CMP:
Rs. 1175.55; Market Cap: Rs. 2,70,017.32 Cr; 52 Week High/Low: Rs. 1,219.80
/ Rs. 932.65
Total
Shares: 229,69,44,664 shares; Promoters : 30,04,31,272 shares – 13.08 %; Total Public
holding : 199,65,13,392 shares – 86.92 %; Book
Value: Rs. 220.89; Face Value: Rs. 5.00; EPS: Rs. 55.62; Dividend: 1190.00 %;
P/E: 21.13 times; Ind. P/E: 20.84; EV/EBITDA: 13.25x; Total
Debt: NIL; Enterprise Value: Rs. 239,650.32 Cr.
INFOSYS LIMITED: The Company
was founded on July 2, 1981 and is headquartered in Bengaluru, India. It was
first incorporated as Infosys Consultants Pvt ltd and changed its name to
Infosys Technologies Ltd on June 2, 1992 and in June 16, 2011 the company
changed its name to Infosys ltd. It is a global leader company in the
"next Generation" of IT and consulting Services & is recognized
for its world-class management practices and work ethics. Infosys Limited,
formerly known as Infosys Technologies Limited is a global technology Services
Company headquartered in Bangalore, India. It is the second largest IT exporter
in India. Infosys Limited is engaged in consulting, technology,
outsourcing and next-generation services. The Company's solutions include
application development and maintenance, independent validation services,
infrastructure management, engineering services comprising product engineering
and life cycle solutions and business process management; Management
Consulting, enterprise solutions and package implementation, systems integration
and business intelligence; Products, business platforms and solutions, and
technologies, such as cloud computing, enterprise mobility, digital, big data
and analytics. Its segments are Financial Services and Insurance,
Manufacturing, Energy and utilities, Communication and Services, Retail,
Consumer packaged goods and Logistics, Life Sciences and Healthcare, and Growth
Markets. The company came with an IPO in 1993 with
19,76,100 equity shares of Rs. 10 each priced at Rs. 95 per share and got listed at Rs. 145 per share. The
company has very vast and fantastic bonus history, Infosys gave its first bonus
on June 30 1994 in ratio of 1:1 and then on in 1997 in ratio of 1:1, 1999 in
ratio of 1:1, in 2004 in ratio 3:1, in 2006 in ratio of 1:1, in 2014 in ratio
1:1, and lastly on April 24, 2015 in ratio of 1:1. Infosys has last split the
face value of its shares from Rs. 10 to Rs. 5 in 1999. Infosys is the first
Indian company to get a US Listing and emerged as one of the most precious
companies listed on Nasdaq in terms of market capitalisation in software
consulting and services category. It listed its ADR on March 11, 1999 on Nasdaq
with the offer of 20,70,000 American Depository Shares which was equivalent to 10,35,000 equity shares of face value of Rs. 10 each at that time at US$34 per ADS. It raised US$7.038 Cr in 1999 through ADS. In December 2002 Infosys transferred the listing of its ADS from NASDAQ to the NYSE. Today, Infosys is a global leader in
consulting, technology, and outsourcing solutions. As a proven partner focused
on building tomorrow's enterprise, Infosys enables clients in more than 50
countries to outperform the competition and stay ahead of the innovation curve.
With US$ 9.2 billion in annual revenues and 193,000+ employees, it provides
enterprises with strategic insights on what lies ahead. It help enterprises
transform and thrive in a changing world through strategic consulting,
operational leadership, and the co-creation of breakthrough solutions, including
those in mobility, sustainability, big data, and cloud computing. Finacle is a core banking product developed by Infosys, which is a universal banking solution with various modules for retail and corporate banking. INFOSYS
Ltd is locally compared to HCL Technologies, Wipro Ltd, TCS, Hexaware
technologies Ltd, and globally with Microsoft Corporation of USA, International
Business Machines Corporations of USA, Oracle Corporation of USA, Cap Gemini of
Europe, Cognizant Technologies Lt of India, Hewlett-Packard (HP) of USA,
Accenture Plc of Ireland, Oracle Corporation of USA, SAP SE of Germany, Fujitsu
Ltd of Japan.
Investment
Rationale:
Incorporated
in 1992, Infosys is the
second largest IT company in India, employing over 1,93,000 professionals. The
company services more than 1045 clients across various verticals, such as financial
services, manufacturing, telecom, retail and healthcare. Infosys has the widest
portfolio of service offerings amongst Indian IT Companies, spanning across the
entire IT service value chain - from traditional Application Development and
Maintenance to Consulting and Package Implementation to Products and Platforms.
Infosys is the pioneer in the Global Delivery Model (GDM), which emerged
as a disruptive force in the industry leading to the rise of offshore outsourcing.
The GDM is based on the principle of taking work to the location where the best
talent is available, where it makes the best economic sense, with the least
amount of acceptable risk. The Company also offers span business & technology
consulting, services, systems, product engineering, custom software development,
maintenance, re-engineering, independent testing & validation services, IT
infrastructure services & BPO. India is the world's largest sourcing
destination for the Information Technology (IT) industry, accounting for approximately
67 % of the US$ 124-130 billion market. The industry employs about 1 Cr work-forces.
More importantly, the industry has led the economic transformation of the
country and altered the perception of India in the global economy. India enjoys
cost competitiveness in providing IT services, which is approximately 3 to 4 times
cheaper than the US, and this continues to be the mainstay of its Unique Selling
Proposition (USP) in the global Sourcing market. India is also gaining
prominence in terms of intellectual capital with several global IT firms
setting up their innovation centres in India. The IT-BPM sector in India grew
at a Compound Annual Growth rate (CAGR) of 15 % over 2010-15, which is 3-4
times higher than the global IT-BPM spend, and is estimated to expand at a CAGR
of 9.5 % to US$ 300 billion by 2020. India is the fourth largest base for new
businesses in the world and home to over 3,100 tech start-ups, and is all set
to increase its base to 11,500 tech start-ups by 2020. India is the topmost offshoring
destination for IT companies across the world. Having proven its capabilities
in delivering both on-shore and off-shore services to global clients, emerging
technologies now offer an entire new gamut of opportunities for top IT firms in
India. Social, mobility, analytics and cloud (SMAC) are collectively expected
to offer a US$ 1 trillion opportunity and Cloud represents the largest
opportunity under SMAC, increasing at a CAGR of approximately 30 % to around
US$ 650-700 billion by 2020. With thrust on automation to combat aggressive pricing in the “old”, and
all-out approach to win in the “new”, INFOSYS is doing all it takes to return
to growth leadership. It is on track to meet the same in calendar year 2016. Among the biggest changes INFOSYS
underwent in its transformation endeavor is the appointment of an outsider as
the first non-founder CEO – Dr. Vishal Sikka. The move for outsider as the new
CEO was in essence, to gear INFOSYS up for the changing demand dynamics and to ensure
that its offerings do not lose relevance in the new world. Nearly 18 months
since the change at the top, the strategic direction announced by the company,
and the progress thus far makes it evident that the company is doing all it
takes to win in the Digital era. INFOSYS has clearly upped the ante on
acquisitions, and while it has entered into three transactions on that front, it
anticipates that inorganic foray will likely to add up and contribute around USD
1.5 billion to the top-line in next five years’ time. INFOSYS has launched
Infosys Information Platform (IIP), which leverages the power of open source to
address big data adoption challenges such as inadequate accessibility of
easy-to-use development tools; fragmented approach to building data pipelines;
and lack of an enterprise-ready version of open source big data analytics. Such
new initiatives in the company are targeted to contribute around USD 2 billion
in five years’ time.
Under the new CEO, INFOSYS has forged alliances with the
likes of Hitachi Data Systems, Huawei, Tableau software, and extended
relationships with Microsoft and Amazon in order to facilitate adoption of new
technologies across its clientele. INFOSYS has set aside USD 50 Cr for
investments in startups, including USD 25 Cr for India-based start-ups, and the
company is also looking at partaking in every new innovation that can possibly
go on to improve the company’s prospects. Its investments in Whoop and
CloudEndure a startup that provides Cloud Migration and
Cloudbased Disaster Recovery (DR) software are a couple of examples of the same,
its recent acquisition of Noah Consulting, LLC, which is a
leading provider of advanced information management consulting services for the
oil and gas industry. Infosys has also invested in WHOOP, an early stage
company that offers a performance optimization system for elite professional
sports teams. Infosys has also and is working for great projects across the
globe such as the power engineering major ALSTOM selected Infosys for next-generation services in application
engineering, development and maintenance, in addition to product lifecycle
management to reduce IT costs, improve user experience, and increase the
efficiency of the product design process. The MRJ90, the flagship aircraft of the Mitsubishi Aircraft Corporation,
Japan (MITAC) recently completed its maiden test flight and Infosys helped
MITAC in the mechanical design of fuselage structures, delivered continuous
improvements through automation, and reduced both the cost and cycle time. Mercedes
Benz Research and Development Centre, India, has partnered with Infosys to run
their complete data-centre and network operations support in 15 countries
across the APAC region, increasing agility and automation and reducing cost of
operations. DNB Bank of Norway selected Infosys to transform their application
landscape. Applying AiKiDo, the company will leverage knowledge-based
non-disruptive renewal to evolve DNB Bank’s entire Data cluster, data
warehousing services, regulatory reporting, and ERP functions. Commerzbank also
choose Infosys for a multi-year application management program to develop a
post trade utility for the bank, leveraging principles of Design Thinking and
the AiKiDo framework to simplify application architecture, standardize and
improve processes, and drive cost efficiency. Since taking over as CEO of Infosys in
August 2014, Dr. Vishal Sikka, who was earlier on the executive board of SAP AGs,
first rolled out initiative named Design Thinking workshops at many of the
company’s facilities across the country. According to the management, over 70,000
of its employees have undertaken a day-long class in Design Thinking, first
popularized by IDEO, a California-based consulting firm. Later, Infosys rolled
out Zero Distance initiative, because it wanted its engineers to apply the
learnings of Design Thinking in each of the projects. Infosys Ltd believes
Zero Distance, the newest initiative which is aimed to make its engineers think
imaginatively, is an extension of the user-centric process of Design Thinking
to help the firm have a tangible and valuable impact for its clients, as the
company aims to become a $20 billion next-generation services software firm by
the year 2020. The Infosys management believes that the Zero Distance is
a very specific application of Design Thinking principles as it outlines for
thousands of project managers a five-point roadmap to “jump-start innovation”
within their project. Zero Distance initiative will help Infosys’s clients save
more than $1 billion a year. This is the first time chief executive Dr. Sikka
has put a number to measure the success of the approach introduced in March
last year. Under the Zero Distance initiative - the software
engineers have either come up with a more efficient way to complete a project
or have gone beyond the scope of work to offer new solutions in over 90 % of
the 8,500 master projects currently underway. Zero Distance along with
the user-centric approach of Design Thinking would emerge as two of the most
successful initiatives of Dr. Sikka. Design Thinking has helped the company
more than double its share of large deal wins from less than $400 million in a
quarter to $900 million in a quarter. Design Thinking is a framework,
or a scaffolding, for creativity and innovation. It emphasizes empathetic ‘problem
finding’ and iterative ‘problem solving’. It works well in an environment of
ambiguity, but great opportunity such as all digital transformation initiatives.
These initiatives are helping to bring about a cultural change in the way the
35-year-old firm has traditionally done business. These initiatives have
even succeeded at major accounts where cost savings and more efficient
approaches been recorded, and even business model innovations are being
presented to clients that in the past would have been ignored. Looking the
acquisition coupled with the large and variety of projects Infosys surely has
the upper hand in the industry and has all the factors that can drive growth in
the IT sector.
Outlook and Valuation:
| KEY FINANCIALS | FY15 | FY16E | FY17E | FY18E |
|---|---|---|---|---|
| SALES (₹ Crs) | 53,319.00 | 61,948.90 | 70,612.10 | 80,113.80 |
| NET PROFIT (₹ Cr) | 12,329.00 | 13,305.40 | 15,582.50 | 17,637.00 |
| EPS (₹) | 53.90 | 58.20 | 68.10 | 77.10 |
| PE (x) | 21.00 | 19.50 | 16.60 | 14.70 |
| P/BV (x) | 4.70 | 4.20 | 3.80 | 3.40 |
| EV/EBITDA (x) | 15.40 | 13.30 | 11.30 | 9.70 |
| ROE (%) | 24.10 | 22.90 | 24.00 | 24.10 |
| ROCE (%) | 24.00 | 22.90 | 24.00 | 24.10 |
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*As the author of this blog I disclose that I do not hold INFOSYS Ltd in my any of the portfolios.
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