IT Pack

August 2021
IT Pack

The table gives out the basic financial details of the 9 IT software stocks

Book Change Change Last Divi-

Sr Equity CMP Net Sales EPS P/E
Company FV Mkt cap Value in sales PAT FY21 in PAT P/BV Div dend
No Latest Aug 10, 2021 FY21 TTM TTM
latest y-o-y y-o-y %. Yield

1 HCL Technologies 542.7 2 1063.7 288,651 220.8 75379.0 6.7% 11145.0 0.8% 42.1 25.3 4.8 600 1.1%

2 Infosys 2,129.5 5 1677.3 714,354 153.8 100472.0 10.7% 19351.0 16.6% 47.7 35.2 10.9 540 1.6%

3 KPIT Technologies 274.1 10 303.2 8,312 44.2 2035.7 -5.6% 142.4 -6.8% 6.5 46.4 6.9 15 0.5%

4 Mastek 12.7 5 2380.3 6,046 338.1 1721.9 60.7% 209.4 66.1% 93.8 25.4 7.0 290 0.6%

5 Sonata Software 10.5 1 854.7 8,991 86.1 4228.1 13.0% 244.0 -11.9% 26.7 32.0 9.9 1400 1.6%

6 TCS 369.9 1 3333.9 1,233,243 231.4 164177.0 4.6% 33324.2 3.0% 95.4 34.9 14.4 3800 1.1%

7 Tech Mahindra 484.6 5 1323.1 128,219 257.0 37855.1 2.7% 4428.0 9.8% 49.6 26.7 5.1 900 3.4%

8 Wipro 1,095.9 2 603.9 330,865 100.2 61943.0 1.5% 10796.4 11.0% 21.3 28.4 6.0 50 0.2%

9 Zensar Tech. 45.1 2 401.7 9,066 103.8 3781.4 -9.6% 334.8 27.1% 12.7 31.7 3.9 180 0.9%

Source: Capitaline Database, All figures in Rs. except for Equity, Sales FY21 and PAT FY21 which are Rs.Cr., CMP is as of August 10 2021, EPS is adjusted for extraordinary items, past dividend yield may not necessarily sustain in future

www.hdfcsec.com 2
IT Pack
HCL Tech
(M Cap ₹288,651 Cr)
• HCL Tech is the third-largest Indian IT services company by revenue, after TCS
and Infosys. The company has a strong globally diversified presence and provides
comprehensive IT services to an established customer base. It has strong expertise in
engineering and R&D services and its end-customers are also spread across industry
segments. HCL Tech has low customer concentration with its five-largest, 10-largest
and 20- largest clients contributing to 13%, 20.9% and 30.4% of total revenue,
respectively, in Q1FY22.
• HCL Tech’s new deal total contract value (TCV) in FY21 stood at US$ 7.3bn, which is
18% increase over FY20. In FY21, US$ 50 mn+ clients increased by 5% on YoY basis.
HCLT Tech TCV of new deal wins in Q1FY22 stood at US$ 1664 mn registering 37% YoY
growth enabled by 8 large services deal wins and 4 significant product win, many are
transformational deals across the verticals. Most deals won are spread over 3-5 years.
Robust growth is expected in services, led by strong deal momentum.
• HCL Tech’s investments in last few years were in next-gen technologies which helped
it to sustain in difficult times and position it strongly to leverage the emerging market
opportunities. This growth momentum was driven by its continued leadership in digital
transformation and cloud businesses, and platforms segment, all of which continue to
open diverse growth avenues.
• Improvement in signing large deal wins, expansion of presence in other geographies,
investment in sales & capabilities, inorganic growth and opportunities in captive carve
outs bring earning visibility going forward. The company’s revenue expects to grow
in double digits in constant currency for FY22E and EBIT margin is expected to be
between 19 – 21% for FY22E.
• Indian rupee appreciation against the USD, pricing pressure, any reputation loss on
account of breach in compliance, retention of the skilled headcounts, strict immigration
norms and rise in visa costs are key concerns.
www.hdfcsec.com
Infosys Ltd
(M Cap ₹714,354 Cr)
• Infosys is one of the leading Indian IT services companies, and has a diversified range of
offerings across service segments and industry verticals. In terms of verticals, Infosys
derived about 33% of its revenue from the financial services segment, 15% from retail,
12.2% from Communication, 12.1% from Energy & Utilities, 9.7% from Manufacturing,
8.3% from Hi-Tech, 6.8% from Life science in Q1FY22, supported by its leading market
position, large scale of operations.
• Infosys signed 22 large deals in Q1FY22, with Total Contract Value (TCV) of US$
2,570mn vs. US$ 2,111mn in Q4FY21 and US$ 1,744mn in Q1FY21. The book-to bill
ratio stood at 0.7x in Q1FY22 vs. 0.6x in Q4FY21. Out of 22 large deals, the company
won nine deals in financial services, four deals each in retail and Energy & Utilities, two
deals in manufacturing and one each in other verticals. Management mentioned they
will look to replicate the past trends in net new deals.
• Infosys has a strong track record for dealing with clients across the geographies,
verticals and services over the past and the company has been actively participating
in signing deals. Infosys could see benefit in the medium term from accelerated cloud
migration and digital transformation by customers. Infosys CC revenue of the digital
business increased to 53.9% in Q1FY22 vs. 51.5% in Q4FY21. Core business declined
to 46.1% in Q1FY22.
• Infosys has raised FY22E constant currency revenue growth forecast to 14-16% from
12-14% earlier and operating margin guidance for FY22 continues to be in the range of
22-24%. Clients’ spending on new edge technologies could bring revenue generation
opportunity in the near term. However, in the longer term, we expect favourable
opportunity as enterprises accelerate their digital transformation initiatives and long
term potential in BFSI.
• Indian rupee appreciation against the USD, cross currency moves, pricing pressure,
retention of the skilled headcount, strict immigration norms and rise in visa costs are
key concerns.
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IT Pack
KPIT Ltd
(M Cap ₹8,312 Cr)
• KPIT Technologies Ltd is a global technology company, focused on automobile
engineering and mobility solutions. It specializes in embedded software, AI and digital
solutions, while it enables customers to accelerate implementation of next generation
mobility technologies. The company offers technology solutions to automobile
OEMs under different practices such as power trains (conventional and electrical),
connectivity, autonomous (vision and control systems) and diagnostics.
• KPIT expects significant improvement in revenue, led by new deal wins and increase
in offshore billing. The company derives most of its revenue (~70%) from innovative
technology areas such as Advanced Driver Assistant Systems (ADAS), EV, powertrain,
and infotainment, where we believe the opportunity size is quite large. With huge
innovation in electric vehicles and ADAS, we further believe the market opportunity is
large enough for multiple vendors to coexist and grow.
• KPIT is confident of sustaining its profitable growth momentum, going forward.
Higher utilization, pyramid rationalization, and cost optimization would help sustain
strong revenue and profitability growth. Moreover, the company plans to launch more
products, which would contribute to growth ahead. With efficiencies in revenue growth
and operations, the company’s operating and PAT margins are likely to improve further.
• With its niche offerings, strong position in automobile engineering, and mobility
solutions supported by established relationships with top global original equipment
manufacturers (OEMs), KPIT plans to launch more products, which could contribute
to growth, going forward. KPIT is well on its way to double-digit growth in FY22E and
FY23E, led by favorable demand in the mobility space and stability in the IT business.
Higher utilization, pyramid rationalization, and cost optimization could lead to strong
profitability growth and better return ratios.
• Delay in customer’s production programs, cyclical nature/ disruption in the automotive
industry, INR appreciation against the USD, pricing pressure, retention of the skilled
headcounts, and strict immigration norms are key concerns.
www.hdfcsec.com
Mastek Ltd
(M Cap ₹6,046 Cr)
• Mastek is an established technology player of vertically-focused enterprise technology
solutions. The company has wide portfolio includes business and technology services
comprising of Application Development, Application Maintenance, Business Intelligence
and Data Warehousing, Testing & Assurance and Legacy Modernisation.
• The company added 40 new clients in Q1FY22. Total client count as of 30th June,
2021 was 651 (LTM) as compared to 639 (LTM) in Q4FY21. 12 month order backlog
was Rs 1,177.7 crore ($158.4mn) as on 30th June, 2021 as compared to Rs 1,130.4 crore
($154.6mn) in Q4FY21, reflecting a growth of 4.2% in rupee terms and 2.1% in constant
currency terms on Q-o-Q basis and Rs 764.5 crore ($101.3mn) in Q1FY21, reflecting a
growth of 54.0% in rupee terms and 45.5% in constant currency terms on YoY basis.
• On February 8, 2020, Mastek Ltd acquired Evolutionary Systems Private Ltd (Evosys)
in a two-stage transaction at the total consideration of ~Rs. 680 crore. The ongoing
integration of Evosys and continued organic growth for Mastek ensured the expansion
of size and improvement in its profitability and scale. Further, the acquisition of
Evosys strengthened its addressable market in Middle East, US, Europe and the local
government of UK through cross-selling and up-selling of Mastek’s service offerings.
• The company expects to continue to deliver industry-leading growth, strengthening
global positioning, and expanding capabilities in Digital & Cloud. Growth in new logo
acquisition, increasing deal size, expansion of sales & marketing and market share
gains could drive revenues. Recent acquisition of Evosys’ could help to double its
revenues (from current ~20-25%) in the US, healthy order book, inorganic growth (led
by healthy cash balance).
• Any shift in customer preferences, priorities, and internal strategies can have an
adverse impact on the Company’s operations and outlook. Besides, INR appreciation
against the USD, pricing pressure, retention of the skilled headcounts, strict immigration
norms and rise in visa costs are key concerns.
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IT Pack
Sonata Software Ltd
(M Cap ₹8,991 Cr)
• Sonata provides IT consulting, product engineering services, application development,
application management, managed testing, business intelligence, infrastructure
management, packaged applications, and travel solutions to its customers across the
globe and the company also distributes and re-sells products from global technology
companies present in India.
• Sonata has 30 years of strong relationship with clients and has largest number of
products based on MS Dynamics. They have also done 3 acquisitions in Dynamics
space. Microsoft Dynamics, Cloud led digital services and Open Source Platformation
services will be key growth drivers. Management mentioned pipeline continues to be
healthy and strong through multiple new digital wins from existing and new customers.
Sonata also added 6 Fortune 500 clients FY21, reflecting strong sales ability.
• The company’s acquisition of Encore is expected to contribute US$3 million for quarter
and US$ 500,000 in EBITDA. Encore specialises in cloud apps and on premise app
modernisation. The acquisition will help the company in driving end to end cloud
services. Besides, with clear visibility and growing long term business opportunity,
the company is focused on investing for growth, in talent acquisition across the world,
building IP and competency development, investing in sustained brand building.
• With improved traction, Microsoft dynamics and improvement in demand for Sonata
Software’s travel client in H2FY22E, we expect FY22E to witness robust growth in
revenues. This, coupled with a revival in non-essential retail & manufacturing, will
further boost revenue growth.
• Any stake sale by promoter in near future (promoter holding 28.2% as on 30 June,
2021), large debt-funded acquisitions, INR appreciation against the USD, pricing
pressure, retention of the skilled headcount, strict immigration norms and rise in visa
costs are key concerns.
www.hdfcsec.com
TCS Ltd
(M Cap ₹1,233,243 Cr)
• Tata Consultancy Services Ltd (TCS), is a global IT services organization that provides
a comprehensive range of IT services to its clients in diverse industries like finance
and banking, insurance, telecommunication, transportation, retail, manufacturing,
pharmaceutical, and utility industries. TCS has a widespread geographical presence
across North America, Latin America, continental Europe, the UK, India, Asia Pacific,
West Asia and Africa.
• The company’s ability to offer full-service capability has helped to win deals across a
wide spectrum of verticals. The company has strong domain expertise and contextual
knowledge and has demonstrated its ability to structure and execute large-scale
projects globally. This has differentiated it in the market place, enabling it to continually
gain market share over its competitors.
• The company has a large, diversified and growing client base with meaningful
incremental addition of clients in the above $20-million, $50-million and $100-million
buckets. Its superior execution ability has resulted in high repeat business, thus
providing stability to the revenue stream. In Q1FY22, the company’s order book stood
at US$ 8.1bn with the largest deal of US$ 400mn and added 2 clients in US$ 100mn, 5
clients in US$ 50mn, 11 clients in US$ 20mn band, 23 in US$ 10mn, 22 clients in US$
5mn and 52 clients in USD 1mn band.
• TCS’s strong order book along with execution capabilities and upward traction across
the geography could support to report revenue and profitability growth. Additionally,
improved operating leverage and healthy balance sheet should provide further growth
visibility in upcoming quarters.
• Legislation to restrict outsourcing or restriction on immigration, large concentration in
BFSI vertical and Indian Rupee appreciation against the US$, pricing pressure are key
concerns.
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IT Pack

Tech Mahindra
(M Cap ₹128,219 Cr)

• Tech Mahindra has established capabilities across verticals – Communication and
Enterprise (Manufacturing, BFSI, Technology, Media and Entertainment (TME), Retail,
transport and logistics (RTL), healthcare etc.). Its leadership in communication vertical
could make it a key beneficiary of vendor consolidation in the segment. It would also
benefit from 5G, AI, digital, Cloud and Network Operation opportunities. Efficient
operations, cost optimization and delivery automation will be the key focus areas
going forward.
• Tech Mahindra is focused on leveraging next-generation technologies including
Blockchain, Cybersecurity, Artificial Intelligence, 5G and more, to disrupt and enable
digital transformation, and to build cutting-edge technology solutions and services.
Tech Mahindra could see improved spending on network operations, 5G, Cloud, AI and
customer experience on the communication side in the longer term. Tech Mahindra
also expects incremental opportunity in the automation and robotic process on the
enterprise side and it could drive overall revenues going forward.
• Tech Mahindra Ltd and IBM Corp. have partnered to jointly develop solutions for clients
and Tech Mahindra is expecting to generate US$1 bn in revenue jointly over the next
three years. The two companies have been in a global partnership for more than two
decades, will work on five strategic focus areas comprising 5G, automation, hybrid
cloud, cyber security, data and artificial intelligence (AI). The companies will also co-
invest in centres of excellence and innovation centres in India, south Asia, and the US.
• Tech Mahindra’s presence in a highly competitive industry leads to pricing pressure,
deal re-negotiations and deferrals and hence can impact company’s growth and
profitability. Besides, Indian rupee appreciation against the USD, pricing pressure,
retention of the skilled headcount, strict immigration norms and rise in visa costs are
key concerns.

• Total net new TCV stood at USD815m, of which USD463m/USD352m was in Enterprise/
Communications. Deal wins have been higher than the average run rate of USD400-
500mn.The Company has strong deal pipeline, focus on large deal wins, traction in
5G spend (on communication & enterprise side). Revival of growth in manufacturing,
acceleration in Europe and cloud is expected to drive revenues. The company indicated
strong deal momentum in Q1FY22, led by a strong deal pipeline, and likely to report
a low double-digit growth in FY22, with double digit growth in enterprise and high
single-digit growth in Communications.

www.hdfcsec.com 6
IT Pack
Wipro Ltd
(M Cap ₹330,865 Cr)
• Wipro is one of the leading global IT, consulting and business process services
company. The company’s key service offerings under IT Services (contributed
97% revenues in FY21) includes digital strategy advisory, customer-centric design,
technology consulting, IT consulting, custom application design, development, re-
engineering and maintenance, systems integration, package implementation, cloud
infrastructure services, analytics services, business process services.
• Wipro has a long track record and established position in the Indian IT services industry.
It caters to clients across various sectors such as BFSI (contributing 30.7% to revenues
in FY21), Consumer (~16.4%), Health (~13.5%), Energy, Natural resources & Utilities
(~13.1%) etc. and across service lines such as modern application services, cloud and
infrastructure services, digital operations and platforms.
• Restructuring of organisation, client mining, higher penetration in Europe, acquisition
of new logos and traction in digital revenues to further boost revenue growth.
• Strong order book, robust growth across segments, new deals and acquisition should
drive growth in upcoming quarters. However, we expect margins to remain under
pressure, with expenses expected to rise in the near-term. However, the company’s
long term outlook looks promising on the back of strong order book, new acquisition
deals along with strong execution capabilities and broad-based growth across
geographies.
• Indian rupee appreciation against the USD, cross currency moves, pricing pressure,
retention of the skilled headcount, strict immigration norms and rise in visa costs are
key concerns.
www.hdfcsec.com
Zensar Tech Ltd
(M Cap ₹9,066 Cr)
• Zensar’s primary business involves providing digital and technology solutions to
global customers. It is engaged in key business verticals like high-tech manufacturing,
infrastructure and BFSI. The company intends to continue its focus on cloud and digital
transformation and has been targeting on improving its deal pipeline.
• The company is currently managed by a new CEO and the company is focusing on
improving client mining, new logo addition and driving sustainable & profitable growth.
This coupled with investment in sales, leadership and tuck-in acquisition to build
capability bodes well for long term revenue growth.
• Over FY15-21, the company acquired six companies to build its digital capabilities. It has
made two acquisitions in the digital customer experience (Foolpoof and Indigo Slate)
while the two other companies, Keystone Logistic Solution and Professional Access,
were acquired to strengthen its Oracle practice. Also, the acquisition of Cynosure was
aimed at strengthening its Guidewire Implementation Services. Recently acquired M3bi
is in data engineering, analytics, artificial intelligence/machine learning and advanced
engineering services.
• Momentum in deal wins continued as the company booked orders worth $96 Mn while
book-to-bill stood low at 0.8x. ~50% of the pipeline is in large deals and the company
is seeing momentum in Hi-Tech, BFSI, and DFS. Driving deal momentum, annuity
revenues, increasing investment in sales & talent, leadership and tuck in acquisition to
build capability bode well for long term revenue growth.
• The company historically has mainly grown on the back of acquisitions. In case it
is unable to turn around, any acquisition can impact the margins in the near term.
Besides. INR appreciation against the USD, pricing pressure, retention of the skilled
headcount, strict immigration norms and rise in visa costs are key concerns.
7
IT Pack

Price Chart

Stock Analyst Educational Qualification Holding

HCL Technologies Abdul Karim MBA No
Infosys Abdul Karim MBA No
KPIT Technologi. Abdul Karim MBA No
Mastek Abdul Karim MBA No
Sonata Software Abdul Karim MBA Yes
TCS Abdul Karim MBA No
Tech Mahindra Abdul Karim MBA No
Wipro Abdul Karim MBA No
Zensar Tech. Abdul Karim MBA No
HCL Technologies Abdul Karim MBA No

www.hdfcsec.com 8
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