FM Assignment

Overview of Indian IT Industry
India is the world's largest sourcing destination for the information technology (IT) industry,
accounting for approximately 67% of the US$ 124-130 billion market. The industry employs
about 10 million workforce. More importantly, the industry has led the economic
transformation of the country and altered the perception of India in the global economy.
India's cost competitiveness in providing IT services, which is approximately 3-4 times
cheaper than the US, continues to be the mainstay of its unique selling proposition (USP) in
the global sourcing market. However, India is also gaining prominence in terms of
intellectual capital with several global IT firms setting up their innovation centres in India.
The IT industry has also created significant demand in the Indian education sector, especially
for engineering and computer science.
The Indian IT and Ites industry is divided into four major segments – IT services, business
process management (BPM), software products and engineering services, and hardware.
Indian IT and Its sector is growing substantially with its
 Expansion into varied verticals
 Well differentiated service offerings
 Increasing geographic penetration

The phenomenal success of the Indian IT- ITeS industry can be attributed to the favourable
government policies, burgeoning demand conditions, healthy growth of related industries
and competitive environment prevalent in the industry. The interplay of these forces has led
to putting the industry on the global map.
The IT-BPM sector in India grew at a Compound Annual Growth rate (CAGR) of 15 per cent
over 2010-15, which is 3-4 times higher than the global IT-BPM spend, and is estimated to
expand at a CAGR of 9.5 per cent to US$ 300 billion by 2020.
Market size
The Indian Information Technology (IT) sector is expected to grow 11 per cent per annum
and triple its current annual revenue to reach US$ 350 billion by FY 2025, as per National
Association of Software and Services Companies (NASSCOM).
India, the fourth largest base for new businesses in the world and home to over 3,100 tech
start-ups, is set to increase its base to 11,500 tech start-ups by 2020, as per a report by
NASSCOM and Zinnov Management Consulting Pvt Ltd.
India’s internet economy is expected to touch Rs 10 trillion (US$ 151.6 billion) by 2018,
accounting for 5 per cent of the country’s gross domestic product (GDP), according to a
report by the Boston Consulting Group (BCG) and Internet and Mobile Association of India
(IAMAI). India’s internet user base reached over 350 million by June 2015, the third largest
in the world, while the number of social media users grew to 143 million by April 2015 and
smartphones grew to 160 million.
Public cloud services revenue in India is expected to reach US$ 838 million in 2015, growing
by 33 per cent year-on-year (y-o-y), as per a report by Gartner Inc. In yet another Gartner
report, the public cloud market alone in the country was estimated to treble to US$ 1.9
billion by 2018 from US$ 638 million in 2014. Increased penetration of internet (including in
rural areas) and rapid emergence of e-commerce are the main drivers for continued growth
of data centre co-location and hosting market in India.
Indian IT's core competencies and strengths have attracted significant investments from
major countries. The computer software and hardware sector in India attracted cumulative
Foreign Direct Investment (FDI) inflows worth US$ 18.17 billion between April 2000 and
September 2015, according to data released by the Department of Industrial Policy and
Promotion (DIPP).
Indian start-ups are expected to receive funding worth US$ 5 billion by the end of 2015, a
125 per cent increase in a year, according to a report by IT Industry association NASSCOM.
The private equity (PE) deals increased the number of mergers and acquisitions (M&A)
especially in the e-commerce space in 2014.
History and Evolution of IT Industry

The evolution of IT industry can be studied in 4 phases:
Phase I: Prior to 1980

The software industry was literally nonexistent in India until 1960. Software used in the
computers till that time, were in built with the systems. Government protected the
hardware industry through high tariff barriers and licensing. However, in the West, the need
for software development was gradually being felt as the software in built in the system was
not sufficient to perform all the operations. The Government of India therefore, realized the
potential for earning foreign exchange.
In 1972, the government formulated the Software Export Scheme. This scheme made the
provision of hardware imports in exchange of software exports. TCS became the first firm to
agree to this condition. The year 1974 marked the beginning of Software exports from India.
Phase II: 1980- 1990
Despite the government initiatives, the software exports were not picking up because of
two reasons mainly:
 The exports of software, was heavily dependent on the imports of hardware, which
was costly as well as the procedure for obtaining the same was very cumbersome.
 Secondly, there was a lack of infrastructural facilities for software development.

To counter these, the government formulated a New Computer Policy in 1984, which
simplified import procedures and also reduced the import duty on hardware for software
developers. In an attempt to make, software industry independent of the hardware
industry, the government in 1986, formulated Software Policy which further, liberalized the
IT industry. According to this policy, the hardware imports were de-licensed and were also
made duty free for the exporters. This along with the world wide crash in the hardware
prices reduced the entry barriers substantially.
In 1990, government established Software Technology Parks of India. This scheme was
formulated to increase the exports of software and services.
Phase III: 1990- 2000
This decade made several significant changes in the economy, including trade liberalization,
opening up of Indian economy to foreign investment, devaluation of the rupee and
relaxation of entry barriers. These changes attracted many foreign entities (MNCs) to our
nation. These MNCs in India, introduced ‘Offshore Model’ for software services, according
to which, the companies used to service their clients from India itself. This model further
graduated to Global Delivery Model (GDM). Global Delivery Model is a combination of
Onsite and Offshore Model. In this model, the Offshore Development Centre is located at
various locations across the globe.
During this period due to the entry of many players in the Indian market, the competition
got intensified. Therefore, the players started investing in research and development to
distinguish their services from others.
Phase IV: Post 2000
The global problems like the Y2K, the dotcom crash and recession in the US economy,
proved to be a boon to Indian IT industry. The Y2K problem demanded the existing
softwares to be compatible to the year 2000. Due to the shortage of US based programmers
during this period, many mid sized firms were forced to utilize the services of Indian firms.
This had placed the Indian IT industry on the global map.
Post 2002- 03, the industry had registered a robust growth rate because of increase in the
number of clients, large sized contracts and a strong global delivery model.
Evolution of Indian IT- Its Industry
Present Industry Structure

The Indian IT industry comprises of well established billion dollar firms as well as start ups or
the emerging players. The industry can be described as fragmented yet concentrated. In
terms of the expanse of presence of the small and medium enterprises (SMEs) and their
offerings, they can be termed as Fragmented. But, on the other hand, when the dominance
of the leading players are taken into consideration, because of their earnings as well as their
offerings, the industry can be referred to as Concentrated.
The industry can be categorized into:
 Tier I Players
 Tier II Players
 Offshore Global Services Provider
 Pure Play BPO Providers
 Captive BPO Units
 Emerging Players
Tier I Players: Though the number of players in this category is very low (5- 7), but they
account for almost 45 per cent of IT Services and 4- 5 percent of BPO exports. These firms
have been able to increase their sales with the help of their strong management capabilities
and Global Delivery Model (GDM). This has helped them in enhancing their global presence.
They are increasing venturing into new services like IT consulting, Research and
Development (R & D), testing etc.
Tier II Players: These players have their revenues greater than US $ 100 billion. The number
of players in this category is also low (10- 12), but they account for 25 per cent of IT services
and 4- 5 per cent of BPO exports. Due to limited number of clients, service lines and
verticals, these players have registered a lower growth rate than the Tier I players.
Offshore Global Service Providers: This category has around 30- 40 players who have
registered their sales revenue of US $ 10- 500 billion. These players are recording inorganic
growth through acquisitions in low cost destinations including India. But, due to complex
local market conditions, they are facing challenges in integrating Indian operations.
Pure Play BPO providers: The number of players in this category have hovered around 40-
50. They account for around 20 per cent of BPO exports. These players are facing serious
challenges in terms of increasing customer expectations in terms of quality and delivery of
service.
Captive BPO Units: There are about 150 players in this category. They account for 50 per
cent of BPO exports. They are also increasing their presence in Tier II cities, primarily for
cost and resource considerations.
Emerging Players: The number of players in this category is over 3000. They account for
about 10- 15 per cent of IT services exports and 5 per cent of BPO. These players are facing
severe challenges as they have limited access to markets and the lack delivery scales.
Positive Impact of IT Sector In India
Technically Skilled Professionals: India has a huge reservoir of technically sound manpower.
This has proved to be one of the most critical success factor for Indian IT sector. This growth
is also complimented by the demographic profile of India, where over 50 per cent of the
population is below 25 years of age. The growing number of world class educational
institutions along with the policy for educational loans, have geared the growth of the
industry.
English speaking population: Because of India’s colonial past, the medium of education in
India is primarily English. This has proved to be boon to the industry. India is the second
largest nation in the world in terms of English speaking population, first being USA.
Robust Telecom Infrastructure: The telecom industry in India is well established. The
telecommunications network in India, is the third largest network in the world and the
second largest among the emerging nations in Asia. The availability of superior, robust and
reliable telecom connectivity has added to the success of the whole industry in India.
Rendering Customized, end to end and Niche Services/ Solutions: Due to the increasing
pervasiveness of IT and huge potential for earning foreign exchange, Indian firms have
slowly graduated from giving customized solutions to end to end services and also niche
solutions/ services.
Lower costs of offshore outsourcing: The initial driver for off shoring to India was cost. But,
India has proved to deliver quality services at affordable costs. According to AT Kearney, off
shoring to India results in saving 25- 60 per cent of the base cost.
Favourable Governmental Policies: After the liberalization of Indian economy, entry
barriers for foreign investors have been removed. Therefore, liberalized FDI policies, tax
exemptions, basic infrastructure, subsidies etc. from the government has definitely given a
boost to the establishment of the industry in India.
Quality Orientation: Indian companies are certifying themselves with ISO 9001, Six Sigma,
and Just in Time, COPC certifications to attract foreign clients.
Established IT hubs in India
Emerging IT hubs in India

Slowly and steadily the Tier 2 and Tier 3 cities are also emerging to become IT hubs. The
major advantage which these cities provide are
 Higher savings in administration
 Lower infrastructural costs
 Large pool of talent in the form of skilled professionals
Competitive Landscape of the Industry
The competitive landscape of the industry can be understood using the Porter’s five forces
model.
Threat of New Entrants: When the barriers of entry are low, the threat of new entrants
becomes very high. Since in IT software and services, the players enjoy significant
economies of scale and the switching costs are also very high, therefore, the entry barriers
for the IT Software and Services are very high. In contrast to this, in ITeS- BPO, lower
economies of scale are reached and the switching cost is also very low. This leads to very
low entry barriers.
Therefore, there is high threat of new entrants in the ITeS- BPO sector while it is low in the
case of IT software and services.
Rivalry among players: When the number of players increases in a sector, the intensity of
rivalry also increases. With the increase in rivalry, the players resort to a number of
strategies being followed by the players to acquire new customers or to retain older ones.
Earlier players used to provide customized services to attract customers, but now this
practice, also fails to attract them. Therefore, they resorted to providing end to end
solutions, niche services etc.
Bargaining Power of Buyers: Since the switching costs in case of IT Software and Services, is
very high, the Bargaining power of the buyers becomes low. But just opposite to this, in case
of ITeS- BPO sector, the switching cost is relatively very low, which makes the bargaining
power of the buyer very high.
Bargaining Power of Suppliers: Suppliers for the industry can be categorized into: (a)
Knowledge Professionals, (b) Hardware Manufacturers and (c) Telecom industry players.
Knowledge Professionals have a high bargaining power in the IT Software and Services
sectors because they demand high level of skill and expertise to render their services. In the
ITeS- BPO sector, the level of skill and expertise required is low, therefore, they have a lower
bargaining power on the industry.
For the IT industry to function properly, proper hardware infrastructure is required.
Therefore, the bargaining power of hardware manufacturer grows. This is supported by the
fact that hardware manufacturing industry is very concentrated (HP, IBM, Dell etc.)
While a robust telecom network is a pre-requisite for proper functionality of the IT industry,
but the presence of a number of players in the industry reduces their bargaining power.
Threat of Substitutes: Since the IT industry is driven by technology, which itself is ever
evolving, therefore, there is a high risk of substitutes for the industry.
Competitive Strategies
After studying the competitive landscape of the industry, the following competitive
strategies can be followed by the players
1. Consolidating Business from ‘Repeat Clients’ and win new clients: TCS, Infosys and
Satyam have a major chunk of their revenues from their ‘repeat clients’. In the year 2007,
the revenues from repeat clients for TCS, Infosys and Satyam were 96.8%, 95.0% and 90.0%
respectively. These figures highlight the importance of Customer Relationship Management.
In order to retain their clients, the companies increase the size and number of projects and
also, extend the range of services they offer.
2. Focus on Niche Service Lines: Some mid size players have adopted this model where they
render specialized services rather than offering end to end services. This helps them to
differentiate themselves amongst other players.
3. Mergers and Acquisitions: M& A help in consolidating the whole industry. It enables
firms to expand, enhance its skill sets, expand its service offerings and enter new
geographies.
4. Higher Capital Expenditure: This can help in enhancing business activities as well as
increasing the operational effectiveness of these companies.
5. Setting up ODCs: Offshore Development Centres have helped in instilling customer
satisfaction to a great extent. It also has helped in reducing the operating expenses of the
companies.
6. Wide Spectrum of Services: The players are constantly extending their bouquet of
services to attract the new clients as well as retain the existing ones. They are also offering
higher value added services which ensures greater earnings and on the same time lower
resource utilization as well.
Growth Opportunities for the industry
There are two ways in which the industry can witness growth:-
 Increasing the domestic sales
 Moving up the value chain

The industry is right now predominantly export oriented. When we look at the growth in
exports and the growth in domestic sales, we can observe that the domestic sales growth
are left far behind. So if the domestic sales increases, growth of the overall industry will
happen. Therefore, the players as well as the government should take initiatives to increase
the domestic consumption.
The Indian IT players are pre dominantly involved in rendering lower end services to their
clients. Therefore, the industry can grow only when it starts moving up in the value chain.
Presently, the Indian IT industry is basically focusing on the Application Maintenance and
Infrastructure Management. But the focus on rendering higher end services will help in
strengthening the brand image of the industry.
Major Threats to the Industry
1. High Attrition Rate: Staff shortage can prove to be a major bottleneck to the growth of
the industry. According to McKinsey & Co., only 25 percent of the technical graduates are
competent enough to work in the offshore IT industry in India. In the BPO sector also, only
10- 15 per cent of the graduates are suitable for employment. Therefore, managing attrition
rate is becoming a big task for the IT companies in India.
High attrition rate results in loss of skilled manpower, loss of skill sets etc. Apart from loss in
skill sets, cost of recruitment, training and development of the new recruits also becomes a
major investment for these companies.
2. Competition from other emerging nations: Chinese IT hubs like Beijing and Shanghai are
set to overtake Indian hubs by the year 2011, according to a report by IDC. These cities are
competing with India on account of their stable socio- economic environment, excellent
infrastructure, low attrition rates and skilled talent pool.
3. There is a need for improvement in the urban infrastructure. According to McKinsey,

further growth of the industry has to come from small districts, outside the Tier 1 and Tier 2
cities.
4. Lack of fluency in languages other than English, e.g. French, Spanish, Italian etc. is proving
to be a weakness of the Indian IT industry.
5. End of Tax Benefits at STPIs: There is a dissimilarity in the tax regimes at STPIs. This
would lead to conversion of these STPIs into SEZ units.
6. Overdependence on US Economy: Almost 70% of the IT industry revenues comes from

USA. Therefore, any downscale in the US market, adversely impacts the Indian market too.
E.g. recent downsizing and job cuts due to recession in the US market.
7. Rupee Appreciation: As most of the earnings are in foreign currencies, therefore Rupee
appreciation becomes an area of concern for the industry.
8. Lack of Product Innovation: India specialises in services but not in products. The nation
lacks in product innovation, which can be considered a major area of concern. It will be
difficult to maintain competitive advantage if product innovation doesn’t occur.
9. Limited Domestic Market: The domestic market is still in the nascent stage in India. This
makes the whole industry vulnerable to export market only.
Strategies to Overcome the Threats
Building Domain Knowledge: If the players in the industry have to move up the value chain,
the first pre requisite is building up domain knowledge. Only this can help them in satisfying
their customers and in turn winning their confidence. Once this is achieved, they will
become ‘repeat customers’ for them.
Investing in Research and Development: This will help in innovating new products and
services which will help in the growth of the company as well as the industry as a whole.
Knowledge Management: The industry faces a high attrition rate which deprives the
company of its talents. Knowledge management is a technique which helps in retaining the
knowledge in the firm, even when these knowledgeable persons leave the organization. It is
a technique of assembly, preservation, transfer and management of data and knowledge in
companies.
A boost in the domestic sales can occur with more favourable government policies and also
improvement in the infrastructure which is a pre requisite for the growth of IT industry as a
whole.
PEST Analysis of IT sector

POLITICAL FACTORS
 Very little influence of political situation including change of government.
 No tax sops to US companies outsourcing IT jobs
 Diverse employment practices-qualification, abilities, gender, skill sets
 Boosting the image of India in global market.
 Certain levels of ambiguity surrounding taxation of IT products and services,
 IT SEZ requirement: Infosys controversy.
 Continuous change of stand on applicability of labour legislations to the sector
 Strengthening of the IT Act- security of data in transmission & storage.
ECONOMIC FACTORS
 Stage of business cycle:

o IT industry is in growth phase and this can seen through increasing
contribution to GDP and employment
 Exchange rate:
 Indian IT sector is dependent on foreign clients, especially US, for more than 70% of
its revenue. So, the fluctuation in the exchange rate can bring a considerable
difference in the performance of a company.
 IT sector undertakes various measures like hedging exchange risks using forward
and future contracts. This helps them in mitigating some of the loss due to exchange
rate fluctuation but none the less the impact is substantial.
“Every 1% movement in the Rupee against the US Dollar has an impact of

approximately 50 basis points on operating margins” – Infosys Annual Report
Due to global slowdown, exports of IT and ITeS services has slightly dimmed but a
great opportunity is waiting in India’s domestic market with increasing technology
adoption within the government sector and the small and medium business (SMB)
sector.
SOCIAL FACTORS
 The social factors affecting IT industry ranges from employee right, language
barriers, race nationality of company or other issues.
 English language being widely spoken in India has help in fostering the industry’s
relationship and interaction in India and on the global stage.
 India is one of the few countries to have an increasing share of working population,
since there is great availability of both skilled and unskilled labour force.
 Immense intellectual capital
 Potential employment opportunity for women in this organized sector.
 EDUCATION: Large number of universities and institutes.
 LABOUR: Indian labour is not only cheap but is technically skilled too.
 CAREER: In the year 2006-07, the industry hired approximately 3, 80,000 people.
Out of these, the ITeS sector hired 2, 00,000 people and the rest were taken by IT
sector.
TECHNOLOGICAL FACTORS:
 Government Research spending : Government IT spending in India reached $6.4
billion US Dollars (USD) in 2013, a 7 percent increase over 2012, according to
Gartner, Inc
 New Inventions and Development : National optical fiber network (NOFN)
 National Knowledge Network
 ADHAR
 Internet : Indian Internet Companies with Innovative business model
 Naukri.com
 Flipkart
 Redbus
 Mobile Technology: The exploding mobile technology includes telecommuting,
working from partner or client locations, from a plane or train or simply moving
more fluidly around the company's own premise through the use of a wireless local-
area network.
Managerial Implications
 Even after facing so many challenges in IT sector, India is able to sustain itself
because not just private but Govt. sector has accepted IT in there system.
 Not just technically skilled but also linguistically better at English.
 But NASSCOM report says major graduates are not employable and they need to be
trained on hard as well as soft skills.
 Thus we observe that the Indian IT industry has been facing some challenges but if
effective steps are taken then it will surely help it to remain competitive in the future
as well.
INFOSYS:
Infosys Limited (formerly Infosys Technologies Limited) is an Indian multinational

corporation that provides business consulting, information technology, software
engineering and outsourcing services. It is headquartered in Bangalore, Karnataka.
Infosys is the second-largest India-based IT services company by 2014 revenues, and the
fifth largest employer of H-1B visa professionals in the United States in FY 2013.On 15
February 2015, its market capitalisation was ₹ 263,735 cores ($42.51 billion), making it
India's sixth largest publicly traded company.
Infosys authorized the Company to execute a Business Transfer Agreement and related
documents with Edge Verve Systems Limited (Edge Verve), subject to securing the requisite
approval from shareholders in the Annual General Meeting. Subsequently at the Annual
General Meeting held on June 14, 2014, the shareholders authorized the Board to enter into
a Business Transfer Agreement and related documents with Edge Verve, with effect from
July 1, 2014 or such other date as may be decided by the Board. The Company has
undertaken an enterprise valuation by an independent value and accordingly the business
has been transferred for a consideration of Rs. 421 crore (US $70 million) with effect from
July 1, 2014. Net assets amounting to Rs. 9 crore have also been transferred and accordingly
a gain of Rs. 412 crore has been recorded as an exceptional item. The consideration has
been settled through the issue of fully–paid–up shares in Edge Verve. The transfer of assets
and liabilities is accounted for at carrying values and does not have any impact on the
consolidated financial statements.
Effective January 1, 2015, Infosys Limited Employees' Welfare Trust has been
deconsolidated consequent to SEBI (Share Based Employee Benefits) Regulations, 2014
issued on October 28, 2014.
CAPM Model:
Sensex Infosys
Mean 0.91% 2.33%
Variance 0.002359243 0.021662433
SD 4.86% 14.72%
Covariance 0.000650515
Correlation 0.090994942
Beta 0.275730333
Risk free Return 0.667%
Req. Rate as per CAPM 0.732774862818572000%
Valuation:
ROE 25.3
Retention Ratio 56.51
Growth Rate 14.29703
Exp. Growth Rate (Assume) 20 25
DPS 59.5
Exp. Price of the share 1190.937828 634.9444
Current Market price of the share 1085.95
When we assume the expected growth rate is 20% and the current growth rate of the
company is 14.29% the expected price of the share is going to be ₹ 1190.93 which is now of
₹ 1085.95. So, as per the assumption the share price will increase the investor should advice
to purchase the share of the company.
company is 14.29% the expected price of the share is going to be ₹ 634.94 which is now of ₹
1085.95. So, as per the assumption the share price will decrease, the investor should advice
to sell the share of the company or not buy this.
HCL
HCL Technologies Limited is a global IT services company, headquartered in Noida, Uttar

Pradesh, India. Originally the research and development division of HCL Limited, it emerged
as an independent company in 1991 when HCL Limited ventured into the software services
business. HCL Technologies (often called Hindustan Computers Limited) offers services
including IT consulting, enterprise transformation, remote infrastructure management,
engineering and R&D, and business process outsourcing (BPO).
The company has offices in 32 countries, and operates across a number of industry verticals
including aerospace and defence, automotive, consumer electronics, energy and utilities,
financial services, government, independent software vendors, industrial manufacturing, life
sciences and healthcare, media and entertainment, mining and natural resources, oil and
gas, public services, retail and consumer, semiconductor, server and storage, telecom, and
travel, transportation, logistics and hospitality.
HCL Technologies is on the Forbes Global 2000 list and is one of Asia’s Fab 50 Companies. It
is among the top 20 largest publically traded companies in India and had a market
capitalization of $22.1 billion as of May 2015.HCL Technologies, along with its subsidiaries,
had consolidated revenues of $6.0 billion as of August 2015.
On a standalone basis, the Company achieved revenue of Rs. 18,352.94 crore in the financial
year 2014–15 as compared to Rs. 17,156.49 crore in the financial year 2013–14, registering
a growth of 6.97%. The profit for the financial year 2014–15 is Rs. 6,345.95 crore as
compared to Rs. 5,984.62 crore in financial year 2013–14, registering a growth of 6.04%.
On a consolidated basis, the Company achieved revenue of Rs. 37,840.68 crores in the
financial year 2014–15 as compared to ^ 32,821.06 crores in the financial year 2013–14,
registering a growth of 15.29%. The profit for the financial year 2014–15 is Rs. 7,317.07
crores as compared to Rs. 6,509.51 crores in financial year 2013–14, registering a growth of
12.41%.
The state of affairs of the Company is presented as part of Management Discussion and
Analysis Report forming accordance with the Companies Act, 2013 ("the Act") and
Accounting Standard (AS) – 21 on Consolidated Finance a growth of 6.97%. The profit for the
financial year 2014–15 is Rs. 6,345.95 crores as compared to Rs. 5,984.62 crores in financial
year 2013–14, registering a growth of 6.04%.
On a consolidated basis, the Company achieved revenue of Rs. 37,840.68 crores in the
financial year 2014–15 as compared to ^ 32,821.06 crores in the financial year 2013–14,
registering a growth of 15.29%. The profit for the financial year 2014–15 is Rs. Reporting of
Interests in Joint Ventures, the audited consolidated financial statement is provided in the
Annual Report.
CAPM Model:
SENSEX HCL
MEAN 0.91% 3.26%
VAR 0.002359903 0.006005519
COVAR 0.09%
BETA 0.40
CORR 0.254666908
SD 4.86% 7.75%
RISK
FREE 0.667%
CAPM 0.762449944149878000%
Valuation:
ROE 32.7
DPS 30
company is 20.408% the expected price of the share is going to be ₹ 1005.63 which is now
of ₹ 645.96. So, as per the assumption the share price will increase the investor should
advice to purchase the share of the company.
₹ 844.94. So, as per the assumption the share price will decrease, the investor should advice
MINDTREE:
Mindtree is a multinational information technology and outsourcing company

headquartered in Bengaluru, India and New Jersey. Founded in 1999, the company employs
approximately 15,000+ employees with annual revenue of $600+ million. The company
deals in e-commerce, mobile applications, cloud computing, digital transformation, business
intelligence, data analytics, testing, Agile software development, infrastructure, EAI and
ERP, with more than 290 clients and offices in 14 countries. Its largest operations are in
India and major markets are United States and Europe. The company was formed on 18
August 1999 by ten IT professionals, who formerly worked for Cambridge Technology
Partners, Lucent Technologies, and Wipro.
Revenue for the year is Rs. 35,474 million signifying a growth of 17% in Rupee terms. Your
Company had 217 active customers as on March 31, 2015 of which 88 accounts had
revenues in excess of US$ 1 million, 28 accounts had revenues in excess of US$ 5 million, 14
accounts had revenues in excess of US$ 10 million, 6 accounts had revenues in excess of US$
20 million, 4 accounts had revenues in excess of US$ 30 million and 1 account had revenues
in excess of US$ 50 million.
EBITDA margins have marginally dropped from 20.1% in the previous year to 19.9% in the
current year. Our effective tax rate is about 22.3% as compared to about 22.03% in the
previous year. PAT has increased by 18.4 % to Rs. 5,343 million as compared to Rs. 4,512
million in the previous year.
CAPM Model:
Sensex Mind Tree

Mean 0.91% 3.21%
Variance 0.002359243 0.009070321
SD 4.86% 9.52%
Beta 0.642584294
Risk free Return 0.667%
Req. Rate as per
CAPM 0.820730560117911000%
Valuation:
ROE 26.57
DPS 17
of ₹ 1491.65. So, as per the assumption the share price will increase the investor should
advice to purchase the share of the company.
₹ 1491.65. So, as per the assumption the share price will decrease, the investor should
advice to sell the share of the company or not buy this.
WIPRO:
Wipro Limited (Western India Palm Refined Oils Limited or more recently, Western India
Products Limited) is an Indian multinational IT Consulting and System Integration services
company headquartered in Bangalore, India. As of March 2015, the company has 158,217
employees servicing over 900 of the Fortune 1000 corporations with a presence in 67
countries. On 31 March 2015, its market capitalization was approximately $ 35 Billion,
making it one of India's largest publicly traded companies and seventh largest IT Services
firm in the World.
According to the National Association of Software and Service Companies (NASSCOM)

Strategic Review Report 2015, Revenues for fiscal year 2015 for the IT–BPM industry based
in India is estimated to be US$146 billion, which would represent growth of approximately
13% over fiscal year 2014. IT Export Revenues from India, including hardware, are expected
to have grown at a year–on–year rate of 12% in fiscal year 2015, driven by greater demands
for social, mobile, analytics and cloud based solutions. According to Gartner: forecast:
Enterprise IT Spending by Vertical Industry Market, Worldwide, 2013–2019, Q1 2015
Update, worldwide IT Services spending in 2014 was $948 billion, a growth of 1.8% over the
previous year.
The Sales for the current year grew by 8.12% to Rs. 469,510 million and our Profit for the
year was Rs. 86,609 million, recording an increase of 8.98% over the previous year.
CAPM Model:
WIPRO SENSEX
Mean 0.01% 0.03%
6.38E-
Variance 0.000242081 05
SD 1.56% 0.80%
Beta 0.67372558
Valuation:
ROE 23.66
DPS 12
Current Market price of the share 553
of ₹ 553. So, as per the assumption the share price will decrease the investor should advice
₹ 553. So, as per the assumption the share price will decrease, the investor should advice to
sell the share of the company or not buy this.
TCS:
Tata Consultancy Services Limited (TCS) is an Indian multinational information technology

(IT) service, consulting and business solutions company headquartered in Mumbai,
Maharashtra. TCS operates in 46 countries. It is a subsidiary of the Tata Group and is listed
on the Bombay Stock Exchange and the National Stock Exchange of India. TCS is one of the
largest Indian companies by market capitalization ($80 billion) and is the largest India-based
IT services company by 2013 revenues. TCS is now placed among the ‘Big 4’ most valuable IT
services brands worldwide. In 2015, TCS is ranked 64th overall in the Forbes World's Most
Innovative Companies ranking, making it both the highest-ranked IT services company and
the first Indian company. It is the world's 10th largest IT services provider, measured by the
revenues.
Based on the Company's performance, recommendation for approval of the members with
a final dividend of Rs. 24 per share for the financial year 2014–15 taking the total dividend
to Rs. 79 per share (previous year Rs. 32 per share), including a special dividend of Rs. 40 per
share. The final dividend on equity shares, if approved by the members would involve a cash
outflow of Rs. 5,640.86 crores including dividend tax. The total dividend on equity shares
including dividend tax for the financial year 2014–15 would aggregate Rs. 18,065.41 crores
(including special dividend and tax thereon), resulting in a payout of 93.81% and Rs.
8,877.98 crores (excluding special dividend and tax thereon), resulting in a payout of 46.10%
of the unconsolidated profits of the Company.
The Company proposes to transfer Rs. 1,925.69 crores to the general reserve out of the
amount available for appropriation and an amount of Rs. 35,779.06 crores is proposed to be
retained in the profit and loss account.
On consolidated basis, revenue from operations for the financial year 2014–15 at Rs.
94,648.41 crores was higher by 15.69% over last year (Rs. 81,809.36 crores in 2013–14).
Earnings before interest, tax, depreciation and amortisation (EBITDA) was Rs.27,109.62
crores excluding a significant adjustment for one–time employee reward, registering a
growth of 7.78% over EBITDA of Rs. 25,152.79 crores in 2013–14. The reported EBITDA
aggregated Rs. 24,481.71 crores. Profit after tax (PAT) for the year was Rs. 21,911.85 crores
excluding the said one–time adjustment for employee reward recording a growth of 14.34%
over the PAT of Rs. 19,163.87 crores in 2013–14. The reported PAT aggregated Rs. 19,852.18
crores.
CAPM Model:
SENSEX TCS
MEAN 0.91% 2.39%
VAR 0.002359903 0.004072061
COVAR 0.0004019527
CORR 0.131899993
SD 0.04857883 0.063812702
RISK
FREE 0.67%
BETA 0.17
CAPM 0.707516830781220000%
Valuations:
ROE 41.23
DPS 79
₹ 2409.8. So, as per the assumption the share price will increase the investor should advice
to purchase the share of the company.
of ₹ 2409.8. So, as per the assumption the share price will decrease, the investor should
advice to sell the share of the company or not buy this.
PE Ratios:
The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its
current share price relative to its per-share earnings.
The price-earnings ratio can be calculated as:
Market Value per Share / Earnings per Share.
The price to earnings (P/E) multiple or ratio is probably the most popular indicator used by
investors for valuing stocks. It is the ratio of a company's stock price to its earnings per
share. (Earnings per share or EPS is a company's net profit divided by the number of shares
it has issued.) Another way of looking at the P/E ratio is as a ratio of the value that the
market thinks a company deserves (its market capitalisation) to its net profit.
PE Ratio
Name of The Company Date Value
Infosys 18.12.2015 24.07
HCL 18.12.2015 21.86
Mind Tree 18.12.2015 23.48
Wipro 18.12.2015 20.32
TCS 18.12.2015 22.75
Industry Avg. 18.12.2015 22.496
For Infosys, there is not so much fluctuation in last 2 financial years as far as p/e ratio is
concerned. The average p/e ratio for last 2 financial year is around 22.3 and the latest value
as per 18.12.2015 is 24.04. It shows that the company prices rise as with the similar
proportion with the profit as a result the p/e ratio gives the similar kind of result.
Now comparing it with Industry average p/e ratio and all the remaining 4 companies, it has
the highest p/e ratio. With a high P/E ratio usually indicated positive future performance
and investors are willing to pay more for this company's shares as compare to other four.
Similarly, for HCL technology the current p/e ratio is 21.86 and the average for the same in
last 2 financial year is 18.76. It indicate that the investors who want to invest in this
company should invest more on this.
In Mindtree solution having the current p/e ratio is more than that of the industry ratio. So
the investor should invest more in this company share as like of Infosys.
Wipro limited having the lowest p/e ratio among the al as well the industry average the
investor should cross check the other financial details before investing in this company’s
share.
Having the similar current p/e ratio to te industry, HCL seems to be the safest player out of
the 5 to invest.
PB Ratio:
Price-to-book value (P/B) is the ratio of market price of a company's shares (share price)
over its book value of equity. The book value of equity, in turn, is the value of a company's
assets expressed on the balance sheet. This number is defined as the difference between
the book value of assets and the book value of liabilities.
For value investors, P/B remains a tried and tested method for finding low-priced stocks that
the market has neglected. If a company is trading for less than its book value (or has a P/B
less than one), it normally tells investors one of two things: either the market believes the
asset value is overstated, or the company is earning a very poor (even negative) return on
its assets.
If the former is true, then investors are well advised to steer clear of the company's shares
because there is a chance that asset value will face a downward correction by the market,
leaving investors with negative returns. If the latter is true, there is a chance that new
management or new business conditions will prompt a turnaround in prospects and give
strong positive returns. Even if this doesn't happen, a company trading at less than book
value can be broken up for its asset value, earning shareholders a profit.
PB Ratio
Infosys 18.12.2015 43.04
HCL 18.12.2015 6.74
MindTree 18.12.2015 6.34
Wipro 18.12.2015 4.36
TCS 18.12.2015 9.35
Industry Avg. 18.12.2015 6.74
Price to Book ratio is useful only for capital intensive business which have huge amounts of
assets. Book value won’t consider intangible assets like the brand name, goodwill and other
intellectual property. So, when you are considering this ratio in some companies in the
service sector (like the Information Technology sector) it won’t make any sense. That’s why,
several IT stocks like Infosys have a high Price to book ratio.
Some non-operational issues can also affect P/B ratio. The Company can also boost or lower
their cash reserve to affect this ratio. Share buyback also reduces the price to book ratio.
The acquisitions also result in the distortion of P/B ratio because after the acquisition, the
book price generally increases which results in a lower P/B ratio.
PS Ratio:
Investors are always seeking ways to compare the value of stocks. The price-to-sales ratio
(Price/Sales or P/S) provides a simple approach: take the company's market capitalization
(the number of shares multiplied by the share price) and divide it by the company's total
sales over the past 12 months. The lower the ratio, the more attractive the investment. As
easy as it sounds, price-to-sales provides a useful measure for sizing up stocks. But investors
need to be mindful of the ratio's potential pitfalls and possible unreliability.
This ratio shows how much Wall Street values every dollar of the company's sales. Coupled
with high relative strength in the previous 12 months, a low price-to-sales ratio is one of the
most potent combinations of investment criteria. A low P/S can also be effective in valuing
growth stocks that have suffered a temporary setback.
In a highly cyclical industry such as semiconductors, there are years when only a few
companies produce any earnings. This does not mean semiconductor stocks are worthless.
In this case, investors can use price-to-sales instead of the price-earnings ratio (P/E Ratio or
PE) to determine how much they are paying for a dollar of the company's sales rather than a
dollar of its earnings. P/S is used for spotting recovery situations or for double checking that
a company's growth has not become overvalued. It comes in handy when a company begins
to suffer losses and, as a result, has no earnings (and no PE) with which investors can assess
the shares.
The price-to-sales ratio helps determine a stock’s relative valuation. The formula to
calculate the P/S ratio is:
P/S Ratio = Price Per Share / Annual Net Sales Per Share
So having the highest P/S ratio the investors should invest more on Infosys shares.
PS Ratio
Infosys 18.12.2015 5.488
HCL 18.12.2015 3.73
MindTree 18.12.2015 4.1
Wipro 18.12.2015 3.74
TCS 18.12.2015 0.48
Industry Avg. 18.12.2015 3.5076
Road Ahead for IT Industry:
India is the topmost off shoring destination for IT companies across the world. Having
proven its capabilities in delivering both on-shore and off-shore services to global clients,
emerging technologies now offer an entire new gamut of opportunities for top IT firms in
India. Social, mobility, analytics and cloud (SMAC) are collectively expected to offer a US$ 1
trillion opportunity. Cloud represents the largest opportunity under SMAC, increasing at a
CAGR of approximately 30 per cent to around US$ 650-700 billion by 2020. The social media
is the second most lucrative segment for IT firms, offering a US$ 250 billion market
opportunity by 2020. The Indian e-commerce segment is US$ 12 billion in size and is
witnessing strong growth and thereby offers another attractive avenue for IT companies to
develop products and services to cater to the high growth consumer segment.

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Overview of Indian IT Industry

 Well differentiated service offerings

 Increasing geographic penetration

History and Evolution of IT Industry

Phase I: Prior to 1980

 Secondly, there was a lack of infrastructural facilities for software development.

Evolution of Indian IT- Its Industry

Present Industry Structure

 Offshore Global Services Provider

 Pure Play BPO Providers

 Captive BPO Units

Emerging IT hubs in India

 Lower infrastructural costs

 Large pool of talent in the form of skilled professionals

Competitive Landscape of the Industry

Growth Opportunities for the industry

 Moving up the value chain

Major Threats to the Industry

3. There is a need for improvement in the urban infrastructure. According to McKinsey,

6. Overdependence on US Economy: Almost 70% of the IT industry revenues comes from

PEST Analysis of IT sector

 Stage of business cycle:

“Every 1% movement in the Rupee against the US Dollar has an impact of

Infosys Limited (formerly Infosys Technologies Limited) is an Indian multinational

HCL Technologies Limited is a global IT services company, headquartered in Noida, Uttar

Mindtree is a multinational information technology and outsourcing company

Sensex Mind Tree

According to the National Association of Software and Service Companies (NASSCOM)

Tata Consultancy Services Limited (TCS) is an Indian multinational information technology

The price-earnings ratio can be calculated as:

Market Value per Share / Earnings per Share.

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