tata consultancy services (tcs) |...

October 13, 2017

ICICI Securities Ltd | Retail Equity Research

Result Update

Dollar revenue in line, margins surprise…

US$ revenues grew 3.2% QoQ to $4,739 million, in line with our

3.2% QoQ growth and $4,739 million estimate. Constant currency

revenues grew 1.7% QoQ led by volume growth (3.2% QoQ)

Rupee revenues grew 3.2% QoQ to | 30,541 crore, marginally ahead

of our 2.9% growth estimate of | 30,453 crore

At 25.1%, EBIT margins expanded 170 bps and were above our 130

bps expansion and 24.6% estimate mainly on account of better-than-

expected revenue growth and lower SG&A (down 1.9% QoQ)

PAT of | 6,446 crore was ahead of our | 6,267 crore estimate led by a

better-than-expected operational performance. TCS declared a

dividend of | 7 per share

Going ahead: Cautious on BFSI; optimistic on retail…

Constant currency (CC) revenues grew 1.7% QoQ, lower than our

estimates of 2% led by weakness in the retail & BFSI segment. While BFS

is yet to see any meaningful improvement in fundamentals, a couple of

deal wins in insurance segment expected to materialise in coming

quarters would be a positive. For the retail segment, the management

anticipates retail segment to have bottomed out and expects it to pick up

in coming quarters on the back of increasing discretionary spends.

Although a few deals are of significant size, deal size on overall front and,

specifically in BFS, continues to remain small. A recovery on this front

needs to be watched. We now expect dollar revenues to grow at a CAGR

of 8.7% in FY17E-19E.

Margins better than expectations …

EBIT margins came in better than our expectations with a 170 bps uptick

sequentially to 25.1% led by cross currency benefit (50 bps) accompanied

by operational efficiency. Decline in SG&A as a percentage of revenue

(16.9% in Q2 vs. 17.8% in Q1) was a primary reason for margin expansion

coming in better than our estimates. The management continues to target

its EBIT margin band of 26-28% (in CC terms) for FY18E. However, rupee

appreciation, increased local hiring and demand for investments in digital

could make it a rough ride. We tweak our margin estimates to 24.7%,

25.2% in FY18E, FY19E, respectively.

Digital contribution @19.7% of revenues, grows 32.6% YoY…

Digital contribution to overall revenues continues to pick up and is now at

19.7% to revenue vs. 18.9% in Q1FY18. It reported double digit growth

for a third consecutive quarter on a YoY basis and grew 32.6% YoY.

Keeping in view the transformation to digital, TCS has carried out a

restructuring exercise in the previous quarter and reorganised its service

lines. The management said the reorganised service lines successfully

completed their transition in Q2, and are experiencing strong demand

with transformational wins in respective domains.

Await recovery in BFS; maintain HOLD…

TCS surprised us positively on the margin front in Q2FY18. However, the

management commentary on the demand environment remains a mixed

bag. While the retail vertical has bottomed out, we are yet to see a

recovery in its largest vertical i.e. BFSI on the deal size front. Hence, we

continue to expect subdued earning growth (4.3%) in FY17-19.

Nonetheless, FY19 FCF yield of ~5% lends us comfort on limited

downside. Hence, we maintain our HOLD rating on TCS with a revised

target price of | 2540.

Rating matrix

Rating : Hold

Target : | 2540

Target Period : 12 months

Potential Upside : 0%

What’s Changed?

Target Changed from | 2400 to | 2540

EPS FY18E Changed from | 133.1 to | 134.3

EPS FY19E Changed from | 148.6 to | 149.4

Rating Unchanged

Quarterly Performance

Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ (%)

Revenue 30,541 29,284 4.3 29,584 3.2

EBIT 7,660 7,617 0.6 6,914 10.8

EBIT (%) 25.1 26.0 -93 bps 23.4 171 bps

PAT 6,446 6,586 (2.1) 5,945 8.4

Key Financials

| Crore FY16 FY17 FY18E FY19E

Net Sales 108,646 117,966 123,033 137,087

EBITDA 30,678 32,311 32,419 36,739

Net Profit 24,215 26,289 25,713 28,604

EPS (|) 122.9 133.4 134.3 149.4

Valuation summary

FY16 FY17 FY18E FY19E

P/E 20.7 19.1 18.9 17.0

Target P/E 20.7 19.0 18.9 17.0

EV / EBITDA 15.3 14.0 14.0 11.9

P/BV 6.9 5.7 5.6 4.7

RoNW (%) 33.1 29.8 29.8 27.8

RoCE (%) 42.2 38.0 37.9 35.5

Stock data

Particular Amount

Market Capitalization (| Crore) 499,076.8

Total Debt (| Crore) 289.0

Cash and equivalents (| Crore) 28,826.7

EV (| Crore) 470,494.9

52 week H/L 2707 / 2055

Equity capital 197.0

Face value | 1

Price performance (%)

1M 3M 6M 12M

TCS (0.3) 6.0 8.3 0.1

Infosys 2.9 5.6 (0.5) (10.2)

Wipro 5.9 8.0 11.1 (2.5)

HCL Tech 4.4 10.3 4.9 23.4

Research Analyst

Deepak Purswani, CFA

[email protected]

Deepti Tayal

[email protected]

Tata Consultancy Services (TCS) | 2548


Variance analysis

Q2FY18 Q2FY18E Q2FY17 YoY (%) Q1FY18 QoQ (%) Comments

Revenue 30,541 30,453 29,284 4.3 29,584 3.2 Constant currency revenues grew 1.7% QoQ led by volume growth (3.2%)

Employee expenses 17,218 17,045 16,171 6.5 16,914 1.8

Gross Margin 13,323 13,408 13,113 1.6 12,670 5.2

Gross margin (%) 43.6 44.0 44.8 -116 bps 42.8 80 bps

SG&A expenses 5,159 5,390 5,002 3.1 5,258 -1.9

EBITDA 8,164 8,017 8,111 0.7 7,412 10.1

EBITDA Margin (%) 26.7 26.3 27.7 -97 bps 25.1 168 bps

Depreciation 504 518 494 2.0 498 1.2

EBIT 7,660 7,500 7,617 0.6 6,914 10.8

EBIT Margin (%) 25.1 24.6 26.0 -93 bps 23.4 171 bps

EBIT margins expanded 170 bps QoQ led by revenue growth and lower SG&A

expenses

Other income (less interest) 812 754 1,052 -22.8 932 -12.9

PBT 8,472 8,253 8,669 -2.3 7,846 8.0

Tax paid 2,012 1,981 2,066 -2.6 1,896 6.1

PAT 6,446 6,268 6,586 -2.1 5,945 8.4 Reported PAT was above our expectation due to better operational performance

Key Metrics

Closing employees 389,213 386,000 371,519 4.8 385,809 0.9 Net addition was up by 3404

Overall attrition (%) 11.3 11.5 11.9 -60 bps 11.6 -30 bps Attrition declined 30 bps sequentially

Average $/| 64.4 64.3 67.0 -3.7 64.4 0.0

Source: Company, ICICIdirect.com Research

Change in estimates

(| Crore) Old New % Change Old New % Change Comments

Revenue 121,736 123,033 1.1 136,174 137,087 0.7

EBIT 30,251 30,389 0.5 34,180 34,477 0.9

EBIT Margin (%) 24.9 24.7 -15 bps 25.1 25.2 5 bps

Revising margin estimates owing to rupee estimates and several other

headwinds

PAT 25,481 25,713 0.9 28,451 28,604 0.5

EPS (|) 133.1 134.3 0.9 148.6 149.4 0.5 Estimates tweaked owing to margin revision estimates

FY18E FY19E


Assumptions

Current Earlier Current Earlier Comments

FY16 FY17 FY18E FY18E FY19E FY19E

Closing employees 353,843 387,223 402,305 392,305 431,040 422,190

Overall attrition (%) 17.5 12.9 11.6 11.6 11.5 11.5

Average $/| 65.7 67.1 64.8 64.5 66.0 66.0 Tweaking FY18E exchange rate



Company Analysis

Key highlights: Commentary from earnings call

Margin band maintained - The management continues to maintain

its target margin band of 26-28% though rupee appreciation,

increased local hiring and demand for investments in digital could

act as headwinds to the margin profile

BFSI - BFSI (33% of revenue) grew 1.9% (CC) sequentially. BFSI is

yet to see any meaningful improvement in fundamentals and size

of the deal wins

Retail segment - Retail (11.9% of revenue) witnessed softness

with 0.9% sequential decline in Q2FY18. The management

anticipates retail segment to have bottomed out and expects it to

pick up in the coming quarters

Digital business- Sequentially, digital business contributed 19.7%

to revenue (16.1% in Q2FY17), up 7.6%, 32.6% QoQ, YoY,

respectively

Client metrics - Healthy progression of clients was witnessed in

the higher value bucket as one client transitioned to $100 million+

bucket and six each to US$50 million+, US$20 million+ and

US$10 million+ category

Employee update - Attrition in IT services declined to 11.3%

(LTM) vs. 11.6% QoQ while overall attrition also declined to

12.1% (LTM) vs. 12.4% QoQ. Net addition in the quarter was at

3404 taking the total employee headcount to 389,213. As per the

management, more freshers are expected to be on the roll from

Q2 and onwards

Operating metric highlights…

US$ revenues grew 3.2% QoQ to $4,739 million, in line with our 3.2%

QoQ growth and $4,739 million estimate. Operationally, growth was

broad based across verticals and geographies. Geographically, in CC

terms, North America (51.9% of revenue) grew 1.4% sequentially while

UK (14% of revenue), Continental Europe (13.4%) and Latin America

(2.2%) grew 2.5%, 5.3% and 5.7%, respectively. India (6.3% of revenue)

declined 6.8% QoQ while grew 14.3% YoY. Softness in North America is

on the back of sustained softness in the BFSI segment.

Performance wise in CC terms, among verticals, BFSI (33% of revenues)

grew 1.9% QoQ while technology & services (8.1% of revenue),

communication and media (7.3%) and life-sciences & healthcare (7.2%)

posted a growth of 3.4%, 1.4% and 3.6%, respectively. Smaller segments

as per revenue contribution, Energy & utilities (4.2% of revenue) and

travel & hospitality (3.8%) saw strong sequential growth with 7.2% and

8% respectively. On the other side, retail & CPG (11.9%) and regional

markets & others (17% of revenue) were soft and posted a decline of

0.9% and 0.6% QoQ in the quarter.


Exhibit 1: Dollar revenues may grow at 8.7% CAGR in FY17-19E vs. 15.1% during FY11-16

13442

15454

4036

4207

16544

4362

4387

4452

4591

4739

18987

20771

11568

4156

4145

4374

17575

8.3 8.09.4

13.7

16.2

15.0

9.3

5.8 5.4

7.97.1

8.1

5.2

5.8

5.8

6.2

5.2

3000

6000

9000

12000

15000

18000

21000

FY13

FY14

FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

FY17

Q1FY18

Q2FY18

FY18E

FY19E

$ m

illion

0

7

14

21

28

35

%

Dollar revenues Growth, YoY


Exhibit 2: TCS growth vs. Nasscom guidance

13.7

16.215.0

7.16.2

8.0

10.2

13.014.0

13.0

9.07.5

0

8

16

24

32

40

FY13

FY14

FY15

FY16

FY17

FY18E

TCS dollar revenue growth NASSCOM guidance


Deal wins continue momentum across verticals and geographies…

TCS had 11 key deal wins in Q2 across key verticals and geographies.

Among verticals, TCS witnessed three wins each in BFSI, communication

and media followed by two wins in retail and one each in life sciences,

manufacturing and travel. Geography wise, North America accounted for

five of these 11 wins along with three deal wins in APAC, two deals wins

in the Europe region and one in UK. The management sounded positive

about more deal signings in the coming quarters giving way to visible

growth, going ahead. Although few deals are of significant size, deal size

on the overall front, and specifically in BFS, continue to remain small. A

recovery on this front needs to be watched out.

Reorganised service lines see good demand…

Digital contribution to overall revenues continues to pick up. Now it is at

19.7% to revenue vs. 18.9% in Q1FY18. It reported double digit growth

for a third consecutive quarter YoY and grew 32.6% YoY. Keeping in view

the transformation to digital, TCS has carried out a restructuring exercise

in the previous quarter and reorganised its service lines into three main

buckets — cognitive business operations, digital transformation services

and consulting and systems integration. The management said that

reorganised service lines successfully completed their transition in Q2,

and are experiencing strong demand in each of their respective domains.

Cognitive business operations witnessed two large deals in Q2. Digital

transformation services saw strong growth with IoT practice witnessing


double digit quarterly growth while consulting and systems integration

saw more than 10 major wins in the quarter.

Lower SG&A lead margins above expectations…

EBIT margins came in better than our expectations with a 170 bps up-tick

sequentially to 25.1% led by cross currency benefit (50 bps) accompanied

by operational efficiency driven by cost optimisation and improvement at

execution front. Decline in SG&A as a percentage of revenue (16.9% in Q2

vs 17.8% in Q1) was a primary reason for margin expansion being better

than our estimates. The management continues to target its EBIT margin

band of 26-28% (in CC terms) for FY18E. However, rupee appreciation,

increased local hiring and demand for investments in digital could make it

a rough ride. We tweak our margin estimates to 24.7%, 25.2% in FY18E,

FY19E, respectively.

Exhibit 3: Revise margin guidance for FY18E to 24.7% from 24.9% earlier

27.0

29.1

24.1

26.3

27.126.6

26.126.5

25.1

26.0 26.025.7 25.7

23.4

25.124.7

25.2

22

24

26

28

30

32FY13

FY14

FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

FY17

Q1FY18

Q2FY18

FY18E

FY19E

%

EBIT Margin


Healthy progression of clients witnessed in higher value bucket…

Healthy progression of clients was witnessed in the higher value bucket

as one client transitioned to $100 million+ bucket taking total client count

to 37. Six clients transitioned each to US$50 million+, US$20 million+

and US$10 million+ category. 28 clients were added QoQ in US$1

million+ revenue bucket taking total to 933 (vs. 859 in Q2FY17).

Exhibit 4: $1 million+ revenue customers increase by 28 QoQ to 933 in Q2FY18

638

714

791 804 819 838 829 829 847 859 880 897 897 905933

0

200

400

600

800

1000

FY13

FY14

FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

FY17

Q1FY18

Q2FY18

$1 million+ clients



Attrition in IT services declines 30 bps to 11.3%…

The attrition in IT services declined to 11.3% (LTM) vs. 11.6% QoQ while

overall attrition also declined to 12.1% (LTM) vs. 12.4% QoQ. Net addition

was of 3404 people taking the total employee headcount to 389,213. The

management said it would continue with its effort to hire local talent in all

major markets and continue making investments in building up people

skills. They reiterated that gross hiring would be lower in FY18E

compared to FY17 owing to an increase in local hiring and increasing

usage of automation and productivity enhancement.

Exhibit 5: Overall Attrition declines 30 bps QoQ to 12.1%

10.6

11.3

14.9

15.916.2

15.915.5 15.5

13.6

12.9

12.2

11.5

12.912.4

12.111.6 11.5

10

12

14

16

18

20

FY13

FY14

FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

FY17

Q1FY18

Q2FY18

FY18E

FY19E

%

Overall attrition (%)

[



Annual report key takeaways…

TCS chose “Reimagining the Enterprise” as the theme of the

annual report, with the sight of capturing the depth and

profoundness of the transformation that enterprises – both TCS

and its customers - are going through in the Digital age. With

digital technologies now accounting for most of the new IT

spending by customers, ~55% of clients engage on Digital

Services with the percentage much higher for larger clients.

Digital revenue touched ~$3 billion milestone in FY17, making up

16.7% of revenue and growing 28.8% over prior year

TCS’ strategy for long term growth continues to be a) continually

investing in improving its customer-centric execution capabilities

by deepening domain expertise, offering full services capability,

building innovative IP and solution frameworks, b) investing to

expand addressable market by acquiring new clients, scaling

newer geographies & industry verticals, building new capabilities.

The first element of strategy has resulted in improved share of

wallet with increased customer satisfaction levels while the

second element of strategy has led to addition of 11 clients in $50

million+ revenue band bringing the total to 84 and addition of 68

clients in $1 million+ category taking the total to 897. However, a

reduction of two clients took place in $100 million+ bucket

TCS mentioned that local hiring programmes in various

geographies are progressing well. In FY17, the company recruited

over 11,500 employees outside India, bringing down its

dependence on work visas significantly

FY17 was a year of leadership transition in TCS with N

Chandrasekaran stepping down from his executive role (MD &

CEO of TCS) to become the Chairman of the Board. CFO Rajesh

Gopinathan took over as new MD and CEO while V Ramakrishnan

was appointed as CFO succeeding Rajesh Gopinathan

Operating cash flow grew 29% YoY to | 26,992 crore (highest

ever) mainly due to better working capital management to | 1,106

(vs. | 4,871 crore in FY16). FCF increased 32% to | 25,039 crore

while OCF, EBITDA is now at 83.5% from 68.2% in FY16. FCF

yield of 5% and the management’s continuous commentary to

maintain 80% of FCF payout should restrict the downside for the

stock

TCS paid a dividend of | 47 per share in FY17 with dividend

payout ratio (including dividend distribution tax) of 42%

compared to its peers Infosys 49.6% and HCL Tech ~47%.

Additionally, the company completed the buyback of up to 5.6

crore equity shares at | 2,850 per share, for an aggregate amount

not exceeding | 16,000 crore


Outlook and valuation

Tata Consultancy Services (TCS) reported Q2FY18 earnings where dollar

revenue was in line with our expectations while EBIT margins came in

better than our expectations on account of better-than-expected rupee

revenue growth and lower SG&A expenses. In terms of geography and

vertical wise performance, Latin America (5.7% QoQ growth in CC terms),

Continental Europe (5.3%) grew while India declined (6.8%) among

geographies. BFSI (1.9%), energy & utilities (7.2%) grew while retail &

CPG was soft (-0.9%) among verticals. Digital revenue is now at 19.7% of

revenues (vs 18.9% in Q1FY18) and grew at 5.9% (in CC terms)

sequentially. Healthy progression of clients was witnessed in the higher

value bucket as one client transitioned to $100 million+ bucket and six

each to US$50 million+, US$20 million+ and US$10 million+ category.

TCS surprised us positively on the margin front in Q2FY18. However, the

management commentary towards the demand environment remains a

mixed bag. While the retail vertical has bottomed out, we are yet to see a

recovery in its largest vertical i.e. BFSI on the deal size front. Hence, we

continue to expect subdued earning growth (4.3%) in FY17-19.

Nonetheless, FY19 FCF yield of ~5% lends us comfort on limited

downside. Hence, we maintain our HOLD recommendation on the stock

with a revised target price of | 2540.

Exhibit 6: One year forward rolling PE

0

1000

2000

3000

4000

Oct-07

Apr-08

Oct-08

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

Oct-17

|

Price 24 20 16 12 8


Exhibit 7: Valuation

Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE

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

FY16 108,646 14.8 122.9 22.5 20.7 15.3 33.1 42.2

FY17 117,966 8.6 133.4 8.6 19.1 14.0 29.8 38.0

FY18E 123,033 4.3 134.3 0.7 18.9 14.0 29.8 37.9

FY19E 137,087 11.4 149.4 11.2 17.0 11.9 27.8 35.5



Recommendation History vs. Consensus

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Oct-17Jul-17May-17Mar-17Dec-16Oct-16Jul-16May-16Feb-16Dec-15Sep-15

(|

)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

(%

)

Price Idirect target Consensus Target Mean % Consensus with HOLD


Key events

Date Event

Apr-17

According to media sources, US accuses top Indian IT firms TCS and Infosys for violating H-1B visa norms by unfairly putting extra tickets in the lottery system for H-

1B visa applications. Putting extra visa applications was done in order to increase the chances of getting more H-1B visas

May-17

TCS selected by one of Europe's largest utilities companies 'Vattenfall' to provide IT services across multiple European operations including Sweden, Germany and

the Netherlands. It is a multi-year partnership in which TCS would be responsible for the development and maintenance of a large number of applications

May-17

TCS enters into partnership with semiconductor company Nexperia to transform its applications and infrastructure services. TCS selected to enhance its digital core

through its end-to-end enterprise application stack hosted on the TCS Cloud

Jun-17

TCS plans to launch several businesses in emerging technology segments to earn about $1 billion each from them over the next three to seven years. The company

expects 16 such new segments and sub-segments around cyber security, internet of things (IoT), analytics and cloud application and infrastructure to be key drivers

of growth, going ahead

Jun-17

TCS announces a new collaboration with Intel Corporation to build a "future-ready reference architecture" for enterprises. The collaboration will help firms adopt new-

age technologies like Internet of Things (IoT), Cloud, network, 5G, artificial intelligence and data centre infrastructure management

Sep-17

TCS secures a 15-year partnership with Scottish Widows, Lloyds Banking Group’s Life and Pensions unit to provide end-to-end policy administration services for its

4 million heritage customers. The partnership was won by TCS’s UK subsidiary Diligenta, which provides outsourcing services to the insurance industry. According

to media sources, TCS would take on 1000 insurance staff from client Lloyds Bank


Top 10 Shareholders Shareholding Pattern

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

1 Tata Group of Companies 30-Jun-17 73.5% 1,407.4 -36.1

2 Life Insurance Corporation of India 30-Jun-17 3.9% 74.3 2.4

3 Stewart Investors 31-Mar-17 1.2% 22.4 0.0

4 The Vanguard Group, Inc. 31-Aug-17 0.9% 16.4 0.6

5 Lazard Asset Management, L.L.C. 31-Aug-17 0.8% 15.3 0.0

6 BlackRock Institutional Trust Company, N.A. 30-Sep-17 0.7% 14.3 -0.2

7 Aberdeen Asset Management (Asia) Ltd. 31-Aug-17 0.6% 11.9 0.0

8 OppenheimerFunds, Inc. 31-Aug-17 0.6% 10.6 0.0

9 JPMorgan Asset Management U.K. Limited 31-Aug-17 0.5% 10.0 0.0

10 Vontobel Asset Management, Inc. 31-Jul-17 0.3% 6.3 0.0

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

Promoter 73.33 73.31 73.57

Public 26.67 26.69 26.43

Others -- -- --

Total 100.00 100.00 100.00

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor name Value Shares Investor name Value Shares

Life Insurance Corporation of India 89.3m 2.4m Tata Group of Companies -1,318.5m -36.1m

Florida State Board of Administration 28.2m 0.8m Capital World Investors -246.8m -6.8m

The Vanguard Group, Inc. 23.8m 0.6m Capital Research Global Investors -73.8m -2.0m

SBI Funds Management Pvt. Ltd. 16.8m 0.4m Lyxor Asset Management -66.1m -1.7m

Grantham Mayo Van Otterloo & Co LLC 11.1m 0.3m RBC Global Asset Management (UK) Limited -53.6m -1.4m

Buys Sells

Source: Reuters, ICICIdirect.com Research


.

Financial summary

Profit and loss statement | Crore

(Year-end March) FY14 FY16 FY17 FY18E FY19E

Total operating Income 108,646 117,966 123,033 137,087

Growth (%) 14.8 8.6 4.3 11.4

COGS (employee expenses) 59,012 64,900 68,837 76,083

S,G&A expenses 18,956 20,755 21,777 24,264

Total Operating Expenditure 77,968 85,655 90,613 100,347

EBITDA 30,678 32,311 32,419 36,739

Growth (%) 24.4 5.3 0.3 13.3

Depreciation 1,888 1,987 2,030 2,262

Other Income less interest 3,050 4,189 3,268 2,987

PBT 31,840 34,513 33,657 37,465

Total Tax 7,503 8,156 7,893 8,804

Minority Interest 123 68 51 56

Exceptional Item 0 0 0 0

PAT before exceptional item 24,215 26,289 25,713 28,604

Growth (%) 23.2 8.6 -2.2 11.2

EPS (|) 122.9 133.4 134.3 149.4

PAT after exceptional item 24,215 26,289 25,713 28,604

EPS - Reported (|) 122.9 133.4 134.3 149.4


Cash flow statement | Crore

(Year-end March) FY16 FY17 FY18E FY19E

Profit before Tax 31,840 34,513 33,657 37,465

Add: Depreciation 1,888 1,987 2,030 2,262

(Inc)/dec in Current Assets (3,725) (896) (1,232) (2,438)

Inc/(dec) in CL and Provisions (1,146) (210) 3,955 2,142

Taxes paid (7,578) (7,946) (7,893) (8,804)

CF from operating activities 20,919 26,992 27,954 27,607

(Inc)/dec in Investments (5,119) (21,823) (17,713) (745)

(Inc)/dec in Fixed Assets (4,848) (3,920) (4,028) (2,075)

Others (264) 0 2,564 2,564

CF from investing activities (6,977) (18,521) (256) 236

Inc/(dec) in loan funds (30) 14 87 0

Dividend paid & dividend tax (9,432) (10,947) (11,645) (12,009)

Others (197) (161) (16,080) (16,000)

CF from financing activities (9,646) (11,006) (27,645) (12,009)

Net Cash flow 4,296 (2,535) 52 15,834

Exchange difference 140 (163) 0 0

Opening Cash 18,245 6,347 4,028 4,079

Closing Cash 6,348 4,027 4,079 19,913


Balance sheet | Crore

(Year-end March) FY14 FY16 FY17 FY18E FY19E

Liabilities

Equity Capital 197 197 191 191

Reserve and Surplus 66,496 81,487 79,561 96,156

Share Premium 6,497 6,631 6,631 6,631

Total Shareholders funds 73,190 88,315 86,383 102,978

Total debt 245 289 298 324

Other liabilities & Provisions 1,212 1,170 1,208 1,244

Deferred tax liability(net) 805 919 919 919

Minority Interest / Others 354 366 417 473

Total Liabilities 75,806 91,059 89,225 105,939

Assets

Net assets & CWIP 11,924 11,788 11,833 11,628

Goodwill 3,812 3,721 3,721 3,721

Other non current assets 12,262 9,318 10,063 10,790

Debtors 24,073 22,684 23,658 24,676

Loans and Advances 4,131 4,531 4,726 5,265

Other Current Assets 6,183 7,648 7,711 8,591

Current Investments 22,479 41,636 41,636 41,636

Cash 6,348 4,027 4,079 19,913

Trade Payable 7,541 6,279 9,843 10,967

OCL & Provisions 7,866 8,015 8,359 9,314

Application of Funds 75,806 91,059 89,225 105,939


Key ratios

(Year-end March) FY16 FY17 FY18E FY19E

Per share data (|)

Adjusted EPS (Diluted) 122.9 133.4 134.3 149.4

BV per share 371.4 448.3 451.4 538.1

DPS 43.5 47.0 50.5 52.1

Cash Per Share 32.2 20.4 21.3 104.0

Operating Ratios (%)

EBIT margins 26.5 25.7 24.7 25.2

PBT Margins 29.3 29.3 27.4 27.3

PAT Margin 22.3 22.3 20.9 20.9

Debtor days 81 70 70 66

Creditor days 25 19 29 29

Return Ratios (%)

RoE 33.1 29.8 29.8 27.8

RoCE 42.2 38.0 37.9 35.5

RoIC 90.9 92.7 101.1 114.1

Valuation Ratios (x)

P/E 20.7 19.1 18.9 17.0

EV / Net Sales 4.3 3.8 3.7 3.2

Market Cap / Sales 4.6 4.2 4.1 3.6

Solvency Ratios

Debt / EBITDA 0.0 0.0 0.0 0.0

Debt / Equity 0.0 0.0 0.0 0.0

Current Ratio 2.2 2.4 2.0 1.9

Quick Ratio 2.2 2.4 2.0 1.9



ICICIdirect.com coverage universe (IT)

CMP M Cap

(|) TP(|) Rating (| Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E

Cyient (INFENT) 521 545 Hold 5,866 30.5 35.2 41.7 17.1 14.8 12.5 10.4 8.3 7.0 19.7 20.7 21.6 16.2 16.8 17.6

Eclerx (ECLSER) 1,245 1,145 Sell 5,133 86.4 80.4 88.2 14.4 15.5 14.1 9.7 10.4 9.3 34.5 28.9 29.4 29.1 23.9 23.7

Firstsource (FIRSOU) 43 40 Buy 2,854 4.1 4.0 4.2 10.4 10.7 10.2 8.2 7.5 6.8 11.7 11.7 11.9 13.8 11.9 11.1

HCL Tech (HCLTEC) 909 930 Hold 128,253 60.0 59.7 66.1 15.1 15.2 13.7 11.1 10.4 9.1 30.3 30.6 33.3 26.6 25.5 27.1

Infosys (INFTEC) 933 975 Hold 213,239 62.8 64.7 69.6 14.9 14.4 13.4 9.9 10.1 8.9 28.8 31.2 30.1 20.8 22.4 21.5

KPIT Tech (KPISYS) 132 140 Hold 2,627 10.6 9.9 13.8 12.4 13.3 9.6 7.2 7.4 5.4 16.3 14.9 18.6 15.4 11.7 14.3

Mindtree (MINCON) 487 470 Hold 8,178 24.9 26.9 33.3 19.6 18.1 14.6 10.6 11.0 8.3 21.2 24.2 28.1 16.2 18.8 21.8

NIIT Technologies (NIITEC) 609 575 Hold 2,182 43.5 44.7 52.3 12.8 13.6 11.6 3.3 3.1 2.4 30.0 27.8 30.1 15.0 13.9 14.5

Persistent (PSYS) 663 700 Buy 5,303 37.6 47.9 38.8 16.9 16.4 14.4 9.9 9.0 7.1 20.7 19.4 21.4 15.9 14.6 16.0

TCS (TCS) 2,548 2,540 Hold 499,077 133.4 134.3 149.4 19.1 18.9 17.0 14.0 14.0 11.9 38.0 37.9 35.5 29.8 29.8 27.8

Tech Mahindra (TECMAH) 463 450 Hold 45,499 31.7 32.4 38.2 14.6 14.3 12.1 9.9 9.0 7.4 19.4 17.3 18.4 17.1 15.5 16.2

Wipro (WIPRO) 290 285 Hold 71,306 17.5 18.1 20.2 16.6 16.0 14.3 4.4 5.3 4.1 16.8 17.3 16.8 16.3 17.0 16.2

Sector / Company

RoE(%)RoCE (%)EV/EBITDA (x)P/E (x)EPS (|)



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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;

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