Modelling Brief – 16th august

Isys Corpn is a global IT service provider in the BFSI space with centers
across several countries. Its core business is IT software licenses both
perpetual and subscription and providing IT services including
customisation and IT maintenance .

Isys is bidding on a contract which includes three parts - IT services ,

perpetual licenses and maintenance for a very big Dubai based bank .

Finance team to come up with a finance model to do the pricing at what

EBITDA margin . Model should be able to perform any number of “what if”
scenarios.

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Scope
Business Objective - optimal bid pricing using existing cost base and margins.

Background – Opportunity to increase revs / pfts , new mkt / new customer

Requirements - model is critical for cost analysis / sensitivity analyses / what-ifs /

margin analysis / pricing strategy / what-ifs to be based on cost breakup ,
marginal cost strategy , global market dynamics etc ..

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Specifications
A brief tab in the sp.sheet where you can list out any key data / info which is
important to entire model.

Key inputs , info which is constant across the years

Any other relevant info / formulae / approach

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Design
List all the factors that will affect the way we design the model.

Put down as much as you know, filter through the list, and keep the elements
that will affect the model while eliminating those which will have little or no
effect.

Currency impact ?

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Outputs
 Fixed and variable cost analyses (by segment ?) ,

 Marginal cost , operating leverage ? Contribution by segment ?

 cash flow , P&L , BS

5 year analyses

We can add further outputs at our discretion.

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Isys Corp – Key Revenue & biz data - FY19
 Revs are Perpetual licenses , Subscription licenses , Maint , IT services , others .
 The percentage shares are respectively 30% , 10% , 15% , 40% and 5% respectively.
 Top 10 clients revenue share is 90% , 80% , 65% , 80% and 100% across these 5 streams .
 Isys operates in US , Europe , South Africa , Dubai , South East Asia and India and respective
shares are 40% , 30% , 10% , 5% and 15% respectively.
 EBITDA Margins are highest in US and Europe at 25% but Dubai is slowly moving up from its
current rate of 5% and should be closer to 12% in 3 years time .
 Over next 5 years Isys wants to increase revenue from license sales by 5% YoY for perpetual and
8% YoY for subscription. Maint will grow at 5% YOY but IT services will decline slowly by 5% YoY ..
Others will remain as-is.
 This is a key client in Dubai where Isys wants to get a foot in the door desperately as there is
scope to generate more biz in future years and this has the potential to become a top 10 client in
3 years time. By the way the Dubai dirham has been appreciating at 5% YoY compared to USD . A
big chunk of Isys costs are in low cost countries like in India and South east Asia.

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Cost data – FY19
Perpetual licences have huge gross margins and are repeat sales as development and
R&D costs once incurred are capitalized and charged off to P&L over a period .
GM for these 5 streams are 60% , 50% , 40% , 25% and 25% respectively.
EBITDAs are 40% , 30% , 30% , 7% and 7% respectively.
Fixed cost is 35% and variable cost is 65% for all license revenues but for the rest
variable cost is higher at 75% .
Isys typically does pricing on marginal cost basis in emerging and growth mkts to get
a foot in the door.
Some of their revenue segments could be loss making but this is made up thru
increased margins in license sales

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FY19 common size P&L & BS – all figs in USD ‘000
P&L –
• Revenues = 32892 , GM =40% , EBITDA = 23% ,
• Depreciation = 10% , Interest = 7% and the applicable tax rate on PBT is 33%. This is
considered for Co as a whole and not broken down by revenue stream.

ASSETS -
• Cash = 4.5% , AR = 14.3% , other current assets = 8.7% , Gross Assets = 63.1% , Accum
depreciation = 27.1% , Net assets =36% , Other NCA = 31.3% . Total = 94.8%

LIABILITIES –
• ST debt = 5.5% , AP = 13.2% , other current liabilities = 6.2% , LT Debt = 15.5% , Other NCL =
10% , Share capital = 2.9% , Retained earnings = 41.5% . Total = 94.8%

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