CMC Limited - Your IT Partner

Background
CMC Limited ("the Company") is engaged in the design, development and implementation of
software technologies and applications, providing professional services in India and overseas,
and procurement, installation, commissioning, warranty and maintenance of imported/indigenous
computer and networking systems, and in education and training.
The Company was a Government of India (GoI) enterprise up to 15th October, 2001. Under the
disinvestment process, GoI sold 7,726,500 shares representing 51 percent of the share capital to
Tata Sons Limited, on 16th October, 2001. The GoI further sold its entire remaining shares
representing 26.25 percent of the share capital, in March 2004 by an open offer to the public.
On 29th March, 2004, as per specific approval granted by SEBI, Tata Sons Limited transferred its
entire shareholding in the Company to Tata Consultancy Services Limited (a subsidiary of Tata
Sons Limited). As a result, the Company has become a subsidiary of Tata Consultancy Services
Limited.

Business Operations
Business Segments
Based on similarity of activities, risks and reward structure, organization structure and internal
reporting systems, the Company has structured its operations into the following segments:

Customer Services (CS): Hardware supplies and maintenance, facilities management and
provision of infrastructure facilities.

Systems Integration (SI): Systems study and consultancy, software design, development and
implementation, software maintenance and supply of computer hardware in accordance with
customer's requirements.

IT Enabled Services (ITES): Value added services, data network, data center services, web
design and hosting etc.

Education and Training (E&T): IT education and training service through its own centers and
through franchisees.

Geographic Segments
The Company also provides services overseas, primarily in the United States of America, United
Kingdom and others.

Industry Structure and Development

The financial crisis that began in the later part of 2008 continued to cast its shadow on global
economy throughout last financial year. Although there were occasional green shoots, business
confidence continued to be low globally. India however managed the situation effectively through
a combination of financial stimulus and other policies that supported the inherent strength of
Indian economy. Towards later part of the financial year 2009-10, India's GDP growth appears to
have stabilized. Even globally, the projections of future are reflecting optimism and worst seems
to be a past for the economy.
Global IT industry is an infrastructure industry and economy trends get projected through the
performance of IT industry. against a drop of about 5.2% in worldwide IT spending in 2009,
Gartner expects the growth of about 3.3% in 2010. Revenue levels of 2008 are expected to be
reached only by 2012. IT services and software segments are expected to grow by about 4.5%
and 4.8% respectively in 2010 while hardware segment is expected to remain flat.
With Indian economy projected to grow at 7.98% (IMF projection Oct-2009), the domestic IT
market is likely to grow by about 13% in 2010 as per IDC. Hardware segment, which declined by
about 4% in 2009 is expected to bounce back with projected growth of about 11%. The services
and software segment has grown by 15.4% and 14.1% respectively. With established presence in
hardware segment and increased focus o services, CMC is well poised to benefit from this
growth.

Opportunities and Threats

Opportunities:
Recovery and growth of economy as well as significant technology changes are presenting
several opportunities to CMC.

• Cloud computing is emerging as a major disruptive force for both IT vendors and users.
Cloud computing is Internet-based computing, whereby shared resources, software and
information are provided to computers and other devices on-demand, like a public utility.
Ability to effectively manage the cost without compromise on performance and several
other benefits such as reliability and flexibility is making cloud computing an attractive
proposition for enterprises. Gartner predicts that up to 20% of companies will own no IT
assets of their own by 2012. Recognizing the potential of this trend, CMC is developing
competency as well as alliances in this technology and services area.

• Another key technological change is the domination of smart phones over traditional
desktops and laptops. By 2013, number of mobile phones could easily surpass PCs, as
preferred way to access the net. This will be opening up several opportunities for mobile
friendly applications as well as revamping of web sites to make them easier to surf on a
mobile gadget.

• Enhanced awareness and concern for global warming is leading all enterprises to look for
ways to reduce their carbon footprint without compromise on business growth and
potential. CMC is readying itself with services in the area of Green IT as well an IT for
green. An eco-system of partners and alliances is being set up to address the
opportunity.

• Improving fortunes of IT industry is increasing the demand for IT professionals and large
scale recruitment. The Education and Training SBU of CMC is offering courses and
programs in both retail and corporate segment to address this need.

Threats:
As Indian economy continues to outpace developed economies in the world, India continues to be
an attractive market for major IT players. This enhanced focus on India continues to exert
competitive pressure on CMC's performance in domestic market.
The growth in the economy and IT industry is expected to lead to increase in attrition next year.
This pressure on attrition as well as fast changing technology landscape will necessitate
increased investment in its people and innovative approaches to retain and develop right talent.

Future Outlook
The Company believes that the current trends in IT spend both domestically and in the
international market presents unprecedented opportunity for growth. Liberalization and opening
up of more infrastructure sectors like roads, airports and sea ports, national e-Governance
initiatives and implementation of Mission mode projects, recent policy initiatives to make Indian
companies more competitive including new policy on Special Economic Zone, the focus of Indian
corporates to benchmark themselves with leading global players in terms of quality of processes
and competitiveness, is going to drive an increase in IT spend. The Company is well poised to
exploit the emerging opportunities both in India and global market in synergy with TCS.

CMC Ltd.: Annual Results (Standalone)

March 2010 (12 Months) March 2009 (12 Months)

Sales 695.46 832.41

Other Income 13.31 7.85
Stock Adjustment 0.00 0.00
Raw Material 118.36 250.73
Power & Fuel 0.00 0.00
Employee Expenses 225.30 212.61
Excise 0.00 0.00
Admin & Selling Expenses 0.00 0.00
Research & Development 0.00 0.00
Expenses
Expenses Capitalized 0.00 0.00
Other Expenses 205.80 238.08
Provisions Made 0.00 0.00
Operating Profit 145.99 130.99
Interest 2.65 1.88
Gross Profit 156.65 136.97
Depreciation 9.82 9.30
Taxation 17.25 22.10
Net Profit 129.58 105.57
Extra Ordinary Item 0.00 0.00
Prior Year Adjustments 0.00 0.00
Equity Capital 15.15 15.15
Agg. Of Non Promoter’s 48.88 48.88
Holding (%)
Earnings before Appropriation 468.48 376.10
Equity Dividend 30.30 22.73
Preference Dividend 0.00 0.00
Dividend Tax 5.15 3.86
Retained Earnings 433.03 349.51

CMC Ltd.: Balance Sheet (Standalone)

March 2010 (12 Months) March 2009 (12 Months)
SOURCES OF FUNDS
Owner’s Fund
Equity Share Capital 15.15 15.15
Reserves & Surplus 461.44 367.36
Loan Funds
Secured Loans 0.00 0.00
Unsecured Loans 0.00 34.49
Total 476.59 417.00

USES OF FUNDS
Fixed Assets
Gross Block 169.26 159.82
Less: Revaluation Reserve 0.00 0.00
Less: Accumulated Depreciation 76.26 77.76
Net Block 93 82.06
Capital Work-in-progress 27.25 14.87
Investments 203.50 128.06
Net Current Assets
Current Assets, Loans & 611.22 663.40
Advances
Less: Current Liabilities & 458.38 471.38
Provisions
Total Net Current Assets 152.84 192.02
Miscellaneous expenses not 0.00 0.00
written off
Total 476.59 417.00

Questions
1) Calculate important Financial Ratios.
2) Why to invest in shares of CMC Limited?

Possible Solutions

1)
March 2010 (12 Months) March 2009 (12 Months)
PER SHARE RATIOS

EPS (Rs.) 86.53 61.90

Operating Profit Per Share (Rs.) 99.52 78.78
Book Value (Rs.) 314.58 252.49
Net Operating Income Per Share 455.45 541.55
(Rs.)
Free Reserves Per Share (Rs.) 304.58 242.45

PROFITABILITY RATIOS

Operating Margin (%) 21.85 14.54

Gross Profit Margin (%) 20.42 13.41
Net Profit margin (%) 18.50 12.74
Return on Net Worth (%) 27.18 27.59

LEVERAGE RATIOS

Owner’s fund as % of Total Source 100 91.72

Fixed Assets Turnover Ratio 4.08 5.13

LIQUIDITY RATIOS

Current Ratio 1.33 1.41

Inventory Turnover Ratio 93.89 59
PAYOUT RATIOS

Dividend Payout Ratio 27.35 25.18

Earning Retention Ratio 72.96 71.65

COMPONENT RATIOS

Material Cost Component (% of 17.15 30.55

Earnings)
Long Term Assets/Total Assets 0.34 0.25

2)
1) SECTOR:

a) IT is seeing increased focus in GPS, GIS based solutions (video surveillance, identity
management).
b) Indian domestic IT/ITeS market growth rate is expected to be 16.4% over the coming five
years till 2013(Source:IDC).
c) Indian state and central governments’ focus on infrastructure and e-Governance will
continue and foresees large IT investment by Government departments such as
Railways, Defence and Finance.

2) COMPANY:

a) With synergistic relationship with TCS, CMC is gearing itself in IT industry.

b) In embedded systems, the Company is seeing growth in US, UK and Europe.
c) In private sector, the Company is expecting growth from Insurance and Financial sector
(depository product), banks.
d) The company would be re-looking at its franchisee business in E&T SBU. The Company
is seeing growth in corporate training business
e) The Company is focusing on value added services and cost effective niche solutions as
CMC already has a rich portfolio of industry specific assets

3) FUNDAMENTALS:

a) The Company won defense contract in Q2FY2010, which will improve margins in future,
as these contracts are all long-term contracts.
b) SI with 41.43% PBIT margin in Q1FY10, we see scope of tremendous growth in this SBU
which going forward will improve margins for company. Its E governance business has a
huge potential for growth.
c) Company expects operating profit margin to grow to 20% in next 6-12 months. Presently
its stands at 18%, highest ever for the company