Infosys Equity Research

Date of Research – 18 January 2016

Price – Rs. 1,131.95

About the Company

Founded in 1981, Infosys Limited (“INFY” or the “Company”) is a global leader in consulting, technology and outsourcing. In addition, Infosys offers software products for the banking industry – Finacle, which offers solutions to address core banking, mobile banking and e-banking needs of retail, corporate and universal banks globally. The Company is launching several new products based on market trends such as cloud computing, enterprise mobility and sustainability.

Headquartered in Bangalore, the Company has a global footprint with 66 offices and 69 development centers in the United States, India, China, Australia, Japan, Middle East, UK, Germany, France, Switzerland, Netherlands, Poland, Canada and many other countries.

On January 4, 2012, Infosys BPO Limited acquired Portland Group Pty Ltd. In October 2012, it acquired Lodestone Holding AG, a leading management consultancy based in Switzerland.

Key Financial Figures

Standalone(Rs. Cr)
ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017 
Total Income from Operations36,765.044,341.0047,300.0053,983.00 59,289.00
Expenses25,750.031,814.0033,338.0038,220.00 42,082.00
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit)11,015.012,527.0013,962.0015,763.00 17,207.00
Depreciation956.01,101.00913.001,115.00 1,331.00
Finance Costs– 
Other income2,298.02,576.003,337.003,009.00 3,062.00
Exceptional items(412.00)(3,036.00)
PBT12,357.014,002.0016,798.0020,693.00 18,938.00
Tax3,241.03,808.004,634.004,907.00 5,120.00
Extraordinary items– 
PAT (before Minority Interest and share of Associates)9,116.010,194.0012,164.0015,786.00 13,818.00

Profitability Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016 FY 2017 
Operating Profit Margin Ratio29.9628.2529.5229.20 29.02
Net Profit Margin Ratio24.8022.9925.7229.24 23.31

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Share Capital286.00286.00286.00572.001,144.00 
Reserves & Surplus31,046.0037,708.0044,244.0050,164.0056,682.00 
Net worth (shareholders funds)31,332.0037,994.0044,530.0050,736.0057,826.00 
Current liabilities6,902.008,099.0012,031.0015,503.0017,189.00 
Other long term liabilities and provisions123.00182.00405.0050.00126.00 
Deferred Tax Liabilities270.0056.00– 
Total Liabilities38,627.0046,331.0056,966.0066,289.0075,141.00 


Application of Funds / Assets(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Fixed Assets6,145.008,279.009,339.0012,122.0014,140.00 
Noncurrent Investments4.00377.001,307.001,398.001,817.00 
Current assets30,261.0035,343.0043,078.0047,242.0051,753.00 
Long term advances and other noncurrent assets1,682.001,863.002,613.004,991.006,898.00 
Deferred Tax Assets535.00469.00629.00536.00533.00 
Total assets38,627.0046,331.0056,966.0066,289.0075,141.00 

Efficiency Analysis

ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
ROE / RONW27.0323.9922.8923.9827.30 

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016 FY 2017 
Total Income from Operations (Rs. Cr.)36,765.0044,341.0047,300.0053,983.00 59,289.00 
Growth (%)17.63 %20.61 %6.67 %14.13 % 9.83 % 
PAT (Rs. Cr.)9,116.0010,194.0012,164.0015,786.00 13,818.00
Growth (%)7.63 %11.83 %19.33 %29.78 % (12.47 %) 
Earnings Per Share – Basic (Rs. )158.76178.39105.9168.73 60.16 
Earning Per Share – Diluted (Rs. )158.76178.39105.9168.73 60.15 
Price to Earnings18.2020.3518.7517.72 15.66 

Dividend History

The Company has maintained an average dividend yield of 5.23 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. INFY’s average current ratio over the last 5 financial years has been 4.45 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

INFY continued to be debt-free and has maintained sufficient cash to meet its strategic objectives.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

INFY continued to be debt-free and has maintained sufficient cash to meet its strategic objectives.

Ownership pattern

In its latest stock exchange filing dated 31 March 2016, INFY reported a promoter holding of 13.07 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 57.06 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.