摩根士丹利-印度科技（亚太区）：通过挑战者追逐增长-India Technology Asia Pacific：Chasing Growth Through Challengers-20260930

MorganstanleyRESEARCHFouNDAtioN

September30,202609:30PMGMT

IndiaTechnology|AsiaPacificMoRGANSTANLEyINdiACompANyPRivATELimiTEd+

SulabhGovila,CFA

ChasingGrowthThroughGauravRateria

ChallengersShreshthaChopra

WepreferchallengersoverTier-1vendorsinthenewtechnologySakshiRana

cycle,withhighergrowthvisibilityandTAMexpansion,andbold

effortshavingthepotentialtooffsetdeflationaryforces.

INdiaTEcHNoloGy

AsiaPacific

KeyTakeawaysIndustryViewIn-Line

WeinitiateatOverweightontwoIndiaITserviceschallengers–PersistentasaWHAT’sCHANGED

structuralbeneficiary,andHexawareasarecoveryplay.PersistentSystemsLtd.

(PERS.NS)FromTo

RatingNAOverweight

Challengershavesustaineda10-40%premiumtolargecapssince2021andmay

PriceTargetRs0.00Rs6,150.00

seefurtherpolarizationahead.

HexawareTechnologies

Limited(HEXW.NS)FromTo

Leadingtheinvestmentcycle:EverybusinessandtechnologycyclebringsitsownRatingNAOverweight

opportunities/challengesandsetofbeneficiaries.Thelasttechnologycyclesawmid-PriceTargetRs0.00Rs600.00

tierfirmsemergeasoutperformerswhileactingaschallengers,ledbymultiple

CoforgeLtd(COFO.NS)FromTo

successfactors,whichweargueremainrelevanteveninthecurrenttechnologyPriceTargetRs2,060.00Rs2,300.00

landscape.Challengershaveaseatatthelargedealtable,whichwasn'tthecaseatLTMLimited(LTIM.NS)FromTo

thestartofthelastcycle,andaremakingboldbetstoexpandtheirTAM,therebyPriceTargetRs4,000.00Rs4,220.00

leadinginvestmentinthiscycle,whichcanhelpthembetteroffsetdeflationary

forcesoverthecourseofthecycle.Inthecontextofhighergrowthvisibilityvsthe

tier-1players,wethinkvaluationscouldcontinuetopolarizeinfavorofchallengers.

Initiateontwostocks,PersistentandHexaware,withanOWrating:Weview

Persistentasanexecutionenginebasedonitshistoricaltrackrecordofpivoting

towardshighgrowthareas,eventhoughthedigestionofamegascaleacquisition

cantestitsexecutioncapabilitiesoverthecourseofthenexttwoyears.Weview

Hexawareasarecoveryplaywithacashflowfranchisesuperiortopeers.Client-

specificissueshaveplaguedperformancesincere-listing,butweexpecttheseto

reverse,allowingimprovinggrowthtrendstoplayout.

Growthvisibilityandvaluationsrelativetogrowthunderpinourorderof

preference:Weassignanorderofpreferencewithinthechallengersbasedon

growthvisibilityaswellasonvaluationsrelativetorevenuegrowth.PreferCoforge

>MphasiS>Hexaware>Persistent>LTM.MorganStanleydoesandseekstodobusinesswith

companiescoveredinMorganStanleyResearch.Asaresult,

Keyriskstoourcall:a)Sector-leveldeflationinITservicesspendingimpactstheseinvestorsshouldbeawarethatthefirmmayhaveaconflictof

interestthatcouldaffecttheobjectivityofMorganStanley

structuralstoriesmorethanourexpectations;b)client-specificissues,giventhatResearch.InvestorsshouldconsiderMorganStanley

Researchasonlyasinglefactorinmakingtheirinvestment

revenueconcentrationismuchhigherthanforthelargercapnames;c)riskofequity

decision.

supplyfromprivateequityplayersand/oraqualifiedinstitutionsplacement(QIP)toForanalystcertificationandotherimportantdisclosures,

easecashflows.refertotheDisclosureSection,locatedattheendofthis

report.

+=Analystsemployedbynon-U.S.affiliatesarenotregistered

withFINRA,maynotbeassociatedpersonsofthemember

andmaynotbesubjecttoFINRArestrictionson

communicationswithasubjectcompany,publicappearances

andtradingsecuritiesheldbyaresearchanalystaccount.

MorganstanleyRESEARCHFouNDAtioN

ExecutiveSummary

Preferchallengersovertier-1vendors;initiateontwostocks

Whychallengersarestructurallybetterpositionedthaninthelastcycle?

ChallengerCEOsrunleaner,fasterdecision-makingprocessesandgiveclients

directCXOaccessratherthanroutingdecisionsthroughescalationchains.

Challengersnowhavediversifiedserviceofferingsandarewillingtofund

investmentsthroughthebalancesheet,makingthemformidablechallengersatthe

largeseatdealtable,asreflectedintheincreasingsizeandvelocityoftheirdeal

wins.Separately,challengers'expandingTAMthroughinvestmentsandtheadvent

oftechnologytoolsoffersgreateroffsetstodeflationaryforces,whichbodeswell

forgrowthmomentum.

PersistentSystems-InitiateatOW(PTRs6,150,19%upside)–WeexpectUS$

revenueandEPSCAGRsof17-18%overCY26-28,bankingonPersistent'smulti-

yeartrackrecordofoutperformance,builtondeepverticaldomainexpertise,an

expandingcapabilityset(productengineeringtoenterpriseITtoAI-ledrevenue

pools),asteadydeliveryoflargedealwins(US$50-150mn)andimprovingaccount

mining.Marginsareexpectedtoimprovemodestly,withheadroomforSG&A

leverageandanygrossmarginbenefitfromSASVA-leddeals(Persistent’s

generativeAI-enabledengineeringplatform)partiallyoffsetbycontinued

investmentsinthebusiness.Onvaluation,thePTimpliesa33xtwo-yearforward

P/E—a12%premiumtoCoforge,versusthe10-40%rangeseenhistorically.Key

monitorablesincludeapotentialQIPoverhang,integrationriskfromthelarge-

scaleNagarroacquisition,elevatedexposuretotimeandmaterial(T&M)contracts,

theAmericas,andtheHi-Techvertical,andkey-manrisk.

Hexaware-InitiateatOW(PTRs600,24%upside)-WeexpectUS$revenueand

EPSCAGRsof~9.5%and17%,respectively,overCY26-28,withthePTimplyinga

21xtwo-yearforwardP/E—inlinewithMphasis.Hexaware'sright-to-wincase

comesfromabroadserviceportfolio,theabilitytoorganicallyidentifyandscale

newserviceofferings,adiversifiedvertical/clientmix,andasuperiorcash-flow

profile,underscoredbyitssuccessinwinningmostvendor-consolidationexercises

acrossitstop20accounts.Incrementalupsidecancomefromdeepeningitsfocus

onHi-TechandBanking,fillinggeographicgaps(MiddleEast,partsofEurope),

shiftingtovertical-specificplatforms,positioningitselfasasoftware-as-a-service

(SaaS)disruptor,andrebuildingitshuntingandlarge-dealpursuitteams.Keyrisks

arecontinueddelaysindealramp-ups,stalledbudgetsinalready-consolidatedtop

accountsalongsidefastercosttakeoutselsewhere,newservicesfailingtooffset

deflation,andseniormanagementchurnundertheincomingCEOdelayingthe

recovery.

Wherearewedifferent?ConsensushasmixedviewsonPersistentandHexaware

owingtovaluationsandskepticismaroundHexaware'sgrowthrecovery,

respectively,whereweareconstructiveonboththenames.OurEPSnumbersare

largelyinlinewithconsensusonPersistentwhilebeingaheadofconsensusfor

Hexaware.

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Exhibit1:Orderofpreferenceamongstchallengers

CoforgeMphasisHexawarePersistentLTM

COFO.NSMBFL.NSHEXW.NSPERS.NSLTIM.NS

RatingOverweightOverweightOverweightOverweightEqual-weight

TradingCurrencyINRINRINRINRINR

PriceTarget2,3002,7306006,1504,220

CurrentPrice1,7222,1544825,1623,936

Upside/(Downside)(%)34%27%24%19%7%

MarketCap(inUSDmm)12,142.84,253.63,073.98,220.512,156.0

AvgDailyTradedVol(inUSDmm)48.114.65.236.319.4

StreetView:Ratings

Buy/Overweight|||||||||||||||||||||83%|||||||||||||||||69%||||||||||||||56%||||||||||||47%|||||||||||||51%

Hold/Equal-weight|3%||||17%||||||22%||||||22%|||||22%

Sell/Underweight|||14%|||14%||||||22%||||||||31%|||||||27%

BullCaseValue2,8503,5008507,3505,500

Upside(%)66%62%76%42%40%

BearCaseValue1,2501,8004003,4502,850

Downside(%)-27%-16%-17%-33%-28%

Risk/RewardSkew2.43.84.51.31.4

MorganStanleyEstimates

FY27eINRINRINRINRINR

Sales253,370183,904153,146185,555497,241

EBITDA50,92432,79423,70035,48987,455

EBIT40,07127,64520,04730,60475,340

EPS54.67112.5321.76135.33196.10

FY28e

Sales295,594201,357168,239212,128550,851

EBITDA58,72136,71325,94039,93295,887

EBIT46,57130,67122,06534,53881,723

EPS71.69124.5326.13172.30220.72

FY27MSevs.ConsensusMean

Sales2.3%0.4%-0.6%-0.6%3.6%

EBITDA2.3%-3.7%-2.8%-0.1%1.6%

EBIT3.1%-1.7%-3.5%0.0%0.2%

EPS-7.5%0.0%-6.5%-5.8%-4.9%

FY28MSevs.ConsensusMean

Sales3.3%0.1%-0.4%-7.1%5.6%

EBITDA2.4%-2.0%-4.8%-5.3%1.8%

EBIT3.0%-1.5%-5.5%-3.8%3.1%

EPS0.3%-1.6%-6.1%-2.0%-3.5%

ValuationMultiplesatLastClose

FY27e

P/E31.5x19.1x22.2x38.1x20.1x

EV/EBIT29.9x13.9x13.6x25.9x14.9x

EV/EBITDA23.5x11.8x11.5x22.2x12.8x

EV/Sales4.7x2.1x1.8x4.1x2.3x

FCFYield1.3%6.8%4.8%1.2%3.3%

FY28e

P/E24.0x17.3x18.5x30.0x17.8x

EV/EBIT25.3x12.6x12.3x21.9x13.3x

EV/EBITDA20.1x10.5x10.4x18.9x11.3x

EV/Sales4.0x1.9x1.6x3.6x2.0x

FCFYield1.6%3.6%5.4%1.5%3.9%

ImpliedMultiplesonMSPriceTarget

FY27e

P/E42.1x24.3x27.6x45.4x21.5x

EV/EBIT39.7x17.9x17.2x31.0x16.0x

EV/EBITDA31.2x15.1x14.6x26.6x13.8x

EV/Sales6.3x2.7x2.3x4.9x2.4x

FY28e

P/E32.1x21.9x23.0x35.7x19.1x

EV/EBIT33.7x17.0x16.8x27.5x15.5x

EV/EBITDA26.7x14.2x14.3x23.7x13.2x

EV/Sales5.3x2.6x2.2x4.5x2.3x

StockPricePerformance

1Month(14.5%)(12.2%)(12.9%)(12.1%)(15.8%)

3Month14.8%(2.5%)(6.8%)20.3%6.8%

1Year11.7%(18.7%)(27.3%)4.0%(22.0%)

YTD3.4%(22.8%)(37.2%)(17.5%)(35.0%)

Source:MorganStanleyResearch,ThomsonReuters(consensusmean).e=MorganStanleyResearchestimates.Pricesasof29.09.2026.Note:Hexaware'sfinancialyearendsonDecember31st,FY27aboveisits

reportedCY26,FY28isCY27.

MoRGANSTANLEyREsEARcH3

MorganstanleyRESEARCHFouNDAtioN

Preferchallengersovertier-1vendorsinthenewtechnology

cycle

1.Successfactorsfromthedigitalcyclestillseemrelevantin

theGenAIcycle

Wethinkthefactorsthatledtothesuccessofmid-tiervendorsinthedigitalcycle

includedfocusedinvestmentsinhighgrowthareasthatexpandedtheirTAM,asurgein

shortcycleprojectsthatprovidedafootinthedoor,andaggressive,executionfocused

managementthatprovidedCXOlevelaccesstoclientsandshowedagilityindelivery/deal

structuring-allofthesefactorsseemrelevantinthenewtechnologycycleaswell.

IncreaseinTAM

Inthelastcycle,challengersparticipatedinnewtechnologyspendingbymakingfocused

investmentsinhigh-growthareasintheirniche/domainsegments,whichhelpedthem

increasetheiraddressablemarket.Persistentwasabletosuccessfullytransitionfroman

offshoreproductdevelopmentfocustoachallengerinEnterpriseIT.Coforgeexpandedits

service-lineportfolio,addedsub-verticalsandnewgeographiesalongtheway,increasing

itsaddressablemarket.

Inthecurrentcycleaswell,challengersareusingtheirbalancesheetstoincreasetheir

addressablemarketbyexpandingtheirgeographicpresenceandservice-linecapabilities,

whilealsotargetingnewTAMthatmightopenupwiththeadventofthenewtechnology

cycle,eventhoughtheintensityofsuchinvestmentsappearstobegreater.

Exhibit2:Challengers-TAMexpansionbydeepeninggeographicpenetrationand

servicecapabilities

Source:Companydata,MorganStanleyresearch

Clientexperimentationledinitiallytosmall-sizedprojects,whichopeneddoorsfor

mid-tiervendorswithproactivesolutions

Asenterprisesenteredthedigitaltransformationcyclefrom2015onward,muchofthe

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earlyspendingwasn'tcommittedtolarge,multi-yeartransformationprograms-itbegan

assmaller,exploratorypilots,proofsofconcept,anddepartmental-levelexperimentsas

clientstestednewtechnologiesbeforecommittingseriousbudgetstothem.This

experimentationphasematteredenormouslyformid-tiervendors,whichusedthese

projectsasafootinthedoor-theycouldwintheinitialpilotoncapabilityand

responsivenessratherthanpriceorbrand.Overtime,asthesepilotsmaturedintofull-

scaleprograms,theycompoundedintoaccount-miningopportunities.

Inthecurrentcycle,whilelargedealscontinuetobepartofthepipelineandorderinflow,

theyaremoredrivenbycostoptimizationandinvolvevendorconsolidationandthe

infusionofAIintothecurrentpacketofwork.Thenewpacketofwork,whichrepresents

newTAMopeningup,appearstobemoreproject-basedandhenceshorter-term,similarto

thelastcycle.

Exhibit3:Dealsizesinthedigitalcyclereflectedasurgeinshorttermengagements

Source:MphasiS2019AnalystDayPresentation

Verbatimcommentary-TCSCEO-1QF27resultsconcall

transcript

AIrevenueisnotlikeatraditionalrevenuewherethereisalotofannuityrevenue

involved.Thisissomethingthatmoreormanyoftheseprojectstendtobeone

quarter,twoquarterprojects.So,wherewecompleteandwehavetowinagain

newprojectsandaccruetherevenue,deliverandaccruetherevenue.

Aggressivemanagementwithachallengermindset

MostCEOsofchallengerfirmshadpriorexperienceattier-1firmsandbuiltleadership

teamsfromthesefirmsand/orwerebackedbyprivateequityplayers.Theyhadseenscale

andknewthedecision-making/bureaucraticlayerstheywerecompetingagainst,and

MoRGANSTANLEyREsEARcH5

MorganstanleyRESEARCHFouNDAtioN

understoodthatstrippingtheseoutcouldacceleratedecision-making.Theywereagilein

theirapproach;forexample,theywerewillingtoprovideonsitedeliverywithexperienced

resourcesvsincludingfreshersfromoffshoretomanagethepyramid.Theywerewillingto