June 2015 Results Preview | July 2015
Technology
Company name
Cognizant Technology
HCL Technologies
Hexaware Technologies
Infosys
KPIT Technologies
MindTree Consulting
Mphasis
Persistent Systems
TCS
Tech Mahindra
Wipro
n
YoY CC revenue growth intact at tier-I, INR tailwind
While last quarter’s nemeses turns around, smaller companies still misfiring
Expect some reprieve after a quarter of revenue misses across the board
n
1Q is a seasonally strong quarter. This time around, cross-currency stabilization
and INR depreciation are additional tailwinds to earnings.
Except for TECHM, we expect YoY growth in constant currency (CC) to be stable
or accelerate marginally in 1QFY16.
Exhibit 1:
Ex-TECHM, CC YoY revenue growth is unlikely to decelerate
3QFY15
4QFY15
1QFY16E
Please refer to our report
dated 28 April 2015
TCS
INFO
WPRO
HCLT
TECHM
CTSH
Source: Company, MOSL
n
n
Sequentially, constant currency (CC) growth has accelerated every year in 1Q
over FY11-15 (~100bp on average).
Seasonality has historically been more pronounced at TCS and CTSH. We expect
that to remain, with 4.4% and 3.8% QoQ CC growth, respectively. TECHM’s
Telecom-led softness would keep its performance muted (flattish QoQ CC).
Exhibit 2:
Expected
quarterly performance summary
Sector
CMP
(INR)
921
255
985
93
1,269
411
601
2,552
1,201
478
544
Reco
Buy
Sell
Buy
UR
Neutral
Neutral
Neutral
Neutral
Buy
Neutral
Neutral
Sales (INR m)
Var % Var %
Jun-15
YoY
QoQ
97,475
15.7
5.2
7,556
23.8
5.9
140,516
10.0
4.8
7,838
13.6
2.7
9,915
17.5
8.0
14,916
0.1
4.4
5,061
16.4
1.7
257,685
16.5
6.4
2,136
12.0
-7.6
62,412
21.9
2.0
123,655
11.0
1.8
729,165
14.3
4.6
EBDITA (INR m)
Var % Var %
Jun-15
YoY
QoQ
22,745
2.6
8.8
1,424
40.0
12.1
37,552
9.1
0.6
725 -12.8 110.7
2,027
20.3
13.5
2,231
-9.8
10.7
958
0.9
-4.7
72,699
14.2
2.9
421
11.8
-11.1
9,374
1.0
0.9
27,923
9.5
1.4
178,080
9.7
3.2
Net Profit (INR m)
Var % Var %
Jun-15
YoY
QoQ
18,550
1.0
10.2
1,082
41.4
29.7
30,132
4.4
-2.7
421 -17.1
-16.4
1,528
18.1
18.7
1,857
6.2
4.5
670
-2.6
-11.8
56,849
12.4
-3.7
252
21.0
-15.7
5,978
-5.2
26.7
22,426
6.6
-1.4
139,745
7.2
0.0
HCL Technologies
Hexaware Tech.
Infosys
KPIT Tech.
Mindtree
MphasiS
Persistent Systems
TCS
Tata Elxsi
Tech Mahindra
Wipro
Sector Aggregate
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.
July 2015
1

June 2015 Results Preview | Sector: Technology
n
Among tier-II IT, we expect growth to remain muted at MPHL, KPIT and PSYS.
Even Cyient (CYL, not rated) cited revenue pressures, in addition to KPIT, TECHM
and PSYS. Growth at MTCL and HEXW should be sanguine.
Growth deceleration in tier-II unlikely to subside with muted outlook from PSYS, KPIT, CYL
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16E
Persistent Systems
Hexaware
KPIT Tech.
Mindtree
Source: Company, MOSL
Currency tailwind unlikely to drive margin expansion (ex HCLT)
n
n
n
1QFY16 would see wage hikes effective for the full quarter at TCS and INFO, and
for a month at WPRO. Despite ~2% QoQ depreciation in INR, we expect 100-
110bp QoQ margin decline at INFO and TCS, and flattish margin at WPRO.
With no material incremental headwind at HCLT, we expect EBITDA margin to
expand 70bp QoQ to 23.3%.
At TECHM, seasonality in Comviva growth, visa investments and lack of growth
are likely to keep EBITDA margin at ~15%, despite levers of utilization and
pyramid.
Watch out for INFO’s kick start to meeting a challenging guidance, sector’s
US growth
n
n
n
INFO’s guidance of 10-12% YoY CC revenue growth suggests sanguine growth
through the year. The momentum shown in 1Q would be crucial. Anything less
than 2.5% QoQ CC (including acquisitions) would be considered soft.
After a tepid 4QFY15 in US across the top-tier, 1QFY16 is crucial. ACN and CTSH
have done materially better, suggesting that their Digital readiness may be
paying off.
~3% QoQ CC guidance at WPRO would imply subsiding impact of Energy vertical
woes, and could drive some traction (assuming 1Q growth at midpoint of
guidance).
Bottom-up approach drives our preference for INFO, HCLT
n
n
n
n
Valuations across tier-II IT have witnessed some much awaited correction; we
still hold on to our preference for tier-I IT over tier-II.
Within tier-I, our top picks are INFO (on gradual recovery in growth) and HCLT
(differentiated growth driver in Engineering Services).
While we have no buys in tier-II IT, our preferred business models are MTCL and
PSYS.
While TECHM has corrected significantly, estimates still factor a quicker
turnaround, and that limits the upside in the near term.
2
July 2015

June 2015 Results Preview | Sector: Technology
Exhibit 3:
WPRO, TECHM to lag peers; expect TCS, CTSH to benefit from 1Q seasonality
9
7
5
3
1
-1
4.1
2.5 3.0
0.8
TCS
Infosys
Wipro
HCL Tech
Cognizant
Tech Mahindra
3.8
(0.1)
Source: Company, MOSL
Exhibit 4:
Incremental revenue to revive at TCS, INFO and HCLT; cross currency movements offer relief after three quarters
Incremental Revenues QoQ (USD m)
250
190
130
70
10
-50
TCS
Cognizant Infosys
Wipro HCL Tech
Tech
Mahindra
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16E
TCS
INFO
WPRO
HCLT*
TECHM
Source: Company, MOSL
Exhibit 5:
Mid-tier growth to remain polarized – expect MTCL and HEXW to outperform
Persistent Systems
7.8 8.5
5.0
4.0
4.2 4.1
1.2 0.5
0.6 0.3
0.1
1.4
-0.4
-3.4
2QFY15
3QFY15
-5.6
-3.2
4QFY15
1QFY16E
Source: Company, MOSL
3.6
0.9
Hexaware
KPIT Tech.
Mindtree
Mphasis
5.6
1.5
July 2015
3

June 2015 Results Preview | Sector: Technology
Exhibit 6:
Expect currency-led margin uptick only at HCLT during the quarter
TCS
31
27
23
19
15
Infosys
HCL Tech
Wipro
Cognizant
Tech Mahindra
Source: Company, MOSL
Exhibit 7:
Aggregate USD YoY growth in 1QFY16 is 7.6%, dragged by currencies; aggregate margins down 105bp across tier-I
Revenue (USD m)
Company
TCS
Infosys
Wipro
HCLT
Tech Mahindra
Aggregate
Company
TCS
Infosys
Wipro
HCLT
Tech Mahindra
Aggregate
1QFY16E
4,058
2,213
1,788
1,535
983
10,577
1QFY16E
28.2
26.7
22.6
23.3
15.0
25.0
1QFY15
3,694
2,133
1,740
1,407
855
YoY (%)
9.8
3.7
2.8
9.1
14.9
4QFY15
3,900
2,159
1,775
1,491
984
QoQ (%)
4.1
2.5
0.8
3.0
-0.1
2.6
QoQ (%)
-100
-110
-10
80
-16
(45)
1QFY16E
258
141
124
97
62
682
1QFY16E
57
30
22
19
6.0
134
Revenue (INR b)
1QFY15
221
128
111
84
51
596
1QFY15
51
29
21
18
6.3
125
YoY (%)
16.5
10.0
11.0
15.7
21.9
14.5
PAT (INR b)
YoY (%)
12.4
4.4
6.6
1.0
-5.2
7.0
4QFY15
242
134
121
93
61
652
4QFY15
39
31
23
17
4.7
QoQ (%)
6.4
4.8
1.8
5.2
2.0
4.6
QoQ (%)
47.4
-2.7
-1.4
10.2
27
9,830
7.6
10,308
EBITDA Margin (%)
1QFY15
28.8
26.9
22.9
26.3
18.1
26.0
YoY (%)
-60
-20
-30
-300
-310
-105
4QFY15
29.2
27.8
22.7
22.6
15.2
25.4
114
17.6
Source: Company, MOSL
Exhibit 8:
Tier-II aggregate PAT growth driven by HCLT, aggregate YoY revenue growth lower than tier-I
Revenue (USD m)
Company
Persistent Systems
Hexaware
KPIT Tech.
Mindtree
Mphasis
Aggregate
Company
Persistent Systems
Hexaware
KPIT Tech.
Mindtree
Mphasis
Aggregate
1QFY16E
80
119
123
156
234
712
1QFY16E
18.9
18.8
9.2
20.4
15.0
16.3
1QFY15 Yoy (%) 4QFY15
73
9.7
80
102
16.7
115
115
7.1
122
141
10.5
148
249
-6.2
230
680
4.7
695
EBITDA margin (%)
1QFY15 Yoy (%) 4QFY15
21.8
-290
20.2
16.7
220
17.8
12.1
-280
4.5
20.0
50
19.5
16.6
-160
14.1
17.1
-80
14.9
QoQ (%)
-0.4
3.6
0.9
5.6
1.5
2.4
QoQ (%)
-130
100
470
100
90
140
1QFY16E
5.1
7.6
7.8
9.9
14.9
43
1QFY16E
0.7
1.1
0.4
1.5
1.9
5.6
Revenue (INR b)
1QFY15
4.3
6.1
6.9
8.4
14.9
41
Yoy (%) 4QFY15
QoQ (%)
16.4
5.0
1.7
23.8
7.1
5.9
13.6
7.6
2.7
17.5
9.2
8.0
0.1
14.3
4.4
6.2
43
0.0
PAT (INR b)
1QFY15 Yoy (%) 4QFY15
QoQ (%)
0.7
-2.6
0.8
-11.8
0.8
41.4
0.8
29.7
0.5
-17.1
0.5
-16.4
1.3
18.1
1.3
18.7
1.7
6.2
1.8
4.5
5.0
11.1
5.2
16.3
Source: Company, MOSL
July 2015
4

June 2015 Results Preview | Sector: Technology
Exhibit 9:
1QFY16 currency highlights (INR)
USD
63.48
63.75
Rates (INR)
EUR
GBP
70.2
96.8
71.2
100.1
AUD
49.4
49.1
USD
2.0%
2.0%
Change (QoQ)
EUR
GBP
AUD
-0.1%
2.6%
0.8%
6.0%
8.3%
3.3%
Source: Company, MOSL
Change (QoQ)
GBP
AUD
0.9%
-1.0%
6.0%
1.2%
Source: Company, MOSL
AUD
0.78
0.77
0.78
INR/USD
62.06
62.10
63.48
Average
Closing
Exhibit 10:
1QFY16 currency highlights (in USD)
EUR
1.11
1.12
Rates (USD)
GBP
1.53
1.57
AUD
0.78
0.77
EUR
-1.9%
4.1%
Average
Closing
Exhibit 11:
Cross currencies – assumed rates v/s actual
Guided at
Infosys
Wipro
Actual (Average)
Change (%)
Infosys
Wipro
EUR
-0.4%
3.3%
EUR
1.11
1.07
1.11
GBP
1.2%
2.6%
AUD
-0.1%
1.2%
GBP
1.51
1.49
1.53
INR/USD
2.3%
2.2%
Impact on USD revenue
0.0%
0.5%
Source: Company, MOSL
Exhibit 12:
Relative performance - 3m (%)
Sensex Index
102
99
96
93
90
MOSL Technology Index
Exhibit 13:
Relative performance – 1Yr (%)
130
120
110
100
90
Sensex Index
MOSL Technology Index
Source: Bloomberg, MOSL
Exhibit 14:
Comparative
valuations
Company
Mkt cap Rating
(USD b)
TCS
81.2
Neutral
Infosys
35.4
Buy
Wipro
21.3
Neutral
HCL Tech
21.6
Buy
TechM
7.0
Neutral
Cognizant
37.0
Not Rated
Tier-I Agg
203.5
Mphasis
1.4
Neutral
Mindtree
1.7
Neutral
KPIT Tech
0.3
UR
Hexaware
1.2
Sell
NIIT Tech*
0.4
Neutral
Persistent Sys.
0.8
Neutral
Tier-II Agg
7.9
NIIT Tech* FY15 EPS excludes exceptional loss
EPS (INR)
P/E (x)
RoE (%)
Source: Bloomberg, MOSL
FY15-17E CAGR %
EPS
13.8
10.6
10.1
12.1
17.1
22.6
8.8
17.7
4.7
26.1
15.7
14.1
FY15 FY16E FY17E FY15E FY16E FY17E FY15 FY16E FY17E USD rev.
110.8 123.2 143.4
23.8
21.4
18.4 38.5
37.4
35.4
13.1
53.9
56.6
65.9
18.2
17.4
14.9 26.0
23.7
24.3
10.0
35.1
38.3
42.5
15.7
14.3
12.9 23.0
21.6
21.0
8.1
50.9
56.6
64.0
19.1
17.1
15.2 32.4
29.6
27.6
13.1
29.6
32.3
40.6
15.7
14.4
11.4 24.5
21.6
23.1
14.4
2.3
2.7
3.5
25.8
22.3
17.1 20.7
19.4
20.6
18.1
19.7
17.8
15.0 27.5
25.6
25.3
32.3
35.8
38.2
12.7
11.5
10.8 12.8
13.4
13.6
4.6
63.9
70.6
88.5
19.8
17.9
14.3 29.4
26.9
28.0
15.4
11.8
9.6
13.0
8.0
9.8
7.3 18.5
13.9
16.1
6.1
10.6
13.5
16.9
23.9
18.9
15.1 25.7
30.4
35.9
15.1
31.9
35.9
42.7
12.3
10.9
9.2
8.5
14.7
15.2
13.1
36.3
36.9
47.3
17.1
16.9
13.2 22.1
19.7
22.0
14.6
15.6
14.3
11.6 19.5
19.8
21.8
July 2015
5

June 2015 Results Preview | Sector: Technology
Cognizant Technology
Bloomberg
Equity Shares (m)
M.Cap. (USD b)
52-Week Range (INR)
CTSH US
607.9
37.1
66/51
CMP: USD61.1
n
Not Rated
Financial Snapshot (USD b)
Y/E MARCH
n
Sales
EBITDA
PAT
EPS (USD)*
EPS Gr. (%)
BV/Sh. (USD)
RoE (%)
RoCE (%)
Valuation
P/E (x)
P/BV (x)
EV/EBITDA (x)
2013
8.8
1.9
1.2
2.0
16.2
10.0
22.4
29.0
30.4
6.1
18.3
2014 2015E 2016E
10.3
12.3
14.1
2.1
1.4
2.3
16.8
12.6
20.7
25.9
26.0
4.8
16.3
2.6
1.8
2.9
22.6
15.6
20.4
26.0
21.2
3.9
13.1
3.1
2.2
3.5
23.2
19.1
20.5
26.1
17.2
3.2
10.2
n
n
n
For 2QCY15, CTSH had guided for revenue growth of at least 3.4%
QoQ to USD3010m. The company had also raised its guidance for
full year revenue growth to at least 19.3% from at least 19% earlier.
The guidance implied 3.3% CQGR in 2HCY15.
We expect CTSH to grow its revenues in the June quarter to
USD3036m, +4.3% QoQ, ahead of the company’s guidance amid
seasonal strength and better situation with cross currencies v/s that
at the beginning of the quarter.
EBITDA margin should benefit partially from depreciation of INR; we
estimate 110bp QoQ expansion to 20.8%.
Our PAT estimate for the quarter is USD418.8m, +9% QoQ, on the
back of revenue growth and some margin expansion
The stock trades at 21.2x CY15E and 17.2x CY16E EPS.
Not Rated.
Key issues to watch for
Ø
Beat to the moderate guidance in the seasonally strong quarter
Ø
Performance in Development segment and in the US, backed by
Digital
Ø
Commentary around pricing and growth in traditional business
Ø
Full impact on the USD2.7b HealthNet deal following the latter’s
acquisition
(USD Million)
Quarterly Performance
Y/E Dec
1Q
Revenue (USD m)
QoQ (%)
GPM (%)
SGA (%)
EBITDA
EBIT Margin (%)
Other income
ETR (%)
PAT
QoQ (%)
YoY (%)
EPS (USD)
Headcount
Util excl. trainees (%)
Attrition (%)
Offshore rev. (%)
Fixed Price (%)
E: MOSL Estimates
2,422
2.8
40.9
20.0
20.8
19.0
13.2
26.3
349
7.6
22.8
0.6
178,600
76.0
14.1
49.0
36.0
CY14
CY15
CY14
CY15E
2Q
2,517
3.9
40.4
19.2
21.2
19.4
13.9
25.9
372
6.6
23.8
0.6
187,400
74.0
16.9
49.0
35.0
3Q
2,581
2.5
39.2
19.6
19.6
17.7
6.2
23.3
356
-4.4
11.3
0.6
200,000
73.0
15.6
49.0
35.0
4Q
2,742
6.2
40.2
20.5
19.7
17.5
5.9
25.2
363
2.0
11.9
0.6
211,500
69.0
14.5
49.0
36.0
1Q
2,911
6.2
40.7
21.0
19.7
17.2
10.3
25.0
383
5.5
9.8
0.6
217,700
70.0
49.0
2QE
3,021
3.8
41.5
19.5
22.0
20.3
9.9
26.0
461
20.3
23.8
0.8
224,600
71.5
49.3
3QE
3,125
3.4
40.2
19.5
20.7
19.0
10.5
26.0
447
-2.9
25.7
0.7
231,500
72.0
49.5
4QE
3,233
3.5
40.8
19.5
21.3
19.6
11.7
26.0
477
6.7
31.4
0.8
237,900
73.0
49.8
17.1
2.3
211,500
72.8
49.0
22.8
2.9
237,900
71.7
49.4
10,263
16.1
40.2
19.8
20.3
18.4
39.2
25.2
1,439
12,290
19.8
40.8
19.9
21.0
19.0
42.3
25.8
1,767
July 2015
6

June 2015 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. (%)
HCLT IN
1,411.4
1,300/20
1,058/714
-9 / 14 / 14
CMP: INR921
n
n
Buy
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
( )
Div yld (%)
2014 2015E 2016E
329.2 370.3 423.7
86.7
63.7
45.1
57.7
143.8
37.1
40.9
24.4
20.4
6.4
13.8
1.2
88.8
73.3
50.9
12.9
173.0
32.4
34.9
33.4
18.1
5.3
13.2
1.8
98.8
79.9
56.6
11.2
212.4
29.6
32.3
25.6
16.3
4.3
11.4
1.6
2017E
487.4
111.2
90.5
64.0
13.1
256.4
27.6
30.0
26.6
14.4
3.6
9.7
1.8
n
n
n
n
We expect HCLT to grow its USD revenues by 3% QoQ in 4QFY15.
Impact from cross currencies should be negligible at HCLT.
Our growth estimate is constituted from our assumptions of 3.9%
QoQ growth in IMS, 2.6% QoQ growth in Software Services, and 2%
QoQ growth in BPO services.
In Rupee terms, we assume revenues of INR97.5b, up 5.2% QoQ.
After declining 240bp QoQ in the last quarter to 22.6%, EBITDA
margin should see some reprieve in the June quarter, during which
the INR has depreciated ~2% QoQ to INR63.5/USD. Our EBITDA
margin estimate is 23.3%, up 70bp QoQ.
Our PAT estimate for the quarter is INR18.55b, up 10.2% QoQ, on
the back of 12.4% decline in the previous quarter.
The stock trades at 16.3x FY16E and 14.4x FY17E EPS. Maintain
Buy.
Key issues to watch for
Ø
TCV of deals signed during the quarter
Ø
Growth in IMS and Engineering segment
Ø
Commentary on margins and any likely further correction
HCL Tech Quarterly Performance (US GAAP)
Y/E June
1Q
Revenue (USD m)
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
EBITDA Margin (%)
EBIT Margin (%)
Other income
ETR (%)
PAT before EOI
QoQ (%)
YoY (%)
EPS
Headcount
Util excl. trainees (%)
Attrition (%)
Fixed Price (%)
E: MOSL Estimates
1,270
3.5
79,610
30.7
39.0
12.7
26.3
23.8
-1,200
20.2
14,160
18.2
63.9
10.0
87,196
84.9
16.1
54.7
FY14
2Q
1,321
4.0
81,840
30.4
38.4
12.5
26.0
23.7
-470
21.0
14,950
5.6
58.3
10.6
88,332
84.1
16.6
54.3
3Q
1,361
3.0
83,490
30.0
38.9
12.1
26.7
24.7
-70
20.9
16,239
8.6
59.4
11.5
90,190
84.2
16.9
55.7
4Q
1,407
3.4
84,240
21.3
38.1
11.8
26.3
24.2
1,580
16.5
18,360
13.1
53.3
13.0
91,691
84.5
16.9
56.5
1Q
1,434
1.9
87,350
9.7
36.8
11.7
25.1
23.9
1,489
23.2
17,179
-6.4
21.3
12.2
82.7
16.6
56.3
FY15
2Q
1,491
4.0
92,830
13.4
37.0
12.0
25.0
23.9
2,160
21.0
19,219
11.9
28.6
13.6
82.9
16.4
55.8
3Q
1,491
0.0
92,670
11.0
35.3
12.7
22.6
21.3
1,790
21.9
16,838
-12.4
3.7
11.9
81.9
16.2
56.3
4QE
1,535
3.0
97,475
15.7
36.2
12.9
23.3
22.1
1,925
21.0
18,550
10.2
1.0
13.1
81.4
(INR Million)
FY14
5,360
14.4
27.9
38.6
12.3
26.3
24.1
-160
19.5
63,709
58.3
45.1
FY15E
5,950
11.0
12.5
36.3
12.3
24.0
22.8
7,364
21.7
71,787
12.7
50.9
329,180 370,325
95,522 100,240 104,184 106,784
91,691 106,784
July 2015
7

June 2015 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. (%)
HEXW IN
300.7
77/1
335/137
-9 / 27 / 52
CMP: INR255
n
n
n
Sell
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 (%)
2013
22.9
5.1
3.8
12.6
15.6
39.9
31.6
33.9
85.8
20.2
6.4
13.3
4.4
2014 2015E 2016E
25.8
30.6
35.8
4.8
3.3
10.6
-15.6
42.9
25.7
28.2
77.4
24.0
5.9
14.7
3.3
5.6
4.1
13.5
27.0
45.9
30.4
30.8
66.7
18.9
5.6
12.8
3.6
6.9
5.1
16.9
25.2
48.3
35.9
35.1
69.1
15.1
5.3
10.7
4.7
n
n
n
We expect USD revenue to grow 3.6% QoQ at HEXW to USD119m.
In INR terms, we expect revenue to grow 5.9% QoQ to INR7.56b.
We model an EBITDA margin uptick of 100bp QoQ to 18.8%.Our
assumption of margin uptick is based on support from INR
depreciation during the quarter.
Our PAT estimate for the quarter is INR1082m, significantly above
last quarter’s INR834m, on the back of margin uptick and higher
other income (forex loss of INR134m in the previous quarter).
Dividend payout has remained extremely healthy thus far, though
the management has refrained from citing any clear policy. We
expect INR2/share of dividend, the same as last quarter.
The stock trades at 18.9x CY15E and 15.1x CY16E earnings.
Sell.
Key issues to watch for
Ø
Large deal pipeline and traction post increased S&M spend
Ø
Commentary on sustenance of revenue growth and margins
Ø
Dividend payout during the quarter
Quarterly Performance (Indian GAAP)
(INR Million)
CY14
CY15
CY14
CY15E
Y/E Dec
1Q
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
96
-4.3
5,889
16.0
36.8
17.5
1,133
19.2
17.4
-50
27.9
703
-31.9
-11.3
2.3
8,952
72.9
12.8
47.1
2Q
102
6.5
6,104
13.8
36.2
19.6
1,017
16.7
14.9
83
22.9
765
8.8
-21.9
2.5
9,287
70.8
12.7
45.2
3Q
110
7.8
6,706
8.0
37.3
19.3
1,208
18.0
16.4
-11
20.9
860
12.4
-13.0
2.9
9,697
70.3
13.0
43.8
4Q
115
4.1
7,118
14.8
37.4
17.5
1,418
19.9
18.3
-112
21.3
939
9.2
-9.0
2.9
10,016
73.0
14.1
42.4
1Q
114.9
0.3
7,134
21.1
35.7
17.9
1,270
17.8
16.2
-96
21.2
834
-11.2
18.6
2.8
10,100
73.6
16.6
41.1
2QE
119.0
3.6
7,556
23.8
36.7
17.9
1,424
18.8
17.3
70
21.2
1,082
29.7
41.4
3.6
10,423
74.0
41.3
3QE
123
3.5
7,824
16.7
36.1
17.9
1,428
18.2
16.7
15
21.2
1,040
-3.9
20.9
3.4
10,745
74.5
41.6
4QE
127
3.4
8,093
13.7
36.6
17.9
1,512
18.7
17.2
18
21.2
1,109
6.6
18.1
3.7
11,067
75.0
41.8
-13.8
10.6
10,016
72.9
44.5
24.4
13.5
11,067
75.2
41.5
422
8.9
25,817
13.0
36.9
18.4
4,776
18.5
16.8
-90
23.1
3,267
485
14.7
30,607
18.6
36.3
17.9
5,634
18.4
16.8
6
21.2
4,064
July 2015
8

June 2015 Results Preview | Sector: Technology
Infosys
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
INFO IN
2,285.6
2,252/35
1,168/795
-2 / -1 / 12
CMP: INR985
n
n
Buy
Financial Snapshot (INR b)
Y/E MARCH
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 (%)
2014
2015 2016E 2017E
501.3
533.2 590.1 674.5
136.3
108.7
46.6
13.0
208
24.9
28.1
33.1
21.1
4.7
14.3
1.6
149.0
123.3
53.9
15.8
240
26.0
27.0
34.3
18.3
4.1
12.9
1.9
163.5
129.5
56.6
5.0
269
23.7
25.7
39.7
17.4
3.7
11.4
2.3
188.3
150.7
65.9
16.4
308
24.3
26.2
41.7
14.9
3.2
9.5
2.8
n
n
n
n
n
INFO’s constant currency revenue growth guidance of 10-12% YoY
in FY16 implies 3.1% CQGR to meet the lower end.
For 1QFY16, we estimate constant currency revenue growth of
2.8% QoQ, and reported USD revenue growth of 2.5% QoQ,
partially contributed (~0.5pp) by acquisitions.
In Rupee terms, our revenue growth estimate is 4.8% QoQ, on the
back of 2.2% sequential depreciation in INR v/s USD
We expect EBITDA margin to decline 110bp QoQ to 26.7%, despite
favorable INR, due to INFO’s wage hikes becoming fully effective
during the quarter.
Our other income estimate for the quarter is INR7.6b, compared to
INR8.8b in the previous quarter.
Our PAT estimate is INR30.1b, down 2.7% QoQ due to lower margin
and other income.
The stock trades at 17.4x FY16E and 14.9x FY17E earnings.
Buy.
Key issues to watch for
Ø
CC per capita productivity after two quarters of decline
Ø
Progress in new avenues such as IAP, IIP and acquisitions
Ø
Deal signings in BITS after encouraging announcements during the
course of the quarter
(INR Million)
FY15
FY16E
4Q
2,432
3.0
154,448
15.2
40.3
12.0
43,746
28.3
25.9
7,831
28.0
34,464
2.9
11.2
15.1
190,706
80.6
8,711
5.6
533,190
6.4
40.3
12.4
149,020
27.9
25.9
34,270
28.6
123,310
15.8
53.9
176,187
82.0
9,293
6.7
590,122
10.7
39.7
12.0
163,466
27.7
25.3
30,630
28.0
129,503
5.0
56.6
190,706
79.8
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
2,133
2.0
127,700
13.3
38.8
11.8
34,410
26.9
25.1
8,290
28.6
28,860
-3.5
21.6
12.6
161,284
80.1
19.5
45.5
40.1
FY15
2Q
3Q
2,201
2,218
3.2
0.8
133,420 137,960
2.9
5.9
40.7
40.6
12.4
11.9
37,740
39,540
28.3
28.7
26.1
26.7
8,770
8,400
29.0
28.2
30,960
32,500
7.3
5.0
17.9
13.0
13.5
14.2
165,411 169,638
82.3
82.7
20.1
20.4
45.4
45.2
41.4
42.9
4Q
2,159
-2.7
134,110
4.2
41.2
13.3
37,320
27.8
25.7
8,810
28.5
30,980
-4.7
3.5
13.5
176,187
79.3
18.9
44.8
43.8
1Q
2,213
2.5
140,516
10.0
38.7
12.0
37,552
26.7
24.4
7,576
28.0
30,132
-2.7
4.4
13.2
178,565
78.7
FY16E
2Q
3Q
2,286
2,362
3.3
3.3
145,167 149,991
8.8
8.7
39.7
40.0
12.0
12.0
40,139
42,029
27.7
28.0
25.2
25.6
7,104
8,120
28.0
28.0
31,411
33,496
4.2
6.6
1.5
3.1
13.7
14.7
182,708 185,765
79.3
80.4
July 2015
9

June 2015 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 MARCH
KPIT IN
198.6
18/0.3
233/85
-10/-55/-55
CMP: INR93
n
Under Review
n
2015 2016E 2017E
29.9
32.0 35.3
3.3
2.4
11.8
-5.7
64.6
18.5
18.1
12.7
7.9
1.4
4.5
1.6
3.5
1.9
9.6
-18.6
74.3
13.9
17.7
20.7
9.6
1.3
4.0
2.2
4.4
2.6
13.0
34.6
87.3
16.1
21.4
19.3
7.2
1.1
2.6
2.7
n
n
n
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 (%)
2014
26.9
4.2
2.4
12.6
19.0
64.0
20.7
29.9
8.8
7.4
1.5
4.0
1.2
While KPIT’s SAP, Oracle segments should be steady in 1Q, its
Products and Platforms business would witness seasonal weakness
in Intelligent Transportation Solutions (ITS). We expect 1QFY16
revenues to remain flattish at USD123m.
KPIT expects focus the on margin improvement efforts to start
showing results from 3QFY16. In 1Q, we expect EBITDA margin of
9.2%, which excluding the one-offs in the previous quarter,
translates to expansion of ~70bp QoQ.
KPIT has deferred its wage hikes to 2QFY16, which also explains
why its uptick in margins is unlikely before 3QFY16.
Our PAT estimate is INR421m, well below INR504m of the previous
quarter, which benefited from tax credit of INR358m due to merger
of an acquisition and consequent write-off of goodwill.
KPIT trades at 9.6x FY15E and 7.2x FY16E earnings.
Under Review.
Key issues to watch for
Ø
Margin performance in 1QFY16
Ø
Growth in SAP and Engineering Services (ex-products & platforms)
Ø
Commentary on growth across segments
(INR Million)
FY15
FY16E
3Q
126
1.2
7,798
15.0
31.1
17.2
13.9
11.1
25
51
22.3
653
-7.5
7.5
3.3
10,291
70.2
46.5
33.8
4Q
122
-3.2
7,630
9.0
25.2
20.7
4.5
1.6
177
150
-245.3
504
-22.9
-2.2
2.5
10,980
65.6
47.6
1Q
123
0.9
7,838
13.6
26.2
17.0
9.2
6.7
110
55
27.0
421
-16.4
-17.1
2.1
10,789
67.0
47.0
2Q
124
0.8
7,903
4.3
25.6
15.8
9.8
7.2
38
52
27.0
405
-3.9
-42.7
2.0
10,598
69.5
47.3
3Q
127
2.2
8,077
3.6
27.2
15.3
11.9
9.3
39
50
27.0
540
33.3
-17.3
2.7
10,607
71.0
47.3
4Q
129
1.2
8,174
7.1
27.7
15.5
12.2
9.5
42
48
27.0
565
4.7
12.3
2.8
10,666
72.0
47.6
-0.8
11.8
10,980
69.3
46.5
-18.5
9.6
10,666
69.9
47.3
489
10.1
29,899
11.0
28.2
17.2
10.9
8.1
345
279
4.6
2,371
504
3.0
31,992
7.0
26.7
15.9
10.8
8.2
229
205
27.0
1,932
FY15
FY16E
2Q
Quarterly Performance (Indian GAAP)
Y/E March
1Q
Revenue (USD m)
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
EBITDA Margin (%)
EBIT Margin (%)
Other income
Interest
ETR (%)
PAT
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Util excl. trainees (%)
Offshore rev. (%)
Fixed Price (%)
E: MOSL Estimates
115
1.4
6,897
12.5
26.5
14.4
12.1
9.7
101
40
30.4
508
-1.3
-15.5
2.5
9,490
70.2
42.8
28.4
125
8.5
7,574
7.8
29.7
16.4
13.3
10.1
42
39
8.1
706
39.1
5.8
3.5
9,933
71.6
48.9
29.6
July 2015
10

June 2015 Results Preview | Sector: Technology
MindTree
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
MTCL IN
83.7
106/2
1,589/834
-12 / -2 / 34
CMP: INR1,269
n
Neutral
n
n
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 (%)
2014
30.3
6.1
4.5
53.9
31.8
195.7
30.5
35.5
23.2
23.6
6.5
16.3
1.0
2015 2016E 2017E
35.6
42.1
49.5
7.1
5.4
63.9
18.6
239.5
29.4
32.8
26.6
19.9
5.3
13.7
1.3
8.2
5.9
70.6
10.6
286.0
26.9
31.0
28.3
18.0
4.4
11.8
1.6
10.4
7.4
88.5
25.4
345.7
28.0
33.1
27.1
14.3
3.7
9.0
1.9
n
n
n
We model 1QFY16 revenue at USD156m, +5.6% QoQ, on the back
of seasonal strength and some contribution from Discoverture
acquisition.
In INR terms, our revenue estimate stands at INR9.9b, up 8% QoQ,
aided by INR depreciation of 2.2% to INR63.5.
Our estimate for EBITDA margin is 20.4%, +90bp QoQ, mainly on
account of INR depreciation. We estimate gross margin at 42%,
+180bp QOQ, and SGA at 22.5%, +80bp QoQ on visa costs.
Our PAT estimate for the quarter is INR1.53b, which implies a PAT
margin of 15.4% and significant PAT growth of 18.7% QoQ. We
model INR80m of forex gains and INR151m of other income.
MTCL signed deals worth TCV of USD646m in Y15, and is expected
to continue its momentum on that front.
The stock trades at 18x FY16E and 14.3x FY17E earnings.
Neutral.
Key issues to watch for
Ø
Guidance for growth in 2Q and likely impact, if any, from a couple
of sluggish accounts
Ø
Deal wins during the quarter and growth in Digital
Ø
Margin trajectory, going forward amid multiple levers
Ø
Performance and outlook of the Hi-tech vertical
Quarterly Performance
Y/E March
Revenue (USD m)
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
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
141
6.4
8,435
30.2
42.2
22.2
20.0
17.3
210
22.4
1,294
31.5
-4.4
15.4
12,845
72.1
14.2
55.8
43.8
FY15
2Q
3Q
147
148
4.0
0.5
8,886
9,117
15.5
15.3
41.5
42.3
21.8
21.8
19.8
20.5
17.1
17.6
241
210
22.0
22.4
1,374
1,408
6.2
2.5
6.8
59.1
16.4
16.7
13,018
13,323
73.5
71.8
15.7
18.1
54.4
54.2
43.6
46.5
4Q
148
0.1
9,181
11.5
41.1
21.7
19.5
16.2
174
22.7
1,287
-8.6
30.8
15.3
14,202
70.2
18.2
52.9
46.5
1Q
156
5.6
9,915
17.5
42.9
22.5
20.4
17.4
256
22.8
1,528
18.7
18.1
18.2
14,852
70.5
52.8
FY16E
2Q
3Q
163
169
4.7
3.6
10,381
10,751
16.8
17.9
41.7
41.8
22.5
22.5
19.2
19.3
16.2
16.3
117
182
22.9
23.0
1,388
1,488
-9.2
7.2
1.0
5.7
16.5
17.7
15,452
15,902
71.0
71.5
52.8
52.8
4Q
175
3.1
11,084
20.7
41.7
22.5
19.2
16.2
191
23.1
1,526
2.5
18.6
18.2
16,352
71.5
52.6
(INR Million)
FY15
FY16E
584
16.4
35,619
17.5
41.8
21.9
19.9
17.0
835
22.4
5,363
18.9
63.9
14,202
71.9
54.3
663
13.7
42,132
18.3
42.0
22.5
19.5
16.5
745
23.0
5,930
10.6
70.6
16,352
71.1
52.7
July 2015
11

June 2015 Results Preview | Sector: Technology
Mphasis
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
MPHL IN
210.1
86/1
477/331
11 / 6 / -13
CMP: INR411
n
Neutral
n
n
Financial Snapshot (INR b)
Y/E MARCH
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 (%)
2014 2015 2016E 2017E
25.9 57.9
61.4
66.2
4.4
3.1
14.7
-0.1
14.8
16.7
47.6
11.6
1.7
6.5
4.1
8.7
6.8
32.3
-8.6
12.8
13.1
49.6
12.7
1.6
7.5
3.9
9.4
7.5
35.8
11.0
274.1
13.4
13.7
52.4
11.5
1.5
6.2
4.6
10.2
8.0
38.2
6.6
288.3
13.6
14.7
52.4
10.8
1.4
5.4
4.9
n
n
243 260.8
n
For MPHL, the HP channel is likely to continue its rate of decline, in
line with the company’s initial forecast of 20% volume decline in
FY15. Direct Channel should witness growth.
After rebound in the last quarter, Digital Risk revenues should not
be as highly volatile as the last few quarters.
Overall, we model revenue growth of 1.5% QoQ to USD234m. In
Rupee terms, we estimate revenue at INR14.9b at an exchange rate
of INR63.5/USD.
EBITDA margin is likely to pick up by 90bp QoQ to 15%, with INR
depreciating in addition to some growth in Direct Channel.
We expect PAT to grow 4.5% QoQ to INR1.86b; our PAT margin
estimate is 12.4% (flattish QoQ). Our total other income estimate is
INR181m against INR208m in 4QFY15.
The stock trades at 11.5x FY16E and 10.8x FY17E EPS.
Neutral.
Key issues to watch for
Ø
Outlook for Digital Risk and HP channel
Ø
Deal TCV during the quarter in Direct Channel (organic business)
*
Annualized values for 5m FY14
Quarterly Performance
Y/E March
Revenue (USD m)
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
EBITDA Margin (%)
EBIT Margin (%)
Other income
Interest Expense
ETR (%)
PAT
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Net Additions
HP Channel rev. (%)
Fixed Price (%)
E: MOSL Estimates
Jun 14
249
-2.1
14,902
-3.2
27.8
10.9
16.6
14.8
356
77
29.8
1,748
-4.6
-9.2
8.3
35,497
-166
36.0
13.3
FY15
Sep 14
240
-3.4
14,649
-8.1
26.7
12.1
14.6
13.0
439
91
28.7
1,602
-8.4
-15.8
7.6
36,015
518
35.8
13.8
Dec-14
227
-5.6
14,108
-9.8
24.9
10.2
14.6
13.0
497
61
27.1
1,651
3.1
-11.7
7.9
35,208
-807
34.6
16.7
Mar-15
230
1.4
14,290
-7.5
26.8
11.6
14.1
12.5
675
51
26.2
1,777
7.6
-3.0
8.5
34,059
-1149
31.3
14.4
Jun 15
233.5
1.5
14,916
0.1
26.3
11.3
15.0
13.4
574
32
27.0
1,857
-30.3
6.2
8.8
33,069
-990
FY16E
Sep 15
239
2.4
15,134
3.3
26.2
11.3
14.9
13.3
447
30
27.0
1,776
-4.3
10.9
8.5
33,779
710
Dec 15
245
2.4
15,521
10.0
25.8
10.2
15.5
14.0
460
28
27.0
1,900
7.0
15.1
9.0
34,399
620
Mar 16
249
1.8
15,811
10.6
26.1
10.2
15.9
14.4
479
26
27.0
1,989
4.7
-25.4
9.5
34,769
370
FY15
946
-6.2
57,949
-6.9
26.6
11.2
15.0
13.3
1,967
-280
28.0
6,778
119.3
32.3
34,059
-1604
(INR Million)
FY16E
967
2.2
61,383
5.9
26.1
10.8
15.3
13.8
1,961
-116
27.0
7,522
11.0
35.8
34,769
710
July 2015
12

June 2015 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
48/1
961/529
-23 / -29 / 1
CMP: INR601
n
n
Neutral
Financial Snapshot (INR b)
Y/E MARCH
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 (%)
2014
16.7
4.3
2.5
31.2
32.9
157.3
22.3
21.9
19.3
19.3
3.8
9.5
1.0
2015E 2016E 2017E
18.9
21.8 25.9
3.9
2.9
36.3
16.6
180.9
22.1
24.4
27.5
16.5
3.3
9.9
1.7
4.3
3.0
36.9
1.6
19.7
19.7
32.5
16.3
2.9
8.7
2.0
5.5
3.8
47.3
28.1
22.0
19.7
25.4
12.7
2.5
6.6
2.0
n
n
204.1 237.9
n
PSYS expects problems in its pre-Internet era client accounts and IP
business volatility to drive some revenue decline in 1QFY16.
We expect 1QFY16 revenue to decline marginally by 0.4% QoQ to
USD79.7m
.
We expect Services to remain flat at USD65.1m and IP-
led revenue to decline 2.7% QoQ to USD14.1m. In INR terms, we
expect revenue to grow 1.7% QoQ to INR5.06b.
Visa costs and investments in S&M would weigh on margins. We
expect EBITDA margin to decline 130bp QoQ to 18.9%, as PSYS
continues to make investments for its EDT strategy. We expect SGA
at 20.9%, +90bp QoQ, and gross margin at 39.8%, -40bp QoQ.
Our PAT estimate for 1Q is INR670m, down 112% QoQ. Apart from
lower margins, this is also driven by drop in tax rate in 4QFY15 to
20.6%. We estimate effective tax rate of 25.5% in 1QFY16.
The stock trades at 16.3x FY16E and 12.7x FY17E earnings.
Neutral.
Key issues to watch for
Ø
Performance and outlook for top clients in ISV
Ø
Commentary on traction with Enterprise customers and potential
of winning large deals
Ø
Outlook on sustainable profit margins in the near-to-medium term
Quarterly Performance (IFRS)
Y/E March
Revenue (USD m)
QoQ (%)
Revenue (INR m)
QoQ (%)
YoY (%)
GPM (%)
SGA (%)
EBITDA Margin (%)
EBIT Margin (%)
Other income
ETR (%)
PAT
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Util excl. trainees (%)
Attrition (%)
IP rev. proportion(%)
E: MOSL Estimates
1Q
72.7
0.0
4,350
-2.6
21.7
40.1
18.3
21.8
16.6
233
27.9
688
2.4
20.5
8.6
7,876
67.7
14.0
20.0
FY15
2Q
76.3
5.0
4,642
6.7
7.4
40.2
19.6
20.6
15.5
274
28.2
713
3.6
17.3
8.9
8,067
70.3
14.1
19.6
3Q
79.5
4.2
4,946
6.6
14.3
40.2
20.0
20.1
15.1
245
25.1
745
4.4
16.0
9.3
8,296
74.3
14.7
19.0
4Q
80.0
0.6
4,975
0.6
11.4
40.2
20.0
20.2
15.6
181
20.6
761
2.1
13.2
9.5
8,506
74.7
15.5
18.1
1Q
79.7
-0.4
5,061
1.7
16.4
39.8
20.9
18.9
14.4
172
25.5
670
-11.8
-2.6
8.4
8,667
76.8
17.7
FY16E
2Q
83.6
4.8
5,306
4.8
14.3
38.2
20.2
18.0
13.6
124
25.5
629
-6.2
-11.9
7.9
9,028
75.0
17.7
3Q
87.5
4.7
5,557
4.7
12.3
39.2
19.4
19.3
15.2
129
25.5
726
15.5
-2.5
9.1
9,339
75.0
17.8
4Q
93.0
6.3
5,904
6.3
18.7
41.3
19.0
22.8
18.9
127
25.5
926
27.6
21.8
11.6
9,600
75.0
19.7
(INR Million)
FY15
309
12.6
18,913
13.3
40.2
19.5
20.7
15.7
932
25.5
2,906
16.6
36.3
8,506
71.7
19.2
FY16E
344
11.4
21,828
15.4
39.6
19.8
19.8
15.6
552
25.5
2,951
1.5
36.9
9,600
73.4
18.3
July 2015
13

June 2015 Results Preview | Sector: Technology
TCS
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
TCS IN
1,958.7
4,999/79
2,834/2,317
-2 / -1 / -4
CMP: INR2,552
n
Neutral
Financial Snapshot (INR b)
Y/E MARCH
n
n
n
n
n
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 (%)
2014
818.1
251.3
191.2
97.6
37.1
282.5
39.7
47.6
32.8
26.1
9.0
19.2
1.3
2015 2016E 2017E
946.5 1,093.0 1,264.7
272.9
217.0
110.8
13.5
293.4
38.5
43.2
71.3
23.0
8.7
17.6
3.1
314.7
241.2
123.2
11.2
364.6
37.4
43.9
34.9
20.7
7.0
15.1
1.7
362.1
280.9
143.4
16.5
446.4
35.4
41.3
35.6
17.8
5.7
12.9
2.0
The strength of 1Q seasonality is usually more prominent at TCS, and
we expect it to be no different in FY16. We expect TCS to lead
growth, with 4.1% QoQ uptick in revenues to USD4,058m. This
assumes cross currency impact of ~30bp.
In Rupee terms, our revenue estimate of INR257.7b implies growth
of 6.4% QoQ, on the back of 2.3% QoQ depreciation in realized INR.
We expect EBITDA margin to decline 100bp QoQ to 28.2%, on the
back of wage hikes to all employees during the quarter.
Estimated total other income stands at INR6.1b, well below last
quarter’s INR11.3b.
On the back of lower margins and other income, our PAT estimate
for the quarter is INR56.8b, -3.7% QoQ.
The stock trades at 20.7x FY16E and 17.8x FY17E earnings.
Neutral.
Key issues to watch for
Ø
Growth in troubled segments – Energy, Telecom, Insurance
Ø
Outlook on revenue from TCS Japan
Ø
Any change in pricing commentary
Ø
Traction in new Digital initiatives (automation / solutions)
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
Util excl. trainees (%)
Attrition (%)
Offshore rev. (%)
Fixed Price (%)
E: MOSL Estimates
1Q
3,694
5.5
221,110
22.9
46.3
17.5
63,670
28.8
26.3
8,151
23.1
50,578
-4.5
26.7
25.8
305,431
85.3
12.0
47.2
52.5
FY15
2Q
3,929
6.4
238,165
13.5
45.6
17.0
68,087
28.6
26.8
5,659
23.1
52,883
4.6
13.8
27.0
313,757
86.2
12.8
45.7
51.3
3Q
3,931
0.1
245,011
15.1
46.1
17.3
70,531
28.8
27.0
6,295
24.1
54,442
2.9
5.1
27.8
318,625
86.7
13.4
46.0
51.7
4Q
3,900
-0.8
242,198
12.4
45.5
16.3
70,653
29.2
27.2
11,288
23.0
59,055
8.5
11.5
30.1
319,656
85.4
46.0
52.6
1Q
4,058
4.1
257,685
16.5
44.9
16.7
72,699
28.2
26.5
6,062
23.0
56,849
-3.7
12.4
29.0
330,464
86.7
0.0
46.2
FY16E
2Q
4,238
4.4
269,140
13.0
45.3
16.6
77,321
28.7
27.0
3,978
23.0
58,652
3.2
10.9
29.9
343,020
87.1
0.0
46.3
3Q
4,380
3.3
278,143
13.5
45.4
16.6
80,224
28.8
27.1
4,405
23.0
61,097
4.2
12.2
31.2
355,331
86.3
5.9
46.0
4Q
4,536
3.5
288,012
18.9
45.7
16.4
84,443
29.3
27.6
4,930
23.0
64,619
5.8
9.4
33.0
366,580
86.3
46.0
FY15
(INR Million)
FY16E
15,454
17,212
15.0
11.4
946,484 1,092,981
15.7
15.5
45.8
45.3
17.0
16.5
272,941
314,688
28.8
28.8
26.9
27.1
31,393
19,375
23.3
23.0
216,958
241,217
13.5
110.8
319,656
85.9
46.2
11.2
123.2
366,580
86.6
46.1
July 2015
14

June 2015 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. (%)
TECHM IN
956.3
457/7
750/467
-14 / -27 / -
20
CMP: INR478
n
Neutral
Financial Snapshot (INR b)
Y/E MARCH
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 (%)
2014
188.3
41.8
29.2
28.7
30.7
112.3
36.4
34.7
16.3
16.6
4.3
8.5
1.0
2015 2016E 2017E
224.8 264.8 307.0
41.1
26.3
29.6
3.0
142.2
24.5
26.8
20.5
16.1
3.4
9.4
1.3
44.2
28.7
32.3
9.1
21.6
23.8
23.2
14.8
2.9
8.5
1.6
53.8
36.0
40.6
25.7
23.1
26.2
21.6
11.8
2.4
6.7
1.8
n
165.6 196.0
n
n
After a weak 4QFY15 on organic basis, 1QFY16 too would remain
challenged for TECHM. The contribution from acquisition of Sofgen
(~USD8m) and seasonal uptick in LCC (contribution of ~USD7m),
should be offset by weak seasonality in the Mobility segment.
Consequently, we are modeling USD983m in revenues, flat QoQ.
While the drop in utilization last quarter was a key lever for
margins, lower
growth implies that will have to wait. Decline in
non-linear
mobility segment and visa costs during the quarter will keep
margins in check. Our EBITDA margin estimate is 15%, -20bp QoQ.
4QFY15 was also marred by forex loss of INR1,541m, driving other
income loss of INR653m. We assume other income gain of INR662m
in 1QFY16.
Much better other income drives our estimate of INR5.98b PAT, up
26.6% QoQ but down 5.2% YoY.
The stock trades at 14.8x FY16E and 11.8x FY17E earnings.
Neutral.
Key issues to watch for
Ø
Performance of Telecom segment ex-Mobility
Ø
Comments on profitability including LCC
Ø
Traction in LCC revenues after sluggish 4Q
Ø
Deal wins TCV in the Enterprise segment
(INR Million)
FY15
FY16E
1Q
2Q
3Q
4Q
983
1,021
1,062
1,104
-0.1
3.8
4.1
4.0
62,412 64,809 67,435 70,127
21.9
18.1
17.2
14.6
30.0
31.5
32.5
31.5
15.0
14.7
14.7
14.5
15.0
16.8
17.8
17.0
12.3
14.1
15.2
14.4
662
557
592
651
176
166
150
134
26.0
26.0
26.0
26.0
5,978
7,001
7,866
7,817
26.7
17.1
12.4
-0.6
-5.2
-2.7
1.3
65.6
6.7
7.9
8.9
8.8
102,583 105,029 108,807 112,512
70.6
72.7
74.8
75.6
39.5
40.4
41.1
41.4
FY15
FY16E
Tech Mahindra Quarterly Performance
Y/E March
Revenue (USD m)
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
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
855
3.7
51,215
24.8
32.8
14.7
18.1
15.2
893
41
26.7
6,307
4.6
-3.4
6.7
92,729
72.0
16.0
46.3
2Q
900
5.2
54,879
15.0
34.1
14.1
20.0
17.4
576
41
27.8
7,196
14.1
5.1
7.6
95,309
73.0
18.0
44.8
3Q
4Q
924
984
2.7
6.5
57,517 61,168
17.4
20.9
34.5
30.5
14.4
15.3
20.2
15.2
17.7
12.4
190
-653
38
177
24.4
27.4
7,769
4,720
8.0
-39.2
21.0
-21.7
8.8
5.3
98,009 103,281
74.0
71.0
19.0
44.7
38.9
3,664
4,170
18.2
13.8
224,779 264,782
19.4
17.8
32.9
31.4
14.6
14.7
18.3
16.7
15.6
14.0
1,006
2,461
297
626
26.5
26.0
25,992 28,663
0.6
10.3
29.6
32.3
103,281 102,583
72.5
73.5
43.5
40.7
July 2015
15

June 2015 Results Preview | Sector: Technology
Wipro
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
WPRO IN
2,466.0
1,342/21
677/513
-3 / -3 / -9
CMP: INR544
n
Neutral
Financial Snapshot (INR b)
Y/E MARCH
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 (%)
2014
434.3
97.1
78.0
31.7
27.0
139.9
24.9
22.5
25.3
17.2
3.9
12.4
1.5
2015
469.5
104.6
86.6
35.1
10.9
166.1
23.0
20.2
34.2
15.5
3.3
11.4
2.2
2016E 2017E
514.0 573.0
115.7
94.5
38.3
9.2
190.1
21.6
19.2
31.3
14.2
2.9
9.9
2.2
129.2
104.8
42.5
10.9
217.0
21.0
19.3
30.6
12.8
2.5
8.6
2.4
For 1QFY16, WPRO guided revenue of USD1,765m-1,793m, down
0.5%-1% QoQ. The lower guidance was due to expectation of
continued weakness in Oil & Gas sector along with decline in a top
BFSI account.
n
We estimate constant currency revenue growth at the higher end
of the guided band for WPRO, and after 20bp assumed impact from
cross currency, our revenue estimate is USD1,788m, +0.8% QoQ.
n
Our overall INR revenue estimate is INR123.65b, up 1.8% QoQ, and
we assume realized currency rate to be INR64 (realized INR/USD at
WPRO in 4QFY15 was 63.35).
n
Overall operating profit margin estimate is 19.9%, down 10bp QoQ.
Our gross margin estimate is 31.2%, -80bp QoQ, and our SGA
estimate is 11.3%, -70bp QoQ. In IT Services, we estimate EBIT
margin of 21.9%, -10bp QoQ (1-month wage hike to offset INR
depreciation). We expect PAT of INR22.43b, -1.4% QoQ.
n
The stock trades at 14.2x FY16E and 12.8x FY17E earnings.
Neutral.
Key issues to watch for
Ø
Revenue growth guidance for 2QFY16 and Energy vertical
Ø
Commentary on large deal wins and ramp-up schedule
Ø
Comments on any incremental impact from pricing decline and
rate of automation
(INR Million)
FY16E
2Q
3Q
1,828
1,881
2.2
2.9
126,382 129,941
2.2
2.8
8.2
8.3
30.6
31.1
11.3
11.1
22.0
22.6
21.3
21.9
19.3
19.9
4,757
21.4
22,802
1.7
9.4
9.2
164,767
80.5
46.7
5,017
21.4
24,171
6.0
10.2
9.8
169,602
80.5
46.8
FY15
4Q
1,942
3.3
134,065
3.2
10.4
31.4
11.1
22.9
22.3
20.3
4,943
21.4
25,148
4.0
10.5
10.2
174,947
80.5
46.9
7,082
7.0
469,545
8.1
31.6
12.0
22.3
22.0
19.5
19,897
22.0
86,558
11.0
35.1
158,217
76.5
46.0
FY16E
7,439
5.0
514,042
9.5
31.1
11.2
22.5
21.9
19.9
18,798
21.4
94,547
9.2
38.3
174,947
77.3
46.7
Quarterly Performance (IFRS)
Y/E March
Revenue (USD m)
QoQ (%)
Revenue (INR m)
QoQ (%)
YoY (%)
GPM (%)
SGA (%)
EBITDA Margin (%)
IT Serv. EBIT (%)
EBIT Margin (%)
Other income
ETR (%)
PAT
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Util excl. trainees (%)
Attrition (%)
Offshore rev. (%)
Rev Guidance (USDm)
Fixed Price (%)
E: MOSL Estimates
1Q
1,740
1.2
111,358
-4.4
14.5
32.7
12.3
22.9
22.8
20.4
4,449
21.9
FY15
2Q
3Q
1,772
1,795
1.8
1.3
116,838 119,929
4.9
2.6
8.5
6.4
30.8
30.9
12.2
11.6
21.2
22.3
21.4
21.8
18.6
19.3
5,443
22.8
5,147
22.0
4Q
1,775
-1.2
121,420
1.2
4.2
32.0
12.0
22.7
22.0
20.0
4,858
21.4
1Q
1,788
0.8
123,655
1.8
11.0
31.2
11.3
22.6
21.9
19.9
4,081
21.4
22,426
-1.4
6.6
9.1
161,032
80.5
46.5
21,032
20,848
21,928
22,750
-5.5
-0.9
5.2
3.7
29.6
7.9
8.8
2.2
8.5
8.5
8.9
9.2
147,452 154,297 156,866 158,217
77.9
79.4
78.8
80.5
16.1
16.5
16.5
16.5
45.7
46.3
45.7
46.3
1715-1755 1770-18101808-1842 1814-1850
52.1
53.1
55.1
55.5
July 2015
16

June 2015 Results Preview | Sector: Technology
NOTES
July 2015
17

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