Infosys

August29,2016

WeattendedInfosysanalystmeetwherethecompanyreiterateditsrenewand
newstrategyandshareditsprogressonstrategicinitiativessuchaszerodistance,
designthinking,andrecentlylaunchedartificialintelligencebasedMANAplatform.
Infosys has adopted a universal applicable strategy of Renewing the core
businesses and innovate into new businesses. This strategy will be aided by a)
operational excellence, b) utilization improvement, c) balance of onsite/offshore
mix,d)salesefficiencyande)largedealwins.

GovindAgarwal
govindagarwal@plindia.com
+912266322300

Rating
Price
TargetPrice
ImpliedUpside
Sensex
Nifty

BUY
Rs1,037
Rs1,400
35.0%
27,836
8,592

CompanyalsooutlinedshorttermconcernswhichmayposedownsiderisktoFY17
guidance. We believe that, despite the short term challenges, company is
progressing well on the strategic initiatives and there are early indicators of
success.WereiterateBUYwithTPofRs1,400basedon19xFY18EPS.

Q2FY17 to be better; though guidance has downside risk: Management

outlined that Q2FY17 growth will be better than Q1FY17 (CC growth of 1.7%
QoQ). Challenges faced in Q1FY17 have been addressed; however Q2FY17 has
witnessedadditionalheadwindsa)cancellationoftheRBScontract,andb)some
softnessinclientspendingduetoBrexit.Companyhasalsowitnessedstrength
inIndiabusinessandlargedeals.Managementwantstoevaluatefullimpactof
allthesefactorsandintendstoupdatetheguidancealongwithQ2FY17results.

Employee education at the core: Design thinking has trained over 104,000
employeesandismakingsignificantprogress.Zerodistancehasreleased~3200
employeesinFY16,withfurtherreleaseof~2000employeesinQ1FY17.There
is a shift towards greater focus on performance; improving productivity and
leadership development to help enable employees deliver their full potential.
Thisisreflectedinthehighperformanceattritionwhichasreducedfrom13.4%
inQ4FY16to11.2%inQ1FY17.

(PricesasonAugust26,2016)
Tradingdata
MarketCap.(Rsbn)
Shareso/s(m)
3MAvg.Dailyvalue(Rsm)
Majorshareholders
Promoters
Foreign
DomesticInst.
Public&Other
StockPerformance
(%)
1M
6M
Absolute
(4.1)
(6.7)
Relative
(3.1)
(27.9)
HowwedifferfromConsensus
EPS(Rs)
PL
Cons.
2017
65.4
64.2
2018
73.4
72.0

2,371.6
2,288.0
4680.7
13.08%
39.89%
17.17%
29.86%
12M
(4.6)
(11.5)
%Diff.
1.8
2.0

PricePerformance(RIC:INFY.BO,BB:INFOIN)

Keyfinancials(Y/eMarch)

Revenues(Rsm)

Growth(%)
EBITDA(Rsm)
PAT(Rsm)
EPS(Rs)

Growth(%)
NetDPS(Rs)

2015
533,190
6.4
149,010
123,290
53.9
15.8
22.2

2016
624,410
17.1
170,780
134,900
59.0
9.4
30.0

2017E
705,175
12.9
191,861
149,617
65.4
10.9
35.0

2018E
793,702
12.6
216,685
167,935
73.4
12.2
40.0

2015
27.9
24.1
24.0
3.9
13.9
19.2
4.3
2.1

2016
27.4
23.2
23.2
3.3
11.9
17.6
3.9
2.9

2017E
27.2
23.1
23.0
2.8
10.4
15.9
3.5
3.4

2018E
27.3
23.3
23.3
2.5
9.0
14.1
3.1
3.9

Aug16

Jun16

Apr16

Feb16

Dec15

Oct15

Aug15

(Rs)
1,400
1,200
1,000
800
600
400
200
0

Source:Bloomberg

Profitability&Valuation
EBITDAmargin(%)
RoE(%)
RoCE(%)
EV/sales(x)
EV/EBITDA(x)
PE(x)
P/BV(x)
Netdividendyield(%)
Source:CompanyData;PLResearch

PrabhudasLilladherPvt.Ltd.and/oritsassociates(the'Firm')doesand/orseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresultinvestorsshouldbeawarethat
theFirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthereport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.

Pleaserefertoimportantdisclosuresanddisclaimersattheendofthereport

AnalystMeetUpdate

Strategicdirectionintact;Macroledshorttermchallenges

Infosys

OtherKeytakeawaysfromthemeet

Although the consulting business has been under some pressure, company
believes consulting will evolve into a 2tier model consisting of strategic
conversations with clients and execution of larger projects. Long term goal in
consulting is to evolve it towards design thinking. Company intends to have
strategicengagementswitheachofitstop250clientsovernext912months.

InfosysisimplementingAutomationthroughtheMANAplatform.MANAisnow
livewith4clientsandthereareseveralotherengagementsunderway.

MANA is essentially helping transforming and improving productivity. Infosys

MANAplatformstrategyevolvesaroundthreepillars:a)bringingMANAacross
platforms,b)acrossmanagedservices(ADM,IMS,testingetc),andc)prebuilt
solutionsonplatforms.

ZeroDistanceinitiativenowhas100%coverageacrossalltheprojects(9,500).

Companyaimsatdeliverysimplificationthrougha)nextgenglobalmobility,b)
simplifiedvendorpaymentsandclaims,c)greaterpubliccloudadoption,d)self
healingsystems.

Infosys has been able to reduce overall cycle time by 45%, simplified order
creation&dealpricing,30%accelerationinglobalmobilityand20%simplified
vendorempanelmentandfastervendorinvoicingprocess.

The company is renewing services by renewing culture (design thinking, Zero

distance and Zero bench), automation (Machine learning, AI and MANA) and
boundarylessthinking(industryutilitiesandmodernization).

Companyisalsofocusedonincreasingsaleseffectiveness.Thekeyobjectivesfor
saleseffectivenessarelargedealwins,increasingtopaccountsandtechnology
enabledsales.

Theentireendeavourofthecompanytowardslongtermvisionof2020willbe
achieved through three initiatives of strong revenue growth, margin
improvementandhighrevenueperemployee.

August29,2016

Infosys

Exhibit1: Highperformanceattritionshowingimprovement
Infosysgroup

IL

ILHighperformance

Titleholderattrition

25.0%
21.0%

19.9%

18.1%

20.0%
14.1%

15.0%

17.3%
13.4%

14.7%
12.6%

15.8%
13.4%
11.2%

9.6%

10.0%

7.4%
4.9%

5.0%
0.0%
Q2FY16

Q3FY16

Q4FY16

Q1FY17

Source:CompanyData,PLResearch
Exhibit2: %ofemployeesreskilledisincreasing

Exhibit3: Digitaltutoroncloudincreasingpassingratefortrainees

%Employeesreskilled
70%
68%
66%
64%
62%
60%
58%
56%

Firsttime passintraining
69%

61%

FY15

FY16

65%

70%
60%
50%
40%
30%
20%
10%
0%

45%

FY15

Source:CompanyData,PLResearch

FY16

Source:CompanyData,PLResearch

Exhibit4: Transforming education and training resulting in high Exhibit5: Trainingimprovedthroughusageofexternalproviders

performance

Averagetrainingdays/person
Highperformer %
35%
30%
25%
20%
15%
10%
5%
0%

4.9

5
4.8
4.6
4.4
4.2
4
3.8
3.6

31%

16%

4.1

FY15
FY15

Source:CompanyData,PLResearch

FY16

FY16

Source:CompanyData,PLResearch

August29,2016

Infosys

Exhibit6: CCrevenuegrowthYoYinthelastfewquarters

CCgrowthYoY
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%

16.1%

15.0%

14.2%

14.1%
11.0%

12.5%

10.9%
8.8%

12.1%

7.9% 7.8%

6.6% 6.3%

Source:CompanyData,PLResearch
Exhibit7: EBITmargintrendforthelastfewquarters

EBITMargins
26.7%

27.0%

26.1%

26.0%

25.0%

25.5%

25.7%

25.5%
24.9%

25.0%
24.0%

25.5%

25.1%

24.1%

24.0%

23.6% 23.6%

23.0%
22.0%
21.0%

Source:CompanyData,PLResearch
Exhibit8: US$EBITgrowthYoY

$EBITgrowthYoY
20.0%

18.2%

16.8%
13.9%

15.0%
10.0%

12.9%

12.3% 11.3%

7.1%
2.9%

5.0%

6.1%

4.2%
1.0%

1.0%

0.0%
5.0%

4.1%

10.0%

Source:CompanyData,PLResearch

August29,2016

IncomeStatement(Rsm)
Y/eMarch
2015
NetRevenue
RawMaterialExpenses
GrossProfit
EmployeeCost
OtherExpenses
EBITDA
Depr.&Amortization
NetInterest
OtherIncome
ProfitbeforeTax
TotalTax
ProfitafterTax
ExOditems/Min.Int.
Adj.PAT
Avg.SharesO/S(m)
EPS(Rs.)

533,190
318,140
215,050

66,040
149,010
10,690
(26,310)
34,270
172,590
49,290
123,300
10
123,290
2,288.0
53.9

2016

2017E

2018E

624,410
377,060
247,350

76,570
170,780
14,590
(25,240)
31,250
187,440
52,520
134,920
20
134,900
2,288.0
59.0

705,175

427,075

278,100

86,240
191,861
16,379
(26,214)
35,247
210,729
61,111
149,617

149,617
2,288.0
65.4

793,702
480,755
312,948

96,262
216,685
18,189
(28,366)
38,032
236,528
68,593
167,935

167,935
2,288.0
73.4

Infosys

BalanceSheetAbstract(Rsm)
Y/eMarch
2015

2016

2017E

2018E

547,630

2,060
549,690
91,250
37,290
9,750
348,380
303,670
158,540
113,830
63,020
549,690

613,961

2,060
616,021
102,261
37,290
9,750
403,721
335,116
174,493
105,888
63,020
616,041

683,499

2,060
685,559
114,794
37,290
9,750
460,724
378,179
197,063
114,517
63,020
685,579

759,914

2,060
761,974
129,147
37,290
9,750
522,787
424,962
221,802
123,977
63,020
761,994

QuarterlyFinancials(Rsm)
Y/eMarch
Q2FY16

Q3FY16

Q4FY16

Q1FY17

NetRevenue
EBITDA
%ofrevenue
Depr.&Amortization
NetInterest
OtherIncome
ProfitbeforeTax
TotalTax
ProfitafterTax
Adj.PAT

156,350
43,510
27.8
3,580
(6,240)
7,930
47,860
13,870
33,980
33,980

159,020
43,280
27.2
3,690
(6,340)
8,020
47,610
12,960
34,650
34,650

165,500
46,390
28.0
4,190
(6,090)
7,720
49,920
13,940
35,970
35,970

167,820
44,470
26.5
4,000

7,530
48,000
13,620
34,360
34,360

2015

2016

2017E

2018E

Revenue(US$m)
8,711
Source:CompanyData,PLResearch.

9,501

10,525

11,846

Shareholder'sFunds
TotalDebt

OtherLiabilities
TotalLiabilities
NetFixedAssets
Goodwill
Investments
NetCurrentAssets
Cash&Equivalents
OtherCurrentAssets
CurrentLiabilities
OtherAssets
TotalAssets

CashFlowAbstract(Rsm)
Y/eMarch
C/FfromOperations
C/FfromInvesting
C/FfromFinancing
Inc./Dec.inCash
OpeningCash
ClosingCash
FCFF
FCFE

2015

2016

2017E

2018E

107,520
(12,790)
(50,560)
44,170
259,500
303,670
114,520
114,520

125,615
(25,601)
(68,569)
31,446
303,670
335,116
99,994
99,994

152,056
(28,912)
(80,080)
43,064
335,116
378,179
123,144
123,144

170,844
(32,542)
(91,520)
46,782
378,179
424,962
138,302
138,302

KeyFinancialMetrics
Y/eMarch
Growth
Revenue(%)
EBITDA(%)
PAT(%)
EPS(%)

Profitability
EBITDAMargin(%)
PATMargin(%)
RoCE(%)
RoE(%)

BalanceSheet
NetDebt:Equity
NetWrkngCap.(days)

Valuation
PER(x)
P/B(x)
EV/EBITDA(x)
EV/Sales(x)

EarningsQuality

2015

2016

2017E

6.4
11.1
15.8
15.8

17.1
14.6
9.4
9.4

12.9
12.3
10.9
10.9

12.6
12.9
12.2
12.2

27.2
21.2
23.0
23.1

27.3
21.2
23.3
23.3

(0.6)

(0.6)

15.9
3.5
10.4
2.8

14.1
3.1
9.0
2.5

29.0
16.7
7.8
82.3

29.0
16.1
7.5
82.4

27.9
23.1
24.0
24.1

27.4
21.6
23.2
23.2

(0.6)

(0.5)

19.2
4.3
13.9
3.9

17.6
3.9
11.9
3.3

Eff.TaxRate
28.6
OtherInc/PBT
19.9
Eff.Depr.Rate(%)
6.9
FCFE/PAT
92.9
Source:CompanyData,PLResearch.

28.0
16.7
8.1
74.1

August29,2016

2018E

KeyOperatingMetrics
Y/eMarch

Infosys

PrabhudasLilladherPvt.Ltd.
3rdFloor,SadhanaHouse,570,P.B.Marg,Worli,Mumbai400018,India

Tel:(9122)66322222Fax:(9122)66322209
RatingDistributionofResearchCoverage

PLsRecommendationNomenclature
BUY

Over15%OutperformancetoSensexover12months

Accumulate

OutperformancetoSensexover12months

50%

Reduce

UnderperformancetoSensexover12months

40%

Sell

Over15%underperformancetoSensexover12months

TradingBuy

Over10%absoluteupsidein1month

TradingSell

Over10%absolutedeclinein1month

NotRated(NR)

Nospecificcallonthestock

70%

57.8%

60%

%ofTotalCoverage

30%

25.9%
16.4%

20%
10%

0.0%

0%
BUY

Accumulate

Reduce

UnderReview(UR) :

Sell

Ratinglikelytochangeshortly

DISCLAIMER/DISCLOSURES
ANALYSTCERTIFICATION
We/I,Mr.GovindAgarwal,B.E.andPGDiplomainManagement,ResearchAnalysts,authorsandthenamessubscribedtothisreport,herebycertifythatalloftheviewsexpressedinthisresearchreportaccuratelyreflect
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August29,2016

RADHAKRISHNA
N SREESANKAR

Digitally signed by RADHAKRISHNAN SREESANKAR

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SREESANKAR,
serialNumber=8859da2df03122989b585ad520865a4f5
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Date: 2016.08.29 08:26:11 +05'30'