CRISIL maintains Zylog Systems` fair value at Rs 656

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CRISIL maintains Zylog Systems` fair value at Rs 656

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 01, 2012 report.

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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 01, 2012 report.

Zylog System Ltd's (Zylog's) Q3FY12 revenues in rupee terms exceeded CRISIL Research's expectations mostly driven by rupee depreciation. While operating profitability exceeded our expectations due to lower software development expenses, PAT was below expectations due to higher than expected depreciation and interest. At 36%, tax rate (before adjustment of forex translational gain) remained high. The company has paid tax at the rate of 42% in H1FY12 and our full year estimate is 35%. We may revise our estimates post interaction with the management. We maintain our fundamental grade of 3/5.

Q3FY12 result analysis
• Revenue in rupee terms grew by 16.5% q-o-q (22.3% y-o-y) to Rs 5.8 bn mostly due to the revenue spill over from Q2FY12 in the projects and solutions business and rupee depreciation. We will be able to comment on the numbers in dollar terms post discussion with the management.

• EBITDA increased by 11.4% q-o-q (5.6% y-o-y) to Rs 939 mn. Employee cost increased by 49% q-o-q mostly due to rupee depreciation as Zylog has a strong onsite presence. Also, since this increase is significant, the company might have higher net additions in the quarter. We will be able to provide more clarity post discussion with the management. Software development cost remained flat q-o-q. Q3FY11 numbers for employee and software development cost are not comparable as the company has done some reclassification in these line items. Selling, general and administration expenses were up 16.9% q-o-q (39% y-o-y). EBITDA margin declined by 73 bps q-o-q (254 bps y-o-y) to 16.1%.

• Depreciation increased by 24.3% q-o-q (25.8% y-o-y) and interest cost increased by 21.7% q-o-q (decline of 9% y-o-y). Reported PAT increased by 11.2% q-o-q (42% y-o-y) to Rs 545 mn. The company reported EPS of Rs 33.2.

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 456, 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.

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