1. health and fitness
2. therapy

Tata Consultancy Services
TCS.NS TCS IN
EQUITY: SOFTWARE & SERVICES
Hiccups aside, still the strongest
Global Markets Research
14-15% constant currency growth expectations over
FY15-17F intact
16 January 2015
Rating
Remains
Action: Demand moderation temporary, retain Buy
We would have been concerned if demand moderation at TCS seen in 2Q/3Q
was due to fundamental factors, but it appears to be more macro linked or
one-off in nature and restricted to small segments like energy and Diligenta
business (3% of revenue). Management indicated that all other segments,
especially US and LATAM/India, are seeing good demand traction, with even
challenged segments like retail likely to improve going forward. This reinforces
our belief that nothing has changed fundamentally at TCS and it remains well
positioned to benefit from both cost efficiency and discretionary demand. We
expect TCS to record USD revenue CAGR of 14% and EPS CAGR of 15%
over FY15-17F; we retain Buy. HCLT/CTSH are our top buys in the sector.
Buy
Target price
Increased from 2760
INR 2800
Closing price
15 January 2015
INR 2539
Potential upside
+10.3%
Anchor themes
We prefer companies that
provide revenue upside potential
with margin comfort and are
available at reasonable
valuations.
Catalyst: Progressively improving demand traction into FY16F
3Q: In-line quarter, outlook remains positive
TCS reported constant currency (CC) revenue growth of 2.5% q-q and EBIT
margins were up 20bps to 27%, in line with our expectations. Weak spots in
the result were: 1) weakness in UK, and retail, energy and utilities segments;
and 2) headcount addition of 1.6% q-q (with limited scope on utilisations).
However, management indications of: 1) US, LATAM and India likely being
better than last year, 2) Europe growth of 6.6% q-q in CC terms and UK (ex of
Diligenta) seeing better growth going forward, and 3) overall positive
commentary on order book, was heartening.
Nomura vs consensus
Our TP is in line with consensus.
FY16/17F EPS lower by 3%/2%; TP rises to INR2,800 on roll-forward
We build ~100bp cross currency impacts in 4Q and reset our USD-INR
assumption to 62 (vs. 61 earlier) and look for USD revenue CAGR of 14%,
stable EBIT margins at ~27% and EPS CAGR of 15% over FY15-17F. Our TP
rises to INR2,800 (vs. INR2,760) on roll-forward and is based on 20x one-year
forward EPS (up to Dec-16) of INR140.
Pinku Pappan - NFASL
[email protected]
+91 22 4037 4360
Year-end 31 Mar
FY14
Currency (INR)
Actual
FY15F
Old
New
FY16F
Old
New
Research analysts
India Technology/Services &
Software
Ashwin Mehta - NFASL
[email protected]
+91 22 4037 4465
FY17F
Old
New
Revenue (mn)
818,094 960,007 952,265 1,113,477 1,092,208 1,281,152 1,254,285
Reported net profit (mn)
191,169 215,103 214,744
251,073
244,116
291,162
284,901
Normalised net profit (mn)
191,169 215,103 214,744
251,073
244,116
291,162
284,901
97.67
109.90
109.72
128.28
124.73
148.76
145.56
FD norm. EPS growth (%)
37.1
12.5
12.3
16.7
13.7
16.0
16.7
FD normalised P/E (x)
26.0
N/A
23.1
N/A
20.4
N/A
17.4
EV/EBITDA (x)
18.8
N/A
17.3
N/A
14.7
N/A
12.5
Price/book (x)
9.0
N/A
8.8
N/A
6.9
N/A
5.4
FD normalised EPS
Dividend yield (%)
1.3
N/A
3.0
N/A
1.4
N/A
1.6
39.7
38.6
38.5
38.9
37.9
35.1
34.7
net cash net cash net cash
net cash
net cash
net cash
net cash
ROE (%)
Net debt/equity (%)
Source: Company data, Nomura estimates
Key company data: See page 2 for company data and detailed price/index chart
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | Tata Consultancy Services
16 January 2015
Key data on Tata Consultancy Services
Relative performance chart
Cashflow statement (INRmn)
Source: Thomson Reuters, Nomura research
Notes:
Performance
(%)
Absolute (INR)
Absolute (USD)
Rel to MSCI India
1M 3M 12M
7.7 -5.9 9.6
9.7 -6.5 9.3
7.7 -13.8 -19.2
M cap (USDmn)
Free float (%)
3-mth ADT (USDmn)
80,554.0
23.0
48.7
Year-end 31 Mar
EBITDA
Change in working capital
Other operating cashflow
Cashflow from operations
Capital expenditure
Free cashflow
Reduction in investments
Net acquisitions
Dec in other LT assets
Inc in other LT liabilities
Adjustments
CF after investing acts
Cash dividends
Equity issue
Debt issue
Convertible debt issue
Others
CF from financial acts
Net cashflow
Beginning cash
Ending cash
Ending net debt
FY13
FY14
FY15F
FY16F
FY17F
180,871 251,322 275,448 317,053 361,666
-19,219 -28,115 -13,112 -23,774 -26,903
-41,838 -62,801 -68,348 -76,253 -88,435
119,814 160,406 193,989 217,026 246,328
-27,617 -34,373 -32,624 -36,000 -36,570
92,197 126,033 161,365 181,026 209,758
0
0
0
0
0
-8,226
0
-704
83,267
-50,377
-3,428
2,783
0
11,175
-39,847
43,420
124,642
168,063
-168,063
-12,327
0
-7,076
106,630
-73,275
25,243
3,028
0
15,891
-29,113
77,517
168,063
245,580
-245,580
-7,547
0
835
154,653
-167,159
-36,362
141
0
25,880
-177,500
-22,847
245,580
222,732
-222,732
-16,723
0
-570
163,733
-82,435
0
1,562
0
22,183
-58,689
105,043
222,732
327,776
-327,776
-19,904
0
0
189,854
-91,594
0
1,777
0
31,470
-58,347
131,507
327,776
459,282
-459,282
Balance sheet (INRmn)
Income statement (INRmn)
Year-end 31 Mar
Revenue
Cost of goods sold
Gross profit
SG&A
Employee share expense
Operating profit
EBITDA
Depreciation
Amortisation
EBIT
Net interest expense
Associates & JCEs
Other income
Earnings before tax
Income tax
Net profit after tax
Minority interests
Other items
Preferred dividends
Normalised NPAT
Extraordinary items
Reported NPAT
Dividends
Transfer to reserves
FY13
629,895
-342,214
287,681
-117,602
FY14
818,094
-433,984
384,110
-146,031
FY15F
FY16F
FY17F
952,265 1,092,208 1,254,285
-528,955 -607,937 -704,279
423,310 484,271 550,005
-166,099 -186,085 -208,139
170,079 238,079 257,212 298,186 341,867
180,871 251,322 275,448 317,053 361,666
-10,792 -13,243 -18,237 -18,867 -19,799
170,079 238,079 257,212 298,186 341,867
11,175
15,891
25,880
22,183
31,470
181,254 253,970 283,092 320,369 373,336
-40,344 -60,712 -65,981 -73,685 -85,867
140,910 193,258 217,111 246,684 287,469
-1,494
-2,089
-2,367
-2,568
-2,568
0
0
0
0
0
139,416 191,169 214,744 244,116 284,901
0
0
0
0
0
139,416 191,169 214,744 244,116 284,901
-50,377 -73,275 -167,159 -82,435 -91,594
89,039 117,893
47,585 161,681 193,307
Valuations and ratios
Reported P/E (x)
Normalised P/E (x)
FD normalised P/E (x)
Dividend yield (%)
Price/cashflow (x)
Price/book (x)
EV/EBITDA (x)
EV/EBIT (x)
Gross margin (%)
EBITDA margin (%)
EBIT margin (%)
Net margin (%)
Effective tax rate (%)
Dividend payout (%)
ROE (%)
ROA (pretax %)
35.6
35.6
35.6
0.9
41.5
12.1
26.6
28.3
45.7
28.7
27.0
22.1
22.3
36.1
37.9
53.1
26.0
26.0
26.0
1.3
31.0
9.0
18.8
19.9
47.0
30.7
29.1
23.4
23.9
38.3
39.7
59.8
23.1
23.1
23.1
3.0
25.6
8.8
17.3
18.5
44.5
28.9
27.0
22.6
23.3
77.8
38.5
54.6
20.4
20.4
20.4
1.4
22.9
6.9
14.7
15.6
44.3
29.0
27.3
22.4
23.0
33.8
37.9
55.6
17.4
17.4
17.4
1.6
20.2
5.4
12.5
13.2
43.9
28.8
27.3
22.7
23.0
32.1
34.7
55.5
28.8
25.5
31.1
31.1
29.9
39.0
37.1
37.1
16.4
9.6
12.3
12.3
14.7
15.1
13.7
13.7
14.8
14.1
16.7
16.7
Growth (%)
Revenue
EBITDA
Normalised EPS
Normalised FDEPS
As at 31 Mar
Cash & equivalents
Marketable securities
Accounts receivable
Inventories
Other current assets
Total current assets
LT investments
Fixed assets
Goodwill
Other intangible assets
Other LT assets
Total assets
Short-term debt
Accounts payable
Other current liabilities
Total current liabilities
Long-term debt
Convertible debt
Other LT liabilities
Total liabilities
Minority interest
Preferred stock
Common stock
Retained earnings
Proposed dividends
Other equity and reserves
Total shareholders' equity
Total equity & liabilities
FY13
FY14
FY15F
FY16F
FY17F
168,063 245,580 222,732 327,776 459,282
172,366
0
16,560
356,989
0
81,944
35,063
0
46,740
520,735
222,360
0
16,907
484,846
0
103,644
41,568
0
59,067
689,125
251,890
0
20,853
495,475
0
118,601
40,164
0
66,614
720,853
290,215 333,810
0
0
24,025
27,634
642,015 820,727
0
0
136,304 153,075
40,164
40,164
0
0
83,337 103,241
901,820 1,117,206
88,526 110,752 131,115 148,839 169,140
88,526 110,752 131,115 148,839 169,140
15,089
18,117
18,258
19,821
21,598
103,615 128,869 149,374 168,659 190,738
6,561
6,905
8,701
8,701
8,701
1,000
0
0
0
0
1,957
1,959
1,957
1,957
1,957
407,603 551,393 560,821 722,502 915,809
410,560 553,352 562,778 724,459 917,766
520,735 689,125 720,853 901,820 1,117,206
Liquidity (x)
Current ratio
Interest cover
4.03
na
4.38
na
3.78
na
4.31
na
4.85
na
Leverage
Net debt/EBITDA (x)
Net debt/equity (%)
net cash net cash net cash net cash net cash
net cash net cash net cash net cash net cash
Per share
Reported EPS (INR)
Norm EPS (INR)
FD norm EPS (INR)
BVPS (INR)
DPS (INR)
71.23
71.23
71.23
209.77
22.00
97.67
97.67
97.67
282.72
32.00
109.72
109.72
109.72
287.54
75.00
124.73
124.73
124.73
370.15
36.00
145.56
145.56
145.56
468.91
40.00
89.8
0.0
83.6
6.2
88.1
0.0
83.8
4.3
90.9
0.0
83.4
7.4
90.8
0.0
84.3
6.6
90.8
0.0
82.4
8.4
Activity (days)
Source: Company data, Nomura estimates
Days receivable
Days inventory
Days payable
Cash cycle
Source: Company data, Nomura estimates
2
Nomura | Tata Consultancy Services
16 January 2015
Demand moderation temporary
While TCS’ 3Q growth was slightly below that of INFO after a long period of time, we
believe the demand moderation seen in 2Q/3Q is temporary as the issues behind it are
likely to be resolved over the next couple of quarters. The only areas where we think
there is a fundamental deterioration is in the energy & utilities segment (~4% of TCS
revenues) and Diligenta business (3 % of TCS revenues), which together constitute a
small proportion of business and are unlikely to affect the overall growth materially, in our
view.
Management indications suggest no issues with demand going into FY16F with:
• US, LATAM and India likely being better than last year.
• Europe growth of 6.6% q-q in CC terms and UK (ex of Diligenta) seeing better growth
going forward.
• Strong demand in BFSI and likely improvement in retail going forward.
• Overall positive commentary on order book.
We retain our CQGR expectations of 3.6% over FY16/17F and continue to expect 1415% CC revenue growth over this period.
Fig. 1: Sequential growth matrix
q-q grow th (%)
3QFY14 4QFY14 1QFY15 2QFY15 3QFY15
Service Lines
ADM
2%
1%
5%
6%
-2%
Engineering and Industrial Services
1%
6%
-1%
9%
-2%
Infrastructure Services
5%
2%
11%
16%
4%
Enterprise Solutions
5%
2%
7%
4%
-1%
Global Consulting
6%
2%
-1%
6%
16%
Asset Leverage Solutions
-12%
15%
1%
-2%
4%
Assurance Services
3%
1%
8%
4%
1%
BPO
5%
2%
4%
4%
1%
Industry Verticals
BFSI
2%
2%
3%
3%
0%
Manufacturing
8%
0%
5%
25%
0%
Telecom
6%
-1%
7%
1%
0%
Life Sciences & Healthcare
7%
5%
9%
6%
2%
Retail & Distribution
2%
0%
8%
4%
-1%
Transportation
6%
2%
8%
3%
0%
Energy and Utilities
3%
2%
8%
17%
-2%
Media & Entertainment
8%
15%
10%
6%
0%
Hi-Tech
1%
2%
9%
10%
4%
Others
-8%
4%
8%
9%
-4%
America
2%
1%
5%
4%
2%
UK
4%
4%
5%
3%
-6%
Rest of Europe
7%
6%
5%
2%
2%
Europe
5%
5%
5%
2%
-3%
-6%
0%
7%
10%
0%
7%
2%
8%
41%
-4%
Geographies
India
APAC
lbero America
MEA
Com pany overall
3%
-3%
5%
-8%
11%
13%
-3%
0%
1%
5%
3%
2%
5%
6%
0%
Source: Company data, Nomura research
3
Nomura | Tata Consultancy Services
16 January 2015
FY16/17F EPS estimates lower by 3%/2%
We build ~100bp cross currency impacts in 4QF, reset our USD-INR assumption to 62
(vs. 61 earlier) and look for USD revenue CAGR of 14%, stable EBIT margins at ~27%
and EPS CAGR of 15% over FY15-17F.
Fig. 2: Estimate revisions
New
Old
Change (%)
FY15F
FY16F
FY17F
FY15F
FY16F
FY17F
FY15F
FY16F
15,554
17,616
20,230
15,832
18,254
21,002
-1.8
-3.5
-3.7
952.3
1,092.2
1,254.3
960.0
1,113.5
1,281.2
-0.8
-1.9
-2.1
EBITDA margin (%)
28.9
29.0
28.8
28.9
29.1
28.6
10 bps
0 bps
30 bps
Tax Rate (%)
23.3
23.0
23.0
23.0
23.0
23.0
30 bps
0 bps
0 bps
109.7
124.7
145.6
109.9
128.3
148.8
-0.2
-2.8
-2.2
Revenue (USD mn)
Revenue (INR bn)
Diluted EPS (INR)
FY17F
Source: Company data, Nomura estimates
Maintain Buy, TP lifted to INR2,800
We continue to be positive on TCS despite the growth moderation in 2Q/3Q as: 1)
underlying strength of TCS’ business model is intact, and 2) recent demand issues are
likely to be temporary and remain restricted to smaller segments like energy & utilities
and Diligenta, with other segments showing improved traction going forward.
We maintain our Buy rating on TCS as:
• We believe TCS is best placed relative to peers in a demand-upturn scenario to benefit
from both cost-efficiency drives at clients and an improved discretionary spending
outlook on a broader portfolio and higher sales efficiency vs. peers.
• We expect 14-15% CC revenue growth to sustain over FY15-17F and see a healthy
15% EPS CAGR over this duration. This, in our view, should help sustain TCS’
premium valuations.
• Our TP rises to INR2,800 (vs. INR2,760 earlier), on roll-forward and is based on 20x
one-year forward EPS (up to Dec-16) of INR140. Our valuation methodology remains
unchanged.
Valuation methodology and risks
Our TP of INR2,800 is based on 20x one-year forward EPS (up to Dec-16) of INR140.
Our valuation methodology remains unchanged. The 20x multiple is at the higher end of
TCS’ historical valuation range; we expect this to be sustained on higher predictability of
growth/margins and better positioning to benefit from the demand upturn.
Downside risks are 1) slower-than-anticipated growth, and 2) INR appreciation.
3QFY15 result highlights
• USD revenue growth of 0.1% q-q (vs. our and consensus estimates of 0.4% q-q). CC
growth at 2.5% q-q (vs. 2.6% at INFO) was in line with our estimate.
• CC growth of 2.5% q-q was led by 0.4% volume growth, realization increase of 2.3%
and offshore shift impact of -0.2% q-q.
• EBIT margins were up 20bp q-q to 27% (in line with our and consensus expectations).
• PAT at INR54.4bn (vs. our and consensus estimate of ~INR55bn). The miss vs. our
estimate was largely driven by higher-than-anticipated tax rate of 24% (vs. our estimate
of 23%).
• TCS added 4,868 employees on a net basis, an increase of 1.6% q-q.
• Utilisations touched a historical peak at 82.1% (including trainees) and 86.7%
(excluding trainees).
• The company declared an interim dividend of INR5 per share.
• The company has net cash of USD3.1bn as of 3QFY15.
4
Nomura | Tata Consultancy Services
16 January 2015
Fig. 3: TCS 3QFY15: Actual vs. expected
Key param eters
3QFY15
2QFY15
q-q (%)
3QFY14
y-y (%)
0.1
3,438
14.3
15.1
Actual Estim ate
Revenues (USD mn)
Revenues (INR mn)
EBITDA (INR mn)
EBITDA margin (%)
PAT (INR mn)
EPS (INR)
3,931
3,943
3,929
245,011
245,249
238,165
2.9
212,940
70,531
70,993
68,087
3.6
66,866
5.5
28.8
28.9
28.6
20bps
31.4
-260bps
54,441
55,436
52,883
2.9
53,140
2.4
27.8
28.3
27.0
2.9
27.2
2.4
Source: Company data, Nomura estimates
Fig. 4: Quarterly performance and expectations
FY14
Y/E MARCH
INR m n
Revenues (USD m n)
q-q change %
Revenues
FY15
q-q change %
FY15F
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4QF
3,165
3,337
3,438
3,503
3,694
3,929
3,931
4,000
13,443
15,554
4.1
5.4
3.0
1.9
5.5
6.4
0.1
1.7
16.2
15.7
179,871 209,772 212,940 215,511
Direct Expenses
FY14
9.5
16.6
1.5
1.2
94,891 107,010 107,993 112,171
221,110 238,165 245,011 247,979
2.6
7.7
2.9
1.2
118,824 129,529 132,161 132,027
818,094 952,265
29.9
16.4
422,065 512,541
SG&A Expenses
33,448
36,372
38,081
36,806
38,616
40,549
42,319
42,791
144,707 164,275
EBITDA
51,532
66,390
66,866
66,534
63,670
68,087
70,531
73,160
251,322 275,448
28.6
31.6
31.4
30.9
28.8
28.6
28.8
29.5
30.7
28.9
Other Income
EBITDA margin (%)
2,517
-427
6,729
6,990
8,151
5,659
6,295
5,775
15,891
25,880
Depreciation
2,905
3,095
3,519
3,724
5,521
4,145
4,290
4,281
13,243
18,237
PBT
51,144
62,868
70,076
69,800
66,300
69,601
72,536
74,655
Provision for Tax
12,312
15,563
16,524
16,313
15,312
16,045
17,453
17,171
60,712
Tax rate (%)
24.1
24.8
23.6
23.4
23.1
23.1
24.1
23.0
23.9
23.3
Minority Interest
870
287
412
520
410
673
642
642
2,089
2,367
PAT
253,970 283,092
65,981
37,962
47,018
53,140
52,967
50,578
52,883
54,441
56,842
q-q change %
5.5
23.9
13.0
-0.3
-4.5
4.6
2.9
4.4
191,169 214,744
37.1
12.3
Diluted EPS (INR)
19.4
24.0
27.2
27.1
25.8
27.0
27.8
29.0
97.7
109.7
Source: Company data, Nomura estimates
5
Nomura | Tata Consultancy Services
16 January 2015
Appendix A-1
Analyst Certification
We, Ashwin Mehta and Pinku Pappan, hereby certify (1) that the views expressed in this Research report accurately reflect our
personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our
compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this
Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by
Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Issuer Specific Regulatory Disclosures
The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries, and may refer to one or more
Nomura Group companies.
Materially mentioned issuers
Issuer
Cognizant
HCL Technologies
Infosys
Tata Consultancy
Services
Ticker
CTSH US
HCLT IN
INFO IN
Price
USD 54.41
INR 1593
INR 2134
Price date
14-Jan-2015
15-Jan-2015
15-Jan-2015
TCS IN
INR 2539
15-Jan-2015 Buy
Tata Consultancy Services (TCS IN)
Stock rating
Buy
Buy
Buy
Sector rating Disclosures
N/A
N/A
N/A
N/A
INR 2539 (15-Jan-2015) Buy (Sector rating: N/A)
Rating and target price chart (three year history)
Date
18-Oct-14
18-Jul-14
17-Apr-14
17-Jan-14
16-Oct-13
04-Oct-13
04-Oct-13
14-Aug-13
14-Aug-13
24-May-13
24-May-13
18-Apr-13
28-Mar-13
15-Jan-13
22-Oct-12
28-May-12
11-Apr-12
18-Jan-12
Rating
Target price
2,760.00
2,700.00
2,570.00
2,600.00
2,440.00
Buy
2,330.00
Neutral
1,970.00
Reduce
1,360.00
1,540.00
1,560.00
1,470.00
1,380.00
1,300.00
1,260.00
1,200.00
Closing price
2,441.15
2,403.728
2,188.778
2,179.08
2,181.394
2,002.384
2,002.384
1,805.356
1,805.356
1,446.992
1,446.992
1,430.45
1,551.562
1,316.92
1,298.655
1,205.901
1,120.63
1,059.631
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology Our TP of INR2,800 is based on 20x one-year forward EPS (up to Dec-16) of INR140. The 20x
multiple is at the higher end of TCS' historical valuation range; we expect this to sustain on higher predictability of
growth/margins and better positioning to benefit from the demand upturn. The benchmark index for this stock is the MSCI India.
Risks that may impede the achievement of the target price Downside risks are slower-than-anticipated growth and INR
appreciation.
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Nomura | Tata Consultancy Services
Cognizant (CTSH US)
16 January 2015
USD 54.41 (14-Jan-2015) Buy (Sector rating: N/A)
Rating and target price chart (three year history)
Date
16-Dec-14
06-Nov-14
16-Sep-14
07-Aug-14
12-Mar-14
06-Feb-14
11-Dec-13
06-Nov-13
04-Oct-13
07-Aug-13
24-May-13
09-May-13
25-Mar-13
08-Nov-12
04-Jul-12
09-May-12
08-Feb-12
Rating Target price
63.00
60.00
56.00
53.00
56.00
54.00
53.00
50.50
48.50
45.50
39.00
41.50
44.50
40.00
37.50
38.50
41.50
Closing price
51.21
52.64
44.98
44.38
51.59
47.745
46.75
45.34
42.425
36.905
31.885
34.225
37.195
32.64
29.875
30.295
35.375
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology Our TP of USD63 is based on 19x FY16F EPS of USD3.29. Our target P/E multiple is a 5% discount
to our valuation multiple for TCS. The benchmark index for this stock is MSCI India.
Risks that may impede the achievement of the target price Key downside risks include: 1) any disruption in global macro; 2)
integration risks associated with the Trizetto acquisition.
HCL Technologies (HCLT IN)
INR 1593 (15-Jan-2015) Buy (Sector rating: N/A)
Rating and target price chart (three year history)
Date
16-Dec-14
18-Oct-14
31-Jul-14
18-Apr-14
17-Jan-14
17-Oct-13
04-Oct-13
01-Aug-13
24-May-13
18-Apr-13
28-Mar-13
18-Jan-13
10-Dec-12
17-Oct-12
26-Jul-12
18-Apr-12
11-Apr-12
Rating Target price
1,950.00
1,900.00
1,850.00
1,730.00
1,700.00
1,400.00
1,280.00
1,120.00
875.00
910.00
900.00
850.00
750.00
700.00
630.00
600.00
580.00
Closing price
1,558.90
1,505.50
1,543.095
1,413.751
1,368.999
1,074.689
1,088.333
923.515
731.856
730.566
788.863
700.202
616.553
576.068
507.799
490.484
486.217
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology Our target price of INR1,950 is based on 16x FY16F EPS of INR122, which is a ~25% premium to the
stock’s five-year average, given: 1) better EPS growth and margin trajectory; and 2) improving cash generation and return
profile. The benchmark index for this stock is MSCI India.
Risks that may impede the achievement of the target price Key downside risks include: 1) any disruption in global macro; 2)
material margin disruption; and 3) INR appreciation against the USD.
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Nomura | Tata Consultancy Services
Infosys (INFO IN)
16 January 2015
INR 2134 (15-Jan-2015) Buy (Sector rating: N/A)
Rating and target price chart (three year history)
Date
03-Dec-14
11-Oct-14
14-Jul-14
13-Mar-14
11-Jan-14
11-Oct-13
04-Oct-13
14-Aug-13
14-Aug-13
15-Jul-13
24-May-13
24-May-13
28-Mar-13
14-Jan-13
15-Oct-12
13-Jul-12
04-Jul-12
17-Apr-12
17-Apr-12
11-Apr-12
Rating
Target price
2,220.00
4,300.00
3,790.00
3,770.00
4,020.00
3,760.00
3,640.00
Buy
3,530.00
2,500.00
Reduce
2,120.00
3,020.00
2,900.00
2,300.00
2,260.00
2,580.00
Neutral
2,550.00
3,350.00
Closing price
2,123.50
1,944.325
1,612.625
1,678.80
1,775.625
1,637.25
1,508.20
1,534.825
1,534.825
1,371.35
1,173.95
1,173.95
1,444.675
1,403.25
1,182.80
1,114.90
1,239.70
1,190.35
1,190.35
1,402.20
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology Our target price of INR2,220 is based on 17x one-year-forward EPS of INR130.3, which is in line with
its historical average valuations. The benchmark index for this stock is the MSCI India.
Risks that may impede the achievement of the target price Slower-than-anticipated demand pick-up, INR appreciation,
higher-than-anticipated pricing pressure in commoditized services and the re-emergence of risks from the US immigration bill
remain key risks to our recommendation.
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The rating system is a relative system, indicating expected performance against a specific benchmark identified for each individual stock,
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appropriate valuation methodology determined by the analyst. Valuation methodologies include, but are not limited to, discounted cash flow
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Nomura | Tata Consultancy Services
16 January 2015
analysis, expected return on equity and multiple analysis. Analysts may also indicate expected absolute upside/downside relative to the stated
target price, defined as (target price - current price)/current price.
STOCKS
A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral',
indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that
the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target
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additional information from Nomura relating to such securities and/or companies. Benchmarks are as follows: United States/Europe/Asia exJapan: please see valuation methodologies for explanations of relevant benchmarks for stocks, which can be accessed
at: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global Emerging Markets (ex-Asia): MSCI
Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology; Japan: Russell/Nomura Large Cap.
SECTORS
A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance,
indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that
the analyst expects the sector to underperform the Benchmark during the next 12 months. Sectors that are labelled as 'Not rated' or shown as
'N/A' are not assigned ratings. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging
Markets (ex-Asia): MSCI Emerging Markets ex-Asia. Japan/Asia ex-Japan: Sector ratings are not assigned.
Explanation of Nomura's equity research rating system in Japan and Asia ex-Japan prior to 21 October 2013
STOCKS
Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price,
subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock,
based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that
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SECTORS
A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive
absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks
under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average
recommendation of the stocks under coverage is) a negative absolute recommendation.
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impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the
company's earnings differ from estimates.
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Nomura | Tata Consultancy Services
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