20 July 2007

Research - India
Global Equity

Sector: IT Services
R Ravi
ravir@karvy.com

Wipro (Rs505) Out Performer

Sequentially the growth should improve Target Price: Rs610
Wipro for Q1FY08 reported a sequential growth in its global IT revenues (including ITES) by 3.5% to US$726mn, and
exceeded the guidance by US$15mn, but on account of rupee appreciation it was down by 3.2% over Q4FY07. As
expected the balance 30% of revenues which is accounted by infotech, consumer and other businesses reported a flat
1QFY2008 Results Review

to modest decline. As 70% of the revenues declined by 3.2% sequentially in INR terms and none of the other revenue
streams producing any serious growth pulled the total revenues to dip by 3.2% QoQ. The acquisitions consummated
over the last 2 years, were reported separately till Q4FY08, as the acquisitions have been completely integrated into
the global IT business and into infotech businesses from the current fiscal, and there were no acquisition led revenues
which were separately shown. Besides, segmental information of the previous quarters (of the acquired companies)
has been accordingly reclassified on a comparable basis.
The growth in global IT revenues were led by 6.5% sequential increase in volumes – which was primarily led by
steeply enhanced by utilization rates (from 63% in Q4 to 68% in Q1), and the billing rates were surprisingly flat at the
last quarter levels. Wipro has managed to maintain the client addition momentum and the total number of active
clients at the end of Q1 was 647 as against 620 in Q4, though the net client additions were just 5. Across all revenue
run rate categories Wipro has managed to improve the number of clients and in the US$50mn category it has cur-
rently 10 odd clients as against 5 in the previous quarter. Against this back drop Wipro has guided US$777mn in global
IT revenues implying sequential growth of 7.2%, and in INR terms we expect the growth to hover around 5.6%.
Q1FY07 Q4FY07 Q1FY08 QoQ growth YoY growth
IT revenues 22,407 27,844 26,984 (3.1) 20.4
ITES revenues 2,098 2,636 2,515 (4.6) 19.9
Other revenues 7,136 12,851 12,534 (2.5) 75.6
Total revenues 31,641 43,331 42,033 (3.0) 32.8
Operating expenses 23,858 34,430 33,939 (1.4) 42.3
Operating profit 7,783 8,901 8,094 (9.1) 4.0
Operating margin 24.6 20.5 19.3 - -
Other income 291 1,447 1,243 (14.1) 327.1
Depreciation 894 1,092 1,176 7.7 31.5
Interest 0.0 0.0 0.0 - -
Provisions 0.0 0.0 0.0 - -
Pre-tax profit 7,180 9,256 8,161 (11.8) 13.7
Prov for taxation 1,041 746 1,005 34.7 (3.5)
Effective tax rate 14.5 8.1 12.3 - -
Adjusted net Profit 6,139 8,510 7,156 (15.9) 16.6
Add Extra ordinaries 65.0 51.0 100.0 - -
Reported net profit 6,204 8,561 7,256 (15.2) 17.0

Wipro
Y/E March (Rs Mn) FY05 FY06 FY07 FY08E FY09E
Reuters/Bloomberg Code WIPR.BO/WPRO IN Revenues 81,697 106,258 150,224 184,793 230,836
Market Cap (Rs bn) 736.8 Operating profit 20,405 25,543 34,004 41,579 51,707
Market Cap (US$ bn) 18.2 Net profit 16,268 20,676 29,421 35,292 42,843
Share holding pattern 1,459.0 EPS (Rs) 10.9 13.7 19.6 23.5 28.6
52 Week - Hi/Low (Rs) 690/441 EPS growth 56.4 25.9 42.8 20.3 21.7
Operating margin 25.0 24.0 22.6 22.5 22.4
Share holding pattern PER 46.4 36.9 25.8 21.5 17.7
Promoters 81.4 PCF 49.3 45.3 30.4 26.7 22.3
FIIs 4.7 Mcap/Sales 9.0 6.9 4.9 4.0 3.2
ADRs 1.5 EV/EBITDA 35.1 27.7 20.6 16.5 13.2
Banks/FIs/MFs 2.6 Return on equity 30.7 30.9 30.3 26.3 26.5
Public 9.8 Return on cap employed 35.8 36.0 34.4 30.3 31.0
Dividend yield 1.0 1.0 1.2 1.6 2.0
Source: Company and Karvy Estimates
In US$ terms the revenues would grow at a healthy pace – as it announced US$130mn contract win
from an European utilities company. Besides it also won a multi-service deal from US based auto
chain and multi-country ERP implementation from global technology company. We have modestly
downgraded the revenues and profitability, as the impact of the rupee appreciation has an immedi-
ate blow on the profitability. If the company is able to get 4 – 5% billing rate increase which is what
it is expecting from the customers, then by the EOY Wipro could end up reporting 5 – 7% higher in
earnings, than what we are currently projecting.

Going forward – the accounting treatment to forex contracts are likely to be changed: Wipro
has designated forward contracts and options to hedge probably forecasted transactions based on
the principles set out in IAS -39 (international accounting standards) on financial instruments. Until
FY2007 the exchange differences on the forward contracts and gain or loss on such options were
recognized in the P&L account. The effect of mark to market of the designated contracts and the
premium/discount at inception of such forward contracts were amortized over the life of the con-
tract. However effective from Q1FY08 based on the recognition and measurement principles set out
in the Exposure Draft of the proposed AS – 30 on financial instruments. Under recognition and
measurement the changes in the derivative fair values relating to the forward contracts and options
that are designated as effective cash flow hedges of Rs350mn has been recognized directly in share
holders funds by adding to the reserves and surplus. Upon occurrence of the hedged transaction, the
amount recognized in the share holder’s funds would be reclassified into the P&L account. As a
result share holders funds and loans and advances have increased by Rs350mn.

Since the company changed the accounting treatment for treating foreign exchange gains, there
were no treasury gains and all the other income accrued on account dividends and interests. How-
ever steep increase in depreciation and taxation pulled the net profit down by 16% sequentially. This
led to a steep fall the return ratios for the quarter. Going forward we expect the company post much
better set of numbers, with earnings improving by 6% for Q2F08 and 13% and 10% for Q3 and Q4
of the current fiscal. The company has goodwill of Rs7.8bn (which is roughly one quarterly profits),
which we don’t expect to be written off, as goodwill arising on consolidation or acquisition of assets
is not amortized, as it is tested for impairment on a periodic basis and written off if found impaired.

Over the years it has built an excellent technology practice by offering a wide range of services across
diverse verticals. Over the last three years it has aggressively bid of system integration projects, IT
infrastructure management and after entering ITES space in the voice segment – it is now focusing
on the transaction processing segment. In the process – Wipro’s business model has become more
complex and its strategy of expanding offerings would lead to margin expansion. We though fear
that in-organic growth initiatives could increase the operational risk in the short term, but over the
medium term if the company successfully consummates it – it leads to deeper penetration of newer
geography at a much quicker time. The company’s growth would led by organic an in-organic growth
initiatives – which would lead to superior stock performance. Despite the stock rallying post the
results we expect the stock to give 20% returns from the current level. Besides the “strings of pearl”
strategy would be followed whereby it is likely to acquire quite a few companies from the continen-
tal Europe. We continue to maintain our Out Performer rating on the stock.

2
SEGMENTAL REPORTING Q1FY07 Q2FY07 Q3FY07 Q4FY07 FY2007 Q1FY08 Q2FY08E
IT revenues 22,407.0 24,906.0 26,397.0 27,844.0 101,554.0 26,984.0 28,791.8
ITES revenues 2,097.6 2,299.0 2,358.3 2,636.0 9,390.9 2,515.0 2,365.9
Global IT revenues 24,504.6 27,205.0 28,755.3 30,480.0 110,944.9 29,499.0 31,157.7
% to total revenues 77.4% 76.7% 72.3% 70.3% 73.9% 70.2% 70.1%
Infotech revenues 4,564.0 5,426.0 7,008.0 7,837.0 24,835.0 7,501.0 8,450.0
Cons & Light revenues 1,768.0 2,025.0 2,114.0 2,275.0 8,182.0 2,350.0 2,410.0
Misc & Others revenues 804.0 806.0 1,913.0 2,739.0 6,262.0 2,683.0 2,450.0
Total revenues 31,640.6 35,462.0 39,790.3 43,331.0 150,223.9 42,033.0 44,467.7

PBIT of IT revenues 5,594.0 6,113.0 6,410.0 6,665.0 24,782.0 5,788.0 6,219.0

PBIT of ITES revenues 426.0 526.0 554.0 651.0 2,157.0 574.0 532.3
PBIT of Global IT revenues 6,020.0 6,639.0 6,964.0 7,316.0 26,939.0 6,362.0 6,751.4
% to total PBIT 90.2% 89.1% 88.4% 87.0% 88.6% 87.2% 86.2%
PBIT of infotech revenues 353.0 468.0 587.0 731.0 2,139.0 567.0 718.3
PBIT of Cons & light revenues 231.0 246.0 262.0 267.0 1,006.0 305.0 310.9
PBIT of Misc revenues 69.0 95.0 66.0 92.0 322.0 59.0 53.9
Total PBIT 6,673.0 7,448.0 7,879.0 8,406.0 30,406.0 7,293.0 7,834.4

PBIT Margin of IT 25.0% 24.5% 24.3% 23.9% 24.4% 21.4% 21.6%

PBIT Margin of ITES 20.3% 22.9% 23.5% 24.7% 23.0% 22.8% 22.5%
PBIT Margin of infotech 7.7% 8.6% 8.4% 9.3% 8.6% 7.6% 8.5%
PBIT Margin of consumer 13.1% 12.1% 12.4% 11.7% 12.3% 13.0% 12.9%
PBIT Margin of misc 8.6% 11.8% 3.5% 3.4% 5.1% 2.2% 2.2%
Overall PBIT margins 21.1% 21.0% 19.8% 19.4% 20.2% 17.4% 17.6%

Break up of capital employed

On IT + ITES business 39,980.0 38,232.0 41,549.0 48,947.0 48,947.0 47,087.0
On Infotech business 3,211.0 2,372.0 4,287.0 5,363.0 5,363.0 7,097.0
On consumber business 2,181.0 2,488.0 2,573.0 2,957.0 2,957.0 2,825.0
On misc & other businesses 29,894.0 40,663.0 46,800.0 42,584.0 42,584.0 46,666.0
Total capital employed 75,266.0 83,755.0 95,209.0 99,851.0 99,851.0 103,675.0

Mix of capital employed

On IT + ITES business 53.1% 45.6% 43.6% 49.0% 49.0% 45.4%
On Infotech business 4.3% 2.8% 4.5% 5.4% 5.4% 6.8%
On consumber business 2.9% 3.0% 2.7% 3.0% 3.0% 2.7%
On misc & other businesses 39.7% 48.5% 49.2% 42.6% 42.6% 45.0%

Return on capital employed

On IT + ITES business 60.2% 69.5% 67.0% 59.8% 55.0% 54.0%
On Infotech business 44.0% 78.9% 54.8% 54.5% 39.9% 32.0%
On consumber business 42.4% 39.5% 40.7% 36.1% 34.0% 43.2%
On misc & other businesses 0.9% 0.9% 0.6% 0.9% 0.8% 0.5%
Return on cap employed 35.5% 35.6% 33.1% 33.7% 30.5% 28.1%

3
WIPRO Limited Q1FY07 Q2FY07 Q3FY07 Q4FY07 FY2007 Q1FY08 Q2FY08E
Employees in IT 40,496 45,824 49,313 50,354 46,497 53,073 57,873
Employees in ITES 15,939 15,355 16,863 17,464 16,405 19,064 20,964
Employees in IT + ITES 56,435 61,179 66,176 67,818 62,902 72,137 78,837
Man-months available 112,472 126,911 143,503 149,285 532,171 148,640 156,893
- Offshore 80,538 90,861 103,974 106,098 381,471 100,629 105,500
- Onsite 24,380 27,059 29,617 31,064 112,120 33,218 35,100
- Support 7,554 8,991 9,912 12,123 38,580 14,793 16,293
Man-months billed 75,345 81,261 88,825 93,579 339,010 99,678 106,706
- Offshore 52,184 55,555 60,689 64,068 232,496 68,121 73,571
- Onsite 23,161 25,706 28,136 29,511 106,514 31,557 33,135
Capacity Utilisation 67.0% 64.0% 61.9% 62.7% 63.7% 67.1% 68.0%

Onsite billing rate (US$) 62.4 62.4 62.6 63.9 62.8 63.6 64.0
Offshore billing rate (US$) 24.2 24.2 23.8 23.9 24.0 23.9 24.3
QoQ Rs/US$ Rates 46.10 45.92 44.25 43.52 44.95 41.90 40.10
(App)/Dep 2.4% -0.4% -3.6% -1.6% -3.7% -4.3%
IT Revenues (US$ Mn) 486.1 542.4 596.5 639.8 2,264.8 664.5 718.0
ITES Revenues (US$ Mn) 45.5 50.1 53.3 60.6 209.4 60.0 59.0
Global IT Revenues 531.6 592.4 649.8 700.4 2,474.2 724.6 777.0
QoQ growth in USD terms 3.3% 11.5% 9.7% 7.8% 3.5% 7.2%

FPP revenues 4,907.1 5,628.8 5,780.9 6,209.2 22,526.0 6,638.1 7,255.5

Percent to IT revenues 21.9% 22.6% 21.9% 22.3% 22.2% 24.6% 25.2%
T&M revenues 17,499.9 19,277.2 20,616.1 21,634.8 79,028.0 20,345.9 21,536.3
Percent to IT revenues 78.1% 77.4% 78.1% 77.7% 77.8% 75.4% 74.8%
Onsite revenues 11,965.3 13,673.4 14,492.0 15,230.7 55,361.4 14,895.2 15,950.7
Percent to IT revenues 53.4% 54.9% 54.9% 54.7% 54.5% 55.2% 55.4%
Offshore revenues 10,441.7 11,232.6 11,905.0 12,613.3 46,192.6 12,088.8 12,841.1
Percent to IT revenues 46.6% 45.1% 45.1% 45.3% 45.5% 44.8% 44.6%
IT revenues 22,407.0 24,906.0 26,397.0 27,844.0 101,554.0 26,984.0 28,791.8
ITES revenues 2,097.6 2,299.0 2,358.3 2,636.0 9,390.9 2,515.0 2,365.9
Global IT revenues 24,504.6 27,205.0 28,755.3 30,480.0 110,944.9 29,499.0 31,157.7
QoQ growth 5.8% 11.0% 5.7% 6.0% -3.2% 5.6%
Infotech revenues 4,564.0 5,426.0 7,008.0 7,837.0 24,835.0 7,501.0 8,450.0
Cons & Light revenues 1,768.0 2,025.0 2,114.0 2,275.0 8,182.0 2,350.0 2,410.0
Misc & Others revenues 804.0 806.0 1,913.0 2,739.0 6,262.0 2,683.0 2,450.0
Total revenues 31,640.6 35,462.0 39,790.3 43,331.0 150,223.9 42,033.0 44,467.7
QoQ growth 1.6% 12.1% 12.2% 8.9% -3.0% 5.8%

Purchases of raw material 4,307.0 5,177.0 7,371.0 7,389.0 24,244.0 7,297.0 7,410.0
Salaries & bonuses 14,832.0 16,908.0 18,148.0 20,028.0 69,916.0 20,159.0 21,570.1
Travelling & conveyance 1,531.0 1,595.0 1,987.0 1,670.0 6,783.0 1,590.0 1,650.0
Admn & selling expenses 3,188.0 3,351.0 3,395.0 5,343.0 15,277.0 4,893.0 5,210.0
Operating expenses 23,858.0 27,031.0 30,901.0 34,430.0 116,220.0 33,939.0 35,840.1
Operating profit 7,782.6 8,431.0 8,889.3 8,901.0 34,003.9 8,094.0 8,627.6
QoQ growth 3.9% 8.3% 5.4% 0.1% -9.1% 6.6%
Operating margins 24.6% 23.8% 22.3% 20.5% 22.6% 19.3% 19.4%
Treasury income 291.0 512.0 713.0 1,447.0 2,963.0 1,243.0 1,310.0
Depreciation 894.0 983.0 1,010.0 1,092.0 3,979.0 1,176.0 1,270.0
Interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Prov for debtors/invest 0.0 0.0 0.0 0.0 0.0 0.0 0.0

4
Pre-tax profit 7,179.6 7,960.0 8,592.3 9,256.0 32,987.9 8,161.0 8,667.6
QoQ growth 1.0% 10.9% 7.9% 7.7% -11.8% 6.2%
Prov for taxation 1,041.0 1,049.8 1,031.0 746.0 3,867.8 1,005.0 1,083.4
Effective tax rate 14.5% 13.2% 12.0% 8.1% 11.7% 12.3% 12.5%
Adjusted net profit 6,138.6 6,910.2 7,561.3 8,510.0 29,120.1 7,156.0 7,584.1
QoQ growth 0.2% 12.6% 9.4% 12.5% -15.9% 6.0%
Net margin 19.2% 19.2% 18.7% 19.0% 16.5% 16.6%
Add/(Less) Extra ordinaries 65.0 92.0 93.0 51.0 301.0 100.0 92.0
Reported net profit 6,203.6 7,002.2 7,654.3 8,561.0 29,421.1 7,256.0 7,676.1
Shares Out (Mn) (EOY) 1,431.90 1,434.57 1,439.57 1,459.00 1,459.000 1,459.00 1,459.00
Shares Out (Mn) (FD) 1,459.0 1,459.0 1,459.0 1,459.0 1,459.0 1,459.0 1,459.0
Earnings/Share (Rs) 4.2 4.7 5.2 5.8 20.0 4.9 5.2

CLIENT CONCENTRATION Q1FY07 Q2FY07 Q3FY07 Q4FY07 FY2007 Q1FY08 Q2FY08E

Active clients 580 612 606 620 620 647 668
Gross client additions 86 54 37 20 197 27 25
Net client additions 62 32 (6) 6 94 22 21
Clients lost/unbillied 24 22 43 14 103 5 4

REVENUE RUN RATE Q1FY07 Q2FY07 Q3FY07 Q4FY07 FY2007 Q1FY08 Q2FY08E
Clients with US$1mn 233 243 253 262 262 281 296
Clients with US$1 - 3mn 104 104 107 117 117 126 134
Clients with US$3 - 5mn 35 37 45 37 37 44 50
Clients with US$5 - 10mn 36 37 31 35 35 34 34
Clients with US$10 - 20mn 26 30 31 33 33 36 36
Clients with > 20mn 32 35 39 40 40 31 34
Clients with > 50mn 5 5 5 8 8 10 11

Q1FY07 Q2FY07 Q3FY07 Q4FY07 FY2007 Q1FY08 Q2FY08E

Revenues from top client 857.7 897.8 920.2 914.4 3,590.0 914.5 997.0
QoQ growth 8.9% 4.7% 2.5% -0.6% 0.0% 9.0%
% from top client 3.5% 3.3% 3.2% 3.0% 3.2% 3.1% 3.2%
Revenues from top 5 clients 3,675.7 3,917.5 4,112.0 4,267.2 15,972.4 4,011.9 4,268.6
QoQ growth 7.9% 6.6% 5.0% 3.8% -6.0% 6.4%
% from top 5 clients 15.0% 14.4% 14.3% 14.0% 14.4% 13.6% 13.7%
Revenues from top 10 clients 6,346.7 6,719.6 7,045.0 7,345.7 27,457.1 7,109.3 7,571.3
QoQ growth 4.9% 5.9% 4.8% 4.3% -3.2% 6.5%
% from top 10 clients 25.9% 24.7% 24.5% 24.1% 24.7% 24.1% 24.3%

REVENUES BY GEOGRAPHY Q1FY07 Q2FY07 Q3FY07 Q4FY07 FY2007 Q1FY08 Q2FY08E

North America 15,903.5 17,601.6 18,288.4 19,446.2 71,239.7 19,174.4 20,159.0
QoQ growth 6.6% 10.7% 3.9% 6.3% -1.4% 5.1%
% to Global IT revenues 64.9% 64.7% 63.6% 63.8% 64.2% 65.0% 64.7%
Europe 7,498.4 8,188.7 9,086.7 9,479.3 34,253.1 8,908.7 9,503.1
QoQ growth 4.4% 9.2% 11.0% 4.3% -6.0% 6.7%
% to Global IT revenues 30.6% 30.1% 31.6% 31.1% 30.9% 30.2% 30.5%
Japan 784.1 1,006.6 948.9 975.4 3,715.0 826.0 903.6
QoQ growth -13.2% 0.0% 0.0% 0.0% -15.3% 9.4%
% to Global IT revenues 3.2% 3.7% 3.3% 3.2% 3.3% 2.8% 2.9%
Rest of World 318.6 408.1 431.3 579.1 1,737.1 590.0 592.0
QoQ growth 96.4% 28.1% 5.7% 34.3% 1.9% 0.3%
% to Global IT revenues 1.3% 1.5% 1.5% 1.9% 1.6% 2.0% 1.9%

5
REVENUE BY VERTICALS Q1FY07 Q2FY07 Q3FY07 Q4FY07 FY2007 Q1FY08 Q2FY08E
Product Engg services 7,130.8 7,835.0 7,907.7 8,077.2 30,950.8 7,463.2 7,882.9
QoQ growth -0.7% 9.9% 0.9% 2.1% -7.6% 5.6%
% to Global IT revenues 29.1% 28.8% 27.5% 26.5% 27.9% 25.3% 25.3%
Telecom service providers 1,715.3 1,849.9 1,897.8 2,011.7 7,474.8 2,212.4 2,274.5
QoQ growth 15.7% 7.8% 2.6% 6.0% 10.0% 2.8%
% to Global IT revenues 7.0% 6.8% 6.6% 6.6% 6.7% 7.5% 7.3%
Banking & finance 5,489.0 6,148.3 6,527.5 6,979.9 25,144.7 7,020.8 7,353.2
QoQ growth 5.8% 12.0% 6.2% 6.9% 0.6% 4.7%
% to Global IT revenues 22.4% 22.6% 22.7% 22.9% 22.7% 23.8% 23.6%
Retail 2,058.4 2,638.9 2,789.3 3,048.0 10,534.5 2,861.4 2,991.1
QoQ growth 3.3% 28.2% 5.7% 9.3% -6.1% 4.5%
% to Global IT revenues 8.4% 9.7% 9.7% 10.0% 9.5% 9.7% 9.6%
Energy & Utilities 2,229.9 2,176.4 2,818.0 3,139.4 10,363.8 2,772.9 2,960.0
QoQ growth -10.9% -2.4% 29.5% 11.4% -11.7% 6.7%
% to Global IT revenues 9.1% 8.0% 9.8% 10.3% 9.3% 9.4% 9.5%
Manufacturing 2,278.9 2,475.7 2,588.0 2,834.6 10,177.2 2,831.9 3,022.3
QoQ growth -0.7% 8.6% 4.5% 9.5% -0.1% 6.7%
% to Global IT revenues 9.3% 9.1% 9.0% 9.3% 9.2% 9.6% 9.7%
Technology & Transport 2,818.0 3,210.2 3,335.6 3,413.8 12,777.6 3,421.9 3,676.6
QoQ growth 33.6% 13.9% 3.9% 2.3% 0.2% 7.4%
% to Global IT revenues 11.5% 11.8% 11.6% 11.2% 11.5% 11.6% 11.8%
Healthcare 784.1 870.6 891.4 975.4 3,521.5 914.5 997.0
QoQ growth 88.0% 11.0% 2.4% 9.4% -6.2% 9.0%
% to Global IT revenues 3.2% 3.2% 3.1% 3.2% 3.2% 3.1% 3.2%
Technology business 8,846.2 9,685.0 9,805.6 10,088.9 38,425.6 9,675.7 10,157.4
QoQ growth 2.1% 9.5% 1.2% 2.9% -4.1% 5.0%
% to Global IT revenues 36.1% 35.6% 34.1% 33.1% 34.6% 32.8% 32.6%
Enterprise business 15,658.4 17,520.0 18,949.7 20,391.1 72,519.3 19,823.3 21,000.3
QoQ growth 8.0% 11.9% 8.2% 7.6% -2.8% 5.9%
% to Global IT revenues 63.9% 64.4% 65.9% 66.9% 65.4% 67.2% 67.4%

6
Profit & loss statement Balance sheet
(Rs mn) FY2005 FY2006 FY2007 FY2008E FY2009E FY2005 FY2006 FY2007 FY2008E FY2009E
Global IT revenues 54,244 73,011 101,554 122,625 151,344 Equity capital 1,407 2,852 2,918 2,978 2,978
ITES revenues 6,510 7,649 9,391 10,398 12,201 Reserves & surplus 51,407 63,202 93,042 129,922 157,875
IT + ITES revenues 60,753 80,660 110,945 133,023 163,545 Shareholders funds 52,814 66,054 95,960 132,900 160,853
% to total revenues 74.4 75.9 73.9 72.0 70.8 Minority interest 265 - 29 58 77
Revenues from Infotech 13,964 17,049 24,835 34,272 46,268 Capital Employed 53,079 66,054 95,989 132,958 160,930
Rev from Cons & Lighting 4,723 6,008 8,182 10,391 12,885 Gross block 20,900 24,816 37,287 65,894 98,189
Misc revenues 2,257 2,541 6,262 7,107 8,138 Depreciation 9,952 12,911 18,993 23,772 29,501
Total revenues 81,697 106,258 150,224 184,793 230,836 Net block 10,948 11,905 18,294 42,122 68,688
YoY growth 39.2 30.1 41.4 23.0 24.9 Capital WIP 2,604 6,250 10,191 11,500 5,200
Raw material & other exp 13,550 16,189 24,244 29,937 37,626 Goodwill 5,663 3,528 9,477 9,477 9,477
Salaries & Bonuses 34,020 48,649 69,916 87,223 109,878 Investments 23,505 30,812 33,249 40,749 44,249
Travelling & Communications 5,709 5,254 6,783 7,946 9,464 Inventory 1,747 2,065 4,150 5,750 8,200
Admn & selling expenses 8,014 10,623 15,277 18,110 22,160 Sundry debtors 15,717 21,272 29,391 38,499 46,808
Operating expenses 61,293 80,715 116,220 143,215 179,128 Cash & bank 5,713 8,858 19,822 26,627 30,831
Operating Profit 20,405 25,543 34,004 41,579 51,707 Loans & advances 5,629 12,818 16,387 20,587 25,787
YoY growth 57.3 25.2 33.1 22.3 24.4 Current Assets Loans & Adv 28,806 45,013 69,750 91,463 111,627
Operating margin 25.0 24.0 22.6 22.5 22.4 Sundry Creditors 3,743 4,146 7,060 10,460 13,560
Other income 1,028 1,272 2,963 3,450 3,850 Other liabilities 9,264 14,381 26,607 34,500 43,200
Interest 29.4 0.0 0.0 0.0 0.0 Provision for dividend 4,011 8,129 1,978 6,969 8,711
Depreciation 2,457 3,036 3,979 4,779 5,729 Provision for taxes - 2,520 3,141 2,616 3,613
Pre-tax profits 18,947 23,779 32,988 40,250 49,828 Other provisions 1,303 2,114 2,949 4,128 5,307
YoY growth 57.4 25.5 38.7 22.0 23.8 Short term loans 621 758 3,827 4,250 4,500
Provision for tax 2,749 3,391 3,868 5,232 7,225 Current Liab & Provisions 18,942 32,048 45,562 62,923 78,890
Effective tax rate 14.5 14.3 11.7 13.0 14.5 Net current assets 9,865 12,965 24,188 28,540 32,736
Adjusted Net Profit 16,197 20,389 29,120 35,017 42,603 Deffered Tax Assets 495 594 590 570 580
YoY Growth 56.4 25.9 42.8 20.3 21.7 Capital Deployed 53,079 66,054 95,989 132,958 160,930
Net Margin 19.6 19.0 19.0 18.6 18.2
Extra ordinaries 70.6 287.0 301.0 275.0 240.0
Reported Net Profit 16,268 20,676 29,421 35,292 42,843
EPS (Rs) 10.9 13.7 19.6 23.5 28.6
YoY growth 56.4 25.9 42.8 20.3 21.7
DPS (Rs) 4.9 5.0 6.0 8.0 10.0
Dividend payout 21.4 34.5 29.6 33.8 34.8

Ratios
(Rs mn) FY2005 FY2006 FY2007 FY2008E FY2009E
ROCE (%) 35.8 36.0 34.4 30.3 31.0
ROCE (%) (after adjusting for cash) 40.1 41.6 43.3 37.9 38.3
ROE (%) 30.7 30.9 30.3 26.3 26.5
Operating ROCE 38.4 38.7 35.4 31.3 32.1
Fixed assets turnover ratio (x) 6.0 5.9 5.3 3.4 3.1
Total assets turnover ratio (x) 1.5 1.6 1.6 1.4 1.4
Avg. collection period (Days) 69 72 70 75 73
Cash & bank/share (Rs) 19.6 26.6 35.6 45.2 50.4
Cash & bank/Capital employed (%) 55.0 60.1 55.3 50.7 46.7
Cash & Bank/Revenues (%) 35.8 37.3 35.3 36.5 32.5
Cash & Bank/Op Expenses (%) 47.7 49.1 45.7 47.0 41.9
Other inc/pre-tax (%) 5.4 5.3 9.0 8.6 7.7
Gross margin (%) 41.8 39.0 37.3 36.6 36.1
Operating margin (%) 25.0 24.0 22.6 22.5 22.4
Pre-tax margin (%) 22.9 22.1 21.5 21.4 21.2
Net margin (%) 19.6 19.0 19.0 18.6 18.2

7
Research Desk (Tel: 91-22-22895000)
Hemindra Hazari Head of Research hemindra.hazari@karvy.com

Institutional Sales (Tel: 91-22-22895000)

N Subramaniam Head of Institutional Sales n.subramaniam@karvy.com

Stock Ratings Absolute Returns Stock Ratings Absolute Returns

Buy : > 25% Market Performer : 0 - 15%
Out Performer : 16 - 25% Under Performer : < 0%

Disclaimer
The information and views presented in this report are prepared by Karvy Stock Broking Limited. The information contained herein is based on our analysis and up on
sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not
responsible for any loss incurred based upon it.
The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific
investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this
report, investors may please note that neither Karvy nor any person connected with any associated companies of Karvy accepts any liability arising from the use of this
information and views mentioned in this document.
The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above-mentioned companies from time to time. Every employee of
Karvy and its associated companies are required to disclose their individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate
analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has
been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Stock Broking Ltd.

Karvy Stock Broking Limited

Regd Off : 46, Road No 4, Street No 1, Banjara Hills, Hyderabad – 500 034. Tel: 040-23351988, 23354283.
8