IT Sector Update: Weak quarter, but optimistic commentary

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Information Technology

Rear View JFM‐15: Weak quarter, but optimistic commentary

Sector Update

May 11, 2015

Shashi Bhusan [email protected] +91‐22‐66322300

Hussain Kagzi [email protected] +91‐22‐66322242

Sensex v/s CNX IT

80

90

100

110

120

130

140

150

May‐14

Jul‐14

Sep‐14

Nov‐14

Jan‐15

Mar‐15

May‐15

CNX IT Sensex

Source: Bloomberg

Stock Performance

(%) 1M 6M 12M

Sensex (4.8) (1.4) 19.6

CNX IT Index (7.9) (1.0) 25.2

HCL Tech. (2.5) 16.6 38.4

Infosys (10.8) (3.4) 28.3

TCS (3.6) (0.8) 20.1

Wipro (12.4) (3.0) 5.6

Tier‐1 IT services companies reported a big‐miss to consensus expectation in constant currency term in Q4FY15 (JFM‐15). However, managements were positive on overall demand environment and expect uptick in discretionary spend in FY16. Performance was weakened by weakness in Energy, Telecom, and Insurance vertical; worsened by cross‐currency headwind. However, global technology majors reported healthy beat to expectations. Retain preference for Infosys and TCS; with HCL Tech as near term trading preference.

Growth retarded due to few verticals and CC headwinds: Tier‐1 Indian IT reported weaker than expected constant currency revenue growth due to challenges in Energy, Telecom and Insurance vertical. Economic activity in Europe and US also weakened during Q4FY15. HCLT reported strongest growth (2.7%), followed by TCS (1.6%), Wipro (1.2%), and Infosys (‐0.4%). (Exhibit: 2)

Weakness in Energy, Telecom and Insurance verticals: Energy Sector IT spend knuckled under sharp drop in Oil prices. We anticipated sharp cut in discretionary spend, but the weakness during the quarter was sharper than expected. Moreover, the problems got compounded by weakness in Telecom (slow down in capex) and Insurance verticals. The outlook for these verticals for FY16 also is subdued.

Attrition stubborn despite weak quarter: Employee addition continues to defy the growth pattern of Tier‐1 with Total Headcount growth of 8.8% YoY (1.7% QoQ), despite anaemic growth. Moreover, the quarter witnessed sticky attrition with jump in quarterly annualized attrition for TCS. We believe a part of uptick can be attributed to involuntary attrition as well. (Exhibit: 4, 5, 6)

Cross‐currency impact for Europe, but US steady: Growth from Europe softens due to cross currency impact, but outlook remained healthy for Europe as Indian IT companies continue to make in‐road in newer geographies. The US was weak during the quarter as economic activities slowed down impacting few verticals.

Global Tech majors – Beaten expectation, but order booking soft: Continuing outperformance from previous three quarters, results of global tech majors were touch stronger than expectation. The performance was stronger for all companies except IBM, Juniper and Temenos. The comments were encouraging, but order booking has been little soft. (Exhibit: 27)

Outlook for Q1FY16 (AMJ‐15) – Expect pick‐up in momentum: Global Tech majors have delivered stronger than expected result with healthy demand outlook. We see this as precedence for FY16 being at least as strong as FY15 for Indian IT. Moreover, there are early signs of easing of for cross currency headwinds. We see Q1FY16 to sprung positive surprise as we enter seasonally strong half for Indian IT. Moreover, the challenges for few verticals peaked during Q4FY15. We expect seasonality, healthy demand environment, easing off CC headwinds, and INR depreciation to aid Q1FY16 performance.

Exhibit 1: Top picks – Infosys and TCS; Near term trading BUY for HCL Tech

Revenues (Rs m) EPS (Rs)

CMP (Rs) Target (Rs) Rating Upside EPS CAGR2016E 2017E 2016E 2017E

Infosys 576,938 660,799 118.2 136.6 1,994 2,530 BUY 26.9% 12.6%

TCS 1,069,989 1,230,776 117.6 135.2 2,556 2,980 BUY 16.6% 16.1%

Wipro 513,666 578,404 38.0 43.5 542 680 Accumulate 25.6% 11.3%

HCL Technologies 410,857 463,569 56.8 61.8 942 970 Accumulate 3.0% 8.8%

Source: Company Data, PL Research (All prices as on May 11, 2015)


May 11, 2015 2

Weakest since Q4FY09, but outlook healthy

Q4FY15 performance for Tier‐1 Indian IT was the weakest since Q4FY09 (quarter

after Lehman’s bankruptcy) in terms of incremental revenue addition. Moreover,

in terms of constant currency QoQ revenue growth, Q4FY15 was weakest since

Q4FY12 (onset of European crisis).

Exhibit 2: ∆ Revenue (US$ m): Weakest quarter since Q4FY09

17

69

75

60

(35)

(19)

45

114

27 53 75

34

(8)

41 68

17

(59)

100

168

113

61

62 80 124

95

92 125 172

101

65

191 235

2

(31)

56

8

65

33

30

(21)

26

36

8

3

43

47

42

20

147

15 47

50

49

39

20

26

32

34

41

36

37

43

51

40

46

27 58

‐

(100)

(50)

‐

50

100

150

200

250

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15

Infosys TCS Wipro HCL Tech

Source: Company Data, PL Research

The fear of moderating growth for Tier‐1 Indian IT companies is overdone. The

performance of Tier‐1 Indian IT companies has accelerated in constant currency

term in FY15 compared to FY14. Despite growing in size, revenue growth has only

strengthened. The managements had highlighted the same at the beginning of

CY14/FY15. However, the cross currency has eroded the acceleration in FY15.

CY15 v/s CY14 – Commentary indicating further improvement: Commentaries from

Tier‐1 Indian IT Services have been positive on overall demand environment. There

are some signs of return in discretionary spends in the US, whereas demand in

Europe is driven by large cost‐takeoff outsourcing contract.

Exhibit 3: QoQ Gr. @cc: Revenue acceleration in‐line with commentary

@cc Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY14

Infosys 3.4% 4.2% 1.2% ‐0.4% 1.5% 3.9% 2.6% ‐0.4%

TCS 4.8% 6.0% 2.5% 1.9% 4.8% 7.7% 2.5% 1.6%

Wipro 1.2% 3.2% 2.3% 2.3% 0.3% 3.0% 3.7% 1.2%

HCLT 3.9% 3.6% 3.6% 2.8% 2.8% 3.2% 6.2% 2.7%

Total 3.6% 4.6% 2.3% 1.6% 2.8% 5.2% 3.3% 1.2%



May 11, 2015 3

Organic v/s Inorganic argument: Bears would argue about the inorganic endeavour

by TCS (Mitsubishi‐JV), Wipro (ATCO‐deal), and HCL Tech (Alcatel‐Lucent deal).

However, the basic nature of deals available in the marketplace needs employee and

asset‐takeover. We believe more deals of similar nature to drive revenue growth for

Indian IT. Moreover, we expect M&A activity to accelerate in FY16.

Digital form integral part of most of contracts: According to managements, clients

are more open to work with vendors that can provide the roadmap to Digital

adoption. Cognizant has mentioned that ~60% of total IT contracts signed in CY14

had Digital component in it. However, high Digital contribution to revenue would

result in volatility in quarterly performance.

No major concern in BFSI: Contrary to consensus’ belief that fines for Banking and

Financial Services would restrict any increase in IT budget for Indian IT.

Managements of Indian IT companies have indicated otherwise and hinted about

return in discretionary spend (largely around Digital) in BFS as fines for the sector in

CY15 is lower than it was in CY14. We expect healthy performance from BFSI vertical

for Tier‐1 in FY16.

Trouble triad – Energy, Telecom, and Insurance: Managements indicated sharp cut

in IT Budget in Energy vertical due to weaker Crude prices. However, the

contribution of Energy sector is low to overall Tier‐1 Indian IT with Wipro being the

highest followed by TCS and Infosys. HCL Tech has nearly no exposure to Energy

vertical. Telecom and Insurance vertical will continue to witness weakness in FY16.

We expect these verticals to continue dragging the growth for Tier‐1 Indian in FY16.


May 11, 2015 4

Strong acceleration in employee addition, attrition remained sticky

Tier‐1 Indian IT companies witnessed steady improvement in employee addition.

Total headcount addition has accelerated over the last 5 quarters, after decelerating

for 14 consecutive quarters. Despite, strong argument of non‐linearity, productivity

and Fixed Price Projects, a large part of revenue continues to be linear for Indian IT.

We see steady improvement in employee addition as a positive read‐thru for

demand environment.

Moreover, in‐line with our hypothesis (Ref: “Attrition: HR faux‐pas or Stumbling

growth?”, May 23. 2014) attrition continues to remain stubborn despite seasonality

for TCS and Wipro. However, we have seen mean reversal for Infosys, Wipro and

HCL Tech. We expect attrition to remain high at mid‐teens in CY15 with

reacceleration in H1FY16. We expect uptick in involuntary attrition in FY16 for tier‐1

Indian IT companies.

Exhibit 4: Top‐4 Headcount Growth: Reacceleration in employee addition

5%

10%

15%

20%

25%

‐1%

0%

1%

2%

3%

4%

5%

6%

Q3FY09

Q1FY10

Q3FY10

Q1FY11

Q3FY11

Q1FY12

Q3FY12

Q1FY13

Q3FY13

Q1FY14

Q3FY14

Q1FY15

Q3FY15

Growth QoQ (%) Growth YoY (%) (RHS)


Exhibit 5: Net Employee Addition: Seen strong addition

(2,000)

3,000

8,000

13,000

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15



Exhibit 6: Attrition (Qtrly. Ann.): Stubborn despite seasonality

10%

17%

24%

31%

38%

Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15




May 11, 2015 5

Exhibit 7: Management Commentary

TCS INFO HCLT WPRO

Demand

1) Expect client’s budget to increase modestly in @cc terms.

2) Two trends within that: a) Increase in Digital spending; b) Simplification of government led initiatives.

3) Telecom and Energy sector turned out to be worse than expected, impacting growth.

4) Digital programs have significantly driven up IT Services in key verticals

1) Concerns related to Energy, Currency, technological disruption, etc ; combined with need for value addition resulting in pressure in commoditized business.

2) Decent pipeline, except healthy growth certain verticals

1) 3 plays for HCL – a) IT outsourcing play moving in to Next Gen ITO; b) IoT led by iotization of devices a strong play for Engineering Services, followed by full stack of end‐to‐end deliverables around creating new offerings in that marketplace; c) Digitization Space

2) IMS Re‐bid market: Customers are looking for increased transparency, flexibility and innovation.

3) Seeing the emergence of challenger BFS institutions, which do not have the problem of legacy, as disruptive.

1) Guidance impacted by weakness in BFSI client (to resolve by Q2FY16) and softness in Energy vertical.

2) Weakness in Energy and BFSI; Strong growth in Mfg, RCTH & Healthcare. Media & Telecom Stable

3) Momentum pick up in IMS and Product Engineering.

4) Plan to make investments in Wipro Digital. To double rate of patent filing

Pricing/Realization

1) Pricing a little higher/ better in Digital.

2) Pricing stable over the year.

3) No pricing pressure in any of the services.

1) ‐1.7% @cc

2) Continued pricing & margin pressure in traditional services. Hence, need for automation.

3) Downward pricing pressure result of structural changes in industry & technology.

4) Pricing pressure higher than anticipated

5) To improve employee productivity from current $52.5k to $80k in 2020

1) ‘Run’ business under pricing pressure.

2) Deployed automation platform across 45 accounts, leading to significant improvement in productivity.

Margins

1) Margin Walk: @cc impact of ‐276bps on INR and ‐238bps on USD revenue; Realization: +0.8%; Offshore shift: ‐0.6%

2) Offshore shift on revenue and effort side to help margin

3) Future investments will depend on available margin buffer. They will not sacrifice margin for growth.

4) Margins driven by scale, at customer, service line or geography.

1) 30% op. margins by 2020

2) @cc +240bp YoY operating margins

3) Currency impact of 70bp in Q4FY15

4) Q1FY16 margins to be impacted by 250bp due to visa, wage hike.

1) Margin Walk: 60bps Currency, 40bps increments, 150bps Investment

2) 21bps margin impact of 1% USDINR movement and 5bps for EURUSD. Total 270bps translation impact

3) BPO margin impacted due to one large clients ramp‐up.

4) EBIT range of 21‐22%

1) Margin expansion driven by utilization improvement and productivity gain.

2) Will not be chasing margin at the expense of growth

3) Investments and wage hike headwinds in Q1FY16.

4) Investments in Automation to provide margin cushionin and increase competitiveness



May 11, 2015 6


TCS INFO HCLT WPRO

Geography

1) Deal Wins: 3 from NA, 2 from UK, 2 Europe, 1 in APac, 1 in ANZ

2) @cc 25% YoY growth in continental europe.

3) Growth in all geographies @cc except India.

4) Geography view clouded by the weakness in Telecom & Energy, and Diligenta from a UK context

1) @cc growth: +7% YoY in both NA & EU.

2) 3 large deals in each NA & EU. 1 in GMU.

3) Decent pipeline in EU after a few qtrs.

4) Better pipeline in Mfg (the US) compared to Europe. In FS, healthy pipeline in the US/Europe.

1) Shift from project‐based services to the Managed Services and IT Outsourcing in RoW will help increase baseline within the region.

2) Stable growth in Europe based on the early investments made.

1) Strong secular demand in US.

2) In terms of deals, there is little weakness in Europe, which is more significant in APAC.

3) Strong QoQ growth in India on the back of new initiatives.

4) Opportunities in Australia. Chasing couple of large deals.

5) Canada little slow due to inability to hunt Government segment.

Vertical

1) Expect BFS to perform better than company average, Diligenta weakness to continue in FY16

2) Positive on all the other verticals ‐ retail, manufacturing, high‐tech, life sciences, healthcare, travel, hospitality and media & entertainment (all 42% of revenue)

3) Spending in telecom and energy vertical to stay subdued.

4) Deal wins: 4 in BFSI, 2 in Retail and 1 each in Life Sc., Media & Telecom

1) 3 large deals in Retail and 2 in Mfg.

2) Decent pipeline in Retail, Mfg, FS and Life Sciences.

3) Expect Mfg, FS to be strong; Insurance, Energy & Telecom to be weak. Better momentum in Retail

1) Digital to deliver that customer experience in the CPG, Retail, Telco, Media, and Publishing.

2) Driver in Life Sciences ‐ growth in the number of drug launches.

3) Driver in Public Services is cost reduction and greater customer centricity in Utilities and O&G.

4) Increased focus on Digitization in FS

1) See good traction in Manufacturing, Retail & CPG (Mega trend in Digital)

2) Telecom & media to be stable.

3) Consolidation in pharma industry, IPs in payer side and regulation changes in providers’ side driving growth in Healthcare & Life‐sciences

4) Challenges in Energy vertical. $100m impact on FY15 revenue.

Services

1) Momentum to continue in Infrastructure services, enterprise solutions, digital, consulting & BPS.

2) $125m revenue in FY15 from TCS' Cloud Platforms, up 55% YoY

3) Launched AI‐based IT and business operation automation platform in the next few months.

4) Strong growth trajectory and order book in Digital

1) 10% revenue in 2020 from new services like AI, Design Thinking, Products & Platforms.

2) IAP deployed in 9 projects. Pipeline of 31 projects

1) Dip in Enterprise Services on account of completion of a large engagement.

2) Run the Business services positive based on the ALT ASM™strategy.

3) Negative growth in SI on the back of 2 large FPP in NA completed in OND

4) Growth drivers in IMS ‐ Cloud‐enablement; and, Automation and Self‐Healing kind of solutions.

1) Challenges in Energy and O&G sector have flown through any ADM largely.

2) Momentum pick up in Infrastructure Services and Product Engineering.

3) Commodity kind of service under pressure



May 11, 2015 7


TCS INFO HCLT WPRO

Others

1) 17% @cc growth in FY15 (15% ex. Japan)

2) @cc impact ‐ Volume: +1.42%; Realization: 0.79%; offshore shift: ‐0.6%

3) $423m bonus to employees for completion of 10 yrs of IPO. Made charge for the same this quarter.

4) Special dividend of Rs24/share.

1) Dividend payout increased from 40% to 50%.

2) Q4FY15 yield 9.04% vs 9.24% in Q3FY15.

3) FY16 ETR: 28% ‐ 29%

1) Investments in ‐ Co‐Innovation labs, addition of capacity outside India, Leadership & Skills, Infosec and Digital.

2) LTM RoCE: 35%

3) Hedge ‐ <1 yr: $657m @ Rs64.19; >1yr: $300m @ Rs67.42

1) Dividend payout Ratio: 41%

2) To file 500 patents in FY16, and; continued investment in skills development for newer technologies.

3) OCF/PAT ‐ Q4FY15: 112%; FY15: 90% FCF/PAT‐ Q4FY15: 92%; FY15: 77%

4) IT Product for Q4FY15: Rs9.5bn/ $152mn

Attrition & Hiring

1) 67k gross addition, 16k campus hire. 35k campus offers in FY16.

2) 70% Conversion rate in FY15. 3) Wage hike of 8% offshore and 4%

onsite. 4) Different employee engagement

programmes taken up to reduce attrition

1) Goal to bring attrition levels down to the lowest in the industry and achieve 25% in diversity in top leadership.

2) Improving employee engagement, establish SWAT team to simplify processes.

3) Increased variable payout from 64% in FY14 to 86% in FY15.

4) Wage hike 7.5%‐8% for employees in India and 2.5% for outside India.

1) 20% workforce outside India. 2) Investments in learning, training

and have helped curtail margins to some extent.

1) Working internally on process simplification and enhancing employee engagements across all level.

2) Created growth path for people good at cross technology to move into the newer areas like Digital.

3) Salary increase starting 1st June.


Exhibit 10: Top‐4 performance compared to expectation

TCS Infosys HCL Tech Wipro

Rev ($ mn) Op. Profit PAT Revenue Op. Profit PAT Revenue Op. Profit PAT Revenue Op. Profit PAT

PLe ‐1.0% 1.0% 10.8% ‐2.8% ‐5.0% ‐3.9% ‐2.2% ‐11.2% ‐11.8% ‐1.8% 1.7% 1.1%

Consensus ‐1.3% 0.7% 9.5% ‐3.6% ‐4.7% ‐2.4% ‐1.5% ‐9.0% ‐7.6% ‐1.2% 2.1% 5.0%

Source: Company Data, Bloomberg, PL Research


May 11, 2015 8

Earnings Quality – HCLT softens further, Infosys impacted by one‐off

Infosys’ cash‐conversion (on LTM basis) weakened during the quarter due to Rs29bn

of higher cash outflow as it settles case with I‐T department. The sharp decline came

after 10 quarters sustained improvement. HCL Tech’s RoE moderated by another

80bps. The management maintains their improved outlook and indicates

sustainability of ratios. As HCL Tech lifts capex curb and goes for expansion, cash

conversion weakened. We expect similar mean reversal for current liability. HCL

Tech “Capex/Sales” witnessed uptick. We continue to remain cautious on the

sustainability of QoE at the current level for HCL Tech as it enters into investment

phase again. We believe the 2nd wave of IMS deals could worsen the ratios.

TCS cash conversion has improved over the past 5 quarters. The management

remains optimistic about improving cash‐conversion that has started showing‐up.

Infosys continues to remain the most consistent player among peers in terms of QoE.

Exhibit 11: FCF/EBITDA (LTM): HCL Tech sees mean reversion

40%

50%

60%

70%

80%

90%

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15

TCS Infosys Wipro HCL Tech


Exhibit 12: Cash from op./PAT (LTM): HCLT among the weakest

60%

80%

100%

120%Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15



Exhibit 13: RoE (LTM): HCL Tech weakened by ~120bp over last 2 qtrs

15%

20%

25%

30%

35%

40%

45%

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15



Exhibit 14: Capex/Sales: HCL Tech gears‐up capex plan

1%

3%

5%

7%

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15




May 11, 2015 9

Operating metrics comparison top‐4 (TCS, INFO, WPRO and HCLT)

Exhibit 15: Growth @cc(QoQ) – Weakness more than expected

‐3%

2%

7%

12%

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15



Exhibit 16: EBITDA margin: Cross‐currency swing impacted margin

16%

21%

26%

31%

36%

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15

Infosys TCS Wipro

HCL Tech Total (Top‐4)


Exhibit 17: BFSI QoQ – Only Wipro retained momentum

‐10%

‐5%

0%

5%

10%

15%

Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15

Infosys TCS Wipro HCLT


Exhibit 18: Manufacturing QoQ – Growth except for Infosys

‐15%

‐5%

5%

15%Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15



Exhibit 19: Retail QoQ – Weakness due to seasonality, Likely to pick‐up

‐5%

0%

5%

10%

15%

20%

Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15



Exhibit 20: ADM QoQ – Wipro weakness due to client specific issue

‐10%

0%

10%

20%

Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15




May 11, 2015 10

Exhibit 21: Attrition (Annualized) – HCL Tech has the highest attrition

10%

17%

24%

31%

38%

Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15



Exhibit 22: US QoQ gr.: Weakness across except for Wipro

‐3%

2%

7%

12%

Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15



Exhibit 23: IMS QoQ – Performance more bunched‐up except Wipro

‐10%

0%

10%

20%

Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15



Exhibit 24: Consulting/PI QoQ – Pick‐up for Wipro

‐5%

0%

5%

10%

15%

20%

Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15



Exhibit 25: FPP – Wipro adopting fast, HCL Tech peaking out

37%

42%

47%

52%

57%

Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15



Exhibit 26: Europe QoQ gr.: Weakness due to X‐Curency headwind

‐5%

5%

15%

Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15




May 11, 2015 11

Global Tech Majors – Another quarter of beat after strong beat previous quarter to the expectation

Exhibit 27: Global Tech Majors – Actual v/s Consensus expectation

1.8%

2.8%

0.3%0.8%

1.8%

0.8%0.4%

0.9%0.4%

‐1.5% ‐1.8%

‐0.3%

‐2.3% ‐2.0%

‐3.6%

‐1.3% ‐1.2% ‐1.5%

‐4.5%

‐3.5%

‐2.5%

‐1.5%

‐0.5%

0.5%

1.5%

2.5%

0

4,000

8,000

12,000

16,000

20,000

24,000

28,000

Oracle

Accenture

Microsoft

CGI

SAP

Intel

IBM

VMWare

EMC

Juniper

Xerox

Cognizant

Capgemini

Atos

Infosys

TCS

Wipro

HCL Tech

Average

Revenue Consensus Outperformance Underperformance


*** Oracle – Missed expectation due to cross currency headwinds: Oracle reported

miss to consensus expectation after beat in the previous quarter. The company

reported revenue growth of 0% YoY (6% @cc) (Guidance: +0% to 4% YoY, +4‐8%

@cc) to $9.33bn (Cons.: $9.47bn). 1) Software and Cloud Revenue were up +1% YoY

(+7% @cc) (Guid.: +1‐4% YoY, +5‐8% @cc) to $7.17bn (Cons.: $7.28bn). 2) SaaS/PaaS

revenue grew by 30% YoY (+34% @cc) (Guid.: +27‐31% YoY, +31‐35% @cc) to

$372mn (Cons.: $372mn). 3) New Software License declined by 7% YoY (0% @cc) to

$1.98bn (Cons.: $2.00bn). 4) Iaas grew by +28% YoY (+32% @cc) (Guid.: +25‐29%

YoY, +29‐33% @cc) to $155mn (Cons.: $137mn). 5) Hardware Revenue declined by

2% YoY (+5% @cc) (Guid.: ‐6% to +4% YoY, ‐2% to +8% @cc) to $1.30bn (Cons.:

$1.31bn). 6) Software and Cloud revenue in terms of geography (@cc) Americas

grew +7% YoY (Q3FY14: +7% YoY), while EMEA grew +9% YoY (Q3FY14: +6% YoY) and

APAC grew +4% YoY (Q3FY14: +3%). ** Guidance – Overall guidance touch softer

than expected: Unlike the previous quarters, management didn’t give likely impact

of cross currency headwinds. Management has guided for “Software and Cloud”

revenue growth of +2% to +6% YoY (@cc, Cons: +3%), Saas + Paas is expected to

grow +26% to +30% YoY (@cc, Cons: 22%), and Cloud IaaS revenue is expected to

grow +29% to +33% YoY (@cc, Cons: 33%). Hardware revenue expected to grow ‐2%

to +8% YoY (@cc, Cons: 7%). Overall revenue is expected to grow by 1% to +6% YoY

(@cc, Cons.: +7%).

*** Accenture – Another strong beat to consensus expectation: Accenture reported

Q2FY15 results ahead of consensus expectation. The company reported revenue

growth of 5% YoY (12% @cc) to $7.493bn (Cons.: $7.36bn, Guidance: $7.25‐7.50bn).

The momentum was again led by Outsourcing that grew by 6% YoY (13% @cc) to

$3.654bn, whereas growth in Consulting was 4% YoY (11% @cc) to $3.839bn. **

Driven by North America and CMT, Products &HPS: In terms of geography,

Americas grew by 13% YoY (13% @cc), Europe grew by ‐2% YoY (9% @cc), and

Growth Markets grew by 3% YoY (12% @cc). In terms of vertical, CMT grew by 8%

YoY (15% @cc), BFS grew by 2% YoY (9% @cc), HPS grew by 12% YoY (15% @cc), and

Product grew by 6% YoY (13% @cc). ** Bookings continues to soften due to


May 11, 2015 12

currency impact (‐6% impact YoY): Overall booking declined by 6.9% YoY (‐1% @cc)

to $9.3bn (second highest ever after Q2FY14) with book‐to‐bill stands at 1.24x (5yr

avg: 1.16x, 7yr Q2 avg: 1.24x) due to weakness in Consulting book‐to‐bill that stands

at 1.09x (5yr avg: 1.06x, 7yr Q2 avg: 1.12x), and Outsourcing book‐to‐bill stands at

1.40x (5yr avg: 1.29x, 7yr Q2 avg: 1.38x). The last time there was an order book

decline for 3 consecutive quarters was in FY09‐10. The management revised their

booking guidance down to $33‐35bn (from $34‐36bn, FY14: $35.88bn) reflecting its

revised foreign currency assumptions. ** Q3FY15 guidance just short of expectation

whereas FY15 guidance revised upward: The management guided for revenue of

$7.35‐7.60bn (Cons.: $7.58bn). The management revised FY15 revenue guidance to

8‐10% in constant currency from earlier 5‐8% (@cc). ** Commentary continues to

be optimistic: According to Mr. Davind Rowland (CFO), “An important theme was the

continued strong demand for both digital related services and operations. At the

same time, we saw very good demand for both application services and consulting

related services... The dominant drivers were strong double‐digit growth in digital

related services, operations and application services....”

Exhibit 28: Oracle Software & Cloud Licenses @cc: Acceleration over last year growth


Exhibit 29: Accenture: Consulting growth & Book‐to‐Bill bounce back

0.80x

1.00x

1.20x

1.40x

1.60x

1.80x

‐17%

‐7%

3%

13%

23%

Q1FY05

Q2FY05

Q3FY05

Q4FY05

Q1FY06

Q2FY06

Q3FY06

Q4FY06

Q1FY07

Q2FY07

Q3FY07

Q4FY07

Q1FY08

Q2FY08

Q3FY08

Q4FY08

Q1FY09

Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Consulting (Rev YoY@cc) Outsourcing (Rev YoY@cc) Consulting (Book‐to‐Bill) Outsourcing (Book‐to‐Bill)



May 11, 2015 13

*** Intel – Touch softer than consensus expectation: Intel reported Q1CY15 results

just short of consensus expectation. The company reported revenue growth of

+0.1% YoY (‐13.2% QoQ) to $12,781mn (Cons.: $12,824mn), at the mid‐point of

negatively revised guidance of $12.8bn (‐/+$300m). ** Other highlights: 1) Client

Computing Group sales were up ‐8% YoY (‐16% QoQ) to $7.4bn, driven by an 18%

QoQ decrease in unit shipments and a 1% QoQ increase in ASPs. 2) Data Center

Group sales were up +19% YoY (‐10% QoQ) to $3.7bn, with a 7% QoQ decline in units

and a 3% QoQ decline in ASPs. 3) Internet of Things revenue grew by +11% YoY (‐

10% QoQ) to $533m 4) Software and Services revenue declined ‐3% YoY (‐4% QoQ)

to $534mn. 5) Inventory was up 4% QoQ to $4.3 bn and inventory days increased to

76 days from 73 days in Q3CY14. ** Q2CY15 guidance fallen short of expectation,

CY15 guidance revised downward: The management has guided Q2CY15 revenue to

be $12.7 ‐ $13.7 bn (‐1% to +7% QoQ), 2% below the Street at $13,464mn. Intel has

revised their CY15 guidance to flat revenue growth YoY from mid‐single digits YoY;

In‐line with the consensus expectation of flat revenue growth.

Exhibit 30: Tier‐1 PES QoQ: Investment in new tech & outsourcing of legacy driving PES gr.

‐10.0%

‐5.0%

0.0%

5.0%

10.0%

15.0%

Q1CY12

Q2CY12

Q3CY12

Q4CY12

Q1CY13

Q2CY13

Q3CY13

Q4CY13

Q1CY14

Q2CY14

Q3CY14

Q4CY14

Q1CY15

Intel (YoY) Infosys (QoQ) TCS (QoQ)

Wipro (QoQ) HCLT (QoQ)


*** IBM – A narrow miss to expectation: IBM reported Q1CY15 results were below

consensus expectation. The company reported revenue decline of 12% YoY

(Adjusted Divestment*: 0% @cc*) to $19.64bn (Cons.: $19.59bn). In terms of

geography (@cc excluding divestments) ‐ Americas, EMEA and APac grew by +2%

YoY, ‐2% YoY, and ‐2% YoY respectively. ** GTS & GBS weak, Hardware strong: In

constant currency terms adjusted for divestments – 1) Global Technology Services

revenue declined by 1% YoY (@cc) to $7.9bn (Cons.: $8.46bn), 2) Global Business

Services declined by 4% YoY to $4.3bn (Cons.: $4.21bn), 3) Software revenue

declined by 2% YoY to $5.2bn (Cons.: $5.18bn) (Tivoli grew by 4% YoY, improved

growth after 4 quarters of deceleration and de‐growth in Q4CY14 is positive read‐

thru for Persistent Systems – excluding near term weakness on account of weak

result, we retain our positive stance on Persistent), and 4) Systems Hardware grew by

30% YoY to $1.7bn (Cons.: $1.29bn). ** Outsourcing and Consulting both soft for

the quarter: In GTS, Outsourcing declined by 2% (@cc), Integrated Technology

Services declined by 1% YoY (@cc), and Maintenance grew by +2% YoY (@cc). In


May 11, 2015 14

GBS, Outsourcing declined by 1% YoY (@cc), and Consulting & SI declined by 5% YoY

(@cc). Total Outsourcing declined by 2% YoY (@cc), Total Transactional declined by

3% YoY (@cc), and Maintenance revenue grew by +2% (@cc). ** New signing

showed signs of strength, Backlog flattish: Total backlog was (0% @cc*) to $121bn.

Outsourcing (GTS O/S & GBS O/S) signing grew by +11% YoY (@cc) to $5.5bn, and

Transactional (ITS, Consulting & AMS SI) signing declined 1% YoY (@cc) to $5.1bn.

Total deal signing for the quarter grew by 5% YoY (@cc) to $10.7bn. Outsourcing

backlog grew by +2% YoY (@cc) to $76bn. ** CFO commentary – Large

infrastructure deals up for grab: According to CFO Mr. Martin J. Schroeter

“…continuing to see clients sign large infrastructure outsourcing deals, with

embedded cloud and mobile initiatives creating large‐scale hybrid IT environments...

Within ITS, we had good growth in cloud, security, and business resiliency. But overall

performance was impacted by a shift away from lower value services…”

*** SAP – Beaten consensus expectation: SAP reported Q1CY15 results ahead of

consensus expectation. The company reported Overall Revenue growth of 22% YoY

(10% @cc) to €4,497m (Cons.: €4,300mn), wherein Cloud Subscription and Support

grew by 131% YoY (95% @cc, Organic 28% YoY @cc) to €509m (Cons.: €482mn),

Software grew by +12% YoY (+1% @cc) to €696m (Cons.: €636mn), Support revenue

grew by 17% YoY (+7% @cc) to €2,454m, and Cloud & Software revenue grew by

+16% YoY (+5% @cc) to €3,659m (Cons.: €3.52bn). ** Healthy growth across the

region: The company grew its Cloud and Software related revenue (@cc) for

America, EMEA, and APJ by +10%, +10%, and +23% respectively, whereas overall

growth for the respective regions were +8%, +7%, and +22% respectively in constant

currency. ** CY15 guidance retained: SAP retained their CY15 guidance – wherein

Cloud revenues has retained at €1,950‐2,050m, implying upper end growth rate of

86%. The management retained Cloud and Software Related revenue growth +8% to

+10% YoY @cc.

Exhibit 31: Uptick in revenue growth momentum for all except Juniper (due to capex cut by Telecom services vendor)

‐20%

‐5%

10%

25%

40%

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

JNPR Prod JNPR Svcs EMC Prod EMC Svcs IBM GTS IBM GBS



May 11, 2015 15

*** VMware – A beat to expectation: VMware reported Q1CY15 results ahead of

expectation. The company reported revenue growth of 11% YoY (+13% YoY @cc)

$1.51bn (Cons.: $1.50bn). Licenses revenue grew by +3% YoY (+6% @cc) to $576mn

(Cons.: $575mn), whereas Deferred revenue declined by 2% QoQ to $4.74bn (Cons.:

$4.81bn), and Billings (revenue plus change in deferred revenue on the cash flow

statement) gew by +2% YoY (+4% YoY @cc) to $1.42bn (Cons.: $1.51bn). Licenses

billing was flattish YoY to $551mn. ** CY15 Guidance – Just short of expectation:

According to Mr. Jonathan C. Chadwick, “US dollar has continued to strengthen

significantly and we now anticipate currency to have an approximately three

percentage point negative impact to total revenue growth and a slightly over four

percentage point negative impact to license revenue growth for 2015” The

management has revised guidance for overall revenue growth to 9‐11% from 10‐12%

YoY ( to 12‐14% from 13‐15% @cc, Cons.: +11% YoY) to $6.57‐669bn (Old: $6.64‐

6.76bn) (Cons.: $6.69bn), whereas Licenses revenue guidance is revised to 4‐7% from

6‐9% YoY (to 9‐12% from 11‐14% @cc, Cons.: +7%) to $2.7‐2.775bn (Old: $2.735‐

2.815bn) (Cons.: $2.767bn). For Q2CY15, total revenue is expected to grow by 8‐10%

YoY (12‐14% @cc, Cons.: +10% YoY) to $1.58‐1.6bn (Cons.: $1.6bn), whereas

Licenses revenue is likely to grow by 3‐4% YoY (9‐11% @cc, Cons.: +5%) to $630‐

640mn (Cons.: $644mn).

*** EMC – Missed Expectation: EMC reported Q1CY15 results below consensus

expectation. The company reported revenue growth of 2% YoY (6% @cc) to $5.61bn

(Cons.: $5.74bn). Geography‐wise growth In terms of Constant Currency – NA,

EMEA, APJ, and LatAm grew by 5%, 5%, 6% and 14% YoY respectively. Information

Storage revenue declined by 1% YoY (+3% @cc) to $3.66bn (Cons.: $3.77bn), RSA

Security revenue grew by 2% YoY (5% @cc) to $248mn (Cons.: $256mn), Enterprise

Content (Information Intelligence) revenue declined by 10% YoY (‐7% @cc) to

$138mn (Cons.: $147mn), and Pivotal revenue grew by 10% YoY (13% @cc) to

$54mn (Cons.: $61mn). ** Revised CY15 guidance lower than expectation:

Management revised CY15 revenue guidance lower to $25.7bn (Cons.: $25.93bn)

from $26.1bn.

*** Atos – Beat to expectation, organic growth weak: Atos reported Q1CY15 results

ahead of consensus expectation. Revenue for Q1CY15 grew by 17.6% YoY (+0.2%

organic; +12.2% @cc) to €2,427m (Cons: €2,405m). In terms of service line –

Managed Services and Consulting & SI grew by 15.5% YoY (+1.2% organic) and +8.8%

YoY (‐2.4% Organic), respectively. Worldline, too, grew by 4.0% YoY (+1.6% organic).

Revenues across geographies grew in the range of 15% to 57% YoY, except for

Germany which declined 4.2% YoY. However, Organic revenue across geographies

witnessed decline in the range of 0.5% to 9% YoY, except for UK and Ireland which

grew by 15.3% YoY. ** Strong order book and executables: The order during the

quarter stood at € 2,198m, up +31.5% YoY (+26% @cc) representing a book to bill

ratio of 91%. Full order backlog at Q1CY15 end was €16.6b (Q1CY14: €14.7b),

representing 1.7 years of revenue. The full qualified pipeline was €5.6b (Q1CY14:

€5.0bn), representing 6.7 months of revenue. ** Maintained Guidance for CY15:

The group reiterated its CY15 guidance of ‐ ‘Positive organic Growth’, 8 ‐ 8.5%


May 11, 2015 16

Operating Margins and FCF above CY14. ** Xerox ITO acquisition: The group expects

to close the acquisition by Q2CY15.

*** Microsoft – Another beat to street expectation: Microsoft reported Q3FY15

results ahead of consensus expectation. The company reported revenue growth 6%

YoY to $21.7bn (Cons.: $21.1bn, Guidance: $25.40‐26.50bn). The beat came due to

lower than anticipated cross‐currency headwinds (~$300mn of the $655mn revenue

upside) at revenue. In terms of segments: 1) Computing & Gaming revenue declined

by 9% YoY to $1.8bn (Cons.: $1.6bn, Guidance: $1.5‐1.7bn). 2) Phone Hardware

revenue declined by 39% QoQ to $1.4bn (Cons.: $1.5bn, Guidance: $1.4‐1.5bn). 3)

D&C Licensing revenue declined by 21% YoY to $3.5bn (Cons.: $3.4bn, Guidance:

$3.4‐3.6bn). 4) D&C Other revenue grew by 17% YoY to $2.3bn (Cons.: $2.0bn,

Guidance: $2.0bn). 5) Commercial Licensing revenue declined by 3% YoY to $10bn

(Cons.: $9.8bn, Guidance: $9.7‐9.9bn). 6) Commercial Other revenue grew by 45%

YoY to $2.8bn (Cons.: $2.7bn, Guidance: $2.6‐2.7bn). 7) In Commercial cloud

revenue grew 106% YoY (+111% @cc) compared to 114% YoY last quarter and is now

at a $6.3bn revenue run rate 8) Windows volume licensing revenue declined by 2%

YoY versus last quarter at +3% YoY. ** Q4FY15 guidance touch softer than

expectation: 1) Devices & Consumers and Others: $2.1‐2.2bn (Cons.: $2.01bn) 2)

Phone Hardware: $1.3‐1.4bn (Cons.: $1.59bn) 3) Computing and Gaming: $1.5‐1.6bn

(Cons.: $1.6bn) 4) Commercial Licensing: $10.5‐10.6bn (Cons.: $10.63bn). 5)

Commercial Others: $3‐3.1bn (Cons.: $2.95bn), 6) D&C Licensing: $3.1‐3.2bn (Cons.:

$3.66bn) . The overall impact due to cross currency movement was 4 points.

*** Juniper – Beaten expectation: Juniper reported Q1CY15 results above

consensus expectation. The company reported revenue decline of 6% YoY to

$1.07bn (Cons.: $1.04bn), in which Product revenue declined by 12.8% YoY to $764m

(Cons.: $746m), and Services revenue grew by 3.1% YoY to $303.3mn (Cons.:

$300m). In products ‐ Routing, Switching and Security reported revenue grew by

+8%, ‐13.3% and ‐30.8% to $504.8mn (Cons.: $496mn), $166.5mn (Cons.: $171mn),

and $92.8mn (Cons.: $89mn) respectively.

Exhibit 32: Microsoft: Softness in Commercial Licensing growth

‐10.0%

‐5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

‐3%

‐1%

1%

3%

5%

7%

9%

11%

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Commercial Licensing (YoY) Total Revenue (YoY) (RHS)



May 11, 2015 17

*** Temenos – Missed expectation on all fronts: Temenos Q1CY15 was another

quarter of below consensus performance with ~28% miss on licenses and 6% miss on

total revenue expectation. The company reported overall revenue decline of 4.8%

YoY (+0.5% @cc) to $104.3m (Cons.: $111mn). Licenses revenue declined by 32.7% (‐

29.9% @cc) to $20m (Cons.: $28mn), SaaS revenue grew by +234.3% (+235.3% @cc)

to $5.8m (Cons.: $5n), Maintenance revenue grew by +3.4% (+9% @cc) to $55.6m

(Cons.: $55mn), and Services revenue declined by 6% (+1.7% @cc) to $22.7m (Cons.:

$24mn). Management cited sales re‐organization and other issues as key reasons for

weak licenses growth. ** CY15 guidance retained despite Q1 miss: Despite weaker

than expected performance in Q1, Management reiterated the guidance for total

revenue growth of 18‐23% YoY (@cc) implying revenue growth of $526‐548mn, and

Licenses growth is expected to be 13% YoY (@cc) implying Licenses revenue of

$152m.

Exhibit 33: Temenos Licenses: Weak licenses sale

‐50%

0%

50%

100%

150%

0

10

20

30

40

50

60

70

Q1CY05

Q3CY05

Q1CY06

Q3CY06

Q1CY07

Q3CY07

Q1CY08

Q3CY08

Q1CY09

Q3CY09

Q1CY10

Q3CY10

Q1CY11

Q3CY11

Q1CY12

Q3CY12

Q1CY13

Q3CY13

Q1CY14

Q3CY14

Q1CY15

Licenses Revenue (CHF) YoY Growth


*** Cap Gemini – Beat to expectation: Cap Gemini reported Q1CY15 results ahead

of Consensus expectation. The company reported Organic Revenue growth of 1.5%

YoY (Overall: 10.5% YoY) (v/s Consensus: +1.2% YoY) to €2,764mn (Cons.: €2,754m).

). In terms of geography, North America (11.7% YoY), Rest of Europe (+3.0% YoY),

and APAC & LatAm (+22.9% YoY) grew strongly; Benelux (+0.9% YoY) and France

(+1.2% YoY) were flat; whereas UK & Ireland (‐16.1% YoY) declined sharply. **

Raised outlook for CY15: Management has raised it’s CY15 guidance to at‐least 5%

YoY organic revenue growth from the earlier 3‐5% YoY range. Furthermore, it has

guided for operating margins in the range of 9.5%‐9.8%. Organic FCF is expected to

exceed €600 million for CY15. ** Strong growth in Application Services; and

Financial Services, E&U and Retail: In terms of services, Application Services (+4.6%

YoY) and Consulting (+3.1% YoY) grew strongly. While Managed Services (‐5.1% YoY)

declined. In terms of vertical, the company reported strong growth in Financial

Services (+14.3% YoY), E&U (+7.1%) and Consumer, Retail and Transportation (+7.9%

YoY); whereas Telecom, Media & Entertainment (‐6.4% YoY), Public Sector (‐13.3%)

and Manufacturing & Life Sciences (‐0.5% YoY) declined. ** Order booking growth

strong: Order book grew by 10.3%% YoY to €3,299m. Q1CY15 book‐to‐bill stood at

1.19x.


May 11, 2015 18

Exhibit 34: Capgemini (Order Book): Healthy growth

0.75x

0.89x

1.03x

1.17x

1.31x

1.45x

1,900

2,300

2,700

3,100

3,500

Q1CY09

Q2CY09

Q3CY09

Q4CY09

Q1CY10

Q2CY10

Q3CY10

Q4CY10

Q1CY11

Q2CY11

Q3CY11

Q4CY11

Q1CY11

Q2CY12

Q3CY12

Q4CY12

Q1CY13

Q2CY13

Q3CY13

Q4CY13

Q1CY14

Q2CY14

Q3CY14

Q4CY14

Q1CY15

Revenue (€ mn) Orderbook (€mn) Book‐to‐Bill


*** Cognizant – Strong beat to expectation: Cognizant reported strong beat to

consensus expectation at the top‐line for third quarter in a row. The company has

guided for Q2CY15 and CY15 USD revenue ahead of consensus expectation. The

management highlighted abatement of concerns highlighted in CY14. Moreover, the

demand remains more broad‐based with no budgetary concern. We see the Q1CY15

performance and CY15 guidance revision as an indication for sustained healthy

demand environment for the sector. ** Beat to consensus expectation: Cognizant

reported Q1CY15 revenue growth of 6.2% QoQ (7.3% @cc) to US$2,911m (Cons:

US$2,889m, Guid: US$2,880m), wheraes organically revenue grew by 3.1% QoQ (4%

@cc) to $2,662m. Cognizant’s performance was the strongest among all Tier‐1 Indian

IT companies in terms of QoQ growth. ** Guidance revised upward despite

cross‐currency headwind: The management has guided for Q2CY15 revenue growth

of 3.4% QoQ to $3,010m. For CY15, the company has increased it’s revenue guidance

marginally to atleast 19.3% YoY growth (Prev: 19.0%) to $12.24bn (Cons.: $12.29bn).

Management sees little conservatism in the guidance as the demand is largely driven

by Digital adoption, which is discretionary spend (small projects with quick

turnaround). The company sees healthy demand pipeline of deals. ** Vendors

consolidation, Cost optimization in commoditization and Digital adoption – are key

trends: Management sees vendor consolidation as one of the key theme in FS and

Healthcare, wherein clients are looking to cut their tier‐1 suppliers by half (from 3‐4

to 2‐3), and curtail the long tail of tier‐2 & 3 vendors. Moreover, clients are looking

for cost optimization in commoditized business that could fund investments in

Digital adoption for clients. Also, legacy system modernization is also a big part of

deal pipeline that would integrate it with Digital. According to management, projects

in Digital have quick turnaround with better margin and pricing profile. ** Pricing is

not the only reason to win clients: According to management, pricing is not only the

deciding criteria for the clients. Cognizant offers services at a price point that attracts

clients. ** Strong opportunity in Continental Europe: Management continues to see

strong opportunities in Continental Europe.


May 11, 2015 19

Exhibit 35: Cognizant: Strong beat to guidance/expectation

0%

3%

6%

9%

03006009001200150018002100240027003000

Q1CY02

Q3CY02

Q1CY03

Q3CY03

Q1CY04

Q3CY04

Q1CY05

Q3CY05

Q1CY06

Q3CY06

Q1CY07

Q3CY07

Q1CY09

Q3CY09

Q1CY10

Q3CY10

Q1CY11

Q3CY11

Q1CY12

Q3CY12

Q1CY13

Q3CY13

Q1CY14

Q3CY14

Actual (US$ mn) Guidance (US$ mn) Outperformance (RHS)



May 11, 2015 20

TPI Q1CY15 – Weak quarter impacted, but outlook healthy

According to the Conference Call of “ISG Outsourcing” (TPI) for Q1CY15, the quarter

(Q1CY15) witnessed weakness in ACV ($5.1bn) due to tougher comp and lower large

deal closure. However, the commentary for CY15 continues to be healthy as ISG sees

pick‐up in demand in H2CY15. There is no slackness in demand environment. They

see faster than expected cloud adoption, pricing pressure in select few service line,

and increased penetration by Indian Heritage Vendor in IMS and Europe.

Weak Q1CY15 – Lower number of large deals drive lowest Q1 in 10 years:

According to ISG forecast, broader market ACV weakned (‐18% YoY, ‐22% QoQ),

due to lower number of large deals resulting in weakest Q1 in 10 years. ISG

expects weakness to persist in Q2CY15, but expectations for H2CY15 and CY15

continue to be strong.

Pricing pressure in commoditized business: ISG highlighted about pricing

pressure in commoditized business. They see ~20% of drop in pricing in

segments like Data Centre and IMS. Faster adoption of cloud and increased

penetration of Indian Heritage Vendor in IMS continue to mount pressure on

incumbents. However, many outsourcing decisions, especially from matured

clients, are not entirely based on pricing. Clients are also looking for improved

SLAs, and differentiated value proposition to induct a new vendor.

What outsourcing maturity means?: There is no loyalty between clients with

vendor. 4th‐5th generation outsourcing deals are structured in a fashion

wherein switching vendors is an easy task. Hence, the cycle of restructuring

deals are difficult to predict. Analytics, Robotics, and Cloud – impact the

managed service marketplace more rapidly and broadly than anticipated. Clients

look to benchmarking to take advantage.

Indian v/s American (Heritage Vendors) – Who will win Digital battle?:

According to ISG, IHV have margin levers and surplus cash to invest in business.

Moreover, IHVs are nimble footed and developed deep domain expertise in few

verticals. However, there is no clear leader in the same currently. Nevertheless,

Accenture’s Consulting legacy is helping it to have edge in Digital battle.

Healthcare and Energy strong in Americas, FS strong in EMEA & APAC: Among

the verticals, Healthcare and Energy grew strongly in Americas. In APAC and

EMEA, manufacturing witnessed strong growth.

Some of the key highlights from TPI ‐ ACV declined, but deal counts surged:

1) Global Market: $5.1bn (‐18% YoY, ‐22% QoQ) 2) New Scope: $3.2bn (‐19% YoY, ‐

7% QoQ) 3) Restructurings: $1.9bn (‐16%, ‐39%) 4) Mega‐relationships: $1.2bn (‐

32%, ‐34%) 5) ITO: $3.5bn (‐27%, ‐26%) 6) BPO: $1.6bn (+13%, ‐12%) 7) Americas:

$2.1bn (+10%, ‐13%) 8) EMEA: $2.4bn (‐26%, ‐29%) 9) APAC: $0.6bn (‐45%, ‐19%)


May 11, 2015 21

Exhibit 36: Broader Market (ACV): Declined, ‐18% YoY, ‐22% QoQ

$6.0

$4.7 $6.6

$7.3

$7.0

$6.5

$6.0

$5.6

$5.9

$3.9 $6.2

$4.7

$6.2

$6.6

$5.1

$6.5

$5.1

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

Source: ISG, PL Research

Exhibit 37: Contracting counts: Deals comparatively bigger in quarter

379 360

308 327 305

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15


Exhibit 38: America ACV: Uptick (+10% YoY, ‐13% QoQ)

$2.1 $3.1

$2.7

$1.9

$1.9

$2.1

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15


Exhibit 39: Americas (Deal Count): Strong Q1, +27% YoY, ‐8% QoQ

146174

131113

1431Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15


Exhibit 40: Americas Trailing 12 months ACV ($B): Healthy uptick

$8.3 $9.4 $8.8

$6.5

$9.1

457

555

470 454

585

2Q10‐1Q11

2Q11‐1Q12

2Q12‐1Q13

2Q13‐1Q14

2Q14‐1Q15

ACV Counts


Exhibit 41: Americas: Stronger across segment on YoY basis

$1.0 $1.1 $1.2 $0.9

$‐

$0.5

$1.0

$1.5

$2.0

$2.5

New Scope Restructuring ITO BPO

Range of 5 Prior 1Qs Avg of 5 Prior 1Qs 1Q14 1Q15



May 11, 2015 22

Exhibit 42: Americas (ACV): Strength in Canada and Other LatAm


Exhibit 43: EMEA (ACV): Weak, ‐26% YoY, ‐29% QoQ

$3.2

$3.4

$2.7

$3.3

$2.4

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15


Exhibit 44: EMEA Deal Count: Deal sizes declined YoY

181153

143 169128

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15


Exhibit 45: EMEA Trailing 12 months ACV ($B): Declined over last 12m

$11.6 $14.2

$11.6 $12.1 $11.6

553593

541

629569

2Q10‐1Q11

2Q11‐1Q12

2Q12‐1Q13

2Q13‐1Q14

2Q14‐1Q15

ACV Counts


Exhibit 46: EMEA: Weak across services except BPO

$1.7

$0.7

$1.8

$0.6

$‐

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0




Exhibit 47: APAC (ACV): Weak, ‐45% YoY, ‐19% QoQ

$0.7

$0.5

$0.6 $1.0

$0.5

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15


$‐

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

U.S.

$0.22

$0.01 $0.00 $0.03

$‐

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

Canada Brazil Mexico Other LatAm



May 11, 2015 23

Exhibit 48: APAC deal count declined more Q1, ‐24% YoY, ‐15% QoQ

52

3334

4534

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15


Exhibit 49: APAC Trailing 12 months ACV ($B): Uptick over last 12m

$2.7 $2.1 $3.6

$2.5 $2.6

166

135

169

141 139

2Q10‐1Q11

2Q11‐1Q12

2Q12‐1Q13

2Q13‐1Q14

2Q14‐1Q15

ACV Counts


Exhibit 50: APAC: Weakness across service line

$0.42

$0.12

$0.50

$0.04 $‐

$0.2

$0.4

$0.6

$0.8

$1.0




Exhibit 51: Public Sector Trailing 12m ACV ($B): Strong spending

$27.6 $25.1

$27.7

$38.9

$47.3

$23.3

2Q10‐

1Q11

2Q11‐

1Q12

2Q12‐

1Q13

2Q13‐

1Q14

2Q14‐

1Q15

Public Sector Commercial Sector


Exhibit 52: Public Sector Trailing 12m Counts: Steady uptick

1,1761,283

1,180 1,1881,400

876 891 978

1,224 1,293

2Q10‐

1Q11

2Q11‐

1Q12

2Q12‐

1Q13

2Q13‐

1Q14

2Q14‐

1Q15

Commercial Sector Public Sector


Exhibit 53: Public Sector Regional ITO vs. BPO % TTM ACV

88%

36%

91%

38%

12%

64%

9%

38%

U.S. & Canada U.K. Continental

Europe

Australia

ITO BPO



May 11, 2015 24

Exhibit 54: Public Sector ITO vs BPO TTM ACV

$20.7 $18.0 $20.9 $30.0

$35.9

$6.9 $7.1 $6.8 $8.8 $11.4

2Q10‐

1Q11

2Q11‐

1Q12

2Q12‐

1Q13

2Q13‐

1Q14

2Q14‐

1Q15


Exhibit 55: Share of Public Sector ACV for Trailing 12m in NA

67%

17%

7% 6%2%

U.S. Canda U.K. Continental

Europe

Australia Others


Exhibit 56: America ACV Q1CY15: Strong growth in Healthcare, Energy, and Retail

$0.34 $0.37

$0.24

$0.40

$0.13 $0.11

$0.32

$0.07 $0.13

$‐$0.1 $0.2 $0.3 $0.4 $0.5 $0.6 $0.7 $0.8 $0.9

Manufacturing Financial Services

Telecom & Media

Healthcare & Pharma

Business Services

Retail Energy Consumer Products & Goods

Travel Transport Leisure



Exhibit 57: EMEA ACV Q1CY15: Strong growth in DACH, Benelux, and Southern Europe

$0.75

$0.10

$0.65

$0.18

$0.50

$0.05 $0.16

$0.02 $‐

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

U.K. & Ireland Nordics DACH France Benelux Southern Europe Africa & Middle East

E.Europe & Russia




May 11, 2015 25

Exhibit 58: EMEA ACV Q1CY15: Strong growth in FS, CPG, and Retail

$1.23

$0.32 $0.18 $0.15 $0.20

$0.04 $0.01 $0.17 $0.12

$‐

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

Financial Services

Travel Transport

Leisure

Manufacturing Telecom & Media

Energy Business Services

Consumer Products &

Goods

Retail Healthcare & Pharma



Exhibit 59: APAC ACV Q1CY15: Strong growth in India, Japan, and South Korea

$0.03

$0.30

$0.10 $0.08 $0.02 $0.02 $‐

$0.1

$0.2

$0.3

$0.4

$0.5

$0.6

ANZ India & South Africa Japan Greater China Southeast Asia South Korea



Exhibit 60: APAC ACV CY14: Strong growth in Energy, Business Services, and Retail

$0.18

$0.02

$0.10 $0.12

$0.06

$0.00 $0.03 $0.03

$0.00 $‐

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

Financial Services

Manufacturing Telecom & Media

Travel Transport Leisure

Energy Business Services

Consumer Products & Goods

Retail Healthcare & Pharma




May 11, 2015 26

Infosys and TCS – Retained as Top Picks among Tier‐1

The performance of Tier‐1 Indian IT Services in Q4FY15 (JFM‐14) was affected by the

seasonality, cross currency headwinds, and weakness in select few verticals.

Revenue growth was below expectation in constant currency term as well. However,

the management commentary was encouraging with global tech majors reporting

strong growth in the order book. However, the management sees more stickiness in

discretionary spend from the US with some concern in Energy vertical. The

management expects healthy growth environment in the US and improvement in

Europe with some caution due to seasonality. The deal pipeline remained flat QoQ

but witnessed improvement on YoY basis. As clients complete their budget session

on stable macro‐economic outlook, we expect performance to improve in CY15.

Moreover, spend would be driven by Digital.

We reiterate our preference for Infosys and TCS due to low running expectations

and valuation comfort. We reiterate our ‘BUY’ recommendation on Infosys, and TCS

and ‘Accumulate’ on Wipro and HCL Tech.

Exhibit 61: Infosys

17.4

8

11

14

17

20

23

26

May‐10 May‐11 May‐12 May‐13 May‐14 May‐15

1‐Yr Forward PER Average PER


Exhibit 62: TCS

18.1

0

5

10

15

20

25

30




Exhibit 63: Wipro

14.3

0.0

5.0

10.0

15.0

20.0

25.0




Exhibit 64: HCL Tech

12.4x

4

6

8

10

12

14

16

18

20


1‐Yr. Forward PER Average PER



May 11, 2015 27

Prabhudas Lilladher Pvt. Ltd.

3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai‐400 018, India

Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209

Rating Distribution of Research Coverage PL’s Recommendation Nomenclature

44.6%

38.0%

17.4%

0.0%0%

10%

20%

30%

40%

50%

BUY Accumulate Reduce Sell

% of Total Coverage

BUY : Over 15% Outperformance to Sensex over 12‐months

Accumulate : Outperformance to Sensex over 12‐months

Reduce : Underperformance to Sensex over 12‐months

Sell : Over 15% underperformance to Sensex over 12‐months

Trading Buy : Over 10% absolute upside in 1‐month

Trading Sell : Over 10% absolute decline in 1‐month

Not Rated (NR) : No specific call on the stock

Under Review (UR) : Rating likely to change shortly

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Economy & Finance

IT Sector Update: Weak quarter, but optimistic commentary