CRISIL revises Zylog Systems` valuation grade to 4/5
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 28, 2012 report.
March 01, 2012 / 16:40 IST
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 28, 2012 report.
Zylog Systems Ltd (Zylog) is an IT services and solutions provider deriving majority of its revenues from the US and Canada. It forayed into the e-governance and wi-fi businesses in FY10. While CRISIL Research expects Zylog to benefit from an increase in global IT spend, we remain cautious of the macroeconomic conditions which may damp demand. We continue to assign Zylog a fundamental grade of 3/5, indicating that its fundamentals are good relative to other listed securities in India.Niche IT solutions player with a large bouquet of service offerings
Zylog is a niche solution provider catering to verticals including BFSI, telecom, pharma, healthcare and manufacturing. It also offers solutions like field service automation, inventory management, recycling and reverse logistics and RFID applications for various verticals. This coupled with a large bouquet of services has enabled it to log strong revenue and PAT growth over the past few years.Zylog has been able to integrate all acquisitions successfully
Zylog has predominantly used the inorganic route for increasing domain expertise, expanding service lines, accessing new markets and clients. It has acquired eight companies in the past three years including Ducont FZ LLC in Dubai in FY09 and Brainhunter in Canada in FY10, and has been able to gain foothold in geographies like Canada and the Middle East. It has successfully integrated all acquisitions and is now focussing on cross-selling opportunities to drive growth.E-governance and wi-fi to achieve scale over medium term
Zylog entered the e-governance and wi-fi businesses in FY10. Till date, it has executed e-governance projects for the Karnataka and Gujarat governments. For the wi-fi services, Zylog is present in seven states and one union territory and has ~40,000 active clients. The contribution of both these businesses to the total revenue is small and the wi-fi business is yet to break even at the PAT level. While we expect these businesses to attain scale over the medium term, the performance of both businesses remains a key monitorable.Expect two-year revenue CAGR of 9.6% in US$ terms
We expect revenues to register a two-year CAGR of 9.6% to US$ 501 mn in FY13 (12% in rupee terms to Rs 24 bn) driven by ~8% growth in IT services and ~13% growth in IT solutions. Adjusted PAT margin is expected to increase by 40 bps to 8% in FY13.Valuations
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