Company Fundamentals

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1 IT Software Products November 16, 2012 *CMP Rs.0.24 BSE Code BSE ID 4THGEN High/Low 1Y (Rs.) 0.62/0.22 Average Volume (3M) 6457 Market Cap (Rs. Cr.) 1 Shareholding % Sep-12 Jun-12 Promoters MFs/FIs/Banks # - - FIIs # - - Public & Others Stock Chart ( Relative to Sensex) Dec Apr Jul Nov-12 Fourth Generation Sensex Stock Perfm.(%) 1M 6M 1Yr Fourth Generation Sensex Financials FY10 FY11 FY12 Revenue Y-o-Y - - * EBITDA Y-o-Y Net Profit Y-o-Y EPS (Dil.) EBITDA Margin Net Profit Margin P/E(x) Fourth Generation Information Systems Ltd. Company Overview Fourth Generation Information Systems Ltd., (FGIS) is a hardware and software development company, incorporated in 1998 as a private limited and later in March 2000, was converted into a public limited company. The company was promoted by Chalapthi Rao Atluri, Raghu Vasu A, Hema Kolluri and Avinash Adusumilli. FGIS entered into a MoU with three U.S.-based firms, namely, Intra Link Info Systems Inc, Intra Link Health Systems Inc. and IT Connections Inc. for marketing the company's products and services in the U.S. markets. Company Fundamentals Nascent stage of operations The company s operations are still at a nascent stage and are in the process of expansion. For the year under review FY12, FGIS posted a revenue of Rs. 0.8 crore against Rs. 0.1 crore during the previous year, registering a Y-o-Y growth of %. There has been some export sales to the tune of Rs crore. EBITDA margins continue to be negative owing to increase in employee and finance costs. Future Plans The company is planning to concentrate and improve its performance in niche areas where there are decent opportunities for growth. Key Strengths - Management is doing its best to forge relations with other companies and take the company forward in the new business lines. - Positive outlook for the IT industry; given the increased demand for its services and products, both domestically and globally. Financial year ends at March 31 on standalone basis. All figures in Rs. crore except for per share data # FIIs- Foreign Institutional Investors * Large growth figure due to low base *CMP as of 13 th Nov 2012, closing value Initiative of the BSE Investors Protection Fund -1-

2 Company Business Fourth Generation Information Systems Ltd. (FGIS) provides product development and consulting, technology and outsourcing services. The company offers hardware and software development, enterprise applications, web enabling and implementation, training, and integration. FGIS was started in 1998 as a private limited and later became a public limited in The company is based in Hyderabad. At FGIS, a lot of investment is used for research to help create innovative business strategies and technology to develop market-ready solutions. With deep industry knowledge and business process expertise and a proven track record, FGIS mobilises the right people, skills, and technologies to help clients improve their performance in their respective fields. Services Offered Some of the salient services offered by FGIS are: Hardware and Software support and supply Scoping, Consulting, Implementation, Customize and Training Integration across multiple technologies including CRM, ERP & Web Manpower Consulting Some of the Application Services Optimise ROI from new, ageing and legacy application Increase the ability of the respective company to compete globally by integrating internet-enabled applications Developing new, customised applications engineered for a profit fit. Besides, FGIS e-business Application Management solution takes responsibility on behalf of its clients, for on-going enhancement, maintenance and support of complex internet-based applications. FGIS refers to a portfolio of services, which clients use selectively depending on their specific needs. Opportunities and Threats Though the overall scenario for the smaller companies is extremely competitive, there are some niche areas where there are opportunities for growth. FGIS management is exploring those areas to consider entering and developing expertise. Risk While venturing into new business lines, the company would need access to funds. The risk of not being able to raise funds at the required time is the biggest risk that management foresees. Initiative of the BSE Investors Protection Fund -2-

3 Industry Overview India has become an IT brand among the global countries over the years, because of the Government policies, strong base in education, well-established telecommunication and infrastructure facilities and favourable market conditions that prevail. Many Indian cities now hold prominent places in the global IT map. Today India stands out as one of the biggest and fastest growing economies in the world. India continues to be the centre stage for strategic offshore outsourcing. The Indian IT outsourcing sector, accounts for 5% of GDP and employs around 2.3 million professionals directly and many others indirectly. * As per the NASSCOM Strategic Review 2012, IT-BPO exports was expected to grow by 11-14% in FY13, driven by proliferation of as-a-service model around enterprise mobility, cloud and platform solutions, analytics offerings and social media. The software market is expected to grow up to 21% by However, half way into the financial year 2013, NASSCOM has downwardly revised its growth expectation to at least 11%, because of slower growth at India s back offices of MNCs. Based on the revised guidance, NASSCOM has projected export revenues of $75-77 billion in the year to March 31. The industry is worth about $100 billion including domestic business. Owing to the current economic crisis prevailing globally, the Indian IT firms have slowed down their recruitment though the general mood is highly optimistic. The industry is positive that the hiring trend would be back to its momentum in the coming months. Direct employment is expected to reach nearly 2.54 million, with a consequential addition of 240,000 employees. More recently, online retailing, cloud computing and e-commerce are leading to rapid growth in the IT industry. Online shopping is fast gaining popularity with the emergence of internet retailing and e-commerce. **Factors leading to growth in the IT/ITes sector are: Low operating costs and tax advantage. Favourable Government policies. Technically qualified personnel easily available in the country. Rapid adoption of IT technologies in major sectors as Telecom, Manufacturing and BFSI. Use of new and emerging technologies such as cloud computing. SEZ as growth drivers; as more of SEZs are now being set up in Tier-II cities and about 43 new tier II/III cities are emerging as IT delivery locations. All these factors have given IT/ITeS industry in India a strong competitive position with high market share. **Employment trends As per the Economic Survey , the IT/ITeS industries has added 7.96 lakh jobs in one year, in the period ending September According to NASSCOM, employee base in the rural areas is expected to increase by over 10 times by , compared to 5000 in According to a customer poll conducted by Booz and Co, India is the most preferred destination for engineering offshoring, which are encouraging foreign companies to offshore complete product responsibility to Indian ITeS companies. **Government Initiatives In the twelfth Five Year Plan ( ), the Department of Information Technology proposes to strengthen and extend the existing core infrastructure projects to provide more horizontal connectivity, build redundancy connectivity, undertake energy audits of State Data Centers (SDCs) etc. The core infrastructure including fibre optic-based connectivity will be leveraged and additional 150,000 Common Service Centres (CSCs) will be set up to create the right Governance and service delivery ecosystem at the Panchayats. * ** Initiative of the BSE Investors Protection Fund -3-

4 Competitor Analysis We have compared Fourth Generation Information Systems with its close peers in the Information Technology industry. Company Year End CMP* M Cap Revenue EBIT Margin Fourth Generation Info.Sys. Mar % Advent Computer Services Mar Cybermate Infotek Mar % - - Source: Revenue in Rs. Crore taken from Capitaline,, so too EPS & Gross Profit for calculating EBIT Margi%. *CMP as on 13 th Nov.2012, closing value EPS P/E Initiative of the BSE Investors Protection Fund -4-

5 Summary Financials Particulars (Rs crore) FY10 FY11 FY12 Net Sales Other Op. Revenue Total Revenue Growth (%) Cost of Goods Sold Gross Profit Employee Costs Other Expenditure EBITDA Growth (%) 14.1% PL - Depreciation EBIT Profit Finance cost Other Income Exceptional Items PBT Growth (%) -29.5% PL - Income Tax Profit after Tax Extra Ordinary Items Net Profit Growth (%) Rep. Basic EPS Rep. Diluted EPS Equity Capital Face value Ratio Analysis FY10 FY11 FY12 Margins EBITDA Margin (%) Net Profit Margin (%) Valuation P/E (x) P/BV (x) Profitability ROCE (%) RONW (%) Solvency Ratio Debt/ Equity Ratio (x) Interest Cover (x) #large growth figure due to low base Initiative of the BSE Investors Protection Fund -5-

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