Information Technology: A qualitative assessment of two billing models - Prabhudas Lilladher

September 26, 2014
Information Technology
FPP v/s T&M: A qualitative assessment of two billing models
140
130
120
110
100
Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or 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 the report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to important disclosures and disclaimers at the end of the report
Sector Update
Shashi Bhusan
shashibhusan@plindia.com
+91‐22‐66322300
Hussain Kagzi
hussainkagzi@plindia.com
+91‐22‐66322242
Sensex v/s CNX IT
90
Sep‐13
Nov‐13
Jan‐14
Mar‐14
May‐14
Jul‐14
Sep‐14
CNX IT Sensex
Source: Bloomberg
Stock Performance
(%) 1M 6M 12M
Sensex 0.1 19.8 33.0
CNX IT Index 4.8 21.3 37.1
HCL Tech. 7.2 23.5 63.9
Infosys 2.0 13.8 22.6
TCS 6.9 31.0 41.7
Wipro 5.8 6.9 22.1
The creeping transition of Indian IT companies to Fixed Price Projects (FPP) from
Time & Material (T&M) to mitigate the pricing pressure was evident over the last
half‐a‐decade. We have tried to qualitatively assess the pros & cons of these two
billing models. Our assessment indicated the maturity of commoditized business
which has resulted in migration towards FPP, whereas T&M is handy for Greenfield
projects. We don’t see any inherent advantage for either of these models.
However, different stages of business cycles and process maturities will promote
different billing models.
 T&M v/s FPP – Consulting v/s Engineering: IT Services originates from
Consulting business; hence, T&M became the de‐facto choice of billing. Our
analysis indicates no inherent advantage of one over the other and Indian IT
companies are likely to stay amicable with both the billing models.
 FPP is a reflection of process maturity...: There are few myths around the FPP
like T&M protects eventuality in cost overruns, need stronger control processes
for FPP, vendors can pad‐up their bids to escape uncertainty and risk is bad. We
believe Indian IT companies over the last two decades have got the most
evolved processes for IT Services; hence, they can see creeping migration to FPP.
 ... but, T&M handy for Greenfield projects: T&M model is convenient for
projects marred with uncertainties. Need for flexibility for uncertainties
associated with a project and transparency of the process drives the existence of
T&M model. We see the contribution of discretionary (App Development,
Greenfield PI, SMAC etc.) to drive the sustained T&M.
 Pricing pressure on traditional services – An inevitable waited to happen: The
great financial crisis (2008) changed the spending pattern of the corporate when
clients wanted to do more with less. Hence, the commoditized services
witnessed pricing pressure. Indian IT adapted to the changing need and offered
FPP as a solution that can give them manoeuvrability on the costing front.
 TCS has the slowest growth in FPP, Wipro & HCL Tech have the fastest growth
in FPP contribution: TCS’ FPP contribution has been relatively flattish over the
last five years, whereas Wipro and HCL Tech have witnessed maximum increase.
We see improved process maturity and productivity gain for TCS, whereas, HCL
Tech reaped the benefit of continued migration of FPP.
 Valuation & Recommendation – Prefers TCS, INFO & WPRO: There is no
winning billing model. Challenging macro pushes for cost cognizance. Hence, FPP
offers a solution for matured services, whereas, the conducive environment
implies a green‐field development project that may push for T&M model. We
see a quick transition to FPP translating into margin gains having risk of mean
reversal in renegotiation. We continue to see similar risk for HCL Tech.
However, TCS, Infosys and Wipro still have unexplored opportunities.
Exhibit 1: Top picks – TCS, Infosys and Wipro
Revenues (Rs m) EPS (Rs)
CMP (Rs) Target (Rs) Rating Upside EPS CAGR
2015E 2016E 2015E 2016E
Infosys 538,365 606,727 213.7 238.2 3,691 4,040 BUY 9.5% 13.1%
TCS 963,409 1,135,703 113.9 131.2 2,709 2,900 BUY 7.1% 15.7%
Wipro 488,922 545,933 36.0 41.8 583 680 BUY 16.7% 14.6%
HCL Technologies 373,127 422,588 107.8 119.3 1,708 1,750 Accumulate 2.4% 13.9%
Source: Company Data, Bloomberg, PL Research (All prices as on September 25, 2014)

Pricing Models ‐ Time & Material v/s Fixed Price: Stem from their
evolution to Consulting v/s Engineering
Emergence of IT Services from high cost IT infrastructure in the 1960‐70s, wherein
the clients used to rent the infrastructure, resulted in a consulting‐led approach for
pricing i.e. T&M. However, FPP evolution stems their root from Engineering Floor,
wherein, the process efficiency, adaptability and productivity gain holds the key.
Prima facie, there is no inherent advantage of one type of billing over the other.
Open discussions between the clients and consultant can allow both types of billing
to go forward amicably. Consultants with little experience in billing clients directly
are usually better off billing time‐and‐materials until they have learnt how to quote a
fixed price. However, in the future, they can select the model that works best and
most profitably. Clients decide tradeoff between certainty and the prospect of a
lower bill when the work can be completed efficiently then choose the model that
suits them best.
Time‐and‐Materials: IT professionals are billed by the hour with expenses. They are
assured of being paid for their time, regardless of how long the project takes or for
an ongoing project. Client has the freedom to change the specifications of the
project or to add new components, as it is understood that such changes will incur
more time on the project and hence, a higher invoice. The disadvantages come when
the consultant bills too many hours and exceeds the client's budget. This can cause
friction between the two if the budget runs out before the contract is completed.
Fixed Price Project: A fixed price contract is ideal when the client requires work that
can be provided with a quick turnaround built/implemented/maintained from pre‐existing
templates, where much of the work may have already been completed (in
terms of requirement gathering) prior to landing the contract. Likewise, a client‐vendor
may prefer a fixed price contract because it is easier to set a budget for such
projects. However, a fixed price contract can be an issue when the consultant and
client do not come to a detailed agreement on what the work will include.
Exhibit 2: Is FPP actually a high risk for IT Services providers?
Buyer
Low Risk High Risk
FPP T&M Cost Plus
Provider
High Risk Low Risk
Source: PL Research
September 26, 2014 2

Exhibit 3: Parameters comparison – The business model
Time & Material (T&M) Fixed Price (FP)
Flexibility to balance team size and workloads Requirement & Project due dates clear
Optimising the cost and time lines Control the project budget
Project model tailored to clients’ requirement Planning, schedule & deliverable clear
Increase or decrease the pricing and resources Based on active and mutual consent
Source: PL Research
Exhibit 4: T&M: Profitability stabilizes as project reaches steady‐state
US$
Revenue Cost Profit
Time
Source: PL Research
Exhibit 5: FPP: A steady improvement in profitability during tenure
US$
Revenue Cost Profit
Time
Source: PL Research
FPP – How it scores over T&M? Busting myths!
Myth 1: T&M pricing protects IT Companies if they exceed their estimate.
Fact: If IT Companies exceed their estimate, even with a T&M pricing model, their
client will fight with them tooth and nail over the overage, even small overages (This
is even more true in today’s world of tightened budgets). Often clients will refuse to
pay above the estimate, forcing IT Companies into a compromise. Moreover, getting
new business from this client will be substantially harder next time.
Myth 2: With T&M, IT Companies don’t need a change control process.
Fact: IT Companies will need to show hard evidence explaining why their estimates
were wrong. The only evidence worth anything is the change control documents
signed by clients that clearly outline the cost of change in T&M. In FPP, clients have
less control over the process maturity, but any change in control processes escalated
by clients is associated with the cost.
Myth 3: With T&M, the client benefits if IT Companies are under their estimate.
Fact: IT Companies will simply not leave money on the table. The Change Requests
(CR) initiated normally takes longer to get incorporated and even longer if the
projects are running ahead of schedule. Any successful execution of projects within
time are generally rewarded by more contracts.

Myth 4: Incompetency in IT Companies’ ability to accurately estimate is a good
reason to choose T&M
Fact: Unless IT Companies are upfront with their client about their inability to
estimate a project, choosing T&M is unethical. The companies are run by
professionals; they sold themselves as experts with statements like “We’ve done this
kind of stuff a hundred times before!” If they cannot properly estimate a project,
they have no right to call themselves experts on the subject matter. If they would
never tell their prospective clients the real reasons why they are proposing T&M,
their reason for choosing T&M is simply not valid and likely unethical. They did the
estimates, they are the expert and it’s their job to know how long it will take and
what problems may arise.
Myth 5: Double their estimate, just to be safe.
Fact: This myth comes in many varieties, which can range from adding 15% to
quadrupling their estimate. The truth is, doubling their estimate will simply make
their bid uncompetitive (or unrealistic) and they will lose the contract to a
competitor. Currently, the market is heavily contested by Large MNCs, Indian
Heritage Vendors and Niche players.
Myth 6: Developers don’t need to know the pricing model.
Fact: Everyone on the team needs to know the pricing model as it affects every
decision involving billed effort which the team makes. Who is paying for the effort is
always a factor in such decisions.
Myth 7: Risk is bad
Fact: Risk is an opportunity to make (or lose) money. It’s neither good nor bad.
Successful IT Companies will stay above the Companies stuck with T&M model. They
can easily earn more just by accepting the risk associated with their own estimate.
Pricing pressure – An inevitable waiting to happen
The great financial crisis of 2008 has had a significant impact on the spending pattern
of the corporate. While the most immediate and pressing impact of the financial
crisis has been the lack of readily available credit, it is expected that its mid and long‐term
effects will still be felt in the timing of economic recovery and in high
unemployment rates in many countries.
During the crisis, new investments were postponed or scaled back, as investors
became more cautious. Moreover, IT companies operators came under further price
pressure for their services as consumers’ purchasing power diminished.

Exhibit 6: Blended Realization (QoQ gr.) (A proxy for pricing): More troughs
3%
0%
‐3%
‐6%
TCS Infosys
Q1FY09
Q2FY09
Q3FY09
Q4FY09
Q1FY10
Q2FY10
Q3FY10
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Source: Company Data, PL Research
The economic downturn posed challenges on the spending turn squeezing the client
budget. Indian IT Companies have seized the opportunity to offer an effective pricing
pragmatism through Fixed Price Model.
Exhibit 7: HCL Tech and Wipro: Strongest improvement in FPP projects
60%
52%
44%
36%
28%
20%
Infosys TCS Wipro HCL Tech
Q3FY06
Q1FY07
Q3FY07
Q1FY08
Q3FY08
Q1FY09
Q3FY09
Q1FY10
Q3FY10
Q1FY11
Q3FY11
Q1FY12
Q3FY12
Q1FY13
Q3FY13
Q1FY14
Q3FY14
Q1FY15

Why clients will push for FPPs over T&M?
Indian IT companies have been driving towards FPPs over the last few years. The
overarching concerns on pricing has been mitigated partially by undertaking (or
migrating to) FPP. Moreover, there has been push from the clients also for FPP. We
highlight two reasons of FPP drive:
 To test the potential of IT Companies, clients ask for fixed‐price proposal: By
asking for FPP, clients tell IT Companies that vendors have not yet "proven" their
capabilities to clients, which puts clients at risk of not receiving an adequate
solution. To reduce that risk, clients want IT Companies to demonstrate that IT
vendors understand clients’ unique problem fully by providing clients with a
proposed solution. IT Companies proposed solution must have a sound scientific
basis that will lead to a reliable and reproducible product. IT Companies must
provide clients with a detailed technical explanation of their proposed solution's
operation principles, along with calculations that demonstrate IT companies
have considered and accounted for the deleterious effects of all tolerances,
parasitic parameters, variations of parameters with ambient conditions and
aging and so on.
 Risk of failure in a tight schedule: A potential client's project schedule is too
tight to take a chance that IT companies might fail, requiring the client to find
another vendor to do the job over. The client wants IT Companies to remove that
schedule risk by demonstrating conclusively that their proposed solution will
meet the requirements.
Is T&M all that bad?
We do not see the death of T&M business model in the near future. IT Companies
working at cutting/bleeding edge of technology has to work with various unknowns.
We see the less likelihood of adoption of FPP in projects where initial deliverables
are uncertain example Application Development, SMAC etc.
Need for Flexibility in a World of Unknowns/ Insufficient data to properly estimate
it: In a new software development, it rarely happens that features and functionality
of the new software are known upfront. Even with the best written RFP, there are
many unknowns that need to flushed out. Clients’ projects are complex and it is
nearly impossible to understand all the facets of the projects at the beginning. Our
industry sources indicated that clients would know 60‐80% of what they want to
build when they provide an estimate. That’s a lot of uncertainty!
In a FPP, deliverables are agreed upon upfront and there is little flexibility with
regard to changing features. Any change in a feature set requires an “engineering
change order”/”Change Request” (CO/CR) and additional funds are approved. In
some cases, changes are permitted without additional funds. However, in these
cases, it’s only because the original estimate had so much “fat” that the change can
be absorbed.

In T&M, IT Companies keep a close eye on the pulse of the project, the budget and
the needs of our clients. They discuss the changes, they look at the budget and
determine priority of the features relative to budget and time constraints. Often,
features that the client thought they needed are no longer important and can be
postponed for future release. As such, new features can often be added without
impacting the budget.
Need for Total Transparency/ Clients want to take part in the project in any way:
Clients deserve full transparency with regard to project expenses. A firm fixed price
contract will not provide any transparency, IT Companies will not know if a task took
two hours to build or 20 hours. Clients are constantly wondering if they paid too
much. In most cases, clients probably did because the financial risk is 100% on the
side of the contractors; IT vendors need to inflate their bid to cover their financial
risk.
In a T&M project, clients have full transparency on how their budget is being spent.
There is no guessing as to how many hours a task cost: It’s right there in the invoice!
If client is providing resources (i.e. internal developers or another vendor is
participating that the client is managing) or if IT Companies are working on site,
vendor should go T&M. IT Companies should not be held accountable for the
performance of client’s resources, where IT Companies are obligated to ensure they
succeed. Chances are high that IT Companies will wind up performing this work in its
entirety, while fearing to tell the client that his trusted employees are incompetent.
T&M is not a Blank Check, Process is the Key: A major misconception is that a T&M
based project is like having a blank check for the IT vendors. IT Companies’ initial
estimate is clients’ project budget. They develop in multiple iterations and at the end
of each iterations, the project is in a working, testable state. They repeat this process
until the project is ready for final testing and release. This allows them to have
meaningful conversations with their clients around features, budget and time. They
have the flexibility to adjust features as priorities shift or as allowed by the budget.
They have the flexibility to make adjustments that are the best for the project and
stay within budget.
Conclusion – There are merits in T&M projects as well
FPP works best when the clients and IT companies work the best when the
deliverables are well‐known and understood up front, when there is little need for
flexibility and changes to the deliverables. The challenges of FPP multiply manifold
when clients want their IT vendor to build custom software application. We believe
in the development of software applications need flexible process, which allows for
change.

Exhibit 8: Parameters comparison – The business model
Parameters Fixed Price (FP) Time & Material (T&M)
Requirements Clear Evolving
Enhancements Additional cost and time,
deviation in project plan 
Flexibility in Projects
Task & Schedule  
Resource Selection  
Cost Effective
‐
(Expensive: if requirements
not clear)
‐
(Expensive: if project deadline
overrun)
Customized Report  
Project Task  
Work Load  
Idle Time  
Progress  
Source: PL Research
TCS: Stable on FPP, Wipro and HCL Tech: Maximum increase in FPP
Contrary to the popular belief about the FPPs, TCS’ contribution from FPP has stayed
largely stable over the last eight years. According to TCS’ management commentary,
the clients drive for FPP depending on the project types.
Infosys has offered limited colour on their initiatives for FPPs. The company
continues to have the lowest contribution from FPP. One possible reason for the
same could be their higher contribution from discretionary portfolio. As we have
examined earlier in the note, the higher discretionary contribution restricts the
scope of FPP in the portfolio.
Wipro and HCL Tech have driven their FPPs migration the strongest among peers.
The management is more vocal on their initiative to drive their projects toward FPPs.
Exhibit 9: Wipro and HCL Tech: Maximum increase in FPP contracts. TCS had minimum
790 bps
180 bps
1170 bps
‐510 bps
510 bps
160 bps
1480 bps
1400 bps
3090 bps
880 bps
1890 bps
2910 bps
3300 bps
2650 bps
2000 bps
1350 bps
700 bps
50 bps
‐600 bps
(Dec‐05 to Dec‐08) (Mar‐09 to Jun‐14) (Dec‐05 to Jun‐14)

HCL Tech – Benefitted maximum from the FPP drive
We are over‐simplifying our analysis by attributing the margin expansion only to
FPP.
Improvement in HCL Tech’s EBITDA margin has been maximum over the last five
years, in‐line with their increased FPP which could be attributed to strong growth in
IMS (contributed ~75% of incremental revenue over the last five years). HCL Tech
managed to improve their EBITDA margin by ~500bps since Mar‐09 due to increase
in FPP contribution by near ~1900bps. The company currently has the highest
contribution from FPP, leaving limited room for another uptick in margin. We see
pricing renegotiation of older FPP contracts at lower price, resulting in mean
reversion.
However, TCS has the most balanced approach among the peers keeping their FPP
contribution slowly creeping up and investing in efficiencies and process yielding
increase in operating margin. We expect TCS to stand benefitted during renewal
cycle of the contracts.
Wipro and Infosys struggled to keep pace with margin expansion with improvement
in FPPs. Challenges for Infosys are linked to shrinkages in their pricing premium over
the last few years. However, Wipro could not manage to keep pace with the industry
growth and got impacted by rising costs.
Exhibit 10: Strong operating margin improvement by HCL Tech over last 5 years
35%
31%
27%
23%
19%
15%
Q4FY06
Q2FY07
Q4FY07
Q2FY08
Q4FY08
Q2FY09
Q4FY09
Q2FY10
Q4FY10
Q2FY11
Q4FY11
Q2FY12
Q4FY12
Q2FY13
Q4FY13
Q2FY14
Q4FY14

Exhibit 11: TCS EBITDA margin improvement linked to operational efficiency
500 bps
198 bps
‐700 bps
336 bps
37 bps
‐661 bps
‐480 bps
405 bps 179 bps
‐382 bps
124 bps
‐38 bps
22 bps
499 bps
200 bps
‐100 bps
‐400 bps
(Mar‐06 to Dec‐08) (Mar‐09 to Jun‐14) (Mar‐06 to Jun‐14)
Exhibit 12: TCS (Management’s Commentary on FPP): Clients drive to FPP
Q1FY15 Fixed price engagement is a key lever in terms of costs and also mix or realization
Q2FY14
Q: Unbilled revenues have gone up in the past 10 quarters but FPP has not changed.
One need to look at UBR minus UER as a metric because that gives you a better
picture and if you look at that last two quarters that has been increasing, previous
two quarters it was decreasing. And the overall trend is more a reflection of the
nature of contracts and the size of contracts rather than just T&M versus Turnkey.
When product‐based or asset leverage‐based projects kick in, those tend to have a
different billing profile. So it is not just a difference between T&M and FPP.
Q3FY13
Fixed price engagements require a higher level of productivity.
TCS has seen fixed price projects go up by 50bps. So does that mean that the
company is going to be driven by higher fixed price or some other measures?
S. Mahalingam: No, it will not be purely fixed price.
N. Chandrasekaran: We also have to operate based on what the customers want. It
is not something that we decide, frankly.
Exhibit 13: Infosys (Management’s Commentary on FPP): Not much commentary on FPP
Q2FY13
Post Sales Supports are provisions which Infosys makes on all fixed prices
contracts. The trend in last few quarters, the write‐off in this space is much
lower. These are all conservative estimates the company makes on certain FPPs.
It will get reversed in the future period if they are able to run it more elegantly.

Exhibit 14: Wipro (Management’s Commentary on FPP): Gains on margins due to FPP
Q3FY14
Wipro’s FPP percentage remains pretty high. So to that extent, whatever money the
company makes out of automation and everything else, they keep the gains as
margin gains. Second is on T&M projects again, Wipro believes that ultimately what
the customers look for is end‐to‐end, cost of the value that they get on an end‐to‐end
project.
Q4FY13
48% is FPP and within that, 48%, especially in the area of Wipro’s technology
infrastructure services and some of the applications, directionally, the company is
moving towards more and more outcome‐based results as well as the BPO.
Q3FY13
The key driver for increase in price realization this quarter was the benefit of the
productivity gain that Wipro is able to get, by implementing tools and automation
and some of the productivity techniques into their FPP and that has been the driver
for the overall realization uptick.
Q2FY13
A lot of the realization improvement has been achieved during the quarter due to
driving revenue productivity and fixed‐price contracts which will have a negative
impact on volume. Despite the impact of additional two months of salary increase,
continued investment in sales and marketing, utilization drop and FOREX impact,
margin impact was limited to 30bps through significant improvement in revenue
productivity and other operational parameters.
Exhibit 15: HCL Tech (Management’s Commentary on FPP): Strong initiative to FPP
Q4FY14
Managed Services and FPP were about 50‐50 till about two years back; however,
they have moved up to 52 in FPP last year and now 56% of the portfolio in FY14.
Revenue per employee within HCL today is a little over US$61,000 or US$62,000
per employee which is significantly higher than the industry average. And one
reason is non‐linearity and the FPP/Managed Services construct.
Q3FY14 Most of the rebid market that HCL Tech bids is Managed Services or FPP.
Q1FY14 Ratio of FPP, Managed Services and outcome base is increasing since FY11 that is
helping HCL Tech to decide the most optimal way to run the operations.
Q4FY13
HCL Tech continues to increase the amount of their revenue that comes from
Managed Service or Fixed Price Revenue Models which allows the company to
move to more into low cost locations. This dampens the top‐line growth but
enhances company’s margin deliveries.
Q2FY13
With respect to the question on leaves and furloughs, the company has limited
exposure there, because a lot of their engagements have moved significantly into
FPP and managed services model and therefore, the company is really not
dependant on that construct.

Top picks – TCS, Infosys and Wipro
There is no eventual winning billing model. Challenges on the macro front pushes for
cost cognizance. Hence, FPP offers a solution for matured services or challenging
business environment, whereas, a conducive business environment implies the
takeoff of more green‐field development projects which may push for T&M model.
We see a swift transition to FPP accompanied by margin expansion as a risk
because it would expose the company to the risk of mean reversal in renegotiation.
We continue to see similar risk for HCL Tech. However, TCS, Infosys and Wipro still
have room for exploiting that opportunity.
We reiterate our ‘BUY’ recommendation on TCS, Infosys and Wipro and
‘Accumulate’ on HCL Tech.
Exhibit 16: TCS
16.2
32.0
28.0
24.0
20.0
16.0
12.0
8.0
4.0
0.0
1‐Yr Forward PER Average PER
Sep‐08 Sep‐09 Sep‐10 Sep‐11 Sep‐12 Sep‐13 Sep‐14
Source: Company Data, Bloomberg, PL Research
Exhibit 17: Infosys
16.9
32.0
28.0
24.0
20.0
16.0
12.0
8.0
4.0
0.0
Exhibit 18: Wipro
13.7
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Exhibit 19: HCL Tech
1‐Yr. Forward PER Average PER
11.6x
20.0
15.0
10.0
5.0
0.0

Appendix
Other non‐linear pricing models
We have ignored the discussion on other non‐linear pricing model to keep discussion
lucid and simple. Among, the other widely used pricing models that Indian IT
companies offer are Hybrid Model, Managed Service Model, Outcome Based Model,
Transaction Based Model.
Non‐linear pricing models decouple the relationship between time and material
(effort and rate). Normally, T&M and FP do not offer much scope for modification
and changes. Service providers have realized the need to be flexible to satisfy their
customers. This has led to innovations in pricing models that suit varying needs.
Some non‐linear pricing models are mentioned below
Hybrid Model: The hybrid model uses T&M techniques to estimate costs for projects
that do not have clear‐cut goals or detailed and complete requirements initially. It
then allows customers to pay a fixed price based on the estimation. This hybrid
pricing model has the best features of both the models – T&M and FP, as mentioned
above. It allows service providers to deploy resources as in the T&M model, but most
of the project is executed according to the FP model. Hence, the project has a
smooth workflow and well‐aligned processes.
Hybrid is the best pricing model for bigger, longer and ongoing projects with unclear
objectives at the start. Here input and feedback is needed in the beginning, but
delivery can be perfected over time to ensure that all customer requirements are
successfully met. This model is a great middle ground for professionals who like
hourly payments and customers who prefer to make a one‐time payment for the
project. The hybrid pricing model helps customers optimize budgets without
compromising on the quality of product or application. It also gives the service
provider a controlled environment with shared risks in operations.
Exhibit 20: Pros‐Cons of Hybrid Model
Pros Cons
Utilizes the best features of both the T&M and FP
pricing models
Customer has no control in resource utilization and
maximum ownership is with service providers
Middle ground for the customers amongst hourly payment
and one‐time payment
Shared risks between service provider
and customer
Helps the customer to optimize the budget without
compromising on the quality of deliverables
Low risk model for both service provider and customer
Knowledge retention
Source: PL Research

Managed Services Model: The managed services model offers defined service
deliverables at a fixed cost. Traditionally, value was realized according to how well it
was managed by the service provider, and how well it was perceived by the
customer. This was more qualitative in nature. In the managed services model on the
other hand, the value‐add is quantitatively measured in terms of target Service Level
Agreements (SLAs). This is based on clearly defined parameters in project
performance and quality.
Customers are billed at a fixed monthly cost plus unit cost per additional unit
delivered. For customers, the model helps them arrive at a predictable budget. For
service providers, it assures continuous fixed revenue, plus additional revenue
through scalability and better margins through repetition. Mutually agreed SLAs will
be met, unless the service provider wishes to pay a penalty. If the service provider
meets / exceeds all agreed SLAs they are monetarily rewarded, as per the contract.
Some key features of the managed services model:
 The service provider takes end‐to‐end responsibility of set service lines and
deliverables
 The service provider makes the decisions and takes the responsibility to provide
the agreed set of deliverables
 Budgets are mostly fixed for the entire piece of work, making it more like a fixed
price managed services engagement. In this case, the service provider has a free
hand in deciding how, where and with how many personnel the project can be
delivered. The risk associated with such an approach is that the service provider
may decide to allocate shared resources, which could result in delivery issues
 This model is often adopted when work can be clearly scoped out, with clearly
marked deliverables
 For this model to work, the service provider should have an excellent
understanding of the customer’s systems. The customer in turn should be
confident enough to hand over work to the service provider
 The customer’s role is that of a reviewer with the additional responsibility of
contracts management and budget tracking
 The service provider will be responsible for selection of resources as well as
managing stakeholder expectations
 There will be clearly marked SLAs for each deliverable, with penalties applicable
for non‐delivery

 Delivery of service can be performed onshore at the client location, offshore or
a combination of both
 A managed services model is often adopted by enterprises as a continuation of
an existing staff augmentation. Adopting a managed services model from day
one comes with lots of risks.
Exhibit 21: Pros‐Cons of Managed Service Model
Pros Cons
Since delivery and stakeholder expectations are the
service provider’s responsibility, the customer can focus
fully on their core strategic initiatives
Service providers are sometimes reluctant to assume more
management responsibilities
Service providers are more independent and have a
relatively interference‐free management of the project
Culture mismatch between the customer and service
provider can result in a lack of understanding, which
may affect deliverables
Enables service providers to make long‐term strategic
investments that should indirectly benefit the customer
Sometimes, service providers don’t have a view of
the scope of the project or may not understand all
of the customer’s pain points, which could result in
major setbacks
Service providers bring their best practices into the
project, thereby making key process improvements
In a multi‐service provider scenario, where for instance
one provider manages applications and the other,
infrastructure, blame games are common, with no‐one
willing to assume responsibility
SLA driven approach results in key process improvements
delivering significant, measurable benefits to the customer
Re‐allocation of the contract, in case of performance
issues or non‐conformance of SLAs, might be a challenge,
given that the existing service provider will be less
cooperative
Knowledge retention becomes more streamlined
and sustainable
Source: PL Research
Outcome‐Based Pricing Model: Outcome‐driven solutions are pin‐pointed and
positioned as delivering specific value to the business. Outcome‐based projects aim
to deliver measurable impact on the customer’s overall business results. The basic
philosophy is to align the interests of the service provider and the customer so that
both work towards the same goal. In this model, the scope is the business outcome
itself. Clearly defined and fixed outcomes which can be measured and delivered for a
given project is critical to its success. In an outcome‐based model, resource loading,
costing and pricing is a complicated exercise.
The mechanism for paying the service provider varies. But generally the payment is
made in made in one lump sum when the result is achieved or over shorter
milestones, so that the service provider recoups its investment in time.
The three key elements of an outcomes‐driven project are:
 The service provider cannot earn a direct revenue from the customer unless the
work outcome delivers value to the customer

 The scope of work impacts a large chunk of the process that influences a
business outcome, and service provider can adjust / tweak some elements of
the process to impact the business outcome
 Service providers need to develop competences to tightly define the scope of an
outcome‐based project to be successful
The primary driver of outcome‐based pricing is the process characteristics, and
scope of engagement with the customer. As a rule of thumb, if a process directly
impacts measurable business outcome like revenue or cost, the service provider
should explore a business outcome‐based pricing. More so if there are enough
opportunities to impact the business outcome. However, the thing to remember is
whether the scope of work covers the majority of elements that drive a particular
outcome.
In outcome‐based projects, service providers control a significant portion of the
value chain affecting outcomes, even when they are not directly under the service
provider’s control. Hence, bringing into your sphere of influence things not under
your influence is a critical part of the execution model. This is where partnership
with other service providers, even competitors, will be a critical factor in success.
In this model, the customer gets rewarded by converting a fixed cost into a truly
variable cost model that scales with the business. It frees up client executives from
worrying about issues like technology, process and people, and allows them to focus
on business outcomes – things that really matter to the business. The customer
carries no risk since they pay only when they get the desired outcome. By having a
standardized definition of input and output in an outcomes‐driven model, services
become more like products.
In an outcome‐based model, service providers bet on the customer and vice versa,
to make success happen. Risk transfers from customer to service provider, the model
progresses from T&M to outcome‐based. The service provider should account for
transference of risk and cover by including a risk premium in the price. The risk
premium increases as you progress through these models and results in increasing
margins for the service provider. The ability to measure risk and charge the
appropriate risk premium is a critical factor in the service provider’s success.
Exhibit 22: Pros‐Cons of Outcome Based Model
Pros Cons
Directly aligned to the customer’s business outcome Lack of transparency in how work is performed
Potential for higher eventual savings as labor arbitrage is
replaced by productivity and synergies between tasks Little insight into cost of services
Ability to incent more innovative behavior from
service provider
Cultural resistance from both customer and
service provider
Deep appreciation of the customer’s business model,
operations and industry nuances
Customer enterprises are sometimes too immature to
appreciate the change management process
Source: PL Research

Transaction Pricing Model: A transaction is a sequence of steps with defined input
and output, which achieves a business purpose. Examples of transactions include
invoice or payroll processing. A transaction unit is a unit of measure with which a
transaction can be measured. Examples of transaction units are ‘per pay slip’ or ‘per
invoice’, etc. A transaction price is typically quoted as ‘price per transaction unit’. It
is generally mentioned as applicable for a specified transaction volume range.
The transaction‐based pricing model is based on the number of transactions
processed. Typically a base price is provided for a specified volume band, with a
negotiated increase or decrease in price as usage fluctuates around the specified
band. In this model, the scope becomes very important. The scope is also slightly
different from conventional projects and should be defined more tightly.
The volume of transactions and the variations in volume in a day, week, month or
months make a huge impact on pricing and effort. Another important scope element
is the form of input. Whether the input is electronic, paper form, integrated into xml,
importable or already imported can have a huge impact on the cost. Any change in
the assumption of proportion of the two forms of applications could make a huge
effort and cost difference for the service provider. In this model, service providers
take on a higher risk. They take on risks related to the volume of business, as the
pricing is based on certain volume assumptions. Change or variation in the volume
can have can have a dramatic impact on their cost.
Exhibit 23: Pros‐Cons of Transaction Based Model
Pros Cons
Closely tied to the customer’s business cycle May not be directly tied to the customer’s business outcome
Enhances customer visibility into consumption pattern Lack of transparency on how work is performed
Encourages productivity and efficiency
Source: PL Research

Which pricing model suits a given engagement?
The pricing model need not be intelligent enough to address the customer’s budget
objectives, but has to suit the respective customer engagement. IT engagements
spread from discovery and definition types to implementation, maintenance and
support. The pricing model that worked for one type of engagement may or may not
work for another. It is also possible that a pricing model that suits one client may not
suit another. Naturally, assessing the best possible pricing model for a customer or
an engagement sometimes requires a trial.
Exhibit 24: Which pricing model suits a given engagement?
Hybrid model
Best pricing model for bigger, longer and ongoing projects, which may need inputs in the beginning but can be perfected over time
Service provider is engaging with the customer for the first time
Both service provider and customer want to mitigate the risks of T&M and FP pricing models
Managed services model
Work clearly scoped out, with clearly marked out deliverables
Service provider has an excellent understanding of the customer’s systems. The customer in turn is confident enough to hand over
the work to them
Outcome‐based pricing model
Clearly defined output
Output aligning to business process or where direct impact can be defined
For customers who want to align the service provider’s goals with their business goals
Transaction‐based pricing model
Transaction volumes are known and predictable
From the customer’s perspective, this model is used for business process which can be clearly defined, measured in discrete units
Transaction volume are tied to the service provider’s cost drivers
For the service provider’s perspective, this model is used in business process that are standardized, transaction intensive and demand‐driven
Source: PL Research

Tata Consultancy Services
BUY CMP: Rs2,709 TP: Rs2,900
Income Statement (Rs m)
Y/e March 2013 2014 2015E 2016E
Net Revenue 629,895 818,094 963,409 1,135,703
Raw Material Expenses 339,245 430,645 516,286 616,404
Gross Profit 290,650 387,449 447,123 519,299
Employee Cost — — — —
Other Expenses 109,779 135,878 159,344 186,836
EBITDA 180,872 251,570 287,779 332,463
Depr. & Amortization 10,792 13,492 15,864 19,316
Net Interest (10,722) (13,789) (11,593) (12,021)
Other Income 11,881 16,613 21,858 24,286
Profit before Tax 181,960 254,691 293,773 337,433
Total Tax 40,345 60,712 68,155 77,610
Profit after Tax 141,615 193,979 225,618 259,823
Ex‐Od items / Min. Int. (1,493) (2,090) (2,466) (2,915)
Adj. PAT 140,122 191,889 223,152 256,908
Avg. Shares O/S (m) 1,957.2 1,958.7 1,958.7 1,958.7
EPS (Rs.) 71.6 98.0 113.9 131.2
Cash Flow Abstract (Rs m)
Y/e March 2013 2014 2015E 2016E
C/F from Operations 123,260 159,223 200,588 237,042
C/F from Investing (68,535) (108,729) (38,536) (45,428)
C/F from Financing (7,115) 75,531 (66,545) (74,432)
Inc. / Dec. in Cash 47,610 126,024 95,507 117,182
Opening Cash 19,936 18,432 144,907 240,414
Closing Cash 67,546 144,907 240,414 357,596
FCFF 70,004 156,027 159,586 188,698
FCFE 70,160 155,990 159,586 188,698
Key Financial Metrics
Y/e March 2013 2014 2015E 2016E
Growth
Revenue (%) 28.8 29.9 17.8 17.9
EBITDA (%) 25.4 39.1 14.4 15.5
PAT (%) 31.0 36.9 16.3 15.1
EPS (%) 31.0 36.8 16.3 15.1
Profitability
EBITDA Margin (%) 28.7 30.8 29.9 29.3
PAT Margin (%) 22.2 23.5 23.2 22.6
RoCE (%) 38.1 39.8 33.8 30.8
RoE (%) 38.1 39.9 35.3 31.9
Balance Sheet
Net Debt : Equity (0.2) (0.3) (0.3) (0.4)
Net Wrkng Cap. (days) — — — —
Valuation
PER (x) 37.8 27.6 23.8 20.7
P / B (x) 12.9 9.6 7.4 5.9
EV / EBITDA (x) 28.9 20.5 17.6 14.9
EV / Sales (x) 8.3 6.3 5.3 4.4
Earnings Quality
Eff. Tax Rate 22.2 23.8 23.2 23.0
Other Inc / PBT 6.5 6.5 7.4 7.2
Eff. Depr. Rate (%) 8.0 7.9 7.6 7.6
FCFE / PAT 50.1 81.3 71.5 73.4
Source: Company Data, PL Research.
Balance Sheet Abstract (Rs m)
Y/e March 2013 2014 2015E 2016E
Shareholder's Funds 409,560 553,352 712,425 897,817
Total Debt 1,310 1,273 1,273 1,273
Other Liabilities 20,340 23,749 23,749 23,749
Total Liabilities 431,209 578,374 737,447 922,839
Net Fixed Assets 81,943 103,644 126,316 152,428
Goodwill 35,063 41,568 41,568 41,568
Investments 20,404 34,489 34,489 34,489
Net Current Assets 215,841 307,363 443,764 603,044
Cash & Equivalents 67,546 144,907 240,414 357,596
Other Current Assets 237,821 273,208 348,377 410,773
Current Liabilities 89,526 110,752 145,027 165,325
Other Assets 77,959 91,309 91,309 91,309
Total Assets 431,209 578,374 737,447 922,839
Quarterly Financials (Rs m)
Y/e March Q2FY14 Q3FY14 Q4FY14 Q1FY15
Net Revenue 209,772 212,940 215,511 221,110
EBITDA 66,390 66,866 66,559 62,324
% of revenue 31.6 31.4 30.9 28.2
Net Interest (3,094) (3,095) (4,420) (4,993)
Other Income (230) 6,870 6,756 8,237
Total Tax 15,563 16,524 16,313 15,312
Profit after Tax 51,441 53,140 53,048 50,578
Adj. PAT 51,441 53,140 53,048 50,578
Key Operating Metrics
Y/e March 2013 2014 2015E 2016E
Volume (persons month) 2,244,506 2,498,135 2,947,799 3,484,299
Pricing (US$ / Hr) 33.4 35.0 35.5 35.9
Currency (USDINR) 54.5 60.9 59.8 59.0
SW Devp. Cost (% of Sales) 53.9 52.6 53.6 54.3
SG&A (% of Sales) 17.4 16.6 16.5 16.5
Revenue (US$ m) 11,568 13,443 16,124 19,249
EBITDA Margin Expansion/(Erosion) (bps) (78) 204 122 (237)
Tax Rate (%) 22.3 23.9 23.2 23.0

Infosys
BUY CMP: Rs3,691 TP: Rs4,040
Y/e March 2013 2014 2015E 2016E
Net Revenue 403,520 501,330 538,365 606,727
Gross Profit 162,010 193,660 213,437 237,822
Other Expenses 46,430 59,510 65,404 73,478
EBITDA 115,580 134,150 148,033 164,344
Net Interest — — — —
Other Income 23,590 26,690 30,370 33,145
Total Tax 33,670 40,620 46,376 50,389
Profit after Tax 94,210 106,480 122,265 136,236
Ex‐Od items / Min. Int. — — — —
Adj. PAT 94,210 106,480 122,265 136,236
Avg. Shares O/S (m) 572.0 572.0 572.0 572.0
EPS (Rs.) 164.7 186.2 213.7 238.2
Y/e March 2013 2014 2015E 2016E
C/F from Financing (31,860) (30,660) (37,127) (39,983)
Inc. / Dec. in Cash 12,410 41,180 42,914 68,487
Opening Cash 205,910 218,320 259,500 302,414
Closing Cash 218,320 259,500 302,414 370,902
FCFF 79,600 100,820 80,041 108,470
FCFE 79,600 100,820 80,041 108,470
Y/e March 2013 2014 2015E 2016E
Growth
Revenue (%) 19.6 24.2 7.4 12.7
EBITDA (%) 7.9 16.1 10.3 11.0
PAT (%) 13.3 13.0 14.8 11.4
EPS (%) 13.3 13.0 14.8 11.4
Profitability
EBITDA Margin (%) 28.6 26.8 27.5 27.1
PAT Margin (%) 23.3 21.2 22.7 22.5
RoCE (%) 25.6 24.3 23.5 22.3
RoE (%) 25.7 24.4 23.6 22.4
Balance Sheet
Net Debt : Equity (0.5) (0.5) (0.5) (0.6)
Valuation
PER (x) 22.4 19.8 17.3 15.5
P / B (x) 5.3 4.4 3.8 3.2
EV / EBITDA (x) 16.4 13.8 12.2 10.6
EV / Sales (x) 4.7 3.7 3.4 2.9
Earnings Quality
Eff. Tax Rate 26.3 27.6 27.5 27.0
Other Inc / PBT 18.4 18.1 18.0 17.8
Eff. Depr. Rate (%) 10.6 10.2 6.3 6.0
FCFE / PAT 84.5 94.7 65.5 79.6
Y/e March 2013 2014 2015E 2016E
Total Debt — — — —
Net Fixed Assets 64,680 78,870 91,181 105,193
Goodwill 23,440 24,990 24,990 24,990
Investments 17,390 32,710 32,710 32,710
Other Assets 22,260 36,500 36,500 36,500
Total Assets 400,650 479,170 564,308 660,562
Net Revenue 129,650 130,260 128,750 127,700
EBITDA 31,710 36,200 36,410 34,410
% of revenue 24.5 27.8 28.3 26.9
Other Income 5,100 7,310 8,510 8,290
Total Tax 9,400 11,150 11,400 11,540
Profit after Tax 24,070 28,750 29,920 28,860
Adj. PAT 24,070 28,750 29,920 28,860
Y/e March 2013 2014 2015E 2016E
Volume (persons month) 1,236,844 1,367,759 1,442,986 1,630,574
Pricing (US$ / Hr) 34 34 35 36
Currency (USDINR) 54.5 60.8 59.8 59.0
SW Devp. Cost (% of sales) 59.9 61.4 60.4 60.8
SG&A (% of sales) 11.5 11.9 12.1 12.1
Revenue (US$ m) 7,398 8,249 9,010 10,284
EBITDA Margin Expansion/(Erosion) (bps) (312.3) (188.4) 73.8 (41.0)
Tax Rate (%) 26.3 27.5 27.5 27.0

Wipro
BUY CMP: Rs583 TP: Rs680
Y/e March 2013 2014 2015E 2016E
Net Revenue 374,256 434,269 488,922 545,933
Gross Profit 113,591 138,781 157,815 177,410
Other Expenses 35,410 41,680 45,778 51,508
EBITDA 78,181 97,101 112,036 125,903
Net Interest — 52 — —
Other Income 11,250 15,062 14,775 19,327
Total Tax 16,912 22,601 25,079 29,089
Profit after Tax 61,684 78,404 88,918 103,134
Ex‐Od items / Min. Int. — 62 200 100
Adj. PAT 61,684 78,394 88,718 103,034
Avg. Shares O/S (m) 2,463.0 2,466.0 2,466.0 2,466.0
EPS (Rs.) 25.0 31.8 36.0 41.8
Y/e March 2013 2014 2015E 2016E
Inc. / Dec. in Cash 7,172 30,080 75,292 73,387
Opening Cash 77,666 84,121 114,201 189,493
Closing Cash 84,838 114,201 189,493 262,880
FCFF 109,865 45,262 97,385 95,480
FCFE 88,209 55,317 97,385 95,480
Y/e March 2013 2014 2015E 2016E
Growth
Revenue (%) 17.4 16.0 12.6 11.7
EBITDA (%) 17.2 24.2 15.4 12.4
PAT (%) 17.3 27.1 13.2 16.1
EPS (%) 17.1 26.9 13.2 16.1
Profitability
EBITDA Margin (%) 20.9 22.4 22.9 23.1
PAT Margin (%) 16.5 18.1 18.1 18.9
RoCE (%) 20.5 24.2 22.6 22.1
RoE (%) 21.7 25.0 23.5 22.9
Balance Sheet
Net Debt : Equity (0.3) (0.3) (0.4) (0.5)
Net Wrkng Cap. (days) (2) (6) 7 6
Valuation
PER (x) 23.3 18.3 16.2 13.9
P / B (x) 5.1 4.2 3.5 2.9
EV / EBITDA (x) 17.3 13.7 11.2 9.4
EV / Sales (x) 3.6 3.1 2.6 2.2
Earnings Quality
Eff. Tax Rate 21.5 22.4 22.0 22.0
Other Inc / PBT 14.3 14.9 13.0 14.6
Eff. Depr. Rate (%) 10.7 9.8 10.0 9.0
FCFE / PAT 143.0 70.6 109.8 92.7
Y/e March 2013 2014 2015E 2016E
Total Debt 854 10,909 10,909 10,909
Net Fixed Assets 50,525 51,449 53,303 56,674
Goodwill 56,470 65,358 65,358 65,358
Investments 69,222 60,843 60,843 60,843
Other Assets 32,689 40,299 40,299 40,299
Total Assets 294,990 365,848 432,473 513,414
Net Revenue 110,053 112,713 116,535 111,358
EBITDA 25,170 25,923 28,180 25,507
% of revenue 22.9 23.0 24.2 22.9
Other Income 4,949 3,518 3,627 4,449
Total Tax 5,754 6,060 6,536 5,942
Profit after Tax 21,647 20,397 22,391 21,032
Adj. PAT 21,647 20,397 22,391 21,032
Y/e March 2013 2014 2015E 2016E
IT Svcs Revs ($ mn) 689,616 744,785 811,816 884,879
Pricing (US$ / Hr) 38.8 39.2 39.6 40.0
Currency (USDINR) 54.5 60.3 59.8 59.0
Sw. Devp. Cost (% of Sales) 69.6 68.0 67.7 67.5
SG&A (% of Sales) 9.5 9.6 9.4 9.4
Revenue (US$ m) 6,865 7,238 8,183 9,253
EBITDA Margin Expansion/(Erosion) (bps) (4.0) 147.0 55.5 14.7
Tax Rate (%) 21.5 22.4 22.0 22.0

HCL Technologies
Accumulate CMP: Rs1,708 TP: Rs1,750
Y/e June 2013 2014 2015E 2016E
Net Revenue 257,336 329,180 373,127 422,588
Gross Profit 92,557 127,020 145,074 162,469
Other Expenses 34,201 40,350 49,942 57,490
EBITDA 58,356 86,670 95,133 104,979
Other Income 1,571 (160) 7,500 9,092
Total Tax 12,217 15,480 19,920 22,709
Profit after Tax 40,984 63,710 74,735 82,714
Ex‐Od items / Min. Int. — — — —
Adj. PAT 40,984 63,710 74,735 82,714
Avg. Shares O/S (m) 693.3 693.3 693.3 693.3
EPS (Rs.) 59.1 91.9 107.8 119.3
Y/e June 2013 2014 2015E 2016E
Inc. / Dec. in Cash 648 449 37,036 55,738
Opening Cash 6,673 7,321 10,206 47,242
Closing Cash 7,321 10,206 47,242 102,980
FCFF 25,332 18,596 56,955 79,224
FCFE 13,070 19,145 56,955 79,224
Y/e June 2013 2014 2015E 2016E
Growth
Revenue (%) 22.4 27.9 13.4 13.3
EBITDA (%) 45.0 48.5 9.8 10.4
PAT (%) 62.2 55.5 17.3 10.7
EPS (%) 62.2 55.5 17.3 10.7
Profitability
EBITDA Margin (%) 22.7 26.3 25.5 24.8
PAT Margin (%) 15.9 19.4 20.0 19.6
RoCE (%) 26.9 32.8 29.4 25.9
RoE (%) 32.8 37.1 32.1 27.6
Balance Sheet
Net Debt : Equity — — (0.1) (0.3)
Valuation
PER (x) 28.9 18.6 15.8 14.3
P / B (x) 8.3 5.9 4.5 3.5
EV / EBITDA (x) 20.3 13.6 12.0 10.4
EV / Sales (x) 4.6 3.6 3.1 2.6
Earnings Quality
Eff. Tax Rate 23.0 19.5 21.0 21.5
Other Inc / PBT 3.0 (0.2) 7.9 8.6
Eff. Depr. Rate (%) 24.7 23.3 21.1 19.1
FCFE / PAT 31.9 30.1 76.2 95.8
Y/e June 2013 2014 2015E 2016E
Total Debt 6,960 7,509 7,509 7,509
Net Fixed Assets 27,283 31,465 37,808 45,203
Goodwill 49,581 51,492 50,977 50,569
Investments 541 156 156 156
Other Assets 22,389 23,462 23,462 23,462
Total Assets 165,020 222,938 285,216 352,685
Y/e June Q2FY14 Q3FY14 Q4FY14 Q1FY15E
Net Revenue 81,840 83,490 84,240 88,272
EBITDA 21,250 22,320 22,170 22,068
% of revenue 26.0 26.7 26.3 25.0
Other Income (470) (70) 1,580 2,000
Total Tax 3,980 4,290 3,620 4,654
Profit after Tax 14,950 16,240 18,360 17,507
Adj. PAT 14,950 16,240 18,360 17,507
Y/e June 2013 2014 2015E 2016E
Volume (persons months) 500,637 562,716 614,486 703,586
Pricing (US$ / Hr) 35.3 37.1 37.7 38.2
Currency (INR/USD) 54.7 61.4 59.8 59.0
SW. Devp. Cost (% of sales) 64.0 61.4 61.1 61.6
SG&A (% of sales) 13.3 12.3 13.4 13.6
Revenue (US$ m) 4,686 5,360 6,245 7,163
EBITDA Margin Expansion/(Erosion) (bps) 354 365 (83) (65)
Tax Rate (%) 23.0 19.5 21.0 21.5

THIS PAGE IS INTENTIONALLY LEFT BLANK

Prabhudas Lilladher Pvt. Ltd.
3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai‐400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage
30.7%
51.8%
17.5%
0.0%
60%
50%
40%
30%
20%
10%
0%
BUY Accumulate Reduce Sell
% of Total Coverage
PL’s Recommendation Nomenclature
BUY : Over 15% Outperformance to Sensex over 12‐months Accumulate : Outperformance to Sensex over 12‐months
Reduce : Underperformance to Sensex over 12‐months Sell : Over 15% underperformance to Sensex over 12‐months
Trading Buy : Over 10% absolute upside in 1‐month Trading Sell : Over 10% absolute decline in 1‐month
Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly
This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as
information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be
considered or taken as an offer to sell or a solicitation to buy or sell any security.
The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy
or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information,
statements and opinion given, made available or expressed herein or for any omission therein.
Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The
suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an
independent expert/advisor.
Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or
engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication.
We may from time to time solicit or perform investment banking or other services for any company mentioned in this document.

Information Technology: A qualitative assessment of two billing models - Prabhudas Lilladher

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Information Technology: A qualitative assessment of two billing models - Prabhudas Lilladher

Similar to Information Technology: A qualitative assessment of two billing models - Prabhudas Lilladher (20)

More from IndiaNotes.com

More from IndiaNotes.com (20)

Recently uploaded

Recently uploaded (20)

Information Technology: A qualitative assessment of two billing models - Prabhudas Lilladher