After the first quarter results for Infosys every investor has two questions in their mind:

1. Is Infosys a good bargain at this price?

2. Infosys is sitting on huge cash (Approx. Rs 19,000 Crore), should they go for Buyback of shares?

Both the questions are interrelated and answer to both the question is same. Before you get lost from the main plot let me pitch my standing on the investments in Infosys.

The very first question comes to my mind is about management of this business. Do you trust the management of this business? To get more specific, do you trust the guidance of management? If I look at the past and ask anyone on the street, they have common answer YES!!

The terms used by many analyst and journalist in this regards is, “under-promising and over- delivering”.

Let’s forget about stock market and PE ratios and price of Infosys shares for a while. Let’s concentrate on the underlying business and its profitability. Most of their business revenues come from USA and European clients. Both of these geographical regions are going through tough financial conditions. Being in the business for such a long time and their reputation of under-promising and over-delivering, it will not be fair to underestimate management’s guidance.

An EPS of Rs 147.50 for the year end March 2012 reflects its ROE of 31%. This states that every Rs 100 invested by its shareholders has generated profits of Rs 31 to them. Now the management’s guidance for their EPS for the year end March 2013 is Rs 166.46. This again reflects its ROE for 2013 to be 30%.

Valuing any company is an art rather than science these days. Purely on business perspective, if I have Rs 100,000 to invest in any business and I want a return of 15% (profits) on my investments every year,
then I will have to buy approximately 90 (15,000/166.46) shares of Infosys with my capital(Rs100,000) in simple terms without factoring other variables.

To buy 90 shares from current market I need approximately Rs 200,000 today! The above example is just for illustrative purpose and effort from my side to make you think out of the stock market jargons and language.

To get answer to your first question you just need to do simple maths. For individual whose asking rate of return every year is 10% will need to buy 60 shares of Infosys and today it will cost him Rs 133,740!!

Value Operations quality and performance rating for Infosys for the year end March 2012 is A2. Value
Operations valued this business for the year end March 2012 for Rs 1,765.

As an investor you should not worry about things which you cannot control. You cannot influence management of Infosys or any business unless you are the owner of big pie of that business!! Let those managers run their shows and you just need to keep an eye on their activities. If you find any of their activities will impact to your returns then you should just wind up your investments from those businesses and look for alternate opportunities.

Infosys is sitting on huge pile of cash. Many analyst and media journals are talking about buy back of the shares. But is that worth doing? Buying back companies own shares means instead of you going out and buying by your own money, company is buying for you. It is a good strategy to create value for the shareholders. But hang on a second, if you think that shares of Infosys are not cheap and you are not buying them today, then it does not make sense for a company to go out in secondary market and buy their own expensive shares!

Coming back to investments, investing is all about looking at what underlying value management can or is adding every year. If I consider management’s future guidance for the year end March 2013 and 2014 then as per Value Operations, intrinsic value of underlying business of Infosys for 2013 is Rs 1,945 and Rs 2,290 for 2014.

As all the investment money is your hard earned and saved money, you need to think independently and rationally before making any investment decisions.