Company Analysis 2

Company Analysis-2

A Case on IT Companies in India

Dr. Jitendra Mahakud 2

Example: Infosys

Finacle, a product of the company isrecognized as the world's scalable open-ended system based on providing core-banking solutions.

In the year 2004, it crossed the billion-revenue mark.

As on 31/03/2005, promoters held 21.76 %shares of the company while institutionalinvestors held 47.62 %. Other investors andthe general public held 11.62% and 19.01 %respectively.


Financial Analysis as on March 31 2005

53.15% jumps in net profit

Operating income of the companygrew by 44.08%

Operating profit grew by 47.73%

Net profit margin was up by 182 basispoints to 27.25% from 25.43% for theyear under review.


Company & Index

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Sensex Infosys

Infosys Vs. Index


Infosys (Return of Market Price % Sensex)

60%

80%

100%

120%

140%

160%

4/1/2004 7/1/2004 10/1/2004 1/1/2005

Return (Market Price) Return (Sensex)

Return and Market Price


SWOT Analysis of Infosys

Strengths: Good brand recall amongst decision-makers. Strong technical expertise

Weaknesses: Attrition amongst key professionals, especially on the

delivery side. Inability to take on the Global Big Five in terms of scale.

Opportunities: Growth in package implementation, consulting services and

availability of cash reserves to pursue acquisitions

Threats: MNCs building offshore capabilities, anti-off shoring lobby in

Western markets


WIPRO

Wipro is the largest company in India interms of market capitalization.

The company operates through fiveprincipal business segments: Global ITServices and Products, IT EnabledServices, India and Asia-Pac IT Servicesand Products, Consumer Care andLighting and Health Science.



The net profit growth has increasedfrom 23.3% to 56.5%

The company gross profit margin is24.9%

The company decided to lessen thedividend this year which Rs. 29 pershare to Rs. 5 per share.


One year Wipro’s comparative graph with BSE

…………. – WIPRO ………....- BSE Sensex


SWOT Analysis of Wipro

Strengths: The company has brand recognition. The company provides quality products. The company has strong licensing networks. The company has a strong economic base.

The company does an effective advertising campaigning. The company is growing in international markets.

Weaknesses: There is lack of backward and forward integration in the company.

The company’s revenues are highly dependent on its IT service sales. The company is possibly slow in technology development. The company has no clear future plan.

Opportunities: IT boom back after the debacle of 9/11. Offshore outsourcing is being increasingly accepted as a strategic imperative by more organizations

today

Threats: There are new technologies available for small engines that the company cannot compete with. There are new entrants into the market.


Satyam

Satyam Computer Services Ltd (Satyam) is a leadingglobal consulting and IT services company

It has excellent domain competencies in verticalssuch as Automotive, Banking & Financial Services,Insurance & Healthcare, Manufacturing, and inTIMES i.e. the Telecom, Infrastructure, Media,Entertainment & Semiconductors sector.

As on 31/03/05 the Promoters, InstitutionalInvestors, General Public and Others held 15.67%,66.96%, 4.47% and 12.90% of the share holdingpattern of the company respectively.



There is 36.30% growth in sales.

There is a 28.38% growth in operatingprofit

Gross profit increased by 25.52%

Net profit margin increased by 238basis points from19.40 % to 21.78%


Company & Index

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Company and Index


Satyam (Return of Market Price % Sensex)

60%

80%

100%

120%

140%

160%

4/1/2004 7/1/2004 10/1/2004 1/1/2005

Return (Market Price) Return (Sensex)

Return and Market Price


SWOT Analysis of Satyam

Strengths: They have the third largest market share in India. Satyam has a strong financial position. Company revenues and earnings have been

rising steadily, a low tax rate

Weaknesses: Satyam is smaller in size compared to its direct competitors. Infosys, Wipro, Tata,

CSC, are all multibillion. The company’s revenues are highly dependent on its IT service sales

Opportunities: Satyam has been selected by Check Free Investment Services (CIS), to become the

partner to CIS in the development of its next generation Check Free EPL(TM) platform. Offshore outsourcing is being increasingly accepted as a strategic imperative by more

organizations today

Threats: Lot of competition in this industry including pricing pressures and technological

development. Changes in political, economic or other factors such as currency exchange rates,

inflation rates affect the worldwide business in each of the company’s Operations


Current Ratio

0

2

4

6

8

Year

Num

ber Satyam

Infosys

Wipro

Satyam 4.93 3.44 6.81 4.51 5.34 5.74

Infosys 4.18 2.9 3.09 3.16 2.03 3.2

Wipro 1.66 2.98 3.79 3.29 2.01 2.53

Mar

2000

Mar

2001

Mar

2002

Mar

2003

Mar

2004

Mar

2005

Current Ratio


Net Profit Margin = Profit after Tax

---------------------

Net Sales

Net profit margin ratio

0

0.5

Year

Satyam Infosys Wipro

Satyam 0.19 0.4 0.26 0.15 0.22 0.22

Infosys 0.33 0.33 0.31 0.26 0.26 0.28

Wipro 0.1 0.21 0.25 0.2 0.18 0.21

Mar Mar Mar Mar Mar Mar


Debt

Debt Equity Ratio = ----------------

Equity

0.00

0.20

0.40

0.60

0.80

1.00

Satyam

Infosys

Wipro

Satyam 0.77 0.23 0.01 0.01 0.00 0.00

Infosys 0.00 0.00 0.00 0.00 0.00 0.00

Wipro 0.10 0.30 0.10 0.20 0.30 0.20

Mar

Mar

Mar

Mar

Mar

Mar


Total Liabilities

Debt Ratio = ---------------------

Total Assets

Debt Ratio

0

0.2

0.4

0.6

Year

Num

ber Satyam

Infosys

Wipro

Satyam 0.5 0.3 0.1 0.2 0.2 0.2

Infosys 0.2 0.2 0.2 0.2 0.4 0.2

Wipro 0.4 0.2 0.2 0.2 0.3 0.3


Return on Equity = Profit after Tax / Book Value of Equity

Return on Equity

0

10

20

Year

Satyam Infosys Wipro

Satyam 2.09 16.82 7.32 4.53 6.81 7.45

Infosys 2.33 2.99 2.57 2.22 2.55 9.8

Wipro 1.77 9.41 10.76 7.68 8.25 9.75



EBIT

ROCE = -------------------------------------------

Total Assets – Current Liabilities

Return on Capital Employed

0

0.2

0.4

0.6

Year

Rs.

Satyam

Infosys

Wipro

Satyam 0.28 0.57 0.27 0.19 0.27 0.29

Infosys 0.4 0.51 0.46 0.42 0.46 0.23

Wipro 0.38 0.39 0.38 0.28 0.3 0.36


EPS = Profit after Tax / No. of Outstanding Shares

Earning Per Share

0.00

100.00

200.00

Year

Rs.

/Sh

are

Satyam 23.11 17.29 14.29 9.77 17.57 23.50

Infosys 44.37 95.05 122.1 144.6 186.6 70.58

Wipro 43.22 23.38 27.54 25.85 28.93 46.82



Risk Analysis

0%

50%

100%

RISK COMPOSURE (2004-5)

Unsysystematic Risk 62.78% 53.31% 43.27%

Systematic Risk 37.22% 46.69% 56.73%

SATYAM INFOSYS WIPRO0%

50%

100%

RISK COMPOSURE (2003-4)

Unsysystematic Risk 53.47% 69.35% 51.02%

Systematic Risk 46.53% 30.65% 48.98%

SATYAM INFOSYS WIPRO


Beta Analysis

1.65

1.261.45

0

0.5

1

1.5

2


YEARLY BETA (2003-4)

0.81 0.8

1.31

0

0.5

1

1.5


YEARLY BETA (2004-5)


Alpha Analysis: Alpha indicates the stock return when the market return is zero. A positive alpha indicates that the stock is under priced and negative alpha indicates that the stock is overpriced

based on assets pricing model.

9.84%

20.12%

10.42%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%


Alpha (2004-5)


Infosys technologies ltd.

Rs. Crore Actual Projected

Mar 2005 Mar 2006 Mar 2007 Mar 2008 Mar 2009 Mar 2010

12 mths 12 mths 12 mths 12 mths 12 mths 12 mths

PAT 1904.38 2765.09 3789.38 5168.40 6999.16 9376.59

Appropriation of

profits

Dividends 356.56 723.92 992.08 1353.12 1832.42 2454.85

Retained earnings 1547.82 2041.17 2797.30 3815.28 5166.74 6921.74

No.of Shareholders 270570549 270570549 270570549 270570549 270570549 270570549

EPS 70.38 102.19 140.05 191.02 258.68 346.55

P/E 31.91 31.91 31.91 31.91 31.91 31.91

Market Price 2245.95 3261.04 4469.04 6095.40 8254.53 11058.38

Intrinsic Value = Market Price/ (1+ke)^n = (11058.38)/(1+.197)^5 = Rs 4500.08

From the above table, we can observe that projected market price of share after 5 years i.e. FY2010 is Rs 11060.68.

After discounting it to present value, by taking cost on equity (ke) as 19.7%, we get the intrinsic value of Rs 4500.08.

As it can be seen from the above table, the market price on March 2005 is comparatively less than the calculated intrinsic value.

Thus, it can be analyzed that the market price of the share is highly undervalued in comparison with its intrinsic value.


Wipro technologies ltd.


Mar05 Mar06 Mar07 Mar08 Mar09 Mar10

PAT 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths

1494.82 1779.14 2199.43 2719.05 3361.50 4155.86

Appropriation of profits

Dividends 401.12 363.37 449.21 555.34 686.55 848.79



EPS 21.25 25.29 31.26 38.65 47.78 59.07

P/E 29.73 29.73 29.73 29.73 29.73 29.73

Market Price 670.95 751.79 929.39 1148.96 1420.43 1756.09

Intrinsic Value = Market Price/ (1+ke)^n = (1756.09)/(1+.2928)^5 = Rs 486.29


After discounting it to present value, by takingcost on equity (ke) as 29.28%, we get the intrinsic value of Rs 486.29.

From the above table, we can observe that market price of share on 31st mach 2005 is 670.95 which is higher than its intrinsic value i.e. Rs 486.29.

Thus it can be analyzed that the market price of the share is very much overvalued in comparison with its intrinsic value.

This analysis proves that from the investor point of view, this share is looking weak for the near future.


Satyam Computer Services Ltd.


Mar 2005 Mar 2006 Mar 2007 Mar 2008 Mar 2009 Mar 2010

12 mths 12 mths 12 mths 12 mths 12 mths 12 mths

PAT 750.26 1190.08 1601.21 2147.28 2873.76 3842.15

Appropriation of profits

Dividends 180.49 214.75 288.94 387.47 518.57 693.31



EPS 23.50 37.28 50.15 67.26 90.01 120.34

P/E 17.38 17.38 17.38 17.38 17.38 17.38

Market Price 408.5 647.85 871.66 1168.92 1564.41 2091.57

Intrinsic Value = Market Price/ (1+ke)^n= (1756.09)/(1+.1965)^5 = Rs 852.92


After discounting it to present value, by taking cost on equity (ke) as 16.7%, we get the intrinsic value of Rs 852.92.

As it can be seen from the above table, the market price on March 2005 is comparatively less than the calculated intrinsic value.

Thus it can be analyzed that the market price of the share is very much undervalued in comparison with its intrinsic value.

This analysis proves that from the investor point of view, this share is a good buy for the near future.

Economy & Finance

Company Analysis 2