Prabhudas Lilladher: IT company managements to continue indicating improving environment for CY15 than CY14

1.
April 10, 2015 92
Jan‐Mar 2015 Earnings Preview
Shashi Bhusan
shashibhusan@plindia.com
+91‐22‐6632 2300
Hussain Kagzi
hussainkagzi@plindia.com
+91‐22‐6632 2242
Top picks
Infosys
Tech Mahindra
TCS
KPIT Technologies
Hexaware Technologies
Persistent Systems
MindTree
Information Technology
Q4FY15 (JFM‐15) quarter performance will get impacted by cross‐currency
headwinds, macro‐challenges in Europe, seasonality and delay in project closures.
Improvement in macro‐economic outlook in the US has still not translated into
equally strong deal closure by the Indian IT companies. Demand from Europe is
largely driven by increasing penetration of Indian IT despite continued challenges on
the macro‐economic front. We expect managements to continue indicating
improving environment for CY15 than CY14. Results from tech majors like Oracle,
Accenture and Red Hat have indicated improvement in the overall demand
environment, with stronger project take‐off in the US and cloud adoption. The
pricing environment continues to remain subdued for commoditized services.
Infosys – FY16 USD revenue guidance unlikely to be 10%+ on higher end: This
would be the first year of guidance from the new management team. We expect
Infosys to guide for constant currency term revenue growth for FY16 not exceeding
10% (PLe: 7‐9% @cc) at the upper end. Moreover, we expect the deal closure for the
quarter to be sub‐$500m. However, the performance is likely to be driven by
management discussion about the capital allocation strategy that will include
dividend strategy, inorganic growth roadmap and a possibility of share buyback.
Currency – Cross‐currency negative impact by 200‐280bps, some translation losses
along with OCI losses hitting P&L: Euro/GBP/AUD depreciated against USD by
9.8%/4.3%/8% and is likely to have a negative impact of ~200‐280bps in USD terms
on revenue. Rupee depreciated against USD/EUR/GBP by 0.5%/‐9.3%/‐3.8%; hence,
operating margin will have a negative impact by 20‐50bps. Moreover, the quarter
end rate for JFM‐15 quarter was Rs62.50/$ against OND‐14 quarter end rate of
Rs63.04/$ that will have headwinds at the bottom‐line due to revaluation of financial
assets. Overall, we expect negative impact due to cross‐currency movements.
Focus on volume growth and constant currency growth: The quarter will witness
headwind due to cross currency. However, volume growth and constant currency
growth would be key metrics to track to understand trajectory of demand
environment. We expect positive commentary from the maangement
Tier‐1 IT companies – Performance likely to be 2‐5% growth in constant currency:
We expect Tier‐1 companies to deliver their 0.5‐5% growth in constant currency,
with Tech Mahindra leading the growth. Moreover, we expect mid and Tier‐2 Indian
IT companies to also report 1‐6% growth in constant currency.
Infosys, Tech Mahindra, TCS, Persistent Systems, MindTree, Hexaware and KPIT
Tech – Our top pick in the sector. Among Tier‐1, HCL Tech and Tech Mahindra are
likely to show strongest growth followed by Wipro, Infosys and TCS. KPIT is our
preferred pick in Tier‐2 as we expect momentum to get stronger in CY15 with
improvement in margins. We expect Persistent Systems and Hexaware to deliver
improved growth momentum among mid‐cap peers.

2.
April 10, 2015 93
Jan‐Mar 2015 Earnings Preview
Currency – Stable USD‐INR on YoY basis...
74
79
84
89
94
99
104
109
Apr‐14
May‐14
Jun‐14
Jul‐14
Aug‐14
Sep‐14
Oct‐14
Nov‐14
Dec‐14
Jan‐15
Feb‐15
Mar‐15
USD‐INR GBP‐INR EUR‐INR
EUR‐USD GBP‐USD
Source: Bloomberg, Company Data, PL Research
Strengthening USD affecting cross‐currency movement
83
86
89
92
95
98
101
Jan‐15
Jan‐15
Jan‐15
Feb‐15
Mar‐15
Mar‐15
USD‐INR GBP‐INR EUR‐INR
EUR‐USD GBP‐USD
Source: Bloomberg, Company Data, PL Research
Stock Performance
1M 3M 6M 12M 1M 3M 6M 12M
eClerx Services (3.7) 20.7 14.7 29.2 (4.3) 15.6 4.8 2.1
Geometric 16.1 50.3 41.4 75.0 15.5 45.1 31.6 47.9
HCL Technologies (5.4) 25.2 11.3 43.6 (6.0) 20.0 1.5 16.5
Hexaware Technologies 20.4 58.0 73.5 98.7 19.8 52.8 63.7 71.6
Infosys 1.6 7.7 14.9 39.6 1.0 2.5 5.1 12.4
KPIT Technologies (16.9) (10.9) 14.0 10.1 (17.5) (16.0) 4.2 (17.1)
MindTree 9.1 21.3 46.7 124.1 8.5 16.1 36.9 97.0
Mphasis (2.1) 2.9 (5.4) (5.3) (2.7) (2.2) (15.2) (32.4)
NIIT Technologies (9.2) 3.3 (5.2) (8.6) (9.8) (1.9) (15.0) (35.7)
Persistent Systems (7.5) (13.8) 8.6 48.9 (8.1) (19.0) (1.3) 21.7
Polaris Consulting & Services 16.4 3.1 (16.9) (10.0) 15.8 (2.0) (26.7) (37.2)
Tata Consultancy Services 0.4 5.6 (0.9) 26.8 (0.2) 0.5 (10.7) (0.4)
Tech Mahindra (7.0) (1.5) 12.9 54.6 (7.6) (6.7) 3.1 27.5
Wipro (5.6) 11.6 5.6 10.1 (6.2) 6.4 (4.2) (17.1)
Absolute Relative to Sensex
Source: Bloomberg, PL Research

3.
April 10, 2015 94
Jan‐Mar 2015 Earnings Preview
Summary Financials ‐ Quarterly (Rs m)
Q4FY15E Q3FY15 QoQ gr. (%) Q4FY14 YoY gr. (%) 12MFY15E 12MFY14 YoY gr. (%)
Sales 2,501 2,416 3.5 2,169 15.3 9,410 8,410 11.9
EBITDA 849 811 4.7 929 (8.6) 3,276 3,536 (7.4)
Margins (%) 34.0 33.6 38 bps 42.8 (888)bps 34.8 42.0 (723)bps
PAT 639 608 5.1 645 (0.8) 2,404 2,557 (5.9)
Sales 2,923 2,889 1.2 2,734 6.9 11,297 10,955 3.1
EBITDA 351 340 3.3 456 (23.0) 1,530 2,072 (26.1)
Margins (%) 12.0 11.8 25 bps 16.7 (467)bps 13.5 18.9 (537)bps
PAT 166 164 1.3 67 146.4 673 462 45.5
Sales 94,568 92,830 1.9 83,490 13.3 274,748 244,940 12.2
EBITDA 23,358 23,190 0.7 22,320 4.7 68,468 64,500 6.2
Margins (%) 24.7 25.0 (28)bps 26.7 (203)bps 24.9 26.3 (141)bps
PAT 19,079 19,160 (0.4) 16,240 17.5 56,978 45,350 25.6
Sales 7,383 7,118 3.7 5,889 25.4 31,279 25,817 21.2
EBITDA 1,462 1,418 3.1 1,133 29.0 6,301 4,776 31.9
Margins (%) 19.8 19.9 (12)bps 19.2 56 bps 20.1 18.5 164 bps
PAT 1,025 873 17.4 703 45.8 4,566 3,266 39.8
Sales 137,815 137,960 (0.1) 128,750 7.0 536,895 501,330 7.1
EBITDA 39,066 39,540 (1.2) 36,410 7.3 150,746 134,150 12.4
Margins (%) 28.3 28.7 (31)bps 28.3 7 bps 28.1 26.8 132 bps
PAT 32,232 32,500 (0.8) 29,920 7.7 124,552 106,480 17.0
Sales 7,884 7,798 1.1 7,001 12.6 30,153 26,940 11.9
EBITDA 981 1,085 (9.6) 1,130 (13.2) 3,907 4,233 (7.7)
Margins (%) 12.4 13.9 (147)bps 16.1 (370)bps 13.0 15.7 (275)bps
PAT 589 653 (9.9) 613 (4.0) 2,355 2,490 (5.4)
Sales 9,198 9,117 0.9 8,237 11.7 35,636 30,316 17.5
EBITDA 1,844 1,866 (1.2) 1,770 4.2 7,150 6,104 17.1
Margins (%) 20.1 20.5 (42)bps 21.5 (144)bps 20.1 20.1 (7)bps
PAT 1,376 1,408 (2.2) 982 40.2 5,452 4,512 20.8
Sales 13,398 14,082 (4.9) 15,657 (14.4) 57,032 63,182 (9.7)
EBITDA 2,040 2,040 (0.0) 2,850 (28.4) 8,701 11,482 (24.2)
Margins (%) 15.2 14.5 74 bps 18.2 (298)bps 15.3 18.2 (292)bps
PAT 1,672 1,651 1.3 1,832 (8.7) 6,673 7,265 (8.1)
Sales 5,960 5,953 0.1 5,885 1.3 23,572 23,050 2.3
EBITDA 230 862 (73.3) 890 (74.2) 2,689 3,516 (23.5)
Margins (%) 3.9 14.5 (1,062)bps 15.1 (1,127)bps 11.4 15.3 (385)bps
PAT (164) 482 (134.0) 619 (126.5) 1,151 2,307 (50.1)
Infosys
eClerx Services
Geometric
HCL Technologies
Hexaware
Technologies
KPIT Technologies
MindTree
Mphasis
NIIT Technologies
Source: Company Data, PL Research

4.
April 10, 2015 95
Jan‐Mar 2015 Earnings Preview
Summary Financials ‐ Quarterly (Rs m)
Q4FY15E Q3FY15 QoQ gr. (%) Q4FY14 YoY gr. (%) 12MFY15E 12MFY14 YoY gr. (%)
Sales 4,961 4,946 0.3 4,467 11.0 18,899 16,692 13.2
EBITDA 1,023 995 2.8 1,207 (15.2) 3,924 4,303 (8.8)
Margins (%) 20.6 20.1 50 bps 27.0 (638)bps 20.8 25.8 (501)bps
PAT 686 745 (7.9) 672 2.1 1,895 2,649 (28.5)
Sales 4,747 4,756 (0.2) 6,455 (26.5) 19,008 25,161 (24.5)
EBITDA 540 546 (1.1) 1,086 (50.3) 2,285 4,550 (49.8)
Margins (%) 11.4 11.5 (10)bps 16.8 (545)bps 12.0 18.1 (606)bps
PAT 397 390 1.9 455 (12.6) 1,691 1,991 (15.1)
Sales 244,635 245,011 (0.2) 215,511 13.5 948,922 818,094 16.0
EBITDA 69,634 70,531 (1.3) 66,534 4.7 271,922 251,570 8.1
Margins (%) 28.5 28.8 (32)bps 30.9 (241)bps 28.7 30.8 (209)bps
PAT 53,288 54,441 (2.1) 50,816 4.9 211,190 191,889 10.1
Sales 61,697 57,517 7.3 50,581 22.0 225,308 188,314 19.6
EBITDA 11,247 11,601 (3.1) 10,718 4.9 43,105 41,837 3.0
Margins (%) 18.2 20.2 (194)bps 21.2 (296)bps 19.1 22.2 (309)bps
PAT 7,533 7,769 (3.0) 6,142 22.6 28,805 29,087 (1.0)
Sales 119,713 119,929 (0.2) 116,535 2.7 467,838 434,269 7.7
EBITDA 27,440 26,759 2.5 28,180 (2.6) 104,520 97,101 7.6
Margins (%) 22.9 22.3 61 bps 24.2 (126)bps 22.3 22.4 (2)bps
PAT 22,466 21,928 2.5 22,265 0.9 85,618 77,968 9.8
Polaris Consulting
& Services
Tata Consultancy
Services
Tech Mahindra
Wipro
Persistent Systems
Source: Company Data, PL Research
Consolidated Sectoral Data
Quarterly Table (Rs m)
Dec‐Mar'15 Dec‐Mar'14 YoY gr. (%) Oct‐Dec'14 QoQ gr. (%)
Net Sales 717,386 712,323 0.7 653,362 9.8
EBITDA 180,066 181,585 (0.8) 175,613 2.5
Margin (%) 25.1 25.5 (39)bps 26.9 (178)bps
PAT (Excl. Ex Items) 140,983 142,771 (1.3) 131,970 6.8
Note: Revenue, EBITDA and PAT numbers are arrived by totaling corresponding numbers of all companies under our coverage in this
sector.
Key Figures (Rs m)
2015E 2016E 2017E
Net Sales 2,791,485 3,141,090 3,566,481
Growth (%) 11.9 12.5 13.5
EBITDA 704,661 775,289 867,002
Margin (%) 25.2 24.7 24.3
PAT 552,891 615,128 692,251
Growth (%) 11.2 11.3 12.5
PE (x) 21.2 19.1 17.0

5.
Jan‐Mar 2015 Earnings Preview
April 10, 2015 134
Prabhudas Lilladher Pvt. Ltd.
3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai‐400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage PL’s Recommendation Nomenclature
44.6%
39.1%
16.3%
0.0%
0%
10%
20%
30%
40%
50%
BUY Accumulate Reduce Sell
% of Total Coverage
BUY : Over 15% Outperformance to Sensex over 12‐months
Accumulate : Outperformance to Sensex over 12‐months
Reduce : Underperformance to Sensex over 12‐months
Sell : Over 15% underperformance to Sensex over 12‐months
Trading Buy : Over 10% absolute upside in 1‐month
Trading Sell : Over 10% absolute decline in 1‐month
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly
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