Emerging Markets Case Team Noelle Diederich Lalit Khanna

Emerging Markets Case Team: Noelle Diederich, Lalit Khanna, Nandini Kini, Rakesh Mehta, Dan Sevall

Agenda Situation n Company n Industry n Emerging Market Issues n Valuation & Risks n Value at Risk (Va. R) n Results n

Situation “Best managed company in India” Asiamoney, 1996 & 1997 n Growth: CAGR > 50%, driven by Y 2 K, 82% of revenues from US n Goal: global player in IS products & services n Tactic: diversify services, issue ADS n CASE: Issue ADS - valuation? n

nt ul at Re g nd ta en m Go ve rn Pressure From Substitutes e ng ha l. C Threat of Entrants Direct Rivalry Among Competitors ica og l no ch or y. I Customer Bargaining Power Te er ve nt io n Company: Porter’s 5 Forces Bargaining Power of Suppliers Growth and Volatility of Market Demand

IT Industry n n Unique advantages: – Large, low cost, English -speaking labor force – World-class quality standards – Government policy support Software exports - $10 bn by 2000

Emerging Market Issues “India is a quantitative investor’s nightmare and a stock picker’s dream. ” Pros Cons n n n Education/work force IT industry expected to continue growing Economic liberalization n n Inflation Currency convertibility Black market Government instability/ history of socialism

The Equity Offer n $50 million Equity Issue of ADS @$55 p. s. – American Depository Shares = Equity – Traded on NASDAQ – Restricted convertibility into “regular” equity n Company specific risks – Y 2 K – Managing Growth and Employee Related Issues

Beta estimates

Return on Equity estimates n Beta based estimates: n E-H-V estimates:

Value at Risk n n Equity Offering: $ 50 million Va. R: $9. 3 million (Using Normal Distribution Assumption)

Results n DCF Analysis – Base Case value - $ 48 – Optimistic Value - $ 157 – Pessimistic Value - $ 4 n Comparables Analysis - NOT USED – “Comps” vary over time and across companies, e. g. - 1998 P/E range: 27 -79 n Conclusion: You tell us ? ? ?