Vedvati Shrotre Terry Kwan Saikrishna Poddutur Vishal Shah Presented April 30, 2015

Agenda  Introduction  Company Overview  Macroeconomic Overview  Financial Analysis  Technical Analysis  Financial Projections  Valuation  Recommendation

Introduction  Ticker: IPGP  P/E:  Current Price: $92.49  Industry: Semiconductor Equipment & Materials  Market Capitalization: 4.85B  Enterprise Value: 4.58B  PEG ratio: 0.82  Float: 44.04M

Introduction  Leading developer and manufacturer of a breadline of high performance fiber lasers, fiber amplifiers and diode lasers used in material processing.  Began operations in 1990 and incorporated in Delaware in Headquartered in Oxford, Massachusetts.  Fiber lasers, unlike gas (C02) lasers or crystal lasers use semiconductor diodes as the light source to pump specialty optical fibers. The fibers have the diameter comparable to human hair.  Fiber lasers advantages : superior performance, lower cost, ease of use, compact size, wavelength and precision control.

Company Overview

Company Overview – Business Model Manufacturing Vertically integrated operations In house engineering capability to integrate products Research and Development Extensive emphasis on R&D in laser materials, fiber, optoelectronic components 170 patents issued and 260 patent pending applications Sales Sell products globally to OEMs, system integrators and end users. Efforts to design and introduce new and improved products.

Global Footprint  Major Manufacturing facilities: United States, Germany and Russia  Sales and Service Offices: China, France, India, Italy, Japan, Poland, Singapore, South Korea, Spain and Turkey  Material Processing application centers: US, Germany, Russia, China, Japan, Italy and South Korea

Product Segments  Cutting & Welding  Marking and Engraving  Micro –Processing and Fine processing  3D Printing Material Processing  Special Projects and Research  Direct energy demonstration  Obstacle warnings Advanced Applications  Broadband – fiber, call video signal transport  Metro and long haul wire line Communications  Skin rejuvenation and wrinkle removal.  General Surgery and urology  Dental Medical

Material Processing - Customer Segmentation Materials processing AerospaceAutomotiveConsumer Heavy industries Semiconduct ors General Manufacturi ng Welding titanium air frames High-strength steel cutting and welding Electronics and credit card marking Hardening and welding pipes in nuclear, wind turbine and pipeline industries Photovoltaic manufacturing Marking, engraving and printing Welding, brazing and hardening

Management Overview  Dr. Valentin P. Gapontsev is the founder and CEO, he is also the managing director of IP Fiber Devices UK Ltd  IPG was founded by him in 1990 in Russia  PhD in Physics

Continued  Mr. Timothy V P Mammen is the CFO since July  He also serves as a Senior Vice President since February  Mr. Mammen was Finance Director and General Manager of United Partners Plc, from 1995 to 1999 and prior to that he worked in the finance department of E.I. du Pont de Nemours and Company.

Macroeconomic Overview

Applications of Laser Products  Communication and materials processing segments are the largest in the laser industry  3D laser printing is currently the smallest segment but is rising quick. Its revenue increased 30% in 2014

Industrial Laser Revenues  C02 Lasers make up about 34% of industrial laser’s revenue in 2014  Fiber Laser makes up about 36% of industrial laser’s revenue in 2014  Fiber Laser in industrial laser grew 14% in 2014 and is expected to continue in the coming years

Market Trends  Industrial laser systems account for 14% of global machine tool sales  Revenue growth of 7.93% from  Strong growth is expected to continue due to strong demand for excimer lasers and supplies, essential for manufacturing semiconductors Material Processing Communication  Revenue grew 3.56% from 2013 to 2014 and is expected to grow at 2.8% per year  Communication segment growth is predicted to slow down slightly in 2015 but will remain strong  Optical Storage Segment growth is expected to be stagnant or negative due to the growing popularity in solid state drive

Automotive Trend Global vehicle production is forecasted to increase steadily at around 4.8% from From: Statista

 Vertically integrated development and manufacturing  Strong research bringing breath and depth of expertise  Diverse customer base reflecting the diverse applications of lasers SWOT Analysis  Litigation expenses due to infringement of intellectual property rights  High level of fixed costs and inventory levels  Limited suppliers  Huge opportunity to displace traditional lasers in several applications  Enable use of fiber lasers in new applications  Can expand product portfolio and global to reach  Markets are competitive characterized by rapidly changing technology  Manufacturing capacity and operations may not be appropriate for future levels of demand  Currency rate risk

Porters Five Forces  Single of limited source suppliers for many of the key components and raw materials.  Suppliers might also be key competitors. Supplier Power – High  Largest customer generates 11% and top 5 generate 20% in revenue.  Diverse range of customers. Buyer Power – Low  Competed with conventional laser technology and amplifier products  Also compete with non-laser production methods such as water jet cutting etc Threat of substitution – Moderate to High  Significant price and technology competition within the industry.  They are bigger players like Rofin-Sinar Technologies, Trumpf GmbH etc. Competitive Rivalry – High  Being a manufacturing and research intensive business it is not easy for new entrants.  Domain expertise is an essential part. Threat of new Entry – Low to Moderate

Financial & Technical Analysis

Financial Analysis  Steady profit margins  Slight decrease in 2013, due to increased costs as a result of a small acquisition Profit Margins  High and steady conversion cycle of around 128 days Conversion cycle

Financial Analysis Efficiency Ratios and DuPont Analysis

Financial Analysis

Quarterly Revenue Trends

Technical Analysis

Financial Projections & Valuation

Comparables

Income Statement Projections

WACC Calculation

DCF Valuation

Recommendation

 We recommend to put the stock in WATCHLIST because:  Strong fundamentals  Stable high growth rate  Better margins and returns compared to peers  Considerable market share But,  Highly overvalued based on intrinsic value  Technical analysis does not support