10 January 2014

3QFY13 Results Update | Sector: Technology

Infosys

Ashish Chopra (Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424
Siddharth Vora (Siddharth.Vora@MotilalOswal.com); +91 22 3982 5585




BSE SENSEX S&P CNX

CMP: INR3,549 TP: INR4,156 Buy
20,758 6,171
Bloomberg INFO IN
Equity Shares (m) 574.2
M.Cap. (INR b) / (USD b) 2,037.9/32.9
52-Week Range (INR) 3,581/2,190
1, 6, 12 Rel. Per (%) 7/23/47

Financials & Valuation (INR Billion)
Y/E MAR 2014E 2015E 2016E
Sales 505.4 575.6 642.3
EBITDA 135.9 162.8 184.8
PAT 105.9 130.4 148.4
EPS (INR)* 189.2 228.3 259.7
EPS Gr. (%) 14.8 20.6 13.8
BV/Sh. (INR) 826.5 996.2 1,185.7
RoE (%) 24.3 27.3 25.9
RoCE (%) 28.0 28.6 27.3
P/E (x) 18.7 15.5 13.7
P/BV (x) 4.3 3.6 3.0
* FY14 EPS excludes INR2.19b (INR3.8/sh)
impact from one-time visa issue settlement
fees
3QFY14 performance: INFOs 3QFY14 revenue at USD2,100m was in line
with our estimate, but EBIT margin at 25% expanded 140bp QoQ, above our
estimate of 90bp expansion to 24.5%. PAT at INR28.75b grew 11% QoQ, well
above our estimate of INR27.6b, driven by forex gains of INR1.2b.
Guidance: For FY14, company guided for USD revenue growth band of 11.5-
12% YoY (up from 9-10%), implying -0.4% to +1.4% QoQ growth in 4QFY14.
Expect upgrades to OPM estimates: We see a strong case for earnings
upgrade driven by better profitability: [1] current EBIT margin consensus of
25% for FY15 (which was OPM in 3Q), with multiple efforts still on, [2] levers
on productivity, offshoring, utilization and ongoing delivery effectiveness.
Executive Chairmans comments on key issues: Mr Narayana Murthy cited
broad timelines to turn around INFO in the three-pronged approach: cost
effectiveness (6-18 months), sales effectiveness (9-21 months) and delivery
effectiveness (up to three years). Nomination committees search for next
CEO would be from internal and external candidates. The two-president
structure allows the committee to assess internal cadre.
Clients IT services budgets maybe marginally up: While client budgets are
likely to remain flat, Services budgets in IT could be marginally higher. FSI
and Retail are looking up, so is manufacturing (excluding Hi-Tech).
Our EPS estimates for FY15E/FY16E are raised by 4.3%/2.1% to
INR228.3/INR259.7; following OPM upgrades of 74bp/50bp. Despite multiple
senior level exits, we expect the turnaround at INFO to progress steadily. We
expect USD revenue CAGR of 13% over FY13-16E and EPS at a CAGR of
16.4%. Maintain Buy with a target price of INR4,150 (16x FY16E EPS).


Investors are advised to refer through disclosures made at the end of the Research Report.


10 January 2014 2

Infosys
Revenue: In line with estimates; offshore shift offset by productivity gains
Infosys 3QFY14 USD revenues grew 1.7% QoQ to USD2,100m, in line with our
estimate of USD2,101m. Growth in constant currency was 1.2% QoQ, in line.
Cross currency movements impacted revenue growth by -50bp in 3QFY14.
Overall volume growth was 1.7% QoQ (v/s est. of 1.3% QoQ); IT services volume
growth was 0.6% QoQ as onsite volume declined by 3.4% and offshore volumes
increased by 2.6%.
In constant currency, both onsite and offshore realization were up 2.2%, which,
along with offshore effort shift of 130bps to 70.1% contributed to blended
realization improvement of 0.7%. Revenue mix shifted in favor of offshore by
140bp QoQ to 48.9%.
Rupee revenue was INR130.26b, grew 0.5% QoQ (in line with estimate of
INR130.29b). Realized currency rate during the quarter was INR62.03/USD v/s
our assumption of INR62/USD.

USD revenue grew 1.7% QoQ and 1.2% QoQ in constant currency terms, in line

Source: MOSL, Company

Profitability: Operating margin above estimate, PAT beat driven by other
income / better margins
EBIT margin during the quarter was 25%, +140bps QoQ, above our estimate of
90bp QoQ expansion to 24.5%.

EBITDA margins improved by 170bps QoQ to 27.8%

Source: MOSL, Company

Factors which led to improvement in margins are: [1] Gross Margins increased
by 100bps to 38.9% as efforts mix shifted offshore by 130bps [2] Salary cost in
S&M reduced by 90bps QoQ to 4% of revenues (4.9% in 2Q was unusually high
29.1 31.1 33.7 32.6 30.6 29.1 28.5 26.5 26.5 26.1 27.8
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EBITDA Margins (%) SG&A (%)

10 January 2014 3

Infosys
on the back of variable component), [3] Utilization including trainees improved
by 40bps to 74.1%.

Salary costs in S&M rationalized to previous levels post variable pay in last quarter

Source: MOSL, Company

PAT was INR28.75b, above our estimate of INR27.6b, on higher other income
(INR7.3b v/s estimate of INR5.6b), driven by forex game of INR1.2b; and above-
estimate operating margins.

Guidance: Upgrades full year guidance to 11.5 12.0%, implying -0.4% to
+1.4% QoQ growth in 4Q
For FY14, Infosys guided for USD revenue growth band of 11.5-12% YoY (earlier
9-10%). 4Q implied growth is 1.4% at higher end. We expected INFO to raise its
guidance to 11.5% at the higher end. INFOs guidance implies 12.4% - 12.9% YoY
growth in constant currency.
INFOs earlier guidance of 9-10% YoY in USD implied CQGR -1.6% to -0.8% in
2HFY14.

Segment-wise performance: Broad-based nature of growth was a key
positive
Among verticals, Life Sciences (10.5% QoQ, 29.3% of incremental revenues),
Retail & CPG (3.6% QoQ, 34% of incremental revenues) and BFS (2% QoQ, 33%
of incremental revenues) drove growth. Manufacturing (-0.1% QoQ), Transport
& Logistics (-9.6% QoQ), Healthcare (-3.2% QoQ) and Telecom (-3.3% QoQ)
lagged. While there is strong traction in BFSI, Retail and CPG; manufacturing is a
mixed big and outlook continues to be challenging in Telecom (7.9% of
revenues).
3.7
4.0
4.2
4.0
4.2
4.9
4.0
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14
Salary costs in S&M as a % of revenues

10 January 2014 4

Infosys
Life Sciences, Retail & CPG and BFS led growth among verticals
Verticals
Contribution to
rev (%)
Growth - QoQ
(%)
Contr to incr rev
(%)
4-Qtr
CQGR
BFS 27.2 2.0 33.3 2.8
Insurance 6.3 1.6 6.3 0.1
Manufacturing 22.8 -0.1 -1.5 3.7
Retail and CPG 16.0 3.6 34.2 2.4
Transport and Logistics 1.6 -9.6 -10.6 -0.6
Life Sciences 5.0 10.5 29.3 3.4
Healthcare 2.0 -3.2 -4.1 10.0
Energy and Utilities 5.2 3.6 11.3 1.4
Telecom 7.9 -3.3 -16.4 -2.5
Others 6.0 5.2 18.2 4.6
Source: MOSL, Company

Among services, Consulting grew above company average (2% QoQ) amid some
pick up in discretionary spend while contribution to incremental revenues was in
line with their contribution to total revenues (33%). Traditional Business IT
Services and Products. Platform & Solutions grew by 1.5% QoQ and 1.6% QoQ
espectively.

Broad based growth among services
Services
Contribution to
rev (%)
Growth - QoQ
(%)
Contr to incr rev
(%)
4-Qtr
CQGR
Business IT Services 61.3 1.5 55.2 2.1
Consulting Package Impl & Others 33.4 2.0 39.5 3.0
Products, Platforms and Solutions 5.3 1.6 5.3 1.4
Source: MOSL, Company

In terms of geography, Europe grew by 5.5% QoQ contributing 79.6% of the
incremental revenues (3.5% in constant currency). While North America
declined by 0.8% QoQ due to furloughs and shutdown during the quarter; its
incremental revenues impact (-31%) was compensated by RoW which grew by
5% QoQ contributing 36.8% to the incremental revenues.

Europe led among geographies
Geographies
Contribution to
rev (%)
Growth QoQ
(%)
Contr to incr rev
(%)
4-Qtr
CQGR
North America 60.0 -0.8 -31.1 2.0
Europe 24.9 5.5 79.6 3.3
India 2.6 10.1 14.8 6.8
Rest of the world 12.5 5.0 36.8 1.8
Source: MOSL, Company

Potential earnings upgrade from INFOs improving OPM Making a case
INFO achieved 25% EBIT margin in 3QFY14, and margin expansion during the
quarter was an encouraging early indicator of the fruition of recent efforts
around cost optimization. That said, its efforts towards better efficiency are still
Work-in-progress, and more progress on the same will help drive even better
profitability.

10 January 2014 5

Infosys
With margins expected to withhold 25-26% levels over the medium term, we
note that the consensus EBIT margin of 24.8% for FY15 will likely see an
upgrade. We see the potential in multiple levers:
1. Delivery effectiveness for Infosys is an ongoing process, which, as pointed
out by Mr. Murthy, could take up to 3 years time. The result of the same
exercise will also feed into the improvement companys margins.
2. INFO managed to improve the efforts mix in favor of offshore by 130bp QoQ
in 3QFY14, and continues to look at opportunities to drive the metric further.

Offshore effort shift of 130bps led to lower volume and pricing growth

Source: MOSL, Company

3. Utilization, too, continues to have some room for expansion left, and lack of
hiring to backfill attrition in the current quarter could be an indicator of a
conscious effort to drive the same.

Company intends to take its utilization (excluding trainees) to 80-82%

Source: MOSL, Company

4. INFO managed to improve its revenue productivity in each of the last two
quarters. This, despite companys thrust on reviving the growth in price
sensitive bread-n-butter traditional services, and bidding for the large
outsourcing contracts with the necessary aggression in the market.




69.3 69.3
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Offshore Effort Mix ( IT Services & Consulting)
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Utilization Incl. Trainees(%) Utilization Excl. Trainees(%)

10 January 2014 6

Infosys
NRN clarifies on dissolution of Executive Council, 2-President Structure,
Senior level exits and Timelines for INFOs turnaround
Executive Council: Decision to have two Presidents took more deliberation.
Recommendation to expand executive council was accepted in a hurry.
However, recommendation of having two Presidents would render Executive
Council redundant, as the two Presidents would have their own Governing
councils set up in a months time. Therefore, despite expanding only a couple of
months ago, we bit the bullet and dismantled.
Two Presidents: Having two Presidents one focusing on market and one on
delivery effectiveness is a good one. Will give sufficient time for this structure.
Gives nomination committee the opportunity to consider internal cadre of
leaders along with external candidates. It not only makes the organization more
efficient, but also helps nominations committee create a portfolio of candidates
for next CEO. If nomination committee decides that the next CEO will be from
outside, the current structure is least perturbing to the operations.
Senior level exits: Focus has always been on developing leadership talent.
Three-tier leadership program within the company has now created a pool of ~
600 leaders. As far as future is concerned, it will not be compromised due to lack
of leadership. As far as exits are concerned, it is good for the company. This is
not my worry.
Transformation timelines: Cost optimization is one of the initiatives likely to
yield results earlier than the other two (between 6-18 months). Sales
effectiveness will bring value anywhere between 9-21 months. Delivery
effectiveness takes up to three years.


Takeaways from Management commentary
IT Services budgets are marginally positive: Client budgets are likely to remain
flat overall, with mixed trends across sectors budgets are trending flat to
marginally better in some verticals and declining in others. Overall Services
budgets in IT are expected to be marginally higher.
Vertical-wise traction: FSI clients focusing on costs take-out and deal pipeline is
healthy. Client budget for CY14 are flat-to-higher. Manufacturing is stable
overall, with increase in budgets across segments, with the exception of Hi-tech,
where budgets may decline YoY. Telecom is still weak, with only few pockets
seeing healthy pipeline. Budgets are likely to be down YoY. RCL Retail is seeing
higher discretionary spending, while patent cliff-driven cost takeout focus in Life
Sciences could benefit the IT companies.
EBIT margin could expand further if pricing is stable: Several initiatives are WIP
in terms of innovation both in the area of sales effectiveness and delivery
effectiveness. Hopefully, the positive impact of these will be seen in 1-3 years.
25-26% OPM is a reasonable assumption in the medium-to-long term. The
management will continue to plough the levers on the margins, and it could
expand further if the pricing environment remains stable.
US decline an aberration: US geography declined 0.8% QoQ in 3QFY14.
However, this is a quarterly phenomenon and US remains a strong growth drive
for the company. The revenue trends from US will be definitely better in CY14.

10 January 2014 7

Infosys
Management transitions continue, with zero impact on client relationships:
The transition in the top level of the organization has been significant, and
transition in the middle level management may follow. However, these have
had no impact on IFNOs relationships with clients, given connect at multiple
levels. Secondly, there is some more realignment at the top, yet to be
announced, which could follow after some time.
Large deal wins: The company won 3 large deals in Europe and 2 large deals in
US. Total TCV of deals won during the quarter was USD500m, taking TCV in large
outsourcing deals to USD2.5b in the last 5 quarters. Pipeline remains healthy
and Business environment improved marginally in most business segments.

Change in estimates: Upgrading FY15/16 EPS by 4.3%/2.1%, margins by
74bp/50bp
INFO guided for FY14 USD revenue growth of 11.5-12%. Considering the
managements recent conservative stance in sharing outlook, we see the
company exit the year with marginally better growth (we have revised our
4QFY14 USD revenue growth to 2% from 1.3% earlier). Our revenue growth
estimates for FY15E/FY16E are largely unchanged, and a stronger exit
expectation v/s earlier feeds into marginally higher absolute revenues in
FY15E/FY16E (0.3%/0.7%).
INFOs impressive margin expansion was the key positive in 3QFY14, and our
expectations of continued sanguine profitability are driven by the companys
outlook of 25-26% EBIT margin in the medium-to-long term. Consequently, our
EPS estimates for FY15E/FY16E are revised upwards by 4.3% for FY15E to
INR228.3 and 2.1% for FY16E to INR259.7.

Change in estimates

Revised Earlier Change (%)
FY14E FY15E FY16E FY14E FY15E FY16E FY14E FY15E FY16E
INR/USD 60.9 61.0 60.0 60.9 60.0 60.0 0.0 1.7 0.0
USD Revenue (m) 8,299 9,436 10,705 8,287 9,409 10,634 0.1 0.3 0.7
USD revenue gr.(%) 12.2 13.7 13.4 12.0 13.5 13.0 17bp 17bp 42bp
EBIT Margin (%) 24.1 25.9 26.5 24.1 25.2 26.0 7bp 74bp 50bp
EPS (INR)* 189.2 228.3 259.7 184.5 218.8 254.4 2.6 4.3 2.1
EPS Growth (%) 14.8 20.6 13.8 11.9 18.6 16.3
Source: MOSL, Company
* FY14 EPS excludes INR2.19b (INR3.8/sh) impact from one-time visa issue settlement fees

Valuation and View
Despite multiple key senior level exits, INFOs competent management
combined with the leadership of Mr. Murthy, gradually should come good on its
objectives over the medium term. NRNs following comments during the AGM
back in June 2013 are probably more evidenced in the recent top management
flux: The challenge is daunting and the task is tough. Therefore, the task of
rebuilding a desirable Infosys will take at least 36 months. In the process, there
will be some tough decisions resulting in pain as we move forward
INFO remains focused on bridging the underperformance on both growth as
well as margins, and has been putting right the factors that drove sub-par

10 January 2014 8

Infosys
execution. Growth and deal signings have started to improve, and that bodes
well for profitability too, going forward.
In 3 out of the previous 4 quarters, INFO surprised positively on revenue growth
and 3QFY14 was the first in few when INFOs margin uptick was a positive
surprise.
We expect Infosys to grow its USD revenues at a CAGR of 13% over FY13-16E
and EPS at a CAGR of 16.4% during this period. The stock trades at 15.5x FY15E
and 13.7x FY16E EPS. Maintain Buy, with a price target of INR4,150, which
discounts FY16E EPS by 16x.

Other Result Highlights
Utilization (IT Services and Consulting) including trainees decreased 60bp QoQ
to 72.5% and Utilization excluding trainees was 76.9%, -60bp QoQ
Utilization (Total) including trainees increased 40bp QoQ to 74.1% and
Utilization excluding trainees was 78%, +20bp QoQ
The company won five large deal wins total TCV signings worth ~USD500m in
the quarter
Infosys Edge won 14 deals during the quarter; 8 in platforms and 6 in products.
Offshore mix shifted +140bp QoQ to 48.9%
Gross Headcount addition stood at 6,682; while there was a net reduction of
1,823. Total employee headcount was 158,404
Attrition(LTM) was 18.1% (v/s 17.3% in 3QFY14). Absolute attrition was lower at
8,505 in the quarter v/s 9,204 in 2QFY14.
Proportion of revenues from fixed price (excluding products) was up 80bps QoQ
at 42.9%
The company has USD1,049b hedges as at end of 3QFY14 (similar to 2QFY14)
Account receivable days increased to 65 in 3QFY14, v/s 62 in 2QFY14
The company closed the quarter with cash and equivalents of USD4.4b


10 January 2014 9

Infosys

Operating Metrics
1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14
Verticals (%)

Banking and Financial Services 28.1 28.2 27.9 27.4 27.7 27.0 26.9 27.2 27.0 27.1 27.2
Insurance 7.3 7.1 7.4 6.9 6.6 6.7 6.9 6.7 6.7 6.3 6.3


Manufacturing 20.3 20.2 20.4 21.3 22.0 22.1 21.7 22.2 22.5 23.2 22.8


Retail & CPG 16.1 15.6 15.2 15.8 16.9 17.0 16.0 15.4 15.8 15.7 16.0
Transport & Logistics 1.8 1.7 2.0 1.6 1.7 1.7 1.8 1.8 1.8 1.8 1.6
Life Sciences 3.7 3.8 4.1 3.9 3.7 3.9 4.8 4.8 4.7 4.6 16.0
Healthcare 1.1 1.8 1.8 1.6 1.4 1.4 1.5 1.9 2.4 2.1 1.6


Energy & Utilities 5.7 5.7 6.0 6.1 4.6 5.3 5.4 5.2 4.9 5.1 5.2
Communication & Services 10.6 10.4 9.8 10.1 10.1 9.9 9.6 9.3 8.5 8.3 7.9
Others 5.3 5.5 5.4 5.3 5.3 5.0 5.5 5.5 5.7 5.8 5.2


Service Lines (%)

Development 16.1 17.1 17.1 16.9 17.1 17.0 15.8 15.5 15.7 16.0 15.9
Maintainence 22.3 21.6 21.8 20.9 20.9 21.4 20.0 19.9 19.3 19.1 19.2
Infrastructure Management 5.9 5.8 6.1 6.2 6.6 6.8 6.9 7.2 7.0 7.2 6.9
Testing 7.5 8.2 7.9 7.8 8.3 8.6 8.4 8.3 8.4 8.4 8.7
Business process management 5.4 5.4 5.2 4.8 4.9 4.7 5.2 5.2 5.1 5.1 5.3
Engg Services 3.2 3.4 3.6 3.4 3.5 3.4 3.2 3.2 3.2 3.3 3.2
Others 2.8 2.8 2.6 2.7 2.7 2.6 2.4 2.3 2.3 2.3 5.3
BITS 63.2 64.3 64.3 62.7 64.0 64.5 61.9 61.6 61.0 61.4 64.5


CSI 31.5 30.7 30.6 31.1 29.9 30.0 32.6 32.7 33.6 33.3 33.4


Products 4.8 4.2 4.8 4.4 4.5 3.8 3.9 4.0 3.7 3.7
3.8
BPM Platforms 0.7 0.7 0.8 1.4 1.3 1.3 1.3 1.3 1.2 1.2
1.1
Others 0.3 0.3 0.3 0.4 0.3 0.4 0.3 0.4 0.5 0.4
0.4
PPS 5.8 5.2 5.9 6.2 6.1 5.5 5.5 5.7 5.4 5.3
5.3


Geography (%)


North America 64.2 65.3 63.7 62.4 64.1 63.9 61.0 60.2 61.4 61.5 60.0
Europe 21.3 20.5 22.6 23.1 21.4 21.9 24.0 25.0 23.6 24.0 24.9
India 2.6 2.2 2.1 2.0 2.0 1.6 2.2 2.4 2.6 2.4 2.6
RoW 11.9 12.0 11.6 12.5 12.5 12.6 12.8 12.4 12.4 12.1 12.5


Clients (%)

Revenues from top client 4.5 4.6 4.1 4.1 4.1 4.0 3.6 3.6 3.9 3.9 3.7
Revenues from 2-5 client 11.4 11.3 10.9 11.3 12.1 12.0 11.0 11.1 11.0 11.1 10.4
Revenues from 6-10 clients 9.3 9.3 9.5 9.0 9.1 9.4 9.3 9.3 9.1 9.5 9.4
Revenues from Non-Top 10 clients 74.8 74.8 75.5 75.6 74.7 74.6 76.1 76.0 76.0 75.5 76.5


Clients added during the quarter 26 45 49 52 51 39 89 56 66 68 54
Total active client 628 647 665 694 711 715 776 798 836 873 888
Source: MOSL, Company




10 January 2014 10

Infosys
Operating Metrics
1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14
QoQ Growth (%)

Verticals

Banking and Financial Services 3.4 4.2 3.4 -4.7 -1.0 0.7 6.3 2.0 2.1 2.8 2.0
Energy & Utilities 2.5 4.5 8.9 -0.3 -25.3 18.1 8.3 -2.3 -3.2 8.0 3.6
Insurance 5.8 1.6 7.8 -8.6 -5.3 4.0 9.5 -1.5 2.7 -2.4 1.6
Manufacturing 3.8 4.0 4.5 2.4 2.3 2.9 4.4 3.8 4.1 7.0 -0.1
Others 9.7 14.8 5.3 -6.3 -4.6 1.5 21.8 4.9 7.8 1.3 5.7
Retailing 15.8 1.2 0.8 1.9 5.9 3.1 0.1 -2.4 5.4 3.1 3.6
Telecom -7.1 2.5 -2.5 1.1 -1.0 0.4 3.1 -1.7 -6.1 1.3 -3.3
Transportation -10.6 -1.3 21.7 -21.6 5.2 2.5 12.6 1.4 2.7 3.8 -9.6


Service Lines

Development 4.3 11.0 3.4 -3.1 0.2 1.9 -1.2 -0.5 4.0 5.7 1.0
Maintainence 5.7 1.2 4.4 -6.0 -1.0 4.9 -0.6 0.9 -0.4 2.7 2.2
Infrastructure Management 0.9 2.7 8.8 -0.3 5.4 5.6 7.9 5.9 -0.1 6.7 -2.6
Consulting & Package Implementation 3.5 2.4 28.1 -0.3 -4.8 2.8 15.5 1.8 5.5 2.8 2.0
Testing 7.2 14.2 -0.3 -3.2 5.4 6.2 3.9 0.2 3.9 3.8 5.3
Engg Services 39.1 11.0 9.5 -7.4 1.9 -0.4 0.1 1.4 2.7 7.0 -1.4
Business process management 0.6 4.5 -0.4 -9.5 1.1 -1.7 17.6 1.4 0.7 3.8 5.6
Others -4.4 14.0 -16.7 4.8 -4.2 -11.2 -1.9 1.4 -1.6 3.8 -7.2
Products -7.3 -8.6 18.2 18.5 -1.0 -2.8 6.3 5.1 -2.7 1.8 1.6


Geography

North America 5.1 6.3 0.9 -3.9 1.7 2.2 1.5 0.1 4.8 3.9 -0.8
Europe 0.5 0.6 14.0 0.2 -8.3 4.9 16.5 5.7 -3.0 5.5 5.5
India 0.4 -11.6 -1.3 -6.6 -1.0 -18.0 46.2 10.7 11.3 -4.2 10.1
RoW 7.9 5.4 0.0 5.7 -1.0 3.3 8.0 -1.7 2.7 1.3 5.0


Clients

Revenues from top client -0.1 6.8 -7.8 -1.9 -1.1 0.1 -4.3 1.4 11.3 3.8 -3.6
Revenues from top 5 clients 7.7 4.5 -2.4 0.7 4.1 1.3 -3.0 2.1 4.1 4.5 -4.5
Revenues from top 10 clients 5.6 4.5 0.6 -2.3 2.6 3.0 0.1 1.8 2.7 5.9 -2.5
Revenues from Non-Top 10 clients 3.9 4.5 4.4 -1.8 -2.3 2.4 8.5 1.3 2.7 3.1 3.0
Revenues from 2-5 client 11.1 3.6 -0.2 1.7 5.9 1.7 -2.5 2.3 1.8 4.7 -4.8
Revenues from 6-10 clients 2.1 4.5 5.7 -7.1 0.0 5.9 5.2 1.4 0.5 8.3 0.6
Source: MOSL, Company



10 January 2014 11

Infosys



Infosys: an investment profile
Company background
Infosys is the second-largest IT services company in
India with revenue of ~USD8.1b (LTM) and employing
over 158,000 people. It defines designs and delivers IT-
enabled business solutions that help many Global 2000
companies win in a flat world. INFY has a global
footprint in over 30 countries and development
centers in India, China, Australia, the UK, Canada and
Japan. Company's service offerings span business and
technology consulting, ADM, SI, product engineering,
IT infrastructure services and BPO.

Key investment arguments
Change in strategy to allow increased flexibility is
reflecting in better deals signing.
Ample margin levers to drive healthy financial
performance going forward

Key investment risks
Continued pricing decline akin to FY13 could lead
to prolonged pain on the bottom line, despite
offset coming from improvement in volume
growth.
Appreciation in INR could hamper profitability.
Macro headwinds impact the company more due
to higher discretionary mix in its portfolio.
Recent developments
INFO won 5 large deals totaling to a TCV of
USD500+m in 3QFY14.
Infosys Edge won 14 deals during the quarter; 8 in
platforms and 6 in products.

Valuation and view
USD Revenue and EPS CAGR of 13% and 16.4%
respectively over FY13-16E.
Valuations at 15.5x FY15E and 13.7x FY16E EPS.
Maintain Buy with a target price of INR4,150,
based on 16x FY16E earnings.

Sector view
With strengthening demand in the US and large
deals traction in traditional services in Europe,
early indicators are that growth in FY15 should be
better than FY14.
We see better risk-reward in Tier-I and do not
expect any further bridging of the valuation gap
on the following counts: [1] tier-II growth
continues to at best, match tier-I, despite a
significantly lower revenue base, [2] Current tier-II
discount to top-tier IT is much lower to historical
P/E discount, and [3] Cash conversion capability at
tier-II has been significantly inferior.


Comparative valuations
Infosys TCS Wipro
P/E (x) FY14E 18.7 23.6 17.7
FY15E 15.5 20.7 15.8
P/BV (x) FY14E 4.3 8.6 4.2
FY15E 3.6 6.8 3.5
EV/Sales (x) FY14E 3.4 5.3 2.9
FY15E 2.8 4.5 2.5
EV/EBITDA (x) FY14E 12.7 17 12.9
FY15E 10.1 15.1 11.2


EPS: MOSL forecast v/s consensus (INR)
MOSL Consensus Variation
Forecast Forecast (%)
FY14 189.2 182.4 3.8%
FY15 228.3 215.2 6.1%

Target price and recommendation
Current Target Upside Reco.
Price (INR) Price (INR) (%)
3,549 4,156 17.1 Buy


hShareholding pattern (%)
Sep-13 Jun-13 Sep-12
Promoter 18.8 16.0 16.0
Domestic Inst 19.0 18.3 18.3
Foreign 63.6 53.3 51.9
Others 13.7 12.4 13.7


Stock performance (1 year)



10 January 2014 12

Infosys


Financials and valuation







10 January 2014 13

Infosys
N O T E S

10 January 2014 14

Infosys

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Disclosure of Interest Statement INFOSYS LTD
1. Analyst ownership of the stock No
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