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Infosys EVA up 300% to Rs 3.89 billion

K Giriprakash in Bangalore

Infosys Technologies Ltd has recorded a 300 per cent increase in economic value added to Rs 3.89 billion during 2000-01, while its enterprise value declined by over 50 per cent to Rs 263.486 billion.

The value of its human resources shot up by over 200 per cent to Rs 51.234 billion during the same year compared with the previous year.

The value of the Infosys brand has shown only a marginal increase of Rs 1.30 billion to Rs 53.76 billion compared with the previous year, which could be a cause of concern for the company.

According to Infosys, the EVA measures the profitability of a company after taking into account the cost of all capital including equity. It is the post-tax return on capital employed (adjusted for the tax shield on debt) minus the cost of capital employed.

Those companies which earn higher returns than the cost of capital are the ones which create value. Those companies which earn lower returns than cost of capital are deemed destroyers of shareholder value, the report said.

The economic value added of Infosys during 1998-99 was Rs 707.8 million, for 1999-2000, it was Rs 1.290 billion and for 2000-01, it was Rs 3.890 billion.

The ratio of EVA as a percentage of average capital employed was 35 per cent during 2000-01 compared with 18.34 per cent during the previous year.

Infosys' enterprise value has been halved to Rs 263.486 billion during 2000-01 compared with Rs 588.298 billion during 1999-2000. Profit after tax, as a percentage of average of capital employed, has increased to 56.08 per cent during 2000-01 compared with 40.63 per cent during the previous year.

The value of human resources has more than doubled to Rs 51.234 billion during 2000-01 compared with Rs 22.374 billion during 1999-2000. The value of human resources per employee was Rs 5.2 million during 2000-01 compared with Rs 4.2 million during 1999-2000.

As of March 31, 2001, Infosys had an employee strength of 9,831 compared with 5,389 employees during the previous year.

The ratio of employee cost to human resource value was 14.01 per cent during 2000-01 compared with Rs 14.95 per cent during 1999-2000.

The model used by Infosys to determine the value of human resources includes employee compensation including all direct and indirect benefits earned both in India and abroad and the incremental earnings based on group/age.

In the case of brand valuation, while the brand value was Rs 53.76 billion during 2000-01, brand-related profits was Rs 4.01 billion with brand earnings being Rs 2.423 billion during the same year.

According to Infosys, brand equity is the financial premium that a buyer is willing to pay for the brand over a generic or a less worthy brand.

"Brand equity is not created overnight. It is the result of relentless pursuit of quality in manufacturing, selling, service, advertising and marketing. It is the integral of customer experiences in dealing with the company and its products over a sustained period," the report said.

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