Hi All. This is my 3rd or 4th post here. I do not see any discussions related to Infosys which are happening currently. I am seeing the string “Infosys” only in discussions of other companies in the search results. If there is already a current thread running on Infosys and I have missed it please forgive my ignorance and seniors kindly delete this thread and guide me towards the right one.
CMP. Rs.990 per share
Infosys - I will skip the introduction since it is one of the greatest IT companies in India and by revenue size it is the second largest IT company in India after TCS. Once a fast growing company in terms of revenue and profits, it has now slowed down.
I just took the price of Infosys share on 24th April every year and calculated the PE ratio for the last 11 years.
2006 - 37.57
2007 - 30.41
2008 - 20.489
2009 - 13.789
2010 - 25.1
2011 - 24.52
2012 - 15.93
2013 - 13.78
2014 - 17.01
2015 - 19.9
2016 - 20.56
The PE ratio went really low in 2009, 2012 and 2013.
What happened in 2009?
There was a recession in US. This was due to banks lending money to sub prime borrowers, consequently followed by a federal rate increase and property rate decline. Hence borrowers defaulted. Housing bubble burst.
Due to this Infosys was adversly affected and hence this is the reason for the low PE.
What happened in 2012 and 2013?
**Shibulal was the CEO.
I have this opinion that Shibulal was the worst CEOs of Infosys. This is not based so much on facts as it is on just his face value and listening to him etc. Sorry! Lets get back to facts.
He started restructuring Infosys which lead to slow down in project implementation timelines etc. At a time 2012-2013 when there was nothing much wrong in the IT industry(If there was please correct me) the growth declined and Shibulal blamed the same on slowdown in Finance Banking and Insurance sectors saying these clients were not taking any decisions. Also this was done in the last quarter of 2012.
I am not very sure on if the extremely poor performance of Infosys was due to industry conditions in 2012 and 2013.
Comments are invited on this.
The Average PE ratio over the last 11 years was around 21. Right now with a market price of Rs. 990, the PE ratio is around 16.78; way below the average of the last 11 years.
The Price to Book Value is around 3.9 and the Dividend yield is around 2.45%.
Looking at the Return on Capital Employed over the last 10 years, just highlighting the performance of various CEOs.
2007 - 33.84
2008 - 33.13
2009 - 32.60
2010 - 26.5 ->>>>CEO was Gopalkrishna
2011 - 26.29 ->>>>Shibulal Starts
2012 - 28.46
2013 - 25.15
2014 - 24.01 ->>>>Shibulal Ends
2015 - 25.29 ->>>Vishal Sikka
2016 - 27.58 ->>>Vishal Sikka
The profitability margins took a huge hit under Shibulal and never recovered under him. Under Dr.Sikka I can see them improving, but its been just 2 years now. So pretty tough to comment
The IT industry is now in truth facing slowdowns in the Banking sector. Clients are reluctant to spend for enhancements and are just spending on “Run The Business” kind of stuff.
Still Infosys seems to be adding 2-3 clients every quarter.
Royal Bank of Scotland effect - 300 millions US dollars revenue lost
300 millions dollars is Rs.2001.75 crore.
Total Revenue of Infosys for the year 2016=62441 crore rupees.
Hence RBS just forms 3.2 % of Infosys revenue.
Taking a net profit margin of around 29 %, we can say that the effect on this on the bottom line of Infosys would be just 1.3%. I dont know if the word “just” is “justified” here. It is open to discussion
**The write off of the 300 million dollars would probably be spread among this year and the next.
In tough times like these Infosys is managing to improve the bottom line every quarter and also comapred to the same quarter in the previous years.
Ending my discussion, the following are the questions I have.
Is a PE of 16.78 a bargain compared to the average of 21 over the last 11 years?
Or are those times over and Infosys is doomed to a PE in the range for 14-17 for ever?
Disc: Invested since 2014. Forms 10% of my portfolio