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Finance Friday: How Infosys made Billions – Made Millions for its shareholders too !

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Infosys – The IT bellwether was instrumental in putting Indian IT prowess on the global map. Mr. Narayana Murthy, a first generation entrepreneur executed his dream to perfection. Today, the multi-billion dollar company gives you no idea that it originated in a dinky garage.

infosysProfits[1]

The last post on Why Warren Buffet Makes money and you don’t garnered great discussions and conversations, and most of the discussion stemmed from the fact that Long Term Investment is the key to any successful portfolio.

Given Arun’s addiction for data and stats I wasn’t surprised when he asked me dig in and find out the long term returns of Infosys. The company has been in the stock market for long and I was sure that the returns would be amazing. But boy was I stunned or what !

The capital appreciation via Infosys shares is out of this world. But, let’s go down the history lane to find out how it all originated

  • In 1982, Infosys opened an office in Bangalore which soon became its headquarters.
  • Infosys made an initial public offer at Rs. 95 a share in February 1993 and was listed on stock exchanges in India in June 1993
  • Interestingly, Infosys IPO was undersubscribed but Morgan Stanley bailed it put by picking up 13% of equity at the offer price of Rs. 95 per share.
  • The trading opened at Rs.145 a share, almost a 60% premium on the day of listing.
  • The share price surged to Rs. 8,100 by 1999 making it the costliest share on the market at the time. 6 years and the share multiplied 85 times
  • According to Forbes magazine, since listing on the Bombay Stock Exchange till the year 2000, Infosys’ sales and earnings compounded at more than 70% a year.

Your head spinning as yet!! Wait before I tell you the numbers that are hair raising.

Infosys is currently trading at Rs. 2228 (NSE) – which is close 23 times of its IPO price – But more than that it has given handsome dividends quarter on quarter. And don’t forget the bonuses and splits that this share has gone through.

Infosys Stock Bonuses Splits since IPO:

Fiscal Bonus share issue Stock split ratio
1986 1:1 2 for 1
1989 1:1 2 for 1
1991 1:1 2 for 1
1992 1:1 2 for 1
1994 1:1 2 for 1
1997 1:1 2 for 1
1999 1:1 2 for 1
2000 2 for 1
2004 3:1 4 for 1
2006 1:1 2 for 1

Here is what you would have if you had 100 share in 1993 at IPO bought at Rs. 95 /-

  • Your Total investment in Infosys in 1993– Rs. 9,500/- (100 shares at Rs. 95)
  • Your Total investment in Infosys as of today (2009) – 28,51,8400/- (12800 shares at 2228)

If you had invested Rs. 9500 in Infosys in 1993, today you would be sitting on more than 30 crores 3 crores (including dividends around 50 lakh) (thnkx Sandeep for correction)

I sure was too small to buy during the IPO stage, but then I am not going to miss out this time. Even though I don’t track IT stocks, writing this post made me realize that Company Fundamentals and Management capability of Infosys makes it worthwhile to study the stock further to understand the Intrinsic value at the current price.

I am reminded of the famous dialogue from the movie “Guru” which roughly translated means,

“Do you want me to become the biggest company of the world”

This is symbolic with how the Stock market investments should be seen as. Buy shares to buy a stake in the company and not to make quick profits from it.

What say? Are you one of the lucky few to have made their millions from Infosys or you have your own stock market riches story to share.

[This post has been written by our regular contributor Ankit Agarwal, an ERP Consultant by profession, a wannabe entrepreneur and stock market stalker by passion]

"Finance Friday: How Infosys made Billions – Made Millions for its shareholders too !", 5 out of 5 based on 1 ratings.
  1. […] How Infosys made Billions – Made Millions for its shareholders too ! […]

  2. Nitin says

    Stock market is volatile. A Smart investor will have to watch it at every step and every minute. A new investor should learn and invest in break-ups. A huge investment in one particular may lead to disaster. More to share…coming soon.

  3. Abhrajit Mohanty says

    I would like to know the other stocks which gave multiple of its share like infosys…..which are the stocks that are going to give such huge profits?

  4. Manjunath Sasidharan says

    anybody who bought 100 Infy shares in '93 for Rs9500 would be now with Rs3 crores!

  5. rohit says

    no doubt the post is encouraging but how can the 100 shares in 1993 become 12800 in 2009.

  6. Anubhav says

    Another note to look forward to is how much the management believes in the stock, the current CEO is still buying Infosys stock at current price levels which bodes really well. They surely are putting their money where their mouth is.

  7. Ankit says

    Thanks Guys for the kind words!! Feels great to be appreciated, but nothing drives me more than critical feedback.So, please bring it on and help me improve:D

  8. Gopinath Mavinkurve says

    Ankit, a great post indeed! Quite paradoxical however, that Warren Buffet never invested in software companies because he does not “understand the business”! Your last post on the legendary investor’s methods was also very informative for readers. Keep those coming!

    1. Ankit says

      Danke Sir, kind words like these inspire me.
      But then u stuck a valid chord with ur insights.
      Yes, Mr.Buffet does not invest in IT businesses, and i will be bluffing if i say he is not smart enough:)
      IT can seem a sector where the tangibles are a little unclear unlike Mr.Buffet’s portfolio at large.and since he picks up stakes in the ranges of 5-10% , he has to ensure that the companies he invests do not depend on external factors as much as possible.
      But, then given the current times and limited cash, the safest business sector seems the FMCG.
      Case in point:

      Dont know about any1 but i have been using Parachute cocunut oil all my life.It is a brand that i have grown with and can vouch that the same can be said for a lot of people i knew.There i have a potential tangible understandable business right there..And that explains why i am invested in MARICO for over two years now:) I am unloading my dirty secrets here but the fact is that MARICO has not disappointed me and i see the company selling Parachute for the next 5 years

  9. Squamble says

    A nice post again Ankit.
    It is heard that Mr. Narayan Murthys driver is also crorepati !

    1. Arun Prabhudesai says

      yeah…that story has been doing round past many years… heard it many times whenever we talk about Infosys share appreciation stories…

  10. TIP Guy says

    I think many folks get carried away by few examples like Arvind Mills, Satyam, NOCIL, etc. and start believing long term is not good. I am sure there are few more. When investing for long term, the objective should be to grow with the company. If somewhere down the line, the company starts withering, it should be dumped and move to the next one. Purely buy n hold is dangerous, its buy and monitor. Success rates for long term is much much higher.

    You should check out few others like NTPC, LNT, ONGC, ABB, etc….

    Ankit it was a good read!

  11. sandeep says

    If you multiply 12800 shares at 2228, it equals 28,51,8400/- ( Rs 2.85 Crores and NOT 30 crores ). Are you saying the remaining 28 crores was paid in dividends. Lets get the math staright here before getting too carried away.

    1. Arun Prabhudesai says

      Hey Sandeep,
      Aha…mixup in millions and crores… I actually read this amount – 28,51,8400 as 28.5 crores and 1.5 cr as dividends (approx), but now I see the problem – I have my foot in my mouth. The commas are in wrong place – It should be 2,85,18,400 (crores) and 28,518,400 (millions).
      Extremely sorry on this one…I guess I have done 2 huge mistakes in 3 days.. need to be more careful :)

      Anyways, thanks for pointing out – It is 3 crores and not 30 crores !!!

  12. Ankit says

    @ Well said Kiran, a good counter example.
    This was a kinda sequel to the post i did on Warren Buffet.the idea here is to stay put for long term only if the company fundamentals are strong.

    The ‘Hotness’ of the stock is decided by so called market experts and the the unaware retailer gets lured by it.The whole BUY starts spreading like fire and when it reaches a certain level, the big fish cashes out leaving the others with nothing.

    Notice the key phrases here and in the previous post too

    1)Company Fundamentals and Management capability of Infosys
    2)study the stock further to understand the Intrinsic value at the current price.

    Not saying that arvind mills wouldn have had that, but consider this for one minute.Textile is a hugely policy dependent sector, so even with the best of the management, not much can be said.
    And again, buy a company which u think can stay afloat for atleast 10-15 years and probably a company one knows the business.
    So, long term investment cannot be singled out without considering other parameters
    But, liked your example.Interesting and i am already wondering if another post can be made from your comment:)

  13. Kiran says

    Just to rationalize…and give a different perspective…If you had invested Rs. 10k in Arvind mills, the hottest stock at that time, you would now have Rs. 100 I think – so there :)

    1. Arun Prabhudesai says

      hahahaha…Man Arvind Mills is such a sad story…I lost quite a bit on that one…

  14. Sriram Vadlamani says

    Great post Ankit!

    Important thing to note is, Infosys is a company which believes in organic growth and focus. It did not venture into any other space (except OnMobile) and it did not pursue acquisitions though it had ‘real’ cash.

    1. Ankit says

      @Sriram
      Well said Sri. It knows it core strength and plays on it…One possible reason for this is that Mr.Murthy was neva in it to get rich, it was his passion and desire.Not saying that he did not want to make money, he sure has made billions but his dream/passion is what drives infosys and will continue to do so.A man that is total respect worthy for what he has done and for a champion management legacy that he has created.

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