Institutional Equities Information Technology Sector...negative since April 2015. Our change in stance in March 2018 was driven by expectation of a modest (and Our change in stance

Institutional Equities

Sec

tor

Upd

ate

Information Technology Sector

Peaking Global Capex Cycle; ‘Relatives’ Are The Only Positives We continue to remain ‘tactically’ positive on the Indian IT services sector despite the 33pps outperformance of Nifty IT vis-à-vis Nifty CYTD 2018. However, our arguments for continued outperformance have changed since March 2018 when we turned positive on the sector (Turning Tactically Positive) after having been negative since April 2015. Our change in stance in March 2018 was driven by expectation of a modest (and selective) growth pick-up because of a peaking developed market economic cycle that was boosted by US tax reforms, large underweight institutional positioning in the sector, negative news flow on ‘financials’ (a large overweight sector for institutions) and lastly, better relative valuation (which is less compelling now than it was in early 2018). All of this was supported by robust capital return by some key players in the sector. We now believe that stocks under our coverage have witnessed a pick-up in growth in FY19 (modest and selective) to a very large extent and are pricing in a modest acceleration in FY20 (something which we are sceptical about - we are in the mid single-digit growth camp, while the majority on the street believe in high single-digit growth). We have been surprised that despite a very robust pick-up in global capex in 2018 (see Exhibits 6 to 13) in both the US and Europe, the uptick in Indian IT services industry growth has fallen below expectations- in terms of strength as well as breadth. The strength part is explained by the fact that Indian IT services share in digital (faster-growing) has been poor because of lack of adequate capabilities in addressing the consumer facing/front-end of customer’s businesses (revolving around digital marketing, customer experience), while a large part of the legacy business is witnessing value compression because of increased use of automation, cloud migration and insourcing. The lack of breadth indicates that while the Indian industry (in aggregate) is behind the curve in building capabilities, there are some who are relatively better off. The faster growth shown by mid-caps is basically a case of ‘rising tide lifting all boats’, a smaller base and lower exposure to legacy services. But as digital demand shifts from the front to back, we believe that traditional large Indian companies (who have been pivoting to new services) will be in a better position to capture the market. Mid-caps may witness faster earnings growth pick-up on a low base in FY19 (from bombed-out margins in some cases), but would advise investors to focus on sustainability and not overpay for a riskier business model. We believe the great macro environment of 2018 is unlikely to be repeated in 2019. So why do we persevere with our positive stance for now? That is because ‘relatives’ will all play in favour of Indian IT services sector for some more time - ‘relative’ institutional positioning (DIIs and FPIs), ‘relative’ earnings revision momentum (because we believe the full extent of INR depreciation is not factored into consensus numbers) and ‘relative’ valuation (less so now than 6 months back). We have rolled forward the basis of our valuation from March 2020E EPS to September 2020E EPS (see Exhibit 1 for changes made to our ratings, target prices, target P/E multiples and estimates).

Where we are different from consensus expectations: (1) We do not believe that underlying revenue growth is seeing a robust pick-up, despite being in the best macro environment for IT services ever since the Global Financial Crisis of 2008-09. For instance, for the very first time in 10 years – in our view - there is selective management commentary indicating that pricing is firm/stable. This coming at the last leg of a positive economic cycle means that industry will face significant pricing pressure - both in digital and legacy services - should economic/revenue/capex growth soften. (2) While our USD revenue growth assumptions are lower than that of the street, our assumptions on INR/USD are probably the highest, driven by the view taken by our economist Ms.Teresa John in her latest report: Are India’s FX Reserves Sufficient?. The higher than consensus EPS numbers basically stem from these INR assumptions rather than a more constructive view on underlying fundamentals. (3) We are probably the only Sell side firm which is calling for a decline in the industry in FY21 driven by the view that US economy will probably slow down from current red-hot levels to near stall levels. Consensus, through robust growth assumptions for FY21, implicitly assumes that the US will continue to chug along at a good clip. (4) While we admit that we missed the monstrous mid-cap upside we continue to remain sceptical in the long run on their prospects, especially with the view we have on the US economy in 2020.

When do we get off this gravy train?: From this stage onwards, our positivity on the sector is more a portfolio and a relative call rather than a standalone one. Robust global economic growth combined with tight liquidity globally will help the sector initially as the INR depreciates (probably a bit more than what we had anticipated), but there would come a time when the tightness of financial conditions will adversely impact developed market growth, revenue growth for Global 2000 companies, their spending plan and consequently demand for Indian IT services. We, however, believe that is probably another 12 months away and do not foresee any material negative to develop on the demand front in the next six months. The real risk, in our view, is that elevated revenue growth expectations (in USD terms) for FY20 and FY21 that consensus has are likely to moderate as the capex cools off.

Risks to our view: The upside risks to our stock target prices include: (1) An economic cycle upturn than lasts longer than we are currently anticipating. (2) A higher-than-currently expected depreciation of the INR. (3) A sustained flight away from financials as inflation/interest rates move higher and stressed asset cycle elongates. This ties in with the view that Nifty earnings in FY19 and FY20 are likely to show downward revision while the earnings of IT services sector look up. Downside risks to our target prices include: (1) A significant and faster-than-expected slowdown in the US/global economy. The rise in interest rates in the US and trade war with China could be catalysts. (2) Faster-than-expected return to Indian ‘financials’ as interest rates stabilise and stressed asset provisioning peaks.

Girish Pai Head of Research [email protected] +91-22-6273 8017

5 October 2018

https://www.nirmalbang.com/Upload/Information%20Technology%20Sector%20Report%20-%2017%20March%202018.pdf

https://www.nirmalbang.com/Upload/Are%20Indias%20FX%20Reserves%20Sufficient-%20Thematic%20Report-%2011%20September%202018.pdf

https://www.nirmalbang.com/Upload/Are%20Indias%20FX%20Reserves%20Sufficient-%20Thematic%20Report-%2011%20September%202018.pdf


2 Information Technology Sector

Exhibit 1: Changes made to our earnings estimates, target prices and ratings

Company CMP (Rs)

Market- cap

(US$bn)

New FY20E EPS

(Rs)

New FY21E EPS

(Rs)

Old FY20E EPS

(Rs)

Old FY21E EPS

(Rs)

New target P/E

(x)

Old target P/E

(x) New rating Old rating

New TP (Rs)

Old TP (Rs)

Change (%)

TCS 2,063 108 101.5 108.8 91.3 94.7 20.4 20.4 Accumulate Accumulate 2145 1,862 13.8

Infosys 711 42 44.7 47.4 40.7 43.4 16.3 16.3 Accumulate Accumulate 752 1,328 (43.4)

Wipro 325 20 25.3 26.0 22.6 23.6 14.3 14.3 Buy Buy 377 323 16.8

HCL Technologies 1,081 21 88.1 91.0 82.0 84.4 14.3 14.3 Buy Buy 1,281 1,172 9.3

Tech Mahindra 721 8.8 57.6 57.4 50.3 52.0 14.3 14.3 Buy Accumulate 845 718 17.7

Mindtree 1,057 2 64.9 67.7 64.9 67.7 16.3 14.3 Sell Sell 986 803 34.4

Persistent Systems 718 1 68.6 71.0 60.7 63.4 12.2 14.3 Buy Accumulate 909 867 4.9

Source: Nirmal Bang Institutional Equities Research, All Prices are as of end of trade on 4th October, 2018

Exhibit 2: Assumptions on macro and companies

2018 2019 2020

Real US GDP growth (%) 2.75-3.25 1.5-2.5 0.0-1.5

FY19E FY20E FY21E

INR/USD 72 77 79.7

USD revenue growth (%) FY19E FY20E FY21E

TCS 9.2 8.0 -

Infosys 6.7 7.9 (0.2)

Wipro (IT services) 2.8 5.4 (3.0)

HCL Technologies 9.4 7.7 0.1

Tech Mahindra 4.7 8.6 (1.8)

Mindtree 18.7 8.1 (1.5)

Persistent Systems 11.2 10.4 0.5

EBIT margin (INR) (%)

TCS 26.3 27.1 27.5

Infosys 24.8 24.8 25.0

Wipro 17.4 18.0 17.7

HCL Tech 20.1 20.0 20.1

Tech Mahindra 14.1 13.9 13.3

Mindtree 13.7 15.7 14.9


EPS (Rs)

TCS 87.9 101.5 108.8

Infosys 39.5 44.7 47.4

Wipro 21.3 25.3 26.0

HCL Tech 78.7 88.1 91.0

Tech Mahindra 49.7 57.6 57.4

Mindtree 47.6 64.9 67.7


EPS growth (%)

TCS 31.2 15.5 7.2

Infosys 21.4 13.3 6.0

Wipro 26.9 18.8 2.5

HCL Tech 24.8 12.0 3.3

Tech Mahindra 16.2 15.8 (0.4)

Mindtree 37.4 36.2 4.3


Source: Nirmal Bang Institutional Equities Research



Institutional investors still continue to be underweight on Indian IT services - This is the case both on DII and FII fronts as of June quarter 2018 data, which in our view is going to be a critical technical factor at play as there are no countervailing large liquid sectors as people pare their OW financials positions (see Exhibits 3 and 4) which are going to see some stress because of earnings cuts (both because of lower growth and NIM compression) and valuation downgrade in the wake of higher interest rates. Both DIIs and FPIs seem to have a 350-400bps underweight stance on the sector vis-à-vis key benchmarks.

Exhibit 3: FPIs are overweight on financials versus IT services

Industry FII %

Basic Materials 4.0

Consumer Goods 14.7

Consumer Services 1.0

Financials 38.1

Healthcare 4.7

Industrials 10.4

Oil & Gas 9.8

Technology 12.9

Telecommunications 2.1

Utilities 2.2

Total 100.0

Industry MSCI %

Basic Materials 8.7

Consumer Staples 11.3

Consumer Discretionary 11.3

Financials 22.9

Healthcare 5.5

Industrials 4.4

Oil & Gas 14.0

Technology 16.7

Telecommunications 2.1

Utilities 3.0

Total 100.0


Exhibit 4: DII are overweight on financials and industrials while underweight on IT services

Industry DII % % BSE 200

Basic Materials 9.5 7.25

Consumer Goods 18.7 19.40

Consumer Services 0.9 0.87

Financials 26.0 24.05

Health Care 4.7 5.74

Industrials 14.2 12.21

Oil & Gas 11.1 12.15

Technology 9.6 13.25

Telecommunications 1.4 1.99

Utilities 3.9 3.09

Total 100.0 100.0


INR benefits are going to be substantial over FY18-FY21E: Earnings of our Tier-1 universe of stocks had a PAT CAGR of ~6% over FY15-FY18 as USD revenues and EBIT (INR) growth slowed down to mid single- digit (see Exhibit 5). The slow USD growth was compounded by INR/USD depreciation which was much slower at 1.7% during the period against a historical average of 5%-6% since 1947. We now expect PAT CAGR in low teens for the same coverage universe over FY18-FY21E driven by USD revenue growth in mid single-digit and EBIT (INR) growth in mid-teens. This is to a very large extent supported by depreciation of 7% annually in the INR that our economist Ms.Teresa John expects during this timeframe (FY18-FY21E). We are factoring in INR/USD rate of 72/77/79.7 for FY19E/FY20E/FY21E, respectively.



Exhibit 5: How INR depreciation is benefiting earnings growth of the industry

FY15-FY18 USD revenues

growth INR/USD

depreciation INR revenue growth EBIT growth PAT growth

TCS 7.3% 1.7% 9.2% 6.3% 6.0%

Infosys 7.9% 1.8% 9.8% 7.4% 6.0%

Wipro 4.4%** 1.9% 4.8% -4.0% -2.5%

HCL Tech 9.6% 1.1% 10.9% 6.6% 6.6%

Tech Mahindra 9.2% 1.7% 11.0% 1.2% 13.1%

Mindtree 13.2% 1.5% 15.3% -2.1% 2.1%

Persistent Systems 15.2% 1.7% 17.1% 1.5% 3.6%

FY18- FY21E USD revenues

growth INR/USD

depreciation INR revenue growth EBIT growth PAT growth

TCS 5.7% 7.3% 13.4% 17.4% 16.5%

Infosys 4.7% 7.3% 12.4% 13.4% 10.7%

Wipro 1.7%** 6.9% 8.1% 13.2% 13.5%

HCL Tech 5.6% 7.3% 13.4% 14.0% 12.0%

Tech Mahindra 7.0% 7.3% 11.3% 15.8% 10.3%

Mindtree 8.1% 7.3% 16.0% 30.6% 25.0%

Persistent Systems 7.3% 7.3% 15.1% 25.3% 20.7%




Global capex growth has been a key driver of the sector in 2018- in our view: We believe the modest uptick witnessed in growth in FY19 is the result of a strong pick-up in capex by both US and European companies. A look at capex estimates of both S&P 500 and Stoxx 600 companies indicate a very large increase after many years of muted growth. We believe a great deal of this has to do with US tax reforms, depreciation-related rules and the rules to repatriate cash lying in non-US geographies. While we are able to explain the US-related capex upturn, we are unable to explain the Stoxx600 capex upturn. It could be a European corporate sector response to the capex being undertaken by its US counterparts so as to be not left behind. While all of this capex would not be focused on information technology products and services, we expect a decent chunk to be. The rise in discretionary spending (largely in digital) and discussions around firmer pricing gels with the pick-up in capex. However, as the charts indicate, capex growth has likely peaked in 2018 and will likely slow going forward. This gels well with thesis of slower growth for FY20 and beyond.

Exhibit 6: Sales growth of S&P 500 companies Exhibit 7: Earnings growth of S&P 500 companies

Source: Bloomberg, Nirmal Bang Institutional Equities Research Source: Bloomberg, Nirmal Bang Institutional Equities Research

Exhibit 8: Capex growth of S&P 500 companies Exhibit 9: Capex/sales of S&P 500 companies


Exhibit 10: Sales growth of Stoxx 600 companies Exhibit 11: Earnings growth of Stoxx 600 companies


8.2

4.7 3.0 3.7

(2.4)

2.0

7.4

10.3

5.4

(4)

(2)

0

2

4

6

8

10

12

CY

20

11

CY

20

12

CY

20

13

CY

20

14

CY

20

15

CY

20

16

CY

20

17

CY

20

18

Est

CY

20

19

Est

Sales Growth

(%)

14.7

5.8 6.8 6.2

(3.2)0.1

12.9

32.5

10.2

(5)

0

5

10

15

20

25

30

35

CY

20

11

CY

20

12

CY

20

13

CY

20

14

CY

20

15

CY

20

16

CY

20

17

CY

20

18

Est

CY

20

19

Est

Earnings Growth

(%)

23.2

11.4

2.3 6.8

(3.0)

(5.7)

0.8

25.6

1.9

(10)

(5)

0

5

10

15

20

25

30

CY

20

11

CY

20

12

CY

20

13

CY

20

14

CY

20

15

CY

20

16

CY

20

17

CY

20

18

Est

CY

20

19

Est

Capex Growth

(%)

6.2

6.6 6.6

6.8

6.8

6.2

5.9

6.7

6.5

5.2

5.4

5.6

5.8

6.0

6.2

6.4

6.6

6.8

7.0

CY

20

11

CY

20

12

CY

20

13

CY

20

14

CY

20

15

CY

20

16

CY

20

17

CY

20

18

Est

CY

20

19

Est

Capex/Sales

(%)

4.6

7.3

(2.9)

1.8

(3.9)

1.3 1.1

(0.1)

3.9

(6)

(4)

(2)

0

2

4

6

8

CY

20

11

CY

20

12

CY

20

13

CY

20

14

CY

20

15

CY

20

16

CY

20

17

CY

20

18

Est

CY

20

19

Est

Sales Growth

(%)

(12.2) (24.0)

21.6

(0.8)

(11.1)

2.7

47.5

19.1

9.5

(30)

(20)

(10)

0

10

20

30

40

50

60

CY

20

11

CY

20

12

CY

20

13

CY

20

14

CY

20

15

CY

20

16

CY

20

17

CY

20

18

Est

CY

20

19

Est

Earnings Growth

(%)



Exhibit 12: Capex growth of Stoxx 600 companies Exhibit 13: Capex/sales of Stoxx 600 companies


7.5 9.7

(5.0)

0.8

4.6

(8.8)(4.7)

14.7

1.3

(10)

(5)

0

5

10

15

20

CY

20

11

CY

20

12

CY

20

13

CY

20

14

CY

20

15

CY

20

16

CY

20

17

CY

20

18

Est

CY

20

19

Est

Capex Growth

(%)

5.8

6.0

5.9

5.8

6.3

5.7

5.4

6.2

6.0

4.8

5.0

5.2

5.4

5.6

5.8

6.0

6.2

6.4

6.6

CY

20

11

CY

20

12

CY

20

13

CY

20

14

CY

20

15

CY

20

16

CY

20

17

CY

20

18

Est

CY

20

19

Est

Capex/Sales

(%)



Nature of spending has shifted and ability to address is critical to growth

Having the capability to trap this extra spending on capital projects is key to growth for the industry. And the nature of spending is changing. The increased spending has been in new areas of various cost buckets that are being infused with technology. With revenue generation and customer acquisition being a priority for most corporate customers, marketing and media spending seems to be one area that has grown quite significantly. Only vendors that have been ahead of the curve in building capabilities in these areas have been able to grow faster- eg Accenture. The other set of players are those who have been able to help with both the Dgiital agenda but also cost cutting through use of platforms (TCS is an example). For instance, order inflow for Accenture has been among the best in recent quarters. A look at incremental revenue growth indicates that it has largely come from new revenue streams like Media Services and Security Services, thereby avoiding a direct confrontation with price-competitive India-based players. Between FY15-FY18, Accenture’s revenues have moved up from ~US$33bn to ~US$41.6bn. Accenture Interactive (Accenture’s digital media agency) has grown revenues during this period from ~US$2bn to ~US$8bn while Security Services - which did not exist as a meaningful revenue stream in FY15 - likely delivered ~US$2bn in revenues in FY18. So, incremental growth for Accenture has entirely come from addressing new spending that has traditionally not been addressed by it in the past and does not typically constitute IT services spending. As can be seen in Exhibits 14, Accenture has seen order inflow only in the past four quarters which coincides with the pick-up in capex of Global 2000 companies. Exhibit 15 indicates that Accenture is now being counted among the largest media agencies in the world due to its prowess in Digital marketing.

Exhibit 14: Accenture’s TTM order inflow indicates robust demand and strong market position

Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 15: 2017 revenues of media agencies (US$bn)

Source: Adage

34.5

35.5 36.035.934.9

34.233.934.4

34.4

34.535.1

35.335.9 35.636.337.4

39.0

40.1

42.042.8

33

35

37

39

41

43

45

Q1F

Y14

Q2F

Y14

Q3F

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Q4F

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Q1F

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2QF

Y15

3QF

Y15

4QF

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1QF

Y16

2QF

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3QF

Y16

4QF

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1QF

Y17

2QF

Y17

3QF

Y17

4QF

Y17

1QF

Y18

2QF

Y18

3QF

Y18

4QF

Y18

Accenture (Y/E Aug) TTM Bookings (US$bn)

(US$bn)

19.7

15.2

10.9

7.9 7.86.5

5.14.1 3.9 3.5

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10

15

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Valuation: We continue to use +1SD above five-year mean for TCS’ P/E as the basis of valuing the sector. This results in a 20.4x target P/E multiple for TCS on its 12-month forward EPS. All other stocks are being benchmarked to TCS as it will likely be the organic growth, EBIT margin and RoIC leader despite its humongous size. We have given mid-cap stocks a lower P/E multiple as structurally we believe they have weaker and more volatile businesses. Good times tend to exaggerate the positives for these companies on their small bases. We maintain our target P/E multiples on all stocks except Persistent Systems where we have downgraded our target P/E multiple to 40% discount to TCS’s versus 30% earlier. Despite this, we have upgrade our rating on the stock to Buy (from Accumulate earlier) as it has underperformed TCS considerably in recent days (see Exhibit 53). Also earnings upgrade from INR depreciation and muted stock move in recent months makes us move Tech Mahindra to Buy (from Accumulate earlier). While we do not structurally like both these companies, the valuations that they are currently trading at make them attractive from a tactical perspective.

Relative valuation -still some more room to expand: A look at Exhibit 16 indicates that Nifty IT has moved from a 25%-30% P/E discount in 2017 to Nifty to 10%-15% premium to Nifty on a forward P/E basis currently. However, we believe there is still some more room for the sector to expand its P/E multiple in the overall context of the current Indian market, institutional positioning and INR depreciation possibilities.

Exhibit 16: (Discount)/Premium of Nifty IT vs Nifty – 10 Year Chart


(50)

(40)

(30)

(20)

(10)

0

10

20

30

40

1/1

/20

09

6/1

/20

09

11

/1/2

009

4/1

/20

10

9/1

/20

10

2/1

/20

11

7/1

/20

11

12

/1/2

011

5/1

/20

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10

/1/2

012

3/1

/20

13

8/1

/20

13

1/1

/20

14

6/1

/20

14

11

/1/2

014

4/1

/20

15

9/1

/20

15

2/1

/20

16

7/1

/20

16

12

/1/2

016

5/1

/20

17

10

/1/2

017

3/1

/20

18

8/1

/20

18

Discount



Exhibit 17: Indian IT services sector-valuations

TCS Infosys Wipro HCL Tech Tech Mahindra Mindtree Persistent

Year ending March March March March March March March

CMP (prices as on 4 Oct.) 2,065 707 326 1,077 720 1,063 717

Currency INR INR INR INR INR INR INR

Market value (Rsbn) 7,905 3,074 1,608 1,480 645 176 57

(US$mn) 109,795 42,693 22,334 20,557 8,963 2,444 797

September 2019 target price 2,145 752 377 1,281 845 986 909

Upside/(downside) 4% 6% 16% 19% 17% -7% 27%

Recommendation Accumulate Accumulate Buy Buy Buy Sell Buy

FDEPS (Rs)

FY18 67.0 32.5 16.8 63.0 42.8 34.4 40.4

FY19E 87.9 39.5 21.3 78.7 49.7 47.6 52.6

FY20E 101.5 44.7 25.3 88.1 57.6 64.9 68.6

FY21E 108.8 47.4 26.0 91.0 57.4 67.7 71.0

P/E (x)

FY18 30.8 21.8 19.4 17.1 16.8 30.9 17.8

FY19E 23.5 17.9 15.3 13.7 14.5 22.3 13.6

FY20E 20.3 15.8 12.9 12.2 12.5 16.4 10.5

FY21E 19.0 14.9 12.5 11.8 12.5 15.7 10.1

EV/EBITDA (x)

FY18 24.2 15.1 14.4 12.1 12.6 22.4 11.7

FY19E 19.0 13.3 11.1 9.7 9.3 14.1 8.4

FY20E 16.1 11.2 9.1 8.3 7.9 10.5 6.4

FY21E 15.4 11.1 11.4 8.2 9.4 12.1 7.0

EV/sales (x)

FY18 6.4 4.1 2.7 2.7 1.9 3.0 1.8

FY19E 5.2 3.6 2.2 2.3 1.6 2.3 1.4

FY20E 4.5 3.1 1.9 2.0 1.3 1.9 1.1

FY21E 4.4 3.1 2.3 2.0 1.5 2.1 1.2

RoIC (%)

FY18 57.3 44.9 24.5 38.9 25.8 32.9 29.7

FY19E 64.9 51.6 30.9 38.0 33.4 55.2 45.9

FY20E 69.5 56.4 36.8 36.1 35.3 69.3 56.4

FY21E 70.5 55.4 37.5 32.7 32.9 69.8 60.9

Source: Company, Nirmal Bang Institutional Equities Research , All Prices are as of end of trade on 4th October, 2018



Exhibit 18: Stock and index performance sheet (as of 4 October 2018)

Stock performance (%) CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 1QCY17 2QCY17 3QCY17 4QCY17 1QCY18 2QCY18 CY18TD

TCS 57.5 (0.4) 8.7 70.1 17.3 (4.4) (2.8) 11.7 3.4 (2.9) 3.1 7.8 8.5 29.7 57.2

Infosys 33.6 (20.4) (15.3) 50.8 12.3 10.5 (8.6) 4.1 3.0 (8.5) (3.8) 14.8 9.5 15.5 36.9

Wipro 19.8 (18.7) (1.6) 57.7 0.2 1.0 (15.4) 30.4 9.2 0.2 8.5 9.9 (8.7) (7.0) 5.7

HCL Tech 23.6 (15.6) 61.5 99.1 27.5 5.8 (2.5) 7.2 6.8 (2.7) 2.8 0.4 10.3 (4.4) 22.6

Tech Mahindra (29.3) (17.1) 58.7 100.6 41.4 (19.6) (8.1) 3.0 (4.9) (16.8) 19.9 8.6 28.5 2.6 44.8

Persistent Systems - (24.5) 55.6 91.7 65.8 (20.7) (3.6) 11.7 (4.6) 14.5 (1.8) 4.1 (0.5) 16.9 2.8

Mindtree (24.3) (24.7) 72.2 122.7 59.8 16.4 (26.9) 17.0 (13.5) 16.8 (12.1) 31.9 25.9 27.8 73.5

Cognizant 62.4 (13.8) 13.6 38.4 6.2 14.8 (7.9) 27.1 5.9 11.6 9.2 (1.6) 11.6 (0.9) 12.2

Accenture 16.1 11.2 22.0 25.0 9.9 17.4 10.5 31.2 2.5 3.2 9.2 13.7 (4.0) 11.0 (3.1)

Globant SA - - - - - 150.3 (12.9) 39.7 11.3 19.3 (7.8) 14.0 11.1 11.9 13.0

Epam Systems INC - - - 83.9 37.2 65.8 (18.9) 67.5 17.5 11.3 4.6 22.5 3.6 11.5 5.2

Luxoft Holding INC - - - - 1.7 105.3 (29.4) (0.3) 12.0 (2.7) (21.4) 16.5 (26.4) (10.1) (25.4)

Cap Gemini 11.3 (32.9) 38.7 48.4 - 44.0 (6.2) 22.5 7.2 4.5 9.6 (0.3) 1.8 14.4 4.4

Hexaware 22.4 27.7 13.3 56.1 51.2 21.1 (15.1) 65.0 4.7 12.7 11.4 25.5 11.3 21.6 20.7

Cyient 11.0 (33.9) 59.3 88.6 53.3 (8.6) 3.9 18.3 (4.7) 8.6 0.6 13.7 19.7 10.3 30.7

Mphasis (6.9) (56.0) 29.9 12.2 (13.9) 33.9 13.8 27.9 2.3 3.4 3.2 17.1 15.6 29.4 58.5

NIIT Tech 10.6 (9.5) 34.8 45.9 (0.1) 63.0 (26.4) 53.1 2.7 32.6 (6.0) 19.7 33.2 26.9 84.4

LTI - - - - - - - 61.2 5.1 10.3 1.3 37.2 22.3 24.7 70.2

LTTS - - - - - - - 30.5 (0.8) (7.9) 9.1 31.0 20.7 (1.4) 61.2

Intellect Design - - - - - 258.4 (50.2) 27.9 (17.6) 7.2 3.2 40.3 (1.1) 17.1 24.2

OFSS (0.6) (19.7) 77.0 1.0 1.5 11.5 (17.1) 30.6 22.7 (5.4) 0.7 11.7 (7.8) 8.8 (2.3)

Ramco Systems 17.3 (37.4) 33.6 54.2 219.0 71.7 (57.8) 57.3 14.7 (14.8) 16.8 37.9 (32.6) (4.1) (40.1)

Just Dial - - - - (4.9) (36.0) (61.5) 57.4 58.6 (29.5) 0.1 40.7 (15.4) 25.3 (9.0)

Infoedge 47.6 (13.6) 23.2 34.6 81.3 2.4 5.4 44.3 (11.9) 29.1 6.9 18.7 (10.4) 0.9 4.8

Makemytrip - (15.4) (47.5) 53.9 33.1 (31.2) 32.5 29.9 49.8 (3.0) (14.3) 4.3 10.7 8.9 11.7

Index Performance (%)

Nasdaq 18.5 2.7 14.1 37.0 20.0 8.6 5.7 31.0 10.5 3.9 5.9 7.7 0.3 9.0 1.4

S&P 500 11.7 0.4 11.0 31.3 13.0 (0.8) 9.0 19.5 5.0 2.6 4.0 6.7 (3.1) 4.4 (2.8)

Stox 600 9.4 (12.5) 15.0 17.3 4.2 7.8 (2.0) 8.1 5.8 (0.5) 2.3 0.4 (5.2) 2.9 (5.6)

DAX 16.1 (15.4) 30.2 25.5 2.7 9.6 6.6 13.4 7.5 0.1 4.1 1.2 (8.0) 3.1 (7.8)

Nikkei (3.0) (17.9) 23.8 56.7 7.1 9.1 0.6 19.0 (1.2) 5.9 1.6 11.9 (7.7) 6.1 5.2

MSCI EM 16.8 (20.2) 15.4 (5.0) (4.7) (17.1) 8.5 34.4 11.6 5.5 7.0 6.6 0.8 (8.0) 2.7

Bovespa 1.0 (18.1) 7.4 (15.5) (2.9) (13.3) 38.9 26.9 7.9 (3.2) 18.1 2.8 9.8 (13.2) 2.9

HSCEI 0.4 (21.0) 14.4 (5.3) 10.0 (18.4) (3.6) 25.5 10.3 0.9 5.3 7.1 2.7 (7.7) (9.7)

CNX BANK 29.3 (31.0) 55.2 (8.7) 63.9 (9.3) 6.6 41.4 18.9 8.2 3.6 6.0 (4.8) 8.7 (2.6)

CNX IT 29.6 (18.6) (1.1) 57.2 17.4 (0.3) (7.4) 11.7 4.0 (5.1) 3.2 9.7 8.8 11.8 34.3

CNX FMCG 29.5 9.4 48.7 11.7 17.8 0.1 1.7 30.5 15.4 13.6 (8.5) 8.7 (1.8) 10.9 7.6

CNX AUTO 35.0 (18.6) 41.2 9.9 57.3 (0.7) 10.5 30.2 8.5 6.7 2.6 9.7 (8.7) (1.0) (22.4)

CNX ENERGY 4.0 (27.5) 12.0 0.1 8.4 (0.7) 19.2 40.8 14.8 (0.4) 10.1 11.9 (7.5) 0.9 1.0

CNX PHARMA 34.5 (10.2) 32.7 26.3 42.6 10.3 (15.5) (5.4) 2.8 (7.7) (4.5) 4.5 (12.8) 9.8 0.5

CNX METAL 0.5 (47.1) 16.2 (13.8) 6.2 (31.3) 45.5 49.7 17.1 (3.4) 18.7 11.5 (11.3) (2.1) (9.8)

CNX INFRA (4.1) (38.1) 21.9 (4.7) 22.5 (8.8) (2.3) 34.1 15.2 3.4 1.4 11.1 (7.7) (6.1) (19.0)

CNX MIDCAP 18.0 (30.5) 39.3 (5.4) 55.7 7.2 6.5 47.4 20.8 3.1 2.1 15.9 (10.6) (3.1) (20.3)

CNX SMALLCAP 16.6 (32.9) 35.6 (8.1) 53.9 7.4 2.2 57.5 22.1 4.7 3.7 18.8 (13.6) (7.9) (32.8)

NIFTY 18.0 (23.9) 27.2 6.5 31.1 (4.3) 2.6 29.3 13.2 3.8 2.8 7.0 (3.5) 5.9 1.2

USD/INR 44.7 53.1 55.0 61.8 63.0 66.2 67.4 65.1 67.0 64.5 `64.3 64.7 65.2 70.1 67.3

Source: Bloomberg, Nirmal Bang Institutional Equities Research



Exhibit 19: Industry valuation

Price M-cap EPS (Rs) P/E (x) EV/Sales (x) P/B (x)

Company (Rs) (US$mn) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E

TCS 2,065 107,290 67.0 87.9 101.5 33.6 25.6 22.2 7.0 5.7 4.9 9.8 10.1 8.0

Infosys 707 41,928 32.5 39.5 44.7 22.9 18.8 16.6 4.3 3.8 3.2 5.0 6.4 5.3

Wipro 326 19,995 16.8 21.3 25.3 19.7 15.5 13.1 2.5 2.0 1.7 3.1 2.6 2.3

HCL Tech 1,077 20,356 63.0 78.7 88.1 17.4 13.9 12.4 2.8 2.3 2.0 4.2 3.7 3.2

Tech Mahindra 720 9,582 42.8 49.7 57.6 18.1 15.5 13.4 2.1 1.7 1.4 3.6 3.1 2.7

Persistent Systems 717 778 40.4 52.6 68.6 18.8 14.4 11.1 1.9 1.5 1.2 2.9 2.5 2.3

Mindtree 1,063 2,370 34.7 47.6 64.9 31.3 22.6 16.6 3.0 2.3 1.9 6.5 5.5 4.5

Cognizant* (US$) 80 44,423 4.5 5.0 5.6 17.7 15.9 14.4 2.5 2.3 2.0 4.0 3.5 3.0

Accenture (US$) 165 111,747 7.2 7.9 8.7 22.9 20.8 19.0 2.5 2.3 2.2 9.2 7.9 6.6

Cap Gemini* (Euro) 115 22,052 6.0 6.7 7.3 19.1 17.1 15.8 1.6 1.4 1.3 2.6 2.4 2.2

Globant (US$) 56 2,071 1.7 2.1 2.6 47.4 38.2 31.0 3.9 3.1 2.4 6.0 4.8 5.1

Epam (US$) 124 7,392 4.1 5.1 6.1 19.4 15.6 13.0 3.7 2.9 2.3 5.7 4.6 3.7

Luxoft (US$) 37 1,554 2.4 3.0 3.6 33.7 26.3 22.2 1.5 1.2 1.0 2.4 2.1 1.8

Hexaware* 409 1,647 19.8 22.6 25.0 20.7 18.1 16.3 2.5 2.1 1.8 5.3 4.5 3.9

Cyient 759 1,164 40.7 49.0 57.8 18.7 15.5 13.1 1.6 1.4 1.2 3.2 2.9 2.6

Mphasis 1,148 3,014 55.1 63.2 70.2 20.9 18.2 16.3 2.7 2.4 2.1 4.0 3.6 3.3

eClerx 1,030 541 69.7 80.7 86.4 14.8 12.8 11.9 2.2 2.0 1.8 2.9 2.7 2.6

LTI 1,866 4,381 82.0 95.3 109.3 22.7 19.6 17.1 3.4 2.9 2.4 7.0 5.8 5.1

LTTS 1,651 2,322 62.3 72.9 83.1 26.5 22.6 19.9 3.5 3.0 2.5 7.3 6.0 5.0

KPIT 206 552 16.5 20.1 24.1 12.4 10.3 8.6 0.8 0.6 0.5 1.9 1.6 1.4

NIIT Tech 1,198 1,001 59.8 70.2 82.3 20.0 17.1 14.6 1.9 1.6 1.3 3.7 3.2 2.8

Intellect Design 208 370 8.6 10.3 14.4 24.1 20.2 14.4 2.0 1.6 1.4 2.7 2.4 2.3

OFSS 3,967 4,616 176.4 202.3 225.6 22.5 19.6 17.6 6.0 5.6 5.1 10.3 8.3 8.3

Just Dial 477 436 25.3 28.7 31.6 18.9 16.6 15.1 2.3 2.3 2.0 3.0 2.5 2.2

Info Edge 1,375 2,276 27.1 32.2 37.1 50.8 42.7 37.1 13.8 11.3 9.4 7.6 6.7 5.8

Makemytrip (US$) 35 2,647 (1.2) (0.3) 1.7 (28.0) (103.6) 21.0 3.7 3.0 2.5 2.5 2.7 2.5

Genpact* 29 5,795 1.7 2.0 2.1 16.8 15.0 13.6 2.2 2.0 2.0 3.6 3.1 2.7

WNS 52 2,572 2.4 2.6 3.0 21.9 20.1 17.8 3.1 2.7 2.8 4.9 4.1 3.5

EXLS* 58 2,220 2.8 3.1 3.4 21.1 19.0 17.3 2.4 2.0 - 5.2 4.2 2.7

* CY Company




Summary financials Exhibit 20: TCS

Y/E March (Rsbn) FY17 FY18 FY19E FY20E FY21E

Revenues (Rsbn) 1,180 1,231 1,499 1,734 1,795

YoY growth (%) 8.6 4.4 21.7 15.7 3.5

EBIT (Rsbn) 303 305 394 470 493

% of sales 25.7 24.8 26.3 27.1 27.5

PAT (Rsbn) 263 258 333 381 408

YoY growth (%) 8.6 -1.8 28.9 14.4 7.2

FDEPS (Rs) 66.7 67.0 87.9 101.5 108.8

RoE (%) 32.4 29.3 38.4 39.4 34.2

RoCE (%) 33.7 30.7 38.7 41.4 36.1

RoIC (%) 60.8 57.3 64.9 69.5 70.5

P/E (x) 30.9 30.8 23.5 20.3 19.0

P/BV (x) 8.9 9.0 9.2 7.3 6.0


Exhibit 21: Infosys


Revenues (Rsbn) 685 705 838 970 1002

YoY growth (%) 9.7 3.0 18.9 15.7 3.3

EBIT (Rsbn) 169 171 208 241 250

EBIT (%) 24.7 24.3 24.8 24.8 25.0

Adj. PAT(Rsbn) 144 147 172 188 199

YoY growth (%) 6.4 2.3 17.0 9.4 6.0

FDEPS-adjusted (Rs) 31.2 32.5 39.5 44.7 47.4

RoE (%) 22.0 21.9 29.7 34.3 31.7

RoCE (%) 30.5 30.5 40.6 47.0 43.5

RoIC (%) 51.1 44.9 51.6 56.4 55.4

P/E (x) 22.8 21.9 18.0 15.9 15.0

P/BV (x) 4.7 4.8 6.1 5.1 4.5


Exhibit 22: Wipro


Revenue s(Rsbn) 550 545 608 685 688

YoY growth (%) 7.0 (1.0) 11.6 12.8 0.4

EBIT (Rsbn) 94 84 105 123 122

EBIT (%) 17.1 15.5 17.4 18.0 17.7

Adj. PAT (Rsbn) 85 80 96 114 117

YoY growth (%) (4.6) (5.7) 20.1 18.8 2.5

FDEPS (Rs) 17.5 16.8 21.3 25.3 26.0

RoE (%) 17.1 15.9 18.2 18.9 17.6

RoCE (%) 14.4 12.7 15.7 16.7 15.3

RoIC (%) 28.8 24.5 30.9 36.8 37.5

P/E (x) 18.6 19.3 15.2 12.8 12.5

P/BV (x) 2.8 3.0 2.6 2.3 2.1




Exhibit 23: HCL Technologies

Y/E March (Rsmn) FY17 FY18 FY19E FY20E FY21E

Revenues (Rsmn) 467,220 505,700 617,666 710,581 736,586

YoY growth (%) 50.1 8.2 22.1 15.0 3.7

EBIT (Rsmn) 94,750 99,880 124,014 142,458 148,102

EBIT (%) 20.3 19.8 20.1 20.0 20.1

Adj. PAT (Rsmn) 84,420 87,820 108,028 119,512 123,496

YoY growth (%) 49.0 4.0 23.0 10.6 3.3

FDEPS (Rs) 60.6 63.0 78.7 88.1 91.0

RoE (%) 27.4 25.0 27.7 27.2 24.8

RoCE (%) 28.9 27.1 30.3 30.8 28.4

RoIC (%) 46.2 38.9 38.0 36.1 32.7

P/E(x) 17.8 17.1 13.7 12.3 11.9

P/BV (x) 4.6 4.1 3.6 3.1 2.8


Exhibit 24: Tech Mahindra


Revenues 291,408 307,730 358,776 417,484 424,374

YoY (%) 10.0 5.6 16.6 16.4 1.7

Gross profit 85,747 92,431 111,350 125,612 125,307

% of sales 29.4 30.0 31.0 30.1 29.5

EBIT 32,062 36,321 50,703 58,020 56,436

% of sales 11.0 11.8 14.1 13.9 13.3

PAT 28,136 38,001 44,160 51,149 50,967

YoY (%) (9.7) 35.1 16.2 15.8 (0.4)

FDEPS 31.7 42.8 49.7 57.6 57.4

RoE (%) 18.3 21.5 21.7 21.9 19.1

RoCE (%) 17.3 17.2 21.2 21.6 18.8

RoIC (%) 26.2 25.8 33.4 35.3 32.9

P/E(x) 23.1 17.1 14.7 12.7 12.7

P/BV (x) 3.9 3.4 3.0 2.6 2.3


Exhibit 25: Mindtree


Revenues (Rsmn) 52,364 54,628 72,287 83,654 85,330

YoY growth (%) 11.8 4.3 32.3 15.7 2.0

EBIT (Rsmn) 5,327 5,692 9,924 13,112 12,688

as % of sales 10.2 10.4 13.7 15.7 14.9

Adj. PAT (Rsmn) 4,159 5,701 7,835 10,674 11,132

YoY growth (%) (29.5) 37.1 37.4 36.2 4.3

FDEPS (Rs) 25.3 34.7 47.6 64.9 67.7

RoE (%) 16.7 21.4 26.4 29.9 25.8

RoCE (%) 21.8 21.7 35.1 40.0 32.1

RoIC (%) 27.8 32.9 55.2 69.3 69.8

P/E (x) 42.5 30.8 22.2 16.3 15.6

P/BV (x) 6.7 6.3 5.4 4.4 3.7




Exhibit 26: Persistent Systems


Revenues (Rsmn) 28,784 30,337 37,559 44,499 46,309

YoY growth (%) 24.5 5.4 23.8 18.5 4.1

EBIT (Rsmn) 3,049 3,102 4,815 6,055 6,106

% of sales 10.6 10.2 12.8 13.6 13.2

Adj. PAT (Rsmn) 3,015 3,231 4,210 5,485 5,684

YoY growth (%) 1.4 7.2 30.3 30.3 3.6

FDEPS (Rs) 37.7 40.4 52.6 68.6 71.0

RoE (%) 17.2 15.4 21.3 23.9 21.6

RoCE (%) 17.1 15.3 21.3 23.8 21.6

RoIC (%) 31.1 29.7 45.9 56.4 60.9

P/E (x) 19.1 17.8 13.6 10.5 10.1

P/BV (x) 3.0 2.7 2.4 2.1 1.9




Change in our estimates

Exhibit 27: TCS

New Old Change (%)

FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E

INR/USD 71.8 77.0 79.7 68.8 71.5 75.0 4.4 7.7 6.3

USD revenues (US$mn) 20,842 22,519 22,524 20,894 22,511 22,475 (0.3) - 0.2

Revenues (Rsbn) 1,499 1,734 1,795 1,439 1,610 1,686 4.2 7.7 6.5

EBIT (Rsbn) 394 470 493 371 419 424 6.2 12.1 16.3

EBIT margin (%) 26.3 27.1 27.5 25.8 26.0 25.2 - - -

PAT (Rsbn) 333 381 408 316 343 355 5.5 11.2 14.9

FDEPS (Rs) 87.9 101.5 108.8 83.3 91.3 94.7 5.5 11.2 14.9


Exhibit 28: Infosys

New Old Change (%)


INR/USD 71.8 77.0 79.7 68.8 71.5 75.0 4.4 7.7 6.3

USD revenues (US$mn) 11,671 12,594 12,569 11,673 12,538 12,500 - 0.4 0.6

Revenues (Rsbn) 838 970 1002 803 896 937 4.4 8.2 6.9

EBIT (Rsbn) 208 241 250 192 217 228 8.0 11.1 9.9

EBIT margin (%) 24.8 24.8 25.0 24.0 24.2 24.3 - - -

PAT -adjusted (Rsbn) 172 188 199 161 170 182 6.8 10.4 9.6

FDEPS-adjusted (Rs) 39.5 44.7 47.4 36.9 40.7 43.4 6.8 10.0 9.1


Exhibit 29: Wipro

New Old Change (%)


INR/USD 71.8 77.0 79.7 68.8 71.5 75.0 4.4 7.7 6.3

USD revenue (US$mn) 8,282 8,729 8,469 8,310 8,729 8,469 (0.3) - -

Revenue (Rsbn) 608 685 688 585 637 649 4.0 7.5 6.1

EBIT (Rsbn) 105 123 122 94 108 110 12.7 14.1 11.5

EBIT margin (%) 17.4 18.0 17.7 16.0 17.0 16.9 - - -

PAT (Rsbn) 96 114 117 87 102 107 10.7 11.9 9.8

FDEPS (Rs) 21.3 25.3 26.0 19.3 22.6 23.6 10.7 11.9 9.8



New Old Change (%)


INR/USD 72.0 77.0 79.7 68.8 71.5 75.0 4.7 7.7 6.3

USD revenues (US$mn) 8,572 9,228 9,242 8,595 9,228 9,242 (0.3) - -

Revenues (Rsmn) 617,666 710,581 736,586 591,267 659,825 693,148 4.5 7.7 6.3

EBIT (Rsmn) 124,014 142,458 148,102 118,305 131,878 137,161 4.8 8.0 8.0

EBIT margin (%) 20.1 20.0 20.1 20.0 20.0 19.8 - - -

PAT (Rsmn) 108,028 119,512 123,496 103,511 111,201 114,466 4.4 7.5 7.9

FDEPS (Rs) 78.7 88.1 91.0 75.4 82.0 84.4 4.4 7.5 7.9





New Old Change (%)


INR/USD 71.8 77.0 79.7 68.8 71.5 75.0 4.4 7.7 6.3


Revenues (Rsmn) 358,776 417,484 424,374 347,503 387,701 399,387 3.2 7.7 6.3

EBIT (Rsmn) 50,703 58,020 56,436 45,579 49,764 50,473 11.2 16.6 11.8

EBIT margin (%) 14.1 13.9 13.3 13.1 12.8 12.6 - - -

PAT (Rsmn) 44,067 51,149 50,967 40,034 44,663 46,142 10.1 14.5 10.5

EPS (Rs) 49.7 57.6 57.4 45.2 50.3 52.0 10.1 14.5 10.5



New Old Change (%)


INR/USD 71.8 77.0 79.7 68.9 71.5 75.0 4.4 7.7 6.3


Revenues (Rsmn) 72,287 83,654 85,330 69,377 77,679 80,298 4.2 7.7 6.3

EBIT (Rsmn) 9,924 13,112 12,688 9,031 11,247 11,276 9.9 16.6 12.5

EBIT margin (%) 13.7 15.7 14.9 13.0 14.5 14.0 - - -

PAT (Rsmn) 7,835 10,674 11,132 7,201 9,229 9,767 8.8 15.7 14.0

EPS (Rs) 47.6 64.9 67.7 43.8 56.1 59.4 8.8 15.7 14.0



New Old Change (%)


INR/USD 71.8 77.0 79.7 68.8 71.5 75.0 4.4 7.7 6.3

USD revenues (USDmn) 523 578 581 523 578 581 - - -

Revenues (Rsmn) 37,559 44,499 46,309 35,999 41,320 43,578 4.3 7.7 6.3

EBIT (Rsmn) 4,815 6,055 6,106 4,343 5,206 5,299 10.9 16.3 15.2

EBIT margin (%) 12.8 13.6 13.2 12.1 12.6 12.2 - - -

PAT (Rsmn) 4,210 5,485 5,684 4,010 4,855 5,070 5.0 13.0 12.1

FDEPS (Rs) 52.6 68.6 71.0 50.1 60.7 63.4 5.0 13.0 12.1




Our estimates versus consensus estimates Exhibit 34: TCS

Consensus NBIE NBIE/Consensus (%)


Revenues (Rsbn) 1,430 1,583 1,742 1,499 1734 1795 105 110 103

EBIT (Rsbn) 369 411 452 394 470 493 107 114 109

PAT-adj. (Rsbn) 308 342 376 333 381 408 108 112 109

FDEPS-adj. (Rs) 81.0 90.1 99.4 87.9 101.5 108.8 109 113 109

EBIT margin (%) 25.8 25.9 25.9 26.3 27.1 27.5 - - -


Exhibit 35: Infosys



Revenues (Rsbn) 801 878 960 838 970 1002 105 110 104

EBIT (Rsbn) 194 213 234 208 241 250 107 113 107

PAT-aAdj. (Rsbn) 161 176 193 172 188 199 107 107 103

FDEPS –adj. (Rs) 37.7 41.5 46.5 39.5 44.7 47.4 105 108 102

EBIT margin (%) 24.2 24.3 24.4 24.8 24.8 25.0 - - -


Exhibit 36: Wipro



Revenues (Rsbn) 579 622 660 608 685 688 105 110 104

EBIT (Rsbn) 92 102 108 105 123 122 115 121 113

PAT (Rsbn) 85 94 101 96 114 117 114 121 116

FDEPS (Rs) 18.7 20.7 22.2 21.3 25.3 26.0 114 122 117

EBIT margin (%) 15.8 16.4 16.4 17.4 18.0 17.7 - - -





Revenues (Rsbn) 585 645 703 618 711 737 106 110 105

EBIT (Rsbn) 116 128 140 124 142 148 107 112 106

PAT (Rsbn) 97 105 116 108 120 123 111 114 107

EPS (Rs) 70.5 76.8 84.4 78.7 88.1 91.0 112 115 108

EBIT margin (%) 19.8 19.8 19.8 20.1 20.0 20.1 - - -





Revenues (Rsbn) 348 385 424 359 417 424 103 109 100

EBIT (Rsbn) 47.5 53.7 59.7 51 58 56 107 108 95

PAT (Rsbn) 40.1 45.7 51.3 44 51 51 110 112 99

EPS (Rs) 44.5 50.5 56.2 49.7 57.6 57.4 112 114 102

EBIT margin (%) 13.6 14.0 14.1 14.1 13.9 13.3 - - -







Revenues (Rsmn) 68,209 77,330 86,843 72,287 83,654 85,330 106 108 98

EBIT (Rsmn) 8,908 10,699 12,147 9,924 13,112 12,688 111 123 104

PAT (Rsmn) 7,129 8,557 9,742 7,835 10,674 11,132 110 125 114

EPS (Rs) 43.2 51.9 59.0 47.6 64.9 67.7 110 125 115

EBIT margin (%) 13.1 13.8 14.0 13.7 15.7 14.9 - - -





Revenues (Rsmn) 35,144 39,675 44,742 37,559 44,499 46,309 107 112 104

EBIT (Rsmn) 4,221 5,052 5,918 4,815 6,055 6,106 114 120 103

PAT (Rsmn) 3,786 4,538 5,338 4,210 5,485 5,684 111 121 106

EPS (Rs) 47.4 56.5 66.4 52.6 68.6 71.0 111 121 107

EBIT margin (%) 12.0 12.7 13.2 12.8 13.6 13.2 - - -




TCS

Exhibit 41: P/E multiple charts


Infosys



Exhibit 43: Premium discount chart with TCS


-

500

1,000

1,500

2,000

2,500

Oct

-08

Ma

r-0

9

Au

g-0

9

Jan

-10

Jun

-10

No

v-1

0

Ap

r-1

1

Se

p-1

1

Fe

b-1

2

Jul-1

2

De

c-1

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Ma

y-1

3

Oct

-13

Ma

r-1

4

Au

g-1

4

Jan

-15

Jun

-15

No

v-1

5

Ap

r-1

6

Se

p-1

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Jul-1

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De

c-1

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Oct

-18

Price 5 10 15 20

(Rs)

5

10

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20

25

30

Oct

-08

Ma

r-0

9

Au

g-0

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Jan

-10

Jun

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v-1

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Ap

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v-1

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6

Se

p-1

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Fe

b-1

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Jul-1

7

De

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Ma

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Oct

-18

P/E Mean +1 SD -1 SD

(x)

0

200

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1000

1200

1400

1600

Oct

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Ma

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(Rs)

Price 5 10 15 20

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-18

(x)

P/E Mean 1sd (1)sd

(60)

(50)

(40)

(30)

(20)

(10)

0

10

20

30

40

Oct

-08

Ma

r-0

9

Au

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Jan

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b-1

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Jul-1

7

De

c-1

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Ma

y-1

8

Oct

-18

Infosys 1 Yr Forward P/E Discount to TCS (%) -20

(%)



Wipro





50

100

150

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300

350

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500

Oct

-08

Ma

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Price 5 10 15 20

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(x)

PE Mean 1sd -1sd

(50)

(40)

(30)

(20)

(10)

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Oct

-08

Ma

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9

Au

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b-1

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De

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Ma

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Oct

-18

Wipro 1 Yr Forward P/E Discount to TCS -30



HCL Technologies





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-18

(Rs)

Price 5 10 15 20

3

8

13

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23

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-08

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(x)

P/E Mean 1SD -1sd

(70)

(60)

(50)

(40)

(30)

(20)

(10)

0

10

20

30

Oct

-08

Ma

r-0

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Jan

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Jul-1

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8

Oct

-18

HCL Tech 1 Yr Forward P/E Discount to TCS -30



Tech Mahindra





0

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(Rs)

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-18

(x)

P/E Mean 1sd (1)sd

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(20)

(10)

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10

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Oct

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Jan-

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Oct

-18

Tech Mahindra 1 Yr Forward PE Discount to TCS -30

(x)



Mindtree





0

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-18

(x)

P/E Mean 1 sd (1) sd

(100)

(80)

(60)

(40)

(20)

0

20

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60

80

100

Oct

-08

Mar

-09

Aug

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Apr

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Sep

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Feb

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Jul-1

7

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Oct

-18

Mindtree 1 Yr Forward P/E Discount to TCS -20

(%)



Persistent Systems





0

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(Rs)

Price 5 10 15 20

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Ap

r-1

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(x)

P/E mean 1sd -1sd

(70)

(60)

(50)

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(30)

(20)

(10)

0

10

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Oct

-11

Ap

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Ap

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Oct

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Ap

r-1

8

Oct

-18

PSL's 1-Yr fwd P/E discount to TCS -30

(x)



Financials -TCS

Exhibit 54: Income statement


Average INR/USD 67.1 64.5 71.8 77.0 79.7

Net sales (USDmn) 17,575 19,089 20,842 22,519 22,524

-Growth (%) 6.2 8.6 9.2 8.0 0.0

Net sales 1,180 1,231 1,499 1,734 1,795

-Growth (%) 8.6 4.4 21.7 15.7 3.5

Cost of sales & services 669 713 862 997 1,032

Gross margin 511 518 637 737 763

% of sales 43.3 42.1 42.5 42.5 42.5

SG& A expenses 208 213 243 267 270

% of sales 17.6 17.3 16.2 15.4 15.0

EBIT 303 305 394 470 493

EBIT margin (%) 25.7 24.8 26.3 27.1 27.5

Other income (net) 42 36 49 36 49

PBT 345 341 442 506 542

-PBT margin (%) 29.3 27.7 29.5 29.2 30.2

Provision for tax 82 82 109 124 133

Effective tax rate (%) 23.6 24.1 24.6 24.5 24.5

Minority interest 1 1 1 1 1

Net profit 263 258 333 381 408

-Growth (%) 8.6 (1.8) 28.9 14.4 7.2

-Net profit margin (%) 22.3 21.0 22.2 22.0 22.7

Average shares outstanding-Basic 3,941 3,829 3,790 3,752 3,752


Exhibit 56: Balance sheet


Equity capital 2.0 1.9 3.8 3.8 3.8

Reserves & surplus 885 875 854 1,072 1,309

Net worth 887 876 857 1,076 1,313

Minority Interest - - - - -

Other liabilities 21 29 28 30 31

Total loans 3 2 1 1 1

Total liabilities 911 908 886 1,107 1,345

Goodwill 38 39 39 39 39

Net block (incl. CWIP) 117 116 116 117 117

Investments 3 3 2 2 2

Deferred tax asset - net 28 34 35 38 39

Other non-current assets 62 76 78 82 83

Other current assets 485 427 453 456 457

Debtors 280 320 372 407 416

Cash & bank balance 36 49 46 46 46

Bank deposits 4 21 (32) 158 387

Total current assets 805 815 840 1,067 1,306

Total current liabilities 143 176 224 238 242

Net current assets 662 639 616 829 1,064

Total assets 911 908 886 1,107 1,345


Exhibit 55: Cash flow


EBIT 303 305 394 470 493

(Inc.)/dec. in working capital 6 (20) (72) (28) (7)

Cash flow from operations 309 285 322 442 486

Other income 42 36 49 36

Depreciation & amortisation 20 20 20 20 20

Financial expenses - - - - -

Tax paid (82) (82) (109) (124) (133)

Dividends paid (112) (116) (142) (162) (171)

Net cash from operations 178 143 139 211 202

Capital expenditure (19) (19) (20) (21) (21)

Net cash after capex 159 124 120 190 181

Inc./(dec.) in debt 0 (0) (2) - -

(Inc.)/dec. in investments (192) 60 37 - -

Equity issue/(share buyback) - (160) (160) - -

Cash from financial activities (191) (101) (124) - -

Others 5 5 (50) (1) 48

Opening cash 67 40 69 14 204

Closing cash 40 69 15 204 433

Change in cash (28) 29 (55) 189 229


Exhibit 57: Key ratios

Y/E March FY17 FY18 FY19E FY20E FY21E

Per Share (Rs)

EPS 66.7 67.0 87.9 101.5 108.8

FDEPS 66.7 67.0 87.9 101.5 108.8

Dividend Per Share 23.5 25.1 31.2 35.9 37.8

Dividend Yield (%) 1.1 1.2 1.5 1.7 1.8

Book Value 231.6 228.9 223.9 281.0 342.9

Dividend Payout Ratio (excl DT) 42.4 37.2 35.5 35.4 34.8

Return ratios (%)

RoE 32.4 29.3 38.4 39.4 34.2

RoCE 33.7 30.7 38.7 41.4 36.1

ROIC 60.8 57.3 64.9 69.5 70.5

Tunover Ratios

Asset Turnover Ratio 1.1 1.1 1.4 1.3 1.1

Debtor Days (incl. unbilled Rev) 87 95 91 86 85

Working Capital Cycle Days 64 63 69 64 63

Valuation ratios (x)

PER 30.9 30.8 23.5 20.3 19.0

P/BV 8.9 9.0 9.2 7.3 6.0

EV/EBTDA 24.3 24.1 19.0 16.0 15.3

EV/Sales 6.7 6.4 5.2 4.5 4.4

M-cap/Sales 6.7 6.4 5.3 4.6 4.4




Financials - Infosys



Average INR/USD 67.1 64.5 71.8 77.0 79.7

Net Sales (USD mn) 10,206 10,941 11,671 12,594 12,569

-Growth (%) 7.4 7.2 6.7 7.9 (0.2)

Net Sales 685 705 838 970 1,002

-Growth (%) 9.7 3.0 18.9 15.7 3.3

Direct Costs 433 451 525 604 628

Gross Margin 252 254 313 366 374

% of sales 36.8 36.0 37.3 37.7 37.4

SG& A 83 82 105 125 124

% of sales 12.2 11.7 12.5 12.9 12.4

EBIT 169 171 208 241 250

% of sales 24.7 24.3 24.8 24.8 25.0


PBT 200 204 235 257 273

-PBT margin (%) 29.1 28.9 28.0 26.5 27.2



Net profit (adjusted) 144 147 172 188 199

-Growth (%) 6.4 2.3 17.0 9.4 6.0


Shares Outstanding (Basic) 4,594 4,347 4,347 4,194 4,194




Equity capital 11.4 10.9 10.9 21.0 21.0

Reserves & surplus 678 638 495 568 644

Net worth 690 649 506 589 665

Deferred tax liability 2 5 5 5 5


Total loans

Total liabilities 693 658 515 597 674

Goodwill 37 22 24 24 24

Other intangible assets 8 2 4 4 4

Net block 117 121 129 143 158

Investments 164 122 125 125 125



Unbilled revenue 36 43 54 60 60

Derivative financial instrument 3 0 0 0 0


Income tax assets-current - - - - -

Debtors 123 131 158 178 176


Total current assets 437 436 307 387 447


Net current assets 297 295 133 193 255

Total assets 693 658 515 597 674




EBIT 169 171 208 241 250

(Inc.)/dec. in working capital (19) (46) (5) (21) 2


Other Income 31 32 27 16 23


Financial expenses 0 0 0 0 0

Tax paid (56) (57) (63) (69) (74)

Dividends paid (143) (179) (110) (115) (122)

Net cash from operations (1) (59) 78 76 105

Capital expenditure (26) (3) (31) (39) (42)

Net cash after capex (26) (63) 47 37 63

Inc./(dec.) in debt - - - - -

(Inc.)/dec. in investments (145) 43 (3) 0 0

Share issue/(share buyback) (130) (104) 0 0

Cash from financial activities (145) (87) (107) 0 0

Others 71 122 (101) 10

Opening cash balance 327 226 198 37 84

Closing cash balance 226 198 37 84 147

Change in cash balance (101) (28) (162) 47 63




Per Share (Rs)

EPS-adjusted 31.2 32.5 39.5 44.8 47.5

FDEPS-adjusted 31.2 32.5 39.5 44.7 47.4

Dividend per share 25.8 33.5 20.9 22.8 24.2

Dividend yield (%) 3.6 4.7 2.9 3.2 3.4

Book value 150 149 116 140 159

Dividend payout ratio (incl. DT) 99.3 122.1 63.9 61.5 61.5

Return ratios (%)

RoE 22.0 21.9 29.7 34.3 31.7

RoCE 30.5 30.5 40.6 47.0 43.5

RoIC 51.1 44.9 51.6 56.4 55.4

Turnover ratios

Asset turnover 0.8 0.9 1.2 1.2 1.2

Debtor days (incl. unbilled rev.) 84 89 91 88 85

Working capital cycle days 37 49 41 41 39


P/E 22.8 21.9 18.0 15.9 15.0

P/BV 4.7 4.8 6.1 5.1 4.5

EV/EBITDA 15.4 15.2 13.3 11.3 10.7

EV/Sales 4.2 4.1 3.6 3.1 2.9

M-cap/Sales 4.5 4.4 3.7 3.2 3.1




Financials -Wipro



Average INR/USD 68.6 65.3 71.8 77.0 79.7

Net Sales (USDmn) 7,704 8,060 8,282 8,729 8,469

-Growth (%) 4.9 4.6 2.8 5.4 (3.0)

Net Sales - Overall 550 545 608 685 688

-Growth (%) 7.0 (1.0) 11.6 12.8 0.4

Cost of Sales & Services 392 386 431 475 476

% of sales 71.1 70.8 70.9 69.2 69.1

Gross profit 159 159 177 211 213

% of sales 28.9 29.2 29.1 30.8 30.9

SG& A 73 76 75 88 91

% of sales 13.2 14.0 12.3 12.8 13.2

EBIT 94 84 105 123 122

% of sales 17.1 15.5 17.4 18.0 17.7

Interest expenses 5 6 6 6 6


PBT 110 102 122 145 149

-PBT margin (%) 20.1 18.8 20.1 21.2 21.6



Minority Interest 0.2 0.0 (1.1) (1.1) (1.1)

Net profit 85 80 96 114 117

-Growth (%) (4.6) (5.7) 20.1 18.8 2.5





Equity capital 5 9 9 9 9

Reserves & surplus 518 476 563 626 684

Net worth 523 485 572 635 693

Deferred tax liability, net 4 (4) (4) (4) (4)


Total loans 20 45 47 47 47

Total liabilities 561 540 628 691 749

Goodwill 126 118 122 122 122

Other intangible assets 16 18 18 18 18

Net block 70 64 59 49 38

Investments 299 258 258 258 258


Unbilled revenue 45 42 46 49 47

Inventories 4 3 4 4 4


Debtors 99 105 124 132 126


Total current assets 251 262 349 430 494


Net current assets 21 48 135 208 277

Total assets 561 540 628 691 749




EBIT 94 84 105 123 122

(Inc.)/dec. in working capital 4 (17) 5 (6) 4


Other income 22 24 22 28 32


Financial expenses (5) (6) (6) (6) (6)

Tax paid (25) (22) (27) (32) (33)

Dividends paid (30) (5) (5) (51) (59)

Net cash from operations 76 74 112 74 81

Capital expenditure (12) 24 (8) (8) (8)

Net cash after capex 64 98 104 65 73

Inc./(dec.) in debt 17 (4) (21) 0 0

(Inc.)/dec. in investments (90) 42 (0) 0 0

Equity issue/(buyback) (25) (110) 0 0 0

Cash from financial activities (98) (72) (21) 0 0

Others (12) (34) (10) 1 1

Opening cash 99 53 45 117 184

Closing cash 53 45 118 184 257

Change in cash (46) (8) 73 66 74




Per Share (Rs)

EPS 17.5 16.8 21.4 25.4 26.0

FDEPS 17.5 16.8 21.3 25.3 26.0


Dividend Yield (%) 1.9 0.4 0.3 3.5 4.0

Book Value 116 108 127 141 154

Dividend Payout Ratio 35.0 6.7 5.0 45.0 50.0

Return ratios (%)

RoE 17.1 15.9 18.2 18.9 17.6

RoCE 14.4 12.7 15.7 16.7 15.3

ROIC 28.8 24.5 30.9 36.8 37.5

Tunover Ratios





PER 18.6 19.3 15.2 12.8 12.5

P/BV 2.8 3.0 2.6 2.3 2.1

EV/EBTDA 11.4 12.9 9.9 8.1 7.6

EV/Sales 2.3 2.4 2.0 1.7 1.6

M-cap/Sales 2.7 2.7 2.4 2.1 2.1




Financials – HCL Technologies



Average INR/USD 67.0 64.5 72.0 77.0 79.7

Net Sales (USDmn) 6,975 7,838 8,572 9,228 9,242

YoY Growth (%) 48.5 12.4 9.4 7.7 0.1

INR Net Sales 467,220 505,700 617,666 710,581 736,586

YoY Growth (%) 50.1 8.2 22.1 15.0 3.7

Cost of Sales & Services 308,890 332,370 399,870 452,406 461,454

Gross Margin 158,330 173,330 217,796 258,175 275,131

% of sales 33.9 34.3 35.3 36.3 37.4

SG&A 55,240 58,930 71,512 88,100 94,228

% of sales 11.8 11.7 11.6 12.4 12.8

EBITDA 103,090 114,400 146,285 170,075 180,903

% of sales 22.1 22.6 23.7 23.9 24.6

Depreciation and Amortization 8,340 14,520 22,270 27,617 32,801

Dep. and Amortization (as % of sales) 1.8 2.9 3.6 3.9 4.5

EBIT 94,750 99,880 124,014 142,458 148,102

% of sales 20.3 19.8 20.1 20.0 20.1

Other income(net)(incl forex gain/loss) 9,190 11,110 11,964 7,976 7,347

PBT 103,940 110,990 135,978 150,434 155,449

Provision for tax 19,520 23,170 27,951 30,922 31,953


Minority Interest 0 0 0 0 0

Net profit 84,420 87,820 108,028 119,512 123,496

-Growth (%) 49.0 4.0 23.0 10.6 3.3





Equity capital 1,400 1,392 1,356 1,356 1,356

Reserves & surplus 333,504 366,776 410,093 467,515 525,653

Net worth 334,904 368,168 411,449 468,871 527,009

Other liabilities 12,525 12,669 17,873 19,082 19,719

Total loans 5,417 4,371 3,580 3,580 3,580

Total liabilities 352,846 385,208 432,901 491,532 550,308

Intangible assets 114,260 144,057 0 0 0

Net block 46,810 51,847 248,484 301,332 354,180

Investments 1,466 5,222 8,640 8,640 8,640

Other non-current assets 37,119 37,675 48,834 52,137 53,879

Debtors 108,026 122,575 153,979 164,394 169,886

Cash & bank balance 13,165 16,939 17,290 17,290 17,290

Other current assets 143,485 106,036 87,449 88,427 91,821

Total current assets 264,676 245,550 258,718 270,111 278,997

Total current liabilities 111,477 99,143 131,775 140,688 145,388

Net current assets 153,199 146,407 126,943 129,423 133,609

Total assets 352,854 385,208 432,901 491,532 550,308




EBIT 94,750 99,880 124,014 142,458 148,102

(Inc.)/Dec. in Working Capital 9,864 (22,249) (10,271) (3,984) (2,101)

Cash flow from Operations 104,614 77,631 113,743 138,474 146,001

Other Income 9,190 11,110 11,964 7,976 7,347

Depreciation & Amortisation 8,340 14,520 22,270 27,617 32,801

Tax Paid (19,520) (23,170) (27,951) (30,922) (31,953)

Dividends Paid (40,819) (21,952) (24,838) (62,090) (65,358)

Net Cash from Operations 61,804 58,139 95,189 81,055 88,838

Capital Expenditure (49,985) (49,354) (74,850) (80,464) (85,649)

Net Cash after Capex 11,819 8,785 20,339 590 3,189

Inc./(dec.) in Debt (4,315) (1,046) (791) 0 0

(Inc.)/Dec. in Investments (613) 28,503 15,509 (1,799) (3,827)

Equity Issue/(Buyback) 0 (35,002) (40,000) 0 0

Cash from Financial Activities (4,928) (7,545) (25,282) (1,799) (3,827)

Others (1,020) 2,534 5,295 1,209 638

Opening Cash 7,293 13,165 16,939 17,290 17,290

Closing Cash 13,165 16,939 17,290 17,290 17,290

Change in Cash 5,872 3,774 351 0 0




Per Share (Rs)

EPS 59.8 62.7 78.7 88.1 91.1

FDEPS 60.6 63.0 78.7 88.1 91.0


Dividend Yield (%) 2.2 1.2 1.4 3.5 3.7

Book Value 237 263 299 346 389

Dividend Payout Ratio (excl DDT) 40.1 21.0 19.1 43.1 43.9

Return ratios (%)

RoE 27.4 25.0 27.7 27.2 24.8

RoCE 28.9 27.1 30.3 30.8 28.4

RoIC 46.2 38.9 38.0 36.1 32.7

Tunover Ratios





PER 17.8 17.1 13.7 12.3 11.9

P/BV 4.6 4.1 3.6 3.1 2.8

EV/EBTDA 13.0 12.0 9.6 8.2 7.7

EV/Sales 2.9 2.7 2.3 2.0 1.9

M-cap/Sales 3.1 2.9 2.4 2.1 2.0




Financials –Tech Mahindra



Average INR/USD 67.0 64.5 71.8 77.0 79.7

Net Sales (US$mn) 4,351 4,771 4,994 5,422 5,325

-Growth (%) 7.8 9.6 4.7 8.6 (1.8)

Net Sales 291,408 307,730 358,776 417,484 424,374

-Growth (%) 10.0 5.6 16.6 16.4 1.7


Gross Profit 85,747 92,431 111,350 125,612 125,307

% of sales 29.4 30.0 31.0 30.1 29.5

SG& A 43,904 45,261 48,983 55,533 56,629

% of sales 15.1 14.7 13.7 13.3 13.3

EBITDA 41,843 47,170 62,367 70,079 68,679

% of sales 14.4 15.3 17.4 16.8 16.2

Depreciation 9,781 10,849 11,664 12,059 12,242

% of sales 3.4 3.5 3.3 2.9 2.9

EBIT 32,062 36,321 50,703 58,020 56,436

% of sales 11.0 11.8 14.1 13.9 13.3

Interest expenses 1,286 1,624 1,157 989 821

Other income (net) 7,776 14,093 6,634 7,990 9,174

PBT 38,552 48,790 56,180 65,021 64,789

-PBT margin (%) 13.2 15.9 15.7 15.6 15.3



Minority Interest 389 (136) 64 64 64

Net profit 28,119 38,001 44,067 51,149 50,967

-Growth (%) (9.8) 35.1 16.0 16.1 (0.4)





Equity capital 4,388 4,417 4,420 4,420 4,420


Net worth 164,372 188,428 217,313 250,560 283,689

Minority Interest 4,641 5,091 5,106 5,106 5,106

Other liabilities 18,905 18,246 18,072 18,072 18,072

Total loans 8,818 13,440 13,009 11,009 9,009


Goodwill 26,279 27,727 28,259 28,259 28,259

Net block (incl. CWIP) 42,051 50,896 52,653 56,594 60,352

Investments 6,802 15,116 14,422 14,422 14,422

Deferred tax asset - net 2,674 5,766 6,534 6,534 6,534



Debtors 53,377 64,979 77,150 85,315 83,940

Loans & Advances 33,608 30,917 35,317 39,055 38,426


Inventory 611 659 760 760 760




Total assets 196,736 225,205 253,500 284,747 315,876




EBIT 32,062 36,321 50,703 58,020 56,436

(Inc.)/dec. in working capital (9,120) 8,227 (6,370) (4,511) 759

Cash flow from operations 22,942 44,548 44,333 53,509 57,196

Other income 7,776 14,093 6,634 7,990 9,174

Depreciation & amortisation 9,781 10,849 11,664 12,059 12,242

Financial expenses (1,286) (1,624) (1,157) (989) (821)

Tax paid (10,021) (10,925) (11,930) (13,808) (13,759)

Dividends paid (13,047) (9,048) (14,835) (18,547) (21,483)

Net cash from operations 16,145 47,893 34,708 40,214 42,550

Capital expenditure (19,449) (21,142) (13,421) (16,000) (16,000)

Net cash after capex (3,304) 26,751 21,287 24,214 26,550

Inc./(dec.) in debt (145) 3,963 (605) (2,000) (2,000)

(Inc.)/dec. in investments 18,498 (15,609) (4,127) (2,947) 496

Equity issue/(buyback) (451) 29 3 - -

Cash from financial activities 17,903 (11,617) (4,729) (4,947) (1,504)

Others (638) (4,340) (1,049) 581 3,580

Opening cash 40,138 54,098 64,892 80,401 100,249

Closing cash 54,098 64,892 80,402 100,249 128,875

Change in cash 13,961 10,794 15,510 19,848 28,626




Per Share (Rs)

FDEPS 31.7 42.8 49.7 57.6 57.4


Dividend Yield (%) 1.2 1.9 2.4 2.8 2.8

Book Value 183 210 242 280 316

Dividend Payout Ratio (%. Incl DDT) 32.2 39.0 42.1 42.0 42.0

Return ratios (%)

RoE 18.3 21.5 21.7 21.9 19.1

RoCE 17.3 17.2 21.2 21.6 18.8

ROIC 26.2 25.8 33.4 35.3 32.9

Tunover Ratios





PER 23.1 17.1 14.7 12.7 12.7

P/BV 3.9 3.4 3.0 2.6 2.3

EV/EBITDA 14.4 12.6 9.3 7.9 7.7

EV/Sales 2.1 1.9 1.6 1.3 1.2

M-cap/Sales 2.2 2.1 1.8 1.5 1.5




Financials - Mindtree



Average INR/USD 67.2 64.5 71.8 77.0 79.7

Net Sales (USDmn) 780 847 1,005 1,086 1,071

YoY Growth (%) 9.1 8.6 18.7 8.1 -1.5

Net Sales 52,364 54,628 72,287 83,654 85,330

YoY Growth (%) 11.8 4.3 32.3 15.7 2.0

Employee benefits expense 34,058 35,641 44,355 50,418 52,069

% of sales 65.0 65.2 61.4 60.3 61.0

Gross Margin 18306 18987 27932 33237 33260

% of sales 35.0 34.8 38.6 39.7 39.0

Other expenses 11,121 11,583 16,370 18,404 18,773

% of sales 21.2 21.2 22.6 22.0 22.0

EBITDA 7,185 7,404 11,563 14,833 14,488

% of sales 13.7 13.6 16.0 17.7 17.0

Depreciation & Amortisation 1,858 1,712 1,639 1,721 1,800

EBIT 5,327 5,692 9,924 13,112 12,688

% of sales 10.2 10.4 13.7 15.7 14.9

Interest expenses 191 169 78 67 67

Other income (net) 413 1,900 940 1,678 2,734

PBT 5,549 7,423 10,786 14,722 15,354

-PBT margin (%) 10.6 13.6 14.9 17.6 18.0



Net profit 4,159 5,701 7,835 10,674 11,132

-Growth (%) (29.5) 37.1 37.4 36.2 4.3





Equity capital 1,680 1,639 1,640 1,640 1,640


Net worth 25,775 27,418 31,997 39,312 47,085


Total loans 13 9 5 5 5


Net block 5,932 5,121 4,290 3,169 1,969

Goodwill 4,470 4,539 4,626 4,626 4,626

Investments 5,927 7,264 7,745 11,745 15,745



Unbilled revenue 1,885 2,791 3,438 3,846 3,757


Debtors 8,962 10,155 14,324 16,026 15,654





Total assets 26,089 27,512 32,081 39,396 47,169




EBIT 5,327 5,692 9,924 13,112 12,688

(Inc.)/dec. in working capital 1,781 (257) (2,735) (1,044) 228


Other income 413 1,900 940 1,678 2,734


Financial expenses (191) (169) (78) (67) (67)

Tax paid (1,390) (1,722) (2,951) (4,049) (4,222)

Dividends paid (1,934) (2,188) (2,963) (3,358) (3,358)


Capital expenditure 371 629 1,188 1,000 1,000

Net cash after capex 5,493 4,339 2,587 6,992 8,802

Inc./(dec.) in debt (532) (220) (10) - -

(Inc.)/dec. in investments (4,097) (1,127) (503) (4,000) (4,000)

Equity issue/(buyback) 2 (41) 1 - -

Cash from financial activities (4,627) (1,388) (512) (4,000) (4,000)

Others (690) (2,170) (1) 400 400

Opening cash 2,332 2,508 3,289 5,363 8,756

Closing cash 2,508 3,289 5,363 8,756 13,957

Change in cash 176 781 2,074 3,392 5,202




Per Share (Rs)

EPS 25.4 34.8 47.8 65.1 67.9

FDEPS 25.3 34.7 47.6 64.9 67.7


Book Value 157 167 195 239 286

Dividend Payout Ratio (incl DDT) 47 38 38 31 30

Return ratios (%)

RoE 16.7 21.4 26.4 29.9 25.8

RoCE 21.8 21.7 35.1 40.0 32.1

ROIC 27.8 32.9 55.2 69.3 69.8

Tunover Ratios





PER 42.5 30.8 22.2 16.3 15.6

P/BV 6.7 6.3 5.4 4.4 3.7

EV/EBITDA 23.1 22.1 13.9 10.3 10.0

EV/Sales 3.2 3.0 2.2 1.8 1.7

M-cap/Sales 3.3 3.2 2.4 2.1 2.0

Dividend Yield (%) 0.9 1.0 1.4 1.6 1.6




Financials –Persistent Systems



Average INR/USD 67.1 64.5 71.8 77.0 79.7

Net Sales (USDmn) 429 471 523 578 581

YoY Growth (%) 22.0 9.7 11.2 10.4 0.5

Net Sales 28,784 30,337 37,559 44,499 46,309

YoY Growth (%) 24.5 5.4 23.8 18.5 4.1


% of sales 64.3 65.0 63.7 61.5 61.3

Gross Margin 10,266 10,633 13,617 17,118 17,908

% of sales 35.7 35.0 36.3 38.5 38.7

SG& A 5,727 5,946 7,162 9,116 9,767

% of sales 19.9 19.6 19.1 20.5 21.1

EBITDA 4,539 4,687 6,456 8,003 8,141

% of sales 15.8 15.4 17.2 18.0 17.6

Depreciation 1,490 1,585 1,641 1,947 2,035

EBIT 3,049 3,102 4,815 6,055 6,106

% of sales 10.6% 10.2% 12.8% 13.6% 13.2%

Other income (net) 958 1,190 820 1,258 1,472

PBT 4,007 4,292 5,635 7,313 7,579

-PBT margin (%) 13.9 14.1 15.0 16.4 16.4

Provision for tax 992 1,062 1,425 1,828 1,895


Net profit 3,015 3,231 4,210 5,485 5,684

-Growth (%) 1.4 7.2 30.3 30.3 3.6





Equity capital 800 800 800 800 800


Net worth 18,993 21,272 23,962 26,803 29,747

Deferred tax liability 111 - - - -


Total loans 22 17 17 17 17


Goodwill 76 77 80 80 80

Net block (incl CWIP) 5,573 5,097 4,333 3,288 2,190

Investments 6,839 8,797 9,850 9,850 9,850

Deferred tax asset 306 372 513 513 513



Debtors 4,754 4,847 6,607 7,418 7,406





Total assets 19,291 21,448 24,131 26,972 29,916




EBIT 3,049 3,102 4,815 6,055 6,106

(Inc.)/dec. in working capital (1,762) (570) (1,498) (724) 11


Other income 958 1,190 820 1,258 1,472


Tax paid (992) (1,062) (1,425) (1,828) (1,895)

Dividends paid (761) (800) (1,522) (2,644) (2,740)


Capital expenditure 1,650 1,027 877 902 938

Net cash after capex 332 2,419 1,954 3,163 4,052

Inc./(dec.) in debt 127 (136) - - -

(Inc.)/dec. in investments 135 (1,145) (1,143) - -

Equity issue/(buyback) - - - - -

Cash from financial activities 261 (1,280) (1,143) - -

Others (515) (234) (2) - -

Opening cash 1,432 1,510 2,414 3,223 6,386

Closing cash 1,510 2,414 3,224 6,386 10,439

Change in cash 77 904 810 3,163 4,052




Per Share (Rs)

EPS 37.7 40.4 52.6 68.6 71.0

FDEPS 37.7 40.4 52.6 68.6 71.0


Book Value 237 266 300 335 372

Dividend Payout Ratio (%) 25 25 36 48 48

Return ratios (%)

RoE 17.2 15.4 21.3 23.9 21.6

RoCE 17.1 15.3 21.3 23.8 21.6

ROIC 31.1 29.7 45.9 56.4 60.9

Tunover Ratios





PER 19.1 17.8 13.6 10.5 10.1

P/BV 3.0 2.7 2.4 2.1 1.9

EV/EBTDA 12.3 11.7 8.4 6.4 5.8

EV/Sales 1.9 1.8 1.4 1.1 1.0

M-cap/Sales 2.0 1.9 1.5 1.3 1.2

Dividend Yield (%) 1.3 1.4 2.2 3.8 4.0




Rating track -TCS

* Post 1:1 Bonus share issue

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Date Rating Market price (Rs) Target price (Rs)

13 April 2015 Sell 2,619 2,314

17 April 2015 Sell 2,574 2,325

10 July 2015 Sell 2,529 2,173

9 September 2015 Sell 2,540 2,173

5 October 2015 Sell 2,641 2,217

14 October 2015 Sell 2,599 2,248

8 January 2016 Under Review 2,398 -


14 March 2016 Sell 2,360 2,055

20 April 2016 Sell 2,520 2,089

15 July 2016 Sell 2,521 2,075

14 September 2016 Sell 2,359 2,041

14 October 2016 Sell 2,329 2,073

10 January 2017 Sell 2,304 1,952

13 January 2017 Sell 2,344 1,956

14 February 2017 Sell 2,414 1,983

21 February 2017 Sell 2,502 1,983

2 March 2017 Sell 2,477 1,983

19 April 2017 Sell 2,309 1,996

21 June 2017 Sell 2,443 1,923

14 July 2017 Sell 2,446 1,930

28 September 2017 Sell 2,475 1,908

13 October 2017 Sell 2,548 1,913

26 December 2017 Under Review 2,647 -


17 March 2018 Accumulate 2,829 3,155

20 April 2018 Accumulate 3,191 3,176

26 June 2018* Accumulate 1,818 1,812

11 July 2018 Accumulate 1,876 1,862

5 October 2018 Accumulate 2,063 2,145



Rating track - Infosys



27 April 2015 Sell 1,995 1,823

4 June 2015 Sell 2,032 1,823

22 July 2015** Accumulate 1,116 1,189

7 September 2015 Accumulate 1,074 1,189

14 September 2015 Accumulate 1,091 1,189

13 October 2015 Accumulate 1,122 1,194



14 March 2016 Sell 1,141 1,002

15 April 2016 Sell 1,173 1,010

9 June 2016 Sell 1,238 1,010

18 July 2016 Sell 1,072 988

29 August 2016 Sell 1,020 970

17 October 2016 Sell 1,027 964

10 January 2017 Sell 970 920

16 January 2017 Sell 975 910

14 February 2017 Sell 985 926

15 April 2017 Sell 931 887

15 May 2017 Sell 964 887

21 June 2017 Sell 944 844

17 July 2017 Sell 972 846

21 August 2017 Sell 923 794

28 August 2017 Sell 912 836

11 September 2017 Sell 884 836


25 October 2017 Sell 924 873

26 December 2017 Under Review 1,039 -


17 March 2018 Accumulate 1,170 1,154





5 October 2018** Accumulate 711 752

** Post 1:1 bonus issue of equity shares

Rating track graph

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Rating track - Wipro


13 April 2015 Sell 618 576

22 April 2015 Sell 588 546

24 July 2015 Sell 588 548


23 October 2015 Sell 578 544

8 January 2016 Under Review 556 -


14 March 2016 Sell 540 498

21 April 2016 Sell 601 489

20 July 2016 Sell 549 478

24 October 2016 Sell 499 436

10 January 2017 Sell 472 410

27 January 2017 Sell 474 413


26 April 2017 Sell 495 437

21 June 2017* Sell 254 197

21 July 2017 Sell 269 235


18 October 2017 Sell 290 244

26 December 2017 Under Review 302 -


17 March 2018 Accumulate 296 302

26 April 2018 Accumulate 287 303

3 July 2018 Buy 262 335

23 July 2018 Buy 282 323

5 October 2018 Buy 325 377

* Post 1:1 bonus share issue

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Rating track - HCL Technologies


13 April 2015 Accumulate 959 1,013


4 August 2015 Accumulate 938 1,008

1 October 2015 Accumulate 982 991

5 October 2015 Accumulate 859 991

20 October 2015 Buy 859 989



14 March 2016 Sell 824 737

29 April 2016 Sell 799 719

4 August 2016 Sell 826 745

24 October 2016 Sell 832 718

10 January 2017 Sell 838 712

25 January 2017 Sell 849 718


12 May 2017 Sell 839 743

21 June 2017 Sell 854 713

28 July 2017 Sell 899 764


26 October 2017 Sell 903 763



17 March 2018 Accumulate 968 1,048


3 May 2018 Accumulate 1,001 1,041

3 July 2018 Buy 926 1,131

30 July 2018 Buy 963 1,172

5 October 2018 Buy 1,081 1,281

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Ap

r-1

8

Jun

-18

Au

g-1

8

Oct

-18

Not Covered Covered



Rating track – Tech Mahindra Date Rating Market price (Rs) Target price (Rs)

13 April 2015 Sell 660 593

28 May 2015 Sell 549 511

19 June 2015 Sell 541 470

28 July 2015 Sell 520 470


4 November 2015 Sell 557 472

15 December 2015 Sell 543 471


2 February 2016 Under Review 497 -

14 March 2016 Sell 459 395

25 May 2016 Sell 480 409

21 June 2016 Sell 544 421

3 August 2016 Sell 499 400

28 October 2016 Sell 414 385

10 January 2017 Sell 473 368

31 January 2017 Sell 472 383


7 March 2017 Sell 501 408

29 May 2017 Sell 429 403

21 June 2017 Sell 395 367

1 August 2017 Sell 385 360


2 November 2017 Sell 478 387




17 March 2018 Accumulate 635 608

28 May 2018 Accumulate 703 721

3 July 2018 Accumulate 655 716


5 October 2018 Buy 721 845

Rating track graph

350

400

450

500

550

600

650

700

750

800

Ap

r-1

5

Jun

-15

Au

g-1

5

Oct

-15

De

c-1

5

Jan

-16

Ap

r-1

6

Jun

-16

Au

g-1

6

Oct

-16

De

c-1

6

Jan

-17

Ap

r-1

7

Jun

-17

Au

g-1

7

Oct

-17

De

c-1

7

Fe

b-1

8

Ap

r-1

8

Jun

-18

Au

g-1

8

Oct

-18

Not Covered Covered



Rating track - Mindtree


7 June 2017 Sell 547 424

21 June 2017 Sell 519 382

20 July 2017 Sell 506 382

22 August 2017 Sell 461 382


26 October 2017 Sell 507 426



17 March 2018 Sell 812 574

26 October 2017 Sell 867 -



17 March 2018 Sell 812 574

19 April 2018 Sell 867 577

3 July 2018 Sell 986 716

19 July 2018 Sell 1,062 803

4 September 2018 Sell 1,100 803

5 October 2018 Sell 1,057 986

Rating track graph

350

450

550

650

750

850

950

1050

1150

Apr

-16

May

-16

Jun-

16Ju

l-16

Aug

-16

Sep

-16

Oct

-16

Nov

-16

Dec

-16

Jan-

17F

eb-1

7M

ar-1

7A

pr-1

7M

ay-1

7Ju

n-17

Jul-1

7A

ug-1

7S

ep-1

7O

ct-1

7N

ov-1

7D

ec-1

7Ja

n-18

Feb

-18

Mar

-18

Apr

-18

May

-18

Jun-

18Ju

l-18

Aug

-18

Sep

-18

Oct

-18

Not Covered Covered



Rating track - Persistent Systems



27 October 2015 Sell 669 553




14 March 2016 Sell 599 522

22 March 2016 Sell 741 555

26 April 2016 Sell 719 558

22 June 2016 Sell 697 558

26 July 2016 Sell 665 562

26 October 2016 Sell 660 573


10 January 2017 Sell 636 557

24 January 2017 Sell 612 548


27 April 2017 Sell 568 534

21 June 2017 Sell 681 516

24 July 2017 Sell 659 526


17 October 2017 Sell 663 566




17 March 2018 Sell 816 698

25 April 2018 Accumulate 726 717



5 October 2018 Buy 718 909

Rating track graph

500

550

600

650

700

750

800

850

900

Ap

r-1

5

Jun

-15

Au

g-1

5

Oct

-15

De

c-1

5

Jan

-16

Ap

r-1

6

Jun

-16

Au

g-1

6

Oct

-16

De

c-1

6

Jan

-17

Ap

r-1

7

Jun

-17

Au

g-1

7

Oct

-17

De

c-1

7

Fe

b-1

8

Ap

r-1

8

Jun

-18

Au

g-1

8

Oct

-18

Not Covered Covered



DISCLOSURES

This Report is published by Nirmal Bang Equities Private Limited (hereinafter referred to as “NBEPL”) for private circulation. NBEPL is a registered Research Analyst under SEBI (Research Analyst) Regulations, 2014 having Registration no. INH000001436. NBEPL is also a registered Stock Broker with National Stock Exchange of India Limited and BSE Limited in cash and derivatives segments. NBEPL has other business divisions with independent research teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. NBEPL or its associates have not been debarred / suspended by SEBI or any other regulatory authority for accessing / dealing in securities Market. NBEPL, its associates or analyst or his relatives do not hold any financial interest in the subject company. NBEPL or its associates or Analyst do not have any conflict or material conflict of interest at the time of publication of the research report with the subject company. NBEPL or its associates or Analyst or his relatives do not hold beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of this research report. NBEPL or its associates / analyst has not received any compensation / managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. NBEPL or its associates have not received any compensation or other benefits from the company covered by Analyst or third party in connection with the research report. Analyst has not served as an officer, director or employee of Subject Company and NBEPL / analyst has not been engaged in market making activity of the subject company. Analyst Certification: I, Mr. Girish Pai, research analyst, is the author of this report, hereby certifies that the views expressed in this research report accurately reflects my personal views about the subject securities, issuers, products, sectors or industries. It is also certified that no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst(s) principally responsible for the preparation of this research report and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations.



-Disclaimer

Stock Ratings Absolute Returns

BUY > 15%

ACCUMULATE -5% to15%

SELL < -5%

This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. NBEPL is not soliciting any action based upon it. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any such transaction. In preparing this research, we did not take into account the investment objectives, financial situation and particular needs of the reader.

This research has been prepared for the general use of the clients of NBEPL and must not be copied, either in whole or in part, or distributed or redistributed to any other person in any form. If you are not the intended recipient you must not use or disclose the information in this research in any way. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. NBEPL will not treat recipients as customers by virtue of their receiving this report. This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject NBEPL & its group companies to registration or licensing requirements within such jurisdictions.

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Team Details:

Name Email Id Direct Line

Rahul Arora CEO [email protected] -

Girish Pai Head of Research [email protected] +91 22 6273 8017 / 18

Dealing

Ravi Jagtiani Dealing Desk [email protected] +91 22 6273 8230, +91 22 6636 8833

Pradeep Kasat Dealing Desk [email protected] +91 22 6273 8100/8101, +91 22 6636 8831

Michael Pillai Dealing Desk [email protected] +91 22 6273 8102/8103, +91 22 6636 8830

Nirmal Bang Equities Pvt. Ltd.

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