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

15% jumps in net profit Operating income of the company grew by 44.43% for the year under review.08% Operating profit grew by 47.Financial Analysis as on March 31 2005     53. Dr.25% from 25. Jitendra Mahakud 3 .73% Net profit margin was up by 182 basis points to 27.

Infosys Vs. Index Company & Index 7000 6000 5000 10000 9000 8000 7000 6000 5000 3000 2000 1000 0 1999-00 2000-01 2001-02 Sensex Infosys 2002-03 2003-04 4000 3000 2000 1000 0 4000 Dr. Jitendra Mahakud Infosys Market Price Sensex Indices 4 .

Jitendra Mahakud .Return and Market Price Infosys (Return of Market Price % Sensex) 160% 140% 120% 100% 80% 60% 4/1/2004 7/1/2004 10/1/2004 Return (Market Price) 1/1/2005 Return (Sensex) 5 Dr.

anti-off shoring lobby in Western markets Dr. Strong technical expertise Attrition amongst key professionals. Growth in package implementation. consulting services and availability of cash reserves to pursue acquisitions MNCs building offshore capabilities.SWOT Analysis of Infosys  Strengths:    Weaknesses:  Good brand recall amongst decision-makers. especially on the delivery side. Inability to take on the Global Big Five in terms of scale. Jitendra Mahakud 6   Opportunities:   Threats:  .

IT Enabled Services. Jitendra Mahakud 7 . The company operates through five principal business segments: Global IT Services and Products. Consumer Care and Lighting and Health Science. Dr.WIPRO   Wipro is the largest company in India in terms of market capitalization. India and Asia-Pac IT Services and Products.

9% The company decided to lessen the dividend this year which Rs.Financial Analysis as on March 31 2005    The net profit growth has increased from 23. 29 per share to Rs.5% The company gross profit margin is 24. Jitendra Mahakud 8 . Dr. 5 per share.3% to 56.

.One year Wipro’s comparative graph with BSE …………... – WIPRO ……….BSE Sensex Dr. Jitendra Mahakud 9 ..

has a strong economic base. There are new entrants into the market. IT boom back after the debacle of 9/11. has strong licensing networks. The company’s revenues are highly dependent on its IT service sales. The company has no clear future plan. does an effective advertising campaigning.     Opportunities:   There is lack of backward and forward integration in the company. Jitendra Mahakud 10 .SWOT Analysis of Wipro  Strengths:        Weaknesses:  The company The company The company The company The company The company has brand recognition. The company is possibly slow in technology development. provides quality products. is growing in international markets. 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. Dr.

Banking & Financial Services. Manufacturing. the Telecom.47% and 12. Media. Dr. Entertainment & Semiconductors sector.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. Infrastructure. Institutional Investors.e. 4. 66.90% of the share holding pattern of the company respectively. Jitendra Mahakud 11 . General Public and Others held 15.96%. Insurance & Healthcare.67%. As on 31/03/05 the Promoters. and in TIMES i.

30% growth in sales. There is a 28.78% Dr.52% Net profit margin increased by 238 basis points from19. Jitendra Mahakud 12 .40 % to 21.Financial Analysis as on March 31 2005     There is 36.38% growth in operating profit Gross profit increased by 25.

Company and Index Company & Index 7000 6000 5000 Sexsex 5000 4500 4000 Satyam Market Price 3500 3000 2500 4000 3000 2000 1000 0 1999-00 2000-01 2001-02 Sensex Satyam 2002-03 2003-04 2000 1500 1000 500 0 Dr. Jitendra Mahakud 13 .

Return and Market Price Satyam (Return of Market Price % Sensex) 160% 140% 120% 100% 80% 60% 4/1/2004 7/1/2004 10/1/2004 Return (Market Price) 1/1/2005 Return (Sensex) Dr. Jitendra Mahakud 14 .

to become the partner to CIS in the development of its next generation Check Free EPL(TM) platform. Infosys. Jitendra Mahakud 15 .SWOT Analysis of Satyam  Strengths:    Weaknesses:  They have the third largest market share in India. a low tax rate Satyam is smaller in size compared to its direct competitors. Company revenues and earnings have been rising steadily. Satyam has a strong financial position. are all multibillion. 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. The company’s revenues are highly dependent on its IT service sales   Opportunities:    Threats:  Satyam has been selected by Check Free Investment Services (CIS). inflation rates affect the worldwide business in each of the company’s Operations  Dr. Wipro. economic or other factors such as currency exchange rates. CSC. Tata.

Current Ratio Current Ratio 8 Number 6 4 2 0 Satyam Infosys Wipro Mar 2000 4. Jitendra Mahakud 16 .66 Mar 2001 3.51 3.79 Mar 2003 4.16 3.81 3.29 Mar 2004 5.18 1.03 2.93 4.44 2.34 2.9 2.09 3.53 Satyam Infosys Wipro Year Dr.74 3.2 2.98 Mar 2002 6.01 Mar 2005 5.

33 0.28 0.2 Mar 0.5 0 Satyam Infosys Wipro Mar 0.25 Year Mar 0.26 0.1 Mar 0.21 Satyam Infosys Wipro 17 Dr.4 0. Jitendra Mahakud .22 0.Net Profit Margin = Profit after Tax --------------------Net Sales Net profit margin ratio 0.26 0.31 0.26 0.19 0.18 Mar 0.22 0.15 0.21 Mar 0.33 0.

10 0.00 Wipro 0.10 0.30 0.30 0.20 Dr.00 0. Jitendra Mahakud 18 Satyam Infosys Wipro .01 0.77 0.00 0.00 0.20 0.60 0.00 Mar Mar Mar Mar Mar Mar Satyam 0.00 0.00 0.00 Infosys 0.40 0.80 0.Debt Equity Ratio = Debt ---------------Equity 1.01 0.00 0.20 0.23 0.00 0.

2 0.2 0.3 0.3 0.2 0.2 0.2 0.5 0.2 0.6 Number 0.4 0.1 0.4 0.2 Infosys Wipro 0.2 0.2 0 Satyam 0.4 0.2 0.2 0.2 0.3 Year Satyam Infosys Wipro Dr.Debt Ratio = Total Liabilities --------------------Total Assets Debt Ratio 0. Jitendra Mahakud 19 .

33 1.55 8.99 9.25 Mar 7.76 Mar 4.8 9.77 Mar 16.82 2.45 9.32 2.Return on Equity = Profit after Tax / Book Value of Equity Return on Equity 20 10 0 Satyam Infosys Wipro Mar 2.68 Mar 6.57 10. Jitendra Mahakud 20 .22 7.53 2.41 Mar 7.75 Year Satyam Infosys Wipro Dr.81 2.09 2.

3 0.4 0.38 0.23 0.19 0.ROCE = EBIT ------------------------------------------Total Assets – Current Liabilities Return on Capital Employed 0.57 0.2 0 Satyam 0.6 Rs. Jitendra Mahakud 21 .42 0.46 0.39 0.46 0.27 0.28 0.28 0.36 Year Satyam Infosys Wipro Dr.4 0.51 0.38 0. 0.29 Infosys Wipro 0.27 0.

of Outstanding Shares Earning Per Share Rs.37 95.00 100.00 Mar Mar Mar Mar Mar Mar Satyam 23.29 9.58 Wipro 43.EPS = Profit after Tax / No.1 144.77 17.38 27.82 Year Dr.00 0.50 Infosys 44.11 17.22 23.57 23.93 46.29 14./Share 200.6 186.6 70.85 28.05 122. Jitendra Mahakud 22 .54 25.

78% 37.73% Dr.98% SATYAM 62.35% 30. Jitendra Mahakud 23 .69% WIPRO 43.31% 46.22% INFOSYS 53.47% 46.02% 48.65% WIPRO 51.27% 56.Risk Analysis RISK COMPOSURE (2003-4) 100% RISK COMPOSURE (2004-5) 100% 50% 0% Unsysystematic Risk Systematic Risk 50% 0% Unsysystematic Risk Systematic Risk SATYAM 53.53% INFOSYS 69.

8 1.Beta Analysis YEARLY BETA (2003-4) 2 1.65 1.81 0. Jitendra Mahakud 24 .26 1.5 1 0.5 0.31 1.45 0 SATYAM INFOSYS WIPRO Dr.5 0 SATYAM INFOSYS WIPRO YEARLY BETA (2004-5) 1.5 1 0.

00% 15. Jitendra Mahakud 25 .42% Dr.00% 0.00% SATYAM INFOSYS WIPRO 9.Alpha Analysis: Alpha indicates the stock return when the market return is zero.00% 10. Alpha (2004-5) 25.00% 5.84% 20.12% 10.00% 20. A positive alpha indicates that the stock is under priced and negative alpha indicates that the stock is overpriced based on assets pricing model.

Infosys technologies ltd. it can be analyzed that the market price of the share is highly undervalued in comparison with its intrinsic value. Thus.53 2454.09 Mar 2007 12 mths 3789.38 Intrinsic Value = Market Price/ (1+ke)^n = (11058.e. the market price on March 2005 is comparatively less than the calculated intrinsic value.56 1547.17 270570549 102.197)^5 = Rs 4500.85 6921. by taking cost on equity (ke) as 19.91 3261.82 270570549 70.12 3815.02 31.74 270570549 258. Dr.38)/(1+.7%.30 270570549 140.of Shareholders EPS P/E Market Price 356.91 6095. we can observe that projected market price of share after 5 years i. FY2010 is Rs 11060.16 Mar 2010 12 mths 9376.28 270570549 191.95 723.40 1832.68 31.08 2797. After discounting it to present value. Rs.08.59 1904.08 From the above table.40 Mar 2009 12 mths 6999.38 Dividends Retained earnings No.74 270570549 346.42 5166.19 31.38 Mar 2008 12 mths 5168.55 31.91 2245.04 1353. As it can be seen from the above table. we get the intrinsic value of Rs 4500.91 11058. Crore Actual Mar 2005 12 mths PAT Appropriation of profits Projected Mar 2006 12 mths 2765.68. Jitendra Mahakud 26 .05 31.91 4469.04 992.92 2041.38 31.91 8254.

25 29.34 2163.77 703570522 25.12 1093.Wipro technologies ltd.86 Intrinsic Value = Market Price/ (1+ke)^n = (1756.43 848.29 29.29 From the above table.2928)^5 = Rs 486.21 1750.09)/(1+. After discounting it to present value. Thus it can be analyzed that the market price of the share is very much overvalued in comparison with its intrinsic value. this share is looking weak for the near future.79 3307.37 1415.09.73 929. This analysis proves that from the investor point of view. Jitendra Mahakud 27 .78 29.07 29. we can observe that projected market price of share after 5 years i.29.65 29.22 703570522 31.95 which is higher than its intrinsic value i.43 Mar08 12 mths 2719.55 2674. we get the intrinsic value of Rs 486. by taking cost on equity (ke) as 29.95 363.e.28%.73 751.39 555.of Shareholders EPS P/E Market Price 401.09 Projected Mar06 12 mths 1779. Dr.95 703570522 47. Rs. Rs 486.73 1420.70 703570522 21.07 703570522 59. FY2010 is Rs 1756. Crore Actual Mar05 PAT 12 mths 1494.79 449.82 Appropriation of profits Dividends Retained earnings No.e.73 1148. we can observe that market price of share on 31 st mach 2005 is 670.50 Mar10 12 mths 4155.14 Mar07 12 mths 2199.29.96 686.05 Mar09 12 mths 3361.73 1756.26 29.71 703570522 38. From the above table.73 670.

7%.08 12 mths 1601.01 17.31 3148.57 Intrinsic Value = Market Price/ (1+ke)^n= (1756.77 319265291 23. Jitendra Mahakud 28 . the market price on March 2005 is comparatively less than the calculated intrinsic value.66 387.20 319265291 90.Satyam Computer Services Ltd.75 975.34 319265291 37.80 319265291 67.76 12 mths 3842.34 17. Thus it can be analyzed that the market price of the share is very much undervalued in comparison with its intrinsic value.38 1168.94 1312.57.09)/(1+.26 180.5 214.e. FY2010 is Rs 2091. we get the intrinsic value of Rs 852.21 12 mths 2147.38 2091.92 From the above table. we can observe that projected market price of share after 5 years i. As it can be seen from the above table. Rs.47 1759.15 17. this share is a good buy for the near future.41 693.85 288.27 319265291 50. Dr.38 408. After discounting it to present value.92. This analysis proves that from the investor point of view.28 12 mths 2873.28 17.15 750.49 569.38 871.38 647.1965)^5 = Rs 852.84 319265291 120.38 1564.26 17.of Shareholders EPS P/E Market Price 12 mths 1190.50 17.92 518. Crore Actual Mar 2005 Mar 2006 Mar 2007 Projected Mar 2008 Mar 2009 Mar 2010 12 mths PAT Appropriation of profits Dividends Retained earnings No.57 2355. by taking cost on equity (ke) as 16.