wipro ltd (wipro) | 295 - icici...
TRANSCRIPT
October 18, 2017
ICICI Securities Ltd | Retail Equity Research
Result Update
Strength in BFSI vertical continues...
IT services US$ revenues grew 2.2% QoQ to $2013.5 million, above
our expectation of 1.5% growth at $2000.7 million mainly on account
of cross currency benefits
Constant currency (CC) revenues grew 0.3%, largely in line with our
expectation of 0.5% growth
Consolidated revenues declined 1.5% QoQ to | 13,423.9 crore, below
our expectation of | 13940.1 crore. The decline was led by revenue
decline in IT products (52.9% QoQ). In the IT service business, rupee
revenues grew 1.1% sequentially to | 13,168.9 crore
At 17.3%, IT services EBIT margins improved 50 bps QoQ despite
wage hike and was well above our estimate of 16.5%
Reported PAT of | 2189.5 crore was above our | 2,041.7 crore
estimate, mainly due to upbeat margin performance in the IT business
Wipro has guided that its Q3FY18E IT services revenues would be in
the range of $2014-2054 million, translating to 0-2% QoQ growth in a
seasonally weak quarter
BFSI, Top 10 clients continue to show strength
Wipro reported constant currency revenue growth at 0.3% QoQ in
Q2FY18. Among verticals, growth in reported terms was led by the BFSI
vertical (3.3% QoQ) and manufacturing & hi-tech verticals (1.9% QoQ).
We also highlight that Wipro’s BFSI vertical has grown for three
consecutive quarters in excess of 3% in CC terms, much better than its
peers. Furthermore, its Top 10 clients have grown at 5.1% in reported
currency in Q2FY18 on top of 4.4% growth witnessed in Q1FY18.
Continues its stand on industry matched growth in Q4FY18
Wipro’s commentary continues to turn positive on an incremental basis. It
sees strength in the BFSI vertical and stable demand in the consumer
verticals as these two verticals are adopting digital ahead of the industry.
In terms of healthcare division, though it remains volatile, it expects the
vertical to bottom out in Q3FY18. The management is firm on its
expectation of reaching industry growth rates by Q4FY18. Going ahead,
we expect IT services US$ revenues to grow 6.0% in FY17-19E.
Expects IT service EBIT margin to remain in narrow band of FY17 level
Wipro’s IT services EBIT margins improved 50 bps QoQ at 17.1% despite
the wage hike impact of two months due to an improvement in
productivity and automation (freed up 2500 person month). In Q3FY18, it
expects its IT service margin to come down due to the seasonal impact of
the business. Overall, Wipro expects its FY18 EBIT margin to remain in a
narrow band of FY17 level on a constant currency basis. Wipro reported
IT service EBIT margin of 17.9% in FY17. Overall, we expect IT services
EBIT margin to remain at 17.0%, 17.2% in FY18E, FY19E, respectively.
Positives seem to be priced in; maintain HOLD
Wipro reported a strong margin performance and key matrix such as BFSI
vertical and Top 10 clients. Secondly, the management commentary is
turning positive on an incremental basis. They expect to match industry
growth by Q4FY18. However, we believe these positives are already
priced in the stock. It has run up ~20% in the past 12 months and is
already trading at 14.7x FY19 EPS. Hence, we maintain our HOLD rating
on the stock with a revised target price of | 300/share (15x FY19E).
Rating matrix
Rating : Hold
Target : | 300
Target Period : 12 months
Potential Upside : 2%
What’s Changed?
Target Changed from | 285 to | 300
EPS FY18E Changed from | 18.1 to |19.0
EPS FY19E Changed from | 20.2 to | 20.1
Rating Unchanged
* Adjusted for bonus issue
Quarterly Performance
Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ (%)
Revenue 13,469 13,894 (3.1) 13,626 (1.2)
EBIT 2,305 2,297 0.3 2,174 6.0
EBIT (%) 17.1 16.5 58 bps 16.0 116 bps
PAT 2,191 2,078 5.4 2,062 6.2
Key Financials
| Crore FY16 FY17 FY18E FY19E
Net Sales 51,244 55,040 54,698 59,274
EBITDA 11,171 11,458 9,716 10,647
Net Profit 8,886 8,490 8,577 9,069
EPS (|) 22.6 17.5 19.0 20.1
Valuation summary
FY16 FY17 FY18E FY19E
P/E 16.4 16.9 15.5 14.7
Target P/E 16.7 17.2 15.8 14.9
EV / EBITDA 11.4 10.9 13.5 11.7
P/BV 3.1 2.8 2.7 2.4
RoNW (%) 19.1 16.3 17.7 16.0
RoCE (%) 19.6 16.8 18.0 16.7
Stock data
Particular Amount
Market Capitalization (| Crore) 145,641.5
Total Debt (| Crore) 14,241.2
Cash and Investments (| Crore) 5,271.0
EV (| Crore) 124,434.0
52 week H/L 304 / 205
Equity capital 486.1
Face value | 2
Price performance (%)
1M 3M 6M 12M
TCS 0.2 1.0 1.2 3.8
Infosys 6.6 (2.1) (4.6) (7.5)
Wipro (5.0) 6.7 11.8 20.0
HCL Tech 5.9 7.3 7.3 13.0
Research Analysts
Deepak Purswani, CFA
Deepti Tayal
Wipro Ltd (WIPRO) | 295
ICICI Securities Ltd | Retail Equity Research Page 2
Variance analysis
Q2FY18 Q2FY18E Q2FY17 YoY (%) Q1FY18 QoQ (%) Comments
Revenue 13,469.2 13,940.1 13,893.8 -3.1 13,625.9 -1.2
Decline was led by revenue decline in IT products (52.9% QoQ). In IT services, $
revenues grew 2.2% sequentially mainly on account of cross currency benefits
Employee expenses 8,949.4 9,592.3 9,296.1 -3.7 9,216.8 -2.9
Gross Margin 4,519.8 4,347.8 4,597.7 -1.7 4,409.1 2.5
Gross margin (%) 33.6 31.2 33.1 46 bps 32.4 120 bps
Selling & marketing costs 986.7 978.6 961.4 2.6 1,014.6 -2.7
G&A expenses 708.5 697.8 854.5 -17.1 726.4 -2.5
EBITDA 2,824.6 2,671.4 2,781.8 1.5 2,668.1 5.9
At 17.3%, IT services EBIT margins improved 50 bps QoQ despite wage hike and
was well above our expectation of 16.5%
EBITDA Margin (%) 21.0 19.2 20.0 95 bps 19.6 139 bps
Depreciation 520.0 502.1 484.7 7.3 494.3 5.2
EBIT 2,304.6 2,169.3 2,297.1 0.3 2,173.8 6.0
EBIT Margin (%) 17.1 15.6 16.5 58 bps 16.0 116 bps
Other income 527.5 491.2 367.7 43.5 472.6 11.6
PBT 2,832.1 2,660.5 2,664.8 6.3 2,646.4 7.0
Tax paid 642.6 611.9 590.9 8.7 599.4 7.2
PAT 2,190.7 2,041.7 2,077.5 5.4 2,061.9 6.2 PAT was above our estimates mainly on upbeat margin performance in IT services
Key Metrics
Closing employee Count 163,759 165,000 159,791 2.5 166,790 -1.8
TTM voluntary Attrition (%) 15.7 16.5 16.6 -90 bps 15.9 -20 bps
Utilisation ex trainees (%) 82.5 83.0 82.8 -30 bps 82.1 40 bps
Average $/| 65.4 65.7 68.6 -4.6 66.1 -1.0
Source: Company, ICICIdirect.com Research
Change in estimates
(| Crore) Old New % Change Old New % Change Comments
Revenue 55,110 54,698 -0.7 60,356 59,274 -1.8
EBITDA 10,435 9,716 -6.9 11,718 10,647 -9.1
EBITDA Margin (%) 15.2 16.8 158 bps 15.7 17.1 137 bps
PAT 8,166 8,577 5.0 9,103 9,069 -0.4
EPS (|) 18.1 19.0 5.1 20.2 20.1 -0.3 Tweak estimates to incorporate Q2FY18 results
FY18E FY19E
Source: Company, ICICIdirect.com Research
Assumptions
Current Earlier Current Earlier
FY15 FY16 FY17 FY18E FY18E FY19E FY19E
Closing employee Count 158,217 172,912 181,482 191,482 191,482 203,482 203,482
TTM voluntary Attrition (%) 16.5 16.3 16.4 16.0 16.0 15.0 15.0
Utilisation ex trainees (%) 76.8 76.6 81.0 82.0 81.8 85.0 85.0
Average $/| 62.1 66.3 68.7 65.7 65.7 67.0 67.0
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 3
Conference call highlights:
Management guidance: Wipro has guided that its Q3FY18E IT
services revenues would be in the range of $2014-2054 million,
translating to 0-2% QoQ growth in a seasonally weak quarter. The
management continues to maintain its commentary of reaching
industry growth rates by Q4FY18
Margins: IT services EBIT margins improved 50 bps QoQ at 17.1%
despite the wage hike impact of two months. In Q3FY18, Wipro
expects its IT service margin to come down due to seasonal impact
of the business. Overall, Wipro plans to achieve FY18 EBIT margin
in a narrow band of FY17 IT service EBIT margin on a constant
currency basis. Wipro reported IT service EBIT margin of 17.9% in
FY17
Vertical wise demand outlook: The management highlighted that it
sees strength in the BFSI vertical and stable demand in the
consumer verticals as these two verticals are adopting digital ahead
of the industry. The energy & utilities vertical continues to remain
stable though it got impacted in Q2FY18 by the holiday season in
the Middle East. On the healthcare vertical, the management
expects it continue to be volatile due to concerns around Affordable
Care Act although it is hopeful of it bottoming out in Q3FY18. In
terms of communication business, it witnessed challenges due to
customer specific ramp down and mentions that it has now
bottomed out in Q2FY18
Digital revenues: Digital revenues now account for 24.1% of total
services revenue vs. 22.5% in Q1FY17. In October, 2017, Wipro
acquired Cooper, which would enhance its design and advisory
capability in North America. With growing demand in digital, the
company continues to augment its workforce with digital skills and
has now reached 80,000 technical employees trained on digital
IT products: In the IT product business, the management focus has
turned to profitability. It will focus on the IT product business only
to gain market share in the service business. Consequently, its IT
product business declined 52.9% sequentially to | 298.8 crore. It is
expected to remain at similar levels in coming quarters. This has
helped the company turn profitable in the IT products business in
Q2FY18. The IT product business EBIT margin improved to 2.9% vs.
0.5% in Q1FY18. The division had also reported losses of | 168.1
crore in FY17
Employee details: The company’s closing employee count in IT
services is at 163,759 vs. 166,790. The company could free up 2500
person month through improvement in productivity and
automation. Consequently, its utilisation (ex-trainees) improved 40
bps QoQ at to 82.5% in Q2FY18. In terms of voluntary TTM attrition
rate, it declined 20 bps QoQ to 15.7%
Local hiring in US: Wipro mentioned that locals now form ~52% of
US employees to offset the concerns of H-1B visa issues
ICICI Securities Ltd | Retail Equity Research Page 4
Company Analysis
Operating highlights…
Among verticals, reported currency revenue growth was led by BFSI
(27.6% of revenue), which grew 5.1% QoQ and manufacturing &
technology (22.8% of revenue), which grew 3.4% sequentially. On the
other hand, communications (6.5% of revenue) and healthcare &
lifesciences (13.7% of revenue) declined 1.8% and 5.2% QoQ,
respectively. The management is witnessing strong traction in BFSI and
stable demand in consumer verticals as these two are adopting digital
ahead of the industry. On the healthcare vertical, the management
expects it to continue to be volatile due to concerns around Affordable
Care Act although it is hopeful of it bottoming out in Q3FY18. In terms of
communication business, it witnessed challenges due to customer
specific ramp down and mentions it has now bottomed out in Q2FY18.
Among geographies, quarterly growth was led by APAC and Other
Emerging Markets (11.4% of revenue), which grew 7.4% sequentially
followed by Europe (25.1% of revenue), which grew 5.8% QoQ. Americas
(53.6% of revenue) grew 0.5% while India and Middle East business
(9.9% of revenue) declined 3.2% sequentially.
Among services, in reported terms global infrastructure services analytics
(28.4% of revenue) grew 3.5% followed by BPO (12.2%, 1.2%) product
engineering services (6.9%, 1%) and application services (45.5%, 1.4%).
Exhibit 1: Dollar revenues may grow at 5.8% CAGR in FY17-19E vs. 7.1% during FY11-16
5221
5921
6218
6618
7082
1794
1931
1903
1955
7704
1971
2001
7994
8621
1832
1838
1882
7345
1916
5.0
3.7 3.94.9
2.1
3.8
18.9
13.4
6.4 7.0
0.00.0
0.0
0.0
7.6
4.6 3.5
4.4
1000
3000
5000
7000
9000
11000
FY11
FY12
FY13
FY14
FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
FY17
Q1FY18
Q2FY18
FY18E
FY19E
$ m
illion
0
10
20
%
Dollar revenue Growth, YoY
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 5
Exhibit 2: Wipro vs Nasscom guidance
-5.4
1.5
18.9
5.06.4 7.0
3.7 4.9 3.8
16.0
5.5
18.7
10.213.0 13.0 13.0
7.5
13.416.59.0
-10
0
10
20
30
40
50
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E
%Growth, YoY NASSCOM guidance
Source: Company, ICICIdirect.com Research
Clients contributing > $1 million grow to 624 vs. 565 in Q1FY17…
Clients contributing >$100 million remain unchanged at nine since
Q3FY17 while three clients transitioned to >$50 million category. The
>$10 million bucket was increased by seven to 170 while eight clients
were added in >$5 million. Furthermore, Wipro’s revenues from the top
client (3.1% of revenue) also grew strongly 9.2% QoQ after a long time.
Revenues from top five (11% of revenue) and top 10 (18% of revenue)
also witnessed decent growth of 9.1% and 5.1%, respectively. The active
customer base is now at 1274 (vs. 1244 in Q1FY18) with the addition of 41
new customers during the quarter.
Exhibit 3: Sequentially, clients contributing >$1 million in revenues increased by 59 YoY
429
475490 501
542 537 533 536 550 550565 571 576
602 602624 627
0
100
200
300
400
500
600
700
FY11
FY12
FY13
FY14
FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
FY17
Q1FY18
Q2FY18
x
$1 million+ clients
Source: Company, ICICIdirect.com Research
We build in EBIT margin of 17.2% in FY19…
Wipro’s IT services EBIT margins improved 50 bps QoQ at 17.1% despite
wage hike impact of two months due to improvement in productivity and
automation (frees up 2500 person month). In Q3FY18, it expects its IT
service margin to come down due to seasonal impact of the business.
Overall, Wipro expect its FY18 EBIT margin to remain in a narrow band of
FY17 level on a constant currency basis. Wipro reported IT service EBIT
margin of 17.9% in FY17. Overall, we expect IT services EBIT margin to
remain at 17.0%, 17.2% in FY18E, FY19E, respectively.
ICICI Securities Ltd | Retail Equity Research Page 6
Exhibit 4: IT services margin at 16.8%
22.7
20.820.7
22.6
22.1
21.020.7
20.2 20.120.5
17.8 17.8
18.3
17.617.9
16.8
17.3
16.717.0
15
17
19
21
23
25
FY11
FY12
FY13
FY14
FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
FY17
Q1FY18
Q2FY18
FY18E
FY19E
%EBIT margin (IT services)
[
Source: Company, ICICIdirect.com Research
Net utilisation improves to 82.5%…
Utilisation (ex-trainees) improved 40 bps QoQ to 82.5%. Gross utilisation
also improved 90 bps at 72.9% In terms of attrition rate, at 15.7%,
voluntary attrition TTM declined 20 bps and still remains at slightly
elevated levels than its peers.
Exhibit 5: At 15.9%, attrition declines QoQ continues to be at elevated levels…
22.7
17.5
13.7
15.1
16.5 16.4 16.4 16.3 16.1 16.3 16.5 16.6 16.3 16.3 16.415.9 15.7 16.0
15.0
10
13
16
19
22
25
FY11
FY12
FY13
FY14
FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
FY17
Q1FY18
Q2FY18
FY18E
FY19E
%
TTM voluntary Attrition
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 7
Exhibit 6: Utilisation drops to 80.3%…
77.0
75.4
73.2 73.0
76.8
79.4
77.2
73.8
76.176.6
78.8
80.2 80.0
81.9
81.080.3
81.8 81.8
85.0
70
75
80
85
90
FY11
FY12
FY13
FY14
FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
FY17
Q1FY18
Q2FY18
FY18E
FY19E
%
Uti lisation ex support (%)
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 8
Annual report key takeaways:
Wipro chose “Be The New”, as the theme of the annual report,
and had set a goal to transform into a future focused company
that harnesses the power of digital and Artificial Intelligence (AI)
to serve its clients. In May 2017, Wipro introduced the new brand
identity of Wipro and rearticulated its values, the Spirit of Wipro
With the growing demand for digital services, digital revenue now
makes up 22.1% of revenue in Q4FY17 from 17.5% in Q1FY17
Wipro’s venture capital arm, Wipro Ventures, has made four new
start-up investments in FY17 to bring its clients new technologies
that are reshaping the future of enterprises, especially in
Cybersecurity, Customer Care Automation, Business Process
Automation and Big Data Lifecycle Management
In the last 18 months, the company has invested over US$1 billion
in acquisitions. In FY17, Wipro completed the acquisition of
Appirio, a leader in cloud application services. In April 2017, it
acquired Infoserver, a Brazilian technology service firm company
enhancing its footprint in Latin America
Wipro mentioned immense progress in localisation in all key
markets was observed. In FY17, the company recruited over 3,000
locals in US, leading to total workforce of 14,000 in US. Also, the
company witnessed good progress on localisation initiatives in
UK, Singapore, Middle East and other parts of the world
Wipro has allotted 243 crore equity shares of | 2/- each as fully-
paid up bonus equity shares, in the ratio of 1:1 to eligible
members as on June 14, 2017, record date for this purpose
Operating cash flow registered growth of 17.6% YoY to | 9,277
crore primarily due to improved working capital management.
FCF grew 50% to | 3,952 crore owing to substantial payments
towards acquisitions. Subsequently, FCF, PAT grew to 46% from
29% in FY16
ICICI Securities Ltd | Retail Equity Research Page 9
Outlook and valuation
Wipro reported better-than-expected IT service EBIT margins in Q2FY18.
For Q3FY18E, it came out with revenue guidance of $2014-2054 million,
which implies growth of 0-2% in a seasonally weak quarter. Reported
currency revenue growth was led by BFSI (grew 5.1% QoQ),
manufacturing & technology (grew 3.4% QoQ) and consumer business
unit (grew 3.3% QoQ) among verticals. Geography wise, APAC and other
Emerging Markets led the growth (grew 7.4% sequentially) followed by
Europe (grew 5.8% QoQ).
Wipro reported a strong margin performance and key matrix such as BFSI
vertical and Top 10 clients. Secondly, the management commentary is
turning positive on an incremental basis and is expected to match
industry growth by Q4FY18. However, we believe these positives are
already priced in the stock. It has run up ~20% in past 12 months and is
already trading at 14.7x FY19 EPS. Hence, we maintain our HOLD
recommendation on the stock with a revised target price of | 300/share
(15x FY19E).
Exhibit 7: One year forward rolling PE
0
200
400
600
800
1000
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
|
Price 24 20 16 12 8
Source: Company, ICICIdirect.com Research
Exhibit 8: Valuation
Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE
(| cr) (%) (|) (%) (x) (x) (%) (%)
FY16 51,244 9.1 22.6 (35.7) 27.2 9.2 18.3 19.4
FY17 55,040 7.4 17.5 (22.7) 23.2 7.5 21.6 22.7
FY18E 55,110 0.1 18.1 3.8 18.3 5.8 22.7 25.6
FY19E 60,356 9.5 20.2 11.5 12.8 4.7 19.1 19.6
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 10
Recommendation History vs. Consensus
0
100
200
300
400
500
600
700
800
Oct-17Jul-17May-17Mar-17Dec-16Oct-16Jul-16May-16Feb-16Dec-15Oct-15
(|
)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
(%
)
Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Bloomberg, Company, ICICIdirect.com Research
Key events
Date Event
Apr-17
Wipro completes its acquisition of InfoServer, a Brazilian technology service firm and financials would start consolidating from Q1FY18. The deal size of the
acquisition was $8.7 million
Jun-17
Wipro increases its stake in IT consulting and software services firm Drivestream to 26.1% after exercising an optionally-convertible note for about US$809,690.
Established in 2001, Drivestream is a management and IT consulting firm specialised in Oracle cloud and ERP solutions.
Jun-17
Wipro collaborates with world's leading provider of open source solutions Red Hat to set up a cloud application factory. Using Red Hat OpenShift Container Platform,
Wipro could develop new cloud based applications without having to rewrite their legacy applications
Jul-17
According to media sources, Wipro Infrastructure Engineering, part of Wipro Enterprises Ltd announces a strategic alliance with Israel Aerospace Industries (IAI) to
make composite aerostructure parts and assemblies in India for the global market. Wipro Infrastructure Engineering will set up a manufacturing facility in India in
partnership with IAI to meet the requirements of global aircraft OEMs and Tier-1 suppliers.
Jul-17
Wipro enters into a partnership with Hewlett Packard Enterprise (HPE) to offer IT infrastructure solutions in a consumption-based or pay-per-use business model for
the enterprises. In this partnership, Wipro will leverage HPE Flexible Capacity to offer flexible and scalable IT infrastructure services in a consumption-based IT
model, accelerate growth and enable digital transformation for its customers.
Sep-17
Wipro wins a five year IT applications management contract from Outokumpu, global leader in stainless steel. Wipro would provide applications management
services for Outokumpu SAP landscape along with legacy applications support
Sep-17 Wipro bags a seven year contract from European energy company, innogy SE to manage the data centre and cloud services
Sep-17
Wipro enters into a partnership with CloudGenix, a leading provider of Software defined Wide Area Networking (SD-WAN) products. Under the partnership, Wipro
would offer its customers end to end managed WAN services.
Oct-17
Wipro Digital signs a definitive agreement to acquire Cooper, design and business strategy consultancy. Wipro Digital is the digital business unit of Wipro.
Acquisition is expected to be closed in Q3FY18.
Source: Company, ICICIdirect.com Research
Top 10 Shareholders Shareholding Pattern
Rank Name Latest Filing Date % O/S Position (m) Change (m)
1 Premji (Azim Hasham) 30-Jun-17 56.6% 2,741.0 0.0
2 Azim Premji Trust 30-Jun-17 16.5% 798.1 0.0
3 Life Insurance Corporation of India 30-Jun-17 3.0% 145.1 21.6
4 ICICI Prudential Asset Management Co. Ltd. 31-Aug-17 1.4% 65.8 -4.9
5 Stewart Investors 31-Jul-17 1.3% 62.9 -2.2
6 BlackRock Institutional Trust Company, N.A. 30-Sep-17 0.9% 44.5 0.2
7 The Vanguard Group, Inc. 31-Aug-17 0.6% 27.8 0.0
8 Azim Premji Philanthropic Initiatives Pvt. Ltd. 30-Jun-17 0.4% 20.1 0.0
9 T. Rowe Price International (UK) Ltd. 30-Jun-17 0.4% 18.2 0.6
10 Norges Bank Investment Management (NBIM) 31-Dec-16 0.3% 15.3 2.3
(in %) Dec-16 Mar-17 Jun-17
Promoter 73.25 73.25 73.18
Public 26.18 26.19 26.26
Others 0.57 0.56 0.56
Total 100.00 100.00 100.00
Source: Reuters, ICICIdirect.com Research
Recent Activity
Investor name Value Shares Investor name Value Shares
Life Insurance Corporation of India 86.5m 21.6m APG Asset Management -38.1m -9.6m
First State Investments (Singapore) 3.3m 0.8m ICICI Prudential Asset Management Co. Ltd. -22.8m -4.9m
Axis Asset Management Company Limited 3.3m 0.7m Lyxor Asset Management -17.9m -4.3m
Grantham Mayo Van Otterloo & Co LLC 3.0m 0.7m Unigestion -13.3m -3.2m
T. Rowe Price International (UK) Ltd. 2.5m 0.6m Somerset Capital Management, L.L.P. -11.4m -2.9m
Buys Sells
Source: Reuters, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 11
.
Financial summary
Profit and loss statement | Crore
FY16 FY17 FY18E FY19E
Total Revenues 51,244 55,040 55,110 60,356
Growth (%) 9.1 7.4 0.1 9.5
COGS 35,672 39,154 39,357 42,897
Other Expenditure 4,787 5,214 5,065 5,487
EBITDA 11,171 11,458 10,435 11,718
Growth (%) 3.2 2.6 (8.9) 12.3
Depreciation 1,485 2,070 2,039 2,233
Other Income 2,338 2,166 2,819 2,946
Exchange difference 163 28 28 28
F.income (558) (518) (577) (577)
Pft. from associates - - - -
PBT 11,466 11,036 10,638 11,854
Growth (%) 2.7 (3.8) (3.6) 11.4
Tax 2,531 2,521 2,447 2,726
PAT before Minority int, 8,935 8,514 8,191 9,127
Minority int. 49 25 25 25
PAT 8,886 8,490 8,166 9,103
EPS 22.6 17.5 18.1 20.2
EPS (Growth %) (35.7) (22.7) 3.8 11.5
Source: Company, ICICIdirect.com Research
Cash flow statement | Crore
FY16 FY17 FY18E FY19E
PAT before minority int. 8,941 8,514 8,191 9,127
Depreciation 1,497 2,311 2,039 2,233
(inc)/dec in Current Assets (1,212) 1,269 (1,338) (2,003)
(inc)/dec in current Liabilities 597 (815) (139) 2,783
Taxes paid (2,694) (2,548) (2,447) (2,726)
CF from operations 7,887 9,277 6,512 9,771
Other Investments (12,498) (10,014) 2,819 2,946
(Purchase)/Sale of Fixed Assets (1,317) (1,965) (2,088) (2,287)
CF from investing Activities (13,816) (11,628) 731 660
Inc / (Dec) in Equity Capital 0 - - -
Inc / (Dec) in sec.loan Funds 3,525 1,312 - -
Dividend & Divendend tax (3,684) (1,073) (1,636) (1,636)
CF from Financial Activities (159) (2,275) (12,636) (1,636)
Exchange rate differences 55 (141) - -
Opening cash balance 15,871 9,905 5,271 (122)
Closing cash 9,905 5,271 (122) 8,673
Source: Company, ICICIdirect.com Research
Balance sheet | Crore
FY16 FY17 FY18E FY19E
Liabilities
Equity 494 486 417 417
Reserves & Surplus 46,023 51,544 47,720 55,764
Networth 46,517 52,030 48,138 56,182
Minority Interest 222 239 264 289
Debt - long term 1,736 1,961 1,961 1,961
Debt - short term 10,786 12,280 12,296 13,466
Deffered Tax Liability 511 661 661 661
Other liabilities & provisions 1,559 1,505 1,514 1,514
Source of funds 61,331 68,677 64,834 74,073
Assets
Goodwill 10,199 12,580 12,589 12,589
Intangible Assets 1,584 1,592 1,596 1,599
PPE 6,495 6,979 7,025 7,075
O.non current assets 3,213 3,201 3,201 3,200
Investments 491 710 710 710
Debtors 10,099 9,884 10,650 11,839
Cash & Cash equivalents 9,905 5,271 (122) 8,673
Investments - short term 20,979 30,178 30,178 30,178
O.current assets 9,437 8,957 9,529 10,342
Trade Payable 6,819 6,549 6,391 7,713
OCL & Provisions 4,251 4,126 4,129 4,420
Application of funds 61,331 68,677 64,834 74,073
Source: Company, ICICIdirect.com Research
Key ratios
FY16 FY17 FY18E FY19E
Per share data (|)
EPS 22.6 17.5 18.1 20.2
BV 118.3 107.0 106.8 124.7
DPS 6.0 2.0 2.0 2.0
Operating Ratios
EBIT Margin 18.9 17.1 15.2 15.7
PAT Margin 17.3 15.4 14.8 15.1
Debtor days 72 66 71 72
Creditor days 49 43 42 47
Return Ratios (%)
RoE 19.1 16.3 17.0 16.2
RoCE 19.6 16.8 17.3 16.8
RoIC 56.9 53.8 44.2 48.8
Valuation Ratios (x)
P/E 12.8 16.6 16.0 14.3
EV / EBITDA 4.7 4.4 5.3 4.1
EV / Net Sales 1.0 0.9 1.0 0.8
Market Cap / Sales 1.4 1.3 1.3 1.2
Price to Book Value 2.4 2.7 2.7 2.3
Solvency Ratios
Debt/EBITDA 1.1 1.2 1.4 1.3
Debt / Equity 0.3 0.3 0.3 0.3
Current Ratio 1.8 1.8 1.9 1.8
Quick Ratio 1.8 1.8 1.9 1.8
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 12
ICICIdirect.com coverage universe (IT)
CMP M Cap EPS (|) P/E (x) RoCE (%) RoE(%)
(|) TP(|) Rating (| Cr) FY16 FY17P FY18E FY16 FY17P FY18E FY16 FY17P FY18E FY16 FY17P FY18E FY16 FY17P FY18E
Cyient (INFENT) 510 545 Hold 5,742 29.0 30.5 35.2 17.6 16.7 14.5 12.1 10.2 8.0 20.3 19.7 20.7 17.8 16.2 16.8
Eclerx (ECLSER) 1,290 1,145 Sell 5,318 87.9 88.4 79.5 14.7 14.6 16.2 9.8 9.9 10.2 42.6 35.4 31.2 33.5 29.5 23.9
Firstsource (FIRSOU) 39 45 Buy 2,582 3.8 4.1 4.4 10.2 9.4 8.9 7.7 6.7 6.0 11.7 12.1 12.1 12.9 11.5 11.0
HCL Tech (HCLTEC) 850 930 Buy 119,994 52.1 60.0 59.6 16.3 14.2 14.3 12.6 10.3 9.7 31.2 30.3 30.6 26.9 26.6 25.1
Infosys (INFTEC) 972 1,040 Hold 222,164 59.0 62.8 64.7 16.5 15.5 15.0 11.0 10.4 10.6 30.2 28.8 31.2 21.8 20.8 22.4
KPIT Tech (KPISYS) 128 140 Hold 2,547 14.1 10.6 11.0 9.1 12.0 11.6 5.4 7.0 6.6 23.7 16.3 16.3 20.4 15.4 12.8
Mindtree (MINCON) 507 470 Hold 8,514 32.9 24.9 26.9 15.4 20.4 18.8 9.9 11.0 11.5 29.1 21.2 24.2 22.9 16.2 18.8
NIIT Technologies (NIITEC) 496 520 Hold 1,777 45.8 43.2 45.3 10.8 10.5 11.0 2.9 2.5 2.2 30.5 29.9 28.1 17.6 14.9 14.1
Persistent (PSYS) 580 700 Buy 4,639 37.2 37.6 40.7 15.6 15.4 14.5 9.7 8.5 7.1 23.8 21.3 20.4 18.1 16.2 15.4
TCS (TCS) 2,399 2,400 Hold 469,892 122.9 133.4 133.1 19.5 18.0 18.0 14.4 13.1 13.1 42.2 38.0 37.6 33.1 29.8 29.5
Tech Mahindra (TECMAH) 429 490 Buy 42,158 31.7 31.8 33.9 13.5 13.5 12.7 8.8 8.7 7.8 25.5 21.9 20.6 21.7 17.2 16.2
Wipro (WIPRO) 269 285 Hold 66,257 22.6 17.5 18.1 11.9 15.4 14.8 4.3 3.9 4.8 19.6 16.8 17.3 19.1 16.3 17.0
Sector / Company
EV/EBITDA (x)
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 13
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 [email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
ICICI Securities Ltd | Retail Equity Research Page 14
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