C O M P A N Y

R E P O R T

India 23 Aug 2011

Zensar Technologies

Rs 127

Sec tor : IT
xxxo...
BSE Sensex Nifty 52 week high (Rs) 52 week low (Rs) 16,498 4949 193 125

Strong financials, robust bu siness mix
Zensar ended FY11 strongly positioned for growth. The acquisition of Akibia in November 2010 makes Zensar among the leaders in infrastructure management amongst IT midcaps. Zensar has also reorganised its business along focus verticals, which will allow it to cross-sell its service capabilities and mine clients better. We believe Zensar now has a robust business model. Besides, it has a better financial record than most IT midcaps, including some fancied more by the market. It has stronger margins, better capital efficiency, and makes free cash flows more regularly than most IT midcaps. We believe Zensar can rerate toward higher end of peer group valuations, offering strong returns over a two year period. A free cash flow generating company
10 5,474

Bloomberg NSE Code BSE Code Equity Shares (m) Face Value (Rs) Market Cap (Rs mn)

ZENT.IN ZENSARTECH 504067 43.37

Zensar generated free cash of over Rs 2 bn over FY8-10. This allowed it do its largest acquisition yet, a $66mn (around Rs 3 bn) all cash deal to acquire an IM company in FY11. With robust operating cash flow going forward, Zensar will have ammo for further strategic acquisitions over FY11-13. Growth better than peer averages Zensar holds its ground against peers in growth rates delivered in revenues, EBITDA and net profit over FY08-11. Its revenues grew 12% over FY08-11, compared to a peer average of 7.4%. PAT has grown at 25% versus 17% for peers. Growth drivers in place for FY11-13 Zensar made a significant acquisition in FY11, that of Akibia, an IM company. This will add over Rs 3.5 bn to the FY12 topline. More importantly, there is strong opportunity to cross-sell between existing Akibia and Zensar clients. Zensar is also creating focussed verticals, a move which will help it mine its clients better, and compete better against peers. At current price, Zensar quotes at 4.2x FY11 and around 2.8x FY13e earnings, below midcap averages. We rate Zensar at 5.2x expected FY13 earnings, giving a likely price of Rs 230 by March 2013. This implies a return of 80% absolute, or about 50% annualised upside from current levels. Dividend yield is 2.8% on FY11 DPS (despite a 1:1 bonus in FY11); this could rise to 4% by FY13.
FY'09 Sales EBITDA PAT EBITDA margin (%) Net margin (%) ROE (%) ROCE (%) P/E Ratio (x) EV/EBITDA (x) Dividend Yield (%)
Rs mn

Share Price Performance (%) Zensar 1 week 1 month 3 month 6 month 1 year -6.61 -13.63 -27.32 -22.81 -26.23 Sensex -1.39 -11.88 -8.31 -9.24 -10.38

Shareholding Pattern (Jun’11)% Promoters FIIs DII Bodies Corporates Others 47.79 8.02 2.52 2.46 41.68

FY'10 9,610 1,700 1,273 18 13 43 41 4.6 2.9

FY'11 11,383 1,550 1,317 14 12 34 24 4.2 4.6 2.8

FY'12E 15,607 1,889 1,363 12 9 27 20 4.0 3.8 3.6

FY'13E 17,820 2,592 1914 15 11 28 25 2.9 2.8 4.1

9,222 1,259 866 14 10 32 30 2.1 1.4

Company Report: Zensar Technologies

23 Aug’11

Investment Rationale
Came out of FY11 positioned for growth
Akibia acquisition a strong growth driver
Zensar’s acquisition strategy is focussed on plugging gaps in its service offerings, designed to give global heft to critical parts of its business. For example, the Thought Digital acquisition catapulted Zensar among the top Oracle shops in India, and added considerable gap over its midcap peers. Akibia a transformatory deal The Akibia deal is a similar transformatory acquisition, positioning Zensar strongly in the infrastructure management (IM) space. Akibia had a topline of $108mn at the time of its acquisition, around 40% of Zensar’s FY11 turnover. With this, Zensar is now amongst top ten players in IM space in India. Akibia revenues reflected only in Q4 of FY11, so there will be significant topline impact in FY12. Akibia will add over Rs 3.5 bn to FY12 topline, playing a key role in projected 43% revenue growth for FY12. More importantly, Akibia has strong pedigree in the IM space, which is one of the fastest growing IT segments. This can lift overall growth rates for Zensar. Also, Akibia presents significant cross sell opportunities. Several verticals within Zensar see opportunity for increment growth coming from cross selling opportunities. The cross sell opportunity could an incremental 5-10% growth to Zensar over next couple of years.

IM is among the fastest growing IT segment

Verticalisation will help in better client relationships
The other significant change at Zensar is creation of a few focussed verticals, and stated organisation drive to run the business around vertical-driven sales process. Done well, this may have significant benefits. It will allow Zensar to mine its own client base better. For example, earlier an insurance sales lead may not have had incentive to push say an IM solution. Now, with a top-down approach to serving clients, the mantra would be to provide holistic solutions, incorporating various parts of the service offerings. Verticalisation will also allow better solution selling abilities. IT clients have now matured, they now want IT companies which can talk business rather than mere coding. With clients now beginning to expect and appreciate higher level sales, this is a move in the right direction. Large IT has already begun to move to verticalisation, we believe midcap IT companies which are fast off the block on this trend will gain as well.

Verticalisation will allow better client mining

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Company Report: Zensar Technologies

23 Aug’11

Market ignoring strengths in the business
Not a me-me-too in everything it does Zensar’s valuations seem to suggest that the market thinks its business portfolio is inferior to most IT midcaps. The market seems to be unwilling to give value to several strengths Zensar has built in recent years.

Oracle Practice
Among the leading Oracle shops in India, ahead of midcap peers Zensar is among the key players in India in Oracle delivery. It has more than 1,200 associates dedicated to this practice. Having executed over 500 projects, Zensar's expertise extends over Oracle EBusiness Suite, Business Intelligence, Hyperion, Demantra, Oracle Fusion Middleware, Databases, Shared Services and Oracle Retail. It is a Platinum partner of Oracle. Only Infosys is a Diamond partner, a higher category. In the Oracle practice, Zensar is at par or better than any other midcap IT company, and even capable of competing with the IT majors in some cases

IM Practice
Akibia puts Zensar among the best IM shops The Akibia acquisition was meant to be transformatory for Zensar’s IM practice. With this acquisition, Zensar would count as among the leaders in the IM space amongst midcap IT.

Ability to handle large clients
Zensar has successfully handled Cisco relationship A large customer relationship is both a positive and a risk. The positive part is certainly the demonstrated ability to deal with a large relationship. Cisco is a more than $100mn account for Zensar. While in the last few months the size of business from Cisco has dipped, as Cisco is going through an internal restructuring, Zensar’s ability to deliver here is certain a positive stamp for the company. Zensar now has another large relationship with Assurant, an insurance client.

Strong on process
World class processes Zensar is the world's first enterprise-wide SEI CMM Level 5 Company. This shows the company’s focus on rigorous processes. Some of that is also visible in its financial processes, discussed below.

Better quality of financials
Zensar has done much better in cash flows compared to peers
We believe if the market is hugely concerned about viability and growth potential of the midcap IT segment, the first thing investors should check is the cash flow statement. If investors gave due attention to the cash flows, we believe some of the company valuations would look different from what they are now.

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Company Report: Zensar Technologies
Free Cash Generation at mid-cap IT companies 1 2 3 4 5 6 7 8 9 10 11 12 3i Info Geometric Infinite Infotech Ent KPIT Mastek* Mind Tree NIIT Tech Polaris Rolta* Sonata Subex Industry Average 13 Zensar Rank FY08-10 -9,914 525 600 580 911 1,294 1,939 1,536 4,715 -7,495 885 -222 -387 1,853 3 FY08-11 -8,445 715 637 -260 549 1,379 1,532 1,697 4,777 -10,093 1,873 270 -447 -69 9

23 Aug’11

Zensar has among the better cash flow performances amongst midcaps

(Rs mn) *Year ending June

Fancied midcaps like Rolta, Infotech have poor cash flow focus

Some mid-cap IT companies which are relatively more fancied than Zensar, like Rolta, Infotech Enterprises, and 3i Infotech, are running on inferior free cash flows. This means they are still buyers of growth. 3i has done dozens of acquisitions, Rolta seems to run a huge capex. What the table above tells us is that unless Zensar does a sizeable acquisition (which it did in FY11) it will generate free cash.

Judicious use of cash flow important for driving growth
Cash flows-M&A an important growth strategy We believe this is a strategy which can lead to sustainable growth – generate free cash, do a focussed acquisition to plug portfolio gaps and enhance growth rates. The trick here is to maintain a tight leash on operating cash flows, and do acquisitions judiciously.

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Company Report: Zensar Technologies

23 Aug’11

Some peers have frittered cash away

Simple as it sounds, this is not something all that easy to implement, if you look at the peer group. Both 3i Infotech and Rolta generate large amounts of operating cash, yet they run hugely negative free cash. In 3i’s cash, it is both aggressive fixed asset purchase and acquisitions. In Rolta, it is mainly fixed assets which more than eat up the cash flow. In 3i’s case, we believe there is lack of discipline in acquisitions, in the other case, you have to question the need to massive investments in fixed assets. Take another case, Infotech Enterprises, which has a market cap of more than 2x Zensar. It has generated just marginally better operating cash flow as Zensar over the last 5 years. In 3 of these 5 years, Zensar has done better. Infotech again has invested 50% more in fixed assets compared to Zensar. In sum, we believe Zensar is doing far better than peers in both free cash flow generation, and end use of cash flows.

Better working capital management
The chart below shows debtor turnover for the latest financial year. As can be seen, Zensar is comfortably above peer average, and behind only two of the peers on this parameter. Companies like 3i and Rolta, which don’t seem to value free cash flows, are among the lower ones on this parameter.
Debtor Turnover (x)
10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Infotech Ent Infinite Mastek Ind Avera ge Geometric NIIT Tech Mind Tree Sonata Zensa r 3i Info Pola ris Subex KPIT Rolta

Zensar has superior debtor collections

Better receivables management is one reason for the healthy operating cash flows at Zensar.

Better capital efficiency
That Zensar is running an efficient operation is clearly visible from the ROCE chart below. Zensar has returned an ROCE of above 25% for 6 of the last 8 years. Other than Infinite and NIIT Tech, Zensar is above all peers on this count.

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Company Report: Zensar Technologies
ROCE (%)
45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Infotech Ent Infinite Mastek Geometric Sonata Ind Average NIIT Tech Mind Tree Zensar 3i Info Polaris Subex KPIT Rolta

23 Aug’11

Zensar scores in capital efficiency

Valuation anomaly
No need to quote below peers
Zensar is getting valued below the average valuations for mid-cap IT companies. In the section on peer comparison below, we have further split that mid-cap IT space into two parts: companies getting low valuation, and those fancied somewhat more in the market. There is a distinct difference in the valuation of companies in the two groups. Zensar seems to be getting clubbed amongst the lesser fancied midcaps. While the better valued peer group quotes at a trailing PE of 8.65, Zensar is quoting at a PE 4.21. As we have seen above, the strong financials and strengths in key business niches suggest there is no need for a valuation gap. Even if the gap is partially bridged, the stock offers a strong upside.

Risk factors
Higher contribution from single client
Zensar has high dependence on Cisco. This year, business from Cisco could suffer Zensar has around 31% of revenue coming from its largest client, CISCO, which it lists in its manufacturing vertical. This makes Zensar highly sensitive to performance of CISCO and its decisions regarding IT expenditure. With CISCO undergoing structural changes and facing budget cuts, Zensar may not witness major growth in this account in near future. But Zensar is now diversifying its business into various segments to mitigate dependence on Cisco. Zensar will also get help from cross-selling to Akibia clients which will again reduce this risk.

Currency Risk
While Zensar has managed currency well, current volatile financial markets pose a risk Revenues for Zensar are mostly in foreign currency, making Zensar highly sensitive to currency movements. Zensar is already looking to diversify its geographical client base in emerging countries and Asia pacific. It must also be pointed out that Zensar has managed forex risk well so far. While some other midcap peers gave nasty currency shocks around 2008/09, Zensar was not among these. 6

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Company Report: Zensar Technologies

23 Aug’11

Peer Benchmarking
The peer set: midcap IT companies
Zensar is squarely placed in the middle of the midcap IT universe by size With a market capitalisation of around Rs 5.55 bn, Zensar is a midcap IT company. The table below gives key headline data for the midcap IT space. As can be seen, sales, EBITDA and PAT for Zensar place it close to the midpoint of midcap IT universe. However, in terms of value ascribed to the business, whether via market cap or EV, Zensar falls considerably below peer averages. This is also evident from the last row of the table below, where we have given how Zensar compares against peer averages.
Market Cap
3i Infotech Geometric Infinite Infotech Ent KPIT Mastek Mindtree NIIT Polaris Rolta Sonata Subex Average Zensar 5,452 2,448 3,061 12,705 13,118 2,485 14,122 10,569 13,239 15,827 3,277 3,119 8,285 5,552

EV

Sales

Sales 3 yr CAGR
6% 2% 34% 16% 14% -13% 10% 12% 7% 13% -6% -6% 7% 12%

EBITDA

EBITDA 3 yr CAGR
8% 129% 59% 20% 10% -26% 20% 29% 10% -12% -4% 61% 25% 11%

PAT

PAT 3 yr CAGR
-2% `-ve 53% 28% 15% -31% 32% 30% 31% 12% 6% NA 17% 25% (Rs mn)

27,248 2,384 3,602 9,208 12,128 1,215 13,709 9,485 11,874 28,377 2,093 8,535 10,821 7,240

25,875 6,229 8,894 12,175 10,235 7,138 15,332 12,323 16,200 17,411 14,111 4,926 11,984 11,483

50,415 9,235 14,787 18,034 15,221 8,722 17,850 20,480 21,390 37,402 14,008 13,128 20,056 20,715

2,536 575 1,072 1,397 946 677 1,016 1,822 2,119 3,821 856 788 1,469 1,363

Comparing key P&L items
Note the CAGRs
3 year CAGRs for Zensar are above peer averages The key factor to note in the above table is the 3 year CAGR ratios for sales and net profit. On each of those counts, Zensar fares as much or better than peer averages.

Profitability: Sustainable strong profits
Profitability better than peer averages Zensar has been able to maintain good profitability across last few years. Its net margin has been around 12-13%. This is again in line with peer group average. For FY11 for example, the peer set has a net margin of 12.3%, as against 11.9% for Zensar. 7

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Company Report: Zensar Technologies
FY11 Margin (%) EBIDTA PAT 21.5 13.2 14.8 11.6 47.7 16.6 19.5 16.6 26.7 9.9 14.8 12.2 16.7 13.6 21.9 13.1 11.5 6.6 29.6 14.8 9.8 12.0 16.0 6.1 9.2 9.5 12.3 11.9

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Company Rolta Polaris Infotech Enterprise Mindtree KPIT NIIT 3i Infotech Infinite Subex Sonata Geometric Mastek Average Zensar

Balance sheet ratios
Much better on leverage
Debt Equity (x) Company Rolta Polaris Infotech Enterprise Mindtree KPIT NIIT 3i Infotech Infinite Subex Sonata Geometric Mastek Average Zensar FY10 0.8 0.3 -0.1 2.2 0.2 2.2 0.1 0.1 0.1 0.5 0.1 FY11 0.7 0.0 0.0 0.2 0.4 1.9 2.6 2.6 0.1 0.0 0.0 0.7 0.5 Interest Coverage (x) FY10 6.8 176.3 52.8 55.0 15.5 74.8 2.8 36.3 1.4 16.3 14.3 47.0 41.6 52.6 FY11 1.1 99.3 85.6 98.0 85.3 292.6 2.5 78.5 2.9 15.8 69.7 66.7 74.8 23.6

While large cap IT companies are sitting on cash hoards, midcap IT companies While Akibia deal has pushed up debt, have struggled with debt. Not so for Zensar. While it currently does not have a cash hoard due to the recent acquisition, its debt situation is at least far more in general Zensar Four-S Research 8

Company Report: Zensar Technologies
has maintained low net debt manageable compared to many of its better fancied midcap IT peers.

23 Aug’11

Among larger peers, 3i Infotech has a big mess on its balance sheet. Rolta’s debt-equity also generally has been larger than Zensar.

Better liquidity ratios
Current Ratio (x) Company Subex Sonata Infinite Mastek 3i Infotech NIIT Geometric KPIT Mindtree Polaris Infotech Enterprise Rolta Industry Average Zensar FY9 0.68 1.23 1.33 1.74 2.92 1.17 2.29 1.38 1.52 2.16 2.66 3.25 1.8 2.42 FY10 0.50 1.65 1.53 2.88 2.53 2.06 2.59 2.39 1.79 1.67 2.80 3.77 2.18 2.83 FY11 0.61 1.78 0.61 2.85 4.41 2.54 2.94 3.05 2.47 1.76 3.77 4.53 2.61 1.94 Cash Ratio (x) FY10 0.06 0.20 0.10 0.61 0.65 0.40 0.57 0.59 0.12 0.42 1.28 0.50 0.46 0.95 FY11 0.02 0.25 0.20 1.24 0.32 0.65 0.21 0.81 0.15 0.41 1.08 0.21 0.46 0.34

We can see Zensar maintaining historically better liquidity status compared to industry. Even with reduced liquidity due to Akibia acquisition, Zensar still manages to maintain stronger liquidity condition than most of its peers.

Comparing Peer Valuation
Dividing peer set into two parts
In the table below, we have divided midcap IT companies into two parts – those getting low valuations, and those getting somewhat better valuations. In the first lot are companies like Subex, Sonata, 3i, etc., and in the second lot are KPIT, Hexaware, Mindtree and so on.

Company

P/E

Valuation* EV/ EBIDTA 6.50 1.49 2.44 1.39

EV/Sales

CAGRs (FY’09 to FY11) Sales NP

D/E

Ratios ROCE

ROE

Less valued midcaps Subex 3.96 Sonata 3.83 Infinite 2.86 Mastek 3.67

1.77 0.15 0.41 0.17

-6.0% -6.0% 34.0% -13.0%

NA 6.0% 53.0% -31.0%

2.6 0.1 2.6 0.0

14% 24% 58% 11%

32% 22% 62% 12%

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Company Report: Zensar Technologies
3i Infotech 2.15 NIIT Tech 5.80 Geometric 4.26 Average 3.79 Higher valued midcaps KPIT 13.87 Mindtree 13.90 Polaris 6.25 Infotech 5.11 Enterprise Rolta 4.14 Average 8.65 Zensar 4.16
*based on latest financial year

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12% 30% 33% 26% 18% 15% 19% 13% 2% 25% 33% 22% 48% 29% 32% 31% 14% 22% 14% 22% 32% 34%

5.40 4.01 2.58 3.40 7.97 7.68 5.55 5.11 7.59 6.78 4.62

1.06 0.77 0.38 0.67 1.19 0.91 0.75 0.78 1.63 1.05 0.63

6.0% 12.0% 2.0% 4.1% 14.0% 10.0% 7.0% 16.0% 13.0% 12.0% 17.0%

-2.0% 30.0% NA 11.2% 15.0% 32.0% 31.0% 28.0% 12.0% 23.6% 25.0%

1.9 0.4 0.0 1.1 0.2 0.0 0.0 0.0 0.7 0.2 0.5

The low PE midcap companies
Low PE IT midcaps have low growth rates. Zensar is doing better Low PE IT midcaps also have poor balance sheets Let’s see the business ratios of the low PE set. As a group, their sales have grown at a CAGR of 4% over FY08-11, while their net profit has grown at 11% in the same time. In the lot, there are some companies specifically struggling with profitability. Mastek has made net losses in the last 3 quarters, and in two of these, it made an operating loss as well. Apart from differential growth rates, another key point to note is the vastly different D/E ratios for low PE versus high PE companies. In the low PE set, Subex, Infinite and 3i have D/E ratios around 2x or more. Couple of these companies have outstanding FCCBs which are unlikely to be converted into equity. These will need to be refinanced. In other words, the low PE set is getting low valuations since it is riddled with one or more issues: sub-par growth, high D/E, consequently low capital efficiency ratios. In the cases where D/E is more than 2x, there could be some minor liquidity concerns in the market. Besides issues with their P&Ls and balance sheets, we suspect the market may have issues with corporate governance levels in some of these companies. Governance quality questionable in some midcaps Take a company like 3i for example. This company did an IPO at a price of Rs 100 in April 2005. In more than 6 years of trading since then, the company has rarely quoted above its IPO price. It has done two dilutions at prices considerably below its IPO price. The company took a large Rs 2.8bn writeoff in FY10 for discontinuing operations of the kiosk business. Yet, there has been no change in management. This is a supposedly professionally run company, yet there seems to be little accountability. In a scenario like this, no wonder valuations have slid down.

The high PE midcap companies
High PE midcap companies have Four-S Research The P&L and balance sheet ratios are starkly different for high PE midcap IT companies. These have grown sales at a 3 year CAGR of 12% versus 4% for 10

Company Report: Zensar Technologies
better numbers

23 Aug’11

the low PE companies; these have grown net profit at a CAGR of about 24% versus 11% for low PE companies. More importantly, note the D/E ratio and the capital efficiency ratios. Half of the high PE companies are debt free, while none have a D/E ratio more than 1x. Not all is rosy and clean in this universe as well. There is stuff here which could make an institutional investor uncomfortable. For example, atleast a couple of the peers in this set both took large write-offs on forex derivates.

So where to place Zensar: with low PE or high PE companies?
The market is clubbing Zensar with low PE companies. Yet any performance comparison does not quite support this act of the market. The above table clearly shows Zensar’s performance ratios are more like the high PE set, as against the low PE set. Zensar’s numbers and management quality put it in high PE set Specifically, check this:     Zensar has grown at a sales and net profit CAGR more in line with the high PE set. Zensar has generally maintained low D/E. The acquisition of Akibia raised D/E to 0.5x, still it is distinctly different from the low PE set. Capital efficiency is among the best in the midcap IT universe. Zensar has managed its forex exposure well, it has not had to take a write-off.

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Company Report: Zensar Technologies

23 Aug’11

Valuation and Price Target
Deserves to be rated with the high PE set
We think the market should assign valuation more in line with the high PE set to Zensar. As explained above, this assertion is based on Zensar’s better financials; its increasing robust business model where it is now amongst the top players in India in Oracle and infrastructure management; and its likely growth momentum over the next two years.

Price Target
Zensar should hit a price of Rs 250 by March 2013. We expect it to rerate towards valuations of better IT midcaps The average discount the better performing set is getting is a PE of just less than 9x based on historical values. Assigning a 15% growth rate to this set, the expected FY13 PE comes to about 6.5x. While we believe that Zensar should quote at parity, let’s assume a discount of 25% to this value which means a forward PE of about 5.2x FY13 numbers. Based on expected earnings per share of Rs 44 for FY13, this leads us to an expected share price of Rs 230 for March 2013.

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Company Report: Zensar Technologies

23 Aug’11

Zensar’s Business
Getting a grip on Zensar’s business model
Valuation suggest market negative on Zensar’s fundamentals The market discounting for Zensar’s business model would seem to imply that it is a totally commodity business model, perennially working under severe price pressure; or the business is already past the maturity phase, into what you may call in standard business cycle terms – the ‘decline phase’. Let’s first see the key points on the business model here which we think are perhaps influencing investor view on Zensar:   There is no differentiator – Zensar’s business is commodity Is this a ‘declining’ business

Zensar’s business more commodity than an average IT company?
There is a lot of commodity element to Indian IT companies – whether it is Zensar, or TCS of Infosys, there is no denying that. A SAP implementation project, or a legacy maintenance project, could be done equally well by a two dozen or more companies in India. While large IT companies may get the benefit of size and superior brand, midcap IT companies don’t have this luxury. Product companies, like Oracle Financial Services, are an exception. Midcap IT companies realise the need to differentiate in order to create niches for themselves where they can compete effectively, and enjoy good business economics. The typical ways are: pick one or more technology service lines, or verticals or geographies to build relative advantage. Some others have tried to enter product business, sometimes by acquisition. Market seems unaware of Zensar’s areas of strength Zensar is no different; the management is focussed on the need to build segments of relative strength. Some areas where Zensar stands out:  Its Oracle practice: Zensar has among the best practices in Oracle related projects in mid-cap IT. Zensar has 1,300+ people in its Oracle practice, has completed 500+ client engagements over the last decade. Zensar had bolstered this practice in 2007, with the acquisition of Thought Digital. Strong traction in South Africa: Zensar has already built a good presence in South Africa. It has acquired some fairly large customers there, for example, 3 of the top 5 insurance companies. Infrastructure Management: The acquisition of Akibia has completely altered Zensar’s position in this business. With an annual revenue rate of well over Rs 4.5bn from just this business, Zensar has a superior offering to most midcaps in IM.

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Company Report: Zensar Technologies
Is it in the numbers? Zensar’s superior margins suggest the business is better than what the market thinks

23 Aug’11

Whatever be the story, an analyst will ultimately seek evidence in the numbers. So, for a mid-cap IT company, what number can show something about how commoditised the business is? EBITDA margin is one relevant number to look at. If the business has no differentiator, EBITDA margin should compare poorly to peers. For Zensar, as we have noted earlier, this is not the case. While there are companies like Sonata, Mastek and Mindtree which have EBITDA margin in the 10-15% range, Zensar has an EBITDA margin of 13.6% in FY11. Zensar has increased its operating margin from 12-13% levels in FY07 and FY08, to around 18% levels in FY10 and FY11, signifying increasing value add in the business mix.

Is Zensar’s business a ‘declining’ business?
While organic growth is in single digits, smart acquisitions have allowed double digit topline CAGR The first step to answer this would be to look at past growth rates – for the sector, and the company. Net sales have grown at a CAGR of 17% over FY07-11. While some of the growth has come through acquisitions, the expanding operating margins, years of positive cash flow and manageable debt show the business is enhancing value. While organic growth rates have fallen into single digits currently, this is more a result of global growth slowdown. In other words, slower IT sector growth rates are have a large cyclical component.. But is de-growth imminent? Market has fears that small IT firms will start to degrow. So far no signs of this IT services sector as a while continues to grow, and no one is questioning the future of India’s IT services business as a whole. The issue here is – do midcap IT companies have a role anymore, or is it a game only for the big boys? We believe this is the crux of the issue. The market has somewhere taken the view that midcap IT companies will not be able to compete in the future, and within midcap IT, Zensar is particularly exposed. But is this assertion true, and if so, how exactly will it play out? Let’s see on the second part – how exactly will a de-growth play out. The typical mode for degrowth would be – the overall market shrinks, so some players have to drop out. Large IT firms are looking for larger clients. SME market open for midcap IT Here this is not exactly the case. The overall IT services market is still projected to grow. So what the stock market is saying this – large IT companies are used to growing at 30% plus, if the overall market growth rate slows down to 10-15%, they will eat up the small companies to maintain their own growth rates at 20-30%. While this may very well happen, but current evidence does not point to that. Four-S Research 14

Company Report: Zensar Technologies

23 Aug’11

Large IT companies are trying to go up the chain, not come down the chain. They are trying to do things like: become consulting led, take over the entire IT organisation of large clients, etc. So the large IT companies are not yet competing with small IT companies for the same client. Any relevant number for this? Number of active clients continues to increase. This is evidence degrowth fears are overblown We think the correct numbers to check this would be things like total active clients, and average business/client. When these numbers start showing a declining trend, then certainly fears on the future of midcap IT would rise. Zensar has increased its total client base from 200 at the end of FY07 to about 400+ by the end of FY11.

In sum – numbers don’t support stock market perception
On both counts – the commodity nature of business, or risk of degrowth – we find the market’s fear overblown. Zensar’s margins are pretty good. And the next two years it is set to grow. The risk of a new US slowdown is certainly there, but that affects the entire Indian export sector, not just Zensar, or India IT services industry. Notwithstanding the US recession threat, Zensar at the end of FY11 is actually strongly positioned for growth. In the next section, we see how.

Positioned for growth with an increasing robust business model
Zensar has biffed up its business model The Zensar management implemented two big developments at the end of FY11 which should help drive growth over FY11-13. These are:   The Akibia acquisition Re-structuring the business into 5 verticals

Let’s look at how these two drive growth and make the business model more robust.

The Akibia deal – a game changer
In November 2010, Zensar made a big move in the rapidly expanding Infrastructure Management and Information Security segment by acquiring Akibia Inc. With a turnover in excess of $100mn, this not only adds significant turnover to Zensar’s topline, it will also add to Zensar's addressable market and growth potential. Akibia deal transforms Zensar’s position in the IM space With this acquisition, Zensar will expand its potential market and growth opportunity in not only infrastructure segment but will help in providing mission critical solution. This acquisition helps Zensar to use combined and integrated services to cross sell among existing client base. Akibia will help expand Zensar’s customer base and will provide global operational scale and opportunity to enter new geographies and market more efficiently. It added a team of 350 professionals with 2 delivery centres in US and Europe. This enhanced capability will help Zensar bid for multi-million dollar projects which involve multiple service lines. Four-S Research 15

Company Report: Zensar Technologies

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About Akibia Akibia is a US based firm, founded in 1988. It provides infrastructure management services to companies worldwide to help them optimise, manage and support their infrastructure. It has more than 900 customers. Akibia helps its clients to improve the availability, reliability and performance of their data centre, network and security infrastructure. With its expert consulting Akibia helps IT organizations reduce costs, increase efficiencies and manage risk in the data center. The Akibia Impact There are several ways this deal will impact Zensar’s numbers: FY12 will see full reflection of Akibia revenues  Immediate topline impact: In FY11, the Akibia numbers formed part of the topline only for Q4. FY12 will see the full integration of Akibia numbers with Zensar. This itself will lead to a growth of over Rs 3.5bn in topline for FY12. Gives a big push in the important IM space: IM, or specifically, remote IM (RIM) is among the fastest growing IT sub-segments. IM is a large $370bn market, of which remote IM is about $95-108bn. India is rapidly gaining traction in the RIM market. Offshoring to India is growing at above 20%, according to Gartner. Before the acquisition, Zensar’s presence in this space was small, though growing rapidly. By 2010, this business was 4 year old at Zensar, with 50+ clients, serviced by 402 associates and growing at over 50%. Akibia had a client history of about 900 clients at the time of acquisition, and 325 employees. With a revenue run rate of about $108mn, this has added to Zensar’s capabilities immensely. Also, 70% of this revenue is recurring, giving high revenue visibility. The Akibia acquisition puts Zensar among the top 10 players in IM space in India.  Cross selling opportunities: Akibia has a large client base of leading global companies. Zensar sees significant cross selling opportunities in this deal. For example, a large investment bank is a customer of Zensar in Asia and Akibia in the US. So Zensar can sell Akibia to this bank in Asia, while in the US, it can hope to make inroads with the help of Akibia. The banking vertical itself is expecting almost 70% of their growth in the next 1-2 years to come by cross-selling. Geographical expansion of Akibia’s lines is another way to benefit from the acquisition.

Will lift overall organic growth

Zensar is now among top 10 players in IM in India

Cross selling opportunities exist

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Company Report: Zensar Technologies

23 Aug’11

Verticalisation: More focus, more expertise, deeper relationships Verticalisation: a need of the hour The IT market place is changing from technology support to solution selling. IT service companies are moving away ahead from mere application development and outsourcing to be a transformation agent for their customers. With a well rounded capability set in service offerings, growing share of enterprise revenues, Zensar felt it was ready to into business solution selling mode. Recognising this trend, Zensar has restructured as of FY11 into 5 focus verticals: BFS, manufacturing, retail, insurance, connected services. Verticalisation of the business will help Zensar use its deep industry knowledge and technology expertise to cater more effectively to customers’ requirements. Zensar is also looking to push further its consultant-based model which integrates consulting with business solution development. It is building a strong consultant team with extensive experience in different verticals like banking, retail, insurance, etc, they will consult Zensar customers to help them achieve their business goals with Zensar solutions. Below we take a look at the key verticals.

Vertical

Manufacturing: Among top IT spenders
Zensar has strong presence in the manufacturing sector which is one the top IT spending sectors globally. The manufacturing sector constitutes 39% of top line for Zensar making it the most important vertical for Zensar.

Largest revenue contributing segment

Zensar’s expertise lies in discrete manufacturing which constitutes more than 60% of overall manufacturing companies IT spend. Working as a catalyst with global manufacturing companies, Zensar is helping clients to maintain competitive edge with the help of various enterprise class solution core to manufacturing and supply chain. Zensar has been able to gain substantial market in various attractive subsegments like consumer products, Hi tech, Industrial among others while looking very aggressively to increase share in other appealing segments like aerospace & defence and automotive. Zensar has been providing various services like IM, EBS & mobility AMS & Web 2.0, BPO successfully with strong technology capability in Oracle, MS dynamics, SAP, etc. Almost 80% of manufacturing revenue coming from single customer i.e. CISCO, is a potential risk factor, which can put manufacturing vertical revenues in a tight situation whenever CISCO puts constraints on its IT plans. This is visible in FY12, where revenue contribution from CISCO business could stay flat or come down. The manufacturing vertical is looking forward to reduce this dependency on single client by expanding non CISCO accounts to mitigate this risk. The aim is to grow non CISCO manufacturing accounts by 20-25% in first year with similar or better prospects in next two years. Most of this growth (~75%) is expected from new accounts which are anticipated with verticalisation strategy and Akibia cross-selling.

Major Clients: CISCO, Trimble, SDS, NCR, Netgear, Activision, Fujitsu

20-25% growth in non-CISCO accounts expected.

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Company Report: Zensar Technologies
Looking for acquisition in US and India

23 Aug’11

Engineering and PLM is one gap in Zensar’s ability to cater to the manufacturing vertical. Zensar aims to plug this gap through an acquisition in US/Europe in the medium term. Zensar has also developed their own IP like Autozenics and NExchange along with other IP in areas of traceability, quality and PLM, SCM. This showcases Zensar’s belief on creating own IP and flourishing innovation within organisation. Company has high hopes from the Autozenics product, which is a Microsoft dynamics solution for SME in auto cluster.

Developing IP like Autozenics

Vertical

Banking and Financial Services
BFS, along with insurance, constitutes 18% of total Zensar revenue in FY’11 with BFS itself touching $45mn making it second largest vertical within Zensar. Zensar has core competence in BFS sector due to rich industry experience and technology expertise with good understanding of domain, process and technology.

Business Lines Contribution
42% 26% 18% 14%

Service Lines Contribution
58% 22% 12% 8% Others

Run The Bank RTB

Investment Banks

Expecting rise in top line by crossselling with Akibia customers

Zensar provides range of services in this sector from implementation to consulting, process outsourcing, maintenance, infrastructure and testing across various sub-sectors like Retail Banking, Private Banking & Wealth Management, Capital Markets, Compliance & Risk Management. The Company is looking to grow in this segment at the rate of 20-25% in next 2 years with the help of existing strong clientele base such as UBS, Credit Suisse, CLSA and KBW.

Aims to break into Fintech Top 100 in 2 years

Zensar plans to break into Fintech Top 100 within next two years. For this, Zensar will need to hike revenue from BFS vertical to around US$55-60mn revenue from existing US$45mn in FY11. Zensar plans to achieve this growth by establishing a centre of excellence to build frameworks and IP for various sub-sectors like investment banking. While Zensar is not doing much in retail or commercial banks, it has decent expertise with investment banks. Most of the projects in this vertical are of the type of Run The Bank service which mainly deals with maintenance and

Four-S Research

Application Dev

Private Banking

Asset Management

Testing

Others

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Company Report: Zensar Technologies
support projects which give Zensar assured annuity business.

23 Aug’11

The vertical expects strong cross selling opportunities with Akibia

Till now Banking and Financial services vertical was more focused on emerging market with 90% business coming from this market. Zensar is aware of the need to derisk geographically; accordingly the vertical would devote more attention to revenues from developed markets. This will also help Zensar to push up margins from banking vertical. The BFSI vertical has strong opportunity of cross-selling their services to Akibia clients with as many as 23 unique banking and financial services clients in Akibia’s portfolio.

Vertical
Zensar has a built good expertise in insurance vertical

Insurance
The insurance vertical predates the current round of organisation wide verticalisation. Zensar had created this vertical in 2008, recognising the need to give specific focus to this. A result of this early start is that the vertical team believes it has the domain expertise now to target top 5 players in each geography – the Americas, Europe, South Africa, APAC. As the leading insurance companies, who were early IT adopters and are now stuck with legacy systems, try to transfer to the latest technology, Zensar hopes to benefit. It has already executed large projects successfully in South Africa among other projects.

Account share (%)
1% 1% 9% 13% 14% 60% 1% 1% Assurant Silice Liberty Life Prudential Discovery Holdings RMA Stanlib Mutual & Federal 14% 24%

Line of Business

Health Life & Annuities Mutual Funds Short term & Speciality

40%

22%

The insurance vertical currently has a high US tilt, due to business from its top client Assurant contributing 60% of vertical revenue. 3 of the top 5 companies in South Africa are clients Zensar is now looking to expand their geographical reach by targeting Europe, South Africa and other geographies like Australia, India, etc. Zensar has already bagged South Africa’s 3 of top 5 Insurance companies and the top organisation in India. With this, Zensar has become South Africa’s biggest Indian IT vendor. 19

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Company Report: Zensar Technologies

23 Aug’11

Zensar has strong strategic plans to build up this segment by targeting top 5 organisations in all major geographies with major focus on life, health and P&C. Zensar has strong presence in health insurance segment with majority clients coming from that area. Now Zensar is looking to build pipeline in life and annuities for Europe region while looking to maintain stronghold in health segment in US region and focusing on P&C segment in US, Europe and South Africa region. With 6 insurance clients in Akibia’s portfolio, Akibia- Zensar cross-selling opportunities also look good. This alone can drive add almost 10% growth to the vertical revenues. With strong visible pipeline, the Insurance vertical is expected to grow at a growth rate of 25-30% for the next two years. Strong growth is envisioned in US and UK region while Zensar is looking to double top line from Australia region which currently has very low base though. Zensar is also working on developing IP in this segment with focus on Multichannel Platform for Insurance, Readily deployable SOA components and Compliance enabled Testing framework. The vertical is looking to add almost 15% of revenue from IP sales in next two years.

Vertical

Retail: a $146bn IT market
Zensar has very positive outlook towards retail vertical which was a $146bn market opportunity in year 2010 with speciality and grocery segment constituting almost 60% of market. With strong relation with European market which makes ~60% of total revenue, Zensar is looking to capture much bigger pie in this segment by expanding in other territories. Zensar is keeping focus on mid size segment and aggressively pursuing opportunity in their strong domains like Speciality, Groceries and Department providing their expertise services like BI & analytics, AMS & Web 2.0, IM, and Package solutions. Zensar is already scouting different regions to diversify geographical reach within the retail sector by reaching out to other markets. For example, it is targeting US which is driven by its current e-retailing trend to capture more and more clients based on its expertise in this domain. Zensar is also spreading its client base in emerging markets like middle east region and garnering few more clients in Australia again with recent success of opening account for web retailing. Zensar has developed a clear cut strategy to be among top 3 service providers in non-US markets such as Europe, ME, South Africa, India, among others, which will act as a charge for retail vertical growth. The main enabler for this would be the strong Oracle capabilities Zensar has developed. Close to 90% of its current business is Oracle oriented. Zensar is also witnessing good demand for its SAP offering with good traction from US market. With this strong pipeline, retail vertical is also looking to expand its offshore developing center strength. Zensar has developed its own IP in this segment like Multi

Providing entire gamut of services from professional advisory to IT strategy, BI and retail specific solution.

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Company Report: Zensar Technologies
channel, SmartShop, ZRMS and Batch Scheduler.

23 Aug’11

Zensar boasts of strong clientele in this space like Carrefour, NAAFI, Wet Seal, Acosta etc. Zensar has rolled out its SmartShop solution as of now only in India and company is experience positive response from the market. With further development and refinement Zensar looks to ring out this offering in other markets which will add up Zensar revenue from its IP products.

Vertical

Connected Services: Utilities, Healthcare & Government
Connected services can be considered as incubator vertical for emerging or growing verticals within Zensar. The three emerging verticals currently housed here are healthcare, utilities and government. Within healthcare, Zensar is focussed on healthcare providers like hospitals and path labs, in the US geography. Whereas US healthcare market is showing high prospects with US$8-10bn per annum spend expected from healthcare providers till FY2015.

The switch to ICD10 presents a big opportunity in healthcare space

The driver is the regulation driven Y2K like opportunity, the ICD-10 remediation. The US healthcare industry needs to transition to ICD-10 by 1 October 2013. By this date, ICD-10 codes must be used on all Health Insurance Portability and Accountability Act (HIPAA) transactions, including outpatient claims with dates of service, and inpatient claims with dates of discharge Zensar is looking to build domain capability in healthcare through partnerships and to drive POC for new service areas. For Utilities, it wants to focus on US and Europe. The areas of focus are smart grid and smart metering. IM solutions could also help get business here. Zensar has strong 15 years hands on domain expertise in Utilities practices which Zensar is looking to leverage to garner more similar projects In the Government vertical, Zensar is still finding its feet in the Indian marketplace. Here the market already crowded with several other firms, Zensar needs to find its niche here. The company is developing low delivery cost model which is very vital to gain government projects where customers are like state govt, municipal corps and defence.

Revenue Mix: A diversified sales mix
Zensar’s revenues are distributed across verticals. Manufacturing contributes around 39% to Zensar’s top line. BFSI and retail are other major vertical for Zensar contributing 18% and 8%, respectively, for FY11.

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Company Report: Zensar Technologies
Revenue Mix

23 Aug’11

Revenue By Industry 2011
Manufacturing & Telecom Retail 28% 39% BFSI 2% 5% 18% 8% Pharma, Textiles & Utilities Media Others

Revenue By Industry 2010
Manufacturing & Telecom Retail 15% 11% 20% 9% 45% BFSI Pharma, Textiles & Utilities Media Others

Zensar is focused on diversifying its business mix across verticals which can be seen in the trends for last few years. With decreasing dependency in manufacturing & telecom sector from 45% in 2010 to 39% in FY11 and 20% of BFSI in FY10 to 18% in FY11 Zensar’s deliberate efforts to expand their horizon and to capture opportunities in other verticals are very much evident. Global scale of operations Zensar derives its revenues across the globe with sales and operational presence in more than 11 countries including US, UK, Germany, Sweden, Finland, Middle East, South Africa, Singapore, Australia, Japan and Poland. Geographical diversification plan in place The share of the US market in total revenues went up in FY11, 64% from 60% in FY 10. This was mainly due to the Akibia acquisition, and the impact of its sales mix. In fact share of the US market was around 50% of revenues in FY07 and FY08. The increase in share of the US market has gone hand in hand with increasing EBITDA margins, indicating the lucrativeness of that market. Zensar is now looking to expand its offerings to other emerging market such as China, India, Middle east and SAARC countries. This is evident with setting up of a delivery center in China and upcoming regional delivery center in Jordan.

US contributing 64% of revenue.

Geographical Revenue Break up FY11

23% USA 13% 64% Europe Rest of the World

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Company Report: Zensar Technologies
Historical Geographical Revenue Break
12000 10000

23 Aug’11

Focus on seeking growth in new markets.

8000 6000 4000 2000 0 FY'07 FY'08 FY'09 FY'10 FY'11 Rest of the World Europe USA

Rs in mn

Hedging Territory Risk

Zensar’s pursuit to hedge the geographical risk is also evident with new emerging territories like South Africa which is one of the fastest growing territories for Zensar. Zensar has also managed to garner faster growth in the Middle East. Company is also looking to invest heavily in India and China to build presence.

Strong & diversified client base
Zensar has been trying to reduce dependence on Cisco The company caters to clients all over the world providing end to end services to their clients. Zensar boosts strong client base of more than 300 customers, including several Fortune 500 companies. Top 5 clients accounted for 46% of FY11 revenue whereas top 10 clients accounted for 54% of revenue.

Revenue Top Client wise
Top 10 client Top 5 client

FY'10 54% FY'11 46% 54%

64%

Zensar boasts diversified client portfolio with clients from various verticals. Some sample clients: banking vertical has Credit Suisse, UBS, KBW; retail has M&S and Carrefour; manufacturing and media like CISCO, Activision, Fujitsu; insurance has clients like Assurant, Investsec, AXA, Prudential; and connected services has clients like National Grid and Morrison. Chart 3: Client Concentration
Client Concentration Top 5 client Top 10 client FY'07 55% 69% FY'08 43% 51% FY'09 44% 52% FY'10 49% 60% FY'11 46% 54%

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Company Report: Zensar Technologies

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Financial Analysis and Growth Outlook
26% CAGR for revenue expected during FY’11-13
4 year revenue CAGR is 17%, 3 year growth is 12% The Company’s net revenues grew at a CAGR of 17% over FY’07-’11 to Rs 11.4bn from Rs 6bn in FY07. The 3 year revenue CAGR is 12% as presented earlier. Revenue Growth
12,000 10,000 8,000 6,000 4,000 2,000 2007 2008 2009 2010 2011 Other Income Revenue from Operations

Rs in mn

Over FY11-13, Zensar will grow faster than in FY08-11

The top line however is expected to grow at CAGR of 26% over FY’11-13 on the back of current acquisition of Akibia, which will add an incremental Rs 3.5bn to Zensar’s top line for FY12. Further organic and inorganic growth is expected to boost revenue of Zensar to reach Rs 19bn by FY13. Revenues Growth
18000 16000

Growth driven by Akibia acquisition and inorganic growth

14000 12000 10000 8000 6000 4000 2000 0 FY'09 FY'10 FY'11 FY'12E FY'13E

Rs in mn

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Company Report: Zensar Technologies
Segment Performance
Zensar divides business into 2 key parts: GTS and EAS

23 Aug’11

GTS (Global Transformation Services) and EAS (Enterprise Application Services) are the major service offerings from Zensar which constitute 65% and 24% of revenue to Zensar, respectively. Data Centre, Network & Security Services (PSI Holdings) segment is also making headway in Zensar with ~11% revenue contribution from it in FY11 top line.

Segment-wise Revenue Break-Up
GTS and EAS constitute major portion of Zensar’s revenue.
8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 FY'07 FY'08 FY'09 FY'10 FY'11 Global Transformation Services (GTS) Enterprise Application Services (EAS) Data Centre, Network & Security Services (PSI Holdings)

Rs in mn

Strong Growth seen in GTS segment

Global Transformation Services (GTS) GTS segment grew at a 4-year CAGR of 14% to Rs 7,433mn in FY’11 from Rs 4,358mn in FY’07. This is mostly organic growth, since the acquisitions Zensar has done do not lie in this space. This is also the most profitable segment for Zensar. Global Transformation Services (GTS)
80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 FY'07 FY'08 FY'09 FY'10 FY'11

Rs in mn

Enterprise Application Services (EAS) Enterprise Application Services (EAS) segment grew at a 3-year CAGR of 13% to Rs 2,757mn from revenue of Rs 1,700mn in FY 07.

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Company Report: Zensar Technologies
Margins expected to improve after initial dip
Margins may dip this year due to Akibia acquisition and global turmoil

23 Aug’11

Zensar has managed to increase EBITDA at the impressive CAGR of 19% from FY08 to FY11. Zensar has shown strong financial discipline and bottom line focus by maintaining EBITDA margin above 13% in FY11 reaching as high as 17.8% in FY 10 from 12% in FY 08. This growth in EBITDA margin is mainly due to improved contribution from higher margin GTS services which has better margins compared to other services. Acquisition of Akibia will ring in more revenue from Data Centre, Network & Security Services which may bring pressure on Zensar’s margins for short term. But further improvement in margins is expected in longer run as company strives to enter other profitable services and verticals. Consistently strong EBITDA performance

EBITDA
1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2008 2009 EBITDA 2010 EBITDA margin 2011 20% 16% 12% 8% 4% 0%

Zensar showcased strong EBITDA growth of 19% CAGR in last five years. Even better growth expected in near future.

Rs in mn

Zensar net profit has grown at CAGR of 28% in last 3 years expanding net profit from Rs 640mn in FY08 to Rs 1340mn in FY11. Zensar has improved these net profit figures while keeping focus on net margin maintaining strong net margin of around 12% in FY11. Net profit is expected to show a CAGR of 23% growth over the next two years. This is mainly resulting due to expanding top line and improvement in margins too.

NET PROFIT
1500 15% 10% 5% 0% 2008 2009 Reported net profit 2010 Net margin 2011

Zensar net profit has grown at CAGR of 28% in last 3 years

1000 500 0

Rs in mn

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Company Report: Zensar Technologies

23 Aug’11

Financial Annexure Profit & Loss Statement
Income Statement Revenue from Operations Employee Cost Other Operating Expenses Sales, Admin & General Expenses Miscellaneous Expenses Total Expenses EBITDA Depreciation EBIT Other Income Interest and Finance Charges Profit before tax and Exceptional Items Exceptional Items Profit before tax Tax Profit after tax before minority interest Minorities Interest and others Reported net profit FY'07 6,059 3,995 525 680 29 5,230 828 0 828 90 21 897 0 897 162 736 4.54 731 FY'08 7,829 5,401 581 887 35 6,904 925 1,735 751 122 59 814 0 814 169 645 4.71 640 FY'09 9,081 6,133 614 1,034 42 7,822 1,259 2,427 1,016 141 39 1,118 0 1,118 256 863 (3.00) 866 FY'10 9,528 6,212 567 1,000 49 7,828 1,700 2,635 1,436 83 27 1,492 0 1,492 219 1,273 1,273 FY'11 11,383 7,416 668 1,596 152 9,833 1,550 2,942 1,256 284 39 1,501 0 1,501 184 1,317 1,317 FY'12E 15,607 10,712 1059 1,873 74 13,718 1,889 3,549 1,534 256 86 1,704 1,704 341 1,363 1,363 FY'13E 17,820 11,974 1209 1,960 85 15,228 2,592 3,549 2,237 292 86 2,444 2,444 529 1,914 1,914
(Rs mn)

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Company Report: Zensar Technologies

23 Aug’11

Balance Sheet
Balance Sheet Shareholder's Equity Share Capital Reserves and Surplus ESOPs Total equity capital Liabilities Secured Loans Unsecured Loans Minority Interest Deferred Tax Liability Total Liabilities and Owner's Equity Assets Goodwill on consolidation Gross Block Less: Depreciation Net Fixed Assets Capital Work in Progress Investments Current Assets Inventory Debtors Cash and Bank Balance Other Current Assets Loans and Advances Total Current Assets Current Liabilities Provision Total Current Liabilities Net Current Assets Deferred Tax Asset Total Assets FY'07 239 2,138 2,377 885 1 5 3,267 563 542 21 128 204 FY'08 240 2,600 2,840 639 7 8 3,486 2,317 702 1,615 295 160 FY'09 240 2,346 2,586 757 3 5 3,351 2,019 904 1,115 59 237 FY'10 216 3,081 3,297 447 2 3,745 2,128 1,106 1,022 14 151 FY'11 433 4,027 4,460 2,363 16 6,839 5,480 2,007 3,473 52 256 FY'12E 433 5,386 5,819 2,363 8,182 5,489 2,367 3,122 70 309 FY'13E 433 7,231 7,664 2,363 10,027 5,489 2,722 2,767 100 400

1,304 448 297 2,049 1,047 102 1,149 899 45 1,297

1,443 376 379 2,198 1,063 116 1,179 1,019 48 3,136

1,333 811 535 526 3,205 1,046 281 1,327 1,878 63 3,351

1,426 1,300 439 726 3,891 1,016 357 1,373 2,518 40 3,745

836 2,295 1,100 536 1,445 6,211 2,970 411 3,380 2,831 227 6,839

836 2,471 1,368 726 1,441 6,841 18,523 5,799 24,322 44,091 272 8,182

836 2,821 3,199 925 1,536 9,316 21,150 7,107 28,257 64,910 270 10,028
(Rs mn)

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Company Report: Zensar Technologies

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Cash Flow Statement
Cash Flows Net Profit/(Loss) before Tax Depreciation Dividend Income Interest Expense Loss / (Profit) on Sale of Investments (net) Interest Income Loss / (Profit) on Sale of Fixed Assets (net) Operating Cashflow before Wcap Sundry Debtors Inventories Other Current Assets Loans and Advances Current Liabilities and Provisions Cash Generated from Operations Direct Taxes Paid Operating Cashflow- A Cash Flow from Investing Activities Purchase of Fixed Assets including CWIP Purchase of business Sale Proceeds of Fixed Assets Purchase of Investments in Mutual Funds Sale Proceeds of Investments in Mutual Funds Interest Income Dividend Income Cash from Investing activities- B Cash Flow from Financing Activities Shares bought back Shares allotted under ESOP Secured Loans taken / (repaid) Interest Payment Dividend on Equity Shares and tax thereon Proceeds from issuance of Share Capital on exercise of stock options Cash from Financing activities- C Change in Cash= A+B+C Group, Inc. as on the 1st January, 2011 Opening Balance Closing Balance FY'07 745 153 (12) 21 (0) (19) (2) 886 (474) (86) (70) 332 588 (163) 425 (1,205) 3 (1,138) 1,070 19 12 (1,239) 734 (21) (69) FY'08 814 174 (9) 59 (0) (10) 0 1,028 (121) (69) (40) 4 802 (178) 624 (351) (28) 9 (999) 1,044 10 9 (306) (237) (59) (98) FY'09 1,118 243 (13) 39 (1) (10) (0) 1,375 144 (153) (52) 147 1,461 (411) 1,049 (678) 125 (3,107) 3,030 10 13 (605) 137 (39) (107) FY'10 1,492 263 (15) 27 (0) (12) 1 1,756 (104) 93 1 (37) 1,708 (313) 1,395 (158) 1 (3,416) 3,502 12 15 (44) (400) 5 (314) (27) (126) FY'11 1,501 294 (9) 39 (15) (0) 1,802 (123) (43) (78) 77 560 2,194 (788) 1,406 (273) (3,054) 1 (2,608) 2,512 12 9 (3,401) 11 1,916 (30) (138) FY'12E 1,704 355 (12) 86 (13) 2,119 (176) (191) (4) (948) 801 (341) 459 43 43 (30) (154) FY'13E 2,444 355 (12) 86 (12) 2,860 (350) (199) (95) 393 2,610 (529) 2,080 70 70 (30) (218)

5 700 (114) 562 448

3 (391) (72) 448 376

(8) 435 376 811

(863) 488 811 1,300

1,759 (236) 36 1,300 1,100

(51) (234) 268 1,100 1,368

(72) (319) 1,831 1,368 3,199
(Rs mn)

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Company Report: Zensar Technologies

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Ratios
Ratios Per share numbers (Rs) EPS CEPS DPS Profitability Ratios EBITDA margin Pretax margin Net margin ROE ROCE Growth Ratios Revenue growth EBITDA growth Net profit growth Activity/Turnover Ratios (x) Asset turnover Working Cap turnover Debtors turnover Debtor Days Payables turnover Payables Days Liquidity Ratios (x) Current Ratio Cash Ratio Solvency Ratios (x) Debt Equity Leverage Ratio Net Debt / EBITDA Interest Coverage FY'08 26.72 26.06 3.80 FY'09 36.12 43.78 4.50 FY'10 58.98 64.65 5.50 FY'11 30.37 32.41 3.49 FY'12E 31.4 10.6 4.5 FY'13E 44.1 48.0 5.3

11.8% 10.4% 8.2% 24.5% 22.3%

13.9% 12.3% 9.5% 31.9% 29.8%

17.8% 15.7% 13.4% 43.3% 40.5%

13.6% 13.2% 11.6% 34.0% 23.8%

12.1% 10.9% 8.7% 26.5% 20.4%

14.5% 13.7% 10.7% 28.4% 24.6%

29.2% 11.7% -9.2%

16.0% 36.1% 37.3%

4.9% 35.0% 33.4%

19.5% -8.8% 3.5%

37.1% 21.8% 3.4%

14.2% 37.2% 40.5%

3.5 8.2 5.7 64 7 49

4.2 6.3 6.5 56 9 42

4.3 4.3 6.9 53 9 39

3.9 4.3 6.1 60 6 64

3.4 4.3 6.5 56 6 56

2.8 3.3 6.7 54 9 41

1.9 0.3

2.4 0.6

2.8 0.9

1.8 0.3

2.8 0.6

3.3 1.1

0.2 1.1 0.3 12.7

0.3 1.3 0.0 26.2

0.1 1.1 -0.5 52.6

0.5 1.5 0.8 32.5

0.4 1.4 0.5 17.9

0.3 1.3 -0.3 26.1

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Company Report: Zensar Technologies

23 Aug’11

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