Result Update

October 14, 2015

Rating matrix
Rating
Target
Target Period
Potential Upside

:
:
:
:

Tata Consultancy Services (TCS)

Buy
| 2800
12 months
13%

Content, but not happy

Whats Changed?
Target
EPS FY16E
EPS FY17E
Rating

Changed from | 3,000 to | 2,800

Changed from | 122 to | 119
Changed from | 134 to | 130
Unchanged

Quarterly Performance
Revenue
EBIT
EBIT (%)
PAT

Q2FY16
27,166
7,354
27.1
6,055

Q2FY15
23,817
6,394
26.8
5,288

YoY (%)
14.1
15.0
22 bps
14.5

Q1FY16
25,668
6,748
26.3
5,709

QoQ (%)
5.8
9.0
78 bps
6.1

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
105,537
30,139
23,335
119.0

FY17E
118,745
33,597
25,515
130.0

FY14
25.5
28.7
18.8
9.9
38.9
49.8

FY15E
22.4
25.3
17.2
9.6
42.8
52.6

FY16E
20.9
23.5
15.2
7.5
36.1
45.8

FY17E
19.1
21.5
13.4
6.1
31.9
41.4

*FY15 recurring PAT

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

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

Amount
488,227.5
150.2
21,488.0
466,889.7
2812 / 2345
195.9
|1

Price performance (%)

TCS
Infosys
Wipro
HCL Tech

| 2485

1M

3M

6M

12M

3.4
9.3
4.6
(9.4)

4.1
23.4
8.2
(7.5)

(1.4)
4.5
(4.4)
(12.0)

(3.8)
20.8
(4.7)
(1.8)

Research Analyst
Abhishek Shindadkar
abhishek.shindadkar@icicisecurities.com

ICICI Securities Ltd | Retail Equity Research

Q2FY16 earnings were soft as growth was below our and consensus
estimates while margins were in line. US$ revenues grew 3% QoQ to
$4,156 million vs. our 3.6% growth and $4,180 million estimate
Constant currency (CC) revenues grew 3.9% QoQ led by volumes
(4.9%) partially offset by a realisation drop of ~100 bps
At 27.1%, EBIT margins improved 78 bps QoQ led by f/x (68 bps)
and efficiency (10 bps) and were in line with our 27.1% estimate. PAT
of | 6,055 crore was also in line with our | 6,050 crore estimate
TCS announced an interim dividend of | 5.5/share
Adjusting estimates on soft H1, seasonal weakness in H2
TCS Q2FY16 earnings missed estimates as volume (4.9%) growth,
though up sequentially (4.8% in Q1) in a seasonally strong quarter, was
offset by constant currency realisation drop of 100 bps. H1 dollar revenue
growth (7.5%) was slowest since FY10 (declined 2.6% then). Hence, we
adjust FY16E estimates lower & now expect $ revenues to grow 7.5% vs.
11% earlier translating to FY15-17E CAGR of 10% (11.8%).
Margins continue to be superior
At 27.1%, EBIT margins improved 78 bps QoQ and were in line with our
27.1% estimate. Margin expansion was led by rupee tailwinds (68 bps)
helped by operational efficiency (10 bps). Margin continues to be within
the aspirational 26-28% band and demonstrates TCS superior execution
capabilities. We continue to expect a modest 11 bps decline in FY16E
margins to 26.8% while those in FY17E could decline 28 bps to 26.5%.
Client mining continues to be encouraging
The client metric continues to be healthy as TCS added 15 clients to the
$1 million+ bucket (vs. 13 in Q1), six to $10 million+ and three to $100
million+. Client transitions were also good as three each transitioned to
$100 million+ and US$20-50 million bucket, seven each to $5-10 million
and $10-20 million and two to $1 million+. At 82.3%, including-trainees,
utilisation declined 60 bps QoQ led by higher gross addition but was inline with its LTM average of 82.2% led by scale benefits. Ex-trainees
utilisation also dipped 30 bps led by ~11,000 lateral hires. Attrition
continues to be elevated and rose 30 bps QoQ, 340 bps YoY to 16.2%.
That said, absolute attrition is lower QoQ (14,501 vs. 15,023 in Q1) and
the management highlighted it could moderate through the year.
FY17E growth underpinned by healthy bookings
TCS signed 13 large deals in Q2 (nine in Q1FY16, nine in Q4FY15, seven
in Q3 and eight in Q2) with the management highlighting that TCV of
deals signed is 30% higher than its previous best. Across industry
verticals, TCS won one deal in banking, one deal in insurance, four deals
in manufacturing, two in retail, one in telecom, hi-tech, life sciences,
utilities and media. From a geography perspective, nine wins were in
North America, two in Europe and one each in UK and the APAC.
Growth intact but in transition; maintain BUY
We estimate rupee revenue, adjusted PAT CAGR of 12%, 8.4% in FY1517E (average 26.6% EBIT margins in FY16-17E), vs. 26% each reported in
FY10-15 (average 27.5% margins), respectively. We are adjusting
estimates lower to account for slowest H1 since FY10 and also ascribe a
lower multiple to account for growth deceleration. Consequently, we now
value TCS at | 2800 (21.5x FY17E EPS of | 130) vs. | 3,000 (22.4x FY17E
EPS of | 134) earlier but maintain our BUY rating.

Variance analysis
Q2FY16 Q2FY16E

Q2FY15

YoY (%)

Q1FY16

QoQ (%)

Comments

Constant currency revenues grew 3.9% QoQ (3% in $ vs. 3.6% estimate) led by
5.8 4.9% volume growth partially offset by 100 bps drop in realisations
4.8

Revenue
Employee expenses

27,166
14,816

27,145
14,769

23,817
12,953

14.1
14.4

25,668
14,143

Gross Margin
Gross margin (%)
SG&A expenses

12,350
45.5
4,527

12,375
45.6
4,533

10,864
45.6
4,055

13.7
-15 bps
11.7

11,525
44.9
4,323

7.2
56 bps
4.7

EBITDA
EBITDA Margin (%)
Depreciation
EBIT

7,822
28.8
469
7,354

7,842
28.9
499
7,343

6,809
28.6
415
6,394

14.9
21 bps
13.1
15.0

7,202
28.1
454
6,748

8.6
74 bps
3.4
9.0

EBIT Margin (%)

Other income (less interest)
PBT
Tax paid
PAT

27.1
675
8,029
1,936
6,055

27.1
651
7,993
1,878
6,050

26.8
566
6,960
1,605
5,288

22 bps
19.3
15.4
20.6
14.5

26.3
771
7,520
1,747
5,709

EBIT margins improved 78 bps QoQ led by f/x (68 bps), operational efficiency (10
78 bps bps) and was in line with our 27.1% estimate
-12.5
6.8
10.8
6.1 Reported PAT was in line with estimate

335,620
16.2

330,254
15.6

313,757
12.8

7.0
340 bps

324,935
15.9

Utilisation incl trainees (%)

82.3
82.5
Average $/|
65.4
64.9
Source: Company, ICICIdirect.com Research

81.3
60.6

100 bps
7.8

82.9
63.6

Key Metrics
Closing employees
Overall attrition (%)

3.3 10,685 net heads were added sequentially

30 bps Elevated attrition continues to be a concern
Quarterly utilisation (incl trainees) declined 60 bps QoQ led by higher gross
-60 bps additions
2.8

Change in estimates
(| Crore)

Old

FY16E
New % Change

Revenue
108,903 105,537
EBIT
29,137
28,240
EBIT Margin (%)
26.8
26.8
PAT
23,902
23,335
EPS (|)
122.0
119.0
Source: Company, ICICIdirect.com Research

-3.1
-3.1
0 bps
-2.4
-2.5

Old
122,555
32,444
26.5
26,246
134.0

FY17E
New % Change
118,745
31,447
26.5
25,515
130.0

-3.1
-3.1
0 bps
-2.8
-3.0

Comments
Adjusting estimates lower to account for slowest H1, since FY10, and seasonal
weakness in H2

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
340,913

16.5
83.6
63.5

16.5
83.6
63.5

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
Utilisation continues to be best in the industry

Page 2

Company Analysis
Key highlights: Commentary from earnings call
LatAm, Japan and Diligenta continue to be weak spots. LatAm has
recovered in Q2 (grew 6.2% QoQ-CC) while Diligenta, Japan
weakness could persists at least for the next couple of quarters
The Ignio platform, AI-based automation product in software-as-aservice category, is tracking well. Four deals were signed; three in
the US and one in UK
Digital business grew 10.7% in CC terms along with 80 bps
improvement in contribution to 13.3% vs. 12.5% in Q1
From a vertical perspective, BFS traction continues led by healthy
deal wins. BFSI growth could be above company led by BFS,
offset by Diligenta weakness
Similar to prior periods, furlough may impact select verticals
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
Similar to last quarter, visibility appears clouded especially in
emerging markets and Japan leading to a subdued performance
in the manufacturing vertical. Diligenta weakness impacted UK
Operating metric highlights
Operationally, growth was broad based across verticals, geographies and
service lines. Among large verticals, BFSI (40.5% of revenues, grew 3.9%
QoQ in CC), retail & distribution (13.8%, 3.6%), life sciences (7%, 5.4%)
grew above company average while manufacturing (9.8%, 1.8%) and
telecom (8.4%, 2.5%) grew below. Among smaller verticals, travel (3.6%,
5.7%) and energy & utilities (4%, 5.8%) led while media (2.4%, 2.1%) was
soft. Geographically, North America (52.7%, 3.1%), UK (16.4%, 4.6%) led,
helped by India (6.5%, 7.8%), APAC (9.4%, 4.1%) and MEA (2.4%, 12.9%)
while Continental Europe (10.8%, 2.0%) was soft.
Growth was balanced across service lines with ADM, engineering
services growing 3.1% each in CC terms while enterprise, BPO grew 3.4%
each. Assurance (6.1%) and asset leverage solutions (32.8%) were
noteworthy growth drivers primarily led by BaNCS and other digital
platforms while consulting continues to be weak (declined 9.3% on top of
7.7% decline in Q1).
Adjusting estimates on soft H1, seasonal weakness in H2
TCS Q2FY16 earnings missed estimates as volume (4.9%) growth,
though up sequentially (4.8% in Q1) in a seasonally strong quarter, was
offset by constant currency realisations drop of 100 bps. H1 dollar
revenue growth (7.5%) was slowest since FY10 (declined 2.6% then).
Consequently, we adjust FY16E estimates lower and now expect dollar
revenues to grow 7.5% vs. 11% earlier translating to FY15-17E CAGR of
10% (11.8%). That said, the 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 10% CAGR in FY15-17E vs. 19.5% during FY10-15
21000

29.1

18700

18000
$ million

15000
%

12000
9000

16620

15454

24.2

13442
11568
10171
13.716.2
5.4 8187

21

14.3
15.0
11.3

6339

6000

28

17.7
16.7

35

12.5 14

9.3
5.8 7.5
4036 4156

3694 3929 3931 3900

3000

Dollar revenues

FY17E

FY16E

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 H1 suggests that FY16E growth may at best
be in line with 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
7.5

5.4 5.5

TCS dollar revenue growth

FY16E

FY15

FY14

FY13

FY12

FY11

FY10

FY09

NASSCOM guidance

Source: Company, ICICIdirect.com Research

FY17E growth underpinned by healthy bookings

TCS signed 13 large deals in Q2 (nine in Q1FY16, nine in Q4FY15, seven
in Q3 & eight in Q2) with the management highlighting that TCV of deals
signed is 30% higher than its previous best. Across industry verticals,
TCS won one deal in banking, one in insurance, four in manufacturing,
two in retail and one in telecom, hi-tech, life sciences, utilities and media.
From a geography perspective, nine wins were in North America, two in
Europe and one each in UK and the APAC.
Margins continue to be superior
At 27.1%, EBIT margins improved 78 bps QoQ and were in line with our
27.1% estimate. Margin expansion was led by rupee tailwinds (68 bps)
helped by operational efficiency (10 bps). Margin continues to be within
the aspirational 26-28% band and demonstrates TCS superior execution
capabilities. We continue to expect a modest 11 bps decline in FY16E
margins to 26.8% while those in FY17E could decline 28 bps to 26.5%.

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

26.5

27.0

26.3

26.8

27.0 27.2 26.9

Q3

28

27.8 27.6

Q2

29.1

30

26.3

27.1 26.8
26.5

26
24

FY17E

FY16E

Q2

Q1

FY15

Q4

Q1

FY14

FY13

FY12

FY11

FY10

22

EBIT Margin

Source: Company, ICICIdirect.com Research

Client mining continues to be encouraging

The client metric continues to be healthy as TCS added 15 clients to the
$1 million+ bucket (vs. 13 in Q1), six to $10 million+ and three to $100
million+. Client transitions were also good as three each transitioned to
$100 million+ and US$20-50 million bucket, seven each to $5-10 million
and $10-20 million and two 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.
Exhibit 4: Total 15 customers added to $1 million+ revenue run-rate in Q2FY16

804

819

Q2

791

Q1

791

FY15

FY10

458

764

Q4

409

743

Q3

405

FY09

600

724

Q2

638

714

Q1

800

FY14

1000

522

400
200

FY13

FY12

FY11

$1 million+ clients

Source: Company, ICICIdirect.com Research

Utilisation stable but rising attrition may be a concern

At 82.3%, including-trainees, utilisation declined 60 bps QoQ led by
higher gross addition but in line with its LTM average of 82.2% led by
scale benefits. Ex-trainees utilisation also dipped 30 bps led by ~11,000
lateral hires. Attrition continues to be elevated and rose 30 bps QoQ, 340
bps YoY to 16.2%. That said, absolute attrition is lower QoQ (14,501 vs.
15,023 in Q1). The management highlighted that it could moderate
through the year.

ICICI Securities Ltd | Retail Equity Research

Page 5

Exhibit 5: Modest utilisation decline led by strong hiring

85
82

79.8

82.1 81.5
81.3
81.2

82.9

82.3

83.6 83.6

79
%

76.2
76

75.7

74.5

74.1

72.3

73

FY17E

FY16E

Q2

Q1

FY15

Q4

Q3

Q2

Q1

FY14

FY13

FY12

FY11

FY10

70

Utilisation (including trainees)

Source: Company, ICICIdirect.com Research

Exhibit 6: Elevated attrition continues to be a concern

20
18

16.5 16.5
15.9 16.2

16
%
14
12

14.9 14.9

14.4
12.2

11.8

10.6

11.3

12.0

12.8

13.4

Overall attrition (%)

[

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 6

FY17E

FY16E

Q2

Q1

FY15

Q4

Q3

Q2

Q1

FY14

FY13

FY12

FY11

FY10

10

Outlook and valuation

Tata Consultancy Services (TCS) reported soft Q2FY16 earnings as
growth was below our and consensus estimates while margins were in
line. Growth during the quarter was broad based led by BFS, retail,
lifesciences and travel & transportation across verticals, North America,
UK, LatAm, India, MEA among geographies and ADM, infrastructure
management, asset leverage and assurance among services. Though
ramp ups are generally on schedule and the pipeline is healthier both
from a quality as well as quantity perspective (signed nine large deals),
we are adjusting estimates lower given the slowest H1 since FY10.
We estimate rupee revenue, adjusted PAT CAGR of 12%, 8.4% in FY1517E (average 26.6% EBIT margins in FY16-17E), vs. 26% each reported in
FY10-15 (average 27.5% margins), respectively. We are adjusting
estimates lower to account for the slowest H1 since FY10 and also ascribe
a lower multiple to account for growth deceleration. Consequently, we
now value TCS at | 2800 (21.5x FY17E EPS of | 130) vs. | 3,000 (22.4x
FY17E EPS of | 134) earlier but maintain our BUY rating.
Exhibit 7: One year forward rolling PE
3000
2400

1800
1200
600

Price

24

20

16

12

Oct-15

Apr-15

Oct-14

Apr-14

Oct-13

Apr-13

Oct-12

Apr-12

Oct-11

Apr-11

Oct-10

Apr-10

Oct-09

Apr-09

Oct-08

Apr-08

Oct-07

Apr-07

Source: Company, ICICIdirect.com Research

Exhibit 8: Valuation

FY14
FY15
FY16E
FY17E

Sales
(| cr)
81,809
94,648
105,537
118,745

Growth
EPS
(%)
(|)
29.9
97.6
15.7 110.8
11.5 119.0
12.5 130.0

Growth
(%)
37.4
13.5
7.4
9.3

PE
(x)
25.5
22.4
20.9
19.1

EV/EBITDA
(x)
18.8
17.2
15.2
13.4

RoNW
(%)
38.9
42.8
36.1
31.9

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 7

RoCE
(%)
68.3
81.8
77.3
74.6

Company snapshot
4,000

Target price : | 2800

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

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

Oct-10

Jul-10

Apr-10

Jan-10

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

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

Shareholding Pattern
Latest Filing Date % O/S Position (m) Change (m)
31-Mar-15 73.81
1,445.8
0.0
31-Mar-15 2.26
44.2
-3.4
31-Mar-15 1.12
22.0
-6.2
31-Aug-15 0.68
13.3
0.3
31-Aug-15 0.61
12.0
0.0
31-Aug-15 0.61
11.9
-0.1
30-Sep-15 0.57
11.2
-0.8
31-Aug-15 0.55
10.8
0.0
30-Jun-15 0.52
10.2
0.2
31-Jul-15 0.46
9.0
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
4.80
4.73
4.69
7.30
8.93
4.46
4.56
4.46
4.47
4.52

Source: Reuters, ICICIdirect.com Research

Recent Activity
Buys
Investor name
Norges Bank Investment Management (NBIM)
PGGM Vermogensbeheer B.V.
BlackRock Asset Management North Asia Limited
T. Rowe Price International (UK) Ltd.
Schroder Investment Management (Hong Kong) Ltd.
Source: Reuters, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Sells
Value
57.93m
48.65m
36.75m
34.30m
23.40m

Shares
1.43m
1.20m
0.95m
0.86m
0.58m

Investor name
Templeton Asset Management Ltd.
William Blair & Company, L.L.C.
Life Insurance Corporation of India
GMO LLC
APG Asset Management

Value
-254.59m
-186.25m
-139.62m
-47.74m
-38.48m

Shares
-6.21m
-4.54m
-3.40m
-1.08m
-0.94m

Page 8

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

| Crore

Cash flow statement

FY14

FY15

FY16E

FY17E

81,809

94,648

105,537

118,745

29.9

15.7

11.5

12.5

COGS (employee expenses)

37,855

51,240

57,372

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

30,830

33,789

Add: Depreciation

1,349

1,309

1,900

2,149

65,009

(Inc)/dec in Current Assets

-5,117

-2,658

-3,266

-4,365

18,026

20,139

Inc/(dec) in CL and Provisions

1,667

3,405

1,461

2,132

75,398

85,148

Taxes paid

-7,044

-7,482

-7,245

-7,974

25,132

27,294

30,139

33,597

CF from operating activities

14,751

19,369

21,089

23,389

Growth (%)

39.0

8.6

10.4

11.5

(Inc)/dec in Investments

-7,479

-254

-2,000

-2,000

Depreciation

1,324

1,870

1,900

2,149

(Inc)/dec in Fixed Assets

-3,112

-2,943

-3,100

-3,300

Other Income less interest

1,589

3,140

2,590

2,342

Others

925

1,666

2,590

2,342

25,397

28,564

30,830

33,789

-9,667

-1,701

-2,510

-2,958

6,071

6,656

7,245

7,974

209

211

250

300

PBT
Total Tax
Minority Interest
Exceptional Item
PAT before exceptional item

2048

19,117

21,696

23,335

25,515

Growth (%)

37.5

13.5

7.6

9.3

EPS (|)

97.6

110.8

119.0

130.0

19,117

19,648

23,335

25,515

97.6

100.3

119.0

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

-9,334

-10,206
10,225

500

9,245

215

-106

Opening Cash

6,769

14,442

18,556

27,801

Closing Cash

14,442

18,556

27,801

38,027

FY14

FY15

FY16E

FY17E

(Year-end March)

196

196

Reserve and Surplus

48,999

50,439

64,440

79,749

DPS

Total Shareholders funds

49,195

50,635

64,636

79,945

Cash Per Share

1,256

1,237

1,237

1,237

Operating Ratios (%)

708

1,128

1,378

1,678

51,467

53,343

67,594

83,203

Assets
Intangible assets

-178
-5,673
-589

196

Tangible assets

0
-10,206

Exchange difference

Total Liabilities

0
-9,334

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

10,516

11,610

Adjusted EPS (Diluted)

97.6

110.8

119.0

130.0

251.2

258.5

329.5

407.2

32

79

41

44

73.7

94.7

141.7

193.7

EBIT margins

29.1

26.9

26.8

26.5

PBT Margins

31.0

30.2

29.2

28.5

PAT Margin

23.4

22.9

22.1

21.5

Debtor days

81

79

79

79

Creditor days

25

34

31

29

BV per share

241

169

205

239

CWIP

3,168

2,766

2,766

2,766

RoE

38.9

42.8

36.1

31.9

Goodwill

2,269

2,093

2,117

2,140

RoCE

68.3

81.8

77.3

74.6

Investments-Non current

2,275

169

169

169

RoIC

106.0

128.2

123.6

119.9

15

16

21

24

18,230

20,438

22,789

25,641

25.5

22.4

20.9

19.1

4,311

4,146

4,623

5,202

EV / Net Sales

5.8

4.9

4.3

3.8

Market Cap / Sales

5.9

5.1

4.6

4.1

Inventory
Debtors
Loans and Advances
Other Current Assets
Cash

Return Ratios (%)

Valuation Ratios (x)

P/E

5,899

5,657

6,090

7,021

14,442

18,556

27,801

38,027

Solvency Ratios

Total Current Assets

42,898

48,813

61,325

75,915

Debt / EBITDA

0.0

0.0

0.0

0.0

Total Current Liabilities

15,670

20,318

21,779

23,911

Debt / Equity

0.0

0.0

0.0

0.0

Application of Funds

51,467

53,343

67,594

83,203

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)

CMP
M Cap
EPS (|)
(|)
TP(|) Rating
(| Cr) FY15 FY16E FY17E
Sector / Company
585 500 Hold
6,579 31.4 34.0 40.0
Cyient (INFENT)
1,699 1,500
Sell
5,175 74.3 99.0 110.0
Eclerx (ECLSER)
29
45
Buy
1,974
3.3
4.2
5.1
Firstsource (FIRSOU)
834 1,100
Buy 117,215 51.4 56.0 65.0
HCL Tech* (HCLTEC)
1,098 1,300
Buy 252,113 53.9 57.0 65.0
Infosys (INFTEC)
117 105 Hold
2,305 11.9 10.9 13.0
KPIT Tech (KPISYS)
1,409 1,450
Buy 11,810 63.9 73.0 93.0
Mindtree (MINCON)
447 430 Hold
2,732 31.8 39.6 47.5
NIIT Technologies (NIITEC)
690 715 Hold
5,523 36.3 45.0 51.0
Persistent (PSYS)
2,484 2,800
Buy 489,395 110.8 122.0 134.0
TCS (TCS)
548 600
Buy 52,729 26.7 29.0 36.0
Tech Mahindra (TECMAH)
583 680
Buy 143,970 35.1 37.0 40.5
Wipro (WIPRO)
* June year end, Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

P/E (x)
FY15 FY16E FY17E
18.6 17.2 14.6
22.9 17.2 15.5
8.8
7.1
5.8
16.2 14.9 12.8
20.3 19.3 16.9
9.8 10.8
9.0
22.1 19.3 15.1
14.1 11.3
9.4
19.0 15.4 13.5
22.4 20.4 18.5
20.5 18.9 15.2
16.6 15.7 14.4

EV/EBITDA (x)
FY15 FY16E FY17E
13.5 11.0
8.6
15.1 11.7
9.9
7.3
5.8
4.4
13.8 12.0
9.9
14.9 13.4 11.4
6.9
6.0
4.9
13.8 11.5
9.1
7.2
5.4
4.3
11.7
8.9
7.3
17.2 15.2 13.4
11.8 11.6
9.3
11.6 10.4
9.1

RoCE (%)
FY15 FY16E FY17E
22.2 21.9 22.4
40.4 45.8 43.5
9.5 11.6 14.1
35.2 32.1 30.7
31.4 29.7 30.1
14.7 15.5 16.5
33.7 32.2 33.7
18.1 22.0 22.9
27.5 28.7 27.4
81.8 77.3 74.6
26.9 24.9 26.5
23.0 22.6 22.4

RoE (%)
FY15 FY16E FY17E
19.2 18.1 18.6
32.1 35.5 33.2
11.2 12.2 12.9
29.3 26.1 24.9
22.5 21.3 21.7
17.0 13.6 14.2
26.6 25.3 26.4
14.3 15.8 16.7
20.7 21.2 20.2
42.8 36.1 31.9
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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Page 12