Infosys Ltd Fundamental analysis of IT giant

In this article, we will explore Infosys Ltd. fundamentally, understand its business model and industry, and determine whether it’s a good investment fit for you.

Infosys Ltd.

Infosys Ltd. is a huge IT-software company in India which primarily provides consulting, technology, outsourcing, and other digital services to thousands of clients. They help companies execute strategies that help in their institutional digital transformation. Other offerings include enhancement of customer experience, leveraging of AI-based analytics and big data, engineering of digital products, and the implementation of Internet of Things.

The company is currently the 2nd largest IT company in India after Tata Consultancy Services (TCS).

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Is the IT-software industry a goldmine investment?

The Indian IT industry currently stands tall as a global champion, boasting more than US $245 billion in revenue (as per FY23), and is expected to grow 15% year-on-year. The sector comprises almost 8% of India’s GDP and makes significant contributions to the economy, including in terms of employment generation.

Globally, developed countries outsource a lot of IT-software jobs to the Indian market, owing to significantly lower costs and technical expertise. Revenue generated from the export of IT services abroad amounted to more than US $194 billion last year.

This is where Infosys shines, where it has been known for consistently investing in and delivering innovative products and services for its clients, both domestically and internationally.

Who are INFY’s competitors in the IT-software sector?

Here are some of INFY’s competitors:

• Tata Consultancy Services Ltd (TCS)
• HCL Technologies Ltd
• Wipro Ltd
• Tech Mahindra Ltd

History of Infosys Ltd.

Here is a brief summary of the company through the years:

Early growth (1981 – 1995):

• The company was founded by seven engineers during this time, famously with only ₹10,000 as its initial investment.
• Focusing on niche software consulting, the company secured its first international (American) client in 1983, laying the foundation for its global journey.
• Infosys went public in 1995 and also became the first Indian software company to be listed on the NASDAQ.

Blossoming into a global leader (1996 – 2010):

• Infosys slowly expanded and created a niche for itself in its service offerings and its client base.
• The company also made significant acquisitions like that of US-based Expert Technology Group in 2001.
• By 2010, Infosys had crossed the $2 billion revenue mark.

Present and the future (2011 onwards):

• Infosys boosted its automation capabilities with acquisitions like that of Panaya in 2015.
• Today, the company is a global leader in digital transformation, serving Fortune 500 companies across various industries.
• While the company has shown consistent growth over the years, challenges like talent retention, rising employee costs, and global economic headwinds need to be navigated strategically.

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Company Profile of INFY

Pros

• Good ROE numbers at 29.4% over the last three years.
• Company also pays out a large amount of dividends, maintaining a healthy dividend payout rate of 58.8%.
• It has more than 38 clients that are worth more than US $100 million. Companies include HSBC Bank, Goldman Sachs, Accenture, US Army, US Navy, IBM Corporation, etc.
• The company employs more than 3,15,000 people today. 

Cons

• Experts suggest that the company might be amongst the low performers in the market in this industry.
• The stock also seems to be overvalued compared to its assets, trading at 7.86 times its book value.
• Promoter holding currently stays low at roughly 15%.

The finances

Shareholding pattern of Titan Ltd.

Here’s the shareholding pattern of Titan:

• Promoters: 14.89%
• Foreign Institutional Investors (FIIs): 33.60%
• Domestic Institutional Investors (DIIs): 35.19%
• Public: 15.83%

Mutual fund holdings in the company have steadily increased from 14.9% in June 2022 last year to more than 16.5% today. FII holdings, on the other hand, have decreased marginally over the last few quarters, decreasing from 31.72% in June 2022 to a little less than 30% today.

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Peer multiple comparison

*As on 09.01.2024

Conclusion

So, that’s a brief overview of everything you need to know about Infosys Ltd. before investing. This information is by no means, however, exhaustive, and we encourage you to do your own research before investing.

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