Research Report

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Infosys Limited
Company Overview
On the technical know-how front, the company is an innovation leader in automation, digital
transformation, agile and big data. As per its annual report (2020), it reported an increase of 8%
in the top line and 6% in the bottom line. However, the EBIT margin has declined and share-
price volatility has increased. It has although been able to improve its triple bottom line through
its CSR initiatives during COVID-19 which has improved its brand equity. The working capital is
also positive and has shown linear growth. Digital acceleration, large deal wins vendor
consolidation and cost rationalization remains key long-term drivers.

Shareholding Pattern
As per the current shareholding pattern, 13.2% of the total company shares are owned by
promoters, 48.5% are owned by Foreign Institutional Investors, 26.3% by Domestic Institutional
Investors, and 12.1% owned by others as of October 2020. The firm is listed and majorly owned
by the public shareholders. Some of the major shareholders of the company are - Deutsche
Bank Trust Co Americas (17.35%), Life Insurance Corp of India (7.19%), BlackRock Inc (4.55%),
Vangaurd group ( 2.91%). Most of the promoter shares are held by Sudha Gopalakrishnan
(2.19% of the total shares) and Rohan Murty (1.39% of the total shares).

Management of the company

Infosys is largely public-owned with Salil Parekh as its CEO and MD. Salil has leadership
experience spanning 25 years with three decades of global experience in the IT services
industry having a masters in engineering. Pravin Rao is the COO. With 33 years of industry
experience, he has held a number of senior leadership roles. He also has a degree in electrical
engineering. The chairman of the board Mr. Nandan Nilekani is a B.tech from IIT Bombay and
also 'Asia’s Businessman of the year 2003'. Apart from that various sets of highly qualified
independent directors sits on the board.

SWOT Analysis
Strengths
- Digital Capabilities: Infosys, adapting to the demand of technology post COVID-19, has
started focusing on cloud and cloud-enabling technologies, cyber-security,
enhancement of customer experience, digital commerce and analytics, innovative new
business models and cross-technology capabilities seems to have the internal
capabilities to participate in customer’s digital transformational journey.
- Infosys is a debt-free company. It doesn’t have any outstanding debt. It generates
sufficient cash from operations to finance its working capital.
 - Fundamentals: It has shown a 3-yr. CAGR growth in Sales (10.06%) and Net profit (4%).
Also, it commands a PE of 29 which is higher than the industry average. Its stock price
rose 15.8% in a month showing positive investor sentiment.
- FII/ FPI’s have been increasing their shareholding in the company as evident from the
shareholding pattern.
- It is a company with a high TTM EPS growth.
- Strong relationship with clients and robust execution capabilities.

Weakness
- Increasing attrition rate is one of the key risk areas that company faces.
- Corporate governance structure. There has already been instance of failure.
- There has been insufficient use of assets on the company’s part to generate profits (low
ROA). Also, the cash flow from operation has been increasing at a decreasing rate.
- Promoter holdings has been decreasing in Infosys.

Threats
- Increasing competition due to concentration of few firms of oligopolistic nature such as
TCS, Wipro, HCL technologies etc.
- Rupee appreciation and/ or cross-currency movements have an adverse impact on
earnings.
- Low incremental investments by government/ private companies in the sector.
- Impact of COVID-19 crisis on demand of IT and ITES.
- Regulatory visa norms have an impact on employee expenses.
- Immigration laws in US.

Opportunities
- Strategic Acquisitions: It has recently acquired Blue Acorn iCi and Kaleidoscope to
supplement its digital capabilities in synergy with the incumbent technology platform. It
will help Infosys to increase its cross-technology capabilities through convergence of
customer experience, enhance capabilities in the engineering services for medical
devices.
- Increased demand of IT cloud infrastructure derived out of COVID crisis i.e. due to the
impact of the macro-environment.
- Infosys has revitalized investment in digital competencies to drive its digital business.
- Brokers have upgraded recommendation or target price in the past three months.
Competitor Analysis
Infosys's immediate peers in the market consist of players such as TCS, HCL Technologies,
Wipro, etc. TCS dominates the market with Infosys coming to a close second. Infosys commands
a PE of 29 (> sector PE of 26.58) in the market as compared to that of 31.17 (TCS), ~20(HCL &
Wipro) which reflects a higher intrinsic value as per investor sentiment. It has a higher sales
turnover, Net profit & total assets when compared to HCL, Wipro, Tech Mahindra, etc. for the
year FY20. It has been able to grow its profits at a CAGR of ~4% in the last three years which is
less when compared to its competition (TCS = 12.03%, HCL = 9.28%, Wipro = 4.67%) which
reflects its growth potential. Its stock (market price per share = 1122.50) outperforms its peers
(Wipro = 342.40, HCL Tech = 852.45) with TCS commanding the highest market price per share
of INR 2686.80. Infosys provides services to a large number of Fortune 500 clients and has
aggressively been investing in digital technologies which makes it well-positioned to capitalize
on various technological opportunities. Infosys has higher valuations when compared to HCL,
Wipro but lower valuation as compared to TCS. Also, Infosys has a very low inventory turnover
compared to its peers in the industry. Infosys commands an EPS of 39.09 which is far less than
what TCS has (EPS = 80.90) which means that it is yet to establish its position as the market
leader in terms of growth fundamentals. However, Infosys' stock price had risen 15.8% in the
last one month, outperforming its largest peer TCS (despite strong performance) and broader
indices by 2% and 11% respectively. It, therefore, has higher industry expectations. Infosys has
made some strategic acquisitions to further its digital agenda and outperform its competitors in
engineering services for medical devices and industrial markets.

Conclusion and way forward for the company

Infosys has strong industry fundamentals and digital capabilities to capitalize on the demand for
IT and ITES derived out of pandemic. It can participate in clients' digital transformational
journeys using its internal strengths and can thus expand its valuation multiples. It can also
leverage its acquisitions to diversify its business model and expand its product portfolio serving
both developed and emerging markets. Further, it should work towards catering to the human
resource element. It should minimize exports in order to avoid currency risks until a corrective
policy in place and implement cost-efficiency measures to improve its variable cost structure.