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Infosys Ltd. Message Board

  • nshekar99 nshekar99 Jun 8, 1999 10:46 PM Flag

    INFY Stock PE Ratio

    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.

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    • Instead of a total long term outlook, you should encash some chips now - say when it hits 60+ and then reload at 47-49.

    • dear all

      where do u think infy will be in say june 2000--in other words is it a long term hold or shall we all take advantage of this recent price increase and sell.?

      thanks in advance

    • 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
      launching products.

      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
      over a
      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
      US.

      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.

      Manu

    • 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
      some cases).

      There are three major reasons that
      I would be wary of this
      stock at this
      point:

      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
      value is
      not impossible.

      Look at what P/E
      contractions did to SAP and BAAN ADRs.

      b) Low trading
      volume.
      The average daily trading volume is tiny. This
      makes the ADR
      susceptible to major fluctuations in
      price.

      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
      institutions.
      My suspicion is that most of the buying of INFY
      ADRS is by
      expatriate Indians.

      Don't get
      conned by the fact that the company is well managed.

      It is still a very pricey stock.

      • 2 Replies to fundacat
      • 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
        Keane/Compuware.

        Nevertheless, stock is pricey but we
        cannot compare INFY P/E with the P/Es of
        Keane/Compuware.

      • In my earlier message

        I wrote - NYSE ADR

        I meant - NASDAQ :)

    • Why was a sudden surge here? Indian prices seem to be hovering at the same levels and its up 15% here. Does anyone know the reason?

 
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