June 2019 Results Preview | July 2019
June 2019 Results Preview | Sector: Technology
Technology
Margin resilience put to test
Revenue momentum not thwarted yet
Demand traction remains intact
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For 1QFY20, we expect our coverage universe’s revenue /EBITDA / PAT to grow
11% / 9% / 4%.
The order book going into the quarter, the velocity of deal signings, the early
indicators from Accenture’s earnings report and the commentaries by our
coverage universe all indicate that there is no visible slowdown in demand just
yet.
There are pockets of portfolios – such as capital markets, regional small banks
and automotive – facing challenging demand conditions. However, these are
likely to drive only marginal and not material deceleration in 1Q or FY20
revenue growth.
Expect INFO, TCS to lead sequential revenue growth across tier-I, MPHL in
tier-II
Company Name
Cyient
HCL Tech
Hexaware
Infosys
L&T Infotech
Mindtree
Mphasis
NIIT Tech
Persistent
Tata Elxsi
TCS
Tech Mahindra
In tier-I, we expect INFO and TCS to take charge of driving organic growth, as has
been the case in recent quarters.
HCLT’s purchases of IBM IPs are likely to contribute to revenue only from
2QFY20, as against the earlier expectation of a one-month contribution in the
first quarter. As a result, our revenue growth estimate is now down to 1.5% QoQ
CC (+14% YoY CC). Separately, we model flattish sequential revenue growth at
WPRO (in line with midpoint of the guidance) on the back of 1Q seasonality.
TECHM, too, appears to have had a seasonally soft start to the year, with
revenue estimated to decline by 0.5% QoQ in CC.
Among tier-II IT, we expect sanguine revenue traction: MPHL (3.5% QoQ CC) and
NITEC (2.6% QoQ CC) are expected to grow organically, while momentum at
HEXW (5% QoQ CC) is likely to be supported by its acquisition of Mobiquity.
Wage hikes seasonally drag margins in the first quarter of a fiscal. Having said
that, we also reminisce of some exceptions – currency had helped navigate the
pressures in 1QFY19, and weak demand in FY18 had led to altered/deferred
wage hike cycles in 1QFY18.
We expect the EBIT margin across the top-tier to shrink by 50-160bp, with the
contraction particularly pronounced (100bp+) at TCS, INFO and TECHM. TCS’
reported margin in 4QFY19 had ~70bp non-recurring charge.
The situation is no different for tier-II, where – barring MPHL, HEXW and ZENT –
we expect margins to contract by over 100bp for the remaining companies.
Margins seasonality compounded by supply pressures, rising attrition
Watch out for margin guidance, comments on demand traction
Considering the likelihood of a soft start to the year on the profitability front, we
believe INFO’s FY20 margin will likely be closer to the lower end of its 21-23%
Wipro
guided band.
Zensar
TCS has been citing that currency depreciation is a factor embedded in its
business model and budgeting for margins. That absent, the company’s stance
Ashish Chopra
– Research analyst
(Ashish.Chopra@MotilalOswal.com); +91 22
will be crucial.
on margins over the near term
6129 1530
Research Analyst: Anmol Garg
(Anmol.Garg@MotilalOswal.com); +91 22 7193 4271
/
Mohit Sharma
(Mohit.Sharma@MotilalOswal.com)
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.
July 2019
1
 Motilal Oswal Financial Services
June 2019 Results Preview | Sector: Technology
We would also watch out for the attrition rates this quarter, along with the
impact from visa expenses on profitability. As attrition rates have been high and
visas remain hard to come by, commentary on margins across the board may
shape the course for the sector’s FY20 earnings expectations and near-term
valuations.
Maintaining our bottom-up approach at current valuations; Prefer INFO,
TECHM
No company is calling out a secular slowdown, and the weak demand pockets
are unlikely to materially drag growth for the year. Earnings estimates, however,
have somewhat moderated across the board at current currency levels due to
the 1Q margin softness. With valuation multiples already running high (at the
upper half of historical band, if not at the higher end), upsides in such an
environment appear unlikely over the near term.
We continue with our bottom-up stance for sectoral picks, and prefer INFO and
TECHM in tier-I, and ZENT and CYL in tier-II. Over the short term, tactical
valuation catch-up play is an opportunity at MPHL.
Sales (INR M)
EBDITA (INR M)
Net Profit (INR M)
Jun-19 Var % YoY Var % QoQ Jun-19 Var % YoY Var % QoQ Jun-19 Var % YoY Var % QoQ
11,649
7.9
0.2
1,698
29.0
-3.1
1,255
52.1
-29.1
160,231
15.5
0.2
34,650
7.4
-3.7
24,234
0.8
-5.6
13,145
15.6
4.0
1,933
9.0
2.4
1,514
-1.3
9.3
218,509
14.2
1.4
49,662
-0.1
-3.6
36,572
-11.9
-10.3
24,852
15.3
0.0
4,686
11.8
-1.7
3,655
1.2
-3.5
18,445
12.5
0.3
2,784
20.5
-0.7
1,774
12.1
-10.6
20,892
14.8
3.2
3,400
6.2
-0.1
2,547
-1.4
-4.3
9,928
20.4
2.1
1,676
28.3
-4.9
1,065
24.1
-6.8
8,542
2.4
2.7
1,399
-0.1
-3.4
938
7.4
0.6
4,149
8.6
2.4
1,013
-4.9
2.8
703
-0.3
-1.5
383,227
11.9
0.8
97,838
7.9
-2.9
76,696
4.2
-5.6
87,404
5.6
-1.7
14,783
8.9
-9.8
10,582
17.9
-6.6
149,500
7.0
-0.4
32,471
33.4
4.6
24,561
33.4
-1.5
10,605
17.2
0.3
1,331
8.1
0.7
833
1.5
0.5
1,121,077 11.8
0.6
249,323
9.2
-2.5
186,929
3.9
-6.2
Exhibit 1:
Expected quarterly performance summary
Sector
Technology
CMP (INR)
RECO
Cyient
535
Buy
HCL Technologies
1,049
Neutral
Hexaware Tech.
385
Neutral
Infosys
731
Buy
L&T Infotech
1,840
Neutral
Mindtree
904
Neutral
MphasiS
990
Neutral
NIIT Tech.
1,349
Neutral
Persistent Systems
617
Buy
Tata Elxsi
898
Under Review
TCS
2,240
Neutral
Tech Mahindra
705
Buy
Wipro
282
Neutral
Zensar Tech
255
Buy
Sector Aggregate
Exhibit 2:
Dip in margins expected across the board, but revenue is not expected to decelerate meaningfully
Company
TCS
Infosys
Wipro
HCLT
TECHM
Aggregate
Company
TCS
Infosys
Wipro
HCLT
TECHM
Aggregate
1QFY20
5,509
3,122
2,077
2,303
1,257
14,268
1QFY20
25.5
22.7
18.5
21.6
16.9
22.5
Revenue (USD m)
1QFY19
YoY (%)
4QFY19
5,051
9.1
5,397
2,831
10.3
3,060
1,989
4.4
2,076
2,055
12.1
2,278
1,224
2.6
1,268
13,149
8.5
14,078
EBITDA Margin (%)
1QFY19
YoY (Bp)
4QFY19
26.5
(90.0)
26.5
26.0
(330.0)
23.9
17.2
140.0
19.0
23.2
(160.0)
22.5
16.4
50.0
18.4
23.5
(100.0)
23.4
QoQ (%)
2.1
2.0
0.1
1.1
(0.9)
1.4
QoQ (%)
(100)
(120)
(50)
(90)
(150)
(100)
1QFY20
383
219
150
160
87
999
1QFY20
77
37
25
24
11
173
1QFY19
343
191
140
139
83
895
1QFY19
74
42
18
24
9
167
Revenue (INR b)
YoY (%)
4QFY19
QoQ (%)
11.9
380
0.8
14.2
215
1.4
7.0
150
(0.4)
15.5
160
0.2
5.6
89
(1.7)
11.1
994
0.5
PAT (INR B)
Yoy (%)
4QFY19
QoQ (%)
4.2
81
(5.6)
(11.9)
41
(10.3)
33.4
25
(1.5)
0.8
26
(5.6)
17.9
11
(6.6)
3.7
184
(6)
Source: Company, MOFSL
July 2019
2
 Motilal Oswal Financial Services
June 2019 Results Preview | Sector: Technology
Exhibit 3:
Tier-II YoY revenue growth better than Tier I, although the gap reduces
Company
Persistent Systems
Hexaware
Mindtree
Mphasis
Cyient
NIIT Tech
Zensar
LTI
Aggregate
Company
Persistent Systems
Hexaware
Mindtree
Mphasis
Cyient
NIIT Tech
Zensar
LTI
Aggregate
1QFY20
122
189
265
302
166
142
151
357
1,695
1QFY20
16.4
14.7
15.1
16.3
14.6
16.9
12.0
18.9
16.0
Revenue (USD m)
1QFY19
YoY (%)
4QFY19
124
(1.3)
118
168
12.3
180
242
9.8
262
269
12.3
292
161
3.5
165
124
14.4
138
135
12.2
150
320
11.7
354
1,542
9.9
1,659
EBITDA margin (%)
1QFY19
YoY (Bp)
4QFY19
16.8
(40)
17.4
15.6
(90)
14.9
14.1
100
15.2
17.6
(130)
16.8
12.2
240
15.1
15.8
100
18.1
13.6
(160)
12.6
19.4
(60)
19.2
16.1
(10.0)
16.4
QoQ (%)
3.2
5.0
1.2
3.5
0.7
2.6
0.9
1.0
2.2
QoQ (%)
(100)
(20)
(10)
(50)
(50)
(120)
10
(30)
(50.0)
1QFY20
8.5
13.1
18.4
20.9
11.6
9.9
10.6
24.9
118.1
1QFY20
0.9
1.5
1.8
2.5
1.3
1.1
0.8
3.7
13.6
Revenue (INR b)
1QFY19
Yoy (%)
4QFY19
QoQ (%)
8.3
2.4
8.3
2.7
11.4
15.6
12.6
4.0
16.4
12.5
18.4
0.3
18.2
14.8
20.2
3.2
10.8
7.9
11.6
0.2
8.2
20.4
9.7
2.1
9.0
17.2
10.6
0.3
21.6
15.3
24.9
(0.0)
104.0
13.6
116.4
1.4
PAT (INR b)
1QFY19
Yoy (%)
4QFY19
QoQ (%)
0.9
7.4
0.9
0.6
1.5
(1.3)
1.4
9.3
1.6
12.1
2.0
(10.6)
2.6
(1.4)
2.7
(4.3)
0.8
53.9
1.9
(33.1)
0.9
24.1
1.1
(6.8)
0.8
0.8
0.8
1.3
3.6
1.2
3.8
(3.5)
12.7
7.1
14.6
(6.9)
Source: Company, MOFSL
Exhibit 4:
Demand holding up for now as deal wins and ramp-ups continue (CC revenue growth, QoQ %)
2QFY18
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
TCS
INFO
WPRO
HCLT
TECHM
Source: Company, MOFSL
2.0
2.3
1.5
0.0
3.0
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
Exhibit 5:
Pockets of weakness are likely to drive only marginal and not material deceleration in YoY growth
Revenue YoY CC (%)
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
9.9
TCS
INFO
10.8
WPRO
6.7
HCLT
12.5
TECHM
3.8
Source: Company, MOFSL
July 2019
3
 Motilal Oswal Financial Services
June 2019 Results Preview | Sector: Technology
Exhibit 6:
TCS drives incremental revenues, with INFO slowly catching up; Cross-currency headwind this quarter between 0-
40bp
TCS
200
150
100
50
0
-50
Infosys
Wipro
HCL Tech
Tech Mahindra
-
(10)
(20)
(30)
(40)
(50)
(60)
(40)
(50)
(30) (30) (30) (30)
(10)
(30)
-
(10)
(20)
(30)
(20)
(10)
Incremental revenue (USD m)
Source: Company, MOFSL
Exhibit 7:
Significant contraction in margins is anticipated across the board
1QFY18
28
24
20
16
12
TCS
Infosys
HCL Tech
Wipro
Tech Mahindra
Source: Company, MOFSL
2QFY18
25.5
22.7
21.6
18.5
16.9
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
Exhibit 8:
PSYS and CYL are struggling for revenue growth among tier-II, CYL on the verge of improvement
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
1QFY20
12.3
9.8
12.3
3.5
14.4
12.2
11.7
-1.3
PSYS
HEXW
MTCL
MPHL
CYL
NITEC
ZENT
LTI
Source: Company, MOFSL
July 2019
4
 Motilal Oswal Financial Services
June 2019 Results Preview | Sector: Technology
Exhibit 9:
1QFY20 currency highlights (INR)
Average
Closing
USD
69.56
69.03
Rates (INR)
EUR
GBP
78.2
89.4
78.5
87.6
AUD
48.7
48.3
USD
-1.3%
-0.2%
Change (QoQ)
EUR
GBP
AUD
-2.4%
-2.5%
-3.0%
1.1%
-3.3%
-1.4%
Source: Company, MOFSL
Change (QoQ)
GBP
AUD
-1.3%
-1.7%
-2.6%
-1.1%
Source: Company, MOFSL
Exhibit 10:
1QFY20 currency highlights (in USD)
Average
Closing
EUR
1.12
1.14
Rates (USD)
GBP
1.29
1.27
AUD
0.70
0.70
EUR
-1.1%
1.4%
Exhibit 11:
Relative performance—3m (%)
Nifty Index
110
105
100
95
MOSL Technology Index
Exhibit 12:
Relative performance—1Yr (%)
Nifty Index
127
119
111
103
95
MOSL Technology Index
Source: Bloomberg, MOFSL
Source: Bloomberg, MOFSL
Exhibit 13:
Comparative valuation
Sector / Companies
Cyient
HCL Technologies
Hexaware Tech.
Infosys
L&T Infotech
Mindtree
MphasiS
NIIT Tech.
Persistent Systems
TCS
Tata Elxsi
Tech Mahindra
Zensar Tech
Wipro
Sector Aggregate
CMP
(INR)
535
1,049
385
731
1,840
904
990
1,349
617
2,240
898
705
255
282
EPS (INR)
RECO
FY19 FY20E FY21E
Buy
43.4
48.3 51.6
Neutral
73.6
80.3 94.0
Neutral
19.3
20.2 24.1
Buy
36.6
37.0 44.0
Neutral
86.6
92.6 104.6
Neutral
44.8
50.2 60.8
Neutral
56.1
64.2 71.5
Neutral
67.0
75.1 86.2
Buy
44.0
53.3 60.2
Neutral
83.5
87.5 100.2
Under Review 46.6
48.6 57.5
Buy
48.2
53.0 60.2
Buy
13.8
16.3 19.1
Neutral
14.8
17.0 18.4
FY19
12.3
14.3
19.9
20.0
21.2
20.2
17.7
20.1
14.0
26.8
19.3
14.6
18.4
19.1
22.0
PE (x)
FY20E FY21E
11.1
10.4
13.1
11.2
19.1
16.0
19.8
16.6
19.9
17.6
18.0
14.9
15.4
13.8
18.0
15.6
11.6
10.2
25.6
22.4
18.5
15.6
13.3
11.7
15.7
13.3
16.6
15.4
21.1 18.4
FY19
18.7
25.7
26.5
25.0
34.6
24.3
20.0
21.4
15.6
35.4
34.5
22.0
17.3
17.4
25.6
ROE (%)
FY20E FY21E
18.8
18.2
24.6
25.7
24.0
25.5
24.9
29.0
29.4
26.8
23.3
24.6
22.3
22.1
20.8
20.9
16.9
17.6
36.7
41.6
26.1
22.0
22.7
23.9
17.7
18.1
18.3
20.6
27.2 28.5
EPS Growth (%)
FY19 FY20E FY21E
13.4 11.3
6.9
17.6
9.2
17.0
16.5
4.5
19.1
13.2
0.8
19.1
30.6
6.9
12.9
53.1 12.1
21.0
27.4 14.4
11.4
47.1 12.1
14.9
8.9 21.2
13.0
26.4
4.9
14.5
20.2
4.4
18.3
12.8
9.9
13.6
29.2 17.7
17.5
10.1 15.2
7.8
14.3
4.0 14.9
July 2019
5
 Motilal Oswal Financial Services
June 2019 Results Preview | Sector: Technology
Cyient
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
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 (%)
Valuation
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div yld (%)
14.7
2.7
10.0
2.3
13.0
2.4
8.7
2.3
11.6
2.2
7.6
2.3
10.9
2.0
6.0
2.7
2018
39.2
5.5
4.3
38.2
24.8
18.3
17.3
34.0
2019 2020E 2021E
46.2
6.4
4.9
43.4
11.6
18.7
17.8
30.0
49.8
7.3
5.3
48.3
11.3
18.8
17.5
26.9
55.6
8.8
5.7
51.6
6.9
18.2
17.0
29.1
CYL IN
113
59.4 / 0.9
821 / 520
-4/-24/-42
CMP: INR535
TP: INR700 (+31%)
Buy
208.9 232.1 257.2 284.0
We expect revenue to grow 0.7% QoQ CC to USD166m in 1QFY20.
Services revenue is expected to decline this quarter. DLM might
remain flattish due to a big contract being deferred.
Taking into consideration the cross-currency impact of 100bp, we
expect CYL to report a decline of 0.3% QoQ CC on a consol. basis.
EBIT margin is estimated to contract by 160bp QoQ to 11.2% due
to wage hikes and weak top-line growth. For the full year, we
expect an EBIT margin of 11.4%. We expect CYL to maintain its
full-year guidance for the margins, which should be driven by the
return in revenue traction, coupled with execution toward its
cost- and revenue-optimization plans.
Consequently, our PAT estimate of INR1,255m implies a 29.1%
sequential decline, led by lower operating income and other
income (major write-back is missing in this quarter).
The stock trades at 11.6x FY20E and 10.9x FY20E EPS. Maintain
Buy.
Key issues to watch for
Update on trajectory of top customer and aerospace.
Trajectory in Communications.
Outlook on investments and profitability.
Outlook for Rangsons.
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: MOFSL Estimates
1Q
161
-2.3
10,800
19.1
34.3
22.1
1,316
12.2
9.5
170
27.2
825
-30.1
-5.8
7.4
13,851
75.0
16.9
41.9
FY19
2Q
3Q
169
165
5.0
-2.2
11,870
11,876
23.0
20.8
34.5
35.0
20.8
20.3
1,627
1,749
13.7
14.7
11.3
12.4
568
-187
29.8
22.4
1,272
921
54.2
-27.6
14.0
-15.2
11.4
8.2
13,845
14,002
78.0
78.1
16.9
18.4
42.8
42.4
4Q
165
0.1
11,629
9.5
35.3
20.2
1,752
15.1
12.8
789
14.5
1,770
92.2
49.9
16.0
13,916
77.8
42.7
1QE
166
0.7
11,649
7.9
34.4
19.8
1,698
14.6
11.2
417
23.4
1,255
-29.1
52.1
11.4
13,916
78.0
42.7
FY20E
2QE
3QE
175
181
5.4
3.0
12,274
12,637
3.4
6.4
34.3
34.4
19.7
20.0
1,796
1,810
14.6
14.3
11.4
11.0
447
385
23.5
23.5
1,343
1,295
7.1
-3.6
5.6
40.6
12.2
11.7
14,316
15,116
78.0
76.0
42.7
42.7
(INR Million)
FY19E
FY20E
4QE
189
4.6
13,224
13.7
35.4
20.1
2,026
15.3
12.0
373
23.5
1,439
11.1
-18.7
13.0
15,616
77.0
42.7
660
8.6
46,175
17.9
34.8
20.8
6,444
14.0
11.5
1,340
22.6
4,788
11.6
43.4
13,916
711
7.8
49,783
7.8
34.6
19.9
7,330
14.7
11.4
1,622
23.5
5,331
11.3
48.3
15,616
July 2019
6
 Motilal Oswal Financial Services
June 2019 Results Preview | Sector: Technology
HCL Technologies
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
HCLT IN
1,361
1423.1 / 20.6
1190 / 920
-4/0/1
CMP: INR1,049
TP: INR1,200 (+14%)
Neutral
Financial Snapshot (INR b)
Y/E MAR
2018 2019 2020E 2021E
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 (%)
16.8
4.0
11.9
0.8
14.3
3.4
9.6
0.8
13.1
3.1
8.4
3.8
11.2
2.7
7.3
3.8
505.7 604.3 690.5 771.4
114.4 139.7 162.6 188.0
87.8 101.2 109.1 127.9
62.6
4.5
25.0
22.6
12.8
73.6
17.6
25.7
23.2
10.9
80.3
9.2
24.6
21.2
49.8
94.0
17.0
264.5 311.3 343.3 389.0
25.7
22.0
42.6
We expect HCL’s revenue to grow at 1.1% QoQ in USD terms and
at 1.5% QoQ CC. Revenue growth is partially limited by the delay
in IBM deal’s integration by a month (expected to accrue from
July 2019 v/s earlier anticipation of June 2019). This drives
moderation in our revenue estimate by USD52m (one-month
revenue from purchased IBM IPs).
We expect the EBIT margin to be around 18.4%, a contraction of
60bp QoQ, due to [1] investments in Mode-2, [2] ramp up of
multiple large deals which will yield low margins initially and [3]
expenses incurred for IBM’s large deal integration and likelihood
of revenues only from the next quarter.
PAT is expected to decline by 5.6% QoQ to INR24.2b.
The stock trades at 13.1x FY20E and 11.2x FY21E EPS. Maintain
Neutral.
Key issues to watch for
Outlook on margin and revenue growth for FY20.
Mode 1: Demand for IMS services and growth in BFSI vertical.
Mode 3: Amortization for large IBM deal, revenue growth rate.
Quarterly Performance
Y/E March
Revenue (USD m)
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
EBITDA (INRm)
EBITDA Margin (%)
EBIT Margin (%)
Other income
ETR (%)
Adjusted PAT
QoQ (%)
YoY (%)
EPS
Headcount
Util excl. trainees (%)
Attrition (%)
Fixed Price (%)
E: MOFSL Estimates
1Q
2,055
0.8
1,38,780
14.2
34.4
11.1
32,260
23.2
19.7
2,960
20.6
24,040
7.9
10.7
17.3
1,24,121
85.5
16.3
62.0
FY19
2Q
3Q
2,099
2,202
2.1
4.9
1,48,610 1,56,990
19.5
22.6
35.5
35.3
11.9
12.1
34,990
36,470
23.5
23.2
20.0
19.7
2,520
1,050
21.1
17.7
25,400
26,110
5.7
2.8
16.1
19.0
18.2
19.2
1,27,875 1,32,328
86.7
86.6
17.1
61.8
4Q
2,278
3.5
1,59,900
21.3
34.8
12.3
35,970
22.5
19.0
1,520
19.3
25,680
-1.6
15.2
18.9
1,37,965
85.4
17.7
63.7
1QE
2,303
1.1
1,60,231
15.5
33.2
11.6
34,650
21.6
18.4
570
19.3
24,234
-5.6
0.8
17.9
1,38,865
FY20E
2QE
3QE
2,469
2,531
7.2
2.5
1,72,850 1,77,159
16.3
12.8
35.1
36.1
11.7
11.6
40,356
43,293
23.3
24.4
18.5
19.7
1,087
573
19.3
19.3
26,705
28,660
10.2
7.3
5.1
9.8
19.7
21.1
1,44,465 1,46,265
4QE
2,575
1.7
1,80,234
12.7
36.1
11.6
44,276
24.6
19.9
678
19.3
29,494
2.9
14.9
21.7
1,48,815
(INR Million)
FY19
FY20
8,633
9,878
10.1
14.4
6,04,280 6,90,473
19.5
14.3
35.0
35.2
11.9
11.6
1,39,690 1,62,575
23.1
23.5
19.6
19.2
8,050
2,907
19.6
19.3
1,01,230 1,09,093
15.3
7.8
73.6
80.3
1,37,965 1,48,815
83.7
85.1
July 2019
7
 Motilal Oswal Financial Services
June 2019 Results Preview | Sector: Technology
Hexaware Technologies
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Financial Snapshot (INR b)
Y/E DEC
2017 2018
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 (%)
23.2
5.8
16.4
1.0
19.9
4.8
14.3
2.1
19.1
4.3
12.9
2.5
16.0
3.9
10.4
2.9
39.4
6.6
5.0
16.6
21.2
66.0
26.9
24.6
23.5
46.5
7.3
5.8
19.3
16.5
79.7
26.5
24.7
40.2
HEXW IN
302
114.7 / 1.7
557 / 295
7/6/-28
CMP: INR385
TP: INR370 (-4%)
Neutral
2019 2020E
56.4
8.4
6.4
20.2
4.5
89.0
24.0
24.2
46.8
68.8
10.2
7.8
24.1
19.1
99.9
25.5
25.8
44.3
We expect USD revenue to grow at 5.0% QoQ, with cross-
currency headwind of 10bp.
HEXW has guided for organic revenue growth of 12-14% for CY19.
It recently completed acquisition of Mobiquity, a digital services
firm on June 14 and will recognize revenue for a couple of weeks
in the quarter.
We expect adj. EBIT margin at 14.1% (not including transaction
costs of Mobiquity), which is 20bp lower QoQ, primarily on
account of supply situations and higher visa costs.
Our PAT estimate for the quarter is INR1,514m, up 9.3% from the
previous quarter, due to higher top line and other income.
HEXW trades at 19.1x of CY19E and 16.0x CY20E earnings.
Neutral.
Key issues to watch for
2QCY19 deals TCV.
Commentary on acquisitions and digital growth.
Margin outlook given recent commentary on supply issues.
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: MOFSL Estimates
1Q
162.2
3.9
10,490
9.2
32.9
17.4
1,626
15.5
14.1
204
20.0
1,343
10.9
17.9
4.5
14,619
81.3
13.4
34.6
CY18
2Q
168.3
3.8
11,367
15.6
31.8
16.2
1,773
15.6
14.0
327
20.0
1,534
14.2
25.3
5.1
15,357
78.2
14.4
34.8
3Q
171.1
1.7
12,096
21.8
32.8
16.0
2,023
16.7
15.4
264
19.1
1,722
12.3
21.3
5.7
16,050
79.0
15.7
35.1
4Q
176.1
2.9
12,524
24.6
31.6
16.3
1,913
15.3
14.0
-215
19.9
1,234
-28.3
1.9
4.1
16,205
78.7
17.0
36.1
1Q
180.0
2.2
12,640
20.5
30.2
15.3
1,887
14.9
13.8
-42
18.4
1,385
12.2
3.1
4.6
16,492
79.0
18.2
36.6
CY19E
2QE
3QE
189.0
213.2
5.0
12.8
13,145
14,925
15.6
23.4
30.7
31.1
16.0
15.8
1,933
2,278
14.7
15.3
13.6
14.2
107
83
20.0
20.0
1,514
1,767
9.3
16.7
-1.3
2.6
5.0
5.8
16,975
18,972
81.5
81.5
0.0
0.0
38.8
39.7
(INR Million)
CY18E
CY19E
4QE
223.6
4.9
15,650
25.0
30.4
15.8
2,280
14.6
13.6
30
20.0
1,723
-2.5
39.6
5.7
19,817
81.5
0.0
40.2
678
11.6
46,477
17.9
32.2
16.5
7,335
15.8
14.4
580
19.7
5,833
16.8
19.3
16,205
80.9
35.2
806
18.9
56,360
21.3
30.6
15.7
8,378
14.9
13.8
178
19.7
6,389
9.5
20.2
19,817
83.0
38.9
July 2019
8
 Motilal Oswal Financial Services
December 2019 Results Preview | Sector: Technology
June 2019
June 2018 Results Preview | Sector: Technology
Infosys
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
INFO IN
4,571
3191.7 / 46.3
774 / 597
-1/-1/0
CMP: INR731
TP: INR840 (+15%)
Buy
Financial Snapshot (INR b)
Y/E MAR
2018 2019 2020E 2021E
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 (%)
22.6
5.1
15.7
2.2
20.0
4.9
13.7
2.9
19.8
5.0
13.0
3.1
16.6
4.6
11.0
3.6
705.2
190.1
161.0
32.4
3.1
144
24.1
20.3
126.2
826.8
208.9
162.1
36.6
13.2
149.2
25.0
21.7
66.1
904.8 1,012.7
215.5
157.8
37.0
0.8
145.5
24.9
22.2
105.6
251.5
187.3
44.0
19.1
158.1
29.0
25.8
59.0
Despite the base effect of large deal ramp-up (Communications)
in the previous quarter, INFY is estimated to deliver 2.3% QoQ CC
growth. Our estimate is based on the deal wins and the revenue
coming from the Stater NV acquisition.
While 1Q is seasonally strong, the 4Q base from Communications
deal ramp-up and the concerns in regional bank demand peg
estimate on the lower side, still enough for double-digit growth in
CC terms.
Our USD revenue growth estimate is 2%, with 30bp headwind
from cross currencies QoQ.
We expect the EBIT margin to correct by 130bp QoQ to 20.1%,
with wage hike (100bp), visa cost and last leg of back-ended
investments in localization weighing on its profitability.
Our PAT estimate is INR36.5b (-10.3% QoQ, -12% YoY).
The stock trades at 19.8x/16.6x FY20/21 earnings estimate.
Buy.
Key issues to watch for
Outlook on margins ramp-up over the course of FY20.
Deal wins TCV on the back of a couple of healthy quarters.
Attrition rate.
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
Util excl. trainees (%)
Attrition (%)
Offshore rev. (%) (IT Serv)
Fixed Price (%)
E: MOSL Estimates
1Q
2,831
0.9
191,280
12.0
38.0
12.0
49,730
26.0
23.7
7,260
26.2
41,520
12.5
19.0
9.5
209,905
86.1
23.0
51.8
FY19E
2Q
3Q
2,921
2,987
3.2
2.3
206,090 214,000
17.3
20.3
37.8
37.2
11.8
11.9
53,580
54,100
26.0
25.3
23.7
23.0
7,390
7,530
27.0
26.8
41,100
36,100
-1.0
-12.2
10.3
-2.4
9.4
8.3
217,739 225,501
86.0
84.2
22.2
19.9
52.0
53.0
4Q
3,060
2.4
215,390
19.1
36.2
12.2
51,490
23.9
21.4
6,650
22.8
40,780
13.0
10.5
9.4
228,123
82.7
20.4
53.0
1QE
3,122
2.0
218,509
14.2
34.9
12.2
49,662
22.7
20.1
6,199
27.0
36,572
-10.3
-11.9
8.5
227,989
86.6
FY20E
2QE
3QE
3,217
3,268
3.1
1.6
225,181 228,738
9.3
6.9
35.9
36.1
12.4
11.8
52,937
55,712
23.5
24.4
21.0
21.8
5,744
5,820
27.0
27.0
38,636
40,720
5.6
5.4
-6.0
12.8
9.1
9.6
232,361 236,211
88.6
88.4
4QE
3,320
1.6
232,387
7.9
36.4
11.7
57,220
24.6
22.2
5,911
27.0
41,892
2.9
2.7
9.8
240,164
88.5
20.4
53.0
(INR Million)
FY19
FY20E
11,799
7.9
826,760
17.2
37.3
12.0
208,890
25.3
22.9
28,830
25.8
162,180
1.2
36.6
228,123
85.4
12,926
9.6
904,815
9.4
35.8
12.0
215,530
23.8
21.3
23,674
27.0
157,821
-2.7
37.0
240,164
88.0
July 2019
9
 Motilal Oswal Financial Services
June 2019 Results Preview | Sector: Technology
LTI
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
LTI IN
172
319.3 / 4.6
1990 / 1438
3/-4/-2
CMP: INR1,840 TP: INR1,920 (+4%)
Neutral
Financial Snapshot (INR b)
Y/E MAR
2018 2019 2020E 2021E
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 (%)
25.3
7.6
22.2
0.8
19.4
6.0
14.5
1.7
18.1
4.8
12.4
1.1
16.1
3.9
10.3
1.2
73.1
12.5
11.6
66.3
19.6
33.1
31.2
21.2
94.5 105.8 123.0
18.8
15.2
86.6
30.6
34.6
41.5
32.3
21.4
16.2
6.9
29.4
34.8
20.0
24.9
18.3
12.9
26.8
32.7
20.0
92.6 104.6
We expect organic growth to be muted at 1% QoQ CC and 13%
YoY CC. There is little to no cross currency impact expected this
quarter.
Organic growth will be dragged down by softness in BFSI (29% of
revenue) led by weak spending from top client. This is expected
to reverse starting 2QFY20.
We expect margins to shrink by 180bp QoQ to 15.9% due to [1]
wage hikes [2] S&M investments and [3] higher visa costs.
Our PAT estimate is INR3.6b (-3.5% QoQ), led by lower
operational income.
LTI trades at 18.1x FY20E and 16.1x FY20E earnings.
Neutral.
220.6 279.6 350.0 429.5
Key issues to watch for
Outlook for margin for FY20.
Outlook in top client.
Growth in digital revenue.
Quarterly Performance
Y/E March
Revenue (USD m)
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
EBITDA
EBITDA Margin (%)
EBIT Margin (%)
Other income
ETR (%)
Adj PAT
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Util incl. trainees (%)
Attrition (%)
Offshore rev. (%)
E: MOFSL Estimates
1Q
320
3.5
21,557
29.0
35.2
15.7
4,190
19.4
17.7
1,036
25.5
3,612
6.9
35.1
20.6
25,150
79.7
15.1
53.2
FY19
2Q
3Q
329
347
2.7
5.6
23,312
24,729
33.1
31.3
35.1
34.8
14.6
14.2
4,790
5,090
20.5
20.6
19.0
19.1
943
288
25.4
25.2
4,003
3,755
10.8
-6.2
46.6
32.7
22.9
21.5
26,414
27,513
80.4
82.1
15.3
16.5
52.4
52.2
4Q
354
2.0
24,860
24.2
34.0
14.8
4,765
19.2
17.7
648
24.9
3,787
0.9
12.0
21.6
28,169
80.1
17.5
52.2
1QE
357
1.0
24,852
15.3
33.7
14.8
4,686
18.9
15.9
934
25.0
3,655
-3.5
1.2
20.9
28,609
81.0
0.0
53.3
FY20E
2QE
3QE
370
385
3.5
4.1
25,875
26,934
11.0
8.9
34.5
34.7
14.8
14.8
5,110
5,360
19.7
19.9
16.7
16.9
876
809
25.0
25.0
3,907
4,020
6.9
2.9
-2.4
7.1
22.3
23.0
29,249
30,919
82.0
0.0
0.0
0.0
53.7
0.0
4QE
402
4.4
28,123
13.1
36.8
14.8
6,200
22.0
19.0
808
25.0
4,624
15.0
22.1
26.4
32,139
0.0
0.0
0.0
(INR Million)
FY19E
FY20E
1,349
19.1
94,458
29.3
34.7
14.8
18,835
19.9
18.4
2,915
25.3
15,157
30.5
86.6
28,169
8060.0
52.5
1,513
12.2
1,05,784
12.0
35.0
14.8
21,356
20.2
17.2
3,427
25.0
27,752
83.1
92.6
32,139
80.5
53.1
July 2019
10
 Motilal Oswal Financial Services
June 2019 Results Preview | Sector: Technology
MindTree
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
MTCL IN
168
148.5 / 2.2
1182 / 753
-7/-5/-20
CMP: INR904
TP: INR 970 (+7%)
Neutral
Financial Snapshot (INR b)
Y/E MARCH
2018 2019 2020E 2021E
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 (%)
30.8
5.8
20.0
1.2
20.1
4.5
13.0
3.7
18.0
3.9
10.7
2.0
14.9
3.4
8.7
2.3
54.6
7.4
4.8
29.3
17.6
17.9
20.6
37.6
70.2
10.6
7.3
44.8
53.1
24.3
29.5
73.6
79.1
11.6
8.3
50.2
12.1
23.3
28.2
35.8
90.4
13.8
10.1
60.8
21.0
155.9 201.3 229.8 265.1
24.6
29.8
34.6
We expect 1QFY20 revenue growth to be soft at 1.5% QoQ CC
due to an understandable distraction amid L&T’s acquisition of
majority stake in the company. With cross currency impact of -
30bp, we expect dollar revenue growth at 1.2% QoQ.
EBIT margin is expected to further contract by 150bp QoQ (after
70bp in previous quarter) due to investments in talent and rising
sub-contractors. We expect EBIT margin for 1Q to be 11.4%.
Consequently, we expect EBIT margin to be 12.9% for FY20, only
marginally ahead of FY19.
Our PAT estimate for the quarter is INR1.8b, which implies a
sequential decline of 11%, mainly due to lower profitability.
The stock trades at 18.0x FY20E and 14.9x FY21E earnings.
Neutral.
Key issues to watch for
Update on the weak performing Retail and BFS verticals.
Margin trajectory, going forward, given expected improvement
in organic growth next year too.
Deal wins during the quarter and growth in Digital.
Quarterly Performance
Y/E March
Revenue (USD m)
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
EBITDA
EBITDA Margin (%)
EBIT Margin (%)
Other income
ETR (%)
Adj. PAT
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Util incl. trainees (%)
Attrition (%)
Fixed Price (%)
E: MOSL Estimates
1Q
242
6.8
16,395
27.1
36.6
22.5
2,310
14.1
11.5
279
26.8
1,582
-6.7
70.0
9.6
18,990
75.4
12.2
56.4
FY19
2Q
3Q
246
252
2.0
2.1
17,554
17,872
31.8
29.7
36.4
37.7
21.0
21.8
2,699
2,833
15.4
15.9
13.1
13.6
524
-200
26.8
22.5
2,063
1,722
30.4
-16.5
102.8
54.5
12.6
10.6
19,402
19,908
74.5
74.6
13.0
13.4
56.1
56.0
4Q
262
4.2
18,394
25.6
37.5
22.2
2,803
15.2
12.9
290
26.5
1,984
15.2
17.0
12.1
20,204
75.3
14.2
55.9
1QE
265
1.2
18,445
12.5
36.6
21.5
2,784
15.1
11.4
314
26.5
1,774
-10.6
12.1
10.8
20,304
77.0
FY20E
2QE
277
4.3
19,237
9.6
37.5
21.0
3,169
16.5
12.9
267
26.5
2,015
13.6
-2.3
12.3
21,004
76.0
3QE
284
2.6
19,741
10.5
37.9
21.0
3,342
16.9
13.4
289
26.5
2,152
6.8
24.9
13.1
21,554
76.0
4QE
291
2.4
20,212
9.9
38.3
20.8
3,543
17.5
14.0
309
26.5
2,308
7.3
16.3
14.1
21,954
76.0
(INR Million)
FY19
FY20E
1,001
18.3
70,215
28.5
37.0
21.9
10,645
15.2
12.8
893
25.5
7,351
54.5
44.8
20,204
74.9
1,116
11.5
77,636
10.6
37.6
21.1
12,838
16.5
12.9
1,180
26.5
8,248
12.2
50.2
21,954
76.2
July 2019
11
 Motilal Oswal Financial Services
June 2019 Results Preview | Sector: Technology
Mphasis
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
MPHL IN
193
184.5 / 2.7
1278 / 855
0/-10/-21
CMP: INR990
TP: INR1,070 (+8%)
Neutral
Financial Snapshot (INR b)
Y/E MAR
2018 2019 2020E 2021E
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 (%)
22.2
3.4
15.8
2.0
17.4
3.5
12.7
8.0
15.2
3.0
10.4
2.9
13.7
2.5
8.3
2.9
65.5
10.6
8.5
44.0
13.2
283.6
14.6
13.8
45.4
77.3
13.2
10.7
56.1
27.4
281.9
20.0
18.4
140.6
87.7
15.1
12.4
64.2
14.4
327.3
22.3
20.8
43.6
100.2
17.4
13.8
71.5
11.4
384.6
22.1
21.3
39.2
Strong growth in Direct channel, continued recovery in HP
channel and strong traction from Blackstone portfolio are
expected to drive 3.6% QoQ CC growth in 1QFY20.
Cross-currency headwind of 10bp would push USD revenue
growth to 3.5% QoQ.
We expect EBIT margin to marginally dip by 40bp led by visa cost
and investments in first phase of the year. Impact from currencies
is minimal for MPHL due to hedge gains/losses that are captured
in the top line.
Our PAT estimate is INR2.5b (-4.3% QoQ), despite higher
operating profits QoQ, mainly due to lower other income and
higher ETR expectation.
The stock trades at 15.2x FY20E and 13.7x FY21E EPS.
Neutral.
Key issues to watch for
Outlook for Digital Risk.
Comments on DXC channel and potential pricing risk.
Traction in Direct International channel and the Blackstone
portfolio.
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: MOFSL Estimates
1Q
269
1.7
18,202
18.5
28.9
11.2
3,201
17.6
16.6
449
24.7
2,583
3.0
38.0
13.4
22,566
302
27.4
26.5
FY19
2Q
3Q
276
283
2.6
2.6
19,149 19,710
19.3
18.7
28.1
27.9
10.7
11.2
3,329
3,306
17.4
16.8
16.4
15.8
467
499
24.5
24.5
2,709
2,780
4.9
2.6
37.0
29.3
14.0
14.4
23,478 24,215
912
737
28.3
29.0
24.6
24.1
4Q
292
3.2
20,250
16.1
26.8
10.0
3,404
16.8
15.8
332
24.5
2,662
-4.2
6.2
14.3
24,485
270
28.0
23.0
1QE
302
3.5
20,892
14.8
27.7
11.5
3,400
16.3
15.4
263
26.0
2,547
-4.3
-1.4
13.2
24,165
-320
0.0
0.0
FY20E
2QE
310
2.9
21,722
13.4
28.5
11.0
3,792
17.5
16.6
1,006
26.0
3,387
33.0
25.0
17.6
24,620
455
0.0
0.0
3QE
317
2.1
22,111
12.2
28.0
11.0
3,759
17.0
16.2
452
26.0
2,954
-12.8
6.3
15.3
25,425
805
0.0
0.0
4QE
329
3.8
23,005
13.6
29.0
11.0
4,146
18.0
17.2
787
26.0
3,487
18.1
31.0
18.1
26,330
905
23.0
(INR Million)
FY19
FY20E
1,119
13.1
77,310
18.1
27.9
10.8
13,239
17.1
16.1
1,747
23.7
10,733
26.2
56.1
24,485
2221
28.0
24.0
1,258
12.5
87,731
13.5
28.3
11.1
15,097
17.2
16.4
2,508
26.0
12,374
15.3
64.2
26,330
1845
July 2019
12
 Motilal Oswal Financial Services
June 2019 Results Preview | Sector: Technology
NIIT Technologies
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
NITEC IN
61
83.4 / 1.2
1425 / 1031
3/7/11
CMP: INR1,349
TP: INR1,380 (+2%)
Neutral
Financial Snapshot (INR b)
Y/E MARCH
2018 2019 2020E 2021E
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 (%)
29.6
4.7
15.0
1.1
20.1
4.0
11.3
1.1
18.0
3.5
10.1
1.7
15.7
3.1
8.5
1.9
29.9
5.0
2.8
45.6
19.8
16.2
16.2
32.9
36.8
6.5
4.1
67.0
47.1
21.4
20.2
22.4
42.1
7.3
4.6
75.1
12.1
20.8
20.3
30.6
47.6
8.2
5.3
86.2
14.9
20.9
20.2
30.1
288.5 337.0 384.4 439.5
We expect growth momentum from previous quarter to continue
in 1QFY20 with strong deal signings and pipeline providing near-
term growth visibility. We expect growth 2.9% QoQ CC in 1QFY20.
Cross-currency headwinds of 30bp will result in 2.6% QoQ growth
in USD terms.
With deal wins abnormally high in the previous quarters, NITEC is
braced for mid-teens YoY CC revenue growth.
We expect EBIT margins to slightly tapper off led by wage
increase, visa cost, INR appreciation and normalization of
utilization levels. Our EBIT margin estimate for the quarter stands
at 13.8% (-120bp QoQ).
Our PAT estimate is INR1064m (-6.8% QoQ), primarily led by a
contraction in margins and higher ETR expectations.
The stock trades at 18x FY20E and 15.7x FY21E earnings.
Neutral.
Key issues to watch for
Traction in Digital and the international business.
Progress on development of strategy under new leadership.
Deal wins and outlook for the year.
Quarterly Performance (IND-AS)
Y/E March
(Consolidated)
Rev. (USD m) Ex. forex & bought outs
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
EBITDA (INRm)
EBITDA Margin (%)
EBIT Margin (%)
Other income
ETR (%)
Minority Interest
PAT
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Util excl. trainees (%)
Attrition (%)
Offshore rev. (%)
Fixed Price (%)
E: MOFSL Estimates
1Q
124
1.7
8,249
16.4
34.1
18.2
1,307
15.8
12.1
209
24.9
46.0
858
-0.3
67.3
14.0
9,764
80.1
10.1
36.0
47.0
FY19
2Q
131
5.3
9,074
23.1
35.0
17.0
1,634
18.0
14.5
215
23.7
49.0
1,118
30.3
66.6
18.2
10,025
80.4
10.8
36.0
45.0
3Q
135
3.0
9,717
28.4
35.4
16.8
1,805
18.6
15.3
5
29.7
49.0
1,002
-10.4
32.4
16.3
10,144
79.0
11.7
35.0
47.0
4Q
138
2.3
9,722
23.3
35.5
17.4
1,763
18.1
15.0
47
21.2
44.0
1,143
14.1
32.8
18.6
10,263
79.3
11.7
35.0
47.0
1QE
142
2.6
9,928
20.4
34.2
17.3
1,676
16.9
13.8
94
24.0
47.0
1,065
-6.8
24.1
17.3
10,263
82.0
FY20E
2QE
3QE
147
152
4.1
3.2
10,379 10,706
14.4
10.2
34.6
34.7
17.3
17.3
1,791
1,864
17.3
17.4
14.2
14.4
76
86
24.0
27.5
47.3
46.8
1,134
1,137
6.5
0.2
1.5
13.5
18.4
18.5
10,693 10,993
79.0
79.0
4QE
157
3.4
11,066
13.8
35.1
17.3
1,972
17.8
14.9
97
24.0
46.3
1,282
12.7
12.1
20.8
11,393
82.0
(INR Million)
FY19
FY20E
528
13.9
36,762
22.9
35.0
17.3
6,509
17.7
14.3
476
24.9
188.0
4,121
47.1
67.0
10,263
79.7
35.2
598
13.3
42,079
14.5
34.7
17.3
7,303
17.4
14.4
353
24.9
187.3
4,618
12.1
75.1
11,393
82.0
34.4
July 2019
13
 Motilal Oswal Financial Services
June 2019 Results Preview | Sector: Technology
Persistent Systems
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
PSYS IN
80
49.1 / 0.7
915 / 533
6/-12/-36
CMP: INR617
TP: INR780 (+27%)
Buy
Financial Snapshot (INR b)
Y/E MARCH
2018 2019 2020E 2021E
Sales
EBITDA
Adj. PAT
Adj. EPS (INR)
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
15.3
2.2
7.8
1.6
14.0
2.1
6.0
1.8
11.6
1.9
5.3
2.6
10.2
1.7
4.1
2.6
30.3
4.7
3.2
40.4
7.2
16.0
15.2
24.8
33.7
6.0
3.6
44.0
8.9
15.6
14.1
42.1
36.0
6.3
4.1
53.3
21.2
16.9
14.7
70.1
40.1
7.0
4.6
60.2
13.0
361.6
17.6
15.5
26.6
We expect USD3m increment in IP revenue in 1Q. Our estimate
for IP revenue stands at USD28.9m.
We expect Services revenue growth to be soft at 0.5% QoQ in
dollar terms. As a result, 1Q revenue is estimated to grow by 3.2%
QoQ in USD terms.
We expect a 130bp contraction in margins. Our margin estimate
for 1Q stands at 11.6%.
Consequently, PAT estimate for the quarter is INR938m, flattish
QoQ (-60bp), primarily because of lower operational income.
The stock trades at 11.6x FY20E and 10.2x FY21E earnings.
Buy
.
273.8 298.7 320.8
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 in Digital.
Outlook on sustainable profit margins in the near-to-medium
term.
Quarterly Performance (IFRS)
Y/E March
(Consolidated)
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: MOFSL Estimates
1Q
123.6
5.7
8,343
10.9
14.6
35.6
18.8
1,400
16.8
12.0
187
26.4
873
18.5
16.3
10.9
8,902
80.7
14.8
27.4
FY19
2Q
118.2
-4.3
8,356
0.2
9.8
35.3
18.0
1,436
17.2
12.4
231
30.5
881
0.9
6.7
11.0
9,302
81.9
15.4
25.6
3Q
120.8
2.2
8,642
3.4
9.1
38.2
18.3
1,703
19.7
15.1
-12
29.2
917
4.1
0.1
11.5
9,530
82.1
25.0
4Q
118.3
-2.1
8,318
-3.8
10.5
36.8
19.4
1,448
17.4
12.9
224
28.0
933
1.7
26.5
10.6
9,962
79.7
21.6
1QE
122.0
3.2
8,542
2.7
2.4
36.5
19.6
1,399
16.4
11.6
299
27.5
938
0.6
7.4
12.1
10,226
80.0
23.7
FY20E
2QE
126.9
4.0
8,881
4.0
6.3
36.8
19.8
1,465
16.5
11.9
253
27.5
953
1.5
8.1
12.3
10,280
82.0
23.2
3QE
132.1
4.2
9,249
4.2
7.0
38.6
19.9
1,727
18.7
14.3
263
27.5
1,150
20.7
25.4
14.9
10,394
82.0
24.9
4QE
132.8
0.5
9,298
0.5
11.8
38.2
20.1
1,684
18.1
13.1
264
27.5
1,075
-6.5
15.3
13.9
10,558
82.0
23.4
(INR Million)
FY19E
FY20E
481
2.2
33,659
11.0
36.5
18.7
5,987
17.8
13.1
631
28.6
3,605
11.6
44.0
9,962
82.9
24.9
514
6.8
35,970
6.9
37.6
20.1
6,274
17.4
12.8
1,080
27.5
4,116
14.2
53.3
10,558
80.8
23.8
July 2019
14
 Motilal Oswal Financial Services
June 2019 Results Preview | Sector: Technology
Tata Elxsi
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
TELX IN
62
55.9 / 0.8
1492 / 822
3/-23/-45
CMP: INR898
Under Review
Financial Snapshot (INR b)
Y/E MARCH
2018 2019 2020E 2021E
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 (%)
24.0
7.8
15.0
1.1
20.0
6.1
12.2
1.3
19.1
4.2
10.4
1.9
16.2
3.1
8.3
1.9
13.9
3.5
2.4
38.7
37.7
118.6
37.2
37.2
31.1
16.0
4.2
2.9
46.6
20.2
34.5
34.5
32.3
17.4
4.4
3.0
48.6
4.4
26.1
39.1
44.6
20.0
5.0
3.6
57.5
18.3
22.0
33.0
37.7
Revenue growth on a YoY basis had picked up from 12.5% in
1QFY18 to 17.8% in 3QFY19 (also aided by depreciation of INR).
This changed, led by weakness in top client, to 7.9% YoY in
4QFY19. We expect it to marginally improve by 70bp to 8.6% YoY
in INR terms in 1QFY20.
EBITDA margin is expected to marginally improve by 10bp to
24.4%.
PAT is expected to decline sequentially by 1.5% due to lower
other income.
The stock trades at 19.1x
FY20E
and 16.2x FY21E earnings.
151.4 221.7 300.9
Key issues to watch for
Addition of new customers and subsequent realization.
JLR’s contribution to revenue.
Outlook on growth and profitability for the year.
Consolidated - Quarterly Earning Model
Y/E March
Net Sales
YoY Change (%)
Total Expenditure
EBITDA
Margins (%)
Depreciation
Other Income
PBT before EO expense
PBT
Tax
Rate (%)
Reported PAT
Adj PAT
YoY Change (%)
Margins (%)
E: MOFSL Estimates
1Q
3,820
18.2
2,755
1,065
27.9
61
78
1,083
1,083
378
34.9
705
705
41.7
18.5
FY19
2Q
3Q
4,028
4,070
17.7
17.8
2,961
3,037
1,067
1,033
26.5
25.4
61
62
233
-27
1,240
944
1,240
944
418
284
33.7
30.1
822
660
822
660
43.6
5.1
20.4
16.2
4Q
1QE
4,051
4,149
7.9 8.6
3,066
3,136
985
1,013
24.3
24.4
67
68
150
109
1,068
1,053
1,068
1,053
355
351
33.2
33.3
713
703
713
703
1.4
-0.3
17.6
16.9
FY20E
2QE
4,273
6.1
3,292
981
23.0
69
109
1,021
1,021
340
33.3
681
681
-17.1
15.9
3QE
4,402
8.1
3,286
1,116
25.3
70
109
1,154
1,154
384
33.3
770
770
16.7
17.5
4QE
4,534
11.9
3,261
1,273
28.1
71
109
1,310
1,310
436
33.3
874
874
22.6
19.3
(INR Million)
FY19
FY20E
15,969
15.2
11,819
4,150
26.0
251
435
4,334
4,334
1,434
33.1
2,900
2,900
20.2
18.2
17,357
8.7
12,975
4,382
25.2
278
435
4,539
4,539
1,512
33.3
3,028
3,028
4.4
17.4
July 2019
15
 Motilal Oswal Financial Services
June 2019 Results Preview | Sector: Technology
TCS
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
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 (%)
Valuation
P/E (x)
P/BV (x)
EV/EBITDA(x)
Div. yield (%)
33.9
9.8
25.1
3.0
26.6
9.2
20.2
3.3
25.6
9.6
19.3
2.9
22.4
9.0
16.7
3.2
2018
325.2
258.3
66.0
-1.0
228.3
29.4
28.8
101.5
2019 2020E 2021E
395.1
316.4
83.5
26.4
244.1
35.4
34.5
88.8
418.1
328.4
87.5
4.9
233.7
36.7
35.8
74.5
481.5
375.9
100.2
14.5
247.9
41.6
40.6
71.1
1,231.0 1,464.6 1,592.5 1,782.9
TCS IN
3,941
8404.2 / 121.9
2291 / 1784
2/6/9
CMP: INR 2,240
TP: INR2,130 (-5%)
Neutral
We expect TCS to deliver revenue growth rate of 2.5% QoQ CC
(10.8% YoY CC). Most verticals for TCS are doing well; there may
be a few pockets of weakness in BFS, which will be partially offset
by growth in Insurance.
We expect USD revenue growth of 2.1% QoQ.
Our EBIT margin estimate at 24.2% is ~150bp lower QoQ
(excluding the 60bp adjustment for an one-time expense of
electoral fund transfer in last quarter). TCS will incur higher
expenses due to wage hike (200bp), which is expected to be
partially offset by operational efficiency gains.
Our PAT estimate of INR76.7b is lower QoQ by 5.6% due to lower
operating margin.
Neutral.
Key issues to watch for
Outlook and visibility for double-digit growth in FY20.
Commentary on BFS.
Trajectory of margins amid rising sub-contractor expenses and a
low base in terms of start to FY20.
TCS 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: MOFSL Estimates
1Q
5,051
1.6
3,42,610
15.8
42.5
16.1
90,710
26.5
25.0
12,250
24.7
73,570
6.6
23.8
19.2
4,00,875
4.1
11.7
FY19
FY20E
2Q
3Q
4Q
1QE
2QE
3QE
4QE
5,215
5,250
5,397
5,509
5,659
5,747
5,870
20,913
22,785
3.2
0.7
2.8
2.1
2.7
1.6
2.1
9.6
9.0
3,68,540 3,73,380 3,80,100 3,83,227 3,96,111 4,02,312 4,10,900 14,64,630 15,92,550
20.7
20.8
18.5
11.9
7.5
7.7
8.1
19.0
8.7
43.6
42.9
42.9
41.7
42.1
42.3
42.5
43.0
42.1
15.7
15.9
16.4
16.1
16.0
15.8
15.5
16.0
15.9
1,02,780 1,00,830 1,00,730
97,838 1,03,109 1,06,499 1,10,696 3,95,050 4,18,142
27.9
27.0
26.5
25.5
26.0
26.5
26.9
27.0
26.3
26.5
25.6
25.1
24.2
24.7
25.2
25.7
25.6
25.0
7,300
11,630
11,650
9,264
8,930
9,812
10,980
42,830
38,986
23.2
24.1
24.5
24.5
24.5
24.5
24.5
24.0
24.5
80,380
81,210
81,260
76,696
80,382
83,636
87,696 3,16,420 3,28,409
9.3
1.0
0.1
-5.6
4.8
4.0
4.9
24.7
24.3
17.7
4.2
0.0
3.0
7.9
22.5
3.8
21.0
21.6
21.7
20.4
21.4
22.3
23.4
83.5
87.5
4,11,102 4,17,929 4,24,285 4,26,678 4,38,511 4,44,048 4,24,285 4,24,285 4,53,447
3.7
1.8
2.4
2.1
2.7
1.6
2.4
9.6
9.0
10.9
11.3
11.3
10.9
11.3
(INR Million)
FY19
FY20E
July 2019
16
 Motilal Oswal Financial Services
June 2019 Results Preview | Sector: Technology
Tech Mahindra
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
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 (%)
16.5
3.3
13.1
2.0
14.6
3.1
9.7
2.0
13.3
2.9
8.9
3.1
11.7
2.6
7.6
3.5
2018
47.2
38.0
42.7
33.6
21.5
17.8
32.8
2019 2020E 2021E
63.4
43.6
48.2
12.8
22.0
18.7
29.0
67.4
46.6
53.0
9.9
22.7
19.5
41.5
75.3
53.5
60.2
13.6
23.9
20.8
41.6
307.7 347.4 364.8 403.8
TECHM IN
985
694.1 / 10.1
846 / 613
-7/-12/-5
CMP: INR705
TP: INR840 (+19%)
Buy
213.4 228.7 239.4 271.0
We expect revenue at TECHM to decline by 0.5% QoQ CC (+2.9%
YoY CC) due to a fall in Communications (3-4% QoQ CC primarily
because of seasonal decline in Comviva) and marginal growth in
the Enterprise segment.
Overall for the year, there is a reversal in the trend -
Communications is expected to grow at 7.5-8.5% YoY and
Enterprise at 5-7% YoY.
Our EBIT margin estimate is 13.6% (-180bp QoQ), mainly on
account wage hikes, higher visa costs and 1Q Comviva
seasonality.
We expect net income of INR10.6b, down 6.6% from the previous
quarter, mainly due to low profitability and higher ETR.
Buy.
Key issues to watch for
Commentary on 5G and related impact on TECHM’s
communications vertical.
Outlook for BFSI and Healthcare in Enterprise.
Deal wins on the back of two quarters of above-average TCV.
Proportion of wins in Enterprise segment.
Tech Mahindra 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: MOFSL Estimates
1Q
1,224
-1.6
82,763
12.8
30.7
14.3
13,569
16.4
13.0
1,114
305
21.2
8,979
-26.5
12.4
10.1
1,13,552
81.0
19.0
33.4
FY19
FY20E
2Q
3Q
4Q
1QE
2QE
3QE
1,218
1,261
1,268
1,257
1,290
1,316
-0.5
3.5
0.5
-0.9
2.7
2.0
86,298
89,437 88,923 87,404
90,313
92,093
13.5
15.0
10.4
5.6
4.7
3.0
34.0
33.1
33.1
31.4
32.4
32.5
15.3
13.8
14.7
14.5
14.0
13.9
16,186
17,226 16,387 14,783
16,635
17,174
18.8
19.3
18.4
16.9
18.4
18.6
15.3
16.1
15.4
13.6
15.2
15.5
1,751
806
1,671
2,606
1,909
1,719
388
358
281
245
245
244
26.8
17.8
23.5
25.0
25.0
25.0
10,642
12,029 11,325 10,582
11,404
11,663
18.5
13.0
-5.9
-6.6
7.8
2.3
27.3
27.7
-7.3
17.9
7.2
-3.0
11.9
13.5
12.6
12.0
13.0
13.3
1,18,391 1,21,842 1,21,082 1,19,888 1,23,347 1,25,994
81.0
82.0
82.0
84.1
85.4
84.5
20.0
21.0
21.0
0.0
0.0
0.0
35.5
34.5
34.8
36.3
35.6
35.1
4QE
1,358
3.2
95,027
6.9
33.6
13.8
18,789
19.8
16.6
1,830
244
25.0
12,947
11.0
14.3
14.7
1,28,693
85.9
0.0
35.7
(INR Million)
FY19
FY20E
4,971
4.2
3,47,421
12.9
32.8
14.5
63,368
18.2
15.0
5,342
1,332
22.4
42,975
13.1
47.7
1,21,082
81.5
34.5
5,220
5.0
3,64,837
5.0
32.5
14.0
67,380
18.5
15.3
8,064
978
25.0
46,597
8.4
53.0
1,28,693
85.0
35.7
July 2019
17
 Motilal Oswal Financial Services
June 2019 Results Preview | Sector: Technology
Wipro
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Financial Snapshot (INR b)
Y/E MAR
Sales
EBITDA
PAT
EPS (INR)