Specializes in Core Services sectors. Sliding Rupee is positive for DGSL. Strong Financial performance during 9MFY12

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1 S t o c k I d e a Date: 20- Apr -12 CMP: `28 TARGET: `38 Upside: 35.7% B U Y SENSEX NIFTY 5291 Eq. Cap. (` Crs) Face Value (`) 5.0 M. Cap (` Crs) `165 BSE Code NSE Code Financial Year DATAMATICS Apr-Mar 52-w H/L 33.85/20.1 Avg. Daily Vol. 3,358 TTM EPS (`) 5.04 TTM P/E (x) 5.6 BVPS (`) P/BVPS (x) 0.5 Stock vs. Sensex Latin Manharlal Securities Pvt Ltd. 124 Viraj, S,V.Road, Khar (W), Mumbai DATAMATICS GLOBAL SERVICES LTD. (DGSL) Specializes in Core Services sectors Datamatics Global Services Ltd (DGSL) specializes in Engineering & Embedded Services, Finance & Accounting Services, Information Management, IT Consulting, IT Services, Publishing Services, Research & Analytics, Resource Augmentation, Smart Document Processing, Billing & Payment Solutions, and Online Retail Solutions. Alliances with reputed companies to improve client base The company has strong alliances with reputed companies around the world. DGSL received Microsoft Gold Certification from Microsoft which gives it the opportunity to build the closest working relationship with Microsoft. IBM upgraded its partnership with DGSL to Advanced. As a result, the benefits have also expanded. This also means that DGSL can now leverage the incremental resources of the PartnerWorld Industry Networks and help to generate more leads and accelerate sales. Planning to open 2 new delivery centres - bets on publishing vertical DGSL is planning to open 2 new delivery centres at Ahmedabad and Indore with a capacity of 1000 people in each centre by FY13E for an investment of ~`50 Crs. As the company is eyeing a 20% Y-o-Y growth for the next 3 years, it is targeting tier-ii and tier-iii to fuel its growth plans. The Publishing segment is growing at over 40% Y-o-Y and most of the company s expansions in the near future will be for the same. Sliding Rupee is positive for DGSL Economic slowdown in the Europe and the US is likely to have a long-term impact on the prospects of the Indian IT industry and DGSL is no exception. However, the company's focused approach towards businesses such as cloud computing and data analytics, which are gaining ground rapidly, offers some respite. The company has been posting a decent financials over the past few quarters. Recent Rupee devaluation against the US$ is likely to benefit DGSL, which draws ~90% of its revenues from Overseas markets. Strong Financial performance during 9MFY12 The Company s net sales increased by 59.7% from `203.0 Crs for 9MFY11 to `324.2 Crs for 9MFY12. EBIDTA for 9MFY12 stood at `31.7 Crs, up 164.3% against 9MFY11. The Company s net profit during 9MFY12 registered an increase of 67.9% to `22.0 Crs as compared to 9MFY11. Earnings per share stood at `3.73 during 9MFY12 as compared to `2.20 during 9MFY11. Seeking more acquisitions to fuel growth DGSL which has acquired two companies in FY12 is on the prowl for more. It expects to pump in US$10-40 mn on further acquisitions in India and abroad. The company is looking at online B2B information providers, companies which service online retailers, and firms providing financial data and document processing. It has been talking with two companies in India and 3 in the US and Europe. DGSL is also looking for acquiring company that gives it financial and accounting solutions market in US, UK and India. Please Refer DISCLAIMER on the Last Page

2 Company Profile Datamatics Global Services Ltd (DGSL) is a trusted partner to several Fortune 500 Companies globally for managing their End-to-end Application Life Cycle & Business Critical Processes. DGSL is a global Information Technology (IT) and Knowledge Process Outsourcing (KPO) organization focused on delivering smart, next-generation business solutions that help enterprises across the world overcome their business challenges. These solutions leverage innovations in technology, knowledge of business processes, and domain expertise to provide clients a competitive edge. Revenue Mix 3QFY12 Revenue Mix USA & Europe are the Key markets 12% 6% 23% 59% USA Europe India Others The company is a global IT and ITeS provider with focus on markets of USA and Europe. In 3QFY12 USA contributed ~59% of the revenues, Europe ~23%, India 12% while others nations contributed 6% of the total revenues. Top 10 clients contributed 32% in 3QFY12 of the revenues as compared to 38% in 2QFY12 and 50% in 3Q FY11. INVESTMENT POSITIVES Specializes in Core Services sectors DGSL specializes in Engineering & Embedded Services, Finance & Accounting Services, Information Management, IT Consulting, IT Services, Publishing Services, Research & Analytics, Resource Augmentation, Smart Document Processing, Billing & Payment Solutions, and Online Retail Solutions. DGSL provides integrated IT and IT enabled services (ITeS) with focus on verticals such as content management, finance and accounts, research and analytics segment. The company s services are used in various stages starting from data and workflow management to data warehousing, mining and business intelligence. Datamatics Global Services Ltd April-2012

3 Conferred with many Industry awards The company has been conferred with many industry awards globally. Very recently DGSL has won 4 prestigious awards in the 22 nd World HRD Congress 2012, held on February 16th-18th, 2012 at Taj Lands End, Mumbai. It was conferred with 2 highly acclaimed awards - "Edward De Bono Award for Innovation in HR" and "Organisation with Innovative HR Practices" - at the Global HR Excellence Awards Conferred with 2 highly acclaimed awards - "Edward De Bono Award for Innovation in HR" and "Organisation with Innovative HR Practices Other awards include: Featured amongst the Global Top 10 Mid-Tier Industry Specific BPO Service Providers in the Global Services 100 list for two consecutive years & In 2011, the company was ranked amongst the top 20 leaders in financial services (Insurance, Banking & Markets) by International Association of Outsourcing Professionals (IAOP). In 2010, became was the proud recipient of Global HR Strategy Award & HR Leadership Award at Asia's Best Employer Brand Awards Received HR Super Achiever Award at Asia Pacific HRM Congress in Datamatics is the first Indian company to have won the International Asia Pacific Quality Award in the Services Category in Alliances with reputed companies to improve client base The company has strong alliances with reputed companies around the world. DGSL received Microsoft Gold Certification from Microsoft which gives it the opportunity to build the closest working relationship with Microsoft and are guaranteed, at minimum, telephone-based account engagement from Microsoft, along with other top-level benefits such as a priority listing in the Microsoft Resource Directory. IBM upgraded its partnership with DGSL to Advanced. As a result, the benefits have also expanded. This also means that DGSL can now leverage the incremental resources of the PartnerWorld Industry Networks and help to generate more leads and accelerate sales. With IBM PartnerWorld Advanced, DGSL will have accessibility to IBM business intelligence reports and with partnership programs the partners are known worldwide, enabling global visibility for Datamatics through IBM partner programs. Widened portfolio through in-organic growth DGSL will benefit from Cignex focused strategy on open source enterprise content management In FY10, DGSL acquired a division of Devoteam-Dane, a Germany based company. Through this acquisition the company got rights to a suite of independent business solutions viz Accelerators for Business Support Solutions. These solutions are used in telecommunication and other utility industries for management of order entries, billing and settlement, output management and others. Datamatics Global Services Ltd April-2012

4 In FY12, DGSL group acquired 2 companies, namely Bangalore based Vista Infosystems Pvt. Ltd and US based Cignex Global Holding Corporation (a global leader in commercial Open Source and SAP connect solutions) during FY12. Vista Infosystems Pvt Ltd specialises in embedded systems space and has domain competencies in market segment like automotive, aerospace, telecom and semiconductors. California-based Cignex had revenue of US$22 mn and the acquisition followed a year after DGSL entered into a J.V partnership with the company. The company will benefit from Cignex focused strategy on open source enterprise content management and a highly experienced team of 400+ consultants. This acquisition will also benefit DGSL in increasing its global footprint, with Cignex s presence in markets like San Francisco and Singapore. Domestically, it will reinforce DGSL strategy to establish base in tier II cities through a strong presence in Ahmedabad. Planning to open 2 new delivery centres - bets on publishing vertical Eyeing a 20% Y-o-Y growth for the next 3 years Publishing segment is growing at over 40% Y- o-y and most of the company s expansions in the near future will be for the same. DGSL is planning to open 2 new delivery centres at Ahmedabad and Indore with a capacity of 1000 people in each centre by FY13E for an investment of ~`50 Crs. As the company is eyeing a 20% Y-o-Y growth for the next 3 years, it is targeting tier-ii and tier-iii to fuel its growth plans. The Puducherry centre which opened in Sept 11 has a seating capacity of ~700 people and will primarily deliver the Online, Publishing, and Retail Solutions (OPRS) of the company. This is the company's fifth delivery centre and the third in south India after Chennai and Bangalore. According to industry estimates, total offshoring of publishing services stood at about US$780 mn for 2008 and is expected to grow by about 35% till The Publishing segment is growing at over 40% Y-o-Y and most of the company s expansions in the near future will be for the same. The industry employs about 35,000 people. Chennai has become the hub for publishing and Pondicherry is emerging as a satellite destination to support operations in the city. Intelligent data capture tool and workflow solution new opportunities HDFC Securities Ltd - a new client Intelligent data capture tool and workflow solution from DGSL helped the HDFC Securities Ltd (HSL) increase back-office staff productivity and speed up account opening process. The average cycle time to activate a single customer account was something that HSL wanted to improve on and after evaluating a number of vendor offerings, the company opted to go with DGSL' solution. DGSL recommended a solution which comprised of tools including iq for intelligent data capture, ipm for workflow management, and EMC Documentum for document archival/retrieval. Archiving & retrieving documents with bulk upload/ download facilities has resulted in cost savings on document retrieval, which is now almost instantaneous compared to the 7 days it used to take earlier. Moreover the cost of retrieving the documents has also been reduced to half. Datamatics Global Services Ltd April-2012

5 Dividend Yield (%) Dividend (%) Other Positives Top 10 clients contributed 32% to Revenues in 3QFY12 as compared to 38% in 2QFY12 and 50% in 3QFY11. 3QFY12 witnessed depreciation in Indian Rupee against US$, which in turn led to a positive impact on the company s export-dominated revenues. EBIDTA margin for the Q3FY12 has improved by 181 bps to 11.8% Q-o-Q and for the 9MFY12 has improved by 390 bps to 9.8% Y-o-Y. Negligible Debt on the Balance Sheet (FY11) at `10 Crs. Dividend paying company (since year 2000) and the Dividend Yield stood at 2.5% at the end of FY % 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% FY05 FY06 FY07 FY08 FY09 FY10 FY11 60% 50% 40% 30% 20% 10% 0% Div. Yield (%) Dividend (%) PEER GROUP COMPARISION CONCERNS Exchange rate fluctuations as foreign earnings contributed ~90% of total revenues. Global Economies uncertainties of its key markets - USA and UK Datamatics Global Services Ltd April-2012

6 VALUATIONS At the CMP of `28.0, the stock is trading at 3.7x its FY13E EPS of `7.60. We recommend BUY on the stock with a months target price of `38.0, providing an upside of 35.7% from the current levels. Source: Company, Capitaline Registered Office: 124 Viraj, S,V.Road, Khar (W), Mumbai Tel. (022) , Fax (022) research@lmspl.com LMSPL Network: Fort, Mahalaxmi, Parel, Bandra, Santacruz, Vile Parle, Andheri, Malad, Kandivili, Borivali, Bhayender, Ghatkopar, Mulund, Chunabhatti, Jacob Circle, Masjid Bunder, Cotton Green, Thane, Bhiwandi, Panvel, Pune, Sholapur, Nasik, Malegoan, Ahmednagar, Aurangabad, Akola, Mahekar, Nagpur, Surat, Karjan(Baroda), Khambat, Ahmedabad, Rajkot, Surendranagar, Porbandar, Amreli, Bharuch, Anand, Chennai, Vishakhapatnam, Vizianagaram, Palasa, Kakinada, Karnal, Kolkatta, Bhubhaneshwar, Hyderabad, Bangalore, Jafrabad, Chital, Kodinar, Keshod, Gondal, Haryana, Srikakulam, Mehkar (Buldhana, Jamnagar, Bangalore, Jodhpur, Jalgaon, Malkangiri (Orissa), Karimnagar Dist. (Andhra Pradesh) This document is for information only and is meant for the use of the recipient & not for circulation. The information contained in this document has been taken from publicly available information, trade and statistical services & other sources. While the information contained herein is from sources believed to be reliable, we do not hold ourselves responsible for its completeness and accuracy. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice. Investors are expected to use the information contained in this report at their own risk. This report is not and should not be construed as an offer or the solicitation of an offer to buy or sell any securities. M/s Latin Manharlal Securities Pvt. Ltd. and its affiliates may act as market maker or have assumed an underwriting position in the secure-ties of companies discussed herein and may sell them to or buy them from customers on a principal basis. Datamatics Global Services Ltd April-2012