Infosys: Strategic move

Infosys can easily cross-sell its BPO business, post-Citi stake sale

Now that Progeon, the BPO subsidiary of Infosys, has established itself, the absence of Citigroup is unlikely to make a substantial difference to the company.

Citigroup must definitely have contributed to Progeon's growth in the initial stages, opening doors for it with other clients, apart from giving it business on its own.

However, with the kind of stature that Infosys now enjoys, and its strength in other lines of business, including the fledgling consultancy space, it can easily cross-sell the BPO business.

In that sense, Infosys' reported decision to buy out the 23 per cent Citigroup stake in Progeon and convert it into a wholly-owned subsidiary is not surprising.

Progeon reported revenues of $22.5 million in the December quarter, with a net profit of $5.5 million. For FY06, revenues are expected to be around $80 million with a net profit of about $20 million.

Assuming that the growth momentum remains strong, analysts believe that FY07 will see revenues of around $160 million and a net profit of around $48 million. They believe the margins will be higher with economies of scale kicking in.

Thus, the valuation of $600 million implies a forward multiple of just about 12-13 times. This is very reasonable for a non-voice BPO business, which commands a higher multiple over a voice BPO. At the current price of Rs 2,881, the stock trades at around 24 times estimated FY07 earnings of Rs 120.

Bayer Crop: Good show

Bayer CropScience reported spectacular results for the December 2005 quarter, as well as the previous financial year. For the last quarter, the company posted an operating profit of Rs 24.74 crore against an operating loss of Rs 2.5 crore in the previous corresponding period, in spite of its top line remaining flat.

A better kharif crop throughout the country this year ensured an adequate demand for crop protection systems in the rabi season, say analysts. Also, the company managed to reduce employee costs by almost 29 per cent during the December quarter, thanks to VRS.

For CY05, Bayer saw its operating profit rise 16.26 per cent y-o-y to Rs 72.48 crore. Operating profit margins also grew by 136 bps y-o-y to 10.67 per cent in the previous financial year.

It is understood that demand for crop protection solutions was strong in segments like fruits, pulses and vegetables. A key highlight of the company's performance in CY05 was the expansion of its dealer network. It is also introducing more products for crop protection in the medium term.

Going forward, its performance will also depend on the monsoon this year. The stock appears reasonably valued at about 20.8 times trailing earnings.

India: Not the only bull market

India is not the only bull market in the world right now. Several markets have touched multi-year highs in March including the US, Mexico, Indonesia, Singapore and France. Some markets such as Brazil and Hong Kong and even Japan peaked a few weeks earlier.

Our markets are one of the few markets to be at their all-time highs though. Since the beginning of 2006, the BSE Sensex has gone up 17.89 per cent, which will be a fantastic return for an entire year.

While India is among the top performing markets in the world, Russia, Pakistan and Sri Lanka have done better than us this year so far, in spite of all the three markets not being at their highs.

Though we are one of the best countries in terms of GDP and corporate earnings growth, the main driver is liquidity, which has pushed up markets from the UK to New Zealand worldwide.

With contributions from Shobhana Subramanian and Amriteshwar Mathur