This article provides an in-depth fundamental analysis of Infosys, which is the second biggest IT company in India. In this article, we have Analyzed the business, financials, fundamentals, and stock performance of Infosys.
This will help you evaluate is Infosys better for investment. But before I proceed, please note that our analysis is only for educational purposes and not to provide stock tips. This article is to empower you with the right knowledge so that you can make an informed investment decision.
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Fundamentsl analysis of Infosys: Financial highlights
Fundamental analysis of Infosys: The journey
Best stocks below rs 500 in India.
Infosys Revenue by geography
Most of the Indians think Infosys is an Indian company, so most of the revenues of Infosys are also from India. But this is wrong, only about 2.9% of the revenues are from India. Most of the revenues are from North America and Europe.
61.3% of the revenues are from North America, 24.2% of the revenues are from Europe, 11.6% of the revenues are from the Rest of the world, and just about 2.9% of the revenues are from India.
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Revenue by business segments
- FS – Includes enterprises in financial services and insurance.
- Retail – Includes enterprises in retail, consumer packaged goods and logistics.
- COM – Includes enterprises in communication, telecom OEM and media.
- EURS – Includes enterprises in energy, utilities, resources, and services.
- MFG – Includes enterprise in manufacturing.
- Hi-Tech – Includes enterprises in Hi-Tech.
- LS – Includes enterprises in life sciences and healthcare.
- Others – Includes segments of businesses in India, Japan, China, Infosys public services and other enterprises in public services.
From the above chart, Revenue from FS is at 31.5% in 2020, and 32.% in 2021. Revenue from Retail is at 15.5% in 2020, and 14.7% in 2021. Revenue from COM is at 13.2% in 2020, and 12.6% in 2021. Revenue from EURS is at 12.9% in 2020, and 12.5% in 2021. Revenue from MFG is at 10.1% in 2020, and 9.4% in 2021. Revenue from Hi-Tech is at 7.7% in 2020, and 8.5% in 2021. Revenue from LS is at 6.4% in 2020, and 6.8% in 2021. Revenue from others is at 2.7% in 2020, and 3.1% in 2021.
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Business Segments
| Particulars | Financial Services | Retail | Communication | Energy, Utilities, Resources, and services | Manufacturing | Hi-Tech | Life sciences | All other segments | Total |
|---|---|---|---|---|---|---|---|---|---|
| Segmental revenues | |||||||||
| 2021 | 32,583 | 14,745 | 12,628 | 12,539 | 9,447 | 8,560 | 6,870 | 3,100 | 1,00,472 |
| 2020 | 26,625 | 14,035 | 11,984 | 11,376 | 9,131 | 6,972 | 5,837 | 2,471 | 90,9791 |
| Growth % | 13.8 | 5.1 | 5.4 | 6.8 | 3.5 | 22.8 | 17.7 | 25.4 | 10.7 |
| Segmental operating income | |||||||||
| 2021 | 8,946 | 5,117 | 2,795 | 3,552 | 2,563 | 2,454 | 2,156 | 306 | 27,889 |
| 2020 | 7,306 | 4,212 | 2,424 | 3,216 | 2,059 | 1,604 | 1,431 | 64 | 22,316 |
Growth % | 22.4 | 21.5 | 15.3 | 10.5 | 24.5 | 53 | 50.7 | 375.7 | 25 |
| Segmental operating margin % | |||||||||
| 2021 | 27.5 | 34.7 | 22.1 | 28.3 | 27.1 | 28.7 | 31.4 | 9.9 | 27.8 |
| 2020 | 25.5 | 30.0 | 20.2 | 27.4 | 22.6 | 23.0 | 24.5 | 2.6 | 24.6 |
Infosys has been able to improve its revenues in every segment when compared to 2020. Most of the revenues for Infosys are from Financial services, Infosys product Finacle alone has revenues worth more than 1 Billion. Finacle is a universal banking solution, it is the choice of financial institutions across 84 countries and serves over 547 million customers-nearly 16.5% of the world’s adult banked population.
The growth percentage is also significant. At the same time, Infosys was also able to increase its operating margin with a significant difference.
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Revenue by offerings
51.5% of the revenues are from Core products and services, 48.5% of the revenues are from Digital products and services.
Digital
- Experience.
- Insight.
- Innovate.
- Accelerate.
- Assure.
Core
- Application management services.
- Proprietary application development services.
- Independent validation solutions.
- Product engineering and management.
- Infrastructure management services.
- Traditional enterprise application implementation.
- Support and integration services.
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Infosys clients contribution
| Clients contribution | Q1 FY20 | Q4 FY20 | Q1 FY21 |
|---|---|---|---|
| USD 1m + clients | 680 | 718 | 729 |
| USD 10m + clients | 228 | 234 | 236 |
| USD 50m + clients | 59 | 61 | 60 |
| USD 100m + clients | 27 | 28 | 25 |
The above table is about no of clients Infosys has whose contract worth is USD 1 million, 10 million, 50 million, and 100 million.
Infosys had 680 clients in Q1 FY20, whose contract value is more than USD 1 million, the number increased to 718 in Q4 FY20, and 729 in Q1 FY21.
Infosys had 228 clients in Q1 FY20, whose contact worth is more than USD 10 million, the number increased to 234 in Q4 FY20, and 236 in Q1 FY21.
59 clients in Q1FY20, whose contract worth is more than USD 50 million, the number increased to 61 in Q4 FY20 and fallen to 60 in Q1 FY21.
Infosys had 27 clients in Q1 FY20, whose contract worth is more than USD 100 million, the number increased to 28 in Q4 FY20 and has fallen to 25 in Q1 FY21.
Infosys subsidiaries
Did you know Infosys has 13 subsidiaries? Infosys has made strategic investments in different domains. The company has established 13 subsidiaries across the globe.
- EdgeVerve systems Limited.
- Infosys BPM Limited.
- Infosys consulting holding AG.
- Infosys consulting Ltda.
- Infosys public services Inc.
- Infosys technologies ( Australia ) Pty. Limited.
- Infosys technologies ( China ) Co. Limited.
- Infosys technologies ( Shanghai ) Co. Limited.
- Infosys technologies ( Sweden ) AB.
- Infosys technologies S.de.R.L. de C.V.
- Panaya.
- Noah consulting LLC.
Infosys partnerships
The partnership focuses on developing solutions that incorporate the intellectual property of Infosys as well as technology and services from the alliance partners.
Some of the top partners of Infosys are:
- Adobe.
- Google.
- Amazon web services.
- HP.
- Hitachi Vantara.
- Huawei.
- IBM maximo.
- IBM sterling.
- Microsoft.
- IBM
- Newgen
- Nokia.
- Oracle
- Pegasystems.
- Salesforce.
- Red hat.
- MongoDB.
- Infomatica.
- Cisco systems.
Fundamental analysis of Infosys: Financials
| Financials | Infosys |
|---|---|
| Market cap | 7,28,114 Cr |
| Price to earnings ( P/E ) | 38.31 |
| Price to book value ( P/B ) | 9.48 |
| Price to sales ( P/S ) | 8.37 |
| Price to cash flow ( P/CF ) | 36.1 |
| PEG ratio | 4.70 |
| Sales growth ( 5 years ) | 9.74% |
| Profit growth ( 5 years ) | 7.29% |
| ROE ( 5 years ) | 24.3% |
| ROCE ( 5 years ) | 32.19% |
| Debt to equity | 0.07 |
The market capitalization of Infosys is 7 lakh and 28 thousand crore rupees, which is the second biggest IT company in India, and in the top 5 IT companies in the world.
From the above table, Infosys financials are looking good.
Price to earnings
PE stands for the price to earnings. It signifies that how many times an investor is paying for 1 rupee of earnings, The PE ratio of Infosys is 38.31, which tells that an investor is paying 38 rupees for 1 rupee of Infosys earnings.
If the PE ratio is high, it means the company is trading at a higher valuation. The PE of Infosys is 38.31, which is not overvalued or undervalued. The PE ratio of Infosys is trading at an industry average.
To know more about important Financial ratios read here.
ROE
ROE stands for return on equity. ROE signifies how efficiently the company is using its funds or cash to generate revenues or profits. The higher the ROE is, the higher the efficiency, which is positive for the company.
The ROE of Infosys is 24.3%, which is not bad or good. The ROE of Infosys is at the industry average.
ROCE
ROCE stands for return on capital employed. ROCE is also the same as ROE, the only difference is ROCE considers the debt of the company. whereas, ROE does not consider the debt of the company. So, if a company has a debt the ROE is doesn’t make any sense, because it does not consider the debt of the company.
The ROCE of Infosys is 32.19%, which is also close to the industry average.
Infosys profit & loss
| Particulars | Infosys ( FY 2020-21 ) |
|---|---|
| Net sales | 1,00,472 Cr |
| Profit before tax | 26,628 Cr |
| Net profit | 19,351 Cr |
| EPS | 45.42 |
The Net sales of Infosys is 1,00,472 crore rupees, Profits before tax is 26,628 crore rupees, net profit is 19,351 crore rupees and EPS is 45.42.
Even in the time of covid, Infosys had declared good numbers with a significant increase in revenues, profits, and margins in every segment.
Fundamental analysis of Infosys: Balance sheet
| Particulars | Infosys ( FY 2020-21 ) |
|---|---|
| Equity & liabilities | |
| Share capital | 2,124 |
| Total reserves | 68,401 |
| Borrowings | 0 |
| Other N/C liabilities | 3,831 |
| Current liabilities | 17,662 |
| Total liabilities | 92,984 |
| Assets | |
| Net block | 14,599 |
| Capital WIP | 906 |
| Intangible WIP | 0 |
| Investments | 22,118 |
| Loans & advances | 6,540 |
| Other N/C assets | 539 |
| Current assets | 48,282 |
| Total assets | 92,984 |
How to read, analyze or understand a Balance sheet.
Infosys shareholding pattern
| Shareholders | Holding % |
|---|---|
| Promoters | 12.95 |
| FII | 33.39 |
| DII | 21.98 |
| Public | 14.32 |
| Others | 0 |
Infosys cash flow statement
| Particulars | Infosys ( FY 2020-21 ) |
|---|---|
| Profit from operations | 24,447 Cr |
| Adjustments | 1,305 Cr |
| Changes in assets & liabilities | 181 Cr |
| Tax paid | -6,061 Cr |
| Operating cash flow | 19,902 Cr |
| Investing cash flow | -6,286 Cr |
| Financing cash flow | -9,566 Cr |
| Net cash flow | 4,050 Cr |
How to understand a cash flow statement.
Infosys stock performance
Infosys stock price has grown at a CAGR of 27.4% over the last 5 years, 35.1% over the last 3 years, and 54.8% over the last year. Infosys has given stellar returns for its investors and it will continue to give even in the future, as the demand for IT services and products like digital and cloud will rapidly increase in the future.
Fundamental analysis of Infosys: Peer comparison
| Company | Price Rs | Mcap Cr | P/E | P/B | P/S | EPS Rs | ROE % | ROCE % |
|---|---|---|---|---|---|---|---|---|
| Infosys | 1,709 | 7,18,797 | 38.31 | 9.48 | 8.37 | 44.61 | 27.12 | 36.79 |
| TCS | 3,655 | 13,52,007 | 37.72 | 16.06 | 9.94 | 96.91 | 42.02 | 56.24 |
| Wipro | 672 | 3,68,639 | 38.11 | 7.89 | 7.33 | 17.65 | 22.06 | 25.52 |
| HCL Tech | 1,265 | 3,43,373 | 37.92 | 7.43 | 9.63 | 33.37 | 21.56 | 30.89 |
| Tech Mahindra | 1,402 | 1,35,998 | 31.11 | 5.32 | 4.59 | 45.07 | 18.26 | 22.47 |
| L & T Infotech | 5,951 | 1,04,252 | 53.02 | 14.02 | 9.02 | 112.24 | 29.83 | 40.47 |
| Mindtree | 4,363 | 71,916 | 57.96 | 15.42 | 9.03 | 75.29 | 29.79 | 41.43 |
From the above table, we can clearly say that Price to earnings ratio of Infosys is not higher or lower than other peer companies in the IT sector. Infosys is trading at a PE multiple of the industry average, which is neither overvalued nor undervalued. Infosys is trading at the right valuation.
The price to book value of Infosys is 9.48, when we compare it with other peer companies, the price to book value is also at the industry average.
All the financial ratios of Infosys are trading at Industry average, by this, we can clearly say that Infosys is trading at the right valuations.
If you want to invest in Infosys, you can invest confidently. Because Infosys is one of the world’s leading IT companies and has strong management with strong fundamentals and Infosys has a very strong products portfolio in the financial services segment, which is the biggest advantage for Infosys.
Frequently asked questions
Is Infosys overvalued or undervalued?
The PE multiple of Infosys is 38.31, when we compare it with other IT companies we can clearly say that Infosys is trading at the right valuations, not only PE, other financial ratios of Infosys are also trading at the industry average. So clearly, Infosys is neither undervalued nor overvalued.
What is the fair value of Infosys?
Currently, Infosys is trading at fair valuations. We can say a company is trading at fair valuations when the financial ratios of the company are trading at the industry average. Right now almost every financial ratio of Infosys is trading at an industry average. So clearly, Infosys is trading at fair valuations.
We can’t a fair value of any company instantly, because the financial ratios may change over time. we can say the company which is trading at the industry average is at a fair valuation.
Infosys competitor analysis
The biggest competitors of Infosys are TCS and Wipro. TCS is bigger than Infosys, whereas, Wipro is smaller than Infosys, in terms of revenue, profits, and market capitalization. TCS is fundamentally stronger than Infosys. Because TCS generates more revenue and profits than Infosys. Whereas, Infosys is fundamentally stronger than Wipro.Because Infosys generates more profits, and revenue than Wipro.
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