Market leader Infosys has faced challenges in the last two years. Despite being the second-largest Information Technology company in India, trailing behind TCS, Infosys has underperformed compared to the Nifty IT index. It has delivered only a 9% return over the past year, while the index surged by over 25%. Infosys’ performance also lags behind the broader Nifty’s gains of 28% during the same period. The company’s share prices have experienced significant fluctuations, raising doubts about its effectiveness. This necessitates the complete Infosys fundamental analysis.
In March 2022, Infosys’ share prices reached an all-time high of ₹1,906.85. However, since then, they have plunged several times each quarter. The stock hit a 52-week low of ₹1,239.05 on May 12, 2023. The IT stock plummeted by as much as 12.2% on BSE in a single day, marking its most severe decline since 2019. On February 6, 2024, Infosys reached a 52-week high of ₹1,733.0. Currently, the share price stands at ₹1,416.
As the 7th largest company in India, Infosys’ short-term declines have raised concerns, especially among new investors. Today, we delve into Infosys fundamental analysis to assess whether it can maintain its position as a market leader in the long term. Let’s begin.
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About The Company- Infosys Fundamental Analysis
Established in 1981 by Mr. N. R. Narayana Murthy in Karnataka, Infosys has risen as a global leader in digital services and consulting. As a NYSE-listed IT company, it boasts a workforce of over 317,000 employees worldwide. From its initial capital of just US$250, Infosys has grown exponentially, now standing as a US$ 18.6 billion company based on its last twelve months (LTM) Q4 FY24 revenues. With a market capitalisation of US$ 74.42 billion, Infosys holds the second position in India’s IT sector, trailing only behind TCS. Focused on innovation and customer satisfaction, Infosys is actively shaping the future landscape of business globally.
Business Model and Industry
-Infosys is a leading provider of consulting, technology, outsourcing, and next-generation digital services.
-It assists clients in formulating and executing strategies for their digital transformation.
-The company offers comprehensive service capabilities, including consulting, software application development, integration, maintenance, validation, enterprise system implementation, product engineering, infrastructure management, and business process management.
-Infosys also caters to the banking industry by providing specialised software products.
-Its business solutions and services contribute to accelerating innovation, enhancing productivity, reducing costs, and optimising asset utilisation for clients.
Client Base and Revenue Mix
-Infosys caters to approximately 185 Fortune 500 companies.
-It serves 38 clients with revenues exceeding $100 million, 64 clients with revenues over $50 million, and 275 clients generating more than $10 million in revenue.
-Notable clients include ICICI Bank, Daimler Mercedes-Benz, HSBC Bank, Goldman Sachs, Johnson & Johnson, Accenture, US Army, US Navy, Lockheed Martin, IBM Corporation, and Deutsche Bank, among others.
We will uncover a lot more chapters in the Infosys fundamental analysis.
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News Headlines
Infosys Strategic Expansion Plans: Upcoming Projects
Client-Centric Marketing: Infosys focuses on reputable organisations for client penetration, investing heavily in HR and networking to boost market presence. Reference: Complete Case Study on the Marketing Strategy of Infosys|
Industry Recognition: Recently hosted industry analysts and advisors at One World Trade Center in New York City, emphasising its role in IT services and the cloud market.
Localisation Strategy: Established six U.S. hubs focused on innovation and technology, reinforcing commitment to key offerings like AI, machine learning, and user experience design.
TBR’s Insights: TBR’s quarterly report underscores Infosys Cobalt’s significance in financial expansion, with a focus on industry cloud offerings and stakeholder trust-building efforts.
Essentials & Financials- Infosys Fundamental Analysis
Market Capitalization and Ranking:
-Infosys holds the position of the second-largest information technology company in India.
-With a market capitalisation of ₹ 5,86,767 crores, it ranks as the 7th largest company in India by market cap.
Infosys’ significant market capitalisation positions it as a key player in the Indian market.
Profitability Ratios:
-Infosys exhibits robust profitability ratios, with a Return on Capital Employed (ROCE) of 40.0% and a Return on Equity (ROE) of 31.8%.
Higher values of these ratios are typically desirable and indicate promising future performance. This suggests that Infosys is effectively generating profits from its investments and equity.
Price to Earnings Ratio (P/E Ratio):
-The price-to-earnings ratio (P/E Ratio) for Infosys stands at 22.31, which is lower than its sector P/E ratio of 31.99.
-This suggests that Infosys is fairly valued based on its earnings.
A lower P/E ratio compared to the sector suggests that Infosys’ stock may be undervalued relative to its earnings potential. It could present an opportunity for enthusiasts seeking value stocks.
Earnings per Share (EPS):
-Infosys boasts a positive and growing EPS, reflecting healthy growth.
-The Trailing Twelve Months (TTM) EPS for Infosys is ₹ 63.20 per share.
EPS is a crucial metric indicating the consistency of a company’s earnings per share.
Debt to Equity Ratio:
-Infosys maintains a zero Debt to Equity Ratio, signifying that the company is debt-free.
This signifies financial stability and reduces the risk associated with debt obligations, enhancing investor confidence.
Dividend Yield:
-The current year dividend for Infosys amounts to ₹ 46 per share, with a yield of 3.25%. This can attract income-oriented investors and contribute to long-term shareholder value.
Summing up, the fundamentals and essentials of Infosys Ltd highlight why the company is a market leader. Its solid metrics promise further growth, underscoring the growing dominance of the IT sector in the Indian market.
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Infosys Shareholding Pattern
During the March 2024 quarter, several changes were observed in the shareholding pattern of Infosys:
–Promoters saw a slight decrease in their holdings, from 14.78% to 14.71%, representing a decrease of 0.07%. Notably, there were no changes in Promoter pledges during this period.
-On the other hand, FII/FPI holdings experienced an increase, rising from 33.70% to 34.11%, marking a growth of 0.41%.
-Conversely, Mutual Funds witnessed a decline in their holdings, which decreased from 18.29% to 17.93%, indicating a decrease of 0.36%.
–Institutional Investors, however, increased their holdings from 69.50% to 70.03%, showing a notable rise of 0.53%.
| Shareholders | Mar 2017 | Mar 2018 | Mar 2019 | Mar 2020 | Mar 2021 | Mar 2022 | Mar 2023 | Mar 2024 |
| Promoters | 12.75% | 12.90% | 12.84% | 13.15% | 12.95% | 13.11% | 15.14% | 14.71% |
| FIIs | 38.31% | 35.24% | 34.04% | 31.01% | 32.67% | 33.30% | 35.09% | 34.11% |
| DIIs | 20.31% | 21.55% | 22.87% | 24.68% | 23.10% | 17.10% | 33.59% | 35.62% |
| Government | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.19% | 0.21% |
| Public | 28.14% | 29.82% | 29.78% | 30.73% | 30.92% | 36.16% | 15.67% | 15.06% |
| Others + | 0.49% | 0.49% | 0.47% | 0.43% | 0.36% | 0.33% | 0.33% | 0.29% |
| No. of Shareholders | 7,11,129 | 7,53,025 | 9,19,720 | 11,34,263 | 14,09,782 | 21,28,827 | 28,01,574 | 27,73,406 |
These shifts in shareholding pattern suggest varying levels of confidence and interest among different investor groups regarding Infosys’ performance and future prospects during the specified quarter.
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Evaluating Financial Statements- Infosys Fundamental Analysis
Now let’s take our discussion of Infosys fundamental analysis one step ahead and discuss the financial statements of the company. In this section we will talk about Income Statements which is also called profit & loss statements, the balance sheet and the cash flow statements. Evaluating the financial statements is crucial because they reveal the performance and health of the company. Without further ado, let’s begin.
Profit & Loss | Income Statements
Revenue from Sales:
-In the last 5 years (March 2020- March 2024): Revenue from the sales increased from 90,791 crores to 153,670 crores (a rise of approximately 69.2% over the last 5 years).
Operating Profit:
-In the last 5 years (March 2020- March 2024): Operating profits increased from 22,267 crores to 36,425 crores (a rise of approximately 63.5% over the last 5 years).
The significant rise in revenue and operating profits over the last 5 years underscores Infosys’ robust growth trajectory and strengthened market position.
Net Profit:
-In the last 5 years (March 2020- March 2024): Net profit increased from 16,639 crores to 26,248 crores (a rise of approximately 57.7% over the last 5 years).
The company is consistently making profit suggesting that the IT sector holds a dominant position in the Indian market scenario.
EPS:
-In the last 5 years (March 2020- March 2024): EPS increased from ₹ 38.96 per share to ₹ 63.20 per share (a rise of approximately 62.17% over the last 5 years).
The remarkable surge in EPS underscores Infosys’ commendable earnings growth and shareholder value enhancement. This significant improvement reflects the company’s efficient management and successful execution of strategic initiatives.
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Cash Flows Statements
Cash flow statements is important because they show how much cash a company generates from its core business operations, investments, and financing activities. While analyzing cash flow statements, one of the most important metrics to consider is the operating cash flow.
Cash flows from operating activities: From March 2020 to March 2024, the company has recorded a substantial rise in Cash flows. It increased from 17,003 crores in March 2020 to 25,210 crores in March 2024.
This indicates that the company’s core business operations have become more efficient in generating cash over the specified period. A positive trend in the company’s ability to generate cash from its day-to-day activities is generally considered favorable for its financial health and sustainability.
Net cash flow: Over 5 years, Net cash flow has been fluctuating. The figures declined from -919 crores in March 2019 to -5,299 crores in March 2023. Then it rose to 2,613 crores in March 2024.
This suggests potential challenges in cash management and financial performance. Negative net cash flow indicates that the company is spending more cash than it is generating, which may raise concerns about liquidity and financial stability.
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Comparison Between Income Statements And Cash Flows Statements.
There are significant effects for us when comparing the Net Income from the Income Statement with the Operating Cash Flow from the Cash Flow Statement. This makes it easier to evaluate the consistency and quality of the business’s profits.
Generally speaking, it is optimal for Cash Flows from Operational Activities to exceed Net Income. This suggests that the company has a strong and promising growth outlook. In case of Infosys, in March 2024, net profit stood at 26,248 crores while the cash flow from operating activities stood at 25,210 crores in the same period.
This suggests that the company’s cash flow from operating activities slightly lags behind its net income. However, given Infosys’ strong fundamentals, this slight disparity may not necessarily be a cause for concern, but rather an area to monitor closely for potential improvement in cash flow management.
Infosys Ltd Peer Comparison
| Company Name | Price | % Chg | MCap(Cr) | TTM PE | P/B | ROE(%) | 1 Yr Perform(%) | Net Profit(Rs.) | Net Sales(Rs.) | Debt to Equity |
| Infosys | 1,437.35 | 1.49 | 5,86,767 | 22.31 | 7.91 | 31.8 | 14.16 | 26,248 | 153,670 | 0.00 |
| TCS | 3,919.60 | 1.98 | 1,418,145.58 | 30.89 | 15.67 | 50.73 | 21.32 | 46,099 | 240,893 | 0.00 |
| HCL Tech | 1,355.00 | 0.52 | 367,701.62 | 23.42 | 5.39 | 23.00 | 28.37 | 15,710 | 109,913 | 0.03 |
| Wipro | 459.40 | 0.45 | 240,132.42 | 21.74 | 3.09 | 14.81 | 21.09 | 11,135 | 89,760 | 0.19 |
| LTIMindtree | 4,676.70 | 0.53 | 138,506.72 | 30.23 | 8.35 | 22.89 | 4.21 | 4,584 | 35,517 | 0.10 |
Highlights Of Earnings And Revenue- Annual/Quarterly-Infosys Fundamental Analysis
Transitioning to the focal point of today’s discussion, let’s delve into the annual and quarterly performance of Infosys Ltd. Over the past year, annual revenue witnessed a 5.96% increase, reaching ₹158,381 Crores, while annual net profit surged by 8.87% to ₹26,233 Crores. Despite a 14.3% rise in stock price, it trailed behind its sector performance by 26.31% during the same period.
On a quarterly basis, revenue experienced a modest 1.29% year-on-year growth, reaching ₹40,652 Crores, while quarterly net profit soared by an impressive 30.04% year-on-year to ₹7,969 Crores.
In the last quarter, Infosys reported earnings per share of ₹19.20, surpassing the estimated figure of ₹14.85 by 29.25%. Despite this, the company’s revenue for the same period totaled ₹380.96B, slightly below the estimated ₹384.10B. Looking ahead, the estimated earnings per share for the next quarter are ₹15.09, with revenue expected to reach ₹388.19B.
Bottom Line
In concluding our discussion on Infosys fundamental analysis, we’ve explored the company’s remarkable fundamentals and essential ratios. With nearly 70% of the company’s shares held by foreign and domestic investors, confidence in the stock remains high. While the company continues to see growth in annual revenues and net profits, the fluctuating net cash flows raise some concerns.
In FY 2023, India’s service exports reached an all-time high of $345 billion, with the IT sector playing a significant role. This indicates a robust export market for IT and IT-enabled services, supported by favorable government policies. With such strong fundamentals, Infosys may encounter short-term fluctuations, but it remains a formidable contender and a profitable option for long-term investors.
That’s all for today’s post. Hope you get some valuable insights from here.
Happy reading!
Disclaimer
The blog is meant for informational purposes and serves the general analysis of the stocks. The contents provided here are based on careful research and analysis utilizing the fundamental and technical indicators over a period of time. The post does not consist of any direct recommendations about investing or trading in the securities market. Thorough research and careful consideration are necessary for individuals to fulfil their personal responsibility in making financial decisions. Seeking professional advice before making any financial decisions is always advisable.
