Syntel Inc.

[http://www.syntelinc.com Syntel Inc]

Syntel (NASDAQ: SYNT) is a Global Information technology and Business Process Outsourcing (BPO) Services company. Syntel was founded by Bharat Desai in 1980 and is headquartered in Troy, Michigan, USA.

Syntel's clients include leading corporations in the financial services, insurance, automotive, retail and healthcare industries and its service offerings cover applications outsourcing, e-Business, business process outsourcing (BPO) and TeamSourcing.

Citation by other groups about Syntel:- Fortune magazine’s - ‘Fastest Growing Small Public Companies’ and Top ’40 Small and Mid-cap Stocks’ - Forbes Magazine’s - ‘200 Best Small Companies in America’ for four years in a row- Business 2.0’s - ‘100 Fastest Growing Tech companies’ for two years consecutively.

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Syntel reported revenues of $270.2 million in FY 2006 with more than 8300 people across the world. In India, Syntel has several Global Delivery Centers in Mumbai, Pune and Chennai including a technology campus in Pune which went operational in 2006.

In the pure IT outsourcing arena the established companies (those that have revenues greater than $1bn) like Tata Consulting Services [TCS] , Infosys (INFY), Wipro (WIT), Satyam (SAY), Cognizant (CTSH) and HCL are considered to be tier-1 companies. I am not counting Accenture (ACN) and IBM (IBM) in this league because outsourcing is just one their businesses.

Companies like Syntel and Patni Computers (PTI) are considered emerging tier-2 companies. These are the companies that have a good business model and have capabilities of reaching the milestones for tier-1 companies. The following article discusses Syntel’s strength and improvement areas for it to become a tier-1 company.

Application outsourcing: This is one of the various types of IT outsourcing and is considered to be least risky.If we analyze any tier-1 company like Infosys, Wipro or Satyam, we can see that they first mastered this kind of business before leaping into other kinds of Outsourcing deals like Infrastructure management.

What this means is that for any tier-2 company to succeed they have to master what there tier-1 counterparts did in the past. In Syntel’s case, they have been successful in growing their application outsourcing revenues from $143 million in 2004 to $194 million in 2006.

Headcount growth: The fundamentals of IT outsourcing is the number of billable resources one has. Looking at the growth over last five years trend this looks good.

Year 2002 Onshore Billable headcount 1,111 India Billable headcount 943

Year 2006 Onshore Billable headcount 1,405 India Billable headcount 4,006

Let's review Syntel’s onshore/offshore ratio; in 2002 it was around 55:% / 45%, but in 2006 changed to 25% / 75%. What this means that the company has transformed itself from an IT staffing company to a growing IT outsourcing company.

Even though the company is growing in terms of revenues, its fundamentals are not getting stronger. Following are some points to note.

28% revenue from the top two clients: American Express (AXP) and State Street Bank accounted for 18% and 10% of its revenues. They need to diversify and create bigger accounts so that no one client is more than 5% of the revenue.

Inconsistent operating cash flow: Cash flow from operating activities were $48 million(2004), $36 million (2005) and $45 million in 2006.

Declining book value: The book value for 2005 was $152 million and for 2006 was $149 million.

As the company grows and is valued by its customers, so too its stock grows; however, order to become a tier-1 company, Syntel‘s fundamentals have to match those of any other tier-1 IT consulting company, like that of Infosys, Wipro , Satyam and Cognizant.

----Other links related to Syntel's revenue reports.http://www.moneycontrol.com/india/news/OTHER%20NEWS/syntel-records-highest-revenueepsits-history/20/44/278190http://sify.com/finance/fullstory.php?id=14436151http://shareholder.api.edgar-online.com/efx_dll/edgarpro.dll?FetchFilingRTF1?sessionid=8tXBWiDzqSzH8N5&ID=4912844&PageBreakStyleID=2.----

_Vinod Potty+91 97909223314th January 2008:··················································|:·