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INDIAN SOFTWARE & IT SERVICES
Adjusting to the new normal; initiate coverage
We initiate coverage of the Asia ex-Japan Software & IT services sector with a
2-Neutral view. For the Indian IT companies we bring under coverage, we assign
ratings of 1-Overweight on Infosys (PT INR3,050, +24% potential upside) and HCL
Tech (PT INR485, +23%), 2-Equal Weight on Tata Consultancy (PT INR1,150, +10%)
and 3-Underweight on Wipro (PT INR340, +4%).
The “new normal” of growth: Compared with typical 30-40% revenue CAGR in the
previous cycle (2003-07), growth rates over the next five years could be in the high
teens for the large Indian IT vendors. Growth will likely be driven by: 1) increased
outsourcing as customers seek a more flexible cost model; 2) limited availability of
technical staff in the developed world; and 3) a shift to new business models led by
themes of cloud, mobility and social networking, among others.
Assuming weak economies but not a recession: Indian IT vendors generate more than
90% of revenues from the developed world, hence the health of these economies is
important for the health of the sector. While we accept that current economic uncertainty
limits visibility, our economists argue that uncertainty is unlikely to turn into recession.
CIO survey indicates reasonable growth in 2012: A survey of 100 CIOs by Barclays
Capital’s technology team indicates expectations for low single-digit y/y growth (1.8%
y/y) in overall tech budgets in 2011 and 2012. Recent results from Accenture and
Oracle also suggest the uncertainty has failed to impact software and services spend.
Uncertainty takes its toll on sector multiples: Uncertainty in the global macro
environment is reflected in share prices of Indian IT companies. While cuts in consensus
earnings estimates have been modest (the worst so far is a drop of 8% for Infosys),
multiples have compressed as investors worry about future growth. Despite our comfort
with high-teens revenue and EPS CAGR for large Indian IT vendors for the next five years,
we believe valuation multiples could remain depressed in the current environment.
Infosys and HCL Tech 1-OW; Tata Consultancy 2-EW; Wipro 3-UW: A significant
decline in revenue from one client of Infosys (1-OW) has led to low expectations and
hence a return to reasonable valuations (15.6x 12-month forward P/E). We believe a
recovery in the EPS growth trajectory could be a catalyst for strong share price
performance for Infosys. We also highlight HCL Tech (1-OW) on the back of its good
revenue growth and valuations (12.2x 12-month forward P/E). While TCS (2-EW)
should continue to deliver growth near-term, further margin expansion looks unlikely
and, thus, a 10% valuation premium to Infosys is not justified, in our view. While we
consider Wipro (3-UW) a strong Indian IT company, we believe it could face challenges
in growth and margin as it executes its new go-to-market strategy. Sustained local
currency weakness would provide room for EPS upgrades across the sector
We initiate coverage of the four large-cap Indian IT vendors with 1-Overweight ratings
on Infosys (PT: INR3,050 for potential upside of 24%) and HCL Tech (PT: INR485 for
potential upside of 23%), a 2-Equal Weight rating on Tata Consultancy (PT: INR1,150,
potential upside of 10%) and a 3-Underweight rating on Wipro (PT INR340 for potential
upside of 4%). We believe that Indian IT companies should be able to weather the
impact on their revenues of the weak global economic environment and deliver a CAGR
for revenue of 16-19% for the next three years. Low operating leverage should lead to
stable operating margins. Furthermore, depreciation of the Indian rupee could lead to
margin expansion and EPS upgrades. On the other hand, heightened macro uncertainty
could keep valuation multiples depressed for these names. Thus, we initiate coverage of
the Asia ex-Japan Software & IT Services sector with a 2-Neutral view.
Companies could still deliver growth despite weak economies
The “new normal” of growth
Increased penetration of offshore services, coupled with weak economic growth in the
developed world, should lead to a lower growth trajectory for Indian IT services companies.
Compared with the typical 30-40% y/y revenue growth in the previous cycle (2003-07), we
believe that growth rates in the current cycle, over the next five years, could be in the high
teens for the large Indian IT services companies. Growth will likely be driven by: 1) increased
outsourcing as customers seek a more flexible cost model; 2) limited availability of technical
staff in the developed world; and 3) a shift to new business models led by themes of cloud
computing, mobility and social networking, among others.
We remain cognizant of the fact that the four large-cap Indian IT vendors together now
employ more than 500,000 staff. Along with demand issues, scalability could be another big
factor driving growth rates.
Assuming weak economies but not a recession
Indian IT vendors are largely focused on providing IT services to corporates in the developed
world, with the US and the UK accounting for more than 60% of the revenues of the large IT
vendors. The companies’ strong value proposition could keep revenue growing despite a
weak macroeconomic backdrop; however, a recession could significantly impact revenues
and profits. While we agree that the economic outlook remains uncertain, Barclays Capital’s
economists believe uncertainty is unlikely to turn into recession. We are thus comfortable
with our forecasts of revenue growth in the high-teens for the Indian IT vendors for the next
five years.
CIO survey indicates reasonable growth in 2012
A bottom-up survey of 100 CIOs by Barclays Capital’s technology team in September
indicates expectations for low single-digit y/y growth (1.8% y/y) in overall tech budgets in
2011 and 2012. Despite the current economic uncertainty, the confidence in positive
growth for 2011 indicates that underlying business is suffering more from low visibility than
actual revenue pressure. This is also reflected in the recent quarterly results of global
software and IT services companies that have continued to report strong and aboveconsensus
results
Initiating coverage: Infosys (1-OW), HCL Tech (1-OW), Tata
Consultancy (2-EW), Wipro (3-UW)
We initiate coverage of India’s four largest IT services companies within the Asia ex-Japan
software & IT services sector. While the sector drivers are common to the group, we believe
that share performance could vary significantly on the back of differing investor
expectations and company-specific issues.
�� Infosys Limited (1-OW): We initiate coverage of Infosys with a 1-Overweight rating and
12-month price target of INR3,050, implying a target multiple of 17.5x and potential
upside of 24%. A significant decline in revenues from one of its largest clients, British
Telecom, is likely the key factor behind weak revenue performance in the past six
quarters. However, we expect this decline to end soon as BT’s share of the total revenue
pool becomes much lower. This should aid EPS growth. Furthermore, we find Infosys’s
margin guidance for FY2012 (fiscal year ending March 2012) conservative and we
expect actual numbers to come in ahead of guidance. Finally, limited use of currency
hedging could help Infosys in the current environment of rupee depreciation.
�� HCL Technologies (1-OW): We initiate coverage of HCL Tech with a 1-Overweight
rating and 12-month price target of INR485, taking a 30% discount to Infosys’s target
multiple, for a target P/E of 12.5x. We believe HCL should be able to maintain its
industry-leading growth on the back of strong performance in its infrastructure services
business. HCL is also well positioned to exploit any resurgence in growth in the
enterprise solutions business through its recent acquisition of UK-based Axon.
Furthermore, a turnaround in its BPO (Business Process Outsourcing) business could
lead to some margin expansion for HCL while its peers face margin pressure. HCL is also
a beneficiary of current rupee depreciation on account of its low hedge positions.
�� Tata Consultancy Services (2-EW): We initiate coverage of TCS with a 2-Equal Weight
rating and a 12-month price target of INR1,150, implying a target multiple of 17.5x.
While we like TCS, we find it difficult to justify its 10% P/E multiple premium over
Infosys and expect this to correct going forward. We also believe TCS could now face
headwinds in margin expansion, except if the rupee depreciates, and hence operating
profit growth should be largely in line with growth at Infosys.
�� Wipro Limited (3-UW): We initiate coverage of Wipro with a 3-Underweight rating and
a 12-month price target of INR340, taking a 30% discount to Infosys’s target multiple
for a target P/E of 12.5x. While we believe that Wipro has strong domain and vertical
knowledge, execution has been a drag on the company’s performance. Recent
management restructuring has focused on improving execution but comes at a time
when the overall growth environment could be weakening. We thus believe that there is
a high probability of slippage in Wipro achieving its growth targets and hence advise
investors to be cautious on this name.
Valuation and risks
We use P/E as our primary valuation method for the Indian IT vendors. We look at the
historical P/E multiple range and future growth prospects to determine an appropriate
forward multiple for our price targets. Our price targets are 12-months forward, hence we
apply our target P/E multiple to 24-month forward EPS (an average of our EPS forecasts for
FY13 and FY14) to derive our price targets. For Infosys and TCS, we apply target P/E
multiples of 17.5x, which is in line with their past five-year averages and appropriately
adjusted for our growth expectations for the companies over the next three years. In the
case of HCL Tech, we use a 30% discount to Infosys’s target multiple, in line with the
historical average trading discount for the shares. For Wipro, our 30% discount to Infosys’s
multiple is at the low end of its historical discount because we perceive a higher risk to the
company’s earnings growth going forward.
Downside risks for the group: 1) a sharp deceleration in the global economy with a
possibility of recession, which could impact the demand for IT services; 2) restrictions on
the issuance of work visas in the companies’ key markets; 3) significant price competition
from other offshore and global IT vendors and 4) significant rupee appreciation.
Upside risks for the group: 1) a stronger-than-expected recovery in demand; 2) a reduction
in macroeconomic uncertainty, leading to multiple expansion; and 2) significant
depreciation of the rupee.
Valuation Methodology and Risks
Asia Ex-Japan Software & IT Services
HCL Technologies (HCLT IN / HCLT.NS)
Valuation Methodology: Our 12-month target price of INR485 for HCL Tech is based on a P/E of 11.8x, which we apply to the average of our
EPS estimates for FY2013 and FY2014, which is INR41.30. For HCL Tech, our target multiple is based on a 30% discount to our target multiple of
17.5x for Infosys because of the inferior margin profile and smaller scale of business. Our target multiple for Infosys is in line with Infosys's past
five-year average.
Risks which May Impede the Achievement of the Price Target: The key risk that could keep our price target from being achieved, in our view, is
the weakening of the macroeconomic environment that could jeopardize revenue growth or margins (or both) for the company. Also, HCL
Tech's margin profile has historically been inferior to those of Infosys and TCS and, while it has delivered on top-line growth, profit growth has
not been matched. Margin performance and revenue growth are key factors in stock performance and slip ups here would pose a risk.
Infosys Ltd. (INFO IN / INFY.NS)
Valuation Methodology: Our 12-month target price of INR3,050 for Infosys is based on a P/E of 17.5x, which we apply to the average of our EPS
estimates for FY2013 and FY2014, which is INR171. Our target multiple for Infosys is in line with Infosys's past five-year average.
Risks which May Impede the Achievement of the Price Target: The risks that could keep our price target from being achieved, in our view,
include the following: 1) a weaker global macroeconomic scenario could slow down the process of incremental business from new and existing
customers; 2) management changes over the past couple of years have caused some overhang, with any further shuffle in top management
being a risk; and 3) demand unevenness has caused some issues in management of staffing levels that has had a margin impact and should be
monitored.
Tata Consultancy Services (TCS IN / TCS.NS)
Valuation Methodology: Our 12-month target price of INR1,150 for TCS is based on a P/E of 17.5x, which we apply to the average of our EPS
estimates for FY2013 and FY2014, or INR67. For TCS, we apply the same target multiple we use for Infosys given that we estimate that TCS's
operating profit will grow in line with Infosys, although its EPS growth could be slower. Our target multiple for Infosys is in line with Infosys's past
five-year average.
Risks which May Impede the Achievement of the Price Target: The key risks to the downside that could keep our price target from being
achieved, in our view, are a weak macroeconomic backdrop and market weakness that would cause earnings forecast downgrades and multiple
contraction. TCS trades at the highest multiple amongst the Indian IT services peers. On the other hand, a stronger-than-expected rebound in the
macroeconomic situation poses an upside risk. TCS's high exposure to the Financial Services vertical means that an uptick in banks' discretionary
spending in such a situation could mean disproportionately high gains for the company.
Wipro Limited (WPRO IN / WIPR.NS)
Valuation Methodology: Our 12-month target price of INR340 for Wipro is based on a P/E of 12x, which we apply to the average of our EPS
estimates for FY2013 and FY2014, or INR28. For Wipro, our target multiple is based on a 30% discount to our target multiple of 17.5x for Infosys,
which is at the low end of Wipro's historical discount because we perceive a higher risk to Wipro's earnings growth going forward. Our target
multiple for Infosys is in line with Infosys's past five-year average.
Risks which May Impede the Achievement of the Price Target: The key risks to the upside that could keep our price target from being achieved,
in our view, are a stronger-than-forecast rebound in the macroeconomic situation and better-than-expected execution by the new management
team. We note that while the company has always had the industry expertise, it has historically had lapses in execution that have hindered
growth. Turnaround by the new management could drive upsides to our forecasts. Key downside risk would come from macroeconomic factors
that could further impede the company's already slow growth profile relative to its peers.
Source: Barclays Capital
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
INDIAN SOFTWARE & IT SERVICES
Adjusting to the new normal; initiate coverage
We initiate coverage of the Asia ex-Japan Software & IT services sector with a
2-Neutral view. For the Indian IT companies we bring under coverage, we assign
ratings of 1-Overweight on Infosys (PT INR3,050, +24% potential upside) and HCL
Tech (PT INR485, +23%), 2-Equal Weight on Tata Consultancy (PT INR1,150, +10%)
and 3-Underweight on Wipro (PT INR340, +4%).
The “new normal” of growth: Compared with typical 30-40% revenue CAGR in the
previous cycle (2003-07), growth rates over the next five years could be in the high
teens for the large Indian IT vendors. Growth will likely be driven by: 1) increased
outsourcing as customers seek a more flexible cost model; 2) limited availability of
technical staff in the developed world; and 3) a shift to new business models led by
themes of cloud, mobility and social networking, among others.
Assuming weak economies but not a recession: Indian IT vendors generate more than
90% of revenues from the developed world, hence the health of these economies is
important for the health of the sector. While we accept that current economic uncertainty
limits visibility, our economists argue that uncertainty is unlikely to turn into recession.
CIO survey indicates reasonable growth in 2012: A survey of 100 CIOs by Barclays
Capital’s technology team indicates expectations for low single-digit y/y growth (1.8%
y/y) in overall tech budgets in 2011 and 2012. Recent results from Accenture and
Oracle also suggest the uncertainty has failed to impact software and services spend.
Uncertainty takes its toll on sector multiples: Uncertainty in the global macro
environment is reflected in share prices of Indian IT companies. While cuts in consensus
earnings estimates have been modest (the worst so far is a drop of 8% for Infosys),
multiples have compressed as investors worry about future growth. Despite our comfort
with high-teens revenue and EPS CAGR for large Indian IT vendors for the next five years,
we believe valuation multiples could remain depressed in the current environment.
Infosys and HCL Tech 1-OW; Tata Consultancy 2-EW; Wipro 3-UW: A significant
decline in revenue from one client of Infosys (1-OW) has led to low expectations and
hence a return to reasonable valuations (15.6x 12-month forward P/E). We believe a
recovery in the EPS growth trajectory could be a catalyst for strong share price
performance for Infosys. We also highlight HCL Tech (1-OW) on the back of its good
revenue growth and valuations (12.2x 12-month forward P/E). While TCS (2-EW)
should continue to deliver growth near-term, further margin expansion looks unlikely
and, thus, a 10% valuation premium to Infosys is not justified, in our view. While we
consider Wipro (3-UW) a strong Indian IT company, we believe it could face challenges
in growth and margin as it executes its new go-to-market strategy. Sustained local
currency weakness would provide room for EPS upgrades across the sector
We initiate coverage of the four large-cap Indian IT vendors with 1-Overweight ratings
on Infosys (PT: INR3,050 for potential upside of 24%) and HCL Tech (PT: INR485 for
potential upside of 23%), a 2-Equal Weight rating on Tata Consultancy (PT: INR1,150,
potential upside of 10%) and a 3-Underweight rating on Wipro (PT INR340 for potential
upside of 4%). We believe that Indian IT companies should be able to weather the
impact on their revenues of the weak global economic environment and deliver a CAGR
for revenue of 16-19% for the next three years. Low operating leverage should lead to
stable operating margins. Furthermore, depreciation of the Indian rupee could lead to
margin expansion and EPS upgrades. On the other hand, heightened macro uncertainty
could keep valuation multiples depressed for these names. Thus, we initiate coverage of
the Asia ex-Japan Software & IT Services sector with a 2-Neutral view.
Companies could still deliver growth despite weak economies
The “new normal” of growth
Increased penetration of offshore services, coupled with weak economic growth in the
developed world, should lead to a lower growth trajectory for Indian IT services companies.
Compared with the typical 30-40% y/y revenue growth in the previous cycle (2003-07), we
believe that growth rates in the current cycle, over the next five years, could be in the high
teens for the large Indian IT services companies. Growth will likely be driven by: 1) increased
outsourcing as customers seek a more flexible cost model; 2) limited availability of technical
staff in the developed world; and 3) a shift to new business models led by themes of cloud
computing, mobility and social networking, among others.
We remain cognizant of the fact that the four large-cap Indian IT vendors together now
employ more than 500,000 staff. Along with demand issues, scalability could be another big
factor driving growth rates.
Assuming weak economies but not a recession
Indian IT vendors are largely focused on providing IT services to corporates in the developed
world, with the US and the UK accounting for more than 60% of the revenues of the large IT
vendors. The companies’ strong value proposition could keep revenue growing despite a
weak macroeconomic backdrop; however, a recession could significantly impact revenues
and profits. While we agree that the economic outlook remains uncertain, Barclays Capital’s
economists believe uncertainty is unlikely to turn into recession. We are thus comfortable
with our forecasts of revenue growth in the high-teens for the Indian IT vendors for the next
five years.
CIO survey indicates reasonable growth in 2012
A bottom-up survey of 100 CIOs by Barclays Capital’s technology team in September
indicates expectations for low single-digit y/y growth (1.8% y/y) in overall tech budgets in
2011 and 2012. Despite the current economic uncertainty, the confidence in positive
growth for 2011 indicates that underlying business is suffering more from low visibility than
actual revenue pressure. This is also reflected in the recent quarterly results of global
software and IT services companies that have continued to report strong and aboveconsensus
results
Initiating coverage: Infosys (1-OW), HCL Tech (1-OW), Tata
Consultancy (2-EW), Wipro (3-UW)
We initiate coverage of India’s four largest IT services companies within the Asia ex-Japan
software & IT services sector. While the sector drivers are common to the group, we believe
that share performance could vary significantly on the back of differing investor
expectations and company-specific issues.
�� Infosys Limited (1-OW): We initiate coverage of Infosys with a 1-Overweight rating and
12-month price target of INR3,050, implying a target multiple of 17.5x and potential
upside of 24%. A significant decline in revenues from one of its largest clients, British
Telecom, is likely the key factor behind weak revenue performance in the past six
quarters. However, we expect this decline to end soon as BT’s share of the total revenue
pool becomes much lower. This should aid EPS growth. Furthermore, we find Infosys’s
margin guidance for FY2012 (fiscal year ending March 2012) conservative and we
expect actual numbers to come in ahead of guidance. Finally, limited use of currency
hedging could help Infosys in the current environment of rupee depreciation.
�� HCL Technologies (1-OW): We initiate coverage of HCL Tech with a 1-Overweight
rating and 12-month price target of INR485, taking a 30% discount to Infosys’s target
multiple, for a target P/E of 12.5x. We believe HCL should be able to maintain its
industry-leading growth on the back of strong performance in its infrastructure services
business. HCL is also well positioned to exploit any resurgence in growth in the
enterprise solutions business through its recent acquisition of UK-based Axon.
Furthermore, a turnaround in its BPO (Business Process Outsourcing) business could
lead to some margin expansion for HCL while its peers face margin pressure. HCL is also
a beneficiary of current rupee depreciation on account of its low hedge positions.
�� Tata Consultancy Services (2-EW): We initiate coverage of TCS with a 2-Equal Weight
rating and a 12-month price target of INR1,150, implying a target multiple of 17.5x.
While we like TCS, we find it difficult to justify its 10% P/E multiple premium over
Infosys and expect this to correct going forward. We also believe TCS could now face
headwinds in margin expansion, except if the rupee depreciates, and hence operating
profit growth should be largely in line with growth at Infosys.
�� Wipro Limited (3-UW): We initiate coverage of Wipro with a 3-Underweight rating and
a 12-month price target of INR340, taking a 30% discount to Infosys’s target multiple
for a target P/E of 12.5x. While we believe that Wipro has strong domain and vertical
knowledge, execution has been a drag on the company’s performance. Recent
management restructuring has focused on improving execution but comes at a time
when the overall growth environment could be weakening. We thus believe that there is
a high probability of slippage in Wipro achieving its growth targets and hence advise
investors to be cautious on this name.
Valuation and risks
We use P/E as our primary valuation method for the Indian IT vendors. We look at the
historical P/E multiple range and future growth prospects to determine an appropriate
forward multiple for our price targets. Our price targets are 12-months forward, hence we
apply our target P/E multiple to 24-month forward EPS (an average of our EPS forecasts for
FY13 and FY14) to derive our price targets. For Infosys and TCS, we apply target P/E
multiples of 17.5x, which is in line with their past five-year averages and appropriately
adjusted for our growth expectations for the companies over the next three years. In the
case of HCL Tech, we use a 30% discount to Infosys’s target multiple, in line with the
historical average trading discount for the shares. For Wipro, our 30% discount to Infosys’s
multiple is at the low end of its historical discount because we perceive a higher risk to the
company’s earnings growth going forward.
Downside risks for the group: 1) a sharp deceleration in the global economy with a
possibility of recession, which could impact the demand for IT services; 2) restrictions on
the issuance of work visas in the companies’ key markets; 3) significant price competition
from other offshore and global IT vendors and 4) significant rupee appreciation.
Upside risks for the group: 1) a stronger-than-expected recovery in demand; 2) a reduction
in macroeconomic uncertainty, leading to multiple expansion; and 2) significant
depreciation of the rupee.
Valuation Methodology and Risks
Asia Ex-Japan Software & IT Services
HCL Technologies (HCLT IN / HCLT.NS)
Valuation Methodology: Our 12-month target price of INR485 for HCL Tech is based on a P/E of 11.8x, which we apply to the average of our
EPS estimates for FY2013 and FY2014, which is INR41.30. For HCL Tech, our target multiple is based on a 30% discount to our target multiple of
17.5x for Infosys because of the inferior margin profile and smaller scale of business. Our target multiple for Infosys is in line with Infosys's past
five-year average.
Risks which May Impede the Achievement of the Price Target: The key risk that could keep our price target from being achieved, in our view, is
the weakening of the macroeconomic environment that could jeopardize revenue growth or margins (or both) for the company. Also, HCL
Tech's margin profile has historically been inferior to those of Infosys and TCS and, while it has delivered on top-line growth, profit growth has
not been matched. Margin performance and revenue growth are key factors in stock performance and slip ups here would pose a risk.
Infosys Ltd. (INFO IN / INFY.NS)
Valuation Methodology: Our 12-month target price of INR3,050 for Infosys is based on a P/E of 17.5x, which we apply to the average of our EPS
estimates for FY2013 and FY2014, which is INR171. Our target multiple for Infosys is in line with Infosys's past five-year average.
Risks which May Impede the Achievement of the Price Target: The risks that could keep our price target from being achieved, in our view,
include the following: 1) a weaker global macroeconomic scenario could slow down the process of incremental business from new and existing
customers; 2) management changes over the past couple of years have caused some overhang, with any further shuffle in top management
being a risk; and 3) demand unevenness has caused some issues in management of staffing levels that has had a margin impact and should be
monitored.
Tata Consultancy Services (TCS IN / TCS.NS)
Valuation Methodology: Our 12-month target price of INR1,150 for TCS is based on a P/E of 17.5x, which we apply to the average of our EPS
estimates for FY2013 and FY2014, or INR67. For TCS, we apply the same target multiple we use for Infosys given that we estimate that TCS's
operating profit will grow in line with Infosys, although its EPS growth could be slower. Our target multiple for Infosys is in line with Infosys's past
five-year average.
Risks which May Impede the Achievement of the Price Target: The key risks to the downside that could keep our price target from being
achieved, in our view, are a weak macroeconomic backdrop and market weakness that would cause earnings forecast downgrades and multiple
contraction. TCS trades at the highest multiple amongst the Indian IT services peers. On the other hand, a stronger-than-expected rebound in the
macroeconomic situation poses an upside risk. TCS's high exposure to the Financial Services vertical means that an uptick in banks' discretionary
spending in such a situation could mean disproportionately high gains for the company.
Wipro Limited (WPRO IN / WIPR.NS)
Valuation Methodology: Our 12-month target price of INR340 for Wipro is based on a P/E of 12x, which we apply to the average of our EPS
estimates for FY2013 and FY2014, or INR28. For Wipro, our target multiple is based on a 30% discount to our target multiple of 17.5x for Infosys,
which is at the low end of Wipro's historical discount because we perceive a higher risk to Wipro's earnings growth going forward. Our target
multiple for Infosys is in line with Infosys's past five-year average.
Risks which May Impede the Achievement of the Price Target: The key risks to the upside that could keep our price target from being achieved,
in our view, are a stronger-than-forecast rebound in the macroeconomic situation and better-than-expected execution by the new management
team. We note that while the company has always had the industry expertise, it has historically had lapses in execution that have hindered
growth. Turnaround by the new management could drive upsides to our forecasts. Key downside risk would come from macroeconomic factors
that could further impede the company's already slow growth profile relative to its peers.
Source: Barclays Capital
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