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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)


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


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%


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%


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

17-182 InTech

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