INSTITUTIONAL Infosys vs. TCS - PhillipCapitalbackoffice.phillipcapital.in/...TCS-Infy_-_Mar_2016_20160321122910.pdf · INSTITUTIONAL EQUITY RESEARCH Page | 1 | PHILLIPCAPITAL INDIA

INSTITUTIONAL EQUITY RESEARCH

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

Infosys vs. TCS

Premium to accrue over the next few quarters

INDIA | IT SERVICES | Sector Update

21 March 2016

Recent outperformance of Infosys in sharp contrast to the sector Over the last few months, Infosys’ stock has significantly outperformed TCS’ (3m – TCS 1%, Infosys +12%). Even over 6/12 months, Infosys has outperformed (6m Infosys +9% vs. TCS ‐7%; 12m Infosys +4%, TCS ‐13%) – as the company continues to deliver ahead of expectations, in a weak macro environment for Indian IT services.

History points at Infosys gaining a premium vs. TCS soon: We see a build‐up over two years Our analysis of the one‐year‐forward P/E multiples of TCS and Infosys over the last eleven years (since TCS’ listing) reveals that Infosys starts trading at a premium to TCS as soon as its growth rate is about to come at par with TCS. However, TCS needs to report consistently superior growth to trade at a premium to Infosys. Over the last eleven years, TCS has traded at a premium to Infosys in two prolonged periods (October 2007 to April 2008 and April 2011 to December 2015) – when the company had delivered much superior results to Infosys.

We attribute the historical premium that Infosys has enjoyed over TCS to the former’s superior margins pre‐2010. Over 2009‐2014, as its margins fell by 640bps, TCS’ expanded by 490bps – this, along with the latter’s superior growth rate, led to TCS gaining a significant premium over Infosys. We see Infosys reclaiming its industry‐leading growth position over the next two years and expanding margins – therefore, we see TCS’ valuation premium turning into a discount.

Also, we note that the maximum premium/discount that either company has enjoyed over the other has remained ~20% ‐ with a peak at 40%. Overall, the premium that Infosys has had over TCS, in the +/‐ 1σ range, has been 3.4.

Infosys: All set to regain the bellwether tag Infosys’s 3QFY16 guidance‐upgrade implies that the company will report superior growth to TCS in FY16, even if achieves only the lower end of its guidance. The management expects to report industry‐leading growth in FY17 (their internal target is 16% USD revenue growth in FY17), but we expect this to happen by FY18. With its aspirations to reach US$ 20bn in revenues (with US$ 1.5bn from acquisitions and 10% from new services) with EBIT margins of 30% by 2020, we believe the company is all set to regain its bellwether tag.

Over the last seven quarters, Infosys has shown a remarkable turnaround in its operating metrics – the number of its +US$ 200/100/50/30mn clients have increased to 6/14/50/85 from 3/13/42/70. With TCV of US$ 2bn in 9MFY16, it has already surpassed its total deal wins in FY15 (US$ 1.95bn). We expect the strong growth momentum based on these improving operating metrics to continue.

TCS: Signs of the engine slowing down 3QFY16 was the sixth consecutive quarter in which TCS missed expectations, which we see as signs of the large base and high expectations catching up. For TCS to grow in double digits on its current base, it needs to add US$ 1.6bn revenues annually – a herculean task for any company. Given the persistent weakness in its telecom, insurance, and E&U verticals (25% of revenues), we expect TCS to fail to achieve double‐digit growth in FY17 and beyond.

Also, TCS appears to be quite reluctant to adopt the inorganic route to acquire delivery capabilities in the digital space (read our detailed report here, in which we highlighted this as the main rationale for downgrading the sector). While all its competitors – Infosys, Wipro, TechM, and Mindtree – have been acquiring niche companies in the digital space, TCS continues to focus on its in‐house capabilities – which we believe will be difficult to market due to the global ‘perception’ of Indian IT companies.

Upgrading multiple for Infosys – parity turns into premium We upgrade our valuation multiple for Infosys to 20x (from 18x earlier) and TP to Rs 1420 from Rs 1280. For TCS, we maintain our valuation multiple at 18x and TP at Rs 2525. We expect the 10% premium (which we have assigned to Infosys) to gradually expand over the next few quarters. We maintain Buy on Infosys and Neutral on TCS.

Companies Infosys CMP 1195Rating BUYTP 1420Upside 19% TCS CMP 2425Rating NEUTRALTP 2525Upside 4% KEY FINANCIALS INFOSYS Rs Bn FY16E FY17E FY18ENet Sales 617.8 685.1 767.3EBIDTA 170.1 191.6 217.2Net Profit 135.5 152.5 171.7EPS, Rs 59.3 66.7 75.1PER, x 20.2 17.9 15.9EV/EBIDTA, x 14.1 12.3 10.6P/BV, x 4.8 4.3 3.8ROE, % 23.9 23.9 23.7

Source: PhillipCapital India Research Est. TCS Rs bn FY16E FY17E FY18ENet Sales 1,078.9 1,180.0 1,282.3EBIDTA 305.6 321.8 347.6Net Profit 242.3 262.2 288.4EPS, Rs 123.4 133.5 146.8PER, x 19.7 18.2 16.5EV/EBIDTA, x 15.4 14.5 13.4P/BV, x 7.0 5.8 4.9ROE, % 35.6 31.9 29.6

Source: PhillipCapital India Research Est. Vibhor Singhal (+ 9122 6667 9949) [email protected]

http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_IT_Sector_Report_-_Dec_2015_20151222145026.pdf

IT SERVICES SECTOR UPDATE


History points to Infosys trading at a premium soon Our analysis of the one year forward P/E multiple of TCS and Infosys over the last eleven years reveals that Infosys starts trading at a premium to TCS as soon as its growth rate is about to come at par with TCS – while TCS needs to report consistently superior growth to trade at premium to Infosys. Over the last eleven years, TCS has traded at a premium to Infosys in two prolonged periods (Oct‐07 to Apr‐08 and April‐11 to Dec‐15) – during which the company was delivering much superior results to Infosys. One‐year‐forward P/E multiple trend for Infosys and TCS

Infosys’s premium over TCS has had a strong correlation with revenue growth rates

Source: Company, Phillip Capital India Research

5

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25

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Apr/05

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Infosys TCS

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2

4

6

8

Apr/05 Apr/07 Apr/09 Apr/11 Apr/13 Apr/15

+1σ

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8


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0%

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40%

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50%


Infy Rev Gr TCS Rev Gr

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10%

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30%

40%

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60%


Infy PAT Gr TCS PAT Gr

P/E Infosys TCS Premium

Mean 18.6 18.3 0.2

Median 17.8 19.1 0.3

Std Dev 4.2 4.0 3.4

High 30.5 26.9 6.5

Low 10.4 6.9 ‐9.1



The historical premium that Infosys has enjoyed over TCS can be attributed to the superior margins that Infosys used to report pre‐2010. Over 2009‐2014, as the margins for Infosys fell by 640bps, TCS expanded its margins by 490bps. This, along with much superior growth rate, led to TCS trading at a significant premium to Infosys. Over the next two years, as we see Infosys reclaiming its industry leading growth position and expand margins, we see TCS’ valuation premium changing into a discount.

Infosys set to reverse the revenue growth and margin trends over the next two years


Also, we note that the maximum premium/discount that either of the two companies has enjoyed over each other has remained in the range of ~20% ‐ with a peak of 40%. Overall, the premium enjoyed by Infosys over TCS, in the +/‐ 1σ range, has been 3.4. We expect Infosys’ premium over TCS to build up gradually over the next two years. Valuation gap reversing, as the growth and margin trends are expected to reverse


0%

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50%

60%

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

Infosys Revenue GrowthTCS Revenue Growth

23%

25%

27%

29%

31%

33%

35%

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

Infosys MarginsTCS Margins

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15

20

25

Apr/11

Aug/11

Dec/11

Apr/12

Aug/12

Dec/12

Apr/13

Aug/13

Dec/13

Apr/14

Aug/14

Dec/14

Apr/15

Aug/15

Dec/15

30Infosys TCS

0%

5%

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15%

20%

25%

30%

35%

40%

45%

25%

26%

27%

28%

29%

50%30%

Revenu

e Growth

EBITDA

Margins

FY15 FY16E FY17E FY18E

Infosys Margins TCS MarginsInfosys Rev Growth TCS Rev Growth


Recent outperformance of Infosys in sharp contrast to the sector Over the last few months, Infosys’ stock has significantly outperformed TCS’ (3m – TCS +1%, Infosys +12%). Even over 6/12 months, Infosys has outperformed (6m Infosys +9% vs. TCS ‐7%; 12m Infosys +4%, TCS ‐13%) – as the company continues to surprise positively in a weak macro environment for Indian IT services. Quarterly USD revenue growth of Top‐5 Indian IT companies % qoq growth Sep‐14 Dec‐14 Mar‐15 Jun‐15 Sep‐15 Dec‐15TCS 6.4 0.1 (0.8) 3.5 3.0 (0.3)Infosys 3.2 0.8 (2.7) 4.5 6.0 0.6Wipro* 1.8 1.3 (1.2) 1.1 2.1 0.3HCL Tech 1.9 4.0 (0.0) 3.2 0.4 1.4Tech Mahindra 5.2 2.7 6.5 0.5 2.2 0.4

Source: Companies, PhillipCapital India Research Infosys: All set to regain the bellwether tag Infosys’s 3QFY16 guidance upgrade implies that the company will report superior growth to TCS in FY16, even if it achieves the lower end of its guidance. The management expects it to report industry leading growth in FY17 (their internal target of 16% USD revenue growth in FY17) – we expect this to happen by FY18. With its aspirations to reach US$ 20bn in revenues (with US$ 1.5bn from acquisitions and 10% from new services) with EBIT margins of 30% by 2020, we believe the company is all set to regain its bellwether tag. Annual USD revenue growth for the top‐5 Companies FY15 FY16E FY17E FY18ETCS 15.0 7.4 9.4 8.7 Infosys 5.6 9.0 11.0 12.0 Wipro* 7.0 3.7 10.4 6.6 HCL Tech 11.1 8.4 11.5 10.3 Tech Mahindra 18.3 10.5 8.6 9.1

Source: Companies, PhillipCapital India Research Over the last seven quarters, the company has shown remarkable turnaround in operating metrics – the number of its +US$ 200/100/50/30mn clients have increased to 6/14/50/85 from 3/13/42/70. With TCV of US$ 2bn in 9MFY16, it has already surpassed its total deal wins in FY15 (US$ 1.95bn). We expect the strong growth momentum, on these improving operating metrics, to continue. Infosys: Significant improvement in client metrics Infosys: Deal‐flow has been impressive in FY16

0

20406080

100120140160180200

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

$ 25mn $50mn $75mn

$ 100mn $ 200mn $ 300mn

600

450500

700 700600

213

440

688

983

360

0

200

400

600

800

1,000

1,200

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

dealflo

w (U

S$ m

n)




TCS: Signs of the engine slowing down 3QFY16 was the sixth consecutive quarter in which TCS missed expectations. We see these as signs of the large base and high expectations catching up. For TCS to grow in double digits on its current base, it needs to add US$ 1.6bn revenues annually – a herculean task for any company. Given the persistent weakness in telecom, insurance and E&U verticals (25% of revenues), we expect TCS to fail to achieve double‐digit growth rate in FY17 and beyond. TCS has reported below‐expected revenue growth for the last seven quarters

Quarter Expected

Rev Growth Reported

Revenue growth Miss vs.

consensusSegment attributable to weakness

2QFY15 7.0% 6.4% 64bps Diligenta, Telecom, Latin America 3QFY15 0.8% 0.1% 75bps Diligenta 4QFY15 0.8% ‐0.8% 159bps Diligenta, Telecom, E&U 1QFY16 4.2% 3.5% 71bps Diligenta, Latin America, Japan 2QFY16 4.0% 3.0% 103bps Diligenta, Latin America, Japan 3QFY16 0.9% ‐0.3% 116bps Diligenta, Japan, India

Source: Company, Phillip Capital India Research Incremental revenue for TCS – to peak out in FY15

324 1,847 1,985 1,398 1,874 2,011 1,403 1,609 1,605

5.4

29.1 24.2

13.7 16.2 15.0

9.1 9.5 8.7

0

10

20

30

40

0

500

1,000

1,500

2,000

2,500

FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E

YoY grow

th (%

)

Increm

ental Revenue

(US$

mn)

Incremental Revenue (US$ mn) YoY growth (%)

Source: Company, Phillip Capital India Research Also, TCS appears to be quite reluctant to choose the inorganic route to acquire delivery capabilities in the digital space. While all its competitors (Infosys, Wipro, TechM, Mindtree) have been acquiring niche companies in the digital space, TCS continues to focus on its in‐house capabilities – which, we believe, will be difficult to market due to the ‘perception’ of the Indian IT companies. Read our detailed report here, in which we highlighted this as the main rationale for downgrading the sector. Recent acquisitions by Indian companies Company Acquisitions in Traditional Space Acquisitions in Digital Space Infosys Lodestone Skava, Panaya, Noah ConsultingTCS Alti, Neotel ‐ Wipro Cellent, VITEOS, Healthplan DesignitHCL Tech Axon ‐ Mindtree Aztecsoft Discoverture, Bluefin, Relational TechM Satyam, Comviva, BASF, LCC Sofgen

Source: Company, PhillipCapital India Research


http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_IT_Sector_Report_-_Dec_2015_20151222145026.pdf



Valuations Top‐5 Indian IT Services companies’ returns over last two years

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0%

10%

20%

30%

3 months 6 months 12 months 2 years

Infosys TCS Wipro HCL Tech TechM

Source: Companies, PhillipCapital India Research

Financials and valuation snapshot __$ Revenue Growth__ ____EBITDA Margins____ _________EPS_________ ______EPS Growth______Companies FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18ETCS 7.4 9.4 8.7 28.3 27.3 27.1 123 133 147 23.0 8.2 10.0Infosys 9.0 11.0 12.0 27.5 28.0 28.3 59 67 75 9.9 12.5 12.6Wipro 3.7 10.4 6.6 22.0 20.9 20.8 36 37 40 2.2 2.3 9.1HCL Tech 8.4 11.5 10.3 21.8 22.3 22.3 52 59 66 1.9 13.5 11.7Tech Mahindra 10.5 8.6 9.1 15.9 16.3 16.5 30 31 36 7.3 4.9 14.8MindTree 21.7 18.3 14.0 17.9 18.9 19.3 36 44 51 12.4 22.5 16.5Persistent 11.0 10.3 8.7 18.9 18.8 18.8 37 42 46 1.1 14.0 10.2KPIT 0.3 5.0 8.9 13.3 13.5 13.3 14 14 16 14.2 4.3 12.9NIIT Tech 6.7 8.5 11.5 17.7 17.2 17.4 46 50 57 144.6 8.0 15.7 ________ROE________ __________PE__________ _________PB__________ ______EV/EBITDA______Companies FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18ETCS 35.6 31.9 29.6 19.7 18.2 16.5 7.0 5.8 4.9 15.5 14.7 13.5Infosys 23.9 23.9 23.7 20.2 17.9 15.9 4.8 4.3 3.8 13.9 12.3 10.6Wipro 19.7 17.9 17.3 15.3 15.0 13.7 3.0 2.7 2.4 11.1 10.6 10.5HCL Tech 25.3 24.7 23.8 15.7 13.9 12.4 4.0 3.4 3.0 11.8 10.2 9.0Tech Mahindra 18.3 16.8 16.8 16.5 15.7 13.7 3.0 2.6 2.3 10.5 9.8 8.7MindTree 26.7 28.3 28.3 18.5 15.1 12.9 4.9 4.3 3.7 13.1 10.6 8.9Persistent 18.0 17.7 17.0 18.3 16.1 14.6 3.3 2.8 2.5 12.4 11.4 10.3KPIT 16.6 14.8 14.4 10.6 10.1 9.0 1.8 1.5 1.3 6.6 6.1 5.2NIIT Tech 17.7 16.7 16.9 10.7 9.9 8.5 1.9 1.6 1.4 5.6 5.7 4.6

Source: Companies, PhillipCapital India Research Historical valuation charts

10x

15x

20x

25x

0

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400

600

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1000

1200

1400

1600

1800

2000 (Rs) Infosys

6x

12x

18x

24x

0

500

1000

1500

2000

2500

3000

3500

4000 (Rs) TCS

Source: Companies, PhillipCapital India Research

INFOSYS COMPANY UPDATE

Infosys: Financials

Income Statement Y/E Mar, Rs mn FY15 FY16E FY17E FY18ENet sales 533,190 617,781 685,081 767,323Growth, % 6.4 15.9 10.9 12.0Employee expenses ‐318,150 ‐371,594 ‐410,594 ‐457,316Other Operating expenses ‐66,040 ‐76,061 ‐82,895 ‐92,846EBITDA (Core) 149,000 170,127 191,592 217,161Growth, % 11.1 14.2 12.6 13.3Margin, % 27.9 27.5 28.0 28.3Depreciation ‐10,680 ‐13,534 ‐13,197 ‐14,348EBIT 138,320 156,593 178,395 202,813Growth, % 14.9 13.2 13.9 13.7Margin, % 25.9 25.3 26.0 26.4Forex gains/losses 4,750 385 0 0Other Non‐Operating Income 29,510 30,432 34,876 37,364Pre‐tax profit 172,580 187,411 213,271 240,177Tax provided ‐49,290 ‐51,925 ‐60,782 ‐68,450Profit after tax 123,290 135,486 152,489 171,726Others (Minorities, Associates) 0 0 0 0Net Profit 123,290 135,486 152,489 171,726Growth, % 15.8 9.9 12.5 12.6Net Profit (adjusted) 123,290 135,486 152,489 171,726Wtd avg shares (m) 2,286 2,286 2,286 2,286 US$ Revenues FY15 FY16E FY17E FY18EUS$ Revenue ($ mn) 8,711 9,499 10,540 11,805Growth, % 5.6 9.0 11.0 12.0Re / US$ (rate) 61.2 65.0 65.0 65.0 Balance Sheet Y/E Mar, Rs mn FY15 FY16E FY17E FY18ECash & bank 312,410 332,675 371,317 425,831Marketable securities at cost 0 0 0 0Debtors 97,130 113,401 131,385 147,158Inventory 0 0 0 0Loans & advances 62,420 76,253 86,311 96,678Total current assets 471,960 522,329 589,013 669,666Investments 57,650 41,180 48,680 58,680Net fixed assets 128,540 128,216 139,019 150,671Non‐current assets 0 0 0 0Total assets 661,460 693,915 778,902 881,207Total current liabilities 113,830 127,891 140,610 156,758Non‐current liabilities 0 0 0 0Total liabilities 113,830 127,891 140,610 156,758Paid‐up capital 5,720 11,440 11,440 11,440Reserves & surplus 541,910 554,585 626,852 713,009Minorities 0 0 0 0Shareholders’ equity 547,630 566,025 638,292 724,449Total equity & liabilities 661,460 693,915 778,902 881,207

Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY15 FY16E FY17E FY18EPre‐tax profit 172,580 187,411 213,271 240,177Depreciation 10,680 13,534 13,197 14,348Chg in working capital 3,030 ‐16,044 ‐15,322 ‐9,991Total tax paid ‐49,910 ‐50,805 ‐60,782 ‐68,450Other operating activities 0 0 0 0Cash flow from operating activities 136,380 134,096 150,364 176,083Capital expenditure ‐35,360 ‐13,210 ‐24,000 ‐26,000Chg in investments ‐27,710 16,470 ‐7,500 ‐10,000Chg in marketable securities 0 0 0 0Other investing activities 0 0 0 0Cash flow from investing activities ‐63,070 3,260 ‐31,500 ‐36,000Free cash flow 73,310 137,356 118,864 140,083Equity raised/(repaid) 2,860 5,720 0 0Debt raised/(repaid) 0 0 0 0Dividend (incl. tax) ‐160,313 ‐64,177 ‐80,221 ‐85,570Other financing activities 106,493 ‐58,634 0 0Cash flow from financing activities ‐50,960 ‐117,091 ‐80,221 ‐85,570Net chg in cash 22,350 20,265 38,642 54,514 Valuation Ratios

FY15 FY16E FY17E FY18EPer Share data EPS (INR) 53.9 59.3 66.7 75.1Growth, % 15.8 9.9 12.5 12.6Book NAV/share (INR) 239.6 247.6 279.3 317.0CFPS (INR) 46.8 45.4 50.5 60.7DPS (INR) 59.9 24.0 30.0 32.0Return ratios Return on assets (%) 20.1 20.0 20.7 20.7Return on equity (%) 22.5 23.9 23.9 23.7Return on capital employed (%) 24.1 24.3 25.3 25.2Turnover ratios Asset turnover (x) 3.3 3.4 3.4 3.4Sales/Total assets (x) 0.9 0.9 0.9 0.9Sales/Net FA (x) 4.6 4.8 5.1 5.3Working capital/Sales (x) 0.1 0.1 0.1 0.1Receivable days 66.5 67.0 70.0 70.0Liquidity ratios Current ratio (x) 4.1 4.1 4.2 4.3Quick ratio (x) 4.1 4.1 4.2 4.3Dividend cover (x) 0.9 2.5 2.2 2.3Net debt/Equity (%) (67.6) (66.0) (65.8) (58.8)Valuation PER (x) 22.2 20.2 17.9 15.9PEG (x) ‐ y‐o‐y growth 1.4 2.0 1.4 1.3Price/Book (x) 5.0 4.8 4.3 3.8Yield (%) 5.0 2.0 2.5 2.7EV/Net sales (x) 4.5 3.9 3.4 3.0EV/EBITDA (x) 16.2 14.1 12.3 10.6EV/EBIT (x) 17.5 15.3 13.2 11.4


TATA CONSULTANCY SERVICES COMPANY UPDATE

TCS: Financials

Income Statement Y/E Mar, Rs mn FY15 FY16E FY17E FY18ENet sales 946,484 1,078,943 1,179,978 1,282,286Growth, % 15.7 14.0 9.4 8.7Employee expenses ‐532,274 ‐586,068 ‐647,698 ‐710,273Other Operating expenses ‐167,548 ‐187,289 ‐210,447 ‐224,443EBITDA (Core) 246,662 305,586 321,833 347,571Growth, % (1.9) 23.9 5.3 8.0Margin, % 26.1 28.3 27.3 27.1Depreciation ‐18,698 ‐18,934 ‐20,096 ‐22,234EBIT 227,964 286,652 301,736 325,337Growth, % (4.2) 25.7 5.3 7.8Margin, % 24.1 26.6 25.6 25.4Interest paid 0 0 0 0Other Non‐Operating Income 31,396 31,536 41,112 53,992Pre‐tax profit 259,360 317,956 342,843 379,327Tax provided ‐60,828 ‐74,351 ‐78,854 ‐89,142Profit after tax 198,532 243,605 263,989 290,185Others (Minorities, Associates) ‐2,048 ‐1,330 ‐1,800 ‐1,800Net Profit 196,484 242,275 262,189 288,385Growth, % 2.8 23.3 8.2 10.0Net Profit (adjusted) 196,484 242,275 262,189 288,385Wtd avg shares (m) 1,959 1,964 1,964 1,964 US$ Revenues FY15 FY16E FY17E FY18EUS$ Revenue ($ mn) 15,454 16,598 18,154 19,727Growth, % 15.0 7.4 9.4 8.7Re / US$ (rate) 61.2 66.2 65.0 65.0 Balance Sheet Y/E Mar, Rs mn FY15 FY16E FY17E FY18ECash & bank 18,622 41,502 70,671 110,445Marketable securities at cost 0 0 0 0Debtors 204,399 233,714 261,170 283,535Inventory 0 0 0 0Other current assets 250,980 285,314 310,759 337,370Total current assets 474,001 560,530 642,599 731,350Investments 17,543 27,172 67,172 107,172Net fixed assets 257,993 270,481 308,833 352,366Non‐current assets 0 0 0 0Total assets 749,537 858,183 1,018,604 1,190,889Total current liabilities 146,715 151,129 168,664 184,070Non‐current liabilities 18,919 22,523 24,450 26,465Total liabilities 165,634 173,652 193,114 210,535Paid‐up capital 1,957 1,957 1,957 1,957Reserves & surplus 572,810 679,536 818,696 971,759Minorities 9,136 3,037 4,837 6,637Shareholders’ equity 583,903 684,530 825,490 980,353Total equity & liabilities 749,537 858,183 1,018,604 1,190,889

Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY15 FY16E FY17E FY18EPre‐tax profit 259,360 317,956 342,843 379,327Depreciation 18,698 18,934 20,096 22,234Chg in working capital ‐15,057 ‐55,408 ‐33,439 ‐31,555Total tax paid ‐60,828 ‐74,351 ‐78,854 ‐89,142Other operating activities 0 0 0 0Cash flow from operating activities 202,173 207,131 250,647 280,864Capital expenditure ‐40,169 ‐31,421 ‐58,448 ‐65,767Chg in investments 16,946 ‐9,629 ‐40,000 ‐40,000Chg in marketable securities 0 0 0 0Other investing activities 0 0 0 0Cash flow from investing activities ‐23,223 ‐41,050 ‐98,448 ‐105,767Free cash flow 178,950 166,080 152,198 175,096Equity raised/(repaid) 0 0 0 0Debt raised/(repaid) ‐130 ‐223 0 0Dividend (incl. tax) ‐181,042 ‐99,440 ‐123,030 ‐135,322Other financing activities 5,973 ‐36,108 0 0Cash flow from financing activities ‐175,016 ‐143,200 ‐123,030 ‐135,322Net chg in cash 3,934 22,880 29,169 39,775 Valuation Ratios

FY15 FY16E FY17E FY18EPer Share data EPS (INR) 100.3 123.4 133.5 146.8Growth, % 2.8 23.0 8.2 10.0Book NAV/share (INR) 293.4 347.0 417.8 495.8CFPS (INR) 87.2 89.4 106.7 115.5DPS (INR) 79.0 43.3 53.5 58.9Return ratios Return on assets (%) 27.6 30.3 28.1 26.3Return on equity (%) 34.2 35.6 31.9 29.6Return on capital employed (%) 33.6 37.2 33.9 31.3Turnover ratios Asset turnover (x) 1.8 1.9 1.8 1.8Sales/Total assets (x) 1.3 1.3 1.3 1.2Sales/Net FA (x) 3.8 4.1 4.1 3.9Working capital/Sales (x) 0.3 0.3 0.3 0.3Receivable days 78.8 79.1 80.8 80.7Liquidity ratios Current ratio (x) 3.2 3.7 3.8 4.0Quick ratio (x) 3.2 3.7 3.8 4.0Dividend cover (x) 1.3 2.9 2.5 2.5Total debt/Equity (%) 0.2 0.1 0.1 0.1Net debt/Equity (%) (3.0) (6.0) (8.5) (11.2)Valuation PER (x) 24.2 19.7 18.2 16.5PEG (x) ‐ y‐o‐y growth 8.6 0.9 2.2 1.7Price/Book (x) 8.3 7.0 5.8 4.9Yield (%) 3.3 1.8 2.2 2.4EV/Net sales (x) 5.0 4.4 4.0 3.6EV/EBITDA (x) 19.2 15.4 14.5 13.4EV/EBIT (x) 20.8 16.4 15.5 14.3



Stock Price, Price Target and Rating History (Infosys)

N (TP 700)

N (TP 742)

N (TP 807)

N (TP 864)

N (TP 815)

N (TP 790)

N (TP 812)

N (TP 925) N (TP 1000)

N (TP 1000)

N (TP 1000)

N (TP 1000)

N (TP 950)N (TP 920)

B (TP 1200)

B (TP 1230)

B (TP 1200)

B (P 1270)

B (TP 1280)

400

600

800

1000

1200

1400

A‐13 S‐13 N‐13 D‐13 J‐14 M‐14 M‐14 J‐14 A‐14 S‐14 N‐14 D‐14 F‐15 M‐15 M‐15 J‐15 A‐15 S‐15 N‐15 D‐15 F‐16

Stock Price, Price Target and Rating History (TCS)

B (TP 2223)

B (TP 2400)B (TP 2600)

B (TP 2590)

B (TP 2810)

B (TP 2950)

B (TP 3100)

B (TP 3100)

B (TP 3100)B (TP 2860)

B (TP 2800)B (TP 2750)

B (TP 2900)

B (TP 2800)

N (TP 2550)

N (TP 2525)

1600

1800

2000

2200

2400

2600

2800

3000

A‐13 S‐13 N‐13 D‐13 J‐14 M‐14 M‐14 J‐14 A‐14 S‐14 N‐14 D‐14 F‐15 M‐15 M‐15 J‐15 A‐15 S‐15 N‐15 D‐15 F‐16




Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL ‐15% > to < +15% Target price is less than +15% but more than ‐15%

SELL <= ‐15% Target price is less than or equal to ‐15%.

Contact Information (Regional Member Companies)

SINGAPORE: Phillip Securities Pte Ltd 250 North Bridge Road, #06‐00 Raffles City Tower,

Singapore 179101 Tel : (65) 6533 6001 Fax: (65) 6535 3834

www.phillip.com.sg

MALAYSIA: Phillip Capital Management Sdn Bhd B‐3‐6 Block B Level 3, Megan Avenue II,

No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur Tel (60) 3 2162 8841 Fax (60) 3 2166 5099

www.poems.com.my

HONG KONG: Phillip Securities (HK) Ltd 11/F United Centre 95 Queensway Hong Kong Tel (852) 2277 6600 Fax: (852) 2868 5307

www.phillip.com.hk

JAPAN: Phillip Securities Japan, Ltd 4‐2 Nihonbashi Kabutocho, Chuo‐ku

Tokyo 103‐0026 Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141

www.phillip.co.jp

INDONESIA: PT Phillip Securities Indonesia ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A,

Jakarta 10220, Indonesia Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809

www.phillip.co.id

CHINA: Phillip Financial Advisory (Shanghai) Co. Ltd. No 550 Yan An East Road, Ocean Tower Unit 2318

Shanghai 200 001 Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940

www.phillip.com.cn

THAILAND: Phillip Securities (Thailand) Public Co. Ltd. 15th Floor, Vorawat Building, 849 Silom Road,

Silom, Bangrak, Bangkok 10500 Thailand Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921

www.phillip.co.th

FRANCE: King & Shaxson Capital Ltd. 3rd Floor, 35 Rue de la Bienfaisance

75008 Paris France Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017

www.kingandshaxson.com

UNITED KINGDOM: King & Shaxson Ltd. 6th Floor, Candlewick House, 120 Cannon Street

London, EC4N 6AS Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835

www.kingandshaxson.com

UNITED STATES: Phillip Futures Inc. 141 W Jackson Blvd Ste 3050

The Chicago Board of Trade Building Chicago, IL 60604 USA

Tel (1) 312 356 9000 Fax: (1) 312 356 9005

AUSTRALIA: PhillipCapital Australia Level 37, 530 Collins Street

Melbourne, Victoria 3000, Australia Tel: (61) 3 9629 8380 Fax: (61) 3 9614 8309

www.phillipcapital.com.au

SRI LANKA: Asha Phillip Securities Limited Level 4, Millennium House, 46/58 Navam Mawatha,

Colombo 2, Sri Lanka Tel: (94) 11 2429 100 Fax: (94) 11 2429 199

www.ashaphillip.net/home.htm

INDIA: PhillipCapital (India) Private Limited No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013

Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in

Management(91 22) 2483 1919

Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6667 9946(91 22) 6667 9735

Research Infrastructure & IT Services Strategy

Dhawal Doshi (9122) 6667 9769 Vibhor Singhal (9122) 6667 9949 Naveen Kulkarni, CFA, FRM (9122) 6667 9947Nitesh Sharma, CFA (9122) 6667 9965 Logistics, Transportation & Midcap Anindya Bhowmik (9122) 6667 9764Agri Inputs Vikram Suryavanshi (9122) 6667 9951 TelecomGauri Anand (9122) 6667 9943 Media Naveen Kulkarni, CFA, FRM (9122) 6667 9947Banking, NBFCs Manoj Behera (9122) 6667 9973 Manoj Behera (9122) 6667 9973Manish Agarwalla (9122) 6667 9962 Metals TechnicalsPradeep Agrawal (9122) 6667 9953 Dhawal Doshi (9122) 6667 9769 Subodh Gupta, CMT (9122) 6667 9762Paresh Jain (9122) 6667 9948 Yash Doshi (9122) 6667 9987 Production ManagerConsumer Midcap Ganesh Deorukhkar (9122) 6667 9966Naveen Kulkarni, CFA, FRM (9122) 6667 9947 Amol Rao (9122) 6667 9952 EditorJubil Jain (9122) 6667 9766 Oil & Gas Roshan Sony 98199 72726Cement Sabri Hazarika (9122) 6667 9756 Sr. Manager – Equities SupportVaibhav Agarwal (9122) 6667 9967 Pharma & Speciality Chem Rosie Ferns (9122) 6667 9971Economics Surya Patra (9122) 6667 9768Anjali Verma (9122) 6667 9969 Mehul Sheth (9122) 6667 9996Engineering, Capital Goods Mid‐Caps & Database ManagerJonas Bhutta (9122) 6667 9759 Deepak Agarwal (9122) 6667 9944Hrishikesh Bhagat (9122) 6667 9986Sales & Distribution Ashvin Patil (9122) 6667 9991 Sales Trader Zarine Damania (9122) 6667 9976Shubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747 Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745Bhavin Shah (9122) 6667 9974 ExecutionAshka Mehta Gulati (9122) 6667 9934 Mayur Shah (9122) 6667 9945

Corporate Communications

Vineet Bhatnagar (Managing Director)

Jignesh Shah (Head – Equity Derivatives)

Automobiles

http://www.phillip.com.sg/

http://www.poems.com.my/

http://www.phillip.com.hk/

http://www.phillip.co.jp/

http://www.phillip.co.id/

http://www.phillip.com.cn/

http://www.phillip.co.th/

http://www.kingandshaxson.com/

http://www.kingandshaxson.com/

http://www.phillipcapital.com.au/

http://www.ashaphillip.net/home.htm

http://www.phillipcapital.in/


Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.

This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance.

This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.

Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.

Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report.

Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in

this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the

company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this

research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for

any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co‐managed in the previous twelve months, a private or public offering of securities for

the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in

connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report: Sr. no. Particulars Yes/No

1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL

No

2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of thecompany(ies) covered in the Research report

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No4 PCIL or its affiliates have managed or co‐managed in the previous twelve months a private or public offering of securities for the

company(ies) covered in the Research report No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report.

Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.




Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document.

Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorised use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety.

Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. The recipient should carefully consider whether trading/investment is appropriate for the recipient in light of the recipient’s experience, objectives, financial resources and other relevant circumstances. PCIPL and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by the recipient. The recipient is further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek trading/investment advice before investing. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PCIPL and any of its employees, directors, associates, group entities, affiliates are not inducing the recipient for trading/investing in the financial market(s). Trading/Investment decision is the sole responsibility of the recipient.

For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S.‐regulated broker‐dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker‐dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances, and trading securities held by a research analyst account.

This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a‐6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by the U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated, and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor.

In reliance on the exemption from registration provided by Rule 15a‐6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker‐dealer, Decker & Co, LLC. Transactions in securities discussed in this research report should be effected through Decker & Co, LLC or another U.S. registered broker dealer PhillipCapital (India) Pvt. Ltd. Registered office: No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013

Documents

INSTITUTIONAL Infosys vs. TCS - PhillipCapitalbackoffice.phillipcapital.in/...TCS-Infy_-_Mar_2016_20160321122910.pdf · INSTITUTIONAL EQUITY RESEARCH Page | 1 | PHILLIPCAPITAL INDIA