1. There are different methods to undertake business valuation. Each method has its own advantages and disadvantages. For a start-up having just a year or two of existence, which method would be most appropriate and why? Explain by giving an example.
2. Infosys Technologies Ltd is a global technology services firm that provides IT-enabled business solutions to a wide range of clients. The company provides end-to-end business solutions that leverage technology for their clients, including technical consulting, design, development, product engineering, maintenance, systems integration, package-enabled consulting and implementation and infrastructure management services.
The company also has developed expertise in providing software services to the banking industry. They have developed finacle, a universal banking solution to large- and mediumsized banks across India and overseas. Infosys BPO (business process outsourcing) is a majority-owned subsidiary of the company. Through Infosys BPO, the company provides business process management services, such as offsite customer relationship management, finance and accounting, and administration and sales order processing. The company has entered into marketing and technical alliance with FileNet, IBM, Intel, Microsoft, Oracle and System Application Products.
Infosys Technologies Ltd is a public limited company. It is India’s second largest software exporter company. It was incorporated in 1981 as Infosys Consultants Pvt Ltd by N. R. Narayana Murthy in Bangalore, India. The company was started by seven people with an investment of $250. The company became a public limited company in 1992. It was the first Indian company that was listed on the NASDAQ in 1999. Continuously, in 2001, 2002 and 2003, the company won the national award for excellence in corporate governance conferred by the Government of India.
The company is a multinational IT services company with offices in 22 countries and development centres in India, Japan, China, Australia, the United Kingdom and Canada, with headquarters in Bangalore, India. From a mere $250 company in 1981, Infosys Technologies Ltd has come a long way in becoming a global leader with revenues of more than $5 billion.
In April 2002, Infosys BPO Ltd was incorporated in India to address opportunities in business process management. In 2004, the company acquired 100 per cent equity in Expert Information Services Pty Ltd, Australia, for $24.3 million. The acquired company was renamed as Infosys Technologies (Australia) Pty Ltd. On 2 October 2004, they set up a wholly owned subsidiary in the People’s Republic of China named Infosys Technologies (China) Co Ltd. In 2005, the company established Infosys Consulting Inc, a wholly owned subsidiary in Texas, USA, to add high-end consulting capabilities to their Global Delivery Model. The company was selected as the ‘Best Outsourcing Partner’ by the readers of Waters, a publication covering the needs of chief information officers in the capital market firms. In 2007, the company increased its stake value in Progeon to 98.9 per cent after acquiring shares from Citicorp International Financial Company. Infosys had taken over Philips’ finance and administration BPO centres spread across India, Poland and Thailand for $28 million.1
In 2008, the company established their first Latin American subsidiary, namely, Infosys Technologies S de R L de C V, in Mexico to improve proximity to their North American clients. They also opened a development centre and an office for the region in Monterrey, Mexico. In April 2008, the company acquired Internet Protocol (IP) from an Australian company to add more functionality to finacle. The IP provides a comprehensive set of financial tools to the company’s existing product line. In July 2008, the company launched ShoppingTrip360 to help retailers and consumer packaged goods (CPG) companies achieve visibility into in-store activity. ShoppingTrip360 is a platform that enables a suite of managed-information services to create a 360-degree view of realtime in-store shopper and shelf activity.
The company was ranked among the top 50 most respected companies in the world by Reputation Institute’s Global Reputation Pulse 2009. They have been voted the ‘Most Admired Indian Company’ in The Wall Street Journal Asia 200 for 10 years in a row since 2000. The company was also listed in the Most Admired Knowledge Enterprises (MAKE) 2008 study and Forbes’ Asian Fabulous 50 for the fourth consecutive year.
In March 2009, the company incorporated a wholly owned subsidiary in Sweden, namely, Infosys Technologies (Sweden) AB. In November 2009, the company opened their second Latin American IT Development Centre in Mexico offering global, near-shore and Latin American clients a full range of IT services, including Business and IT Consulting, BPO, Packaged Solutions Implementation and Infrastructure Management.
On 12 November 2009, the company and NVIDIA Corp. entered into a partnership to develop Nvidia Cuda to compute unified device architecture and technology-enabled software solutions. In addition, the company signed a contract with Georgia-Pacific LLC (Georgia-Pacific), a forest and consumer products company, to implement its Supply Chain Visibility and Collaboration Suite. In December 2009, the company set up a wholly owned unit in the United States to tap the multibillion dollar opportunities from government projects. The subsidiary, called Infosys Technologies Inc, is headquartered in Dallas, Texas, where the company has most of their operations.
On 14 December 2009, the company launched Flypp, an application platform that empowers mobile service providers to delight digital consumers through a host of ready-to-use experiential applications across the universe of devices, and on 15 December 2009, they launched Finacle
Advizor, an integrated platform that helps banks deliver products and services through a fully assisted self-service channel using existing Internet banking capabilities. In addition, in 2009, the company incorporated a wholly owned Brazilian subsidiary, namely, Infosys Technologia Do Brasil Ltd.
Infosys Technologies Ltd.’s profit and loss account and balance sheet are given in Table 12.14 and Table 12.15 respectively. The sales and earnings of Infosys Technologies Ltd, since the listing on BSE till 2000, compounded over 70 per cent a year. In 2000, the then US President Bill Clinton praised India for its accomplishments in high-tech areas by referring to the example of Infosys.2 The present management of the company consists of the following professionals:
1. Work out the cash flow and fund flow analysis for Infosys Technologies Ltd between
2007 and 2010 and critically comment on the cash position of the company.
2. What are the key financial strengths of the company?
3. Compute the different ratios and compare them with industry average for the large software industries.
4. What is the implication of total debt of the company being zero between 2005 and 2010?
In what way would this affect the company’s tax planning?
5. Contingent liabilities have increased from ` 1,434 crores as on March 2006 to ` 2,370 crores as on March 2009 and then marginally fallen to ` 2,110 crores as on March 2010.
What constitutes these contingent liabilities and what is their implication to the future working of the company?