l&t technology services absolute : long relative...

January 24, 2018 Analysts: Abhishek Shindadkar ([email protected] +91 9619137983, +91 22 4332 0643) of 13

Before reading this report, you must refer to the disclaimer on the last page.

L&T Technology Services Absolute : LONG

Relative :Benchmark

3QFY18 Results: Estimate (), PT (), Rating () Regular Coverage 14% ATR in 14 months

Early Spring: Upgrade to LONG IT/ER&D Services

© 2018EquirusAll rights reserved

Rating Information

Price (Rs) 1,022

Target Price (Rs) 1,184

Target Date 31st Mar '19

Target Set On 23rd Jan '18

Implied yrs of growth (DCF) 5

Fair Value (DCF) 999

Fair Value (DDM) 381

Ind Benchmark SPBSITIP

Model Portfolio Position NA

Stock Information

Market Cap (Rs Mn) 103,266

Free Float (%) 10.72 %

52 Wk H/L (Rs) 1154.7/671

Avg Daily Volume (1yr) 38,749

Avg Daily Value (Rs Mn) 32

Equity Cap (Rs Mn) 204

Face Value (Rs) 2

Bloomberg Code LTTS IN

Ownership Recent 3M 12M

Promoters 89.3 % -0.2 % -0.5 %

DII 1.1 % 0.0 % -0.5 %

FII 3.2 % 0.1 % -0.5 %

Public 6.5 % 0.2 % 1.4 %

Price % 1M 3M 12M

Absolute 2.5 % 27.4 % 20.4 %

Vs Industry -11.0 % 6.5 % -7.4 %

Cyient 15.5 % 22.5 % 42.0 %

Tata Elxsi 12.6 % 26.7 % 44.7 %

Consolidated Quarterly EPS forecast

Rs/Share 1Q 2Q 3Q 4Q

EPS (17A) 10.6 11.0 10.7 9.5

EPS (18E) 9.6 12.1 12.4 12.1

L&T Technology Services (LTTS) reported a solid beat in 3QFY18. Revenues grew 8.3% qoq

on top of 9.2% qoq growth in 2Q (~7.2% organic & Esencia contribution) and implies that

FY18e growth discussions are futile. Nevertheless, pertinent question is what could be a

good revenue growth assumption for FY19e. Rationale being, a modest 2% CQGR

(achievable considering the wins, top clients momentum) on the 4q exit rate yields

double-digit growth. Consequently, we are raising our $ revenue growth assumption to

13.1% (vs. 10.7% earlier) in FY19e which in-turn leads to (1) increase in EPS estimate

despite trimming our “over-ambitious” margin assumption, and (2) increase in TP to

Rs.1184, and (3) change in rating to LONG vs. ADD earlier. TP discounts Mar’19 TTM EPS

by 22x. Superior execution leads to narrowing of the discount to Tata Elxsi’s multiple.

FY18e in bag; focus shifts to FY19e: With FY18e in the bag (9MFY18 revenues are up

15.1% yoy) focus shifts to FY19e and commentary, backed by healthy bookings, large deal

wins, traction in large customers, and recovery in portfolio challenges, didn’t disappoint.

Implies FY19e revenues could effortlessly grow in double digits helped in part by the

strong 4Q exit rate. We are raising FY18e US$ revenue growth estimate for a second

consecutive quarter and now model 18% yoy growth vs. 14.5% earlier.

Vertical growth was broad based: Growth during the quarter was broad based and led by

telecom (27.9% of revenues, grew 23.4% qoq in rupee terms), process industry (12.7%,

7.2%), and was helped by medical (6.7%, 3%), and transportation (30.9%, 3%), while

Industrial products (21.8%, -0.8%) was weak. Geographically, growth was led by India

(17.9% qoq), Europe (12.2%), RoW (11.1%), and was aided by North America (3.9%).

Margins good but not good enough: EBITDAM were flat qoq but were in-line with EE

(15.3%). Wage inflation, rupee appreciation, and drop in industrial segment margins were

key headwinds but were offset by pyramid optimization (409 junior hires), and margin

improvement in telecom segment. Telecom margin improved 379bps qoq (pyramid

optimization and employee cost reduction) while Industrial products margins declined

83bps qoq due to impact of furloughs. Despite LTTS highlighting multiple levers (revenue

mix, higher bill rate (achieved in some accounts), pyramid optimization) to improve

margins, we are trimming our aggressive margin assumption for FY19e.

Upgrade to LONG on improving visibility: Differentiation in 50% of its business, large

market opportunity, healthy bookings, b/s metrics, & return ratios support our 22x target

PE (lower than 24.8x average for Indian ER&D peers (FY18e EPS) and at 31% discount to

Tata Elxsi’s multiple). Slower than anticipated ramp-ups in large deal and recovery in

Process, ramp-downs in large customers and uneven execution are key risks to our

estimates.

Consolidated Financials

Rs. Mn YE Mar FY17A FY18E FY19E FY20E

Sales 32,483 36,914 42,350 45,984

EBITDA 5,847 5,645 7,098 7,941

Depreciation 625 596 805 897

Interest Expense 21 25 36 36

Other Income 591 1,453 1,082 1,160

Reported PAT 4,250 4,700 5,471 6,086

Recurring PAT 4,250 4,703 5,471 6,086

Total Equity 14,856 18,293 21,867 25,873

Gross Debt 1,019 67 67 67

Cash 2,620 3,063 5,771 8,600

Rs Per Share FY17A FY18E FY19E FY20E

Earnings 41.8 46.3 53.8 59.8

Book Value 146 180 215 254

Dividends 12.0 10.3 15.5 17.0

FCFF 20.4 26.3 45.5 48.5

P/E (x) 24.5 22.1 19.0 17.1

P/B (x) 7.0 5.7 4.8 4.0

EV/EBITDA (x) 17.4 17.8 13.7 11.9

ROE (%) 33 % 28 % 27 % 25 %

Core ROIC (%) 32 % 25 % 29 % 30 %

EBITDA Margin (%) 18 % 15 % 17 % 17 %

Net Margin (%) 13 % 13 % 13 % 13 %

Revised Estimates % Change

FY18E FY19E FY18E FY19E

Sales ($ Mn) 572 647 3.0% 5.2%

Sales 36,914 42,350 2.1% 2.9%

EBITDA 5,645 7,098 0.0% 0.1%

EBIT 5,049 6,293 0.7% -0.3%

PAT 4,703 5,471 1.5% 3.5%

EPS 46.3 53.8 1.5% 3.5%

L&T Technology Services Absolute – LONG Relative – Benchmark 14% ATR in 14 Months

January 24, 2018 Analyst: Abhishek Shindadkar ([email protected], +91 9619137983, +91 22 4332 0643) of 13

Exhibit 1: Segmental revenue break-up

Segmental Breakup (in $ Mn) 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18

Transportation 37.6 38.7 40.5 40.6 40.4 42.8 45.0 46.6

Process Industry 21.1 19.6 18.7 18.6 17.1 17.8 17.8 19.2

Industrial products 31.3 31.1 31.4 31.9 32.7 32.5 32.9 32.9

Medical Devices 7.4 8.4 8.3 8.0 8.0 8.8 9.7 10.1

Telecom and Hitech 21.4 22.4 24.1 20.9 23.0 25.7 33.9 42.1

% of Revenues

Transportation 31.7% 32.2% 32.9% 33.8% 33.3% 33.6% 32.3% 30.9%

Process Industry 17.7% 16.3% 15.2% 15.5% 14.1% 14.0% 12.8% 12.7%

Industrial products 26.4% 25.9% 25.6% 26.6% 26.9% 25.5% 23.6% 21.8%

Medical Devices 6.3% 7.0% 6.7% 6.7% 6.6% 6.9% 7.0% 6.7%

Telecom and Hitech 18.0% 18.6% 19.6% 17.4% 19.0% 20.1% 24.3% 27.9%

QoQ Growth

Transportation 8.1% 2.8% 4.8% 0.1% -0.4% 5.9% 5.1% 3.7%

Process Industry -4.0% -7.1% -4.4% -0.2% -8.2% 4.1% 0.1% 8.0%

Industrial products 3.3% -0.7% 1.0% 1.5% 2.4% -0.5% 1.3% -0.1%

Medical Devices 3.5% 12.7% -1.2% -2.8% -0.2% 10.0% 10.2% 3.7%

Telecom and Hitech -11.2% 4.8% 7.6% -13.1% 9.7% 11.7% 31.9% 24.3%

YoY Growth

Transportation - 13.7% 21.1% 16.6% 7.5% 10.8% 11.0% 15.0%

Process Industry - -13.1% -15.9% -15.0% -18.7% -8.9% -4.6% 3.2%

Industrial products - 12.1% 9.4% 5.1% 4.2% 4.5% 4.8% 3.2%

Medical Devices - 13.3% 9.1% 11.9% 7.9% 5.3% 17.5% 25.4%

Telecom and Hitech - -4.9% 0.1% -13.0% 7.6% 14.6% 40.5% 100.9%


January 24, 2018 Analysts: Abhishek Shindadkar ([email protected], +91 9619137983, +91 22 4332 0643) of 13

Exhibit 2: Segmental margins and contribution

EBITDA (Rs Mn) 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18

Transportation 290 308 419 362 366 330 356 364

Process Industry 270 261 198 290 212 237 220 238

Industrial products 489 502 527 526 523 465 463 442

Medical Devices 108 122 138 118 115 110 130 122

Telecom and Hitech 185 276 374 186 207 209 182 327

EBITDAM

Transportation 11.4% 11.9% 15.5% 13.2% 13.5% 12.0% 12.2% 12.2%

Process Industry 19.0% 20.0% 15.8% 23.1% 18.5% 20.6% 19.1% 19.3%

Industrial products 23.1% 24.1% 25.1% 24.4% 23.9% 22.2% 21.7% 20.9%

Medical Devices 21.5% 21.8% 24.9% 21.7% 21.4% 19.3% 20.7% 18.8%

Telecom and Hitech 12.8% 18.4% 23.2% 13.2% 13.4% 12.6% 8.3% 12.1%

Exhibit 3: Revenue break-up across geographies and growth

Geographical Breakup ($ Mn) 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18

North America 72.5 76.3 76.6 75.1 76.7 82.3 84.7 88.6

Europe 23.9 24.3 24.0 23.1 21.0 21.2 23.0 26.0

India 11.0 8.2 9.1 9.7 11.2 11.9 14.6 17.4

RoW 11.4 11.3 13.3 12.3 12.4 12.3 17.0 19.0

% of Revenues

North America 61.0% 63.5% 62.3% 62.5% 63.3% 64.5% 60.8% 58.7%

Europe 20.1% 20.2% 19.5% 19.2% 17.3% 16.6% 16.5% 17.2%

India 9.3% 6.8% 7.4% 8.1% 9.2% 9.3% 10.5% 11.5%

RoW 9.6% 9.4% 10.8% 10.2% 10.2% 9.6% 12.2% 12.6%

QoQ Growth

North America 0.2% 5.2% 0.5% -2.0% 2.2% 7.3% 2.9% 4.6%

Europe 3.5% 1.8% -1.3% -3.9% -9.1% 1.0% 8.5% 13.0%

India 18.2% -25.7% 10.9% 6.9% 14.6% 6.5% 23.2% 18.7%

RoW -16.2% -0.7% 17.3% -7.8% 0.9% -0.9% 38.7% 11.9%

YoY Growth

North America - 9.1% 12.1% 3.8% 5.9% 8.0% 10.5% 18.1%

Europe - 7.9% 3.9% -0.1% -12.2% -12.8% -4.2% 12.6%

India - -8.3% -3.2% 4.1% 0.9% 44.6% 60.7% 78.5%

RoW - -18.0% -12.6% -10.0% 8.4% 8.2% 28.0% 55.3%



Exhibit 4: Top client contribution

Top customer ($ Mn) 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18

Top 5 27.1 29.1 29.0 28.1 28.1 30.4 37.3 43.5

Top 10 43.0 45.4 44.6 42.6 43.1 47.2 55.5 62.2

Top 20 63.9 64.6 64.1 62.1 62.4 67.1 76.5 85.1

% of Revenues

Top 5 22.8% 24.2% 23.6% 23.4% 23.2% 23.8% 26.8% 28.8%

Top 10 36.2% 37.8% 36.3% 35.5% 35.6% 37.0% 39.8% 41.2%

Top 20 53.8% 53.8% 52.1% 51.7% 51.5% 52.6% 54.9% 56.4%

QoQ Growth

Top 5 0.0% 7.3% -0.1% -3.2% 0.1% 8.0% 22.9% 16.4%

Top 10 -0.2% 5.6% -1.6% -4.5% 1.2% 9.4% 17.4% 12.2%

Top 20 -0.2% 1.1% -0.8% -3.1% 0.5% 7.6% 13.9% 11.3%

YoY Growth

Top 5 - 9.1% 11.7% 3.7% 3.8% 4.5% 28.6% 54.7%

Top 10 - 7.9% 7.8% -1.0% 0.3% 4.0% 24.2% 45.9%

Top 20 - 6.0% 1.7% -3.0% -2.3% 3.9% 19.4% 37.1%

Exhibit 5: Operating performance and client profile

Onsite-Offshore Mix 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18

Onsite Revenues % 52.9% 51.1% 48.0% 47.5% 49.2% 49.2% 50.8% 50.7%

Offshore Revenues % 47.1% 48.9% 52.0% 52.5% 50.8% 50.8% 49.2% 49.3%

Utilization Rate

Utilization 74.9% 76.1% 78.4% 75.1% 74.2% 75.1% 76.1% 78.8%

Project Type

Fixed Price 31.9% 28.6% 30.6% 31.0% 30.4% 30.2% 33.2% 38.2%

Time & Material Contract 68.1% 71.4% 69.4% 69.0% 69.6% 69.8% 66.8% 61.8%

Client Profile

40 Mn $+ 0 0 0 0 0 0 0 1

30 Mn $+ 0 1 1 1 1 2 2 3

20 Mn $+ 3 2 2 2 2 1 2 1

10 Mn $+ 8 7 7 7 6 8 8 8

5 Mn $+ 17 18 18 18 21 16 16 18

1 Mn $+ 44 50 53 53 49 53 51 49

< 1 Mn $ 171 153 163 164 174 171 182 184

Total Active Clients 215 203 216 217 223 224 233 233



Earnings call takeaways

Revenues grew 8.3% qoq in US$ led by broad based growth. Process industry has

turnaround. Constant currency revenues grew 8.3% qoq.

Deal pipeline is robust with several multi-million deals.

Digital engineering has been rising at a steady pace and constitutes 20% of total

revenue.

Early signs of large deals and Top-30 account focus in helping win long-term

contracts.

Margin highlights

Wage hikes (6-7% offshore, 1.5-2% onsite) impacted margin by 1-1.2%.

Bill rate have been increased for few clients. Newer technologies fetching higher

rates.

Onsite mix, higher bill rate (achieved in some accounts), optimized employee

pyramid.

Other income was Rs 440 mn; includes forex of Rs. 260mn and one-off of Rs 140

mn related to sale of licenses under the Engineering Export Services Scheme.

Balance is from treasury income.

Vertical highlights

Transportation growth was led by Auto (good pipeline with large deals) while

Aerospace had marginal growth but more opportunity exists going ahead.

o Key growth areas for Auto are autonomous driving and electric vehicle.

o Aerospace: Two deal wins could accelerate growth momentum which

includes one US$ 50 mn deal (ramp up in 4Q).

Medical could report robust growth led by ramp-ups in large clients.

Industrial product was flat qoq but management expects growth to pick up from

4Q.

Power – Demand is strong in renewable energy.

Process Industry pick-up continues. Pipeline is robust and could help accelerate

growth.

Telecom growth was led by growth across client portfolio as well as ramp up in

one of the large deal.

Geographical highlights

US continue to report growth across Transportation, Telecom & Hi-tech and

Media.

Europe: Key traction in Automotive, Industrial IoT, Chemical, and Oil & Gas

sector.

RoW – Expanding presence in Israel. Japan continues to be a growth area in

Transportation, Automotive and Medical segment.

India – Increase in the contribution from India is due to one of the large deal

secured earlier.

Deal performance

Large deal wins were across the segments with significant one in Aero, Telecom

and Plant engineering segments as well as ramp ups within the quarter from past

deals.

o In the Oil and Gas sector in Europe, LTTS secured a deal to digitize the

customer’s assets across multiple refineries to improve utilization,

safety compliance and reliability of operations.

o Company is engaging with clients on new projects in the areas of

artificial intelligence for manufacturing, IoT, next generation platform

development and autonomous driving.

LTTS added one client to US$ 40mn category while one client transitioned to US$

30mn category.

Patents: 300; 228 co-authored with its customers; 72 filed by LTTS.

DSO was 83 days vs. 85 days in the previous quarter. 80-83 days is sustainable.

OCF after capex was Rs. 1.18 bn.

Capex for the quarter was Rs. 100 mn.

Outlook

Top client traction, deal wins and investment will help in reporting double-digit

organic growth in FY18e.



Quarterly performance

Rs Mn Q3FY18 Q3FY18E Q2FY18 Q3FY17 % Change

Comments Q3FY18E Q2FY18 Q3FY17

Net Sales 9,691 9,175 9,006 8,104 5.6% 7.6% 19.6%

Net Sales ($ mn) 151.0 141.7 139.3 120.1 6.6% 8.4% 25.7%

Employee Expenses 6,320 6,239 6,125 5,250 1% 3% 20%

Other Expenses 1,886 1,532 1,507 1,397 23% 25% 35%

Total Expenditures 8,206 7,771 7,632 6,647 6% 8% 23%

EBITDA 1,485 1,404 1,374 1,457 6% 8% 2%

Depreciation 145 161 146 149 -10% -1% -3%

EBIT 1,340 1,243 1,228 1,308 8% 9% 2%

Interest 9 5 5 5 80% 80% 79%

Other Income 435 279 482 170 56% -10% 156%

PBT 1,766 1,517 1,705 1,473 16% 4% 20%

Tax 501 372 475 387 35% 5% 29%

Recurring PAT 1,265 1,145 1,230 1,086 10% 3% 16%

Extraordinaries 2 0 3 0

Reported PAT 1,263 1,145 1,227 1,086 10% 3% 16%

EPS (Rs) 12.4 11.3 12.1 10.7 10% 3% 16%

EBITDA Margin 15.3% 15.3% 15.3% 18.0% 2 bps 7 bps -266 bps

EBIT Margin 13.8% 13.6% 13.6% 16.1% 28 bps 19 bps -231 bps

PBT Margin 18.2% 16.5% 18.9% 18.2% 169 bps -71 bps 5 bps

PAT Margin 13.0% 12.5% 13.6% 13.4% 55 bps -59 bps -37 bps

Tax Rate 28.4% 24.5% 27.9% 26.3% 387 bps 51 bps 210 bps



Company Snapshot

How we differ from Consensus

- Equirus Consensus % Diff Comment

EPS FY18E 46.3 42.1 10 % Consensus before earnings.

FY19E 53.8 50.1 7 %

Sales FY18E 36,914 35,992 3 %

FY19E 42,350 41,106 3 %

PAT FY18E 4,700 4,404 7 %

FY19E 5,471 5,219 5 %

Our Key Investment arguments:

$ revenue to grow at 15.5% CAGR over FY17A-FY19E led by a) large addressable

market, b) multi-vertical strategy, c) traction in top 30/40 customers d) healthy

bookings and order pipeline e) Synergies from Esencia acquisition.

Improving mining initiatives could help too.

Risks to Our View

Discretionary nature of ER&D spends.

Slowdown/rising competitive intensity in key verticals like Automotive.

Slower than anticipated recovery in Process, ramp-downs in large customers, and

uneven execution

Loss/spending delay in top customer spends.

Further trimming of EBITDAM despite usage of levers such as a) revenue growth, b)

pyramid correction, c) utilization improvements, d) IP monetization

Key Triggers

Large deal pipeline, sustained high utilization, top client momentum and IP

monetization

Sensitivity to Key Variables % Change % Impact on FY18 EPS

Utilization - 1 %

Onsite mix - 0 %

Rupee depreciation 1 % 1 %

DCF Valuations & Assumptions

Rf Beta Ke Term. Growth Debt/IC in Term. Yr

6.9 % 0.2 7.9 % 3.0 % 0.4 %

- FY18E FY19E FY20-22E FY23-27E FY28-32E

Sales Growth 14 % 15 % 6 % 7 % 7 %

NOPAT Margin 10 % 11 % 11 % 11 % 11 %

IC Turnover 2.33 2.52 2.54 2.54 2.54

RoIC 25.0 % 28.7 % 30.1 % 30.2 % 30.2 %

Years of strong growth 1 2 5 10 15

Valuation as on date (Rs) 636 799 931 1,111 1,297

Valuation as of Mar '19 657 825 962 1,148 1,340

Based on DCF, assuming 5 years of 6% CAGR growth and 30% average ROIC, we derive

current fair value of Rs. 931 and 31stMar’19 fair value of Rs. 962.

Company Description: A niche global company in the Engineering R&D space. LTTS

offers innovative design and development solutions across the product development value

chain, for various industries such as Industrial Products, Transportation, Aerospace,

Telecom & Hi-tech, and the Process Industry. The company offers services in the areas of

Mechanical Engineering, Embedded Systems, Engineering Process Services, and Product

Lifecycle Management; besides proprietary solutions in Engineering Data Analytics, Power

Electronics, Machine-to-Machine, and the Internet-of-Things.

Comparable valuation Mkt Cap

Rs. Mn.

Price

Target

Target

Date

EPS P/E BPS P/B RoE Div Yield

Company Reco. CMP FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY17A FY18E FY19E FY17A FY18E

L&T Technologies ADD 1,022 103,266 1,184 31st Mar '19 41.8 46.3 53.8 24.5 22.1 19.0 146.1 5.7 33 % 28 % 27 % 1.2 % 1.0 %

Cyient ADD 652 72,386 608 31st Mar '19 30.6 37.1 40.5 21.3 17.6 16.1 188.3 3.3 17 % 19 % 20 % 1.7 % 2.8 %

Tata Elxsi NR 1,077 67,087 NR NR 27.8 33.7 39.3 38.7 32.0 27.4 89.8 9.5 37 % 33 % 31 % 0.7 % 0.9 %



Consolidated Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q17A 2Q17A 3Q16A 4Q17A 1Q18A 2Q18A 3Q18A 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E

Revenue 8,029 8,227 8,104 8,123 8,226 9,006 9,691 9,991 10,319 10,632 10,649 10,750 32,483 36,914 42,350 45,984 Employee Expenses 5,208 5,228 5,250 5,272 5,337 6,125 6,320 6,564 6,759 6,964 6,975 6,913 20,958 24,346 27,610 29,777

Other Expenses 1,331 1,437 1,397 1,513 1,632 1,507 1,886 1,898 1,930 1,967 1,832 1,914 5,678 6,923 7,642 8,266

EBITDA 1,490 1,562 1,457 1,338 1,257 1,374 1,485 1,529 1,630 1,701 1,842 1,924 5,847 5,645 7,098 7,941 Depreciation 178 151 149 147 145 146 145 160 186 202 202 215 625 596 805 897 EBIT 1,311 1,411 1,308 1,191 1,112 1,228 1,340 1,369 1,445 1,499 1,640 1,709 5,222 5,049 6,293 7,044 Interest 5 5 5 6 2 5 9 9 9 9 9 9 21 25 36 36 Other Income 231 149 170 41 262 482 435 274 276 268 269 269 591 1,453 1,082 1,160 PBT 1,537 1,555 1,473 1,226 1,372 1,705 1,766 1,633 1,712 1,758 1,899 1,969 5,792 6,476 7,339 8,169 Tax 458 436 387 261 392 475 501 405 437 448 481 502 1,542 1,773 1,868 2,083 PAT bef. MI & Assoc. 1,079 1,119 1,086 965 980 1,230 1,265 1,228 1,275 1,310 1,419 1,467 4,250 4,703 5,471 6,086 Minority Interest 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Profit from Assoc. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Recurring PAT 1,079 1,119 1,086 965 980 1,230 1,265 1,228 1,275 1,310 1,419 1,467 4,250 4,703 5,471 6,086 Extraordinaries -3 0 0 0 -2 3 2 0 0 0 0 0 0 3 0 0 Reported PAT 1,082 1,119 1,086 965 982 1,227 1,263 1,228 1,275 1,310 1,419 1,467 4,250 4,700 5,471 6,086

EPS (Rs) 10.61 11.00 10.68 9.49 9.64 12.10 12.44 12.08 12.54 12.88 13.95 14.43 41.79 46.25 53.80 59.85

Key Drivers

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -

Sequential Growth (%)

Revenue - 2 % -1 % 0 % 1 % 9 % 8 % 3 % 3 % 3 % 0 % 1 % - - - - Employee Expenses - 0 % 0 % 0 % 1 % 15 % 3 % 4 % 3 % 3 % 0 % -1 % - - - - EBITDA - 5 % -7 % -8 % -6 % 9 % 8 % 3 % 7 % 4 % 8 % 4 % - - - - EBIT - 8 % -7 % -9 % -7 % 10 % 9 % 2 % 6 % 4 % 9 % 4 % - - - - Recurring PAT - 4 % -3 % -11 % 2 % 26 % 3 % -3 % 4 % 3 % 8 % 3 % - - - -

EPS - 4 % -3 % -11 % 2 % 26 % 3 % -3 % 4 % 3 % 8 % 3 % - - - -

Yearly Growth (%)

Revenue - - - - 2 % 9 % 20 % 23 % 25 % 18 % 10 % 8 % 6 % 14 % 15 % 9 % EBITDA - - - - -16 % -12 % 2 % 14 % 30 % 24 % 24 % 26 % 13 % -3 % 26 % 12 % EBIT - - - - -15 % -13 % 2 % 15 % 30 % 22 % 22 % 25 % 13 % -3 % 25 % 12 % Recurring PAT - - - - -9 % 10 % 16 % 27 % 30 % 6 % 12 % 19 % 2 % 11 % 16 % 11 %

EPS - - - - -9 % 10 % 16 % 27 % 30 % 6 % 12 % 19 % 2 % 11 % 16 % 11 %

Margin (%)

EBITDA 19 % 19 % 18 % 16 % 15 % 15 % 15 % 15 % 16 % 16 % 17 % 18 % 18 % 15 % 17 % 17 % EBIT 16 % 17 % 16 % 15 % 14 % 14 % 14 % 14 % 14 % 14 % 15 % 16 % 16 % 14 % 15 % 15 % PBT 19 % 19 % 18 % 15 % 17 % 19 % 18 % 16 % 17 % 17 % 18 % 18 % 18 % 18 % 17 % 18 % PAT 13 % 14 % 13 % 12 % 12 % 14 % 13 % 12 % 12 % 12 % 13 % 14 % 13 % 13 % 13 % 13 %



Consolidated Financials

P&L (Rs Mn) FY17A FY18E FY19E FY20E

Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E

Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E

Revenue 32,483 36,914 42,350 45,984 Equity Capital 203 203 203 203 PBT 5,792 6,476 7,339 8,169

Op. Expenditure 26,636 31,270 35,252 38,043 Reserve 14,653 18,090 21,664 25,669 Depreciation 625 596 805 897

EBITDA 5,847 5,645 7,098 7,941 Networth 14,856 18,293 21,867 25,873 Others 347 -3 0 0

Depreciation 625 596 805 897 Long Term Debt 1,019 67 67 67 Taxes Paid 1,581 1,773 1,868 2,083

EBIT 5,222 5,049 6,293 7,044 Def Tax Liability 0 7 7 7 Change in WC -1,342 100 -272 -672

Interest Expense 21 25 36 36 Minority Interest -4 -4 -4 -4 Operating C/F 3,841 5,397 6,004 6,310

Other Income 591 1,453 1,082 1,160 Account Payables 1,847 2,146 2,433 2,624 Capex -445 -2,906 -1,400 -1,400

PBT 5,792 6,476 7,339 8,169 Other Curr Liabi 3,807 5,273 6,050 6,569 Change in Invest -1,391 161 0 0

Tax 1,542 1,773 1,868 2,083 Total Liabilities & Equity 21,525 25,782 30,421 35,136 Others 57 0 0 0

PAT bef. MI & Assoc. 4,250 4,703 5,471 6,086 Net Fixed Assets 6,138 7,042 7,637 8,140 Investing C/F -1,779 -2,745 -1,400 -1,400

Minority Interest 0 0 0 0 Capital WIP 23 0 0 0 Change in Debt -937 -952 0 0

Profit from Assoc. 0 0 0 0 Others 646 1,914 1,914 1,914 Change in Equity 0 0 0 0

Recurring PAT 4,250 4,703 5,471 6,086

Inventory 0 0 0 0 Others -1,285 -1,256 -1,897 -2,081

Extraordinaires 0 3 0 0 Account Receivables 10,660 12,114 13,898 15,091 Financing C/F -2,222 -2,208 -1,897 -2,081

Reported PAT 4,250 4,700 5,471 6,086 Other Current Assets 1,438 1,649 1,201 1,391 Net change in cash -160 443 2,707 2,829

FDEPS (Rs) 41.8 46.3 53.8 59.8 Cash 2,620 3,063 5,771 8,600 RoE (%) 33 % 28 % 27 % 25 %

DPS (Rs) 12.0 10.3 15.5 17.0 Total Assets 21,525 25,782 30,421 35,136

RoIC (%) 30 % 28 % 27 % 26 %

CEPS (Rs) 47.9 52.1 61.7 68.7 Non-cash Working Capital 6,444 6,344 6,616 7,288

Core RoIC (%) 32 % 25 % 29 % 30 %

FCFPS (Rs) 20.4 26.3 45.5 48.5 Cash Conv Cycle 72.4 62.7 57.0 57.8 Div Payout (%) 34 % 27 % 35 % 34 %

BVPS (Rs) 146.1 179.9 215.0 254.4 WC Turnover 5.0 5.8 6.4 6.3 P/E 24.5 22.1 19.0 17.1

EBITDAM (%) 18 % 15 % 17 % 17 % FA Turnover 5.3 5.2 5.5 5.6 P/B 7.0 5.7 4.8 4.0

PATM (%) 13 % 13 % 13 % 13 % Net D/E -0.1 -0.2 -0.3 -0.3 P/FCFF 50.0 38.9 22.4 21.1

Tax Rate (%) 27 % 27 % 25 % 26 % Revenue/Capital Employed 5.2 2.9 3.0 2.7 EV/EBITDA 17.4 17.8 13.7 11.9

Sales Growth (%) 6 % 14 % 15 % 9 %

Capital Employed/Equity 1.2 1.2 1.1 1.0

EV/Sales 3.1 2.7 2.3 2.1

FDEPS Growth (%) 2 % 11 % 16 % 11 %

Dividend Yield (%) 1.2 % 1.0 % 1.5 % 1.7 %

TTM P/E vs. 2 yr forward EPS growth

TTM P/B vs. 2 yr forward RoE

10x

12.5x

15x

17.5x

20x

0%

10%

20%

30%

40%

50%

300

400

500

600

700

800

900

1000

1100

1200

1300

Sep/16

Dec/16

Mar/

17

Jun/17

Sep/17

Dec/17

Mar/

18

Jun/18

Sep/18

Dec/18

Mar/

19

EPS Growth

20%

25%

30%

35%

40%

45%

200

700

1200

1700

2200

2700

Sep/16

Dec/16

Mar/

17

Jun/17

Sep/17

Dec/17

Mar/

18

Jun/18

Sep/18

Dec/18

Mar/

19

RoE

2x

4x

6x

8x

10x



Historical Consolidated Financials

P&L (Rs Mn) FY14A FY15A FY16A FY17A

Balance Sheet (Rs Mn) FY14A FY15A FY16A FY17A

Cash Flow (Rs Mn) FY14A FY15A FY16A FY17A

Revenue 1,262 26,186 30,662 32,483 Equity Capital 0 3,000 3,000 203 PBT 116 3,721 5,425 5,792

Op. Expenditure 1,066 22,199 25,468 26,636 Reserve 0 7,254 7,661 14,653 Depreciation 11 485 589 625

EBITDA 196 3,987 5,194 5,847 Networth 0 10,254 10,661 14,856 Others 29 -4 -70 347

Depreciation 11 485 589 625 Long Term Debt 0 2,188 1,955 1,019 Taxes Paid 46 670 1,663 1,581

EBIT 184 3,503 4,605 5,222 Def Tax Liability 0 7 0 0 Change in WC -247 -643 994 -1,342

Interest Expense 29 34 25 21 Minority Interest 0 0 -5 -4 Operating C/F -137 2,889 5,275 3,841

Other Income -40 253 845 591 Account Payables 0 1,954 2,138 1,847 Capex -5,053 -527 -1,268 -445

PBT 116 3,721 5,425 5,792 Other Curr Liabi 0 3,792 4,674 3,807 Change in Invest 0 -6,156 -555 -1,391

Tax 53 610 1,239 1,542 Total Liabilities & Equity 0 18,195 19,423 21,525 Others 0 12 62 57

PAT bef. MI & Assoc. 62 3,111 4,186 4,250 Net Fixed Assets 0 5,668 6,208 6,138 Investing C/F -5,053 -6,671 -1,761 -1,779

Minority Interest 0 2 0 0 Capital WIP 0 4 143 23 Change in Debt 487 1,701 -233 -937

Profit from Assoc. 0 0 0 0 Others 0 1,330 1,423 646 Change in Equity 5,025 5,473 0 0

Recurring PAT 62 3,109 4,186 4,250 Inventory 0 0 0 0 Others -27 -2,533 -3,601 -1,285

Extraordinaires 0 0 0 0 Account Receivables 0 9,345 9,742 10,660 Financing C/F 5,484 4,640 -3,834 -2,222

Reported PAT 62 3,109 4,186 4,250 Other Current Assets 0 694 518 1,438 Net change in cash 294 858 -320 -160

EPS (Rs) 0.6 30.6 41.2 41.8 Cash 1 1,154 1,389 2,620

RoE (%) 0 % 30 % 40 % 33 %

DPS (Rs) 0.0 42.0 40.3 12.0

Total Assets 1 18,195 19,423 21,525

RoIC (%) 0 % 25 % 34 % 30 %

CEPS (Rs) 14.4 47.0 47.9 Non-cash Working Capital 0 4,293 3,448 6,444 Core RoIC (%) 39,692 % 27 % 33 % 32 %

FCFPS (Rs) -15.0 34.7 20.4 Cash Conv Cycle 0.0 59.8 41.0 72.4 Div Payout (%) 0 % 82 % 87 % 34 %

BVPS (Rs) 100.8 104.8 146.1 WC Turnover 0.0 6.1 8.9 5.0

P/E 1,672.5 33.4 24.8 24.5

EBITDAM (%) 16 % 15 % 17 % 18 % FA Turnover 0.0 4.6 4.8 5.3 P/B 10.1 9.7 7.0

PATM (%) 5 % 12 % 14 % 13 % Net D/E - 0.1 0.1 -0.1 P/FCFF -68.2 29.4 50.0

Tax Rate (%) 46 % 16 % 23 % 27 % Revenue/Capital Employed 0.0 0.0 4.9 2.6 EV/EBITDA 527.6 26.2 20.0 17.4

Sales growth (%) 0 % 1,975 % 17 % 6 %

Capital Employed/Equity 0.0 0.0 1.2 1.2

EV/Sales 81.8 4.0 3.4 3.1

FDEPS growth (%) - 4,903 % 35 % 2 %

Dividend Yield (%) 0.0 % 4.1 % 3.9 % 1.2 %



Equirus Securities

Research Analysts Sector/Industry Email

Equity Sales E-mail

Abhishek Shindadkar IT Services [email protected] 91-22-43320643 VishadTurakhia [email protected] 91-22-43320633

Ashutosh Tiwari Auto, Metals & Mining [email protected] 91-79-61909517 Subham Sinha [email protected] 91-22-43320631

Depesh Kashyap Mid-Caps [email protected] 91-79-61909528 SwetaSheth [email protected] 91-22-43320634

Devam Modi Power & Infrastructure [email protected] 91-79-61909516 Viral Desai [email protected] 91-22-43320635

Dhaval Dama FMCG, Mid-Caps [email protected] 91-79-61909518 Dealing Room E-mail

Manoj Gori Consumer Durables [email protected] 91-79-61909523 Ashish Shah [email protected] 91-22-43320662

Maulik Patel Oil and Gas [email protected] 91-79-61909519 IleshSavla [email protected] 91-22-43320666

Praful Bohra Pharmaceuticals [email protected] 91-79-61909532 Manoj Kejriwal [email protected] 91-22-43320663

Rohan Mandora Banking & Financial Services [email protected] 91-79-61909529 Dharmesh Mehta [email protected] 91-22-43320661

Associates E-mail SandipAmrutiya [email protected] 91-22-43320660

Ankit Choudhary [email protected] 91-79-61909533 Compliance Officer E-mail

Bharat Celly [email protected] 91-79-61909524 Jay Soni [email protected] 91-79-61909561

Harshit Patel [email protected] 91-79-61909522 Corporate Communications E-mail

Meet Chande [email protected] 91-79-61909513 MahdokhtBharda [email protected] 91-22-43320647 ParvaSoni [email protected] 91-79-61909521

Pranav Mehta [email protected] 91-79-61909514

Ronak Soni [email protected] 91-79-61909525

Samkit Shah [email protected] 91-79-61909520

Shreepal Doshi [email protected] 91-79-61909541

Varun Baxi [email protected] 91-79-61909527

Vikas Jain [email protected] 91-79-61909531

Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap >Rs 5 billion and ATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.

Registered Office:

Equirus Securities Private Limited

Unit No. 1201, 12th Floor, C Wing, Marathon Futurex,

N M Joshi Marg, Lower Parel,

Mumbai-400013.

Tel. No: +91 – (0)22 – 4332 0600

Fax No: +91- (0)22 – 4332 0601

Corporate Office:

3rd floor, House No. 9,

Magnet Corporate Park, Near Zydus Hospital, B/H Intas Sola Bridge,

S.G. Highway Ahmedabad-380054

Gujarat

Tel. No: +91 (0)79 - 6190 9550

Fax No: +91 (0)79 – 6190 9560

mailto:[email protected]




























© 2018Equirus Securities Private Limited. All rights reserved. For Private Circulation only. This report or any portion hereof may not be

reprinted, sold or redistributed without the written consent of Equirus Securities Private Limited

Analyst Certification

I, Abhishek Shindadkar, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I

also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Disclosures

Equirus Securities Private Limited (ESPL) having Corporate Identification Number U65993MH2007PTC176044 is registered in India with Securities and Exchange Board of India (SEBI) as a trading member on the

Capital Market (Reg. No. INB231301731), Futures & Options Segment (Reg. No.INF231301731) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg. No.INB011301737) of Bombay Stock

Exchange Limited (BSE).ESPL is also registered with SEBI as Research Analyst under SEBI (Research Analyst) Regulations, 2014 (Reg. No. INH000001154), as a Portfolio Manager under SEBI (Portfolio Managers

Regulations, 1993 (Reg. No. INP000005216) and as a Depository Participant of the Central Depository Services (India) Limited (Reg. No. IN-DP-324-2017). There are no disciplinary actions taken by any regulatory

authority against ESPL. ESPL is a subsidiary of Equirus Capital Pvt. Ltd. (ECPL) which is registered with SEBI as Category I Merchant Banker and provides investment banking services including but not limited to

merchant banking services, private equity, mergers & acquisitions and structured finance.

As ESPL and its associates are engaged in various financial services business, it might have: - (a) received compensation (except in connection with the preparation of this report) from the subject company for

investment banking or merchant banking or brokerage services in the past twelve months;(b) managed or co-managed public offering of securities for the subject company in the past twelve months; or (c) have

received a mandate from the subject company; or (d) might have other financial, business or other interests in entities including the subject company (ies) mentioned in this Report. ESPL & its associates, their

directors and employees may from time to time have positions or options in the company and buy or sell the securities of the company (ies) mentioned herein. ESPL and its associates collectively do not own (in

their proprietary position) 1% or more of the equity securities of the subject company mentioned in the report as the last day of the month preceding the publication of the research report. ESPL or its Analyst or

Associates 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 ESPL 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. ESPL has not been engaged in market making activity for the subject company.

The Research Analyst engaged in preparation of this Report:-

(a) has not received any compensation from the subject company in the past twelve months; (b) has not managed or co-managed public offering of securities for the subject company in the past twelve months; (c)

has not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) has not received any compensation for products or

services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) has not received any compensation or other benefits from the subject

company or third party in connection with the research report; (f) might have served as an officer, director or employee of the subject company; (g) is not engaged in market making activity for the subject

company.

This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,

publication, availability or use would be contrary to law, regulation or which would subject ESPL and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein

may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession of this document are required to inform themselves of, and to observe, such applicable

restrictions. Please delete this document if you are not authorized to view the same. By reading this document you represent and warrant that you have full authority and all rights necessary to view and read this

document without subjecting ESPL and affiliates to any registration or licensing requirement within such jurisdiction.

This document has been prepared solely for information purpose and does not constitute a solicitation to any person to buy, sell or subscribe any security. ESPL or its affiliates are not soliciting any action based on

this report. The information and opinions contained herein is from publicly available data or based on information obtained in good faith from sources believed to be reliable but ESPL provides no guarantee as to

its accuracy or completeness. The information contained herein is as on date of this report, and is subject to change or modification and any such changes could impact our interpretation of relevant information

contained herein. While we would endeavour to update the information herein on reasonable basis, ESPL and its affiliates, their directors and employees are under no obligation to update or keep the information

current. Also there may be regulatory, compliance, or other reasons that may prevent ESPL and its group companies from doing so. This document is prepared for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the

securities of companies referred to in this document including the merits and risks involved. This document is intended for general circulation and does not take into account the specific investment objectives,

financial situation or particular needs of any particular person. ESPL and its group companies, employees, directors and agents accept no liability, and disclaim all responsibility, for the consequences of you or

anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. ESPL/its affiliates do and seek to do business with companies covered in its

research report. Thus, investors should be aware that the firm may have conflict of interest.



A graph of daily closing prices of securities is available at http://www.nseindia.com/ChartApp/install/charts/mainpage.jsp and www.bseindia.com (Choose a company from the list on the browser and select the

“three years” period in the price chart).

Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest

Research Analyst’ or Relatives’ financial interest No

Research Analyst’ or Relatives’ actual/beneficial ownership of 1% or more No

Research Analyst’ or Relatives’ material conflict of interest No

Disclaimer for U.S. Persons

ESPL/its affiliates are not a registered broker–dealer under the U.S. Securities Exchange Act of 1934, as amended (the“1934 act”) and under applicable state laws in the United States. In addition Equirus is not a

registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the “Acts”), and under applicable state laws in the United States.

Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by Equirus, including the products and services described herein are not available to or intended

for U.S. persons. The information contained in this Report is not intended for any person who is a resident of the United States of America or a resident of any jurisdiction, the laws of which imposes prohibition on

soliciting the securities business in that jurisdiction without going through the registration requirements and/ or prohibit the use of any information contained in this report. This Report and its respective contents

do not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services and/or shall not be considered as an advertisement tool. "U.S. Persons"

are generally defined as a natural person, residing in the United States or any entity organized or incorporated under the laws of the United States. US Citizens living abroad may also be deemed "US Persons" under

certain rules.

l&t technology services absolute : long relative...

Documents