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Silverline: Eyeing inorganic growth

Oct 4, 2000

Silverline Technologies, Ltd., a global IT solutions provider, has acquired Sky Capital International (SCI) in US$ 22 m in all cash deal. Thus establishing its presence in Asia Pacific region. SCI is a leading IT consultancy company based in Hong Kong with a turnover of US$ 24.3 m in FY00. The strategic acquisition of SCI (at a revenue multiple of 0.9 times) will de-risk revenue stream of Silverline, increase offshore revenues and further strengthen its high quality customer base. The acquisition will provide Silverline greater non-US revenues and direct access to SCI’s current customer base of 50 in Hong Kong and Japan. SCI is one of Silverline’s largest customers. The company is expected to contribute US $10 m to Silverline’s $120 m revenue base and will help Silverline to expand its margin substantially in the next year.

SCI has an existing blue-chip client base including American Express, AT&T, Cable & Wireless, Cathay Pacific, First Data Corporation, Lehman Brothers, Standard Chartered and ITSD. The company has an established network of IT professional and marketing team. The acquisition of SCI is in line with Silverline’s strategy of becoming a truly global IT services company. Silverline’s strong relationship with SCI will enable it to leverage SCI’s unique leadership position in Far East region.

Silverline provides IT solutions and outsourcing services with focus in eBusiness, CRM, legacy transformation, and application maintenance. The company has good domain knowledge in the area of telecommunications, banking, utilities, insurance, transportation, and retail. Silverline is SEI CMM level 4 certified with facilities in the US, India, Canada, UK, Hong Kong, and Egypt.

Financial Performance
(Rs m)FY99FY00% change
Gross sales 1,101 1,953 77.3%
Operating profit 492 758 54.1%
Depreciation 72 80 10.6%
Interest 36 15 -58.9%
Profit before tax 432 706 63.2%
Profit after tax 412 702 70.5%
Number of shares (m) 38 65  

Key Ratios
Gross profit margin44.7%38.8%
Net profit margin37.4%35.9%
Fully Diluted EPS (Rs)6.410.9

At the current market price of Rs 365, Silverline is trading at a P/E of 35 times its FY00 earnings. The stock has come down substantially from its 52 week high of Rs 1,395. The company’s future valuations will depend on its ability to move up the value chain and maintain its quarter over quarter revenue growth.

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