Sector report

INDIA RESEARCH
Indian IT Services
9 December 2009

BSE Sensex: 17125

Spring is back!
Year 2009 has been the most challenging for global IT spends (an estimated decline
of 6-8%) as also for Indian IT companies. Despite this, we have been positive on the
stocks since February 2009, prompted by early signs of an economic recovery and
as we believed that at 9-11x, valuations for tier1 stocks had bottomed out. Our
stance stands vindicated with tier1 IT stocks returning 120-180% YTD. However, we
believe the best is yet to come. IT companies, convinced of a sustained recovery,
are investing into future growth as global corporates also look to step up
offshoring to get more bang for buck. An earnings upgrade cycle has commenced
and tier1 companies have seen 10-25% revision in FY11E EPS; we expect the cycle
to last 7-8 quarters. Also, we believe Indian players have adequate levers to manage
~10% appreciation of INR against the USD over 6-8 quarters. We expect tier1 IT
stocks – Infosys, Wipro and TCS – to return ~30% over the next 18 months.
Traction ahead for Indian IT businesses: The global economy is emerging out of the
longest recession and the recovery is gathering pace – reinforced by the latest data
points. While global IT services spends are likely to decline 6-8% in CY09, Indian tier1
companies have reported 3-4% qoq revenue growth in Q2FY10. With flat IT spends in
CY10 and a recovery from there, we expect growth to sustain at these levels in the
coming quarters and accelerate to 15-21% in FY11/12.
Earnings upgrade cycle at least 7-8 quarters long: April 2009 marked the beginning
of an earnings upgrade cycle and consensus estimates for tier1 Indian IT companies have
been revised upwards by 5-15% for FY10 and 10-25% for FY11. We expect this cycle
to extend beyond 2010 with further earnings upgrades. The cycle post the previous US
recession lasted 12-14 quarters with 60-80% upgrades.
We remain bullish: We have been bullish on Indian IT stocks since the beginning of
2009 as we saw the cycle turning and valuations bottoming out. Our view has played
out and tier1 IT stocks have appreciated 2-3x YTD, outperforming the Sensex by 20-
60%. Despite the outperformance, we expect business traction ahead with the global
economic recovery gathering momentum. We see Infosys, Wipro and TCS returning
~30% from CMP over the next 18 months led by earnings growth, upgrades and a
gradual valuation re-rating.

Comparative valuations
Company Price Mkt Cap Reco EPS CAGR (%) FY10E Target Upside
(Rs) (Rs bn) FY09-11E PE (x) EV/ EBITDA (x) (Rs) (%)
Infosys 2,447 1,403.9 Outperformer 3.1 23.8 17.9 3,200 30.8
Hitesh Shah, CFA TCS 698 1,366.9 Outperformer 13.6 22.9 16.6 850 21.7
[Link]@[Link] Wipro 648 950.4 Outperformer 9.1 22.2 22.0 830 28.2
Source: Bloomberg, Company reports, IDFCSSKI forecast; * Using CY07, CY08, etc. for FY08, FY09, etc.
91-22-6638 3358 Prices as on 8 December 2009

IDFC-SSKI Securities Ltd.

701-702 Tulsiani Chambers,
7th Floor (East Wing),
Nariman Point,
Mumbai 400 021.
Fax: 91-22-2204 0282 “For Private Circulation only” “Important disclosures appear at the back of this report”
 IDFC - SSKI INDIA

CONTENTS

Investment Argument ........................................................................................3

Global economy on the way to recovery............................................................ 3

Earnings growth/ upgrades to drive stock prices................................................ 5

Companies .........................................................................................................10

Infosys Technologies....................................................................................... 11

TCS................................................................................................................ 19

Wipro............................................................................................................. 27

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INVESTMENT ARGUMENT
Global economies are gradually emerging out of the longest recession and the
recovery is gathering pace. Though IT services spend is likely to decline by 6-
8% in CY09, Indian tier1 companies have already started reporting sequential
revenue growth. We expect the momentum to sustain in the coming quarters
and build into 15-21% yoy revenue growth in FY11/ 12. Importantly, stocks have
entered an earnings upgrade cycle since April 2009 with consensus earnings
estimates for tier1 Indian IT companies up 4-20% for FY10 and 10-27% for FY11.
We expect this cycle to extend beyond 2010 with further earnings upgrades.
While tier 1 stocks have appreciated 2-3x from the bottom, we maintain our
bullish stance on the IT services space. We still see room for a gradual re-rating
as current valuations are just above median valuation and ~30% below peak
cycle multiples. We expect a large part of the returns to arise from earnings
growth and further upgrades.

GLOBAL ECONOMY ON THE WAY TO RECOVERY

The global economy appears to be bouncing back from the bottom. Data points
from US/ other economies indicate that the recovery is gathering pace. Recent
readings of GDP growth, retail sales, durable goods sales and ISM (Institute of
Supply Management) indices indicate that the US economy may already be out of
the longest recession seen in the last seven decades. IT services spend, being a late
cyclical, is expected to recover with a lag in CY10 and CY11.

‰ Key economic data points looking up

ISM Manufacturing and In the US, eight out of 10 economic data points on an average are currently reported
Non-Manufacturing Indices to be better than street expectations. The ISM Manufacturing Index – a leading
point to acceleration in the
economic recovery
indicator of the economic activity in manufacturing sector – points to a slowing
pace of contraction over the last few months, with the last three months’ ISM data
exhibiting expansion in manufacturing activity. The ISM Non-Manufacturing
Index has also shown expansion for two out of three months since September 2009.

Exhibit 1: ISM Manufacturing Index ISM Non-Manufacturing Index

60 62

54
50

46

40
38

30 30
Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

Source: Institute of Supply Management

DECEMBER 2009 3
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US durable goods sales and retail sales also have remained positive for four of the last
five months – a sign that the economic recovery is gathering pace. Recent reading of
the US national unemployment has also shown an improvement – we note that
unemployment data is a lag indicator of an economic recovery and, therefore, may
take a few months time before showing sustainable improvement.
Exhibit 2: US retail sales (ex-auto) US durable goods sales (ex-transportation)
(%) (%)
3.0 6.0

1.5 2.5

0.0 -1.0

-1.5 -4.5

-3.0 -8.0
Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

Source: US Commerce department, US Census Bureau

‰ IT services is a late cyclical

IT spend is typically a late cyclical – and reacts with a 2-4 quarters lag to both a
contraction and recovery in economic activity. Revenues of the top three Indian IT
services players show a high correlation (R2>50%) to S&P 500 operating earnings.
Managements of all Indian IT companies also largely agree with the correlation as
also the lag. The lag can be attributed to the time gap between annual IT budgeting
processes and the actual IT spends. A major portion of the IT spend happens on the
lines of IT budgets – decided at the beginning of the year and then reviewed
quarterly/ bi-annually. Thus, they tend to lag the economic activity.

Exhibit 3: Revenue growth of top three Indian IT players slowed in line with S&P 500 operating earnings growth but with a 3-quarter lag
(%)
Indian IT revenue growth (3 quarters lag) Growth in S&P Operating EPS (%)
80

40

-40

-80

-120
Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-07

Source: Standard & Poor Index Services, Company data, IDFC-SSKI Research

DECEMBER 2009 4
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‰ IT services spend expected to recover CY10 onwards

We expect CY10 IT We expect global IT services spends to be ~6% lower in CY09 than in CY08. IT
budgets to be flat though budgets for CY10 (likely to be finalized over the next 3-4 months) are expected to
spend could exceed be set at CY09 levels of IT spend – though we believe the actual IT services spend in
budgeted levels CY10 will marginally exceed the budgeted levels. We expect IT services spend to
return to low-to-mid single digit growth starting CY11 – as seen over CY01-09.

Commentaries from tier1 Indian IT services companies and Cognizant Technology

Solutions support our view.

EARNINGS GROWTH/ UPGRADES TO DRIVE STOCK PRICES

Indian IT stocks have been re-rated over the last eight months from their historic
lows – TCS and Wipro’s valuations are up 175-185% from the bottom while
Infosys’s valuations are 100% higher than the historic low of 10.5x. Notably, the re-
rating has been despite downward revisions in street estimates. We attribute the re-
rating to: (i) signs of economic recovery in the US and other developed markets; (ii)
lower cost of capital owing to increased liquidity and higher risk appetite; and (iii)
the earnings upgrade cycle. We expect valuations to sustain at these levels and
gradually inch towards peak valuations as corporate earnings remain in an upgrade
cycle. The current upgrade cycle, having commenced in April 2009, is likely to last
for at least 7-8 quarters. Over this period, we expect stock returns to be a function
of: (i) earnings growth (as the market moves to FY12 valuations from FY11
currently), (ii) earnings upgrades as the actual earnings for FY11/12 end up being
higher than the current estimates; and (iii) a further re-rating (though gradual)
towards peak valuations.

‰ Street estimates have turned around

Earnings upgrade cycle Indian IT services stocks have witnessed a re-rating despite the street cutting its
expected to extend estimates over Decemeber 2008-April 2009. While earnings upgrades since April
beyond CY10
2009 provided momentum to this initial re-rating, stocks are now trading at
valuations close to the median valuation over the business cycle. We expect the
current upgrade cycle to be at least 7-8 quarters long and see valuations sustaining at
above median levels in the interim.

Exihibit 4: Tier1 IT comapnies in an earnings upgrade cycle

Infosys TCS Wipro
(Rs) (Rs) (Rs)
FY10E FY11E FY10E FY11E FY10E FY11E
136 42 36

126 38
32

116 34

28
106 30

96 26 24
Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09

Source: Bloomberg, IDFC-SSKI Research

Infosys has seen an overall upgrade of ~5% and ~10% for FY10 and FY11 earnings
estimate respectively while TCS and Wipro have seen ~18% upgrade for FY10
earnings estimate and ~25% upgrade for FY11 earnings estimate.

DECEMBER 2009 5
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‰ Liquidity and market re-rating

Higher risk appetite and The introduction of fiscal and monetary stimuli in developed and emerging
thus lower cost of capital economies has resulted in increased liquidity, in turn leading to higher risk appetite
driving earnings multiple
for the broader markets and thereby lower cost of capital. This has led to an expansion in earnings multiple
for the broader markets – as reflected in Sensex P/E valuations.

Exhibit 5: Sensex PER over the last seven years

(x)
26

21

16

11

6
Mar-02

Mar-03

Mar-04

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09
Sep-02

Sep-03

Sep-04

Sep-05

Sep-06

Sep-07

Sep-08

Sep-09
Source: Bloomberg, IDFC-SSKI Research

‰ Valuations bounce back from historic lows

Valuations still below peak Most of the offshore IT services stocks currently trade at higher valuations versus
multiples, though they are business cycle median valuations – although valuations are still lower than peak
close to median levels
valuations over an economic cycle. Currently, Infosys trades at ~22x, TCS at ~21x
and Wipro at ~21x FY11E earnings.

We note that current valuations are ~30% below the peak valuation levels. In our
view, re-rating from here would be a gradual process.

Exhibit 6: Indian IT services – comparative valuations

CompanyPriceMkt cap Mkt cap Reco PER (x) EPS CAGR (%) EV/EBITDA (x) EV/Sales (x)
(Rs) (Rs bn) (US$ m) FY10E FY11E FY12E FY09-11E FY09-12E FY10E FY10E
Infosys2,447 1,403.9 30,074 Outperformer 23.8 22.1 17.6 3.1 10.0 17.9 6.0
TCS 698 1,366.9 29,283 Outperformer 22.9 20.5 18.1 13.6 13.4 16.6 4.6
Wipro 648 950.4 20,360 Outperformer 22.2 20.5 18.0 9.1 10.7 22.0 3.4
HCL Tech349 235.3 5,040 Underperformer 21.0 16.8 - 7.4 - 9.9 2.1
Tech M 989 127.8 2,737 Outperformer 22.8 15.2 - (8.7) - 11.0 2.7
Patni 465 61.0 1,306 Underperformer 12.5 16.4 - (7.9) - 7.2 1.5
Source: Bloomberg, Company, IDFC-SSKI Research; * Using CY07, CY08, etc for FY08, FY09, etc; Prices as on 8 December 2009

DECEMBER 2009 6
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‰ Dynamic PE ratio has rebounded

We have used the dynamic PE ratio for Infosys – calculated using consensus
earnings estimates on the day of the price considered. We believe that dynamic PE
presents a better view of valuations, as any positive earnings surprise would
understate the static PE ratio and any negative surprise would overstate the same.
Dynamic PER for Infosys has rebounded 110%+ from the bottom made in late
2008, reflecting positive news flow on the US economy and the earnings upgrade
cycle.

Exhibit 7: Dynamic PE valuation for Infosys

(x)
30

Dynamic PE ratio of 25
Infosys up from ~10x to
~21x over a 10-month
period 20

15

10
Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09
Source: Bloomberg, consensus estimates

‰ Valuations & view

We continue to use the historic valuation band to arrive at a target PE for Infosys
and then use it as the benchmark to value TCS and Wipro. With incremental
positive news on the US economy, earnings upgrade cycle and market re-rating, we
now assign a 5% premium to the average valuation multiple of Infosys over the
previous business cycle to arrive at our target multiple.

Exhibit 8: Infosys – 12-month PE band

(Rs)
10X 15X 20X 25X Price
2,800

We use the historic

valuation to arrive at a 2,100
target PE for Infosys

1,400
c

700

0
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

Source: Bloomberg, Company, IDFC-SSKI Research

DECEMBER 2009 7
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Infosys has traded in the range of 11-29x 12-month forward earnings with a mean/
median of ~22x over a complete business cycle (April 2003 trough to December
2008 trough). We value the stock at 23x FY12E EPS based on ~5% premium to its
mean valuation during this period. Based on 23x FY12E earnings, our 18-24 month
price target on Infosys comes to Rs3,200.

We value Wipro at 23x FY12E EPS, on par with Infosys’s target multiple to factor
in the relatively better financial performance of Wipro that we expect to continue
(refer discussion on Wipro’s target multiple on page 34). Based on 23x FY12E
earnings, our 18-24 month target price on Wipro comes to Rs830.

Exhibit 9: Wipro 12-month PE band

(Rs)
10X 15X 20X 25X Price
800

We value Wipro on par 600

with Infosys target multiple

400

200

0
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
Source: Bloomberg, Company, IDFC-SSKI Research

We value TCS at 22x FY12E EPS, at ~4% discount to Infosys’s target multiple to
factor in the relatively better financial performance of Infosys in the past in terms of
organic revenue growth, margin performance and return ratios (and also better
performance during the previous US recession). This discount is lower than the
average discount at which these two stocks have traded for the last two years as
TCS’s recent performance has been better than that of Infosys. We still use a
discount, and not par valuations, as better performance has been for just two
quarters against better performance from Infosys over the previous 6-7 years.

Our 18-24 month target price on TCS is Rs850 (based on 22x FY12E earnings).

DECEMBER 2009 8
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Exhibit 10: TCS 12-month PE band

(Rs)
10X 15X 20X 25X Price
900

675
We value TCS at 22x
FY12E EPS, at ~4%
discount to Infosys’s
target multiple 450

225

0
Aug-04 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09
Source: Bloomberg, Company, IDFCSSKI forecast

Exhibit 11: Target multiples, target price and upside

Company Price EPS (Rs) Target TP Upside
(Rs) FY10E FY11E FY12E multiple (x) (Rs) (%)
Infosys 2,447 102.8 110.9 139.0 23.0 3,200 30.8
Wipro 648 30.5 34.1 38.6 23.0 830 28.2
TCS 698 29.2 31.6 35.9 22.0 850 21.7
Source: Company, IDFC-SSKI Research estimates; Prices as on 8 December 2009

DECEMBER 2009 9
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COMPANIES

DECEMBER 2009 10
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Company update
Infosys Technologies Rs2447
OUTPERFORMER
Ready for upturn Mkt Cap: Rs1402bn; US$30bn

9 December 2009 Traditionally the leader in organic revenue growth among Indian IT services
players, Infosys has been a tad slower than Wipro in FY09 while lagging
BSE Sensex: 17125 both Wipro and TCS in H1FY10. This also explains the stock’s recent
underperformance relative to the peers. However, we believe the IT
bellwether should not be written off as yet. We expect 5% volume growth
and 3% revenue growth for Infosys in Q3FY10 with further pick-up to ~20%
revenue growth for a few years starting FY12 on the back of recovery-led IT
Stock data
spends. Infosys, we believe, is well placed to gain market share with
Reuters Code [Link] expertise in multiple verticals and a full breadth of services. Our belief
Bloomberg INFO IN stems from the recent initiatives and strong client mining abilities. We
1-yr high/low (Rs) 2457.9/1065 expect valuations to sustain at current levels as earnings estimates remain
1-yr avg daily volumes (m) 1.56 in an upgrade cycle. Reiterate Outperformer with an 18-24 month price
Free Float (%) 83.5 target of Rs3,200 per share.
Do not write-off the IT bellwether as yet: Despite outperforming the Sensex
Price performance by 20% YTD, Infosys has underperformed Wipro and TCS by 35-40% YTD –
220
Infosys Technologies Sensex primarily due to its relatively weaker quarterly results. Infosys reported flat
revenues and 3% growth in the last two quarters compared to 3% and 4%
185
sequential revenue growth from TCS. However, we note that at the beginning
150 of global recession, TCS was the first one to be hit and reported just 1% qoq
115
revenue growth vis-à-vis 5%+ for Infosys.
80 Expect strong traction ahead: We expect growth to accelerate for Infosys in
Dec-08

Oct-09
Feb-09

Dec-09
Apr-09

Jun-09

Aug-09

the coming quarters, albeit with a lag. Management commentary has turned
incrementally positive of late. Also, the philosophy of reinvesting excess margins
into the business indicates confidence on business recovery. With the global
Performance (%) economic recovery gathering pace over the next few years and the resultant
3-mth 6-mth 1-yr 3-yr
acceleration in IT spends, we expect ~13% revenue growth for Infosys in FY11
Infosys 11.0 40.4 111.3 11.3
Sensex 6.8 17.5 88.0 24.8
and ~20% in FY12.

Premium valuations sustainable; Outperformer: We expect valuations to

sustain at current levels (23x 1-yr forward) as the 2-quarter long current
earnings upgrade cycle is likely to extend to 7-8 quarters in our view. Reiterate
Outperformer with an 18-24 month price target of Rs3,200. The recent
weakness, we believe, provides an opportunity to buy into the stock.
Key financials
As on 31 March FY08 FY09 FY10E FY11E FY12E
Net sales (Rs m) 166,920 216,930 220,480 233,236 270,903
Adj. net profit (Rs m) 46,590 59,880 58,960 63,662 79,757
Shares in issue (m) 572 573 573 573 573
Adj. EPS (Rs) 81.5 104.6 102.9 111.1 139.1
% change 21.9 28.3 (1.6) 8.0 25.3
PE (x) 30.0 23.4 23.8 22.0 17.6
Hitesh Shah, CFA
Price/ Book (x) 10.1 7.7 6.2 5.1 4.1
[Link]@[Link]
EV/ EBITDA (x) 25.4 18.1 17.6 16.5 13.3
91-22-66 38 3358
RoE (%) 37.2 37.4 28.7 25.3 25.9
RoCE (%) 37.0 40.2 31.2 26.1 25.7

DECEMBER 2009 11
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INVESTMENT ARGUMENT
Infosys’s recent underperformance relative to peers stems from its weaker
results in H1FY10. However, Infosys should play catch-up on revenue growth
starting Q3FY10 driven by its strong client mining skills, expertise in multiple
verticals and a full breadth of services. We expect Infosys to gain market share
and register ~20% growth in its revenues over the next few years starting FY12.
We expect valuations to sustain at current levels as earnings estimates remain
in an upgrade cycle. Reiterate Outperformer with an 18-24 month price target of
Rs3,200 per share.

INFOSYS: PREPARED FOR THE UPSWING

‰ Recent underperformance vis-à-vis peers
Infosys has outperformed the Sensex by ~20% YTD but has underperformed Wipro
and TCS by 35-40% YTD.

Exhibit 1: Stock Performance

(%) Absolute vis-à-vis Sensex
1M 3M 6M 12M YTD 1M 3M 6M 12M YTD
Technology indices
BSE IT Index 9.5 13.4 52.3 104.5 119.0 2.7 6.2 29.6 8.7 22.6
CNX IT Index 8.5 15.6 61.6 138.7 151.5 1.8 8.2 37.6 26.9 40.8
IT services and software
Infosys 10.3 11.0 40.4 111.3 119.3 3.4 3.9 19.6 12.4 22.8
TCS 12.2 25.9 88.2 167.4 192.2 5.3 17.8 60.2 42.2 63.6
Wipro 8.2 17.6 59.6 171.6 177.4 1.5 10.1 35.9 44.5 55.4
Source: Bloomberg

Infosys has lagged peers Traditionally the leader in organic revenue growth among Indian IT services players,
in H1FY10 due to weaker Infosys has been a tad slower than Wipro in FY09 and lagged both Wipro and TCS
quarterly results in H1FY10. We assign the relative underperformance to the weaker quarterly results
when compared with tier1 peers. We note that TCS was the first one to be impacted
by the global recession and reported just 1% revenue growth against 5%+ for
Infosys. However, TCS has recently reported 3% and 4% sequential revenue growth
vis-à-vis Infosys reporting flat and 3% sequential growth respectively.

Exhibit 2: Sequential revenue growth from Tier1 companies

(%)
15 TCS Infosys Wipro

10

-5

-10
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10
Source: Companies

DECEMBER 2009 12
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Also, we note that Infosys stock had outperformed peers in CY08 – a period when
there was investor exodus to safety. Infosys outperformed the Sensex by ~33% in
CY08 against ~7% underperformance by both TCS and Wipro.

Exhibit 3: CY08 relative performance (vis-à-vis Sensex)

(%)
40
33

15

-10 -7 -7

-18
-26
-35

-60 -54
Infosys TCS Wipro HCL Tech Tech M Patni

Source: Bloomberg

‰ Q3 should be a strong quarter on volume and revenue growth

We expect Infosys to show We expect revenue growth to pick up for Infosys with a lag. While the management
~5% volume growth and has guided for just 1% growth in revenues at the higher end of guidance, we believe
~3% revenue growth the company would be reporting ~5% volume growth and at least 3% revenue
in Q3FY10
growth in Q3FY10.

‰ Management commentary is incrementally positive…

Infosys management has historically been conservative while guiding on financials.
The commentary till September 2009 was largely cautious – as is evident from the
following statements:

™ IT services spend for CY09 is estimated to contract by at least 6% yoy

™ It is too early to conclude that demand for IT services has recovered
™ Most of the large deal wins in the recent past have been re-distribution of work
among existing vendors and/ or vendor consolidation. Incremental IT spend is
yet to materialize.

Management expects flat However, we believe that conservative guidance on future prospects has been in the
IT spend in CY10, more DNA of Infosys management. Also, commentary of the recent past, especially in the
offshoring and higher recent analyst meet, has been positive. A few key statements are:
discretionary spend in
BFSI vertical ™ IT spend in 2010 is likely to be flat – do not expect a major decline or growth
™ With clients looking for ‘more bang from the buck’, several clients plan to
increase offshoring
™ Discretionary spend has returned in a few pockets – notably in the banking and
financial services space.

DECEMBER 2009 13
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‰ Elements of strategy – analyst meet takeaways

Infosys, at the Analyst Meet held on 7 December 2009, shared its strategy for the
next 5-7 years – articulated in the mission statement “Strategic Partnerships for
Building Tomorrow’s Enterprises”.
The management shared some key aspirations as a part of the 5-year goal:
™ Equal revenues from business services, strategic sourcing and “new engagement
models”
New engagement model to
share risk/ reward ™ Geography-wise revenue target of 40% from US, 40% from Europe and 20%
with clients from RoW against 66%, 23% and 11% respectively currently
™ 15% global talent (against ~5% currently)
™ To be the market leader in terms of revenue growth, margins, earnings growth,
RoCE, RoE, etc.
The business plan emphasizes on “new engagement model”, wherein Infosys would
price its services based on business level outcome against input based pricing or fixed
price projects currently. Infosys would share the risk/ reward with clients (i.e. upside
for high performance and downside for slippages) – e.g., device-based pricing for IM
services, ticket-based for maintenance contracts, business outcome-based for
transformational projects, etc. Infosys targets to derive 1/3rd of its revenues from
these engagement models in the next 5-7 years (~7% currently).

‰ Business investments point to preparation for the recovery

Plans to reinvest excess Management confidence on business recovery is reflected in the strategy of
margins into ramping up reinvesting excess margins into the business. From our recent interaction with the
indicates higher management, we understand that the focus is on operational efficiencies, hiring of
confidence on recovery
~200 sales/ account managers/ client partners to target more clients and get more out
of existing clients. The company is also looking to recruit local technical talent (apart
from sales/ account managers) in USA, UK, Europe, etc. All these initiatives suggest
Infosys’s confidence in the business potential and sustainability of the recovery.

Also, the management has guided to a 50-100bp decline in margins for FY10. And
according to the management, any excess margin arising from productivity
improvement and/ or INR weakness would be re-invested into the business. This
further reflects the management’s positive outlook on business potential.

‰ Significant room to grow

With huge untapped Of ~1,300 global corporates with sales in excess of US$3bn whom Infosys considers
potential, we see scope for rd
prospective clients, just about 1/3 are existing clients. Among those too, only 20 or
wallet share gains over the
next 5-10 years
so clients contribute revenues of over US$50m annually. These statistics point to the
size of the untapped market opportunities, and thereby headroom for wallet share
gains that Infosys can target over the next 5-10 years.

‰ Non-linear growth initiatives

Infosys looking to break Infosys has undertaken several initiatives to break linearity of manpower-revenue of
employee-revenue the services business. Development of a library of solutions (re-usable code),
linearity
platform-based BPO and industry-specific solutions have been some of the steps
towards breaking the employee-revenue linearity. Over the last few years, Infosys has
developed business process solutions based on various platforms including hire-to-
retire (HR solution), quote-to-cash (logistics solution), newspaper in box (solution
for print media company), etc. Infosys has also invested into industry-specific

DECEMBER 2009 14
 IDFC - SSKI INDIA

solutions – ShoppingTrip360 is one such solution focused on the retail industry.

This solution enables retailers and consumer product companies understand the
shopping behavior of customers and influence their shopping trip. It enables real-
time collaboration between shoppers, retailers and consumer product companies at
the point of purchase.

Solutions like this give Infosys an edge over competition to win strategic consulting
assignments. It also opens doors for follow-through IT services revenues that
typically have better billing rates.

‰ Focus on new markets

Besides traditional English Infosys has been laying greater emphasis on several new markets to accelerate revenue
speaking markets, focus growth. The company has increased its focus on non-English speaking markets in
now shifting to Germany, Continental Europe – specifically Germany and France. Infosys is now also targeting
France and India
the IT spend in India. Historically, the company had restricted itself to only banking
product deals in the domestic market. Over the last few quarters, Infosys has been
prospecting services deals in the Indian markets, primarily in telecom, BFSI and
government segments.

PREMIUM VALUATIONS APPEAR SUSTAINABLE

At 23x FY10E and 20x FY11E earnings, Infosys’s valuations are close to its median
and mean 12-month forward valuations during the previous business cycle. In an
improving business cycle, we believe these valuations are sustainable.

‰ Current valuations close to business cycle median

Current valuations at 22x Infosys has historically traded in the range of 11-29x 12-month forward earnings
12-month forward with a mean/ median of ~22x over a complete business cycle (April 2003 trough to
earnings
December 2008 trough). Current valuations, at 22x 12-month forward earnings, are
close to this median.

Exhibit 4: Infosys– 12-month rolling forward PE valuation

(x)
34

28

22

16

10
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

Source: Company, Bloomberg, IDFC SSKI Research

DECEMBER 2009 15
 IDFC - SSKI INDIA

‰ Premium valuations to sustain in an upgrade cycle

Premium valuations We believe Infosys would continue to trade at premium valuations as business
sustainable as business outlook improves and the company delivers an earnings growth ahead of street
outlook improves and
earnings beat street estimates. The earnings downgrade cycle of the last 8-10 quarters for Infosys is over,
estimates in our view. Between 31 Mar-09 to 30 Jun-09, street estimates for Infosys did not
see any cuts. On the contrary, FY10/11 consensus estimates stand upgraded by 5-
10% between FY09 and Q2FY10 results. With improving outlook for IT services,
we believe that a 7-8 quarters long upgrade cycle has just started and that Infosys
would continue to deliver good results.

Exhibit 5: Infosys – earnings/EPS downgrade cycle has ended

(Rs)
FY10E FY11E
136

126

116

106

96
Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09
Source: Bloomberg, consensus estimates

We expect Infosys’s FY11/ We draw a parallel with the period ensuing the previous US recession. During the
FY12 earnings estimates previous recovery phase, we note a series of significant upgrades. Between May ’03
to be upgraded by 20-25%
and May ’05, consensus FY05 EPS estimate was upgraded by ~40% (from Rs25 to
over the next two years
Rs35) while FY06 EPS estimate was upgraded by ~70% (from 28 to 46).

We believe the current upgrade cycle may finally see Infosys’s FY11 and FY12
earnings estimates getting upgraded by 20-25% over the next two years as visibility
on IT services market place improves and Infosys outperforms street estimates.

Exhibit 6: Earnings/EPS upgrades in previous earnings upgrade cycle (post US recession)

(Rs)
(Rs/share)
FY05 FY06 FY07
70

67
60

50
46
44
40

35
30 28

25
20
May-03 Nov-03 May-04 Nov-04 May-05 Nov-05 May-06 Nov-06

Source: Bloomberg, consensus estimates

DECEMBER 2009 16
 IDFC - SSKI INDIA

‰ Valuation premium to Sensex still below the long-term average

We also note that the valuation premium currently enjoyed by Infosys over the
Sensex is still below the long-term average (~50%) over April 2002-till date. We
have looked at valuation premium starting April 2002 given the abnormally high
valuations (30-100x) between April 1998 and April 2002.

Exhibit 7: Infosys – 12-month rolling forward PE valuation premium to Sensex

(%)
140

105

Historically, Infosys traded 70

at ~50% premium to
Sensex valuations 35

-35

-70
Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09

Source: Company, Bloomberg; IDFC SSKI Research

DECEMBER 2009 17
 IDFC - SSKI INDIA

Income statement Key ratios

Year to Mar 31 (Rs m) FY08 FY09 FY10E FY11E FY12E Year to Mar 31 FY08 FY09 FY10E FY11E FY12E
Net sales 166,920 216,930 220,480 233,236 270,903 EBITDA margin (%) 31.4 33.2 33.1 32.1 33.0
% growth 20.1 30.0 1.6 5.8 16.1 EBIT margin (%) 27.8 29.7 29.0 28.2 29.3
Operating expenses 114,540 144,980 147,481 158,375 181,609 PAT margin (%) 27.9 27.6 26.7 27.3 29.4
EBITDA 52,380 71,950 72,999 74,862 89,294 RoE (%) 37.2 37.4 28.7 25.3 25.9
% change 19.3 37.4 1.5 2.6 19.3 RoCE (%) 37.0 40.2 31.2 26.1 25.7
Other income 7,040 4,750 9,969 15,940 20,951 Gearing (x) 0.0 0.0 0.0 0.0 0.0
Net interest - - - - -
Depreciation 5,980 7,610 9,048 9,137 9,962
Pre-tax profit 53,440 69,070 73,920 81,664 100,283 Valuations
Deferred tax 6,850 9,190 14,960 18,003 20,526
Profit after tax 46,590 59,880 58,960 63,662 79,757 Year to Mar 31 FY08 FY09 FY10E FY11E FY12E
Net profit after Reported EPS (Rs) 81.5 104.6 102.9 111.1 139.1
non-recurring items 46,590 59,880 58,960 63,662 79,757 Adj. EPS (Rs) 81.5 104.6 102.9 111.1 139.1
% change 20.8 28.5 (1.5) 8.0 25.3 PE (x) 30.0 23.4 23.8 22.0 17.6
Price/ Book (x) 10.1 7.7 6.2 5.1 4.1
Balance sheet EV/ Net sales (x) 8.0 6.0 5.8 5.3 4.4
EV/ EBITDA (x) 25.4 18.1 17.6 16.5 13.3
As on Mar 31 (Rs m) FY08 FY09 FY10E FY11E FY12E EV/ CE (x) 9.6 7.1 5.6 4.5 3.5
Paid-up capital 2,860 2,860 2,870 2,870 2,870
Reserves & surplus 135,090 179,680 224,966 273,152 337,433
Total shareholders' equity 137,950 182,540 227,836 276,022 340,303
Shareholding pattern
Total current liabilities 41,910 38,720 36,426 40,194 45,776
Total liabilities 41,910 38,720 36,426 40,194 45,776 Public &
others
Total equity & liabilities 179,860 221,260 264,262 316,216 386,078
15.8%
Net fixed assets 47,770 53,540 50,133 52,791 60,056
Investments 720 - 32,220 32,220 32,220
Total current assets 130,180 166,460 179,088 229,985 293,382
Deferred tax assets 1,190 1,260 2,820 1,220 420 Promoters
Working capital 88,270 127,740 142,663 189,791 247,606 16.5%
Total assets 179,860 221,260 264,262 316,216 386,078 Non- Foreign
promoter 55.4

Cash flow statement corporate

holding
Year to Mar 31 (Rs m) FY08 FY09 FY10E FY11E FY12E 4.2%
Pre-tax profit 53,440 69,070 73,920 81,664 100,283
Institutions
Depreciation 5,980 7,610 9,048 9,137 9,962
8.1%
Chg in working capital (3,770) (12,020) 8,251 (1,225) (4,907)
Total tax paid (7,120) (9,260) (16,520) (16,403) (19,726)
As of September 09
Ext ord. Items - - - - -
Operating cash Inflow 48,530 55,400 74,699 73,175 85,612
Capital expenditure (16,040) (13,380) (5,641) (11,795) (17,228)
Free cash flow (a+b) 32,490 42,020 69,059 61,380 68,384
Chg in investments (470) 720 (32,220) - -
Capital raised/(repaid) (2,172) (1,834) 92 - -
Dividend (incl. tax) (19,018) (13,456) (13,756) (15,476) (15,476)
Misc (40) - - - -
Net chg in cash 10,790 27,450 23,174 45,904 52,909

DECEMBER 2009 18
 IDFC - SSKI INDIA

Company update
TCS Rs698
OUTPERFORMER
Mkt Cap: Rs1367bn; US$29bn
Marching ahead
9 December 2009 TCS has outperformed its other two tier1 peers in sequential revenue
growth (overall) in the first two quarters of FY10 after reporting just ~6%
BSE Sensex: 17125
revenue growth in FY09 vis-à-vis 13-18% by peers. The outperformance has
been driven by exposure to emerging markets, large deal focus and higher
revenue share from BFSI vertical. Strong performance in these challenging
times imparts comfort on TCS’s prospects in an improved business
Stock data
environment. We expect 15-20% sustainable growth in revenues for TCS
starting FY11. We have raised our FY10/ 11E EPS by 12-14% to build in a
Reuters Code [Link]
quicker recovery in global economic activity. Reiterate TCS as
Bloomberg TCS IN
Outperformer with an 18-24 month price target of Rs850.
1-yr high/low (Rs) 712/220
1-yr avg daily volumes (m) 3.62 Better times ahead: TCS has posted a strong set of numbers (3% and 4% qoq
Free Float (%) 25.7 revenue growth in the first two quarters of FY10) even in a challenging business
environment. We expect IT spends to improve in CY10/ CY11 led by the
global economic recovery. With focus on large deals and significant exposure to
Price performance emerging markets, TCS is well placed to benefit from the upturn.
Tata Consultancy Services Sensex
270
Strong traction to continue, upgrades likely: We expect ~15% revenue
220
growth for TCS in FY11 and ~17% in FY12 on the back of economic recovery-
170 led acceleration in IT spends. With strong revenue growth in the last two
120
quarters, and that too broad-based in Q2FY10, management confidence on
recovery has improved over the last two quarters. We see further upside to our
70
and consensus FY10/ FY11 estimates despite a 19-26% earnings upgrade since
Dec-08

Oct-09
Feb-09

Dec-09
Apr-09

Jun-09

Aug-09

April 2009.
Premium valuations sustainable: We expect valuations to sustain at current
Performance (%) levels (21x FY11E earnings) as the stock has already entered a 7-8 quarters long
3-mth 6-mth 1-yr 3-yr earnings upgrade cycle. Going forward, we see stock returns coming primarily
TCS 25.9 88.2 167.4 18.7 from earnings growth/ upgrades with some contribution from a valuation re-
Sensex 6.8 17.5 88.0 24.8
rating. Reiterate Outperformer with an 18-24 month price target of Rs850 (22x
FY12E earnings).

Key financials
As on 31 March FY08 FY09 FY10E FY11E FY12E
Net sales (Rs m) 228,614 278,129 295,952 319,446 359,604
Adj. net profit (Rs m) 50,191 51,717 59,737 66,699 75,498
Shares in issue (m) 1,957 1,958 1,958 1,958 1,958
Adj. EPS (Rs) 25.6 26.4 30.5 34.1 38.6
% change 17.5 3.0 15.5 11.7 13.2
PE (x) 27.2 26.4 22.9 20.5 18.1
Hitesh Shah, CFA
Price/ Book (x) 11.1 8.7 6.9 5.6 4.6
[Link]@[Link]
EV/ EBITDA (x) 22.9 19.0 16.6 14.7 12.5
91-22-66 38 3358
RoE (%) 49.7 37.0 33.6 30.0 27.9
RoCE (%) 50.0 43.8 38.9 35.0 33.2

DECEMBER 2009 19
 IDFC - SSKI INDIA

INVESTMENT ARGUMENT
With focus on large deals, exposure to emerging markets and a higher revenue
share from the BFSI vertical, TCS has outperformed Wipro and Infosys on
overall revenue growth (qoq) in Q1FY10 and Q2FY10. In CY10/ CY11, we expect
IT spend to improve led by the global economic recovery and see TCS well
placed to benefit from the upturn. We expect ~15% revenue growth in FY11 and
~17% in FY12 on the back of economic recovery-led acceleration in IT spends.
Overall management commentary on the environment has been buoyant – and
strong growth in last two quarters and the broad-based nature of growth
indicate accelerated growth momentum in the coming period. We expect TCS
valuations to sustain at above 21x levels as earnings estimates remain in an
upgrade cycle over the next few quarters. Reiterate Outperformer with an 18-24
month price target of Rs850.

TCS: LARGE DEAL FOCUS AND EMERGING MARKET EXPOSURE

TCS reported strong sequential growth during the first two quarters of FY10.
Notably, growth in Q2FY10 was broad-based and complemented the management’s
optimistic commentary on the business environment. TCS’s large-deal focus during
the last three years and a diversified geographic mix are the key drivers behind the
impressive performance. While we see the pace of growth sustaining in the coming
years, we revise our FY10 and FY11 earnings estimates for TCS by 12-14% to
incorporate the strong performance and sustained global economic recovery.

‰ Strong performance in H1FY10

TCS has outpaced Wipro/ TCS has posted strong results even in a challenging environment. The company
Infosys in the previous reported 3% and 4% qoq revenue growth in the first two quarters of FY10, which is
two quarters ahead of Tier 1 peers – Infosys and Wipro. While this was on back of a dismal 4%
organic growth in FY09 against 12-14% for Infosys and Wipro, it is still
commendable in view of the challenging business environment.

Exhibit 1: Sequential revenue growth

(%)
15 TCS Infosys Wipro

10

-5

-10
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10
Source: Companies

DECEMBER 2009 20
 IDFC - SSKI INDIA

‰ Key drivers for strong performance

The strong performance exhibited by TCS in the last two quarters may be attributed
High share of BFSI,
emerging markets and
to (i) its vertical mix – BFSI was the fastest growing vertical and TCS has the highest
large deal focus paying off exposure to the same; (ii) geographical diversification – TCS has a relatively higher
exposure to emerging markets (India, China and LatAm) which are still seeing
growth in IT services spend; (iii) large deals – TCS signed several large deals in the
last 2-3 years including a 9.5 years tenure deal with Citi with revenue commitment
of US$2.5bn (signed as part of Citi BPO acquisition). TCS has significantly
benefitted from these large deals and top client revenues grew ~60% over Mar-
Sep’09. TCS has also benefitted on account of work transfer from Mahindra Satyam
in some of its key accounts.
‰ Buoyant management commentary indicates business confidence
Management commentary on the business environment, during the quarterly
According to management,
deal pipeline is similar to
earnings call and our recent interaction, has been largely positive and reflects
pre-Lehman collapse days growing business confidence. Salient points of the management commentary are:
™ While IT budgets are flat, clients are looking to spend a higher share on offshore
™ Revenue growth has been broad-based. Verticals reporting lower revenue growth
should pick up from Q3FY10
™ Deal pipeline is strong and similar to pre-Lehman collapse days
™ Client decision making has improved. However, additional controls (like go-
ahead from CFO/ CEO) for large deals are likely to remain in place
™ Pricing likely to remain stable – no further discounts expected
™ Most of the integration deals in BFSI are likely to last 18-24 quarters.

‰ Broad-based growth across multiple verticals

Broad-based growth in In Q1FY10, growth was largely driven by the top client (up 24%) while revenues ex-
Q2FY10 convinces top client grew just 1% qoq. However, growth in Q2FY10 has been quite broad-
management that recovery
is sustainable based and top client grew by 25%+. The next four clients (#2 to #5) grew ~6% qoq,
client #6 to #10 grew ~4% qoq while non-top10 clients grew ~5% qoq. Among
verticals, BFSI grew ~9% qoq, pharma and energy & utilities 10%+ while retail and
hi-tech grew ~4% qoq each. Media vertical grew 6% while manufacturing, telecom
and travel grew ~1% qoq (in USD terms).
Exhibit 2: Vertical wise QoQ growth in Q2FY10
(%)
12

6 12
10 10
9

3 6
4 4

1
0 0 0
BFSI Telecom Retail Mfg. Life Sci & Hi-tech Travel E&U M&E Others
HC

Source: Company

DECEMBER 2009 21
 IDFC - SSKI INDIA

‰ Top-client firing

Top client revenues have

Top client (a US-based diversified financials firm) for TCS has reported strong
grown 60% from March growth in the past two quarters. After 24% qoq revenue growth in Q1FY10, this
2009 levels client reported ~26% qoq revenue growth in Q2FY09. TCS, while acquiring Citi
BPO in Dec’08, had signed a 9.5 years deal that had a take-or-pay contract of US$
2.5bn. We believe TCS has, in this account, also benefitted from client’s decision to
stop working with Mahindra Satyam.

‰ Emerging market exposure paying off

TCS has a geographically well-diversified revenue mix, making it relatively less
dependent on the traditional US and UK geographies. The company has further
diversified into non-traditional developed markets of France and Germany as well as
emerging economies like China, Latin America and Western Europe. TCS gets
~30% of its revenues from these markets – the highest among Tier 1 peers.

Exhibit 3: Revenue share by geographies

Others
India 7%
7%
Continental
Europe
11%

North America
53%
UK
17%
IberoAmerica
5%
Source: Company

‰ Large-deal focus paying off

TCS has signed several TCS has signed several large deals in the last 2-3 years – more than a dozen every
large deals over the last year. This has helped the company improve its revenue visibility and de-risk the
few years business model. Notable among those have been two mega deals (i) the US$1bn deal
with Neilson & Company, and (ii) the $2.5bn deal with Citi for BPO operations.
The Neilson contract is a 10-year multi-service agreement for IT- and operations-
support worldwide. The deal with Citi involves taking over CGSL and entails a
revenue commitment of $2.5bn over a 9.5-year period. TCS has signed several other
large deals in the range of $50m-100m across services and verticals.

‰ Revising estimates to build in the improving outlook

Based on the improving outlook for IT services, validated by the strong H1FY10
results, we have raised our FY10 and FY11 earnings estimates for TCS by 12-14%.
This is despite factoring in a stronger INR for H2FY10 and FY11.

DECEMBER 2009 22
 IDFC - SSKI INDIA

Exhibit 4: Earnings revised upwards

FY10E FY11E FY12E
Net income - recurring (Rs m)
- New 59,737 66,699 75,498
- Old 53,311 58,341 -
Change (%) 12.1 14.3 -
Recurring EPS - fully diluted (Rs)
- New 30.52 34.07 38.57
- Old 27.23 29.80 -
Change (%) 12.1 14.3 -
Source: IDFC-SSKI Research

We have also introduced our FY12 estimates for TCS, wherein we are building in
~17% revenue growth in USD terms and ~13% growth in EPS.

PREMIUM VALUATIONS APPEAR SUSTAINABLE

At ~23 FY10E and 20.5x FY11E earnings, TCS’s valuations are close to its median
and mean 12-month forward valuations since listing. Given the improving business
environment, we believe current valuations are sustainable.

TCS trades at valuations

‰ Current valuations close to business cycle high
close to historical median TCS has historically traded in the range of 8-30x 12-month forward earnings with a
since listing mean/ median of ~20x since listing. Current valuations, at ~21x 12-month forward
earnings, are close to this median.

Exhibit 5: TCS – 12-month rolling forward PE valuation

(x)
45

35

25

15

5
Aug-04 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09

Source: Company, Bloomberg, IDFC-SSKI Research

DECEMBER 2009 23
 IDFC - SSKI INDIA

‰ Returns to reflect earnings growth and upgrades

The premium valuations, we believe, are sustainable as business outlook improves
TCS FY10/11E consensus
EPS upgraded 15-25% and TCS continues to deliver an earnings growth ahead of street estimates. The
since April 2009 earnings downgrade cycle of last 8-10 quarters for IT services stocks is clearly behind.
With improving outlook for IT services, we believe that earnings upgrade cycle of
last 2-3 quarters would last for at least 7-8 quarters and TCS would continue to
deliver good results. We note that FY10 and FY11 consensus earnings estimates for
TCS have been upgraded by ~19% and ~26% respectively.

Exhibit 6: TCS – earnings/ EPS upgrade cycle has started

(Rs)
42 FY10E FY11E

38

34

30

26
Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09
Source: Bloomberg, consensus estimates

‰ Valuation discount to Infosys set to narrow

We expect TCS to trade at TCS’s relative valuations vis-à-vis those of Infosys have also moved in a broad range
a 4% discount to Infosys with a 25% premium at the peak and 35% discount at the trough. Current
valuations
valuations are at ~7% discount to Infosys’s valuations (close to the median).

We value TCS at 22x FY12E EPS, which is at ~4% discount to Infosys’s target
multiple to factor in the relatively better financial performance of Infosys in the past
in terms of organic revenue growth, margin performance and return ratios (and also
better performance during the previous US recession). Given TCS’s better
performance recently vis-à-vis that of Infosys, we assign a lower valuation discount to
TCS vis-à-vis the peer than witnessed in the past two years. We still use a discount,
and not par valuations, as better performance has been for just two quarters against
better performance from Infosys over the previous 6-7 years.

DECEMBER 2009 24
 IDFC - SSKI INDIA

Exhibit 7: TCS – premium/ (discount) to Infosys on 12-month forward PER

(%)
25

-25

-50
Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09

Source: Company, Bloomberg; IDFC-SSKI Research

Our 18-24 month target ‰ Taking an 18-24 month view on TCS

price on TCS is Rs850 We take a view on TCS’s stock price from a 18-24 month perspective --- in line with
that for Infosys and Wipro. We value TCS at 22x FY12E earnings, implying a target
price of Rs850. With significant returns expected from the current level, we rate
TCS as Outperformer.

DECEMBER 2009 25
 IDFC - SSKI INDIA

Income statement Key ratios

Year to Mar 31 (Rs m) FY08 FY09 FY10E FY11E FY12E Year to Mar 31 FY08 FY09 FY10E FY11E FY12E
Net sales 228,614 278,129 295,952 319,446 359,604 EBITDA margin (%) 26.0 25.8 27.3 27.7 28.1
% growth 22.7 21.7 6.4 7.9 12.6 EBIT margin (%) 23.5 23.7 24.8 25.3 25.8
Operating expenses 169,217 206,348 215,182 231,067 258,467 PAT margin (%) 22.0 18.6 20.2 20.9 21.0
EBITDA 59,397 71,781 80,770 88,379 101,137 RoE (%) 49.7 37.0 33.6 30.0 27.9
% change 15.9 20.9 12.5 9.4 14.4 RoCE (%) 50.0 43.8 38.9 35.0 33.2
Other income 4,450 (4,673) (2,350) 400 4,800 Gearing (x) 0.0 0.1 0.0 0.0 0.0
Net interest 0 0 0 0 0
Depreciation 5,746 5,766 7,250 7,529 8,346
Pre-tax profit 58,101 61,342 71,170 81,251 97,591 Valuations
Deferred tax 0 0 0 0 0
Current tax 7,494 9,012 10,526 13,572 21,113 Year to Mar 31 FY08 FY09 FY10E FY11E FY12E
Profit after tax 50,607 52,330 60,644 67,679 76,478 Reported EPS (Rs) 25.6 26.4 30.5 34.1 38.6
Minorities (416) (613) (907) (980) (980) Adj. EPS (Rs) 25.6 26.4 30.5 34.1 38.6
Net profit after PE (x) 27.2 26.4 22.9 20.5 18.1
non-recurring items 50,191 51,717 59,737 66,699 75,498 Price/ Book (x) 11.1 8.7 6.9 5.6 4.6
% change 19.7 3.0 15.5 11.7 13.2 EV/ Net sales (x) 5.9 4.9 4.5 4.1 3.5
EV/ EBITDA (x) 22.9 19.0 16.6 14.7 12.5
Balance sheet EV/ CE (x) 10.4 8.0 6.4 5.1 4.1

As on Mar 31 (Rs m) FY08 FY09 FY10E FY11E FY12E

Paid-up capital 1,979 1,979 1,979 1,979 1,979
Shareholding pattern
Reserves & surplus 121,023 154,566 196,686 243,810 293,859
Total shareholders' equity123,001 156,545 198,665 245,788 295,838 Public & Foreign
others 11.9%
Total current liabilities 44,772 56,558 56,231 60,695 68,325
5.2%
Total debt 4,550 7,913 2,762 2,762 2,762 Institutions
Other non-current liabilities 3,530 5,842 5,842 5,842 5,842 8.0%
Total liabilities 52,852 70,313 64,835 69,299 76,929
Total equity & liabilities 175,853 226,858 263,499 315,087 372,767
Non-
Net fixed assets 35,765 37,494 39,993 43,168 48,595
promoter
Investments 26,062 17,271 17,271 17,271 17,271
corporate
Total current assets 100,305 109,754 143,896 192,309 244,562 holding
Other non-current assets 13,721 62,339 62,339 62,339 62,339 0.7%
Working capital 55,533 53,196 87,665 131,614 176,237
Total assets 175,853 226,858 263,499 315,087 372,767
Promoters
74.3%
Cash flow statement
As of September 09
Year to Mar 31 (Rs m) FY08 FY09 FY10E FY11E FY12E
Pre-tax profit 58,101 61,342 71,170 81,251 97,591
Depreciation 5,746 5,766 7,250 7,529 8,346
Chg in working capital (19,231) 8,694 (20,146) (4,347) (7,429)
Total tax paid (7,494) (9,012) (10,526) (13,572) (21,113)
Ext ord. Items 8 (8) 8 20 20
Operating cash Inflow 37,130 66,782 47,756 70,881 77,414
Capital expenditure (20,554) (28,991) (9,749) (10,703) (13,773)
Free cash flow (a+b) 16,576 37,792 38,007 60,177 63,642
Chg in investments (17,825) 8,791 - - -
Debt raised/(repaid) 4,550 (1,788) - - -
Capital raised/(repaid) 7,714 (4,471) - - -
Dividend (incl. tax) (13,702) (13,703) (17,618) (19,575) (25,448)
Misc 2,553 (25,415) (915) (1,000) (1,000)
Net chg in cash (134) 1,206 19,474 39,602 37,194

DECEMBER 2009 26
 IDFC - SSKI INDIA

Company update
Wipro Rs648
OUTPERFORMER
Aligned to grow Mkt Cap: Rs942bn; US$20bn

9 December 2009 Wipro is the new leader on organic revenue growth front among Indian IT
companies – organic revenues grew the fastest in FY09 and are expected to
BSE Sensex: 17125 do the best within a narrow range in FY10. We expect Wipro to maintain this
leadership in the coming years. High exposure to fast growing areas like IM
(~20% of revenues in H1FY10) and BPO services (~10%) gives Wipro an
edge over peers. Also, the worst is behind for high-tech/ telecom vertical – a
drag on revenue growth over FY01-09. Wipro now derives ~14% of revenues
Stock data
from this segment against ~40% in the dot com days. We believe that Wipro
Reuters Code [Link] deserves to trade on par with Infosys over the next 18-24 months as both
Bloomberg WPRO IN the companies are expected to report similar revenues/ earnings growth.
1-yr high/low (Rs) 665/195 We rate Wipro as Outperformer with an 18-24 month price target of Rs830.
1-yr avg daily volumes (m) 1.57
Free Float (%) 20.3 Revenue growth leadership appears sustainable: After recording the highest
USD organic revenue growth of 14% in FY09 against 12% for Infosys and 4%
for TCS, we expect Wipro to retain the top slot in the coming years. We expect
Price performance 18% CAGR over FY10-12 (16.4% for Infosys and 15.7% for TCS) with flattish
280
Wipro Sensex organic revenues in FY10 (ex-CITOS for Wipro and ex-Citi BPO for TCS).
230 High exposure to IMS/ BPO services gives an edge: Wipro derives ~30% of
180
its revenues from IMS/ BPO services (15-20% for peers), which are poised to be
the next driver for offshoring. Wipro has built on its ‘first mover advantage’ in
130
this space and has further invested into expanding through organic and
80 inorganic means (Infocrossing and CITOS acquisitions have enhanced its
Dec-08

Oct-09
Feb-09

Dec-09
Apr-09

Jun-09

Aug-09

service offering). These investments are expected to pay rich dividends over the
next few years. Also, exposure to the sluggish telecom/ hi-tech sector is gradually
down to ~14% from 40%+ in 2002.
Performance (%)
3-mth 6-mth 1-yr 3-yr Wipro deserves to trade on par with Infosys: Wipro, over the last five years,
Wipro 17.6 59.6 171.6 12.2 has traded at a discount to Infosys as it conceded growth leadership to Infosys post
Sensex 6.8 17.5 88.0 24.8
the dot com days. However, we see the valuation gap bridging as Wipro has
reclaimed its leadership status. We value Wipro at Rs830 (23x FY12E earnings)
over an 18-24 month horizon.

Key financials
As on 31 March FY08 FY09 FY10E FY11E FY12E
Net sales (Rs m) 197,427 256,891 270,058 300,190 352,008
Adj. net profit (Rs m) 32,239 38,761 42,851 46,343 52,774
Shares in issue (m) 1,450 1,454 1,457 1,457 1,457
Adj. EPS (Rs) 22.1 26.5 29.2 31.6 35.9
% change 9.7 19.7 10.2 8.1 13.9
PE (x) 29.2 24.4 22.2 20.5 18.0
Hitesh Shah, CFA
Price/ Book (x) 7.5 6.4 5.3 4.3 3.6
[Link]@[Link]
EV/ EBITDA (x) 23.6 18.1 15.3 13.5 11.4
91-22-66 38 3358
RoE (%) 28.4 28.4 26.1 23.2 21.9
RoCE (%) 23.3 23.0 23.6 23.1 23.4

DECEMBER 2009 27
 IDFC - SSKI INDIA

INVESTMENT ARGUMENT
Wipro’s growth leadership of FY09 should continue in FY10 and beyond as its
services portfolio is best leveraged to high-growth horizontals of IMS and BPO
services (31% exposure against 15-20% for peer group). Wipro’s strategy of
investing early into infrastructure services – both organic and inorganic (Info-
crossing and CITOS acquisition) – has given it an edge over peers. In FY09,
Wipro’s organic revenues grew 14% against ~12% for Infosys and ~4% for TCS.
Even in FY10, likely to be a challenging year, we expect Wipro to report 1%
growth in organic revenues (2% including CITOS) compared to flat to 1%
organic growth for Infosys/ TCS (TCS growth including Citi BPO acquisition
expected at ~5%). Having bridged this gap with Infosys, we believe Wipro
should command valuations on par with the peer and we assign a similar target
multiple to both the stocks. We upgrade Wipro to Outperformer with an 18-24
month price target of Rs830.

WIPRO: GROWTH LEADER – ONCE AGAIN

Wipro has recorded the highest USD organic revenue growth in FY09 among tier1
peers. We expect Wipro to be the growth leader for the next few years, aided by its
high exposure to faster growing service lines – IMS and BPO services. Wipro gets
~30% of revenues from these services against 15-20% for Infosys and TCS. We
expect ADM services to grow by 10% yoy at best over the next 4-5 years.

‰ Wipro is the new organic growth leader

Highest growth for Wipro Wipro recorded the highest USD organic revenue growth of ~14% in FY09 (18%
among peers in FY09 after including Infocrossing and CITOS) against 11% for Infosys (12% including Philips
a long gap BPO) and 4% for TCS (6% including Citi BPO). FY10 is likely to be a flattish year
in terms of organic growth with the three tier-1 players reporting ±1% yoy change.
We expect Wipro’s organic growth leadership to continue into FY12 and beyond.

Exhibit 1: Revenue growth comparison among top three Indian IT companies

20 (%) Wipro - tech Infosys TCS

18 18
16
16
15
14
12
11
10

6
5 4.5
4
2.0
0.3 0.6 0.3 1.1
0
FY09 FY09-organic FY10 FY10-organic FY10-12E

Source: Companies

DECEMBER 2009 28
 IDFC - SSKI INDIA

‰ Dissecting FY09 and H1FY10 growth by service lines

Dissecting FY09 and H1FY10 revenue growth for the top three Indian IT services
players, two horizontals that stand apart are IMS and BPO services (refer to exhibit).

Exhibit 2: Service line-wise organic growth for top three Indian IT services companies
(%)
FY09 1H10
30
IMS and BPO services
26
growing faster than other Adjusted for revenue contribution from
horizontals acquisition of Citi BPO, Philips BPO, CITOS
and Infocrossing
15
13
10 9
7 8
4
0

-7
-9
-15 -12
ADM ES IMS BPO Others
Source: Companies

Having registered 10%+ revenue growth in FY09 as also growth in H1FY10 against
decline for other service lines, IMS and BPO services clearly stand apart as most
other service lines reported a decline in revenues.

‰ India has a lion’s share in the ADM market

India’s market share in global IT spend is still in single digits though that in ADM
services is ~24%. However, market share in some of the new services remains low.

Exhibit 3: India's market share in the global IT spend

(US$ bn) Worldwide 2008 Indian Domestic Total Indian IT Indian IT
IT and BPO spend exports (FY09) revenues (FY09) revenues (FY09) market share (%)
IT services
ADM services 65.0 14.1 1.6 15.7 24.2
- Application development 31.3 9.9 0.5 10.4 33.2
- Application management 33.7 4.3 1.1 5.3 15.8
Consulting and SI 133.0 1.5 4.2 5.7 4.3
IS and other outsourcing 177.1 7.0 0.4 7.5 4.2
Support and training 149.4 2.1 0.3 2.4 1.6
Total 524.5 24.7 6.5 31.2 6.0
BPO services
Finance & accounting 26.0 2.8 0.5 3.3 12.7
Customer care 61.6 5.6 1.0 6.7 10.8
Other services 27.5 4.4 0.4 4.8 17.3
Total 115.1 12.8 1.9 14.7 12.8
Total IT & BPO services 639.5 37.5 8.4 46.0 7.2
Source: IDC, NASSCOM

We note that in service lines where the market share is lower, IMS, BPO services and
a few segments of ES/ Consulting are relatively easier to offshore.

DECEMBER 2009 29
 IDFC - SSKI INDIA

‰ IMS – easy to offshore with low market share currently

Within services with a lower market share, IMS notably scores high on
offshorability. Most of the Indian IT players have presence in the IMS space with
tier1 players deriving 5%+ revenues from the service line. Indian companies started
offering services in this area from 2003/04, though Wipro and HCL Tech were early
entrants into this area.

Exhibit 4: Comparative revenue share from IMS and BPO services for Wipro, Infosys and TCS
(%) FY08 FY09 1HFY10
22.0
20.7
19.6
Wipro building on its early 17.2
16.5
mover advantage in
IMS space
11.0
7.9 8.6
7.2 6.5
6.3
5.5 4.9

0.0
Wipro Infosys TCS
Source: Companies

Presence in hardware business gave Wipro and HCL Tech an early mover advantage.
In the initial period, IMS was sold as a part of after-sale services with hardware sales
or of total IT outsourcing contract. Wipro built on to its advantage by acquiring
Infocrossing and CITOS to fill gaps in its service offering and to acquire scale in the
business. Post Infocrossing acquisition, Wipro has a complete suite of IMS offering
including data centers hosting – unmatched by any other offshore IT services
provider.

‰ BPO services – another high potential area

BPO markets growing at a BPO services, another key service line with high scope for offshorability, offer
fast clip driven by higher tremendous potential despite a 10%+ headline market share. This is because the
outsourcing of non-core current market for BPO has been defined to include only outsourced services and
business processes not in-house spend on some of these processes (like finance & accounting, HR
processes, customer service, etc). Overall, the BPO market is also growing at a faster
pace as numerous corporates globally are looking to outsource some of their non-
core business processes.

DECEMBER 2009 30
 IDFC - SSKI INDIA

Exhibit 5: Comparative revenue share from IMS and BPO services for Wipro, Infosys and TCS
(%)
FY08 FY09 1HFY10
12.0

9.0

Wipro and TCS have high

exposure to BPO services
6.0

3.0

0.0
Wipro Infosys TCS

Source: Companies

Wipro had a head-start in BPO services through the acquisition of Spectramind as

early as in July 2002. Since then, Wipro has had one of the largest BPO practices
among Indian IT services companies till TCS’s acquisition of Pearl and Citi BPO
units. Even at present, Wipro and TCS are neck-and-neck in terms of exposure to
BPO services as percent of their IT revenues.

FINANCIAL ANALYSIS: RAISING OUR EARNINGS ESTIMATES

Based on our expectations of an economic recovery-led pick-up in IT spends CY11
onwards, we expect Wipro to register ~20% growth in its revenues over the next few
years starting FY12. Indian IT services companies, we believe, would gain market
share with expertise in multiple verticals and a full breadth of services. In this
backdrop, we have raised our FY10 and FY11 earnings estimates for Wipro by 13%
and 9% respectively and also introduced FY12 financials.
Among Indian peers, Wipro has the highest exposure to high-growth areas like IMS/
BPO services. This, we believe, would continue to give Wipro a competitive edge in
retaining its growth leadership till FY11/12 at least.

‰ Healthy quarterly results

Q2FY10 results better than Wipro has reported a good set of numbers, on both revenues and margins, for
street expectations Q2FY10 – better than our and street expectations. Revenues for Global IT&BPO
services were up 3.2% qoq and down 4% yoy to US$1,062m. In constant currency
terms, revenues grew 2% qoq but declined 2% yoy. For IT services business,
volumes were down 1.5% qoq (flat, according to Wipro, when adjusted for working
days), onsite realization increased 4.7% qoq and offshore realization improved by
3.4% qoq. Cross-currency tailwinds helped ~1.5% qoq; adjusted for this and for
working days, like-on-like pricing was up 1.8% for onsite and 1.6% for offshore.
EBIT margin for IT&BPO services business was up ~140bp qoq on the back of
better pricing, higher utilization and tighter cost control.

Wipro has a forex hedge of ~US$1bn net of balance sheet covers (largely in forward
covers) – this is lower than US$1.3bn as of end-March 2009 and US$1.2bn as of
end-Q1FY10.

DECEMBER 2009 31
 IDFC - SSKI INDIA

‰ Buoyant Q3 guidance speaks of business confidence

Wipro’s Q3FY10 guidance Wipro has guided for 2.5-4.5% qoq revenue growth – this is spectacular especially
indicates sustained compared to 1% growth guidance from Infosys, the IT bellwether. Wipro
recovery in business
management’s commentary on business has been markedly positive and the
company expects IT spend to pick up as clients are ready to invest again. Business is
showing signs of stability – both in terms of volumes and pricing. Verticals that have
lagged (like BFS) should see growth picking up from next quarter. Wipro has bagged
several large deals during Q2FY10 including two end-to-end IMS deals from a
global pharma major and an Australia-based beverage company, a 5-year ADM deal
from BP (UK), an Application Maintenance deal from Nokia Siemens Networks, a
10-year total IT outsourcing deal from Delhi International Airport and a strategic
partnership for ICT infrastructure of Lavassa city.

‰ Upgrading estimates to build in the improving outlook

Based on improving outlook for IT services, and thereby strong H1FY10 results, we
have raised our FY10 and FY11 revenue and earnings estimates by 9-13%. This is
despite factoring in a stronger INR for H2FY10 and FY11. We note that the current
estimates may not be strictly comparable with the earlier estimates, as starting
Q2FY10 Wipro has stopped reporting quarterly results under US GAAP and has
shifted to IFRS reporting. We have also changed our model to align our forecasts to
the IFRS reporting structure.

VALUATIONS: BRIDGING THE GAP WITH INFOSYS

At ~22x FY10E and 20.5x FY11E earnings, Wipro’s valuations are close to its
median and mean 12-month forward valuations during the last business cycle. In an
improving business environment, we believe valuations are sustainable at these levels.
We are building in a marginal re-rating of the stock, though most of the returns
would be from earnings growth.

‰ Wipro has had traded at both a premium and discount to Infosys

Wipro has historically traded in the range of 8-30 its 12-month forward earnings
with a mean/ median of ~21x over a complete business cycle (April 2003 trough to
March 2009 trough). Wipro’s relative valuations vis-à-vis those of Infosys have also
moved in a broad range with a 25% premium at the peak and 35% discount at the
trough. Current valuations, at ~21x 12-month forward earnings, are close to the
median.

DECEMBER 2009 32
 IDFC - SSKI INDIA

Exhibit 6: Wipro – 12-month rolling forward PE valuation

(x)
50

41

32

23

14

5
Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09

Source: Company, Bloomberg, IDFC-SSKI Research

‰ Case for discount to Infosys ‰ Case for premium to Infosys

™ Wipro has grown both organically and ™ Wipro has taken organic growth leadership back
inorganically while Infosys’s growth has been from Infosys.
largely organic.
™ Wipro and Infosys have had largely similar
™ Wipro’s return ratios (RoCE, RoE, etc) have been financial performance in the recent global
lower than that of Infosys. recession/ financial crisis – though Wipro’s
performance on topline has been marginally
™ Infosys’s performance was more resilient during
better.
the dot com bubble burst period.
™ Wipro is forecast to grow marginally faster than
™ Earnings CAGR over FY05-09 for Infosys has
Infosys over the next two years due to higher
been much better than that of Wipro.
exposure to IMS/ BPO services.
™ Infosys guides for annual revenue and earnings,
™ Wipro has seen sharper earnings upgrades over the
which gives investors better visibility on the
last three quarters vis-à-vis Infosys.
business.

Exhibit 7: Wipro – premium/ (discount) to Infosys on 12-month forward PER

(%)
36

18

0
We expect Wipro to trade
on par with Infosys -18

-36

-54
1-Jan-04 1-Jan-05 1-Jan-06 1-Jan-07 1-Jan-08 1-Jan-09
Source: Company, Bloomberg, IDFC-SSKI Research

DECEMBER 2009 33
 IDFC - SSKI INDIA

Exhibit 8: Wipro – earnings/ EPS upgrade cycle has started

(Rs)
FY10E FY11E
36
Wipro FY10/ 11E
consensus EPS upgraded
15-25% since April 2009
33

30

27

24
Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09

Source: Bloomberg, consensus estimates

‰ We value Wipro and Infosys at same target multiple

We take a view on Wipro’s stock price from an 18-24 month perspective --- in line
with that for Infosys and TCS. We value Wipro at 23x FY12E earnings, implying a
target price of Rs830. With significant potential returns from the current level, we
rate Wipro as Outperformer.

DECEMBER 2009 34
 IDFC - SSKI INDIA

Income statement Key ratios

Year to Mar 31 (Rs m) FY08 FY09 FY10E FY11E FY12E Year to Mar 31 FY08 FY09 FY10E FY11E FY12E
Net sales 197,427 256,891 270,058 300,190 352,008 EBITDA margin (%) 20.0 20.2 22.0 21.5 21.0
% growth 32.1 30.1 5.1 11.2 17.3 EBIT margin (%) 17.0 17.5 18.9 18.5 18.2
Operating expenses 157,881 204,943 210,772 235,523 277,928 PAT margin (%) 16.3 15.1 15.9 15.4 15.0
EBITDA 39,546 51,948 59,286 64,668 74,080 RoE (%) 28.4 28.4 26.1 23.2 21.9
% change 15.3 31.4 14.1 9.1 14.6 RoCE (%) 23.3 23.0 23.6 23.1 23.4
Net interest 2,167 1,086 1,586 1,200 1,600 Gearing (x) 0.4 0.4 0.2 0.1 0.1
Depreciation 5,960 6,948 8,281 9,244 10,044
Pre-tax profit 36,136 44,895 50,651 55,464 67,716
Current tax 3,873 6,035 7,592 8,881 14,662 Valuations
Profit after tax 32,263 38,860 43,058 46,583 53,054
Minorities (24) (99) (207) (240) (280) Year to Mar 31 FY08 FY09 FY10E FY11E FY12E
Net profit after Reported EPS (Rs) 22.1 26.5 29.2 31.6 35.9
non-recurring items 32,239 38,761 42,851 46,343 52,774 Adj. EPS (Rs) 22.1 26.5 29.2 31.6 35.9
% change 10.7 20.2 10.6 8.1 13.9 PE (x) 29.2 24.4 22.2 20.5 18.0
Price/ Book (x) 7.5 6.4 5.3 4.3 3.6
Balance sheet EV/ Net sales (x) 4.7 3.7 3.4 2.9 2.4
EV/ EBITDA (x) 23.6 18.1 15.3 13.5 11.4
As on Mar 31 (Rs m) FY08 FY09 FY10E FY11E FY12E EV/ CE (x) 5.1 4.5 4.1 3.4 2.9
Reserves & surplus 125,471 147,144 180,319 218,321 261,921
Total shareholders' equity 125,585 147,381 180,792 219,034 262,914
Total current liabilities 32,944 75,084 72,192 78,686 89,852
Shareholding pattern
Total debt 44,850 56,892 39,456 31,456 23,456
Other non-current liabilities 11,856 4,779 3,527 4,800 5,100 Public & Foreign
Total liabilities 89,650 136,755 115,175 114,942 118,408
others 9.2% Institutions
6.4% 2.2%
Total equity & liabilities 215,235 284,136 295,966 333,976 381,322 Non-
Net fixed assets 41,344 49,794 51,708 57,478 67,399 promoter
Investments 1,343 1,670 2,063 2,503 2,983 corporate
Total current assets 114,534 162,251 179,665 215,848 257,316 holding
2.6%
Other non-current assets 58,014 70,421 62,530 58,147 53,624
Working capital 81,590 87,167 107,474 137,163 167,464
Total assets 215,235 284,136 295,966 333,976 381,322

Cash flow statement

Year to Mar 31 (Rs m) FY09 FY10E FY11E FY12E
Pre-tax profit 44,895 50,651 55,464 67,716 Promoters
79.7%
Depreciation 6,948 8,281 9,244 10,044
Chg in working capital 41,481 (48,614) (10,883) (12,958) As of September 09
Total tax paid (6,035) (7,592) (8,881) (14,662)
Operating cash Inflow 87,289 2,726 44,944 50,140
Capital expenditure (32,399) (4,944) (8,775) (14,443)
Free cash flow (a+b) 54,890 (2,218) 36,168 35,697
Chg in investments 4,267 2,247 (2,295) (1,480)
Debt raised/ (repaid) (32,246) (529) 1,273 300
Capital raised/ (repaid) (10,423) (2,170) - -
Dividend (incl. tax) (6,665) (7,507) (8,341) (9,175)
Misc 24 29 - -
Net chg in cash 9,847 (10,148) 26,806 25,343

DECEMBER 2009 35
 IDFC - SSKI INDIA
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Explanation of Ratings:
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DECEMBER 2009mentioned herein.
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