Incorporated in 1995, Zylog System Limited (ZSL) is a credible midsized IT services and Solutions company, with strong established presence in U.S., U.K., Singapore and India. Since 1995, Zylog has been offering a range of IT services and solutions to its global customers across multiple verticals like Banking, Insurance, Telecom, Manufacturing, Retail, Healthcare etc. In 1998, ZSL has started SI/VAR (Value added resellers) Partnership practice, making headway into the large account deals.

In the past five years, ZSL has made five inorganic initiatives; In 2002 ZSL has acquired three businesses namely Silver Spring Technologies (MD), Schumacher Consulting (MA) and Schmidt Systems (VA) primarily to expand its Business Intelligence, Data Warehousing and Application Integration solutions. Though these acquisitions are small, over the years these acquisitions has enriched ZSL offering and contributed close to 28% of the total consolidated revenues for FY07.

ZSL has got significant domain expertise in BFSI (34% of FY07) and Telecom (22% of FY07). Strong domain expertise and gamut of services offering, has enabled ZSL to garner marquee cliental across the verticals like MCI Communications, Barclays Capital, Pfizer, which are few of its key customers. ZSL's strong presence & core expertise in the BFSI and Telecom sector has enabled its to identify world class products, such as Z*Connect (Wireless Messaging Server ) , Z*PRISM (A Real Time Transaction Server), RTGS Pay Manager - RTGS Payment Hub & Intra Day Liquidity Module, insured Vehicle Accident Recovery system (iVARs), Claims Management System (CMS) etc.

ZSL's focus on partnerships model has yielded good results, with consolidated revenues having registered a 66% CAGR over FY05-07and for the same period net profit grew at a CAGR of 78%. ZSL has used the inorganic route effectively to strengthen new areas like Business Intelligence, Data Warehousing and Application Integration Solutions.

We expect a 42% revenue CAGR and 44% EPS CAGR for ZSL over FY07-09. The ZSL stock trades at 6x earnings and 3.5 x EV/EBITDA FY09E, which look atractive. We Initiate coverage with a BUY rating and with a price target of Rs 631, at our target price stock will be valued at 9x FY09E earnings and 5x EV/EBITDA FY09E.