Result Update

October 14, 2016

Rating matrix
Rating
Target
Target Period
Potential Upside

:
:
:
:

Whats Changed?
Target
EPS FY17E
EPS FY18E
Rating

Q2FY17
17,310
4,309
24.9
3,608

Q2FY16
15,635
3,993
25.5
3,399

YoY (%)
10.7
7.9
-65 bps
6.1

Key Financials
| Crore
Net Sales
EBITDA
Net Profit
EPS (|)

FY15
53,319
14,901
2,369
53.9

FY16
62,441
17,079
2,394
59.0

FY15
19.0
21.8
13.6
4.3
22.5
31.4

FY16
17.4
19.9
11.7
3.8
21.8
30.2

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

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

Price performance (%)

TCS
Infosys
Wipro
HCL Tech

1M

3M

5.0
2.5
3.4
(0.5)

4.5
11.2
(0.4)
(1.7)

Research Analysts
Deepak Purswani, CFA
deepak.purswani@icicisecurities.com
Tushar Wavhal
tushar.wavhal@icicisecurities.com
Deepti Tayal
deepti.tayal@icicisecurities.com

| 1027

Strong execution in Q2, caution ahead

Infosys reported good Q2FY17 results as dollar revenue growth was
above our estimates. US$ revenues grew 3.5% QoQ to $2,587
million, above our 2.4% growth and $2,561 million estimate. In
constant currency (CC), revenue growth was also healthy at 3.9%
QoQ and better than our estimate of 3.0%
Rupee revenues grew 3.1% QoQ to | 17,310 crore, above our 2.2%
QoQ growth and | 17,150 crore estimate
Q1FY17 QoQ (%)
EBIT margins at 24.9% grew 80 bps QoQ and were above our
16,782
3.1
estimate of 24.7% largely on account of operational efficiency
4,047
6.5
24.1 78 bps
Reported PAT of | 3,606 crore was above our | 3,533 crore estimate
3,437
5.0
Infosys declared an interim dividend of | 11/share
Strong Q2 but weaker Q3 expected
Infosys reported strong revenue growth of 3.5% sequentially in dollar
FY17E
FY18E
terms and 3.9% sequentially in constant currency. The revenue growth
68,931
76,387
was
well above our expectation of 2.4% sequential growth in dollar
18,698
20,956
terms.
Q3FY17E could be impacted due to ramp-down of the RBS deal
9,421
2,374
and
softness
in certain BFSI accounts and seasonally weak quarter.
62.3
69.1
Infosys has won six large deals worth $1.2 billion taking H1FY17 order
book higher by ~20% vs. H1FY16.
FY17E
FY18E Downgrades revenue guidance yet again to 8-9% in FY17E
16.5
14.9 Despite better-than-expected Q2FY17 results, Infosys revised its guidance
18.9
17.0 for FY17E downward owing to uncertain macro environment and to factor
10.4
9.0 RBS deal cancellation. The company has lowered its constant currency
3.4
3.1
revenues growth guidance downward to 8-9% growth from 10.5-12% in
20.7
20.6
CC terms. CC growth guidance translates to rupee revenue growth of
29.0
28.9
10.9-11.9% (based on September 30 rates) in FY17E. We now anticipate
Infosys US$ revenue will grow 8.3%, 10% in FY17E, FY18E, respectively.
Guides for 24-25% EBIT margin in FY17E
Amount
Infosys EBIT margins grew 80 bps QoQ to 24.9% in
234,723.3
Q2FY17 above our expectation of 24.7%. Up tick in margin was mainly an
outcome of increase in utilization and reduction in onsite effort by 20 bps
32,697.0
leading to +140 bps impact which was partially offset by increase in 3rd
188,746.2
1278 / 996
party software cost leading to -40 bps impact. Q3 margins could be
1,144.0
impacted due to ramp-down of 3000 engineers due to RBS deal
|5
cancellation and seasonally weak quarter. The management expects
margins to be in the band of 24-26% in near term while 24-25% in FY17E.
H1FY17 deal wins up ~20% compared to H1FY16
6M
12M
Infosys won six large deals worth US$1.2 billion during the quarter
(4.3)
(2.8)
crossing billion dollar deal win rate for the first time. Its total order book
3.3
10.2
for H1FY17 was up ~20% vs. H1FY16. The company added a client and
(7.1)
(10.6)
two clients each in US$100 mn+ and US$50 mn+ revenue bucket lending
(15.3)
(10.8)
comfort that Infosys could maintain its revenue guidance for FY17E and
could report double digit in FY18E once macro environment improves.
Maintain BUY with revised target price of | 1175
Infosys is trading at an attractive valuation of 14.9x FY18 EPS. Also, its
dividend yield of ~2.5% limits the downside. We now anticipate Infosys
revenues will grow at a CAGR of 10.6% with average EBIT margin of
24.9% over FY16-18E. Hence, we maintain our BUY recommendation on
Infosys with revised price target of | 1175 (17x its FY18E EPS).

Changed from | 1,290 to | 1,175

Changed from | 64.7 to | 62.3
Changed from | 71.8 to | 69.1
Unchanged

Quarterly Performance
Revenue
EBIT
EBIT (%)
PAT

Infosys (INFTEC)

Buy
| 1175
12 months
12%

ICICI Securities Ltd | Retail Equity Research

Variance analysis
Q2FY17 Q2FY17E
Revenue
Employee expenses

Q2FY16

YoY (%)

Q1FY17

QoQ (%)

Comments
Infosys' $ revenue growth of 3.5% sequentially was well below our expectation of
3.1 2.4%
2.5

17,310
10,538

17,151
10,396

15,635
9,366

10.7
12.5

16,782
10,281

Gross Profit
Gross margin (%)
Selling & marketing costs
G&A expenses
EBITDA
EBITDA Margin (%)
Depreciation
EBIT

6,772
39.1
897
1,142
4,733
27.3
424
4,309

6,755
39.4
943
1,166
4,645
27.1
409
4,236

6,269
40.1
843
1,075
4,351
27.8
358
3,993

8.0
-97 bps
6.4
6.2
8.8
-49 bps
18.4
7.9

6,501
38.7
920
1,134
4,447
26.5
400
4,047

4.2
38 bps
-2.5
0.7
6.4
84 bps
6.0
6.5

EBIT Margin (%)

Other income
PBT
Tax paid
PAT

24.9
760
5,068
1,460
3,608

24.7
700
4,935
1,401
3,534

25.5
793
4,786
1,387
3,399

-65 bps
-4.2
5.9
5.3
6.1

24.1
753
4,800
1,362
3,437

The EBIT margin performance was better than expectation due to a better
78 bps operational efficiency
0.9
5.6
7.2
5.0 The bottomline was above our expectation

199,829
15.7
82.5
66.9

190,000
15.0
81.0
66.9

187,976
15.0
81.3
65.4

6.3
73 bps
120 bps
2.4

197,050
15.8
80.5
67.1

Key Metrics
Closing employees
LTM attrition-standalone (%)
Utilisation - IT Services (%)
Average $/|

1.4
-10 bps
200 bps
-0.3

Source: Company, ICICIdirect.com Research

Change in estimates
(| Crore)
Revenue
EBIT
EBIT Margin (%)
PAT

Old
70,022
17,735
25.3
14,793

EPS (|)

64.7

FY17E
New % Change
68,931
-1.6
17,021
-4.0
24.7
-69 bps
14,246
-3.7
62.3

Old
78,825
19,601
24.9
16,402

FY18E
New % Change
76,387
-3.1
19,123
-2.4
25.0
12 bps
15,792
-3.7

-3.7

71.8

69.1

-3.7

Comments

We have fine-tuned our estimates to reflect Q2FY17 results and lower guidance

Source: Company, ICICIdirect.com Research

Assumptions

Closing employees
Utilisation - IT Services (%
Average $/|

FY15
176,187

FY16
194,044

Current
FY17E
210,818

FY18E
225,628

Earlier
FY17E
210,818

FY18E
225,628

Comments

76.4
54.5

80.9
65.7

83.1
67.0

84.3
67.5

83.1
67.0

84.3
67.5

We believe an improvement in utilisation rate will act as a key layer for managing
the EBIT margin

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 2

Company Analysis
Further downgrades revenue guidance to 8-9% (in CC) in FY17E
In constant currency terms, Infosys lowered its guidance to 8-9% growth
for FY17E (vs. earlier guidance of 10.5%-12%) citing a weak macro
environment and RBS deal cancellation while rupee revenue could grow
10.9%-11.9% (based on September 30 rates). We highlight that Infosys
won six deals worth US$ 1.2 billion, which is 20% higher in H1FY17 as
compared to H1FY16. Further, the company aims to achieve a quarterly
run-rate of $1 billion in TCV signings in the coming quarters. We expect
dollar revenues to grow at a CAGR of 9.1% in FY16-18E led by healthy
deal wins, improved win rates, better execution and better utilisation.
Exhibit 1: Dollar revenues may grow at 9.1% CAGR in FY16-18E vs. 9.5% CAGR in FY11-16
12000

25.8

30.0
25.0

8000

20.0

15.8

6000

2446

9501

2501

2587

10288

11317

Q4FY16

FY16

Q1FY17

Q2FY17

FY17E

FY18E

8711
FY15

2407

8249
FY14

10.0

8.3

Q3FY16

7398
FY13

5.8

8.5

15.0
8.2

2392

6994
FY12

8.7

10.9

Q2FY16

6041
FY11

5.6

5.8

9.1

2256

4000
2000

13.3

11.5

Q1FY16

$ million

10000

Dollar revenue

10.0
5.0
0.0

Growth, YoY

Source: Company, ICICIdirect.com Research

Exhibit 2: Infosys growth vs. Nasscom guidance

35
27

25.8
20.0

19

18.7 19.0
16.5
17.0 15.8

16.0
11.6

11
3.0

3
-5
FY09

5.5

-4.9
FY10
Growth, YoY

FY11

FY12

13.0
13.0
13
11.5
9.1
10.2
9.1
9.0
8.0
5.8
5.67.0

FY13

FY14

Company guidance (mid-point)

FY15

FY16

11.0
8.38.5

FY17E

NASSCOM guidance (mid-point)

Source: Company, ICICIdirect.com Research

Growth across geographies and industry segments

Among geographies, India, Europe and Rest of the World grew above
company average with 28.7%, 3.7%, 5.2%, respectively, in constant
currency basis while North America witnessed muted growth of 2.7%
QoQ and among industries BFSI grew by 5.2% in CC basis. This could be
impacted in the coming quarters due to RBS deal cancellation while ECS
and manufacturing & hi-tech witnessed 2.1% growth.

ICICI Securities Ltd | Retail Equity Research

Page 3

Client metric continues to be steady

Client additions and order bookings continue to be healthy as Infosys
added 78 gross clients during the quarter taking the active client base to
1,136 compared to 1126, 1092, in Q1FY17, Q4FY16 end, respectively.
Across bands, one client transitioned to $100-200 million bucket and six
clients transitioned to $10-25 million bucket. Overall, $1 million+
customers increased by three to 577 vs. 574 in Q1. Revenue per Full Time
Equivalent (FTE) for consolidated business increased 0.2% QoQ to
$51,000 vs. $50,900 in Q1 but declined 0.4% YoY. Aspirational target of
the management is to achieve revenue per FTE of $80,000 by 2020.

366

400

399

542

555

558

558

574

577

Q2FY17

500

535

Q3FY16

529

Q2FY16

600

Q1FY16

700

Q1FY17

Exhibit 3: Client contribution $1 million+ increases by 3 to 577 in Q2FY17

448

300
200
100

FY16

Q4FY16

FY15

FY13

FY12

FY11

Clients contributing $1 million+

Source: Company, ICICIdirect.com Research

Operational efficiency leads to upbeat margins

Infosys EBIT margins grew 80 bps QoQ to 24.9% in Q2FY17 above our
expectation of 24.7%. The margin increase was mainly on account of
operational efficiency through improvement in factors such as utilisation
and reduction in onsite effort by 20 bps leading to +140 bps impact
which was offset by increase in third party software cost leading to -40
bps impact. The company has already rolled out ESOPs to mid-to-junior
level employees and could roll out ESOPs to higher level employees also
in coming quarters to retain talent and award existing employees thereby
impacting margins marginally. Looking at the growth trajectory, the
management expects FY17E margins to be in the range of 24-25% while
the medium term expectation continues to be 24-26%.
Exhibit 4: We expect FY17E margins to decline 30 bps YoY to 24.7%
35

24.0

25.5
24.0

24.9

25.5

25.0

24.1

24.9

24.7

25.0

FY18E

25.9

25.8

26

FY17E

29.0

FY16

29.5

29

Q4FY16

32

23

Q2FY17

Q1FY17

Q3FY16

Q2FY16

Q1FY16

FY15

FY14

FY13

FY12

FY11

20

EBIT margin

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 4

Exhibit 5: Attrition declines 10 bps to 15.7%

25
22
18.7
15.4

18.9
17.2

16.7

16.3

15.0

13.4

15.8
13.8

13.6

Q4FY16

16

17.0

Q3FY16

19

15.7

13

Q2FY17

Q1FY17

FY16

Q2FY16

Q1FY16

FY15

FY14

FY13

FY12

FY11

FY10

10

LTM attrition - standalone

Source: Company, ICICIdirect.com Research

Exhibit 6: Utilisation improvement may be key margin lever in FY17E

85
78.2

80
75

80.9 80.2 81.3 80.6 80.1 81.0 80.5

82.5 83.1

84.3

76.4
74.2

72.6

70.7

70

Utilisation - IT Services (ex-trainees)

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 5

FY18E

FY17E

Q2FY17

Q1FY17

FY16

Q4FY16

Q3FY16

Q2FY16

Q1FY16

FY15

FY14

FY13

FY12

FY11

FY10

65

Annual Report Key Takeaways:

Infosys chose Being Infosys. Being More as the theme of the

annual report, with the vision of Renew and New embedded in
the organisation. The company mentioned FY16 as a year of
focus on strategy execution and improvement in several
indicators such as improvement in large deal wins (TCV grew
45% YoY to $2.8 billion in FY16) and revenue from top clients
(Top 10 clients grew by 12.3% in constant currency is visible on
the same front).

New and Renew strategy is helping the company to deepen

employee engagements and has led to attrition coming down to
13.6% in FY16 from 18.9% in FY15.

The company mentions its five strategic focus areas: 1) Building

expansive, lasting relationships with its clients by delivering
differentiated offerings, 2) Delivering solutions and services
leveraging highly cost-effective models, 3) Enhancing
operational process for agility and optimal cost, 4) Attracting
and retaining a global, diverse and high-performing employee
base and 5) Pursuing strategic alliances and acquisitions

In FY16, the company invested | 1,268 crore on infrastructure of

which | 58 crore was spent to acquire 10.8 acres of land in
Bangalore. In FY15, the company invested | 1,889 crore, of
which | 422 crore was spent on acquiring 109.1 acres of land in
Bangalore, Delhi, NCR, Mysore, Pune and Mohali.

During the year, the company made various investments in

subsidiaries and new acquisitions

ICICI Securities Ltd | Retail Equity Research

The company merged its core banking product Finacle

and Edge Services with its platform subsidiary Edgeverve
Systems, for a consideration of | 3,222 crore and | 177
crore respectively. Edgeverve subsidiary continues to lead
on all software front of the company
Acquired Kallidus Inc(doing business as Skava), a leading
provider of digital experience solutions including mobile
commerce and in-store shopping experiences to large
retail clients, in June 2015 in an all cash deal for a total
consideration of ~ | 578 crore
In November 2015, acquired Noah Consulting, a leading
provider of advanced information management consulting
services for oil & gas industry, for a consideration of | 249
crore

Goodwill on consolidation increased to | 3764 crore, 6% of

Networth (FY15: | 3091 crore) on account of acquisitions made
during the year. The management insists on considering the
acquisitions that match their purpose and passion and not
merely for revenue and market share.

Operating cash flow registered a growth of 13.9% YoY to

| 12243 crore. FCF grew 10% to | 15713 crore and OCF/EBITDA
declined marginally to 71.7% from 72.2% in FY15

Page 6

ICICI Securities Ltd | Retail Equity Research

Regarding the remuneration of key managerial personnel in

FY16, Dr Vishal Sikka (CEO & MD) received | 48.73 crore, UB
Pravin Rao (COO) received | 9.28 crore, MD Ranganath (CFO &
Executive VP) received | 3.61 crore (for the period October 12,
2015 to March 31, 2016). The median remuneration of
employees including whole-time directors (WTD) was | 5,20,964
in FY16, an increase of 6.4% over FY15

The company initiatives as Zero Distance, Design Thinking and

newly launched AI platform, Mana is helping company in
bringing incremental innovation, reinventing systems and
process landscapes and bringing productivity

Infosys paid a dividend (including dividend distribution tax) of |

24.25 per share in FY16 with dividend payout ratio of 49.7% (vs.
49.8% in FY15) as compared to its peers TCS 42% and HCL
Tech ~49%

Page 7

Outlook and valuation

Infosys reported better-than-expected Q2FY17 results as operational
performance was better than our estimates but Infosys has lowered its
FY17E constant currency revenue growth guidance to 8-9.0%, which
translates to rupee revenue growth of 10.9%-11.9% (based on September
30 rates).
Infosys is trading at an attractive valuation of 14.9x FY18 EPS. Also, its
dividend yield of ~2.5% limits the downside. Although near term
challenges prevail in the industry, its new and renew strategy along with
its focus on execution will aid in navigating through these headwinds. We
anticipate Infosys revenues to grow at a CAGR of 10.6% with average
EBIT margin of 24.9% over FY16-18E. Hence, we maintain our BUY
recommendation on Infosys with revised price target of | 1175 (17x its
FY18E EPS).
Exhibit 7: One year forward rolling PE
1800
1500
1200
900
600
300

Price

26

22

18

14

Oct-16

Oct-15

Apr-16

Apr-15

Oct-14

Apr-14

Oct-13

Oct-12

Apr-13

Apr-12

Oct-11

Apr-11

Oct-10

Apr-10

Oct-09

Apr-09

Oct-08

Apr-08

Oct-07

Apr-07

10

Source: Company, ICICIdirect.com Research

Exhibit 8: Valuation

FY15
FY16
FY17E
FY18E

Sales
(| cr)
53,319
62,441
68,931
76,387

Growth
(%)
6.4
17.1
10.4
10.8

EPS
(|)
53.9
59.0
62.3
69.1

Growth
(%)
15.8
9.4
5.6
10.8

PE
(x)
19.0
17.4
16.5
14.9

EV/EBITDA
(x)
13.6
11.7
10.4
9.0

RoNW
(%)
22.5
21.8
20.7
20.6

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 8

RoCE
(%)
31.4
30.2
29.0
28.9

Recommendation History vs. Consensus

1,600

90.0

1,400

80.0

1,200

70.0
60.0
50.0

800

(%)

(|)

1,000

40.0

600

30.0

400

20.0

200

10.0

0.0
Sep-14

Dec-14

Feb-15
Price

May-15

Jul-15

Idirect target

Oct-15

Dec-15

Mar-16

Consensus Target Mean

May-16

Jul-16

Oct-16

% Consensus with BUY

Source: Bloomberg, Company, ICICIdirect.com Research

Key events
Date

Event

Jun-14

Infosys appoints Dr Vishal Sikka as the successor to the current CEO, Mr Shibulal, for a period of five years. Earlier he worked with SAP for 12 years

Oct-14

Infosys reports a stellar Q2FY15 earnings under the leadership of Dr Sikka. It also announces a 1:1 bonus issue for equity shareholders

Nov-14

Infosys announces December 2 as record date for allotment of bonus shares

Infosys reports weak Q4FY15 earnings led by energy and telecom weakness. The management guided for 6.2-8.2% revenue growth in US$ terms for FY16E (10-12%
in constant currency). The company also announces a 1:1 bonus issue for equity shareholders for second time in FY15
Infosys reports strong Q1FY16 earnings led by volumes and were above market expectations. The management maintained its 10-12% constant currency growth
guidance but raised its dollar revenue growth guidance to 7.2-9.2% for FY16E
Infosys reports strong Q2FY16 earnings led by volumes, realisaiton and were above market expectations. The management maintained its 10-12% constant currency
growth guidance but lowered its dollar revenue growth guidance to 6.4%-8.4% (7.2-9.2%) for FY16E
Infosys' senior vice-president and global immigration head Vasudeva Nayak quits making it the third top-rung departure after company veterans Samson David and
Anup Uppadhayay quit in quick succession over the past week.
Infosys invests $4 million in Israeli firm Cloudyn and expects an investment to complete in Mid Augist 2016

Apr-15
Jul-15
Oct-15
Jul-16
Aug-16
Aug-16
Aug-16
Sep-16

The Royal Bank of Scotland (RBS) has cancelled a major contract of around $200 million with Infosys after its abandonment to float a separate standalone UK bank Williams & Glyn (W&G)
According to Infosy's management, the pace of work in innovative areas of Artificial Intelligence and open source technologies is dissapointing and only 400 of
23,000 ongoing projects is in the related areas.
In order to expand the bandwidth of the business,the company is splitting its business into 12-15 small business units, each with a revenue of $500-700 million each
with its own P&L responsibility
According to media sources, Infosys executive Vice President Sanjay Purohit resigned , making it the seventh key executive to quit since Vishal Sikka joined

Sep-16
Source: Company, ICICIdirect.com Research

Top 10 Shareholders
Rank
1
2
3
4
5
6
7
8
9
10

Name
Life Insurance Corporation of India
Gopalakrishnan (Sudha)
GIC Private Limited
OppenheimerFunds, Inc.
The Vanguard Group, Inc.
BlackRock Institutional Trust Company, N.A.
Invest AD
Murthy (Rohan)
HDFC Asset Management Co., Ltd.
ICICI Prudential Life Insurance Company Ltd.

Shareholding Pattern
Latest Filing Date % O/S Position (m) Change (m)
30-Jun-16 5.6%
128.6
0.1
30-Jun-16 3.1%
70.8
0.0
30-Jun-16 2.4%
55.0
-0.1
30-Sep-15 2.3%
51.4
-19.2
31-Aug-16 2.2%
50.2
0.3
30-Sep-16 2.2%
49.2
0.5
30-Jun-16 2.0%
46.6
-7.3
30-Jun-16 1.4%
31.8
0.0
30-Jun-16 1.3%
30.6
-2.3
30-Jun-16 1.3%
30.5
0.7

(in %)
Promoter
Public
Others
Total

Dec-15
13.08
86.43
-99.51

Mar-16
12.75
86.76
0.49
100.00

Jun-16
12.75
86.76
0.49
100.00

Value
-126.5m
-44.6m
-40.5m
-20.3m
-20.3m

Shares
-7.3m
-2.9m
-2.3m
-1.3m
-1.2m

Source: Reuters, ICICIdirect.com Research

Recent Activity
Buys
Investor name
ICICI Prudential Asset Management Co. Ltd.
William Blair & Company, L.L.C.
Reliance Nippon Life Asset Management Limited
Schroder Investment Management (Hong Kong) Ltd.
ICICI Prudential Life Insurance Company Ltd.
Source: Reuters, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Value
39.8m
31.0m
13.8m
12.5m
12.2m

Shares
2.6m
1.7m
0.9m
0.7m
0.7m

Sells
Investor name
Invest AD
Fidelity Management & Research Company
HDFC Asset Management Co., Ltd.
BNP Paribas Investment Partners Asia Ltd.
Union Investment Luxembourg S.A.

Page 9

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

| Crore
FY16

FY17E

FY18E

(Year-end March)

53,319

62,441

68,931

76,387

Profit after Tax

Growth (%)
COGS (employee expenses)

Cash flow statement

FY15
6.4

17.1

10.4

10.8

31,814

37,639

42,036

46,418

| Crore
FY15

FY16

FY17E

FY18E

12,329

13,491

14,246

15,792

Add: Depreciation

1,069

1,459

1,677

1,833

(Inc)/dec in Current Assets

(2,004)

(3,096)

(1,689)

(2,217)

Admin expenses

3,663

4,292

4,574

4,965

Inc/(dec) in CL and Provisions

873

842

1,091

977

S&M expenses

2,941

3,431

3,622

4,049

Taxes paid

(6,751)

(5,865)

(5,808)

(6,450)

Total Operating Expenditure

38,418

45,362

50,233

55,431

CF from operating activities

10,752

12,243

12,282

13,266

EBITDA

14,901

17,079

18,698

20,956

(Inc)/dec in Investments*

1,101

88

3,044

3,120

Growth (%)

11.1

14.6

9.5

12.1

(Inc)/dec in Fixed Assets

(2,247)

(2,723)

(2,500)

(2,500)

Depreciation

1,069

1,459

1,677

1,833

CF from investing activities

(1,279)

(3,116)

544

620

Other Income

3,427

3,125

3,044

3,120

Dividend paid & dividend tax

(4,935)

(6,813)

(7,220)

(8,023)

17,258

18,742

20,054

22,243

4,929

5,251

5,808

6,450

12,329

13,491

14,246

15,792

15.8

9.4

5.6

10.8

54

59

62

69

15.8

9.4

5.6

10.8

PBT
Total Tax
PAT
Growth (%)
EPS (|)
Growth (%)

CF from financing activities

Others

(4,935)

(6,813)

(7,220)

(8,023)

Net Cash flow

4,538

2,314

5,606

5,863

(121)

16

Opening Cash

25,950

30,367

32,697

38,303

Closing Cash

30,367

32,697

38,303

44,166

FY16

FY17E

FY18E

Exchange difference

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

Balance sheet
(Year-end March)
Equity Capital

| Crore

Key ratios

FY15

FY16

FY17E

FY18E

(Year-end March)

572

1,144

1,144

1,144

Per share data (|)

FY15

Reserve and Surplus

54,191

60,635

67,661

75,431

EPS

53.9

59.0

62.3

69.1

Total Shareholders funds

54,763

61,779

68,805

76,575

Cash EPS

58.6

65.4

69.7

77.1
335.0

Employee benefit obligations

BV

239.6

270.3

301.0

Debt

DPS

24.5

27.0

30.0

160

256

256

256

Cash Per Share

132.9

143.1

167.6

193.2

Operating Ratios (%)

25.0

24.7

25.0

Deferred Tax Liability

Other non current liabilties

46

115

115

115

54,969

62,150

69,176

76,946

EBIT Margin

25.9

PBT Margin

32.4

30.0

29.1

29.1

Property,plant and equipment

9,125

10,530

11,353

12,019

PAT Margin

23.1

21.6

20.7

20.7

Goodwill

3,091

3,764

3,764

3,764

638

985

985

985

Total Liabilities
Assets

Intangibles

Debtor days

66

66

66

66

Unbilled revenue

19

17

18

19

Available for sale assets

1,345

1,811

1,811

1,811

Creditor days

Other assets

4,864

6,501

6,501

6,501

Return Ratios (%)

30,367

32,697

38,303

44,166

Cash
Investment in CD

RoE

22.5

21.8

20.7

20.6

RoCE

31.4

30.2

29.0

28.9

RoIC

68.9

65.7

67.5

70.5
14.9

Trade receivables

9,713

11,330

12,557

13,915

Unbilled revenue

2,845

3,029

3,678

4,076

Valuation Ratios (x)

Prepayment & O.fin.assets

3,296

4,448

4,261

4,722

P/E

19.0

17.4

16.5

EV / EBITDA

13.6

11.7

10.4

9.0

3.8

3.2

2.8

2.5

Other current assets

975

191

191

191

Total Current Assets

47,196

51,695

58,990

67,070

EV / Net Sales

140

386

181

201

Market Cap / Sales

4.4

3.8

3.4

3.1

Unearned revenue

1,052

1,332

1,360

1,507

Price to Book Value

4.3

3.8

3.4

3.1

Trade payables
OCL & provisions

10,188

11,516

12,784

13,595

Solvency Ratios

Total Current Liabilities

11,383

13,239

14,330

15,307

Debt/EBITDA

Net Current Assets

35,813

38,456

44,660

51,763

Debt / Equity

Application of Funds

54,969

62,150

69,176

76,946

Current Ratio

1.9

1.9

1.9

1.9

Quick Ratio

1.9

1.9

1.9

1.9

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 10

ICICIdirect.com coverage universe (IT)

CMP
M Cap
EPS (|)
(|)
TP(|) Rating
(| Cr) FY16 FY17E FY18E
Sector / Company
482
500 Hold
5,427 29.0 33.3 38.6
Cyient (INFENT)
1,500 1,412
Sell
6,183 87.9 90.5 100.9
Eclerx (ECLSER)
42
54
Buy
2,791
4.0
5.1
5.7
Firstsource (FIRSOU)
809
950
Buy 114,178 40.1 57.2 63.2
HCL Tech (HCLTEC)
1,052 1,175
Buy 240,449 59.0 62.3 69.1
Infosys (INFTEC)
127
142 Hold
2,533 14.7 12.8 14.2
KPIT Tech (KPISYS)
489
595 Hold
8,206 32.9 34.8 39.6
Mindtree (MINCON)
426
475 Hold
2,588 45.8 44.4 47.5
NIIT Technologies (NIITEC)
640
690 Hold
5,122 37.2 40.0 47.0
Persistent (PSYS)
2,329 2,600
Buy 456,083 123.2 132.2 144.7
TCS (TCS)
421
600
Buy 41,357 34.5 34.0 38.1
Tech Mahindra (TECMAH)
479
560 Hold 118,027 36.1 33.7 37.5
Wipro (WIPRO)
Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

P/E (x)
EV/EBITDA (x)
FY16 FY17E FY18E FY16 FY17E FY18E
16.6 14.5 12.5 11.2
9.2
7.8
17.1 16.6 14.9 11.6 10.9
9.5
10.6
8.3
7.4
8.1
6.4
4.9
20.2 14.1 12.8 15.5 10.0
8.7
17.8 16.9 15.2 12.1 10.7
9.3
8.7
9.9
8.9
5.4
5.4
4.8
14.9 14.1 12.3
9.5
8.6
7.6
9.3
9.6
9.0
4.6
4.3
3.7
18.3 17.0 14.5 11.2
9.3
7.4
19.1 17.8 16.2 14.6 13.1 11.8
12.2 12.4 11.1
9.1
8.0
6.7
13.3 14.2 12.8
8.6
8.7
7.1

RoCE (%)
FY16 FY17E FY18E
20.3 20.5 21.6
42.7 38.0 36.2
10.6 12.4 14.5
24.2 28.7 28.2
30.2 29.0 28.9
18.8 15.7 16.0
29.5 28.1 29.5
28.4 26.3 26.8
27.9 27.3 28.1
41.2 36.8 34.1
27.7 27.5 26.9
20.7 18.3 17.9

RoE (%)
FY16 FY17E FY18E
17.1 17.5 17.9
33.5 29.6 28.1
12.7 14.0 13.8
20.8 24.7 23.6
21.8 20.7 20.6
17.2 13.8 13.6
23.1 22.3 23.0
17.6 15.2 14.6
21.2 20.4 20.7
33.1 29.5 27.2
23.1 21.4 20.9
17.9 15.4 14.6

Page 11

RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;

Pankaj Pandey

Head Research

pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai 400 093
research@icicidirect.com

ICICI Securities Ltd | Retail Equity Research

Page 12

ANALYST CERTIFICATION
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this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific
recommendation(s) or view(s) in this report.

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ICICI Securities Ltd | Retail Equity Research

Page 13