24 August 2016

Update | Sector: Technology

HCL Technologies

BSE SENSEX S&P CNX CMP: INR787 TP: INR940 (+19%) Buy 28,060 8,650

Stock Info Bloomberg HCLT IN Equity Shares (m) 1410.756 52-Week Range (INR) 986 / 707 1, 6, 12 Rel. Per (%) 7/-25/-24 M.Cap. (INR b) 1110 M.Cap. (USD b) 16.5 Avg Val, INRm 1796 Free float (%) 39.6 Financials Snapshot (INR b) Y/E Mar 2016 2017E 2018E

Net Sales 311.4 474.1 544.0 EBITDA (INR b) 68.2 100.1 113.8 Net Profit 56.7 80.1 89.9 EPS 40.1 56.3 62.8 EPSGr. (%) -20.3 40.4 11.4 BV/Sh. (INR) 200.2 235.3 276.2 P/E (x) 19.6 14.0 12.5 P/BV (x) 3.9 3.3 2.8 RoE (%) 21.5 26.3 25.1 RoCE (%) 19.9 24.1 23.3 Shareholding pattern (%) As On Jun-16 Mar-16 Jun-15 Promoter 60.4 60.4 60.6 DII 6.6 5.7 4.5 FII 25.7 26.9 28.9 Others 7.4 7.0 6.0

FII Includes depository receipts Stock Performance (1-year)

Unleashes future growth strategy… …by focus on new areas to offset cannibalization in IMS and Applications

We attended HCL Technologies’ (HCLT) analyst meet, where the company demonstrated its strategy to cater to a 21st century enterprise. The company elaborated on its progress in Automation and Digitalization, where it has been building end-to-end capabilities to transform the Enterprise.

The company introduced its growth strategy for FY17 and beyond, which is based on different approaches for the following three modes: Mode 1 – Existing core services (Engineering and ITO); Mode 2 – Businesses that are at an inflection point (cloud, Security, Digital and IoT); and Mode 3 – Innovative IP partnership opportunities.

HCLT’s scale and capabilities position it nicely in the transforming market. Its strides in Automation, investments and holistic approach on Digital should help offset the cannibalization from infra and applications shift to public cloud. It re-iterated its FY17 guidance of revenue growth of 12-14% in CC and EBIT margin range of 19.5-20.5%.

Growth strategy for FY17 and beyond: Three modes HCLT introduced its growth strategy for FY17 and beyond, which is based on taking

a differentiated approach for the three areas of services: Mode 1 - Application Services, Infrastructure Services, Engineering & R&D

Services; Business Process Outsourcing: Offers opportunity at the current growth rate for the next few years owing to the large underserviced market (penetration of outsourcing is still below 50%), increased participation and win rates.

Mode 2 – Cloud Services, Security Services, BEYONDigital, IoT WoRKS: Offers opportunity to grow 20-30% YoY for next several years as these businesses are at an inflection point, providing high growth opportunities in markets that are fragmented and have no clear leaders.

Mode 3 – Products & Platforms (Ecosystem driven): Modest goals driven by strategic opportunities through partnerships for products and platforms.

Leveraging DryICE drive better win rates HCLT’s DryICE platform combines Autonomics and Orchestration. Its strategy and

approach encompass automation across service lines (focusing on the core) by leveraging Artificial Intelligence to drive real world benefits. DryICE has been used to drive 20-60% cost reduction, depending on the maturity of services and automation on a case-to-case basis. The success of DryICE is reflected in the fact that it has impacted 90% of new wins for HCLT. DryICE is currently being used by 54% of its existing customers, reflecting its acceptance on the current base.

Holistic Digital strategy HCLT’s Digital revenue forms ~25% of its Application Services revenue. Its strategy spans across Digital Engagement Platforms, Modern Application Development and Analytics. In line with this, it has carved out BEYONDigital, which is a broad-based digital transformation unit having 15,000+ practitioners and over 200 client relationships. HCLT’s positioning is being augmented by its Design practice, Digital platform development, Ops transformation through DryICE and global co-innovation labs.

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Ashish Chopra (Ashish.Chopra@MotilalOswal.com); +91 22 6129 1530 Sagar Lele (Sagar.Lele@MotilalOswal.com); +91 22 6129 1531 Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

HCL Technologies

24 August 2016 2

Prowess in IMS to continue aiding growth HCLT has USD2.4b IMS practice, which grew 23% YoY in FY16. It added 23 new customers in the last 12 months, and demonstrated multiple successful executions for transformational deals greater than USD250m in size. Its prowess in the area is reflected by: [1] 45% win rate, [2] 95% renewal rate, [3] 71% revenue from G2000 customers and [4] leadership in industry analyst reports. It sees a promising opportunity, given 49% outsourcing penetration in infrastructure and annual infra renewals to the tune of USD79b in TCV. Moreover, there stands a large cross-sell opportunity because of HCLT’s presence in the Apps and ERS business. Leadership in Engineering Services lends itself to IoT opportunity Engineering Services outsourcing market is largely underpenetrated, and is expected to grow 13-15% through 2020. HCLT, being the largest ER&D services provider, is set to benefit from this trend, given [1] investments in IoT, data analytics, test labs, etc., [2] capabilities across verticals and horizontals, and [3] customer base, which includes 54 of the top 100 R&D spenders. It has been further accelerating growth through its focus on IoT, wherein it has been winning one new customer every month, has achieved 10x growth in quarterly revenue run-rate in three quarters since formation, and has seen 7x growth in qualified funnel during the same period. Gearing up for next leg of growth, retains healthy guidance for FY17 With the introduction of HCLT’s growth strategy for FY17 and beyond, it has been working toward improving its positioning in traditional services and augmenting presence in newer services, a combination of which is expected to bode well in the medium-to-long term. 2 months on following the Brexit news, HCLT is not witnessing any impact from the same on the business just yet. The company maintained its FY17 guidance of revenue growth of 12-14% in CC and EBIT margin range of 19.5-20.5%. Over the medium-to-long term, HCLT’s capabilities in IMS and Engineering Services, coupled with increasing presence in Digital, are likely to keep the company in good stead. Our target price of INR940 discounts FY18E earnings by 15x, implying 19% upside. Maintain Buy.

HCL Technologies

24 August 2016 3

Exhibit 1: Growth strategy for FY17 and beyond...

Source: Company

Application Services – Leveraging Digital HCLT’s Application Services business constitutes to 40% of total revenue. There are multiple dynamics playing out in each of its constituents. Its practice is broadly spread over Enterprise Package Services (20-25% of revenue), Application Development (50-60%) and Application Managed Services (15-30%). Re-architecting the Enterprise Package Services portfolio The ERP space has been impacted by the migration to cloud, and saw a decline

of ~20% last year. To tackle the shift from on-premise to cloud, HCLT has been augmenting its presence in Enterprise Cloud. It is a leading SAP SI and Global Tier-I SAP partner, with 9,000+ consultants, and 350+ customers. Customers are increasingly being forced to re-look at their SAP architecture; in-line with SAP’s cloud-first strategy. This is likely to result in pain in the short-term as deal sized and duration reduce, causing pressure on revenue growth. However, the company is utilizing this period to re-architect capabilities and increase relevance for the future.

Similarly, it has also built capabilities around Microsoft Dynamics. HCLT has 235 practitioners in Microsoft Dynamics and 1,384 customers. It added these capabilities through the acquisition of PowerObjects, which is a leading provider of Dynamics CRM services worldwide.

Application Development merging into Digital HCLT’s Digital strategy spans across Digital Engagement Platforms, Modern

Application Development and Analytics. In line with this, it has carved out BEYONDigital, which is a broad-based digital transformation unit.

BEYONDigital has 15,000+ practitioners and over a 100 customers. It is based on the four pillars of [1] Design Thinking, [2] UI/UX Management, [3] Digital Platforms, and [4] Intelligent Analytics. It has a broad service portfolio that spans across the areas of Digital Marketing, Digital Commerce, Modern Application Development and Analytics, which leverages HCLT’s tools and IP like BrandeX, IllumInfo, ALMSmart, PRIZM, DAT, BIG BYTES, DMF, R2D2 and BAS EDGE.

HCL Technologies

24 August 2016 4

Differentiating Application Support through DryICE The application management market at USD72.8b in 2016 is expected to grow at

5.6% CAGR through 2020. HCLT has been differentiating in this market using its DryICE framework, focusing on improving stability, user experience and service efficiency.

Exhibit 2: Real world examples of DryICE

Source: Company

Exhibit 3: Application Management Services continues to represent opportunity

Source: Company

Infrastructure Services – strong market opportunity HCLT’s Infrastructure Services business is spread across the service lines of Data

Center & Cloud Services, Workplace Services, Network Services, Security & GRC and Enterprise Platform Services. The practice has revenue of USD2.35b, employs 34,000 people across 240+ customers.

Infrastructure Services revenue grew by 23% YoY in FY16 as the company added 23 new customers. It has successfully executed multiple transformation deals that are over USD250m in size. It has demonstrated a win rate of 45%, and 48% of its deals are won against global competition.

The drive to improve productivity has been rampant, and automation levers have been applied in more than 54% of the accounts. This has resulted in an average 35% reduction in human effort. Moreover, the Fixed Price project dominance enhances the impact of Automation. HCLT is going through an

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24 August 2016 5

intensive training program aimed at reskilling resources in Automation and Digital.

The market opportunity remains strong led by First time outsourcers – 51% of the G2000 have not yet outsourced Strong rebid market – Total value of rebids stands at USD22.6b (ACV) and

USD79.8b (TCV) Strong positioning – HCLT has a win ratio of 40%, which makes it strongly

positioned to capture the opportunity HCLT has acquired several capabilities through acquisitions and investments –

Volvo IT (market access, new service capability), point to point (workplace services transformation and systems integration and MOOG (IT operations transformation through Artificial Intelligence).

Exhibit 4: IMS has been a significant growth driver for HCLT

Source: MOSL, Company

Engineering Services – strong market opportunity The ER&D outsourcing market has been fairly underpenetrated, and is expected

to grow 13-15% reaching USD37-45b by 2020. As per NASSCOM, India currently captures a 28% share of the global offshored ER&D, which is expected to grow to ~35% by the end of 2020.

HCLT is the largest player in India in this space, and has capabilities spread across 8 major verticals. It has made several investments over the last few years that have resulted in this dominance. End-to-end product development capabilities, focus on IoT, and investments in test labs have been improving positioning.

It has been demonstrating growth through large deals, which have been a function of [1] Product Carve Outs (of legacy products), [2] Rebadging of Workforce (context specific skillsets/technologies), [3] Vendor Consolidation (using risk reward models), [4] Managed Services (for specific programs/processes), [5] Product Partnerships (of matured products) and [6] Technology partnerships (of technologies with skill gaps at scale).

HCLT follows a three pronged M&A approach in this space – Niche Tech M&A for acquisition of skills (C2SiS), Account Specific M&A (Trygstad) and Growth Gap M&A for complementary fitment, scale and customer acquisition (Geometric).

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IMS Revenues

% of overall revenues % of incremental revenues

HCL Technologies

24 August 2016 6

Exhibit 5: ER&D contributing significantly to growth...

Source: MOSL, Company

Exhibit 6: Sourcing very low in ER&D compared to IT Services and BPM

Source: MOSL, NASSCOM

Exhibit 7: India has scope for market share gain in the ER&D sourcing market

Source: MOSL, NASSCOM

Exhibit 8: India gaining share in the ER&D ecosystem

Source: MOSL, Company

Exhibit 9: Market largely untapped

Source: MOSL, Company

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Incremental Revenue Contribution (%)

IMS ER&D

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34%

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Sourcing share in global spend (%)

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Growth in 2014 (YoY, %) Global ER&D spend

(USD1,440b)

Global sourcing market

(USD68b)

India's ER&D market

(USD17b)

HCL Technologies

24 August 2016 7

Valuation view HCLT’s differentiated positioning in IMS has helped it grow ahead of the industry

average in the last few years and additionally its capabilities in Engineering Services have compounded to that in CY15. Disconcertingly however, the rapid decline in margins (185bp LTM YoY); combined with the lack of clarity on negative impact of the integration of Volvo, need for investments in the organic business and the absence of guidance, raised concerns around resurrection of profitability. This led to downward revision of margin estimates, well below the 21-22% range the management had earlier stated. However, the newly guided 19.5-20.5% EBIT margin range provides visibility on the quantum of pressure, and subsequently also results in upgrades from earlier expectations, that built n conservatism.

While 9MFY16 was relatively muted, led by delayed transition in IMS deals and some softness in select verticals; improvement has started to reflect in revenue growth for IMS. However, consistent 0-1% QoQ growth in Application Services (40% of total revenue) and a pause in strength in BFSI (25% of total revenue) has been weighing on overall performance. 1. IMS, which grew at a CAGR of 30% over FY10-15, and contributed 46% of

HCLT’s incremental revenues during this period, saw some slowness in YoY growth momentum in recent quarters. While this raised fears of competitive intensity taking its toll, deal signings have remained healthy, and we expect growth in IMS to remain strong at least in the foreseeable future. HCLT enjoys a healthy lead as far as scale in IMS is concerned, with FY15 revenue of USD2.2b+.

2. Total estimated spend on Engineering Services and R&D is USD1.4t, of which exports from India are pegged at merely USD12.5b. ~50% of this is serviced out of captives, while the remainder is outsourced to third party vendors like HCLT. As per Nasscom, ER&D exports will grow to ~USD50b by 2020. With FY15 revenues of USD1b+, HCLT is the largest provider of outsourced Engineering Services (19% of HCLT’s revenue). Its acquisition of Geometric further augment its capabilities and open doors in the verticals of automotive, industrial and aerospace, thus improving prospects of advantages in the mid-long term.

HCLT trades at 14x/12.5x FY17/F18E EPS. We expect it to post USD revenue CAGR of 11.6% over FY16-18E and EPS at a CAGR of 9.1%, during this period. A couple of quarters ago, we had lowered our target multiple for HCLT from 16x, embedding: 1. Relative slackening in Engineering Services activity v/s a spike in 2HCY14

(though the segment should still grow above company average), and 2. Risks to IMS growth beyond the foreseeable future from disruption in the

market through cloud / automation / software-defined infrastructure. We continue to believe in double digit organic growth potential at HCLT, despite

the softness in Application Services, substantiated by a strong order book. Given better growth than peers like TECHM and WPRO, along with 25%+ RoE, we have retained our target multiple at 15x, while having already embedded conservatism in our margin outlook going forward.

Consequently, our price target of INR940 implies 20% upside. A pick-up in organic growth would be the key trigger for the stock.

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24 August 2016 8

Key triggers Uptick in quarterly deal wins TCV – led by compounding of Engineering Services

deals to IMS and ITO signings Return to industry-leading growth Pick-up in organic revenue growth Key risks Lack of growth pick-up in Financial Services Pull back in IMS growth amid competitive intensity Continued moderation of Application Services weighing on overall growth

Exhibit 10: HCLT 1 year forward PE chart

Exhibit 11: HCLT 1-year forward PB chart

Exhibit 12: Comparative valuations Company Mkt cap Rating TP (INR) Upside EPS (INR) P/E (x) RoE (%) FY16-18E CAGR (%) (USD b)

(%) FY17E FY18E FY17E FY18E FY17E FY18E USD rev. EPS

TCS 74.7 Neutral 2,650 3.0 134.0 153.1 19.2 16.8 33.6 32.7 10.8 11.5 Infosys 35.6 Buy 1,300 23.0 62.3 72.4 17.0 14.6 23.0 23.9 10.6 10.7 Wipro 18.9 Neutral 570 9.6 34.9 40.6 14.9 12.8 17.9 18.9 7.3 6.0 HCL Tech 16.5 Buy 940 19.0 56.3 62.8 14.0 12.6 26.3 25.1 11.4 8.3 TechM 6.8 Neutral 550 17.8 33.8 41.3 13.8 11.3 19.8 17.6 9.6 8.5 Cognizant 35.4 Not Rated

2.6 3.2 22.4 17.9 15.7 16.8 11.8 10.4

Source: Bloomberg, Company, MOSL

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24 August 2016 9

Story in charts

Exhibit 13: Opportunity from churn in rebid market continues to remain healthy…

Source: Company, MOSL

Exhibit 14: … and HCLT continues to reap its benefits through deal wins…

Source: Company, MOSL

Exhibit 15: IMS growth moderation could impact future growth, remains strong for now

Source: Company, MOSL

Exhibit 16: Parts apart from IMS adding to incremental growth

Source: Company, MOSL

Exhibit 17: Operating margins under pressure

Source: Company, MOSL

Exhibit 18: PAT growth bogged down by margin stress

Source: Company, MOSL

42 28 24 48 46 34 54 26

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Churn market oppurtunity (USD b)

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IMS Revenues

% of overall revenues % of incremental revenues

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IMS ER&D

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EBIT margin (%) SGA (%)

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24 August 2016 10

Operating metrics

Exhibit 1: Comparative Valuation

2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 1QFY17 Service Line wise (%)

Application services 45.1 44.9 44.2 43.4 42.4 41.5 40.9 40.4 40.4 39.9 38.3 Engineering and R&D Services 16.6 16.1 16.2 17.1 18.3 18.9 18.7 19.2 18.6 18.7 17.7 Infrastructure Services 33.7 34.5 34.5 34.5 34.4 34.5 35.3 35.1 35.5 36.2 39.8 BPO Services 4.6 4.5 5.1 5.0 4.9 5.1 5.2 5.3 5.5 5.2 4.1 Vertical wise (%)

BFSI 25.9 26.9 28.4 28.2 26.6 26.1 26.0 26.1 25.9 25.0 23.6 Manufacturing 33.6 33.3 31.6 32.3 32.9 33.4 32.7 32.5 31.5 31.4 33.2 Retail & CPG 8.6 8.5 8.5 9.5 9.7 8.4 8.8 8.8 9.5 9.2 10.0 Telecom MP&E 8.9 8.4 8.9 8.7 8.4 9.0 9.5 9.6 9.7 9.9 9.1 Life Sciences 10.8 10.4 10.2 9.8 11.1 11.2 12.0 12.4 12.2 12.8 11.9 Public Services 9.2 10.1 10.1 9.3 9.5 10.4 9.7 10.0 10.6 11.1 11.7 Others 3.1 2.3 2.3 2.2 1.8 1.5 1.3 0.6 0.6 0.5 0.5 Geography wise (%)

US 56.9 55.4 54.3 56.3 57.4 57.5 58.6 58.7 61.0 62.5 59.9 Europe 31.3 31.8 33.0 32.3 31.7 31.0 30.4 31.7 29.9 28.4 31.4 ROW 11.8 12.8 12.7 11.4 10.9 11.5 11.0 9.6 9.1 9.1 8.7 Client wise (%)

Top 5 clients 14.8 15.0 14.7 14.4 14.0 13.5 13.2 13.6 13.6 13.6 13.9 Top 10 clients 23.8 24.1 23.7 23.1 22.3 21.8 21.7 21.9 21.7 21.8 21.8 Top 20 clients 33.6 34.2 33.7 33.0 32.4 32.2 32.4 32.4 32.4 32.2 31.7

QoQ Growth (%)

Service Line wise

Application services 2.4 2.9 1.6 0.0 1.6 -2.1 1.6 -0.7 1.4 0.1 2.2 Engineering and R&D Services 2.1 0.1 3.8 7.6 11.5 3.0 2.0 3.3 -1.8 1.9 0.8 Infrastructure Services 6.0 5.1 3.7 1.9 3.6 0.4 5.5 -0.1 2.6 3.3 17.1 BPO Services 13.7 -0.7 17.7 -0.2 2.0 4.1 4.8 2.8 5.2 -4.2 -16.0 Vertical wise

BFSI 3.8 6.8 9.3 1.2 -1.9 -2.0 2.8 0.8 0.6 -2.2 0.6 Manufacturing 5.0 2.0 -2.1 4.4 5.9 1.3 1.0 -0.2 -1.7 1.0 12.6 Retail & CPG 7.5 2.8 2.9 14.3 5.6 -13.4 8.1 0.5 9.5 -1.9 15.8 Telecom MP&E 1.2 -2.6 9.5 -0.4 0.4 7.1 8.9 1.5 2.5 3.4 -2.1 Life Sciences -3.8 -0.7 1.4 -2.1 17.9 0.8 10.5 3.8 -0.2 6.3 -1.0 Public Services 21.8 13.9 2.8 -6.1 6.2 9.3 -3.8 3.6 7.5 6.1 12.3 Others -16.9 -20.4 2.1 -6.7 -15.8 -12.0 -10.6 -53.6 1.4 -15.5 6.5 Geography wise

US 3.4 0.4 1.3 5.7 6.0 0.0 5.1 0.6 5.4 3.8 2.1 Europe 7.8 4.8 7.4 -0.3 2.1 -2.6 1.2 4.8 -4.4 -3.7 17.8 ROW -2.3 11.0 2.2 -8.9 -0.6 7.9 -1.3 -12.3 -3.9 1.3 1.8 Client wise

Top 5 clients 1.9 4.4 1.3 -0.2 1.1 -3.6 0.9 3.5 1.4 1.3 8.9 Top 10 clients 4.0 4.3 1.6 -0.7 0.4 -2.3 2.7 1.4 0.5 1.8 6.5 Top 20 clients 5.3 4.9 1.8 -0.2 2.1 -0.6 3.8 0.5 1.4 0.7 4.9

Source: Company, MOSL

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Financials and Valuations

Key assumption 2011 2012 2013 2014 2015 2016 2017E 2018E

INR/USD Rate 44.9 50.7 54.9 61.4 62.3 66.3 67.8 70.0 Revenues (USD m) 3,545 4,152 4,687 5,360 5,952 4,698 6,996 7,771 IMS Revenue (USD m) 827 1,005 1,367 1,820 2,064 1,673 2,780 3,128 Software Services Rev (USD m) 2,523 2,957 3,114 3,293 3,588 2,775 3,923 4,304 Total Headcount 77,046 84,319 85,505 91,691 106,107 104,896 117,018 129,318 Net Addition 12,489 7,273 1,186 6,186 14,416 -1,211 12,122 12,300 Per Capita Productivity (USD) 46,015 49,237 54,810 58,454 56,097 59,714 59,787 60,092 Income Statement (INR Million) Y/E Mar 2011 2012 2013 2014 2015 2016 2017E 2018E Net Sales 159,118 210,312 257,336 329,180 370,620 311,360 474,128 543,970 Change (%) 26.6 32.2 22.4 27.9 12.6 -16.0 52.3 14.7 EBITDA 26,312 39,396 57,536 86,670 87,020 68,150 100,117 113,828 EBITDA Margin (%) 16.5 18.7 22.4 26.3 23.5 21.9 21.1 20.9 Depreciation 4,935 5,641 6,726 7,320 4,440 4,450 6,328 6,117 EBIT 21,377 33,755 50,810 79,350 82,580 63,700 93,789 107,711 Other Income -541 -1,170 1,570 -160 7,559 7,960 8,038 7,357 Extraordinary items 0 0 0 0 1,551 0 0 0 PBT 20,836 32,585 52,380 79,190 91,690 71,660 101,827 115,068 Tax 4,744 8,032 12,130 15,480 19,080 14,990 21,763 25,167 Tax Rate (%) 22.8 24.6 23.2 19.5 20.8 20.9 21.4 21.9 Min. Int. & Assoc. Share 0 0 0 1 2 0 0 0 Reported PAT 16,092 24,553 40,250 63,709 72,608 56,670 80,064 89,901 Adjusted PAT 16,092 24,553 40,250 63,710 71,059 56,670 80,064 89,901 Change (%) 36.7 52.6 63.9 58.3 11.5 -20.2 41.3 12.3

Balance Sheet (INR Million) Y/E Mar 2011 2012 2013 2014 2015 2016 2017E 2018E Share Capital 2,729 2,762 2,777 2,793 2,797 2,799 2,802 2,806 Reserves 81,616 104,552 140,168 198,021 244,713 277,422 326,927 384,623 Net Worth 84,345 107,314 142,945 200,814 247,510 280,221 329,729 387,428 Debt 21,240 19,222 6,960 7,509 4,690 9,732 7,918 7,918 Total Capital Employed 105,585 126,536 149,905 208,323 252,200 289,953 337,647 395,346 Gross Fixed Assets 49,608 57,859 67,093 78,595 89,770 99,251 128,204 136,088 Less: Acc Depreciation 27,443 33,084 39,810 47,130 51,570 56,020 56,020 56,020 Net Fixed Assets 22,165 24,775 27,283 31,465 38,200 43,231 72,184 80,067 Intangibles 52,270 69,453 72,046 74,954 82,700 102,983 105,664 111,443 Investments 19,991 19,723 42,991 89,948 104,450 112,837 111,102 105,322 Current Assets 51,809 75,325 88,159 108,537 131,760 138,624 198,987 271,874 Debtors 34,065 53,440 61,767 77,086 94,860 107,228 121,758 139,694 Cash & Bank 5,198 6,673 7,321 10,206 13,520 7,293 50,098 101,323 Loans & Adv, Others 12,546 15,212 19,071 21,245 23,380 24,103 27,131 30,856 Curr Liabs & Provns 40,650 62,740 80,574 96,581 104,910 107,720 150,290 173,360 Net Current Assets 11,159 12,585 7,585 11,956 26,850 30,904 48,697 98,514 Total Assets 105,585 126,536 149,905 208,323 252,200 289,955 337,647 395,346

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Financials and Valuations Ratios Y/E Mar 2011 2012 2013 2014 2015 2016 2017E 2018E

Basic (INR) EPS 11.5 17.5 28.6 45.1 50.4 40.1 56.3 62.8 Cash EPS 15.1 21.6 33.3 50.3 54.5 43.3 60.4 67.0 Book Value 61.8 77.7 103.0 143.8 177.0 200.2 235.3 276.2 DPS 3.8 6.0 6.0 11.0 16.0 17.0 18.0 19.0 Payout (incl. Div. Tax.) 32.6 34.3 21.0 24.4 31.8 42.4 32.0 30.3 Valuation(x) P/E 0.0 44.9 27.5 17.4 15.6 19.6 14.0 12.5 Cash P/E 0.0 36.4 23.6 15.6 14.4 18.2 13.0 11.7 Price / Book Value 0.0 10.1 7.6 5.5 4.4 3.9 3.3 2.8 EV/Sales 0.0 5.1 4.1 3.1 2.7 2.4 2.0 1.7 EV/EBITDA 0.0 27.4 18.2 11.6 11.3 10.9 9.5 7.9 Dividend Yield (%) 0.0 0.8 0.8 1.4 2.0 2.2 2.3 2.4 Profitability Ratios (%) RoE 20.8 25.6 32.2 37.1 31.7 21.5 26.3 25.1 RoCE 15.4 20.6 26.5 35.3 29.2 19.9 24.1 23.3 RoIC 19.8 25.3 34.2 53.8 48.3 30.6 39.0 41.3 Turnover Ratios (%) Asset Turnover (x) 7.8 9.0 9.9 11.2 10.6 7.6 8.2 7.1 Debtors (No. of Days) 74.0 75.9 81.7 77.0 84.7 118.5 88.1 87.7 Leverage Ratios (%) Net Debt/Equity (x) 0.2 0.1 0.0 0.0 0.0 0.0 -0.1 -0.2

Cash Flow Statement (INR Million) Y/E Mar 2011 2012 2013 2014 2015 2016 2017E 2018E Adjusted EBITDA 26,312 39,396 57,536 86,670 87,020 68,150 100,117 113,828 Non cash opr. exp (inc) -752 -9,657 -2,415 -999 -7,200 -8,129 -3,299 -5,779 (Inc)/Dec in Wkg. Cap. -4,836 -6,410 3,843 -950 -9,555 -10,326 17,941 -1,298 Tax Paid -4,744 -8,032 -12,130 -15,480 -19,080 -14,990 -21,763 -25,167 Other operating activities 0 0 0 0 0 0 0 0 CF from Op. Activity 15,980 15,297 46,834 69,241 51,185 34,705 92,997 81,583 (Inc)/Dec in FA & CWIP -7,370 -15,777 -9,412 -13,412 -10,172 -21,635 -34,663 -14,000 Free cash flows 8,610 -480 37,422 55,829 41,013 13,070 58,334 67,583 (Pur)/Sale of Invt -50 6,727 -21,463 -47,493 -16,527 -8,342 8,806 8,486 Others 0 0 0 0 0 0 0 0 CF from Inv. Activity -7,420 -9,050 -30,875 -60,905 -26,699 -29,977 -25,857 -5,514 Inc/(Dec) in Net Worth 3,885 8,118 5,134 12,155 1,040 4,764 -91 -7 Inc / (Dec) in Debt -5,392 -2,018 -12,262 549 -2,819 5,042 -1,814 0 Divd Paid (incl Tax) & Others -6,541 -10,871 -8,183 -18,156 -19,393 -20,763 -22,427 -24,837 CF from Fin. Activity -8,048 -4,772 -15,311 -5,452 -21,171 -10,958 -24,332 -24,844 Inc/(Dec) in Cash 512 1,475 648 2,884 3,315 -6,230 42,808 51,225 Add: Opening Balance 4,686 5,198 6,673 7,321 10,206 13,520 7,291 50,099 Closing Balance 5,198 6,673 7,321 10,206 13,520 7,291 50,099 101,324

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N O T E S

HCL Technologies

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