You seem to be missing the point. The stock is an
ADR and moves relative to the share price in India.
The P/E ratio thus has no relevance here. INFY is one
of the best run software company in India and even
though it is overvalued compared to the rest of the
market it is always based on the future potential.
I think Infosys enjoys some tax concessions over
US companies. I am not sure but i believe this is
true. I have observed that Infosys keeps 10 % of
Operating Profit as Tax whereas US companies pay around 35
%. Infosys rarely mentions these kind of things that
help it ( like TAX concessions and Rupee devaluation )
. Instead Infosys claims it is very nicely managed
and hence enjoys good premium over the market.
In actual practice the Employess revenue produtivity
of Infosys is far less than the US companies. Thats
because Infosys , Satyam etc can only deliver Software
services . They cannot generally withstand the risk of
Just my opinion. I like the
stock because of its returns in the past.
Actually Infosys is one of the few companies with
a very small employee attrition rate, due to their
stock options. Many of their employees own crores of
rupees worth of stock options.
I totally agree
with you that, the wages are going to rise
period of time. But I don't think it will equal or even
come close to US rates for lower level employees. To
total number of visas per year is something like
150,000 (I think) and period of a visa is 3yrs. So, at
any time there will only be about 450,000 foriegners
on work visa in the US. Even there, only a fraction
of that is the quota for India. The services
Industry is much larger than that. So Infosys would need
to retain the top people by paying them huge wages
(or stock options). But for most of the people they
will be able to manage with much lower wages than the
Ofcourse the other well known US service
companies could move their work to India, but then Infosys
would have the hometurf advantage (familiarity with the
Indian govt, bureaucracy etc.)
So, ofcourse there
are risks in investing with INFY, but I think the
risk reward ratio is pretty favourable.
While the stock price on the Bombay Stock
Exchange does set
the trend for the NYSE ADR, the ADR
floats independently and
has traded at a substantial
premium to the underlying shares
(in excess of 35% in
There are three major reasons that
I would be wary of this
stock at this
a) High forward P/E.
The IT services sector is
currently in a slump. Look at
Compuware, Keane and BMC
Software's P/E ratios as examples.
A P/E contraction
such that the ADR matches the BSE share
Look at what P/E
contractions did to SAP and BAAN ADRs.
b) Low trading
The average daily trading volume is tiny. This
makes the ADR
susceptible to major fluctuations in
c) Lack of institutional support.
This is a
major concern to me. I would not buy INFY until a
substantial portion of the ADRs were held by
My suspicion is that most of the buying of INFY
ADRS is by
conned by the fact that the company is well managed.
It is still a very pricey stock.
INFY cannot be compared to Keane and Compuware in
the first place. Any devaluation on Rupee will have a
great impact on INFY profitability as $$$ realization
is more. INFY revenue/profit generated per employee
is far higher compared to thier US counter parts.
INFY charges more than 6000$ per ManMonth(OffShore)
for thier services and thier Cost per person
including the overhead cannot go beyond $1500. Such high
margin realizations cannot expected from
Nevertheless, stock is pricey but we
cannot compare INFY P/E with the P/Es of