Why Infosys Should Be On Every Long Term Investors Watch List

Based on some very simple numbers there is some interesting money to be made in Infosys. In the Long term. I have attached some numbers based on an idle afternoons meanderings.

 

WoW! Infosys could be a 3.5x bagger by 2020! It would put a lot of mid-caps to shame. Can it really happen? I think there is a LOT of wishful thinking here.

 

If they do what they say they want to do, this is what the end result would look like. So it needs to be watched rather closely. But you are right, it sounds outlandish to even suggest what I have. But I know these guys; I mean the ones who have come on board. and man ! they are a devilishly smart and driven bunch.

 

UBS seems to agree with you entirely; Carl Icahn -

https://www.ibtimes.co.in/ubs-not-sure-about-infosys-vision-2020-631726

 

LOL Fantastic!!

 

Good Analysis.

 

I am feeling difficult while judging or understanding the IT companies... They are not mentioning where they are and where they will be ... Infosys... Did they announce any big deals til now ?... Sorry to compare this with auto ancillary company but I m just putting up the things ... Motherson got big order from Daimler benz so it gives confident about the future prospects and quality of the company... Likewise why these IT companies are not announcing their deals in pipeline clearly so that we can estimate their potential ... In banking space, tcs bancs (software) s far superior than Infosys products ... And tcs Chandrasekhar s vision and past record s good ...IMHO

 

I agree with all your observations. My interest in Infosys has been kindled by one factor only - Vikas sikka and the team he is building. Oh yes, the other things I like are :

- the startup investment fund
- the clarity in his strategic intent.

Now all the volatility is in the speed and efficiency of execution

 

in view there is a slow growth in IT companies , future projects and value , very high competition
is there ....IT companies profits margins improvement are slowing down.....

In my expectation :
Year ....... Revenue in cr. ( expected ) ........ ..... Net Profit in Cr. ( expected )...... EPS ( expected )
2019 ......... 85,000 Cr. ............. 20,000 Cr. ........ 175

Current Market Price : Rs.1099.40

My Price Expectation in the year 2020 : Rs. 2700

 

which is a 2.5 X on a reasonably large base.

While you are applying a profit margin of around 23.5% ( which is in line with todays margins, more or less) why then are you drastically reducing the earnings multiple ? This is not very clear to me.

 

In my analysis Infosys got own weak points like Management instability every year Directors resignations
and in software new projects profit margins are low compare to previous years ....

If Europe and Greece problem is also still in pending , these problems temporary postponed to next year
US is also not settled , china growth is also very slow that will impact to currency war , so many small countries they may reduce their currency values in Asia ....

so many countries are giving competition in software field like Indonesia , Thailand etc...

Infosys is cash rich but it is not diversified to other fields ....they are diversified in software area only

so international pressure is also there , If India devalue its currency it is nullify due to others asian countries
also devalue their currency in future so project margins may be low

 

I understand your points but why I am not clear is :

1. While you say profit margins will be lower in the future, in your calculations you have taken 22.5% of revenues as net profit. The current margin is around the same; give or take a couple of points.

2. The margin calculations have not changed in your numbers. Yet, the multiple applied is 15 against the current 20. This is the part not clear.

The only inference I have is that the sector will get derated. Why do you think this will happen? Anyway, the data point is as per your estimates we are looking at around INR 2,700. ok.

 

Dear Fun_Da_Mentalist,
you are on right track . Lot of changes are happening in infy . Mindset is changing as product companies, non technical peoples feeling heat, bench strength coming down drastically, investment in products and lot of other initiatives. It will pay handsome benefits for sure .

Thanks,
Prashant

 

Even if Infosys reaches Rs 2000 till 2020 it would be great. Banks are offering 8% on FD while Infosys would be growing @ 20% which is good for me. Its a large cap so there is some degree of safety. At least possibility of losing money that I have invested is very low. Being IT company it is not affected by US FDA, government policy, commodity prices etc... Also when compared to A.M.Naik, Anil Ambani etc... Vishal Sikka seems to be much better.

Thanks for sharing.

 

Rupee depriciation will help IT compnies and now IT may become play on rupee weakness.

 

yes , but one point is also needed ...continuous projects and other countries and companies competition , effect profit margins ...if all countries currencies devalue then it will high competition for projects ....
if world economy is slow down all industrial manufacturing and sales slow down that will lead to dependent industry IT also slow down , margins will effect even project maintenance also get effected ...

Ex : in Economies slow down purchasing power will decreased , it leads to production cut , it leads to job cutting and unemployment rate increase , so government tax collection decrease , all countries impose closed economies .....so all these are leads to chain again

 

I think there is definite possibility, but want to point out some the downside risks -
1) slowdown in IT services spend (if we get into global recession or other factors)
2) competition (high possibility)
3) slow management execution
4) senior management attrition rate.

But i think the risk-reward is
favorable

 

That is a real concern especially w.r.t IT.

If global recession comes then all sectors will be affected and share market will fall a lot. Forget about profits, we will end making tremendous losses. If there is a high possibility of global recession then it is better to reduce our exposure to share market. We must sell as much as shares as we can and go for bank FD(nationalised bank).

We are investing on the assumption that global recession will not come.

 

Hope NOT. But cant say, anything is possible, who thought we would be at this level few months back. And the way the world markets are right now, China being an economic 'pandora's box', US with longest bull run in history...