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