Wipro Ltd (WIPRO) | 295 - ICICI Directcontent.icicidirect.com/mailimages/IDirect_Wipro_Q2FY18.pdf · Wipro has guided that its Q3FY18E IT services revenues would be in the range of

October 18, 2017

ICICI Securities Ltd | Retail Equity Research

Result Update

Strength in BFSI vertical continues...

IT services US$ revenues grew 2.2% QoQ to $2013.5 million, above

our expectation of 1.5% growth at $2000.7 million mainly on account

of cross currency benefits

Constant currency (CC) revenues grew 0.3%, largely in line with our

expectation of 0.5% growth

Consolidated revenues declined 1.5% QoQ to | 13,423.9 crore, below

our expectation of | 13940.1 crore. The decline was led by revenue

decline in IT products (52.9% QoQ). In the IT service business, rupee

revenues grew 1.1% sequentially to | 13,168.9 crore

At 17.3%, IT services EBIT margins improved 50 bps QoQ despite

wage hike and was well above our estimate of 16.5%

Reported PAT of | 2189.5 crore was above our | 2,041.7 crore

estimate, mainly due to upbeat margin performance in the IT business

Wipro has guided that its Q3FY18E IT services revenues would be in

the range of $2014-2054 million, translating to 0-2% QoQ growth in a

seasonally weak quarter

BFSI, Top 10 clients continue to show strength

Wipro reported constant currency revenue growth at 0.3% QoQ in

Q2FY18. Among verticals, growth in reported terms was led by the BFSI

vertical (3.3% QoQ) and manufacturing & hi-tech verticals (1.9% QoQ).

We also highlight that Wipro’s BFSI vertical has grown for three

consecutive quarters in excess of 3% in CC terms, much better than its

peers. Furthermore, its Top 10 clients have grown at 5.1% in reported

currency in Q2FY18 on top of 4.4% growth witnessed in Q1FY18.

Continues its stand on industry matched growth in Q4FY18

Wipro’s commentary continues to turn positive on an incremental basis. It

sees strength in the BFSI vertical and stable demand in the consumer

verticals as these two verticals are adopting digital ahead of the industry.

In terms of healthcare division, though it remains volatile, it expects the

vertical to bottom out in Q3FY18. The management is firm on its

expectation of reaching industry growth rates by Q4FY18. Going ahead,

we expect IT services US$ revenues to grow 6.0% in FY17-19E.

Expects IT service EBIT margin to remain in narrow band of FY17 level

Wipro’s IT services EBIT margins improved 50 bps QoQ at 17.1% despite

the wage hike impact of two months due to an improvement in

productivity and automation (freed up 2500 person month). In Q3FY18, it

expects its IT service margin to come down due to the seasonal impact of

the business. Overall, Wipro expects its FY18 EBIT margin to remain in a

narrow band of FY17 level on a constant currency basis. Wipro reported

IT service EBIT margin of 17.9% in FY17. Overall, we expect IT services

EBIT margin to remain at 17.0%, 17.2% in FY18E, FY19E, respectively.

Positives seem to be priced in; maintain HOLD

Wipro reported a strong margin performance and key matrix such as BFSI

vertical and Top 10 clients. Secondly, the management commentary is

turning positive on an incremental basis. They expect to match industry

growth by Q4FY18. However, we believe these positives are already

priced in the stock. It has run up ~20% in the past 12 months and is

already trading at 14.7x FY19 EPS. Hence, we maintain our HOLD rating

on the stock with a revised target price of | 300/share (15x FY19E).

Rating matrix

Rating : Hold

Target : | 300

Target Period : 12 months

Potential Upside : 2%

What’s Changed?

Target Changed from | 285 to | 300

EPS FY18E Changed from | 18.1 to |19.0

EPS FY19E Changed from | 20.2 to | 20.1

Rating Unchanged

* Adjusted for bonus issue

Quarterly Performance

Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ (%)

Revenue 13,469 13,894 (3.1) 13,626 (1.2)

EBIT 2,305 2,297 0.3 2,174 6.0

EBIT (%) 17.1 16.5 58 bps 16.0 116 bps

PAT 2,191 2,078 5.4 2,062 6.2

Key Financials

| Crore FY16 FY17 FY18E FY19E

Net Sales 51,244 55,040 54,698 59,274

EBITDA 11,171 11,458 9,716 10,647

Net Profit 8,886 8,490 8,577 9,069

EPS (|) 22.6 17.5 19.0 20.1

Valuation summary

FY16 FY17 FY18E FY19E

P/E 16.4 16.9 15.5 14.7

Target P/E 16.7 17.2 15.8 14.9

EV / EBITDA 11.4 10.9 13.5 11.7

P/BV 3.1 2.8 2.7 2.4

RoNW (%) 19.1 16.3 17.7 16.0

RoCE (%) 19.6 16.8 18.0 16.7

Stock data

Particular Amount

Market Capitalization (| Crore) 145,641.5

Total Debt (| Crore) 14,241.2

Cash and Investments (| Crore) 5,271.0

EV (| Crore) 124,434.0

52 week H/L 304 / 205

Equity capital 486.1

Face value | 2

Price performance (%)

1M 3M 6M 12M

TCS 0.2 1.0 1.2 3.8

Infosys 6.6 (2.1) (4.6) (7.5)

Wipro (5.0) 6.7 11.8 20.0

HCL Tech 5.9 7.3 7.3 13.0

Research Analysts

Deepak Purswani, CFA

[email protected]

Deepti Tayal

[email protected]

Wipro Ltd (WIPRO) | 295

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis

Q2FY18 Q2FY18E Q2FY17 YoY (%) Q1FY18 QoQ (%) Comments

Revenue 13,469.2 13,940.1 13,893.8 -3.1 13,625.9 -1.2

Decline was led by revenue decline in IT products (52.9% QoQ). In IT services, $

revenues grew 2.2% sequentially mainly on account of cross currency benefits

Employee expenses 8,949.4 9,592.3 9,296.1 -3.7 9,216.8 -2.9

Gross Margin 4,519.8 4,347.8 4,597.7 -1.7 4,409.1 2.5

Gross margin (%) 33.6 31.2 33.1 46 bps 32.4 120 bps

Selling & marketing costs 986.7 978.6 961.4 2.6 1,014.6 -2.7

G&A expenses 708.5 697.8 854.5 -17.1 726.4 -2.5

EBITDA 2,824.6 2,671.4 2,781.8 1.5 2,668.1 5.9

At 17.3%, IT services EBIT margins improved 50 bps QoQ despite wage hike and

was well above our expectation of 16.5%

EBITDA Margin (%) 21.0 19.2 20.0 95 bps 19.6 139 bps

Depreciation 520.0 502.1 484.7 7.3 494.3 5.2

EBIT 2,304.6 2,169.3 2,297.1 0.3 2,173.8 6.0

EBIT Margin (%) 17.1 15.6 16.5 58 bps 16.0 116 bps

Other income 527.5 491.2 367.7 43.5 472.6 11.6

PBT 2,832.1 2,660.5 2,664.8 6.3 2,646.4 7.0

Tax paid 642.6 611.9 590.9 8.7 599.4 7.2

PAT 2,190.7 2,041.7 2,077.5 5.4 2,061.9 6.2 PAT was above our estimates mainly on upbeat margin performance in IT services

Key Metrics

Closing employee Count 163,759 165,000 159,791 2.5 166,790 -1.8

TTM voluntary Attrition (%) 15.7 16.5 16.6 -90 bps 15.9 -20 bps

Utilisation ex trainees (%) 82.5 83.0 82.8 -30 bps 82.1 40 bps

Average $/| 65.4 65.7 68.6 -4.6 66.1 -1.0

Source: Company, ICICIdirect.com Research

Change in estimates

(| Crore) Old New % Change Old New % Change Comments

Revenue 55,110 54,698 -0.7 60,356 59,274 -1.8

EBITDA 10,435 9,716 -6.9 11,718 10,647 -9.1

EBITDA Margin (%) 15.2 16.8 158 bps 15.7 17.1 137 bps

PAT 8,166 8,577 5.0 9,103 9,069 -0.4

EPS (|) 18.1 19.0 5.1 20.2 20.1 -0.3 Tweak estimates to incorporate Q2FY18 results

FY18E FY19E


Assumptions

Current Earlier Current Earlier

FY15 FY16 FY17 FY18E FY18E FY19E FY19E

Closing employee Count 158,217 172,912 181,482 191,482 191,482 203,482 203,482

TTM voluntary Attrition (%) 16.5 16.3 16.4 16.0 16.0 15.0 15.0

Utilisation ex trainees (%) 76.8 76.6 81.0 82.0 81.8 85.0 85.0

Average $/| 62.1 66.3 68.7 65.7 65.7 67.0 67.0



Conference call highlights:

Management guidance: Wipro has guided that its Q3FY18E IT

services revenues would be in the range of $2014-2054 million,

translating to 0-2% QoQ growth in a seasonally weak quarter. The

management continues to maintain its commentary of reaching

industry growth rates by Q4FY18

Margins: IT services EBIT margins improved 50 bps QoQ at 17.1%

despite the wage hike impact of two months. In Q3FY18, Wipro

expects its IT service margin to come down due to seasonal impact

of the business. Overall, Wipro plans to achieve FY18 EBIT margin

in a narrow band of FY17 IT service EBIT margin on a constant

currency basis. Wipro reported IT service EBIT margin of 17.9% in

FY17

Vertical wise demand outlook: The management highlighted that it

sees strength in the BFSI vertical and stable demand in the

consumer verticals as these two verticals are adopting digital ahead

of the industry. The energy & utilities vertical continues to remain

stable though it got impacted in Q2FY18 by the holiday season in

the Middle East. On the healthcare vertical, the management

expects it continue to be volatile due to concerns around Affordable

Care Act although it is hopeful of it bottoming out in Q3FY18. In

terms of communication business, it witnessed challenges due to

customer specific ramp down and mentions that it has now

bottomed out in Q2FY18

Digital revenues: Digital revenues now account for 24.1% of total

services revenue vs. 22.5% in Q1FY17. In October, 2017, Wipro

acquired Cooper, which would enhance its design and advisory

capability in North America. With growing demand in digital, the

company continues to augment its workforce with digital skills and

has now reached 80,000 technical employees trained on digital

IT products: In the IT product business, the management focus has

turned to profitability. It will focus on the IT product business only

to gain market share in the service business. Consequently, its IT

product business declined 52.9% sequentially to | 298.8 crore. It is

expected to remain at similar levels in coming quarters. This has

helped the company turn profitable in the IT products business in

Q2FY18. The IT product business EBIT margin improved to 2.9% vs.

0.5% in Q1FY18. The division had also reported losses of | 168.1

crore in FY17

Employee details: The company’s closing employee count in IT

services is at 163,759 vs. 166,790. The company could free up 2500

person month through improvement in productivity and

automation. Consequently, its utilisation (ex-trainees) improved 40

bps QoQ at to 82.5% in Q2FY18. In terms of voluntary TTM attrition

rate, it declined 20 bps QoQ to 15.7%

Local hiring in US: Wipro mentioned that locals now form ~52% of

US employees to offset the concerns of H-1B visa issues


Company Analysis

Operating highlights…

Among verticals, reported currency revenue growth was led by BFSI

(27.6% of revenue), which grew 5.1% QoQ and manufacturing &

technology (22.8% of revenue), which grew 3.4% sequentially. On the

other hand, communications (6.5% of revenue) and healthcare &

lifesciences (13.7% of revenue) declined 1.8% and 5.2% QoQ,

respectively. The management is witnessing strong traction in BFSI and

stable demand in consumer verticals as these two are adopting digital

ahead of the industry. On the healthcare vertical, the management

expects it to continue to be volatile due to concerns around Affordable

Care Act although it is hopeful of it bottoming out in Q3FY18. In terms of

communication business, it witnessed challenges due to customer

specific ramp down and mentions it has now bottomed out in Q2FY18.

Among geographies, quarterly growth was led by APAC and Other

Emerging Markets (11.4% of revenue), which grew 7.4% sequentially

followed by Europe (25.1% of revenue), which grew 5.8% QoQ. Americas

(53.6% of revenue) grew 0.5% while India and Middle East business

(9.9% of revenue) declined 3.2% sequentially.

Among services, in reported terms global infrastructure services analytics

(28.4% of revenue) grew 3.5% followed by BPO (12.2%, 1.2%) product

engineering services (6.9%, 1%) and application services (45.5%, 1.4%).

Exhibit 1: Dollar revenues may grow at 5.8% CAGR in FY17-19E vs. 7.1% during FY11-16

5221

5921

6218

6618

7082

1794

1931

1903

1955

7704

1971

2001

7994

8621

1832

1838

1882

7345

1916

5.0

3.7 3.94.9

2.1

3.8

18.9

13.4

6.4 7.0

0.00.0

0.0

0.0

7.6

4.6 3.5

4.4

1000

3000

5000

7000

9000

11000

FY11

FY12

FY13

FY14

FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

FY17

Q1FY18

Q2FY18

FY18E

FY19E

$ m

illion

0

10

20

%

Dollar revenue Growth, YoY



Exhibit 2: Wipro vs Nasscom guidance

-5.4

1.5

18.9

5.06.4 7.0

3.7 4.9 3.8

16.0

5.5

18.7

10.213.0 13.0 13.0

7.5

13.416.59.0

-10

0

10

20

30

40

50

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E

%Growth, YoY NASSCOM guidance


Clients contributing > $1 million grow to 624 vs. 565 in Q1FY17…

Clients contributing >$100 million remain unchanged at nine since

Q3FY17 while three clients transitioned to >$50 million category. The

>$10 million bucket was increased by seven to 170 while eight clients

were added in >$5 million. Furthermore, Wipro’s revenues from the top

client (3.1% of revenue) also grew strongly 9.2% QoQ after a long time.

Revenues from top five (11% of revenue) and top 10 (18% of revenue)

also witnessed decent growth of 9.1% and 5.1%, respectively. The active

customer base is now at 1274 (vs. 1244 in Q1FY18) with the addition of 41

new customers during the quarter.

Exhibit 3: Sequentially, clients contributing >$1 million in revenues increased by 59 YoY

429

475490 501

542 537 533 536 550 550565 571 576

602 602624 627

0

100

200

300

400

500

600

700

FY11

FY12

FY13

FY14

FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

FY17

Q1FY18

Q2FY18

x

$1 million+ clients


We build in EBIT margin of 17.2% in FY19…

Wipro’s IT services EBIT margins improved 50 bps QoQ at 17.1% despite

wage hike impact of two months due to improvement in productivity and

automation (frees up 2500 person month). In Q3FY18, it expects its IT

service margin to come down due to seasonal impact of the business.

Overall, Wipro expect its FY18 EBIT margin to remain in a narrow band of

FY17 level on a constant currency basis. Wipro reported IT service EBIT

margin of 17.9% in FY17. Overall, we expect IT services EBIT margin to

remain at 17.0%, 17.2% in FY18E, FY19E, respectively.


Exhibit 4: IT services margin at 16.8%

22.7

20.820.7

22.6

22.1

21.020.7

20.2 20.120.5

17.8 17.8

18.3

17.617.9

16.8

17.3

16.717.0

15

17

19

21

23

25

FY11

FY12

FY13

FY14

FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

FY17

Q1FY18

Q2FY18

FY18E

FY19E

%EBIT margin (IT services)

[


Net utilisation improves to 82.5%…

Utilisation (ex-trainees) improved 40 bps QoQ to 82.5%. Gross utilisation

also improved 90 bps at 72.9% In terms of attrition rate, at 15.7%,

voluntary attrition TTM declined 20 bps and still remains at slightly

elevated levels than its peers.

Exhibit 5: At 15.9%, attrition declines QoQ continues to be at elevated levels…

22.7

17.5

13.7

15.1

16.5 16.4 16.4 16.3 16.1 16.3 16.5 16.6 16.3 16.3 16.415.9 15.7 16.0

15.0

10

13

16

19

22

25

FY11

FY12

FY13

FY14

FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

FY17

Q1FY18

Q2FY18

FY18E

FY19E

%

TTM voluntary Attrition



Exhibit 6: Utilisation drops to 80.3%…

77.0

75.4

73.2 73.0

76.8

79.4

77.2

73.8

76.176.6

78.8

80.2 80.0

81.9

81.080.3

81.8 81.8

85.0

70

75

80

85

90

FY11

FY12

FY13

FY14

FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

FY17

Q1FY18

Q2FY18

FY18E

FY19E

%

Uti lisation ex support (%)



Annual report key takeaways:

Wipro chose “Be The New”, as the theme of the annual report,

and had set a goal to transform into a future focused company

that harnesses the power of digital and Artificial Intelligence (AI)

to serve its clients. In May 2017, Wipro introduced the new brand

identity of Wipro and rearticulated its values, the Spirit of Wipro

With the growing demand for digital services, digital revenue now

makes up 22.1% of revenue in Q4FY17 from 17.5% in Q1FY17

Wipro’s venture capital arm, Wipro Ventures, has made four new

start-up investments in FY17 to bring its clients new technologies

that are reshaping the future of enterprises, especially in

Cybersecurity, Customer Care Automation, Business Process

Automation and Big Data Lifecycle Management

In the last 18 months, the company has invested over US$1 billion

in acquisitions. In FY17, Wipro completed the acquisition of

Appirio, a leader in cloud application services. In April 2017, it

acquired Infoserver, a Brazilian technology service firm company

enhancing its footprint in Latin America

Wipro mentioned immense progress in localisation in all key

markets was observed. In FY17, the company recruited over 3,000

locals in US, leading to total workforce of 14,000 in US. Also, the

company witnessed good progress on localisation initiatives in

UK, Singapore, Middle East and other parts of the world

Wipro has allotted 243 crore equity shares of | 2/- each as fully-

paid up bonus equity shares, in the ratio of 1:1 to eligible

members as on June 14, 2017, record date for this purpose

Operating cash flow registered growth of 17.6% YoY to | 9,277

crore primarily due to improved working capital management.

FCF grew 50% to | 3,952 crore owing to substantial payments

towards acquisitions. Subsequently, FCF, PAT grew to 46% from

29% in FY16


Outlook and valuation

Wipro reported better-than-expected IT service EBIT margins in Q2FY18.

For Q3FY18E, it came out with revenue guidance of $2014-2054 million,

which implies growth of 0-2% in a seasonally weak quarter. Reported

currency revenue growth was led by BFSI (grew 5.1% QoQ),

manufacturing & technology (grew 3.4% QoQ) and consumer business

unit (grew 3.3% QoQ) among verticals. Geography wise, APAC and other

Emerging Markets led the growth (grew 7.4% sequentially) followed by

Europe (grew 5.8% QoQ).

Wipro reported a strong margin performance and key matrix such as BFSI

vertical and Top 10 clients. Secondly, the management commentary is

turning positive on an incremental basis and is expected to match

industry growth by Q4FY18. However, we believe these positives are

already priced in the stock. It has run up ~20% in past 12 months and is

already trading at 14.7x FY19 EPS. Hence, we maintain our HOLD

recommendation on the stock with a revised target price of | 300/share

(15x FY19E).

Exhibit 7: One year forward rolling PE

0

200

400

600

800

1000

Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Apr-10

Oct-10

Apr-11

Oct-11

Apr-12

Oct-12

Apr-13

Oct-13

Apr-14

Oct-14

Apr-15

Oct-15

Apr-16

Oct-16

Apr-17

Oct-17

|

Price 24 20 16 12 8


Exhibit 8: Valuation

Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE

(| cr) (%) (|) (%) (x) (x) (%) (%)

FY16 51,244 9.1 22.6 (35.7) 27.2 9.2 18.3 19.4

FY17 55,040 7.4 17.5 (22.7) 23.2 7.5 21.6 22.7

FY18E 55,110 0.1 18.1 3.8 18.3 5.8 22.7 25.6

FY19E 60,356 9.5 20.2 11.5 12.8 4.7 19.1 19.6



Recommendation History vs. Consensus

0

100

200

300

400

500

600

700

800

Oct-17Jul-17May-17Mar-17Dec-16Oct-16Jul-16May-16Feb-16Dec-15Oct-15

(|

)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

(%

)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICIdirect.com Research

Key events

Date Event

Apr-17

Wipro completes its acquisition of InfoServer, a Brazilian technology service firm and financials would start consolidating from Q1FY18. The deal size of the

acquisition was $8.7 million

Jun-17

Wipro increases its stake in IT consulting and software services firm Drivestream to 26.1% after exercising an optionally-convertible note for about US$809,690.

Established in 2001, Drivestream is a management and IT consulting firm specialised in Oracle cloud and ERP solutions.

Jun-17

Wipro collaborates with world's leading provider of open source solutions Red Hat to set up a cloud application factory. Using Red Hat OpenShift Container Platform,

Wipro could develop new cloud based applications without having to rewrite their legacy applications

Jul-17

According to media sources, Wipro Infrastructure Engineering, part of Wipro Enterprises Ltd announces a strategic alliance with Israel Aerospace Industries (IAI) to

make composite aerostructure parts and assemblies in India for the global market. Wipro Infrastructure Engineering will set up a manufacturing facility in India in

partnership with IAI to meet the requirements of global aircraft OEMs and Tier-1 suppliers.

Jul-17

Wipro enters into a partnership with Hewlett Packard Enterprise (HPE) to offer IT infrastructure solutions in a consumption-based or pay-per-use business model for

the enterprises. In this partnership, Wipro will leverage HPE Flexible Capacity to offer flexible and scalable IT infrastructure services in a consumption-based IT

model, accelerate growth and enable digital transformation for its customers.

Sep-17

Wipro wins a five year IT applications management contract from Outokumpu, global leader in stainless steel. Wipro would provide applications management

services for Outokumpu SAP landscape along with legacy applications support

Sep-17 Wipro bags a seven year contract from European energy company, innogy SE to manage the data centre and cloud services

Sep-17

Wipro enters into a partnership with CloudGenix, a leading provider of Software defined Wide Area Networking (SD-WAN) products. Under the partnership, Wipro

would offer its customers end to end managed WAN services.

Oct-17

Wipro Digital signs a definitive agreement to acquire Cooper, design and business strategy consultancy. Wipro Digital is the digital business unit of Wipro.

Acquisition is expected to be closed in Q3FY18.


Top 10 Shareholders Shareholding Pattern

Rank Name Latest Filing Date % O/S Position (m) Change (m)

1 Premji (Azim Hasham) 30-Jun-17 56.6% 2,741.0 0.0

2 Azim Premji Trust 30-Jun-17 16.5% 798.1 0.0

3 Life Insurance Corporation of India 30-Jun-17 3.0% 145.1 21.6

4 ICICI Prudential Asset Management Co. Ltd. 31-Aug-17 1.4% 65.8 -4.9

5 Stewart Investors 31-Jul-17 1.3% 62.9 -2.2

6 BlackRock Institutional Trust Company, N.A. 30-Sep-17 0.9% 44.5 0.2

7 The Vanguard Group, Inc. 31-Aug-17 0.6% 27.8 0.0

8 Azim Premji Philanthropic Initiatives Pvt. Ltd. 30-Jun-17 0.4% 20.1 0.0

9 T. Rowe Price International (UK) Ltd. 30-Jun-17 0.4% 18.2 0.6

10 Norges Bank Investment Management (NBIM) 31-Dec-16 0.3% 15.3 2.3

(in %) Dec-16 Mar-17 Jun-17

Promoter 73.25 73.25 73.18

Public 26.18 26.19 26.26

Others 0.57 0.56 0.56

Total 100.00 100.00 100.00

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor name Value Shares Investor name Value Shares

Life Insurance Corporation of India 86.5m 21.6m APG Asset Management -38.1m -9.6m

First State Investments (Singapore) 3.3m 0.8m ICICI Prudential Asset Management Co. Ltd. -22.8m -4.9m

Axis Asset Management Company Limited 3.3m 0.7m Lyxor Asset Management -17.9m -4.3m

Grantham Mayo Van Otterloo & Co LLC 3.0m 0.7m Unigestion -13.3m -3.2m

T. Rowe Price International (UK) Ltd. 2.5m 0.6m Somerset Capital Management, L.L.P. -11.4m -2.9m

Buys Sells

Source: Reuters, ICICIdirect.com Research


.

Financial summary

Profit and loss statement | Crore


Total Revenues 51,244 55,040 55,110 60,356

Growth (%) 9.1 7.4 0.1 9.5

COGS 35,672 39,154 39,357 42,897

Other Expenditure 4,787 5,214 5,065 5,487

EBITDA 11,171 11,458 10,435 11,718

Growth (%) 3.2 2.6 (8.9) 12.3

Depreciation 1,485 2,070 2,039 2,233

Other Income 2,338 2,166 2,819 2,946

Exchange difference 163 28 28 28

F.income (558) (518) (577) (577)

Pft. from associates - - - -

PBT 11,466 11,036 10,638 11,854

Growth (%) 2.7 (3.8) (3.6) 11.4

Tax 2,531 2,521 2,447 2,726

PAT before Minority int, 8,935 8,514 8,191 9,127

Minority int. 49 25 25 25

PAT 8,886 8,490 8,166 9,103

EPS 22.6 17.5 18.1 20.2

EPS (Growth %) (35.7) (22.7) 3.8 11.5


Cash flow statement | Crore


PAT before minority int. 8,941 8,514 8,191 9,127

Depreciation 1,497 2,311 2,039 2,233

(inc)/dec in Current Assets (1,212) 1,269 (1,338) (2,003)

(inc)/dec in current Liabilities 597 (815) (139) 2,783

Taxes paid (2,694) (2,548) (2,447) (2,726)

CF from operations 7,887 9,277 6,512 9,771

Other Investments (12,498) (10,014) 2,819 2,946

(Purchase)/Sale of Fixed Assets (1,317) (1,965) (2,088) (2,287)

CF from investing Activities (13,816) (11,628) 731 660

Inc / (Dec) in Equity Capital 0 - - -

Inc / (Dec) in sec.loan Funds 3,525 1,312 - -

Dividend & Divendend tax (3,684) (1,073) (1,636) (1,636)

CF from Financial Activities (159) (2,275) (12,636) (1,636)

Exchange rate differences 55 (141) - -

Opening cash balance 15,871 9,905 5,271 (122)

Closing cash 9,905 5,271 (122) 8,673


Balance sheet | Crore


Liabilities

Equity 494 486 417 417

Reserves & Surplus 46,023 51,544 47,720 55,764

Networth 46,517 52,030 48,138 56,182

Minority Interest 222 239 264 289

Debt - long term 1,736 1,961 1,961 1,961

Debt - short term 10,786 12,280 12,296 13,466

Deffered Tax Liability 511 661 661 661

Other liabilities & provisions 1,559 1,505 1,514 1,514

Source of funds 61,331 68,677 64,834 74,073

Assets

Goodwill 10,199 12,580 12,589 12,589

Intangible Assets 1,584 1,592 1,596 1,599

PPE 6,495 6,979 7,025 7,075

O.non current assets 3,213 3,201 3,201 3,200

Investments 491 710 710 710

Debtors 10,099 9,884 10,650 11,839

Cash & Cash equivalents 9,905 5,271 (122) 8,673

Investments - short term 20,979 30,178 30,178 30,178

O.current assets 9,437 8,957 9,529 10,342

Trade Payable 6,819 6,549 6,391 7,713

OCL & Provisions 4,251 4,126 4,129 4,420

Application of funds 61,331 68,677 64,834 74,073


Key ratios


Per share data (|)

EPS 22.6 17.5 18.1 20.2

BV 118.3 107.0 106.8 124.7

DPS 6.0 2.0 2.0 2.0

Operating Ratios

EBIT Margin 18.9 17.1 15.2 15.7

PAT Margin 17.3 15.4 14.8 15.1

Debtor days 72 66 71 72

Creditor days 49 43 42 47

Return Ratios (%)

RoE 19.1 16.3 17.0 16.2

RoCE 19.6 16.8 17.3 16.8

RoIC 56.9 53.8 44.2 48.8

Valuation Ratios (x)

P/E 12.8 16.6 16.0 14.3

EV / EBITDA 4.7 4.4 5.3 4.1

EV / Net Sales 1.0 0.9 1.0 0.8

Market Cap / Sales 1.4 1.3 1.3 1.2

Price to Book Value 2.4 2.7 2.7 2.3

Solvency Ratios

Debt/EBITDA 1.1 1.2 1.4 1.3

Debt / Equity 0.3 0.3 0.3 0.3

Current Ratio 1.8 1.8 1.9 1.8

Quick Ratio 1.8 1.8 1.9 1.8



ICICIdirect.com coverage universe (IT)

CMP M Cap EPS (|) P/E (x) RoCE (%) RoE(%)

(|) TP(|) Rating (| Cr) FY16 FY17P FY18E FY16 FY17P FY18E FY16 FY17P FY18E FY16 FY17P FY18E FY16 FY17P FY18E

Cyient (INFENT) 510 545 Hold 5,742 29.0 30.5 35.2 17.6 16.7 14.5 12.1 10.2 8.0 20.3 19.7 20.7 17.8 16.2 16.8

Eclerx (ECLSER) 1,290 1,145 Sell 5,318 87.9 88.4 79.5 14.7 14.6 16.2 9.8 9.9 10.2 42.6 35.4 31.2 33.5 29.5 23.9

Firstsource (FIRSOU) 39 45 Buy 2,582 3.8 4.1 4.4 10.2 9.4 8.9 7.7 6.7 6.0 11.7 12.1 12.1 12.9 11.5 11.0

HCL Tech (HCLTEC) 850 930 Buy 119,994 52.1 60.0 59.6 16.3 14.2 14.3 12.6 10.3 9.7 31.2 30.3 30.6 26.9 26.6 25.1

Infosys (INFTEC) 972 1,040 Hold 222,164 59.0 62.8 64.7 16.5 15.5 15.0 11.0 10.4 10.6 30.2 28.8 31.2 21.8 20.8 22.4

KPIT Tech (KPISYS) 128 140 Hold 2,547 14.1 10.6 11.0 9.1 12.0 11.6 5.4 7.0 6.6 23.7 16.3 16.3 20.4 15.4 12.8

Mindtree (MINCON) 507 470 Hold 8,514 32.9 24.9 26.9 15.4 20.4 18.8 9.9 11.0 11.5 29.1 21.2 24.2 22.9 16.2 18.8

NIIT Technologies (NIITEC) 496 520 Hold 1,777 45.8 43.2 45.3 10.8 10.5 11.0 2.9 2.5 2.2 30.5 29.9 28.1 17.6 14.9 14.1

Persistent (PSYS) 580 700 Buy 4,639 37.2 37.6 40.7 15.6 15.4 14.5 9.7 8.5 7.1 23.8 21.3 20.4 18.1 16.2 15.4

TCS (TCS) 2,399 2,400 Hold 469,892 122.9 133.4 133.1 19.5 18.0 18.0 14.4 13.1 13.1 42.2 38.0 37.6 33.1 29.8 29.5

Tech Mahindra (TECMAH) 429 490 Buy 42,158 31.7 31.8 33.9 13.5 13.5 12.7 8.8 8.7 7.8 25.5 21.9 20.6 21.7 17.2 16.2

Wipro (WIPRO) 269 285 Hold 66,257 22.6 17.5 18.1 11.9 15.4 14.8 4.3 3.9 4.8 19.6 16.8 17.3 19.1 16.3 17.0

Sector / Company

EV/EBITDA (x)



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