Zylog Systems is eyeing smart gains as the company is looking for niche acquisitions in US

Zylog Systems is eyeing smart gains as the company is looking for niche acquisitions in US. The company is planning for an investment of USD 80-100 mn. In an exclusive interview with CNBC-TV18, P Srikant, ED of Zylog Systems says that the company is looking acquisitions in US currently.


“We have been constantly looking out for some niche acquisitions which we have been doing right from the year 2003. US will be our focus for now because we have not done a large acquisition within US right from the year 2003,” Srikant said.


Below is a verbatim transcript of P Srikant's interview with CNBC-TV18's Ekta Batra and Reema Tendulkar. Also watch the accompanying video.  


Q1: Can you throw some light on your acquisition plans. You are doing some due diligence for certain companies in the US we understand, could you just throw some light on the acquisition or the ticket size and where exactly would it be in terms of the space like BFSI etc.?


A: Yes, we have been constantly looking out for some niche acquisitions which we have been doing right from the year 2003. US will be our focus for now because we have not done a large acquisition within US right from the year 2003. It was in 2004 that we had last acquired in the US space because we have been able to grow organically in that geography over a period of 10 to 12 years.

Other acquisitions have always been to improve our product and service offering in other areas. Now the focus would be to grow within US because we feel US is coming out of that deep recession and there is very visible demand, even if you look at our Q1 and Q2 results, our solutions and services practices (check) within the us space has grown significantly. We would like to add on to that now that we have de-risked our business model and US constitutes only 45% (check) of the revenue, now we feel is the right time to look at US as a space. Within USD 80-100 million, a topline companies is what we are looking within the US space. It would be primarily in the healthcare, life sciences and pharma space and also on the ERP space where we feel that we need to ramp up our offering on the SAP and the Oracle segment. It can be one large acquisition of USD 80-100 million or couple of smaller acquisitions of about USD 40-50 million. We have zeroed in on couple of companies, the due diligence process is yet to begin on that. That’s where we are currently standing.


Q2: So when might we hear more on the final acquisition?


A: Should be in the next four or five months. We are targeting to have it before 31st March. If we are lucky we will be able to do it. Otherwise, I think first quarter for next year we should be on track to close this out.


Q3: What about funding for this USD 80-100 million acquisition?


A: We have been always funding our acquisition by way of internal accruals and by way of debt from banks right from the year 2003. For this particular acquisition as well, we are going to have something the same strategy. But if we are able to have a good valuation at that point in time and if we feel that it is necessary to dilute equity at that point in time we will look at equity dilution aspect.


Q4: Currently your revenues from the US comprise of around 40% of your revenues. What then is the plan going forward? How much of a revenue share do you see US comprising of, may be 1 to 2 years down the line?


A: We are looking at about 15-20% kind of a growth coming from US alone in the next couple of years.


Q5: You have some fund raising approved, upto the tune of around Rs 400 crore. You said that this would be funded via internal accruals, debt. Any plans in terms of equity dilution, you touched upon it but in particular for this resolution that you currently have?


A: We had passed this enabling resolution for the last AGM for this Rs 400 crore, it can be by way of Foreign Currency Convertible Bond (FCCB) or a Global Depositary Receipt (GDR) or a Qualified Institutional Placement (QIP), depending on which instrument would be more ideal.


If the acquisition is not going to happen, we are not going to do this dilution at all. We have not diluted the equity right from our IPO days in 2007 and the last equity dilution happened was way back in the year 2000. So, we have been always got in the equity without diluting it to any extent. Not even a smaller extent. If incase the acquisition size is something very large and if it requires us to also have this instrument in place, in addition to the internal accruals and the debt, then we will be looking at that very closely.


Q6: Could you help us with your FY11 guidance for the revenues, profit figure and also perhaps an EPS? When would your acquisition get consummated in FY12?


A: We are on track to reach the topline of Rs 1750-1800 crore for FY11 which will be substantially higher to the Rs 979 crore topline that we clocked for FY10. At the profit level it is going to be anywhere between Rs 140-145 crore at the PAT level and at the EPS is going to be Rs 88-90. Looking at what we have achieved in Q1, Q2 and in Q3 and whatever is visible in Q4, we have a healthy pipeline and a healthy order book as well.


Order book stands at about USD 200 million. Pipeline is also something which we are working on for the next financial year. We are on track to achieving these things. Coming to FY12 estimate, I would say we should be growing at anywhere between 12-15% without acquisition and if we have the acquisition in place it should be much more. It should be closer to 25%.