Infosys - Nirmal Bang

Event Update
Institutional Equities
Infosys
13 June 2014
Reuters: INFY.BO; Bloomberg: INFO IN
Vishal Sikka Appointed Infosys’ First Professional CEO & MD
BUY
Infosys has appointed Dr. Vishal Sikka as its first professional chief executive
officer and managing director (CEO & MD). Dr. Sikka was earlier a member of the
executive board of German enterprise software company, SAP AG. He will be
inducted as whole-time director as well as CEO & MD (designate) on 14 June 2014,
and will take over as CEO & MD from Mr S. D. Shibulal (SD) on 1 August 2014. Mr
U.B. Pravin Rao (UB) has been elevated as chief operating officer (COO) from
president, effective 14 June 2014. Mr N.R. Narayana Murthy (NRN), executive
chairman, and Mr Kris Gopalakrishnan (Kris), executive vice-chairman will both
step down on 14 June 2014 and so will Rohan Murthy. NRN will be designated as
chairman emeritus, effective 11 October 2014. Mr K.V. Kamath (KVK) will become
non-executive chairman on 11 October 2014. In addition, Infosys has elevated 12
leaders to the post of executive vice president (EVP) with additional responsibility.
In our view, the appointment of Dr. Sikka is a good step and a move towards
making Infosys entirely a professionally-run organisation and given his strong
track record with SAP, where he worked for 12 years, his strong relationships with
CEOs of global 1,000 companies are likely to work in favour of Infosys, giving it an

entry into these companies’ IT budgets. Infosys’ product and platforms business
could also witness a boost, given Dr. Sikka’s experience of working in a global
software product company. However, it should also be noted that a product
company has a very different working culture and DNA compared with a services
company and Dr. Sikka may take some time to adjust to Infosys’ work culture. The
steps taken to elevate 12 managers to EVP should hopefully lead to control over
attrition, given the 11 high profile exits that have been witnessed over the past few
months. We have retained our Buy rating on Infosys with a target price of Rs3,840.
Dr. Sikka is Infosys’ first professional CEO & MD: Infosys has appointed Dr. Sikka as
its first professional CEO & MD. Dr. Sikka was earlier a member of the executive board
of SAP AG. He will be inducted as a whole-time director as well as CEO & MD
(designate) on 14 June 2014, and will take over as CEO & MD from SD on 1 August
2014. UB has been elevated as COO, while NRN, executive chairman, and Kris,
executive vice chairman, will both step down on 14 June 2014, and so will Rohan Murthy.
NRN will be designated as chairman emeritus and KVK will become non-executive
chairman with effect from 11 October 2014. These moves are, in our view, indications
that Dr. Sikka will be given enough operational flexibility to run Infosys in his own
way. In addition, Infosys has elevated 12 leaders to EVP with additional responsibility,
which should hopefully lead to control over attrition in the wake of 11 high profile exits in
the recent past.
Dr. Sikka’s strong relationships with global 1,000 companies a positive: In our view,
the appointment of Dr. Sikka is a good step and a move towards making Infosys entirely
a professionally-run organisation and given his strong track record with SAP, where he
worked for 12 years, his strong relationships with CEOs of global 1,000 companies are
likely to work in favour of Infosys, giving it an entry into these companies’ IT budgets.
Infosys’ product and platforms business could also get a boost, given Dr. Sikka’s
experience of working in a global software product company.
Adjusting to work culture could be Dr. Sikka’s biggest challenge: It should be noted
that product companies have very different working culture and DNA compared with
services companies and Dr. Sikka may take some time to adjust to Infosys’ work culture.
Retain Buy rating, to observe the impact of new CEO & MD over a year’s time:
Given the myriad challenges faced by Infosys, we would watch the impact of Dr. Sikka’s
appointment over a year to gauge the progress made on key issues like revenue growth
and attrition. We have retained Buy rating on Infosys with a target price of Rs3,840.
Sector: Information Technology
CMP: Rs3,167
Target Price: Rs3,840
Upside: 21%
Harit Shah
[email protected]
+91-22-3926 8068
Key Data
Current Shares O/S (mn)
574.2
Mkt Cap (Rsbn/US$bn)
1,823.2/30.8
52 Wk H / L (Rs)
3,850/2,343
1,446,391
Daily Vol. (3M NSE Avg.)
One -Year Indexed Stock Performance
170
160
150
140
130
120
110
100
90
80
70
60
50
Jun-13
Aug-13
Oct-13
Dec-13
INFOSYS LTD
Feb-14
Apr-14
Jun-14
NSE CNX NIFTY INDEX
Price Performance (%)
Infosys
Nifty Index
Source: Bloomberg
Please refer to the disclaimer towards the end of the document.
1M
6M
1 Yr
(2.8)
(5.9)
33.4
(10.4)
(29.9)
34.2
Institutional Equities
Exhibit 1: Financial summary
Y/E March (Rsmn)
Revenue
YoY (%)
EBITDA
EBITDA (%)
Adj. PAT
YoY (%)
FDEPS (Rs)
RoE (%)
RoCE (%)
P/E (x)
EV/EBITDA (x)
FY12
337,340
22.7
107,160
31.8
83,160
21.9
145.5
27.4
22.9
21.8
15.0
FY13
403,520
19.6
115,580
28.6
94,210
13.3
164.9
25.7
21.0
19.2
13.7
FY14
501,330
24.2
134,150
26.8
106,480
13.0
186.3
24.4
20.0
17.0
11.4
FY15E
527,634
5.2
143,352
27.2
119,628
12.3
209.4
23.3
18.2
15.1
10.4
FY16E
581,864
10.3
156,822
27.0
129,103
7.9
225.9
21.6
17.1
14.0
9.1
Source: Company, Nirmal Bang Institutional Equities Research
Rating track
Date
2 June 2011
1 July 2011
12 July 2011
12 August 2011
23 September 2011
30 September 2011
12 October 2011
23 November 2011
21 December 2011
2 January 2012
12 January 2012
30 March 2012
13 April 2012
17 May 2012
29 June 2012
12 July 2012
10 September 2012
4 October 2012
12 October 2012
7 January 2013
11 January 2013
9 April 2013
12 April 2013
28 May 2013
3 June 2013
9 July 2013
12 July 2013
7 October 2013
11 October 2013
28 November 2013
6 January 2014
7 January 2014
10 January 2014
13 March 2014
11 April 2014
15 April 2014
29 May 2014
2
Rating
Hold
Sell
Hold
Sell
Sell
Sell
Sell
Hold
Hold
Buy
Buy
Hold
Hold
Hold
Hold
Sell
Sell
Sell
Sell
Sell
Sell
Sell
Sell
Sell
Sell
Sell
Hold
Hold
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Market price
2,812
2,907
2,794
2,374
2,354
2,550
2,681
2,651
2,667
2,765
2,588
2,791
2,403
2,371
2,472
2,265
2,493
2,579
2,396
2,350
2,713
2,833
2,295
2,364
2,412
2,468
2,804
3,015
3,274
3,300
3,565
3,514
3,549
3,671
3,207
3,260
3,172
Target price (Rs)
2,900
2,900
2,875
2,298
2,338
2,354
2,378
2,746
2,755
3,210
3,125
3,125
2,438
2,464
2,473
2,129
2,323
2,363
2,120
2,120
2,310
2,685
2,084
2,084
2,084
2,400
2,860
3,230
4,030
4,030
4,140
4,140
4,140
4,260
4,260
4,260
3,840
Infosys
Institutional Equities
Disclaimer
Stock Ratings Absolute Returns
BUY > 15%
HOLD 0-15%
SELL < 0%
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recipient and is not for public distribution. This should not be reproduced or redistributed to any other person or in any form. This report is for the general information
for the clients of Nirmal Bang Equities Pvt. Ltd., a division of Nirmal Bang, and should not be construed as an offer or solicitation of an offer to buy/sell any securities.
We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates to current and historical
information, but do not guarantee its accuracy or completeness. The opinions expressed are our current opinions as of the date appearing in the material and may be
subject to change from time to time without notice.
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Infosys

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