INFY: Notes From Lunch With CFO Bala; Tone Positive: Wells Fargo

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Infosys Technologies Ltd.
INFY: Notes From Lunch With CFO Bala; Analyst Meeting Tuesday
Tone Positive, But Client Spend Visibility Remains Modest

• Summary: Infosys (INFY) CFO Offered Positive Commentary/Tone,
But Nothing Incremental. Analyst Meeting Tuesday in NYC. Shortterm
visibility indicated as high, and unlike Cognizant (CTSH) not seeing an end
to "pent up" demand. Intermediate-term less so as clients keep project
durations short. Long-term sees positioning, shift to more offshore, expanding
service offering and significant penetration potential offering comfort to
continued strong growth outlook. No financial update to be offered at analyst
meeting. Reiterate Market Perform, only hold back is valuation, although bias is
up.


• MARKET OPPORTUNITIES. Highlighted addressing regulatory changes,
''online'' retailing, and globalization (of client's business) as three key drivers of
growth. Cloud is building as opportunity, but focus (for INFY's Global 1000
client base) is more focused on addressing internal optimization (''private
clouds'') rather than tapping external-based solutions (''public cloud''), which is
more of a small/mid sized client opportunity and therefore not within INFY's
targeted client base.

• PRICING / WAGES. Pricing expected to remain flat (CTSH is indicating up).
CFO gave the impression that current wage situation (up 10-15% offshore) was
manageable and just returning to normal increases for growth period. Also
noted that pyramid structure of model has the effect of dramatically reducing the
financial impact of offshore wages to well-below 10-15%. With the renewed
focus on campus hiring, this should become even more evident in CY2011.

• OPERATING MARGIN. Appeared comfortable could remain at industry
leading levels (~30%). Said corporate culture is an ''aspiration'' to further
improve the metric. We did not sense any near-term concern over maintaining
the current operating margin levels.

• NEAR-TERM CHALLENGES (reiterated). 1) Still uncertain pace of CY11
client spend outlook as budgets not finalized; 2) FX volatility (INFY hedges only
two quarters forward); and 3) Protectionism, especially if U.S. moves forward
with 50/50 rule, which would likely need to be addressed with an acquisition.
We put that as a moderate risk over the intermediate-term (i.e. mid-2011).

Valuation Range: $68.00 to $73.00
This represents 23-25x our CY2011 EPS estimate. We believe that guidance and
our estimates remain positively biased, especially as discretionary spending
improves and offshoring continues to gain share. Risks to our valuation range being
too conservative is that revenue growth from new sources meaningfully accelerates
driving greater operating leverage and therefore EPS upside. Risks on being too
optimistic is more around possible larger headwinds from slower than expected
growth in Europe, sticky high employee turnover, and unfavorable FX.

Investment Thesis:
Infosys is a Tier I offshore-based provider of IT/BPO services with an enviable
long-term track record for growth. We believe our estimates to have an upward
bias. Our only hesitiation is valuation for this well-managed provider.