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INSTITUTIONAL EQUITY RESEARCH

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities Inc, an SEC registered and FINRA-member broker-dealer.

IT Services

WFH and INR by its side – Sector to remain in flavour

INDIA | IT SERVICES | Sector Update

22 May 2020

Ever since the breakout of the Covid-19 pandemic, markets across the world have corrected sharply, expecting a significant cut in FY21/22 earnings. In India, while the broader market has corrected 26% (since 1

st Feb) – the IT sector has outperformed with only 17% correction.

Along with pharma, and some other select names, the IT sector has been the mainstay of the markets for the last 3-4 months.

Frontline stocks have corrected in line with EPS downgrades Comparing the current price and consensus EPS estimates with pre-covid levels, we find that IT companies have seen an average EPS correction of 11% while the average stock price corrections has been 21%. Interestingly, the frontline IT stocks (TCS, Infosys, HCL, LTI, MTCL) have corrected almost the same as their EPS downgrades – signifying little multiple derating. Conversely, select companies (like LTTS, Cyient, NITEC, TechM, Wipro) have corrected much more than their EPS cuts – primarily due to their pre-covid highly expensive valuations and/or higher exposure to ‘segments of concern’.

We see this as a sign of the market capturing the risk profile of the sector ‘adequately’. Frontline stocks, with superior business profiles, have corrected in line with their EPS downgrades, and we see no reason for multiple downgrades YET. In fact, amidst adoption of ‘work from home’, digital transformation is only set to rise in the post-covid world – we see brighter growth prospects for the IT sector in the medium to long term.

Segment exposure is an important metric now As is quite evident, sectors such as Travel, Transport and Hospitality (TTL) have been worst hit by Covid-19, along with manufacturing and retail to some extent. At the same time, Energy and Utilities (E&U) companies have been hit hard due to low crude prices. We call TTL/E&U as ‘segments of concern’. On the other end, Banking, Insurance and Telecom have managed to weather the storm better. Sectors like Hi-tech and Healthcare might actually benefit from Covid-19, due to faster technology adoption and higher spend on healthcare.

None of the largecaps (excl. Wipro) have high exposure to TTL and E&U – the largecaps are mainly BFSI/Manufacturing/Retail heavy. On the other hand, most midcaps have high exposure to ATLEAST ONE ‘segment of concern’ – TTL or E&U – making their business profile slightly riskier than others. NITEC/MTCL/HEXW have higher exposure to TTL, while LTI/LTTS have higher exposure to E&U. Mphasis appears to have the least exposure to these ‘segments of concern’ amongst the midcaps.

Q4 results were muted, Q1 expected to be a washout quarter – but all’s priced-in The recently concluded Q4FY20 results were disappointing for almost ALL IT Services companies – excluding LTI, HCL, MTCL and NITEC, which beat expectations. Almost all of them present a grim picture of FY21 (esp. Q1FY21) – with TCS alluding to hitting the trough performance that it did during the GFC crisis, in Q1. Overall, Q1FY21 is expected to be a washout quarter for the entire IT sector. Our preliminary estimates for Q1 (not yet frozen, with half the quarter remaining, refer to page 7) reveal a dismal picture – though largely priced-in, in our opinion. In this report, we also provide a summary of the outlook provided by various companies on specific sectors in their Q4 commentary.

Stay with size and quality – prefer largecaps and diversified midcaps The IT sector stocks represent a classic conundrum currently – stocks that are expected to do well are bordering on expensive – while the ones that are available cheap do not have a sanguine outlook. At this time, we would prefer large-caps – for their relatively stable business models, marquee clients, and attractive valuations. We maintain TCS, Infosys, and HCL as our top BUYs. TechM remains a SELL for us.

Amongst midcaps, we like LTI and Mindtree – but both appear to have limited upside left. Mphasis remains the only midcap stock, where we find the outlook as well as valuations attractive. Maintain BUY on LTI, Mindtree, and Mphasis. Maintain SELL on Cyient.

Companies TCS Buy CMP 1990 TP 2130

Infosys Buy CMP 674 TP 780

Wipro Neutral CMP 189 TP 180

HCL Tech Buy CMP 536 TP 590

Tech Mahindra Sell CMP 519 TP 440

L&T Infotech Buy CMP 1770 TP 1910

L&T Technology Services Neutral CMP 1128 TP 1140

MindTree Buy CMP 881 TP 1000

Cyient Sell CMP 191 TP 165

NIIT Technologies Neutral CMP 1441 TP 1351

Persistent Systems Neutral CMP 521 TP 500

Mphasis Buy CMP 838 TP 970

Hexaware Neutral CMP 240 TP 260 Vibhor Singhal, Research Analyst (+ 9122 6246 4109) [email protected] Karan Uppal, Research Analyst (+ 9122 6246 4106) [email protected]

mailto:[email protected]

mailto:[email protected]


IT SERVICES SECTOR UPDATE

IT stocks – Outperformance, but justified Ever since the breakout of the Covid-19 pandemic, markets across the world have corrected sharply – expecting a significant cut in FY21/22 earnings. In India, while the broader market has corrected 26% (since 1

st Feb) – the IT sector has outperformed

with only 17% correction. Along with pharma, and some other select names, IT sector has been the mainstay of the markets for the last 3-4 months.

Nifty IT has outperformed broader markets since the advent of the pandemic

Source: Bloomberg, PhillipCapital India Research Many of the IT sector stocks are now close to their pre-covid levels. While select names with higher exposure to what we call ‘segments of concerns’ (more on this later) have corrected sharply – most other sector stocks have seen moderate correction. That gives an impression that probably IT stocks haven’t corrected adequately and hence present a downside risk. To address this issue, we compared stock price performance of companies under our coverage with the cut in their FY22 EPS. With most Q4FY20 results already declared, we now have a broad-based consensus on FY21/22 financials with the limited visibility everyone has. Our sample of 10 IT companies have seen an average EPS correction of 11%, while the average stock-price correction has been 21%. Interestingly, frontline IT stocks (TCS, Infosys, HCL, and LTI) have corrected almost the same as their EPS downgrades – signifying little multiple de-rating. Conversely, select companies (like LTTS, Cyient, NITEC, TechM, Wipro) have corrected much more than their EPS cuts – primarily due to their pre-covid highly expensive valuations and/or higher exposure to ‘segments of concern’.

Price correction has been more than EPS downgrades for the sector Price performance PC estimates change Consensus estimates change

Cons EPS 31-01-2020 CMP % 31-01-2020 Today % 31-01-2020 Today %

TCS 2,079 1,990 -4% 105 97 -8% 104 95 -9% Infosys 776 674 -13% 47 43 -8% 47 43 -9% Wipro 237 189 -20% 19 18 -1% 19 17 -11% HCLT 592 536 -9% 47 45 -2% 48 45 -6% TechM 795 519 -35% 56 48 -14% 61 50 -17% LTI 1,938 1,770 -9% 110 106 -3% 116 108 -6% LTTS 1,679 1,129 -33% 100 87 -13% 99 87 -12% MindTree 888 881 -1% 58 55 -6% 58 54 -8% Cyient 491 191 -61% 47 29 -38% 48 34 -29% NIIT Tech 1,941 1,441 -26% 101 88 -13% 103 90 -13%

Average -21% -11% -12%

Source: Bloomberg, PhillipCapital India Research

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01-Jan-20 01-Feb-20 01-Mar-20 01-Apr-20 01-May-20

TCS INFOSYS NIFTY NIFTY IT



Frontline stocks have corrected inline with EPS cuts, others have got de-rated

Source: PhillipCapital India Research This assures us that the market has captured the risk profile of the sector ‘adequately’. Frontline stocks, with their superior business profile, have corrected in line with their EPS downgrades, and we see no reason for multiple downgrades YET (except in maybe some select stocks). In fact, with adoption of ‘work from home’ and other technology tools is expected to rise in the post-covid world – we see brighter growth prospects for the IT sector in the medium to long term.

IT Services – Current multiples significantly higher than the GFC trough 1yr avg 5yr avg 10yr avg 15yr avg GFC Trough Current PE*

TCS 23.1 20.0 19.4 18.9 6.9 23.6 Infosys 18.2 17.0 17.1 18.1 10.4 17.8 Wipro 16.2 15.6 16.2 18.0 7.2 11.7 HCL Tech 13.3 14.3 13.6 14.2 5.3 13.3 Tech M 15.3 14.3 12.3 12.4 3.4 12.8 L&T Infotech 18.8 15.5 - - - 20.2 L&T Tech 19.6 17.7 - - - 15.4 MindTree 19.9 19.8 15.2 - - 20.2 Cyient 12.6 14.6 12.7 12.6 2.5 9.4 NIIT Tech 18.3 13.2 11.0 9.8 2.0 20.2 Mphasis 13.7 15.1 12.6 13.7 5.6 14.4 Hexaware 14.6 16.1 14.0 12.6 2.8 12.0

Source: Bloomberg, PhillipCapital India Research (* FY21 PE)

Infosys and TCS one year forward PE – Correlation with USD revenue growth rates

Source: Bloomberg, PhillipCapital India Research Estimates

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TCS

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Segmental exposure an important metric now A very important metric to evaluate the growth prospects of companies, is their vertical exposure. As is quite evident, sectors such as Travel, Transport and Hospitality (TTL) have been worst hit by Covid-19, along with manufacturing and retail to some extent. At the same time, Energy and Utilities (E&U) companies have been hit hard due to low crude prices. We call TTL/E&U as ‘segments of concerns’. On the other end, sectors like Banking, Insurance and Telecom have managed to weather the storm better. Sectors like Hi-tech and Healthcare might actually benefit from Covid-19, due to faster technology adoption and higher spend on healthcare. Analysing the vertical concentration of companies, we find that none of the largecaps (excl. Wipro) have high exposure to Travel/Hospitality and E&U – the largecaps are mainly BFSI/Manufacturing/Retail heavy. On the other hand, most midcaps have high exposure to ATLEAST ONE ‘segment of concern’ – TTL or E&U – making their business profile slightly riskier than others.

Segmental exposure becomes a key metric in current environment BFSI Telecom HiTech Manf Retail Healthcare TTL E&U Others

Infosys 31.3% 13.0% 7.9% 10.1% 15.5% 6.4% 0.0% 12.9% 2.9%

TCS 29.7% 7.2% 8.7% 10.1% 15.4% 8.8% 0.0% 0.0% 20.1%

HCL 21.6% 9.0% 0.0% 36.0% 10.3% 12.2% 0.0% 0.0% 10.9%

Wipro 30.4% 5.5% 0.0% 21.0% 16.8% 13.5% 0.0% 12.8% 0.0%

TechM 15.3% 40.8% 7.4% 17.7% 7.3% 0.0% 0.0% 0.0% 11.5%

LTI 45.5% 0.0% 10.8% 17.5% 11.2% 0.0% 11.3% 3.7%

Mphasis 56.8% 15.7% 0.0% 0.0% 0.0% 27.5% 0.0% 0.0%

Hexaware 36.8% 0.0% 0.0% 17.5% 20.1% 9.9% 0.0% 15.7%

Mindtree 20.4% 0.0% 43.1% 20.3% 0.0% 16.2% 0.0% 0.0%

NITEC 46.0% 0.0% 0.0% 25.0% 0.0% 29.0% 0.0% 0.0%

LTTS 0.0% 18.5% 0.0% 35.8% 17.2% 9.4% 0.0% 0.0% 19.2%

Cyient 0.0% 24.4% 4.9% 32.2% 0.0% 2.4% 11.1% 14.5% 10.5%

Source: Companies, PhillipCapital India Research

A key point to note here is that while Cyient and LTTS have different vertical exposures, they are both highly dependent on discretionary spend, with ERD being highly discretionary in nature. So, the two represent much riskier business profiles in the current environment than their peers.

The metric becomes highly relevant to compare midcaps, as ALL of them have high exposure to ATLEAST ONE ‘segment of concern’. NITEC/MTCL/HEXW have higher exposure to TTL, while LTI/LTTS have higher exposure to E&U. Among midcaps, Mphasis appears to have the least exposure to these segments of concern

All midcaps currently have a ‘segment of concern’


DXC

27%

ENU 11%

Travel 17%

Travel 29%

Travel 10%

Plant eng 17%

Aero, ENU 47%

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Segmental concerns expressed by companies The segmental concerns were corroborated by various companies in their Q4FY21 results recently. Below is the outlook provided by various companies, on specific sectors, in their Q4 commentary.

Q4FY20 commentaries by companies on verticals Verticals Company Comments

BFSI

TCS

BFSI declined by 1.3% yoy CC. Revenue leakage was due to supply side impact rising out of delays or inability to activate

remote access for some of the offshore teams due to regulatory concerns. The impact in the first 2 weeks of Q1 is similar to

last two weeks of Q4. It is difficult to get permissions for work from home from BFS BO clients, as their security,

regulatory, and compliance processes are quite complex and involved.

BFSI orderbook stands at US$ 2.4bn, the second highest since TCS started reporting.

Some of the ramp ups of existing deals are progressing as normal, but actual impact would be visible in Q4.

Infosys

The Financial Services segment is seeing the impact of interest rate declines across the world, which have severely

compressed net interest margins. The banking sector is also expected to experience an increase in loan losses in the near

future, which will have an impact on their profits.

Insurance may also see an increase in pressure due to higher claims. Post COVID-19, we expect strong opportunity for

Cloud, Data Services and creating new digital bank capabilities.

Wipro

In banking, we are seeing both tightening due to low interest rates and volatility that is seen. On the other hand, because of

the quick response of various governments on fiscal stimulus, there is also a positive impact around refinancing, and

originations of loans & grants enabled by the PPP equivalent programs across jurisdictions. We see discretionary spending

getting stalled, which will impact the medium term. There are opportunities for vendor consolidation on the run side.

HCL Tech Minimal impact on BFSI. In all our conversations with all of our top customers in Financial Services, we are seeing very

minimal impact. More Digital Banking and digital channel work from customers. Seeing a trend of vendor consolidation.

Cognizant BFSI grew 1.8% yoy in CC. It was driven by banking, including strong performance in EU, attributable to the Samlink deal and

regional banks in North America. Weakness persisted across global accounts, particularly in capital markets and insurance.

LTI BFSI is steady but can see some impact in Q2 & Q3 as loan defaults rise. Manufacturing and Oil & Gas are most impacted

verticals as of now.

Mphasis

Haven’t seen any disruption in demand and pricing in Banking, Capital Market and Insurance. As a segment, BCM will

continue to show growth. Not seen any demand disruption unlike in Travel & Hospitality. Digital Transformation projects

will get accelerated and Mphasis has a strong capability in BCM. Digital Risk business will be a growth driver in FY21.

Hexaware

We expect BFS vertical to grow in Q2. Expect to see growth in the top client in BFS (Freddie Mac) as volumes are increasing

now. Expect higher outsourcing in asset servicing industry. Mortgage will do quite well as lot of refinancing is happening so

volume pickup is there in that business.

NIIT Tech Expect BFS and Insurance to grow in Q1FY20; 2 out 3 large deals are in the BFS vertical.

Travel

Wipro Entire Travel (Airlines, Airport) and Hospitality (Hotels) sector is under severe stress.

Cognizant

We expect demand will be most impacted in travel, hospitality, retail, automotive, energy, and media and entertainment,

which are collectively just over 20% of total revenue. Discretionary projects or those without a quick payback will be

delayed. We see this significantly challenging not only the second quarter, but also the remainder of the year.

NIIT Tech

Airlines is 46% of the Travel vertical’s volumes (13% of overall revenue). It is under stress in Q1, Q2 and Q3 (at least 10

months). Significant long-term compression in IT spend. Baked in long cycle recovery. In Q1, it will decline materially.

Overall, travel vertical comprise of airlines, airports, travel tech, hotels, and railways. Airlines under severe pressure, airports

can compress a bit, while railways are not under severe pressure.

Cyient Outlook is muted in the medium term in the Transport vertical. In Geospatial, we have challenges with the field work.

Retail &

CPG

TCS Retail grew 4.2% yoy in CC, despite a sharp hit in the Travel sub-vertical. Highest ever deal TCV of US$ 3.1bn, which

includes US$ 1.7bn Walgreens Boots Alliance deal.

Infosys

Non-grocery, apparel, lifestyle and fashion, and logistics have been hit hard. On a sequential basis, we have seen positive

performance in the last quarter and there was a healthy level of large deal wins from this segment, but we expect

significant pressure on spend for the segment in coming quarters. The deal pipeline is strong, but conversion rate is

expected to slow down.

Wipro

Retailers, except food and grocery, have almost shut down stores; this is having a huge impact. Apparel and Fashion

Retailers, Home Improvement, Restaurants, Dept Stores - hit hard. Significant pent up demand for ecommerce. Retailers

are looking at omni-channel programs, dynamic pricing, etc. and last mile deliveries. In retail, discretionary/transformation

projects are put on hold. Overall IT spend in retail will come down, but demand will remain high in certain niche segments

(omnichannel, e-commerce, last mile inventory management, dynamic pricing etc).

HCL Tech Non-essential retail is highly impacted.




Q4FY20 commentaries by companies on verticals (continued …) Verticals Company Comments

Manufact-

uring

Infosys

COVID-19 spread, exacerbated by supply-chain disruptions, has resulted in widespread closure of production facilities

across the globe. Stoppage and probably reduced travel in the near future will also affect the aerospace industry in terms

of order book and deliveries.

Wipro The auto sector, especially where not only their demand side but also supply chains have been adversely impacted, is highly

impacted.

HCL Tech

On ER&D, segments which are exposed to manufacturing, where we have both the supply side as well as the demand side

issues. The supply side is mostly because we have to do some work necessarily from the lab or customer sites in

manufacturing. So, that probably is coming to some control now, but our customers’ supply chains are disrupted. We still

have some demand-side issues in this part of the business, especially segments such as aerospace and automotive. We

are facing some pressure in manufacturing areas as well

Cyient

Aerospace: Services business is expected to decline for FY21 due to industry challenges. Boeing and Airbus volumes are

down by 50% yoy in March, which will have significant negative impact on Cyient. Significant impact (15-20% fall

expected) in Q1 will be from the Aerospace vertical, which will take 18-24 months to recover.

Semiconductor: Mixed outlook. Spending is good in areas of network and computing equipment chips, but challenges exist

in consumer-type applications.

LTTS LTTS saw project cancellations and pushbacks in Transportation, Industrial Products and Plant Engineering (Oil & Gas).

Decision making is elongated vs. pre-covid levels.

Telecom,

Media &

Entertain-

ment

TCS

Communications is positive due to digital operating model, which will be positive for capacity providers. Impact on media is

negative due to cancellation of sporting events. Olympics has advertising revenue impact. Closure of studios and lack of

content will have downstream impact.

Infosys

Large deal wins in the comms segment has led to stellar performance in the last fiscal. While we expect a relatively stable

performance from telecom players, the media and entertainment industry is seeing pressure due to stoppage of outdoor

events and general squeeze in advertising spend. Spend on 5G rollout and B2B use cases of 5G may also be delayed, as

industry players reassess capital allocation priorities.

Wipro In communications, we are seeing a surge in entertainment and media segments in terms of consumption of their services -

driven by surge in use of bandwidth.

HCL Tech

Minimal impact on Telecom. Telecom is very strong, but with some client-specific issues.

Entertainment - We support big entertainment parks; we do some work for companies that are supporting casinos etc are

impacted.

Tech M

In Q1FY20: seasonality will be seen in Comviva. Network and BPS – some impact will continue in Q1 as well. Networks –

supporting networking in the fields – 60-70% of workforce was asked to stay at home (Latin America). Lot of uncertainty in

terms of recovery. Shift of traffic to home. We have large enterprise customers.

We have 4-5 service lines within the Telecom Vertical – Networking, BPS, IT Service, OSS/BSS.

Cognizant We expect this vertical to see a meaningful deceleration this year, particularly with entertainment clients exposed to

studios, cable TV, and theme parks. We also exited certain portions of content services in the CMT vertical.

Cyient

The communications industry, will see medium-term impact only. Investments in 5G, broadband, etc., will only have to

increase, considering the present scenario. In the near term, a lot of field-related activities have stopped due to lock downs.

We believe that in the second half of FY21, this industry will be a strong performer.

Energy &

Utilities

Infosys

Energy, Utility, Resources and Services vertical reported strong growth in the last year, with many large deal wins across

geographies. However, with low energy prices and demand and supply-chain issues in other sub-segments, the

performance is expected to be weak in the near term.

Wipro Not seeing any major change in Utilities.

HCL Tech In Oil & Gas, good demand in run the business consolidation work

Cyient

Mining is doing well; Oil & Gas will see significant challenges due to the oil price crash.

Energy – Significant challenges and tepid outlook.

Utilities – will do well. Field stuff is lingering. Lot of new investments are taking place in upgradation, which will benefit us.

Healthcare

TCS In Life Sciences, cancellation of elective surgery is having quite a lot of impact on many sub-segments such as medical

devices and even certain specialty hospitals and facilities. But, the rest of the Lifesciences is quite resilient.

Wipro

In healthcare, medical devices, life sciences - has both kind of impacts. We are enabling a lot of hospitals in the ecosystem to

be able to provide COVID-related services. On the other hand, in a lot of the hospitals, as they prepare to take care of the

COVID impact, many elective surgeries and procedures have been put on hold. So, if ‘normal’ occupancies are less in most

parts of world.

HCL Tech

Pharma is strong. In Payers (Insurance), no impact as of now, but we can see some impact in the future. Healthcare –

Hospitals are stressed due to low profitability, as elective surgeries are low, so medical devices are also impacted. But

overall, Lifesciences and Healthcare verticals are fairly intact. In the medium term, opportunities in Telemedicine, virtual

consultations are coming up.

Cognizant

Healthcare & Life sciences grew 2.7% yoy in CC, led by strong double-digit growth in Life Sciences sub vertical in EU.

However, the Healthcare sub vertical revenue declined in low-single digits as headwinds in North America continued to

impact business. However, contract signings in the vertical were a meaningful contributor to overall strength in bookings.

Overall based on strong bookings, management feels Healthcare rebound is around the corner.

Cyient Non-Covid elective surgeries have reduced, which is negatively impacting medical devices business.




Q4 results indicate a weak Q1/H1FY21 The recently concluded Q4FY20 results were disappointing for almost ALL IT Services companies, excluding HCL, MTCL, NITEC, LTI – which beat expectations. Most companies were impacted by Covid-19 in March (in which month there was a 12-day India lockdown).

Q4FY20 results summary

Company USD CC revenue USD revenue EBIT margins INR earnings USD revenue INR earnings

growth (% qoq) growth (% qoq) movement (qoq) growth (% qoq) growth (% yoy) growth (% yoy)

TCS na -2.5% 10bps -0.8% 0.9% -0.9% Infosys -0.8% -1.4% -80bps -3.2% 4.5% 8.7% Wipro 0.4% -0.9% -80bps -5.3% -0.2% -1.1% HCL Tech 0.8% 0.0% 60bps 3.8% 11.7% 22.8% Tech Mahindra -3.3% -4.3% -220bps -29.8% 2.1% -27.7%

LTI 4.7% 3.9% 50bps 13.5% 15.9% 12.9% LTTS -1.0% -2.0% -160bps* -0.2% 2.1% 7.2% MindTree - 1.2% 40bps 4.7% 6.3% 4.2% Cyient - -3.9% -120bps -58.4% -9.7% -75.9% NIIT Tech - 2.3% 0bps -7.9% 12.2% 6.6% Persistent - -1.8% 50bps -4.7% 7.4% 2.7% Mphasis 1.5% 0.6% 10bps 20.8% 9.7% 32.2% Hexaware -1.1% -1.7% -160bps 4.4% 17.0% 26.0%

Q4FY20 results were below expectations for most companies Company USD revenue (% diff) EBIT margins (bps diff) PAT (% diff)

TCS -2.3% +10bps -2.0% Infosys -1.8% -50bps -0.5% Wipro -1.7% -100bps -6.5% HCL Tech -1.3% +90bps +6.4% Tech Mahindra -2.9% -140bps -18.6%

LTI +1.4% +20bps +5.6% LTTS -2.0% -180bps* +1.1% MindTree -0.3% -60bps +2.1% Cyient -1.8% -140bps -59.5% NIIT Tech +1.3% -40bps -7.4% Mphasis -0.4% +20bps +18.9% Hexaware +0.5% -190bps +1.9%

Source: Companies, PhillipCapital India Research (*impacted by contribution to PM-CARES fund)

Almost all of them present a grim picture of FY21 (esp. Q1FY21), with TCS alluding to hitting its trough performance in the GFC crisis in Q1. Overall, Q1FY21 is likely to be a washout quarter for the entire IT sector. Our preliminary estimates for Q1FY21 (yet to be frozen with more than half the quarter remaining) reveal a dismal picture – though largely priced-in in our opinion.

Q1FY21 results preview summary – Preliminary estimates present a dismal picture

Company

USD revenue EBIT margins INR earnings USD revenue INR earnings

Growth (% qoq)

movement (qoq)

growth (% qoq)

growth (% yoy)

growth (% yoy)

TCS -5.1% -50bps -3.6% -5.8% -4.6% Infosys -4.7% -80bps -11.2% -2.7% 1.6% Wipro -6.2% -110bps -7.2% -4.5% -4.6% HCL Tech -3.0% -160bps -10.5% 4.4% 27.1% Tech Mahindra -4.8% -40bps -0.4% -1.2% -16.7%

LTI -6.5% -110bps -9.9% 7.5% 8.3% LTTS -6.1% -40bps -15.0% -5.3% -14.4% MindTree -6.6% -160bps -18.2% -1.6% 87.4% Cyient -19.2% -690bps -42.0% -23.0% -71.1% NIIT Tech -4.8% -180bps -3.0% 6.3% 24.8% Persistent -5.2% -80bps -8.0% 0.7% -6.5% Mphasis -4.9% -90bps -21.8% 2.4% 3.4% Hexaware -5.9% 80bps -20.2% 5.1% -7.8%

Source: PhillipCapital India Research Estimates



Financials – INR depreciation limits downgrades As we update our estimates with USDINR assumptions (75/76 for FY21/22 vs. 71/72 earlier) and slightly lower growth assumptions, we find that EPS downgrades for the IT sector are much lower than in other sectors (except few stocks such as Cyient, TechM). We attribute this to two reasons: 1) Unlike other sectors, IT companies have not been required to ‘completely’ shut

down operations. Business continues ‘from home’ and there have only been temporary losses or postponement of revenues.

2) Almost 8% depreciation in USD-INR has also provided a significant boost to earnings – though we do not expect any benefits in terms of margin, as most of those would be passed on to clients.

Revision of estimates (lower growth, USDINR update) % change USD Revenue (%) EBIT (%) EPS (%)

FY21 FY22 FY21 FY22 FY21 FY22

TCS -1.1 -2.0 4.8 3.6 3.9 3.4 Infosys -1.6 -2.4 4.0 2.8 3.4 2.9 Wipro -4.3 -4.3 0.0 2.1 -0.4 1.2 HCL Tech -2.0 -2.0 4.5 3.2 4.4 2.9 Tech M 0.0 0.0 6.0 5.9 4.5 4.5

L&T Infotech 0.0 0.0 0.0 0.0 0.0 0.0 L&T Tech 0.0 0.0 0.0 0.0 0.0 0.0 MindTree -2.9 -3.4 2.2 2.8 1.8 4.6 Cyient -2.7 -3.9 -3.2 -10.3 -0.4 -8.6 NIIT Tech 0.0 -1.4 7.0 4.3 6.3 3.3 Persistent -2.5 -2.3 -0.1 2.9 -0.1 2.1 Mphasis 0.0 0.0 0.0 0.0 0.0 0.0 Hexaware -1.1 -1.0 2.1 2.4 2.1 2.4


Financial snapshot USD Revenue growth (%) EBIT margins (%) EPS growth (%)

FY20 FY21 FY22 FY20 FY21 FY22 FY20 FY21 FY22

TCS 5.4 -4.0 8.0 24.6 24.0 25.2 2.7 -2.1 14.7 Infosys 8.3 -3.0 9.1 21.3 20.7 21.6 11.5 -4.2 14.4 Wipro 1.7 -4.8 7.6 17.3 16.6 17.5 14.0 -5.5 13.7 HCL Tech 15.1 0.1 9.0 19.6 18.7 19.4 9.3 -0.4 11.6 Tech M 4.3 -4.9 8.6 11.6 10.4 11.5 -4.6 -12.7 19.8

L&T Infotech 13.0 0.0 12.0 16.1 15.4 16.5 0.3 0.3 21.1 L&T Tech 8.8 -5.0 10.2 16.5 15.8 16.8 6.5 -7.2 18.9 MindTree 8.7 -3.4 10.0 10.1 11.4 12.6 -16.3 13.8 26.6 Cyient -5.3 -18.2 7.1 9.2 5.2 7.6 -29.4 -35.9 37.8 NIIT Tech 12.3 0.0 10.6 13.1 12.2 13.5 9.4 -1.5 22.8 Persistent 4.3 -2.9 6.3 9.2 9.6 9.9 0.2 1.5 10.9 Mphasis 10.8 -3.2 8.1 16.0 15.3 16.2 13.6 -7.8 18.5 Hexaware 17.1 1.1 9.8 13.9 12.1 13.1 9.4 -7.0 18.6

USD Revenue ($ mn) EBIT (Rs mn) EPS (Rs)

FY20 FY21 FY22 FY20 FY21 FY22 FY20 FY21 FY22

TCS 22,032 21,148 22,835 385,800 381,445 437,638 86 84 97 Infosys 12,781 12,399 13,531 193,740 192,750 222,513 39 38 43 Wipro 8,256 7,859 8,454 105,730 99,578 113,936 17 16 18 HCL Tech 9,936 9,948 10,844 138,530 139,351 159,930 41 41 45 Tech M 5,182 4,927 5,348 42,803 38,516 46,599 46 40 48

L&T Infotech 1,525 1,525 1,708 17,561 17,637 21,398 87 88 106 L&T Tech 787 747 823 9,276 8,844 10,518 79 73 87 MindTree 1,089 1,052 1,158 7,869 9,003 11,116 38 44 55 Cyient 625 512 548 4,081 2,002 3,172 31 20 28 NIIT Tech 593 593 656 5,468 5,415 6,713 72 71 88 Persistent 502 487 518 3,270 3,514 3,910 45 45 50 Mphasis 1,239 1,199 1,297 14,188 13,810 16,049 63 58 69 Hexaware 793 802 881 7,745 7,234 8,774 21 20 24




Valuations – bordering on expensive The IT sector stocks represent a classic conundrum at this point of time – stocks that are expected to do well are bordering on expensive – while the ones that are available cheap, do not have a sanguine outlook. At this time, we would prefer large-caps – for their relatively stable business models, marquee clients, and attractive valuations. We maintain TCS, Infosys, and HCL as our top BUYs. TechM remains a SELL for us. Amongst midcaps, we like LTI and Mindtree – but both appear to have limited upside left. Mphasis remains the only midcap stock, where we find the outlook as well as valuations attractive. Maintain BUY on LTI, Mindtree, and Mphasis. Maintain SELL on Cyient.

Recommendation summary CMP Mkt Cap Target PT Upside Rating Reason for Target multiple Rs Rs bn PE (x) Rs %

TCS 1,990 7,350 22.0 2,130 8% BUY Highest multiple in our coverage universe – stable business profile, high ROE

Infosys 674 2,932 18.0 780 16% BUY 20% discount to TCS – relatively less stable business and management, lower ROE

Wipro 189 1,136 10.0 180 -5% NEU Relatively weaker business profile as compared to largecap peers, high exposure to E&U

HCL Tech 536 1,454 13.0 590 10% BUY 25% discount to Infosys – lack of organic revenue growth drivers

Tech Mahindra 519 459 9.0 440 -15% SELL Lowest multiple in largecap space – weak business fundamentals, margin headwinds

LTI 1,770 308 18.0 1,910 8% BUY At par multiple with Infosys – diversified business, fastest growing company in the sector

LTTS 1,128 117 13.0 1,140 1% NEU Discount to other midcaps – highly dependent on discretionary spends

MindTree 881 144 18.0 1,000 14% BUY At par multiple with Infosys – diversified business, growing strong, margin tailwinds

Cyient 191 21 6.0 165 -14% SELL Lowest multiple in the midcap space – weak business fundamentals, revenue as well as margin headwinds

NIIT Tech 1,441 89 15.0 1,315 -9% NEU 20% discount to LTI/MTCL – stable diversified business profile, but with higher exposure to TTL

Persistent 521 41 10.0 500 -4% NEU Relatively weak business fundamentals – stagnant IP business

Mphasis 838 162 14.0 970 16% BUY 25% discount to LTI/MTCL – uncertainty around DXC revenues, core business doing well

Hexaware 240 71 11.0 260 8% NEU Discount to other midcaps – weak balance sheet; overhang of Barings' exit


Valuation snapshot

________ROE (%)________ _________PE (x)__________ ________PB (x)__________ ______Div Yield (%)______

Companies FY20 FY21E FY22E FY20 FY21E FY22E FY20 FY21E FY22E FY20 FY21E FY22E

TCS 37.5 32.9 33.9 22.7 23.2 20.2 8.5 7.6 6.9 3.7% 3.0% 3.5%

Infosys 25.5 21.9 22.3 17.1 17.8 15.6 4.3 3.9 3.5 2.6% 3.0% 3.3%

Wipro 17.4 14.9 15.2 11.1 11.7 10.3 1.9 1.7 1.6 0.6% 3.2% 3.2%

HCL Tech 21.5 18.2 17.4 13.1 13.2 11.8 2.8 2.4 2.1 1.5% 1.5% 1.5%

Tech Mahindra 18.5 14.7 15.7 11.2 12.8 10.7 2.1 1.9 1.7 2.9% 2.9% 2.9%

LTI 28.1 23.9 24.1 20.3 20.2 16.7 5.7 4.8 4.0 1.6% 1.8% 1.8%

LTTS 29.6 23.1 22.8 14.3 15.4 13.0 4.2 3.6 3.0 1.9% 2.0% 2.0%

MindTree 20.0 19.6 20.9 22.9 20.1 15.9 4.6 3.9 3.3 1.5% 1.5% 1.5%

Cyient 13.4 8.1 10.4 6.1 9.5 6.9 0.8 0.8 0.7 7.9% 2.6% 5.2%

NIIT Tech 18.8 16.9 18.4 19.9 20.2 16.4 3.7 3.4 3.0 2.2% 2.2% 2.4%

Persistent 14.3 13.1 13.1 11.7 11.5 10.4 1.7 1.5 1.4 2.3% 2.3% 2.5%

Mphasis 20.3 17.4 19.0 13.3 14.4 12.2 2.7 2.5 2.3 4.1% 4.2% 4.8%

Hexaware 23.2 18.7 20.0 11.2 12.0 10.1 2.6 2.2 2.0 2.7% 2.7% 2.7%




Financials – TCS Income Statement Y/E Mar, Rs mn FY19 FY20 FY21E FY22E

Net sales 14,64,630 15,69,490 15,86,107 17,35,496

Growth, % 19.0 7.2 1.1 9.4

Employee expenses -8,35,090 -8,96,350 -9,05,079 -9,82,730

Other expenses -2,34,490 -2,52,040 -2,62,664 -2,78,779

EBITDA (Core) 3,95,050 4,21,100 4,18,364 4,73,987

Growth, % 21.5 6.6 (0.6) 13.3

Margin, % 27.0 26.8 26.4 27.3

Depreciation -20,550 -35,300 -36,918 -36,350

EBIT 3,74,500 3,85,800 3,81,445 4,37,638

Growth, % 22.8 3.0 (1.1) 14.7

Margin, % 25.6 24.6 24.0 25.2

Interest paid 0 0 0 0

Other Income 41,130 36,680 31,983 36,166

Pre-tax profit 4,15,630 4,22,480 4,13,428 4,73,804

Tax provided -1,00,010 -98,010 -95,088 -1,08,975

Profit after tax 3,15,620 3,24,470 3,18,340 3,64,829

Others (Minorities) -860 -1,070 -1,760 -1,760

Net Profit 3,14,760 3,23,400 3,16,580 3,63,069

Growth, % 21.8 2.7 (2.1) 14.7

Net Profit (adjusted) 3,14,760 3,23,400 3,16,580 3,63,069

Wtd avg shares (m) 3,750 3,750 3,750 3,750

Assumptions FY19 FY20 FY21E FY22E

US$ Revenue ($ mn) 20,913 22,032 21,148 22,835

Growth, % 9.6 5.4 (4.0) 8.0

Re / US$ (rate) 70.7 71.7 75.0 76.0

Balance Sheet Y/E Mar, Rs mn FY19 FY20 FY21E FY22E

Cash & bank 72,240 86,460 1,01,598 1,32,890

Marketable securities 0 0 0 0

Debtors 2,74,410 3,06,060 3,15,427 3,13,645

Inventory 0 0 0 0

Other current assets 2,88,610 2,52,430 2,65,860 2,84,693

Total current assets 6,35,260 6,44,950 6,82,886 7,31,227

Investments 2,93,300 2,63,560 3,13,560 3,73,560

Net fixed assets 1,56,630 1,60,710 1,63,792 1,67,442

Non-current assets 85,340 1,60,910 1,73,369 1,90,103

Total assets 11,70,530 12,30,130 13,33,606 14,62,332

Total current liabilities 2,29,280 2,77,570 2,81,900 2,94,972

Non-current liabilities 21,160 83,930 82,236 88,062

Total liabilities 2,50,440 3,61,500 3,64,136 3,83,034

Paid-up capital 3,750 3,750 3,750 3,750

Reserves & surplus 9,11,810 8,58,650 9,57,730 10,65,799

Minorities 4,530 6,230 7,990 9,750

Shareholders’ equity 9,20,090 8,68,630 9,69,470 10,79,299

Total equity & liabilities 11,70,530 12,30,130 13,33,606 14,62,332

Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY19 FY20 FY21E FY22E

Pre-tax profit 4,15,630 4,22,480 4,13,428 4,73,804

Depreciation 20,550 35,300 36,918 36,350

Chg in working capital -85,260 40,460 -32,620 -14,887

Total tax paid -1,00,010 -98,010 -95,088 -1,08,975

Other operating activities 0 0 0 0

Cash flow from operating activities 2,50,910 4,00,230 3,22,638 3,86,291

Capital expenditure -22,220 -39,380 -40,000 -40,000

Chg in investments 66,780 29,740 -50,000 -60,000

Chg in marketable securities 0 0 0 0

Other investing activities 0 0 0 0

Cash flow from investing activities 44,560 -9,640 -90,000 -1,00,000

Free cash flow 2,95,470 3,90,590 2,32,638 2,86,291

Equity raised/(repaid) -1,60,000 0 0 0

Debt raised/(repaid) -100 -440 0 0

Dividend (incl. tax) -1,31,994 -3,20,274 -2,17,500 -2,55,000

Other financing activities 20,384 -56,286 0 0

Cash flow from financing activities -2,72,060 -3,76,370 -2,17,500 -2,55,000

Net chg in cash 23,410 14,220 15,138 31,291

Valuation Ratios

FY19 FY20 FY21E FY22E

Per Share data

EPS (INR) 83.9 86.2 84.4 96.8

Growth, % 24.1 2.7 (2.1) 14.7

Book NAV/share (INR) 244.1 230.0 256.4 285.2

CFPS (INR) 49.2 117.1 80.8 97.8

DPS (INR) 30.1 73.0 58.0 68.0

Return ratios Return on assets (%) 28.0 27.0 24.8 26.1

Return on equity (%) 34.4 37.5 32.9 33.9

Return on capital employed (%) 34.2 34.3 31.8 32.9

Turnover ratios Asset turnover (x) 3.5 3.8 4.3 4.5

Sales/Total assets (x) 1.3 1.3 1.2 1.2

Sales/Net FA (x) 9.4 9.9 9.8 10.5

Working capital/Sales (x) 0.2 0.2 0.2 0.2

Receivable days 68.4 71.2 72.6 66.0

Liquidity ratios

Current ratio (x) 2.8 2.3 2.4 2.5

Quick ratio (x) 2.8 2.3 2.4 2.5

Dividend cover (x) 2.8 1.2 1.5

Total debt/Equity (%) 0.0 - - -

Net debt/Equity (%) (7.8) (10.0) (10.6) (12.4)

Valuation

PER (x) 23.3 22.6 23.1 20.2

PEG (x) - y-o-y growth 1.0 8.3 (11.0) 1.4

Price/Book (x) 8.0 8.5 7.6 6.8

Yield (%) 1.5 3.7 3.0 3.5

EV/Net sales (x) 5.0 4.6 4.6 4.1

EV/EBITDA (x) 18.4 17.2 17.3 15.2

EV/EBIT (x) 19.4 18.8 18.9 16.4



Financials – Infosys Income Statement Y/E Mar, Rs mn FY19 FY20 FY21E FY22E

Net sales 8,26,760 9,07,910 9,29,911 10,28,369

Growth, % 17.2 9.8 2.4 10.6


Other Operating expenses -99,290 -1,06,850 -1,06,940 -1,18,262

EBITDA (Core) 2,08,890 2,22,680 2,30,945 2,63,908

Growth, % 9.9 6.6 3.7 14.3

Margin, % 25.3 24.5 24.8 25.7

Depreciation -20,100 -28,940 -38,195 -41,395

EBIT 1,88,790 1,93,740 1,92,750 2,22,513

Growth, % 10.1 2.6 (0.5) 15.4

Margin, % 22.8 21.3 20.7 21.6

Forex gains/losses 1,600 1,600 -99 -80

Other Non-Op Income 27,230 26,430 25,073 29,978

Pre-tax profit 2,10,410 2,21,770 2,17,723 2,52,411

Tax provided -56,310 -53,680 -56,634 -68,173

Profit after tax 1,54,100 1,68,090 1,61,089 1,84,238

Others (Minorities etc) -40 -450 -560 -560

Net Profit 1,54,060 1,67,640 1,60,529 1,83,678

Growth, % 5.5 8.8 (4.2) 14.4

Net Profit (adjusted) 1,54,060 1,67,640 1,60,529 1,83,678

Wtd avg shares (m) 4,350 4,246 4,246 4,246


US$ Revenue ($ mn) 11,799 12,781 12,399 13,531

Growth, % 7.9 8.3 -3.0 9.1

Re / US$ (rate) 70.1 71.0 75.0 76.0


Cash & bank 1,95,680 1,86,490 2,21,332 2,72,581

Marketable securities at cost 0 0 0 0

Debtors 1,48,270 1,84,870 1,83,435 1,97,221

Inventory 0 0 0 0

Loans & advances 1,93,640 1,99,740 2,12,942 2,32,909


Investments 1,20,200 88,610 1,28,610 1,68,610

Net fixed assets 1,75,870 2,50,530 2,44,335 2,34,940

Non-current assets 0 0 0 0

Total assets 8,47,380 9,27,680 10,08,093 11,23,702

abcd Total current liabilities 1,97,320 2,69,240 2,73,817 2,98,938

Non-current liabilities 0 0 0 0


Paid-up capital 21,700 21,220 21,220 21,220


Minorities 0 0 0 0





Pre-tax profit 2,10,410 2,21,770 2,17,723 2,52,411

Depreciation 20,100 28,940 38,195 41,395

Chg in working capital 25,850 29,220 -7,190 -8,634

Total tax paid -57,210 -57,400 -56,634 -68,173



Capital expenditure -49,960 -1,03,600 -32,000 -32,000

Chg in investments 1,590 31,590 -40,000 -40,000



Cash flow from investing activities -48,370 -72,010 -72,000 -72,000

Free cash flow 1,50,780 1,50,520 1,20,095 1,45,000

Equity raised/(repaid) 10,820 -83,080 0 0

Debt raised/(repaid) 0 0 0 0

Dividend (incl. tax) -1,06,790 -80,040 -84,792 -93,271

Other financing activities -57,270 3,860 99 80

Cash flow from financing activities -1,53,280 -1,59,710 -85,253 -93,751

Net chg in cash -2,500 -9,190 34,842 51,249

Valuation Ratios


Per Share data

EPS (INR) 35.4 39.5 37.8 43.3

Growth, % 5.5 11.5 (4.2) 14.4


CFPS (INR) 41.2 46.2 39.3 44.0

DPS (INR) 21.0 17.5 20.0 22.0


Return on equity (%) 23.7 25.5 21.9 22.3




Sales/Net FA (x) 5.1 4.3 3.8 4.3



Liquidity ratios

Current ratio (x) 2.8 2.2 2.3 2.4

Quick ratio (x) 2.8 2.2 2.3 2.4

Dividend cover (x) 1.7 2.3 1.9 2.0

Net debt/Equity (%) (48.6) (41.8) (47.7) (53.5)

Valuation

PER (x) 18.8 16.9 17.6 15.4

PEG (x) - y-o-y growth 3.4 1.5 (4.2) 1.1

Price/Book (x) 4.5 4.3 3.9 3.4

Yield (%) 3.2 2.6 3.0 3.3

EV/Net sales (x) 3.3 2.9 2.8 2.5

EV/EBITDA (x) 12.9 11.8 11.3 9.7

EV/EBIT (x) 14.3 13.6 13.5 11.5



Financials – Wipro Income Statement Y/E Mar, Rs mn FY19 FY20 FY21E FY22E

Net sales 5,85,845 6,10,232 5,99,367 6,52,429

Growth, % 7.5 4.2 -1.8 8.9


Other Operating expenses -72,895 -68,417 -66,328 -71,725

EBITDA (Core) 1,19,391 1,26,592 1,23,628 1,39,213

Growth, % 13.1 6.0 (2.3) 12.6

Margin, % 20.4 20.7 20.6 21.3

Depreciation -19,474 -20,862 -24,050 -25,277

EBIT 99,917 1,05,730 99,578 1,13,936

Growth, % 18.4 5.8 (5.8) 14.4

Margin, % 17.1 17.3 16.6 17.5


Other Non-Operating Income 15,548 16,798 18,163 19,874

Pre-tax profit 1,15,465 1,22,528 1,17,741 1,33,810

Tax provided -25,242 -24,799 -25,314 -28,769

Profit after tax 90,223 97,729 92,427 1,05,041

Others (Minorities, Associates) -195 -495 -507 -515

Net Profit 90,028 97,234 91,919 1,04,525

Growth, % 12.3 8.0 (5.5) 13.7

Net Profit (adjusted) 90,028 97,234 91,919 1,04,525

Wtd avg shares (m) 6,009 5,692 5,692 5,692


IT Services US$ Revenue ($ mn) 8,120 8,256 7,859 8,454

Growth, % 2.9 1.7 -4.8 7.6

Re / US$ (rate) 70.6 72.0 75.0 76.0


Cash & bank 1,58,529 1,44,499 1,62,593 2,00,027

Marketable securities at cost 2,20,716 1,89,635 2,29,635 2,69,635

Debtors 1,00,489 1,04,474 1,11,663 1,16,186

Inventory 3,951 1,865 4,105 4,469

Other current assets 88,221 79,378 91,941 98,563


Net fixed assets 2,01,343 2,45,242 2,47,836 2,55,558

Non-current assets 59,922 51,969 47,949 32,621

Total assets 8,33,171 8,17,062 8,95,722 9,77,059

Total current liabilities 2,14,352 2,16,395 2,38,964 2,47,747



Paid-up capital 12,068 11,427 11,427 11,427


Minorities 2,637 1,875 2,382 2,898





Pre-tax profit 1,15,465 1,22,528 1,17,741 1,33,810

Depreciation 19,474 20,862 24,050 25,277

Chg in working capital 17,922 21,098 2,414 14,268

Total tax paid -25,242 -24,799 -25,314 -28,769




Chg in investments 0 0 0 0

Chg in marketable securities 28,378 31,081 -40,000 -40,000


Cash flow from investing activities 7,701 -33,680 -66,644 -73,000

Free cash flow 1,35,320 1,06,009 52,247 71,586

Equity raised/(repaid) 3,745 -1,00,865 0 0

Debt raised/(repaid) -16,900 -10,890 0 0

Dividend (incl. tax) -5,269 -6,660 -34,153 -34,153

Other financing activities 421 3,768 0 0

Cash flow from financing activities -21,716 -1,20,039 -34,153 -34,153

Net chg in cash 1,13,604 -14,030 18,094 37,434

Valuation Ratios


Per Share data EPS (INR) 15.0 17.1 16.1 18.4

Growth, % (15.8) 14.0 (5.5) 13.7


CFPS (INR) 23.2 18.7 12.4 19.2

DPS (INR) 0.9 1.2 6.0 6.0


Return on equity (%) 15.8 17.4 14.9 15.2




Sales/Net FA (x) 2.9 2.7 2.4 2.6


Inventory days 2.5 1.1 2.5 2.5

Liquidity ratios

Current ratio (x) 2.7 2.4 2.5 2.8

Quick ratio (x) 2.6 2.4 2.5 2.8

Dividend cover (x) 17.1 14.6 2.7 3.1 Total debt/Equity (%) 17.5 17.4 20.0 18.0

Net debt/Equity (%) (10.4) (8.5) (6.4) (11.2)

Valuation

PER (x) 12.4 10.9 11.5 10.1

PEG (x) - y-o-y growth (0.8) 0.8 (2.1) 0.7

Price/Book (x) 2.0 1.9 1.7 1.5

Yield (%) 0.5 0.6 3.2 3.2

EV/Net sales (x) 1.4 1.3 1.3 1.1

EV/EBITDA (x) 7.0 6.5 6.4 5.1

EV/EBIT (x) 8.4 7.8 7.9 6.3



Financials – HCL Tech Income Statement Y/E Mar, Rs mn FY19 FY20 FY21E FY22E

Net sales 604,280 706,780 746,133 824,140

Growth, % 19 17 6 10

Employee expenses -392,680 -452,950 -483,317 -528,527


EBITDA (Core) 139,690 166,930 178,452 199,619

Growth, % 22.1 19.5 6.9 11.9

Margin, % 23.1 23.6 23.9 24.2

Depreciation -21,480 -28,400 -39,101 -39,689

EBIT 118,210 138,530 139,351 159,930

Growth, % 18.4 17.2 0.6 14.8

Margin, % 19.6 19.6 18.7 19.4


Forex Gains\ (Losses) 1,810 -140 200 200

Pre-tax profit 126,260 140,320 141,630 162,177

Tax provided -24,810 -29,380 -31,159 -38,923

Profit after tax 101,450 110,940 110,472 123,255

Non Recurring Item 0 0 0 0

Net Profit 101,450 110,940 110,472 123,255

Growth, % 15.5 9.4 (0.4) 11.6

Net Profit (adjusted) 101,450 110,940 110,472 123,255

Wtd avg shares (m) 2,714 2,714 2,714 2,714


US$ Revenue ($ mn) 8,632 9,936 9,948 10,844

Growth, % 10.1 15.1 0.1 9.0

Re / US$ (rate) 70.0 71.1 75.0 76.0


Cash & bank 62,840 48,430 45,749 89,233

Marketable securities at cost 54,620 105,300 129,300 179,300

Debtors 146,100 177,720 204,420 237,081

Inventory 0 0 0 0


Total current assets 300,720 384,240 432,568 564,395

Investments 350 380 380 380

Net fixed assets 287,890 447,540 503,354 496,766


Total assets 588,960 832,160 936,302 1,061,542

abcd Total current liabilities 111,480 233,610 249,827 270,883


Total liabilities 166,720 310,020 325,400 349,094

Paid-up capital 2,786 2,792 2,721 2,714

Reserves & surplus 414,914 514,068 602,901 704,454

Minorities 4,540 5,280 5,280 5,280

Shareholders’ equity 422,240 522,140 610,902 712,448

Total equity & liabilities 588,960 832,160 936,302 1,061,542



Pre-tax profit 126,260 140,320 141,630 162,177

Depreciation 21,480 28,400 39,101 39,689


Total tax paid -24,810 -29,380 -31,159 -38,923


Cash flow from operating activities 99,780 214,220 138,781 145,657


Chg in investments 2,522 -30 0 0

Chg in marketable securities 26,218 -50,680 -24,000 -50,000



Free cash flow 52,729 -24,540 19,865 62,556

Equity raised/(repaid) -38,574 6 -71 -8

Debt raised/(repaid) 38,200 21,170 -837 2,638


Other financing activities 12,401 12,685 71 8

Cash flow from financing activities -9,178 10,130 -22,546 -19,071

Net chg in cash 43,551 -14,410 -2,681 43,484

Valuation Ratios



Growth, % (40.7) 9.3 (0.4) 11.6


CFPS (INR) 34.5 78.2 50.4 52.9

DPS (INR) 8.1 8.0 8.0 8.0


Return on equity (%) 24.3 21.5 18.2 17.4




Sales/Net FA (x) 2.3 1.9 1.6 1.6

Working capital/Sales (x) 0.1 (0.0) 0.0 0.0

Receivable days 88.2 91.8 100.0 105.0

Liquidity ratios

Current ratio (x) 2.7 1.6 1.7 2.1

Quick ratio (x) 2.7 1.6 1.7 2.1


Total debt/Equity (%) 13.2 14.8 12.5 11.1

Net debt/Equity (%) (1.8) 5.4 4.9 (1.6)

Valuation

PER (x) 14.3 13.1 13.2 11.8

PEG (x) - y-o-y growth (0.4) 1.4 (31.2) 1.0

Price/Book (x) 3.5 2.8 2.4 2.1

Yield (%) 1.5 1.5 1.5 1.5

EV/Net sales (x) 2.3 1.9 1.8 1.5

EV/EBITDA (x) 10.0 8.3 7.6 6.3

EV/EBIT (x) 11.8 9.9 9.7 7.9



Financials – Tech Mahindra Income Statement Y/E Mar, Rs mn FY19 FY20 FY21E FY22E

Net sales 3,47,421 3,68,677 3,69,497 4,06,460 Growth, % 12.9 6.1 0.2 10.0 Employee expenses -2,18,576 -2,42,508 -2,38,491 -2,65,259 Other Operating expenses -65,476 -68,908 -75,981 -77,012 EBITDA (Core) 63,369 57,261 55,026 64,188 Growth, % 34.3 (9.6) (3.9) 16.7 Margin, % 18.2 15.5 14.9 15.8 Depreciation -11,292 -14,458 -16,510 -17,590 EBIT 52,077 42,803 38,516 46,599 Growth, % 43.4 (17.8) (10.0) 21.0 Margin, % 15.0 11.6 10.4 11.5 Interest paid -1,332 -1,919 -2,363 -2,363 Other Non-Operating Income 5,221 8,902 8,283 8,848 FX Gain 121 3,022 800 800 Pre-tax profit 55,432 50,578 45,296 53,944 Tax provided -12,544 -11,604 -10,871 -12,946 Profit after tax 42,888 38,974 34,425 40,997 Others (Minorities, Associates) 88 1,356 794 1,183 Net Profit 42,976 40,330 35,219 42,180 Growth, % 12.9 (6.2) (12.7) 19.8 Net Profit (adjusted) 42,976 40,330 35,219 42,180 Wtd avg shares (m) 885 871 871 871


US$ Revenue ($ mn) 4,971 5,182 4,927 5,348

Growth, % 4.2 4.3 -4.9 8.6

Re / US$ (rate) 69.9 71.1 75.0 76.0


Cash & bank 23,587 31,483 35,992 50,023

Debtors 69,649 75,809 80,314 86,604

Inventory 752 358 358 358



Investments 73,419 58,483 60,483 66,483

Net fixed assets 73,375 89,221 95,221 1,01,221

Total assets 3,34,469 3,73,535 3,85,066 4,22,184

Current liabilities 24,893 32,566 30,738 33,308

Provisions 9,753 11,055 10,978 11,896

Total current liabilities 34,646 43,621 41,716 45,204

Non-current liabilities 92,202 1,07,850 99,136 1,03,653


Paid-up capital 4,437 4,359 4,359 4,359


Minorities 4,777 3,933 3,933 3,933





Pre-tax profit 55,432 50,578 45,296 53,944

Depreciation 11,292 14,458 16,510 17,590

Chg in working capital 3,373 -23,062 -9,565 -3,999

Total tax paid -12,697 -12,654 -10,948 -12,028




Chg in investments -26,512 14,936 -2,000 -6,000




Free cash flow 24,844 13,952 16,783 25,916

Equity raised/(repaid) 20 -78 0 0

Debt raised/(repaid) -2,914 18,475 0 0


Other financing activities -14,045 -11,897 0 0

Cash flow from financing activities -31,700 -6,056 -12,274 -11,885

Net chg in cash -6,856 7,896 4,509 14,031

Valuation Ratios


Per Share data

EPS (INR) 48.5 46.3 40.4 48.4

Growth, % 12.1 (4.6) (12.7) 19.8


CFPS (INR) 63.2 38.1 30.8 56.3

DPS (INR) 14.0 15.0 15.0 15.0


Return on equity (%) 21.2 18.5 14.7 15.7




Sales/Net FA (x) 4.6 4.5 4.0 4.1



Liquidity ratios

Current ratio (x) 4.5 4.1 4.5 4.7

Quick ratio (x) 4.4 4.1 4.5 4.7



Net debt/Equity (%) (0.0) 0.0 (0.0) (0.1)

Valuation

PER (x) 10.7 11.2 12.9 10.7

PEG (x) - y-o-y growth 0.9 (2.4) (1.0) 0.5

Price/Book (x) 2.3 2.1 1.9 1.7

Yield (%) 2.7 2.9 2.9 2.9

EV/Net sales (x) 1.3 1.2 1.2 1.1

EV/EBITDA (x) 7.1 7.9 8.2 6.8

EV/EBIT (x) 8.7 10.6 11.7 9.4



Financials - LTI Income Statement Y/E Mar, Rs mn FY19 FY20 FY21E FY22E

Net sales 94,458 108,786 114,344 129,804

Growth, % 29 15 5 14

Total income 94,458 108,786 114,344 129,804



EBITDA (Core) 18,835 20,292 20,798 24,734

Growth, % 50.8 7.7 2.5 18.9

Margin, % 19.9 18.7 18.2 19.1

Depreciation -1,471 -2,731 -3,161 -3,337

EBIT 17,364 17,561 17,637 21,398

Growth, % 58.8 1.1 0.4 21.3

Margin, % 18.4 16.1 15.4 16.5

Interest paid -106 -826 -884 -884

Other Income 3,021 3,289 3,569 4,090

Pre-tax profit 20,279 20,024 20,322 24,603

Tax provided -5,122 -4,825 -5,080 -6,151

Profit after tax 15,157 15,199 15,241 18,453

Others (Minorities, Associates) 0 0 0 0

Net Profit 15,157 15,199 15,241 18,453

Growth, % 30.5 0.3 0.3 21.1


Wtd avg shares (m) 174 174 174 174


US$ Revenue ($ mn) 1,349 1,525 1,525 1,708

Growth, % 19.1 13.0 (0.0) 12.0

Re / US$ (rate) 70.0 71.4 75.0 76.0


Cash & bank 4,150 5,252 5,410 9,743

Debtors 23,845 27,541 27,130 31,446

Loans & advances 3,854 2,422 2,795 3,300

Other current assets 0 0 0 0


Investments 17,402 22,186 26,186 30,186

Net fixed assets 9,414 19,788 20,688 22,088


Total assets 66,692 88,248 92,270 107,941

abcd Current liabilities 13,981 19,415 15,664 17,885

Provisions 3,335 14,600 12,700 13,265




Paid-up capital 174 174 174 174



Total equity & liabilities 66,692 88,248 92,270 107,941



Pre-tax profit 20,279 20,024 20,322 24,603

Depreciation 1,471 2,731 3,161 3,337


Total tax paid -4,771 -5,726 -5,080 -6,151



Chg in investments -4,759 -4,784 -4,000 -4,000




Free cash flow 5,339 11,196 5,726 9,901

Equity raised/(repaid) 2 0 0 0



Other financing activities 862 -4,852 0 0


Net chg in cash 517 1,102 158 4,333

Valuation Ratios


Per Share data

EPS (INR) 87.1 87.4 87.6 106.0

Growth, % 28.0 0.3 0.3 21.1


CEPS (INR) 95.6 103.0 105.8 125.2

CFPS (INR) 93.9 172.3 63.3 100.7

DPS (INR) 27.9 28.0 32.0 32.0


Return on equity (%) 31.0 28.1 23.9 24.1




Sales/Net FA (x) 11.6 7.5 5.6 6.1



Payable days 22.5 61.7 48.7 49.6

Working capital days 53.0 35.4 45.5 47.4

Liquidity ratios

Current ratio (x) 2.3 1.8 2.3 2.5

Quick ratio (x) 2.3 1.8 2.3 2.5

Interest cover (x) 163.8 21.3 20.0 24.2


Total debt/Equity (%) - 0.6 0.5 0.4

Net debt/Equity (%) (8.5) (9.1) (8.0) (12.3)

Valuation

PER (x) 20.1 20.1 20.0 16.5

PEG (x) - y-o-y growth 0.7 72.5 72.3 0.8

Price/Book (x) 6.2 5.6 4.8 4.0

Yield (%) 1.6 1.6 1.8 1.8

EV/Net sales (x) 3.2 2.8 2.6 2.3

EV/EBITDA (x) 16.0 14.8 14.4 12.0

EV/EBIT (x) 17.3 17.1 17.0 13.8



Financials - LTTS Income Statement Y/E Mar, Rs mn FY19 FY20 FY21E FY22E

Net sales 50,783 56,192 56,040 62,553 Growth, % 36 11 0 12 Total income 50,783 56,192 56,040 62,553 Employee expenses -35,165 -37,708 -37,656 -41,140 Other Operating expenses -6,472 -7,379 -7,707 -8,989 EBITDA (Core) 9,146 11,105 10,677 12,425 Growth, % 58.9 21.4 (3.9) 16.4 Margin, % 18.0 19.8 19.1 19.9 Depreciation -1,042 -1,829 -1,833 -1,906 EBIT 8,104 9,276 8,844 10,518 Growth, % 66.5 14.5 (4.7) 18.9 Margin, % 16.0 16.5 15.8 16.8 Interest paid 0 0 0 0 Other Income 1,277 989 669 943 Pre-tax profit 10,315 11,003 10,313 12,261 Tax provided -2,630 -2,779 -2,681 -3,188 Profit after tax 7,685 8,224 7,631 9,073 Others (Minorities, Associates) 0 0 0 0 Net Profit 7,685 8,224 7,631 9,073 Growth, % 51.7 7.0 (7.2) 18.9 Net Profit (adjusted) 7,685 8,224 7,631 9,073 Wtd avg shares (m) 104 105 105 105


US$ Revenue ($ mn) 723 787 747 823

Growth, % 24.6 8.8 (5.0) 10.2

Re / US$ (rate) 70.2 71.4 75.0 76.0


Cash & bank 2,051 2,439 2,395 7,304 Debtors 10,643 13,807 14,336 14,095 Loans & advances 3,783 5,309 5,463 5,851 Other current assets 0 0 0 0 Total current assets 16,477 21,555 22,194 27,250 Investments 5,749 6,420 8,420 10,020 Net fixed assets 7,800 11,822 12,302 12,782 Non-current assets 3,486 3,236 3,504 3,524 Total assets 33,638 43,033 46,420 53,575


Provisions 1,341 0 1,163 1,125 Total current liabilities 8,626 15,278 13,333 13,714 Non-current liabilities 190 0 0 0 Total liabilities 8,816 15,278 13,333 13,714 Paid-up capital 208 209 209 209 Reserves & surplus 24,614 27,546 32,878 39,653 Shareholders’ equity 24,822 27,755 33,087 39,862 Total equity & liabilities 33,638 43,033 46,420 53,575



Pre-tax profit 10,315 11,003 10,313 12,261 Depreciation 1,042 1,829 1,833 1,906 Chg in working capital -833 2,212 -2,896 214 Total tax paid -2,496 -2,843 -2,681 -3,188 Cash flow from operating activities 8,028 12,201 6,568 11,194 Capital expenditure -1,747 -5,851 -2,313 -2,386 Chg in investments -3,542 -671 -2,000 -1,600 Chg in marketable securities 0 0 0 0 Other investing activities 0 0 0 0 Cash flow from investing activities -5,289 -6,522 -4,313 -3,986 Free cash flow 2,739 5,679 2,255 7,208 Equity raised/(repaid) 3 1 0 0 Debt raised/(repaid) 0 0 0 0 Dividend (incl. tax) -2,248 -2,323 -2,299 -2,299 Other financing activities 15 -2,969 0 0 Cash flow from financing activities -2,230 -5,291 -2,299 -2,299 Net chg in cash 509 388 -44 4,909

Valuation Ratios



Growth, % 48.3 6.5 (7.2) 18.9 Book NAV/share (INR) 238.7 265.6 316.6 381.5 CEPS (INR) 83.9 96.2 90.6 105.1 CFPS (INR) 50.0 38.5 127.7 95.3 DPS (INR) 18.5 21.0 22.0 22.0 Return ratios

Return on assets (%) 25.3 21.5 17.1 18.1 Return on equity (%) 31.0 29.6 23.1 22.8 Return on capital employed (%) 32.6 30.4 24.6 24.1 Turnover ratios

Asset turnover (x) 3.0 2.5 2.3 2.7 Sales/Total assets (x) 1.7 1.5 1.3 1.3 Sales/Net FA (x) 6.8 5.7 4.6 5.0 Working capital/Sales (x) 0.1 0.1 0.1 0.1 Receivable days 76.5 89.7 93.4 82.2 Payable days 16.5 - 18.7 18.7 Working capital days 51.3 24.9 49.7 42.9 Liquidity ratios Current ratio (x) 2.3 1.4 1.8 2.2 Quick ratio (x) 2.3 1.4 1.8 2.2 Interest cover (x) Dividend cover (x) 4.0 3.8 3.3 3.9 Total debt/Equity (%) 13.9 37.4 9.7 8.8 Net debt/Equity (%) 5.6 28.6 2.5 (9.5) Valuation PER (x) 14.5 13.6 14.7 12.3 PEG (x) - y-o-y growth 0.3 2.1 (2.0) 0.7 Price/Book (x) 4.5 4.0 3.4 2.8 Yield (%) 1.7 2.0 2.1 2.1 EV/Net sales (x) 2.2 2.1 2.0 1.7 EV/EBITDA (x) 12.3 10.8 10.5 8.7 EV/EBIT (x) 13.9 12.9 12.7 10.3



Financials - Mindtree Income Statement Y/E Mar, Rs mn FY19 FY20 FY21E FY22E

Net sales 70,215 77,643 78,918 87,973

Growth, % 28.5 10.6 1.6 11.5

Total income 70,215 77,643 78,918 87,973


SG&A -15,358 -16,373 -15,389 -17,155

EBITDA (Core) 10,645 10,623 11,857 14,152

Growth, % 43.8 (0.2) 11.6 19.4

Margin, % 15.2 13.7 15.0 16.1

Depreciation -1,641 -2,754 -2,854 -3,035

EBIT 9,004 7,869 9,003 11,116

Growth, % 58.2 (12.6) 14.4 23.5

Margin, % 12.8 10.1 11.4 12.6

Other Non-Operating Income 893 948 1,208 1,517

Pre-tax profit 9,868 8,288 9,700 12,121

Tax provided -2,327 -1,979 -2,522 -3,030

Profit after tax 7,541 6,309 7,178 9,091

Net Profit 7,541 6,309 7,178 9,091

Growth, % 32.3 (16.3) 13.8 26.6


Wtd avg shares (m) 164 164 164 164


US$ Revenue ($ mn) 1,001 1,089 1,052 1,158

Growth, % 18.3 8.7 (3.4) 10.0

Re / US$ (rate) 70.1 71.3 75.0 76.0


Cash & bank 2,562 5,870 6,697 11,638

Debtors 13,356 14,389 15,573 17,134

Loans & advances 3,326 3,361 3,436 3,770



Investments 8,036 7,748 9,748 9,748

Gross fixed assets 9,669 14,092 14,892 15,692

Add: Capital WIP 297 136 136 136

Net fixed assets 9,966 14,228 15,028 15,828


Total assets 41,790 51,566 56,322 64,359


Provisions 1,399 1,724 1,686 1,853


Non-current liabilities 179 6,762 6,762 6,762


Paid-up capital 1,642 1,646 1,646 1,646






Pre-tax profit 9,868 8,288 9,700 12,121

Depreciation 1,641 2,754 2,854 3,035


Total tax paid -2,216 -3,101 -2,560 -2,863



Chg in investments -772 288 -2,000 0


Free cash flow 1,171 11,115 2,958 7,071


Debt raised/(repaid) -4 -5 0 0


Other financing activities 4,431 -5,592 0 0


Net chg in cash -727 3,308 827 4,941

Valuation Ratios


Per Share data

EPS (INR) 46.0 38.5 43.8 55.5

Growth, % 32.3 (16.3) 13.8 26.6


FDEPS (INR) 46.0 38.5 43.8 55.5

CEPS (INR) 56.0 55.3 61.2 74.0

CFPS (INR) 38.7 101.9 45.7 58.4

DPS (INR) 33.0 13.0 13.0 13.0


Return on equity (%) 22.8 20.0 19.6 20.9




Sales/Net FA (x) 7.2 6.4 5.4 5.7



Payable days 13.1 14.1 14.3 14.3

Working capital days 54.1 32.7 38.3 38.7

Liquidity ratios

Current ratio (x) 2.5 2.0 2.2 2.5

Quick ratio (x) 2.5 2.0 2.2 2.5


Total debt/Equity (%) 0.0 - - -

Net debt/Equity (%) (7.7) (18.6) (18.3) (26.7)

Valuation

PER (x) 19.1 22.9 20.1 15.9

PEG (x) - y-o-y growth 0.6 (1.4) 1.5 0.6

Price/Book (x) 4.4 4.6 3.9 3.3

Yield (%) 3.7 1.5 1.5 1.5

EV/Net sales (x) 2.0 1.8 1.7 1.5

EV/EBITDA (x) 13.3 13.0 11.6 9.4

EV/EBIT (x) 15.8 17.6 15.3 11.9


IT SERVICES

SECTOR UPDATE

Financials - Mphasis Income Statement Y/E Mar, Rs mn FY19 FY20 FY21E FY22E

Net sales 77,311 88,436 90,248 98,873 Growth, % 18 14 2 10 Employee expenses -10,783 -13,726 -14,192 -15,373 Other Operating expenses -53,288 -58,205 -59,849 -64,936 EBITDA (Core) 13,240 16,505 16,208 18,563 Growth, % 24.2 24.7 (1.8) 14.5 Margin, % 17.1 18.7 18.0 18.8 Depreciation -759 -2,317 -2,397 -2,514 EBIT 12,481 14,188 13,810 16,049 Growth, % 25.4 13.7 (2.7) 16.2 Margin, % 16.1 16.0 15.3 16.2 Other Income 1,579 1,632 1,438 1,891 Pre-tax profit 14,073 15,155 14,569 17,261 Tax provided -3,339 -3,306 -3,642 -4,315 Profit after tax 10,734 11,849 10,927 12,946 Others (Minorities, Associates) 0 0 0 0 Net Profit 10,734 11,849 10,927 12,946 Growth, % 25.7 10.4 (7.8) 18.5 Net Profit (adjusted) 10,734 11,849 10,927 12,946 Wtd avg shares (m) 193 188 188 188


Total Revenue ($ mn) 1,119 1,239 1,199 1,297

Growth, % 13.1 10.8 (3.2) 8.1

Re / $ (rate) 69.9 71.2 75.0 76.0

Direct Core revenue ($ mn) 622 714 703 778

Growth, % 15% 15% -2% 11%

DXC revenue ($ mn) 316 335 301 302

Growth, % 22% 6% -10% 0%

Others (Digital Risk, Products, etc) 180 191 195 217

Growth, % -5% 6% 2% 11%


Cash & bank 17,116 21,460 23,241 28,608 Debtors 18,487 17,696 21,311 21,121 Other current assets 4,170 3,991 4,209 4,660 Total current assets 41,031 44,131 49,735 55,285 Investments 2,592 3,479 3,479 3,479 Net fixed assets 21,727 24,066 24,266 24,466 Total assets 73,711 87,535 93,032 99,830 Current liabilities 19,937 20,275 21,452 22,807 Non-current liabilities 1,275 8,964 8,918 8,929 Total liabilities 21,213 29,239 30,370 31,736 Paid-up capital 1,862 1,865 1,865 1,865 Reserves & surplus 50,636 56,431 60,797 66,228 Shareholders’ equity 52,498 58,296 62,662 68,094 Total equity & liabilities 73,711 87,535 93,032 99,830



Pre-tax profit 14,073 15,155 14,569 17,261 Depreciation 759 2,317 2,397 2,514 Chg in working capital -90 2,031 -3,134 215 Total tax paid -3,339 -3,306 -3,642 -4,315 Cash flow from operating activities 11,403 16,197 10,190 15,675 Capital expenditure -3,623 -4,656 -2,597 -2,714 Chg in investments 577 -887 0 0 Cash flow from investing activities -3,173 -4,994 -2,597 -2,714 Free cash flow 8,230 11,204 7,593 12,961 Equity raised/(repaid) -70 3 0 0 Debt raised/(repaid) 0 0 0 0 Dividend (incl. tax) -6,049 -6,524 -6,556 -7,508 Other financing activities -6,713 -339 744 -86 Cash flow from financing activities -12,833 -6,860 -5,812 -7,595 Net chg in cash -4,602 4,344 1,781 5,366

Valuation Ratios



Growth, % 27.8 13.6 (7.8) 18.5 Book NAV/share (INR) 271.4 310.3 333.5 362.4 CFPS (INR) 43.5 111.7 49.1 78.0 DPS (INR) 26.7 34.7 34.9 40.0 Return ratios


Asset turnover (x) 2.8 3.3 3.6 3.8 Sales/Total assets (x) 1.1 1.1 1.0 1.0 Sales/Net FA (x) 3.8 3.9 3.7 4.1 Working capital/Sales (x) 0.1 0.0 0.1 0.0 Receivable days 87.3 73.0 86.2 78.0 Working capital days 18.8 11.6 22.2 16.2 Liquidity ratios Current ratio (x) 2.1 2.2 2.3 2.4 Quick ratio (x) 2.1 2.2 2.3 2.4 Dividend cover (x) 2.1 1.8 1.7 1.7 Net debt/Equity (%) (27.2) (32.3) (32.8) (38.0) Valuation PER (x) 14.8 13.1 14.2 12.0 PEG (x) - y-o-y growth 0.5 1.0 (1.8) 0.6 Price/Book (x) 3.0 2.7 2.5 2.3 Yield (%) 3.2 4.2 4.2 4.8 EV/Net sales (x) 1.9 1.6 1.5 1.3 EV/EBITDA (x) 11.0 8.4 8.4 7.1 EV/EBIT (x) 11.7 9.7 9.9 8.2


IT SERVICES

SECTOR UPDATE

Financials – Hexaware Technologies

Income Statement Y/E Dec, Rs mn CY18 CY19 CY20E CY21E

Net sales 46,477 55,824 59,780 66,745 Growth, % 17.9 20.1 7.1 11.7 Employee expenses -31,122 -37,572 -40,267 -44,231 Other Operating expenses -8,020 -9,474 -10,046 -11,421 EBITDA (Core) 7,335 8,777 9,467 11,094 Growth, % 11.9 19.7 7.9 17.2 Margin, % 15.8 15.7 15.8 16.6 Depreciation -650 -1,033 -2,233 -2,320 EBIT 6,685 7,745 7,234 8,774 Growth, % 12.9 15.9 -6.6 21.3 Margin, % 14.4 13.9 12.1 13.1 Interest Paid 0 0 -241 -306 Other Non-Operating Income 108 21 -46 120 Pre-tax profit 7,265 7,958 7,410 8,789 Tax provided -1,432 -1,379 -1,423 -1,714 Profit after tax 5,833 6,579 5,987 7,075 Growth, % 16.8 12.8 -9.0 18.2 Net Profit (adjusted) 5,833 6,579 5,987 7,075 Wtd avg shares (m) 297.4 298.5 298.5 298.5

Assumptions CY18 CY19 CY20E CY21E

US$ Revenue ($ mn) 677.7 793.3 802.1 881.0

Growth, % 11.6 17.1 1.1 9.8

Re / US$ (rate) 68.6 70.4 74.5 75.8

Balance Sheet Y/E Mar, Rs mn CY18 CY19 CY20E CY21E

Cash & bank 8,205 2,466 4,473 7,087 Debtors 10,761 13,331 14,785 15,380 Loans & advances 553 743 986 1,139 Total current assets 20,154 17,665 21,065 24,555 Investments 127 30 0 0 Net fixed assets 7,986 21,239 24,281 25,081 Non-current assets 1,283 1,317 1,314 1,519 Total assets 31,335 41,688 48,217 52,712

Current liabilities 6,425 11,939 10,614 12,240

Provisions 916 620 1,378 1,113 Total current liabilities 7,340 12,558 11,993 13,352 Non-current liabilities 76 1,474 4,296 3,938 Total liabilities 7,416 14,033 16,289 17,290 Paid-up capital 595 597 597 597 Reserves & surplus 23,324 27,058 31,331 34,824 Shareholders’ equity 23,919 27,655 31,928 35,421 Total equity & liabilities 31,335 41,688 48,217 52,712


Cash Flow Y/E Dec, Rs mn CY18 CY19 CY20E CY21E

Pre-tax profit 7,265 7,958 7,410 8,789 Depreciation 650 1,033 2,233 2,320 Chg in working capital -567 1,903 -1,724 321 Total tax paid -1,881 -1,032 -1,543 -1,714 Cash flow from operating activities 5,467 9,861 6,376 9,716 Capital expenditure -659 -14,285 -5,275 -3,120 Chg in investments 86 97 30 0 Cash flow from investing activities -573 -14,188 -5,245 -3,120 Free cash flow 4,894 -4,327 1,131 6,596 Equity raised/(repaid) 1 2 0 0 Debt raised/(repaid) 0 1,429 2,591 -400 Dividend (incl. tax) -3,038 -2,896 -1,343 -3,582 Other financing activities 1,050 52 -370 0 Cash flow from financing activities -1,987 -1,413 877 -3,982 Net chg in cash 2,907 -5,740 2,008 2,614

Valuation Ratios

CY18 CY19 CY20E CY21E

Per Share data

EPS (INR) 19.6 22.0 20.1 23.7 Growth, % 16.6 12.4 (9.0) 18.2 Book NAV/share (INR) 80.4 92.6 107.0 118.7 CFPS (INR) 18.4 33.1 21.5 32.8 DPS (INR) 8.5 8.5 4.5 12.0 Return ratios


Asset turnover (x) 3.5 2.9 2.2 2.2 Sales/Total assets (x) 1.6 1.5 1.3 1.3 Sales/Net FA (x) 5.8 3.8 2.6 2.7 Working capital/Sales (x) 0.1 0.1 0.1 0.1 Receivable days 84.5 87.2 90.3 84.1 Liquidity ratios Current ratio (x) 3.1 1.5 2.0 2.0 Quick ratio (x) 3.1 1.5 2.0 2.0 Dividend cover (x) 2.3 2.6 4.5 2.0 Net debt/Equity (%) (34.3) (3.7) (1.4) (9.8) Valuation PER (x) 12.0 10.7 11.7 9.9 PEG (x) - y-o-y growth 0.7 0.9 (1.3) 0.5 Price/Book (x) 2.9 2.5 2.2 2.0 Yield (%) 3.6 3.6 1.9 5.1 EV/Net sales (x) 1.3 1.2 1.2 1.0 EV/EBITDA (x) 8.4 7.9 7.4 6.0 EV/EBIT (x) 9.2 8.9 9.6 7.6


PERSISTENT SYSTEM QUARTERLY UPDATE

Financials – Persistent Systems

Income Statement Y/E Mar, Rs mn FY19 FY20 FY21E FY22E

Net sales 33,659 35,658 36,520 39,342

Growth, % 11.0 5.9 2.4 7.7



EBITDA (Core) 5,805 4,930 5,192 5,688

Growth, % 23.9 (15.1) 5.3 9.6

Margin, % 17.2 13.8 14.2 14.5

Depreciation -1,573 -1,660 -1,678 -1,779

EBIT 4,233 3,270 3,514 3,910

Growth, % 36.4 (22.7) 7.5 11.3

Margin, % 12.6 9.2 9.6 9.9


Other Income 874 889 893 1,000

Pre-tax profit 4,863 4,523 4,607 5,110

Tax provided -1,347 -1,121 -1,152 -1,277

Profit after tax 3,517 3,403 3,456 3,832

Others (Minorities,) 0 0 0 0

Net Profit 3,517 3,403 3,456 3,832

Growth, % 8.8 (3.2) 1.5 10.9


Wtd avg shares (m) 79 76 76 76


US$ Revenue ($ mn) 481 502 487 518

Growth, % 2.2 4.3 -2.9 6.3

Re / US$ (rate) 70.0 71.1 75.0 76.0


Cash & bank 6,724 4,572 6,113 8,182


Debtors 4,923 5,922 6,593 7,129

Inventory 0 0 0 0



Investments 7,641 9,786 9,786 9,786

Net fixed assets 4,242 4,530 4,852 5,073


Total assets 28,556 30,922 33,454 36,118

abcd Total current liabilities 5,097 7,018 7,012 6,837





Minorities 0 0 0 0





Pre-tax profit 4,863 4,523 4,607 5,110

Depreciation 1,573 1,660 1,678 1,779

Chg in working capital -113 425 -675 -549

Total tax paid -1,110 -1,676 -1,152 -1,277



Capital expenditure -718 -1,947 -2,000 -2,000

Chg in investments 1,156 -2,145 0 0



Cash flow from investing activities 439 -4,092 -2,000 -2,000

Free cash flow 5,652 840 2,458 3,062

Equity raised/(repaid) -9 -27 0 0


Dividend (incl. tax) -1,304 -917 -917 -994

Other financing activities -29 -2,048 0 0

Cash flow from financing activities -1,342 -2,992 -917 -994

Net chg in cash 4,310 -2,152 1,541 2,069

Valuation Ratios



Growth, % 10.1 0.2 1.5 10.9


CFPS (INR) 54.9 53.0 46.6 53.2

DPS (INR) 14.1 12.0 12.0 13.0


Return on equity (%) 15.0 14.3 13.1 13.1




Sales/Net FA (x) 7.2 8.1 7.8 7.9



Liquidity ratios

Current ratio (x) 5.1 3.0 3.4 4.0

Quick ratio (x) 5.1 3.0 3.4 4.0


Net debt/Equity (%) (28.7) (19.2) (23.2) (28.0)

Valuation

PER (x) 11.7 11.7 11.5 10.4

PEG (x) - y-o-y growth 1.2 67.9 7.4 1.0

Price/Book (x) 1.8 1.7 1.5 1.4

Yield (%) 2.7 2.3 2.3 2.5

EV/Net sales (x) 1.0 1.0 0.9 0.8

EV/EBITDA (x) 5.9 7.1 6.5 5.5

EV/EBIT (x) 8.1 10.8 9.6 8.1



Financials - Cyient Income Statement Y/E Mar, Rs mn FY19 FY20 FY21E FY22E

Net sales 46,175 44,275 38,366 41,621

Growth, % 18 -4 -13 8



EBITDA (Core) 6,444 5,959 3,964 5,259

Growth, % 17.3 (7.5) (33.5) 32.7

Margin, % 14.0 13.5 10.3 12.6

Depreciation -1,113 -1,878 -1,962 -2,087

EBIT 5,331 4,081 2,002 3,172

Growth, % 20.0 (23.4) (50.9) 58.4

Margin, % 11.5 9.2 5.2 7.6

Forex gains/losses -362 -517 -499 -490


Pre-tax profit 6,309 4,512 2,898 3,993

Tax provided -1,427 -1,076 -696 -958

Exceptional item 0 0 0 0

Profit after tax 4,882 3,436 2,203 3,035

Others (Minorities, Associates) 4 2 0 0

Net Profit 4,886 3,438 2,203 3,035

Growth, % 13.9 (23.5) (41.1) 37.8


Wtd avg shares (m) 110 110 110 110


Total US$ Revenue ($ mn) 660 625 512 548

Growth, % 8.7 -5.3 -18.2 7.1

Re / US$ (rate) 70.0 70.8 75.0 76.0


Cash & bank 9,705 9,518 10,808 10,202 Debtors 8,137 7,262 7,534 8,166 Inventory 1,833 2,267 1,614 1,750 Other current assets 5,900 5,603 4,305 4,666 Total current assets 25,575 24,650 24,261 24,784 Investments 545 414 1,214 1,214 Net fixed assets 10,820 14,509 15,109 15,709 Non-current assets 1,658 1,828 1,614 1,750 Total assets 38,892 41,797 42,594 43,853

Abcd Current liabilities 9,182 10,430 10,245 9,798

Provisions 1,870 1,856 1,586 1,757 Total current liabilities 11,052 12,286 11,831 11,555 Non-current liabilities 2,218 3,934 3,534 3,134 Total liabilities 13,270 16,220 15,365 14,689 Paid-up capital 552 550 550 550 Reserves & surplus 25,070 25,027 26,680 28,614 Shareholders’ equity 25,622 25,577 27,230 29,164 Total equity & liabilities 38,892 41,797 42,594 43,853



Pre-tax profit 6,309 4,512 2,898 3,993

Depreciation 1,113 1,878 1,962 2,087

Chg in working capital -1,715 1,802 1,437 -1,540

Total tax paid -1,351 -1,205 -696 -958



Chg in investments 883 131 -800 0


Free cash flow 1,796 1,853 2,240 894

Equity raised/(repaid) -11 -2 0 0

Debt raised/(repaid) 804 1,743 -400 -400

Dividend (incl. tax) -1,952 -1,931 -550 -1,100

Other financing activities -743 -1,853 0 0

Cash flow from financing activities -1,898 -2,040 -950 -1,500

Net chg in cash -102 -187 1,290 -606

Valuation Ratios



Growth, % 16.0 (23.2) (41.1) 37.8


CFPS (INR) 23.2 47.0 36.3 21.9

DPS (INR) 15.1 15.0 5.0 10.0


Return on equity (%) 19.1 14.6 8.1 10.4




Sales/Net FA (x) 4.8 3.5 2.6 2.7


Receivable days 64.3 59.9 71.7 71.6 Inventory days 14.5 18.7 15.4 15.3 Payable days 34.1 35.5 41.7 37.4 Working capital days 52.9 38.8 30.5 42.0

Liquidity ratios

Current ratio (x) 2.8 2.4 2.4 2.5

Quick ratio (x) 2.6 2.1 2.2 2.4

Interest cover (x) 14.7 7.9 4.0 6.5



Net debt/Equity (%) (24.6) (13.7) (22.0) (19.8)

Valuation

PER (x) 4.3 5.6 9.5 6.9

PEG (x) - y-o-y growth 0.3 (0.2) (0.2) 0.2

Price/Book (x) 0.8 0.8 0.8 0.7

Yield (%) 7.9 7.9 2.6 5.2

EV/Net sales (x) 0.3 0.4 0.4 0.4

EV/EBITDA (x) 2.4 3.0 4.1 3.1

EV/EBIT (x) 2.9 4.4 8.1 5.2



Financials – NIIT Tech Income Statement Y/E Mar, Rs mn FY19 FY20 FY21E FY22E

Net sales 36,762 41,839 44,507 49,886

Growth, % 22.9 13.8 6.4 12.1



EBITDA (Core) 6,453 7,198 7,205 8,591

Growth, % 28.8 11.5 0.1 19.2

Margin, % 17.6 17.2 16.2 17.2

Depreciation -1,248 -1,730 -1,789 -1,878

EBIT 5,205 5,468 5,415 6,713

Growth, % 39.2 5.1 (1.0) 24.0

Margin, % 14.2 13.1 12.2 13.5


Other Non-Operating Income 476 557 598 669

Exceptional Item -56 -71 0 0

Pre-tax profit 5,625 5,954 6,014 7,382

Tax provided -1,404 -1,278 -1,323 -1,624

Profit after tax 4,221 4,676 4,691 5,758

Others (Minorities, Associates) -188 -238 -235 -288

Net Profit 4,033 4,438 4,456 5,470

Growth, % 45.9 10.3 (1.2) 22.8


Wtd avg shares (m) 62 62 62 62


US$ Revenue ($ mn) 528 593 593 656

Growth, % 13.9 12.3 0.0 10.6

Re / US$ (rate) 69.6 70.5 75.0 76.0


Cash & bank 9,695 13,527 15,088 20,442


Debtors 6,189 8,565 9,755 9,567

Inventory 52 52 52 52



Investments 2,301 2,301 2,301 2,301

Net fixed assets 3,646 1,905 1,316 638


Total assets 26,385 31,969 34,639 39,033






Minorities 75 0 235 522





Pre-tax profit 5,625 5,954 6,014 7,382

Depreciation 1,248 1,730 1,789 1,878

Chg in working capital -667 -1,081 -1,723 1,102

Total tax paid -1,299 -1,454 -1,323 -1,624



Capital expenditure -681 11 -1,200 -1,200

Chg in investments 0 0 0 0



Cash flow from investing activities -681 11 -1,200 -1,200

Free cash flow 4,282 5,231 3,557 7,538


Debt raised/(repaid) -90 181 0 0

Dividend (incl. tax) 0 -2,140 -1,997 -2,184

Other financing activities -1,110 866 0 0


Net chg in cash 2,750 3,832 1,561 5,354

Valuation Ratios



Growth, % 44.7 9.4 (1.5) 22.8


CFPS (INR) 71.8 73.8 66.7 129.3

DPS (INR) - 31.0 32.0 35.0


Return on equity (%) 19.7 18.8 16.9 18.4




Sales/Net FA (x) 9.4 15.1 27.6 51.1



Liquidity ratios

Current ratio (x) 4.7 4.6 5.2 5.5

Quick ratio (x) 4.7 4.6 5.2 5.5

Dividend cover (x) 2.3 2.2 2.5


Net debt/Equity (%) (46.1) (55.1) (55.9) (67.7)

Valuation

PER (x) 21.4 19.5 19.8 16.1

PEG (x) - y-o-y growth 0.5 2.1 (13.6) 0.7

Price/Book (x) 4.2 3.7 3.3 3.0

Yield (%) - 2.2 2.3 2.5

EV/Net sales (x) 2.1 1.8 1.7 1.4

EV/EBITDA (x) 12.1 10.4 10.2 7.9

EV/EBIT (x) 14.9 13.7 13.6 10.2



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Large cap stocks Rating Criteria Definition

BUY >= +10% Target price is equal to or more than 10% of current market price

NEUTRAL -10% > to < +10% Target price is less than +10% but more than -10%

SELL <= -10% Target price is less than or equal to -10%.

Mid cap and Small cap stocks Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%

SELL <= -15% Target price is less than or equal to -15%.

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Sr. no. Particulars Yes/No

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