BUY CMP 212.60 Target Price 242.00 ASM TECHNOLOGIES LTD Result Update (CONSOILIDATED) Q1 FY15 SEPTEMBER 23 rd,2014 ISIN: INE867C01010 Index Details Stock Data Sector IT BSE Code 526433 Face Value 10.00 52wk. High / Low (Rs.) 230.00/62.00 Volume (2wk. Avg. Q.) 5787 Market Cap (Rs. in mn.) 1063.00 Annual Estimated Results (A*: Actual / E*: Estimated) YEARS FY14A FY15E FY16E Net Sales 1670.74 1829.46 2021.55 EBITDA 173.84 241.99 278.10 Net Profit 79.02 110.96 131.14 EPS 15.80 22.19 26.23 P/E 13.45 9.58 8.11 Shareholding Pattern (%) 1 Year Comparative Graph ASM TECHNOLOGIES LTD BSE SENSEX SYNOPSIS ASM Technologies Ltd providing world Class Consulting Services in Business Systems, Engineering Services, IT Infrastructure Services and Technology Solutions in the world and in India. In Q1 FY15, Consolidated Net profit jumps up by 71.83% to Rs. 29.28 million against Rs. 17.04 million in the corresponding quarter of previous year. The company s net sales grew by 4.68% y-o-y and stood at Rs. 416.34 million for the 1 st quarter of FY15 as against Rs. 397.73 million over the corresponding quarter of previous year. Operating profit is Rs. 64.84 million as against Rs. 41.24 million in the corresponding period of the previous year. An increase of 57.23% y-o-y. The company has reported an EPS of Rs. 5.86 for the 1 st quarter as against an EPS of Rs. 3.41 in the corresponding quarter of the previous year. Profit before tax (PBT) at Rs. 45.21 million in Q1 FY15 compared to Rs. 28.65 million in Q1 FY14, registered a growth of 57.80%. The Company has achieved consolidated revenue from Domestic division and Export division of Rs. 100.24 million and 316.08 million respectively for the 1 st Quarter of FY15. Net Sales and PAT of the company are expected to grow at a CAGR of 5% and 7% over 2013 to 2016E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) ASM Technologies Ltd 212.60 1063.00 15.80 13.45 2.12 28.00 Thinksoft Global Services Ltd 544.25 5628.00 21.39 25.44 5.94 90.00 RS Software (India) Ltd 764.85 9799.50 44.34 17.25 5.91 60.00 Geometric Ltd 162.10 10370.50 9.16 17.70 3.27 100.00
QUARTERLY HIGHLIGHTS (CONSOLIDATED) Results updates- Q1 FY15, ASM excels in the field of software development and enterprise applications implementation services. The company has reported its financial results for the quarter ended 30 th JUNE, 2014. Rs. In millions June-14 June-13 % Change Net Sales 416.34 397.73 4.68 PAT 29.28 17.04 71.83 EPS 5.86 3.41 71.83 EBITDA 64.84 41.24 57.23 The company s turnover stood at Rs. 416.34 million for the 1 st quarter of the current year 2014-15 as against Rs. 397.73 million in the corresponding quarter of the previous year. EBITDA of Rs. 64.84 million in Q1 FY15 and increase of 57.23% over prior period of last year. In Q1 FY15, net profit of Rs. 29.28 million against Rs. 17.04 million in the corresponding quarter of the previous year. The company has reported an EPS of Rs. 5.86 for the 1 st quarter as against an EPS of Rs. 3.41 in the corresponding quarter of the previous year. Break up of Expenditure During the quarter, total Expenditure Decline by 4 per cent mainly on account of other expenditure by 23% decrease and stood at Rs. 124.02 million against Rs. 160.45 million over corresponding quarter of previous year. Total expenditure in Q1 FY15 stood to Rs. 358.60 million as against Rs. 374.18 million in Q1 FY14. For the 1 st quarter of FY15, Employee benefits Expenses raised by 10% to Rs. 231.08 million from Rs. Rs. 210.65 million for 1 st quarter of FY14. Depreciation shown 14% increase and stood at Rs. 3.50 million in Q1 FY15 as against Rs.3.08 million in the prior period of last year.
COMPANY PROFILE ASM Technologies Limited is an IT Services organization established in 1992, is a pioneer in providing world Class Consulting Services in Business Systems, Engineering Services, IT Infrastructure Services and Technology Solutions for the packaged ERP products and in enterprise product development for SMB Segment and in technology solutions covering embedded systems and system software to its global clientele. A company promoted by technocrats, ASM came out with an IPO as far back as 1994. ASM offers a broad spectrum of enterprise services such as configuration, implementation, customization, enduser training and documentation, post implementation support and maintenance across leading commercial offthe-shelf products like SAP, Oracle Applications, PeopleSoft, JD Edwards and Microsoft Enterprise products. The company has been providing consulting services such as product engineering, development, product support, porting, testing and test automation to its global clientele in the embedded software and system software space. ASM has been running ODCs both in India and overseas successfully for its international clients providing cost effective onsite, offsite and offshore services through a team of experienced engineers and consultants with extensive technical and domain expertise. ASM has over 900 employees with operations in the US, Singapore, UK and India serving Global clientele and several Fortune 500 companies. The company has received the ISO-9001:2000 certification and is also assessed at CMMI Maturity Level 3 for all its development & support operations. ASM Technologies Limited is providing solutions to manufacturing, oil & gas, consumer electronics, growth industries, telecom, public utilities and retail industry sectors. Services Enterprise Applications SAP Oracle Applications PeopleSoft JD Edwards Business Process Management Internet Applications Outsourced Product Development Product Development Microsoft Dynamics Technology Solutions System Software Embadded Systems Engineering Services Outsourced Product Development Network & Telecom
Global Presence Bangalore (India) Singapore Chicago Toledo and Tampa (USA London (UK). Partners Cincom Microsoft Oracle SAP Industry Vertical Hi-Tech Manufacturing Semiconductor Oil & Gas Consumer Electronics Aerospace Automotive Solar Growth Industries Telecom Public Utilities Retail Subsidiary Companies Advanced Synergic Pte Ltd Pinnacle Talent Inc, USA ESR Associates Inc,. USA Abacus Business Solutions Inc
Clients
FINANCIAL HIGHLIGHT (CONSOLIDATED) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as on 31 st March 2013A to 2014E 2013A 2014A 2015E 2016E EQUITY AND LIABILITIES: Shareholders Funds: Share Capital 50.00 50.00 50.00 50.00 Reserves and Surplus 383.05 451.38 562.34 693.48 (a)sub-total Net worth 433.05 501.38 612.34 743.48 Non-Current Liabilities: long-term borrowings 198.05 176.20 155.06 134.90 Deferred Tax Liabilities [Net] 11.62 16.39 20.49 23.15 (b)sub-total Long term liabilities 209.67 192.59 175.54 158.05 Current Liabilities: Short-term borrowings 193.09 266.91 314.95 359.05 Trade Payables 133.83 84.12 60.57 44.21 Other Current Liabilities 40.25 40.37 41.58 42.41 Short Term Provisions 68.78 85.99 98.89 106.80 (c) Sub Total-Current Liabilities 435.95 477.39 515.99 552.47 Total Equity And Liabilities (a+b+c) 1078.67 1171.36 1303.88 1454.00 ASSETS: Non-Current Assets: Fixed Assets: Tangible Assets 101.76 100.07 110.08 123.29 Goodwill on consolidation (net) 467.53 499.19 529.14 562.56 Total Fixed Assets 569.29 599.26 639.22 685.85 Deferred tax assets 1.46 2.59 4.09 6.38 Non Current Investments 32.58 33.33 34.66 36.40 Long Term Loans and Advances 4.37 4.32 4.81 5.29 (d) Sub Total-Non-Current Assets 607.70 639.50 682.78 733.91 Current Assets: Trade Receivables 288.42 333.95 384.04 437.81 Cash and Bank Balances 93.48 83.29 91.62 102.61 Short Term Loans and Advances 8.83 23.05 41.95 63.77 Other Current Assets 80.24 91.57 103.49 115.90 (e) Sub Total- Current Assets 470.97 531.86 621.10 720.09 Total Assets (d+e) 1078.67 1171.36 1303.88 1454.00
Annual Profit & Loss Statement for the period of 2013A to 2016E Value(Rs.in.mn) FY13A FY14A FY15E FY16E Description 12m 12m 12m 12m Net Sales 1753.92 1670.74 1829.46 2021.55 Other Income 17.87 17.38 7.82 9.23 Total Income 1771.79 1688.12 1837.28 2030.78 Expenditure -1574.69-1514.28-1595.29-1752.69 Operating Profit 197.10 173.84 241.99 278.10 Interest -38.32-40.89-59.70-66.27 Gross profit 158.78 132.95 182.29 211.83 Depreciation -11.29-13.19-15.43-16.98 Profit Before Tax 147.49 119.76 166.86 194.85 Tax -39.99-40.74-55.90-63.72 Profit After Tax 107.50 79.02 110.96 131.14 Minority Interest -0.94 0.00 0.00 0.00 Net Profit 106.56 79.02 110.96 131.14 Equity capital 50.00 50.00 50.00 50.00 Reserves 383.05 451.38 562.34 693.48 Face value 10.00 10.00 10.00 10.00 EPS 21.31 15.80 22.19 26.23 Quarterly Profit & Loss Statement for the period of 31 Dec, 2013 to 30 Sep, 2014E Value(Rs.in.mn) 31-Dec-13 31-Mar-14 30-Jun-14 30-Sep-14E Description 3m 3m 3m 3m Net sales 429.17 438.79 416.34 427.16 Other income -3.92-4.78 3.60 2.95 Total Income 425.25 434.01 419.94 430.12 Expenditure -380.43-388.48-355.10-363.09 Operating profit 44.82 45.53 64.84 67.03 Interest -10.63-10.22-16.13-17.10 Gross profit 34.19 35.31 48.71 49.93 Depreciation -3.36-3.50-3.50-3.64 Profit Before Tax 30.83 31.81 45.21 46.29 Tax -9.97-9.25-15.93-14.95 Net Profit 20.86 22.56 29.28 31.34 Equity capital 50.00 50.00 50.00 50.00 Face value 10.00 10.00 10.00 10.00 EPS 4.17 4.51 5.86 6.27
Ratio Analysis Particulars FY13A FY14A FY15E FY16E EPS (Rs.) 21.31 15.80 22.19 26.23 EBITDA Margin (%) 11.24 10.40 13.23 13.76 PBT Margin (%) 8.41 7.17 9.12 9.64 PAT Margin (%) 6.13 4.73 6.07 6.49 P/E Ratio (x) 9.98 13.45 9.58 8.11 ROE (%) 24.82 15.76 18.12 17.64 ROCE (%) 25.28 19.80 23.78 23.85 Debt Equity Ratio 0.90 0.88 0.77 0.66 EV/EBITDA (x) 6.90 8.18 5.96 5.23 Book Value (Rs.) 86.61 100.28 122.47 148.70 P/BV 2.45 2.12 1.74 1.43 Charts
OUTLOOK AND CONCLUSION At the current market price of Rs. 83.20, the stock P/E ratio is at 9.58 x FY15E and 8.11 x FY16E respectively. Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.22.19 and Rs.26.23 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 5% and 7% over 2013 to 2016E respectively. On the basis of EV/EBITDA, the stock trades at 5.96 x for FY15E and 5.23x for FY16E. Price to Book Value of the stock is expected to be at 1.74 x and 1.43 x respectively for FY15E and FY16E. We recommend BUY in this particular scrip with a target price of Rs.242.00 for Medium to Long term investment.
INDUSTRY OVERVIEW With the advent of 2014 market is showing steady signs of a slow revival especially from its largest market, US. 2014 has shown some early signs of pick-up in discretionary spends which coupled with strategic initiatives by the companies will improve momentum to 15% plus year-on-year growth in Financial year 2015. The Indian IT is gearing up to meet this demand by strengthening their sales and resources largely in the US market. Healthy pick-up in spending in key markets of North America and scope for accelerated market share gains in Europe can support 15% growth for the Industry. Numerous changes within the global IT Industry has brought into focus areas such as cloud, mobility, analytics, social to the fore,with Indian IT firms adapting rapidly. The global economy is set to get stronger in 2014, with growth likely to edge up to 3.2 percent this year, up from 2.4 percent in 2013, according a World Bank report. Worldwide IT spending is projected to total $3.8 trillion in 2014, a 3.1 percent increase from 2013 spending of $3.7 trillion, according to the latest forecast by Gartner, Inc. The Indian software market grew 10% to $4.76 billion in 2013 from $4.33 billion in 2012 driven by strong adoption of cloud or subscription based services, as per Gartner report. India is growing faster than other emerging countries which can be attributed to an export-oriented focus over the last decade. IT services spending to increase from USD 922 billions in 2013 to USD 963 billions in 2014 as per Gartner Report. Further, recent advances in IT communications infrastructure in the country has opened up new avenues for local consumption of IT software and associated services. Among the BRICS nations the Indian software market experienced the highest growth rate. Opportunities For the current fiscal year ending March, Nasscom said the country's software exports will grow at about 13%.Although there is an economic slowdown, Indian enterprises are still judiciously investing in technology that can be tied to the business objectives and impact their bottom line. As per Gartner report, Indian enterprises are generally more price sensitive compared with enterprises in mature markets but now they are spending on technology that offers a significant upside in terms of agility or productivity gains with diligent planning. Besides large enterprises the Indian market also boasts a large potential small and midsize business (SMB) that is playing a crucial role in changing the consumption patterns of technology. As per Nasscom software exports in 2014-15 would rise to as much as $99 billion, from about $86 billion estimated for this fiscal year ending March. Including the domestic market, the Indian IT industry is currently pegged at $118 billion. The business of designing and building software applications or managing the IT infrastructure for large multinationals has not suffered any huge dent, even in an uncertain global macroeconomic environment. Clients in North America and Europe may have cut down on 'discretionary' IT spends, but they still need to keep existing
systems running. To the extent these routine application development and maintenance operations are outsourced or off-shored, Indian IT firms, with their massive, relatively low-cost engineering workforce, will continue to get business. The pressure to out-source as a cost-saving measure is, indeed, higher in a general downturn. This explains why Indian IT exports rose by 13 per cent in 2013-14, despite worldwide IT spending clocking a niggardly 0.4 per cent growth. With technology research firm Gartner projecting that global IT budgets will grow by 3.2 per cent this year, the outlook for domestic software vendors can only get better. They could benefit both from an expansion of the outsourcing pie as well as revenues from more 'discretionary' sources such as product engineering, testing, package implementation and consultancy services. Competition Risk The competition from countries such as China, Philippines, Vietnam, Poland, Hungary, Mexico, Brazil, and Egypt poses a great challenge for India. While India still remains as the preferred destination for outsourcing activities, many other countries have started providing similar type of services and are fast emerging as competitive locations. Currently India accounts for 20-25% of R&D off shoring whereas China is behind with 15-20% market share. North America may account for the lion's share of India's IT exports but, growing demand for outsourcing services from Europe is expected to drive the USD 108 billion IT sector in 2014. Europe is growing faster than the US and this will only gain momentum. There is a lot of latent demand in the region, which will drive growth for the sector. Companies are bullish on the European market, which is evident from the acquisitions that some of them have made in the recent past. Growth in emerging economies such as India and China is expected to jump with growth forecasts for the economies at 6.2 percent and 7.7 percent, respectively. However rich economies such as the United States, Eurozone and Japan are likely to lead much of the global growth forecast. According to Nasscom report, growth in the US is likely to increase to 2.8 percent in 2014, higher than 1.8 percent last year. The Euro area is finally set to put behind two years of de-growth and may notch 1.1 percent growth in the year. The report attributes the greater expected strength to these economies easing their austerity policies. Thus the Indian ITeS sector needs to make extra endeavor to remain competitive in terms of cost efficiency measures and scalability of various high end services to handle competition. Future Outlook After a gloom in the early part of last year, the bloom has begun. With the changing Technologies comes the change in Business Models and vice-versa. This is the trend in the IT Industry worldwide. While, this change is still in the infant and Greenfield stage, the rapid changes in the new Business Scenario have come to stay. This is the good news. The adaption of the new technology in the areas of Social Media, Mobility, Analytics and Cloud ( SMAC) is creating positive disruption across Industries. India is very well poised and stands to ride at the top of this wave. The trend is upbeat for the IT Services, Engineering & R&D, Internet & Mobility and Software Products.
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