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Rating Action:

Moody's assigns A3 rating to Infosys; outlook stable

03 Oct 2018

Singapore, October 03, 2018 -- Moody's Investors Service has assigned an A3 local currency issuer rating to Infosys Limited.

The rating outlook is stable.

RATINGS RATIONALE

"Infosys' A3 rating reflects the company's status as one of the world's leading information technology (IT) consulting and services companies and its diversified operations across multiple business segments and geographies," says Kaustubh Chaubal, a Moody's Vice President and Senior Credit Officer.

With a presence across 45 countries, Infosys is well diversified geographically, although revenues are skewed towards the developed markets in North America and Europe that comprised 84.3% of consolidated revenues for the quarter ended 30 June 2018 (1Q FY2019). The balance of the company's revenue is generated from markets in India, Australia, Japan, Singapore, Latin America and the rest of the world.

"The company's industry-leading profitability and its solid balance sheet -- with large cash and liquid investments and the fact that it is debt free -- constitute another core strength underlying the A3 rating," adds Chaubal, who is also Moody's lead analyst for Infosys.

Infosys' agile cost structure -- in particular, lower labor costs in India, where the vast majority of its 209,905 employees are based -- supports its high EBITA margins that have averaged 29%-31% over the last three years.

Given its internationally diverse revenue base and strong financial profile with large positive free cash flow generation, Infosys' A3 rating reflects a degree of insulation from the domestic economy as well as a level of fundamental strength necessary to be rated two notches higher than the Government of India (Baa2 stable).

Nevertheless, as an Indian company, Infosys remains exposed to potential changes in regulations and tax laws in India and, as such, its rating cannot be completely separated from the rating of the Indian sovereign.

Infosys' A3 rating also incorporates the inherent challenges associated with its extensive global operations, such as its exposure to foreign-exchange volatility despite some active hedging, because its revenues are predominantly in USD, Euros, GBP and AUD, while most of its costs are INR denominated.

Furthermore, Infosys remains exposed to evolving new regulations in key markets, such as changes in immigration laws in the US, that will drive up costs and strain profitability, and increasing competition from the company's Indian and global peers. Such factors also exert pressure on profitability.

As such, fast-changing regulations and Infosys' ability to promptly address them, while maintaining growth and preserving profitability, will remain a key rating sensitivity.

The stable outlook reflects Moody's view that Infosys' solid liquidity, debt-free balance sheet and strong operating metrics will remain the cornerstone of its credit profile.

The stable outlook also reflects Moody's view that the robustness of Infosys' business model and its competitive strengths will continue, despite its modestly declining profitability.

Moody's expects the company to maintain its financial prudence and finance any potential M&As from internally generated cash flow only.

WHAT COULD CHANGE THE RATING UP/DOWN

Given the constraints regarding the differential between government and corporate ratings (see Moody's Credit Policy paper titled How Sovereign Credit Quality May Affect Other Ratings, published on 16 March 2015), we do not expect Infosys' rating to be upgraded even if the company's credit profile further strengthens and unless the Government of India's Baa2 stable rating is upgraded, which would be a precondition for any such consideration.

Under such circumstances Infosys' extensive global footprint and earnings base as well as robust credit profile, which currently exceeds that of the Indian Sovereign, will be key to any positive rating pressure.

Infosys' rating could be downgraded if (1) India's Baa2 stable rating is downgraded, (2) Infosys undertakes material debt-funded acquisitions or increases returns to shareholders that significantly undermine its credit profile, or (3) the company's operating performance deteriorates materially.

Key considerations that Moody's would consider for a possible downgrade include negative free cash flow generation (after dividends, share repurchases, capital spending and acquisitions), or a significant weakening in the company's balance-sheet liquidity.

The principal methodology used in this rating was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Infosys Limited is one of the world's leading IT services, consulting, outsourcing and digital technology companies. The company's operations are spread across North America (representing 60.0% of group revenue for 1Q FY2019), Europe (24.3%), rest of the world (13.1%) and India (2.6%).

Infosys' customers are spread across a diverse spectrum of industries, including financial services, manufacturing, energy and utilities, communications and services, retail, packaged goods and logistics, life sciences, healthcare and insurance, and high technology.

Incorporated in Pune, Maharashtra, Infosys is listed on India's two leading stock exchanges, National Stock Exchange and Bombay Stock Exchange and the New York Stock Exchange. As of 1 October 2018, the company's market capitalization was $45 billion. As of 30 June 2018, it had an employee base of 209,905, a large part of which is based out of India.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Kaustubh Chaubal
VP- Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Laura Acres
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

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