4QFY2010 Result Update I IT

May 5, 2010

3i Infotech
Performance Highlights
3i Infotech declared strong 4QFY2010 performance on a consolidated basis registering 5.4% qoq growth in Top-line led by strong growth in the IT Services (9.9% qoq) and IT Products (5% qoq) Segments. The Transaction Services Segment Revenues grew 2.6% qoq to Rs245cr. While Operating Profit grew 3.6% to Rs124cr during the quarter, EBIDTA Margins fell 35bp qoq on lower Fx realisations during the quarter. The company wrote off Rs260cr as it exited the Citizen Service Center (CSC) business in 4QFY2010. Thus, Depreciation was reversed during the quarter and stood at a mere Rs1cr as against Rs22cr in the previous quarter. Profit after Tax adjusted for Extraordinary items grew 3% qoq. However, on reported basis, the company booked a Loss of Rs167cr. We believe that post the one-time hit (Kiosk business), the company would now focus on its core business going ahead. We maintain a Buy on the stock in view of the future potential of the acquired businesses. One-time Expense impacted performance: 3i Infotech registered Top-line growth of 5.4% qoq (3.5% yoy) during the quarter, with IT Services leading the growth recording 9.9% qoq jump in Revenues to Rs181cr, and contributed 28% to Total Revenues. Order Book stood at Rs1654cr, up 3.9% qoq and 14.4% yoy, indicating strong business visibility. Operating Margins however contracted by 35bp qoq (up 10bp yoy) during the quarter mainly due to the 347bp qoq (133bp yoy) increase in SG&A costs. The company reported a sharp 374.2% qoq (284.7% yoy) decline in Bottom-line due to the one-time extraordinary expense of Rs260cr incurred towards settlement of the Kiosk business. The loss has been valued as the difference between reported asset value in 3QFY2010 and disposable value as of 4QFY2010. Outlook and Valuation: We believe that 3i Infotech would bank on its strong traction in Transaction Services to clock Revenue CAGR of 14% over FY201012E. Profit after Tax adjusted for Exceptional items is likely to register15% CAGR over FY2010-12E. The company has achieved its desired Service Offerings portfolio and would now concentrate on geographical expansion and cross selling opportunities. In view of the transition phase of the companys new Service Offerings, we maintain a Buy on the stock with a Target Price of Rs129, implying 7x FY2012E EPS of Rs17.6, and translating into an upside of 76% from current levels. Key Financials (Consolidated)
Y/E March (Rs cr) Net Sales % chg Net Profit % chg EBITDA Margin (%) FDEPS (Rs) P/E (x) P/BV (x) RoE (%) RoACE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

BUY
CMP Target Price
Investment Period Stock Info Sector Market Cap (Rs cr) Beta 52 WK High / Low Avg. Daily Volume Face Value (Rs) BSE Sensex Nifty Reuters Code Bloomberg Code Shareholding Pattern (%) Promoters MF/Banks/Indian FLs FII/NRIs/OCBs Indian Public Abs. Sensex (%) 3i Info (%) 3m 8.2 (9.0) 1yr 40.9 44.1 23.1 35.3 12.2 29.4 3yr 22.6 52.1 IT 1,201 1.1 103/46 5,74,167 10 17,088 5,125 TIIN.BO III.IN

Rs72 Rs129
12 months

FY2009 2,286 89.6 282 59.7 19.3 21.6 3.5 0.8 28.8 14.4 1.2 6.2

FY2010E 2,449 7.1 33 (88.2) 19.7 1.7 37.9 0.9 2.5 12.3 1.2 5.9

FY2011E 2,734 11.7 290 771.7 19.4 14.5 5.1 0.8 16.9 13.1 1.0 4.9

FY2012E 3,197 16.9 351 21.2 19.0 17.6 4.2 0.7 16.7 15.1 0.7 3.8 Vibha Salvi
Tel: 022 4040 3800 Ext: 329 E-mail: vibhas.salvi@angeltrade.com
1

Rahul Jain
Tel: 022 4040 3800 Ext: 345 E-mail: rahul.j@angeltrade.com

Please refer to important disclosures at the end of this report

Sebi Registration No: INB 010996539

3i Infotech I 4QFY2010 Result Update

Exhibit 1: 4QFY2010 Performance (Consolidated)

Y/E March (Rs cr) Total Revenue Operating Costs EBITDA Interest Depreciation & Amortisation Other Income / (Expense) Income before Income Taxes Income Taxes Net Income before Minority Interest Exceptional Income Extraordinary Expenses Minority Interest & Share of Assc. Profits Profit after Tax (bfr extraordinary expn.) Profit after Tax (after extraordinary expn.) Diluted EPS (Rs. bfr extraordinary expn.) Diluted EPS (Rs. after extraordinary expn.) EBITDA Margin (%) Net Profit Margin bfr extraordinary (%)
Source: Company, Angel Research

4QFY2010 628 504 124 38 1 4 90 5 84 11 (260) 2 93 (167) 4.8 (8.5) 19.7 14.8

3QFY2010 596 477 120 36 22 6 67 6 61 (11) (10) 61 61 3.1 3.1 20.1 10.2

% chg (qoq) 5.4 5.8 3.6 5.2 (97.7) (23.7) 33.4 (8.0) 37.2 (200.0) (118.8) 53.0 (374.2) 53.0 (374.2)

4QFY2009 607 488 119 28 23 4 72 5 67 26 2 90 90 4.6 4.6 19.6 14.9

% chg (yoy) 3.5 3.4 4.1 36.4 (97.8) 11.9 25.1 6.3 26.5 (57.9) (7.5) 3.1 (23.9) 3.1 (284.7)

FY2010 2,449 1,966 483 145 81 20 277 11 266 28 (260) (0) 294 33 15.0 1.7 19.7 12.0

FY2009 2,286 1,851 434 95 70 19 288 22 266 26 0 10 282 282 14.4 21.0 19.0 12.3

% chg 7.1 6.2 11.2 52.5 16.2 6.0 (4.0) (50.3) (0.2) 7.3 (101.1) 4.2 (88.1) 4.2 (91.9)

Top-line growth backed by growth in all businesses

3i Infotech delivered Top-line growth of 5.4% qoq (3.5% yoy) during the quarter, with IT Services at the forefront with 9.9% qoq jump in Revenues followed by the Software Products Segment which saw 5% qoq growth in Revenues, while the Transaction Services Segment registered 2.6% jump in Revenues. Growth has been broad based as the company has been working on cross sell/ up sell opportunities. For FY2010, the company reported modest growth of 7% as it faced series of headwinds by way of Rupee appreciation, decline in top account, pricing pressure and vendor consolidation. The companys Top client, ICICI Bank, continues to be a Revenue dragger with its contribution falling to 6% levels in 4QFY2010 as against 9% at the beginning of the year. 3is quarterly Revenue run rate declined to Rs37.6cr (Rs.47.6cr) in 4QFY2010, down 21% yoy. However, growth registered by the Top 2-10 clients compensated for the fall in the Top account, which helped maintain the total contribution of Top-10 clients at 17% for FY2010. The company plans to consolidate its offerings in the Transaction Services Segment by clubbing its platforms in its bid to improve efficiencies for its clients. The company has been registering higher traction in its on-line banking transactions, which may help it improve segmental margin as costs involved in on-line banking transactions are lower whereas the Revenue per transaction is constant at around US $0.1. The company has guided Top-line growth in the range of Rs2,740-2,814cr for FY2011E, a yoy growth of 11-14%, indicating better outlook. Guidance on the upper band appears robust compared to the guidance by peers and Tier-I companies.

April30, 2010

3i Infotech I 4QFY2010 Result Update Exhibit 2: Segment-wise Gross Revenue and Margins
(Rs. cr) Software Products Revenues Gross profit Gross margins (%) IT Services Revenues Gross profit Gross margins (%) Transaction Services (BPO) Revenues Gross profit Gross margins (%) Total Revenues Gross profit Gross margins (%) 4QFY10 203 110 54.1 181 68 37.4 245 80 32.6 628 257 40.9 3QFY10 193 102 52.9 165 64 38.9 238 78 32.7 596 244 41.0 4QFY09 209 115 54.8 176 64 36.3 222 63 28.4 607 242 39.8 % chg qoq 5.0 7.4 120bp 9.9 5.6 (150bp) 2.6 2.2 (10bp) 5.4 5.2 (10bp) % chg yoy (3.0) (4.3) (70bp) 2.7 5.6 100bp 10.4 26.8 420bp 3.6 6.5 110bp

Source: Company Data, Angel research

Exhibit 3: Products and Services Segment: Revenue Break-up

4QFY10 8% 39% 13% 8% 3% 29%
Insurance Capital Markets IT Services Banking ERP Transaction Services Insurance Capital Markets IT Services

4QFY09 9% 36% 12% 10% 3% 30%

Banking ERP Transaction Services

Source: Company Data, Angel research

Margins impacted by higher SG&A spend

3i Infotech registered 35bp qoq (up 10bp yoy) contraction in EBITDA Margin in 4QFY2010 mainly due to the 347bp qoq (133bp yoy) increase in SG&A costs on account of lower pricing realisation. However, this negative impact was curtailed, to an extent, by the 220bp qoq reduction in Employee costs (up 591bp yoy) and 92bp qoq (735bp yoy) reduction in the cost of third-party products. Segment-wise, Software Products continued to witness Gross Margin expansion for the second consecutive quarter reporting 120bp qoq expansion to 54.1%. However, Gross Margins of the IT Services and Transaction Services Segments fell for the second consecutive quarter, registering a decline by 150bp and 10bp, respectively.

April30, 2010

3i Infotech I 4QFY2010 Result Update

Exhibit 4: Margin Trend

50 45 40

(%)

35 30 25 20 15 1QFY06 2QFY06 3QFY06 4QFY06 1QFY07 2QFY07 3QFY07 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10

Gross margins
Source: Company, Angel Research

EBITDA margins

One-Time extraordinary expense incurred by Kiosk business

In 3QFY2010, 3i Infotech paid compensation/penalty of Rs10.9cr to exit its earlier signed MSA with the various state governments. This compensation was in lieu of withdrawing the commitment of setting up 6,000 additional kiosks for the G2C Segment. However, the company has exited the business as the project was not functioning are per plans apart from being capex intensive. Thus, the company charged a substantial one-time extraordinary expense of Rs260.5cr during the quarter, as the differential between the Book Value of the assets and net realisable value. The company has valued the residual asset at around Rs15cr. Exhibit 5: Investment in Kiosk business
Kiosk business Total investment Depreciation till FY09 Depreciation write back Write off Residual Value (Rs. in cr) 321.62 19.69 19.69 260.46 15.0

Source: Company, Angel Research; Note:*Investments were made to acquire computers, plant & machinery and furniture & fixtures to set up various kiosks as part of Government of Indias e-governance initiatives

Sharp decline in Profit despite lower Depreciation and Tax rate

Depreciation charge during the quarter fell 97.7% qoq (97.8% yoy) on account of the reversal of Depreciation charged on the CSC (Kiosk) business worth Rs19.6cr. Going forward, we expect 3i to maintain Depreciation expenses at Rs21cr on a quarterly basis. In 4QFY2010, the Tax rate stood lower by 264bp qoq (104bp yoy) to 5.9%. However, despite lower Depreciation and Tax rate, the company reported a sharp 374.2% qoq (284.7% yoy) decline in Bottom-line due to depressed Margins and the one-time extraordinary expense incurred towards settlement of the Kiosk business. Excluding the one-time extraordinary expense, Bottom-line grew 53% qoq and 3.1% yoy. Effective Tax rate for FY2011E is expected to be 14%. Management has guided Profitability Margin to be in the range of 10-10.5% for FY2011.

April30, 2010

3i Infotech I 4QFY2010 Result Update

Outlook and Valuation

3i Infotech ended FY2010 registering Revenue growth of 7% yoy as it focused on streamlining its services and product offerings. The company achieved the desired Revenue mix on the back of 30%+ contribution by the Products, Services and Transaction Segments. The company also exited the capital-intensive CSC business and expects to concentrate on cross sell/up sell opportunities in the IT Segment going ahead. The company got access to large BFSI clients in the US market through its acquisitions in the transaction services segment (Regulus and JP Morgan Retail Lock box) and would work on to pitch more integrated IT offerings, which would result in higher efficiencies for the clients (benefits of bundled selling). We expect 3i Infotech to bank on its strong traction in the Transaction Services to clock Revenue CAGR of 14% over FY2010-12E. Bottom-line adjusted for Exceptional items is likely to register 15% CAGR over FY2010-12E, while EPS (diluted) would grow at a slower 13% during the period, as we expect some dilution on account of the FCCB conversion. The company has achieved its desired service offering portfolio and would now concentrate on geographical expansion and cross selling opportunities. In view of the transition phase of the companys new Service offerings, we maintain our Target Price of Rs129 on the stock, implying 7x FY2012E EPS of Rs17.6, and translating into an upside of 76% from current levels.

April30, 2010

3i Infotech I 4QFY2010 Result Update

Profit & Loss Statement (Consolidated)

Y/E March Gross sales Less: Excise duty Net Sales Other operating income Total operating income % chg Total Expenditure Cost of Equipment SGA Cost of IT Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of associate Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (Rs) Fully Diluted EPS (Rs) % chg FY2008 FY2009 FY2010E FY2011E

(Rs cr)
FY2012E

1,205 1,205 18 1,224 49.1 946 494 167 256 29 277 81.8 21.5 24 253 86.4 21.0 55 198 80.4 0.3 198 15 7.6 183 (6.6) 177 177 70.2 14.6 13.5 13.5 70.2

2,286 2,286 19 2,305 88.4 1,845 1,007 278 513 47 460 65.8 19.3 70 390 54.1 17.0 101 289 58.4 (24.9) 314 22 6.9 292 (10.4) 282 257 59.7 12.3 21.6 21.6 59.7

2,449 2,449 20 2,469 7.1 1,966 1,061 299 553 51 503 9.4 19.7 81 422 8.2 17.2 145 277 (85.9) 232.6 44 11 24.7 33 (0.1) 33 266 (88.2) 1.4 2.0 1.7 (88.2)

2,734 2,734 21 2,755 11.6 2,205 1,203 339 608 55 550 9.2 19.4 89 461 9.3 16.9 132 329 643.2 329 40 12.0 290 0.0 290 290 771.7 10.6 14.5 14.5 771.7

3,197 3,197 25 3,221 16.9 2,591 1,423 393 711 64 630 14.7 19.0 95 535 16.1 16.7 122 413 25.5 413 62 15.0 351 0.0 351 351 21.2 11.0 17.6 17.6 21.2

April30, 2010

3i Infotech I 4QFY2010 Result Update

Balance Sheet (Consolidated)

Y/E March SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Total Assets 315 153 162 79 1,055 3 1,018 267 253 499 302 716 2,016 748 233 515 126 1,752 4 1,423 320 332 772 488 935 3,331 943 314 629 76 1,752 4 1,519 324 367 829 494 1,024 3,484 1,018 403 615 36 1,752 4 1,757 455 397 906 564 1,193 3,599 131 100 550 780 10.2 1,266 (41) 2,016 131 100 916 1,146 21.2 2,202 (39) 3,331 168 100 1,200 1,468 2,016 3,484 200 100 1,683 1,983 1,617 3,599 FY2008 FY2009 FY2010E FY2011E

(Rs cr)
FY2012E 200 100 1,976 2,276 1,271 3,547 1,093 498 595 36 1,752 4 1,830 416 422 993 669 1,160 3,547

Cash Flow Statement (Consolidated)

Y/E March Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc)./ Dec in Fixed Assets (Inc)./ Dec. in Investments (Inc)./ Dec. in loans and advances Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others (fx effect) Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2008 198 24 54 (55) 44 288 (643) (2) 0 12 (632) 6 577 22 (42) 519 174 93 267 FY2009 288 85 92 (104) 46 524 (1,044) 0 -0.11 2 (1,041) 1 626 30 (27) 570 53 267 320 FY2010E 277 81 (102) (149) 63 342 (419) 0 4 (415) 310 (126) 30 (77) 76 4 320 324 FY2011E 329 89 (7) 40 371 (35) (30) (65) 271 (399) 46 0 (175) 132 324 455

(Rs cr)
FY2012E 413 95 18 62 464 (75) (25) (100) (346) 58 0 (404) (40) 455 416

April30, 2010

3i Infotech I 4QFY2010 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (Rs) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) Working capital cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Interest) 1.6 4.6 4.6 1.9 4.8 3.9 1.4 4.0 2.9 0.8 2.9 3.5 0.6 2.0 4.4 3.8 151 69 148 3.1 0.3 121 58 61 2.6 0.7 122 70 104 2.7 0.7 119 68 99 2.9 0.7 111 66 85 15.8 30.9 27.4 14.4 28.4 28.8 12.3 24.0 2.5 13.0 24.7 16.8 15.0 28.1 16.5 21.0 92.4 0.6 11.4 5.3 1.3 19.2 17.0 93.1 0.7 10.4 5.4 1.6 18.4 17.2 75.3 0.7 8.7 5.2 1.2 12.8 16.9 88.0 0.7 11.0 6.4 0.6 13.6 16.7 85.0 0.8 12.0 7.2 0.4 13.8 13.5 13.5 15.4 2.1 60.6 21.6 21.6 26.9 2.0 89.3 2.0 1.7 6.8 1.5 87.0 14.5 14.5 18.9 2.0 99.3 17.6 17.6 22.4 2.5 114.0 5.3 4.7 1.2 2.9 1.6 7.0 0.8 3.3 2.7 0.8 2.8 1.2 6.1 0.7 36.6 10.6 0.8 2.1 1.2 5.8 0.7 5.0 3.8 0.7 2.8 0.9 4.7 0.6 4.1 3.2 0.6 3.5 0.7 3.6 0.5 FY2008 FY2009 FY2010E FY2011E FY2012E

April30, 2010

3i Infotech I 4QFY2010 Result Update

Research Team Tel: 022-4040 3800

E-mail: research@angeltrade.com

Website: www.angeltrade.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Securities Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, and is for general guidance only. Angel Securities Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Securities Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Securities Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Securities Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section).

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies Directors ownership of the stock 4. Broking relationship with company covered
.

3i Infotech No No No No

Note: We have not considered any Exposure below Rs 1 lakh for Angel and its Group companies.

Address: Acme Plaza, A Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059. Tel : (022) 3952 4568 / 4040 3800

Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946 Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302

April30, 2010