Stock Update

Infosys
Poised to outpace peers
Powered by the Sharekhan 3R Research Philosophy IT & ITES Sharekhan code: INFY

3R MATRIX + = -
Reco/View: Buy  CMP: Rs. 1,721 Price Target: Rs. 2,300 
Right Sector (RS) ü
á Upgrade  Maintain â Downgrade

Right Quality (RQ) ü Summary

Right Valuation (RV) ü Š Infosys is well-equipped to deliver industry-leading organic growth among large peers in
FY2023E, led by broad-based demand, healthy deal wins, strong deal pipeline, and strong
+ Positive = Neutral – Negative execution.
Š Q4 usually remains a soft quarter on growth for Infosys owing to fewer working days and
What has changed in 3R MATRIX weak client spending. Margins are expected to remain under pressure in Q4FY22 owing to
visa expenses and rising costs of backfill attrition and lower utilization.
Old New Š Headwinds including wage inflation, higher travel costs and supply-side issues would
impact margins in FY2023E, while pricing leverage, lower subcontractor costs, and pyramid
RS  rationalisation would offset these headwinds to a large extent.
Š We maintain a Buy on Infosys with an unchanged PT of Rs. 2,300, given strong revenue
RQ  growth potential, market share gains, and strong demand.
RV  Our interaction with Infosys’ management indicates that the demand environment remains
reasonable strong led by increasing spends on cloud migration and digital transformation program.
The company’s early investments in Cloud capabilities, localisation, deal advisory channels
and sales & marketing capabilities position it to benefit from vendor consolidation, cost take-
outs, captive carve-outs and core modernisation programs. Cloud migration remains the largest
ESG Disclosure Score NEW contributor to its total digital revenue ($10 bn annual run rate) and the company is engaged in other
cloud-related work such as private Cloud, hybrid Cloud, SaaS implementation and cloud-native
ESG RISK RATING application development. We expect Infosys would continue to report industry-leading organic
Updated Oct 08, 2021
15.77 revenue growth among large peers in FY2023E, led by broad-based traction across industries,
strong digital capabilities and gaining market share.
Low Risk Š Well poised to lead industry: Demand for IT services continues to remain strong and is led by
increasing spends on cloud migration and digital transformation initiatives, legacy modernisation
NEGL LOW MED HIGH SEVERE and spends on new emerging areas. The company’s early investments in cloud capabilities
0-10 10-20 20-30 30-40 40+ provide it the ability to align with the clients’ cloud transformation journey. Hence, we believe
the company is well-positioned to benefit from strong demand post-Cloud migration phase as
Source: Morningstar enterprises are likely increase tech spends substantially to develop Cloud-native applications
and participate in cloud-based ecosystems. We believe Infosys is well poised to report industry-
Company details leading growth in FY2023E, given broad-based demand, healthy deal wins, strong deal pipeline
and solid execution.
Market cap: Rs. 723,652 cr Š Q4 – A weak season: Sequential revenue growth is likely to moderate in Q4FY2022 compared
to 7% constant currency (CC) revenue growth in Q3FY2022. Q4 usually remains a soft quarter
52-week high/low: Rs. 1953 / 1306 for Infosys owing to fewer working days and weak client spending as budgets are not on track.
Further, the growth would be impacted due to anticipated lower license sales in March 2022
NSE volume: quarter and absence of incremental revenue contribution from Daimler deal. However, the
59.8 lakh company would commence Data Centre work as part of Daimler deal during Q4 and Cloud-related
(No of shares) work in Q1FY2023E.
BSE code: 500209 Š Margins to stay stressed in Q4; pricing to act as a lever in FY23: Margins are expected to remain
under pressure in Q4FY2022 owing to visa expenses, higher expenses to backfill attrition, and
NSE code: INFY weak seasonality. Though pricing remains under pressure in core segment given competitive
environment and automation, the pricing in the digital side business remains better as the company
Free float: has trained its sales force to communicate the value that Infosys delivers during execution of
365.4 cr projects. Headwinds including wage inflation, lower utilisation rate, increase in travel expenses
(No of shares) and supply-side challenges to impact margins in FY2023E, while pricing leverage, reduction in
sub-contractor expenses, cost optimisation, and pyramid rationalisation would largely offset
these headwinds.
Shareholding (%)
Our Call
Promoters 13.1 Valuation – Strong demand, maintain Buy with a PT of Rs. 2,300: We believe Infosys is well-
equipped to deliver industry-leading organic growth among the large peers in the medium term.
FII 33.9 Though the company would face margin headwinds in the near term, we believe the pressure would
reduce during FY2023E considering ease of supply side issues, pricing leverage and reduction in
DII 17.2 subcontractor expenses. Infosys is expected to report USD revenue and earnings growth of 13.4%
and 14.1%, respectively, over FY2022-FY2024E. At CMP, the stock trades at 28x/25x its FY2023E/
Others 35.8 FY2024E earnings, which is justified, given strong growth potential, robust deal pipeline, and solid
execution. We like Infosys because of its strong capabilities, a strong capital allocation policy, and
Price chart prudent investments in capabilities that will be required in future. Hence, we maintain a Buy rating on
the stock with an unchanged price target (PT) of Rs. 2,300.
2,000 Key Risks
1,800 Rupee appreciation and/or adverse cross-currency movements, slackening pace in deal closures,
1,600 and/or constraints in local talent supply in the US would affect earnings
1,400
1,200 Valuation (Consolidated) Rs cr
1,000
Particulars FY21 FY22E FY23E FY24E
800
Revenue 1,00,473.0 1,21,764.7 1,42,824.9 1,61,865.5
Jul-21

Nov-21
Mar-21

Mar-22

OPM (%) 27.8 26.4 26.0 25.8

Adjusted PAT 19,423.0 22,266.5 25,557.0 28,963.3
Price performance % YoY growth 17.0 14.6 14.8 13.3
Adjusted EPS (Rs.) 45.6 52.9 61.0 69.1
(%) 1m 3m 6m 12m
P/E (x) 37.7 32.5 28.2 24.9
Absolute -2.9 -1.6 2.6 28.1 P/B (x) 5.1 4.9 4.6 4.1
Relative to EV/EBITDA (x) 25.4 22.0 19.0 16.7
3.5 4.2 6.5 20.9
Sensex RoNW (%) 25.3 27.5 29.6 30.4
Sharekhan Research, Bloomberg RoCE (%) 31.9 33.4 36.6 38.4
Source: Company; Sharekhan estimates

March 03, 2022 2

 Stock Update
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Strong demand environment here to stay

Spending on Cloud migration and digital transformation initiatives undertaken by the enterprises continues
to be strong across industries and geographies as organisations want to enhance business resilience and
agility, catch up with cloud-native competitors, reduce costs and improve customer experience. In addition,
talent shortage in developed markets including US and Europe is driving the outsourcing demand for Indian
IT service vendors. We expect strong demand environment would be led by emergence of a new operating
model, increased spending on both cloud and digital transformation works, core modernisation and higher
spending in new emerging areas such as security, AI & ML, ESG, and data and analytics. It is estimated that
IT spends are expected to reach at 5% of total revenue of an enterprise over the next 5-10 years from 2-3%
currently.
Gartner expects worldwide IT spend to rise by 5.1% y-o-y to $4.5 trillion in 2022. Of this, IT services spend
would grow by 7.9% in CY2022 compared to 10.7% in CY2021. Gartner expects IT services spending is likely
to remain strong at an 8.9% CAGR over CY2022-FY2025, which will be significantly higher than the average
growth of 5.6% during 2016-2021. Consulting (+11%) and application implementation and managed services
(+9%) are expected to grow faster than BPO (+7%) and infrastructure implementation and managed services
(+4%) in CY2022E.

Global IT services spend likely to remain strong

12
10.7
10
8.8 8.9
8.4
8 7.9

6 5.7 6.0
5.1 4.3
4 4.2 3.9 4.1
3.4 3.3 3.4
2 1.7

0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E 2023E 2024E 2025E
Global IT services spends growth (%) Average growth (%) over 2011-2020

Source: Gartner, Sharekhan Research

Enterprises that had invested in digital technologies would navigate challenges better than others. Hence,
leaders have been rapidly scaling up investments in digital technologies to drive growth, while laggards and
legacy companies are sharply focusing on building technology capabilities for their existential. Investment in
digital technologies is expected to double from 2020 levels to approximately $2.4 trillion in 2024.
Digital spends to post 16% CAGR over 2020-2024

$4.0 bn

$2.9 bn $2.9 bn
$2.8 bn
2.4

1 1.2 1.3

1.8 1.7 1.6 1.6

2018 2019 2020 2024E

Legacy ($ trn) Digital ($ trn)

Source: Zinnov, Sharekhan Research

March 03, 2022 3
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As per NASSCOM, the Indian IT industry is estimated to grow at 15.5% in FY2022, reaching $227 billion
revenue. Further, India has strong digital talent with 5 million+ tech workforce. As per NASSCOM’s survey
(NASSCOM Tech CEO Survey 2022), over 70% of CXOs believe that the industry would continue to grow
strongly in FY2023E. Further, it is estimated that Indian technology industry is expected to touch $350 billion
by FY2026E from $227 billion in FY2022E, growing at 11-14% per annum.

Indian IT exports continue to remain stong over next 3-4 years

200 25%
21.2% 178
180
18.7% 147 150
160 17.2% 20%
136
140 126
13.8% 117
120 108 15%
98
11.4%
$ bn

100 88 10.1%

%
72 77
80 8.3% 7.7% 7.9% 8.1% 10%
59
60
6.7%
40 5%
2.0%
20
0 0%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E
IT Exports ($ bn) Growth (%)
Source: NASSCOM, Sharekhan Research

Cloud tops enterprises’ priority list; Infosys well poised to capture opportunities
The global Cloud computing market is projected to grow at a CAGR of 17.9% to $792 billion by 2028 from $250
billion in 2021. Enterprises’ IT spending would move to Horizon-2 and Horizon-3 initiatives once the significant
portion of cloud migration (Horizon-1) is completed. The phases of cloud migration journey are – (a) moving
work-load to cloud (Horizon-1), (b) development of cloud native applications (Horizon 2), and (c) integration
across ecosystem (Horizon-3). While Cloud migration opportunity is democratic, we believe Horizon 2 and
Horizon 3 opportunities will be more judicious. It is estimated that 30-40% of workloads have moved to Cloud
and this can increase to 70-80% in the next 3-4 years. Consequently, enterprises would increase IT services
spends substantially to participate in cloud-based ecosystems (including AI, data, and analytics spend) to
derive benefits from new innovations in the form of Horizon-2 and Horizon-3 transformation initiatives. IDC
expect the managed Cloud services industry to double in terms of revenue over CY20-CY25E.
Infosys is engaged with its clients to redesign their core and build new cloud-first capabilities to create
seamless experiences in public, private, and hybrid cloud, across PaaS, SaaS, and IaaS landscapes. Infosys
Cobalt capabilities are resonating well with clients, given its strong capabilities and strong partner ecosystem
with hyperscalers and downstream players. Infosys Cobalt has been helping the company to win mega deals
such as Daimler, Vanguard and among others in the recent past and remains the largest contributor to its
total digital revenue ($10 bn annual run rate). The company’s early investments in cloud capabilities provide it
the ability to align with the clients’ cloud transformation journey and to straddle across private, hybrid Cloud,
multiple Cloud and hybrid multi-cloud environments of clients’ IT landscape.

Hyperscalers continue to report strong growth

80% 73%
71%
70% 63% 62%
59% 59% 56%
60% 54%
64% 50% 50% 48%
48% 46%
50% 51%
53% 52% 51%
45% 45%
40% 47% 46%
43% 45%
41% 39% 40%
30% 37% 37%
35% 34% 33% 32%
20% 29% 29% 28%
10%
0%
Q1CY19 Q2CY19 Q3CY19 Q4CY19 Q1CY20 Q2CY20 Q3CY20 Q4CY20 Q1CY21 Q2CY21 Q3CY21 Q4CY21
Azure AWS Google Cloud

Source: Sharekhan Research

March 03, 2022 4
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Cloud migration at the infacy stage; huge headroom for growth

30%

25%

20%

15%

10%

5%

0%
SaaS PaaS IaaS Enterprise pvt cloud Dedicated hosted pvt On-demand hosted
cloud pvt cloud
Banking Retail Transportation Process manufacturing

Source: IDC, Sharekhan Research

Strong BFS tech spending likely to be sustainable in CY2022

The intensity of technology spending by the BFS firms is expected to remain strong in CY2022 even after a
higher budget allocation towards technologies in CY2021. Post the pandemic, BFS firms have been investing
on digital channels because of improving customer experience, reducing expense, gaining market share, and
combating competition from well-funded fintech firms and large technology companies. In addition, higher
online penetration of banking products and services and reduction of physical branches are the drivers for
increasing tech budget by the BFS firms. Hence, we believe the tech spends by the BFS companies would
remain strong across sub-verticals (capital markets, payments, retail banking, wealth management, cards,
etc), across large and mid-sized banks and across the technology stack in the medium-term as BFS companies
are driving cloud transformation programs to build resilient and scalable platforms.

Technology spends by large US banks to remain strong going ahead

2585 2578 2590 2564 2,606 2,519

2494 2488 2473 2461
2361 2364 2378
2,028 1,997 2,084
1832 1850 1891 1,852 1,895
1720 1724 1783 1723 1741
US$ million

765 788 833

697 733
529 532 538 557 567 563 589 616
345 340 341 375 371 397 430
262 286 290 283 308 321

Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21
Citigroup JPM Goldman Sachs Morgan Stanley

Source: Sharekhan Research

We don’t see any major impact on tech budgets of large BFS firms even if the interest rate increases in the US.
The BFS firms are committed for IT spending on cloud migration and digital transformation programs. Infosys’
continuous efforts in building capability at sub-vertical levels such as regional banking, retirement services,
and payments positions it well to capture market opportunity amid the current strong demand environment.
This is evident from the strong growth in its financial services vertical for the past several quarters. Given
Infosys’ deep domain expertise, robust delivery capabilities, transformation solutions across sub-segments
of BFS, and strong tech spends by BFS firms, we believe Infosys would sustain its strong growth momentum
in its BFSI vertical going ahead.

March 03, 2022 5

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Infosys’ BFSI constant-currency revenue growth trend (% y-o-y)

25 22.6
20.5
20
15.6 15.5
15
%

12.0
10.3
10
6.2 5.7
5 2.9
2.1

0
Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Q1FY22 Q2FY22 Q3FY22

Source: Sharekhan Research

Q3FY2022: BFSI USD revenue growth y-o-y across geographies and offerings

26.9%
25.4%

19.0%

8.7%
4.5% 5.3%

North America Europe India ROW Digital Core

Growth by Geography (% y-o-y) Growth by offering (% y-o-y)

Source: Sharekhan Research

Number of BFSI deal wins by Infosys

9
8
7
6 6
5 5 5
4
3

Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Q1FY22 Q2FY22 Q3FY22

Number of large deal wins in BFSI Average

Source: Company, Sharekhan Research

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Infosys BFSI is one of the fast growing among peers in Q3

20.9% 20.4% 21.1%

15.9%

10.5%

TCS Infosys HCL Tech Accenture Tech M

Source: Company, Sharekhan Research * last twelve months y-o-y

Growth to moderate in Q4 due to weak seasonality; expect to post industry leading growth in FY2023E
The management maintained its earlier commentary on the demand outlook as it has not witnessed any
incremental changes in demand so far during the quarter. Infosys reported strong USD revenue growth of
20.9% y-o-y in 9MFY2022, which is on track to achieve industry-leading organic growth in FY2022 among its
large peers. The company increased FY2022E revenue growth guidance to 19.5-20% from 16.5-17.5% earlier
and 12-14% at the beginning of the year. Though the revision in guidance was impressive, sequential revenue
growth would moderate in Q4FY2022 compared to 7% constant currency (CC) revenue growth in Q3FY2022.
Q4 is usually a soft quarter for Infosys owing to fewer working days and weak client spending as budgets are
not on track. Further, the growth would be affected by anticipated lower license sales in March’22 quarter
and absence of incremental revenue contribution from the Daimler deal.
Demand environment for IT services continues to remain strong and is led by increasing spends on cloud and
digital transformation initiatives, core modernization and higher spending in the new emerging areas. Infosys’
investments in cloud capabilities, localisation, deal advisory channels and sales and marketing position it
to remain at the forefront of its client’s digital transformation journey. The company’s flattish growth in core
business portfolio and strong growth in digital business indicate the company’s ability to gain market share,
consistent wining of large deals and new logo additions. Hence, we forecast that the company would continue
to report industry-leading revenue growth in FY2023E.

Infosys’ CC revenue growth trend (y-o-y)

25
21.5
19.4
20
16.9

15 12.4
%

11.7 11.4
10.1 9.5 9.6
10
6.4 6.6

5 2.2
1.5

0
Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Q1FY22 Q2FY22 Q3FY22

Source: Company; Sharekhan Research

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Infosys continues to outperform TCS for third consecutive years

20.9%

17.6%
15.0%

9.1% 9.6%
8.6% 8.3%
7.4%
5.6% 7.1% 7.2% 7.9% 6.1%
6.2% 5.4%

0.6%

FY15 FY16 FY17 FY18 FY19 FY20 FY21 9MFY22

Infosys TCS

Source: Company; Sharekhan Research

Deal conversion rate likely to remain healthy

Absence of mega deals has not been a growth constraint as the demand remains reasonable string on
increased discretionary spending. Infosys signed large deal TCVs of $2.5 billion in Q3FY2022, down 65%
y-o-y. Further, the company’s last-twelve-month deal TCVs also declined 32% y-o-y to $9.4 billion. However,
the company has won 92 large deals in last one year and has added 100+ new logos each quarter over last
four quarters. The company indicated that the deal pipeline (comprising both large and small deals) remains
strong given its investments in capabilities required by clients and strong participation in their transformation
journeys. The management stated that the deal pipeline contains a large number of large deals, mega-deals,
and vendor consolidation deals. We believe sustained demand strength and steady conversion of the deal
pipeline would drive deal win momentum going forward.

TCV of deal wins ($ bn)

8
7.1
7
6
5
$ billion

4
3.1
2.7 2.8
3 2.6 2.5
2.1 2.2
1.6 1.6 1.8 1.6 1.7
2
1
0
Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Q1FY22 Q2FY22 Q3FY22

Source: Company; Sharekhan Research

Net new deal TCV ($ mn) and % of total deal TCV

6,000 100
5,204
5,000 86
80
73
4,000 69
60
56 2,705 43
$ million

3,000 52
%

37.00 40
2,000 35 32
30 30
1,082 950 922 1,098 1,086
580 19 771 796 20
1,000 471 331
285 10
0 0
Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Q1FY22 Q2FY22 Q3FY22
Net new deal TCV ($ mn) Net new % of total deal TCV
Source: Company; Sharekhan Research

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Fresher hiring to be robust in FY2023

The company has increased its fresher hiring plans to 55,000 in FY2022 from 25,000 at the beginning of the
year to meet the higher demand. Management stated that the company has recruited around 45,000 freshers
during 9MFY2022. The company plans to hire a similar number of freshers in FY2023E to cool off the supply
side challenges and improve margins by reducing lateral hires and replacing subcontractors.
Expect margin to stay under pressure in Q4; pricing to act as a lever in FY23
EBIT margins are expected to remain under pressure in Q4FY2022 owing to (1) visa expenses, (2) higher
expenses to backfill attrition, (3) decline in utilisation, (4) elevated subcontractor expenses and (4) weak
seasonality.
As supply-side challenges are expected to continue for next few quarters given strong demand environments
and lack of digital talents, Indian IT services companies are trying to focus on value-added selling, higher
pricing in new bookings and bringing the right level of Cost of Living Adjustments (COLA) during renewals
to offset higher talent expenses. Though pricing remains under pressure in core segment given competitive
environment and automation, the pricing in the digital side business remains better as the company has
trained its sales force to communicate the value that Infosys delivers during execution of projects. Further,
management expects utilisation would stay at 84-86% going ahead versus 80-83% before pre-pandemic
times. Though headwinds including wage inflation, lower utilisation rate, increase in travel expenses, and
supply-side challenges to impact margins in FY2023E, we believe pricing leverage, lower sub-contractor
expenses, cost optimisation, pyramid rationalisation and currency tailwinds to offset these margin headwinds
to a large extent.

EBIT margin trend (%)

30
25.3 25.4 24.5 23.7 23.6 23.5
25 22.6 21.7 21.9 22.7
21.4 20.5 21.2
20
%

15

10

0
Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Q1FY22 Q2FY22 Q3FY22

Source: Company; Sharekhan Research

Subcontracting costs as a % of revenue

12 11.0
10.3
10 8.8
7.6 7.4 7.5 7.3 7.5 7.3 7.5
8 6.9 7.1
6.7
%

0
Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Q1FY22 Q2FY22 Q3FY22

Source: Company; Sharekhan Research

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Financials in charts

Revenue in US$ (mn) and growth (%) EBIT (Rs. cr) and EBIT margin (%)

25,000 25% 40,000 24.5% 37,459 25%

20.6% 21,021 33,129 25%
35,000
18,793 28,643 24%
20,000 20%
16,350 30,000 23.5% 24%
24,622 23.2% 23.1%
13,562 14.9% 25,000 23%

Rs. crore
15,000 12,780 11.9% 15%
$ million

19,374 23%
20,000
22%
10,000 10% 21.3%
8.3% 6.1% 15,000 22%
10,000 21%
5,000 5% 21%
5,000 20%
0 0% 0 20%
FY20 FY21 FY22E FY23E FY24E FY20 FY21 FY22E FY23E FY24E
Revenue (US$ in mn) Growth y-o-y (%) EBIT (Rs. Cr) EBIT Margin (%)

Source: Company, Sharekhan Research Source: Company, Sharekhan Research

Geography break-up (%) Digital revenue ($ mn) and growth (%)

Rest of 3,000 12.3% 13%
world, 2,487 12%
10.3% 2,500 2,243
10.9% 11%
India, 3.0% 1,859 2,040
2,000 1,761 10.0% 10%
9.7%
$ mn

9%
1,500
8%
1,000 7%
Europe,
5.6% 6%
24.9% 500
5%
0 4%
North
Q3FY21 Q4FY21 Q1FY22 Q2FY22 Q3FY22
America,
61.8% Digital revenue ($ mn) q-o-q Growth (%)
Source: Company, Sharekhan Research Source: Company, Sharekhan Research

RoE trend (%) RoCE trend (%)

32 30.4 40 38.4
29.6 36.6
30 37
27.5
28 33.4
34 31.9
25.3 25.3
26
%

31
24 28.4

22 28

20 25
FY20 FY21 FY22E FY23E FY24E FY20 FY21 FY22E FY23E FY24E

RoE (%) RoCE (%)

Source: Company, Sharekhan Research Source: Company, Sharekhan Research

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Outlook and Valuation

n Sector view - Technology spending to accelerate going forward
We believe the need for business continuity, operational resilience, and the switch to digital transactions
have led to strong demand for IT services post the pandemic. Industry analysts such as Gartner estimate
that IT services spending would grow by 8-8.5% in the next four years as compared to the average of 4.3%
achieved over 2011-20. Consulting (+11%) and application implementation and managed services (+9%) are
expected to grow faster than BPO (+7%) and infra implementation and managed services (+4%) in CY2022E.
Forecasts indicate higher demand for Cloud infrastructure services, a potential increase in specialised
software, potential investments in transformation projects by clients, and increased online adoption across
verticals.
n Company outlook - Well positioned to capture opportunities
Infosys services a large number of Fortune 500/Global 500 clients who have strong balance sheets and
are able to hold on better amid the economic downturn. Further, Infosys has aggressively invested in digital
technologies in the past few years to capture a large portion of upcoming digital and cloud transformation
spends. Given strong relationships with clients and robust execution capabilities, Infosys is well positioned to
capitalise on opportunities from clients’ transformation journeys and report industry-leading organic revenue
growth among peers in the medium-term.
n Valuation - Maintain Buy with a PT of Rs. 2,300
We believe Infosys is well-equipped to deliver industry-leading organic growth among the large peers in the
medium term. Though the company would face margin headwinds in the near term, we believe the pressure
would reduce during FY2023E considering ease of supply side issues, pricing leverage and reduction in
subcontractor expenses. Infosys is expected to report USD revenue and earnings growth of 13.4% and 14.1%,
respectively, over FY2022-FY2024E. At CMP, the stock trades at 28x/25x its FY2023E/FY2024E earnings,
which is justified, given strong growth potential, robust deal pipeline, and solid execution. We like Infosys
because of its strong capabilities, a strong capital allocation policy, and prudent investments in capabilities
that will be required in future. Hence, we maintain a Buy rating on the stock with an unchanged price target
(PT) of Rs. 2,300.

One-year forward P/E (x) band

35

30

25

20
P/E (x)

15

10

0
Jul-18
Apr-11

Apr-17
Nov-14
Sep-13

Feb-16

Sep-19

Mar-22
Jun-12

Dec-20

P/E (x) Avg. P/E (x) Peak P/E (x) Trough P/E (x)

Source: Sharekhan Research

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About company
Founded in 1981, Infosys is the second largest ($13,562 million in FY2021) IT services company in India in terms
of export revenue with headcount of 2.7 lakh employees. BFSI accounts for the largest chunk of revenue (~32%
of total revenue), followed by retail, energy and utilities, and communication. Region wise, North America and
Europe continue to be the mainstay. Digital revenue continued to have a strong growth momentum in the past
few quarters and now contributes 58.5% to total revenue.

Investment theme
Infosys has accelerated deal wins momentum through engagement with deal advisors, consulting firms, and
private equity players. Effectively, the strong large deal trajectory provides better revenue growth visibility.
Further, revitalisation of sales and investment in digital competencies have certainly helped the company to
drive its digital business. Sharp focus on execution and augmentation of digital capabilities through investments
can bring Infosys back on its high-growth trajectory. Given strong deal wins, strengthening relationships with
large clients, and continued digital momentum, we believe Infosys is well positioned to catch up with leaders
on revenue growth in the coming years.

Key Risks
1) Regulatory visa norms could have an impact on employee expenses; 2) any instability in leadership; additional
exits at senior management level; 3) Rupee appreciation and/or adverse cross-currency movements; and 4)
increasing attrition rate.

Additional Data
Key management personnel
Nandan M. Nilekani Co-founder and Non-Executive Chairman
Salil Parekh Chief Executive Officer
Nilanjan Roy Chief Financial Officer
Ravi Kumar S President, Deputy COO
Mohit Joshi President, Head – BFSI and HCLS
Source: Company

Top 10 shareholders
Sr. No. Holder Name Holding (%)
1 Deutsche Bank Trust Co Americas 17.20
2 Life Insurance Corp of India 5.67
3 BlackRock Inc. 4.61
4 SBI Funds Management Pvt. Ltd. 3.15
5 The Vanguard Group Inc. 2.67
6 Republic of Singapore 1.81
7 ICICI Prudential Asset Management 1.43
8 UTI Asset Management Co Limited 1.23
9 Government Pension Fund – Global 1.10
10 Norges Bank 1.10
Source: Bloomberg

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

March 03, 2022 12

Understanding the Sharekhan 3R Matrix
Right Sector
Positive Strong industry fundamentals (favorable demand-supply scenario, consistent
industry growth), increasing investments, higher entry barrier, and favorable
government policies
Neutral Stagnancy in the industry growth due to macro factors and lower incremental
investments by Government/private companies
Negative Unable to recover from low in the stable economic environment, adverse
government policies affecting the business fundamentals and global challenges
(currency headwinds and unfavorable policies implemented by global industrial
institutions) and any significant increase in commodity prices affecting profitability.
Right Quality
Positive Sector leader, Strong management bandwidth, Strong financial track-record,
Healthy Balance sheet/cash flows, differentiated product/service portfolio and
Good corporate governance.
Neutral Macro slowdown affecting near term growth profile, Untoward events such as
natural calamities resulting in near term uncertainty, Company specific events
such as factory shutdown, lack of positive triggers/events in near term, raw
material price movement turning unfavourable
Negative Weakening growth trend led by led by external/internal factors, reshuffling of
key management personal, questionable corporate governance, high commodity
prices/weak realisation environment resulting in margin pressure and detoriating
balance sheet
Right Valuation
Positive Strong earnings growth expectation and improving return ratios but valuations
are trading at discount to industry leaders/historical average multiples, Expansion
in valuation multiple due to expected outperformance amongst its peers and
Industry up-cycle with conducive business environment.
Neutral Trading at par to historical valuations and having limited scope of expansion in
valuation multiples.
Negative Trading at premium valuations but earnings outlook are weak; Emergence of
roadblocks such as corporate governance issue, adverse government policies
and bleak global macro environment etc warranting for lower than historical
valuation multiple.
Source: Sharekhan Research
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