7 January 2014
Update | Sector: Technology
Infosys
BSE Sensex
26,987
S&P CNX
8,127
CMP: INR1,957
TP: INR2,500
Upside:27%
Buy
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Will payout do justice to the cash, finally?
INFO IN
1,142.8
2,201/1,447
0/12/-18
2,236.7
35.5
High payout and multiple acquisitions can co-exist
Financial Snapshot (INR Billion)
Y/E Mar
2015E 2016E 2017E
Sales
EBITDA
PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div Yield (%)
18.1
4.0
12.3
1.5
15.9
3.4
10.4
1.9
14.0
3.0
8.8
2.0
540.5 609.8 694.8
151.4 171.7 195.6
123.6 140.4 159.5
108.2 122.8 139.6
16.1
490
25.9
27.1
26.8
13.5
569
25.0
26.4
30.5
13.6
661
24.4
25.9
28.7
INFO has cited on multiple platforms recently that it is considering allocating
capital between organic growth, acquisitions, dividend, and share buyback.
INFO’s average payout over last 10 years has been ~34% (including special
dividends). Had it been 60%, its FY14 RoE would have been ~9pp higher at 33%.
~36% of employed capital earns post-tax return of 50%+ on equity (operational
RoE), and the remaining is in the form of cash. We don’t see a justification for
such significant remnant majority (64%) yielding low single digit returns.
INFO’s cash balance is USD5.4b, which is higher than the cumulative 10-year cash
outflow on acquisitions by Accenture (ACN), TCS, Wipro (WPRO) and Cognizant
(CTSH). Acquisitions intent is not deterrent to a significantly higher payout either.
Why discuss now, again?
Over the last many years, INFO’s payout of excess cash is an event that has
eluded investors. We bring this discussion up once again, especially after
commentary from senior management in the last couple of months. Excerpts
from CFO’s comments: “We
have never really articulated our capital allocation
plan in the past so many years. We understand that we have not done a good
job of it. We would look at how to allocate capital between organic, inorganic,
dividend and share buyback.”
Limited justification for single digit returns on 64% of Balance Sheet
Shareholding pattern (%)
As on
Sep-14 Jun-14 Sep-13
Promoter
15.9
15.9
15.9
DII
14.5
14.1
16.2
FII
57.7
57.7
55.1
Others
11.9
12.2
12.8
Note: FII Includes depository receipts
Had INFO’s average payout over last 10 years been 60% (v/s 34%), FY14 RoE
would have been 9pp higher at 33%, earnings would have been only 7%
lower and INFO would still be sitting on ~USD2.6b worth of cash.
Its operating RoE in FY14 was 54%, but 64% of capital employed is cash.
That means only ~36% of INFO’s current employed capital earns post-tax
return of 50%+. We don’t see a justification for such significant remnant
majority (64%) of the employed capital returning merely single digit RoEs.
Acquisitions’ intent is not deterrent to improved payout
Cumulative investments in acquisitions over last 10 years across ACN, TCS, CTSH
and WPRO vary between ~USD1.0-3.5b. Against that, INFO has a cash balance
of USD5.4b and it added cash profit (PAT + Depreciation) of ~USD2b in FY14.
Add to that Dr. Sikka’s intention of buying smaller innovative companies, we
remain convinced and acquisition intent should in no way deter better payout.
Stock Performance (1-year)
2,800
2,400
2,000
1,600
1,200
Infosys
Sensex - Rebased
Valuation and view
While the magnitude of transformation on which INFO has embarked is likely to
take time, we believe the focus on ‘renew and new’ is the right approach and
will equip the company with the capabilities for sustained profitable growth.
We expect gradual convergence in the valuation gap vis-a-vis TCS. Our target
price of INR2,500 discounts FY17E EPS by 18x. Maintain
Buy.
We see improved
capital allocation as one of the triggers to valuation gap convergence.
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424
Siddharth Vora
(Siddharth.Vora@MotilalOswal.com); +91 22 3982 5585
Investors are advised to refer through disclosures made at the end of the Research Report.

Infosys
Excerpts from CFO’s statements across investor forums
“We have never really articulated our capital allocation plan or strategy in last
so many years. We understand that this is something on the top of investors’
minds. We understand that we have not done a good job of it in the past so
many years.”
“We would want to do it in the next 2-3 quarters but we need a couple of
quarters to be able to articulate new CEO’s vision and only then does this flow.”
“No company can actually build up all capabilities through organic means so you
have to make certain acquisitions which may be very strategic and if you look at
the valuations, some of these are very expensive. So cash is important.”
“Having said that, we as a company need to articulate its capital allocation
plan.”
“After articulating what the new strategy means for us in terms of business plan
and financial plan, we would look at how to allocate capital between organic,
inorganic, dividend and share buyback, and come back and articulate that to
you.”
Exhibit 1: Ample cash for co-existence of acquisition-led capabilities and higher payout
How low payout has hurt returns on overall employed capital
As a result of continuous accumulation of cash as a percentage of the balance
sheet size, INFO’s RoE has continuously eroded over the years, and is down from
43% in FY05 to 24.9% in FY14. TCS’ RoE was 70.6% in FY05 and 40% in FY14.
However, if we look at the operating return – calculated as EBIT x (1 – Effective
Tax Rate), on operating capital employed (calculated as Total Assets – Cash and
Liquid Investments) INFO’s RoE was 54% in FY14, compared to TCS’ 52%.
Exhibit 3: … but operating RoE still marginally shades TCS
Exhibit 2: Reported RoE is significantly below TCS…
Source: Company, MOSL
Source: Company, MOSL
7 January 2014
2

Infosys
The delta between reported return and operating return is obviously explained
by excess cash. Cash comprised of 52% of the company’s Balance Sheet in FY05,
and has only increased further to 64% in FY14. Only ~36% of INFO’s current
Balance Sheet earns post-tax return of 50%+ on equity (operational RoE). We
don’t see a justification for such significant remnant majority (64%) of the
employed capital returning merely single digit RoEs.
Exhibit 4: Cash as a % of Balance sheet continues to suppress overall returns
Source: Company, MOSL
Had INFO’s average payout over last 10 years been 60% (v/s 34%), FY14 RoE
would have been 9pp higher at 33%, earnings would have been only 7% lower
and INFO would still be sitting on ~USD2.6b worth of cash.
Exhibit 5: Comparison of RoE at actual payout versus that at 60% payout
Source: Company, MOSL
Exhibit 6: Dividend yield at INFO has remained below 2%
Source: Company, MOSL
7 January 2014
3

Infosys
Please refer to our company
updated report dated 16 Sep 2014
Acquisitions’ intent is not a deterrent
INFO’s recent commentary suggests that we should see active acquisitions going
ahead. We agree that cash becomes strategic given acquisitions are imperative – but
assess the same with the backdrop that INFO has USD5.4b worth of cash, and its
cash profit in FY14 (PAT + Depreciation) was ~USD2b, which we estimate to grow at
~13.5% CAGR over FY15-17E. Against this, we studied the potential requirement for
cash, by looking into the inorganic spends at domestic and global peers over the
past many years. Their figures stack up as follows:
Exhibit 7: Cash spent on acquisitions as a proportion of OCF (10-year history)
Cash outflow on acquisitions (USD b)
Cognizant
Accenture
Wipro
TCS
Infosys
471
923
4.5
1,443
6.8
% of OCF during the period
10.3
9.7
2,985
18.2
3,441
Source: Company, MOSL
ACN is ~3.6x the size of INFO in terms of revenues. Over the past two years, the
company has spent USD1.5b in acquiring multiple capabilities, mainly in the
Digital space. In the last 10 years, it has invested ~10% of its aggregate OCF
towards acquisitions.
WPRO, which through its ‘string of pearls’ strategy, has been actively acquiring
companies, has spent ~18% of its 10-year aggregate OCF on acquisitions – the
highest among peers.
TCS had acquired Citi’s captive BPO in 2008, and then announced smaller
transactions like retailer, Supervalu’s captive, a small French firm, ALTI, and
merger with Japan’s ITF. The transactions have been few and far in between –
7% of 10-year OCF.
CTSH has been actively announcing transactions every year, but they were all
small in size, before the acquisition of TriZetto (10% of OCF over 10 years). After
including the largest inorganic transaction in the India-based IT Services
providers, 50%+ of its operating cash has been spent towards acquisitions. But
that will obviously normalize over time as acquisitions of that scale are a once-
in-multi-year phenomenon.
Exhibit 9: CTSH’s acquisition of TriZetto was the biggest
among India-based offshore service providers
Exhibit 8: Accenture has upped its inorganic foray in the
past couple of years
Source: Company, MOSL
7 January 2014
Source: Company, MOSL
4

Infosys
Exhibit 10: Citi, Supervalu and ITF have been major
transactions
Exhibit 11: Wipro has, in recent years, settled for smaller
transactions in areas like Data Analytics
Source: Company, MOSL
Source: Company, MOSL
In comparison, INFO’s long-term metric stands at 4.5%. In the extreme scenario,
even if we assume that INFO starts investing as much as ACN on an absolute
basis, over the next three years, it should have spent USD2b-2.5b. We note here
again that ACN is 3.6x the size of INFO in terms of revenues.
The counter-thought here could be that INFO may be gunning for an acquisition
much bigger in size – akin to CTSH’s acquisition of TriZetto. However, we see
limited chance of that happening, and would cite Dr Sikka’s views on the same:
“Biting off more than you can chew – that would probably be the measure.
Other than that I do not think there is a threshold number. We are interested in
acquiring small innovative companies.”
Exhibit 12: Amount sent on acquisitions much lesser than peers
Source: Company, MOSL
7 January 2014
5

Infosys
Revisiting wealth creators and dividends
Our study on
Blue Chip Investing
has revealed to us the power of dividend in wealth
creation, especially over very long periods of time across economic and business
cycles. Some of the conclusions of the study include:
PEs have a very high and positive correlation with payouts;
Payouts have a very high and positive correlation with RoEs;
High payouts coupled with growth is a potent combination for wealth creation
as it reflects several things:
(1) The company's business is intrinsically highly profitable, and it needs to
retain very little of its annual profit to fund future growth;
(2) The management has an attitude of sharing economic benefits with
minority shareholders;
(3) Low risk of misallocation of retained earnings in unrelated diversifications,
risky overseas acquisitions, etc.
Structural rise in payout ratios is a potential source of PE re-rating over the next
few years;
Dividend yields are highly homogenous across companies e.g. 66% of the top
100 wealth creators had a base FY06 dividend yield below 1.5%.
Presented below are the relevant extracts of the study related to payouts –
For full study, please refer to our
16 Wealth Creation report dated
9 Dec 2011
th
The connection between payout and P/E – back to basics
For a long-term buy-and-hold investor, the real cash flow from a stock is dividend
income over its lifetime. The value in this can be derived using the dividend discount
model (DDM, also called Gordon Growth Model, propagated by one M J Gordon in
1959 –
Where P = Price of the stock; D = Next expected dividend;
g = Dividend growth rate to perpetuity; k = Required rate of return (technically, Cost of equity)
P and D are absolute in INR; k and g are expressed in decimals (i.e. 10% growth = 0.1)
A small mathematical operation to the DDM is highly insightful -
Dividing both sides by E (earnings), we get -
…………………………………………………….…………..……… (1)
In (1), if k-g = 0.01 (i.e. 1%), PE = Payout (i.e. Payout in decimals x 100) .............. (2)
Thus, PE is a positive function of growth and payout. If two stocks have similar
growth rates, the one with higher payout ratio merits a higher PE. As Blue Chips,
especially asset-light ones, have very high payout ratios, their PEs always tend to
remain high.
7 January 2014
6

Infosys
Exhibit 13: Strong correlation between payout and P/E across Exhibit 14: … party evident among top 100 wealth creators as
2,100 listed companies…
well
28
18
15
15
27
24
17
10
9
12
14
17
<10
10-20'
20-30
30-40
40-50
>50
<10
10-20'
20-30
30-40
40-70
>70
Payout Range (%)
Payout Range (%)
The Dividend-Yield angle:
The reason high payout companies enjoy high PEs is
because of the dividend yield angle, which can be analyzed as follows –
……………………………………………….……..……… (3)
Thus, if the PE for a high payout company drops (i.e. lower denominator equation
(3) above), Dividend Yield becomes very attractive. Consider a company with a
payout of 80% (such as Hindustan Unilever) i.e. if EPS is INR100, dividend per share
is INR80. Now, if the P/E were to be 15x (i.e. stock price of INR1,500), the Dividend
Yield works out to an attractive 5.3% (80 ÷ 1,500), compared to the typical yield
range of 1-3%.
Thus, even assuming the upper end of the yield band, for an 80% payout company,
27 (i.e. 80 ÷ 3) virtually becomes the floor PE.
……………………………………………….……..……… (4)
Combining (3) and (4), we have k-g = Dividend Yield or k = g + Dividend Yield …… (5)
Thus, return is a positive function of growth and dividend yield.
The RoE angle:
It is widely acknowledged that companies with high RoE's merit high
PEs, but the mathematical link is relatively less known -
Price/Book Value (or MCap/NW) = MCap/PAT (i.e. PE) x PAT/NW (i.e. RoE) ……….. (6)
Thus, if two stocks have similar earnings growth, the one with higher RoE should
merit a higher PE multiple, else it becomes more attractive on a Price/Book basis.
Based on (1) to (6), the inferences are -
Price and PE are positive functions of growth, dividend payout, and RoE.
If required rate of return (k) is less than or more or less equal to expected actual
rate of return (growth + yield), the stock can be bought at prevailing price levels.
If required rate of return is meaningfully more than expected rate of return,
then the P/E or price paid will need to be much lower than that prevailing.
7 January 2014
7

Infosys
Valuation and view: Gunning to regain bellwether status
Multiple factors drive positive expectations on ‘INFO of the future’
Innovative solutions:
All of the USD23b SAP’s current growth initiatives are
centered around HANA, created by Dr Sikka.
F-500 foot-in-the-door:
We believe Dr Sikka’s presence could improve INFO’s
chances of breaking into more F-500 accounts.
Discretionary growth:
Dr Sikka’s technology acumen should help to gain share
in INFO’s discretionary business. It should compound to an already recovering
traditional business.
Cash allocation:
We also expect that as the thrust on new and transformative
solutions will not be lacking, investments in the same will gather speed and
increase the possibility of swifter cash allocation.
Return of stability:
With appointment of the new CEO complete and founder
members having exited, we expect flux at the top to decrease.
On track to meet three-pronged improvement by 1QFY17
Mr Narayana Murthy had outlined a three-year course correction for INFO in June
2013 to improve its cost effectiveness, sales effectiveness, and delivery to return to
industry leading growth. That would imply attaining these results by June 2016
(1QFY17) and INFO has cited that it is on course to achieve that end.
Well placed to address digital opportunity; acquisitions will help
With 1,000+ engagements and 16,000+ employees, and growing, INFO is well placed
to address the potentially lucrative Digital opportunity. It reiterated its focus on the
acquisition route to building innovative capabilities, which will not only sharpen
competitive edge, but also improve the state of capital allocation.
See limited OPM risk while growth recovers
INFO remains confident of its strategy and meeting the objective of industry leading
growth in the medium to long term, with 25-28% EBIT margin. INFO will outline the
nature of investments required to bring about this transition and the consequent
impact on the margins only in April 2015. We believe that margins could continue to
operate in a tight band of +/-1% around the 25% level.
Maintain Buy; rolling over target price to FY17E
While INFO’s new strategic direction is expected to be a time-consuming process, it
is one that will significantly improve the company’s competitiveness in large
transformational deals. We expect INFO to grow its revenues at a CAGR of 11.2%
and EPS at a CAGR of 14.2% over FY14-17. We roll over our target price to FY17E.
Our price target of INR2,500 discounts FY17E EPS by 18x, which is nearly in line with
the long-term historical band. Maintain
Buy.
Key triggers
Double-digit FY16 USD revenue growth guidance, with stable margins
Uptick in discretionary spending
Increase in dividend payout or one-time special dividend to allocate excess cash
Pick-up in acquisition activity on the ground
7 January 2014
8

Infosys
Key risk factors
Curtailment of discretionary spending in the current volatile macro scenario
Margin fall due to failed investments/acquisitions
Continued sluggishness in growth improvement
Exhibit 16: INFO 1-year forward PB chart
Min(x)
29.6
12.0
9.5
PB (x)
Peak(x)
Avg(x)
Min(x)
9.7
Exhibit 15: INFO 1-year forward PE chart
33
28
23
18
13
8
10.5
19.0
17.1
PE (x)
Peak(x)
Avg(x)
7.0
4.5
2.0
2.6
5.3
3.7
Exhibit 17: Comparative valuation
Company Mkt cap
(USD b)
Rating
TCS
Infosys
Wipro
HCL Tech
TechM
Cognizant
76.0
35.7
20.8
17.5
9.6
31.2
Neutral
Buy
Neutral
Buy
Buy
Not Rated
TP
(INR)
2,750
2,500
630
2,000
3,200
Upside
(%)
12.4
27.8
15.5
30.2
26.1
EPS (INR)
FY15E
110.8
108.2
34.5
105.5
137.8
2.3
FY16E
129.9
122.8
39.3
114.3
172.6
2.6
FY17E
151.3
139.6
44.6
127.8
203.3
3.1
FY15E
22.1
18.1
15.8
14.6
18.4
22.7
18.6
P/E (x)
FY16E
18.8
15.9
13.9
13.4
14.7
19.9
16.1
FY17E
16.2
14.0
12.2
12.0
12.5
16.8
14.0
FY15E
35.8
25.9
23.1
32.7
28.8
20.4
27.8
RoE (%)
FY16E
34.4
25.0
22.6
29.4
28.3
18.9
26.4
FY14-17E CAGR
(%)
FY17E USD rev. EPS
32.8
24.4
21.9
26.6
26.8
18.5
15.6 15.7
10.8 14.4
10.6 12.1
13.4 12.3
20.5 18.9
17.3 15.6
Tier-I Agg 190.8
Price as on January 6, 2015
25.2
Source: MOSL, Company
7 January 2014
9

Infosys
Story in charts
Exhibit 18: Revenue growth continues to indicate gradual
turnaround
Revenue (USD m)
6.3
2.6
-1.1
2.7
3.8
1.6
-0.4
2.0
3.2
2.8
-4.8
524
539
623
634
669
688
701
1.8
Growth (% QoQ)
Exhibit 19: Discretionary
spending
continues to drive performance
Revenues from CSI (USD m)
15.5
remains
volatile,
Growth (% QoQ)
1.4
5.5
2.8
2.0
-3.1
680
1.3
689
3.5
1,752 1,797 1,911 1,938 1,991 2,066 2,100 2,092 2,133 2,201
713
Source: Company, MOSL
Source: Company, MOSL
Exhibit 20: Utilization at all time high, to settle 1-2pp lower
Util. Incl Trainees (%)
Util. Excl Trainees (%)
83.0
81.0
78.7 78.1 77.8
Exhibit 21: Deal signings improve, but need to be higher
Deal signings TCV (USD m)
700
700
600
450
500
600
73.4 72.3 73.0
71.5
66.9 69.5 69.0 70.2
75.8
76.2
74.5 73.8 74.1 75.8
72.3
731
219
Source: Company, MOSL
Source: Company, MOSL
Exhibit 22: Expect recovery to be gradual…
Revenue (USD m)
25.7
15.8
11.5
5.8
6,041
FY11
6,994
FY12
7,398
FY13
8,249
FY14
7.3
8,851
FY15E
9,835
FY16E
11.1
Growth (% YoY)
Exhibit 23: …but needs to address high attrition
Voluntary Attrition rate (% LTM)
16.6
17.5
18.3 18.9
15.8
15.0 15.5
14.3 14.4
14.2
Source: Company, MOSL
Source: Company, MOSL
7 January 2014
10

Infosys
Operating metrics
Exhibit 24:
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15
Verticals (%)
Banking and Financial Services
Insurance
Manufacturing
Retail & CPG
Transport & Logistics
Life Sciences
Healthcare
Energy & Utilities
Communication & Services
Others
Service Lines (%)
Development
Maintainence
Infrastructure Management
Testing
Business process management
Engg Services
Others
BITS
CSI
Products
BPM Platforms
Others
PPS
Geography (%)
North America
Europe
India
RoW
Clients (%)
Revenues from top client
Revenues from top 5 clients
Revenues from top 10 clients
Revenues from 2-5 client
Revenues from 6-10 clients
Revenues from Non-Top 10 clients
Clients added during the quarter
Total active client
27.7
6.6
22.0
16.9
1.7
3.7
1.4
4.6
10.1
5.3
27.0
6.7
22.1
17.0
1.7
3.9
1.4
5.3
9.9
5.0
26.9
6.9
21.7
16.0
1.8
4.8
1.5
5.4
9.6
5.5
27.2
6.7
22.2
15.4
1.8
4.8
1.9
5.2
9.3
5.5
27.0
6.7
22.5
15.8
1.8
4.7
2.4
4.9
8.5
5.7
27.1
6.3
23.2
15.7
1.8
4.6
2.1
5.1
8.3
5.8
27.2
6.3
22.8
16.0
1.6
5.0
2.0
5.2
7.9
6.0
27.3
6.2
23.0
15.5
1.7
4.7
1.9
5.3
8.6
5.8
27.4
6.0
23.2
15.8
1.5
4.7
2.1
5.1
8.7
5.8
26.8
6.0
23.3
15.3
1.5
4.6
1.9
5.5
8.9
5.8
17.1
20.9
6.6
8.3
4.9
3.5
2.7
64.0
29.9
4.5
1.3
0.3
6.1
17.0
21.4
6.8
8.6
4.7
3.4
2.6
64.5
30.0
3.8
1.3
0.4
5.5
15.8
20.0
6.9
8.4
5.2
3.2
2.4
61.9
32.6
3.9
1.3
0.3
5.5
15.5
19.9
7.2
8.3
5.2
3.2
2.3
61.6
32.7
4.0
1.3
0.4
5.7
15.7
19.3
7.0
8.4
5.1
3.2
2.3
61.0
33.6
3.7
1.2
0.5
5.4
16.0
19.1
7.2
8.4
5.1
3.3
2.3
61.4
33.3
3.7
1.2
0.4
5.3
15.9
19.2
6.9
8.7
5.3
3.2
2.1
61.3
33.4
3.8
1.1
0.4
5.3
15.5
19.4
7.2
9.2
5.5
3.4
2.2
62.4
32.5
3.5
1.2
0.4
5.1
15.8
18.7
7.9
9.5
5.3
3.4
2.2
62.8
32.3
3.6
1.2
0.4
5.2
16.1
18.9
7.9
9.4
5.1
3.4
2.3
63.1
32.4
3.2
1.2
0.4
4.8
64.1
21.4
2.0
12.5
63.9
21.9
1.6
12.6
61.0
24.0
2.2
12.8
60.2
25.0
2.4
12.4
61.4
23.6
2.6
12.4
61.5
24.0
2.4
12.1
60.0
24.9
2.6
12.5
59.8
25.2
2.6
12.4
60.8
24.5
2.4
12.3
60.8
24.7
2.2
12.3
4.1
16.2
25.3
12.1
9.1
74.7
51
711
4.0
16.0
25.4
12.0
9.4
74.6
39
715
3.6
14.6
23.9
11.0
9.3
76.1
89
776
3.6
14.7
24.0
11.1
9.3
76.0
56
798
3.9
14.9
24.0
11.0
9.1
76.0
66
836
3.9
15.0
24.5
11.1
9.5
75.5
68
873
3.7
14.1
23.5
10.4
9.4
76.5
54
888
3.6
14.1
23.4
10.5
9.3
76.6
3.4
13.7
22.9
10.3
9.2
77.1
3.4
13.6
22.9
10.2
9.3
77.1
50
61
49
890
910
912
Source: Company, MOSL
7 January 2014
11

Infosys
Exhibit 25: Operating Metrics
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15
QoQ Growth (%)
Verticals
Banking and Financial Services
Energy & Utilities
Insurance
Manufacturing
Others
Retailing
Telecom
Transportation
Service Lines
Development
Maintainence
Infrastructure Management
Consulting & Package Implementation
Testing
Engg Services
Business process management
Others
Products
Geography
North America
Europe
India
RoW
Clients
Revenues from top client
Revenues from top 5 clients
Revenues from top 10 clients
Revenues from Non-Top 10 clients
Revenues from 2-5 client
Revenues from 6-10 clients
-1.0
-25.3
-5.3
2.3
-4.6
5.9
-1.0
5.2
0.7
18.1
4.0
2.9
1.5
3.1
0.4
2.5
6.3
8.3
9.5
4.4
21.8
0.1
3.1
12.6
2.0
-2.3
-1.5
3.8
4.9
-2.4
-1.7
1.4
2.1
-3.2
2.7
4.1
7.8
5.4
-6.1
2.7
2.8
8.0
-2.4
7.0
1.3
3.1
1.3
3.8
2.0
3.6
1.6
-0.1
5.7
3.6
-3.3
-9.6
-0.4
1.5
-2.0
0.5
-5.0
-3.5
8.4
5.8
1.7
-1.9
-1.3
2.8
1.1
3.9
3.1
-10.0
1.3
11.3
3.2
3.6
6.5
-0.1
5.5
3.2
0.2
-1.0
5.4
-4.8
5.4
1.9
1.1
-4.2
-1.0
1.9
4.9
5.6
2.8
6.2
-0.4
-1.7
-11.2
-2.8
-1.2
-0.6
7.9
15.5
3.9
0.1
17.6
-1.9
6.3
-0.5
0.9
5.9
1.8
0.2
1.4
1.4
1.4
5.1
4.0
-0.4
-0.1
5.5
3.9
2.7
0.7
-1.6
-2.7
5.7
2.7
6.7
2.8
3.8
7.0
3.8
3.8
1.8
1.0
2.2
-2.6
2.0
5.3
-1.4
5.6
-7.2
1.6
-2.9
0.7
4.0
-3.1
5.3
5.8
3.4
4.4
-4.1
3.9
-1.7
11.9
1.3
5.3
2.0
-1.7
6.6
-4.0
5.1
4.3
3.2
3.5
2.1
3.2
-0.7
-1.3
-1.1
1.7
-8.3
-1.0
-1.0
2.2
4.9
-18.0
3.3
1.5
16.5
46.2
8.0
0.1
5.7
10.7
-1.7
4.8
-3.0
11.3
2.7
3.9
5.5
-4.2
1.3
-0.8
5.5
10.1
5.0
-0.7
0.8
-0.4
-1.2
3.7
-0.9
-5.9
1.1
3.2
4.0
-5.4
3.2
-1.1
4.1
2.6
-2.3
5.9
0.0
0.1
1.3
3.0
2.4
1.7
5.9
-4.3
-3.0
0.1
8.5
-2.5
5.2
1.4
2.1
1.8
1.3
2.3
1.4
11.3
4.1
2.7
2.7
1.8
0.5
3.8
4.5
5.9
3.1
4.7
8.3
-3.6
-4.5
-2.5
3.0
-4.8
0.6
-3.1
-3.7
3.2
-0.4
-0.9
2.4
-0.8
-0.2
3.2
-0.3
2.6
3.2
0.6
0.0
2.2
-1.4
0.9
4.3
Source: Company, MOSL
7 January 2014
12

Infosys
Financials and valuations
Key Assumptions
Y/E March
INR/USD Rate
Revenues (USD m)
Offshore Revenue (%)
Total Headcount
Net Addition
Gross Addition
Utilization Incl. trainees (%)
Utilization Excl. trainees (%)
2012
48.2
6,994
50.1
149,994
19,174
45,605
69.2
75.6
2013
54.5
7,398
49.0
156,688
6,694
37,036
69.5
73.0
2014
60.8
8,249
48.0
160,405
3,717
39,985
73.6
77.4
2015E
61.1
8,851
49.0
176,542
16,137
49,761
76.2
82.0
2016E
62.0
9,835
49.0
192,838
16,296
42,000
76.1
80.9
2017E
62.0
11,207
49.2
223,131
30,293
53,000
76.1
81.1
Income Statement
Y/E March
Sales
Change (%)
Software Develop. Exp.
Selling and Mktg. Exp.
Administration Exp.
EBITDA
% of Net Sales
Depreciation
Other Income
PBT
Tax
Rate (%)
Adjusted PAT
Extraordinary Items
Reported PAT
Change (%)
2012
337,340
22.7
188,710
17,570
23,900
107,160
31.8
9,370
19,040
116,830
33,670
28.8
83,160
0
83,160
21.9
2013
403,520
19.6
241,510
20,350
26,090
115,570
28.6
11,284
23,590
127,876
33,670
26.3
94,206
0
94,206
13.3
2014
501,330
24.2
307,670
26,250
31,070
136,340
27.2
13,740
26,690
149,290
40,620
27.2
108,670
2,190
106,480
13.0
2015E
540,480
7.8
322,924
30,452
35,701
151,403
28.0
10,973
31,607
172,038
48,390
28.1
123,647
0
123,647
16.1
(INR Million)
2016E
609,757
12.8
366,410
34,293
37,335
171,719
28.2
11,794
33,696
193,621
53,246
27.5
140,375
0
140,375
13.5
2017E
694,825
14.0
419,001
38,380
41,865
195,579
28.1
13,193
37,618
220,004
60,501
27.5
159,503
0
159,503
13.6
Balance Sheet
Y/E March
Share Capital
Reserves
Capital Employed
Gross Block
Less : Depreciation
Net Block
CWIP
Investments
Curr. Assets
Debtors
Cash & Bank Balance
Loans & Advances
Other Current Assets
Current Liab. & Prov
Current Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates
2012
2,860
331,750
334,610
91,740
36,210
55,530
10,340
3,770
313,840
77,550
205,910
27,220
3,160
48,870
30,810
18,060
264,970
334,610
2013
2,860
395,110
397,970
117,540
42,080
75,460
16,600
17,390
354,060
95,180
218,320
35,530
5,030
65,540
41,300
24,240
288,520
397,970
2014
2,860
472,440
475,300
140,790
55,250
85,540
18,320
45,230
421,460
111,620
259,500
43,780
6,560
95,250
56,180
39,070
326,210
475,300
2015E
5,720
553,900
559,620
160,230
65,463
94,767
16,430
52,350
509,962
124,570
326,758
51,973
6,660
113,889
68,197
45,692
396,073
559,620
(INR Million)
2016E
5,720
644,137
649,857
188,230
77,257
110,973
16,430
52,350
597,490
140,537
389,939
60,354
6,660
127,387
76,779
50,608
470,103
649,857
2017E
5,720
750,159
755,879
214,730
90,450
124,280
16,430
52,350
703,187
160,144
466,183
70,200
6,660
140,368
87,508
52,860
562,819
755,879
7 January 2014
13

Infosys
Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout % (excl.div.tax)
Valuation (x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios
Debtors (Days)
Fixed Asset Turnover (x)
2012
72.8
81.0
292.8
17.7
24.3
26.9
24.2
18.9
6.0
6.7
0.9
27.4
32.2
84
6.6
2013
82.4
92.3
348.2
23.5
28.5
23.7
21.2
17.3
5.0
5.6
1.2
25.7
28.5
86
6.5
2014
93.2
107.1
415.9
23.5
24.7
21.0
18.3
14.2
3.9
4.7
1.2
24.9
28.1
81
6.6
2015E
108.2
117.8
489.7
29.0
26.8
18.1
16.6
12.3
3.4
4.0
1.5
25.9
27.1
84
6.3
2016E
122.8
133.2
568.7
37.5
30.5
15.9
14.7
10.4
2.9
3.4
1.9
25.0
26.4
84
6.3
2017E
139.6
151.1
661.4
40.0
28.7
14.0
12.9
8.8
2.5
3.0
2.0
24.4
25.9
84
6.2
Cash Flow Statement
Y/E March
CF from Operations
Cash for Working Capital
Net Operating CF
Net Purchase of FA
Net Purchase of Invest.
Net Cash from Invest.
Proceeds from Equity
Others
Dividend Payments
Cash Flow from Fin.
Net Cash Flow
Opening Cash Bal.
Add: Net Cash
Closing Cash Bal.
2012
90,800
-21,320
69,480
-18,070
7,070
-11,000
240
1,604
-21,074
-19,230
39,250
166,660
39,250
205,910
2013
104,600
-9,580
95,020
-32,470
-18,040
-50,510
10
0
-31,220
-31,210
12,410
205,910
12,410
218,320
2014
122,250
390
122,640
-27,450
-22,580
-50,030
0
2,324
-33,754
-31,430
41,180
218,320
41,180
259,500
2015E
134,520
-2,504
132,016
-18,310
-7,120
-25,430
0
-500
-38,828
-39,328
67,258
259,500
67,258
326,758
2016E
152,169
-10,850
141,319
-28,000
0
-28,000
0
0
-50,138
-50,138
63,181
326,758
63,181
389,939
(INR Million)
2017E
172,697
-16,472
156,225
-26,500
0
-26,500
0
0
-53,481
-53,481
76,244
389,939
76,244
466,182
7 January 2014
14

Infosys
NOTES
7 January 2014
15

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16