Infosys Ltd – What’s The Future After COVID-19?

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INFOSYS LTD – SUMMARY OF Q2FY21 RESULTS

Infosys, one of the stocks which occupy every investor’s portfolio. The second-largest Information tech company based out of Bangalore has released the Q2’2021 result.

Infosys Ltd

Source: Business Standard

In the Q2’2021 result, it has posted a huge profit of 20.5% in Net profit compared to last year.

It has posted a growth of 14.45% compared to the previous quarter posting Rs. 4845 Cr of Net profit. The result of the company has surpassed the expected growth of the industry experts around 2-3% growth.

Infosys Ltd has surpassed the results of both TCS and Wipro results.

In sharing the success of Q2’2021 achievement, Infosys Ltd shared two good news to employees:

i) Hike effective 1st January 2021 and promotions to all levels

ii) 100% variable pay and Incentives to employees for Q2’2021 performance.

Also, Infosys Ltd has announced an interim dividend payout to their shareholders. The interim dividend is of Rs. 12 with a record date of 11th November 2020.

Apart from quarterly results, it is always to find the financial and fundamental analysis of a company.

 

INFOSYS LTD – BUSINESS OVERVIEW

As an organization, the main theme of operation is “Sustainable and Resilient”. In the same way, providing sustainable solutions to clients on their business needs through digital and core business medium.

Unlike, Wipro and TCS, which is currently investing in digital platform solutions like Agile technology, Data Analysis & Artificial Intelligence, Cloud infrastructure, etc. Infosys Ltd has already started to increase the share of revenue in digital business.

The main strategies the company has decided to look forward to in FISCAL 2021 are,

  • Digitalization of processes.
  • Migration to Cloud-based Technology.
  • Workplace and business transformation.
  • Cyber Security Controls.
  • Cost Structure Optimization in IT.

Infosys Ltd provides solutions on two bases, in which their total business revenue depends upon:

  •  DIGITAL
      • Artificial Intelligence-based Analytics
      • Big Data Management
      • Engineer Digital Products
      • IoT (Internet of Things)
      •  Cloud Application
      • Cyber Securities
  • CORE
      • Application Management and Development  Services
      • Independent Validation Solutions
      • Product Engineering and Management.
      • Infrastructure Management Services.
      • Entreprise Application Implementation
      • Support and Integration services.
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The company has completely focused on improving productivity with better cost management for its clients.

This will eventually give more return on investment. It has huge digitalization and better AI products. Its products and platforms are,

  • Finacle
  • Edge Suite
  • Infosys NIA
  • Infosys McCamish
  • Panaya
  • Skava
  • Stater Mortgage Servicing Platform
  • Wingspan

The company was awarded by Forbes as “3rd Best Regarded Company in the world”.

 

BUSINESS SEGMENT AND REVENUE SPLIT UPS

The major business of Infosys Ltd comes from Financial Services and Insurance. It accounts for 31.5% of the total revenue of FY2019-20.

Let us see the revenue bifurcation from services,

  • Financial Services and Insurance – 31.5%
  • Retail Business – 15.5%
  • Communication, Telecom, and Media – 13.2%
  • Energy, Utilities, Resources, and Services – 12.9%
  • Manufacturing – 10.1%
  • Hi-Tech – 7.7%
  • Life Sciences and Healthcare – 6.4%
  • Others – 2.7%

In the last two years, the Digital business is grabbing the share from the CORE business.

  • Digital Business of Infosys Ltd has grown from 31.2% in 2019 to 39.2% in 2020. The Digital business has grown at a CAGR of 35.91% over the last two years. Currently, the Digital Business share is 47.31% as of Q2’2020-21
  • The CORE business has fallen down from 68.8% in 2019 to 60.8% in 2020. As of now the CORE business share of Q2’2020-21 is 52.69%
  • This has clearly shown, when their peers are concentrating on digital businesses, they are improving the revenue share. Business dominated by nearly 50% is a huge positive for the companies next 10 years’ growth.
Infosys Ltd Market Leader
Image: Infosys a Market Leader in Quality Engineering Services

Source: Infosys

Infosys Ltd’s business has penetrated all across the world.

The geographical split of the revenue as per Q2’2020-21 is,

  • North America – 60.72% vs 61.5% (FY2019-20)
  • Europe – 24.33% vs 24.1% (FY2019-20)
  • India – 3% vs 2.6% (FY2019-20)
  • Rest of World – 11.95% vs 11.8% (FY2019-20)

The business is strongly dominated in America and Europe. The changes in the revenue splits are negligible.

 

CLIENT BASE

  • The client base at FY2019-20 is at 1411 clients. In the last 4 years, the client base has grown at a CAGR of 6.62%. The client base on FY2015-26 was 1092 clients.
  • The number of $USD 100 million+ client base has grown from 14 in 2016 to 28 in 2020. Which is a phenomenal growth in terms of high volume clients.
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INFOSYS LTD – FINANCIAL PERFORMANCE

Once we got a steady message on business and company profile looking at the future. Let us confirm whether their strategies have been honored through financial performance

 

Financial Performance - Infosys Shares

 

The above image will give you a clear idea of the last 5 years and the last 2 quarters revenue, EBITDA, PAT, and EPS.

You can see only in FY2019, PAT and EPS have shown a fall than the previous year. Other than that, all the year’s performance has shown at least a minimum growth than the previous year.

  • The 5 years revenue has grown at a CAGR of 10.52%, which is higher than the industry average. The industry average revenue has grown at a CAGR of 9.83%.
  • EBITDA has grown at a CAGR of 6.49% per annum in the last 5 years.
  • Net profit has grown at a CAGR of  6.05% in the last 5 years, which is very low compared to the industry average. The industry average is at a CAGR of 8.06%
  • The market share has increased from 17.81% to 18.57% in the last 5 years.

FUNDAMENTAL ANALYSIS

Number of Shares – 425.89 Cr Shares

Market Capital – 4,72,002 Cr

 

VALUATION RATIOS

The foremost analysis we should do in fundamental analysis.

  • Book Value – Rs. 153.67
  • Price to Book value – 7.21
  • Earnings per share (TTM) – 42.1
  • Price to Earnings (P/E) – 26.32 (Very Expensive)
  • Industry P/E – 26.98
  • Dividend Yield – 1.58%
  • Debt to Equity Ratio – 0%
  • Current Ratio (Asset/Liabilities) – 2.62
  • Interest Coverage Ratio – 130.45
  • Return on Equity (ROE) – 25.35%
  • Net Profit Margin – 17.63%
  • Free Cash Flow – Rs. 13696 Cr
  • Enterprise value / EBITDA: 17.54 (Overvalued)

SHAREHOLDING PATTERN:

  • Promoters – 13.16%
  • FII – 30.43%
  • Financial Institutions – 0.05%
  • Insurance Companies – 11.43%
  • Mutual Funds – 13.84%
  • Other DII’s – 20.96%
  • Retail Investors – 10.12%
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EXCESS LIQUID CASH PER CASH

Total Liquid Assets:

  • Fixed Assets
      • Investments: Rs. 7754 Cr
      • Other Financial Assets: Rs. 642 Cr
  • Current Assets
      • Investments: Rs. 3600 Cr
      • Cash and Cash Equivalent: Rs. 22411 Cr
      • Other Financial Assets: Rs. 6359

Total Liquid Asset: Rs. 40766 Cr

Total Liabilities: Rs. 27114 Cr

Excess Liquid Cash: Rs. 13622 Cr

Excess liquid cash per share: Rs. 31.98 per share

 

INTRINSIC VALUE OF INFOSYS LTD

EPS (TTM) – Rs. 42.1 per Share

5 years EPS Growth – 6.05%

1 year EPS Growth (TTM) – 17%

5 years revenue growth – 10.25%

Even if we consider, last TTM EPS growth of 17%, EPS (TTM) of 42.1 and Margin of Safety at 20%.

The intrinsic value will be around – 839.

The current share price is 32.4% overvalued than the intrinsic value

 

INSIGHTS TO INVESTOR

  • One of the best equity shares in terms of performance.
  • Amid the COVID situation, the Q2’2021 result has shown a 20.1% growth compared to last year.
  • Business process of digital solution which shares nearly 47% of total revenue will be the highlighting point to discuss when compared to peers in business overview
  • Strong business plan, management, and employee retention rate. Serving benefits for employees and shareholders with hike and dividends.
  • Strong financial performance year on year in the last 5 years in terms of revenue.
  • Despite of all the positive on the share, it is currently traded at 39% higher than the intrinsic value with estimated 17% growth the next year. the expected growth is the maximum, which is not sure.
  • As an Intelligent or Contradian Investor, You should wait for the share price to come below the intrinsic value.

Also Watch: TCS Company vs Infosys Ltd Comparison

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Cover Image: Bloomberg Quint

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