Result Update

October 14, 2016

Rating matrix
Rating
Target
Target Period
Potential Upside

:
:
:
:

Tata Consultancy Services (TCS)

Buy
| 2600
12 months
11%

Unusually soft Q2

Whats Changed?
Target
EPS FY17E
EPS FY18E
Rating

Changed from | 2,700 to | 2,600

Changed from | 135.5 to | 132.2
Changed from | 149.6 to | 144.7
Unchanged

Quarterly Performance
Revenue
EBIT
EBIT (%)
PAT

Q2FY17
29,284
7,617
26.0
6,586

Q2FY16
YoY (%)
27,166
7.8
7,414
2.7
27.3 -128 bps
6,055
8.8

Q1FY17
29,305
7,347
25.1
6,317

QoQ (%)
(0.1)
3.7
94 bps
4.3

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

FY15
94,648
24,666
19,648
100.3

FY16
108,646
30,678
24,215
123.2

FY17E
118,327
33,013
26,048
132.2

FY18E
129,883
36,237
28,510
144.7

FY15
23.2
25.9
17.6
7.9
37.7
67.6

FY16
18.9
21.2
16.0
6.3
33.1
46.2

FY17E
17.3
19.3
14.6
5.2
30.2
43.5

FY18E
15.6
17.5
13.1
4.4
28.1
40.9

*FY15 recurring PAT

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

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

Amount
456,083.3
196.0
29,517.5
433,668.7
2740 / 2119
195.9
|1

Price performance (%)

TCS
Infosys
Wipro
HCL Tech

| 2329

1M

3M

6M

12M

5.0
2.5
3.4
(0.5)

4.5
11.2
(0.4)
(1.7)

(4.3)
3.3
(7.1)
(15.3)

(2.8)
10.2
(10.6)
(10.8)

Research Analyst
Deepak Purswani, CFA
deepak.purswani@icicisecurities.com
Tushar Wavhal
tushar.wavhal@icicisecurities.com
Deepti Tayal
deepti.tayal@icicisecurities.com

ICICI Securities Ltd | Retail Equity Research

TCS reported soft earnings in Q2 as revenue growth was marginally

below our estimates while margins were slightly higher. US$
revenues grew 0.3% QoQ to $4,374 million vs. our 0.9% growth,
$4,401 million estimate
Constant currency revenues grew 1.0% QoQ led by volumes (1.3%
QoQ) partly offset by a drop in realisations (~30 bps)
At 26.0%, EBIT margins increased ~90 bps QoQ in the absence of a
wage hike, higher visa cost and better operational efficiency.
However, this was offset by lower revenue growth and cross
currency impact (-40 bps) and was above our 60 bps increase and
25.7% estimate. PAT of | 6,586 crore was ahead of our | 6,380 crore
estimate led by upbeat operating margins and higher other income
TCS announced an interim dividend of | 6.5/share
Moderating revenue growth estimates to reflect cautious environment
The unusual Q2FY17 at the topline level was impacted by expected
softness in discretionary spending in BFSI, especially in the US. Beside
this, retail vertical weakness and postponement of India revenue came in
as a negative surprise. A gloomy macro environment, upcoming US
presidential elections and Brexit event has resulted in a holding back in
discretionary spending. The macro environment remains volatile
especially in BFSI (40.4% of revenue) & retail and CPG (13.4% of revenue)
leading to a change in our dollar revenues growth estimate. We now
expect dollar revenue to grow 6.8%/ 9.0% in FY17E/ F18E, respectively.
Strong performance at margin level
At 26.0%, EBIT margins increased 90 bps QoQ weighed down by the
absence of a wage hike, visa cost, better operational efficiency but offset
by lower revenue growth and cross currency headwind (down 40 bps)
and was above our 60 bps growth and 25.7% estimate. Consequently, we
have tweaked our margin estimates to 26.1% each in FY17E, FY18E due
to better-than-expected margins in Q2FY17.
Attrition on downward trajectory
Attrition in IT services fell to 11.9% vs. 12.5% QoQ. Overall attrition also
declined to 12.9% vs. 13.6% QoQ. Q1 gross hiring was 22,665 employees
including 11,884 trainees & 7,486 laterals while net hiring was 9,440
employees. Net hiring for H1FY17 was at 17676 vs. 15964 in H1FY16.
Digital contribution @ 16.1% of revenue
Digital contributed 16.1% to revenue vs. 15.9% in Q1FY17, up 1.5% QoQ
with nine new digital wins during the quarter. Traction is being witnessed
in robo-advisory, digital wealth management and block-chain along with
cloud enablement, IoT and big data technologies. The management has
alluded that client spending is continuing in digital technologies but the
current 16% digital contribution to revenue is growing at a much slower
pace to offset the traditional segment.
Steady but slowing; maintain BUY
We cut our estimates by 2-4% in FY17E & FY18E factoring in uncertainty
due to a volatile macro environment and currency volatility.
Consequently, we estimate rupee revenue, PAT CAGR of 9.3%, 8.5% in
FY16-18E (average 26.1% EBIT margins in FY16-18E), vs. 23.8%, 22.8%
reported in FY11-16, respectively. We value TCS at 18x FY18E EPS of
| 144.7 to arrive at our revised target price of | 2,600.

Variance analysis
Q2FY17 Q2FY17E

Q2FY16

YoY (%)

Q1FY17

QoQ (%)

Comments
Constant currency revenues grew 1.0% QoQ led by volumes (1.3%) offset by price
-0.1 realisation
-1.7

Revenue
Employee expenses

29,284
16,171

29,475
16,391

27,166
14,755

7.8
9.6

29,305
16,443

Gross Margin
Gross margin (%)
SG&A expenses

13,113
44.8
5,002

13,084
44.4
5,011

12,411
45.7
4,527

5.7
-91 bps
10.5

12,862
43.9
5,024

2.0
89 bps
-0.4

EBITDA
EBITDA Margin (%)
Depreciation
EBIT

8,111
27.7
494
7,617

8,073
27.4
494
7,579

7,883
29.0
469
7,414

2.9
-132 bps
5.4
2.7

7,838
26.7
491
7,347

3.5
95 bps
0.6
3.7

EBIT Margin (%)

Other income (less interest)
PBT
Tax paid

26.0
1,052
8,669
2,066

25.7
815
8,395
2,015

27.3
675
8,089
1,936

-128 bps
55.9
7.2
6.7

25.1
963
8,310
1,992

PAT

6,586

6,380

6,055

8.8

6,317

371,519
12.9
67.0

365,000
14.0
67.0

335,620
16.2
65.4

10.7
-330 bps
2.4

362,079
13.6
67.2

Key Metrics
Closing employees
Overall attrition (%)
Average $/|

EBIT margins grew 94 bps QoQ weighed down by absence of wage hike and
94 bps higher visa cost
9.2
4.3
3.7
Reported PAT was ahead of our estimate due to better operating margins and
4.3 higher other income

2.6 9,440 net heads were added sequentially

-70 bps Attrition has continued its downward trajectory
-0.4

Q4FY15 PAT not adjusted for one time employee bonus expense, Source: Company, ICICIdirect.com Research

Change in estimates
(| Crore)
Revenue
EBIT
EBIT Margin (%)
PAT
EPS (|)

Old

FY17E
New

% Change

Old

121,606
31,727
26.1
26,701
135.5

118,327
31,727
26.8
26,048
132.2

-2.7
0.0
72 bps
-2.4
-2.4

134,718
35,148
26.1
29,474
149.6

FY18E
New % Change

Comments

129,883
35,148
27.1
28,510
144.7

We have tweaked our estimates to reflect Q2FY17 performance

-3.6
0.0
97 bps
-3.3
-3.3

Source: Company, ICICIdirect.com Research

Assumptions

Closing employees
Overall attrition (%)
Average $/|

FY15
319,656
16.0
61.2

FY16
353,843
17.5
65.7

Current
FY17E
367,843
13.0
67.0

FY18E
403,702
12.0
67.5

Earlier
FY17E
FY18E
387,843 412,424
13.0
13.0
67.0
67.5

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 2

Company Analysis
Key highlights: Commentary from earnings call
The India business witnessed a decline of 7.6% QoQ in constant
currency (CC) terms on account of a delay in orders worth | 180
crore that spilled over from Q3 onwards
Unexpectedly, the retail segment (13.4% of revenue) saw revenue
decline of 3.1% in CC led by softness largely in UK and parts of
the US. The management expects retail to perform well in Q4
rather than Q3 owing to its seasonality
Sequentially, the digital business contributed 16.1% to revenue
(15.9% in Q1FY17), up 5.1% QoQ
The management alluded that the company does not see any
secular downtrend. Revenue growth could see some uptick post
overcoming a cyclical downturn
TCS artificial intelligence platform, Ignio, has been adopted in 27
new projects. This could help in a margin growth trajectory, going
ahead, once it witnesses large scale adoption
The US$26 million (mn) lawsuit penalty related to Orange County
was taken as a hit on other expenses in Q2FY17 leading to ~50
bps impact on margins
The management expects H2FY17E to be better than H2FY16
mainly on account of delayed ramp-ups
The management continues to see traction in robo-advisory,
digital wealth management, block-chain. Block-chain technology
is not only seen as opportunity in BFSI but also seen now as a
multi-industry opportunity for which TCS has a dedicated centre
of excellence, which could fructify in coming years
Operating metric highlights: India declines 7.6% QoQ
US$ revenues grew 0.3% QoQ to $4,374 million and was below our 0.9%
QoQ growth and $4,401 million estimate. Operationally, growth was
broad based across verticals, geographies and service lines. Among
verticals, life sciences & healthcare (7.6% of revenues) grew 4.7% QoQ in
CC), energy & utilities (4.3% of revenue) grew 3.6%QoQ, communication
& media (11.4%, 2%), manufacturing (10.7%, 3.1%), travel & hospitality
(3.9%, 2.3%), BFSI (40.4%, 1.7%) grew while retail & CPG (13.4%, -3.1%)
declined QoQ. Geographically, Continental Europe (11.8%, 3.7%), Asia
Pacific (10.2%, 3.5%), North America (54%, 1.4%) grew while India (5.8%,
-7.6%), LatAm (2%, -0.2%) and UK (13.8%, -0.1%) declined. The major
decline occurred in India due to delayed orders worth | 180 crore from
Q2 to Q3FY17E onwards. BFSI (40.4% of revenues) declined as expected
owing to weakness in the US. However, it was also significantly impacted
by a decline in asset leveraged solutions revenue, which includes TCS
BANCs platform (down 20.1% QoQ). The retail revenue decline was not
expected by the management due to a slowdown in deal ramp-ups and
could be volatile in coming quarters.
Across services lines, enterprise solutions & consulting (17.8% of
revenues, grew 2% QoQ in CC), engineering services (4.8%, 1.1%), IMS
(15.7%, 2.1%), assurance services (9%, 3.5%) and BPS (11.7%, 2.5%) led
quarterly growth while ADM (38.4%, 0.9%) grew below companys
average growth.

ICICI Securities Ltd | Retail Equity Research

Page 3

16544

15454

7.1

5.2
4374

8.1
4362

4207

6000

5.4 7.9
4145

9.3 5.8
4156

13.7

35
28
21

16.2
15.0

4036

8187

9000

10171

12000

$ million

15000

13442

24.2

18000

17661

29.1

11568

21000

19242

Exhibit 1: Dollar revenues may grow at 7.8% CAGR in FY16-18E vs. 15.1% during FY11-16

14
9.0

6.8

3000

Dollar revenues

FY18E

FY17E

Q2FY17

Q1FY17

FY16

Q4FY16

Q3FY16

Q2FY16

Q1FY16

FY15

FY14

FY13

FY12

FY11

Growth, YoY

Source: Company, ICICIdirect.com Research

Exhibit 2: TCS growth vs. Nasscom guidance FY17E may be below Nasscom average
40
29.1

32

24.2
24

18.7

16.5

16
8

13.7
10.2

16.2
13.0

15.014.0

13.0
7.1

5.4 5.5

11.0
6.8

TCS dollar revenue growth

FY17E

FY16

FY15

FY14

FY13

FY12

FY11

FY10

NASSCOM guidance

Source: Company, ICICIdirect.com Research

Deal signings continue to be healthy

TCS has won nine large deals in Q2 spread across key verticals.
Interestingly, TCS witnessed softness in North America & retail vertical
but managed to win three deals in the North America region and two deal
in the retail space. TCS witnessed nine key digital wins during the quarter
across BFSI (four wins), pharmaceutical (four wins) and manufacturing
(one win).
Margins surprise; may maintain its guided band of 26-28%
At 26.0%, EBIT margins increased 90 bps QoQ weighed down by the
absence of a wage hike, visa cost and better operational efficiency but
offset by lower revenue growth and cross currency headwind (down 40
bps) and was above our 60 bps growth and 25.7% estimate. Margins
could be higher than 60 bps owing to the US$26 million lawsuit penalty
related to the Orange County case that may act as a tailwind in Q3FY17E.
The management intends to maintain the margin band of 26-28%.
Consequently, we tweak our margin estimates to 26.1% each in FY17E,
FY18E due to better-than-expected margins in Q2FY17.

ICICI Securities Ltd | Retail Equity Research

Page 4

Exhibit 3: Revise margin guidance to 26.1% for FY17E

32
29.1

30
27.0

26.3

28

27.8 27.6

26

27.1

26.6

26.1

26.5
25.1

24.1

26.0 26.1 26.1

24

FY18E

FY17E

Q2FY17

Q1FY17

FY16

Q4FY16

Q3FY16

Q2FY16

Q1FY16

FY15

FY14

FY13

FY12

FY11

22

EBIT Margin

Source: Company, ICICIdirect.com Research

Client mining encouraging

Client transitions were also good as one client transitioned to the $50
million+ revenue taking total client count to 78, six to US$20 million+
taking total client to 185, 10 to $5 million+ taking total client to 449 and 12
new clients added in the US$1 million+ revenue bucket. One client
migrated to the lower than US$100 million+ bucket taking the total count
to 36 from 37 owing to its own business divestiture. The company
reiterated that the client is still among the customer.
Exhibit 4: $1 million+ revenue run-rate customers increases to 859 in Q2FY17
838

829

829

847

859

FY16

Q1FY17

Q2FY17

458

819

Q4FY16

409

804

Q3FY16

638

791

Q2FY16

600

714

Q1FY16

800

FY15

1000

522

400
200

FY14

FY13

FY12

FY11

FY10

$1 million+ clients

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 5

Attrition continues to decline

Attrition in IT services declined to 11.9% vs. 12.5% QoQ. Overall attrition
also declined to 12.9% vs. 13.6% QoQ. Q1 gross hiring was 22,665
employees including 11,884 trainees and 7,486 laterals while net hiring
was 9,440 employees. Net hiring for H1FY17 was at 17676 vs. 15964 in
H1FY16. The management reiterated that gross hiring would be lower in
FY17E owing to an increase in local hiring and increasing usage of
automation and productivity enhancement that was already witnessed in
Q1FY17 in lower visa application by the company. TCS has rolled out
40,000 campus offers in FY17.
Exhibit 5: Attrition continues its downward trajectory
20
18
16
%

14.4

14
12

14.9

13.6
12.2

11.8

15.9 16.2 15.9 15.5 15.5

10.6

12.9 13.0

11.3

12.0

Overall attrition (%)

[

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 6

FY18E

FY17E

Q2FY17

Q1FY17

FY16

Q4FY16

Q3FY16

Q2FY16

Q1FY16

FY15

FY14

FY13

FY12

FY11

FY10

10

Annual report key takeaways

ICICI Securities Ltd | Retail Equity Research

TCS chose Shaping The Future as the theme of the annual

report, with the aim of guiding the companies on the path to
tomorrow with the use of digital technologies of mobility, big
data, analytics, cloud computing, artificial intelligence and
robotics, which is progressing at pace in the industry. All these
multiple segments grew at a CQGR of 8-12% in FY16. The
adoption of digital technology progressing and the companys
significant investments in digital, has resulted in digital revenues
growing at 52.2% YoY in CC terms with revenues crossing the $2
billion mark and new cloud platforms together delivering 37%
YoY growth to $172 million in FY16

The company strategy for long term growth has been to 1)

continually expand its addressable market by investing in newer
geographies, newer industry verticals and newer service lines, 2)
strengthen and deepen existing client relationships through a
customer centric approach and superior execution. The first
element of strategy has resulted in diversification of its business
portfolio while the second element of strategy has led to addition
of eight clients in $100 million + revenue band bringing the total
to 37 and addition of 37 clients in $10 million + category taking
the total to 298

In terms of cash flow, Operating cash flow fell 1.36% YoY to |

20,196 crore mainly due to a reduction in working capital
requirement to | 4,871 (vs. addition of | 957 crore in FY15). FCF
fell ~6% to | 22884 crore and OCF/EBITDA declined to 68.2% in
FY16 from 86.0% in FY15

TCS paid a dividend (including dividend distribution tax) of

| 43.50 per share in FY16 with dividend payout ratio of 42% (vs.
40.7% excluding special dividend in FY15) compared to its peers
Infosys 49.7% and HCL Tech ~49%

Regarding the remuneration of key managerial personnel in FY16,

N Chandrasekaran (CEO & MD) saw an increase of 20.6% YoY in
remuneration to | 25.7 crore, Aarthi Subramanian (Executive
Director) received | 2.75 crore, Rajesh Gopinathan (CFO) received
| 2.98 crore, an increase of 38.7% YoY. The percentage increase
in median remuneration of employees in FY16 was 9.20%. The
company does not have any employee stock option scheme

In October 2014, Epic Systems Corporation (Epic) filed a legal

claim against the company in the Court of Western District
Madison, Wisconsin for alleged unauthorised download and
misuse of Epics confidential information and trade secrets. In
April 2016, the company received an unfavourable jury verdict
awarding damages totalling | 6227.03 crore (US$940 million) to
Epic. According to media sources, the trial judge has indicated at
a reduction in the claim amount to ~US$720 million. On the basis
of legal opinion and legal precedence, the company expects to
defend itself against the claim and believes the claim will not
sustain. Any unfavourable ruling may impact the financials
negatively

Page 7

Outlook and valuation

Tata Consultancy Services (TCS) reported soft Q2FY17 earnings as
growth was marginally below our estimates and margins were slightly
higher. Also, Q2FY17 revenue growth was led by life sciences &
healthcare (4.7% QoQ growth in constant currency), energy & utilities
(3.6%) and manufacturing (3.1%) verticals; Europe (3.7%) and Asia Pacific
(3.5%) among geographies and assurance services (3.5%), BPS (2.5%),
IMS (15.7%, 2.1%) among services.
We estimate rupee revenue, PAT CAGR of 9.3%, 8.5% in FY16-18E
(average 26.1% EBIT margins in FY16-18E), vs. 23.8%, 22.8% reported in
FY11-16 (average 27.0% margins), respectively. At the CMP, the stock is
trading at attractive valuation of 16.1x FY18E EPS. Most of the negatives
related to a challenging macro environment are priced in as it is currently
trading at a 25% discount to the average PE multiple of 20.7x in FY11-16.
Though the macro environment remains challenging for IT companies in
the near term, we believe TCS would be a key beneficiary once the
demand environment improves given its market leading position and
adaptability to new age technologies such as digital transformation and
consistent outperformance of its industry leading growth rate, going
ahead. We value TCS at 18x FY18E EPS of | 144.7 to arrive at our revised
target price of | 2,600. We maintain BUY recommendation.
Exhibit 6: One year forward rolling PE
4000

3000
2000
1000

Price

24

20

16

12

Oct-17

Apr-17

Oct-16

Apr-16

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

Source: Company, ICICIdirect.com Research

Exhibit 7: Valuation

FY15
FY16
FY17E
FY18E

Sales
(| cr)
94,648
108,646
118,327
129,883

Growth
(%)
50.3
14.8
8.9
9.8

EPS
(|)
100.3
123.2
132.2
144.7

Growth
(%)
41.2
22.8
7.3
9.5

PE
(x)
23.2
18.9
17.3
15.6

EV/EBITDA
(x)
17.6
16.0
14.6
13.1

RoNW
(%)
38.9
33.1
30.2
28.1

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 8

RoCE
(%)
67.5
46.2
43.5
40.9

Recommendation History vs. Consensus

70.0

3,000

60.0

2,500

(|)

40.0
1,500

(%)

50.0

2,000

30.0
1,000

20.0

500

10.0

0.0
Sep-14

Dec-14

Feb-15
Price

May-15

Jul-15

Oct-15

Idirect target

Dec-15

Mar-16

Consensus Target Mean

May-16

Jul-16

Oct-16

% Consensus with BUY

Source: Company, ICICIdirect.com Research

Key events
Apr-14

TCS creates a strategic Japanese IT company with Mitsubishi Corporation after merging TCS Japan, ITF and NTSC. TCS to hold 51% in the combined entity

Oct-14

TCS misses Street expectations though delivers yet another stable quarterly earnings. The Board approves merger of its subsidiary, CMC, with itself

Dec-14
Apr-15
Jul-15

TCS guides for muted Q3FY15E dollar revenue growth led by weak seasonality in BFSI, retail coupled with 220 bps cross currency headwinds

The company delivers weak Q4FY15 earnings led by cross currency headwinds. However, the company expects to better industry average growth during FY16E
TCS company mixed set of Q1FY16. While $ revenue growth was soft (3.5%) in a seasonally strong quarter, EBIT margins were above estimates despite wage hike
The company delivers soft Q2FY15 earnings. $ revenue growth was soft (3%) in a seasonally strong quarter while EBIT margins were in-line. Achieving industry
Oct-15
leading growth in FY16E could be a challenge
TCS ranked 58th most valuable brands in the annual top 'Top 500 U.S. Brands' survey by Brand Finance, world's leading brand valuation firm which evaluated
financial value of a company's brand name, intellectual assets and trademark. Customer focus, brand investment and staff satisfaction led to its success.
Aug-16
As per the media sources, TCS has settled its three-year old lawsuit with US district Orange County for $26 million over a failed replacement to the county's
Aug-16
automated property tax system.
As per the media reports, the company is seeing sequential loss of momentum in BFSI vertical in US and pressure is seen in discretionary spend in the same. The
Sep-16
company will update investors on business trends in Q2FY17
According to media sources, TCS eyes on taking a lease 8 lakh sq ft office space in Chennai SEZ for 10 years. TCS will pay a rental of Rs 50 per sq ft per month,
Sep-16
taking the annual payout to around | 47 crore
Source: Company, ICICIdirect.com Research

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

Shareholding Pattern

Name
Tata Group of Companies
Life Insurance Corporation of India
The Vanguard Group, Inc.
BlackRock Institutional Trust Company, N.A.
Stewart Investors
Aberdeen Asset Management (Asia) Ltd.
Lazard Asset Management, L.L.C.
Capital Research Global Investors
OppenheimerFunds, Inc.
JPMorgan Asset Management U.K. Limited

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

30-Jun-16 73.3%
1,444.0
0.0
30-Jun-16 3.1%
60.6
2.0
31-Aug-16 0.7%
13.3
0.1
30-Sep-16 0.7%
13.2
0.1
31-Aug-16 0.6%
12.0
0.2
31-Aug-16 0.6%
11.9
0.1
31-Aug-16 0.6%
10.9
0.0
30-Jun-16 0.5%
10.2
0.8
31-Aug-16 0.5%
9.2
0.0
31-Aug-16 0.4%
8.1
0.3

(in %)
Promoter
Public
Others
Total

Dec-15
73.42
26.58
-100.00

Mar-16
73.42
26.58
-100.00

Jun-16
73.34
26.66
-100.00

Source: Reuters, ICICIdirect.com Research

Recent Activity
Buys
Investor name
Capital World Investors
Life Insurance Corporation of India
MFS Investment Management
Capital Research Global Investors
Northern Trust Investments, Inc.
Source: Reuters, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Value
301.3m
76.7m
34.6m
29.1m
18.1m

Shares
8.0m
2.0m
0.9m
0.8m
0.5m

Sells
Investor name
Templeton Asset Management Ltd.
ICICI Prudential Asset Management Co. Ltd.
Unigestion
Excel Funds Management Inc.
AXA Investment Managers UK Ltd.

Value
-55.9m
-11.6m
-9.1m
-4.9m
-4.0m

Shares
-1.5m
-0.3m
-0.2m
-0.1m
-0.1m

Page 9

Financial summary
Profit and loss statement
(Year-end March)

| Crore

Cash flow statement

FY15

FY16

FY17E

FY18E

94,648

108,646

118,327

129,883

50.3

14.8

8.9

9.8

COGS (employee expenses)

52,629

59,012

65,080

S,G&A expenses

17,353

18,956

Total Operating Expenditure

69,982

77,968

EBITDA

Total operating Income

Growth (%)

(Year-end March)

| Crore
FY15

FY16

FY17E

FY18E

Profit before Tax

25,936

31,840

34,270

37,512

Add: Depreciation

1,870

1,888

2,142

2,351

71,565

(Inc)/dec in Current Assets

-3,377

-3,462

-3,793

-3,689

20,234

22,080

Inc/(dec) in CL and Provisions

4,334

-1,409

2,641

1,778

85,314

93,645

Taxes paid

-7,524

-7,578

-8,088

-8,853

24,666

30,678

33,013

36,237

CF from operating activities

21,205

20,916

15,686

16,621

Growth (%)

36.4

24.4

7.6

9.8

(Inc)/dec in Investments

-7,616

-5,118

-6,854

-4,000

Depreciation

1,870

1,888

2,142

2,351

(Inc)/dec in Fixed Assets

-5,948

-4,848

-5,267

-6,800

Other Income less interest

3,140

3,050

3,399

3,625

Others

2,691

3,580

5,226

7,024

25,936

31,840

34,270

37,512

CF from investing activities

-3,578

-6,577

-1,901

-1,875

6,083

7,503

8,088

8,853

205

123

135

149

PBT
Total Tax
Minority Interest
Exceptional Item
PAT before exceptional item
Growth (%)
EPS (|)
PAT after exceptional item
EPS - Reported (|)

2048

19,648

24,215

26,048

28,510

Others

28

-30

-73

-16,987

-9,432

-10,940

-11,974

-254

-197

-81

-17,128

-9,646

-10,940

-11,974

Net Cash flow

499

4,694

2,845

2,771

Exchange difference

-106

140

CF from financing activities

41.3

23.2

7.6

9.5

123.2

132.2

144.7

17,601

24,215

26,048

28,510

Opening Cash

6,769

18,555

7,188

10,032

100.3

123.2

132.2

144.7

Closing Cash

18,555

7,188

10,032

12,804

FY15

FY16

FY17E

FY18E

Source: Company, ICICIdirect.com Research

Balance sheet

| Crore
FY15

FY16

FY17E

Key ratios

FY18E

Liabilities
Equity Capital

Dividend paid & dividend tax

100.3

Source: Company, ICICIdirect.com Research

(Year-end March)

Inc/(dec) in loan funds

(Year-end March)
Per share data (|)

196

197

198

198

EPS

100.3

123.2

132.2

144.7

1,920

5,082

5,082

5,082

BV

291.7

371.4

448.1

532.0

Reserve and Surplus

55,361

67,911

83,019

99,555

DPS

Total Shareholders funds

57,477

73,190

88,298

104,835

1,478

1,294

1,294

1,294

914

354

489

638

60,415

75,644

83,726

91,558

Preference shares

Total debt & provision

Minority Interest / Others
Total Liabilities
Assets
Tangible assets
Intangible assets

9,376

10,607

11,707

12,799

71

44

47

52

94.2

36.5

50.9

65.0

EBIT margins

24.1

26.5

26.1

26.1

PBT Margins

27.4

29.3

29.0

28.9

PAT Margin

20.8

22.3

22.0

22.0

Cash Per Share

Operating Ratios (%)

Debtor days

68

75

78

77

Creditor days

19

24

25

24

219

134

169

204

CWIP

2,766

1,671

1,671

1,671

RoE

34.2

33.1

29.5

27.2

Goodwill

3,711

3,812

3,835

3,858

RoCE

41.8

41.2

36.8

34.1

753

783

783

783

RoIC

60.6

45.3

41.5

38.8

24

26

16.2

Investments-Non current
Inventory
Debtors

20,440

24,073

26,218

28,778

Loans and Advances

2,789

3,731

4,064

4,460

Other Current Assets

7,427

28,637

29,929

Return Ratios (%)

Valuation Ratios (x)

P/E

23.4

19.1

17.8

EV / Net Sales

4.6

4.0

3.7

3.3

30,659

Market Cap / Sales

4.9

4.3

3.9

3.6

Solvency Ratios

Cash

18,245

6,748

10,032

12,804

Total Current Assets

91,799

112,090

133,455

146,993

Debt/EBITDA

0.1

0.0

0.0

0.0

Total Current Liabilities

30,342

30,241

33,779

38,198

Debt / Equity

0.0

0.0

0.0

0.0

Application of Funds

60,415

75,644

83,726

91,558

Current Ratio

3.0

3.7

4.0

3.8

Quick Ratio

3.0

3.7

4.0

3.8

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 10

ICICIdirect.com coverage universe (IT)

CMP
M Cap
EPS (|)
Sector / Company
(|)
TP(|) Rating
(| Cr) FY16 FY17E FY18E
482
500 Hold
5,427 29.0 33.3 38.6
Cyient (INFENT)
1,500 1,412
Sell
6,183 87.9 90.5 100.9
Eclerx (ECLSER)
42
54
Buy
2,791
4.0
5.1
5.7
Firstsource (FIRSOU)
809
950
Buy 114,178 40.1 57.2 63.2
HCL Tech (HCLTEC)
1,038 1,290
Buy 237,203 59.0 64.7 71.8
Infosys (INFTEC)
127
142 Hold
2,533 14.7 12.8 14.2
KPIT Tech (KPISYS)
489
595 Hold
8,206 32.9 34.8 39.6
Mindtree (MINCON)
426
475 Hold
2,588 45.8 44.4 47.5
NIIT Technologies (NIITEC)
640
690 Hold
5,122 37.2 40.0 47.0
Persistent (PSYS)
2,329 2,600
Buy 456,083 123.2 132.2 144.7
TCS (TCS)
421
600
Buy 41,357 34.5 34.0 38.1
Tech Mahindra (TECMAH)
479
560 Hold 118,027 36.1 33.7 37.5
Wipro (WIPRO)
Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

EV/EBITDA (x)
P/E (x)
FY16 FY17E FY18E FY16 FY17E FY18E
16.6 14.5 12.5 11.2
9.2
7.8
17.1 16.6 14.9 11.6 10.9
9.5
10.6
8.3
7.4
8.1
6.4
4.9
20.2 14.1 12.8 15.5 10.0
8.7
17.6 16.0 14.5 11.9 10.2
9.0
8.7
9.9
8.9
5.4
5.4
4.8
14.9 14.1 12.3
9.5
8.6
7.6
9.3
9.6
9.0
4.6
4.3
3.7
18.3 17.0 14.5 11.2
9.3
7.4
19.1 17.8 16.2 14.6 13.1 11.8
12.2 12.4 11.1
9.1
8.0
6.7
13.3 14.2 12.8
8.6
8.7
7.1

RoCE (%)
FY16 FY17E FY18E
20.3 20.5 21.6
42.7 38.0 36.2
10.6 12.4 14.5
24.2 28.7 28.2
30.2 30.0 29.8
18.8 15.7 16.0
29.5 28.1 29.5
28.4 26.3 26.8
27.9 27.3 28.1
41.2 36.8 34.1
27.7 27.5 26.9
20.7 18.3 17.9

RoE (%)
FY16 FY17E FY18E
17.1 17.5 17.9
33.5 29.6 28.1
12.7 14.0 13.8
20.8 24.7 23.6
21.8 21.4 21.2
17.2 13.8 13.6
23.1 22.3 23.0
17.6 15.2 14.6
21.2 20.4 20.7
33.1 29.5 27.2
23.1 21.4 20.9
17.9 15.4 14.6

Page 11

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 12

ANALYST CERTIFICATION
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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 13