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InTech Limited
Started in 2000
Services Offered- Dial Up, Broadband,Software Solutions
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IT Industry
Increasing growth since late 90s due favorable taxpolicy.
High potential of the industry attracted interest fromeverywhere
Hardware sector dominates the market but recentlysoftware and network is rising
Only 6 companies in this sector
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Market Share of InTech
InTechsmarket share 3%
Highest Aamra Technologies 45%
Daffodil Computers 20%
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Financing and Dividend Policy
Usually uses equity financing, very low
debt InTech gave stock dividend for
previous 5 years
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SWOT Analysis
Strength
Diversified product range Rapid implementation of new technologies
Cost leadership
Weakness
Low investment
Low capital
Small customer base
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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
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Peer Company
Information Systems Network Limited
(ISNL)
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ReformulatedIncome
Statement
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Reformulated Income
Statement of InTech
Particulars 2013 2012 2011 2010 2009
Total Operating
Revenue39.77 M 37.73 M 35.75 M 33.77 M 27.65 M
Total Operating
Expenses20.42 M 17.33 M 20.10 M 23.12 M 22.96 M
Operating Income
From Sales After Tax19.66 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 Tax19.67 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
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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 operatingincome(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 MI2.9M 5M 9.4M 9.6M 10M
Comprehensive income
to common
1M 3.7M 7.7M 7.9M 4M
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TrendAnalysis of
InTech
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Income Statement Trend
Analysis
Particulars 2013 2012 2011 2010 2009
Total Operating
Revenue144% 136% 129% 122% 100%
Total Operating
Expenses89% 75% 88% 101% 100%
Operating Income
From Sales After Tax644% 592% 532% 392% 100%
Non Operating Income
0% 0% 1% 66% 100%
Operating Income
After Tax316% 290% 261% 226% 100%
Financial Expenses
After Tax3% 1% 1% 17% 100%
ComprehensiveIncome
376% 346% 311% 266% 100%
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Balance Sheet Trend Analysis
Particulars 2013 2012 2011 2010 2009
Total Operating
Assets 147% 134% 123% 112% 100%
Total Operating
Liabilities61% 68% 102% 101% 100%
Total Net Operating
Assets
151% 137% 124% 113% 100%
Total Net Financial
Assets2% 2% 2% 3% 100%
Common
Stockholders Equity146% 133% 121% 110% 100%
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ReformulatedBalance
Sheet
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Reformulated Balance Sheet
of InTech
Particulars 2013 2012 2011 2010 2009
Total Operating
Assets217.76 M 198.59 M 182.73 M 166.38 M 148.32 M
Total OperatingLiabilities
3.95 M 4.45 M 6.66 M 6.58 M 6.50 M
Total Net
Operating Assets213.81 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
CommonStockholders
Equity213.89 M 194.25 M 176.17 M 159.91 M 146.01 M
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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
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ReformulatedCash Flow
Statement
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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
Investment8.92 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)
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Reformulated Cash Flow
Statement of ISNL
Particulars 2012 2011 2010 2009 2008
Cash from
operation(C)
5M 9M 5M 12.9M 9.9M
Cashinvestment(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
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CommonSize
Analysis
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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 AfterTax
0.06% 0.01% 0.03% 0.42% 3.05%
Comprehensive Income
41.51% 40.40% 39.95% 34.84% 15.92%
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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 tax12% 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 MI6% 10% 19% 20% 24%
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Profitability
Analysis
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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 2008ROCE = Earnings/ CSE = RNOA+
(FLEV*SPREAD) 1.59% 3.48% 6.06% 6.34%11.19
%
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Second Level Breakdown
InTech Limited
Particulars 2013 2012 2011 2010 2009
1. PM (Operating profit margin) =
OI (after tax)/ Sales41.54% 40.39% 39.89% 29.98% 9.29%
2. ATO (Asset turnover) = Sales/
NOA0.22 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 20081. PM (Operating profit margin) =
OI (after tax)/ Sales-1% -8% -13% -9% 1%
2. ATO (Asset turnover) = Sales/
NOA0.24 0.28 0.29 0.32 0.51
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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 0.10482. 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:
ISNLParticulars 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
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Growth andSustainability
Analysis
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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 Level1. 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 0.000002. 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%
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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 FinancingChange 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%
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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 MChange 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
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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 MChange in CSE (change
in sales) (2.79 M) 10.78 M 5.94 M 11.25 MChange in CSE (change
in ATO) 34.50 M 6.32 M 13.60 M 55.00 MChange in CSE 29.56 M .16 M 4.19 M 62.46 M
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Pro FormaIncome
Statement
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Valuation
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Valuation using Residual
Earnings
InTech Limited
Valuation on Residual EarningsParticulars 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 presentvalue of RE
-1.70
PV of CV 0.01
Value per
share
10.51
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Valuation Based on Earnings
Per Share
InTech LimitedValuation Based on Earnings Per Share
Earnings Per Share 2013 1.02
Overall Market P/E Ratio 15.07
Value per Share
15.37
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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 M2015 (5.13 M) 1.2544 (4.09 M)2016 4.46 M 1.4429 3.09 M2017 (3.87 M) 1.6305 (2.38 M)
2018 3.37 M 1.8424 1.83 M2018 onwards 34.66 M 1.8424 18.81 M
Total PV of FCF 20.01 MNumber of share outstanding 17.52 MValue per share 1.14
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Implication forthe strategy
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Using cost leadership to gain competitiveadvantage
Diversifying business
Less use of debt financing and investment onoperations
Gives customer service high priority
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