IT Services

IT Services
Sector Update
April 12, 2020 Fasten your Seat Belt, bumpy ride ahead…
Nifty IT index has corrected 16% since last one-month factoring in potential
demand shock from COVID-19 spreading to key client markets (US/ Western
Change in EPS Estimates Europe) along with oil price shock and potential impact on global growth. The
COVID-19 crisis in our view will have more severe impact on global economy
EPS EPS CUT
Companies than GFC as its severity is increasing on day-to-day basis. As Indian IT growth
FY20E FY21E FY22E FY21E FY22E
expectation is anchored to global economy, COVID-19 could derail it
TCS 85.8 81.9 95.7 -12.9% -6.1% meaningfully. Unlike 2000-01 (dotcom bust led by Tech companies) and 2008-
Infosys 39.0 38.2 43.4 -12.3% -9.0% 09 (GFC led by banks) which hit demand, COVID-19 crisis hits both demand
Wipro 16.7 15.3 15.2 -8.0% -15.7%
as well as supply.
HCL Tech 40.0 40.0 45.5 -9.2% -5.3%

We believe despite coordinated efforts, solid balance sheets & resilient free
Tech Mahindra 48.2 38.4 48.2 -26.9% -19.3% cash flow there can be a bit more de-rating of IT sector multiples given growth
LTI 84.8 87.2 107.9 -15.3% -10.1% uncertainty. COVID-19 is expected to create a domino effect across industries
LTTS 79.6 73.0 88.4 -10.8% -2.4% which will impact IT spending though we don’t see any structural impact in
Mindtree 39.2 50.0 55.4 -0.1% -4.0%
the long term given strong resilience of Indian IT business models.
NIIT Tech 71.2 69.7 85.7 -25.4% -18.0%

We cut our EPS estimates by 9-27% for our coverage universe and now
Hexaware 21.6 21.0 23.1 -12.4% -9.8% expect a revenue decline of 2-6% for FY21E. The base assumption for our
Mphasis 61.2 59.3 69.9 -17.5% -14.2% coverage universe is global recession in FY21E with signs of pent up demand
Persistent 42.8 42.1 49.7 -17.6% -13.0% in FY22E. Despite the weak outlook, IT services stocks offer value and
reasonable returns on normalized multiples. We believe that TCS and Infosys
Source: PL
should be able to deal with the worse scenarios better than peers due to lower
financial leverage and ability to drive delivery shifts. Benefits from economies
Changes in Rating
of scale, diversified client and supplier base, less concentrated risk profiles
Rating and better access to funding help large companies minimize impact of
Companies
Current Previous adverse conditions on business. Continue to prefer market leaders TCS and
TCS HOLD HOLD Infosys.
Infosys BUY BUY

 Revenue decline across our coverage universe, Midcaps will be more hit:
Wipro SELL HOLD We estimate revenue decline across our coverage due to 1) Deteriorating client
HCL Tech HOLD BUY health across verticals, 2) Discretionary spending cut, 3) Travel advisories will
Tech Mahindra REDUCE REDUCE affect revenue growth severely in near to medium term, 4) Pricing Pressure &
LTI HOLD BUY vendor consolidation, 5) Lock Down are affecting efficiency, 6) Delay in new
customer acquisition & large deals.
LTTS HOLD HOLD
Mindtree REDUCE REDUCE  Margins to remain under pressure: We believe that INR tailwinds, lower
NIIT Tech HOLD ACC. variable compensation and less travelling costs will be offset by headwinds
Hexaware REDUCE HOLD such as decline in utilization rates, pricing pressure, cross currency and delay
Mphasis ACC. ACC. in billing (higher DSO’s) on margins. Accordingly, we cut the margin estimates
by 100-170bps for our coverage universe.
Persistent REDUCE SELL
Source: PL  Severe Impact on IT budgets: Most of the Fortune-500 companies have

issued profit warnings (Exhibit: 31), We believe F-500 companies will surely try
to reduce their operational expenses & it can have a severe impact of pricing
pressure on Indian IT companies. ISG estimates that 60% of clients will ask
providers to reduce prices by 20-50% and considers price reductions to the
Aniket Pande tune of 20-30% to be fairly common.
aniketpande@plindia.com | 91-22-66322300
 Discretionary spending will get cut: Discretionary spends account for 30%
of IT spending. Quantum of discretionary spends can decline by 15-30% in the
near term. Application modernization initiatives, while a critical part of digital
transformation, will take a backseat due to pullback in discretionary spending.
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IT Services
COVID-19 to create domino effect across industries
We cut revenues estimates by 4-8% for our coverage universe and expect a
revenue decline of 9-27% for FY21E after considering following challenges for the
sector:
 Deteriorating client health across verticals: As of now Indian IT vendors

have not observed any direct impact in terms of client loss, delivery disruption
or heavy pricing/volume discounts. However most of the Fortune 500
companies have started issuing profit warnings or slowdown impacts.
Discretionary spends account for  Discretionary spending cut: We believe (T&M, 35-50% of revenues) time
30% of IT spending. Quantum of
& price materials contracts will be most impacted due to cut in discretionary
discretionary spends can decline by
15-30% in the near term. spending. Several global industries have been significantly impacted like
Travel & Entertainment (worst impacted), Retail/CPG & Manufacturing (Supply
chain) and Pharma/Life sciences (supply of APIs/drugs from China etc.).
Several of these largely consumer facing industries could drive faster cuts to
discretionary tech spend over the next few quarters. These industries account
30-40% of revenues for Indian IT firms.
Travel advisories will impact ability to  Travel advisories will affect near term revenue growth: Travel advisories
close deals, make fresh sales and
are effective across the globe now. This will impact ability to close deals, make
lengthen sales cycles in general.
fresh sales and lengthen sales cycles in general. Travel bans if extended to
Indian nationals may also impact project ramp ups for deals already won on a
temporary basis even if a large chunk of such work can be done remotely or
offshored. All this can potentially affect revenue growth for firms over 1Q-
2QFY21 rather than 4QFY20.
ISG estimates that 60% of clients will  Pricing Pressure & Vendor Consolidation: We believe clients will put more
ask providers to reduce prices by 20-
focus on their operational & daily activities rather than spending incrementally
50% and considers price reductions
to the tune of 20-30% to be fairly on IT. Mid-cap companies will also have higher risk of vendor consolidation as
common. they are not a part of core client activities. Further mid-cap companies are
leveraged to growth whereas revenue loss leads to far bigger hit on margins
than larger IT companies and consequently higher hit on earnings and
multiples.
Key teething issues have varied from  Lockdowns are affecting efficiency: Most State Governments in India have
lack of laptops availability through
included IT and BPO services as part of essential services [Exhibit 30], which
poor WFH infrastructure in India to
immigrant talent choosing to ensures delivery of critical services. Companies have ramped up WFH for over
temporarily relocate to hometowns. 80% of the headcount in India, however they face challenges such as 1)
Concern on security clearance as devices (employee owned) could have
malware/Trojan, 2) Equipment shortage (laptops/desktops to some
employees) for delivering services, 3) Availability of High-speed reliable
internet connection to everyone in India and 4) Requirement of Client
permissions to allow WFH. Most of the banks in US have ODC centers in India,
and its uncertain that their clients will give permission to these ODCs to WFH.
 Delay in new customer acquisition & large deals: We believe that IT

companies derive ~2-5% of revenues from new client additions. Large deals
go through multiple peak points on interactions along with customer meetings
and could potentially face delays from travel freeze. Impact of this will be felt in
(1) large deal closure numbers in the first half of FY2021E and (2) decline in
revenue contribution from new clients.
IT Services
Mid-tier companies have high Based on the challenges mentioned above we assume -2%- -3% revenue de-
revenue concentration, dependent on
growth for IT companies in Q1FY21E/Q2FY21E. Margins to be dented severely
discretionary spending and prone to
consolidation during a downturn. in Q1/Q2 due to lower revenue growth, lower onsite revenue & operational
challenges; partly mitigated by lower travel costs. We believe that estimating
revenues for Industry leaders (TCS, Infy) is easier on a relative case as these
companies have large number of Fortune-500 companies as their clients as
compared to midcap IT companies as they have higher client concentration,
higher dependence on discretionary spending & higher risk of consolidation.
Tier-II IT companies suffered much more than Tier-I techs due to the growth
hit post GFC, seeing much more prolonged revenue/margin pressure. In
comparison, the Covid-19 led hit seems to be a much broader to several client
industries/verticals.
Wipro, Tech M & HCLT do have size & scale but they have their set of
challenges which makes difficult execution in this challenging times.
Portfolio management has been a challenge for Wipro. Tech M is expected to
be the most significantly impacted on the bottom-line among the IT Services
firms because of higher Time and Materials based contracts & higher
discretionary spending (Communication vertical). In the near term, we see
Infosys at INR500 level, HCL at INR400, Tech M at INR450, Wipro at INR150
and TCS at INR1,500.
Our base assumption for our coverage universe is of global recession

restricted to FY21E with signs of pent up demand in FY22E. We model pricing
pressure and margin decline across our coverage universe for FY2021. In
terms of PE multiples, we continue to work with TCS as the sector benchmark.
We have assigned 18x (10% discount to 10 yr avg PE of 20x). We have
benchmarked all other companies with respect to TCS.
Although COVID-19 will hit near-term earnings, we do not expect any

structural impact in the long term given the resilience of Indian IT’s business
model. Infosys and TCS to return back to high single digit growth in FY22 as
they have well diversified vertical and service portfolio. We expect pent-up
demand to offset the negative impact of stressed sectors in FY22. Continue
to prefer market leaders TCS and Infosys.
Infosys – Remains preferred pick

Internal investigation and US SEC’s  We maintain our Buy rating on Infy as we believe that it has diversified verticals
investigation found no wrongdoing by
& geos, strong large client mining, large deal momentum & Internal
the management. Focus is now back
on business investigation and US SEC’s investigation found no wrongdoing by the
management. Focus is now back on business.
 Exposure to directly impacted verticals by COVID (Retail, E&U, Manufacturing,

Hi-tech) is ~45% of its revenue. We estimate -2.6% revenue de-growth for Infy
in FY21E, with pent up growth of ~7% in FY22E.We assign 16X earnings
multiple (11% discount to TCS target multiple) to Infy to arrive at a target price
of Rs.694. Infosys is currently trading at 15.4/13.6x on FY21E/22E earnings of
Rs.38/43 respectively.
IT Services
TCS – Resilient Business Model, Higher proportion of

fixed price & annuity contracts.
Higher the proportion of fixed price  TCS has one of the highest exposures to BFS in the Top-5 firms which carries
contract, lower will be the risk.
a risk for spending cuts by BFS clients and in advent of a recession in US from
the sharp plunge in crude oil prices or COVID-19 related business weakness.
However higher proportion of its revenues accruing from fixed price and
annuity contracts, gives us comfort.
 Exposure to verticals directly impacted by COVID (Retail & Manufacturing) is

up to ~25% of its revenue. We estimate -2.3% revenue de-growth for TCS in
FY21E, with pent up growth of ~6% in FY22E. We assign 18x earnings multiple
to TCS (10% discount to 10-year average P/E of 20X) & arrive at a target price
of Rs. 1723 & maintain our HOLD rating. TCS is currently trading at 20.3/17.3
on FY21E/22E earnings of Rs.82/96 respectively.
Wipro- Weak Portfolio, higher exposure to BPO & IMS

Business, downgrade to Sell
We keep our negative view on Wipro  Wipro has a huge exposure to BPO and IMS segments and as such can face
unchanged despite the steep
delivery changes in case of COVID-19 based issues in offshore locations in
correction in stock price due to
inconsistent execution and sales India.
execution challenges
 We keep our negative view on Wipro unchanged despite the steep correction
in stock price due to inconsistent execution and sales execution challenges,
downgrade to Sell from Hold.
 Exposure to directly impacted verticals (CBU, E&U, Manufacturing) is ~38% of

its revenue. We estimate -5% revenue de-growth for Wipro in FY21E, with
negligible growth of 0.2% in FY22E.
 We assign 11X earnings multiple (35% discount to TCS target multiple) to

Wipro to arrive at a target price of Rs.168. Wipro is currently trading at
12.8/12.9x on FY21E/22E earnings of Rs.15.3/15.2 respectively. Downgrade
to Sell from Hold.
HCLT – Exposure to discretionary spending in ER&D will

be a headwind along with IMS & BPO
HCLT also has higher proportion of  We downgrade HCTL to Hold from Buy as we believe deal momentum will
revenues from BPO and IMS
further moderate in FY21E & higher proportion of revenues from BPO and IMS
businesses, which carry the highest
risk of delivery in remote businesses, which carry the highest risk of delivery in remote environment can
environment, should India get impact revenue momentum severely in FY21E.
impacted.
 HCLT's Covid-19 update statement indicated little impact on business for
March 2020 quarter. We would like to highlight that Deal win momentum is
already moderated in Q3; although the pipeline was at an all-time high, we see
conversion to be a challenge due to COVID-19.
 Exposure to verticals directly impacted (Manufacturing and Retail) at ~30% of

its revenue along with challenges in its IP portfolio (~10% of revenues). Net
cash of $1.1bn as of 3QFY20. Payment of ~$1bn to be made to IBM in June
2020 which may require debt if lockdown continues.
IT Services
 We estimate 2% revenue growth for HCLT in FY21E, with growth of 6.5% in

FY22E. We assign 11X earnings multiple (35% discount to TCS target multiple)
to HCLT to arrive at a target price of Rs.501. HLCT is currently trading at
11.7/10.3x on FY21E/22E earnings of Rs.40/46 respectively. Downgrade to
Hold from Buy.
Tech M – 5G momentum to take a backseat

We believe that Tech M the most  We believe that Tech M the most significantly impacted on the bottom-line
significantly impacted on the bottom-
among the IT Services firms because of (a) higher Time and Materials based
line among the IT Services firms
because of (a) higher Time and contracts, (b) Communication vertical being mostly into discretionary spending.
Materials based contracts, (b)
Communication vertical being mostly  Exposure to Italy and Spain via Pininfarina. Impact of profitability could be $30-
into discretionary spending. 50m. LCC and some other large acquisitions like HCI and BORN could
struggle.
 We believe the company stands to lose the most on the margin front as the
pressure of deal ramp ups combines with lower utilization.
 We estimate ~4% revenue de-growth for Tech M in FY21E, with growth of 4%

in FY22E. We assign 11X earnings multiple (35% discount to TCS target
multiple) to Tech M to arrive at a target price of Rs.530
 . Tech M is currently trading at 14.2/11.3x on FY21E/22E earnings of Rs.38/48

respectively. Maintain Reduce.
IT Services
Margins to remain under pressure

We believe that the transient benefit  We believe that INR tailwinds, lower variable compensation and less travelling
of lower variable compensation and costs will be offset by headwinds such as decline in utilization rates, pricing
travel costs will be offset by a decline
pressure, cross currency and delay in billing (higher DSO’s) on margins.
in utilization rate, missed billing and
additional costs enabling work-from- Accordingly, we cut the margin estimates by 100-170bps for our coverage
home for employees. universe.
 Pricing compression would eat into the gains made on travel (there is likely to
be little travel as long as we don’t put the health scare conclusively behind us),
salaries – no hikes likely, some may institute salary cuts at the mid to upper
management levels and INR depreciation. We see new development (digital)
projects cut/pushed back while run-the business spending will likely see
significant pricing pressure.
Wage hike impact on margin

Company Wage hike quarter Wage hike impact
Infy Q1FY20 and Q2FY20 (60) bps QoQ in Q1FY20 and (70) bps QoQ in Q2FY20
HCLT Q2FY20 and Q3FY20 (45) bps QoQ in Q2FY20 and (60) bps QoQ in Q3FY20
TechM Q1FY20 (100) bps QoQ
LTI Q2FY20 (50) bps QoQ
LTTS Q2FY20 Budgeted impact of (160 bps) QoQ, actual N/A
MTCL Q1FY20 (190) bps QoQ
Hexaware Q3CY19 and Q4CY19 (30) bps QoQ in Q3CY19 and (60) bps QoQ in Q4CY19
NIIT Tech Q1FY20 (240) bps QoQ
Source: Company, PL
Visa Cost Impact

Company Q1FY20 visa cost impact
Infosys (80) bps QoQ
HCLT (15) to (20) bps QoQ
TechM (40) to (45) bps QoQ
LTI (100) bps QoQ
Mphasis (40) to (50) bps QoQ
LTTS (70) bps QoQ
Mindtree (30) bps QoQ
Hexaware (70) bps QoQ
NIIT Tech (90) bps QoQ
Source: Company, PL
Utilization rate trend for IT companies

Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
Infosys 81.8 82.1 80.8 81.5 80.2 79.8 78.9 80.3 81.6 80.4
Wipro 72.9 71 73.1 74.5 74.4 73.4 75.4 73.9 71.4 70.2
HCL Tech 86 85.8 85.9 85.5 86.7 86.6 85.4 NA NA NA
Tech Mahindra 81 83 84 81 81 82 82 80 82 84
L&T Infotech 79.6 80.3 79.9 79.7 80.4 82.1 80.1 80.5 78.9 79.2
Mindtree 73.2 72.8 73.8 75.4 74.5 74.6 75.3 77.2 77 75.9
Source: Company, PL
IT Services
Travel expenses as a % of revenues for select IT companies

Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19
Travel costs as a % of revenues
TCS 2.6 2.2 2.2 2.2 2.4 2.5 2.3 2.3 2.4 2.1 2.1
Infosys 2.8 2.4 2.5 2.4 2.8 2.6 2.6 2.5 3.5 2.3 2.3
Wipro 3.4 3.4 3.3 3 3.2 2.9 3.2 3.1 3.2 3.1 3.3
Mindtree 5.8 4.1 3.8 3.5 4.2 4.3 4.5 4.1 4.7 4.4 4.2
Source: Company, PL
FX exposure for India IT firms

USD EUR GBP INR AUD JPY
TCS 53% 11% 14% 6% 4% 3%
Infosys 67% 13% 5% 3% 7% 1%
Wipro 63% 8% 10% 4% 4% 2%
HCLT 63% 14% 15% 2% 3% 0%
TechM 50% 10% 11% 0% 5% 1%
Source: Company, PL
Cognizant withdrawals guidance- Possibility Indian IT

following the suite
 Cognizant has tweaked its Q1CY20 guidance and withdrawn CY20 revenue
guidance due to uncertainty in wake of Covid-19. Company in the first two
months of Q1CY20 was on track to exceed its quarterly guidance, but Covid-
19 outbreak in late March led to project deferrals and furloughs. It expects
demand slowdown to hit its Q1CY20 an CY20 margin.
 In line with our expectation of increased uncertainty on demand environment

in wake of Covid-19, Cognizant has withdrawn the guidance. Moreover, the
management indicated a broad-based slowdown.
 We see possibility of Indian IT following the suit and withdrawing the

guidance. Infosys, HCL Tech, L&T Tech Services, Hexaware and Cyient
provide full year guidance, whereas Wipro provides quarterly guidance.
IT Services
Change in Estimates
Ratings & Estimates

USD Revenue Growth EBIT Margins EPS EPS CUT P/E
Companies Rating TP (Rs)
FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY21E FY22E FY21E FY22E
TCS 5.9% -2.3% 6.2% 24.6% 23.5% 25.4% 85.8 81.9 95.7 -12.9% -6.1% 20.3 17.3 HOLD 1723
Infosys 8.5% -2.6% 7.2% 21.6% 20.7% 21.3% 39.0 38.2 43.4 -12.3% -9.0% 15.4 13.5 BUY 693
Wipro 1.6% -4.9% 0.2% 16.9% 15.9% 14.6% 16.7 15.3 15.2 -8.0% -15.7% 12.8 12.9 SELL 168
HCL Tech 15.4% 2.1% 6.5% 19.1% 18.1% 18.9% 40.0 40.0 45.5 -9.2% -5.3% 11.7 10.3 HOLD 501
Tech Mahindra 5.1% -4.2% 4.0% 12.1% 9.7% 12.1% 48.2 38.4 48.2 -26.9% -19.3% 14.2 11.3 REDUCE 530
LTI 12.4% 3.2% 8.5% 16.0% 15.0% 16.0% 84.8 87.2 107.9 -15.3% -10.1% 16.0 13.0 HOLD 1403
LTTS 9.6% -2.2% 8.5% 17.0% 16.1% 17.8% 79.6 73.0 88.4 -10.8% -2.4% 16.1 13.3 HOLD 1061
Mindtree 8.7% -3.4% 5.6% 10.1% 10.7% 10.9% 39.2 50.0 55.4 -0.1% -4.0% 14.7 13.2 REDUCE 665
NIIT Tech 11.4% -6.3% 6.0% 13.0% 12.7% 14.5% 71.2 69.7 85.7 -25.4% -18.0% 15.9 13.0 HOLD 1029
Hexaware 17.1% 2.5% 5.9% 13.9% 13.2% 13.5% 21.6 21.0 23.1 -12.4% -9.8% 12.65 11.45 REDUCE 231
Mphasis 10.9% -1.4% 5.8% 16.0% 14.9% 15.9% 61.2 59.3 69.9 -17.5% -14.2% 11.39 9.67 ACC. 839
Persistent 4.3% -3.8% 4.7% 9.2% 8.7% 10.3% 42.8 42.1 49.7 -17.6% -13.0% 12.2 10.3 REDUCE 447
Source: Company, PL
Current PE significantly higher than the trough seen in GFC crisis

1yr avg 5yr avg 10yr avg 15yr avg GFC Trough Current PE
TCS 23.1 20 19.4 18.9 6.9 20.3
Infosys 18.2 17 17.1 18.1 10.4 15.4
Wipro 16.2 15.6 16.2 18 7.2 12.1
HCL Tech 13.3 14.3 13.6 14.2 5.3 11.6
Tech M 15.3 14.3 12.3 12.4 3.4 14.7
L&T I 18.8 15.5 - - - 15.5
L&T Tech 19.6 17.7 - - - 15.4
Mindtree 19.9 19.8 15.2 - - 14.7
Cyient 12.6 14.6 12.7 12.6 2.5 7.5
NIIT Tech 18.3 13.2 11 9.8 2 15.8
Source: Company, PL
3 – Case Scenario Analysis
We analyze the possible impact of COVID-19 in 2 ways- 1) Mild Impact - Bull case
scenario (2-3% revenue growth, 4-6% EPS Cut), 2) Recession Impact –Base Case
Scenario ( -2%- -5% revenue de-growth, -8%-20% EPS Cut), 3) Deep Recession
(-5%-7% revenue de-growth, -15%-25% EPS cut).
IT Services
Bull Case Scenario (Mild Impact)

Companies
TCS 5.5% 2.8% 7.8% 24.6% 24.1% 25.6% 86.3 88.3 102.7 -6.1% 0.8% 20.9 18.0
Infosys 8.2% 2.9% 10.4% 21.7% 22.2% 22.3% 39.2 40.1 44.7 -7.8% -6.1% 16.2 14.5
Wipro 1.9% 4.4% 4.6% 16.9% 16.6% 16.6% 17.2 17.9 19.1 3.3% 5.7% 11.2 10.5
HCL Tech 16.0% 4.0% 6.6% 19.5% 18.1% 18.3% 41.0 41.0 45.1 -7.1% -6.2% 10.7 9.7
Tech Mahindra 5.7% 7.0% 5.2% 12.1% 12.4% 13.2% 48.2 51.9 58.0 -0.5% -2.2% 12.5 11.2
LTI 12.2% 8.2% 10.1% 16.3% 16.0% 16.5% 85.9 95.9 116.6 -6.9% -2.8% 20.1 16.6
LTTS 9.6% 5.2% 9.9% 16.4% 15.6% 16.3% 76.3 74.6 86.9 -7.4% -2.6% 19.0 16.3
Mindtree 8.7% 8.4% 10.0% 9.9% 11.2% 12.4% 38.4 52.0 62.4 4.0% 8.2% 16.6 13.8
NIIT Tech 11.4% 4.1% 10.3% 13.0% 13.5% 14.5% 71.2 81.0 98.1 -13.3% -6.2% 14.0 11.0
Hexaware 17.1% 7.2% 9.3% 13.9% 13.5% 14.0% 21.2 22.1 25.7 -6.3% 1.2% 16.7 14.4
Mphasis 11.0% 7.1% 9.8% 15.9% 15.9% 16.4% 60.5 64.8 76.4 -5.3% -1.4% 11.1 9.4
Persistent 4.3% -6.0% 3.3% 13.9% 13.5% 15.0% 12.0 12.4 10.6 -19.0% -15.3% 12.4 10.6
Source: Company, PL
Base Case Scenario (Recession Assumption)

Companies
TCS 5.9% -2.3% 6.2% 24.6% 23.5% 25.4% 85.8 81.9 95.7 -12.9% -6.1% 20.3 17.3
Infosys 8.5% -2.6% 7.2% 21.6% 20.7% 21.3% 39.0 38.2 43.4 -12.3% -9.0% 15.4 13.5
Wipro 1.6% -4.9% 0.2% 16.9% 15.9% 14.6% 16.7 15.3 15.2 -8.0% -15.7% 12.8 12.9
HCL Tech 15.4% 2.1% 6.5% 19.1% 18.1% 18.9% 40.0 40.0 45.5 -9.2% -5.3% 11.7 10.3
Tech Mahindra 5.1% -4.2% 4.0% 12.1% 9.7% 12.1% 48.2 38.4 48.2 -26.9% -19.3% 14.2 11.3
LTI 12.4% 3.2% 8.5% 16.0% 15.0% 16.0% 84.8 87.2 107.9 -15.3% -10.1% 16.0 13.0
LTTS 9.6% -2.2% 8.5% 17.0% 16.1% 17.8% 79.6 73.0 88.4 -10.8% -2.4% 16.1 13.3
Mindtree 8.7% -3.4% 5.6% 10.1% 10.7% 10.9% 39.2 50.0 55.4 -0.1% -4.0% 14.7 13.2
NIIT Tech 11.4% -6.3% 6.0% 13.0% 12.7% 14.5% 71.2 69.7 85.7 -25.4% -18.0% 15.9 13.0
Hexaware 17.1% 2.5% 5.9% 13.9% 13.2% 13.5% 21.6 21.0 23.1 -12.4% -9.8% 12.65 11.45
Mphasis 10.9% -1.4% 5.8% 16.0% 14.9% 15.9% 61.2 59.3 69.9 -17.5% -14.2% 11.39 9.67
Persistent 4.3% -3.8% 4.7% 9.2% 8.7% 10.3% 42.8 42.1 49.7 -17.6% -13.0% 12.2 10.3
Source: Company, PL
Bear Case Scenario (Deep Recession Assumption)

Companies
TCS 5.5% -7.1% 3.5% 24.6% 23.2% 23.7% 86.3 77.8 83.8 -17.2% -17.8% 23.8 22.1
Infosys 8.2% -6.5% 6.6% 21.7% 19.7% 20.8% 39.2 35.9 41.7 -17.5% -12.4% 18.1 15.6
Wipro 1.4% -5.1% -0.3% 16.9% 16.5% 16.5% 17.1 16.3 16.7 -5.7% -7.5% 12.2 12
HCL Tech 15.4% -5.7% 4.5% 19.4% 18.5% 19.8% 40.8 37.8 43.2 -14.3% -10.1% 11.6 10.1
Tech Mahindra 5.2% -5.9% 1.6% 11.9% 10.4% 10.7% 47.2 40.1 41.7 -23.2% -29.6% 16.2 15.6
LTI 12.2% -2.1% 3.7% 16.0% 15.5% 16.3% 84.7 85.5 98.4 -17.1% -18.0% 22.6 19.6
LTTS 9.6% -5.1% 2.6% 16.2% 14.1% 15.4% 75.3 62.1 70.4 -22.9% -21.1% 22.9 20.2
Mindtree 8.7% -5.7% 5.2% 9.9% 9.7% 9.9% 38.4 45.7 50.5 -8.5% -12.4% 18.9 17.1
NIIT Tech 11.4% -7.0% 6.5% 13.0% 11.5% 13.5% 71.2 63 80.1 -32.5% -23.4% 17.5 13.8
Hexaware 17.1% -5.6% 4.2% 13.9% 12.6% 13.5% 21.2 18.2 20.7 -23.1% -18.6% 20.3 17.9
Mphasis 11.0% -4.3% 4.2% 15.9% 14.4% 15.9% 60.5 53.2 63.8 -22.2% -17.7% 13.5 11.3
Persistent 5.5% -7.1% 3.5% 24.6% 23.2% 23.7% 86.3 77.8 83.8 -17.2% -17.8% 23.8 22.1
Source: Company, PL
IT Services
BFSI Sector: IT spends to take backseat in low interest

While pockets of BFSI were already
rate environment
under strain (capital markets clients)
before the current crisis, we believe
IT spends in BFSI may take a back  Some pockets of BFSI were already under stress before COVID-19, we believe
seat in FY21. IT spends in BFSI may take a back seat in FY21. Run-the-business segment
would not be impacted while Change-the-business (Digital work) would likely
witness lower spending by clients.
 The benchmark KBW Nasdaq Bank Index is down by 50% in last one month .
The big US banks have already voluntarily suspended their multibillion-dollar
buyback programs. Now European regulators have urged their banks to pause
all shareholder payouts, including dividends, and US bank investors are
wondering if the same could happen in America.
 The Fed’s successive emergency interest rate cuts will be good for banks
overall if they succeed in stabilizing the US economy, but in the short term they
are bad news because they put more pressure on already-thin lending margins.
Banks are expected to give more detail on the impact of this hit when JPMorgan
Chase kicks off the first-quarter results season April 14.
Major U.S. lenders are preparing to  We believe this pandemic will lead many companies in different sectors to file
become operators of oil and gas
for bankruptcy e.g. due to the price war between Russian & Saudi Arabia there
fields across the country for the first
time in a generation to avoid losses has been huge blow to oil prices , with that some oil exploration companies are
on loans to energy companies that filing for bankruptcy ( Whiting Petroleum Corp. WLL, -6.17% said Wednesday
may go bankrupt. that it has filed for bankruptcy, as the company concluded that given a "severe
downturn" in oil and gas prices resulting from the Saudi Arabia-Russia oil price
war and COVID-19-related impact on demand a financial restructuring was the
"best path forward.") This will add further pressure on US banks.
 Though there is one silver lining in Retail banking from the coronavirus crisis
that it is forcing some customers to finally do their business online, either
because their branches are shut or because the health risks of going outside
are too high. The crisis is also turning people away from cash and towards
digital payments, since digital doesn’t require any physical contact at the point
of sale. If that trend persists, it could be positive for IT spending among banks.
IT companies’ exposure to BFSI
BFSI
57
60
50 45 46 46
40 32 30 31
30 22 21
20 13
10
0
L&T Infotech
Infy
NIIT Tech
Wipro
MindTree
HCL Tech
Hexaware
TCS
Tech Mahindra
Mphasis
Source: Company, PL
IT Services
Retail Sector Crisis deepens further

The retail industry was going through  Deteriorating fundamentals in the retail and travel industries from rising
a shakeout before the coronavirus coronavirus risk and lower profitability of brick-and-mortar stores could force
pandemic hit. As shoppers migrated
IT-services companies to delay projects in near term. While Amazon, Walmart
away from malls and bought more
online, specialty-apparel retailers and and a handful of other operators have the chance to emerge from the crisis in
department stores were among the a stronger position thanks to a boom in online deliveries and the rush for
hardest hit. household essentials, much of the rest of the sector is facing a historic crunch.
 Almost 630,000 outlets in the US have been forced to close due to fears about
Covid-19 and restrictions on movement. With the National Retail Federation
calculating that $430bn in industry revenues could evaporate over the
next three months, the question is how many of them will reopen.
 Tens of thousands of retail workers are already being furloughed without pay
at Victoria’s Secret Owner L Brands, while Macy’s warned its workforce of
about 125,000, that it was unclear when stores could reopen and it would start
to furlough most of the staff this week.
The US Commerce Department’s  As companies try to conserve cash, dividend payouts have been postponed at
reading on retail sales in February
groups, including Nordstrom. At the same time, Best Buy, TJX and Kohl’s are
showed they declined by a seasonally
adjusted 0.5%, falling well short of among 126 discretionary consumer companies to draw a total $86bn from
expectations and suggesting credit lines, according to Autonomous Research. Some, such as Mattress Firm,
coronavirus concerns dented have told landlords that they will fail to make required rent payments for April.
consumers’ appetite for spending on
purchases like vehicles and
 Many apparel and accessories retailers were already under pressure before
electronics.
the pandemic. Bankruptcies last year included big names like Forever 21,
Barneys New York, Payless ShoeSource and Charlotte Russe. Chains like Pier
1 and Modell’s Sporting Goods filed for bankruptcy this year.
 Junk-rated retailers with large debt burdens, cited by the rating agency
Moody’s, include luxury chain Neiman Marcus, with outstanding debt of $6.1bn,
mass market department store operator JCPenney ($4.2bn), womenswear
company Ascena ($1.8bn) and clothing retailer J Crew ($1.4bn).
Corporate bond markets have  Corporate bond markets have become increasingly concerned about how
become increasingly concerned
discretionary retailers will cope. A Macy’s bond that matures in 2023, for
about how discretionary retailers will
cope. instance, has tumbled from above $100 at the start of the month to $70,
according to Finra data.
 Macy’s balance sheet has long been in better shape than more distressed
rivals, although the department store chain lost its investment grade rating from
S&P Global last month and was cut further into junk territory in a spate of sector
downgrades in March.
 The company, which has already suspended its dividend, drawn on a line of
With the National Retail Federation credit and stopped capital spending to shore up its finances, “while these
calculating that $430bn in industry actions have helped, it is not enough”, as it drew up the furlough plans.
revenues could evaporate over the
next three months, the question is  Given that Chinese shoppers make up about 40% of the luxury market, any
how many of them will reopen.
slowdown in the region could have a significant effect on the sales growth of
luxury retailers. Swatch, Hermes, Richemont and Burberry are some of the
leading luxury brands with high Asian exposure. Nike, Adidas and VF Corp are
among the top apparel companies with significant exposure to the region.
IT Services
Retail Debt Maturities about to swell
12.5 bn
6.0 bn
0.4 bn
2020 2021 2022
Source: Company, PL
Debt Maturities through 2022
$ 2.8 bn
$ 1.8 bn
$ 1.6 bn
$ 1.4 bn
J.Crew Neiman Marus Ascena Retail JC Penny
Source: Company, PL
Indian IT company’s exposure to Retail sector
Retail & CPG

17
18 15
16 14
13
14 12
12 10
10 8
8 5
6
4 2
2
0
L&T Infotech
NIIT Tech
Infy
Wipro
Hexaware
MindTree
Tech Mahindra
HCL Tech
TCS
Mphasis
Source: Company, PL
IT Services
Spend by Nationality
Given that Chinese shoppers make
YOY Chng
up about 40% of the luxury market, Spend By % of Global
Nationality YoY chn. Region (Constant
any slowdown in the region could Nationality Luxury Mkt
FX)
have a significant effect on the sales Chinese 33% 1% Mainland China 9% 20%
growth of luxury retailers. American 22% 0% American 31% 5%
European 18% 0% European 32% 3%
Japanese 10% 0% Japanese 8% 6%
Other Asian 11% 0% Other Asian 15% 9%
ROW 6% -1% ROW 5% 0%
Source: Bain & Company, Company, PL
Declining Same Store Sales by Retailer

Surging online sales and lack of Holiday
1Q 2Q 3Q 2019E
innovation has led to mid- to high- Sales
single-digit declines in store traffic, Macy's 0.6% 0.2% -3.9% -0.6% -0.9%
resulting in sales slides at leading
Kohl's -3.4% -2.9% 0.4% -0.2% -1.0%
department and apparel stores.
J.C.Penny -5.5% -9.0% -9.3% -7.5% -7.5%
Macy's, Kohl's and J.C Penney all L Brands 0.0% -1.0% -2.0% -3.0% -0.8%
posted negative holiday same-store Urban Outfitters 1.0% -3.0% 3.0% 3.0% 1.1%
sales.
American Eagle 6.0% 2.0% 5.0% 0.0% 3.2%
Lululemon 14.0% 15.0% 16.0% 0.0% 14.8%
Average 1.8% 0.2% 1.3% -1.2% 1.3%
Source: Bloomberg, Company, PL
Communication Sector- Lack of discretionary spending

will delay 5G investments
The 3rd Generation Partnership Project (3GPP) — the global organization that
develops telecommunication standards — delayed the upcoming release of new
5G standards by three months due to the coronavirus.
Here are three groups in the 5G ecosystem that could be most affected by the
delays:
Discretionary spends account for
30% of IT spending. Quantum of  Networking equipment-makers won't be able to finalize next-generation
discretionary spends can decline by equipment designs: Equipment-makers working on 5G SA will have to delay
15-30% in the near term.
projects to ensure that their upcoming products comply with the new standards.
Major equipment vendors have already been testing 5G SA products; for
instance, Qualcomm and Ericsson successfully tested a data call over a 5G SA
network in September 2019.
 Network operators will likely need to readjust the timelines of their own
5G rollouts if new standards for 5G SA are delayed. Network operators are
looking to implement 5G SA quickly as it offers them the most efficient network.
Early 5G NSA networks, which incorporate existing 4G LTE infrastructure to
handle non data tasks, can suffer from latency delays caused when connected
devices switch from the power-saving 4G LTE network over to 5G. Over one-
third (37%) of mobile network operators plan to launch 5G SA networks over
the next two years.
IT Services
 5G device-makers working on industrial IoT devices or wearables won't

As a mobile-only network equipment have a clearly defined set of standards to build their devices around.
vendor, Ericsson looks the most Without standards, 5G device-makers may have to reassess project timelines
exposed to a 5G slow down. More to ensure that the eventual products won't be incompatible with newer 5G
than 50% of its business is generated
devices made after the standards are set. This could make device-makers late
in Europe and the Americas, where
the rate of COVID-19 infections is to market and impede the proliferation of 5G devices — in March 2020, over
rising. 250 5G devices were announced, up from over 200 in January 2020, per
GSMA.
 COVID-19 will have a limited impact of COVID-19 on traditional services

of communication sector. But global trade war over Huawei role in 5G
network are taking a longer haul. The UK had decided to allow the Chinese
company a limited role, and France and Germany appeared poised to go down
a similar route - but pressure was mounting from the US and some UK
politicians for a ban.
 Now, Huawei, while conceding there will be some delays in 5G deployment,

has insisted they will be minimal - and seems to think nothing has really
changed.
In Commutation sector, connectivity  Apple may push back the anticipated fall launch of its first 5G iPhone because
ecosystem is highly interrelated,
of challenges related to the COVID-19 outbreak. In Commutation sector,
which means even a minor delay
somewhere can quickly snowball and connectivity ecosystem is highly interrelated, which means even a minor
have an exaggerated impact. delay somewhere can quickly snowball and have an exaggerated impact.
Tech M has the highest share in Communication Sector
Comunication & Media

60 50
50 41
40
30 24
20 18
20 16 16
11
10 5
0
L&T Infotech
Infy
NIIT Tech
Wipro
MindTree
HCL Tech
Hexaware
TCS
Tech Mahindra
Mphasis
Source: Company, PL
A few data points from European telcos in the aftermath of COVID-19:
 On March 20, the UK’s BT reported a 5% drop in mobile data traffic, compared
with normal levels.
 Belgian incumbent Proximus said capital expenditure would go down this year
to offset the impact of COVID-19 on profits.
IT Services
Although less reliant on the 5G  A growing number of European countries are delaying 5G spectrum auctions,
wireless base station business than
as restrictions related to the Covid-19 pandemic make it difficult to maintain
Ericsson, Nokia could also be in
trouble due to the slowdown in 5G planning. The EU’s deadline of June for the release of the 700 MHz band for
deployments. Approximately 30% of 5G will be missed by several countries, including Spain and Austria.
its sales came from North America
last year, and another 28% from  In Portugal, MEO, NOS and Vodafone Portugal now face a further wait for
Europe.
frequency rights in the 700MHz, 900MHz, 1800MHz, 2.1GHz, 2.6GHz and
3.6GHz bands
 German company United Internet’s CEO, Ralph Dommermuth, said that the
construction of subsidiary 1&1 Drillisch’s 5G network would experience delays
due to current measures adopted in the country to prevent a further spread of
the COVID-19 pandemic in Germany, local paper Handelsblatt reported.
 In Sweden, which has controversially avoided a total lockdown, telecom

incumbent carrier Telia has now cut dividends as it prepares for a hit.
Travelling, Manufacturing, Industrials & transportation

will be the most impacted sectors
Travel, Transportation & hospitality  Cruises, hotels, online travel companies and casinos have been affected the
vertical accounts for ~5% of the total most among consumer and retail companies by the coronavirus scare. It's
outsourcing market.
highly likely that the $700 billion online-travel market could see a 75-100bp
growth impact, driven by the slowdown in China. Makemytrip.com and
Booking.com have sizable exposure to China, which is about 15% of the overall
online travel market. In terms of hotels, Marriot and Accor have the most
exposure in Asia.
Based on travel restrictions and an  ISG expects aggressive push for cost reduction from vendors and increased
expected global recession, IATA
demand for cybersecurity and contact centers in the near term. In the medium
estimates that global air transport
industry revenues could fall $252 term ISG expects increased demand for automation, mobility, IoT,
billion i.e. 44 % below 2019’s cybersecurity, predictive analytics and application and infrastructure
numbers. modernization to benefit service providers.
 Based on travel restrictions and an expected global recession, IATA estimates

that global air transport industry revenues could fall $252 billion i.e. 44 % below
2019’s numbers.
The IHS Markit's Manufacturing PMI  Manufacturing in heavily affected areas like Europe can certainly face an uphill
for the US fell to 48.5 in March from
battle to recover to full scale production. We expect this vertical will deliver
50.7 in February. This reading came
in worse than the previous estimate muted growth for longer period considering it to be a function of overall demand
and the market expectation of 49.2. recovery. Also, Hi-tech vertical has been reeling under the impact of trade war
and has been struggling as a huge /chunk of demand from China has taken a
hit. We expect this vertical to struggle further as global supply chains for
semiconductors and electronics will take time to reconnect.
IT Services
Indian IT companies’ exposure (%)

Travel,
Energy &
Company Manufacturing Healthcare Transport,
Utilities
Hospitality
HCL Tech 21 12 5 6
Hexaware 9 14 4 10
Infy 10 7 13 6
L&T Infotech 18 4 11 1
Mindtree 6 1 0 16
Mphasis 5 4 2 14
TCS 10 8 10 11
Tech Mahindra 17 5 4 6
Wipro 8 13 13 0
NIIT Tech 29
Source: Company, PL
Tech M & Wipro have more exposure BPO-IMS Exposure

to BPO. TCS Infosys HCLT Wipro TechM
BPO 12% 5% 5% 15% 10%
IMS 16% 9% 39% 26% 12%
Total 28% 14% 44% 41% 22%
Source: Company, PL
Wipro & TCS are more prone to Exposure to Oil & Gas, Banking and US
headwinds from Energy vertical. Energy and Exposure to Oil
Exposure to Revenue
Utilities and Gas
BFSI Exposure to US
Exposure Vertical
Large Caps
TCS 5% 2% 30% 50%
Infosys 13% 6% 32% 59%
Wipro 13% 6% 31% 48%
HCLT 11% 5% 22% 56%
TechM NA NA 13% 42%
Source: Company, PL
Tech M has a higher onsite ratio Onsite-Offshore Revenue Mix (Last Reported)
Company Onsite (%) Offshore (%)
TCS (3QFY15) 54 46
Infosys (4QFY18) 54.6 45.4
HCLT (4QFY13) 54.6 45.4
Wipro (3QFY20) 53.2 46.8
TechM (3QFY20) 65.3 34.7
Source: Company, PL
IT Services
Revenue headwind estimate from COVID-19

Travel / Lifesciences/Hea Total Vertical Revenue at
Manufacturing Retail / CPG T&M
Logistics lthcare/Pharma Exposure Risk
Large Caps
TCS 10% 15% NA 8% 34% 35% 12%
Infosys 10% 15% NA 7% 32% 47% 15%
Wipro 8% 17% NA 13% 38% 37% 14%
HCLT 21% 10% NA 12% 43% 32% 14%
TechM 17% 7% NA 12% 37% 50% 18%
Mid-caps
Mindtree NA 21% 17% NA 37% 41% 15%
LTI 18% 11% NA 29% 60% 17%
LTTS 36% 36% 9% 81% 57% 46%
Hexaware 18% 10% 21% 50% 60% 30%
Mphasis NA NA NA NA NA 73% NA
NIIT Tech NA NA 29% NA 29% 54% 16%
Global IT
Accenture 15% 7% 6% 28% 40% 11%
Cognizant 22% 10% 32% 63% 20%
Source: Company, PL
Direct impact- Revenue Exposures to COVID-19 impacted countries

South
Country China Italy Iran France Spain Germany US Japan Switzerland UK Australia India
Korea
Revenue Exposures
Large Caps
TCS 1% 0% 0% 0% 1% 0% 3% 50% 2% 2% 15% 4% 6%
Infosys 2% 0% 0% 0% 1% 0% 3% 59% 1% 5% 11% 8% 2%
Wipro 0% 0% 0% 0% 1% 0% 3% 48% 1% 3% 11% 5% 10%
HCLT 0% 0% 0% 0% 1% 0% 3% 56% 1% 0% 16% 3% 4%
TechM 1% 0% 0% 0% 0% 0% 3% 42% 1% 3% 14% 6% 7%
Mid-caps
Mindtree 0% 0% 0% 0% 0% 0% 4% 72% 0% 0% 10% 2% 3%
LTI 0% 0% 0% 3% 2% 0% 1% 66% 0% 0% 5% 1% 6%
LTTS NA NA NA NA NA NA NA 61% NA NA NA NA 13%
Hexaware 0% 0% 0% 0% 0% 0% 2% 76% 0% 0% 10% 1% 6%
Mphasis 0% 0% 0% 0% 0% 0% 2% 78% 0% 0% 5% 3% 5%
NIIT Tech 0% 0% 0% 0% 0% 0% 0% 45% 0% 0% 20% 5% 17%
Global IT
Accenture 1% 4% 0% 0% 4% 4% 5% 40% 6% 2% 8% 3% 1%
Cognizant 0% 0% 0% 0% 1% 0% 2% 73% 0% 2% 8% 1% 2%
Source: Company, PL
IT Services
Blast from Past: What trends we saw during GFC?
Tier I techs saw significant growth Strong recovery in FY11, will it be same this time?
deceleration in FY09 and FY10 due
to GFC-related pressure; Tier II’s saw YoY growth FY07 FY08 FY09 FY10 FY11 FY12
more prolonged pressure Tier I’s
Infosys 43.6% 35.2% 11.7% 3.0% 25.7% 15.8%
The big spike in demand in FY10 was
TCS 40.1% 37.4% 5.3% 5.4% 29.1% 24.2%
driven by strong incremental business
flowing in from the BFSI space – Wipro 33.8% 39.7% 18.5% 1.6% 18.9% 13.4%
particularly in the regulatory area HCL 42.0% 34.7% 16.7% 23.9% 31.1% 17.1%
connected with Dodd-Frank act and TechM 131.4% 44.3% 5.3% -0.8% 15.4% 2.7%
Volcker Rule. Cognizant 60.8% 49.9% 31.9% 16.4% 40.1% 33.3%
50% plus of incremental business

came from the BFSI space for the Tier II’s
Tier-1 players at that time Mindtree 31.5% 39.1% 28.5% 16.0% 21.5% 21.7%
Persistent 44.2% 51.2% 20.9% -0.5% 33.7% 21.8%
Hexaware 21.7% 35.1% 3.9% -18.3% 7.7% 33.3%
NIIT 45.8% 16.8% -3.9% -7.9% 22.9% 29.8%
Source: Company, PL
Tier-2 IT companies took longer time to recover

Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10
QoQ change
Tier I
Infosys 7.5% 10.1% 6.1% 5.4% 1.1% 5.3% -3.7% -4.3% 0.1% 2.9% 6.8% 5.2% 4.8% 10.2% 5.9%
TCS 8.0% 10.8% 6.2% 0.9% 0.5% 3.2% -5.8% -3.4% 3.3% 3.9% 6.3% 3.1% 6.4% 11.7% 7.0%
Cognizant 12.2% 8.2% 7.4% 7.2% 6.6% 7.2% 2.5% -1.0% 4.1% 9.9% 5.8% 6.3% 15.2% 10.1% 7.7%
Tier II
Mindtree 9.9% 15.3% 5.0% 9.1% 5.4% 32.6% 3.8% -9.1% -8.5% 5.2% 7.9% 5.8% 3.3% 7.0% 3.5%
Hexaware 6.6% -1.5% 4.1% 2.0% 1.0% -2.0% -6.6% -15.0% 1.9% 1.7% -0.9% -10.0% 13.0% 11.3% 9.0%
NIIT 0.6% 1.4% 3.7% 6.3% -5.8% -0.7% -13.5% -10.1% 2.7% 0.9% 4.3% 5.9% 24.1% 12.4% -7.7%
YoY change
Tier I
Infosys - - - 32.3% 24.5% 19.0% 8.1% -1.8% -2.8% -5.1% 5.2% 15.6% 21.0% 29.6% 28.7%
TCS - - - 28.1% 19.3% 11.2% -1.3% -5.5% -2.9% -2.3% 10.2% 17.7% 21.2% 30.3% 31.1%
Cognizant - - - 39.7% 32.7% 31.5% 25.5% 16.0% 13.3% 16.2% 19.9% 28.7% 42.3% 42.6% 45.2%
Tier II
Mindtree - - - 45.0% 39.1% 60.0% 58.3% 31.9% 14.4% -9.3% -5.7% 9.7% 24.0% 26.2% 21.0%
Hexaware - - - 11.5% 5.6% 5.1% -5.8% -21.5% -20.8% -17.8% -12.8% -7.6% 2.4% 12.1% 23.3%
NIIT - - - 12.5% 5.4% 3.2% -14.0% -27.3% -20.7% -19.4% -2.8% 14.5% 38.3% 54.0% 36.2%
Source: Company, PL
Indian IT growth expectation is Global Growth Forecasts: Real GDP Growth (%)
anchored to global economy. IIF EIU
2016 2017 2018 2019
2020 2020
World 2.7 3.2 3.1 2.6 -1.5 -2.2
G3 1.6 2.2 2.2 1.7 -3.4 -
COVID-19 could derail global United States 1.6 2.2 2.9 2.3 -2.8 -2.8
economy and growth expectation for Euro Area 2 2.4 1.8 1.1 -4.7 -6.8
Indian IT. Japan 0.6 1.9 0.8 0.9 -2.6 -
China 6.7 6.8 6.6 6.1 2.8 1
India 9 6.6 6.8 5.3 2.9 2.1
Source: Company, PL
IT Services
Global Growth: Real GDP Growth (%)

2007 2008 2009 2010
World 5.4 2.8 -0.7 5.1
United States 1.9 -0.3 -3.5 3.0
Euro Area 3.0 0.4 -4.3 1.8
Japan 2.4 -1.2 -6.3 4.0
China 14.2 9.6 9.2 10.3
India 10.0 6.2 6.8 10.1
Source: Company, PL
IT Service spending went -4% in
2009
Global IT and IT services spending during GFC phase
2007 2008 2009 2010
IT services 747 809 774 793
Growth (%) - 8.3 -4.4 2.5
Total market 3,181 3,372 3,227 3,401
Growth (%) - 6.0 -4.3 5.4
Source: Company, PL
Indian techs saw significant price Indian IT and ITES exports during the GFC phase
correction in CY08 due to the GFC In USD bn FY07 FY08 FY09 FY10 FY11
scare before recovering sharply in
IT and ITES exports 31.7 40.9 47.5 50.1 59.0
CY09
Growth (%) - 29 16.1 5.5 17.8
Source: Company, PL
Price Movement of Indian IT Companies

Companies CY08 CY09 CY10
Tier I Companies
Infosys -36% 127% 32%
HCL -64% 202% 23%
TCS -55% 202% 55%
Wipro -55% 174% 20%
Tech -78% 279% -29%
Tier II Companies
Mphasis -48% 334% -7%
Mindtree -54% 191% -19%
Hexaware -77% 323% 23%
NIIT -70% 140% 10%
eClerx -81% 339% 160%
Source: Company, PL
Comparison of stock returns with GFC, Crude Crash and SARS

Top to Down Price change during Price change during 2014 oil price Top to Down Price change during
GFC (Jan 2017-Dec 2018) crash (Nov 2014-Jan 2015) SARS (Mar 2003-July 2003)
Large Caps
TCS -63% -6% NA
Infosys -50% 0% -24%
Wipro -62% 5% -36%
HCLT -64% 10% -10%
TechM -86% 8% NA
NIFTY IT Index -60% 0% -23%
Source: Company, PL
IT Services
IT Sector’s Weight in Equity Indices

Indices Jan-08 Dec-08
MSCI India 11.10% 13.90%
NIFTY 50 9.30% 8.90%
Source: Company, PL
Restrictions/exemptions for IT and ITes issued by various states related to Covid-19 lockdown
State Restrictions/ exemptions
IT and ITES units exempted - will ensure employees work from home. Where it is not feasible to do so units dealing with
Tamil Nadu
critical and essential services will continue to operate taking all protective measures
IT units exempted - will ensure work from home except where it is not feasible to do so and in respect of the units and staff
Karnataka
dealing with critical and essential services
Telangana IT and ITES exempted from restrictions
Andhra Pradesh All non-essential factories, offices etc if operated should operate with skeletal staff (no explicit mention of IT and ITES)
Kerala Telecom, postal and internet services (does not explicitly mention IT and ITES)
Delhi Telecom, postal and internet services (does not explicitly mention IT and ITES)
West Bengal IT and ITES exempted from restrictions
Uttar Pradesh IT and ITES exempted from restrictions
Maharashtra IT and ITES exempted from restrictions
Haryana IT and ITES exempted from restrictions
Assam IT and ITES exempted from restrictions
Source: Company, PL
Brief commentary on impact of Covid-19 on business

Companies Verticals Brief commentary on impact of Covid-19 on business
Air France-KLM Airlines Asian traffic flows have been impacted
Air New Zealand Airlines Additional softness in demand with a decline in bookings across its network.
Expect lower China demand for industrial, automotive and consumer sectors in February before
Analog Devices Tech returning to normal levels in March and April. Impact on communications business due to high
likelihood of delay in 5G rollout because of labor challenges
Work is starting to resume around the country (China), but they are experiencing a slower return
to normal conditions than anticipated. As a result, they do not expect to meet the revenue
Apple Tech guidance provided for the March quarter due to two
main factors. The first is that worldwide iPhone supply will be temporarily constrained. The
second is that demand for their products within China has been affected
They recognize that current travel demand has been impacted by the coronavirus. At the present
time, Greater China has been affected the most. The broader APAC region has also been
impacted. They are now starting to see a slowdown in travel globally and are aware of the
Booking Holdings Travel
potential for further demand deceleration around the world. They believe travel industry growth
will rebound
to prior growth rates
Travel demand has dropped substantially as novel coronavirus outbreak intensified in mainland
Cathay Pacific Airlines
China. Continued cancellation in bookings with governments imposing travel restrictions to China
Outbreak has disturbed supply chain, including the shipment of artificial sweeteners from China.
Coca-Cola CPG
Diet and zero-sugar products were hit with an export delay
The current coronavirus outbreak is having significant effects on first quarter sales...Mizone is
Danone CPG today by far the most impacted business. It has one factory in Wuhan province that is still closed
today. The demand for the entire category is severely affected
In Greater China, bars and restaurants have largely been closed and there has been a
substantial reduction in banqueting. The outbreak in several other Asian countries, especially
South Korea, Japan and Thailand, has led to events being postponed, a reduction in conferences
Diageo CPG
and banquets, and a drop in tourism, which have all impacted on-trade consumption. The
outbreak has caused a significant reduction in international passenger traffic, especially in Asia.
The situation continues to evolve
IT Services
For the full year, the ultimate impact of coronavirus in China and globally is uncertain. More than
95% of the company's supply chain has restarted production, with a current average capacity of
Emerson Electric Manufacturing
about 57%. Logistics still present a challenge. Material is moving but at ~75% of the normal rate.
Additionally, transit times are delayed and costing rates are predictably higher
We expect the next couple of months (February and March) to be very challenging. Chinese
consumers in many big cities are staying home. And retailers are closing stores or limiting hours.
Estee Lauder Retail Global travel is being restricted. And the effect is being felt beyond China, into major travel retail
corridors and large tourist cities. We believe business will gradually recover towards the end of
the fiscal year.
It started in mainland China domestic, then inbound-outbound, then sort of going through APAC,
Expedia Travel and then, as they believe that it is impacting other areas of the business…. But they don't truly
know the extent of it. And it is going beyond Asia
General Electric Manufacturing Impact on air traffic demand, commercial demand in China and in supply chain within China
Production sites are operational but challenges exist, especially in logistics and customer
Henkel CPG
demand, both in the industrial and consumer businesses
They are actively working to return to full production as quickly as possible. They are working
with their logistics providers to ensure they get the necessary capacity to meet customer
HP Tech
demand. Overall, they are viewing the situation as temporary in nature, and are aggressively
navigating the challenges.
Virus HK will be impacted, 1HCY20 will be weak. The time taken by the virus to contain it will be
HSBC BFS
materially important.
They are currently experiencing demand weakness on Asian and European routes and a
weakening of business travel across network resulting from the cancellation of industry events
IAG Airlines and corporate travel restrictions…Cancelling flights and redeploying capacity. Their operating
companies will continue to take mitigating actions... Cost and revenue initiatives are being
implemented across the business
Reduction in China sales is estimated to reduce JLR’s full year (FY2020) EBIT margin by about 1
JLR Automotive
per cent
Lufthansa Group had already cancelled all flights by Lufthansa, SWISS and Austrian Airlines
to/from mainland China until the end of the winter flight schedule on March 28. Due to the current
Lufthansa Airlines demand situation for flights to and from Hong Kong, capacity adjustments have already been
made on this route, and additional frequency adjustments to and from Frankfurt, Munich and
Zurich are planned
They began to see the impact of coronavirus on business in mid-January, with occupancy
declines gradually, spreading from Wuhan to other markets in the Asia-Pacific region. Given the
Marriott Hotels, restaurants
uncertainty surrounding the length and severity of the coronavirus situation, they cannot fully
estimate the financial impact to business at this time
Ecommerce growth has been impacted by cross-border travel, many headwinds will add up to
MasterCard BFS
the duration & severity of situation.
Although they see strong Windows demand in line with their expectations, the supply chain is
returning to normal operations at a slower pace than anticipated. As a result, for the third quarter
of fiscal year 2020, they do not expect to meet their More Personal Computing segment guidance
Microsoft Tech
as Windows OEM and Surface are more negatively impacted than previously anticipated. All
other
components of 3Q guidance remain unchanged
Norwegian Air Airlines Flight cancellations and reduced travel demand
NVidia Tech US$100 mn cut in quarterly revenue expectations reflects both supply and demand challenges
Lower-than-expected sell-through and order push outs in both distribution channel and with direct
NXP Semiconductors Tech
customers
PayPal BFS E-Commerce activity has been impacted by COVID, difficult to estimate the impact.
Impact of coronavirus is primarily in North Asia; China, Hong Kong and Japan markets. Acting
swiftly to adjust Asian capacity. No change to UK network, US network is expanding. Minimizing
impact on staff through paid annual leave periods; bringing forward maintenance. Flexibility to
Qantas Airlines
significantly extend these reductions, or to reinstate in response to demand or competitive
environment.
Recent material fall in fuel costs is a benefit
IT Services
Two-thirds of the company’s stores in China have been temporarily closed. The company also
Ralph Lauren Retail expects broader impact across its businesses in China and parts of Asia due to significantly
reduced travel and retail traffic
Southwestern Airlines Airlines Significant rise in ticket cancellations and decline in traffic because of the outbreak
Standard Chartered BFS Bank operation affected in China & HK, cant estimate the impact accurately.
The magnitude of the impact will depend on the duration of store closures. They expect the
Starbucks Hotels, restaurants
impact on business will be temporary
From a supply chain point of view, there could be challenges that develop from the material,
Under Armor Retail
factory and logistics perspective
Near-term demand to China has almost disappeared and demand to the rest of trans-Pacific
routes has dropped by 75%. The company has cancelled flights to parts of China, Hong Kong,
United Airlines Airlines Japan, Singapore and South Korea. If the virus runs its course by mid-May, and normal travel
patterns on trans-Pacific routes resume gradually over five months, the company would expect to
achieve its previous 2020 earnings forecast of between US$11 and US$13 per share
They mentioned trends do not reflect the impact of the coronavirus spreading outside of Asia.
Most significant impact has been on travel to and from Asia. This has resulted in a sharp
Visa BFS
slowdown of cross-border business, in particular travel related spending. Deteriorating trend has
not bottomed out yet.
Source: Company, PL
IT Services
Q4FY20 Preview - Blurred Visibility

Q4FY20E looks uncertain as blurred outlook & economic consequences of
Covid-19 impacts global IT spending. Q4FY20 was interpreted a strong
quarter for most of the IT companies prior to COVID-19. Lockdown across
major cities of world with no signs of trend reversal forced Indian IT to go for
WFH. We expect tier-1 IT companies to post 0.9%-2% CC & -5%-4% USD in
Tier-2. Tech M is expected to be worst impacted & HCLT the least. Companies
having high revenue share from BPO & discretionary (Communication,
ER&D) are likely to be most impacted. Also travel, hospitality and energy
verticals (drop in crude prices) are the significantly affected.
We expect miss on deliverables during WFH transition which can trigger

revenue deceleration. INR has depreciated by 2.5% against USD, offset by 75-
100bps cross currency headwinds which will benefit in low billing and low
utilization environment. We see volatile performance and uncertain
management commentaries in Q4FY20 as global uncertainty adds to weak
deal activity.
 COVID-19 impact will be visible on revenues: Lockdown across major cities

of world with no signs of trend reversal forced Indian IT to go for WFH. Large
deal closures and ramp-ups are pushed by 3-4 months. We expect our tier-1
IT universe to post 0.9%-2% CC & -5%-4% USD by companies in Tier-2.
Among large caps, HCL Tech and Infosys to post strong revenue growth, while
among mid-caps L&T Info and Mphasis to post the strongest growth. From a
service line standpoint, companies with high BPO exposure (especially voice)
are the most impacted. Travel, hospitality and energy verticals are most
impacted though the impact on energy vertical is due to a drop in oil prices.
 Margin performance to remain stable: INR has depreciated by 2.5% against

USD, offset by 75-100bps cross currency headwinds which will benefit in lower
billing and lower utilization. We have assumed USD/INR rate of Rs 73.1 (+1.7%
QoQ) for Q4FY20 and quarter-end rate of Rs 75.56 (+5.6% QoQ), implying
hedging losses, but asset translation gains for Q4FY20. Despite stable margin
performance, we expect muted EPS growth on account of lower fix & other
income.
 No Relevance in Guidance: Guidance will be unreliable during highly

uncertain times. A combination of supply and demand side constraints with no
actual estimate of economic impact will add difficulty in estimating financials.
Cognizant has tweaked its Q1CY20 guidance and withdrawn CY20 revenue
guidance due to uncertainty in wake of Covid-19. We won’t be surprised if
Infosys and HCL Tech do not provide the revenue guidance. We expect wider
than 2% band on guidance. Infy to guide revenue growth guidance of +1- +4%
YoY CC & HCLT to give guidance of 2%-5% YoY CC.
IT Services
QoQ currency movement in Q4FY20

INR/USD USD/GBP USD/EUR USD/AUD JPY/USD
Q3FY20 71.2 71.2 1.11 0.69 109
Q4FY20 73.1 73.1 1.09 0.64 109.8
Appr/ (Depr) 2.70% 2.70% -1.80% -7.20% 0.70%
Source: Company, PL
YoY currency movement in Q4FY20

INR/USD USD/GBP USD/EUR USD/AUD JPY/USD
Q3FY20 70.5 1.32 1.14 0.71 110.3
Q4FY20 73.1 1.26 1.09 0.64 109.8
Appr/ (Depr) 3.70% -4.50% -4.40% -9.90% -0.50%
Source: Company, PL
Q4FY20E Preview
Company Q4FY20E Q3FY20 Q4FY19 QoQ gr. YoY gr. Comments
TCS
We expect TCS to post CC revenue growth of 1%

Revenues (US$mn) 5,559 5,586 5,397 -0.5% 3.0% & cross currency headwinds of 50bps. We expect
weakness in revenue growth due to loss of billings,
lockdown in India & Developed markets.
Revenues 4,06,373 3,98,540 3,80,100 2.0% 6.9%
We assume stable margins; impact of lower billing
due to Covid-19 disruptions will be offset by Rupee
EBITDA 1,08,420 1,10,810 1,00,730 -2.2% 7.6% depreciation and lower variable compensation pay-
out. We note Q3FY20 had a one-time impact of 60
bps from contribution to electoral bonds.
EBITDA margin (%) 26.7% 27.8% 26.5% -112 bps 18 bps
We expect record bookings despite disruptions in
EBIT margin (%) 25.2% 25.0% 25.1% 15 bps 8 bps the second half of March. Robust bookings will be
courtesy mega deals signed with Phoenix Group
and US$1.5 bn deal with Walgreen Boots
Adjusted net profit 82,168 81,180 81,260 1.2% 1.1%
We expect investor to focus on 1) Longer term
implications from COVID19 2) Revenue & Margin
EPS 21.9 21.6 21.7 1.2% 1.1% outlook, 3) Update on pricing , 4) Revenue
conversion of past deals
Infosys
We expect CC revenue growth of 1.1% & cross
Revenues (US$mn) 3,219 3,243 3,060 -0.7% 5.2%
currency headwinds of 40 bps due to missed
billings and lockdowns in India and developed
Revenues 2,35,475 2,30,920 2,15,390 2.0% 9.3% markets in the last two weeks of March 2020.
EBITDA 57,691 58,000 51,490 -0.5% 12.0% We assume stable margins; impact of lower billing
and utilization decline due to Covid-19 disruptions
will be offset by INR depreciation, lower variable
compensation pay-out and lower travel costs
Guidance: CC revenue growth guidance expected
EBIT margin (%) 22.1% 21.9% 21.4% 14 bps 63 bps to be +1 to +4% YoY for FY21
Adjusted net profit 43,003 44,669 40,740 -3.7% 5.6% We expect investor to focus on 1) Longer term
outlook, 3) Update on pricing , 4) Revenue
EPS 10.1 10.5 8.8 -3.7% 15.2%
conversion of past deals.
IT Services
HCLT
Management mentioned little impact on HCLT

Revenues (US$mn) 2,569 2,543 2,278 1.0% 12.8% business in Q4F20.HCLT's FY2020 annual revenue
outlook of 16.5-17% implied 0.3-2% QoQ revenue
growth guidance for March 2020 quarter. We
Revenues 1,87,778 1,81,350 1,59,900 3.5% 17.4% estimate 1.4% CC growth. HCLT announced a few
large deals at the beginning of the quarter from
Fonterra, Stanley Black & Decker and UPM.
EBITDA 43,189 44,700 35,970 -3.4% 20.1% Company indicated strong order bookings in its
Covid-19 update"
Guidance: Expect cc revenue growth guidance to
be 3 to 6% YoY for FY21.We expect HCLT to guide
EBIT margin (%) 19.0% 20.2% 19.0% -124 bps -1 bps for 18-20% EBIT margin guidance band for
FY2021E
Adjusted net profit 29,374 30,380 25,680 -3.3% 14.4% We expect investor to focus on 1) Longer term
outlook, 3) Update on pricing , 4) Revenue
EPS 10.8 11.2 9.5 -3.3% 14.4% conversion of past deals, 5) impact on products
business
Wipro
We note that Wipro had guided for revenue growth
IT Revenue (US$ m) 2,086 2,095 2,076 -0.4% 0.5% of 0-2% at the beginning of the quarter. We
forecast revenue growth towards the lower end of
Revenues 1,56,055 1,54,705 1,50,063 0.9% 4.0% the band due to Covid-19 related disruptions to the
business. We expect CC revenue growth of 1% &
cross currency headwinds of 60bps. We expect
EBITDA 31,996 32,929 31,053 -2.8% 3.0%
Wipro to guide revenue growth of 0%-2% for
Q3FY20E.
EBITDA margin (%) 20.5% 21.3% 20.7% -78 bps -19 bps
Wipro's high BPO contribution to overall revenue
EBIT 27,201 27,233 25,774 -0.1% 5.5% makes it more vulnerable to supply disruptions
resulting from lockdowns. We expect cautious
commentary from management on US & Europe
EBIT margin (%) 17.4% 17.6% 17.2% -17 bps 25 bps BFSI vertical.
Adjusted net profit 26,153 24,558.0 24,833 6.5% 5.3% We expect investor to focus on 1) Sustainability of
growth , 2) Watch out for an update on the new
EPS 4.6 4.3 4.1 6.5% 11.2% CEO., 3) Impact on Energy vertical , 4) Impact on
BPO
Tech M
Revenues (US$mn) 1,335 1,353 1,268 -1.3% 5.3% We expect TechM to be the most impacted from
COVID crisis due to 1) Revenue decline in
Revenues 97,592 96,546 88,923 1.1% 9.7% Pinifarina, 2) Higher BPO contribution(10%), 3)
Communication sector to take back seat, 3)
EBITDA 14,498 15,633 16,387 -7.3% -11.5% Pressure to increase in Enterprise vertical due to
auto & BFSI
After a strong Q2 and Q3 2019 quarters, we expect
new orders win to move back to US$300-400 mn
EBIT margin (%) 11.9% 12.2% 15.4% -35 bps -353 bps range.
Adjusted net profit 9673 11459 11325 -15.6% -14.6% We expect investor to focus on 1) Sustainability of
growth , 2) Commentary on communication., 3)
EPS 11.0 13.0 12.6 -15.6% -12.6% Impact on BPO due to WFH , 4) Conversion of TCV
IT Services
Mindtree
Revenues (US$mn) 278 275 262 1.0% 6.1%

We expect QoQ constant revenue growth of 1.5%
Revenues 20,515 19,653 18,394 4.4% 11.5% with a cross currency headwind of 40 bps. Growth
will be top account driven. Expect revenue decline
EBITDA 3,131 3,063 2,803 2.2% 11.7% in travel and transportation vertical and muted
growth in BFSI and retail verticals.
We expect investor to focus on 1) Growth outlook
EBIT margin (%) 12.5% 12.0% 12.9% 46 bps -42 bps of top client , 2) margin outlook, 3) management
strategy for next 2 years , 4) Outlook on T10
Adjusted net profit 2,203 1,970 1,984 11.8% 11.0% accounts and pricing & renewal
commercials/DSO situation with large accounts.
EPS 13.4 12.0 12.1 11.8% 11.0%
Mphasis
Revenues (US$mn) 321 318 292 1.0% 10.1% We expect sequential constant currency revenue
growth of 1.3% with a cross currency headwind of
Revenues 23,540 22,767 20,250 3.4% 16.2% 30 bps. We expect slight revenue decline in
DXC/HP channel, modest growth in Direct Core
EBITDA 4,392 4,269 3,404 2.9% 29.0% and strong growth in Digital Risk. Blackstone
portfolio and new clients acquisition channel will
EBITDA margin (%) 18.7% 18.8% 16.8% -9 bps 185 bps both likely report strong growth
EBIT margin (%) 16.1% 16.2% 15.8% -13 bps 28 bps We expect investor to focus on 1) Large deal
pipeline, 2) Revenue outlook from Blackstone
Adjusted net profit 3,089 2,937 2,662 5.2% 16.1% portfolio, 3) Outlook for DXC channel 4) Service
delivery impact on the BPM segment (billing risk);
EPS 16.5 15.8 13.6 4.4% 20.9% EBIT margin guidance for FY21
Hexaware
Revenues (US$mn) 210 214 180 -2.0% 16.7%
Revenues 15,355 15,288 12,640 0.4% 21.5% We expect QoQ revenue decline of 1.7% in CC
EBITDA 2,303 2,278 1,930 1.1% 19.3% with cross currency headwind of 30 bps.
We expect revenue loss in BPO segment, BFSI &
EBITDA margin (%) 15.0% 14.9% 15.3% 10 bps -27 bps TTH
EBIT margin (%) 13.0% 13.4% 13.8% -31 bps -71 bps Management expects sharp recovery towards the
Adjusted net profit 1,628 1,678 1,385 -3.0% 17.6% end of 2QCY20, which we doubt it.
EPS 5.4 5.6 4.6 -3.0% 17.8%
Zensar
Revenues (US$mn) 143 152 142 -5.9% 1.1%
Revenues 10,206 10,723 10,240 -4.8% -0.3%
We expect Zensar to post USD revenue growth of
EBITDA 696 1,500 1,170 -53.6% -40.5% 1% QoQ and -3.6% YoY.
EBIT margin (%) 10.4% 10.7% 10.6% -26 bps -16 bps Expect margin to improve, as last quarter was
disaster.
Adjusted net profit 397 800 586 -50.4% -32.3%
EPS 1.8 3.7 2.7 -50.1% -30.9%
NIIT Tech
Revenues (US$mn) 149 154 138 -3.0% 8.1%
Revenues 10,898 10,734 9,722 1.5% 12.1%
EBITDA 1,853 1,940 1,707 -4.5% 8.5% NIIT Tech has the highest exposure (27%) to travel
EBITDA margin (%) 17.0% 18.1% 17.6% -107 bps -56 bps vertical, hence impact to be significant.
EBIT margin (%) 14.0% 13.9% 14.4% 8 bps -47 bps EBIT margins to remain flat due to Rupee
depreciation, cost rationalization measures
Adjusted net profit 1,126 1,233 1,056 -8.7% 6.6%
EPS 18.0 19.7 17.2 -8.7% 4.8%
IT Services

LTTS
Revenues (US$mn) 201 199 191 1.0% 5.3%
We expect USD revenues to increase by 1% QoQ
Revenues 14,721 14,230 13,431 3.4% 9.6%
& 1.4% CC QoQ.
EBITDA 2,944 2,864 2,492 2.8% 18.1%
We Demand shock impact on ER&D budgets and
dispersion (insourcing/vendor consolidation)
EBIT margin (%) 17.0% 16.8% 16.5% 19 bps 48 bps We expect investor to focus on management
commentary on semiconductor vertical & outlook
for ER&D for FY20E/21E.
EPS 19.3 19.3 18.2 0.0% 6.2%
Cyient
Revenues (US$mn) 159 155 165 2.1% -4.1%
Revenues 11,174 11,060 11,629 1.0% -3.9%
EBITDA 1,553 1,533 1,751 1.3% -11.3% We expect USD revenue growth of 3.5% QoQ led
by strong growth in DLM. We expect margin to
EBITDA margin (%) 13.9% 13.9% 15.1% 4 bps -116 bps
decline due to wage hike which will be offset by
EBIT margin (%) 11.7% 9.6% 12.8% 209 bps -111 bps DLM growth & INR appreciation.
Adjusted net profit 1,144 1,083 1,769 5.6% -35.4%
EPS 10.2 9.6 15.7 5.6% -35.4%
Persistent
Revenues (US$mn) 127 129 118 -2.0% 7.2%
Revenues 9,272 9,227 8,319 0.5% 11.5%
We expect PSYS’ to post -2.2% QoQ USD revenue
EBITDA 1,298 1,234 1,266 5.2% 2.6% de-growth which will be mainly led by IP led
EBITDA margin (%) 14.0% 13.4% 15.2% 62 bps -121 bps business
EBIT margin (%) 9.2% 8.7% 10.7% 46 bps -148 bps
Expect margin to dip impacted by revenue decline
Adjusted net profit 859 879 845 -2.3% 1.7%
EPS 10.7 11.0 11 -2.3% 1.7%
LTI
Revenues (US$mn) 402 394 354 2.0% 13.7%
Revenues 29,407 28,111 24,860 4.6% 18.3%
EBITDA 5,293 5,274 4,765 0.4% 11.1% We expect revenue growth of 2% QoQ USD (2.5%
CC QoQ) growth & cross currency headwind of
~50bps. Revenue growth will be led by ramp up of
EBIT margin (%) 16.5% 16.2% 17.7% 26 bps -117 bps large deals signed in earlier quarters.
EPS 22.2 21.6 21.7 2.8% 2.3%
Source: Company, PL
TCS 1Yr 3Yr 5Yr 10Yr TCS

Average 22.9 21 20.1 19.9
P/E Mean Mean + Std Dev Mean - Std Dev
Peak 24.7 26.3 26.3 26.3
30.00
Median 22.9 21.6 20 19.6
25.00
20.00
15.00
10.00
5.00
-
May-18
Jan-11
Jun-17
Mar-09
Mar-20
Feb-10
Apr-08
Apr-19
Oct-13
Jul-16
Dec-11
Nov-12
Sep-14
Aug-15
Source: Company, PL
IT Services
TechM 1Yr 3Yr 5Yr 10Yr TechM

Average 14.1 13.8 13.9 12.9
25
Peak 15.4 17 18.4 18.8 P/E Mean Mean + Std Dev Mean - Std Dev
Median 14.2 13.9 14 12.9
20
15
10
May-18
Jan-11
Mar-09
Jun-17
Feb-10
Mar-20
Apr-08
Oct-13
Jul-16
Apr-19
Dec-11
Nov-12
Aug-15
Sep-14
Source: Company, PL
Infosys 1Yr 3Yr 5Yr 10Yr

Average 18.4 16.8 16.8 17.1 Infosys
Peak 20.9 20.9 20.9 24.4
Median 18.4 17 17.2 16.9 P/E Mean Mean + Std Dev Mean - Std Dev
30.00
25.00
20.00
15.00
10.00
5.00
May-18
Jan-11
Jun-17
Mar-09
Mar-20
Feb-10
Jul-16
Oct-13
Apr-19
Apr-08
Sep-14
Aug-15
Dec-11
Nov-12
Source: Company, PL
Wipro 1Yr 3Yr 5Yr 10Yr

Average 15.2 15.2 14.7 14.7 Wipro
Peak 17.8 17.8 17.8 18.3
Median 14.9 15.2 14.6 14.6 P/E Mean Mean + Std Dev Mean - Std Dev
20.00
18.00
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
-
May-18
Jan-11
Jun-17
Mar-09
Mar-20
Feb-10
Jul-16
Oct-13
Apr-19
Apr-08
Sep-14
Aug-15
Dec-11
Nov-12
Source: Company, PL
IT Services
HCL Tech
12.00
10.00
8.00
6.00
4.00
2.00
May-18
Jan-11
Jun-17
Mar-09
Mar-20
Feb-10
Jul-16
Oct-13
Apr-19
Apr-08
Sep-14
Aug-15
Dec-11
Nov-12
Source: Company, PL
L&T Infotech

22.92
24.00
22.00 20.85
19.94 19.50
20.00
18.00
16.00
14.00
12.00
9.56
10.00
8.00
May-17
May-18
Jan-17
Jun-19
Jun-17
Jan-18
Jun-18
Jan-19
Jan-20
Feb-17
Feb-18
Feb-19
Feb-20
Mar-17
Mar-18
Mar-19
Mar-20
Jul-16
Jul-17
Apr-19
Oct-16
Jul-18
Oct-18
Jul-19
Oct-19
Aug-16
Aug-17
Sep-17
Aug-18
Sep-18
Aug-19
Sep-19
Nov-16
Nov-17
Dec-18
Nov-19
Dec-16
Dec-17
Source: Company, PL
Mindtree
35.00
30.00
25.00
20.00
15.00
10.00
5.00
-
May-18
Jan-11
Jun-17
Mar-09
Mar-20
Feb-10
Apr-08
Oct-13
Jul-16
Apr-19
Aug-15
Sep-14
Dec-11
Nov-12
Source: Company, PL
IT Services
Zensar
25.00
20.00
15.00
10.00
5.00
May-13
May-15
Jan-14
Jun-17
Mar-20
Feb-16
Feb-18
Jul-19
Apr-11
Oct-16
Oct-18
Apr-09
Sep-12
Sep-14
Aug-10
Dec-09
Dec-11
Source: Company, PL
Mphasis
35.00
30.00
25.00
20.00
15.00
10.00
5.00
-
May-13
May-11
May-12
Jun-14
Jun-15
Jan-16
Jan-17
Mar-20
Feb-18
Feb-19
Jul-16
Jul-17
Oct-09
Oct-10
Apr-09
Apr-10
Aug-18
Aug-19
Nov-11
Nov-12
Dec-13
Dec-14
Source: Company, PL
Hexaware Technologies

30.00
25.00
20.00
15.00
10.00
5.00
-
Jan-11
May-18
Jun-17
Feb-10
Mar-20
Mar-09
Jul-16
Apr-19
Apr-08
Oct-13
Sep-14
Aug-15
Dec-11
Nov-12
Source: Company, PL
IT Services
Persistent Systems
30.00
25.00
20.00
15.00
10.00
5.00
May-14
May-19
Jan-16
Jun-16
Mar-15
Mar-20
Feb-13
Feb-18
Jul-13
Apr-12
Oct-14
Apr-17
Jul-18
Oct-19
Sep-17
Sep-12
Aug-15
Dec-13
Nov-16
Dec-18
Source: Company, PL
NIIT Technologies
25.00
20.00
15.00
10.00
5.00
-
Jan-11
Jun-17
May-18
Feb-10
Mar-09
Mar-20
Oct-13
Jul-16
Apr-19
Apr-08
Aug-15
Sep-14
Dec-11
Nov-12
Source: Company, PL
Cyient
25.00
20.00
15.00
10.00
5.00
-
May-18
Jan-11
Jun-17
Feb-10
Mar-09
Mar-20
Apr-08
Jul-16
Apr-19
Oct-13
Sep-14
Aug-15
Dec-11
Nov-12
Source: Company, PL
IT Services
Analyst Coverage Universe
Sr. No. Company Name Rating TP (Rs) Share Price (Rs)
1 Cyient Hold 450 437
2 HCL Technologies BUY 691 599
3 Hexaware Technologies Hold 343 375
4 Infosys BUY 820 773
5 L&T Technology Services Hold 1,444 1,643
6 Larsen & Toubro Infotech BUY 2,119 1,925
7 Mindtree Reduce 808 863
8 Mphasis Accumulate 1,094 929
9 NIIT Technologies Accumulate 1,881 1,941
10 Persistent Systems Hold 649 692
11 Redington (India) BUY 114 117
12 Sonata Software Accumulate 400 313
13 Tata Consultancy Services Hold 2,106 2,103
14 TeamLease Services Hold 3,203 2,487
15 Tech Mahindra Reduce 724 797
16 Wipro Hold 253 256
17 Zensar Technologies Accumulate 246 191
PL’s Recommendation Nomenclature

Buy : > 15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly
IT Services
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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)
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(US Clients)
The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately
reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific
recommendation or views expressed in this research report.
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This document has been prepared by the Research Division of PL and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported
or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security.
The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness
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IT Services - Sector Update - Fasten Your Seat Belt, Bumpy Ride Ahead.

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HCL Tech 40.0 40.0 45.5 -9.2% -5.3%

NIIT Tech 71.2 69.7 85.7 -25.4% -18.0%

Infosys BUY BUY

Source: PL  Severe Impact on IT budgets: Most of the Fortune-500 companies have

COVID-19 to create domino effect across industries

 Deteriorating client health across verticals: As of now Indian IT vendors

 Delay in new customer acquisition & large deals: We believe that IT

Our base assumption for our coverage universe is of global recession

Although COVID-19 will hit near-term earnings, we do not expect any

Infosys – Remains preferred pick

 Exposure to directly impacted verticals by COVID (Retail, E&U, Manufacturing,

TCS – Resilient Business Model, Higher proportion of

 Exposure to verticals directly impacted by COVID (Retail & Manufacturing) is

Wipro- Weak Portfolio, higher exposure to BPO & IMS

 Exposure to directly impacted verticals (CBU, E&U, Manufacturing) is ~38% of

 We assign 11X earnings multiple (35% discount to TCS target multiple) to

HCLT – Exposure to discretionary spending in ER&D will

 Exposure to verticals directly impacted (Manufacturing and Retail) at ~30% of

 We estimate 2% revenue growth for HCLT in FY21E, with growth of 6.5% in

Tech M – 5G momentum to take a backseat

 We estimate ~4% revenue de-growth for Tech M in FY21E, with growth of 4%

 . Tech M is currently trading at 14.2/11.3x on FY21E/22E earnings of Rs.38/48

Margins to remain under pressure

Wage hike impact on margin

Visa Cost Impact

Utilization rate trend for IT companies

Travel expenses as a % of revenues for select IT companies

FX exposure for India IT firms

Cognizant withdrawals guidance- Possibility Indian IT

 In line with our expectation of increased uncertainty on demand environment

 We see possibility of Indian IT following the suit and withdrawing the

Ratings & Estimates

Current PE significantly higher than the trough seen in GFC crisis

3 – Case Scenario Analysis

Bull Case Scenario (Mild Impact)

Base Case Scenario (Recession Assumption)

Bear Case Scenario (Deep Recession Assumption)

BFSI Sector: IT spends to take backseat in low interest

IT companies’ exposure to BFSI

Retail Sector Crisis deepens further

Retail Debt Maturities about to swell

2020 2021 2022

Debt Maturities through 2022

J.Crew Neiman Marus Ascena Retail JC Penny

Indian IT company’s exposure to Retail sector

Retail & CPG

Declining Same Store Sales by Retailer

Average 1.8% 0.2% 1.3% -1.2% 1.3%

Source: Bloomberg, Company, PL

Communication Sector- Lack of discretionary spending

 5G device-makers working on industrial IoT devices or wearables won't

 COVID-19 will have a limited impact of COVID-19 on traditional services

 Now, Huawei, while conceding there will be some delays in 5G deployment,

Tech M has the highest share in Communication Sector

Comunication & Media

A few data points from European telcos in the aftermath of COVID-19:

 In Sweden, which has controversially avoided a total lockdown, telecom

Travelling, Manufacturing, Industrials & transportation

 Based on travel restrictions and an expected global recession, IATA estimates

Indian IT companies’ exposure (%)

Tech M & Wipro have more exposure BPO-IMS Exposure

Revenue headwind estimate from COVID-19