| Infosys Limited | ||||
| Ratings reaffirmed at 'CRISIL AAA / Stable / CRISIL A1+ ' | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the long-term debt programme and commercial paper programme of Infosys Limited (Infosys).
The company registered second consecutive year of ~21% rupee revenue growth in fiscal 2023 (15.4% in constant currency (CC) in fiscal 2023), driven by growth from all end-user segments mainly manufacturing (43% y/y growth in fiscal 2023), Energy, Utilities, Resources and Services (28%), retail (20%), Communication (19%), and Financial services (12%). EBITDA (Earnings Before profit interest, tax, depreciation and amortisation) remained healthy at 24.8% in fiscal 2024, though moderated by 130 basis points due to high employee costs with continuing supply side constraints.
Macroeconomic headwinds in key markets of the US and Europe and end-user verticals (viz Financial services, retail etc.) is expected to result in CC revenue growth moderating to 4-7% in fiscal 2024 with EBIT margin remaining in 20-22% levels. This is supported by its strong market position and continuing deal wins and high share of digital offerings while maintaining high employee utilization levels and moderating attrition rates. Over the medium term, revenue and operating margin is likely to be supported by demand for IT services given the criticality of offerings through a host of services including process digitisation, migration to cloud-based technologies, workplace transformation, business model transformation and enhanced cybersecurity controls.
The ratings continue to reflect Infosys’ leading position in the Indian information technology (IT) services space, its large scale of operations and healthy operating efficiency, strong financial risk profile with a debt-free balance sheet and robust liquid surplus of Rs ~34,000 crore as on March 31, 2023. These strengths are partially offset by exposure to intense competition in the global IT industry. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Infosys and its subsidiaries, held directly or indirectly, as all the companies have a common management and are in the same business.
Goodwill on acquisitions amounting to Rs 630 crore, Rs.758 crore, Rs.1,490 cr, and Rs 413 cr for fiscal 2023, fiscal 2021, fiscal 2020, and 2019 respectively, amortised over 5 years.
With adoption of Ind AS 116 with effect from April 01, 2019, long term lease liabilities are included in debt alongwith related adjustments in EBITDA for depreciation and amortization and interest costs.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Leading player in the Indian IT services space, with established position across verticals and service lines Infosys is the second largest listed Indian IT services company in terms of revenue. It has a diversified range of offerings across service segments and industry verticals. The share of revenue from digital services has grown steadily to 62% in fiscal 2023, (from 48.5% during fiscal 2021), driven by higher demand for transformation to cloud and other digital products and services, amid the pandemic. In terms of verticals, Infosys derived about 29.8% of its revenue from the banking, financial services, and insurance (BFSI) segment during fiscal 2023. The company also has presence in other verticals, such as retail (14.5% of revenue in fiscal 2023), communication (12.3%), energy, utilities, resources & services (12.6%), manufacturing (12.9%), Hi-Tech (8.1%), life sciences (6.9%), and others (2.9%0.
Large scale of operations and healthy operating efficiency Infosys’s business risk profile is supported by its leading market position, large scale of operations with a skilled resource base of 343,234 employees (as on March 31, 2023), proven project execution skills, and strong offshore delivery capability. The company has continued to win large deals amounting $9.8 billion during fiscal 2023, as compared to $9.5 billion last year; this is further expected to fuel revenue growth. Revenue growth and margins are supported by premium pricing power with increasing digital share and large spectrum of service offerings which are critical components in large deals. Operating margin is likely to remain healthy with moderating supply side challenges with reducing attrition, healthy mix of on/off-shore employee mix and healthy utilisation. The company’s profitability remains among the best in the industry, supported by its superior revenue mix, cost optimisation measures, and delivery effectiveness.
Strong financial risk profile and robust liquidity Infosys has a strong financial risk profile, driven by its healthy annual cash generating ability and debt-free balance sheet (for over a decade). Net cash accrual stood at Rs 14,679 crore for fiscal 2023, after a dividend payout of Rs 13,654 crore.
Financial flexibility is strong, supported by robust liquidity in the form of cash and cash equivalents of Rs 34,095 crore as on March 31, 2023. Despite the policy to return 85% of free cash flows to shareholders cumulatively over five years from fiscal 2020, liquidity will remain robust, supported by sufficient funds to finance working capital and capital expenditure (capex) requirement over the medium term. Infosys is also expected to invest in niche acquisitions to strengthen its domain expertise in the medium term. These will be largely funded from its cash surplus and healthy accrual.
Weakness: Exposure to intense competition in the global IT industry The moderation in discretionary spending by large clients has impacted revenue growth in the IT industry during fiscal 2021, especially in traditional outsourcing services. Furthermore, being a leading player in the IT outsourcing space, Infosys competes with not just Indian IT majors such as Tata Consultancy Services Ltd (TCS), HCL Technologies Ltd and Wipro Ltd, but also global IT giants such as Atos SE, Capgemini SE and Accenture Plc. The slowdown in IT spend by global clients and the consequent decline in contract value in the industry has intensified competition among players. Infosys derives around 57% of revenue from digital services and remaining from traditional IT services. While the company remains exposed to challenging business conditions, its strategy of focusing on building capability in the higher margin digital and consulting segments and increasing automation to improve core technologies will mitigate the impact on profitability over the medium term. |
Liquidity: Superior Liquidity remains superior driven by cash surplus of Rs 34,095 crore as on March 31, 2023. The company has moderate capex plans and no long-term debt. CRISIL Ratings believes Infosys will maintain strong liquidity over the medium term, as the existing funds and expected cash accrual will be more than sufficient to finance working capital, capex, investment in various subsidiaries, as well as the capital return to investors.
ESG Profile CRISIL Ratings believes that Infosys’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile.
The IT sector has a low impact on the environment because of the inherent nature of digital services, core operations as well as products. The sector, though, has a higher social impact because of its large and diverse workforce. Infosys Ltd has continuously focused on mitigating its environmental and social impact
Key ESG highlights:
There is growing importance of ESG among investors and lenders. Infosys’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of market borrowings in its overall debt and access to both domestic and foreign capital markets. |
Outlook: Stable CRISIL Ratings believes Infosys will maintain its strong position in the Indian IT services sector and its robust financial risk profile and liquidity over the medium term. |
Rating Sensitivity factors Downward factors: * Sustained slowdown in revenue growth or decline in OPBDIT margin below 20%, due to regulatory changes in operating regions, or reduction in client spending, weakening the business risk profile * Consistent reduction in cash surplus to below Rs 15,000 crore due to large acquisitions or capital return to investors, affecting financial flexibility. |
About the Company Infosys is a large Indian IT services company, offering a range of digital and traditional IT services. Digital services include revenue from emerging segments such as artificial intelligence-based analytics and big data, engineering digital products and Internet of Things (IoT), application program interface, and micro services, modernisation of legacy technology systems, migration to cloud applications, and implementation of advanced cyber security systems. Traditional IT services include application development and management services, product engineering and management, infrastructure management services, enterprise application implementation, support and integration services. It caters to industry verticals such as financial services, retail, communication, manufacturing, hi-tech, life sciences, and energy, utilities, resources & services.
As on March 31, 2023, Infosys had 1,872 active clients and presence in 50+ countries. The promoters held 15.14% stake in the company as on March 31, 2023.
For the year ended March 31, 2023, the company’s profit after tax (PAT) stood at Rs 23,450 crore (Rs 21,607 crore in fiscal 2022) on operating income of Rs 147,088 crore (Rs 121,839 crore). |
Key Financial Indicators (CRISIL Adjusted figures)
NM – not meaningful |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*No borrowings issued against this programme |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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