Infosys (INFO IN)

January 14, 2021 1

Rating: BUY | CMP: Rs1,387 | TP: Rs1,611

Doubling down on deal wins

Quick Pointers:

Infy continued its phenomenal revenue growth performance delivering +5.3%

QoQ CC & +6.2% QoQ USD growth, highest 3rd quarter growth in 8 years

Large deal TCV was at all-time high of $7.13bn with 73% being net new. TCV

includes Daimler deal which is expected to be the largest ever IT services deal

signed in India.

Infy reported phenomenal revenue growth of +5.3% QoQ CC, beating our

expectations by 2.4%. Growth beat was driven by revenue gains by strong

deal TCV of 1HFY21 and earlier quarters. Digital revenues grew by 31.3% YoY

CC and contributing to 50.1% to total revenues (vs 47.3% in 2Q21 and 44.5%

in 1Q21). Revenue growth was broad based led by 9.8% QoQ USD rise in BFSI

(led by ramp up of Vanguard deal) 10.8% QoQ USD rise in Life Sciences and

8.5% QoQ rise in Manufacturing. Infy posted a strong margin of 25.4% (Ple:

24.9%, Cons:25.1%). Improving onsite pyramid, offshore and nearshore mix,

utilization and automation are strong strategic levers for margin expansion.

Infy reported large deal TCV at all-time high of USD7.13bn (vs USD3.145bn

last quarter) with 73% being net new. Infosys is strongly positioned with nine

months’ deal TCV at USD12bn with USD8Bn net new deals. Infy’s strength in

Cobalt solution to implement flexible, scalable and secure hybrid cloud model

helped them win this highly competitive Daimler deal.

Infy’s ability to win large deals in highly competitive environment showcases

their strong digital capabilities we expect it to further gain market share in

coming quarters. Management stated that budget planning for CY21 by

clients is progressing normally with positive growth estimates. Deal pipeline

remains healthy with broad-based improvement. Infosys stays our top pick in

the sector as it benefits from near term margin defense and long term growth

acceleration from DX/cloud/AI megatrends. We are assigning 27X multiple

(11% discount to TCS multiple) to Infy as we believe higher multiple is

justified due to following factors 1) Strong revenue acceleration 2) Best in

class metrics along with broad based recovery 3) Excellent supply chain

mechanism 4) Strong dividend payouts 5) All time high deal wins. We have

increased our EPS estimates by 4.7% each in FY22/23E. We value Infy at 27x

to arrive at a changed target price of INR 1611 (earlier: INR1538) on FY23 EPS

of Rs. 59.7. Infy is currently trading at 25.5X/23.2X FY22/23 earnings of INR

54.5/59.7 on FY22/23E respectively. Reiterate BUY.

Phenomenal growth in seasonally weak quarter: Revenue growth

acceleration continued for Infy reporting USD 3516mn revenues up +5.3%

QoQ CC vs Ple 3.2%/Cons 3% QoQ CC. Strong growth was on back of strong

deal momentum in H1FY21 and earlier deals. Digital revenues grew by

31.3% YoY CC and contributing to 50.1% to total revenues (vs 47.3% in

2Q21 and 44.5% in 1Q21). Revenue growth was broad based led by 9.8%

QoQ USD rise in BFSI, 10.8% QoQ USD rise in Life Sciences and 8.5% QoQ

rise in Manufacturing. Retail grew at 4.7% QoQ USD despite seasonal softness

and revival in telecom led to 4.5% growth in Communications & Media vertical.

Infosys (INFO IN)

January 14, 2021

Q3FY21 Result Update

☑ Change in Estimates | ☑ Target | Reco

Change in Estimates

Current Previous

FY22E FY23E FY22E FY23E

Rating BUY BUY

Target Price 1,611 1,538

Sales (Rs. m) 11,71,898 13,13,437 11,47,712 12,83,152

% Chng. 2.1 2.4

EBITDA (Rs. m) 3,13,763 3,34,788 2,92,808 3,14,237

% Chng. 7.2 6.5

EPS (Rs.) 54.5 59.7 52.0 57.0

% Chng. 4.7 4.8

Key Financials - Standalone

Y/e Mar FY20 FY21E FY22E FY23E

Sales (Rs. bn) 908 1,006 1,172 1,313

EBITDA (Rs. bn) 223 276 314 335

Margin (%) 24.5 27.5 26.8 25.5

PAT (Rs. bn) 166 192 231 253

EPS (Rs.) 39.1 45.3 54.5 59.7

Gr. (%) 10.3 16.0 20.2 9.5

DPS (Rs.) 20.9 33.6 21.6 24.0

Yield (%) 1.5 2.4 1.6 1.7

RoE (%) 25.4 27.3 28.2 27.9

RoCE (%) 29.6 34.7 34.4 33.7

EV/Sales (x) 6.2 5.6 4.7 4.1

EV/EBITDA (x) 25.5 20.2 17.4 16.2

PE (x) 35.5 30.6 25.5 23.2

P/BV (x) 9.0 7.9 6.6 6.4

Key Data INFY.BO | INFO IN

52-W High / Low Rs.1,393 / Rs.509

Sensex / Nifty 49,492 / 14,565

Market Cap Rs.5,911bn/ $ 80,807m

Shares Outstanding 4,260m

3M Avg. Daily Value Rs.25915.78m

Shareholding Pattern (%)

Promoter’s 13.33

Foreign 32.26

Domestic Institution 23.75

Public & Others 30.66

Promoter Pledge (Rs bn) -

Stock Performance (%)

1M 6M 12M

Absolute 19.3 74.1 79.4

Relative 11.1 29.1 51.7

Aniket Pande

[email protected] | 91-22-66322300

Aditi Patil

[email protected] |

Infosys

January 14, 2021 2

Exceptionally high large deal wins: Infosys reported large deal TCV at all

time high of USD7.13bn (vs USD3.145bn last quarter) with 73% being net new.

Infosys is strongly positioned with nine months’ deal TCV at USD12bn with

USD8Bn net new deals. This includes Daimler deal which is expected to be the

largest ever IT services deal signed in India and another deal of size 500mn.

Infy’s strength in Cobalt solution to implement flexible, scalable and

secure hybrid cloud model helped them win this highly competitive

Daimler deal. Revenue from Daimler deal is expected to ramp up in

2QFY22 and revenue from other large deals will start flowing in next 2

quarters.

Infy won total of 22 deals in 3Q with 8 deals in BSFI, 4 each in manufacturing

& E&U, 3 in communication, and 1 each in Hi-tech, Retail, and others. 13 deals

won in US, 7 in Europe and 2 in RoW. Deal pipeline remains strong with clients

focusing on accelerated digital transformation, cloud deployment, SaaS and

automation projects to improve cost efficiencies.

Broad-based deal pipeline: Deal pipeline remains healthy in retail with strong

demand for vendor consolidation and captive operations deals. Mortgages,

Wealth management, cloud, data services & Finacle will continue to drive

demand for BFSI. BSFI reported strongest QoQ growth of any Q3 in many

years. Vanguard contributed a lot of the incremental growth in the quarter. Also,

ramps up of other deals from wealth, mortgage and retail banking also

contributed to growth. Capital markets and card sub-segments are still soft.

BSFI spending is stronger in US banks vs European banks. They expect

Europe BSFI to also come back strongly. They are witnessing strong demand

for digital banking products. Demand for cloud and digital is strong.

Management stated that pipeline is strong in telecom space but softness in

media and entertainment space continues. In E&U space, Utilities have shown

robust growth while oil & gas remains soft. TCS continues to expand its strong

presence in continental Europe with 4.8% QoQ USD growth

Revenue guidance indicates soft performance in seasonally weak 4Q:

FY21E revenue growth guidance increases to 4.5%-5.0% in constant currency

improvement from 1.5-2.5% guidance stated in 2Q21. Guidance implies 0-2%

sequential growth for 4QFY21. This guidance is line with seasonally weak

4Q for Infy with -1.4% / +2.4%/ +1.8% / +0.7% / +1.6% QoQ USD growth in

4Q20 / 4Q19 / 4Q18 / 4Q17 / 4Q16 resp. Infy increased operating margin

guidance for FY21E to 24-25% (versus 23-24% earlier). Management stated

that budget planning for CY21 by clients is progressing normally with

positive growth estimates.

Strong Operational Performance: Infy’s maintained margins at same level

as last quarter 25.4% (Ple: 24.9%, Cons:25.1%). Tailwinds were i) +100 bps

increase due to higher utilization, offshoring and operational efficiency, ii)

20bps because of cross currency gains offset by headwind i) -50 bps impact of

large new deal transitioning & employee rebadging expenses and ii) -50 bps

impact of higher sub-contractor and other costs. Infy will implement salary hike

from Jan 1.

Infy’s strength in Cobalt solution to

implement flexible, scalable and

secure hybrid cloud model helped

them win this highly competitive

Daimler deal. Revenue from Daimler

deal is expected to ramp up in

2QFY22 and revenue from other

large deals will start flowing in next 2

quarters.

Strategic levers like improvement in

offs Management stated that budget

planning for CY21 by clients is

progressing normally with positive

growth estimates.

Strategic levers like improvement in

offshore-onsite mix and nearshore

models, onsite pyramid reshaping

(hiring more freshers), and

automation – to improve productivity

will have continued long lasting

impact on margins.

Infosys

January 14, 2021 3

Managmement mentioned they expect utilization at 83-84% levels, with

some of the travel restriction coming off, the onsite mix will improve from

current levels. These will be off-set by improvement in other productivity levers.

Variable pay in Q3 was 100%. Salary hike will be given from January 01, 2021.

Promotion cycle has also re-started. Salary hike for FY22 will be decided later.

Some amount of WFH will stay for ever and this will be margin accretive.

LTM attrition has reduced to 10%. Attrition will inch up over the next few

quarters. Management is comfortable with 13-15% attrition range.

Improvement in onsite pyramid, offshoring and near shoring to drive

margins: Over the years Infy has taken consistent efforts in localization

resulting in continuous improvement in onsite employee pyramid which has

turned out to be a major margin lever. Infy has posted high offshore mix of

74.8% vs 73.9% in 2QFY21.

Infy is also developing near shore centers in Canada and Mexico to further

adding to margin levers. Utilization was at record high of 86.3% and

management stated that it will come down to normal range of 83-85% with

aggressive hiring in couple of quarters. Net headcount addition was robust at

9104 employees this quarter. In FY22, they are planning to hire ~22,000

employees.

Robust cash flows: FCF for Q3 was a healthy $772 million, which is a growth

of 15.1% Y-o-Y driven by lower capex as 97% of work force was working from

home in 3Q. FCF/NI was 109%. DSO increased by 4 days QoQ and stood at

73 days. Board declared interim dividend of INR12, on top of INR 12 dividend

declared in 2Q.

Q3FY21 Result Overview (Rs mn)

Y/e March 3Q21 2Q21 QoQ 3Q20 YoY Variance (Ple VS

ACTUAL)

Net sales (US$ m) 3,516 3,312 6.2% 3,243 8.4% 2.4%

Net sales 2,59,270 2,45,700 5.5% 2,30,920 12.3% 2.3%

EBITDA 74,150 70,830 4.7% 58,000 27.8% 4.1%

EBITDA Margin 28.6% 28.8% -23 bps 25.1% 348 bps 50 bps

EBIT 65,890 62,280 5.8% 50,640 30.1% 4.3%

EBIT Margin 25.4% 25.3% 7 bps 21.9% 348 bps 49 bps

Adj. Net Profit 51,970 48,450 7.3% 44,570 16.6% 1.6%

Adjusted EPS 12.2 11.4 7.2% 10.5 16.5% 1.6%

Source: Company, PL

Infy won total of 22 deals in 3Q with 8

deals in BSFI, 4 each in

manufacturing & E&U, 3 in

communication, and 1 each in Hi-

tech, Retail, and others. 13 deals won

in US, 7 in Europe and 2 in RoW.

Infosys

January 14, 2021 4

Strong Revenue growth in seasonally weak 3Q

2.7%2.2%

0.8%

2.3%

4.2%

2.1%

3.3%

-0.8%

-2.0%

4.0%

5.3%

6.3%

4.6%

6.4%

8.1%

10.1%11.4%

6.4%

1.5%2.2%

6.6%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

2Q

19

3Q

19

4Q

19

1Q

20

2Q

20

3Q

20

4Q

20

1Q

21

2Q

21

3Q

21

CC revenue growth QoQ CC revenue growth YoY

Source: Company, PL

TCV deal wins almost doubled for two consecutive quarters

1,2

07

664

806

657

731

779

905

1,1

16 2,0

29

1,5

70

1,5

71 2

,714

2,8

47

1,8

13

1,6

46

1,7

44 3,1

50

7,1

29

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

2Q

19

3Q

19

4Q

19

1Q

20

2Q

20

3Q

20

4Q

20

1Q

21

2Q

21

3Q

21

US

D M

n

TCV Deal Pipeline

Source: Company, PL

Net New deal wins improved

234

290

525

1,2

17

471

1,0

84

679

285

598

922

331

2,7

05

5,2

04

30 32

47

60

30

69

25

10

33

56

19

86

73

0

10

20

30

40

50

60

70

80

90

100

0

1,000

2,000

3,000

4,000

5,000

6,000

3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21

Net new deal TCV (US$ mn) Net new (%) (RHS)

Source: Company, PL

Infosys

January 14, 2021 5

Margins sustained at 25%

24.1

%

24.2

%

24.3

%

24.7

%

23.7

%

23.7

%

22.6

%

21.4

%

20.5

%

21.7

%

21.9

%

21.2

%

22.7

%

25.3

%

25.4

%

20.0%

21.0%

22.0%

23.0%

24.0%

25.0%

26.0%

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

2Q

19

3Q

19

4Q

19

1Q

20

2Q

20

3Q

20

4Q

20

1Q

21

2Q

21

3Q

21

EBIT Margins

Source: Company, PL

SGA Expenses steadily declining

2,5

87

2,5

51

2,5

69

2,6

51

2,7

28

2,7

55

2,8

05

2,8

31

2,9

21

2,9

87

3,0

60

3,1

31

3,2

10

3,2

43

3,1

97

3,1

21

3,3

12

3,5

16

5.2

%

5.1

%

5.2

%

5.2

%

4.8

%

4.9

%

5.2

%

5.3

%

5.3

%

5.4

%

5.7

%

5.4

%

5.1

%

5.2

%

5.0

%

5.2

%

4.8

%

4.6

%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

2Q

19

3Q

19

4Q

19

1Q

20

2Q

20

3Q

20

4Q

20

1Q

21

2Q

21

3Q

21

USD Revenues (USD Mn) S&M expenses (% of revenues)

Source: Company, PL

Strong growth momentum in BFSI

904

914

900

941

971

967

983

1,0

24

1,0

22

1,0

01

983

1,0

60

1,1

64

0.1%1.2%

-1.5%

4.5%3.2%

-0.4%

1.7%

4.2%

-0.2%

-2.0%-1.8%

7.8%

9.8%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

-

200

400

600

800

1,000

1,200

1,400

3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21

BFSI Revenue (USD mn) BFSI Revenue $ Growth (QoQ)

Source: Company, PL

The margins benefited from Cost

reduction measure like i) hiring freeze

ii) Reducing on discretionary spends

like branding, marketing, re-

negotiation of rates iii) Traditional

levers like mix, deploying automation,

etc.iv) No travel cost.

Infosys

January 14, 2021 6

Retail growth is back on track

446

446

470

491

490

487

495

488

496

496

446

493

517

2.3%-0.1%

5.4% 4.4%

-0.2%-0.7%1.7%

-1.4%

1.7%-0.1%

-9.9%

10.6%

4.7%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

400

420

440

460

480

500

520

540

3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21

Retail Revenue (USD mn) Retail Revenue $ Growth (QoQ)

Source: Company, PL

Strong recovery in manufacturing

264

269

272

280

302

306

301

324

334

323

296

301

327

3.1%1.8%

0.9%

3.2%

7.6%

1.4%

-1.8%

7.9%

3.0%

-3.3%

-8.2%

1.7%

8.5%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

0

50

100

150

200

250

300

350

400

3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21

Manufacturing Revenue (USD mn)

Manufacturing Revenue $ Growth (QoQ)

Source: Company, PL

Valuation

Infosys has aggressively realigned its strategic focus to scale digital transformation

projects over the last couple of years. This includes significant investments in sales,

increased large deal participation, and increased flexibility on deal structure. This

has been rewarded with a sharp increase in large transformation deals around DX

projects, hybrid cloud adoption, and automation.

Infosys stays our top pick in the sector as it benefits from near term margin defense

and long term growth acceleration from DX/cloud/AI megatrends.

We are assigning 27X multiple (earlier 24X, 11% discount to TCS multiple) to Infy

as we believe higher multiple is justified due to following factors 1) Strong revenue

acceleration 2) Best in class metrics along with broad based recovery 3) Excellent

supply chain mechanism 4) Strong dividend payouts 5) All time high deal wins. We

have increased our EPS estimates by 4.7% each in FY22/23E. We value Infy at

27x to arrive at a changed target price of INR 1611 (earlier: INR1538) on FY23 EPS

of Rs. 59.7. Infy is currently trading at 25.5X/23.2X FY22/23 earnings of INR

54.5/59.7 on FY22/23E respectively. Reiterate BUY.

Infosys

January 14, 2021 7

Changes in Estimates

FY21E FY22E FY23E

USD revenues (US$ m)

- New 13,521 15,420 17,058

- Old 13,421 15,101 16,664

Change (%) 0.8% 2.1% 2.4%

EBIT Margin

- New 24.2% 24.0% 23.3%

- Old 24.3% 23.0% 22.5%

Change (%) -9 bps 100 bps 79 bps

Recurring EPS - Fully diluted (Rs)

- New 45.2 54.4 59.6

- Old 46.0 51.9 56.9

Change (%) -1.6% 4.7% 4.7%

Source: PL

Key Financials

Rs m FY20 1Q21 2Q21 3Q21 4Q21 FY21E FY22E FY23E

Revenue (US$ m) 12,781 3,121 3,312 3,516 3,572 13,521 15,420 17,058

Revenue 9,07,910 2,36,650 2,45,700 2,59,270 2,64,352 10,05,972 11,71,898 13,13,437

Cost of revenue 6,07,320 1,57,030 1,57,710 1,67,770 1,71,874 6,54,384 7,76,469 8,56,631

Gross profit 3,00,590 79,620 87,990 91,500 92,478 3,51,588 3,95,429 4,56,806

Gross margin 33.1% 33.6% 35.8% 35.3% 35.0% 35.0% 33.7% 34.8%

Operating expenses 1,06,850 25,970 25,710 25,610 30,400 1,07,690 1,14,138 1,51,184

EBITDA 2,22,670 61,210 70,830 74,150 70,053 2,76,243 3,13,763 3,34,788

EBITDA margin 24.5% 25.9% 28.8% 28.6% 26.5% 27.5% 26.8% 25.5%

Depreciation & Amortisation 28,930 7,560 8,550 8,260 7,976 32,346 32,472 29,165

EBIT 1,93,740 53,650 62,280 65,890 62,077 2,43,897 2,81,291 3,05,622

EBIT margin 21.3% 22.7% 25.3% 25.4% 23.5% 24.2% 24.0% 23.3%

Other income 28,030 4,750 5,700 6,110 5,266 21,826 27,920 28,347

Profit before tax 2,20,080 57,920 67,500 71,510 66,853 2,63,783 3,07,211 3,31,969

PAT 1,66,410 42,330 48,450 51,970 48,461 1,92,251 2,31,171 2,53,160

EPS- Diluted 39.0 10.0 11.4 12.2 11.4 45.2 54.4 59.6

Source: Company, PL

Infosys One year forward PE

28.7

10.0

12.0

14.0

16.0

18.0

20.0

22.0

24.0

26.0

28.0

30.0

Apr-

10

Aug-1

0D

ec-1

0A

pr-

11

Aug-1

1D

ec-1

1A

pr-

12

Aug-1

2D

ec-1

2A

pr-

13

Aug-1

3D

ec-1

3A

pr-

14

Aug-1

4D

ec-1

4A

pr-

15

Aug-1

5D

ec-1

5A

pr-

16

Aug-1

6D

ec-1

6A

pr-

17

Aug-1

7D

ec-1

7M

ay-1

8S

ep-1

8Jan-1

9M

ay-1

9S

ep-1

9Jan-2

0M

ay-2

0S

ep-2

0Jan-2

1

P/E Mean Mean + Std Dev Mean - Std Dev

Source: Company, PL

Infosys

January 14, 2021 8

TCS One Year Forward P/E chart

12.3

16.2

23.7

26.8

19.3

27.8 27.8

10.0

15.0

20.0

25.0

30.0

35.0

Apr-

10

Aug-1

0

Dec-1

0

Apr-

11

Aug-1

1

Dec-1

1

May-1

2

Sep-1

2

Jan-1

3

May-1

3

Sep-1

3

Jan-1

4

Jun-1

4

Oct-14

Feb-1

5

Jun-1

5

Oct-15

Feb-1

6

Jul-16

Nov-1

6

Mar-

17

Jul-17

Nov-1

7

Mar-

18

Aug-1

8

Dec-1

8

Apr-

19

Aug-1

9

Dec-1

9

May-2

0

Sep-2

0

Jan-2

1

P/E Mean Mean + Std Dev Mean - Std Dev

Source: Company, PL

Geography-wise revenues

(US$ m) 3Q21 2Q21 QoQ gr. 3Q20 YoY gr.

North America 2,166 2,010 7.7% 1,988 8.9%

Europe 844 805 4.8% 791 6.6%

India 91 99 -8.0% 91 0.7%

Rest of World 415 397 4.4% 373 11.2%

Total 3,516 3,312 6.2% 3,243 8.4%

as % of Total

North America 61.6% 60.7% 90 bps 61.3% 30 bps

Europe 24.0% 24.3% -30 bps 24.4% -40 bps

India 2.6% 3.0% -40 bps 2.8% -20 bps

Rest of World 11.8% 12.0% -20 bps 11.5% 30 bps

Source: Company, PL

Vertical-wise revenues

3Q21 2Q21 QoQ gr. 3Q20 YoY gr.

Financial Services 1,164 1,060 9.8% 1,022 13.9%

Manufacturing 327 301 8.5% 334 -2.1%

Communication Services 436 417 4.5% 415 5.0%

Retail CPG 517 493 4.7% 496 4.2%

Life Sc & Healthcare 250 225 10.8% 217 14.9%

Others 823 815 1.0% 759 8.4%

Total 3,516 3,312 6.2% 3,243 8.4%

as % of Total

Financial Services 33.1% 32.0% 110 bps 31.5% 160 bps

Manufacturing 9.3% 9.1% 20 bps 10.3% -100 bps

Communication Services 12.4% 12.6% -20 bps 12.8% -40 bps

Retail CPG 14.7% 14.9% -20 bps 15.3% -60 bps

Life Sc & Healthcare 7.1% 6.8% 30 bps 6.7% 40 bps

Others 23.4% 24.6% -120 bps 23.4% 0 bps

Source: Company, PL

Infosys

January 14, 2021 9

Client Metrics


Number of Clients

Active 1562 1487 5.0% 1384 12.9%

Added during the period 139 96 44.8% 84 65.5%

Revenue concentration (US$ m)

Top 10 clients 650 619 5.0% 613 6.1%

Top 25 clients 1,217 1,133 7.4% 1,109 9.7%

Top 11-25 clients 566 513 10.3% 496 14.1%

Non Top 25 2,299 2,179 5.5% 2,134 7.8%

Total 3,516 3,312 6.2% 3,243 8.4%

Revenue concentration (%)

Top 10 clients 18.5% 18.7% -20 bps 18.9% -40 bps

Top 25 clients 34.6% 34.2% 40 bps 34.2% 40 bps

Repeat Business 95.1% 98.0% -290 bps 97.2% -210 bps

Repeat Business (in US$ m) 3,344 3,246 3.0% 3,152 6.1%

New Business (in US$ m) 172 66 160.1% 91 89.7%

Account Receivables (days) 73 69 4 73 -

Source: Company, PL

Utilization improved by 270 bps QoQ


Utilization (%)

Include Trainees 82.3% 80.6% 170 bps 80.4% 190 bps

Exclude Trainees 86.3% 83.6% 270 bps 84.4% 190 bps

Source: Company, PL

Sharp rise in Digital revenues (50% revenue share)

Revenues by offering 3Q21 2Q21 QoQ gr. 3Q20 YoY gr.

Digital 50.1% 47.3% 280 bps 40.6% 950 bps

Core 49.9% 52.7% -280 bps 59.4% -950 bps

Services 92.9% 92.5% 40 bps 94.0% -110 bps

Products & platforms 7.1% 7.5% -40 bps 6.0% 110 bps

Revenue by offering ( $mn)

Digital 1,625 1,534 5.9% 1317 23.4%

Core 1,618 1,709 -5.3% 1926 -16.0%

Services 3,266.36 3,063.00 6.6% 3,067.88 6.5%

Products & platforms 250 249 0.3% 175 42.5%

Source: Company, PL

Infosys

January 14, 2021 10

Financials

Income Statement (Rs m)


Net Revenues 9,07,910 10,05,972 11,71,898 13,13,437

YoY gr. (%) 9.8 10.8 16.5 12.1

Employee Cost 5,78,390 6,22,038 7,43,997 8,27,465

Gross Profit 3,29,520 3,83,934 4,27,901 4,85,972

Margin (%) 36.3 38.2 36.5 37.0

SG&A Expenses 59,730 61,525 58,595 59,244

Other Expenses - - - -

EBITDA 2,22,670 2,76,243 3,13,763 3,34,788

YoY gr. (%) 6.6 24.1 13.6 6.7

Margin (%) 24.5 27.5 26.8 25.5

Depreciation and Amortization 28,930 32,346 32,472 29,165

EBIT 1,93,740 2,43,897 2,81,291 3,05,622

Margin (%) 21.3 24.2 24.0 23.3

Net Interest - - - -

Other Income 26,340 19,886 25,920 26,347

Profit Before Tax 2,20,080 2,63,783 3,07,211 3,31,969

Margin (%) 24.2 26.2 26.2 25.3

Total Tax 53,680 71,873 76,040 78,809

Effective tax rate (%) 24.4 27.2 24.8 23.7

Profit after tax 1,66,400 1,91,911 2,31,171 2,53,160

Minority interest (10) (340) - -

Share Profit from Associate - - - -

Adjusted PAT 1,66,410 1,92,251 2,31,171 2,53,160

YoY gr. (%) 8.0 15.5 20.2 9.5

Margin (%) 18.3 19.1 19.7 19.3

Extra Ord. Income / (Exp) - - - -

Reported PAT 1,66,410 1,92,251 2,31,171 2,53,160

YoY gr. (%) 8.0 15.5 20.2 9.5

Margin (%) 18.3 19.1 19.7 19.3

Other Comprehensive Income - - - -

Total Comprehensive Income 1,66,410 1,92,251 2,31,171 2,53,160

Equity Shares O/s (m) 4,258 4,242 4,243 4,243

EPS (Rs) 39.1 45.3 54.5 59.7

Source: Company Data, PL Research

Balance Sheet Abstract (Rs m)


Non-Current Assets

Gross Block 3,55,720 4,45,672 4,87,389 4,95,610

Tangibles 2,83,860 3,61,252 4,02,969 4,11,190

Intangibles 71,860 84,420 84,420 84,420

Acc: Dep / Amortization 1,46,870 1,78,993 2,11,466 2,18,364

Tangibles 1,46,870 1,78,993 2,11,466 2,18,364

Intangibles - - - -

Net fixed assets 2,08,850 2,66,679 2,75,923 2,77,246

Tangibles 1,36,990 1,82,259 1,91,503 1,92,826

Intangibles 71,860 84,420 84,420 84,420

Capital Work In Progress - - - -

Goodwill - - - -

Non-Current Investments - - - -

Net Deferred tax assets 7,760 3,910 3,910 3,910

Other Non-Current Assets 1,13,950 1,51,630 1,51,630 1,51,630

Current Assets

Investments - - - -

Inventories - - - -

Trade receivables 1,84,870 2,06,224 2,22,661 2,23,650

Cash & Bank Balance 2,33,040 2,90,631 4,33,269 4,75,266

Other Current Assets 56,640 60,830 60,830 60,830

Total Assets 9,27,680 10,53,693 12,26,937 12,73,467

Equity

Equity Share Capital 21,220 21,230 21,230 21,230

Other Equity 6,37,220 7,27,385 8,66,910 9,03,132

Total Networth 6,58,440 7,48,615 8,88,140 9,24,362

Non-Current Liabilities

Long Term borrowings - - - -

Provisions - - - -

Other non current liabilities 51,000 60,450 60,450 60,450

Current Liabilities

ST Debt / Current of LT Debt - - - -

Trade payables 28,520 4,024 4,688 4,836

Other current liabilities 1,80,040 2,32,204 2,65,260 2,75,420

Total Equity & Liabilities 9,27,680 10,53,693 12,26,937 12,73,467


Infosys

January 14, 2021 11

Cash Flow (Rs m)

Y/e Mar FY20 FY21E FY22E FY23E Year

PBT 2,20,080 2,63,783 3,07,211 3,31,969

Add. Depreciation 28,930 32,346 32,472 29,165

Add. Interest - - - -

Less Financial Other Income 26,340 19,886 25,920 26,347

Add. Other - - - -

Op. profit before WC changes 2,49,010 2,96,129 3,39,684 3,61,134

Net Changes-WC 38,130 (20,285) 12,357 7,098

Direct tax (53,680) (71,873) (76,040) (78,809)

Net cash from Op. activities 2,33,460 2,03,972 2,76,001 2,89,423

Capital expenditures (61,910) (90,175) (41,717) (30,488)

Interest / Dividend Income - - - -

Others - - - -

Net Cash from Invt. activities (61,910) (90,175) (41,717) (30,488)

Issue of share cap. / premium 1,560 2,290 - -

Debt changes - - - -

Dividend paid (89,132) (1,42,547) (91,646) (1,01,829)

Interest paid - - - -

Others (67,488) 37,241 - (1,15,109)

Net cash from Fin. activities (1,55,060) (1,03,016) (91,646) (2,16,938)

Net change in cash 16,490 10,781 1,42,638 41,997

Free Cash Flow 1,71,550 1,13,797 2,34,284 2,58,935


Quarterly Financials (Rs m)

Y/e Mar Q4FY20 Q1FY21 Q2FY21 Q3FY21

Net Revenue 2,32,670 2,36,650 2,45,700 2,59,270

YoY gr. (%) 8.0 8.5 8.6 12.3

Raw Material Expenses 1,47,520 1,49,470 1,49,160 1,59,510

Gross Profit 85,150 87,180 96,540 99,760

Margin (%) 36.6 36.8 39.3 38.5

EBITDA 56,760 61,210 70,830 74,150

YoY gr. (%) 10.2 18.8 25.6 27.8

Margin (%) 24.4 25.9 28.8 28.6

Depreciation / Depletion 7,490 7,560 8,550 8,260

EBIT 49,270 53,650 62,280 65,890

Margin (%) 21.2 22.7 25.3 25.4

Net Interest - - - -

Other Income 5,690 4,270 5,220 5,620

Profit before Tax 54,960 57,920 67,500 71,510

Margin (%) 23.6 24.5 27.5 27.6

Total Tax 11,610 15,200 18,920 19,360

Effective tax rate (%) 21.1 26.2 28.0 27.1

Profit after Tax 43,350 42,720 48,580 52,150

Minority interest (140) (390) (130) 180

Share Profit from Associates - - - -

Adjusted PAT 43,210 42,330 48,450 52,330

YoY gr. (%) 6.1 11.5 20.6 17.4

Margin (%) 18.6 17.9 19.7 20.2

Extra Ord. Income / (Exp) - - - -

Reported PAT 43,210 42,330 48,450 52,330

YoY gr. (%) 6.1 11.5 20.6 17.4

Margin (%) 18.6 17.9 19.7 20.2

Other Comprehensive Income - - - -

Total Comprehensive Income 43,210 42,330 48,450 52,330

Avg. Shares O/s (m) 4,246 4,246 4,249 4,251

EPS (Rs) 10.2 10.0 11.4 12.3


Key Financial Metrics


Per Share(Rs)

EPS 39.1 45.3 54.5 59.7

CEPS 45.9 52.9 62.1 66.5

BVPS 154.6 176.5 209.3 217.9

FCF 40.3 26.8 55.2 61.0

DPS 20.9 33.6 21.6 24.0

Return Ratio(%)

RoCE 29.6 34.7 34.4 33.7

ROIC 30.8 34.0 33.1 32.1

RoE 25.4 27.3 28.2 27.9

Balance Sheet

Net Debt : Equity (x) (0.4) (0.4) (0.5) (0.5)

Debtor (Days) 74 75 69 62

Valuation(x)

PER 35.5 30.6 25.5 23.2

P/B 9.0 7.9 6.6 6.4

P/CEPS 30.2 26.2 22.3 20.8

EV/EBITDA 25.5 20.2 17.4 16.2

EV/Sales 6.2 5.6 4.7 4.1

Dividend Yield (%) 1.5 2.4 1.6 1.7


Infosys

January 14, 2021 12

Price Chart Recommendation History

No. Date Rating TP (Rs.) Share Price (Rs.)

1 04-Jan-21 BUY 1,538 1,260

2 23-Dec-20 BUY 1,436 1,221

3 15-Oct-20 BUY 1,436 1,137

4 05-Oct-20 BUY 1,259 1,018

5 01-Oct-20 BUY 1,259 1,008

6 16-Jul-20 BUY 1,037 831

7 04-Jul-20 Hold 788 763

8 21-Apr-20 Hold 668 651

9 12-Apr-20 BUY 693 636

10 11-Feb-20 BUY 820 773

Analyst Coverage Universe

Sr. No. Company Name Rating TP (Rs) Share Price (Rs)

1 Coforge BUY 2,966 2,722

2 Cyient BUY 606 514

3 HCL Technologies BUY 1,152 951

4 Infosys BUY 1,538 1,260

5 L&T Technology Services BUY 2,509 2,410

6 Larsen & Toubro Infotech BUY 3,714 3,694

7 Mindtree BUY 1,792 1,659

8 Mphasis BUY 1,802 1,530

9 Persistent Systems BUY 1,526 1,498

10 Redington (India) BUY 138 133

11 Sonata Software BUY 437 393

12 Tata Consultancy Services BUY 3,358 2,928

13 TeamLease Services BUY 2,931 2,666

14 Tech Mahindra BUY 1,099 978

15 Wipro BUY 434 388

16 Zensar Technologies BUY 257 243

PL’s Recommendation Nomenclature (Absolute Performance)

Buy : > 15%

Accumulate : 5% to 15%

Hold : +5% to -5%

Reduce : -5% to -15%

Sell : < -15%

Not Rated (NR) : No specific call on the stock

Under Review (UR) : Rating likely to change shortly

526

726

926

1125

1325

Jan

- 1

8

Jul -

18

Jan

- 1

9

Jul -

19

Jan

- 2

0

Jul -

20

Jan

- 2

1

(Rs)

Infosys

January 14, 2021 13

ANALYST CERTIFICATION

(Indian Clients)

We/I, Mr. Aniket Pande- MBA, Ms. Aditi Patil- MBA Finance 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.

(US Clients)

The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific recommendation or views expressed in this research report.

DISCLAIMER

Indian Clients

Prabhudas Lilladher Pvt. Ltd, Mumbai, India (hereinafter referred to as “PL”) is engaged in the business of Stock Broking, Portfolio Manager, Depository Participant and distribution for third party financial products. PL is a subsidiary of Prabhudas Lilladher Advisory Services Pvt Ltd. which has its various subsidiaries engaged in business of commodity broking, investment banking, financial services (margin funding) and distribution of third party financial/other products, details in respect of which are available at www.plindia.com.

This document has been prepared by the Research Division of PL and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security.

The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein.

Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor.

Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication.

PL may from time to time solicit or perform investment banking or other services for any company mentioned in this document.

PL is in the process of applying for certificate of registration as Research Analyst under Securities and Exchange Board of India (Research Analysts) Regulations, 2014

PL submits that no material disciplinary action has been taken on us by any Regulatory Authority impacting Equity Research Analysis activities.

PL or its research analysts or its associates or his relatives do not have any financial interest in the subject company.

PL or its research analysts or its associates or his relatives do not have actual/beneficial ownership of one per cent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.

PL or its research analysts or its associates or his relatives do not have any material conflict of interest at the time of publication of the research report.

PL or its associates might have received compensation from the subject company in the past twelve months.

PL or its associates might have managed or co-managed public offering of securities for the subject company in the past twelve months or mandated by the subject company for any other assignment in the past twelve months.

PL or its associates might have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

PL or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months

PL or its associates might have received any compensation or other benefits from the subject company or third party in connection with the research report.

PL encourages independence in research report preparation and strives to minimize conflict in preparation of research report. PL or its analysts did not receive any compensation or other benefits from the subject Company or third party in connection with the preparation of the research report. PL or its Research Analysts do not have any material conflict of interest at the time of publication of this report.

It is confirmed that Mr. Aniket Pande- MBA, Ms. Aditi Patil- MBA Finance Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

The Research analysts for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

The research analysts for this report has not served as an officer, director or employee of the subject company PL or its research analysts have not engaged in market making activity for the subject company

Our sales people, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest.

PL and its associates, their directors and employees may (a) from time to time, have a long or short position in, and buy or sell the securities of the subject company or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company or act as an advisor or lender/borrower to the subject company or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.

US Clients

This research report is a product of Prabhudas Lilladher Pvt. Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.

This report is intended for distribution by Prabhudas Lilladher Pvt. Ltd. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor.

In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Prabhudas Lilladher Pvt. Ltd. has entered into an agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo").

Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer.

Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India | Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209

www.plindia.com

http://www.plindia.com/

Infosys (INFO IN)

Documents

Transcript of Infosys (INFO IN)