Technology Initiating coverage

Key data SASKEN IN / SKCT.BO

52-week high / low ` 1149 / 428

Sensex / Nifty 37165 / 11245 3-m average volume $ 0.7m The reincarnation

Market cap ` 16b / $ 230m

Shares outstanding 17m

Shareholding (%) Jun'18 Mar'18 Dec'17

Promoters 42.4 42.4 42.4 Mohit Jain| Research Analyst

- of which, Pledged Sugandhika Singh| Research Assistant Free float 57.6 57.6 57.6

- Foreign inst. 18.0 17.8 17.5

- Domestic inst. 0.2 0.2 0.2

- Public 39.4 39.6 39.8

1 The turnaround story Rating: Buy Target Price: ` 1,680 Financially Share Price: ` 930 • Sasken’ s revenue declined over FY10-15; it stabilised / bottomed out over FY16- 18,and is now likely to look up from FY19 • Its FY18 revenues were $76m (up 13%) and it is now aiming at a high $200m+ revenue over the next three years Sasken has broadened its horizons: • Growth aspppirations are supppyorted by cappypability and its top-10 accounts • Revenue per employee was stable during FY15-17, and is now trending up. 1) Its focus has enlargened from ‘Communications-only’ to Communications-plus, the Operationally automotive, industrial, semi- • North America is growing fast. Top clients are accelerating conductors, “smart” devices, • Revenue per client is looking up; client addition is increasing wearables, satellite communications, and digital • Offshore and FPP are trending up, reflecting growth in core engineering services (transportation & industrial) • Utilisation is currently high; the company to turn net hirer in FY19 segments Why positive on growth 2) The opportunity size it currently addresses is much larger, • Upswing in existing top accounts; semi-conductor and telecoms clients are likely to diversified and inherently de- increase spending with Sasken risked • Deal pipeline, price hikes, and closures in few large deals can deliver growth

2 The Business Your partner in mobility Model

Communications protocol Sasken broadly does five things -- Industrial IoT and Home automation services, Voice activation, Cloud and Sensor and does them exceedingly well integration, Connecting to 4G/LTE networks. Connectivity and Software for rugged devices, Wireless modem connectivity codes 1) Communications protocol 2) Systems software System software 3) Network design Migra te OEMs ’ ex is ting pro duc t lines to var ious vers ions o f An dro id. In automobiles, Infotainment systems; In vehicle communications, Telematics, Driver 4) Semi-conductor chip design assistance, etc. 5) Other supporting services Network design Radio network services – Running and maintaining 2G/3G GSM and CDMA Negatives networks for OEMs and supporting the R&D teams of the OEM to develop next generation 1) Its expertise was highly focused networks on communications and chip Semi-conductor chip design design for OEMs Sasken works in the designing and testing of chips; and also on re-engineering of those 2) Its fortunes were so interlinked designs to create more efficient or more operational design versions of chips with the two sectors that when it Other supporting services was faced with challenges, it had no way out Component-testing services for mobile handsets Digital IT Uses platforms and various services in combination to make client’s business operations and decision-making more analytics-, data- and AI-driven. It also offers predictive analytics solutions 3 The New Sasken – Sasken’s wider scope today Communications plus plus Automotive Sasken today works with leading OEMs and Tier-1s, delivering cutting-edge solutions in In- Vehicle Infotainment, Telematics and Advanced Driver Assistance Systems. Its engineering expertise and solutions accelerators help its customers develop products that power tens of millions of connected vehicles on the road today Industrials It helps deliver smart, connected products for global companies building the next generation of industrial products. It offers solutions that help industrial equipment manufacturers leverage data analytics for smarter management of industrial assets. The solutions deliver greater productivity, higher uptime and achieve superior customer satisfaction Smart Devices and Wearables It helps OEMs deliver a superior media experience, optimise power and performance, incorporate newer displays, connectivity, cameras, sensors and the latest security maaeanageme etnt solu tions. It helps redu ce time -to-maketarket for OEMs Rugged Devices It has helped the worlds leading manufacturers of rugged devices build their next-gen products based on open-source software platforms. It helps customers incorporate the latest sensors, connectivity and other hardware to work effectively with digital enterprise applications

4 The New Sasken – Sasken’s wider scope today Communications plus plus Satellite Communications Sasken provides the most competent bouquet of services to develop satellite terminals. This incudes product conceptualisation, design of hardware, software, radio systems, applications, design for manufacturability, testing, certification and commercial production Digital It leverages its deep expertise insmart didevices and embdddbedded systems and dldevelopment s in SMAC to help enterprises in the Transportation and Industrial segments accelerate the transition toward becoming a digital enterprise

It has weathered the storm, has learnt from its mistakes, is now focusing on de-risking its business, and is expected to emerge stronger over the next two years

5 Landmarks Think communications, think Sasken

Sasken was the next big thing in Sasken had an enviable client list Indian IT Nokia, , Nortel, TI, , ST Micro, Alcatel, Lucent, Samsung, Sony, Motorola, Lenovo 1) It aligned itself so well with The Telecoms Storm and status as of FY19 NkiNokia and Motoro la in handsets, Intel in chip 1) Nokia – Set up on the banks of the Nokianvirta river, the Finnish company after years of design, and Nortel in networks struggle was sold to Microsoft in 2013 that, if these companies had 2) Intel – Struggled to shift its leading position in PCs to mobile handsets. The business succeeded, Sasken would have seems to be recovering from 2016 outshone all others 3) Nortel – Filed for bankruptcy in 2009. Sold part of its wireless business to Nokia in 2005 2) Over FY04-08 it delivered a 4) TI – In 2012, quit the mobile phone / tablets chip fabless supplier market 41% CAGR, and a 25% EBITDA CAGR. The rupee appreciated 5) Qualcomm – Doing OK. Enjoys $94bn Mcap (Aug’18) and $22bn revenue 3% 6) ST Micro – Nokia and Blackberry were ST’s large customers; hence, fortunes were 3) Had an enviable client list at a linked. Recovered strongly in 2017, supported by sensors supplied to iPhone X very early stage 7) Alcatel – The decline of Alcatel-Lucent continued till 2012. In 2015, it was sold to Nokia 4) IPO in 2005 at `260 a 8) Lucent – Was sold to Alcatel in 2006 to avoid bankruptcy share, oversubscribed 78 times

6 The fall from Think communications, grace think Sasken

Sasken had a mix of bad luck and Sasken had an enviable client list total disregard of risk-control Nokia, Intel, Nortel, TI, Qualcomm, ST Micro, Alcatel, Lucent, Samsung, Sony, Motorola, systems, resulting in extreme Lenovo exposure to but a few clients The Telecoms Storm and status as of FY19 1) It suffered a revenue shortfall/ 1) Motorola – Nokia dented the handset market share of Motorola, with Razr being the last decline of ~$85m over FY09-17 successful model. The fatal mistake was Rokr – Razr, which ran on iTunes with a joint 2) The quality of projects that were launch by Apple and Motorola. Two years later, Apple launched iPhone. Later, taken uppg during this period bought in 2012. Two years later, Google sold Motorola to Lenovo were sacrificed (reflected by 2) Samsung – Continues to be the top manufacturer of phones in the world FPP falling to 13% in FY15, US 3) Sony Mobile – Struggling to increase market share or to become profitable on a revenue declining to its lowest sustained basis. Lost the battle to iPhone and Samsung level in FY12, revenue per 4) Lenovo – Rising in the PC market with a high revenue base and margins (compared to accecetive client in FY16 halvin g manufact uri ng compani es) bu t nee ds to ma ke its presence felt in the mobil e mark et from FY05; in FY14 onsite was 44% of revenue)

With this kind of turbulence in the industry and within its top clients, Sasken commendably survived and stayed away from cash-flow or balance-sheet issues

7 Recipe for failure The downfall

Sasken failed because it was uncomfortably close to its top Till FY08, Sasken was all about its top-10 accounts customers 153 1) Its top-10 continued to play a 142 disproportionate role. Some of 121 122 this was due to industry factors, 105 108 some by design 125 120 87 2) The industry suffered an 76 70 99 75 73 unusual and prolonged 91 93 69 67 downturn, with the business of 54 80 many of Sasken’s top-10 clients 36 58 62 spiralling down 51 44 46 43 49 44 26 Positives 1) The company continued to be EBITDA- and cash-positive despite shrinking revenue FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Revenues Top 10 Revenues

Note: Dollar revenues derived from reported rupee reveneus and average exchange rates 8 The core survived Small Mercies

Resilience was shown through the following. EBITDA margins were positive, enabling it to survive eight years of decline

1) Attrition went through the roof 23% with the pp;eak at 47% in FY13; 5,027 headcount halved, but the 19% company still managed 18% 18% execution well. In 2018, 600 15% 15% 15% employees (32% of workforce) 14% 14% 14% had been with it for over five 12% years 10% 9% 9% 2) Variable cost structures were 8% fully utilised to smoothen out the rough patch 48 686 1,467 Positives 10 11 12 13 14 15 16 17 18 1) In Mar’18, Sasken had `5,000m in 04 05 06 07 08 09 YY YY YY YY YY YY YY YY YY YY YY YY YY YY YY F F F F F F F F F cash & equi val ent s; from operations F F F F F F it generated `790m during the year. Net Cash EBITDA Margins (RHS)

9 The Silver Lining Recap of the last 10 years

Operating cash-flow over the last 10 years (` m) Resilience was shown through the following. 2,490 1) Sasken was able to maintain its CFO (cash flow from 1,913 operations) in positive territory throughout the downcycle 1,329 1,161 2) While there were years of exceptional gains in FY15 and 790 691 641 FY16, it survived the six year 595 534 decline in revenues 453 259 229 288 251 69 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 CFO

Note: Sasken moved to IndAS from FY18 10 The Hitchhiker’s guide to Sasken

FY07 AR In each of the business segments, the outlook is healthy. Nokia-Siemens and Alcatel-Lucent-Nortel UMTS consolidation on the network-equipment side is leading to some slowdown in offshore/outsourcing expenditure Next year is expected to be a cyclical peak for the semi-conductor industry Completed the acquisition of Botnia Hightech Oy to get closer to Nokia

FY08 AR Sasken has relationships with many of the top network OEMs, semi-conductor vendors, network operators and with the top-5 handset vendors across the world Faced with the twin challenges of an appreciating rupee and cost escalations, we believe we are in control. GSM deployment and IPTV rollouts present significant opportunities. On the semiconductor side, operations are stabilising with key semiconductor vendors after a round of consolidation in the first half of CY07

FY09 AR The economic downturn in FY09 resulted in tightening of R&D spends by our customers. These events have posed significant challenges for the company. One of its key customers in NEMS filed for protection against bankruptcy, which hit revenues and receivables significantly. The handset side of the business continued to grow robustly despite pressures from certain pockets. A number of semiconductor vendors went through similar budget pressures. We saw lower R&D spends from one of the key customers in this segment. However, there are signs of stabilisation

11 The Hitchhiker’s guide to Sasken

FY10 AR Despite revenue declining 17.7%, we had higher profits. We expect the trend in revenue-decline to end soon. Sasken has been actively working with Symbian platforms for the past few years. Last year, it became a member of the Open-Handset Alliance Forum, championed by Google and supported by T-Mobile, HTC, Qualcomm, Motorola and others, who are collaborating on the development of Android systems. The networks business continues to pose a challenge We are trying to extend our services to adjacent markets and see consumer/auto as a good fit. In FY11, we face new challenges. Our employees are looking forward to wage revision but our customers are consolidating vendors, leading to pressure on billing rates

FY11 AR Was a challenging year. The positives were that Android took off.We have played a pivotal role in delivering R&D services to port various versions of Android on most of the chipset platforms in the market today

FY12 AR The reshuffling of key players in the communications market-place is throwing up significant challenges. Further, our largest customer has changed its software strategy, resulting in significant decline in revenues. Our rear-seat entertainment solution has matured and is likely to be part of high-end sedans. We have established our credibility and operations in Korea through an engagement in the region

FY13 AR Networks are struggling to cope with the surge in data. We have been seeing the bottoming out of the ramp-downs from one of our largest customers. Our resilience has been tested to the fullest extent. LTE deployement begins to support data on mobile. 12 The Hitchhiker’s guide to Sasken

FY14 AR Ventures into IT services – Application Services, IMS, and Testing Services. Wins arbitration award against Spreadtrum Communications. Enters indoor-navigation services

FY15 AR To better address the immense market opportunities we see, we have re-vectored our go-to-market approach that judiciously combines a geo-focus in conjunction with customer engagement models. Our thrust areas include pursuing opportunities arising from a) Global In-house Centres (GICs) in , b) proximity-development centers of global OEMs, and c) delivering the work entrusted to us through the prudent choice of our global development centers

FY16 AR I am reminded of what I call a ‘perfect storm’. To post growth of nearly 13% over the previous fiscal (7% in dollar terms) is gratifying. Tectonic shifts have affected our business from 2008 resulting in headwinds and challenges on the revenue front. Three of those we counted as our largest customers were traversing choppy waters, including either exiting the business or facing serious losses in market share; one even filed for bankruptcy. For six years revenue declined. Our enviable customer base continues to repose confidence iiin us and entrusts us with work that iiiis critical fifor their success. SiSemicon is turn ing around, w ith growth driven by wider adoptions of sensors and investments in data-driven 4G/5G networks . FY17 AR Sasken 2.0 – Time to reinvent. Changgges name from Sasken Comm to Sasken Tech. This reflects change in adressable market for Sasken as communication becomes integral to various industries. Worked on engagements including next-gen automotive chipsets that comply with automotive standards, supported semicons deliver low power design for wearables, and ported operating systems (Linux, Android, Windows) on new chipsets. 13 The Hitchhiker’s guide to Sasken

FY18 AR On course to achieve 5x5 vision. Bags most significant deal in Satellite. In FY18, scaled up the business with two of the most significant semiconductor companies in the world. The automotive segment has been a prime mover of growth in the recent past. FY18 growth reaffirms the achievability of 5x5 targets

Sasken has so far powered the global launch of over 100 products, with collective shipments of more than 1bn units

14 Revenue recovery FY18: the operational and margin expansion improvement

The improvements are visible in the 20 20 20 financial and operating ($ m) 19 19 19 17 18 18 17 18 performances 16 16

1) Revenue started showinggg signs 14 14 13 13 of recovery although volatility 11 12 12 12 11 11 12 continues 11 10 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2) Costs are currently fixed and FY16 FY17 FY18 FY19 the margin expansion was due to revenue productivity rising – Revenues Top 10 Revenues a mix of billing-rate increases and a ramp-down of lower- (` m) 872 875 margin projects 215 207 207 189 189 187 187 164 164 150 150 128 128 124 124 118 118 103 95 81 44 44 Q Q Q Q Q Q Q Q Q Q Q Q Q 11 22 33 44 11 22 33 44 11 11 22 33 44

FY16 FY17 FY18 FY19 Cost of Rev SG&A EBITDA Source: Company Reports, Anand Rathi Research estimates 15 Employee FY18: High attrition to high productivity improvements productivity ($ 000' annualized) 698 748 The improvements are visible in the 619 619 602 650 549 594 financial and operating 534 490 490 464 481 43 performances 42 40 40 39 38 1) Siggynificantly better revenue p er 36 36 employee and revenue per 34 34 34 32 32 client over the last few quarters 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q

2) Operationally, attrition is FY16 FY17 FY18 FY19 coming off the peaks (47% in FY13) and is likely to shrink in Revenues per employee Revenues per client (RHS) FY19 due to wage hikes

3) Utilisation moved higher, 78% 82% 83% 79% 80% 80% 79% 79% 80% 77% 80% 80% 81% suggesting more predictability in the model. Headcount addition is likely to kick in now 35% 35% 29% 30% 30% 30% 32% 34% 32% 31% 30% 27% 33% QQ QQ QQ QQ QQ QQ QQ QQ QQ QQ QQ QQ QQ 2 3 4 1 2 3 4 1 1 2 3 4 1

Attrition Utilization (RHS) Source: Company Reports, Anand Rathi Research estimates 16 Turnaround FY18: All-round revenue across areas jump

The improvements are visible in the financial and operating performances ($ m) 5.0 6.0 5.6 6.0 1) The US has started ggg,rowing, 4.9 556.6 414.1 505.0 505.0 454.5 505.0 reflecting improvement in 4.3 4.3 Sasken’s competiveness 1.7 2.3 1.4 1.6 1.6 1.7 1.8 1.3 1.2 1.2 1.3 1.3 1.0 2) Europe needs to be fixed but is 4.6 5.0 4.6 6.8 4.7 not declining either 5.5 545.4 5.7 5.4 5.0 606.0 5.6 565.6 3) India is also growing, but to achieve Sasken’s vision of $250m 8.0 7.8 7.8 6.3 6.3 6.5 7.1 revenue by FY21, the US and Europe 5.3 5.8 5.7 5.9 4.8 5.1 are likely to play larger roles

4) Recent deal wins from Sequens 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q have helped it significantly scale up revenues in the US over the last 12 months. FY16 FY17 FY18 FY19 US Europe APAC India

Source: Company Reports, Anand Rathi Research estimates 17 Client FY18: Width and Breadth parameters looked up expansion

The improvements are visible in financial and operating performances

1) Stabilisation in client metrics FY16 FY17 FY18 FY19 across buckets; some momentum in client additions ($1m+) Client Metrics Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2) $3m+ and $10m+ client buckets $1m + 12 11 11 12 11 10 6 7 11 10 12 12 10 are stable, though the company is focusing more on these seven clients to win large deals $3m + 5665566666666

3) Sasken doesn’ t need to add $10m + 1 1 1 1 1 1 1 1 1 1 1 1 1 clients to achieve its vision. Revenue per client is the parameter to track the success Active Clients 110 125 126 134 146 142 138 133 129 126 123 114 107 of its strategy

Source: Company Reports, Anand Rathi Research estimates 18 Offerings mix is FY18: Bolder business mix improving Sasken is improving the quality of its work by moving to FPP swiftly The improvements are visible Fixed Price as percent of Revenue 57% 57% 58% 59% infinancial and operating 53% 56% 48% performances 47% 37% 36% 38% 31% 1) Improvement in FP ppjrojects, 23% 26% 19% reflecting its greater confidence 13% while bidding and the ability to benefit from efficiency gains Sasken Mindtree Wipro KPIT 1) Higher offshore delivery to ensure better margins and more benefits from the rupee Being an engineering company, Sasken stands to benefit more from a depreciating rupee depreciation Offshore as percent of Revenue 65% 64% 58% 61% 53% 46% 46% 47% 47% 47% 42% 40% 41% 43% 41% 43%

Sasken Mindtree Wipro KPIT 4QFY15 4QFY16 4QFY17 4QFY18 Source: Company Reports, Anand Rathi Research estimates 19 Did well in bad All was not lost in the bad times too phase

FCF (` m) RERoEs (%)

• The average RoE for the last 10 FY18 728 FY18 14% years was ~17%, including one- time gains from IP. It may not be FY17 208 FY17 14% apt to look at RoE excluding these gains because we are also FY16 factoring in the cost of 2,448 FY16 44% developing these IPs over a ppprotracted period FY15 1,873 FY15 28%

• Not a single year of cash burn in FY14 595 FY14 12% the last 10 years. Commendable. FY13 394 FY13 7%

FY12 330 FY12 14%

FY11 555 FY11 15%

FY10 947 FY10 15%

FY09 1,041 FY09 9% Source: Company Reports, Anand Rathi Research estimates 20 Tried to benefit Reduced the pain of the minority shareholders minority

• Share count has gone down Money retdturned to shhldhareholders (` m) Wei ght e d average number of shares ()(m) dramatically due to buybacks FY18 182 FY18 17.1 • In FY06, it was 26m shares; in FY18, it has come down to 17. 1m FY17 309 FY17 17.6

• Total payout ratio over the last 10 FY16 1,702 FY16 19.3 years, including buybacks and taxes, is 70% FY15 658 FY15 21.3

FY14 770 FY14 21.3

FY13 846 FY13 24.4

FY12 326 FY12 26.2

FY11 435 FY11 28.2

FY10 190 FY10 28.4

FY09 288 FY09 27.9 Note: Money returned incudes dividends, dividend tax and buybacks Source: Company Reports, Anand Rathi Research estimates 21 The Blue Sky Sasken’s aspiration is to Scenario touch $250m by FY21 !

Sasken’s Blue Sky scenario to FY21 Blue Sky: Revenue and EBITDA scenarios • By FY21 revenues are likely to touch $210m organically; FY09-18 FY18-21 ildiincluding acquis itions, $250m FY09 FY18 FY21e CAGR % CAGR % • The EBITDA margin is likely to Revenues ($ m) 153 76 210 -7 40 come at 15% at that scale and given the exchange rate of `67 to USD INR 46 66 67 41 the dollar Revenues (` m) 6,978 5,030 14,099 -4 41 • This can fetch a market cap of EBITDA (` m) `31.2bn at an EV/EBITDA of 12x 1,624 695 2,183 -9 46 by FY20 EBITDA Margins % 23 14 15 -947bps 167bps • This represents 90% potential in the next two years No. of Employees 3,277 1,867 ND -6 ND

22 Base Case What are we baking into our Attractive too estimates?

Sasken’s base case scenario to FY21 Base case: Revenue and EBITDA scenarios • Revenues are likely to touch $140m organically by FY21 FY09-18 FY18-21 FY09 FY18 FY21e • The EBITDA margin is likely to CAGR% CAGR% come at 15% at the exchange rate of `67 to the dollar Revenues ($ m) 153 76 139 -7 22 • This builds in higher-than- USD INR 46 66 67 41 industry wage increases over Revenues (` m) the next two years 6,978 5,030 9,327 -4 23 EBITDA (` m) • This can fetch a market cap of 1,624 695 1,444 -9 28 Rs28.8bn at a 1-yr forward EV/ EBITDA Margins % 23 14 15 -947bps 167bps EBITDA of 16x by FY20 or at a PE of 22x FY21e (FY18-21 dollar revenue CAGR of 22% and EPS CAGR of 17% No. of Employees 3,277 1,867 3,112 -6 19

• This represents 81% potential in the next two years.

Source: Company Reports, Anand Rathi Research estimates 23 Financial Snapshot

P&L (`m) - YE M ar FY17 FY18 FY19e FY20e Balance FY21e sheet (`m) - YE MFY17 ar FY18 FY19e FY20e FY21e

Revenues (US$m) 67.3 76.3 92.5 114.2 Share capital 138.9 171 171 171 171 171 Growth (%) -8.1 13.4 21.3 23.4 Net worth 21.7 5,473 6,210 6,649 7,150 7,838 Net revenues(()Rs m) ,689 4 , 030 5 , 211 6 , 666 7 , 327 9 Total debt debt (including (including Pref) Pref) - - - - - Employee & Direct Costs 3,395 3,318 3,962 4,788 5,702 Minority interest - - - - - Gross Profit 1,294 1,713 2,249 2,877 DTL/(Asset) 3,625 -90 -73 -73 -73 -73 Gross Margin % 27.60 34.05 36.22 37.54 Capital 38.86 employed 5,384 6,137 6,575 7,077 7,764

SG&A 863 1,018 1,514 1,812 2,181 NttNet tangible iblassets t 375 369 398 447 518 EBITDA 431 695 736 1,066 1,444 Net Intangible assets 2 4 4 4 4 EBITDA margins (%) 9.2 13.8 11.8 13.9 Goodwill 15.5 ------Depreciation 65 62 64 66 CWIP (tangible 69 and intangible) 1 0 0 0 0

Other income 457 364 444 369 384 Investments (Strategic) (Strategic) Interest Exp 1 - - - - Investments (Financial) 3,520 4,592 4,822 5,063 5,316 PBT 823 997 1,115 1,368 1,759 Current Assets (ex Cash)e Incl LT 2,134ass 1,865 2,219 2,679 3,204 Effective tax rate (%) 10 17 24 26 Cash 26 325 434 457 423 502 Current Liabilities + Associates/(Minorities) - - - - - (ex ST Loan/Current 972 , 128 1 , 325 1 , 539 1 , 779 1 Net Income 737 824 849 1,014 1,304 Working capital 1,161 737 895 1,140 1,425 WANS 18 17 17 17 17 Capital deployed 5,384 6,137 6,575 7,077 7,764 FDEPS (`/share) 41.9 48.2 49.6 59.3 76.2 Contingent Liabilities 709 659 - - -

Source: Company RRteports, AAdnand RthiRathi Researc h EtitEstimates. Note: Sasken moved to IndAS in FY18; hence, FY17 figures are not strictly comparable. For comparison purposes, it had Rs500m EBITDA and a Net Income of Rs847m in FY17, per IndAS. FY17 net income includes exceptional items of Rs203m.

24 Financial Snapshot

Cash Flow (`m) - YE M ar FY17 FY18 FY19e FY20e FY21e Ratio Analysis - YE M ar FY17 FY18 FY19e FY20e FY21e PBT 823 997 1,115 1,368 1,759 P/E (x) 21.6 19.3 18.7 15.7 12.2 + Non-cash items -132 -303 -380 -302 -315 EV/EBITDA (x) 25.2 15.6 14.8 10.2 7.5 Operating profit before WC changes 690 693 736 1,066 1,444 EV/sales (x) 2.6 2.2 1.7 1.4 1.1 - Incr./(decr.) in WC 258 -231 64 138 161 P/B (x) 2.9 2.6 2.4 2.2 2.0 Others incuding taxes -182 -134 -360 -461 -578 RoE (%) 14.1 14.1 13.2 14.7 17.4 Operating cash-flow 251 790 312 466 704 RoCE (%) - After tax 6.2 8.8 7.9 10.6 13.5 - Capex (tangible + Intangible) 43 62 93 115 140 RoIC (%) - After tax 21.9 35.4 37.7 46.4 53.0 Free cash-flow 208 728 219 351 564 DPS (Rs per share) 7.0 10.0 20.0 25.0 30.0 Acquisitions - - - - - Dividend yield (%) 0.8 1.1 2.2 2.7 3.2 - Dividend (including (including buyback buyback & &tax tax 309 182 411 513 616 Dividend payout payout (%) (%)- Inc. IncDDT DDT 19 .9 9 24 .9 9 48 .4 4 50 .6 6 47 .2 2 + Equity raised - - - - - Net debt/equity (x) -0.7 -0.8 -0.8 -0.8 -0.7 + Debt raised -12 - - - - Receivables (days) 88 81 81 81 81 - Fin Investments -194 661 230 241 253 Inventory (days) - Misc. Items (CFI + CFF) -10 -225 -444 -369 -384 Payables (days) 24 33 32 31 30 Net cash-flow 91 110 22 -34 79 CFO:PAT% 34.1 95.9 36.8 46.0 54.0 Cash classified as other asset/overdra 0 0 0 - - FCF:PAT% - includ M&A payout 28.2 88.4 25.8 34.6 43.3

20.0 19.9 20.0 17% 15% 15% 18. 77 12% 17.7 11% 8 8 8 8 9 18 18 18 18 19 11 11 11 11 11 1QFY 4QFY 3QFY 2QFY 1QFY 1QFY 2QFY 3QFY 4QFY 1QFY EBITDA margins % Revenues (US$m) Source: Company Reports, Anand Rathi Research Estimates. 25 A very sound balance sheet

Sasken has enough cash to support: Sources of funds Application of funds • Acquisition of a $40m company, if acquired at 2x EV:sales.

• At the current EV of Rs.1,0870 m, it generated an EBITDA of Rs695m and OCF of Rs790m, Fixed Assets LT Liabilities 6% protecting it from a downslide if 1% LT Assets the growth assumptions do not 11% play out favourably. Net Working Capital • The same level of Fixed Assets 3% has supported a peak headcount of 3,,py,600 employees, which on our assumptions means no Cash capex till FY21 Equity 80% 99% • Receivable (81) and Payable days (33) are in line with those of the industry Note: As of FY18 consolidated balance sheet

26 Valuation Peer Mapping : Growth Review: The backdrop

35.1 Mindtree, 21%

30.1 KPIT, 15% • Fundamental performance Sasken, 14% 25. 1 Mastek, 16% % • Sasken will beat peers in 20.1 revenue and EBITDA Sonata, 31% CAGR growth

DA 15.1 TT HGS, 14% • Its RoE will be slightly PittPersistent EBI Cyient, 18% lower but steadier and 10.1 Firstsource, 15% improving as profitability rises 5.1 • FCF yield reasonable (~3.5% likely on average 0.1 basis – FY18-21) compared 0.0 5.0 10.0 15.0 20.0 25.0 to the growth that the company is experiencing Revenue CAGR %

Note: As of Aug 2018 estimates. CAGR represents FY18-20E period. Bubble Size represents RoE and is shown next to the company name. 27 Relative Peer Mapping : Valuations valuations Review

25.0

Mindtree 20.0 • Valuations Persistent Cyient Sasken • Trading broadly in line 15.0 with peers as far as the PE

(FY20) KPIT Firstsource ratio is concerned Mastek Sonata atio RR 10. 0

• We think it can command a PE premium to the average HGS and catch up to either 5.0 engineering companies or to Mindtree as the fundamental performance ‐ is expected to be so much better 0.0 20.0 40.0 60.0 80.0 100.0 120.0 FCF to PAT %

Note: As of Aug’18. The percent of FCF-to-PAT represents FY16-18 period actuals. PE ratio is based on FY20 EPS estimates. 28 Brief Management Profile

Rajiv Mody, Chairman, Managing Director and CEO Rajiv founded the company in 1989, along with two co-founders. He obtained his Bachelor’s degree in Electrical Engineering from M.S University, Baroda, India, and his Master’s in Computer Science from The Polytechnic School of Engineering, NYU, New York, the USA

Neeta Revankar, CFO Neeta has been instrumental in helping Sasken drive financial discipline and profitability since inception. Neeta has held additional responsibilities between November 2008 and 2013 including HR, IS-IT and Global Operations. She is a qualified Chartered Accountant and Company Secretary

Hari Haran, Head Sales and Marketing He has over three decades’ extensive global experience in networking, communications, wireless, software and PES. He is responsible for driving Sasken’s global sales and business development efforts. Before this, he worked at Aricent, Persistent, Longboard, Openwave Systems, Lucent Technologies Bell Labs, and AT&T

29 Leadership Profile

Ajit Singh, Head – Communications and Devices Ajit joined Sasken in 2017, with more than two decades’ experience spanning the Product Engineering and IT Services industry vertical at Wipro

Raman Sapra, EVP and GM - Digital Raman is the global head and P&L leader for Sasken – Digital. In previous roles, he worked in Wipro and Dell in various roles. He holds a Bachelor of Engineering degree from The Indian Institute of Technology – Roorkee, and operates out of Texas, the US

Ankur Pawa, Head – Digital Services He has a global experience serving as a Digital and Business Services Strategist, P&L leader, and VC/PE Investor in emerging Digital technologies across a spectrum of global enterprises.Before this, he was responsible for Digital Analytics/AI and Omni Commerce business at Dell. He also worked with Baird Capital, Tholons, Atos Origin and CTS. He has a Bachelor’s Degree in Engineering from The MS Ramaiah Institute of Technology, Bengaluru, and an MBA from IIM, Lucknow

Srinivas Prasad, Head – Semiconductors Srinivas has worked in a variety of roles in the last 23 years that he has been with Sasken. He comes from a very strong understanding of the communication business and has handled a variety of leadership roles, including managing he Semiconductors, Devices, Networks and Automotive segments. 30 Corporate Board of Directors Governance

• 5/10 independent board members, average compared to Rajiv Mody Executive, Promoter peers Bansi Mehta Independent • Audit Committee (chaired by Bansi Mehta; members: J. Bharat Patel Independent Ramachandran, Pranabh Mody, Sunirmal Talkdar, Bharat Patel) Jyotindra Mody Non-Executive, Promoter

• Nomination and Renumeration J. Ramachandran Independent Committee (chaired by J. Ramachandran; members: Pranabh Mody, Bharat Patel) Pranabh Mody Non-Executive, Promoter

• Strategic Business Review Sanjay Shah Independent Committee (chaired by J. Ramachandran: members: Sunirmal Talikdar Independent Pranabh Mody, Sunirmal Talkdar, Bharat Patel) G. Venkatesh Non-Executive

Neeta Revan kar EiExecutive

31 Key Management Personnel

Management Salary (Rs m) FY18 FY17 FY16 FY15 CAGR %

Rajiv Mody 41.7 15.8 34.4 7.8 75 Neeta Revankar 24.7 12.3 20.4 5.6 64 Anjan Lahiri NA NA NA 4.6 NA

Median Salary Increase % 353.5 14.1 898.9 414.1

Promoter Salary to Median Salary 45.6 17.8 89.3 36.5 8

32 Promoter share- Major Shareholders holding has risen over the years Shareh oldi ng pattern in J’18Jun’18

Sasken shareholders %

Promoter shareholding has gone up PtPromoter / MdMody filfamily 42. 4 from 26.44% in FY08 to 36.33% in FY13, and then to 42.41% in FY18 Atyant Capital / GHI / Vanderbuilt University 17.3 Auditors: S.R. Batliboi & Associates LLP HNIs 6.4

Bankers: Citibank NA, Union Bank of Neeta Revankar, CFO 0.8 India, Axis Bank IDFC MF 0.5 Other related pr om oter-group companies: Reliance MF -

1) JB Chemicals (listed) Principal MF 0.2 2) JB Life Sciences 3) LkLekar Hea lhlthcare Others 32. 4 Total 100.0

33 Price Performance 500 450 Nifty 400 350 Price performance for last one year 300 1,200 NSEIT SASKEN 250 1,100 1,000 200 900 800 150 Sasken 700 600 100 500 Sensex 50 400 - Jun-18 Oct-17 Feb-18 Apr-18 Dec-17 Aug-18 Aug-17 ep-09 ep-10 ep-11 ep-12 ep-13 ep-14 ep-15 ep-16 ep-17 ep-05 ep-06 ep-07 ep-08 SS SS SS SS SS SS SS SS SS SS SS SS SS

Note: Price performance is scaled to 100 at the beginning of the period. The time frame of 12 years is chosen to capture the worst performance period after the IPO in 2005. This is to avoid biases while charting the performance 34 Appendix Anand Rathi Research

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