firstsource solutions (firsou) | 39static-news.moneycontrol.com/static-mcnews/2017/05/... · net...

May 8, 2017

ICICI Securities Ltd | Retail Equity Research

Result Update

H2FY18E expected to better than H1…

Firstsource’s results were below our expectations largely due to

lower-than-expected EBITDA margin estimates

Revenues from operations increased 0.5% QoQ to | 864.4 crore

lower than our | 878.1 crore and 2.1% QoQ growth estimate

At 11.1%, EBITDA margins declined 100 bps QoQ and were way

below our 12.5% estimate

Reported PAT of | 65.4 crore was below our | 74.9 crore estimate

mainly led by margin miss

Mortgage business drags growth…

FSL’s revenues from core operations grew 0.5% QoQ to | 864.4 crore led

by contribution from the Sky deal. Growth was supported by India (grew

9.5% QoQ) among geography and healthcare (7.6% QoQ), telecom &

media (2% QoQ) among verticals. Revenue growth was partly offset by

~40% reduction in US mortgage business led by decline in volumes.

ISGN contributed ~US$7.8-8 million to revenues in Q4 and ~US$40-43

million in FY17. The management expects revenue contribution from

ISGN to be better in FY18E compared to FY17. As per management

guidance, the Sky deal contributed ~US$10-12 million in revenue in FY17

and expects incremental revenues of ~US$28-30 million for FY18E. The

deal pipeline was healthy with ~US$375 million, which was up ~7% QoQ

with strong traction in the healthcare space.

Expects muted Q1FY18, growth to bounce back from Q2FY18E…

The management expects Q1FY18 to be a muted quarter owing to

underperformance of the mortgage business and currency headwinds.

However, it expects growth momentum to bounce back in Q2FY18 led by

deal closures and mortgage business attaining breakeven in Q1 leading to

a better H2FY18E performance than H1FY18E. For FY18E, the

management expects revenue growth to be in line with industry growth

rates (6-8%) in CC terms. Consequently, we expect FSL revenues from

core operations to grow at a CAGR of 5.5% in FY17-19E.

Guides for 50-60 bps improvement in margins…

EBITDA margins declined 100 bps QoQ to 11.1% and were way below

our 12.5% estimate. The margin decline was mainly on account of

absorption of 1200 new employees in the UK as a part of 10 year

partnership deal with Sky leading to 4.5% increase in employee cost

sequentially. Also, loss in the mortgage business and currency headwind

impacted margins in Q4. The management expects EBITDA in Q1FY18 to

be at the same levels as Q4FY17 on the back of muted revenue growth.

Overall, the management expects margins to increase 50-60 bps YoY in

FY18E led by growth momentum from Q2FY18 onwards. We expect

margins at 12.5%, 12.8% in FY18E, FY19E, respectively.

Sky deal ramp-up may benefit; maintain BUY…

A healthy deal pipeline, ramp-up of Sky deal in FY18E and breakeven in

mortgage business in Q1FY18 may drive growth, going ahead.

Consequently, we estimate FSL may report revenue, PAT CAGR of 5.5%,

10.5%, respectively, in FY17-19E with average EBITDA margins at 12.5%

in FY17-18E. FSL’s debt repayment plan is on track with net debt at

US$80.7 million as on March 2017. It could become debt free by FY19E.

We value FSL Ltd with a revised target price of | 45/share (9x FY19E EPS,

largely in line with its historical multiple for last 10 years).

Firstsource Solutions (FIRSOU) | 39

Rating matrix

Rating : Buy

Target : | 45

Target Period : 12 months

Potential Upside : 16%

What’s changed?

Target Changed from | 46 to | 45

EPS FY18E Changed from | 4.3 to | 4.4

EPS FY19E Introduced at | 5

Rating Unchanged

Quarterly performance

Q4FY17 Q4FY16 YoY (%) Q3FY17 QoQ (%)

Revenue 892 869 2.6 885 0.8

EBITDA 99 111 (11.1) 107 (7.6)

EBITDA (%) 11.1 12.8 -172 bps 12.1 -101 bps

PAT 65 76 (14.2) 69 (5.9)

Key financials

| Crore FY16 FY17P FY18E FY19E

Net Sales 3,240 3,556 3,659 3,944

EBITDA 413 438 457 503

Net Profit 269 279 297 342

EPS (|) 3.8 4.1 4.4 5.0

Valuation summary

FY16 FY17P FY18E FY19E

P/E 10.2 9.4 8.9 7.7

Target P/E 11.8 10.9 10.3 9.0

EV / EBITDA 7.7 6.7 6.0 5.0

P/BV 1.3 1.1 1.0 0.9

RoNW (%) 12.9 11.5 11.0 11.4

RoCE (%) 11.7 12.1 12.1 13.0

Stock data

Particular Amount

Market Capitalization (| Crore) 2,582.3

Total Debt (| Crore) 692.1

Cash and Investments (| Crore) 76.8

EV (| Crore) 1,966.9

52 week H/L 54 / 31

Equity capital 673.3

Face value 10.0

Price performance

1M 3M 6M 12M

FSOL (8.4) (3.7) (1.3) (3.7)

HGS (7.7) (0.4) (3.0) 34.2

EXL 8.5 9.5 11.6 3.0

Genpact 7.1 1.6 10.0 (7.3)

Research Analyst

Deepak Purswani, CFA

[email protected]

Deepti Tayal

[email protected]


Variance analysis

Q4FY17 Q4Y17E Q4FY16 YoY (%) Q3FY17 QoQ (%) Comments

Revenue 892.3 903.4 869.4 2.6 885.4 0.8 Revenues from core operations grew 0.5% QoQ

Employee expenses 616.7 600.8 580.4 6.9 590.1 5.0

Gross Margin 275.6 302.6 289.0 -4.6 295.3 -6.7

Gross margin (%) 30.9 33.5 33.2 -235 bps 33.4 -246 bps

SG&A expenses 176.6 189.7 177.6 -0.6 188.2 -6.1

EBITDA 99.0 112.9 111.4 -11.1 107.1 -7.6

EBITDA Margin (%) 11.1 12.5 12.8 -172 bps 12.1 -101 bps Margins declined due to higher employee cost

Depreciation & amortisation 11.0 16.3 14.7 -24.8 15.6 -29.1

EBIT 88.0 96.7 96.7 -9.0 91.6 -3.9

EBIT Margin (%) 9.9 10.7 11.1 -126 bps 10.3 -48 bps

Other income (less interest) 11.4 8.8 13.0 -12.0 9.9 15.5

PBT 99.4 105.4 109.7 -9.4 101.5 -2.0

Tax paid 11.2 14.4 9.5 17.4 13.4 -16.2

PAT 65.4 74.7 76.2 -14.2 69.5 -5.9

PAT was below our expectations due to lower than expectation revenue

growth and margin miss

Source: Company, ICICIdirect.com Research

Change in estimates

FY18E FY19E

(| Crore) Old New % Change Introduced Comments

Revenue 3,972 3,659 -7.9 3,944

EBITDA 532 457 -14.1 503

EBITDA Margin (%) 13.4 12.5 -88 bps 12.8

PAT 342 297 -13.2 342

EPS (|) 4.9 4.4 -10.8 5.0 Revised our estimates owing to margin revision estimates



Company Analysis

Conference call highlights…

The management anticipates revenue growth will be in line with

industry growth rates (6-8%) in CC terms for FY18E. They expect

Q1 to be soft with growth to bounce back from Q2FY18E onwards

leading to better H2FY18E than H1

Sky deal contributed ~US$10-12 million in revenue in FY17 and

expects incremental revenues of ~US$28-30 million for FY18E vs.

its earlier guidance of ~US$35-40 million due to its rebalancing of

portfolio. Around ~1200 new employees in UK were absorbed in

the quarter as a part of 10 year partnership deal with Sky

ISGN contributed US$40-43 million revenue in FY17. They expect

revenue contribution from ISGN to be better in FY18E compared

to FY17

The management expects margin to improve 50-60 bps in FY18E

owing to growth momentum from Q2FY18 onwards

Net long-term debt was at US$80.7 million as on Q4FY17. Cash

and cash equivalent was at | 191 crore vs. | 129.3 crore in

Q3FY17. Capex during the quarter was at | 20.2 crore vs. | 17.6

crore in Q3FY17

Employee strength was at 25,871 with net reduction of 121

employees in the quarter. Reduction was on account of actions in

mortgage business offset by addition of ~1200 employees in

March 2017 as a part of the Sky deal. Seat fill factor improved to

79% vs. 75% in Q3FY17


H2FY18E to be better compared to H1…

FSL’s revenues from core operations grew 0.5% QoQ to | 864.4 crore led

by contribution from the Sky deal. Revenue growth was partly offset by

~40% reduction in the US mortgage business led by volume decline.

ISGN contributed ~US$7.8-8 million to revenues in Q4 and ~US$40-43

million in FY17. The management expects revenue contribution from

ISGN to be better in FY18E compared to FY17. As per management

guidance, the Sky deal contributed ~US$10-12 million in revenue in FY17

and expects incremental revenues of ~US$28-30 million for FY18E. The

management expects Q1FY18 to be a muted one owing to

underperformance of the mortgage business and currency headwind.

However, it expects growth momentum to bounce back in Q2FY18 led by

deal closures with H2FY18E performance stronger than H1FY18E. For

FY18E, the management expects revenue growth to be in line with

industry growth rates (6-8%) in CC terms. We expect FSL’s revenues to

grow at a CAGR of ~5.5% in FY17-19E.

Among geography, India (6.1% of revenue) and the UK (38% of revenue)

led the growth with 9.5% and 1.6% QoQ growth, respectively, while ROW

(0.4% of revenue) and US (55.4% of revenue) declined sequentially by

33% and 0.9%, respectively. Growth in domestic business was on

account of ramp up of large banking deal. Among verticals, healthcare

(38.1% of revenue) grew 7.6% QoQ post average 2.1% sequential

revenue de-growth for last three consecutive quarters while telecom &

media (33.4% of revenue) grew 2% QoQ. BFSI (28% of revenue) declined

9.8% QoQ on top of 11.8% decline in Q3 due to weakness in mortgage

business offset by domestic banking growth.

Exhibit 1: Rupee revenue may grow at 5.3% CAGR during FY17-19E

20552255

2819

31063035

741 788 819 869

3240

894884

885 892

35563659

3944

0.0

9.7

25.0

10.2

-2.3

4.0

10.6

20.9

6.8

20.5

12.3

8.2

2.6

9.8

2.9

7.8

-10

0

10

20

30

40

500

1300

2100

2900

3700

4500

FY11

FY12

FY13

FY14

FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

FY17P

FY18E

FY19E

%

| c

rore

Rupee revenue Growth, YoY


Higher employee cost drags margins…

EBITDA margins declined 100 bps QoQ to 11.1% and were way below

our 12.5% estimate. The margin decline was mainly on account of

absorption of 1200 new employees in the UK as a part of 10 year

partnership deal with Sky leading to 4.5% increase in employee cost

sequentially. Also, loss in mortgage business and currency headwind

impacted margins in Q4. On an absolute basis, FSL reported EBITDA of

| 99 crore, below our | 112.9 crore estimate. The management expects

EBITDA in Q1FY18 to be at the same level as Q4FY17 on the back of

muted revenue growth. Overall, the management expects margins to

increase 50-60 bps YoY in FY18E led by growth momentum from Q2FY18

onwards. We expect margins at 12.5%, 12.8% in FY18E, FY19E,

respectively.


Exhibit 2: Modelling 20 bps YoY improvement in FY18E margins

14.1

8.2

9.9

11.7

12.5

11.411.9

12.412.8 12.7

13.312.7

12.1

11.1

12.3 12.5 12.8

5

8

11

14

17

20

FY11

FY12

FY13

FY14

FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

FY17P

FY18E

FY19E

%

EBITDA margin


Exhibit 3: Growth, headcount rationalisation to drive seat fill factor higher

71.0

74.1

81.8

77.0

69.0 68.0

66.6 66.0

68.0 68.0

72.0 72.0

75.0

79.0

65

69

73

77

81

85

FY11

FY12

FY13

FY14

FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

%

Seat fill factor


Top customer revenue grew ~2.6% QoQ…

Top customer (24.0% of revenue) grew 2.6% vs. growth of 19.1% QoQ

led the overall marginal revenue growth for the company. Top 2-5

customer revenues declined 14.3% QoQ while non-top five clients grew

5.5% QoQ on top of 1.8% decline in Q3FY17.

Debt repayment on track…

As on Q4FY17 end, FSL had net long term debt of $80.7 million vs. US$72

million at the end of Q3. The increased position was due to conversion of

some of working capital, predictable working debt, short-term debt into

long-term debt. However, on a like-to-like basis, it was a reduction in the

debt figures. At the current repayment rate of US$11.25 million quarterly

run rate, FSL would be debt free by FY19E. Cash and cash equivalent was

at | 191 crore as on March 31, 2017.

Sky deal may add incremental revenue of ~US$28-30 million in FY18E…

The Sky deal is progressing well as per planned timelines. On track to

transition, 1200 employees were added in March 2017. The management

expects the deal to contribute incremental revenue to the tune of

~US$28-30 million in FY18E leading to ~5-6% overall revenue visibility in

FY18E.


Exhibit 4: Sky deal…

Particulars

Total Increase in employees ~1400

Contract signing Nov-16

1st phase of transition Sep-16

Addition of employees in Phase I ~257

2nd phase of transition Mar-17

Addition of employees in Phase II ~1200

Revenue contribution in FY17E ~$ 10-12 mn

Revenue contribution in FY18E ~$ 30 mn

Total Investment over 3 year period $ 26 mn



Outlook and valuation

A healthy deal pipeline, ramp-up of Sky deal in FY18E and breakeven in

mortgage business in Q1FY18 may drive growth, going ahead.

Consequently, we estimate FSL will report revenue, PAT CAGR of 5.5%,

10.5%, respectively, in FY17-19E with average EBITDA margins at 12.5%

in FY17-18E. FSL’s debt repayment plan is on track with net debt at

US$80.7 million as on March 2017. It could become debt free by FY19E.

We value FSL Ltd with a revised target price of | 45/share (9x FY19E EPS,

largely in line with its historical multiple for the last 10 years).

Exhibit 5: One year forward rolling EV/EBITDA

0

1000

2000

3000

4000

5000

6000

7000

Apr-09

Oct-09

Apr-10

Oct-10

Apr-11

Oct-11

Apr-12

Oct-12

Apr-13

Oct-13

Apr-14

Oct-14

Apr-15

Oct-15

Apr-16

Oct-16

Apr-17

|

EV 10 8 6 4 2


Exhibit 6: Valuations

Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE

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

FY16 3,240 6.8 3.8 7.6 10.2 7.7 12.9 11.7

FY17P 3,556 9.8 4.1 8.5 9.4 6.7 11.5 12.1

FY18E 3,659 2.9 4.4 6.2 8.9 6.0 11.0 12.1

FY19E 3,944 7.8 5.0 15.1 7.7 5.0 11.4 13.0



Recommendation History vs. Consensus

0.0

20.0

40.0

60.0

80.0

100.0

120.0

0

25

50

75

100

Feb-17Nov-16Sep-16Jun-16Apr-16Jan-16Nov-15Sep-15Jun-15Apr-15Jan-15

(%

)(|)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICIdirect.com Research

Key events

Date Event

Dec-13 The company successfully makes its third quarterly principal repayment of $11.25 million on its outstanding debt on December 31, 2013

Mar-14 The company successfully makes its fourth quarterly principal repayment of $11.25 million on its outstanding debt on March 31, 2014

Apr-14

The company reports in line quarter with 174 bps margin expansion for FY14 led by exiting lower margin domestic business. It reduces FY15E growth outlook to 6%

from 8% earlier.

Nov-14 FSL reports moderate growth during Q2FY15 with 94 bps YoY margin expansion. However, it lowers its FY15E guidance to 2-2.5% vs. 6% earlier

May-15 Reports weak Q4FY15 earnings as revenues, absolute EBITDA and PAT were below our estimates

Jun-15 Firstsource reports soft Q1FY16 earnings. Though revenues were above our estimates, absolute EBITDA and PAT were below

Oct-15

Reports strong Q2FY16 earnings, which were in line with our raised estimates.Revenues from operations grew 6.1% QoQ while constant currency revenues grew

3.2% QoQ

Mar-16

Firstsource Group USA, Inc, a wholly owned subsidiary of the company successfully made its fourth quarterly repayment of US$11.25 million on its outstanding debt

on March 31, 2016

May-16 Firstsource completes acquisition of ISGN's Business Process Outsourcing Division".

Jun-16

Firstsource Group US, Inc, a wholly owned subsidiary of the company successfully makes its fifth quarterly repayment of US$11.25 million on its outstanding debt

on June 30, 2016

Dec-16

Firstsource Group US, Inc, a wholly owned subsidiary of the company successfully makes its seventh quarterly repayment of US$11.25 million on its outstanding

debt on December 31, 2016

Jan-17 Firstsource Solutions and Sky UK sign contract for previously announced 10-year strategic partnership


Top 10 Shareholders Shareholding Pattern

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

1 RPG Enterprises 30-Sep-16 55.2% 373.98 0

2 ICICI Group 30-Sep-16 4.7% 32.08 0

3 Jhunjhunwala (Rakesh Radheshyam) 30-Sep-16 3.7% 25.00 +1.50

4 Goldman Sachs Asset Management International 30-Sep-16 2.7% 18.52 0

5 Dimensional Fund Advisors, L.P. 30-Nov-16 2.0% 13.37 0

6 Birla Sun Life Asset Management Company Ltd. 31-Dec-16 1.6% 10.78 +1.31

7 Steinberg Asset Management, LLC 30-Sep-16 1.6% 10.49 -0.01

8 Subramaniam (Rajesh) 9-Jan-17 0.2% 1.63 -0.32

9 Van Eck Associates Corporation 31-Dec-16 0.2% 1.51 -0.08

10 Mellon Capital Management Corporation 31-Dec-16 0.1% 0.77 +0.00

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

Promoter 55.35 55.16 54.89

Public 44.65 44.84 45.11

Others 0.00 0.00 0.00

Total 100.00 100.00 100.00

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor name Value ($m) Shares Investor name Value ($m) Shares

Jhunjhunwala (Rakesh Radheshyam) 0.91m 1.50m Franklin Templeton Asset Management (India) Pvt. Ltd. -0.28m -0.40m

Birla Sun Life Asset Management Company Ltd. 0.73m 1.31m Subramaniam (Rajesh) -0.20m -0.32m

Jain (Shalabh) 0.08m 0.13m Smith (Charles Miller) -0.05m -0.10m

Ponnappa (K M) 0.06m 0.08m Van Eck Associates Corporation -0.04m -0.08m

Malegam (Y H) 0.05m 0.08m Tyagi (Arun) -0.04m -0.07m

Buys Sells

Source: Reuters, ICICIdirect.com Research


.

Financial summary

Profit and loss statement | Crore


Total Revenues 3,240 3,556 3,659 3,944

Growth (%) 6.8 9.8 2.9 7.8

Employee expenses 2,172 2,383 2,452 2,633

Other Expenses 654 734 750 809

EBITDA 413 438 457 503

Growth (%) 8.5 6.0 4.4 9.9

Depreciation & Amortization 66 59 66 71

Other Income 9 3 3 3

Interest 52 45 33 19

PBT before Exceptional Items 294 337 362 416

Growth (%) 20.6 14.4 7.3 15.1

Tax 25 58 65 75

PAT before Exceptional Items 269 279 297 341

Exceptional items - - - 1

PAT before MI 269 279 297 342

Minority Int & Pft. from associates 0 (0) (0) (0)

PAT 269 279 297 342

Growth (%) 14.7 4.0 6.2 15.4

EPS 3.8 4.1 4.4 5.0

EPS (Growth %) 7.6 8.5 6.2 15.1


Cash flow statement | Crore


Profit before Tax 294 337 362 416

Depreciation & Amortization 66 59 66 71

WC changes (45) (33) (12) (32)

Other non cash adju. 41 42 30 16

CF from operations 298 347 381 396

Capital expenditure (86) (71) (73) (79)

Δ in investments (4) - - -

Other investing cash flow (14) 3 3 3

CF from investing Activities (104) (68) (70) (76)

Issue of equity 12 - - -

Δ in debt funds (149) (213) (186) (212)

Dividends paid - - - 1

Other financing cash flow (71) (45) (33) (19)

CF from Financial Activities (207) (259) (219) (231)

Δ in cash and cash bank balance (13) 20 92 90

Effect of exchange rate changes - - - 1

Opening cash 80 68 88 180

Closing cash 68 88 180 269


Balance sheet | Crore


Equity 673 673 673 673

Reserves & Surplus 1,752 2,031 2,328 2,669

Networth 2,425 2,705 3,001 3,343

Minority Interest 2 2 2 2

LT liabilties & provisions 43 43 43 43

Total Debt 905 692 506 293

Source of funds 3,376 3,442 3,552 3,681

Net fixed assets 133 145 152 160

CWIP 8 9 9 9

Goodwill 2,469 2,469 2,469 2,469

Other non current assets 269 269 269 269

Loans and advances 66 71 73 79

Current Investments 77 77 77 77

Debtors 304 321 331 358

Cash & Cash equivalents 68 88 180 269

Other current assets 272 304 313 338

Trade payables 88 107 110 119

Current liabilities 175 187 193 208

Provisions 27 17 18 19

Application of funds 3,376 3,442 3,552 3,681


Key ratios

(Year-end March) FY16 FY17P FY18E FY19E

Per share data (|)

EPS-diluted 3.8 4.1 4.4 5.0

Cash per share 1.0 1.1 1.1 1.1

BV 29.5 35.8 39.9 44.1

Operating Ratios (%)

EBITDA Margin 12.7 12.3 12.5 12.8

PBT Margin 9.1 9.5 9.9 10.6

PAT Margin 8.3 7.9 8.1 8.7

Return Ratios (%)

RoNW 12.9 11.5 11.0 11.4

RoCE 11.7 12.1 12.1 13.0

Valuation Ratios (x)

P/E 10.2 9.4 8.9 7.7

EV / EBITDA 7.7 6.7 6.0 5.0

Price to Book Value 1.3 1.1 1.0 0.9

EV / Net Sales 1.0 0.8 0.7 0.6

Mcap / Net Sales 0.8 0.7 0.7 0.7

Turnover Ratios

Debtor days 5 7 7 7

Creditors days 30 28 30 29

Solvency Ratios

Total Debt / Equity 0.4 0.3 0.2 0.1

Current Ratio 5.3 5.3 4.8 4.7

Quick Ratio 5.3 5.3 4.8 4.7

Debt / EBITDA 2.2 1.6 1.1 0.6



o

ICICIdirect.com coverage universe (IT)

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

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

Cyient (INFENT) 540 580 Hold 6,080 29.0 30.5 35.9 18.6 17.7 15.0 12.7 10.7 9.4 20.3 20.0 20.3 17.1 16.3 17.1

Eclerx (ECLSER) 1,379 1,300 Sell 5,685 87.9 86.1 92.6 15.7 16.0 14.9 10.6 10.7 9.6 42.6 34.8 34.2 33.5 28.5 26.7

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

HCL Tech (HCLTEC) 831 950 Buy 117,312 40.0 58.1 64.6 16.6 10.2 8.8 3.5 2.3 2.0 35.9 51.5 54.3 23.5 30.3 32.5

Infosys (INFTEC) 930 1,060 Buy 212,554 59.0 62.8 64.6 15.8 14.8 14.4 10.4 9.3 9.6 30.2 28.8 31.0 21.8 20.8 22.3

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

Mindtree (MINCON) 442 485 Hold 7,422 35.9 24.9 29.1 12.3 17.7 15.2 8.4 9.1 8.2 31.1 21.1 23.9 25.2 16.0 18.0

NIIT Technologies (NIITEC) 427 450 Hold 1,530 45.8 39.2 44.1 9.3 9.8 9.7 2.4 2.2 1.8 30.5 27.0 27.2 17.6 13.6 13.9

Persistent (PSYS) 580 700 Buy 4,639 37.2 37.6 40.1 15.6 15.4 14.5 9.7 8.5 7.1 23.8 21.3 20.4 18.1 16.2 15.4

TCS (TCS) 2,290 2,400 Hold 448,542 122.9 133.4 135.0 18.6 17.2 16.9 13.7 12.6 12.4 42.2 38.0 40.9 33.1 29.7 32.2

Tech Mahindra (TECMAH) 438 525 Buy 43,042 31.7 33.6 40.4 13.8 13.0 10.8 9.0 9.1 7.5 25.5 23.6 25.3 21.7 18.6 19.8

Wipro (WIPRO) 494 500 Hold 121,676 36.1 35.2 34.1 13.7 14.0 14.5 9.9 8.7 8.7 19.6 17.3 15.9 19.1 15.7 14.1

Sector / Company

EV/EBITDA (x)



RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them

as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional

target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]


ANALYST CERTIFICATION

We /I, Deepak Purswani, CFA MBA (Finance), Deepti Tayal, 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.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities

Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has

its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which

are available on www.icicibank.com.

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking

and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts

and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and

meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without

prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current.

Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended

temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this

company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This

report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial

instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their

receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific

circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment

objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate

the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any

loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the

risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to

change without notice.

ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment

in the past twelve months.

ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in

respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned

in the report in the past twelve months.

ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any

compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts

and their relatives have any material conflict of interest at the time of publication of this report.

It is confirmed that Deepak Purswani, CFA MBA (Finance), Deepti Tayal, MBA, Research Analysts of this report have not received any compensation from the companies mentioned in the report in the

preceding twelve months.

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month

preceding the publication of the research report.

Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject

company/companies mentioned in this report.

It is confirmed that Deepak Purswani, CFA MBA (Finance), Deepti Tayal, MBA, Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report.

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.

Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.

We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,

publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities

described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and

to observe such restriction.

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