May 10, 2018
ICICI Securities Ltd | Retail Equity Research
Result Update
Large deal momentum to remain strong…
US$ revenues grew 4.7% QoQ to $122.2 million, better than our
expectation of 2.7% and $119.8 million. Revenues in constant
currency grew 4.3% QoQ
Rupee revenues increased 4.3% QoQ to | 788.8 crore, better than
our estimate of | 771.2 crore
At 18.0%, EBITDA margins expanded 90 bps QoQ, above our 60 bps
expansion and 17.7% estimate mainly on account of increased digital
and product business as well as operational efficiencies
Reported profit grew 13.7% sequentially to | 86.1 crore, ahead of our
estimates of | 83.1 crore on account of a better-than-expected
operating performance. However, it was partly offset by a higher
effective tax rate (22.8% vs. 16.5% in Q3FY18)
Organisation changes driving acceleration in growth…
The management has undertaken a restructuring exercise to drive growth
through changes in the leadership team, reorganising itself as a vertical
driven organisation and modifications in incentive structure. These
changes are visible in NTL key metrics such as Order intake: improved
from $110 million in Q1 to $145 million in Q4FY18; Number of $ mn
clients increased from 72 in Q1FY18 to 80 in Q4FY18; traction in large
deal momentum (H1:2, H2FY18:5 deals); Digital contribution as % of
revenues inching up from 21% in Q1FY18 to 26% in Q4FY18 and Top 5
clients concentration reducing from 33% in Q1 to 29% in Q4FY18. Going
ahead, the management remains positive of winning at least seven large
deals in FY19E.
Expects double digit revenue growth (CC) on organic basis in FY19E…
The company reported healthy growth in the quarter, driven by growth in
insurance segment and digital engagements. Insurance segment grew
12.8% QoQ, led by growth in the NITL business and digital pipeline.
Digital, which now forms 26% of revenues (vs. 21% in Q4FY17) grew 9%
QoQ, 37% YoY. NTL reported 9.7% YoY topline growth in constant
currency (CC) terms. For FY19E, the management expects double digit
growth in revenue on an organic basis in CC terms. The healthy outlook is
on the back of order book attained in FY18, deal win momentum and
positive stance for travel & transport and BFSI. Overall, we expect its
dollar revenues to grow at 12.1% CAGR to US$582 million in FY18-20E.
Healthy margin led by revenue growth, beats estimates…
EBITDA margins expanded 90 bps to 18% in the quarter owing to healthy
revenue growth, growth in high margin segments of digital and
optimisation of SG&A. On the back of healthy outlook on the revenue
front and increasing contribution of high margin digital segments, the
management expects margins in FY19E to be better compared to FY18.
NTL ended FY18 with EBITDA margins of 16.8%. Overall, we build in
EBITDA margin at 17.2% and 17.5% in FY19E and FY20E, respectively.
Growth potential seems to be captured in stock; maintain HOLD…
NIIT Tech reported Q4FY18 results wherein it reported a much better-
than-expected operating performance. The commentary on the outlook
front is positive with strong order intake. Hence, we tweak our estimates
and now anticipate rupee revenue, PAT to grow at a CAGR 12.5%, 17.6%,
respectively, in FY18-20E. However, after the sharp run up in the last six
months, the stock now captures the growth potential leaving limited
upside at the current level. Hence, we maintain our HOLD rating with a
revised target price of | 1075 (17x FY20E EPS).
NIIT Technologies (NIITEC) | 1049
Rating matrix
Rating : Hold
Target : | 1075
Target Period : 12 months
Potential Upside : 2%
What’s changed?
Target Changed from | 775 to | 1075
EPS FY19E Changed from | 52.2 to | 52.9
EPS FY20E Changed from | 59.8 to | 63.2
Rating Unchanged
Quarterly performance
Q4FY18 Q4FY17 YoY (%) Q3FY18 QoQ (%)
Revenue 789 745 5.9 757 4.3
EBITDA 142 156 (9.3) 130 9.4
EBITDA (%) 18.0 21.0 -301 bps 17.1 85 bps
PAT 86 109 (21.0) 76 13.7
Key financials
| Crore FY17 FY18E FY19E FY20E
Net Sales 2,802 2,991 3,371 3,785
EBITDA 485 501 580 662
Net Profit 250 280 325 388
EPS (|) 40.8 45.6 52.9 63.2
Valuation summary
FY17 FY18E FY19E FY20E
P/E 23.4 23.0 19.8 16.6
Target P/E 24.0 23.6 20.3 17.0
EV / EBITDA 6.3 5.6 4.4 3.3
P/BV 3.5 3.5 3.1 2.7
RoNW (%) 14.8 15.1 15.4 16.1
RoCE (%) 29.8 32.8 38.1 44.7
Stock data
Particular Amount
Market Capitalization (| Crore) 3,758.4
Total Debt (| Crore) 6.4
Cash and Investments (| Crore) 410.8
EV (| Crore) 3,354.0
52 week H/L 1190 / 463
Equity capital 61.2
Face value 10.0
Price performance
1M 3M 6M 12M
TechMahindra 4.3 5.0 43.4 53.4
MindTree 23.1 44.9 109.8 104.9
KPIT Tech 16.8 25.7 66.3 101.4
NIIT Tech 17.6 26.8 64.8 98.7
Research Analyst
Deepak Purswani, CFA
Deepti Tayal
ICICI Securities Ltd | Retail Equity Research Page 2
Variance analysis
Q4FY18 Q4FY18E Q4FY17 YoY (%) Q3FY18 QoQ (%) Comments
Revenue 788.8 788.8 744.7 5.9 756.5 4.3
US$ revenues grew 4.7% QoQ to $122.2 million, better than our expectation
of 2.7% and $119.8 million estimate
Employee expenses 500.0 500.0 458.7 9.0 481.1 3.9
Gross Margin 288.8 288.8 286.0 1.0 275.4 4.9
Gross margin (%) 36.6 36.6 38.4 -179 bps 36.4 21 bps
SG&A expenses 147.0 147.0 129.7 13.3 145.8 0.8
EBITDA 141.8 141.8 156.3 -9.3 129.6 9.4
EBITDA Margin (%) 18.0 18.0 21.0 -301 bps 17.1 85 bps
EBITDA margins expanded 90 bps QoQ, above our 60 bps expansion
estimate mainly on account of increased digital and product business as well
as operational efficiencies
Depreciation & amortisation 30.5 30.5 27.9 9.3 31.1 -1.9
EBIT 111.3 111.3 128.4 -13.3 98.5 13.0
EBIT Margin (%) 14.1 14.1 17.2 -313 bps 13.0 109 bps
Other income (less interest) 14.8 14.8 4.4 236.4 0.5 2,860.0
Exceptional items 0.0 0.0 -14.0 NM 0.0 NM
PBT 126.1 126.1 132.8 -5.0 99.0 27.4
Tax paid 28.8 28.8 30.6 -5.9 16.3 76.7
PAT 86.1 86.1 109.0 -21.0 75.7 13.7
Reported profit was ahead of our estimates on account of a better-than-
expected operating performance
Key Metrics
Closing employees 9,423 9,000 8,853 6.4 9,081 3.8
Attrition (%) 10.5 11.5 12.7 -220 bps 10.6 -10 bps
Overall utilisation (%) 79.5 81.0 81.0 -150 bps 79.0 50 bps
Average $/| 64.6 64.7 67.4 -4.2 64.8 -0.4
Source: Company, ICICI Direct Research
Change in estimates
FY19E FY20E
(| Crore) Old New % Change Old New % Change Comments
Revenue 3,298 3,371 2.2 3,664 3,785 3.3
EBITDA 554 580 4.7 623 662 6.3
EBITDA Margin (%) 16.8 17.2 37 bps 17.0 17.5 47 bps
PAT 319 325 1.8 365 388 6.2
EPS (|) 52.2 52.9 1.3 59.8 63.2 5.6 We tweak our estimates owing to change in margin estimates
Source: Company, ICICI Direct Research
Assumptions
Current Current Earlier Current Earlier
FY17 FY18E FY19E FY19E FY20E FY20E
Closing employees 8,853 9,423 10,539 10,581 11,627 11,611
Attrition (%) 12.9 11.2 11.5 11.5 11.5 12.0
Overall utilisation (%) 80.5 79.8 79.8 80.0 81.0 81.0
Average $/| 67.1 64.5 65.0 65.0 65.0 65.0
Source: Company, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 3
Analyst Meet highlights…
We attended NIIT Technologies’ Analyst Meet wherein the management
detailed its changed ‘Agenda of Growth’ citing change which would drive
the growth, its impact and the roadmap ahead.
‘What’ is the change to drive growth- 1) The company has
reorganised itself as a vertical driven organisation from
geography driven with sales, pre-sales and delivery teams aligned
for the industry verticals of BFSI and travel & transport, 2) post
appointment of Sudhir Singh as CEO of the company, various
transitions have been made to the leadership team with addition
in key positions in banking & financials and insurance vertical,
cloud technology team and creation of CTO office to drive
emerging technologies, 3) change in incentive and compensation
structure with increase in large deal bonus payouts and
compensation increments related with increased differentiation
and spread and 4) tweaking in internal processes
‘How’ it impacts the company- The management has undertaken
a restructuring exercise to drive growth through changes in the
leadership team, reorganising itself as a vertical driven
organisation and modifications in incentive structure. These
changes are visible in NTL key metrics such as Order intake:
improved from $110 million in Q1 to $145 million in Q4FY18;
Number of $ mn clients increased from 72 in Q1FY18 to 80 in
Q4FY18; traction in large deal momentum (H1:2, H2FY18:5
deals); Digital contribution as % of revenues inching up from 21%
in Q1FY18 to 26% in Q4FY18 and Top 5 clients concentration
reducing from 33% in Q1 to 29% in Q4FY18. Going ahead, the
management remains positive of winning at least seven large
deals in FY19E.
‘Where’ from here: The road ahead – NTL’s strategy is to engage
with the Emerging by innovate, incubate and industrialise.
Innovate by leveraging emerging technologies to drive
transformation, Incubate by focusing on digital at scale and
industrialize through automation creating impact on businesses
Revenue outlook: Revenues in constant currency grew 4.3% QoQ
in Q4FY18. For Q1FY19E, the management expects CC revenue
growth to be better compared to Q4FY18, despite the weak
seasonality in the GIS business and ramp down in Morris. The
strong outlook for the next quarter is on the back of healthy
momentum in the past three quarters and deal closures. For
FY19E, the management expects double digit growth in revenue
on an organic basis in CC terms owing to a healthy order book
attained in FY18 and deal win momentum
ICICI Securities Ltd | Retail Equity Research Page 4
Company Analysis
Exhibit 1: Geography-wise break up
Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18
Revenue by geography (%)
America 48.0 48.0 49.0 50.0 50.0 48.0
EMEA 34.0 33.0 32.0 29.0 30.0 32.0
RoW 18.0 19.0 19.0 21.0 20.0 20.0
Growth QoQ (%)
America -2.5 7.6 1.5 6.6 1.7 0.5
EMEA 2.6 4.4 -3.6 -5.4 5.2 11.7
RoW -0.4 13.6 -0.6 15.4 -3.2 4.7
Source: Company, ICICI Direct Research
Exhibit 2: Vertical-wise break up
Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18
Revenue by verticals (%)
Banking & financial services 18.0 18.0 17.0 17.0 17.0 16.0
Insurance 24.0 24.0 25.0 25.0 26.0 28.0
Transport 32.0 31.0 29.0 27.0 27.0 26.0
Manfacturing, Med & Others 26.0 27.0 27.0 29.0 27.0 29.0
Government 2.0 2.0 2.0 2.0 3.0 1.0
Growth QoQ (%)
Banking & financial services -5.7 7.6 -6.1 4.4 1.7 -1.4
Insurance 3.9 7.6 3.6 4.4 5.7 12.8
Transport -3.4 4.2 -7.0 -2.8 1.7 0.9
Manfacturing, Med & Others 3.6 11.7 -0.6 12.2 -5.3 12.5
Government NA 0.1 0.0 0.0 0.5 -0.7
Source: Company, ICICI Direct Research
EMEA led the quarterly growth with strong 11.7%
growth on a QoQ basis on account of growth in the NITL
business. This was followed by RoW, which grew on
the back of growth in the GIS business and growth in
the APAC region
BFSI grew 7.2% QoQ driven by growth in the insurance
segment
Travel & transportation was flat sequentially owing to a
delay in start of new projects
ICICI Securities Ltd | Retail Equity Research Page 5
Exhibit 3: Service mix break up
Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18
Revenue by service mix (%)
SI & PI 4.0 6.0 5.0 6.0 5.0 4.0
IP Assets 7.0 6.0 6.0 7.0 7.0 7.0
Managed Services 17.0 17.0 18.0 18.0 19.0 19.0
Application Development & Management 67.0 66.0 66.0 64.0 65.0 66.0
BPO 5.0 5.0 5.0 4.0 4.0 4.0
Growth QoQ (%)
SI & PI 32.8 61.4 -17.1 25.3 -15.3 -16.2
IP Assets -0.4 -7.8 -0.6 21.8 1.7 4.7
Managed Services -0.4 7.6 5.3 4.4 7.3 4.7
Application Development & Management -1.9 6.0 -0.6 1.3 3.3 6.3
BPO -0.4 7.6 -0.6 -16.5 1.7 4.7
Source: Company, ICICI Direct Research
Exhibit 4: Client & human resource matrix
Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18
Client metrics
Between 1 to 5 million 55 55 52 55 59 60
Between 5 to 10 million 10 10 14 13 12 13
Above 10 million 8 8 6 6 7 7
Headcount, Utilization, Attrition
Total Employees 8809 8853 8,963 9,022 9,081 9,423
Utilization 80.0 81.0 81.2 79.5 79 79.5
Attrition 12.6 12.7 12.1 11.4 10.6 10.5
Source: Company, ICICI Direct Research
Growth in digital engagements led the growth for ADM
Attrition rate continues its declining spree since Q4FY17
and declined 10 bps QoQ to 10.5% in the quarter
ICICI Securities Ltd | Retail Equity Research Page 6
Financial story in charts
Exhibit 5: Digital contribution as a percentage of overall revenues continues to inch up
18.0%19.0% 19.0%
21.0% 21.0%
23.0%
25.0%26.0%
10.0%8.8%
-0.4%
18.9%
-0.6%
14.0%
11.0%
8.9%
-2.0%
8.0%
18.0%
28.0%
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
%
Digital as a % of revenue Growth, QoQ
Exhibit 6: Dollar revenues may grow at 12.1% CAGR during FY18-20E
388
100 103 103 111
416
110 115 117
464
519
582
411
122
1.3
9.8 11.3
1.1
6.0
-1.1 -1.5 -0.7
8.6
13.610.6 11.3 11.9 12.3
0
100
200
300
400
500
600
FY15
FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
FY18E
FY19E
FY20E
$ m
illion
-20
-10
0
10
20
30
40
50
%
Dollar revenue Growth, YoY
Source: Company, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 7
Exhibit 7: EBITDA margin expands 90 bps QoQ to 18%
14.6
17.3
15.3
16.216.9
21.0
17.3
15.616.1
17.1
18.0
16.817.2
17.5
10
13
16
19
22
FY15
FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
FY18E
FY19E
FY20E
%
EBITDA margin
Source: Company, ICICI Direct Research
Exhibit 8: PAT expected to grow at 17.6% CAGR in FY18-20E
193.8
264.35
31.3
59.6 65.4
109
250.1
51.367.1
75.786.1
280.2
324.6
387.7
0
100
200
300
400
FY15
FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
FY18E
FY19E
FY20E
| c
rore
PAT
Source: Company, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 8
Outlook and Valuation
NIIT Tech reported Q4FY18 results wherein it reported a much better-
than-expected operating performance. Among verticals, BFSI witnessed
growth of 5.4% QoQ owing to a ramp up in top accounts. Also, Digital
revenues grew 9% QoQ contributing 26% to total revenues in Q4FY18.
NIIT Tech reported Q4FY18 results wherein it reported a much better-
than-expected operating performance. The commentary on the outlook is
positive with the strong order intake. Hence, we tweak our estimates and
now anticipate rupee revenue and PAT to grow at a CAGR 12.5% and
17.6%, respectively, in FY18-20E. However, after the sharp run up in the
last six months, the stock now captures the growth potential leaving
limited upside at the current level. Hence, we maintain our HOLD rating
on the stock with a revised target price of | 1075 (17x FY20E EPS).
Exhibit 9: One year forward rolling PE
0
200
400
600
800
1000
1200
May-0
8
Nov-0
8
May-0
9
Nov-0
9
May-1
0
Nov-1
0
May-1
1
Nov-1
1
May-1
2
Nov-1
2
May-1
3
Nov-1
3
May-1
4
Nov-1
4
May-1
5
Nov-1
5
May-1
6
Nov-1
6
May-1
7
Nov-1
7
May-1
8
Price 15 12 9 6 3
Source: Company, ICICI Direct Research
Exhibit 10: Valuations
Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE
(| cr) (%) (|) (%) (x) (x) (%) (%)
FY16 2,682 13.1 43.3 36.2 24.1 7.2 16.8 24.3
FY17 2,802 4.5 40.8 (5.7) 23.4 6.3 14.8 29.8
FY18E 2,991 6.8 45.6 11.9 23.0 5.6 15.1 32.8
FY19E 3,371 12.7 52.9 15.8 19.8 4.4 15.4 38.1
FY20E 3,785 12.3 63.2 19.5 16.6 3.3 16.1 44.7
Source: Company, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 9
Recommendation History vs. Consensus
100
300
500
700
900
1,100
May-
18
Mar-
18
Feb-
18
Dec-
17
Nov-
17
Sep-
17
Jul-
17
Jun-
17
Apr-
17
Mar-
17
Jan-
17
Dec-
16
Oct-
16
Sep-
16
Jul-
16
Jun-
16
Apr-
16
Feb-
16
Jan-
16
Nov-
15
Oct-
15
Aug-
15
Jul-
15
May-
15
Apr-
15
(|
)
0.0
20.0
40.0
60.0
80.0
100.0
(%
)
Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Bloomberg, Company, ICICI Direct Research
Key events
Date Event
Apr-15 Acquires 51% stake in Incessant Technologies for ~$17 million. The company could generate $17 million revenues with 20%+ margins in FY15E.
Jul-15 Reports healthy revenue growth in services segment led by Incessant and international business partially offset by decline in domestic revenues (PFR)
Oct-15 Reports Q2FY16 earnings with 3.5% QoQ growth, in line with estimates, led by BFSI, transportation and manufacturing, while at 17.6%, margins were better
Feb-16 NIIT Tech launches intelligent automation for business operations,by partnering with a software company UiPath, specialized in Robotic process Automation
Mar-16 Secures best service provider award from ICT subsidiary of German railways
Jan-17
According to media article, NIIT Technologies appoints Joel Lindsey as global head of digital services. NITL also appoints Adrian morgan as head of NIIT Insurance
Technologies
Apr-17
Implements settlement agreement with the government and receives part payment of | 41.9 crore, with revenue recognition of | 27.1 crore for services contracted
and reversal of provisions of | 13.15 crore to be accounted in FY17
Mar-16 Secures best service provider award from ICT subsidiary of German railways
May-17
Partners with an artificial intelligence and autonomous automation firm 'Arago'. NIIT would integrate Arago’s general AI technology HIRO into its automation offering,
TRON Smart Automation. This partnership could enable company to deliver a superior automation experience by bringing in cutting-edge machine reasoning
technology optimised by machine learning
Jun-17
NIIT Technologies subsidiary Incessant Technologies signs a definitive agreement to acquire a 55% stake in US-based business process management firm RuleTek
LLC. This acquisition could help Incessant expand its footprint in North America and strengthen its digital integration capabilities. RuleTek has 65 employees and
reported revenues of $6.47 million for FY17
Source: Company, ICICI Direct Research
Top 10 Shareholders Shareholding Pattern
Rank Name Latest Filing Date % O/S Position (m) Change (m)
1 Scantech Evaluation Services, Ltd. 31-Dec-17 23.6% 14.5 0.0
2 HDFC Asset Management Co., Ltd. 31-Dec-17 9.0% 5.5 -0.1
3 UTI Asset Management Co. Ltd. 31-Dec-17 4.5% 2.8 0.0
4 GSPL Advisory Services & Investment Pvt. Ltd. 31-Dec-17 3.5% 2.2 0.0
5 PIPL Business Advisors & Investment Pvt. Ltd. 31-Dec-17 3.5% 2.2 0.0
6 Brandes Investment Partners, L.P. 31-Dec-17 3.3% 2.0 -2.2
7 Dimensional Fund Advisors, L.P. 31-Mar-18 2.6% 1.6 0.0
8 Polaris Capital Management, LLC 31-Dec-17 2.3% 1.4 0.7
9 Grantham Mayo Van Otterloo & Co LLC 30-Nov-17 1.8% 1.1 -0.2
10 Franklin Templeton Asset Management (India) Pvt. Ltd. 31-Mar-17 1.8% 1.1 0.4
(in %) Sep-17 Dec-17 Mar-18
Promoter 30.68 30.68 30.67
Public 69.32 69.32 69.33
Others 0.00 0.00 0.00
Total 100.00 100.00 100.00
Source: Reuters, ICICI Direct Research
Recent Activity
Investor name Value Shares Investor name Value Shares
Polaris Capital Management, LLC 7.2m 0.7m Brandes Investment Partners, L.P. -22.2m -2.2m
Union Investment Luxembourg S.A. 4.8m 0.5m FIL Investment Management (Singapore) Ltd. -4.1m -0.3m
Goldman Sachs Asset Management (India) Private Ltd. 3.6m 0.4m Grantham Mayo Van Otterloo & Co LLC -2.5m -0.2m
William Blair Investment Management, LLC 3.5m 0.3m IDFC Asset Management Company Private Limited -2.5m -0.2m
Goldman Sachs Asset Management International 3.0m 0.2m Kotak Mahindra Asset Management Company Ltd. -2.2m -0.2m
Buys Sells
Source: Reuters, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 10
.
Financial summary
Profit and loss statement | Crore
1
FY17 FY18E FY19E FY20E
Total operating Income 2,802 2,991 3,371 3,785
Growth (%) 4 7 13 12
COGS (employee expenses) 1,790 1,918 2,158 2,411
S,G&A expenses 527 572 634 712
Total Operating Expenditure 2,318 2,490 2,791 3,123
EBITDA 485 501 580 662
Growth (%) 4 3 16 14
Depreciation 128 127 143 161
Other Income 16 30 33 50
PBT 373 404 470 552
Total Tax 79 95 115 132
Adjusted 'PAT 250 280 325 388
Growth (%) (5) 12 16 19
Adjusted EPS (|) 40.8 45.6 52.9 63.2
Exceptional loss 22 - - -
Reported PAT 228 280 325 388
Reported EPS (|) 40.8 45.6 52.9 63.2
Growth (%) (5.7) 11.9 15.8 19.5
Source: Company, ICICI Direct Research
Cash flow statement | Crore
FY17 FY18E FY19E FY20E
Profit before Tax 373 404 470 552
Add: Depreciation 128 127 143 161
(Inc)/dec in Current Assets 88 (52) (104) (113)
Inc/(dec) in CL and Provisions - 35 64 70
Taxes paid (105) (95) (115) (132)
CF from operating activities 494 389 426 487
(Inc)/dec in Investments (652) - - -
(Inc)/dec in Fixed Assets (87) (93) (105) (118)
Others 7 30 33 50
CF from investing activities (306) (63) (72) (68)
Issue/(Buy back) of Equity 7 - - -
Inc/(dec) in loan funds 1 (2) (2) (2)
Dividend paid & dividend tax (74) (108) (79) (79)
CF from financing activities (67) (110) (81) (81)
Net Cash flow 99 216 273 338
Exchange difference (37) 2 2 2
Opening Cash 336 408 626 900
Closing Cash 408 626 900 1,241
Source: Company, ICICI Direct Research
Balance sheet | Crore
(Year-end March) FY17 FY18E FY19E FY20E
Liabilities
Equity Capital 61 61 61 61
Reserve and Surplus 1,625 1,798 2,043 2,352
Total Shareholders funds 1,687 1,859 2,105 2,413
Total Debt 7 7 7 7
Provisions 27 27 27 27
Minority Interest / Other non CL 271 300 330 361
Total Liabilities 1,992 2,193 2,468 2,809
Assets
Net Block 663 629 590 547
Capital WIP - - - -
Total Fixed Assets 663 629 590 547
Goodwill 185 185 185 185
Deferred tax assets 97 97 97 97
Debtors 490 523 590 662
Other Current Assets 274 292 329 370
Cash 408 626 900 1,241
Current Investments 316 316 316 316
Total Current Assets 1,488 1,757 2,135 2,589
Trade payables 138 150 169 189
Other current liabities 295 315 355 399
Short term provisions 40 43 48 54
Total Current Liabilities 473 507 572 642
Net Current Assets 1,015 1,250 1,564 1,947
Application of Funds 1,992 2,193 2,468 2,809
Source: Company, ICICI Direct Research
Key ratios
(Year-end March) FY17 FY18E FY19E FY20E
Per share data (|)
Adjusted EPS (Diluted) 40.8 45.6 52.9 63.2
DPS 12.5 15.0 11.0 11.0
Cash per Share 72.9 101.9 146.6 202.0
BV per share (Diluted) 301.8 302.8 342.8 393.0
Operating Ratios (%)
EBITDA Margin 17.3 16.8 17.2 17.5
PBT Margin 13.3 13.5 13.9 14.6
PAT Margin 8.9 9.4 9.6 10.2
Debtor days 13 12 11 9
Creditor days 18 18 18 18
Return Ratios (%)
RoE 14.8 15.1 15.4 16.1
RoCE 29.8 32.8 38.1 44.7
RoIC 26.1 27.7 32.3 48.5
Valuation Ratios (x)
P/E (Adjusted) 23.4 23.0 19.8 16.6
EV / EBITDA 6.3 5.6 4.4 3.3
EV / Net Sales 1.1 0.9 0.8 0.6
Market Cap / Sales 1.3 1.3 1.1 1.0
Price to Book Value 3.5 3.5 3.1 2.7
Solvency Ratios
Debt/EBITDA 0.0 0.0 0.0 0.0
Debt / Equity 0.0 0.0 0.0 0.0
Current Ratio 2.5 2.4 2.3 1.8
Quick Ratio 1.8 1.8 1.8 1.8
Source: Company, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 11
ICICI Direct Research coverage universe (IT)
CMP M Cap
(|) TP(|) Rating (| Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E
Cyient (INFENT) 835 870 Hold 9,401 30.5 36.0 40.0 27.3 23.2 20.9 17.7 14.7 12.9 19.7 22.0 20.8 16.2 17.1 17.1
Eclerx (ECLSER) 1,270 1,220 Sell 5,236 86.4 73.9 79.7 14.7 17.2 15.9 9.9 11.9 11.0 34.5 26.9 26.5 29.1 21.4 21.1
Firstsource (FIRSOU) 64 87 Buy 4,490 4.1 4.8 5.1 15.7 13.5 12.5 11.9 10.7 9.2 11.7 12.7 14.7 13.8 13.9 13.6
HCL Tech (HCLTEC) 950 1,000 Hold 134,111 60.0 62.6 64.9 15.8 15.2 14.6 12.8 11.1 9.4 29.0 27.3 26.7 25.3 23.8 21.7
Infosys (INFTEC) 1,167 1,180 Hold 266,721 62.8 71.0 67.5 18.6 16.4 17.3 12.8 13.0 12.1 28.8 33.3 31.3 20.8 26.4 22.2
KPIT Tech (KPISYS) 231 200 Hold 4,596 10.6 12.1 13.6 21.7 19.1 16.9 12.8 12.0 10.3 14.5 15.8 16.4 15.1 13.6 13.6
Mindtree (MINCON) 890 830 Hold 14,945 24.9 34.3 39.5 35.7 26.0 22.5 20.2 19.1 13.9 21.2 27.5 28.5 16.2 21.7 21.3
NIIT Technologies (NIITEC) 1,049 1,075 Hold 3,758 40.8 45.6 52.9 23.4 23.0 19.8 6.3 5.6 4.4 29.8 32.8 38.1 14.8 15.1 15.4
Persistent (PSYS) 750 825 Buy 5,999 37.6 40.5 44.7 20.0 18.5 16.8 11.9 11.4 9.5 20.8 19.9 19.5 15.9 15.2 15.0
TCS (TCS) 3,378 3,260 Hold 661,649 133.4 135.5 145.5 25.3 24.9 23.2 19.1 18.9 16.6 38.0 38.3 35.2 29.8 29.9 27.3
Tech Mahindra (TECMAH) 666 630 Hold 65,448 31.7 38.4 39.6 21.0 17.3 16.8 14.6 12.9 10.7 19.4 20.0 18.6 17.1 18.1 16.4
Wipro (WIPRO) 278 315 Buy 137,249 17.5 17.7 18.3 15.9 15.7 15.2 10.1 11.5 10.5 16.8 16.8 15.5 16.3 16.7 15.0
Sector / Company
RoE(%)RoCE (%)EV/EBITDA (x)P/E (x)EPS (|)
Source: Company, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 12
RATING RATIONALE
ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct 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]
ICICI Direct 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 13
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