INVESTMENT BANKING NEWSLETTER - Spark Capitalsparkcapital.in/wp-content/uploads/2018/02/Spark-Capital...Feb 2018 –Spark Technology Newsletter 5INTO THE REAL WORLD Source: Public

INVESTMENT BANKING NEWSLETTERTECHNOLOGYFEBRUARY 2018

2Feb 2018 – Spark Technology Newsletter

Dear Reader,

Welcome to the ninth edition of the monthly Technology Newsletterfrom Spark Capital. With this newsletter, we have tried to give you aflavour of various updates across the Software, Tech Services, Internet,and FinTech sectors, impact of Union Budget 2018-19 on Technologysector, and a case study on Nazara Technologies – Nextwave deal.

Building on the software theme, we discuss the business accountingsoftware market, key trends, typical features and leading businessaccounting software companies, both global as well as Indian. Businessaccounting software helps organizations record, process, and track theirfinancial transactions. The market size of business accounting software isprojected to grow to USD 4.1 Bn by 2021.

The key emerging trends driving the global business accounting softwaremarket include:

• Emergence of business accounting mobile applications: The mobileapplications help customers handle accounting tasks irrespective oftime or location. These mobile accounting applications streamlineprocesses such as sending invoices, accepting payments, loggingexpenses, tracking receipts, and planning budgets

• Introduction of optical character recognition (OCR): Currently, manybusinesses implement the OCR technology in their accountingprocesses. This technology has eliminated the need for handwrittenforms, checks, or printed receipts. The OCR technology uploadshandwritten receipts onto an online accounting platform and extractsthe relevant text and data simultaneously. The increasing adoption ofthis platform will further drive market growth

• Increasing integration of business accounting software with big data:Big data helps the firms to get timely insights to retain their customersand strengthen their market position by collecting andstoring information such as purchase preferences of customers,competitors activities, and performance of various workplace tools

The typical features of business accounting software company include:

• High levels of user loyalty and retention: Business accountingsoftware market is typically characterised by high user retention rates,high switching costs and high brand loyalty. As the accountingsoftware is central to the operations of many SMEs, and switchingbetween providers is potentially time consuming and complicated

• Research and development (“R&D”) investment: A significant amountof time and capital is invested in R&D to design and maintain aneffective and attractive accounting software solution, particularly onetailored for the respective target markets or one with competitiveadvantage over existing products

FROM THE DIRECTOR’S DESK


• New features and regulatory change: Clients require product updates and new product features thatreflect regulatory changes, an ability to respond in a timely manner is vital for retaining clients. Forexample, annual updates are typically required to capture changes in tax treatments for SMEs, such aschanges in tax rates, thresholds etc

• Requirement for direct sales force/channel partners: High initial costs to establish a direct salesforce/channel partner base

Business accounting software industry has led to several regional champions across the world. Whilethere are some global companies such as Intuit, Sage, SAP, Netsuite which are trying to broad base theirmarket globally, there are several home grown companies which are significantly dominating domesticmarkets such as Yayoi in Japan, MYOB in Australia and New Zealand and Tally in India.

In this edition, we have interviewed Mr. Tejas Goenka, Executive Director, Tally Solutions, India’s largestaccounting software company. He discusses how Tally has helped India move from manual book-keepingto computerized book-keeping, its core SME focus and how Tally is leveraging the GST paradigm.

We have also covered in this edition latest trading and transaction updates across the global technologysector. We would like to thank Mr. Tejas Goenka of Tally and all the other constituents that we interactedwith for their inputs in preparing this newsletter.

We hope that you will find this Newsletter insightful and look forward to your feedback on this monthlymarket overview.

Vikash Kabra

Director & Head – Technology Investment Banking

FROM THE DIRECTOR’S DESK


WHAT’S INSIDE?

18FROM OUR

EQUITIES DESK

Insights from Spark’s Institutional Equities DeskANALYSIS

RECENT TECHNOLOGY

DEVELOPMENTS

09

NEWS

Recent activities and developments across the Indian

technology landscape

Market Statistics

Trading Comps

Global Transactions

a

b

c

OVERVIEW

10

TECHNOLOGY

MARKET

SNAPSHOT Software | Tech Services |

Internet | FinTech

07

INTERVIEW

“TALLY” – THE SME BACKBONE

OF INDIA

How “Tally” is leading the charge

on business software sector

05INTO THE

REAL WORLD

ANALYSIS | CASE STUDY

Highlights of the Union Budget and Nazara –

Nextwave deal


INTO THE REAL WORLD

Source: Public sources

Spark fact file

Investment Banking

USD 5.6 BnTotal transaction value till date

USD 3.8 BnCapital raised till date

USD 1.8 Bn M&A transaction value till date

300+ Number of fund relationships globally

USD 700 Mn Average annual deal closure value for the last 3 years

11No. of transactions > USD 100 Mn

~USD 1.2 BnCurrent value of transactions being executed

Technology

~USD 1.8 BnTotal transaction value till date

Insights from the Union Budget 2018

Analysis

Developing Artificial Intelligence capabilities to become a key focus

India’s think-tank, NITI Aayog, to establish a national programme to conduct research anddevelopment in technologies such as Machine Learning and Artificial Intelligence.

Increasing use of technology in government projects

To further increase the efficiencies and effective delivery, the government plans to furtherinvest in AI, data analytics, use of robotics and internet of things by doubling its allocationon the Digital India programme.

Increase in custom duty to 20% to push Make-In-India

The new budget increases the customs duty to 20% on the imported mobile phones and inPCBAs of accessories like batteries & chargers (15%), which will prove to be a big boost forlocalisation and setting up of a domestic component ecosystem.

Extension of profit-linked deduction for start-ups to foster the ecosystem

To foster the start-up culture in India, government provides profit linked deduction. Suchdeduction has now been extended to start-ups engaged in innovation, development orimprovement of products etc. with a high potential of employment generation or wealthcreation.

Significant funds allocation to Start-up India scheme

• ~INR 281 Cr has been allotted to the scheme of Investment Promotion Startup India• ~INR 200 Cr will be injected to Atal Innovation Mission• ~INR 720 Cr has been kept for innovation, technology development and deployment• ~INR 88 Cr has been kept for the development of an entrepreneurship scheme

Focus on digitizing taxation process via e-assessment

To reduce the interface between the tax department and the taxpayers, the govt hasproposed e-assessment. The government is planning to revamp the assessment underincome-tax laws by introducing a new e-assessment scheme which proposes to bring ingreater efficiency, transparency and accountability.

Technology adoption to improve education quality

The announcements for the education sector focused on improving infrastructure andquality, teachers’ training, moving to digital boards from blackboards and launching of theRevitalising of Infrastructure and Systems of Education (RISE), among others.

INR 10,000 Cr allocation to boost telecom infra

The budget has allocated INR 10,000 Cr outlay for the 2018-19 fiscal on the expansion oftelecom infrastructure under various government projects in the country. The governmentalso proposed to set up 5 lakh Wi-Fi hotspots which will provide broadband access to 5crore rural citizens.

Announcements from the Union Budget revolving around Technology


INTO THE REAL WORLD

Source: Public sources

Spark Capital advises Next Wave Multimedia Pvt. Ltd. on its strategic partnership with Nazara Technologies Ltd.

Spark Capital acted as exclusive financial advisor to Nextwave Multimedia

Nextwave Multimedia <> Nazara Technologies

Case Study

About Nextwave Multimedia

Nextwave focuses on developing mobilegames around physical sports with over 100million downloads in the last 7 years.Nextwave owns the IP of the most popularmobile cricket game franchise in India titledWorld Cricket Championship (“WCC”).WCC2 is among the top 10 games in India interms of time spent playing the game aswell as monthly active users alongside thetop global titles.

About Nazara Technologies

Nazara is a mobile games companyheadquartered in Mumbai, India and hasoperations in 61 countries across emergingmarkets. Nazara runs mobile gamingsubscription services to mass mobileinternet users comprising largely of firsttime mobile gamers across Africa, MiddleEast, South East Asia, Latin America and theIndian subcontinent. Nazara was one of theleading publishers by downloads on GooglePlay Store with over 34 million downloadsand 10 mn monthly active users.

▪ Commanding presence in mobile cricket gaming: Nextwave has a dominant position incricket gaming with its WCC cricket game franchise having a massive fan base of over 15Mn Monthly Active Users (MAU)

▪ Expertise in the sports genre: With an operational track record of 10+ years as a gamedevelopment studio and its focus on mobile sports games, Nextwave offers a strongpromise of dominating the space, both in India and globally

▪ Business Diversification: This acquisition would also help Nazara diversify from its corebusiness of Mobile VAS (Subscription Business) in terms of revenue base (with an addedelement of B2C) as well as in terms of operational metrics (more than doubling its MAU base)

What does this acquisition mean to Nazara?

Nextwave after the acquisition…

▪ Shareholding: The promoters of Nextwave will still continue to hold a significant minoritystake in the Company

▪ Management: Nextwave will be operated as an independent subsidiary with thepromoters P R Rajendran and P R Jayashree, continuing to manage the Company

▪ Synergies: Partnership with a large player like Nazara would ensure that Nextwave hasaccess to funding to invest in the development and launch of new properties in the mobilesports gaming space. Additionally, Nazara can help forge partnerships with other playersin the ecosystem including ad networks, other game development studios, internationalstrategics etc.

Full Service,Mid-Market I-Bank

▪ Investment Banking(VC, PE, M&A, IPO, QIP, PIPE)

▪ Institutional Equities

▪ Fixed Income solutions

▪ Investment Advisory

Knowledge Banking

▪ Dedicated sector teams with deep domain expertise

▪ Ability to bring new ideas to the market

– Manappuram (2007)

– iD Fresh Food (2014)

– AasaanJobs (2015)

– Unbxd (2016)

Relationship Banking

▪ Over 24 clients for whom we have closed multiple transactions

▪ Consummated~USD 1.5 Bn of transaction value in repeat business

Deep Distribution

▪ Extensive reach to over 300 funds across

– Private Equity

– Hedge Funds

– Family Offices

– Sovereign Funds

– Corporates


EXPERT SPEAK

1. Tally is the leader in the accountingsoftware space, how has your journey beenso far?

The journey through the last 3 decades hasbeen a humbling experience. We frequentlyget credited for moving India from manualbook-keeping to computerized book-keeping. However, for us the heart-warmingaspects of our journey have been facilitatingentrepreneurship, job-creation and thebrand and its philosophy becoming a way oflife for all those who have come in touchwith it. This has been gratifying but also fillsus with a sense of responsibility andaccountability towards small and mediumbusinesses. SME focus is in our DNA and weperpetually innovate to make their livessimpler and facilitate their growth.

The trust of our fiercely loyal customer baseof 1.3 million businesses in over a 100countries has spurred us to enable andsupport major shifts like VAT and morerecently GST.

2. How has GST impacted your business?

As we all know, GST is a technology enabledtaxation regime and with the way it hasbeen designed, it has welcomed a largebase of businesses who were not inprevious tax folds. So far around 1 crorebusinesses have registered under GST withthe government expecting it to double bythe end of FY 18. These are monumentalnumbers and in terms of segments we haveseen a whole range of businesses based ontheir accounting and compliance behaviour.Ever since GST was announced, bulk of our

effort on the ground has been to educatebusinesses on what GST is and how it willimpact them. We have conducted morethan 10000 events so far which see 100s ofpeople attending which today havetransformed into a series of dailyeducational webinars. These events havehelped us reach out to half a millionbusinesses. Coinciding with the launch ofGST we released our GST ready productwhich has been downloaded more than 6million times already. Serving such a hugebase of businesses required us to drasticallyscale up both our partner as well as supportnetwork. For businesses from thetraditional book-keeping (manual) space,we have been working with different IThardware companies to offer an all in onesolution (computer+software+printer).Today, most of our customers are on ourlatest GST release.

3. What does this shift to GST mean forTally from a financial perspective?

GST has quite clearly been a major shift forthe country, businesses and also theeconomy. We have been fortunate to be atthe forefront of helping the countrytransition to the new tax regime and servethe opportunity that GST presented us with.From a financial perspective, things havegone fairly well and we have movedsignificantly ahead compared to the lastyear.

4. Today you must be facing competitionfrom multiple SaaS based accounting

“TALLY” – THE SME BACKBONE OF INDIA

INSIGHTS FROM AN INDUSTRY EXPERT

We interacted with Mr. Tejas Goenka,Executive Director of Tally Solutions, onthe company’s journey, impact of GST, andits plans going forward

Tejas Goenka

Executive Director, Tally Solutions

Select Technology Transactions

Exclusive Advisor

To

August 2016

Private Equity Fund Raise

From

USD 10 Mn

Exclusive Advisor

To

September 2017

Rights Issue

~USD 31 Mn

Exclusive Advisor

To

November 2017

Majority Stake Acquisition

Of

~USD 24 Mn

Exclusive Advisor

To

December 2017


By

Undisclosed


EXPERT SPEAK

software. What is your strategy in the faceof this competition?

With GST coming in and the huge numberof businesses who need to be served,several companies have entered thebusiness software space in various pocketsof the country as entry barriers are low.However, scale is a major challenge in thisbusinesses and that is the problem we havebeen fortunate enough to solve. At anational level we see little to nocompetition. The challenge for us has beento reach out to a huge number ofunlicensed Tally users, demonstrate valueof a licensed software to them and getthem converted. We also believe thatbrowser based accounting systems don’treally have a great user experience, andthat the true power of the cloud is yet to beseen in the Indian business environment.What will truly define the future of SMEs isconnectivity and this is where bulk of ourefforts and investment have been over thelast few months.

In geographies outside India, there aredefinitely a number of software players whohave been present for a considerableamount of time. Here, our strategy revolvesaround customizing our product to suit theneeds of the particular geographies andbuilding a strong team on the ground toserve customers. Across geographies, wehave been blessed to have strong supportand loyalty from the tax professionalcommunity like CAs, tax consultants, taxpractitioners and accountants. Part of oureffort is also to work closely with them inbuilding our product since they work closelywith businesses for their accounting andcompliance.

Since referrals play a key role in thepurchase decision in the SME market, bulkof our focus is to get our customers to havea delightful experience. This is partly donethrough the innovation we drive in ourproduct which is centred around makingthings simpler for businesses and adaptingto their needs rather than forcing them tochange their ways. The other bit is to haveour partners deliver a truly world class preand post sales experience.

5. Can you give us a better sense of howyou innovate to remain ahead of themarket?

We believe that we are a technologycompany which is in the business softwarespace. We love innovating with technologyand deliver solutions which are simple tolearn and easy to use. This obviously meansthat our R&D goes through a lot ofcomplications but we challenge ourselves togo that extra mile for the user. We own theentire tech stack which gives us tremendousamount of control over what we build andthe experiences we want to deliver. Wehave utilized such USPs of our technology todeliver path breaking solutions like theworld’s first concurrent multi-lingualapplication. We developed our ownprogramming language much before scriptslike HTML and XML came into existence. Wecould talk to ODBC compliant servers asearly as 2001 when the entire world didn’teven have proper access to such atechnology. There are several suchinstances or milestones which have put usseveral years ahead of our time but wekeep pushing boundaries and make ourlives more complicated just so that everyuser of ours is perpetually happy.

6. What are your plans for Tally Solutionsgoing forward?

GST will continue to be one of our key focusareas in the short to mid-term. We are aqualified GST Suvidha Provider (GSP) andwe will using this as a backbone to deliveran end to end connected solution tobusinesses for GST billing and filing. In fact,connected systems is the way we visualizethe future for businesses in the time tocome and our efforts will revolve aroundbuilding solutions which connects abusiness with its stakeholders like suppliers,customers, banks, tax authorities etc andsuch connected businesses with each other.We see a lot of dissonance in the retailarena and over the next few years we arewanting to provide a simple and reliablesolution for this segment.

We are also planning to expand ourfootprints globally in markets similar toIndia in terms of SME behaviour. Havingalready established presence in parts ofMiddle East, South Asia and Africa we arewanting to make significant in-roads in thelength and breadth of these geographies.Our focus will be to localize our product,personnel and experience to each of thesemarkets.


Exclusive Advisor

To

March 2016


From

Undisclosed

Exclusive Advisor

To

December 2015


From

Undisclosed

Joint Advisor

To

November 2015


By

USD 270 Mn

Exclusive Advisor

To

November 2014


From

USD 346 Mn


LATEST NEWS AND ANNOUNCEMENTS

Led by software spending

Technology spending to grow in India by 12% accordingto Forrester latest India tech market outlook. Softwarespending is likely to be about 11% of the country’s techspending.

The report added: While software spending is usually 20%or more in developed economies, this category willcontinue to rise at a significantly higher rate than overallIndian tech growth in the coming years, the reportadded.

Macro

TECH SEPNDING TO GROW BY 12%

…starting from military to start-ups

Aiming to promote trilateral business opportunitiesamong the US, India, and Israel for advance projects andenterprising ideas, Israel-India Technology Group haslaunched a trilateral fund of USD 50 Mn.

Dennis Mehta, a member of the Israel-India Tech Groupsaid, “We are launching a trilateral investmentpartnership, a platform which is primarily for the needsand aspirations of the trilateral opportunities. Our modeluses Israel as the supplier of technology, India as a massmarket opportunity and the US - which is the thirdimportant part of the equation -- brings in capital.”

Software

INDIA-ISRAEL STRENGTHENING TECHNOLOGY TIES

Source: News articles

NASA KEEN ON INDIAN TECH FOR SPACECRAFTIndia’s expertise in space tech is globalizing

A new thermal spray coating technology used for gasturbine engine in spacecraft developed by a Rajasthan-based researcher has caught the attention of a NASAscientist

Expressing his interest in the research, James L. Smialek, ascientist from NASA wrote to Dr. Satish Tailor after it waspublished in the journal CeramicsInternational and Thermal Spray Bulletin, said S.C. Modi,the chairman of a Jodhpur-based Metallizing EquipmentCompany (MEC)

Space Tech

DRDO TRANSFERS TECHNOLOGY TO MSMEsincreasing role of MSMEs!

The two-day defence-industry interface organised in thecity on Thursday and Friday resulted in 18 technologytransfers from the DRDO to private enterprises.

Ajay Kumar, Defence Production Secretary said, DRDOalone transferred 18 technologies used by it tomanufacture various equipment for the India Army, Navyand Air Force. The DRDO transferred technology formanufacturing 35-metre mountain footbridge to twocompanies. Similarly, one company received technologyfor making propellant for low thrust motor and high thrust

motor of BrahMos missile.

MSMEs


Exclusive Advisor

To

June 2013

Leveraged Buyout

By

USD 270 Mn

Exclusive Advisor

To

March 2013


In

USD 182 Mn

Exclusive Advisor

To

Select Institutional Buyers

July 2012

Secondary Block Deal

USD 38 Mn

Exclusive Advisor

To

April 2011

Acquisition

Of

USD 19 MnThe US leads

Deep Tech

INDIA – DOWN IN THE AI RACE

Drop in mathematical skills is pushing India further downin the AI race.

China is investing heavily in mathematics while Indiadoesn’t have many Mathematics PhDs. Not enough effortis going into this direction, and Indian could slip up evenfurther if this is not adequately addressed. Also, theChinese govt said that it is going to set up an AI centre ofexcellence worth $2 billion and is going to use thetechnology from military to civil applications.


SOFTWARE MARKET SNAPSHOT

1 year 3 years*

Diversified 39% 26%

Infrastructure 48% 28%

Security 24% 18%

SaaS 56% 34%

BI & Analytics 49% 17%

Vertical 44% 21%

NASDAQ 36% 19%

EV/Revenue CY18E EV/EBITDA CY18E

Revenue Growth % (CY18E/CY17) EBITDA Margin CY18E

Trading ComparablesC

Diversified

Infrastructure

Security

SaaS

BI & Analytics

Vertical

Diversified

Infrastructure

Security

SaaS

BI & Analytics

Vertical

% ReturnsB

Stock Price PerformanceA

Source: Bloomberg as on 31st Jan 2018, All companies calendarised to December year end. Multiples represent median of companies in sub-sector. List of companies included in sub-sector detailed in annexure. Stock price performance within each sub sector has been weighted for market cap * Annualized return

80

130

180

230

280

Diversified Infrastructure Security SaaS

BI & Analytics Vertical NASDAQ

14%

13%

18%

11%

9%

7%


Exclusive Advisor

To

May 2010


In

USD 44 Mn

Exclusive Advisor

To

October 2009

Sale of Blue Alley

To

USD 14 Mn

Exclusive Advisor

To

October 2009


In

USD 11 Mn

Exclusive Advisor

To

October 2008


In

USD 10 Mn

4.3 x

2.3 x

5.0 x

3.5 x

4.0 x

4.6 x

15.5 x

15.1 x

24.1 x

15.6 x

13.3 x

10.8 x

25%

17%

17%

17%

29%

43%


SOFTWARE MARKET SNAPSHOT

ACQUIRER TARGET DESCRIPTIONTV

(USD Mn)EV/Rev

Global

Developer of a cloud-based performance management platform

2,400 9.3x

Developer of IP-based networking products

830 1.7x

Provider of cloud based security and fraud prevention services

778 -

Developer of gaming software 607 3.2x

Provider of internet protocol telephony and unified communications services

500 -

Provider of an open source software system

250 -

Developer of a cloud-based EHR platform

100 0.6x

Developer of mobile and web based software applications

98 -

Developer of data analytics and cloud management software

83 -

Provider of an alcohol analytics tool

80 -

Developer of a candidate and employee engagement platform

58 -

India

Developer of software solutions - -

Global (excl. India): 22 deals, ~USD 6.1 BnIndia: 1 deal, NA

Select Financing TransactionsB

INVESTOR TARGET DESCRIPTIONTV

(USD Mn)EV/Rev

Global

Melvin Capital Management

Developer of interactive entertainment software and games

1,710 -

Provider of WordPress hosting services

250 -

Developer of customer experience management systems

65 -

India

Provider of cloud-based web and mobile browser testing platform

50 -

Global (excl. India): 10 deals, ~USD 2.2 BnIndia: 2 deals, ~USD 50 Mn

Select M&A TransactionsA

Source: VentureIntelligence, PitchBookTV – Transaction Value; TV rounded-off; Multiples rounded-off to one decimal;Global deals (excl. India) under consideration have TV >USD 10 Mn* Includes other investors


Exclusive Advisor

To

August 2008

QIP

USD 18 Mn

Exclusive Advisor

To

December 2007

Minority Stake Acquisition

By

USD 9 Mn

Exclusive Advisor

To

April 2007

Majority Stake Sale

To

USD 64 Mn

Advisor

To

April 2005

IPO

Book Running Lead Manager

USD 9 Mn


TECH SERVICES MARKET SNAPSHOT

1 year 3 years*

Consulting 12% 12%

HR Services 23% 16%

Large Cap IT 24% 14%

Mid Cap IT 68% 24%

Healthcare IT 35% 11%

Diversified BPO 23% 12%

CRM BPO 23% 23%

NASDAQ 36% 19%

NIFTY IT 40% 2%

PE CY18E EV/EBITDA CY18E



Consulting

HR Services

Large Cap IT

Mid Cap IT

Healthcare IT

Diversified BPO

CRM BPO

Consulting

HR Services

Large Cap IT

Mid Cap IT

Healthcare IT

Diversified BPO

CRM BPO

% ReturnsB


80

100

120

140

160

180

200

Consulting HR Services Large Cap IT

Mid Cap IT Healthcare IT Diversified BPO

CRM BPO NASDAQ NIFTY IT

6%

7%

10%

12%

7%

8%

5%

Select Non-Tech Transactions

Advisor

To

December 2017


From

~USD 32 Mn

Advisor

To

November 2017


From

~USD 15 Mn

Advisor

To

October 2017

IPO

~USD 74 Mn

Exclusive Advisor

To

July 2017


From

~USD 52 Mn


13.1 x

16.3 x

31.7 x

15.4 x

13.6 x

21.1 x

15.5 x

7.4 x

10.9 x

12.2 x

10.6 x

9.2 x

10.6 x

9.3 x

11%

18%

27%

17%

23%

22%

11%


TECH SERVICES MARKET SNAPSHOT

Global (excl. India): 10 deals, ~USD 8.8 BnIndia: 2 deals, ~USD 280 Mn


Global (excl. India): 2 deals, ~USD 41 MnIndia: 3 deals, ~USD 13 Mn




(USD Mn)EV/

EBITDA

Global

Provider of information processing & servicing solutions to the financial industry

5,400 8.0x

Operator of a commercially available data center

1,400 NM

Provider of system engineering and IT services

775 11.5x

Provider of integrated software outsourcing services

637

Provider of software development and consulting services

250 -

Provider of a multi-channel marketing platform

175 -

Provider of automated Internet Infrastructure-as-a-service (IaaS) and cloud computing services

132 -

IndiaProvider of product engineering and software R&D services

280 -


(USD Mn)EV/

EBITDA

Global

Provider of managed Infrastructure as a service (IaaS)

23 -

-Provider of digital communication services

18 -

India

Provider of cloud-based web and mobile browser testing platform

10 -

*Provider of an analytics-based background verification platform

3 -


Exclusive Advisor

To

March 2017


From

USD 32 Mn

Advisor

To

January 2017

IPO

~USD 183 Mn

Exclusive Advisor

To

November 2016


From

USD 64 Mn

Exclusive Advisor

To

March 2017


From

USD 100 Mn


INTERNET MARKET SNAPSHOT

1 year 3 years*

Online Advertising 46% 33%

Internet Content 56% 29%

Internet Commerce 81% 48%

Gaming 107% 52%

Social Media & News Platform 44% 33%

NASDAQ 36% 19%



Search/Online Advertising

Internet Content

Internet Commerce

Gaming

Social Media & News Platform

% ReturnsB



Search/Online Advertising

Internet Content

Internet Commerce

Gaming

Social Media & News Platform

80

130

180

230

280

330

380

Search / Online Advertising Internet Content

Internet Commerce Gaming

Social Media & New Platform NASDAQ

16%

9%

13%

11%

17%


Exclusive Advisor

To

June 2016


From

USD 32 Mn

Exclusive Advisor

To

May 2016


By

USD 28 Mn

Exclusive Advisor

To

January 2016

Structured Capital Raise

From

USD 30 Mn

Exclusive Advisor

To

Select Institutional Buyers

September 2015 Onwards

Secondary Stake Acquisition

In

USD 403 Mn


5.1 x

3.0 x

3.3 x

2.3 x

3.0 x

18.0 x

9.3 x

14.4 x

10.7 x

10.8 x

23%

31%

20%

25%

32%


INTERNET MARKET SNAPSHOT


Global (excl. India): 6 deals, ~USD 1.3 BnIndia: 17 deals, ~USD 96 Mn (across 13 deals)


(USD Mn)EV/Rev

Global

Provider of direct-to-consumer live entertainment and video streaming services

1,580 -

Provider of a ride-hailing mobile application

1,000 -

Developer of online casual games

990 2.2x

Operator of a car-sharing platform

247 -

Provider of premium content services

224 -

Developer of a video playback application

200 -

Developer of an online employee health and benefits platform

155 -

Provider of eSports hosting and organizing services

100 6.3x

India

Avenue Supermarts

Avenue E-Commerce

Provider of a hyperlocal delivery platform

8 61.5x

Global (excl. India): 16 deals, ~USD 4.8 BnIndia: 8 deals, ~USD 8 Mn (across 2 deals)




(USD Mn)EV/Rev

Global

-Developer of a cross-platform mobile messaging application

1,000 -

Developer of an online education technology platform

120 -

Operator of an online sports community website

95 -

India

Online marketplace for trucks 50 -

* Online social networking app 18 -


Exclusive Advisor

To

May 2015


From

USD 43 Mn

Exclusive Advisor

To

April 2015

Structured Capital Raise

From

USD 60 Mn

Exclusive Advisor

To

January 2015

Minority Stake Acquisition

In

USD 20 Mn

Exclusive Advisor

To

May & November 2014


From

USD 68 Mn


FINTECH MARKET SNAPSHOT

1 year 3 years*

Payments 31% 18%

Banking & Lending Tech 36% 24%

Information Processors / Credit Bureaus 19% 16%

Investment Services, Software and Tech 48% 24%

Financial Data, Content, & Analytics 31% 20%

Insurance & Banking Tech 32% 22%

NASDAQ 36% 19%




PaymentsBanking & Lending TechInformation Processors / Credit BureausInvestment Services, Software and TechFinancial Data, Content, & AnalyticsInsurance & Banking Tech

% ReturnsB


PaymentsBanking & Lending TechInformation Processors / Credit BureausInvestment Services, Software and TechFinancial Data, Content, & AnalyticsInsurance & Banking Tech

80

100

120

140

160

180

200

Payments Banking & Lending Technology

Information Processors / Credit Bureaus Investment Services, Software and Technology

Financial Data, Content, & Analytics Insurance & Banking Tech

NASDAQ

12%

6%

6%

6%

9%

9%


Exclusive Advisor

To

August 2014

QIP

USD 42 Mn

Exclusive Advisor

To

August 2014

QIP

USD 65 Mn

Exclusive Advisor

To

July 2014

QIP

USD 83 Mn

Advisor

To

June 2014

QIP

USD 100 Mn


5.7 x

6.0 x

2.9 x

4.0 x

4.5 x

4.3 x

16.3 x

13.6 x

13.1 x

11.0 x

14.2 x

11.5 x

22%

45%

28%

33%

29%

31%


FINTECH MARKET SNAPSHOT



(USD Mn)EV/Rev

Global

Operator of a lending platform 200 -

Provider of an online peer-to-peer lending marketplace

65 -

India

Online platform for managing employee payouts

13 -

Global (excl. India): 9 deals, ~USD 475 MnIndia: 1 deal, ~USD 13 Mn

Global (excl. India): 10 deals, ~USD 36 BnIndia: 3 deals, NA




(USD Mn)EV/Rev

Global

* (Financial & Risk Business)

Developer of financial data and risk analytics tools

17,300

Developer of payment processing tech and services

12,510 -

P2 Capital Partners

Provider of prepaid products and payment services

3,500 1.5x

Provider of payment and merchant services

1,050 -

BondPoint A fixed income trading platform 400 -

Provider of global card processing services for the e-commerce market

320 -

Developer of a cloud based wealth management platform

195 -

Developer of an online payment software

132 1.8x

Qingdao Tiande Technologies

Operator of block chain and smart contract technology

117 -

Developer of blockchain technology systems and decentralized applications

15 -

India

Provider of mobile payment solutions

- -

Provider of a unified payments interface application

- -


Exclusive Advisor

To

October 2013


From

USD 11 Mn

Exclusive Advisor

To

March 2014


By

USD 17 Mn

Exclusive Advisor

To

December 2013


From

USD 38 Mn

Exclusive Advisor

To

October 2013


From

USD 17 Mn


FROM OUR EQUITIES DESK

Key snippets from some interesting notes by Spark’s Equities Team

Institutional Equities Highlights

198Stocks under coverage

USD 1.2 TnTotal market cap of stocks under coverage

INR 260 Bn Total cash market volume in H1FY18

350+Number of fund relationships globally

“Go-to” broker for stocks in the mid-market space

Technology

24Stocks under coverage

~USD 190 BnTotal market cap of Stocks under coverage

5th position in 2017 All India research team

We reiterate our positive outlook and maintain BUY rating on Intellect Design Arena (INDA)driven by 1) Continued momentum in deal wins and revenue growth which is expected tosustain in FY19 and 2) Better than expected margin performance which is expected tosustain, as INDA has now crossed its breakeven revenue run rate of $40m.

Our investment thesis on INDA was based on steady improvement in margins, once INDAreaches the annual run rate of $180-200m, as, at this revenue run rate, clientreferenceability and brand recognition drives lower incremental sales and marketingspend. With INDA expected to exit 4QFY18 with revenues of $43-45m, the street’s concernon sustained profitability should get addressed. Additionally, this should also allay fears ofany subsequent equity raise. INDA decision to align its sales incentives to not just sales butalso collections, is beginning to show traction with DSOs declining massively for twoconsecutive quarters in a row and now stands at 120 days against 151 days in Q3FY17 and158 days in 2QFY18. On revenues of $41.8m, INDA collected $44.5m in cash during thequarter. While some moderate improvement is possible in DSO, INDA cash generation canimprove substantially if INDA maintains DSOs at less than 120 days.

Over the last 12 months, the license plus AMC revenues have grown by c.33% YoY andcontributes to 37% of total revenues (up 300bps YoY). This has resulted in 330bpsexpansion in gross margin on YoY basis in 3QFY18. With R&D budget capped at $18m p.a.,we believe, INDA should start reporting clean operating profit from 1QFY19.

We value INDA using 2.0x EV/sales multiple based on our Mar-20 sales and arrive at oneyear forward target price of Rs. 225. Our earnings multiple has remained unchanged forthe last 5 quarters.

Spark reiterates BUY rating on Intellect Design Arena (TP: INR 225)1

Source: SPARK Research

Spark downgrades rating of L&T Infotech to ADD (TP: INR 1,330)2

While we continue to remain optimistic on L&T Infotech’s revenue growth prospects,current valuations of 17x FY19E and 15x FY20E along with lower margin expectations leadto a rating downgrade to ADD from BUY earlier. A strong 4QFY17 meant the exit revenuerun rate would drive at least 5% growth for FY18 and the deal wins throughout FY18 wouldnow lead to c.16% growth for FY18. Similarly, an even stronger 4QFY18 should mean atleast 7% YoY revenue growth in FY19E and given the continuing new deal win run rate, L&TInfotech should be able to achieve c.15% growth in FY19E. We thus raise our USD revenuegrowth estimate for FY19 from 12.3% to 15.1%.

Given the utilization levels are greater than 80%, offshore revenue contribution at c.54%and attrition at 14.6% (lowest since listing), margin levers are limited. However, L&TInfotech can improve the proportion of fixed price contracts to moderately expand itsmargins. Strong revenue growth can also provide margin tailwinds. We build in EBITDAmargins of 17.6% for FY19E and 18.2% for FY20E. Our key concern for LTI remains the highcomponent of forex gains which has grown 115% YoY in 9MFY18 and can reverse in FY19.The EBIT growth has remained flat YoY in 9MFY18 even while the EBIDA marginscontracted by 199bps. Reversal in forex gains can offset a significant portion of revenueand earnings growth for FY19E and we expect earnings growth in FY19E to get restricted to13.2% despite EBITDA growing by 18.6% YoY. As expected, DSOs has reduced by 7days in3QFY18 led by focus on collection efficiency.

We now value LTI at 16x (earlier 13x) PE based on our Mar-20 EPS of Rs. 83.1 and arrive atone year forward target price of Rs. 1,330. The increase in multiple is driven by industryleading revenue growth with expanding margins and stable RoEs.


ANNEXURE

Diversified

Alphabet Inc

Microsoft Corp

Oracle Corp

IBM

SAP SE

Infrastructure

VMware Inc

Red Hat Inc

ServiceNow Inc

CA Inc

Citrix Systems Inc

F5 Networks Inc

Splunk Inc

Atlassian Corp PLC

Micro Focus

LogMeIn Inc

NetScout Systems Inc

Software AG

Nutanix Inc

CommVault Systems Inc

Pure Storage Inc

New Relic Inc

Progress Software Corp

A10 Networks Inc

Security

Symantec Corp

Check Point Software

Palo Alto Networks Inc

Splunk Inc

Fortinet Inc

Trend Micro Inc/Japan

Proofpoint Inc

FireEye Inc

CyberArk Software Ltd

Imperva Inc

Qualys Inc

Barracuda Networks Inc

Mimecast Ltd

SecureWorks Corp

Rapid7 Inc

F-Secure OYJ

VASCO Data Security

MobileIron Inc

Zix Corp

Absolute Software Corp

Guidance Software Inc

Quick Heal Technologies Ltd

SaaS

Salesforce.com Inc

Workday Inc

ServiceNow Inc

Veeva Systems Inc

Ultimate Software Group

Shopify Inc

LogMeIn Inc

Aspen Technology Inc

j2 Global Inc

Blackbaud Inc

Paycom Software Inc

RealPage Inc

Zendesk Inc

Cornerstone OnDemand Inc

HubSpot Inc

Box Inc

RingCentral Inc

New Relic Inc

Paylocity Holding Corp

2U Inc

Coupa Software Inc

Qualys Inc

Callidus Software Inc

Mimecast Ltd

SPS Commerce Inc

Five9 Inc

Benefitfocus Inc

Instructure Inc

Workiva Inc

Carbonite Inc

Apptio Inc

LivePerson Inc

Castlight Health Inc

Bazaarvoice Inc

Brightcove Inc

ChannelAdvisor Corp

Amber Road Inc

Marin Software Inc

BI & Analytics

Splunk Inc

Teradata Corp

Fair Isaac Corp

Tableau Software Inc

Verint Systems Inc

MicroStrategy Inc

Hortonworks Inc

Gridsum Holding Inc

Attunity Ltd

Datawatch Corp

Vertical

Cerner Corp

Constellation Software

SS&C Technologies

Veeva Systems Inc

athenahealth Inc

Guidewire Software Inc

Blackbaud Inc

CoreLogic Inc

Ellie Mae Inc

Medidata Solutions Inc

RealPage Inc

Allscripts Healthcare Solutions

Inovalon Holdings Inc

Appfolio Inc

HealthStream Inc

Instructure Inc

Itron Networked Solutions Inc

Castlight Health Inc

Software Tech Services

Consulting

FTI Consulting Inc

Exponent Inc

Navigant Consulting Inc

Huron Consulting Group Inc

ICF International Inc

CBIZ Inc

Hackett Group Inc/The

Resources Connection Inc

GP Strategies Corp

CRA International Inc

Franklin Covey Co

HR Services

Automatic Data Processing Inc

Paychex Inc

TriNet Group Inc

Insperity Inc

Barrett Business Services Inc

Large Cap IT

IBM

Accenture PLC

Tata Consultancy Services Ltd

Cognizant Technology Solutions

Infosys Ltd

HCL Technologies Ltd

Wipro Ltd

Cap Gemini SA

CGI Group Inc

Nippon Telegraph & Telephone

Atos SE

Nomura Holdings Inc

Tech Mahindra Ltd

Mid Cap IT

EPAM Systems Inc

Luxoft Holding Inc

Mphasis Ltd

Syntel Inc

Globant SA

Mindtree Ltd

Virtusa Corp

Hexaware Technologies Ltd

Persistent Systems Ltd

Perficient Inc

Cyient Ltd

Larsen & Toubro Infotech Ltd

L&T Technology Services Ltd

KPIT Technologies Ltd

Rolta India Ltd

HCIT

Quintiles IMS Holdings Inc

athenahealth Inc

Cerner Corp

Medidata Solutions Inc

Veeva Systems Inc

Inovalon Holdings Inc

Diversified BPO

Genpact Ltd

ExlService Holdings Inc

Capita PLC

Conduent Inc

WNS Holdings Ltd

CRM BPO

Teleperformance

SYNNEX Corp

Convergys Corp

TTEC Holdings Inc

Sykes Enterprises Inc

Transcosmos Inc

Relia Inc

Atento SA

Hinduja Global Solutions Ltd

Firstsource Solutions Ltd

LIST OF COMPANIES


ANNEXURE

Internet FinTech

LIST OF COMPANIES

Search / Online Advertising

Alphabet Inc

Microsoft Corp

Yandex NV

Criteo SA

Trade Desk Inc/The

Rubicon Project Inc/The

Rhythmone PLC

QuinStreet Inc

YuMe Inc

Marchex Inc

Tremor Video Inc

Marin Software Inc

MaxPoint Interactive Inc

Internet Content

Zillow Group Inc

IAC/InterActiveCorp

TEGNA Inc

GoDaddy Inc

Shutterfly Inc

comScore Inc

Bankrate Inc

Renren Inc

XO Group Inc

Care.com Inc

TechTarget Inc

DR Horton Inc

eHealth Inc

Internet Commerce

Amazon.com Inc

Alibaba Group Holding Ltd

Priceline Group Inc/The

Netflix Inc

eBay Inc

Expedia Inc

Liberty Interactive Corp QVC Group

Copart Inc

GrubHub Inc

Trivago NV

Cimpress NV

Stamps.com Inc

Shutterstock Inc

Etsy Inc

Quotient Technology Inc

1-800-Flowers.com Inc

Overstock.com Inc

ANGI Homeservices Inc

Travelzoo

CafePress Inc

Gaming

Tencent Holdings Ltd

NetEase Inc

Activision Blizzard Inc

Electronic Arts Inc

NAVER Corp

NCSoft Corp

Ubisoft Entertainment SA

DeNA Co Ltd

Zynga Inc

GungHo Online Entertainment Inc

Changyou.com Ltd

Gree Inc

Glu Mobile Inc

Social Media & New Platform

Facebook Inc

Snap Inc

Twitter Inc

LINE Corp

Pandora Media Inc

Yelp Inc

Payments

Visa Inc

Mastercard Inc

American Express Co

PayPal Holdings Inc

Discover Financial Services

Cielo SA

First Data Corp

Worldpay Inc

Global Payments Inc

Total System Services Inc

Worldpay Group Ltd

Wirecard AG

Square Inc

GMO Payment Gateway Inc

EVERTEC Inc

SafeCharge

Western Union Co/The

Euronet Worldwide Inc

FleetCor Technologies Inc

Alliance Data Systems Corp

Edenred

WEX Inc

Blackhawk Network

Green Dot Corp

Net 1 UEPS Technologies Inc

Cardtronics PLC

Everi Holdings Inc

NCR Corp

Ingenico Group SA

VeriFone Systems Inc

PAR Technology Corp

Banking and Lending Technology

Intuit Inc

Fidelity National IS

Fiserv Inc

Jack Henry & Associates Inc

Temenos Group AG

Ellie Mae Inc

ACI Worldwide Inc

LendingClub Corp

Q2 Holdings Inc

Bottomline Technologies

On Deck Capital Inc

Information Processors / Credit Bureaus

Experian PLC

Equifax Inc

Fair Isaac Corp

Acxiom Corp

Investment Services, Software and Technology

SEI Investments Co

Broadridge Financial Solutions Inc

SS&C Technologies Holdings Inc

DST Systems Inc

Financial Engines Inc

Envestnet Inc

Financial Data, Content, & Analytics

S&P Global Inc

Thomson Reuters Corp

Moody's Corp

IHS Markit Ltd

Verisk Analytics Inc

MSCI Inc

FactSet Research Systems Inc

Dun & Bradstreet Corp/The

Morningstar Inc

Insurance/Banking Technology

Verisk Analytics Inc

Guidewire Software Inc

Ebix Inc

Crawford & Co

Intellect Design Arena Ltd

Symbility Solutions Inc


DISCLAIMER

▪ Information provided in this document with respect to the industry have been compiled from publicly available sources,including official publications and research reports, and is given as general information and has not been independentlyverified by Spark Capital Advisors (India) Pvt. Ltd. (“Spark Capital”). Spark Capital has not carried out any independentverification of any information contained herein (including statements of opinion and expectation). Accordingly, Recipientsshould not place undue reliance on such information. The delivery of this document does not constitute a representation thatthe information given in this document is correct whether at the date hereof or any time subsequent to the date hereof.Spark Capital makes no representation or warranty with respect to the accuracy or completeness of any information or ideacontained in this document, nor does Spark Capital undertake any obligation to update this document.

▪ This document does not purport to contain all the information that the Recipient may require. This document is beingprovided to give a general overview on the industry. Please note that all forward looking statements contained in thisdocument have been sourced from multiple databases. No representations are being made about the correctness orachievability of these statements or their underlying assumptions.

▪ This document has been prepared solely for the purpose of providing information related to the Technology sector and is notto be reproduced or used for any other purpose.

▪ Neither Spark Capital nor the Promoters nor any of their respective affiliates, directors, officers, employees, shareholders,agents, representatives and advisors of Spark Capital shall have any liability for any loss or damage (direct or indirect) sufferedby Recipients on account of their reliance on any representations (express or implied) contained in, or any omissions from thisdocument or any information transmitted orally, in writing, electronically or in any other form to the Recipients.

▪ All enquiries relating to this document should be directed to Spark Capital personnel mentioned in this document.

BENGALURUUnit Nos. 503 & 504, 5th Floor, Prestige TowersNo. 99/100, Residency Road,Bengaluru – 560 025

CHENNAINo.2 ‘Reflections’, Leith Castle Centre Street,Santhome High Road,Chennai – 600 028

MUMBAIUnit No. 1108-C, 11th Floor, ONE BKCBandra Kurla ComplexMumbai – 400 051

TECHNOLOGY TEAM

Vikash Kabra

Director and Head – Technology IB

[email protected]

Vikram Sivaraman

Vice President – Technology IB

[email protected]

Aravind Ganesan

Senior Associate – Technology IB

[email protected]

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