Vakrangee Ltd was incorporated in May 1990 under the provisions of the Companies Act, 1956. The Company

together with its subsidiaries provides diverse solutions, services in e-governance sector with special competencies

in handling massive, multi-state, and e-governance enrollment projects and software and IT solutions, data

digitization, data management system and print management system.

Potential Catalysts

Government's Push towards Financial Inclusion

Making India Digitally Empowered

Implementation of Aadhaar

India’s largest e-governance player now venturing into rural banking services

ATM Opportunity: India has one of the lowest ATM penetration

Deposit and Credit Statistics of Rural Population

Recommendation With Superior project management skills, focus on measuring and monitoring quality and its planned expansion

Vakrangee will be able to grow over the next few years. We recommend BUY on the stock at CMP of Rs. 164 to

target of Rs. 192 (Forward EPS of 8.89x FY16).

Financial Summary

Yearly Income Statement 2014 2015 2016 E 2017 E

Revenue 1958.05 2786.36 3244.50 3765.87

EBIDTA 540.75 729.10 868.98 1010.21

EBIT 359.88 564.24 693.58 830.91

Adjusted Profit After Tax 174.97 321.80 470.55 582.50

EPS (Unit Curr.) 3.31 6.08 8.89 11.01

EBIDTA Margin 27.70% 26.22% 26.89% 26.89%

EBIT Margin 18.44% 20.29% 21.46% 22.12%

PAT Margin 8.93% 11.55% 14.50% 15.47%

Dec 4th, 2015

VAKRANGEE Ltd Fundamental Report

Ghgh

ghgh

KEY PARAMETERS

BSE 511431

NSE VAKRANGEE

REUTERS VAKR.BO

INCEPTION 1990

IPO 1995

INDUSTRY SOFTWARE – CONVERTS

CMP (as on 4/12/2015) 164

Stock Beta 1.3138

52 Week H/L 86.40 / 174.00

Market Cap (Cr) 8821.05

Equity Capital (cr) 52.92

Face Value (Rs) 1.00

Average Volume 1.06 Million

Shareholding Pattern (%) Promoters 41.61

Non Institutions 48.39

Grand Total 100

Research Analyst:

Vinay Gowda

ATS Wealth Managers Pvt Ltd

Email: vinayaka@adityatrading.com

Phone: 080-43561171

BUSINESS DISCRIPTION

Vakrangee Limited is an India-based technology company. The Company's business segments include e-Governance

Projects and Vakrangee Kendra. The e-Governance Projects segment offers collection services, such as payment of

electricity, telephone and mobiles; recruitment application processing, which include processing of applications for

recruitment of workforce for government related services; issuance of certificates, including online registration and

issuance of birth, death and marriage certificates; grievance management services, which enable citizens to issue

formal grievance to the government directly or through local agencies, and enrolments, such as land record digitization,

electoral rolls, payment of utility bills, taxes, levies and others. The Vakrangee Kendra segment includes banking,

insurance, e-governance, e-commerce services and white label automated teller machine (ATM) business. Its

subsidiaries include Vakrangee Finserve Limited and Vakrangee e-Solutions INC.

Vakrangee Limited along with its subsidiaries, Vakrangee e-Solutions Inc. (Philippines), Vakrangee Finserve Ltd.

provides diverse solutions, activities in e-governance sector with special competencies in handling massive, multi-state,

and e-governance enrollment projects and software and IT solutions, Data Digitization, etc.

Brief History

The Company got its first order from the Election Commission of India for one state in 1993 and moved on to few states

for e.g. Maharashtra, Chattisgarh, Gujarat, MP, UP etc. and in 2005-06 partnered with the leading Indian IT Company

for the Ministry of Company Affairs (MCA) project across 15 states in 2005-06.

It has done imaging and digitization of data records for many states, government authorities, municipalities and

departments. The Company set up Asia's fastest and first hub for imaging & printing with a capacity of 2180

impressions per min in Mumbai. It did the land record digitization for UP and has moved up to issuing smart cards under

the Rashtriya Swasthya Bima Yogana (RSBY). In 2009-10, it bagged the digitization of Land Records for the Philippines

Government. Also, it was part of the consortium that won the Passport Sewa Project in India. The Company has moved

up the value chain from a service provider to large IT player, to a consortium member and further to leading bidder for

projects.

Services offered

The Company offers document management services (DMS), printing management services (PMS) and total systems

support services to public and private sector companies in the Government, BFSI, Telecom, Power, Retail and Civil

Aviation sectors. The document management services include scanning, digitization, work flow management and

document lifestyle management. Major portion of the revenues come from DMS segment. To complement DMS, the

company provides PMS to its clients, whereby, the Company provides high quality printing and mail stream solutions to

its clients.

The Company has added the total systems support solutions thereby acting as a system integrator for its clients. The

Company has also developed in-house solutions for the government sector. They include HR solutions (Human Capital

Management), information system for schools (E-Administrator), Matdata Suchi (electoral roll system)

Opportunities in Government sector

The Government of India has under the National e-Governance Plan earmarked 27 mission mode projects. For the

Central Government, the projects include – Income Tax, Passport Visa & Immigration Project, MCA 21, Insurance,

National Citizen Database, Central Excise and Pension. At the State Government level the projects are – Land

Records, Road Transport, Property Registration, Agriculture, Police, Treasuries, Municipalities, e-District, Commercial

Taxes, Gram Panchayat and Employment Exchange. At the integrated level the projects include – Common Service

Centres, e-Courts, e-Commerce, India Portal, e-Districts, e-Biz and e-Procurement. In the mission mode projects, the

Company has been involved in Passport Seva, MCA 21, Insurance and land records. The Company has bid for road

transport projects. The Company would be bidding for other projects like National Citizen Database etc.

The Budget 2012 – 2013 has earmarked Rs 1900 crore towards a pilot for the UID project. Along with the mission mode

projects, the Company sees opportunity in the National Rural Employment Guarantee Scheme (NREGA) scheme,

Accelerated Power Development and Reform Programme (APDRP) for power sector and Rashtriya Swasthya Bima

Yogana (RSBY).

Opportunities in Private Sector

Currently, higher portion of revenues accrue from the private sector. In the private sector, the Company is present in

the Banking, insurance and Telecom sector. In banking, the Company provides services in customer application form

processing, mortgage workflow solutions, cheque truncation, printing of customer statements and correspondence etc.

In telecom sector, the Company is working for the Top 3 of the sector and the record management services. It has

created a solution – Record Management Imaging Interface & Business Transaction (RMIIBT) which offers end-to-end

document governance solutions. In Insurance sector, the Company is working for the Top 2 private Insurance

Companies in record management services.

MANAGEMENT & GOVERNANCE

Shareholding pattern as on Sept 30th, 2015

The company’s management includes Mr.Dinesh Nandwana, Mr.Ramesh M Joshi, Mr.Sunil Agarwal, Mr.T Sitharthan,

Mrs.Sujata Chattopadhyay, Ms.Darshi Shah, Ms.Darshi Shah, Dr.Nishikant Hayatnagarkar, Mr.Ashok Kumar Gupta,

Mr.Avinash Vyas, Mr.B L Meena.

Company has S K Patodia & Associates as its auditors. As on 30-Sep-2015, the company has a total of 529,157,295

shares outstanding.

INDUSTRY OUTLOOK

India’s Gross Domestic Product (GDP) growth slowed to 7.0% in the first quarter of financial year (FY) 2015 (ending 31

March 2016) from 7.5% in the last quarter of FY2014. The deceleration was broad-based, with private consumption,

manufacturing, and services all experiencing slower growth. However, expansion in fixed investment picked up to 4.9%

from 4.1% in the previous quarter, indicating a continuing gradual recovery in capital expenditure. Agriculture grew by

1.9%, but monsoon rainfall that has been 12% below normal crimped the summer crop planted area.

Low global oil prices, a positive base effect, and tight monetary policy kept consumer price inflation benign at an

average of 4.8% in the first 4 months of FY2015. Core inflation has trended downward for nearly 2 years and now

hovers just above 4%.

The current account deficit in the first quarter of FY2015 improved to 1.2% of GDP from 1.6% a year earlier, helped by

moderate monthly trade deficits and lower net outflows from the primary income account.

The IT industry is being driven by digital business, and an environment driven by a connected world. Gartner predicts

spending on Internet of Things (IoT) hardware will exceed $2.5 million every minute in 2016. Mike Harris, group vice

president at Gartner, explained today to an audience of more than 1,000 CIOs and IT leaders at the sold out Gartner

Symposium/ITxpo, that interconnections, relationships, and algorithms are defining the future of business.

Software, which accounts for nearly 7 percent of IT revenue in India, will grow 12.7 percent as a segment, but within this

segment, enterprise application software will be the fastest growing sub segment in 2016, with revenue forecast to grow

16.2 percent over 2015. Communication services will continue to account for the largest share of IT spend in India and

will account for 39.2 percent of revenue in 2016, however, this will also the slowest growing segment with a 2.1 percent

increase in revenue in 2016.

INVESTMENT RATIONALE

Government's Push towards Financial Inclusion

Its key driver for growth has been the Indian Government's massive push towards financial inclusion through "Pradhan

Mantri Jan Dhan Yojana". It's objective is to bring every Indian into the banking net, including the poorest of the poor

households, by ensuring at least two bank accounts per household (at least one should be of the lady of the house).

The scheme aims to provide bank accounts to 15 crore individuals in Rural and Urban India, along with accidental

insurance cover of Rs. 1 lakh. These accounts shall be linked with the Aadhaar number of these account-holders and

will become the single point of contact for receipt of all direct benefit transfers (DBT) from Central/State

Government/Local Bodies.

Making India Digitally Empowered

Digital India is a new comprehensive e-Governance programme to transform India into a digitally empowered society

and knowledge economy. It is an 'Umbrella Mission' for various citizen centric ministries/ departments to offer services

on demand to rural citizens at the click of the mouse, setting up digital infrastructure at each nook and corner of Rural

India.

They are one of the leading e-governance players functioning as a systems integrator and an end-to-end service

provider and have been a part of various mission-mode projects for over the past two decades. With footprint in most

parts of the country, they have the "first mover advantage" to leverage this huge opportunity from the Rs. 1.1 trillion

"Digital India" mission of the Central Government.

Implementation of Aadhaar

They are empanelled in the highest category of T3F4 permitting pan-India enrollment activity. They have emerged as

the largest enrollment agency with generation of more than 42 million Aadhaar directly under the Unique Identification

Authority of India (UIDAI) project. These numbers are linked to the residents' demographic and biometric information. It

has benefitted greatly with the Government's fast-tracking of the project. Further, UIDAI an increased budget of more

than Rs. 2,000 crore for Aadhaar project in the previous year's Union Budget of FY2014-15 gives further fillip to its

growth in the business.

India’s largest e-governance player now venturing into rural banking services

For over 2 decades, Vakrangee has been involved with back-end solutions for assimilating and processing data related

to citizens and G2C interactions such as Electoral role accumulation and printing, MCA-21 automation, PDS and UIDAI.

Vakrangee outpaced other Aadhaar Enrollment Agencies (Wipro Ltd., and Swathy Smartcards Hi-Tech) and emerged

as the no. 1 player in terms of Aadhaar generation, data uploaded and no. of residents enrolled (~30 mn residents).

Vakrangee was also involved in e-governance projects for Govt. of Philippines to dematerialize land deeds and digital

record keeping.

As the Ministry of Finance and RBI rolled out the policy allowing banks to outsource rural banking operations to non-

banking entities at unbanked locations, Vakrangee grabbed this opportunity from Government of India and has been

empanelled by 26 PSU banks to set up and manage Ultra Small Branches (USB) of the respective banks at each

Panchayat Level for the state of Maharashtra, Rajasthan and Delhi. All core banking activities, financial inclusion

initiatives and the Direct Benefit transfer scheme will be routed through Vakrangee’s USBs. The company plans to

50,000 stores by FY15. The company has also acquired an ‘in-principle’ approval to set up a minimum of 15,000 white

label ATMs as an operator between the banking entity and rural customers. Since rural India accounts for 56% of India’s

income, 64% of it’s spending and 33% of it’s savings and the fact that ~68% of the population lives in rural India, the

volume of banking transactions will witness considerable traction. A target market which accounts for more than 50% of

India’s income and spending is bound to drive up the volume of transactions consequentially driving up service

revenues which in turn will boost Vakrangee’s top line.

Deposit and Credit Statistics of Rural Population

The amount of Deposits and the corresponding no. of accounts stood at Rs. 5,732 Bn and 293 Mn accounts in 2012,

growing at a CAGR of 15.3% and 8.8% between 2002 and 2012, respectively. Similarly, the amount of Credit and

corresponding no. of accounts stood at Rs. 4,422 Bn and 42 Mn accounts in 2012, growing at a CAGR of 19.7% and

5.9% between 2002 and 2012, respectively. The above mentioned numbers emphasize the increase in number of one

off as well as continuous transactions in the rural areas and thus a potentially viable target market.

Income and Consumption Expenditure in rural areas outpacing

According to NABARD’s Annual Report for FY13, the average monthly per capita consumer consumption (MPCE) in

rural areas grew at a faster rate than urban areas between 2009 and 2012. Another report by CRISIL also stated that

rural spending outpaced urban spending between 2010 and 2012. Discretionary spending of a typical rural Indian

household rose to Rs. 24,000 in 2009-10, from Rs. 14,000 in 2004-05, growing at about 11% per annum.

Imitation of regional and infrastructural monopoly– Asset light model to improve return ratios

The banking services offered by Vakrangee are on an exclusive basis for the states of Maharashtra, Delhi and

Rajasthan for a period of 5 years (upon which, can be extended for a period of 2 years). Similarly, the G2C services

offered in Rajasthan are also on an exclusive basis. Since Vakrangee has a first mover advantage in the rural space, it

has the operational/infrastructural experience and network at the grass root level that cannot be matched by any other

retail chain. As the company is operating and expanding its rural retail business on a franchisee basis, the initial capex

and incremental working capital requirement would be lower and which would translate into high return ratios.

Urban Model –Advantages

Strong brand Pull: The bank signage gives advantage to Vakrangee WLAs as customers perceive it as the

Banks’s ATM.

Revenue & Cost Synergies: Co-location of decongestion branch and WLA helps in sharing of the operating

costs. The ATM users shall also use the various value added services in terms of G2C/B2C services being

offered at the adjoining Banking outlet resulting in more avenue for business transaction.

Creation of ATM Card Base: The key for a viable ATM is to have an established card base. Co-located

decongestion branch can create the account base for successful WLA operations.

Effective Cash Management: The decongestion branch generates a sizable amount of cash at any given point

in time. This cash can be effectively deployed at the adjacent WLA, thus efficiently managing the cash

replenishment in ATM machines, and reducing the logistics issues and risks.

UID enabled ATM transaction: All WLAs set up by Vakrangee will be AEPS-enabled (Aadhaarenabled payment

system), further adding the market size of the ATM industry from the number of ATM cards to number of UID

thereby covering the entire population of the country once the UID programmes is completed.

Significant Cost Savings and security enhancement: The AEPS-enabled ATMs of VL will not require ATM card,

and people can perform various financial/non-financial transactions only with the biometric authentication. This

will significantly reduce the card-issuance costs as well as cloning like security issues can be obviated. The

AEPS-enabled WLAs will be a global first in the history of WLA industry.

VALUATION

VAKRANGEE is currently trading at 164 per share with a market capitalization of 8821 Crores. It has total debt of 416

Cr with long term Debt to Equity of 0.02. It has total cash and bank balance of 39.20 Cr.

The debt reduction was driven by the company's robust operating performance, surplus in working capital, lower capital

expenditure and the proceeds from its asset sales.

2012 2013 2014 2015

Key Ratios Debt-Equity Ratio 0.8 1.07 0.8 0.46

Long Term Debt-Equity Ratio 0.2 0.32 0.18 0.06

Current Ratio 1.04 1.15 1.32 1.76

Turnover Ratios

Fixed Assets 2.3 1.98 2.17 2.73

Inventory 64.16 39.57 18.05 16.76

Debtors 3.76 2.82 2.75 2.83

Total Asset Turnover Ratio 1.93 1.59 1.67 1.92

Interest Cover Ratio 2.84 2.67 4.62 7.53

PBIDTM (%) 18.19 24.99 27.7 26.22

PBITM (%) 11.73 14.84 18.44 20.29

PBDTM (%) 14.07 19.44 23.71 23.53

CPM (%) 11.7 16.89 18.23 17.5

APATM (%) 5.24 6.74 8.96 11.57

ROCE (%) 22.59 23.53 30.74 38.91

RONW (%) 18.28 22.28 27 32.4

Payout (%) 14.47 9.79 7.29 3.94

We value VAKRANGEE using DCF at price target of 192 for FY16 with expected growth rate at 16.54% per annum. For

valuation we assume that over the period company will keep capital structure unaltered and tax rate unchanged.

EQUITY - BONUS HISTORY

Year Ratio Book Value -Unit Curr EPS -Unit Curr

2012 1:01 146.62 20.4

Dividend History

Year End Dividend-Amount Dividend-% Div. Yield-%

201503 12.59 25 0.24

201403 12.59 25 0.25

201303 10.05 20 0.3

201203 10.01 20 0.72

201103 4.99 20 0.6

201003 3.37 15 1.45

200903 2.14 10 3.99

200803 4.28 20 1.01

CONCUSSION AND RECOMMENDATION

Nifty 7750

Sensex 25600

NIFTY IT 10950

With Superior project management skills, focus on measuring and monitoring quality and its planned expansion

Vakrangee will be able to grow over the next few years. We recommend BUY on the stock at CMP of Rs. 164 to target

of Rs. 192 (Forward EPS of 8.89x FY16).

RISKS AND CONCERNS

Increase in competition and pressure on pricing

As competition increases, acquiring and retaining customers would be challenging. In a highly competitive environment,

customers have tough expectations on pricing.

Low oil prices present a two-sided risk.

On the downside, oil prices could rebound faster than expected if supply is curtailed more quickly in response to lower

prices, withdrawing support for demand. On the upside, the demand impulse from the boost to real incomes from the oil

price windfall could be stronger than currently anticipated.

FINANCIALS

Vakrangee Ltd. key Products/Revenue Segments include

Income From e-governance which contributed Rs 2773.34 Cr to Sales Value (99.92% of Total Sales)

I T Enabled Services which contributed Rs 1.72 Cr to Sales Value (0.06% of Total Sales)

Computer Parts & Peripherals which contributed Rs 0.22 Cr to Sales Value (0.00% of Total Sales)

Sale of services which contributed Rs 0.09 Cr to Sales Value (0.00% of Total Sales)

Scrap which contributed Rs 0.00 Cr to Sales Value (0.00% of Total Sales)

for the year ending 31-Mar-2015.

For the quarter ended 30-Sep-2015, the company has reported a Standalone sales of Rs. 783.86 Cr., up 11.83% from

last quarter Sales of Rs. 700.95 Cr. and up 12.32% from last year same quarter Sales of Rs. 697.85 Cr. Company has

reported net profit after tax of Rs. 95.36 Cr. in latest quarter.

Some Initiatives

Management Reward

Yearly Income Statement 2014 2015 2016 E 2017 E 2018 E

Net Sales 1951.89 2780.45 3232.00 3756.87 4366.99

Other Income 6.16 5.91 12.50 9.00 9.00

Total Income 1958.05 2786.36 3244.50 3765.87 4375.99

Total Expenditure 1417.3 2057.26 2375.52 2755.66 3194.45

EBIDTA 540.75 729.10 868.98 1010.21 1181.54

Depreciation 180.87 164.86 175.40 179.30 183.20

EBIT 359.88 564.24 693.58 830.91 998.34

Interest 77.89 74.95 68.59 63.085 57.58

PBT 281.99 489.29 624.99 767.82 940.76

Tax 118.74 182.49 171.87 205.39 254.01

Deferred Tax 11.72 15 17.43 20.07 22.71

Adjusted Profit After Tax 174.97 321.80 470.55 582.50 709.46

Minority Interest After NP 0.06 0 0 0 0

Adjusted Profit After Extra-ordinary item 174.91 321.80 470.55 582.50 709.46

Equity 50.42 52.92 50.35 50.42 52.92

EPS (Unit Curr.) 3.31 6.08 8.89 11.01 13.41

Face Value 1 1 1 1 1

Outstanding Shares 5.29E+08 5.29E+08 5.29E+08 5.29E+08 529160000

EBIDTA Margin 27.70% 26.22% 26.89% 26.89% 27.06%

EBIT Margin 18.44% 20.29% 21.46% 22.12% 22.86%

PAT Margin 8.93% 11.55% 14.50% 15.47% 16.21%

Segmental Results (Standalone)

Disclaimer: This report is only for the information of our customers. Recommendations, opinions or suggestions are given with the understanding that readers acting

on this information assume all risks involved. The information provided herein is not to be constructed as an offer to buy or sell securities of any kind. ATS and/or its

group companies do not as assume any responsibility or liability resulting from the use of such information.