Valuation by

Tanushree Seth

Company Snapshot

Global Headquarters: Bangalore, India

Founded: 1981

Global Presence: 36 Sales Offices in 17 countries37 Global Development Centers

Employees: 49,422

LTM Dec ’05 Revenue/ 5 Year CAGR: $2,014 million/ 41%

LTM Dec ’05 Net Income/ 5 Year CAGR: $530 million/ 37%

Company Statistics

Employer Type: Public Company

Stock Symbol: INFYStock Exchange: NASDAQ

Market Share price: $74.98*

Key ExecutivesPresident, CEO, MD: N. R. Narayana MurthyNandan M NilekaniT. V. Mohandas PaiS. Gopalakrishnan V. BalakrishnanK. DineshS. D ShibulalSrinath Batni

*As of 4/14/2006

CEO, President and MD: N.R.

Narayan Murthy

Outline

• Overview• Investment Highlights

Business modelInvestment positives

• Addressing Key market challenges: Risks• Valuation

Estimated growth rates of 30% and 25%• Comparable company analysis• Recommendation

Overview

Smart investments In 1999, the firm became the first Indian company to

list on NASDAQ In 2002, Infosys started a recruiting and marketing

blitz The firm registered sales of $740 million, up 50

percent over the previous year, 2002In 2004, , the firm hit its first billion

Overview

The U.S. dream team

The company turned its attention to the U.S. consulting market in April 2004, forming Infosys Consulting

Stephen Pratt, who was named CEO of the subsidiary; Romil Bahl, former head of EDS' consulting practice; Pal Cole, former head of global operations at CGE&Y; and Raj Joshi, former CEO of Deloitte Offshore.

In April 2004, the publication eWeek.com pointed out that the move was a step toward competing in the U.S. consulting market against the big guys like Accenture.

Moving forward

In 2003, Infosys launched a business-processing subsidiary, Progeon, and secured a five-year, $30-million contract from U.S. mortgage firm GreenPoint.

In November 2004, Infosys and Microsoft announced an enterprise IT transformation initiative

In December 2003, the firm announced its intentions to acquire Expert Information Services, an Australian IT services

firm, for around $23 million.

Infosys Work Culture

Open-door culture

Hard work, lots of passion

A piece of heaven in Bangalore

Investment HighlightsLarge, Expanding Addressable Market

Highly-evolved Global Delivery Model

Rapid Differentiation

Scalable Execution

Exceptional Financial performance

Large, Expandable Addressable Market

Offshore Outsourcing is a Mega Trend

Outsourcing benefits: Convert fixed costs to variable Reduce TCO, enhance ROI Improve competitiveness

Offshore benefits: Deliver high quality at great value Highly scalable with no foreseeable

supply constraints Proven track record Addressable market has increased

Source: Infosys

$606.00 bn

$18.00 bn

$728.00 bn

$51.00 bn

0

100

200

300

400

500

600

700

800

CY 2004 CY 2007

Corporate ITServicesSpending

OffshoreOutsourcing ITServicesSpending

India: #1 Offshore Destination

The India Advantage:

Strong Track Record

• High quality delivery

• Significant costs benefits

• Strong government support

• Mature industry

• Man Power

• Education system

• 24 x 7 working model advantage

Source: Infosys: IDC Offshore Best Practices Enterprise Survey, 2004

80%

20%17% 17%

0

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20

30

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80

India Canada China Ireland

Corporate Executives’ Preferred Destinations for Offshore IT Services

Infosys is a Premier Global IT Services Firm

Key competitive advantages

• Extensive domain knowledge and expertise

• Comprehensive offerings• Long-term relationships with blue chip

clients• Proven Global Delivery Model• Execution excellence• Competent leadership and management

team

Source: Infosys and Gartner 2004

$294.00 mm

$2,014.00 mm

0

500

1000

1500

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LTM Sep ' 00 LTM Sep '05

Infosys Revenue

5 year CAGR (LTM Dec 00-LTM Dec 05)

Global IT Services 5%

India IT Exports 29%

Infosys 41%

Business Model:

Highly-evolved Global Delivery Model

Highly-evolved Global Delivery Model

Stage 1 Stage 2 Stage 3

Client Requirements

Infosys Delivery

Run the

business

Grow the business

Transform the business

GDM GDM+ GDM+ Consulting

Infosys’ Global Delivery ModelManagement

Consulting

Business Process Management

IT Outsourcing

Systems Integration

Technology Consulting

Technology-enabled BPR

Enterprise Solutions

Application Development and Maintenance

Software Engineering

People|Organization|Infrastructure|Process|Quality

Infosys Global Delivery Model

1981 ____________

1996 ______________

2001 ________________

2005 ________

Differentiation within the IT industry

Uniquely Positioned in Global IT Services and Consulting

IN PROCESS• Consulting + Solution mindset• Build stronger brand• Strengthen Board-level relationships

NEED TO:• Replace resources• Overcome “offshore-is-cost-center” mindset• Combat revenue cannibalization• Provide seamless sales and delivery• Reduce SG&A

Applying GDM to Consulting

0

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60

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100

TraditionalConsulting

Model

INFOSYSconsulting

Business Change

IT Implementation

Significantly lower total cost of engagementLower IT implementation cost = flexibility in solution deliveryGreater ability to invest in managing business change

----------------------------------------------------- Client Budget

35% lowering total cost

-------|

Drivers of ScalabilitySuperior Talent Management

World Class Processes

and Systems

Flexible Organization

Structure

Modular and Robust Global Infrastructure

SCALABLE EXECUTION

LEADS TO

Scalable ExecutionSuperior Talent Management:

Hiring the Best

Able to simultaneously evaluate 10,000 people across 7 cities in India

Augmenting talent through new geographies China, Eastern Europe

Supplementing with experienced local hires Currently hiring people 59

nationalities

World Class Processes and Systems

Quality par excellence: Benchmarked to Global Standards such as

EFQM

Award-winning Knowledge Management Processes

PRIDE 2004 Asian MAKE Award

Scalable Execution

Flexible Organization Structure

Integrated platform for delivery of end-to-end solutions from Consulting to BPM

Self-governed business units By domain By Market By Service

Modular and Robust Infrastructure

37 Global Development Centers (“GDC”)

Ability to rapidly scale new engagements

Flexibility to distribute engagements and capacity across centers worldwide

Exceptional Financial Performance

Superior Revenue Growth

Sustained Industry-leading Profitability

Addressing Key Market Challenges

ChallengesCompetitive

• Pricing

• Onsite/offshore effort

• Investment in sales and marketing

Economic

• Wage inflation

• US$/Rupee exchange rate

Infosys Strategy• Continue to penetrate high value-

add segments

• Leverage GDM+

• Enhance internal productivity

• Leverage economies of scale and brand

• Move to variable salary structure and role-based compensation

• Proactively hedge currency exposure

Valuation

Inputs:

Current EBIT = $491,000,000.00 Current Interest Expense = $0.00 Current Capital Spending $186,000,000.00 Current Depreciation & Amortization = $66,000,000.00 Tax Rate on Income = 14.66%Current Revenues = $1,592,000,000.00 Current Non-cash Working Capital = $302,000,000.00 Chg. Working Capital = $152,852,304.00 Cash and Marketable Securities $688,000,000.00 Value of equity options issued by firm = $52,000,000.00 Book Value of Debt = $180,000,000.00 Book Value of Equity = $1,253,000,000.00

Valuation

Market Value per share= $75Number of shares outstanding= 274,530,000Market Value of Debt= $180,000,000Length of extraordinary growth period= 10 yearsBeta of the stock= 2.03Risk Free rate= 4.86Risk Premium= 6.60%Cost of Debt= 5.63%

Estimated Growth= 30%

Valuation

Outputs:Return on capital= 27.20%

Reinvestment Rate= 11%

Cost of Equity= 18.26%

Equity/(Debt+Equity)= 99.13%

After-tax Cost of debt= 4.80%

Debt/(Debt+Equity)= 0.87%

WACC: 18.14%

Valuation

Current EBIT * (1 – tax rate) $419,019,400

- (Capital Spending – Depreciation) $120,000,000

- Change in WC $152,852,304

Current FCFF: $146,167,096.00

NPV of FCFF

EBIT * (1 - tax rate)

2006

$586,198,084.13

2007

$820,077,050.95

- (CapEx-Depreciation) $167,877,120.00 $234,856,061.83

-Chg. Working Capital $120,490,752.00 $168,563,670.27

Free Cash flow to Firm $297,830,212.13 $416,657,318.85

Present Value $252,096,381.22 $298,520,895.88

NPV of FCFF

EBIT * (1 - tax rate)

2010

$2,245,357,256.2

2011

$3,141,200,912.8

2012

$4,394,464,688.31

2013

$6,147,750,631.7

- (CapEx-Depreciation) $643,031,971.19 $899,586,294.92 $1,258,499,636.53 $1,760,610,787.5

-Chg. Working Capital $461,524,511.31 $645,661,714.74 $903,265,243.03 $1,263,646,396.6

Free Cash flow to Firm $1,140,800,773.7 $1,595,952,903.2 $2,232,699,808.75 $3,123,493,447.6

Present Value $495,677,391.45 $586,958,282.56 $695,048,899.58 $823,044,817.93

NPV of FCFF

EBIT * (1 - tax rate)

2014

$8,600,555,587.86

2015

$12,031,970,854.09

Terminal Year

$12,633,569,396.79

- (CapEx-Depreciation) $2,463,052,237.07 $3,445,750,966.40 $3,158,392,349.20

-Chg. Working Capital $1,767,810,981.38 $2,473,125,135.49 $0.00

Free Cash flow to Firm $4,369,692,369.41 $6,113,094,752.19 $9,475,177,047.59

Present Value $974,611,675.13 $1,154,090,149.91

NPV of FCFF

Present Value of FCFF in high growth phase = $6,052,135,216.05

Present Value of Terminal Value of Firm = $13,612,066,744.99

Value of the firm = $19,664,201,961.04

Cash and Marketable Securities = $688,000,000.00

Market Value of outstanding debt = $180,000,000.00

Market Value of Equity = $20,172,201,961.04

Value of Equity options issued by the company = $52,000,000.00

Market Value of Equity/share = $73.29

Market Value at an estimated growth rate of 25%

Present Value of FCFF in high growth phase = $ 4,627,111,697.12

Present Value of Terminal Value of Firm = $ 8,458,660,426.31

Value of the firm = $ 13,085,772,123.43

Cash and Marketable Securities = $ 688,000,000.00

Market Value of outstanding debt = $ 180,000,000.00

Market Value of Equity = $ 13,593,772,123.43

Value of Equity options issued by the company = $ 52,000,000.00

Market Value of Equity/share = $ 49.33

Firm is overvalued

Competitive Landscape

Infosys Technologies (INFY)Competitors:

• Wipro (WIT)• HCL Technologies Ltd.• Satyam Computer Services (SAY)• Cognizant Technology Solutions Corp.• Syntel Inc.• Tata Consultancy Services Ltd.• i-flex• Patni Computer Systems Ltd.

Comparable company analysisShare Price

Ticker Company nameSharePrice*

% of 52 week high

Equitymarket cap (2)

Bookvalue Cash and

SymbolIndian IT Services

vendors equivalents

    ($/shr) (%) ($MM) ($MM) ($MM)

INFYInfosys Technologies

(INFY) $75.10 90.1% $20,616.8 $1,639.0 $969.0

WIT Wipro (WIT) $14.50 93.6% $20,649.3 $1,574.6 $773.8

629489HCL Technologies

Ltd. $13.47 85.0% $4,335.6 $840.8 $441.8

SAYSatyam Computer

Services (SAY) $38.71 87.0% $6,268.4 $914.8 $472.0

*Share price as per 4/10/2006(2) Includes in-the-money outstanding options, warrants and convertible securities, treasury-adjusted. Enterprise value is market

capitalization plus total debt and other value, less cash and equivalents.

Comparable company analysis

Company name Cash % Total Debt Enterprise Revenue EBITDA

Indian IT Services vendorsof market

cap   Value (2) FY 07 FY 08 CY 06 CY 07

  (%) ($MM) ($MM) ($MM) ($MM) ($MM) ($MM)

Infosys Technologies (INFY) 4.7% $0.0 $19,660.8 $2,622.5 $3,320.0 $846.7 $1,055.9

Wipro (WIT) 3.7% $32.3 $19,907.8 $2,886.8 $3,613.7 $689.0 $841.3

HCL Technologies Ltd. 10.2% $41.2 $3,937.5 $1,117.8 $1,418.0 $255.4 $319.1

Satyam Computer Services (SAY) 7.5% $16.9 $5,834.2 $1,343.6 $1,703.2 $300.1 $377.8

(2) Includes in-the-money outstanding options, warrants and convertible securities, treasury-adjusted. Enterprise value is market capitalization plus total debt and other value, less cash and equivalents.

Comparable company analysis

Company name Enterprise Value/Revenue Enterprise Value/EBITDA

Indian IT Services vendors FY 07 FY 08   FY 07 FY 08  

  (x) (x)   (x) (x)  

Infosys Technologies (INFY) 7.5 x 5.9 x   23.2 x 18.6 x  

Wipro (WIT) 6.9 x 5.5 x 28.9 x 23.7 x  

HCL Technologies Ltd. 3.5 x 2.8 x 15.4 x 12.3 x  

Satyam Computer Services (SAY) 4.3 x 3.4 x 19.4 x 15.4 x  

Comparable company analysis

Company name Earnings per share Price/Earnings Long-term PEG ratio

Indian IT Services vendors FY 07 FY 08 FY 07 FY 08 Growth rate FY 07 FY 08

  ($/shr) ($/shr) (x) (x) (%) (x) (x)

Infosys Technologies (INFY) $2.38 $2.87 31.6 x 26.2 x 29.4% 1.1 x 0.9 x

Wipro (WIT) $0.38 $0.46 37.9 x 31.6 x 23.4% 1.6 x 1.4 x

HCL Technologies Ltd. $0.54 $0.62 25.2 x 21.6 x NA NA NA

Satyam Computer Services (SAY) $1.54 $1.85 25.2 x 20.9 x 21.5% 1.2 x 1.0 x

Recommendation:Buy at low

Thank you!