HOLD ZENSAR TECHNOLOGIES LTD. CMP (Rs) Target Price (Rs) JAN 23 rd, 2013 SYNOPSIS. Result Update: Q3 FY13

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1 HOLD CMP (Rs) Target Price (Rs) ZENSAR TECHNOLOGIES LIMITED Result Update: Q3 FY13 JAN 23 rd, 2013 ISIN: INE520A01019 Stock Data Sector IT BSE Code Face Value wk. High / Low (Rs.) / Volume (2wk. Avg ) Market Cap ( Rs in mn ) Annual Estimated Results (A*: Actual / E*: Estimated) Years FY12A FY13E FY14E Net Sales EBITDA Net Profit EPS P/E Shareholding Pattern (%) 1 Year Comparative Graph BSE SENSEX ZENSAR TECHNOLOGIES LTD SYNOPSIS Zensar Technologies Ltd (Zensar) is a globally renowned software services company that specializes in providing a complete range of Software Services and Solutions. During this quarter, Zensar has reported 18 wins across its focus verticals, some of which are large annuity contracts in core areas of application development and infrastructure management. Zensar Technologies Ltd has recommended payment of Interim Dividend at the rate of Rs. 3.5 per Equity Share (35%) of the Company for the financial year During the quarter, the robust growth of Net Sales is increased by 5.04% to Rs million. The Company has signed multiple deals in the real estate, media, travel and transportation. The company s core verticals Insurance business recently won a 24 Million USD deal with leading US health insurance provider as part of the 5 year deal. Zensar has signed up a 5 year deal with large progressive African wealth management group providing managed services and application support. Net Sales & PAT of the company are expected to grow at a CAGR of 28% & 13% over 2011 to 2014E respectively. Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Zensar Technologies Ltd TCS Ltd MindTree Ltd NIIT Technologies Ltd

2 Investment Highlights Results updates- Q3 FY13 The company s net profit decreased to Rs million against Rs million in the corresponding quarter ending of previous year, a decrease of 6.87%. Revenue for the quarter rose 5.04% to Rs million from Rs million, when compared with the prior year period. Reported earnings per share of the company stood at Rs a share during the quarter. Profit before interest, depreciation and tax is Rs millions as against Rs millions in the corresponding period of the previous year. Months Dec-12 Dec-11 % Change Net Sales % PAT % EPS % EBITDA % Expenditure : During the quarter total expenditure rose by 11 percent mainly on account of increase in Employees Benefit Expenses and Other expenditure by 11% and 25% respectively in the corresponding period of the previous year. Purchase of Traded goods increased by Rs million from Rs million as compared to previous year. Segment Revenue

3 Highlights in Q3 FY13 During this quarter, Zensar has reported 18 wins across its focus verticals, some of which are large annuity contracts in core areas of application development and infrastructure management. The Company has also been selected as a preferred IT partner for their global Oracle implementation, Business Intelligence and Support business by two leading Manufacturing Companies. One is a leading manufacturer of industrial testing equipment headquartered in the US with manufacturing centers located in the US, Europe and Asia. The other is a leading manufacturer of cutting edge products in the biomedical testing space based in the US. The Company will support two leading healthcare organizations based in the US and Singapore in the areas of IT support application enhancement and improved user experience. In the banking and financial services sector the Company has bagged deals with some of the leading banks and insurance providers in the areas of Application Support and Enhancement, Strategic Consulting and new technology development. The Company has also signed multiple deals in the real estate, media, travel and transportation. These engagements involve application, design, testing, product engineering and development. Latest Updates Zensar Technologies Ltd has recommended payment of Interim Dividend at the rate of Rs. 3.5 per Equity Share (35%) of the Company for the financial year During the quarter ended 31 st December 2012, the Company issued 2,500 equity shares, pursuant to the exercise of stock options by certain employees under the "2002 ESOP" and 17,540 equity shares under "2006 ESOP" stock option plan. Zensar Tech aims to enter billion-dollar club by 2016 Zensar Technologies, the mid-cap IT and BPO services provider, is targeting to enter the billion-dollar club by crossing $1 billion in revenues by financial year The company is planning to target total revenues of over $1 billion in the financial year 2016 through organic growth and acquisition route. The Puneheadquartered company had clocked total revenues of $372 million in financial year ended March 2012.

4 Revenue by Industry Revenue by Geographical Segment Revenue Mix

5 Head Count Company Profile Zensar Technologies (Zensar) is a globally renowned software services company that specializes in providing a complete range of Software Services and Solutions. Zensar is ranked amongst India's Top 20 Software Services Companies by National Association of Software and Services Companies (NASSCOM) and is also recognized by the Department of Scientific and Industrial Research (DSIR) for its robust in-house Research and Development practices and an acknowledged leader in Innovation. Zensar is the world's first enterprise-wide SEI CMM Level 5 Company and enjoys a strong presence in the United States, Europe, Africa, Middle East and Asia-Pacific regions. To service Global Customers, Zensar has Delivery Centers in Pune and Hyderabad in India, China, Japan & the UK. With associates, 400+ customers and 14 nationalities operating in more than 20 global locations, Zensar helps transform Global Corporations. Business Field The Software services range from the traditional to the transformational Enterprise Product Implementation and Hosting, Business Intelligence and Data Warehousing, Collaboration & Knowledge Management Services, Business Process Outsourcing and Optimization, Remote Infrastructure Management and Testing, and the entire range of Software Application Planning, Portfolio Building, Development, Migration & Support. Products, Platforms and Solutions ZenTraceability, created for the manufacturing vertical that has the ability to categorize products or parts - their origin and usage to help identify and isolate instances at any point in the manufacturing value chain if suspected to be faulty in nature.

6 ZenPOSlite, a complete mobile retail POS solution integrated with back-end stores system applicable across all formats. AutoZenics, a SaaS based ERP solution specially developed for SMB customers in manufacturing sector for the auto ancillary cluster. nxchange, a hosted 'any-to-any format conversion' and document forwarding platform for B2B scenario with implementation opportunities across verticals. ZenQuality, is specially designed to cater to the quality challenges of the manufacturing industry. The solution comprises three separate modules across suppliers, plant and customers and can be integrated or configured separately. The Solution helps manufacturers in improving productivity and profit margins while meeting a desired level of quality. IntelliZen, Business Intelligence for Supply Chain Management - SCM-BI provides End-to-End supply chain visibility with SCOR (Supply Chain Operations Reference) Model. It has been designed to attain objectives such as SCM refinement, effective collaboration, productivity enhancement, customer excellence and organizational growth. ZenProductivity, a tool for the manufacturers to monitor real time performance and utilization in the plant and allowing them to define the output, line layout and capacity, products, production plan and cycle time. ICD Services, a set of proprietary tools and frameworks for the healthcare Industry that provides end-to-end ICD Transition services from impact assessment, through remediation to support. ican, a solution for the healthcare vertical that allows ICD Converter and Analyzer to provide solution to all major challenges of ICD transition including mapping, crosswalk, document upgrade and analysis. ZenMobln, a mobile management framework allowing Insurers to connect to any mobile device to its backend application seamlessly, is providing the ability to offer new products and services at a much lower cost base. Alliances Technology partnerships: Zensar has forged strategic technology partnerships with global IT leaders and has well-developed and staffed Technology Groups including IBM, Microsoft and Oracle. Alliances in Europe: Zensar Europe is ramping up its operations rapidly, and partnerships with Sun, SAP and Microsoft in the software products category to enhance its solutions, which use these technologies. OnOffshoreSoft GmbH (Germany): Zensar and OnOffshoreSoft have a strategic relationship for executing business application projects in Germany. Zensar provides the necessary technical and project related service delivery strength, while OnOffshoreSoft provides onsite communication and expectations management from our German customers.

7 PROMATIS software GmbH (Germany): PROMATIS offers its customers demand-driven consulting and training, software products and turnkey solutions. Zensar and Promatis can take up any Oracle Apps and related projects for companies in Germany. They are experts at Consulting-, training- and development services as well as add-on-products and turnkey solutions on the Oracle platform. Valuable Clients Zensar enjoys enduring relationships with global leaders like Cisco, Assurant, Danaher Corporation, Electronics Arts, iselect and Logitech, among several others. Zensar's customers are spread across various industry segments like Manufacturing, Retail, Banking and Insurance, High-Tech manufacturing and Connected Services. Zensar has also forged strategic technology partnerships with global technology leaders such as IBM, Microsoft, Sun Microsystems and Oracle. The Company has also been recognized by SAP as a Gold Partner, Strategic Value Added Reseller (S-VAR) and Master Value Added Reseller (M-VAR) in the US. Zensar has also signed an agreement with Google to provide Google Apps Solutions in the APAC region. Global Presence USA UK Europe Africa Middle East India China Singapore Australia Japan Subsidiary Companies Zensar Technologies, Inc Zensar Technologies (UK) Limited Zensar Advanced Technologies Limited Zensar Information Technology (Shanghai) Co. Limited Zensar Technologies (Singapore) Pte. Limited Akibia, Inc. Akibia, B.V. Aquila Technology Corp. PSI Holding Group, Inc.

8 Financial Highlight CONSOLIDATED Balance sheet as at March31st, 2012 (A*- Actual, E* -Estimations & Rs. In Millions) Particulars March (Rs.in.mn) FY12A FY13E FY14E 1.Shareholder s Funds a) Capital b) Reserves & Surplus Total Net worth Loan Fund a) Secured loans Total Liabilities ( 1+2 ) Fixed Assets a) Gross block b) Depreciation c) Net Block Total Fixed Assets Investments Deferred Tax Assets Current Assets, Loans & Advances (A) a) Inventories b) Sundry Debtor c) Cash & Bank Balance d) Other Current Assets e) Loans & Advances Total Current Assets Less: Current Liabilities & Provisions (B) a) Liabilities b) Provisions Net Current Assets (A-B) Total Assets( )

9 Annual Profit & Loss Statement for the period of 2011 to 2014E Value(Rs.in.mn) FY11 FY12 FY13E FY14E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Equity capital Reserves Face value EPS Quarterly Profit & Loss Statement for the period of 30 th June, 2012 to 31 st Mar, 2013E Value(Rs.in.mn) 30-Jun Sep Dec Mar-13E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Equity capital Face value EPS

10 Ratio Analysis Particulars FY11 FY12 FY13E FY14E EPS (Rs.) EBITDA Margin (%) 15.76% 15.55% 14.32% 13.89% PBT Margin (%) 12.90% 13.17% 12.31% 11.96% PAT Margin (%) 11.32% 8.85% 8.17% 7.89% P/E Ratio (x) ROE (%) 29.54% 27.56% 23.43% 20.38% ROCE (%) 31.19% 41.00% 36.14% 32.53% Debt Equity Ratio EV/EBITDA (x) Book Value (Rs.) P/BV Charts

11 Outlook and Conclusion At the current market price of Rs , the stock P/E ratio is at 6.52 x FY13E and 5.97 x FY14E respectively. Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 28% and 13% over 2011 to 2014E respectively. On the basis of EV/EBITDA, the stock trades at 3.57 x for FY13E and 3.07 x for FY14E. Price to Book Value of the stock is expected to be at 1.53 x and 1.22 x respectively for FY13E and FY14E. We recommend HOLD in this particular scrip with a target price of Rs for Medium to Long term investment. Industry Overview The information technology (IT) and information technology enabled services (ITeS) industry has been one of the key driving forces fuelling India's economic growth. IT and ITeS sector's contribution to the national GDP has increased from 1.2 per cent in to an estimated 7.5 per cent in IT has evolved as a major contributor to India's GDP and plays a vital role in driving growth of the economy in terms of employment, export promotion, and revenue generation. IT-BPO sector is responsible for creating significant employment opportunities in the economy. Direct employment within the IT-BPO sector is expected to grow by over 9 per cent to reach 2.77 million, with over 230,000 jobs being added in IT services exports (including Engineering Research and Design (ER&D) and software products) continue to be the largest employer within the industry with nearly 47 per cent share of total direct employment, BPO exports generate about 32 per cent of the total industry employment, and the remaining 22 per cent is accounted for by the domestic IT-BPO sector. The sector is responsible for enabling employment to an additional 8.9 million people in various associated sectors - catering, security, transportation, housekeeping, etc. Market Size As per NASSCOM estimates, IT and ITeS sector (excluding hardware) revenues are estimated at US$ 87.6 billion in FY The industry is expected to grow by 19 per cent during FY

12 Additionally, the market size of the industry is expected to rise to US$ 225 billion by 2020 considering India's competitive position, growing demand for exports, Government policy support, and increasing global footprint. According to a study by management advisory firm Zinnov, adoption of IT services in the Indian SME segment is growing at 15 per cent and is expected to reach US$ 15 billion by The public cloud services market in India is projected to grow to US$ million, registering 32.4 per cent growth in 2012, according to a report by Gartner. The Indian software and services exports including BPO exports is estimated at US$ 68.7 billion in , as compared to US$ 59 billion in , an increase of 16.4 per cent. The IT services exports is estimated to be US$ 39.8 billion in as compared to US$ 33.5 billion in , showing a growth of 18.8 per cent. BPO exports is estimated to grow from US $ 14.2 billion in to US$ 15.9 billion in , a year-on-year (Yo-Y) growth of about 12 per cent. IT services contributed 58 per cent of total IT-BPO exports in , followed by BPO at 23 per cent and software products / engineering at 19 per cent. Investment Indian IT's core competencies and strengths have placed it on the international canvas, attracting investments from major countries. Between April 2000 and May 2012, the computer software and hardware sector attracted cumulative foreign direct investment (FDI) of US$ 11,262 million, according to the Department of Industrial Policy and Promotion (DIPP). More recently, online retailing, cloud computing and e-commerce are the major driving forces behind the rapidly increasing growth in the IT industry. Online shopping has increased with the emergence of internet retailing and e-commerce. India's IT-BPO revenues are also driven by a rapid increase in rural BPO units, which accounted for more than US$ 10 million in the total sector revenues. Some of the major initiatives in Indian IT and ITeS sector are: Intel Capital, Intel Corporation's global investment and M&A organisation, plans to invest up to US$ 40 million in ten innovative Indian technology companies Kakinada Special Economic Zone (SEZ), being developed by GMR Group, has entered into a partnership agreement with Bengaluru-based RuralShores Business Services Pvt Ltd for setting up a BPO centre

13 Tata Consultancy Services (TCS) plans to set up operations in Madhya Pradesh (MP) by building a new integrated campus in Indore, with an initial investment of Rs 550 crore (US$ million) in the first phase MindTree Ltd has opened its first delivery centre outside India in Gainesville, Florida. The company plans to invest US$ 2.93 million and create 400 new jobs over the next five years BPO firm ExlService Holdings has announced the acquisition of US-based Landacorp Inc. The acquisition will provide Exl with an end-to-end solution for the healthcare industry Government Initiatives The 51 software technology parks of India (STPI) centres that have been set up since inception of the programme have given a major boost to IT and ITeS exports. Apart from exemption from customs duty available for capital goods there are also exemptions from service tax, excise duty, and rebate for payment of Central Sales Tax. FDI upto 100 per cent under the automatic route is allowed in Data processing, software development and computer consultancy services; Software supply services; Business and management consultancy services, Market Research Services, Technical testing & Analysis services. Some of the major initiatives taken by Government of India to promote IT and ITeS sector in India are: The Cabinet has recently approved the National Policy on Information Technology The policy aims to increase revenues of IT and ITeS industry from US$ 100 billion to US$ 300 billion by 2020 and expand exports from US$ 69 billion to US$ 200 billion by 2020 The Government of India plans to set up 15 new laboratories for testing hardware and software products under public-private partnership (PPP) model The Ministry of Finance has issued a circular to chairmen of public sector banks and regional rural banks, that all payments to customers, staff, vendors and suppliers as well as disbursement of loans and payments towards investments should be made only through the electronic mode The Government of India plans to announce incentives to promote IT related export hubs in small towns to attract investors towards SEZs. The Government may also allow broadbanding of sectors, which will allow ancillary units to come up in sector-specific SEZs Road Ahead According to 'India Information Technology Report Q1 2011', released by Research and Markets, Indian market for IT services and products is expected to grow from US$ 18.6 billion in 2011 to US$ 40.5 billion in During the year 2011, government procurement is expected to grow substantially while opportunities in healthcare, education, telecom and financial services would broaden further. Further, NASSCOM expects software and services exports growth at per cent, clocking US$ billion of revenues in FY2012 whereas, domestic market is expected to grow by per cent with revenues of US$

14 billion. Newer phenomenon like cloud, analytical services, advanced mobile applications, healthy environment for start-ups and SaaS will drive the industry growth. According to latest projections released by Cybermedia Research, the aggregate market size of domestic IT products and ITeS would reach US$ 52.3 billion crore by 2014, growing 17.3 per cent between 2010 and Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

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