Geometric Inorganic venture – Step in the right direction:: Prabhudas Lilladher,

Geometric has acquired 100% stake in Munich (Germany) based ‘3Cap Technologies
GmbH’, a specialist in automotive embedded system for ~€11m. The acquisition is inline
with the company’s stated objective of strengthening revenues from Europe,
Automotive vertical and Embedded System. We retain our “Accumulate” rating.

�� -->


􀂄 About 3Cap: 3Cap founded in 2004 by Mr. Henri Sadoune (French national) has
110 employees. He has entered into a long-term agreement with Geometric to
take responsibility for all embedded systems activities, including Geometric's
existing embedded systems projects. In CY12, 3Cap delivered revenue of €11m
(CY11 ~€9.16m) with an EBITDA margin of ~10%. It has seven clients (no overlap
with Geometric), predominantly based out of Germany. ~80% and 95% revenue
contribution is from the top two clients and automotive vertical, respectively.
􀂄 The deal – 1x Trailing revenue: Geometric will pay €11m (1x CY12 revenue), of
which, €7.5m will be paid upfront and balance payments will be subject to earnout
under mutually agreed terms and conditions over a period of three years.
The deal is EPS accretive and would be integrated in Q4FY13.
􀂄 Opportunities to cross‐sell: a) Use 3Cap expertise to deliver embedded system
solution to existing automotive OEM clients of Geometric b) Cross-sell
Geometric’s offerings to 3Cap’s existing client base & consider offshoring the
same in the near-to-medium term c) Value-added electronics contributes ~30-
40% of the overall IT spend for automotive OEMs.
􀂄 FCF for Geometric on recovery path: FCF generation for Geometric has steadily
improved over last three-years (average at ~46%). Cash & cash equivalents +
Investments as on Q2FY13 stand at Rs1,136.2m which is sufficient enough to
fund the upfront payment of €7.5m (Rs540m). We expect 50% of the earn-outs
to be financed by 3Cap cash flow.
􀂄 Valuation and Recommendation – ‘Accumulate’, with TP of Rs140: Geometric
has steadily improved both its revenue momentum and margin profile. The
acquisition will strengthen its service offerings and geographical mix. We
reiterate ‘Accumulate’ rating with a TP of Rs140, 8x FY14E earnings estimates.