Engineering Services Outsourcing: Financial Performance Review
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Pure-play Engineering Services Outsourcing (ESO) service providers achieved a CAGR of 7% in the period FY2007 to FY2011, in a study conducted by ValueNotes. This study covers the financial performance ...

Pure-play Engineering Services Outsourcing (ESO) service providers achieved a CAGR of 7% in the period FY2007 to FY2011, in a study conducted by ValueNotes. This study covers the financial performance of pure-play ESO firms, principally in the Indian ESO industry. The report includes service provider profiles of 13 ESO firms, along with their service offerings, key financial ratios, shareholding patterns, and names of directors. For more details visit:
bit.ly/ESOFPA

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Engineering Services Outsourcing: Financial Performance Review Document Transcript

  • 1. 2012Engineering Services Outsourcing: Financial Performance Review Revenue fall necessitates curb in expenses ValueNotes Database Pvt Ltd 1 Bhuvaneshwar Society, Abhimanshree Road, Pashan, Pune 411008, Maharashtra, India T:+91-20-6623 1767 / 1743 E:research@valuenotes.co.in W: www.valuenotes.co.in
  • 2. 2012Financial Performance Report SeriesEngineering Services Outsourcing: Financial Performance ReviewCOPYRIGHT: The report and its contents are for the use of ValueNotes license holders only, and maynot be provided to any third party, in any form, for any purpose whatsoever, without the expresswritten consent of ValueNotes Database Pvt Ltd.As used in this document, “ValueNotes” means ValueNotes Database Pvt Ltd. Please seewww.valuenotes.co.in/about for a detailed description of ValueNotes Database Pvt Ltd and itsactivities. i Copyright © 2012 ValueNotes Database Pvt Ltd. All rights reserved.
  • 3. 2012Engineering Services Outsourcing: Financial Performance Review Table of ContentsResearch Methodology ......................................................................................................................viExecutive Summary ........................................................................................................................... ix1 Macroeconomics ......................................................................................................................... 1 1.1 Global Economy .................................................................................................................... 1 1.2 Major Economic Regions ....................................................................................................... 2 1.3 National Economic Performance of Select Countries ............................................................. 4 1.4 Currency Movements............................................................................................................ 7 1.5 Global Capital Markets .......................................................................................................... 82 Industry Insights.......................................................................................................................... 9 2.1 Indian IT-BPO Industry Revenue ............................................................................................ 9 2.2 IT-BPO Contribution Towards India’s GDP ........................................................................... 10 2.3 IT-BPO Contribution Towards India’s Exports ...................................................................... 103 Operating Earnings.................................................................................................................... 12 3.1 Total Income ....................................................................................................................... 12 3.2 Revenue Per Employee ....................................................................................................... 144 Expenses ................................................................................................................................... 16 4.1 Operating Cost .................................................................................................................... 16 4.2 Employee Cost .................................................................................................................... 18 4.3 Total Cost Per Employee ..................................................................................................... 195 Profitability ............................................................................................................................... 21 5.1 EBITDA Margin .................................................................................................................... 21 5.2 EBIT Margin ........................................................................................................................ 22 5.3 Net Profit Margin ................................................................................................................ 23 5.4 Net Profit Per Employee...................................................................................................... 246 Operating Efficiency .................................................................................................................. 26 6.1 Debtor Days ........................................................................................................................ 26 6.2 Creditor Days ...................................................................................................................... 28 6.3 Debtor Days Versus Creditor Days ....................................................................................... 29 6.4 Net Operating Cycle ............................................................................................................ 297 Solvency.................................................................................................................................... 31 7.1 Quick Ratio ......................................................................................................................... 31 7.2 Debt Ratio........................................................................................................................... 33 7.3 Debt/Equity Ratio ............................................................................................................... 34 7.4 Interest Coverage ............................................................................................................... 358 Capital Efficiency ....................................................................................................................... 37 8.1 Return On Capital Employed ............................................................................................... 37 8.2 Return on Equity ................................................................................................................. 38 8.3 Return On Assets ................................................................................................................ 399 Service Provider Evaluation ....................................................................................................... 4110 Company Profiles ...................................................................................................................... 46 10.1 3D Concept ......................................................................................................................... 46 10.2 Aktis Engineering ................................................................................................................ 48 10.3 Altair India .......................................................................................................................... 50 10.4 Celstream ........................................................................................................................... 52 10.5 EniT Solutions ..................................................................................................................... 54 10.6 Hoyt Engineering ................................................................................................................ 56 10.7 ImageGrafix ........................................................................................................................ 58 10.8 Mahindra Engineering......................................................................................................... 60 10.9 Neilsoft ............................................................................................................................... 62 10.10 QuEST Global ...................................................................................................................... 64 ii Copyright © 2012 ValueNotes Database Pvt Ltd. All rights reserved.
  • 4. 2012Engineering Services Outsourcing: Financial Performance Review 10.11 Rave Tech ........................................................................................................................... 66 10.12 Tantra Infosolutions ............................................................................................................ 68 10.13 Tooltech ............................................................................................................................. 7011 Appendix................................................................................................................................... 72 iii Copyright © 2012 ValueNotes Database Pvt Ltd. All rights reserved.
  • 5. 2012Engineering Services Outsourcing: Financial Performance Review Table of ExhibitsExhibit i: Service Provider Categories and Sample Size .................................................................................... viiExhibit ii: Parameters Used for Service Provider Comparison .......................................................................... viiExhibit iii: Legend Used for Service Provider Comparison ............................................................................... viiiExhibit iv: List of Abbreviations ...................................................................................................................... viiiExhibit v: Top Five Service Providers in the Engineering Services Outsourcing Segment in 2011 ......................... xExhibit 1: Global GDP Growth Rate from 2007 to 2013 ...................................................................................... 1Exhibit 2: European Union (EU) GDP Growth Rate from 2007 to 2013 ............................................................... 2Exhibit 3: BRIC (Brazil, Russia, India, China) GDP Growth Rate from 2007 to 2013.............................................. 2Exhibit 4: India GDP Growth Rate from 2007 to 2013 ........................................................................................ 4Exhibit 5: USA GDP Growth Rate from 2007 to 2013 ......................................................................................... 5Exhibit 6: UK GDP Growth Rate from 2007 to 2013 ........................................................................................... 6Exhibit 7: Indian Currency Movements from 2007 to 2011 ................................................................................ 7Exhibit 8: Capital Market Performance from 2007 to 2011 ................................................................................ 8Exhibit 9: Indian IT-BPO Revenue from 2007 to 2012 ........................................................................................ 9Exhibit 10: Indian IT-BPO Contribution to the National GDP ............................................................................ 10Exhibit 11: Indian IT-BPO Contribution to the National Exports ....................................................................... 10Exhibit 12: Revenue and Growth Over Five Years ............................................................................................ 12Exhibit 13: Revenue by Service Provider Type ................................................................................................. 13Exhibit 14: Revenue Change (YoY) by Service Provider Type ............................................................................ 13Exhibit 15: Revenue of ESO Segment by Service Provider in 2011 .................................................................... 14Exhibit 16: Revenue Per Employee (RPE) Over Five Years ................................................................................ 14Exhibit 17: RPE by Service Provider Type ......................................................................................................... 15Exhibit 18: RPE Change (YoY) by Service Provider Type.................................................................................... 15Exhibit 19: Operating Expense as a Percent of Revenue For Five Years ............................................................ 16Exhibit 20: Operating Expense Change (YoY) by Service Provider Type ............................................................ 17Exhibit 21: Operating Expense as a Percent of Revenue by Service Provider Type ............................................ 17Exhibit 22: Employee Cost as a Percent of Operating Expense Over Five Years ................................................ 18Exhibit 23: Employee Cost as a Percent of Revenue Over Five Years ................................................................ 18Exhibit 24: Employee Cost as a Percent of Revenue by Service Provider Type .................................................. 19Exhibit 25: Total Cost Per Employee Over Five Years ....................................................................................... 19Exhibit 26: Total Cost Per Employee by Service Provider Type ......................................................................... 20Exhibit 27: EBITDA Margin Over Five Years...................................................................................................... 21Exhibit 28: EBITDA Margin by Service Provider Type........................................................................................ 22Exhibit 29: EBIT Margin Over Five Years .......................................................................................................... 22Exhibit 30: EBIT Margin by Service Provider Type ............................................................................................ 23Exhibit 31: NPM Over Five Years ..................................................................................................................... 23Exhibit 32: NPM by Service Provider Type ....................................................................................................... 24Exhibit 33: Net Profit Per Employee Over Five Years........................................................................................ 24Exhibit 34: Net Profit Per Employee by Service Provider Type.......................................................................... 25Exhibit 35: Debtor Days Over Five Years .......................................................................................................... 26Exhibit 36: Debtor Days by Service Provider Type............................................................................................ 27Exhibit 37: Debtor Days Change (YoY) by Service Provider Type ...................................................................... 27Exhibit 38: Creditor Days Over Five Years ........................................................................................................ 28Exhibit 39: Creditor Days by Service Provider Type .......................................................................................... 28Exhibit 40: Debtor Days Versus Creditor Days ................................................................................................. 29Exhibit 41: Net Operating Cycle Over Five Years .............................................................................................. 29Exhibit 42: Net Operating Cycle by Service Provider Type ................................................................................ 30Exhibit 43: Quick Ratio Over Five Years ........................................................................................................... 31 iv Copyright © 2012 ValueNotes Database Pvt Ltd. All rights reserved.
  • 6. 2012Engineering Services Outsourcing: Financial Performance ReviewExhibit 44: Quick Ratio by Service Provider Type ............................................................................................. 32Exhibit 45: Quick Ratio Change (YoY) by Service Provider Type ........................................................................ 32Exhibit 46: Debt Ratio Over Five Years ............................................................................................................ 33Exhibit 47: Debt Ratio by Service Provider Type .............................................................................................. 33Exhibit 48: Debt/Equity Ratio Over Five Years ................................................................................................. 34Exhibit 49: Debt/Equity Ratio by Service Provider Type ................................................................................... 34Exhibit 50: Debt/Equity Ratio Change (YoY) by Service Provider Type .............................................................. 35Exhibit 51: Interest Coverage Over Five Years ................................................................................................. 35Exhibit 52: Interest Coverage by Service Provider Type ................................................................................... 36Exhibit 53: Return On Capital Employed (ROCE) Over Five Years...................................................................... 37Exhibit 54: ROCE by Service Provider Type ...................................................................................................... 38Exhibit 55: Return On Equity (ROE) Over Five Years ......................................................................................... 38Exhibit 56: ROE by Service Provider Type ........................................................................................................ 39Exhibit 57: Return on Assets (ROA) Over Five Years ......................................................................................... 39Exhibit 58: ROA by Service Provider Type ........................................................................................................ 40Exhibit 59: Consolidated Ranking of Top Five Service Providers ....................................................................... 41Exhibit 60: Revenue Ranking of Top Five Service Providers.............................................................................. 41Exhibit 61: RPE Ranking of Top Five Service Providers ..................................................................................... 42Exhibit 62: Total Cost Per Employee Ranking of Top Five Service Providers ...................................................... 42Exhibit 63: EBITDA Margin Ranking of Top Five Service Providers .................................................................... 42Exhibit 64: Net Profit Per Employee Ranking of Top Five Service Providers ...................................................... 43Exhibit 65: Net Operating Cycle Ranking of Top Five Service Providers ............................................................ 43Exhibit 66: Quick Ratio Ranking of Top Five Service Providers.......................................................................... 43Exhibit 67: Debt/Equity Ratio Ranking of Top Five Service Providers ................................................................ 44Exhibit 68: ROCE Ranking of Top Five Service Providers ................................................................................... 44Exhibit 69: ROE Ranking of Top Five Service Providers ..................................................................................... 44 v Copyright © 2012 ValueNotes Database Pvt Ltd. All rights reserved.
  • 7. 2012Engineering Services Outsourcing: Financial Performance ReviewResearch MethodologyAbout the Financial Performance Report SeriesThese reports have been designed to analyze the financial performance of companies in theKnowledge Process Outsourcing (KPO) industry. The information in this series will be of interest toKPO service providers, consultancies, investment firms, and buyers of KPO services. It is aimed atproviding decision makers, analysts and influencers with relevant and actionable insights. The reportwill enable service providers to benchmark their performance against their peers. It will helpinvestors and consultants evaluate the financial health of their service providers. Buyers of KPOservices can use this information to make informed decisions.Scope of the ReportThe Financial Performance Report analyzes key financial ratios of companies that constitute theengineering services outsourcing (ESO) segment. The companies covered in this report are pure-playKPOs with operations in India. Pure-play KPOs provide services for a specific segment, process orindustry; in this case, the engineering services outsourcing segment. Only private limited companiesthat are incorporated in India and that filed annual returns with the Government of India’s Ministryof Corporate Affairs (MCA) are considered in the report. The information presented in this report isbased on financial statements of companies between the fiscal period from 2007 and 2011.In addition, publicly available information and past research by ValueNotes on informationpertaining to the companies’ service offerings and employee strength is used in this report. For moreinformation regarding ValueNotes’ publications on the engineering services outsourcing industry,refer to the section titled For Further Reading.Special NotesAs per the reporting guidelines of the MCA, private limited companies are required to file theirbalance sheets, profit and loss accounts, annual returns and compliance certificates. However, allthe line items in the financial statements are not mandatory.  Financial information in the report is reported in Indian Rupees (INR).  The financial period reported by the company has been considered as is and has not been adjusted. Companies in the sample have differing report periods such as April to March, and January to December.  The financial statements of the companies have been computed as reported and adjustments or normalizations have not been made by ValueNotes.  The analysis in this report uses a data set of those companies that have disclosed all the pertinent financial information for that particular year required to calculate the appropriate financial ratio.  Analysis and conclusions regarding industry trends have been made on the basis of available data from the population of companies in ValueNotes’ sample (refer to Appendix).  The data in this report does not represent the entire engineering services outsourcing industry, as it excludes multi-service providers and captives. However, we believe that trends within the pure-play engineering services outsourcing business will be similar to those of the industry as a whole. vi Copyright © 2012 ValueNotes Database Pvt Ltd. All rights reserved.
  • 8. 2012Engineering Services Outsourcing: Financial Performance ReviewService Provider Categorization Exhibit i: Service Provider Categories and Sample SizeThe total number of companies that form Category name Revenue rangethe sample for this report is 13. Companies Large INR 500+ mnhave been grouped into categories based Medium INR 50 - 500 mnon their latest reported total revenue. This Small INR 1 - 50 mnhas been done to allow for a moremeaningful comparison of results. Thecategories, which are based on annualrevenue, are depicted in the adjacent tablealong with the sample size of eachcategory.Service Provider Comparison and RatingsThe report provides a relative positioning of Indian service providers in the engineering servicesoutsourcing segment featured in the report. The evaluation is based on their financial performanceon each of the 10 key financial ratios as listed in the exhibit below. Exhibit ii: Parameters Used for Service Provider Comparison Parameter Total Income Revenue Per Employee Total Cost Per Employee EBITDA Margin Net Profit Per Employee Net Operating Cycle Quick Ratio Debt/Equity Ratio Return On Capital Employed Return On EquityThe methodology adopted for considering companies for inclusion in the ranking requires FY 2011data to be available for calculating at least five of the financial ratios listed above. A relative rankingis assigned to each company based on their performance on each financial ratio. A single relativeranking is then given to each company by taking an equally weighted average of each ranking. Thetop five service providers are then positioned relative to each other across the ratios listed in theabove exhibit, from 2007 to 2011. vii Copyright © 2012 ValueNotes Database Pvt Ltd. All rights reserved.
  • 9. 2012Engineering Services Outsourcing: Financial Performance ReviewThe ranking of companies are represented using a four-bar scale. The scale used to denote therelative positions is shown in the exhibit below. Exhibit iii: Legend Used for Service Provider ComparisonAbbreviationsThe exhibit below includes a list of abbreviations used in this report. For a more detailed explanationof the financial ratios and how they were calculated, refer to the Glossary. Exhibit iv: List of Abbreviations bn Billions BPO Business Process Outsourcing CSO Central Statistics Office ESO Engineering services outsourcing EUR Euro FY Fiscal Year GBP Pound Sterling GDP Gross Domestic Product GSAM Goldman Sachs Asset Management IMF International Monetary Fund INR Indian Rupee JPY Japanese Yen k Thousand KPO Knowledge Process Outsourcing MCA Ministry of Corporate Affairs mn Millions NASSCOM National Association of Software and Services Companies OECD Organization for Economic Development RBI Reserve Bank of India USD United States Dollar WB World Bank WEO World Economic Outlook YoY Year on Year viii Copyright © 2012 ValueNotes Database Pvt Ltd. All rights reserved.
  • 10. 2012Engineering Services Outsourcing: Financial Performance ReviewExecutive SummaryPlease write to us at reports@valuenotes.co.in for a complimentary copy of the executive summary.To purchase the full report and discuss pricing please email meenakshi@valuenotes.co.in.More information about the Engineering Services Outsourcing: Financial Performance Review reportis available here. ix Copyright © 2012 ValueNotes Database Pvt Ltd. All rights reserved.
  • 11. Authors ContributorsArjun Bhuwalka Sameer MurdeshwarT +91-20-6623 1739 T +91-20-6623 1797E arjun@valuenotes.co.in E sameer@valuenotes.co.in Deepti Krishnan T +91-20-6623 1717 E deepti@valuenotes.co.inDISCLAIMER: This report is for general information only, and does not constitute a businessrecommendation or professional advice. The information in this report has been obtained fromsources believed to be reliable. ValueNotes cannot guarantee the authenticity, accuracy or adequacyof this information. All views expressed in this report are based on the opinions and judgments ofValueNotes. Readers are encouraged to consult their own professional advisors before making anydecision based on the contents of this report. ValueNotes accepts no liability for any consequencesarising from the use of this report or the material contained herein.Given that data is based on the financials of Indian registered companies, some of the overseassubsidiaries or entities related to the Indian companies have not been included. This may result innumbers that are discordant with other figures. If any of the companies covered in this report findsan anomaly, please send an email to research@valuenotes.co.in, and we will rectify the data as soonas possible.
  • 12. For Further ReadingOffshoring of Automotive Design & Engineering Services to India Date of Publication July 2006Our Other ReportsAnalytics: Financial Performance Review Date of Publication September 2012Outsourced Publishing Services: Financial Performance Review Date of Publication July 2012Legal Process Outsourcing: Financial Performance Review Date of Publication June 2012Banking BPO Services: Getting Back to Basics Date of Publication March 2012The Heathcare Payor BPO Landscape In 2011 Date of Publication February 2012The Pharmaceutical Industry Sourcing Landscape In 2011 Date of Publication January 2012The Utilities Sourcing Landscape In 2011 Date of Publication December 2011How Is Outsourcing Fueling The Oil And Gas Industry? Date of Publication October 2011Obamacare: Outsourcing Opportunities In Revenue Cycle Management Date of Publication June 2011Where Offshore Analytics is Heading in 2011 Date of Publication March 2011
  • 13. ValueNotes is a leading provider of research-based business intelligence. Over thepast decade, through our research products and research support services, we havehelped organizations across diverse industries, markets and geographies in gainingcompetitive advantage. Our strong capabilities in collecting, interpreting andanalyzing data enable us to provide actionable intelligence to our client.We take pride in our ability to provide insights as an independent, unbiased thirdparty. Our strengths lie in our industry expertise, strong relationships across anintricate network of industry participants, proven methodology for research andanalysis, and a team of researchers with rich experience adding up to severalhundred man years. Research Services: we provide a wide range of bespoke business and financialresearch services about specific markets, industries, companies and competitiveenvironments such as market segmentation/sizing, sector/ industry reports,company reports/ profiles, investment appraisal, due diligence, partner selection,competitive analysis, investor/user/buyer perception studies, desk research, newstracking Information Products: we publish proprietary market intelligence on the(services) outsourcing industry – in BFSI, e-learning, engineering, healthcare, legaland publishing – with an emphasis on knowledge services or KPO. Competitive Intelligence Consulting: with over a decade’s experience inconducting competitive intelligence (CI) and advising firms on their CI strategy, weare able to assist companies implement CI to gain a strategic advantage. Learning & Development: a consolidation of our own experience of doing CI intoa set of highly effective training programs for corporate teams and individualpractitioners. ValueNotes.com: India’s leading financial & equity research portal that providesan independent and unbiased aggregation of opinions, research, analysis andinsights on the Indian financial markets. 1 Bhuvaneshwar Society T +91-20-6623 1767 / 1743 Abhimanshree Road, Pashan E research@valuenotes.co.in Pune 411008, Maharashtra, India W www.valuenotes.co.in