Result Update

October 13, 2015

Rating matrix
Rating
Target
Target Period
Potential Upside

:
:
:
:

Infosys (INFTEC)

Buy
| 1300
12 months
16%

Solid beat spoiled by soft guidance

Whats Changed?
Target
EPS FY16E
EPS FY17E
Rating

Unchanged
Unchanged
Unchanged
Unchanged

Quarterly Performance
Revenue
EBIT
EBIT (%)
PAT

Q2FY16
15,635
3,993
25.5
3,398

Q2FY15
13,342
3,483
26.1
3,096

YoY (%)
17.2
14.6
-57 bps
9.8

Q1FY16
14,354
3,447
24.0
3,030

QoQ (%)
8.9
15.8
150 bps
12.1

Key Financials
| Crore
Net Sales
EBITDA
Net Profit
EPS (|)

FY14
50,133
13,415
10,648
46.6

FY15
53,319
14,901
12,329
53.9

FY16E
60,008
16,225
13,022
57.0

FY17E
67,501
18,597
14,858
65.0

FY14
24.1
27.9
17.0
5.4
22.4
30.7

FY15
20.8
24.1
15.1
4.7
22.5
31.4

FY16E
19.7
22.8
13.6
4.2
21.3
29.7

FY17E
17.3
20.0
11.6
3.7
21.7
30.1

Valuation summary
P/E
Target P/E
EV / EBITDA
P/BV
RoNW (%)
RoCE (%)

Stock data
Particular
Market Capitalization (| Crore)
Total Debt (Sept-15)
Cash and Investments (Sept-15)
EV (| Crore)
52 week H/L
Equity capital
Face value

Amount
256,581.3
| 0 crore
32,099.0
224,482.3
1220 / 928
| 1144 crore
|5

Price performance (%)

TCS
Infosys
Wipro
HCL Tech

| 1110

1M

3M

6M

12M

3.4
9.3
4.6
(9.4)

4.1
23.4
8.2
(7.5)

(1.4)
4.5
(4.4)
(12.0)

(3.8)
20.8
(4.7)
(1.8)

Research Analysts
Abhishek Shindadkar
abhishek.shindadkar@icicisecurities.com

ICICI Securities Ltd | Retail Equity Research

Infosys reported robust Q2FY16 earnings as dollar revenue growth

and EBIT margins were ahead of our and consensus estimates
US$ revenues grew 6% QoQ to $2,392 million, above our $2,340
million and 3.7% growth estimate
Infosys maintained its 10-12% constant currency (CC) revenue
growth guidance for FY16E but lowered US$ guidance to 6.4-8.4%
Reported PAT of | 3,398 crore was also above our | 3,240 crore
estimate led by revenue, operating margin beat
Rajiv Bansal, Chief Financial Officer (CFO) of Infosys since October
2012, has resigned and will be replace by MD Ranganath
Volumes, realisation lead quarterly growth
Infosys reported encouraging earnings with sequential dollar revenue
growth of 6% led by volumes (3.7%) and improvement in per-capita
productivity (260 bps). Quarterly growth was aided by one-time $23
million termination fee paid by an IMS client that cancelled an ongoing
programme post internal restructuring. Excluding this, growth may have
been 5% in reported terms and 5.9% in CC terms. Volume growth was
led by large deal wins and top client mining while revenue productivity
was driven by automation and deal ramp-ups in newer technologies.
Cautiously optimistic about FY16E
Infosys lowered its FY16E dollar revenue growth guidance even as it
maintained CC growth guidance of 10-12%. It now expect $ revenues to
grow 6.4-8.4% vs. 7.2-9.2% earlier while rupee guidance (13.1-15.1%)
assuming $/| rate of 65.59. We continue to model 8.5%, 12.5% dollar
revenue growth in FY16E, FY17E, respectively, led by healthy deal wins,
improved win rates, better execution and top accounts mining.
Margins significantly above estimates
Q2FY16 EBIT margins increased 150 bps QoQ to 25.5%, significantly
ahead of our 24.8% estimate. The swing was driven by an improvement
in reported blended per capita productivity 2.6% QoQ, driven by onsite
(2.9%) and offshore (2.4%) improvements better utilisation (ex-trainees
utilisation was up 110 bps QoQ) and currency tailwinds (+70 bps) partially
offset by higher variable payout (~-70 bps). Infosys continues to guide for
a target margin range of 25% +/- 1% in FY16E & would reinvest efficiency
gains into rebuilding sales efforts & capability in newer technologies.
Attrition continues to be stable
Consolidated annualised attrition rose 70 bps QoQ to 19.9% vs. 19.2% in
Q1 while standalone annualised declined 10 bps QoQ to 14.1% vs. 14.2%
in Q1. Though seasonality led to an increase in absolute attrition (9,142
vs. 8,533 in Q1), it is lower than 10,128 reported in Q2FY15. Wage hikes
and increase in variable pay to 100% vs. 80% could help contain attrition.
Maintain estimate, target price, rating
We estimate Infosys will report revenue, PAT CAGR of 13%, 10%,
respectively, over FY15-17E (with average 25.3% EBIT margins in FY1617E), slower than 19%, 15% reported during FY10-15 along with average
27.4% margins. We believe the earnings trajectory could improve over
time as strategic initiatives of the new management start yielding results
(top account mining, large deal wins, lower attrition, improving per-capita
productivity). We continue to value Infosys at 20x its FY17E EPS (15%
premium to its FY10-15 one-year forward PE average of 17.4x) to arrive at
our target price of | 1,300.

Variance analysis
Q2FY16 Q2FY16E
Revenue
Employee expenses
Gross Margin
Gross margin (%)
Selling & marketing costs
G&A expenses
EBITDA
EBITDA Margin (%)
Depreciation
EBIT

EBIT Margin (%)

Other income
PBT
Tax paid
PAT
Key Metrics
Closing employees
LTM attrition-standalone (%)

Q2FY15

YoY (%)

Q1FY16

QoQ (%)

Comments
Revenue growth was above our and consensus estimates led by robust volumes
8.9 (3.7%) and 260 bps improvement in per capita productivity
6.3

15,635
9,366

15,196
9,247

13,342
7,910

17.2
18.4

14,354
8,810

6,269
40.1
843
1,075
4,351
27.8
358
3,993

5,949
39.1
836
1,027
4,086
26.9
316
3,770

5,432
40.7
769
889
3,774
28.3
291
3,483

15.4
-62 bps
9.6
20.9
15.3
-46 bps
23.0
14.6

5,544
38.6
820
964
3,760
26.2
313
3,447

13.1
147 bps
2.8
11.5
15.7
163 bps
14.4
15.8
EBIT margins improvement primarily led by operational efficiency (consolidated IT
services utilisation was up 110 bps QoQ), improvement in per capital
150 bps productivity, rupee tailwinds (+70 bps) partially offset by higher variable payout
4.6
13.8
18.0
12.1 Revenue, EBIT beat led to better profitability

25.5
793
4,785
1,387
3,398

24.8
813
4,583
1,343
3,240

26.1
877
4,360
1,264
3,096

-57 bps
-9.6
9.7
9.7
9.8

24.0
758
4,205
1,175
3,030

187,976
15.0

184,437
18.0

165,411
20.1

13.6
-513 bps

179,523
16.7

80.1
59.9

120 bps
9.2

78.6
62.1

Utilisation - IT Services (%)

81.3
Average $/|
65.4
Source: Company, ICICIdirect.com Research

80.1
64.9

4.7 Net additions of 8453 QoQ

-175 bps Attrition continues to moderate led by employee engagement measures
Utilisation jump was driven by robust volumes and helped offset margin
270 bps headwinds
5.2

Change in estimates
(| Crore)

Revenue
EBIT

Old

60,008
15,022

FY16E
New % Change

Old

FY17E
New % Change

60,008
15,022

0.0
0.0

67,501
17,244

67,501
17,244

0.0
0.0

EBIT Margin (%)

25.0
25.0
PAT
13,022
13,022
EPS (|)
57.0
57.0
Source: Company, ICICIdirect.com Research

0 bps
0.0
0.0

25.5
14,858
65.0

25.5
14,858
65.0

0 bps
0.0
0.0

Comments
The management lowered its FY16E $ revenue YoY growth guidance to 6.4-8.4% (7.29.2% earlier) primarily due to cross-currency headwinds even as it maintained its 1012% constant currency growth guidance
Wage hikes, visa costs, currency headwinds and business investments may hurt
FY16E margins by ~90 bps

Assumptions
FY14
FY15
Closing employees
160,405 176,187
18.7
18.9
LTM attrition-standalone
76.4
80.9
Utilisation - IT Services (%
Average $/|
54.5
61.2
Source: Company, ICICIdirect.com Research

Current
FY16E
193,878
15.5
82.8
63.5

Earlier
FY17E
FY16E
207,765 193,878
14.5
15.5
83.0
82.8
63.5
63.5

ICICI Securities Ltd | Retail Equity Research

Comments
FY17E
207,765
14.5
83.0
63.5

Lower attrition could lead to higher net adds

Attrition could see a sharp drop in FY16E

Page 2

Company Analysis
Operating metric highlights
From a vertical perspective, growth was led by BFS (27.2% of revenues,
6.4% QoQ growth in dollar terms), manufacturing (23.8%, 5.1%), retail
(14.9%, 5.3%), and lifesciences (5.9%, 11.7%), weakness in insurance
(5.6%, -1%) continues to persist on account of client specific issues while
energy and utilities growth rebounded (18.7% vs. -2.5%). That said, the
management highlighted that it is seeing a second wave of price cuts,
cost reductions, postponements of projects in the energy segment.
Growth across geographies was broad based. North America (63.3% of
revenue) grew 6.2% QoQ its best since Q2FY12 while Europe (22.9%)
grew 8.4% (best since Q3FY13). India rebounded sharply (12.8% QoQ
growth vs. 8% decline in Q1) while Rest of the World was soft (-0.1% vs.
9.9% growth in Q1).
Application development growth accelerated (6% vs. 2.3% in Q1) while
app maintenance was steady (4.4%, 5.6%). IMS contribution rose 40 bps
QoQ to 8.7%; grew 11.1% QoQ growth (on the back of 7.1% QoQ in Q1)
and continues to aid company average growth. Testing revenues grew
7.2% QoQ (4.5% in Q1) while business process management recovered
(3.9% vs. 1.4% decline in Q1) sharply. Consulting and systems integration
services (6%) continued to report healthy growth while BPM platforms
(6%) led growth in products platforms and solutions (PPS). On a YoY
basis, app maintenance (12.7%), IMS (19.7%), consulting (10%), and PPS
(15.8%) grew double digits and above company average (8.7%).
From a client perspective, top customer grew 6% QoQ and 18.3% YoY;
top 2-5 customer revenues grew 6% QoQ and 9.7% YoY while 6-10
customer revenues grew 3.7% and 2.8% YoY.
Cautiously optimistic about FY16E
Infosys lowered its FY16E dollar revenue growth guidance even as it
maintained CC growth guidance of 10-12%. It now expect $ revenues to
grow 6.4-8.4% vs. 7.2-9.2% earlier. The lower end of the guidance
assumes revenue decline of 2.3% each in Q3, Q4FY16 while at the upper
end, it could be flat QoQ. Note, CC growth guidance implies 1.8-4.2%
CQGR in H2FY16 while flat growth in Q3, Q4 yields CC growth of ~8.5%.
We continue to model 8.5%, 12.5% dollar revenue growth in FY16E,
FY17E, respectively, led by healthy deal wins, improved win rates, better
execution and top accounts mining.
Exhibit 1: Dollar revenues may grow at 11% CAGR in FY15-17E vs. 13% CAGR in FY10-15
12000

30.0
25.8

10000

25.0
20.0

2218

2159

Q3

Q4

Dollar revenue

8711

2256

2392

9450

Q1

Q2

FY16E

5.8

FY15

3.25.6

15.0
12.5
10.0
10630

5.6

2201

8249
FY14

6.5

Q2

7398

FY13

7.1
2133

6994
FY12

5.8

8.7

Q1

6041

3.0

FY11

2000

4804

4000

8.5
11.5

FY17E

15.8

6000

FY10

$ billion

8000

Growth, YoY

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 3

5.0
0.0

Exhibit 2: Infosys has grown slower than industry average in past six of eight years
35

35.0
29.0
29.0

25.8

27
20.0
16.0

19

19.0
18.7
17.0
15.8 16.5

11.6
11
3.0

3
-5
FY08

5.5

-4.9
FY10

FY09

Growth, YoY

FY11

13.0
13
10.2 11.5 13.0
9.0
8.5
8.0
7.4
5.8
5.67.0

FY12

FY13

Company guidance (mid-point)

FY14

FY15

FY16E

NASSCOM guidance (mid-point)

Source: Company, ICICIdirect.com Research

Client metric continues to be steady

Client additions and order bookings continue to be healthy as Infosys
added 82 clients during the quarter taking the active client base to 1,011
compared to 950, 890 in FY15, FY14 end, respectively. Across bands,
three clients transitioned to $75-100 million bucket, one to $25-50 million,
six to $10-25 million and two to $5-10 million. Overall, $1 million+
customers increased by seven to 542 vs. 535 in Q1. Revenue per FTE for
consolidated business declined 1% QoQ to $51,200 vs. $51,700 in Q1 and
2.3% YoY. The managements aspirational target is to achieve revenue
per FTE of $80,000 by 2020. Quarterly revenue per customer picked up to
$2.37 million ($2.29 million, $2.27 million, $2.38, $2.41 million in Q1FY16,
Q4FY15, Q3FY15, Q2FY15, respectively). Large deal signings continue to
be healthy as it signed five deals worth $983 million in total contract value
(TCV) during the quarter leading to booking of ~$2.3 billion TCV in the
last 12 months.
Exhibit 3: Client contribution $1 million+ increases by 7 to 542
600
500

400

338

366

399

448

501

520

526

532

529

529

535

542

FY14

Q1

Q2

Q3

Q4

FY15

Q1

Q2

300
200
100
0
FY10

FY11

FY12

FY13

Clients contributing $1 million+

Source: Company, ICICIdirect.com Research

Margins significantly above estimates

Q2FY16 EBIT margins increased 150 bps QoQ to 25.5%, significantly
ahead of our 24.8% estimate. The swing was driven by an improvement
in reported blended per capita productivity 2.6% QoQ, driven by onsite
(2.9%) and offshore (2.4%) improvements better utilisation (ex-trainees
utilisation was up 110 bps QoQ) and currency tailwinds (+70 bps) partially
offset by higher variable payout (~-70 bps). Infosys continues to guide for
a target margin range of 25% +/- 1% in FY16E & would reinvest efficiency
gains into rebuilding sales efforts & capability in newer technologies.

ICICI Securities Ltd | Retail Equity Research

Page 4

Exhibit 4: We expect FY16E margins could decline 90 bps YoY to 25%

35
32

30.4

29

29.5 29.0
25.8

26

24.0

25.1

26.1

26.7

25.7 25.9
24.0

25.5 25.0 25.5

23

FY17E

FY16E

Q2

Q1

FY15

Q4

Q3

Q2

Q1

FY14

FY13

FY12

FY11

FY10

20

EBIT margin

Source: Company, ICICIdirect.com Research

Exhibit 5: Moderation in attrition is testimony to managements employee engagement activities

25
22
18.7

19
%

17.0

16

15.4

20.4
19.5 20.1
18.9 18.9
16.7

16.3

13.4

15.0 15.5 14.5

13

FY17E

FY16E

Q2

Q1

FY15

Q4

Q3

Q2

Q1

FY14

FY13

FY12

FY11

FY10

10

LTM attrition - standalone

Source: Company, ICICIdirect.com Research

Exhibit 6: Utilisation improvement may be key margin lever during FY16E

85

82.3 82.7

82

80.1

82.8 83.0

76.4

76
73

80.2

81.3

78.6

78.2

79

80.9

74.2
72.6
70.7

Utilisation - IT Services (ex-trainees)

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 5

FY17E

FY16E

Q2

Q1

FY15

Q4

Q3

Q2

Q1

FY14

FY13

FY12

FY11

FY10

70

Outlook and valuation

Infosys reported robust Q2FY16 earnings as dollar revenue growth and
EBIT margins were ahead of our and consensus estimates. Growth was
broad-based across verticals and led by North America, Europe and India.
Despite a good H1, the company has lowered its dollar revenue guidance
to account for cross-currency headwinds, likely postponement of projects
and price reduction especially in the energy segment. That said, CC
growth could range at 10-12%, almost twice that of FY15 and suggests
execution is sync with strategic vision.
We estimate Infosys will report revenue, PAT CAGR of 13%, 10%,
respectively, over FY15-17E (with average 25.3% EBIT margins in FY1617E), slower than 19%, 15% reported during FY10-15 along with average
27.4% margins. We believe the earnings trajectory could improve over
time as strategic initiatives of the new management start yielding results
(top account mining, large deal wins, lower attrition, improving per-capita
productivity). We continue to value Infosys at 20x its FY17E EPS (15%
premium to its FY10-15 one-year forward PE average of 17.4x) to arrive at
our target price of | 1,300.
Exhibit 7: One year forward rolling PE
1500
1200
900
600
300

Price

26

22

18

14

Oct-15

Apr-15

Oct-14

Apr-14

Oct-13

Apr-13

Oct-12

Apr-12

Oct-11

Apr-11

Oct-10

Apr-10

Oct-09

Apr-09

Oct-08

Apr-08

Oct-07

Apr-07

10

Source: Company, ICICIdirect.com Research

Exhibit 8: Valuation

FY14
FY15
FY16E
FY17E

Sales
(| cr)
50,133
53,319
60,008
67,501

Growth
(%)
24.2
6.4
12.5
12.5

EPS
(|)
46.6
53.9
57.0
65.0

Growth
(%)
13.0
15.8
5.6
14.1

PE
(x)
24.1
20.8
19.7
17.3

EV/EBITDA
(x)
17.0
15.1
13.6
11.6

RoNW
(%)
22.4
22.5
21.3
21.7

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 6

RoCE
(%)
30.7
31.4
29.7
30.1

Company snapshot
1,500

Target price : | 1300

1,200
900
600
300

Jul-16

Sep-16

May-16

Jan-16

Mar-16

Nov-15

Jul-15

Sep-15

May-15

Jan-15
Mar-15

Nov-14

Jul-14

Sep-14

May-14

Jan-14

Mar-14

Nov-13

Jul-13

Sep-13

May-13

Jan-13
Mar-13

Nov-12

Jul-12

Sep-12

May-12

Jan-12

Mar-12

Nov-11

Jul-11

Sep-11

May-11

Jan-11

Mar-11

Nov-10

Jul-10

Sep-10

May-10

Jan-10

Mar-10

Source: Bloomberg, Company, ICICIdirect.com Research

Key events
Date
Apr-11

Event
The company exceeds its annual guidance; guides for 18-20% in FY12

Apr-12

Infosys names SD Shibulal as new Chief Executive Officer till 2015

Sep-12

Infosys considers buying Lodestone for $350 million to boost its consulting service offering

Apr-13

Company misses Q4 sales estimates and provides lower revenue guidance (6-10%) compared to Nasscom average of 12-14%

Jun-13

Narayana Murthy appointed Executive Chairman of the company

Jul-13

The company reports better-than-expected dollar revenue growth and operating margin

Oct-13

Infosys posts better-than-expected growth for second consecutive quarter. Raises guidance to 8-10%

Mar-14

Infosys provides weak outlook for Q4FY14E, which could impact H1FY15E

Apr-14

Infosys guides 7-9% YoY dollar revenue growth for FY15E, below Nasscom guidance of 13-15%. Q4FY14 revenue declines 0.4%

Jun-14
Oct-14
Nov-14

Infosys appoints Dr Vishal Sikka as the successor to the current CEO, Mr Shibulal, for a period of five years. Earlier he worked with SAP for 12 years
Infosys reports a stellar Q2FY15 earnings under the leadership of Dr Sikka. It also announces a 1:1 bonus issue for equity shareholders
Infosys announces December 2 as record date for allotment of bonus shares
Infosys reports weak Q4FY15 earnings led by energy and telecom weakness. The management guided for 6.2-8.2% revenue growth in US$ terms for FY16E (10-12%

Apr-15

Infosys reports strong Q1FY16 earnings led by volumes and were above market expectations. The management maintained its 10-12% constant currency growth
guidance but raised its dollar revenue growth guidance to 7.2-9.2% for FY16E
Infosys reports strong Q2FY16 earnings led by volumes, realisaiton and were above market expectations. The management maintained its 10-12% constant currency
Oct-15
growth guidance but lowered its dollar revenue growth guidance to 6.4%-8.4% (7.2-9.2%) for FY16E
Source: Company, ICICIdirect.com Research
Jul-15

Top 10 Shareholders
Rank
1
2
3
4
5
6
7
8
9
10

Name
Life Insurance Corporation of India
Gopalakrishnan (Sudha)
OppenheimerFunds, Inc.
Invest AD
The Vanguard Group, Inc.
GIC Private Limited
Aberdeen Asset Management (Asia) Ltd.
HDFC Asset Management Co., Ltd.
Murty (Rohan)
BlackRock Institutional Trust Company, N.A.

Shareholding Pattern
Latest Filing Date % O/S Position (m) Change (m)
30-Jun-15 5.56
127.1
16.6
30-Jun-15 3.32
75.8
0.0
31-Aug-15 2.69
61.5
-11.6
30-Jun-15 2.47
56.5
-3.7
31-Aug-15 2.21
50.4
1.1
30-Jun-15 1.97
45.1
-2.9
31-Aug-15 1.80
41.2
-1.6
30-Jun-15 1.54
35.2
0.6
30-Jun-15 1.39
31.8
0.0
30-Jun-15 1.00
23.0
-21.8

(in %)
Promoter
FII
DII
Others

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

15.94 15.92 13.08 13.08 13.08
41.58 42.67 41.58 37.96 40.99
14.08 14.48 15.28 15.10 16.11
28.40 26.93 30.06 33.86 29.82

Source: Reuters, ICICIdirect.com Research

Recent Activity
Buys
Investor name
Life Insurance Corporation of India
Comgest S.A.
Dinesh (Deeksha)
Dinesh (Divya)
BlackRock Asset Management North Asia Limited

ICICI Securities Ltd | Retail Equity Research

Value
256.86m
173.60m
62.59m
62.59m
61.34m

Shares
16.59m
11.09m
4.00m
4.00m
3.72m

Sells
Investor name
BlackRock Institutional Trust Company, N.A.
OppenheimerFunds, Inc.
William Blair & Company, L.L.C.
Shibulal (Kumari)
Invest AD

Value
-337.93m
-191.38m
-81.09m
-75.11m
-57.81m

Shares
-21.83m
-11.61m
-5.24m
-4.80m
-3.74m

Page 7

Financial summary
Profit and loss statement
(Year-end March)
Total operating Income
Growth (%)
COGS (employee expenses)

| Crore

Cash flow statement

FY14

FY15

FY16E

FY17E

(Year-end March)

50,133

53,319

60,008

67,501

Profit after Tax

24.2

6.4

12.5

12.5

30,767

31,814

36,341

40,600

| Crore
FY14

FY15

FY16E

FY17E

10,648

12,329

13,022

14,858

Add: Depreciation

1,374

1,069

1,203

1,353

(Inc)/dec in Current Assets

(2,008)

(2,004)

(1,588)

(1,779)

Admin expenses

3,326

3,663

4,021

4,455

Inc/(dec) in CL and Provisions

2,047

873

877

982

S&M expenses

2,625

2,941

3,420

3,848

Taxes paid

(3,878)

(6,751)

(5,190)

(5,836)

Total Operating Expenditure

36,718

38,418

43,782

48,903

CF from operating activities

12,187

10,752

10,323

11,965

EBITDA

13,415

14,901

16,225

18,597

(Inc)/dec in Investments*

(1,158)

1,101

3,190

3,450

Growth (%)

16.1

11.1

8.9

14.6

(Inc)/dec in Fixed Assets

(2,745)

(2,247)

(2,500)

(2,500)

Depreciation

1,374

1,069

1,203

1,353

CF from investing activities

(5,003)

(1,279)

690

950

Other Income

2,669

3,427

3,190

3,450

Dividend paid & dividend tax

(3,143)

(4,935)

(6,684)

(7,486)

14,710

17,258

18,212

20,694

4,062

4,929

5,190

5,836

10,648

12,329

13,022

14,858

13.0

15.8

5.6

14.1

47

54

57

65

13.0

15.8

5.6

14.1

PBT
Total Tax
PAT
Growth (%)
EPS (|)
Growth (%)

CF from financing activities

Others

(3,143)

(4,935)

(6,684)

(7,486)

Net Cash flow

4,041

4,538

4,330

5,429

77

(121)

Opening Cash

21,832

25,950

30,367

34,697

Closing Cash

25,950

30,367

34,697

40,126

FY15

FY16E

FY17E

Exchange difference

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

Balance sheet
(Year-end March)
Equity Capital

| Crore

Key ratios

FY14

FY15

FY16E

FY17E

(Year-end March)

286

572

1,144

1,144

Per share data (|)

FY14

Reserve and Surplus

47,244

54,191

59,957

67,330

EPS

46.6

53.9

57.0

65.0

Total Shareholders funds

47,530

54,763

61,101

68,474

Cash EPS

52.6

58.6

62.2

70.9
299.6

Employee benefit obligations

BV

208.0

239.6

267.3

Debt

DPS

15.8

29.8

25.0

28.0

64

160

160

160

113.6

132.9

151.8

175.6

EBIT Margin

24.0

25.9

25.0

25.5

Deferred Tax Liability

Other non current liabilties
Total Liabilities

323

46

46

46

47,917

54,969

61,307

68,680

Assets

Cash Per Share

Operating Ratios (%)

PBT Margin

29.3

32.4

30.3

30.7

Property,plant and equipment

7,887

9,125

10,422

11,569

PAT Margin

21.2

23.1

21.7

22.0

Goodwill

2,157

3,091

3,091

3,091

342

638

638

638

Intangibles

Debtor days

61

66

66

66

Unbilled revenue

19

19

18

18

Available for sale assets

1,252

1,345

1,345

1,345

Creditor days

Other assets

2,398

4,864

4,864

4,864

Return Ratios (%)

25,950

30,367

34,697

40,126

859

Cash
Investment in CD
Trade receivables

8,351

9,713

10,931

12,296

Unbilled revenue

2,811

2,845

3,202

3,602

Prepayment & O.fin.assets

2,636

101

114

128

Other current assets

2,412

4,170

4,170

4,170

Total Current Assets

43,019

47,196

53,114

60,322

173

140

158

177

Trade payables
Unearned revenue
OCL & provisions
Total Current Liabilities

RoE

22.4

22.5

21.3

21.7

RoCE

30.7

31.4

29.7

30.1

RoIC

68.0

68.9

68.0

71.8

P/E

24.1

20.8

19.7

17.3

EV / EBITDA

11.6

Valuation Ratios (x)

17.0

15.1

13.6

EV / Net Sales

4.6

4.2

3.7

3.2

Market Cap / Sales

5.1

4.8

4.3

3.8

Price to Book Value

5.4

4.7

4.2

3.7

660

1,052

1,184

1,332

8,305

10,188

10,915

11,730

Solvency Ratios

9,138

11,383

12,260

13,242

Debt/EBITDA

Net Current Assets

33,881

35,813

40,855

47,081

Debt / Equity

Application of Funds

47,917

54,969

61,307

68,680

Current Ratio

2.0

1.9

1.9

1.9

Quick Ratio

2.0

1.9

1.9

1.9

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 8

ICICIdirect.com coverage universe (IT)

CMP
M Cap
EPS (|)
(|)
TP(|) Rating
(| Cr) FY15 FY16E FY17E
Sector / Company
586 500 Hold
6,591 31.4 34.0 40.0
Cyient (INFENT)
1,692 1,500
Sell
5,155 74.3 99.0 110.0
Eclerx (ECLSER)
29
45
Buy
1,951
3.3
4.2
5.1
Firstsource (FIRSOU)
831 1,100
Buy 116,884 51.4 56.0 65.0
HCL Tech* (HCLTEC)
1,096 1,300
Buy 251,665 53.9 57.0 65.0
Infosys (INFTEC)
119 105 Hold
2,348 11.9 10.9 13.0
KPIT Tech (KPISYS)
1,395 1,450
Buy 11,695 63.9 73.0 93.0
Mindtree (MINCON)
455 430 Hold
2,779 31.8 39.6 47.5
NIIT Technologies (NIITEC)
684 715 Hold
5,469 36.3 45.0 51.0
Persistent (PSYS)
2,586 3,000
Buy 509,563 110.8 122.0 134.0
TCS (TCS)
556 600
Buy 53,494 26.7 29.0 36.0
Tech Mahindra (TECMAH)
587 680
Buy 144,958 35.1 37.0 40.5
Wipro (WIPRO)
* June year end, Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

P/E (x)
FY15 FY16E FY17E
18.7 17.3 14.6
22.8 17.1 15.4
8.7
7.0
5.8
16.2 14.8 12.8
20.3 19.2 16.9
10.0 11.0
9.2
21.8 19.1 15.0
14.3 11.5
9.6
18.8 15.2 13.4
23.3 21.2 19.3
20.8 19.2 15.5
16.7 15.8 14.5

EV/EBITDA (x)
FY15 FY16E FY17E
13.5 11.0
8.6
15.1 11.7
9.9
7.3
5.8
4.4
13.8 12.0
9.9
15.1 13.6 11.6
6.9
6.0
4.9
13.8 11.5
9.1
7.2
5.4
4.3
11.7
8.9
7.3
17.1 14.7 12.9
11.8 11.6
9.3
11.6 10.4
9.1

RoCE (%)
FY15 FY16E FY17E
22.2 21.9 22.4
40.4 45.8 43.5
9.5 11.6 14.1
35.2 32.1 30.7
31.4 29.7 30.1
14.7 15.5 16.5
33.7 32.2 33.7
18.1 22.0 22.9
27.5 28.7 27.4
53.5 46.5 41.4
26.9 24.9 26.5
23.0 22.6 22.4

RoE (%)
FY15 FY16E FY17E
19.2 18.1 18.6
32.1 35.5 33.2
11.2 12.2 12.9
29.3 26.1 24.9
22.5 21.3 21.7
17.0 13.6 14.2
26.6 25.3 26.4
14.3 15.8 16.7
20.7 21.2 20.2
42.8 36.8 32.5
21.5 19.4 20.4
21.2 19.7 19.1

Page 9

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

pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai 400 093
research@icicidirect.com

ICICI Securities Ltd | Retail Equity Research

Page 10

ANALYST CERTIFICATION
We /I, Abhishek Shindadkar, MBA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views
about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

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ICICI Securities Ltd | Retail Equity Research

Page 11