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

This document summarizes an analysis of an emerging markets case involving an Indian IT company considering an American Depository Share (ADS) offering on the NASDAQ. It provides background on the company's strong growth and industry, discusses risks of investing in emerging markets and India, estimates the company's beta and potential returns using various indices, models value at risk for the $50 million equity offering, and calculates the company's value through DCF analysis with a base case of $48 per share. The team requests a conclusion on whether the ADS offering seems prudent given the information presented.

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52 views11 pages

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

This document summarizes an analysis of an emerging markets case involving an Indian IT company considering an American Depository Share (ADS) offering on the NASDAQ. It provides background on the company's strong growth and industry, discusses risks of investing in emerging markets and India, estimates the company's beta and potential returns using various indices, models value at risk for the $50 million equity offering, and calculates the company's value through DCF analysis with a base case of $48 per share. The team requests a conclusion on whether the ADS offering seems prudent given the information presented.

Uploaded by

tej2020
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Emerging Markets Case Team:

Noelle Diederich, Lalit Khanna,


Nandini Kini, Rakesh Mehta, Dan
Sevall

Agenda
Situation
Company
Industry
Emerging Market Issues
Valuation & Risks
Value at Risk (VaR)
Results

Situation
Best managed company in India Asiamoney, 1996 & 1997
Growth: CAGR > 50%, driven by Y2K,
82% of revenues from US
Goal: global player in IS products &
services
Tactic: diversify services, issue ADS
CASE: Issue ADS - valuation?

gu
Re
Go

ve
rn

e
ng

Pressure
From
Substitutes

ha

nd

lC

Direct
Rivalry
Among
Competitors

ica

en
ta

g
lo

no

Threat
of
Entrants

Customer
Bargaining
Power

ch
Te

lat
or
yI
nt
e

rv
en
tio
n

Company: Porters 5
Forces

Bargaining Power
of Suppliers

Growth and Volatility of Market Demand

IT Industry

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 investors nightmare
and a stock pickers dream.
Pros
Cons

Education/work force
IT industry expected
to continue growing
Economic
liberalization

Inflation
Currency
convertibility
Black market
Government
instability/ history of
socialism

The Equity Offer

$50 million Equity Issue of ADS @$55


p.s.
American Depository Shares = Equity
Traded on NASDAQ
Restricted convertibility into regular equity

Company specific risks


Y2K
Managing Growth and Employee Related
Issues

Beta estimates
Beta i,w
Index Returns Used ("i")

Statistical Value

Beta i,w
2

t - statistic Economic Value

Indian Indices
Infosys Indian Stock Price Changes
Crisil 400 Indian Computer Software Index
MSCI Indian Software Index

0.74
0.08
0.23

3.82%
0.04%
0.44%

1.3946
0.1883
0.4470

0.0
0.0
0.0

Emerging / International Markets Indices


MSCI Emerging Markets Data Processing & Reproduction Index
MSCI Emerging Markets Electronic and Computer Instruments Index
MSCI International Software Index

1.99
2.22
1.34

27.72%
33.94%
22.67%

4.2002
4.8615
3.6318

2.0
2.2
1.3

U.S. Index
S&P400: Services - Computer Systems Index

(0.46)

3.61%

(1.7950)

0.0

Note: w = MSCI World Markets Index Returns

Return on Equity estimates

Beta based estimates:


Index Used

Infosys Indian Stock Price Changes


Crisil 400 Indian Computer Software Index
MSCI Indian Software Index
MSCI Emerging Markets Data Processing & Reproduction Index
MSCI Emerging Markets Electronic and Computer Instruments Index
MSCI International Software Index
S&P400: Services - Computer Systems Index

CAPM
5.25%
5.25%
5.25%
27.11%
29.29%
19.46%
5.25%

Goldman
Integrated
12.13%
12.13%
12.13%
33.99%
36.18%
26.34%
12.13%

E-H-V estimates:

For the Country


For the Industry within India

15.30%
17.28%

Value at Risk
Distribution of Daily Returns
35.00%
30.00%

Probability

25.00%
20.00%
15.00%
10.00%
5.00%
0.00%

Daily Change in Price

Equity Offering: $ 50 million


VaR: $9.3 million (Using Normal Distribution Assumption)

Results

DCF Analysis

Base Case value - $ 48


Optimistic Value - $ 157
Pessimistic Value - $ 4

Comparables Analysis - NOT USED


Comps vary over time and across
companies, e.g. - 1998 P/E range: 27 -79

Conclusion: You tell us ???

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