March 2017 Results Preview | Sector: Technology
4QFY17 RESULTS PREVIEW
| Sector: Technology
Technology
Can growth recover next fiscal?
Amid some H-1B reprieve and BFSI hopes, INR appreciates
Keeping 4Q expectations in check amid limited signs of momentum pick-up
The usual seasonality of the fourth quarter, compounded with (a) sporadic citation
of concerns around budget and decision-making delays, and (b) problems in some
key accounts, keeps us from building any recovery in growth momentum in 4Q or in
the immediate future. Yet, there are a few potential positives to note:
Overall positive messaging in terms of deal wins, BFSI environment and client
conversations, especially by tier-I IT.
Likely postponement of any developments around H-1B visas, with fresh
applications being accepted for the next year, starting early April. That said,
recent overrule of programming jobs’ automatic qualification under “specialty
occupation” may not have a substantive impact, but does call for more scrutiny
going forward.
Traction in change-the-business side of the business, which has been the key
additive factor for revenue growth, though not enough on current base.
These may aid gradual improvement in growth through the course of FY18
rather than a sudden pick-up in growth.
Building 0-2% CC sequential organic growth; expect higher revenue growth to be
aided by acquisitions
We are modeling (on organic basis) 0-2% QoQ CC growth across our coverage
universe. Contribution from acquisitions should help HCLT inch this to 3.4% QoQ
CC. Among tier-I, last quarter, TCS cited expectation of sustained momentum in
4Q, driving our estimate of 2% QoQ CC; for INFO, we expect growth to be at the
midpoint of its guided band (1% QoQ CC). Recovery in Communications
witnessed in the past couple of quarters has taken a pause, driving our
assumption of marginal growth at TECHM. WPRO should be helped by full-
quarter revenue from Appirio acquisition.
Among tier-II, we expect steady growth for LTI, ZENT and CYL. For MTCL (1.5%
QoQ CC) and HEXW (0.5% QoQ CC), growth is likely to remain relatively soft.
Revenue would be flat for PSYS due to seasonal weakness in its IBM IoT deal.
Margins are likely to remain steady across the board, with some hit for the
sector coming from currency movement, and from acquisition in the case of
WPRO. Note that TECHM has deferred its wage hike – earlier a January 1 cycle –
to the next fiscal.
Will INFO announce a buyback? Will top-end of guidance be in double digits?
We expect INFO to guide 7-9% CC growth for FY18, on the back of a relatively
weak exit in 2H. That implies a CQGR of 2.2-3%. INFO is the only remaining
company among the top-tier that is yet to reward its shareholders with a
buyback, dispensing some of the idly-lying cash (apart from WPRO, which
cannot announce a buyback before June). That could be likely on April 13, 2017.
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424
Sagar Lele
(Sagar.Lele@MotilalOswal.com); +91 22 3982 5585
April 2017
1
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.
Company Name
Cyient
HCL Tech
Hexaware
Infosys
KPIT Tech
L&T Infotech
Mindtree
Mphasis
NIIT Tech
Persistent
TCS
TechM
Wipro
Zensar
 Motilal Oswal Financial Services
March 2017 Results Preview | Sector: Technology
Watch out for the performance in top clients at INFO following a shocker in 3Q,
over which the management alleviated investor concerns by terming it as a one-
off without any significant concerns on the same.
Watch out for guidance from HCLT and outlook from TCS too. Double-digit
growth at HCLT looks more-or-less in the bag, given healthy traction in IMS and
contribution from acquisitions. At TCS, while the commentary has remained
very positive, it remains to be seen in revenue growth. Our estimate of 9.5% CC
growth in FY18 implies a CC CQGR of 2.5% in FY18.
Healthcare exposure will hurt WPRO and we expect guidance of 1.5% to 2.5%
QoQ CC for 1QFY18.
Recent trend in INR may spell a fresh challenge for the industry
The INR has marched since the turn of the year to close below INR65/USD,
compared to last quarter’s close at ~INR68/USD. Were this to sustain, expect
another round of moderation in earnings estimates, this time led by currency.
Top-tier IT has seen stock returns over last five years being led by earnings
growth rather than P/E multiple expansion (ex-HCL Tech), and that has in turn
been boosted by INR depreciation. The impact of INR64.5-65/USD on earnings is
not yet factored in estimates, in our view. Various industry participants have
already shared expectations of moderate wage hikes next year, which was
before the recent trend in INR.
The range of margin movements QoQ is -30bp to -65bp across tier-I and -80bp
to +80bp across tier-II. PSYS could suffer from seasonal revenue decline in its
Alliance segment, most of which should flow to EBITDA.
Currency and lack of growth visibility keeps valuations on edge
Revenue growth for the industry still remains a challenge, with little, if any, clear
signs of acceleration after a tepid 2016. There is hope from deregulation in the
US and a new taxation regime, but there remain counterbalancing forces on the
other hand, mainly from potential moves on Trump tax / H-1B immigration.
Add to that, we see a gradual uptick in costs, impacting earnings in varying
degrees across tier-I and tier-II IT for a couple of years (150-200bp potential
negative impact on profitability that would need to be offset), as the model of
operating at onsite changes. The business model changes at onsite have been
underway for a while, and the higher costs have more-or-less been absorbed so
far. But the recent direction of the INR v/s the USD might just end up being an
additional headwind to thwart any assumptions of sanguine performance
around profitability.
We believe tier-I companies (INFO, TCS, WPRO, HCLT) would be better placed to
adapt to these changes, given their brand to attract talent, wider reach and war-
chest to absorb shocks on a higher margin base. Absolute numbers in the US are
a single-digit percentage of the overall workforce. Our pecking order in the
group is INFO and HCLT, followed by TCS and WPRO. Notwithstanding the
regulatory developments, we see greater comfort in the earnings performance
at TECHM, with gradual recovery in Telecom and levers to improve margins. In
tier-II, we prefer CYL, ZENT and LTI. We see gradual recovery at MTCL, but
current valuations factor more than that, in our view.
April 2017
2
 Motilal Oswal Financial Services
March 2017 Results Preview | Sector: Technology
Exhibit 1:
Double-digit organic USD revenue growth (YoY) seen only in HCLT amongst tier-I
Company
TCS
Infosys
Wipro
HCLT
TECHM
Aggregate
Company
TCS
Infosys
Wipro
HCLT
TECHM
Aggregate
4QFY17E
4,504
2,590
1,944
1,810
1,132
11,979
4QFY17E
27.3
27.1
19.9
21.9
15.4
24.1
Revenue (USD m)
4QFY16
YoY (%)
3QFY17
4,207
7.0
4,387
2,446
5.9
2,551
1,882
3.3
1,903
1,587
14.0
1,745
1,023
10.7
1,116
11,145
7.5
11,702
EBITDA Margin (%)
4QFY16 YoY (bp)
3QFY17
27.8
(50)
27.7
28.0
(90)
27.6
20.6
(60)
20.4
22.2
(30)
22.2
16.9
(150)
15.7
24.8
(70)
24.5
QoQ (%)
2.7
1.5
2.2
3.7
1.4
2.4
QoQ (bp)
(40)
(50)
(40)
(40)
(31)
(39)
4QFY17E
300
172
136
121
75
804
4QFY17E
62
34
19
20
7
142
Revenue (INR b)
4QFY16
YoY (%)
3QFY17
QoQ (%)
284
5.4
297
0.9
166
4.2
173
(0.1)
136
(0.1)
137
(0.5)
107
12.7
118
2.0
69
9.5
76
(0.2)
762
5.6
801
0.5
PAT (INR b)
4QFY16
YoY (%)
3QFY17
QoQ (%)
63
(2.3)
68
(8.6)
36
(4.9)
37
(7.7)
22
(15.1)
21
(10.0)
19
2.4
21
(4.8)
9
(18.6)
9
(14.7)
150
(5.2)
155
(8.4)
Source: Company, MOSL
Exhibit 2:
PAT decline across the sector can be attributed to translation losses
Company
Persistent Systems
Hexaware
KPIT Tech.
Mindtree
Mphasis
Cyient
NIIT Tech
Zensar
LTI
Aggregate
Company
Persistent Systems
Hexaware
KPIT Tech.
Mindtree
Mphasis
Cyient
NIIT Tech
Zensar
LTI
Aggregate
4QFY17E
111
144
124
194
227
140
105
121
249
1,415
4QFY17E
15.2
16.5
10.0
13.4
15.4
12.8
17.5
14.6
18.3
15.2
Revenue (USD m)
4QFY16
YoY (%)
3QFY17
100
10.1
110
122
18.1
139
124
0.2
123
196
(0.7)
192
225
0.8
225
121
16.0
136
102
3.2
103
111
9.2
118
230
8.5
245
1,330
6.4
1,390
EBITDA margin (%)
4QFY16 YoY (bp)
3QFY17
15.9
(70)
15.9
14.6
200
17.3
15.7
(570)
10.2
17.1
(370)
13.4
15.4
(10)
15.6
13.0
(20)
13.4
18.4
(100)
16.9
12.4
230
13.8
20.1
(180)
18.1
16.4
(130)
15.4
QoQ (%)
0.5
3.5
1.2
1.1
1.1
3.3
2.2
2.7
1.7
1.8
QoQ (bp)
(80)
(70)
(20)
-
(20)
(50)
60
90
20
(20)
4QFY17E
7.4
9.3
8.3
12.9
15.1
9.3
7.0
8.0
16.6
93.9
4QFY17E
0.7
1.1
0.1
1.0
2.0
0.8
0.7
0.7
2.2
9.3
Revenue (INR b)
4QFY16
YoY (%)
3QFY17
QoQ (%)
6.8
8.7
7.5
(1.3)
8.2
13.7
9.4
(0.9)
8.4
(1.5)
8.3
(0.3)
13.2
(2.3)
13.0
(0.1)
15.2
(0.7)
15.4
(1.9)
8.2
14.5
9.2
1.9
6.8
2.0
6.9
0.9
7.5
7.7
7.9
1.5
15.9
4.2
16.7
(0.4)
90.2
4.1
94.2
(0.2)
PAT (INR b)
4QFY16
YoY (%)
3QFY17
QoQ (%)
0.8
(12.6)
0.8
(13.8)
0.8
29.0
1.2
(10.7)
0.1
(0.5)
0.1
(5.0)
1.6
(37.7)
1.0
(5.8)
1.9
5.8
2.0
(3.5)
0.8
(3.3)
0.9
(13.2)
0.8
(15.6)
0.7
2.1
0.7
(2.7)
0.8
(15.7)
2.6
(16.1)
2.5
(10.5)
10.2
(9.2)
10.1
(8.7)
Source: Company, MOSL
April 2017
3
 Motilal Oswal Financial Services
March 2017 Results Preview | Sector: Technology
Exhibit 3:
Seasonal weakness dampens revenue growth (QoQ, CC %)
1QFY16
2QFY16
4.4
2.1
3.1
1.0
2.0 2.0
1.9 1.7
3QFY16
4QFY16
1QFY17
2QFY17
6.0
3.5
3.9
2.7
1.0
-0.3
TCS
INFO
WPRO
HCLT
TECHM
Source: Company, MOSL
0.2
2.0
0.9 0.6
1.5
2.9
1.7
2.8 3.0
3.4
0.3
1.3
0.4
3.2
0.8
3QFY17
4QFY17E
5.4
Exhibit 4:
YoY traction seen picking up only at HCLT, led by Volvo IT acquisition and IBM partnerships (YoY, CC, %)
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
TCS
INFO
WPRO
HCLT
TECHM
Source: Company, MOSL
Exhibit 5:
HCLT to outperform peers organically in 4Q (Revenue growth, QoQ, USD, %)
8.8
6.8
4.8
2.8
0.8
-1.2
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
TCS
Infosys
Wipro
HCL Tech
Tech Mahindra
2.7 2.2
1.5
1.4
3.7
-0.7
4QFY17
Source: Company, MOSL
Exhibit 6:
Incremental revenue higher for all other than TECHM; cross-currency tailwinds this quarter
TCS
180
120
60
0
-60
(40)
(50)
Infosys
Wipro
HCL Tech
Tech Mahindra
70
Cross currency impact on USD revenues (bp)
50
70
30
60
60
30
70
20
Incremental revenue (USD m)
40 40
40
Source: Company, MOSL
April 2017
4
 Motilal Oswal Financial Services
March 2017 Results Preview | Sector: Technology
Exhibit 7:
Margins lower across the board in YoY terms (EBITDA margin, %)
30
26
22
18
14
TCS
Infosys
HCL Tech
Wipro
Tech Mahindra
27.3
27.1
21.9
19.9
15.4
Source: Company, MOSL
Exhibit 8:
Sequential improvement seen in some mid-caps due to company-specific
dynamics (Revenue growth, QoQ, USD, %)
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
4.6
0.5
3.5
2.7
1.2
-0.4
1.1
-0.4
1.1
0.2
3.3
2.2
-0.6
NIIT Tech
2.7
1.3
2.3
1.7
-0.5
Cyient
Persistent Hexaware KPIT Tech. Mindtree Mphasis
Systems
Zensar
LTI
Source: Company, MOSL
Exhibit 9:
4QFY17 currency highlights (INR)
USD
Average
Closing
67.00
64.84
Rates (INR)
EUR
GBP
71.3
69.3
82.9
80.9
AUD
50.7
49.6
USD
-0.7%
-4.5%
Change (QoQ)
EUR
GBP
-1.9%
-3.4%
-1.0%
AUD
0.4%
-3.2%
1.0%
Source: Company, MOSL
Exhibit 10:
4QFY17 currency highlights (in USD)
EUR
Average
Closing
1.07
1.07
Rates (USD)
GBP
1.24
1.25
AUD
0.76
0.76
EUR
-1.2%
1.6%
Change (QoQ)
GBP
-0.2%
AUD
1.2%
1.1%
6.1%
Source: Company, MOSL
AUD
0.73
0.74
0.76
INR/USD
nm
67.73
67.00
Exhibit 11:
Cross currencies: Assumed rates v/s actual
Guided at
Infosys
Wipro
Actual (Average)
EUR
1.10
1.04
1.07
GBP
1.51
1.23
1.24
Change (%)
Infosys
Wipro
EUR
-3.1%
2.4%
GBP
-17.9%
0.7%
AUD
3.9%
2.4%
INR/USD
nm
-1.1%
Source: Company, MOSL
April 2017
5
 Motilal Oswal Financial Services
March 2017 Results Preview | Sector: Technology
Exhibit 12:
Relative performance—3m (%)
Sensex Index
MOSL Technology Index
Exhibit 13:
Relative performance—1Yr (%)
125
115
105
95
85
Sensex Index
MOSL Technology Index
120
110
100
90
80
Source: Bloomberg, MOSL
Source: Bloomberg, MOSL
Exhibit 14:
Comparative valuation
MCap Rating TP Upside
EPS (INR)
USD b
(INR)
(%) FY17E FY18E FY19E FY17E
TCS
71.5 Neutral 2,550 4.9
131.3 144.7 154.7
18.5
Infosys
34.8 Buy 1,250 22.4
62.0
66.6
73.3
16.5
Wipro
18.9 Neutral 540 4.9
33.0
37.5
42.9
15.6
HCL Tech
18.4 Buy 1,000 14.5
57.2
64.3
70.3
15.3
TechM
6.8
Buy 550 19.6
32.5
35.7
40.2
14.2
Mphasis
1.8 Neutral 550 -4.8
42.7
43.0
44.9
13.5
L&T Infotech 1.9
Buy 800 12.5
53.6
58.0
60.8
13.3
Mindtree
0.6 Neutral 530 17.3
24.9
34.6
39.4
18.2
KPIT Tech
0.4 Neutral 150 15.4
11.5
13.8
15.0
11.3
Cyient
0.8
Buy 600 27.9
30.9
37.6
43.1
15.2
Hexaware
1.0 Neutral 220 2.3
13.7
14.9
16.3
15.7
NIIT Tech
0.4 Neutral 470 7.8
36.2
46.8
52.9
12.0
Persistent
0.7 Neutral 730 22.5
37.4
43.4
50.5
15.9
Zensar
0.6
Buy 1,200 29.7
65.3
81.4
92.0
14.2
Company
P/E (x)
FY18E FY19E
16.8
15.7
15.3
13.9
13.7
12.0
13.6
12.4
12.9
11.4
13.4
12.9
12.3
11.7
13.1
11.5
9.4
8.6
12.5
10.9
14.4
13.2
9.3
8.2
13.7
11.8
11.4
10.0
FY17E
33.0
23.0
16.8
27.0
20.1
14.1
41.4
17.0
13.7
14.8
26.5
13.5
16.9
19.1
RoE (%)
FY18E FY19E
33.4
33.0
22.1
22.1
17.2
17.8
27.8
28.1
19.5
19.2
14.9
14.7
36.6
32.1
21.5
21.7
15.9
14.9
16.0
16.3
24.4
22.7
15.9
16.0
17.9
20.1
20.4
19.7
FY17-19E CAGR (%)
USD rev.
EPS
9.1
8.5
8.5
8.7
7.2
14.0
10.6
10.8
9.6
11.2
8.4
2.6
8.3
6.5
9.3
25.9
6.8
14.4
12.0
18.0
10.1
9.0
8.1
20.9
11.0
16.2
12.7
18.7
Source: MOSL
April 2017
6
 Motilal Oswal Financial Services
March 2017 Results Preview | Sector: Technology
Cyient
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E June
Sales
EBITDA
PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuation
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div yld (%)
15.3
2.5
10.8
1.5
15.2
2.3
9.2
2.0
12.5
2.0
7.4
2.4
10.9
1.8
6.2
2.8
2016
31.0
4.2
3.3
30.7
(1.9)
186.6
16.5
15.1
22.8
2017E 2018E 2019E
36.0
4.8
3.5
30.9
0.7
208.3
14.8
14.0
30.0
40.8
5.7
4.2
37.6
21.6
234.6
16.0
15.0
30.0
46.2
6.4
4.8
43.1
14.6
264.7
16.3
15.4
30.0
CYL IN
112.2
52 / 1.0
555 / 416
-4 / -9 / -18
CMP: INR467
TP: INR600 (+28%)
Buy
We expect CYL’s USD revenue to grow 3.3% QoQ in 4QFY17 (+2.7%
QoQ in CC).
In the core services business, CYL’s revenue is expected to increase
by 1.9% QoQ. Revenue growth is expected to pick up post the
seasonal weakness witnessed in the previous quarter.
We expect USD17m in revenue in Rangsons, which would imply
annual revenue of USD55m; +42% YoY, short of the 50% guidance
by ~USD3m.
Margins are expected to decline by 60bp QoQ to 12.8% because of
INR depreciation and higher incremental revenue from lower-
margin Rangsons.
While we expect margins in the services business to decline by 50bp
to 14.3%, we anticipate flat margins in Rangsons at 2%.
PAT estimate for the quarter is INR816m, -13.2% QoQ. Lower other
income is a function of translation losses in 4Q.
The stock trades at 12.5x FY18E and 10.9x FY19E EPS. Maintain
Buy.
Key issues to watch for
Update on problem verticals like Semiconductor and Energy.
Outlook for Rangsons for FY18 and progress on synergy through
DLM.
Margin trajectory going ahead.
FY17E
3Q
118
0.0
7,818
9.8
34.4
20.3
1,102
14.1
11.3
246
20.8
869
-11.8
-13.9
7.7
11,481
76.7
20.6
43.3
4Q
121
2.1
8,158
11.7
34.2
21.1
1,063
13.0
9.4
222
20.4
844
-2.8
-10.1
7.5
11,569
73.3
18.4
41.0
1Q
125
3.1
8,349
15.0
35.0
22.0
1,090
13.1
10.4
116
25.5
740
-12.3
-1.1
6.6
12,297
75.5
19.9
42.9
2Q
137
9.5
9,136
18.4
34.4
20.4
1,283
14.0
11.5
184
22.6
973
31.5
-1.2
8.7
12,797
77.2
22.7
42.4
3Q
136
-0.5
9,171
17.3
34.0
20.6
1,228
13.4
10.7
309
25.8
940
-3.4
8.3
8.4
12,747
74.8
22.6
42.6
4QE
140
3.3
9,342
14.5
33.3
20.4
1,200
12.8
10.7
50
23.5
816
-13.2
-3.3
7.3
12,877
76.4
43.5
FY16
472
5.6
30,955
13.1
35.1
21.4
4,247
13.7
10.8
1,065
23.4
3,446
-1.9
30.7
11,569
(INR m)
FY17E
537
13.8
35,998
16.3
34.1
20.8
4,801
13.3
10.8
659
24.3
3,470
0.7
30.9
12,877
Quarterly Performance
Y/E March
Revenue (USD m)
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
EBITDA
EBITDA Margin (%)
EBIT Margin (%)
Other income
ETR (%)
PAT
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Util incl. trainees (%)
Attrition (%)
Offshore rev. (%)
E: MOSL Estimates
1Q
114
-2.6
7,263
16.8
35.4
22.7
918
12.6
10.1
298
28.7
748
-20.3
9.2
6.7
11,507
75.4
18.8
44.7
FY16
2Q
118
3.6
7,717
14.8
36.6
21.6
1,164
15.1
12.6
299
23.5
985
31.7
9.2
8.8
11,311
76.1
21.6
44.6
April 2017
7
 Motilal Oswal Financial Services
March 2017 Results Preview | Sector: Technology
March 2017 Results Preview | Sector: Technology
HCL Technologies
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E JUNE
Sales
EBITDA
PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuation
P/E (x)
P/BV (x)
EV/EBITDA
(x)
Div yld (%)
21.7
4.4
12.2
2.0
15.2
3.8
10.6
2.8
13.6
3.7
9.7
3.2
12.4
3.3
8.5
3.7
2016
311.4
68.2
56.7
40.1
-20.3
200.2
21.5
19.9
42.4
2017E
467.2
103.0
81.0
57.2
42.5
227.8
27.0
25.2
42.0
2018E
523.9
113.2
89.7
64.3
12.4
233.1
27.8
25.5
43.6
2019E
583.9
124.9
98.2
70.3
9.3
264.7
28.1
26.1
45.5
HCLT IN
1412.9
1222 / 19
890 / 707
-2 / 0 / -18
CMP: INR865
TP:INR1,000 (+16%)
Buy
We expect HCLT’s USD revenue to grow 3.7% QoQ in 4QFY17 and
3.4% QoQ on a constant currency basis.
It is expected to be divided as follows: Organic: 1.5pp, new IBM
partnership: 0.6pp (USD10m), and Butler: 1.3pp (USD23m).
We expect momentum to continue in the IMS business. Deal
signings over the last many quarters and growth so far provide
visibility and confidence in execution of its 12-14% revenue growth
guidance.
EBIT margins are likely to decline by 20bp to 20.2% because of
continued investments in the business, integration of lower margin
businesses and increased depreciation, led by amortization of
investments made in the IBM partnerships.
With this, we expect 20.3% EBIT margin for FY17 – towards the
higher-end of the 19.5-20.5% guidance range.
PAT estimate for the quarter is INR19.7b, -4.8% QoQ, on the back of
lower margins and lower other income.
The stock trades at 13.6x FY18E and 12.4x FY19E EPS. Maintain
Buy.
Key issues to watch for
Commentary on performance expectations for FY18.
Deal signings.
Organic growth in IMS and traction in Engineering.
HCL Tech Quarterly Performance (US GAAP, INR Million)
Y/E June
Revenue (USD m)
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
EBITDA (INRm)
EBITDA Margin (%)
EBIT Margin (%)
Other income
ETR (%)
PAT before EOI
QoQ (%)
YoY (%)
EPS
Headcount
Util excl. trainees (%)
Attrition (%)
Fixed Price (%)
E: MOSL Estimates
FY15
4Q
1,538
3.2
97,770
16.1
34.2
12.8
21,000
21.5
20.2
2,120
18.6
17,820
5.8
-2.9
12.6
106,107
83.5
16.5
56.1
1Q
1,545
0.5
100,970
15.6
34.4
12.5
22,110
21.9
20.6
2,410
21.3
18,230
2.3
6.1
12.9
105,571
83.6
16.3
56.2
FY16*
2Q
1,566
1.4
103,410
11.4
34.6
13.0
22,250
21.5
20.0
3,550
20.9
19,190
5.3
-0.2
13.6
103,696
84.7
16.7
57.0
3Q
1,587
1.3
106,980
15.4
34.9
12.7
23,790
22.2
20.8
2,000
20.5
19,250
0.3
14.3
13.6
104,896
85.6
17.3
56.8
1Q
1,691
6.5
113,360
15.9
34.4
12.1
25,210
22.2
20.6
2,530
21.0
20,430
6.1
14.6
14.5
107,968
85.8
17.8
60.9
FY17
2Q
3Q
1,722
1,745
1.9
1.4
115,190 118,140
14.1
14.2
33.6
33.9
11.8
11.7
25,110
26,280
21.8
22.2
20.1
20.4
2,350
2,310
21.1
21.5
20,150
20,710
-1.4
2.8
10.5
7.9
14.3
14.7
109,795 111,092
85.3
84.6
18.6
17.9
61.3
63.2
FY16*
4Q
1,810
3.7
120,518
12.7
33.4
11.5
26,386
21.9
20.2
713
21.5
19,706
-4.8
2.4
13.8
114,742
84.9
4,698
7.1
311,360
14.6
34.6
12.7
68,150
21.9
20.5
7,960
20.9
56,670
4.0
40.1
104,896
81.8
FY17E
6,968
11.7
467,208
14.2
33.8
11.8
102,986
22.0
20.3
7,903
21.3
80,996
8.7
57.2
114,742
83.0
April 2017
8
 Motilal Oswal Financial Services
March 2017 Results Preview | Sector: Technology
March 2017 Results Preview | Sector: Technology
Hexaware Technologies
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E DEC
Sales
EBITDA
PAT
EPS (INR)
EPS Gr.
(%)
BV/Sh.
(INR)
RoE (%)
RoCE (%)
Payout (%)
Valuation
P/E (x)
P/BV (x)
EV/EBITDA
(x)
Div yld (%)
16.6
4.5
11.0
4.0
15.7
3.8
10.2
2.6
14.4
3.2
9.2
1.9
13.2
2.8
8.0
1.9
2015
31.2
5.4
3.9
12.9
22.1
47.4
28.9
27.7
64.5
2016
35.3
5.7
4.2
13.7
5.8
56.3
26.5
24.2
38.6
2017E
39.0
6.4
4.5
14.9
8.9
66.3
24.4
22.8
25.8
2018E
43.4
7.1
5.0
16.3
9.1
77.3
22.7
21.7
23.6
HEXW IN
301.8
65 / 1
273 / 178
-7 / 7 / -35
CMP: INR215
TP: INR220 (+2%)
Neutral
We expect USD revenue to grow 0.8% QoQ to USD140m (0.5% QoQ
CC).
Although QoQ growth is expected to be soft, the quarter would
strike 15% YoY growth, signifying strong momentum in the
business.
EBITDA margins have been steady over the last two quarters
despite wage hike, resulting out of strong volume growth and
improvement in operational efficiencies.
However, in 1Q, we expect EBITDA margins to decline by 80bp QoQ
to 16.5%, as utilization gets aligned to comfortable levels, and
because of INR appreciation against the USD.
Our PAT estimate for the quarter is INR1,086m, down 10.7% from
the previous quarter, on the back of lower other income led by
translation losses.
The stock trades at 14.4x CY17E and 13.2x CY18E earnings.
Neutral.
Key issues to watch for
Large deal pipeline and traction post the increased S&M spend.
Commentary on sustenance of revenue growth.
Health of top customers and outlook over CY17E.
Quarterly Performance (Indian GAAP)
Y/E Dec
Revenue (USD m)
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
EBITDA
EBITDA Margin
EBIT Margin (%)
Other income
ETR (%)
PAT
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Utilization (%)
Attrition (%)
Offshore rev. (%)
E: MOSL Estimates
1Q
121.7
-1.9
8,202
15.0
33.6
19.0
1,194
14.6
12.9
55
24.2
842
-15.3
1.0
2.8
11,599
69.6
16.0
36.9
2Q
129.7
6.6
8,697
12.6
34.6
19.0
1,353
15.6
14.0
132
25.8
999
18.6
1.0
3.3
11,875
70.0
16.6
36.1
CY16
3Q
135.2
4.2
9,041
10.5
35.4
18.0
1,576
17.4
15.9
67
25.8
1,114
11.5
-0.1
3.7
11,859
74.1
16.5
34.4
4Q
138.9
2.7
9,409
14.8
34.6
17.3
1,624
17.3
15.8
140
25.1
1,216
9.2
22.3
4.0
12,115
78.6
16.1
35.5
1QE
140.0
0.8
9,323
13.7
33.8
17.3
1,541
16.5
15.0
70
26.0
1,086
-10.7
29.0
3.6
12,390
77.0
35.1
CY17
2QE
144.3
3.1
9,670
11.2
34.2
17.3
1,631
16.9
15.3
112
26.0
1,180
8.6
18.1
3.9
12,820
77.0
35.3
CY15
3QE
146.9
1.8
9,915
9.7
34.1
17.3
1,670
16.8
15.3
107
26.0
1,202
1.9
7.9
3.9
13,095
77.0
35.6
4QE
148.1
0.8
10,069
7.0
32.3
17.3
1,515
15.0
13.5
93
26.0
1,074
-10.6
-11.6
3.5
13,536
74.0
34.5
525
8.2
35,349
13.2
34.6
18.3
5,747
16.3
14.7
394
25.3
4,171
6.1
13.7
12,115
73.8
35.7
(INR m)
CY16E
579
10.3
38,977
10.3
33.6
17.3
6,357
16.3
14.8
382
26.0
4,543
8.9
14.9
13,536
77.3
35.1
April 2017
9
 Motilal Oswal Financial Services
March 2017 Results Preview | Sector: Technology
March 2017 Results Preview | Sector: Technology
Infosys
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MAR
Sales
EBITDA
PAT
EPS (INR)*
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div Yield (%)
17.4
3.8
11.7
2.4
16.5
3.4
10.4
3.0
15.4
3.1
9.4
2.9
14.0
2.8
8.3
3.3
2016 2017E 2018E 2019E
624.4
170.8
134.9
59.0
9.4
270.3
24.7
23.2
41.9
686.1
186.2
141.8
62.0
5.1
300.7
23.0
21.7
50.0
747.4
200.2
152.2
66.6
7.4
331.0
22.1
21.1
45.1
825.1
220.8
167.5
73.3
10.0
365.5
22.1
21.0
46.4
INFO IN
2285.6
2307 / 35
1278 / 900
-6 / -9 / -37
CMP: INR1,009
TP: INR1,250 (+24%)
Buy
In 3Q, INFO narrowed its guidance band to 8.4-8.8% YoY CC,
implying 4Q revenue growth of 0.3-1.8% QoQ (mid-point of 0.1%).
In CC terms, our revenue growth estimate is 1% QoQ on the back of
improvement in top clients after the sharp fall seen in 3Q and the
RBS ramp-down being behind. Cross-currency tailwinds of 50bp
would result in USD revenue growth of 1.5%.
Given the lower exit rate for FY17 and expected conservatism in
initial guidance to avoid three revisions like the previous year, we
expect INFO to guide for 7-9% YoY CC growth for FY18. This would
result in a CQGR ask rate of 2.2-3%.
We expect EBITDA margin to decline by 50bp QoQ to 27.1%, led by
INR appreciation and the absence of certain tailwinds that INFO
benefited from in the previous quarter (higher leave utilization,
lapse of leaves and lower leave liabilities).
Our PAT estimate is INR34.2b, -7.7% QoQ led by lower profitability
and translation losses.
The stock trades at 15.4x FY18E and 14x FY19E earnings.
Buy.
Key issues to watch for
TCV of deal wins during the quarter.
Commentary around contribution of newly launched services.
Commentary around macro, verticals, margins and pricing.
(INR m)
FY17E
10,229
7.7
686,139
9.9
39.1
12.0
186,245
27.1
24.7
29,075
28.6
141,768
5.1
62.0
205,370
82.7
Quarterly Performance (IFRS)
Y/E March
1Q
Revenue (USD m)
2,256
QoQ (%)
4.5
Revenue (INR m)
143,540
YoY (%)
12.4
GPM (%)
38.6
SGA (%)
12.4
EBITDA
37,600
EBITDA Margin (%)
26.2
EBIT Margin (%)
24.0
Other income
7,580
ETR (%)
27.9
PAT
30,300
QoQ (%)
-2.2
YoY (%)
5.0
EPS (INR)
13.3
Headcount
179,523
Util excl. trainees (%)
80.9
Attrition (%)
19.2
Offshore rev. (%) (IT
43.9
Fixed Price (%)
42.4
E: MOSL Estimates
FY16
2Q
3Q
2,392
2,407
6.0
0.6
156,350
159,020
17.2
15.3
40.1
39.5
12.3
12.3
43,510
43,280
27.8
27.2
25.5
24.9
7,930
8,020
29.0
27.2
33,980
34,650
12.1
2.0
9.8
6.6
15.2
14.9
187,976
193,383
82.0
81.4
19.9
18.1
43.9
43.5
44.0
44.6
4Q
2,446
1.6
165,500
23.4
40.5
12.5
46,390
28.0
25.5
7,720
27.9
35,970
3.8
16.1
15.7
194,044
80.8
17.3
43.5
45.1
1Q
2,501
2.2
167,820
16.9
38.7
12.2
44,470
26.5
24.1
7,530
28.4
34,360
-4.5
13.4
15.0
197,050
81.1
21.0
43.0
45.7
FY17E
2Q
2,587
3.4
173,100
10.7
39.1
11.8
47,330
27.3
24.9
7,600
28.8
36,060
4.9
6.1
15.8
199,829
83.1
20.0
43.0
47.1
FY16
3Q
2,551
-1.4
172,730
8.6
39.7
12.2
47,670
27.6
25.1
8,200
28.1
37,080
2.8
7.0
16.2
199,763
82.4
18.4
43.5
49.5
4QE
2,590
1.5
172,489
4.2
38.9
11.8
46,775
27.1
24.6
5,745
29.0
34,218
-7.7
-4.9
15.0
205,370
82.9
9,501
9.1
624,410
17.1
39.7
12.4
170,790
27.4
25.0
31,250
28.0
134,930
9.4
59.0
194,044
81.7
April 2017
10
 Motilal Oswal Financial Services
March 2017 Results Preview | Sector: Technology
March 2017 Results Preview | Sector: Technology
KPIT Technologies
Bloomberg
Equity Shares (m)
M.Cap. (INR b) /(USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Financial Snapshot (INR b)
Y/E MAR
Sales
EBITDA
PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div yld (%)
9.3
1.9
5.1
1.1
11.4
1.6
5.9
1.5
9.5
1.4
4.3
1.5
8.7
1.2
3.4
1.5
2016 2017E
32.2
4.4
3.0
14.1
19.0
69.0
21.0
24.3
10.6
32.9
3.4
2.0
11.5
-18.4
79.6
13.7
15.8
17.4
2018E
35.2
4.2
2.8
13.8
19.8
93.4
15.9
17.8
14.5
2019E
38.4
4.7
3.0
15.0
9.2
108.4
14.9
17.3
13.3
KPIT IN
200.2
26.2/0.4
197/121
-7/-5/-32
CMP: INR130
TP: INR150 (+16%)
Neutral
Revenue performance has been lumpy for KPIT, with guidance of a
better 2H compared to 1H.
However, the impact of seasonal weakness and pressure in ERP
implementation continue weighing on overall performance.
Expect revenue of US124m, 1.2% QoQ growth in USD terms and
0.8% QoQ CC.
While the company’s drive has been to increase profitability,
excessive fresher hiring led to operational inefficiencies, negatively
impacting profitability. We expect margins to be subdued till there
is a sustained uptick in revenue growth momentum, which remains
elusive.
Our PAT estimate is INR451m, -5% QoQ because of the
compounding of lower margins and translation losses.
KPIT trades at 9.5x FY18E and 8.7x FY19E earnings. Maintain
Neutral.
Key issues to watch for
Growth in IES, Engineering Services and top client.
Margin performance and guidance.
Commentary on deal wins across segments.
Plan to recoup revenue growth and profitability.
(INR m)
FY17E
490
0.0
32,933
2.1
29.1
18.6
3,446
10.5
8.1
214
199
24.0
2,039
-27.6
11.5
11,770
69.1
43.1
Quarterly Performance (Indian GAAP)
Y/E March
1Q
Revenue (USD m)
118
QoQ (%)
-3.3
Revenue (INR m)
7,583
YoY (%)
9.9
GPM (%)
28.2
SGA (%)
18.7
EBITDA
718
EBITDA Margin (%)
9.5
EBIT Margin (%)
7.3
Other income
106
Interest
47
ETR (%)
27.9
PAT
444
QoQ (%)
-11.8
YoY (%)
-12.6
EPS (INR)
2.2
Headcount
10,839
Util excl. trainees (%)
66.4
Offshore rev. (%)
44.7
Fixed Price (%)
26.2
E: MOSL Estimates
FY16
2Q
3Q
125
123
5.3
-1.0
8,123
8,130
7.2
4.3
32.1
32.9
18.1
18.3
1,139
1,186
14.0
14.6
11.9
12.3
86
36
44
35
25.4
26.5
751
735
69.1
-2.1
6.3
12.5
3.8
3.7
10,659
10,559
69.7
69.1
44.9
41.2
27.1
29.1
4Q
124
0.7
8,407
10.2
35.3
19.1
1,359
16.2
13.6
20
25
13.4
885
20.4
75.7
4.4
10,910
70.2
42.1
26.4
1Q
120
-3.5
8,032
5.9
28.9
18.3
855
10.7
8.3
116
56
24.3
551
-37.8
24.0
2.8
11,288
68.1
41.5
28.5
FY17
2Q
3Q
123
123
3.0
-0.4
8,310
8,307
2.3
2.2
29.5
29.0
18.5
18.8
914
846
11.0
10.2
8.6
7.9
49
29
14
66
25.1
23.1
562
475
2.0
-15.5
-25.2
-35.4
2.8
3.7
11,666
11,881
69.2
69.2
43.3
43.6
28.0
33.7
FY16
4QE
124
1.2
8,284
-1.5
28.9
18.9
830
10.0
7.6
20
63
23.1
451
-5.0
-49.0
2.3
11,770
70.0
43.8
490
0.3
32,243
7.8
32.2
18.6
4,353
13.5
11.4
248
152
22.8
2,815
18.7
14.1
10,910
68.8
43.2
April 2017
11
 Motilal Oswal Financial Services
March 2017 Results Preview | Sector: Technology
March 2017 Results Preview | Sector: Technology
L&T Infotech
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MARCH
Sales
EBITDA
PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuation
P/E (x)
P/BV (x)
EV/EBITDA
(x)
Div Yld (%)
13.6
6.2
11.9
4.4
13.3
5.0
9.9
3.0
12.3
4.1
9.4
3.3
11.7
3.5
8.6
3.4
2016
58.5
10.4
9.2
52.4
21.5
115.6
45.3
39.9
59.6
2017E
64.8
12.1
9.4
53.6
2.3
143.5
41.4
44.3
40.0
2018E
70.7
12.5
10.2
58.0
8.2
173.7
36.6
36.4
40.0
2019E
77.6
13.3
10.6
60.8
4.8
205.3
32.1
33.7
40.0
LTI IN
170.5
123 / 2
725 / 595
-1/-11/-
CMP: INR711
TP: INR800 (+12%)
Buy
LTI saw revenue growth of 3.8% QoQ CC despite 3Q being a
seasonally weak quarter. This was largely attributed to the ramp-up
of deals won earlier during the year.
Led by the higher base, and expectations of new ramp-ups
beginning in FY18, we expect CC growth of 1.3% QoQ. A 40bp
tailwind during the quarter would result in 1.7% USD revenue
growth.
Expect 20bp expansion in EBITDA margin to 18.3% as 3Q was
negatively impacted by seasonality and increased share of India in
the overall portfolio. This would be partly offset by INR appreciation
and continued investments in the business.
Our PAT estimate for the quarter is INR2.2b, which implies 10.5%
QoQ decline, largely led by translation losses offsetting hedge gains
and resulting in lower other income.
The stock trades at 12.3x FY18E and 11.7x FY19E earnings.
Neutral.
Key issues to watch for
Deal wins and ramp-up schedule for FY18.
Margin trajectory, going forward, given the increased
investments.
Growth in Digital.
(INR m)
FY17E
965
8.8
64,842
10.9
34.8
16.1
12,147
18.7
15.9
1,596
21.1
9,384
2.3
53.6
22,246
77.5
52.0
Quarterly Performance
Y/E March
Revenue (USD m)
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
EBITDA
EBITDA Margin (%)
EBIT Margin (%)
Other income
ETR (%)
PAT
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Util incl. trainees (%)
Attrition (%)
Offshore rev. (%)
E: MOSL Estimates
1Q
209
0.0
13,332
14.5
34.0
18.5
2,068
15.5
12.2
512
18.2
1,746
-21.2
7.5
10.0
20,331
73.8
20.1
51.9
FY16
2Q
3Q
224
225
7.3
0.5
14,682
14,870
18.7
12.4
34.5
36.4
17.9
16.8
2,431
2,914
16.6
19.6
13.6
16.7
532
285
24.4
18.8
1,917
2,245
9.8
17.1
7.2
12.5
11.0
12.8
22,689
22,477
72.8
74.0
19.7
18.5
51.7
51.3
4Q
230
2.1
15,939
20.5
35.0
14.9
3,204
20.1
17.4
500
19.2
2,644
17.8
19.4
15.1
20,072
75.9
18.4
52.4
1Q
231
0.6
15,550
16.6
35.3
15.7
3,050
19.6
16.9
372
21.2
2,359
-10.8
35.1
13.5
19,292
77.4
19.5
51.9
FY17E
2Q
3Q
240
245
3.7
2.3
16,020
16,667
9.1
12.1
35.4
34.3
16.4
16.2
3,044
3,018
19.0
18.1
16.1
15.3
365
598
21.0
21.2
2,326
2,480
-1.4
6.6
21.3
10.5
13.3
14.2
21,074
21,976
78.7
78.1
18.5
18.1
51.2
52.3
FY16
4QE
249
1.7
16,605
4.2
34.3
16.0
3,035
18.3
15.3
261
21.0
2,219
-10.5
-16.1
12.7
22,246
76.0
52.7
887
9.5
58,471
17.5
33.5
15.8
10,359
17.7
14.7
2,802
19.7
9,171
21.5
52.4
20,072
73.8
49.7
April 2017
12
 Motilal Oswal Financial Services
March 2017 Results Preview | Sector: Technology
March 2017 Results Preview | Sector: Technology
MindTree
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MARCH
Sales
EBITDA
PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuation
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div Yld (%)
12.6
3.2
8.6
2.3
18.2
3.0
10.0
2.6
13.1
2.6
8.5
2.6
11.5
2.4
7.3
3.3
2016 2017E 2018E 2019E
46.9
8.3
6.0
35.9
14.2
142.4
27.4
30.6
29.3
52.1
7.0
4.2
24.9
-30.6
151.0
17.0
19.5
48.2
57.1
8.1
5.8
34.6
39.0
171.1
21.5
21.1
34.7
63.7
9.1
6.6
39.4
14.0
192.4
21.7
21.0
38.0
MTCL IN
167.7
77 / 1
758 / 400
-5 / -14 / -51
CMP: INR452
TP: INR530 (+17%)
Neutral
MTCL’s performance has been impacted since the last couple of
quarters because of softness in top accounts, project cancellations,
delays in decision making and deterioration in the performance of
acquisitions.
These factors are expected to play on performance in 4Q as well,
restricting signs of a revival. While we expect 1.5% QoQ CC growth,
we expect a headwind of 40bp due to cross-currency headwinds,
resulting in 1.1% QoQ growth.
Note, for MTCL, rates at the beginning of the month are considered
while billing, resulting in a headwind versus a tailwind for peers.
Although margins have bottomed out, we don’t see a material pick-
up till organic growth momentum increases or acquisitions turn
around. We assume flat EBITDA margins in 4Q at 13.4%.
Our PAT estimate for the quarter is INR972m, which implies 5.8%
QoQ decline.
The stock trades at 13.1x FY18E and 11.5x FY19E earnings.
Neutral.
Key issues to watch for
Update on top clients, pricing pressure and outlook.
Margin trajectory, going forward, given the increased investments
and revenue growth issues.
Deal wins during the quarter and growth in Digital.
FY17E
2Q
3Q
193
192
-3.0
-0.4
12,954
12,953
10.8
6.7
34.2
34.1
21.7
20.7
1,621
1,740
12.5
13.4
8.6
9.5
170
144
26.0
25.2
948
1,031
-23.2
8.8
-40.1
-31.7
5.6
6.1
16,219
16,099
71.4
71.3
16.4
16.1
40.8
39.8
50.6
52.5
FY16
4QE
194
1.1
12,937
-2.0
34.1
20.7
1,733
13.4
9.4
65
24.0
972
-5.8
-27.0
5.8
16,249
72.0
40.1
715
22.5
46,896
31.7
40.2
22.5
8,299
17.7
14.8
810
22.4
6,033
12.5
35.9
16,623
69.9
46.6
(INR m)
FY17E
778
8.8
52,120
11.1
34.9
21.3
7,045
13.5
9.6
577
24.8
4,186
-30.6
24.9
16,249
71.5
40.3
Quarterly Performance
Y/E March
Revenue (USD m)
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
EBITDA
EBITDA Margin (%)
EBIT Margin (%)
Other income
ETR (%)
PAT
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Util incl. trainees (%)
Attrition (%)
Offshore rev. (%)
Fixed Price (%)
E: MOSL Estimates
1Q
154
4.4
9,775
15.9
41.1
24.0
1,672
17.1
13.6
321
22.4
1,283
-0.3
-0.9
7.6
14,427
70.3
18.4
51.9
48.9
FY16
2Q
180
16.9
11,693
31.6
41.3
22.8
2,164
18.5
15.8
195
22.5
1,582
23.3
15.1
9.4
15,582
71.4
17.1
47.6
49.7
3Q
184
2.3
12,145
33.2
40.3
22.6
2,147
17.7
14.8
147
22.6
1,509
-4.6
7.2
9.0
16,243
68.5
16.0
45.5
50.0
4Q
195
5.7
13,203
43.8
38.0
21.3
2,206
16.7
13.1
42
25.0
1,330
-11.9
3.3
7.9
16,623
69.4
15.7
42.4
47.7
1Q
199
2.1
13,276
35.8
37.0
22.3
1,951
14.7
10.8
198
24.2
1,235
-7.1
-3.7
7.4
16,110
71.4
16.5
40.5
48.7
April 2017
13
 Motilal Oswal Financial Services
March 2017 Results Preview | Sector: Technology
March 2017 Results Preview | Sector: Technology
Mphasis
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MAR
Sales
EBITDA
PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA(x)
Div yld (%)
2016 2017E 2018E 2019E
60.9
9.0
7.2
34.5
6.8
299.4
12.3
11.2
58.0
16.8
1.9
10.8
3.5
60.8
9.6
8.2
42.7
23.9
280.1
14.1
13.1
124.2
13.6
2.1
9.9
9.1
65.7
10.2
8.3
43.0
0.8
296.7
14.9
14.2
51.1
13.5
2.0
9.0
3.8
72.3
11.2
8.7
44.9
4.4
315.3
14.7
14.3
49.0
12.9
1.8
8.0
3.8
MPHL IN
210.1
120 / 2
622 / 425
-7 / -2 / 6
CMP: INR578
TP: INR550 (-5%)
Neutral
In 3QFY17, HP channel revenue grew for the second consecutive
time in 20 quarters. This is expected to remain stable with the
renewed MSA coming into effect, after the completion of the
transaction between HPE and Blackstone.
We expect revenue growth of 1.1% QoQ (0.7% QoQ CC), driven by
stability in HP channel and Digital Risk and continued traction in the
Direct International business.
Margins are likely to be stable (+20bp QoQ), as wage hike pressures
are now behind, and there is stability seen in the HP channel.
MPHL had raised its EBIT margin guidance by 100bp at the end of
4QFY16 to 14-16% for FY17, and expressed confidence in achieving
the higher end of the range. Looking at the traction so far, this
seems achievable.
Our PAT estimate is INR1.97b (-3.5% QoQ).
The stock trades at 12.2x FY17E and 9.5x FY18E EPS. Neutral.
Key issues to watch for
Outlook for Digital Risk given an interest rate cycle reversal.
Strategy changes and roadmap under the new leadership.
Performance in Direct International business, and outlook for the
year.
(INR m)
FY17E
900
-2.7
60,768
-0.2
27.8
12.0
9,619
15.8
14.9
2,466
27.8
8,226
13.6
40.0
21,529
-795
Quarterly Performance
Y/E March
Revenue (USD m)
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
EBITDA
EBITDA Margin (%)
EBIT Margin (%)
Other income
ETR (%)
PAT
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Net Additions
HP Channel rev. (%)
Fixed Price (%)
E: MOSL Estimates
Jun 15
234
1.7
14,945
0.3
26.2
11.9
2,115
14.1
12.7
440
29.2
1,658
-6.7
-5.1
8.3
34,159
100
28.8
12.3
FY16
Sep 15
Dec 15
237
229
1.2
-3.4
15,575
15,167
6.3
7.5
26.9
25.6
11.9
11.3
2,345
2,166
15.1
14.3
13.9
13.2
492
456
26.4
27.7
1,900
1,736
14.6
-8.6
18.6
5.1
9.0
8.3
24,169
23,563
-9990
-606
26.5
24.2
14.0
19.2
Mar 16
225
-1.7
15,160
6.1
27.9
12.2
2,344
15.7
14.5
490
31.1
1,920
10.6
8.0
9.2
22,324
-1239
24.3
21.1
Jun 16
224
-0.3
15,167
1.5
28.1
12.0
2,445
16.1
15.2
572
27.7
2,043
6.4
23.2
9.7
22,374
50
23.4
19.8
FY17E
Sep 16
Dec 16
224
225
-0.2
0.2
15,176
15,361
-2.6
1.3
28.1
27.8
11.8
12.3
2,463
2,396
16.2
15.6
15.3
14.7
711
617
27.5
28.5
2,166
2,044
6.0
-5.6
14.0
17.7
10.3
9.7
22,284
22,018
-90
-266
23.9
24.0
19.1
20.6
FY16
Mar 17
227
1.1
15,064
-0.6
27.1
11.7
2,315
15.4
14.5
566
27.5
1,973
-3.5
2.7
10.2
21,529
-489
926
-2.2
60,879
5.1
26.6
11.8
8,970
14.7
13.5
1,954
27.1
7,242
6.9
34.5
22,324
-11735
April 2017
14
 Motilal Oswal Financial Services
March 2017 Results Preview | Sector: Technology
March 2017 Results Preview | Sector: Technology
Persistent Systems
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
PSYS IN
80.0
47 / 1
782 / 501
-12 / -21 / -41
CMP: INR596
TP: INR730 (+23%)
Neutral
Financial Snapshot (INR b)
Y/E MARCH
2016 2017E 2018E 2019E
Sales
23.1
28.9
32.5
36.4
EBITDA
4.2
4.5
5.3
6.2
Adj. PAT
3.0
3.0
3.5
4.0
Adj. EPS (INR)
37.2
37.4
43.4
50.5
EPS Gr. (%)
2.3
0.6
16.0
16.4
BV/Sh.(INR)
211.0 244.4 254.2 264.6
RoE (%)
19.5
16.9
17.9
20.1
RoCE (%)
18.9
16.7
15.3
17.1
Valuations
P/E (x)
16.0
15.9
13.7
11.8
P/BV (x)
2.8
2.4
2.3
2.3
EV/EBITDA (x)
9.3
8.6
7.0
5.9
Div. Yield (%)
1.8
2.0
2.0
2.0
Revenue growth is expected to be led by the Enterprise segment,
whereas revenue from the IBM Watson deal would decline, as 3Q is
the strongest quarter for IBM seasonally.
Growth in ISVs is likely to continue following the same trajectory as
earlier. Aided by these factors, we expect 4QFY17 revenue to grow
0.3% QoQ CC to USD110.5m.
Cross-currency movements are likely to result in a tailwind of 20bp
during the quarter, leading to 0.5% USD growth.
EBITDA margins are expected to decline, as revenue from the IBM
Watson IoT deal would decline during the quarter. This is likely to
result in a 70bp reduction in EBITDA margins to 15.2%.
Our PAT estimate for the quarter is INR706m, down 14% QoQ
owing to lower other income. Translation losses due to the USD
closing at INR65/USD would lead to pressure on PAT.
The stock trades at 13.7x FY18E and 11.8x FY19E earnings.
Neutral.
Key issues to watch for
Performance and outlook for top clients in ISV (ex-IBM).
Commentary on traction with Enterprise customers and potential
of winning large deals.
Outlook on sustainable profit margins in the near to medium
term.
(INR m)
FY17E
431
22.4
28,875
24.9
35.4
19.9
4,467
15.5
10.3
1,031
25.4
2,993
0.6
37.4
9,271
76.6
28.4
Quarterly Performance (IFRS)
Y/E March
Revenue (USD m)
QoQ (%)
Revenue (INR m)
QoQ (%)
YoY (%)
GPM (%)
SGA (%)
EBITDA
EBITDA Margin (%)
EBIT Margin (%)
Other income
ETR (%)
PAT
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Util excl. trainees (%)
Attrition (%)
IP rev. proportion (%)
E: MOSL Estimates
1Q
78.6
-1.8
5,004
0.6
15.0
39.7
20.4
969
19.4
14.8
198
28.5
672
-11.6
-2.3
8.4
8,454
72.9
16.4
18.4
FY16
2Q
83.0
5.5
5,427
8.5
16.9
38.9
20.2
1,018
18.7
14.4
182
25.5
718
6.9
0.7
9.0
8,545
76.1
17.1
16.2
3Q
89.7
8.1
5,921
9.1
19.7
38.8
20.1
1,110
18.8
14.6
160
24.4
775
7.8
4.1
9.7
8,966
74.5
17.1
20.1
4Q
100.4
12.0
6,771
14.4
36.1
35.7
19.8
1,074
15.9
12.1
210
21.4
808
4.3
6.3
10.1
9,264
75.2
16.4
28.2
1Q
104.8
4.3
7,018
3.6
40.2
34.7
19.6
1,058
15.1
10.2
253
24.3
733
-9.3
9.0
9.2
9,389
75.3
16.7
28.2
FY17E
2Q
105.2
0.4
7,040
0.3
29.7
35.5
19.8
1,108
15.7
10.5
243
25.3
735
0.3
2.3
9.2
9,305
74.2
15.9
27.8
FY16
3Q
110.0
4.6
7,455
5.9
25.9
36.3
20.4
1,187
15.9
10.7
318
26.7
819
11.4
5.7
10.2
9,229
78.9
15.8
28.4
4Q
110.5
0.5
7,362
-1.3
8.7
35.0
19.4
1,116
15.2
9.8
217
25.0
706
-13.8
-12.6
8.8
9,271
78.3
29.0
352
14.0
23,123
22.3
38.1
20.1
4,171
18.0
13.9
750
24.8
2,974
2.3
37.2
9,264
74.7
21.1
April 2017
15
 Motilal Oswal Financial Services
March 2017 Results Preview | Sector: Technology
March 2017 Results Preview | Sector: Technology
NIIT Technologies
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MARCH
2016 2017E
Sales
26.8
27.5
EBITDA
4.7
4.5
PAT
2.8
2.6
EPS (INR)
45.7
36.2
EPS Gr. (%)
143.7
-20.9
BV/Sh. (INR)
259.8 278.0
RoE (%)
19.0
13.5
RoCE (%)
18.6
15.3
Payout (%)
21.9
30.4
Valuations
P/E (x)
9.5
12.1
P/BV (x)
1.7
1.6
EV/EBITDA (x)
4.9
5.0
Div Yld (%)
2.3
2.5
NITEC IN
61.2
27 / 0
588 / 370
1 / -4 / -32
CMP: INR 436
TP: INR470 (+8%)
Neutral
2018E
29.3
5.0
2.9
46.8
29.3
311.6
15.9
14.9
23.5
9.3
1.4
4.3
2.5
2019E
31.9
5.5
3.3
52.9
13.1
350.1
16.0
14.8
22.7
8.2
1.2
3.5
2.7
We expect revenue growth for NITEC to pick up in 4Q (2% QoQ CC),
led by stability in top clients and ramp-up of new deals won earlier
in the year.
However, bookings using the start date of the month would result
in 50bp of a headwind on account of cross-currency movement,
which has been a tailwind for peers.
We expect EBITDA margin to expand by 60bp QoQ to 17.5%, aided
by higher international revenue and increased traction in Digital.
Our PAT estimate is INR667m, down 7.4% QoQ, driven by lower
other income, led by translation losses.
The stock trades at 9.3x FY18E and 8.2x FY19E earnings. Neutral.
Key issues to watch for
Traction in the international business.
Demand environment and update on ramp-up delays.
Deal wins.
Quarterly Performance (IFRS)
Y/E March
Revenue (USD m) Ex. forex
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
EBITDA
EBITDA Margin (%)
EBIT Margin (%)
Other income
ETR (%)
Minority Interest
PAT
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Util excl. trainees (%)
Attrition (%)
Offshore rev. (%)
Fixed Price (%)
1Q
98
5.9
6,411
11.0
36.4
20.1
1,043
16.3
12.0
79
25.9
40.0
587
-433.5
35.6
9.6
9,228
79.5
14.3
39.0
42.0
FY16
2Q
104
6.2
6,779
15.2
37.2
19.6
1,194
17.6
13.7
13
22.9
43.0
683
16.4
70.8
11.2
9,592
79.7
13.7
41.0
41.0
3Q
103
-0.9
6,787
14.0
37.3
19.1
1,235
18.2
14.2
52
20.9
48.0
741
8.5
53.7
12.1
9,517
78.7
13.6
41.0
43.0
4Q
102
-1.2
6,847
12.0
37.1
18.7
1,261
18.4
14.2
39
18.2
39.0
790
6.6
-548.9
12.9
9,476
79.0
13.6
39.0
46.0
1Q
99
-2.5
6,692
4.4
35.3
20.0
1,023
15.3
10.9
71
10.3
46.0
720
-8.9
22.7
5.1
9,022
79.8
13.4
39.0
46.0
FY17E
2Q
3Q
103
103
4.2
-0.6
6,913
6,922
2.0
2.0
35.3
36.2
19.0
19.3
1,122
1,168
16.2
16.9
12.0
12.7
27
45
24.2
24.2
54.0
48.0
720
720
0.0
0.0
5.4
-2.8
9.7
10.6
8,868
8,809
81.0
80.0
12.9
12.9
39.0
40.0
46.0
48.0
FY16
4Q
104
1.5
6,982
2.0
36.8
19.3
1,219
17.5
13.2
21
24.2
48.0
667
-7.4
-15.6
10.8
8,979
80.0
406
8.6
26,824
338.9
37.0
19.5
4,733
17.6
13.5
183
21.8
170.0
2,801
145.9
45.8
9,476
79.2
40.0
(INR m)
FY17E
409
1.4
28,506
344.6
36.6
19.4
4,532
17.3
13.2
234
21.4
208.0
2,578
-8.0
42.0
9,318
79.1
38.5
April 2017
16
 Motilal Oswal Financial Services
March 2017 Results Preview | Sector: Technology
March 2017 Results Preview | Sector: Technology
TCS
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MAR
Sales
EBITDA
PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuation
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. yield (%)
19.6
6.5
14.6
1.8
18.4
5.7
13.7
1.9
16.7
5.8
12.9
5.6
15.6
4.9
11.6
2.5
2016
306.8
242.1
123.2
11.5
371.4
37.1
36.8
35.2
2017E
323.7
258.8
131.3
6.6
423.8
33.0
31.9
35.4
2018E
348.8
277.0
144.7
10.2
417.1
33.4
28.7
93.9
2019E
379.5
296.2
154.7
6.9
494.0
33.0
26.2
39.3
1,086.5 1,183.2 1,303.9 1,442.2
TCS IN
1970.4
4755 / 73
2740 / 2055
-7 / -5 / -22
CMP: INR2,431
TP: INR2,550 (+5%)
Neutral
Revenue growth for TCS in 3Q was 2% QoQ CC, which included a
tailwind of ~USD27m from a deferment of revenue in an India-based
contract.
We expect momentum to continue in 4Q, and hence, expect 2% QoQ
CC growth.
However, cross-currency movement would provide a tailwind of
70bp, resulting in revenue of USD4,504m, a growth of 2.7%.
Our EBIT margin estimate for 4Q stands at 25.6% QoQ (-40bp QoQ),
below the lower end of the guided range of 26-28%. There is a
possibility of TCS’ margins being lower than the range for FY17, lest
there is a material beat on profitability in 4Q.
Our PAT estimate stands at INR62b (-8.6% QoQ). The decline is led
by lower other income, resulting out of a translation loss, led by
USD/INR appreciation on a closing basis.
The stock trades at 16.7x FY18E and 15.6x FY19E earnings.
Neutral.
Key issues to watch for
Outlook on revenue from TCS Japan and Diligenta.
Traction in new Digital initiatives (automation/solutions).
Outlook for BFSI vertical going ahead.
(INR m)
FY17E
Quarterly Performance (IFRS)
Y/E March
Revenue (USD m)
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
EBITDA
EBITDA Margin (%)
EBIT Margin (%)
Other income
ETR (%)
PAT
QoQ (%)
YoY (%)
EPS (INR)
Headcount
CC QoQ rev gr (%)
Attrition (%)
E: MOSL Estimates
1Q
4,036
3.5
256,681
16.1
44.9
16.8
72,019
28.1
26.3
7,707
23.2
57,086
-3.3
12.9
29.1
324,935
3.4
15.9
FY16
2Q
3Q
4Q
4,156
4,145
4,207
3.0
-0.3
1.5
271,655 273,640 284,486
14.1
11.7
17.5
45.5
45.6
44.8
16.7
17.3
17.0
78,224 77,469 79,068
28.8
28.3
27.8
27.1
26.6
26.1
6,751
6,990
9,050
24.1
23.2
23.7
60,553 61,095 63,412
6.1
0.9
3.8
14.5
12.2
7.4
30.8
31.0
32.3
335,620 344,691 353,843
3.9
0.5
2.1
16.2
15.9
15.5
1Q
4,362
3.7
293,050
14.2
43.9
17.1
78,380
26.7
25.1
9,630
24.0
63,179
-0.4
10.7
32.1
362,079
3.1
13.6
FY17E
2Q
3Q
4,374
4,387
0.3
0.3
292,840 297,350
7.8
8.7
44.8
44.5
17.1
16.8
81,110
82,290
27.7
27.7
26.0
26.0
10,520
11,850
23.8
23.6
65,860
67,780
4.2
2.9
8.8
10.9
33.4
34.4
371,519 378,497
1.0
2.0
12.9
12.2
FY16
4QE
4,504
16,544
17,627
2.7
7.1
6.5
299,935 1,086,462 1,183,175
5.4
14.8
8.9
44.4
45.2
44.4
17.1
17.0
17.0
81,880
306,780
323,660
27.3
28.2
27.4
25.6
26.5
25.7
4,614
30,498
36,614
23.5
23.6
23.7
61,965
242,146
258,784
-8.6
-2.3
11.6
6.9
31.4
123.2
131.3
385,749
353,843
385,749
2.0
11.8
8.4
April 2017
17
 Motilal Oswal Financial Services
March 2017 Results Preview | Sector: Technology
March 2017 Results Preview | Sector: Technology
Tech Mahindra
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MARCH
Sales
EBITDA
Adj. PAT
Adj. EPS (INR)
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
Payout (%)
Valuation
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
13.1
2.8
8.3
2.6
13.7
2.6
8.8
2.6
12.9
2.3
7.6
2.6
11.4
2.0
6.2
1.9
2016 2017E 2018E 2019E
264.9 291.9 324.9 358.4
43.4
31.2
35.1
18.4
23.4
20.1
34.2
44.5
29.8
33.6
-4.2
20.1
16.6
36.9
48.9
31.7
35.7
6.2
19.5
16.6
33.6
54.7
35.7
40.2
12.7
19.2
16.7
21.8
TECHM IN
984.7
446 / 7
564 / 405
-14 / 1 / -22
CMP: INR460
TP: INR550 (+20%)
Buy
165.6 175.1 197.2 227.7
We expect 0.8% QoQ CC growth in TECHM in 4QFY17. Our
expectations are led by 0.6% growth in Telecom and 0.9% in
Enterprise.
The seasonal strength in Comviva is expected to be offset by the
pressure in LCC, resulting in subdued performance in Telecom.
Organic CC growth in Enterprise exceeded 4% QoQ in 3Q, and that’s
likely to moderate growth in the current quarter. Cross-currency
tailwinds of 60bp are likely to result in USD revenue growth of 1.4%.
We expect EBITDA margin to decline by 30bp to 15.4%. The benefits
of higher profitability in Comviva are expected to be offset by INR
appreciation during the quarter.
Expect PAT to decline 14.7% QoQ to INR7.3b, led by lower other
income.
The stock trades at 12.9x FY18E and 11.4x FY19E earnings.
Buy.
Key issues to watch for
Performance of the Telecom segment.
Comments on profitability including LCC.
TCV of deal wins in the Enterprise segment.
Quarterly Performance
Y/E March
Revenue (USD m)
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
EBITDA
EBITDA Margin (%)
EBIT Margin (%)
Other income
Interest expense
ETR (%)
PAT excl. BT amort & EOI
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Util excl. trainees (%)
Attrition (%)
Offshore rev. (%)
E: MOSL Estimates
1Q
989
0.5
62,938
22.9
29.4
15.0
9,050
14.4
11.6
1,244
215
25.6
6,225
31.9
-1.3
7.6
103,673
74.0
19.0
39.0
FY16
2Q
3Q
4Q
1,011
1,015
1,023
2.2
0.4
0.8
66,155
67,011
68,837
20.5
16.5
12.5
32.0
31.3
30.6
15.4
14.3
13.8
11,010
11,358
11,510
16.6
16.9
16.7
13.7
14.4
13.6
1,658
639
1,603
173
244
340
24.8
23.2
17.0
7,855
7,592
8,581
26.2
-3.3
13.0
9.2
-2.3
81.8
8.8
8.5
10.1
105,235 107,137 105,432
77.0
77.0
77.0
20.0
20.0
21.0
38.3
37.3
36.8
1Q
1,032
0.9
69,209
10.0
29.5
14.6
10,290
14.9
12.0
1,519
274
25.9
6,561
-23.5
5.4
7.4
107,216
78.0
21.0
36.6
FY17E
2Q
3Q
1,072
1,116
4.0
4.1
71,674
75,575
8.3
12.8
30.6
30.7
15.7
15.0
10,701
11,865
14.9
15.7
11.5
12.4
1,387
1,552
345
349
30.8
20.2
6,447
8,560
-1.7
32.8
-17.9
12.8
7.3
9.6
111,743 117,095
78.0
77.0
19.0
18.0
36.5
36.1
FY16
4QE
1,132
1.4
75,399
9.5
30.9
15.5
11,605
15.4
12.0
864
392
22.5
7,302
-14.7
-14.9
8.2
114,549
77.8
35.8
4,037
10.2
264,941
17.9
30.8
14.5
43,426
16.4
13.5
5,322
961
21.4
31,180
20.0
35.1
103,673
76.2
37.8
(INR m)
FY17E
4,352
7.8
291,857
10.2
30.5
15.2
44,461
15.2
12.0
5,323
1,360
24.7
28,870
-7.4
33.5
105,235
77.7
36.3
April 2017
18
 Motilal Oswal Financial Services
March 2017 Results Preview | Sector: Technology
March 2017 Results Preview | Sector: Technology
Wipro
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MAR
Sales
EBITDA
PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div Yld (%)
14.3
2.7
10.6
1.2
15.6
2.5
10.7
1.9
13.8
2.2
9.3
2.5
12.0
2.0
8.0
2.9
2016 2017E 2018E 2019E
512.4
108.1
88.9
36.1
2.9
189.7
20.3
16.7
16.6
546.7
108.1
81.3
33.0
-8.6
204.1
16.8
13.6
29.8
580.6
118.9
90.8
37.5
13.6
229.3
17.2
13.9
34.7
633.8
133.9
103.9
42.9
14.3
254.1
17.8
14.9
35.0
WPRO IN
2466.0
1251 / 19
607 / 410
-1 / 0 / -30
CMP: INR515
TP: INR540 (+5%)
Neutral
In the previous quarter, Wipro had guided 1-2% QoQ CC growth for
4Q. However, this would include ~7 weeks of additional revenue
from the integration of Appirio (~1.5%). Excluding this, the guidance
of organic growth is -0.5% to +0.5% QoQ CC.
We expect organic growth to be flat in 4Q, Appirio is likely to add
1.5pp and cross-currency tailwinds to add 0.7pp, resulting in 2.2%
USD revenue growth.
We expect EBIT margin in IT Services to decline by 65bp because of
flattish organic revenue, the integration of lower margin Appirio
and INR depreciation during the quarter.
We expect overall EBIT margins to decline by 20bp, led by improved
profitability in the Products business.
Our PAT estimate is INR19b, -10% QoQ on account of lower other
income, resulting from translation losses.
The stock trades at 13.8x FY18E and 12x FY19E earnings.
Neutral.
Key issues to watch for
Revenue growth guidance for 1QFY18.
Commentary on the Healthcare vertical.
Commentary on large deal wins and ramp-up schedule.
(INR m)
FY17E
7,694
4.7
546,684
6.7
29.3
13.1
17.9
16.1
17,419
22.7
81,267
-8.6
33.0
182,764
77.0
46.1
Quarterly Performance (IFRS)
Y/E March
Revenue (USD m)
QoQ (%)
Revenue (INR m)
QoQ (%)
YoY (%)
GPM (%)
SGA (%)
IT Serv. EBIT (%)
EBIT Margin (%)
Other income
ETR (%)
PAT
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Util excl. trainees (%)
Attrition (%)
Offshore rev. (%)
Fixed Price (%)
E: MOSL Estimates
1Q
1,794
1.1
122,376
0.8
9.9
30.7
12.2
21.0
18.5
5,286
21.2
21,877
-3.8
4.0
8.9
161,789
81.9
16.4
45.4
54.5
FY16
2Q
3Q
1,832
1,838
2.1
0.3
125,135 128,605
2.3
2.8
7.1
7.2
31.4
29.8
12.4
12.0
20.7
20.2
19.0
17.9
5,138
5,715
22.4
21.8
22,354
22,341
2.2
-0.1
7.2
1.9
9.1
9.1
168,396 170,664
82.3
78.0
16.4
16.3
46.1
46.2
53.4
55.9
4Q
1,882
2.4
136,324
6.0
12.3
29.7
12.3
20.1
17.4
5,426
22.7
22,350
0.0
-1.8
9.1
172,912
77.5
16.1
45.8
56.9
1Q
1,931
2.6
135,992
-0.2
11.1
29.1
13.0
17.8
16.1
4,848
22.9
20,518
-8.2
-6.2
8.3
173,863
79.7
16.5
45.6
56
FY17E
2Q
3Q
1,916
1,903
-0.8
-0.7
137,657 136,878
1.2
-0.6
10.0
6.4
28.9
29.4
13.2
13.0
17.8
18.3
15.8
16.4
4,958
5,120
22.2
23.3
20,672
21,094
0.8
2.0
-7.5
-5.6
8.5
8.7
174,238 179,129
82.8
81.9
16.6
16.3
46.1
46.5
56.4
57.7
FY16
4Q
1,944
2.2
136,157
-0.5
-0.1
29.5
13.3
17.7
16.2
2,493
22.5
18,983
-10.0
-15.1
7.8
182,764
81.9
46.3
7,346
3.7
512,440
9.1
30.4
12.2
20.5
18.2
21,565
22.1
88,922
2.7
36.1
172,912
74.9
45.9
April 2017
19
 Motilal Oswal Financial Services
March 2017 Results Preview | Sector: Technology
March 2017 Results Preview | Sector: Technology
Zensar Technologies
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MAR
Sales
EBITDA
PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div Yld (%)
13.6
2.9
9.3
1.3
14.2
2.5
8.7
1.3
11.4
2.1
7.2
1.6
10.0
1.8
5.8
2.0
2016 2017E 2018E 2019E
29.6
4.3
3.1
68.2
17.0
314.4
24.0
28.5
17.6
31.4
4.4
2.9
65.3
-4.8
367.4
19.1
25.0
18.1
35.9
5.2
3.7
81.4
24.6
431.7
20.4
25.4
18.0
40.7
6.0
4.2
92.0
13.1
502.4
19.7
25.2
19.8
ZENT IN
45.4
42 / 1
1136 / 865
-3 / -14 / -24
CMP: INR925
TP: INR1,200 (+30%)
Buy
We expect revenue of USD121m, representing growth of 2.7% QoQ.
This would translate into 2% QoQ CC growth. 5% appreciation in
USD/ZAR would result in a cross-currency tailwind of 70bp for ZENT.
The quarter will also include about one month of revenue from the
acquisition of Foolproof. Organic revenue growth is likely to be
1.2% QoQ CC.
With the pruning of non-core/low-yield business, we expect EBITDA
margins to expand 80bp QoQ to 14.6%. Seasonality and
investments in the business had resulted in 30bp decline in margins
in the previous quarter.
Our PAT estimate is INR684m, -15.7% QoQ on account of a decline
in other income (translation losses).
The stock trades at 11.4x FY18E and 10x FY19E earnings.
Buy.
Key issues to watch for
Traction in Digital, large deals and other new initiatives.
Margin outlook, given the need for reinvestment.
Progress on restructuring.
Quarterly Performance (IFRS)
Y/E March
Revenue (USD m)
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
EBITDA
EBITDA Margin (%)
EBIT Margin (%)
Other income
ETR (%)
PAT
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Utilization (%)
Offshore rev. (%)
E: MOSL Estimates
1Q
111
5.1
7,046
16.5
31.7
16.4
1,080
15.3
13.8
148
29.8
762
6.2
36.3
17.6
7,895
79.0
35.0
FY16
2Q
116
4.8
7,564
16.8
32.1
16.6
1,171
15.5
14.0
229
26.9
913
19.8
35.7
20.6
8,050
80.0
37.0
3Q
115
-1.4
7,568
5.5
30.6
16.2
1,089
14.4
12.9
95
30.4
715
-21.7
2.9
15.8
8,192
82.0
34.0
4Q
111
-3.7
7,464
13.5
30.8
18.5
922
12.4
10.7
116
21.1
703
-1.7
-2.1
15.5
8,256
81.0
36.0
1Q
114
3.1
7,624
8.2
29.1
15.3
1,053
13.8
12.5
169
30.5
763
8.5
0.1
16.9
8,238
79.8
31.2
FY17E
2Q
3Q
116
118
1.8
1.3
7,767
7,922
2.7
4.7
29.7
30.0
15.6
16.2
1,092
1,090
14.1
13.8
12.5
12.4
37
183
28.2
29.1
687
811
-10.0
18.1
-24.8
13.4
15.2
18.0
8,316
8,564
80.1
79.5
33.8
33.5
FY16
4Q
121
2.7
8,037
7.7
30.6
16.0
1,176
14.6
13.2
-75
28.0
684
-15.7
-2.7
15.2
8,564
80.0
33.6
453
5.4
29,643
12.8
31.3
16.9
4,262
14.4
12.8
588
27.3
3,094
17.0
68.2
8,256
80.5
35.5
(INR m)
FY17E
468
3.4
31,350
5.8
29.9
15.8
4,412
14.1
12.7
313
29.0
2,945
-4.8
65.3
8,564
79.9
33.0
April 2017
20
 Motilal Oswal Financial Services
March 2017 Results Preview | Sector: Technology
NOTES
April 2017
21
 Motilal Oswal Financial Services
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March 2017 Results Preview | Sector: Technology
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22