Built-up social capital helped in working in remote areas during the crisis: Infosys

Update on the Indian Equity Market:

Markets shrugged Thursday’s losses as Nifty closed the day 1.1% higher at 10,142. The top gainers for Nifty 50 were Tata Motors (+13.7%), SBIN (+8.7%) and INFRATEL (+8.3%) while the losing stocks for the day TCS (-1.8%), HINDUNILVR (-1.6%) and BAJAJAUTO (-1.4%). The gaining sectors for the day were PSU BANK (+6.9%), MEDIA (+5.3%) and NIFTY BANK (+3.2%). FMCG (-0.7%) was the only losing sector for the day.

Edited excerpts of an interview with Mr Salil Parekh, CEO, Infosys Ltd; dated 4th June 2020 from Economic Times:

  • Over the past few years, Infosys has invested in technology infrastructure, remote access and telecommunications. As a result, the Company was able to scale up work from home with ease and security. They currently employ 240,000 people of which 90% have migrated and are working from home.
  • The infrastructure for working from remote places was already in place for Infosys. The Company simply had to scale it up and make it effective.
  • About the future of the work environment, he mentioned that people are underestimating the value of building social capital by working together. He explained that remote working has worked for the Company because of the social capital that they built over the years of working together. His sense is that working from home shall continue till we achieve medical milestones in therapeutics and vaccines post which we should look at rebuilding and expanding social capital because that is the glue which has helped to put all of this together.
  • The Company has not yet finalized on the target model for working culture. There are tremendous benefits to work from home or remote working. It creates a lot of flexibility for many employees. The way is to build a model once we are out of this crisis.
  • The IT industry will look at the most effective ways of cutting costs like travel expenses, and onsite expenses. There will be some efficiencies in adopting this model but it is too early to quantify how much per cent will be saved on a permanent basis.
  • He emphasized on the fact that hiring is still an important part of the IT industry. The industry is witnessing technology demand in the digital cloud areas.

Consensus Estimate: (Source: market screener website)

  • The closing price of Infosys Ltd was ₹ 707/- as of 05-June-2020. It traded at 18.9x/ 16.7x/ 15.2x the consensus EPS estimate of ₹3/ 42.3/ 46.3 for FY21E/ FY22E/ FY23E respectively.
  • The consensus target price of ₹ 725/- implies a PE multiple of 17x on FY22E EPS of ₹3/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Current situation not comparable with 2008 financial crisis- Mr Salil Parekh

Excerpts from an interview of Mr.Salil Parekh,CEO, Infosys with ET Now on 27th April 2020:

Update on the Indian Equity Market:

On Monday Nifty closed 1.4% higher at 9,282. Among the sectoral indices PVT bank (3.0%), IT(2.4%), FIN Services (2.1%) closed higher. None of the sectors close negatively. Britannia (+7.0%), Indusind Bank (+6.6%) and Bajaj Finserv (+6.2%)closed on a positive note. NTPC (-1.1%), HDFC Bank (-0.9%) and M&M (-0.8%) were among the top losers.

  • The company doesn’t see any clients in this situation to go bankrupt as there is tremendous amount of fiscal support in the US market.
  • There will be some near-term challenges as there are some requests for price cuts and credit extensions. Due to this reason the company has suspended revenue guidance.
  • The US government’s massive $2-trillion stimulus is expected to provide liquidity to companies, including banking and financial services that are the biggest outsourcers of IT.
  • Infosys gets 31% of its revenue from banking, financial services and insurance (BFSI). Infosys admitted in its recent earnings call that the vertical would be impacted negatively due to lower interest rates, deferred loan payments and low premiums.
  • While comparing the current situation with 2008 global financial crisis, he said the current situation has affected everyone every geography, every sector at the same time and in a way nothing from recent experience is equivalent with current situation.
  • Speaking on whether clients would look to reduce their dependence on India, particularly for BPM, given the disruptions in these operations because of lockdowns, he said even if there is any impact it will be on the smaller players.
  • On-shore 98% of employees are working from home and In India it is 93%, including BPM. Due to the strength which the company has demonstrated many large clients are going to focus on Infosys and some of the smaller players will lose out on that.
  • Clients are seeing Infosys as a stable partner with a very strong financial position and with $3.6 billion in cash reserve the company in a stable position.
  • He said the company is having discussions with clients on vendor consolidation, on how they want to look at some captives, a lot of discussions in the cloud, movement on virtualization, workforce transformation.
  • Speaking about the whistleblower allegations made against the company in October 2019, he said the company is extremely transparent and the management is committed to keep focus on clients, shareholders and employees.

Consensus Estimate: (Source: market screener and websites)

  • The closing price of Infosys was ₹ 665/- as of 27-April-2020.  It traded at 17.7 x/ 15.6x/ 14.3x the consensus earnings per share estimate of ₹ 37.4/42.6/46.3 for FY20E/ FY21E/ FY22E respectively.
  • The consensus average target price forInfosys is ₹ 725/- which implies a PE multiple of 15.6x on FY22E EPS of ₹46.3/-.


Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”


Infosys (INFY IN): Constant currency growth rate pick-up in 1QFY20, management ups revenue guidance for FY20

1QFY20 Results

Dated: 15th July 2019

Infosys (INFY) reported 10.6% YoY revenue growth in USD terms; highest in last 10 quarters, to USD 3,131 mn in 1QFY20. The digital business revenues (36% of the total company revenues) increased by 39% YoY to USD 1,119 mn while core business revenues declined by 0.8% YoY to USD 2,012 mn. 
• The revenues in INR terms increased by 14% YoY to Rs 2,15,390 mn. Appreciation of INR v/s USD impacted the revenue growth during the period.
• Depreciation increased by 56% YoY to Rs 6,810 mn (v/s Rs 4,360 mn in 1QFY19) and financial interest stood at Rs 400mn on account of the adoption of IFRS 16-Leases effective April 1, 2019.
• The operating margins declined by ~320 bps YoY to 20.5%. Consolidated PAT grew by 5% YoY to Rs 37,980 mn

Management Commentary

• The management has raised the revenue growth guidance for FY20E from 7.5%-9.5% to 8.5%-10% YoY. It maintained operating margins guidance of 21%-23% for FY20 v/s 22.8% in FY19.
• INFY has till date bought back shares worth Rs 59.34 bn of its previously announced share buyback of Rs 82.60 bn. 
• INFY revised Capital Allocation Policy of the Company after taking into consideration the strategic and operational cash requirements. It increased the pay-out from 70% of Free Cash Flow (FCF) to ~85% of FCF cumulatively for over a 5-year period through a combination of semi-annual dividends/share buyback / special dividends.

Consensus Estimate (Source: market screener website)

• The closing price of INFY was Rs 727/- on 15-Jul-19. It traded at 19.0x / 17.0x the consensus EPS for FY 20E / FY 21E EPS of Rs 38.2 / 42.7 respectively. 
• Consensus target price of Rs 792/- implies a PE of 18.5x on FY21E EPS of Rs 42.7.