India IT-230212

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PREPARED BY BNP PARIBAS SECURITIES ASIATHIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. I

SECTOR REPORT

EQUITIES RESEARCH

INDIA

INDIA TECHNOLOGY/SOFTWARE &

DETERIORAINDUSTRY OUTLOOK

Solving the marginSUMMARYTime to watch INR-inflated margins

Since December 2010, large-cap IT constant currallen sharply and are only slightly better than th

the 2008-09 crisis. While companies see this as tsuggests CC margins are directly linked to growtmean more long-term margin pressure than inve

OUTLOOKDemand tide turning? But before we get a

We have recently noted management views of deHowever, current data points (NASSCOM, Cogniz

sharp growth pick-up from 2QCY12 and we belieeven more, i.e., almost an outright demand recov

revenue growth in FY13-14) and USD/INR staying

VALUATIONMore on the margin analysis; stay negativ

We analysed large-cap EBIT margin trends startislowing growth may be eroding the margin poweweak USD/INR seems to be masking. In 2005-07,

companies to handle USD/INR strength rather coproductivity improvements and low cost hiring. Sslowed and only companies (TCS, Wipro) that colevers were able to claim most of the significantavailable. CY2011 was another modest growth ye

stretched margin structures, vendors seem to hato claim further FX benefits. We believe it is reas

industry growth could slow even more, at least i

effect, thus further pressuring margins. Also, weare only increasing in complexity while continuindemand more investments, sub-contracting and

We retain our REDUCE ratings on all large-cap stTPs. On a relative basis, among the large-caps, w

Infosys because of lower expectations and valuatithat MindTree and Persistents FX-inflated margi

sustainable and could lead to big EPS cuts if theurther. Risks: USD/INR weakness, sharp demand

Abhiram [email protected]

+91 22 33704311

BNP Paribas Securities (Asia) Ltd. research is available on Thoyour salesperson for authorisation. Please see the important n

PORTANT DISCLOSURES CAN BE FOUND IN THE DISCLOSURES APPEN

BNPP RECOMMENDATIONS

Company BBG Code R

HCL Technologies HCLT IN RE

Tata Consultancy TCS IN REInfosys INFO IN RE

Wipro Ltd WPRO IN RE

MindTree Ltd MTCL IN RE

Persistent Systems PSYS IN RE

Tech Mahindra TECHM IN

Satyam Computers SCS IN

SERVICES

ING

uzzle

ency (CC) margins haveey were at the bottom of

mporary, our analysisitself, which could

stors are prepared for.

head of ourselves

mand mildly improving.nt) already call for a

e stocks are pricing inery (17-19% USD

at 49 to perpetuity.

e, Infosys stays top pick

g 2005 and found thatr of companies that thestrong demand allowed

mfortably throughince 2007, growth hasld dig out internalX benefits that were

ar, and with already

e been far less equippednable to assume

part due to a high base

ote IT services projectsg visa problems couldlateral hiring.

cks based on our DCF-e see the most value in

ions. We remain worriedns may not be

SD/INR strengthensrecovery.

son One, Bloomberg, TheMarkets.com, Factset and on http://eqreseotice on the back page.

TOP STOCK PI

Company

BBG Code

Share Price

Target Price

1 Year - high

1 year - low

VALUATION SU

Company

Tata Consultancy

Infosys

Wipro Ltd

HCL Technologies

Satyam Computers

MAJOR CHANG

Company

Infosys

Tata Consultancy

HCL Technologies

Wipro Ltd

BNP Paribas

2,057

2,257

2,457

2,657

2,857

3,057

3,257

3,457

Feb-11 May-11

(INR) Infosys

IX

atingSharePrice

TargetPrice

Upside /Downside

UCE 492.10 380.00 -23%

UCE 1,252.35 1,000.00 -20%UCE 2,952.25 2,500.00 -15%

UCE 442.80 380.00 -14%

UCE 454.25 390.00 -14%

UCE 314.85 280.00 -11%

OLD 632.35 600.00 -5%

OLD 72.10 70.00 -3%

rch.bnpparibas.com/index. Please contact

23 FEBRUARY 2012

K

Infosys

INFO IN

2,952.25

2,500.00

3,306.20

2,183.40

MMARY

P/E Yld(%)

FY1 FY2 FY2

23.0 19.3 1.4

20.3 17.3 1.5

19.6 16.4 1.6

15.5 13.5 2.0

8.8 9.1 0.0

ES

Unchanged REDUCE

Unchanged REDUCE

Unchanged REDUCE

Unchanged REDUCE

(26)

(21)

(16)

(11)

(6)

(1)

4

9

Aug-11 Nov-11 Feb-12

(%)Rel to MSCI India
http://equities.bnpparibas.com/http://equities.bnpparibas.com/http://equities.bnpparibas.com/

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India Technology/Software & Services Abhiram Eleswarapu

3 BNP PARIBAS 23 FEBRUARY 2012

marginally better EBIT margins on a y-y basis, i.e., they have lost anywhere around 200-400bp of CCmargins by our estimates. This makes the period look like a more stressful time for companies than demandtrends appear to suggest.

EXHIBIT 3: Theoretical and cc margin movement dissected

Theoreticalcurrency aid/

(headwind)

ReportedEBIT margin

change

CC EBITmarginchange

Employeegrowth

Revenue/employee

Costs/employee Comment Reason

(bps) (bps) (bps) (% CAGR) (% CAGR) (% CAGR)

Dec 2005- Dec 2007TCS (394) (200) 185 33.5 7.8 9.3 Could not fully offset FX

headwindHigher realisations, offshore revenue andgraduate hiring, but utilisations and FPPsdropped

Infosys (456) (37) 417 33.0 4.7 5.0 Almost entirely overcame FXpressure

Productivity and FPP gains, graduatehiring

Wipro (217) na na na na na

HCL Tech (485) (47) 433 31.1 7.0 7.3 Almost entirely overcame FXpressure

Big productivity gains and graduate hiring

Dec 2007- Dec 2010

TCS 492 411 (16) 19.3 (5.7) (7.4) Most FX gains captured Productivity dropped, but hiringcontinued and offshoring, utilisations,FPPs improved sharply, wage hikesbriefly halted

Infosys 482 120 (297) 14.0 (0.4) (1.0) Could not capture FX gains Sharply improved utilisations and FPPs,but realisations fell and hiring reduced,wage hikes briefly halted

Wipro 218 163 (28) 9.3 1.7 1.0 Most FX gains captured Big gains on FPPs, some utilisation andrealisations increases, despite poorhiring, wage hikes briefly halted

HCL Tech 535 (426) (882) 15.0 7.2 9.0 Lost margins sharply despiteFX help

Cost increases due to acquisitions, onsitepresence rose, wage hikes briefly halted

Dec 2010- Dec 2011

TCS 465 98 (363) 22.2 (1.3) (2.6) Did not benefit from fallingrupee

Utilisations fell as demand becameunpredictable, costs didn't fall as muchas FX allowed

Infosys 511 96 (407) 14.7 (0.6) (2.0) Did not benefit from falling

rupee

Utilisations fell as demand became

unpredictable, costs didn't fall as muchas FX allowed

Wipro 283 (140) (415) 14.1 (1.8) 0.0 Did not benefit from fallingrupee

Utilisations fell, onsite presenceincreased on new deals, costs didn't fallas much as FX allowed

HCL Tech 519 270 (240) 14.8 3.0 (0.2) Somewhat gained from fallingrupee

Productivity improved, costs broughtunder control from previous highs, FPPssharply increased

Note: FPP fixed price projectsSources: Companies, BNP Paribas estimates

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EXHIBIT 4: Margin lever movement

Change in Change in Change in Change in Change in

Utilization(including trainees)

Utilization(excluding trainees)

Fixed price projects(% of revenue)

Offshore revenue(% of total)

Realizations(onsite)

Realizations(offshore)

(bps) (bps) (bps) (bps) (% CAGR) (% CAGR)

Dec 2005 - Dec 2007

TCS (290) (60) (520) 710 na na

Infosys 114 (130) 440 80 6.1 5.8

Wipro na na na na na na

HCL Tech (130) (90) na na na na

Dec 2007 - Dec 2010

TCS 450 610 430 1,060 na na

Infosys 258 442 840 (150) 0.2 (4.2)

Wipro 200 170 1,770 271 0.8 1.4

HCL Tech 100 (50) 930 (860) na na

Dec 2010 - Dec 2011

TCS (310) (180) 390 (130) na na

Infosys (299) (374) (30) (20) 2.9 4.7

Wipro (210) (240) (80) (262) 3.5 (1.1)

HCL Tech (50) 110 460 20 na na

Sources: Companies, BNP Paribas estimates

We draw clues from previous cycles

We gathered relevant margin data over three time periods December 2005-07, December 2007-10 (aperiod of demand loss and recovery) and December 2010-11.

December 2005 -07: The first phase coincided with strong demand growth and hence companies wereable to largely offset currency appreciation with a combination of pricing gains and fresh graduate

hiring.

December 2007-10: The second phase saw sharp pricing losses during the downturn that weresomewhat regained later, but demand itself moved to a lower growth trajectory. Therefore, despitelarge currency gains, companies needed to use internal levers such as utilisation, increasing fixed-priceprojects (FPP), lower wage hikes, etc, to retain some of the currency benefit.

TCS and Wipro made decisive changes to make their operations more efficient and hence benefitedthe most.

It is not surprising that Infosys (with its already efficient processes) gained the least.

HCL Tech lost margins in an attempt to reinvent its value proposition. The company made a seriesof acquisitions (including that of Axon) which helped it increases its productivity, but that came

with substantially higher on-site costs.

December 2010-11: It appears fresh margin issues cropped up after December 2010, which barelyallowed companies to gain from the currency depreciation (ex-HCL Tech). In fact, companies appearedto have been left without enough margin levers during this period, almost as if they had exhausted thembefore December 2010.

While utilisations indeed fell (50-310bps), companies also had realization gains. As a result,productivity as measured by revenue per average employee did not change much on a y-y basis.However, costs per average employee did not go down as much as the USD/INR weakness wouldhave allowed them to.

Higher sub-contracting costs and lack of material pricing gains (like prior to 2007) could be here to

stay given visa issues are continuing and projects are getting more complex in nature. As we havewritten previously (Taking stock of the situation, 28 November 2011), new deals in the markettoday require more investments, better skills, and possibly increased subcontracting/ pass-throughs. They may also need Indian vendors to significantly strengthen their middle-levelemployee bases and industry expertise to differentiate themselves. For these reasons, plain vanillautilisation metrics may no longer be relevant for planning resources.

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The case could be worse for smaller players, which explains our concern over their INR-inflated margins

The situation could be even more testing for smaller companies because of their limited scale. Historicalevidence suggests scale allows companies to protect their margins better (Exhibit 5). This is one of the keyreasons why we are worried about our REDUCE-rated stocks, MindTree and Persistent, whose currentmargins are propped up by currency gains that could be lost if the INR appreciates back to long-termaverages.

EXHIBIT 5: EBIT margin comparison

EBIT margin 2004 2005 2006 2007 2008 2009 2010 2011 2012E Average Std devEmployees

(FY11) Comments

USD/INR 45.8 44.9 44.2 45.1 40.0 46.5 47.4 45.5 48.1

Change (y-y %) (2.0) (1.5) 1.9 (11.2) 16.4 1.9 (4.0) 5.7

Infosys (%) 28.0 28.7 27.9 27.9 27.8 29.7 30.4 29.5 29.1 28.8 0.9 130,820 Margin variations lower for

TCS (%) 24.5 22.5 25.6 24.9 22.6 23.7 26.5 27.8 28.0 25.1 2.0 198,614 companies with higher employee

Wipro (%) 18.7 22.0 20.7 20.0 17.1 16.9 19.1 18.6 17.3 18.9 1.7 122,385 bases

HCL Tech (%) 15.8 18.3 17.8 18.0 17.4 17.5 16.5 14.0 15.3 16.7 1.4 77,346

Tech Mahindra (%) 7.7 10.9 18.4 23.4 19.8 24.2 21.6 16.7 13.7 17.4 5.7 38,333

MphasiS (%) 15.0 13.3 26.6 11.6 13.4 21.7 21.9 16.3 16.6 17.4 5.0 40,426

MindTree (%) 6.0 12.6 14.4 12.1 22.1 13.9 7.1 10.7 12.4 5.0 9,547

Persistent Systems(%)

22.0 18.2 17.0 14.9 25.1 18.8 14.9 15.3 18.3 3.7 6,360


A word on our approach and caveats

We acknowledge our CC margin analysis is not perfect. In practice, it is extremely difficult to predict theactual margins had currency stayed constant through the analysis period. This is because had currency notfluctuated, companies may have probably used some more discretion over their investments and marginlevers than they actually chose to do. Therefore the direction of our calculated constant currency marginsis far more important than the absolute numbers.

Our analysis is also based on the linear assumption that every 1% change in USD/INR impacts the EBIT

margin of companies by 35bp (Infosys usually guides for 50bp, but we have chosen to be conservative). ForWipro, we take a 20bp margin impact for every 1% USD/INR change as it reports financials on a hedged-currency rate.

We also use December quarter margins for our analysis for two reasons: 1) It allows us to extend ouranalysis until the last available quarterly data, and, 2) it allows us to compare similar quarters, i.e.,removes seasonal effects such as wage hikes, etc.

Demand tide turning? But before we get ahead of ourselves

Over the past fortnight, we have noted Indian IT service management comments change from cautious (andbearish in Infosyss case) to at least somewhat optimistic.

In fact, our economists also point to widespread improvement in global indicators (new orders indices,sentiment surveys, etc) that makes them believe growth will pick up in the immediate months ahead,barring adverse shocks (Market Mover, 2 February 2012). In fact, the team has progressively raised its USGDP forecasts over the past few months on improving data.

EXHIBIT 6: BNP Paribas US GDP forecasts

SAAR (q-q %) --------------------2011-------------------- --------------------2012-------------------- --------------------2013--------------------

Q1 Q2 Q3 Q4 Q1(E) Q2(E) Q3(E) Q4(E) Q1(E) Q2(E) Q3(E) Q4(E)

Feb-2012 0.4 1.3 2.5 2.8 2.5 2.0 2.2 2.5 2.2 2.2 2.7 2.7

Nov-2011 0.4 1.3 2.5 2.0(E) 0.5 1.5 2.0 2.5

Previous 0.4 1.3 2.0(E) -1.0(E) -1.0 1.5 2.5 2.5

(E) : Estimate, Source: BNP Paribas estimates

It is reasonable to assume such conditions could encourage more corporate IT offshore spending givencomplaints so far from vendors (and according to our checks) have been of slow client decision makingrather than a poor pipeline. We expect this to be reflected in higher short-cycle deals to start with, and ifthe improving macro momentum sustains, to transform into more broad-based spending patterns.

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Yet, before we get ahead of ourselves, it is worth noting that this new information is not very different fromwhat almost all recent concrete sector data point to a weak near-term followed by a sharp pick-up from2QCY12. Such back-ended expectations come with greater-than-usual risks, in our view. Further, we believestock prices are already factoring in upside to these numbers. Therefore the call for investors should be notso much on whether demand will improve, but on how sustainable any pick-up would be as they look outinto 2HFY13 and FY14.

1 As we have noted previously (New data points hardly help, 9 February 2012), Cognizants 23% CY12 USDrevenue growth guidance is premised on a smart revenue pick-up starting 2Q (the guidance calls for

2.2% q-q 1Q growth followed by 6.8% q-q in 2Q-4Q).

2 NASSCOMs 11-14% FY13 projection comes with a wider-than-usual range and the intent to review it inOctober does not speak much of demand visibility either. While TCS and MindTree have indicated theyare likely to grow faster and believe the overall industry number is being brought down by captives andin-house centres, others such as Infosys find these estimates realistic.

In fact NASSCOMs guidance may not be all that conservative. If we assume captive centres revenue (10-12% of the total) stays flat in FY13, Indian offshore players would need to grow 16% for the industry tomeet the upper-end of NASSCOMs guidance and would need growth to pick up significantly from here on.

Further, companies have not been very accurate in predicting demand beyond a couple of quarters inrecent times, and still depend on short-term contracts for growth, which can be put off at relatively shortnotice.

EXHIBIT 9: Flat captive growth would imply 16% growth for Indian offshore providers to meet NASSCOMsFY13 guidance

Revenue share Growth

(%) (y-y %)

Indian service providers 73-75 16

Global in-house centres 10-12 0

Foreign service providers 10-15 14

Total 100 14.0

Sources: NASSCOM, BNP Paribas estimates

How much growth can an improving macro environment support?

We revisit our regression analysis and estimate that a muddle-through US economy could support 3-4%

q-q revenue growth through FY13 and FY14. This analysis is based on regressing historical USD Indian ITservice growth versus US GDP growth and a base effect variable (given growing employee bases for Indianplayers) and suggests a fairly strong relationship (adjusted R-square of 0.64) between the variables.

EXHIBIT 7: Large-cap players may not grow much faster than theindustry in FY13

EXHIBIT 8: FY13 may not be a beat and raise year

Note: 1) Wipro excluded from FY07 as data not available; 2) Simple average of annualgrowth rates for India-listed large caps; 3) Cognizant CY12 guidanceSources: Company, NASSCOM, BNP Paribas estimates


50

32

16

40

33

23

34

13

9

26

1815

29

17

6

1916

13

0

10

20

30

40

50

60

CY07/FY08

CY08/FY09

CY09/FY10

CY10/FY11

CY11/FY12E

CY12/FY13E

(y-y %) Cognizant

India-listed large-caps

India Software and services exports

(10)

0

10

20

30

40

50

60

70

1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q

CTSH guidance (RHS) INFO guidance (LHS)

CTSH achieved (RHS) INFO achieved (LHS)

(%)

CY05/FY06

CY06/FY07

CY07/FY08

CY08/FY09

CY09/FY10

CY10/FY11

CY11/FY12E

CY12E/FY13E

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The weak base coming into FY13 would translate this into 13-15% y-y FY13 USD revenue growth and mid-teen growth for FY14 for our large-cap coverage companies. Regressions do come with errors, we admit,but even a couple of higher ppts of growth may not significantly move the needle, in our view.

EXHIBIT 10: Regression analysis of Indian IT USD revenue growth against US GDP growth and base effect

Sources: Companies, BEA, BNP Paribas estimates

Changes to our estimates

We marginally raise our USD revenue assumptions for most of our coverage to factor in improved demandand macro data points. Our FY13 INR estimates are now based on the current USD/INR rate of ~49.50 (52.00earlier) and therefore result in lower EPS projections.

We continue to base our models (somewhat stubbornly) on a USD/INR of 45.50 for the long-term (i.e., at the10-year average USD/INR from FY14 and beyond). We think this is fair when valuing stocks using a 10-yearDCF valuation. However, if we were to change that assumption to 49, our fair values would go up by 8-15%for our large cap coverage, which could, at best, turn our sector call neutral rather than positive.

EXHIBIT 11: Changes to estimates - Summary

-------------------------------Revenue------------------------------- ----------------------------------EPS----------------------------------

--------------New-------------- --------Change vs prior-------- --------------New-------------- --------Change vs prior--------

FY12E FY13 FY14E FY12E FY13E FY14E FY12E FY13E FY14E FY12E FY13E FY14E

(USD m) (USD m) (USD m) (%) (%) (%) (INR m) (INR m) (INR m) (%) (%) (%)

TCS 10,194 11,720 13,613 (0.1) 2.3 1.3 54.5 65.0 66.2 0.9 (2.4) 3.8

Infosys 7,047 8,008 9,296 (0.5) (0.2) (1.3) 145.4 170.5 180.6 (1.2) (6.7) 0.9

Wipro 5,939 6,836 7,939 (0.3) 2.5 3.1 22.6 27.0 28.7 (1.6) (5.8) 7.4

HCL 4,184 4,873 5,660 (0.9) 3.1 2.5 31.7 36.4 38.0 (6.7) (4.3) 2.6

Satyam 1,309 1,470 1,710 (1.8) (2.7) (2.4) 8.2 7.9 7.7 3.2 (22.1) (2.8)

Tech Mahindra 1,163 1,256 1,392 (1.3) 0.1 (3.3) 78.6 78.4 76.2 1.6 (10.6) 0.2

MindTree 404 474 552 (0.5) 2.2 2.0 50.8 52.2 42.9 (2.3) (14.8) 8.1

Persistent 207 234 281 (1.1) (2.6) (3.6) 33.7 34.7 31.7 5.9 (6.1) (2.0)


Stocks ahead of fundamentals after INR- and risk-appetite-driven rallies

Since August 2011, despite demand worsening as we had expected (Street estimates for FY13 growth werebrought down to low-to-mid teens from over 20% earlier), stocks have been supported first by a sharplyweaker INR towards late 2011, and then by changing investor attitude towards risk YTD. It is true earlyfears of a US recession and then of a European crisis have probably receded at least for now and have

contributed to positive stock movements.

But we believe despite their YTD underperformance, Indian IT service stocks are running ahead offundamentals and are close to pricing in almost an outright demand recovery (17-19% USD revenue growthin FY13-FY14 at stable margins) and the USD/INR staying at 49 (about 10% weaker than its 10-year

(6)(4)(2)02468

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Error

Indian IT services average growth

Regression implied growth

(q-q %)Adjusted R-square = 0.64

Forecasts

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average) to perpetuity. It is worth noting that all companies under our coverage missed our USD revenueestimates in the recent December quarter. In simple terms, while we acknowledge marginally improveddemand conditions, we are unwilling to chase stocks at current prices.

We have previously constructed several demand and FX scenarios based on domestic and global factorsand value the stock outcomes, which we reproduce below (Bull thesis now hinging on INR, 9 January 2012).

EXHIBIT 12: Likely scenarios and stock outcomes

----------Likely scenarios---------- Likely stock outcomes

Demand outlook USD/INR

Stagnant Stagnant Modestly up as the current INR weakness will increasingly be seen as structuralStrengthens Down

Weakens Up

Improves Stagnant Up

Strengthens Flat to modestly up, unless USD/INR movement is sharp in which case stocks will fall

WeakensBest-case scenario for stocks. A situation where domestic concerns continue, but developedeconomies recover

Worsens Stagnant Down

StrengthensWorst-case scenario for stocks. A situation where global concerns continue, but domesticconcerns recede

Weakens Down, unless USD/INR movement is sharp similar to that seen since August 2011

Source: BNP Paribas estimates

Large cap Indian IT service companies are currently trading at slight discounts to their long-term average.While this makes them seem not very expensive, one should keep in mind that these averages are proppedup by the pre-2008-09 crisis premium that the sector used to command due to its historically high growthtrajectory (Exhibit 13).

Current USD revenue growth expectations of 16% CAGR from FY12-FY14E are far lower than the long-termgrowth rate (FY04-FY12) of ~27% for large cap companies, while the margin picture is still not very clearfrom a long-term perspective. We therefore believe investors should be prepared to pay lower than averageP/E multiples for stocks.

On a relative basis, among the large-caps, we see the most value in Infosys because of lower expectationsand valuations. We remain worried that MindTree and Persistents FX-inflated margins may not besustainable and could lead to big EPS cuts if the USD/INR strengthens further. Risks: USD/INR weakness,sharp demand recovery.

EXHIBIT 13: Current growth expectations are lower than the historical average

Sources: Bloomberg, BNP Paribas estimates

7

12

17

22

27

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Aug-

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06

Aug-

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Aug-

09

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10

Aug-

11

Large cap IT P/E -1SD Average +1SD(x)

Large cap USD revenue CAGR

(FY05-FY07) : 36%Large cap (organic) USD revenue

CAGR (FY07-FY09) : 21%

Large cap (organic) USD

revenue CAGR (FY08-FY10) : 8%


(FY10-FY12E) : 22%


(FY12-FY14E) : 16%

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EXHIBIT 14: DCF valuation summary

TCS Infosys Wipro HCL Tech SatyamTech

Mahindra MindTree Persistent

WACC (%) 11.5 11.5 11.5 13.1 14.2 13.6 14.2 14.8

Terminal growth rate (%) 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0

Revenue growth FY0-3E (%) 18.4 15.4 16.5 17.5 14.8 7.2 18.5 18.1

Revenue growth FY3-10E (%) 10.0 10.0 10.0 10.0 10.0 9.0 10.0 10.0

Annual EBIT margin change FY0-3E (bp) (31.1) (57.2) (52.4) (5.5) 214.4 (156.2) 60.8 (68.7)

Annual EBIT margin change FY3-10E (bp) (50.0) (50.0) (30.0) (30.0) (30.0) (50.0) (30.0) (50.0)

12-month DCF-based fair value (INR) using long-term risk premiums 1,106 2,802 423 434 80 398 390 280

Discount assumed to adjust for heightened risk aversion (%) (10.0) (10.0) (10.0) (10.0)

Adjustments for legal and other liabilities (INR) (10)

Contribution from Satyam, ex- debt (INR) 197

DCF-based fair value (INR) 1,000 2,500 380 380 70 600 390 280

Implied FY13E P/E (x) 15.4 14.8 14.3 10.6 8.9 7.8 7.5 8.4

Implied FY14E P/E (x) 15.1 13.8 13.3 10.0 9.1 7.9 9.1 8.8

Previous TP (INR) 960 2,500 350 360 70 560 350 270

Source: BNP Paribas estimates

EXHIBIT 15: Comparable company valuation

Share Market FY1-FY3 CAGR FY1 ---------EV/EBIT--------- ------------P/E------------ PEG* P/BV Div yield

BBG code price cap Rev. EPS EBIT mgn FY1E FY2E FY3E FY1E FY2E FY3E FY1E FY1E FY1E

(LC) (USD m) (%) (%) (%) (x) (x) (x) (x) (x) (x) (x) (x) (%)Large-cap Indian IT services companies

Tata Consultancy TCS IN 1,252 49,734 12.6 10.2 28.0 16.1 13.4 13.2 23.0 19.3 18.9 2.2 8.0 1.4

Infosys INFO IN 2,952 34,397 11.7 11.4 29.1 14.8 12.8 12.4 20.3 17.5 16.3 1.8 5.2 1.2

Wipro WPRO IN 443 22,087 14.5 12.6 17.3 14.3 11.9 11.2 19.6 16.6 15.4 1.6 3.9 1.4

HCL Technologies HCLT IN 492 6,909 12.0 9.5 15.3 9.1 8.6 8.0 15.5 13.7 12.9 1.6 3.3 2.0

Median 12.3 10.8 22.7 14.6 12.4 11.8 19.9 17.1 15.9 1.7 4.6 1.4

Mid-cap Indian IT services companies

Tech Mahindra^ TECHM IN 632 1,635 7.3 (1.7) 13.7 7.8 7.7 7.7 8.0 8.3 8.3 (4.8) 1.8 0.6

Mphasis MPHL IN 409 1,741 9.5 (7.8) 16.3 5.6 4.6 6.9 10.5 8.9 12.3 (1.3) 1.8 1.7

Satyam Computer SCS IN 72 1,722 10.4 (3.2) 12.7 6.0 5.3 5.3 8.8 9.1 9.3 (2.7) 1.3 -

Hexaware HEXW IN 110 656 21.4 na 11.5 8.4 6.5 5.3 10.8 9.1 na na 2.2 0.6

eClerx ECLX IN 762 449 23.3 19.6 40.3 10.7 9.1 7.7 13.8 12.0 9.6 0.7 6.9 3.3

Rolta India RLTA IN 92 303 10.3 (9.7) 21.3 4.8 4.1 3.9 4.6 4.5 5.7 (0.5) 0.7 4.2

Mindtree MTCL IN 455 375 14.5 (8.2) 10.7 8.3 6.2 7.6 8.9 8.7 10.6 (1.1) na 0.9

Polaris Software POL IN 157 316 15.8 12.4 13.5 3.7 3.4 3.0 7.1 6.3 5.6 0.6 1.2 2.8

Infotech INFTC IN 142 321 15.1 19.7 13.4 5 .8 4.9 4.4 10.8 8.3 7.6 0.5 1.4 1.1

Persistent PSYS IN 316 257 13.3 (3.1) 15.3 7.6 6.8 7.0 9.4 9.4 10.0 (3.0) 0.9 2.2

Median 13.9 (3.1) 13.6 6.8 5.7 6.1 9.2 8.8 9.3 (1.1) 1.4 1.4

Global & non-India listed IT services companies

Accenture ACN US 58 41,187 (1.6) 10.4 13.8 9.3 8.7 8.4 15.3 13.9 12.6 1.5 8.4 2.3

Cognizant CTSH US 71 21,332 19.0 18.3 18.7 13.4 11.1 9.4 19.5 16.3 13.9 1.1 4.2 -

Capgemini CAP FP 33 8,892 4.0 15.1 7.1 8.1 7.2 6.7 13.2 11.7 10.0 0.9 1.2 3.2

CSC CSC US 32 4,958 0.7 (6.6) 2.5 na na na 7.6 9.5 8 .8 (1.1) 1.3 2.5

Median 2.3 12.7 10.4 9.3 8.7 8.4 14.3 12.8 11.3 1.0 2.8 2.4

*Based on FY1-3 EPS CAGR; ^ ex-Satyam for EV/EBITNote: Priced close of 22February 2012Sources: Company reports; BNP Paribas estimates for Infosys, TCS, Wipro, HCL Tech, Tech Mahindra, Satyam, MindTree, MphasiS and Persistent.Bloomberg consensus estimates for all other mentioned companies which are not rated.

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Financial statementsTata Consultancy

Profit and Loss (INRm)Year Ending Mar 2010A 2011A 2012E 2013E 2014E

Revenue 300,289 373,245 488,559 573,945 619,401

Cost of sales ex depreciation (157,150) (199,882) (257,906) (302,310) (334,842)

Gross profit ex depreciation 143,139 173,363 230,653 271,636 284,560

Other operating income 0 0 0 0 0

Operating costs (56,325) (61,403) (84,703) (96,188) (104,325)

Operating EBITDA 86,813 111,960 145,950 175,448 180,235

Depreciation (7,223) (8,056) (9,080) (11,249) (13,581)

Goodwill amortisation 0 0 0 0 0

Operating EBIT 79,590 103,904 136,870 164,199 166,653

Net financing costs 2,255 5,247 3,610 4 ,768 3,465

Associates 0 0 0 0 0

Recurring non operating income 0 0 0 0 0

Non recurring items 0 0 0 0 0

Profit before tax 81,845 109,151 140,480 168,967 170,119

Tax (12,088) (21,203) (32,702) (40,552) (39,127)

Profit after tax 69,757 87,948 107,778 128,415 130,991

Minority interests (1,019) (1,116) (1,112) (1,200) (1,400)

Preferred dividends 0 0 0 0 0Other items (10) (3) 0 0 0

Reported net profit 68,728 86,829 106,666 127,215 129,591

Non recurring items & goodwill (net) 0 0 0 0 0

Recurring net profit 68,728 86,829 106,666 127,215 129,591

Per share (INR)

Recurring EPS * 35.12 44.36 54.50 65.00 66.21

Reported EPS 35.12 44.36 54.50 65.00 66.21

DPS 20.09 14.06 17.00 18.00 20.00

Growth

Revenue (%) 8.0 24.3 30.9 17.5 7.9

Operating EBITDA (%) 20.9 29.0 30.4 20.2 2.7

Operating EBIT (%) 20.6 30.5 31.7 20.0 1.5Recurring EPS (%) 32.9 26.3 22.8 19.3 1.9

Reported EPS (%) 32.9 26.3 22.8 19.3 1.9

Operating performance

Gross margin inc depreciation (%) 45.3 44.3 45.4 45.4 43.7

Operating EBITDA margin (%) 28.9 30.0 29.9 30.6 29.1

Operating EBIT margin (%) 26.5 27.8 28.0 28.6 26.9

Net margin (%) 22.9 23.3 21.8 22.2 20.9

Effective tax rate (%) 14.8 19.4 23.3 24.0 23.0

Dividend payout on recurring profit (%) 57.2 31.7 31.2 27.7 30.2

Interest cover (x) - - - - -

Inventory days 0.4 0.0 0.0 0.0 0.0

Debtor days 72.7 68.5 72.4 74.5 73.1

Creditor days 31.1 51.7 46.9 48.7 49.3Operating ROIC (%) 59.2 67.5 66.2 65.6 59.4

Operating ROIC - WACC (%) 45.9 54.1 52.9 52.3 46.1

ROIC (%) 32.4 34.9 36.2 36.1 30.1

ROIC - WACC (%) 19.1 21.6 22.9 22.8 16.8

ROE (%) 37.2 37.2 37.8 36.2 29.7

ROA (%) 27.2 28.1 29.0 28.0 23.8

*Pre exceptional, pre-goodwill and fully diluted

Sources: Tata Consultancy BNP Paribas estimates

Translates into USD-based

revenue growth of 15%

for FY13E and 16.2% forFY14E

FY12E tax rate to increase

after the existing

STPI tax benefits expire.

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Financial statementsTata Consultancy

Cash Flow (INRm)Year Ending Mar 2010A 2011A 2012E 2013E 2014E


Depreciation 7,223 8,056 9,080 11,249 13,581

Associates & minorities 1,019 1,116 1,112 1,200 1,400

Other non-cash items (4,703) 0 0 0 0

Recurring cash flow 72,266 96,001 116,858 139,664 144,573

Change in working capital 2,602 (26,333) (32,302) (11,983) (4,913)

Capex - maintenance 0 0 0 0 0Capex - new investment (10,358) (17,015) (20,415) (23,224) (26,015)

Free cash flow to equity 64,511 52,652 64,141 104,457 113,645

Net acquisitions & disposals (103) 345 0 0 0

Dividends paid (19,594) (45,529) (50,352) (40,945) (45,495)

Non recurring cash flows (44,700) (1,934) 2,919 (40,000) (50,000)

Net cash flow 114 5,534 16,708 23,512 18,151

Equity finance 54 0 (2,280) 0 0

Debt finance (3,960) (613) (442) 0 0

Movement in cash (3,792) 4,921 13,986 23,512 18,151

Per share (INR)

Recurring cash flow per share 36.92 49.05 59.71 71.36 73.87

FCF to equity per share 32.96 26.90 32.77 53.37 58.06

Balance Sheet (INRm)Year Ending Mar 2010A 2011A 2012E 2013E 2014E

Working capital assets 80,251 110,028 143,784 163,934 171,744

Working capital liabilities (36,995) (42,622) (53,280) (62,770) (65 ,668)

Net working capital 43,256 67,406 90,504 101,164 106,076

Tangible fixed assets 41,377 51,996 63,905 75,880 88,314

Operating invested capital 84,633 119,402 154,409 177,044 194,390

Goodwill 31,649 31,886 33,208 33,208 33,208

Other intangible assets 1,201 1,905 1,838 1,838 1,838

Investments 24,885 52,085 46,796 86,796 136,796

Other assets 21,154 25,745 32,977 34,300 34,300

Invested capital 163,521 231,023 269,228 333,186 400,532

Cash & equivalents (72,384) (54,238) (77,132) (100,643) (118,794)

Short term debt 3,529 5,194 8,967 8,967 8,967

Long term debt * 106 39 28 28 28

Net debt (68,749) (49,006) (68,137) (91,649) (109,800)

Deferred tax 0 0 0 0 0

Other liabilities 18,224 21,837 23,422 23,422 23,422

Total equity 211,842 255,044 308,751 395,021 479,117

Minority interests 2,204 3,147 5,193 6,393 7,793


* includes convertibles and preferred stock which is being treated as debt

Per share (INR)

Book value per share 108 130 157 201 244

Tangible book value per share 90.94 113 139 183 226

Financial strength

Net debt/equity (%) (32.1) (19.0) (21.7) (22.8) (22.6)Net debt/total assets (%) (25.2) (14.9) (17.0) (18.5) (18.8)

Current ratio (x) 3.8 3.4 3.5 3.7 3.9

CF interest cover (x) - - - - -

Valuation 2010A 2011A 2012E 2013E 2014E

Recurring P/E (x) * 35.7 28.2 23.0 19.3 18.9

Recurring P/E @ target price (x) * 28.5 22.5 18.3 15.4 15.1

Reported P/E (x) 35.7 28.2 23.0 19.3 18.9

Dividend yield (%) 1.6 1.1 1.4 1.4 1.6

P/CF (x) 33.9 25.5 21.0 17.6 17.0

P/FCF (x) 38.0 46.6 38.2 23.5 21.6

Price/book (x) 11.6 9.6 8.0 6.2 5.1

Price/tangible book (x) 13.8 11.1 9.0 6.8 5.5

EV/EBITDA (x) ** 27.8 21.4 16 .4 13.6 13.1

EV/EBITDA @ target price (x) ** 22.1 17.0 13.0 10.7 10.3

EV/invested capital (x) 14.6 10.4 8.9 7.1 5.9

* Pre exceptional, pre-goodwill and fully diluted ** EBITDA includes associate income and recurring non-operating income

Sources: Tata Consultancy BNP Paribas estimates

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Financial statementsInfosys


Revenue 227,420 275,010 339,097 392,164 422,977




Operating costs (28,120) (34,830) (42,243) (48,628) (52,449)


Depreciation (9,420) (8,620) (9,332) (10,279) (11,657)


Operating EBIT 69,100 81,020 98,678 114,985 117,352

Net financing costs 9,900 12,110 17,278 19,724 20,240





Tax (16,810) (24,900) (32,897) (37,304) (34,398)

Profit after tax 62,190 68,230 83,060 97,406 103,194

Minority interests 0 0 0 0 0

Preferred dividends 0 0 0 0 0Other items 480 0 0 0 0




Per share (INR)

Recurring EPS * 109 119 145 170 181

Reported EPS 110 119 145 170 181

DPS 25.14 60.31 35.27 43.24 45.15

Growth

Revenue (%) 4.8 20.9 23.3 15.6 7.9



Reported EPS (%) 5.0 8.7 21.7 17.3 5.9





Net margin (%) 27.6 24.8 24.5 24.8 24.4




Inventory days 0.0 0.0 0.0 0.0 0.0

Debtor days 57.5 54.1 55.9 55.8 55.5



ROIC (%) 57.8 55.3 59.1 65.0 61.4

ROIC - WACC (%) 44.8 42.4 46.1 52.1 48.4

ROE (%) 29.6 26.6 28.0 27.4 24.2

ROA (%) 22.6 20.4 21.0 20.8 18.7


Sources: Infosys BNP Paribas estimates


revenue growth of 13.6%

for FY13E and 16.1% forFY14E.

Weaker USD/INR

assumption results in

higher margin for FY13E.

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Financial statementsInfosys



Depreciation 9,420 8,620 9,332 10,279 11,657

Associates & minorities 0 0 0 0 0

Other non-cash items (1,230) (3,660) 2,970 0 0


Change in working capital (470) (14,120) (6,390) (4,972) (6,831)



Net acquisitions & disposals (1,730) (20) 0 0 0

Dividends paid (15,690) (36,650) (36,750) (28,904) (30,184)

Non recurring cash flows (35,580) 35,340 (2,480) 0 0

Net cash flow 10,820 44,730 37,672 60,684 61,763

Equity finance 890 240 50 0 0

Debt finance 0 0 0 0 0

Movement in cash 11,710 44,970 37,722 60,684 61,763

Per share (INR)

Recurring cash flow per share 124 128 167 188 201

FCF to equity per share 112 80.64 135 157 161


Working capital assets 50,710 74,490 86,786 94 ,660 98,200





Goodwill 8,290 8,250 8,500 8,500 8,500

Other intangible assets 560 480 1,260 1,260 1,260

Investments 380 230 120 120 120

Other assets 13,600 12,640 13,334 13,504 19,404



Short term debt 0 0 0 0 0

Long term debt * 0 0 0 0 0

Net debt (158,190) (168,100) (208,962) (269,646) (331,409)

Deferred tax 1,140 0 280 280 280

Other liabilities 2,320 3,370 800 800 800

Total equity 240,730 273,030 321,300 389,802 462,811




Per share (INR)


Tangible book value per share 406 463 545 665 793

Financial strength


Current ratio (x) 6.5 6.7 6.1 7.1 8.0


Valuation 2010A 2011A 2012E 2013E 2014E

Recurring P/E (x) * 27.1 24.7 20.3 17.3 16.3


Reported P/E (x) 26.9 24.7 20.3 17.3 16.3

Dividend yield (%) 0.9 2.0 1.2 1.5 1.5

P/CF (x) 23.8 23.0 17.7 15.7 14.7

P/FCF (x) 26.4 36.6 21.9 18.8 18.3

Price/book (x) 7.0 6.2 5.2 4.3 3.6


EV/EBITDA (x) ** 19.8 17.0 13 .9 11.6 10.7




Sources: Infosys BNP Paribas estimates

High cash balance

likely to be used for niche

acquisitions.

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Financial statementsWipro Ltd


Revenue 271,957 310,542 374,555 447,280 490,926




Operating costs (33,814) (40,066) (44,403) (54,383) (58,733)


Depreciation (7,831) (8,211) (10,109) (11,378) (12,836)


Operating EBIT 51,844 57,668 64,838 79,502 83,446

Net financing costs 3,566 5,367 4,706 4 ,845 6,216





Tax (9,294) (9,714) (13,679) (17,517) (18,829)

Profit after tax 46,116 53,321 55,866 66,830 70,834

Minority interests (185) (344) (267) (456) (456)





Per share (INR)

Recurring EPS * 18.73 21.46 22.61 27.05 28.68

Reported EPS 18.91 21.74 22.74 27.14 28.78

DPS 3.63 6.04 6.21 7.21 8.06

Growth

Revenue (%) 5.9 14.2 20.6 19.4 9.8



Reported EPS (%) 18.2 15.0 4.6 19.4 6.0





Net margin (%) 16.9 17.1 14.8 14.8 14.3




Inventory days 15.9 15.7 14.9 15.5 15.9

Debtor days 66.8 66.1 70.9 72.5 70.4



ROIC (%) 21.1 20.9 19.6 20.8 20.6

ROIC - WACC (%) 7.4 7.2 6.0 7.1 6.9

ROE (%) 26.8 24.3 21.5 22.2 20.3

ROA (%) 14.2 14.2 13.1 13.9 13.1


Sources: Wipro Ltd BNP Paribas estimates





after the existing


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Financial statementsWipro Ltd



Depreciation 7,831 8,211 10,109 11,378 12,836


Other non-cash items 11,450 9,920 (3,646) (4,365) (5,416)


Change in working capital (14,399) (30,671) (23,729) (12,635) (2,027)



Net acquisitions & disposals (4,399) (140) (7,613) 0 0

Dividends paid (5,381) (13,182) (23,547) (20,633) (23,056)

Non recurring cash flows (20,524) (11,251) (11,705) 0 0

Net cash flow 8,063 3,653 (18,798) 23,642 31,078


Debt finance 8,453 (6,858) 1,626 (1,635) 3,916

Movement in cash 16,582 (3,180) (17,150) 22,007 34,995

Per share (INR)





Working capital liabilities (61,208) (67,575) (86,277) (98,269) (102,820)




Goodwill 53,802 54,818 70,282 70,282 70,282


Investments 3,546 5,977 8,158 8,158 8,158

Other assets 13,934 19,689 22,858 24,858 25,358



Short term debt 44,404 33,043 33,301 29,301 28,301

Long term debt * 18,107 19,759 24,130 22,130 21,630

Net debt (32,787) (57,621) (44,212) (72,219) (108,713)

Deferred tax 380 301 336 336 336


Total equity 196,112 239,680 276,751 322,493 369,815

Minority interests 437 691 905 1,361 1,817



Per share (INR)

Book value per share 80.74 98.37 113 132 151

Tangible book value per share 56.94 74.42 82.63 101 121

Financial strength


Current ratio (x) 1.9 2.3 2.2 2.4 2.7


Valuation 2010A 2011A 2012E 2013E 2014E

Recurring P/E (x) * 23.6 20.6 19.6 16.4 15.4


Reported P/E (x) 23.4 20.4 19.5 16.3 15.4

Dividend yield (%) 0.8 1.4 1.4 1.6 1.8

P/CF (x) 16.4 15.2 17.4 14.7 13.8

P/FCF (x) 28.0 38.2 45.0 24.5 20.0

Price/book (x) 5.5 4.5 3.9 3.4 2.9


EV/EBITDA (x) ** 17.7 15.7 13 .8 11.3 10.3




Sources: Wipro Ltd BNP Paribas estimates

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Financial statementsHCL Technologies

Profit and Loss (INRm)Year Ending Jun 2010A 2011A 2012E 2013E 2014E

Revenue 125,650 158,555 205,897 233,605 257,523




Operating costs (17,964) (23,443) (29,703) (33,279) (35,557)


Depreciation (5,010) (4,919) (5,665) (6,191) (5,954)


Operating EBIT 20,719 22,272 31,472 33,563 35,751

Net financing costs (5,289) (544) (504) 790 444





Tax (2,403) (4,808) (7,881) (8,068) (8,144)

Profit after tax 13,027 16,920 23,087 26,286 28,051


Preferred dividends 0 0 0 0 0Other items (874) (892) (771) (430) (764)




Per share (INR)

Recurring EPS * 17.63 23.01 31.73 36.39 38.03

Reported EPS 18.04 23.45 32.33 37.08 38.75

DPS 4.00 7.50 10.02 10.03 11.00

Growth

Revenue (%) 18.6 26.2 29.9 13.5 10.2


Operating EBIT (%) 11.6 7.5 41.3 6.6 6.5Recurring EPS (%) (1.1) 30.5 37 .9 14.7 4.5

Reported EPS (%) 0.5 30.0 37.9 14.7 4.5





Net margin (%) 9.7 10.1 10.8 11.1 10.6



Interest cover (x) 3.9 40.9 62.5 - -

Inventory days 0.0 0.0 0.0 0.0 0.0

Debtor days 83.6 74.3 69.8 72.4 70.8



ROIC (%) 17.9 17.6 21.3 20.5 21.0

ROIC - WACC (%) 2.1 1.7 5.5 4.7 5.2

ROE (%) 19.1 20.7 23.8 23.1 20.9

ROA (%) 12.0 11.6 14.5 14.3 13.5


Sources: HCL Technologies BNP Paribas estimates





after the existing


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Financial statementsHCL Technologies

Cash Flow (INRm)Year Ending Jun 2010A 2011A 2012E 2013E 2014E


Depreciation 5,010 4,919 5,665 6,191 5,954


Other non-cash items 874 892 771 806 764


Change in working capital 1,449 (4,529) (7,750) (1,896) (2,868)



Net acquisitions & disposals (506) (549) (1,021) 0 0

Dividends paid (3,149) (5,123) (8,275) (8,178) (9,063)

Non recurring cash flows (928) 164 1,544 0 0

Net cash flow 8,789 4,099 5,521 14,905 13,651

Equity finance 1,040 891 211 0 0

Debt finance (4,679) (4,865) (4,860) (2,000) 0

Movement in cash 5,150 125 872 12,905 13,651

Per share (INR)



Balance Sheet (INRm)Year Ending Jun 2010A 2011A 2012E 2013E 2014E






Goodwill 0 0 0 0 0


Investments 707 2,780 2,878 2,878 2,878

Other assets 9,640 10,392 12,056 12,961 16,739




Long term debt * 26,632 21,240 16,905 14,905 14,905

Net debt 2,213 (1,169) (3,636) (18,540) (32,191)



Total equity 70,368 84,345 102,894 121,377 140,364




Per share (INR)


Tangible book value per share 40.44 62.13 80.55 107 133

Financial strength

Net debt/equity (%) 3.1 (1.4) (3.5) (15.3) (22.9)Net debt/total assets (%) 1.6 (0.8) (2.2) (9.9) (15.2)

Current ratio (x) 2.0 2.0 2.0 2.3 2.4

CF interest cover (x) 4.7 32.8 42.7 - -

Valuation 2010A 2011A 2012E 2013E 2014E

Recurring P/E (x) * 27.9 21.4 15.5 13.5 12.9


Reported P/E (x) 27.3 21.0 15.2 13.3 12.7

Dividend yield (%) 0.8 1.5 2.0 2.0 2.2

P/CF (x) 18.4 15.4 11.8 10.4 10.2

P/FCF (x) 24.8 35.0 25.6 14.9 15.3

Price/book (x) 4.7 4.0 3.3 2.8 2.5


EV/EBITDA (x) ** 13.1 12.3 9.0 8.3 7.7




Sources: HCL Technologies BNP Paribas estimates

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Financial statementsSatyam Computers


Revenue 54,810 51,450 63,843 71,967 77,793




Operating costs (9,443) (10,956) (14,332) (15,196) (13,546)


Depreciation (2,144) (1,847) (1,542) (1,851) (1,867)


Operating EBIT 3,412 2,704 8,120 9,212 9,092

Net financing costs (329) (97) (116) (84) (80)


Recurring non operating income 69 2,942 4,095 3,115 2,930



Tax (222) (578) (2,359) (2,816) (2,627)

Profit after tax 2,930 4,971 9,741 9,427 9,314


Preferred dividends 0 0 0 0 0Other items (4,169) (6,411) 0 0 0

Reported net profit (1,246) (1,473) 9,714 9,400 9,288


Recurring net profit (1,246) (1,473) 9,714 9,400 9,288

Per share (INR)

Recurring EPS * 2.67 4.19 8.23 7.89 7.72

Reported EPS (1.14) (1.25) 8.23 7.89 7.72

DPS 0.00 0.00 0.00 0.00 0.00

Growth

Revenue (%) - (6.1) 24.1 12.7 8.1

Operating EBITDA (%) - (18.1) 112.3 14.5 (0.9)

Operating EBIT (%) - (20.8) 200.3 13.4 (1.3)Recurring EPS (%) - 56.7 96.5 (4.2) (2.2)

Reported EPS (%) - 9.6 (758.8) (4.2) (2.2)





Net margin (%) (2.3) (2.9) 15.2 13.1 11.9



Interest cover (x) 10.6 58.2 105.7 146.0 150.0

Inventory days - 3.0 2.7 0.0 0.0

Debtor days - 73.8 70.8 70.5 72.2

Creditor days - 123.3 122.8 95.3 88.7Operating ROIC (%) - 6.2 18.2 18.4 17.1

Operating ROIC - WACC (%) (9.5) (10.4) 1.6 - -

ROIC (%) - 10.8 23.8 21.9 20.2

ROIC - WACC (%) (10.0) (5.7) 7.3 - -

ROE (%) - (2.5) 15.9 13.8 12.0

ROA (%) - (1.6) 10.9 10.1 9.0


Sources: Satyam Computers BNP Paribas estimates

Translates to USD-based



EBIT margin expanding

despite pricing pressure,

because of weaker USD/INR

assumption in FY13.


after the existing


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Financial statementsSatyam Computers


Recurring net profit (1,246) (1,473) 9,714 9,400 9,288

Depreciation 2,144 1,847 1,542 1,851 1,867


Other non-cash items 1,858 (611) 3,833 56 54

Recurring cash flow 2,763 (204) 15,116 11,335 11,235

Change in working capital (2,600) (479) (8,009) (1,572) (769)

Capex - maintenance (1,584) (2,542) (2,664) (2,245) (3,345)Capex - new investment 0 0 0 0 0

Free cash flow to equity (1,421) (3,225) 4,442 7,518 7,121

Net acquisitions & disposals (581) (596) 0 0 0

Dividends paid 0 0 0 0 0

Non recurring cash flows (20,039) 5,611 195 0 0

Net cash flow (22,041) 1,790 4,637 7,518 7,121

Equity finance 29,085 0 (1) (28) (27)

Debt finance (8,049) (204) (144) (84) (80)

Movement in cash (1,005) 1,586 4,491 7,405 7,014

Per share (INR)

Recurring cash flow per share 2.53 (0.17) 12.81 9.51 9.34

FCF to equity per share (1.30) (2.74) 3.77 6.31 5.92







Goodwill 0 0 0 0 0

Other intangible assets 0 0 0 0 0

Investments 6,268 4,348 4,153 4,153 4,153

Other assets 65 81 70 70 70




Long term debt * 422 315 286 286 286

Net debt (21,346) (27,223) (27,216) (34,621) (41,636)


Other liabilities 0 0 0 0 0

Total equity 58,604 58,517 63,327 72,725 82,013




Per share (INR)

Book value per share 53.62 49.66 53.68 61.04 68.15

Tangible book value per share 53.62 49.66 53.68 61.04 68.15

Financial strength


Current ratio (x) 2.8 2.5 2.9 3.3 3.5

CF interest cover (x) (3.3) (32.2) 39.4 90.0 89.9

Valuation 2010A 2011A 2012E 2013E 2014E

Recurring P/E (x) * 27.0 17.2 8.8 9.1 9.3


Reported P/E (x) neg neg 8.8 9.1 9.3

Dividend yield (%) 0.0 0.0 0.0 0.0 0.0

P/CF (x) 28.5 (416.5) 5.6 7.6 7.7

P/FCF (x) (55.5) (26.3) 19.1 11.4 12.2

Price/book (x) 1.3 1.5 1.3 1.2 1.1


EV/EBITDA (x) ** - 7.7 4.2 3.9 3.5

EV/EBITDA @ target price (x) ** - 7.4 4.0 3.7 3.3



Sources: Satyam Computers BNP Paribas estimates

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Financial statementsTech Mahindra


Revenue 46,254 51,402 54,990 61,517 63,347




Operating costs (6,218) (7,341) (8,619) (9,147) (9,059)


Depreciation (1,339) (1,435) (1,638) (1,765) (1,878)


Operating EBIT 9,986 8,598 7,529 7,870 7,628

Net financing costs (2,184) (999) (1,356) (579) (118)


Recurring non operating income 754 1,174 1,820 1,171 518

Non recurring items (85) 0 0 0 0


Tax (1,440) (1,315) (1,706) (2,031) (1,846)

Profit after tax 7,031 7,458 6,287 6,431 6,182


Preferred dividends 0 0 0 0 0Other items 0 (1,136) 4,143 4,013 3,966




Per share (INR)

Recurring EPS * 54.37 48.34 78.60 78.43 76.18

Reported EPS 57.41 50.79 81.96 81.62 79.28

DPS 3.50 4.00 4.00 4.00 4.00

Growth

Revenue (%) 3.6 11.1 7.0 11.9 3.0

Operating EBITDA (%) (4.8) (11.4) (8.6) 5.1 (1.4)

Operating EBIT (%) (7.6) (13.9) (12.4) 4.5 (3.1)Recurring EPS (%) (24.1) (11.1) 62.6 (0.2) (2.9)

Reported EPS (%) (31.1) (11.5) 61.4 (0.4) (2.9)





Net margin (%) 15.3 12.3 18.9 16.8 15.9



Interest cover (x) 4.9 9.8 6.9 15.6 69.3

Inventory days 0.2 0.1 0.0 0.0 0.0

Debtor days 76.7 81.3 85.5 82.4 83.7


Operating ROIC - WACC (%) 44.4 20.4 12.5 12.0 -

ROIC (%) 23.1 13.5 12.2 10.7 8.8

ROIC - WACC (%) 8.4 (1.3) (2.6) (4.0) -

ROE (%) 29.4 20.2 27.0 21.3 17.2

ROA (%) 19.6 11.7 17.5 15.0 13.3


Sources: Tech Mahindra BNP Paribas estimates


revenue growth of 8%


EBIT margin contracting

despite weaker USD/INR

assumption, as we expect

significant pricing pressure

from BT


after the existing


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Financial statementsTech Mahindra



Depreciation 1,339 1,435 1,638 1,765 1,878

Associates & minorities 27 1,157 (4,085) (3,921) (3,874)

Other non-cash items 1,072 703 (538) (592) (400)


Change in working capital (4,707) (5,337) (1,663) (2,665) (2,204)

Capex - maintenance (4,108) (1,534) (2,614) (2,800) (3,000)Capex - new investment 0 0 0 0 0

Free cash flow to equity 712 2,725 3,109 2,140 2,455

Net acquisitions & disposals (29,808) 0 22 92 92

Dividends paid 0 (508) 0 0 (594)

Non recurring cash flows 13,673 578 1,820 1,171 518

Net cash flow (15,423) 2,795 4,951 3,403 2,471


Debt finance 12,165 (2,619) (1,367) (4,579) (3,118)

Movement in cash (3,207) 436 3,597 (1,177) (646)

Per share (INR)









Goodwill 0 0 0 0 0


Investments 0 0 0 0 0

Other assets 33,629 30,823 35,049 39,062 43,028




Long term debt * 13,672 12,227 12,217 8,217 5,217

Net debt 11,485 9,561 6,535 3,712 1,358



Total equity 28,865 33,514 43,347 53,791 63,345




Per share (INR)



Financial strength

Net debt/equity (%) 39.6 28.4 15.0 6.9 2.1Net debt/total assets (%) 19.5 15.8 9.4 5.0 1.7

Current ratio (x) 2.2 2.7 2.8 2.6 2.6

CF interest cover (x) 1.3 3.7 3.3 4.7 21.9

Valuation 2010A 2011A 2012E 2013E 2014E

Recurring P/E (x) * 11.6 13.1 8.0 8.1 8.3


Reported P/E (x) 11.0 12.4 7.7 7.7 8.0

Dividend yield (%) 0.6 0.6 0.6 0.6 0.6

P/CF (x) 8.1 8.2 10.8 10.5 10.5

P/FCF (x) 108.4 28.8 25.7 37.5 32.7

Price/book (x) 2.7 2.3 1.8 1.5 1.3


EV/EBITDA (x) ** 6.6 7.9 8.0 7.9 8.3




Sources: Tech Mahindra BNP Paribas estimates

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Financial statementsMindTree Ltd


Revenue 12,960 15,090 19,171 23,208 25,125




Operating costs (2,522) (3,167) (3,950) (4,722) (5,025)


Depreciation (652) (712) (709) (855) (973)


Operating EBIT 1,804 1,066 2,050 2,767 2,233

Net financing costs 647 153 286 (162) (6)





Tax (398) (287) (427) (566) (535)

Profit after tax 2,149 1,017 2,064 2,162 1,792





Recurring net profit 2,149 1,017 2,064 2 ,162 1,792

Per share (INR)

Recurring EPS * 52.79 24.89 50.83 52.24 42.88

Reported EPS 54.77 25.58 51.20 52.59 43.17

DPS 3.01 2.51 4.02 4.01 4.50

Growth

Revenue (%) 4.7 16.4 27.0 21.1 8.3

Operating EBITDA (%) (25.8) (27.6) 55.2 31.3 (11.5)

Operating EBIT (%) (34.2) (40.9) 92.3 35.0 (19.3)Recurring EPS (%) 285.3 (52.9) 104.2 2.8 (17.9)

Reported EPS (%) 295.7 (53.3) 100.2 2.7 (17.9)





Net margin (%) 16.6 6.7 10.8 9.3 7.1



Interest cover (x) - - - 17.9 386.3

Inventory days 0.0 0.0 0.0 0.0 0.0

Debtor days 72.7 62.8 64.9 66.1 65.6


Operating ROIC - WACC (%) - - - - -

ROIC (%) 19.3 11.9 22.9 30.0 24.2

ROIC - WACC (%) - - - - -

ROE (%) 35.2 14.1 24.5 21.5 15.1

ROA (%) 17.5 9.4 16.2 16.2 11.2


Sources: MindTree Ltd BNP Paribas estimates




FY14E EBIT margin to be

lower due to stronger

USD/INR assumption.

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Financial statementsMindTree Ltd



Depreciation 652 712 709 855 973


Other non-cash items 393 286 523 566 535


Change in working capital 237 (1,377) (1,495) (868) (247)

Capex - maintenance (457) (840) (435) (893) (955)Capex - new investment 0 0 0 0 0

Free cash flow to equity 2,974 (201) 1,367 1,822 2,098

Net acquisitions & disposals (243) 0 0 0 0

Dividends paid (46) (89) (169) (193) (219)

Non recurring cash flows (1,409) 256 (787) 0 0

Net cash flow 1,275 (34) 410 1,629 1,880


Debt finance (1,414) (52) 180 0 0

Movement in cash (44) 53 717 1,629 1,880

Per share (INR)


FCF to equity per share 75.79 (5.06) 33.90 44.32 50.55







Goodwill 154 0 0 0 0


Investments 1,442 7 7 7 7

Other assets 214 743 976 976 976


Cash & equivalents (403) (1,564) (3,219) (4,848) (6,728)


Long term debt * 31 41 302 302 302

Net debt (372) (1,523) (2,917) (4,546) (6,426)



Total equity 6,706 7,762 9,078 11,047 12,620




Per share (INR)



Financial strength


Current ratio (x) 1.8 3.2 2.7 3.1 3.3

CF interest cover (x) - - - 12.3 348.4

Valuation 2010A 2011A 2012E 2013E 2014E

Recurring P/E (x) * 8.6 18.3 8.9 8.7 10.6


Reported P/E (x) 8.3 17.8 8.9 8.6 10.5

Dividend yield (%) 0.7 0.6 0.9 0.9 1.0

P/CF (x) 5.6 9.0 5.6 5.2 5.7

P/FCF (x) 6.0 (89.7) 13.4 10.2 9.0

Price/book (x) 2.7 2.3 2.0 1.7 1.5


EV/EBITDA (x) ** 7.0 9.1 5.5 3.9 4.0




Sources: MindTree Ltd BNP Paribas estimates

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Financial statementsPersistent Systems


Revenue 6,012 7,758 9,958 11,471 12,783




Operating costs (860) (1,052) (1,397) (1,634) (1,726)


Depreciation (335) (424) (590) (676) (718)


Operating EBIT 1,128 1,159 1,528 1,775 1,646

Net financing costs 112 344 366 196 145





Tax (91) (108) (544) (546) (484)

Profit after tax 1,150 1,397 1,350 1,425 1,308




Non recurring items & goodwill (net) 0 (2) 0 0 0

Recurring net profit 1,150 1,396 1,350 1 ,425 1,308

Per share (INR)

Recurring EPS * 32.05 34.89 33.67 34.67 31.65

Reported EPS 35.72 37.04 35.18 36.23 33.08

DPS 2.58 5.83 6.81 4.24 6.27

Growth

Revenue (%) 1.2 29.1 28.4 15.2 11.4

Operating EBITDA (%) (18.1) 8.2 33.8 15.7 (3.5)

Operating EBIT (%) (24.3) 2.7 31.8 16.2 (7.3)Recurring EPS (%) 70.1 8.8 (3.5) 3.0 (8.7)

Reported EPS (%) 72.7 3.7 (5.0) 3.0 (8.7)





Net margin (%) 19.1 18.0 13.6 12.4 10.2




Inventory days 0.0 0.0 0.0 0.0 0.0

Debtor days 72.8 69.3 66.9 68.8 66.2


Operating ROIC - WACC (%) 8.6 (1.0) (1.3) 1.4 (0.2)

ROIC (%) 18.1 13.7 15.3 17.9 16.3

ROIC - WACC (%) 0.9 (3.5) (1.9) 0.7 (0.9)

ROE (%) 22.2 20.1 17.4 16.5 13.4

ROA (%) 16.5 13.5 11.5 11.9 9.9


Sources: Persistent Systems BNP Paribas estimates




EBIT margin expanding

despite pricing pressure

because of weaker USD/INR

assumption in FY13.


after the existing


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Financial statementsPersistent Systems



Depreciation 335 424 590 676 718


Other non-cash items (373) (292) 101 0 0


Change in working capital 126 48 (896) (109) (35)

Capex - maintenance (476) (972) (1,120) (750) (703)Capex - new investment 0 0 0 0 0

Free cash flow to equity 762 603 25 1,241 1,288

Net acquisitions & disposals 1 2 3 0 0

Dividends paid (27) (280) (212) (195) (290)

Non recurring cash flows (710) (1,684) 564 0 0

Net cash flow 26 (1,358) 380 1,046 998

Equity finance 1,618 (417) 0 0 0

Debt finance 89 110 97 0 0

Movement in cash 1,733 (1,666) 477 1,046 998

Per share (INR)






Net working capital 630 3,734 2,923 3,032 3,067



Goodwill 0 0 0 0 0


Investments 1,562 0 0 0 0

Other assets 7 209 259 259 259




Long term debt * 0 0 0 0 0

Net debt (1,918) (1,000) (1,631) (2,677) (3,675)



Total equity 6,435 7,471 8,021 9,251 10,269




Per share (INR)



Financial strength


Current ratio (x) 2.5 4.5 3.2 3.6 3.8


Valuation 2010A 2011A 2012E 2013E 2014E

Recurring P/E (x) * 9.8 9.0 9.4 9.1 9.9


Reported P/E (x) 8.8 8.5 8.9 8.7 9.5

Dividend yield (%) 0.8 1.9 2.2 1.3 2.0

P/CF (x) 9.1 7.8 5.9 5.9 6.1

P/FCF (x) 13.3 19.7 476.6 10.0 9.7

Price/book (x) 1.9 1.6 1.5 1.3 1.2


EV/EBITDA (x) ** 6.8 6.6 5.0 4.1 3.9




Sources: Persistent Systems BNP Paribas estimates

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History of change in investment rating and/or target price

Tata Consultancy (TCS IN)

Abhiram Eleswarapu started covering this stock from 12-May-2008Price and TP are in local currency

Valuation and risks: Upside risks to our DCF-based TP are: 1) Sustained USD/INR weakness, and 2) less-than-expected deterioration of the macro environment.

Source: Bloomberg, BNP Paribas

Infosys (INFO IN)




Wipro Ltd (WPRO IN)




Date Reco TP

12-May-08 HOLD 940.00

29-Sep-08 REDUCE 580.00

2-Jun-09 HOLD 685.00

19-Oct-09 BUY 700.00

17-Aug-11 REDUCE 830.00

200.00

400.00

600.00

800.00

1,000.00

1,200.00

1,400.00

Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12

(INR) Tata Consultancy Target Price

Date Reco TP

12-May-08 BUY 2,050.00

25-Nov-08 REDUCE 1,060.00

24-Sep-09 HOLD 2,310.00

12-Jan-10 BUY 3,100.00

17-Aug-11 REDUCE 2,000.00

954.00

1,454.00

1,954.00

2,454.00

2,954.00

3,454.00

3,954.00


(INR) Infosys Target Price

Date Reco TP

12-May-08 HOLD 294.00

25-Nov-08 REDUCE 120.00

28-Oct-09 HOLD 372.00

24-Feb-10 BUY 474.00

17-Aug-11 REDUCE 270.00

108.00

208.00

308.00

408.00

508.00

608.00


(INR) Wipro Ltd Target Price

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HCL Technologies (HCLT IN)

Abhiram Eleswarapu started covering this stock from 16-Mar-2009Price and TP are in local currency



Satyam Computers (SCS IN)


Valuation and risks: Upside/downside risks to our DCF-based TP are faster/slower than expected revenue and margin turnaround.


Tech Mahindra (TECHM IN)

Abhiram Eleswarapu started covering this stock from 01-Sep-2009Price and TP are in local currency

Valuation and risks: Upside/downside risks to our SoTP-based TP are faster/slower than expected revenue and margin turnaround at Satyam. There is also downside risk fromgreater-than-expected pricing and margin pressure because of contract renegotiations with top client, BT.


Date Reco TP

15-Mar-09 REDUCE 78.00

25-Aug-09 BUY 365.00

20-Oct-10 HOLD 450.00

20-Apr-11 BUY 600.00

17-Aug-11 REDUCE 300.00

70.00

170.00

270.00

370.00

470.00

570.00


(INR) HCL Technologies Target Pr ice

Date Reco TP

12-May-08 BUY 570.00

25-Nov-08 HOLD 250.00

17-Dec-08 REDUCE 138.00

31-Aug-09 BUY 140.00

16-Nov-10 HOLD 78.00

18.00

118.00

218.00

318.00

418.00

518.00

618.00


(INR) Satyam Computers Target Price

Date Reco TP

31-Aug-09 BUY 1,175.00

26-Jul-10 HOLD 750.00

188.00

388.00

588.00

788.00

988.00

1,188.00

1,388.00


(INR) Tech Mahindra Target Price

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MindTree Ltd (MTCL IN)




Persistent Systems (PSYS IN)




Date Reco TP

5-Sep-10 HOLD 530.00

17-Aug-11 REDUCE 270.00

171.00

271.00

371.00

471.00

571.00

671.00

771.00


(INR) MindTree Ltd Target Price

Date Reco TP

5-Sep-10 BUY 550.00

17-Aug-11 REDUCE 250.00

225.00

275.00

325.00

375.00

425.00

475.00

525.00

575.00

Apr-10 Oct-10 Apr-11 Oct-11

(INR) Persistent Systems Target Price

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Disclaimers and Disclosures

ANALYST(S) CERTIFICATIONAbhiram Eleswarapu, BNP Paribas Securities India Pvt Ltd, +91 22 33704311, [email protected] analyst(s) or strategist(s) herein each referred to as analyst(s) named in this report certifies that (i) all views expressed in this report accurately reflectthe personal view of the analyst(s) with regard to any and all of the subject securities, companies, or issuers mentioned in this report; (ii) no part of thecompensation of the analyst(s) was, is , or will be, directly or indirectly, relate to the specific recommendation or views expressed herein; and (iii) is notaware of any other actual or material conflicts of interest concerning any of the subject securities companies, or issuers referenced herein as of the time ofthis certification.Analysts mentioned in this disclaimer are employed by non-US affiliate of BNP Paribas Securities Corp., and is not registered/ qualified pursuant to NYSEand/

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India IT-230212