Information Technology - HDFC securities - 3QFY19 Result...Information Technology 3QFY19E Results Preview 8 Jan 2019 Amit Chandra [email protected] +91-22-6171 7345 Apurva Prasad

Information Technology

3QFY19E Results Preview

8 Jan 2019

Amit Chandra [email protected] +91-22-6171 7345

Apurva Prasad [email protected] +91-22-6171-7327

Akshay Ramnani [email protected] +91-22-6171 7334

2

3QFY19E RESULTS PREVIEW

3QFY19E: Steady quarter

Tier-1 IT is expected to post the strongest 3Q sequential growth (USD terms) since FY14 on (1) Improved deal trajectory and (2) Revival of core verticals and geographies. Revenue growth for IT sector (coverage universe) is expected at 1.7/8.3% QoQ/YoY (3.9/20.4% QoQ/YoY in INR terms). Tier-1 is expected to grow 1.7/7.6% QoQ/YoY led by HCL Tech and Tier-2 is estimated to grow at 2.1/13.1% QoQ/YoY. Among Tier-2, L&T Infotech and L&T Tech are expected to lead the growth.

Operating performance is expected to improve slightly (+20bps QoQ) supported by INR depreciation, operational efficiencies, offset by cross currency headwinds. The recent underperformance of IT index (~10% vs. NIFTY over trailing 3 months) is a strong accumulation opportunity, IT Index is at ~7% discount to NIFTY valuations. We roll-over valuations to Dec-20E EPS and prefer TCS, INFY from tier-1 IT and L&T Infotech, L&T Tech and Zensar from Tier 2 IT. Within products we like Majesco, considering the recent management change, acceleration in deal wins and improving operational performance.

Within exchanges, BSE is loosing market share in cash (8.3% -43bps QoQ) & currency (44%, -326bps QoQ) while new platforms like StAR FM are registering strong growth (+12.4/121% QoQ/YoY). MCX has witnessed sustained increase in ADTV (+7.9% QoQ, +24% in 9M) despite increase in competition.

Key monitorables: (1) Outlook and commentary of CY19 client IT budgets and evolving US/UK macros, (2) Performance of digital business, (3) Deal trends and outlook of key verticals (BFSI, Retail, CPG), (4) Large account metrics, large deal wins and supply indicators (attrition, sub-contracting), (5) Legacy erosion and rebid pricing pressure and (6) Possible acceleration of non-linear trends like AI, automation.

QoQ USD Revenue Growth Trend

EBITDA Margin Trend

Source : Company, HDFC sec Inst Research

(5)

(2)

1

4

7

10

3QFY16 1QFY17 3QFY17 1QFY18 3QFY18 1QFY19 3QFY19E

TCS Infosys Wipro

HCLT Tech Mahindra(%, QoQ)

10

13

16

19

22

25

28

31

3QFY16 1QFY17 3QFY17 1QFY18 3QFY18 1QFY19 3QFY19E

TCS Infosys Wipro

HCLT Tech Mahindra(%)

3


Currency movements

Source : Bloomberg, HDFC sec Inst Research

62

.1

62.0

61.8

59.8 60

.6 62.0

62.2 63

.5 64.9 65

.9 67.5

66.9

67.0 67

.5

66

.9

64.5

64.3

64.7

64.3

67.0

70.0 72

.1

(5)

0

5

10

15

55.0 57.0 59.0 61.0 63.0 65.0 67.0 69.0 71.0 73.0

2Q

FY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2Q

FY

16

3QFY

16

4QFY

16

1Q

FY

17

2QFY

17

3QFY

17

4Q

FY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

USD-INR Average Change QoQ % - RHS %

1.5

5

1.62

1.65

1.68

1.67

1.58

1.52

1.54

1.55

1.52

1.43

1.4

4

1.31

1.24

1.2

4

1.28

1.31

1.33 1.39

1.35

1.30

1.29

(10)

(8)

(6)

(4)

(2)

0

2

4

6

-

0.50

1.00

1.50

2.00

2Q

FY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2Q

FY

16

3QFY

16

4QFY

16

1Q

FY

17

2QFY

17

3QFY

17

4Q

FY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

GBP-USD Average Change QoQ % - RHS %

1.3

2

1.36

1.37

1.37

1.33

1.25

1.13

1.11

1.1

1

1.10

1.10

1.13

1.12

1.08

1.0

7

1.10 1.

17

1.18 1.23

1.19

1.16

1.14

(15)

(10)

(5)

0

5

10

-

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2Q

FY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2Q

FY

16

3QFY

16

4QFY

16

1Q

FY

17

2QFY

17

3QFY

17

4Q

FY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

EUR-USD Average Change QoQ % - RHS %

0.9

2

0.93

0.90 0.93

0.92

0.86

0.79

0.78

0.7

2

0.72

0.72 0.7

8

0.76

0.75

0.7

6

0.75 0.79

0.77

0.79

0.76

0.73

0.72

(10)

(5)

0

5

10

-

0.20

0.40

0.60

0.80

1.00

2Q

FY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2Q

FY

16

3QFY

16

4QFY

16

1Q

FY

17

2QFY

17

3QFY

17

4Q

FY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

AUD-USD Average Change QoQ % - RHS %

Favourable USD-INR (+4% QoQ) to lever INR revenues, cross currency movements to adversely affect revenues in USD terms by 30-80 bps

4


3QFY19E : Steady performance

COMPANY 3QFY19E

OUTLOOK WHAT’S LIKELY KEY MONITORABLES

TCS GOOD

TCS’ revenue estimated at USD 5,287mn, 1.4/10.4% QoQ/YoY based on 2% QoQ CC and -60bps cross currency impact

EBIT margin estimated at 26.7%, +20bps QoQ supported by INR depreciation

APAT estimated at Rs 81.38bn, 2.7/24.3% QoQ/YoY

Commentary on client budgets for CY19, deal wins (USD 4.9bn TCV in 2Q) and deal pipeline

Digital performance and large account metrics Core vertical (BFSI and Retail & CPG)

performance and outlook (commentary on large NorthAm BFS accounts), commentary on Europe BFS

Infosys GOOD

INFY’s revenue is estimated at USD 2,946mn, 0.9/6.9% QoQ/YoY based on 1.5% CC QoQ and INR revenue estimated at Rs 212.12bn, 2.9/19.2% QoQ/YoY

EBIT margin is estimated at 23.7%, flat QoQ and APAT estimated at Rs 40.38bn, -1.8/9.2% QoQ/YoY

Commentary on client budgets for CY19 Performance of digital, top accounts and large

deal TCV Expect revenue guidance lower band of 6-8% CC

to be increased EBIT margin guidance expected to be

unchanged at 22 to 24% Performance and outlook of BFSI and Retail &

CPG verticals

Wipro AVG

Expect USD revenue to increase by 0.9% QoQ (+1.5% CC) to USD 2,060mn. Excluding the impact of USD 34mn from the restructuring of India PSU, USD revenue growth is 2.4% QoQ in-line with the management guidance of +1-3% CC growth. Alight deal will contribute USD 35mn (+1.7% of rev)

EBITDA margin to expand 349bps to 19.8% due to absence of one-off. IT services EBIT margin is expected to be at 18.1% flat QoQ. Net profit is expected to grow 0.5% QoQ to Rs 21.00bn (+21.8% growth YoY on reported PAT)

4QFY19E guidance is expected to be in the range of 1-3%

Management commentary on sustainability of growth revival in 4Q and FY20E

Progress on the open enrolment status which is very crucial for HPS revival

Margin outlook post rupee volatility and HPS recovery. Commentary on ENU budgets post sharp fall in crude oil prices

5



COMPANY 3QFY19E

OUTLOOK WHAT’S LIKELY KEY MNITORABLES

HCL Technologies AVG

HCLT’s revenue estimated at USD 2,183mn, 4.0/9.8% QoQ/YoY factoring 3% organic. INR revenue estimated at Rs 157.18bn, 5.8/22.7% QoQ/YoY

EBIT margin estimated at 20.1%, flat QoQ and APAT estimated at Rs 25.87bn, 1.8% QoQ

Performance of IMS and ER&D services; large deal wins and commentary. Performance of Mode-1,2,3 business segments and organic business outlook

FY19 revenue guidance (midpoint of 9.5 to 11.5% YoY CC) expected to be unchanged and EBIT margin outlook (expected to be unchanged at 19.5 to 20.5%). Integration plans and details around product acquisition and progress of IPPs

Tech Mahindra AVG

USD revenue to grow by 2.1% QoQ (USD 1,244mn, CC 2.8% QoQ), owing to recovery in core Telecom (+4.0% QoQ). Enterprise growth (+0.8% QoQ) will be muted, led by furloughs

EBITDA margin to expand by 29bps QoQ to 19.0% on account of currency tailwind offset by furloughs. Net profit to grow 2.8% QoQ to Rs 10.94bn led by margin expansion and currency offset by lower other income (forex)

Update on LCC (Network services) stability and growth recovery in the Enterprise business (Healthcare)

Telecom vertical TCV wins and scope of work related to 5G roll-out. Comment on deal pipeline both in Telecom & Enterprise verticals

Margin outlook for 4Q and hedging strategy post the volatility in rupee

L&T Infotech GOOD

LTI expected to post revenue of USD 341mn, 3.7/16.1% QoQ/YoY supported by Pharma and BFSI (Africa) deals. INR revenue estimated at Rs 24.53bn, 5.2/30.2% QoQ/YoY

EBITDA% estimated to be at 20%, -50bps QoQ impacted by large deal transition and APAT estimated at Rs 3.46bn, -13.6/+22.2% QoQ/YoY

Digital revenue performance

Large account performance and new logo additions

Deal pipeline, large deal wins and progress of ramp-up of large deal wins

6



COMPANY 3QFY19E


Mphasis AVG

Mphasis’ revenue estimated at USD 281mn, 2.0/11.7% QoQ/YoY and INR revenue estimated at Rs 20.06bn, 4.8/20.8% QoQ/YoY

EBIT margin estimated at 15.6%, -90bps QoQ impacted by wage increase, and APAT estimated at Rs 2.50bn

HP-DXC channel performance and growth outlook

Direct core performance and growth outlook and Blackstone portfolio wins, TCV in Direct International

Performance and outlook of Digital Risk

L&T Tech GOOD

LTTS’ revenue estimated at USD 185mn, 4.2/22.2% QoQ/YoY including 1% inorganic supported by Industrial product and Exxon deal and INR revenue at Rs 13.29bn, 5.0/37.1% QoQ/YoY

EBITDA margin estimated at 18.2%, flat sequentially and APAT estimated at Rs 1.78bn

Large accounts’ performance and outlook Commentary on verticals and performance of

Process industry, Industrial product Deal trends and margin outlook Commentary on tariff war impact on client

spend

Mindtree GOOD

Mindtree’s revenue estimated at USD 252mn, 2.5/17.8% QoQ/YoY and INR revenue estimated at Rs 18.18bn, 3.6/32.0% QoQ/YoY

EBITDA margin estimated at 15.6%, +24bps QoQ supported by INR depreciation

APAT is estimated at Rs 1.88bn

Top account performance and outlook Digital revenue performance and TCV of digital

deals Performance of top-10 accounts and outlook,

TCV of total deal wins

7



COMPANY 3QFY19E


Hexaware Technologies*

AVG

Hexaware’s revenue estimated at USD 177mn, 3.6/13.5% QoQ/YoY and INR revenue estimated at Rs 12.76bn, 5.5/27.0% QoQ/YoY

EBITDA% estimated at 15.9%, -84bps QoQ due to full-qtr impact of wage increase and APAT estimated at Rs 1.62bn

IMS/BPM performance TCV of net-new deal bookings and inorganic

strategy Large accounts’ performance and outlook Enterprise solutions performance and offshore

revenue growth

Cyient BAD

Expect USD revenue de-growth of 0.5% QoQ (+0.3% CC) to USD 168mn) led by seasonally weak DLM. Services (88% of rev) will grow by 1.5% QoQ while DLM (12% of rev) will de-grow 13% QoQ

EBITDA margin will expand 43bps QoQ to 14.1% due to currency tailwind offset by furloughs

Net profit to decline 4.0 QoQ to Rs 1.22bn led by lower other income (-42% QoQ)

Growth guidance for FY19E and order bookings in DLM and Services business

Possible indicators for recovery in Aerospace & Defense vertical and sustainability of growth momentum in communication and Transportation verticals

Possibility of margin expansion in DLM business with order bookings

Margin outlook post currency volatility and clarity on NBA program investments

Zensar Technologies AVG

Expect USD revenue growth at 1.7% QoQ (USD 140mn, CC 2.0% QoQ) led by ramp-up of large deal wins offset by furloughs and retail client impact

EBITDA margin to expand 82ps QoQ to 13.7% led by improvement in core business and currency benefits for the quarter

Net profit is likely to de-grow by 3.6% QoQ to 0.90bn led by lower other income (exchange gain will fall to Rs 0.13bn vs Rs 0.35bn QoQ)

Update on the disposal of the non-core business

Deal pipeline, Total TCV wins and update on the execution of recent large deal wins

Outlook on margins considering rupee volatility and rise in sub-con expenses

Performance of the recent acquisitions and performance of Retail vertical and Hi-Tech verticals

8



COMPANY 3QFY19E


Persistent Systems BAD

Persistent is expected to post revenue of USD 121mn, 2.2/-1.4% QoQ/YoY and INR revenue estimated at Rs 8.70bn, 4.1/9.8% QoQ/YoY

Revenue impacted by softer services & digital segment and volatility in re-seller component in alliance business

EBITDA margin estimated to be flat at 17.1%, -12bps QoQ. APAT estimated at Rs 0.90bn, 1.6/-2.3% QoQ/YoY

Performance of Alliance business and outlook Digital segment performance and ISV

performance Margin outlook and MD/CEO announcement Expect change in capital allocation policy

(buyback)

eClerx Services AVG

eClerx’ revenue estimated at USD 51mn, 1.8/4.1% QoQ/YoY and INR revenue estimated at Rs 3.85bn

EBIT margin estimated at 22.6% and APAT estimated at Rs 0.71bn, 1.6% QoQ

Outlook of Finance and Digital verticals and seat expansion plans in NorthAm

Growth/ margin outlook Performance of top accounts and emerging

accounts

KPIT Technologies AVG

KPIT’s revenue is estimated at USD 154mn, 0.9/9.0% QoQ/YoY and INR revenue estimated at Rs 11.08bn, 2.7/21.4% QoQ/YoY impacted by deceleration in PES (furlough seasonality)

EBITDA margin estimated at 13.6%, flat QoQ and APAT estimated at Rs 0.90bn, 9.5/46.1% QoQ/YoY

PES, Automotive vertical performance and outlook

SAP and IES performance and margin outlook Birlasoft transaction update

9



COMPANY 3QFY19E


Sonata Software GOOD

We expect International IT services (IITS) USD revenue to grow by 2.5% QoQ to USD 40mn led by OPD and Travel vertical offset by seasonality

International IT services/DPS EBITDA margin is expected to be at 21.5/3.7%

Consolidated revenue will stand at Rs 7.76bn up 30.9% QoQ due to DPS seasonality (DPS business is measured on absolute EBITDA)

DPS revenue will grow by 49.7% QoQ to Rs 4.88bn and EBIDTA will grow 1.4% QoQ to Rs 0.18bn

Consolidated EBITDA margin will be at 10.3% down 217bps QoQ

Net profit is expected to be Rs 0.64bn up 3.0% QoQ

Growth outlook for the IITS segment and investments made in scaling the IP-Led business

Updated on the Platformation strategy and growth of IP-led business

Growth trends in the IPs, namely Rezopia, Halosys and IBIS, and cross-selling efforts

Margin outlook for the IITS and DPS business and possible margin levers

Traction with Top-client and possible account mining opportunity

Intellect Design Arena AVG

We expect USD revenue to decline 3.6% QoQ to USD 52mn due to absence of higher licence revenue booked last quarter. Deal momentum continues to be strong and win-ratio is improving. IGTB and iGCB business segment are performing better than company average while iGTB and iSEEC are yet top pick-up

We expect EBITDA margin of 9.4%, down 62bps QoQ due to absence of licence revenue. R&D capitalisation is expected to be at Rs 0.3bn flat QoQ. EBITDA at Rs 0.36bn is down 7.1% QoQ

APAT is expect at Rs 0.24bn down 24% QoQ but up 97% YoY

Order book growth, Deal funnel size in various business segments and active deal pursuits

Growth outlook for iGTB and iGCB business segments

Gross margin outlook specially after large wins. Amount of R&D being capitalised for new product development

Cash burn rate and ability to fund R&D and pre-sales efforts. Any update on the fund raising plans and possible dilution

10



COMPANY 3QFY19E


Majesco Ltd GOOD

We expect USD revenue of USD 35mn (+3.7% QoQ), led by cloud traction (cloud subscription).

Expect some large deal announcement from the IBM channel, as 3-4 POCs were in final stages of acceptance

Gross margin will stand at 51.0% vs 51.4% QoQ while EBITDA margin will stand at 11.7% (+73 bps QoQ) led by cloud subscription revenue and currency benefit

Net profit to stand at Rs 0.22bn up 7.4% QoQ

Growth drivers for the cloud business (~40% of rev) and stability in the legacy business (~30% of rev)

Update on IBM partnership and progress on the implementation of the Metlife deal

Order-book growth and deal pipe-line both from the IBM and the core channel

Growth potential in cloud subscription revenue (~12% of revenue and high GM)

Update on the strategic commentary from the new CEO, what steps have been taken to streamline the sales engine

11


3QFY19E: Exchanges

COMPANY 3QFY19E


MCX GOOD

We expect revenue to grow 7.8% QoQ to Rs 0.77 bn led by 7.9% QoQ rise in ADTV to Rs 266bn

Bullion/Energy ADTV is up 7.9/42.3% QoQ to Rs 59/114bn while Metals ADTV was down 17.2% QoQ to Rs 90bn

EBITDA margin to expand 272bps to 34.9%, APAT is expected to increase 6.8% QoQ to Rs 0.38bn led be top-line growth and stable other income

Possibility of pricing pressure post launch of commodity derivative trading by competition

Commentary on the launch of new products and options pricing mechanism

Update on Institutional participation in Commodity derivatives

Update on possible volume up-tick from the broking subsidiaries of leading Retail banks

BSE BAD

We expect revenue to decline 0.2% QoQ to Rs 1.15 bn led by 3.0% decline in security services offset by 1.9% growth in services to corporate. Cash ADTV is down 8.5% QoQ to Rs 29.32bn and currency derivative turnover is down 13.5% QoQ

StAR MF orders increased 12.4% QoQ to 9.73mn while INX no of daily trades is up 61% QoQ

EBITDA margin to contract 4bps to 8.7% and APAT will decline 2.4% QoQ to Rs 0.43bn

Management view regarding the continuous fall in cash volume and market share. View on fall in currency derivative volume

Strategy to increase volume in StAR MF platform and expenses incurred in INX

Strategy to gain market share in new emerging segments like SME, StAR MF and Insurance

Update on the performance of commodity derivatives and ability to compete with MCX

CDSL GOOD

We expect revenue to grow 3.4% QoQ to Rs 0.55bn led by annual issuer charges

Annual issuer charges growth will be led by un-listed opportunity and transaction charges is market linked

EBITDA margin to expand 60bps QoQ to 62.4% due to non-linearity

PAT will come at Rs 0.31bn up 3.7% QoQ due to higher revenue and stable other income

Update on the revenue opportunity emerging from the compulsory demat of unlisted public companies

Progress on National Academic Depository and e-warehouse receipts

Update on the e-KYC business and the near term drivers to growth

Dividend payout outlook for the year

12


3QFY19E: Staffing

COMPANY 3QFY19E


TeamLease GOOD

We expect revenue to increase 4.5% QoQ to Rs 11.40bn led by uptick in core staffing business

EBITDA margin will expand 6bps QoQ 2.3% led by higher mark-up and better business mix. APAT will stand at 0.26bn up 5.1% QoQ

Core Staffing+NETAP/Specialised staffing revenue to grow by 4.6/2.8% QoQ and EBITDA margins to stand at 1.9/7.0% respectively in 3QFY19

Core staffing mark-up to remain flat at Rs 738/employee/month

Staffing/NETAP/Specilaised staffing headcount to grow by 2.8/4.1/0.8% QoQ

Growth and margin outlook for Specialised staffing

Possibility of margin increase in core staffing segment

Levers for increasing mark-up in core staffing and NETAP program

Mix of fixed and variable mark-up associates in core staffing business. Update on increase in the non-funding based associates

Update on tax benefits availed under section 80JJAA of the Income Tax Act

13


3QFY19E : Financial summary

Source : Company, HDFC sec Inst Research * YE Dec estimates for Q3CY18

Company NET SALES (USD mn) NET SALES (Rs bn) EBITDA (Rs bn) EBITDA Margin (%) APAT (Rs bn) Adj. EPS (Rs)

3Q FY19E

QoQ (%)

YoY (%)

3Q FY19E

QoQ (%)

YoY (%)

3Q FY19E

QoQ (%)

YoY (%)

3Q FY19E

2Q FY19

3Q FY18

3Q FY19E

QoQ (%)

YoY (%)

3Q FY19E

2Q FY19

3Q FY18

TCS 5,287 1.4 10.4 380.67 3.3 23.2 102.78 0.0 24.0 27.0 27.9 26.8 81.38 2.7 24.3 21.6 21.1 17.4

Infosys 2,946 0.9 6.9 212.12 2.9 19.2 55.19 3.0 14.6 26.0 26.0 27.1 40.38 (1.8) 9.2 9.3 9.4 8.5

Wipro 2,060 0.9 2.4 152.41 4.8 11.5 30.24 27.2 21.3 19.8 16.3 18.2 23.00 0.5 18.8 5.1 5.1 4.8

HCLT 2,183 4.0 9.8 157.18 5.8 22.7 37.56 7.4 26.7 23.9 23.5 23.1 25.87 1.8 17.9 19.1 18.7 16.2

Tech M. 1,244 2.1 2.9 89.57 3.8 15.2 17.06 5.4 34.9 19.0 18.8 16.3 10.94 2.8 16.0 9.8 9.5 10.6

L&T Infotech 341 3.7 16.1 24.53 5.2 30.2 4.9 2.4 52.5 20 20.5 17.1 3.46 -13.6 22.2 20 23.1 16.4

Mphasis 281 2 11.7 20.06 4.8 20.8 3.36 1 22.6 16.8 17.4 16.5 2.5 -7.9 18.8 13.4 14.6 11.3

L&T Tech 185 4.2 22.2 13.29 5 37.1 2.42 5.7 62.9 18.2 18.1 15.3 1.78 -7.4 52.5 17.3 18.7 11.4

Mindtree 252 2.5 17.8 18.18 3.6 32 2.84 5.2 36.9 15.6 15.4 15.1 1.88 -8.8 57.4 11.5 12.6 7.3

Hexaware* 177 3.6 13.5 12.76 5.5 27 2.03 0.2 26.8 15.9 16.7 15.9 1.62 -6.1 33.7 5.4 5.8 4.1

Cyient 168 -0.5 10.6 12.1 2 23.1 1.71 5.2 19.6 14.1 13.7 14.5 1.22 -4 8.1 10.9 11.3 10

Zensar 140 1.7 14.6 10.16 4.7 27.8 1.39 11.4 30.2 13.7 12.9 13.4 0.9 -3.6 52.9 3.9 4.1 2.6

Persistent 121 2.2 -1.4 8.7 4.1 9.8 1.48 3.3 7.9 17.1 17.2 17.4 0.9 1.6 -2.3 11.2 11 11.5

eClerx 51 1.8 4.1 3.85 8.2 13.3 0.98 18 8.5 25.5 23.4 26.6 0.71 1.6 23.8 18.4 18.1 14.9

KPIT Tech. 154 0.9 9 11.08 2.7 21.4 1.51 3 52.7 13.6 13.6 10.8 0.9 9.5 46.1 4.6 4.2 3.1

Sonata 40 2.5 7.2 7.76 30.9 1.3 0.8 8.1 23 10.3 12.5 8.5 0.64 3 30.3 6.2 6 4.8

Intellect 52 -3.6 25.1 3.77 -1 39.2 0.36 -7.1 121.2 9.4 10.1 5.9 0.24 -23.9 97.1 1.9 2.5 1

Majesco 35 3.7 11.1 2.54 4.8 22.6 0.3 11.8 214.6 11.7 10.9 4.5 0.22 7.4 NM 7.9 7.4 -4.6

HGS 165 -0.1 9.7 11.91 2.8 22 0.84 8.4 -14.4 7.1 6.7 10.1 0.38 -15 -1.3 18.3 21.5 18.5

Aggregate 15,884 1.7 8.3 1,152.64 4.1 20.2 267.75 4.9 23.4 23.2 23.0 22.6 198.91 0.5 19.6

TeamLease NA NA NA 11.4 4.5 24.2 0.26 7.2 44.1 2.3 2.2 1.9 0.26 5.1 42.6 15.4 14.6 10.8

MCX NA NA NA 0.77 7.8 22 0.27 16.9 74.2 34.9 32.2 24.5 0.38 6.8 104.4 7.5 7 3.7

BSE NA NA NA 1.15 -0.2 -8.6 0.1 -0.6 -70.2 8.7 8.8 26.8 0.43 -2 -26.8 8.8 8.3 11.9

CDSL NA NA NA 0.55 3.4 7 0.34 4.4 9.8 62.4 61.8 60.8 0.31 3.7 22.7 3 2.9 2.4

Aggregate 13.86 2.7 17.0 0.97 (3.5) (5.0) 8.5 9.1 10.5 1.39 (2.7) 10.8

14


Peer valuation

Source: HDFC sec Inst Research, * Dec Y/E, Note: Tata Elxsi & HGS TP implies Fair Value

Company MCap

(Rs bn)

CMP

(Rs)

TP

(Rs) RECO

EPS (Rs) P/E (x) RoE (%) $ Rev

CAGR%

FY18-21

EPS

CAGR%

FY18-21 FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E

TCS 7,105 1,894 2,460 BUY 68.8 85.2 95.1 105.0 27.5 22.2 19.9 18.0 30.1 37.4 39.9 40.4 10.3 15.1

Infosys 2,915 670 830 BUY 33.9 37.7 42.2 47.4 19.8 17.8 15.9 14.1 24.5 24.5 26.0 26.5 9.2 11.9

Wipro 1,473 326 325 NEU 17.7 19.3 21.3 23.2 18.4 16.8 15.3 14.0 16.5 17.5 17.0 16.6 4.3 9.4

HCL Tech 1,316 945 1,255 BUY 64.8 74.8 82.8 89.8 14.6 12.6 11.4 10.5 25.3 26.2 25.6 24.3 11.7 11.5

TechM 614 690 830 BUY 42.7 47.0 52.0 56.6 16.2 14.7 13.3 12.2 21.5 20.8 20.1 19.3 6.9 9.9

Tier-1 IT AVG 19.3 16.8 15.1 13.8 23.6 25.3 25.7 25.4 8.5 11.5

Tier-1 IT Median 18.4 16.8 15.3 14.0 24.5 24.5 25.6 24.3 9.2 11.5

LTI 290 1,688 2,265 BUY 67.1 88.0 94.4 106.0 25.2 19.2 17.9 15.9 33.2 35.8 32.2 30.7 14.7 16.5

Mphasis 179 925 1,335 BUY 45.5 56.1 65.9 82.9 20.3 16.5 14.0 11.2 14.6 19.8 22.8 24.7 11.3 22.1

LTT 169 1,650 2,055 BUY 46.4 68.4 79.6 98.7 35.5 24.1 20.7 16.7 27.7 32.7 30.6 29.7 20.5 28.6

Mindtree 135 821 1,135 BUY 29.5 46.5 52.5 58.5 27.8 17.6 15.6 14.0 21.4 25.7 25.0 24.0 14.1 25.6

Hexaware * 98 329 475 BUY 16.9 20.9 23.2 26.4 19.5 15.7 14.1 12.4 26.9 28.6 27.3 26.8 12.9 16.2

Cyient 68 606 804 BUY 38.6 41.2 46.6 51.5 15.7 14.7 13.0 11.8 18.1 18.7 19.1 18.9 10.8 10.1

Tata Elxsi 61 972 1,145 NR 38.5 46.9 51.5 59.8 25.2 20.7 18.9 16.3 37.0 35.1 31.2 29.8 12.5 15.8

Zensar 52 229 315 BUY 10.6 15.8 17.8 20.5 21.6 14.5 12.8 11.2 15.1 19.4 18.9 18.7 13.3 24.5

Persistent 46 570 800 BUY 40.4 44.4 51.0 59.5 14.1 12.8 11.2 9.6 16.0 15.8 16.3 16.9 8.2 13.8

eClerx 41 1,060 1,195 NEU 70.8 70.9 79.0 96.7 15.0 15.0 13.4 11.0 23.9 22.3 23.9 23.8 6.2 10.9

KPIT Tech 41 207 285 BUY 12.8 17.4 20.5 22.6 16.2 11.9 10.1 9.2 14.8 17.7 18.1 17.4 7.8 21.0

Sonata 32 308 440 BUY 18.6 22.3 25.3 28.1 16.6 13.8 12.2 11.0 31.0 33.4 33.5 33.1 10.7 14.8

Intellect 28 223 310 BUY 3.7 7.4 10.0 16.0 NM 30.3 22.4 13.9 6.5 10.2 12.1 16.8 18.4 47.4

Majesco 14 495 755 BUY (2.1) 27.9 39.2 48.0 NM 17.8 12.6 10.3 (1.5) 14.2 17.2 17.9 19.1 31.3

HGS 14 649 725 NR 93.3 82.7 86.4 92.1 7.0 7.8 7.5 7.0 13.8 11.1 10.6 10.4 7.5 (0.4)

Tier-2 IT AVG 20.0 16.8 14.4 12.1 19.9 22.7 22.6 22.6 12.5 19.3

Tier-2 IT Median 19.5 15.7 13.4 11.2 18.1 19.8 22.8 23.8 12.5 16.5

TeamLease 48 2,815 3,430 BUY 43.0 58.6 73.5 89.9 65.5 48.0 38.3 31.3 18.2 20.4 20.8 20.7 20.8 27.9

MCX 38 743 920 BUY 21.3 27.8 31.5 37.5 34.9 26.7 23.6 19.8 7.9 10.2 11.4 13.1 17.6 20.7

BSE 31 597 900 BUY 46.3 36.2 39.7 44.4 12.9 16.5 15.0 13.5 7.7 5.9 6.4 7.1 4.5 (1.4)

CDSL 24 233 365 BUY 9.9 11.1 12.3 13.8 23.6 21.1 19.0 16.9 17.2 17.4 17.5 17.8 11.6 11.9

AVG 34.2 28.1 24.0 20.4 12.8 13.5 14.0 14.7 13.6 14.8

Median 29.3 23.9 21.3 18.3 12.6 13.8 14.5 15.5 14.6 16.3

15


Disclosure: We, Apurva Prasad, MBA, Amit Chandra, MBA & Akshay Ramnani, CA, authors and the names subscribed to this report, hereby certify that all of the views expressed in 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. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock – Yes Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HDFC Securities Ltd or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purposes without prior written approval of HDFC Securities Ltd . Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HDFC Securities Ltd may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HDFC Securities and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HDFC Securities Ltd, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HDFC Securities Ltd and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report. HDFC Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. HDFC Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business. HDFC Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HDFC Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HDFC Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report. HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475.

Rating Definitions

BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period

NEUTRAL : Where the stock is expected to deliver (-) 10% to 10% returns over the next 12 month period

SELL : Where the stock is expected to deliver less than (-) 10% returns over the next 12 month period

16


HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013 Board : +91-22-6171 7330 www.hdfcsec.com

http://www.hdfcsec.com/

Documents

Information Technology - HDFC securities - 3QFY19 Result...Information Technology 3QFY19E Results Preview 8 Jan 2019 Amit Chandra [email protected] +91-22-6171 7345 Apurva Prasad