FINANCIAL STATEMENT ANALYSIS

FINANCIAL ANALYSIS
OF
IT INDUSTRY

IOO9:PARUL ARORA
IO19: Arpit Goel
1029 :Praham Khanna
I039: Nayan Nair
I048 : Aayush Sharma
I049 : Garima Sharma
I059 : Ritaj Trivedi

Table of Contents
 FINANCIAL STATEMENT ANALYSIS

1. Industry Overview…….
………………………………………………………………………………………...3
2. Company
Overview……………………………………………………………………………………
…………........4
WIPRO…………………………………………………………………………………………
…………………………………..4
Overview……………………………………………………………………………………
…………………………………...4
Financial
Overview……………………………………………………………………………………
……………………..4
MINDTREE……………………………………………………………………………………
…………………………………..5
Overview……………………………………………………………………………………
…………………………………….5
Financial
Overview……………………………………………………………………………………
………………….....6
Key
Trends…………………………………………………………………………………………
…………………………….6
WIPRO…………………………………………………………………………………………
…………………………………..6
MINDTREE……………………………………………………………………………………
…………………………………..7
3. Financial
Analysis………………………………………………………………………………………
………………....8
3.1 Investors
Viewpoint……………………………………………………………………………………
……….........8
3.2 Lenders viewpoint

…………………………………………………………………………………………………
……9
 FINANCIAL STATEMENT ANALYSIS

3.3Management’s viewpoint:
…………………………………………………………………………………….......10
Conclusion……………………………………………………………………………………
………………………………....11
Exhibit 1: Balance Sheet of
WIPRO………………………………………………………………………………..…13
Exhibit 2: Profit Loss Statement of
WIPRO……………………………………………………………………….14
Exhibit 3: Balance Sheet of
MINDTREE……………………………………………………………………………..15
Exhibit 4: Profit Loss Statement of
MINDTREE……………………………………………………………….…16

Industry Overview:
India’s IT industry is one of the biggest all over the world with around
5300 start-ups. It contributed nearly 7.7% of India’s GDP and by 2025, it is
expected to grow to 10%. India has one of the largest pool of talented and
qualified technical graduates which are 5-6 times inexpensive than US,
thus making it the outsourcing’s preferred destination. Around 3.97 Million
people are employed in IT industry. As per the NASSCOM report 2019, %
contribution of Digital in growth is more than 30% in FY 2019 and almost
contributed around $33 billion to the overall IT industry. Technologies such
as Internet of things, Virtual and augmented reality, cloud, block chain
and robotics contributed to the growth. Also, as per the Department for
Promotion of Industry and Internal Trade, FDI of around 37.23 billion was
made between April 2000 and March 2019 which ranks 2nd in inflow.
A major news in IT industry is that NASSCOM stopped providing guidance
from FY19 onwards.
The IT-BPM sector expanded from $74 billion in FY 10 to $167 billion in
FY18 at a CAGR of 10.71%.
 FINANCIAL STATEMENT ANALYSIS

India's IT industry market size ( US$ Billion)

200
180
CAGR 10.71%
160
140
120
137
100 117 120
98.5 108
80 87
69 76
60 59
50
40
20 32 32 32 34 35 37 41 44
24 29
0
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Domestic Export

Until recently, IT leaders typically have viewed the avoidance and

reduction of costs as the primary benefits of cloud-based flexible
consumption i.e pay as you go. However, over the last year, two new and
highly strategic factors appear to be driving the rapid growth of service-
based IT: increased business agility and “democratization" of innovation.
These advantages signal an exponential expansion of cloud’s value
proposition: Everything-as-a-service (XaaS) solutions make it faster and
easier to experiment and innovate—dramatically shortening the journey
toward enhancing customer experience. And, XaaS capabilities are
making it cheaper and easier for broad ranges of users to access cutting-
edge technologies and services, such as AI- and Internet of Things (IoT)-
based solutions. Now, large, medium, and small enterprises can harness
powerful capabilities once limited to a select few.

WIPRO:
WIPRO Group is a global technology services firm, with employees across
50 countries and serving enterprise clients across 27 industry verticals It
is headquartered in Bangalore, Karnataka, India. Their business comprises
of the IT Services, IT Products and ISRE .They provide their clients with
competitive advantages by applying various emerging technologies and
ensuring cyber resilience and cyber assurance
Analysis of Revenue Growth :
 FINANCIAL STATEMENT ANALYSIS

Geography Wise Performance (2019)

Buisness Unit Wise Performance
1436 666
1075 1094

2069 4615 1040

466 2503
1276

Ameri ca Europe BFSI CBU COMM ENU

Rest of the worl d HLS MFG TECH

(In Crore except, per equity share data)

FINANCIAL FY2018 FY2019 GROWTH%
PERFORMANC
E
Revenue 546359 589060 7.8%
s
Gross 160784 176027 9.5%
Profit
Profit After 80081 90031 12.4%
Tax
Earnings per 12.64 14.99 18.6%
share
Financial Overview:

Net Profit
(In Cr)
2019 90031
2018 80081
2017 84895
2016 89075
2015 86528
75000 80000 85000 90000 95000
Net Profit

MINDTREE
Mindtree Limited (Mindtree) is a leading digital transformation and
technology services Company headquartered in Bengaluru, India and New
Jersey, US. They deliver digital transformation and technology services
from ideation to execution, enabling clients to outperform their
competition. They deal in e-commerce, mobile applications, cloud
computing, digital transformation, data analytics, enterprise application
 FINANCIAL STATEMENT ANALYSIS

integration, and enterprise resource planning. Mindtree was founded in

August 1999 to focus on delivering business benefits with technology and
to become trusted partners to its clients. With the help of their digital
strategy framework, organizations can make sense of digital disruption
and outpace competition.
Analysis of Revenue Growth:
FINANCIAL 2018 2019 % Growth
PERFORMANC
E
Revenue 54628 70215 28.5
Profit after tax 5701 7541 32.3
Earning per 34.28 45.85 33.75
Share(Diluted)
(In million except, Equity per share data)
 FINANCIAL STATEMENT ANALYSIS

Business unit wise performance Geography Wise Performance

24162978
32
40
13319

6
40 51502

Travel and Hos pital i ty

Retai l , CPG and Manufacturi ng
Banki ng ,Fi na nci al Servi ces and Insura nce Ameri ca Europe
Hi gh Technology and Medi a Rest of the Worl d Indi a
l

Key Highlights from common size Analysis for Wipro:

Balance Sheet Analysis:

 The company’s unbilled receivables decreased from Rs 42 billion

in FY18 to Rs 22 billion in FY 19, depicting a decrease in receivables
by 46%.

 The company's current liabilities during FY19 stood at Rs 214

billion as compared to Rs 207 billion in FY18, thereby witnessing an
increase of 3.4%.

 Long-term debt down at Rs 28 billion as compared to Rs 45 billion

during FY18, a fall of 37.33%.

 Current assets rose 12.99% and stood at Rs 571.9 billion.

 Trade Payables increased from Rs 51 billion to Rs 62 billion in

FY19, showing an increase of 22.38%.

 Overall, the total assets and liabilities for FY19 stood at Rs 829
billion as against Rs 756.9 billion during FY18, thereby witnessing a
growth of 9.55%.
 FINANCIAL STATEMENT ANALYSIS

ANALYSIS

Income Statement Analysis:

 Operating income during the year rose 7.52% on a year-on-year

(YoY) basis.

 Depreciation charges decreased by 7.81% and finance costs

increased by 26.5% YoY, respectively.

 Other income grew by 2.55% YoY.

 Net profit for the year grew by 12.68% YoY.

 Net profit margins during the year grew from 14.69% in FY18 to
15.39% in FY19.

Cash Flow Statement Analysis:

 WIPRO's cash flow from operating activities (CFO) during FY19

stood at Rs 116 billion, an improvement of 38.09% on a YoY basis.

 Cash flow from investing activities (CFI) during FY19 stood at Rs

50 billion, an improvement of 40.89% on a YoY basis.

 Cash flow from financial activities (CFF) during FY19 stood at Rs

-49 billion, an improvement of 62% on a YoY basis.

 Overall, net cash flows for the company during FY19 stood at Rs
118 billion from the Rs -10 billion net cash flows seen during FY18.

Key Highlights from common size Analysis for Mindtree:

Balance Sheet Analysis:

 The company's current liabilities during FY19 down at Rs 9 billion

as compared to Rs 10 billion in FY18, thereby witnessing a decrease
of -13.26%.

 Trade Receivables increased from 10 billion to 13 billion, showing

an increase of 31.52%.
 FINANCIAL STATEMENT ANALYSIS

 Long-term debt down at Rs 5 million as compared to Rs 9 million

during FY18, a fall of 44.4%.

 Current assets rose 11% and stood at Rs 28 billion.

 Overall, the total assets and liabilities for FY19 stood at Rs 42

billion as against Rs 37 billion during FY18, thereby witnessing a
growth of 11.84%.

Income Statement Analysis:

 Operating income during the year rose 28.53% on a year-on-year

(YoY) basis.

 Depreciation charges decreased by 4.31% and finance costs

decreased by 82.84% YoY, respectively.

 Other income declined by 53.05% YoY.

 Net profit for the year grew by 32.28% YoY.

 Net profit margins during the year grew from 10.44% in FY18 to
10.74% in FY19.

MINDTREE Cash Flow Statement Analysis:

 MINDTREE's cash flow from operating activities (CFO) during FY19

stood at Rs 6 billion, an improvement of 11.7% on a YoY basis.

 Cash flow from investing activities (CFI) during FY19 stood at Rs

-2 billion, a decrease of 3.35% on a YoY basis.

 Cash flow from financial activities (CFF) during FY19 stood at Rs

-5 billion, an increase of 81.6% on a YoY basis.

 Overall, net cash flows for the company during FY19 stood at Rs
-718 million from the Rs 765 million net cash flows seen during FY18.
 FINANCIAL STATEMENT ANALYSIS

ROE
25
20
15
10
5
0
2017 2018 2019
Mindtree Wi pro

ROCE
25
20
15
10
5
0
2017 2018 2019
Mindtree Wi pro
INVESTOR’S VIEWPOINT

COMPANY EVA (Economic Value Added)

Mindtree Rs 2,838 million
Wipro Rs 24,576 million

ROE: ROE is considered a measure of how effectively management is using a company’s assets to
create profits. Both the companies have been showing consistent performance in this regard with
Mindtree slightly ouutperforiming Wipro. However, Wipro has a much bigger size which has a
bearing on its lower ratio.

ROCE: A company has two sources of financing. One is equity and the other is debt. It is through a
combination of both these sources that a company finances its operations. This ratio measures
how well a company is generating profits from its capital, i.e. both equity and debt. Between
Mindtree and Wipro, the latter company has been showing a betterand more consistent
performance inspite of its bigger size.

EVA: EVA is the incremental difference in the rate of return over a company's cost of capital.
Essentially, it is used to measure the value a company generates from funds invested into it. If a
 FINANCIAL STATEMENT ANALYSIS

company's EVA is negative, it means the company is not generating value from the funds invested
into the business. Conversely, a positive EVA shows a company is producing value from the funds
invested in it. A company may be proftiable even while it is eroding value. Both the companies
have generated value for their shareholders. Mindtree actually outperforms Wipro in this aspect,
however, it remains to be seen if it can continue that with its acquisition by L&T. Wipro, being a
much larger company in comparison has a consistent record of generating value for its
shareholders and is well placed to do so in the near future as well.

Current Ratio
4
3.5
3
2.5
2
1.5
1
0.5
0
2017 2018 2019
Mi ndtree Wi pro

Interest Coverage Ratio

400
350
300
250
200
150
100
50
0
2017 2018 2019
Mindtree Wi pro
LENDER’S STANDPOINT

Net Profit Margin

20

15

10

0
2017 2018 2019
Mindtree Wi pro
 FINANCIAL STATEMENT ANALYSIS

Interest Coverage Ratio: The interest coverage ratio measures how many times a company can
cover its current interest payment with its available earnings. In other words, it measures the
margin of safety a company has for paying interest on its debt during a given period. The interest
coverage ratio is used to determine how easily a company can pay their interest expenses on
outstanding debt. Both the companies have very healthy Interest Coverage Ratios. They can cover
their interest costs with their profits many times over.

Current Ratio: The current ratio is a liquidity ratio that measures a company's ability to pay short-
term obligations or those due within one year. It tells investors and analysts how a company can
maximize the current assets on its balance sheet to satisfy its current debt and other payables.
Both companies have healthy current ratios which are in line ith industry standards.

Net Profit Margin: The net profit margin is equal to how much net income or profit is generated
as a percentage of revenue. Net profit margin is the ratio of net profits to revenues for a company
or business segment. The net profit margin illustrates how much of each dollar in revenue
collected by a company translates into profit. Between the two companies, Wipro has a much
better Net profit margin which indicates that it is much better at managing its costs and/or
utilising its resources. This is even more favourable when comapring the sizes of the two
companies. Wipro has managed to generate a better profit margin while being a much larger
company.

Management’s View Point:

Operating leverage explains the impact of change in operating income due to change in revenue. A
company that gives output having low variable cost and high gross margin has high operating
leverage. For IT companies, the capital expenditure is limited and every part of revenue earned after
their breakeven point results in more-than-proportionate increase in profits.
Operating leverage = % Change in Operating Income / % Change in Revenue
Operating leverage for Wipro is decreasing with time and for Mindtree its constant, therefore
Mindtree is performing better than Wipro as taking a linear relationship, Wipro will further go down.
 FINANCIAL STATEMENT ANALYSIS

Operating Leverage
18
16
14
12
10
8
6
4
2
0
2017-18 2018-19
Mi ndtree Wi pro

Fixed asset turnover ratio compares revenues to net fixed assets. A high ratio indicates that a business
is generating a large amount of sales from a relatively small fixed asset base. The formula is net
sales divided by net fixed assets.

Mindtree has higher Fixed Asset Turnover than Wipro showing the higher efficiency of fixed assets
usage.

Fixed Asset Turnover

20
18
16
14
12
10
8
6
4
2
0
2016-17 2017-18 2018-19
Mi ndtree Wi pro

CONCLUSION:

Lender’s Stand Point: Any lender while lending to a company wants to ensure that he/she earns a
return which is commensurate with the risk undertaken while at the same time ensuring
preservation of his/her capital. Both Mindtree and Wipro are companies with enough room to
borrow. IT industry in general operates on low levels of debt. However, between the two companies
 FINANCIAL STATEMENT ANALYSIS
Mindtree and Wipro, the latter emerges as the better avenur for lenders because of its much bigger
size (which makes it a stable company and a much safer bet) and its better net profit margin.

Investor’s View Point: Both the companies have fared well when it comes to analyzing them
from an investor’s standpoint. Wipro has done well whereas Mindtree has been performing
exceptionally in the past few years, though a lot of it also comes down to the fact that it is a much
smaller company which is growing at a fast rate. However, its recent acquisition by L&T has
pushed its stock price down and it reains to be seen how it will perform post this acquisition in
the future. Wipro, on the other hand is a much larger company with a stable track record and
predictable performance. In light of these facts, we would recommend investors to go for Wipro
between the companies.

Management’s Viewpoint: The management of the company may not be so concerned with the
results but they are usually more interested in the cause. This is because while other classes of
stakeholders do not have control over the working of the firm i.e. the cause, the management
does. Hence looking at the above ratio, Mindtree is performing better than Wipro due to efficient
usage of its resources.

Overall Conclusion: Wipro ranks higher than Mindtree in all the criteria and hence, is our
recommended company.