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Eye on Infosys as a growth stock

22-04-2016 • About Infosys ($INFY) • By InTwits

Infosys is a fast-growing stock in IT Consulting & Software industry. Its revenue performance, profitability and healthy financial model stands it out vs. other public companies on the market.

Growth story

Infosys showed fast growth in the last financial year. Infosys's revenue surged on 17.1% in FY2016. In addition to revenue Infosys also keeps delivering EBITDA growth. It was 17.2% in FY2016

If we look for the longer period Infosys showed fast revenue growth of 15.7% from FY2013 to FY2016 annually. EBITDA surged on 14.5% from FY2013 to FY2016 annually.

Infosys ($INFY) financials for the last 5 years

mln. INR FY2012 FY2013 FY2014 FY2015 FY2016
Revenue growth, %19.6%24.2%6.4%17.1%
Gross margin, %41.3%98.1%35.9%38.3%37.4%
SG&A, %12.3%4.87%11.9%12.4%12.4%
EBITDA growth, %5.7%16.9%9.4%17.2%
EBITDA margin, %31.6%27.9%26.3%27.1%27.1%
Net Income83,16094,290106,480123,290134,910
Net Income margin, % 24.7%23.4%21.2%23.1%21.6%
CAPEX/Revenue, %4.86%5.19%5.48%4.21%4.36%
Net Debt/EBITDA-1.9x-1.9x-2.0x-2.1x-1.9x
ROIC, %32.4%28.3%27.2%25.1%25.3%
ROE, %28.0%26.4%24.9%24.1%23.2%

Profitability and return on investment

EBITDA margin stayed constant at 27.1% in FY2016. If we look for the longer period the company showed small EBITDA margin decline of 0.800 pp from 27.9% in FY2013 to 27.1% in FY2016.

Infosys shows attractive ROIC at 25.3% for the last 12 months which assumes stable development model. Three years ago it was a bit higher at 28.3%. For the last three years the average ROIC was 25.8%.

Infosys's Net Income margin decreased on 1.50 pp from 23.1% to 21.6% in FY2016. If we look for the longer period Infosys's Net Income margin decreased on 1.80 pp from 23.4% in FY2013 to 21.6% in FY2016.

Infosys operates at ROE of 23.2%. For the last three years the average ROE was 24.1%.

Capital expenditures (CAPEX)

In FY2016 the company had CAPEX/Revenue of 4.36%. Infosys's CAPEX/Revenue dropped on 0.831 pp from 5.19% in FY2013 to 4.36% in FY2016. It's average CAPEX/Revenue for the last three years was 4.68%.

Leverage (Debt)

Having such a fast growth profile Infosys keeps negative net debt at -1.9x Net Debt/EBITDA. In the last 3 years the company's leverage surged on 0.00x from -1.94x in FY2013 to -1.93x in FY2016.

Management team

Vishal Sikka is a CEO of Infosys.

Peers in IT Consulting & Software

Below we provide Infosys benchmarking against other companies in IT Consulting & Software industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.

Top companies by Revenue growth, %

 FY2012 FY2013 FY2014 FY2015 FY2016
Top 5
Ramco Systems ($RAMCOSYS)9.3%7.3%9.9%37.0%
Cyient ($CYIENT)30.7%20.6%17.8%24.0%
Empower India ($EMPOWER)-3.7%-13.2%-32.6%23.9%
Hexaware Technologies ($HEXAWARE)34.3%17.3%13.0%21.0%
Tech Mahindra ($TECHM)6.8%25.2%174.0%20.1%
Median (21 companies)22.9%20.6%14.0%10.1%
Infosys ($INFY)19.6%24.2%6.4%17.1%

Top companies by Gross margin, %

 FY2012 FY2013 FY2014 FY2015 FY2016
Tata Consultancy Services ($TCS)47.4%42.4%
Mindtree ($MINDTREE)31.5%36.2%34.8%
Wipro ($WIPRO)29.2%30.4%32.0%31.6%
Median (3 companies)31.5%33.3%39.7%34.8%
Infosys ($INFY)41.3%98.1%35.9%38.3%37.4%

Top companies by EBITDA margin, %

 FY2012 FY2013 FY2014 FY2015 FY2016
Top 5
Oracle Financial Services Software ($OFSS)35.3%35.2%37.4%39.7%
Tata Consultancy Services ($TCS)29.5%28.6%30.7%26.1%
Wipro ($WIPRO)19.1%20.9%22.4%22.3%
Mindtree ($MINDTREE)15.1%19.8%20.6%20.3%
Sqs India Bfsi ($SQSBFSI)10.6%18.8%20.5%19.4%
Median (25 companies)15.1%16.5%18.3%12.3%
Infosys ($INFY)31.6%27.9%26.3%27.1%27.1%

Top companies by CAPEX/Revenue, %

 FY2012 FY2013 FY2014 FY2015 FY2016
Top 5
Ramco Systems ($RAMCOSYS)22.1%15.3%12.4%
Niit Technologies ($NIITTECH)5.9%4.6%6.1%7.9%
Financial Technologies (India) ($FINANTECH)8.6%11.2%6.5%
Mindtree ($MINDTREE)2.5%4.5%5.0%5.6%
Tech Mahindra ($TECHM)5.4%2.6%5.0%5.0%
Median (20 companies)3.7%3.2%2.6%3.1%
Infosys ($INFY)4.9%5.2%5.5%4.2%4.4%

Top companies by ROIC, %

 FY2012 FY2013 FY2014 FY2015 FY2016
Top 5
Tata Consultancy Services ($TCS)48.6%48.4%50.2%40.5%
Hexaware Technologies ($HEXAWARE)33.5%39.2%34.7%35.7%
Mindtree ($MINDTREE)24.9%34.6%36.2%32.0%
Sqs India Bfsi ($SQSBFSI)12.1%27.0%29.4%30.6%
Tech Mahindra ($TECHM)15.4%20.1%43.0%29.7%
Median (30 companies)19.1%20.4%22.9%20.6%
Infosys ($INFY)32.4%28.3%27.2%25.1%25.3%

Top companies by Net Debt / EBITDA

 FY2012 FY2013 FY2014 FY2015 FY2016
Top 5
3I Infotech ($3IINFOTECH)8.5x20.3x27.7x14.7x
Ramco Systems ($RAMCOSYS)8.8x27.6x4.2x
Onward Technologies ($ONWARDTEC)2.4x2.2x4.1x1.9x
Kpit Technologies ($KPIT)0.3x0.5x0.7x0.4x
Mphasis ($MPHASIS)-0.1x0.2x0.2x
Median (23 companies)-0.0x-0.2x-0.2x-0.2x
Infosys ($INFY)-1.9x-1.9x-2.0x-2.1x-1.9x