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Aptech Limited
Explanation of CRISIL Fundamental and Valuation (CFV) matrix
The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making
process – Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade)

Fundamental Grade
CRISIL’s Fundamental Grade represents an overall assessment of the fundamentals of the company graded in relation to
other listed equity securities in India. The grade facilitates easy comparison of fundamentals between companies, irrespective
of the size or the industry they operate in. The grading factors in the following:

Business Prospects: Business prospects factors in Industry prospects and company’s future financial performance

Management Evaluation: Factors such as track record of the management, strategy are taken into consideration

Corporate Governance: Assessment of adequacy of corporate governance structure and disclosure norms

The grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals)

CRISIL Fundamental Grade Assessment

5/5 Excellent fundamentals
4/5 Superior fundamentals
3/5 Good fundamentals
2/5 Moderate fundamentals
1/5 Poor fundamentals

Valuation Grade
CRISIL’s Valuation Grade represents an assessment of the potential value in the company stock for an equity investor over a
12 month period. The grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market
price (CMP)) to grade 1 (strong downside from the CMP).

CRISIL Valuation Grade Assessment

5/5 Strong upside (>25% from CMP)
4/5 Upside (10-25% from CMP)
3/5 Align (+-10% from CMP)
2/5 Downside (negative 10-25% from CMP)
1/5 Strong downside (<-25% from CMP)

Analyst Disclosure
Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias
the grading recommendation of the company.

Disclaimer:
This Company-commissioned Report (Report) is based on data publicly available or from sources considered reliable. CRISIL Ltd. (CRISIL)
does not represent that it is accurate or complete and hence, it should not be relied upon as such. The data / Report are subject to change without
any prior notice. Opinions expressed herein are our current opinions as on the date of this Report. Nothing in this Report constitutes investment,
legal, accounting or tax advice or any solicitation, whatsoever. The subscriber / user assumes the entire risk of any use made of this data / Report.
CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal
information only of the authorized recipient in India only. This Report should not be reproduced or redistributed or communicated directly or
indirectly in any form to any other person – especially outside India or published or copied in whole or in part, for any purpose.
 Independent Research Report – Aptech Limited
In search of China II Industry: Education
Date: 21 September 2010
Aptech Limited (Aptech) is a career education company in the vocational training segment. It CFV matrix
is focused on the training needs of individuals and institutions. It has seven retail brands and Excellent
Fundamentals
one institutional brand and is present in about 40 countries. We assign Aptech a fundamental 1 2 3 4 5
grade of ‘3/5’, indicating that its fundamentals are ‘good’ relative to other listed securities in 5
5

Fundamental Grade
India. We assign a valuation grade of ‘5/5’, indicating that the market price has ‘ strong
upside’ from the current levels. 4
4
Leadership in high-growth multimedia and animation training 3
3
CRISIL Equities expects the retail training segment (more than 80% of Q1FY11 revenues) to
continue to drive growth for Aptech. To balance its no. 2 position in the Indian IT training 2
2
market, Aptech has targeted the multimedia, gaming and animation training segment. Aptech
1 1
strengthened its position in this segment with the acquisition of MAAC, which along with its
own brand ‘Arena’ commands ~80% market share. We expect these two brands to grow at a Poor 1 2 3 4 5
Fundamentals
three-year CAGR of 12.4% to Rs 1,680 mn in FY13 and contribute ~55% to total revenues in
FY13. This segment has higher EBITDA margin than other businesses and we expect it to Valuation Grade

Downside
drive improvement in EBITDA margin going forward.

Strong

Upside
Strong
Strong growth in international retail training business: In search of China II
Before the restructuring in 2009, the China business contributed 43% to Aptech’s revenues.
Fundamental grade of '3/5' indicates good fundamentals
Going ahead, CRISIL Equities expects strong growth in relatively smaller contributors like
Valuation grade of '5/5' indicates strong upside
Vietnam, Nigeria and Russia. The company plans to replicate the success of its franchisee-
driven operating model for existing and new brands in these countries. In the long term, we
Key stock statistics
also expect countries like Brazil and the Philippines to become key markets for Aptech. We
BSE Ticker APTECH
expect these countries to collectively grow as large as Aptech’s China business. This is
Fair value (Rs per share) 198
expected to propel international retail operations collectively to a three-year CAGR of 23.4%
Face Value (Rs per share) 10
with a 20.3% contribution to total revenues in FY13.
Current market price (Rs, as on 20th
Value unlocking through China business’ IPO
September) 155
Aptech restructured its China business post which it owns a 22.4% stake in BJB Career
Education Company (BJBC). BJBC filed for a listing on the NYSE in October 2009 and has Shares outstanding (Mn) 48.7
decided to revisit the IPO at a later date. Post the IPO of BJBC, Aptech would get a one-time Market cap (Rs Mn) 7,570
dividend of Rs 283 mn (~Rs 6 per share). Also, the listing of BJBC would provide more Enterprise value (Rs Mn)# 7, 521
clarity on the value of Aptech’s stake in BJBC. 52-week range(Rs)(H/L) 296/115
Weak track record in new ventures and acquisitions PE on EPS estimate (FY12E)(x) 29.8
While Aptech has had good success in China, it has had failures in the ICT business and Beta 1.6
acquisition of Synergetics. The company has subsequently exited the capex intensive ICT Free float (%) 63.8%
business and now focuses only on training services within the ICT business. New Average daily volumes (last 3 months) 12,10,482
businesses / acquisitions like Avalon and N-Power have been in the investment phase for #FY11E
four years and are expected to report positive EBITDA in FY13.
Share price movement
Net profit to grow to Rs 384 mn in FY13 from a reported loss of Rs 224 mn in FY10
This will be driven by growth in revenues, which is expected to grow at a three-year CAGR of 160
13.5% to Rs 3.1 bn in FY13. Strong growth internationally and in the animation segment is 140
expected to drive revenue growth. We also expect EBITDA margins to improve to 24% in 120
FY13 from 15.6% in FY10 due to an increase in contribution from high-margin brands like 100
Arena and MAAC, and growth in the international business. 80
60
Valuations: Upside from current levels
40
We have used the sum-of-the-parts method to value Aptech and assign a one-year fair value
20
of Rs 198 per share. We have assigned a fair value of Rs 135 per share for Aptech’s
0
shareholding in BJBC based on a PER of 20x CY11E earnings and Rs 63 per share for
Dec-08

Dec-09
Sep-08

Sep-09
Apr-08

Sep-10
Jun-08

Jun-09

Jun-10
Mar-09

Mar-10

Aptech’s core business based on a PER of 12x FY12E. We believe the P/E multiple
assigned to the China investment will increase post the IPO of BJBC.
Aptech Nifty
Key forecast (consolidated financials)
(Rs Mn) CY08# FY10* FY11E FY12E FY13E -Indexed to 100
Operating income 2,760 1,650 2,204 2,593 3,075
EBITDA 547 257 385 550 739
Adj Net income 471 (255) 229 254 384 Analytical contact
Adj EPS-Rs 10.1 (5.5) 4.7 5.2 7.9 Chetan Majithia (Head, Equities) +91 22 3342 4148
EPS growth (%) 138.2 NA NA 11.0 51.4
Kamna Motwani +91 22 3342 3507
PE (x) 9.5 NA 33.1 29.8 19.7
P/BV (x) 1.7 3.8 2.9 2.7 2.4 Urmil Shah +91 22 3342 8135
RoCE (%) 16.7 4.0 8.9 13.3 18.1 Email: clientservicing@crisil.com +91 22 3342 3561
RoE (%) 23.0 NA 9.8 9.3 12.9
EV/EBITDA (x) 5.1 29.8 19.6 13.3 9.4
S o u r c e : C o m p a n y, C R I S I L F o r e c a s t .
*FY10 is a 15-month period as the company has changed the year end to March from
December previously. # Includes financials of Aptech’s China-JV.

CRISIL Equities 1
 Aptech Ltd

Table 1: Core business segment

Aptech Computer Learning International
Brand Education Arena MAAC* N-Power Avalon English Express International retail Services Training Solutions Attest institutional
Business Retail IT training Retail animation and Retail animation Retail networking Retail aviation (cabin crew Retail English Retail IT, animation, Content Corporate IT and Assessment Corporate IT
Segments multimedia training and special and hardware and ground staff), language training networking and development soft skills training outsourcing (online training,
effects training training hospitality, travel and hardware training tests) exchange
tourism training programs
Geographic India India India India India India APAC, Africa, CIS, India, US and India, Malaysia India India, Malaysia
presence Middle East, Latin Europe
America
Market Position Second largest in Market leader in Second largest Tier – II training Second largest training Fragmented and Leadership in Vietnam, Leading domestic
India India company in the company in India company in India after unorganized market Russia and Nigeria player in academic
segment Frankfinn segment
Revenue
contribution
FY10* 18.7% 26.1% 0% 2.7% 7.0% 0.2% 16.8% 4.4% 6.2% 7.9% 9.9%
FY13 9.2% 16.6% 38.1% 1.3% 3.0% 0.6% 16.1% 2.2% 3.8% 5.1% 4.2%
Revenue CAGR
(FY10-13) 6.6% 16.1% 10.9% 5.7% 1.7% 80.6% 33.4% 8.0% 14.3% 16.6% 1.4%
Key NIIT Framebox, Picasso Framebox, NIIT, Jetking Frankfinn, Kuoni Academy Regional players AMA, FTI, Informatics, All e-learning NIIT, Karrox, Hero MeritTrac, NIIT and regional
Competitors Picasso New Oriental Education companies Mindmine, NIS Prometric, Pearson players
Sparta Vue
Revenue • Growth in • Growth in Indian animation and • Growth in IT • Increase in manpower • Increase in demand • Increased number of • Recovery of US • Increase in • Increased • Growth in IWP
drivers manpower gaming industry hardware demand in the aviation for English emerging economies and European corporate IT adoption of and ITEC
requirement in • Growing acceptance of animation and market driven sector speaking becoming a hub for IT markets training budgets online tests enrolments
Indian IT sector. multimedia sectors as a career option by higher IT • Increased preference of manpower driven and multimedia resulting in post slowdown
• Rising attrition spending by aviation, travel and by growth in Indian outsourcing/off- recovery in
across IT sector government tourism and hospitality IT/BPO sector shoring demand for
resulting in higher as a career opportunity • Cross-selling with • Introduction of new outsourced
demand for IT other brands brands in content
training international markets development
Cost drivers • Increase in number • Increase in • Operating • Higher • Volume growth and • Volume growth • Higher operating cost • Higher • Higher volume • Higher volume • Higher volume
of franchisee number of leverage to operating cost operating leverage • Higher costs due to due to increase in realisations to growth growth growth
• Investment in
centres resulting in franchisee centres result in higher due to growth growth in number number of centres improve
technology
higher operating resulting in higher profitability in number of centres and number of margins
costs operating costs centres employees

* FY10 does not include revenue from MAAC

S o u r c e : C o m p a n y, C R I S I L E q u i t i e s

CRISIL Equities 2
 Aptech Ltd

Hiring by Indian IT companies is
expected to improve on the back on
improvement in demand outlook for
the sector
Grading rationale
Aptech to benefit from improvement in demand for IT training
Improvement in the global IT market outlook is expected to drive the demand for IT
training. The global IT market faced weak demand during the first half of 2009,
because of which, Indian IT companies had to take a cautious approach towards hiring.
While the large IT companies maintained their recruitment plans for FY10, there was a
delay in actual intake of employees. To counter this, companies opted for higher
employee utilisation. Mid-tier and small IT companies had to stall or cancel their hiring
plans. The second half of 2009 recorded an improvement in the global IT market which
consequently stepped up the hiring by Indian IT companies. Demand for manpower
has gone up in the first half of 2010, which has increased the attrition in the sector to
between 15% and 20% from between 10% and 15% earlier. Given the buoyant outlook
for the sector and strong demand in the domestic market, the hiring by the sector is
expected to improve going forward. CRISIL Research expects the total number of IT
and ITeS employees to grow at a three-year CAGR of 13% to 3.5 mn employees in
FY13. The addition of non-engineering employees, which account for 80% of
enrolments for IT training companies like Aptech and NIIT Ltd (NIIT), is expected to
increase to 0.3 mn employees in FY13 from 0.1 mn in FY10.

Figure 1: Domestic IT and ITES recruitment Figure 2: Addition of non-engineering employees

('000) ('000)
4,000 30% 350
3,530
24.2%
3,500 287
3,052 300
3,000 245
2,637
2,417 250 212
20%
2,500 2,237
2,014 200
2,000 15.7%
150 129 132
15.7%
1,500 105
10%
100
1,000 11.1%

500 9.1% 50
8.1%

0 0% 0
2008-09

2009-10

2010-11P

2011-12P

2012-13P
2007-08
2010-11P

2011-12P

2012-13P
2008-09

2009-10
2007-08

Total IT & ITeS employees(LHS) YoY Growth (RHS) Non-engineering employees

Source: CRISIL Research Source: CRISIL Research

Aptech is the No. 2 IT training provider in the domestic market

Aptech has focused on Tier-II and
Tier-III cities for its IT training
business
Modest revenue growth expected in
Aptech Computer Education
The Indian IT training market is fragmented. Local IT training institutes constitute a
larger share of the market. NIIT and Aptech are the top two IT training companies with
a pan-India presence. While NIIT has a strong presence in the metros, Aptech is
focused on tier II and tier III cities (for more details please refer to focus charts on page
26). Lately, the Indian IT companies have been targeting Tier-II and Tier-III cities for
incremental capacity addition to contain real estate and manpower cost.
Modest revenue growth expected over next three years
We forecast Aptech Computer Education’s revenues to grow at a moderate three-year
CAGR of 6.6%. Enrolments are expected to continue to grow at a steady three-year
CAGR of 14% till FY13 driven by the demand for IT training in Tier-II and Tier-III cities.
However, the average realisation per enrolment is expected to fall as it is much lower in

CRISIL Equities 3
 Aptech Ltd
Indian animation industry to grow at
a three-year CAGR of 22% by 2012
Aptech is the market leader in
animation and multimedia training
space in India
Employment in travel and tourism
sector to increase backed by strong
demand
CRISIL Equities
Tier-II and Tier-III cities compared to metros.
Aptech to gain from its leadership position in Indian animation and
multimedia segment
Demand for training in animation and multimedia is dependent on the growth in the
animation and gaming sectors. Nasscom expects the Indian animation industry to grow
at a CAGR of 22% to US$ 1 bn by 2012. This growth will be driven by the increase in
demand for the graphic content on the web, mobiles and in the entertainment sector.
According to Nasscom, the Indian animation industry employed 15,000 people in 2009
which is likely to double in the next three to four years. The Indian gaming industry is
expected to grow at a three-year CAGR of 49% to US$ 830 mn by 2012. These factors
are likely to drive the growth in demand for training in these sectors.
Arena and MAAC combined have ~ 80% market share
In January 2010, Aptech acquired Maya Academy of Advanced Cinematics (MAAC) for
~ Rs 730 mn (post due diligence it has been lowered from ~ Rs 760 mn as announced
at the time of acquisition). The acquisition cost includes cash payment of Rs 140 mn,
share issuance amounting to Rs 475 mn (at Rs 216 per share) and Rs 115 mn debt on
MAAC’s balance sheet at the time of acquisition. The acquisition has resulted in
goodwill worth Rs 640 mn, which the company does not plan to impair in the near term.
This acquisition has strengthened Aptech’s position in the animation and multimedia
training space. Currently, there are 170 arena centres and 70 MAAC centres in India.
Arena also has 52 international centres. Arena and MAAC have ~80% market share in
the domestic multimedia training market followed by Framebox and Picasso who are
relatively smaller in size. The animation segment, which included only Arena,
contributed 26% to Aptech’s revenues in FY10 (15 months), which we expect will
increase to 53% in FY11 on the back of the acquisition of MAAC. These brands have
higher average realisation per enrolment and, thus, higher EBITDA margin than other
brands of Aptech. Due to this and a strong demand for training in animation, we expect
this segment to log higher growth than the company, and we forecast Arena and MAAC
to contribute 54.6% to total revenues in FY13.
Aptech to benefit from presence in travel and tourism training
segment
According to World Travel and Tourism Council, the employment generated by Indian
travel and tourism industry is expected to rise to 54 mn in 2015 from 48.7 mn in 2009.
This is likely to drive the demand for training services in the sector. While the organised
training services market for the travel and tourism industry is at a nascent stage, that
for the aviation sector has developed in the past five years on the back of entry of new
carriers.
Table 2: Comparison of Avalon enrolments and employees in aviation sector
2007 2008 2009
Avalon enrolments 1076 6762 3646
No. of employees in Aviation sector 60,721 66,077 52,471
S o u r c e : C o m p a n y, C R I S I L R e s e a r c h
4
 Aptech Ltd
Aptech to get one-time dividend of
Rs 283 mn on the US listing of BJBC
IPO of BJBC to provide more clarity
on valuation of Aptech’s 22.4%
stake
CRISIL Equities
Aptech has reduced its dependence on training for aviation sector
Aptech acquired Avalon, a training services provider for cabin crew, in 2006 for Rs 7.5
mn. Subsequently, Aptech has expanded the training portfolio to training for ground
staff and airport management. In the past two years, it introduced training programs in
hospitality management, and travel and tourism. Avalon faces stiff competition from
Frankfinn, which is the market leader in the cabin crew training segment. To fight
competition, Avalon has introduced long-term career-oriented courses like BBA and
MBA in aviation. We forecast the enrolments in Avalon to grow at a three-year CAGR
of 5% with a 3% contribution to revenues in FY13 vs. 7% in FY10 (15 months).
International business growth to be driven by emerging economies
China business – an excellent value creation
In 2000, Aptech entered the IT training market in China through a 50:50 JV (BJB
Aptech) with Beida Jade Bird (BJB). Driven by the economic growth and the
government’s thrust to make China as an important IT outsourcing nation, the IT
training market in China has seen a strong growth over the last decade. According to
International Data Corporation (IDC), BJB Aptech is the market leader in PRC’s
(People’s Republic of China) vocational IT education market with a market share of
38.6% in 2007 and 39.8% in 2008. In 2008, the China business contributed about 43%
to total revenues.
In 2009, Aptech restructured its stake in the China JV (for more details please refer to
Annexure 2 on page 25). It divested its 50% stake in the JV and invested the proceeds
in the holding company, BJB Career Education Company (BJBC). Aptech currently
holds 22.4% stake and a board seat in BJBC, whose main lines of business are
vocational IT training (BJB Aptech) and distribution of vocational IT educational content
to high schools, colleges and universities. Aptech has signed non-compete agreement
with BJBC for IT training services in China.
BJBC filed Form-1 with SEC for ADR listing on the NYSE in October 2009 and has
decided to revisit the IPO at a later date. Our interaction with Aptech’s management
suggests that the timing of the IPO still remains unclear. As mentioned in the SEC
filing, BJBC will pay a one-time special dividend of RMB 193 mn or US$ 28.3 mn
(based on average Y-T-D forex rate in CY10). This translates into dividend income of
Rs 283 mn (forex rate of Rs 44.6/US$ based on CRISIL Research’s forecast) for
Aptech. In addition to this, the NYSE listing would provide more clarity on the valuation
of Aptech’s 22.4% holding in BJBC. This remains a monitorable going forward.
5
 Aptech Ltd

International business to grow
backed by growth in emerging
economies as IT
outsourcing/offshoring destinations
In search of China II
The International Monetary Fund (IMF) expects emerging economies to see strong
growth going forward. According to the IMF’s nominal GDP forecast, economies like
Brazil, Nigeria and the Philippines are likely to grow at a yearly growth rate of 6-8%
over the next five years. Russia and Vietnam are expected to grow by 11-16%. In case
of most emerging economies, the services sector is one of the largest contributors to
the GDP. Hence, sectors like hospitality, aviation, information technology, training and
education are likely to drive the growth in these economies. Notably, many emerging
market economies have become the target market for IT outsourcing/offshoring.
(Please refer to Annexure 3 on page 25)

Table 3: GDP growth* and service sector contribution of emerging economies

GDP (US$ Services
bn) contribution GDP growth forecast Aptech's presence
Country 2009 to GDP 2010 2011 Year of entry Mode of operation Number of centres
Brazil 1,574 67.7% 21.4% 6.5% 2009 JV 1
Nigeria 173 33.1% 23.4% 13.2% 1999 Franchise 11
Philippines 161 55.1% 12.7% 9.6% 2010 JV 1
Russia 1,229 60.5% 22.6% 15.0% 1999 Master franchise 23
Vietnam 92 38.7% 11.6% 12.3% 1999 Master franchise 38
S o u r c e : I M F , C o m p a n y.

* Please note that the GDP forecast is in US$ and is likely to be impacted due to expected exchange rate changes.

Vietnam, Nigeria and Russia are likely
to drive revenue growth over the next
three years
Currently, Aptech has a presence in about 40 countries with retail training brands
Aptech Computer Education, Arena and N-Power. It plans to take other brands like
MAAC, Avalon and English Express to the existing and new overseas markets. Aptech
plans to continue its faster go-to-the-market strategy by forming JV with local
companies in larger markets and replicating its franchisee-driven model. We believe
that the international operations will be one of the main future growth drivers for
Aptech. Countries like Vietnam, Nigeria and Russia are likely to drive revenue growth
over the next three years, while Brazil and the Philippines are expected to drive growth
post FY13. In the long term, we expect these countries to collectively grow as
large as Aptech’s China business.

For Aptech, the international business has higher EBITDA margin compared to the
About 40% of revenues in the domestic market due to higher realisations. In FY10, the international business
individual training segment (ex- (excluding China and MAAC) contributed about 32.7% to revenues in the retail training
MAAC) in FY13 to come from segment. We expect the international business to growth faster than other segments at
international markets
a three-year CAGR of 23.4%. It is expected to contribute 40% to revenues in the retail
training segment (excluding MAAC) in FY13 and also log an improvement in EBITDA
margins. This is lower than the company’s target of growing the international business
to ~50% of the retail training business by FY14. We believe that to achieve its target,
the company will have to demonstrate strong growth over the next 12-18 months. Its
success in the same remains an upside to our forecast.

CRISIL Equities 6
 Aptech Ltd

Overall business (excluding China) has turned profitable; further

Improved performance of overall
business (excluding China)
improvement expected
Profits from the China business constituted a majority of Aptech’s profit up to CY08.
This was mainly due to losses in the ICT business, global expansion and as new
businesses and acquired companies including Avalon, Synergetics and N-Power were
in an investment mode. Subsequently, Aptech has exited the ICT business and has
sold Synergetics. This coupled with improvement in profitability in other businesses
resulted in EBITDA margin of 15.6% in FY10 compared to 1.1% in CY08. The company
was able to improve profitability in tough market conditions. While the same has
declined to 12.6% in 1QFY11 the company reported PAT margin of 5.6%, due to the
seasonal nature of business. We expect the profitability to improve further on the back
of strong growth in high-margin animation and international businesses.

Table 4: Financials of overall business (excluding China)

CY06 CY07 CY08 FY10 Q1FY11
Revenue (Rs mn) 1,035 1,340 1,607 1,650 452
Ch (%) - 29.5% 19.9% 2.7% -
EBITDA margin 1.6% 3.9% 1.1% 15.6% 12.6%
PAT margin -14.6% -14.1% 0.8% -13.9% 5.6%
Source: Compan y

Key monitorables

Performance of new businesses and acquisitions - more misses than

hits in the past…
Aptech had acquired Synergetics, a high-end corporate IT training provider in 2007 for
Avalon and N-Power are yet to break
Rs 35 mn (70% stake was later increased to 85%). The company divested its stake in
even
Synergetics in 2008 at a loss of ~Rs 80 mn due to its cyclical nature of business and
problems in integrating the company due to different cost structures.

Table 5: Aptech’s acquisition details

Revenue (R) and Revenue (R)
Acquisition Stake EBITDA (E) at time Profit / and EBITDA (E)
Name of Date of cost acquired of acquisition loss in at time of Sale
company acquisition (Rs mn) (%) (Rs mn) sale (Rs mn) Impact
Avalon Apr-06 7.5 100 R-2.3 NA NA Aptech got an entry into the aviation training
E-(28.1) space
Synergetics Oct-06 35.1 70 (hiked to R-8.9 Loss of R-26.7 This deal enabled Aptech to target the high
85 in 2007) E- 3.0 Rs 80 mn E-(34.7) end corporate IT training
First English Jun-09 1.6 100 NA NA NA Aptech got the expertise for English
language training
MAAC Jan-10 730* 100# R-931 NA NA Aptech became the market leader in the
E-117 domestic multimedia and animation training

* Lowered from Rs 760 mn post due diligence

# Acquisition of 10.33% stake is pending due to the RBI’s approval
Source: Compan y

CRISIL Equities 7
 Aptech Ltd
Though Aptech operates through an
asset-light franchisee model to
reduce go-to-the-market time...
... its benefits – higher RoE and
volume growth – are not visible as
yet
CRISIL Equities
The company has also decided to stay away from the government ICT projects from
2009 onwards as they incurred an aggregate loss of ~Rs 400 mn in such projects since
2000. The decision of entering the government’s ICT business was taken by the
previous management. Aptech has other institutional training businesses namely
Attest, Learning Services, Training Solutions. The institutional training business
contributed about 20% to total revenues in FY10 and has been loss-making for the past
three years, mainly due to the ICT projects. Training Solutions has also been making
losses individually which the company is still trying to turn around.
Also, the company has not been able to turn the Avalon business profitable since its
acquisition in 2006. We expect Avalon to report a negative EBITDA of Rs 54 mn for
FY11. This is mainly due to the one-time compensation which the company is expected
to pay to students against the promotional guaranteed placement scheme. The
company has decided not to give the placement guarantee henceforth.
Similarly, N-Power, which was launched in 2007, is yet to break-even and we expect it
to report negative EBITDA of Rs 33 mn in FY11.
... but improvement is expected going forward
We expect an improvement in the performance of N-Power and Avalon going forward.
We expect N-Power to break even at the EBITDA level in FY13 due to the following
reasons:
o Transfer of trainers from Aptech’s payroll to franchisee’s payroll
o Shutdown/franchising of non-profitable company-owned centres
We also expect Avalon to break-even in FY13 due to the following reasons:
o Transfer of trainers from Aptech’s payroll to franchisee’s payroll
o Conversion of self-owned centres into franchisees
From FY11 onwards, the franchise royalty for Avalon centres is expected to reduce to
28% from 33% in FY10 as the franchisees will bear the trainer cost.
The performance of these two brands and that of the recently acquired MAAC and
English Express remains a key monitorable going forward.
Asset-light business has not been able to deliver higher volume
growth and higher return on equity
Aptech has opted for an asset-light franchisee model. Currently, ~90% of Aptech’s
training centres across all brands are franchisees. Aptech provides course content,
training to the trainers and quality control to the franchisees while the investment in
infrastructure is done by the franchisee. Thus, Aptech’s investment per additional
franchisee centre is lower than in case of a self-owned centre. Aptech’s net revenue is
about ~25-27% (different for different brands) of the system-wide revenues. Also, in
2009, the company decided to discontinue its ICT in schools business which requires
higher capex and working capital investment. As compared to its listed peers, Aptech
follows a relatively asset-light model. While in the past the company has not been able
to report higher RoE and volume growth compared to its peers, its focus on the
franchise model will reduce the go-to-the-market time for expanding internationally.
8
 Aptech Ltd

This remains a key monitorable going forward as the company has aggressive plans in
the international market.

Table 6: Peer comparison

Net revenue as a
Company (Rs % of system-wide revenue Enrolments ('000) Gross assets Net assets
mn) FY08 FY09 FY10 FY08 FY09 FY10 FY08 FY09 FY10 FY08 FY09 FY10
Aptech* 24.9% 26.2% 25.7% 179 140 148 1,666 1,268 1,154 535 531 404
NIIT 45.5% 39.0% 42.1% 389 428 471 5,814 7,843 8,137 3,505 5,114 4,916
Educomp NA NA NA NA NA NA 2,890 6,499 NA 2,342 5,164 NA
Everonn NA NA NA NA NA NA 787 1,376 2,159 495 926 1,456
S o u r c e : C o m p a n y, C R I S I L E q u i t i e s e s t i m a t e s
*Enrolments in case exclude that of its China business, Aptech's and Aptech had December year ending till FY10 which was a 15-month period

Exchange traded futures (ETF) used to hedge foreign currency risk

Aptech hedges its risk of foreign currency fluctuation related to receivables by entering
into ETFs on a monthly basis. The company follows the policy of accounting for the
mark-to-market gain/loss of the net exposure through the income statement at the end
of every quarter. In the past, the company’s hedging strategy has shown mixed
performance, hence it remains a key monitorable going forward.

Table 7: Foreign exchange gain/loss for Aptech

(Rs mn) CY05 CY06 CY07 CY08 FY10 (15months)
Net foreign exchange gain/(loss) 9 -1 -11 23 -7
FX rates
High 46.3 46.9 44.7 50.3 47.7
Low 43.2 44.1 39.3 39.3 44.3
Difference between high and low 7.3% 6% 14% 28% 8%
S o u r c e : C o m p a n y, I n d u s t r y s o u r c e s

Unique identification project presents a big opportunity

UID project remains a good growth
opportunity for IT training
companies focussed on Tier-II and
Tier-III cities
This project was started by the Government of India to provide a unique identification
(UID) to every resident of India. It aims at creating a Central ID Data Repository (CIDR)
which would include details of every citizen of India. According to Unique Identification
Authority of India (UIDAI) estimates, ~1 lakh government employees will require IT
training over four years for the execution of this project. The UIDAI has shortlisted 15
training institutes for this purpose including Aptech, NIIT, CMC and Everonn. We
believe that the UID project is a good growth opportunity for IT training companies like
Aptech, which are focused on Tier-II and Tier-III cities.

CRISIL Equities 9
 Aptech Ltd

Revenue growth to be driven by
multimedia and international
businesses
Financial Outlook
Revenues to grow at three-year CAGR of 13.5% to Rs 3.1 bn by FY13
We expect this growth to be driven by the multimedia and animation (Arena and
MAAC) and international retail training businesses, which are expected to grow at a
three-year CAGR of 12.4% and 23.4%, respectively. The growth in international
revenues is expected to be driven by the expansion of operations in Russia, Vietnam
and Nigeria over the next three years. The company also plans to introduce brands like
MAAC, Avalon and English Express in the existing and new international markets,
which will further boost international revenues.

Table 8: Brand-wise revenue contribution, growth, drivers and revenue recognition

Revenue contribution Three- year
Brand Revenue recognition FY10* FY13 CAGR Drivers
Arena Royalty from franchise on Growth in animation and gaming industries resulting in
26.1% 16.6% 16.1%
collection basis increase in enrolments
MAAC Total revenue of franchisee is Increase in realisations due to dominant market share
0.0% 38.1% 10.9%
recognised in revenue (~80%)
Aptech Royalty from franchise on Growth in manpower requirement of the Indian IT sector,
Computer collection basis. Income from self- specially from the non-technical background
18.7% 9.2% 6.6%
Education owned centre on accrual basis Enrolments and realisations are expect to increase but the
collection period is expected to increase
International Royalty from franchise on Increased number of emerging economies becoming a hub
retail training collection basis for IT and multimedia outsourcing/offshoring
16.8% 16.1% 33.4% Expansion in existing geographies and entry into new
geographies like South Africa and Poland and introduction
of new brands in the international market
Avalon Royalty from franchise on a Increase in manpower demand in the aviation sector due to
collection basis. Income from own increase in number of carriers
7.0% 3.0% 1.7%
centre is on accrual basis Increased preference of aviation and hospitality as a career
opportunity
International Revenue is recognised on basis of Growth in IWP and ITEC programs
9.9% 4.2% 1.4%
institutional# executions in the period
Attest Revenue is recognised on basis of Increasing adoption of online tests
7.9% 5.1% 16.6%
executions in the period
Training Revenue is recognised on basis of Increase in corporate IT training budgets post slowdown to
solutions executions in the period 6.2% 3.8% 14.3% result in recovery in demand for outsourced training

N-Power Royalty from franchise on

collection basis. Income from own 2.7% 1.3% 5.7% Growth in the domestic IT hardware market driven by
centre is on accrual basis higher IT spending by government
Learning Revenue is recognised on basis of Recovery of US and European markets resulting in
4.4% 2.2% 8.0%
Services executions in the period recovery in demand for content development
English Royalty from franchise on a Increase in demand for English speaking manpower driven
Express collection basis. Income from self- 0.2% 0.6% 80.6% by growth in the Indian IT/BPO sector
owned centre on accrual basis
Source: Company, CRISIL Equities

* FY10 is a 15 month period and does not include revenue from MAAC. # Going forward, the company plans to classify international institutional
business under international retail business as the end-users of its training are individuals.

Aptech acquired MAAC in January 2010. The revenue recognition policy of MAAC is
different than that followed by the other brands. For MAAC, the total revenue of the
franchise is recognised as a part of net revenue instead of recognising only the
franchise royalty. The share of franchise is then treated as an expense. For the
CRISIL Equities 10
 Aptech Ltd

franchise centres of remaining brands, Aptech recognises only its share of the centre
collection from the student as its revenue.

The company plans to change the franchise contracts for MAAC to align it with other
brands. For our forecast, we have assumed that the company will follow the existing
policy for revenue recognition of MAAC going forward. Thus, the forecasted revenue
will decrease as and when the company is able to align the franchise agreement and
subsequently the revenue recognition policy of MAAC with that of other brands.

Dip in FY10 revenues seen due to
restructuring of China JV
Aptech’s FY10 (15 months) revenues saw a sharp decline of 40.2% on a y-o-y basis
due to the restructuring of the China business (please refer to Annexure 2 on page 25
for details of restructuring). Aptech changed its financial year end to March from
December in FY10. When normalised for a 12-month period, revenue decline stood at
52%. China contributed about 43% of total revenues in 2008. Prior to the restructuring,
Aptech used to consolidate its share of revenue from the JV on a line by line basis.
Post restructuring, the China business is treated as an investment which resulted in a
one-time dip in revenue.

Figure 3: Revenue growth

Rs Mn
3,500 50.%
33.6%
3,000 24.1% 27.3%
17.6% 18.6% 30.%
2,500

2,000 10.%

1,500 3075
2,760 1,650 2593 -10.%
1,000 2,167 2204
-30.%
500
-40.2%
0 -50.%
CY07 CY08 FY10* FY11E FY12E FY13E
Revenue Revenue growth (RHS)

S o u r c e : C o m p a n y, C R I S I L E q u i t i e s e s t i m a t e s

*FY10 is a 15-month year, *CY07 and CY08 include revenues from China, Projects and
Synergetics. MAAC revenue is included from FY11 onwards

Individual training revenue to
constitute 85% of total revenues in
FY13
FY10 saw a dip in retail training revenue contribution due to the China business
restructuring (please refer to Annexure 2 on page 25 for details). We forecast the retail
training (excluding China) revenue contribution to grow to 87.7% in FY11 due to the
integration of MAAC with Aptech. It is further expected to grow to 88.9% in FY13.
MAAC is expected to contribute 37% to total revenue in FY11 and 38.1% in FY13. We
expect the retail training segment to grow faster compared to the corporate segment
over the next three years.

EBITDA margin to improve to 24% in FY13 from 15.6% in FY10

The company’s EBITDA margin declined from 19.8% in CY08 to 15.6% in FY10 (15
months) on account of the restructuring of the China business which had higher margin
compared to other businesses. The decline in EBIT margin was higher (from 13.5% in

CRISIL Equities 11
 Aptech Ltd

FY08 to 6.1% in FY10) due to higher depreciation as a percentage of revenues. The

interest expenses increased to Rs 32.9 mn in FY10 from Rs 0.3 mn in CY08 on
account of increase in short-term debt. Due to this and lower other income, the PBT
margin declined at a much higher rate from 14.3% to 4.1% in the same period.

EBITDA margins to increase We expect Aptech’s EBITDA margin to increase to 24% in FY13 due to increased
backed by high margins in contribution from the multimedia and international businesses; these have higher
multimedia and international
EBITDA margins as compared to other businesses. We expect MAAC’s EBITDA
businesses
margin to improve to 13.9% in FY13 from 6.8% in FY10 post the integration.

Table 9: Brand-wise and blended EBITDA margins

Brand FY10 FY11E FY12E FY13E Margin drivers
Arena 65.2% 65.6% 62.4% 61.7% Increase in number of centres to increase operating costs
MAAC N.A 11.1% 12.0% 13.9% Company is expected to leverage on existing employees to improve
margins
Aptech Computer 27.8% 28.4% 25.9% 25.1% Increase in number of centres to increase operating costs
Education
International retail 64.3% 63.9% 63.2% 62.1% Expansion into new geographies to increase employee and marketing
training costs
Avalon -31.6% -58.2% -1.6% 8.4% Margin expected to fall in FY11 due to one-time refund to students under
the guaranteed placement scheme.
Growth in enrolments and new courses to drive improvement
International institutional 37.4% 34.5% 33.0% 31.2% Increase in number of employees to hit margins
Attest 19.0% 18.6% 21.2% 23.9% Increase in number of online tests to give operating leverage
Training solutions -4.7% 14.2% 18.7% 23.2% Training solutions is expected to turn around in FY12, backed by
increase in corporate training budgets
N-Power -98.4% -64.9% -18.0% 12.3% Growth in enrolments
Learning services 37.0% 39.0% 40.3% 40.5% Margins to improve due to higher realisations in US and Europe
English Express -348.8% -117.3% -48.9% 4.7% Increase in number of centres is expected to increase volumes
Other corporate 10.4% 9.6% 9.5% 8.5% Benefit from operating leverage
expenses / revenue
Blended EBITDA margin 15.6% 17.5% 21.2% 24.0% Higher revenue from high margin multimedia and international segments
Blended EBIT margin 6.1% 10.1% 14.2% 17.5% Increase in EBITDA margin
Blended PBT margin 4.1% 10.4% 14.6% 18.7% Decline in interest cost, increase in EBITDA margin and other income
S o u r c e : C o m p a n y, C R I S I L E q u i t i e s

PAT to increase to Rs 384 mn in FY13 from a loss of Rs 224 mn in

FY10

Write-off of deferred tax asset In CY08, there was a deferred tax asset of Rs 220 mn (standalone) due to losses at the
resulted in losses in FY10 standalone company level. In FY10, the company had to utilise the entire deferred tax
asset created in the previous year as it gained Rs 1.1 bn from the China JV
restructuring. While the standalone business reported profit, subsidiaries like Avalon
and some of the international subsidiaries reported losses. As a result, the company
reported a loss of Rs 224 mn (consolidated) in FY10. We expect the consolidated PAT
to increase to Rs 384 mn in FY13 driven by an increase in EBITDA margin, decline in
interest expenses and increase in other income.

The company has guided for zero effective tax for FY11 as it expects MAT credit
entitlement under section 115JB of Income Tax Act equivalent to the tax payable for
the year. From FY12 onwards, the company expects the effective tax rate to increase
to 33%. This will result in a drop in the PAT margin for FY12 to 9.8% from 10.4% in
FY11.

CRISIL Equities 12
 Aptech Ltd

Management Evaluation

Fairly experienced management and CRISIL's fundamental grading methodology includes a broad assessment of the
competent second line management quality, apart from other key factors such as industry and business
prospects, and financial performance. Overall, we believe the management is fairly
good with a high risk appetite.

Experienced management…
We believe that Aptech’s management is very capable and experienced. The top
management had undergone a change in March 2009, when Mr Ninad Karpe joined
the company as the MD and CEO. He has over 24 years of experience in the IT
industry. Prior to joining Aptech, he was the MD of Computer Associates (CA) India. In
his tenure at CA, he set up the India operations and also held the post of CEO of CA
Satyam ASP, a JV between CA and Satyam Computers. Prior to that, Mr Karpe had his
own financial consultancy which catered to foreign companies seeking to invest in
India. Aptech has been able to turnaround its overall business (excluding China) post
Mr Ninad took over as the MD and CEO of the company.

… with high risk appetite

In the past two years, the management has been aggressive in identifying new growth
opportunities through the acquisition of First English in English training and MAAC
animation industry. The company also plans to be aggressive in the international
market by replicating its franchise model through JVs in the larger countries. The
management has exited from the loss-making businesses like the government ICT
projects and Synergetics business, which was acquired in 2007.

Competent second line of managememt

The company has decentralised management structure comprising of professionals in
the second line of management. Based on our interactions, we believe the company’s
second line is reasonably experienced. Key managerial personnel have more than 20
years of experience in their respective fields.

CRISIL Equities 13
 Aptech Ltd
The company has maintained good
corporate governance practices
CRISIL Equities
Corporate Governance
CRISIL Equities’ fundamental grading methodology includes a broad assessment of
the corporate governance and management quality, apart from other key factors such
as industry, business prospects and financial performance. In this context, CRISIL
Equities analyses the shareholding structure, board composition, typical board
processes, disclosure standards and related-party transactions. Any qualifications by
regulators or auditors also serve as useful inputs while assessing corporate
governance.
The promoters have changed twice in the past decade
Aptech was founded by Atul Nishar in 1986. It was sold to SSI in 2002. In 2005, Aptech
Ltd. was sold to Aptech investments, co-promoted by Mr Rakesh Jhunjhunwala, who
took over as the Non-Executive Chairman of Aptech (for more details, please refer
‘History of change in promorters’ on page 19 of the report).
Good corporate governance processes
Overall, corporate governance at Aptech is at desired levels. Its processes and
structures conform to the minimum standards. Assessing the company’s disclosure
levels based on balance sheet disclosures, website information, etc CRISIL Equities
believes that Aptech’s corporate governance conforms to minimum requirements.
Board composition: The board has eleven members including five independent
directors. It is chaired by Mr Rakesh Jhunjhunwala, a well-known equity investor in the
Indian stock market. The independent directors are:
Mr C. Y. Pal, Non-Executive Chairman of Cadbury India Ltd
Mr Yash Mahajan, Vice Chairman and Managing Director of Punjab Tractors Ltd and
Swaraj Mazda Ltd. He is also the Chairman of Swaraj Engines Ltd. and Swaraj
Automotives Ltd
Mr Vijay Aggarwal, MD and CEO of HR Johnson (India) Ltd
Mr Ramesh Damani, member of BSE and a well-known investor
Mr Walter Saldanha, Chairman and MD of Chaitra Holding Private Limited
Board processes: Balance sheet disclosures indicate that all the processes relating to
the committees are in place. The audit committee is chaired by an independent director
– Mr C. Y. Pal. All the strategic decisions are taken after thorough discussion at the
board level.
14
 Aptech Ltd

Valuation Grading Grade: 5/5

Fair value of Rs 198 indicates Fair value based on sum-of-the-parts valuation
strong upside to the current
market price
We have assigned a fair value of Rs 135 per share for Aptech’s shareholding in BJBC
based on PER of 20x on its CY11E earnings and Rs 63 per share for Aptech’s core
business based on PER of 12x FY12E. We have assigned a one-year forward PER of
12x to Aptech’s core business based on the average one-year forward PER of 12x in
FY11 for NIIT. Our one-year fair value is Rs 198 per share which is 27.4% higher than
the current market price as on September 20, 2010. We assign a valuation grade of
‘5/5’, indicating that the market price has ‘strong upside’ from the current levels.

Table 10: Sum-of-the-parts

PER to BJBC’s earnings 25 20 15
BJBC’s PAT (CY11) 41.2 41.2 41.2
M-Cap (US$ mn) 1,030 824 618
Aptech's share (22.4%) 231 184 138
Average FY11 FX rate 44.6 44.6 44.6
Aptech's share (Rs mn) 10,286 8,228 6,171
Liquidity discount 20% 20% 20%
Value to Aptech 8,228 6,583 4,937
No. of shares (mn) 49 49 49
Per share value to Aptech 169 135 101
Value of non-China business 63 63 63
Total value per share 231 198 164
Source: CRISIL Equities

Aptech has traded at a premium to NIIT…

Aptech has always traded at a significantly higher one-year forward PER in comparison
to its only listed peer - NIIT. The one-year forward PER is not comparable for CY09 as
Aptech had reported a net loss in FY10.

Figure 4: One-year forward PER comparison between Aptech and NIIT

60 60

50 50

40 40

30
30

20
20

10
10

0
0
Jan-10

Feb-10

Mar-10

May-10

Jun-10

Aug-10

Sep-10
Apr-10

Jul-10
Dec-07

Dec-08
Apr-08
Jan-07

May-07

Sep-07

Aug-08

NIIT Aptech
NIIT Aptech

S o u r c e : P r o w e s s , c o m p a n y, i n d u s t r y s o u r c e s , C R I S I L S o u r c e : P r o w e s s , c o m p a n y, i n d u s t r y s o u r c e s , C R I S I L
Equities Equities

… due to embedded value of Aptech’s China business

Historically, the value of Aptech’s China business has constituted a significant
proportion of the stock price.

CRISIL Equities 15
 Aptech Ltd

The vocational IT education market in China has gone through significant development
on the back of the government’s plans to develop China into a key IT outsourcing
destination. According to China Market Intelligence Centre, the IT education market in
China has grown at a CAGR of 26.3% over 2001-2008 and is expected to grow at a
CAGR of 16.4% over 2008-2013. According to IDC, BJBC is the largest vocational IT
education provider in China with a 39.8% market share in 2008 (vs. 38.6% in 2007). In
2008, its market share was more than three times the combined market share of the
next two largest competitors.

We expect BJBC to continue to grow faster than the market and forecast a 20% CAGR
in revenues over CY09-CY11. For BJBC, financials are available only till H1CY09.
BJBC has benefited from the recovery of demand for vocational IT education in CY09.
Its PAT margin significantly improved to 31.8% in H1CY09 from 17.5% in H2CY08.
Due to the seasonal nature of the business, H2 has higher profitability than H1. We
expect BJBC’s PAT margins to improve further on the back of operating leverage.

Table 11: BJBC’s PAT to grow at CAGR of ~28% for Table 12: BJBC financials
CY09-11
(US$ mn) CY07 CY08 CY09E CY10E CY11E (US$ mn) H1CY08 H2CY08 H1CY09 H2CY09E
Revenue 24 75 90 108 130 Revenue 31 44 37 53
ch (%) 209.7% 20.4% 20.0% 20.0% PAT -3 8 12 13
PAT 6 5 25 32 41 PAT Margin -10.0% 17.5% 31.8% 25.0%
ch (%) -18.9% 449.1% 28.6% 28.1%
PAT margin
(%) 23.2% 6.1% 27.8% 29.8% 31.8%
ROE 15.3% 11.8% 52.9% 44.5% 39.5%
Source: BJBC’s SEC filing, CRISIL Equities Source: BJBC’s SEC filing, CRISIL Equities

BJBC is the second largest (in revenue terms) as compared to other training services
companies (as mentioned in Table 12) with a presence in China after New Oriental
Education.

Table 13: BJBC’s peer comparison – revenue growth

Revenue growth Net income growth ROE (%)
Company Business Segments CY08 CY09 CY10E CY08 CY09 CY10E CY08 CY09 CY10E
BJBC IT training and content distribution 209.7% 20.4% 20.0% 73.2% 449.1% 28.6% 11.8% 52.9% 44.5%
New Oriental Foreign language training, content development
Education and distribution, test preparation courses, test
conduction 45.6% 32.0% -2.5% 24.5% 27.5% -2.1% 17.9% 19.5% 19.2%
Chinacast E-learning services and content development
Education Corp 64.8% 24.7% 54.4% -20.4% 119.5% 49.1% 4.7% 7.4% N.A.
China Distance Online and test preparation courses
Education 48.4% 71.4% 20.7% -26.6% -70.3% 70.9% 9.4% 1.6% N.A.
China Education Online education and test material
Alliance Inc 43.5% 48.8% 30.7% 219.4% 53.3% 28.2% 42.7% 28.7% N.A.
ChinaEdu Corp Online and offline educational services for K-12
segment and colleges 31.2% 13.6% 7.4% NA NA 10.6% -6.8% 6.1% N.A.
Source: Industr y data, CRISIL Equities

In CY09-10, New Oriental and China Distance Education traded at a higher one-year
forward PER compared to peers. In CY10, the average one-year forward PER in the
sector ranged between 3x and 50x. Given BJBC’s market leadership, higher RoE and

CRISIL Equities 16
 Aptech Ltd

earnings CAGR of ~28% over CY09-11, we believe that it deserves a one-year forward
PER of at least 20x.

Table 14: Average PER comparison

China China
Distance Education ChinaEdu
Avg PER New Oriental China Cast Education Alliance Corp Average
CY08 63 15 - 5 - 28
CY09 31 12 166 6 3 44
CY10 40 12 50 8 3 28
Source: Industry data

Figure 5: China business’s contribution to Aptech’s stock price at different one-year forward PERs
300%
15x 20x 25x
CY06 101.0% 134.7% 168.4%
250% CY07 44.8% 59.7% 74.6%
CY08 70.3% 93.7% 117.1%
200%
FY10 75.4% 100.6% 125.7%
FY11 81.3% 108.4% 135.5%
150%

100%

50%

0%
Dec-05

Aug-06

Dec-06

Aug-07

Dec-07

Aug-08

Dec-08

Aug-09

Dec-09

Aug-10
Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

15 20 25

Source: BJBC’s SEC filing, CRISIL Equities

Our analysis of Aptech historical stock price suggests that assuming a one-year
forward PER of 20x for Aptech’s China business, the same has constituted a significant
proportion of Aptech’s stock price. Based on the historical trend, we believe that the
one-year forward PER of 20x is conservative and BJBC could get higher PER as
and when there is more clarity on its IPO.

Figure 6: China business’s contribution to Aptech’s stock price at one-

year forward PER of 20x

250% On August 26, 2009, BJBC had 500

announced its IPO plans

200% 400

150% 300

100% 200

50% 100

0% 0
May-06

Aug-06

Dec-06

Aug-07

Dec-07

Aug-08

Dec-08

Aug-09

Dec-09

Aug-10
Apr-07

Apr-08

Apr-09

Apr-10
Jan-06

Contribution on China business at PER of 20x (LHS) Aptech's stock price (RHS)

Source: BJBC’s SEC filing, CRISIL Equities

CRISIL Equities 17
 Aptech Ltd

Table 15: Peer comparison

Market
Cap. Revenue EPS PER (x) Price / Book (x) ROE (%)
Companies (US$) (mn) FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E
Aptech Ltd 162 35 47 55 -0.12 0.10 0.11 -28.3 33.1 29.8 3.8 2.9 2.7 -11.1 9.8 9.3
(CRISIL Research estimates)

Consensus estimates
Indian peers
NIIT Ltd. 258 256 274 305 0.09 0.12 0.14 17.2 12.4 10.1 2.4 2.1 1.8 14.3 16.9 18.2
Educomp Solutions Ltd. 1,230 222 287 350 0.61 0.70 0.87 21.1 12.4 10.1 N.A. 3.4 2.7 N.A. 21.3 20.6
Everonn Education Ltd. 232 63 89 111 0.64 0.79 1.06 23.9 12.4 10.1 4.3 3.4 2.8 19.4 20.6 21.5

China Peers*
New Oriental Education 4,093 386 377 514 2.01 2.01 2.47 54.1 54.1 44.0 9.9 14.2 12.4 19.5 19.2 19.3
Chinacast Education Corp 342 51 78 97 1.97 0.55 0.64 3.5 12.5 10.7 0.2 N.A. N.A. 7.4 N.A. N.A.
China Distance Education 174 30 36 45 0.04 0.08 0.19 125.0 62.5 26.3 9.3 N.A. N.A. 1.6 N.A. N.A.
China Education Alliance 121 37 48 63 0.61 0.62 0.80 6.3 6.2 4.8 1.4 N.A. N.A. 28.7 N.A. N.A.
Chinaedu Corp 112 52 56 62 1.41 2.24 2.68 5 3 3 0 N.A. N.A. 6.1 N.A. N.A.
Source: Industr y sources, CRISIL Equities

CRISIL Equities 18
 Aptech Ltd

Aptech provides individual training
services in the field of IT,
networking, hardware, aviation
hospitality and English language
speaking
Company Overview
While Aptech was incorporated as an IT training provider, over the years it has
broadened its retail training offerings portfolio which includes multimedia, networking
and hardware, aviation, airport management, hospitality and travel and tourism and
English language speaking. For the corporate segment, Aptech provides training
solutions in the field of IT, sales, soft skills, to name a few. The company develops
customised content for corporate training programs and universities. It also provides
assessment and testing solutions to domestic and foreign companies.

Currently, Aptech runs ~1,000 centres in over 40 countries in five continents. These
It also provides training solutions to
corporates centres include a mix of franchisee and self-owned centres. In the domestic market
(except in case of MAAC), revenue booking is done on the basis of collection of course
fees. In the international market and in MAAC, revenue recognition is based on an
accrual basis. Corporate services are provided directly by the company.
Table 16: Major milestones
1996 Aptech started Arena Multimedia, its multimedia and animation training business
2000 The company entered into a 50:50 JV in China known as BJB Aptech with a Beijing University affiliated company (investing US$ 1 mn);
Aptech won its first government ICT project
2001 The company got listed on the Bombay Stock Exchange and the National Stock Exchange
2003 The company got listed on the Luxemburg Stock Exchange through a GDR of US$ 14.4 mn
2006 The company acquired Avalon, a Pune-based air hostess training academy
2007 Aptech acquired Synergetics, an IT training provider in the corporate space
The company launched N-Power, its hardware and networking training brand
2008 The company sold its stake in Synergetics
2009 The company acquired First English, a Bangalore-based English training institute. It also exited the ICT business
2010 Aptech acquired Maya Academy of Advanced Cinematics
Source: Company

History of change in promoters

• Aptech Ltd. was established by Mr. Atul Nishar & Mr. Rajesh Nishar as an IT training and education company
1986

• Aptech started software business

1997

• The training business was demerged into Aptech Training Ltd.

• Hexaware Techonolgies Ltd was merged into Aptech Ltd, consisting of only the software business. This entity was then renamed
Hexaware Techologies Ltd.
2001 • Aptech Training Ltd. was renamed Aptech Ltd. and it relisted on BSE & NSE.

• Mr. Nishar sold stake to Chennai based Software Solutions Integrated Ltd ( SSI, now callled PVP Ventures) which obtained
47.2% stake which included 27.2% stake from promoters and 20% through open offer at Rs 49.75 per share.
• SSI sold its own training business - SSI Education to Aptech Ltd. Funds were raised through a GDR of USD 14.4 Mn. This
2003 diluted SSI stake in Aptech ltd. to 25.75%.

• SSI sold 34,00,000 equity shares to FI/investors diluting their holding to 15.6%
• SSI sold Aptech Ltd. to Aptech Investments Pvt Ltd which was co-promoted by Mr. Rakesh Jhunjhunwala. Aptech Investments
bought 20% stake in Aptech Ltd, 10% from SSI and 10% by way of fresh prefrential allotment from Aptech Ltd. at Rs. 67.5 per
2005 share

Source: Compan y

CRISIL Equities 19
 Aptech Ltd

Business Overview

Business segments include
individual and non-individual
training segments
Aptech operates in the career education segment in the domestic and overseas
markets. Its offerings can be broadly classified into retail and institutional. It offers
training in sectors like IT, networking, multimedia, aviation and hospitality.

Chart 1: Business segments

APTECH LTD

INSTITUTIONAL
RETAIL TRAINING
TRAINING

DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL

TRAINING
AVALON IWP
SOLUTIONS

MAAC ITEC ATTEST

LEARNING SERVICES
APTECH COMPUTER
EDUCATION

ARENA

N-POWER

ENGLISH
EXPRESS

S o u r c e : C o m p a n y, C R I S I L E q u i t i e s

CRISIL Equities 20
 Aptech Ltd
MAAC and Arena together have a
collective market share of ~80% in
the domestic multimedia training
market
CRISIL Equities
Retail training business
IT training - Aptech Computer Education
Established in 1986, Aptech Computer Education is the flagship brand of Aptech and
provides IT training to undergraduates, graduates (technical and non-technical) and
working executives. It offers courses in basic and advanced concepts and
technologies, Microsoft .net, Java, office tools and operating systems. Aptech
Computer Education also provides certification courses in association with Sun
Microsystems, Oracle and Red Hat. The company has maintained its strategy of not
competing with the largest company in domestic IT training market – NIIT. While NIIT’s
focus has always been on metro cities, Aptech is more focused on Tier–II and III
markets. It is also present globally across 40 countries.
Animation training - Arena Animation and MAAC
Aptech started its multimedia and animation business under the Arena brand in 1996. It
offers basic and advanced level courses in animation. Like Aptech Computer
Education, Arena has a presence across metros, Tier II and III markets. It is also
present across 15 countries internationally. Aptech acquired Maya Academy of
Advanced Cinematics (MAAC) in January 2010. MAAC offers career and short-term
courses in animation, digital filmmaking and visual effects. While currently MAAC has
70 centres only in India, Aptech plans to take it overseas. With the acquisition of
MAAC, Aptech has become the largest company in the domestic animation training
market with a collective market share of ~80%. The other companies in this segment
are Framebox and Picasso.
Networking and hardware training – N-Power
Aptech launched N-Power in 2007. The courses offered include professional and short-
term courses in network and hardware services. It also offers degree and diploma
courses in affiliation with Karnataka State Open University. N-Power has 64 centres in
India and three centres in Vietnam.
Aviation training - Avalon Academy
Aptech acquired Avalon, the Pune-based cabin crew training academy, in 2006. Post
the acquisition, the company has constantly reduced its dependence on cabin crew
training. It extended its offerings to ground staff training and airport management in
2008 and introduced courses in hospitality and travel / tourism in 2009. Currently, there
are 60 Avalon centres across India, predominantly in cities which have airports. Aptech
also plans to take it to international markets.
English language training - English Express
Aptech acquired Bangalore-based English training services company, First English, in
2009 which had four centres in Bangalore. This was then re-branded as English
Express. It offers courses in English speaking, accent training, English improvement,
TOFEL and IELTS preparation and corporate training. Currently, there are six English
Express centres in India. Aptech plans to expand English Express into non-English
speaking countries like Vietnam and Brazil.
21
 Aptech Ltd
Aptech holds 22.4% stake in BJBC
which has filed for listing with SEC
CRISIL Equities
India Window Program (IWP)
Under this program, Aptech provides IT training to students from other countries in
India. The candidates are trained in technologies such as networking, e-commerce,
software development, software engineering, and multimedia and animation. This
program is carried out of Aptech’s Bangalore centre.
Indian Technical and Economic Cooperation (ITEC)
The ITEC program is run by the Government of India with a goal of encouraging
relations with other developing countries. This program involves sharing India’s
expertise in IT, multimedia and English language by training students from the
developing countries. Aptech provides IT, multimedia and English language training
under this program.
Corporate business
Attest
The testing and assessment services of Aptech are offered through its brand Attest. It
conducts invigilated, online and written tests for universities and corporates.
Aptech Learning Services
This is the outsourced content development arm of Aptech. It offers customised e-
learning and content development for corporate clients in India, the US and Europe.
Aptech Training Solutions
Under this brand, Aptech provides IT and soft skills training to corporate clients. Aptech
Training Solutions also offers sector specific customised solutions for banks, insurance,
telecom and IT industry and government companies.
China business
Aptech entered China in 2000 with a 50:50 JV called BJB Aptech with Beida Jade Bird
(BJB), a Beijing University affiliate. BJB Aptech provides IT training to individuals in
China through the franchisee model. While Aptech provides the course content, BJB
manages the operations of the JV. The initial investment by Aptech in the JV was US$
1 mn. BJB was in the business of distribution of vocational IT education content to
vocational high schools, colleges and universities. BJB Aptech has ~250 centres
operating in different regions of People’s Republic of China.
In 2009, Aptech restructured its stake in the JV. It divested its 50% stake in the JV for
Rs 1.1 bn and invested the proceeds in the holding company, BJB Career Education
Company – BJBC (please refer to Annexure II for restructuring details). Aptech
currently holds 22.4% and has a board seat in BJBC. At the time of this restructuring,
BJBC and Aptech signed a non-compete agreement due to which Aptech cannot use
the brand ‘Aptech’ for providing IT training service in China. Going forward, Aptech also
plans to launch its other brands in China to leverage the presence of BJB Aptech.
22
 Aptech Ltd

Annexure 1: Financials
Income Statement
(Rs Mn) CY07@ CY08@ FY10* FY11E FY12E FY13E
Net sales 1,953 2,561 1,598 2,204 2,593 3,075
Operating Income 2,167 2,760 1,650 2,204 2,593 3,075
EBITDA 411 547 257 385 550 739
Depreciation 155 174 157 163 181 200
Interest 36 0 33 17 4 0
Other Income (1) 20 - 24 15 35
PBT 219 393 67 229 379 574
Adjusted PAT 228 471 (255) 229 254 384
Reported PAT 175 444 (224) 229 254 384
No. of shares 43.8 46.5 46.6 48.7 48.7 48.7
Adjusted earnings per share (EPS) 5.2 10.1 (5.5) 4.7 5.2 7.9
Reported earnings per share (EPS) 4.0 9.6 (4.8) 4.7 5.2 7.9

@ Includes financials of Aptech’s China JV.

*FY10 is a 15-month period as the company has changed the year end to March from December previously.
# For FY11E, PBT and PAT are expected to be the same due to zero tax outgo.

Balance Sheet
(Rs Mn) CY07 CY08 FY10E FY11E FY12E FY13E
Equity capital (FV - Rs 10) 438 465 466 487 487 487
Reserves and surplus 1,106 2,093 1,588 2,136 2,333 2,660
Debt 172 189 238 84 0 0
Current Liabilities and Provisions 422 629 204 229 258 294
Deferred Tax Liability/(Asset) (29) (309) - - - -
Minority Interest - - 2 2 2 2
Capital Employed 2,109 3,067 2,498 2,938 3,080 3,444
Net Fixed Assets 373 328 204 226 178 119
Capital WIP 42 3 7 7 7 7
Intangible assets 200 199 201 858 867 870
Investments - - 1,081 1,081 1,081 1,081
Loans and advances 191 148 321 342 376 415
Inventory 31 39 16 18 21 25
Receivables 511 449 274 272 302 337
Cash & Bank Balance 761 1,902 394 135 247 589
Applications of Funds 2,109 3,067 2,498 2,938 3,080 3,444
S o u r c e : C o m p a n y, C R I S I L e s t i m a t e s

CRISIL Equities 23
 Aptech Ltd

Cash Flow
(Rs Mn) CY07 CY08 FY10E FY11E FY12E FY13E
Pre-tax profit 219 393 67 229 379 574
Total tax paid (29) (206) (19) - (125) (189)
Depreciation 155 174 157 163 181 200
Change in working capital (85) 306 (402) (653) (49) (44)
Cash flow from operating activities 260 667 (197) (261) 387 540
Capital expenditure (165) (89) (37) (185) (134) (140)
Investments and others 0 - (1,081) - - -
Cash flow from investing activities (165) (89) (1,119) (185) (134) (140)
Equity raised/(repaid) 57 318 10 228 - -
Debt raised/(repaid) (55) 17 49 (155) (84) -
Dividend (incl. tax) - - - (57) (57) (57)
Others (incl extraordinaries) 318 227 (250) 170 - -
Cash flow from financing activities 321 563 (192) 187 (141) (57)
Change in cash position 416 1,141 (1,508) (259) 112 343
Opening Cash 345 761 1,902 394 135 247
Closing Cash 761 1,902 394 135 247 589

Ratios
CY07 CY08 FY10E FY11E FY12E FY13E
Growth ratios
Sales growth (%) 24.1 27.3 (40.2) 33.6 17.6 18.6
EBITDA growth (%) 11.7 33.3 (53.1) 49.8 42.9 34.4
Reported EPS growth (%) (6.0) 138.2 (150.2) (197.7) 11.0 51.4
Profitability Ratios
EBITDA Margin (%) 18.9 19.8 15.6 17.5 21.2 24.0
PAT Margin (%) 10.5 17.1 (15.5) 10.4 9.8 12.5
Return on Capital Employed (RoCE) (%) 17.7 16.7 4.0 8.9 13.3 18.1
Return on equity (RoE) (%) 18.3 23.0 (11.1) 9.8 9.3 12.9
Dividend and Earnings
Dividend per share (Rs) - - - 1.0 1.0 1.0
Dividend payout ratio (%) - - - 21.3 19.2 12.7
Dividend yield (%) - - - 0.6 0.6 0.6
Efficiency ratios
Asset Turnover (Sales/GFA) 2.2x 3.5x 3.6x 5.1x 5.0x 5.3x
Asset Turnover (Sales/NFA) 5.6x 7.9x 6.2x 10.3x 12.8x 20.7x
Sales/Working Capital 7.5x 17.4x 8.0x 5.5x 6.1x 6.7x
Financial stability
Net Debt-equity -0.4 -0.7 -0.1 0.0 -0.1 -0.2
Interest Coverage 7.1 NA 3.0 13.1 83.9 NA
Current Ratio 3.5 4.0 4.9 3.3 3.7 4.6
Valuation Multiples
Price-earnings 81.5x 9.5x NA 33.1x 29.8x 19.7x
Price-book 12.1x 1.7x 3.8x 2.9x 2.7x 2.4x
EV/EBITDA 43.9x 5.1x 29.8x 19.6x 13.3x 9.4x
S o u r c e : C o m p a n y, C R I S I L e s t i m a t e s

CRISIL Equities 24
 Aptech Ltd

Annexure 2: BJB Career Education Company

• Aptech Ltd., through an investment of US$ 1 mn, started a 50:50 JV in china called BJB Aptech with Beida Jadebird (BJB)
IT Company, owned by Beijing Peking University Company a Beijing University affiliate.
2000

• Crescent Jade, a Cayman Islands company, formed a company named Prosperity in Cayman Islands which acquired 80%
equity stake in BJB for US$ 30.2 mn.
2006

• Crescent Jade established BJB Career education Company (BJBC) in Cayman Islands which held 100% stake in
Prosperity.
2007

• BJBC acquired additional 14% stake in BJB through Prosperity from Arbo whose sole shareholder was Superway.
• BJBC acquired additional 5.9% of the equity stake in BJB from BJB's management. Post this transaction, BJBC's stake in
BJB increased to 99.9%.
2009 • Aptceh resturctured its stake in China JV by selling the 50 % stake in the JV for Rs1.1 bn. Aptech inturn invested the
entire consideration for 22.4% stake in BJB C
• BJBC filed Form-1 with securities & Exchange Commission, USA for ADR listing

Annexure 3: Prospects of IT and animation outsourcing in emerging countries

Source: NASSCOM

Animation is currently one of the emerging outsourcing services in countries like the
Emerging economies expected to
Philippines. Internationally recognised companies like Walt Disney, Warner Brothers,
grow at high growth rates
Hanna Barbera and Cartoon Network subcontract animation work in Philippines. There
were about fifty small and medium animation studios in the Philippines which employed
about 7000 animators in 2007. The 2007, revenue stood at US$ 105 Mn. According to
the Animation Council of Philippines, the industry would require 25000 animation
graduates by 2010 to meet the global business demand.

CRISIL Equities 25
 Aptech Ltd

Focus Charts
Centre presence in Tier-I, Tier-II and Tier-III cities Growth in centres
Number of Centers
1400
TIER-I
22%
1200
211
1000 181
151
TIER-III 800 121
49%
600
1017
919
400 822
713

200

0
TIER-II FY10 FY11E FY12E FY13E
29%
Domestic International

Source: Compan y S o u r c e : C o m p a n y, C R I S I L E q u i t i e s e s t i m a t e
* International centres excluding China

Geographic revenue break-up (FY10) of retail training Peer comparison

business
LAM CIS ME
0% 1% 2%

System w ide
APAC
22%
Enrolm ents ('000) Revenue Net Revenue

Com pany FY08 FY09 FY10 FY08 FY09 FY10 FY08 FY09 FY10

Aptech* 179 140 148 2,104 2,866 4,210 454 686 1,528

NIIT 389 428 471 7,119 9,317 10,163 3,241 3,630 4,275

Africa * December ending year for 2007 and 2008

8%

India
67%

Source: Compan y S o u r c e : C o m p a n y, C R I S I L E q u i t i e s e s t i m a t e

Aptech’s returns since January 2005 Shareholding pattern

Rs 1-Jan-05 CY06 CY07 CY08 FY10 120%

Shares Bought 100

100%
Price per share 44.4
Investment made 4440 48.27%
80% 43.96% 45.20%
Dividend per share 0 0 0 0 1 47.41% 49.36%

Total dividend income 0 0 0 0 100 60%

14.08%
17.73% 14.25% 16.91%
12.88%
Current market price 155 40% 0.33% 0.13%
2.82% 0.70%
0.24%
Total return 11190
20% 37.52%
35.49% 37.64% 37.56% 37.52%
Total return (%) 252%
Holding period - Years 5.7
0%
Yearly return 25% Mar-09 Jun-09 Sep-09 Dec-09 Mar-10

Promoters Mutual Funds/Domestic Institutions FII's Others

S o u r c e : C o m p a n y, C R I S I L E q u i t i e s Source: BSE India

CRISIL Equities 26
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