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Equity Resear
8 July 20
India IT Services
Mid-cap conversations suggest
steady demandOur discussions with the management of several Indian mid-cap IT services
companies indicate that FY14 growth will be led by a revival in spending in the US,
while growth in Europe is likely to remain muted. Infosys and HCL among our
coverage universe, have the most exposure to the US. Within industry verticals, some
are exhibiting strength (manufacturing, financials, utilities) while the telecom
segment continues to be weak. Vendors are investing more in sales and marketing to
bid for large transformational deals. In the case of emerging trends such as Cloud
computing, while most companies agreed that the Cloud offers a large opportunity,
they also indicated that the transition to Cloud-based applications will be gradual.
For the companies we cover, we believe that FY14 revenue growth will likely remainaround the mid-double-digit/high-single-digit range. HCL Tech and Infosys (both
OW) are our top picks.
US revival to drive FY14 growth: Indian mid-cap IT companies we spoke with expect
FY14 to be a better year than FY13 in terms of revenue growth, with macro indicators in
the US, which accounts for c65% of revenues, heading towards a steady revival.
Growth for most companies is expected to come in second-half FY14.
Broad-based growth still elusive: Management commentary indicated that growth will
be limited to a few verticals, such as manufacturing, BFSI and utilities, where customers
are facing regulatory or industry-specific changes. Some of the indicators that
management cited included steady IT hiring trends in the US and increased off-shoring
by clients as the focus on controlling the cost base continues. However, there still
remains an uncertainty in IT spends and vendors accept that visibility remains limited.
Focus on acquisitions remains: Companies such as KPIT Cummins, Infotech and eClerx
are open to acquisitions in order to drive inorganic growth. Management from these
companies highlighted that acquisitions should help: 1) increase the customer base; or
2) provide access to a new industry vertical or business line.
Transition to Cloud will be slow: Cloud acceptance will occur in a phased manner,
according to the companies we met with, with every corporate moving to some form of
Cloud over a 5-7 year period. While the pace of acceptance has been healthy among
SMEs, acceptance at large organizations will be slow given the cross-continental nature
of businesses. While the Cloud currently involves largely database migrations,applications (e.g., SaaS Software as a Service) have also started gaining traction. Apart
from Salesforce, Microsoft Azure and IBM Cloud are doing well in terms of cloud
implementation, as per management.
Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies coveredin its research reports. As a result, investors should be aware that the firm may have a conflict of interestthat could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment decision.
This research report has been prepared in whole or in part by equity research analysts based outside theUS who are not registered/qualified as research analysts with FINRA.
PLEASE SEE ANALYST(S) CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 17.
INDUSTRY FOCUS
Asia Ex-Japan Software & IT ServicesNEUTRAL
Unchanged
Asia Ex-Japan Software & IT Services
Bhuvnesh Singh
+91 22 6719 6314
BSIPL, Mumbai
Hitesh Das
+91 22 6719 6213
BSIPL, Mumbai
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2
INVESTMENT SUMMARY
We have interacted with CFOs of key mid-cap IT services companies to hear their views on
the demand environment. Management interaction suggests that growth in FY14 will be
driven mostly by an economic revival in the US, while demand in Europe is likely to remain
sluggish. We note this view tallies with takeaways from Accentures 3Q results (see our
note,Indian IT Services: Takeaways from Accenture 3Q results, 28-June 2013).
The US accounts for c55% of revenues for the top-four Indian IT vendors, which augurs
well for their FY14 growth, in our view. Infosys and HCL are the most levered to North
America (c57-60% of March 2013 revenues), while Wipro has the least revenue exposure
(c50% of March 2013 revenues).
FIGURE 1
India IT Services: Revenue exposure by region, March 2013 quarter
Mar-13 Revenue(US$ mn)
North America Europe Others
Infosys 1,938 60% 25% 15%
TCS 3,039 52% 26% 22%
Wipro 1,585 50% 29% 21%
HCL 1,191 57% 29% 14%
Source: Company data, Barclays Research
However, broad-based growth across verticals is still not being witnessed by the mid-cap
companies, and only certain pockets such as banking, manufacturing and utilities offer
steady opportunities, according to the companies we spoke with. The telecom sector is still
weak in line with TCS managements comments at the companys recent analyst meet
(see our note,TCS: Analyst meeting takeaways; Management provides stable outlook, 12-
June 2013).
FIGURE 2
India IT Services: Revenue exposure by industry vertical, March 2013 quarter
Green border indicates positive
demand environment while red
border suggests sluggishness
Source: Company data, Barclays Research
Management of mid-cap companies agreed that there still exists a degree of uncertainty on
customer IT investment decisions, which indicates that there has been no major change to
the demand dynamics in the past quarter. This view was echoed by Wipro management,
who also elucidated that no uptick has been witnessed in discretionary spending (see our
note, India IT Services: Divergence - June '13 preview, 2-July 2013). IT companies are now
investing to ramp up their sales forces and increase delivery capabilities in order to bid for
larger deals.
0%
10%
20%
30%
40%
50%
60%
70%
80%
Infosys TCS Wipro HCL
%
BFSI Manufacturing Energy & Utilities Telecom
http://my.barcapint.com/RSL/jsp/analyst.jsp?analyst=LB04005http://my.barcapint.com/RSL/jsp/analyst.jsp?analyst=LB04005http://my.barcapint.com/RSL/jsp/analyst.jsp?analyst=LB04005http://my.barcapint.com/ERW/research/TCS%20(TCS%20IN,%20EW,%20Rs1,475%20PT):%20Analyst%20meeting%20takeaways;%20Management%20provides%20stable%20outlookhttp://my.barcapint.com/ERW/research/TCS%20(TCS%20IN,%20EW,%20Rs1,475%20PT):%20Analyst%20meeting%20takeaways;%20Management%20provides%20stable%20outlookhttp://my.barcapint.com/ERW/research/TCS%20(TCS%20IN,%20EW,%20Rs1,475%20PT):%20Analyst%20meeting%20takeaways;%20Management%20provides%20stable%20outlookhttp://my.barcapint.com/ERW/research/TCS%20(TCS%20IN,%20EW,%20Rs1,475%20PT):%20Analyst%20meeting%20takeaways;%20Management%20provides%20stable%20outlookhttps://live.barcap.com/go/publications/email?CL1943209&m=1365314429413&v=p7NkMoqaq1r2KQe5eznq9Jc5LEl2tlJl763WxmN-BEvFLuNoqbDvTaz6pZxzuDf6https://live.barcap.com/go/publications/email?CL1943209&m=1365314429413&v=p7NkMoqaq1r2KQe5eznq9Jc5LEl2tlJl763WxmN-BEvFLuNoqbDvTaz6pZxzuDf6https://live.barcap.com/go/publications/email?CL1943209&m=1365314429413&v=p7NkMoqaq1r2KQe5eznq9Jc5LEl2tlJl763WxmN-BEvFLuNoqbDvTaz6pZxzuDf6https://live.barcap.com/go/publications/email?CL1943209&m=1365314429413&v=p7NkMoqaq1r2KQe5eznq9Jc5LEl2tlJl763WxmN-BEvFLuNoqbDvTaz6pZxzuDf6http://my.barcapint.com/ERW/research/TCS%20(TCS%20IN,%20EW,%20Rs1,475%20PT):%20Analyst%20meeting%20takeaways;%20Management%20provides%20stable%20outlookhttp://my.barcapint.com/ERW/research/TCS%20(TCS%20IN,%20EW,%20Rs1,475%20PT):%20Analyst%20meeting%20takeaways;%20Management%20provides%20stable%20outlookhttp://my.barcapint.com/RSL/jsp/analyst.jsp?analyst=LB04005 -
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In terms of opportunities in the Cloud, management largely agreed that the opportunity is
huge; however, the opportunity will pan out over a longer timeframe (c5-7 years) as
acceptance will likely be slow. As SaaS opportunities grow, we believe that there may be
improved traction in the Infosys PPS (Products, Platforms and Solutions) initiative, currently
c5.7% of the companys revenues.
Takeaways for our coverage universe
In terms of our coverage universe, we believe that demand trends for Indian IT vendorsshould remain stable and we expect the top four Indian vendors to deliver high-single-
digit/mid-double-digit y/y (US$) revenue growth in FY14. We remain OW on Infosys given
tempered valuations as a result of low expectations in the market, while our confidence in
HCL (OW) arises from its steady revenue growth based on a strong project backlog. For TCS
(EW), expensive valuations prevent us from taking a more constructive stance on the
company despite a good execution track-record. In Wipro (UW), we believe that company-
specific issues might continue and a revival in revenue growth is still some time away.
FIGURE 3
India IT services Comparative valuations
Company Rating Price (Rs) PT (Rs)
%
up/downto PT Revenue Growth EPS Growth P/E RoE
FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E
Infosys OW 2,461 2,750 12% 8% 8% 5% 16% 14.2 12.2 23% 23%
TCS EW 1,534 1,475 -4% 16% 14% 13% 16% 19.1 16.4 33% 32%
Wipro UW 351 356 1% 8% 9% 7% 11% 13.0 11.7 21% 19%
HCL Tech OW 799 865 8% 13% 12% 9% 11% 11.9 10.8 27% 24%
Notes: Prices as of 4 July 2013. Stock ratings: OW: Overweight; EW: Equal Weight; UW: Underweight. Industry views: Pos: Positive; Neu: Neutral; Neg: Negative. Asia
ex-Japan Software & IT Services: Neutral. For full disclosures on each covered company, including details of our company-specific valuation methodology and risks,
please refer tohttp://publicresearch.barcap.com.
Source: Company reports, Barclays Research estimates
FIGURE 4
US GDP consensus expectations are stabilising
FIGURE 5
India mid-cap IT services companies geographical
exposure
Source: Bloomberg consensus estimates Note: Geographical exposure of the companies that we met with, as listed in
Figure 3 Source: Company data, Barclays Research
1.5
1.7
1.9
2.1
2.3
2.5
2.7
2.9
3.1
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
US GDP %y/y
2013 2014 2015
Americas66%
Europe
20%
APAC &
Others14%
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FIGURE 6
India mid-cap IT services companies geographical revenue breakdown, by company as of FY13
Source: Company data, Barclays Research
FIGURE 7
India mid-cap IT services companies summary of comments on FY14 demand environmentCompany Comments on demand environment
eClerx Expect a strong 2HFY14; growth to be driven largely by banking sector
Persistent Demand is holding up in US; hiring trends of computer science and IT graduates in US appear positive
NIIT Tech Deal backlog at end-Q4FY13 to drive growth in FY14; looking to maintain a balanced geographical exposure
Infotech Europe will be sluggish; hi-tech & heavy engineering to remain soft in FY14; growth will come from aerospace and utilities
KPIT US is leading demand; key growth industry verticals include manufacturing and automobiles
Infoedge Macro slowdown to impact growth in Naukri; other key portals still not expected to be profitable
Rolta US and Middle East offer growth opportunities; Europe and India to remain soft
Source: Companies, Barclays Research
FIGURE 8
India mid-cap IT services companies summary of views discussed in our meetings
Company Will FY14 be better than FY13? Are you looking for acquisition? How big is the impact of Cloud?
eClerx Yes Yes NA
Persistent NA NA Big
NIIT Tech Yes NA Big
Infotech Yes Yes Big
KPIT Yes Yes Peripheral
Note: NA = Not Available
Source: Companies, Barclays Research
FIGURE 9
India mid-cap IT services companies Comparative valuations
Company Ticker Price (Rs) Mcap (US$ mn) Revenue Growth EPS Growth P/E RoE (%)
FY+1 FY+2 FY+1 FY+2 FY+1 FY+2 FY+1 FY+2
KPIT KPIT IN 120 384 13% 13% 17% 14% 9 8 20 20
Persistent PSYS IN 496 329 15% 14% 13% 13% 9 8 19 20
Infoedge INFOE IN 301 545 18% 22% 34% 26% 27 21 42 39
Infotech INFTC IN 175 323 9% 12% 7% 12% 8 7 17 17
eClerx ECLX IN 743 368 14% 13% 22% 12% 11 10 42 39
NIIT Tech NITEC IN 265 265 14% 11% 16% 9% 7 6 21 19
Note: Companies in this table are not rated by Barclays
Source: Bloomberg consensus estimates as 4 July 2013, Barclays Research
74%85%
38%
60%
76%
20%7%
26%
26%
13%
6% 9%
23%
14% 11%
100%
0%
10%
20%
30%
40%
50%60%
70%
80%
90%
100%
eClerx Persistent NIIT Tech Infotech KPIT Infoedge
Americas Europe APAC & Others
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FIGURE 10
India mid-cap IT services companies one-year forward P/Es
Source: Datastream consensus estimates, Barclays Research
8
9
10
11
12
13
14
15
16
Jun-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Jun-13
(X)
1 yr fwd P/E
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TAKEAWAYS FROM COMPANY INTERACTIONS
We interacted with CFOs of key mid-cap companies in the India IT services sector last
month to garner feedback and views on the demand environment and emerging trends
in the IT services space, such as Cloud. We include key takeaways from our company
interactions below.
eClerx (ECLX IN, not rated)
Looking for a BFSI revival
FY14 looking better than FY13
Management believes that growth in FY14 will be better than or equal to FY13, led by a
rebound in the US economy (c74% of FY13 revenues were from North America). However,
growth is expected to be loaded towards 2HFY14.
FIGURE 11
eClerx: Revenue growth in US$ terms
FIGURE 12
eClerx: Revenue split by region
Source: Company data, Barclays Research Source: Company data, Barclays Research
The company reported that contracts have been coming through recently as large financial
services firms are undergoing process transformation. However, management expects that
off-shoring will only pick up on a case-by-case basis, which will dictate the companys deal
win rate for the year. Organic growth in FY13 was sluggish as most of the business is
dependent on BFSI (Banking & Financial Services) spend, which remained muted last year.
Pricing may witness a minor up-tick in FY14, according to management.
Margins not sacrosanct
Management highlighted that maintaining high margins is not sacrosanct and it could
consider forfeiting margin to drive growth. However, management does not see any largedeals coming up that may necessitate lower pricing.
While investment in sales and marketing will continue, the investment has not yielded
results as expected (in US$ terms). Management noted that eClerx margins are not the
highest in the industry; it believes that players such as Mu-Sigma have a better margin
profile, although it believes eClerx margins are better than those of TCS e-Serve.
42
55
75
98
122
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
20
40
60
80
100
120
140
FY09 FY10 FY11 FY12 FY13
%y/yRevenue
Revenue (US$ mn) %y/y
0%
20%
40%
60%
80%
100%
FY10 FY11 FY12 FY13
North America Europe ROW
FY14 growth to be led by a
stronger US economy
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FIGURE 13
eClerx: Margin profile
FIGURE 14
eClerx: Employee utilisation
Source: Company data, Barclays Research Source: Company data, Barclays Research
Open to acquisitions
Management highlighted that its Agilyst acquisition has been successful and maintained its
view that it is open to acquiring a new entity, if the fit is right.
FIGURE 15
eClerx: Employee metrics
FIGURE 16
eClerx: Debtor days outstanding
Source: Company data, Barclays Research Source: Company data, Barclays Research
FIGURE 17
eClerx: Key financial data
Key Facts
Price (Rs) 743
Market Cap (USD mn) 368
FY14 Div. Yield (%) 3.5
52 week High/Low 910/597
FY14 P/E 10.6
Source: Bloomberg consensus estimates, as of 4 July 2013
33%
34%
34%
35%
35%
36%
36%37%
37%
38%
38%
0
10
20
30
40
50
60
70
FY09 FY10 FY11 FY12 FY13
%EPS
EPS (Rs) Margins
70%71% 71%
69%
60%
63%
66%
69%
72%
75%
FY10 FY11 FY12 FY13
Utilisation
Utilisation
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
FY09 FY10 FY11 FY12 FY13
AttritionHeadcount
Headcount Attrition
5759
29
33
25
30
35
40
45
50
55
60
FY10 FY11 FY12 FY13
Days
Debtor Days
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KPIT Cummins (KPIT IN, not rated)
FY14 to be a mixed bag
Limited pockets of growth
Management commented that business depends on client performance in challenging
macro conditions. Customers that are committed to medium- and long-term investment in
IT are either facing changes in the regulatory environment, such as the BFSI space, or are
witnessing competitive challenges, as in the auto industry (development time of new
models is shrinking, necessitating higher productivity). Revenues from its top client
Cummins Inc. declined in Q4FY13, although management does not expect growth to slide
further in 1HFY14. Management expects it may see better demand from Cummins Inc. in
2HCY13, which would lead to growth in account revenues.
FIGURE 18
KPIT Cummins: Revenue growth q/q (US$)
FIGURE 19
KPIT Cummins: FY13 revenue exposure by region
Source: Company data, Barclays Research Source: Company data, Barclays Research
Growth opportunities in Europe are limited, except in Germany where there is a focus on the
automotive industry. US (c76% of KPITs FY13 revenues) is witnessing some macro revival
that should eventually help revenue growth as Cummins Incs c45% of revenues come from
the US. Management expects auto and manufacturing verticals to lead growth, while
growth in utilities, which is largely SAP-linked, may be slower. In terms of non-linear
growth, management is investing in R&D to build IP around key projects that will help in
differentiation across competitor offerings. Currently, c8-10% of revenues originates from
the non-linear model. Client mining will also be in focus, especially in US1mn+ accounts
(currently 75) to drive revenue growth in FY14.
Auto and IES SBUs to drive FY14 growth
Growth in the autos and engineering segment will be higher than overall company growth
(management had guided for 14-16% US$ revenues guidance for FY14). In IES (integrated
enterprise solutions), the pace of growth is expected to be led by the manufacturing
vertical. Migration to the newer version of JD Edwards application suite is also expected to
lead to growth opportunities. Management expects moderate to flattish growth in SAP SBU
in FY14.
-1%
0%
1%
2%
3%
4%5%
6%
94
96
98
100
102
104106
108
Q1FY13
Q2FY13
Q3FY13
Q4FY13
%q/qUS$mn
Revenues (US$ mn) %q/q
Americas
76%
Europe
13%
APAC &
Others11%
Expects growth from auto and
manufacturing
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FIGURE 20
KPIT Cummins: FY13 exposure to business lines
FIGURE 21
KPIT Cummins: SAP lags A&E/IES growth
Source: Company data, Barclays Research Source: Company data, Barclays Research
Management commented that as SAP is looking into venturing aggressively into cloud-
based applications, the target market is expanding. However, revenue per project isexpected to come down as customers would mostly be small and medium-sized
enterprises. Management maintains that cloud is more of a peripheral change that will
impact verticals like human resources (HR) and customer relationship management (CRM).
M&A philosophy
Management highlighted that it would be interested in an acquisition provided it: 1) would
help gain access to newer technology; 2) expand or strengthen presence in new markets;
and 3) strengthen vertical and customer focus (also highlighted in KPIT Cummins uses
acquisitions to grow faster, Hindu Business Line, 14-March 2013)
FIGURE 22
KPIT Cummins: Key financial dataKey Facts
Price (Rs) 120
Market Cap (USD mn) 384
FY14 Div. Yield (%) 1%
52 week High/Low 193/95
FY14 P/E 9
Source: Bloomberg consensus estimates, as of 4 July 2013
Infotech Enterprises (INFOE IN, not rated)
Muted near-term growthManagement noted that a mixture of company- and client- specific issues impacted growth
in 2HFY13, including: 1) client ramp-down in hi-tech segment; 2) offshore transition of a
large utilities client in Americas; 3) sluggish demand environment and company-specific
issues (loss of a key executive) in Europe (de-growth of 10-12% y/y); and 4) delay in
decision making in certain transportation projects in UK (1HFY13).
IES47%
A&E
24%
SAP29%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Q1FY13 Q2FY13 Q3FY13 Q4FY13
%q/q
IES A&E SAP
Revival in growth is expected in
2HFY14
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FIGURE 23
Infotech: Revenue growth q/q (US$)
FIGURE 24
Infotech: FY13 revenue exposure by region
Source: Company data, Barclays Research Source: Company data, Barclays Research
Management now expects flattish revenue growth in 1QFY14 and growth to start coming in
from 2QFY14. This confidence stems from the project backlog at the end of 4QFY13.
2HFY14 is expected to track better than 1HFY14 but management added that client-specific
issues may delay investment decisions and visibility still remains hazy. Management expectsgrowth in hi-tech and heavy engineering to remain soft in FY14 while transportation offers
comparatively higher scope, largely in Europe. Apart from transportation, growth in
remaining verticals continues to be sluggish in Europe. In USA utilities and aerospace offer
significant growth opportunities. Management noted, however, that clients are delaying
final investment decisions until the very last moment.
Investing for longer-term growth
Management is now investing more in IT, sales and operations, along with salaries (c8%
salary hikes for offshore employees planned). Significant investment is now being done to
ramp up sales teams and undertakes internal branding. Infotech has hired an external
consultant for branding. Margin levers include: 1) off-shoring of large projects; 2) pyramid
correction and automation; 3) improved utilisation due to ramp-up of projects.
FIGURE 25
Infotech: Quarterly operating margins
FIGURE 26
Infotech: Client additions
Source: Company data, Barclays Research Source: Company data, Barclays Research
Management aims to improve revenue to US$3mn per client in the medium term from
US$1.2mn currently. While it is flexible with volumes in the short term, its long-term
strategy is to migrate from services to solutions ie, have a higher risk-reward model that
would eventually lead to a higher deal size. Given its relationship with large clients is sticky,
better account mining is an opportunity for driving revenue growth, per to management.
-3%
-2%
-1%
0%
1%2%
3%
4%
5%
6%
72
74
76
78
8082
84
86
88
90
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
%q/qUS$mn
Revenues (US$ mn) %q/q
Americas
60%
Europe
26%
APAC &
Others14%
12.5%
15.7%
20.6% 19.8%18.7% 18.7% 18.5%
17.0%
0%
5%
10%
15%
20%
25%
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Operating Margin (%)
0
2
4
6
8
10
12
14
16
18
20
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
UT&C Engineering
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Management highlighted that competitive intensity remains flattish and that it believes
vendor selection in engineering services does not depend on pricing alone. Pricing churn is
minimal with vendor selection also depending on: 1) delivery credibility; 2) providing
flexibility to customers; and 3) domain expertise.
New initiatives
Management believes that Big Data offers solid growth avenues and it is now investing to
drive that segment of the business. It has renamed the content business lines to datatransformation and analytics and is looking to offer analytics solutions to clients. It has hired
a new sales force for this business and believes this initiative ties well with its aim to
become a solutions provider. Infotech is also actively scouting for an acquisition
(cUS$40mn ticket size) in embedded systems, telecom & utilities domains, to drive
inorganic growth, according to management (also highlighted in Infotech eyes bigger
overseas buyout targets, Economic Times, 24-Jan 2013).
FIGURE 27
Infotech: Key financial data
Key Facts
CMP (Rs) 175
Market Cap (USD mn) 323FY14 Div. Yield (%) 2%52 week High/Low 111/42
FY14 P/E 7.8
Source: Bloomberg consensus estimates, as of 4 July 2013
Persistent Systems (PSYS IN, not rated)
Management expects FY14 growth to be strong led by a focus on product development and
strong sentiment in the US. Traction in the US (c85% of FY13 revenues) appears strong,
especially in the Bay Area and Silicon Valley (c80% of FY13 US revenues). Management
indicated that campus placements in computer science and IT sectors have been strong,
indicating a healthy demand environment. However, decision-making on relatively large
investments is slow, not because of economic difficulties, but because clients are reluctant
to make significant changes in internal IT environments.
FIGURE 28
Persistent: Revenue growth
FIGURE 29
Persistent: Revenue breakdown by region
Source: Company data, Barclays Research Source: Company data, Barclays Research
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
50
100
150
200
250
FY09 FY10 FY 11 FY12 FY13
% y/yUS$ mn
Revenues (US$ mn) % y/y
87% 85% 86% 83% 85%
9% 8% 6% 7% 7%
4% 7% 9% 10% 9%
0%
10%
20%
30%
40%50%
60%
70%
80%
90%
100%
FY09 FY10 FY 11 FY12 FY13
North America Europe Asia-Pacific
Product development to lead
FY14 growth
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12
Healthy traction in products & platforms
Product engineering, which involves product development, implementation and
maintenance, is currently c70% of revenues, according to management. Management
commented that traction with Salesforce has been strong, with its products and platforms
based on Salesforce being well received by SME customers.
Management noted that it is making forays into Salesforce customers (especially enterprise
customers), in order to offer mobility and analytics solutions. It is actively focusing onaccount mining in its top-30 customers.
Management also commented that emerging trends in cloud are not peripheral but are of a
transformational nature, with a 30% reduction in hardware costs (capex now shifting to
opex). While the pace of acceptance has been healthy amongst SMEs, acceptance among
large organisations will be slow given the cross-continental nature of the business. Apart
from Salesforce, MS Azure and IBM Cloud are doing well in terms of cloud implementation.
FIGURE 30
Persistent: Revenue breakdown by business
FIGURE 31
Persistent: Revenue breakdown by industry vertical
Source: Company data, Barclays Research Source: Company data, Barclays Research
Healthy IP revenue growth likely FY14
Management has taken a number of initiatives to boost IP revenue growth in FY14: 1)
acquisition of source code for part of IBM Tivoli and rights to develop product for 10 years;
revenue will be shared with IBM for 10 years and the deal involved no upfront payment. 2)
Client automation product from HP (opened door to clients such as Citibank and JP
Morgan), which the company is working to extend to a mobile platform; this is a seven-year
deal; both companies sell the product and Persistent offers support and maintenance. 3)
Acquisition of a location-related services company that provides stable revenues (cUS$5mn
per year) and also provides entry to large telecom clients, such as AT&T.
FIGURE 32
Persistent Systems: Key financial data
Key Facts
Price (Rs) 496
Market Cap (USD mn) 329FY14 Div. Yield (%) 2%
52 week High/Low 591/364
FY14 P/E 9
Source: Bloomberg consensus estimates, as of 4 July 2013
95% 93% 91%83%
5% 7% 9%17%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY10 FY 11 FY12 FY13
Products & Platforms IP
21% 23% 21% 21% 25%
67% 66% 69% 68% 64%
12% 11% 11% 11% 11%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY09 FY10 FY 11 FY12 FY13
Telecom Infrastructure and Systems Life Sciences
Inorganic avenues to drive IP
growth
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13
NIIT Technologies (NITEC IN, not rated)
FY14 growth to be better than FY13
Management commented that FY14 revenue growth will be higher than FY13 on the back
of increased deal win momentum in 2HFY13. Given its focus on transformational deals,
c42% of the revenues are now derived from fixed-price contracts. The company is also
looking to drive growth through value-added offerings with management citing the multi-
year contract (cUS$62mn) signed with the Airports Authority of India (AAI) in April 2013 for
the implementation of airport operations control centres (AOCC) in 10 airports. The project
has provision for extending the work to 25 additional airports.
FIGURE 33
NIIT Tech: Deal wins run-rate
FIGURE 34
NIIT Tech: Quarterly constant currency growth
Source: Company data, Barclays Research Source: Company data, Barclays Research
The company changed its strategy in FY09 to concentrate on growth verticals (retail as an
industry vertical was let go) and balanced geographical exposure (focus on APAC and
India). The company entered the India homeland security market in 2009-10. Management
noted it was one of the initial IT vendors to adopt the non-linear model, which now
accounts for c21% of FY13 revenues.
Strong momentum in Cloud
The company is witnessing strong momentum in its cloud offerings with the business
growing c30-50% q/q. NIIT Tech has tied up with Hitachi to offer cloud solutions
(investment in infrastructure is done by Hitachi and implementation is done by NIIT Tech). It
is also partnering with Indian Mercantile Bank to offer a core banking platform (a software-
as-a-service offering) to cooperative banks under a multi-year contract (it has already been
implemented for UP Mercantile Bank). Management noted that cloud offerings will initially
be accepted largely by mid-sized and cooperative banks rather than large-sized banks.
FIGURE 35
NIIT Technologies: Key financial data
Key Facts
Price (Rs) 265
Market Cap (USD mn) 265
FY14 Div. Yield (%) 3.6%
52 week High/Low 325/238
FY14 P/E 6.5
Source: Bloomberg consensus estimates, as of 4 July 2013
4060
50
116
86
200
7592 83 93 83 110
0
50
100
150
200
250
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
US$ mn
Order Intake (US$ mn)
4.8%
0.5%
3.0%
4.4%
3.3%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13
Constant currency growth (%q/q)
Deal signings in 2HFY13 aid
revenue visibility in FY14
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14
Info Edge (INFOE IN, not rated)
Facing a tough domestic macro backdrop
Naukri
Management highlighted that demand in its Naukri business will likely be sluggish in
1HFY14 and any expectation of recovery in 2HFY14 is based more on hope than
improvement in fundamentals. However, due to deferred revenue recognition, the impact
on revenue growth will be smoothened out and management expects single-digit growth in
this business in FY14 in case there is some recovery in 2H. Note that in this business, fees
are collected upfront even when services are delivered over a period of time. Naukri has
exhibited a negative working capital cycle based on past performance.
FIGURE 36
Info Edge: Sluggish growth in unique customers in Naukri
division in FY09-10 and FY13
FIGURE 37
Info Edge: FY13 revenue growth down on challenging macro
Source: Company data, Barclays Research Source: Company data, Barclays Research
In terms of competitive intensity, Naukri is the market leader in Indias online job marketcommanding c60% of online traffic share, according to the company. Management noted
that its nearest rival, US-owned Monster Jobs, has been impacted by weakness in its global
business.
Management seemed more worried about LinkedIn as it believes an increasing number of
job seekers are using it as an alternative job search tool. Management commented that it is
considering innovative ways to counter such challenges.
99acres.com
Management commented that growth in the online real estate classifieds market is led by
internet under-penetration. The market of purchasing and selling homes in India is very
large (worth Rs30bn per year, according to management), and due to under-penetration in
real estate advertising, it perceives the internet opportunity to be large. MagicBricks,
Makaan and India Properties are the companys key competitors, and 99acres is the market
leader (MagicBricks second), according to the company. Management expects industry
consolidation over the next 2-3 years, given the large number of players in the market (it
notes new entrants like OLX, Quickr). While 99acres is operating just below breakeven,
management expects sustained profitability within the next 2-3 years.
The company is investing in training potential sellers (such as builders) to give building
inventory a greater appeal to buyers. Initially, the supply side was not Internet-savvy and the
company has taken efforts to correct this. The branding strategy has shifted from push to
pull over the past 2 years.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
-
10,000
20,000
30,000
40,000
50,000
60,000
FY07 FY08 FY09 FY10 FY11 FY12 FY13
%Customers
No. of unique customers %y/y
-10%
0%
10%
20%
30%
40%
50%
60%
70%
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
FY07 FY08 FY09 FY10 FY11 FY12 FY13
%Revenues
Revenues (Rs mn) %y/y
Weak macro is likely to impact
Naukri revenue growth in FY14
Under-penetration in real
estate advertising is driving
growth
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FIGURE 38
Info Edge: Paid listings have continued to rise
FIGURE 39
Info Edge: leading to c48% revenue growth in FY13
Source: Company data, Barclays Research Source: Company data, Barclays Research
Jeevan SaathiAfter the company had initially underinvested in this business it has now corrected its
strategy and has been investing in it over the past 1-1.5 years. While the matrimonial
classifieds industry is non-cyclical in nature management notes that repeat business is zero.
FIGURE 40
Info Edge: Jeevan Saathi customers increased sharply in
FY13 following company investments in the business
FIGURE 41
Info Edge: Revenue growth also picked up sharply in FY13
Source: Company data, Barclays Research Source: Company data, Barclays Research
FIGURE 42
Info Edge: Key financial data
Key Facts
Price (Rs) 301
Market Cap (USD mn) 545
FY14 Div. Yield (%) 0.34
52 week High/Low 405/275
FY14 P/E 26.5
Source: Bloomberg consensus estimates, as of 4 July 2013
0%
5%
10%
15%
20%
25%
30%35%
40%
45%
50%
0
10
20
30
40
50
60
FY07 FY08 FY09 FY10 FY11 FY12 FY13
%No.
No. of paid transactions (000s) %y/y
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
100
200
300
400
500
600
FY09 FY10 FY11 FY12 FY13
%y/yRs mn
Revenues (Rs mn) %y/y
-5%
0%
5%
10%
15%
20%
25%
50,000
55,000
60,000
65,000
70,000
75,000
80,000
85,000
90,000
FY07 FY08 FY09 FY10 FY11 FY12 FY13
%No.
No. of unique paid customers %y/y
0%
5%
10%
15%
20%
25%
0
50
100
150
200
250
300
350
FY09 FY10 FY11 FY12 FY13
%y/yRs mn
Revenues (Rs mn) %y/y
Investments into the
matrimonial classifieds
business has led to growth
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16
Rolta India (RLTA IN, not rated)
Mixed Outlook: US and Middle East strong, Europe and India weak
Management highlighted that the demand outlook remains mixed across geographies, with
a strong pipeline in the US led by oil & gas, utilities, telecom and public sector verticals. IT
spending is reviving in a phased manner in the US, with revenue models for clients shifting
from capex to opex, according to the company. In terms of service offerings, management
noted that business intelligence and infrastructure services are witnessing strong
momentum. Furthermore, cloud-based implementation is picking up pace with some
organisations also shifting to public cloud. Management noted that it expects SAP Hana, to
aid adoption of cloud through platform as a service (PaaS).
Europe, however, is lagging behind other markets due to adverse macro conditions.
Spending in the Middle East is on the rise as clients in the Middle are financially well-off,
according to management, and want to leapfrog to next-generation technology. African
markets are mostly in the growth phase and most of the client projects involve data
systems and are largely government/World Bank funded. Demand in India is mostly muted
with pipeline conversion remaining sluggish; however, on the execution side things are
better. Management commented that Indias new defence policy is a positive step and it
expects it will encourage localisation of some IT spend that was outsourced to other
countries. The telecom space may also see some growth on the back of sector
consolidation.
Cloud and big data present opportunities
Management expects cloud implementation to have a significant impact on customer
spending decisions. However, acceptance will likely occur in a phased manner, with every
corporate moving to some form of cloud over a 7- to 10-year period. Currently, cloud
implementation mostly involves database migration but, with security and speed improving,
critical applications will also be hosted on the cloud. Management compared cloud
implementation to that of online purchase behaviour of retail customers. While initially
there was reluctance owing to fears over security, online shopping is now a norm in most
countries; management believes that financial data migration to cloud is inevitable but will
happen over time.
Oil & gas, utilities and public
sector spend to drive growth in
US
Cloud implementation will
likely happen in a phased
manner
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ANALYST(S) CERTIFICATION(S)
I, Bhuvnesh Singh, hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of thesubject securities or issuers referred to in this research report and (2) no part of my compensation was, is or will be directly or indirectly related tothe specific recommendations or views expressed in this research report.
IMPORTANT DISCLOSURES CONTINUED
Barclays Research is a part of the Corporate and Investment Banking division of Barclays Bank PLC and its affiliates (collectively and eachindividually, "Barclays"). For current important disclosures regarding companies that are the subject of this research report, please send a writtenrequest to: Barclays Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer to http://publicresearch.barclays.comor call 212-526-1072.
The analysts responsible for preparing this research report have received compensation based upon various factors including the firm's totalrevenues, a portion of which is generated by investment banking activities.
Research analysts employed outside the US by affiliates of Barclays Capital Inc. are not registered/qualified as research analysts with FINRA.These analysts may not be associated persons of the member firm and therefore may not be subject to NASD Rule 2711 and incorporated NYSERule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analysts account.
Analysts regularly conduct site visits to view the material operations of covered companies, but Barclays policy prohibits them from acceptingpayment or reimbursement by any covered company of their travel expenses for such visits.
In order to access Barclays Statement regarding Research Dissemination Policies and Procedures, please refer to
https://live.barcap.com/publiccp/RSR/nyfipubs/disclaimer/disclaimer-research-dissemination.html.The Corporate and Investment Banking division of Barclays produces a variety of research products including, but not limited to, fundamentalanalysis, equity-linked analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differfrom recommendations contained in other types of research products, whether as a result of differing time horizons, methodologies, orotherwise.
Materially Mentioned Stocks (Ticker, Date, Price)
HCL Technologies (HCLT.NS, 05-Jul-2013, INR 794.35), Overweight/Neutral, C/D/J/L
Infosys Ltd. (INFY.NS, 05-Jul-2013, INR 2454.45), Overweight/Neutral, C/D/J/L
Tata Consultancy Services (TCS.NS, 05-Jul-2013, INR 1527.35), Equal Weight/Neutral, C/D/J/K/L/M/N
Wipro Limited (WIPR.NS, 05-Jul-2013, INR 350.80), Underweight/Neutral, C/D/J/K/L/M
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IMPORTANT DISCLOSURES CONTINUED
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Guide to the Barclays Fundamental Equity Research Rating System:
Our coverage analysts use a relative rating system in which they rate stocks as Overweight, Equal Weight or Underweight (see definitions below)relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry (the "industry coverageuniverse").
In addition to the stock rating, we provide industry views which rate the outlook for the industry coverage universe as Positive, Neutral orNegative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investorsshould carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone.
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Overweight - The stock is expected to outperform the unweighted expected total return of the industry coverage universe over a 12-month
investment horizon.
Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the industry coverage universe over a 12-month investment horizon.
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Industry View
Positive - industry coverage universe fundamentals/valuations are improving.
Neutral - industry coverage universe fundamentals/valuations are steady, neither improving nor deteriorating.
Negative - industry coverage universe fundamentals/valuations are deteriorating.
Below is the list of companies that constitute the "industry coverage universe":
Asia Ex-Japan Software & IT Services
HCL Technologies (HCLT.NS) Infosys Ltd. (INFY.NS) MindTree (MINT.NS)
Mphasis (MBFL.NS) Tata Consultancy Services (TCS.NS) Wipro Limited (WIPR.NS)
Distribution of Ratings:
Barclays Equity Research has 2376 companies under coverage.
44% have been assigned an Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 52% ofcompanies with this rating are investment banking clients of the Firm.
40% have been assigned an Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 48% ofcompanies with this rating are investment banking clients of the Firm.
13% have been assigned an Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 42% ofcompanies with this rating are investment banking clients of the Firm.
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Each analyst has a single price target on the stocks that they cover. The price target represents that analyst's expectation of where the stock willtrade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst's pricetarget over the same 12-month period.
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IMPORTANT DISCLOSURES CONTINUED
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IMPORTANT DISCLOSURES CONTINUED
HCL Technologies (HCLT IN / HCLT.NS) Stock Rating Industry View
INR 794.35 (05-Jul-2013) OVERWEIGHT NEUTRAL
Rating and Price Target Chart - INR (as of 05-Jul-2013) Currency=INR
Date Closing Price Rating Price Target
18-Apr-2013 735.90 865.00
18-Jan-2013 704.40 820.00
18-Oct-2012 600.80 650.00
25-Jul-2012 513.75 560.00
19-Apr-2012 503.50 528.00
07-Oct-2011 404.65 Overweight 485.00
Link to Barclays Live for interactive charting
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J: Barclays Bank PLC and/or an affiliate trades regularly in the securities of HCL Technologies.
L: HCL Technologies is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate.
Valuation Methodology: Our 12-month target price of INR 865 for HCL Tech is based on a P/E of 13.5x, which we apply to our average of ourEPS estimates for FY14 and FY15. For HCL Tech, our target multiple is based on a 15% discount to the target mutiple for Infosys due to thesmaller scale and lower margin profile.
Risks which May Impede the Achievement of the Barclays Research Price Target: The key risks to our price target being achieved, in our view,remain deterioration in the macro, fall off in business demand, strengthening of the rupee that would impact margin profile and higher aggressionfrom peers that could slow the deal win rate.
Closing Price Target Price Rating Change
Jan-2011 Jul- 2011 Jan-2012 Jul- 2012 Jan-2013 Jul- 2013
300
400
500
600
700
800
900
https://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=6294896&legend=HCL%20Technologies&shortlegend=HCLT.NS¤cy=INR&enddate=20130705&begindate=20120705&userId=dashites&appName=RPShttps://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=6294896&legend=HCL%20Technologies&shortlegend=HCLT.NS¤cy=INR&enddate=20130705&begindate=20120705&userId=dashites&appName=RPS -
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IMPORTANT DISCLOSURES CONTINUED
Infosys Ltd. (INFO IN / INFY.NS) Stock Rating Industry View
INR 2454.45 (05-Jul-2013) OVERWEIGHT NEUTRAL
Rating and Price Target Chart - INR (as of 05-Jul-2013) Currency=INR
Date Closing Price Rating Price Target
15-Apr-2013 2333.95 2750.00
14-Jan-2013 2807.25 Overweight 3020.00
13-Jul-2012 2227.80 Equal Weight 2300.00
16-Apr-2012 2369.35 3010.00
04-Jan-2012 2854.25 3320.00
07-Oct-2011 2507.05 Overweight 3050.00
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C: Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Infosys Ltd. or one of its affiliates.
D: Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from Infosys Ltd. in the past 12 months.
J: Barclays Bank PLC and/or an affiliate trades regularly in the securities of Infosys Ltd..
L: Infosys Ltd. is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate.
Valuation Methodology: Our 12-month target price of INR2,750 for Infosys is based on a P/E of c16x, which we apply to our EPS estimate forFY14. Our target multiple for Infosys is based on average since Nov-08.
Risks which May Impede the Achievement of the Barclays Research Price Target: The downside risk to our price target is the failure in revival ofgrowth due to weak macro and execution issues at the company. The upside risk to our target price is stronger than expected turnaround of themacro situation and revival in demand.
Closing Price Target Price Rating Change
Jan-2011 Jul- 2011 Jan-2012 Jul- 2012 Jan-2013 Jul- 2013
2,000
2,200
2,400
2,600
2,800
3,000
3,200
3,400
3,600
https://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=6205122&legend=Infosys%20Ltd.&shortlegend=INFY.NS¤cy=INR&enddate=20130705&begindate=20120705&userId=dashites&appName=RPShttps://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=6205122&legend=Infosys%20Ltd.&shortlegend=INFY.NS¤cy=INR&enddate=20130705&begindate=20120705&userId=dashites&appName=RPS -
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Barclays | India IT Services
8 July 2013 22
IMPORTANT DISCLOSURES CONTINUED
Tata Consultancy Services (TCS IN / TCS.NS) Stock Rating Industry View
INR 1527.35 (05-Jul-2013) EQUAL WEIGHT NEUTRAL
Rating and Price Target Chart - INR (as of 05-Jul-2013) Currency=INR
Date Closing Price Rating Price Target
18-Apr-2013 1450.70 1475.00
15-Jan-2013 1334.30 1355.00
04-Dec-2012 1298.45 1345.00
21-Oct-2012 1290.30 1325.00
04-Jan-2012 1174.40 1230.00
07-Oct-2011 1048.70 Equal Weight 1150.00
Link to Barclays Live for interactive charting
C: Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Tata Consultancy Services or one of itsaffiliates.
D: Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from Tata Consultancy Services in the past12 months.
J: Barclays Bank PLC and/or an affiliate trades regularly in the securities of Tata Consultancy Services.
K: Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from Tata Consultancy Services within thepast 12 months.
L: Tata Consultancy Services is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate.
M: Tata Consultancy Services is, or during the past 12 months has been, a non-investment banking client (securities related services) of BarclaysBank PLC and/or an affiliate.
N: Tata Consultancy Services is, or during the past 12 months has been, a non-investment banking client (non-securities related services) ofBarclays Bank PLC and/or an affiliate.
Valuation Methodology: Our 12-month target price of INR 1,475 for TCS is based on a P/E of 16x, which we apply to the EPS estimates for FY15due to better earnings visibility
Risks which May Impede the Achievement of the Barclays Research Price Target: The key risks to the downside that could keep our price targetfrom being achieved are a weak macroeconomic backdrop and market weakness that would cause earnings forecast downgrades and multiplecontraction. TCS trades at the highest multiple amongst the Indian IT services peers. On the other hand, a stronger-than-expected rebound in themacroeconomic situation poses an upside risk. TCS's high exposure to the Financial Services vertical means that an uptick in banks' discretionary
spending in such a situation could mean disproportionately high gains for the company.
Closing Price Target Price Rating Change
Jan-2011 Jul- 2011 Jan-2012 Jul- 2012 Jan-2013 Jul- 2013
700
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
https://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=B01NPJ1&legend=Tata%20Consultancy%20Services&shortlegend=TCS.NS¤cy=INR&enddate=20130705&begindate=20120705&userId=dashites&appName=RPShttps://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=B01NPJ1&legend=Tata%20Consultancy%20Services&shortlegend=TCS.NS¤cy=INR&enddate=20130705&begindate=20120705&userId=dashites&appName=RPS -
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Barclays | India IT Services
8 July 2013 23
IMPORTANT DISCLOSURES CONTINUED
Wipro Limited (WPRO IN / WIPR.NS) Stock Rating Industry View
INR 350.80 (05-Jul-2013) UNDERWEIGHT NEUTRAL
Rating and Price Target Chart - INR (as of 05-Jul-2013) Currency=INR
Date Closing Price Rating Price Target
22-Apr-2013 339.35 356.00
21-Jan-2013 362.21 346.57
03-Nov-2012 332.85 326.51
24-Jul-2012 315.56 300.97
04-Jan-2012 381.14 328.33
07-Oct-2011 304.44 Underweight 310.09
Link to Barclays Live for interactive charting
C: Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Wipro Limited or one of its affiliates.
D: Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from Wipro Limited in the past 12 months.
J: Barclays Bank PLC and/or an affiliate trades regularly in the securities of Wipro Limited.
K: Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from Wipro Limited within the past 12months.
L: Wipro Limited is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate.
M: Wipro Limited is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays Bank PLCand/or an affiliate.
Valuation Methodology: Our 12-month target price of Rs356 for Wipro is based a P/E of 12.5x applied to average of our FY14 and FY15 EPSestimates for the business. Our target P/E is based on 10% discount to its historical P/E average for the past five years. We apply a 10% discountbecause we believe it conservatively reflects the risks of the now weak business visibility. We believe that improvements in the company's growthprofile will continue to face headwinds from a weak macro environment with the continuous internal restructurings taking up preciousmanagement bandwidth and being a risk. We maintain our UW rating.
Risks which May Impede the Achievement of the Barclays Research Price Target: The key risks to the upside that could keep our price targetfrom being achieved are a stronger-than-forecast rebound in the macroeconomic situation and better-than-expected execution by the newmanagement team. We note that while the company has always had the industry expertise, it has historically had lapses in execution that havehindered growth. Turnaround by the new management could drive upsides to our forecasts. Key downside risk would come from macroeconomicfactors that could further impede the company's already slow growth profile relative to its peers.
Closing Price Target Price Rating Change
Jan-2011 Jul- 2011 Jan-2012 Jul- 2012 Jan-2013 Jul- 2013
300
350
400
450
500
https://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=6206051&legend=Wipro%20Limited&shortlegend=WIPR.NS¤cy=INR&enddate=20130705&begindate=20120705&userId=dashites&appName=RPShttps://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=6206051&legend=Wipro%20Limited&shortlegend=WIPR.NS¤cy=INR&enddate=20130705&begindate=20120705&userId=dashites&appName=RPS -
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