Zylog Systems an attractive investment: Motilal Oswal

Zylog Systems is a global IT solutions and services provider delivering technology- driven business solutions. The company proposes to enter the capital markets with a public issue of 3,600,000 equity shares of Rs 10 each through 100% book building process.

The issue opens on July 20, 2007 and closes on July 25, 2007 and the price band has been fixed at Rs 330 to Rs 350 per equity share of Rs 10 each.

Motilal Oswal Securities report on Zylog Systems IPO

Business Overview

Zylog delivers business value to customers through a combination of process excellence, quality frameworks and service delivery innovation. The Global Delivery Model of the Company leverages talent and infrastructure in order to provide high quality, rapid time-to-market solutions and services. Zylog’s major technology focus is in Application Development and Integration (Web Application, Web Services, Application Integration, Business Intelligence, Data Warehousing and Mobile & Wireless Application) and Enterprise Infrastructure Management.

Diversification across geographies and clients

The company has good diversification across geographies, clients, verticals and service mix. The company has offices in seven cities in US, one each in London and Singapore and five in India. It has a offsite centre in the US for its US operations and currently has ODCs based out of Chennai with a seating capacity of 250 people. The company has also started the construction of its new ODC based out of Chennai (Shollinganallur) which would be operational by August 2007. The company has a healthy onsite- offshore mix with onsite at 81.5% and offshore at 18.5%.

Domain Focus

Zylog has adopted a domain specific approach. BFSI contributes 34% of the revenues, telecom contributes about 22% of the revenues. The company also focuses on Pharma, manufacturing and retail each contributing almost ~8% of the revenues for FY07.

Its client base is spread across all verticals. The top client contributed about 4% and the top 10 clients contributed around 25% of the revenues in FY07 with a repeat revenue of 89%. The company has successfully developed and implemented systems for Fortune 1000 organizations.

Revenues have grown at a CAGR of 58% over FY 03 – FY 07 to Rs 4,034 million (USD 100mn) and PAT has grown at a CAGR of 56% over the same period to Rs 541 million.

Acquisitions

The company has done five acquisitions in the past which has helped it to grow inorganically. In these acquisitions, Zylog has acquired business, technical professionals along with their entire clientele. This has contributed and enriched its technology offerings, the practice and the client mining. These acquisitions done in the past has contributed 28% of the total revenues for FY07. The companies that are being targeted are predominantly based in US/Europe without any offshore presence. Hence, Zylog’s offshore presence makes it an attractive proposition.