Result Update

January 13, 2016

Rating matrix
Rating
Target
Target Period
Potential Upside

:
:
:
:

Tata Consultancy Services (TCS)

Buy
| 2600
12 months
14%

Extended transition

Whats Changed?
Target
EPS FY16E
EPS FY17E
Rating

Changed from | 2,800 to | 2,600

Changed from | 119 to | 122
Unchanged
Unchanged

Quarterly Performance
Revenue
EBIT
EBIT (%)
PAT

Q3FY16
27,364
7,276
26.6
6,110

Q3FY15
24,501
6,624
27.0
5,444

YoY (%)
11.7
9.8
-45 bps
12.2

Q2FY16
27,166
7,354
27.1
6,055

QoQ (%)
0.7
(1.1)
-50 bps
0.9

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

FY14
81,809
25,132
19,117
97.6

FY15E
94,648
27,294
21,696
110.8

FY16E
107,380
30,756
23,960
122.0

FY17E
120,450
33,356
25,543
130.0

FY14
23.4
26.6
17.3
9.1
38.9
49.8

FY15E
20.6
23.5
15.7
8.8
42.8
52.6

FY16E
18.8
21.3
13.7
6.9
36.9
46.4

FY17E
17.6
20.0
12.3
5.6
31.8
40.9

*FY15 recurring PAT

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

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

Amount
450,578.1
178.1
25,664.0
425,092.2
2812 / 2345
195.9
|1

Price performance (%)

TCS
Infosys
Wipro
HCL Tech

| 2280

1M

3M

6M

12M

(4.5)
(1.5)
(2.5)
(3.8)

(12.5)
(5.5)
(6.7)
(4.9)

(8.3)
13.2
(0.7)
(12.1)

(9.6)
0.3
(2.0)
3.3

Research Analyst
Abhishek Shindadkar
abhishek.shindadkar@icicisecurities.com

ICICI Securities Ltd | Retail Equity Research

Q3FY16 earnings were soft as growth was below our and consensus
estimates while margins were in line. US$ revenues declined 0.3%
QoQ to $4,145 million vs. our 0.5% growth & $4,177 million estimate
Constant currency revenues grew 0.5% QoQ led by growth in
international business (1.1%) partially offset by weakness in India (60 bps) business
At 26.6%, EBIT margins declined 50 bps QoQ weighed by increased
SG&A expenses (-60 bps) but were in line with our 60 bps decline
and 26.5% estimate. PAT of | 6,110 crore was marginally ahead of
our | 6,010 crore estimate
TCS announced an interim dividend of | 5.5/share
Soft quarter leads to estimate revision
We are adjusting our estimates lower as 9MFY16 YoY growth of 6.8% is
the slowest since FY10, when revenues grew 1.6%. We now expect $
revenues to grow 6.9% (7.5% earlier) in FY16E and 10.5% in FY17E
translating to FY15-17E CAGR of 8.7% (10%). That said, change in rupee
assumption to | 65/| 66 for FY16E/FY17E vs. | 63.5 each earlier leads to a
modest raise in our rupee revenue estimates.
Margins continue to be in the target band
At 26.6%, EBIT margins declined 50 bps QoQ weighed by increased
SG&A expenses (-60 bps) partially offset by rupee tailwind (10 bps) but
were in line with our 26.5% estimate. Margins continue to be within the
aspirational 26-28% band and demonstrate TCS superior execution
capabilities. We expect 11 bps decline in FY16E margins to 26.8% while
those in FY17E could decline 90 bps to 25.9%.
Client mining encouraging
Demand trends continues to be healthy as TCS signed nine large deals
spread across North America (three), Europe (three), LatAm (two) and UK
(one). Client transitions were also good as one client transitioned to $100
million+ bucket, two to US$20-50 million, five to $10-20 million, two to
$5-10 million, and 10 to $1 million+. At 80.9%, including-trainees,
utilisation declined 140 bps QoQ while ex-trainees utilisation declined 110
bps led by impact of Chennai floods, higher gross addition, and ~10,500
lateral hires. Though attrition declined 30 bps QoQ and 250 bps YoY to
15.9% it continues to be at elevated levels. Absolute attrition was lower
QoQ (13,047 vs. 14,501 in Q2) and could moderate further.
Deal signings continue to be healthy
TCS signed nine large deals in Q3 (13 in Q2FY16, nine in Q1, nine in
Q4FY15, seven in Q3 and eight in Q2) spread across key verticals. Three
deals came from banking and one each from insurance, manufacturing,
retail, telecom, utilities and travel. Recall, management had highlighted in
Q2 earnings that TCV of deals signed is 30% higher than its previous best.
Growth intact but in transition; maintain BUY
We estimate rupee revenue, adjusted PAT CAGR of 12.8%, 8.5% in FY1517E (average 26.4% EBIT margins in FY16-17E), vs. 26% each reported in
FY10-15 (average 27.5% margins), respectively. We are adjusting our
dollar revenue growth estimates lower to account for slowest start to any
year since FY10 and also ascribe a lower multiple to account for growth
deceleration. Consequently, we now value TCS at | 2,600 (20x FY17E EPS
of | 130) vs. | 2,800 (21.5x FY17E EPS of | 130) earlier but maintain our
BUY rating.

Variance analysis
Q3FY16 Q3FY16E

Q3FY15

YoY (%)

Q2FY16

QoQ (%)

Comments
Constant currency revenues grew 0.5% QoQ as growth in international business
0.7 was offset by weakness in India
0.5

Revenue
Employee expenses

27,364
14,883

27,514
15,090

24,501
13,216

11.7
12.6

27,166
14,816

Gross Margin
Gross margin (%)
SG&A expenses

12,481
45.6
4,734

12,424
45.2
4,622

11,285
46.1
4,232

10.6
-45 bps
11.9

12,350
45.5
4,527

1.1
15 bps
4.6

EBITDA
EBITDA Margin (%)
Depreciation
EBIT

7,747
28.3
471
7,276

7,801
28.4
506
7,295

7,053
28.8
429
6,624

9.8
-48 bps
9.7
9.8

7,822
28.8
469
7,354

-1.0
-48 bps
0.4
-1.1

EBIT Margin (%)

Other income (less interest)
PBT
Tax paid
PAT

26.6
699
7,975
1,850
6,110

26.5
676
7,971
1,921
6,010

27.0
630
7,254
1,745
5,444

-45 bps
11.1
9.9
6.0
12.2

27.1
675
8,029
1,936
6,055

-50 bps EBIT margins declined 50 bps QoQ weighed by increased SG&A expenses
3.6
-0.7
-4.4
0.9 Reported PAT was marginally ahead of our estimate

344,691
15.9

341,260
16.0

318,625
13.4

8.2
250 bps

335,620
16.2

Utilisation incl trainees (%)

80.9
81.8
Average $/|
66.0
65.8
Source: Company, ICICIdirect.com Research

82.1
62.3

-120 bps
5.9

82.3
65.4

Key Metrics
Closing employees
Overall attrition (%)

2.7 9,071 net heads were added sequentially

-30 bps Attrition moderated QoQ but continues to be at elevated levels
Quarterly utilisation (incl trainees) declined 140 bps QoQ led by loss of business
-140 bps day due to Chennai floods and higher gross additions
1.0

Change in estimates
(| Crore)

Old

FY16E
New % Change

Revenue
105,537 107,380
EBIT
28,240
28,823
EBIT Margin (%)
26.8
26.8
PAT
23,335
23,960
EPS (|)
119.0
122.0
Source: Company, ICICIdirect.com Research

1.7
2.1
0 bps
2.7
2.5

Old
118,745
31,447
26.5
25,515
130.0

FY17E
New % Change
120,450
31,176
25.9
25,543
130.0

1.4
-0.9
-60 bps
0.1
0.0

Comments
Trimming dollar estimates but higher rupee assumption leads to increase in rupee
estimates

Assumptions

Closing employees

FY14
300,464

FY15
319,656

Overall attrition (%)

11.3
14.9
75.7
81.2
Utilisation incl trainees (%
Average $/|
60.9
61.2
Source: Company, ICICIdirect.com Research

Current
FY16E
340,913

FY17E
373,071

16.5
82.9
65.0

15.5
84.1
66.0

ICICI Securities Ltd | Retail Equity Research

Earlier
FY16E
FY17E
345,708 345,708
15.0
83.1
63.5

15.0
83.1
63.5

Comments

Better than industry average wage hikes (~8% offshore, ~3% onsite), special
bonus payouts could help contain rising attrition

Page 2

Company Analysis
Key highlights: Commentary from earnings call
Japan, Diligenta continue to be weak spots. LatAm recovery
continues in Q3 (grew 13.3% QoQ-CC on top 6.2% in Q2).
Diligenta, energy woes could bottom in Q4 while Japan is in wait
and watch mode led by higher than anticipated delay in resolving
integration related concerns.
The Ignio platform, AI-based automation product in software-as-aservice category, is tracking well. Four new deals were signed,
while deals signed in prior quarters have seen go-lives.
Digital business grew 4% in CC terms (10.7% in Q2) along with 40
bps improvement in contribution to 13.7% vs. 13.3% in Q2.
No negative news from customers related to CY16E IT budgets.
However, the company would wait for few more weeks before
calling out vertical trends.
From a vertical perspective, BFS traction continues led by healthy
deal wins.
Digital platforms continues to drive IT services spending in select
verticals (retail, CPG, travel, BFS and partly insurance). TCS is
participating in a big way in its client spends
Operating metric highlights
Operationally, growth was broad based across verticals, geographies and
service lines. Among large verticals, BFSI (40.5% of revenues, grew 0.7%
QoQ in CC), manufacturing (9.9%, 2.3%), life sciences (7.3%, 4.1%), hitech (6%, 2%), grew above company average while retail & distribution
(13.8%, 0.3%), telecom (8.4%, 0.3%) grew below. Smaller verticals travel
(3.6%, 2.9%), energy & utilities (4.1%, 1.6%), and media (2.5%, 2.5%)
aided company average growth. Geographically, North America (53.5%,
1.4%), Continental Europe (10.9%, 2.3%), LatAm (2.1%, 13.3%) led,
helped by APAC (9.4%, 0.4%) while UK (15.9%, -0.7%), India (6%, -6.7%),
and MEA (2.2%, -5.8%) were soft.
Growth was muted across service lines baring IMS, BPO and engineering
services. IMS (15.2% of revenues, grew 3.7% QoQ in CC), engineering
services (4.5%, 1.5%), BPO (11.8%, 3.5%) led quarterly growth while
ADM (39.7%, -0.2%), enterprise solutions and consulting (17.4%, -0.1%)
and asset leveraged solutions (2.8%, -11.6%) were particularly weak.
Soft quarter leads to estimate revision
TCS Q3FY16 earnings missed estimates as volume (0.4%) growth in a
seasonally soft quarter, though similar to Q3FY15, was offset by
weakness in India. Noticeably, 9MFY16 YoY growth of 6.8% is the slowest
since FY10, when revenues grew 1.6%. We now expect $ revenues to
grow 6.9% (7.5% earlier) in FY16E and 10.5% in FY17E translating to
FY15-17E CAGR of 8.7% (10%). That said, change in rupee assumption to
| 65/| 66 for FY16E/FY17E vs. | 63.5 each earlier leads to a modest raise
in our rupee revenue estimates. Note, demand environment across
verticals (financial services, life sciences, manufacturing in core markets,
retail), geographies (the US, UK ex Diligenta, APAC) and services (digital,
IMS, assurance) continues to be encouraging. However, Japan and
Diligenta are challenged and, thus, creating growth volatility.

ICICI Securities Ltd | Retail Equity Research

Page 3

Exhibit 1: Dollar revenues may grow at 8.7% CAGR in FY15-17E vs. 19.5% during FY10-15
21000

29.1

18250
16520

18000

35

28
15454
13442
15000
17.7
21
11568
14.3
12000
10171
16.7
16.2
10.5 14
15.0
13.7
5.4 8187
9000
9.3
11.3
6339
5.8 5.4 6.9
7
6000
4036 4156 4145
3694 3929 3931 3900
%

$ million

24.2

3000

Dollar revenues

FY17E

FY16E

Q3

Q2

Q1

FY15

Q4

Q3

Q2

Q1

FY14

FY13

FY12

FY11

FY10

Growth, YoY

Source: Company, ICICIdirect.com Research

Exhibit 2: TCS growth vs. Nasscom guidance soft 9MFY16 suggests that FY16E growth could
be lower than Nasscom average in FY16E
40
29.1

32

24.2
24
16
8

18.7

16.0
6.8

16.5

13.7
10.2

16.2
13.0

15.014.0

13.0
6.9

5.4 5.5

TCS dollar revenue growth

FY16E

FY15

FY14

FY13

FY12

FY11

FY10

FY09

NASSCOM guidance

Source: Company, ICICIdirect.com Research

Deal signings continue to be healthy

TCS signed nine large deals in Q3 (13 in Q2FY16, nine in Q1, nine in
Q4FY15, seven in Q3 and eight in Q2) spread across key verticals. Three
deals came from banking and one each from insurance, manufacturing,
retail, telecom, utilities and travel. Recall, management had highlighted in
Q2 earnings that TCV of deals signed is 30% higher than its previous best.
Margins continue to be in the target band
At 26.6%, EBIT margins declined 50 bps QoQ weighed by increased
SG&A expenses (-60 bps) partially offset by rupee tailwind (10 bps) but
were in line with our 26.5% estimate. Margins continue to be within the
aspirational 26-28% band and demonstrate TCS superior execution
capabilities. We expect 11 bps decline in FY16E margins to 26.8% while
those in FY17E could decline 90 bps to 25.9%

ICICI Securities Ltd | Retail Equity Research

Page 4

Exhibit 3: FY16E margins may decline 11 bps YoY to 26.8% primarily led by wage hike, visa costs
partially offset by operational efficiency
32
29.1

30

28

27.8 27.6
26.5

27.0

26.3

26.8 27.0 27.2 26.9

26.3

27.1

26.6 26.8

26

25.9

24

FY17E

FY16E

Q3

Q2

Q1

FY15

Q4

Q3

Q2

Q1

FY14

FY13

FY12

FY11

FY10

22

EBIT Margin

Source: Company, ICICIdirect.com Research

Client mining encouraging

Demand trends continues to be healthy as TCS signed nine large deals
spread across North America (three), Europe (three), LatAm (two) and UK
(one). Client transitions were also good as one client transitioned to $100
million+ bucket, two to US$20-50 million, five to $10-20 million, two to
$5-10 million, and 10 to $1 million+. Note, TCS added 382 accounts to the
$1 million+ bucket during FY10-15, an increase of 1.9x while $1+, $5+,
$10+, $20+, $50+ and $100+ million buckets saw a 2.5x, 3.1x, 3.2x, 3.8x,
3.8x and 5.0x growth in the number of clients to 804, 391, 268, 172, 69, 30
in Q1FY16 vs. 322, 126, 85, 45, 18, 6 respectively, in Q1FY08.

819

838

Q3

804

Q1

FY10

458

791

FY15

409

791

Q4

405

FY09

600

714

764

Q3

638

743

Q2

800

724

Q1

1000

Q2

Exhibit 4: Total 19 customers were added to $1 million+ revenue run-rate in Q3FY16

522

400
200

FY14

FY13

FY12

FY11

$1 million+ clients

Source: Company, ICICIdirect.com Research

Attrition moderates sequentially but still at elevated levels

At 80.9%, including-trainees, utilisation declined 140 bps QoQ while extrainees utilisation declined 110 bps led by impact of Chennai floods,
higher gross addition, and ~10,500 lateral hires. Though attrition declined
30 bps QoQ and 250 bps YoY to 15.9% it continues to be at elevated
levels. Absolute attrition was lower QoQ (13,047 vs. 14,501 in Q2) and
could moderate further.

ICICI Securities Ltd | Retail Equity Research

Page 5

Exhibit 5: Utilisation decline led by loss of business days due to Chennai floods
85
82

79.8

79

76.2

%
76

82.9

84.1

80.9

75.7

74.5

74.1

82.9 82.3

82.1 81.5
81.3
81.2

72.3

73

FY17E

FY16E

Q3

Q2

Q1

FY15

Q4

Q3

Q2

Q1

FY14

FY13

FY12

FY11

FY10

70

Utilisation (including trainees)

Source: Company, ICICIdirect.com Research

Exhibit 6: Attrition moderated but continues to be at elevated levels

20
18
16
%

14.4

14
12

14.9 14.9
12.2

11.8

10.6

11.3

12.0

12.8

16.5
15.9 16.2 15.9
15.5

13.4

Overall attrition (%)

[

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 6

FY17E

FY16E

Q3

Q2

Q1

FY15

Q4

Q3

Q2

Q1

FY14

FY13

FY12

FY11

FY10

10

Outlook and valuation

Tata Consultancy Services (TCS) reported soft Q3FY16 earnings as
growth was below our and consensus estimates while margins were in
line. Growth during the quarter was led by BFS, manufacturing,
lifesciences, travel, and media across verticals, North America,
Continental Europe, and LatAm among geographies and infrastructure
management, engineering services and BPO among services. Insurance,
telecom, UK, India were soft while asset leverage solutions was weak.
We estimate rupee revenue, adjusted PAT CAGR of 12.8%, 8.5% in FY1517E (average 26.4% EBIT margins in FY16-17E), vs. 26% each reported in
FY10-15 (average 27.5% margins), respectively. We are adjusting our
dollar revenue growth estimates lower to account for slowest start to any
year since FY10 and also ascribe a lower multiple to account for growth
deceleration. Consequently, we now value TCS at | 2,600 (20x FY17E EPS
of | 130) vs. | 2,800 (21.5x FY17E EPS of | 130) earlier but maintain our
BUY rating.
Exhibit 7: One year forward rolling PE
3000
2400

1800
1200
600

Price

24

20

16

12

Jan-16

Jun-15

Nov-14

Apr-14

Sep-13

Feb-13

Jul-12

Dec-11

May-11

Oct-10

Mar-10

Aug-09

Jan-09

Jun-08

Nov-07

Apr-07

Source: Company, ICICIdirect.com Research

Exhibit 8: Valuation

FY14
FY15
FY16E
FY17E

Sales
(| cr)
81,809
94,648
107,380
120,450

Growth
EPS
(%)
(|)
29.9
97.6
15.7 110.8
13.5 122.0
12.2 130.0

Growth
(%)
37.4
13.5
10.1
6.6

PE
(x)
23.4
20.6
18.8
17.6

EV/EBITDA
(x)
17.3
15.7
13.7
12.3

RoNW
(%)
38.9
42.8
36.9
31.8

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 7

RoCE
(%)
68.3
81.8
79.0
74.5

Company snapshot
3,500

Target price : | 2600

3,000
2,500
2,000
1,500
1,000
500

Jan-17

Oct-16

Jul-16

Apr-16

Jan-16

Oct-15

Jul-15

Apr-15

Jan-15

Oct-14

Jul-14

Apr-14

Jan-14

Oct-13

Jul-13

Apr-13

Jan-13

Oct-12

Jul-12

Apr-12

Jan-12

Oct-11

Jul-11

Apr-11

Jan-11

Source: Bloomberg, Company, ICICIdirect.com Research

Key events
Date

Event
TCS seeks alliances with companies in Japan to boost sales to $1 billion, an increase of 20-fold

Jul-11
Dec-11

Call Genie Inc enters into five-year reseller agreement whereby TCS will resell the full suite of Call Genie and UpSnap Mobile products worldwide

Feb-12
Jul-12
Oct-12

Europcar signs multi-year, multi-million euro contract with TCS to manage strategic IT services development for its French operations

Feb-13

TCS guides to beat Nasscom guidance of 11-14% for FY13 on the back of higher outsourcing demand and volume growth
To hire more workers in China to expand in Asia and reduce dependence on the Americas
Nielsen extends its contract with TCS for three years

Apr-13

TCS acquires Alti, an enterprise solutions provider, in France for | 530 crore to boost its presence in Europe

Oct-13
Apr-14

TCS climbs to record high after reporting a stellar Q2FY14 with eight-quarter high dollar revenue growth and best ever operating margins of 30.2%

Oct-14
Dec-14
Apr-15

TCS creates a strategic Japanese IT company with Mitsubishi Corporation after merging TCS Japan, ITF and NTSC. TCS to hold 51% in the combined entity
TCS misses Street expectations though delivers yet another stable quarterly earnings. The Board approves merger of its subsidiary, CMC, with itself
TCS guides for muted Q3FY15E dollar revenue growth led by weak seasonality in BFSI, retail coupled with 220 bps cross currency headwinds
The company delivers weak Q4FY15 earnings led by cross currency headwinds. However, the company expects to better industry average growth during FY16E
TCS company mixed set of Q1FY16. While $ revenue growth was soft (3.5%) in a seasonally strong quarter, EBIT margins were above estimates despite wage hike

Jul-15
The company delivers soft Q2FY15 earnings. $ revenue growth was soft (3%) in a seasonally strong quarter while EBIT margins were in-line. Achieving industry
Oct-15
Source: Company, ICICIdirect.com Research

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

Shareholding Pattern

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

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

30-Sep-15 73.78
1,445.1
-0.7
30-Sep-15 2.44
47.7
3.5
30-Nov-15 0.66
13.0
0.0
30-Nov-15 0.61
12.0
0.0
31-Dec-15 0.59
11.6
0.0
30-Nov-15 0.58
11.4
0.0
30-Nov-15 0.55
10.8
-0.4
30-Sep-15 0.46
9.0
0.0
30-Nov-15 0.46
8.9
0.0
31-Oct-15 0.40
7.8
0.0

(in %)
Promoter
FII
DII
Others

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

73.90 73.90 73.90 73.86 73.86
16.84 16.81 16.95 14.37 12.69
4.81
4.73
4.69
7.30
8.93
4.45
4.56
4.46
4.47
4.52

Source: Reuters, ICICIdirect.com Research

Recent Activity
Buys
Investor name
Life Insurance Corporation of India
First State Investments (Singapore)
Vontobel Asset Management, Inc.
Axiom International Investors LLC
T. Rowe Price International (UK) Ltd.
Source: Reuters, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Value
138.6m
44.5m
23.6m
20.9m
15.3m

Shares
3.5m
1.3m
0.6m
0.5m
0.4m

Sells
Investor name
T. Rowe Price Hong Kong Limited
Tata Group of Companies
American Century Investment Management, Inc.
Schroder Investment Management (Singapore) Ltd.
PanAgora Asset Management Inc.

Value
-46.5m
-26.3m
-25.3m
-23.0m
-21.7m

Shares
-1.2m
-0.7m
-0.6m
-0.6m
-0.5m

Page 8

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

| Crore

Cash flow statement

FY14

FY15

FY16E

FY17E

81,809

94,648

107,380

120,450

29.9

15.7

13.5

12.2

COGS (employee expenses)

37,855

51,240

58,273

S,G&A expenses

14,471

16,098

Total Operating Expenditure

52,326

67,338

EBITDA

Total operating Income

Growth (%)

(Year-end March)

| Crore
FY14

FY15

FY16E

FY17E

Profit before Tax

25,397

28,564

31,648

33,826

Add: Depreciation

1,349

1,309

1,933

2,180

66,666

(Inc)/dec in Current Assets

-5,117

-2,658

-3,826

-4,328

18,351

20,428

Inc/(dec) in CL and Provisions

1,667

3,405

1,842

2,095

76,624

87,094

Taxes paid

-7,044

-7,482

-7,437

-7,983

25,132

27,294

30,756

33,356

CF from operating activities

14,751

19,369

21,334

23,140

Growth (%)

39.0

8.6

12.7

8.5

(Inc)/dec in Investments

-7,479

-254

-2,000

-2,000

Depreciation

1,324

1,870

1,933

2,180

(Inc)/dec in Fixed Assets

-3,112

-2,943

-3,100

-3,300

Other Income less interest

1,589

3,140

2,825

2,650

Others

925

1,666

2,825

2,650

25,397

28,564

31,648

33,826

-9,667

-1,701

-2,275

-2,650

6,071

6,656

7,437

7,983

209

211

250

300

PBT
Total Tax
Minority Interest
Exceptional Item
PAT before exceptional item

2048

19,117

21,696

23,960

25,543

Growth (%)

37.5

13.5

10.4

6.6

EPS (|)

97.6

110.8

122.0

130.0

19,117

19,648

23,960

25,543

97.6

100.3

122.0

130.0

PAT after exceptional item

EPS - Reported (|)

Source: Company, ICICIdirect.com Research

| Crore
FY14

FY15

FY16E

Dividend paid & dividend tax

Others
CF from financing activities

-190

-17,168

-9,584

-10,217
10,273

500

9,475

215

-106

Opening Cash

6,769

14,442

18,556

28,031

Closing Cash

14,442

18,556

28,031

38,304

FY14

FY15

FY16E

FY17E

(Year-end March)

196

196

Reserve and Surplus

48,999

50,439

64,815

80,141

DPS

Total Shareholders funds

49,195

50,635

65,011

80,337

Cash Per Share

1,256

1,237

1,237

1,237

Operating Ratios (%)

708

1,128

1,378

1,678

51,467

53,343

67,969

83,595

Assets
Intangible assets

-178
-5,673
-589

196

Tangible assets

0
-10,217

Exchange difference

Total Liabilities

0
-9,584

Net Cash flow

196

Minority Interest / Others

43
-17,020

Per share data (|)

Preference shares

Total debt & provision

-15
-5,480

Key ratios

FY17E

Liabilities
Equity Capital

Inc/(dec) in loan funds

Source: Company, ICICIdirect.com Research

Balance sheet
(Year-end March)

CF from investing activities

7,035

9,376

10,485

11,549

Adjusted EPS (Diluted)

97.6

110.8

122.1

130.1

251.2

258.5

331.4

409.2

32

79

42

44

73.7

94.7

142.9

195.1

EBIT margins

29.1

26.9

26.8

25.9

PBT Margins

31.0

30.2

29.5

28.1

PAT Margin

23.4

22.9

22.3

21.2

Debtor days

81

79

79

79

Creditor days

25

34

31

29

BV per share

241

169

204

237

CWIP

3,168

2,766

2,766

2,766

RoE

38.9

42.8

36.9

31.8

Goodwill

2,269

2,093

2,117

2,139

RoCE

68.3

81.8

79.0

74.5

Investments-Non current

2,275

169

169

169

RoIC

106.0

128.2

125.4

118.3

15

16

21

24

18,230

20,438

23,187

26,009

23.4

20.6

18.8

17.6

4,311

4,146

4,704

5,277

EV / Net Sales

5.3

4.5

3.9

3.4

Market Cap / Sales

5.5

4.7

4.2

3.7

Inventory
Debtors
Loans and Advances
Other Current Assets
Cash

Return Ratios (%)

Valuation Ratios (x)

P/E

5,899

5,657

6,170

7,101

14,442

18,556

28,031

38,304

Solvency Ratios

Total Current Assets

42,898

48,813

62,114

76,715

Debt / EBITDA

0.0

0.0

0.0

0.0

Total Current Liabilities

15,670

20,318

22,160

24,255

Debt / Equity

0.0

0.0

0.0

0.0

Application of Funds

51,467

53,343

67,969

83,595

Current Ratio

1.8

1.5

1.6

1.6

Quick Ratio

1.8

1.5

1.6

1.6

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 9

ICICIdirect.com coverage universe (IT)

EPS (|)
P/E (x)
CMP
M Cap
Sector / Company
(|)
TP(|) Rating
(| Cr) FY15 FY16E FY17E FY15 FY16E FY17E
485 500 Hold
5,455 31.4 34.0 40.0 15.5 14.3 12.1
Cyient (INFENT)
1,346 1,200
Sell
5,481 74.3 105.0 115.0 18.1 12.8 11.7
Eclerx (ECLSER)
37
45
Buy
2,479
3.3
4.2
5.1 11.0
8.8
7.3
Firstsource (FIRSOU)
815 1,050
Buy 114,824 51.4 55.0 64.0 15.9 14.8 12.7
HCL Tech* (HCLTEC)
1,084 1,300
Buy 248,931 53.9 57.0 65.0 20.1 19.0 16.7
Infosys (INFTEC)
152 135 Hold
2,992 11.9 12.5 14.0 12.8 12.1 10.8
KPIT Tech (KPISYS)
1,485 1,600 Hold 12,456 63.9 75.0 96.0 23.2 19.8 15.5
Mindtree (MINCON)
546 525 Hold
3,336 31.8 42.0 47.5 17.2 13.0 11.5
NIIT Technologies (NIITEC)
627 675 Hold
5,014 36.3 41.0 48.0 17.2 15.3 13.1
Persistent (PSYS)
2,280 2,800
Buy 449,267 110.8 122.0 130.0 20.6 18.7 17.5
TCS (TCS)
504 600
Buy 48,729 26.7 29.0 36.0 18.8 17.4 14.0
Tech Mahindra (TECMAH)
547 680
Buy 135,045 35.1 37.0 40.5 15.6 14.8 13.5
Wipro (WIPRO)
* June year end, eClerx target price is adjusted for bonus issue, Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

EV/EBITDA (x)
FY15 FY16E FY17E
13.5 11.0
8.6
16.9 12.3 10.6
7.2
5.8
4.4
12.5 11.0
9.0
14.9 13.4 11.4
8.3
6.6
5.6
17.0 14.0 11.2
8.2
5.9
4.9
11.2
9.0
7.2
15.7 13.7 12.3
12.3 12.0
9.7
11.6 10.4
9.1

RoCE (%)
FY15 FY16E FY17E
22.2 21.9 22.4
40.4 47.6 43.7
9.5 11.6 14.1
35.2 31.7 30.5
31.4 29.7 30.1
14.7 17.4 17.4
33.7 32.9 34.3
23.4 29.8 31.9
27.5 26.6 26.6
81.8 79.0 74.5
26.9 24.9 26.5
23.0 22.6 22.4

RoE (%)
FY15 FY16E FY17E
19.2 18.1 18.6
32.1 36.9 33.6
11.2 12.2 12.9
29.3 25.7 24.7
22.5 21.3 21.7
17.0 15.4 14.9
26.6 25.9 26.9
14.3 16.6 16.6
20.7 19.7 19.5
42.8 36.9 31.8
21.5 19.4 20.4
21.2 19.7 19.1

Page 10

RATING RATIONALE

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

ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;

Pankaj Pandey

Head Research

pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

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

ICICI Securities Ltd | Retail Equity Research

Page 11

ANALYST CERTIFICATION
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about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

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ICICI Securities Ltd | Retail Equity Research

Page 12