IRM Assignment 01

Infosys & Tech Mahindra

Section: A
Group Number: 4
Submitted by:
Sheetal Raj p42158
Ankit Subarno p42064
Neepa Agrawal p42135
Pranshu Singh p42140
Vishwajeet Thorat p42053
Rushikesh Gawande p42149
Aparna Sahoo p42009
Shubham Kamboj p42110 (No contribution in assignment)
1. Compare the following ratios of the two firms (last two years average) and comment.
a) Net Profit Margin, Equity Multiplier (Total Assets/Equity), Asset Turnover Ratio
Infosys Tech Mahindra
Net Profit Margin 19.96 13.91
Equity Multiplier 1.31 1.35
Asset Turnover Ratio 1.08 0.92

Comments:
Net Profit Margin: In the previous year, the Net Profit Margin of Infosys was 18.59% which
is lower than the current year's Net Profit Margin. Hence there is an increase in the supply.
As we discuss the Tech Mahindra, there is also an increase in the current Net Profit Margin.
On comparing the firms' margins, we can see a much more significant gap between Infosys
and Tech Mahindra, and hence Infosys has a better net profit margin.
Equity Multiplier: The ratio is somewhat the same for Infosys for both the FY, while for
Tech Mahindra, it was 1.36 in FY20, which is higher than the current year. Hence, comparing
both shows that Tech Mahindra uses a high amount of debt to finance assets. In contrast,
Infosys has less reliance on debt.
Asset Turnover Ratio: The ratio for Infosys is 1.08, which is higher than Tech Mahindra,
i.e., 0.92. Hence, there is an efficient use of assets to generate sales by Infosys, and hence it is
more efficient in generating revenue.
b) Return on Equity (ROE) and Return on Assets (ROE)
Infosys Tech Mahindra
Return on Equity (ROE) 0.29 0.18
Return on Asset (ROA) 0.22 0.14

Comments:
Return on Equity (ROE): The ratio for Infosys is 29% which is higher than that of Tech
Mahindra, i.e., 18%. Hence, it indicates that Infosys is using its funds effectively and
generating greater profit from stockholder's equity.
Return on Asset (ROA): Both companies have relatively good capital efficiency. But the
financial ratio is higher for Infosys, indicating that the company can produce somewhat
higher earnings than its asset base.
c) Financial Leverage (Debt ratio, DE ratio) and Solvency ratios (ICR and DSCR)
Infosys Tech Mahindra
Debt Ratio 0.03 0.10
Debt to Equity Ratio 0.3 0.29
Interest Coverage Ratio
227.25 93.83
(ICR)
Debt Service Coverage
1.39 0.48
Ratio (DSCR)
Comments:

Debt Ratio: The debt ratio for both companies is relatively lower, suggesting that they are
creditworthy. But there is also a risk associated with companies carrying too little debt, and
hence it limits the total return that can be realized and passed on to shareholders.

Debt to Equity Ratio: The ratio for both the firms is lesser than 1, which indicates the firms
are less risky. It is somewhat the same for both the firms, but Tech Mahindra has a lower
value indicating less debt on its balance sheet than Infosys.

Interest Coverage Ratio (ICR): Infosys has a higher ICR of 227.25 compared to Tech
Mahindra, which is 93.82. This indicates that Infosys has a higher interest coverage Ratio-
with stronger financial health. Hence, it is more capable of meeting its interest obligations.

Debt Service Coverage Ratio (DSCR): Infosys generates sufficient operating income to
cover its annual debt and interest payments. On the other hand, Tech Mahindra is not doing
so well. The ideal DSCR should be 2 or higher. As the DSCR of Infosys is 1.39, it suggests
that the company is capable of taking more debt.
2. Assuming the existing cash reserves are not used to fuel sales growth
A) Compute the growth in sales the two firms may attain with internal capital only (IGR).
b) Find the growth in sales firms may attain with constant financial leverage (SGR).
Infosys:
ROA = PAT / Total Asset = 19514 / 87490 = 0.22
ROE = PAT / Shareholder's Equity = 19514 / 66882.5 = 0.29
Retention Ratio = 0.44
IGR = ROA * Retention Ratio = 0.22 * 0.44 = 9.79%
SGR = ROE * Retention Ratio = 0.29 * 0.44 = 12.80%
Tech Mahindra:
ROA = PAT / Total Asset = 4321.85 / 31,848.35 = 0.14
ROE = PAT / Shareholder's Equity = 4321.85 / 23,641.70 = 0.18
Retention Ratio = 0.47
IGR = ROA * Retention Ratio = 0.14 * 0.47 = 6.36%
SGR = ROE * Retention Ratio = 0.18 * 0.47 = 8.56%
3. Prepare a pro forma balance sheet with 40% sales growth in the next fiscal. Estimate the
external funding needed (EFN) to achieve the projected sales growth. Discuss the fundraising
strategy for the same.
 Infosys Tech Mahindra

Total Assets/ Sales 0.94 Total Assets/ Sales 1.037522155

Current Liabilities/ S'ales 0.18 Current Liabilities/ S'ales 0.195508017
Change in Sales ₹ 34,364.80 Change in Sales ₹ 11,690.16
Sales of Current Year ₹ 85,912.00 Sales of Current Year ₹ 29,225.40
Projected Sales ₹ 1,20,276.80 Projected Sales ₹ 40,915.56
Net Profit Margin 0.20 Net Profit Margin 0.14142367

External Funding Needed ₹ 7,19,016.29 External Funding Needed ₹ 2,47,086.85

For Pro Forma Infosys:

We can take a bank loan at 10-15% rate of interest, as Infosys has already an existing
arrangement with various banks that can allow the firm to take a loan of 50% of the current
assets, which will increase the total assets by more than 128942 Cr. which can be used for
various funding operations etc. which will be paid when the firms find suitable in the given
time.
If there is more need for external funding, the firm can choose to go for Stretching Payable.
For Pro Forma Tech Mahindra:
The Tech Mahindra needs 2,47,000 Cr, so the best way to raise the money from the equity as
the amount the company needs is way too much, and this is the only the best approachable
idea. If this also does not work, they can use the Stretching Payable method for more.
Annexure:
INFOSYS INCOME STATEMENT
INFY
Particulars in Rs. Crores in Rs. Cr.
FY21 FY20 Average
REVENUE
Gross Sales ₹ 1,03,940.00 ₹ 85,912.00 ₹ 94,926.00
Net Sales ₹ 1,03,940.00 ₹ 85,912.00 ₹ 94,926.00
Other Income ₹ 3,224.00 ₹ 2,467.00 ₹ 2,845.50
Net Revenue ₹ 1,07,164.00 ₹ 88,379.00 ₹ 97,771.50
EXPENSES
Total Expense ₹ 76,240.00 ₹ 61,581.00 ₹ 68,910.50
EBITDA ₹ 30,924.00 ₹ 26,798.00 ₹ 28,861.00
Depreciation & Amortisation Expenses ₹ 2,429.00 ₹ 2,321.00 ₹ 2,375.00
EBIT ₹ 28,495.00 ₹ 24,477.00 ₹ 26,486.00
Interest Expense ₹ 128.00 ₹ 126.00 ₹ 127.00
PBT ₹ 28,367.00 ₹ 24,351.00 ₹ 26,359.00
Corporate Tax ₹ 7,260.00 ₹ 6,429.00 ₹ 6,844.50
PAT ₹ 21,107.00 ₹ 17,922.00 ₹ 19,514.50
EPS ₹ 50.27 ₹ 42.37 ₹ 46.32
Net income (for the period) ₹ 18,048.00 ₹ 15,543.00 ₹ 16,795.50
Dividend Payout (Including DDT) ₹ 30.00 ₹ 21.00 ₹ 25.50
Transfer to Reserves & Surplus ₹ 9,221.00 ₹ -725.00 ₹ 4,248.00
Retention Ratio 0.4925 0.3853 0.44
 INFOSYS BALANCE SHEET
Particulars In Rs. Crores in Rs. Cr.
FY21 FY20 AVERAGE

NON_CURRENT ASSETS
Fixed Assets 15,505.00 14,919.00 15,212.00
Non-current Investments 22,118.00 13,916.00 18,017.00
Other Non-current Assets 7,049.00 6,659.00 6,854.00
TOTAL NON-CURRENT ASSETS 45,657.00 37,221.00 41,439.00

CURRENT ASSETS
Cash and Cash Equivalent 17,612.00 13,562.00 15,587.00
Inventory 0 0 0.00
Account Receivable 16,394.00 15,459.00 15,926.50
Current Investments 2,037.00 4,006.00 3,021.50
Other Current Assets 12,010.00 10,486.00 11,248.00
TOTAL CURRENT ASSETS 48,282.00 43,820.00 46,051.00
TOTAL ASSETS 93,939.00 81,041.00 87,490.00

SHAREHOLDER'S FUND
Equity Share Capital 2,130.00 2,129.00 2,129.50
Reserve and Surplus 69,029.00 59,808.00 64,418.50
Other Reserve 4,632.00 4,555.00 4,593.50
TOTAL SHAREHOLDER'S FUND 71,531.00 62,234.00 66,882.50

NON-CURRENT LIABILITIES
Long-term Borrowing 0 0 0.00
Other Non-current Liabilities 4,275.00 3,031.00 3,653.00
TOTAL NON-CURRENT LIABILITIES 4,786.00 3,587.00 4,186.50

CURRENT LIABILITIES
Short-term Borrowing 0 0 0.00
Account Payable 1,562.00 1,529.00 1,545.50
Other Current Liabilities 15,399.00 13,185.00 14,292.00
TOTAL CURRENT LIABILITIES 17,622.00 15,220.00 16,421.00
TOTAL CAPITAL AND LIABILITIES 93,939.00 81,041.00 87,490.00
TOTAL DEBT 2,662.50
 TECH MAHINDRA INCOME STATEMENT

Tech mahindra
Particulars in Rs. Crores in Rs. Cr.
FY221 FY20 Average
REVENUE
Gross Sales ₹ 29,640.90 ₹ 29,225.40 ₹ 29,433.15
Net Sales ₹ 29,640.90 ₹ 29,225.40 ₹ 29,433.15
Other Income ₹ 921.80 ₹ 2,366.20 ₹ 1,644.00
Net Revenue ₹ 30,562.70 ₹ 31,591.60 ₹ 31,077.15
EXPENSES
Total Expense ₹ 24,373.80 ₹ 25,592.00 ₹ 24,982.90
EBITDA ₹ 6,188.90 ₹ 5,999.60 ₹ 6,094.25
Depreciation & Amortisation Expenses ₹ 662.30 ₹ 667.40 ₹ 664.85
EBIT ₹ 5,526.60 ₹ 5,332.20 ₹ 5,429.40
Interest Expense ₹ 63.20 ₹ 66.70 ₹ 64.95
PBT ₹ 5,463.40 ₹ 5,265.50 ₹ 5,364.45
Corporate Tax ₹ 1,287.50 ₹ 797.70 ₹ 1,042.60
PAT ₹ 4,175.90 ₹ 4,467.80 ₹ 4,321.85
EPS ₹ 43.76 ₹ 46.89 ₹ 45.33
Net income (for the period) ₹ 4,239.10 ₹ 4,534.50 ₹ 4,386.80
Dividend Payout (Including DDT) ₹ 45.00 ₹ 30.00 ₹ 37.50
Transfer to Reserves & Surplus ₹ 3,007.30 ₹ 1,518.40 ₹ 2,262.85
Retention Ratio 0.54 0.39 0.47
 TECH MAHINDRA BALANCE SHEET
Particulars In Rs. Crores in Rs. Cr.
FY21 FY20 AVERAGE

NON_CURRENT ASSETS
Fixed Assets 3,159.10 3,370.90 3,265.00
Non-current Investments 7,498.20 5,888.30 6,693.25
Other Non-current Assets 2,291.80 2,583.30 2,437.55
TOTAL NON-CURRENT ASSETS 13,354.50 12,278.90 12,816.70

CURRENT ASSETS
Cash and Cash Equivalent 1,050.10 1,858.00 1,454.05
Inventory 0 0 0.00
Account Receivable 5,152.60 6,212.00 5,682.30
Current Investments 9,054.20 4,760.30 6,907.25
Other Current Assets 4,756.00 5,205.20 4,980.60
TOTAL CURRENT ASSETS 20,020.20 18,043.10 19,031.65
TOTAL ASSETS 33,374.70 30,322.00 31,848.35

SHAREHOLDER'S FUND
Equity Share Capital 484.1 482.9 483.50
Reserve and Surplus 24,074.30 21,377.60 22,725.95
Other Reserve 1,420.50 1,378.00 1,399.25
TOTAL SHAREHOLDER'S FUND 25,010.70 22,272.70 23,641.70

NON-CURRENT LIABILITIES
Long-term Borrowing 0 0 0.00
Other Non-current Liabilities 674.2 645 659.60
TOTAL NON-CURRENT LIABILITIES 1,167.20 1,104.40 1,135.80

CURRENT LIABILITIES
Short-term Borrowing 0 0 0.00
Account Payable 2,527.80 2,525.60 2,526.70
Other Current Liabilities 3,223.70 3,002.30 3,113.00
TOTAL CURRENT LIABILITIES 5,961.30 5,713.80 5,837.55
TOTAL CAPITAL AND LIABILITIES 33,374.70 30,322.00 31,848.35
TOTAL DEBT 3,200.75

Shubham Kambhoj