YEARS

MAKING MA RK

Omnitech Infosolutions Ltd

Q3FY12 Result Update

Enhancing investment decisions

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Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).

CRISIL Fundamental Grade

5/5 4/5 3/5 2/5 1/5

Assessment
Excellent fundamentals Superior fundamentals Good fundamentals Moderate fundamentals Poor fundamentals

CRISIL Valuation Grade

5/5 4/5 3/5 2/5 1/5

Assessment
Strong upside (>25% from CMP) Upside (10-25% from CMP) Align (+-10% from CMP) Downside (- 10-25% from CMP) Strong downside (<-25% from CMP)

Analyst Disclosure
Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company.

Disclaimer:
This Company-commissioned CRISIL IER report is based on data publicly available or from sources considered reliable. CRISIL Ltd. (CRISIL) does not represent that it is accurate or complete and hence, it should not be relied upon as such. The data / report is subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this report. Nothing in this report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The subscriber / user assume the entire risk of any use made of this data / report. CRISIL especially states that, it has no financial liability whatsoever, to the subscribers / users of this report. This report is for the personal information only of the authorised recipient in India only. This report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person especially outside India or published or copied in whole or in part, for any purpose.

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YEARS

Omnitech Infosolutions Ltd

Earnings suppressed by high depreciation and interest
Fundamental Grade Valuation Grade Industry 3/5 (Good fundamentals) 5/5 (CMP has strong upside) IT Services

MAKING MA RK

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March 01, 2012

Fair Value Rs 254 CMP Rs 138

CFV MATRIX
Excellent Fundamentals

Omnitech Infosolutions Ltds (Omnitechs) Q3FY12 revenues and operating However, PAT was lower than expected due to high depreciation (on account of an increase in asset base as the company set up new offices) and high interest cost (because of higher debt and interest rates). Also, the tax rate increased to 35% vs. 26% in Q2FY12 as the company claimed MAT credit in Q2. We have broadly maintained earnings estimates for FY12 and FY13. While we remain positive on the business potential, the growth of Avensus in Europe remains a key monitorable given the uncertain macroeconomic environment. We maintain our fundamental grade of 3/5. Q3FY12 result analysis Revenues grew by 6.4% q-o-q (up ~49 % y-o-y) to Rs 1,309 mn. India revenue grew by 7.4% q-o-q to Rs 986 mn; the country remained the highest contributor to consolidated revenue. APAC revenue grew by ~46% q-o-q to Rs 72 mn. Europe revenue declined by ~6.7% q-o-q to Rs 142 mn due to lower revenue from Avensus, Europe since some projects got over. Fragile macro-economic conditions are also slowing down the companys European business. EBITDA margin increased by 94 bps q-o-q (down 710 bps y-o-y) to 25.6% mainly due to lower employee cost, which declined by 111 bps as a percentage of sales q-o-q. The employee headcount declined to 1,305 from 1,366 employees in Q2FY12 as the company optimised its resources for better efficiency. The company continued to incur losses at the EBITDA level in Avensus and the APAC region. Depreciation increased by 14% q-o-q (73% y-o-y) to Rs 109 mn and interest cost increased by 66% q-o-q (~240% y-o-y) to Rs 51 mn. Tax rate increased to 35%. As a result, PAT declined by 8.5% q-o-q (15.5% y-o-y) to Rs 127 mn. The company reported EPS of Rs 8.7. Valuations: Current market price has strong upside We continue to use the discounted cash flow method to value Omnitech and maintain the fair value of Rs 254 per share. Consequently, we retain the valuation grade of 5/5.
Fundamental Grade

profitability

were

broadly

in

line

with

CRISIL Researchs expectations.

5 4 3 2 1

Poor Fundamentals

Valuation Grade
Strong Downside Strong Upside

KEY STOCK STATISTICS

NIFTY / SENSEX NSE / BSE ticker Face value (Rs per share) Shares outstanding (mn) Market cap (Rs mn)/(US$ mn) Enterprise value (Rs mn) /(US$ mn) 52-week range (Rs) (H/L) Beta Free float (%) Avg daily volumes (30-days) Avg daily value (30-days) (Rs mn) 5385/17753 OMNITECH 10 14.7 2,033/42 2,645/54 175/122 1.58 46.0% 27,808 3.76

SHAREHOLDING PATTERN
100% 90% 80% 70% 60% 50% 40% 30% 54.9% 54.1% 54.1% 53.9% 0.0% 0.6% 3.6% 0.6% 6.2% 0.5% 8.0% 0.0% 44.5% 41.8% 39.2% 38.2%

KEY FORECAST
(Rs mn) Operating income EBITDA Adj PAT Adj EPS-Rs EPS growth (%) Dividend yield (%) RoCE (%) RoE (%) PE (x) P/BV (x) EV/EBITDA (x) FY09 1,718 528 344 26.2 34.3 3.2 33.9 32.3 5.3 1.5 4.2 FY10 2,185 678 381 27.5 5.0 0.7 28.0 25.8 5.0 1.1 3.6 FY11 3,470 1,078 518 37.4 36.0 2.0 30.2 26.3 3.7 0.9 2.8 FY12E 5,093 1,306 528 35.9 (4.1) 2.0 24.7 20.7 3.8 0.7 2.2 FY13E 6,100 1,492 637 42.6 18.8 2.1 25.3 19.9 3.2 0.6 1.7

20% 10% 0% Mar-11 Promote r Jun-11 FII Sep-11 DII Dec-11 Others

PERFORMANCE VIS--VIS MARKET

Returns 1-m OMNITECH NIFTY 0% 3% 3-m 4% 12% 6-m -7% 9% 12-m 6% 1%

ANALYTICAL CONTACT
Chetan Majithia (Head) Kamna Motwani Suresh Guruprasad Client servicing desk +91 22 3342 3561 clientservicing@crisil.com chetanmajithia@crisil.com kmotwani@crisil.com sguruprasad@crisil.com

NM: Not meaningful; CMP: Current market price Source: Company, CRISIL Research estimate

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YEARS

Omnitech Infosolutions Ltd

Q3FY12 Result Summary
(Rs mn) Net sales Cost of goods sold Cost of goods sold(% of net sales) Employees cost Employee cost as % of sales Other expenses Other expenses as % of sales EBITDA EBITDA margin Depreciation EBIT Interest and finance charges Operating PBT Other Income PBT Tax Minority interest PAT Adj PAT Adj PAT margin No of equity shares (mn) Adj EPS (Rs) Q3FY12 1,309 683 52.2% 194 14.8% 97 7.4% 335 25.6% 109 226 51 175 5 180 62 (10) 127 127 9.7% 14.7 8.7 Q2FY12 1,230 634 51.6% 196 15.9% 96 7.8% 303 24.7% 96 207 30 177 1 177 46 (7) 139 139 11.3% 14.7 9.5 Q3FY11 880 436 49.5% 108 12.3% 48 5.5% 288 32.7% 63 224 15 210 1 210 52 7 151 151 17.2% 13.9 10.9 q-o-q (%) 6.4 7.7 60 bps (1.0) -111 bps 0.6 -43 bps 10.5 94 bps 14.0 8.9 66.2 (1.0) 798.7 1.5 37.3 34.6 (8.5) (8.5) -159 bps (8.5) y-o-y (%) 48.8 56.7 266 bps 79.9 257 bps 99.4 187 bps 16.5 -710 bps 73.1 0.5 239.6 (16.5) 805.3 (14.3) 19.1 (247.8) (15.5) (15.5) -741 bps 6.2 (20.5) 9MFY12 3,719 1,922 51.7% 564 15.2% 284 7.6% 949 25.5% 293 657 113 544 6.1 550 171 (21) 400 400 10.7% 14.7 27.2 9MFY11 2,441 1,242 50.9% 277 11.3% 134 5.5% 789 32.3% 176 612 43 570 1.6 571 121 17 434 434 17.8% 14.7 29.4

MAKING MA RK

y-o-y (%) 52.3 54.8 82 bps 103.7 382 bps 111.7 214 bps 20.4 -678 bps 66.0 7.2 165.4 (4.5) 285.2 (3.7) 41.9 (222.6) (7.8) (7.8) -701 bps (7.8)

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Source: Company, CRISIL Research

Business availability services remained main revenue contributor and grew at 8% q-o-q
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Jun-10 Mar-10 Mar-11 Dec-10 Jun-11 Dec-11 Sep-10 Sep-11

3% 23.1% 15.1% 21.1% 14.1% 23.1% 11.1% 21.6% 11.1% 25.6% 9.1% 25.0% 5.1%

3% 24.9% 6.0%

3% 24.3% 6.0%

50% 40% 30% 20% 10% 0%

61.8%

64.8%

65.8%

67.3%

65.3%

66.9%

66.1%

67.0%

-10% -20% -30% -40%

Jun-10

Mar-10

Mar-11

Dec-09

Dec-10

Jun-11

Business availability services System integration

Business continuity services Security services

Business availability services System integration

Business continuity services

Source: Company, CRISIL Research

Source: Company, CRISIL Research

India business continued to drive revenues

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Jun-10 Mar-10 Dec-10 Mar-11 Jun-11 Dec-11 Sep-10 Sep-11

BFSI remains major revenue contributor

6.3% 1% 11% 0.6% 5% 100% 90% 80% 70% 60% 50% 19% 19% 25% 22% 3% 7% 20% 3% 8% 20% 3% 9% 18% 4% 10% 17% 11% 14% 23% 10% 7% 8% 17% 8% 5% 17% 7% 6% 17% 21%

5% 5% 7% 1% 4%

6% 5% 7% 1% 9%

8% 1% 7% 1% 10%

7% 1% 7% 1% 9%

6% 1% 8% 1% 10%

6.5% 1% 12% 0.4% 7%

6.7% 2% 12% 0.6% 4%

23%

23%

79%

74%

74%

76%

74%

73%

75%

75%

40% 30% 20% 10% 0% 51% 50% 45% 49% 42% 45% 46% 49%

Mar-10

Mar-11

Dec-10

India

Far East

Canada

Europe

Middle East

US

BFSI

IT-ITeS

Manufacturing

Services

Others

Source: Company, CRISIL Research

Source: Company, CRISIL Research

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Dec-11

Sep-10

Sep-11

Jun-10

Jun-11

Dec-11

Sep-10

Sep-11

YEARS

Omnitech Infosolutions Ltd

MAKING MA RK

S ET

CTION BE TT FUN ER

EBITDA margin improved due to lower employee cost...

(Rs mn)

... while PAT margin declined due to higher depreciation, interest and tax rate
(Rs mn)

1,400 1,200 1,000 800 600 400

32.7% 31.1% 30.2% 31.9% 32.2%

29.8% 26.4% 24.7% 25.6%

35% 30% 25% 20% 15% 10%

160 140 120 100 80 60 40 20 0

17.7% 16.3%

18.3% 17.9% 17.2%

20% 18% 16% 14% 12% 9.9% 11.3% 11.3% 9.7% 10% 8% 6% 4%

1,029

1,181

1,230

578

671

746

816

880

200 0

1,309

5% 0%

102

109

136

146

151

102

133

139

127

2% 0%

Dec-09

Dec-10

Dec-11

Mar-10

Sep-10

Mar-11

Sep-11

Jun-10

Jun-11

Mar-10

Mar-11

Dec-09

Dec-10

Revenue

EBITDA Margin (RHS)

PAT

PAT margin (RHS)

Source: Company, CRISIL Research

Source: Company, CRISIL Research

Share price movement

600 500 400 300 200 100 0

Fair value movement since initiation

(Rs) 300 250 200 150 100 50 0 ('000) 1,200 1,000 800 600 400 200 0

02-May-11

25-May-11

Dec-11

Jun-10

Sep-10

Jun-11

Sep-11

14-Feb-11

10-Mar-11

01-Dec-10

27-Dec-10

20-Sep-10

23-Sep-11

04-Aug-11

29-Aug-11

05-Nov-10

May-09

May-10

May-11

Omnitech

NIFTY

Total Traded Quantity(RHS)

CRISIL fair Value

16-Nov-11

Nov-08

Nov-09

Nov-10

Nov-11

Feb-09

Feb-10

Feb-11

Aug-09

Aug-10

Aug-11

Feb-12

12-Dec-11

Omnitech

-indexed to 100 Source: NSE, CRISIL Research Source: NSE, CRISIL Research

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22-Feb-12

04-Jan-12

19-Jan-11

17-Jun-11

27-Jan-12

04-Apr-11

12-Jul-11

13-Oct-10

19-Oct-11

YEARS

Omnitech Infosolutions Ltd

MAKING MA RK

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EARNINGS ESTIMATES REVISED DOWNWARDS

FY12E Particulars Exchange rate Revenues EBITDA EBITDA margin Depreciation Interest cost Other income Tax rate PAT PAT margin EPS Unit Rs (Rs mn) (Rs mn) % (Rs mn) (Rs mn) (Rs mn) % (Rs mn) % Rs Old 46.4 5,022 1,285 25.6 379 125 5 28% 545 10.8 37.0 New 48.1 5,093 1,306 25.6 403 164 8 32% 528 10.4 35.9 % change 3.7% 1.4% 1.6% 4 bps 6.5% 31.8% 57.9% 376 bps -3.1% -48 bps -3.1% Old 44.5 6,052 1,489 24.6 415.2 104 22 31% 660 10.9 44.2 FY13E New 48.0 6,100 1,492 24.5 463.7 104 17 31% 637 10.4 42.6 % change 7.9% 0.8% 0.2% -15 bps 11.7% 0.0% -19.2% 0 bps -3.5% -47 bps -3.5%

Source: CRISIL Research estimate

Reasons for changes in estimates

Line item Revenues EBITDA margins PAT margins FY12 Revision in exchange rate Marginal increase in India business revenue No change Higher depreciation due to higher asset base Higher interest cost due to higher debt levels Higher-than-previously-estimated tax rate No change Higher depreciation due to higher asset base Lower other income due to lower cash FY13 Revision in exchange rate

The companys consolidated revenue is not significantly impacted by rupee depreciation as 75% of its revenue is derived from India. Note: We have not been provided data related to other income, tax rate and balance sheet items.

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YEARS

Omnitech Infosolutions Ltd

VALUATION
We continue to use the discounted cash flow method to value Omnitech and maintain the fair value of Rs 254 per share. At this value, the implied P/E multiples are 7x FY12 earnings estimate and 6x FY13 earnings estimate. We retain the valuation grade of 5/5.

MAKING MA RK

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CTION BE TT FUN ER

One-year forward P/E band

(Rs)
400 350 300 250 200 150 100 50 0

One-year forward EV/EBITDA band

(Rs mn)
10,000 8,000 6,000 4,000 2,000 0

May-11

May-11

Feb-08

Feb-12

Feb-08

Mar-09

Mar-09

Sep-08

Sep-08

Dec-08

Dec-08

Aug-07

Aug-11

Aug-07

Nov-07

Nov-11

Nov-07

Aug-11

Omnitech

2x

4x

6x

8x

Omnitech

2x

4x

6x

Source: NSE, CRISIL Research

Source: NSE, CRISIL Research

P/E premium/discount to NIFTY

0% -10% -20% -30% -40% -50% -60% -70% -80% -90% -100%

P/E movement
(Times)
10 9 8 7 6 5 4 3 2 1 0 -1 std dev +1 std dev

May-11

Feb-08

Nov-11 Nov-11

Mar-09

Sep-08

Dec-08

Aug-07

Nov-07

Jan-10

Nov-07

Jan-11

Jun-08

Jun-09

May-11

Nov-11

Feb-08

Mar-09

Dec-08

Aug-07

Premium/Discount to NIFTY

Median

Aug-11

Sep-08

Feb-12

Oct-09

Oct-10

Apr-10

1yr Fwd PE (x)

Median PE

Source: NSE, CRISIL Research

Source: NSE, CRISIL Research

CRISIL IER reports released on Omnitech Infosolutions Ltd

Fundamental Date Nature of report grade 3/5 3/5 3/5 3/5 3/5 3/5 3/5 3/5 Fair value Rs 270 Rs 282 Rs 282 Rs 282 Rs 270 Rs 254 Rs 254 Rs 254 20-Sep-10 Initiating coverage* 29-Oct-10 Q2FY10 result update 21-Feb-11 Q3FY11 result update 09-Jun-11 Q4FY11 result update 19-Aug-11 Q1FY12 result update 18-Oct-11 Detailed report 28-Nov-11 Q2FY12 result update 01-Mar-12 Q3FY12 result update Valuation grade 3/5 4/5 5/5 5/5 5/5 5/5 5/5 5/5 CMP (on the date of report) Rs 253 Rs 245 Rs 146 Rs 156 Rs 126 Rs 144 Rs 132 Rs 138

* For detailed initiating coverage report please visit: www.ier.co.in CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.

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Aug-11

Feb-12

Jan-10

Jul-10

Jan-11

Jun-08

Jun-09

Apr-10

Oct-09

Jul-10

Oct-10

Feb-12

Jul-10

Jan-10

Jan-11

Jan-10

Jul-10

Jan-11

Apr-10

Jun-08

Jun-09

Jun-08

Jun-09

Apr-10

Oct-09

Oct-10

Oct-09

Oct-10

YEARS

Omnitech Infosolutions Ltd

MAKING MA RK

S ET

CTION BE TT FUN ER

FINANCIALS
Income statement (Rs mn) Operating income EBITDA EBITDA margin Depreciation EBIT Interest Operating PBT Other income Exceptional inc/(exp) PBT Tax provision Minority interest PAT (Reported) Less: Exceptionals Adjusted PAT Ratios FY09 Growth Operating income (%) EBITDA (%) Adj PAT (%) Adj EPS (%) Profitability EBITDA margin (%) Adj PAT Margin (%) RoE (%) RoC E (%) RoIC (%) Valuations Price-earnings (x) Price-book (x) EV/EBITDA (x) EV/Sales (x) Dividend payout ratio (%) Dividend yield (%) B/S ratios Inventory days C reditors days Debtor days Working capital days Gross asset turnover (x) Net asset turnover (x) Sales/operating assets (x) C urrent ratio (x) Debt-equity (x) Net debt/equity (x) Interest coverage Per share FY09 Adj EPS (Rs) C EPS Book value Dividend (Rs) Actual o/s shares (mn) 26.2 32.2 93.9 1.2 13.1 FY10 27.5 38.8 124.3 1.1 13.9 FY11 37.4 55.4 159.9 2.7 13.9 FY12E 35.9 63.3 196.6 2.7 14.7 FY13E 42.6 73.7 234.5 3.0 14.9 44 16 125 112 2.5 3.2 2.7 5.7 0.3 0.1 11.8 70 23 88 130 1.8 2.3 2.1 3.7 0.3 0.2 11.3 66 53 91 103 1.9 2.3 2.1 2.7 0.5 0.5 13.2 52 38 88 97 2.1 2.9 2.6 3.0 0.4 0.3 5.5 51 35 88 105 2.0 3.3 3.2 2.9 0.2 0.2 9.9 Quarterly financials (Rs mn) Net Sales C hange (q-o-q) EBITDA C hange (q-o-q) EBITDA margin PAT Adj PAT C hange (q-o-q) Adj PAT margin Adj EPS Q3FY11 Q4FY11 Q1FY12 880 8% 288 9% 32.7% 151 151 3% 17.2% 10.9 1,029 17% 307 7% 29.8% 102 102 -32% 9.9% 7.4 1,181 15% 311 1% 26.4% 133 133 30% 11.3% 9.0 Q2FY12 1,230 4% 303 -3% 24.7% 139 139 5% 11.3% 9.5 Q3FY12 1,309 6% 335 10% 25.6% 127 127 -8% 9.7% 8.7 5.3 1.5 4.2 0.4 4.8 3.2 5.0 1.1 3.6 1.2 4.1 0.7 3.7 0.9 2.8 0.9 7.2 2.0 3.8 0.7 2.2 0.6 7.5 2.0 3.2 0.6 1.7 0.4 6.9 2.1 30.8 20.0 32.3 33.9 31.6 31.0 17.4 25.8 28.0 23.7 31.1 14.9 26.3 30.2 22.3 25.6 10.4 20.7 24.7 19.4 24.5 10.4 19.9 25.3 19.6 Cash flow (Rs mn) Pre-tax profit Total tax paid Depreciation Working capital changes Net cash from operations Cash from investments C apital expenditure Investments and others Net cash from investments Cash from financing Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Others (incl extraordinaries) Net cash from financing C hange in cash position C losing cash 148 (18) 9 139 (20) 29 119 105 (18) 12 218 14 43 0 669 (44) 5 630 47 90 105 (26) (47) 112 145 52 187 27 (439) (52) (13) (477) (88) 110 (342) 84 (258) (763) 137 (626) (804) (5) (809) (432) 5 (427) (410) (410) FY09 431 (49) 80 (362) 99 FY10 485 (85) 157 (135) 422 FY11 767 (157) 249 (634) 225 FY12E 746 (316) 403 (499) 334 FY13E 942 (295) 464 (311) 799 30.1 50.1 34.3 34.3 27.2 28.3 10.7 5.0 58.8 59.0 36.0 36.0 46.8 21.1 1.9 (4.1) 19.8 14.3 20.6 18.8 FY10 FY11 FY12E FY13E FY09 1,718 528 30.8% 80 449 38 411 20 (15) 416 87 (0) 329 (15) 344 381 FY10 2,185 678 31.0% 157 521 46 475 10 485 109 (4) 381 FY11 3,470 1,078 31.1% 249 829 63 766 1 (0) 767 235 14 518 (0) 518 746 238 (20) 528 528 637 FY12E 5,093 1,306 25.6% 403 902 164 738 8 942 295 10 637 FY13E 6,100 1,492 24.5% 464 1,028 104 925 17 Balance Sheet (Rs mn) Liabilities Equity share capital Reserves Minorities Net worth C onvertible debt Other debt Total debt Deferred tax liability (net) Total liabilities Assets Net fixed assets C apital WIP Total fixed assets Investments Current assets Inventory Sundry debtors Loans and advances C ash & bank balance Marketable securities Total current assets Total current liabilities Net current assets Intangibles/Misc. expenditure Total assets 140 589 166 29 134 1,058 186 872 1,633 1,216 328 887 2,252 287 530 356 43 1,900 701 1,199 369 3,493 431 860 519 90 527 1,224 734 187 2,672 893 1,779 385 4,112 635 1,464 872 110 3,081 1,068 2,013 385 4,292 678 79 758 3 1,225 139 1,364 1 1,732 187 1,919 5 1,809 139 1,948 1,855 39 1,894 131 1,102 1,233 334 334 66 1,633 439 439 90 2,252 139 1,584 0 1,723 1,108 1,108 169 3,493 139 2,058 19 2,216 1,082 1,082 90 4,067 147 2,748 (1) 2,894 643 643 90 4,237 149 3,345 9 3,503 FY09 FY10 FY11 FY12E FY13E

Note: All ratios are computed on Adj PAT Source: Company, CRISIL Research estimate

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CRISIL Research Team

Senior Director
Mukesh Agarwal +91 (22) 3342 3035 magarwal@crisil.com

Analytical Contacts
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