Infosys Ltd

Overview

The financial statements have been prepared in compliance with the requirements of theCompanies Act, 1956, guidelines issued by the Securities and Exchange Board of India(SEBI) and the Generally Accepted Accounting Principles (GAAP) in India. Our Managementaccepts responsibility for the integrity and objectivity of these financial statements, aswell as for the various estimates and judgments used therein. The estimates and judgmentsrelating to the financial statements have been made on a prudent and reasonable basis, sothat the financial statements reflect in a true and fair manner the form and substance oftransactions, and reasonably present our state of affairs, profits and cash flows for theyear.

A. Industry structure and developments

Changing economic and business conditions and rapid technological innovation arecreating an increasingly competitive market environment that is driving corporations totransform their operations. Consumers of products and services are increasingly demandingaccelerated delivery times and lower prices. Companies are focusing on their corecompetencies and using outsourced technology service providers to adequately address theseneeds. The role of technology has evolved from supporting corporations to transformingtheir business. There is an increasing need for highly skilled technology professionals inthe markets in which we operate. At the same time, corporations are reluctant to expandtheir internal IT departments and increase costs. These factors have increased thereliance of corporations on their outsourced technology service providers and are expectedto continue to drive future growth for outsourced technology services.

1. Increasing trend toward offshore technology services

Outsourcing the development, management and ongoing maintenance of technology platformsand solutions has become increasingly important to companies. The effective use ofoffshore technology services offers a variety of benefits to them, including lower cost ofownership of IT infrastructure, lower labor costs, improved quality and innovation, fasterdelivery of solutions and more flexibility in scheduling. In addition, technologycompanies are also recognizing the benefits of offshore service providers in softwareresearch and development and related support functions, and are outsourcing a greaterportion of these activities. This has also resulted in more and more diversification inthe range of services delivered offshore.

2. The India advantage

India is widely recognized as the premier destination for offshore technology services.According to the NASSCOM Strategic Review 2011, IT services exports (excluding exportsrelating to business process outsourcing (BPO), hardware, engineering design and productdevelopment) from India are estimated to grow by 22.7% in fiscal 2011, to record revenuesof US$ Rs. .5 billion. The same review also forecasts that BPO exports from India areestimated to grow by 14% in fiscal 2011 to record revenues of US$ 14.1 billion. There areseveral key factors contributing to the growth of IT and IT-enabled services (ITES) inIndia and by Indian companies. Some of these factors are high-quality delivery,significant cost benefits and abundant skilled resources.

3. Evolution of technology outsourcing

The realm of technology outsourcing is changing. In an environment of rapidtechnological advancement, globalization and regulatory changes, companies are looking atoutsourcing approaches that require their technology service providers to developspecialized systems, processes and solutions along with cost-effective deliverycapabilities.

4. Global Delivery Model (GDM)

Our GDM allows us to execute services where it is most cost effective and sell serviceswhere it is most profitable. The GDM makes the best use of our large pool of highlyskilled technology professionals and our 24-hour execution capabilities across multipletime zones. Other factors that make it one of the best delivery models in the world areits ability to accelerate delivery times of large projects by simultaneously processingproject components; cost competitiveness across geographic regions; built-in redundancy toensure uninterrupted services; and a knowledge management system that enables us to re-usesolutions where appropriate. Our GDM mitigates risks associated with providing offshoretechnology services to our clients. Speedy and effective communication being the key, weuse multiple service providers and a mix of terrestrial and optical fiber links withalternate routing. In India, we rely on two telecommunication carriers to providehigh-speed links interconnecting our global development centers. We rely on multiple linkson submarine cable paths to interconnect our development centers with network hubs inother parts of the world. Our significant investment in redundant infrastructure enablesus to provide uninterrupted service to our clients.

5. Our end-to-end solutions

We complement our industry expertise with specialized support for our clients. We alsoleverage the expertise of our various Centers of Excellence and our software engineeringgroup and technology lab to create customized solutions for our clients. In addition, wecontinually evaluate and train our professionals in new technologies and methodologies.Finally, we ensure the integrity of our service delivery by utilizing a scalable andsecure infrastructure. We generally assume full project management responsibility in eachof our solution offerings. We strictly adhere to our SEI-CMMi Level 5 internal quality andproject management processes. Our project delivery focus is supplemented by a robustknowledge management system that enables us to leverage existing solutions across ourCompany. We use in-house tools for project management and software lifecycle support. Webelieve that our processes, methodologies, knowledge management systems and tools reducethe overall cost to the client, mitigate risks, enhance the quality of our offerings andallow clients to improve time-to-market for their solutions. The revenues attributed tothe custom application development, maintenance and production support, productengineering, package-enabled consulting and implementation and business transformationconsulting services represented a majority of our total revenues in fiscal 2011.

1. Share capital

At present, we have only one class of shares – equity shares of par value Rs. 5/-each. Our authorized share capital is Rs. 300 crore, divided into 60 crore equity sharesof Rs. 5/- each. The issued, subscribed and paid up capital stood at Rs. 287 crore as atMarch 31, 2011 (same as the previous year).

During the year, employees exercised 1,88,675 equity shares issued under the 1998 StockOption Plan and 1,37,692 equity shares issued under the 1999 Stock Option Plan.Consequently, the issued, subscribed and outstanding shares increased by 3,26,367. Thedetails of options granted, outstanding and vested as at March 31, 2011, are provided inthe Notes to the consolidated financial statements section in the Annual Report.

2.a Capital reserve

The balance as at March 31, 2011 amounted to Rs. 54 crore. During the previous year,the addition to the capital reserve account of Rs. 48 crore is on account of transfer ofprofit on sale of investments in OnMobile Systems Inc., U.S. of Rs. 48 crore, which wasincluded in the net profit.

2.b Share premium

The addition to the share premium account of Rs. 35 crore during the year is primarilyon account of premium received on issue of 3,26,367 equity shares, on exercise of optionsunder the 1998 and 1999 Stock Option Plans of Rs. 24 crore.

An amount of Rs. 11 crore (Rs. 10 crore in the previous year) was credited to the sharepremium account arising due to tax benefits in overseas jurisdiction of deductions earnedon exercise of employees' stock options, in excess of compensation charged to the Profitand Loss account.

2.c General reserves

An amount of Rs. 645 crore representing 10% of the profits for the year ended March 31,2011 (previous year Rs. 580 crore) was transferred to the general reserves account fromthe Profit and Loss account.

2.d Profit and Loss account

The balance retained in the Profit and Loss account as at March 31, 2011 is Rs. 15,591crore, after providing the interim, 30th year special and final dividend for the year ofRs. 574 crore, Rs. 1,722 crore and Rs. 1,149 crore respectively and dividend tax of Rs.568 crore thereon. The total amount of profits appropriated to dividend including dividendtax was Rs. 4,013 crore, as compared to Rs. 1,674 crore in the previous year.

2.e Shareholder funds

The total shareholder funds increased to Rs. 24,501 crore as at March 31, 2011 from Rs.22,036 crore as of the previous year end. The book value per share increased to Rs. 426.73as at March 31, 2011, compared to Rs. 384.01 as of the previous year-end.

3.a Capital expenditure

We incurred a capital expenditure of Rs. 1,152 crore (Rs. 565 crore in the previousyear) comprising additions to gross block of Rs. 1,017 crore, net of Rs. 3 crore movementin land from leasehold to freehold for the year ended March 31, 2011. An increase of Rs.90 crore on account of increase in capital work-in-progress and Rs. 45 crore on account ofdecrease in retention monies. The entire capital expenditure was funded out of internalaccruals.

3.b Additions to gross block

During the year, we capitalized Rs. 1,017 crore to our gross block comprising Rs. 251crore for investment in computer equipment and the balance of Rs. 764 crore oninfrastructure investment and Rs. 2 crore on vehicles. We invested Rs. 225 crore toacquire 267 acres of land in Bangalore, Delhi and Mangalore. The expenditure on buildings,computer equipment, plant and machinery and furniture and fixtures, increased by Rs. 323crore, Rs. 251 crore, Rs. 147 crore and Rs. 69 crore respectively.

During the previous year, we capitalized Rs. 787 crore to our gross block, includinginvestment in computer equipment of Rs. 140 crore, Rs. 646 crore on infrastructureinvestment and Rs. 1 crore on vehicles.

We invested Rs. 43 crore to acquire 161 acres of land in Hyderabad, Jaipur, Mysore andMangalore.

3.c Deductions to gross block

During the year, we deducted Rs. 440 crore (net book value of Rs. nil) from the grossblock on retirement of assets. During the previous year, we retired / transferred variousassets with a gross block of Rs. 387 crore (net book value of Rs. nil) Rs. 8 crore ondonation of computer systems and Rs. 21 crore on disposal of various assets.

3.d Capital expenditure commitments

We have a capital expenditure commitment of Rs. 742 crore, as at March 31, 2011 ascompared to Rs. 267 crore as at March 31, 2010.

4. Investments

We made several strategic investments aimed at procuring business benefits andoperational efficiency for us. During the previous year, the Company sold 32,31,151 sharesof OnMobile Systems Inc., U.S., for a total consideration of Rs. 53 crore, net of taxesand transaction cost.

nfosys BPO Limited

We established Infosys BPO Limited as a majority-owned and controlled subsidiary onApril 3, 2002, to provide business process management services. Infosys BPO seeks toleverage the benefits of service delivery globalization, process redesign and technologyto drive efficiency and cost effectiveness in customer business processes. On December 4,2009, Infosys BPO acquired 100% of voting interest in McCamish Systems LLC, a businessprocess solutions provider based at Atlanta, U.S., for a cash consideration of Rs. 173crore and a contingent consideration of Rs. 67 crore.

4.b Wholly-owned subsidiaries

During the year, the investments in our subsidiaries were as follows :

(1) During the year, Infosys Technologies Limited incorporated a wholly-ownedsubsidiary Infosys Technologies (Shanghai) Company Limited

5. Deferred tax assets / liabilities

We recorded deferred tax assets of Rs. 406 crore as at March 31, 2011 (Rs. 313 crore asat March 31, 2010) and deferred tax liability of Rs. 176 crore as at March 31, 2011 (Rs.232 crore as at March 31, 2010). We assess the likelihood that our deferred tax assetswill be recovered from future taxable income. We believe it is more likely than not thatwe will realize the benefits of these deductible differences.

6. Sundry debtors

Sundry debtors amounted to Rs. 4,212 crore (net of provision for doubtful debtsamounting to Rs. 83 crore) as at March 31, 2011, compared to Rs. 3,244 crore (net ofprovision for doubtful debts amounting to Rs. 100 crore) as at March 31, 2010. These debtsare considered good and realizable. Debtors are at 16.6% of revenues for the year endedMarch 31, 2011, compared to 15.3% for the previous year, representing a Days SalesOutstanding (DSO) of 61 days and 56 days for the respective years.

Our largest client constituted 2.7% of sundry debtors as at March 31, 2011. The ageprofile of debtors is as follows :

in %

Provisions are generally made for all debtors' outstanding for more than 180 days asalso for others, depending on the Management's perception of the risk. The need forprovisions is assessed based on various factors, including collectability of specificdues, risk perceptions of the industry in which the customer operates and general economicfactors that could affect the customer's ability to settle.

The movement in provisions for doubtful debts during the year is as follows :

in Rs. crore

Provision for bad and doubtful debts as a percentage of revenue is 0.01% for the yearended March 31, 2011, as against nil for the year ended March 31, 2010.

The unbilled revenues as at March 31, 2011 and March 31, 2010, amounted to Rs. 1,158crore and Rs. 789 crore respectively.

7. Cash and cash equivalents

The bank balances in India include both rupee accounts and foreign currency accounts.The bank balances in overseas current accounts are maintained to meet the expenditure ofthe overseas branches and project-related expenditure overseas. The deposit accountrepresents deposits of maturity up to 365 days.

Our treasury policy calls for investing surpluses with highly-rated companies, banksand financial institutions for maturities up to 365 days, as also with liquid mutual fundswith a limit on investments in individual entities.

8. Loans and advances

in Rs. crore

(1) An amount of Rs. 344 crore (Rs. 281 crore as at March 31, 2010)deposited with the Life Insurance Corporation of India to settle leave obligations as andwhen they arise during the normal course of business. This amount is considered asrestricted cash and hence not considered as ‘cash and cash equivalents’.

As at March 31, 2011, the outstanding loan to Infosys Technologies (China) CompanyLimited was Rs. 23 crore (US$ 5 million), the outstanding loan as at March 31, 2010 wasRs. 46 crore (US$ 10 million). During the year, the Company has given a loan of Rs. 9crore (US$ 2 million) to Infosys Tecnologia do Brasil Ltda, which is outstanding as ofMarch 31, 2011. The loan is repayable within five years and six months at the discretionof the subsidiary, for the China and Brazil subsidiaries respectively.

The withholding and other taxes receivable represents transaction taxes paid in variousdomestic and overseas jurisdictions which are recoverable.

Unbilled revenues consist primarily of costs and earnings in excess of billings to theclient on fixed-price, and fixed-timeframe contracts.

The details of advance income taxes are as follows :

in Rs. crore

Our loan schemes provide for personal loans and salary advances that are providedprimarily to employees in India who are not executive officers or directors. The loans andadvances are recoverable within 24 months.

Electricity and other deposits represent electricity deposits, telephone deposits,insurance deposits and advances of a similar nature. The rent deposits are for buildingstaken on lease by us for our software development centers and marketing offices inlocations across the world.

Deposits with financial institutions and corporate bodies represent surplus moneydeployed in the form of short-term deposits.

9. Current liabilities

in Rs. crore

Sundry creditors for accrued salaries and benefits include the provision for bonus andincentive payable to the staff. Sundry creditors for other liabilities represent amountsaccrued for other operational expenses. Retention monies represent monies withheld oncontractor payments pending final acceptance of their work. Withholding and other taxespayable represent local taxes payable in various countries in which we operate and thesame will be paid in due course.

Effective July 1, 2007, we revised the employee death benefits provided under thegratuity plan, and included all eligible employees under a consolidated term insurancecover. Accordingly, the obligations under the gratuity plan reduced by Rs. 37 crore, whichis being amortized on a straight line basis to the Profit and Loss account over ten years,representing the average future service period of employees. An amount of Rs. 4 crore wasamortized during the year. The unamortized balance as at March 31, 2011 was Rs. 22 crore.

Advances received from clients represent monies received for the delivery of futureservices. Unearned revenue consists primarily of advance client billing on fixed-price,and fixed-timeframe contracts for which related costs were not yet incurred. Unclaimeddividends represent dividends paid, but not encashed by shareholders, and are representedby a bank balance of the equivalent amount.

10. Provisions

in Rs. crore

Proposed dividend represents the final dividend we recommended to our shareholders.Upon approval by our shareholders, this will be paid after the Annual General Meeting.Provision for tax on dividend denotes taxes payable on final dividend declared for theyear.

Provisions for taxation represent estimated income tax liabilities, both in India andoverseas. The details are as follows :

in Rs. crore

Provisions for unavailed leave is toward our liability for leave encashment valued onan actuarial basis. The provision for post-sales client support and warranties is towardslikely expenses for providing post-sales client support on fixed-price contracts.

1. Income

Of the total revenues for the years ended March 31, 2011 and March 31, 2010,approximately 97.7% were derived from our overseas operations whereas 2.3% were derivedfrom domestic operations.

Our revenues are generated primarily on fixed-timeframe or time-and-material basis.Revenues from software services on fixed-price and fixed-timeframe contracts arerecognized as per the proportionate-completion method. On time-and-material contracts,revenue is recognized as the related services rendered. Revenue from the sale of userlicenses for software applications is recognized on transfer of the title in the userlicense, except in multiple arrangement contracts, where revenue is recognized as per theproportionate-completion method.

The segmentation of software services by project type is as follows :

in %

Our revenues are also segmented into onsite and offshore revenues. Onsite revenues arefor those services which are performed at our client locations or at our globaldevelopment centers, as part of software projects, while offshore revenues are forservices which are performed at our software development centers located in India.

The segmentation of revenues by location (including product revenue) is as follows :

in %

The services performed onsite typically generate higher revenues per capita, but atlower gross margins in percentage as compared to the services performed at our ownfacilities. Therefore, any increase in the onsite effort impacts our margins.

The details of effort mix for software services and products in person-months are as

follows : in %

The growth in software services and product revenues is due to an all-round growth invarious segments of the business mix and is mainly due to growth in business volumes.

The details of the same are as follows :

1.a Software services

During the year, the volume of software services grew by 25.4% compared to 5.2% in theprevious year. The onsite and offshore volume growth were 27.8% and 24.5% respectivelyduring the year, compared to (2.1) % and 8.4% in the previous year. In U.S. dollar terms,onsite per capita revenues increased by 0.7% during the year, offshore per capita revenuesdecreased by 4.2% and blended per capita revenues decreased by 1.1%. During the previousyear, onsite per capita revenues increased by 3.4% offshore per capita revenues decreasedby 4.7% and blended per capita revenues decreased by 2.8% in U.S. dollar terms.

1.b Software products

The revenues from software products grew 38.9% compared to 9.1% in the previous year.Of the software products revenue, 82.1% came from exports (same as previous year).

2.a Software development expenses

in Rs. crore

We incurred software development expenses at 56.2% of revenues, compared to 54.7%during the previous year. Employee costs relate to salaries paid to employees in India andinclude overseas staff expenses. The total software professionals person-months increasedto 11,60,676 for the year ended March 31, 2011, from 9,95,956 person-months during theprevious year, an increase of 16.5%. Of this, the onsite and offshore billed person-months(including software products) are 2,24,378 and 6,21,575 for the year ended March 31, 2011,as compared to 1,75,581 and 4,97,108 for the previous year. The non-billable and traineesperson-months were 3,14,723 and 3,23,267 during the current and previous yearrespectively. The non-billable and trainees person-months were 27.1% and 32.5% of thetotal software professional person-months for the current and previous year respectively.We added 32,247 employees (gross) and 15,321 employees (net) during the year as comparedto 18,905 employees (gross) and 6,837 employees (net) during the previous year.

The utilization rates of billable employees for the years ended March 31, 2011 andMarch 31, 2010 are as follows :

in %

The cost of technical sub-contractors includes Rs. 1,568 crore toward purchase ofservices from subsidiaries for the year ended March 31, 2011, as against Rs. 1,210 crorein the previous year. The details of such related party transactions are available in the Notesto Accounts. The balance amount was utilized toward availing the services of externalconsultants to augment skill sets that were required in various projects. We continue toengage the services of these consultants on a need basis.

The overseas travel expenses representing cost of travel overseas for softwaredevelopment constituted approximately 2.3% and 1.9% respectively of total revenue for theyears ended March 31, 2011 and March 31, 2010. Overseas travel expenses include visacharges of Rs. 184 crore (0.7% of revenues) for the year, compared to Rs. 92 crore (0.4%of revenues) in the previous year.

Cost of software packages primarily represents the cost of software packages and toolsprocured for our internal use. These packages and tools enhance the quality of ourservices and also meet the needs of software development. The cost of software packageswas 1.3% and 1.4% respectively of the revenues for the years ending March 31, 2011 andMarch 31, 2010. Our accounting policy is to charge such purchases to the Profit and Lossaccounts in the year of purchase. Third party items bought for service delivery to clientsinclude software and hardware procured from third parties for resale to clients primarilyin India. The increase in third party items bought for service delivery to clients is dueto an increase in volume of system integration projects executed in the Indian market.

A major part of our revenues is generated from offshore software development. We usehigh-end communication tools in order to establish real-time connections with our clients.The communication expenses represent approximately 0.2% of revenues for the years endingMarch 31, 2011 and March 31, 2010 respectively.

The provision for post-sale customer support and warranties saw a charge of Rs. 5 croreagainst the reversal of Rs. 2 crore for the years ended March 31, 2011 and March 31, 2010respectively.

Other expenses representing staff welfare, computer maintenance, consumables and rentapproximate to 0.5% of revenues during the year (same as the previous year).

2.b Gross profit

The gross profit during the year was Rs. 11,118 crore representing 43.8% of revenuescompared to Rs. 9,581 crore representing 45.3% of revenues in the previous year.

2.c Selling and marketing expenses

We incurred selling and marketing expenses at 4.8% of our total revenues, compared to4.6% in the previous year. Selling and marketing expenses primarily consist of employeecosts which include bonus payment. All other expenses excluding the employee cost were1.0% of revenues during the year (same as previous year). The number of sales andmarketing personnel increased from 800 as at March 31, 2010 to 902 as at March 31, 2011.

We and our subsidiaries added 139 new customers as compared to 141 during the previousyear.

2.d General and administration expenses

We incurred general and administration expenses amounting to 5.8% and 5.9% of our totalrevenues, during the current year and previous year respectively. All other expensesexcluding the employee cost were 4.2% of revenues during the year as compared to 4.3% inthe previous year.

Employee costs increased as the number of administration personnel increased from 3,922as at March 31, 2010 to 4,487 as at March 31, 2011.

3. Operating profits

We earned an operating profit (PBIDTA) of Rs. 8,414 crore, representing Rs. .2% oftotal revenues compared to Rs. 7,360 crore, representing 34.8% of total revenues, duringthe previous year.

4. Depreciation

We provided Rs. 740 crore and Rs. 807 crore toward depreciation for the years endedMarch 31, 2011 and March 31, 2010 representing 2.9% and 3.8% of total revenues. Thedepreciation for the years ended March 31, 2011 and March 31, 2010 includes an amount ofRs. Rs. crore and Rs. 86 crore, toward 100% depreciation on assets costing less than Rs.5,000 each. The depreciation as a percentage of average gross block (excluding land) is11.9% and 13.7% for the years ending March 31, 2011 and 2010 respectively.

5. Other income, net

Our treasury policy allows us to invest in short-term instruments with a maturity of upto 365 days, with a limit on individual fund / bank. The increase in interest incomeduring the year was on account of higher cash generation in the business and increase inthe average yield during the year.

We use foreign exchange forward contracts and options to hedge our exposure tomovements in foreign exchange rates. The use of these foreign exchange forward contractsand options reduces our risks / costs. We do not use foreign exchange forward contracts oroptions for trading or speculation purposes.

Foreign exchange gains / (losses) include transaction and translation losses of Rs. 13crore and a loss of Rs. 237 crore for the years ended March 31, 2011 and March 31, 2010respectively and option / forward contracts-gain of Rs. 52 crore and a gain of Rs. 276crore for the years ended March 31, 2011 and March 31, 2010 respectively.

The composition of currency-wise revenues for the years ended March 31, 2011 and March31, 2010 is as follows :

in %

6. Sensitivity to rupee movement

Every 1% movement in the Indian rupee against the US dollar has an impact ofapproximately 50 basis points on operating margin.

7. Provision for tax

We have provided for our tax liability both in India and overseas. The Indian corporatetax rate for the year ended March 31, 2011 is Rs. .22%. Export profits for the year wereentitled to tax benefits under two schemes of the Government of India viz., the STPI andSEZ scheme.

7.a Software Technology Parks (STPs)

The profits attributable to operations under the STP scheme were exempted from incometax for a consecutive period of ten years from the financial year in which the unitstarted producing computer software, or March 31, 2011, whichever was earlier.

The details regarding the commencement of operations at our STP locations and the yearupto which the deduction under the STP scheme was availed are as follows :

(1) Financial year

7.b Special Economic Zones (SEZs)

During the financial year three more SEZ units at Mysore, Hyderabad and Mahindra City,Chennai commenced production.

As per the SEZ Act, the units will be eligible for a deduction of 100% of profits orgains derived from the export of services for the first five years from commencement ofprovision of services and 50% of such profits or gains for the next five years. Certaintax benefits are also available for a further five years subject to the units meetingdefined conditions.

The details regarding the commencement of operations at our SEZ locations and the yearupto which the deduction under the SEZ scheme is available are as follows :

(1) Financial year

Other fiscal benefits, including indirect tax waivers, are being extended for settingup, operating and maintaining the unit.

For the current year, approximately 1.61% of our revenues came from the STP unit atThiruvananthapuram, which was under tax holiday, 9.60% of revenues came from the SEZ atMahindra City – unit 1, Chennai, which was eligible for deduction based on 50% of theprofits of the unit and 13.34% of revenues came from other SEZ units, which were eligiblefor deduction based on entire profits of these units. The balance 75.45% of revenues camefrom other STP units, which were subject to full tax in India. We pay taxes in variouscountries in which we operate, on the income that is sourced to those countries. Thedetails of provision for taxes are as follows :

in Rs. crore

The effective tax rate increased to 26.96 % in fiscal 2011 as compared to 23.0% infiscal 2010.

8. Net profit after tax

Our net profit increased by 12% to Rs. 6,443 crore for the year ended March 31, 2011from Rs. 5,755 crore in the previous year, excluding exceptional item. This represents25.4% and 27.2% of total revenue for the year ended March 31, 2011 and March 31, 2010respectively.

9. Earnings Per Share (EPS)

Our basic EPS increased by 11.8% during the year to Rs. 112.26 per share from Rs.100.37 per share in the previous year. The outstanding shares used in computing basic EPSincreased from 57,Rs. ,09,523 for the year ended March 31, 2010 to 57,40,13,650 for theyear ended March 31, 2011, an increase of 0.1%.

10. Segmental profitability

Our operations predominantly relate to providing end-to-end business solutions thatleverage technology, thereby enabling clients to enhance business performance, deliveredto customers globally operating in various industry segments. Accordingly, revenuesrepresented along industry classes comprise the primary basis of segmental information setout in these financial statements. Secondary segmental reporting is performed on the basisof the geographical location of customers. The income and operating income by industry andgeographical segments are provided in this section.

10.a Industry segments

in Rs. crore

10.b Geographical segments

in Rs. crore

11. Liquidity

Our growth has been financed largely through cash generated from operations.

Net cash generated from operations was Rs. 4,270 crore and Rs. 5,855 crore for theyears ended March 31, 2011 and March 31, 2010 respectively. Net cash provided by / (usedin) investing activities was Rs. 3,235 crore and (Rs. 3,298) crore for the years endedMarch 31, 2011 and March 31, 2010 respectively. Net cash used in financing activities wasRs. 3,642 crore and Rs. 1,481 crore for the years ended March 31, 2011 and March 31, 2010,respectively.

12. Related party transactions

These have been discussed in detail in the Notes to the Abridged financialstatements section of this report.

13. Events occurring after the Balance Sheet date

There were no significant events occurring after the Balance Sheet date.

D. Opportunities and threats

We believe our competitive strengths include :

• Leadership in sophisticated solutions that enable our clients to optimize theefficiency of their business

• Proven GDM

• Commitment to superior quality and process execution

• Strong brand and long-standing client relationships

• Status as an employer of choice

• Ability to scale

• Innovation and leadership

1. Our strategy

We seek to further strengthen our position as a leading global technology servicescompany by successfully differentiating our service offerings and increasing the scale ofour operations. To achieve these goals, we seek to :

• Increase business from existing and new clients

• Expand geographically

• Continue to invest in infrastructure and employees

• Continue to enhance our engagement models and offerings

• Continue to develop deep industry knowledge

• Enhance brand visibility

• Pursue alliances and strategic acquisitions

2. Competition

We operate in a highly competitive and rapidly changing market and compete withconsulting firms such as Accenture Limited, Atos Origin S.A., Cap Gemini S.A., andDeloitte Consulting LLP; divisions of large multinational technology firms such asHewlett-Packard Company and International Business Machines Corporation; IT outsourcingfirms such as Computer Sciences Corporation, Keane Inc., Logica Plc and Dell PerotSystems; offshore technology services firms such as Cognizant Technology SolutionsCorporation, Tata Consultancy Services Limited and Wipro Technologies Limited; softwarefirms such as Oracle Corporation and SAP A.G.; business process outsourcing firms such asGenpact Limited and WNS Global Services and in-house IT departments of large corporations.

In the future, we expect competition from firms establishing and building theiroffshore presence and firms in countries with lower personnel costs than those prevailingin India. However, we recognize that price alone cannot constitute a sustainablecompetitive advantage. We believe that the principal competitive factors in our businessinclude the ability to effectively integrate onsite and offshore execution capabilities todeliver seamless, scalable, cost-effective services; increase scale and breadth of serviceofferings to provide one-stop solutions; provide industry expertise to clients’business solutions; attract and retain high-quality technology professionals and maintainfinancial strength to make strategic investments in human resources and physicalinfrastructure through business cycles.

We believe we compete favorably with respect to these factors.

E. Outlook, risks and concerns

This section contains forward-looking statements that involve risks and uncertainties.Our actual results could differ materially from those anticipated in these statements as aresult of certain factors. The following lists our outlook, risks and concerns :

• Our revenues and expenses are difficult to predict and can vary significantlyfrom period to period, which could cause our share price to decline. We may not be able tosustain our previous profit margins or levels of profitability.

• Our revenues are highly dependent on clients primarily located in the U.S. andEurope, as well as in certain industries, and an economic slowdown or other factors thataffect the economic health of the U.S., Europe or these industries may affect ourbusiness.

• Currency fluctuations may affect the results of our operations.

• Our success depends largely upon our highly skilled technology professionals andour ability to hire, attract, motivate, retain and train our personnel.

• We may face difficulties in providing end-to-end business solutions for ourclients, which could lead to clients discontinuing their work with us. This in turn couldharm our business.

• Intense competition in the market for technology services could affect our costadvantages, which could reduce our share of business from clients and may decrease ourrevenues.

• Our revenues are highly dependent upon a small number of clients, and the lossof any one of our major clients could significantly impact our business.

• Legislation in certain countries in which we operate, including the UnitedStates and the United Kingdom, may restrict companies in those countries from outsourcingwork to us.

• Compliance with new and changing corporate governance and public disclosurerequirements adds uncertainty to our compliance policies and increases our costs ofcompliance.

• Our failure to complete fixed-price, fixed-timeframe contracts ortransaction-based pricing contracts within the budget and on time, may negatively affectour profitability.

• Our client contracts can be terminated without cause and with little or nonotice or penalty. This could negatively impact our revenues and profitability.

• Our engagements with customers are singular in nature and do not necessarilyprovide for subsequent engagements.

• Our client contracts are often conditioned upon our performance, which, ifunsatisfactory, may result in less revenue than previously anticipated.

• Some of our long-term client contracts contain benchmarking provisions which, iftriggered, could result in lower future revenues and profitability under the contract.

• Our business will suffer if we fail to anticipate and develop new services andenhance existing services in order to keep pace with rapid changes in technology and inthe industries on which we focus.

• Disruptions in telecommunications, system failures or virus attacks could harmour ability to execute our GDM, which could result in client dissatisfaction and areduction of our revenues.

• We may be liable to our clients for damages caused by disclosure of confidentialinformation, system failures, errors or unsatisfactory performance of services.

• Our increasing work with governmental agencies may expose us to additionalrisks.

• We are investing substantial cash assets in new facilities and physicalinfrastructure, and our profitability could be reduced if our business does not growproportionately.

• We may be unable to recoup our investment costs to develop our softwareproducts.

• Our insiders who are significant shareholders may control the election of ourBoard and may have interests that conflict with those of our other shareholders or holdersof our ADSs.

• We may engage in acquisitions, strategic investments, strategic partnerships oralliances or other ventures that may or may not be successful.

• Our net income would decrease if the Government of India reduces or withdrawstax benefits and other incentives it provides to us or when our tax holidays expire orterminate.

• In the event that the Government of India or the government of another countrychanges its tax policies in a manner that is adverse to us, our tax expense may materiallyincrease, reducing our profitability.

• We operate in jurisdictions that impose transfer pricing and other tax-relatedregulations on us, and any failure to comply could materially and adversely affect ourprofitability.

• Wage pressures in India and the hiring of employees outside India may prevent usfrom sustaining our competitive advantage and may reduce our profit margins.

• Terrorist attacks or a war could adversely affect our business, results ofoperations and financial condition.

• The markets in which we operate are subject to the risk of earthquakes, floods,tsunamis and other natural and man made disasters.

• Changes in immigration laws may affect our ability to compete and provideservices to our clients in various countries. This could hamper our growth and may have animpact on our revenues.

• Our ability to acquire companies organized outside India depends on the approvalof the Government of India and / or the Reserve Bank of India, and failure to obtain thisapproval could negatively impact our business.

For more details on risk factors, refer to our quarterly and annual filings with theSecurities and Exchange Commission (SEC), USA, available on our website www.infosys.com

F. Internal control systems and their adequacy

The CEO and CFO certification provided in the CEO and CFO Certification sectionof the Annual Report discusses the adequacy of our internal control systems andprocedures.

G. Material developments in human resources / industrial relations, including number ofpeople employed

Our culture and reputation as a leader in the technology services industry enables usto recruit and retain some of the best available talent in India.

1. Human capital

Our employees are our most important and valuable assets. During fiscal 2011, wereceived around 8,29,800 employment applications, approximately 1,36,200 were interviewedand 67,400 job offers were made. As of March 31, 2011, Infosys and its subsidiaries hademployed 1,30,820 employees, of which 1,23,811 are technology professionals, includingtrainees.

The key elements that define our human capital development include :

1.a Recruitment

We have built our global talent pool by recruiting students from premier universities,colleges and institutes in India and through need-based hiring of project leaders andmiddle managers. We recruit students in India who have consistently shown high levels ofachievement. We have also begun selective recruitment at campuses in the U.S., the U.K.,Australia and China. We rely on a rigorous selection process involving a series ofaptitude tests and interviews to identify the best applicants. This selection process iscontinually assessed and refined based on the performance tracking of past recruits.

1.b Training and development

With a total built-up area of 1.44 million sq. ft., the Infosys Global Education Centerin Mysore, can train approximately 14,000 employees at a time.

As of March 31, 2011, we employed 698 full-time employees as faculty, including 255with doctorates or masters degrees. Our faculty conducts integrated training for our newemployees. Our employees undergo certification programs each year to develop / upgrade theskills relevant for their roles.

Leadership development is a core part of our training program. We established theInfosys Leadership Institute at our Mysore campus to enhance the leadership skillsrequired to manage the complexities of the rapidly changing marketplace.

We have also been working with several colleges across India through our Campus Connectprogram, enabling their faculty to provide industry related training to students.

1.c Compensation

Our technology professionals receive competitive salaries and benefits. We have alsoadopted a performance-linked compensation program that links compensation to individualperformance, as well as the Company’s performance.

Risk management report

The risk management report discusses the various dimensions of our enterprise riskmanagement practices. Readers are cautioned that the risk related information outlinedhere is not exhaustive and is for information purposes only. The discussion may containstatements, which may be forward-looking in nature. Our business model is subject touncertainties that could cause actual results to differ materially from those reflected inthe forward-looking statements. Readers are advised to exercise their own judgment inassessing risks associated with the Company and refer to discussions of risks in theCompany’s previous annual reports and the filings with the Securities and ExchangeCommission, USA.

A. Overview

Enterprise Risk Management (ERM) at Infosys encompasses practices relating toidentification, assessment, monitoring and mitigation of various risks to our businessobjectives. ERM at Infosys seeks to minimize adverse impact of risks on our businessobjectives and enable the Company to leverage market opportunities effectively. Further,our risk management practices seek to sustain and enhance the long-term competitiveadvantage of the Company. Risk management is integral to our business model, described as‘Predictable, Sustainable, Profitable and De-risked’ (PSPD). Our core values andethics provide the platform for our risk management practices.

B. Infosys risk management framework

Our risk management framework comprises of the following key components.

1. Risk management structure

The risk management structure at Infosys spans across the enterprise at all levels.These levels also form the various lines of defense in our risk management.

The key roles and responsibilities regarding risk management in the Company aresummarized below :

2. Risk categories

The following broad categories of risks have been considered in our risk managementframework :

• Strategy : Risks emanating out of the choices we make on markets, resources anddelivery model which can potentially impact our long-term competitive advantage

• Industry : Risks relating to inherent characteristics of our industry including,competitive structure, technological landscape, extent of linkage to economic environmentand regulatory structure

• Counterparty : Risks arising from our association with entities for conductingbusiness. These include clients, vendors, alliance partners and their respectiveindustries

• Resources : Risks arising from inappropriate sourcing or suboptimal utilizationof key organizational resources such as talent, capital and infrastructure

• Operations : Risks inherent to business operations including those relating toclient acquisition, service delivery to clients, business support activities, informationsecurity, intellectual property, physical security and business activity disruptions

• Regulations and compliance : Risks due to inadequate compliance to regulations,contractual obligations and intellectual property violations leading to litigation andloss of reputation.

3. Key risk management practices

The key risk management practices include those relating to risk assessment,measurement, monitoring, reporting, mitigation actions and integration with strategy andbusiness planning.

• Risk identification and assessment : Periodic assessment of business riskenvironment to identify significant risks for the Company and prioritizing the risks foraction. Mechanisms for identification and prioritization of risks include risk survey,business risk environment scanning and focused discussions in the RC and the RMC. A risksurvey of executives across units, functions and subsidiaries is conducted before theannual strategy exercise. The risk register and internal audit findings also providepointers for risk identification.

• Risk measurement, mitigation and monitoring : For top risks, dashboards arecreated that track external and internal indicators relevant for risks, so as to indicatethe risk level. The trend line assessment of top risks, analysis of exposure and potentialimpact are carried out. Mitigation plans are finalized, owners are identified and theprogress of mitigation actions are monitored and reviewed.

• Risk Reporting : The top risks report outlining the risk level, trend line,exposure, potential impact and status of mitigation actions is discussed in the RC and theRMC on a periodic basis. In addition, risk update is provided to the Board. Entity levelrisks such as project and account level risks are reported to and discussed at theappropriate levels within the organization.

• Integration with strategy and business planning : Identified risks are used asone of the key inputs for the development of strategy and annual business plan.

C. Overview of risk environment and key risk management activities of the year

While the business risk environment gradually improved during the year, several macroeconomic and regulatory developments required our close monitoring and interventions. Inour key markets, business outlook indicators improved and the financial position ofseveral key clients stabilized during the year. While unemployment rates in key marketsmoderated, they continued to be high prompting several government policy interventions.There were regulatory changes and proposals relating to visa policies in key markets.Macroeconomic developments in the Eurozone led to high volatility in currencies from whichwe derive our revenues. Keeping in view the business risk environment, we closelymonitored our competitive position and deployed interventions.

Our risk management approach and practices continued to focus on minimizing the adverseimpact of risks on our business objectives and to enable the Company to leverage marketopportunities based on risk-return parity. Our active management of currency risksminimized the impact in a volatile currency market. Our continued emphasis on credit riskmanagement through periodic credit quality assessments and focused collection mechanismsresulted in the improvement of credit quality indicators. We continued our emphasis ontalent management relating to attraction, retention, engagement and competencydevelopment. We further strengthened operational risk mitigation mechanisms in areasincluding information security, data protection, physical security, project servicedelivery and contracts management. Our periodic assessment and monitoring of business riskand regulatory environment resulted in timely deployment of appropriate mitigationmeasures.

The following risk management activities were conducted :

1. Top risk identification, tracking and review

• Annual risk survey across functions and subsidiaries to get inputs on key risksand prioritization. Subsequent discussions in the RC and the RMC for finalization of toprisks

• Review of top risks in the RC and the RMC covering risk level, trend line,exposure, potential impact and progress of key mitigation actions

• Review discussions on key items from risk register by the RC and the RMC

2. Risk assessments and review

• Periodic assessment of business risk environment including analysis of topclients, counterparty exposures, competitive positioning and sovereign risk

• Risk assessment of regulatory environment, especially those relating to visa andtaxation

• Assessment and review of financial risks such as currency risk, credit risk andliquidity

• Risk assessments in multiple areas including talent management, competitivepositioning, service delivery, information security, intellectual property, physicalsecurity and business continuity

• Review of contractual compliance monitoring systems and account risk managementsystems in business units

• Evaluation of the company’s ERM program with global best practices