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Date: January 28, 2019

Equity Research
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Wipro Ltd

Key highlights

Established player in the IT Industry Strategic relationships with diversified customers


Realigned the organisational structure Investment in emerging verticals and building capabilities
Building up digital capabilities

INDUSTRY ADD ON DIPS TO


IT Consulting & Software Rs 319- 322

CMP SEQUENTIAL TARGETS


Rs 353 Rs 392-416 Rs 294

RECOMMEND TIME HORIZON


ed ed
Buy at CMP and add on declines 3-4 quarters

Investors may sell 60-65% of their holdings on first target being achieved and later keep a stop loss of first target for the balance holdings, in case the second target takes time to be achieved.
Investors may also maintain Rs 294 as level below which investment position needs to be reviewed, including the possibility to exit. Page 2
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Company profile:
Wipro Ltd is the third largest Indian IT services company and the largest third-party BPO operator in India. It has the widest
range of services, including systems integration, IT-enabled services, package implementation, software application
development & maintenance, and R&D services. It is the largest third-party R&D services provider globally, employing over
HDFC Scrip Code WIPLTDEQNR 172,000 employees across six continents. It offers among the widest range of IT and ITeS services and its corporate
governance and transparency are at the highest levels in the industry. It has ~1200 clients spanning the BFSI,
BSE Code 507685
manufacturing, retail, utilities, and telecom verticals.
NSE Code WIPRO With effect from April 01, 2012 (FY2013), the company demerged its other divisions (consumer care & lighting, medical
Bloomberg WPRO IN equipment and infrastructure engineering) into a separate company, Wipro Enterprises Ltd, to enhance its focus and allow
both businesses to pursue their individual growth strategies. Abidali Neemuchwala is the CEO of the Company with effect
CMP Jan 25 2019 Rs 353 from February 1, 2016. Neemuchwala had been Group President and COO from April, 2015. He was previously the CEO of
Equity Capital (Mn) 8845.03 the BPO division of Tata Consultancy Services Limited, having worked with TCS for 23 years.
Face Value (Rs) 2 Investment rationale:
4422.52 •Established player in the IT services industry and focussed across various verticals, geographies and domains
Eq- Share O/S (Mn)
•Realigned the organisational structure and is building up digital capabilities
Market Cap (Rs Mn) 415488 •Investment in emerging verticals and building capabilities to improve its utilisation and profitability growth
Book Value (Rs) 107.0 •Acquisition of Alight HR services could strengthen Wipro in automation, machine learning and data analytics
•Strategic relationships with diversified customer base, supporting high repeat business
Avg.52 Wk Volume 41,53,496
Concerns:
52 Week High 355.5
•INR appreciation against the USD
52 Week Low 253.5 •Pricing competition and industry specific factors (including slowdown in IT spending)
•High geographical concentration
•Low revenue growth over the past several quarters
Shareholding Pattern % (Dec 31, 2018)
View and valuation:
Promoters 74.3
Wipro has established its position in the Indian information technology industry and has diversified revenue streams with
Institutions 16.1 healthy revenue composition across various services lines and domains; and strategic alliances spread across geographies.
Non Institutions 9.6 Wipro also continues to realign itself with the dynamic demands of the IT industry, which is undergoing a shift from
traditional legacy models to digitization, automation and analytics based solutions.
Total 100.0
Wipro reported a strong quarter in Q3FY19, especially on the margin front. Further, with continued strength in BFSI and
digital, a healthy deal pipeline commentary and client specific issues left behind, we are positive on Wipro’s growth
trajectory. This, coupled with sustainability of higher margins in coming years could further boost profitability. Wipro’s
FUNDAMENTAL ANALYST
ability to win and handle large scale projects globally and strong financial profile characterised by healthy operating
Abdul Karim accruals, sound cash position and comfortable debt coverage metrics also results in a positive view on the stock.
abdul.karim@hdfcsec.com
We feel investors could buy the stock at the CMP, and add on dips to the Rs 319-322 band (13.5x FY21E EPS) for
sequential targets of Rs 392 (16.5x FY21E EPS) and Rs 416 (17.5x FY21E EPS). At the CMP of Rs 353, the stock trades at
14.8x FY21E EPS.
Page 3
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Financial Summary
Key Highlights YE March (Rs bn) Q3FY19 Q3FY18 YoY (%) Q2FY19 QoQ (%) FY18 FY19E FY20E FY21E
Net Sales 150.6 136.7 10.2 145.4 3.6 544.9 588.0 635.9 671.1
 Wipro Ltd is the third largest Indian IT EBIT 27.8 19.7 41.3 19.4 43.1 82.8 95.2 113.7 119.9
services company and the largest third- APAT 25.1 21.9 14.8 22.9 9.6 82.6 92.5 102.2 107.3
party BPO operator in India. It has the Diluted EPS (Rs) 5.6 4.8 14.8 5.1 9.6 18.3 20.5 22.6 23.8
widest range of services, including P/E (x) 19.3 17.2 15.6 14.8
systems integration, IT-enabled EV / EBITDA (x) 13.8 12.1 9.8 8.8
services, package implementation, RoE (%) 16.5 18.1 17.8 16.7
software application development &
(Source: Company, HDFC sec)
maintenance, and R&D services.
Company profile
 Wipro has established its position in Wipro Ltd is the third largest Indian IT services company and the largest third-party BPO operator in India. It has the
the Indian information technology
widest range of services, including systems integration, IT-enabled services, package implementation, software
industry and has diversified revenue
application development & maintenance, and R&D services. It is the largest third-party R&D services provider globally,
streams with healthy revenue
employing over 172,000 employees across six continents. It offers among the widest range of IT and ITeS services and
composition across various services
lines and domains; and strategic
its corporate governance and transparency are at the highest levels in the industry. It has ~1,200 clients spanning the
alliances spread across geographies. BFSI, manufacturing, retail, utilities, and telecom verticals.
With effect from April 01, 2012 (FY2013), the company demerged its other divisions (consumer care & lighting, medical
 Wipro has guided that its Q4FY19E IT equipment and infrastructure engineering) into a separate company, Wipro Enterprises Ltd, to enhance its focus and
services revenues would be in the allow both businesses to pursue their individual growth strategies. Abid Ali Neemuchwala is the CEO of Company with
range of $2047-2088 million, which effect from 1 February 2016. Neemuchwala had been group president and COO from April 2015. He previously was the
translates to 0-2% QoQ growth in CC CEO of the BPO division of Tata Consultancy Services Limited, having worked with TCS for 23 years.
terms. Muted guidance was given on Result review (Q3FY19)
account of macro concerns and growth
 Wipro reported inline revenue growth and better than expected PAT growth in Q3FY19. USD revenue was up 0.3%
issues in Health & Pharma sector and
Manufacturing. (QoQ), while IT services adjusted EBIT margin expanded 120 bps (QoQ) to 19.8% in Q3FY19. Revenue stood at USD
2,047mn and adjusting for India business growth was +1.8/2.4% QoQ/CC.
 Wipro’s ability to win and handle large  PAT margin recovery has been robust (+250bps YoY) led by operational efficiency, INR depreciation and decline in
scale projects globally and strong sub-contracting and G&A costs. This is the highest EBIT margin in Q3 since FY15. Wipro has narrowed the margin gap
financial profile characterised by with Infosys by 514bp over last two quarters.
healthy operating accruals, sound cash  Wipro’s BFSI vertical (31.4% of revenue) grew by 5.3% (QoQ) in CC. ENU - Energy, natural resources, utilities &
position and comfortable debt
construction (13% of rev, +4.6% CC QoQ) growth can be under risk led by volatility in crude prices.
coverage metrics also results in a
 Amongst geographies, the US (57.1% of revenue) outperformed with 3.7% (QoQ) growth in CC.
positive view on the stock.
 Digital solutions continued to grow faster and was 33.2% of revenue in Q3FY19 vs. 31.4% of revenue in Q2FY19.
 Wipro’s $50mn+ clients grew by 2 (QoQ) to 41 and US$100mn+ client grew by 1 (QoQ) to 19.
 Wipro has guided that its Q4FY19E IT services revenues would be in the range of $2047-2088 million, which translates
to 0-2% QoQ growth in CC terms. Muted guidance was given on account of macro concerns and growth issues in
Health & Pharma sector and Manufacturing.
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Corporate announcement
 Wipro recommended an interim dividend of ~ Re.1/- per equity share of par value ~ Rs.2 each to the Members of the Company as on Wednesday, January 30, 2019,
being the Record Date. The payment of Interim Dividend will be made on or before Wednesday, February 6, 2019.
 Wipro recommended to increase in authorized share capital ~ Rs 11,265mn to ~ Rs 25,265mn by creation of additional 7,000mn equity shares of~ Rs.2 (Rupees Two
each) and consequent amendment to clause V of the Memorandum of Association of the Company.
 It recommended issue of bonus equity shares in the proportion of 1 :3, that is 1 (One) bonus equity share of ~ 2- each for every 3 (Three) fully paid-up equity shares
held as on the record date, subject to approval of the Members of the Company for approval of the Members

Attractive Payout ratios by way of dividend and buyback -%


100%+

Considered Amount of buy back in FY17 and FY18, (Source: Company, HDFC sec)
Wipro said that it will consider buyback of shares after the completion of merger of its subsidiaries. It maintained that its payout ratio will continue to be in the range of
35%-40% of net income.
Revenue and Margins Trend
USD Revenue Growth (QoQ)-% USD Revenue Growth (YoY)-%

(Source: Company, HDFC sec)


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Revenue (INR) Growth (QoQ)-% Revenue (INR) Growth (YoY)-%

(Source: Company, HDFC sec)


IT Services EBIT Margin Trend (Adjusted) Revenue/Employee Trend

(Source: Company, HDFC sec)

Vertical Revenue Break-up (IT Services ex ISRE)


(% of revenue) Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19
BFSI 26.6 27.6 28.3 28.7 29.8 30.5 31.4
Consumer Business Unit 15 15.1 15.1 15 15.3 15.7 15.6
Health Business Unit 15.1 14 14.3 14.2 13.6 13 13.1
ENU and Utilities 13.5 13.5 12.7 12.7 12.7 12.8 13
Technology 13.8 14.3 14.3 14.6 14.5 13.9 13
Manufacturing 9.1 8.9 8.8 8.9 8.4 8.3 8.1
Communications 6.9 6.6 6.5 5.9 5.7 5.8 5.8
Total 100 100 100 100 100 100 100
ISRE is India State Run Enterprise segment which was hived off from IT services in 3QFY19. Prior numbers are restated excluding ISRE (Source: Company, HDFC sec)

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Vertical-wise Revenue Growth (IT Services ex ISRE)


(QoQ, %) Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19
BFSI 5.7 2.7 3.8 2.3 3.4 4.8
Consumer Business Unit 2.6 0.2 1.7 0.5 3.7 1.2
Health Business Unit -5.5 2.3 1.6 -5.7 -3.4 2.6
ENU and Utilities 1.9 -5.8 2.3 -1.5 1.8 3.4
Technology 5.6 0.2 4.5 -2.2 -3.1 -4.8
Manufacturing -0.4 -1 3.5 -7 -0.2 -0.6
Communications -2.6 -1.4 -7.1 -4.8 2.8 1.8
Total 1.9 0.2 2.3 -1.5 1 1.8
(Source: Company, HDFC sec)
Service Line Break-Up (IT Services ex ISRE)
(% of revenue) Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19
Modern Application Services 46.1 46.1 45.7 45.5 46.7 46.3 45.6
Cloud and Infrastructure Services 27.2 27.2 27.3 27.6 26.3 25.6 25
Digital Operations and Platforms 12.3 12.4 12.9 12.4 12.4 12.9 14.7
Data, Analytics and AI 7.3 7.2 7.1 7.1 7.2 7.8 7.6
Industrial & Engineering Services 7.1 7.1 7 7.4 7.4 7.4 7.1
Total 100 100 100 100 100 100 100
(Source: Company, HDFC sec)
Service Line Growth (IT Services ex ISRE)
(QoQ, %) Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19
Modern Application Services 1.9 -0.7 1.9 1.1 0.2 0.3
Cloud and Infrastructure Services 1.9 0.5 3.5 -6.1 -1.6 -0.5
Digital Operations and Platforms 2.7 4.2 -1.6 -1.5 5.1 16.1
Data, Analytics and AI 0.5 -1.2 2.3 -0.1 9.5 -0.8
Industrial & Engineering Services 1.9 -1.2 8.2 -1.5 1 -2.3
Total 1.9 0.2 2.3 -1.5 1 1.8
(Source: Company, HDFC sec)
Onsite-offshore Split (IT Services ex ISRE)
(% of revenue) Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19
Onsite revenue 53.6 53.2 53.5 52.7 52.9 52.8 52.2
Offshore revenue 46.4 46.8 46.5 47.3 47.1 47.2 47.8
Total 100 100 100 100 100 100 100
(Source: Company, HDFC sec)
Onsite-offshore Growth (IT Services ex ISRE)
(QoQ, %) Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19
Onsite revenue 1.1 0.7 0.8 -1.1 0.8 0.7
Offshore revenue 2.8 -0.5 4.1 -1.9 1.3 3.1
Total 1.9 0.2 2.3 -1.5 1 1.8
(Source: Company, HDFC sec)

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Geographic Revenue Break-up (IT Services ex ISRE)


(% of revenue) Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19
Americas 55.6 54.8 54.1 53.8 56 56.1 57.1
Europe 24.7 25.6 26.5 27.5 26.1 25.7 25.5
RoW 19.7 19.6 19.4 18.7 17.9 18.2 17.4
Total 100 100 100 100 100 100 100
(Source: Company, HDFC sec)
Geographic Revenue Growth (IT Services ex ISRE)
(QoQ, %) Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19
Americas 0.4 -1.1 1.8 2.5 1.2 3.7
Europe 5.6 3.7 6.2 -6.5 -0.5 1
RoW 1.4 -0.9 -1.4 -5.7 2.7 -2.6
Total 1.9 0.2 2.3 -1.5 1 1.8
(Source: Company, HDFC sec)
Headcount, Attrition And Utilisation Data
(Nos.) Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19
Total headcount (IT Services ex ISRE) 161439 159300 158865 159923 160846 171451 172379
Net additions -2139 -435 1058 923 10605 928
Voluntary TTM attrition (%) 16.1 16 16.1 16.8 17.1 17.5 17.9
Gross Utilisation (%) 72 72.9 71 73.1 74.5 74.4 73.4
Utilisation excluding trainees (%) 82.1 82.5 81.9 83.4 85.2 85.5 83.2
(Source: Company, HDFC sec)

Investment rationale
Established player in the IT services industry and focussed across various verticals, geographies and domains
Wipro is a global player and has established position in the Indian IT services industry. It has a long track record to cater to clients across domains such as manufacturing
& technology (contributing ~21% to revenues); financial solutions (contributing ~32% to revenues); healthcare life science & services (contributing ~13% to revenues)
etc.), across geographies such as US (contributing ~57% to revenues), Europe (contributing ~26% to revenues), and Rest of the World (contributing ~17% to revenues),
and across services lines such as application, business process, etc.
With consecutive quarters of growth, the financial solutions vertical, contributing ~27% to revenues in FY2018, remains a key growth driver for the company. The
growth is supported by increasing adoption of digital solutions by large banks and insurance companies particularly in US markets and global banks in Europe.

Investment in emerging vertical and building capabilities to improve its utilisation and profitability growth
Wipro has been active on the investment front over the last few years, with spending aimed towards building capabilities, training and incentivizing people, acquiring
businesses, and investing in strategic accounts. This has dragged margins in the past couple of years. With Automation stepping in, some benefits can be expected and
with major spending coming to an end, utilisation ratios and margins could rise from here, though gradually.

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Realigned the organisational structure and building up digital capabilities


 Wipro has realigned the organisational structure, from a service-line focused to vertical-focused organization, enabling it to bid large complex annuity deals. It has
also brought back focus on specific verticals and geographies for a sharpened go-to-market strategy by shedding non-core businesses. This is impacting near-term
revenue growth, but would aid the company’s long-term growth profile.
 Wipro’s has made significant progress on building up digital capabilities by training its workforce and acquiring companies, therefore, company has been
participating in more and large digital-led deals.
 Digital revenue contribution has accelerated and account for 33.2% of services revenue (vs. 25.0% in Q3FY18) and grew 6.4% (QoQ) and 35% (YoY) in dollar terms.
 Going forward, shift from legacy to digital, increased focus on cloud infra and platforms is expected to drive digital contribution to topline and bottomline growth.
 Apart from this, restructuring of businesses, continuous growth in BFSI and healthy deal pipeline are expected to lead to accelerated growth in coming years.

Acquisition of Alight HR services could strengthen Wipro in automation, machine learning and data analytics
 Wipro signed a deal with Alight Solutions to acquire Alight HR Services India Private for $117 million in Q2FY19. Alight HR Services India Private -- formerly known
as Aon HR Services India Private -- is into IT and ITeS services, inter alia, related to human resource outsourcing, information technology, shared and finance process
outsourcing. With 9,000 employees, the company has five offices in India across Gurgaon, Noida, Mumbai and Chennai. It reported revenues of Rs 1,132cr in FY18
and Rs 531cr in FY17.
 Post taking over Alight HR Services India, Wipro’s business process outsourcing (BPO) services division, can offer end-to-end human resource (HR) solutions and
services. This will enable Alight to accelerate investment in consumer-facing technologies and services across its health, wealth and cloud operations by leveraging
Wipro's industry-leading strengths in automation, machine learning and data analytics.

Strategic relationships with diversified customer base supporting high repeat business:
In May 2017, Wipro unveiled a new brand identity, which reiterated its position as a trusted digital transformation partner to clients, delivering at a global scale in
emerging technologies like digital, cloud, cyber security, hyper-automation, analytics and product engineering. With increasingly diversified capabilities across the
globe, Wipro is committed to developing a global innovation ecosystem. The new brand identity underscores Wipro’s philosophy of bringing together insights across
industries and technologies to maximise business value for its clients.

Wipro enjoys repeat business of ~97% from its diversified customer base. Over the years, the company has diversified its revenue contribution from top-10 clients
from ~23% in FY14 to ~18% in FY2018; revenue contribution from top-five clients and continues to remain in the range of ~11-13%. With client mining as one of its
core strategy, the company has increased wallet share and added 223 customers during FY18.

Aggressive targets of growth as laid out by the CEO


The current CEO AbidAli has chalked out an aggressive plan for the company, targeting to reach USD15b revenues with 23% EBIT margin. That implies revenue CAGR
of ~20% over the next four years, and if the margins attain the 300bp expansion, then even higher CAGR for earnings. Even if these look unattainable, even low double
digit sales growth and 100 bps improvement in margins could result in sharp improvement in earnings trajectory for the company.

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Concerns
INR appreciation against the USD
Rupee appreciation or adverse cross-currency movements could impact its revenues and margins. Indian IT services companies could see a decline in margins, if the
Rupee improves to below 68 vs the USD.
Pricing Competitions and industry specific factors
Larger players among IT Companies have seen competition with other global players on pricing front. Indian IT continues to lose its share on global outsourcing market.
With digitalization, automation and IOT (Internet of the Things) the industry needs more flexible players who are suited for specific requirements. That is where the
mid-sized companies and niche companies are giving tough competition to the larger players. Although, the company is the third largest Indian IT services company,
it continues to be impacted by industry specific factors such as currency fluctuations, wage inflation, retention and re-skilling of talent pool. Increments to employees
and reinvestments for growth could be offset by premium pricing for digital services.
High geographical concentration
With US contributing ~53% to the company’s revenues, Wipro remains exposed to region specific volatility such as availability of H-1B visa, higher visa fees, uncertainty
in budgetary spends and the recent uncertainty of H-4 visa holders. To mitigate the same, the company has extensively taken up localization of its work force in US
during FY18 which led to 62% of its work force in USA being locally hired.
Low revenue growth over the past several quarters: Despite efforts to strengthen its core, Wipro’s performance is muted on account of head winds such as rupee
appreciation, uncertainty in budgetary spend in healthcare segment in US and restructuring of operations of Middle East and India. Also, two of its customers
underwent insolvency, leading to Wipro providing ~Rs. 461cr for impairment loss and deferred cost contract cost in FY18.
Macro Uncertainties
Uncertainties over the macro environment in key markets like North America and Europe pertaining to IT budgets, which could result in demand compression, pricing
pressure and increased credit risk from vulnerable clients. Further prolonged weakness in Healthcare/Manufacturing verticals could result in subdued overall growth
for Wipro.
Strong regulatory action against outsourcing in Wipro’s key geographical markets.

View and valuation


Wipro has established position in the Indian Information Technology industry and its diversified revenue streams with healthy revenue composition across various
services lines and domains; and strategic alliances spread across geographies. Wipro also continues to realign itself with the dynamic demands of IT industry, which is
undergoing a shift from traditional legacy models to digitization, automation and analytics based solutions.
Wipro reported a strong quarter, especially on the margin front. Further, with continued strength in BFSI and digital, a healthy deal pipeline commentary and client
specific issues left behind, we remain positive on Wipro’s growth trajectory. This, coupled with sustainability of higher margins in coming years would further boost
profitability. Wipro’s ability to win and handle large scale projects globally and strong financial profile characterised by healthy operating accruals, sound cash position
and comfortable debt coverage metrics, brings positive view on the stock.
We feel investors could buy the stock at the CMP, and add on dips to the Rs 319-322 band (13.5x FY21E EPS) for sequential targets of Rs 392 (16.5x FY21E EPS) and Rs
416 (17.5x FY21E EPS). At the CMP of Rs 353, the stock trades at 14.8x FY21E EPS.

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Quarterly Financials YE March (Rs bn) Q3FY19 Q3FY18 YoY (%) Q2FY19 QoQ (%)
IT Services Revenues (USD bn) 2.1 2.0 1.7 2.0 0.3
Total Revenues 150.6 136.7 10.2 145.4 3.6
Operating Expenses 117.7 111.8 5.3 121.6 -3.3
EBITDA 32.9 24.9 32.1 23.8 38.5
Depreciation 5.2 5.3 -2 4.4 18.3
EBIT 27.8 19.7 41.3 19.4 43.1
Other Income 5.4 6.1 -12.6 5.2 4.1
Interest costs 1.6 1.2 35 1.6 3.7
Forex gain/(loss) 0.9 0.1 628.8 1.2 -25.1
PBT 32.4 24.7 31.1 24.2 33.9
Minority Interest 0.3 0.0 NM 0.0 NM
Tax 7.0 5.4 30.1 5.4 30.3
RPAT 25.1 19.4 29.6 18.9 32.9
E/o (adj for tax) 0.0 -2.5 NM -4.0 NM
APAT 25.1 21.9 14.8 22.9 9.6
EPS 5.7 4.9 14.82 5.2 9.7

Financials: Income Statement YE March (RS bn) FY17 FY18 FY19E FY20E FY21E
IT Services Net Revenues (USD bn) 7.7 8.1 8.2 8.6 9.1
Growth (%) 4.9 4.6 1.6 5.4 5.6
Net Revenues 550.4 544.9 588.0 635.9 671.1
Growth (%) 7.4 -1.0 7.9 8.1 5.5
Operating Expenses 441.3 440.9 473.8 501.1 527.2
EBITDA 109.1 103.9 114.3 134.8 143.8
EBITDA (%) 19.8 19.1 19.4 21.2 21.4
EBITDA Growth (%) 1.0 -4.8 9.9 18.0 6.7
Depreciation 23.1 21.1 19.1 21.1 23.9
EBIT 86.0 82.8 95.2 113.7 119.9
Other Income 21.7 23.9 23.6 22.6 23.1
Interest 5.2 5.7 6.5 6.7 6.9
Forex gains/(losses) 3.8 1.5 3.9 1.6 1.7
PBT 106.3 102.5 116.2 131.3 137.9
Tax (incl deferred) 25.2 22.4 25.4 28.9 30.3
Minority Interest and associate profit -0.3 0.0 -0.3 -0.3 -0.3
RPAT 84.9 80.1 90.5 102.2 107.3
EO (Loss) / Profit (Net Of Tax) 4.1 -2.5 -2.0 0.0 0.0
APAT 80.8 82.6 92.5 102.2 107.3
APAT Growth (%) -9.2 2.2 12.0 10.5 5.0
EPS 17.9 18.3 20.5 22.6 23.8
EPS Growth (%) -9.2 2.2 12.0 10.5 5.0
(Source: Company, HDFC sec)

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YE March (Rs bn) FY17 FY18 FY19E FY20E FY21E


Cash Flow
Reported PBT 106.3 102.5 116.2 131.3 137.9
Non-operating & EO items -19.8 -10.3 -23.6 -22.6 -23.1
Interest expenses 5.2 5.7 6.5 6.7 6.9
Depreciation 23.1 21.1 19.1 21.1 23.9
Working Capital Change 4.5 -0.9 -5.2 -5.7 -5.3
Tax paid -25.5 -28.1 -25.4 -28.9 -30.3
OPERATING CASH FLOW ( a ) 93.9 89.9 87.6 101.8 109.9
Capex -53.3 -27.4 -20.6 -22.3 -23.5
Free cash flow (FCF) 40.6 62.6 67.0 79.6 86.4
Investments -0.2 0.0 0.0 0.0 0.0
Non-operating income 17.4 15.0 23.6 22.6 23.1
INVESTING CASH FLOW ( b ) -36.1 -12.4 3.0 0.4 -0.4
Debt Issuance 13.0 -11.2 0.0 0.0 0.0
Interest expenses -5.2 -5.7 -6.5 -6.7 -6.9
FCFE 48.4 45.7 60.6 72.9 79.6
Share capital Issuance/Buyback -25.0 -110.3 0.0 0.0 0.0
Dividend -8.7 -5.4 -31.8 -37.1 -38.1
FINANCING CASH FLOW ( c ) -25.9 -132.5 -38.2 -43.7 -45.0
NET CASH FLOW (a+b+c) 31.8 -55.0 52.4 58.5 64.6
Non-operating and EO items 9.6 4.3 0.0 0.0 0.0
Closing Cash & Equivalents 344.7 294.0 346.4 404.9 469.5
(Source: Company, HDFC sec)

YE March (Rs bn) FY17 FY18 FY19E FY20E FY21E


Balance Sheet
SOURCES OF FUNDS
Share Capital - Equity 4.9 9.1 9.1 9.1 9.1
Reserves 515.4 473.9 532.6 597.7 666.9
Total Shareholders' Funds 520.3 482.9 541.6 606.8 675.9
Minority Interest 2.4 2.4 2.8 3.0 3.3
Total Debt 142.4 138.3 138.3 138.3 138.3
Net Deferred Taxes 3.5 -3.9 -3.9 -3.9 -3.9
Long Term Provisions & Others 15.1 19.7 19.7 19.7 19.7
TOTAL SOURCES OF FUNDS 683.7 639.4 698.5 763.8 833.3
APPLICATION OF FUNDS
Net Block 60.8 49.3 50.8 51.9 51.5
CWIP 9.0 15.2 15.2 15.2 15.2
Goodwill & Other Intangible Assets 141.7 135.7 135.7 135.7 135.7
LT Loans & Advances, Others 40.0 74.6 74.6 74.6 74.6
Total Non Current Assets 251.5 274.8 276.3 277.4 277.0
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Equity Research Inventories 3.9 3.4 4.1 4.5 4.7
Debtors
Pick of the Week – Retail Research 94.9 101.0 107.9 116.7 123.2
Cash & Equivalents 344.7 294.0 346.4 404.9 469.5
Other Current Assets 95.4 80.6 86.4 93.5 98.7
Total Current Assets 538.9 479.0 544.9 619.5 696.0
Creditors 65.5 68.1 72.0 76.5 80.2
Other Current Liabilities & Provns 41.3 46.2 50.7 56.6 59.6
Total Current Liabilities 106.7 114.3 122.7 133.1 139.7
Net Current Assets 432.2 364.7 422.2 486.4 556.3
TOTAL APPLICATION OF FUNDS 683.7 639.4 698.5 763.8 833.3
(Source: Company, HDFC sec)

articulars FY17 FY18 FY19E FY20E FY21E


Key Ratios
PROFITABILITY (%)
EBITDA Margin 19.8 19.1 19.4 21.2 21.4
APAT Margin 14.7 15.2 15.7 16.1 16.0
RoE 16.4 16.5 18.1 17.8 16.7
RoIC or Core RoCE 19.6 18.7 21.1 24.7 25.7
RoCE 11.2 11.2 12.3 12.4 12.0
EFFICIENCY
Tax Rate (%) 22.1 22.8 21.8 21.9 22.0
Fixed Asset Turnover (x) 3.5 4.1 3.8 3.6 3.4
Inventory (days) 0.0 0.0 0.0 0.0 0.0
Debtors (days) 62.9 67.7 67.0 67.0 67.0
Other Current Assets (days) 63.3 54.0 53.7 53.7 53.7
Payables (days) 43.4 45.6 44.7 43.9 43.6
Other Current Liability (days) 27.4 30.9 31.4 32.5 32.4
Cash Conversion Cycle (days) 55.4 45.1 44.5 44.2 44.7
Net Debt/EBITDA (x) -1.9 -1.5 -1.8 -2.0 -2.3
Net Debt/Equity (x) -0.4 -0.3 -0.4 -0.4 -0.5
Interest Coverage (x) 16.6 14.6 14.8 17.0 17.4
PER SHARE DATA
EPS (Rs/sh) 17.9 18.3 20.5 22.6 23.8
CEPS (Rs/sh) 23.9 22.4 24.3 27.3 29.1
DPS (Rs/sh) 1.9 1.2 7.1 8.2 8.5
BV (Rs/sh) 115.2 107.0 120.0 134.4 149.7
VALUATION
P/E 19.7 19.3 17.2 15.6 14.8
P/BV 3.1 3.3 2.9 2.6 2.4
EV/EBITDA 12.7 13.8 12.1 9.8 8.8
(Source: Company, HDFC sec)

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Equity Research
Pick of the Week – Retail Research

Daily Closing Price Chart

(Source: Company, HDFC sec)

Page 14
Equity Research
Pick of the Week – Retail Research

Fundamental Research Analyst: Abdul Karim (abdul.karim@hdfcsec.com)

HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 3075 3450 Compliance
Officer: Binkle R. Oza Email: complianceofficer@hdfcsec.com Phone: (022) 3045 3600
SEBI Registration No.: INZ000186937 (NSE, BSE, MSEI, MCX) |NSE Trading Member Code: 11094 | BSE Clearing Number: 393 | MSEI Trading Member Code: 30000 | MCX Member Code: 56015 | AMFI Reg No. ARN -13549, PFRDA Reg.
No - POP 04102015, IRDA Corporate Agent Licence No.-HDF2806925/HDF C000222657 , Research Analyst Reg. No. INH000002475, CIN-U67120MH2000PLC152193.

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