Barclays- India IT Services Group Mid-Cap Conversations Suggest Steady Demand

7/28/2019 Barclays- India IT Services Group Mid-Cap Conversations Suggest Steady Demand

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Equity Resear

8 July 20

India IT Services

Mid-cap conversations suggest

steady demandOur discussions with the management of several Indian mid-cap IT services

companies indicate that FY14 growth will be led by a revival in spending in the US,

while growth in Europe is likely to remain muted. Infosys and HCL among our

coverage universe, have the most exposure to the US. Within industry verticals, some

are exhibiting strength (manufacturing, financials, utilities) while the telecom

segment continues to be weak. Vendors are investing more in sales and marketing to

bid for large transformational deals. In the case of emerging trends such as Cloud

computing, while most companies agreed that the Cloud offers a large opportunity,

they also indicated that the transition to Cloud-based applications will be gradual.

For the companies we cover, we believe that FY14 revenue growth will likely remainaround the mid-double-digit/high-single-digit range. HCL Tech and Infosys (both

OW) are our top picks.

US revival to drive FY14 growth: Indian mid-cap IT companies we spoke with expect

FY14 to be a better year than FY13 in terms of revenue growth, with macro indicators in

the US, which accounts for c65% of revenues, heading towards a steady revival.

Growth for most companies is expected to come in second-half FY14.

Broad-based growth still elusive: Management commentary indicated that growth will

be limited to a few verticals, such as manufacturing, BFSI and utilities, where customers

are facing regulatory or industry-specific changes. Some of the indicators that

management cited included steady IT hiring trends in the US and increased off-shoring

by clients as the focus on controlling the cost base continues. However, there still

remains an uncertainty in IT spends and vendors accept that visibility remains limited.

Focus on acquisitions remains: Companies such as KPIT Cummins, Infotech and eClerx

are open to acquisitions in order to drive inorganic growth. Management from these

companies highlighted that acquisitions should help: 1) increase the customer base; or

2) provide access to a new industry vertical or business line.

Transition to Cloud will be slow: Cloud acceptance will occur in a phased manner,

according to the companies we met with, with every corporate moving to some form of

Cloud over a 5-7 year period. While the pace of acceptance has been healthy among

SMEs, acceptance at large organizations will be slow given the cross-continental nature

of businesses. While the Cloud currently involves largely database migrations,applications (e.g., SaaS Software as a Service) have also started gaining traction. Apart

from Salesforce, Microsoft Azure and IBM Cloud are doing well in terms of cloud

implementation, as per management.

Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies coveredin its research reports. As a result, investors should be aware that the firm may have a conflict of interestthat could affect the objectivity of this report.

Investors should consider this report as only a single factor in making their investment decision.

This research report has been prepared in whole or in part by equity research analysts based outside theUS who are not registered/qualified as research analysts with FINRA.

PLEASE SEE ANALYST(S) CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 17.

INDUSTRY FOCUS

Asia Ex-Japan Software & IT ServicesNEUTRAL

Unchanged

Asia Ex-Japan Software & IT Services

Bhuvnesh Singh

+91 22 6719 6314

[email protected]

BSIPL, Mumbai

Hitesh Das

+91 22 6719 6213

[email protected]

BSIPL, Mumbai


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Barclays | India IT Services

8 July 2013

2

INVESTMENT SUMMARY

We have interacted with CFOs of key mid-cap IT services companies to hear their views on

the demand environment. Management interaction suggests that growth in FY14 will be

driven mostly by an economic revival in the US, while demand in Europe is likely to remain

sluggish. We note this view tallies with takeaways from Accentures 3Q results (see our

note,Indian IT Services: Takeaways from Accenture 3Q results, 28-June 2013).

The US accounts for c55% of revenues for the top-four Indian IT vendors, which augurs

well for their FY14 growth, in our view. Infosys and HCL are the most levered to North

America (c57-60% of March 2013 revenues), while Wipro has the least revenue exposure

(c50% of March 2013 revenues).

FIGURE 1

India IT Services: Revenue exposure by region, March 2013 quarter

Mar-13 Revenue(US$ mn)

North America Europe Others

Infosys 1,938 60% 25% 15%

TCS 3,039 52% 26% 22%

Wipro 1,585 50% 29% 21%

HCL 1,191 57% 29% 14%

Source: Company data, Barclays Research

However, broad-based growth across verticals is still not being witnessed by the mid-cap

companies, and only certain pockets such as banking, manufacturing and utilities offer

steady opportunities, according to the companies we spoke with. The telecom sector is still

weak in line with TCS managements comments at the companys recent analyst meet

(see our note,TCS: Analyst meeting takeaways; Management provides stable outlook, 12-

June 2013).

FIGURE 2

India IT Services: Revenue exposure by industry vertical, March 2013 quarter

Green border indicates positive

demand environment while red

border suggests sluggishness


Management of mid-cap companies agreed that there still exists a degree of uncertainty on

customer IT investment decisions, which indicates that there has been no major change to

the demand dynamics in the past quarter. This view was echoed by Wipro management,

who also elucidated that no uptick has been witnessed in discretionary spending (see our

note, India IT Services: Divergence - June '13 preview, 2-July 2013). IT companies are now

investing to ramp up their sales forces and increase delivery capabilities in order to bid for

larger deals.

0%

10%

20%

30%

40%

50%

60%

70%

80%

Infosys TCS Wipro HCL

%

BFSI Manufacturing Energy & Utilities Telecom
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In terms of opportunities in the Cloud, management largely agreed that the opportunity is

huge; however, the opportunity will pan out over a longer timeframe (c5-7 years) as

acceptance will likely be slow. As SaaS opportunities grow, we believe that there may be

improved traction in the Infosys PPS (Products, Platforms and Solutions) initiative, currently

c5.7% of the companys revenues.

Takeaways for our coverage universe

In terms of our coverage universe, we believe that demand trends for Indian IT vendorsshould remain stable and we expect the top four Indian vendors to deliver high-single-

digit/mid-double-digit y/y (US$) revenue growth in FY14. We remain OW on Infosys given

tempered valuations as a result of low expectations in the market, while our confidence in

HCL (OW) arises from its steady revenue growth based on a strong project backlog. For TCS

(EW), expensive valuations prevent us from taking a more constructive stance on the

company despite a good execution track-record. In Wipro (UW), we believe that company-

specific issues might continue and a revival in revenue growth is still some time away.

FIGURE 3

India IT services Comparative valuations

Company Rating Price (Rs) PT (Rs)

%

up/downto PT Revenue Growth EPS Growth P/E RoE

FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E

Infosys OW 2,461 2,750 12% 8% 8% 5% 16% 14.2 12.2 23% 23%

TCS EW 1,534 1,475 -4% 16% 14% 13% 16% 19.1 16.4 33% 32%

Wipro UW 351 356 1% 8% 9% 7% 11% 13.0 11.7 21% 19%

HCL Tech OW 799 865 8% 13% 12% 9% 11% 11.9 10.8 27% 24%

Notes: Prices as of 4 July 2013. Stock ratings: OW: Overweight; EW: Equal Weight; UW: Underweight. Industry views: Pos: Positive; Neu: Neutral; Neg: Negative. Asia

ex-Japan Software & IT Services: Neutral. For full disclosures on each covered company, including details of our company-specific valuation methodology and risks,

please refer tohttp://publicresearch.barcap.com.

Source: Company reports, Barclays Research estimates

FIGURE 4

US GDP consensus expectations are stabilising

FIGURE 5

India mid-cap IT services companies geographical

exposure

Source: Bloomberg consensus estimates Note: Geographical exposure of the companies that we met with, as listed in

Figure 3 Source: Company data, Barclays Research

1.5

1.7

1.9

2.1

2.3

2.5

2.7

2.9

3.1

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13

Jun-13

Jul-13

US GDP %y/y

2013 2014 2015

Americas66%

Europe

20%

APAC &

Others14%
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FIGURE 6

India mid-cap IT services companies geographical revenue breakdown, by company as of FY13


FIGURE 7

India mid-cap IT services companies summary of comments on FY14 demand environmentCompany Comments on demand environment

eClerx Expect a strong 2HFY14; growth to be driven largely by banking sector

Persistent Demand is holding up in US; hiring trends of computer science and IT graduates in US appear positive

NIIT Tech Deal backlog at end-Q4FY13 to drive growth in FY14; looking to maintain a balanced geographical exposure

Infotech Europe will be sluggish; hi-tech & heavy engineering to remain soft in FY14; growth will come from aerospace and utilities

KPIT US is leading demand; key growth industry verticals include manufacturing and automobiles

Infoedge Macro slowdown to impact growth in Naukri; other key portals still not expected to be profitable

Rolta US and Middle East offer growth opportunities; Europe and India to remain soft

Source: Companies, Barclays Research

FIGURE 8

India mid-cap IT services companies summary of views discussed in our meetings

Company Will FY14 be better than FY13? Are you looking for acquisition? How big is the impact of Cloud?

eClerx Yes Yes NA

Persistent NA NA Big

NIIT Tech Yes NA Big

Infotech Yes Yes Big

KPIT Yes Yes Peripheral

Note: NA = Not Available

Source: Companies, Barclays Research

FIGURE 9

India mid-cap IT services companies Comparative valuations

Company Ticker Price (Rs) Mcap (US$ mn) Revenue Growth EPS Growth P/E RoE (%)

FY+1 FY+2 FY+1 FY+2 FY+1 FY+2 FY+1 FY+2

KPIT KPIT IN 120 384 13% 13% 17% 14% 9 8 20 20

Persistent PSYS IN 496 329 15% 14% 13% 13% 9 8 19 20

Infoedge INFOE IN 301 545 18% 22% 34% 26% 27 21 42 39

Infotech INFTC IN 175 323 9% 12% 7% 12% 8 7 17 17

eClerx ECLX IN 743 368 14% 13% 22% 12% 11 10 42 39

NIIT Tech NITEC IN 265 265 14% 11% 16% 9% 7 6 21 19

Note: Companies in this table are not rated by Barclays

Source: Bloomberg consensus estimates as 4 July 2013, Barclays Research

74%85%

38%

60%

76%

20%7%

26%

26%

13%

6% 9%

23%

14% 11%

100%

0%

10%

20%

30%

40%

50%60%

70%

80%

90%

100%

eClerx Persistent NIIT Tech Infotech KPIT Infoedge

Americas Europe APAC & Others


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FIGURE 10

India mid-cap IT services companies one-year forward P/Es

Source: Datastream consensus estimates, Barclays Research

8

9

10

11

12

13

14

15

16

Jun-10

Aug-10

Oct-10

Dec-10

Feb-11

Apr-11

Jun-11

Aug-11

Oct-11

Dec-11

Feb-12

Apr-12

Jun-12

Aug-12

Oct-12

Dec-12

Feb-13

Apr-13

Jun-13

(X)

1 yr fwd P/E


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TAKEAWAYS FROM COMPANY INTERACTIONS

We interacted with CFOs of key mid-cap companies in the India IT services sector last

month to garner feedback and views on the demand environment and emerging trends

in the IT services space, such as Cloud. We include key takeaways from our company

interactions below.

eClerx (ECLX IN, not rated)

Looking for a BFSI revival

FY14 looking better than FY13

Management believes that growth in FY14 will be better than or equal to FY13, led by a

rebound in the US economy (c74% of FY13 revenues were from North America). However,

growth is expected to be loaded towards 2HFY14.

FIGURE 11

eClerx: Revenue growth in US$ terms

FIGURE 12

eClerx: Revenue split by region

Source: Company data, Barclays Research Source: Company data, Barclays Research

The company reported that contracts have been coming through recently as large financial

services firms are undergoing process transformation. However, management expects that

off-shoring will only pick up on a case-by-case basis, which will dictate the companys deal

win rate for the year. Organic growth in FY13 was sluggish as most of the business is

dependent on BFSI (Banking & Financial Services) spend, which remained muted last year.

Pricing may witness a minor up-tick in FY14, according to management.

Margins not sacrosanct

Management highlighted that maintaining high margins is not sacrosanct and it could

consider forfeiting margin to drive growth. However, management does not see any largedeals coming up that may necessitate lower pricing.

While investment in sales and marketing will continue, the investment has not yielded

results as expected (in US$ terms). Management noted that eClerx margins are not the

highest in the industry; it believes that players such as Mu-Sigma have a better margin

profile, although it believes eClerx margins are better than those of TCS e-Serve.

42

55

75

98

122

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FY09 FY10 FY11 FY12 FY13

%y/yRevenue

Revenue (US$ mn) %y/y

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100%

FY10 FY11 FY12 FY13

North America Europe ROW

FY14 growth to be led by a

stronger US economy


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FIGURE 13

eClerx: Margin profile

FIGURE 14

eClerx: Employee utilisation


Open to acquisitions

Management highlighted that its Agilyst acquisition has been successful and maintained its

view that it is open to acquiring a new entity, if the fit is right.

FIGURE 15

eClerx: Employee metrics

FIGURE 16

eClerx: Debtor days outstanding


FIGURE 17

eClerx: Key financial data

Key Facts

Price (Rs) 743

Market Cap (USD mn) 368

FY14 Div. Yield (%) 3.5

52 week High/Low 910/597

FY14 P/E 10.6

Source: Bloomberg consensus estimates, as of 4 July 2013

33%

34%

34%

35%

35%

36%

36%37%

37%

38%

38%

0

10

20

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70


%EPS

EPS (Rs) Margins

70%71% 71%

69%

60%

63%

66%

69%

72%

75%

FY10 FY11 FY12 FY13

Utilisation

Utilisation

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-

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AttritionHeadcount

Headcount Attrition

5759

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FY10 FY11 FY12 FY13

Days

Debtor Days


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KPIT Cummins (KPIT IN, not rated)

FY14 to be a mixed bag

Limited pockets of growth

Management commented that business depends on client performance in challenging

macro conditions. Customers that are committed to medium- and long-term investment in

IT are either facing changes in the regulatory environment, such as the BFSI space, or are

witnessing competitive challenges, as in the auto industry (development time of new

models is shrinking, necessitating higher productivity). Revenues from its top client

Cummins Inc. declined in Q4FY13, although management does not expect growth to slide

further in 1HFY14. Management expects it may see better demand from Cummins Inc. in

2HCY13, which would lead to growth in account revenues.

FIGURE 18

KPIT Cummins: Revenue growth q/q (US$)

FIGURE 19

KPIT Cummins: FY13 revenue exposure by region


Growth opportunities in Europe are limited, except in Germany where there is a focus on the

automotive industry. US (c76% of KPITs FY13 revenues) is witnessing some macro revival

that should eventually help revenue growth as Cummins Incs c45% of revenues come from

the US. Management expects auto and manufacturing verticals to lead growth, while

growth in utilities, which is largely SAP-linked, may be slower. In terms of non-linear

growth, management is investing in R&D to build IP around key projects that will help in

differentiation across competitor offerings. Currently, c8-10% of revenues originates from

the non-linear model. Client mining will also be in focus, especially in US1mn+ accounts

(currently 75) to drive revenue growth in FY14.

Auto and IES SBUs to drive FY14 growth

Growth in the autos and engineering segment will be higher than overall company growth

(management had guided for 14-16% US$ revenues guidance for FY14). In IES (integrated

enterprise solutions), the pace of growth is expected to be led by the manufacturing

vertical. Migration to the newer version of JD Edwards application suite is also expected to

lead to growth opportunities. Management expects moderate to flattish growth in SAP SBU

in FY14.

-1%

0%

1%

2%

3%

4%5%

6%

94

96

98

100

102

104106

108

Q1FY13

Q2FY13

Q3FY13

Q4FY13

%q/qUS$mn

Revenues (US$ mn) %q/q

Americas

76%

Europe

13%

APAC &

Others11%

Expects growth from auto and

manufacturing


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FIGURE 20

KPIT Cummins: FY13 exposure to business lines

FIGURE 21

KPIT Cummins: SAP lags A&E/IES growth


Management commented that as SAP is looking into venturing aggressively into cloud-

based applications, the target market is expanding. However, revenue per project isexpected to come down as customers would mostly be small and medium-sized

enterprises. Management maintains that cloud is more of a peripheral change that will

impact verticals like human resources (HR) and customer relationship management (CRM).

M&A philosophy

Management highlighted that it would be interested in an acquisition provided it: 1) would

help gain access to newer technology; 2) expand or strengthen presence in new markets;

and 3) strengthen vertical and customer focus (also highlighted in KPIT Cummins uses

acquisitions to grow faster, Hindu Business Line, 14-March 2013)

FIGURE 22

KPIT Cummins: Key financial dataKey Facts

Price (Rs) 120


FY14 Div. Yield (%) 1%


FY14 P/E 9


Infotech Enterprises (INFOE IN, not rated)

Muted near-term growthManagement noted that a mixture of company- and client- specific issues impacted growth

in 2HFY13, including: 1) client ramp-down in hi-tech segment; 2) offshore transition of a

large utilities client in Americas; 3) sluggish demand environment and company-specific

issues (loss of a key executive) in Europe (de-growth of 10-12% y/y); and 4) delay in

decision making in certain transportation projects in UK (1HFY13).

IES47%

A&E

24%

SAP29%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Q1FY13 Q2FY13 Q3FY13 Q4FY13

%q/q

IES A&E SAP

Revival in growth is expected in

2HFY14


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FIGURE 23

Infotech: Revenue growth q/q (US$)

FIGURE 24

Infotech: FY13 revenue exposure by region


Management now expects flattish revenue growth in 1QFY14 and growth to start coming in

from 2QFY14. This confidence stems from the project backlog at the end of 4QFY13.

2HFY14 is expected to track better than 1HFY14 but management added that client-specific

issues may delay investment decisions and visibility still remains hazy. Management expectsgrowth in hi-tech and heavy engineering to remain soft in FY14 while transportation offers

comparatively higher scope, largely in Europe. Apart from transportation, growth in

remaining verticals continues to be sluggish in Europe. In USA utilities and aerospace offer

significant growth opportunities. Management noted, however, that clients are delaying

final investment decisions until the very last moment.

Investing for longer-term growth

Management is now investing more in IT, sales and operations, along with salaries (c8%

salary hikes for offshore employees planned). Significant investment is now being done to

ramp up sales teams and undertakes internal branding. Infotech has hired an external

consultant for branding. Margin levers include: 1) off-shoring of large projects; 2) pyramid

correction and automation; 3) improved utilisation due to ramp-up of projects.

FIGURE 25

Infotech: Quarterly operating margins

FIGURE 26

Infotech: Client additions


Management aims to improve revenue to US$3mn per client in the medium term from

US$1.2mn currently. While it is flexible with volumes in the short term, its long-term

strategy is to migrate from services to solutions ie, have a higher risk-reward model that

would eventually lead to a higher deal size. Given its relationship with large clients is sticky,

better account mining is an opportunity for driving revenue growth, per to management.

-3%

-2%

-1%

0%

1%2%

3%

4%

5%

6%

72

74

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8082

84

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90

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

%q/qUS$mn

Revenues (US$ mn) %q/q

Americas

60%

Europe

26%

APAC &

Others14%

12.5%

15.7%

20.6% 19.8%18.7% 18.7% 18.5%

17.0%

0%

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25%

Q1FY12

Q2FY12

Q3FY12

Q4FY12

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Q2FY13

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Q4FY13

Operating Margin (%)

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Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

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Q3FY13

Q4FY13

UT&C Engineering


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Management highlighted that competitive intensity remains flattish and that it believes

vendor selection in engineering services does not depend on pricing alone. Pricing churn is

minimal with vendor selection also depending on: 1) delivery credibility; 2) providing

flexibility to customers; and 3) domain expertise.

New initiatives

Management believes that Big Data offers solid growth avenues and it is now investing to

drive that segment of the business. It has renamed the content business lines to datatransformation and analytics and is looking to offer analytics solutions to clients. It has hired

a new sales force for this business and believes this initiative ties well with its aim to

become a solutions provider. Infotech is also actively scouting for an acquisition

(cUS$40mn ticket size) in embedded systems, telecom & utilities domains, to drive

inorganic growth, according to management (also highlighted in Infotech eyes bigger

overseas buyout targets, Economic Times, 24-Jan 2013).

FIGURE 27

Infotech: Key financial data

Key Facts

CMP (Rs) 175

Market Cap (USD mn) 323FY14 Div. Yield (%) 2%52 week High/Low 111/42

FY14 P/E 7.8


Persistent Systems (PSYS IN, not rated)

Management expects FY14 growth to be strong led by a focus on product development and

strong sentiment in the US. Traction in the US (c85% of FY13 revenues) appears strong,

especially in the Bay Area and Silicon Valley (c80% of FY13 US revenues). Management

indicated that campus placements in computer science and IT sectors have been strong,

indicating a healthy demand environment. However, decision-making on relatively large

investments is slow, not because of economic difficulties, but because clients are reluctant

to make significant changes in internal IT environments.

FIGURE 28

Persistent: Revenue growth

FIGURE 29

Persistent: Revenue breakdown by region


0%

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0

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100

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250

FY09 FY10 FY 11 FY12 FY13

% y/yUS$ mn

Revenues (US$ mn) % y/y

87% 85% 86% 83% 85%

9% 8% 6% 7% 7%

4% 7% 9% 10% 9%

0%

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North America Europe Asia-Pacific

Product development to lead

FY14 growth


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Healthy traction in products & platforms

Product engineering, which involves product development, implementation and

maintenance, is currently c70% of revenues, according to management. Management

commented that traction with Salesforce has been strong, with its products and platforms

based on Salesforce being well received by SME customers.

Management noted that it is making forays into Salesforce customers (especially enterprise

customers), in order to offer mobility and analytics solutions. It is actively focusing onaccount mining in its top-30 customers.

Management also commented that emerging trends in cloud are not peripheral but are of a

transformational nature, with a 30% reduction in hardware costs (capex now shifting to

opex). While the pace of acceptance has been healthy amongst SMEs, acceptance among

large organisations will be slow given the cross-continental nature of the business. Apart

from Salesforce, MS Azure and IBM Cloud are doing well in terms of cloud implementation.

FIGURE 30

Persistent: Revenue breakdown by business

FIGURE 31

Persistent: Revenue breakdown by industry vertical


Healthy IP revenue growth likely FY14

Management has taken a number of initiatives to boost IP revenue growth in FY14: 1)

acquisition of source code for part of IBM Tivoli and rights to develop product for 10 years;

revenue will be shared with IBM for 10 years and the deal involved no upfront payment. 2)

Client automation product from HP (opened door to clients such as Citibank and JP

Morgan), which the company is working to extend to a mobile platform; this is a seven-year

deal; both companies sell the product and Persistent offers support and maintenance. 3)

Acquisition of a location-related services company that provides stable revenues (cUS$5mn

per year) and also provides entry to large telecom clients, such as AT&T.

FIGURE 32

Persistent Systems: Key financial data

Key Facts

Price (Rs) 496

Market Cap (USD mn) 329FY14 Div. Yield (%) 2%


FY14 P/E 9


95% 93% 91%83%

5% 7% 9%17%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY10 FY 11 FY12 FY13

Products & Platforms IP

21% 23% 21% 21% 25%

67% 66% 69% 68% 64%

12% 11% 11% 11% 11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Telecom Infrastructure and Systems Life Sciences

Inorganic avenues to drive IP

growth


13/26


8 July 2013

13

NIIT Technologies (NITEC IN, not rated)

FY14 growth to be better than FY13

Management commented that FY14 revenue growth will be higher than FY13 on the back

of increased deal win momentum in 2HFY13. Given its focus on transformational deals,

c42% of the revenues are now derived from fixed-price contracts. The company is also

looking to drive growth through value-added offerings with management citing the multi-

year contract (cUS$62mn) signed with the Airports Authority of India (AAI) in April 2013 for

the implementation of airport operations control centres (AOCC) in 10 airports. The project

has provision for extending the work to 25 additional airports.

FIGURE 33

NIIT Tech: Deal wins run-rate

FIGURE 34

NIIT Tech: Quarterly constant currency growth


The company changed its strategy in FY09 to concentrate on growth verticals (retail as an

industry vertical was let go) and balanced geographical exposure (focus on APAC and

India). The company entered the India homeland security market in 2009-10. Management

noted it was one of the initial IT vendors to adopt the non-linear model, which now

accounts for c21% of FY13 revenues.

Strong momentum in Cloud

The company is witnessing strong momentum in its cloud offerings with the business

growing c30-50% q/q. NIIT Tech has tied up with Hitachi to offer cloud solutions

(investment in infrastructure is done by Hitachi and implementation is done by NIIT Tech). It

is also partnering with Indian Mercantile Bank to offer a core banking platform (a software-

as-a-service offering) to cooperative banks under a multi-year contract (it has already been

implemented for UP Mercantile Bank). Management noted that cloud offerings will initially

be accepted largely by mid-sized and cooperative banks rather than large-sized banks.

FIGURE 35

NIIT Technologies: Key financial data

Key Facts

Price (Rs) 265


FY14 Div. Yield (%) 3.6%


FY14 P/E 6.5


4060

50

116

86

200

7592 83 93 83 110

0

50

100

150

200

250

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

US$ mn

Order Intake (US$ mn)

4.8%

0.5%

3.0%

4.4%

3.3%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13

Constant currency growth (%q/q)

Deal signings in 2HFY13 aid

revenue visibility in FY14


14/26


8 July 2013

14

Info Edge (INFOE IN, not rated)

Facing a tough domestic macro backdrop

Naukri

Management highlighted that demand in its Naukri business will likely be sluggish in

1HFY14 and any expectation of recovery in 2HFY14 is based more on hope than

improvement in fundamentals. However, due to deferred revenue recognition, the impact

on revenue growth will be smoothened out and management expects single-digit growth in

this business in FY14 in case there is some recovery in 2H. Note that in this business, fees

are collected upfront even when services are delivered over a period of time. Naukri has

exhibited a negative working capital cycle based on past performance.

FIGURE 36

Info Edge: Sluggish growth in unique customers in Naukri

division in FY09-10 and FY13

FIGURE 37

Info Edge: FY13 revenue growth down on challenging macro


In terms of competitive intensity, Naukri is the market leader in Indias online job marketcommanding c60% of online traffic share, according to the company. Management noted

that its nearest rival, US-owned Monster Jobs, has been impacted by weakness in its global

business.

Management seemed more worried about LinkedIn as it believes an increasing number of

job seekers are using it as an alternative job search tool. Management commented that it is

considering innovative ways to counter such challenges.

99acres.com

Management commented that growth in the online real estate classifieds market is led by

internet under-penetration. The market of purchasing and selling homes in India is very

large (worth Rs30bn per year, according to management), and due to under-penetration in

real estate advertising, it perceives the internet opportunity to be large. MagicBricks,

Makaan and India Properties are the companys key competitors, and 99acres is the market

leader (MagicBricks second), according to the company. Management expects industry

consolidation over the next 2-3 years, given the large number of players in the market (it

notes new entrants like OLX, Quickr). While 99acres is operating just below breakeven,

management expects sustained profitability within the next 2-3 years.

The company is investing in training potential sellers (such as builders) to give building

inventory a greater appeal to buyers. Initially, the supply side was not Internet-savvy and the

company has taken efforts to correct this. The branding strategy has shifted from push to

pull over the past 2 years.

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-

10,000

20,000

30,000

40,000

50,000

60,000

FY07 FY08 FY09 FY10 FY11 FY12 FY13

%Customers

No. of unique customers %y/y

-10%

0%

10%

20%

30%

40%

50%

60%

70%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000


%Revenues

Revenues (Rs mn) %y/y

Weak macro is likely to impact

Naukri revenue growth in FY14

Under-penetration in real

estate advertising is driving

growth


15/26


8 July 2013

15

FIGURE 38

Info Edge: Paid listings have continued to rise

FIGURE 39

Info Edge: leading to c48% revenue growth in FY13


Jeevan SaathiAfter the company had initially underinvested in this business it has now corrected its

strategy and has been investing in it over the past 1-1.5 years. While the matrimonial

classifieds industry is non-cyclical in nature management notes that repeat business is zero.

FIGURE 40

Info Edge: Jeevan Saathi customers increased sharply in

FY13 following company investments in the business

FIGURE 41

Info Edge: Revenue growth also picked up sharply in FY13


FIGURE 42

Info Edge: Key financial data

Key Facts

Price (Rs) 301


FY14 Div. Yield (%) 0.34


FY14 P/E 26.5


0%

5%

10%

15%

20%

25%

30%35%

40%

45%

50%

0

10

20

30

40

50

60


%No.

No. of paid transactions (000s) %y/y

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

100

200

300

400

500

600


%y/yRs mn


-5%

0%

5%

10%

15%

20%

25%

50,000

55,000

60,000

65,000

70,000

75,000

80,000

85,000

90,000


%No.

No. of unique paid customers %y/y

0%

5%

10%

15%

20%

25%

0

50

100

150

200

250

300

350


%y/yRs mn


Investments into the

matrimonial classifieds

business has led to growth


16/26


8 July 2013

16

Rolta India (RLTA IN, not rated)

Mixed Outlook: US and Middle East strong, Europe and India weak

Management highlighted that the demand outlook remains mixed across geographies, with

a strong pipeline in the US led by oil & gas, utilities, telecom and public sector verticals. IT

spending is reviving in a phased manner in the US, with revenue models for clients shifting

from capex to opex, according to the company. In terms of service offerings, management

noted that business intelligence and infrastructure services are witnessing strong

momentum. Furthermore, cloud-based implementation is picking up pace with some

organisations also shifting to public cloud. Management noted that it expects SAP Hana, to

aid adoption of cloud through platform as a service (PaaS).

Europe, however, is lagging behind other markets due to adverse macro conditions.

Spending in the Middle East is on the rise as clients in the Middle are financially well-off,

according to management, and want to leapfrog to next-generation technology. African

markets are mostly in the growth phase and most of the client projects involve data

systems and are largely government/World Bank funded. Demand in India is mostly muted

with pipeline conversion remaining sluggish; however, on the execution side things are

better. Management commented that Indias new defence policy is a positive step and it

expects it will encourage localisation of some IT spend that was outsourced to other

countries. The telecom space may also see some growth on the back of sector

consolidation.

Cloud and big data present opportunities

Management expects cloud implementation to have a significant impact on customer

spending decisions. However, acceptance will likely occur in a phased manner, with every

corporate moving to some form of cloud over a 7- to 10-year period. Currently, cloud

implementation mostly involves database migration but, with security and speed improving,

critical applications will also be hosted on the cloud. Management compared cloud

implementation to that of online purchase behaviour of retail customers. While initially

there was reluctance owing to fears over security, online shopping is now a norm in most

countries; management believes that financial data migration to cloud is inevitable but will

happen over time.

Oil & gas, utilities and public

sector spend to drive growth in

US

Cloud implementation will

likely happen in a phased

manner


17/26


8 July 2013 17

ANALYST(S) CERTIFICATION(S)

I, Bhuvnesh Singh, hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of thesubject securities or issuers referred to in this research report and (2) no part of my compensation was, is or will be directly or indirectly related tothe specific recommendations or views expressed in this research report.

IMPORTANT DISCLOSURES CONTINUED

Barclays Research is a part of the Corporate and Investment Banking division of Barclays Bank PLC and its affiliates (collectively and eachindividually, "Barclays"). For current important disclosures regarding companies that are the subject of this research report, please send a writtenrequest to: Barclays Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer to http://publicresearch.barclays.comor call 212-526-1072.

The analysts responsible for preparing this research report have received compensation based upon various factors including the firm's totalrevenues, a portion of which is generated by investment banking activities.

Research analysts employed outside the US by affiliates of Barclays Capital Inc. are not registered/qualified as research analysts with FINRA.These analysts may not be associated persons of the member firm and therefore may not be subject to NASD Rule 2711 and incorporated NYSERule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analysts account.

Analysts regularly conduct site visits to view the material operations of covered companies, but Barclays policy prohibits them from acceptingpayment or reimbursement by any covered company of their travel expenses for such visits.

In order to access Barclays Statement regarding Research Dissemination Policies and Procedures, please refer to

https://live.barcap.com/publiccp/RSR/nyfipubs/disclaimer/disclaimer-research-dissemination.html.The Corporate and Investment Banking division of Barclays produces a variety of research products including, but not limited to, fundamentalanalysis, equity-linked analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differfrom recommendations contained in other types of research products, whether as a result of differing time horizons, methodologies, orotherwise.

Materially Mentioned Stocks (Ticker, Date, Price)

HCL Technologies (HCLT.NS, 05-Jul-2013, INR 794.35), Overweight/Neutral, C/D/J/L

Infosys Ltd. (INFY.NS, 05-Jul-2013, INR 2454.45), Overweight/Neutral, C/D/J/L

Tata Consultancy Services (TCS.NS, 05-Jul-2013, INR 1527.35), Equal Weight/Neutral, C/D/J/K/L/M/N

Wipro Limited (WIPR.NS, 05-Jul-2013, INR 350.80), Underweight/Neutral, C/D/J/K/L/M

Disclosure Legend:A: Barclays Bank PLC and/or an affiliate has been lead manager or co-lead manager of a publicly disclosed offer of securities of the issuer in theprevious 12 months.

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O: Barclays Capital Inc., through Barclays Market Makers, is a Designated Market Maker in this issuer's stock, which is listed on the New YorkStock Exchange. At any given time, its associated Designated Market Maker may have "long" or "short" inventory position in the stock; and its


18/26


8 July 2013 18


associated Designated Market Maker may be on the opposite side of orders executed on the floor of the New York Stock Exchange in the stock.

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S: Barclays Capital Canada Inc. is a market-maker in an equity or equity related security issued by this issuer.

Guide to the Barclays Fundamental Equity Research Rating System:

Our coverage analysts use a relative rating system in which they rate stocks as Overweight, Equal Weight or Underweight (see definitions below)relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry (the "industry coverageuniverse").

In addition to the stock rating, we provide industry views which rate the outlook for the industry coverage universe as Positive, Neutral orNegative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investorsshould carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone.

Stock Rating

Overweight - The stock is expected to outperform the unweighted expected total return of the industry coverage universe over a 12-month

investment horizon.

Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the industry coverage universe over a 12-month investment horizon.

Underweight - The stock is expected to underperform the unweighted expected total return of the industry coverage universe over a 12-monthinvestment horizon.

Rating Suspended - The rating and target price have been suspended temporarily due to market events that made coverage impracticable or tocomply with applicable regulations and/or firm policies in certain circumstances including where the Corporate and Investment Banking Divisionof Barclays is acting in an advisory capacity in a merger or strategic transaction involving the company.

Industry View

Positive - industry coverage universe fundamentals/valuations are improving.

Neutral - industry coverage universe fundamentals/valuations are steady, neither improving nor deteriorating.

Negative - industry coverage universe fundamentals/valuations are deteriorating.

Below is the list of companies that constitute the "industry coverage universe":

Asia Ex-Japan Software & IT Services

HCL Technologies (HCLT.NS) Infosys Ltd. (INFY.NS) MindTree (MINT.NS)

Mphasis (MBFL.NS) Tata Consultancy Services (TCS.NS) Wipro Limited (WIPR.NS)

Distribution of Ratings:

Barclays Equity Research has 2376 companies under coverage.

44% have been assigned an Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 52% ofcompanies with this rating are investment banking clients of the Firm.

40% have been assigned an Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 48% ofcompanies with this rating are investment banking clients of the Firm.

13% have been assigned an Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 42% ofcompanies with this rating are investment banking clients of the Firm.

Guide to the Barclays Research Price Target:

Each analyst has a single price target on the stocks that they cover. The price target represents that analyst's expectation of where the stock willtrade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst's pricetarget over the same 12-month period.

Barclays offices involved in the production of equity research:

London

Barclays Bank PLC (Barclays, London)

New York


19/26


8 July 2013 19


Barclays Capital Inc. (BCI, New York)

Tokyo

Barclays Securities Japan Limited (BSJL, Tokyo)

So Paulo

Banco Barclays S.A. (BBSA, So Paulo)

Hong Kong

Barclays Bank PLC, Hong Kong branch (Barclays Bank, Hong Kong)

Toronto

Barclays Capital Canada Inc. (BCCI, Toronto)

Johannesburg

Absa Capital, a division of Absa Bank Limited (Absa Capital, Johannesburg)

Mexico City

Barclays Bank Mexico, S.A. (BBMX, Mexico City)

Taiwan

Barclays Capital Securities Taiwan Limited (BCSTW, Taiwan)

Seoul

Barclays Capital Securities Limited (BCSL, Seoul)

Mumbai

Barclays Securities (India) Private Limited (BSIPL, Mumbai)

Singapore

Barclays Bank PLC, Singapore branch (Barclays Bank, Singapore)


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8 July 2013 20


HCL Technologies (HCLT IN / HCLT.NS) Stock Rating Industry View

INR 794.35 (05-Jul-2013) OVERWEIGHT NEUTRAL

Rating and Price Target Chart - INR (as of 05-Jul-2013) Currency=INR

Date Closing Price Rating Price Target

18-Apr-2013 735.90 865.00

18-Jan-2013 704.40 820.00

18-Oct-2012 600.80 650.00

25-Jul-2012 513.75 560.00

19-Apr-2012 503.50 528.00

07-Oct-2011 404.65 Overweight 485.00

Link to Barclays Live for interactive charting

C: Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by HCL Technologies or one of itsaffiliates.

D: Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from HCL Technologies in the past 12months.

J: Barclays Bank PLC and/or an affiliate trades regularly in the securities of HCL Technologies.

L: HCL Technologies is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate.

Valuation Methodology: Our 12-month target price of INR 865 for HCL Tech is based on a P/E of 13.5x, which we apply to our average of ourEPS estimates for FY14 and FY15. For HCL Tech, our target multiple is based on a 15% discount to the target mutiple for Infosys due to thesmaller scale and lower margin profile.

Risks which May Impede the Achievement of the Barclays Research Price Target: The key risks to our price target being achieved, in our view,remain deterioration in the macro, fall off in business demand, strengthening of the rupee that would impact margin profile and higher aggressionfrom peers that could slow the deal win rate.

Closing Price Target Price Rating Change

Jan-2011 Jul- 2011 Jan-2012 Jul- 2012 Jan-2013 Jul- 2013

300

400

500

600

700

800

900
https://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=6294896&legend=HCL%20Technologies&shortlegend=HCLT.NS&currency=INR&enddate=20130705&begindate=20120705&userId=dashites&appName=RPShttps://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=6294896&legend=HCL%20Technologies&shortlegend=HCLT.NS&currency=INR&enddate=20130705&begindate=20120705&userId=dashites&appName=RPS


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8 July 2013 21


Infosys Ltd. (INFO IN / INFY.NS) Stock Rating Industry View

INR 2454.45 (05-Jul-2013) OVERWEIGHT NEUTRAL



15-Apr-2013 2333.95 2750.00

14-Jan-2013 2807.25 Overweight 3020.00

13-Jul-2012 2227.80 Equal Weight 2300.00

16-Apr-2012 2369.35 3010.00

04-Jan-2012 2854.25 3320.00

07-Oct-2011 2507.05 Overweight 3050.00


C: Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Infosys Ltd. or one of its affiliates.

D: Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from Infosys Ltd. in the past 12 months.

J: Barclays Bank PLC and/or an affiliate trades regularly in the securities of Infosys Ltd..

L: Infosys Ltd. is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate.

Valuation Methodology: Our 12-month target price of INR2,750 for Infosys is based on a P/E of c16x, which we apply to our EPS estimate forFY14. Our target multiple for Infosys is based on average since Nov-08.

Risks which May Impede the Achievement of the Barclays Research Price Target: The downside risk to our price target is the failure in revival ofgrowth due to weak macro and execution issues at the company. The upside risk to our target price is stronger than expected turnaround of themacro situation and revival in demand.



2,000

2,200

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2,800

3,000

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3,400

3,600
https://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=6205122&legend=Infosys%20Ltd.&shortlegend=INFY.NS&currency=INR&enddate=20130705&begindate=20120705&userId=dashites&appName=RPShttps://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=6205122&legend=Infosys%20Ltd.&shortlegend=INFY.NS&currency=INR&enddate=20130705&begindate=20120705&userId=dashites&appName=RPS


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8 July 2013 22


Tata Consultancy Services (TCS IN / TCS.NS) Stock Rating Industry View

INR 1527.35 (05-Jul-2013) EQUAL WEIGHT NEUTRAL



18-Apr-2013 1450.70 1475.00

15-Jan-2013 1334.30 1355.00

04-Dec-2012 1298.45 1345.00

21-Oct-2012 1290.30 1325.00

04-Jan-2012 1174.40 1230.00

07-Oct-2011 1048.70 Equal Weight 1150.00


C: Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Tata Consultancy Services or one of itsaffiliates.

D: Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from Tata Consultancy Services in the past12 months.

J: Barclays Bank PLC and/or an affiliate trades regularly in the securities of Tata Consultancy Services.

K: Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from Tata Consultancy Services within thepast 12 months.

L: Tata Consultancy Services is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate.

M: Tata Consultancy Services is, or during the past 12 months has been, a non-investment banking client (securities related services) of BarclaysBank PLC and/or an affiliate.

N: Tata Consultancy Services is, or during the past 12 months has been, a non-investment banking client (non-securities related services) ofBarclays Bank PLC and/or an affiliate.

Valuation Methodology: Our 12-month target price of INR 1,475 for TCS is based on a P/E of 16x, which we apply to the EPS estimates for FY15due to better earnings visibility

Risks which May Impede the Achievement of the Barclays Research Price Target: The key risks to the downside that could keep our price targetfrom being achieved are a weak macroeconomic backdrop and market weakness that would cause earnings forecast downgrades and multiplecontraction. TCS trades at the highest multiple amongst the Indian IT services peers. On the other hand, a stronger-than-expected rebound in themacroeconomic situation poses an upside risk. TCS's high exposure to the Financial Services vertical means that an uptick in banks' discretionary

spending in such a situation could mean disproportionately high gains for the company.



700

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1,000

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1,200

1,300

1,400

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1,600
https://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=B01NPJ1&legend=Tata%20Consultancy%20Services&shortlegend=TCS.NS&currency=INR&enddate=20130705&begindate=20120705&userId=dashites&appName=RPShttps://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=B01NPJ1&legend=Tata%20Consultancy%20Services&shortlegend=TCS.NS&currency=INR&enddate=20130705&begindate=20120705&userId=dashites&appName=RPS


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8 July 2013 23


Wipro Limited (WPRO IN / WIPR.NS) Stock Rating Industry View

INR 350.80 (05-Jul-2013) UNDERWEIGHT NEUTRAL



22-Apr-2013 339.35 356.00

21-Jan-2013 362.21 346.57

03-Nov-2012 332.85 326.51

24-Jul-2012 315.56 300.97

04-Jan-2012 381.14 328.33

07-Oct-2011 304.44 Underweight 310.09


C: Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Wipro Limited or one of its affiliates.

D: Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from Wipro Limited in the past 12 months.

J: Barclays Bank PLC and/or an affiliate trades regularly in the securities of Wipro Limited.

K: Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from Wipro Limited within the past 12months.

L: Wipro Limited is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate.

M: Wipro Limited is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays Bank PLCand/or an affiliate.

Valuation Methodology: Our 12-month target price of Rs356 for Wipro is based a P/E of 12.5x applied to average of our FY14 and FY15 EPSestimates for the business. Our target P/E is based on 10% discount to its historical P/E average for the past five years. We apply a 10% discountbecause we believe it conservatively reflects the risks of the now weak business visibility. We believe that improvements in the company's growthprofile will continue to face headwinds from a weak macro environment with the continuous internal restructurings taking up preciousmanagement bandwidth and being a risk. We maintain our UW rating.

Risks which May Impede the Achievement of the Barclays Research Price Target: The key risks to the upside that could keep our price targetfrom being achieved are a stronger-than-forecast rebound in the macroeconomic situation and better-than-expected execution by the newmanagement team. We note that while the company has always had the industry expertise, it has historically had lapses in execution that havehindered growth. Turnaround by the new management could drive upsides to our forecasts. Key downside risk would come from macroeconomicfactors that could further impede the company's already slow growth profile relative to its peers.



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https://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=6206051&legend=Wipro%20Limited&shortlegend=WIPR.NS&currency=INR&enddate=20130705&begindate=20120705&userId=dashites&appName=RPShttps://live.barcap.com/go/NYF/flex/equity/EquityChart.jsp?ticker=6206051&legend=Wipro%20Limited&shortlegend=WIPR.NS&currency=INR&enddate=20130705&begindate=20120705&userId=dashites&appName=RPS


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Barclays- India IT Services Group Mid-Cap Conversations Suggest Steady Demand

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