CRISIL maintains valuation grade of 5/5 to Zylog Systems

3869 Investors following Zylog Systems. Share this News with them.

0

Like this story, share it with millions of investors on M3

CRISIL maintains valuation grade of 5/5 to Zylog Systems

CRISIL Research has come out with its report on Zylog Systems. The research firm has maintained the fundamental grade of 3/5 to the company in its February 10, 2012 report.

Post your opinion here

 

0

Tweet

Share on Tumblr

Zylog Systems BSE | NSE 30/05/12 Are Mutual Funds betting on Zylog Systems?

CRISIL Research has come out with its report on Zylog Systems . The research firm has maintained the fundamental grade of 3/5 to the company in its February 10, 2012 report.

Zylog System Ltd's (Zylog's) Q3FY12 revenue in dollar terms was in line with CRISIL Research's expectations while revenue in rupee terms and EBITDA margin exceeded our expectations driven by the rupee depreciation. PAT was below expectations because of higher-than-expected depreciation from capitalisation of certain products and higher interest due to rupee depreciation. At 46%, tax rate (post adjustment of forex translational gain) was significantly higher than expected. The company has paid tax at the rate of 44% in 9MFY12 and we have factored in 37% tax for the full year based on management guidance. We have increased earnings estimate by ~3% for FY12 and ~8% for FY13 driven mainly by revision in exchange rate. However, the macroeconomic environment in the US, Europe and Canada remains a key monitorable. We expect Zylog's business momentum to continue and maintain our fundamental grade of 3/5.

Q3FY12 result analysis
• Revenue in dollar terms grew 4.5% q-o-q (6.5% y-o-y) to US$ 113 mn. Revenue from products and solutions grew by 6.5% q-o-q (4.8% y-o-y) to US$ 42.4 mn and revenue from IT services grew at 3.3% q-o-q (9.3% y-o-y) to US$ 70.7 mn. Revenue in rupee terms grew by 16.5% q-o-q (22.3% y-o-y) to Rs 5.8 bn driven by rupee depreciation.

• EBITDA increased by 11.4% q-o-q (5.6% y-o-y) to Rs 939 mn. EBITDA margin declined by 73 bps q-o-q (254 bps y-o-y) to 16.1% driven by higher software development and employee cost which increased by 17.6% q-o-q (24% y-o-y) due to rupee depreciation as Zylog has a strong onsite presence. The company reclassified certain line items from software development cost to employee cost which led to the employee cost increasing by 49% q-o-q. Selling, general and administration expenses were up 16.9% q-o-q (39% y-o-y).

• The company added 316 employees in this quarter, mostly at offshore locations. Also, both onsite and offshore utilisation rates improved.

• Depreciation increased by 24.3% q-o-q (25.8% y-o-y) as the fixed asset base increased and interest cost increased by 21.7% q-o-q (decline of 9% y-o-y). The other income included forex gain of Rs 174 mn. As a result, adjusted PAT remained flat q-o-q (decline of 7.8% y-o-y) at Rs 371 mn. The adjusted EPS was Rs 22.6.

Valuation: Current market price has strong upside
We continue to use the discounted cash flow method to value Zylog. We maintain our fair value estimate at Rs 656 per share. At the current market price of Rs 500, the valuation grade is 5/5.

To read the full report click on the attachment

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

© CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"