GS IT Aug

28 August 2020 | 1:44AM IST
India Technology: IT Services
Dawn of another Outsourcing Wave, TCS up to Buy; Buy

INFY/TechM (both on CL)
While cyclically the momentum remains strong for Tech services going into FY22E, Sumeet Jain
+91(22)6616-9160 |
even strengthening, we believe a number of structural tailwinds are emerging - sumeet.x.jain@gs.com
Goldman Sachs India SPL
including the scaling up of digital projects with the modernization of IT stacks for
Saurabh Thadani, CFA
more robust business continuity planning. With the most efficient supply chains, we +91(22)6616-9179 |
saurabh.thadani@gs.com
believe India IT services companies are positioned favorably to benefit from a third Goldman Sachs India SPL
wave of outsourcing after previous waves in 2000 (post Y2K) and in 2008-09 (post
For the exclusive use of SATYAN.WADHWA@EDELWEISSFIN.COM
GFC). Due to these tailwinds and given our macro team’s further increase in
Global/US GDP estimates on a sharper recovery, we increase our FY22E-23E
sector revenue and earnings forecasts by up to 7% and now forecast 12.6%
USD revenue growth in FY22E (vs. -2.7% in FY21E, and vs. prior 9.7%) for the
Top 5 Indian IT firms. These changes are supported by our IT services demand
tracker (link) and management/expert commentaries during our India corporate day.
We see TCS as one of the largest beneficiaries of these trends given its wide array
of services/ capabilities, geographic presence, wide client base, consistent strong
execution and ability to work remotely at a large scale with c.450K employees. We
raise our FY22/23E USD revenue growth for TCS by 340/130bps to 14%/10%,
translating to ~7% higher operating profits which is 7-8% ahead of Bloomberg
consensus. The stock underperformed Nifty IT by 18% over the last 3 months due to
weak results in June driven by the negative impact of COVID-19. We now see most
36a21533dac44fb2904340830ca06d3f
negative news as largely priced in with improving demand commentary from the
management and better revenue trends emerging for banking/retail verticals. We
expect TCS to see a sharp improvement in margins over its peers in the near term.
With a revised 12-m Target Price of Rs2,598 (up 26%) implying 16% potential
upside, we upgrade the stock to Buy (from Neutral).
We reiterate our Buy rating (on CL) on INFY (fastest growing large cap in our
coverage; EPS accelerating with the completion of a major investment phase on
building digital technologies) with a revised TP of Rs1,165 (23% upside) and on
TechM (sharp margin improvement ahead with Telecom turnaround as 5G hits the
P&L by 2HFY22E) with revised TP of Rs954 (32% upside). We also upgrade HCL to
Neutral with a new 12m TP of Rs767 (up 50%; 9% upside) as we see large IMS
contracts driving a pick-up in organic growth.
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result,
investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this
report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC
certification and other important disclosures, see the Disclosure Appendix, or go to
www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research
analysts with FINRA in the U.S.
Goldman Sachs India Technology: IT Services
Table of Contents
Cyclical tailwind: Historically, crisis followed by increased outsourcing 3
Structural tailwind: Indian IT has the most efficient supply chain to help scale up Digital Technologies 5
Increasing our estimates on the back of cyclical and structural tailwinds 8
TCS up to Buy: Market leader on its way towards $90bn in revenue by FY40E 15
HCL: Up to Neutral as IMS penetration ahead likely leads to a pick-up in organic growth 25
Appendix 31
Disclosure Appendix 34
36a21533dac44fb2904340830ca06d3f
28 August 2020 2
We maintain our Buy ratings on LTI (at a sweet spot in terms of revenue size of
US$1.5bn (FY20) with strong management execution) and Mindtree (further scope for
margin expansion and growth with Top client in Technology vertical) and Sell on Wipro
(weak execution where valuation is already factoring-in a turnaround) and Hexaware on
valuation.
Key industry risks: Changes in US corporate policies post elections, weaker macro
growth due to delayed arrival of vaccine, USD depreciation over INR, tighter immigration
laws globally, stiff competition leading to pricing pressure.
Exhibit 1: Global IT services - Comp sheet

GS Current Target Potential Mkt Cap FY2022E / CY2021E (X) Impl. P/E FY20-22E CAGR
Rating Ticker Curr. Price Price Up/Down (US$mn) EPS P/E EV/EBIT EV/FCF P/B RoE CROCI PEG at TP (x) Sales EBIT EPS
Tech Mahindra Buy* TEML.BO INR 722.70 954.00 32% $8,549 57.61 12.5 9.0 10.2 2.3 19% 17% 1.2 16.6 9% 18% 11%
Infosys Ltd. Buy* INFY.BO INR 947.20 1,165.00 23% $53,761 50.86 18.6 13.9 18.1 5.3 29% 37% 1.2 22.9 11% 16% 15%
Infosys Ltd. Buy* INFY USD 12.79 15.42 21% $53,433 0.68 18.7 13.9 17.9 5.2 29% 37% 1.3 22.5 11% 16% 15%
Mindtree Ltd. Buy MINT.BO INR 1,153.10 1,341.00 16% $2,549 65.27 17.7 12.6 17.3 4.4 27% 26% 0.6 20.5 9% 27% 29%
L&T Infotech Buy LRTI.BO INR 2,341.10 2,779.00 19% $5,495 130.78 17.9 13.9 15.9 5.2 32% 42% 0.8 21.2 14% 22% 23%
Tata Consultancy Buy TCS.BO INR 2,247.95 2,598.00 16% $112,712 97.74 23.0 17.6 24.4 9.5 41% 47% 3.5 26.6 7% 9% 6%
Mphasis Neutral MBFL.BO INR 1,198.05 1,274.00 6% $2,990 80.16 14.9 10.6 12.3 3.3 23% 24% 1.0 15.9 13% 12% 15%
HCL Tech Neutral HCLT.BO INR 705.85 767.00 9% $25,599 48.50 14.6 10.5 13.9 3.0 22% 24% 1.6 15.8 9% 9% 9%
Hexaware Sell HEXT.BO INR 424.80 375.00 -12% $1,689 20.97 20.3 15.7 16.1 3.6 19% 21% NM 17.9 12% 0% -2%
Wipro Ltd. Sell WIPR.BO INR 272.70 258.00 -5% $20,791 17.50 15.6 11.4 10.8 2.2 15% 20% 5.5 14.7 4% -1% 3%
Wipro Ltd. Sell WIT USD 4.27 3.69 -13% $24,024 0.24 18.1 13.8 13.1 2.6 15% 20% 7.0 15.7 4% -1% 3%
Indian IT coverage 10% $234,133 17.2X 12.8X 15.4X 4.3X 25% 29% 1.9 19.1X 10% 12% 12%
Atos Buy ATOS.PA EUR 70.90 86.00 21% $9,027 7.83 9.1 9.3 9.8 1.0 11% 8% 15.8 11.0 -3% 4% 1%
Capgemini Buy CAPP.PA EUR 115.65 125.00 8% $22,994 9.46 12.2 14.1 13.4 2.4 20% 12% 0.5 13.2 11% 9% 23%
Indra Sell IDR.MC EUR 6.35 6.00 -5% $1,423 0.73 8.7 9.1 13.5 1.3 18% 12% 5.7 8.2 0% -1% 2%
European IT Services $33,444 10.0X 10.9X 12.2X 1.6X 16% 11% 7.4 10.8X 3% 4% 8%
Note: * denotes stock on regional Conviction List. EPS estimates for European IT Services are excluding Employee Stock Options. Prices as of Market close of Aug 24, 2020.
Hexaware and European IT Services companies are Dec year end while others are Mar year end. All target prices have a 12-month timeframe
Source: FactSet, Goldman Sachs Global Investment Research
Cyclical tailwind: Historically, crisis followed by increased outsourcing
36a21533dac44fb2904340830ca06d3f
In the past, major crises have tended to lead to a sharp increase in outsourcing and even
offshoring particularly to India, which has consistently experienced much lower wage
levels for technology developers compared to Developed Markets (DMs), amid an
increasing annual base of engineering graduates. The first such wave happened after
the Y2K problem in 2000 when India’s IT industry was growing at >40% from a small
base and very low global penetration, driven largely by labor cost arbitrage. A second
wave started post GFC in 2008-09 when India’s IT industry grew at >15% consistently
for three to four years before the growth normalized to high single digits. This happened
both due to a shift to cloud based infrastructure and the higher use of automation tools,
forcing Indian IT firms to look for new ways to sell IT solutions, shifting from labor cost
arbitrage to business transformation through digital technologies.
Post COVID-19, we expect a third wave of outsourcing and an increasing number of

technology roles globally finding their way to India as Work From Anywhere becomes
the new accepted norm. As per various global surveys, several F500 firms are planning
to have a few of their employees work from home permanently, and in our recent expert
call with McKinsey, a few large IT contracts were noted as having as high as 75% of
employees engaging in Work From Home. Even among our covered companies, TCS is
28 August 2020 3
planning to have 75% of its employees working from home permanently by 2025E and
TechM is gearing for 25-30% of its employees working from home by 2021E on a
rotational basis. This strategy, we believe would bring certain permanent cost
advantages to the IT services firms around lower rental, facility expenses including
electricity, maintenance/ repair and even lower capex around land/building required for
extra seating arrangements. Some of these benefits though may be offset by additional
capex for home IT infrastructure like desktops, more robust wireless/ broadband
networks and cyber-security tools.
Exhibit 2: Outsourcing expected to pick-up sharply post COVID on Exhibit 3: …across key industry verticals
the back of large cost take out deals…
73%
IT Outsourcing penetration 72% 78% BFSI Communications Manufacturing Retail
71%
71% 70% 76.7%
76%
69% 68%
74%
IT Outsourcing penetration
67% 67% 72.5%
67% 66% 72% 72.1%
65%
65% 70.6%
65% 64% 64% 64% 70%
63%
63% 62% 68%
67.6%
61%
61% 66% 64.9%
59% 64%
59% 58%
62% 62.2%
57%
60%
55%
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
20082009201020112012201320142015201620172018201920202021202220232024
Source: Gartner Source: Gartner
Exhibit 4: BFSI, Communication and Manufacturing verticals make Exhibit 5: Indian IT services vendors have a lower penetration in
up nearly 70% of the total Global IT services spend as of 2019 the Healthcare and Manufacturing verticals which can pick up due
to increased outsourcing in our view
3.0% Healthcare Market share (2019) Manufacturing Market share (2019)

Total IT services spend by vertical 2.7%
Healthcare
5%
2.5%
Retail
36a21533dac44fb2904340830ca06d3f
10% 2.0% 1.8%
BFSI
1.6% 1.6%
33% 1.5%
1.5%
Energy & Utilities 1.1%

14% 1.0%
0.5%
Manufacturing 0.4%
0.5% 0.3%
17%
Communications 0.2%
21%
0.0%
TCS Infosys HCL Wipro TechM
After a steep decline of 2.7% in USD revenues for the Top 5 Indian IT firms in FY21E
due to the COVID-19 impact, we are expecting a sharp revival in growth over FY22E/23E
implying FY21-23E CAGR of 10.9% on the back of a revival in pent-up demand and an
increasing level of tailwind for digital solutions as enterprises prepare for more robust
future business continuity plans. Over FY20-23E this would imply a CAGR of +6.1%
vs. FY16-20 CAGR of 7.3%, which seems quite reasonable with potentially more
upside risks if reliance on digital technologies accelerates meaningfully post
COVID-19.
28 August 2020 4
Exhibit 6: We expect top line growth acceleration in the third wave of outsourcing post the COVID crisis
80,000 Top 5 Indian IT Service Vendors Revenue ($ mn) Top 5 Indian IT Service Vendors EBIT Margin (%) (RHS) 26%
24.9%
25%
70,000
24.0%
24%
60,000 23.7%
23.8%
23%
50,000
22.7%
21.7% 21.6% 22%

21.5%
40,000 21.8%
21.2% 21%
20.9%
20.7%
30,000
20%
20,000
19%
10,000 18%
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Source: Company data, Goldman Sachs Global Investment Research
Structural tailwind: Indian IT has the most efficient supply chain to help
scale up Digital Technologies
Historically, Indian IT industry has tended to be a late cycle beneficiary of any major
technology change globally, and we believe cloud adoption has entered into a stage
where technology has largely matured with standardized digital solutions that can be
36a21533dac44fb2904340830ca06d3f
customized based on business/client requirements. This standardization and wide-scale
adoption has led to front-to-back integration of entire IT stacks including applications,
database, middleware and IT hardware. Each of these layers is up for modernization
towards SaaS, PaaS and IaaS where both development and operations teams at IT
services firms need to coordinate seamlessly, requiring a DevOps approach to software
development, away from the traditional waterfall approach. Digitally skilled employees in
India have grown exponentially at 37% CAGR FY17-FY19, making India the largest hub
and potentially the biggest beneficiary under the Work from Anywhere norm. We believe
these digitally trained employees at Indian IT firms are likely to drive overall revenue
growth, which would be the key reason for their increasing relevance amid the
requirement for digital-at-scale solutions.
We believe this structural tailwind would continue to help India’s IT services companies
gain market share over their global peers with the added advantage of lower employee
salaries along with abundant supply of high talent. One key push back we receive to this
argument is declining recurring revenues for IT services firms compared to SaaS/Iaas
vendors as profit pools incrementally shift towards these vendors in the cloud world. To
28 August 2020 5
mitigate this risk, we argue that IT services firms are taking the following two
approaches:
#1: Signing large managed service contracts and looking at the entire IT function of the
client. This likely helps them with more recurring revenues and manage their costs more
efficiently.
#2: Selling their solutions on a vertical-specialized platform (potentially hosted in cloud)

which increases the stickiness of the revenues.
Both of the above approaches require more fixed-price and outcome-based contracts
with higher risk-reward. This aspect clearly underscores that the labor cost arbitrage
driven business model for Indian IT under the first and the second wave of outsourcing,
has graduated to a value-based model with a consultative approach around the best
digital solutions on offer. Here, in our view market leaders TCS (Buy) and INFY (Buy, on
CL) appear to have done a better job versus peers where both of them have created
vertical specific platforms (like Bancs by TCS and Finacle by INFY for Banking vertical) by
capitalizing on their domain expertise and through large scale able to close multiple
managed service contracts. INFY’s deal with Verizon in late 2018, with Vangaurd lately
and TCS deal with WBA (of $1.5Bn) early this year are few such instances.
Exhibit 7: We believe India’s IT employees wage differential over DMs particularly US/EU will continue to
remain significant over the next two decades
140,000 India US Singapore Beijing Kuala Lumpur Manila 137,975

Operating cost per employee (US$) per annum
120,000
107,786
100,000
84,202 2.8x
80,000
65,779 3.9x
36a21533dac44fb2904340830ca06d3f
60,000
Singapore, 57,000
5.2x
Beijing, 42,000 49,564
40,000 4.8x
Kuala Lumpur, 36,000
20,000 27,676
Manila, 20,000
13,654 16,318
Source: NASSCOM, MyVisaJobs, FactSet, Goldman Sachs Global Investment Research
28 August 2020 6
Exhibit 8: India’s digital skilled employees have grown Exhibit 9: …making India the largest hub and potentially a big
exponentially… beneficiary under Work from Anywhere
Digitally skilled employees in India (’000) Digitally involved FTEs (FY18)

700
600 LATAM, <5%
600 Nearshore Eutope,
13-17%
500 450
400 Rest of APAC,

320 6-8%
300
200
India, 70-75%
100
0
FY17 FY18 FY19
Source: NASSCOM Digitally involved FTEs corresponds to services supported by offshore and near shore
geographies only
Source: Gartner
Exhibit 10: Big data, Analytics and Cloud account for 50% of the Exhibit 11: Indian IT firms have re-skilled large portions of their
skills workforce
80%
Digitally involved employees by Areas of demand INFY TCS
72% 73% 75%
(FY19)
% of total employees trained on digital
70% 67%
63% 62%
technologies/ design thinking
60% 56%
Others, 3-5% 52%
Cybersecurity, 10- 51% 50%
48%
12% 50% 46%
Big data &
Analytics,
40%
25-35%
Machine Learning,
12-15% 30%
20%
10%
Mobility, 12-15%Cloud Computing,
15-18% 0%
Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q4FY18 Q4FY19 Q4FY20
36a21533dac44fb2904340830ca06d3f
Source: Gartner Source: Company data
Exhibit 12: We expect India IT to continue to gain market share Exhibit 13: Similar to how they have gained share over the last
decade and 2nd wave of outsourcing in BFSI…
Overall IT services market share BFSI IT services market share

4.5% 2009 2014 2019 2040E 3.5% 2009 2014 2019
3.9% 3.1%
4.0%
3.0% 2.8%
3.5%
2.5%
3.0%
2.4% 2.0%
2.5%
2.1%
2.0% 1.4% 1.4%
1.6% 1.5%
1.1% 1.1%
1.5% 1.2% 1.3%
1.0% 0.9% 0.9%
0.9% 0.9% 0.8% 0.7% 0.7%
1.0% 0.8% 0.7% 0.7% 0.7% 0.6%
0.6% 0.6% 0.5% 0.4% 0.5% 0.4%
0.5% 0.3% 0.4% 0.2%0.2%
0.1%
0.0% 0.0%
TCS Infosys HCL Wipro TechM TCS Infosys HCL Wipro TechM
Source: Gartner, Company data, Goldman Sachs Global Investment Research Source: Gartner
28 August 2020 7
Exhibit 14: ...Retail... Exhibit 15: …and Comm, Media & Business Services
Retail IT services market share Comm, Media & Services IT services market share
3.5% 3.3% 2009 2014 2019 2.5% 2009 2014 2019
3.0% 2.0%
2.0% 1.8%
2.5% 2.4%
1.9% 1.5% 1.3%

2.0% 1.3%
1.2% 1.2%
1.6%
1.5%
1.0% 0.9%
1.1% 1.1%
1.0% 0.7% 0.7%
1.0% 0.6% 0.6%0.6%
0.7%0.6% 0.6%
0.6% 0.4%
0.4% 0.5%
0.4% 0.3%
0.5% 0.3%
0.2%
0.0% 0.0%
TCS Infosys HCL Wipro TechM TCS Infosys HCL Wipro TechM
Increasing our estimates on the back of cyclical and structural tailwinds

We have increased our sector revenue growth assumptions by up to 4ppt over

FY22E/23E (refer Exhibits 22/23) along with EBIT margins on account of the benefits of
operating leverage with strong double-digit USD revenue growth, employee pyramid
optimization with increased new graduate hires, higher offshoring amid Work From
Anywhere, and lower sub-contracting costs. As a result, we increase our EPS estimates
for the sector by up to 7% over FY22E/23E. Given the higher visibility of earnings we roll
forward our valuation to Q5-Q8 based (was FY22E based) target P/E multiples and
increase our valuation multiples for the sector (Exhibits 18/19) to reflect our higher
earnings growth expectations ahead. Our new target P/E multiples are based on 12-yr
avg. P/E (excluding LTI which is based on 3-yr avg. P/E given its shorter trading history)
adjusted for growth outlook.
36a21533dac44fb2904340830ca06d3f
n For TCS and INFY which we believe will be the largest beneficiaries of the third wave
of outsourcing along with industry leading margins/returns, we assign last 12-yr avg.
P/E plus 2 std deviation as the target multiple.
n For TechM, we use last 12-yr avg. P/E +1 std deviation as target multiple given a
better growth outlook and increasing confidence of it being a key beneficiary of 5G
with over 40% of its revenues in FY20 coming from the Telecom vertical which is
the highest within our coverage.
n For HCL we use last 12-yr avg. P/E plus 0.5 std deviation as target multiple given the
deteriorating return profile despite a higher growth expectation. For Wipro, we use
last 12-yr avg. P/E as target multiple as we expect growth over the next three years
to be similar to the last 12 years.
n For LTI we use last 3-yr avg. P/E + 1.1 std deviation as target multiple given better
growth expectations. We continue to value Mindtree on an 85%/15% split of
P/E-based fundamental value and M&A value. For Mindtree, we use 12-yr avg. P/E
plus 1.5 std deviation (85%) as target multiple given the better growth visibility and
M&A Value (15%, unchanged). Our target multiple for both LTI and Mindtree is
20.3X given the similar EPS growth expectations of 21%/23% CAGR over the next 3
28 August 2020 8
years.
n For Mphasis we use last 12-yr avg. P/E +1 std deviation as target multiple
(unchanged) as we continue to believe the growth from the Direct Channel will be
offset by declining revenues from the DXC/HP Channel.
n We continue to value Hexaware on an 85%/15% split of P/E-based fundamental
value and M&A value. For Hexaware, we use 12-yr avg. P/E plus 0.6 std deviation
(85%) as target multiple given the better growth visibility is partly offset by
headwinds from vendor consolidation and pricing pressure and M&A Value (15%,
unchanged).
Our increase in revenue growth forecasts are driven by three key factors:
1) Increase in US/Global GDP growth forecasts: Our US macro team led by Jan
Hatzius has recently increased their 2021 US GDP growth forecast to 6.3% as they now
expect at least one vaccine to be approved by the end of 2020 and to be widely
distributed by the end of 2021Q2, which will likely lead to sharper macro recovery
during 1H2021. See US Daily: A Better Vaccine Outlook Means Stronger Growth in Early
2021, dated 9th Aug’20 and Global Views: Inoculating the Recovery, dated 10th Aug’20
where with current global/US GDP growth forecast of 6.8%/6.3%, our macro team
forecasts are significantly ahead of Bloomberg consensus.
2) Higher sales growth forecast for industry verticals in 2021 as per GS covering
analysts globally compared to our last IT demand tracker in May’20: where we saw
higher sales/capex growth across industry verticals requiring higher IT spend. See our
latest IT demand tracker (link).
3) Company managements and experts’ feedback during our India corporate day:
where we hosted TCS, TechM, and Mindtree managements and each one of them
guided for improving demand ahead with deal pipelines at multi-year highs. Our call with
a McKinsey senior partner and head of IT services practice in India, Mr. Noshir Kaka,
36a21533dac44fb2904340830ca06d3f
also pointed to a similar outlook.
Post our estimate revisions, we stand significantly above the Street on all our Buy rated
names (up to 18%) on FY22E revenues, EBIT and EPS (Exhibit 20). This variance is due
to our higher macro growth outlook and our positive view on increase in outsourcing
across the companies with few companies getting higher benefit like TCS, INFY, TechM
(due to 5G), Mindtree (due to Technology vertical exposure).
Key risks to the industry

1) Change in US corporate policies post elections: Changes to corporate policies in US
could lead to lower/higher tech spending by enterprises. Our US macro analysts believe
that with the US presidential election moving more clearly onto investor horizons, the
dominant focus thus far has been on the potential for changes to tax policy, while
potential shifts in international and trade policy have as yet received relatively less
attention. For more details see Global Markets Analyst: Revisiting the impact of trade
policy on assets ahead of the US election.
2) INR appreciation over USD: Business models at India’s IT service companies are
28 August 2020 9
highly sensitive to INR moves vs. the USD. Our global macro analysts are bearish on
USD driven by a pro-cyclical global growth outlook. For more details see Global FX
Trader: Dollar Consolidation. Exhibit 16 highlights the EPS sensitivity for our coverage to
FX moves. An appreciation in INR vs. USD could negatively impact margins for the
sector and also lower its global competitiveness.
Exhibit 16: India IT services - EPS sensitivity to FX moves

EBIT margin sensitivity to 1% chg FY21E EPS sensitivity Hedge o/s (US$mn) % of Rev (US$mn)
Company
USD/INR GBP/INR EUR/INR to 1% chg USD/INR as of Mar 2020 FY2021E
TCS 25-30bps 6-8bps 5-6bps 1.9% 7,924 38%
INFY 25-30bps 2-3bps 5-6bps 1.9% 2,340 18%
Wipro 25-30bps 4-5bps 3-4bps 2.3% 2,700 34%
HCL 20bps 5-6bps 4-5bps 2.1% 1,993 20%
TechM 15-20bps 3-4bps 3-4bps 2.0% 2,465 49%
LTI 30bps 0bps 5-6bps 2.1% 1,342 84%
Mphasis 30bps 3-4bps 3-4bps 2.3% 734 56%
Mindtree 35-40bps 5-6bps 5-6bps 3.2% 1,118 105%
Hexaware 23-25bps 2-3bps 2-3bps 2.3% 236 28%
Exhibit 17: We increase our revenue growth expectations for FY22-23E for Indian IT service vendors
YoY Organic Sales growth in CC (New) YoY Organic Sales growth in CC (Old) EBIT Margin (%)
Company Name
FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E
TCS 7.1% -4.7% 13.9% 9.8% 7.1% -5.1% 10.5% 8.4% 24.6% 24.2% 25.4% 25.6%
Infosys 8.8% 1.5% 14.1% 10.0% 8.8% 1.5% 11.4% 9.9% 21.3% 22.8% 23.3% 23.6%
HCL Tech 10.7% -2.5% 12.5% 7.1% 10.7% -2.5% 8.8% 6.2% 19.6% 19.8% 19.7% 19.0%
Wipro 2.9% -5.5% 8.8% 4.5% 2.9% -5.7% 5.8% 4.0% 16.6% 16.0% 15.1% 15.1%
TechM 4.3% -2.3% 13.7% 11.2% 4.3% -2.3% 11.8% 11.2% 11.6% 11.9% 13.7% 14.6%
Top 5 Indian IT Avg. 6.8% -2.7% 12.6% 8.5% 6.8% -2.8% 9.7% 7.9% 18.7% 18.9% 19.5% 19.6%
L&T Infotech 13.6% 4.3% 16.6% 14.4% 13.6% 4.0% 12.7% 14.1% 16.2% 17.3% 18.5% 18.8%
Mphasis 11.7% 5.4% 13.4% 8.9% 11.7% 5.2% 11.7% 9.0% 16.0% 16.0% 15.9% 16.3%
Mindtree 9.4% -2.0% 15.4% 10.8% 9.4% -2.0% 13.0% 11.0% 10.7% 14.7% 14.5% 14.4%
Hexaware 12.6% -4.4% 11.5% 13.6% 12.6% 2.1% 9.0% 13.6% 13.9% 12.4% 10.9% 11.8%
Sector Average 9.0% -1.1% 13.3% 10.1% 9.0% -0.5% 10.5% 9.7% 16.7% 17.2% 17.5% 17.7%
Note: Hexaware is Dec year end, hence FY20 corresponds to CY19 and so on
36a21533dac44fb2904340830ca06d3f
Exhibit 18: For our large cap coverage, we increase our target multiples and move to rolling 12-month EPS estimates
Old TP methodology New TP methodology
Target FY22E 12-m TP GS Methodology Target Q5-Q8 12-m TP GS Upside/

Company Methodology Basis Basis CMP (Rs)
multiple EPS (Rs) (Rs) Rating multiple EPS (Rs) (Rs) Rating Downside
TCS FY22 P/E 22.4 12yr Avg. + 1 SD 91.83 2,057 Neutral Q5-Q8 P/E 25.9 12yr Avg. + 2 SD 100.32 2,598 Buy 2,248 15.6%
Infosys FY22 P/E 19.6 12yr Avg. + 1 SD 49.74 975 Buy* Q5-Q8 P/E 22.2 12yr Avg. + 2 SD 52.50 1,165 Buy* 947 23.0%
Wipro FY22 P/E 12.1 12yr Avg. - 1 SD 16.83 204 Sell Q5-Q8 P/E 14.3 12yr Avg. 18.04 258 Sell 273 -5.4%
HCL FY22 P/E 11.3 12yr Avg. - 1 SD 45.43 513 Sell Q5-Q8 P/E 14.9 12yr Avg. + 0.5 SD 51.47 767 Neutral 706 8.6%
TechM FY22 P/E 13.5 12yr Avg. + 0.35 SD 56.61 763 Buy* Q5-Q8 P/E 15.5 12yr Avg. + 1 SD 61.56 954 Buy* 723 32.0%
Source: Datastream, Goldman Sachs Global Investment Research
28 August 2020 10
Exhibit 19: For our mid cap coverage we increase our target multiples and move to rolling 12-month EPS estimates
Old TP methodology
Target
FY22 P/E Target FY22E Implied M&A Implied 12-m TP
Company Methodology Basis EV/Sales GS Rating
weightage multiple EPS (Rs) Value (Rs) weightage Value (Rs) (Rs)
multiple
L&T Infotech FY22 P/E 100% 19.9 3yr Avg. + 1 SD 126.52 2,518 0% NA NA 2,518 Buy
Mphasis FY22 P/E 100% 15.3 12yr Avg. + 1 SD 78.19 1,196 0% NA NA 1,196 Neutral
Mindtree SOTP 85% 18.1 12yr Avg. + 1 SD 61.21 1,108 15% 2.6 1,327 1,141 Buy
Hexaware SOTP 85% 12.4 12yr Avg. 20.35 252 15% 2.6 546 296 Sell
New TP methodology
Target
Q5-Q8 P/E Target Q5-Q8 Implied M&A Implied 12-m TP Upside/
Company Methodology Basis EV/Sales GS Rating CMP (Rs)
weightage multiple EPS (Rs) Value (Rs) weightage Value (Rs) (Rs) Downside
multiple
L&T Infotech Q5-Q8 P/E 100% 20.3 3yr Avg. + 1.1 SD 136.60 2,779 0% NA NA 2,779 Buy 2,341 18.7%
Mphasis Q5-Q8 P/E 100% 15.3 12yr Avg. + 1 SD 83.29 1,274 0% NA NA 1,274 Neutral 1,198 6.3%
Mindtree SOTP 85% 20.3 12yr Avg. + 1.5 SD 66.34 1,343 15% 2.6 1,327 1,341 Buy 1,153 16.3%
Hexaware SOTP 85% 15.0 12yr Avg. + 0.6 SD 23.01 345 15% 2.6 548 375 Sell 425 -11.6%
Source: Datastream, Goldman Sachs Global Investment Research
Exhibit 20: We are up to 19% above consensus on FY21-23E EPS estimates for our Buy rated names
Sales (Rs mn)
Company FY21E FY22E FY23E
Gse Cons. % diff Gse Cons. % diff Gse Cons. % diff

Tech Mahindra 381,677 372,816 2.4% 434,562 406,471 6.9% 483,327 443,996 8.9%
L&T Infotech 120,389 120,439 0.0% 140,559 135,643 3.6% 160,857 153,036 5.1%
Mindtree 80,297 79,026 1.6% 92,748 87,518 6.0% 102,802 94,998 8.2%
Infosys 984,180 965,046 2.0% 1,123,522 1,066,084 5.4% 1,236,155 1,174,960 5.2%
TCS 1,580,376 1,575,184 0.3% 1,801,435 1,725,339 4.4% 1,977,384 1,880,626 5.1%
Mphasis 98,623 94,731 4.1% 111,970 104,872 6.8% 121,956 115,460 5.6%
HCL Tech 739,731 736,434 0.4% 832,840 802,086 3.8% 892,333 876,382 1.8%
Hexaware 62,821 62,632 0.3% 70,592 69,030 2.3% 80,224 77,329 3.7%
Wipro 608,386 602,245 1.0% 660,850 634,967 4.1% 690,353 664,219 3.9%
EBIT (Rs mn)

Tech Mahindra 45,357 41,142 10.2% 59,697 50,474 18.3% 70,765 57,010 24.1%
L&T Infotech 20,886 20,461 2.1% 25,977 23,484 10.6% 30,271 26,496 14.3%
Mindtree 11,801 10,317 14.4% 13,427 11,825 13.5% 14,791 13,022 13.6%
Infosys 224,093 212,496 5.5% 262,280 236,009 11.1% 291,654 262,817 11.0%
TCS 382,561 378,974 0.9% 456,942 428,966 6.5% 505,709 469,889 7.6%
Mphasis 15,828 15,040 5.2% 17,838 17,188 3.8% 19,925 18,973 5.0%
HCL Tech 146,195 145,336 0.6% 164,359 160,074 2.7% 169,399 175,220 -3.3%
Hexaware 7,780 7,783 0.0% 7,714 8,813 -12.5% 9,435 10,058 -6.2%
Wipro 97,412 101,759 -4.3% 100,085 106,466 -6.0% 103,959 111,608 -6.9%
36a21533dac44fb2904340830ca06d3f
EPS (Rs)
Tech Mahindra 45.77 43.37 5.5% 57.61 51.18 12.6% 68.98 58.51 17.9%
L&T Infotech 100.84 96.26 4.8% 130.78 111.41 17.4% 153.19 129.20 18.6%
Mindtree 55.46 48.65 14.0% 65.27 57.19 14.1% 73.00 65.29 11.8%
Infosys 43.57 40.95 6.4% 50.86 46.07 10.4% 56.49 51.35 10.0%
TCS 82.47 82.81 -0.4% 97.74 94.22 3.7% 107.58 103.29 4.2%
Mphasis 69.58 63.62 9.4% 80.16 72.96 9.9% 90.08 81.68 10.3%
HCL Tech 41.61 42.29 -1.6% 48.50 46.51 4.3% 51.28 51.93 -1.2%
Hexaware 21.85 21.54 1.4% 20.97 23.91 -12.3% 26.02 26.74 -2.7%
Wipro 16.12 16.39 -1.6% 17.50 17.51 0.0% 18.65 18.45 1.1%
Note: Green highlights are Buy rated names and red highlight is Sell rated name.
Hexaware is Dec year end, hence FY21 corresponds to CY20 and so on
Source: Bloomberg, Goldman Sachs Global Investment Research
28 August 2020 11
Exhibit 21: India IT services - Key risks

Company Ticker GS Rating Key risks
Delayed cyclical revival in Telecom capex globally, INR appreciation over USD, GBP/EUR depreciation against
Tech Mahindra TEML.BO Buy*
USD, pricing pressure due to competition, tightening of US visa regulation norms.
INR appreciation over USD, global demand slowdown, higher competition leading to pricing pressure, increase
Infosys INFY.BO Buy* in employee attrition, tighter regulations around H1B visa approvals, major technology change requiring re-
training of a large workforce
Higher-than-expected attrition, client churn with changes in top management leading to slower revenue growth
Mindtree MINT.BO Buy and higher operating costs, INR appreciation vs. USD, IT spending slowdown due to global macro concerns
and slowdown in key accounts like Microsoft given high client concentration
Further deterioration in BFSI IT services demand, continued in-sourcing among key clients, global macro
L&T Infotech LRTI.BO Buy
concerns with extension of ongoing trade wars and INR appreciation vs. USD
Macro slowdown leading to cut in IT budgets, INR appreciation vs. USD, GBP/EUR depreciation vs. USD,
TCS TCS.BO Buy pricing pressure due to competition, tightening of US visa regulation norms, major technology change requiring
re-training of large workforce.
(+/-) Pick up-/Slowdown in discretionary IT spending by the BFSI sector in the US, pick up in DXC/HP Channel
revenue growth, slowdown in Direct International revenue growth, threat to App maintenance service from
Mphasis MBFL.BO Neutral
automation, client concentration risks, INR depreciation/ appreciation over US$, higher-than-expected
investments in new gen services
(+/-) Stronger than expected revival in IMS given overall penetration in IMS for Indian IT industry is still low at 4-
5% vs. 25% in app services and HCL has been able to consistently gain market share, weaker than expected
revival in IMS due to sharp pricing pressure in Run side of the business, better/weaker-than-expected
HCL Tech HCLT.BO Neutral execution around acquired IBM products leading to strong growth in Mode-3 revenues, sharper/prolonged pick-
up in ER&D business over FY23E, INR depreciation/appreciation over USD, GBP/EUR
appreciation/depreciation over USD, strong growth from EU given its 29% of HCL’s sales and currently seeing
more willingness to outsource/ offshore.
Cyclical up tick in discretionary IT Spending, higher-than-expected IT demand, INR depreciation, stronger
Hexaware HEXT.BO Sell
market demand for automation and cloud solutions, M&A.
Cyclical up tick in discretionary IT Spending, faster-than-expected growth in digital services, INR depreciation
Wipro WIPR.BO Sell vs. USD, pick up in tech spending by Financial Services, Retail and Healthcare verticals, continued margin
improvement driven by either lower costs or higher prices and accretive M&A
Note: * denotes stock on regional Conviction List. Risks for ADRs, INFY and WIT are the same as Infosys and Wipro
Source: Goldman Sachs Global Investment Research
Across our entire coverage we have increased our revenue growth assumptions on the
back of higher macro growth forecasts and increase in outsourcing trends. This increase
in revenue growth leads to a slight pick-up in EBIT margins largely on account of
operating leverage. Accordingly, our EPS estimates are increasing up to 7%.
36a21533dac44fb2904340830ca06d3f
28 August 2020 12
Exhibit 22: We increase our FY21-23E EPS estimates by up to 7% for our large cap Indian IT services coverage
Company Revenue (US$mn) growth yoy Revenue (Rs mn) EBIT Margin (%) EPS (Rs/share) 12-M TP GS Rating
TCS FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E INR
TC
New -5.1% 14.1% 9.8% 1,580,376 1,801,435 1,977,384 24.2% 25.4% 25.6% 82.47 97.74 107.58 2,598.0 Buy
Old -5.5% 10.6% 8.4% 1,574,220 1,740,498 1,887,039 23.9% 24.6% 25.1% 81.07 91.83 100.78 2,057.0 Neutral
Change 40 bps 340 bps 130 bps 0.4% 3.5% 4.8% 30 bps 80 bps 50 bps 1.7% 6.4% 6.7% 26.3%
Infosys FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E INR
N
New 1.8% 14.3% 10.0% 984,180 1,123,522 1,236,155 22.8% 23.3% 23.6% 43.57 50.86 56.49 1,165.0 Buy*
Old 1.8% 11.6% 9.9% 984,180 1,096,987 1,205,218 22.8% 23.3% 23.6% 43.57 49.74 55.10 975.0 Buy*
Change - bps 270 bps 20 bps 0.0% 2.4% 2.6% - bps - bps - bps 0.0% 2.2% 2.5% 19.5%
Wipro FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E INR
W
New -5.7% 8.8% 4.5% 608,386 660,850 690,353 16.0% 15.1% 15.1% 16.12 17.50 18.65 258.0 Sell
Old -5.9% 5.9% 3.9% 606,895 641,540 666,674 15.6% 14.9% 14.6% 15.73 16.83 17.72 204.0 Sell
Change 20 bps 290 bps 50 bps 0.2% 3.0% 3.6% 40 bps 30 bps 40 bps 2.5% 4.0% 5.2% 26.5%
HCL Tech FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E INR
H
New -1.5% 12.7% 7.1% 739,731 832,840 892,333 19.8% 19.7% 19.0% 41.61 48.50 51.28 767.0 Neutral
36a21533dac44fb2904340830ca06d3f
Old -1.5% 9.0% 6.2% 739,731 805,429 854,996 19.8% 19.1% 18.8% 41.61 45.43 48.67 513.0 Sell
Change - bps 370 bps 100 bps 0.0% 3.4% 4.4% - bps 70 bps 20 bps 0.0% 6.7% 5.4% 49.5%
TechM FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E INR
TE
New -2.5% 13.8% 11.2% 381,677 434,562 483,327 11.9% 13.7% 14.6% 45.77 57.61 68.98 954.0 Buy*
Old -2.5% 11.9% 11.2% 381,677 427,328 474,995 11.9% 13.7% 14.3% 45.77 56.61 66.32 763.0 Buy*
Change - bps 190 bps 10 bps 0.0% 1.7% 1.8% - bps - bps 40 bps 0.0% 1.8% 4.0% 25.0%
Our 12-m TP for INFY (ADR) increases to US$15.42 (was US$12.91) and Wipro (ADR) increases to US$3.69 (was US$2.92) on estimate and multiple change
* denotes stock on regional Conviction List.
28 August 2020 13
Exhibit 23: We increase our FY21-23E EPS estimates by up to 7% for mid cap India IT services coverage
Company Revenue (US$mn) growth yoy Revenue (Rs mn) EBIT Margin (%) EPS (Rs/share) 12-M TP GS Rating
L&T Infotech FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E INR
LR
New 4.5% 16.8% 14.4% 120,389 140,559 160,857 17.3% 18.5% 18.8% 100.84 130.78 153.19 2,779.0 Buy
Old 4.3% 12.8% 14.1% 120,082 135,415 154,523 17.3% 18.4% 18.8% 100.59 126.52 147.88 2,518.0 Buy
Change 30 bps 400 bps 30 bps 0.3% 3.8% 4.1% - bps - bps - bps 0.2% 3.4% 3.6% 10.4%
L. Mphasis FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E INR
New 5.4% 13.5% 8.9% 98,623 111,970 121,956 16.0% 15.9% 16.3% 69.58 80.16 90.08 1,274.0 Neutral
Old 5.1% 11.8% 9.0% 98,380 110,003 119,954 16.0% 15.8% 16.2% 69.29 78.19 88.14 1,196.0 Neutral
Change 30 bps 170 bps (10)bps 0.2% 1.8% 1.7% - bps 20 bps 10 bps 0.4% 2.5% 2.2% 6.5%
Mindtree FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E INR
M
New -2.3% 15.4% 10.8% 80,297 92,748 102,802 14.7% 14.5% 14.4% 55.46 65.27 73.00 1,341.0 Buy
Old -2.3% 13.1% 11.0% 80,297 90,860 100,893 14.7% 13.8% 14.2% 55.46 61.21 70.70 1,141.0 Buy
Change - bps 230 bps (20)bps 0.0% 2.1% 1.9% - bps 70 bps 20 bps 0.0% 6.6% 3.2% 17.5%
Hexaware CY20E CY21E CY22E CY20E CY21E CY22E CY20E CY21E CY22E CY20E CY21E CY22E INR
H
New 5.7% 11.4% 13.6% 62,821 70,592 80,224 12.4% 10.9% 11.8% 21.85 20.97 26.02 375.0 Sell
Old 5.7% 8.9% 13.6% 62,821 68,961 78,314 12.4% 10.8% 11.8% 21.85 20.35 25.48 296.0 Sell
36a21533dac44fb2904340830ca06d3f
Change - bps 260 bps 10 bps 0.0% 2.4% 2.4% - bps 10 bps - bps 0.0% 3.0% 2.1% 26.7%
28 August 2020 14
TCS up to Buy: Market leader on its way towards $90bn in revenue by

FY40E
Investment thesis
We believe TCS will be the key beneficiary of the industry tailwinds given its wide client
base and presence in multiple geographies bodes well for increasing penetration as
outsourcing picks up. Industry tailwinds and TCS specific strengths (lowest attrition,
strong execution, access to large talent pool, and company’s confidence in successfully
implementing its WFH strategy sustainably) would enable TCS to maintain industry
leading margins and returns, in our view. In the near term, we expect TCS to see a sharp
improvement in margins over its peers and expect the company to become a key
beneficiary of market consolidation over the medium to longer term. Accordingly, we
increase our 2021-2023E EPS forecasts by up to 7% and our 12-m target price to
Rs2,598 (based on 25.9X Q5-Q8 EPS of Rs100.32) from Rs2,057, implying 16% potential
upside (vs 10% for our coverage average) and we upgrade to Buy (from Neutral).
1. We expect US$ revenues to grow at 14.1%/9.8% over FY22E/23E (vs.

5.4%/-5.1% over FY20E/21E): led by the release of pent-up demand, post
COVID-19, in the form of large IT outsourcing contracts with underlying business
transformation, the key strength of TCS.
2. TCS’ scale with wide client base/geographic presence and breadth of
capabilities will likely help with further client mining: Amid remote working, we
view client relationships as a key factor in signing large contracts virtually. We
believe TCS’ wide client base (>1000 as of FY20) with c.100 $50mn annual revenue
clients and wide geographic presence is likely to provide a strong foundation to gain
market share with its existing client base. We note during the last decade, TCS more
than doubled their global market share from 0.8% in FY10 to 2.1% in FY20, and we
36a21533dac44fb2904340830ca06d3f
expect it to further double over the next two decades to 4% based on market
penetration potential across key industry verticals and TCS strengths highlighted
above. Competitors could find it tough to win new logos/explore new geographies
and hence their lower active client base could act as a drag to overall revenue
growth, in our view.
3. Ability to sustain industry leading margins/returns: Led by operating leverage
with double-digit USD revenue growth, higher offshoring, employee pyramid
optimization, an automation first approach leading to non-linearity in revenues and
lower sub-contracting costs. Additionally, TCS’ plan of having 75% of its workforce
operating from home permanently by 2025E could also bring margin/return benefits
in the form of lower Capex for building seating arrangements and operating
expenses around facility management.
Catalysts
Consistent increase in quarterly deal wins and EBIT margins (particularly over INFY, HCL,
and Wipro during remaining 9MFY21E); large deal win announcements as more
enterprises plan to undergo core transformations; market share gains particularly against
28 August 2020 15
global IT peers like ACN, CAP, CTSH; and increase in Street EBIT estimates for
FY22E/23E where we are 7%/8% ahead.
Valuation
We roll-forward our valuation to Q5-Q8 EPS from FY22E prior given better earnings
visibility. In addition, we change our target multiple basis to a 12-yr avg. P/E plus 2 SD
from our prior 12-yr avg. P/E plus 1 std SD as future earnings growth potential looks
strong given industry and TCS specific tailwinds. Our valuation approach now uses +2
SD, more in-line with how the market is currently valuing TCS on a one-year forward
basis owing to its industry leading returns. Accordingly, we now value TCS by applying
25.9X (12-yr avg. P/E plus 2 SD; vs. 22.4X prior) to Q5-Q8 EPS of Rs 100.32. Our 12-m
target price of Rs2,598 (Rs2,057 previously) implies 16% potential upside (vs. 10% for
our coverage average). We note that the 25.9X multiple is closer to the up-cycle multiple
of 26.4x (max P/E since 2008) and higher than average trading multiple of 18.9x
(2008-current period). However, we believe TCS’ industry leading margins/returns and
our outlook for two years of strong EPS growth outlook ahead would justify a premium
valuation and up-cycle multiple over this period. We also cross-check our valuation
multiple via DCF and applying normalized P/E multiple to outer year EPS once industry
growth normalizes to high single digits from expected double digits over next 1-2years.
Our DCF valuation suggests an implied value of Rs2,471 (Exhibit 41).
Key risks
n Macro slowdown leading to cut in IT budgets - Given the shorter duration of the
current crisis, technology budgets have not seen significant cuts as yet. In case of a
second wave or a broad global slowdown we could see cuts to technology budgets
which could impact the growth of the company.
n INR appreciation vs. USD, GBP/EUR depreciation vs. USD - Given a high exposure to
US (50% of FY20 revenues) with the cost base largely in India, a depreciation of the
36a21533dac44fb2904340830ca06d3f
USD vs. INR is a margin headwind for the company, while the deprecation of
GBP/EUR vs. USD leads to decline in reported US$ revenues. Every 1%
depreciation of USD vs. INR reduces TCS EPS by c.2% and EBIT margin by
25-30bps.
n Pricing pressure due to competition - Given the fragmented nature of the IT service
market globally as the technology matures there are multiple vendors vying for the
same set of deals which can potentially lead to pricing pressure.
n Tightening of US visa regulation norms where over last four years we have seen a
significant increase in sub-contracting costs due to lower approval rates for H1B
visas particularly for Indian IT service companies.
n Major technology change requiring re-training of large workforce.
28 August 2020 16
TCS: Thesis in six charts: Well positioned for market share gains
Exhibit 24: We expect TCS growth to accelerate post COVID-19 Exhibit 25: …driven by strong growth in Lifesciences, regional
with margin expansion… markets and tech verticals
15% 27.0% 30% % of Revenues (FY20) FY18-21E Revenue CAGR FY21-23E Revenue CAGR
Revenue ($) growth yoy (in CC) EBIT Margin (%) (RHS)
8% 21% 9% 7% 15% 31% 10%
13% 13.9% 26.5% 25%
11% 11.9% 20% 18%

11.4% 26.0% 15%
9% 9.8% 15% 13%
8.3% 25.5% 10% 11% 10%
7%
7.1% 10% 8% 8% 8% 8%
6.7%
5% 25.0%
5% 2%
3% 0% 1%
24.5%
0%
1%
24.0%
-1% -5%
-4%
-3% 23.5% -10%
-4.7% LS & Regional Tech & Comm Retail BFSI Mfg
-5% 23.0% Healthcare Markets Services & Media & CPG
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Source: Company data, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research
Exhibit 26: We expect TCS revenues to reach $90bn by 2040 with Exhibit 27: TCS has one of the lowest cost per employee which
nearly 4% global market share should help gain market share in the current environment
100 TCS Revenues ($bn) TCS IT services market share (RHS) 4.5% 80,000 FY20 Cost per employee ($) 75,467
90.3
90 4.0%
3.9% 70,000 65,687
80 3.5%
3.2% 60,000 57,378
70
54,021
3.0%
50,000
60
51.2 2.5% 42,150
50 40,000 36,358 37,285
2.1%
2.0%
40
30,000
1.5%
30
22.0 20,000
0.8% 1.0%
20
6.3 0.5% 10,000
10
0 0.0% 0
FY10 FY20 FY30E FY40E Wipro TCS INFY HCL Cognizant Capgemini Accenture
Source: Gartner, Company data, Goldman Sachs Global Investment Research Source: Company data
36a21533dac44fb2904340830ca06d3f
Exhibit 28: Number of enterprises are initiating digital Exhibit 29: We believe TCS’ premium valuation is justified given its
transformation journeys which we believe will accelerate due to top quartile CROCI
Covid-19
11
35% 2018 FY2021E (India coverage) R† = 94%
Initializing 10 TCS
EV/GCI
Scaling 2019
30% 28%
26% 26% 2020 9
25% 24% 24%

8
21%
20% 20%
20% 18%
7
LTI
16% 16% 16% INFY
6
15% 14%
13%
5
10% 9%
4 Hexaware Mindtree
5% 4% HCL
3% 3 Mphasis
2%
Wipro
0% 2
TechM FY22E CROCI/WACC
No Digital Desire/ Designing Delivering Scaling Harvesting/
Initiative Ambition Refining 1
1.5 2.0 2.5 3.0 3.5 4.0 4.5
2018 n=3,025; 2019 n=3,102; 2020 n=1,070 Green data labels implies Buy rated names and Red data labels implies Sell rated names within
our coverage
Source: Gartner
Source: FactSet, Goldman Sachs Global Investment Research
28 August 2020 17
TCS’ wide client base can be a key competitive advantage as adding new logos is
tough in a virtual world
TCS has a wide client base owing to its scale of business and strong execution reflected
in steeper market share gains over its Indian IT peers particularly during the last decade
(Exhibit 12). TCS has been one of the first movers in India’s IT industry to open up newer
geographies and tackle the cultural/language barriers which were the primary inhibitions
around Technology outsourcing initially. See our TCS upgrade note Domain expertise to
help clients digitize; upgrade to Buy, dated 7th March 2019 where we discussed key
industry tailwinds:
- Cloud deflationary impact now behind,
- Scaling of digital projects as they graduate from pilots/proof-of-concept stage to

large-scale implementation, helping move more IT services work offshore, and
- Captives once again focusing on outsourcing;

We believe these tailwinds have accelerated due to COVID-19 as businesses face

pressure to build robust continuity plans and are hence looking for higher cloud/digital
adoption. Having a wide client base would enable TCS to start mining its existing clients
to cross-sell additional services virtually and achieve higher sales efficiency, in our view.
Exhibit 30: TCS has a significant lead in terms of client base over its peers
1,200 >$1mn >$10mn >$50mn >$100mn

1,072
1,000
791
Number of clients (FY20)
800
718
574
36a21533dac44fb2904340830ca06d3f
600
446
391
400
234
200 166 171 165
134 126
105 107
85
49 61
28 40 30 15 22 27 23
15 6 1 17 1 1 14 3
0
TCS INFY Wipro HCL TechM LTI Mphasis Mindtree Hexaware
Source: Company data
TCS’ presence in multiple geographies bodes well for increasing penetration as

outsourcing picks up
In the Exhibit below we highlight top 30 countries sorted by their level of annual IT
services (outsourcing) spend, as per Gartner. Interestingly these top 30 countries
capture 96% of global IT services spend and ideally should be the focus areas from
geography standpoint for any global IT services company, in our view. With no surprise
we found TCS to be present in all these countries (except Poland) with a good lead over
28 August 2020 18
its closest peers INFY and Cognizant. Going forward this geographical presence could
make a big difference during and post the pandemic:
- During the pandemic, local onsite based employees and initial relationships developed
with local clients would allow for the signing of contracts virtually or with minimal
physical presence of onsite based sales account captains.
- Even post the pandemic, this presence would ensure a minimal level of travel required
for various technology development/ sales teams as IT services companies and their
clients could look to close as many deals as possible virtually in order to save time and
travel costs.
Exhibit 31: Among the top 30 countries in terms of IT spending TCS has significant presence in nearly half
of them
IT Services market share by geography (2019)

Total IT services
Country Accenture TCS Cognizant Infosys % of total
spend ($mn)
United States 4.1% 2.5% 2.7% 1.7% 430,620 41.4%

Japan 2.9% 0.4% 0.1% 0.1% 115,873 11.1%
United Kingdom 4.2% 4.3% 1.4% 1.6% 78,585 7.6%
Germany 4.4% 1.2% 0.6% 0.7% 48,163 4.6%
China 1.3% 0.2% 0.1% 0.4% 44,938 4.3%
France 4.8% 0.3% 0.6% 0.3% 35,902 3.5%
Canada 8.9% 0.7% 0.9% 0.7% 24,928 2.4%
Australia 4.5% 3.2% 0.9% 3.6% 23,724 2.3%
Spain 8.1% 0.2% 0.1% 0.1% 19,583 1.9%
Italy 9.1% 0.4% 0.1% 0.0% 18,602 1.8%
South Korea 0.6% 0.1% 0.0% 0.0% 16,103 1.5%
Netherlands 3.3% 3.5% 2.1% 1.4% 16,008 1.5%
India 1.7% 8.0% 1.8% 2.0% 15,410 1.5%
Brazil 6.6% 1.1% 0.3% 0.4% 13,705 1.3%
Singapore 4.3% 3.6% 1.3% 0.2% 12,421 1.2%
Switzerland 7.0% 3.8% 2.9% 5.4% 11,336 1.1%
Belgium 3.2% 2.7% 1.2% 2.9% 8,930 0.9%
Sweden 3.7% 2.6% 1.0% 0.2% 8,642 0.8%
Mexico 2.8% 1.2% 0.3% 0.8% 7,860 0.8%
36a21533dac44fb2904340830ca06d3f
Denmark 5.1% 2.3% 0.7% 0.0% 6,231 0.6%
South Africa 1.9% 0.6% 0.0% 0.0% 6,036 0.6%
Norway 7.2% 2.0% 2.6% 0.4% 5,635 0.5%
Hong Kong 1.6% 0.6% 0.9% 0.4% 5,111 0.5%
Finland 3.3% 4.2% 2.1% 0.0% 5,002 0.5%
Israel 2.2% 0.4% 0.0% 0.9% 4,002 0.4%
Ireland 5.0% 3.9% 4.7% 0.2% 3,775 0.4%
Malaysia 7.9% 1.7% 0.7% 0.1% 3,322 0.3%
Austria 2.6% 0.5% 0.0% 0.3% 3,286 0.3%
Poland 7.0% 0.0% 0.0% 0.2% 2,997 0.3%
Saudi Arabia 2.8% 6.0% 1.3% 1.2% 2,921 0.3%
Source: Gartner
TCS margins to improve relative to peers in the near-term

We expect TCS to deliver margin improvement for the remainder of FY21. We expect
HCL and Wipro margins to decline while INFY margins to expand by 60bps by Q4FY21.
The key levers for TCS being i) operating leverage as revenue growth picks-up over next
few quarters with largely similar cost base; ii) higher offshoring; iii) employee pyramid
optimization with more fresher hiring; iv) an automation first approach leading to
non-linearity in revenues; and v) lower sub-contracting costs. Additionally, TCS’ plan of
28 August 2020 19
having 75% of its workforce operating from home permanently by 2025E could also
bring margin/return benefits in the form of lower capex for building seating
arrangements and operating expenses around facility management. TCS is the only
company that has noted that it will not be giving wage hikes to its employees in FY21
while other companies have deferred wage hikes to 2HFY21 subject to demand
improving.
Exhibit 32: We expect TCS EBIT margins to improve by 160bps over Exhibit 33: ...which is the highest among the large cap Indian IT
the next 3 quarters... services peers
25.5% TCS 27% TCS Infosys Wipro HCL

25.2%
25.2%
25.0% 25% 24.2%
23.6% 23.8%
23.3%
22.7% 22.9%
24.5% 23% 22.2%
EBIT Margin (%)
EBIT Margin (%)

24.2%
24.0% 21% 20.5% 20.4%

23.8%
23.6% 19.5%
18.8%
23.5% 19%
17.2%
23.0% 17%
15.7% 15.6%
15.0%
22.5% 15%
1QFY21 2QFY21E 3QFY21E 4QFY21E 1QFY21 2QFY21E 3QFY21E 4QFY21E
Source: Company data, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research
TCS Valuation
visibility. In addition, we change our target multiple basis to a 12-yr avg. P/E plus 2 SD
from our prior 12-yr avg. P/E plus 1 std SD as future earnings growth potential looks
strong given industry and TCS specific tailwinds. Our valuation approach now uses +2
SD, more in-line with how the market is currently valuing TCS on a one-year forward
basis owing to its industry leading returns. Accordingly, we now value TCS by applying
25.9X (12-yr avg. P/E plus 2 SD; vs. 22.4X prior) to Q5-Q8 EPS of Rs 100.32. Our 12-m
36a21533dac44fb2904340830ca06d3f
target price of Rs2,598 (Rs2,057 previously) implies 16% potential upside (vs. 10% for
our coverage average). We note that the 25.9X multiple is closer to the up-cycle multiple
of 26.4x (max P/E since 2008) and higher than average trading multiple of 18.9x
(2008-current period). However, we believe TCS’ industry leading margins/returns and
our outlook for two years of strong EPS growth outlook ahead would justify a premium
valuation and up-cycle multiple over this period.
We also cross-check our valuation multiple via DCF and applying normalized P/E multiple
to outer year EPS once industry growth normalizes to high single digits from expected
double digits over next 1-2years. Our DCF valuation suggests an implied value of
Rs2,471 (Exhibit 41). On our forecasts, the implied P/E multiple on our target price falls
to a normalized level post the high growth phase of the company.
28 August 2020 20
Exhibit 34: Our P/E based valuation implies 16% upside for TCS
Source: Datastream, Company data, Goldman Sachs Global Investment Research
Exhibit 35: TCS’ P/E multiple remained elevated for an extended Exhibit 36: ...leading to the stock price increase by more than 4X
period (Oct’10 to Jun’11) and its premium vs. the sector expanded over a five-year period
during the second wave of outsourcing when growth rates picked
up...
TCS 1 yr fwd P/E multiple from Oct 2009 to Oct 2014
26x 30% 1,400 1,366

TCS P/E vs. Sector (RHS) TCS Stock Price (Rs)
25x
25% 1,200
24x
23x 20%
1,000
22x
15%
21x 800
10%
20x
600
19x 5%
18x
400
0%
17x 307
16x -5% 200
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Oct-09
Jan-10
Oct-10
Jan-11
Oct-11
Jan-12
Oct-12
Jan-13
Oct-13
Jan-14
Oct-14
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
Source: Datastream Source: Datastream
Exhibit 37: Zooming into the Sep 2010 to Jul 2011 period when TCS’ Exhibit 38: The implied P/E on our target price falls to a normalized
multiple remained elevated, TCS saw continuous earnings level post the high earnings growth period in FY24E
upgrades which led to stock price increase despite multiples
being stable
630 TCS Stock Price (Rs) TCS 1 yr EPS estimates (Rs) (RHS) 29
610 28
36a21533dac44fb2904340830ca06d3f
590 27
570 26
550 25
530 24
510 23
490 22
470 21
450 20
Source: Datastream Source: Goldman Sachs Global Investment Research
28 August 2020 21
Exhibit 39: TCS Summary

TCS.BO 12m Price Target: Rs2598 Price: Rs2254.65 Upside: 15.2%
Buy GS Forecast
3/20 3/21E 3/22E 3/23E
Market cap: Rs8.5tr / $113.9bn Revenue (Rs mn) New 1,569,490.0 1,580,376.2 1,801,435.2 1,977,383.9
Enterprise value: Rs8.0tr / $108.2bn Revenue (Rs mn) Old 1,569,490.0 1,574,220.3 1,740,498.3 1,887,038.5
3m ADTV: NA EBITDA (Rs mn) 421,100.0 422,387.0 497,864.5 548,751.2
India EPS (Rs) New 86.19 82.47 97.74 107.58
India IT Services EPS (Rs) Old 86.19 81.07 91.83 100.78
P/E (X) 24.6 27.3 23.1 21.0
M&A Rank: 3 P/B (X) 9.5 9.6 9.5 9.5
Dividend yield (%) 4.7 3.1 4.3 4.7
CROCI (%) 45.9 41.9 46.5 46.8
6/20 9/20E 12/20E 3/21E

EPS (Rs) 18.68 19.39 20.41 23.99
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 26 Aug 2020 close.
Source: FactSet, Company data, Goldman Sachs Global Investment Research

TCS Financial Summary
Exhibit 40: TCS P&L Summary (FY17-23E)

TCS P&L Statement
FY17 FY18 FY19 FY20 FY21E FY22E FY23E
(Rs mn unless stated otherwise)
Number of employees 387,223 394,998 424,285 448,464 479,099 530,378 574,861
yoy growth 9.4% 2.0% 7.4% 5.7% 6.8% 10.7% 8.4%
Revenue per employee ($) 45,388 48,327 49,290 49,128 43,638 44,963 45,536
yoy growth -2.9% 6.5% 2.0% -0.3% -11.2% 3.0% 1.3%
Revenues ($mn) 17,575 19,089 20,913 22,032 20,907 23,847 26,177
yoy growth 6.2% 8.6% 9.6% 5.4% -5.1% 14.1% 9.8%
USD/INR 67.12 64.49 70.01 71.24 75.59 75.54 75.54
Revenues 1,179,660 1,231,040 1,464,630 1,569,490 1,580,376 1,801,435 1,977,384
yoy growth 8.6% 4.4% 19.0% 7.2% 0.7% 14.0% 9.8%
Employee Costs (616,210) (663,960) (782,460) (859,520) (964,309) (1,064,784) (1,180,365)
as a % of sales 52.2% 53.9% 53.4% 54.8% 61.0% 59.1% 59.7%
Cost per employee (Rs) (1,591,357) (1,680,920) (1,844,185) (1,916,586) (2,012,753) (2,007,595) (2,053,304)
yoy growth -0.5% 5.6% 9.7% 3.9% 5.0% -0.3% 2.3%
36a21533dac44fb2904340830ca06d3f
SG&A Costs (151,800) (152,010) (173,811) (159,500) (93,440) (115,518) (118,891)
as a % of sales 12.9% 12.3% 11.9% 10.2% 5.9% 6.4% 6.0%
Sub-contracting costs (88,540) (89,910) (113,300) (129,370) (100,240) (123,269) (129,376)
as a % of sales 7.5% 7.3% 7.7% 8.2% 6.3% 6.8% 6.5%
EBITDA 323,110 325,160 395,059 421,100 422,387 497,865 548,751
EBITDA margin 27.4% 26.4% 27.0% 26.8% 26.7% 27.6% 27.8%
D&A (19,870) (20,140) (20,560) (35,300) (39,826) (40,923) (43,042)
as a % of sales 1.7% 1.6% 1.4% 2.2% 2.5% 2.3% 2.2%
EBIT 303,240 305,020 374,499 385,800 382,561 456,942 505,709
EBIT margin 25.7% 24.8% 25.6% 24.6% 24.2% 25.4% 25.6%
Net Financial & Other Income 41,890 35,900 41,130 36,680 26,459 27,572 27,442
PBT 345,130 340,920 415,629 422,480 409,020 484,514 533,151
PBT margin 29.3% 27.7% 28.4% 26.9% 25.9% 26.9% 27.0%
Income tax (81,560) (82,120) (100,010) (98,010) (98,574) (116,768) (128,489)
Tax rate 23.6% 24.1% 24.1% 23.2% 24.1% 24.1% 24.1%
Minorities (680) (540) (900) (1,070) (992) (992) (992)
Net Income 262,890 258,260 314,719 323,400 309,455 366,754 403,670
as a % of sales 22.3% 21.0% 21.5% 20.6% 19.6% 20.4% 20.4%
EPS (Rs) 66.71 67.09 83.04 86.19 82.47 97.74 107.58
yoy growth 8.6% 0.6% 23.8% 3.8% -4.3% 18.5% 10.1%
28 August 2020 22
Exhibit 41: TCS Balance Sheet and Cash Flow Summary

TCS Balance Sheet
Cash & Cash Equivalents 456,630 426,460 417,430 358,060 429,362 398,423 368,059
Trade Receivables 280,350 319,500 329,890 366,620 372,320 412,060 438,763
Others Current Assets 68,280 69,490 178,850 181,670 182,930 208,518 228,884
Total Current Assets 805,260 815,450 926,170 906,350 984,612 1,019,001 1,035,706
Property, Plant & Equipment 117,410 116,000 116,500 198,410 180,709 175,815 172,320
Intangible Assets 37,680 38,960 40,130 19,930 16,769 13,166 9,212
Other Non-Current Assets 93,180 113,680 87,730 84,300 84,300 84,300 84,300
Total Assets 1,053,530 1,084,090 1,170,530 1,208,990 1,266,390 1,292,282 1,301,538
Short-term debt 0 0 0 0 0 0 0
Trade payables 62,790 50,940 62,920 67,400 87,261 87,128 82,094
Other Current Liabilities 82,330 127,340 157,920 203,200 196,708 215,215 226,349
Total Current Liabilities 145,120 178,280 220,840 270,600 283,968 302,343 308,443
Long-term debt 710 540 440 440 440 440 440
Other Non-Current Liabilities 20,890 28,840 29,160 90,460 90,460 90,460 90,460
Total Liabilities 166,720 207,660 250,440 361,500 374,868 393,243 399,343
Minority Interest 3,660 4,020 4,530 6,230 7,222 8,213 9,205
Shareholder Equity 883,150 872,410 915,560 841,260 884,300 890,825 892,990
Total Liabilities & Shareholder Equity 1,053,530 1,084,090 1,170,530 1,208,990 1,266,390 1,292,282 1,301,538
TCS Cash Flow Statement


Operating Profit 303,240 305,020 374,499 385,800 382,561 456,942 505,709
Depreciation & Amortization 19,870 20,140 20,560 35,300 39,826 40,923 43,042
Working Capital changes (31,210) (28,270) (50,249) (36,080) 6,409 (46,953) (40,969)
Net Interest Income/Others 41,890 35,900 41,130 36,680 26,459 27,572 27,442
Taxes paid (81,560) (82,120) (100,010) (98,010) (98,574) (116,768) (128,489)
Cash flow from operations 252,230 250,670 285,930 323,690 356,681 361,715 406,735
Capital Expenditure (19,890) (18,620) (20,530) (25,380) (18,965) (32,426) (35,593)
Acquisitions/Divestments 0 0 0 0 0 0 0
Free Cash Flow 232,340 232,050 265,400 298,310 337,717 329,290 371,142
Dividends (109,470) (107,260) (114,240) (376,340) (266,415) (360,229) (401,505)
Share buyback 0 (160,000) (160,000) 0 0 0 0
Others 37,589 5,040 (190) 18,660 0 0 0
Net Cash flow 160,459 (30,170) (9,030) (59,370) 71,302 (30,939) (30,363)
TCS Key ratios FY17 FY18 FY19 FY20 FY21E FY22E FY23E
ROE 29.8% 29.6% 35.2% 36.8% 35.9% 41.3% 45.3%
CROCI 45.8% 42.5% 48.1% 45.9% 41.9% 46.5% 46.8%
FCF yield 4.8% 4.6% 3.7% 3.7% 4.0% 3.9% 4.4%
Days Sales outstanding 87 95 82 85 86 83 81
Source: Company data, Datastream, Goldman Sachs Global Investment Research
36a21533dac44fb2904340830ca06d3f
28 August 2020 23
We also cross-check our valuation multiple using a three-staged DCF to reflect the longer-term growth rates for TCS. We use
9.7% WACC (using 12-year adjusted Beta), 4% terminal growth rate (in line with the longer-term technology spending
growth) and 26% terminal EBIT margin (in line with the lower end of the company’s targeted EBIT margin range). We also
run a scenario analysis to show the implied DCF value for TCS by varying the WACC, terminal growth rate, and terminal EBIT
margin suggesting the risk reward clearly looks attractive.
Exhibit 42: We cross-check our TCS valuation using DCF to capture the longer-term growth prospects
TCS valuation (Rs mn) Time Period Assumptions
NPV Stage 1 2,588,920 FY22E-30E Risk free rate 6.0%
NPV Stage 2 2,418,743 FY31E-40E Equity risk premium 5.0%
NPV Stage TV 3,835,161 Beyond FY40E Beta 0.73
DCF value 8,842,823 WACC 9.7%
FY21E Net Cash/ share 114 Terminal Growth rate 4.0%

Rs/share value 2,471
Current Price (Rs/share) 2,248 10%
TCS - DCF
Rs mn FY20 FY21E FY22E FY23E FY24E FY25E FY26E FY27E FY28E FY29E FY30E FY31E FY32E FY33E FY34E FY35E FY36E FY37E FY38E FY39E FY40E
Sales 1,569,490 1,580,376 1,801,435 1,977,384 2,165,574 2,366,261 2,579,631 2,805,791 3,044,764 3,296,479 3,560,762 3,837,332 4,125,790 4,425,617 4,736,169 5,056,672 5,386,223 5,723,786 6,068,194 6,418,156 6,772,255
yoy 0.7% 14.0% 9.8% 9.5% 9.3% 9.0% 8.8% 8.5% 8.3% 8.0% 7.8% 7.5% 7.3% 7.0% 6.8% 6.5% 6.3% 6.0% 5.8% 5.5%
EBIT 385,800 382,561 456,942 505,709 556,003 609,895 667,470 728,794 790,867 856,249 924,895 996,733 1,071,659 1,149,538 1,230,203 1,313,453 1,399,052 1,486,733 1,576,192 1,667,093 1,759,069
EBIT margin 24.6% 24.2% 25.4% 25.6% 25.7% 25.8% 25.9% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0% 26.0%
Tax rate 23% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24% 24%
NOPLAT 296,299 290,364 346,819 383,833 422,007 462,911 506,610 553,155 600,268 649,893 701,996 756,521 813,389 872,499 933,724 996,910 1,061,881 1,128,430 1,196,329 1,265,324 1,335,133
yoy -2% 19% 11% 10% 10% 9% 9% 9% 8% 8% 8% 8% 7% 7% 7% 7% 6% 6% 6% 6%
Depreciation 35,300 39,826 40,923 43,042 47,139 49,141 50,992 52,657 54,097 55,273 56,144 56,667 60,927 65,354 69,940 74,673 79,540 84,525 89,611 94,779 100,008
% of sales 2.2% 2.5% 2.3% 2.2% 2.2% 2.1% 2.0% 1.9% 1.8% 1.7% 1.6% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
Change in WC 71,510 6,409 -46,953 -40,969 -43,311 -47,325 -51,593 -56,116 -60,895 -65,930 -71,215 -76,747 -82,516 -88,512 -94,723 -101,133 -107,724 -114,476 -121,364 -128,363 -135,445
% of sales 4.6% 0.4% -2.6% -2.1% -2.0% -2.0% -2.0% -2.0% -2.0% -2.0% -2.0% -2.0% -2.0% -2.0% -2.0% -2.0% -2.0% -2.0% -2.0% -2.0% -2.0%
Capex (117,210) (18,965) (32,426) (35,593) (37,898) (40,226) (42,564) (44,893) (47,194) (49,447) (51,631) (55,641) (59,824) (64,171) (68,674) (73,322) (78,100) (82,995) (87,989) (93,063) (98,198)
% of sales -7.5% -1.2% -1.8% -1.8% -1.8% -1.7% -1.7% -1.6% -1.6% -1.5% -1.5% -1.5% -1.5% -1.5% -1.5% -1.5% -1.5% -1.5% -1.5% -1.5% -1.5%
Free cash flow 285,899 317,634 308,362 350,313 387,936 424,500 463,446 504,803 546,276 589,789 635,293 680,800 731,976 785,170 840,267 897,129 955,596 1,015,484 1,076,588 1,138,676 1,201,498
Growth yoy% 11% -3% 14% 11% 9% 9% 9% 8% 8% 8% 7% 8% 7% 7% 7% 7% 6% 6% 6% 6%
Source: Bloomberg, Company data, Goldman Sachs Global Investment Research
Exhibit 43: Risk reward looks attractive for TCS in our scenario analysis
DCF Implied Value WACC DCF Implied Value Terminal EBIT margin
36a21533dac44fb2904340830ca06d3f
(TCS Rs/share) 10.7% 10.2% 9.7% 9.2% 8.7% (TCS Rs/share) 24.0% 25.0% 26.0% 27.0% 28.0%
2.0% 1,892 2,031 2,189 2,372 2,585 2.0% 2,126 2,158 2,189 2,221 2,253
TV growth
TV growth
3.0% 1,970 2,127 2,309 2,523 2,776 3.0% 2,235 2,272 2,309 2,346 2,383
rate
rate
4.0% 2,071 2,254 2,471 2,731 3,049 4.0% 2,177 2,233 2,471 2,347 2,404
5.0% 2,209 2,431 2,702 3,040 3,472 5.0% 2,595 2,649 2,702 2,756 2,810
6.0% 2,405 2,693 3,061 3,545 4,212 6.0% 2,923 2,992 3,061 3,130 3,198
WACC Terminal EBIT margin

Variation Variation
10.7% 10.2% 9.7% 9.2% 8.7% 24.0% 25.0% 26.0% 27.0% 28.0%
2.0% -16% -10% -3% 6% 15% 2.0% -5% -4% -3% -1% 0%
TV growth
TV growth
3.0% -12% -5% 3% 12% 23% 3.0% -1% 1% 3% 4% 6%

rate
rate
4.0% -8% 0% 10% 21% 36% 4.0% -3% -1% 10% 4% 7%

5.0% -2% 8% 20% 35% 54% 5.0% 15% 18% 20% 23% 25%
6.0% 7% 20% 36% 58% 87% 6.0% 30% 33% 36% 39% 42%
Source: Bloomberg, Company data, Goldman Sachs Global Investment Research
28 August 2020 24
HCL: Up to Neutral as IMS penetration ahead likely leads to a pick-up in

organic growth
Investment thesis
n We expect HCL’s organic revenue growth to revive sharply in FY22E at 12.5%
(vs. -1.1% in FY21E) led by a pick-up in large IT outsourcing deals post COVID-19. We
believe their IMS service line particularly, should see accelerated growth from
increasing demand for hybrid cloud adoption and strong volumes from large deals.
This would help offset any potential pricing pressure on the Run side of the business
and on-premise data center management.
n Product & Platform business (14% of revenues in 1QFY21) has done better than
our expectation on the margins and FCF front in its first year of major IBM product
acquisition (see our note from last year: Increasing risk from execution and industry
shift to cloud; downgrade to Sell, dated 7th March 2019). However, on the organic
growth front, we remain cautiously optimistic about these products along with their
latest upgraded versions given stiff competition with large scale product vendors
including Microsoft, Google, etc.
n Margins/ returns to remain stable and hold the litmus key for further re-rating:
where we expect pricing pressure in the IMS business and high D&A expense on
the back of acquisitions of a series of IBM/other products could put pressure on
HCL’s RoE and ROIC.
Valuation
visibility. In addition, we change our target multiple basis to 12-yr avg. P/E plus 0.5 SD
from 12-yr avg. P/E -1 std SD as future earnings growth potential looks strong given
36a21533dac44fb2904340830ca06d3f
industry and IMS tailwinds. However, given the lower return profile we still value it at a
target multiple lower than the TCS/INFY. Accordingly, we now value HCL by using target
P/E multiple of 14.9X (12-yr avg. P/E plus 0.5 std dev; 11.3x prior) applied to Q5-Q8 EPS
of Rs51.47. Our 12-m target price of Rs767 (Rs513 previously) implies 9% potential
upside (vs 10% for our coverage average). The stock is currently trading at 14.6X FY22E
with an FY20-22E EPS CAGR of 9.0% vs. the sector average at 17.3X with FY20-22E
EPS CAGR of 12%. From 1-yr forward P/E multiple perspective its trading at 17.0X (vs.
12-yr avg. of 13.7X and peak of 19.8X). Since we added HCL to our Sell list on 7 March,
2019, the stock is up 36% vs. SENSEX up 6% over the same period. We attribute the
outperformance to better than expected performance of the IBM acquired products
business, better FCF generation and sector tailwinds leading to a re-rating of the sector.
With balanced risk reward, we upgrade the stock to Neutral from Buy.
Key risks
Upside: Stronger than expected revival in IMS given overall penetration in IMS for
Indian IT industry is still low at 4-5% vs. 25% in app services and HCL has been able to
consistently gain market share, better-than-expected execution around acquired IBM
28 August 2020 25
products leading to strong growth in Mode-3 revenues, sharper pick-up in ER&D

business over FY23E, INR depreciation over USD, GBP/EUR appreciation over USD,
strong growth from EU given its 29% of HCL’s sales and currently seeing more
willingness to outsource/ offshore.
Downside: Weaker than expected revival in IMS due to sharp pricing pressure in Run
side of the business, weaker-than-expected execution around acquired IBM products
leading to weak growth in Mode-3 revenues, prolonged recovery in ER&D business
given its more capex intensive nature over IT services, INR appreciation over USD,
GBP/EUR depreciation over USD.
Exhibit 44: HCL Summary

HCLT.BO 12m Price Target: Rs767 Price: Rs712.65 Upside: 7.6%
Neutral GS Forecast
3/20 3/21E 3/22E 3/23E
Market cap: Rs1.9tr / $26.0bn Revenue (Rs mn) New 706,780.0 739,730.6 832,839.6 892,332.7
Enterprise value: Rs1.8tr / $24.5bn Revenue (Rs mn) Old 706,780.0 739,730.6 805,428.9 854,996.3
India EPS (Rs) New 40.76 41.61 48.50 51.28
P/E (X) 13.4 17.1 14.7 13.9
M&A Rank: 3 P/B (X) 3.2 3.4 3.0 2.7
Dividend yield (%) 1.1 1.1 2.6 3.5
CROCI (%) 27.0 24.8 24.4 23.6
6/20 9/20E 12/20E 3/21E

EPS (Rs) 10.78 10.48 10.32 10.03
36a21533dac44fb2904340830ca06d3f
28 August 2020 26
HCL: Thesis in six charts: Cyclical tailwind with IMS opportunity seems priced-in
Exhibit 45: We expect HCL’s organic growth to accelerate post Exhibit 46: Outlook for IMS has improved post Covid-19
Covid-19
14% Organic Revenues ($) growth yoy EBIT Margin (%) (RHS) 20.5% 2% Apr Update Jul Update
12% 12.7% 1.0%

1% 0.5%
20.0% 0.4%
10% 9.1%
0%
8% 7.4% 7.1%
IMS yoy growth

6.7%
5.8% 19.5% -0.5%
6% -1%
4% -2%
19.0%
2%
-3%
0% 18.5% -3.4%
-4%
-2%
-4.2%
-4% -2.9% 18.0% -5%
FY17 FY18 FY19 FY20 FY21E FY22E FY23E 2020 2021 2022
Source: Company data, Goldman Sachs Global Investment Research Source: Gartner
Exhibit 47: Enterprises expectations for cloud penetration have Exhibit 48: Margins for HCL’s Mode 3 revenues have improved over
stabilized over the last 2 years, as per the GS IT Spending survey the last 3 quarters
50% Mode 3 EBIT Margin (%) Mode 3 Proportion of revenues (%) (RHS)
Today In 3 years
45% 43% 29.6%
42% 30% 28.9% 17%
% of workloads in public cloud
40% 38% 38% 27.1% 27.3%

36% 16%
33% 34% 34% 27% 16.2%
35% 25.2% 15.8% 15.7%
24.4% 15%
30% 23.0%
26% 24% 14.7% 14%
25% 23% 23%
19% 18% 20% 19% 19% 13%
20% 18% 21%
16% 18.8% 19.0%
12%
15%
11% 18% 12.0% 11.9%
10% 11%
6% 11.0% 10.9%
5% 15% 10.6% 10%
0%
Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20
Source: Goldman Sachs Global Investment Research Source: Company data
36a21533dac44fb2904340830ca06d3f
Exhibit 49: However, return metrics have been declining which Exhibit 50: Post the recent rally, HCL is trading at the higher end of
keeps us Neutral its historical range
53% 27.7% ROIC (%) ROE (%) (RHS) 28% 21x HCL P/E Avg. HCL P/E +1SD -1SD
19x
48% 49.7% 27%
26.5% 17x
15x
43% 26%
43.3%
25.1% 13x
25.0%
38% 25% 11x
35.2% 9x
33% 32.0% 24%
23.3% 7x
5x
28% 29.0% 23%
Source: Company data, Goldman Sachs Global Investment Research Source: Datastream
28 August 2020 27
HCL has gained significant market share in IMS over the recent years
While the overall IMS market globally has seen shrinkage or remained largely flat over
the last three to four years, HCL has been able to consistently gain market share as
highlighted in the Exhibit below. This we believe reflects their strong execution with
aggressive sales and marketing campaigns as well as the opening up of thinly
penetrated geographies. Based on our recent Gartner checks, we also note that over the
last one to two years HCL has made a significant change in their IMS selling approach
where apart from pure cloud migration and hybrid cloud management, they are also able
to help clients digitalize their operations by using effective Paas (Platform As-A-Service)
tools. HCL’s automation first approach has ensured a minimal level of deflation risk
annually and particularly during contract renewals.
HCL’s Nokia deal signed in Dec’18 has helped the company get strong recognition within
the EU market with multiple client references. The recently announced five-year deal
with Ericsson could bring similar benefits. Additionally, HCL’s change in go-to-market
strategy over last one to two years, with a more vertical driven sales approach than
horizontal, likely also boosted the deal wins, in our view.
Exhibit 51: Among the Global IT service players, HCL has gained the highest market share in IMS over the
last 3 years
4.0% Atos Fujitsu NTT Data Accenture HCL 11.0%
TCS Wipro Cognizant Capgemini IBM (RHS)
3.5% 3.5%
10.5%
10.5%
3.3% 3.2%
3.0% 3.0%
10.0%
2.7%
2.5%
2.3% 9.5%
2.2%
2.0% 2.0% 2.0%
1.9%
36a21533dac44fb2904340830ca06d3f
1.8%
1.7% 9.0% 9.0%
1.5%
1.1%
1.0% 8.5%
1.0% 1.0%
1.0% 1.0%
0.7%
0.5% 8.0%
2016 2017 2018 2019
Source: Gartner
HCL Valuation
visibility. In addition, we change our target multiple basis to 12-yr avg. P/E plus 0.5 SD
from 12-yr avg. P/E -1 std SD as future earnings growth potential looks strong given
industry and IMS tailwinds. However, given the lower return profile we still value it at a
target multiple lower than the TCS/INFY. Accordingly, we now value HCL by using target
P/E multiple of 14.9X (12-yr avg. P/E plus 0.5 std dev; 11.3x prior) applied to Q5-Q8 EPS
of Rs51.47. Our 12-m target price of Rs767 (Rs513 previously) implies 9% potential
28 August 2020 28
upside (vs 10% for our coverage average). The stock is currently trading at 14.6X FY22E
with an FY20-22E EPS CAGR of 9.0% vs. the sector average at 17.3X with FY20-22E
EPS CAGR of 12%. From 1-yr forward P/E multiple perspective its trading at 17.0X (vs.
12-yr avg. of 13.7X and peak of 19.8X)From a one-yr forward P/E multiple perspective,
HCL is trading at 17.0X (vs. 12-yr avg. of 13.7X and peak of 19.8X). Despite the recent
re-rating, HCL is currently trading at a 25% discount to the sector and broadly in line
with TechM.
Exhibit 52: Our P/E based valuation implies 9% potential upside for HCL
2008-Current history Target EPS (Q5-Q8) 12m TP CMP Upside/ Remarks FY10-20 FY20-23E
Avg. P/E Min P/E Max P/E P/E Std dev P/E Rs/share (Rs) (Rs/share) Downside EPS CAGR EPS CAGR
Avg. 12-yr P/E plus 0.5std dev taken as Target
HCL Tech 13.7 4.7 19.8 2.4 14.9 51.47 767 706 8.6% multiple, as future growth outlook has improved 24.1% 8.0%
with increasing penetration potential in IMS
Source: Datastream, Company data, Goldman Sachs Global Investment Research
Exhibit 53: Despite the recent re-rating, HCL is currently trading at Exhibit 54: ...and broadly in line with TechM
a 25% discount to the sector...

HCL P/E Avg. HCL P/E +1SD HCL P/E Avg. HCL P/E +1SD
21x 10% 21x 140%
-1SD vs. sector (RHS) -1SD vs. TechM (RHS)
19x 19x 120%
0%
100%
17x 17x
-10% 80%
15x 15x
60%
13x -20% 13x
40%
11x 11x
-30% 20%
9x 9x
0%
-40%
7x 7x -20%
5x -50% 5x -40%
Source: Datastream Source: Datastream
36a21533dac44fb2904340830ca06d3f
28 August 2020 29
HCL Financial Summary
Exhibit 55: HCL’s P&L Summary (FY17-FY23E)

HCL Tech P&L Statement
Number of employees 115,973 120,081 137,965 132,372 150,235 166,199 176,350
yoy growth 10.6% 3.5% 14.9% -4.1% 13.5% 10.6% 6.1%
Revenue per employee ($) 60,144 65,270 62,573 75,061 65,140 66,337 66,984
yoy growth 1.2% 8.5% -4.1% 20.0% -13.2% 1.8% 1.0%
Revenues ($mn) 6,975 7,838 8,633 9,936 9,786 11,025 11,813
yoy growth 11.9% 12.4% 10.1% 15.1% -1.5% 12.7% 7.1%
USD/INR 66.99 64.52 69.97 71.10 75.59 75.54 75.54
Revenues 467,227 505,700 604,280 706,780 739,731 832,840 892,333
yoy growth 14.2% 8.2% 19.5% 17.0% 4.7% 12.6% 7.1%
Employee Costs (228,662) (247,290) (292,830) (349,280) (364,141) (408,926) (444,888)
as a % of sales 48.9% 48.9% 48.5% 49.4% 49.2% 49.1% 49.9%
Cost per employee (Rs) (1,971,681) (2,059,360) (2,122,495) (2,638,624) (2,423,807) (2,460,456) (2,522,749)
yoy growth 2.8% 4.4% 3.1% 24.3% -8.1% 1.5% 2.5%
SG&A Costs (48,808) (57,810) (74,160) (83,560) (90,794) (102,742) (110,595)
as a % of sales 10.4% 11.4% 12.3% 11.8% 12.3% 12.3% 12.4%
Sub-contracting costs (86,660) (86,200) (97,610) (107,000) (100,153) (116,923) (125,275)
as a % of sales 18.5% 17.0% 16.2% 15.1% 13.5% 14.0% 14.0%

EBITDA 103,097 114,400 139,680 166,940 184,643 204,249 211,575
EBITDA margin 22.1% 22.6% 23.1% 23.6% 25.0% 24.5% 23.7%
D&A (8,340) (14,520) (21,480) (28,410) (38,448) (39,890) (42,176)
as a % of sales 1.8% 2.9% 3.6% 4.0% 5.2% 4.8% 4.7%
EBIT 94,757 99,880 118,200 138,530 146,195 164,359 169,399
EBIT margin 20.3% 19.8% 19.6% 19.6% 19.8% 19.7% 19.0%
Net Financial & Other Income 9,340 11,080 7,840 1,470 2,383 8,804 13,720
PBT 104,098 110,960 126,040 140,000 148,578 173,162 183,118
PBT margin 22.3% 21.9% 20.9% 19.8% 20.1% 20.8% 20.5%
Income tax (19,520) (23,160) (24,810) (29,380) (35,659) (41,559) (43,948)
Tax rate 18.8% 20.9% 19.7% 21.0% 24.0% 24.0% 24.0%
Minorities 0 0 0 0 0 0 0
Net Income 84,578 87,800 101,230 110,620 112,919 131,603 139,170
as a % of sales 18.1% 17.4% 16.8% 15.7% 15.3% 15.8% 15.6%
EPS (Rs) 29.94 31.31 36.79 40.76 41.61 48.50 51.28
yoy growth 13.7% 4.6% 17.5% 10.8% 2.1% 16.5% 5.7%
36a21533dac44fb2904340830ca06d3f
28 August 2020 30
Exhibit 56: HCL’s Balance Sheet and Cash Flow summary (FY17-23E)
HCL Tech Balance Sheet
Cash & Cash Equivalents 126,807 97,614 114,017 140,083 159,563 223,824 281,744
Trade Receivables 108,016 122,344 146,220 161,927 181,523 198,667 206,747
Others Current Assets 29,830 25,154 37,194 48,105 51,308 58,536 63,515
Total Current Assets 264,653 245,112 297,431 350,115 392,395 481,027 552,005
Property, Plant & Equipment 46,801 51,770 58,064 80,810 89,239 103,617 116,248
Intangible Assets 114,247 143,839 177,125 268,063 247,075 227,786 210,456
Other Non-Current Assets 35,292 42,833 56,877 59,246 59,246 59,246 59,246
Total Assets 460,994 483,555 589,496 758,233 787,955 871,676 937,956
Short-term debt 2,060 2,179 12,185 22,034 12,034 12,034 12,034
Trade payables 56,911 45,597 55,962 68,932 75,492 79,289 78,841
Other Current Liabilities 54,363 52,927 54,559 124,749 66,693 75,195 80,567
Total Current Liabilities 113,334 100,703 122,706 215,715 154,219 166,518 171,442
Long-term debt 3,550 2,632 28,768 25,948 25,948 15,948 5,948
Other Non-Current Liabilities 9,213 12,647 15,393 40,822 40,822 40,822 40,822
Total Liabilities 126,097 115,982 166,866 282,485 220,989 223,289 218,212
Minority Interest 1,729 0 4,545 5,183 5,183 5,183 5,183
Shareholder Equity 333,167 367,572 418,085 470,564 561,783 643,204 714,560
Total Liabilities & Shareholder Equity 460,994 483,555 589,496 758,233 787,955 871,676 937,956
HCL Tech Cash Flow Statement


Operating Profit 94,757 99,880 118,200 138,530 146,195 164,359 169,399
Depreciation & Amortization 8,350 14,520 21,470 28,410 38,448 39,890 42,176
Working Capital changes (2,978) (19,040) (32,990) (5,440) (10,425) (12,071) (8,135)
Net Interest Income/Others 9,340 11,080 7,840 1,470 2,383 8,804 13,720
Taxes paid (19,520) (23,160) (24,810) (29,380) (35,659) (41,559) (43,948)
Cash flow from operations 89,950 83,280 89,710 133,590 140,943 159,422 173,211
Capital Expenditure (39,210) (53,440) (34,650) (18,660) (25,891) (34,979) (37,478)
Acquisitions/Divestments (4,870) (1,070) (28,280) (60,910) (63,872) 0 0
Free Cash Flow 45,870 28,770 26,780 54,020 51,181 124,443 135,733
Dividends (40,287) (20,361) (13,239) (16,315) (21,700) (50,182) (67,814)
Share buyback 0 (35,000) (40,000) 0 0 0 0
Others 2,650 (2,602) 42,861 (11,639) (10,000) (10,000) (10,000)
Net Cash flow 8,233 (29,193) 16,403 26,067 19,480 64,261 57,919
HCL Tech Key ratios FY17 FY18 FY19 FY20 FY21E FY22E FY23E
ROE 25.4% 23.9% 24.2% 23.5% 20.1% 20.5% 19.5%
CROCI 32.9% 30.0% 28.4% 27.0% 24.8% 24.4% 23.6%
FCF yield 4.5% 2.4% 4.0% 7.7% 6.0% 6.5% 7.1%
Days Sales outstanding 84 88 88 84 90 87 85
Source: Company data, FactSet, Goldman Sachs Global Investment Research
36a21533dac44fb2904340830ca06d3f
Appendix
Exhibit 57: TechM Summary
TEML.BO 12m Price Target: Rs954 Price: Rs732.7 Upside: 30.2%
Buy - CL GS Forecast
3/20 3/21E 3/22E 3/23E
Market cap: Rs640.1bn / $8.6bn Revenue (Rs mn) New 368,677.0 381,676.9 434,562.1 483,326.9
Enterprise value: Rs562.9bn / $7.6bn Revenue (Rs mn) Old 368,677.0 381,676.9 427,328.0 474,994.5
India EPS (Rs) New 46.98 45.77 57.61 68.98
P/E (X) 15.7 16.0 12.7 10.6
M&A Rank: 3 P/B (X) 2.9 2.5 2.3 2.1
Asia ex. Japan Conviction List Dividend yield (%) 3.9 0.7 4.4 4.4
CROCI (%) 18.2 14.9 17.3 19.2
6/20 9/20E 12/20E 3/21E

EPS (Rs) 9.87 10.54 12.12 13.23
28 August 2020 31
Exhibit 58: INFY Summary

INFY.BO 12m Price Target: Rs1165 Price: Rs950.8 Upside: 22.5%
Buy - CL GS Forecast
3/20 3/21E 3/22E 3/23E
Market cap: Rs4.0tr / $54.3bn Revenue (Rs mn) New 907,910.0 984,179.9 1,123,522.4 1,236,154.5
Enterprise value: Rs3.7tr / $49.7bn Revenue (Rs mn) Old 907,910.0 984,179.9 1,096,986.8 1,205,218.0
India EPS (Rs) New 38.51 43.57 50.86 56.49
P/E (X) 19.3 21.8 18.7 16.8
M&A Rank: 3 P/B (X) 4.8 5.5 5.3 5.0
Asia ex. Japan Conviction List Dividend yield (%) 3.0 2.9 4.4 4.9
CROCI (%) 33.4 34.2 37.0 38.0
6/20 9/20E 12/20E 3/21E

EPS (Rs) 9.97 10.62 11.09 11.88

Exhibit 59: L&T Infotech Summary

LRTI.BO 12m Price Target: Rs2779 Price: Rs2471.1 Upside: 12.5%
Buy GS Forecast
3/20 3/21E 3/22E 3/23E
India EPS (Rs) New 86.09 100.84 130.78 153.19
P/E (X) 19.7 24.5 18.9 16.1
M&A Rank: 3 P/B (X) 5.5 6.6 5.5 4.5
Dividend yield (%) 1.9 1.6 2.1 2.5
CROCI (%) 37.4 35.7 41.9 45.1
6/20 9/20E 12/20E 3/21E

EPS (Rs) 23.74 24.25 25.04 27.81
36a21533dac44fb2904340830ca06d3f
Exhibit 60: Mindtree Summary

MINT.BO 12m Price Target: Rs1341 Price: Rs1172.9 Upside: 14.3%
Buy GS Forecast
3/20 3/21E 3/22E 3/23E
India EPS (Rs) New 39.19 55.46 65.27 73.00
P/E (X) 21.2 21.1 18.0 16.1
M&A Rank: 2 P/B (X) 4.3 5.2 4.4 3.8
Dividend yield (%) 4.4 1.9 2.2 2.5
CROCI (%) 23.8 25.1 26.5 27.1
3/20 6/20E 9/20E 12/20E

EPS (Rs) 13.38 12.93 12.70 13.13
28 August 2020 32
Exhibit 61: Wipro Summary

WIPR.BO 12m Price Target: Rs258 Price: Rs272 Downside: 5.1%
Sell GS Forecast
3/20 3/21E 3/22E 3/23E
Market cap: Rs1.5tr / $20.8bn Revenue (Rs mn) New 610,232.0 608,386.5 660,849.9 690,352.5
Enterprise value: Rs1.2tr / $16.1bn Revenue (Rs mn) Old 610,232.0 606,894.8 641,539.8 666,674.2
India EPS (Rs) New 16.54 16.12 17.50 18.65
P/E (X) 15.4 16.9 15.5 14.6
M&A Rank: 3 P/B (X) 2.6 2.4 2.2 2.1
Dividend yield (%) 0.5 1.0 2.6 2.9
CROCI (%) 22.2 20.6 20.2 20.2
6/20 9/20E 12/20E 3/21E

EPS (Rs) 4.19 3.74 3.84 4.35

Exhibit 62: Hexaware Summary

HEXT.BO 12m Price Target: Rs375 Price: Rs418.65 Downside: 10.4%
Sell GS Forecast
12/19 12/20E 12/21E 12/22E
India EPS (Rs) New 21.70 21.85 20.97 26.02
P/E (X) 16.3 19.2 20.0 16.1
M&A Rank: 2 P/B (X) 3.8 4.0 3.6 3.2
Dividend yield (%) 2.9 2.6 2.3 2.8
CROCI (%) 27.6 24.1 21.1 24.1
6/20 9/20E 12/20E 3/21E

EPS (Rs) 5.04 6.03 4.99 4.86
36a21533dac44fb2904340830ca06d3f
Exhibit 63: Mphasis Summary

MBFL.BO 12m Price Target: Rs1274 Price: Rs1199.4 Upside: 6.2%
Neutral GS Forecast
3/20 3/21E 3/22E 3/23E
India EPS (Rs) New 60.84 69.58 80.16 90.08
P/E (X) 15.1 17.2 15.0 13.3
M&A Rank: 3 P/B (X) 3.0 3.6 3.3 3.0
Dividend yield (%) 3.5 3.5 4.0 4.5
CROCI (%) 39.6 31.3 24.5 26.3
6/20 9/20E 12/20E 3/21E

EPS (Rs) 14.67 17.04 19.00 18.87
All prices as of Aug 24, 2020 unless otherwise stated in the note.
28 August 2020 33
Disclosure Appendix
Reg AC
We, Sumeet Jain and Saurabh Thadani, CFA, hereby certify that all of the views expressed in this report accurately reflect our personal views about the
subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly,
related to the specific recommendations or views expressed in this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs’ Global Investment Research division.
GS Factor Profile
The Goldman Sachs Factor Profile provides investment context for a stock by comparing key attributes to the market (i.e. our coverage universe) and its
sector peers. The four key attributes depicted are: Growth, Financial Returns, Multiple (e.g. valuation) and Integrated (a composite of Growth, Financial
Returns and Multiple). Growth, Financial Returns and Multiple are calculated by using normalized ranks for specific metrics for each stock. The
normalized ranks for the metrics are then averaged and converted into percentiles for the relevant attribute. The precise calculation of each metric may
vary depending on the fiscal year, industry and region, but the standard approach is as follows:
Growth is based on a stock’s forward-looking sales growth, EBITDA growth and EPS growth (for financial stocks, only EPS and sales growth), with a
higher percentile indicating a higher growth company. Financial Returns is based on a stock’s forward-looking ROE, ROCE and CROCI (for financial
stocks, only ROE), with a higher percentile indicating a company with higher financial returns. Multiple is based on a stock’s forward-looking P/E, P/B,
price/dividend (P/D), EV/EBITDA, EV/FCF and EV/Debt Adjusted Cash Flow (DACF) (for financial stocks, only P/E, P/B and P/D), with a higher percentile
indicating a stock trading at a higher multiple. The Integrated percentile is calculated as the average of the Growth percentile, Financial Returns
percentile and (100% - Multiple percentile).
Financial Returns and Multiple use the Goldman Sachs analyst forecasts at the fiscal year-end at least three quarters in the future. Growth uses inputs
for the fiscal year at least seven quarters in the future compared with the year at least three quarters in the future (on a per-share basis for all metrics).
For a more detailed description of how we calculate the GS Factor Profile, please contact your GS representative.
M&A Rank
Across our global coverage, we examine stocks using an M&A framework, considering both qualitative factors and quantitative factors (which may vary
across sectors and regions) to incorporate the potential that certain companies could be acquired. We then assign a M&A rank as a means of scoring
companies under our rated coverage from 1 to 3, with 1 representing high (30%-50%) probability of the company becoming an acquisition target, 2
representing medium (15%-30%) probability and 3 representing low (0%-15%) probability. For companies ranked 1 or 2, in line with our standard
departmental guidelines we incorporate an M&A component into our target price. M&A rank of 3 is considered immaterial and therefore does not
factor into our price target, and may or may not be discussed in research.
Quantum
Quantum is Goldman Sachs’ proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for
in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets.
Disclosures
The rating(s) for HCL Technologies Ltd., Hexaware Technologies Ltd., Infosys Ltd., Infosys Ltd. (ADR), Larsen &
Toubro Infotech Ltd., Mindtree Ltd., Mphasis, Tata Consultancy Services Ltd., Tech Mahindra Ltd., Wipro Ltd. and
Wipro Ltd. (ADR) is/are relative to the other companies in its/their coverage universe:
36a21533dac44fb2904340830ca06d3f
HCL Technologies Ltd., Hexaware Technologies Ltd., Infosys Ltd., Infosys Ltd. (ADR), Larsen & Toubro Infotech Ltd., Mindtree Ltd., Mphasis, Tata
Consultancy Services Ltd., Tech Mahindra Ltd., Wipro Ltd., Wipro Ltd. (ADR)
Company-specific regulatory disclosures

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28 August 2020 34
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28 August 2020 | 1:44AM IST

India Technology: IT Services

Dawn of another Outsourcing Wave, TCS up to Buy; Buy

Increasing our estimates on the back of cyclical and structural tailwinds 8

Exhibit 1: Global IT services - Comp sheet

Source: FactSet, Goldman Sachs Global Investment Research

Cyclical tailwind: Historically, crisis followed by increased outsourcing

Post COVID-19, we expect a third wave of outsourcing and an increasing number of

Source: Gartner Source: Gartner

3.0% Healthcare Market share (2019) Manufacturing Market share (2019)

Energy & Utilities 1.1%

Source: Gartner Source: Gartner

21.7% 21.6% 22%

Source: Company data, Goldman Sachs Global Investment Research

#2: Selling their solutions on a vertical-specialized platform (potentially hosted in cloud)

140,000 India US Singapore Beijing Kuala Lumpur Manila 137,975

Source: NASSCOM, MyVisaJobs, FactSet, Goldman Sachs Global Investment Research

Digitally skilled employees in India (’000) Digitally involved FTEs (FY18)

400 Rest of APAC,

Overall IT services market share BFSI IT services market share

1.9% 1.5% 1.3%

Source: Gartner Source: Gartner

Increasing our estimates on the back of cyclical and structural tailwinds

We have increased our sector revenue growth assumptions by up to 4ppt over

Key risks to the industry

Exhibit 16: India IT services - EPS sensitivity to FX moves

Source: Company data, Goldman Sachs Global Investment Research

Source: Company data, Goldman Sachs Global Investment Research

Target FY22E 12-m TP GS Methodology Target Q5-Q8 12-m TP GS Upside/

Source: Datastream, Goldman Sachs Global Investment Research

Source: Datastream, Goldman Sachs Global Investment Research

Gse Cons. % diff Gse Cons. % diff Gse Cons. % diff

EBIT (Rs mn)

Source: Bloomberg, Goldman Sachs Global Investment Research

Exhibit 21: India IT services - Key risks

Source: Goldman Sachs Global Investment Research

Source: Goldman Sachs Global Investment Research

Source: Goldman Sachs Global Investment Research

TCS up to Buy: Market leader on its way towards $90bn in revenue by

1. We expect US$ revenues to grow at 14.1%/9.8% over FY22E/23E (vs.

11% 11.9% 20% 18%

25% 24% 24%

- Cloud deﬂationary impact now behind,

- Scaling of digital projects as they graduate from pilots/proof-of-concept stage to

- Captives once again focusing on outsourcing;

We believe these tailwinds have accelerated due to COVID-19 as businesses face

1,200 >$1mn >$10mn >$50mn >$100mn

Source: Company data

TCS’ presence in multiple geographies bodes well for increasing penetration as

IT Services market share by geography (2019)

United States 4.1% 2.5% 2.7% 1.7% 430,620 41.4%

TCS margins to improve relative to peers in the near-term

25.5% TCS 27% TCS Infosys Wipro HCL

EBIT Margin (%)

24.0% 21% 20.5% 20.4%

Source: Datastream, Company data, Goldman Sachs Global Investment Research

26x 30% 1,400 1,366

Source: Datastream Source: Datastream

Source: Datastream Source: Goldman Sachs Global Investment Research

Exhibit 39: TCS Summary

6/20 9/20E 12/20E 3/21E

Source: FactSet, Company data, Goldman Sachs Global Investment Research

TCS Financial Summary

Exhibit 40: TCS P&L Summary (FY17-23E)