No. of Recommendations: 3
Company: Syntel, Inc (SYNT); Market Cap $3.8B

Business:
Syntel is an information technology company that provides applications outsourcing, knowledge process outsourcing, e-Business solutions, and IT consultant services for financial services, healthcare, insurance, manufacturing, retail and logistics companies.

Value Proposition:
SYNT has been in business for 33 years. Their philosophy is to make “Customers for Life” and 90% of revenue is from repeat or referred business. Named to Forbes’ list of “Best Small Companies” from 2007-2010, SYNT offers time and materials billing or a fixed-time, fixed-price model which they believe is an important competitive differentiator in the marketplace.

• Applications Outsourcing - 77% of revenue. Covers the lifecycle of software applications, including development, maintenance, testing, migration, infrastructure services and cloud computing.

• Knowledge Process Outsourcing (KPO) - 15% of revenue. Outsourced high value solutions for middle and back-office knowledge and business processes with a focus on the transaction cycle in capital markets, banking, healthcare and insurance industries.

• e-Business - 6% of revenue. Advanced technology services in architecting, implementing and maintaining, Web Solutions, Data Warehousing, Business Intelligence, Enterprise Application Integration (EAI), Business Process Management (BPM) and Enterprise Resource Planning (ERP). Also covers Data Management and Big Data Analytics.

• Team Sourcing - 1% of revenue. IT consulting services.

Strategy and Advantage:
Global Delivery Service provides on-site, off-site, offshore approach for customer flexibility. Each service is linked by dedicated data and voice networks providing seamless service capability unconstrained by geography or time. 5 offshore locations in India and the Philippines and 4 off-site location in the US. 80% of services delivered from off-shore provide tax relief and large pool of highly qualified, but cheap labor.

SYNT provides deep industry knowledge but also offers a wide breadth of service offerings. They seek to develop an in-depth knowledge of the customer’s personnel, processes, technology, and culture, and then pursue higher value-added services, expanding their presence with current customers. Syntel has developed a proven set of methodologies, practices, tools and technical expertise for the development and management of information systems and business processes. Additionally, they believe the fixed-price, fixed-time frame model aligns its objectives with those of its clients.

Other Details:
Breakdown by industry vertical for financial services, healthcare, insurance, manufacturing, and retail was 51%, 17%, 15%, 4% and 13%, respectively. SYNT has entered into partnership alliances with several software firms and IT application infrastructure firms. There were 132 customers in 2013, mostly in the U.S. Benefits of the Indian Income Tax Holiday were $32.2 mm, $24.6 mm and $19.1mm for 2013- 2011.

Risks:
There are 10 pages of risks in the 10-K. Here are my top 2: 1) The top 10 customers accounted for 77% of total revenues. The 3 largest customers in 2013 contributed approximately 25%, 16% and 8%. 2) The IT and KPO services industry is intensely competitive, highly fragmented and subject to rapid change and evolving industry standards. There are few barriers to entry and SYNT expects to continue facing additional competition from new IT service and KPO providers.

Big Few:
How much is demand for IT & business services growing? How good is the relationship with AXP and State Street? Who are the other customers? Have the number of services provided to them increased over time? How does the customer situation compare to Cognizant and Infosys? Valuation versus competitors?
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