is 29.96% over the previous year.Net profit has grown to rupees 6828 crores from rupees 4941 crores a jump of 38%. The company continues to grow with operational profit of operating 34.08%.

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Cost of Capital Providing Good Signals

Infy’s decision to look at a minimum return of twice the cost of capital on average capital employed and thrice the cost of capital on average invested capital has given new way to challenges. The current cost of capital for Infosys is 12.18%. It has come down from 13.32% last year as it has factored in 7% as return on risk free capital as opposed to 8% last year for computing cost of capital.

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Infosys is maintaining a dividend pay-out ratio of 30% of net profits and it has been listed down as a strategy last year. Shares of the company rose post the revenue guidance provided by IT bell whether.

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Cash on the Balance Sheet: A Solid Backbone

Company’s cash and cash equivalents have increased to nearly rupees 10,000 crores which are invested in fixed deposits. Infosys has always maintained that they would not be keen in looking at aggressive acquisitions to grow. It would invariably be niche acquisitions to fill skillset or geographical gaps

The company is focusing on emerging markets like India, China, Mexico, Brazil, Middle East, Australia and Japan. Company CEO,Kris Gopalakrishnan said that 63 per cent of Infosys’ business is centred in North America, 23 per cent in Europe and 14 per cent in the rest of the world. Its share price is more than 3000 in current quarter.

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Current Investment Plans at Infosys

Infosys is to invest in many big areas this year. It is planning to invest around 120 crore rupees in Mahindra World City, Chennai. The company had said exports from this centre rose by 43 per cent. It is also looking at investing around $100 million in its Chinese operations over a period of time and would strengthen the employee count there to 4,000.

Infosys is also setting up a development centre in Kolkata

The company will invest rupees 75 crores to set up the base.

Infosys is growing at very fast pace in Indian stock market. So investment for the short term goal can give big benefits here.

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