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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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
