INFOSYS LTD - Q3 FY 21 RESULTS ANALYSIS

 

INFOSYS LTD

Q3 FY 21 RESULTS ANALYSIS

Infosys, a global leader in next-generation digital services and consulting, delivered its highest Q3 sequential growth of 5.3% in 8 years in constant currency.

On a year on year basis, revenues grew by 6.6%, digital revenues grew by 31.3% and overall digital revenue crossed more than half of total revenues.

Large deal TCV was at all time high of $7.13bn with  73%  being  net  new.  Strong  and steady  operating  margin  at  25.4%.

Revenue  and margin  guidance band increased to 4.5%-5.0% and 24.0%-24.5% respectively on the back of continued strong performance.

“The Infosys team has delivered another quarter of excellent results. Execution of client relevant strategy focused on digital transformation continues to drive superior growth, well ahead of the industry.

The scale of  new  client  partnerships  with  leading global  companies  such  as  Vanguard,  Daimler  and  Rolls-Royce demonstrate  the  depth  of  digital  and  cloud  capabilities  of  Infosys. 

The  commitment  and  skills  of  our employees to support and drive the digital journey of clients are matters of great pride for me”, said Salil Parekh, CEO and MD.“With the intense focus on client needs and the comprehensive foundation built on differentiated capabilities, I remain confident about the future.”

•Q3revenues grew year-on-year by 12.3% in INR;grew by 6.6% in constant currency

•Digital revenues cross 50% of total revenue,year-on-year growth of 31.3%in constant currency

•Q3operating margin at 25.4%, year-on-year increase of 350 bps

•Robust Q3net profit at `5,197 crore, year-on-year growth of 16.6%

•Continued  strong Q3  free  cash  flow  at `5,683  crore;year-on-year  growth  of 19.4%;  FCF conversion at109.0% of net profit

•Q3voluntary attrition for IT services declined to 10.0% from 15.8% in Q320

•Year-to-daterevenues grew by 3.5% in constant currency

•Year-to-date operating margin at 24.5%, an expansion of 310 bps

•FY 21 revenue growth guidance increases to 4.5%-5.0% in constant currency

•FY 21 operating margin guidance increases to 24.0%-24.5%

For the quarter ended December 31, 2020

Revenues  were `25,927  crore,  growth  of 12.3% YoY and 5.5% QoQ

Operating profit was `6,589 crore, growth of 30.1% YoY and 5.8% QoQ

Basic EPS was Rs.12.25, growth of 16.5% YoY and 7.3% QoQ

 

Infosys (in Rs. Cr.)	Dec '20	Sep '20	Dec '19	YOY	QOQ
Net Sales	25,927.00	24,570.00	23,092.00	12.28	5.52
Employees Cost	14,097.00	13,400.00	12,994.00	8.49	5.2
Depreciation	826	855	737	12.08	-3.39
Other Expenses	4,415.00	4,087.00	4,297.00	2.75	8.03
P/L Before Other Inc., Int., Excpt. Items & Tax	6,589.00	6,228.00	5,064.00	30.11	5.8
Other Income	611	570	827	-26.12	7.19
PBIT	7,200.00	6,798.00	5,891.00	22.22	5.91
Interest	49	48	42	16.67	2.08
P B T	7,151.00	6,750.00	5,849.00	22.26	5.94
Tax	1,936.00	1,892.00	1,383.00	39.99	2.33
Net Profit	5,215.00	4,858.00	4,466.00	16.77	7.35
Minority Interest	-18	-13	-9	100	38.46
FINAL NPT	5,197.00	4,845.00	4,457.00	16.6	7.27
Equity	2,123.00	2,122.00	2,122.00	0.05	0.05
Reserves	63,328.00	63,328.00	62,778.00	0.88	0
EPS Before Extra Ordinary
Basic EPS	12.25	11.42	10.51	16.56	7.27
Diluted EPS	12.23	11.42	10.5	16.48	7.09
EPS After Extra Ordinary
Basic EPS.	12.28	11.45	10.51	16.84	7.25
Diluted EPS.	12.23	11.4	10.5	16.48	7.28

 

Operating Margin % has gone up to 24.5 from 21.4% YoY

Free cash flow has increased to Rs.5,683 in Q3 FY 21 from Rs.4,989 cr in Q2 FY 21 and from Rs.4,759cr in Q3 Fy20

 

MP                1371

PE                 28.03

VOLUME        2,75,21,697

52 Week Range    509.25   1,392.80

Mkt Cap (Rs. Cr.)        5,83,776

FV   5

TTM EPS        43.66

TTM PE          31.39

Sector PE      34.25

Book Value Per Share  154.6

Price Performance   

1 Week         8.58%

1 Month         17.68%

3 Months       20.54%

1 Year           76.69%

3 Years         154.16%

Shareholding 

Promoters holding remains unchanged at 12.95% in Dec 2020 qtr   

Mutual Funds have decreased holdings from 14.23% to 13.67% in Dec 2020 qtr

Number of MF schemes increased from 37 to 39 in Dec 2020 qtr.    

FII/FPI have increased holdings from 31.31% to 32.26% in Dec 2020 qtr.

      

Management           

Nandan M Nilekani      Chairman     

Salil Parekh                 Managing Director & CEO  

U B Pravin Rao            Whole Time Director & COO     

      

3 year CAGR growth

Revenue                     9.40%

Net  Profit                    5.00%

Operating      Profit      6.20%

 

STRENGTHS

Growth in Net Profit with increasing Profit Margin (QoQ)

Growth in Quarterly Net Profit with increasing Profit Margin (YoY)

Company with No Debt

Increasing Revenue every Quarter for the past 4 Quarters

Increasing profits every quarter for the past 2 quarters

Strong cash generating ability from core business - Improving Cash Flow from operation for last 2 years

Company with Zero Promoter Pledge

FII / FPI or Institutions increasing their shareholding

Recent Results : Growth in Operating Profit with increase in operating margins (YoY)

Near 52 Week High

Strong Momentum: Price above short, medium and long term moving averages

WEAKNESSES

MFs decreased their shareholding last quarter

Inefficient use of assets to generate profits - ROA declining in the last 2 years

Declining Net Cash Flow : Companies not able to generate net cash

High volume, top losers

OPPORTUNITIES

Brokers upgraded recommendation or target price in the past three months

Highest Recovery from 52 Week Low

RSI indicating price strength

Large deal wins and improving demand around digital transformation helped net profit rise

 

Infosys posted yet another stellar performance with its net profit rising  16.6 per cent to ₹5,197 crore in the third quarter of FY21 on the back of large deal wins and improving demand environment around digital transformation.

“Execution of client-relevant strategy focussed on digital transformation continues to drive superior growth, well ahead of the industry,” said Salil Parekh, CEO and MD.

The biggest deal

He also said  the company signed the biggest deal in the history of the Indian IT sector during the quarter which is learnt to be with Daimler and  estimated at $3.2 billion spread over eight years.

Large deal TCV (total contract value) was at an all-time high of $7.13 billion with 73 per cent being net new. The IT major for the second straight quarter raised the guidance for revenue and operating margin. The company expects its revenue to grow 4.5-5 per cent in the financial year ending March 2021 compared with 2-3 per cent growth forecast earlier. It has raised its operating margin guidance to 24-24.5 per cent compared with the earlier  23-24 per cent.

On a year-on-year basis, revenues grew 12.3 per cent to ₹25,927 crore and on a sequential basis were up 5.5 per cent. The net profit on a sequential basis rose  7.3 per cent. It also posted its highest Q3 sequential growth of 5.3 per cent  in eight years in constant currency.

The company said it will hire 24,000 more from campus while the voluntary attrition rate for IT services declined to 10 per cent during the quarter from 15.8 per cent. The cash flow during the quarter was ₹5,683 crore achieving a y-o-y  growth of 19.4 per cent.

Hybrid model

Infosys COO UB Pravin Rao also said that going forward Infosys will adopt a hybrid model of work-from-home and office. “We have to wait and watch on real estate rationalisation. We are not renewing many offices on rent. We have slowed down on infrastructure expansion,” he said.

Sanjeev Hota, head of research at Sharekhan, said the strong Q3 results, robust deal wins and healthy digital growth momentum would drive consensus earning upgrade. and re-rating of target multiple. “Infosys reported another solid quarter beating the revenue and margin performance, along with record-high deal wins ever.”

Acquisitions 

Guide Vision, s.r.o 

On October1, 2020, Infy Consulting Company Limited(a wholly-owned subsidiary of Infosys Consulting HoldingAG) acquired 100% of voting interests in GuideVision s.r.o, a Service Now Elite Partner in Europe for a total consideration of upto €31 million (approximately₹266crore), comprising cash consideration of €21million (approximately ₹ 180 crore), contingent consideration upto€4million (approximately ₹36 crore) and retention payouts up to €6million(approximately ₹50 crore), to the employees of Guide Vision  s.r.o over the next three years, subject to their continued employment with the group along with the achievement of set targets for the respective years.

Guide Vision is an enterprise service management consultancy specialized in offering strategic advisory, consulting, implementations, training and support on the Service Now platform.

The excess of the purchase consideration paid over the fair value of net assets acquired has been attributed to goodwill amounting to ₹102crore.

Kaleidoscope Animations, Inc. On October 9, 2020, Infosys Nova Holdings LLC (a wholly-owned subsidiary of Infosys Limited) acquired 100% of voting interests in Kaleidoscope Animations, Inc. a US-based product design and development services company focused primarily on medical devices, for a total consideration of up to US $43million (approximately₹320crore), comprising cash consideration of US$30million (approximately ₹224crore), contingent consideration up to US $12 million (approximately ₹91crore) and retention payouts up to US$1million (approximately ₹5 crore), to the employees of Kaleidoscope Animations, Inc over the next three years, subject to their continued employment with the group along with the achievement of set targets for the respective years.

This acquisition is expected to strengthen Infosys’ digital offerings at the intersection of new software technologies, consumer products and medical devices. The excess of the purchase consideration paid over the fair value of net assets acquired has been attributed to goodwill amounting to ₹164crore.

Blue Acorn iCiGroup (through acquisition of Beringer Capital Digital Group Inc and Beringer Commerce Inc) On October 27,2020, Infosys Nova Holdings LLC(a wholly-owned subsidiary of Infosys Limited) acquired 100% of voting interests in Beringer Commerce Inc. and Beringer Capital Digital Group Inc., collectively known as Blue Acorn iCi, an Adobe Platinum partner in the US, and a leader in digital customer experience, commerce and analytics for a cash consideration of US $121million (approximately ₹899 crore), adjusted for closing cash and customary closing adjustments and retention bonus up to US $9million (approximately₹67crore) payable to the employees of Blue Acorn iCi over the next two to three years, subject to their continued employment with the group, along with the achievement of set targets for the respective years.

Blue Acorn iCi brings to Infosys, cross-technology capabilities through the convergence of customer experience, digital commerce, analytics, and experience-driven commerce services. The excess of the purchase consideration paid over the fair value of net assets acquired has been attributed to goodwill amounting to₹490crore.

Business transfer–Kallidus Inc. and Skava Systems Private Limited On October11,2019, the Board of Directors of Infosys authorized the Company to execute a Business Transfer Agreement and related documents with its wholly-owned subsidiaries, Kallidus Inc. and Skava Systems Private Limited (together referred to as “Skava”), to transfer the business of Skava to Infosys Limited for a consideration based on an independent valuation. The Company entered into a business transfer agreement to transfer the business of Kallidus Inc. and Skava Systems Private Limited for a consideration of ₹171 crore and ₹66 crore respectively on securing the requisite regulatory approvals. The transaction was between a holding company and a wholly-owned subsidiary and therefore was accounted for at carrying values and did not have any impact on the consolidated financial statement. Subsequently, the Board of Skava has approved voluntary winding up of the entity