Equity Research Report

Infosys Ltd
CMP Target Potential Upside Recommendation Sector Industry
₹ 1,516.7 ₹ 1,664.7 9.80% BUY IT Services and Consulting IT & BPM
About the Company Exibit 1: Stock Data (as on Jan 04, 2024)
Nifty : 19047.25
Infosys Limited is a global technology services firm that defines,designs and delivers information
52 Weeks H/L (INR) : 1673/1185
technology (IT)-enabled business solutions to their clients. It is India's second largest softwareexporter
company founded by Mr. N. R. Narayana Murthy atKarnataka. The Company was the first Indian Market Cap (INR Crs) : 648713
company to be listed on the NASDAQ in the year 1999. Infosys also forms a part of the NASDAQ -100 Outstanding Shares (Crs) : 415.02
Index. The Company is a leading provider of consulting, technology, outsourcing and next -generation Dividend Yeild (%) : 2.28%
digital services, to enable clientsto create and execute strategies for their digital transformation. It offer NSE Code : INFY
end-to-end service offering capabilities in consulting, software application development, integration, Source: NSE
maintenance, validation, enterprise system implementation, product engineering, infrastructure Exibit 2: Relative Stock Performance - 1Y
management and business process management. Nifty 50 INFY

Investment Summary
We issue a BUY recommendation for Infosys Ltd with a one-year target price of Rs.1664.7 offering a
9.8% upside to its Rs. 1516.7, 4th December 2024 closing price. This blended target price represents a
weighted mix of our discounted cash flow and relative valuation models. Dec- 22 Mar- 23 Jun- 23 Sep- 23
Source: NSE
Catalyst Exibit 2: Shareholding Pattern (%)
1. Infosys Unleashes Future Growth with AI-First Revolution
Mar-23 Jun-23 Sep-23
Infosys is strategically leveraging an AI-first approach, combining AI, analytics, and cloud technologies, 35 33 33 34 35 32
to accelerate its enterprise transformation. This proactive stance allows Infosys to build incremental
value through micro-changes, enhancing client service, reimagining business processes, and boosting
19
productivity. With a focus on nearly 50,000 reusable intelligent services, including the AI -first platform 15 15 15 16 17
Infosys TopazTM, and backed by 12,000+ AI use cases and 150+ pre-trained AI models, Infosys is at the
forefront of driving business value globally. This digitally transformed approach not only ensures
operational efficiency but also positions Infosys to navigate uncertainties with resilience, creating
disruptive revenue streams and unlocking new possibilities for clients. Promoters FIIs DIIs Others

2. Fueling Future Growth with $7.7 Billion Mega Deal in Q2 2023, Source: Company Annual Report
In Q2 2023, Infosys achieved strong financial results, recording $4,718 million in revenues, a 2.5% YoY Exibit 3: Absolute Return
growth, and 2.3% sequential growth in constant currency. A major highlight was a mega deal with a 1 Year : 5.1%
Total Contract Value (TCV) of $7.7 billion, showing a net new growth of 48%. This success underscores 3 Year : 10.58%
Infosys' adaptability to client needs in a challenging environment. Operating margin increased to 5 Year : 17.32%
21.2%, and attrition decreased to 14.6%, reflecting operational efficiency and a stable workforce. Source: Screener
CEO Salil Parekh emphasized the significance of large deal wins, showcasing the company's ability to Exibit 4: Financial Summary
deliver transformation benefits and productivity gains at scale. The H1 performance, marked by
substantial large deal wins, establishes a robust foundation for future growth. Adoption of Infosys' Revenue Forecast and Growth
Generative AI offering, Topaz, contributing to consistent value delivery and market expansion. 3,50,000 25%
3,00,000 20%
2,50,000
15%
2,00,000
1,50,000 10%
3. Robust Financial Position: Catalyst for Sustained Growth & Strategy 1,00,000 5%

Infosys' strong financial position serves as an additional catalyst, providing the company with the 2023A 2024E 2025E 2026E 2027E 2028E
stability and resources needed to pursue strategic initiatives and capitalize on emerging opportunities
for sustained growth EBITDA Forecast and Growth
Financial Summary 80,000
70,000
40%
35%
(All figures in INR cr) 60,000 30%
25%
50,000
Historical Infosys Ltd Forecast 40,000
20%
15%
Particulars 2023A 2024E 2025E 2026E 2027E 2028E 30,000 10%
20,000 5%
Revenue 146767 176226 199996 226757 256795 290597 2023A 2024E 2025E 2026E 2027E 2028E
Growth 20.66% 20.07% 13.49% 13.38% 13.25% 13.16%
EBITDA 37831 50539 56075 62293 69122 76629 PAT Forecast and Growth
Growth 11.97% 33.6% 11.0% 11.1% 11.0% 10.9% 55,000 55%
50,000
45%
Margin 25.78% 28.68% 28.04% 27.47% 26.92% 26.37% 45,000
35%
40,000
EBIT 33606 46614 51200 56820 62899 69624 35,000 25%
30,000
PBT 33322 46330 50916 56536 62615 69340 25,000
15%
20,000 5%
PAT 24108 34748 38187 42402 46961 52005 2023A 2024E 2025E 2026E 2027E 2028E
Growth 8.9% 44.13% 9.90% 11.04% 10.75% 10.74%
FCF 23203 21002 29926 33227 37292 41648 Source: Team Consensus
DPS (Rs) 33.91 47.01 50.98 58.80 64.78 71.36
Business Overview
Infosys Ltd provides consulting, technology, outsourcing and next-generation digital services to enable
Exibit 5: Revenue by Geography
clients to execute strategies for their digital transformation. It is the 2nd largest Information
Technology company in terms of market cap in India behind TCS. Infosys provides services to a large FY23
number of Fortune 500 clients who have strong fundamentals and are able to hold on better during
economic downturns. Infosys is doing capex in digital technologies in the past years to capture a large 10% 2%
portion of upcoming digital spends. Given strong relationships with clients and robust execution
capabilities, Infosys is well positioned to capitalise on opportunities from clients’ transformation
journeys. The company added 100 clients versus 99 clients in Q1FY24. 26%
62%

Revenue By Geography
Infosys is one of the most diversified companies and has a strong geographic presence on all
continents. This reduces its dependence on any single location and greatly reduces concentration risk. North America Europe
North America continues to be the largest contributor to revenue with a share of 61.8%, followed by Rest of the World India
Europe (25.7%), ROW (9.9%) and India (2.6%).
Source: Annual Report
Revenue by Verticals Exibit 6: Revenue by Vertical
Infosys' revenues are well distributed across its business verticals which helps the company monitor 0.319809933
0.298180109
industry-specific risks better than its peers. Finacial Services (30% of revenue) remains the largest
revenue contributor, followed by Retail (14.5%) and Communication and Media (12.3%).
Manufacturing and Retail saw robust demand and more deal wins during the year. We expect the 0.14578966 0.109634087
0.119071695
accelerated revenue growth in these sectors to continue in the coming year once global uncertainties 0.144473894 0.124809891
0.129695367
0.126315861
0.123229336 0.082505076
subside. 0.080856051
0.070017511
0.0687143570.028362148
Infosys Solutions 0.028535025

➢ Digital Solution
FS Retail COM EURS MFG Hi-Tech LS Others
Digital services comprise service and solution offerings of the Group that enable their clients to
transform their businesses. These include offerings that enhance customer experience, leverage AI- Series1 Series2
based analytics and Big Data, engineer digital products and IoT, modernize legacy technology systems,
migrate to cloud applications and implement advanced cybersecurity systems. Infosys Topaz is an AI- Exibit 7: Revenue by solution
first offering to accelerate business value for global enterprises using generative AI. Infosys Cobalt is a
FY23
set of services, solutions, and platforms for enterprises to accelerate their cloud journey. The digital
space is further classified with experience, Accelerate, insight, Assure and Innovate.

➢ Core Solution
38% Digital
Core Services comprise traditional offerings of the Group that have scaled and industrialized over a
number of years. These primarily include application management services, proprietary application 62%
Core
development services, independent validation
solutions, product engineering and management, infrastructure management services, traditional
enterprise application implementation, support and integration services

➢ Digital accelerators Exibit 8: TCV of Deal Wins (INR Cr)

Infosys Metaverse Foundry eases and fast-tracks enterprises’ exploration of the metaverse, including
virtual and augmented environments, for their customers, workplace, products and operations.
Infosys Center for Emerging Technology Solutions focuses on incubation of NextGen
services and offerings by identifying and building technology capabilities to
accelerate innovation.

Deal Wins
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 Exibit 9: Key Products and Platform
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.

Product and Platform

The Group also derives revenues from the sale of products and platforms including FinacleR – core
banking solution, Edge Suite of products, Panaya platform, Infosys Equinox, Infosys Helix, Infosys
Applied AI, Infosys Cortex, Stater digital platform and
Infosys McCamish – insurance platform.
The percentage of revenue from fixed-price contracts for each of the years ended March 31, 2023 and
Source: Annual Report
Historical Financial Statement Analysis
Exibit 10: Volume Price Analysis
Revenue Analysis
Positive Revenue Growth is attributed to
Particulars 2018 2019 2020 2021 2022 2023 increasing rate in headcount
Revenue 70,522 82,675 90,791 1,00,472 1,21,641 1,46,767
15.0%
Sales Growth 2.98% 17.23% 9.82% 10.66% 21.07% 20.66%
10.0%
CAGR 15.79% 5.0%

0.0%
Volume Price 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023
-5.0%
Billed Employees 162966 177935 191288 223673 240041
Billed Employees Growth 4.8% 9.2% 7.5% 16.9% 7.3% Billed Employees Billing Rate (INR)

Billing Hours 2000 2000 2000 2000 2000 Billing Rate (USD)

Billing Rate (INR) 2537 2551 2626 2719 3057

YOY Growth 11.8% 0.6% 2.9% 3.5% 12.4% Exibit 11: USD INR growth rate vs USD
Billing Rate (USD) 36 36 35 36 38 billing rate growth rate
Billing Rate (USD) Growth 2.9% -0.8% -1.4% 3.0% 4.1%
Average USD INR Rate 70.04 71.01 74.16 74.52 80.52 Rupee depretiation is driving the growth in
USD INR Growth Rate 8.7% 1.4% 4.4% 0.5% 8.1% revenue
10.0%

Commentary 8.0%
6.0%
➢ According to Volume Price Analysis in Exhibit 5, the increase in revenue from FY2020 to 4.0%
FY2022 was driven by a rise in the company's headcount, growing from 9.2% to 16.9%.
2.0%
➢ The billing rate in USD remained relatively stable from FY2019 to FY2023. Consequently,
0.0%
the growth in revenue is primarily attributed to the depreciation of the rupee and the 2019 2020 2021 2022 2023
-2.0%
appreciation of the dollar.
➢ In the fiscal year ending March 31, 2022, Infosys experienced a net addition of 54,396 Billing Rate (USD) Growth USD INR Growth Rate

employees, with approximately 22,000 employees joining in Q4 alone. The company

Exibit 12: Cost Analysis
recruited around 85,000 freshers, bringing the total headcount to 314,015 by March 22
➢ Despite a decrease of 7,530 in headcount during the second quater of FY24, bringing the
Over 50% of the costs stem from employee
total to 328,764, Infosys had hired a net of 10,032 employees during the same quarter last benefit expenses
year. Attrition for the quarter was 14.6%, down from 17.3% in the previous quarter. 100%
➢ Employees are slated to receive wage hikes starting November 1. 90% 25.27% 24.53% 27.76% 25.89% 23.94%
➢ Looking ahead, we aniticipate that the company will raise its billing rate in USD in the near 80%
future, thereby positively impacting revenue growth. 70%
19.9% 19.4% 17.0% 21.5% 22.7%
60%
50%
Cost Analysis 40%
30% 54.81% 56.05% 55.28% 52.60% 53.39%
Particulars 2019 2020 2021 2022 2023 20%
Employee benefits Expense (Cr) 45315 50887 55541 63986 78359 10%
Employee benefits % Sales 54.81% 56.05% 55.28% 52.60% 53.39% 0%
Employee Expense/Employee 2096800 2163131 2212833 2230900 2384454 2019 2020 2021 2022 2023
Growth 9.0% 3.2% 2.3% 0.8% 6.9%
Cost other than Employee 16469 17637 17042 26164 33278
benefit cost Exibit 13: Employee Hiring Analysis
Other expense than Employee benefit 19.9% 19.4% 17.0% 21.5% 22.7%
benefits cost % Sales For the sixth consecutive quarter, Infosys
Total COGS and SG&A Expense 61784 68524 72583 90150 111637 experienced a decline in hiring
COGS & SG&A Expense % Sales 74.73% 75.47% 72.24% 74.11% 76.06% 3,50,000 1%
Other Expenses 25.27% 24.53% 27.76% 25.89% 23.94% 0.00471296
3,45,000 1%
Commentary 4
3,40,000 0%
➢ In the financial year concluding on March 31, 2022, Infosys saw a net increase of 54,396
3,35,000 -1%
employees, with about 22,000 joining in the fourth quarter alone. The recruitment of - -
3,30,000 0.01041099 0.02239112 -1%
approximately 85,000 freshers resulted in a total headcount of 314,015 by March 31, 1 2
2022, leading to a rise in both employee expenses and employee expenses per employee. 3,25,000 - -2%
0.02021944
➢ Employee benefit expenses account for over 50% of the cost as a percentage of sales, 3,20,000
2
-2%
making it a critical metric to monitor cost implications. 3,15,000 -3%
➢ Therefore, For the sixth consecutive quarter, Infosys experienced a decline in hiring, with Q3 23 Q4 23 Q1 24 Q2 24
the total workforce decreasing for the second consecutive quarter. In the April to June
quarter, the company's headcount decreased by 6,940 employees. By the end of the
September quarter,Infosys had a total of 328,764 employees, down from 336,294 in Q1
➢ Infosys CEO said the company is carrying inefficiencies in its employee pyramid and has
enough room to tighten utilisation to 84-85%, which is a margin lever for the firm.
➢ The companies’ hiring especially the top five IT services firms, would continue to see
degrowth in the September quarter, as in the first quarter on account of a soft demand
scenario and excessive hiring during the COVID-19 period.
Risks
1. Market Risk: Risks related to Infosys and their clients operate Exibit 14: Client Concentration
Client spending on technology services is influenced by economic, geopolitical, and regulatory Client Concentration Risk: Impact on Infosys
factors. Economic downturns, climate change impacts on client industries, visa restrictions, and Revenues
sanctions on clients pose risks. A large part of Infosys revenues is dependent on a limited number of
20.10%
our clients, and the loss of any one of our major clients could significantly impact our business., and
the threat of contagious diseases like COVID-19 also impact business. Challenges in providing
comprehensive solutions, intense market competition, and the singular nature of client
engagements are additional concerns for revenue and profit stability.
2. Firm Risk: Risks related to the investments 79.90%
Failure to adapt to rapid technological changes in targeted industries may harm Infosys business.
Recouping investment costs for software development, success uncertainty in acquisitions, strategic
investments, or alliances, and potential goodwill impairment are additional risks Infosys face. Top 10 Clients Others

3. Firm Risk: Risks related to cost structure

34.70%
Expenses for Infosys are challenging to predict, leading to potential profitability fluctuations. Managing
growth is critical to avoid business disruption, maintain profitability, and execute growth strategies
effectively. Wage pressures, global hiring, and infrastructure investments may impact Infosys's
competitive edge and profit margins. The company's profitability is contingent on proportional business
65.30%
growth relative to substantial investments in physical and technological infrastructure. Currency
fluctuations and interest rate changes have the potential to influence Infosys's operational results and
cash balance yields.
Top 25 Clients Others
4. Firm Risk: Risks related to Infosys employee workforce
Success for Infosys is heavily reliant on the acquisition, retention, and motivation of highly skilled Source: Business Today
technology professionals. The effectiveness of Infosys is also contingent on the Management team Exibit 15: Investment in IT to Attract and
and key personnel, emphasizing the significance of attracting and retaining these individualsis crucial Retain Talented Employees.
Figures are in Billion Dollars

5. Firm Risk: Risks related to our contractual obligations Rising IT Spending: Addressing the Higher Cost
of Maintaining a Qualified Workforce
Infosys faces potential profitability challenges if fixed-price and fixed-timeframe contracts, or $1,300.00
transaction-based pricing contracts, are not completed within budget and on schedule. The
termination flexibility in client contracts introduces revenue and profitability risks for Infosys.
$806.80
Performance-based contract conditions may lead to lower-than-anticipated revenues.
Benchmarking provisions in long-term contracts could trigger reduced future revenues and
profitability. Engagements with governmental agencies add additional risks. Delays in executing
contracts or amendments with clients have the potential to impact Infosys's revenue from an
analyst's perspective.
Software Spend Global IT Spend
6.Firm Risk/ Country Risk: Risks related to Infosys operations
➢ The company's reputation and potential liability to clients or regulators may be compromised by Source: Gartner
inadvertent disclosure of confidential information and sensitive data.
➢ Cybersecurity incidents pose a risk to Infosys' reputation and could result in damages for which the Exibit 16: Employee Workforce Risk
company may be held liable by clients.
➢ Privacy breaches under GDPR or other global data privacy regulations may impact Infosys' Survey Results Point to Looming IT Talent
reputation and financials, especially if attributed to the company or its employees. Retention Issues for CIOs
➢ Litigation threats could harm Infosys' business, reputation, growth, profitability, and operational
results if adverse determinations occur. 38.80%

➢ The adequacy of Infosys' insurance coverage is a concern, potentially leaving the company exposed 29.10% 26.90%
23.60%
to various losses that could adversely affect its business. 19.60%
➢ Operational risks related to natural and man-made disasters, such as earthquakes, floods,
pandemics, and terrorist attacks, may impact Infosys' markets and business continuity.
➢ The safety of Infosys' employees, assets, and infrastructure faces uncertainties due to events beyond
the company's control, affecting business continuity and reputation. Global Asia Australia Latin Europe
➢ The occurrence of terrorist attacks or war could adversely affect Infosys' business, financial
condition, and operational results. Source: Gartner
➢ Climate change risks, encompassing strategic, physical, and transitional elements, have implications
for Infosys' operations, reputation, and profitability if not managed effectively.

7. Firm Risk: Risks related to legislation and regulatory compliance

➢ A shortage of IT workers, exacerbated by restrictive immigration legislation, may negatively impact
business operations.
➢ Evolving regulatory compliance, corporate governance, and disclosure requirements introduce
uncertainties and increase compliance costs.
➢ Intellectual property protection in India may be insufficient compared to the United States,
exposing Infosys to potential infringement claims.
➢ Reduced or withdrawn tax benefits and incentives from the Indian government could decrease
Infosys' net income.
➢ Adverse changes in tax policies may significantly increase Infosys' tax expenses, impacting
profitability.
➢ Compliance with transfer pricing and tax regulations in various jurisdictions is essential, with non-
compliance potentially affecting profitability.
➢ Economic conditions in India may be adversely affected by changes in government policies or
political instability, impacting Infosys' business.
➢ Indian laws restricting capital raising outside India may limit Infosys' business operations and
acquisition opportunities.
Valuation
Exibit 17: Headcount Trend
DCF Valuation
Anticipated Dip in INFY Headcounts for FY2024 Amid
Operational Drivers Macro Conditions, Offset by Future Recovery from
Large TCV Deal
Forecast
Particulars 2024E 2025E 2026E 2027E 2028E 6,00,000 10%
Total Employees (Consolidated) 373914 406435 441232 478813 519400 5,00,000 8%
Growth 5% 6% 7% 8% 8% 4,00,000
6%
S/W Professionals 353012 383715 416567 452047 490366 3,00,000
4%
Support and sales 20902 22720 24665 26766 29034 2,00,000
Utilization Rate 80.40% 81.65% 82.90% 84.15% 85.40% 1,00,000 2%

0 0%
Commentary 2023 A 2024 E 2025 E 2026 E 2027 E 2028 E
Total Employees (Consolidated)
➢ Infosys is currently experiencing a reduction in employee headcount during FY2024, as indicated
by a dip of 7,530 employees. This aligns with the industry trend, where major IT companies, S/W professionals (IT Services and Consulting)
including Infosys, are delaying or conducting campus recruitment drives in lower volumes. Support and sales
➢ However, Infosys has secured its highest-ever large and mega deal wins, boasting a Total Growth in Total Employees
Contract Value (TCV) of $7.7 billion. This substantial achievement lays a robust foundation for
the company's future growth. The large deal TCV for the quarter, along with a net new of 48%,
Source: Team Consensus
reflects the company's resilience and ability to secure significant business opportunities.
➢ In light of the CEO's statement regarding inefficiencies in the employee pyramid, Infosys is Exibit 18: Utilization Rate Trend
aiming to tighten its utilization rate to 84-85%. This move is recognized as a margin lever for the Infosys CEO Highlights Efficiency Opportunities:
company, indicating a strategic effort to optimize workforce efficiency and enhance profitability. Targets Utilization Tightening as a Margin Lever
➢ Taking this into consideration, the analysis projects a gradual increase in employee headcount 85%
84%
for Infosys in the coming years. Despite the current dip in FY2024, the company's focus on large 80% 82% 82%
83%
TCV deals and optimizing utilization rates is expected to drive a positive trajectory for employee 80% 81% 80%
growth. 77%
➢ The utilization rate is projected to increase steadily, reaching 85.40% by 2028, reflecting Infosys'
commitment to operational efficiency and margin improvement.
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
A A A A A E E E E E

Source: Team Concensus

Revenue Drivers
Forecast
Particulars 2024E 2025E 2026E 2027E 2028E Exibit 19: INR Billing Rate Trend
A. Billed Employees 272487 300769 331717 365469 402410 INR Billing Rate Growth Attributed to Rupee
B. Billing Hours 2000 2000 2000 2000 2000 Depreciation Against USD Dollar
C. Billing Rate (INR) ₹ 3,233.7 ₹ 3,324.8 ₹ 3,417.9 ₹ 3,513.2 ₹ 3,610.7 ₹3,700 ₹ 3,610.7 1.2
Billing Rate (USD) $38.7 $39.3 $40.0 $40.6 $41.3 ₹3,600 ₹ 3,513.2 1
₹3,500 ₹ 3,417.9 0.8
Billing Rate (USD) Growth 4.0% 1.6% 1.6% 1.6% 1.6% ₹3,400 ₹ 3,324.8
0.6
Average USD INR Rate 83.50 84.50 85.50 86.50 87.50 ₹3,300 ₹ 3,233.7
₹3,200 0.4
Revenue (A*B*C) ₹ 1,76,226 ₹ 1,99,996 ₹ 2,26,757 ₹ 2,56,795 ₹ 2,90,597
0.2
₹3,100
₹3,000 0
Commentary 2024E 2025E 2026E 2027E 2028E

➢ Large TCV Deal Impact: Billing Rate (INR)

The revelation of a $7.7 billion Total Contract Value (TCV) deal with a net new growth of 48% for the Source: Team Concensus
quarter solidifies Infosys' strong position in securing significant business opportunities. This influx of Projected Growth in USD to INR Exchange Rate
large deals is expected to have a positive impact on the company's overall financial performance. 85.50
$100 83.50 84.50 86.50 87.50

➢ AI-First Transformation:
Infosys' commitment to an AI-first approach, as highlighted in its annual report, underscores its $50

dedication to innovation and efficiency. With nearly 50,000 reusable intelligent services and 12,000+
AI use cases, Infosys is not only transforming its own enterprise but also delivering accelerated $0
business value to clients worldwide. 2024E 2025E 2026E 2027E 2028E

Average USD INR Rate

➢ USD Billing Rate Growth Justification: Source: Wallet Investors
The projected growth in USD billing rates is substantiated by Infosys' focus on large TCV deals and the
widespread use of AI. As the company continues to drive innovation and deliver value through AI-first Exibit 20: USD Billing Rate Trend
services, the steady increase in USD billing rates aligns with its strategic initiatives and potential for
Strategic Initiatives and AI-First Focus Drive Projected
enhanced service offerings. Growth in Infosys' USD Billing Rates
$50 5%
➢ Exchange Rate Dynamics:
$45 4%
According to Wallet Investor, the average USD to INR rate is expected to increase from 83.50 in $39 $40 $41
$41
$38 $39 3%
FY2024 to 87.50 in FY2028. This favorable currency trend is poised to improve Infosys' financial $40 $36 $36 $35 $36
2%
outlook, especially given the company's revenue earnings in USD. The insights from investors instill $35
1%
confidence in the projected exchange rate dynamics, aligning with Infosys' potential for positive $30
0%
revenue impacts in the upcoming years.
$25 -1%
$20 -2%
Linking various factors including the number of billed employees, billing rates, and exchange rates,
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
the revenue projections indicate a strong financial performance for Infosys. The expected revenue A A A A A E E E E E
growth, progressing from ₹1,76,226 crores in 2024 to ₹3,22,994 crores in 2028, signifies a cohesive
Billing Rate (USD) Billing Rate (USD) Growth Rate
interaction between rising billed employees, well-thought-out pricing strategies, and advantageous
currency exchange rates. Source:
FCFE Exibit 21: Net Profit and FCF Trend
DCF (All figures are in Cr) 2024E 2025E 2026E 2027E 2028E Around 80% Net Profit remains for FCF
Net Profit 34747.9 38186.7 42401.8 46961.0 52005.0 ₹ 60,000
Add Depreciation 3924.7 4875.3 5473.7 6222.9 7005.2
₹ 50,000
Less Change in Working Capital -7073.3 -2655.3 -2989.4 -3355.6 -3776.0
Less Capital Expenditure -7293.0 -7176.8 -8355.1 -9231.8 -10281.6 ₹ 40,000
Add changes to Debt 0.0 0.0 0.0 0.0 0.0 ₹ 30,000
Add changes to Equity 0.0 0.0 0.0 0.0 0.0
₹ 20,000
Dividend Paid -19502.6 -21148.4 -24394.1 -26874.2 -29603.7
Free Cash Flow to Equity ( FCFE) 21002.1 29925.7 33226.8 37292.2 41648.3 ₹ 10,000
FCFE Growth -9.49% 42.49% 11.03% 12.24% 11.68% ₹0
Years to Cash Flow 0.2 1.2 2.2 3.2 4.2 2024E 2025E 2026E 2027E 2028E
Free Cash Flow to Equity ( FCFE) 21002.1 29925.7 33226.8 37292.2 41648.3 Net Profit FCFE
Present Value of FCFE 20544.2 26599.9 26837.0 27369.8 27775.4
Source: Team Concensus
Cost of Equity Calculation Exibit 22: Avg 10 Years Rolling Rate Rm
Risk Free Rate (Rf) 7.18% 16.00%
Beta 0.89
Expected Market Returns (Rm) 10.39% 14.00%
Cost of Equity (ke) 10.05% 12.00%

10.00%
Rm= 10.39%
Terminal Value Calculation
Sum of PV of FCF for Explicit Period 1,29,126.4 8.00%
Cost of Equity (ke) 10.05%
Long Term Growth Rate 5.11% 6.00%

Year 4.2 Years 4.00%

Terminal Value 8,85,346.4 20132014201520162017201820192020202120222023
Present Value of Terminal Value 5,90,440.1
Source: NSE
Enterprise Value Calculation
Explicit Period 1,29,126.4 Exibit 23: Terminal Growth Rate
Terminal Value 5,90,440.1 Historical GDP Growth rate of India
Enterprise Value 7,19,566.5 Average Growth Rate= 5.11%

Equity Value Calculation

Enterprise Value 7,19,566.5
Cash & Cash Equivalent 19,082.0
Total Equity Value 7,38,648.5

Intinsic Value Calculation

1962
1965

1974
1977
1980

1989
1992
1995

2004
2007
2010

2019
2022
1968
1971

1983
1986

1998
2001

2013
2016
Equity Value ₹ 7,38,648.5
Diluted Shares (in Cr) 418.77
Intrinsic Value ₹ 1,763.84
Source: NSE
Scenario Analysis
Exibit 24: Intrinsic Value Vs CMP

Intrinsic Value (DCF) ₹ 1,763

Current market Price ₹ 1,517

Source: Team Concensus

Commentary

➢ The Free Cash Flow to Equity (FCFE) growth for Infosys indicates a fluctuating pattern over the projected years. In the initi al year (2024), FCFE is expected
to decrease by 9.49%, which may be attributed to various factors such as changes in working capital, capital expenditure, and dividend payments.
However, from the second year onward, there is a substantial positive growth, with FCFE expanding by 42.49%, 11.03%, 12.24%, and 11.68% in the
subsequent years, respectively.
➢ The "Years to Cash Flow" metric highlights the expected time it takes for Infosys to generate positive cash flows. In this pr ojection, Infosys is anticipated to
start generating positive FCFE in the first year itself (0.2 years), reflecting its financial strength.
➢ The Present Value of FCFE, calculated based on the discounting of future cash flows, follows a generally increasing trend, in dicating a positive valuation
outlook. This suggests that the future cash flows, adjusted for the time value of money, contribute positively to Infosys' ov erall financial position.
➢ The Beta value of 0.89, derived from historical stock price data from BSE (Bombay Stock Exchange) and Infosys, signifies that Infosys' stock tends to be less
volatile than the overall market.
➢ Utilizing the 10-year Government Securities yield as the Risk-Free Rate at 7.18%
➢ The Expected Market Returns (Rm) of 10.39%, based on a 10-year rolling return, reflect the historical market performance.
➢ The Terminal Value (TV) for Infosys is calculated based on the sum of the present value of Free Cash Flow to Equity (FCFE) fo r the explicit period, which is
₹1,29,126.4. Calculated Cost of Equity (ke) of 10.05%, a Long Term Growth Rate of 5.11% (Past India GDP Growth Rate), and a specific time period of 4.2
years.
➢ The Terminal Value is computed to be ₹8,85,346.4, and its present value is ₹5,90,440.1. This Terminal Value is an essential c omponent in estimating the
total Enterprise Value (EV) of Infosys, contributing to the overall valuation of the company.
➢ The intrinsic value, determined through the Discounted Cash Flow (DCF) valuation, is assessed at 1763.84
Relative Valuation Exibit 25: Valuation from EV/EBITDA

Company EV/EBITDA P/E P/B P/S

TCS 20.8 32.0 14.9 6.0 Max 2323.0
HCL Technologies 21.6 26.0 5.9 3.8
Wipro 11.8 22.1 3.1 2.8
Tech Mahindra 12.0 22.9 4.4 2.1
Min 1110.3
LTIMindtree 25.2 39.7 10.5 5.3
Median 18.3 28.5 7.8 4.0
Average 20.8 26.0 5.9 3.8
Median 1922.3
Valuation from EV/EBITDA
EV/EBITDA Median Min Max
Median EV/EBITDA 20.8 11.8 25.2
EBITDA of Infosys LTD 37831.0 37831.0 37831.0 Exibit 26: Valuation from P/E
EV of Infosys LTD 785944.1 445894.9 953745.5
Less: Debt 0.0
Cash 19082.0 19082.0 19082.0 Max 2308.9
Value of Equity 805026.1 464976.9 972827.5
Number of shares 418.8 418.8 418.8
Share Price 1922.3 1110.3 2323.0 Min 1283.6

Valuation from P/E

P/E Median Min Max
Median P/E 26.0 22.1 39.7 Median 1509.1
EPS of Infosys LTD 58.1 58.1 58.1
Share Price 1509.1 1283.6 2308.9
Exibit 27: Valuation from P/B
Valuation from P/B
P/E Median Min Max
Median P/B 5.9 3.1 14.9 Max 2706.3
Book Value per share of Infosys LTD 181.7 181.7 181.7
Share Price 1072.7 558.4 2706.3
Min 558.4
Valuation from P/S
P/E Median Min Max
Median P/S 3.8 2.1 6.0
Median 1072.7
Sales of Infosys LTD 146767.0 146767.0 146767.0
Sales of Infosys LTD per Share 350.5 350.5 350.5
Share Price 1331.0 724.9 2093.5
Exibit 28: Valuation from P/S
Final Relative Valuation

Median Share Price Weighted Share Price Max 2093.5

Parameters Weightage
EV/EBITDA 35% 1922.3 672.8
Price to Earnings 30% 1509.1 452.7
Price to Book Value 10% 1072.7 107.3 Min 724.9
Price to Sales 25% 1331.0 332.8
Share Price 100% 1565.6
Median 1331.0

Exibit 29: Final Relative Valuation

Relative Valuation Summary

1922.3 Final Relative Valuation Price: Rs 1565.6

1509.1
1331.0
1072.7

EV/EBITDA Price to Earnings Price to Book Value Price to Sales

Source: Team Concensus

Final Valuation
Method Share Price Weightage Weighted Price
FCFE Valuation 1763.8 50% 881.9
Target Price ₹ 1,665
Relative Valuation 1565.6 50% 782.8
Target Price (Rs) 1664.7
Current Price (Rs) 1516.7
Potential Upside 9.80%
Potential Upside 9.80%
Recommendation BUY
Exibit 30: Final Valuation

Football Field Analysis- Valuation Summary (Rs)

₹ 3,000

₹ 2,440.41
₹ 2,500
₹ 2,138.29
₹ 1,922.34 ₹ 1,904.19
₹ 2,000 Target Price = 1664.7
₹ 1,672.60
₹ 1,715.75
₹ 1,500
₹ 1,569.50 Current Market Price= 1516.7
₹ 1,446.89
₹ 1,000 ₹ 1,185.30
₹ 1,072.66

₹ 500

₹0
Comps DCF Bear DCF Base DCF Bull 52W H/L
ESG Analysis Methodology

We created a bespoke ESG scoring model where we used the data points as per Eikon Refinitiv’s ESG Exibit 31: Materiality Matrix
framework and assigned scores across E, S and G pillar based on our analysis of the data points in each
of the pillars. We assigned weights to each of the E, S and G pillar as 30/30/40 based on the relevance
of that pillar to the company. and the risks it would be exposed to in case of failure of mitigating
factors in that pillar. The scoring is based on data available in the public domain.

Environment:
The impact on environment is analysed across 3 verticals viz. Climate change, Water and Waste. Being
a company engaged in services it does not have much impact on the environmental pillar. Our analysis
is summarized as under:
Infosys has ambitions to preserve annual carbon neutrality for Scope 1, 2, and 3 emissions. Cutting
absolute Scope 1 and 2 GHG emissions by 75%; cutting absolute Scope 3 GHG emissions by 30%,
respectively. Using the solutions to get clients involved in climate initiatives. The company has been
leveraging technology to support its transition to a low carbon world.
Reducing the water footprint and enhancing water availibility to all communities. They are trying to
maintain 100% wastewater recycling every year. The company has plans to maintain zero waste to
landfill. They have been making progress in the FY23 by starting on a journey by obtaining True Zero
Waste Certification through GBCI for their campsuses in different location.
They have created lush green campuses to implementing innovative technologies like radiant cooling
and achieved significant reduction in resource intensity over the past 15 years.
57.9% of the electricity is produced through renewable resources for India operations.

Social:

Infosys has created different programs to enable digital talents at scale, technology for good, Diversity
and inclusion, Energizing local communities and Employee wellness and experience.
Current progress in FY23 has been report as reaching 8.5 million people through the digital skilling
initiatives. More than 114 million lives have been empowered by technology for good in programs like
e-goverance, healthcare and education. Creating a gender-diverse workforce at Infosys with 45%
women with current 39.4% women in the workforce. They had a goal of delivering 33% of work by
leveraging flexible/ remote work options which stands at nearly 75% of their employees leveraging
remote working options. They have been recognized as a top employer in 22 countries across Europe,
Middle East, Asia Pacific, and North America for best-in-class HR practices and processes.

Governance:

As on March 31, 2023, the Board comprised eight members, consisting of a nonexecutive and non -
independent Chairman, Chief Executive Officer & Managing Director (CEO & MD), and six independent
directors.Basis our research, Board of Directors (BOD) has adequate representation of independent
directors, industry experts, finance and legal experts as required by the statute. During the year, the
independent directors met four times. At such meetings, the independent directors discuss, among
other matters, the performance of the Company and risks faced by it, the flow of information to the
Board, competition, strategy, leadership strengths and weaknesses, governance, compliance, Board
movements, succession planning, human resources matters and the performance of the executive
members of the Board, and the Chairman.
They have bneen ensuring transparency and stakeholder engagement and has been a top priority for
the company. THey have also received the highest Corporate Governance Rating (CGR) from ICRA.
Strenghening ethics and compliance is the bedrock of sustained performance at Infosys and fuels their
vision to achieve the respect of stakeholders. A strong Whistleblower policy, coupled with robust non -
retaliation measures, inspires stakeholder trust. Adopting leading data privacy standards across all
global operations is one the plans in pipeline.