02 July 2021 1QFY22E Results Preview Information Technology
Transcript of 02 July 2021 1QFY22E Results Preview Information Technology
02 July 2021 1QFY22E Results Preview
Information Technology
HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
Strong momentum continues Strong deal momentum (both pipeline and large deal bookings), broad-
based industry-vertical trends towards digital transformation, positive
cyclical indicators in product development/engineering services and
consulting, accelerated hiring, and improving alignment with
hyperscalers/SaaS indicate continuity of momentum for the sector
(coverage universe). Tier-1 IT is expected to deliver 4% QoQ (3%
organic) and 20% YoY (base impact) revenue growth. In comparison,
mid-tier IT is expected to post 3.5% QoQ (range of -3.6% to +5.9% QoQ)
with larger mid-tier averaging >4.5% QoQ. Margin will be impacted by
wage increases, increase in sub-contracting/attrition, offset partly by
operating leverage and FX/offshoring.
Deal wins (TCS-Proximus, Ericsson, Alcatel-Lucent, Virgin Atlantic;
INFY-BP, Archrock, RXR, Britvic; HCLT-Hitachi ABB; WPRO-Levi
Strauss, Bristol Water; LTI-Hoist Finance) remained strong in 1QFY22.
Acquisition volumes continued in 1Q (WPRO-Ampion; TECHM-
DigitalOnUs, Eventus; LTI-Cuelogic; PSYS-Sureline Systems select
assets; MTCL-NxT Digital; ZENT-M3bi) to augment capabilities in
cybersecurity, DevOps, product development and analytics. We believe
that the elevated supply-side pressure is transient and will normalise
over the next 1-2 quarters.
Revenue outperformance led by WPRO, TELX, PSYS and MTCL: In
1QFY22E, we expect WPRO to lead the growth at 9.4% QoQ in USD
terms helped by Capco acquisition (630bps QoQ), followed by TCS
with 3.6% QoQ growth supported by uptick in deals. INFY/HCLT/
TECHM are expected to post 3.5/2.2/2%. Within mid-tiers,
TELX/PSYS/MTCL to report growth at 5.9/5.4/5.3% QoQ (USD terms).
LTI, MPHL and LTTS are expected to post 3.9%, 3.5% and 3.5% QoQ
growth, while CYL will lag at -3.6% QoQ due to decline in DLM
business. In terms of margin, WPRO is expected to underperform
operationally (Capco integration & partial wage increase impact)
within tier-1s and TELX within mid tiers (one-time payout impact of -
550bps). Margins during the quarter are impacted due to wage hike
and promotion cycle for most companies.
Key monitorables: (1) Revenue guidance: INFY (expected to increase
by 100bps)/HCLT (unchanged at >10% CC) for FY22, WPRO (2.5-3%
for 2Q) and LTTS (100bps increase expected); (2)
Progression/regression in large deal pipeline and bookings; (3)
Attrition & sub-contracting and commentary on supply-side factors;
(4) Pricing and delivery-mix outlook; (5) Core verticals’ performance
and outlook.
Maintain positive outlook: We roll over valuations to Jun-23E and
raise target multiples for most of the companies in our coverage
universe (except WPRO and CYL) to reflect greater visibility/longevity
of growth. Our positive stance on the sector remains premised on the
longevity of high growth (and strong balance sheet), supported by
large deal wins. While mid-tier IT valuations have hit escape velocity
(sustainable), driven by strong business momentum (both absolute
and relative to tier-1), broadly risk-reward is favourable for tier-1s.
Preferred picks are Infosys, HCL Tech, Mphasis and Sonata.
Company CMP*
(INR) RECO
TP
(INR)
TCS 3,342 ADD 3,750
Infosys 1,560 BUY 1,730
Wipro 539 ADD 575
HCL Tech 986 BUY 1,185
TechM 1,085 BUY 1,270
LTI 4,017 ADD 4,520
Mindtree 2,581 ADD 2,670
Mphasis 2,172 BUY 2,680
LTTS 2,893 REDUCE 2,680
Tata Elxsi 4,244 ADD 4,165
Persistent 2,960 ADD 3,160
Cyient 886 ADD 915
Zensar^ 325 BUY 375
Sonata 755 BUY 805
Mastek 2,230 BUY 2,460
*CMP as on 1st Jul 2021
Apurva Prasad
+91-22-6171-7327
Amit Chandra
+91-22-6171-7345
Vinesh Vala [email protected]
+91-22-6171-7332
TCSINFY
WPRO
HCLTTECHM
LTIMTCL
MPHL
LTTS
TELX
PSYS
CYL
ZENT
SSOF
MAST
5
10
15
20
25
30
35
40
45
10 15 20 25 30
P/E
(x
) F
Y2
3E
EPS CAGR % (FY21-24E)
Page | 2
1QFY22E Results Preview
IT Services: 1QFY22E Quarterly Financial Summary
Company
Net Sales (USD mn) Net Sales (INR bn) EBIT (INR bn) EBIT Margin (%) APAT (INR bn) Adj. EPS (INR)
1Q
FY22E
QoQ
(%)
YoY
(%)
1Q
FY22E
QoQ
(%)
YoY
(%)
1Q
FY22E
QoQ
(%)
YoY
(%)
1Q
FY22E
QoQ
(bps)
YoY
(bps)
1Q
FY22E
QoQ
(%)
YoY
(%)
1Q
FY22E
4Q
FY21
1Q
FY21
TCS 6,204 3.6 22.6 457.26 4.6 19.3 118.43 0.9 30.9 25.9 -95 229 93.77 1.4 33.8 25.3 25.0 18.9
Infosys 3,738 3.5 19.8 275.52 4.7 16.4 65.88 2.3 22.8 23.9 -56 124 52.10 2.6 23.1 12.4 12.1 10.1
Wipro 2,354 9.4 22.5 178.05 9.6 19.4 32.56 -2.2 27.0 18.3 -220 109 28.84 -3.0 20.6 5.1 5.2 4.2
HCLT 2,754 2.2 16.9 202.99 3.3 13.8 41.51 4.3 13.4 20.5 19 -6 32.86 10.9 12.3 12.1 10.9 10.8
Tech M 1,356 2.0 12.3 99.96 2.7 9.8 15.09 -5.9 64.6 15.1 -138 503 12.20 7.8 25.5 13.9 12.9 11.1
Tier-1 IT 16,408 4.0 20.1 1,213.77 5.0 16.9 273.48 1.0 26.9 22.5 -89 178 219.77 2.8 25.4
L&T
Infotech 465 3.9 19.1 34.27 4.8 16.2 5.71 -9.8 11.1 16.7 -270 -76 4.60 -8.5 10.4 26.4 28.8 23.9
Mindtree 304 5.3 19.9 22.37 6.1 17.2 4.06 3.7 54.7 18.1 -41 440 3.30 3.9 54.8 20.0 19.3 12.9
Mphasis 354 3.5 16.0 26.11 3.4 14.1 4.13 1.8 15.2 15.8 -25 15 3.28 3.6 19.4 17.6 17.0 14.8
L&T Tech 204 3.5 19.6 15.07 4.6 16.4 2.28 -4.7 45.4 15.1 -148 302 1.94 -0.2 65.6 18.6 18.6 11.2
Tata Elxsi 75 5.9 42.5 5.56 7.2 38.7 1.42 -9.5 73.2 25.5 -471 508 1.14 -1.4 64.8 18.2 18.5 11.1
Persistent 161 5.4 23.0 11.88 6.7 19.8 1.57 7.1 52.4 13.2 5 283 1.53 10.7 69.5 20.0 18.0 11.8
Cyient 144 -3.6 10.6 10.65 -2.6 7.4 1.23 -10.8 141.4 11.6 -107 643 0.98 -11.4 20.7 8.9 10.1 7.4
Zensar 124 3.4 -0.7 9.16 4.5 -3.4 1.26 -2.6 29.2 13.8 -100 348 0.95 5.5 31.2 4.2 4.0 3.2
Sonata 44 1.0 21.2 12.11 12.6 27.1 0.95 1.7 40.4 7.9 -84 74 0.77 -6.8 55.1 7.4 8.0 4.8
Mastek 69 4.5 35.5 5.07 5.0 31.4 0.99 3.3 74.0 19.5 -33 477 0.69 13.2 69.6 24.1 21.3 14.2
Mid-Tier IT 1,946 3.5 18.1 152.24 5.0 16.1 23.60 -2.9 34.9 15.5 -125 216 19.18 -0.6 34.6
Aggregate 18,353 3.9 19.9 1,366.01 5.0 16.8 297.08 0.7 27.5 21.7 -93 182 238.95 2.5 26.1
Source: HSIE Research, Wipro USD Rev is IT services, Sonata USD rev is IITS, Wipro includes inorganic growth of 630bps QoQ & TECHM includes
inorganic growth of 50bps QoQ
USD revenue QoQ growth trend
Source: HSIE Research, Wipro includes inorganic growth of 630bps QoQ & TECHM includes inorganic
growth of 50bps QoQ
Sequential USD revenue growth
Companies 1QFY22E
QoQ (%)
2Q-4QFY22E
Implied CQGR (%)
1Q-4QFY23E
Implied CQGR (%) Companies
1QFY22E
QoQ (%)
2Q-4QFY22E
Implied CQGR (%)
1Q-4QFY23E
Implied CQGR (%)
TCS 3.6 2.6 2.6 L&T Tech 3.5 3.1 3.7
Infosys 3.5 3.5 2.9 Tata Elxsi 5.9 4.8 4.6
Wipro 9.4 3.1 2.4 Persistent 5.4 4.7 4.5
HCLT 2.2 2.5 2.6 Cyient -3.6 5.0 2.6
Tech M 2.0 2.7 2.6 Zensar 3.4 2.9 2.9
L&T Infotech 3.9 4.1 4.0 Sonata 1.0 4.3 4.0
Mindtree 5.3 3.7 3.6 Mastek 4.5 2.2 4.8
Mphasis 3.5 3.5 3.2
Source: HSIE Research
3.6 3.5
9.4
2.2 2.03.9
5.33.5 3.5
5.9 5.4
-3.6
3.4
1.0
4.5
-6.0-4.0-2.00.02.04.06.08.0
10.012.0
TC
S
Info
sys
Wip
ro
HC
LT
Tec
h M
L&
T I
nfo
tech
Min
dtr
ee
Mp
has
is
L&
T T
ech
Tat
a E
lxsi
Per
sist
ent
Cy
ien
t
Zen
sar
So
nat
a
Mas
tek
Page | 3
1QFY22E Results Preview
IT Services: valuation metrics
Company MCap
(INR bn)
CMP
(INR)
TP
(INR) RECO
EPS (INR) P/E (x) RoE (%) USD Rev
CAGR%
FY21-24E
EPS
CAGR%
FY21-24E FY21 FY22E FY23E FY24E FY21 FY22E FY23E FY24E FY21 FY22E FY23E FY24E
TCS 12,360 3,342 3,750 ADD 90.2 107.5 122.1 135.4 37.1 31.1 27.4 24.7 39.1 44.5 47.1 48.2 12.3 14.5
Infosys 6,633 1,560 1,730 BUY 46.2 52.4 59.9 67.0 33.8 29.8 26.0 23.3 27.3 30.0 34.3 35.1 13.1 13.2
Wipro 2,980 539 575 ADD 19.5 21.8 25.1 28.6 27.6 24.7 21.5 18.8 19.4 20.7 21.4 21.9 14.0 13.6
HCL Tech 2,674 986 1,185 BUY 45.9 49.7 57.4 64.5 21.5 19.8 17.2 15.3 22.4 21.2 21.9 21.9 11.1 12.0
TechM 1,048 1,085 1,270 BUY 51.1 59.2 68.7 75.9 21.2 18.3 15.8 14.3 19.3 20.1 21.4 21.6 10.7 14.1
Tier-1 IT Median
27.6 24.7 21.5 18.8 22.4 21.2 21.9 21.9 12.3 13.6
LTI 699 4,017 4,520 ADD 111.3 121.9 149.4 176.3 36.1 32.9 26.9 22.8 29.8 26.6 27.4 27.3 17.3 16.6
Mindtree 425 2,581 2,670 ADD 70.3 81.1 91.6 106.9 36.7 31.8 28.2 24.1 29.7 28.2 26.8 26.5 16.6 15.0
Mphasis 405 2,172 2,680 BUY 65.3 75.0 91.2 112.6 33.3 29.0 23.8 19.3 19.7 20.4 22.3 24.5 14.2 19.9
L&T Tech 302 2,893 2,680 REDUCE 60.1 81.5 97.5 118.8 48.2 35.5 29.7 24.3 20.1 22.6 23.1 24.0 15.2 25.5
Tata Elxsi 264 4,244 4,165 ADD 59.1 80.1 99.4 120.3 71.8 53.0 42.7 35.3 30.1 35.1 36.9 35.9 23.5 26.7
Persistent 226 2,960 3,160 ADD 59.0 83.3 101.4 118.5 50.2 35.6 29.2 25.0 17.4 21.1 22.1 22.2 19.9 26.2
Cyient 97 886 915 ADD 33.8 40.1 50.2 52.9 26.2 22.1 17.7 16.8 13.5 14.4 16.6 16.2 12.2 16.1
Zensar 74 325 375 BUY 15.3 16.8 19.8 24.1 21.2 19.3 16.4 13.5 15.7 15.2 16.3 18.0 9.2 16.3
Sonata 78 755 805 BUY 25.6 31.8 38.6 45.5 29.5 23.8 19.5 16.6 33.7 34.0 35.9 36.5 17.0 21.1
Mastek 64 2,230 2,460 BUY 73.5 93.2 117.5 139.5 30.3 23.9 19.0 16.0 25.4 27.7 28.3 27.3 17.3 23.8
Mid-Tier IT AVG
38.4 30.7 25.3 21.3 23.5 24.5 25.6 25.8 16.2 20.7
Mid-Tier IT Median 34.7 30.4 25.4 21.0 22.7 24.6 25.0 25.5 16.8 20.5
Source: HSIE Research, CMP as on 1st Jul 2021
Global IT Peers: valuation metrics
Company MCap
(USD bn)
CMP
(USD)
TP
RECO
EPS (USD) P/E (x) RoE (%) USD Rev
CAGR%
FY21-24E
EPS
CAGR%
FY21-24E FY21 FY22E FY23E FY24E FY21 FY22E FY23E FY24E FY21 FY22E FY23E FY24E
Accenture 196.5 295 NA NR 8.8 9.9 10.8 12.7 33.4 29.7 27.3 23.1 31.2 30.5 29.0 32.3 8.2 8.7
Cognizant 36.5 69 NA NR 3.4 4.0 4.4 4.8 20.3 17.4 15.9 14.5 12.7 16.5 16.7 15.0 10.0 9.7
Capgemini^ 27.3 162 NA NR 7.3 7.7 8.7 9.9 22.2 21.1 18.6 16.4 13.2 18.7 19.1 18.7 9.5 13.6
EPAM 28.8 511 NA NR 6.3 7.8 9.6 12.3 80.6 65.9 53.4 41.6 18.3 19.5 21.3 21.2 40.0 25.8
Globant 9.1 219 NA NR 2.5 3.4 4.0 4.6 89.5 64.7 54.7 47.6 8.2 13.0 12.4 NA 44.3 16.5
TietoEVRY^ 3.2 27 NA NR 2.2 2.3 2.5 2.6 12.4 11.8 10.7 10.1 5.7 15.0 15.1 15.6 3.2 8.1
Global IT AVG
43.0 35.1 30.1 25.6 14.9 18.9 18.9 20.5 19.2 13.7
Global IT Median
27.8 25.4 23.0 19.8 13.0 17.6 17.9 18.7 9.8 11.7
Source: Bloomberg Consensus, HSIE Research, CMP as on 1st Jul 2021, ^ in EUR
Page | 4
1QFY22E Results Preview
IT Services stock performance (%)
Companies 1M (%) 3M (%) 6M (%) 12M (%) 3Yr (%) 5Yr (%) 10Yr (%)
TCS 6.0 5.6 14.1 59.7 80.8 167.2 460.7
Infosys 12.5 12.6 23.8 113.2 138.7 166.2 325.4
Wipro -0.6 29.5 39.0 146.2 175.0 157.3 281.1
HCL Tech 3.7 -1.7 3.7 78.6 112.8 169.4 694.4
TechM 5.3 9.4 11.0 98.8 65.6 112.2 504.4
LTI 3.2 -2.3 8.6 107.3 140.3 NA NA
Mindtree 6.7 24.3 55.6 179.4 161.5 283.0 2624.1
Mphasis 11.4 24.3 42.0 146.2 100.3 281.5 390.4
LTTS 7.7 6.3 20.0 122.7 137.5 NA NA
Tata Elxsi 17.6 53.1 127.2 370.4 218.0 385.0 3372.1
Persistent 18.7 51.6 97.7 363.8 264.8 329.3 1540.8
Cyient 9.3 33.1 72.7 216.5 15.6 82.3 537.5
Zensar 15.2 18.1 33.6 159.9 26.9 65.3 874.2
Sonata 14.3 43.6 92.0 216.6 141.2 353.5 1668.5
Mastek 15.1 75.2 84.5 470.1 336.8 1546.3 5421.1
NSE IT 6.8 11.6 18.6 96.9 107.3 161.3 334.5
Nifty 50 0.7 5.5 11.9 50.3 46.3 88.3 178.6
Source: Bloomberg, HSIE Research, CMP as on 1st Jul 2021
Note:
Green indicates out-performance to Nifty 50 during the respective period
Red indicates under-performance to Nifty 50 during the respective period
IT Sector P/E and EPS Growth
Source : Company, HSIE Research, Size of the bubble denotes market cap
Infosys
Wipro
HCLT
TechM
L&T Infotech
MphasisMindtree
L&T Tech
Cyient
TCS
Persistent
Zensar
Sonata Mastek
Tata Elxsi
5
10
15
20
25
30
35
40
45
50
10 12 14 16 18 20 22 24 26 28 30
FY
23
E P
/E
EPS CAGR FY21-24E
Page | 5
1QFY22E Results Preview
Change in estimates
IT Services
Company
Revenue USD Mn
(NEW) Change (%) EBIT % (NEW) Change (bps) EPS (INR) NEW Change (%)
FY22E FY23E FY22E FY23E FY22E FY23E FY22E FY23E FY22E FY23E FY22E FY23E
TCS 25,833 28,674 0.5% 0.6% 26.4 26.9 0 -59 107.5 122.1 0.7% -1.5%
Infosys 15,835 17,819 0.0% -0.1% 23.2 23.4 -44 -78 52.4 59.9 -0.9% -2.6%
Wipro 9,893 10,978 0.1% 0.5% 18.0 18.5 -12 -1 21.8 25.1 -0.5% 0.6%
HCL Tech 11,445 12,678 -0.3% -0.3% 20.2 20.3 -32 -21 49.7 57.4 -1.5% -1.3%
Tech Mahindra 5,633 6,240 0.1% 0.5% 15.0 15.6 -21 14 59.2 68.7 -1.8% 1.0%
LTI 1,976 2,322 0.8% 0.7% 17.5 17.8 -113 -155 121.9 149.4 -5.8% -7.8%
Mindtree 1,286 1,489 2.2% 4.5% 17.3 16.8 -72 -74 81.1 91.6 -1.8% -0.2%
Mphasis 1,491 1,701 1.3% 2.1% 16.0 16.7 -47 -9 75.0 91.2 -1.4% 1.4%
LTTS 857 984 1.3% 2.7% 16.0 16.8 -39 -29 81.5 97.5 -1.5% 0.8%
Tata Elxsi 325 390 2.3% 4.1% 26.2 26.7 91 -9 80.1 99.4 5.8% 3.6%
Persistent 692 828 2.7% 5.9% 13.4 13.8 22 -33 83.3 101.4 5.8% 3.5%
Cyient 620 702 -1.1% -0.3% 12.4 13.2 11 22 40.1 50.2 0.6% 1.4%
Zensar 518 580 0.8% 2.6% 13.4 14.0 -40 11 16.8 19.8 -2.0% 3.7%
Sonata 190 221 -0.3% 1.1% 7.9 8.0 4 -1 31.8 38.6 2.0% 1.7%
Mastek 284 332 2.5% 3.4% 18.0 18.7 28 37 93.2 117.5 3.7% 5.8%
Source: Company, HSIE Research
Companies M-cap
(INR bn)
CMP
(INR)
TP Old
(INR)
New TP
(INR) Old Rating
New
Rating
Old
multiple
(x)
New
multiple
(x)
5Y Avg (x) 10Y Avg
(x)
TCS* 12,360 3,342 3,470 3,750 ADD ADD 28 30 22 21
Infosys* 6,633 1,560 1,540 1,730 BUY BUY 25 28 18 17
Wipro 2,980 539 550 575 ADD ADD 22 22 16 15
HCL Tech* 2,674 986 1,045 1,185 BUY BUY 18 20 14 14
Tech Mahindra* 1,048 1,085 1,160 1,270 BUY BUY 17 18 14 13
LTI* 699 4,017 4,210 4,520 ADD ADD 26 28 19 NA
Mindtree* 425 2,581 2,200 2,670 ADD ADD 24 28 19 16
Mphasis* 405 2,172 1,980 2,680 BUY BUY 22 28 16 14
LTTS* 302 2,893 2,320 2,680 REDUCE REDUCE 24 26 21 NA
Tata Elxsi* 264 4,244 3,450 4,165 ADD ADD 36 40 20 18
Persistent* 226 2,960 2,450 3,160 ADD ADD 25 30 16 14
Cyient 97 886 890 915 ADD ADD 18 18 13 12
Zensar*^ 74 325 305 375 ADD BUY 16 18 13 10
Sonata* 78 755 685 805 BUY BUY 18 20 12 9
Mastek* 64 2,230 2,000 2,460 BUY BUY 18 20 12 8
Source: HSIE Research, * PE multiple increased, TP based on Jun-23E EPS, CMP as on 1st Jul 2021, ^Rating upgraded
Page | 6
1QFY22E Results Preview
IT Sector USD Revenue Growth (% YoY) IT Sector USD Revenue Growth (% QoQ)
Source: Company, HSIE Research
Source: Company, HSIE Research
IT Sector EBIT Margin Trend (%) IT Sector EBIT Margin Change (QoQ bps)
Source: Company, HSIE Research
Source: Company, HSIE Research
IT Sector Aggregate Revenue growth and Margin trend Tier 1 Revenue growth and Margin trend
Source: Company, HSIE Research
Source: Company, HSIE Research
2.4
%
2.2
%
2.4
%
1.2
%
2.0
%
1.9
%
-1.5
%
-6.2
%
5.9
%
4.9
%
3.8
%
3.9
%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2Q
FY
19
3Q
FY
19
4Q
FY
19
1Q
FY
20
2Q
FY
20
3Q
FY
20
4Q
FY
20
1Q
FY
21
2Q
FY
21
3Q
FY
21
4Q
FY
21
1Q
FY
22
E
7.2 7.9 7.7
6.9
1.915.8 11.3 10.1
21.621.1
21.6
20.7
22.9 22.5 22.823.0
18.5
19.5
20.5
21.5
22.5
23.5
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
FY
17
FY
18
FY
19
FY
20
FY
21
FY
22
E
FY
23
E
FY
24
E
USD Revenue Growth % EBIT Margin % (RHS)
8.2
%
8.7
%
8.0
%
8.4
%
8.0
%
7.7
%
3.6
%
-3.9
% -0.2
%
2.7
% 8.2
%
19
.9%
-10%
-5%
0%
5%
10%
15%
20%
25%
2Q
FY
19
3Q
FY
19
4Q
FY
19
1Q
FY
20
2Q
FY
20
3Q
FY
20
4Q
FY
20
1Q
FY
21
2Q
FY
21
3Q
FY
21
4Q
FY
21
1Q
FY
22
E
21.1 21.3
20.519.1
20.0
20.3
20.0
19.9
22.3
23.222.7
21.7
17
18
19
20
21
22
23
24
2Q
FY
19
3Q
FY
19
4Q
FY
19
1Q
FY
20
2Q
FY
20
3Q
FY
20
4Q
FY
20
1Q
FY
21
2Q
FY
21
3Q
FY
21
4Q
FY
21
1Q
FY
22
E
76
19
-85
-13
7
89
26
-24
-11
24
0
87
-51
-93
-200
-150
-100
-50
0
50
100
150
200
250
300
2Q
FY
19
3Q
FY
19
4Q
FY
19
1Q
FY
20
2Q
FY
20
3Q
FY
20
4Q
FY
20
1Q
FY
21
2Q
FY
21
3Q
FY
21
4Q
FY
21
1Q
FY
22
E
7.2 8.4 8.5
6.9
1.9 15.9 11.8 10.6
20.8
20.3
20.9
20.0
22.2
21.822.2
22.4
18.5
19.0
19.5
20.0
20.5
21.0
21.5
22.0
22.5
23.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
FY
17
FY
18
FY
19
FY
20
FY
21
FY
22
E
FY
23
E
FY
24
E
USD Revenue Growth % EBIT Margin % (RHS)
Page | 7
1QFY22E Results Preview
Currency movements
Favourable movement of USD-INR (1.2% QoQ)
Cross-currency impact was flat in 1QFY22 as compared to positive impact in the prior quarter
USD-INR Trend GBP-USD Trend
Source: NSE, Bloomberg, HSIE Research
Source: NSE, Bloomberg, HSIE Research
EUR-USD Trend AUD-USD Trend
Source: NSE, Bloomberg, HSIE Research Source: NSE, Bloomberg, HSIE Research
64
.5
64
.3 64
.7
64
.3
67
.0
70
.0 72
.1
70
.5
69
.6 70
.4 71
.2 72
.3
75
.9
74
.4
73
.8
72
.9 73
.7
(6)
(4)
(2)
0
2
4
6
60.0
62.0
64.0
66.0
68.0
70.0
72.0
74.0
76.0
78.0
1Q
FY
18
2Q
FY
18
3Q
FY
18
4Q
FY
18
1Q
FY
19
2Q
FY
19
3Q
FY
19
4Q
FY
19
1Q
FY
20
2Q
FY
20
3Q
FY
20
4Q
FY
20
1Q
FY
21
2Q
FY
21
3Q
FY
21
4Q
FY
21
1Q
FY
22
USD-INR Average Change QoQ % - RHS
1.2
8
1.3
1
1.3
3 1.3
9
1.3
6
1.3
0
1.2
9
1.3
0
1.2
9
1.2
3 1.2
9
1.2
8
1.2
4 1.2
9
1.3
2 1.3
8
1.4
0
(6)
(4)
(2)
0
2
4
6
1.00
1.05
1.10
1.15
1.20
1.25
1.30
1.35
1.40
1.45
1Q
FY
18
2Q
FY
18
3Q
FY
18
4Q
FY
18
1Q
FY
19
2Q
FY
19
3Q
FY
19
4Q
FY
19
1Q
FY
20
2Q
FY
20
3Q
FY
20
4Q
FY
20
1Q
FY
21
2Q
FY
21
3Q
FY
21
4Q
FY
21
1Q
FY
22
GBP-USD Average Change QoQ % - RHS
1.1
0
1.1
8
1.1
8
1.2
3
1.1
9
1.1
6
1.1
4
1.1
4
1.1
2
1.1
1
1.1
1
1.1
0
1.1
0
1.1
7 1.1
9
1.2
1 1.2
1
(4)
(2)
0
2
4
6
8
1.00
1.05
1.10
1.15
1.20
1.25
1Q
FY
18
2Q
FY
18
3Q
FY
18
4Q
FY
18
1Q
FY
19
2Q
FY
19
3Q
FY
19
4Q
FY
19
1Q
FY
20
2Q
FY
20
3Q
FY
20
4Q
FY
20
1Q
FY
21
2Q
FY
21
3Q
FY
21
4Q
FY
21
1Q
FY
22
EUR-USD Average Change QoQ % - RHS
0.7
5
0.7
9
0.7
7 0.7
9
0.7
6
0.7
3
0.7
2
0.7
1
0.7
0
0.6
9
0.6
8
0.6
6
0.6
6
0.7
2
0.7
3
0.7
7
0.7
7
(6)
(4)
(2)
0
2
4
6
8
10
0.60
0.65
0.70
0.75
0.80
0.85
1Q
FY
18
2Q
FY
18
3Q
FY
18
4Q
FY
18
1Q
FY
19
2Q
FY
19
3Q
FY
19
4Q
FY
19
1Q
FY
20
2Q
FY
20
3Q
FY
20
4Q
FY
20
1Q
FY
21
2Q
FY
21
3Q
FY
21
4Q
FY
21
1Q
FY
22
AUD-USD Average Change QoQ % - RHS
Page | 8
1QFY22E Results Preview
Revenue and margin performance (1QFY22E)
Tier-1 IT Revenue Performance (QoQ %) Mid-Tier IT Revenue Performance (QoQ %)
Source: HSIE Research, Wipro includes inorganic 630bps & TECHM
includes inorganic 50bps QoQ
Source: HSIE Research
Tier-1 IT Revenue Performance (YoY %) Mid-Tier IT Revenue Performance (YoY %)
Source: HSIE Research Source: HSIE Research
Tier-1 IT Margin Performance (QoQ bps)
Mid-Tier IT Margin Performance (QoQ bps)
Source: HSIE Research Source: HSIE Research
9.4
4.03.6 3.5
2.22.0
0
1
2
3
4
5
6
7
8
9
10
Wip
ro
Tie
r-1
IT
TC
S
Info
sys
HC
LT
Tec
h M
5.9 5.4 5.34.5
3.9 3.5 3.5 3.5 3.4
1.0
-3.6-6
-4
-2
0
2
4
6
8
Ta
ta E
lxsi
Per
sist
ent
Min
dtr
ee
Ma
stek
L&
T I
nfo
tech
Tie
r-2
IT
L&
T T
ech
Mp
ha
sis
Zen
sar
So
na
ta
Cy
ien
t
22.6 22.5
20.1 19.8
16.9
12.3
0
5
10
15
20
25
TC
S
Wip
ro
Tie
r-1
IT
Info
sys
HC
LT
Tec
h M
42.535.5
23.0 21.2 19.9 19.6 19.118.1
16.0
10.6
-0.7-5
0
5
10
15
20
25
30
35
40
45
Ta
ta E
lxsi
Ma
stek
Per
sist
ent
So
na
ta
Min
dtr
ee
L&
T T
ech
L&
T I
nfo
tech
Tie
r-2
IT
Mp
ha
sis
Cy
ien
t
Zen
sar
19
-56
-89 -95
-138
-220(250)
(200)
(150)
(100)
(50)
-
50
HC
LT
Info
sys
Tie
r-1
IT
TC
S
Tec
h M
Wip
ro
5
-25 -33 -41-84 -100 -107 -125 -148
-270
-471-500
-400
-300
-200
-100
0
100
Per
sist
ent
Mp
ha
sis
Ma
stek
Min
dtr
ee
So
na
ta
Zen
sar
Cy
ien
t
Tie
r-2
IT
L&
T T
ech
L&
T I
nfo
tech
Ta
ta E
lxsi
Page | 9
1QFY22E Results Preview
Tier-1 IT quarterly USD revenue growth trend (QoQ %)
Source: Company, HSIE Research
Tier-1 IT quarterly EBIT Margin trend (%)
Source: Company, HSIE Research
Mid-Tier IT quarterly USD revenue growth trend (QoQ %)
Source: Company, HSIE Research
Mid-Tier quarterly EBIT Margin trend (%)
Source: Company, HSIE Research
(10)
(5)
0
5
10
15
1Q
FY
18
2Q
FY
18
3Q
FY
18
4Q
FY
18
1Q
FY
19
2Q
FY
19
3Q
FY
19
4Q
FY
19
1Q
FY
20
2Q
FY
20
3Q
FY
20
4Q
FY
20
1Q
FY
21
2Q
FY
21
3Q
FY
21
4Q
FY
21
1Q
FY
22
E
TCS Infosys Wipro HCLT TechM(%, QoQ)
8
11
14
17
20
23
26
29
32
1Q
FY
18
2Q
FY
18
3Q
FY
18
4Q
FY
18
1Q
FY
19
2Q
FY
19
3Q
FY
19
4Q
FY
19
1Q
FY
20
2Q
FY
20
3Q
FY
20
4Q
FY
20
1Q
FY
21
2Q
FY
21
3Q
FY
21
4Q
FY
21
1Q
FY
22
E
TCS Infosys Wipro HCLT TechM(%)
-14.0
-10.0
-6.0
-2.0
2.0
6.0
10.0
14.0
1Q
FY
18
2Q
FY
18
3Q
FY
18
4Q
FY
18
1Q
FY
19
2Q
FY
19
3Q
FY
19
4Q
FY
19
1Q
FY
20
2Q
FY
20
3Q
FY
20
4Q
FY
20
1Q
FY
21
2Q
FY
21
3Q
FY
21
4Q
FY
21
1Q
FY
22
E
LTI Mphasis Mindtree LTTS
Persistent Cyient Zensar Tata Elxsi(%)
0.0
10.0
20.0
30.0
40.0
1Q
FY
18
2Q
FY
18
3Q
FY
18
4Q
FY
18
1Q
FY
19
2Q
FY
19
3Q
FY
19
4Q
FY
19
1Q
FY
20
2Q
FY
20
3Q
FY
20
4Q
FY
20
1Q
FY
21
2Q
FY
21
3Q
FY
21
4Q
FY
21
1Q
FY
22E
LTI Mphasis Mindtree LTTS
Persistent Cyient Zensar Tata Elxsi(%)
Page | 10
1QFY22E Results Preview
Valuation charts
NIFTY IT Index Valuation Trend (P/E 1-yr fwd) IT Index Valuation Trend vs NIFTY
Source: Bloomberg, HSIE Research Source: Bloomberg, HSIE Research
TCS P/E (1-yr fwd) Trend Infosys P/E (1-yr fwd) Trend Wipro P/E (1-yr fwd) Trend
Source: Bloomberg, HSIE Research
HCL Tech P/E (1-yr fwd) Trend TECHM P/E (1-yr fwd) Trend L&T Infotech P/E (1-yr fwd) Trend
Source: Bloomberg, HSIE Research
10
15
20
25
30
Jun
-11
Dec
-11
Jun
-12
Dec
-12
Jun
-13
Dec
-13
Jun
-14
Dec
-14
Jun
-15
Dec
-15
Jun
-16
Dec
-16
Jun
-17
Dec
-17
Jun
-18
Dec
-18
Jun
-19
Dec
-19
Jun
-20
Dec
-20
Jun
-21
NIFTY IT Index Median
+1 SD -1 SD
+2 SD -2 SD
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
0
5
10
15
20
25
30
Jun
-11
Dec
-11
Jun
-12
Dec
-12
Jun
-13
Dec
-13
Jun
-14
Dec
-14
Jun
-15
Dec
-15
Jun
-16
Dec
-16
Jun
-17
Dec
-17
Jun
-18
Dec
-18
Jun
-19
Dec
-19
Jun
-20
Dec
-20
Jun
-21
(P/E) Prem/ (Disc) to NIFTY IT Index P/E
10
15
20
25
30
35
Jun
-16
Dec
-16
Jun
-17
Dec
-17
Jun
-18
Dec
-18
Jun
-19
Dec
-19
Jun
-20
Dec
-20
Jun
-21
P/E (1-yr fwd) 5 Yr Mean
1SD + 1SD -
2SD + 2SD -
10
15
20
25
30
Jun
-16
Dec
-16
Jun
-17
Dec
-17
Jun
-18
Dec
-18
Jun
-19
Dec
-19
Jun
-20
Dec
-20
Jun
-21
P/E (1-yr fwd) 5 Yr Mean
1SD + 1SD -
2SD + 2SD -
8
12
16
20Ju
n-1
6
Dec
-16
Jun
-17
Dec
-17
Jun
-18
Dec
-18
Jun
-19
Dec
-19
Jun
-20
Dec
-20
Jun
-21
P/E (1-yr fwd) 5 Yr Mean
1SD + 1SD -
2SD + 2SD -
8
10
12
14
16
18
20
22
Jun
-16
Dec
-16
Jun
-17
Dec
-17
Jun
-18
Dec
-18
Jun
-19
Dec
-19
Jun
-20
Dec
-20
Jun
-21
P/E (1-yr fwd) 5 Yr Mean1SD + 1SD -2SD + 2SD -
8
11
14
17
20
Jun
-16
Dec
-16
Jun
-17
Dec
-17
Jun
-18
Dec
-18
Jun
-19
Dec
-19
Jun
-20
Dec
-20
Jun
-21
P/E (1-yr fwd) 5 Yr Mean1SD + 1SD -2SD + 2SD -
5
10
15
20
25
30
35
40
Dec
-17
Jun
-18
Dec
-18
Jun
-19
Dec
-19
Jun
-20
Dec
-20
Jun
-21
P/E (1-yr fwd) 5 Yr Mean
1SD + 1SD -
2SD + 2SD -
Page | 11
1QFY22E Results Preview
Mindtree P/E (1-yr fwd) Trend Mphasis P/E (1-yr fwd) Trend L&T Tech P/E (1-yr fwd) Trend
Source: Bloomberg, HSIE Research
Tata Elxsi P/E (1-yr fwd) Trend Persistent P/E (1-yr fwd) Trend Cyient P/E (1-yr fwd) Trend
Source: Bloomberg, HSIE Research
Zensar P/E (1-yr fwd) Trend Sonata P/E (1-yr fwd) Trend Mastek P/E (1-yr fwd) Trend
Source: Bloomberg, HSIE Research
10
15
20
25
30
35
Jun
-16
Dec
-16
Jun
-17
Dec
-17
Jun
-18
Dec
-18
Jun
-19
Dec
-19
Jun
-20
Dec
-20
Jun
-21
P/E (1-yr fwd) 5 Yr Mean1SD + 1SD -2SD + 2SD -
8
10
12
14
16
18
20
22
24
Jun
-16
Dec
-16
Jun
-17
Dec
-17
Jun
-18
Dec
-18
Jun
-19
Dec
-19
Jun
-20
Dec
-20
Jun
-21
P/E (1-yr fwd) 5 Yr Mean
1SD + 1SD -
2SD + 2SD -
10
15
20
25
30
35
40
Jun
-18
Dec
-18
Jun
-19
Dec
-19
Jun
-20
Dec
-20
Jun
-21
P/E (1-yr fwd) 5 Yr Mean1SD + 1SD -2SD + 2SD -
48
121620242832364044485256
Jun
-16
Dec
-16
Jun
-17
Dec
-17
Jun
-18
Dec
-18
Jun
-19
Dec
-19
Jun
-20
Dec
-20
Jun
-21
P/E (1-yr fwd) 5 Yr Mean
1SD + 1SD -
2SD + 2SD -
810121416182022242628303234363840
Jun
-16
Dec
-16
Jun
-17
Dec
-17
Jun
-18
Dec
-18
Jun
-19
Dec
-19
Jun
-20
Dec
-20
Jun
-21
P/E (1-yr fwd) 5 Yr Mean
1SD + 1SD -
2SD + 2SD -
4
8
12
16
20
24
Jun
-16
Dec
-16
Jun
-17
Dec
-17
Jun
-18
Dec
-18
Jun
-19
Dec
-19
Jun
-20
Dec
-20
Jun
-21
P/E (1-yr fwd) 5 Yr Mean
1SD + 1SD -
2SD + 2SD -
4
6
8
10
12
14
16
18
20
22
24
Jun
-16
Dec
-16
Jun
-17
Dec
-17
Jun
-18
Dec
-18
Jun
-19
Dec
-19
Jun
-20
Dec
-20
Jun
-21
P/E (1-yr fwd) 5 Yr Mean1SD + 1SD -2SD + 2SD -
468
1012141618202224
Jun
-16
Dec
-16
Jun
-17
Dec
-17
Jun
-18
Dec
-18
Jun
-19
Dec
-19
Jun
-20
Dec
-20
Jun
-21
P/E (1-yr fwd) 5 Yr Mean1SD + 1SD -2SD + 2SD -
2
4
6
8
10
12
14
16
18
20
22
Jun
-16
Dec
-16
Jun
-17
Dec
-17
Jun
-18
Dec
-18
Jun
-19
Dec
-19
Jun
-20
Dec
-20
Jun
-21
P/E (1-yr fwd) 5 Yr Mean
1SD + 1SD -
2SD + 2SD -
Page | 12
1QFY22E Results Preview
Rating Criteria
BUY: >+15% return potential
ADD: +5% to +15% return potential
REDUCE: -10% to +5% return potential
SELL: > 10% Downside return potential
Disclosure: We, Apurva Prasad, MBA, Amit Chandra, MBA & Vinesh Vala, MBA authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock –No HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is solely for information of the recipient only. The report must not be used as a singular basis of any investment decision. The views herein are of a general nature and do not consider the risk appetite or the particular circumstances of an individual investor; readers are requested to take professional advice before investing. Nothing in this document should be construed as investment advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in securities of the companies referred to in this document (including merits and risks) and should consult their own advisors to determine merits and risks of such investment. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete. HSL is not obliged to update this report for such changes. HSL has the right to make changes and modifications at any time. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HSL or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently sent or has reached any person in such country, especially, United States of America, the same should be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published in whole or in part, directly or indirectly, for any purposes or in any manner. Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. This document is not, and should not, be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report should not be construed as an invitation or solicitation to do business with HSL. HSL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HSL and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HSL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HSL and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report. HSL or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business. HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HSL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report. 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) 2496 5066 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600 HDFC Securities Limited, SEBI Reg. No.: NSE, BSE, MSEI, MCX: INZ000186937; AMFI Reg. No. ARN: 13549; PFRDA Reg. No. POP: 11092018; IRDA Corporate Agent License No.: CA0062; SEBI Research Analyst Reg. No.: INH000002475; SEBI Investment Adviser Reg. No.: INA000011538; CIN - U67120MH2000PLC152193
HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,
Senapati Bapat Marg, Lower Parel,Mumbai - 400 013
Board : +91-22-6171 7330 www.hdfcsec.com