ECONOMIC ANALYSIS OF CANARYS

THE INDIAN IT SECTOR

Sector estimated to aggregate revenues of USD 88.1 billion in FY2011

Worldwide technology products and services related expenses : USD 1 .6 trillion in 2010
Worldwide hardware spends increased by 6.4 pecent. BPO growing by 4 per cent, while software products rose by 3.7 per cent Service Lines: Within exports, IT Services segment was the fastest growing segment, growing by 22.7 per cent over FY2010, and aggregating export revenues of USD 33.5 billion, accounting for 57 per cent of total exports.

THE INDIAN IT SECTOR

6.4 per cent overall growth in FY 2011 Consistent US demand, increases its share to 61 .5 per cent of global sales. Share of total Indian exports increased from less than 4 per cent in FY1998 to 26 per cent in FY2011. Domestic market : expected to grow at almost 16 per cent to reach 787 billion in FY2011

Rising by 16.8 per cent to reach 501 billion

Sources of Revenue: Indian IT industry Revenue Break-up by sector

Revenue Share
BFSI Telecom Manufacturing Retail Media,Publishing & Construction & Utilities Healthcare Revenue Share

Airlines &Transportation
Others 0 10 20 30 40 50

COMPANY OVERVIEW
Canar ys is a well established, two decades old product and IT outsourcing ser vices company in Bangalore.

Canar ys ensures that its global clients achieve on time IT releases at

reduced cost, without the challenges of managing people and technolog y. Long standing contracts with clients speak volumes about Canar ys ser vice quality and responsiveness to meet customer expectations . Canar ys offers a range of IT engineering, development and maintenance ser vices which includes Application Design, Development, Maintenance, Application Testing, Technical Consulting & IT Staff Augmentation ser vices for global enterprises.

CANARYS AT A GLANCE
Business experience Good Clientele base IP & Trade Marks 20 Years, Strong references in India and USA. Team of senior people, Knowledge retention, Proven Technical capability, Senior Management involvement. Like Microsoft, HP, Infosys, Philips, Siemens, Motorola, TPS360, Sharp, Moog controls, Revelink. Long term customer base in US, UK & India. QT360 (Effort, Defect, Review), Audit Tool, CSRM (Customer Service Request management), SCORPUS, RFID Framework, ETP Framework. ESAM - TM 157104, "Quality is our mantra" - TM 1439611, SCORPUS TM 1412582, Fountain Lake Model - TM 1439615, QT360 - TM 77007213. STPI registered, Microsoft Gold Partner, Microsoft VSTS inner Circle partner, Member - TiE, IACC, Nasscom award in 2006 for top 100 IT Innovators. ISO 9001:2008 certified from 7+ years, CMMi Level 4 Capable. Well established HR & Recruitment processes. CLP (Canarys Learning Programme) for Fresh recruits. Can attract talent because of Brand. Well defined IT infrastructure processes. Facility management capability. Around 80 technically skilled & certified. Team of capable and experienced senior managers who have been with us for 10+ years.
www.ecanarys.com

Certifications and Accreditations

Quality Scalability

Human Resources

CANARYS AT A GLANCE
Well established Processes and methodologies Infrastructure SDLC using internally developed tools like QT360 (Project Management Tool Suite) , Audit Tool. EVO model for greater visibility. 5000 Sq.ft office space with well furnished work environment. Servers/Desktops running on Windows, Linux, Unix platforms. Virtual Server Environments. Dedicated project servers with Development -> Test -> Production. CAT 6 compatible network infrastructure with Giga bit switches & routers. Dedicated lease line with backup, Firewall ISA 2003, Access control, Antivirus server, data Backup & power backup. Disaster recovery management with offsite data storage. 100% compliant for all government statutory like Sales tax, Service tax, Income tax, ESI, PF

Compliance

www.ecanarys.com

CLIENT LIST

SERVICES OFFERED

Staffing Services

Application Development

Application Maintenance

Software Testing Services

Solutions & Product Development

Technical Consulting
www.ecanarys.com

REVENUE BREAK-UP BY SERVICES OFFERED

REVENUE TREND

Sources: Balance Sheet and Profit Loss Account, Canarys

REGRESSION ANALYSIS

Profit and Revenue Trends

100000000 80000000 60000000 40000000 20000000 0 Time 2007 2008 2009 2010

Profit Revenue

COMPETITIVE ANALYSIS

FINANCIAL MATRIX
Robust Growth in Top Line
INR bn
120 100
20 30

Robust Growth in EBITDA

INR bn

27.5 22.7

99.6

25

80 60 40 20

67.4
15

14.9

10.9 8.4

43.9
10

22.7

29.9
5 0

0
FY05 FY06 FY07 FY08 FY09

FY05

FY06

FY07

FY08

FY09

Robust Growth in Net Profits

INR bn INR bn

Robust Growth in Cash Profits

14

14

MARKET ANALYSIS

PORTERS FIVE FORCES

PORTERS FIVE FORCES

Bargaining Power of Customers:
Large number of IT companies vying for projects resulting in competition Huge decline in IT expenditure For existing products and services clients continue with their old companies

Threat of Substitutes:
Other offshore locations such as Philippines, Eastern Europe, China posing a major threat due to their cost advantage Price quoted is a major differentiator considering quality of product remains same

Barriers to entrants:
Low capital requirement Space for small enterprises The clients continue with their old companies

PORTERS FIVE FORCES

Bargaining power of suppliers:
Demand and supply of It professionals is no longer that favorable to employees Availability of vast talent pool: freshsers and experienced

Rivalry among firms:

Low-cost, little differentiation High industry growth Strong companies: few number of major companies Commoditized offerings

ECONOMIC ANALYSIS

ECONOMIC ANALYSIS
Economic Profit We consider the Opportunity Costs in terms of what Canarys could have actively invested but has not. Consider the Other Assets in the balance sheet for 2010. Say even a fraction of this is invested then we would be able to earn additional profit. This is the Opportunity Cost forgone. Economic Profit = Net Profit Opportunity Costs = 2401061 -

Marginal Revenue Total Revenues 11 = 50514005.37 Total Revenues 10 = 35276943.26 Quantity Demanded (Advances) 10 = 490000000(approx) Quantity Demanded (Advances) 11 = 540000000(approx) Marginal Cost = dTC/dQ = 15237062 / 50000000 Marginal Revenue= 0.307

Marginal Cost Total Expenses 09 = 45870021.5 Total Expenses 10 = 40297648.6 Quantity Demanded (Advances) 10 = 490000000 Quantity Demanded (Advances) 11 = 540000000 Marginal Cost = dTC/dQ = 5572373 / 50000000 Marginal Cost = 0.111

MR>MC

COMPARISON OF ENTERPRISE VALUE

Enterprise Value(in thousands USD) 2012 next 12 mth EV/EBITDA Relevance Score

Infosys Ltd

24 931 642

10.88

11.66

Cognizant Techno Sol...

17 972 764

11.72

12.3

100%

Satyam Computer Serv...

1 464 991

7.36

7.98

97%

Hewlett Packard Co

58 574 555

3.31

3.3

91%

Logica

2 439 386

4.32

4.42

87%

Wipro

16 857 535

10.46

11.09

82%

Computer Sciences Corp.

5 119 221

2.14

2.27

82%

0.067 Canarys 9.8

0.78 57.90%

SWOT ANALYSIS
Strengths Deep knowledge in managing government projects. Previous experience and domain exper tise in water resources domain. Huge potential for telemetric products and solution that use telemetr y across India. Huge potential for water resources management systems across India. Core engineering company. Recommendation and suppor t by world bank consultants. Cost optimization, as the projects will be similar in nature.
Lesser proportionate overheads.

Stable company. Strong experienced management Next level of managers groomed for leadership.

Minimum increase in manpower Reuse of software.

SWOT ANALYSIS
Weaknesses Absence of practical knowledge Dear th of suitable candidates Less Research and Development Contribution of IT sector to India 's GDP is still rather small. Employee salaries in IT sector are increasing tremendously. Low wages benefit will soon come to an end.

SWOT ANALYSIS
Opportunities High quality IT education market Increasing number of working age people India 's well developed soft infrastructure Upcoming International Players in the market

SWOT ANALYSIS
Threats Lack of data security systems Countries like China and Philippines with qualified workforce making ef forts to overcome the English language barrier IT development concentrated in a few cities only

BUSINESS GOALS
Past 2009-2010 Present 2010-2011 Future 2012-2015 Future 2012-2015 With external funds Software services continued. Other offerings continued. Fast track growth. Major stake in government projects. Higher top line.

Focus was on s/w services. Overseas clients MOOG controls Domestic clients Microsoft / Infosys. Tech Microsoft, Java Horizontal offerings.

Software services continued. Mobile platform apps. Telemetric systems.(IP) Water resource domain (Software, System Integration, Implementation) Canarys products eConformance.

Software services continued. Other offerings continued Organic growth. Government projects are executed in partnership with Flow Decisions.

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