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InTech Limited

FINANCIAL STATEMENT ANALYSIS AND VALUATION


InTech Limited
Started in 2000
Services Offered- Dial Up, Broadband,
Software Solutions


IT Industry
Increasing growth since late 90s due favorable tax
policy.
High potential of the industry attracted interest from
everywhere
Hardware sector dominates the market but recently
software and network is rising
Only 6 companies in this sector

Market Share of InTech
InTechs market share 3%
Highest Aamra Technologies 45%
Daffodil Computers 20%
Financing and Dividend Policy
Usually uses equity financing, very low
debt
InTech gave stock dividend for
previous 5 years

SWOT Analysis
Strength
Diversified product range
Rapid implementation of new technologies
Cost leadership
Weakness
Low investment
Low capital
Small customer base

SWOT Analysis
Opportunities
Government have given high priority to this sector
Entry in international market
Innovative managed service solutions
Threat
Rapid and unpredicted technology change
Volatile customer needs
Wide range of competitors

Peer Company
Information Systems Network Limited
(ISNL)
Reformulated
Income
Statement
Reformulated Income
Statement of InTech
Particulars 2013 2012 2011 2010 2009
Total Operating
Revenue
39.77 M 37.73 M 35.75 M 33.77 M 27.65 M
Total Operating
Expenses
20.42 M 17.33 M 20.10 M 23.12 M 22.96 M
Operating Income
From Sales After Tax
19.66 M 18.06 M 16.24 M 11.97 M 3.05 M
Non Operating
Income
.02 M .01 M .03 M 2.11 M 3.18 M
Operating Income
After Tax
19.67 M 18.07 M 16.27 M 14.08 M 6.23 M
Financial Expenses
After Tax
.03 M .01 M .01 M .17 M 1.00 M
Comprehensive
Income
19.64 M 18.07 M 16.26 M 13.91 M 5.23 M
Reformulated Income
Statement of ISNL
Particulars 2012 2011 2010 2009 2008
Operating revenues 51.2M 52.06M 48.9M 47M 41M
Operating expenses: 27M 32M 35M 29M 23M
Operating income from
sales (before tax):
-1.8M (7.4M) -11.6M (8.7M) (2.4M)
Operating income from
sales (after tax)
-0.76M

(4M)

(6.4M)

(4.3M)

.24M

Total operating
income(after tax)
5.6M 8M 9.6M 9.8M 10M
Net financing income : 2.6M 2.6M 0.22M 0.22M 0.22M
Comprehensive income
before MI
2.9M 5M 9.4M 9.6M 10M
Comprehensive income
to common
1M 3.7M 7.7M 7.9M 4M
Trend
Analysis of
InTech
Income Statement Trend
Analysis
Particulars 2013 2012 2011 2010 2009
Total Operating
Revenue
144% 136% 129% 122% 100%
Total Operating
Expenses
89% 75% 88% 101% 100%
Operating Income
From Sales After Tax
644% 592% 532% 392% 100%
Non Operating Income 0% 0% 1% 66% 100%
Operating Income
After Tax
316% 290% 261% 226% 100%
Financial Expenses
After Tax
3% 1% 1% 17% 100%
Comprehensive
Income
376% 346% 311% 266% 100%
Balance Sheet Trend Analysis
Particulars 2013 2012 2011 2010 2009
Total Operating
Assets
147% 134% 123% 112% 100%
Total Operating
Liabilities
61% 68% 102% 101% 100%
Total Net Operating
Assets
151% 137% 124% 113% 100%
Total Net Financial
Assets
2% 2% 2% 3% 100%
Common
Stockholders Equity
146% 133% 121% 110% 100%
Reformulated
Balance
Sheet
Reformulated Balance Sheet
of InTech
Particulars 2013 2012 2011 2010 2009
Total Operating
Assets
217.76 M 198.59 M 182.73 M 166.38 M 148.32 M
Total Operating
Liabilities
3.95 M 4.45 M 6.66 M 6.58 M 6.50 M
Total Net
Operating Assets
213.81 M 194.14 M 176.07 M 159.79 M 141.81 M
Total Net Financial
Assets
.07 M .10 M .10 M .12 M 4.19 M
Common
Stockholders
Equity
213.89 M 194.25 M 176.17 M 159.91 M 146.01 M
Reformulated Balance Sheet
of ISNL
Particulars 2012 2011 2010 2009 2008
Net
operating
assets
215M 184M 166M 147M 80M
Operating
Assets
243M 203M 180M 159M 94M
Operating
Liabilities
27M 18M 14M 12M 14M
Net Financial
Obligation
29M 27M 10M (4M) (8M)
Common
Stockholder'
s equity
185M 156M 156M 151M 89M
Reformulated
Cash Flow
Statement
Reformulated Cash Flow
Statement of InTech
Particulars 2013 2012 2011 2010 2009
Cash Flow from
Operations
(11.40 M) 51.31 M 50.17 M (3.52 M) (5.73 M)
Cash
Investment
8.92 M (94.03 M) (42.95 M) 13.75 M (21.89 M)
Free Cash Flow
(2.48 M) (42.72 M) 7.22 M 10.23 M (27.63 M)
Net Cash Flow
to Debtholders
and Issuers
(2.47 M) (42.70 M) 7.25 M 10.39 M (26.61 M)
Net Cash Flow
to Shareholders
(.02 M) (.02 M) (.03 M) (.16 M) (1.02 M)
Total Financing
Flows
(2.48 M) (42.72 M) 7.22 M 10.23 M (27.63 M)
Reformulated Cash Flow
Statement of ISNL
Particulars 2012 2011 2010 2009 2008
Cash from
operation(C)
5M

9M

5M

12.9M

9.9M

Cash
investment(I)
4.8M 20M 12M 12M
9M

Free cash
flow
(C-I)
0.37M

-10M

-7M

0.9M

0.63M

Debt
financing
0.37M
-10.6M

-7M

0.93M

0.63M

Total
financing
flows
0.37M

-10.6M

-7M

0.93M

0.63M

Common
Size
Analysis
Common Size Analysis InTech
Particulars 2013 2012 2011 2010 2009
Revenue from Operations 100.00% 100.00% 100.00% 100.00% 100.00%
Total Operating Revenue 84.05% 84.36% 87.83% 84.58% 84.21%
Total Operating Expenses 43.15% 38.76% 49.38% 57.92% 69.93%
Operating Income From
Sales After Tax
41.54% 40.39% 39.89% 29.98% 9.29%
Non Operating Income 0.03% 0.03% 0.08% 5.28% 9.69%
Operating Income After
Tax
41.57% 40.42% 39.97% 35.26% 18.98%
Financial Expenses After
Tax
0.06% 0.01% 0.03% 0.42% 3.05%
Comprehensive Income 41.51% 40.40% 39.95% 34.84% 15.92%
Common Size Analysis ISNL
Particulars 2012 2011 2010 2009 2008
Revenues from operations 100% 100% 100% 100% 100%
Total Operating Revenue 50% 48% 50% 44% 51%
Total Operating expenses 54% 62% 73% 63% 57%
Operating income from
sales after tax
-1% -8% -13% -9% 1%
Other operating income
after tax
12% 23% 33% 30% 24%
Operating income after tax 11% 15% 20% 21% 25%
Financial expenses after tax 5% 5% 0% 0% 1%
Comprehensive income
before MI
6% 10% 19% 20% 24%
Profitability
Analysis
ROCE
InTech Limited
Particulars 2013 2012 2011 2010 2009
ROCE = Earnings/ CSE = RNOA-
(FLEV*SPREAD)
9.21% 9.31% 9.24% 8.91% 4.95%
ISNL
Particulars
2012 2011 2010 2009 2008
ROCE = Earnings/ CSE = RNOA+
(FLEV*SPREAD)
1.59% 3.48% 6.06% 6.34%
11.19
%
First Level Breakdown
InTech Limited
Particulars 2013 2012 2011 2010 2009
1. RNOA (Operating profitability) =
OI/NOA = ROOA + (OLLEV *OLSPREAD)
9.20% 9.31% 9.24% 8.81% 4.39%
2. FLEV (Financial leverage) = Avg NFA/
Avg CSE
0.00035 0.00054 0.00059 0.00075 0.02872
3. SPREAD (Operating spread) = RNOA -
NBC
-31.96% 3.13% -0.75% -132% -19.51%
ISNL
Particulars 2012 2011 2010 2009 2008
1. RNOA (Operating profitability) =
OI/NOA = ROOA + (OLLEV
*OLSPREAD)
2.83% 3.16% 0.33% 0.43% 0.48%
2. FLEV (Financial leverage) = Avg
NFO/ Avg CSE
0.15973467
0.1755878
4
0.0678740
9
-0.03134
-
0.095607
3. SPREAD (Operating spread) =
RNOA - NBC
-6.41% -5.07% 3.73% 11.32% 15.21%
Second Level Breakdown
InTech Limited
Particulars 2013 2012 2011 2010 2009
1. PM (Operating profit margin) =
OI (after tax)/ Sales
41.54% 40.39% 39.89% 29.98% 9.29%
2. ATO (Asset turnover) = Sales/
NOA
0.22 0.23 0.23 0.25 0.23
RNOA = PM*ATO 9.19% 9.30% 9.22% 7.49% 2.15%
ISNL
Particulars 2012 2011 2010 2009 2008
1. PM (Operating profit margin) =
OI (after tax)/ Sales
-1% -8% -13% -9% 1%
2. ATO (Asset turnover) = Sales/
NOA
0.24 0.28 0.29 0.32 0.51
Third Level Breakdown
InTech Limited
Particulars 2013 2012 2011 2010 2009
1. Profit margin drivers (Sales PM =
Gross margin ratio - Expense ratio)
0.4154 0.4039 0.3989 0.3096 0.1048
2. Turnover drivers (1/ATO)
Operating asset/ Sales: 4.6022 4.4406 4.4892 4.1673 4.5163
Operating liabilities/Sales: 0.0834 0.0995 0.1637 0.1649 0.1980
4.5188 4.3411 4.3255 4.0024 4.3183
3. Borrowing cost drivers:
ISNL
Particulars 2012 2011 2010 2009 2008
1. Profit margin drivers (Sales PM =
Gross margin ratio - Expense ratio)
0.0575 0.10481 0.1935 0.2048 0.2425
2. Turnover drivers (1/ATO) 4.2031 3.5302 3.4088 3.1308 1.9608
3. Borrowing cost drivers(NBC): 0.1140 0.1302 0.0286
Growth and
Sustainability
Analysis
InTech
Particulars 2013 2012 2011 2010 2009
Change in ROCE = Change in
RNOA + Change in Financing
-0.11% 0.07% 0.53% 4.88%
First Level
1. Change in RNOA
Core OI from sales/NOA 0.09193 0.09303 0.09222 0.07490 0.02151
Core sales PM = Core OI from sales/
sales
0.41541 0.40387 0.39891 0.29976 0.09287
ATO 0.22130 0.23036 0.23119 0.24985 0.23157
Core other items/ NOA 0.00007 0.00007 0.00018 0.01320 0.02243
Unusual items/ NOA 0.00014 0.00000 0.00000 0.00000 0.00000
2. Change in Financing
Change in ROCE (SPREAD change) -0.0188% 0.0023% 0.0982% -3.2285%
Change in ROCE (FLEV change) 0.0061% -0.0002% 0.0001% 3.6899%
ISNL
Particulars 2012 2011 2010 2009 2008
Change in ROCE = Change in
RNOA + Change in Financing
-2% -3% -32%
Level 1:
1. Change in RNOA
Core OI from sales/NOA -0.00356 -0.0217 -0.0385 -0.0596 0.0030
Core sales PM = Core OI from sales/
sales
-0.01496 -0.0768 -0.13146 -0.09304 0.0060
ATO 0.2379 0.2832 0.2933 -2.1307 -0.9608
Core other items/ NOA 0.0296 0.0654 0.0966 0.0966 0.1233
2. Change in Financing
Change in ROCE (SPREAD change) -0.23% -0.60% 0.24% 0.37%
Change in ROCE (FLEV change) 0.10% -0.55% 0.37% 0.73%
InTech
Particulars 2013 2012 2011 2010 2009
Second Level
1. Change in RNOA -0.10% 0.07% 0.43% 4.42%
2. Change in Financing 34.98% -3.81% -130.74% 116.83%
Analysis of changes in
growth in shareholders'
equity
Change in NFA
(.03 M) .00 M (.02 M) (4.07 M)
Change in CSE (change in
sales)
11.26 M 17.37 M 3.12 M 30.60 M
Change in CSE (change in
ATO)
8.41 M .70 M 13.15 M (12.61 M)
Change in CSE
19.64 M 18.07 M 16.26 M 13.91 M
ISNL
Particulars
2012 2011 2010 2009 2008
Level 2:
Change in RNOA -2% -1.5% -33% 29%
Change in NBC -0.4% 7.4% 6.7% -2.0%
Analysis of changes in
growth in shareholders'
equity
Change in NFO
2.15 M 16.94 M 15.36 M 3.79 M
Change in CSE (change
in sales)
(2.79 M) 10.78 M 5.94 M 11.25 M
Change in CSE (change
in ATO)
34.50 M 6.32 M 13.60 M 55.00 M
Change in CSE
29.56 M .16 M 4.19 M 62.46 M
Pro Forma
Income
Statement
Pro Forma Income Statement
of InTech
Particulars 2013 2014F 2015F 2016F 2017F 2018F
Revenue from
Operations
47.32 M 51.95 M 57.04 M 62.63 M 68.77 M 75.51 M
Gross Profit
39.77 M 42.08 M 46.20 M 50.73 M 55.70 M 61.16 M
Less:
Administrative &
General
Expenses
20.43 M 24.43 M 27.25 M 30.39 M 33.90 M 37.81 M
Operating Profit
19.34 M 17.65 M 18.95 M 20.34 M 21.80 M 23.35 M
Net Profit for the
Year before Tax
19.33 M 17.66 M 18.97 M 20.36 M 21.83 M 23.38 M
Income tax
(.31 M) .51 M .54 M .58 M .63 M .67 M
Net Profit after
Tax
19.64 M 17.16 M 18.43 M 19.78 M 21.20 M 22.71 M
Earning Per
Share (Adjusted)
1.02 0.98 1.05 1.13 1.21 1.30
Valuation
Valuation using Residual
Earnings
InTech Limited
Valuation on Residual Earnings
Particulars 2013A 2014E 2015E 2016E 2017E 2018E
EPS 1.02 0.98 1.05 1.13 1.21 1.30
DPS 1.00 1.00 1.00 1.00 1.00 1.00
BPS 12.21 12.19 12.24 12.37 12.58 12.87
PV of RE -0.538 -0.417 -0.320 -0.244 -0.184
Total present
value of RE
-1.70
PV of CV 0.01
Value per
share
10.51
Valuation Using Abnormal
Earnings Growth
InTech Limited
Valuation on Abnormal Earnings Growth
Particulars 2013A 2014E 2015E 2016E 2017E 2018E
DPS 1.00 1.00 1.00 1.00 1.00 1.00
EPS 1.02 0.98 1.05 1.13 1.21 1.30
PV of AEG 0.07 0.06 0.04 0.04
Total present value of
AEG
0.20
CV 0.60
PV of CV 0.37
Total earnings to be
capitalized
1.55
Capitalization rate 0.13
Value per share 11.93

Valuation Based on Earnings
Per Share

InTech Limited
Valuation Based on Earnings Per Share
Earnings Per Share 2013 1.02
Overall Market P/E Ratio 15.07
Value per Share 15.37
Valuation on Free Cash Flow
InTech Limited
Valuation on Free Cash Flow
Year FCF DR (13%) PV of FCF
2013
(2.48 M)
1.0000
(2.48 M)
2014
5.91 M
1.1300
5.23 M
2015
(5.13 M)
1.2544
(4.09 M)
2016
4.46 M
1.4429
3.09 M
2017
(3.87 M)
1.6305
(2.38 M)
2018
3.37 M
1.8424
1.83 M
2018 onwards
34.66 M
1.8424
18.81 M
Total PV of FCF
20.01 M
Number of share outstanding
17.52 M
Value per share 1.14
Implication for
the strategy
Using cost leadership to gain competitive
advantage
Diversifying business
Less use of debt financing and investment on
operations
Gives customer service high priority