Infosys Limited (INFY)

Total return at 5 years: 13.6%/year = 8.8% appreciation + 4.7% dividend. The target price ($16) is ex-dividend; the $3 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $22 · Multiples $16) exceeds the market price ($11).

Today — fairly valued: at $11 trades ~32.0% below its value discounted to today (~$16); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — Infravalorado: the target price ($16) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$10.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($11) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-12.0%/year) than we project (4.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$1.7 bn of owner earnings in year 5 (vs ~$4 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Resultado operativo (EV/EBIT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Infosys is valued at the enterprise level by EV/EBIT, not by P/E on net income: the IT services archetype band (11x-14x) is calibrated pre-tax on operating income, and applying it to net income would run the multiple off by the factor (1 − effective tax rate). Year 0 is fiscal year 2026, closed on March 31, 2026 (Infosys is an annual filer under Form 20-F: it presents its quarters via 6-K without XBRL, so there is no tagged TTM, and the method's annual-filer convention makes year 0 directly the last closed fiscal year, not a rolling window). FY2026 revenue US$20,158M (+4.6% year-over-year), operating income US$4,085M (margin 20.3%), net income US$3,313M (margin 16.4%). Real invested capital from the balance sheet (equity US$9,786M + financial debt US$0 − cash and liquid equivalents US$3,706M = US$6,080M) gives a return on capital (NOPAT/invested capital) of ~49.5%, well above the 10% bar — an exceptionally high-quality business in terms of return, though with a narrow and eroding moat (intense competition, client insourcing via proprietary capability centers, and the risk that agentic AI compresses demand for traditional labor-based services). The growth trajectory starts from the company's own current guidance for fiscal year 2027 (year +1): revenue +1.5%-3.0% in constant currency (revised down on July 23, 2026 from 1.5%-3.5%) and operating margin maintained at 20%-22%; the first quarter of the new fiscal year (closed June 30, 2026) already showed +2.4% year-over-year in constant currency, close to the midpoint of guidance, which is what anchors year 1 of the base case at +2.3%. From there the trajectory accelerates smoothly toward a durable rate of ~5.5%-6% by year 5, reflecting a gradual recovery in enterprise technology spending from the guided low — it is a valley-and-recovery pattern, not a monotonic deceleration, because the guidance itself documents the valley as something specific to the current fiscal year (macro and policy changes, not a structural deterioration of the business) while the trajectory of the prior three fiscal years had been accelerating (+1.9% → +3.9% → +4.6%). The adverse scenario stresses year 1 below the guided floor (+0.5%) and holds low growth throughout the horizon, reflecting that AI's disruption of demand for labor materializes more strongly; the favorable scenario starts at the ceiling of/above the guided range and accelerates to ~7.5% by year 5, if Topaz (the proprietary agentic AI orchestration layer) becomes a net growth driver instead of just a price compressor. The XBRL capex is tagged with a stale 2020 value (US$465M, ifrs-full:PurchaseOfPropertyPlantAndEquipmentClassifiedAsInvestingActivities, with no subsequent facts) — real FY2026 capex (US$306M) was read from the 20-F's own cash flow statement, not from the tag. The company returns virtually all of its excess cash: in FY2026 it paid US$2,133M in dividends and completed a US$2,000M buyback (100 million shares retired), under a declared policy of returning 85% of free cash flow over a 5-year horizon; given that the historical net share reduction (FY2023→FY2026) is only ~0.5%/year on average and not sustained (it rose in FY2025), no explicit buyback trajectory is modeled and instead the excess is treated as fully redeployed via the capital return policy (reinvestsExcess), keeping net cash stable rather than accumulating it artificially. The declared annual ADS dividend of US$0.52 for FY2026 was verified against the XBRL data itself: US$0.52 × 4,120.1M shares ≈ US$2,142M, which reconciles with the US$2,133M of dividends paid per the cash flow statement — the price provider (Layer C) brought an incomplete dividend series (intervals of 150/213/226 days between payments) and was not used.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $16 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $11, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $16 in 5 years plus $3 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $16. Against the current market price ($11), the margin of safety is 32.0% (trades below the maximum → there is margin) and the total return at that price would be 13.6% annually.

• Entry multiple. 12.0x EV/EBIT in the base case, within the 11x-14x band of the IT services archetype.
• Dividend yield. ~4.8% annually on the current price, with historical growth in dividend per share.
• Decline from the high. 47% below the 52-week high, coinciding with the July 2026 guidance cut.
• Margin of safety. It trades at a real discount to value, though short of the required margin of safety.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (108%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Cash generation. Operating cash flow of US$4,039M (20.0% of revenue) in FY2026.
• Sustainably high return on capital. ~49.5% NOPAT/invested capital, well above the 10% bar.
• Reinvestment runway. Capex is only 1.5% of revenue; the business lacks a large-scale organic reinvestment path.
• Earnings quality. Operating cash flow (20.0% margin) is in line with operating margin (20.3%), with no significant gap from accruals.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Infosys's volume × price driver is billable people × utilization × realization rate, not a contracted RPO/backlog: project-based IT services are more transactional than a subscription business, and the extracted sections of the 20-F do not report a contracted backlog figure. Utilization has been declining (81.1% including trainees in FY2026 versus 83.4% in FY2025), an observable signal that the operating leverage lever over the workforce is loosening, consistent with the moat's erosion direction and with the pricing pressure the filing itself acknowledges as a risk tied to AI adoption.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-mar-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Recent growth. Accelerated from +1.9% (FY2024) to +4.6% (FY2026), interrupted by the July 2026 guidance cut.
• FY2027 guidance. Cut to +1.5%-3.0% in constant currency, from +1.5%-3.5%.
• Vertical diversification. Manufacturing and Communications grow above the consolidated rate; Life Sciences and Other contract.
• Agentic AI pipeline. Topaz is too new to assess its growth contribution with available data.

• Global delivery scale. 290 locations in 59 countries and ~328,594 employees, with 76.8% of resources offshore.
• Diversification by vertical and geography. No vertical segment exceeds 28% of revenue; North America accounts for 56.1%.
• Labor-intensive billable model. Revenue depends on billable person-months, exposed to AI disruption of work hours.
• Proprietary platforms (Finacle, Topaz). Provide some technological lock-in, but are not the core driver of the services business.
• Client concentration. The ten largest clients are ~20.5% of revenue, with contracts carrying no guarantee of subsequent work.

• ✓Leverage (net debt / EBITDA)Net cash $3.7 bn
• –Interest coverage (EBIT / interest)no data
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 108% of ROIC
• ✓Value creation (ROIC − 10% bar)+40pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.6x — no over-investment
• –Float / working capitalNeutral WC
• –Dilution (SBC % of revenue + shares)no data

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Net cash position. US$3,706M in cash and liquid equivalents with no financial debt.
• Financial debt. No material financial debt identified on the balance sheet.
• Cash flow generation. Operating cash flow of US$4,039M comfortably covers capex (US$306M) and the dividend (US$2,133M).
• Working capital. No granular working capital variation data in the extracted sections; treated as immaterial.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

The bulk of free cash flow is returned to shareholders (dividends + buybacks), consistent with the declared policy of returning 85% of FCF over 5 years; capex is only ~1.5% of revenue, reflecting the business's capital-light nature and the absence of a large-scale organic reinvestment runway.

• CEO continuity. Salil Parekh has led since 2018, with a renewed mandate from the board.
• Capital allocation policy. Declared return of 85% of FCF over 5 years, executed via dividends and buybacks.
• Alignment of interests. No verified insider ownership data (no DEF 14A for a 20-F filer).
• Guidance transparency. The company communicated the guidance cut explicitly and quantified it in July 2026.

• The July 2026 guidance cut for FY2027 (revenue +1.5%-3.0% in constant currency, from +1.5%-3.5%) was modest in magnitude — just 100 basis points at the low end — against a much larger price decline, suggesting a market reaction more severe than the adjustment itself
• The IT services sector as a whole is under a re-rating from fear of AI disruption to billable labor demand, a sector-wide risk the market may be pricing in uniformly without differentiating each provider's relative position
• The decline in utilization (from 83.4% to 81.1% including trainees) is a real operating data point and not media noise, so part of the discount does correspond to genuine deterioration and not only perception

This is not a pure case of missing buyers or emotional forced selling: there are real structural risks (moat erosion, AI disruption, client insourcing) that justify part of the discount. But the magnitude of the decline (47% from the high) against a guidance cut of just 100 basis points at the low end suggests the market is extrapolating the worst-case AI disruption scenario without giving credit to the exceptional return on capital (~49.5%) or the debt-free net cash position that sustains the business while that disruption, if it materializes, unfolds over years.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +8%/year (+46% total): the margin of safety protects the downside. The bull (+19%/year, +135% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• AI disruption. The filing itself acknowledges that AI reduces demand for existing services and accelerates pricing pressure.
• Client insourcing (GCC). Clients are insourcing capacity via their own global centers, eroding the addressable market.
• U.S. immigration risk. US$100,000 fee on new H-1B visa petitions since September 2025.
• DOJ investigation. Ongoing investigation into H-1B visa employee classification, with an uncertain outcome.
• Competition with declining barriers to entry. Cloud- and AI-enabled niche providers compete directly in the client's workflows.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: narrow moat, eroding.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 4% at a multiple/growth of 2.5 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 10% (EBIT/EV) + ROIC 50% → makes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -12% vs our 4%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor +3%/yr, bull-scenario ceiling +14%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, eroding; sources: switching costs, efficient scale, cost advantage, intangibles → fails the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -12%, within what we project (4%) — the story squares with the numbers.