In the present steadily developing technology environment, Infosys sparkles as a worldwide forerunner in computerised benefits and counseling.We should investigate Infosys from the inside out, learning about its incredible journey and the exciting opportunities it presents to investors.
Infosys Importance in Digital Transformation
Infosys is crucial in a time when digital transformation is the norm. Organisations from all areas are moving rapidly towards mechanisation , digitization, and information driven navigation. This extends the market for Infosys mastery altogether.
A Global Presence
Company flaunts a worldwide impression, a critical benefit. Because Infosys has customers all around the world, they can work in many different markets and adjust to what people need in those places. They get even more growth by having the power to be everywhere.
Adapting to Market Trends
Infosys constantly evolves its service portfolio to align with market trends. Company faces the problems happening right now and also prepares for what might come next. This could mean improving man-made brainpower, thinking of more secure ways for organisations to work, or viewing ways as more eco-accommodating
Recent collaboration and Innovation
Coordinated efforts with tech goliaths, new businesses, colleges, and hyper-scalers upgrade Company’s abilities.These affiliations increase its presence in emerging fields and offer access to the latest developments.
Prioritising Risk Management
Infosys puts serious areas of strength for overseeing gambles, guaranteeing dependability and flexibility. By distinguishing and alleviating possible difficulties, the organisation advances development while shielding the interests of financial backers.
In the unique universe of IT administrations, Infosys stands tall, offering a thrilling and open door for financial backers to be a piece of this groundbreaking excursion. It’s in excess of an organisation; it’s an accomplice for ventures around the world, driving computerised development and moulding the fate of innovation.
Estimating Company’s Intrinsic Value: The Path to Success
Since the IT industry has recently seen its fair share of difficulties, it is a good time for long-term investors to think about solid stocks.Among the frontrunners in this sector, TCS and Infosys automatically come into focus. However, their substantial size warrants careful consideration. To truly benefit, these stocks must be acquired at an advantageous valuation, as capital growth may otherwise fail to surpass the market index.
This article means to disentangle the inborn worth of Infosys, giving experiences that reach out past the surface.
We won’t just gauge its characteristic worth yet additionally investigate the specialised perspectives, laying out a potential purchase level in case of market rectifications before long.
Company has a foundation of the IT business, proceeds to develop and adjust, settling on it a convincing decision for financial backers looking for long haul development.
Currently, Company stocks are trading at around Rs.1496.15. If there’s a correction of about 10-12%, the stock price could reach around Rs.1265, which was its level back in April 2023 before it bounced back strongly. It seems like Rs.1265 serves as a reliable support level for Infosys.
So, based on these price trends, buying Infosys at Rs.1265 levels could provide a solid 10% advantage. Considering that this stock is expected to rise in the long term, a 10% correction from the current levels could make Rs.1265 a good entry point.
However, it’s crucial not to invest in any stock solely based on price trends without assessing its fundamentals. Regardless of what technical analysis suggests, if the company’s fundamentals don’t support the stock price, it could eventually decline.
Now, let’s move on to the next step, where we’ll evaluate the price of Infosys based on its financial performance.
We’ll determine the company’s free cash flow by examining the numbers in both the cash flow report and the profit and loss account. But before we dive into the financial reports, let’s take a look at Infosys’s performance over the past decade.
| Description | FY 2023 | FY 2014 | Growth(CAGR) |
| Revenue (Rs.Cr.) | 1,49,468 | 85,557 | 5.74% |
| EBITDA (Rs.Cr.) | 37,831 | 23,052.00 | 5.08% |
| PAT (Rs.Cr.) | 24,108 | 15,410.00 | 4.58% |
| Reserves (Rs.Cr.) | 73,338 | 44,244 | 5.18% |
| Total Assets (Rs.Cr.) | 1,25,816 | 1,17,885 | 0.65% |
| Net Cash FromOperations (Rs.Cr.) | 22,467 | 9,825.00 | 8.62% |
The organisation hasn’t shown noteworthy development numbers over the course of the last ten years. In view of this verifiable information, it’s sensible to guess that the organisation profit will probably increase at a pace of roughly 6% throughout the following five years.
With this initial understanding of the company’s performance, let’s now dive into the analysis of free cash flow.
Free Cash Flow To Firm (FCFF)
Let’s talk about financial health. We got our numbers from Infosys’ latest annual report for FY 2023-2024. To understand the company’s Free Cash Flow To Firm (FCFF), we’ll need some key figures, which you can see in the table below:
| Description | FY 2023 | FY 2022 |
| Net Profit (PAT) | 24,108 | 22,146 |
| Net Cash From Operations | 22,467 | 23,885 |
| Operating Cash Flow as % PAT | 93.2% | 107.9% |
| Capex | 2,579 | 2,161 |
| Free Cash Flow To Firm (FCFF) | 19,888 | 21,724 |
Before we move on, let’s check how effectively Infosys converts its “Net Profit (PAT)” into actual “cash” each year. Here’s a comparison of “PAT” with “Net Cash from operation” for the last 20 years:
[Graph: PAT vs. Net Cash from operation]
As you can see, even during tough times, Infosys managed to convert nearly 50% of its PAT into cash flows. Since 2011, this conversion has improved, and today, about 90% of its PAT turns into cash flows. That’s a strong indicator of financial health. So, we’ll use the FCFF value calculated earlier without applying any discounting factor.
Now, let’s explore another method to calculate FCFF.
FCFF Calculation Method 2:
FCFF = Net Profit + Depreciation & Amortisation (D&A) – Capex – Increase In Working Capital.
Here’s how the numbers stack up for Infosys:
| Description | FY 2023 | FY 2022 |
| Net Profit (PAT) | 24,108 | 22,146 |
| Depreciation (D&A) | 4,225 | 3,476 |
| Capex | 2,579 | 2,161 |
| Net Current Assets | 70,881 | 67,185 |
| Net Current Liability | 39,186 | 33,603 |
| Working Capital | 31,695 | 33,582 |
| Increase in WC | -1,887 | – |
| FCFF | 27,641 | – |
These are two reliable methods to calculate Infosys’ Free Cash Flow To Firm (FCFF). We’ll use the weighted average of these two values as our final FCFF figure for Infosys, which is Rs. 22,834 Crore.
FCFE (Free Cash Flow To Equity)
Now, let’s calculate the Free Cash Flow To Equity (FCFE) based on FCFF. The formula for FCFE looks like this:
FCFE = FCFF + Net New Debt – Interest * (1 – Effective Tax Rate)
Here are the specifics for Infosys:
| Description | FY 2023 |
| FCFF | 22,834 |
| Net New Debt | 0.00 |
| Interest | 284 |
| Effective Tax Rate | 27.65% |
| FCFE | 22,629 |
Infosys is a debt-free company, so the value of “net new debt” is zero. To estimate the effective tax rate, we’ve used the formula: Tax Paid / Profit Before Tax (PBT).
Using these formulas, we find that Infosys’ FCFE for onward estimation of intrinsic value is Rs. 22,629 Crore.
Sustainable Growth Rate (SGR)
Now, let’s talk about estimating the future growth rate of Infosys’ Free Cash Flow To Equity (FCFE). We’ll use the Sustainable Growth Rate (SGR) formula:
SGR = Return on Equity (ROE) * (1 – Dividend Payout Ratio)
Here’s what it looks like for Infosys:
| Description | FY 2023 | FY 2022 |
| Net Profit (PAT) | 24,108 | 22,146 |
| Shareholder’s Equity | 75,795 | 75,736 |
| ROE | 31.81% | 29.24% |
| Dividend Paid | 13,631 | 12,652 |
| Dividend Payout Ratio | 56.5% | 57.1% |
| SGR | 13.82% | 12.54% |
We also calculated Infosys’ projected growth rate based on the company’s last ten years of financial data.
We also evaluated Infosys’ projected growth rate using the company’s most recent decade financial data.
Based on this, it seems that the company could grow at around 6% per annum. So, as an informed guess, we’ll use a weighted average future growth rate of 7% per annum for Infosys.
Future Free Cash Flow
Now, we have two crucial numbers: FCFE (Rs. 22,629 crore) and the Future Growth Rate (7% per annum) for the next five years. Beyond that, we assume the company will grow at a sustainable rate of 4% per annum.
We’ll also use a weighted average cost of capital (WACC) of 12% per annum for Infosys.
Now we’re going to determine the intrinsic value of Infosys, a prominent company, using a method called Discounted Cash Flow (DCF) analysis. This approach helps us gauge the true worth of the company based on its future cash flows.
Step 1: Calculating Free Cash Flow To Firm (FCFF)
We start by calculating FCFF, which measures the cash available to all of the company’s investors. Here are the key numbers for Infosys in FY 2023:
| Description | FY 2023 | FY 2022 |
| Net Profit (PAT) | 24,108 | 22,146 |
| Net Cash From Operations | 22,467 | 23,885 |
| Capex | 2,579 | 2,161 |
| FCFF | 19,888 | 21,724 |
Infosys has a strong track record of converting its profits into cash flows, indicating good financial health. So, we’ll use the FCFF value without applying any discounting factor.
Step 2: An Alternative Method to Calculate FCFF
We can also calculate FCFF using an alternative formula that considers depreciation, changes in working capital, and capital expenditure (Capex). Here are the details for Infosys:
| Description | FY 2023 | FY 2022 |
| Net Profit (PAT) | 24,108 | 22,146 |
| Depreciation (D&A) | 4,225 | 3,476 |
| Capex | 2,579 | 2,161 |
| Increase in Working Capital | -1,887 | – |
| FCFF | 27,641 | – |
We’ll use the weighted average of these two FCFF values, which is Rs. 22,834 Crore.
Step 3: Calculating Free Cash Flow To Equity (FCFE)
Next, we calculate FCFE, which measures the cash available to the company’s equity shareholders. For Infosys:
| Description | FY 2023 |
| FCFF | 22,834 |
| Net New Debt | 0.00 |
| Interest | 284 |
| Effective Tax Rate | 27.65% |
| FCFE | 22,629 |
Infosys doesn’t have any net new debt, making it debt-free. The estimated effective tax rate is 27.65%. So, Infosys’ FCFE for intrinsic value estimation is Rs. 22,629 Crore.
Step 4: Estimating Sustainable Growth Rate (SGR)
To estimate the company’s future growth rate, we use the Sustainable Growth Rate (SGR) formula:
SGR = Return on Equity (ROE) * (1 – Dividend Payout Ratio)
For Infosys:
| Description | FY 2023 | FY 2022 |
| ROE | 31.81% | 29.24% |
| Dividend Payout Ratio | 56.5% | 57.1% |
| SGR | 13.82% | 12.54% |
We’ll use a weighted average future growth rate of 7% per annum for Infosys based on historical data and our analysis.
Step 5: Forecasting Future Cash Flows
Now, we project Infosys’ FCFE for the next five years at a 7% annual growth rate. Beyond that, we assume a sustainable growth rate of 4% per annum.
Step 6: Present Value of Future Cash Flows
To determine the intrinsic value, we calculate the present value of all future cash flows. We use a discount rate of 10% per annum to account for the time value of money. This rate reflects the company’s risk level and potential for growth.
The sum of all future cash flows for Infosys is estimated at Rs. 3,40,175 Crores.
Step 7: Intrinsic Value Per Share
With the present value of all future cash flows determined, we need to calculate the intrinsic value per share. As of now, Infosys has about 414.85 Crore shares outstanding in the market.
| Description | Amount |
| Sum of PV | 3,40,175 |
| Number of Shares | 414.86 |
| Intrinsic Value/Share | 819.98 |
The estimated intrinsic value of Infosys is approximately Rs. 820 per share based on the DCF Model.
Infosys fundamental Conclusion
Infosys exhibits strong financial fundamentals, with a consistent history of converting profits into cash flows.
Looking at its Price to Earnings (PE) history, it appears that a fair PE for the company is around the PE20 mark. With a current EPS of Rs. 59.23, the fair price of Infosys comes out to be about Rs. 1,195 per share.
Using the DCF method, we’ve estimated the intrinsic value at Rs. 820 per share. An average of the PE20 and DCF methods suggests an intrinsic value of about Rs. 1,000 per share.
Considering these factors and technical analysis, it seems that buying Infosys stock at levels between Rs. 1,000 and Rs. 1,270 could potentially yield a 12.5% CAGR capital appreciation over 3-5 years. It’s a strong stock worth considering for investment.
Disclaimer: The information in this “Stock Profile” blog post is for informational purposes only. It is not financial advice. Always consult a qualified expert before making investment decisions.
