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Aptech Limited

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)

Fundamental Grade
CRISIL’s Fundamental Grade represents an overall assessment of the fundamentals of the company graded in relation to other listed equity securities in India. The grade facilitates easy comparison of fundamentals between companies, irrespective of the size or the industry they operate in. The grading factors in the following: Business Prospects: Business prospects factors in Industry prospects and company’s future financial performance Management Evaluation: Factors such as track record of the management, strategy are taken into consideration Corporate Governance: Assessment of adequacy of corporate governance structure and disclosure norms The grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) CRISIL Fundamental Grade 5/5 4/5 3/5 2/5 1/5 Assessment Excellent fundamentals Superior fundamentals Good fundamentals Moderate fundamentals Poor fundamentals

Valuation Grade
CRISIL’s Valuation Grade represents an assessment of the potential value in the company stock for an equity investor over a 12 month period. The 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 Valuation Grade 5/5 4/5 3/5 2/5 1/5 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.

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

This Company-commissioned Report (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 are 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 assumes 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 authorized 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.

Independent Research Report – Aptech Limited
In search of China II Industry: Education Date: 21 September 2010 CFV matrix
Excellent Fundamentals

Fundamental Grade

Aptech Limited (Aptech) is a career education company in the vocational training segment. It is focused on the training needs of individuals and institutions. It has seven retail brands and one institutional brand and is present in about 40 countries. We assign Aptech a fundamental grade of ‘3/5’, indicating that its fundamentals are ‘good’ relative to other listed securities in India. We assign a valuation grade of ‘5/5’, indicating that the market price has ‘ strong upside’ from the current levels. Leadership in high-growth multimedia and animation training CRISIL Equities expects the retail training segment (more than 80% of Q1FY11 revenues) to continue to drive growth for Aptech. To balance its no. 2 position in the Indian IT training market, Aptech has targeted the multimedia, gaming and animation training segment. Aptech strengthened its position in this segment with the acquisition of MAAC, which along with its own brand ‘Arena’ commands ~80% market share. We expect these two brands to grow at a three-year CAGR of 12.4% to Rs 1,680 mn in FY13 and contribute ~55% to total revenues in FY13. This segment has higher EBITDA margin than other businesses and we expect it to drive improvement in EBITDA margin going forward. Strong growth in international retail training business: In search of China II Before the restructuring in 2009, the China business contributed 43% to Aptech’s revenues. Going ahead, CRISIL Equities expects strong growth in relatively smaller contributors like Vietnam, Nigeria and Russia. The company plans to replicate the success of its franchiseedriven operating model for existing and new brands in these countries. In the long term, we also expect countries like Brazil and the Philippines to become key markets for Aptech. We expect these countries to collectively grow as large as Aptech’s China business. This is expected to propel international retail operations collectively to a three-year CAGR of 23.4% with a 20.3% contribution to total revenues in FY13. Value unlocking through China business’ IPO Aptech restructured its China business post which it owns a 22.4% stake in BJB Career Education Company (BJBC). BJBC filed for a listing on the NYSE in October 2009 and has decided to revisit the IPO at a later date. Post the IPO of BJBC, Aptech would get a one-time dividend of Rs 283 mn (~Rs 6 per share). Also, the listing of BJBC would provide more clarity on the value of Aptech’s stake in BJBC. Weak track record in new ventures and acquisitions While Aptech has had good success in China, it has had failures in the ICT business and acquisition of Synergetics. The company has subsequently exited the capex intensive ICT business and now focuses only on training services within the ICT business. New businesses / acquisitions like Avalon and N-Power have been in the investment phase for four years and are expected to report positive EBITDA in FY13. Net profit to grow to Rs 384 mn in FY13 from a reported loss of Rs 224 mn in FY10 This will be driven by growth in revenues, which is expected to grow at a three-year CAGR of 13.5% to Rs 3.1 bn in FY13. Strong growth internationally and in the animation segment is expected to drive revenue growth. We also expect EBITDA margins to improve to 24% in FY13 from 15.6% in FY10 due to an increase in contribution from high-margin brands like Arena and MAAC, and growth in the international business. Valuations: Upside from current levels We have used the sum-of-the-parts method to value Aptech and assign a one-year fair value of Rs 198 per share. We have assigned a fair value of Rs 135 per share for Aptech’s shareholding in BJBC based on a PER of 20x CY11E earnings and Rs 63 per share for Aptech’s core business based on a PER of 12x FY12E. We believe the P/E multiple assigned to the China investment will increase post the IPO of BJBC. Key forecast (consolidated financials) (Rs Mn) CY08# FY10* FY11E FY12E FY13E Operating income 2,760 1,650 2,204 2,593 3,075 EBITDA 547 257 385 550 739 Adj Net income 471 (255) 229 254 384 Adj EPS-Rs 10.1 (5.5) 4.7 5.2 7.9 EPS growth (%) 138.2 NA NA 11.0 51.4 PE (x) 9.5 NA 33.1 29.8 19.7 P/BV (x) 1.7 3.8 2.9 2.7 2.4 RoCE (%) 16.7 4.0 8.9 13.3 18.1 RoE (%) 23.0 NA 9.8 9.3 12.9 EV/EBITDA (x) 5.1 29.8 19.6 13.3 9.4 S o u r c e : C o m p a n y, C R I S I L F o r e c a s t . *FY10 is a 15-month period as the company has changed the year end to March from December previously. # Includes financials of Aptech’s China-JV.





5 5 4 3 2 1

5 4 3 2 1
Poor Fundamentals






Valuation Grade
Strong Downside Strong Upside

Fundamental grade of '3/5' indicates good fundamentals Valuation grade of '5/5' indicates strong upside

Key stock statistics
BSE Ticker Fair value (Rs per share) Face Value (Rs per share) Current market price (Rs, as on 20th September) Shares outstanding (Mn) Market cap (Rs Mn) Enterprise value (Rs Mn)# 52-week range(Rs)(H/L) PE on EPS estimate (FY12E)(x) Beta Free float (%) Average daily volumes (last 3 months) #FY11E APTECH 198 10 155 48.7 7,570 7, 521 296/115 29.8 1.6 63.8% 12,10,482

Share price movement
160 140 120 100 80 60 40 20 0 Dec-08 Dec-09 Sep-08 Sep-09 Jun-08 Jun-09 Mar-09 Sep-10 Apr-08 Mar-10 Jun-10



-Indexed to 100

Analytical contact
Chetan Majithia (Head, Equities) Kamna Motwani Urmil Shah Email: +91 22 3342 4148 +91 22 3342 3507 +91 22 3342 8135 +91 22 3342 3561

CRISIL Equities


CIS.6% NIIT 16. NIS Sparta Revenue drivers • Increase in demand • Increased number of for English speaking manpower driven by growth in Indian IT/BPO sector • Cross-selling with other brands emerging economies becoming a hub for IT and multimedia outsourcing/offshoring • Introduction of new brands in international markets due to increase in number of centres and number of employees • Recovery of US • Increase in and European markets resulting in recovery in demand for outsourced content development • Higher volume growth • Higher volume growth • Investment in technology • Higher volume growth realisations to improve margins corporate IT training budgets post slowdown 16.2% 26. C R I S I L E q u i t i e s CRISIL Equities 2 .4% AMA.7% Frankfinn.1% 2.1% 16. 8. travel and tourism and hospitality as a career opportunity 5. hospitality. Pearson players • Higher operating cost • Higher * FY10 does not include revenue from MAAC S o u r c e : C o m p a n y.1% 9. Malaysia Learning Services Content development Training Solutions Corporate IT and soft skills training Attest Assessment tests) India International institutional Corporate IT exchange programs India.3% NIIT.3% 7. Informatics.4% NIIT and regional 18.7% NIIT.2% 6. Malaysia Retail animation and Retail animation multimedia training and special effects training Retail networking Retail aviation (cabin crew and hardware training India and ground staff). Karrox.8% 16. Picasso 10.7% 9.Aptech Ltd Table 1: Core business segment Aptech Computer Brand Business Segments Education Retail IT training Arena MAAC* N-Power Avalon English Express Retail English language training International retail Retail IT.1% Framebox. FTI.6% MeritTrac. Picasso • Growth in manpower requirement in Indian IT sector.7% 1.6% 0% 38.0% 3. Africa. Vue • Increased adoption of online tests • Growth in IWP and ITEC enrolments 1. animation. networking and hardware training India APAC. Jetking 1.4% 2. travel and tourism training India outsourcing (online training. Hero Mindmine. US and Europe India. Russia and Nigeria Leading domestic player in academic segment India.1% 4.2% 3.0% All e-learning 14.2% Market leader in India Second largest company in the segment Tier – II training company in India Second largest training company in India after Frankfinn Fragmented and unorganized market Leadership in Vietnam. Geographic presence India India India New Oriental Education companies Prometric.2% 0. Latin America Market Position Second largest in India Revenue contribution FY10* FY13 Revenue CAGR (FY10-13) Key Competitors 6.8% 7.9% Framebox.6% 16. • Rising attrition across IT sector resulting in higher demand for IT training Cost drivers • Increase in number • Increase in of franchisee centres resulting in higher operating costs number of franchisee centres resulting in higher operating costs • Operating leverage to result in higher profitability • Higher operating cost due to growth in number of centres • Volume growth and operating leverage • Volume growth • Higher costs due to growth in number centres • Growth in Indian animation and gaming industry • Growing acceptance of animation and multimedia sectors as a career option • Growth in IT hardware market driven by higher IT spending by government • Increase in manpower demand in the aviation sector • Increased preference of aviation.9% 5. Kuoni Academy 80.9% 4.6% Regional players 33.0% 0. Middle East.

417 24.7% 15. To counter this. the average realisation per enrolment is expected to fall as it is much lower in CRISIL Equities 3 . is expected to increase to 0.000 500 0 11. CRISIL Research expects the total number of IT and ITeS employees to grow at a three-year CAGR of 13% to 3.000 3. which has increased the attrition in the sector to between 15% and 20% from between 10% and 15% earlier. The second half of 2009 recorded an improvement in the global IT market which consequently stepped up the hiring by Indian IT companies.637 20% 15. Lately. Modest revenue growth expected in Aptech Computer Education Modest revenue growth expected over next three years We forecast Aptech Computer Education’s revenues to grow at a moderate three-year CAGR of 6. because of which. there was a delay in actual intake of employees. Aptech is focused on tier II and tier III cities (for more details please refer to focus charts on page 26).052 2.1% 9. The addition of non-engineering employees. However.6%.1% 0% 2. While the large IT companies maintained their recruitment plans for FY10.500 3. the Indian IT companies have been targeting Tier-II and Tier-III cities for incremental capacity addition to contain real estate and manpower cost.000 1. Given the buoyant outlook for the sector and strong demand in the domestic market. While NIIT has a strong presence in the metros. NIIT and Aptech are the top two IT training companies with a pan-India presence.1 mn in FY10. the hiring by the sector is expected to improve going forward. Indian IT companies had to take a cautious approach towards hiring.1% 8.3 mn employees in FY13 from 0.Aptech Ltd Grading rationale Aptech to benefit from improvement in demand for IT training Improvement in the global IT market outlook is expected to drive the demand for IT Hiring by Indian IT companies is expected to improve on the back on improvement in demand outlook for the sector training.014 2. Enrolments are expected to continue to grow at a steady three-year CAGR of 14% till FY13 driven by the demand for IT training in Tier-II and Tier-III cities.2% 3. Local IT training institutes constitute a larger share of the market. Mid-tier and small IT companies had to stall or cancel their hiring plans. Figure 1: Domestic IT and ITES recruitment ('000) 4. Demand for manpower has gone up in the first half of 2010. 2 IT training provider in the domestic market Aptech has focused on Tier-II and Tier-III cities for its IT training business The Indian IT training market is fragmented. companies opted for higher employee utilisation.237 2. The global IT market faced weak demand during the first half of 2009.530 30% Figure 2: Addition of non-engineering employees ('000) 350 300 245 250 200 150 100 50 0 2008-09 2009-10 2011-12P 2012-13P 2010-11P 2007-08 287 212 129 105 132 2010-11P 2011-12P 2012-13P 2008-09 2007-08 2009-10 Total IT & ITeS employees(LHS) YoY Growth (RHS) Non-engineering employees Source: CRISIL Research Source: CRISIL Research Aptech is the No.7% 10% 3.500 2.000 2.500 1.5 mn employees in FY13. which account for 80% of enrolments for IT training companies like Aptech and NIIT Ltd (NIIT).

and we forecast Arena and MAAC to contribute 54.6% to total revenues in FY13. Arena and MAAC have ~80% market share in the domestic multimedia training market followed by Framebox and Picasso who are relatively smaller in size. higher EBITDA margin than other brands of Aptech. Table 2: Comparison of Avalon enrolments and employees in aviation sector 2007 Avalon enrolments No. the employment generated by Indian Employment in travel and tourism sector to increase backed by strong demand travel and tourism industry is expected to rise to 54 mn in 2015 from 48.000 people in 2009 which is likely to double in the next three to four years. Due to this and a strong demand for training in animation. These brands have higher average realisation per enrolment and. which included only Arena. of employees in Aviation sector S o u r c e : C o m p a n y.7 mn in 2009. which we expect will increase to 53% in FY11 on the back of the acquisition of MAAC. the Indian animation industry employed 15. Currently. contributed 26% to Aptech’s revenues in FY10 (15 months). According to Nasscom. Nasscom expects the Indian animation industry to grow at a CAGR of 22% to US$ 1 bn by 2012. Aptech to gain from its leadership position in Indian animation and multimedia segment Indian animation industry to grow at a three-year CAGR of 22% by 2012 Demand for training in animation and multimedia is dependent on the growth in the animation and gaming sectors. Aptech acquired Maya Academy of Advanced Cinematics (MAAC) for ~ Rs 730 mn (post due diligence it has been lowered from ~ Rs 760 mn as announced at the time of acquisition). While the organised training services market for the travel and tourism industry is at a nascent stage. which the company does not plan to impair in the near term.Aptech Ltd Tier-II and Tier-III cities compared to metros. share issuance amounting to Rs 475 mn (at Rs 216 per share) and Rs 115 mn debt on MAAC’s balance sheet at the time of acquisition. there are 170 arena centres and 70 MAAC centres in India. we expect this segment to log higher growth than the company. Aptech to benefit from presence in travel and tourism training segment According to World Travel and Tourism Council. This acquisition has strengthened Aptech’s position in the animation and multimedia training space.721 2008 6762 66. This is likely to drive the demand for training services in the sector. The animation segment. Arena and MAAC combined have ~ 80% market share Aptech is the market leader in animation and multimedia training space in India In January 2010. This growth will be driven by the increase in demand for the graphic content on the web. C R I S I L R e s e a r c h 1076 60.077 2009 3646 52. that for the aviation sector has developed in the past five years on the back of entry of new carriers.471 CRISIL Equities 4 . These factors are likely to drive the growth in demand for training in these sectors. The acquisition cost includes cash payment of Rs 140 mn. mobiles and in the entertainment sector. The acquisition has resulted in goodwill worth Rs 640 mn. thus. Arena also has 52 international centres. The Indian gaming industry is expected to grow at a three-year CAGR of 49% to US$ 830 mn by 2012.

3 mn (based on average Y-T-D forex rate in CY10). the China business contributed about 43% to total revenues. Avalon has introduced long-term career-oriented courses like BBA and MBA in aviation. Aptech currently holds 22. BJB Aptech is the market leader in PRC’s (People’s Republic of China) vocational IT education market with a market share of 38. Our interaction with Aptech’s management suggests that the timing of the IPO still remains unclear. Aptech has signed non-compete agreement with BJBC for IT training services in China. a training services provider for cabin crew. Driven by the economic growth and the government’s thrust to make China as an important IT outsourcing nation. In 2009. As mentioned in the SEC filing. in 2006 for Rs 7. To fight competition. whose main lines of business are vocational IT training (BJB Aptech) and distribution of vocational IT educational content to high schools.4% stake and a board seat in BJBC. In the past two years. It divested its 50% stake in the JV and invested the proceeds in the holding company. which is the market leader in the cabin crew training segment. Aptech entered the IT training market in China through a 50:50 JV (BJB Aptech) with Beida Jade Bird (BJB). the IT training market in China has seen a strong growth over the last decade. Avalon faces stiff competition from Frankfinn.6% in 2007 and 39.4% holding in BJBC. In addition to this. it introduced training programs in hospitality management. According to International Data Corporation (IDC). In 2008. BJB Career Education Company (BJBC). This translates into dividend income of Rs 283 mn (forex rate of Rs 44. CRISIL Equities 5 . 7% in FY10 (15 months). This remains a monitorable going forward.4% stake BJBC filed Form-1 with SEC for ADR listing on the NYSE in October 2009 and has decided to revisit the IPO at a later date. IPO of BJBC to provide more clarity on valuation of Aptech’s 22. and travel and tourism.8% in 2008. We forecast the enrolments in Avalon to grow at a three-year CAGR of 5% with a 3% contribution to revenues in FY13 vs.6/US$ based on CRISIL Research’s forecast) for Aptech.Aptech Ltd Aptech has reduced its dependence on training for aviation sector Aptech acquired Avalon. the NYSE listing would provide more clarity on the valuation of Aptech’s 22. BJBC will pay a one-time special dividend of RMB 193 mn or US$ 28. Aptech restructured its stake in the China JV (for more details please refer to Aptech to get one-time dividend of Rs 283 mn on the US listing of BJBC Annexure 2 on page 25). colleges and universities. International business growth to be driven by emerging economies China business – an excellent value creation In 2000.5 mn. Aptech has expanded the training portfolio to training for ground staff and airport management. Subsequently.

5% 13. Hence. We believe that the international operations will be one of the main future growth drivers for Aptech. many emerging market economies have become the target market for IT outsourcing/offshoring.3% Year of entry 2009 1999 2010 1999 1999 Aptech's presence Mode of operation JV Franchise JV Master franchise Master franchise Number of centres 1 11 1 23 38 Currently. CRISIL Equities 6 .1% 60.6% 11. economies like Brazil. sectors like hospitality.7% 22. * Please note that the GDP forecast is in US$ and is likely to be impacted due to expected exchange rate changes. Aptech has a presence in about 40 countries with retail training brands Vietnam. information technology.5% 38. Nigeria and Russia are likely to drive revenue growth over the next three years. For Aptech. the international business (excluding China and MAAC) contributed about 32. Nigeria and Russia are likely to drive revenue growth over the next three years Aptech Computer Education.7% to revenues in the retail training segment. (Please refer to Annexure 3 on page 25) Table 3: GDP growth* and service sector contribution of emerging economies Services GDP (US$ bn) contribution Country Brazil Nigeria Philippines Russia Vietnam S o u r c e : I M F .7% GDP growth forecast 2010 21. Russia and Vietnam are expected to grow by 11-16%. while Brazil and the Philippines are expected to drive growth post FY13.6% 15. According to the IMF’s nominal GDP forecast. the international business has higher EBITDA margin compared to the About 40% of revenues in the individual training segment (exMAAC) in FY13 to come from international markets domestic market due to higher realisations.4% 23. In FY10.7% 33. the services sector is one of the largest contributors to the GDP. We believe that to achieve its target.0% 12. It is expected to contribute 40% to revenues in the retail training segment (excluding MAAC) in FY13 and also log an improvement in EBITDA margins.4% 12.1% 55. In the long term. aviation. 2009 1. Countries like Vietnam. training and education are likely to drive the growth in these economies.6% 2011 6. Its success in the same remains an upside to our forecast. In case of most emerging economies. It plans to take other brands like MAAC. Arena and N-Power. C o m p a n y. Notably.2% 9.574 173 161 1.4%. Aptech plans to continue its faster go-to-the-market strategy by forming JV with local companies in larger markets and replicating its franchisee-driven model. we expect these countries to collectively grow as large as Aptech’s China business.229 92 to GDP 67. the company will have to demonstrate strong growth over the next 12-18 months. Nigeria and the Philippines are likely to grow at a yearly growth rate of 6-8% over the next five years. Avalon and English Express to the existing and new overseas markets. We expect the international business to growth faster than other segments at a three-year CAGR of 23.Aptech Ltd In search of China II International business to grow backed by growth in emerging economies as IT outsourcing/offshoring destinations The International Monetary Fund (IMF) expects emerging economies to see strong growth going forward. This is lower than the company’s target of growing the international business to ~50% of the retail training business by FY14.

more misses than hits in the past… Aptech had acquired Synergetics. Table 4: Financials of overall business (excluding China) CY06 Revenue (Rs mn) Ch (%) EBITDA margin PAT margin Source: Compan y 1.Aptech Ltd Improved performance of overall business (excluding China) Overall business (excluding China) has turned profitable. While the same has declined to 12.1% CY08 1.6 100 730* 100# R-2.7) end corporate IT training NA Aptech got the expertise for English language training NA Aptech became the market leader in the domestic multimedia and animation training * Lowered from Rs 760 mn post due diligence # Acquisition of 10. further improvement expected Profits from the China business constituted a majority of Aptech’s profit up to CY08.9 Loss of E.6% in FY10 compared to 1.607 19.340 29.6% in 1QFY11 the company reported PAT margin of 5.5% 3.7 This deal enabled Aptech to target the high E-(34.1) R-8.6% CY07 1.650 2. The company was able to improve profitability in tough market conditions. Aptech has exited the ICT business and has sold Synergetics. global expansion and as new businesses and acquired companies including Avalon. Synergetics and N-Power were in an investment mode.035 1. due to the seasonal nature of business.7% 15.5 Revenue (R) and Stake EBITDA (E) at time acquired of acquisition (%) (Rs mn) 100 Revenue (R) Profit / and EBITDA (E) loss in at time of Sale sale (Rs mn) Name of company Avalon Synergetics First English MAAC Impact 35.1% in CY08. This was mainly due to losses in the ICT business.3 NA E-(28. a high-end corporate IT training provider in 2007 for Avalon and N-Power are yet to break even Rs 35 mn (70% stake was later increased to 85%).1% 0.8% FY10 1.6%.9% 1. Table 5: Aptech’s acquisition details Acquisition Date of cost acquisition (Rs mn) Apr-06 Oct-06 Jun-09 Jan-10 7.6% -14.9% -14.0 Rs 80 mn NA NA R-931 E-117 NA NA Aptech got an entry into the aviation training space R-26.1 70 (hiked to 85 in 2007) 1.6% -13. We expect the profitability to improve further on the back of strong growth in high-margin animation and international businesses.3. This coupled with improvement in profitability in other businesses resulted in EBITDA margin of 15. The company divested its stake in Synergetics in 2008 at a loss of ~Rs 80 mn due to its cyclical nature of business and problems in integrating the company due to different cost structures.6% Key monitorables Performance of new businesses and acquisitions .9% Q1FY11 452 12.33% stake is pending due to the RBI’s approval Source: Compan y CRISIL Equities 7 . Subsequently.6% 5.

mainly due to the ICT projects. which was launched in 2007. its focus on the franchise model will reduce the go-to-the-market time for expanding internationally. . Similarly. .. but improvement is expected going forward We expect an improvement in the performance of N-Power and Avalon going forward. This is mainly due to the one-time compensation which the company is expected to pay to students against the promotional guaranteed placement scheme. The institutional training business contributed about 20% to total revenues in FY10 and has been loss-making for the past three years. training to the trainers and quality control to the franchisees while the investment in infrastructure is done by the franchisee.. the franchise royalty for Avalon centres is expected to reduce to 28% from 33% in FY10 as the franchisees will bear the trainer cost... Aptech’s investment per additional franchisee centre is lower than in case of a self-owned centre. Thus. The decision of entering the government’s ICT business was taken by the previous management. the company has not been able to turn the Avalon business profitable since its acquisition in 2006. Asset-light business has not been able to deliver higher volume growth and higher return on equity Aptech has opted for an asset-light franchisee model. Though Aptech operates through an asset-light franchisee model to reduce go-to-the-market time. Training Solutions has also been making losses individually which the company is still trying to turn around. N-Power. is yet to break-even and we expect it to report negative EBITDA of Rs 33 mn in FY11.. Aptech has other institutional training businesses namely Attest.Aptech Ltd The company has also decided to stay away from the government ICT projects from 2009 onwards as they incurred an aggregate loss of ~Rs 400 mn in such projects since 2000. Aptech provides course content. Training Solutions. As compared to its listed peers. Learning Services. Aptech follows a relatively asset-light model. ~90% of Aptech’s training centres across all brands are franchisees. The company has decided not to give the placement guarantee henceforth. We expect N-Power to break even at the EBITDA level in FY13 due to the following reasons: o o Transfer of trainers from Aptech’s payroll to franchisee’s payroll Shutdown/franchising of non-profitable company-owned centres Transfer of trainers from Aptech’s payroll to franchisee’s payroll Conversion of self-owned centres into franchisees We also expect Avalon to break-even in FY13 due to the following reasons: o o From FY11 onwards. Also. The performance of these two brands and that of the recently acquired MAAC and English Express remains a key monitorable going forward. the company decided to discontinue its ICT in schools business which requires higher capex and working capital investment. We expect Avalon to report a negative EBITDA of Rs 54 mn for FY11. Also.. While in the past the company has not been able to report higher RoE and volume growth compared to its peers. in 2009. Aptech’s net revenue is about ~25-27% (different for different brands) of the system-wide revenues. Currently. its benefits – higher RoE and volume growth – are not visible as yet CRISIL Equities 8 .

Aptech's and Aptech had December year ending till FY10 which was a 15-month period Exchange traded futures (ETF) used to hedge foreign currency risk Aptech hedges its risk of foreign currency fluctuation related to receivables by entering into ETFs on a monthly basis.916 NA 1.505 2.1 6% CY07 -11 44. NIIT.3 14% CY08 23 50.268 7.843 6. Table 7: Foreign exchange gain/loss for Aptech (Rs mn) Net foreign exchange gain/(loss) FX rates High Low Difference between high and low CY05 9 46.666 5.3 39.137 NA 2. We believe that the UID project is a good growth opportunity for IT training companies like Aptech.814 2. The UIDAI has shortlisted 15 training institutes for this purpose including Aptech.9 44. hence it remains a key monitorable going forward. which are focused on Tier-II and Tier-III cities.3% CY06 -1 46. The company follows the policy of accounting for the mark-to-market gain/loss of the net exposure through the income statement at the end of every quarter. the company’s hedging strategy has shown mixed performance.499 1. It aims at creating a Central ID Data Repository (CIDR) which would include details of every citizen of India. ~1 lakh government employees will require IT training over four years for the execution of this project.154 8.164 926 FY10 404 4.1% NA NA Enrolments ('000) FY08 179 389 NA NA FY09 140 428 NA NA FY10 148 471 NA NA Gross assets FY08 1.7 39. According to Unique Identification Authority of India (UIDAI) estimates.114 5. CRISIL Equities 9 .2 7.3 28% FY10 (15months) -7 47.5% NA NA FY09 26.376 FY10 1.0% NA NA FY10 25.Aptech Ltd This remains a key monitorable going forward as the company has aggressive plans in the international market.159 FY08 535 3.7% 42.3 43.7 44.342 495 Net assets FY09 531 5. C R I S I L E q u i t i e s e s t i m a t e s *Enrolments in case exclude that of its China business. CMC and Everonn.2% 39.456 S o u r c e : C o m p a n y. I n d u s t r y s o u r c e s Unique identification project presents a big opportunity UID project remains a good growth opportunity for IT training companies focussed on Tier-II and Tier-III cities This project was started by the Government of India to provide a unique identification (UID) to every resident of India.3 8% S o u r c e : C o m p a n y.890 787 FY09 1.9% 45. In the past. Table 6: Peer comparison Net revenue as a Company (Rs mn) Aptech* NIIT Educomp Everonn % of system-wide revenue FY08 24.

The growth in international revenues is expected to be driven by the expansion of operations in Russia.1% 10.0% 0. the total revenue of the franchise is recognised as a part of net revenue instead of recognising only the franchise royalty. Income from own centre is on accrual basis Revenue is recognised on basis of executions in the period Revenue is recognised on basis of executions in the period Revenue is recognised on basis of executions in the period Royalty from franchise on collection basis.6% 6.9% 4.0% 16. The share of franchise is then treated as an expense. Table 8: Brand-wise revenue contribution.6% Source: Company. Income from selfowned centre on accrual basis 7.1% 16.0% 1.7% Growth in the domestic IT hardware market driven by higher IT spending by government Recovery of US and European markets resulting in recovery in demand for content development Increase in demand for English speaking manpower driven by growth in the Indian IT/BPO sector Learning Services English Express 4. Income from selfowned centre on accrual basis Revenue contribution Three. drivers and revenue recognition Brand Arena MAAC Aptech Computer Education Revenue recognition Royalty from franchise on collection basis Total revenue of franchisee is recognised in revenue Royalty from franchise on collection basis.7% International institutional# Attest Training solutions N-Power 9.6% 38.4% 16. For MAAC. specially from the non-technical background Enrolments and realisations are expect to increase but the collection period is expected to increase Increased number of emerging economies becoming a hub for IT and multimedia outsourcing/offshoring Expansion in existing geographies and entry into new geographies like South Africa and Poland and introduction of new brands in the international market Increase in manpower demand in the aviation sector due to increase in number of carriers Increased preference of aviation and hospitality as a career opportunity Growth in IWP and ITEC programs Increasing adoption of online tests Increase in corporate IT training budgets post slowdown to result in recovery in demand for outsourced training 18.2% 0.1% 0.2% 8.9% Drivers Growth in animation and gaming industries resulting in increase in enrolments Increase in realisations due to dominant market share (~80%) Growth in manpower requirement of the Indian IT sector.5% to Rs 3.2% 6. Aptech acquired MAAC in January 2010.7% 9.4% and 23.3% 2. the company plans to classify international institutional business under international retail business as the end-users of its training are individuals.8% 16. The revenue recognition policy of MAAC is different than that followed by the other brands.2% 3.3% 5.1 bn by FY13 We expect this growth to be driven by the multimedia and animation (Arena and Revenue growth to be driven by multimedia and international businesses MAAC) and international retail training businesses. The company also plans to introduce brands like MAAC.1% 1.year FY10* FY13 CAGR 26. CRISIL Equities * FY10 is a 15 month period and does not include revenue from MAAC. Avalon and English Express in the existing and new international markets. Income from own centre is on accrual basis Revenue is recognised on basis of executions in the period Royalty from franchise on a collection basis.7% 1. # Going forward.6% 80.Aptech Ltd Financial Outlook Revenues to grow at three-year CAGR of 13. respectively.0% 3.1% 33.2% 5.9% 7.4% Avalon Royalty from franchise on a collection basis. For the CRISIL Equities 10 .4%.6% International Royalty from franchise on retail training collection basis 16.8% 14. which are expected to grow at a three-year CAGR of 12.4% 2. Vietnam and Nigeria over the next three years. growth. which will further boost international revenues.

% -50. revenue decline stood at 52%. The decline in EBIT margin was higher (from 13.8% in CY08 to 15.1% in FY13.6% 24. The company plans to change the franchise contracts for MAAC to align it with other brands.500 1.500 2. Aptech recognises only its share of the centre collection from the student as its revenue.1% 27.650 2204 2593 33. It is further expected to grow to 88. the forecasted revenue will decrease as and when the company is able to align the franchise agreement and subsequently the revenue recognition policy of MAAC with that of other brands. Aptech used to consolidate its share of revenue from the JV on a line by line basis. *CY07 and CY08 include revenues from China.760 3075 1. MAAC is expected to contribute 37% to total revenue in FY11 and 38.% 10. Thus. the China business is treated as an investment which resulted in a one-time dip in revenue.5% in CRISIL Equities 11 .500 3.000 500 0 CY07 CY08 Revenue -40.000 1.6% 30.% -30. Post restructuring.9% in FY13. We expect the retail training segment to grow faster compared to the corporate segment over the next three years.6% in FY10 (15 months) on account of the restructuring of the China business which had higher margin compared to other businesses. we have assumed that the company will follow the existing policy for revenue recognition of MAAC going forward.2% on a y-o-y basis due to the restructuring of the China business (please refer to Annexure 2 on page 25 for details of restructuring).167 2. Prior to the restructuring. EBITDA margin to improve to 24% in FY13 from 15.Aptech Ltd franchise centres of remaining brands. Dip in FY10 revenues seen due to restructuring of China JV Aptech’s FY10 (15 months) revenues saw a sharp decline of 40. MAAC revenue is included from FY11 onwards FY10 saw a dip in retail training revenue contribution due to the China business Individual training revenue to constitute 85% of total revenues in FY13 restructuring (please refer to Annexure 2 on page 25 for details).6% 18.% 50.% -10.000 2.% S o u r c e : C o m p a n y. When normalised for a 12-month period. For our forecast. Projects and Synergetics. C R I S I L E q u i t i e s e s t i m a t e s *FY10 is a 15-month year. China contributed about 43% of total revenues in 2008.3% 17. Figure 3: Revenue growth Rs Mn 3. We forecast the retail training (excluding China) revenue contribution to grow to 87. Aptech changed its financial year end to March from December in FY10.2% FY10* FY11E FY12E FY13E Revenue growth (RHS) 2.7% in FY11 due to the integration of MAAC with Aptech.6% in FY10 The company’s EBITDA margin declined from 19.

7% S o u r c e : C o m p a n y.2% 14. there was a deferred tax asset of Rs 220 mn (standalone) due to losses at the standalone company level.5% 10.4% 15.2% 14.2% FY12E 62.2% 18.4% 12.6% FY11E 65.6% 6.0% -117.2% N.1% in the same period.6% 11. these have higher EBITDA margins as compared to other businesses.8% 64.6% 31.2% -64. C R I S I L E q u i t i e s PAT to increase to Rs 384 mn in FY13 from a loss of Rs 224 mn in FY10 Write-off of deferred tax asset resulted in losses in FY10 In CY08.1% 28.4% in FY11.6% 14.9% 63. CRISIL Equities 12 .5% 18.3% -48.9% 39.2% -1. Due to this and lower other income. The interest expenses increased to Rs 32.2% 12.1% 62.7% 13.9% 25.3% 9.6% FY13E 61. decline in interest expenses and increase in other income. Growth in enrolments and new courses to drive improvement Increase in number of employees to hit margins Increase in number of online tests to give operating leverage Training solutions is expected to turn around in FY12. The company has guided for zero effective tax for FY11 as it expects MAT credit entitlement under section 115JB of Income Tax Act equivalent to the tax payable for the year.4% 63.7% -98. increase in EBITDA margin and other income International institutional Attest Training solutions N-Power Learning services English Express Other corporate expenses / revenue Blended EBITDA margin Blended EBIT margin Blended PBT margin 37.3% to 4. EBITDA margins to increase backed by high margins in multimedia and international businesses We expect Aptech’s EBITDA margin to increase to 24% in FY13 due to increased contribution from the multimedia and international businesses.8% in FY10 post the integration.3 mn in CY08 on account of increase in short-term debt.0% 25.1% 4. the company reported a loss of Rs 224 mn (consolidated) in FY10. This will result in a drop in the PAT margin for FY12 to 9.5% 18.Aptech Ltd FY08 to 6.9% 23.4% Margin drivers Increase in number of centres to increase operating costs Company is expected to leverage on existing employees to improve margins Increase in number of centres to increase operating costs Expansion into new geographies to increase employee and marketing costs Margin expected to fall in FY11 due to one-time refund to students under the guaranteed placement scheme.8% from 10. From FY12 onwards.5% 24.4% 19. We expect MAAC’s EBITDA margin to improve to 13. subsidiaries like Avalon and some of the international subsidiaries reported losses.1 bn from the China JV restructuring.0% -348. We expect the consolidated PAT to increase to Rs 384 mn in FY13 driven by an increase in EBITDA margin.4% 37. In FY10.7% -18. the PBT margin declined at a much higher rate from 14.1% 10.0% 17.A 27. While the standalone business reported profit.7% 8. the company expects the effective tax rate to increase to 33%.4% 33. backed by increase in corporate training budgets Growth in enrolments Margins to improve due to higher realisations in US and Europe Increase in number of centres is expected to increase volumes Benefit from operating leverage Higher revenue from high margin multimedia and international segments Increase in EBITDA margin Decline in interest cost.6% 17.9% in FY13 from 6.9 mn in FY10 from Rs 0. As a result.1% 34.1% 8.9% 9.1% in FY10) due to higher depreciation as a percentage of revenues. the company had to utilise the entire deferred tax asset created in the previous year as it gained Rs 1.8% 10.0% 40.2% 23. Table 9: Brand-wise and blended EBITDA margins Brand Arena MAAC Aptech Computer Education International retail training Avalon FY10 65.0% -4.9% -58.3% -31.5% 21.3% 40.0% 21.5% 4.

The top management had undergone a change in March 2009. the management has been aggressive in identifying new growth opportunities through the acquisition of First English in English training and MAAC animation industry. CRISIL Equities 13 .Aptech Ltd Management Evaluation Fairly experienced management and competent second line CRISIL's fundamental grading methodology includes a broad assessment of the management quality. which was acquired in 2007. we believe the management is fairly good with a high risk appetite. when Mr Ninad Karpe joined the company as the MD and CEO. a JV between CA and Satyam Computers. Experienced management… We believe that Aptech’s management is very capable and experienced. Based on our interactions. and financial performance. Competent second line of managememt The company has decentralised management structure comprising of professionals in the second line of management. In his tenure at CA. … with high risk appetite In the past two years. Overall. Aptech has been able to turnaround its overall business (excluding China) post Mr Ninad took over as the MD and CEO of the company. The company also plans to be aggressive in the international market by replicating its franchise model through JVs in the larger countries. Prior to joining Aptech. He has over 24 years of experience in the IT industry. apart from other key factors such as industry and business prospects. he set up the India operations and also held the post of CEO of CA Satyam ASP. Prior to that. The management has exited from the loss-making businesses like the government ICT projects and Synergetics business. we believe the company’s second line is reasonably experienced. Mr Karpe had his own financial consultancy which catered to foreign companies seeking to invest in India. he was the MD of Computer Associates (CA) India. Key managerial personnel have more than 20 years of experience in their respective fields.

Non-Executive Chairman of Cadbury India Ltd Mr Yash Mahajan. and Swaraj Automotives Ltd Mr Vijay Aggarwal. disclosure standards and related-party transactions. It was sold to SSI in 2002. Y. apart from other key factors such as industry. CRISIL Equities analyses the shareholding structure. typical board processes. Its processes and structures conform to the minimum standards. In this context. member of BSE and a well-known investor Mr Walter Saldanha. The audit committee is chaired by an independent director – Mr C. please refer ‘History of change in promorters’ on page 19 of the report). All the strategic decisions are taken after thorough discussion at the board level. He is also the Chairman of Swaraj Engines Ltd. Assessing the company’s disclosure levels based on balance sheet disclosures. The independent directors are: Mr C.Aptech Ltd Corporate Governance The company has maintained good corporate governance practices CRISIL Equities’ fundamental grading methodology includes a broad assessment of the corporate governance and management quality. business prospects and financial performance. Any qualifications by regulators or auditors also serve as useful inputs while assessing corporate governance. a well-known equity investor in the Indian stock market. Aptech Ltd. corporate governance at Aptech is at desired levels. board composition. Pal. Chairman and MD of Chaitra Holding Private Limited Board processes: Balance sheet disclosures indicate that all the processes relating to the committees are in place. Pal. Good corporate governance processes Overall. The promoters have changed twice in the past decade Aptech was founded by Atul Nishar in 1986. It is chaired by Mr Rakesh Jhunjhunwala. MD and CEO of HR Johnson (India) Ltd Mr Ramesh Damani. Board composition: The board has eleven members including five independent directors. Vice Chairman and Managing Director of Punjab Tractors Ltd and Swaraj Mazda Ltd. who took over as the Non-Executive Chairman of Aptech (for more details. was sold to Aptech investments. etc CRISIL Equities believes that Aptech’s corporate governance conforms to minimum requirements. In 2005. co-promoted by Mr Rakesh Jhunjhunwala. Y. website information. CRISIL Equities 14 .

Figure 4: One-year forward PER comparison between Aptech and NIIT 60 50 40 30 20 10 0 Dec-07 May-07 Dec-08 Jan-07 Apr-08 Aug-08 Sep-07 60 50 40 30 20 10 0 Jan-10 Feb-10 Mar-10 May-10 Jun-10 Aug-10 Sep-10 Apr-10 Jul-10 Aptech NIIT Aptech NIIT S o u r c e : P r o w e s s .6 8. We have assigned a one-year forward PER of 12x to Aptech’s core business based on the average one-year forward PER of 12x in FY11 for NIIT.030 231 44. 2010.228 20% 6. i n d u s t r y s o u r c e s . c o m p a n y.4% higher than the current market price as on September 20.171 20% 4.6 6.286 20% 8. C R I S I L Equities … due to embedded value of Aptech’s China business Historically. indicating that the market price has ‘strong upside’ from the current levels.6 10.2 824 184 44.2 1. i n d u s t r y s o u r c e s .Aptech Ltd Valuation Grading Fair value of Rs 198 indicates strong upside to the current market price Grade: 5/5 Fair value based on sum-of-the-parts valuation We have assigned a fair value of Rs 135 per share for Aptech’s shareholding in BJBC based on PER of 20x on its CY11E earnings and Rs 63 per share for Aptech’s core business based on PER of 12x FY12E.NIIT. c o m p a n y. Our one-year fair value is Rs 198 per share which is 27.583 49 135 63 198 15 41. C R I S I L Equities S o u r c e : P r o w e s s . the value of Aptech’s China business has constituted a significant proportion of the stock price. of shares (mn) Per share value to Aptech Value of non-China business Total value per share Source: CRISIL Equities 25 41. Table 10: Sum-of-the-parts PER to BJBC’s earnings BJBC’s PAT (CY11) M-Cap (US$ mn) Aptech's share (22. We assign a valuation grade of ‘5/5’.937 49 101 63 164 Aptech has traded at a premium to NIIT… Aptech has always traded at a significantly higher one-year forward PER in comparison to its only listed peer . The one-year forward PER is not comparable for CY09 as Aptech had reported a net loss in FY10.2 618 138 44. CRISIL Equities 15 .4%) Average FY11 FX rate Aptech's share (Rs mn) Liquidity discount Value to Aptech No.228 49 169 63 231 20 41.

5% H1CY09 37 12 31.0% Table 12: BJBC financials 23.7% CY09 CY10E 20.4% NA 53.2% 15. According to China Market Intelligence Centre.3% over 2001-2008 and is expected to grow at a CAGR of 16. financials are available only till H1CY09.A.8% 39.1% 28. New Oriental and China Distance Education traded at a higher one-year forward PER compared to peers. content development and distribution. test preparation courses.6% 29.2% NA 10.1% 31.2% 32.3% 28.5% 31. its market share was more than three times the combined market share of the next two largest competitors.5% 49.9% 4.4% 43. BJBC has benefited from the recovery of demand for vocational IT education in CY09. 38.0% 32 28.A. For BJBC. N.2% 7. the IT education market in China has grown at a CAGR of 26.6% ROE (%) CY09 CY10E 52.3% Source: BJBC’s SEC filing.4% 119.8% 44.8% CY09E 90 20.4% 20.1% 17.A.8% 13.7% 71.1% 20.0% Net income growth CY08 CY09 CY10E CY08 11. We expect BJBC’s PAT margins to improve further on the back of operating leverage.6% 28. the average one-year forward PER in the sector ranged between 3x and 50x.4% -20.3% 70.8% in H1CY09 from 17. N. Given BJBC’s market leadership.8% 52.4% 25 449.0% 24.5% Source: BJBC’s SEC filing.0% H2CY08 44 8 17.6% in 2007).1% N. CRISIL Equities (US$ mn) Revenue PAT PAT Margin H1CY08 31 -3 -10.4% 42. Table 13: BJBC’s peer comparison – revenue growth Revenue growth Company BJBC New Oriental Education Business Segments IT training and content distribution Foreign language training.6% In CY09-10.7% 219.Aptech Ltd The vocational IT education market in China has gone through significant development on the back of the government’s plans to develop China into a key IT outsourcing destination. According to IDC. test conduction E-learning services and content development CY08 209.2% 449.6% -70.6% 64.7% -26. higher RoE and CRISIL Equities 16 .7% 9.5% 19.1% 27.1% 11. We expect BJBC to continue to grow faster than the market and forecast a 20% CAGR in revenues over CY09-CY11. Its PAT margin significantly improved to 31.8% 48.5% CY11E 130 20.9% 44.4% over 2008-2013.0% 41 28. Table 11: BJBC’s PAT to grow at CAGR of ~28% for CY09-11 (US$ mn) Revenue ch (%) PAT ch (%) PAT margin (%) ROE CY07 24 6 CY08 75 209.5% 45.8% market share in 2008 (vs. Chinacast Education Corp China Distance Online and test preparation courses Education China Education Online education and test material Alliance Inc ChinaEdu Corp Online and offline educational services for K-12 segment and colleges Source: Industr y data.5% -2.7% -6. CRISIL Equities 54. In 2008.9% 6.8% 19.5% 24. Due to the seasonal nature of the business.7% 5 -18. N. CRISIL Equities BJBC is the second largest (in revenue terms) as compared to other training services companies (as mentioned in Table 12) with a presence in China after New Oriental Education.8% 73. H2 has higher profitability than H1.5% in H2CY08. In CY10. BJBC is the largest vocational IT education provider in China with a 39.6% -2.4% 48.9% CY10E 108 20.4% 7.7% 6.4% 1.8% H2CY09E 53 13 25.A.5% 27.9% 30.

4% 25x 168. Figure 6: China business’s contribution to Aptech’s stock price at oneyear forward PER of 20x 250% On August 26.7% 59. CRISIL Equities CRISIL Equities Aug-10 Apr-07 Apr-08 Apr-09 Jan-06 Apr-10 17 . the same has constituted a significant proportion of Aptech’s stock price. 2009. CRISIL Equities Our analysis of Aptech historical stock price suggests that assuming a one-year forward PER of 20x for Aptech’s China business.3% 20x 134.5% Aug-06 Dec-06 Aug-08 Dec-08 Dec-05 Dec-07 Dec-09 15 20 25 Source: BJBC’s SEC filing. Table 14: Average PER comparison China Distance Education 166 50 China Education Alliance 5 6 8 ChinaEdu Corp 3 3 Avg PER CY08 CY09 CY10 New Oriental 63 31 40 China Cast 15 12 12 Average 28 44 28 Source: Industry data Figure 5: China business’s contribution to Aptech’s stock price at different one-year forward PERs 300% 250% 200% 150% 100% 50% 0% 15x CY06 CY07 CY08 FY10 FY11 101.7% 135.1% 125.6% 108.Aptech Ltd earnings CAGR of ~28% over CY09-11.4% 81.7% 100.7% 93.8% 70.6% 117. BJBC had announced its IPO plans 500 200% Aug-10 Aug-07 Aug-09 Apr-07 Apr-09 Apr-10 Apr-06 Apr-08 400 150% 300 100% 200 50% 100 0% 0 May-06 Aug-06 Dec-06 Aug-07 Dec-08 Aug-09 Dec-09 Aug-08 Dec-07 Contribution on China business at PER of 20x (LHS) Aptech's stock price (RHS) Source: BJBC’s SEC filing. we believe that the one-year forward PER of 20x is conservative and BJBC could get higher PER as and when there is more clarity on its IPO. Based on the historical trend.4% 74.3% 75.0% 44. we believe that it deserves a one-year forward PER of at least 20x.

4 3.A.24 2. N.2 21.7 FY10 -11.A. N.A.9 FY12E 2.4 1.41 2.64 0.12 EPS FY11E 0.01 0. Educomp Solutions Ltd. N. 258 1.4 12.14 0.79 0.3 N.3 1.230 232 256 222 63 274 287 89 305 350 111 0.4 12.9 0.A.6 21.2 N.09 0. N.9 21.01 1.4 N.3 Source: Industr y sources.1 2.7 2.62 2. N.A.A.19 0.4 16.A.3 5 54.1 10. 12.10 FY12E 0.70 0. N.5 (mn) 162 FY10 35 Revenue FY11E 47 FY12E 55 FY10 -0.06 17.3 PER (x) FY11E 33.1 10. 19.3 N.1 3. N.6 18.7 6.1 FY12E 29.8 14.A.87 1.4 10. N.2 3 44.61 1.1 12.0 6.A.A. 19.1 ROE (%) FY11E 9.64 0.4 0 14.5 7.A.A.3 2.9 12.11 FY10 -28.2 9.0 10.68 54.80 2.55 0.97 0.08 0.7 26. N.2 20.2 N. CRISIL Equities CRISIL Equities 18 .04 0. N.8 FY12E 9.8 Price / Book (x) FY10 3.6 28.4 N.5 6.1 19.Aptech Ltd Table 15: Peer comparison Market Cap.A.4 1. N.1 23.3 20.8 3 9.1 3. Everonn Education Ltd.61 0. China Peers* New Oriental Education Chinacast Education Corp China Distance Education China Education Alliance Chinaedu Corp 4.8 FY11E 2. Companies (US$) Aptech Ltd (CRISIL Research estimates) Consensus estimates Indian peers NIIT Ltd.A.A.A.8 2.093 342 174 121 112 386 51 30 37 52 377 78 36 48 56 514 97 45 63 62 2.12 0. N.A.A. 4.5 125. 19.5 62.47 0.3 4.

• Aptech Training Ltd. its multimedia and animation training business The company entered into a 50:50 JV in China known as BJB Aptech with a Beijing University affiliated company (investing US$ 1 mn). In the international market and in MAAC. was established by Mr. to name a few. Funds were raised through a GDR of USD 14. sales. at Rs. Rakesh Jhunjhunwala. Table 16: Major milestones 1996 2000 2001 2003 2006 2007 2008 2009 2010 Aptech started Arena Multimedia. a Bangalore-based English training institute. and it relisted on BSE & NSE. 2001 2003 • Mr. aviation. Aptech won its first government ICT project The company got listed on the Bombay Stock Exchange and the National Stock Exchange The company got listed on the Luxemburg Stock Exchange through a GDR of US$ 14.75 per share.5 per share Source: Compan y CRISIL Equities 19 . Aptech provides training solutions in the field of IT. consisting of only the software business. an IT training provider in the corporate space The company launched N-Power. aviation hospitality and English language speaking While Aptech was incorporated as an IT training provider. • Hexaware Techonolgies Ltd was merged into Aptech Ltd. to 25. It also exited the ICT business Aptech acquired Maya Academy of Advanced Cinematics Source: Company History of change in promoters • Aptech Ltd. • SSI sold its own training business . airport management. to Aptech Investments Pvt Ltd which was co-promoted by Mr.6% • SSI sold Aptech Ltd. It also provides assessment and testing solutions to domestic and foreign companies. Aptech Investments bought 20% stake in Aptech Ltd. This entity was then renamed Hexaware Techologies Ltd. now callled PVP Ventures) which obtained 47. a Pune-based air hostess training academy Aptech acquired Synergetics. hospitality and travel and tourism and English language speaking. networking. Nishar sold stake to Chennai based Software Solutions Integrated Ltd ( SSI.SSI Education to Aptech Ltd. was renamed Aptech Ltd. over the years it has broadened its retail training offerings portfolio which includes multimedia.75%. Corporate services are provided directly by the company.Aptech Ltd Company Overview Aptech provides individual training services in the field of IT.2% stake from promoters and 20% through open offer at Rs 49.2% stake which included 27.4 mn The company acquired Avalon. 10% from SSI and 10% by way of fresh prefrential allotment from Aptech Ltd. networking and hardware.4 Mn. revenue booking is done on the basis of collection of course fees. its hardware and networking training brand The company sold its stake in Synergetics The company acquired First English. These centres include a mix of franchisee and self-owned centres. This diluted SSI stake in Aptech ltd. Atul Nishar & Mr.000 centres in over 40 countries in five continents. soft skills. 67. In the domestic market (except in case of MAAC). Rajesh Nishar as an IT training and education company 1986 • Aptech started software business 1997 • The training business was demerged into Aptech Training Ltd. It also provides training solutions to corporates Currently. revenue recognition is based on an accrual basis. 2005 • SSI sold 34. For the corporate segment. hardware.000 equity shares to FI/investors diluting their holding to 15. The company develops customised content for corporate training programs and universities. Aptech runs ~1.00.

multimedia. Its offerings can be broadly classified into retail and institutional. networking. It offers training in sectors like IT. C R I S I L E q u i t i e s CRISIL Equities 20 . aviation and hospitality. Chart 1: Business segments APTECH LTD RETAIL TRAINING INSTITUTIONAL TRAINING DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL AVALON IWP TRAINING SOLUTIONS MAAC ITEC ATTEST LEARNING APTECH COMPUTER EDUCATION SERVICES ARENA N-POWER ENGLISH EXPRESS S o u r c e : C o m p a n y.Aptech Ltd Business Overview Aptech operates in the career education segment in the domestic and overseas Business segments include individual and non-individual training segments markets.

While currently MAAC has 70 centres only in India. English language training . Like Aptech Computer Education. in 2009 which had four centres in Bangalore. Aptech Computer Education is the flagship brand of Aptech and provides IT training to undergraduates. It is also present globally across 40 countries. the company has constantly reduced its dependence on cabin crew training. First English. Microsoft . graduates (technical and non-technical) and working executives.Aptech Ltd Retail training business IT training . It also offers degree and diploma courses in affiliation with Karnataka State Open University. there are six English Express centres in India. It offers courses in English speaking.Arena Animation and MAAC MAAC and Arena together have a collective market share of ~80% in the domestic multimedia training market Aptech started its multimedia and animation business under the Arena brand in 1996. Post the acquisition. English improvement. While NIIT’s focus has always been on metro cities. MAAC offers career and short-term courses in animation. Arena has a presence across metros. With the acquisition of MAAC. digital filmmaking and visual effects. Animation training . Aptech acquired Maya Academy of Advanced Cinematics (MAAC) in January 2010. CRISIL Equities 21 .Aptech Computer Education Established in 1986.Avalon Academy Aptech acquired Avalon. Aptech plans to take it overseas. The other companies in this segment are Framebox and Picasso. Networking and hardware training – N-Power Aptech launched N-Power in 2007. Aptech also plans to take it to international markets. It extended its offerings to ground staff training and airport management in 2008 and introduced courses in hospitality and travel / tourism in 2009. Tier II and III markets. N-Power has 64 centres in India and three centres in Vietnam. It offers basic and advanced level courses in animation. Aptech plans to expand English Express into non-English speaking countries like Vietnam and Brazil. office tools and operating systems. Currently. predominantly in cities which have airports. accent Aptech has become the largest company in the domestic animation training market with a collective market share of ~80%. Currently. The courses offered include professional and shortterm courses in network and hardware services. It is also present across 15 countries internationally. It offers courses in basic and advanced concepts and technologies.English Express Aptech acquired Bangalore-based English training services company. Oracle and Red Hat. Aviation training . Java. TOFEL and IELTS preparation and corporate training. Aptech is more focused on Tier–II and III markets. there are 60 Avalon centres across India. Aptech Computer Education also provides certification courses in association with Sun Microsystems. in 2006. The company has maintained its strategy of not competing with the largest company in domestic IT training market – NIIT. the Pune-based cabin crew training academy. This was then re-branded as English Express.

This program involves sharing India’s expertise in IT. BJB Aptech provides IT training to individuals in China through the franchisee model. multimedia and English language training under this program. Aptech provides IT training to students from other countries in India. China business Aptech entered China in 2000 with a 50:50 JV called BJB Aptech with Beida Jade Bird Aptech holds 22. Aptech provides IT and soft skills training to corporate clients. BJB Career Education Company – BJBC (please refer to Annexure II for restructuring details). insurance. Aptech currently holds 22. The candidates are trained in technologies such as networking. Aptech Learning Services This is the outsourced content development arm of Aptech. BJB was in the business of distribution of vocational IT education content to vocational high schools. Corporate business Attest The testing and assessment services of Aptech are offered through its brand Attest. This program is carried out of Aptech’s Bangalore centre. BJB Aptech has ~250 centres operating in different regions of People’s Republic of China. Aptech restructured its stake in the JV. While Aptech provides the course content. It conducts invigilated. BJB manages the operations of the JV. multimedia and English language by training students from the developing countries. BJBC and Aptech signed a non-compete agreement due to which Aptech cannot use the brand ‘Aptech’ for providing IT training service in China. Indian Technical and Economic Cooperation (ITEC) The ITEC program is run by the Government of India with a goal of encouraging relations with other developing countries. online and written tests for universities and corporates. the US and Europe.Aptech Ltd India Window Program (IWP) Under this program. The initial investment by Aptech in the JV was US$ 1 mn. Going forward.4% and has a board seat in BJBC. It divested its 50% stake in the JV for Rs 1. and multimedia and animation. telecom and IT industry and government companies. Aptech provides IT. a Beijing University affiliate. software development. It offers customised elearning and content development for corporate clients in India. Aptech Training Solutions also offers sector specific customised solutions for banks.4% stake in BJBC which has filed for listing with SEC (BJB). CRISIL Equities 22 .1 bn and invested the proceeds in the holding company. Aptech also plans to launch its other brands in China to leverage the presence of BJB Aptech. e-commerce. At the time of this restructuring. colleges and universities. software engineering. Aptech Training Solutions Under this brand. In 2009.

588 238 204 2 2.7 5. Balance Sheet (Rs Mn) Equity capital (FV .7 4.9 CRISIL Equities 23 .333 0 258 2 3.075 739 200 0 35 574 384 384 48.Aptech Ltd Annexure 1: Financials Income Statement (Rs Mn) Net sales Operating Income EBITDA Depreciation Interest Other Income PBT Adjusted PAT Reported PAT No.6 FY10* 1.9 7.8) FY11E 2.081 342 18 272 135 2.136 84 229 2 2.760 547 174 0 20 393 471 444 46.6 (5.075 3.7 FY12E 2.109 373 42 200 191 31 511 761 2.598 1.5) (4.953 2.902 3.650 257 157 33 67 (255) (224) 46.081 321 16 274 394 2.080 178 7 867 1.593 2.498 204 7 201 1.1 9. # For FY11E.204 385 163 17 24 229 229 229 48.0 CY08@ 2.067 FY10E 466 1. of shares Adjusted earnings per share (EPS) Reported earnings per share (EPS) @ Includes financials of Aptech’s China JV.593 550 181 4 15 379 254 254 48.8 5.2 4.167 411 155 36 (1) 219 228 175 43.109 CY08 465 2.660 0 294 2 3. *FY10 is a 15-month period as the company has changed the year end to March from December previously.7 7.093 189 629 (309) 3.081 376 21 302 247 3.080 FY13E 487 2.938 FY12E 487 2. C R I S I L e s t i m a t e s CY07 438 1.2 5.498 FY11E 487 2.7 4.444 119 7 870 1.Rs 10) Reserves and surplus Debt Current Liabilities and Provisions Deferred Tax Liability/(Asset) Minority Interest Capital Employed Net Fixed Assets Capital WIP Intangible assets Investments Loans and advances Inventory Receivables Cash & Bank Balance Applications of Funds S o u r c e : C o m p a n y.444 CY07@ 1. PBT and PAT are expected to be the same due to zero tax outgo.106 172 422 (29) 2.081 415 25 337 589 3.5 10.067 328 3 199 148 39 449 1.2 FY13E 3.561 2.204 2.938 226 7 858 1.

9 9.141 761 1.0) 18.8x 2.9x 17.5x 12.0 21.6 5.8 17.1 11.4x -0.7 0.0 12.1 16.6 5.3x 18.4 7.6x 7.9 3.8x 6.3 33.4 51.7x 2.0 (11.7x 5.1) (150.4 8.3x 5. tax) Others (incl extraordinaries) Cash flow from financing activities Change in cash position Opening Cash Closing Cash Ratios CY07 Growth ratios Sales growth (%) EBITDA growth (%) Reported EPS growth (%) Profitability Ratios EBITDA Margin (%) PAT Margin (%) Return on Capital Employed (RoCE) (%) Return on equity (RoE) (%) Dividend and Earnings Dividend per share (Rs) Dividend payout ratio (%) Dividend yield (%) Efficiency ratios Asset Turnover (Sales/GFA) Asset Turnover (Sales/NFA) Sales/Working Capital Financial stability Net Debt-equity Interest Coverage Current Ratio Valuation Multiples Price-earnings Price-book EV/EBITDA S o u r c e : C o m p a n y.0 12.0 3.1 3.2 19.1 83.0 19.7 29.6 19.4x CY08 FY10E FY11E FY12E FY13E CY07 219 (29) 155 (85) 260 (165) 0 (165) 57 (55) 318 321 416 345 761 CY08 393 (206) 174 306 667 (89) (89) 318 17 227 563 1.5x -0.6 42.6x 17.5 17. C R I S I L e s t i m a t e s 24.2x 8.2) 15.0x 12.3 0.4 24.902 394 FY11E 229 163 (653) (261) (185) (185) 228 (155) (57) 170 187 (259) 394 135 FY12E 379 (125) 181 (49) 387 (134) (134) (84) (57) (141) 112 135 247 FY13E 574 (189) 200 (44) 540 (140) (140) (57) (57) 343 247 589 CRISIL Equities 24 .4x 9.0x -0.1 12.081) (1.5x 0.5x 7.1x (40.9 1.2 0.508) 1.9 11.8x 33.5 18.2) (53.1) 3.3 9.7 23.8 1.1x 10.7x 6.6x 6.1x 2.9 10.6 (15.8x 29.3 2.3 138.5 10.1 3.7x 13.0 9.1x -0.8 (197.1x 43.2x 5.0 13.9x 19.Aptech Ltd Cash Flow (Rs Mn) Pre-tax profit Total tax paid Depreciation Change in working capital Cash flow from operating activities Capital expenditure Investments and others Cash flow from investing activities Equity raised/(repaid) Debt raised/(repaid) Dividend (incl.9x 27.7 (6.5x 1.2 NA 4.3x 20.8 13.3 1.2 9.7 NA 4.1 3.119) 10 49 (250) (192) (1.5 81.902 FY10E 67 (19) 157 (402) (197) (37) (1.6 49.6 5.5) 4.3 33.9 NA 3.0 4.7 18.6 34.7) 17.7x -0.0 21.

through an investment of US$ 1 mn. • Aptceh resturctured its stake in China JV by selling the 50 % stake in the JV for Rs1. a Cayman Islands company. the industry would require 25000 animation graduates by 2010 to meet the global business demand.Aptech Ltd Annexure 2: BJB Career Education Company 2000 2006 • Aptech Ltd. • Crescent Jade. Warner Brothers. The 2007.9%. Post this transaction. There were about fifty small and medium animation studios in the Philippines which employed about 7000 animators in 2007. CRISIL Equities 25 . Aptech inturn invested the entire consideration for 22.4% stake in BJB C • BJBC filed Form-1 with securities & Exchange Commission.1 bn. 2009 • BJBC acquired additional 14% stake in BJB through Prosperity from Arbo whose sole shareholder was Superway. • BJBC acquired additional 5. Internationally recognised companies like Walt Disney. formed a company named Prosperity in Cayman Islands which acquired 80% equity stake in BJB for US$ 30. Hanna Barbera and Cartoon Network subcontract animation work in Philippines.. started a 50:50 JV in china called BJB Aptech with Beida Jadebird (BJB) IT Company. According to the Animation Council of Philippines. USA for ADR listing Annexure 3: Prospects of IT and animation outsourcing in emerging countries Source: NASSCOM Animation is currently one of the emerging outsourcing services in countries like the Emerging economies expected to grow at high growth rates Philippines. owned by Beijing Peking University Company a Beijing University affiliate. revenue stood at US$ 105 Mn. 2007 • Crescent Jade established BJB Career education Company (BJBC) in Cayman Islands which held 100% stake in Prosperity.2 mn.9% of the equity stake in BJB from BJB's management. BJBC's stake in BJB increased to 99.

64% 16.52% 20% 0% Mar-09 Promoters Jun-09 Sep-09 Dec-09 FII's Others Mar-10 Mutual Funds/Domestic Institutions S o u r c e : C o m p a n y.96% 47.275 Africa 8% India 67% * December ending year for 2007 and 2008 Source: Compan y S o u r c e : C o m p a n y.7 25% CY06 CY07 CY08 FY10 Shareholding pattern 120% 100% 48.210 10.317 FY10 4.88% 0.24% 37.104 7.630 FY10 1. C R I S I L E q u i t i e s Source: BSE India CRISIL Equities 26 .25% 0. Tier-II and Tier-III cities Number of Centers TIER-I 22% Growth in centres 1400 1200 211 1000 151 181 TIER-III 49% 800 600 400 200 0 121 713 822 919 1017 TIER-II 29% FY10 FY11E Domestic FY12E International FY13E Source: Compan y S o u r c e : C o m p a n y.866 9.241 FY09 686 3.4 4440 0 0 155 11190 252% 5.27% 49.Years Yearly return 1-Jan-05 100 44.Aptech Ltd Focus Charts Centre presence in Tier-I.70% 37.41% 45.528 4.20% 60% 17.36% 80% 0 0 0 0 0 0 1 100 43. C R I S I L E q u i t i e s e s t i m a t e * International centres excluding China Geographic revenue break-up (FY10) of retail training business LAM 0% APAC 22% CIS ME 1% 2% Peer comparison Enrolm ents ('000) Com pany FY08 FY09 FY10 Aptech* NIIT 179 389 140 428 148 471 System w ide Revenue FY08 2.163 Net Revenue FY08 454 3.52% 0.13% 37.91% 0.49% 14.73% 40% 2.119 FY09 2.33% 37.56% 14.82% 35.08% 12. C R I S I L E q u i t i e s e s t i m a t e Aptech’s returns since January 2005 Rs Shares Bought Price per share Investment made Dividend per share Total dividend income Current market price Total return Total return (%) Holding period .

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