Rating Rationale
June 27, 2017 | Mumbai
Infosys Limited
Ratings Reaffirmed 
 
Rating Action
Long-Term Debt Programme CRISIL AAA/Stable (Reaffirmed)
Commercial Paper Programme CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its rating on the long-term debt and commercial paper programmes of Infosys Limited (Infosys) at 'CRISIL AAA/Stable/CRISIL A1+'. The rating continues to reflect the company's leading position in the Indian information technology (IT) services space, strong global competitiveness in its core operations, robust financial risk profile, and debt-free balance sheet. These strengths are partially offset by the company's exposure to moderation in demand for traditional IT services and intense competition, which have impacted its growth and profit margins, and its susceptibility to volatility in foreign exchange rates. 

Analytical Approach

For arriving at its rating, CRISIL has combined the business and financial risk profiles of Infosys, and Infosys's majority-owned subsidiaries, Infosys BPO Ltd, Infosys Technologies (Australia) Pty Ltd, Infosys Technologies (China) Co Ltd, Infosys Technologies (Shanghai) Co Ltd, Infosys Consulting India Ltd, Infosys Technologies S. de RL de CV, Mexico, Infosys Technologies (Sweden) AB, Infosys Tecnologia DO Brasil LTDA, Infosys Public Services Inc, Lodestone Holding AG and its controlled subsidiaries, EdgeVerve Systems Ltd, Infosys Nova Holdings LLC, Panaya Inc and its controlled subsidiaries, Noah Consulting and its controlled subsidiaries, Skava Systems Pvt Ltd, Kallidus Inc. All these companies have been collectively referred to herein as Infosys.

Key Rating Drivers & Detailed Description
Strengths
* Leading player in the Indian IT services space, with established position across verticals and service lines '
Infosys also has a diversified range of offerings across service segments and industry verticals. While application development and maintenance services continue to be its mainstay, it has also been strengthening its capabilities in consulting services, systems integration, and package implementation. In terms of verticals, Infosys continues to derive about one third of its revenue from the banking, financial services, and insurance (BFSI) segment. The company has a large presence in other verticals too, with 23% of revenue coming from manufacturing, 15% from retail, and 9% from communication and services. 

* Large scale of operations and robust operating efficiency '
Infosys's business risk profile is supported by its leading market position, large scale of operations with a skilled resource base of 200,364 employees (as on March 31, 2017), proven project execution skills, and strong offshore delivery capability. Revenue growth has been healthy at about 10% for fiscal 2017, comparable to its peers in the industry. Operating profitability declined to 27% in fiscal 2017 from 28.1% in fiscal 2015, primarily due to pricing pressures and cross currency fluctuations. Nevertheless, its profitability continues to be among the best in the industry supported by its superior revenue mix, cost optimisation measures, and delivery effectiveness.

* Robust financial risk profile, with debt-free balance sheet and high liquid surplus 
Infosys has a robust financial risk profile, as its operations have been debt-free for over a decade. Financial flexibility is strong because of exceptional liquidity in the form of cash and cash equivalent of Rs 40,441 crore as on March 31, 2017. Net cash accrual stood at Rs 9,104 crore for fiscal 2016 after a dividend payout of Rs 6,952 crore. Despite the board's approval to complete a share buyback of Rs 13,000 crore during fiscal 2018, liquidity will likely remain robust supported by sufficient funds to finance working capital and capital expenditure requirements over the medium term.

Weakness
* Exposure to intensely competitive business environment amid moderation in demand:
The current moderation in discretionary spending by large clients has impacted revenue growth in the IT industry, 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 TCS, HCL Technologies Ltd (rated 'CCR AAA/Stable') and Wipro Ltd, but also global IT giants such as International Business Machines Corporation (IBM), Accenture Plc, and Computer Sciences Corporation (CSC). The slowdown in IT spend by global clients and the consequent decline in contract value in the industry has intensified competition among players. While Infosys remain exposed to the challenging business conditions, its strategy of focusing on the traditional high-volume segments, increasing automation, and building capability in the digital and consulting segments, will mitigate the impact on profitability over the medium term.
Outlook: Stable

CRISIL believes Infosys will maintain its strong position in the Indian IT services sector and its robust financial risk profile over the medium term.

Downside scenario:
* Regulatory changes and significant protectionist measures, particularly by the US, impacting Infosys's revenue growth or profitability.

About the Company

Infosys is a large Indian IT services company, offering a range of services, including application development and maintenance, consulting and systems integration, enterprise application and package implementation, and re-engineering services. It caters to industry verticals such as financial services, manufacturing, telecommunications, retail, life sciences, media and entertainment, and energy and utilities. The company has entered the business process management services segment through its subsidiary, Infosys BPO Ltd.

As on March 31, 2017, Infosys had 1162 active clients and presence in 50 countries. The promoters held 12.75% stake in Infosys as on March 31, 2017

For fiscal 2017, Infosys had profit after tax of Rs 14,353 crore (Rs 13,620 crore for fiscal 2016) on net sales of Rs 68,484 crore (Rs 62,441 crore).

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Coupon Rate (%) Date of Allotment Date of maturity Issue Size
(Rs.Cr)		 Rating Assigned
with Outlook
NA Long-term debt programme NA NA NA 0 CRISIL AAA/Stable
NA Commercial paper programme NA NA 7-365 days 0 CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  0  CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A1+ 
Long Term Debt  LT  0  CRISIL AAA/Stable    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL AAA/Stable 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
Rating Criteria for Software Industry
CRISILs Criteria for Consolidation
Criteria for rating Short-Term Debt (including Commercial Paper)

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