11 January 2019
Q3FY19 Results Update | Sector: Technology
Infosys
Buy
BSE SENSEX
36,010
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
S&P CNX
10,795
INFO IN
4,571
2986.8 / 42.4
755 / 522
-1/6/23
6012
87.2
CMP: INR684
TP: INR800 (+17%)
Catching up with leading peers on growth
Financials & Valuations (INR b)
Y/E Mar
2019E 2020E 2021E
Net Sales
828.6
926.9 1,022.2
EBITDA
211.4
231.5
255.3
PAT
162.5
171.4
191.6
EPS (INR)
36.4
39.5
44.1
Gr. (%)
12.4
8.5
11.8
BV/Sh (INR)
150.1
152.2
173.9
RoE (%)
25.0
26.1
27.1
RoCE (%)
25.0
26.1
27.1
P/E (x)
18.8
17.3
15.5
P/BV (x)
4.6
4.5
3.9
Estimate change
TP change
Rating change
Margin under pressure due to investments and secular trends
Highest growth in 10 quarters at lowest-ever margin:
INFO’s 3QFY19 constant
currency revenue growth accelerated to 10.1% (our estimate: 9.0%) from 4.6%
YoY CC five quarter ago. Investments, however, continued to take a toll, with the
adjusted EBIT margin down 70bp QoQ to 23% (our estimate: 23.5%). Notably,
INFO’s EBIT margin has shrank by 210bp over the last eight quarters, during
which the INR has depreciated by ~6%. Adj. PAT grew 8% YoY to INR39.9b (1%
beat) in 3QFY19. INFO announced (a) buyback of INR82.6b under the open
market route at a maximum price of INR800/share and (b) special dividend of
INR4/share, in line with its announcement of USD2b payout to shareholders.
Deals/guidance imply intact revenue momentum:
INFO won 14 large deals in
the quarter with a TCV of USD1.57b, taking the 9MFY18 deal value to USD4.7b
(+2.2x YoY). INFO raised its full-year revenue guidance to 8.5-9.0% QoQ CC,
which implies a 4Q ask-rate of 0.3-1.9% QoQ CC (0.5-2.5% as per INFO). This also
means that YoY growth will accelerate further to 9.8%-11.6% in 4QFY19.
Elevated costs weighing on profitability:
As we had highlighted in
our recent
report
and also in our commentary post TCS’
earnings announcement,
the
scarcity of local talent pool at onsite has been driving companies toward more
sub-contractors (among other initiatives), thereby impacting margins. INFO
missed our margin estimate by 40bp in 2Q and again by 50bp in 3Q (margin now
down by 110bp YoY) and the INR has depreciated by 11% over this period. Like
TCS, the approach is to prioritize revenues over margins – a trade-off due to
limited talent availability.
Valuation and view:
Driven by INFO’s robust show on revenue growth, deal wins
and upgraded guidance, we increase our FY19/20/21 revenue estimate by
0.6/1.1/2.0%. However, given the cost challenges, we trim our FY19/20/21 EBIT
margin estimate by 42/62/44bp to 23.3/22.8/23%. Our earnings estimates are
down by 0.3-1.6% as a consequence. INFO’s impressive catch up on revenue
growth with industry leaders is encouraging, while challenges on the margins are
secular. 3QFY19 performance will make a case for the narrowing of the valuation
gap with leading peers such as TCS, in line with our thesis. Our price target of
INR800 discounts forward earnings by 18x, implying a 17% upside. Maintain
Buy.
4Q
2,805
1.8
1,80,830
5.6
38.6
11.4
49,310
27.3
24.7
5,340
26.3
36,900
-0.2
2.4
8.5
2,04,107
85.1
1Q
2,831
0.9
1,91,280
12.0
38.0
12.0
49,730
26.0
23.7
7,260
26.2
36,120
-2.1
3.6
8.3
2,09,905
86.1
FY19E
2Q
3Q
2,921
2,987
3.2
2.3
2,06,090
2,14,000
17.3
20.3
37.8
37.2
11.8
11.9
53,580
54,100
26.0
25.3
23.7
23.0
7,390
7,530
27.0
29.7
41,100
39,891
13.8
-2.9
10.3
7.9
9.4
9.2
2,17,739
2,25,501
86.0
84.2
FY18
4Q
3,017
1.0
2,17,200
20.1
37.2
12.3
54,028
24.9
22.7
7,081
27.0
41,086
3.0
11.3
9.5
2,31,775
83.9
10,939
7.2
7,05,220
3.0
38.6
11.7
1,90,100
27.0
24.3
31,930
20.9
1,61,030
12.0
32.4
2,04,107
85.5
FY19E
11,756
7.5
8,28,570
17.5
37.5
12.0
2,11,428
25.5
23.3
29,261
26.8
1,62,486
0.9
36.4
2,31,775
85.0
(INR Million)
Est.
3QFY19 Var. (%/bp)
2,949
1.3
1.0
130bp
2,12,911
0.5
19.7
61bp
37.5
-31bp
11.9
3bp
54,554
-0.8
25.6
-34bp
23.5
-47bp
4,238
77.7
27.0
39,546
0.9
-3.8
84bp
7.0
94bp
9.1
2,24,434
0.5
84.3
-5bp
Quarterly Performance (IFRS)
Y/E March
Revenue (USD m)
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
EBITDA
EBITDA Margin (%)
EBIT Margin (%)
Other income
ETR (%)
PAT
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Util excl. trainees (%)
1Q
2,651
3.2
1,70,780
1.8
38.8
12.1
45,610
26.7
24.1
8,140
28.2
34,880
-3.2
1.5
7.6
1,98,553
84.5
FY18
2Q
3Q
2,728
2,755
2.9
1.0
1,75,670
1,77,940
1.5
3.0
38.7
38.5
11.9
11.4
47,020
48,170
26.8
27.1
24.2
24.3
8,830
9,620
27.4
2.9
37,260
36,970
6.8
-0.8
3.3
-0.3
8.1
8.1
1,98,440
2,01,691
85.1
85.4
Ashish Chopra
– Research analyst
(Ashish.Chopra@MotilalOswal.com); +91 22 6129 1530
Anmol Garg – Research analyst
(Anmol.Garg@MotilalOswal.com); +91 22 6129 1574
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Motilal Oswal Financial Services
Infosys
3QFY19: CC revenue growth above expectations
INFO’s CC revenue growth of 2.7% QoQ CC (10.1% YoY CC) beat our estimate of
1.6% QoQ – accelerating over last five quarters from 4.6% YoY CC in 2QFY18.
Volume grew by 2.6% QoQ during the quarter, while blended realization grew
0.1% QoQ CC.
Deal wins with TCV of USD1.57b remained healthy, another quarter of deal
signings above its targeted threshold of USD1b. 9MFY19 deals stand at
USD4.715b, already higher than full year deal TCV in the last five years.
Exhibit 1: Healthy pick-up in deal wins
Deal signings TCV (USD m)
1207
757 809
360
2,029
1,570
688
983
905
806
664
657 731 779
1,116
230
440
Source: MOSL, Company
INR revenue was at INR214b, +3.8% QoQ ahead of our estimate of INR213b;
+3.3% QoQ). Realized currency rate during the quarter was INR71.64/USD.
Exhibit 2: Revenue growth stood at 2.7% QoQ CC and 2.3% QoQ in USD terms ( Cross Currency impact 50bp)
Revenue (USD m)
4.5
-2.7
6.0
0.6
3.4
1.6 2.2
-1.4
0.7
3.2 2.9
1.0 1.8 0.9
3.2 2.3
-0.4
Growth (% QoQ)
6.9
4.4
1.1 1.9 1.7
3.9
-0.3 0.0
2.7 2.2
0.8 0.6
2.3
4.2
2.7
Revenue (USDm)
Growth (CC, QoQ, %)
Source: MOSL, Company
Broad-based across geographies: North America (+2.6% QoQ CC), Europe (+3.8%
QoQ CC) and India (5.2% QoQ CC) all contributed towards a healthy revenue
momentum
FS, E&U and Manufacturing were drivers among verticals: FS grew 3.6% QoQ CC
while the other two vertical grew 7% QoQ CC+. Retail and Communications saw
marginal declines.
Revenues from the top-client were weak during the quarter, down to USD102m
from USD114m in the previous quarter – owing mainly to furloughs
11 January 2019
2
 Motilal Oswal Financial Services
Infosys
Exhibit 3: Growth was driven by FS (+3.6%), Energy (+7.4%) & Manufacturing (+7.6%)
Verticals
Financial Services
Retail
Communications
Energy, Utilities, Resources
Manufacturing
Hi Tech
Life Sciences
Others
Contribution
to rev (%)
32.5
16.4
11.9
12.8
10.1
7.3
6.2
2.8
Growth –
QoQ (%)
3.6
-0.1
-0.5
7.4
7.6
0.6
0.0
-1.3
Source: Company, MOSL
Exhibit 4: Above-average growth in Europe (+3.8) and ROW (+5.2%)
Geographies
North America
Europe
India
Rest of the world
Contribution
to rev (%)
60.4
24.2
2.6
12.8
Growth –
QoQ (%)
2.60
3.80
0.80
5.20
Source: Company, MOSL
Digital at >30%
Revenue from Digital contributed to 31.5% of total revenue in 3QFY19 and saw
growth of 5% QoQ CC and 33.1% YoY CC.
Adjusted EBIT margin of 23% (50bp miss) dragged by investments
Reported EBIT margin of 22.6% is after excluding adjustments in Panaya &
Skava. However, it includes additional depreciation and amortization impact of
0.4% due to reclassification of assets of Panaya and Skava from “Held for Sale”.
Adjusted for the same, the EBIT margin for the quarter would be 23%, v/s
estimate of 23.5%. However, unlike TCS, and unlike INFO’s 2QFY19, this was not
on account of “surge” in employee / sub-contractor expenses entirely, both of
which saw modest increase.
3QFY19 margin factored in [1] -20bp Impact from acquisition of Fluido [2] -40bp
effect from additional depreciation of Panaya and Skava (now reclassified from
asset to sale), [3] -80bp from lower utilization, [4]-30bp from investment in sales
[5] -30bp from wage increments. This was partially offset by Currency benefit
(+50bps) and lower leaves & other cost (+40bp) marking the difference of 110bp
sequentially.
11 January 2019
3
 Motilal Oswal Financial Services
Infosys
Exhibit 5: Subcontracting cost continues to rise
10%
8%
5%
3%
0%
Subcontracting expenses (% of revenue)
Source: MOSL, Company
Exhibit 6: Lower margin was due to localization and sales investments – at 23% after
adjusting for one-offs
13.3
12.4
11.9
EBIT Margin (LHS)
12.4 12.3 12.3 12.5 12.2
11.8
12.2
12.5
SG&A (RHS)
12.1 11.9
11.4 11.4
12.0
11.8 11.9
26.1 26.7 25.7 24.0 25.5 24.9 25.5 24.1 24.9 25.1 24.6 24.1 24.2 24.3 24.7 23.7 23.7 22.6
Source: MOSL, Company
Exhibit 7: Utilization settling at sustainable levels
Utilization Incl. Trainees
83.0 83.4
79.3
82.0 81.4
80.8 81.1
Utilization Excl. Trainees
83.1 82.4 82.6
86.1 86.0
84.5 85.1 85.4 85.1
84.2
82.3 82.5
80.9
76.2 76.6
73.8
76.6 76.3
75.1 75.5
77.2
78.4 78.5 78.8
80.8
81.3 82.0 80.7
80.3
Source: MOSL, Company
Guidance increased to 8.5-9%
INFO raised its full year guidance to 8.5-9.0% QoQ CC, which implies 4Q ask rate
of 0.3-1.9% QoQ CC (0.5-2.5% as per company). This also means that YoY growth
will accelerate further in 4QFY19 to 9.8%-11.6%
Operating margin guidance maintained at 22-24%. We expect INFY to end the
fiscal with mid-point of this guidance level
11 January 2019
4
 Motilal Oswal Financial Services
Infosys
Exhibit 8: Guidance of 6-8% YoY CC for FY19
14.5
11.0
7.5
4.0
Guidance - lower
Guidance - upper
YoY CC growth (%)
10
8.5
Source: MOSL, Company
Change in estimates
On the back of a robust show on revenue growth, deal wins and upgraded
guidance, we have increased our FY19/20/21 revenue estimates by
0.6/1.1/2.0%.
However, given the cost challenges, we have trimmed our FY19/20/21 EBIT
margin estimate by 42/62/44bp to 23.3/22.8/23%.
Our earnings estimates are down by 0.3-1.6% as a consequence.
Exhibit 9: Change in estimates
Revised
Earlier
FY19E FY20E FY21E FY19E FY20E FY21E
INR/USD
70.5
72.0
72.0
70.6
72.0
72.0
USD Revenue (m)
11,756 12,874 14,197 11,691 12,737 13,924
USD rev. growth (%)
7.5
9.5
10.3
6.9
9.0
9.3
EBIT Margin (%)
23.3
22.8
23.0
23.7
23.5
23.5
EPS (INR)
36.4
39.5
44.1
36.7
40.1
44.3
EPS Growth (%)
12.4
8.5
11.8
13.3
9.4
10.3
Change
FY19E FY20E FY21E
-0.2%
0.0%
0.0%
0.6%
1.1%
2.0%
59bp
56bp
96bp
-42bp -62bp -44bp
-0.8% -1.6% -0.3%
-94bp -88bp 148bp
Source: Company, MOSL
Takeaways from Management Commentary
Investments in growth yielding results:
INFO has been investing in sales
personnel to improve its large deals success; scaling existing accounts, Digital
specialists in every large strategic account. It has also been reskilling employees
intensively in new technologies. All these efforts have yielded encouraging
results, as witnessed in improved YoY growth, deal wins and a healthy pipeline.
Margins should contract in 4Q:
Multiple headwinds/cost pressures prevail for
the margins to contract sequentially from adjusted 3Q base of 23% EBIT. These
include the prevailing INR/USD, ramp-up of large deals that involve employee
re-badging, and accelerated investments in localization initiatives.
Segmental color
Growth in
BFSI
has been consistent across geographies. Some slowdown in
Europe was due to end of quarter furloughs. Finacle grew in double-digits. That
said, drop in AUMs is reflecting in weakness on the buy-side sub-segment (asset
management). If interest rate hikes don’t come through, spending strength may
wane.
11 January 2019
5
 Motilal Oswal Financial Services
Infosys
Energy and Utilities
grew 17.3% YoY CC. This was driven by ramp-up in utilities
deals in Europe and Services in the Americas.
Manufacturing
grew 16.2% YoY CC despite weak seasonality. Automatives is
seeing growth from trends such autonomous cars and electric vehicles.
Aerospace and Defense is optimizing spending in core areas. Pipeline of deals
remains healthy and INFO has opened new accounts across geographies.
Tepid QoQ growth in
Retail
was on account of 3Q seasonality. Deal wins and
pipeline remain steady.
Communications
remains under pressure. But that is opening up new
opportunities. Two large deals won in the last couple of quarters will help
change the trajectory.
Panaya and Skava:
As things stand, the sale of Panaya / Skava will unlikely be
complete by March. In the meanwhile, INFO has chosen to re-focus the work it
does in Skava and is reorienting the Panaya product. These created the one-offs
during the quarter.
Localization on track:
Progress on the localization initiatives remains on track.
INFO has completed hiring 7,600+ employees in the US in past 18 months.
2,000+ of these are freshers. Client response has been very healthy, and INFO
has onset similar programs in the UK and Australia.
11 January 2019
6
 Motilal Oswal Financial Services
Infosys
Valuation view
A foreword on the long term industry view:
Growth for Indian IT should gradually
pick-up from current 6-7% as Digital services proliferate, which today are still small to
move the needle on overall performance. India will continue to remain the hotbed
for talent supply en masse, making a case for increasing shift of Digital business from
onsite. That said, with Automation the top priority of every Board, without
exceptions, delineation of revenue growth with headcount growth appears obvious –
and the only lever to stem the decline in profitability witnessed in recent years.
INFO in that industry backdrop
Inward focus will mean some catch-up play:
INFO has built capabilities to
match spend shifts in the past three years. Its portfolio is not very different from
the industry, but it has been investing in new services and solutions. Digital now
contributes to north of 30% of overall revenue for the company. Execution rigor
is the mantra for the company going forward, having boiled down the strategic
imperatives. Its inward focus thanks to the recent distractions mean that they
will be left playing catch up to the more focused players in the market over the
next year or so.
Operational efficiency commendable:
On the profitability front, it has been
among the most disciplined companies in terms of operational efficiency in the
last couple of years. This has helped hold margins in a tight band while investing
aggressively in building capabilities, and going through a price reset in
competitive traditional large deals. Going forward, investments in building
capabilities and boosting the sales function are expected to ramp-up. This is
compounded by localization investments, keeping margins under some pressure
in the foreseeable future.
Basis the above, we expect INFO to grow revenues in line with the industry thanks
to the benefits from its initiatives in sales expansion and localization. But we expect
margins to reset at lower levels, which will be a function of elevated costs of doing
business at onsite. As a result, we are factoring in 10/11% CAGR in revenue/earnings
over FY18-21E.
Exhibit 10: INFO – Business Construct
Y/E March
USD revenue growth (%)
Employee growth (%)
Revenue per employee (USDk per annum)
EBITDA margin (%)
EPS growth (%)
2013
5.8
4.5
48,245
28.6
13.3
2014
11.5
2.4
52,029
27.2
13.0
2015
5.6
9.8
51,760
27.9
15.8
2016
9.1
10.1
51,325
27.4
9.4
2017
7.4
3.3
51,764
27.2
6.4
2018
7.2
1.9
54,090
27.0
3.1
2019E
7.5
13.6
53,940
25.5
12.4
2020E
9.5
9.3
53,080
25.0
8.5
2021E
10.3
10.1
53,347
25.0
11.8
Source: Company, MOSL
Valuation and view
It had been about revenue growth:
Valuation multiples have historically
ascribed the highest valuation to revenue growth, which is not surprising it is
also the single largest lever for margins. So, as growth at INFO has come down
from 20%+ to single digits, the current forward PE multiple is at 16x compared
to the long term average of 18x.
11 January 2019
7
 Motilal Oswal Financial Services
Infosys
Longevity may be the offsetting play:
As the industry shifts its gears to Digital,
there remains a tremendous need to up investments in technology across the
Board. Companies partaking in this wave may not be materially outgrowing their
peers, but will still enjoy significantly higher multiples for the other key
determinant of valuation – Longevity. Digital-ready vendors offer healthier
visibility of profits and cash flow generation today, while legacy businesses are
faced with the dual pressure of shrinking revenue pie.
Case for Re-rating supported by examples of Accenture and CTSH:
The test for
Indian IT has been stern than ever before, and we see growth from newer
technologies as a strong case in point for accretion of valuation multiples, even
without the acceleration in revenues. CTSH, which is growing lower than its
enamored history, and Accenture, are case in points which drive our thesis.
Making a case for convergence:
On the back of a robust show on revenue
growth, deal wins and upgraded guidance, we have increased our FY19/20/21E
revenue estimates by 0.6/1.1/2.0% respectively. However, given the cost
challenges, we have trimmed or EBIT margin estimates by 42/62/44bp
respective during this period to 23.3/22.8/23%. Our earnings estimates are
down by 0.3-1.6% as a consequence. INFO’s impressive catch up on revenues
growth with industry leaders is encouraging, while challenges on the margins
are secular. 3QFY19 performance will make a case for narrowing of the
valuation gap to leading peers such as TCS, in line with our thesis. Our price
target of INR800 discounts forward earnings by 18x, implying a 17% upside.
Maintain
Buy
Pick-up in growth led by strength seen in multiple areas
Turnaround in direction of profitability
Stemming of attrition to historical norms
Adverse regulatory developments around current visa regime
Additional instability in leadership and execution from multiple exits
Issues in certain pockets weighing on overall growth
Exhibit 12: INFO 1-year forward P/B
24.8
19.8
Max (x)
-1SD
7.0
5.8
P/B (x)
Min (x)
Avg (x)
+1SD
Max (x)
-1SD
Key triggers
Key risk factors
Exhibit 11: INFO 1 year forward P/E
P/E (x)
Min (x)
26.0
21.0
16.0
11.0
6.0
Avg (x)
+1SD
6.2
4.8
3.2
2.7
4.0
16.9
14.0
10.5
16.0
4.5
3.3
2.0
4.2
11 January 2019
8
 Motilal Oswal Financial Services
Infosys
Exhibit 13: Operating metrics
2QFY17
Verticals (%)
Financial Services
Retail
Communications
Energy, Utilities, Resources
Manufacturing
Hi Tech
Life Sciences
Others
Service Lines (%)
Digital
Core
Products & Platforms (%)
Digital
Core
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
3QFY17
4QFY17
1QFY18
32.9
16.2
12.5
11.3
9.3
7.3
6.5
3.6
94.6
22.4
72.2
5.4
1.5
3.9
2QFY18
33.1
15.9
12.4
11.7
9.3
7.2
6.7
3.4
94.8
23.6
71.2
5.2
1.6
3.6
3QFY18
32.1
16.2
12.4
12.0
9.5
7.1
6.5
3.2
94.6
24.2
70.4
5.4
1.9
3.5
4QFY18
32.5
15.9
12.9
12.0
9.5
7.3
6.7
2.9
95.1
25.3
69.8
4.9
1.5
3.4
1QFY19
31.7
16.5
12.7
12.4
9.6
7.4
6.5
2.9
95.2
26.7
68.5
4.8
1.7
3.1
2QFY19
32.2
16.8
12.3
12.3
9.6
7.5
6.4
2.9
94.9
28.9
66.0
5.1
2.1
3.0
3QFY19
32.5
16.4
11.9
12.8
10.1
7.3
6.2
2.8
94.5
29.3
65.2
5.5
2.2
3.3
61.5
22.5
3.4
12.6
62.0
22.2
3.4
12.4
62.3
22.1
3.2
12.4
61.1
22.4
3.6
12.9
60.6
23.2
3.3
12.9
60.4
24.4
3.0
12.2
59.4
24.8
2.8
13.0
60
24.3
2.6
13.0
60.3
24.0
2.5
13.2
60.4
24.2
2.6
12.8
3.5
13.1
21.8
9.6
8.7
78.2
78
1136
3.1
12.3
20.1
9.2
7.8
79.9
77
1152
3.3
12.2
20.2
8.9
8.0
79.8
71
1162
3.3
Nm
20.0
Nm
Nm
80.0
59
1164
3.4
Nm
19.5
Nm
Nm
80.5
72
1173
3.4
Nm
19.2
Nm
Nm
80.8
79
1191
3.6
Nm
19.5
Nm
Nm
80.5
73
1204
3.7
Nm
19.2
Nm
Nm
80.8
70
1214
3.9
Nm
19.4
Nm
Nm
80.6
73
1222
3.4
Nm
19.2
Nm
Nm
80.8
101
1251
Source: MOSL, Company
11 January 2019
9
 Motilal Oswal Financial Services
Infosys
Story in charts
Exhibit 14: Gradually getting past growth issues
Revenue (USDm)
15.0
14.0
12.4
12.0
10.8
Growth (CC, YoY, %)
10.1
2.6
1.1
4.4
1.9 1.7
0.0
-0.3
Exhibit 15: Resulting in expectations of improved
performance going forward
6.9
CC revenue growth (QoQ, %)
7.8
8.9
7.4
5.3 6.4 4.6 5.8 6.4 6.0
8.1
3.9
4.2
2.7
2.2
0.8 0.6
2.3
2.7
-0.4
Source: Company, MOSL
Source: Company, MOSL
Exhibit 16: Utilization cooling off from all-time highs
Utilization Incl. Trainees
Utilization Excl. Trainees
Exhibit 17: Deal signings sustaining above benchmark
(USD1B)
Deal signings TCV (USD m)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 18: Gap with industry growth has reduced
15.8
Revenue (USD m)
11.5
9.1
5.8
5.6
9.5
7.4
7.2
7.5
Growth (% YoY)
Exhibit 19: Slight relief on attrition levels
Voluntary Attrition rate (% LTM)
Source: Company, MOSL
Source: Company, MOSL
11 January 2019
10
 Motilal Oswal Financial Services
Infosys
Financials and Valuations
Key Assumptions
Y/E March
INR/USD Rate
Revenues (USD m)
Per Capita Revenue Productivity (USD)
Offshore Revenue (%)
Total Headcount
Net Addition
Gross Addition
Utilization Incl. trainees (%)
Utilization Excl. trainees (%)
2014
60.8
8,249
52,029
48.0
1,60,405
3,717
39,985
73.6
77.4
2015
61.2
8,711
51,760
48.8
1,76,187
15,782
53,386
76.2
82.0
2016
65.7
9,501
51,325
47.3
1,94,044
17,857
52,545
76.5
81.7
2017
67.1
10,208
51,764
46.8
2,00,364
6,320
44,235
78.9
82.8
2018
64.5
10,939
54,090
47.9
2,04,107
3,743
44,110
82.4
85.5
2019E
70.5
11,756
53,940
48.5
2,31,775
27,668
74,203
81.9
85.0
2020E
72.0
12,874
53,080
48.7
2,53,311
21,536
70,500
82.0
84.8
2021E
72.0
14,197
53,347
49.3
2,78,921
25,611
79,250
83.0
85.9
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 (%)
Minority Interest
Adjusted PAT
Extraordinary Items
Reported PAT
Change (%)
2014
5,01,330
24.2
3,07,670
26,250
31,070
1,36,340
27.2
13,740
26,690
1,49,290
40,620
27.2
0
1,08,670
2,190
1,06,480
13.0
2015
5,33,190
6.4
3,18,140
29,400
36,630
1,49,020
27.9
10,690
34,270
1,72,600
49,290
28.6
10
1,23,300
0
1,23,300
15.8
2016
6,24,410
17.1
3,76,390
34,310
42,920
1,70,790
27.4
14,590
31,250
1,87,450
52,520
28.0
0
1,34,930
0
1,34,930
9.4
2017
6,84,850
9.7
4,15,500
35,910
47,390
1,86,050
27.2
17,030
30,790
1,99,810
55,980
28.0
0
1,43,830
0
1,43,830
6.6
2018
7,05,220
3.0
4,32,690
35,580
46,850
1,90,100
27.0
18,580
31,930
2,03,450
42,420
20.9
0
1,61,030
14,320
1,46,710
2.0
2019E
8,28,570
17.5
5,17,465
44,219
55,459
2,11,428
25.5
18,746
29,261
2,21,942
59,456
26.8
0
1,62,486
-1,091
1,63,578
11.5
2020E
9,26,947
11.9
5,86,439
48,656
60,324
2,31,529
25.0
19,818
23,068
2,34,779
63,390
27.0
0
1,71,389
0
1,71,389
4.8
2021E
10,22,152
10.3
6,48,236
53,152
65,478
2,55,287
25.0
20,034
27,223
2,62,476
70,868
27.0
0
1,91,607
0
1,91,607
11.8
(INR M)
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
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
2014
5,720
4,69,580
4,75,300
4,75,300
1,40,790
55,250
85,540
18,320
45,230
4,21,460
1,11,620
2,59,500
43,780
6,560
95,250
56,180
39,070
3,26,210
4,75,300
2015
11,440
5,36,190
5,47,630
5,47,630
1,78,360
64,220
1,14,140
14,400
24,130
5,10,850
1,25,580
3,03,670
76,230
5,370
1,15,890
70,180
45,710
3,94,960
5,47,630
2016
22,880
5,94,910
6,17,790
6,17,790
2,08,370
74,510
1,33,860
18,930
21,050
5,80,050
1,43,590
3,26,970
1,04,130
5,360
1,36,100
79,760
56,340
4,43,950
6,17,790
2017
22,880
6,66,550
6,89,430
6,89,430
2,27,210
85,810
1,41,400
19,650
1,67,070
5,05,040
1,59,700
2,26,250
1,13,690
5,400
1,43,730
83,640
60,090
3,61,310
6,89,430
2018
21,760
6,27,470
6,49,230
6,49,230
2,47,620
1,02,820
1,44,800
21,320
1,21,790
5,10,500
1,74,030
1,98,710
1,24,940
12,820
1,49,180
1,01,490
47,690
3,61,320
6,49,230
2019E
21,760
6,29,920
6,51,680
6,51,680
2,59,900
1,11,820
1,48,080
20,440
1,27,660
5,18,650
1,99,680
1,79,930
1,26,860
12,180
1,63,150
1,21,750
41,400
3,55,500
6,51,680
2020E
21,760
6,39,062
6,60,822
6,60,822
2,87,900
1,31,638
1,56,262
20,440
1,67,660
5,23,924
2,23,388
1,82,624
1,05,732
12,180
2,07,463
1,29,557
77,906
3,16,461
6,60,822
(INR M)
2021E
21,760
7,33,400
7,55,160
7,55,160
3,15,900
1,51,673
1,64,227
20,440
2,07,660
5,85,692
2,46,332
2,06,354
1,20,826
12,180
2,22,859
1,42,868
79,991
3,62,832
7,55,160
11 January 2019
11
 Motilal Oswal Financial Services
Infosys
Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout % (excl.div.tax, inc. buyback)
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)
2014
23.3
26.8
104.0
7.9
33.1
29.4
25.5
20.7
5.6
6.6
1.2
24.9
24.9
81
6.6
2015
27.0
29.3
119.8
9.3
34.3
25.4
23.3
18.8
5.2
5.7
1.4
24.1
24.1
86
5.7
2016
29.5
32.7
135.1
12.4
41.9
23.2
20.9
16.3
4.5
5.1
1.8
23.2
23.2
84
5.3
2017
31.4
35.2
150.8
12.9
40.9
21.8
19.4
14.7
4.0
4.5
1.9
22.0
22.0
85
5.2
2018
32.4
39.6
143.3
16.2
126.2
21.1
17.3
14.6
3.9
4.8
2.4
24.1
24.1
90
5.2
2019E
36.4
41.7
150.1
22.0
67.2
18.8
16.4
12.6
3.2
4.6
3.2
25.0
25.0
88
5.9
2020E
39.5
44.0
152.2
19.0
87.1
17.3
15.5
11.3
2.8
4.5
2.7
26.1
26.1
88
6.2
2021E
44.1
48.7
173.9
19.0
42.0
15.5
14.0
10.0
2.5
3.9
2.7
27.1
27.1
88
6.5
Cash Flow Statement
Y/E March
CF from Operations
Cash for Working Capital
Net Operating CF
Net Purchase of FA
Free Cash Flow
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.
E: MOSL Estimates
2014
1,21,480
390
1,21,870
-27,450
94,420
-22,580
-50,030
770
0
-31,430
-30,660
41,180
2,18,320
41,180
2,59,500
2015
1,18,830
-11,310
1,07,520
-22,470
85,050
9,680
-12,790
-1,210
0
-49,350
-50,560
44,170
2,59,500
44,170
3,03,670
2016
1,44,970
-22,540
1,22,430
-27,230
95,200
-3,930
-31,160
160
0
-68,130
-67,970
23,300
3,03,670
23,300
3,26,970
2017
1,60,070
-19,440
1,40,630
-27,600
1,13,030
-1,43,140
-1,70,740
-1,220
0
-69,390
-70,610
-1,00,720
3,26,970
-1,00,720
2,26,250
2018
1,46,650
-1,060
1,45,590
-19,980
1,25,610
51,090
31,110
-1,29,600
0
-74,640
-2,04,240
-27,540
2,26,250
-27,540
1,98,710
2019E
1,46,657
-13,600
1,33,057
-13,160
1,19,897
-5,870
-19,030
-3,639
0
-1,29,168
-1,32,807
-18,780
1,98,710
-18,780
1,79,930
2020E
1,68,139
41,734
2,09,872
-28,000
1,81,872
-40,000
-68,000
26,925
0
-1,66,103
-1,39,178
2,694
1,79,930
2,694
1,82,624
(INR M)
2021E
1,84,418
-22,642
1,61,777
-28,000
1,33,777
-40,000
-68,000
27,223
0
-97,270
-70,047
23,730
1,82,624
23,730
2,06,354
11 January 2019
12
 Motilal Oswal Financial Services
Infosys
NOTES
11 January 2019
13
 Motilal Oswal Financial Services
Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
Expected return (over 12-month)
>=15%
< - 10%
> - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
Infosys
*In case the recommendation given by the Research Analyst becomes inconsistent with the investment rating legend, the Research Analyst shall within 28 days of the inconsistency, take appropriate measures to make the recommendation consistent with the investment rating legend.
Disclosures:
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
Motilal Oswal Securities Ltd. (MOSL)
*
is a SEBI Registered Research Analyst having registration no. INH000000412. MOSL, the Research Entity (RE) as defined in the Regulations, is engaged in the business of providing Stock broking services,
Investment Advisory Services, Depository participant services & distribution of various financial products. MOSL is a subsidiary company of Motilal Oswal Financial Service Ltd. (MOFSL). MOFSL is a listed public company, the details in respect of
which are available on
www.motilaloswal.com.
MOSL is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock Exchange of India Ltd. (NSE) and BSE Limited (BSE), Multi Commodity
Exchange of India (MCX) & National Commodity & Derivatives Exchange Ltd. (NCDEX) for its stock broking activities & is Depository participant with Central Depository Services Limited (CDSL) & National Securities Depository Limited (NSDL) and is
member of Association of Mutual Funds of India (AMFI) for distribution of financial products. Details of associate entities of Motilal Oswal Securities Limited are available on the website at
http://onlinereports.motilaloswal.com/Dormant/documents/Associate%20Details.pdf
MOSL, it’s associates, Research Analyst or their relative may have any financial interest in the subject company. MOSL and/or its associates and/or Research Analyst may have actual/beneficial ownership of 1% or more securities in the subject
company at the end of the month immediately preceding the date of publication of the Research Report.
MOSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a) from time to time, have a long or short
position in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (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 company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and
opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOSL even though
there might exist an inherent conflict of interest in some of the stocks mentioned in the research report.
Research Analyst may have served as director/officer, etc. in the subject company in the last 12 month period. MOSL and/or its associates may
have received any compensation from the subject company in the past 12 months.
In the last 12 months period ending on the last day of the month immediately preceding the date of publication of this research report, MOSL or any of its associates may have:
a)
managed or co-managed public offering of securities from subject company of this research report,
b)
received compensation for investment banking or merchant banking or brokerage services from subject company of this research report,
c)
received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company of this research report.
d)
Subject Company may have been a client of MOSL or its associates during twelve months preceding the date of distribution of the research report.
MOSL and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report. To enhance transparency, MOSL has incorporated a Disclosure of Interest Statement in
this document. This should, however, not be treated as endorsement of the views expressed in the report. MOSL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result,
the recipients of this report should be aware that MOSL may have a potential conflict of interest that may affect the objectivity of this report. Compensation of Research Analysts is not based on any specific merchant banking, investment banking or
brokerage service transactions.
Terms & Conditions:
This report has been prepared by MOSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered in any way, transmitted to, copied or distributed, in part
or in whole, to any other person or to the media or reproduced in any form, without prior written consent of MOSL. The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report
is not recommendatory in nature. The information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied,
is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to
buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOSL will not treat recipients as customers by
virtue of their receiving this report.
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the
specific recommendations and views expressed by research analyst(s) in this report.
Disclosure of Interest Statement
Analyst ownership of the stock
Infosys
No
A graph of daily closing prices of securities is available at
www.nseindia.com, www.bseindia.com.
Research Analyst views on Subject Company may vary based on Fundamental research and Technical Research. Proprietary trading desk of MOSL or
its associates maintains arm’s length distance with Research Team as all the activities are segregated from MOSL research activity and therefore it can have an independent view with regards to subject company for which Research Team have
expressed their views.
Regional Disclosures (outside India)
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject
MOSL & its group companies to registration or licensing requirements within such jurisdictions.
For Hong Kong:
This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC) pursuant to the Securities
and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has an agreement with Motilal Oswal capital Markets (Hong Kong)
Private Limited for distribution of research report in Hong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity to which this document relates is only
available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from
registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research Analysis in Hong Kong.
For U.S.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is not a registered
investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption
under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S. persons. This report is intended for distribution only to "Major Institutional
Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional
investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule
15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S.,
MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of
this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject
to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
For Singapore
In Singapore, this report is being distributed by Motilal Oswal Capital Markets Singapore Pte Ltd (“MOCMSPL”) (Co.Reg. NO. 201129401Z) which is a holder of a capital markets services license and an exempt financial adviser in Singapore,
as per the approved agreement under Paragraph 9 of Third Schedule of Securities and Futures Act (CAP 289) and Paragraph 11 of First Schedule of Financial Advisors Act (CAP 110) provided to MOCMSPL by Monetary Authority of Singapore.
Persons in Singapore should contact MOCMSPL in respect of any matter arising from, or in connection with this report/publication/communication. This report is distributed solely to persons who qualify as “Institutional Investors”, of which some of
whom may consist of "accredited" institutional investors as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (“the SFA”). Accordingly, if a Singapore person is not or ceases to be such an institutional investor, such
Singapore Person must immediately discontinue any use of this Report and inform MOCMSPL.
Disclaimer:
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced
in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in
this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of
independent judgment by any recipient. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document
(including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including
those involving futures, options, another derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy,
completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the
views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval.
MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform
investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this
into account before interpreting the document. This report has been prepared on the basis of information that is already available in publicly accessible media or developed through analysis of MOSL. The views expressed are those of the analyst, and
the Company may or may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or
published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such
distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all
jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or representatives shall
be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.
The person accessing this information specifically agrees
to exempt MOSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSL
or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring Centre, 2nd Floor, Palm
Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080 1000. Compliance Officer: Neeraj Agarwal, Email Id:
na@motilaloswal.com,
Contact No.:022-38281085.
Registration details of group entities: MOSL: SEBI Registration: INZ000158836 (BSE/NSE/MCX/NCDEX); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser:
INA000007100.Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409)
offers wealth management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate
products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products
*MOSL
has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f. August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National Company Law Tribunal, Mumbai Bench. The existing registration no(s) of
MOSL would be used until receipt of new MOFSL registration numbers.
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