Financial Analysis of IT companies

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Financial Analysis of

Wipro, Tech

Mahindra, Mindtree

and Oracle Financial

Services Software

A F M P R O J E C T

R O L L : H 1 3 0 5 3

C O U R S E : P G D H R M

B A T C H : 2 0 1 3 - 2 0 1 5

Sourik Syed


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THE INDIAN IT SECTOR

Information technology in India is an industry consisting of two major components: IT Services and

business process outsourcing (BPO). The sector has increased its contribution to India's GDP from

1.2% in FY1998 to 7.5% in FY2012. According to NASSCOM, the sector aggregated revenues of

US$100 billion in FY2012, where export and domestic revenue stood at US$69.1 billion and US$31.7billion respectively, growing by over 9%.

The major cities that account for about nearly 90% of the sector's exports are Bangalore, Chennai,

Hyderabad, Trivandrum, Delhi, Mumbai and Kolkata. Bangalore is considered to be the Silicon Valley

of India because it is the leading IT exporter. Exports dominate the industry and constitute about

77% of the total industry revenue. However, the domestic market is also significant with a robust

revenue growth. The industrys share of total Indian exports (merchandise plus services) increased

from less than 4% in FY1998 to about 25% in FY2012.


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Competition

Market Cap. Sales

(Rs. cr.) Turnover

TCS 2 ,2 13 .0 5 4 ,3 3,4 76 .3 0 4 8,4 26 .1 4 1 2,7 86 .3 4 3 2,7 25 .3 7

Infosys 3 ,7 29 .7 5 2 ,1 4,1 75 .7 3 3 6,7 65 .0 0 9 ,1 16 .0 0 3 6,0 59 .0 0

Wipro 55 2.7 1,3 6,2 74.1 7 3 3,5 17 .3 0 5 ,65 0.20 2 8,2 75.5 0

HCL Tech 1 ,37 9.65 9 6,4 31.5 5 1 2,5 17 .8 2 3 ,70 4.72 1 0,8 52.8 8

Tech Mahindra 1,775.25 41,397.54 6,001.89 652.52 5,287.30

Oracle Fin Serv 3,145.15 26,456.07 2,937.70 1,029.26 7,292.35

MphasiS 409 8,595.61 3,321.48 539.51 3,901.16

Mindtree 1,420.85 5,941.33 2,361.80 338.9 1,338.60

Hexaware Tech 134 4,018.34 912.47 285.6 984.63

Persistent 990.2 3,960.80 996.75 181.81 1,007.47

Infotech Enter 347.65 3,890.52 1,051.56 184.35 1,167.03

NIIT Tech 389.5 2,361.76 1,108.30 167.86 773.45

Zensar Tech 379.4 1,750.24 837.66 121.53 512.13

Financial Tech 313.85 1,446.17 450.9 322.88 3,275.11

Polaris Tech 138.9 1,382.72 1,853.99 167.06 1,196.23

Hinduja Global 572.75 1,180.55 703.41 5 4.01 795.98

Rolta 72.1 1,163.18 1,310.94 -737.43 4,729.40

Tata Elxsi 363.55 1,132.03 604.69 20.99 223.23

Infinite Comp 155.35 632.21 454.72 106.27 297.16

Geometric 98.3 623.26 352.25 34.42 207.46

Sasken Comm 189.4 570.69 362.71 36.05 369.63

Hinduja Venture 275.2 565.69 93.53 76.75 715.35

3i Infotech 8.3 475.29 365.47 -255.36 2,998.15

Mastek 171.3 422.16 401.02 30.18 383.63

Ramco System 177.25 279.77 175.18 -18.81 436.36

Thinksoft 252.25 256.58 157.83 16.31 69.64

Name Last Price Net Profit Total

Assets


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Wipro

Wipro Limited (formerly Western India Products Limited. It is an Indian multinational information

technology (IT), consulting and outsourcing service company headquartered in Bangalore,

Karnataka, India. As of September 2013, the company has 147,000 employees serving over 900clients with a presence in 57 countries. Wipro is the third largest IT services company in India. On 31

March 2013, its market capitalisation was INR 1.07 trillion ($19.8 billion), making it India's 13th

largest publicly traded company. Azim Premji is a major shareholder in Wipro with over 50% of

shareholding.

To focus on core IT Business, it demerged its non-IT businesses into a separate company named

Wipro Enterprises Limited with effect from 31 March 2013. The demerged company offers consumer

care, lighting, healthcare and infrastructure engineering and contributed to approx. 10% of the

revenues of Wipro Limited in previous financial year.

Brief History of Firm

The company was incorporated on 29 December 1945, in Mumbai by Mohamed Hasham Premji as

'Western India Vegetables Products Limited', later abbreviated to 'Wipro'. It was initially set up as a

manufacturer of vegetable ghee, vanaspati, and refined oils in Amalner, district Jalgaon,

Maharashtra, under the trade names of Kisan, Sunflower and Camel.

In 1966, after Mohamed Premjis death, his son Azim Premji returned home from Stanford

University and took over Wipro as its chairman at the age of 21

During the 1970s and 1980s, the company shifted its focus to new business opportunities in the IT

and computing industry, which was at a nascent stage in India at the time. On 7 June 1977, the name

of the company changed from Western India Vegetable Products Limited, to Wipro Products Limited.

The year 1980 marked the arrival of Wipro in the IT domain. In 1982, the name was changed from

Wipro Products Limited to Wipro Limited. 19881992

In 1988, Wipro diversified its product line into heavy-duty industrial cylinders and mobile hydraulic

cylinders. A joint venture company with the United States' General Electric in the name of Wipro GE

Medical Systems Pvt. Ltd. was set up in 1989 for the manufacture, sales, and service of diagnostic

and imaging products. Later, in 1991, tipping systems and Eaton hydraulic products were launched.

In 1994, Wipro set up an overseas design centre, Odyssey 21, for undertaking projects and product

developments in advanced technologies for overseas clients. Wipro Infotech and Wipro Systems

were amalgamated with Wipro in April that year. In 1999, Wipro acquired Wipro Acer.[19] Wipro

became a more profitable, diversified corporation with new products such as the Wipro Super

Genius personal computers (PCs). In 1999, the product was the one Indian PC range to obtain US-

based National Software Testing Laboratory (NSTL) certification for the Year 2000 (Y2K) compliance

in hardware for all models.

Wipro Limited joined hands with a global telecom major KPN (Royal Dutch telecom) to form a jointventure company Wipro Net Limited to provide internet services in India.*16+ The year 2000 was


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the year Wipro launched solutions for convergent networks targeted at Internet and telecom

solution providers in the names of Wipro OSS Smart and Wipro WAP Smart.[21] In the same year,

Wipro got listed on New York Stock Exchange.

In February 2002, Wipro became the first software technology and Services Company in India to be

certified for ISO 14001 certification. Wipro also achieved ISO 9000 certification to become the firstsoftware company to get SEI CMM Level 5 in 2002. Wipro Consumer Care and Lighting Group

entered the market of compact fluorescent lamps, with the launch of a range of CFL, under the

brand name of Wipro Smartlite. As the company grew, a study revealed that Wipro was the fastest

wealth creator for 5 years (19972002).The same year witnessed the launch of Wipros own laptops

with Intel's Centrino mobile processor. In April 2011, Wipro signed an agreement with Science

Applications International Corporation (SAIC) for the acquisition of their global oil and gas

information technology practice of the commercial business services business unit. The year 2012

saw Wipro make its 17th acquisition in IT business when it acquired Australian analytics product firm

Promax Applications Group (PAG) for $35 million.[48][49] Wipro is the No. 1 employer of H-1B visa

professionals in the United States in 2012.

In 2012 Wipro Ltd. announced the demerger of its Consumer Care & Lighting (incl. Furniture

business), Infrastructure Engineering (Hydraulics & Water business), and Medical Diagnostic Product

& Services business into a separate company to be named Wipro Enterprises Ltd. Wipro's scheme of

arrangement for demerger turned effective from 31 March 2013.

INTERPRETATIONS FROM HORIZONTAL, VERTICAL AND TREND ANALYSIS

From Exhibit 1 , Exhibit 2, Exhibit 3, we see the following:

A noticeable increase happened in secured loans which in turn increased the total liabilities

in 2013 compared to its peers.

A decrease in fixed assets for wipro happened in 2013 compared to its peers which is

explained by the demerger in 2013 with its subsidiaries.

Demerger of its subsidiary has also resulted in the reduction of its inventories by about 60

percent in 2013

A noticeable increase happened in investments in 2011 which is explained by the acquisition

of SAIC in 2011.

The acquisition showed its results in 2012 when the cash and bank balance increased by a

considerable amount compared to its peers.

Compared to its peers Wipro appears to have a very healthy cash and bank balance over the

past 5 years. Except in 2010 when recession was at its peak.


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Interpretations from Ratio Analysis and Comparison with Industry Average

OPERATING PROFIT PER SHARE

(i)Comparison with peers

Wipros operating profit per sharehas been fluctuating mildly in the last 5 years. Earnings per share

are a major contributor to determining share price. The quality of the metric can be monitored by

observing the investment required to generate the earning. Investment figures of the company in

the past 5 years has been (in crores from 2009 to 2013, right to left )

10,904.20 10,335.20 10,813.40 8,966.50 6,895.30

There was a sharp dip in EPS from 37.47 to 23.47 although there was an increase in investment .Thus

in from 2010 to 2011 Wipro was not managing its investments efficiently enough. Its earnings for the

year (in crores from 2009 to 2013, right to left) were as follows:

34570.00 32865.40 27012.80 23899.70 21023.10

Thus Wipro was issuing more shares at a rate greater than income generated and making inefficient

use of investments in comparison to other years. With time, however it has regained ground

reaching an EPS of Rs.28.15. The dip could have resulted due to business restructuring through

mergers and other legal processes. For example, Wipro Yardley Consumer Care Private Limited, a

subsidiary Company merged with Wipro Limited. Moreover the company was issuing loans from

earnings to subsidiaries like Wipro Cyprus Private Limited and Wipro Holdings Mauritius.

The recovery could be attributed to the company buying a 100 % stake in SAIC Gulf Limited and SAICEurope Limited to increase its presence in the domain of petro technical data management.

Comparison with industry average

The operating profit per shareaccording to the industry averageis given below:

2013 2012 2011 2010 2009

77.95 63.19 44.32 50.30 49.15

The operating profit per share for Wipro is given below:

2013 2012 2011 2010 2009

28.15 24.58 23.47 37.47 32.48


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The main reason I believe, for such a low operating profit per share is that Wipro (BSE : Rs.552.45)

operates on a volume strategy rather than a margins strategy unlike much of its peer group like

Infosys(BSE : Rs.3728.05) (above industry average),Tech Mahindra (BSE: Rs.1773.70) ,Oracle

Financial Services ,Mind tree, HCL Tech. Thus it relies on an additional number of shares sold to

generate profits.

OPERATING PROFIT PERCENTAGE

(ii) Comparison with peers

Wipros operating profit percentageincreased in 2010 with respect to competitors like Mindtree

and Tech Mahindra despite the onset of the global economic slowdown. This was primarily due to

the decrease in interest payments made that year from other years for Wipro. Although Mindtree

also a witnessed a decrease in the same year the quantity of decrease for Wipro was much larger.

The otherwise similar trend can be explained by all companies in the sector bearing the brunt of theglobal economic slowdown and decline in profit received from IT services from clients in USA and

Europe. 2013 shows a slow recovery for all companies. The trends in operatingprofit per sharecan

be explained similarly.


The operating profit percentage as industry averageis given below:

2013 2012 2011 2010 2009

Operating Profit

Margin(%)[Industry Average]25.38 22.87 22.17 25.04 25.45

The operating profit percentage for Wipro is given below:

2013 2012 2011 2010 2009

20.86 19.07 21.9 24 22.12

The numbers seem to indicate that the volume based strategy is not working well enough for Wipro

as though consistent it has been lagging the industry average. In the peer group chosen its

performance is ahead of only Tech Mahindra whose profits were primarily stunted because it was

engaged in a turnaround strategy post buying a major stake and subsequent acquisition of Tech

Mahindra.

(iii) RETURN ON CAPITAL EMPLOYED

Comparison with Peers


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Return on Capital Employed is a financial ratio that measures a company's profitability and the

efficiency with which its capital is employed. There has been a steady decline in return on net

capital employed (ROCE)(return on net capital employed =net income before interest and tax

/capital employed *100) with a sudden surge in 2013. However this has been mostly due to the

demerging of the nonperforming divisions of consumer care and lighting, infrastructure

engineering and medical diagnostic businesses into an unlisted firm Wipro Enterprises, while Wipro

Ltd will be a publicly listed company focusing on IT services and products effective March 31, 2013.

Thus stocks, shares and other capital investments of the companies were not taken into

consideration in the denominator thus increasing the ratio.

Comparison with Industry Average

The Return on Capital Employed (ROCE)according to the industry averageis given below:

2013 2012 2011 2010 2009

29.39 26.59 22.46 24.41 33.70

The Return on Capital Employed (ROCE)for Wipro is given below:

2013 2012 2011 2010 2009

26.72 22.04 22.44 23.06 26.77

As stated earlier, the decline shows that Wipro is not making efficient use of capital investments

with respect to the industry average. However on further investigation we see that it occupies a

comparable position with HCL Tech in terms financial performance and ranks within the top half of

the companies chosen in the peer group to compute industry average. A few companies with

exceptionally high values eg . TCS across the period and Tech Mahindra in 2009 was pushing up the

industry average. Wipros slow Q4 results in 2012 and 2013 could be a reason for the larger

difference in the last 2 years.

(iv) RETURN ON ASSETS (including re-evaluations)


An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how

efficient management is at using its assets to generate earnings. The company shows a surge in

Return on Assets (=Net Income/Total Assets) in 2010. This is primarily because of the exceptionally

low interest payments in that year compared to others (net income was decreased less). There was a

decline in 2011 but a recovery in later years. The performance in 2012 was particularly good and

better than in 2013 despite the highest interest payments.


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The return on assets as industry averageis given below:

2013 2012 2011 2010 2009

289.05 238.95 177.37 170.55 138.87

The return on assets for Wiprois given below:

98.38 99.04 86.86 120.49 85.42

The return on assets for Wipro if compared with the industry average of the peer group is lower

because a number of players like Oracle Financial Services, Tech Mahindra ,TCS, Oracle Financial

Services Software rely more on margins and their return on assets are far higher. However, even In

comparison with volume players like HCL, NIIT Technologies and Infotech Enterprises , Wipro is

lagging by some distance. This indicates that Wipro has been inefficient in managing its assets to

generate earnings.

(v)CURRENT RATIO AND QUICK RATIO

Comparison with peers

Wipro showed a steady increase in current ratioand quick ratiotill March 2012 (almost 2 in the last

year)but suffered a dip in 2013.The decrease in short term solvency could be attributed to its lagging

growth with respect to the industry and large peers in IT services like TCS and HCL. It shows a

relative lack of liquidity in the system as inventory is not a significant factor in IT services. The same

reason could be attributed to the pattern in quick ratio.


The current and quick ratios for the period for companies chosen in peer group (industry average)

are:

2013 2012 2011 2010 2009

Current Ratio 2.87 2.73 2.82 2.16 2.16

Quick Ratio 2.99 2.90 2.88 2.35 2.27

The current and quick ratios for the period for Wipro are:


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Current Ratio 1.55 1.94 1.72 1.33 1.1

Quick Ratio 2.02 2.5 2.22 2.26 1.76

On observation of average figures we see that the liquidity status in terms of quick ratio, though

healthy is lower than the competition. However current ratio is still mostly away from the ideal ratio

of 2:1. On many occasions we see quick ratio>current ratio which might indicate negative

inventories. However the average has been hauled up by companies like Infosys and Oracle

Financial Services which have exceptionally high numbers. The nature of liquidity can be investigated

further using the activity ratios like debt turnover ratio and inventory turnover ratio.

(vi) DEBTOR TURNOVER RATIO


The debtor turnover ratio is a measure of how fast the company is collecting on its debts and along

with the quick ratio and current ratio can depict the short term solvency of the company.


The debtor turnover ratio for the industry is depicted below:

2013 2012 2011 2010 2009

4.79 4.89 5.03 4.73 4.61

The debtor turnover ratio for Wipro is depicted below:

2013 2012 2011 2010 2009

4.04 4.61 4.87 4.84 5.32

Thus we see that the debtor turnover ratio is roughly the same as the industry average despite some

companies like Infosys and Oracle Financial Services having much higher. This shows Wipro in a

fairly good liquidity solvency situation.

(vi) Comparison with peers

Asset turnover ratio (Revenue/Assets) gives an indication of the amount of sales generatedper

unit currency invested in assets .This ratio is more useful for growth companies to check if in factthey are growing revenue in proportion to assets.

Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the

higher the number the better. It also indicates pricing strategy: companies with low profit margins

tend to have high asset turnover, while those with high profit margins have low asset turnover.

For Wipro, it has been stable over the past 5 years with a small increasing trend in the past 4. This is

a good sign as every unit currency invested is generating more sales. The asset turnover ratio of


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Wipro ranks favourably among the chosen companies and has similar numbers to all except Oracle

Financial Services software.


The asset turnover ratio for the industry is shown below:

2013 2012 2011 2010 2009

1.31 1.37 1.20 1.28 1.49

The asset turnover ratio for Wipro for the period is as follows:

2013 2012 2011 2010 2009

1.15 1.14 1.07 1.12 1.3

Again, we see Wipro trailing the industry average slightly but the average has been raised by

companies like Mindtree ,TCS and Oracle Financial Services Software .However, its numbers are

comparable other volume players like HCL , Infotech enterprises and leads companies like NIIT

Infotech. A fairly high asset turnover ratio indicates that Wipro is generating decent earnings from its

assets.

Financial Strengths of Firm

(i)Despite working on low margins unlike much of its competition like Infosys ,Tech Mahindra and

even TCS, Wipro manages to attract investors through a higher dividend payout ratio.It is their

competitive strategy although firms like HCL are doing better than them currently due to Wipros

slow sales in 2013.

(ii)Days working capital is lower than peer set. Therefore ,it can convert working capital to revenue

quicker.

(iii)High asset turnover ratio which indicates higher revenue generated per unit investment in assets

Weaknesses of firm

(i) Profit per share is exceedingly low compared to both industry average as well as other volume

players in the industry set.(eg: HCL)

(ii) Low return on assets especially in 2012 ,2013 with respect to the completion. Hence potential

investors would perceive less return on investment.

(iii) Steady decline in ROCE which indicates inefficient use of capital investments.


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Recommendations

(i)Focus on cost savings to increase profit margins .Measures may include more efficient manpower

planning and differential compensation strategies.

(ii)Although liquidity is in a fair state it should focus on improving it to match high volumecompetitors like HCL whose performance has been better of late.Liquidity may be temporarily

increased through divestiture from unattractive markets.

(iii)Focus on market for IT services since demand from abroad has increased and the global

economy is coming out of recession.


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MINDTREE

Mindtree is a information technology company with corporate headquarters in New Jersey, USA and

Bangalore, India. Founded in 1999, the company employs over 13,000+ experts with annual revenue

of USD 435+ million. Mindtree serves over 220 clients worldwide.


In August 1999, Mindtree was co-founded by ten IT industry experts fromCambridge Technology

Partners,Lucent Technologies,andWipro.Mindtree was funded by capital firms, such as Walden

International and Sivan Securities and later in 2001 from theCapital Group andFranklin

Templeton.[4]

Mindtree started as a consulting organization forInternet technologies. The 2001 attacks in WTC, US

on September 11 and a subsequent economic downturn made the company expand its offerings into

the information technology services.

Mindtree went public on 12 December 2006 and was listed on Bombay Stock Exchange and National

Stock Exchange. The IPO opened on 9 February 2007 and closed on 14 February 2007.[5]The IPO was

oversubscribed more than 100 times.[6]

Subroto Bagchi, co-founder and chairman, has written about

its history.[7]

Mindtrees business is structured around clients in key verticals, such as manufacturing, retail travel

and transportation. The company has business analysts, technology experts and services specialists

engineering for clients across these verticals.

Acquisitions include:

Company name Year Business

ASAP Solutions[11] 2004 SAP implementation

Linc Software Services

Pvt Ltd[12]

2005

Application development and maintenance domains for mid-range

systems

CoSystems (Indian

division) 2005 Telecom

Aztecsoft 2008Product engineering and testing services company. Aztecsoft acquired

Disha Technologies a testing company in 2004

Kyocera Wireless India

Pvt Ltd2009 Wireless services

7Strata 2010 Remote infrastructure management services
http://en.wikipedia.org/wiki/Cambridge_Technology_Partnershttp://en.wikipedia.org/wiki/Cambridge_Technology_Partnershttp://en.wikipedia.org/wiki/Lucent_Technologieshttp://en.wikipedia.org/wiki/Wiprohttp://en.wikipedia.org/wiki/Capital_Grouphttp://en.wikipedia.org/wiki/Franklin_Templetonhttp://en.wikipedia.org/wiki/Franklin_Templetonhttp://en.wikipedia.org/wiki/Mindtree#cite_note-4http://en.wikipedia.org/wiki/Mindtree#cite_note-4http://en.wikipedia.org/wiki/Mindtree#cite_note-4http://en.wikipedia.org/wiki/Internethttp://en.wikipedia.org/wiki/Mindtree#cite_note-5http://en.wikipedia.org/wiki/Mindtree#cite_note-5http://en.wikipedia.org/wiki/Mindtree#cite_note-5http://en.wikipedia.org/wiki/Mindtree#cite_note-6http://en.wikipedia.org/wiki/Mindtree#cite_note-6http://en.wikipedia.org/wiki/Mindtree#cite_note-6http://en.wikipedia.org/wiki/Mindtree#cite_note-7http://en.wikipedia.org/wiki/Mindtree#cite_note-7http://en.wikipedia.org/wiki/Mindtree#cite_note-7http://en.wikipedia.org/wiki/Mindtree#cite_note-11http://en.wikipedia.org/wiki/Mindtree#cite_note-11http://en.wikipedia.org/wiki/Mindtree#cite_note-11http://en.wikipedia.org/wiki/Mindtree#cite_note-12http://en.wikipedia.org/wiki/Mindtree#cite_note-12http://en.wikipedia.org/wiki/Mindtree#cite_note-12http://en.wikipedia.org/wiki/Mindtree#cite_note-12http://en.wikipedia.org/wiki/Mindtree#cite_note-11http://en.wikipedia.org/wiki/Mindtree#cite_note-7http://en.wikipedia.org/wiki/Mindtree#cite_note-6http://en.wikipedia.org/wiki/Mindtree#cite_note-5http://en.wikipedia.org/wiki/Internethttp://en.wikipedia.org/wiki/Mindtree#cite_note-4http://en.wikipedia.org/wiki/Franklin_Templetonhttp://en.wikipedia.org/wiki/Franklin_Templetonhttp://en.wikipedia.org/wiki/Capital_Grouphttp://en.wikipedia.org/wiki/Wiprohttp://en.wikipedia.org/wiki/Lucent_Technologieshttp://en.wikipedia.org/wiki/Cambridge_Technology_Partnershttp://en.wikipedia.org/wiki/Cambridge_Technology_Partners


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INTERPRETATIONS FROM HORIZONTAL, VERTICAL AND TREND ANALYSIS

From Exhibits 4, 5 and 6 we see that:

Mindtree saw a reduction in the operating profit in 2011 which can be attributed to loss of

business due to recession.

Its saw in increase in Net worth in 2013 which can be attributed to profits made in the

previous year which brought back the shareholders confidence.

Increase in investment in 2012 and 2013 shows the inclination to expand and acquired

smaller firms.

Compared to its peers employee cost is very high for Mindtree for the past few years which

shows an emphasis on hiring and retaining employees since the attrition is very high.

Total asset have a high percentage of sundry debtor, loan and advances and a lowerpercentage of cash and bank balance.

From trend analysis sale turnover has increased two fold and cash and bank balance has

increased 6 fold which is a good sign for the investor.


(i) Comparison with Peers

Like its peers operating profit per share suffered a decline due to the economic slowdown. Howeverunlike peers like Tech Mahindra and Wipro, Mindtree registered a quicker turnaround in 2012. The

primary reason behind this is the sudden surge in additional revenue, (and operating profits)due to

demand revival in the United States which resulted in an unexpected increase in foreign exchange

earnings. Mindtree also witnessed an increase in onsite revenue with demand for faster

development cycles.

Comparison with Industry average


2013 2012 2011 2010 2009

77.95 63.19 44.32 50.30 49.15

The operating profit per share for Mindtree :

2013 2012 2011 2010 2009

108.82 72.34 46.18 59.13 70.34


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We see Mindtree doing very well according to this metric and particularly well in the last 2 years

because of demand revival in the US which brought unexpectedly large numbers of foreign exchange

revenue.

(ii)OPERATING PROFIT MARGIN


Despite the significant increase in revenue in the last two years, Operating profit margin as a

percentage of revenuehas been slightly lower than peers like Tech Mahindra and Wipro. This is

primarily because from 2012 Mindtree was on a recruitment spree to curb previously untenable

attrition rates of 16.3 %.


2013 2012 2011 2010 2009

Operating Profit


The corresponding figures for Mindtree are :

2013 2012 2011 2010 2009

19.13 15.31 12.25 18.94 26.39

Mindtree shows a much lower operating profit margin than its peers as it is still unable to use the

economies of scale unlike its larger peers. Despite a tremendous 2013 it still lags the industry. A

major reason is its renewed focus on retaining employees to curb very high attrition rates.

(iii)RETURN ON CAPITAL EMPLOYED RATIO


There are two primary reasons why the decline Return on Capital Employed ratio (ROCE)was

stemmed quicker by Mindtree than its peers. Firstly, its last significant capital investment was in

2010 when it acquired 7 Strata. The second reason is the additional revenue generated by the revival

of the US market.


The Return on Capital Employed (ROCE)according to the industry averageis given below:

2013 2012 2011 2010 2009


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29.39 26.59 22.46 24.41 33.70

The Return on Capital Employed (ROCE)for Mindtree is given below:

2013 2012 2011 2010 2009

31.71 23.57 18.41 27.41 33.70

From the figures we see that Mindtree is managing its capital investments efficiently and leads the

market for 4 out of 5 years in the period. As stated previously, the reasons behind this is the relative

lack of capital investment since 2010 and the surge in revenue in 2013.

(iv) CURRENT RATIO AND QUICK RATIO


The company shows a remarkable current ratioand quick ratiofor the period specified - a good

indication of its short term solvency. However it is not possible to comment further without knowing

whether the company has fast paying inventories or fast paying debtors. This will give us a better

indication of the liquidity situation.


The quick ratio and current ratio for the industry (peer group) is as follows:

2013 2012 2011 2010 2009

Current Ratio 2.87 2.73 2.82 2.16 2.16

Quick Ratio 2.99 2.90 2.88 2.35 2.27

The corresponding figures for Mindtree is as follows:

Current Ratio 2.39 1.80 2.55 1.6 1.43

Quick Ratio 2.59 2.14 2.46 1.54 1.38

From the figures we find that Mindtree lags the industry average of the period although again the

numbers have been raised by a few outliers like Infosys, Oracle Financial Services Limited and NIIT

Infotech. The short term solvency situation can be analysed further by looking at the inventory

turnover and debtor turnover ratio.

(v) DEBTOR TURNOVER RATIO


To further comment on (v) we investigate the inventory turnover ratio and debtor turnover ratio,the latter of which is applicable in this case.It is higher among the competition chosen and is hence


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collecting its debts quicker which along with its quick ratios and current ratios for the period show a

healthy short term solvency picture.


The debtor turnover ratio for the industry is shown as:

2013 2012 2011 2010 2009

4.79 4.89 5.03 4.73 4.61

The same figures for Mindtree are:

2013 2012 2011 2010 2009

5.5 5.55 5.81 5.02 5.44

Thus we see the debtor turnover ratio is far above the industry average which combined with a fairly

high current ratio and quick ratio accounts for a fairly good short term solvency situation.

(vi) Asset turnover ratio(Net sales/Average total assets ) has consistently been increasing in the five

year period which indicates that the company has been utilizing its assets very efficiently.

Strengths of Firm

(i)Extremely good current and quick ratios coupled with an outstanding debtor turnover ratio

indicate a strong liquidity presenceand is indicative of very good short-term solvency.

(ii) Return on Capital Employed ratio (ROCE)was stemmed quicker by than its peers. Firstly, its last

significant capital investment was in 2010 when it acquired 7 Strata. The second reason is the

additional revenue generated by the revival of the US market.

(iii) Surge in revenue due to greater demand in US market and greater inflow of foreign exchange.

(iv) Good operating profit per share with respect to industry set as well as high margin peers.

Weaknesses of firm

(i)Operating profit margins are lower than fellow high margin players like Tech Mahindra and Oracle

Financial Services Software and even lower than Wipro. Although this was primarily because of a

surge in recruitment expenses, this issue must be looked after to ensure sustainability in the long

run.

(ii)Expenses as a percentage of sales composition is too high and must be looked into.


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Recommendations

(i)Focus on improving profit margins as it is currently too low to be tenable despite a great annual

sales performance in 2013.One possible measure may through investments in R&D and acquisition

in suitable firms.

(ii) (i) can be achieved either through greater retained earnings or through debt liabilities .As the

current ratio ,quick ratio and debt turnover ir the liquidity and activity position of the company is

very stable it can afford to take institutional loans to make investments.

(iii)Measures should be taken to reduce employee cost and there should be renewed focus on

retention.


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TECH MAHINDRA

Tech Mahindra Limited is an Indian multinational provider of information technology (IT),

networking technology solutions and business support services (BPO) to the telecommunications

industry. Tech Mahindra is a part of the Mahindra Group conglomerate. It is headquartered at

Mumbai, India.

Tech Mahindra is ranked #5 in India's software services firms and overall #111 in Fortune India 500

list for 2012.

Its executive management team consists of Anand Mahindra (Chairman), Vineet Nayyar (Vice

Chairman), C. P. Gurnani (CEO and MD), Manoj Chugh (Global Head sales), Sujit Baksi (President

Corporate Affairs & Business Services Group), Milind Kulkarni (Chief Financial Officer), L.

Ravichandran (President - IT Services), Amitava Roy (Chief Operating Officer) and Sujitha Karnad

(Senior Vice President - HR & QMG for IT Services). Tech Mahindra, on June 25, 2013 announced the

completion of Mahindra Satyams merger with itself. Post-merger, the new entity will become thefifth largest IT Company in the country with revenues of $2.7 billion. Milind Kulkarni would be the

CFO of the combined entity which would have a team of 83,000 professionals, servicing 540

customers across 49 countries. It will have 15 overseas offices for BPO (business process

outsourcing) operations and software development. Its revenue for 2012-13 was put at $2.7 billion

(Rs. 16,000 crore).

BRIEF HISTORY OF FIRM

1993 - Incorporation of MBT International Inc., the first overseas subsidiary

1994 - Awarded the ISO 9009 certification by BVQ 1995 - Established the UK branch office

2001 - Incorporated MBT GmbH, Germany incorporated. Re-certified to ISO 9001:1994 by BVQ

2002 - Assessed at Level 2 of SEI CMM by KPMG. Incorporated MBT Software Technologies

Pte. Limited, Singapore

2005 - Merged MBT with Axes Technologies (India) Private Limited,including its US and

Singapore subsidiaries.Assessed at Level 3 of SEI CMMI by KPMG

2006 - Name changed to Tech Mahindra Limited. Assessed at Level 4 of SEI People-CMM (P-

CMM) by QAI India. Raised Rs46.5 million ($1 million) from a hugely successful IPO to build a

new facility in Pune, to house about 9,000 staff. Formed a JV with Motorola Inc. under the name

CanvasM. 2007 - Acquired iPolicy Networks Private Limited. Launched the Tech M Foundation to address

the needs of the underprivileged in our society. Assessed at Level 5 of SEI CMMI by KPMG

2009 - Tech M wins bid for fraud-hit Satyam Computer Services at Rs 58.90 per share outdoing

Larsen & Toubro, the other player in the fray, which bid at Rs 45.90. Rebrands the company to

Mahindra Satyam.

2010 - Tech Mahindra expands footprint in Latin America

2012 - Tech Mahindra acquires Hutchison Global Services for $87.1 million

2012 - Tech Mahindra buys 51% stake in Comviva

2013 - Tech Mahindra acquires Sweden-based Type Approval Lab. The lab was part of Sony

Mobile Communication's internal test function and after acquisition it has become first Europeantest lab of Tech Mahindra.


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2013 - On June 24, Tech Mahindra and Mahindra Satyam merging process completed and the

name of the parent company was retained for the merged entity with a new logo and motto.

INTERPRETATION FROM HORIZONTAL, VERTICAL AND TREND ANALYSIS

From Exhibits 7, 8 and 9

Tech Mahindra saw a lack of increase in reserves from 2011 to 2012. It should be attributed

to the fact that it at incurred cost in acquiring HGS and buying 51% stake in Comviva.

Investments started to show up in 2010 when Tech Mahindra decided to expand to Latin

America.

Reduction in cash and back in 2012 due to incurred cost in acquiring HGS and buying 51%

stake in Comviva. These acquisitions lead to an increase in the fixed assets of the company in

2013.

The acquisitions caused increase in the current liabilities of the company in 2012. Mostly

because of the debts taken to buy the companies.

The acquisition also explains the increase in selling and admin expense in 2012.

Due to these acquisitions tech Mahindra tries to cut down on its cost by reducing the

miscellaneous expense like donation in 2012.

The operating and net profits shows an increasing trend in 2013 when the company finally

begins to stabilize its business in 2013 after the above mentioned changes

The cash and bank balance appears to be very low percentage of total asset compared to its

peers.

INTERPRETATIONS FROM RATIO ANALYSIS AND COMPARISON WITH INDUSTRY AVERAGE

(i)OPERATING PROFIT PER SHARE


Tech Mahindras operating profit per share declined severely from 2009-2012. A primary reason for

the above could be the fact that Tech Mahindra invested in a three year turnaround strategy for

Satyam post the accounting scandal of 2009(which resulted in the severe dip in 2010) .However the

company has shown a remarkable turnaround in 2013 with the investment in Satyam bearing fruit.

This attracted more global clients in the recovery period post the global economic slump with U.S

and Europe contributing to 29% and 43 % of its revenue in the last quarter of 2013. Moreover its

cure or close ensures a check on non performing investments thus neutralising the possibility of a

hit on net earnings. Most of the competition witnessed less severe decline due to the economic

slowdown.



2013 2012 2011 2010 2009

77.95 63.19 44.32 50.30 49.15


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The corresponding figures for Tech Mahindra are as follows:

2013 2012 2011 2010 2009

Although the numbers indicate an enviable position for Tech Mahindra, it must be remembered that

it is a high margin player .Its performance in comparison to other high margin players like Infosys,

Oracle Financial Services Software is much lower and a cause for concern.

(ii)RETURN ON CAPITAL EMPLOYED


The same reason sharp decline in return on net capital employed (ROCE) (return on net capital

employed =net income before interest and tax /capital employed *100) compared to peers. There

was a huge increase in capital investment to buy a major stake in Satyam. Institutional investors like

Abu Dhabi Investment Authority were involved. Thus there was more capital invested in Satyam

which in turn was earning very little due to the problems in that period. Hence the sharp dip in the

ratio. That is , income generated was not proportionate to the capital investment made in Satyam in

the period.


The industry average for the metric is as shown:

2013 2012 2011 2010 2009

29.39 26.59 22.46 24.41 33.70

The corresponding number for Tech Mahindra is as follows:

2013 2012 2011 2010 2009

17.51 16.05 16.18 19.97 61.76

As explained above, Tech Mahindra employed a huge capital investment in Satyam and embarked

on a three year turnaround strategy. Thus the numbers are far below average as Satyam was not

adding revenue to to offshoot the surge in capital investment.

91.98 67.95 75.48 89.4 102.71


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(iii) OPERATING PROFIT MARGIN


Operating profit margin as a percentage of revenuedeclined sharply from 28.69% to 16.52% from

2010 to 2012 and shows a mild improvement to 19.63% in 2013. The reasons is the same as statedabove and the steady decline initially was due to the integration of the business with the Mahindra

group after it lost face in the Satyam scam.


2013 2012 2011 2010 2009

Operating Profit


The corresponding figures for Tech Mahindra are:

2013 2012 2011 2010 2009

19.63 16.52 19.14 24.38 28.69

As explained above, Tech Mahindra employed a huge capital investment in Satyam and embarked

on a three year turnaround strategy. Thus the numbers are far below average as Satyam was not

adding revenue to to offshoot the surge in capital investment.

(v) CURRENT RATIO AND QUICK RATIO


Tech Mahindra shows a rather worrisome fluctuation in current ratiowith respect to the

competition but is mainly due to its acquisitions. The dip in 2010 can be explained due to the

acquisition of majority stake in Satyam for which its debt liabilities increased. The dip at the end of

2012 can be explained by the merging of Tech Mahindra and Mahindra Satyam whereby the assets

and liabilities of the latter were added to the former and the relatively poor financial position of

Satyam obviously hurt the ratio.

The quick ratiohowever paints a better a picture and the one major fluctuation occurs from 2011 to

2012 which can be explained by the merger of Tech Mahindra and Mahindra Satyam which might

have required outflows of liquid assets. To investigate further we look at the debt turnover ratio and

inventory turnover ratio and gauge its liquidity position



2013 2012 2011 2010 2009


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Current Ratio 2.87 2.73 2.82 2.16 2.16

Quick Ratio 2.99 2.90 2.88 2.35 2.27

The corresponding figures for Tech Mahindra are as follows:

2013 2012 2011 2010 2009

Current Ratio 0.95 0.98 1.58 1.5 1.9

Quick Ratio 1.32 1.23 2.49 2.14 1.88

These figures indicate that Tech Mahindra is grossly underperforming with respect to the industry

and has a worrisome short term solvency position ever since the 2009 scandal. However much

depends on the nature of inventory and debt collection which shall be investigated below.

(vi) INVENTORY TURNOVER RATIO AND DEBTOR TURNOVER RATIO


An incredibly high inventory turnover ratio indicates exceptionally fast moving inventory and

reasonable debtor ratiovarying from 4.39 to 4.85 and increasing after a slight dip indicates that it

has been collecting on its debts well. This may alleviate some of the fears from the low current ratio.



2013 2012 2011 2010 2009

4.79 4.89 5.03 4.73 4.61

The same figures for Tech Mahindra are:

2013 2012 2011 2010 2009

Thus the reasonably fast debtor turnover ratio indicates that it collects on its debts quickly to ensure

liquidity in the system. This alleviates the situation somewhat but Mahindra must look to increase

current assets to become a better destination for short term investments.For this Satyam must turn

profitable and soon.

4.59 4.34 4.59 4.85 4.56


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(vii) Asset turnover ratio(Net sales/Average total assets) took a major hit in 2010 from a very

formidable position in 2009. This was after the accounting fraud exposition which had a severe

impact on its reputation with potential customers and thus ability to make sales.

Strengths of Firm

(i)Incredibly high inventory turnover ratio and decent turnover ratio somewhat alleviate the lack of

liquidity in the company as it ensures that liquidity collections are done fast and so is inventory .

(ii)High retained earnings provides scope for further investments in subsequent years

(iii)Cash earnings retention ratio indicates good cash flow in the company

Weakness of Firm

(i)Lowest operating profit per share in industry set and peer group. This is primarily because of the

prolonged recovery stage post the accounting fraud exposition

(ii)Very high debt as a composition of liabilities. This is probably because of the initial acquisition of

Satyam and then the merger in 2012 sues to which it had to borrow heavily from institutional

investors.

(iii) Very low current and quick ratio is worrisome as a measure of amount of liquid cash and thus

short term solvency.

Recommendations

(i)The current ratio must be improved and revenue generated should be directed to pay back debtliabilities. Liquidity in the company may be increased through breaking fixed assets, selling off

unproductive assets

(ii) In the meantime it has to negotiate longer payment times with its vendors and creditors

especially if looking to make more investments

(iii) Take long term loans to pay short term debts.


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ORACLE FINANCIAL SERVICES SOFTWARE

Oracle Financial Services Software Limited (formerly called i-flex Solutions Limited BSE: 532466) is a

subsidiary of Oracle Corporation. It is an IT solution provider to the banking industry. It claims to

have more than 900 customers in over 145 countries.[2] Oracle Financial Services Software Limited

is ranked No. 9 in IT companies of India and overall ranked No. 253 in Fortune India 500 list in 2011.


Part of Citicorp

Oracle Financial Software Limited was a part of Citicorp's (now Citigroup) wholly owned subsidiary

called Citicorp Overseas Software Ltd (COSL). In 1991, Mr. Ravi Apte carved out a separate company

called Citicorp Information Technologies Industries Ltd. (CITIL) out of COSL and named Mr. Rajesh

Hukku to head CITIL. While COSL's mandate was to serve Citicorps internal needs globally and be acost center, CITIL's mandate was to be profitable by serving not only Citicorp but the whole global

financial software market. COSL was the brain child of Mr. Ravi Apte, who convinced Citicorp, while

working for Citibank, to start COSL as the offshore captive.

Many of the executive management of Oracle Financial Services, including Rajesh Hukku,

R.Ravisankar and NRK Raman were at COSL and moved to CITIL when it was formed.

i-flex

CITIL started off with universal banking product MicroBanker (which became successful in some

English speaking parts of Africa and other developing regions over the next 34 years) and the retailbanking product Finware. In the mid-90s, CITIL developed FLEXCUBE at its Bangalore development

center after a significant development effort spanning more than 18 months. After the launch of

FLEXCUBE, all of CITIL's transactional banking products were brought under a common brand

umbrella.

CITIL changed its name to i-flex solutions to reflect its growing independence from Citicorp and to

strengthen its FLEXCUBE brand. The name CITIL also made the prospective client banks hesitant

about trusting the company with their data, since the name alluded to a close link with Citibank

which could be one of their competitors.

The first version of MicroBanker was created at COSL by Ravi Sankaran who migrated to Australia

before CITIL was formed. COSL started selling MicroBanker to non-Citi banks in Africa. Ravi Apte the

founder CEO of COSL decided to carve out CITIL to focus on non-Citi business. Because non-Citi was

the primary target for MicroBanker, MicroBanker was moved to CITIL.

The Entry of Oracle Corporation

In 2006, i-flex became a majority-owned subsidiary of Oracle Corporation. Oracle built its stake

through a series of purchases, first buying Citigroup's 41% stake in i-flex solutions for US$593 million

in August 2005, a further 7.52% in March and April 2006, and 3.2 per cent in an open-market

purchase in mid-April 2006.


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On 14 August 2006, i-flex solutions announced it would acquire Mantas, a US-based anti-money

laundering and compliance software company for US$122.6 million. The company part-funded the

transaction through a preferential share allotment to majority shareholder Oracle Corporation.

Following its acquisition by Oracle, i-flex has begun an expansion plan reportedly to capitalize on its

owner's brand and financial strength.[citation needed] It has invested to expand capacity at itsexisting locations in India which is reportedly sufficient to accommodate 17,000 employees

compared with over 10000 staff already employed by the company in August 2007.[citation needed]

On 12 January 2007, after an open offer price to minority shareholders, Oracle increased its stake in

i-flex to around 83%.[5]

On 4 April 2008, the board of directors of i-flex solutions approved a proposal to change the name of

the company to Oracle Financial Services Limited, subject to regulatory and shareholder approvals. A

press release issued by the company said that "The proposed new name reflects the company's

close strategic and operational alignment with its parent, Oracle Corporation, which owns 81percent of the company." It added that the current management team under N.R.K. Raman, CEO and

Managing Director, will continue to run the operations of the company.[6]

On 24 October 2010, Oracle announced the appointment of Chaitanya M Kamat (Chet Kamat) as

Managing Director and Chief Executive Officer of Oracle Financial Services Software Limited. Mr.

Kamat has also joined the Board of Directors. The outgoing CEO and MD, N.R.K.Raman retired from

these posts after 25 distinguished years of service.

Now Oracle Financial Services Software Limited is a major part of Oracle Financial Services Global

Business Unit (FSGBU) under Mr.Sonny Singh who is the Vice President & Group Head of Oracle

FSGBU World Wide

Interpretations from Horizontal, Vertical and Trend Analysis

From Exhibits 10, 11, 12 we see that:

The net sales have increase over the past 5 years. It is increasing at an incrementing rate.

An exponential increase has occurred in cash and bank balance in 2013 which can be a good

sign as the economy is improving and OFSS is seeking this opportunity to grab hold of the

banking services sector.

Company has withdrawn its fixed deposits and recovered cash from sundry debtors toincrease the liquidity which could be a prospect of future investment.

Fixed assets appear to be very less percentage of the total assets compared to its peers and

the company sees a more amount of accumulated depreciation than its peers. Therefore the

liquidity could be a move to increase and acquire fress fixed assets.

Trend analysis shows a dip in income in 2010 which can be attributed to recession as the

banking sector was in disarray. The company has recovered well thereafter and has shown a

steady increase which has the brought back stakeholder confidence and attracted investors.


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(i)Comparison with Peers

Among all the companies chosen, Oracle Financial Services software is the only who did not suffer a

decline in operating profit per share despite the economic slowdown. A primary reason could be thepride of place it enjoys among its clients, mostly banking companies, as the leading technology

solutions provider. Thus, it is a source of competitive advantage with respect to similar divisions of

other companies. Another major reason could be its increasingly good performance in the product

front.



2013 2012 2011 2010 2009

The figures for the same metric for OFSS are as follows:

2013 2012 2011 2010 2009

133.59 117.85 110.91 101.76 78.08

The operating profits for OFSS are very encouraging. It leads the representative group chosen as theindustry .Although higher numbers are expected due to OFSS being a high margin player, it leads the

pack even among high margin players like Infosys ,Tech Mahindra, Mindtree. This bodes well for its

financial strength.

(iii) OPERATING PROFIT MARGIN


Operating profit margin as a percentage of revenuefollows a similar trend and is consistently above

the companies chosen from the peer group. Thus, OFSS is and has been in a strong position to pay

for its fixed costs like interest on debt in the period. A net increase in operating income significantly

helped its cause.


2013 2012 2011 2010 2009

Operating Profit

Margin(%)[Industry Average]

25.38 22.87 22.17 25.04 25.45

77.95 63.19 44.32 50.30 49.15


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The figures for OFSS for the metric chosen are shown below:

2013 2012 2011 2010 2009

38.22 37.97 39.41 38.03 29.55

With higher incomes, the profit figures for OFSS also look very favourable and once again it leads

the industry set. Thus it is raking in faster than any other player in the industry set and is in a strong

position to pay for any fixed costs .

(ii) RETURN ON ASSETS


An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how

efficient management is at using its assets to generate earnings. Calculated by dividing a company's

annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as

"return on investment".

The company shows the highest return on assets among the peers chosen which is a key indicator of

its consistent financial performance in the period. The reasons could be attributed to those

mentioned in (i).Thus it shows thst OFSS is the best investment destination in the industry set for the

period.


The industry average for the metric chosen is shown below:

2013 2012 2011 2010 2009

289.05 238.95 177.37 170.55 138.87

The corresponding figures for OFSS are shown below:

2013 2012 2011 2010 2009

867.46 743.91 613.89 498.15 418.94

An outstanding return on assets year on year makes OFSS a brilliant investment destination.


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(iv) CURRENT RATIO AND QUICK RATIO


The company shows the highest current ratioand quick ratiofor the period specified - a good

indication of its short term solvency. A negligible difference between the two indicates that the

company holds little inventory. However it is not possible to comment further without knowingwhether the company has fast paying inventories or fast paying debtors. This will give us a better

indication of the liquidity situation.

Comparison with industry averages


2013 2012 2011 2010 2009

Current Ratio 2.87 2.73 2.82 2.16 2.16

Quick Ratio 2.99 2.90 2.88 2.35 2.27

The quick ratio and current ratio for the OFSS is as follows:

Current Ratio 6.98 6.89 7.02 6.1 4.46

Quick Ratio 6.91 6.82 6.92 6.04 4.42

The numbers obviously indicate a tremendous amount of liquidity in the system and extremely

strong short term solvency. However one must investigate the activity ratios like inventory turnover

ratio to find out about the nature of liquidity in the system.

(v)DEBTOR TURNOVER RATIO


To further comment on (v) we investigate the inventory turnover ratio and debtor turnover ratio,

the latter of which is applicable in this case. Despite the high current ratio and quick ratio we see the

lowest debtor turnover ratio among the peer group which indicates that the company is taking very

long for debt collection. This could be due to the somewhat restricted client base of OFSS with

respect to the competition and its dependence on them due to which they take deferred payments.

It might also be a consequence of specific product offerings of Oracle as compared to morediversification by the competition.



2013 2012 2011 2010 2009

4.79 4.89 5.03 4.73 4.61


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The figures for the same for OFSS are:

2013 2012 2011 2010 2009

2.78 2.72 2.87 2.19 2.13

Thus we see that despite a high current ratios and quick ratios, OFSS is severely lagging the industry

in all years with respect to debt collections. As mentioned earlier ,a possible reason could be the

relatively high buying power of its clients and the somewhat niche quality of its services.

(vi) ASSET TURNOVER RATIO


Asset turnover ratio(Net sales/Average total assets) has consistently been on the decline in the fiveyear period which indicates an inefficient use of assets. However this has primarily been due to the

sharp increase in total assets year after year(which has been increasing the denominator at a faster

pace than the numerator)as shown below:

2013 2012 2011 2010 2009


The asset turnover ratio as an industry average is shown below:

2013 2012 2011 2010 2009

1.31 1.37 1.20 1.28 1.49

The corresponding figures for OFSS are:

2013 2012 2011 2010 2009

0.43 0.46 0.51 0.58 0.7

We see OFSS trailing the industry average significantly and is among the lowest in the industry set

.However as mentioned before the low figures can be attributed to the huge increases in total assets

year on year. Increase in net sales is not able to increase proportionately with increase in assets.

Total Assets 7,292.35 6,247.04 5,150.34 4,178.07 3,509.43


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Strengths of Firm

(i) Very high operating profit on shares.

(ii)Highest profit margin as a percentage of sales is indicative of very good financial strength

(iii)Highest return on assets in industry set is indicative of OFSS being a very good investment

destination.

(iv)Highest current and liquidity ratio in industry set is indicative of very high liquid cash and thus

short term solvency.

Weaknesses of firm

(i)Lowest debtor turnover ratio in peer group indicates that it takes longest to receive account

receivables.

Recommendations

(i)Since delayed payments are the only problem and there is a relatively high buying power of

customers, OFSS can focus on a diversification strategy to build a stronger client base.

(ii)Incentivise early payment of bills


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CONCLUSION

The four companies have been chosen to represent the top bracket of the Indian IT sector. The

companies chosen employ either high volume or high margins and the effects of their respective

strategies on their financial stability have been investigated. Each strategy apparently has both

advantages and pitfalls and it is up to the company to find the right balance to elevate theirrespective positions in the pecking order and challenge for top positions with TCS and Infosys who

still command a lions share of the market share of the sector.

Limitations of Project

(i)For industry comparisons only average has been considered .There are often outliers with

exceptionally high or low values which greatly affect the averages.For a more detailed analysis both

average and median values should be considered.

(ii) The industry average has been computed with a representative set of the Indian sector whose

positions are similar to the firms chosen. Inclusion of the entire sector might pose deviations.


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References

(i) www.wikipedia.org

(ii) www.ndtv.profit.com

(iii) www.moneycontrol.com

(iv) www.money.rediff.com

(v) www.accountingcoach.com
http://www.wikipedia.org/http://www.wikipedia.org/http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.money.rediff.com/http://www.money.rediff.com/http://www.money.rediff.com/http://www.moneycontrol.com/http://www.wikipedia.org/


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Appendix

Exhibit 1,2,3 and the financial ratios of Wipro are attached as follows:

wipro.xlsx

Exhibit 4,5,6 and the financial ratios of Mindtree are attached as follows :

mindtree.xlsx

Exhibit 7,8,9 and the financial ratios of Tech Mahindra are attached as follows :

TechMahindra Finanalysis.xlsx

Exhibit 10,11,12 and the financial ratios of Oracle Financial Services Software is as follows:

oracle financial

services.xlsx

Industry averages have been computed in the following file

industryaverage.xlsx

Documents

Financial Analysis of IT companies