Q4FY23 Result Review

TP Rs1,618 Key Stock Data

Infosys BUY CMP Rs1,389 INFO IN / INFY.BO
Challenging macros to impact near term growth Potential upside/downside 17% Sector IT Services
Previous Rating BUY Shares o/s (mn) 4,149
Summary Market cap. (Rs mn) 5,760,690
Price Performance (%)
Infosys’ (INFO) reported subdued Q4FY23 numbers mainly led by project ramp 3-m daily average value (Rs mn) 380.0
-1m -3m -12m
downs and project cancellation. Company has guided 4-7% revenue range for 52-week high / low Rs1,672 / 1,356
Absolute (3.2) (7.6) (20.6)
FY24E which is wider than usual guidance and 20-22% margins due to Sensex / Nifty 60,431 / 17,828
Rel to Sensex (7.0) (7.9) (24.2)
challenging macros. The company aspires to achieve higher end of guidance on
the back of mega and large deals wins. However, we have built in 6% YoY V/s Consensus Shareholding Pattern (%)
revenue growth for FY24E due to exposure to higher discretionary spends. This EPS (Rs) FY24E FY25E Promoters 15.1
has led to lowering of our revenue estimates downwards by 2.4% & 3.5% for IDBI Capital 65 74 FII 36.3
FY24E and FY25E. We have also lowered our EPS estimates downwards by 3.4% Consensus 67 76 DII 30.4
% difference (3.0) (3.0) Public 18.2
and 4.2% to Rs 64.9 & 73.5 for FY24E & FY25E. Consequently, we have revised
our target price downwards to Rs 1,618 (22x FY25E EPS) from Rs 1,715.
Financial snapshot (Rs mn)
However, the recent fall in price prompt us to maintain BUY.
Year FY21 FY22 FY23 FY24E FY25E
Key Highlights and Investment Rationale Revenue 1,004,730 1,216,410 1,467,672 1,586,369 1,761,343
Change (yoy, %) 11 21 21 8 11
 Near term challenges; longer term demand intact: Infosys saw revenue
EBITDA 278,890 314,920 351,312 387,038 435,027
growth impact due to slowdown in discretionary spend and project Change (yoy, %) 25 13 12 10 12
cancellation. The company is witnessing higher impact in North America than EBITDA Margin(%) 28 26 24 24 25
in Europe. In addition, despite healthy large deal wins of US$9.8 bn (up 3.2% Adj.PAT 193,510 221,110 240,952 268,366 304,302
YoY) the company has guided revenue growth of 4-7% due to slowing of net EPS (Rs) 46 53 58 65 74
Change (yoy, %) 17 16 11 11 13
new wins (as seen in Q4, 22% of TCV) and slower conversion. Further, we
PE(x) 30 26 24 21 19
believe that the company’s higher exposure to discretionary spend will lead to Dividend Yield (%) 2 2 2 4 5
slowdown in revenue growth in near term. However, longer term demand EV/EBITDA (x) 20 17 15 14 12
remains intact and we expect Infosys to be a key beneficiary of the same. RoE (%) 27 29 32 35 39
RoCE (%) 32 34 37 40 44
 Margin to improve: We expect margins to improve led by easing of supply Source: IDBI Capital Research
side challenges, plateauing of sub-con cost, and pyramid rationalisation
Dhawal Doshi
partially offset by cost take out deals & higher travel. Hence we have assumed
dhawal.doshi@idbicapital.com
30 bps & 60 bps improvements in FY24E & FY25E to 21.4% & 22%. +91-22-2217 1841
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April 14, 2023
Infosys | Q4FY23 Result Review

Other Key Highlights

 Revenue in dollar terms declined by 2.3% QoQ and increased by 6.4% YoY; CC growth came in at -
3.2%/+8.8% QoQ/YoY. Sequential decline was due to a one time revenue loss caused by project
cancellation, reduced volumes and deal ramp downs across hi tech, retail, communication and financial
services verticals.
 EBIT margin for the quarter declined by 50 bps sequentially to 21%; 50 bps and 60 bps margin gains on
account of reduced sub con cost and customer support cost were offset by 70 bps and 90 bps negative
impact due to reduced utilization and one time revenue loss respectively.
 In terms of geographies, Europe grew 20.3% YoY, North America grew 6% YoY and RoW grew 3.4% YoY. In
terms of verticals, manufacturing (+26.5% YoY), Retail (+12.6% YoY), Energy & Utility (17.1% YoY) and Life
Sciences (+15.7% YoY) recorded double digit growth.
 Large deal signing during the quarter stood at US$ 2.1 bn which was -36%/-7% QoQ/YoY. Management
stated that the large deal pipeline has some mega deals and is hopeful of strong deal conversions going
forward.
 Demand environment - financial services, retail, E&U and communication verticals have been impacted by
delayed decision making and softness in discretionary spends led by macro uncertainties. Manufacturing
vertical is seeing increased deal ramp ups and vendor consolidation deals. However, increased energy
prices have impacted the growth of this vertical in European region. E&U is observing increased vendor
consolidation deals too. In terms of regions, American market is seeing higher caution than Europe
 Infosys provided revenue growth guidance of 4-7% in CC terms and operating margin of 20-22% for FY24E.
Management believes, large deal wins and healthy deal pipeline will aid in achieving the guided revenue
growth. On the margins front, headwinds such as increased travel and compensation cost will be offset by
levers such as increased utilization, automation, flatter pyramid, better pricing and reduction in sub con
cost. However, Infosys stated that it will take some time for the levers to play out.
 Headcount reduced by 3,611 QoQ to 343,234. Attrition stood at 20.9% lower than 24.3% in Q3FY23.
Utilization reduced by 170 bps QoQ to 80%. Going forward, attrition is expected to further cool down and
utilization is expected to improve as freshers become billable.

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Infosys | Q4FY23 Result Review

Exhibit 1: Financial snapshot (Rs mn)

Year-end: March Q4FY23 Q3FY23 QoQ (%) Q4FY22 YoY (%)

Revenues (US$ mn) 4,554 4,659 (2.3) 4,280 6.4
Revenues 374,410 383,180 (2.3) 322,760 16.0
Q4FY23 revenue growth declined by COGS 248,900 254,360 (2.1) 213,820 16.4
2.3% QoQ. Gross profit 125,510 128,820 (2.6) 108,940 15.2
SG&A 35,530 35,150 1.1 30,480 16.6
EBIT margin declined by 50 bps QoQ
EBITDA 89,980 93,670 (3.9) 78,460 14.7
Depreciation & amortization 11,210 11,250 (0.4) 8,900 26.0
EBIT 78,770 82,420 (4.4) 69,560 13.2
Other income 5,890 6,890 (14.5) 5,870 0.3
PBT 84,660 89,310 (5.2) 75,430 12.2
Tax 23,320 23,450 (0.6) 18,480 26.2
Minority interest 60 0 n.m. 90 (33.3)
Adjusted net profit 61,280 65,860 (7.0) 56,860 7.8
Exceptional item 0 0 n.m. 0 n.m.
Reported net profit 61,280 65,860 (7.0) 56,860 7.8
Diluted EPS (Rs) 14.77 15.70 (5.9) 13.54 9.1

As % of net revenue
Gross profit 33.5 33.6 33.8
SG&A 9.5 9.2 9.4
EBITDA 24.0 24.4 24.3
EBIT 21.0 21.5 21.6
Reported net profit 16.4 17.2 17.6
Tax rate 27.5 26.3 24.5
Source: Company; IDBI Capital Research

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Infosys | Q4FY23 Result Review

Exhibit 2: Earnings Revision

FY24F FY25E
Year-end: March New Old Chg (%) New Old Chg (%)
Revenue (US$ mn) 19,299 19,775 -2.4 21,428 22,214 -3.5
Revenue (Rs bn) 1,586 1,602 -1.0 1,761 1,799 -2.1
EBIT margin (%) 21.4% 22.1% (86) bps 22.0% 22.5% (61) bps
EPS (Rs) 64.9 67.1 -3.4 73.5 76.7 -4.2
Source: Company; IDBI Capital Research

Exhibit 3: Actual vs. estimates

Year to March Q4FY23 Q4FY23E Variance (%)
Revenue (US$ mn) 4,554 4,705 -3.2%
Revenue (Rs mn) 374,410 387,016 -3.3%
EBIT (Rs mn) 78,770 85,473 -7.8%
EBIT margin (%) 21.0% 22.1% (130) bps
Recurring PAT (Rs mn) 61,280 67,200 -8.8%
Recurring PAT margin (%) 16.37% 17.36% (134)bps
EPS (Rs) 14.8 16.0 -7.8%
Source: Company; IDBI Capital Research

Exhibit 4: Large clients trend

Year-end: March Q4FY21 Q1FY22 Q2FY22 Q3FY22 Q4FY22 Q1FY23 Q2FY23 Q3FY23 Q4FY23
US$1 mn+ 779 805 841 854 853 877 895 912 922
US$10 mn+ 252 264 270 274 275 278 281 294 298
US$50 mn+ 59 59 62 64 64 69 77 79 75
US$100 mn+ 32 34 35 37 38 38 39 38 40
Source: Company; IDBI Capital Research

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Infosys | Q4FY23 Result Review

Exhibit 5: Q4FY23 revenue growth was below our forecast

5,000 7.5%
4.7% 6.0%
4,000 5.7% 6.3% 3.8%
4.5%
2.3%

(US$ mn)
2.8% 2.5% 3.0%
3,000 0.7% 1.5%
2,000 0.0%
-2.3% -1.5%
3,613 3,782 3,998 4,250 4,280 4,444 4,555 4,659 4,554
1,000 -3.0%
Q4FY21 Q1FY22 Q2FY22 Q3FY22 Q4FY22 Q1FY23 Q2FY23 Q3FY23 Q4FY23
IT Services Revenue (LHS) QoQ Ch (%)
Source: Company; IDBI Capital Research

Exhibit 6: Q4FY23 EBIT margin was below our estimate

30.0%
25.0%
20.0% 24.5% 23.7% 23.6% 23.5%
21.6% 21.5% 21.5% 21.0%
15.0% 20.1%

10.0%
5.0%
0.0%
Q4FY21 Q1FY22 Q2FY22 Q3FY22 Q4FY22 Q1FY23 Q2FY23 Q3FY23 Q4FY23
EBIT Margin
Source: Company; IDBI Capital Research

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Infosys | Q4FY23 Result Review

Exhibit 7: Revenue growth across various segments (%)

Parameters % of revenue YoY growth (in CC)

Total revenue 8.8%

Digital revenue 62.9% 15%

Geography
US 61.0% 6.0%
Europe 27.0% 20.3%
India 2.6% 3.4%
ROW 9.4% -7.1%
Verticals
Financial Services 28.9% 0.4%
Retail 14.8% 12.6%
Communications 11.8% 0.3%
Energy, Utilities, Resources and Services 12.9% 17.1%
Manufacturing 13.5% 26.5%
Hi Tech 8.0% 3.7%
Life Sciences 7.2% 15.7%
Others 2.9% 13.4%
Source: Company; IDBI Capital Research

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Infosys | Q4FY23 Result Review

Exhibit 8: Utilisation including trainees further declined to 76.9%

400,000 86.0%
84.1%
83.3% 82.7% 84.0%
82.2%
300,000 82.0%
80.0%
80.0%
200,000 77.6% 76.6% 77.1% 76.9% 78.0%
100,000 76.0%
74.0%
259,619 267,953 279,617 292,067 314,015 335,186 345,218 346,845 343,234
0 72.0%
Q4FY21 Q1FY22 Q2FY22 Q3FY22 Q4FY22 Q1FY23 Q2FY23 Q3FY23 Q4FY23
No. of employees Utilisation (incl. trainees)
Source: Company; IDBI Capital Research

Exhibit 9: One-year forward PER trend

40.0

30.0

20.0

10.0

-
Mar-18

Mar-19

Mar-20

Mar-21

Mar-22

Mar-23
Jun-18

Jun-19

Jun-20

Jun-21

Jun-22
Dec-18

Dec-19

Dec-20

Dec-21

Dec-22
Sep-18

Sep-19

Sep-20

Sep-21

Sep-22
1Yr Fwd PE(x) -SD 17x Avg 22x +SD 27x
Source: Company; IDBI Capital Research

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Infosys | Q4FY23 Result Review

Financial Summary

Profit & Loss Account (Rs mn)

Year-end: March FY20 FY21 FY22 FY23 FY24E FY25E

Net sales 907,910 1,004,730 1,216,410 1,467,672 1,586,369 1,761,343
Change (yoy, %) 10 11 21 21 8.1 11.0
Operating expenses (685,230) (725,840) (901,490) (1,116,360) (1,199,331) (1,326,316)
EBITDA 222,680 278,890 314,920 351,312 387,038 435,027
Change (yoy, %) 7 25 13 12 10 12
Margin (%) 24.5 27.8 25.9 23.9 24.4 24.7
Depreciation (28,940) (32,670) (34,770) (42,250) (48,338) (48,338)
EBIT 193,740 246,220 280,150 309,062 338,700 386,690
Interest paid (1,690) (1,950) (2,000) (2,840) (3,280) (3,280)
Other income 28,030 22,010 22,950 27,000 27,220 27,727
Pre-tax profit 220,080 266,280 301,100 333,222 362,640 411,136
Tax (53,680) (72,050) (79,640) (92,140) (93,924) (106,484)
Effective tax rate (%) 24 27 26 28 26 26
Net profit 166,400 194,230 221,460 241,082 268,716 304,652
Adjusted net profit 165,950 193,510 221,110 240,952 268,366 304,302
Change (yoy, %) 3 17 14 9 11 13
EPS 39.1 45.6 52.7 58.2 64.9 73.5
Dividend per sh. 18 27 31 34 60 67
Dividend Payout (%) 54 59 59 58 93 91

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Infosys | Q4FY23 Result Review

Balance Sheet (Rs mn)

Year-end: March FY20 FY21 FY22 FY23 FY24E FY25E

Shareholders' funds 654,500 763,510 753,500 754,070 774,156 801,212
Share capital 21,206 21,219 20,980 20,690 20,690 20,690
Reserves & surplus 633,295 742,291 732,520 733,380 753,466 780,522
Other liabilities 38,570 51,020 54,180 82,740 82,740 82,740
Curr Liab & prov 213,230 254,040 355,190 405,020 399,852 443,955
Current liabilities 192,610 225,450 319,370 358,110 354,217 393,286
Provisions 20,620 28,590 35,820 46,910 45,635 50,669
Total liabilities 251,800 305,060 409,370 487,760 482,592 526,695
Total equity & liabilities 910,240 1,072,880 1,166,730 1,245,710 1,260,628 1,331,787

Net fixed assets 205,750 217,740 213,930 226,310 227,972 223,684

Investments - - - - - -
Other non-curr assets 117,360 129,180 144,440 184,900 190,364 211,361
Current assets 587,130 725,960 808,360 834,500 842,291 896,741
Inventories - - - - - -
Sundry Debtors 184,870 192,940 226,980 254,240 273,812 304,013
Cash and Bank 274,410 389,190 377,960 316,510 338,130 336,972
Loans and advances 127,850 143,830 203,420 263,750 230,349 255,757
Total assets 910,240 1,072,880 1,166,730 1,245,710 1,260,628 1,331,787

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Infosys | Q4FY23 Result Review

Cash Flow Statement (Rs mn)

Year-end: March FY20 FY21 FY22 FY23 FY24E FY25E

Pre-tax profit 220,080 266,280 301,100 333,222 362,640 411,136
Depreciation 21,790 32,670 (15,010) 42,250 48,338 54,288
Tax paid (54,440) (66,520) (77,970) (91,830) (93,924) (106,484)
Chg in working capital (23,260) 16,760 7,520 (37,760) 8,661 (11,505)
Other operating activities (54,842) 25,169 68,830 (12,210) 85,100 (22,640)
Cash flow from operations (a) 109,328 274,359 284,470 233,672 410,815 324,795

Capital expenditure (56,560) (44,660) 18,820 (54,630) (50,000) (50,000)

Chg in investments - - - - - -
Other investing activities - - - - - -
Cash flow from investing (b) (56,560) (44,660) 18,820 (54,630) (50,000) (50,000)

Equity raised/(repaid) (494) 14 (183,644) (99,690) - -

Debt raised/(repaid) - - - - - -
Dividend (incl. tax)* (89,063) (114,583) (130,076) (140,692) (248,280) (277,246)
Chg in monorities 2,910 (350) (800) (110) (350) (350)
Other financing activities - - - - - -
Cash flow from financing (c) (86,648) (114,919) (314,520) (240,492) (248,630) (277,596)
Net chg in cash (a+b+c) (33,880) 114,780 (11,230) (61,450) 20,185 (2,801)
Note: *we have incorporated buyback in dividend as buyback is through open market

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Infosys | Q4FY23 Result Review

Financial Ratios
Year-end: March FY20 FY21 FY22 FY23 FY24E FY25E
Book Value (Rs) 154 180 180 182 187 194
Adj EPS (Rs) 39 46 53 58 65 74
Adj EPS growth (%) 5 17 16 11 11 13
EBITDA margin (%) 24.5 27.8 25.9 23.9 24.4 24.7
Pre-tax margin (%) 24 27 25 23 23 23
Net Debt/Equity (x) 0 -1 -1 0 0 0
ROCE (%) 29 32 34 37 40 44
ROE (%) 25.5 27.3 29.2 32.0 35.1 38.6
DuPont Analysis
Asset turnover (x) 1.0 1.0 1.1 1.2 1.3 1.4
Leverage factor (x) 1.3 1.4 1.5 1.6 1.6 1.6
Net margin (%) 18.3 19.3 18.2 16.4 16.9 17.3
Working Capital & Liquidity ratio
Inventory days 0 0 0 0 0 0
Receivable days 74 70 68 63 63 63
Payable days 15 13 17 13 13 13

Valuations
Year-end: March FY20 FY21 FY22 FY23 FY24E FY25E
PER (x) 35.5 30.5 26.4 23.8 21.4 18.9
Price/Book value (x) 9.0 7.7 7.7 7.6 7.4 7.2
EV/Net sales (x) 6.2 5.5 4.5 3.7 3.4 3.1
EV/EBITDA (x) 25 20 17 15 14 12
Dividend Yield (%) 1 2 2 2 4 5
Source: Company; IDBI Capital Research

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Infosys | Q4FY23 Result Review

Notes

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Key to Ratings Stocks:

BUY: 15%+; HOLD: -5% to 15%; SELL: -5% and below.

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Infosys | Q4FY23 Result Review

Analyst Disclosures
We, Devang Bhatt and Dhawal Doshi, hereby certify that the views expressed in this report accurately reflect our personal views about the subject companies and / or securities. We also certify that no part of our compensation were, are or would be directly or indirectly related
to the specific recommendations or views expressed in this report. Principally, We will be responsible for the preparation of this research report and have taken reasonable care to achieve and maintain independence and objectivity in making any recommendations herein.

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Capital encourages the practice of giving independent opinion in research report preparation by the analyst and thus strives to minimize the conflict in preparation of research report. Accordingly, neither IDBI Capital nor Research Analysts have any material conflict of interest at
the time of publication of this report. We offer our research services to primarily institutional investors and their employees, directors, fund managers, advisors who are registered with us. The Research Analyst has not served as an officer, director or employee of Subject
Company. We or our associates may have received compensation from the subject company in the past 12 months. We or our associates may have managed or co-managed public offering of securities for the subject company in the past 12 months. We or our associates may
have received compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months. We or our associates may have received any compensation for products or services other than investment banking or merchant
banking or brokerage services from the subject company in the past 12 months. We or our associates may have received any compensation or other benefits from the Subject Company or third party in connection with the research report. Research Analyst or his/her relative’s
may have financial interest in the subject company. IDBI Capital or its associates may have financial interest in the subject company. Research Analyst or his/her relatives does not have actual/beneficial ownership of 1% or more securities of the subject company at the end of
the month immediately preceding the date of publication of Research Report. IDBI Capital or its associates may have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research
Report. The Subject Company may have been a client during twelve months preceding the date of distribution of the research report. Price history of the daily closing price of the securities covered in this note is available at www.bseindia.com; www.nseindia.com and
www.economictimes.indiatimes.com/markets/stocks/stock-quotes.

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