Zylog Systems is engaged in providing Onshore, Offshore and Near Shore Technology Services. Zylog Systems offers a range of I. T. Products and solutions to its global customers across multiple verticals like Banking, Insurance, Telecom, Government etc.
In the 1st Quarter ended 30th June 2010, Zylog Systems reported impressive results. Zylog Systems’ consolidated revenues were Rs. 463.39 crores, showing an increase of 138% YOY while Zylog Systems’ consolidated net profit after tax was Rs. 35.28 crores, showing an increase of 103% YOY.
On a paid up equity capital of Rs. 16.44 crores, Zylog Systems’ EPS was Rs. 21.46 as compared to Rs. 10.55 for the corresponding quarter last year.
The reason for the steep increase is the acquisition by Zylog Systems of a loss-making company named ‘Brainhunter’ in February 2010. Brainhunter is one of the largest staffing companies in Canada. Zylog Systems paid USD 33 mn for the acquisition.
Zylog Systems’ acquisition of Brainhunter is a strategic move because it gives Zylog Systems the platform to enter Canada for its operations. Zylog Systems has access to BrainHunter’s large talent pool, over 1,400 contractors and more than 400 customers. Zylog Systems will also save costs on account of offshoring contracts, sourcing of contractors from India for non-government businesses and further reduction in non-billable staff. Zylog Systems will benefit from the increased IT spends of the
Federal Government of Canada and the banks. In FY09, BrainHunter reported revenues of US$ 194 mn.
Financials of Zylog Systems
Zylog Systems has had quite an attractive growth trajectory in the past as well. Zylog Systems’ turnover has grown at a CAGR of 34% over FY07-10. This was also a result of aggressive acquisitions by Zylog Systems.
Zylog Systems’ consolidated operating profit has grown at a CAGR of 30% over FY07-10 while the OPM has hovered from 16.9% in FY08 to 15.6% in FY10.
In FY 2011, Zylog Systems will have two major growth drivers. The first is BrainHunter which will contribute to the topline and the bottomline of Zylog Systems. The second is that Zylog Systems (through a subsidiary) will invest Rs 200 crore to expand its ‘Wi5’ wireless broadband services in five metropolitan cities Delhi, Mumbai, Bangalore, Hyderabad and Kolkata in coming two years. A category A internet service provider license to operate in all of India`s DoT circles has been obtained for this purpose. Zylog Systems expects to garner business worth Rs. 500 crores from this business in the next five years.
Zylog Systems announced that it is interested in the acquisition of offshore companies, one of which specializes in the development of Advanced Technology products and solutions to federal, state and local governments and the other in Asia Pacific Region (Malaysia/Singapore) which specializes in E-Governance, Healthcare Solutions, Hospital Management Systems.
Zylog Systems also recently launched a Cloud-enablement and legacy modernization platform, PowerMigrator, based on IBM WebSphere, SOA, DB2 & AWS technologies.
On the valuation front, at the CMP of Rs. 515 and last year (FY 2010) EPS of Rs. 62.30, Zylog Systems is quoting at a PE of 8.26, which is reasonable compared to its comparable competitors MindTree (CMP Rs. 540, PE 10.99) and KPIT Cummins (CMP Rs. 145, PE 14.57). If the EPS for FY 2011 is taken to increase by 20% to Rs. 75, the PE will be compelling at 6.86.