Infosys (INFTEC) : Couldn't Ask For More
Infosys (INFTEC) : Couldn't Ask For More
Infosys (INFTEC) : Couldn't Ask For More
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:
:
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Infosys (INFTEC)
Buy
| 1350
12 months
19%
Whats Changed?
Target
EPS FY16E
EPS FY17E
Rating
Quarterly Performance
Revenue
EBIT
EBIT (%)
PAT
Q3FY16
15,902
3,959
24.9
3,465
Q3FY15
YoY (%)
13,796
15.3
3,689
7.3
26.7 -184 bps
3,250
6.6
Q2FY16
15,635
3,993
25.5
3,398
QoQ (%)
1.7
(0.9)
-60 bps
2.0
Key Financials
| Crore
Net Sales
EBITDA
Net Profit
EPS (|)
FY14
50,133
13,415
10,648
46.6
FY15
53,319
14,901
12,329
53.9
FY16E
61,737
16,654
13,378
58.5
FY17E
69,960
19,370
15,315
67.0
FY14
24.3
29.0
17.2
5.4
22.4
30.7
FY15
21.0
25.0
15.2
4.7
22.5
31.4
FY16E
19.4
23.1
13.4
4.2
21.8
30.2
FY17E
16.9
20.1
11.2
3.8
22.2
30.8
Valuation summary
P/E
Target P/E
EV / EBITDA
P/BV
RoNW (%)
RoCE (%)
Stock data
Particular
Market Capitalization (| Crore)
Total Debt (Debt-15)
Cash and Investments (Debt-15)
EV (| Crore)
52 week H/L
Equity capital
Face value
Amount
258,936.6
| 0 crore
31,526.0
227,410.6
1220 / 933
| 1144 crore
|5
| 1133
1M
3M
6M
12M
(4.5)
(1.5)
(2.5)
(3.8)
(12.5)
(5.5)
(6.7)
(4.9)
(8.3)
13.2
(0.7)
(12.1)
(9.6)
0.3
(2.0)
3.3
Research Analysts
Abhishek Shindadkar
[email protected]
Variance analysis
Q3FY16 Q3FY16E
Revenue
Employee expenses
Q3FY15
YoY (%)
Q2FY16
QoQ (%)
Comments
Revenue growth was above our and consensus estimates led by robust volumes
1.7 (3.1%) in a seasonally soft quarter
2.7
15,902
9,621
15,677
9,430
13,796
8,197
15.3
17.4
15,635
9,366
Gross Margin
Gross margin (%)
Selling & marketing costs
G&A expenses
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
6,281
39.5
859
1,094
4,328
27.2
369
3,959
6,247
39.9
862
1,113
4,272
27.3
368
3,904
5,599
40.6
770
875
3,954
28.7
265
3,689
12.2
-109 bps
11.6
25.0
9.5
-144 bps
39.2
7.3
6,269
40.1
843
1,075
4,351
27.8
358
3,993
0.2
-60 bps
1.9
1.8
-0.5
-61 bps
3.1
-0.9
24.9
802
4,761
1,296
3,465
24.9
749
4,651
1,348
3,303
26.7
840
4,529
1,279
3,250
-184 bps
-4.5
5.1
1.3
6.6
25.5
793
4,786
1,387
3,398
EBIT margins were inline with our estimates as as headwinds from soft pricing
-60 bps and utilisation were partially offset by operational efficiencies and rupee tailwinds
1.1
-0.5
-6.6
2.0 Revenue, better other income, lower taxes beat led to profitability beat
Key Metrics
Closing employees
193,383 190,000
LTM attrition-standalone (%)
13.8
15.0
Utilisation - IT Services (%)
80.6
81.0
Average $/|
66.1
65.9
Source: Company, ICICIdirect.com Research
169,638
20.4
82.7
59.9
14.0
-663 bps
-210 bps
10.3
187,976
15.0
81.3
65.4
Change in estimates
(| Crore)
Revenue
EBIT
Old
60,008
15,022
FY16E
New % Change
Old
FY17E
New % Change
61,737
15,416
2.9
2.6
67,501
17,244
69,960
17,831
3.6
3.4
0 bps
2.7
2.7
25.5
14,858
65.0
25.5
15,315
67.0
0 bps
3.1
3.1
Comments
Infosys raised its FY16E $ revenue YoY growth guidance to 8.9%-9.3% (6.4-8.4%
earlier) and its constant currency growth guidance to 12.8%-13.2% vs. 10-12% earlier,
led by beat in prior quarters
Wage hikes, visa costs, currency headwinds and business investments may hurt
FY16E margins by ~90 bps
Assumptions
FY14
FY15
Closing employees
160,405 176,187
18.7
18.9
LTM attrition-standalone
Utilisation - IT Services (%
76.4
80.9
Average $/|
54.5
61.2
Source: Company, ICICIdirect.com Research
Current
FY16E
193,878
15.5
82.8
65.0
FY17E
207,765
14.5
82.7
66.0
Earlier
FY16E
193,878
15.5
82.8
63.5
Comments
FY17E
207,765
14.5
83.0
63.5
Page 2
Company Analysis
Operating metric highlights
From a vertical perspective, growth was led by BFS (27.6% of revenues,
2.1% QoQ growth in dollar terms), insurance (5.9%, 6%), and energy
(5.1%, 9.2%), which continues to witness sharp rebound (grew 18.7%
QoQ in Q2). Manufacturing (22.8%, -3.6%), retail (14.7%, -0.7%), and
lifesciences (5.8%, -1.1%) were particularly weak.
Across geographies, North America (62.5% of revenue) declined 0.6%
QoQ while Europe (23.2%) grew 1.9%. India recovery continues (20.4%
on top of 12.8% QoQ growth in Q2) while Rest of the World was Ok (0.6%
vs. -0.1% in Q2).
Application development growth moderated after a good Q2 (1.3%
growth QoQ vs. 6% in Q2) while app maintenance declined 1.9% QoQ vs.
4.4% growth in Q2. Growth drivers for the quarter were consulting
(33.8% of revenues, 3.7% QoQ growth), testing services (9.2%, 2.9%),
PES (3.4%, 3.7%), and products (3%, 7.8%). IMS weakness (-13.3%) was
largely due to one-time termination fee paid by IMS client in Q2.
From a client perspective, top customer revenues declined 4.8% QoQ
(after reporting 6% QoQ growth in Q2) but grew 18.7% YoY (above
company average growth of 8.5%); top 2-5 customer revenues grew
1.6% QoQ and 11.7% YoY while 6-10 customer revenues declined 0.5%
QoQ but grew 3.8% YoY.
Demand trends across verticals
Generally manufacturing has a seasonally soft Q3. However, weakness
was accentuated by one-time client termination fee paid to Infosys in Q2.
Pipeline continues to be decent with good traction in auto. Aerospace
witnessing challenges and could be soft. Industrials with exposure to oil,
energy mining are challenged. Retail was soft in Q3 despite better holiday
season. Infosys expects volatility to continue as strong dollar is
pressurising global retailers. CPG companies continue to focus on
simplification of their technology landscape. Bright star was financial
services as company saw growth in new accounts as well as new wins in
existing accounts. Focus on digital, analytics (client behaviour, propensity
to buy products, personalised offerings), and regulatory continue to drive
spends. Energy could be soft as Infosys is seeing a second wave of price
cuts, cost reductions, postponements of projects. Telecom could be soft.
However, companies are renewing their focus on enterprise business and
are looking at newer avenues of growth (OTT services, payments,
connected devices). Though limited visibility Infosys expects CY16E
budgets could be flat to modestly negative.
Visibility leads to guidance raise
Infosys raised its FY16E constant currency revenue growth guidance to
12.8%-13.2% (10-12% earlier) and its US$ revenue growth guidance to
8.9%-9.3% (6.4-8.4%) led by visibility and beat in prior quarters. Rupee
revenue guidance was also increased to 16.2%-16.6% (13.1%-15.1%) led
by higher $/| assumption (66.16 vs. 65.59 earlier). We now model 9%,
11.6% (8.5%, 12.5% earlier) dollar revenue growth in FY16E, FY17E,
respectively, led by healthy deal wins, improved win rates, better
execution and top account mining
Page 3
Exhibit 1: Dollar revenues may grow at 10.3% CAGR in FY15-17E vs. 13% CAGR in FY10-15
30.0
12000
25.8
10000
25.0
20.0
15.8
10.0
9498
10600
FY17E
9.0
FY16E
2407
Q3
8711
FY15
2392
2159
Q4
2256
2218
Q3
Dollar revenue
Q1
2201
8249
FY14
Q2
7398
FY13
2133
6994
FY12
5.8
5.8
3.25.6
Q1
6041
FY11
2000
3.0
4804
4000
11.6 15.0
8.7 8.5
11.5
Q2
6000
FY10
$ billion
8000
5.0
0.0
Growth, YoY
Exhibit 2: Though Infosys has grown slower than industry average in past six of eight years,
FY17E could be different
35
35.0
29.0
29.0
25.8
27
20.0
16.0
19
19.0
18.7
17.0
15.8 16.5
11.6
11
3.0
3
-5
FY08
FY09
Growth, YoY
5.5
-4.9
FY10
FY11
13.0
13
10.2 11.5 13.0
9.0
9.0
9.1
8.0
7.0
5.8
5.6
FY12
FY13
FY14
FY15
FY16E
Page 4
526
532
529
529
535
542
555
501
Q1
Q2
Q3
Q4
FY15
Q1
Q2
Q3
600
500
400
338
366
399
448
300
200
100
0
29
29.5 29.0
25.8
26
24.0
25.1
26.1
26.7
25.7 25.9
25.5
Q3
30.4
Q2
32
24.0
23
EBIT margin
Page 5
FY17E
FY16E
Q1
FY15
Q4
Q3
Q2
Q1
FY14
FY13
FY12
FY11
FY10
20
19
%
17.0
16
15.4
19.5
20.1 20.4
18.9 18.9
16.7
16.3
15.0
13.4
15.5
13.8
14.5
13
FY17E
FY16E
Q3
Q2
Q1
FY15
Q4
Q3
Q2
Q1
FY14
FY13
FY12
FY11
FY10
10
82.3 82.7
82
80.2
82.8 82.7
80.6
78.6
78.2
79
%
76.4
76
73
80.9
80.1
81.3
74.2
72.6
70.7
Page 6
FY17E
FY16E
Q3
Q2
Q1
FY15
Q4
Q3
Q2
Q1
FY14
FY13
FY12
FY11
FY10
70
Price
26
22
18
14
Jan-16
Jun-15
Nov-14
Apr-14
Sep-13
Feb-13
Jul-12
Dec-11
May-11
Oct-10
Mar-10
Aug-09
Jan-09
Jun-08
Nov-07
Apr-07
10
Exhibit 8: Valuation
FY14
FY15
FY16E
FY17E
Sales
(| cr)
50,133
53,319
61,737
69,960
Growth
(%)
24.2
6.4
15.8
13.3
EPS
(|)
46.6
53.9
58.5
67.0
Growth
(%)
13.0
15.8
8.5
14.5
PE
(x)
24.3
21.0
19.4
16.9
EV/EBITDA
(x)
17.2
15.2
13.4
11.2
RoNW
(%)
22.4
22.5
21.8
22.2
Page 7
RoCE
(%)
30.7
31.4
30.2
30.8
Company snapshot
1,500
1,200
900
600
300
Jan-17
Nov-16
Jul-16
Sep-16
Mar-16
May-16
Jan-16
Nov-15
Jul-15
Sep-15
May-15
Jan-15
Mar-15
Sep-14
Nov-14
Jul-14
Mar-14
May-14
Jan-14
Nov-13
Jul-13
Sep-13
May-13
Jan-13
Mar-13
Sep-12
Nov-12
Jul-12
Mar-12
May-12
Jan-12
Nov-11
Jul-11
Sep-11
May-11
Jan-11
Mar-11
Key events
Date
Apr-11
Event
The company exceeds its annual guidance; guides for 18-20% in FY12
Apr-12
Sep-12
Infosys considers buying Lodestone for $350 million to boost its consulting service offering
Apr-13
Company misses Q4 sales estimates and provides lower revenue guidance (6-10%) compared to Nasscom average of 12-14%
Jun-13
Jul-13
The company reports better-than-expected dollar revenue growth and operating margin
Oct-13
Infosys posts better-than-expected growth for second consecutive quarter. Raises guidance to 8-10%
Mar-14
Infosys provides weak outlook for Q4FY14E, which could impact H1FY15E
Apr-14
Infosys guides 7-9% YoY dollar revenue growth for FY15E, below Nasscom guidance of 13-15%. Q4FY14 revenue declines 0.4%
Jun-14
Oct-14
Nov-14
Infosys appoints Dr Vishal Sikka as the successor to the current CEO, Mr Shibulal, for a period of five years. Earlier he worked with SAP for 12 years
Infosys reports a stellar Q2FY15 earnings under the leadership of Dr Sikka. It also announces a 1:1 bonus issue for equity shareholders
Infosys announces December 2 as record date for allotment of bonus shares
Infosys reports weak Q4FY15 earnings led by energy and telecom weakness. The management guided for 6.2-8.2% revenue growth in US$ terms for FY16E (10-12%
Apr-15
Infosys reports strong Q1FY16 earnings led by volumes and were above market expectations. The management maintained its 10-12% constant currency growth
guidance but raised its dollar revenue growth guidance to 7.2-9.2% for FY16E
Infosys reports strong Q2FY16 earnings led by volumes, realisaiton and were above market expectations. The management maintained its 10-12% constant currency
Oct-15
growth guidance but lowered its dollar revenue growth guidance to 6.4%-8.4% (7.2-9.2%) for FY16E
Source: Company, ICICIdirect.com Research
Jul-15
Top 10 Shareholders
Rank
1
2
3
4
5
6
7
8
9
10
Name
Life Insurance Corporation of India
Gopalakrishnan (Sudha)
Invest AD
OppenheimerFunds, Inc.
GIC Private Limited
HDFC Asset Management Co., Ltd.
The Vanguard Group, Inc.
Aberdeen Asset Management (Asia) Ltd.
Murty (Rohan)
ICICI Prudential Life Insurance Company Ltd.
Shareholding Pattern
Latest Filing Date % O/S Position (m) Change (m)
30-Sep-15 5.56
127.1
-0.1
30-Sep-15 3.32
75.8
0.0
30-Sep-15 2.46
56.2
-0.3
30-Sep-15 2.25
51.4
-19.2
30-Sep-15 2.19
50.0
4.9
30-Sep-15 1.64
37.5
2.3
30-Sep-14 1.52
34.8
-15.6
30-Nov-15 1.49
34.0
0.0
30-Sep-15 1.39
31.8
0.0
30-Sep-15 1.17
26.7
2.3
(in %)
Promoter
FII
DII
Others
Recent Activity
Buys
Investor name
Life Insurance Corporation of India
Comgest S.A.
Dinesh (Deeksha)
Dinesh (Divya)
BlackRock Asset Management North Asia Limited
Source: Reuters, ICICIdirect.com Research
Sells
Value
240.3m
143.9m
87.6m
41.5m
41.0m
Shares
14.7m
8.1m
4.9m
2.3m
2.3m
Investor name
OppenheimerFunds, Inc.
William Blair & Company, L.L.C.
T. Rowe Price Hong Kong Limited
Franklin Advisers, Inc.
Capital International, Inc.
Value
-339.8m
-83.1m
-61.3m
-41.6m
-13.8m
Shares
-19.2m
-4.7m
-3.5m
-2.3m
-0.8m
Page 8
Financial summary
Profit and loss statement
(Year-end March)
Total operating Income
Growth (%)
COGS (employee expenses)
| Crore
FY14
FY15
FY16E
FY17E
(Year-end March)
50,133
53,319
61,737
69,960
24.2
6.4
15.8
13.3
30,767
31,814
37,551
42,055
| Crore
FY14
FY15
FY16E
FY17E
10,648
12,329
13,378
15,315
Add: Depreciation
1,374
1,069
1,238
1,539
(2,008)
(2,004)
(1,999)
(1,952)
Admin expenses
3,326
3,663
4,136
4,687
2,047
873
1,103
1,078
S&M expenses
2,625
2,941
3,396
3,848
Taxes paid
(3,878)
(6,751)
(5,228)
(5,985)
36,718
38,418
45,083
50,590
12,187
10,752
10,530
12,510
EBITDA
13,415
14,901
16,654
19,370
(Inc)/dec in Investments*
(1,158)
1,101
3,190
3,470
Growth (%)
16.1
11.1
11.8
16.3
(2,745)
(2,247)
(2,500)
(2,500)
Depreciation
1,374
1,069
1,238
1,539
(5,003)
(1,279)
690
970
Other Income
2,669
3,427
3,190
3,470
(3,143)
(4,935)
(6,685)
(7,754)
14,710
17,258
18,606
21,300
4,062
4,929
5,228
5,985
10,648
12,329
13,378
15,315
13.0
15.8
8.5
14.5
47
54
59
67
13.0
15.8
8.5
14.5
PBT
Total Tax
PAT
Growth (%)
EPS (|)
Growth (%)
Others
(3,143)
(4,935)
(6,685)
(7,754)
4,041
4,538
4,536
5,725
77
(121)
Opening Cash
21,832
25,950
30,367
34,903
Closing Cash
25,950
30,367
34,903
40,628
FY15
FY16E
FY17E
Exchange difference
Balance sheet
(Year-end March)
Equity Capital
| Crore
Key ratios
FY14
FY15
FY16E
FY17E
(Year-end March)
286
572
1,144
1,144
FY14
47,244
54,191
60,312
67,873
EPS
46.6
53.9
58.5
67.0
47,530
54,763
61,456
69,017
Cash EPS
52.6
58.6
63.9
73.7
301.9
BV
208.0
239.6
268.9
Debt
DPS
15.8
29.8
25.0
29.0
64
160
160
160
113.5
132.9
152.7
177.8
EBIT Margin
24.0
25.9
25.0
25.5
323
46
46
46
47,917
54,969
61,662
69,223
Assets
PBT Margin
29.3
32.4
30.1
30.4
7,887
9,125
10,387
11,348
PAT Margin
21.2
23.1
21.7
21.9
Goodwill
2,157
3,091
3,091
3,091
342
638
638
638
Intangibles
Debtor days
61
66
66
66
Unbilled revenue
19
19
18
18
1,252
1,345
1,345
1,345
Creditor days
Other assets
2,398
4,864
4,864
4,864
25,950
30,367
34,903
40,628
859
Cash
Investment in CD
Trade receivables
8,351
9,713
11,246
12,744
Unbilled revenue
2,811
2,845
3,294
3,733
2,636
101
117
133
2,412
4,170
4,170
4,170
43,019
47,196
53,731
61,408
173
140
162
184
Trade payables
Unearned revenue
OCL & provisions
Total Current Liabilities
RoE
22.4
22.5
21.8
22.2
RoCE
30.7
31.4
30.2
30.8
RoIC
68.0
68.9
69.3
74.1
P/E
24.3
21.0
19.4
16.9
EV / EBITDA
11.2
15.2
13.4
EV / Net Sales
4.6
4.3
3.6
3.1
5.2
4.9
4.2
3.7
5.4
4.7
4.2
3.8
660
1,052
1,218
1,380
8,305
10,188
11,103
11,997
Solvency Ratios
9,138
11,383
12,486
13,564
Debt/EBITDA
33,881
35,813
41,244
47,844
Debt / Equity
Application of Funds
47,917
54,969
61,662
69,223
Current Ratio
2.0
1.9
1.9
1.9
Quick Ratio
2.0
1.9
1.9
1.9
Page 9
EPS (|)
FY16E FY17E
34.0 40.0
105.0 115.0
4.2
5.1
55.0 64.0
58.5 67.0
12.5 14.0
75.0 96.0
42.0 47.5
41.0 48.0
122.0 130.0
29.0 36.0
37.0 40.5
P/E (x)
FY15 FY16E FY17E
14.7 13.6 11.5
17.9 12.7 11.6
11.5
9.2
7.6
16.0 14.9 12.8
21.2 19.6 17.1
13.0 12.4 11.0
24.5 20.8 16.3
17.9 13.6 12.0
17.2 15.2 13.0
20.5 18.6 17.4
19.3 17.8 14.4
15.4 14.6 13.4
EV/EBITDA (x)
FY15 FY16E FY17E
13.5 11.0
8.6
16.9 12.3 10.6
7.2
5.8
4.4
12.5 11.0
9.0
15.2 13.4 11.2
8.3
6.6
5.6
17.0 14.0 11.2
8.2
5.9
4.9
11.2
9.0
7.2
15.7 13.7 12.3
12.3 12.0
9.7
11.6 10.4
9.1
RoCE (%)
FY15 FY16E FY17E
22.2 21.9 22.4
40.4 47.6 43.7
9.5 11.6 14.1
35.2 31.7 30.5
31.4 30.2 30.8
14.7 17.4 17.4
33.7 32.9 34.3
23.4 29.8 31.9
27.5 26.6 26.6
81.8 79.0 74.5
26.9 24.9 26.5
23.0 22.6 22.4
RoE (%)
FY15 FY16E FY17E
19.2 18.1 18.6
32.1 36.9 33.6
11.2 12.2 12.9
29.3 25.7 24.7
22.5 21.8 22.2
17.0 15.4 14.9
26.6 25.9 26.9
14.3 16.6 16.6
20.7 19.7 19.5
42.8 36.9 31.8
21.5 19.4 20.4
21.2 19.7 19.1
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RATING RATIONALE
Pankaj Pandey
Head Research
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ANALYST CERTIFICATION
We /I, Abhishek Shindadkar, MBA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views
about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
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