© Infosys Technologies Limited 2005 - 06 Financial update V. Balakrishnan SVP - Finance and Company Secretary

© Infosys Technologies Limited 2005 - 06

Financial updateFinancial update

V. Balakrishnan

SVP - Finance and Company Secretary

November 11, 2005 © Infosys Technologies Limited 2005 - 06

Safe HarborSafe Harbor

Certain statements in this Analyst Meet concerning our future growth prospects are forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties regarding fluctuations in earnings, our ability to manage growth, intense competition in IT services including those factors which may affect our cost advantage, wage increases in India, our ability to attract and retain highly skilled professionals, time and cost overruns on fixed-price, fixed-time frame contracts, client concentration, restrictions on immigration, industry segment concentration, our ability to manage our international operations, reduced demand for technology in our key focus areas, disruptions in telecommunication networks or system failures, our ability to successfully complete and integrate potential acquisitions, liability for damages on our service contracts, the success of the companies in which Infosys has made strategic investments, withdrawal of governmental fiscal incentives, political instability and regional conflicts, legal restrictions on raising capital or acquiring companies outside India, and unauthorized use of our intellectual property and general economic conditions affecting our industry. Additional risks that could affect our future operating results are more fully described in our United States Securities and Exchange Commission filings including our Annual Report on Form 20-F for the fiscal year ended March 31, 2005 and our reports on Form 6-K. These filings are available at www.sec.gov. Infosys may, from time to time, make additional written and oral forward-looking statements, including statements contained in the company's filings with the Securities and Exchange Commission and our reports to shareholders. The company does not undertake to update any forward-looking statements that may be made from time to time by or on behalf of the company.


Q2 06 – A good quarter….Q2 06 – A good quarter….

Q2 FY 2006 Q1 FY 2006Sequential

growth

$ m % $ m % %

Revenue 524 100.0 476 100.0 10.1

Gross Profit 227 43.3 202 42.4 12.4

Operating income 146 27.9 133 27.9 9.8

Net income 138 26.3 122 25.6 13.1

Basic Earnings per

ADS ($)0.51 0.45 13.3


....leading to an upward revision in Outlook....leading to an upward revision in Outlook

OUTLOOK FOR FY 06

April 2005 September 2005

Revenues ($ m) 2,038-2,070 2,140

Y-o-y growth (%) 28%-30% 34%

EPADS ($) 1.92-1.95 2.04-2.05

Y-o-y growth (%) 22%-24% 30%-31%

Employee additions

(gross)12,600 20,200

Capex ($ m) 220-250 260-290


Application Development and Maintenance

Management Consulting

Business Process Management

IT Outsourcing

Systems Integration

Enterprise Solutions

Technology Consulting

Technology-enabled BPR

Software Re-engineering

People Organization Infrastructure Process Quality

2005

2001

1981

1996

Client Location / PDC* Offshore Development Centers

Analysis and Planning

High Level Design

User Interface Design

Project Co-ordination

Onsite Testing

Implementation

Project Management

Detailed Design

Coding

Testing

Documentation

Bug Fixes

Warranty Support

Maintenance

Rapid Reaction Support

Post Implementation Support

Post Implementation Support

30-35% Effort 70-65% Effort

Glo

ba

l D

eli

ve

ry M

od

el

Discovery Project Project

* Proximity Development Center

We have a competitive business model…We have a competitive business model…

Applying GDM+ Across the Services Spectrum Highly-evolved Global Delivery Model (GDM)

Infosys Global Delivery Model


… supported by a highly evolved cost structure… supported by a highly evolved cost structure

FY 03 FY 04 FY 05 Q1 06 Q2 06

$ m % $ m % $ m % $ m % $ m %

Revenues 754 100.0% 1,063 100.0% 1,592 100.0% 476 100.0% 524 100.0%

Cost of revenues 417 55.3% 603 56.7% 904 56.8% 274 57.6% 297 56.7%

Gross Profit 337 44.7% 460 43.3% 688 43.2% 202 42.4% 227 43.3%

S&M expenses 56 7.4% 77 7.2% 103 6.5% 32 6.7% 35 6.7%

G&A expenses 58 7.7% 82 7.7% 127 8.0% 37 7.8% 46 8.8%

Amortization 4 0.5% 8 0.8% 2 0.1% - - - -

Operating expenses 118 15.6% 167 15.7% 232 14.6% 69 14.5% 81 15.5%

Operating income 219 29.0% 293 27.6% 456 28.6% 133 27.9% 146 27.9%

Other income, net 18 2.4% 28 2.6% 35 2.2% 7 1.5% 9 1.7%

Income before taxes 237 31.4% 321 30.2% 491 30.8% 140 29.4% 155 29.6%

Provision for taxes and MI 42 5.6% 51 4.8% 72 4.5% 18 3.8% 17 3.3%

Net income 195 25.9% 270 25.4% 419 26.3% 122 25.6% 138 26.3%


We are balancing growth and marginsWe are balancing growth and margins

Challenges on margin front

Billing rates

Volume growth

Wages

Currency movements

Investments

Income taxes

ESOP charge

Levers available to protect

margins

Onsite-Offshore mix

Utilization

Scale benefits on SG&A


Billing rates are stable*Billing rates are stable*

* Consolidated IT services

100

110

120

130

140

150

160

FY 99 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 Q1 06 Q2 06

Onsite Offshore

Change in billing rates using FY 99 as the base


New services are our engines of growthNew services are our engines of growth

FY 03 FY 04 FY 05 Q1 06 Q2 06

Package Implementation 11.0% 14.5% 15.2% 15.2% 15.8%

Consulting 4.3% 3.7% 3.6% 4.2% 3.8%

Testing 3.4% 5.3% 5.8% 6.5% 6.2%

Engineering services 2.6% 2.2% 2.0% 1.8% 1.9%

Business Process Management 0.5% 1.6% 2.7% 3.8% 3.9%

Other Services 7.8% 8.1% 8.4% 8.9% 10.1%

New services as % of revenues 29.6% 35.4% 37.7% 40.4% 41.7%


Volume growth continues to be strong*Volume growth continues to be strong*

Billed manmonths FY 03 FY04 FY05 Q106 Q206

Onsite 36,769 51,236 72,431 20,997 23,311

Offshore 66,309 102,852 157,815 45,908 50,465

Total 103,078 154,089 230,246 66,905 73,776

Y-o-y growth (%) onsite 52.1% 39.3% 41.4% 30.2% 35.0%

Y-o-y growth (%) offshore 32.8% 55.1% 53.4% 40.9% 34.3%

Y-o-y growth (%) blended 38.8% 49.5% 49.4% 37.3% 34.5%

Offshore outsourcing is the only visible trend in the global IT services market today



Wage pressure is manageableWage pressure is manageable

Variable compensation structure – 30% of the total salary across the company is

variable

Low attrition (10.0% in Q2 06, LTM basis*) – Lowest at high-performers level

(6.2%) and highest at low-performers level (48.1%)

FY 03 FY 04 FY 05 Q1 06 Q2 06

Salary costs as a % of revenue 47.1% 50.6% 49.7% 50.1% 49.7%

Applications 614,653 907,922 1,348,832 287,638 482,186

Offers 6,246 13,500 14,519 3,555 6,126

Gross additions 5,509 10,077 11,597 3,126 6,868

Out of which freshers hired 4,190 7,917 7,956 1,936 5,763

* Standalone


Gains or losses arising on revaluing foreign currency denominated assets and liabilities at each period end

Components of Forex variation under other incomeEffect of foreign currency denominated monetary assets and liabilities

Transaction differences

Translation differences

Effect of hedging

Gains and losses on forward contracts

Effect of marking to market

Pro-actively manage the exchange impactPro-actively manage the exchange impact

Gains or losses on forward contracts maturing/cancelled during the period - difference between forward rate and spot rate on date of maturity/cancellation

Difference between forward rate/carrying value of FC rate and period end rate

Gains or losses arising on difference in foreign exchange rates between date of settlement of transaction and originating transaction rate/ carrying value



FY 03 FY 04 FY 05 Q1 06 Q2 06

Forward cover ($ m) 88 149 353 261 305

Gain/(loss) on forex ($ m) 4 7 -2 -2 -

Billing details (%)

USD 89.0 84.9 79.4 78.2 79.0

Euros 4.3 5.1 4.9 4.6 4.1

GBP 3.7 4.2 6.5 7.1 8.1

Other currencies 3.0 5.8 9.2 10.1 8.8

Every 1% change in $-Re rate impacts operating margins by 50 basis points



FY 03 FY 04 FY 05 Q1 06 Q2 06

$-Re average rate 48.35 45.78 44.87 43.54 43.78

$-Re period end rate 47.53 43.40 43.62 43.51 43.94

% change on average rate 1.3 (5.3) (2.0) (3.9) (5.3)

% change on period end rate (2.6) (8.7) 0.5 (5.4) (4.3)

Euro-Re average rate 48.46 53.90 56.76 54.40 53.29

Euro-Re period end rate 51.40 53.77 56.52 52.69 52.98

% change on average rate 15.1 11.2 5.3 (0.9) (5.3)

% change on period end rate 20.6 4.6 5.1 (5.9) (6.8)

GBP-Re average rate 75.07 78.02 83.13 80.17 77.79

GBP-Re period end rate 74.84 80.52 82.18 77.98 77.76

% change on average rate 9.6 3.9 6.6 (2.4) (7.1)

% change on period end rate 7.6 7.6 2.1 (7.2) (7.0)


We continue to invest for the futureWe continue to invest for the future

FY 05 ($ m) Q1 06 ($ m) Q2 06 ($ m)

China 1.87 0.61 0.67

Consulting 7.33 2.12 1.24

Finacle 3.03 1.39 0.78

IBU business plans 6.26 - -

Total 18.49 4.12 2.69

% of revenue 1.2 0.9 0.5


Income taxesIncome taxes

STPI tax holiday expires at the end of fiscal 2009

SEZ scheme – 15 years tax holiday (First 5 years 100%, next 5

years 50% and the balance to the extent of reinvestment in the

business)

Fringe Benefit Tax – Impact is 0.18% in Q1 and 0.14% in Q2. It

is not material


ESOP charge is not materialESOP charge is not material

Stopped further grants under 1998 and 1999 stock option

plans. 1994 plan has lapsed

SFAS 123 R is applicable to us from fiscal 2007

Progeon continues to issue stock options to its employees

The impact due to SFAS 123 R is not material ($ 4 m in FY

07 and $ 1 m in FY 08)


We leverage the global delivery model effectively*We leverage the global delivery model effectively*

FY 03 FY 04 FY 05 Q1 06 Q2 06

Revenue mix

Onsite 57.4% 54.7% 52.3% 52.0% 52.4%

Offshore 42.6% 45.3% 47.7% 48.0% 47.6%

Total 100.0% 100.0% 100.0% 100.0% 100.0%

Effort mix

Onsite 35.7% 33.3% 31.5% 31.4% 31.6%

Offshore 64.3% 66.7% 68.5% 68.6% 68.4%

Total 100.0% 100.0% 100.0% 100.0% 100.0%



UtilizationUtilization

FY 03 FY 04 FY 05 Q1 06 Q2 06

Including trainees 77.6% 73.0% 72.3% 74.1% 72.9%

Excluding trainees 82.2% 82.2% 78.9% 77.5% 79.1%


Scale benefits on SG&AScale benefits on SG&A

FY 03 FY 04 FY 05 Q1 06 Q2 06

Revenues - $ m 754 1,063 1,592 476 524

S&M exp - $ m 56 77 103 32 35

% of revenue 7.4% 7.2% 6.5% 6.7% 6.7%

No. of people in S&M 280 308 348 379 406

Offshore pre-sales 181 198 211 275 295

G&A exp - $ m 58 82 127 37 46

% of revenue 7.7% 7.7% 8.0% 7.8% 8.8%

No. of people in G&A 1,069 1,870 1,985 2,281 2,349

Total SG&A exp - $ m 114 159 230 69 81

% of revenue 15.1% 15.0% 14.4% 14.5% 15.5%

% of S,G&A employees to total 9.8% 9.3% 6.9% 7.4% 6.6%


The net resultThe net result

FY 03 FY 04 FY 05 Q1 06 Q2 06

$ m % $ m % $ m % $ m % $ m %

Revenues 754 100.0% 1,063 100.0% 1,592 100.0% 476 100.0% 524 100.0%

Gross Profit 337 44.7% 460 43.3% 688 43.2% 202 42.4% 227 43.3%

Operating income 219 29.0% 293 27.6% 456 28.6% 133 27.9% 146 27.9%

Net income 195 25.9% 270 25.4% 419 26.3% 122 25.6% 138 26.3%


Balance Sheet is strong and liquidBalance Sheet is strong and liquid

Mar 31,

2003 ($ m)

Mar 31,

2004 ($ m)

Mar 31,

2005 ($ m)

Sep 30,

2005 ($ m)

Cash and cash equivalents 354 663 688 865

Trade accounts receivable 109 150 303 304

Property, plant and equipment 157 228 352 435

Other assets 84 91 111 130

Total Assets 704 1,132 1,454 1,734

Current Liabilities 63 152 175 189

Non-current liabilities 15 27 26 17

Stockholders Equity 626 953 1,253 1,528

Total Liabilities and

Stockholder’s Equity704 1,132 1,454 1,734

We continue to be a debt-free company


We have clear policies on returns and dividendsWe have clear policies on returns and dividends

# Includes Rs. 236 cr due from a large customer, which was collected in the first week of April 2005

* Cash and cash equivalents include investments in liquid mutual funds

** Excluding one-time special dividend of $ 164 m in Fiscal 2004

Target 2003 2004 2005

ROCE (%) 46.9% 48.1% 51.4%

Times cost of Capital 2.0 2.8 3.4 3.8

ROIC (%) 79.9% 137.5% 123.6%

Times cost of Capital 3.0 4.7 9.8 9.1

Days sales outstanding 60 52 48 67#

Cash & equivalents / total assets * 40.0% 57.3% 85.1% 54.4%

Cash & equivalents / revenue * 25.0% 45.2% 58.2% 41.6%

Dividend % (% to net profits)** Upto 20% 19.95 17.79 18.48


and finally, we keep our business model simpleand finally, we keep our business model simple

Debt free

No off-balance sheet items

No Special Purpose Vehicles (SPV’s)

Provide for all known losses

What you see is what you get


In summaryIn summary

Financially strong and profitable

Growing faster than industry

A robust revenue model and a competitive cost structure

Ability to scale up to meet demands

Willing to make investments for future growth and

differentiation

© Infosys Technologies Limited 2005 - 06

Thank youThank you

www.infosys.com

Documents

© Infosys Technologies Limited 2005 - 06 Financial update V. Balakrishnan SVP - Finance and Company Secretary