2012

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Revenue fall necessitates curb in expenses

Engineering Services Outsourcing: Financial Performance Review

2012 Financial Performance Report Series

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Engineering Services Outsourcing: Financial Performance Review

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Table of Contents Research Methodology ......................................................................................................................vi Executive Summary ........................................................................................................................... ix 1 Macroeconomics ......................................................................................................................... 1 1.1 Global Economy .................................................................................................................... 1 1.2 Major Economic Regions ....................................................................................................... 2 1.3 National Economic Performance of Select Countries ............................................................. 4 1.4 Currency Movements ............................................................................................................ 7 1.5 Global Capital Markets .......................................................................................................... 8

2 Industry Insights .......................................................................................................................... 9 2.1 Indian IT-BPO Industry Revenue ............................................................................................ 9 2.2 IT-BPO Contribution Towards India’s GDP ........................................................................... 10 2.3 IT-BPO Contribution Towards India’s Exports ...................................................................... 10

3 Operating Earnings .................................................................................................................... 12 3.1 Total Income ....................................................................................................................... 12 3.2 Revenue Per Employee ....................................................................................................... 14

4 Expenses ................................................................................................................................... 16 4.1 Operating Cost .................................................................................................................... 16 4.2 Employee Cost .................................................................................................................... 18 4.3 Total Cost Per Employee ..................................................................................................... 19

5 Profitability ............................................................................................................................... 21 5.1 EBITDA Margin .................................................................................................................... 21 5.2 EBIT Margin ........................................................................................................................ 22 5.3 Net Profit Margin ................................................................................................................ 23 5.4 Net Profit Per Employee ...................................................................................................... 24

6 Operating Efficiency .................................................................................................................. 26 6.1 Debtor Days ........................................................................................................................ 26 6.2 Creditor Days ...................................................................................................................... 28 6.3 Debtor Days Versus Creditor Days ....................................................................................... 29 6.4 Net Operating Cycle ............................................................................................................ 29

7 Solvency .................................................................................................................................... 31 7.1 Quick Ratio ......................................................................................................................... 31 7.2 Debt Ratio........................................................................................................................... 33 7.3 Debt/Equity Ratio ............................................................................................................... 34 7.4 Interest Coverage ............................................................................................................... 35

8 Capital Efficiency ....................................................................................................................... 37 8.1 Return On Capital Employed ............................................................................................... 37 8.2 Return on Equity ................................................................................................................. 38 8.3 Return On Assets ................................................................................................................ 39

9 Service Provider Evaluation ....................................................................................................... 41 10 Company Profiles ...................................................................................................................... 46 10.1 3D Concept ......................................................................................................................... 46 10.2 Aktis Engineering ................................................................................................................ 48 10.3 Altair India .......................................................................................................................... 50 10.4 Celstream ........................................................................................................................... 52 10.5 EniT Solutions ..................................................................................................................... 54 10.6 Hoyt Engineering ................................................................................................................ 56 10.7 ImageGrafix ........................................................................................................................ 58 10.8 Mahindra Engineering ......................................................................................................... 60 10.9 Neilsoft ............................................................................................................................... 62 10.10 QuEST Global ...................................................................................................................... 64

2012 Engineering Services Outsourcing: Financial Performance Review

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10.11 Rave Tech ........................................................................................................................... 66 10.12 Tantra Infosolutions ............................................................................................................ 68 10.13 Tooltech ............................................................................................................................. 70

11 Appendix ................................................................................................................................... 72

2012 Engineering Services Outsourcing: Financial Performance Review

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Table of Exhibits Exhibit i: Service Provider Categories and Sample Size .................................................................................... vii

Exhibit ii: Parameters Used for Service Provider Comparison .......................................................................... vii

Exhibit iii: Legend Used for Service Provider Comparison ............................................................................... viii

Exhibit iv: List of Abbreviations ...................................................................................................................... viii

Exhibit v: Top Five Service Providers in the Engineering Services Outsourcing Segment in 2011 ......................... x

Exhibit 1: Global GDP Growth Rate from 2007 to 2013 ...................................................................................... 1

Exhibit 2: European Union (EU) GDP Growth Rate from 2007 to 2013 ............................................................... 2

Exhibit 3: BRIC (Brazil, Russia, India, China) GDP Growth Rate from 2007 to 2013.............................................. 2

Exhibit 4: India GDP Growth Rate from 2007 to 2013 ........................................................................................ 4

Exhibit 5: USA GDP Growth Rate from 2007 to 2013 ......................................................................................... 5

Exhibit 6: UK GDP Growth Rate from 2007 to 2013 ........................................................................................... 6

Exhibit 7: Indian Currency Movements from 2007 to 2011 ................................................................................ 7

Exhibit 8: Capital Market Performance from 2007 to 2011 ................................................................................ 8

Exhibit 9: Indian IT-BPO Revenue from 2007 to 2012 ........................................................................................ 9

Exhibit 10: Indian IT-BPO Contribution to the National GDP ............................................................................ 10

Exhibit 11: Indian IT-BPO Contribution to the National Exports ....................................................................... 10

Exhibit 12: Revenue and Growth Over Five Years ............................................................................................ 12

Exhibit 13: Revenue by Service Provider Type ................................................................................................. 13

Exhibit 14: Revenue Change (YoY) by Service Provider Type ............................................................................ 13

Exhibit 15: Revenue of ESO Segment by Service Provider in 2011 .................................................................... 14

Exhibit 16: Revenue Per Employee (RPE) Over Five Years ................................................................................ 14

Exhibit 17: RPE by Service Provider Type ......................................................................................................... 15

Exhibit 18: RPE Change (YoY) by Service Provider Type.................................................................................... 15

Exhibit 19: Operating Expense as a Percent of Revenue For Five Years ............................................................ 16

Exhibit 20: Operating Expense Change (YoY) by Service Provider Type ............................................................ 17

Exhibit 21: Operating Expense as a Percent of Revenue by Service Provider Type ............................................ 17

Exhibit 22: Employee Cost as a Percent of Operating Expense Over Five Years ................................................ 18

Exhibit 23: Employee Cost as a Percent of Revenue Over Five Years ................................................................ 18

Exhibit 24: Employee Cost as a Percent of Revenue by Service Provider Type .................................................. 19

Exhibit 25: Total Cost Per Employee Over Five Years ....................................................................................... 19

Exhibit 26: Total Cost Per Employee by Service Provider Type ......................................................................... 20

Exhibit 27: EBITDA Margin Over Five Years...................................................................................................... 21

Exhibit 28: EBITDA Margin by Service Provider Type........................................................................................ 22

Exhibit 29: EBIT Margin Over Five Years .......................................................................................................... 22

Exhibit 30: EBIT Margin by Service Provider Type ............................................................................................ 23

Exhibit 31: NPM Over Five Years ..................................................................................................................... 23

Exhibit 32: NPM by Service Provider Type ....................................................................................................... 24

Exhibit 33: Net Profit Per Employee Over Five Years........................................................................................ 24

Exhibit 34: Net Profit Per Employee by Service Provider Type.......................................................................... 25

Exhibit 35: Debtor Days Over Five Years .......................................................................................................... 26

Exhibit 36: Debtor Days by Service Provider Type ............................................................................................ 27

Exhibit 37: Debtor Days Change (YoY) by Service Provider Type ...................................................................... 27

Exhibit 38: Creditor Days Over Five Years ........................................................................................................ 28

Exhibit 39: Creditor Days by Service Provider Type .......................................................................................... 28

Exhibit 40: Debtor Days Versus Creditor Days ................................................................................................. 29

Exhibit 41: Net Operating Cycle Over Five Years .............................................................................................. 29

Exhibit 42: Net Operating Cycle by Service Provider Type ................................................................................ 30

Exhibit 43: Quick Ratio Over Five Years ........................................................................................................... 31

2012 Engineering Services Outsourcing: Financial Performance Review

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Exhibit 44: Quick Ratio by Service Provider Type ............................................................................................. 32

Exhibit 45: Quick Ratio Change (YoY) by Service Provider Type ........................................................................ 32

Exhibit 46: Debt Ratio Over Five Years ............................................................................................................ 33

Exhibit 47: Debt Ratio by Service Provider Type .............................................................................................. 33

Exhibit 48: Debt/Equity Ratio Over Five Years ................................................................................................. 34

Exhibit 49: Debt/Equity Ratio by Service Provider Type ................................................................................... 34

Exhibit 50: Debt/Equity Ratio Change (YoY) by Service Provider Type .............................................................. 35

Exhibit 51: Interest Coverage Over Five Years ................................................................................................. 35

Exhibit 52: Interest Coverage by Service Provider Type ................................................................................... 36

Exhibit 53: Return On Capital Employed (ROCE) Over Five Years...................................................................... 37

Exhibit 54: ROCE by Service Provider Type ...................................................................................................... 38

Exhibit 55: Return On Equity (ROE) Over Five Years ......................................................................................... 38

Exhibit 56: ROE by Service Provider Type ........................................................................................................ 39

Exhibit 57: Return on Assets (ROA) Over Five Years ......................................................................................... 39

Exhibit 58: ROA by Service Provider Type ........................................................................................................ 40

Exhibit 59: Consolidated Ranking of Top Five Service Providers ....................................................................... 41

Exhibit 60: Revenue Ranking of Top Five Service Providers .............................................................................. 41

Exhibit 61: RPE Ranking of Top Five Service Providers ..................................................................................... 42

Exhibit 62: Total Cost Per Employee Ranking of Top Five Service Providers ...................................................... 42

Exhibit 63: EBITDA Margin Ranking of Top Five Service Providers .................................................................... 42

Exhibit 64: Net Profit Per Employee Ranking of Top Five Service Providers ...................................................... 43

Exhibit 65: Net Operating Cycle Ranking of Top Five Service Providers ............................................................ 43

Exhibit 66: Quick Ratio Ranking of Top Five Service Providers.......................................................................... 43

Exhibit 67: Debt/Equity Ratio Ranking of Top Five Service Providers ................................................................ 44

Exhibit 68: ROCE Ranking of Top Five Service Providers ................................................................................... 44

Exhibit 69: ROE Ranking of Top Five Service Providers ..................................................................................... 44

2012 Engineering Services Outsourcing: Financial Performance Review

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Research Methodology

About the Financial Performance Report Series These reports have been designed to analyze the financial performance of companies in the

Knowledge Process Outsourcing (KPO) industry. The information in this series will be of interest to

KPO service providers, consultancies, investment firms, and buyers of KPO services. It is aimed at

providing decision makers, analysts and influencers with relevant and actionable insights. The report

will enable service providers to benchmark their performance against their peers. It will help

investors and consultants evaluate the financial health of their service providers. Buyers of KPO

services can use this information to make informed decisions.

Scope of the Report The Financial Performance Report analyzes key financial ratios of companies that constitute the

engineering services outsourcing (ESO) segment. The companies covered in this report are pure-play

KPOs with operations in India. Pure-play KPOs provide services for a specific segment, process or

industry; in this case, the engineering services outsourcing segment. Only private limited companies

that are incorporated in India and that filed annual returns with the Government of India’s Ministry

of Corporate Affairs (MCA) are considered in the report. The information presented in this report is

based on financial statements of companies between the fiscal period from 2007 and 2011.

In addition, publicly available information and past research by ValueNotes on information

pertaining to the companies’ service offerings and employee strength is used in this report. For more

information regarding ValueNotes’ publications on the engineering services outsourcing industry,

refer to the section titled For Further Reading.

Special Notes As per the reporting guidelines of the MCA, private limited companies are required to file their

balance sheets, profit and loss accounts, annual returns and compliance certificates. However, all

the line items in the financial statements are not mandatory.

Financial information in the report is reported in Indian Rupees (INR).

The financial period reported by the company has been considered as is and has not been

adjusted. Companies in the sample have differing report periods such as April to March, and

January to December.

The financial statements of the companies have been computed as reported and

adjustments or normalizations have not been made by ValueNotes.

The analysis in this report uses a data set of those companies that have disclosed all the

pertinent financial information for that particular year required to calculate the appropriate

financial ratio.

Analysis and conclusions regarding industry trends have been made on the basis of available

data from the population of companies in ValueNotes’ sample (refer to Appendix).

The data in this report does not represent the entire engineering services outsourcing

industry, as it excludes multi-service providers and captives. However, we believe that

trends within the pure-play engineering services outsourcing business will be similar to

those of the industry as a whole.

2012 Engineering Services Outsourcing: Financial Performance Review

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Service Provider Categorization

Exhibit i: Service Provider Categories and Sample Size

The total number of companies that form

the sample for this report is 13. Companies

have been grouped into categories based

on their latest reported total revenue. This

has been done to allow for a more

meaningful comparison of results. The

categories, which are based on annual

revenue, are depicted in the adjacent table

along with the sample size of each

category.

Service Provider Comparison and Ratings The report provides a relative positioning of Indian service providers in the engineering services

outsourcing segment featured in the report. The evaluation is based on their financial performance

on each of the 10 key financial ratios as listed in the exhibit below.

Exhibit ii: Parameters Used for Service Provider Comparison

Parameter

Total Income

Revenue Per Employee

Total Cost Per Employee

EBITDA Margin

Net Profit Per Employee

Net Operating Cycle

Quick Ratio

Debt/Equity Ratio

Return On Capital Employed

Return On Equity

The methodology adopted for considering companies for inclusion in the ranking requires FY 2011

data to be available for calculating at least five of the financial ratios listed above. A relative ranking

is assigned to each company based on their performance on each financial ratio. A single relative

ranking is then given to each company by taking an equally weighted average of each ranking. The

top five service providers are then positioned relative to each other across the ratios listed in the

above exhibit, from 2007 to 2011.

Category name Revenue range

Large INR 500+ mn

Medium INR 50 - 500 mn

Small INR 1 - 50 mn

2012 Engineering Services Outsourcing: Financial Performance Review

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The ranking of companies are represented using a four-bar scale. The scale used to denote the

relative positions is shown in the exhibit below.

Exhibit iii: Legend Used for Service Provider Comparison

Abbreviations

The exhibit below includes a list of abbreviations used in this report. For a more detailed explanation

of the financial ratios and how they were calculated, refer to the Glossary.

Exhibit iv: List of Abbreviations

bn Billions

BPO Business Process Outsourcing

CSO Central Statistics Office

ESO Engineering services outsourcing

EUR Euro

FY Fiscal Year

GBP Pound Sterling

GDP Gross Domestic Product

GSAM Goldman Sachs Asset Management

IMF International Monetary Fund

INR Indian Rupee

JPY Japanese Yen

k Thousand

KPO Knowledge Process Outsourcing

MCA Ministry of Corporate Affairs

mn Millions

NASSCOM National Association of Software and Services Companies

OECD Organization for Economic Development

RBI Reserve Bank of India

USD United States Dollar

WB World Bank

WEO World Economic Outlook

YoY Year on Year

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Executive Summary

Please write to us at reports@valuenotes.co.in for a complimentary copy of the executive summary.

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More information about the Engineering Services Outsourcing: Financial Performance Review report

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Authors Contributors

Arjun Bhuwalka Sameer Murdeshwar T +91-20-6623 1739 T +91-20-6623 1797 E arjun@valuenotes.co.in E sameer@valuenotes.co.in

Deepti Krishnan

T +91-20-6623 1717 E deepti@valuenotes.co.in

DISCLAIMER: This report is for general information only, and does not constitute a business

recommendation or professional advice. The information in this report has been obtained from

sources believed to be reliable. ValueNotes cannot guarantee the authenticity, accuracy or adequacy

of this information. All views expressed in this report are based on the opinions and judgments of

ValueNotes. Readers are encouraged to consult their own professional advisors before making any

decision based on the contents of this report. ValueNotes accepts no liability for any consequences

arising from the use of this report or the material contained herein.

Given that data is based on the financials of Indian registered companies, some of the overseas

subsidiaries or entities related to the Indian companies have not been included. This may result in

numbers that are discordant with other figures. If any of the companies covered in this report finds

an anomaly, please send an email to research@valuenotes.co.in, and we will rectify the data as soon

as possible.

For Further Reading Offshoring of Automotive Design & Engineering Services to India

Date of Publication July 2006

Our Other Reports Analytics: Financial Performance Review

Date of Publication September 2012 Outsourced Publishing Services: Financial Performance Review

Date of Publication July 2012

Legal Process Outsourcing: Financial Performance Review

Date of Publication June 2012 Banking BPO Services: Getting Back to Basics

Date of Publication March 2012 The Heathcare Payor BPO Landscape In 2011

Date of Publication February 2012 The Pharmaceutical Industry Sourcing Landscape In 2011

Date of Publication January 2012 The Utilities Sourcing Landscape In 2011

Date of Publication December 2011

How Is Outsourcing Fueling The Oil And Gas Industry?

Date of Publication October 2011

Obamacare: Outsourcing Opportunities In Revenue Cycle Management

Date of Publication June 2011

Where Offshore Analytics is Heading in 2011

Date of Publication March 2011

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