Tuesday, November 20, 2012

Zylog Systems - Worth a second look

At 230 Crores market cap the company deserves attention. Most of the past growth has been purchased by acquisitions, which is more often than not a more damaging and dangerous outcome for investors making an offer.

If one waits and analyzes in threadbare detail, outcome would be indecisiveness.

I believe it is worthy of a small investment on following premise.

Company can fire 35% of employees thus reduce wage bill significantly and all fixed costs can be shaved fast which can provide a base of 100-200 Crores+ FCF per annum
300 odd crores will be received at a minimum out of outstanding 900 crores from debtors reducing debt by half
Debtors amount outstanding albiet high, is around 30% of turnover (800 crores / 2200 Crores). Infosy FY 12 had 20-25% outstanding on 31000 Crores.

Although a low end IT company with 10% PAT margin, product revenues account for 37% of revenues, this stream can continue to grow and is more stable.

Top 10 customers account for 30% of revenues

This is trusting the published books of accounts. At a minimum they appear to have 3500 employee if not 5000 as per AR 12.

Disclosure: Started buying this evolving story @ 71