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Company Analysis-2: A Case On IT Companies in India
Company Analysis-2: A Case On IT Companies in India
Example: Infosys
Finacle, a product of the company is recognized as the world's scalable openended system based on providing corebanking solutions. In the year 2004, it crossed the billionrevenue mark. As on 31/03/2005, promoters held 21.76 % shares of the company while institutional investors held 47.62 %. Other investors and the general public held 11.62% and 19.01 % respectively.
Dr. Jitendra Mahakud 2
53.15% jumps in net profit Operating income of the company grew by 44.08% Operating profit grew by 47.73% Net profit margin was up by 182 basis points to 27.25% from 25.43% for the year under review.
Dr. Jitendra Mahakud 3
4000
Sensex Indices
7/1/2004
Strengths:
Weaknesses:
Good brand recall amongst decision-makers. Strong technical expertise Attrition amongst key professionals, especially on the delivery side. Inability to take on the Global Big Five in terms of scale. Growth in package implementation, consulting services and availability of cash reserves to pursue acquisitions MNCs building offshore capabilities, anti-off shoring lobby in Western markets
Dr. Jitendra Mahakud 6
Opportunities:
Threats:
WIPRO
Wipro is the largest company in India in terms of market capitalization. The company operates through five principal business segments: Global IT Services and Products, IT Enabled Services, India and Asia-Pac IT Services and Products, Consumer Care and Lighting and Health Science.
Dr. Jitendra Mahakud 7
The net profit growth has increased from 23.3% to 56.5% The company gross profit margin is 24.9% The company decided to lessen the dividend this year which Rs. 29 per share to Rs. 5 per share.
Dr. Jitendra Mahakud 8
. WIPRO
Strengths:
Weaknesses:
The company The company The company The company The company The company
has brand recognition. provides quality products. has strong licensing networks. has a strong economic base. does an effective advertising campaigning. is growing in international markets.
Opportunities:
There is lack of backward and forward integration in the company. The companys revenues are highly dependent on its IT service sales. The company is possibly slow in technology development. The company has no clear future plan. 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.
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Satyam
Satyam Computer Services Ltd (Satyam) is a leading global consulting and IT services company It has excellent domain competencies in verticals such as Automotive, Banking & Financial Services, Insurance & Healthcare, Manufacturing, and in TIMES i.e. the Telecom, Infrastructure, Media, Entertainment & Semiconductors sector. As on 31/03/05 the Promoters, Institutional Investors, General Public and Others held 15.67%, 66.96%, 4.47% and 12.90% of the share holding pattern of the company respectively.
Dr. Jitendra Mahakud 11
There is 36.30% growth in sales. There is a 28.38% growth in operating profit Gross profit increased by 25.52% Net profit margin increased by 238 basis points from19.40 % to 21.78%
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4000 3000 2000 1000 0 1999-00 2000-01 2001-02 Sensex Satyam 2002-03 2003-04
13
7/1/2004
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Strengths:
Weaknesses:
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
Satyam is smaller in size compared to its direct competitors. Infosys, Wipro, Tata, CSC, are all multibillion. The companys revenues are highly dependent on its IT service sales
Opportunities:
Threats:
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
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 companys Operations
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Current Ratio
Current Ratio 8
Number
6 4 2 0
Satyam Infosys Wipro Mar 2000 4.93 4.18 1.66 Mar 2001 3.44 2.9 2.98 Mar 2002 6.81 3.09 3.79 Mar 2003 4.51 3.16 3.29 Mar 2004 5.34 2.03 2.01 Mar 2005 5.74 3.2 2.53
Year
16
Satyam
Infosys
Wipro
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Debt ---------------Equity
1.00 0.80 0.60 0.40 0.20 0.00 Mar Mar Mar Mar Mar Mar 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
Dr. Jitendra Mahakud 18
Debt Ratio =
0.6
Number
0.4 0.2 0 Satyam 0.5 0.3 0.1 0.2 0.2 0.2 Infosys Wipro 0.2 0.2 0.2 0.2 0.4 0.2 0.4 0.2 0.2 0.2 0.3 0.3 Year
19
20
ROCE =
Rs.
0.4 0.2 0 Satyam 0.28 0.57 0.27 0.19 0.27 0.29 Infosys Wipro 0.4 0.51 0.46 0.42 0.46 0.23 0.38 0.39 0.38 0.28 0.3 0.36 Year
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Rs./Share
Mar
Mar
Mar
Mar
Mar
Mar
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 Year
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Risk Analysis
RISK COMPOSURE (2003-4)
100%
50%
0%
Unsysystematic Risk Systematic Risk
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Beta Analysis
YEARLY BETA (2003-4)
2 1.5 1 0.5 0.5 0
SATYAM INFOSYS WIPRO
1.65 1.26
1.45
0
SATYAM INFOSYS WIPRO
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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.
Alpha (2004-5)
25.00% 20.00% 15.00% 10.00% 5.00% 0.00% SATYAM INFOSYS WIPRO 9.84% 20.12% 10.42%
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Projected Mar 2006 12 mths 2765.09 Mar 2007 12 mths 3789.38 Mar 2008 12 mths 5168.40 Mar 2009 12 mths 6999.16 Mar 2010 12 mths 9376.59
1904.38
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.
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Projected Mar06 12 mths 1779.14 Mar07 12 mths 2199.43 Mar08 12 mths 2719.05 Mar09 12 mths 3361.50 Mar10 12 mths 4155.86
Intrinsic Value = Market Price/ (1+ke)^n = (1756.09)/(1+.2928)^5 = Rs 486.29 From the above table, we can observe that projected market price of share after 5 years i.e. FY2010 is Rs 1756.09. After discounting it to present value, by taking cost 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 31 st 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.
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12 mths PAT Appropriation of profits Dividends Retained earnings No.of Shareholders EPS
P/E Market Price
12 mths 1190.08
12 mths 1601.21
12 mths 2147.28
12 mths 2873.76
12 mths 3842.15
750.26
Intrinsic Value = Market Price/ (1+ke)^n= (1756.09)/(1+.1965)^5 = Rs 852.92 From the above table, we can observe that projected market price of share after 5 years i.e. FY2010 is Rs 2091.57. 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.
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