zylogsystems_crisil_010312

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CRISIL IERIndependent Equity Research

Enhancing investment decisions

Detailed Report

Detailed Report

Zylog Systems Ltd


Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process – Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-

point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).

CRISIL Fundamental Grade Assessment

CRISIL Valuation Grade Assessment

5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP) 4/5 Superior fundamentals 4/5 Upside (10-25% from CMP) 3/5 Good fundamentals 3/5 Align (+-10% from CMP) 2/5 Moderate fundamentals 2/5 Downside (negative 10-25% from CMP) 1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP)

Analyst Disclosure Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company. Disclaimer: This Company-commissioned CRISIL IER report is based on data publicly available or from sources considered reliable. CRISIL Ltd. (CRISIL) does not represent that it is accurate or complete and hence, it should not be relied upon as such. The data / report is subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this report. Nothing in this report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The subscriber / user assume the entire risk of any use made of this data / report. CRISIL especially states that, it has no financial liability whatsoever, to the subscribers / users of this report. This report is for the personal information only of the authorised recipient in India only. This report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person – especially outside India or published or copied in whole or in part, for any purpose.

Zylog Systems Ltd

Cruising ahead with products and solutions strategy

Fundamental Grade 3/5 (Good fundamentals)

Valuation Grade 4/5 (CMP has upside)

Industry IT Services

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Zylog Systems Ltd (Zylog) is an IT services and solutions provider deriving majority of its revenues from the US and Canada. It forayed into the e-governance and wi-fi businesses in FY10. While CRISIL Research expects Zylog to benefit from an increase in global IT spend, we remain cautious of the macroeconomic conditions which may damp demand. We continue to assign Zylog a fundamental grade of 3/5, indicating that its fundamentals are good relative to other listed securities in India.

Niche IT solutions player with a large bouquet of service offerings Zylog is a niche solution provider catering to verticals including BFSI, telecom, pharma, healthcare and manufacturing. It also offers solutions like field service automation, inventory management, recycling and reverse logistics and RFID applications for various verticals. This coupled with a large bouquet of services has enabled it to log strong revenue and PAT growth over the past few years.

Zylog has been able to integrate all acquisitions successfully Zylog has predominantly used the inorganic route for increasing domain expertise, expanding service lines, accessing new markets and clients. It has acquired eight companies in the past three years including Ducont FZ LLC in Dubai in FY09 and Brainhunter in Canada in FY10, and has been able to gain foothold in geographies like Canada and the Middle East. It has successfully integrated all acquisitions and is now focussing on cross-selling opportunities to drive growth.

E-governance and wi-fi to achieve scale over medium term Zylog entered the e-governance and wi-fi businesses in FY10. Till date, it has executed e-governance projects for the Karnataka and Gujarat governments. For the wi-fi services, Zylog is present in seven states and one union territory and has ~40,000 active clients. The contribution of both these businesses to the total revenue is small and the wi-fi business is yet to break even at the PAT level. While we expect these businesses to attain scale over the medium term, the performance of both businesses remains a key monitorable.

Expect two-year revenue CAGR of 9.6% in US$ terms We expect revenues to register a two-year CAGR of 9.6% to US$ 501 mn in FY13 (12% in rupee terms to Rs 24 bn) driven by ~8% growth in IT services and ~13% growth in IT solutions. Adjusted PAT margin is expected to increase by 40 bps to 8% in FY13.

Valuations – the current market price has ‘upside’ CRISIL Research has used the discounted cash flow method to value Zylog and maintains the fair value of Rs 656 per share. This fair value implies P/E multiples of 6.4x FY12E and 5.6x FY13E earnings. We revise the valuation grade to 4/5 from 5/5 earlier, indicating that the market price has upside from the current levels.

KEY FORECAST

(Rs mn) FY09 FY10 FY11 FY12E FY13E

Operating income 7,511 9,802 19,183 21,871 24,048 EBITDA 744 2,070 3,170 3,616 3,780 Adj PAT 849 1,028 1,453 1,692 1,918 Adj EPS-Rs 51.6 62.5 88.3 102.9 116.6 EPS growth (%) 2.7 21.0 41.3 16.5 13.4 Dividend yield (%) 3.8 1.5 1.8 1.7 1.8 RoCE (%) 9.6 21.1 23.6 20.9 18.3 RoE (%) 18.9 19.3 22.6 21.1 19.5 PE (x) 10.3 8.5 6.0 5.1 4.5 P/BV (x) 1.8 1.5 1.2 1.0 0.8 EV/EBITDA (x) 11.0 4.9 3.5 3.2 2.7

NM: Not meaningful; CMP: Current market price Source: Company, CRISIL Research estimate

CFV MATRIX

KEY STOCK STATISTICS NIFTY/SENSEX 5281/17446NSE/BSE ticker ZYLOGFace value (Rs per share) 10Shares outstanding (mn) 16.4Market cap (Rs mn)/(US$ mn) 8,711/178Enterprise value (Rs mn)/(US$ mn) 11,217/22952-week range (Rs)/(H/L) 580/330Beta 1.1Free float (%) 58.8Avg daily volumes (30-days) 2,21,647Avg daily value (30-days) (Rs mn) 112

SHAREHOLDING PATTERN

PERFORMANCE VIS-À-VIS MARKET

Returns

1-m 3-m 6-m 12-mZYLOG 23% 31% 34% 32%NIFTY 1% 12% 11% 0%

ANALYTICAL CONTACT Chetan Majithia (Head) [email protected] Suresh Guruprasad [email protected] Kamna Motwani [email protected]

Client servicing desk +91 22 3342 3561 [email protected]

1 2 3 4 5

1

2

3

4

5

Valuation Grade

Fund

amen

tal G

rade

Poor Fundamentals

ExcellentFundamentals

Str

ong

Dow

nsid

e

Str

ong

Ups

ide

36.7% 36.7% 41.2% 41.2%

0.7% 0.4% 0.4% 1.4%3.2% 3.1% 3.8% 4.8%

59.5% 59.9% 54.6% 52.6%

0%10%20%30%40%50%60%70%80%90%

100%

Mar-11 Jun-11 Sep-11 Dec-11

Promoter FII DII Others

February 28, 2012

Fair Value Rs 656 CMP Rs 530


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Table 1: Zylog Business environment

Product / Segment IT Services Products and solutions New businesses: Wi-fi and

e-governance

Revenue contribution (FY11)

63% 37%* NA

Revenue contribution (FY13)

63% 37%* NA

Product / service offering

ERP implementation, content management, mobile computing, data warehousing and business analytics, IT consultation, migration services, managed services, testing, IT virtualisation and staffing

Field service automation, inventory management, recycling and reverse logistics, RFID applications, products for BFSI, pharma and healthcare

• E-governance: implementation of government IT projects related to road transports, agriculture and healthcare

• Wi-fi: providing wireless internet connectivity in seven states and one union territory in India

Geographic presence The US, Canada, Europe, the Middle East, Asia Pacific

The US, Canada, Europe, the Middle East, Asia Pacific

E-governance: India, the US, Asia Pacific Wi-fi : India

Market position A relatively smaller player in geographies other than Canada. Third largest professional services company in Canada

A relatively smaller player A relatively smaller player

End market BFSI, telecom, pharma, retail and manufacturing

BFSI, telecom, pharma, retail and manufacturing

E-governance: Governments of India and the Middle East Wi-fi: Retail and corporate clients

Sales growth (FY08-FY11 – 3-yr CAGR)

NA NA NA

Sales forecast (FY11-FY13 – 2-yr CAGR)

7.8% 12.6%* NA

Demand drivers • Increase in global IT spend on services like ERP, CRM, mobile computing

• Cross-selling opportunities

• Leverage on niche products and solutions offerings

• Cross-selling opportunities in Canada

• E-governance: Indian government’s thrust on IT leverage successfully executed projects

• Wi-fi: Expansion into more cities, ways to beat increasing competition

Key competitors Global: MTM Technologies, RWD Technologies Domestic: Infosys Technologies, Tata Consultancy Services, Wipro, HCL Technologies

Global: Covansys Corp, Syntel Inc, Trizetto Group, Clicksoft Domestic: Infosys Technologies, Tata Consultancy Services, Wipro, HCL Technologies

E-governance: TCS, Wipro, Oracle Wi-fi: All integrated telecom players, local and national internet services providers

Key risks • Competition from established competitors

• Reduction in IT spend due to another round of slowdown

• Increase in competition in niche areas

• Reduction in IT spend due to another round of slowdown

• E-governance: Low margins and high debtor days

• Wi-fi: Increase in competition which would result in lower ARPUs, delay in break even

* Includes revenue from wi-fi and e-governance businesses

Source: Company, CRISIL Research

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Zylog Systems Ltd

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Grading Rationale

Niche IT solutions player with a large bouquet of service offerings Zylog is a mid-tier IT company providing IT services and solutions. The company’s service

portfolio includes ERP implementation, mobile computing, data warehousing and business

analytics, IT consultation, managed services, testing and IT virtualisation. Zylog’s solution

offerings are spread across verticals like banking and finance, insurance, telecom, pharma,

healthcare and manufacturing (please refer to page 19 for details of key offerings). Zylog also

offers niche solutions like field service automation, inventory management, recycling and

reverse logistics and RFID applications for various verticals. The large bouquet of services

and niche product offerings have enabled the company to significantly grow its revenue over

the past few years. Zylog also added staffing services to its portfolio through the acquisition of

Brainhunter, Canada in FY10. It also diversified into e-governance and internet services in the

same year.

By following the aforementioned strategies, Zylog has been able to grow its revenue at a pace

better than most of its peers. However, its profitability has been low post the acquisition of

Brainhunter in FY10, whose margins were significantly lower than that of Zylog’s. Figure 1: Zylog’s sales have shown robust growth over FY07-11...

Figure 2: ... which is better than peers’ though at a lower base

Source: Company, CRISIL Research Source: Company, CRISIL Research

4,075 6,094 7,511 9,684 11,587

117

7,596 50.9% 49.6%

23.3%30.5%

98.1%

0%

20%

40%

60%

80%

100%

120%

-

5,000

10,000

15,000

20,000

25,000

FY07 FY08 FY09 FY10 FY11

(Rs mn)

Zylog Revenue BH revenue Y-o-Y growth (RHS)

47.3

%

26.8

%

30.4

%

21.6

%

0.4%

21.9

%

3.4%

25.2

%

-0.5

%

11.4

%

26.3

%

45.4

%

18.6

%

18.9

%

19.9

%

21.1

%

26.9

%

-10%

0%

10%

20%

30%

40%

50%

Zyl

og

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FY07-FY11 revenue CAGR

A large bouquet of services and

niche product offerings have

enabled Zylog to gain a foothold in

overseas market


4

Figure 3: Average EBITDA margin over FY07-11 is lower due to lower Brainhunter margins

Figure 4: PAT growth over FY07-11 has been lower due to leveraged acquisitions

Source: Company, CRISIL Research Source: Company, CRISIL Research Regional presence in global markets has worked well

Zylog has been present in the US since inception and this geography continues to be the

main revenue contributor. It has also entered regions like Canada, Europe, Asia Pacific and

Middle East over the past two years. It functions predominantly on a global presence/onsite-

based model wherein onsite revenue contributes ~80% of total revenue. This is significantly

higher than that of most of its peers. While this model results in more expenses due to higher

employee cost, it also results in better client relationship management. Thus, Zylog has been

able to garner ~90% repeat business even though it is not a pure-play IT services company.

Figure 5: High global/onsite presence has resulted in better client management... Figure 6: ... which has resulted in high repeat business


* FY07 data was not available


Zylog has tried to reduce dependence on the US

In FY09, revenue from the US accounted for ~97% of total revenue. However, this dropped to

~54% in 9MFY12 mainly due to the acquisition of Brainhunter, Canada, which contributed

16.9

%

19.0

%

21.1

%

19.3

%

11.2

%

19.6

%

18.2

%

24.6

%

3.2%

14.8

%

12.1

%

28.4

%

32.9

%

27.5

%

21.7

%

21.1

%

19.7

%

0%

5%

10%

15%

20%

25%

30%

35%

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5-year average EBITDA margin

29.0

%

3.1%

46.2

%

13.7

% 96.4

%

17.0

%

13.4

%

25.0

%

-14.

6% 24.8

%

83.4

% 43.6

%

15.4

%

21.1

%

15.8

%

20.3

%

5.7%

-40%-20%

0%20%40%60%80%

100%120%

Zylo

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81.5

82.4

80.7

81.6

82.9

85

78

79

80

81

82

83

84

85

86

FY07 FY08 FY09 FY10 FY11 9MFY12

(%)

Global/onsite revenue

90.1

91.1

88.3 88.5

87.8

86

87

88

89

90

91

92

FY07* FY08 FY09 FY10 FY11 9MFY12

(%)

Repeat business

80% of Zylog’s revenue comes

from global/onsite location

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~37% to total revenue in 9MFY12. Also, the company has increased its presence in

geographies like the Middle East and Asia Pacific. Also, it has diversified into new India-based

businesses like e-government projects and wi-fi. Figure 7: Dependence on the US has declined due to Brainhunter acquisition

Source: CRISIL Research

Client concentration is low

Unlike most other mid-tier IT companies, Zylog is not excessively dependent on the top

clients. It derives ~30% of its revenues from its top 10 clients. The company has chosen to

focus on SME clients where most big IT companies have less focus. It had 194 active clients

in FY09 and 583 active clients in FY10 (including Brainhunter clients). FY11 client details are

not available. Figure 8: Dependence on top clients is low


97.2 78.3 51.1 53.9

10.3

39.9 37

2.3 4.1 2.7 2.64.8 3.1 3

0.2 1.2 1.70.3 1.1 1.5

3.5

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY09 FY10 FY11 9MFY12

USA Canada Europe Middle East India Asia Pacific

3.8 4.2 5.3 5.87.0 6.5

15.417.1 17.3

18.7

22.9 23.225.7 26.8 27.4

29.130.6 31.3

0

5

10

15

20

25

30

35


(%)

Top client top 5 clients Top 10 clients

Zylog derives ~30% of its

revenue from top 10 clients


6

Inorganic route has proven to be fruitful

Zylog has predominantly used the inorganic route for increasing domain expertise, expanding

service lines, accessing new markets and clients. Over the past three years, it has acquired

eight companies including a strategic stake in a Malaysian company. These acquisitions were

funded through a mix of debt and internal accruals and except Brainhunter, all the acquisitions

were small ones. Each of these acquisitions has opened up a new avenue of growth for Zylog.

For instance, acquisition of the UK-based insurance solutions provider Anodas Software

added end-to-end core insurance solution to Zylog’s offerings. It has also enabled Zylog’s

entry into the UK through the existing clients of Anodas Software. The acquisition of Ducont

FZ LLC in Dubai in FY09 strengthened Zylog’s presence in the Middle East. Importantly,

Zylog has been successfully able to integrate all the acquired companies, including

Brainhunter which was as big as Zylog in revenue terms. Successful integration and turnaround of Brainhunter has strengthened Zylog’s presence in Canada

Zylog acquired Brainhunter Inc., Canada’s third largest professional services company, in

February 2010 for an enterprise value of US$ 37 mn. Brainhunter was a staffing and

engineering consulting and professional services provider in Canada with a major presence in

government, telecom, banking, financial services and insurance (BFSI), and oil and gas

verticals. It had 1,860 employees and about 400 customers in the telecom, banking and

government verticals at the time of acquisition. In FY09, ~95% of its revenue came from

providing IT and engineering staffing consultants on a contract basis to its clients. It also sold

recruitment related software including applicant tracking systems (ATS) and vendor

management software.

At the time of acquisition, Brainhunter’s revenue was US$ 194 mn and it had been loss-

making during the five years before the acquisition. It had filed for bankruptcy protection in

2009 as it had invested heavily in IT solutions R&D at the time of global economic downturn

and had funded it through short term debt.

This acquisition was funded through US$ 10 mn cash accruals and balance debt which was

taken on the books of Brainhunter. Zylog has now merged Brainhunter with its other Canadian

operations under the subsidiary Zylog Systems (Canada) Ltd. Synergies from Brainhunter acquisition • The acquisition gave Zylog entry into the Canadian markets along with access to 400

clients. Additionally, it gave Zylog inroad into the Canadian government business since

Brainhunter derived ~35% of its revenue from the federal government

• Zylog added staffing services to its portfolio of offerings

• Opportunity to cross-sell its products to Brainhunter’s clients

• Cost benefit which would arrive from offshoring services to India

The company has acquired

eight companies including a

strategic stake in the past three

years

Brainhunter turned profitable in

the first year of acquisition

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Zylog Systems Ltd

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Brainhunter has now turned profitable

Zylog has successfully been able to integrate and turn around Brainhunter’s operations

despite cultural challenges and a completely different business line, in ~1.5 years. The

company has retained the majority of the middle management at Brainhunter. However, it has

been able to achieve cost savings of only C$ 80,000 vs. C$ 6 mn as expected earlier.

For the first year, Zylog concentrated on Brainhunter’s existing clients and services. Zylog has

recently introduced the products and services of the parent company in Canada and are

cross-selling them to existing clients. Also, Zylog has exited, and not renewed, the low margin

contracts to improve profitability. The company has also taken some cost saving measures

like inducting a pre-sales team in Chennai to generate leads and is in the process of putting

together an offshore execution team in Hyderabad. According to the company, verticals like

healthcare, engineering, oil and gas have good growth potential in Canada.

Over the past two years, Zylog has not been able to offshore significantly as there are

concerns in Canada with respect to consumer privacy. Also, the federal government is not pro

offshore. According to the company, all incremental business coming from the private sector

in Canada can be offshored.

Zylog to benefit from growth in domestic IT services exports CRISIL Research expects IT services exports to grow at a 16% CAGR to US$ 71 bn by FY16.

This industry bounced back in FY11 with a 23% growth up from a muted growth of 5% in

FY10. The growth over FY11-FY16 is expected to be driven by the following factors:

• Shift in service mix to high value service-lines and consulting which are expected to drive

up billing rates

• Introduction of new technologies like cloud, mobility services and other non-linear

business models

• Increase in offshoring

Figure 9: India’s IT exports to grow at 16% CAGR in FY11-16


13.3 17.9 22.2 25.8 27.333.5

40

71

0

10

20

30

40

50

60

70

80

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

16

(US$ bn)

Indian IT exports revenue

16% CAGR

Zylog plans to offshore

incremental business coming

from private sector in Canada

Indian IT exports to grow at 16%

CAGR over FY11-16


8

BFSI, telecom and manufacturing verticals are expected to continue to account for ~75% of

Indian IT services exports.

Zylog, which is predominantly an IT services exporter, is expected to see good traction driven

by this growth in the industry. Additionally, according to NASSCOM (National Association of

Software and Services Companies), IT service providers are looking at diversified delivery

locations to meet the client requirements and mitigate risks associated with labour markets

and currency movements. They are also increasing efforts to scale up their presence in the

onshore geographies to be able to serve the public sector and healthcare providers. This also

acts as a mitigation strategy against the rising anti-offshoring sentiments in the developed

nations. Zylog already follows a global delivery model and has execution teams in the US, the

UK, Middle East and Asia Pacific and is expected to benefit from this strategy.

Update on e-governance and wi-fi business E-governance – good opportunity, slow traction

Zylog ventured into the e-governance business in FY10 with projects related to the road

transport (RTO), agriculture and below poverty line (BPL). A common feature across all these

initiatives was collection of grassroot level information, creation of a database and issue of

smart cards with relevant information about individuals. Zylog is now the implementation

partner for smart card driving licenses for Karnataka and Gujarat. Also, the company has a

good global presence in this space in departments like home affairs, police and immigration,

healthcare, tourism and road transport sectors due to acquisition of Matrix Primus Partners in

the US and a strategic stake in Nova Berhad in Malaysia which are both e-governance service

providers.

This segment contributed Rs 500 mn to total revenues in FY11 vs. target of Rs 1 bn since

revenue from the Karnataka RTO project was not as high as expected. Going forward, the

company plans to use the projects executed in Karnataka and Gujarat as reference to

approach other state governments. Also, it has bagged projects in the healthcare segment

from the governments of Karnataka, Bihar and Haryana. While this business segment has

good growth potential, it comes with high debtor days and lower margins. Also, it requires high

upfront payment to hardware vendors. Hence, its impact on Zylog’s overall profitability

remains a monitorable. Wi-fi – good traction but yet to break even; threat of competition remains

Zylog entered the wi-fi business in December 2009 and is currently present in seven states

and one union territory (Andhra Pradesh, Gujarat, Haryana, Karnataka, Punjab, Rajasthan,

Tamil Nadu and Pondicherry) covering 174 locations. At the end of Q3FY12, the company has

~40,000 active subscribers including 382 corporate connections. Since inception of this

business, Zylog has followed the strategy of focussing on the under-penetrated tier-II towns

and cities due to which it has been able to increase its subscriber base and achieve healthy

retail ARPU’s of Rs 670. Zylog has invested ~Rs 800 mn in this business till date in setting up

infrastructure and plans to invest another Rs 1.2 bn over the next two years and ramp up the

Wi-fi business is yet to break

even at the net level

E-governance revenue stood at

Rs 500 mn in FY11

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subscriber base to 60,000 active clients by FY13. However, the business is yet to break even

at the net profit level and the management expects it to turn profitable by FY13.

While Zylog provides wi-fi services, it directly competes with service providers which provide

internet services through cables and data cards. Also, there are a number of local operators

which provide wi-fi services in the towns and cities where Zylog operates. Since the internet

services market is a highly price sensitive market without any significant switching cost, the

market is expected to get more competitive and Zylog’s ARPUs are expected to be under

pressure. Considering the high investments that the company will be making in this business,

the ability to turn the business profitable remains a key monitorable.


10

Key risks

Volatility in global economic environment could impact revenues The majority of Zylog’s clients are based abroad. Consequently, in the event of any economic

slowdown in these countries, Zylog’s clients could reduce or postpone their IT spends, which

would have a cascading impact on Zylog’s revenues. Moreover, since the company derives its

revenues from export of products and services, it remains vulnerable to currency fluctuations.

However, the currency impact would be lesser as compared to the other players in the IT

industry as Zylog has higher global/onsite presence, which provides a natural hedge. Hence,

the company does not hedge its open position.

Promoters have increased shareholding through pledge of shares Zylog’s promoters currently hold 41.22% stake in the company, up from 36.68% in Q1FY12.

The additional shares were acquired from the open market and were financed through

pledging of promoter shares. The current pledging is 53.33% of promoter’s stake (21.98% of

total share capital). While this amount is quite significant, we believe there is sufficient cushion

since the pledging is in the ratio of 2:1 as per the management. However, the level of pledging

remains a key monitorable since any unfavourable market condition will significantly impact

the stock price.

Zylog will be adversely

impacted in case of another

round of global slowdown since

majority of its revenue comes

from overseas

11

Zylog Systems Ltd

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Financial Outlook

Revenues to grow at two-year CAGR of 9.6% in US$ Consolidated revenues are expected to increase at a two-year CAGR of 9.6% in US dollar

terms to US$ 501 mn by FY13. In rupee terms, the consolidated revenue is expected to grow

at a CAGR of 12% to Rs 24 bn. IT services is expected to grow at a two-year CAGR of ~8% to

US$ 314 mn. Revenue from products and solutions (including e-governance and wi-fi

businesses) is expected to grow at a two-year CAGR of ~13% to US$ 187 mn. The EBITDA

margin is expected to decline by 80 bps to 15.7% in FY13. While revenue from the high-

margin products and solutions are expected to increase, and the company is expected to

increase offshoring, we believe that the increase in employee cost will keep the margins under

pressure. Also, while Zylog’s top line will get boosted due to exchange rate depreciation,

there will be no significant impact on the PAT as majority of the costs are in US$. Figure 10: Revenue in rupee terms to grow at 12% Figure 11: IT services - the largest contributor


Adjusted PAT to grow at 2-year CAGR of ~15%, EPS to increase to Rs 116.6 in FY13 from Rs 88 in FY11 Zylog’s adjusted PAT is expected to grow at a two-year CAGR of ~15% to Rs 1.9 bn. Adjusted

PAT margin is expected to increase by 40 bps to 8% in FY13 despite the decline in EBITDA

margin mainly due to lower interest cost.

The tax rate for FY12 is expected to be ~39% which is higher compared to previous years

mainly as the Software Technology Park of India (STPI) benefits expired post March 31, 2011.

Also, historically, Zylog claimed tax credit in India for direct taxes paid in the US under the

Double Taxation Avoidance Agreement between the two countries. However, now the tax

credit is based on Indian tax rates (33.9%), which are lower than that in the US (at least 35%),

resulting in more tax outgo for Zylog. Tax rate is expected to be lower in FY13 as the

company starts operating from its SEZ facility in Chennai.

7,511 9,802 19,183 21,871 24,048

9.9%

21.1%

16.5% 16.5% 15.7%

0%

5%

10%

15%

20%

25%

-

5,000

10,000

15,000

20,000

25,000

30,000

FY09 FY10 FY11 FY12E FY13E

(Rs mn)

Revenue EBITDA margin (RHS)

62.8% 62.5% 63.1%

37.2% 37.5% 36.9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY11 FY12E FY13E

IT services Products and solutions

Revenues likely to grow at a two-

year CAGR of 9.6% to US$ 501 mn

in FY13 driven by growth across IT

services and solutions


12

Figure 12: PAT and PAT margin trend

Source: Company, CRISIL Research Figure 13: EPS trend


849 1,028 1,453 1,692 1,918

11.3%10.5%

7.6% 7.7% 8.0%

0%

2%

4%

6%

8%

10%

12%

-

500

1,000

1,500

2,000

2,500


(Rs mn)

Adj. PAT Adj. PAT margin (RHS)

5263

88103

117

0

20

40

60

80

100

120

140


(Rs)

Adj. EPS

PAT margin to increase to 8%

in FY13 from 7.6% in FY11

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Zylog Systems Ltd

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Management Overview

CRISIL's fundamental grading methodology includes a broad assessment of management

quality, apart from other key factors such as industry and business prospects, and financial

performance.

Business spearheaded by promoters Mr Sudarshan Venkatraman, chairman, and Mr Ramanujan Sesharathnam, managing

director, are first-generation entrepreneurs and have close to two decades of experience in

the IT industry. Their insight has enabled the company to diversify its product and service

portfolio. The promoters have been instrumental for the strong growth achieved by the

company through organic and inorganic expansions. We believe they have a fair degree of

risk appetite given the acquisition of Brainhunter, which is larger than Zylog and was loss-

making at the time of acquisition. We gain comfort from the fact that the management has

successfully integrated all its acquisitions.

Strong second line of management Operationally, each region and function has a head managing the overall delivery and

business development of the unit. As far as its new businesses – wi-fi and e-governance – are

concerned, individuals heading the businesses have relevant experience. Based on our

interactions, we believe the second line of management is equipped with domain expertise

and has been given fair degree of autonomy in decision making. In each of its acquired

companies, Zylog has allowed the existing management to run the operations.

Management has been proactive Zylog’s management has always been proactive in identifying business opportunities. They

have been able to grow Zylog’s service lines and geographical footprint through organic as

well as inorganic routes. Additionally, they have diversified into new businesses like e-

governance and wi-fi.

Experienced promoters

supported by strong second

line


14

Corporate Governance

CRISIL’s fundamental grading methodology includes a broad assessment of corporate

governance and management quality, apart from other key factors such as industry and

business prospects, and financial performance. In this context, CRISIL Research analyses the

shareholding structure, board composition, typical board processes, disclosure standards and

related-party transactions. Any qualifications by regulators or auditors also serve as useful

inputs while assessing a company’s corporate governance.

Overall, corporate governance at Zylog meets the minimum levels supported by reasonably

good board practices and an independent board.

Board composition

Zylog’s board comprises seven members, including three independent directors and one

nominee director from UTI Ventures which currently holds a 7% stake in Zylog. This meets the

requirement under Clause 49 of SEBI’s listing guidelines. Given the background of directors,

we believe the board is fairly diversified.

Board’s processes The company’s quality of disclosure can be considered good judged by the level of

information and details furnished in the annual report, websites and other publicly available

data. The company has all the necessary committees – audit, remuneration and investor

grievance - in place to support corporate governance practices. The audit committee is

chaired by an independent director, Mr S. Rajagopal.

Corporate governance

practices are good

15

Zylog Systems Ltd

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Valuation Grade: 4/5

We have used the discounted cash flow (DCF) method to value Zylog and maintain the fair

value of Rs 656 per share. This fair value implies P/E multiples of 6.4x FY12E and 5.6x

FY13E earnings. The stock is currently trading at Rs 530 per share. Consequently, we revise

the valuation grade to 4/5 from 5/5 earlier, indicating that the current market price has upside

from current levels.

Key DCF assumptions • We have considered the discounted value of the firm’s estimated free cash flow from

FY12 to FY22.

• We have assumed a terminal growth rate of 4% beyond the explicit forecast period until

FY22.

• We have used cost of equity of 16.4%.

One-year forward P/E band One-year forward EV/EBITDA band

Source: NSE, CRISIL Research Source: NSE, CRISIL Research

P/E – premium / discount to NIFTY P/E movement

Source: NSE, CRISIL Research Source: NSE, CRISIL Research

0100200300400500600700800900

1,000

Aug-

07

Nov

-07

Mar

-08

Jun-

08

Oct

-08

Jan-

09

Apr

-09

Aug-

09

Nov

-09

Mar

-10

Jun-

10

Sep-

10

Jan-

11

Apr

-11

Jul-1

1

Nov

-11

Feb-

12

(Rs)

Zylog 2x 4x 6x 8x

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Aug-

07

Nov

-07

Mar

-08

Jun-

08

Oct

-08

Jan-

09

Apr

-09

Aug-

09

Nov

-09

Mar

-10

Jun-

10

Sep-

10

Jan-

11

Apr

-11

Jul-1

1

Nov

-11

Feb-

12

(Rs mn)

Zylog 2x 3x 4x

-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

Aug

-07

Nov

-07

Mar

-08

Jun-

08

Oct

-08

Jan-

09

Apr

-09

Aug

-09

Nov

-09

Mar

-10

Jun-

10

Sep

-10

Jan-

11

Apr

-11

Jul-1

1

Nov

-11

Feb-

12

Premium/Discount to NIFTY Median

0

2

4

6

8

10

12

14

16

Aug-

07

Nov

-07

Mar

-08

Jun-

08

Oct

-08

Jan-

09

Apr

-09

Aug-

09

Nov

-09

Mar

-10

Jun-

10

Sep-

10

Jan-

11

Apr

-11

Jul-1

1

Nov

-11

Feb-

12(Times)

1yr Fwd PE (x) Median PE

+1 std dev

-1 std dev

We maintain the fair value of

Rs 656 per share for Zylog


16

Peer comparison

M.cap

(Rs mn) EPS (Rs) P/E (x) P/B(x) RoE (%)

FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E

Mid cap companies Zylog * 8,711 88.3 102.9 116.6 6.0 5.1 4.5 1.2 1.0 0.8 22.6 21.1 19.5Mindtree Ltd 18,511 25.5 47.8 50.9 17.8 9.5 8.9 2.3 2.0 1.6 14.0 23.2 20.1 Mphasis Ltd 87,232 39.1 38.3 37.8 10.6 10.8 11.0 2.2 1.9 1.7 22.8 18.8 17.2 Hcl Infosystems Ltd 9,627 7.7 5.2 6.0 5.6 8.4 7.2 0.5 0.5 0.5 8.9 5.6 6.8 Patni Computer Systems Ltd 64,503 30.1 33.2 36.2 15.8 14.3 13.1 1.7 1.4 0.9 11.5 11.5 7.4 Polaris Financial Technologies 15,315 20.4 22.2 24.9 7.5 7.0 6.2 1.5 1.3 1.1 21.3 19.1 18.4 KPIT Cummins Infosystems Ltd 14,066 11.8 15.7 18.8 13.5 10.1 8.4 2.3 2.0 1.6 19.1 20.0 19.9 Hexaware Technologies Ltd 31,464 9.1 10.0 11.0 11.7 10.7 9.8 3.1 2.6 2.2 26.9 26.3 25.6 Median 11.2 9.8 8.7 2.0 1.6 1.4 20.2 19.5 18.9

Large cap companies Infosys Ltd 1,655,675 119.7 146.2 168.1 24.1 19.7 17.2 6.4 5.1 4.2 27.9 28.0 27.0 Tata Consultancy Services Ltd 2,450,539 46.3 54.6 64.1 27.1 22.9 19.5 10.0 7.8 6.1 42.4 37.1 35.0 Wipro Ltd 1,044,325 21.7 23.3 27.0 19.6 18.2 15.7 4.6 3.7 3.2 26.0 21.7 21.6 Hcl Technologies Ltd 335,331 24.1 32.4 37.8 20.1 15.0 12.8 4.4 3.3 2.8 23.6 24.1 23.0 Cognizant (US$) 21,807 2.9 3.6 4.2 24.8 20.0 17.0 5.5 4.3 3.5 23.4 23.1 21.7 Median 24.1 19.7 17.0 5.5 4.3 3.5 26.0 24.1 23.0 * CRISIL Research estimates

Source: CRISIL Research, Industry sources CRISIL IER reports released on Zylog Systems Ltd

Date Nature of report Fundamental

grade Fair value Valuation

grade CMP

(on the date of report)

07-May-10 Initiating coverage* 3/5 Rs 530 4/5 Rs 456

14-Jun-10 Q4FY10 result update 3/5 Rs 530 4/5 Rs 463

09-Aug-10 Q1FY11 result update 3/5 Rs 530 3/5 Rs 534

27-Sep-10 Management meeting update 3/5 Rs 656 4/5 Rs 577

09-Nov-10 Q2FY11 result update 3/5 Rs 656 4/5 Rs 582

03-Mar-11 Q3FY11 result update 3/5 Rs 656 5/5 Rs 410

09-Jun-11 Q4FY11 result update 3/5 Rs 656 5/5 Rs 406

31-Aug-11 Q1FY12 result update 3/5 Rs 656 5/5 Rs 405

28-Nov-11 Q2FY12 result update 3/5 Rs 656 5/5 Rs 415

10-Feb-12 Q3FY12 result update 3/5 Rs 656 5/5 Rs 500

28-Feb-12 Detailed report 3/5 Rs 656 4/5 Rs 530

* For detailed initiating coverage report please visit: www.ier.co.in

CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.

17

Zylog Systems Ltd

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Company Overview

Chennai-based Zylog is an IT services and products company catering mainly to the US and

Canadian markets. It was incorporated in 1995 and has since then grown its offerings portfolio

and geographical presence through both organic and inorganic routes. The company services

clients through a blend of onsite, offsite and offshore efforts and derives ~83% of its revenues

from global/onsite locations. In a bid to diversify its business, Zylog entered the e-governance

and internet services space (wi-fi) in January 2010.

Zylog has clients across various verticals including BFSI, telecom, retail, manufacturing,

pharma and healthcare. BFSI is the main revenue contributor and accounts for ~23% of the

total revenue followed by telecom which accounts for ~22%. The government vertical has

become significant from FY11 onwards due to acquisition of Brainhunter, Canada which gets

~30% of its revenue from the Canadian government. Vertical-wise revenue contribution


The company has been concentrating on the overseas markets with specific focus on the US,

which contributed ~97% of total revenue till FY09. However, over the past two years, Zylog

has reduced its dependence on the US markets mainly by entering Canada through the

acquisition of Brainhunter in February 2010. In FY11, the US contributed ~54% of revenue

while contribution from Canada was ~37%. Zylog entered the Middle East through the

acquisition of Ducont in Dubai in FY09. It has also strengthened its position in the Middle

East, Asia Pacific and Europe where it operates through subsidiaries.

34.1 32.6 28.9 31.224.3 23.3

22.0 24.9 27.1 24.9

21.6 22.5

8.2 9.7 8.8 9.9

14.2 14.5

7.3 6.5 9.1 7.211.3 9.7

7.8 7.9 10.2 8.9 8.4 9.2

0.9 1.613.1 14.8

20.5 18.4 15.0 16.37.1 6.1

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


BFSI Telecom Retail Manufacturing Pharma/Healthcare Government Others


18

Geography-wise revenue contribution

Note: Data prior to FY09 was not available


Services and product offerings Key product offerings

Products Vertical/end users

Brief description

Power Migrator NA Enables customers to migrate legacy systems to newer technologies like .net, J2EE and Java using tool centric approach

FieldPower NA Enables scheduling of people, processes and materials thereby enabling customers to efficiently manage their costs effectively

Bank Companion

BFSI Mobile banking solution offering a complete suite of mobile banking solution across retail and corporate banking customers with access to banking services through SMS, J2ME, USSD, GPRS, WAP, BREW, iPhone, ipad, Android and Blackberry supports leveraging a single common platform

Phoenix Insurance Customisable solution to electronically manage all key processes and information related to underwriting, broking, claims, reinsurance and accounting. Ability to support TPA services, which is a complementary offering

Silvanus 360 NA A web-based software to manage internal operations, warehouse management, fleet and dispatch, contacts, orders, shipments and forms. Available across recycler, collector and material handler versions

Source: Company, CRISIL Research IT Services Service offering Brief description Application Development Legacy Modernization, Application Migration, Web Application Development, Mobile & Wireless Application Development,

Desktop Application Enterprise Solutions Enterprise 2.0 Smartprise SOA, Enterprise Web 2.0 Services, Business Intelligence, Data Warehousing, Reporting &

Analysis Services Managed Services Server & Database Management, Security Mangement, Network Monitoring, Managed Hosting, Desktop Computing

Services Professional Services Contract & Permanent Services. Hiresafe Payroll and Consultant Q & A and Testing Functionality Testing, Performance Testing, Compatibility Testing, White Box Testing, Product Testing, User Acceptance

Testing


97.2 78.3 51.1 53.9

10.3

39.9 37

2.3 4.1 2.7 2.64.8 3.1 3

0.2 1.2 1.70.3 1.1 1.5

3.5

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY09 FY10 FY11 9MFY12

USA Canada Europe Middle East India Asia Pacific

19

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Milestones

1995 Incorporation of the company

1996 First offshore contract obtained from Rand Software Corporation, Vermont in mobile and wireless space to provide data synchronisation between server and hand -held device

Opened the first offshore development centre (ODC) in Chennai

1998 Started SI / VAR partnership practice.

1999 Certified as ISO 9001:2000 for software development process by Det Norske Veritas (DNV)

2000 Launched products Z*Connect and Z*PRISM in the mobile and wireless space in Las Vegas International Convention of VAR Partnerships

2002 Acquired three businesses - Silver Spring Technologies (MD), Schumacher Consulting (MA) and Schmidt Systems (VA), primarily expanding the business intelligence, data warehousing and application integration solutions

Incorporated a 100% wholly owned subsidiary Zylog Systems (UK) Ltd

2003 Strategic partnership with BCSIS (subsidiary of OCBC, Singapore) to market and implement their banking products in India

2004 Two more businesses acquired - Impeksoft, Inc and JDAN Systems, Inc

2005 Incorporated a 100% wholly owned subsidiary, Zylog Systems (India) Ltd to cater to domestic business

2006 Incorporated a 100% wholly owned subsidiary in Singapore to cater to APAC region

2007 Preferential allotment to Unit Trust of India Investment Advisory Services Ltd A/c Ascent India Fund and Argonaut Ventures The company listed on the BSE and the NSE with an IPO of Rs 1.26 bn

2008 Inaugurated its own development centre in Sholinganallur, Chennai

Acquired UK-based Anodas Software and Chennai-based Ewak Creative Compusoft

2009 Pilot projects executed in the e-governance space and rollout of internet services in Tamil Nadu through wi-fi technology

Acquired Dubai-based Ducont FZ LLC (mobile wireless space), US-based FairFax (Content processing) and Malaysia-based

Nova Berhad, a healthcare content management company

2010 Acquired Canada-based consulting and engineering services firm Brainhunter



20

Annexure: Details of acquisitions Year Name of target Geography Consideration Nature of business Benefits to Zylog

FY08 Anodas Software UK US$ 2.3 mn Insurance software solutions and third party administration services

Added end-to-end core insurance solution to Zylog's offerings

FY09 Fairfax Consulting Inc

US US$ 7.5 mn Content management services firm with focus on healthcare and pharmaceutical vertical

Strengthened Zylog's position in pharmavertical. Strengthened presence in the US and Europe

FY09 Ducont FZ LLC Dubai US$ 12 mn Application provider in wireless application space. Its clients included a number of banks, telecom operators and government bodies

Strengthened Zylog's position in the Middle East. It also gave Zylog a mobile banking solution

FY10 Brainhunter Inc. Canada US$ 37 mn Staffing (90% of revenues), consulting and engineering services provider with the government of Canada as the key client

Strengthened Zylog's position in Canada and gave access to orders from the Canadian government

FY10 Matrix Primus Partners

US US$ 15.82 mn E-governance services Strengthened Zylog's e-governance vertical

FY10 Algorithm Solutions Pvt Ltd

India Rs 17.5 mn NA NA

FY10 Strategic stake of 10.64% in Nova Berhad

Malaysia Rs 59.5 mn Specialist in healthcare and e-governance products and solutions

Enhanced Zylog's healthcare offerings including an integrated hospital management offering and helped in entry into e-governance vertical

FY11 Mindwire Inc. Canada C$ 1 mn Professional IT services and staffing company with the government of Canada as the key client

Increased business from the Canadian government

Source: Company

21

Zylog Systems Ltd

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Annexure: Financials


Income statement Balance Sheet(Rs mn) FY09 FY10 FY11 FY12E FY13E (Rs mn) FY09 FY10 FY11 FY12E FY13EOperating income 7,511 9,802 19,183 21,871 24,048 LiabilitiesEBITDA 744 2,070 3,170 3,616 3,780 Equity share capital 164 164 164 164 164 EBITDA margin 9.9% 21.1% 16.5% 16.5% 15.7% Reserves 4,728 5,623 6,924 8,820 10,555Depreciation 211 337 515 641 749 Minorities - - - - - EBIT 533 1,733 2,655 2,975 3,031 Net worth 4,892 5,788 7,088 8,985 10,720Interest (390) 463 619 390 403 Convertible debt - - - - - Operating PBT 923 1,270 2,036 2,585 2,628 Other debt 1,569 4,152 5,503 6,839 6,589 Other income 47 44 24 90 93 Total debt 1,569 4,152 5,503 6,839 6,589 Exceptional inc/(exp) (4) (0) (4) 378 0 Deferred tax liability (net) 6 23 22 22 6 PBT 965 1,314 2,057 3,053 2,721 Total liabilities 6,467 9,962 12,613 15,845 17,314Tax provision 120 286 608 983 803 AssetsMinority interest - - (2) - - Net f ixed assets 620 1,008 1,690 2,063 2,563 PAT (Reported) 846 1,028 1,452 2,070 1,918 Capital WIP 102 277 537 229 229 Less: Exceptionals (4) (0) (4) 378 0 Total fixed assets 722 1,285 2,227 2,292 2,792 Adjusted PAT 849 1,028 1,455 1,692 1,918 Investments 1 57 60 60 60

Current assetsRatios Inventory - - 9 - -

FY09 FY10 FY11 FY12E FY13E Sundry debtors 2,795 3,909 5,455 6,591 6,588 Growth Loans and advances 719 1,262 2,048 2,898 3,275 Operating income (%) 23.3 30.5 95.7 14.0 10.0 Cash & bank balance 2,095 2,715 2,996 4,155 4,984 EBITDA (%) (34.9) 178.4 53.1 14.1 4.5 Marketable securities 0 0 0 0 0 Adj PAT (%) 2.7 21.0 41.3 16.5 13.4 Total current assets 5,610 7,885 10,509 13,644 14,848Adj EPS (%) 2.7 21.0 41.3 16.5 13.4 Total current liabilities 685 1,214 1,853 1,822 2,056

Net current assets 4,925 6,671 8,656 11,823 12,792Profitability Intangibles/Misc. expenditure 820 1,950 1,671 1,671 1,671 EBITDA margin (%) 9.9 21.1 16.5 16.5 15.7 Total assets 6,467 9,962 12,613 15,845 17,314Adj PAT Margin (%) 11.3 10.5 7.6 7.7 8.0 RoE (%) 18.9 19.3 22.6 21.1 19.5 Cash flowRoCE (%) 9.6 21.1 23.6 20.9 18.3 (Rs mn) FY09 FY10 FY11 FY12E FY13ERoIC (%) 12.9 26.6 25.1 20.5 20.2 Pre-tax profit 969 1,314 2,060 2,675 2,721

Total tax paid (120) (269) (608) (983) (819) Valuations Depreciation 211 337 515 641 749 Price-earnings (x) 10.3 8.5 6.0 5.1 4.5 Working capital changes (515) (1,127) (1,703) (2,009) (140) Price-book (x) 1.8 1.5 1.2 1.0 0.8 Net cash from operations 544 254 264 325 2,512 EV/EBITDA (x) 11.0 4.9 3.5 3.2 2.7 Cash from investmentsEV/Sales (x) 0.1 0.9 0.6 0.5 0.4 Capital expenditure (882) (2,030) (1,178) (706) (1,250)Dividend payout ratio (%) 6.8 11.2 10.6 7.2 8.1 Investments and others 335 (56) (4) 0 - Dividend yield (%) 3.8 1.5 1.8 1.7 1.8 Net cash from investments (547) (2,086) (1,182) (706) (1,250)

Cash from financingB/S ratios Equity raised/(repaid) - 0 - - - Inventory days - - 0.2 - - Debt raised/(repaid) 1,001 2,583 1,351 1,335 (250) Creditors days 33 51 35 34 35 Dividend (incl. tax) (58) (115) (153) (173) (183) Debtor days 136 146 104 110 100 Others (incl extraordinaries) 12 (17) 1 378 0 Working capital days 125 126 91 111 117 Net cash from financing 955 2,451 1,199 1,540 (433) Gross asset turnover (x) 7.6 7.1 8.7 6.5 5.2 Change in cash position 952 619 282 1,158 829 Net asset turnover (x) 12.5 12.0 14.2 11.7 10.4 Closing cash 2,095 2,715 2,996 4,155 4,984 Sales/operating assets (x) 11.5 9.8 10.9 9.7 9.5 Current ratio (x) 8.2 6.5 5.7 7.5 7.2 Debt-equity (x) 0.3 0.7 0.8 0.8 0.6 (Rs mn) Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12Net debt/equity (x) (0.1) 0.2 0.4 0.3 0.1 Net Sales 4,766 5,012 5,136 5,004 5,828 Interest coverage (1.4) 3.7 4.3 7.6 7.5 Change (q-o-q) 0% 5% 2% -3% 16%

EBITDA 889 819 876 843 939 Per share Change (q-o-q) 64% -8% 7% -4% 11%

FY09 FY10 FY11 FY12E FY13E EBITDA margin 18.7% 16.3% 17.1% 16.8% 16.1%Adj EPS (Rs) 51.6 62.5 88.3 102.9 116.6 PAT 266 338 450 491 545 CEPS 64.5 83.0 119.7 141.9 162.2 Adj PAT 384 340 364 373 371 Book value 297.5 351.9 431.0 546.3 651.8 Change (q-o-q) 2% -12% 7% 2% 0%Dividend (Rs) 3.5 7.0 9.3 9.0 9.5 Adj PAT margin 8.1% 6.8% 7.1% 7.4% 6.4%Actual o/s shares (mn) 16.4 16.4 16.4 16.4 16.4 Adj EPS 23.3 20.6 23.3 22.7 22.6

Consolidated quarterly financials


22

Focus Charts Revenue and revenue growth trend EBITDA and EBITDA margin trend

Source: Company, CRISIL Research Source: Company, CRISIL Research Quarterly sales and EBITDA margin trend PAT and PAT margin trend

Source: Company, CRISIL Research Source: Company, CRISIL Research Fair value movement since initiation Shareholding pattern over the quarters


7,511 9,802

19,183 21,871 24,048

23.3%30.5%

95.7%

14.0%

10.0%

0%

20%

40%

60%

80%

100%

120%

-

5,000

10,000

15,000

20,000

25,000

30,000


(Rs mn)

Revenue Y-o-Y change (RHS)

744 2,070 3,170 3,616 3,780

9.9%

21.1%

16.5% 16.5% 15.7%

0%

5%

10%

15%

20%

25%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000


(Rs mn)

EBITDA EBITDA margin (RHS)

2,118 4,634 4,745 4,766 5,012 5,136 5,004 5,828

20%

15%

11%

19%16% 17% 17% 16%

0%

5%

10%

15%

20%

25%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Q4F

Y10

Q1F

Y11

Q2F

Y11

Q3F

Y11

Q4F

Y11

Q1F

Y12

Q2F

Y12

Q3F

Y12

(Rs mn)

Quarterly revenue EBITDA margin (RHS)

849 1,028 1,453 1,692 1,918

11.3%10.5%

7.6% 7.7% 8.0%

0%

2%

4%

6%

8%

10%

12%

-

500

1,000

1,500

2,000

2,500


(Rs mn)

Adj. PAT Adj. PAT margin (RHS)

0

200

400

600

800

1,000

1,200

1,400

1,600

250

300

350

400

450

500

550

600

650

700

May-

10

Jun-

10Ju

l-10

Jul-

10

Aug-1

0Se p

-10

Oct

-10

Nov-1

0D

ec-

10Ja

n-1

1Fe

b-11

Mar-

11Apr-

11

May-

11

Jun-

11Ju

l-11

Aug-1

1Se p

-11

Oct

-11

Nov-1

1D

ec-

11Ja

n-1

2Fe

b-12

('000)(Rs)

Total Traded Quantity(RHS) CRISIL Fair Value Zylog

36.7% 36.7% 41.2% 41.2%

0.7% 0.4%0.4% 1.4%3.2% 3.1%3.8% 4.8%

59.5% 59.9% 54.6% 52.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Mar-11 Jun-11 Sep-11 Dec-11

Promoter FII DII Others

CRISIL Research Team

Senior Director Mukesh Agarwal +91 (22) 3342 3035 [email protected]

Analytical Contacts Tarun Bhatia Director, Capital Markets +91 (22) 3342 3226 [email protected] Prasad Koparkar Head, Industry & Customised Research +91 (22) 3342 3137 [email protected]

Chetan Majithia Head, Equities +91 (22) 3342 4148 [email protected]

Jiju Vidyadharan Head, Funds & Fixed Income Research +91 (22) 3342 8091 [email protected] Ajay D'Souza Head, Industry Research +91 (22) 3342 3567 [email protected]

Ajay Srinivasan Head, Industry Research +91 (22) 3342 3530 [email protected]

Sridhar C Head, Industry Research +91 (22) 3342 3546 [email protected] Manoj Mohta Head, Customised Research +91 (22) 3342 3554 [email protected]

Sudhir Nair Head, Customised Research +91 (22) 3342 3526 [email protected]

Business Development Vinaya Dongre Head, Industry & Customised Research +91 (22) 33428025 [email protected]

Ashish Sethi Head, Capital Markets +91 (22) 33428023 [email protected] CRISIL’s Equity Offerings The Equity Group at CRISIL Research provides a wide range of services including: Independent Equity Research IPO Grading White Labelled Research Valuation on companies for use of Institutional Investors, Asset Managers, Corporate

Other services by the Research group include Funds & Fixed Income Research Mutual fund rankings Wealth Tracking and Financial Planning tools for asset managers, wealth managers and IFAs Valuation for all debt instruments Developing and maintaining debt and hybrid indices Consultancy and research support to retirement funds

Industry & Customized Research Provide comprehensive research coverage across 65 sectors Customised research on market sizing, demand modelling and entry strategies Customised research content for Information Memorandum and Offer Documents

MAKING MARK

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Contact us Phone: +91 22 3342 3561/ 62

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