Infosys: The Relationship Between Net Income, Market Cap and Employees

The basic revenue generation of any outsourcing or consulting company is the number of billed man hours it had for that year.

In my quest to figure out the relationship between the net income, market cap and employees of a consulting company, I did a sample study on Infosys (INFY).

Infosys was founded as a private limited company in Pune, India. It went public on the Bombay stock exchange in 1993 and went public on the NASDAQ in 1999. Its sales for 1981-82 were Rs 0.11 crore.

Following are my findings. Figures are in crore (1 crore = Rs10 million; 1USD = Rs40.50 (approx)).

Following is the 10 year growth chart:

Disclosure: Author has a long position in INFY

Comments

[Thomas Victor:]

Frankly, putting together this table of INFY's revenue, income, market cap and #employees over the years seems rather pointless. How does it help one decide whether to buy, hold or sell?

2007 Jun 15 05:02 PM

[sacsharma:]

INFOSYS, TCS and WIPRO are dead stocks now. For top IT stocks in Indian markets, you can check:
sagecapital.wordpress..../

2007 Jun 20 10:19 AM

[Asif Suria:]

Thomas it does help when you look at the revenue per employee number, which is an important metric for consulting companies. Except for a surge in 2004-2005, revenue per employee has been dropping at Infosys since 2001-2002. This could be attributed to salaries rising at an annual rate of almost 15% as I mentioned in my interview with TCS executives.

If you are interested in a tables comparing the key statistics of Wipro, Infosys, Satyam, TCS and Cognizant, check out these posts,

Tata Consultancy Services Listing on the NYSE? (comparison as of April 23, 2007)

Infosys Technologies (comparison from roughly one year ago)

2007 Jun 16 01:33 PM

[Thomas Victor:]

Asif, I agree that revenue/employee is important. But isn't it the same problem for all of Infosys's competitors? Salaries are rising for anyone using Indian software engineeers. Rupee appreciation has also increased costs for all offshorers.

What will differentiate them is ability to steadily win new contracts, keep existing ones and ability to increase prices, I think.

I guess I'm concerned about INFY's drop in 2007 after it had risen steadily to $6o plus - after Feb 20th it has been falling and falling - for a while it looked like it might slide all the way down to $40! However after closing at $47.49 on June 7th, it has rebounded back to last week's close of $53.31. Same story with CTSH.

This rebound seems to be due to INFY making presentations to brokerage houses and I presume, telling them that prior guidance on Earnings and Revenue still held inspite of adverse conditions. From postings on INFY message board, a Citibank analyst has reiterated his recommendations on INFY and CTSH.

There is also a feeling that the offshoring field is breaking up with the big ones - TCS,INFY,CTSH,WIT moving ahead along with IBM and Accenture while the smaller ones - Patni, Covansys etc. are having difficulty getting contracts since the large companies are preferring to go with the big offshorers. Covansys has been bought by CSC and Patni is entertaining buy out offers from private equity firms.

One odd occurrence is that IBM has bagged a ONE BILLION DOLLAR IT DEAL from Bharti Airtel in India!
There is something fishy about that deal - a $1 billion deal in India iself from an Indian company going to IBM and not TCS,INFY or WIT?

I guess things will become clearer beginning of July when INFY, as usual, will be the first to state earning for the quarter and we can see if their growth rate projections have dropped or are holding steady.

2007 Jun 18 05:02 AM

[Nidhi Kadalbal:]

- INFY is head quartered in Bangalore; not that it directly matters.

- Consider Accenture in your analysis since they are the American counterpart in the business

2007 Jun 17 10:42 PM

[Deepak Shenoy:]

Consider 06-07 figures: (Rs. cr.)
Revenue: 13,893
Net Profit: 3,856
Market Cap: 113,860
Employees: 72,241

Profit per employee:
2007: 5.34 lakhs
2006: 4.66 lakhs
2005: 5.02 lakhs
2004: 4.81 lakhs
2003: 6.02 lakhs
2002: 7.52 lakhs

in 2006-07 they've spent about 7000 cr. on employees (salary + provident fund). That's about 9.72 lakhs per employee. Meaning all other things being equal, they make a post-expense-pre-salar... amount of 15 lakh (1.5 million) rupees per employee.

If salaries go up 10-15%, they will pay out 11 lakhs per employee. If the dollar's dropped 10% and it affects their revenues about 7%, they will make 14 lakhs per employee - a profit of about 3 lakhs per employee. Down from 5.08 lakhs last year.

To make the same amount of profit (3856 cr) they need to have 128,500 employees, an increase of 55,000. Their gross hiring target is 25,000. (That's gross, not counting attrition)

You may have to discount the above with higher utilization that they will try, increasing billing per hour, reducing other costs (about 25% of their cost are non-salary) and increasing headcount in China or other places. I can't estimate the impact of that, but my feeling is that this impacts net by about 15% - meaning they might squeeze out profits of 3.5-4 lakhs per employee. Still, that's a considerably lower number than current (5.08 L)

I have no holding or interest in INFY.

2007 Jun 18 03:53 AM

[Deepak Shenoy:]

Correction: In the above post I've used 5.08 lakhs as profit per employee in the text. Please substitute that by 5.34 lakhs as mentioned in the table at the top of my comment.

2007 Jun 19 08:07 AM