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Result Update

April 26, 2018


Rating matrix
Rating : Buy Wipro Ltd (WIPRO) | 278
Target : | 315
Target Period : 12 months
Potential Upside : 13%
BFSI, Digital in better shape...
What’s Changed?  IT services US$ revenues grew 2.4% QoQ to $2062 million, in line
Target Changed from | 360 to | 315
with our estimate of 2.5% growth and $2063.3 million. In constant
EPS FY19E Changed from | 20.6 to | 18.3
currency (CC) terms, revenues grew 1.1% sequentially
EPS FY20E Changed from | 23.0 to | 20.9
Rating Unchanged  Consolidated revenues grew 0.7% QoQ to | 13,768.6 crore, below our
estimate of | 13,951 crore. Growth was led by revenue growth in IT
Quarterly Performance services wherein rupee revenues grew 1.3% sequentially to
Q4FY18 Q4FY17 YoY (%) Q3FY18 QoQ (%) | 13,411.9 crore while IT products declined 7.3% QoQ
Revenue 13,769 14,062 (2.1) 13,669 0.7
 At 14.4%, IT services EBIT margins declined 40 bps QoQ on account
EBIT 1,939 2,483 (21.9) 1,978 (2.0)
EBIT (%) 14.1 17.7 -358 bps 14.5 -39 bps
of provision worth | 208 crore due to insolvency of two of its
PAT 1,803 2,094 (13.9) 1,938 (7.0) customers and impairment loss in one of its acquisition. Adjusting for
these one-offs, EBIT margins declined 120 bps sequentially to 16.0%
and was below our expectation of 17.5%
Key Financials
| Crore FY17 FY18E FY19E FY20E  Reported PAT was at | 1800.6 crore, below our estimate of | 2095.4
Net Sales 55,040 54,636 57,697 61,931 crore due to one-off provision and lower-than-expected EBIT margin
EBITDA 11,458 10,542 10,850 11,899 BFSI, manufacturing led the growth for the quarter…
Net Profit 8,490 8,008 8,269 9,412
EPS (|) 17.5 16.8 18.3 20.9
Wipro’s dollar revenues grew 2.4% QoQ with no impact of the insolvency
of the client on revenues taken in Q4. Sluggishness in the
communications segments and India & Middle East business impacted
Valuation summary growth in the quarter. However, on the positive side, BFSI continues to
FY17 FY18E FY19E FY20E
grow well and led the quarter growth for a fifth quarter in a row with 3%
P/E 15.9 15.7 15.2 13.3
QoQ (in CC terms), unlike seen in peer group companies. Manufacturing
Target P/E 18.0 17.8 17.2 15.1
EV / EBITDA 10.1 11.5 10.5 9.1
grew 2.9% QoQ (CC terms) while on healthcare and lifesciences
P/BV 2.6 2.6 2.3 2.0 management cited that core health of this business is doing well while
RoNW (%) 16.3 16.7 15.0 15.1 continued weakness in HPS still persists.
RoCE (%) 16.8 16.8 15.5 15.7 Muted guidance for Q1FY19, expect recovery in Q2FY19…
Citing the outlook for first quarter of FY19E, Wipro guided that its IT
Stock data services revenues would be in the range of $2015 -$2065 million, which
Particular Amount translates into -2.3%-0.1% QoQ growth in CC terms. Weakness on the
Market Capitalization (| Crore) 137,248.6 revenue front in Q1FY19E owes to ramp down of revenue due to clients
Total Debt (| Crore) 14,241.2 insolvency, weakness in HPS and India & Middle East business. However,
Cash and Investments (| Crore) 5,271.0 on the back of deal wins and order bookings in Q4FY18, continued
EV (| Crore) 116,041.1
traction in digital business and receding of impact of client specific issues,
52 week H/L 335 / 244
the company expects recovery in Q2FY19E. Going ahead, we expect IT
Equity capital 486.1
Face value |2 services US$ revenues could grow 6.2% over FY18-20E.
One-off and headwinds drags down IT services margins…
Price performance (%) Adjusting for insolvency of two of its customers and impairment loss in
1M 3M 6M 12M one of its acquisition, IT services margins declined 120 bps QoQ at 16.0%
TCS 11.6 13.8 23.5 36.8 on account of currency headwind (down 50 bps) and remaining decline
Infosys (1.8) 4.4 21.1 22.0 due to weakness in HPS, India & Middle East business. For FY19E, Wipro
Wipro 1.4 (8.2) 0.3 18.5 expects margins to improve over the year with insolvency of clients and
HCL Tech 7.6 7.7 7.6 23.4 partial wage hike impacting margins in Q1FY19. We expect services EBIT
margin to stay at 15.6%, 16.1% in FY19E, FY20E respectively.
Research Analysts May see recovery from Q2FY19 onwards; maintain BUY…
Deepak Purswani, CFA
Wipro’s margin performance in Q4FY18 and revenue outlook for
deepak.purswani@icicisecurities.com
Q1FY19E is weaker than expected. However, continued strength in BFSI,
Deepti Tayal strong order bookings in Q4 on digital indicates that recovery to start
deepti.tayal@icicisecurities.com from Q2FY19E. Secondly, most of the negatives seems to be priced in
and currently it is trading at 13.3x FY20E. Hence, we maintain our BUY
recommendation on the stock with a revised target price of | 315/share
(15x FY20E EPS).

ICICI Securities Ltd | Retail Equity Research


Variance analysis
Q4FY18 Q4FY18E Q4FY17 YoY (%) Q3FY18 QoQ (%) Comments

Growth was led by revenue growth in IT services wherein rupee revenues grew
Revenue 13,768.6 13,951.4 14,062.1 -2.1 13,669.0 0.7 1.3% sequentially to | 13,411.9 crore while IT products declined 7.3% QoQ
Employee expenses 9,209.4 9,217.1 9,499.2 -3.1 9,069.8 1.5

Gross Margin 4,559.2 4,734.3 4,562.9 -0.1 4,599.2 -0.9


Gross margin (%) 33.1 33.9 32.4 66 bps 33.6 -53 bps
Selling & marketing costs 1,126.3 950.6 943.6 19.4 1,107.3 1.7
G&A expenses 980.1 880.6 726.7 34.9 999.1 -1.9

At 14.4%, IT services EBIT margins declined 40 bps QoQ on account of provision


worth | 208 crore. Adjusting for these one-offs, the EBIT margin declined 120
EBITDA 2,452.8 2,903.1 2,892.6 -15.2 2,492.8 -1.6 bps sequentially at 16.0% and was below our expectation of 17.5%
EBITDA Margin (%) 17.8 20.8 20.6 -276 bps 18.2 -42 bps
Depreciation 570.0 527.8 577.9 -1.4 527.8 8.0
EBIT 1,938.5 2,375.3 2,482.7 -21.9 1,977.5 -2.0
EBIT Margin (%) 14.1 17.0 17.7 -358 bps 14.5 -39 bps
Other income 323.9 343.5 458.3 -29.3 492.9 -34.3
PBT 2,262.4 2,718.8 2,941.0 -23.1 2,470.4 -8.4
Tax paid 461.5 625.6 674.2 -31.5 535.5 -13.8
Reported PAT came in below our expectation due to one-off provision and lower-
PAT 1,802.8 2,095.4 2,094.3 -13.9 1,938.1 -7.0 than-expected EBIT margin

Key Metrics
Closing employee Count 163,827 165,000 165,481 -1.0 162,553 0.8
TTM voluntary Attrition (%) 16.6 16.0 16.3 30 bps 15.9 70 bps
Utilisation ex trainees (%) 83.4 83.0 84.8 -140 bps 81.9 150 bps
Average $/| 65.0 65.5 68.6 -5.1 65.7 -1.1
Source: Company, ICICI Direct Research

Change in estimates
FY19E FY20E
(| Crore) Old New % Change Old New % Change Comments
Revenue 59,198 57,697 -2.5 64,235 61,931 -3.6
EBITDA 12,156 10,850 -10.7 13,255 11,899 -10.2
EBITDA Margin (%) 20.5 18.8 -173 bps 20.6 19.2 -142 bps
PAT 9,293 8,269 -11.0 10,362 9,412 -9.2
EPS (|) 20.6 18.3 -11.2 23.0 20.9 -9.3 Tweak estimates owing to change in margin estimates
Source: Company, ICICI Direct Research

Assumptions
Current Current Earlier Current Earlier
FY17 FY18E FY19E FY19E FY20E FY20E
Closing employee Count 181,482 191,482 201,482 203,482 211,482 215,482
TTM voluntary Attrition (%) 16.4 16.6 16.0 15.0 15.0 14.0
Utilisation ex trainees (%) 82.3 82.5 84.0 84.0 84.5 85.0

Average $/| 68.6 65.5 66.0 66.0 66.0 66.0

Source: Company, ICICI Direct Research

ICICI Securities Ltd | Retail Equity Research Page 2


Conference call highlights:
 Management guidance: Wipro has guided that its Q1FY19E IT
services revenues would be in the range of $2015-2065 million,
translating to -2.3-0.1% QoQ growth in constant currency terms.
The company has announced the divestiture of its hosted data
centre services business to Ensono for $405 million. This
transaction is expected to complete in Q1FY19. The impact of the
divestment has not been incorporated into guidance. On the
positive side, it has witnessed highest order booking for digital in
Q4FY18. Hence, on the back of deal wins, order bookings and
continued traction in digital, the company now expects a recovery
in Q2FY19E.

 Margins Outlook: For FY19E, Wipro expects margins to improve


over the year with insolvency of clients and partial wage hike
impacting margins in Q1FY19. Wipro reported IT service EBIT
margin of 15.8% in FY18, which on an adjusted basis is at 16.8%

 Vertical-wise demand scenario: BFSI (29.2% of revenue) grew 3%


QoQ (in CC terms) leading growth for a fifth consecutive quarter,
unlike peers. It grew 12% YoY in FY18 in CC terms. The
management cited optimism about BFSI on the back of its strategy
and execution of digital transformation for clients. On healthcare &
lifesciences, it indicated that barring HPS weakness, core business
continues to grow well

 Digital revenues: Digital revenues now account for 26.7% of total


services revenue and grew 9% sequentially. Digital revenue run rate
has reached ~US$2 billion in FY18 with strong growth of 27.2%
YoY. The management cited that digital deals perspective, Q4FY18
has been a strong quarter with highest bookings on digital deals
and win of ~70 deals worth $5 million each

 Employee details: The company’s closing employee count was at


163,827 in FY18 vs. 165,481 in FY17. Net utilisation (ex-trainees)
expanded 150 bps QoQ to 83.4%. In terms of attrition rate,
voluntary attrition (TTM) increased 70 bps QoQ to 16.6%

 Client update - Revenue growth in top client (3.5% of revenue) was


healthy and grew 15.7% sequentially. Client addition was healthy
with 58 new customers added during the quarter taking the total
new customer base to 223. In terms of client engagements, clients
contributing >$75 million category increased by three to 20, five in
>$20 million category

ICICI Securities Ltd | Retail Equity Research Page 3


Company Analysis
Exhibit 1: Geography wise break-up
Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18
Revenue by geography (%)
Americas 55.5 54.9 54.5 53.6 53.1 52.7
Europe 23.6 24.4 24.2 25.1 25.9 27.0
India & Middle East business 10.0 9.9 10.4 9.9 10.0 9.4
Europe led the growth followed by Americas APAC and Other Emerging Markets 10.9 10.8 10.9 11.4 11.0 10.9

Growth QoQ (%)- Constant currency


Americas 1.0 1.2 0.2 -0.1 -0.7 1.6
Europe 1.3 4.4 -2.6 1.3 4.7 2.7
India & Middle East business -4.2 0.5 5.1 -3.4 1.4 -2.9
APAC and Other Emerging Markets 1.7 -0.7 2.6 3.4 -0.5 -1.2
Source: Company, ICICI Direct Research

Exhibit 2: Vertical wise break-up


Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18
Revenue by strategic business units (%)
BFSI grew 3% QoQ (in CC terms) leading the growth for Communications 7.4 6.9 6.8 6.5 6.4 5.8
a fifth consecutive quarter, unlike peers. It grew 12% BFSI 25.5 26.0 26.7 27.6 28.5 29.2
YoY in FY18 in CC terms Manufacturing & Technology 22.3 22.8 22.5 22.8 22.7 23.0
Healthcare and Lifesciences 16.0 15.4 14.8 13.7 14.0 13.9
Consumer Business Unit 15.8 15.8 15.8 15.9 16.0 15.6
Energy,Natural Resources & Utilities 13.0 13.1 13.4 13.5 12.4 12.5

Growth QoQ (%)- Constant currency


A sharp decline in communication vertical was due to Communications 0.8 -6.6 -2.6 -4.4 -0.7 -8.1
insolvency of client and changing trends in industry BFSI 0.8 3.2 3.2 3.3 4.4 3.0
Manufacturing & Technology 0.1 4.7 -0.9 1.9 0.0 2.9
Healthcare and Lifesciences 0.1 -2.0 -3.1 -5.9 2.5 0.6
Consumer Business Unit 0.1 2.6 0.1 1.7 1.2 -1.0
Energy,Natural Resources & Utilities 2.1 1.9 2.2 -1.3 -6.1 1.6
Source: Company, ICICI Direct Research

Exhibit 3: Service line wise break-up


Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18
Revenue by service lines (%)
Global Infrastructure Services 28.1 28.0 28.1 28.4 28.2 28.8
Analytics 7.0 6.9 7.1 7.1 7.0 7.0
Business Process Services 13.3 12.3 12.0 12.1 12.6 12.1
Global infrastructure services and product engineering Product Engineering 7.2 7.1 7.0 6.9 6.9 7.3
led growth among service lines Application Services 44.4 45.7 45.8 45.5 45.3 44.8

Growth QoQ (%)- Constant currency


Global Infrastructure Services 0.2 1.5 0.4 3.4
Analytics 3.6 -1.3 -0.4 1.7
Business Process Services -1.6 1.7 4.7 -2.5
Product Engineering -1.8 1.2 -0.3 7.4
Application Services 0.6 -0.8 0.6 -0.3
Source: Company, ICICI Direct Research

ICICI Securities Ltd | Retail Equity Research Page 4


Exhibit 4: Client & human resource metrics
Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18
Client metrics
$1 mn Clients 576 602 624 627 635 631
$10 mn Clients 170 163 163 170 167 171
$50 mn Clients 33 34 36 39 41 39
$75 mn Clients 17 18 18 16 17 20
Net utilisation (ex-trainees) expanded 150 bps QoQ to $100 mn Clients 9 9 9 9 9 8
83.4%
Headcount, Utilization & Attrition
Closing employee count 164176 165481 166790 163759 162553 163827
Net Utilization (Excluding trainees) 81.9 84.8 82.1 82.5 81.9 83.4
Voluntary Attrition LTM 16.3 16.3 15.9 15.7 15.9 16.6
Source: Company, ICICI Direct Research

ICICI Securities Ltd | Retail Equity Research Page 5


Financial story in charts

Exhibit 5: Digital contribution trend

30.0 26.7
24.1 25.0
21.7 22.1 22.5
19.6
20.0

%
The digital business contributed 26.7% to revenue
11.2
(22.1% in Q4FY17) and grew at healthy 9.4%, 27.5% 10.0 9.9 9.4 9.4
QoQ, YoY, respectively. Digital revenue run rate has
4.6 3.7
reached ~US$2 billion in FY18 with strong growth of 2.7
27.2% YoY 0.0
Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18

Digital as a % of revenue Growth, QoQ

Source: Company, ICICI Direct Research

Exhibit 6: Dollar revenues may grow at 6.2% CAGR in FY18-20E

20

9083
10000

8456
8060
7704
7346
7082

7000
$ million

7.6 7.4 10
5.5

%
7.0 4.9 5.1 5.8 4.9
4.6 3.9 2.1 4.6
4000 3.7 3.5

2062
2014

2013
1971
1955
1931

1916

1903

1000 0
FY15

FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

FY18E

FY19E

FY20E
Dollar revenue Growth, YoY
[

Source: Company, ICICI Direct Research

ICICI Securities Ltd | Retail Equity Research Page 6


Exhibit 7: Barring one-off, IT services margin at 16%

24
22.1
20.5
21
18.3
17.8 17.8 17.6 17.9 17.3

%
18 16.8
15.8 15.6 16.1
14.8 14.4
15

12

FY18E

FY19E

FY20E
FY15

FY16

FY17
Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18
EBIT margin (IT services)

Source: Company, ICICI Direct Research

Exhibit 8: PAT may grow at 8.4% CAGR in FY18-20E

10000 9412
8653 8886 8490
8008 8269

7000
| crore

4000
2052 2067 2168 2261 2076 2191 1937 1803

1000

FY18E

FY19E

FY20E
FY15

FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18
PAT

Source: Company, ICICI Direct Research

ICICI Securities Ltd | Retail Equity Research Page 7


Outlook and valuation
Wipro earlier announced that its profitability may get impacted by 65-75
basis points (bps) in Q4FY18 on account of insolvency of customer.
However, it was impacted much higher than indicated earlier. While its IT
services dollar revenues grew in line with our expectation, its EBIT
margins came in below our expectation (adjusted EBIT margin: 16.0% vs.
17.5% our expectation). In terms of guidance for Q1FY19E, it came out
with revenue guidance of $2015-2065 million, translating to -2.3-0.1%
QoQ growth. On the positive side, it has witnessed highest order booking
for digital in Q4FY18. Hence, the company now expects a recovery in
Q2FY19E.

Wipro’s margin performance in Q4FY18 and revenue outlook for


Q1FY19E is weaker than expected. However, continued strength in BFSI,
strong order bookings in Q4 on digital indicates that recovery to start
from Q2FY19E. Secondly, most of the negatives seems to be priced in
and currently it is trading at 13.3x FY20E. Hence, we maintain our BUY
recommendation on the stock with a revised target price of | 315/share
(15x FY20E EPS).

Exhibit 9: One year forward rolling PE

1000

800

600
|

400

200

0
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
Apr-18
Price 24 20 16 12 8

Source: Company, ICICI Direct Research

Exhibit 10: Valuation


Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE
(| cr) (%) (|) (%) (x) (x) (%) (%)
FY16 51,244 9.1 22.6 (35.7) 15.5 10.6 19.1 19.6
FY17 55,040 7.4 17.5 (22.7) 15.9 10.1 16.3 16.8
FY18E 54,636 (0.7) 16.8 (3.6) 15.7 11.5 16.7 16.8
FY19E 57,697 5.6 18.3 8.9 15.2 10.5 15.0 15.5
FY20E 61,931 7.3 20.9 13.8 13.3 9.1 15.1 15.7
Source: Company, ICICI Direct Research

ICICI Securities Ltd | Retail Equity Research Page 8


Recommendation History vs. Consensus
1,000 100.0

800 80.0

600 60.0
(|)

(%)
400 40.0

200 20.0

0 0.0
Mar- Apr- Jun- Jul- Sep- Nov- Dec- Feb- Mar- May- Jun- Aug- Sep- Nov- Jan- Feb- Apr- May- Jul- Aug- Oct- Nov- Jan- Feb- Apr-
15 15 15 15 15 15 15 16 16 16 16 16 16 16 17 17 17 17 17 17 17 17 18 18 18

Price Idirect target Consensus Target Mean % Consensus with SELL

Source: Bloomberg, Company, ICICI Direct Research

Key events
Date Event
Wipro collaborates with world's leading provider of open source solutions Red Hat to set up a cloud application factory. Using Red Hat OpenShift Container Platform,
Jun-17 Wipro could develop new cloud based applications without having to rewrite their legacy applications
According to media sources, Wipro Infrastructure Engineering, part of Wipro Enterprises Ltd announces a strategic alliance with Israel Aerospace Industries (IAI) to
make composite aerostructure parts and assemblies in India for the global market. Wipro Infrastructure Engineering will set up a manufacturing facility in India in
Jul-17 partnership with IAI to meet the requirements of global aircraft OEMs and Tier-1 suppliers.
Wipro enters into a partnership with Hewlett Packard Enterprise (HPE) to offer IT infrastructure solutions in a consumption-based or pay-per-use business model for
the enterprises. In this partnership, Wipro will leverage HPE Flexible Capacity to offer flexible and scalable IT infrastructure services in a consumption-based IT
Jul-17 model, accelerate growth and enable digital transformation for its customers.
Wipro wins a five year IT applications management contract from Outokumpu, global leader in stainless steel. Wipro would provide applications management
Sep-17 services for Outokumpu SAP landscape along with legacy applications support

Sep-17 Wipro bags a seven year contract from European energy company, innogy SE to manage the data centre and cloud services
Wipro enters into a partnership with CloudGenix, a leading provider of Software defined Wide Area Networking (SD-WAN) products. Under the partnership, Wipro
Sep-17 would offer its customers end to end managed WAN services.
Wipro Digital signs a definitive agreement to acquire Cooper, design and business strategy consultancy. Wipro Digital is the digital business unit of Wipro.
Oct-17 Acquisition is expected to be closed in Q3FY18.
Mar-18 Wipro announces it would pay $8.8 million for a 33% stake in application security company Denim Group, to boost its cybersecurity offerings to clients
Wipro sells 63% of its stake in Wipro Airport IT to Antariksh Softtech for a consideration of ₹ 3.15 crore. Wipro Airport IT Services is a joint venture between Wipro
Apr-18 (74%) and Delhi International Airport Limited (DIAL) (26%).
Source: Company, ICICI Direct Research

Top 10 Shareholders Shareholding Pattern


Rank Name Latest Filing Date % O/S Position (m) Change (m) (in %) Mar-17 Jun-17 Dec-17
1 Premji (Azim Hasham) 31-Dec-17 60.2% 2,722.8 -15.0 Promoter 73.25 73.18 74.33
2 Azim Premji Trust 31-Dec-17 13.7% 618.5 -179.7 Public 26.19 26.26 25.14
3 Life Insurance Corporation of India 31-Dec-17 3.1% 141.6 -3.5 Others 0.56 0.56 0.53
4 ICICI Prudential Asset Management Co. Ltd. 28-Feb-18 1.3% 58.0 16.2 Total 100.00 100.00 100.00
5 Stewart Investors 20-Dec-17 1.3% 57.8 -4.0
6 BlackRock Institutional Trust Company, N.A. 31-Mar-18 1.0% 44.6 0.0
7 The Vanguard Group, Inc. 28-Feb-18 0.5% 24.3 -0.1
8 Dimensional Fund Advisors, L.P. 28-Feb-18 0.4% 15.8 0.0
9 Azim Premji Philanthropic Initiatives Pvt. Ltd. 31-Dec-17 0.3% 15.6 -4.5
10 Norges Bank Investment Management (NBIM) 31-Dec-16 0.3% 15.3 2.3
Source: Reuters, ICICI Direct Research

Recent Activity
Buys Sells
Investor name Value Shares Investor name Value Shares
ICICI Prudential Asset Management Co. Ltd. 72.8m 16.2m Azim Premji Trust -884.5m -179.7m
UTI Asset Management Co. Ltd. 12.1m 2.7m Premji (Azim Hasham) -73.8m -15.0m
Kotak Mahindra Asset Management Company Ltd. 4.8m 1.1m Azim Premji Philanthropic Initiatives Pvt. Ltd. -22.3m -4.5m
Grantham Mayo Van Otterloo & Co LLC 4.6m 1.0m Stewart Investors -19.7m -4.0m
HDFC Asset Management Co., Ltd. 4.4m 1.0m T. Rowe Price International (UK) Ltd. -18.1m -3.7m
Source: Reuters, ICICI Direct Research

ICICI Securities Ltd | Retail Equity Research Page 9


Financial summary
Profit and loss statement | Crore Cash flow statement | Crore
FY17 FY18E FY19E FY20E FY17 FY18E FY19E FY20E
Total Revenues 55,040 54,636 57,697 61,931 PAT before minority int. 8,514 8,008 8,269 9,413
Growth (%) 7.4 (0.7) 5.6 7.3 Depreciation 2,311 2,112 2,019 2,106
COGS 39,154 38,558 41,119 43,812 (inc)/dec in Current Assets 1,269 3,448 (1,150) (1,559)
Other Expenditure 5,214 5,537 5,760 6,253 (inc)/dec in current Liabilities (815) (574) 2,156 801
EBITDA 11,458 10,542 10,850 11,899 Taxes paid (2,548) (2,239) (2,332) (2,655)
Growth (%) 2.6 (8.0) 2.9 9.7
Depreciation 2,070 2,112 2,019 2,106 CF from operations 9,277 11,028 9,524 8,486
Other Income 2,166 2,380 2,334 2,837 Other Investments (10,014) 2,380 2,334 5,171
Exchange difference 28 - - - (Purchase)/Sale of Fixed Assets (1,965) (2,064) (2,186) (2,353)
Net interest expense (518) (563) (563) (563)
Pft. from associates - 1 - - CF from investing Activities (11,628) 315 148 484
PBT 11,036 10,247 10,601 12,067 Inc / (Dec) in Equity Capital - - - -
Growth (%) (3.8) (7.1) 3.5 13.8 Inc / (Dec) in sec.loan Funds 1,312 - - -
Tax 2,521 2,239 2,332 2,655 Dividend & Divendend tax (1,073) (1,681) (1,803) (4,249)
PAT before Minority int, 8,514 8,008 8,269 9,413
Minority int. 25 0 0 0 CF from Financial Activities (2,275) (12,681) (1,803) (2,445)
PAT 8,490 8,008 8,269 9,412 Exchange rate differences (141) 149 - -
EPS 17.5 16.8 18.3 20.9 Opening cash balance 9,905 5,271 4,082 11,951
EPS (Growth %) (22.7) (3.6) 8.9 13.8 Closing cash 5,271 4,082 11,951 18,475
Source: Company, ICICI Direct Research
Source: Company, ICICI Direct Research

Balance sheet | Crore Key ratios


FY17 FY18E FY19E FY20E FY17 FY18E FY19E FY20E
Liabilities Per share data (|)
Equity 486 452 452 452 EPS 17.5 17.7 18.3 20.8
Reserves & Surplus 51,544 47,469 54,497 62,027 BV 107.0 106.1 121.6 138.3
Networth 52,030 47,920 54,949 62,479 DPS 2.0 2.0 2.0 2.0
Minority Interest 239 239 240 240 Operating Ratios
Debt - long term 1,961 1,961 1,961 1,961 EBIT Margin 17.1 15.4 15.3 15.8
Debt - short term 12,280 12,157 12,873 13,818 PAT Margin 15.4 14.7 14.3 15.2
Deffered Tax Liability 661 661 661 661 Debtor days 66 70 70 71
Other liabilities & provisions 1,505 1,514 1,514 1,514 Creditor days 43 41 47 41
Source of funds 68,677 64,453 72,198 80,673 Return Ratios (%)
RoE 16.3 16.7 15.0 15.1
Assets RoCE 16.8 16.8 15.5 15.7
Goodwill 12,580 12,589 12,589 12,589 RoIC 53.8 45.1 47.5 47.7
Intangible Assets 1,592 1,589 1,601 1,618 Valuation Ratios (x)
PPE 6,979 6,935 7,090 7,320 P/E 15.9 15.7 15.2 13.3
O.non current assets 3,201 3,200 3,200 3,200 EV / EBITDA 10.1 11.5 10.5 9.1
Investments 710 711 711 711 EV / Net Sales 2.1 2.2 2.0 1.8
Debtors 9,884 10,418 11,080 11,995 Market Cap / Sales 2.5 2.5 2.4 2.2
Cash & Cash equivalents 5,271 4,082 11,951 18,475 Price to Book Value 2.6 2.6 2.3 2.0
Investments - short term 30,178 25,884 25,884 25,884 Solvency Ratios
O.current assets 8,957 9,269 9,757 10,401 Debt/EBITDA 1.2 1.3 1.4 1.3
Trade Payable 6,549 6,128 7,391 7,013 Debt / Equity 0.3 0.3 0.3 0.3
OCL & Provisions 4,126 4,095 4,273 4,507 Current Ratio 1.8 1.9 1.8 1.9
Application of funds 68,677 64,453 72,198 80,673 Quick Ratio 1.8 1.9 1.8 1.9
Source: Company, ICICI Direct Research
Source: Company, ICICI Direct Research
.

ICICI Securities Ltd | Retail Equity Research Page 10


ICICI Direct Research coverage universe (IT)
CMP M Cap EPS (|) P/E (x) EV/EBITDA (x) RoCE (%) RoE(%)
Sector / Company (|) TP(|) Rating (| Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E
Cyient (INFENT) 702 780 Buy 7,904 30.5 36.0 40.4 23.0 19.5 17.4 14.6 11.9 10.6 19.7 22.0 21.1 16.2 17.1 17.3
Eclerx (ECLSER) 1,270 1,220 Sell 5,236 86.4 73.9 79.7 14.7 17.2 15.9 9.9 11.9 11.0 34.5 26.9 26.5 29.1 21.4 21.1
Firstsource (FIRSOU) 58 50 Buy 4,052 4.1 4.5 4.7 14.2 12.7 12.3 10.9 10.0 8.7 11.7 11.8 12.6 13.8 13.3 12.1
HCL Tech (HCLTEC) 1,005 1,000 Hold 141,876 60.0 61.9 65.7 16.8 16.2 15.3 13.6 12.0 10.3 29.0 28.9 28.2 25.3 25.0 23.3
Infosys (INFTEC) 1,125 1,110 Hold 257,121 62.8 73.8 67.6 17.9 15.2 16.6 12.3 12.5 11.6 28.8 33.3 31.3 20.8 26.4 22.2
KPIT Tech (KPISYS) 231 200 Hold 4,596 10.6 12.1 13.6 21.7 19.1 16.9 12.8 12.0 10.3 14.5 15.8 16.4 15.1 13.6 13.6
Mindtree (MINCON) 890 830 Hold 14,945 24.9 34.3 39.5 35.7 26.0 22.5 20.2 19.1 13.9 21.2 27.7 28.7 16.2 21.8 21.4
NIIT Technologies (NIITEC) 921 775 Hold 3,300 40.8 44.8 52.2 20.6 20.5 17.7 5.3 4.8 3.7 29.8 31.5 36.4 14.8 14.6 15.0
Persistent (PSYS) 750 825 Buy 5,999 37.6 40.5 44.7 20.0 18.5 16.8 11.9 11.4 9.5 20.8 19.9 19.5 15.9 15.2 15.0
TCS (TCS) 3,378 3,260 Hold 661,649 133.4 135.5 145.5 25.3 24.9 23.2 19.1 18.9 16.6 38.0 38.3 35.2 29.8 29.9 27.3
Tech Mahindra (TECMAH) 666 630 Hold 65,448 31.7 38.4 39.6 21.0 17.3 16.8 14.6 12.9 10.7 19.4 20.0 18.6 17.1 18.1 16.4
Wipro (WIPRO) 278 315 Buy 137,249 17.5 17.7 18.3 15.9 15.7 15.2 10.1 11.5 10.5 16.8 16.8 15.5 16.3 16.7 15.0
Source: Company, ICICI Direct Research

ICICI Securities Ltd | Retail Equity Research Page 11


RATING RATIONALE
ICICI Direct Research endeavours to provide objective opinions and recommendations. ICICI Direct Research
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

ICICI Direct Research Desk,


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

ICICI Securities Ltd | Retail Equity Research Page 12


ANALYST CERTIFICATION
We /I, Deepak Purswani, CFA MBA (Finance), Deepti Tayal, MBA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report
accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or
view(s) in this report.

Terms & conditions and other disclosures:


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and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts
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The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and
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It is confirmed that Deepak Purswani, CFA MBA (Finance), Deepti Tayal, MBA, Research Analysts of this report have not received any compensation from the companies mentioned in the report in the
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Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject
company/companies mentioned in this report.
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ICICI Securities Ltd | Retail Equity Research Page 13

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