All about Infosys in One Page

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Infosys is a global IT company that delivers IT-enabled business solutions to its clients. They provide end-to-end business solutions that leverage technology for their clients. Their operations include technical consulting design development product engineering maintenance systems integration package-enabled consulting and implementation and infrastructure management services. It currently has a presence in 191 locations across 46 countries. It has revenues touching US$12.7 billion on an LTM basis and has over 239K employees presently.

History

It was started in the year 1981 as Infosys Consultants Pvt. Ltd. by N.R. Narayana Murthy and six engineers in Pune with an initial capital of $250. Their first client was Data Basics Corporation, New York. It opened its first international office in Boston, Massachusetts in 1987. It became a public limited company in 1992 and a by 1995, they had opened offices in UK, Toronto and Mangalore. In 1999, it touched revenue of US$100 million and became the first Indian company to be listed on NASDAQ. It became the 21st organization on the planet to accomplish a CMM level 5 affirmation and at this point, it had opened workplaces in Germany, Sweden, Belgium and Australia. In 2000 it had already achieved revenue of US$200 million and further opened offices in France and Hong Kong.  

In 2002 Nandan M. Nilekani took over as the CEO from Narayana Murthy and Infosys and Wharton School of the University of Pennsylvania set up The Wharton Infosys Business Transformation Awards. It also launched Progeon, offering business process outsourcing services. In 2005 it recorded the largest international equity offering of US$ 1 billion from India. By 2007 their quarterly revenues reached US$ 1 billion. In 2009 they were already employing over 100000 employees. It was listed on NYSE in 2002, meanwhile, Forbes ranked them among the worlds most innovative companies and they were among the top 25 performers in Caring for Climate Initiative. By 2013 they had begun trading in NYSE Euronext London and Paris markets and presented with ‘2013 Environment Tracking Carbon Ranking Leader’ award. In 2014 their revenue crossed INR50000 crore, and the board decided to increase its dividend payout ratio to up to 40% post-tax profits. 

In 2015 they acquired Noah Consulting LLC, a leading provider of advanced information management consulting services for oil and the gas industry, the board decided to increase the dividend payout ratio to up-to 50% post-tax profits. They also acquired Skava, a leading provider of digital experience solutions for the retail industry, and Panaya, a leading provider of automation technology for large scale enterprise software management. In 2016 they touched revenues of US$10 million on an LTM basis, they launched Infosys Mana( a platform that brings machine learning together with the deep knowledge of an organisation) to drive automation and innovation, they also launched Skava Commerce (a new standard for modern, mobile-first and modular e-commerce platforms), and invested in Waterline Data (a provider of data discovery and data governance software); Stellaris Venture Partners (an early-stage venture fund); UNSILO (an AI start-up focused on advanced text analysis; TidalScale (a provider of software-defined servers). 

In 2017 they completed their equity buyback program of ₹13000 crores amounting to 4.92% of total outstanding equity shares and the board once again revised the capital allocation policy and decided to payout up to 70% of the free cash flow as a dividend. They completed 25 years on Indian stock exchanges in 2018, signed the ‘Advance Pricing Agreement’ with the US IRS to enhance the predictability of their tax obligations in respect of the US operations, and acquired Fluido (the leading Salesforce advisor and consulting partner in Nordics and a recognised leader in cloud consulting, implementation and training services). In 2019 they ranked as no 3 on 2019 Forbes ‘World’s Best regarded Companies’ list and was also recognised as a 2020 ‘Top Employer’ in Australia, Singapore and Japan. So far in 2020, they have acquired Simpus, one of the fastest-growing Salesforce Platinum Partners in the USA and Australia.

Corporate Governance

At Infosys, the objective of corporate governance is to ensure fairness for every stakeholder – their customers, investors, vendor-partners, the community, and the governments of the countries in which they operate. They believe that sound corporate governance is critical in enhancing and retaining investor trust. It is a reflection of their culture, policies, relationship with stakeholders and their commitment to values. Accordingly, they always seek to ensure that their performance is driven by integrity.

Board practices its guardian obligations in the widest sense of the term. Their disclosures seek to attain the best practices in international corporate governance. They also endeavour to enhance long-term shareholder value and respect minority rights in all their business decisions.

They continue to be a pioneer in benchmarking their corporate governance policies with the best in the world. Their endeavours are generally perceived by investors in India and abroad. They have been audited for corporate governance by the Investment Information and Credit Rating Agency (ICRA) and have been awarded a rating of Corporate Governance Rating 1 (CGR 1).

They are likewise in consistence with the suggestions of the Narayana Murthy Committee on Corporate Governance, established by the Securities and Exchange Board of India (SEBI).

Market Capitalisation

Infosys Ltd is the second-largest IT company in India by net sales, just behind the Tata Group’s cash cow TCS. Infosys features among the top 10 organisations by market capitalisation on Indian stock exchanges. According to yesterday’s closing, Infosys Ltd commands a market capitalisation of Rs 3.9 lakh crore on BSE.

Stock Market Performance

From its stock market debut in June 1994, Infosys has come a long way and it still has a long way ahead. People who bought 100 shares of Infosys 27 years ago and held them are millionaires right now.

The management has been generous in declaring bonuses since its listing. They have consistently never missed any dividend payments since the year 2000, as per the data available on BSE. They have offered 1:1 bonus shares 10 times now out of the total 11 times they have declared bonus. In 2005 they declared 3:1 bonus.

For simplification purposes, had an Investor bought 100 shares of Infosys when it was listed, the shares would have multiplied in the following manner.

Ø  In 1994, when the company declared 1:1 bonus, the Investor would have received 200 shares.

Ø  In 1997, when the company declared 1:1 bonus, the Investor would have received 400 shares.

Ø  In 1999, when the company declared 1:1 bonus, the Investor would have received 800 shares.

Ø  In 1999, when the company split the share of face value Rs 10 to RS 5, the Investor would have received 1,600 shares.

Ø  In 2004, when the company declared 3:1 bonus, the Investor would have received 2,133 shares.

Ø  In 2006, when the company declared 1:1 bonus, the would have Investor receives 4,266 shares.

Ø  In 2014, when the company declared 1:1 bonus, the Investor would have received 8,532 shares.

Ø  In 2015, the company declared 1:1 bonus, the Investor would have received 17,064 shares.

Ø  And the latest was declared in 2018 when the company declare 1:1 bonus, the said investor would then have received 34,128 shares.

 And the total worth of the said shares today would be = 34128* ₹945(today’s closing price)

 = ₹3,22,50,960, with the CAGR coming out to be 34.88%.

Evident from the above example, analysts would suggest holding onto Infosys shares for the long term rather than trading with the shares. Just like Warren Buffet once said, “our favourite holding period is forever” so only investors looking to park their savings for the long term should invest in Infosys shares and hold onto them for a long time.

Share Split History

Infosys has 6 splits since it was listed on an Indian stock exchange.

The first split for Infosys shares took place on February 15, 2000. This was a 2 for 1 split, meaning for each share of Infosys owned pre-split, the shareholder now owned 2 shares.

Its second split took place on July 07, 2004. This was also a 2 for 1 split.

Its third split took place on July 18, 2006. This was also a 2 for 1 split.

Its 4th split took place on December 08, 2014. This was a 2 for 1 split as well.

Their 5th split took place on June 25, 2015. This was also a 2 for 1 split.

Their latest split, i.e. their 6th split took place on September 12, 2018. This was a 2 for 1 split as well.

Stock splits are often bullish signs, meaning that the valuations get so high that an individual becomes out of reach of small or mid-sized investors, so what the company does is they split the stock to make it accessible for the smaller investors. Stock splits do nothing to a company’s market valuation, however. 

When a company such as Infosys splits its shares, the market capitalization prior and after the split takes place remains stable, meaning the shareholder now owns more shares but each is valued at a lower price per share. Often, however, a lower priced stock on a per-share basis can attract a greater range of investors. If that increased demand for the share causes the share price to appreciate, then the total market capitalization rises post-split. This does not always happen; however, it often depends on the underlying fundamentals of the organisation. Investors who own split stocks should not sell them immediately since they would not make heavy returns immediately, they should instead hold onto them for the long term since the increased demand will sure raise the prices.

Rights Issue

A rights issue is an issue of shares offered at a special price by a company to its existing shareholders in proportion to their holding of old shares. The company so far has not made any rights issue, they have however been resorting to bonus issues and stock splits frequently since their early days on the Indian stock exchanges.

 Credit Rating

CRISIL has given Infosys CRISIL AAA rating while assigning a stable outlook. The rating on their commercial paper has been reaffirmed at ‘CRISIL A+’. For arriving at its ratings, CRISIL combined the business and financial risk profiles of Infosys and its majority-owned subsidiaries. The Strengths and Weakness that CRISIL analysed to come to this rating are as follows.

Strengths

Ø  Leading player in the Indian IT services space, with established position across verticals and service lines

Ø  The large scale of operations and healthy operating efficiency

Ø  Strong financial risk profile and robust liquidity

 Weaknesses

Ø  Exposure to intense competition in the IT industry

Ø  Liquidity Superior

Future Prospects

The future of Infosys is looking bright according to analysts. They have turned the corner. Their business fundamentals are continuing to improve says Trip Chowdhary( Global Equity Research Analyst). The present guidance at Infosys is very good. It is above what Indian analysts were estimating and moving forward, at least for the next four to five years, Infosys is going to be very strong, according to professionals. Secular growth is going to come into almost every major IT services company in India. The stock prices will go up. 

It is unadvisable to trade Infosys on a quarter to quarter basis. Infosys is getting a tailwind because today they have the capabilities and the workforce which is trained on news skill sets including cloud, machine learning and many others. Investors should start looking at Infosys through a completely new lens which says that the past is over, the future is bright and they are executing very well. 

Today people are looking for competencies and capabilities that Infosys has in terms of IT services. Investors should not even worry about the margins because Infosys is in investment mode. They are investing in growth. The margins may go down because the future only belongs to the companies which can invest in businesses, in their people and train them. From a long-term growth perspective, reduction in margins is positive because that leads to revenue growth.

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