Infosys Limited - FY2023 - Is it Undervalued or not ?
Infosys Limited - FY2023 - Is it Undervalued or not ?
India's second largest IT(Information Technology) company were recently announced it's Q4FY23 and Financial year 2022-23 ending annual results. For the 2023 year ending results, it reported a sales of Rs. 1.46 Lakh crore and net profit of Rs. 24,108 crore. The sales increased by 21 percent and the net profit rose by 9 percent as compared to the FY2021-22.
The company's revenue is primarily generated from the Digital business services, 63 percent of its total revenue. Digital services are such as AI based analytics, Big Data, IoT, Cloud applications, Advance cyber security systems, modernize legacy tech systems and Engineer digital products.
The revenue breakup is mostly coming from the Financial services segment with 32 percent of its total revenue, 15 percent in Retail segment, Telecom communication and media with 13 percent, Manufacturing with 11 percent and the rest of from other technology, Life sciences and Health care segment.
By geographical wise, it generates most of the revenue from North America, 62 percent of its total revenue. 25 Percent contributed from Europe, 3 percent in India and 10 percent in the rest of the world. It is noteworthy that Infosys Limited is one of the 500 Fortune companies globally. The Top clients for this listed company are Daimler Mercedes - Benz, HSBC Bank, US Army, US Navy, Goldman Sachs, Lockheed Martin, ICICI Bank, Deutsche Bank, J&J and IBM.
The company has 38 of USD 100 Million clients and it has more than 3 Lakh working employees. In the year 2021, Infosys Limited became the fourth Indian company to reach the USD 100 Billion in Market Cap. Currently, the Market cap of Infosys Ltd is Rs. 5.09 Lakh crore.
In the recent years, it was increasing the Borrowings in its Balance sheet such as Non controlling interest, Trade payables and other liability items. The company has a good Return on Equity(ROE) of 26 percent over the last 10 years. The compounded sales growth has been 16 percent over the past 5 years. The Stock price have a CAGR of 16 percent over the last 5 and 10 years respectively. However, the stock price have fallen around 24 percent in the last one year.
The Promoter holding is low at 15 percent, as the company had too many Founders Since the initial stage. At present, there is no pledging of shares from the Promoters side. The Foreign investors(FII) were holding 35 percent of its shares and the Domestic Institutional Investors(DII) with 34 Percent. At the domestic level, LIC India is a major share holder with 8.19 percent of shares as per the March 2023 report.
As per the Cash Flow report, it's free cash flow is steadily and consistently growing ahead. In the year FY2019, the company's Cash flow operations were stood at Rs. 39,590 Crore to Rs. 69,576 Crore in FY2023. The Free cash Flow(FCF) were grown from Rs. 32,387 Crore to Rs. 62,729 Crore in the said above period.
The Free Cash Flow average growth have seen as volatile, however it was in Positive aspect on Total FCF growth. As per the March 2023 Annual report - Consolidated, the Net Debt is in Negative of Rs. 1338 Crore. So that means, it have enough cash than it's long term debt.
Based on Discounted Cash Flow method - As a best case, if we are assuming the FCF growth for the next 5 years at 15 percent and 12 percent thereafter period(6-10 years), then the Stock price is valued at Rs. 1,312 per share. With 20 percent Margin of Safety, it would be around Rs. 1,049 per share.
In the Neutral scenario, if the FCF growth projection for the next 5 years is 15 percent and 10 percent for the 6 to 10 years period, then the stock price would valued at Rs. 1,235 per share without Margin of Safety. Generally, 10 to 30 Percent of Margin of Safety is good for the Safe haven being an Equity Investor.
In the worst case or conservative, if we are assuming the FCF growth for the next 5 years at 12 Percent and 10 percent thereafter period, then the stock price is valued between Rs.900 to Rs. 1,100 per share (with Margin of Safety). Kindly note that the current market price of this stock is at Rs. 1,227 per Share ending on 21st April, 2023.
In any of the above case, it is seen that the stock price is trading just near above it's intrinsic value or coming as undervalued stock based on DCF Analysis. DCF Analysis is a financial method which is widely used in Equity Market Investments, Real Estate Development, Corporate Financial Management and Patent valuation.
Disclaimer: This article is not recommended to buy or sell a stock and it should be considered as an Investing Knowledge. Do your own Stock Analysis or choose the stocks through appropriate Registered Investment advisor / Financial Advisor / Stock Broker.
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