CMP* (Rs) 1,464 Upside/ (Downside) (%) 10. Market Cap. (Rs bn) 91 Free Float (%) 55 Shares O/S (mn) 62

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1QFY19 Result Update July 25, 2018 Market Cap. (Rs bn) 91 Free Float (%) 55 Shares O/S (mn) 62 Healthy Revenue Growth with Impressive Operating Margin (TEL) has posted a impressive performance in 1QFY19 with revenue rising by 1.8% QoQ (+18.2% YoY) to Rs3.82bn. While revenue from SDS business grew by 2.5% QoQ (+19.6% YoY) to Rs3.69bn, revenue from SIS business fell by 16.4% QoQ (-12.2% YoY), as TEL continued to focus more on higher-margin SDS business. This was the highest YoY growth achieved by the SDS business in 2 years (since 1QFY17). Led by operating leverage and cost control, EBITDA crossed Rs1bn-mark for the first time ever (12% QoQ and 45% YoY to Rs1.07bn). Net profit rose 0.3% QoQ on lower other income, while YoY growth was robust at 41.7%. EBITDA margin rose by 255bps QoQ (+516bps YoY) to 27.9%, marking its highest-ever level. Notably, SDS segment contributed 96.6% to TEL s revenue, its highest-ever level. In absolute terms, on the EBIT side, SDS EBIT declined 5.3% QoQ (+42.7% YoY) to Rs1.15bn. On QoQ basis, SDS EBIT margin declined 258bps QoQ, but YoY margin saw a robust 504bps rise on operating leverage and operational eiciency. On the other hand, EBIT margin from SIS segment declined by 648bps QoQ (-92bps YoY) to 11%. Growth Outlook Remains Healthy Over the past few quarters, 60% of TEL s SDS revenue has come from the Automotive vertical, 30% from Broadcast & Media, and the balance from smaller verticals i.e. Communications and Medical Equipment. Going forward, given substantial growth being witnessed in digital portfolios of most IT firms along with investments into avenues like connected cars, autonomous vehicles, AR/VR experience and automotive electronics, we expect TEL to be one of the key beneficiaries of the same, given its strong presence in these emerging areas. We expect the company s diversified portfolio including Automotive, Broadcast, Medical Equipment and Design to enable it to leverage these investments and drive better-than-peers growth. We would watch growth from IP-led engagements in future, given scope for margin expansion, with the Autonomai platform as a critical driver. Outlook & Valuation TEL delivered an impressive performance yet again in 1QFY19 with healthy YoY growth in SDS business and robust margin expansion, which are the major encouraging signs, in our view. We expect the trend to continue going forward as well, as TEL drives growth in high-margin SDS business with its focus on niche verticals and services. We believe TEL is a very good long-term investment bet, given presence across fast-growing solutions, niche areas of operation, design expertise, marquee client base, pricing power, operating leverage, healthy cash flow, returns on capital, and strong earnings growth. At CMP, the stock trades at a PE of 30.2x/25.5x FY19E/FY20E EPS, respectively. Looking ahead, we expect TEL to command 28x forward earnings, the highest in the sector in light of superior growth and operating metrics. Upwardly revising our earnings estimates by 3-7% for FY19E/FY20E and target PE multiple to 28x (from 25x earlier), we maintain our recommendation on the stock with a revised Target Price of Rs1,610 (from Rs1,340 earlier). Key Financials (Rs mn) FY17 FY18 FY19E FY20E Net Sales 12,373 13,863 16,296 18,691 EBITDA 2,966 3,460 4,425 5,068 PAT 1,748 2,400 3,016 3,583 Diluted EPS (Rs) 28.1 38.5 48.4 57.5 P/E (x) 52.2 38.0 30.2 25.5 EV / EBITDA (x) 29.9 25.2 19.4 16.6 RoE (%) 37.1 37.0 35.7 33.7 Dividend Yield (%) 1.0 0.5 0.8 1.2 Share price (%) 1 mth 3 mth 12 mth Absolute performance 8.5 20.3 74.5 Relative to Nifty 5.1 15.5 63.4 Shareholding Pattern (%) Mar'18 Jun'18 Promoter 44.6 44.6 Public 55.4 55.4 1 Year Stock Price Performance 1,500 1,400 1,300 1,200 1,100 1,000 900 800 700 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 Apr-18 May-18 Jun-18 Jul-18 Note: * CMP as on July 25, 2018 Research Analyst: Harit Shah Contact: 022 3303 4627 Email: harit.shah@relianceada.com 1

Key Risks Slowdown in global economy, adversely impacting ER&D budgets and new programmes. Slower-than-expected traction in newer business initiatives i.e. Healthcare. With Donald Trump as the US President clearly advocating focus on local hiring and disengagement from several global trade pacts, a fall in global trade could aect major corporations and subsequently impact ER&D spend. Currency risk. Exhibit 1: Quarterly Performance (Consolidated, Rs mn) Particulars (Rs mn) 1QFY19 4QFY18 QoQ (%) 1QFY18 YoY (%) Net Revenues 3,820 3,754 1.8 3,232 18.2 Purchase of Traded Goods 228 219 4.1 191 19.4 Employee Costs 1,962 2,019 (2.8) 1,792 9.5 SG&A and Other Operating Expenses 565 564 0.0 514 9.8 EBITDA 1,065 951 12.0 734 45.0 Depreciation 61 61 (0.6) 65 (5.8) EBIT 1,004 890 12.9 670 50.0 Other Income 78 196 (60.0) 79 (0.8) PBT 1,083 1,086 (0.3) 749 44.6 Tax 378 383 (1.4) 251 50.3 APAT 705 703 0.3 497 41.7 E/o (adj for tax) 0 0-0 - RPAT 705 703 0.3 497 41.7 Exhibit 2: Margin Break Up Particulars 1QFY19 4QFY18 QoQ (bps) 1QFY18 YoY (bps) Employee Cost % Net Revenues 51.4 53.8 (243) 55.4 (409) SG&A and Other Expenses % Net Revenues 14.8 15.0 (26) 15.9 (113) EBITDA Margin (%) 27.9 25.3 255 22.7 516 EBIT Margin (%) 26.3 23.7 259 20.7 557 Tax Rate (%) 34.9 35.3 (38) 33.6 132 APAT Margin (%) 18.5 18.7 (27) 15.4 306 Exhibit 3: Key Assumptions Particulars FY17 FY18 FY19E FY20E SDS revenue growth (%) 16.1 13.6 18.0 15.0 SIS revenue growth (%) (0.7) (14.5) 7.0 7.0 Total revenue growth (%) 15.1 12.0 17.5 14.7 EBITDA margin (%) 24.0 25.0 27.2 27.1 Exhibit 4: Earlier, revised estimates Particulars Earlier estimates Revised estimates % change Earlier estimates Revised estimates % change FY19E FY20E Revenue (Rs mn) 16,036 16,296 1.6 18,392 18,691 1.6 EBITDA (Rs mn) 4,258 4,425 3.9 4,855 5,068 4.4 EBITDA margin (%) 26.6 27.2 60 bps 26.4 27.1 72 bps EPS (Rs) 46.8 48.4 3.5 53.6 57.5 7.4 Source: RSec Research 2

Exhibit 5: Segmental contrbution (% of revenue) 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 SDS 95.1 94.0 95.5 94.8 97.3 95.9 96.6 SIS 4.9 6.0 4.5 5.2 2.7 4.1 3.4 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Exhibit 6: Segmental growth (QoQ, %) 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 SDS 2.1 4.2 0.5 5.1 3.7 7.0 2.5 SIS (0.8) 29.5 (26.2) 22.0 (48.5) 67.2 (16.4) Total 2.0 5.4 (1.2) 5.9 1.0 8.6 1.8 Exhibit 7: Segmental EBIT margin (%) 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 SDS 24.9 24.0 26.2 29.0 29.6 33.8 29.8 SIS 16.5 10.6 11.9 15.7 13.3 17.5 14.8 Total 20.7 21.0 20.7 22.7 25.2 23.7 23.1 Exhibit 8: Segmental Gross EBIT contribution (% of gross EBIT) 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 SDS 96.7 97.3 97.9 97.1 98.8 97.8 98.8 SIS 3.3 2.7 2.1 2.9 1.2 2.2 1.2 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Exhibit 9: Segmental EBIT growth (QoQ, %) 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 SDS (1.4) 0.6 9.5 16.2 6.1 22.1 (5.3) SIS 60.9 (17.0) (16.7) 60.5 (56.4) 120.2 (47.4) Total (0.1) 0.0 8.8 17.2 4.3 23.3 (6.2) Exhibit 10: Service contrbution (% of revenue) 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 Embedded Product Design 80.6 82.0 80.2 82.2 83.3 85.6 83.6 Industrial Design & Visualisation 14.3 13.1 13.8 13.3 11.5 11.7 12.3 Systems Integration 5.1 4.9 6.0 4.5 5.2 2.7 4.1 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 ; Note: has not yet given out this data for 1QFY19. Exhibit 11: Service growth (QoQ, %) 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 Embedded Product Design 3.5 3.8 3.1 1.3 7.3 3.8 6.1 Industrial Design & Visualisation 2.1 (7.0) 10.8 (4.5) (8.4) 3.2 13.9 Systems Integration (4.7) (0.8) 29.5 (26.2) 22.0 (48.5) 67.2 Total 2.8 2.0 5.4 (1.2) 5.9 1.0 8.6 ; Note: has not yet given out this data for 1QFY19. 3

Profit & Loss Statement Y/E Mar (Rs mn) FY17 FY18 FY19E FY20E Total Revenue 12,373 13,863 16,296 18,691 Growth (%) 15.1 12.0 17.5 14.7 Total Operating Expenses 9,407 10,403 11,871 13,623 EBITDA 2,966 3,460 4,425 5,068 EBITDA (%) 24.0 25.0 27.2 27.1 EBITDA Growth (%) 20.0 16.7 27.9 14.5 Depreciation 269 254 248 267 EBIT 2,697 3,207 4,177 4,802 EBIT (%) 21.8 23.1 25.6 25.7 EBIT Growth (%) 20.1 18.9 30.3 15.0 Other Income (54) 432 392 626 PBT 2,643 3,639 4,569 5,427 PBT (%) 21.4 26.3 28.0 29.0 PBT Growth (%) 11.8 37.7 25.6 18.8 Tax (incl deferred) 895 1,239 1,553 1,845 PAT 1,748 2,400 3,016 3,583 PAT (%) 14.1 17.3 18.5 19.2 PAT Growth (%) 12.9 37.3 25.7 18.8 EPS (Rs) 28.1 38.5 48.4 57.5 EPS Growth (%) 12.9 37.3 25.7 18.8 Balance Sheet Y/E Mar (Rs mn) FY17 FY18 FY19E FY20E SOURCES OF FUNDS Share Capital - Equity 311 623 623 623 Reserves 5,265 6,761 8,872 11,165 Total Shareholders' Funds 5,577 7,384 9,495 11,788 Creditors 465 487 520 558 Other Current Liabilities & Provns 853 1,427 1,437 1,448 Total Current Liabilities 1,318 1,914 1,957 2,007 Long Term Liabi. and Provisions 159 97 97 97 Deferred Tax Liability (Net) 101 91 91 91 TOTAL SOURCES OF FUNDS 7,154 9,486 11,640 13,983 APPLICATION OF FUNDS Net Block 923 817 895 955 Capital Work In Progress 10 21 21 21 Intangible Assets 155 126 126 126 Deferred Tax Asset (Net) 32 41 41 41 LT Loans & Advances, Others 368 393 393 393 Total Non Current Assets 1,489 1,398 1,476 1,537 Debtors and Unbilled Revenue 2,902 3,771 4,465 5,121 Cash & Bank 2,515 3,943 5,327 6,952 Short Term Loans & Advances 8 8 8 8 Other Current Assets 241 364 364 364 Total Current Assets 5,665 8,088 10,164 12,446 TOTAL APPLICATION OF FUNDS 7,154 9,486 11,640 13,983 4

Cash Flow Statement Y/E Mar (Rs mn) FY17 FY18 FY19E FY20E PAT 1,748 2,400 3,016 3,583 Depreciation 269 254 248 267 Working Capital Change (1,076) (398) (650) (607) Cash Flow from Operations (a) 941 2,256 2,614 3,242 Capex (307) (158) (326) (327) Cash Flow from Investing (b) (307) (158) (326) (327) Share capital Issuance - 311 - - Dividend (525) (600) (905) (1,290) Cash Flow from Financing (c) (525) (288) (905) (1,290) NET CASH FLOW (a+b+c) 109 1,809 1,383 1,626 EO items, others 582 (70) 0 0 Closing Cash Balance 2,515 3,943 5,327 6,952 Free Cash Flow 634 2,098 2,288 2,915 Key Ratios Y/E Mar FY17 FY18 FY19E FY20E Profitability (%) EBITDA Margin 24.0 25.0 27.2 27.1 APAT Margin 14.1 17.3 18.5 19.2 RoE 37.1 37.0 35.7 33.7 RoIC or Core RoCE 40.5 41.5 46.5 47.5 RoCE 37.8 32.6 32.7 29.8 Eiciency Tax Rate (%) 33.9 34.0 34.0 34.0 Fixed Asset Turnover (x) 5.7 6.0 6.2 6.3 Debtors (days) 86 99 100 100 Payables (days) 18 17 16 15 Cash Conversion Cycle (days) 68 82 84 85 Net Debt/EBITDA (x) (0.8) (1.1) (1.2) (1.4) Net Debt/Equity (x) (0.5) (0.5) (0.6) (0.6) Interest Coverage (x) N.A. N.A. N.A. N.A. Per Share Data (Rs) EPS 28.1 38.5 48.4 57.5 CEPS 32.4 42.6 52.4 61.8 DPS 14.0 8.0 12.1 17.3 BV 89.5 118.6 152.5 189.3 Valuation P/E (x) 52.2 38.0 30.2 25.5 P/BV (x) 16.4 12.4 9.6 7.7 EV/EBITDA (x) 29.9 25.2 19.4 16.6 OCF/EV (%) 1.1 2.6 3.0 3.8 FCF/EV (%) 0.7 2.4 2.7 3.5 FCFE/mkt cap (%) 0.7 2.3 2.5 3.2 Dividend Yield (%) 1.0 0.5 0.8 1.2 5

Rating History Date Reco CMP TP 27-Apr-18 1,199 1,340 22-Jan-18 1,078 1,265 3-Jan-18 996 1,180 PLEASE CLICK HERE FOR PREVIOUS REPORTS Rating Guides Rating Expected absolute returns (%) over 12 months >10% HOLD -5% to 10% REDUCE >-5% Reliance Securities Limited (RSL), the broking arm of Reliance Capital is one of the India s leading retail broking houses. Reliance Capital is amongst India s leading and most valuable financial services companies in the private sector. Reliance Capital has interests in asset management and mutual funds, life and general insurance, commercial finance, equities and commodities broking, wealth management services, distribution of financial products, private equity, asset reconstruction, proprietary investments and other activities in financial services. The list of associates of RSL is available on the website www.reliancecapital.co.in. 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