Report Published as on 11th July 2024
| Ticker | INFO |
| Company Name | Infosys Ltd. |
| Shariah Compliance | PASS |
| Dividend Purification Ratio | 1.31% |
We have conducted a comprehensive review on Infosys Ltd. from a Shariah point of view and analysed its sources of income to know whether they are complying with Shariah principles.
Infosys Ltd. is a pioneer in the IT industry. The company has established itself as a global leader in consulting and IT services since its founding in 1981. Their expertise extends beyond simply offering business consulting and information technology solutions. Leveraging the power of cloud technology, they craft customized solutions to modernize operations, streamline processes, and enhance customer interactions.
Infosys approach is comprehensive, combining cutting-edge technologies like Artificial Intelligence with agile methodologies. This ensures clients benefit from continuous learning and development opportunities, empowering their workforce to adapt and thrive in the ever-evolving digital landscape.
Infosys’ commitment extends beyond technology. They were founded with a strong foundation in environmental and social responsibility, a philosophy that has fuelled their journey from a startup to a multi-billion-dollar corporation. They hold the distinction of pioneering the Global Delivery Model, a testament to their innovative spirit and global reach.
Infosys caters to a wide range of business segments across various industries. Here’s a breakdown of their primary areas of expertise:
- Financial Services and Insurance: The company offers a comprehensive suite of solutions like Core banking systems modernization, Regulatory compliance, Risk management, Fraud detection and prevention and Analytics and data management. These suites are offered to banks, insurance companies, and other financial institutions.
- Manufacturing: The company helps manufacturers in Supply chain management, Product lifecycle management, Enterprise resource planning (ERP) systems, Industrial automation and Internet of Things (IoT) solutions. These solutions help to optimize operations, improve efficiency, and drive innovation.
- Retail, Consumer Packaged Goods and Logistics: The company aid in the areas like Omnichannel commerce, Customer relationship management (CRM), Supply chain optimization, Warehouse management systems and Transportation management systems. Benefitting players for these segments includes Retailers, CPG companies, and logistics providers.
- Energy, Utilities, Resources and Services: The company provides solutions for Asset management, Grid modernization, Smart metering, Customer experience management, Sustainability initiatives. The sectors which are catered by these solutions includes energy, utilities, resources, and services.
- Communication, Telecom OEM and Media: Network transformation, Customer experience management, Content management, Digital marketing and Over-the-top (OTT) platforms. The companies which will be catered through this segment includes communication service providers, telecom equipment manufacturers, and media companies.
- Hi-Tech: The solution for high-tech companies includes Semiconductor design and manufacturing, Electronics manufacturing services (EMS), Software development, Cloud computing and Artificial intelligence (AI) and machine learning (ML).
- Life Sciences and Healthcare: This segment includes solution for life science & healthcare companies. Solutions includes Clinical trial management, Drug discovery and development, Healthcare IT, Regulatory compliance and Data analytics.
- All Other Segments: Under this segment variety of industries are being served like public sector, Education, Travel and hospitality and Professional services.
Let us have a look at the operating segments from which the company derives its revenue and apply the Shariah screens to them:
Segment Breakup: (In Crore of INR)
For the year ended 31st March 2023
| Segments | Revenue | Non-Permissible Revenue | % of Non-Permissible Revenue | Non-Permissible Segment Classification | Comments |
| Financial services | 43,763 | – | – | – | – |
| Retail | 21,204 | – | – | – | – |
| Communication | 18,086 | – | – | – | – |
| Energy, Utilities, Resources and Services | 18,539 | – | – | – | – |
| Manufacturing | 19,035 | – | – | – | – |
| Hi-Tech | 11,867 | – | – | – | – |
| Retail | 21,204 | – | – | – | – |
| Life Sciences | 10,085 | – | – | – | – |
| Others | 4,188 | – | – | – | – |
| Total | 146,767 | – | – | – | – |
Tricky Areas From a Shariah perspective:
A key concern voiced by Shariah compliant users is that such tech companies are providing software services to such financial institutions which are interest based. This question was discussed with the Shariah Board in detail. The Shariah board was of the opinion that such software services are provided to the entire bank and is not exclusively to process only interest payment and receipt. Further it was observed that such software’s can also be used by Islamic banks, evidencing a clear compliant alternative usage of the service provided by such tech companies. Hence such tech companies have been classified as Shariah compliant after due review by the Shariah board.
This is the pitfall of screening providers who exclusively depend on automated algorithm-based screening. Let’s take the case of Infosys Ltd. It discloses that 29.82% (2023) revenue is contributed from financial services. The screening algorithm would have picked up that more than 5% of revenue is coming from the financial segment and hence would have classified it as non-compliant. A knowledge-based approach entails understanding the actual business model of the company i.e. it is revenue from selling software to financial segment clients (Which is a permissible activity) and is not a revenue generated from actual financial activities (which is a non – permissible activity). At Islamicly, we even go further by consulting a reputed board of Shariah scholars and obtaining their view directly so that users get the most rigorously screened results that they can trust.
Based on the above information, it is safe to assume that the business operations of Infosys Ltd. would be Shariah Compliant.
Let’s have a look at the non-operating income of the company.
Non-operating revenue of the company (In Crore of INR)
For the year ended 31st March 2023
| Segments | Revenue | Non-Permissible Revenue | % Non-Permissible Revenue | Non-Permissible Classification | Comments |
| Tax-free bonds and government bonds | 149 | 149 | 100% | Interest income | – |
| Deposit with bank and others | 712 | 712 | 100% | Interest income | – |
| Non-convertible debentures, commercial paper, certificates of deposit and government securities | 955 | 955 | – | Interest income | – |
| Gain on liquid mutual funds and other investments | 148 | 148 | 100% | – | Non-permissible investment |
| Income on investments carried at fair value through other comprehensive income | 1 | 1 | 100% | – | Investments are in non-permissible instruments |
| Exchange gains on translation of other assets and liabilities | 1062 | – | – | – | – |
| Miscellaneous income | 321 | – | – | – | – |
| Total | 3,348 | 1,965 | 58.69% | – | – |
It is clear from the table above that the non-operating income of the company includes interest income and few other non-permissible incomes which is Shariah not compliant. This amount is included for the calculation of the Sector Compliance and Dividend Purification.
Sector Compliance Calculation:
| Total Revenue | 1,50,115 |
| Non-permissible operating revenue | 0 |
| Interest Income | 1,816 |
| % of non-permissible revenue | 1.21% |
| Sector Compliance | PASS |
The company operating activity is compliant as per Shariah, interest income is the only non-permissible income which is less than 5% of total revenue due to which the company remains Compliant. Hence, the Company pass as per Islamicly Screening Criteria.
Dividend Purification Calculation:
| Revenue Description | Non permissible Revenue (INR Crore) |
| Non-permissible operating revenue | 0 |
| Non-permissible non-operating revenue | 1,965 |
| Total non-permissible revenue | 1,965 |
| Total Revenue of The Company | 1,50,115 |
| Dividend Purification Ratio | 1.31% |
Financial Ratio Screen:
(All figures in INR Crores for the Quarter ended 31st March 2024)
| Particulars | Amount | Remarks |
| 3 years Average Market | 6,445,948 | – |
| Total Debt | 83,590 | – |
| Islamic Debt | 0 | – |
| Adjusted Debts | 83,590 | – |
| LC Ratio | 1.29% | – |
Source: All the above information is based on the website of the company and the latest Quarterly Report for the period ended 31st March 2024 and Annual Report for the period ended 31st March 2023
Conclusion:
Given the above information, we at Ratings Intelligence believe that Infosys Ltd. is a Shariah Compliant company as per the Shariah screening criteria.
