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

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

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

4. Government and Regulatory Intervention Technological Change Growth and Volatility of Market Demand Direct Rivalry Among Competitors Bargaining Power of Suppliers Customer Bargaining Power Pressure From Substitutes Threat of Entrants Company: Porter’s 5 Forces

5. IT Industry n Unique advantages: –Large, low cost, English-speaking labor force –World-class quality standards –Government policy support n Software exports - $10 bn by 2000

6. Emerging Market Issues n Education/work force n IT industry expected to continue growing n Economic liberalization n Inflation n Currency convertibility n Black market n Government instability/ history of socialism “India is a quantitative investor’s nightmare and a stock picker’s dream.” ProsCons

7. The Equity Offer n $50 million Equity Issue of ADS @$55 p.s. –American Depository Shares = Equity –Traded on NASDAQ –Restricted convertibility into “regular” equity n Company specific risks –Y2K –Managing Growth and Employee Related Issues

8. Beta estimates

9. Return on Equity estimates n Beta based estimates: n E-H-V estimates:

10. Value at Risk n Equity Offering: $ 50 million n VaR: $9.3 million ( Using Normal Distribution Assumption )

11. Results n DCF Analysis –Base Case value - $ 48 –Optimistic Value - $ 157 –Pessimistic Value - $ 4 n Comparables Analysis - NOT USED –“Comps” vary over time and across companies, e.g. - 1998 P/E range: 27 -79 n Conclusion: You tell us ???