Infosys Ltd. :INFY-US: Earnings Analysis: Q3, 2017 By the Numbers : March 13, 2017

Infosys Ltd. reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of Infosys Ltd. – International Business Machines Corporation, Cognizant Technology Solutions Corporation Class A, Wipro Limited Sponsored ADR, Microsoft Corporation, HP Inc. and SAP SE Sponsored ADR (IBM-US, CTSH-US, WIT-US, MSFT-US, HPQ-US and SAP-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 2,551.22 million, Net Earnings of USD 547.67 million.
  • Gross margins widened from 38.45% to 38.49% compared to the same period last year, operating (EBITDA) margins now 28.31% from 27.37%.
  • Year-on-year change in operating cash flow of 14.93% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • One-time items weakened operating performance.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 2551.22 2589.58 2503.87 2452.71 2407.56
Revenue Growth (%YOY) 5.97 8.32 11.11 13.59 8.53
Earnings (mil) 547.67 539.46 512.65 533.08 524.6
Earnings Growth (%YOY) 4.4 3.83 7.77 6.91 0.38
Net Margin (%) 21.47 20.83 20.47 21.73 21.79
EPS 0.24 0.24 0.22 0.23 0.23
Return on Equity (%) 22.6 22.93 23.02 24.35 23.96
Return on Assets (%) 18.35 18.5 18 19.18 19.36

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Market Share Versus Profits

Revenues History
Earnings History

INFY-US‘s change in revenue this period compared to the same period last year of 5.97% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that INFY-US is holding onto its market share. Also, for comparison purposes, revenues changed by -1.48% and earnings by 1.52% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 38.45% to 38.49% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 27.37% to 28.31% compared to the same period last year. For comparison, gross margins were 37.82% and EBITDA margins were 27.50% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

INFY-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 207.67, compared to last year’s level of 206.21 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

INFY-US‘s change in operating cash flow of 14.93% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings


The expansion in operating (EBIT) margins from 25.05% to 25.80% has also impacted the company’s earnings growth. However, one-time items have been a drag on the operating performance. As a result, the company’s pretax margins contracted from 29.94% to 29.84%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Infosys Ltd. is a consulting, technology and outsourcing company, which provides end-to-end business solutions thereby enabling clients to enhance business performance. The company’s industry segments are primarily financial services and insurance comprising enterprises providing banking, finance and insurance services, manufacturing, enterprises in the energy, utilities, communication and services and retail, consumer packaged goods, logistics and life sciences. Its offers IT Services, engineering Services, consulting Services, BPO services and products and platforms. The company’s end-to-end business solutions include business IT services, comprising application development and maintenance, independent validation services, infrastructure management, engineering services comprising product engineering and life cycle solutions and business process management; Consulting and systems integration services, comprising consulting, enterprise solutions, systems integration and advanced technologies; Products, business platforms and solutions to accelerate intellectual property-led innovation, including Finacle, its banking product, which offers solutions to address core banking, mobile banking and e-banking needs of retail, corporate and universal banks worldwide. Infosys was founded by K. Dinesh, S. Gopalakrishnan, Narayana Ramarao Nagavara Murthy, Nandan M. Nilekani, Raghavan N. S., Ashok Arora and S. D. Shibulal on July 2, 1981 and is headquartered in Bangalore, India.

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