Money Tree

The salient features and extracts from the Red Herring Prospectus of the issue are given hereunder:

Issue Opens On : July 20, 2007
Issue Closes On : July 25, 2007
Issue Size : 36,00,000 Equity Shares
Face Value : Rs.10/-
Price Range : Rs. 330 to Rs. 350/-
Issue Type : Book Building
Tick Size : Re.1/-
Market Lot : 20
Minimum Order Qty : 20
Listing Stock Exchange : NSE, BSE

Objects Of the Issue :

To set up two state of the art Offshore Development Centres (ODCs)
To fund acquisition(s) / strategic investments
To meet the increasing working capital requirement
To meet the issue expenses

Basis for Issue Price :

Face Value : Rs.10/-
Issue Price : 33 Times(Lower Price Band) of the Face Value.
Issue Price : 35 Times(Higher Price Band) of the Face Value.
Issue Price : Rs. 330 to Rs. 350
EPS for the last financial year 2006-07 : Rs 51.52
EPS for the last year 2005-2006 : Rs 38.46
EPS for the financial year 2004-05 : Rs. 16.93
Weighted Average EPS for the years April 2004- March 2007 : Rs 41.40

Industry PE ratio:

Highest : 130.8
Lowest : 2.8
Industry Composite : 24.6

PE ratio of Zylog Systems Ltd. on the higher side of price band comes out to 6.8 times and on the lower side of the price band comes out to 6.4 times on the basis of the EPS for the year ended 31st March 2007.

PE ratio of the Peer Group

NIIT Technologies : 20.7
iGate Global : 22.7
Mindtree Consulting : 33

Industry Overview :

It is estimated that less than 10 per cent of the potential US$ 300 billion addressable market for globally sourced IT-ITES has been captured till date. It is estimated that out of $300 billion offshore market, $110 billion will be offshored by 2010. India has the potential to capture more than 50 per cent of this opportunity and generate export revenues of approximately $60 billion by growing at 25 per cent year-on-year till 2010. Further, deep and enduring innovation by industry participants in India can accelerate this growth and add an additional US$ 15-20 billion in export revenue over the next five to ten year.

The Indian IT-ITES industry has grown at a CAGR of over 28 per cent since FY 1999-2000. Over the same period, the industry’s contribution to the national GDP has risen from 1.2 per cent in FY 1999-2000 to a projected 4.8 per cent in the FY 2005-2006. The total direct employment in the Indian IT-ITES sector is estimated to have grown by over a million, from 284,000 in FY 1999-2000 to a projected 1,287,000 in the FY 2005-06. In addition to the nearly 1.3 million-strong workforce employed directly in the industry, Indian IT-ITES is estimated to have helped create an additional 3 million job opportunities through indirect and induced employment. Indirect employment includes expenditure on vendors including telecom, power, construction, facility management, IT, transportation, catering and other services.

Business Overview :

The company is an ISO 9001:2000 certified IT solution and Services company providing Application Development, Enterprise Infrastructure Management and Quality Assurance & Testing services and some IT utility products. The company provides its services through three modes viz. Onsite, Offsite and Offshore.

History :

The Company was originally incorporated under the Companies Act as Zylog Systems Private Limited. The name of the Company was changed to Zylog Systems Limited after conversion into a public limited company on May 11, 2000.

Financial Information :

Total income of the Company for the year ended 31st March, 2007 : Rs. 4081.17 millions
Total income of the Company for the year ended 31st March, 2006 : Rs. 2711.85 millions
Total income of the Company for the year ended 31st March, 2005 : Rs. 1473.17 millions

Net profit (after tax) for the year ended 31st March, 2007 : Rs. 546.95 millions
Net profit (after Tax) for the year ended 31st March, 2006 : Rs. 401.24 millions
Net profit (after Tax) for the year ended 31st March, 2005 : Rs. 176.48 millions

Comments :

The company is placed in a good space, the industry is growing at a rapid pace and there are untapped opportunities in the industry and the company has the potential to scale up. The company has been growing at a consistent pace over the last couple of years and has acquired some good clients. The valuation is also attractive as single digit PE companies are not common in this industry. The issue can be subscribed for listing gains as well as for long term capital appreciation.

Read ICICI view on Zylog Systems IPO
Read Motilal Oswal report on Zylog IPO at Moneycontrol.