Intrinsic value of Syntel - SYNT

Previous Close

$40.97

  Intrinsic Value

$59.85

stock screener

  Rating & Target

buy

+46%

Previous close

$40.97

 
Intrinsic value

$59.85

 
Up/down potential

+46%

 
Rating

buy

We calculate the intrinsic value of SYNT stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 3.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  10.10
  9.59
  9.13
  8.72
  8.35
  8.01
  7.71
  7.44
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
Revenue, $m
  1,017
  1,115
  1,216
  1,323
  1,433
  1,548
  1,667
  1,791
  1,920
  2,054
  2,193
  2,338
  2,488
  2,645
  2,808
  2,978
  3,155
  3,340
  3,532
  3,733
  3,943
  4,162
  4,391
  4,631
  4,881
  5,143
  5,417
  5,704
  6,004
  6,319
Variable operating expenses, $m
  387
  424
  462
  503
  544
  588
  633
  681
  729
  780
  833
  888
  945
  1,005
  1,067
  1,131
  1,199
  1,269
  1,342
  1,418
  1,498
  1,581
  1,668
  1,759
  1,854
  1,954
  2,058
  2,167
  2,281
  2,401
Fixed operating expenses, $m
  352
  359
  367
  375
  384
  392
  401
  409
  418
  428
  437
  447
  456
  467
  477
  487
  498
  509
  520
  532
  543
  555
  567
  580
  593
  606
  619
  633
  647
  661
Total operating expenses, $m
  739
  783
  829
  878
  928
  980
  1,034
  1,090
  1,147
  1,208
  1,270
  1,335
  1,401
  1,472
  1,544
  1,618
  1,697
  1,778
  1,862
  1,950
  2,041
  2,136
  2,235
  2,339
  2,447
  2,560
  2,677
  2,800
  2,928
  3,062
Operating income, $m
  279
  332
  387
  445
  505
  568
  633
  701
  772
  846
  923
  1,003
  1,087
  1,174
  1,265
  1,359
  1,458
  1,562
  1,670
  1,783
  1,902
  2,026
  2,155
  2,291
  2,434
  2,583
  2,740
  2,904
  3,077
  3,257
EBITDA, $m
  295
  349
  406
  465
  527
  591
  659
  729
  801
  877
  956
  1,039
  1,125
  1,214
  1,307
  1,405
  1,507
  1,613
  1,724
  1,840
  1,962
  2,089
  2,223
  2,362
  2,508
  2,662
  2,823
  2,991
  3,168
  3,354
Interest expense (income), $m
  3
  19
  18
  21
  23
  26
  29
  32
  35
  38
  41
  44
  48
  51
  55
  59
  63
  67
  72
  76
  81
  86
  91
  97
  102
  108
  114
  121
  128
  135
  142
Earnings before tax, $m
  260
  313
  366
  421
  479
  539
  601
  667
  734
  805
  879
  955
  1,035
  1,119
  1,206
  1,297
  1,391
  1,490
  1,594
  1,702
  1,816
  1,935
  2,059
  2,189
  2,326
  2,469
  2,619
  2,777
  2,942
  3,115
Tax expense, $m
  70
  85
  99
  114
  129
  145
  162
  180
  198
  217
  237
  258
  280
  302
  326
  350
  376
  402
  430
  460
  490
  522
  556
  591
  628
  667
  707
  750
  794
  841
Net income, $m
  190
  229
  267
  308
  350
  393
  439
  487
  536
  588
  641
  697
  756
  817
  880
  946
  1,016
  1,088
  1,164
  1,243
  1,326
  1,412
  1,503
  1,598
  1,698
  1,802
  1,912
  2,027
  2,148
  2,274

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  519
  569
  621
  675
  732
  790
  851
  915
  981
  1,049
  1,120
  1,194
  1,271
  1,351
  1,434
  1,521
  1,611
  1,706
  1,804
  1,907
  2,014
  2,126
  2,243
  2,365
  2,493
  2,627
  2,767
  2,913
  3,067
  3,227
Adjusted assets (=assets-cash), $m
  519
  569
  621
  675
  732
  790
  851
  915
  981
  1,049
  1,120
  1,194
  1,271
  1,351
  1,434
  1,521
  1,611
  1,706
  1,804
  1,907
  2,014
  2,126
  2,243
  2,365
  2,493
  2,627
  2,767
  2,913
  3,067
  3,227
Revenue / Adjusted assets
  1.960
  1.960
  1.958
  1.960
  1.958
  1.959
  1.959
  1.957
  1.957
  1.958
  1.958
  1.958
  1.958
  1.958
  1.958
  1.958
  1.958
  1.958
  1.958
  1.958
  1.958
  1.958
  1.958
  1.958
  1.958
  1.958
  1.958
  1.958
  1.958
  1.958
Average production assets, $m
  118
  129
  141
  153
  166
  180
  193
  208
  223
  238
  254
  271
  289
  307
  326
  345
  366
  387
  410
  433
  457
  483
  509
  537
  566
  597
  628
  662
  696
  733
Working capital, $m
  65
  71
  78
  85
  92
  99
  107
  115
  123
  131
  140
  150
  159
  169
  180
  191
  202
  214
  226
  239
  252
  266
  281
  296
  312
  329
  347
  365
  384
  404
Total debt, $m
  342
  386
  433
  482
  533
  585
  640
  697
  756
  818
  882
  949
  1,018
  1,090
  1,165
  1,243
  1,324
  1,409
  1,498
  1,590
  1,686
  1,787
  1,892
  2,002
  2,117
  2,238
  2,364
  2,496
  2,634
  2,778
Total liabilities, $m
  468
  512
  559
  608
  659
  711
  766
  823
  882
  944
  1,008
  1,075
  1,144
  1,216
  1,291
  1,369
  1,450
  1,535
  1,624
  1,716
  1,812
  1,913
  2,018
  2,128
  2,244
  2,364
  2,490
  2,622
  2,760
  2,904
Total equity, $m
  52
  57
  62
  68
  73
  79
  85
  91
  98
  105
  112
  119
  127
  135
  143
  152
  161
  171
  180
  191
  201
  213
  224
  236
  249
  263
  277
  291
  307
  323
Total liabilities and equity, $m
  520
  569
  621
  676
  732
  790
  851
  914
  980
  1,049
  1,120
  1,194
  1,271
  1,351
  1,434
  1,521
  1,611
  1,706
  1,804
  1,907
  2,013
  2,126
  2,242
  2,364
  2,493
  2,627
  2,767
  2,913
  3,067
  3,227
Debt-to-equity ratio
  6.570
  6.790
  6.970
  7.130
  7.280
  7.410
  7.520
  7.620
  7.710
  7.800
  7.870
  7.940
  8.010
  8.070
  8.120
  8.170
  8.220
  8.260
  8.300
  8.340
  8.370
  8.410
  8.440
  8.470
  8.490
  8.520
  8.540
  8.570
  8.590
  8.610
Adjusted equity ratio
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  190
  229
  267
  308
  350
  393
  439
  487
  536
  588
  641
  697
  756
  817
  880
  946
  1,016
  1,088
  1,164
  1,243
  1,326
  1,412
  1,503
  1,598
  1,698
  1,802
  1,912
  2,027
  2,148
  2,274
Depreciation, amort., depletion, $m
  16
  17
  19
  20
  22
  24
  26
  27
  29
  31
  33
  36
  38
  40
  43
  45
  48
  51
  54
  57
  60
  64
  67
  71
  74
  78
  83
  87
  92
  96
Funds from operations, $m
  205
  246
  286
  328
  372
  417
  465
  514
  565
  619
  675
  733
  794
  857
  923
  992
  1,064
  1,139
  1,218
  1,300
  1,386
  1,476
  1,570
  1,669
  1,772
  1,881
  1,995
  2,114
  2,239
  2,371
Change in working capital, $m
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
Cash from operations, $m
  199
  240
  279
  321
  364
  410
  457
  506
  557
  611
  666
  724
  784
  847
  913
  981
  1,053
  1,127
  1,205
  1,287
  1,372
  1,462
  1,555
  1,654
  1,756
  1,864
  1,977
  2,096
  2,220
  2,350
Maintenance CAPEX, $m
  -14
  -16
  -17
  -19
  -20
  -22
  -24
  -25
  -27
  -29
  -31
  -33
  -36
  -38
  -40
  -43
  -45
  -48
  -51
  -54
  -57
  -60
  -64
  -67
  -71
  -74
  -78
  -83
  -87
  -92
New CAPEX, $m
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -30
  -32
  -33
  -35
  -36
Cash from investing activities, $m
  -25
  -27
  -29
  -31
  -33
  -35
  -38
  -39
  -42
  -45
  -47
  -50
  -53
  -56
  -59
  -63
  -66
  -69
  -73
  -77
  -81
  -85
  -91
  -95
  -100
  -104
  -110
  -116
  -122
  -128
Free cash flow, $m
  174
  213
  251
  290
  331
  375
  419
  466
  515
  566
  619
  674
  731
  791
  853
  918
  987
  1,058
  1,132
  1,210
  1,291
  1,376
  1,465
  1,559
  1,657
  1,759
  1,867
  1,980
  2,098
  2,222
Issuance/(repayment) of debt, $m
  -17
  45
  47
  49
  51
  53
  55
  57
  59
  62
  64
  67
  69
  72
  75
  78
  81
  85
  89
  92
  96
  101
  105
  110
  115
  120
  126
  132
  138
  145
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -17
  45
  47
  49
  51
  53
  55
  57
  59
  62
  64
  67
  69
  72
  75
  78
  81
  85
  89
  92
  96
  101
  105
  110
  115
  120
  126
  132
  138
  145
Total cash flow (excl. dividends), $m
  157
  258
  297
  339
  382
  427
  474
  523
  574
  627
  683
  740
  800
  863
  928
  997
  1,068
  1,142
  1,220
  1,302
  1,387
  1,477
  1,571
  1,669
  1,772
  1,880
  1,993
  2,112
  2,236
  2,367
Retained Cash Flow (-), $m
  -65
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  92
  253
  292
  334
  377
  421
  468
  517
  568
  620
  675
  733
  793
  855
  920
  988
  1,059
  1,133
  1,211
  1,292
  1,377
  1,466
  1,559
  1,657
  1,759
  1,866
  1,979
  2,097
  2,221
  2,351
Discount rate, %
  5.10
  5.36
  5.62
  5.90
  6.20
  6.51
  6.83
  7.18
  7.54
  7.91
  8.31
  8.72
  9.16
  9.62
  10.10
  10.60
  11.13
  11.69
  12.27
  12.89
  13.53
  14.21
  14.92
  15.66
  16.45
  17.27
  18.13
  19.04
  19.99
  20.99
PV of cash for distribution, $m
  87
  228
  248
  265
  279
  289
  295
  297
  295
  290
  281
  269
  254
  236
  217
  197
  176
  155
  134
  114
  96
  79
  64
  50
  39
  30
  22
  16
  11
  8
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Syntel, Inc. (Syntel) is a global provider of digital transformation, information technology (IT) and knowledge process outsourcing (KPO) services. The Company operates through five segments: Banking and Financial Services, Healthcare and Life Sciences, Insurance, Manufacturing, and Retail, Logistics and Telecom. Syntel provides a range of services to its customers through its IT services, including Managed Services, Digital One and through its KPO services. Through its Managed Services offering, the Company provides software applications development, maintenance, testing, IT infrastructure, cloud and migration services. Through its SyntBots platform, the Company delivers internally developed automation capabilities that improve the productivity and quality of its Managed Services offerings. The Company's Digital One service line centralizes the delivery of digital architecture, Web and mobile applications, user experience, Big Data, analytics, social and Internet of Things services.

FINANCIAL RATIOS  of  Syntel (SYNT)

Valuation Ratios
P/E Ratio -60.1
Price to Sales 3.5
Price to Book -18.7
Price to Tangible Book
Price to Cash Flow -285.5
Price to Free Cash Flow -114.2
Growth Rates
Sales Growth Rate -0.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 5.9%
Cap. Spend. - 3 Yr. Gr. Rate -3%
Financial Strength
Quick Ratio 5
Current Ratio 0.3
LT Debt to Equity -261.7%
Total Debt to Equity -273.2%
Interest Coverage 92
Management Effectiveness
Return On Assets -6.1%
Ret/ On Assets - 3 Yr. Avg. 11.9%
Return On Total Capital -7.1%
Ret/ On T. Cap. - 3 Yr. Avg. 13.3%
Return On Equity -11.7%
Return On Equity - 3 Yr. Avg. 14.1%
Asset Turnover 1
Profitability Ratios
Gross Margin 38.4%
Gross Margin - 3 Yr. Avg. 39.8%
EBITDA Margin 30.1%
EBITDA Margin - 3 Yr. Avg. 34.2%
Operating Margin 27.2%
Oper. Margin - 3 Yr. Avg. 28.6%
Pre-Tax Margin 28.2%
Pre-Tax Margin - 3 Yr. Avg. 32.3%
Net Profit Margin -5.9%
Net Profit Margin - 3 Yr. Avg. 15.9%
Effective Tax Rate 120.9%
Eff/ Tax Rate - 3 Yr. Avg. 55%
Payout Ratio -2214%

SYNT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SYNT stock intrinsic value calculation we used $923.828 million for the last fiscal year's total revenue generated by Syntel. The default revenue input number comes from 0001 income statement of Syntel. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our SYNT stock valuation model: a) initial revenue growth rate of 10.1% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.1%, whose default value for SYNT is calculated based on our internal credit rating of Syntel, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Syntel.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of SYNT stock the variable cost ratio is equal to 38%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $344 million in the base year in the intrinsic value calculation for SYNT stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Syntel.

Corporate tax rate of 27% is the nominal tax rate for Syntel. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the SYNT stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for SYNT are equal to 11.6%.

Life of production assets of 7.6 years is the average useful life of capital assets used in Syntel operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for SYNT is equal to 6.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $-12.922 million for Syntel - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 84.101 million for Syntel is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Syntel at the current share price and the inputted number of shares is $3.4 billion.

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