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1 Sector Update Institutional Equities Information Technology Sector 1 January 217 H1-B Related Minimum Wage Increase Material Damage Likely To Margins We believe the market is underestimating the damage that is likely to be caused to margins/earnings from the Protect & Grow American Jobs Act that has been reintroduced in the US Congress in early January 217 and is expecting its key elements to be watered down. We believe the probability of the Act sailing through in its current form is very high as the Presidency, the House of Representatives and the Senate are Republican and the Presidentelect, Mr. Donald Trump, has publicly expressed opposition to H1-B visas not only during his campaign but also after his victory and has indicated it to be on his priority list. Importantly, the new Attorney General, Mr. Jeff Simmons, has been an H1-B visa opponent. We believe that there are wider implications on costs beyond just the shift in H1-B visa-related minimum wage from US$6, to US$1, per annum, which is a key element of the Act. While there is going to be a sizable cost increase (bps bps cumulatively, being the best-worst case scenario for our coverage universe, ceteris paribus) if the current bill gets cleared, we believe tight labour market conditions in the US for technology employees could mean higher-thaninflation onsite salary hikes on an annual basis going forward than in-line hikes seen so far. We also believe that there is likely to be a higher level of margin-dilutive rebadging (employee transfer) in the US than seen before as labour market rigidities begin to resemble that of Europe s. We also expect greater action on the M&A front (likely margin dilutive) in case the bill does not give much time to offshoring companies to adjust their work force mix. Handling onsite utilisation will be another headache in an era of project-oriented Digital work. While we expect Indian IT services industry to respond with a greater level of offshoring, near shoring and automation, we believe its margins will drift down cumulatively by 1bps-3bps (despite incorporating mitigation measures and a more favorable INR/USD rate than we had before) for our coverage universe. We believe the margin hit could start from FY18 even if the bill is not cleared by March 217 (before the US FY18 - September YE- visa programme kicks in) as the companies will proactively accelerate the change in onsite people mix. Competitive intensity and high return ratios of vendors would mean that customers are unlikely to be sympathetic. Incorporating this change in cost of visas and using our new INR estimates (217 Macroeconomic Outlook), we have tweaked our EPS estimates lower (for FY8/FY19). We stick to our earlier call of 3%-% organic USD revenue growth despite a likely stronger-than-expected US economy in 217 (against our earlier assumption of slowdown from 216 level). We believe protectionist measures of the Trump administration could create uncertainty in the minds of US-based multinational corporations who have large global supply chains built over decades and lead to slower spending as they adjust to the new ways of doing business - at least in 217. Consequent to the above changes made to our estimates, we maintain our cautious stance (initiated in April 2 through Structural And Cyclical Speed-breakers Ahead and reinforced with Downside Risks Open Up - It Is That Time Of The Cycle! ) on the Indian IT services sector and believe that the downside for our coverage universe could be between %-22% till September 217 (see exhibits inside for changes to estimates, target prices and our scenario analysis on the H1-B visa cost increase). The earlier threats were more manageable: Tightening of visa/immigration regulations has been an ongoing exercise with pieces of legislation introduced in the US Congress at various points in time. Consequent to such moves, visa costs have gone up recently (an additional US$4, was charged per H1-B visa applicant in US fiscal year 217, almost a doubling of cost per visa). In other versions of the H1-B visa legislations, companies with more than employees in the US and having more than % of the workforce on either H1-B or L1 visas were expected to gradually bring down the mix to %. They were also exhorted to look out for local talent to fill up positions. So far the regulations have not materially impacted the cost structure of Indian IT services companies. However, the elements of these bills were not as onerous as the ones that have been put forth in the Protect & Grow American Jobs Act 217 and more importantly have such presidential and legislative support. Key negative element of Protect & Grow American Jobs Act 217 : One of the key elements of the bill is to raise the minimum threshold salary to be paid to a H1-B visa holder by 67% from US$6, to US$1, per annum. We believe most Indian companies currently pay their H1-B employees in the range of $6,-US$7,, depending on skill sets and location. If the bill turns into a law then there is likely to be significant cost increase. Girish Pai Head of Research girish.pai@nirmalbang.com Company Reco TP (Rs) Return TCS Sell 1,92 -% Infosys Sell 92 -% Wipro Sell 41-13% HCLT Sell 712 -% Tech Mahindra Sell % Persistent Sell 7-12%

2 Expect Protect & Grow American Jobs Act to sail through without material changes: While the legislative process could take time (possibly a few quarters), this time around the Presidency, the Senate and the House of Representatives are aligned with the Republicans. President-elect Mr. Donald Trump had specifically referred to instances (both during the campaign and during his post-victory Thank-You tours) where American employees were not only replaced by H1 B visa holders of specific offshore players but were also forced to train them. He has also indicated that it is very high up on his agenda in terms of actions to be taken by the new administration. We therefore believe that there is unlikely to be any material change to the existing content of the bill. Our scenario analysis indicates a hit of -bps ceteris paribus on FY18E numbers: We have done a company-by-company analysis for our coverage universe in respect of optimistic and pessimistic scenarios of the impact of the big shift in minimum wage (see Exhibit 4). We believe the actual situation lies somewhere between the two. And as seen in various exhibits, the impact is significant. We have used these numbers as guide posts to redo our projections for various companies. We have broadly kept our US dollar or USD revenue estimates the same while changing the cost structure by increasing the direct costs being borne by companies as they shift their employee mix and also as they start paying their new employees the new minimum wage. While we have incorporated the new INR/USD projections which perk up margins, we also believe that there will be a lot more margin-dilutive rebadging/m&a transactions going forward in the US. Also, we expect some pressure on margins from lower onsite utilisation as workforce rigidities come into play. Customers are unlikely to help: The high competitive intensity and very good margin and return ratios enjoyed by key vendors (even after taking into account the hike in minimum wage) will likely mean that customers will be unsympathetic to vendors woes. We believe vendors can potentially ask for better working capital terms from their customers which could help improve their RoIC (something akin to what is happening to Accenture (Secret Sauce of Accenture-Part I and Part II) Getting local employees with the right kind of skill set and experience could be a problem: We do not believe that Indian companies will have an easy time replacing H1-B visa holders with local employees with the same level of skills and experience. Even at US$1,, Indian companies will potentially find it cheaper and easier to get people from India. We believe similarly skilled and experienced personnel may cost much more in the US context. Managing onsite staff utilisation could be a big headache: One of positives of the H1-B programme was the ability of companies to maintain a low onsite bench as employees could be flown in and out as per needs of projects/demand and also rotated into various parts of the country. A build-up in non-h1-b employee base actually renders companies a bit inflexible and could result in more volatile margins going forward as utilisation fluctuates based on demand conditions. Digital business is onsite-centric and more project-oriented with low visibility of demand and likely prone to lower utilisation: With incremental business largely coming from digital projects over the past several quarters, the delivery mix has been increasingly shifting onsite. Also, while digital project sizes have been going up over time, unlike traditional services, these are still small with low demand visibility. Our discussions with the industry indicate that there are times when teams are idle between projects. This phase when the manpower is not billed could hurt margins. Margin picture could potentially change starting as early as the March 217 quarter: While the bill is likely to take time to come to fruition, we believe that Indian companies will be proactive and align themselves to the scenario that is going to emerge in future. Therefore, we see big moves in changing the employee mix starting from the March 217 quarter itself which could potentially start hurting margins. TCS, for instance, probably anticipating some of the backlash against the use of H1-B visas had already started changing its people mix in the US by reducing the visas it applied for in FY17 to just a third of the FY16 number. Key variables impacting margins: The hit on margins is directly proportional to: (1) The number of employees who are on H-B visas, and (2) The current average compensation being paid to these visa holders. We believe that most companies under our coverage probably have their H1-B visa holders as a percentage of the US-based onsite employee base, between 6%-7%. Our discussions with industry players indicate that this number was likely upwards of 7% a few years ago. Our channel checks also indicate that the median compensation paid to H1-B visa holders in case of most companies under our coverage universe is in the range of US$6,-US$7,. 2 Information Technology Sector

3 What about the mitigating factors: Shifting more work offshore: This has been an ongoing exercise on the part of the companies and we wonder if there is anything material that is going to come out of it. Infosys has indicated the use of more technology to help work in virtual teams with a lower onsite component. Automation: A higher level of automation that substantially reduces the efforts of a senior onsite software employee is possibly the answer to the problem, but we believe the industry is not possibly there yet and could take a year or two to develop capabilities that can impact operations materially. Near-shoring: This could potentially be the next best solution compared to having an employee on site, possibly with employees based in Canada or in Mexico. What about bright spots in the demand picture? The US economy is expected to do better than what we had anticipated earlier, although we doubt the sustenance of this uptick as this optimism in our view comes very late in the cycle. We had anticipated 1%-2% real US GDP growth in 216 when the street was anticipating 2% plus (Bloomberg estimate on 216 real GDP currently stands at 1.6%) and expected a further deceleration to %-1% in 217.This was based on our view that the current expansion has been maturing and that a number of macro indicators were turning down. Contrary to popular expectations, Mr.Trump s victory has pushed up consumer confidence in the US. It remains to be seen how much (and for how long) Mr.Trump can deliver on his promises on pushing growth into the 3%-4% range by cutting taxes, lowering regulation and greater fiscal spending. We, however, believe that some of his policies connected with keeping America First and improving the jobs situation (even from current good level) involve protectionist measures which could create a great deal of uncertainty in the minds of US and other multinational corporations operating in the US. Over the decades, they have built global supply chains for products and services in order to be competitive in the market place. Mr. Trump s intent to heavily tax (3%) goods produced abroad and brought into the US require substantially changes to the way some of these companies operate. Even before he has taken up office, Mr.Trump has managed to change some of the operational plans of multinational companies like Carrier, Ford, etc. We believe that companies will be in a wait-and-watch mode to understand how far he will go and understand the modus operandi of the new administration. We are also likely to see counter protectionist measures from other countries which would add to the uncertainty. This, in our view, could crimp spending in 217. Corporate Tax Cut: In case the corporate tax rate is cut from 3% plus to %-2%, while some of it could lead to a pick-up in corporate capex we expect a large part of it to be returned to shareholders in the form of dividends and share buyback. BFSI picture looks better in the US: With yields perking up in the US, BFSI companies are probably in better shape to spend in the future. Mr. Trump has also indicated that he would unshackle the US financial sector by removing some of the regulatory pressures they were under. However this could be tricky as the Democratic party is likely to oppose this. We will wait for a few more months to see if the sector is indeed in the mood to spend. This is a very critical vertical as it constitutes ~4% exposure of Indian IT services industry. Summary: We continue to be cautious on the sector and continue with our Sell rating on all stocks in our coverage We believe the changes to H1-B visa rules proposed in the Protect & Grow American Jobs Act are likely to be realised and that they have a material negative impact on the margins of the companies under coverage leading to negligible earnings growth over FY17-FY19. This is despite the more favourable INR/USD numbers in our projections. Because of a sharp dip in margins, we expect RoIC to also move down in tandem. We have kept our target P/E multiple unchanged and expect target downsides of % 22% till September 217 for our coverage universe. We expect the sector to post 3%-% USD revenue growth in FY18 (likely lowest on the street, organic). In our sector reports Structural And Cyclical Speed-breakers Ahead and Downside Risks Open Up - It Is That Time Of The Cycle!, we had indicated the reasons for being bearish on the sector: (1) The probability of below-trend growth in the US over the next months is high as the economic cycle is maturing. This, in our view, will have a deleterious impact on Global 2 corporations sales growth - key driver of Indian IT sector s revenue growth. (2) We believe volume growth, pricing and margins are all likely to disappoint current consensus expectations amid intense competition because of convergence of capabilities and strategies among Tier-1 Indian players. (3) We see revenue cannibalisation from automation to accelerate as the entire industry is in a challenger-defender paradigm and some players have already factored in aggressive assumptions on gains from it and therefore have to deliver unless they want to witness material margin downside. (4) We do not believe digital business is material enough to offset the pressure one expects in traditional business. Besides we believe Indian industry is not getting a fair share of this business because of lower capabilities in consulting and design. () We see P/E multiple remaining compressed for the sector as revenue and earnings growth would be anaemic. We also expect return ratios to move down materially over FY17/FY19. 3 Information Technology Sector

4 Exhibit 1: Change in target prices and ratings Company CMP (Rs) New Reco Old Reco New TP (Rs) Old TP (Rs) Upside/Downside Change In TP TCS 2,34 Sell Sell 1,92 2,73 -% -6% Infosys 97 Sell Sell % -% Wipro 472 Sell Sell % -6% HCLT 838 Sell Sell % -1% Tech Mahindra 473 Sell Sell % -4% Persistent 636 Sell Sell % -3% Exhibit 2: Change in our estimates Tata Consultancy Services New Old Change FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E INR/USD (.2) US$ Revenue 17,63 18,38 19,26 17,48 18,39 19, (.2) Revenue (Rsbn) 1,186 1,287 1,46 1,18 1,246 1, EBIT (Rsbn) (.) (3.) (9.6) EBIT Margin PAT (Rsbn) (.) (2.8) (8.6) EPS (Rs) (.) (2.8) (8.6) Infosys New Old Change FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E INR/USD (.2) US$ Revenue 1,173 1,77 11,231 1,23 1,77 11,432 (.3). (1.8) Revenue (Rsbn) (.) EBIT (Rsbn) (2.) (1.6) (8.3) EBIT Margin PAT (Rsbn) (1.7) (1.) (7.3) FDEPS (Rs) (1.7) (1.) (7.3) Wipro New Old Change FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E INR/USD (.2) IT Services US$ Revenue 7,787 8,37 8,6 7,8 8,24 8,26 (.4).8 1. Revenue (Rsbn) (.) EBIT (Rsbn) (2.7) (4.2) (8.) EBIT Margin PAT (Rsbn) (2.4) (3.9) (7.8) EPS (Rs) (2.4) (3.9) (7.8) HCL Technologies New Old Change FY17E FY18E FY19E FY17E FY18E FY19E FY17 FY18E FY18E INR/USD (.2) US$ Revenue (mn) 7,1 7,769 8,164 7,33 7,769 8,164 (.3) - - Revenue (Rsmn) 472,78 43,84 87,84 474,13 27,24 6,89 (.) EBIT (Rsmn) 9,6 98,799 13,731 97,499 96,112 17,944 (2.) 2.8 (3.9) EBIT Margin PAT (Rsmn) 82,399 8,8 9,999 84,321 83,36 94,43 (2.3) 2.4 (3.6) FDEEPS (Rs) (2.3) 2.4 (3.6) 4 Information Technology Sector

5 Tech Mahindra New Old Change FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E INR/USD (.2) US$ Revenue 4,328 4,614 4,83 4,347 4,614 4,83 (.4) - - Revenue (Rsmn) 291,47 322, , , ,92 331,68 (.6) EBIT (Rsmn) 34,773 38,29 38,978 37,627 39,32 41,48 (7.6) (2.) (6.) PAT (Rsmn) 28,978 32,263 32,774 31,143 33,14 34,89 (7.) (2.7) (6.1) EBIT Margin EPS (Rs) (6.9) (2.7) (6.1) Persistent Systems New Old Change FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E INR/USD (.2) US$ Revenue (mn) (.1) - - Revenue (Rsmn) 29,97 32,828 36,379 29,3 31,827 34,693 (.2) EBIT (Rsmn) 3,4 3,739 4,2 3,1 3,789 4,411 (1.6) (1.3) (4.7) EBIT Margin PAT (Rsmn) 3,322 3,622 4,116 3,364 3,666 4,29 (1.2) (1.2) (4.) EPS (Rs) (1.2) (1.2) (4.) Information Technology Sector

6 Exhibit 3: Summary Financials TCS (Y/E March) (Rsbn) Revenue ,86 1,186 1,287 1,46 YoY EBIT % of sales PAT YoY (.2) 2. FDEPS ROE ROCE ROIC P/E (x) P/BV (x) Infosys (Y/E March) (Rsbn) Revenue (Rsbn) YoY EBIT EBIT Adj. PAT YoY FDEPS (Rs) ROE ROCE ROIC P/E(x) P/BV (x) Wipro (Y/E March) (Rsbn) Revenue YoY EBIT EBIT Adj. PAT YoY (8.1) 2..9 FDEPS ROE ROCE ROIC P/E(x) P/BV (x) Information Technology Sector

7 HCL Y/E March (Rsmn) FY13 FY14 FY FY16* FY17E FY18E FY19E Revenue 27, ,18 37,62 311,36 472,78 43,84 87,84 YoY EBIT 1,247 79,3 82,1 63,7 9,6 98,799 13,731 EBIT Adj. PAT 4,63 63,713 72,1 6,67 82,399 8,8 9,999 YoY (21.9) FDEPS ROE ROCE ROIC P/E(x) P/BV (x) Tech Mahindra (Y/E March) (Rsmn) Revenue 143,32 188, , , ,47 322, ,773 YoY Gross Profit 3,313 71,312 74,4 81,62 87,931 96,318 1,722 % of sales EBIT 26,73 36,6 3,6 3,716 34,773 38,29 38,978 % of sales PAT 2,76 29,122 26,62 31,16 28,997 32,263 32,774 YoY (1.) 19.6 (6.9) FDEPS ROE ROCE ROIC P/E(x) P/BV (x) Persistent Systems (Y/E March) (Rsmn) Revenue 12,94 16,692 18,913 23,123 29,97 32,828 36,379 YoY EBIT 2,69 3,277 2,967 3,26 3,4 3,739 4,2 % of sales Adj. PAT 1,876 2,493 2,96 2,974 3,322 3,622 4,116 YoY EPS (Rs) ROE ROCE ROIC P/E(x) P/BV (x) Information Technology Sector

8 Scenario Analysis on the impact of hike in minimum wage: In the below given Exhibit we have done a scenario analysis of the impact of the increase in minimum wage from US$6, to US$1, for the companies under coverage. This has been done on FY18 revenues and we have assumed that the entire hit would be taken in one year. Very likely the hit will be spread over 2-3 years. In our projections we have assumed that the hit would be taken in two years starting from FY18. The scenario analysis has been based on a combination of data provided by the company, from channel checks and our own guesstimates. To that extent we believe the conclusions have to be taken with caution. But as one can see the margin impact gap is as large as bps in the most optimistic case and bps in the most pessimistic case within our coverage universe. For HCL Technologies and Tech Mahindra, recent management interviews has helped in getting a better handle over our analysis. Exhibit 4: Scenario analysis of various companies based on hike in minimum wage to US$1, in FY18 TCS Optimistic Case Pessimistic case Total Revenue (in US$mn) 18,38 18,38 US revenue share - % 1,112 1,112 Onsite Revenue as %age of US revenue - 6% 6,67 6,67 Onsite Bill Rate Per month (in US$) 12, 12, Number of Technical Staff on US projects onsite 42,132 42,132 Those on H1 B Visas % 7% Number of Technical Staff on H1 B visas Current Average Compensation of H1 - B visa holder (in US$) 7, 6, Hit if salary moves to US$1 (in US$mn) As % of sales 2.86%.61% Infosys Optimistic Case Pessimistic case Total Revenue (in US$mn) 1,77 1,77 US revenue share - %,889,889 Onsite Revenue as %age of US revenue - 6% 3,33 3,33 Onsite Bill Rate Per month (in US$) 12, 12, Number of Technical Staff on US projects onsite 23, 23, Those on H1 B Visas % 7% Number of Technical Staff on H1 B visas 11,778 16,489 Current Average Compensation of H1 - B visa holder (in US$) 7, 6, Hit if salary moves to US$1 (in US$mn) As % of sales 2.7%.39% Wipro Optimistic Case Pessimistic case Total IT services Revenue (in US$mn) 8,37 8,37 US revenue share - % 4,69 4,69 Onsite Revenue as %age of US revenue - 6% 2,741 2,741 Onsite Bill Rate Per month (in US$) 12, 12, Number of Technical Staff on US projects onsite 19,37 19,37 Those on H1 B Visas % 7% Number of Technical Staff on H1 B visas 9,18 13,326 Current Average Compensation of H1 - B visa holder (in US$) 7, 6, Hit if salary moves to US$1 (in US$mn) As % of sales 2.86%.61% 8 Information Technology Sector

9 HCL Technologies Base case Total Revenue (in US$mn) 7,769 US revenue share - 62% 4817 Onsite Revenue as %age of US revenue - 6% 2,89 Onsite Bill Rate Per month (in US$) 13, Number of Technical Staff on US projects onsite 18,27 Those on H1 B Visas 3% Number of Technical Staff on H1 B visas 6484 Current Average Compensation of H1 - B visa holder (in US$) 7, Hit if salary moves to US$1 (in US$mn) 19 As % of sales 2.% Tech Mahindra Base case Total Revenue (in US$mn) 4,614 Number of Technical Staff on H1 B visas 4, Current Average Compensation of H1 - B visa holder (in US$) 7, Hit if salary moves to US$1 (in US$mn) 1 As % of sales 2.17% Persistent Systems Optimistic Case Pessimistic case Total Revenue (in US$mn) US revenue share - 8% Onsite Revenue as %age of US revenue - 27% Onsite Bill Rate Per month (in US$) 16, 16, Number of Technical Staff on US projects onsite Those on H1 B Visas % 7% Number of Technical Staff on H1 B visas Current Average Compensation of H1 - B visa holder (in US$) 7, 6, Hit if salary moves to US$1 (in US$mn) 7 14 As % of sales 1.49% 2.93% 9 Information Technology Sector

10 Exhibit : Comparative valuation Indian IT services sector: Valuations TCS Infosys Wipro HCL Tech TechMahindra Persistent Year Ending March March March June March March Prices as on 9-Jan-17 2, Currency INR INR INR INR INR INR Market Value (Rsbn) 4,38 2,218 1,143 1, (US$mn) 66,39 32,17 16,71 17,341 6,7 746 Sep 217 Target Price 1, Upside/(downside) -.3% -.2% -13.2% -.% -22.3% -12.4% Recommendation Sell Sell Sell Sell Sell Sell EPS (Rs) FY FY17E FY18E FY19E PE (x) FY FY17E FY18E FY19E EV/EBITDA (x) FY FY17E FY18E FY19E EV/Sales (x) FY FY17E FY18E FY19E RoIC FY FY FY17E FY18E FY19E Information Technology Sector

11 Exhibit 6: Performance of various stocks and indices Stock Performance CY6 CY7 CY8 CY9 CY1 CY11 CY12 CY13 CY14 CY CY16 Q1CY16 Q2CY16 Q3CY16 Q4CY16 CY17TD TCS 43.% -11.8% -.6% 214.%.4% -.4% 8.2% 73.% 17.8% -4.7% -2.9% 3.4% 1.3% -4.8% -2.7% -2.6% Infosys 49.6% -21.% -37.% 133.2% 32.4% -19.6% -16.2%.3% 13.2% 12.1% -8.6% 1.2% -3.9% -11.% -2.% -4.% Wipro 3.8% -13.2% -.6% 191.3% 2.4% -18.8% -1.1% 8.9% -.7%.8% -.3%.8% -1.1% -14.2% -.9% -.% HCL Tech 19.% 2.8% -6.% 222.% 22.9% -.% 9.% 14.1% 26.% 7.1% -3.2% -4.8% -1.3% 9.% 3.% 1.3% Tech Mahindra % -78.1% 3.6% -29.1% -18.3% 62.% 97.1% 41.1% -19.% -6.3% -9.% 6.% -17.% 16.4% -3.2% Persistent %.9% 9.9% 7.1% -22.9% -3.9% 18.8% -8.% -8.2% -3.7% 3.2% Cognizant 3.% -12.% -46.8% 1.% 61.7% -12.3% 14.9% 36.7% 4.3% 14.% -6.6% 4.% -8.7% -16.6% 17.4% 3.3% Accenture 27.9% -2.4% -9.% 26.6% 16.8% 9.8% 24.9% 23.6% 8.6% 17.% 12.1% 1.4% -1.8% 7.8% -4.1% -.7% Cap Gemini 4.2% -9.6% -36.% 16.3% 9.3% -3.9% 36.1% 49.% 21.1% 43.9% -6.4% -3.% -.3% 11.% -8.1%.2% Mindtree -2.8% 193.9% -19.3% -29.1% 71.7% 123.9% 67.9% -44.1% -27.2% -8.9% 1.8% -27.% 8.2% -.% Hexaware 1.8% -7.1% -7.3% 347.4% 23.3% 29.% 13.3% 4.8% 1.6% 21.9% -14.9% 1.6% -14.9% -17.6% 9.8% -1.7% Cyient 81.9% -2.7% -67.2% 198.1% 12.4% -36.2% 63.1% 9.2% 1.4% -7.2%.2% -11.1% 14.9% -4.% 7.3% -3.8% Mphasis 13.7% 1.4% -49.% 36.4% -7.1% -.3% 27.8% 14.% -12.4% 29.1% 13.6% -1.2% 16.6% -9.4% 8.8% -6.3% NIIT Tech 8.8% 16.1% -7.2% 4.9% 1.2% -7.% 31.6% 49.% 2.7% 6.4% -26.7% -14.3% 3.2% -18.3% 1.4% 1.3% Intellect Design % -.2% -19.4% -9.8% -14.8% -19.% 3.6% OFSS 81.% -22.6% -69.7% 46.2%.9% -2.6% 77.3%.1% 2.% 11.% -16.3% -.4% -1.8% -7.% -3.% -.% Ramco Systems -29.3% 9.9% -78.8% 99.8% 13.% -4.3% 4.% 62.7% 21.7% 68.2% -8.1% -1.9% -2.3% -33.% -27.6%.7% Just Dial % -37.7% -9.8% -9.1% -2.3% -29.4% -21.3% 14.% Infoedge % -69.% 116.6% 49.2% -14.1% 21.% 34.% 84.1%.3%.% -1.1% 7.7% 2.9%.4% -4.2% Makemytrip % -48.3% 4.8% 34.9% -34.% 29.4%.4% -17.9% 8.8% -.9%.8% Index Performance Nasdaq 6.8% 18.7% -41.9% 3.% 19.2% 2.7% 16.8% 3.% 17.9% 8.4%.9% -2.4% -1.% 1.4% -.2% 2.9% S&P 13.6% 3.% -38.% 23.% 12.8%.% 13.4% 29.6% 11.4% -.7% 9.%.8% 1.9% 3.3% 3.3% 1.7% Stox % -.2% -4.6% 28.% 8.6% -11.3% 14.4% 17.4% 4.4% 6.8% -1.2% -7.7% -2.3% 4.%.4%.6% DAX 22.% 22.3% -4.4% 23.8% 16.1% -14.7% 29.1% 2.% 2.7% 9.6% -1.1% -7.2% -2.9% 8.6% 1.% 8.7% Nikkei 6.9% -11.1% -42.1% 19.% -3.% -17.3% 22.9% 6.7% 7.1% 9.1%.4% -12.% -7.1%.6% 16.2% 1.8% MSCI EM 29.2% 36.% -4.% 74.% 16.4% -2.4%.1% -.% -4.6% -17.% 8.6%.4% -.3% 8.3% -4.6% 2.2% Bovespa 32.9% 43.6% -41.2% 82.7% 1.% -18.1% 7.4% -.% -2.9% -13.3% 38.9%.% 2.9% 13.3% 3.2%.% HSCEI 94.%.9% -1.1% 62.1% -.8% -21.7%.1% -.4% 1.8% -19.4% -2.8% -6.8% -3.2% 1.% -2.% 2.2% CNX BANK 32.% 64.2% -49.3% 8.% 3.6% -32.4% 6.% -8.7% 64.6% -9.7% 7.4% -4.6% 11.1% 7.% -.7%.6% CNX IT 39.% -11.4% -4.6% 166.% 28.7% -18.% -1.9% 8.% 17.8%.% -7.3%.9% -1.7% -7.4% 1.% -1.9% CNX FMCG 17.1% 22.3% -19.6% 41.6% 3.6% 8.6% 48.% 12.2% 18.2%.3% 2.8% -2.1% 9.3% -.3% -3.7% 1.1% CNX AUTO 28.3%.% -4.9% 194.2% 34.9% -19.4% 42.% 9.4% 6.7% -.3% 1.7% -2.% 9.6% 13.1% -8.8% 3.9% CNX ENERGY 2.1% 96.7% -48.2% 61.% 3.4% -28.7% 13.8%.4% 8.% -.7% 19.7% -1.9% 3.3% 12.1%.3% 1.2% CNX PHARMA 2.% 14.6% -2.6% 9.1% 3.3% -1.% 31.9% 26.% 43.4% 9.3% -14.2% -8.1% 1.4% 2.9% -1.4%.% CNX METAL 93.9% 139.3% -73.6% 227.4%.% -47.7% 17.7% -14.3% 7.% -31.3% 4.2% 4.7% 14.1%.6%.2%.3% CNX INFRA.4% 9.2% -7.2% 39.7% -4.% -38.% 21.7% -4.2% 22.7% -8.9% -2.1% -8.% 11.7% -1.8% -2.9% 2.6% CNX MIDCAP 29.% 76.9% -9.4% 99.% 19.2% -31.% 39.2% -.1%.9% 6.% 7.1% -4.8% 8.3% 11.6% -6.9% 3.6% CNX SMALLCAP 41.6% 87.3% -71.% 17.% 17.6% -33.9% 36.8% -8.3%.% 7.2% 2.3% -13.6% 19.%.6% -.8%.8% NIFTY 39.8% 4.8% -1.8% 7.8% 17.9% -24.6% 27.7% 6.8% 31.4% -4.1% 3.% -2.6% 7.1% 3.9% -4.9%.6% USD/INR Information Technology Sector

12 Exhibit 7: Detailed financials Tata Consultancy Services Income statement Y/E March (Rsbn) FY FY16 FY17E FY18E FY19E Average INR/USD Net Sales (US $ m),44 16,44 17,63 18,38 19,26 -Growth Net Sales 946 1,86 1,186 1,287 1,46 -Growth Cost of Sales & Services Gross Margin % of sales SG& A % of sales EBIT EBIT Margin Other income (net) PBT PBT margin Provision for tax Effective tax rate Minority Interest Net profit Growth Net profit margin Balance sheet Y/E March (Rsbn) FY FY16 FY17E FY18E FY19E Equity capital Reserves & surplus Net worth ,9 Minority Interest Other liabilities Total loans Total liabilities ,3 Goodwill Net block (incl. CWIP) Investments Deferred tax asset - net Other non-current assets Other current assets Debtors Cash & bank balance Bank deposits Total current assets Total current liabilities Net current assets Total assets ,3 Cash flow Y/E March (Rsbn) FY FY16 FY17E FY18E FY19E EBIT (Inc.)/dec. in working capital (3) (3) (27) (13) (3) Cash flow from operations Other income Depreciation & amortisation Financial expenses Tax paid (67) (7) (83) (86) (9) Dividends paid (17) (1) (3) (2) (174) Net cash from operations Capital expenditure (31) (21) (18) () () Net cash after capex Inc./(dec.) in debt 1 (1) (1) - - (Inc.)/dec. in investments 17 (211) (64) - - Equity issue/(buyback) Cash from financial activities 18 (212) (66) - - Others (14) 9 (42) (1) (1) Opening cash Closing cash Change in cash 38 (1) (21) Key ratios Y/E March FY FY16 FY17E FY18E FY19E Per share (Rs) EPS FDEPS Dividend Per Share Dividend Yield Book Value Dividend Payout Ratio (excl DT) Return ratios RoE RoCE ROIC Tunover Ratios Asset Turnover Ratio Debtor Days (incl. unbilled Rev) Working Capital Cycle Days Valuation ratios (x) PER P/BV EV/EBTDA EV/Sales M-cap/Sales Information Technology Sector

13 Infosys Income statement Y/E March (Rsbn) FY FY16 FY17E FY18E FY19E Average INR/USD Net Sales ($mn) 8,714 9,499 1,173 1,77 11,231 -Growth Net Sales Growth Direct Costs Gross Margin % of sales SG& A % of sales EBIT % of sales Other income (net) PBT PBT margin Provision for tax Effective tax rate Net profit Growth Net profit margin Balance sheet Y/E March (Rsbn) FY FY16 FY17E FY18E FY19E Equity capital Reserves & surplus Net worth Deferred tax liability Other liabilities Total loans Total liabilities Goodwill Other intangible assets Net block Investments Deferred tax asset - net Other non-current assets Unbilled revenue Derivative financial instrument Other current assets Income tax assets-current Debtors Cash & bank balance Total current assets Total current liabilities Net current assets Total assets Cash flow Y/E March (Rsbn) FY FY16 FY17E FY18E FY19E EBIT (Inc.)/dec. in working capital 3 (11) (6) () (6) Cash flow from operations Other income Depreciation & amortisation Financial expenses Tax paid (49) (3) (7) (6) () Dividends paid (7) (67) (7) (72) (74) Net cash from operations Capital expenditure (2) (29) (3) (36) (4) Net cash after capex Inc./(dec.) in debt (Inc.)/dec. in investments Cash from financial activities Others 6 (2) (39) (4) () Opening cash Closing cash Change in cash Key ratios Y/E March FY FY16 FY17E FY18E FY19E Per share (Rs) EPS FDEPS Dividend Per Share Dividend Yield Book Value Dividend Payout Ratio (incl DT) Return ratios RoE RoCE ROIC Tunover Ratios Asset Turnover Ratio Debtor Days (incl. unbilled Rev) Working Capital Cycle Days Valuation ratios (x) PER P/BV EV/EBTDA EV/Sales M-cap/Sales Information Technology Sector

14 Wipro Income statement Y/E March (Rsbn) FY FY16 FY17E FY18E FY19E Average INR/USD Net Sales - IT Services (US 7,82 7,346 7,787 8,37 8,6 $mn) -Growth Net Sales - Overall Growth Cost of Sales & Services % of sales Gross profit % of sales SG& A % of sales EBIT % of sales Interest expenses Other income (net) PBT PBT margin Provision for tax Effective tax rate Minority Interest Net profit Growth (8.1) Net profit margin Balance sheet Y/E March (Rsbn) FY FY16 FY17E FY18E FY19E Equity capital Reserves & surplus Net worth Deferred tax liability, net Other liabilities 1 16 Total loans Total liabilities Goodwill Other intangible assets Net block Investments Other non-current assets Unbilled revenue Inventories Other current assets Debtors Cash & bank balance Total current assets Total current liabilities Net current assets Total assets Cash flow Y/E March (Rsbn) FY FY16 FY17E FY18E FY19E EBIT (Inc.)/dec. in working capital (37) 37 (8) (6) (8) Cash flow from operations Other income Depreciation & amortisation Financial expenses (4) (6) (6) (6) (6) Tax paid (2) (2) (24) (2) (27) Dividends paid (3) (17) (29) (34) (4) Net cash from operations Capital expenditure (8) (23) (16) (2) (2) Net cash after capex Inc./(dec.) in debt (1) (Inc.)/dec. in investments (1) (4) Equity issue/(buyback) () Cash from financial activities 33 () () Others (12) () (48) Opening cash Closing cash Change in cash 4 (6) (7) Key ratios Y/E March FY FY16 FY17E FY18E FY19E Per share (Rs) EPS FDEPS Dividend Per Share Dividend Yield Book Value Dividend Payout Ratio Return ratios RoE RoCE ROIC Tunover Ratios Asset Turnover Ratio Debtor Days (incl. unbilled Rev) Working Capital Cycle Days Valuation ratios (x) PER P/BV EV/EBTDA EV/Sales M-cap/Sales Information Technology Sector

15 HCL Technologies Income statement Y/E March (Rsmn) FY FY16* FY17E FY18E FY19E Average INR/USD Net Sales (US$),92 4,698 7,1 7,769 8,164 -Growth 11.1 (21.1) Net Sales 37,62 311,36 472,78 43,84 87,84 -Growth 12.6 (16.) Cost of Sales & Services 237,97 23,2 313, , ,699 Gross Margin 132,6 17,84 8,262 16,87 17,141 % of sales SG&A 4,63 39,69 4,64 6,69 6,6 % of sales EBITDA 87,2 68, 13,68 18, ,36 % of sales Depreciation 4,1 4,4 8,94 1,98 1,8 EBIT 82,1 63,7 9,6 98,799 13,731 % of sales Other income (net) (incl forex 9,12 7,96 9,31 9,63 11,64 gain/loss) PBT 91,63 71,66 14,374 18,43 1,29 Provision for tax 19,8 14,99 21,976 22,8 24,296 Effective tax rate Minority Interest 1 Net profit 72,1 6,67 82,399 8,8 9,999 -Growth 13.9 (21.9) Net profit margin Balance sheet Y/E March (Rsmn) FY FY16* FY17E FY18E FY19E Equity capital 1,4 1,4 1,4 1,4 1,4 Reserves & surplus 246,11 278, , , ,744 Net worth 247,1 28, ,216 37, ,144 Other liabilities 12,9 12,63 17,68 19,176 21,3 Total loans 4,69 9,732,97,97,97 Total liabilities 264,79 32,88 347,79 39, ,3 Intangible assets 2,4 64,194 68,2 68,2 68,2 Net block 38,2 43,231 68,48 73,71 78,94 Investments 8 1,61 1,42 1,42 1,42 Other non-current assets 3,66 38,789 42,66 46,71 1,8 Debtors 94,84 17,227 12, , ,239 Cash & bank balance 13,2 7,293 12,428 12,428 12,428 Other current assets 127,7 13,338, , ,67 Total current assets 236,11 249,88 283, , ,734 Total current liabilities 92,3 9,8 116,73 127, ,732 Net current assets 143,81 4, ,73 2, ,2 Total assets 264,79 32,88 347,79 39, ,3 Note: Till FY16, the YE is June and March from FY17 onwards Note: For FY16 the numbers are for a 9th month period till 31 March Cash flow Y/E March (Rsmn) FY FY16* FY17E FY18E FY19E EBIT 82,1 63,7 9,6 98,799 13,731 (Inc.)/dec. in working capital (9,7) (1,32) 2,363 (3,11) (3,8) Cash flow from operations 72,93 3,376 97,428 9,698 1,146 Other income 9,12 7,96 9,31 9,63 11,64 Depreciation & amortisation 4,1 4,4 8,94 1,98 1,8 Tax paid (19,8) (14,99) (21,976) (22,8) (24,296) Dividends paid (22,463) (23,933) (33,89) (39,4) (4,147) Net cash from operations 4,4 26,862 9,497 3,73 3,72 Capital expenditure (11,24) (9,481) (33,911) (,121) (,829) Net cash after capex 33,8 17,381 2,86 37,92 37,244 Inc./(dec.) in debt (2,817),42 (3,77) (Inc.)/dec. in investments (2,2) (17,3) (13,23) (39,6) (39,12) Equity issue/(buyback) Cash from financial activities (23,17) (12,28) (17,28) (39,6) (39,12) Others (7,473) (11,31) (3,171) Opening cash 1,21 13,2 7,293 14,36 14,287 Closing cash 13,2 7,293 12,428 12,428 12,428 Change in cash 3,31 (6,227),13 (1,68) (1,89) Key ratios Y/E March (Rsmn) FY FY16* FY17E FY18E FY19E Per share (Rs) EPS FDEPS Dividend Per Share Dividend Yield Book Value Dividend Payout Ratio (excl DDT) Return ratios RoE RoCE ROIC Tunover Ratios Asset Turnover Ratio Debtor Days (incl. unbilled Rev) Working Capital Cycle Days Valuation ratios (x) PER P/BV EV/EBTDA EV/Sales M-cap/Sales * Note: All the ratios are annualised using a factor of 4/3 for comparison purposes Note: Till FY16, the YE is June and March from FY17 onwards Note: For FY16 the numbers are for a 9th month period till 31 March Information Technology Sector

16 Tech Mahindra Income statement Y/E March (Rsmn) FY FY16 FY17E FY18E FY19E Average INR/USD Net Sales (US$m) 3,664 4,37 4,328 4,614 4,83 -Growth Net Sales 224, , ,47 322, ,773 -Growth Cost of Sales & Services, ,316 23,27 226,64 247,1 Gross Profit 74,4 81,62 87,931 96,318 1,722 % of sales SG& A 32,91 38,289 43,33 4,884 47,723 % of sales EBITDA 41,144 43,336 44,397,433 2,999 % of sales Depreciation 6,79 7,62 9,62 11,9 14,21 EBIT 3,6 3,716 34,773 38,29 38,978 % of sales Interest expenses , Other income (net) 1,6,322,949 4,331 4,4 PBT 3,774 4,167 39,494 42,383 43,6 -PBT margin Provision for tax 9,472 8,6 1,66 1,172 1,333 Effective tax rate Minority Interest Net profit 26,278 31,181 28,978 32,263 32,774 -Growth (13.2) 18.7 (7.1) Net profit margin Balance sheet Y/E March (Rsmn) FY FY16 FY17E FY18E FY19E Equity capital 4,87 4,83 4,377 4,377 4,377 Reserves & surplus 117, ,824 4,31 173, ,694 Net worth 122, ,677 8, ,4 196,71 Minority Interest 1,61 2,2 4,794 4,794 4,794 Other liabilities 16,84 17,846 14,987 14,987 14,987 Total loans 6,746 1,22 1,686 4,38 4,38 Total liabilities 147, ,64 189,4 22,26 22,232 Goodwill 17,283 17,37 33,31 34,86 34,86 Net block (incl. CWIP) 28,723 32,383 48,776 6,872 62,8 Investments 21,28 24,933 12,39 12,39 12,39 Deferred tax asset - net 3,91,7 4,212 4,212 4,212 Other non-current assets 13,61 17,6 18,72 19,32 21,49 Other current assets 19,44 22,42 19,346 2,16 22,386 Debtors 2,9 7,7 6,2 67,7 7,216 Loans & Advances 18,728 17,84 33,27 34,83 38,3 Cash & bank balance 24,49 4,138,666,927 19,222 Inventory Total current assets 114,48 137, ,93 138,816,968 Total current liabilities,8 61, 61,96 64,34 71,634 Net current assets 63,68 76,26 72,24 74,47 84,334 Total assets 147, ,64 189,4 22,26 22,232 Cash flow Y/E March (Rsmn) FY FY16 FY17E FY18E FY19E EBIT 3,6 3,716 34,773 38,29 38,978 (Inc.)/dec. in working capital (,36) 3,18 (2,24) (2,191) (6,64) Cash flow from operations 19,79 39,234 14,33 36,338 32,413 Other income 1,6,322,949 4,331 4,4 Depreciation & amortisation 6,79 7,62 9,62 11,9 14,21 Financial expenses (297) (871) (1,227) (476) (476) Tax paid (9,472) (8,6) (1,66) (1,172) (1,333) Dividends paid (,496) (12,62) (1,149) (12,9) (14,748) Net cash from operations 11,79 3,13 8,664 29,2 2,431 Capital expenditure (13,64) 6,186 (12,484) (2,) (2,) Net cash after capex (1,98) 9,289 (93,82) 9,2,431 Inc./(dec.) in debt 6,222 3, (6,36) - (Inc.)/dec. in investments (6,39) (3,9) 12, Equity issue/(buyback) 2,469 3 (462) - - Cash from financial activities 2,382 (94) 12,96 (6,36) - Others (9,497) (78,66) 6,78 (2,63) (1,72) Opening cash 33,149 24,49 4,138,666,927 Closing cash 24,49 4,138,693 16,317 19,66 Change in cash (9,1) 16,89 (24,444) 61 3,679 Key ratios Y/E March FY FY16 FY17E FY18E FY19E Per share (Rs) FDEPS Dividend Per Share Dividend Yield Book Value Dividend Payout Ratio Return ratios RoE RoCE ROIC Tunover Ratios Asset Turnover Ratio Debtor Days (incl. unbilled Rev) Working Capital Cycle Days Valuation ratios (x) PER P/BV EV/EBTDA EV/Sales M-cap/Sales Note: While the projections for FY17-FY19 are based on Ind-AS, we are yet to restate the historical numbers 16 Information Technology Sector

17 Persistent Systems Income statement Y/E March (Rsmn) FY FY16 FY17E FY18E FY19E Average INR/USD Net Sales (US$mn) Growth Net Sales 18,913 23,123 29,97 32,828 36,379 -Growth Cost of Sales & Services 11,317 14,3 18,18 21,392 24,7 % of sales Gross Margin 7,96 8,819 1,79 11,436 12,39 % of sales SG& A 3,69 4,647,642 6,38 6,28 % of sales EBITDA 3,96 4,171 4,937,398 6,29 % of sales Depreciation ,483 1,68 1,824 EBIT 2,967 3,26 3,4 3,739 4,2 % of sales Other income (net) ,112 1,39 PBT 3,9 3,96 4,436 4,81,14 -PBT margin Provision for tax ,114 1,23 1,398 Effective tax rate Net profit 2,96 2,974 3,322 3,622 4,116 -Growth Net profit margin Balance sheet Y/E March (Rsmn) FY FY16 FY17E FY18E FY19E Equity capital Reserves & surplus 13,2,93 17,92 19,879 22,69 Net worth 14, 16,393 18,72 2,679 22,869 Deferred tax liability Other liabilities Total loans Total liabilities 14,84 16,42 18,93 2,862 23,2 Goodwill Net block (incl CWIP) 4,93 4,43,87,22 4,861 Investments 6,73 6,17 6,134 6,134 6,134 Deferred tax asset Other non-current assets 127 1,721 1,9 1,9 1,9 Other current assets 1,42 2,6 3,397 3,792 4,2 Debtors 3,86 4,27 4,832,393,981 Cash & bank balance 1,416 1,432 2,473 4,37 6,2 Total current assets 6,44 8,38 1,72 13,6 16,711 Total current liabilities 3,66 4,646 4,97,477 6,74 Net current assets 2,79 3,663,79 8,83 1,637 Total assets 14,84 16,42 18,93 2,862 23,2 Cash flow Y/E March (Rsmn) FY FY16 FY17E FY18E FY19E EBIT 2,967 3,26 3,4 3,739 4,2 (Inc.)/dec. in working capital (29) (384) (974) (739) (39) Cash flow from operations 2,939 2,822 2,481 3, 3,81 Other income ,112 1,39 Depreciation & amortisation ,483 1,68 1,824 Tax paid (993) (983) (1,114) (1,23) (1,398) Dividends paid (667) (77) (1,166) (1,69) (1,926) Net cash from operations 3,149 2,78 2,664 2,846 3,619 Capital expenditure 94 1,618 2,74 1,297 1,46 Net cash after capex 2, 1, ,49 2,9 Inc./(dec.) in debt (7) (Inc.)/dec. in investments (1,841) Equity issue/(buyback) Cash from financial activities (1,448) Others (647) (1,711) (9) Opening cash 97 1,416 1,432 2,473 4,37 Closing cash 1,417 1,433 2,472 4,37 6,2 Change in cash ,4 1,92 2, Key ratios Y/E March FY FY16 FY17E FY18E FY19E Per share (Rs) EPS FDEPS Dividend Per Share Book Value Dividend Payout Ratio Return ratios RoE RoCE ROIC Tunover Ratios Asset Turnover Ratio Debtor Days (incl. unbilled Rev) Working Capital Cycle Days Valuation ratios (x) PER P/BV EV/EBTDA EV/Sales M-cap/Sales Dividend Yield Information Technology Sector