financial statement analysis for 3i infotech

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  • 1.3I INFOTECH LIMITED Financial Statement Analysis

2. Agenda

  • Industry Overview
  • Company Overview
  • Financial Highlights
  • Financial Ratio Analysis
  • The Road Ahead

3. Industry Overview 4. IT Industry Structure

  • IT industry is highly fragmented and there are several players operating from different parts of the world
  • There are players who focus on one or 2 lines of business and operate globally as well as very small players focusing on one business line or one geography
  • Due to this there is no player who can be categorized as one dominating player across the globe for all services put together

5. IT Industry Structure

  • Since its a knowledge based industry and the entry level barriers are low, several new players mushroom with niche services and solutions
  • When the business cycles are favorable, some grow in size and become dominant players
  • With established client relationships and longer engagement time, business grows with more and more services offered
  • When the customer grows, business to the vendor also grows provided relationship

6. Global IT Market Outlook

  • Global purchases of IT goods and services grew by 6% in 2008 after a 12% increase in 2007
  • Though overall IT spend growth will be 6%, Software Products and IT Services / Outsourcing spending increased by 8-9%
  • US economy in or near recession will be the main cause of slower 2009 growth, pulling down growth in IT purchases both in the US and with major trading partners in Europe and the Americas

7. Global IT Market Outlook

  • While the increase in US and Western Europe is projected at 5-6%, the increase in Eastern Europe and MEA is projected at 14% and increase in the rest of Asia is projected at 18%
  • The growth in India and China is projected at 18% and 20% respectively
  • Over the years, IT spending in Asia and Eastern Europe at 33% is almost equal to Western Europe and is quickly catching up with US spend

8. India IT Market Outlook

  • Traditionally, Indian software companies have been providing software offshore IT services. This business model is seeing strains some of which are the following:
    • US software companies have expanded aggressively in India and can now compete with Indian companies on price
    • Strain on the availability of skilled manpower as the industry has now to compete for talent with large MNCs who pay higher salaries than domestic companies
    • Language constraints and some countries deep routed reservations against outsourcing

9. Factors Affecting

  • Outsourcing from western countries
  • Set up of SEZs and STPI
  • Tax holidays
  • Large talent pool available
  • Global recession and reduced IT spending

10. Company Overview 11. 3i InfoTech Positioning

  • 3i InfoTech has over the years consciously built a business model which creates differentiators vis--vis competition to achieve client penetration and growth.
  • A balanced mix of Revenues from software products and services (1:1)
  • Revenues spread across various geographies thereby not concentrating on any single geography
  • A wide range of services in IT & Transaction Services, Managed Services & e-Governance

12. 3i InfoTech Today

  • Revenue Run-rate of US$ 300 million, Net Margin 15%
  • World Wide Presence- North America, Europe, Middle East, Asia Pacific, India and Africa
  • 600+ Customers in 50 countries
  • 20 software product IPRs
  • Focused BFSI player with 75% revenue from BFSI
  • 6000+ professionals
  • Software development in Mumbai, Chennai, Bangalore and Hyderabad in India
  • CAGR of 61% in revenue in last four years, out of which 41% is Organic and 20% Inorganic
  • Platform ready to take off for a major growth

13. Financial Highlights 14. Balance Sheet - Highlights (Rs. Crores) 2008 2007 Total Share Capital 230.54 156.3 Equity Share Capital 130.54 56.3 Reserves 414.45 305.35 Premium Payable FCCB Redemption 36.237 0 Total Debt 1225.866 546.01 Total Liabilities+Networth 1907.093 1007.66 Sources Of Funds 15. Balance Sheet - Highlights (Rs. Crores) 2008 2007 Gross Block 290.51 195.69 Capital Work in Progress 64.87 12.99 Investments 1204.36 591.72 Unbilled Revenues 117.687 99.9 Cash and Bank Balance 37.06 65.17 Total Current Assets 309.477 275.202 Loans and Advances 267.92 100.18 Current Liabilities 92.3 81.28 Net Current Assets 428.637 254.862 Total Assets 1907.087 1007.67 Application Of Funds 16. Income Statement - Highlights (Rs. Crores) 2008 2007 Total Income 463.74 347.91 Cost of revenues 183.96 153.40 Software Development cost 26.30 23.18 Selling, General & Admin expenses 86.39 88.09 Total Expenses 296.65 264.67 Profit before Int, Dep & Amortizations 167.09 83.24 Interest 37.89 18.43 PBDT 129.21 64.81 Depreciation & Amortization 25.06 13.77 Profit Before Tax 104.15 51.04 Profit after tax and before exceptional items 100.93 49.44 17. Cash Flow - Highlights (Rs. Crores) 2008 2007 Profit before tax and exceptional items 104.14 51.05 Net cash from operating activities (A) 199.67 111.26 Net cash used in Investing activities (B) -764.80 -418.79 Net Cash for Financing Activities C 537.35 121.78 Net increase/(decrease) in cash andcash equivalents (A+B+C) -27.79 -185.75 Cash and Cash Equivalents at thebeginning 60.45 246.21 Cash and Cash Equivalents at the end 32.66 60.45 18. Financial Ratio Analysis 19. Profitability Ratios - I

  • ROTA
    • ROTA is an indicator of how well assets are utilized to maximize profits
    • ROTA does not show major difference despite increase in PAT. Increase in total assets on the back of heavy investments and fixed assets cause the ratio not to change much
  • ROCE
    • ROCE is an indicator of how well a capital is utilized to maximize profits
    • It is important from the prospect of management as they get better picture of how well the funds are being utilized
    • Lenders and Investor also look at the ratio very keenly as it gives indication of how well their money will be utilized
    • ROCE does not show major difference despite increase in PAT. Increase in total assets on the back of heavy investments and fixed assets cause the ratio not to change much
  • ROE
    • An increase in ROE shows how well a company uses investments to generate earnings growth.
    • Important from investors point of view as he knows how well his money is getting utilized
    • The increase is mainly due to higher increase in PAT (104%) as compared to increase in net worth (40%)

Ratio ROTA ROCE ROE Net Prof Margin Op Prof Margin 2007 0.0689 0.0783 0.10 0.14 0.20 2008 0.0745 0.0808 0.16 0.22 0.31 20. Profitability Ratios - II

  • Net Profit Margin
    • Measure of profitability and overall efficiency in production, administration, selling etc
    • Important for management for measurement of operational efficiency
    • Lenders and investors can derive growth prospects comparing historical data
    • Net Profit Margin has increased substantially from 0.14 to 0.22 on the back of robust sales and increase in profits due to control on expenses
  • Operating Profit Margin
    • Indicator of operating efficiency
    • Important for managers to have better control over decision making
    • Important to investors and lenders to decide health of the company over given time span
    • Has grown from 0.20 to 0.31 on the back of robust growth in sales and control on expenses

Ratio ROTA ROCE ROE Net Prof Margin Op Prof Margin 2007 0.01 0.01 0.10 0.14 0.20 2008 0.10 0.11 0.16 0.22 0.31 21. Efficiency Ratios

  • Capital Turnover Ratio
    • Indicator of efficiency of capital employed to generate sales
    • Important for management for measurement of operational efficiency
    • Important for lenders and investors to asses utilization of their money
    • Ratio has gone down despite increase in sales. Causes are huge increase in capital and indicates expansion plans of company
  • Receivables Turnover Ratio
    • Indicates how quickly sales are realized and hence measure of liquidity
    • Important from management point of view to review liquidity position
    • Has grown to indicate better collection of money by company despite increase in sales
  • Average Collection Period
    • Another Measure of liquidity position. It indicates an average number of days sales are realized