Persistent Systems Ltd.

Transcription

1 2017 Equirus All rights reserved Rating Information Price (Rs) 657 Target Price (Rs) 653 Target Date 30th Sep '18 Target Set On 23rd July 17 Implied yrs of growth (DCF) 5 Fair Value (DCF) 793 Fair Value (CZM) 224 Ind Benchmark Model Portfolio Position Stock Information BSE IT NA Market Cap (Rs Mn) 52,520 Free Float (%) % 52 Wk H/L (Rs) 710/501.1 Avg Daily Volume (1yr) 139,567 Avg Daily Value (Rs Mn) 87 Equity Cap (Rs Mn) 800 Face Value (Rs) 10 Bloomberg Code KPIT IN Ownership Recent 3M 12M Promoters 30.7 % -4.4 % -7.5 % DII 18.0 % -0.4 % 1.2 % FII 22.3 % 1.6 % -0.3 % Public 29.1 % 3.2 % 6.6 % Price % 1M 3M 12M Absolute -3.7 % 16.2 % 3.8 % Vs Industry -7.8 % 9.6 % 7.2 % Infotech Ent. 2.2 % -3.8 % -7.7 % Hexaware 5.0 % 2.2 % 9.5 % Standalone Quarterly EPS forecast Rs/Share 1Q 2Q 3Q 4Q EPS (17A) EPS (18E) Persistent Systems Ltd. Absolute : REDUCE Relative : BENCHMARK 1QFY18 Result: Est. (), PT (), Rating () Regular Coverage 1% ATR in 14 months In search of growth/margin balance. Revise to REDUCE. PSYS reported uneven earnings in 1Q as growth was better (3.6% qoq, EE 2.9%) but margins slipped (14.3%, EE 15.2%). Although commentary was encouraging and midteen growth seems likely with Park Werk contribution, EBITDA margin performance remains a concern. Starting FY18e at 14.3% despite wage hike impact implies PSYS needs average 16.2% margins in 9MFY18 to achieve at-least FY17 similar margins (15.8%). Acknowledging we had revised our rating to ADD post 4QFY17 on attractive valuations, we are forced to revise to REDUCE (14x Sept 18 TTM EPS of Rs vs. 13x June 18 TTM EPS of Rs earlier) this time. Rationale is a) shares have rallied 16%, since then, primarily due to multiple expansion, and b) despite accounting for Park Werk contribution there is no meaningful EPS upgrade. Target multiple is in-line with FY11-17 average 1-year forward PE multiple of 13.5x. Alliance, Services led quarterly growth: Growth was driven by Alliance (9.6% qoq vs % in 4Q) and helped by Services (5%); Digital was soft (-1.3% vs. double digit growth in 4Q/3Q, though management expects strong growth in FY18e) while Accelerite declined 10.4%. Across offerings, Enterprise (32% of revenues, 8.7% qoq over 3.9%/9.5% in 4Q/3Q) while ISV (40.8%) was soft (0.9%). Commentary suggests, digital, IBM momentum could continue in FY18E. Model FY18E $ revenues to grow 13.2% yoy to $ 486mn (12%/$ 481mn earlier) as we include Park Werk contribution. EBITDAM miss despite wage hike impact could be a concern: EBITDA margins declined 200bps qoq to 14.3%, higher than our 109bps decline estimate. Key headwinds were a) 3.4% rupee appreciation impacted margins by -120bps, b) higher onsite/investments in new partnership (-90bps), lower offshore utilisation (-40bps), visa & Parx acquisition (-70bps), investments in sales (-30bps), doubtful provision (- 40bps) while offset was growth in IP. Change in growth estimates leads to change in FY18E margin assumption to 16.4% vs. 16.2% earlier. Europe/APAC was strong while US was decent; top customer was strong: The US grew 2.4% after declining 1% in 4Q while Europe/APAC grew 15.3%/9.2% qoq. Sequential growth across top/top2-5/top6-10 was healthy (9.1%/9.8%/8.2% respectively) while non-top 10 customer revenues declined -2.5%,. Revise to REDUCE as valuations turn dearer: Our ADD rating on Persistent was based on the underlying thesis that tighter focus on costs could lead to margin improvement, and traction in Digital, IP could lead to industry leading growth. Though growth is tracking ahead, 14.3% EBITDAM in 1Q, despite wage hike impact, has significantly raised the ask-rate, while a miss could limit EPS upgrades. Also, 16% rally in the shares without meaningful change in commentary caps further re-rating. Higher than anticipated margin recovery is a key upside risk to estimates. Change in Estimates: IT Services Revised Estimates % Change over Old Estimates FY18E FY19E FY18E FY19E US$ Sales % 2% Sales(Rs.) 31,876 36,628 0% 2% EBITDA 5,220 6,127 2% 3% EBIT 3,624 4,430 2% 4% PAT 3,468 3,978 1% 1% EPS % 1% Consolidated Financials Rs. Mn YE Mar FY17A FY18E FY19E FY20E Sales 28,784 31,876 36,628 41,052 EBITDA 4,539 5,220 6,127 6,793 Depreciation 1,490 1,596 1,697 1,738 Interest Expense Other Income 958 1, ,043 Reported PAT 3,015 3,468 3,978 4,573 Recurring PAT 3,015 3,468 3,978 4,573 Total Equity 18,993 21,209 23,839 26,968 Gross Debt Cash 6,009 8,881 10,881 13,177 Rs Per Share FY17A FY18E FY19E FY20E Earnings Book Value Dividends FCFF P/E (x) P/B (x) EV/EBITDA (x) ROE (%) 17 % 17 % 18 % 18 % Core ROIC (%) 24 % 27 % 36 % 39 % EBITDA Margin (%) 16 % 16 % 17 % 17 % Net Margin (%) 10 % 11 % 11 % 11 % July 23, 2017 Analyst: Abhishek Shindadkar (abhishek.shindadkar@equirus.com , ) Page 1 of 12 Before reading this report, you must refer to the disclaimer on the last page.

2 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 Persistent Systems Absolute REDUCE Relative Benchmark 1% ATR in 14 Months Exhibit 1: Addition of 3 new clients in >$3 mn club Client engagement size Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Exhibit 4: Utilization declined 63bps qoq led by drop in offshore utilisation Large>$ 3 mn % 80% Medium>$1 mn, <$3 mn Source: Company, Equirus Research 95% 78% 76% Exhibit 2: Broad based growth across top 10 customers Revenue/Client Matrix Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Top Client % 85% 74% 72% 70% 68% QoQ Growth 63.5% 19.1% -1.7% 8.7% -11.0% 9.1% Top QoQ Growth 33.3% 14.3% -0.5% 8.6% -6.7% 9.4% 80% 75% 66% 64% 62% Top QoQ Growth 26.0% 10.8% 0.6% 8.2% -4.9% 9.2% Source: Company, Equirus Research OnSite mix(%) OffShore mix(%) Utilization (%) (RHS) Exhibit 3: Healthy gains in revenue per employee metric Revenue per Tech Employee ($) Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 RPTE ($) 11,654 12,044 12,213 12,851 12,379 12,920 % Growth 8.3% 3.3% 1.40% 5.2% -3.7% 4.37% Source: Company, Equirus Research Source: Company, Equirus Research Exhibit 5: Elevated attrition leads to net employee reduction 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 Attrition 16.4% 16.7% 15.9% 15.8% 15.7% 15.5% LTM Attrition (Calculated) 1,457 1,490 1,419 1,437 1,470 1,456 Net Addition (84) (76) 231 (59) USD Growth 12.0% 4.3% 0.4% 4.6% -0.9% 3.6% Direct Cost as % of Sales 64.3% 65.3% 64.5% 63.7% 63.9% 65.7% Wage hike % 16.1% 3.6% 2.4% 5.0% -5.3% 3.5% Source: Company, Equirus Research July 23, 2017 Analysts: Abhishek Shindadkar (abhishek.shindadkar@equirus.com , ) Page 2 of 12

3 Key Takeaways from Conference call Persistent Systems Absolute REDUCE Relative Benchmark 1% ATR in 14 Months Quarterly performance: Revenues grew 3.6%/7.8% qoq/yoy to $ mn. Both services/ip revenues grew 4.1%/2.4% qoq growth. Volume/realization breakup: Linear revenue (1.8%/2.2%). Onsite linear grew 11.2% (10.4/0.8%), offshore linear declined -0.3% (0.4%/-0.8%). Digital business: Revenues decline 1.3% qoq. Making progress on USAA/Partner Healthcare announced LQ. Having multiple customer conversation. Formal launch along with key win announcement likely in 2q. Collaboration with Partner Healthcare is off to strong start. Added 15 major customers (Home Furnishing company, large mobile carrier, healthcare product company). FY18e growth trajectory is strong based on robust pipeline, new customers, deal wins, and strengthening of consulting led services. Looking for major push on sales in Europe. Services business: Revenues grew 5% qoq. Closed significant deals in India and US. India (MP Vidhan Sabha, done similar work in UP, has potential to expand in other states). US (Life sciences deal announced in 4Q has started scaling). Building API based integration framework with 30+banks integrating with Product Company, done on Persistent paper Parx Werk AG acquisition: CY16 revenues (~$ 8.5mn), 80 people including contractors. $ 8.5mln upfront payment. $ 7.5mln additional earnouts based on performance and retention of founders. Critical for Persistent s European business. To be integrated with Digital business over next few quarters. FY18e outlook: Confident of achieving mid-teen growth in FY18e. Pipeline continues to be robust. Wages hikes: Deferred cycle for July employees to October and for October employees to January. July 23, 2017 Analysts: Abhishek Shindadkar (abhishek.shindadkar@equirus.com , ) Page 3 of 12

4 Exhibit 6 a): Growth Metrics $ Revenue Growth Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 $ Revenues Growth (QoQ) 5.0% 4.2% 0.6% -1.8% 5.5% 8.1% 12.0% 4.3% 0.4% 4.6% -0.9% 3.6% Growth by Segment (QoQ %) Telecom -5.2% -0.2% 2.5% -10.2% -6.5% 32.6% -6.6% NR NR NR NR NR Infrastructure and Systems 7.7% 2.9% -0.8% -2.3% 6.5% 0.4% 22.8% NR NR NR NR NR Life Sciences 7.4% 5.7% 5.8% -1.8% 6.3% 2.8% 1.4% NR NR NR NR NR Financial Services 5.8% 13.2% -0.7% 9.4% 12.5% 17.8% 6.8% NR NR NR NR NR Growth by Geography (QoQ %) North America 5.3% 2.5% 1.5% -2.9% 7.8% 6.9% 13.1% 5.4% -1.4% 6.1% -0.1% 2.4% Europe 1.8% 17.4% -3.6% -9.0% 13.9% 0.1% 19.1% -19.0% 17.8% -9.1% -0.9% 15.3% Asia-Pacific 5.0% 12.4% -4.3% 17.1% -20.6% 29.7% -4.0% -9.1% 4.1% 2.7% 0.9% 9.2% Growth by client concentration (%) Top -4.1% -4.0% -5.1% 7.8% 2.6% 6.8% 63.5% 19.1% -1.7% 8.7% -11.0% 9.1% Top % 6.6% 1.2% -0.1% 4.9% 2.6% 2.1% 6.3% 1.7% 8.6% 0.9% 9.8% Top % 7.7% -0.5% 3.6% 2.2% 13.9% 0.6% -5.2% 6.7% 5.8% 4.9% 8.2% Non Top % 5.7% 2.4% -5.9% 7.3% 9.2% 1.0% -2.1% 0.2% 0.6% 3.9% -2.5% Exhibit 6 b): Segment Classification (new) Segment Revenues ($ mn) Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Services Digital Alliance Accelerite Total July 23, 2017 Analysts: Abhishek Shindadkar (abhishek.shindadkar@equirus.com , ) Page 4 of 12

5 Quarterly Result Table (Consolidated) Rs Mn 1QFY18 1QFY18E 4QFY17 1QFY17 % Change 1QFY18E 4QFY17 1QFY17 Net Sales 7,280 7,237 7,271 7, % 0.1% 3.7% Net Sales ($ Mn) % 3.6% 7.8% Direct Costs 4,783 4,701 4,644 4,585 2% 3% 4% SG&A Expenses 1,453 1,433 1,440 1,376 1% 1% 6% Total Expenditures 6,237 6,134 6,084 5,960 2% 3% 5% Comments EBITDA 1,044 1,103 1,188 1,058-5% -12% -1% Depreciation % -1% 14% EBIT % -18% -9% Interest Other Income % 157% 45% PBT 1, % 9% 5% Tax % 29% 14% Recurring PAT % 3% 2% Extraordinaries Reported PAT % 3% 2% EPS (Rs) % 3% 2% EBITDA Margin 14.3% 15.2% 16.3% 15.1% -91 bps -200 bps -73 bps EBIT Margin 9.0% 9.6% 10.9% 10.2% -67 bps -196 bps -123 bps PBT Margin 14.0% 13.6% 12.9% 13.8% 38 bps 112 bps 21 bps PAT Margin 10.3% 10.2% 10.0% 10.4% 10 bps 30 bps -13 bps Tax Rate 26.3% 25.0% 22.3% 24.3% 134 bps 408 bps 205 bps July 23, 2017 Analysts: Abhishek Shindadkar (abhishek.shindadkar@equirus.com , ) Page 5 of 12

6 Company Snapshot How we differ from Consensus EPS Sales PAT - Equirus Consensus % Diff Comment FY18E % Consensus numbers before the earnings. FY19E % FY18E 31,876 31,551 1 % FY19E 36,628 35,637 3 % FY18E 3,468 3,404 2 % FY19E 3,978 3,964 0 % Our Key Investment arguments: Strong top account momentum, Healthy growth in Digital/Alliance/IP Miss on margins led by weak start to FY18e Key Assumptions FY17A FY18E FY19E FY20E Total Revenue ($Mn) Linear revenues ($mn) IP-led revenues($mn) Volume growth(billed man-months) 7.5% 3.1% -3.1% 0.8% Net employee count 9,460 9,547 9,634 10,009 Utilization(excI IPLed) 76.5% 77.9% 77.6% 76.7% EBIT Margin(%) 10.6% 11.4% 12.1% 12.3% PBT Margin(%) 13.9% 14.6% 14.5% 14.9% PAT Margin(%) 10.5% 10.9% 10.9% 11.1% Risk to Our View: Higher than anticipated growth & margin recovery in IBM-IoT business and rupee appreciation. Key Triggers Traction in digital, momentum in top accounts, better scaling of IBM products, sustaining high utilization levels Sensitivity to Key Variables % Change % Impact on EPS Rupee Appreciation 1 % -40 bps Utilization 1 % +50 bps DCF Valuations & Assumptions Rf Beta Ke Term. Growth Debt/IC in Term. Yr 6.9 % % 4.0 % 0.0 % - FY18E FY19E FY20-22E FY23-27E FY28-32E Sales Growth 11 % 15 % 15 % 10 % 8 % NOPAT Margin 8 % 9 % 9 % 9 % 9 % IC Turnover RoIC 27.3 % 35.5 % 40.2 % 23.0 % 21.0 % Years of strong growth Valuation as on date (Rs) Valuation as of 30 th Sep on DCF, assuming 5 years of 15% Sales CAGR and 40% average ROIC, we derive current fair value of Rs. 717 and 30 th Sep 18 fair value of Rs Company Description: Persistent Systems Ltd is a mid-size Indian IT Company which has established itself as one of the leading players in Outsourced Product development. Comparable valuation EPS P/E BPS P/B RoE Div Yield Mkt Cap Price Target Date Company Reco. CMP Rs. Mn. Target FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY17A FY18E FY19E FY17A FY18E Persistent ADD , th Sep ' % 17% 18% 2% 2% Infotech Ent. ADD , th Sep ' % 18% 18% 2.0% 2.9% Hexaware ADD , th Jun' % 24% 23% 2.3% 1.6% July 23, 2017 Analysts: Abhishek Shindadkar (abhishek.shindadkar@equirus.com , ) Page 6 of 12

7 Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q17A 2Q17A 3Q16A 4Q17A 1Q18E 2Q18E 3Q18E 4Q18E 1Q19E 2Q19E 3Q18E 4Q19E FY17A FY18E FY19E FY20E Revenue 7,018 7,040 7,455 7,271 7,280 7,701 8,424 8,471 8,726 8,923 9,468 9,511 28,784 31,876 36,628 41,052 Direct Costs 4,585 4,539 4,751 4,644 4,783 5,056 5,337 5,355 5,650 5,733 6,011 6,027 18,518 20,532 23,421 26,442 SG&A Expenses 1,376 1,394 1,518 1,440 1,453 1,440 1,622 1,609 1,710 1,740 1,823 1,807 5,727 6,125 7,080 7, EBITDA 1,058 1,108 1,187 1,188 1,044 1,205 1,465 1,506 1,366 1,451 1,634 1,677 4,539 5,220 6,127 6,793 Depreciation ,490 1,596 1,697 1,738 EBIT ,064 1, ,027 1,208 1,249 3,049 3,624 4,430 5,055 Interest Other Income , ,043 PBT , ,019 1,030 1,274 1,319 1,145 1,239 1,435 1,485 4,007 4,643 5,304 6,098 Tax ,174 1,326 1,524 PAT bef. MI & Assoc ,076 1,114 3,015 3,468 3,978 4,573 Minority Interest Profit from Assoc Recurring PAT ,076 1,114 3,015 3,468 3,978 4,573 Extraordinaries Reported PAT ,076 1,114 3,015 3,468 3,978 4,573 EPS (Rs) Key Drivers Total Revenue (US$ mn) IP Led (US$ mn) USD-INR Rate Utilization 75.3% 74.2% 78.9% 77.8% 77.2% 77.5% 79.0% 78.0% 79.0% 77.0% 77.0% 77.2% 76.5% 77.9% 77.6% 76.7% Sequential Growth (%) Revenue 4 % 0 % 6 % -2 % 0 % 6 % 9 % 1 % 3 % 2 % 6 % 0 % Direct Costs 5 % -1 % 5 % -2 % 3 % 6 % 6 % 0 % 6 % 1 % 5 % 0 % EBITDA -2 % 5 % 7 % 0 % -12 % 15 % 22 % 3 % -9 % 6 % 13 % 3 % EBIT -13 % 4 % 8 % -1 % -18 % 24 % 32 % 4 % -14 % 9 % 18 % 3 % Recurring PAT -9 % 0 % 11 % -11 % 3 % 3 % 24 % 4 % -13 % 8 % 16 % 4 % EPS -9 % 0 % 11 % -11 % 3 % 3 % 24 % 4 % -13 % 8 % 16 % 4 % Yearly Growth (%) Revenue 40 % 30 % 26 % 7 % 4 % 9 % 13 % 16 % 20 % 16 % 12 % 12 % 24 % 11 % 15 % 12 % EBITDA 9 % 9 % 7 % 11 % -1 % 9 % 23 % 27 % 31 % 20 % 12 % 11 % 9 % 15 % 17 % 11 % EBIT -4 % -5 % -7 % -3 % -9 % 9 % 33 % 39 % 45 % 28 % 14 % 13 % -5 % 19 % 22 % 14 % Recurring PAT 9 % 2 % 6 % -10 % 2 % 5 % 17 % 36 % 14 % 20 % 13 % 13 % 1 % 15 % 15 % 15 % EPS 9 % 2 % 6 % -10 % 2 % 5 % 17 % 36 % 14 % 20 % 13 % 13 % 1 % 15 % 15 % 15 % Margin (%) EBITDA 15 % 16 % 16 % 16 % 14 % 16 % 17 % 18 % 16 % 16 % 17 % 18 % 16 % 16 % 17 % 17 % EBIT 10 % 11 % 11 % 11 % 9 % 10 % 13 % 13 % 11 % 12 % 13 % 13 % 11 % 11 % 12 % 12 % PBT 14 % 14 % 15 % 13 % 14 % 13 % 15 % 16 % 13 % 14 % 15 % 16 % 14 % 15 % 14 % 15 % PAT 10 % 10 % 11 % 10 % 10 % 10 % 11 % 12 % 10 % 10 % 11 % 12 % 10 % 11 % 11 % 11 % July 23, 2017 Analysts: Abhishek Shindadkar (abhishek.shindadkar@equirus.com , ) Page 7 of 12

8 Sep/10 Sep/11 Sep/12 Sep/13 Sep/14 Sep/15 Sep/16 Sep/17 Sep/18 Sep/10 Sep/11 Sep/12 Sep/13 Sep/14 Sep/15 Sep/16 Sep/17 Sep/18 Consolidated Financials Persistent Systems Absolute REDUCE Relative Benchmark 1% ATR in 14 Months P&L (Rs Mn) FY17A FY18E FY19E FY20E Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E Revenue 28,784 31,876 36,628 41,052 Equity Capital PBT 4,007 4,643 5,304 6,098 Op. Expenditure 24,245 26,656 30,501 34,259 Reserve 18,193 20,409 23,039 26,168 Depreciation 1,490 1,596 1,697 1,738 EBITDA 4,539 5,220 6,127 6,793 Networth 18,993 21,209 23,839 26,968 Others Depreciation 1,490 1,596 1,697 1,738 Long Term Debt Taxes Paid 1,048 1,174 1,326 1,524 EBIT 3,049 3,624 4,430 5,055 Def Tax Liability Change in WC -1, Interest Expense Minority Interest Operating C/F 2,864 5,450 5,248 5,841 Other Income 958 1, ,043 Account Payables 1,209 2,295 2,619 2,956 Capex -2, ,400-1,600 PBT 4,007 4,643 5,304 6,098 Other Curr Liabi 2,963 3,542 4,070 4,561 Change in Invest Tax 992 1,174 1,326 1,524 Total Liabilities & Equity 23,464 27,046 30,527 34,485 Others PAT bef. MI & Assoc. 3,015 3,468 3,978 4,573 Net Fixed Assets 5,525 4,957 5,160 5,371 Investing C/F -2,219-1,028-1,900-2,100 Minority Interest Capital WIP Change in Debt Profit from Assoc Others 3,848 3,896 3,896 4,046 Change in Equity Recurring PAT 3,015 3,468 3,978 4,573 Inventory Others ,528-1,348-1,444 Extraordinaires Account Receivables 4,754 5,938 6,824 7,648 Financing C/F ,551-1,348-1,444 Reported PAT 3,015 3,468 3,978 4,573 Other Current Assets 3,280 3,374 3,766 4,242 Net change in cash 60 2,871 2,000 2,296 FDEPS (Rs) Cash 6,009 8,881 10,881 13,177 RoE (%) 17 % 17 % 18 % 18 % DPS (Rs) Total Assets 23,464 27,046 30,527 34,485 RoIC (%) 17 % 17 % 18 % 18 % CEPS (Rs) Non-cash Working Capital 3,861 3,475 3,902 4,373 Core RoIC (%) 24 % 27 % 36 % 39 % FCFPS (Rs) Cash Conv Cycle Div Payout (%) 38 % 36 % 34 % 32 % BVPS (Rs) WC Turnover P/E EBITDAM (%) 16 % 16 % 17 % 17 % FA Turnover P/B PATM (%) 10 % 11 % 11 % 11 % Net D/E P/FCFF Tax Rate (%) 25 % 25 % 25 % 25 % Revenue/Capital Employed EV/EBITDA Sales Growth (%) 24 % 11 % 15 % 12 % Capital Employed/Equity EV/Sales FDEPS Growth (%) 1 % 15 % 15 % 15 % Dividend Yield (%) 1.9 % 2.0 % 2.2 % 2.4 % TTM P/E vs. 2 yr forward EPS growth TTM P/B vs. 2 yr forward RoE EPS Growth 50% 40% 25x 30% 20x 15x 20% 10x 10% 5x 0% RoE 40% 5.5x 35% 4.5x 30% 25% 3.5x 20% 2.5x 15% 1.5x 10% 5% 0% July 23, 2017 Analysts: Abhishek Shindadkar (abhishek.shindadkar@equirus.com , ) Page 8 of 12

9 Historical Consolidated Financials P&L (Rs Mn) FY14A FY15A FY16A FY17A Balance Sheet (Rs Mn) FY14A FY15A FY16A FY17A Cash Flow (Rs Mn) FY14A FY15A FY16A FY17A Revenue 16,692 18,913 23,123 28,784 Equity Capital PBT 3,427 3,901 3,956 4,007 Op. Expenditure 12,389 15,007 18,952 24,245 Reserve 11,823 13,255 15,778 18,193 Depreciation 1, ,490 EBITDA 4,303 3,906 4,171 4,539 Networth 12,223 14,055 16,578 18,993 Others -1, Depreciation 1, ,490 Long Term Debt Taxes Paid 977 1,001 1,012 1,048 EBIT 3,277 2,968 3,206 3,049 Def Tax Liability Change in WC 1, ,062 Interest Expense Minority Interest Operating C/F 2,808 3,116 2,531 2,864 Other Income Account Payables ,599 1,209 Capex ,647-2,169 PBT 3,427 3,901 3,956 4,007 Other Curr Liabi 2,351 3,020 2,870 2,963 Change in Invest , Tax Total Liabilities & Equity 15,434 17,749 21,199 23,464 Others 268 1, PAT bef. MI & Assoc. 2,493 2,907 2,974 3,015 Net Fixed Assets 4,362 4,093 4,535 5,525 Investing C/F ,452-1,162-2,219 Minority Interest Capital WIP Change in Debt Profit from Assoc Others 881 1,285 3,282 3,848 Change in Equity Recurring PAT 2,493 2,907 2,974 3,015 Inventory Others , Extraordinaires Account Receivables 3,028 3,586 4,275 4,754 Financing C/F , Reported PAT 2,493 2,907 2,974 3,015 Other Current Assets 1,312 1,452 2,730 3,280 Net change in cash 1,350 1, EPS (Rs) Cash 5,851 7,334 6,353 6,009 RoE (%) 22 % 22 % 19 % 17 % DPS (Rs) Total Assets 15,434 17,749 21,199 23,464 RoIC (%) 21 % 22 % 19 % 17 % CEPS (Rs) Non-cash Working Capital 1,556 1,489 2,536 3,861 Core RoIC (%) 33 % 32 % 32 % 24 % FCFPS (Rs) Cash Conv Cycle Div Payout (%) 23 % 32 % 25 % 38 % BVPS (Rs) WC Turnover P/E EBITDAM (%) 26 % 21 % 18 % 16 % FA Turnover P/B PATM (%) 15 % 15 % 13 % 10 % Net D/E P/FCFF Tax Rate (%) 27 % 25 % 25 % 25 % Revenue/Capital Employed EV/EBITDA Sales growth (%) 29 % 13 % 22 % 24 % Capital Employed/Equity EV/Sales FDEPS growth (%) 33 % 17 % 2 % 1 % Dividend Yield (%) 1.8 % 1.5 % 1.2 % 1.9 % July 23, 2017 Analysts: Abhishek Shindadkar (abhishek.shindadkar@equirus.com , ) Page 9 of 12

10 Equirus Securities Research Analysts Sector/Industry Equity Sales Abhishek Shindadkar IT Services Vishad Turakhia Ashutosh Tiwari Auto, Metals & Mining Subham Sinha Depesh Kashyap Mid-Caps Sweta Sheth Devam Modi Power & Infrastructure Viral Desai Dhaval Dama FMCG, Mid-Caps Binoy Dharia Manoj Gori Consumer Durables Dealing Room Maulik Patel Oil and Gas Ashish Shah Praful Bohra Pharmaceuticals Ilesh Savla Rohan Mandora Banking & Financial Services Manoj Kejriwal Associates Dharmesh Mehta Ankit Choudhary Sandip Amrutiya AshdeepKaur Compliance Officer Bharat Celly Jay Soni Harshit Patel Meet Chande Parva Soni Pranav Mehta Ronak Soni Samkit Shah Shreepal Doshi Vikas Jain Rating & Coverage Definitions: Absolute Rating LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap > Rs 5 billion and ATR >= 20% for rest of the companies ADD: ATR >= 5% but less than Ke over investment horizon REDUCE: ATR >= negative 10% but <5% over investment horizon SHORT: ATR < negative 10% over investment horizon Relative Rating OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon BENCHMARK: likely to perform in line with the benchmark UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion. Registered Office: Equirus Securities Private Limited Unit No. 1201, 12th Floor, C Wing, Marathon Futurex, N M Joshi Marg, Lower Parel, Mumbai Tel. No: +91 (0) Fax No: +91- (0) Corporate Office: 3rd floor, House No. 9, Magnet Corporate Park, Near Zydus Hospital, B/H Intas Sola Bridge, S.G. Highway Ahmedabad Gujarat Tel. No: +91 (0) Fax No: +91 (0) July 23, 2017 Analysts: Abhishek Shindadkar (abhishek.shindadkar@equirus.com , ) Page 10 of 12

11 2017 Equirus Securities Private Limited. All rights reserved. For Private Circulation only. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Equirus Securities Private Limited Analyst Certification I, Abhishek Shindadkar, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Disclosures Equirus Securities Private Limited (ESPL) having Corporate Identification Number U65993MH2007PTC is registered in India with Securities and Exchange Board of India (SEBI) as a trading member on the Capital Market (Reg. No. INB ), Futures & Options Segment (Reg. No.INF ) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg. No.INB ) of Bombay Stock Exchange Limited (BSE).ESPL is also registered with SEBI as Research Analyst under SEBI (Research Analyst) Regulations, 2014 (Reg. No. INH ), as a Portfolio Manager under SEBI (Portfolio Managers Regulations, 1993 (Reg. No. INP ) and as a Depository Participant of the Central Depository Services (India) Limited (Reg. No. IN-DP ). There are no disciplinary actions taken by any regulatory authority against ESPL. ESPL is a subsidiary of Equirus Capital Pvt. Ltd. (ECPL) which is registered with SEBI as Category I Merchant Banker and provides investment banking services including but not limited to merchant banking services, private equity, mergers & acquisitions and structured finance. As ESPL and its associates are engaged in various financial services business, it might have: - (a) received compensation (except in connection with the preparation of this report) from the subject company for investment banking or merchant banking or brokerage services in the past twelve months;(b) managed or co-managed public offering of securities for the subject company in the past twelve months; or (c) have received a mandate from the subject company; or (d) might have other financial, business or other interests in entities including the subject company (ies) mentioned in this Report. ESPL & its associates, their directors and employees may from time to time have positions or options in the company and buy or sell the securities of the company (ies) mentioned herein. ESPL and its associates collectively do not own (in their proprietary position) 1% or more of the equity securities of the subject company mentioned in the report as the last day of the month preceding the publication of the research report. ESPL or its Analyst or Associates did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ESPL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ESPL has not been engaged in market making activity for the subject company. The Research Analyst engaged in preparation of this Report:- (a) has not received any compensation from the subject company in the past twelve months; (b) has not managed or co-managed public offering of securities for the subject company in the past twelve months; (c) has not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) has not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) has not received any compensation or other benefits from the subject company or third party in connection with the research report; (f) might have served as an officer, director or employee of the subject company; (g) is not engaged in market making activity for the subject company. 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This document has been prepared solely for information purpose and does not constitute a solicitation to any person to buy, sell or subscribe any security. ESPL or its affiliates are not soliciting any action based on this report. The information and opinions contained herein is from publicly available data or based on information obtained in good faith from sources believed to be reliable but ESPL provides no guarantee as to its accuracy or completeness. The information contained herein is as on date of this report, and is subject to change or modification and any such changes could impact our interpretation of relevant information contained herein. While we would endeavour to update the information herein on reasonable basis, ESPL and its affiliates, their directors and employees are under no obligation to update or keep the information current. Also there may be regulatory, compliance, or other reasons that may prevent ESPL and its group companies from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document including the merits and risks involved. This document is intended for general circulation and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. ESPL and its group companies, employees, directors and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. ESPL/its affiliates do and seek to do business with companies covered in its research report. Thus, investors should be aware that the firm may have conflict of interest. July 23, 2017 Analysts: Abhishek Shindadkar (abhishek.shindadkar@equirus.com , ) Page 11 of 12

12 A graph of daily closing prices of securities is available at and (Choose a company from the list on the browser and select the three years period in the price chart). Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest Research Analyst or Relatives financial interest Research Analyst or Relatives actual/beneficial ownership of 1% or more Research Analyst or Relatives material conflict of interest No No No Disclaimer for U.S. Persons ESPL/its affiliates are not a registered broker dealer under the U.S. Securities Exchange Act of 1934, as amended (the 1934 act ) and under applicable state laws in the United States. In addition Equirus is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the Acts ), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by Equirus, including the products and services described herein are not available to or intended for U.S. persons. The information contained in this Report is not intended for any person who is a resident of the United States of America or a resident of any jurisdiction, the laws of which imposes prohibition on soliciting the securities business in that jurisdiction without going through the registration requirements and/ or prohibit the use of any information contained in this report. This Report and its respective contents do not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services and/or shall not be considered as an advertisement tool. "U.S. Persons" are generally defined as a natural person, residing in the United States or any entity organized or incorporated under the laws of the United States. US Citizens living abroad may also be deemed "US Persons" under certain rules. July 23, 2017 Analysts: Abhishek Shindadkar (abhishek.shindadkar@equirus.com , ) Page 12 of 12