India Infoline Limited - Four-S · PDF filePage 3 of 33 Research Report: India Infoline...

Source: Company, Four-S Research

Four-S Services Pvt. Ltd. 409, Meghdoot, 94, Nehru Place-110019, India. Tel: +91 11 41808168, +91 11 26463805 Web: www.four-s.com

Its all about money, honey! India Infoline with its formidable track record, strong research credentials, aggressive expansion and diversifications in related businesses is well placed to leverage upon huge opportunities in Indian financial services space

India Infoline Limited is a leading Indian retail investment advisory and intermediary offering entire gamut of investment products ranging from equities and derivatives trading, commodities trading, portfolio management services, mutual funds, life insurance, fixed deposits among others. It also owns and manages India’s leading financial information portal – ‘indiainfoline.com’ and e-broking arm - ‘5-paisa.com’.

Company is professionally managed and its top management has strong background in equity research and financial services sector. Nirmal Jain, the founder promotor of the company, has set new standards for equity research in India. R Venkataraman, co-promoter, has varied experience in investment banking, private equity and other financial services. Both of them hold MBA degrees from IIM.

The Company has witnessed strong growth in each of its business lines and is amongst top 5 players in all key businesses.

It has undertaken several new initiatives to diversify further in related businesses :

o Forayed into investment banking services with the recent acquisition of Marchmont Capital Advisors Pvt Ltd

o Acquired 75% stake in Moneytree Consultancy Services Pvt Ltd, engaged in distribution of mortgages.

DSP Merill Lynch recently invested Rs 800mn in the company through optionally convertible bonds to fund future growth. A further Rs 200mn is invested by Times group through preferential allotment of 1.17mn equity shares at Rs 170 each.

Financial Snapshot - Consolidated (Rs. mn)

Strategies and Services for Stakeholder Success India Infoline Limited

* Nine months ended Dec’05 annualised

Background

March 27, 2006 India Financial Services Fiscal Year: April-March Current Price: Rs 184.25/- Market Cap: Rs 8,081.2mn No. of Equity shares 43.86mn 3M Avg. Trading Volumes 446,067 shares on NSE Shareholding Pattern (%)

Promoters 36.05 FIIs 7.33 MFs 5.58 Public 23.46 Others 27.58

Share Price Performance

050

100150200250

May

-05

Jul-0

5

Sep-

05

Nov

-05

Jan-

06

IIL Nifty

India Infoline Limited

Content related services – Equity research & Online media property

• Margin funding & Financing

• Got NBFC licence

India Infoline Investment Services

Private Limited• Commodities

Broking• Member MCX,

NCDEX• Member Dubai Gold

& Commodities Exchange

• Corporate agents for ICICI Prudential Life Insurance Company Limited

Distribution of personal invt. products like

• Mutual funds• RBI Bonds• Fixed Deposits etc.

• Equities & Derivative Broking

• Member BSE, NSE• Depository• PMS

India Infoline Securities Private

Limited

India Infoline.com Distribution

Company Limited

India Infoline Insurance Services

Limited

India Infoline Commodities Private

Limited

Wholly owned subsidiaries

FY’06* Revenue: Rs 1,180mn

(68.5% share)

FY’06* Revenue: Rs 164.0mn (9.5% share)

FY’06* Revenue: Rs 153.3mn

(8.9%% share)

FY’06* Revenue: Rs 32mn

(1.9% share)

FY’06* Revenue: Rs 44mn

(2.6% share)

FY’06* Revenue: Rs 149.3mn (8.7% share)

Particulars FY’04 FY’05 FY’06*

Net Sales 307.4 757.3 1,723.7 Operating Profits 61.6 282.6 682.0 OPM (%) 20.0% 37.3% 39.6% Net Profits 74.8 216.8 431.9 NPM (%) 24.3% 28.6% 25.1% EPS 2.8 8.0 9.89 ROANW (%) 37.2% 58.0% N/A ROACE (%) 36.3% 41.3% N/A

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Research Report: India Infoline Limited

* nine months FY’06 annualised

Well poised to tap high growth prospects of Indian financial services sector with aggressive expansion of branch network: Company is expected to grow by more than 100% in FY’07 to reach a turnover of around Rs 3,600mn on account of its increasing retail penetration. It plans to increase its network to 350 branch offices over next 2 years to leverage on strong prospects of Indian financial services sector, which is expected to grow at 15-20% pa.

Increasing Retail Penetration April 2005 December 2005 February 2006 Branches 73 152 175 Cities 36 85 92 Customers (Broking) 24,817 53,000 64,500 Sales Team 705 1,750* 2,849 * in Oct’05

Competitive edge due to strong research, brand and

investments in cutting edge technology

Strength Particulars Business Contribution Research Strong research team of 25 analysts.

Top management well experienced in equity and industry research

Dual advantage: Contributes to revenue and helps in winning and long term retention of customers

Branding ‘Indiainfoline’ and ‘5Paisa’ recognized as leading brands among retail investors

a) Brand awareness enables faster acquisition of customers in new cities b) Helps in rolling out of new services

Technology Invested around Rs 120mn in current year to upgrade its technology for online trading and interconnection of branches

a) Can handle twice the present online volume without major investments. b) Facilitates smoother online transactions with multiple options

Diversification in high growth potential new businesses to add

to turnover: a) Investment Banking: Company’s focus will be on M&A, Private

equity and high yield debt mid market (sub $50mn) transactions. Major revenue contribution to begin from next financial year with company focusing on organizational build-out during current year.

b) Distribution of Mortgages: Company to leverage its wide network and existing large customer base to venture into distribution of mortgages, which is growing at 35%-45% pa. Unlike existing brand specific distributors, Indian Infoline will offer competing brands under one umbrella acting as a brand neutral product aggregator and distributor in this segment. Also, company would target distribution of non-life insurance and other value adds/ancillary like property services in future.

Margins of the company set to expand:

a) Better realization per customer: Company’s proportion of delivery trade has been steadily increasing from 22% in FY’03 to 30.4% in FY’05 leading to higher average brokerage realization and better operating margins for the company.

b) Economies of scale to drive down costs: With high topline growth, staff and other administrative costs as proportion to sales have steadily declined from 19% and 25% in FY’04 to 16% and 17% in FY’06* respectively. Also, migrating higher proportion of

Increase in retail penetration with plans to double its branch network in next 2 years Strong research, brand and technology to help gain market share New service offerings to help maintain growth momentum going forward Operating margins to expand in future with better realization and economies of scale

Investment Positives

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customers from offline channels to online for transacting to help company reduce its costs further.

c) New Businesses to drive margins : 1) Commodities brokerage and PMS, which were in the

investment phase so far, earned only 2.8% PBIT margin in FY’05. However with the attainment of critical mass due to increasing customer base, higher returns are expected in these businesses.

2) Also, higher proportion of revenue from higher margin investment banking and margin financing businesses to yield improved operating margin for the company going forward.

De-risked business model with wide range of service offerings:

Company’s new businesses contributed around 7% to the revenue in Q3 FY’06 from less than 1% in FY’05. In FY’05, it added commodities brokerage and PMS businesses and in the current year it has already made a foray into investment banking, distribution of loan products and margin financing businesses. Also, company’s wide geographical spread, large customer base with strong relationships acts as an entry barrier for new entrants.

High predictability of revenue due to annuity based incomes:

Company’s hidden annuity revenue stream of policy commission, trail fees and subscription based income provides high stability and predictability of future revenue flows. Policy commission income is the fastest growing segment and has increased at a 2-year CAGR of 192.5% to Rs 153.3mn in FY’06*. With increase in annuity base and growth in new policy issue, it is further expected to increase three fold to around Rs 450mn in FY’07.

Growth focused management with strong research and financial

services experience: Company’s top management has been able to leverage upon its strong research and financial services experience to grow the business aggressively at a CAGR of 136.7% from Rs 307.4mn in FY’04 to Rs 1,722.7mn in FY’06*. It has also constantly redefined its business model from being a niche business research company to one of the leading mass retail intermediary and advisory company. It is also aggressively pursuing inorganic opportunities to fuel future growth.

Stock attractively valued: The stock of the company is trading at an

attractive valuation of 18.8x on nine months FY’06 annualised earnings, which compares favourably with the valuation of IL&FS at 21.9x despite lower growth compared to India Infoline. Indiabulls is trading at a similar valuation despite its earnings skewed towards broking and margin lending business, which contributed 96% of its earnings in FY’05. IndiaInfoline has a better business mix with more than 35% of earnings derived from non broking business. Also, IndiaInfoline has lower P/BV ratio among peers despite higher ROAE ratio of 58% in FY’05. This gives a huge potential of valuation growth going forward.

De-risk and predictable business model Professional management with focus on growth

Valuation gap with peers

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Financials and valuations based on FY’06 annualised numbers and current market price. Book value computed as on Dec’05 after adjusting equity dilutions and nine months net profits.

IndiaInfoline has been benchmarked with select domestic and global retail invesment advisory and intermediary companies.

Financial Comparison: Revenue: Leading indian companies have grown at a faster pace in the current financial year as compared to global companies primarily due to buoyant Indian capital market and strong economy growth. Also, smaller scale of operations of Indian companies have contributed to higher growth from a lower base. Among Indian companies, IndiaInfoline has much higher revenue growth as compared to IL&FS and Geojit and is the second largest retail financial intermediary company in India. Margin: Operating margin of Indian companies are comparable with global companies. However, it varies depending on the business model of the company. IndiaInfoline has lower margin as compared to Indiabulls and IL&FS as it has higher proportion of revenue from distribution of mutual funds, insurance and other personal investment products, where the margins are lower due to higher cost of customer acquisition. However, it helps in de-risking and provides a better stability in future revenue growth for the company. Indiabulls has significantly higher operating margin due to high proportion of revenue (around 38%) from margin financing which directly gets added to the profitability.

Financial Parameters (Rs mn)

Revenues (FY’06*)

Growth (YoY)

EBIDTA %

Net Profit

Growth (YoY)

ROACE (%)

(FY’05)

ROAE(%)

(FY’05)

India Infoline 1,723.6 127.6% 39.6% 431.1 98.8% 41.3% 58.0%

Indiabulls 5,404.8 223.6% 67.3% 2,300.7 305.7% 16.5% 17.9%

IL&FS 1,672.8 48.6% 58.5% 622.2 88.0% 62.6% 51.7%

Geojit 885.2 (0.1%) 36.3% 206.4 97.1% 54.4% 41.1%

Peer/Valuation Comparison

Valuations P/E P/BV EV/EBIDTA EV/Sales India Infoline 18.8 4.7 12.4 4.9 Indiabulls 16.7 6.1 10.7 7.2 IL&FS 21.9 4.2 13.5 7.9 Geojit 14.7 6.3 8.6 3.1

Source: Four-S Research

Lowest Price to book value with higher ROAE Higher growth compared to most of the domestic peers and global companies

International Companies ($mn) Net Sales Growth (%) EBITDA % Net Profit Growth (%) P/E P/BV

E*Trade 1,482.9 25.8% 51.8% 428.831 16.6% 24.4 3.1 Ameritrade 1,064.3 26.9% 46.9% 339.753 20.1% 26.8 6.0 Charles Schwab 5,151.0 15.3% 27.0% 725 76.3% 29.3 4.8 Investment Tech Group 386.3 23.8% 22.6% 67.69 65.2% 30.4 4.5

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ROACE: IndiaInfoline has better ROACE as compared to Indiabulls on account of higher proportion of revenue from lower capital intensive business of distribution of financial products. IL&FS has both higher margin and ROACE due to its investment banking operation.

Valuation Comparison Global companies enjoy better P/E ratio despite lower earnings growth. Even though global companies have advantage of larger scale of operations, broader earning mix and more robust business model (end to end – banking, brokerage, advisory), it does not justify such a high valuation gap. Among Indian companies, IL&FS enjoys higher valuation on account of its higher proportion of revenue from investment banking and its presence in institutional segment. During FY’05, IL&FS derived 24.5% of its revenue from institutional segment. Also, an 11% strategic stake of E*Trade, one of leading global online broking and banking company, in IL&FS gives it a higher valuation from peers. However, we believe that with the planned diversification of India Infoline in both these segments, its higher growth rate and recent investments of Rs 800mn by DSP Merill Lynch in the company, the valuation gap to IL&FS would reduce in future. Indiabulls business model is skewed towards its broking and margin financing business which contributed 96% to its profitability in FY’05. It is also diversifying into higher risk business of consumer financing. Therefore, we believe IndiaInfoline with its better business mix, related business diversifications and research capabilities deserves a better valuation. IndiaInfoline’s revenue from distribution of life insurance and trail fees on mutual fund distribution is annuity based and provides higher visibility of future growth. Moreover, IndiaInfoline has lower P/BV ratio despite highest ROAE of 58.0% in FY’05. This gives a huge potential of valuation growth going forward.

Global companies enjoying better valuation High valuation growth potential with better revenue mix and related business diversifications

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Highly dependent on trading volumes in equity market: Severe market fluctuations or reduction in equity prices resulting in decreased trading activity will adversely impact the financial performance of the company. Company derives a substantial 68% of its revenue from equities brokerage only. However, company is de-risking its business model by adding new revenue streams.

Increasing competition, especially in online trading: There are

several new players entering online equity trading. However, company will continue to have advantage of first mover with an established larger customer base.

Dependent on growth in each of the end user industries:

Revenue growth of India Infoline is directly dependent on the growth of trading in equity and commodity, mutual fund and other personal finance products industry, life insurance industry, etc. However, with the long term strong fundamentals of the Indian economy, each of these industries have high growth potential.

Change in taxation policies: Any adverse change in policies for

capital gain tax and substantial increase in STT charges can impact the future growth of the business.

High risk of payment defaults: During the periods of highly volatile or adverse equity market conditions, there is a high risk of bad debts and losses. Company has internal risk management systems in place to minimize such a risk.

Risk associated with new ventures: Company is making foray into several new business areas like investment banking, margin funding, loan distribution, etc. However, each of the new ventures is in broad spectrum of financial services and an extension of its current service offerings.

New revenue streams and first mover advantage to help de-risk Robust risk management systems in place to minimize defaults

External

Internal

Investment Risk

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The company’s revenues can be classified into the following

Equities brokerage & related income at Rs 1,180mn in FY’06*, constitutes a major proportion of revenues of the Company. It has steadily increased from 62 % of FY’04 revenues to 68 % in FY’06* which constitute brokerage on both online and offline trading in equities and derivates and income from portfolio management services (PMS).

Agency commission & fees contributed 10% to total turnover of the

company with revenues of Rs 164mn in FY’06*. This segment constitutes commission earned on distribution of various personal financial products such as mutual funds, fixed income investments, RBI bonds and other saving products.

Life insurance policy commission and media & content income

contributed 9% each with revenues of Rs 153.3mn and 149.3mn respectively in FY’06*. Content Income comprises of sales of web space on its information portal ‘indiainfoline.com’ and fee-based sectoral and equity research.

The company has added new revenue streams in the form of

commodities brokerage and margin financing. These new services contributed 4% to the total revenue of the company during FY’06*.


Offers multiple products and services across multiple channels

Equities brokerage & related income constitutes 68% of the total revenue

New services contributed 4% to the total revenue

Segments Financial Model Equity/Derivative trading Brokerage and depository fees Personal Finance Product/ Life insurance policy distribution Commission fees Media & Content Sales of web space, fee-based research, Commodities trading Brokerage fees

Business Performance

Revenue Spilt

62% 67% 68%

26% 16% 10%

6%8% 9%

5%9%8% 4%

0%

20%

40%

60%

80%

100%

FY'04 FY'05 FY'06*

Equities brokerage & related income Agency commission & Fees Policy commission Media & content incomeOthers

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Revenues from the segment have grown steadily at a 2-year CAGR of 148.3% from Rs 191.5mn in FY’04 to Rs. 1,180.0mn in FY’06* . It is driven by significant increase in trading turnover in both Cash and F&O segment on account of aggressive expansion of its retail branch network and new customer additions.

A) Improving Market Share & Trading Volumes

India Infoline has been continuously improving its market share in both cash and F&O segment. o In NSE cash segment, its share has increased from 0.35% in

FY’03 to 2.82% as on Jan’06. o NSE F&O segment has increased from 0.73% in FY’05 to

1.48% as on Jan’06 o It has a high market share of 19% of NSE online trading

volumes. Online trading contribution to NSE total turnover has increased from 2.75% in FY’03 to more than 12% at present.

Equities Brokerage & Related Income

0255075

100

FY'03 FY'04 FY'05 Jun-05 Jan-060%

1%

2%

3%

NSE Cash Avg Daily (Rs bn) IIL Share (%)

01020304050

2004-05 Apr-05 Jul-05 Oct-05 Jan-060%

1%

2%

BSE Avg Daily (Rs bn) IIL Share (%)

050

100150200250

2004-05 Apr-05 Jul-05 Oct-05 Jan-060%

1%

2%

NSE F&O Avg Daily (Rs bn) IIL Share (%)

02468

10

FY'03 FY'04 FY'05 Jun-05 Jan-060%5%10%15%20%25%

NSE Online Avg Daily (Rs bn) IIL Share (%)

Revenues (Rs mn)

191.5511.1

1,180.0

-200

400600800

1,000

1,2001,400

FY'04 FY'05 FY'06*

Revenues from equities brokerage increased at 2-years CAGR of 148.3% NSE cash segment share up from 0.35% in FY’03 to 2.82% in FY’06*



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B) Delivery trade proportion is on the rise

Delivery trades proportion in total trading turnover of the company has steadily increased from 22% in FY’04 to 30.4% in FY’06*.

In the current year, delivery trade proportion has increased substantially in the last six months from less than 20% in Apr’05 to close to 35% in Jan’06.

Higher delivery based turnover increases the average brokerage realization of the company and contributes to higher margins.

C) Aggressive expansion in Branch Network

Improvement in the company’s market share is a result of its aggressive increase in retail penetration in India. It has already added more than 100 new braches in the current financial year and at present covers 92 cities in the country

It plans to double its branch network in next 2 years to cover the entire length and breadth of country.

d) New customer acquisitions: Company’s widening branch network, superior technology and aggressive sales efforts enabled it to continuously acquire new customers. During the year (Apr’05-Feb’06), it has added around 42,500 new customers, hence tripling its customer base to approx. 64,500 customers as on Feb’06.

73

175

350

0

75

150

225

300

375

Apr'05 Feb'06 Mar'08*

No. of customers

22.0%

25.7%

30.4%

0%

5%

10%

15%

20%

25%

30%

35%

FY'04 FY'05 FY'06*

Higher delivery trade proportion to improve average brokerage realization 175 branches covering 92 cities Tripled its customer base during FY’06

10000

20000

30000

40000

50000

60000

70000

Dec'04 Mar'05 Jun'05 Sep'05 Dec'05 Feb'06




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Other Competitive Strengths

Strong Research Capability: Dynamics of industry have changed from a mere execution focus to more value added research, advice and services driven. Originally incorporated as a research firm, India Infoline has competitive edge over its peers as a result of its strong research team of 25 analysts covering all major sectors and companies which helps it in winning and retaining customers.

Integrated technology platform: Company has cutting edge technology to offer user friendly interface for online trading. Increasing penetration of internet and broadband would help technology enabled financial services players like India Infoline to gain market share.

Sales, Service & Marketing: As the broking business consolidates

and local brokers become marginalized, its strong team of 774 relationship managers provides a competitive advantage due to the professional services that large nationwide brokers are able to provide and sustain at low broking commissions.

Multiple offerings and delivery channels: It is a vendor-neutral

provider of broking services, which allows customers of a large number of banks to access its services. Further, it offers multiple delivery channels viz. online, through branch terminals, on phone, etc. It offers significant competitive edge by allowing customers greater flexibility in transacting.

New Initiatives Portfolio Management Services (PMS): Company entered the PMS business in FY’05 as a logical extension of its current product offerings and also to leverage its strong research background. During a short period of time, it has acquired around 450 customers and currently has a portfolio size of Rs 430mn. Its revenue from PMS services is expected to increase three fold to more than Rs 10mn during FY’06.

05

1015

FY'05 FY'06*

0200400600

Sep'

04

Dec

'04

Mar

'05

Jun'

05

Sep'

05

Dec

'05

Feb'

06

Revenue (Rsmn) No. of customers

Strong research, technology and sales team helps service customers better Revenue from PMS to grow three fold to Rs 10mn in FY’06*


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Company’s PMS is strategically targeted at retail mass affluent segment, which has a high growth potential due to higher rate of savings and changing demographics. Institutional Brokerage: Company has recently set up the institutional equities desk to target institutional brokerage segment as well. Lifetime prepaid- Broking & depository account scheme: India Infoline has recently launched an attractive lifetime free prepaid broking (equity, derivative and commodities) and depository scheme for onetime fees of just Rs 555.

o Target Customers: Company would aggressively target first time investors, small retail investors, IPO investors and passive and infrequent investors to fuel further growth in new customer acquisition in the near term.

o Marketing Plan: India Infoline has launched a nationwide

marketing campaign through print media, television advertisements and investor seminars to promote the awareness of its new scheme.

o Recent Response: The initial response has met with an

extremely encouraging response with more than a 1,000 people indicating their interest in availing of this product in the past 2 weeks.

Plans to target institutional segment as well New scheme to increase momentum in client acquisitions

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Revenues from the segment increased at a 2-year CAGR of 42.1% to Rs 164mn in FY’06* driven by company’s focus on higher growth equity mutual fund schemes and its advantage of increasing branch network and cross selling initiatives.

A) India Infoline focused on higher growth equities schemes

Company has strategically focused on distribution of equities schemes for retail customers, which has been growing at a faster pace. AUM under Growth and ELSS schemes, which represents pure equity schemes have increased to 36% of total AUM as on Jan’06 as compared to only 22% as on Jan’05. With the focus on higher growth equities schemes, number of transactions of the company increased 129% YoY to 67,552 during nine months period April – December 2006. B) Rising stream of trail fees: It has increased over 3 times from Rs 8.7mn in FY’04 to Rs 26.7mn during FY’06*, thereby providing greater stability and visibility of future revenue flows in this segment.

Revenues up 42.1% to Rs 164mn Higher growth due to focus on high growth equity AUM Higher visibility of future revenue flows due to increasing trail fees

Agency Commission & Fees

Jan'06 Jan'05

Income Growth Balanced Liquid/Money market

Gilt ELSS

Category-wise AUM

Revenues (Rs m n)

81.2 117.7164.0

-

50

100

150

200

FY'04 FY'05 FY'06*

0

1,0002,0003,000

4,0005,0006,000

7,0008,000

AM

J03

JAS

03

ON

D03

JFM

04

AM

J04

JAS

04

ON

D04

JFM

05

AM

J05

JAS

05

ON

D05

Rs

000s


Source: AMFI, Four-S Research


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C) Online distribution of MFs: India Infoline is one of the few organizations offering online distribution of MFs. With strong technology backbone, any increase in online transactions would add to the operating margins of the company. Other Financial Product Distribution Company offers retail distribution of other personal financial products such as fixed deposits, RBI bonds, small savings products, government bonds, etc. These multiple product offerings make India Infoline a “one-stop” shop for all financial and investment needs of a customer. Apart from helping in cross-selling of various products and services, it also helps in strengthening long term customer relationships. Also, it helps in de-risking the business of the Company as it is not exposed to the downturn in any one segment. Strong Sales, Service & Marketing Set up

Company has a strong team of 735 sales professionals across India dedicated for distribution of MFs and other investment products. The sales professionals undergo an intensive in-house training which enables them to give independent and objective advice to each customer as per his investment and saving needs. It gives the company a competitive advantage with financial products becoming more complex and the role of financial advisor becoming critical. The wide branch network of company also provides edge in increasing penetration as well as providing better services. The branches provide customer contact points and help in building long term customer relationships.

New Initiative: Foray in distribution of Mortgages Acquisition of Moneytree: India Infoline recently acquired 75% stake in Moneytree Consultancy Services Pvt Ltd to mark its foray into distribution of mortgages. Moneytree brings in existing relationships with banks and other loan providers as well as experience in the business of consumer finance distribution to kickstart the business.

“One stop” shop for all investment needs and strong trained sales team to offer better value to consumers Foray in distribution of loan products to add to turnover in future

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Buoyant Retail Finance: This provides a huge growth opportunity for the company as the retail finance market in India is booming mainly on account of reduced interest rates as well as increased consumer spending.

Unique Business model: At present, in the mortgage distribution segment, only direct lending and referral aggregator models are available. India Infoline to cater to the need for a brand neutral product aggregator and distributor to provide the best options to the consumer.

Complements its existing services: With the already existing huge customer base, company is well placed to attain critical mass in the mortgage distribution business as well in a short period of time.

0

200

400

600

800

1000

FY'03 FY'04 FY'050

50

100

150

200

250

300

Housing Loans Personal Loans (RHS)

Growth in Home & Personal Loans (Rs bn)

Retail finance growing in excess of 40% over last 2 years Extension of current services

Source: Four-S Research

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Revenue from commission on distribution of life insurance policy has increased at a 2-year CAGR of 192.5% from Rs 17.9mn in FY’04 to Rs 153.3mn in FY’06* This was due to the increase in mobilization of annualised premium with aggressive sales efforts, strong branding of ICICI Prudential and increased penetration of life insurance.

Annualised premium increased by 234.6% in FY’05 to reach Rs 348mn. It further increased to Rs 489mn during first nine months of FY’06.

Largest Corporate agent of ICICI Prudential India Infoline is the largest corporate agent of ICICI Prudential, which is the largest private life insurance company in India with a market share of 26.4% amongst all private players. During the period April-December 2005, ICICI Prudential’s new business premium grew by 73% YoY to Rs 14.3bn.

Strong growth in current quarter

Revenues from policy commission up at 2-years CAGR of 192.5% to Rs 153.3mn in FY’06* Aggressive sales effort of company supported by strong brand of ICICI Prudential

Policy Commission

Market Share – Private Life Insurance Companies

25.2%11.0%

6.0%

26.4%25.2%

6.2%

ICICI Prudential

Bajaj Allianz

HDFC Standard

Tata AIG

SBI Life

Other Private

ICICI Prudential FY'04 FY'05 Apr-Dec'05No. of Policies 436,115 615,000 497,765 New Business Prem. 7.5 15.8 14.3 Total Sum assured 81.7 137.8 151.7

Source: Four-S Research (based on premiums for nine months ending Dec’05)

Rs bn

10

60

110

160

Apr-05 Jun-05 Aug-05 Oct-05 Dec-05

Weighted annualised premium (Rs mn) No of lives assured by IIL

1,000

2,000

3,000

4,000

5,000

Apr-05 Jun-05 Aug-05 Oct-05 Dec-05

Revenues (Rs m n)

17.9 59.8

153.3

-

50

100

150

200

FY'04 FY'05 FY'06*


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With the increase in Company’s branch network and dedicated sales professionals for life insurance distribution, this business segment has grown substantially in recent quarters:

o Weighted annualized premium grew 189% YoY to Rs 489mn during nine months period ended Dec’05.

o Number of lives assured grew four fold to 4,321 in Dec’05 from around 1,000 in Apr’05 and at present company has around 63,000 registered customers.

o Increasing stream of annuity income provides greater stability and visibility of future flow of revenues from this segment.

Cross Selling Incentives: Company has significant cross selling advantage due to its large customer base. Its team of 774 equity relationship managers cross sell life insurance to their group of customers. Also the company has a strong team of 850 sales professionals dedicated for the distribution of life insurance policies. New Initiative – Non Life Insurance: Company is currently focused only in the distribution of life insurance policies. However in the future, it plans to foray into the non life insurance segment to boost the policy commission revenue of the company going forward.

Predictable business model with increasing annuity income and huge customer base Plans to target non-life insurance as well

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Revenue from media & content income increased at a 2-year CAGR of 198.0% from Rs 16.8mn in FY’04 to Rs 149.3mn in FY’06*. The increase was in number of advertisers as well as advertisement rates on its equity and business information portal – ‘indiainfoline.com’ with number of page views increase on account of strong research content which increased to 7mn per month at present from about 5mn two years back. Also an increasing acceptability of online medium for advertising has been driving the revenues.

Its advertisement revenue increased by 133% YoY to Rs 7mn in Q3 FY’06 from Rs 3mn in Q3 FY’05. Total number of advertisers increased from 35 to 50 at present.

Strong Research, Content and Brand: Company’s strong research and content gives it a competitive edge over other similar equity and business information websites. It has a strong team of 25 research analysts which track all the key sectors and companies in the market. Indiainfoline.com is the only Indian website which has been rated by Forbes as “Best of the Web” and ‘must read for investors in Asia’.

Increasing number of International advertisers: There has been an increasing trend in the number of international advertisers. At present there are 13 international advertisers including Google Inc and Tribal Media, which have been regularly advertising on the site. This helps in improving the operating margin of the company as the advertisement realisations are higher in foreign currency.

Stable revenue stream from subscription based research products: Company has developed several research based paid services such as stock messaging services, Daily market strategy, Weekly newsletter etc. These services were mainly targeted at equity traders and over a short period of time have gained sizeable subscribers base.

Revenue increased at 2-years CAGR of 198.0% to Rs 149.3mn in FY’06* Indiainfoline.com amongst the leading business information website Regular ads from global companies like Google and Tribal Media

Media & Content Income

Research Products Subscribers Stock messaging 5,000Daily market strategy 3,200Weekly Newsletter 3,200

R evenues ( R s mn)

16 . 8 6 3 . 814 9 . 3

-

50

100

150

200

FY'04 FY'05 FY'06*


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Support to other business segments: Media & content segment not only contribute to the revenues of the company but is also key to the success and growth of other businesses. Strong research gives company competitive edge in the long term customer retention by providing regular research based advice.

A) Commodity Brokerage: India Infoline commenced commodity brokerage business in mid FY’05 and is a member of both commodity exchanges in India - MCX and NCDEX. It is also a member of Dubai Gold & Commodities Exchange. Revenues have increased substantially in a short period of time from Rs 4.8mn during FY’05 to Rs 12.8mn in Q3 FY’06. This was due to increasing trading turnover on account of acquisition of 2,586 new customers during the period Apr’05-Jan’06.

Other Businesses

* For period Sep 2004 – March 2005

Revenues (Rs mn)

4.8 3.5

8.2

12.8

-

2

4

6

8

10

12

14

FY'05* Q1 FY'06 Q2 FY'06 Q3 FY'06

Customer additions

0200400600800

1000

Q3 FY'05 Q4 FY'05 Q1 FY'06 Q2 FY'06 Q3 FY'06-

10,000

20,000

30,000

40,000

50,000

Q3 FY'05 Q4 FY'05 Q1 FY'06 Q2 FY'06 Q3 FY'06

MCX NCDEX

High growth in commodities brokerage in last two quarters with momentum in customer acquisitions Source: Company, Four-S Research

IIL Trading volumes

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B) Margin Financing: Background: During the current financial year, company has ventured into margin funding/financing business with the setting up of an NBFC – ‘India Infoline Investment Services Private Limited’ with a corpus of approx Rs 250mn. It is a logical extension of its broking business and allows the company to improve customer stickiness by extending margin credit facilities. Market interest rates for margin financing are relatively high as competition is limited with exposure of commercial banks capped at 5% of their loans.

Performance: During Q3 FY’06, it contributed Rs 20.3mn ie. 3.8% to the company’s total turnover. Going forward, with the increase in income from margin financing, company’s operating profit margins are expected to improve significantly as it adds directly to the profits. However, the business is primarily an asset based business with significant capital requirements, thus driving down the return on capital employed of the company. C) New Initiatives- Investment Banking: Company recently forayed in the investment banking services with the acquisition of ‘Marchmont Capitol Advisors Pvt Ltd’ and a strategic alliance with Marchmont International Finance Ltd. The business would start contributing to the company’s overall turnover from FY’07 and help in increasing overall margin of the company due to better profitability in investment banking services.

Deals concluded by Marchmont: In recent months, Marchmont has successfully completed transactions in India with sale of the following: Deccanet Designs to Flextronics, digital multimedia technology business of Federal Technologies to Flextronics, Harrisons Malayalam's Cheruvally estate legacy investment stake of Honeywell Europe in Hindustan Sanitaryware amongst others.

Investment Banking Strategy

Particulars Details Company’s Focus M&A, PE and High Yield Debt Through Partners IPO, GDR Issues Key Verticals Technology, Engineering, Pharma, Logistics & Real

Estate Transaction Size Sub $50mn Footprint Delhi & Mumbai Competitive Edge Research capability, corporate relationships and wide

network Strategy Achieve niche as cross border house of choice for Indian

corporates

Foray in margin financing and investment banking to improve margins going forward

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Revenues

Consolidated revenues have increased at a 2-year CAGR of 136.7% from Rs 307.4mn in FY’04 to Rs 1,722.7mn in FY’06* due to:

Higher volumes and market share in equities and derivatives trading on account of expansion of network

Increase in agency commission & fees income (2-year CAGR of 42.1%) and life insurance policy commission (2-year CAGR of 192.5%) on account of innovative and aggressive marketing efforts.

High growth in media & content income (2-year CAGR of 198.0%) due to strong content and high brand recognition of its websites.

Contribution from new revenue streams – Portfolio management services (Rs 10mn), commodity brokerage (Rs 32mn) and margin financing (Rs 44mn).

Operating Profit

Operating Profits increased substantially at a 2-Year CAGR of 232.5% from Rs 61.6mn in FY’04 to Rs 681.1mn in FY’06* due to higher sales and substantial improvement in operating margin from 20.0% in FY’04 to 39.5% in FY’06* on account of:

Revenues have grown at a 2-year CAGR of 136.7%

EBIDTA Margins increased from 20% in FY’04 to 39.5% in FY’06*



Financial Performance - Annual

Revenues (Rs mn)

307.4757.3

1,722.7

-

500

1,000

1,500

2,000

FY'04 FY'05 FY'06*

282.6

681.1

61.6-

200

400

600

800

FY'04 FY'05 FY'06*10%

20%

30%

40%

50%

EBITDA EBITDA (%)

Operating Profit (Rs mn)

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Higher margin due to economies of scale and synergies of operations

Net Profit increased at 2-years CAGR of 140.1% to Rs 431.1mn in FY’06*

Benefits from economies of scale and synergies of various services: o Staff costs to sales down to 16% in FY’06* from 19% in FY’04

due to spread out of corporate staff costs over higher volumes. o Administrative costs down to 17% in FY’06* from 25% in FY’04

due to spread out of corporate administrative, technology, sales and marketing expenses over higher revenues.

Increase in proportion of delivery trade from 22% in FY’03 to

30.4% in FY’05 has lead to higher average brokerage realization for the company.

Cross selling incentives with wide range of service offerings has

also contributed to the better per customer realization. In equity brokerage, average revenue per client increased to Rs 15,005 in FY’06* from Rs 14,678 in FY’04.

Migration of higher proportion of customers from offline channels

to online has helped the company to reduce its average transaction costs. Online proportion of trade turnover to company’s total turnover on NSE cash market has increased to 94.8% in FY’05.from 79.6% in FY’03.

Net Profit

Net Profit increased at a 2-year CAGR of 140.1% to Rs 431.1mn in FY’06* from Rs 74.8mn in FY’04 primarily due to higher operating profits.

However, net profit margin decreased in FY’06* to 25% from 28.6% in FY’05 mainly due to higher tax incidence. Effective rate of tax in FY’06* was 30.1% as compared to only 15.6% in FY’05 due to adjustment of losses for previous years.

Also, depreciation costs were higher by 137% in FY’06* as compared to previous year due to higher capex of Rs 120mn on account of investments for expansion. Interest costs were higher by 208% to Rs 46.4mn due to increase in debt at the end of FY’05 to Rs 541.5mn from Rs 32.2mn in FY’04. Increase in debt was to fund higher working capital requirement of the company on account of increased business volumes.


216.8

431.1

74.8-

100

200

300

400

500

FY'04 FY'05 FY'06*10%

20%

30%

40%

Net Profit (Rs mn) Net Profit Margin (%)

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Key Ratio Analysis Profitability

Particulars FY’04 FY’05 ROACE 36.3% 41.3%ROAE 37.2% 58.0%Source: Company, Four-S Research

Company has maintained a high ROACE of 41.3% during FY’05, despite a high working capital requirement in the industry. High revenue growth of 127.6% with improvement in operating margin to 39.6% in FY’05 from 37.3% in FY’04 has led to improvement in the ROACE in FY’05. Also company’s better revenue mix with substantial proportion of revenue from non equity brokerage businesses, which has a lower working capital requirements has also contributed to high ROACE.

ROAE increased substantially to 58.0% in FY’05 due to almost three fold increase in the net profit of the company while maintaining low capital base.

Capitalisation

Particulars FY’04 FY’05 Debt/Equity (x) 0.13 1.07Interest Coverage (x) 3.1 17.1Source: Company, Four-S Research

Debt to equity increased from 0.13 X in FY’04 to 1.07 X in FY’05 due to higher working capital loan to fund increase in business operations.

Despite the increase in debt/equity, interest coverage of the company increased substantially at 17.1 X due to 4.6 times increase in operating profit of the company in FY’05, indicating strong financial strength of the company.

Liquidity

Particulars FY’04 FY’05Current Ratio (x) 1.7 2.9Working Capital turnover (x) 1.5 0.8


Current ratio increased while working capital turnover ratio was down

in FY’05 due to three fold increase in receivables from Rs 387.9mn in FY’04 to Rs 1,149.3mn in FY’05. However company’s receivables in its broking business are covered by stocks and the increase represents the growth in business volumes of the company.

With the increase in revenue proportion from non broking businesses, current ratio is expected to improve going forward.

High ROACE due to well spread out business mix Comfortable interest coverage and liquidity

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Consolidated revenues of the company increased at an average quarterly growth rate of 26.5% over last four quarters to reach Rs 531.4mn in Q3 FY’06. This gives an annual run rate of Rs 2,125.5mn up 155.9% YoY.

Revenues increased steadily over quarters due to increased turnover from each of its businesses on account of continuous addition of new customers for each of its service offerings.

Higher contribution from new businesses also resulted in high revenue growth for the company. o Commodities brokerage revenue increased 13 times YoY from a

small base to 12.7mn in Q3 FY’06. o Revenue from margin financing, which started during the year

contributed 3.8% to the revenue at Rs 20.3mn in Q3 FY’06

Q4 of the financial year has a higher revenue contribution, specially in the business of distribution of personal investment products and insurance policies on account of tax related investments at the end of financial year.

Company’s operating profit increased at an average quarterly growth rate of 36.9% over last two quarters to Rs 206.4mn in Q3 FY’06.

Financial Performance - Quarter

Revenue increased at average quarterly growth rate of 38.3% over last 2 quarters

Added 41 new branches in Q3 FY’06

Operating margin steady at 39-40% despite higher staff and administrative costs

Customer Additions Equities Commodities PMS Q3 FY'06 12,477 872 107 Q2 FY'06 12,206 665 123 Q1 FY'06 6,832 359 58

Revenues (Rs mn)

207.6293.5 278.0

483.3 531.4

-

100

200

300

400

500

600

Q3 FY'05 Q4 FY'05 Q1 FY'06 Q2 FY'06 Q3 FY'06

104.3

195.0 206.4

110.179.6

-

50

100

150

200

250

300

Q3 FY'05 Q4 FY'05 Q1 FY'06 Q2 FY'06 Q3 FY'0610%

20%

30%

40%

50%

EBITDA EBITDA (%) Net Profit Margin (%)


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Its operating profit margin increased to 38.8% in Q3 FY’06 from 38.3% in Q3 FY’05 despite substantial increase in staff and other costs:

Staff cost to sales increased to 19.4% in Q3 FY’06 compared to 14.6% in Q3 FY’05 due to addition of 1,791 employees during the quarter and declaration of Diwali bonus for the employees.

Administrative & other costs to sales increased to 19.9% in Q3 FY’06 compared to 18.3% in Q3 FY’05 due to higher operating expenses of 41 new branches added during the quarter.

The new recruits were in a training phase during the quarter and would start contributing to the revenue in future quarters.

OPM higher despite substantial increase

in staff and other admin costs

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High Growth Potential of Indian Financial Services Sector India is the fastest growing democracy in the world and is the

second fastest growing economy after China. Services sector is the main contributor to GDP forming 57.6% of

the total GDP and grew by nearly 10% in 2005-06 Financial services sector growing at 15-20% pa with the increase

in per capita income and favourable shift in demographics Capital Market International Scenario: US alone accounted for nearly 49.2% of worldwide turnover and 44.5% of total market capitalisation, while the same figures for India were a meager 1.0% despite large number of listed companies. India has low market capitalisation ratio as compared to other developed nations.

Particulars USA UK Japan China India No. of Listed companies 5,231 2,486 3,220 1,384 4,730Market Capitalisation ($ Bn) 16,324 2,816 3,678 640 388Market Capitalisation Ratio (%) 148.2 167.6 84.3 45.2 68.0Turnover ($ mn) 19,355 3,707 3,430 748 379

Source: S & P Emerging stock market factbook, 2005

Domestic Market Increasing trading volumes: Indian capital market has witnessed a phenomenal growth in trading volumes in both Cash and F&O segment. Total trading turnover in NSE increased more than three fold from Rs 10,579bn in 2002-03 to Rs 36,871bn in 2004-05. It has further increased in the first ten months of the current year to Rs 48,215bn.

0

10,000

20,000

30,000

40,000

50,000

60,000

2002-03 2003-04 2004-05 2005-06*

NSE Cash NSE F&O

Rs

bn

Growth in Retail Participation: Indian Capital market is predominantly a retail market. Number of custodial accounts has increased from 4.0mn in FY’03 to 7.3mn in FY’05 showing strong growth in retail participation in equities.

Growth drivers in retail segment: a) Low interest rates: Significant portion of current savings

comprising financial assets are still parked in bank fixed deposits, postal schemes, etc. which would require an asset reallocation as these instruments no longer yield attractive returns

Industry Analysis

Low market capitalization in India despite large number of listed companies Buoyant Indian capital market

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b) Better corporate governance and performance has made equity investment more attractive

c) Regulations have become more investor friendly which has boosted confidence of retail investors.

d) Changing demographic profile with favourable shift towards middle and upper middle class

e) Fiscal incentives: Lower capital gain taxes increases equity attractiveness

f) With increased network of pan India brokerage firms and online trading, it has become more convenient to trade.

Indian Brokerage Industry

Consolidating: Brokerage industry is undergoing a phase of consolidation with top 5 brokers share increasing consistently from 10% in 2002-03 to 15% at present. In US top 5 brokerage firms controlled nearly 50% of the total retail turnover. The industry being increasingly technology driven requires scale and a shift from execution driven to research, advice and service driven favours consolidation.

Deliverable trade on a rise: Delivery based trade on NSE has increased from 14.1% in 2002-03 to nearly 27.0% at present. This trend implies increased brokerage realization for the industry.

Advent of online Broking: Share of online turnover in total turnover

of NSE cash market has increased from 2.7% in 2002-03 to 11.7% in 2005-06 (upto Dec’05). It is set to grow faster in future with the increase in Internet accessibility, increasing density of broadband and advantage of greater transparency and convenience in trading. Top 5 players control nearly 90% of the total online turnover.

Retail participation to grow Increasing share of top players in Indian brokerage indusry Online trading volumes on a rise

P e rce n ta g e sh a re o f to p 5 b ro ke rs o n N S E

1 5

1 4

1 2

1 0

2 0 0 5 -2 0 0 6

2 0 0 4 -2 0 0 5

2 0 0 3 -2 0 0 4

2 0 0 2 -2 0 0 3

Percentage share of Online Turnover at NSE

11.71

7.84

4.10

2.75

0 2 4 6 8 10 12 14

2005-06

2004-05

2003-04

2002-03

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Mutual Fund (MF) Industry

Asset under management (AUM) for MF industry has grown steadily from Rs 795bn n FY’03 to Rs 2,079bn in current year (upto Jan’06) due to increase in money mobilized through launch of new schemes.

Number of new schemes launches has increased from 53 during FY’03 to 134 in current year upto Jan’06 and money mobilized through it has increased from Rs 38.4bn to Rs 477.1bn during the same period.

* for period Apr-Jan’06

However, Indian MF industry still remains small as compared to other countries - both developed and developing. In US, MF industry corpus is nearly three times that of bank deposits while in India it is only 11% of it.

AUM under Growth and ELSS schemes, which represents pure equity schemes have increased to 36% of total AUM as on Jan’06 as compared to only 22% as on Jan’05. However it is still lower than worldwide average of 43% of total mutual fund assets. Life Insurance

Life insurance sector is second largest mobiliser of savings in India after banks constituting nearly 15% of the household savings. It has Rs 4,230bn of AUM in 2004-05. For the nine months ended Dec’05 first year premium growth has been 51.2% to Rs 198.9bn.

AUM (Rs Bn)

2079

1496

1396

795

0 500 1000 1500 2000 2500

2005-06*

2004-05

2003-04

2002-03

38.45 85.49

257.64 477.15

0100200300400500600

2002-03 2003-04 2004-2005 2005-06*

Rs b

n

0

40

80

120

160

Money raised by new schemes

No. of new schemes launched

% Share of major players in total market

ICICI Prudential,

7.19

Others, 13.21

Bajaj Allianz,

6.87

LIC, 72.73

Increasing share of private players: Share of LIC has come down from 98.1% in 2002 to 72.7% in 2005. Currently ICICI Prudential, which grew by 72.7% this year, is the largest private player in the segment.

AUM increased steadily to Rs 2,079bn at present Low AUM to GDP ratio for Indian MF industry Entry of private players leading to high growth in life insurance

AUM as % of GDP

87

72

30

23

21

6

0 20 40 60 80 100

Australia

USA

Brazil

UK

S. Korea

India

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High growth potential with low life insurance penetration and density

Commodity Trading

Turnover on commodities future market has also increased tremendously from Rs 665bn in FY’03 to Rs. 5,179bn during FY’05 on account of opening of nation-wide exchanges like NCDEX and MCX and increase in awareness in commodities trading.

Insurance density

35.825.112.9

1,657.5

3,002.9

0 1000 2000 3000 4000

IndiaChinaBrazilUSA

Japan

Insurance penetration

8.6

4.4

1.3

2.32.3

0.00 2.00 4.00 6.00 8.00 10.00

India

China

Brazil

USA

Japan

% of GDP

Growth in commodity turnover

1294665

5179

0100020003000400050006000

2002-03 2003-04 2004-05

Rs

Bn

Increasing commodity trading volumes

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Figures in Rs mn

Annexure 1 - Profit & Loss Statement (Consolidated)

Particulars FY’03 FY’04 FY’05 Net Income 85.52 307.38 757.26 Less Operating Expenses 117.64 245.76 474.68 Direct Expenses 34.71 108.43 238.13 Staff Cost 31.33 59.9 103.17

Administration charges 51.6 77.43 133.38 OPBDITA (32.12) 61.62 282.58Less Interest & Finance Charges 1.56 10.63 15.07Less Depreciation & Amortization 34.42 29.04 25.13 OPBT (68.10) 21.95 242.38 Add Non Operating Income 21.03 52.56 15.3 PBT (47.07) 74.51 257.68Less Provision for current tax - 1.41 (40.23)Less (add) deferred tax - (1.71) 0.31Less other Provision for taxes (0.93) PAT ( PBT - Tax) (47.07) 74.81 216.83EPS -1.78 2.83 7.99

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Annexure 2 - Balance Sheet (Consolidated)

Figures in Rs mn

Particulars 31st Mar 03 31st Mar 04 31st Mar 05 I. Sources of Funds 1.Share Holder's Fund (a) Share Capital 264.22 264.22 316.21 (b) Reserves & Surplus (101.73) (22.93) 189.90 2.Deferred Tax Liability / (Asset) 0.00 (1.71) (2.01)3.Minority Interest 0.00 0.00 0.00 4.Loan 34.87 32.16 541.54(a) Secured 33.98 29.23 506.2(b) Unsecured 0.89 2.93 35.34TOTAL (1+2+3+4) 197.36 271.74 1,045.64II.Application of Fund 1. Net Fixed Assets 21.74 22.48 34.23Gross Block 89.33 68.06 87.93Less Depreciation 67.59 45.58 53.7Net Block 21.74 22.48 34.23Add CWIP 0 0 02. Intangible Asset 45.5 36.1 26.523. Investments 1.1 1.42 1.324. Net Current Assets (A-B) 129.02 211.74 983.57A. Current Assets 219.31 534.49 1,491.03 (a) Cash and bank balances 32.58 75.16 173.01 (b) Debtors 123.49 387.91 1,149.27 (c) Loans and advances 62.17 70.27 168.75 (d) Others 1.07 1.15 0B. Current Liabilities 90.29 322.75 507.465. MISCELLANEOUS EXPENSES 0 0 0TOTAL (1+2+3+4+5) 197.36 271.74 1,045.64

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Annexure 3 – Key Ratios (Consolidated)

Turnover/Activity Ratios FY’03 FY’04 FY’05 A/R turnover Ratio 0.69 0.79 0.66

Fixed assets turnover ratio 1.30 5.25 12.47 Total assets turnover ratio 0.30 0.52 0.49

Capital Turnover 0.44 1.12 0.72

Working Capital Turnover 0.66 1.45 0.77 Liquidity Ratios FY’03 FY’04 FY’05 Current Ratio 2.43 1.66 2.94 Acid Test Ratio 2.43 1.66 2.94 Net working capital ratio 0.66 0.77 0.94 Interval measure 671.13 782.94 1,130.81 Cash Ratio 0.36 0.23 0.34

Capitalization/Leverage Ratios FY’03 FY’04 FY’05 Debt Equity Ratio 0.22 0.13 1.07 Total Debt/ Capital Employed 0.18 0.12 0.52 Gross Block / Net Worth 0.88 0.46 0.26 Net Fixed Assets / Net Worth 0.41 0.24 0.12 Capital employed to net worth ratio 1.22 1.13 2.07

Coverage Ratios FY’03 FY’04 FY’05 Interest Coverage Ratio (42.65) 3.06 17.08 PBIT / Interest and Finance Charges (29.17) 8.01 18.10 PBDIT / Interest and Finance Charges (7.11) 10.74 19.77 Debt Service Coverage Ratio (0.92) 1.92 0.52 PBDIT / Total Debt (0.32) 3.55 0.55

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Annexure 4 – Cash Flow Statements

Cash Flow From Operating activities FY’03 FY’04 FY’05 Net Profit before taxation and extra ordinary items -47.07 74.50 257.67Add non cash and non operating expenses Depreciation & Amortization 34.42 29.04 25.13Other non operating expenses 12.25 4.72 4.44Interest Paid 1.56 10.63 15.06Less non operating Income Interest Income 5.01 3.73 5.09Other non operating income 0.19 0.02 0.04Operating Profit -3.66 115.14 297.17 (Increase)/decrease in Working Capital -55.41 -44.41 -693.77 Cash from operations -59.07 70.73 -396.6 Tax (Paid) / Refund (net) 0 0.06 -27.73Net CFO (A) -59.07 70.79 -424.33 Investing Activities Purchase of fixed assets -17.55 -16.42 -34.54Purchase of intangible assets -10.63 -0.75Sale of fixed assets 2.5 14.68 0.04Interest received 5.01 3.73 5.09Net Cash from investing activities (B) -10.04 -8.64 -30.16 Financing activities Issue of share capital 52.00(repayment)/Long term borrowings 33.98 -4.75 476.97Interest Paid -1.56 -10.63 -15.06Net cash from financing activities (C) 32.42 -15.38 513.91 Net Increase (decrease) in cash and cash equivalents -36.69 46.77 59.42(A+B+C)

Figures in Rs mn

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About Four-S Services Four-S Services provides customised business and financial research to organizations across the globe. The company also provides Investor Relations consulting to corporates based on in-depth sectoral and company research. The company has an impressive client profile and a team of analysts covering the key sectors including Finance & Banking, IT & Telecom, Retail, Media & Entertainment, Pharmaceuticals, Infrastructure and Manufacturing amongst others. For further information on the company please visit www.four-s.com

Disclaimer The information contained herein has been obtained from sources believed to be reliable but is not necessarily complete and its accuracy cannot be guaranteed. No representation, warranty, guarantee or undertaking, express or implied, is made as to the fairness, accuracy or completeness of any information, projections or opinions contained in this document or upon which any such projections or opinions have been based. Four-S Services Pvt. Ltd. will not accept any liability, whatsoever, with respect to the use of this document or its contents. This document has been distributed for information purposes only and does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities. This document shall not form the basis of and should not be relied upon in connection with any contract or commitment whatsoever. This document is not to be reported or copied or made available to others. The company may from time to time solicit from, or perform consulting, or other services for, any company mentioned in this document.

For Further details/clarifications please contact: Puneet Jain

[email protected] +91 9810027640

Four-S Services Pvt. Ltd.409, Meghdoot, 94, Nehru Place

New Delhi – 110019, India

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