De-rating likely reflecting lower returns; on to Conviction Sell List · 2015-07-06 · De-rating...

February 28, 2012

ACTION

Sell Indra (IDR.MC)

Return Potential: (22%) Equity Research

De-rating likely reflecting lower returns; on to Conviction Sell List

Source of opportunity

In the long term, while we view Indra Sistemas as a relatively better

positioned vendor in the European IT Services space due to its unique IP

and increasing revenue mix of EM, we believe it will underperform in the

near term due to its high Spanish exposure and worsening earnings/cash-

returns profile. Further, we believe that the weak pricing environment and

increasing mix of services could delay operating margin recovery and

hence estimate that they will be at the low end of guidance. We remain

Sell rated and add the shares to our Conviction List. Our new 12-month

price target falls to €7.9 (from €9) implying 22% downside potential.

Catalyst

Indra Sistemas is due to report 1Q12 results in early May. In the interim,

we expect data points from IT services peers to indicate to continuing

tough market conditions in the key Spanish market which has negative

read-across for Indra. Following weak 2012 guidance, we lower our 2012-

13 PF EPS estimates by 13%-14% and add 2014 estimates. Our 2012-13

revenue/EPS estimates are 0%-2%/19%-25% below Bloomberg consensus

(not all estimates updated following 2011 results announcement).

Valuation

Our new 12-month P/E-based price target is €7.9 (from €9), valuing the

company on 9x 2013E PF EPS, in line with its significantly lowered cash-

returns profile and 25% discount to the sector’s mean P/E multiple of 12x

(since 2008). At our price target, the shares would trade at a 40% discount

to its historical P/E mean multiple of 15x reflecting the lowered revenues,

earnings and cash-returns profile of the company.

Key risks

Risks include: 1) greater resilience in the Spanish market; 2) large deals in

EMs including Latin America, Middle East; 3) faster-than-expected benefits

in LatAm from increased scale due to Politec acquisition.

INVESTMENT LIST MEMBERSHIP

Pan-Europe Sell List

Pan-Europe Conviction Sell List

Coverage View: Neutral

S.K.Prasad Borra +44(20)7552-2927 [email protected] Goldman Sachs International Goldman Sachs does and seeks to do business with companies

covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.

Mohammed Moawalla +44(20)7774-1726 [email protected] Goldman Sachs InternationalSuhasini Varanasi (212) 934-8376 [email protected] Goldman Sachs India SPL Jo Blackshaw +44(20)7552-3718 [email protected] Goldman Sachs International

The Goldman Sachs Group, Inc. Global Investment Research

Growth

Returns *

Multiple

Volatility Volatility

Multiple

Returns *

Growth

Investment Profile

Low High

Percentile 20th 40th 60th 80th 100th

* Returns = Return on Capital For a complete description of the

investment profile measures please refer to

the disclosure section of this document.

Indra (IDR.MC)

Europe Technology Peer Group Average

Key data Current

Price (€) 10.08

12 month price target (€) 7.90

Upside/(downside) (%) (22)

Market cap (€ mn) 1,552.8

Enterprise value (€ mn) 2,455.9

12/11 12/12E 12/13E 12/14E

Revenue (€ mn) New 2,688.5 2,838.7 2,879.1 2,939.7

Revenue revision (%) 1.4 2.2 2.1 --

EBIT (€ mn) New 250.2 226.1 237.0 255.2

EBIT revision (%) (5.0) (14.5) (10.4) --

EPS (€) New 1.12 0.87 0.87 0.92

EPS (€) Old 1.06 1.01 1.00 --

EV/EBITDA (X) 8.6 9.6 8.9 8.2

P/E (X) 11.4 11.6 11.5 11.0

Dividend yield (%) 4.8 4.0 4.4 5.0

FCF yield (%) (0.3) (3.7) 1.2 3.0

CROCI (%) 12.9 9.2 8.6 8.5

Price performance chart

9

10

11

12

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14

15

16

Feb-11 Jun-11 Sep-11 Dec-11

260

280

300

320

340

360

380

400

Indra (L) FTSE World Europe (EUR) (R)

Share price performance (%) 3 month 6 month 12 monthAbsolute 3.5 (15.6) (28.3)

Rel. to FTSE World Europe (EUR) (13.0) (27.6) (22.2)

Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 2/27/2012 close.

February 28, 2012 Indra (IDR.MC)

Indra: Summary Financials

Analyst Contributors

S.K.Prasad Borra

[email protected]

Mohammed Moawalla

[email protected]

Suhasini Varanasi

[email protected]

Jo Blackshaw

[email protected]

Goldman Sachs Global Investment Research 2

Profit model (€ mn) 12/11 12/12E 12/13E 12/14E Balance sheet (€ mn) 12/11 12/12E 12/13E 12/14E

Total revenue 2,688.5 2,838.7 2,879.1 2,939.7 Cash & equivalents 83.2 67.4 151.5 271.0

Operating costs (2,476.5) (2,625.8) (2,648.8) (2,689.8) Accounts receivable 2,017.6 2,258.1 2,370.4 2,468.7

R&D 0.0 0.0 0.0 0.0 Inventory 0.0 0.0 0.0 0.0

Lease payments 0.0 0.0 0.0 0.0 Other current assets 317.9 357.9 397.9 437.9

Other operating profit/(expense) 83.8 70.0 70.0 70.0 Total current assets 2,418.7 2,683.4 2,919.8 3,177.5

EBITDA 295.8 305.0 311.6 319.9 Net PP&E 171.9 137.8 97.5 56.4

Depreciation & amortisation (45.6) (56.8) (63.3) (64.7) Net intangibles 867.8 920.4 973.6 1,028.0

EBIT 250.2 226.1 237.0 255.2 Total investments 66.4 66.4 66.4 66.4

Net interest income/(expense) (37.7) (44.0) (54.0) (63.0) Other long-term assets 0.0 0.0 0.0 0.0

Associates 3.2 3.0 3.0 3.0 Total assets 3,524.9 3,808.0 4,057.4 4,328.4

Profit/(loss) on disposals 0.0 0.0 0.0 0.0

Others (recurring) 0.0 0.0 0.0 0.0 Accounts payable 1,261.7 1,332.2 1,351.1 1,379.6

Pretax profits 215.8 185.1 186.0 195.2 Short-term debt 281.2 281.2 281.2 281.2

Income tax (52.2) (40.7) (40.9) (42.9) Other current liabilities 287.1 272.1 252.1 232.1

Tax rate (%) 24.2 22.0 22.0 22.0 Total current liabilities 1,830.0 1,885.5 1,884.5 1,892.9

Minorities (0.1) (7.0) (7.0) (7.0) Long-term debt 314.4 479.4 619.4 759.4

Preferred dividends 0.0 0.0 0.0 0.0 Other long-term liabilities 313.3 353.3 393.3 433.3

Net income (pre-exceptionals) 163.5 137.4 138.1 145.3 Total long-term liabilities 627.6 832.6 1,012.6 1,192.6

Other non-recurring items post tax 0.0 (22.1) (11.2) 0.0 Total liabilities 2,457.7 2,718.1 2,897.1 3,085.5

Net income 163.5 115.3 126.8 145.3

EPS (underlying) (€) 1.01 0.87 0.87 0.92 Preferred shares 0.0 0.0 0.0 0.0

EPS (basic, reported) (€) 1.01 0.73 0.80 0.92 Total common equity 1,045.8 1,068.5 1,138.9 1,221.4

Weighted shares outstanding (mn) 161.1 157.9 157.9 157.9 Minority interest 21.4 21.4 21.4 21.4

Common dividends declared 99.6 63.4 69.8 79.9 Total liabilities & equity 3,524.9 3,808.0 4,057.4 4,328.4

DPS (€) 0.62 0.40 0.44 0.51 Capitalised leases 0.0 0.0 0.0 0.0

Dividend payout ratio (%) 60.9 46.1 50.5 55.0 Capital employed 1,662.8 1,850.5 2,060.9 2,283.4

Dividend cover (X) 1.6 2.2 2.0 1.8

Growth & margins (%) 12/11 12/12E 12/13E 12/14E Adj for unfunded pensions & GW 0.0 0.0 0.0 0.0

Revenue growth 5.1 5.6 1.4 2.1 Adj capital employed 1,662.8 1,850.5 2,060.9 2,283.4

EBITDA growth (16.7) 3.1 2.1 2.7 Gross cash invested 2,199.0 2,499.2 2,728.9 2,936.6

EBIT growth (12.6) (9.6) 4.8 7.7

Net income growth (13.7) (29.5) 10.1 14.5 Ratios 12/11 12/12E 12/13E 12/14E

EPS growth (23.8) (14.2) 0.5 5.2 CROCI (%) 12.9 9.2 8.6 8.5

DPS growth (6.6) (35.0) 10.1 14.5 CROCI/WACC (X) 1.6 1.2 1.2 1.2

EBITDA margin 11.0 10.0 10.4 10.9 ROIC (%) 24.3 18.7 16.9 15.9

EBIT margin 9.3 8.0 8.2 8.7 ROIC/WACC (X) 3.0 2.5 2.3 2.2

ROA (%) 5.8 4.7 4.6 4.6

Cash flow statement (€ mn) 12/11 12/12E 12/13E 12/14E WACC (%) 8.0 7.4 7.3 7.2

Net income 163.5 137.4 138.1 145.3 Inventory days NM NM NM NM

D&A add-back (incl. ESO) 45.6 56.8 63.3 64.7 Asset turnover (X) 15.6 20.6 29.5 52.1

Minority interest add-back 0.1 7.0 7.0 7.0 Net debt/equity (%) 48.0 63.6 64.6 61.9

Net (inc)/dec working capital (101.9) (170.0) (93.4) (69.8) EBITDA interest cover (X) 7.8 6.4 5.6 5.1

Other operating cash flow (4.9) (15.0) (20.0) (20.0)

Cash flow from operations 119.9 16.1 95.1 127.1 Valuation 12/11 12/12E 12/13E 12/14E

EV/sales (X) 1.0 0.9 0.9 0.9

Capital expenditures (126.1) (75.2) (76.3) (77.9) EV/EBITDAR (X) 9.1 8.7 8.5 8.2

Acquisitions (26.7) 0.0 0.0 0.0 EV/EBITDA (X) 9.1 8.7 8.5 8.2

Divestitures 0.0 0.0 0.0 0.0 EV/EBIT (X) 10.8 10.8 10.8 10.2

Others (3.6) 0.0 0.0 0.0 P/E (X) 12.6 11.6 11.5 11.0

Cash flow from investing (156.4) (75.2) (76.3) (77.9) Dividend yield (%) 4.8 4.0 4.4 5.0

FCF yield (%) (0.3) (3.7) 1.2 3.0

Dividends paid (common & pref) (111.2) (99.6) (63.4) (69.8) EV/GCI (X) 1.2 1.0 0.9 0.9

Inc/(dec) in debt 191.8 165.0 140.0 140.0 EV/adj. capital employed (X) 1.7 1.4 1.3 1.3

Other financing cash flows (23.2) 0.0 0.0 0.0 Price/book (X) 1.5 1.5 1.4 1.3

Cash flow from financing 57.4 65.4 76.6 70.2

Total cash flow 20.9 (15.8) 84.1 119.4 Note: Ratios are adjusted for leases where appropriate. Only separately disclosed where significant and ongoing.

Capex/D&A (%) 276.5 132.5 120.5 120.5

Reinvestment rate (%) 56.9 40.4 40.5 39.6

Cash flow cover of dividends (X) 2.2 2.9 2.7 2.5 Note: Last actual year may include reported and estimated data.

Free cash flow cover of dividends (X) (0.1) (1.0) 0.3 0.6 Source: Company data, Goldman Sachs Research estimates.



Overview: Deteriorating earnings and cash profile NT and MT

We remain Sell rated on Indra Sistemas and add the stock to our Conviction List.

While we view the company as a relatively better positioned vendor in the European

IT services space due to its unique IP and increasing revenue mix of EM, we believe

it will underperform in the near term due to its high Spanish exposure and

worsening earnings/cash-returns profile. In addition, as incremental data points

from IT services peers emerge, we expect the shares to de-rate from its current

valuation of 11.5x 2013E PF EPS. We forecast -6% PF EPS CAGR over 2011-14 and

our new 12-month price target falls to €7.9 (from €9) implying 22% downside

potential. Our Sell case is based on the following key tenants:

Spanish exposure remains predominant theme in spite of increasing EM

mix: Following the acquisition of Politec and signing of several significant deals

in 2011, Indra’s emerging markets (EM) exposure has increased to c.25% of sales

which is significantly higher than any European IT services vendor. However,

Spain with c.57% of group revenues in 2011 continues to hold a predominant

share of the company’s revenues and profitability, and we see no near term

recovery. In spite of increasing wallet share at existing customers, we believe

incremental revenues are less profitable as reflected by increasing in headcount

in Spain despite shrinking revenues. We forecast Spanish revenues to decrease

by 3%, 2.5% and 2% in 2012, 2013 and 2014 respectively driven by significant

downward pressure on pricing. Additionally, we assume the company will focus

on improving the profitability mix (reducing infrastructure business) in its

Brazilian business which would be beneficial in the long term but could have

negative revenue implications near term.

Operating margin recovery to be prolonged due to pricing/mix: We expect

weak pricing and increasing mix of services revenues vs. solutions to keep

operating margin recovery in check and hence estimate operating margins of 8%

in 2012, at the low end of guidance. We believe that the company‘s objective of

achieving 10% EBIT margins by 2014 will be challenging given a lack of pricing

power and limited visibility on demand for higher value solutions business.

Hence, we forecast operating margins to only moderately recover to 8.2% in 2013

and 8.7% in 2014 despite the new restructuring measures announced by the

company. We believe that significant improvement in profitability mix of the

Brazilian revenues and decrease in subcontracting levels are key to better

operating margin recovery vs. our forecasts.

Cash flow to remain weak near term, stretching balance sheet: On our

estimates, Indra will have a net debt of €750 mn by the end of 2013 implying 2.5x

net debt/EBITDA, worsening from current net debt of €514 mn and net

debt/EBITDA of 1.6x. In addition, we expect working capital days to deteriorate

from 98 days in 2011 to 119 days in 2012 (above company guidance of 110-100

days) owing to its Spanish/public sector exposure, resulting in net cash outflow

of €81 mn in 2012. We forecast working capital days to further deteriorate to 129

days and 135 days in 2013 and 2014, respectively.

Despite a sizeable reduction of capex to €70-75 mn expected in 2012 (from €126

mn in 2011), which should help address cash outflow issues in the near term,

stabilization and improvement of working capital working days is key to a

healthier balance sheet, in our view. Incrementally, we expect higher debt levels

to result in higher finance servicing costs, negatively impacting earnings.

We expect Indra’s cash returns (CROCI) to remain at historically low levels of

c.9% over 2012-14 owing to worsening profitability and working capital days.



Exhibit 1: We are lowering our 2012-13E PF estimates by 13%-14% for new 2012 guidance € mn, except per share data

Source: Goldman Sachs Research estimates.

Our key model assumptions are as follows:

Indra’s core business grows at 1.4%, 1.4% and 2.1% in 2012, 2013 and 2014,

respectively, benefiting from increased volumes/wallet share at existing

customers and a high-speed train project in Saudi Arabia.

We forecast operating margins of 8% for 2012, at the low end of the 2012

guidance. We factor in the dilutive impact of acquisitions, increasing mix of

services revenues and downward pressure in pricing in our lowered forecasts.

Owing to increased working capital requirements and subsequent pressure on

cash flows impacting net debt levels, we forecast net financial expense of €44 mn,

€54 mn and €63 mn in 2012, 2013 and 2014, respectively. However we see further

downside risks if financing rates increase.

Exhibit 2: We are 19%-26% below Bloomberg consensus EPS (unadjusted for 2011 results) Goldman Sachs estimates vs. Bloomberg consensus

Source: Bloomberg, Goldman Sachs Research estimates.

We remain significantly below consensus (consensus has not fully adjusted for the 2011

guidance) both on the top line/bottom line and believe that consensus underestimates the

impact of sustained weak pricing on the profitability of the business.

Year to December 2012E 2012E % 2013E 2013E % 2014EEUR mn OLD NEW Chg. OLD NEW Chg. NEWRevenues 2779 2839 2% 2820 2879 2% 2940YoY growth 4.8% 5.6% 1.5% 1.4% 2.1%YoY growth (Organic,ex-fx) -0.2% 1.4% 1.5% 1.4% 2.1%

EBIT (pre-exceptionals) 265 226 -15% 265 237 -10% 255EBIT Margins 9.5% 8.0% 9.4% 8.2% 8.7%YoY Growth 0.4% -15.6% 0.0% 4.8% 7.7%

PF EPS 1.01 0.87 -14% 1.00 0.87 -13% 0.92YoY Growth -5.0% -22.6% -0.9% 0.5% 5.2%

Reported EPS 1.01 0.73 -28% 1.00 0.80 -20% 0.92YoY Growth -5.0% -35.0% 0.0% 10.1% 14.5%

Indra ConsensusYear to December

In EUR mn GS Avg Low HighGS vs

Consensus GS Avg Low HighGS vs

Consensus GS Avg Low HighGS vs

Consensus

Total revenue 2,839 2,835 2,701 2,943 0% 2,879 2,930 2,773 3,101 -2% 2,940 3,080 2,872 3,207 -5%YoY Growth 5.6% 5.4% 0% 9% 1.4% 3.3% 3% 5% 2% 5% 4% 3%QoQ Growth

EBIT (ex exceptionals) 226 266 219 298 -15% 237 278 255 318 -15% 255 298 271 330 -14%EBIT Margin 8.0% 9.4% 8.1% 10.1% 8.2% 9.5% 9.2% 10.3% 8.7% 9.7% 9.4% 10.3%YoY Growth -16% -1% -18% 11% 5% 5% 16% 7% 8% 7% 6% 4%

Net Income (PF) 137 176 120 216 -22% 138 185 148 244 -25% 145 197 173 222 -26%Net Margin 4.8% 6.2% 4.4% 7.3% 4.8% 6.3% 5.3% 7.9% 4.9% 6.4% 6.0% 6.9%YoY Growth -24% -3% -34% 19% 0% 5% 23% 13% 5% 7% 17% -9%

Reported EPS 0.73 1.07 0.73 1.25 -32% 0.80 1.13 0.90 1.39 -29% 0.92 1.22 1.07 1.37 -25%YoY Growth -35% -5% -35% 11% 10% 6% 23% 11% 15% 8% 19% -1%

Pro Forma EPS (EUR) 0.87 1.08 0.73 1.34 -19% 0.87 1.16 0.90 1.51 -25% 0.92 1.25 1.07 1.37 -26%YoY Growth -23% -4% -35% 19% 0% 8% 23% 13% 5% 8% 19% -9%

FY14EFY12E FY13E



GS SUSTAIN framework – Indra has bottom-quartile cash returns

GS SUSTAIN is our long-term investment framework for identifying companies well

positioned to sustain high returns on capital relative to peers. It combines financial

analysis of companies’ returns with the structural drivers of those returns (‘industry

positioning’). We have updated our GS SUSTAIN framework to incorporate our revised

estimates for Indra Sistemas.

In the long term, we view Indra Sistemas as a relatively better positioned vendor in the

European IT services landscape due to its unique IP and increasing mix of emerging

markets exposure. However in the near to medium term, we believe that its industry

positioning will remain weak owing to lowered revenue prospects.

We capture industry drivers for the sector through our industry positioning metrics:

Segment growth: We weight each company’s segment exposures and blended

expected revenue growth based on industry forecasts that determine the

attractiveness of the categories. For all European IT services vendors, we use a sector

growth rate of 4.7% (IDC 2010-13 forecast) to reflect the growth prospects from

outsourcing, systems integration and consulting.

Relative market share: We analyze companies’ market shares in each of the

categories/segments in which they participate to determine potential scale and

pricing power, and whether these segments are concentrated or fragmented. We

calculate a relative market share score, which is defined as the company’s market

share relative to that of the top three players in the segment. Though Indra Sistemas

enjoys significant market share in its home Spanish market, it has limited scale on a

European and global basis.

Expected organic revenue growth. We use our forecasts for each company over the

next three calendar years, as these capture factors such as expected market share

gains/losses and company-specific fundamental strengths/weaknesses. We expect an

organic revenue CAGR of 1.6% for Indra Sistemas over 2011-14, in line with other

European peers, balancing the weakness in Spanish revenues with increasing

emerging market mix.

Risk adjustment. We measure risk associated with each company’s ability to

maintain its market position and returns, as well as deliver on growth. The two

metrics are: 1) percentage of recurring revenues to determine revenue predictability

and cash flow; and, 2) product diversification (the number of different

products/categories in which the company participates), to assess risks to the delivery

of growth. For comparative analysis, we consider outsourcing revenues for each

vendor to be recurring. We see upside bias to our risk assessment score as services

revenue may not fully reflect the proportion of recurring revenue.

CROCI score. We include the impact of R&D capitalization (average of three years) as

part of the capital base for comparable analysis across sectors. For further details,

please refer to related research: GS SUSTAIN: Eurovision: European winners for a

global stage, November 22, 2010. Please note however for valuation analysis in the

European software/services space, we exclude impact of R&D capitalisation



Exhibit 3: Weaker sales growth profile and cash returns result in weak positioning on our GS SUSTAIN framework European software/IT services GS SUSTAIN framework

Please refer to related research: Eurovision: European winners for a global stage, November 22, 2010. Please note CROCI calculation here includes the impact of R&D capitalization and is an average across three years.

Source: IDC, Gartner, Company data, Goldman Sachs Research estimates.

Exhibit 4: Low market growth potential and relative market share result in weak industry positioning Market positioning, sales growth and risk assessment factors

Source: IDC, Gartner, Company data, Goldman Sachs Research estimates.

Company Global end market Percentile Company 2008-10 2011-2013E% change vs.

2008-102011-13E Percentile

Aveva Plant Design software 100% Aveva 36% 42% 6% 100%

Dassault PLM (includes CAD, BIM) 94% Dassault 27% 31% 4% 94%Fidessa Trading systems 84% Opera 48% 30% (18%) 89%SAP ERP, CRM, SCM, BI and DBMS 78% Fidessa 36% 29% (7%) 84%Blinkx Video Search 73% SAP 27% 27% 1% 78%Nemetschek PLM (includes CAD, BIM) 68% Micro Focus 27% 25% (3%) 73%Sage Enterprise resource planning 57% Blinkx 8% 24% 16% 68%Opera Web search and advertising 57% Exact 24% 24% (0%) 63%Software AG BPM/Middleware/Mainframe database 42% Nemetschek 18% 20% 2% 57%Micro Focus Application development 36% Software AG 23% 17% (6%) 52%Unit 4 Enterprise resource planning 31% Sage 13% 16% 2% 47%IFS Enterprise resource planning 15% IFS 14% 14% 0% 36%Cegid Enterprise resource planning 5% Unit 4 18% 14% (4%) 31%Exact Enterprise resource planning 0% Cegid 14% 11% (3%) 21%

Telecity Data Center Colocation 89% Telecity 20% 15% (4%) 42%Capgemini IT Services 52% AtoS 9% 12% 3% 26%AtoS IT Services 47% Tieto 14% 10% (4%) 15%Tieto IT Services 26% Capgemini 15% 9% (6%) 10%Logica IT Services 21% Logica 11% 5% (6%) 5%Indra IT Services 10% Indra 12% 3% (9%) 0%

Return on capital

CROCI (including R&D)Industry positioning

So

ftw

are

IT S

erv

ice

s

CompanyMarket

growth (2010-13E CAGR)

PercentileRelative

Market Share

PercentileOverall Industry

PercentileCompany

Sales growth (10-13E,

organic ex-fx)

Sales growth

PercentileCompany

Recurring Revenues

PercentileProduct

diversificationPercentile

Blended Risk Assessment

rank

Dassault 9.3% 85% 0.42 100% 100% Blinkx 31% 100% Fidessa 82% 95% 3 75% 100%Aveva 9.0% 80% 0.39 95% 94% Opera 27% 94% Dassault 65% 75% 4 95% 89%Fidessa 8.0% 65% 0.34 90% 84% Aveva 21% 89% Sage 61% 65% 3 75% 84%SAP 7.4% 60% 0.34 85% 78% SAP 12% 78% SAP 51% 50% 4 95% 78%Software AG 7.1% 55% 0.18 80% 73% Dassault 12% 73% Aveva 68% 80% 2 35% 73%

Blinkx 43.7% 100% 0.05 30% 68% Fidessa 7% 68% Micro Focus 53% 55% 2 35% 57%Nemetschek 9.3% 85% 0.05 40% 63% Nemetschek 5% 63% Software AG 34% 20% 3 75% 52%Sage 4.2% 5% 0.15 70% 47% IFS 4% 57% Exact 63% 70% 1 0% 47%Opera 8.4% 75% 0.01 0% 42% Sage 4% 52% Nemetschek 45% 35% 2 35% 42%Micro Focus 4.0% 0% 0.10 55% 31% Unit 4 3% 42% Cegid 50% 45% 1 0% 26%

Unit 4 4.2% 5% 0.06 45% 26% Micro Focus 2% 36% Unit 4 48% 40% 1 0% 21%

Cegid 4.2% 5% 0.04 25% 10% Cegid 2% 26% Opera 23% 5% 2 35% 10%IFS 4.2% 5% 0.04 20% 5% Software AG 1% 5% IFS 32% 10% 1 0% 5%Exact 4.2% 5% 0.04 15% 0% Exact 0% 0% Blinkx 0% 0% 1 0% 0%

Telecity 19.0% 95% 0.17 75% 89% Telecity 17% 84% AtoS 82% 90% 3 75% 94%

Capgemini 4.7% 30% 0.10 60% 57% Capgemini 3% 47% Telecity 90% 100% 1 0% 68%AtoS 4.7% 30% 0.09 50% 52% Tieto 2% 31% Tieto 60% 60% 2 35% 63%Logica 4.7% 30% 0.05 35% 36% Indra 2% 21% Logica 43% 30% 2 35% 36%Indra 4.7% 30% 0.03 10% 21% Logica 2% 15% Capgemini 36% 25% 2 35% 31%Tieto 4.7% 30% 0.02 5% 15% AtoS 1% 10% Indra 33% 15% 2 35% 15%

IT S

ervi

ces

Risk Assessment (20%)

So

ftw

are

Market Positioning (40%) Sales growth (40%)



Valuation: Deteriorating cash profile warrants further de-rating

Indra Sistemas shares have underperformed in recent months following the market rally

and weak 2012 guidance; however we see scope for further underperformance as the

stock de-rates to match its lowered cash-returns profile. Trading at 11.5x 2013E PF EPS,

valuation is attractive compared to historical levels; however we believe that it is a still

trading at a premium given its deteriorating revenues, earnings and cash-returns profile.

We believe that near-term catalysts including results from IT services peers will have

negative read-across for the shares. In our view, financial performance, mainly operating

margin recovery, is key for share price outperformance in the near to medium term.

Exhibit 5: We expect valuation to de-rate further, in line with Indra’s lowered cash

returns profile, and value it at 9x 2013E PF EPS CROCI, P/E valuation

Source: Company data, I/B/E/S, Datastream, Goldman Sachs Research estimates.

Our new 12-month P/E-based price target is €7.9 (from €9), valuing the company on 9x

2013E PF EPS, in line with its significantly lowered cash returns profile (excludes impact

of R&D capitalization) and a c.25% discount to the sector’s mean P/E multiple of 12x (since

2008). At our price target, the share would trade at c.40% discount to its historical P/E

mean multiple of 15x reflecting the deteriorating revenues, earnings and cash profile.

We do not view Indra Sistemas as an M&A target owing to its strategic importance for

major defense projects and potential issues associated with any post acquisition

restructuring and hence do not include any M&A component in our valuation. However,

certain segments in the transportation segment could be an interesting asset for a

potential acquirer.

27x

19x

17x 17x

20x19x

18x

14x13x

11x 10x9x

12x

0%

5%

10%

15%

20%

25%

30%

35%

0x

5x

10x

15x

20x

25x

30x

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012E

2013E

CROCI

2 yr fw

d PE

P/E CROCI



Exhibit 6: Our new 12-month price target of €7.9 implies 22% downside potential Indra’s share price ; priced as of close February 27, 2012

Source: Datastream, Goldman Sachs Research estimates.

Exhibit 7: Indra trades at 11.5x 2013E PF EPS, a discount to its two-year forward P/E

mean of 15x reflecting lowered earnings growth potential near to medium term Indra’s two-year forward P/E valuation


INDRA SISTEMAS SA - Mercado Continuo Espanol

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

1Jan2003 28Feb2012

First LastHigh Low

Mean Std

6.4893 10.0800 6Nov07 26Feb0320.7300 5.948514.2478 3.2645

2 yr valuation: €8.4, 9x 2014E PF EPS, 0.71x 2014E EV/Sales, 16% downside potential

Current share price implies 11.5x 2013E P/E, broadly inline with IT Services mean since 2008 despite poor cash returns

GS PT: €7.9, 9x 2013E PF EPS, 0.69x 2013E EV/Sales, 22% downside potential

IDR 2 yr fwd PE

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

1Jan2003 28Feb2012

First LastHigh Low

Mean Std

14.4220 8.386014Jul05 27Feb1221.7500 8.386014.9665 3.4788

Current share trading at 11.5x 2013E PF EPS

GS PT: €7.9, 9x 2013E PF EPS, 22% downside potential

Historic NormalisedLow 8.4 Low 8.4High 23.9 High 21.8Mean 15.2 Mean 15.0

2 yr fwd PE



Exhibit 8: Indra is currently trading at 0.6x 2013E EV/sales, a discount to its historical

valuation due to its lowered operating margin profile Indra Sistemas’ EV/sales valuation


Exhibit 9: Indra is trading in line with European IT

services peers on a P/E basis … P/E valuation – Indra vs. European peers

Exhibit 10: … however trading at a significant premium

to European IT services on an EV/sales basis EV/sales – Indra vs. European peers

Source: I/B/E/S, Datastream.

Source: Datastream, Goldman Sachs Research.

evsales for idr.mc as of Feb 26 2012

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

2.2

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

1Jan2003 28Feb2012

First LastHigh Low

Mean Std

0.8816 0.957428Sep05 26Feb03

2.0340 0.81251.2738 0.2490

Current share trading at 0.81x 2013E EV/Sales

GS PT: €7.9, 0.69x 2013E EV/Sales, 22% downside potential

Historic NormalisedLow 0.7 Low 0.8High 2.1 High 2.0Mean 1.3 Mean 1.3

EV/Sales

European IT Services Indra Sistemas

IT Services

8

10

12

14

16

18

20

22

24

26

28

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

1Jun2002 28Feb2012

Eu

European IT Services Indra Sistemas

IT Services

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

2.2

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

1Jun2002 28Feb2012

Eu



Spain remains a significant drag on top-line growth

Unlike most European IT services vendors, whose earnings growth potential is dependent

on the broader macro recovery and capex/IT spending views, we believe Indra Sistemas’

earnings growth in the near to medium term will be driven by Spanish business recovery.

In spite of increasing revenue mix in emerging markets following significant deal wins in

2011 and the strategic acquisition of Politec, Spain with c.57% of group revenues in 2011

continues to hold a predominant share of the company’s revenues and profitability.

Exhibit 11: We estimate -6% PF EPS CAGR over 2011-14 Indra Sistemas KPIs

Source: Company data, Goldman Sachs Research estimates.

Owing to weak macro conditions and subsequent issues on services capacity, pricing in

Spain remains under severe pressure and we do not expect any near to medium term

recovery in this geography. We expect any medium term recovery in Spanish commercial

sector business to be negated by weakness in the public sector business (c.25% of group

revenues) which continues to suffer from depressed spending at all levels (central, local

governments). As a result, we forecast Spain revenues to decrease by 3%, 2.5% and 2% in

2012, 2013 and 2014, respectively.

We expect emerging market business to continue to do well and help Indra maintain a

positive revenue growth trajectory. We expect the key focus on the Brazilian business

near term to be on improving profitability mix by lowering infrastructure related sales

which should have a positive impact in the long term, but with possible negative revenue

implications near term.

Year to Dec 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2011-14E Eur mn Year Year Year Year Year Year Year Year Year CAGR

Total Revenues 1,407 2,168 2,380 2,513 2,557 2,689 2,839 2,879 2,940 3%Y/Y Growth 17.0% 54.1% 9.8% 5.6% 1.7% 5.1% 5.6% 1.4% 2.1%Y/Y Growth (organic, ex-fx) 17.0% 54.1% 9.8% 5.6% 1.7% 2.7% 1.4% 1.4% 2.1% 2%

EBIT ex-exceptionals & ESO 164 240 270 285 285 268 226 237 255 -2%% of revenues 11.6% 11.1% 11.4% 11.4% 11.2% 10.0% 8.0% 8.2% 8.7%

EBIT reported 164 224 270 285 252 268 198 223 255 -2%% of revenues 11.6% 10.3% 11.4% 11.4% 9.8% 10.0% 7.0% 7.7% 8.7%

Interest -1.4 -12.7 -22.9 -24.9 -19.1 -37.7 -44.0 -54.0 -63.0

Net Profit 114 148 182 196 189 181 115 127 145 -7%Y/Y Growth 10% 30% 23% 7% -4% -4% -36% 10% 15%

Net Profit (ex-exceptionals) 115 160 182 196 215 181 137 138 145 -7%Y/Y Growth 9% 39% 14% 7% 10% -16% -24% 0% 5%

PF EPS 0.80 0.99 1.14 1.21 1.33 1.12 0.87 0.87 0.92 -6%Y/Y Growth 13% 24% 15% 6% 10% -15% -23% 0% 5%

Free Cash Flow 101.2 81.9 133.9 129.9 20.0 -29.2 -81.2 7.5 49.2Y/Y Growth 105% -19% 63% -3% -85% -246% 178% -109% 553%

Net cash -58.8 -150.1 -148.8 -134.7 -274.8 -513.6 -694.4 -750.2 -770.8 14%

Working capital days 60.2 72.8 76.4 79.6 93.0 98.0 119.1 129.2 135.2 11%



Exhibit 12: We expect Spain to significantly underperform the international business Organic revenue growth chart – group, Spain, International segments


Exhibit 13: In spite of improving EM mix, Spain remains the predominant geography and

drives the majority of revenue and earnings growth Geographical mix, 2000-14E


‐10%

‐5%

0%

5%

10%

15%

20%

25%

30%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E

Organic revenue growth %

yoy

Spain International Group

60%66% 69% 67% 65% 65% 65% 68% 66% 64% 61%

57%52% 50% 48%

14%

16%18% 20% 24% 23% 21% 16%

16% 18%17%

17%16%

15%15%

5%

5%

5% 5% 3% 3% 3%3%

2% 1%1%

1%

1%1%

1%

18%10%

5% 4% 4% 5% 4% 9%10% 11%

15%18%

23% 25% 27%

3% 3% 3% 4% 3% 4% 6% 4% 6% 6% 6% 7% 8% 8% 9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012E

2013E

2014E

Spain Europe North America LatAm Others



Exhibit 14: Order intake indicates continued weakness in

Spanish growth prospects Order intake growth chart – group, Spain, international

segments

Exhibit 15: Spanish orders are still majority of the order

inflow Geographical mix

Source: Company data

Source: Company data

Exhibit 16: We expect decreasing importance of the defense business to have a

disproportionately negative impact on profitability and cash returns End markets as % of sales


3%

‐3%

‐1%

9%

23%

5%5%

7%

2%

‐5%

0%

5%

10%

15%

20%

25%

2009 2010 2011

Order intake

growth (organic) % yoy

Spain International Group

56% 53%

44% 47%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011

Spain International

18% 20% 22% 22% 24% 25% 23% 18% 18% 20% 22% 22% 24% 27% 29%

15%20% 18% 14% 13% 13% 12%

10% 10% 11%13% 15%

14%14%

14%6%

6% 5%5% 5% 6% 7% 12% 13%

13%14%

12% 11%11%

10%

6%

6% 6%6% 7% 8% 8%

13% 13%13%

14% 14% 13%13%

12%38%

41% 44%46% 46% 45%

42%

29% 29% 27%23% 19%

15% 13% 11%

13%3% 0% 3% 2% 1% 6% 1% 1% 1% 0% 4%

8% 8% 8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012E

2013E

2014E

Transport and traffic Telecom and Media P. A. and Healthcare

Financial and Insurance Defense, Security & Logistics Others



Operating margin recovery to be prolonged We forecast 2012 operating margins of 8%, at the low end of the guidance range. We

factor in the dilutive impact of acquisitions, increasing mix of services revenues and

downward pressure in pricing in the lowered forecasts.

Spain: In spite of increasing wallet share at existing commercial customers in Spain, we

believe incremental revenues are coming in at lower profitability. We continue to see

significant downward pressure on pricing in the medium term and hence do not see

Spanish operating margins recovering to their historical levels.

International: We expect the low operating margin profile of the LatAm business (dilutive

acquisitions) having a negative impact on operating margins in the near term. We believe

that recovery in LatAm margins is an important factor for sustainable recovery in

operating margins in the medium term.

While the acquisition of Politec was strategically important, we believe that integration

remains a key challenge. Given the weak profitability (flat EBIT for Politec+Galyleo) of the

Politec business, we estimate incremental dilution of operating margins from the Brazilian

business. In our view, planned reduction of low margin infrastructure related sales is key

for the turnaround of the business and we expect to see further evidence on these

measures in 2012. We believe increased scale of the Brazil operations could have

additional benefits on margins, however we view the reduction of low margin business to

hold the key to sustainable operating margins.

We believe that the company‘s objective of achieving 10% EBIT margins by 2014 will be

challenging, given the lack of pricing power and limited visibility on demand for higher

value solutions business. Hence, we forecast operating margins to only moderately

recover to 8.2% in 2013 and 8.7% in 2014 despite the new restructuring measures

announced by the company. We believe that subcontracting levels continue to remain at

high levels to support higher volumes and thus negatively impacting profitability.

Exhibit 17: We forecast operating margins to be at the low end of 2012 guidance

EBIT margins (ex-restructuring)


0%

2%

4%

6%

8%

10%

12%

14%

0

50

100

150

200

250

300

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E

Operating margin %

Operating profit, €mn

Operating profit Operating Margin (Guidance) Operating Margin (GSe)



Exhibit 18: Headcount is outgrowing revenue growth

Revenues (bar chart), revenues per head (line)

Exhibit 19: Increasing headcount in Spain suggests gains

in volume at the cost of profitability Spain revenues, headcount till 2011 d



Exhibit 20: We expect growth of the high margin solution

business to remain anemic, impairing margin recovery Revenue growth – group, solutions, services

Exhibit 21: We expect the increasing mix of low margin

services revenues will have a structurally negative

impact on group margins Solutions, services as % of sales



0

20

40

60

80

100

120

140

160

180

0

500

1,000

1,500

2,000

2,500

3,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Revenue/h

ead, €

thousands

Revenues, €mn

Revenues Revenue/head

1.0%

3.7%

5.0%

2.9%

‐2.9%‐2.6%

‐4.0%

‐3.0%

‐2.0%

‐1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2009 2010 2011

% yoy growth

Spain headcount Spain revenues

‐2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E

Revenue growth %

yoy reported

Solutions Services Group

77% 77% 74% 74% 74% 73% 71% 67% 65% 66% 67%

23% 24% 26% 26% 26% 27% 29% 33% 35% 34% 33%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2004

2005

2006

2007

2008

2009

2010

2011

2012E

2013E

2014E

Solutions Services



Cash flow to remain weak near term, stretching the balance sheet

We believe that Indra’s balance sheet will be stretched over 2012-14 as worsening working

capital days puts incremental pressure on the company’s limited cash flow.

While a sizeable reduction of capex to €70-75 mn expected in 2012 (from €126 mn in 2011)

should help address cash outflow issues in the near term, we believe that stabilization and

improvement of working capital days is the key to sustainable cash returns. In the near term,

owing to tough market conditions in Spain and in specific Spanish public sector exposure, we

expect working capital days to further deteriorate from 98 days in 2011 to 119, 129, 135 days in

2012, 2013 and 2014 respectively. Our 2012 working capital days forecast of 119 days is above

guidance for 110-100 days, as we expect delays in payments from domestic clients as was

evident from 3Q11 results. We see the better than expected working capital days in 4Q11 as a

one-off.

We expect Indra to maintain its dividend payout in the near term, helped by reduction in capex

outflow.

We forecast Indra’s cash returns (CROCI) to remain weak at c.9% levels over 2012-14E, a

significant deterioration compared to an average of c.24% over 2001-08. Compared to pre

2008 levels when the company enjoyed benefits from pre-payments from the big defense

customers, we see limited scope for pre-payments and weak pricing to keep CROCI at low

levels compared to historical levels.

Exhibit 22: We forecast a structural correction in cash returns due to lack of prepayments and high public sector

exposure

in €mn


2006 2007 2008 2009 2010 2011 2012E 2013E 2014E

Operating cash flow ex‐wc 193.8 249.0 308.8 337.9 308.1 324.4 253.5 274.9 299.9

Change in working capital ‐33.9 ‐59.4 ‐65.3 ‐49.7 ‐105.8 ‐101.9 ‐170.0 ‐93.4 ‐69.8

Other operating changes 22.3 20.6 ‐13.0 ‐16.7 ‐38.8 ‐50.3 ‐55.0 ‐60.0 ‐60.0

Tangible capex ‐20.5 ‐40.7 ‐26.5 ‐28.8 ‐20.4 ‐42.1 ‐22.7 ‐23.0 ‐23.5

Intangible capex ‐17.4 ‐32.1 ‐38.1 ‐51.0 ‐68.6 ‐84.0 ‐52.5 ‐53.3 ‐54.4

Total capex ‐37.9 ‐72.8 ‐64.7 ‐79.8 ‐89.0 ‐126.1 ‐75.2 ‐76.3 ‐77.9

Total capex as % of sales 2.7% 3.4% 2.7% 3.2% 3.5% 4.7% 2.7% 2.7% 2.7%

Dividends 125.9 79.8 99.0 106.8 110.9 99.6 63.4 69.8 79.9

Dividend payout 110% 54% 54% 55% 59% 55% 55% 55% 55%

Net debt position ‐58.8 ‐150.1 ‐148.8 ‐134.7 ‐274.8 ‐513.6 ‐694.4 ‐750.2 ‐770.8

Net debt/EBITDA 0.3x 0.5x 0.5x 0.4x 0.8x 1.6x 2.5x 2.5x 2.4x



Exhibit 23: We forecast net working capital days above

guidance due to tough conditions in Spain Net working capital days, 2003-14E

Exhibit 24: Significant reduction in capex should help

cash outflow in the near term Tangible + intangible capex, 2003-14E



Exhibit 25: We expect net debt to increase owing to

increasing working capital requirements Net debt, net debt/EBITDA 2003-14E)

Exhibit 26: We expect Indra to maintain its dividend

payout in the near term Dividends, dividend payout 2003-14E



0

20

40

60

80

100

120

140

160

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E

Net Working Capital Days

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

0

20

40

60

80

100

120

140

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012E

2013E

2014E

Capex as %

of sales

Capex €mn

Capex Capex as % of sales

‐1.0x

‐0.5x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

(100)

0

100

200

300

400

500

600

700

800

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012E

2013E

2014E

Net debt/EBITDA

Net debt/(Net cash) €mn

Net Debt/ (Net Cash) Net Debt/EBITDA

0%

20%

40%

60%

80%

100%

120%

0

20

40

60

80

100

120

140

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012E

2013E

2014E

Dividend payout

Dividends €mn

Dividends Dividend payout ratio



Scenario analysis

We consider the following scenarios for Indra depending on how the pace of recovery of

the Spanish market evolves and impacts operating margin recovery and cash profile:

Upside scenario: We assume Indra achieves its 2014 operating margin guidance

driven by improved market conditions in Spain, benefits from the acquisition in

Brazil and working capital days stabilizing around 110. In this scenario, we see a

potential re-rating in valuation to 11x-13x, in line with the company’s cash-

returns profile, implying 9%-29% upside potential.

Downside scenario: We assume Indra registers flattish organic revenue growth

over 2013-14, operating margins stagnate and working capital days worsen. In

this scenario, we see a potential de-rating in valuation to 7x-9x, in line with the

company’s cash-returns profile, implying 32%-47% downside potential.

Exhibit 27: Scenario analysis implies incremental downside risk to estimates and valuation

Scenario analysis; priced as of close February 27, 2012


2011

GS

Downside

Scenario

Upside

Scenario GS

Downside

Scenario

Upside

Scenario GS

Downside

Scenario

Upside

Scenario

Revenues 2,689 2,839 2,839 2,839 2,879 2,840 2,926 2,940 2,842 3,046

Y/Y org. ex‐fx 2.7% 1.4% 1.4% 1.4% 1.4% 0.0% 3.1% 2.1% 0.1% 4.1%

EBIT pre‐excep 267.8 226.1 226.1 226.1 237.0 220.5 263.1 255.2 226.3 304.5

EBIT margins 10.0% 8.0% 8.0% 8.0% 8.2% 7.8% 9.0% 8.7% 8.0% 10.0%

Margin expansion ‐2.0% ‐2.0% ‐2.0% 0.3% ‐0.2% 1.0% 0.4% 0.2% 1.0%

PF EPS 1.12 0.87 0.87 0.87 0.87 0.76 1.00 0.92 0.74 1.16

Y/Y growth ‐22.6% ‐22.6% ‐22.6% 0.5% ‐12.3% 15.3% 5.2% ‐2.7% 16.0%

GS Vs. Consensus

Revenues 0% 0% 0% ‐2% ‐3% 0% ‐5% ‐8% ‐1%

PF EPS ‐19% ‐19% ‐19% ‐25% ‐34% ‐13% ‐26% ‐40% ‐7%

Valuation based on 2013 estimates

GS ESTIMATES

Price target

P/E Multiple 9.0x 7.0x 8.0x 9.0x 11.0x 12.0x 13.0x

12m valuation 7.9 5.3 6.1 6.9 11.0 12.0 13.0

% up/downside ‐22% ‐47% ‐40% ‐32% 9% 19% 29%

Current price: 10.1

2012E 2013E 2014E

UPSIDE SCENARIO

Valuation

DOWNSIDE SCENARIO

Valuation



Risks

Upside risks to our view and price target includes:

Greater resilience in the Spanish market – we see greater resilience in the

Spanish market driven by increasing wallet share at key customers and stable

pricing as the key risk to our estimates. In this scenario, a resultant improvement

in operating margin expansion could drive valuation upside.

Large deals in EMs including Latin America, Middle East – As evident in 2011,

despite a tough domestic market, Indra delivered positive revenue growth owing

to significant deals signed in emerging markets. Continuing momentum in

emerging markets could potentially improve the organic growth prospects and

drive estimate upgrades.

Faster-than-expected benefits in LatAm from increased scale due to Politec

acquisition – Politec remains a low margin business, however increased scale

and better integration/execution could result in improved margins for the group.



Disclosure Appendix

Reg AC

We, S.K.Prasad Borra, Mohammed Moawalla, Suhasini Varanasi and Jo Blackshaw, hereby certify that all of the views expressed in this report

accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our

compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Investment Profile

The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and

market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites

of several methodologies to determine the stocks percentile ranking within the region's coverage universe.

The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:

Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate

of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend

yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends.

Quantum

Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for

in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets.

GS SUSTAIN

GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list

includes leaders our analysis shows to be well positioned to deliver long term outperformance through sustained competitive advantage and

superior returns on capital relative to their global industry peers. Leaders are identified based on quantifiable analysis of three aspects of corporate

performance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies' management of the

environmental, social and governance issues facing their industry).

Disclosures

Coverage group(s) of stocks by primary analyst(s)

S.K.Prasad Borra: Europe-IT Services, Europe-Software. Mohammed Moawalla: Europe-Software.

Europe-IT Services: Atos, Capgemini, Indra, Logica, Telecity, Tieto.

Europe-Software: Aveva, Blinkx, Cegid, Dassault Systemes, Exact Holding, Fidessa, IFS, Micro Focus, Nemetschek, Opera Software, Orc Software,

Sage Group, SAP (ADR), SAP (Ordinary Share), Software AG, Temenos, Unit 4.

Company-specific regulatory disclosures

The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, "Goldman Sachs") and companies

covered by the Global Investment Research Division of Goldman Sachs and referred to in this research.

Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: Indra (€9.78)

Goldman Sachs had an investment banking services client relationship during the past 12 months with: Indra (€9.78)

Distribution of ratings/investment banking relationships

Goldman Sachs Investment Research global coverage universe

Rating Distribution Investment Banking Relationships

Buy Hold Sell Buy Hold Sell

Global 30% 55% 15% 47% 42% 34%



As of January 16, 2012, Goldman Sachs Global Investment Research had investment ratings on 3,593 equity securities. Goldman Sachs assigns

stocks as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold

and Sell for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage groups and views and related definitions'

below.

Price target and rating history chart(s)

Regulatory disclosures

Disclosures required by United States laws and regulations

See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager

or co-manager in a pending transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/co-

managed public offerings in prior periods; directorships; for equity securities, market making and/or specialist role. Goldman Sachs usually makes a

market in fixed income securities of issuers discussed in this report and usually deals as a principal in these securities.

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Securities Finance Company.

Indra (IDR.MC)

911.5

12

14.5

1816

15.5

18

18.2

19

18.5

15.5

15

5.00

7.00

9.00

11.00

13.00

15.00

17.00

19.00

150

200

250

300

350

400

Goldman Sachs rating and stock price target history

Stock Price Currency : Euro

Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 12/31/2011.

The price targets show n should be considered in the context of all prior published Goldman Sachs research, w hich may or may not have included price targets, as w ell as developments relating to the company, its industry and f inancial markets.

Rating

Price target

Price target at removal

Covered by S.K.Prasad Borra,as of Jul 26, 2010

Not covered by current analyst

FTSE World Europe (EUR)

Inde

x P

rice

Sto

ck P

rice May 19 Sep 15

S NF

SM A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

2009 2010 2011



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De-rating likely reflecting lower returns; on to Conviction Sell List · 2015-07-06 · De-rating...

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