Operating Profit Analysis

8/7/2019 Operating Profit Analysis

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By:

Rajat Singla


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Analysis of Revenue Growth

Analysis of Growth % 2009-10 2008-09 2007-082006-072006-05

Volume 17.37 19.33 27.75 - -

Price -3.32 -4.89 6.04 - -

Mix (Onsite/Offshore) -8.12 -2.27 -1.44 - -

Exchange rate 2.04 10.8 -9.65 - -

Total Growth % 7.97 22.97 23.45 41.38 38.9


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0

5

10

15

20

25

30

35

40

45

2006-05 2006-07 2007-08 2008-09 2009-2010

% of Revenue Growth

% of Revenue Growth


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Analysis of Revenue Growth

y Over the years, the % growth in revenue has decreasedfrom 38.9% in 2006 FY to 7.97% in 2010 FY. Although, theabsolute revenue has increased from Rs. 13263.99 crores in

2006 FY to Rs. 30028.92 crore in 2010 FY.yAlthough, the absolute revenue growth is decent over the

years but the % revenue has decreased to just 7.97%. Thecompany has not been able to maintain a healthy % rate

of growth. This can be due to Global Recession which hasaffected the discretionary spending of all companies.

y Thus, the company should take steps to maintain theprevious % rate of growth.


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Revenues Service Lines

y The Companys newer service offerings such asInfrastructure Services, Assurance Services andBusiness Process Outsourcing (BPO) have beenshowing significant growth.

y The increase in revenues from BPO is mainly attributableto the acquisition of Citi Global Services Limited inDecember 2008.

y The decline in Business Intelligence and Enterprise

Solutions is attributable to the general businessconditions and reduction in discretionary spending.

y The revenues from Application Development &Maintenance also decreased over the years.


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0

5

10

15

20

25

30

35

40

45

50

2009-10 2008-09 2007-08 2006-07 2005-06

Segment-wise Profit

Banking, Financial Services Telecom, Media & Entertainment Manufacturing

Retail and Consumer Others


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y In spite of the financial difficulties faced by customers infiscal 2010, primarily in BFSI segment, the Companys

revenues from this segment have remained strong.

y Retail and Consumer Packaged Goods segment has

registered an impressive growth from 5% in 2006 FY to10.59% in 2010 FY and also in verticals like Life Science &

Healthcare, Energy & Utility included in Others reported

above.

y The revenues from Manufacturing Sector havehowever, decreased to 8.10% in 2010 FY from 15.97% in

2006 FY.

y The revenues from Telecom, Media & Entertainment

segment have remained stable over the years.

Revenues by Industry Segment


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Onsite-Offsite Revenue Mix ( of Revenues)

Onsite-Offsite Revenue Mix ( of Revenues)

- -

Offshore Revenues -India 51.00 44.20

Offsite Revenues - GDC 5.70 4.60

Revenues - Offsite 56.70 48.80

Revenues - Onsite 43.30 51.20

Total Revenues 100.00 100.00


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0.00

10.00

20.00

30.00

40.00

50.00

60.00

2009-10 2008-09

Offshore Revenues -India

Offsite Revenues - GDC

Revenues -Offsite

Revenues -Onsite


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yAlthough the economic conditions in North Americawere adversely affected, TCSs focus on customer needs

has resulted in growth in volume of business in thisgeography.

y The foreign exchange fluctuation was the key reasonfor lower growth/decline in Europe and United

Kingdom.y The revenues from India and Asia Pacific declined over

the years.

Revenues by Geographic Segment


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OPERATI G EXPE SES

ature of

Expenses

For year ended

March 3 ,

For year ended

March 3 ,

For year ended

March 3 ,

For year ended

March 3 ,

For year ended

March 3 ,

Rs. Crore

of

Revenue

Rs. Crore

of

Revenue

Rs. Crore

of

Revenue

Rs. Crore

of

Revenue

Rs. Crore

of

Revenue

Software, hardware

and material costs 987.79 .29 1,0 1.22 .71 1,068.26 4.58 819.12 4. 793.44 5.93

Software licences464.24 1.54 423.51 1.52 466.23 2.00 318.22 1.68 234.21 1.75

Communication422.87 1.41 390.33 1.40 308.42 1.32 237.83 1.26 192.35 1.44

Travelling andconveyance 341.90 1.14 421.83 1.52 419.45 1.80 346.02 1.83 241.87 1.81

Rent720.53 2.40 664.35 2.39 423.85 1.82 300.77 1.59 189.03 1.41

Legal and professional

fees 206.00 0.69 256.63 0.92 198.33 0.85 196.03 1.04 121.25 0.91

Repairs and

maintenance 212.77 0.71 176.53 0.63 145.53 0.62 122.15 0.65 83.42 0.62

Electricity expenses233.72 0.78 196.23 0.71 158.22 0.68 115.86 0.61 75.99 0.57

Recruitment and

training 112.21 0.37 120.99 0.44 173.03 0.74 144.80 0.77 78.96 0.59

Other Expenses920.73 3.06 903.62 3.25 848.51 3.63 728.56 3.85 565.56 4.23

Total Other Operating

Expenses 4,

.

.3

4,

.

4

.4

4,

.

3

.

3 3,3

.3

.

.

.


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y The Company took a number of measures to control costs inall areas of operations, both in India and overseas. Thisinitiative was widely deployed with extensive employeeparticipation. The result of these efforts was reflected in

multiple expense heads.y Due to this, the Total Operating and Other Expenses as a

percentage of revenues decreased to 15.39% in fiscal 2010 from19.26% in fiscal 2006.

y

However, the Company had to increase its provision fordoubtful debts from Rs.63.09 crore (0.23% of revenues in fiscal2009) to Rs.169.67 crore in fiscal 2010 (0.57% of revenues infiscal 2010). Some of these provisions arose as a result of restructuring of customer organizations in financial distress.

OPERATI G EXPE SES


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FI ANCIAL PERFORMANCEFor year ended March 3 ,

For the year ended

March 3 , !

For the year ended

March 3 , "

For year ended

March 3 , #

For year ended

March 3 , $

Revenues from Operations Rs. Croreof

RevenuesRs. Crore

%of

RevenuesRs. Crore

%of

RevenuesRs. Crore

%of

RevenuesRs. Crore

%of

Revenues

Information technology and

consultancy services 29,085.21 6.86 26,781.86 96.29 21,681.30 94.83 17,806.60 95.30 12408.68 93.55

Sale of equipment and software

licenses 943.71 3.14 1,031.02 3.71 1,182.09 5.17 878.61 4.70 855.31 6.45

Total Revenues30,028.92 100.00 27,812.88 100.00 22,863.39 100.00 18,685.21 100.00 13,263.99 100.00

Expenditure

Employee costs 10,879.57 36.23 9,910.92 35.63 7,854.60 34.35 8,002.85 42.83 4719.19 35.58

Overseas business expenses

(employee allowances paid overseas) 4,186.18 13.94 4,572.28 16.44 3,556.44 15.56 998.54 5.34 1392.33 10.50

Total Employee Costs15,065.75 50.17 14,483.20 52.07 11,411.04 49.91 9,001.39 48.17 6111.52 46.08

Overseas business expenses (other

than employee allowances paid

overseas)383.89 1.28 460.07 1.65 438.42 1.92 370.00 1.98 231.02 1.74

Services rendered by business

associates and others 1,261.97 .20 1,114.57 4.01 850.49 3.72 845.61 4.53 661.08 4.98

Operation and other expenses4,622.76 15.39 4,585.24 16.49 4,209.83 18.41 3,329.36 17.82 2576.08 19.42

Total Expenditure21,334.37 71.05 20,643.08 74.22 16,909.78 73.96 13,546.36 72.50 9,579.70 72.22

Other Income, Net272.07 .91 -426.99 -1.54 486.06 2.13 229.05 1.23 113.89 0.86

Depreciation 660.89 2.20 564.08 2.03 563.71 2.47 440.17 2.36 282.43 2.13

Operating Profit % , & 33.' '

('

. ) 0 '

,'

& 0 . ) ( ( 3.) 0 0 ,3 % 1 .1 & ( 3.0 ) 4,'

1 % .'

% ( 0 . 2 0 3,4& 2 . %'

( 0 .'

0


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0.00

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

8,000.00

9,000.00

2006 2007 2008 2009 2010

Operating Profit

Operating Profit


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Operating Profit

y The operating profit of the company increased to Rs.8033.66 crores in 2010 FY from Rs. 3401.86 crores in2006 FY. The revenue growth has been decent as seen inthe line chart.

y This has been possible due to the strict cost cuttingmeasures implemented by the company.

y The percentage of the operating profit as a % revenueremained stable from 25.65 % in 2006 FY to 26.75% in

2010 FY. However, in 2009 FY, this % decreased to23.75% and due to cost cutting measures implementedby the company.


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Operating Profit Analysis


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Revenue Analysisy Trend for net income

Year Mar '05 Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

Net Income 6,859.66 9,028.00 13,149.00 15,648.00 20,264.00 21,140.00

%Change in income NA 32% 46% 19% 29% 4%

Change from base(2005) 32% 92% 128% 195% 208%


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y The graph above shows the trend of the revenue, the change in revenue from previousyear and change in revenue from the year 2005 for the period 2006-2010.

y There is a steady growth in the absolute revenue of the company which has increasedmore than 200% in the period of five years.

y The growth rate of the revenue has declined over the years, from almost 46% in 2007 ithas dropped to 4% in the year 2010.

y The IT sector in India was at a high till at least 2008 when the world economy started tocrumble under the economic downturn. The effect can be seen in the graph above.Though, the revenues for Infosys show an upward trend for all the years, but the growthhas dwindled to 4% for the last year. This growth in the revenue is due to the all roundgrowth in various segments of the business mix and growth in business volumes.

0

0.5

1

1.5

2

2.5

0.00

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

Income

Net Income %Change in income Change from base(2005)


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Revenue by Location and products

Revenue by location(%) Mar '05 Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

Onsite 50.2 49.8 51.7 50.9 49.3 48.7

Offshore 49.8 50.2 48.3 49.1 50.7 51.3

B prod r r r r r rSof w re ser es 664 7 8 67 1 1 2 61 1 1 5 0 5 1 1 9 4 1 6 2 0 2 1 5

Sof w re prod s 2 1 3 3 5 7 5 3 8 5 9 7 8 4 8 9 2 5


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46

47

48

49

50

51

52


Revenue by Location

Onsite Offshore

As is evident from the figures and the graphs above, the revenue from onsite and offshoreactivities tend to be around 50% for all the years.


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0

5000

10000

15000

20000

25000


Revenue by Product

Software services Software products

There are two types of products Infosys mainly deals in- Software products and software

services. The revenue from the software services comprise the major portion of the revenue

that is, around 96% and it has been consistent for the last five years.


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Segmentation on the basis of

Geographyy Revenues

Revenue by

Geographical Location

North America Europe India Rest of the world Total

2010 14170 4633 269 2068 21140

2009 13123 5060 260 1821 202642008 9873 4 207 219 1349 15648

2007 8395 3 393 214 1147 13149

2006 6168 2337 165 851 9521

02000

40006000

800010000

1200014000

16000

20102009200820072006

Revenues by Geographical segment

North America Europe India Rest of the world


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y

Operating IncomeOperating Income by

Geographical Segment


2010 5028 1650 133 549 7360

2009 4437 1795 136 538 6906

2008 3099 1489 117 258 4963

20072649 1226 108 242 4225

2006 1997 827 58 209 3091

0

1000

2000

3000

4000

5000

6000

20102009200820072006

Operating Income by Geographical segment



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y

Operating Profit%Operating Profit% by

Geographical segment


2010 35.5 35.6 49.4 26.5 34.8

2009 33.8 35.5 52.3 29.5 34.1

2008 31.4 35.4 53.4 19.1 31.7

2007 31.6 36.1 50.5 21.1 32.1

2006 32.38 35.4 35.15 24.56 32.46

0

10

20

30

40

50

60

20102009200820072006

Operating Profit % by Geograhical segment



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North America is the region that contributesmaximum to the revenue of the company. The revenuecontribution has grown steadily from 29% in the year2005 to 67% in the year 2010. Europe and others have

also increased the contribution to the total revenue by98% and 143% respectively however; the contributionis quite small as compared to that of North America.Business from Europe took a dip (from 24% to 22%) inthe year 2010 possibly owing to the financial crisis inthat part of the world. The business from India forms asmall percentage of the total i.e. 1%.


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Segmentation on the basis of

Industrya. Revenues

Revenue by Industry inan ia Servi es anufa turing e e om Retai thers ota

0

1000

2000

3000

40005000

6000

7000

8000

20102009200820072006

Revenue byIndustry

Financial Services Manufacturing Telecom Retail Others


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Operating Income

O p e r a t in g I n c o m e 34

In 5 6 7 tr4

8 i n a n c i a 9 @ e rA

ic e7 B

a n 6C

a ct 6 r ingD

e 9 e c o m Re t a i 9 O t E e r 7D

o ta 9

F G H G 2644 1258 1167 1065 1226 7360

F G G I 2374 1296 1198 929 1109 6906

F G G P 1856 691 1010 624 782 4963

F G G Q 1568 584 788 450 835 4225

F G G R 1074 402 601 311 703 3091

0

500

1000

1500

2000

2500

3000

20102009200820072006

Operating Income byIndustry

Financial Services Manufacturing Telecom Retail Others


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Operating Profit

O perating ProfitS

TU

V nW

X

Y

trU

inana

ia b c

erd

ia

eY

e an X faa

t X ringf

e b ea

o g h etai b O t i erY

f

ota b

p

q

r

q

35.9 31.5 36.1 35.6 34.3 34.8

p

q q s

33.8 33.4 34.7 34.4 34.5 34.1

p

q q t

32.5 30.2 31.4 32.1 31.4 31.7

p

q q u

31.7 32.4 32.7 32.5 32.1 32.1

p

q q

v 31.3 30.4 38.4 32.1 31.4 32.5


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y The company makes the maximum revenue and the maximum operating income from the financialservices industry which accounts for more than 35% of the total revenue generated however therevenue from this industry has dropped from 38% in 2007 to 35% in the last year.

y An upward revenue percentage growth trend is seen for the Retail and the Manufacturing industry.The revenue have increased over the years for almost all the sectors except Telecom in the last yearhowever, the rate of growth has decelerated. We can see the growth rates taking a dip in the trendchart below:-


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Gross Profit MarginY w a r

x w

y

w n w

o s t o f s a w

s G r o s s pr o f i t G r o s s pr o f i t a r g i n

2147 1225 922 43%

2865 1661 1204 42%

13893 7458 6435 46%

16692 9207 7485 45%

21693 11765 9928 46%

22742 12071 10671 47%


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y Infosys has a gross profit margin of 47% for the year2010. This means that the company is in an extremelycomfortable position to be profitable. Also, we can seethat the companys gross profit margin is ranging

between 42 47%. There is an increase in the revenuesand correspondingly there is an increase in the cost ofsales also. In the year 2010, the increase in revenues is

just 4.6% but the increase in cost of goods sold is 3%

hence, there is an overall increase in the gross profitmargin from the previous year.


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Operating expense ariance

Analysis


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Raw aterials 13 55 1 22 18 2 22

C g in Co t 2 5 2 2

%C

ng in co t 18% 38% 18% 11% 1 %

As % Net sales

18%

17%

12%

1 %

1 %

Power

uelj

ost 2 2 88 1 125 122

C ange in Cost 21 8 2 18 19 3

%C ange in cost 5 % 2% 2 % 18% 2%

As % Net sales

9%

7%

8%

2%

58%

Employeej

ost 3183 25 27 31 7771 9975 1 35

C ange in Cost 1 9

75 2

2 1

55 22

381

%C ange in cost 3 % 8% 23% 28% %

As % Net sales 7 3 % 8.03% 9.66% 9.23% 8.99%

Other anufacturink

Expenses 563.47 792 1290 1443 1697 1993

C ange in Cost 228.53 498 153 254 296%C ange in cost 41% 63% 12% 18% 17%

As % Net sales 8.77% 9.81% 9.22% 8.37% 9.43%

Sellink

and Admin Expenses 697.15 773.49 1050.53 1214 1367 992

C ange in Cost 76.34 277.04 163.47 153 375

%C ange in cost 11% 36% 16% 13% 27%

As % Net sales 8.57% 7.99% 7.76% 6.75% 4.69%

MiscellaneousExpenses 35.84 120.51 156.47 132 172 293

C

ange in Cost 84.67 35.96 -24.47 40 121%C ange in cost 236% 30% -16% 30% 70%

As % Net sales 1.33% 1.19% 0.84% 0.85% 1.39%

TotalExpenses 4533.46 6038 8923 10684 13356 13778

C ange in Cost 1504.54 2885 1761 2672 422

%C ange in cost 33% 48% 20% 25% 3%

As % Net sales 66.88% 67.86% 68.28% 65.91% 65.18%

Operatink

Profit 2l 326.20 2l 990.00 4,226.00 4,964.00 6,908.00 7,362.00

Trend forOperatink

profit 33% 32% 32% 34% 35%

Opm n o

ng Expm

n m

Ano

ly


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The various expenses for Infosys as a percentage of net salesfor that year as is shown in the graph (i), are almost at the

same level. There is a reduction in the raw material and

selling and administration costs. The overall cost has

decreased by almost 1.5%.

The revenue has increased over the years and the operatingcost has been maintained at almost the same level. Hence,

there is an improvement in the operating profit of the

company as depicted in the second graph. The trend line is

going upwards though in the year 2007 and 2008 we can seea dip in the operating profit. In the graph for expenses also,

we can see that there is an increase for these two years.

Overall, the firm seems to have good control over its

operating activities.

Operating Profit Analysis

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