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July 21, 2017
ICICI Securities Ltd | Retail Equity Research
Result Update
Expects industry leading growth by Q4FY18…
IT services US$ revenues grew 0.8% QoQ to $1971.1 million, above
our 0.5% decline and $1,945 million estimate
Consolidated revenues declined 3.1% QoQ to | 13,626 crore and
were above our expectation of | 13,369 crore. The decline was led
by revenue decline in IT services (2.8% QoQ) and IT products
business (4.1% QoQ). At 16.8%, IT services EBIT margins declined
80 bps QoQ, in line with our 16.8% expectation
Reported PAT of | 2,076.5 crore was above our | 2,008.6 crore
mainly on account of revenue beat
Wipro has guided that its Q2FY18E IT services revenues will be in the
range of $1,962-2,001 million, translating to subdued growth of -0.5-
1.5% QoQ growth
The company has approved a buyback of | 11,000 crore at | 320 per
share (18.9% premium to today’s closing price). It implies
acceptance ratio of 7.1%
Better-than-expected operating performance
Wipro reported a better-than-expected quarter performance with IT
services CC revenue up 0.3% QoQ, exceeding Wipro’s expectation for the
quarter (-2-0%). Among verticals, growth in reported terms was led by
energy & utilities (3.2% QoQ) and BFSI (4.1% QoQ). Geography-wise,
India and Middle East grew 6.7% sequentially witnessing early signs of
recovery from ongoing restructuring. The management is seeing strong
traction in BFSI and energy & utilities segment along with digital business
unit that now accounts for 22.5% of Q4 revenue vs. 17.5% in Q1FY17.
Expects industry leading growth by Q4FY18
Wipro has guided for its Q2FY18E IT services revenues to be in the range
of $1,962-2,001 million, translating to subdued growth of -0.5-1.5% QoQ.
While the continued headwind in HPS acquisition has been baked in Q2
guidance, softness in communication and healthcare vertical could pose a
challenge for revenue growth. The management is firm in its expectation
of reaching industry growth rates by Q4FY18. Going ahead, we expect IT
services US$ revenues to grow 5.8% in FY17-19E.
Margins in line; wage hike to impact margins in Q2FY18E
IT services EBIT margins came in at 16.8%, in line with our expectation.
The 80 bps decline QoQ was on account of weak revenue growth, lower
utilisation and one month wage hike impact. Margins are expected to get
impacted in Q2FY18E on the back of weaker revenue growth and two
month wage hike impact offset by operational efficiency. Overall, we
expect IT services EBIT margin to remain at 16.7%, 17.0% in FY18E,
FY19E, respectively.
Buyback & recent commentary to restrict downside; maintain HOLD
The announcement of a higher-than-expected buyback along with the
management commentary to match industry leading performance from
Q4FY18 should restrict the downside from the current level. We also
upgrade our EPS estimates by 5-6% to factor in the recent commentary
and buyback announcement. However, subdued guidance for Q2 and
challenges in its portfolio continue to remain at the forefront. Hence, we
anticipate Wipro’s earnings will be soft for the next few quarters with
rupee revenue CAGR of 4.7% in FY17-19E with average EBIT margins at
15.7%. We maintain our HOLD recommendation on the stock with a
revised target price of | 285/share (14x FY19E).
Rating matrix
Rating : Hold
Target : | 285
Target Period : 12 months
Potential Upside : 6%
What’s Changed?
Target Changed from | 250 to | 285
EPS FY18E Changed from | 17.1 to | 18.1
EPS FY19E Changed from | 19.1 to | 20.2
Rating Unchanged
* Adjusted for bonus issue
Quarterly Performance
Q1FY18 Q1FY17 YoY (%) Q4FY17 QoQ (%)
Revenue 13,626 13,698 (0.5) 14,062 (3.1)
EBIT 2,210 2,285 (3.3) 2,315 (4.5)
EBIT (%) 16.2 16.7 -46 bps 16.5 -24 bps
PAT 2,077 2,058 0.9 2,094 (0.8)
Key Financials
| Crore FY16 FY17 FY18E FY19E
Net Sales 51,244 55,040 55,110 60,356
EBITDA 11,171 11,458 10,435 11,718
Net Profit 8,886 8,490 8,166 9,103
EPS (|) 22.6 17.5 18.1 20.2
Valuation summary
FY16 FY17 FY18E FY19E
P/E 25.3 21.6 17.0 11.9
Target P/E 14.5 22.6 29.2 28.1
EV / EBITDA 8.5 6.9 5.3 4.3
P/BV 4.6 4.7 3.9 2.3
RoNW (%) 18.3 21.6 22.7 19.1
RoCE (%) 19.4 22.7 25.6 19.6
Stock data
Particular Amount
Market Capitalization (| Crore) 66,256.9
Total Debt (| Crore) 14,241.2
Cash and Investments (| Crore) 5,271.0
EV (| Crore) 45,049.4
52 week H/L 284 / 205
Equity capital 486.1
Face value | 2
Price performance (%)
1M 3M 6M 12M
TCS (0.3) 6.0 8.3 0.1
Infosys 2.9 5.6 (0.5) (10.2)
Wipro 5.9 8.0 11.1 (2.5)
HCL Tech 4.4 10.3 4.9 23.4
Research Analysts
Deepak Purswani, CFA
Deepti Tayal
Wipro Ltd (WIPRO) | 269
ICICI Securities Ltd | Retail Equity Research Page 2
Variance analysis
Q1FY18 Q1FY18E Q1FY17 YoY (%) Q4FY17 QoQ (%) Comments
Revenue 13,625.9 13,369.1 13,697.6 -0.5 14,062.1 -3.1
Decline was led by revenue decline in IT services (2.8% QoQ) and IT products
business (4.1% QoQ)
Employee expenses 9,215.8 9,025.7 9,172.5 0.5 9,499.2 -3.0
Gross Margin 4,410.1 4,343.4 4,525.1 -2.5 4,562.9 -3.3
Gross margin (%) 32.4 32.5 33.0 -67 bps 32.4 -8 bps
Selling & marketing costs 1,014.6 925.6 1,014.1 0.0 943.6 7.5
G&A expenses 726.4 730.1 759.9 -4.4 726.7 0.0
EBITDA 2,669.1 2,687.7 2,751.1 -3.0 2,892.6 -7.7
EBITDA Margin (%) 19.6 20.1 20.1 -50 bps 20.6 -98 bps
Depreciation 494.3 572.1 466.4 6.0 577.9 -14.5
EBIT 2,210.3 2,115.7 2,284.7 -3.3 2,314.7 -4.5 Margins declined led by one month wage hike and low utilisation
EBIT Margin (%) 16.2 15.8 16.7 -46 bps 16.5 -24 bps
Other income 472.6 493.0 386.4 22.3 458.3 3.1
PBT 2,682.9 2,608.6 2,671.1 0.4 2,773.0 -3.2
Tax paid 599.4 600.0 612.2 -2.1 674.2 -11.1
PAT 2,076.6 2,008.6 2,057.6 0.9 2,094.3 -0.8 PAT was above our estimates mainly on revenue beat
Key Metrics
Closing employee Count 166,790 166,000 158,272 5.4 165,481 0.8
TTM voluntary Attrition (%) 15.9 17.0 16.5 -60 bps 16.3 -40 bps
Utilisation ex trainees (%) 82.1 83.0 79.7 240 bps 84.8 -270 bps
Average $/| 65.7 65.7 66.9 -1.7 69.0 -4.8
Source: Company, ICICIdirect.com Research
Change in estimates
(| Crore) Old New % Change Old New % Change Comments
Revenue 55,164 55,110 -0.1 58,708 60,356 2.8
EBITDA 10,893 10,435 -4.2 11,769 11,718 -0.4
EBITDA Margin (%) 16.0 15.2 -81 bps 16.3 15.7 -63 bps
PAT 8,280 8,166 -1.4 9,273 9,103 -1.8
EPS (|) 17.1 18.1 6.0 19.1 20.2 5.7 Revised estimates owing to change in margin estimates
FY18E FY19E
Source: Company, ICICIdirect.com Research
Assumptions
Current Earlier Current Earlier
FY15 FY16 FY17 FY18E FY18E FY19E FY19E
Closing employee Count 158,217 172,912 181,482 191,482 191,482 203,482 201,482
TTM voluntary Attrition (%) 16.5 16.3 16.4 16.0 16.0 15.0 16.0
Utilisation ex trainees (%) 76.8 76.6 81.0 81.8 84.1 85.0 85.0
Average $/| 62.1 66.3 68.7 65.7 66.0 67.0 67.0 Tweaked estimates owing to rupee appreciation
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 3
Conference call highlights:
Management guidance: The management has guided IT services
revenue to be in the range of $1,962 million to $2,001 million for
Q2FY18E translating to -0.5-1.5% growth for the quarter. While the
continued headwind in HPS acquisition has been baked in Q2
guidance, the company expects the softness in communication and
healthcare vertical to continue in the near term. However, the
management is firm on its expectation of reaching industry growth
rates by Q4FY18
Margins: Reported IT services EBIT margins declined 80 bps to
16.8% in the quarter. Margins are expected to get impacted by two
month wage hike in the next quarter offset by operational efficiency
with levers as utilisation
Vertical outlook: The management sounded optimistic on the BFSI
and energy & utilities vertical. They anticipate the softness will
continue in the communication and healthcare vertical
Digital revenues: Digital revenues now account for 22.5% of total
services revenue vs. 17.5% in Q1FY17. With growing demand in
digital, the company continues to augment its workforce with digital
skills and has now reached 75,000+ technical employees trained on
digital
Bonus and buy-back: The company has completed the allotment of
bonus issue of 1:1. Wipro board have approved a proposal for
buyback of equity shares worth | 11,000 crore at | 320 per share
Employee details: The company’s closing employee count in IT
services was at 166,790 vs. 165,481 in the prior quarter with net
addition of 1,309. Voluntary TTM attrition rate declined 40 bps QoQ
to 15.9%. Utilisation (ex-trainees) declined sharply by 270 bps QoQ
to 82.1% from record new highs of 84.8% attained in Q4FY17
Local hiring in US: Wipro mentioned that locals now form over 50%
of US employees to offset the concerns on H-1B visa issues
ICICI Securities Ltd | Retail Equity Research Page 4
Company Analysis
Operating highlights…
Among verticals, reported currency revenue growth was led by BFSI
(26.7% of revenue), which grew 4.1% QoQ and energy, natural resources
and utilities (13.4% of revenue), which grew 3.2% sequentially.
Communications (6.8% of revenue), healthcare & lifesciences (14.8% of
revenue) and manufacturing and technology (22.5% of revenue) declined
1.3%, 2.9% and 0.6% QoQ, respectively. The management is witnessing
strong traction in BFSI and E&U while remaining cautious on the
healthcare vertical owing to uncertain regulations in US. They expect
communication to remain soft in the near term.
Among geographies, quarterly growth was led by India & Middle East
business (10.4% of revenue), which grew 6.7% sequentially and
witnessed early signs of recovery from ongoing restructuring. Americas
(54.5% of revenue) grew 0.1% while APAC and other Emerging markets
(10.9% of revenue) grew 1.5% sequentially. Europe (24.2% of revenue)
witnessed decline of 0.1% QoQ on account of an engagement getting
completed in communication vertical. The management expects
restructuring of India-Middle East business to be complete by the end of
Q2FY18.
Among services, in reported terms, analytics (7.1% of revenue) grew
4.4% followed by application services (45.8%, 1.2%) and global
infrastructure services (28.1%, 1%). Product engineering services (7% of
revenue) declined 1.6% on the back of the same engagement completion
affecting Europe and communication vertical.
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
7994
8621
1832
1838
1882
7345
1916
5.0
3.7 3.94.9
2.1
18.9
13.4
6.4 7.0
0.00.0
0.0
0.0
7.6
4.6 3.53.8
1000
3000
5000
7000
9000
11000
FY11
FY12
FY13
FY14
FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
FY17
Q1FY18
FY18E
FY19E
$ m
illion
0
10
20
%
Dollar revenue Growth, YoY
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 5
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
Source: Company, ICICIdirect.com Research
Clients contributing > $1 million grow to 624 vs. 565 in Q1FY17…
Clients contributing >$100 million remain unchanged at nine since
Q3FY17 while two clients transitioned to >$50 million category. The >$10
million bucket was flat at 163 while six clients were reduced in >$5
million. Furthermore, Wipro’s revenues from the top client (2.9% of
revenue) grew 0.8% QoQ after three quarters of its good growth.
Revenues from top 5 (10.3% of revenue) & top 10 (17.5% of revenue)
both witnessed growth of 3.9% and 4.4%, respectively. It was soft owing
to softness in top client as top 2-5 and top 6-10 accounts witnessed good
growth momentum. Active customer base was now at 1244 (vs. 1323 in
Q1FY17) with the addition of 45 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
0
100
200
300
400
500
600
700
FY11
FY12
FY13
FY14
FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
FY17
Q1FY18
x
$1 million+ clients
Source: Company, ICICIdirect.com Research
Margins in line…
IT services EBIT margins came in at 16.8% in line with our expectation.
The decline of 80 bps QoQ was on account of weak revenue growth,
lower utilisation and one month wage hike impact. Margins are expected
to get impacted in Q2FY18E on the back of weaker revenue growth and
two month wage hike impact offset by operational efficiency. Overall, we
anticipate IT services EBIT margin will remain at 16.7%, 17.0% in FY18E,
FY19E, respectively.
ICICI Securities Ltd | Retail Equity Research Page 6
Exhibit 4: IT services margin come in 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 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
FY18E
FY19E
%EBIT margin (IT services)
[
Source: Company, ICICIdirect.com Research
Net utilisation drop to 82.1% from peak levels of 84.8% in Q4…
Utilisation (ex-trainees) declined sharply by 270 bps QoQ to 82.1%. Gross
utilisation breaking its upward trajectory of the past six consecutive
quarters declined 110 bps sequentially. The decline in utilisation was one
of the reasons accountable for a drop in margins. At 15.9%, voluntary
attrition TTM declined 40 bps and still remains at elevated levels.
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 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
FY18E
FY19E
%
TTM voluntary Attrition
Source: Company, ICICIdirect.com Research
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
81.0
80.3
81.8
85.0
70
73
76
79
82
85
FY11
FY12
FY13
FY14
FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
FY17
Q1FY18
FY18E
FY19E
%
Utilisation ex support (%)
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 7
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 cyber
security, 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 that immense progress in localisation in all key
markets was observed. In FY17, the company recruited over 3,000
locals in the US, leading to total workforce of 14,000 in US. Also,
Wipro witnessed good progress on localisation initiatives in the
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
ICICI Securities Ltd | Retail Equity Research Page 8
Outlook and valuation
Wipro reported better-than-expected dollar revenue growth while IT
service EBIT margins were in line with our estimates. However, it came
about with subdued revenues guidance of $1962-$2001 million (mn)
(implying growth of -0.5-1.5%) for Q2FY18E. Reported currency revenue
growth was led by energy & utilities (grew 3.2% QoQ), financial services
(grew 4.1% QoQ) among verticals. Geography-wise, India & Middle East
led growth (grew 6.7% QoQ) followed by APAC (grew 1.5% QoQ).
The announcement of a higher-than-expected buyback along with the
management commentary to match industry leading performance from
Q4FY18 should restrict the downside from the current level. We also
upgrade our EPS estimates by 5-6% to factor in the recent commentary
and buyback announcement. However, subdued guidance for Q2 and
challenges in its portfolio continue to remain at the forefront. Hence, we
anticipate Wipro’s earnings will be soft for next few quarters with rupee
revenue CAGR of 4.7% during FY17-19E with average EBIT margins at
15.7%. We maintain our HOLD recommendation on the stock with revised
price target of | 285/share (14x FY19E).
Exhibit 7: One year forward rolling PE
0
200
400
600
800
1000
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
|
Price 24 20 16 12 8
Source: Company, ICICIdirect.com Research
Exhibit 8: Valuation
Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE
(| cr) (%) (|) (%) (x) (x) (%) (%)
FY16 51,244 9.1 22.6 (35.7) 25.3 8.5 18.3 19.4
FY17 55,040 7.4 17.5 (22.7) 21.6 6.9 21.6 22.7
FY18E 55,110 0.1 18.1 3.8 17.0 5.3 22.7 25.6
FY19E 60,356 9.5 20.2 11.5 11.9 4.3 19.1 19.6
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 9
Recommendation History vs. Consensus
0
100
200
300
400
500
600
700
800
Jul-17May-17Feb-17Dec-16Sep-16Jul-16May-16Feb-16Dec-15Sep-15Jul-15
(|
)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
(%
)
Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Bloomberg, Company, ICICIdirect.com Research
Key events
Date Event
Oct-15 Reports in line Q2FY16 quarter while guidance was okay. IT services $ revenues grew 2.1% QoQ to $1,831.9 million, inline our growth estimate
Jul-16 Greater Toronto Airports Authority Awards Futuristic IT and Business Transformation Contract to Wipro
Sep-16
Wipro wins a three-year IT contract from NSB Group, one of Norway’s largest transportation groups. This engagement reiterates Wipro’s continued focus and
investments in Norway and the Nordic region.
Sep-16 Wipro and Witbe enter into Global Partnership to Offer End-To-End Test Automation and Services Monitoring Deployment Solutions
Jan-17
Wipro announces retirement of TK Kurien effective from January 31, 2017. Mr Kurien served as Wipro CEO for five years before being elevated as Vice Chairman in
early 2016.
Jan-17 Wipro partners and Invests in Tradeshift to offer business process as a service (BPaaS) solution
Mar-17 Wipro completes sale of its EcoEnergy division on March 1,2017. Impact of the sale is expected to reflect in Q4FY17 financials.
Mar-17 Wipro wins a 12 year contract from NHS Scotland for next generation Enterprise master patient index (eMPI) solution
Apr-17
Government directs Wipro to develop a blueprint for enabling Aadhar-based biometric access for domestic flyers at all Airports across India. Wipro is expected to
report by early May and then airports would begin the process whereby a passenger's thumb is all the identification required to fly domestic routes
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
Source: Company, ICICIdirect.com Research
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. 30-Jun-17 1.6% 77.6 0.0
5 Stewart Investors 31-May-17 1.3% 65.1 -0.7
6 BlackRock Institutional Trust Company, N.A. 30-Jun-17 0.9% 43.1 2.1
7 The Vanguard Group, Inc. 31-May-17 0.5% 25.0 0.0
8 APG Asset Management 31-Dec-15 0.4% 20.6 -2.9
9 Azim Premji Philanthropic Initiatives Pvt. Ltd. 30-Jun-17 0.4% 20.1 0.0
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 Lyxor Asset Management -17.9m -4.3m
T. Rowe Price International (UK) Ltd. 20.9m 5.3m Unigestion -13.3m -3.2m
HDFC Asset Management Co., Ltd. 10.2m 2.6m Somerset Capital Management, L.L.P. -11.4m -2.9m
BlackRock Institutional Trust Company, N.A. 8.3m 2.1m UTI Asset Management Co. Ltd. -7.3m -1.9m
Grantham Mayo Van Otterloo & Co LLC 2.9m 0.8m Stewart Investors -3.0m -0.7m
Buys Sells
Source: Reuters, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 10
.
Financial summary
Profit and loss statement | Crore
FY16 FY17 FY18E FY19E
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
Source: Company, ICICIdirect.com Research
Cash flow statement | Crore
FY16 FY17 FY18E FY19E
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) 8,672
Source: Company, ICICIdirect.com Research
Balance sheet | Crore
FY16 FY17 FY18E FY19E
Liabilities
Equity 494 486 417 417
Reserves & Surplus 46,023 51,544 47,720 55,763
Networth 46,517 52,030 48,137 56,181
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 74,072
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) 8,672
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 74,072
Source: Company, ICICIdirect.com Research
Key ratios
FY16 FY17 FY18E FY19E
Per share data (|)
EPS 22.6 17.5 18.1 20.2
BV 118.3 107.0 106.8 124.6
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 11.9 15.4 14.8 13.3
EV / EBITDA 4.3 3.9 4.8 3.7
EV / Net Sales 0.9 0.8 0.9 0.7
Market Cap / Sales 1.3 1.2 1.2 1.1
Price to Book Value 2.3 2.5 2.5 2.2
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
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 11
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)
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 12
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey Head – Research [email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
ICICI Securities Ltd | Retail Equity Research Page 13
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