1 A PROJECT REPORT ON
EQUITY RESEARCH AND ANALYSIS OF IT SECTOR
Project Submitted in fulfillment of MMS
Submitted by: ROBIN ANIL AWATHARE Roll No. M1001 Batch 2010-2012
Under the guidance of Mrs. MAHALAKSHMI SUBRAMANIAN
(Professor)
2
Declaration
I, Robin Anil Awathare solemnly declare that the project work entitled ―Equity research and analysis of IT sector ‖, is my original work, it is neither copied from any earlier submitted work elsewhere or not merely copied, this is specifically prepared as a part of MMS curriculum, to be conducted in Year 2011.
Signature of the student: ________________________ Name of the Student: Robin Anil Awathare
3
ACKNOWLEDGEMENT A summer project is a golden opportunity for learning and self-development. I consider myself very lucky and honored to have wonderful people lead me through in this project. My grateful thanks to Mr.Shasank Ajoy, manager who in spite of being extraordinarily busy with his duties took time out to hear, guide and keep me on the correct path. I do not know where I should have been without him. A humble thank you madam Ms. Smita Narker, HR department monitored my progress and arranged all facilities to make life easier. I chose this moment to acknowledge her contribution gratefully. Prof Mrs. Mahalakshmi Subramanian whose patience I have probably tested to the limit. She was always so involved in the entire process, shared her knowledge, and encouraged me to think. Thank you madam. I would also like to thank Ms. Tanaj and Mr. Abhijeet of placement department for their effort and help provided to me to get such an excellent opportunity. Last but not the least I will also like to thank the staff of Anand Rathi who shared valuable information that helped in the successful completion of this project.
Robin Awathare
4
Certificate of Completion
Robin Anil Awathare
has successfully completed the summer project at Anand Rathi kandiwali branch
for a period of two months from 16/05/2011 to 16/07/2011. He has conducted a study entitled Equity research on IT sector
___________________ Name & Designation
Date:________________ Place:_______________
______________ Department
5
CERTIFICATE
This is to certify that the project titled ―Equity research and analysis of it
sector from investor‘s point of view” has been successfully and satisfactorily completed and submitted by ―M Mr. Robin Anil Awathare” bearing a roll number, M1001 as a student of Chanakya Institute of Management Studies & Research as Prescribed by AICTE in fulfillment of the requirement for MMS during the year 2011 – 12.
Internal Guide
Mrs. Mahalakshmi Subramanian
Director
Mr. Biswa B. Das
6
INDEX Sr. no.
TOPIC
Page no.
1
Executive summary
7
2
Company profile/company background
8
3
Introduction
13
4
Objective/scope of study
14
5
Definations
15
6
Research methodology
35
7
Data collection
36
8
Analysis
37
9
Conclusion
64
10
Recommendation
65
11
Limitation
66
12
Bibliography
67
7
EXECUTIVE SUMMARY The field of equity research is very vast and one has to look into various aspects of the functioning of the company to get to any conclusion about the possible performance of the company in the market. Investors like warren buffet made a fortune out of investments in the stock market, which is quiet impossible without proper research about the companies. The field of equity research is full of challenges. It is your door to fame, fortune and, above all, professional challenge. In a world that is shrinking in size due to information technology and blurring boundaries between nations, the stock market (or the equities market), which is considered to be in its infant stage, is all set to grow in size. The project on ―Equity Analysis of IT sector‖ was carried out in Anand Rathi Securities Pvt Ltd., Mumbai, a very well known company in the field of stock broking and capital market services sector. The duration of the project was two months. These two months were not only limited to learning and devoting time towards equity research but it also provided an insight on what various services such broking houses provide and what efforts are required to manage such organizations. The reason behind choosing this project is that it provides hands on experience with what goes on in the stock market on a day-to-day basis. Some value investors only look at present assets/earnings and don't place any value on future growth. Other value investors base strategies completely around the estimation of future growth and cash flows. Despite the different methodologies, it all comes back to trying to buy something for less than its worth. The project initiated with understanding the mannerisms of the stock market trading followed by the dynamics of the telecom sector. Some of the major players in Telecom sector were then chosen for further analysis. These companies were further studied in detail with respect to their financials and the management‘s future plans regarding the functioning of the company, their expansion plans, and various news about these companies and their global forays. Based on the complete study of the companies, TCS INFOSYS & WIPRO looked promising and with a view to derive maximum value from the investment
8
COMPANY PROFILE
AnandRathi is a leading full service investment bank, founded in 1994 offering a wide range of financial services and wealth management solutions to institutions, corporations, high–net worth individuals and families. The firm has rapidly expanded its footprint to over 350 locations across India with international presence in Hong Kong, Dubai & London. Founded by Mr. Anand Rathi and Mr. Pradeep Gupta, the group today employs over 2,500 professionals through out India and its international offices. The firm‘s philosophy is entirely client centric, with a clear focus on providing long term value addition to clients, while maintaining the highest standards of excellence, ethics and professionalism. The entire firm activities are divided across distinct client groups: Individuals, Private Clients, Corporate and Institutions. Asia-money in their Fifth Annual Private Banking Poll 2009 has named AnandRathi The Best Domestic Private Bank in India. The firm has emerged a winner across all key segments in Asia-money‘s largest survey of high net worth individuals in India.
9 In year 2007 Citigroup Venture Capital International joined the group as a financial partner.
Board of Directors Anand Rathi, Founder & Chairman Pradeep Gupta, Co- founder & Vice chairman Amit Rathi, Managing Director Board of Directors – Independent P G Kakodkar, Director Dr. S A Dave, Director C D Arha, Director Ajit Bhushan, Director
10
COMPANY BACKGROUND Set up in 1994,19.9% stake held by Citigroup Venture Capital International (CVC)
AREAS OF EXPERTIES
Wealth Management
Investment Banking
Brokerage & Distribution
Institutions
Equity Capital Market – IPOs / FPO / QIB
Equities
Private Clients Priority Clients Non-Resident Clients
Private Equity / Advisory
Derivatives Bonds Mutual Funds
M&A
Commodities
Debt Raising, Syndication and Restructuring
Insurance
11
Milestones: 1994: Started activities in consulting and Institutional equity sales with staff of 15 1995: Set up a research desk and empanelled with major institutional investors 1997: Introduced investment banking businesses. Retail brokerage services launched 1999: Lead managed first IPO and executed first M & A deal 2001: Initiated Wealth Management Services 2002: Retail business expansion recommences with ownership model 2003: Wealth Management assets cross Rs1500 crores; Insurance broking launched; Launch of Wealth Management services in Dubai; Retail Branch network exceeds 50 2004: Commodities brokerage and real estate services introduced; Wealth Management assets cross Rs3000crores; Institutional equities business re launched and senior research team put in place; Retail Branch network expands across 100 locations within India 2005: Real Estate Private Equity Fund launched; Retail branch network expands to 200 locations within India 2006: AR Middle East, WOS acquires membership of Dubai Gold & Commodity Exchange (DGCX); Ranked amongst South Asia's top 5 wealth managers for the ultra-rich by Asia Money 2006 poll; Ranked 6th in FY2006 for All India Broker Performance in equity distribution in the High Net worth Individuals (HNI) Category Ranked 9th in the Retail Category having more than 5% market share; Completes its presence in all States across the country with offices at 300+ locations within India 2007: Citigroup Venture Capital International picks up 19.9% equity stake; Retail customer base crosses 200 thousand; Establishes presence in over 450 locations 2009: Ranked #1 Private Domestic Asia Money polls 2009. 2010:AnandRathi Private Wealth adjudged Best Domestic Private Bank (India) by Asia Money Polls 2010 for the second consecutive year
12 2011:AnandRathi for the third time in a row has been voted as the 'Best Domestic Private Wealth Management Firm' by Asia money Polls 2011.
Key behind Anand Rathi success: INVEST CORRECTLY (RIGHT ASSET CLASS)+INVEST REGULARLY =WEALTH CREATION Client-centric philosophy, with focus on providing long term value addition to clients, maintaining highest standards of excellence, ethics and professionalism They always strive to develop strong relationships with there clients nurtured by personal attention of senior management They approach their clients holistically with the goal of balancing their strategic and financial objectives Proficiency in rendering consistent high quality value added services A senior product team of retail specialists who provide hands on support to Personal Investment Advisors for all products Research:
Dedicated fundamental Research team for corporate guidance.
Publish variety of quality research reports 1. Sector specific 2. Macro Economic trends 3. Fundamental Reports – Daily, Weekly. 4. Technical Reports
Our excellent relationship with major market players gives us an edge over our competitors in information collation
Regular Sector wise surveys enable us to have first hand information from ground level
Success ratio of our positional calls is 70%
13
INTRODUCTION
Indian information technology (IT) industry has played a key role in putting India on the global map. In addition to fuelling India‘s economy, this industry is also positively influencing the lives of its people through an active direct and indirect contribution to various socio-economic parameters such as employment, standard of living and diversity. The industry has played a significant role in transforming India‘s image from a slow moving bureaucratic economy to a land of innovative entrepreneurs and a global player in providing world-class technology solutions and business services, according to National Association of Software and Service Companies (NASSCOM). The sector is estimated to have grown by 19 per cent in the FY2011, clocking revenue of almost US$ 76 billion. India‘s outsourcing industry has witnessed a rebound and registered better than expected growth according to NASSCOM. The export revenues are estimated to have aggregated to US$ 59 billion in FY2011 and contributed 26 per cent as its share in total Indian exports (merchandise plus services), according to a research report ‗IT-BPO Sector in India: Strategic Review 2011‘, published by NASSCOM. The workforce in Indian IT industry will touch 30 million by 2020 and this sunrise industry is expected to continue its mammoth growth, expect various industry experts.
14
OBJECTIVE As IT sector is the fastest growing sector in India due to heavy demand of IT services in western countries. There are huge investment opportunities as there is high rate of return. To exploit this opportunity and earn profit by means of investment in this sector To help analyze the company by understanding simple terms to invest correctly and effectively
SCOPE OF THE STUDY The scope of this project is limited to only one sector i.e. IT sector. This project is concerned with only one sector of companies in the stock market. The project does not extend its scope to any other sector of companies. Also, the project is concerned with only 3 companies from among the major players in the IT sector i.e. TCS, INFOSYS and WIPRO.
15
DEFINATIONS Equity/Share Total equity capital of a company is divided into equal units of small Denominations, each called a share. For example, in a company the total Equity capital of Rs 2,00,00,000 is divided into 20,00,000 units of Rs 10 Each. Each such unit of Rs 10 is called a Share. Thus, the company Then is said to have 20,00,000 equity shares of Rs 10 each. The holders of such shares are members of the company and have voting rights. Debt Instrument Debt instrument represents a contract whereby one party lends money to another on pre-determined terms with regards to rate and periodicity of interest, repayment of principal amount by the borrower to the lender. In Indian securities markets, the term ‗bond‘ is used for debt instruments issued by the Central and State governments and public sector organizations and the term ‘debenture‘ is used for instruments issued by private corporate sector.
Derivative? Derivative is a product whose value is derived from the value of one or more basic variables, called underlying. The underlying asset can be equity, index, foreign exchange (forex), commodity or any other asset. Derivative products initially emerged, as hedging devices against fluctuations in commodity prices and commodity-linked derivatives remained the sole form of such products for almost three hundred years. The financial derivatives came into spotlight in post-1970 period due to growing instability in the financial markets. However, since their emergence, these products have become very popular and by 1990s, they accounted for about two- thirds of total transactions in derivative products.
16 Mutual Fund? A Mutual Fund is a body corporate registered with SEBI (Securities Exchange Board of India) that pools money from individuals/corporate investors and invests the same in a variety of different financial instruments or securities such as equity shares, Government securities, Bonds, debentures etc. Mutual funds can thus be considered as financial intermediaries in the investment business that collect funds from the public and invest on behalf of the investors. Mutual funds issue units to the investors. The appreciation of the portfolio or securities in which the mutual fund has invested the money leads to an appreciation in the value of the units held by investors. binding on the Mutual Fund scheme. The investment objectives specify the class of securities a Mutual Fund can invest in. Mutual Funds invest in The investment objectives outlined by a Mutual Fund in its prospectus are 12various asset classes like equity, bonds, debentures, commercial paper and government securities. The schemes offered by mutual funds vary from fund to fund. Some are pure equity schemes; others are a mix of equity and bonds. Investors are also given the option of getting dividends, which are declared periodically by the mutual fund, or to participate only in the capital appreciation of the scheme.
Index It is a basket of securities and the average price movement of the basket of securities indicates the index movement, whether upwards or downwards.
Depository A depository is like a bank wherein the deposits are securities (viz. shares, debentures, bonds, government securities, units etc.) in electronic form.
Dematerialization Dematerialization is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited An Index shows how a specified portfolio of share prices is moving in order to the investor‘s account with his Depository Participant (DP).
17
SEBI’s role The Securities and Exchange Board of India (SEBI) is the regulatory authority in India established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for establishment of Securities and Exchange Board of India (SEBI) with statutory powers for (a) protecting the interests of investors in securities (b) promoting the development of the securities market and (c) regulating the securities market. Its regulatory jurisdiction extends over corporate in the issuance of capital and transfer of securities, in addition to all intermediaries and persons associated with securities market. SEBI has been obligated to perform the aforesaid functions by such measures as it thinks fit. In particular, it has powers for: Regulating the business in stock exchanges and any other securities markets Registering and regulating the working of stockbrokers, sub–brokers etc. Promoting and regulating self-regulatory organizations Prohibiting fraudulent and unfair trade practices Calling for information from, undertaking inspection, conducting Inquiries and audits of the stock exchanges, with the securities market.
18
Market Segments Securities markets provide a channel for allocation of savings to those who have a productive need for them. The securities market has two interdependent and inseparable segments: (i) primary market and (ii) secondary market.
Primary Market Primary market provides an opportunity to the issuers of securities, both Government and corporations, to raise resources to meet their requirements of investment. Securities, in the form of equity or debt, can be issued in domestic /international markets at face value, discount or premium. The primary market issuance is done either through public issues or private placement. Under Companies Act, 1956, an issue is referred as public if it results in allotment of securities to 50 investors or more. However, when the issuer makes an issue of securities to a select group of persons not exceeding 49 and which is neither a rights issue nor a public issue it is called a private placement.
Secondary Market Secondary market refers to a market where securities are traded after being offered to the public in the primary market or listed on the Stock Exchange. Secondary market comprises of equity, derivatives and the debt markets. The secondary market is operated through two mediums, namely, the Over-the-Counter (OTC) market and the Exchange-Traded market. OTC markets are informal markets where trades are negotiated.
19
PRIMARY MARKET
Role of the ‘Primary Market’ The primary market provides the channel for sale of new securities. Primary market provides opportunity to issuers of securities; Government as well as corporates, to raise resources to meet their requirements of investment and/or discharge some obligation. They may issue the securities at face value, or at a discount/premium and these securities may take a variety of forms such as equity, debt etc. They may issue the securities in domestic market and/or international market.
Face Value of a share/debenture The nominal or stated amount (in Rs.) assigned to a security by the issuer. For shares, it is the original cost of the stock shown on the certificate; for bonds, it is the amount paid to the holder at maturity. Also known as par value or simply par. For an equity share, the face value is usually a very small amount (Rs. 5, Rs. 10) and does not have much bearing on the price of the share, which may quote higher in the market, at Rs. 100 or Rs.1000 or any other price. For a debt security, face value is the amount repaid to the investor when the bond matures (usually, Government securities and corporate bonds have a face value of Rs. 100). The price at which the security trades depends on the fluctuations in the interest rates in the economy.
Premium and Discount in a Security Market Securities are generally issued in denominations of 5, 10 or 100. This is known as the Face Value or Par Value of the security as discussed earlier. When a security is sold above its face value, it is said to be issued at a Premium and if it is sold at less than its face value, then it is said to be issued at a Discount.
20
Why do companies need to issue shares to the public?
Most companies are usually started privately by their promoter(s). However, the promoters‘ capital and the borrowings from banks and financial institutions may not be sufficient for setting up or running the business over a long term. So companies invite the public to contribute towards the equity and issue shares to individual investors. The way to invite share capital from the public is through a ‘Public Issue’. Simply stated, a public issue is an offer to the public to subscribe to the share capital of a company. Once this is done, the company allots shares to the applicants as per the prescribed rules and regulations laid down by SEBI.
The different kinds of issues
Primarily, issues can be classified as a Public, Rights or Preferential issues (also known as private placements). While public and rights issues involve a detailed procedure, private placements or preferential issues are relatively simpler. The classification of issues is illustrated below:
Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. This paves way for listing and trading of the issuer‘s securities.
A follow on public offering (Further Issue) is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document.
Rights Issue is when a listed company which proposes to issue fresh securities to its existing shareholders as on a record date. The rights are normally offered in a particular ratio to the number of securities held prior to the issue. This route is best
21 suited for companies who would like to raise capital without diluting stake of its existing shareholders.
A Preferential issue is an issue of shares or of convertible securities by listed companies to a select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights issue nor a public issue. This is a faster way for a company to raise equity capital. The issuer company has to comply with the Companies Act and the requirements contained
22
SECONDARY MARKET
Introduction to Secondary market Secondary market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets.
Role of the Secondary Market For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, Secondary equity markets serve as a monitoring and control conduit—by facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decisions.
Market Capitalization mean The market value of a quoted company, which is calculated by multiplying its current share price (market price) by the number of shares in issue is called as market capitalization. E.g. Company A has 120 million shares in issue. The current market price is Rs. 100. The market capitalization of company A is Rs. 12000 million. Products and Participants
Products Financial markets facilitate reallocation of savings from savers to entrepreneurs. Savings are linked to investments by a variety of intermediaries through a range of complex financial products called ―securities‖. Under the Securities Contracts (Regulation) Act [SC(R)A], 1956, ―securities‖ include (i) shares, bonds, scrips, stocks
23 or other marketable securities of like nature in or of any incorporate company or body corporate, (ii) government securities, (iii) derivatives of securities, (iv) units of collective investment scheme, (v) interest and rights in securities, and security receipt or any other instruments so declared by the central government. Broadly, securities can be of three types - equities, debt securities and derivatives. Participants The securities market has essentially three categories of participants (i) the investors, (ii) the issuers, (iii) the intermediaries (Figure 1.1). The Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI), Ministry of Corporate Affairs (MCA) and the Department of Economic Affairs (DEA) of the Ministry of Finance regulate these participants. Market Segments and their Products The Exchange (NSE) provides trading in four different segments - Wholesale Debt Market, Capital Market, Futures and Options and Currency Derivatives Segment as depicted in the figure 1.2 below.
(i) Wholesale Debt Market (WDM) Segment: This segment at NSE commenced its operations in June 1994. It provides the trading platform for wide range of debt securities which includes State and Central Government securities, T-Bills, PSU Bonds, Corporate debentures, Commercial Papers, Certificate of Deposits etc.
(ii) Capital Market (CM) Segment: This segment at NSE commenced its operations in November 1994. It offers a fully automated screen based trading system, known as the National Exchange for Automated Trading (NEAT) system. Various types of securities e.g. equity shares, warrants, debentures etc. are traded on this system.
(iii)Futures & Options (F&O) Segment: This segment provides trading in derivatives instruments like index futures, index options, stock options, and stock futures, and commenced its operations at NSE in June 2000.
(iv)Currency Derivatives Segment (CDS) Segment: This segment at NSE commenced its operations on August 29, 2008, with the launch of currency futures
24 trading in US Dollar-Indian Rupee (USD-INR). Trading in other currency pairs like Euro-INR, Pound Sterling-INR and Japanese Yen-INR was further made available for trading in February 2010. ‗Interest rate futures‘ was another product made available for trading on this segment with effect from August 31, 2009. Equity Investment
why should one invest in equities in particular? When a person buy a share of a company you become a shareholder in that company. Shares are also known. Equities have the potential to increase in value over time. Research studies have proved that the equity returns have outperformed the returns of most other forms of investments in the long term. Investors buy equity shares or equity based mutual funds because: - Equities are considered the most rewarding, when compared to other investment options if held over a long duration. - Research studies have proved that investments in some shares with a longer tenure of investment have yielded far superior returns than any other investment. The average annual return of the stock market over the period of last fifteen years, if one takes the Nifty index, as the benchmark to compute the returns, has been around 16%. However, this does not mean all equity investments would guarantee similar high returns. Equities are high-risk investments. Though higher the risk, higher the potential returns, high risk also indicates that the investor stands to lose some or all his investment amount if prices move unfavorably. One need to study equity markets and stocks in which investments are being made carefully, before investing. Return on Equities in India If we take the Nifty index returns for the past fifteen years, Indian stock market has returned about 16% to investors on an average in terms of increase in share prices or capital. Besides that on average stocks have paid 1.5% dividend annually. Dividend is a percentage of the face value of a share that a company returns to its shareholders from its annual profits. Compared to most other forms of investments, investing in equity shares offers the highest rate of return, if invested over a longer duration.
25 Factors that influence the price of a stock
Broadly there are two factors: (1) stock specific and (2) market specific. The stockspecific factor is related to people‘s expectations about the company, its future earnings capacity, financial health and management, level of technology and marketing skills. The market specific factor is influenced by the investor‘s sentiment towards the stock market as a whole. This factor depends on the environment rather than the performance of any particular company. Events favorable to an economy, political or regulatory environment like high economic growth, friendly budget, stable government etc. can fuel euphoria in the investors, resulting in a boom in the market. On the other hand, unfavorable events like war, economic crisis, communal riots, minority government etc. depress the market irrespective of certain companies performing well. However, the effect of market-specific factor is generally short-term. Despite ups and downs, price of a stock in the long run gets stabilized based on the stock- specific factors. Therefore, a prudent advice to all investors is to analyze and invest and not speculate in shares.
26
Fundamental analysis Fundamental analysis is the process of looking at a business at the basic or fundamental financial level. This type of analysis examines key ratios of a business to determine its financial health and gives you an idea of the value its stock.Many investors use fundamental analysis alone or in combination with other tools to evaluate stocks for investment purposes. The goal is to determine the current worth and, more importantly, how the market values the stock.
Fundamental Analysis Tools These are the most popular tools of fundamental analysis. They focus on earnings, growth, and value in the market. They can be studied with ratios. •
Earnings per Share – EPS
•
Price to Earnings Ratio – P/E
•
Projected Earning Growth – PEG
•
Price to Sales – P/S
•
Price to Book – P/B
•
Dividend Payout Ratio
•
Dividend Yield
•
Book Value
27 •
Return on Equity
Earnings per Share – EPS It makes more sense to look at earnings per share (EPS) for use as a comparison tool. You calculate earnings per share by taking the net earnings and divide by the outstanding shares. EPS = Net Earnings / Outstanding Shares The EPS is helpful in comparing one company to another, assuming they are in the same industry, but it doesn‘t tell you whether it‘s a good stock to buy or what the market thinks of it. For that information, we need to look at some ratios. Before we move on, you should note that there are three types of EPS numbers: Trailing EPS – last year‘s numbers and the only actual EPS Current EPS – this year‘s numbers, which are still projections Forward EPS – future numbers, which are obviously projections Price to Earnings Ratio – P/E The P/E is one of those numbers that investors throw around with great authority as if it told the whole story.The P/E looks at the relationship between the stock price and the company‘s earnings. The P/E is the most popular metric of stock analysis, although it is far from the only one you should consider. You calculate the P/E by taking the share price and dividing it by the company‘s EPS. P/E = Stock Price / EPS The P/E gives you an idea of what the market is willing to pay for the company‘s earnings. The higher the P/E the more the market is willing to pay for the company‘s earnings. Some investors read a high P/E as an overpriced stock and that may be the case, however it can also indicate the market has high hopes for this stock‘s future
28 and has bid up the price.The P/E is the most popular way to compare the relative value of stocks based on earnings because you calculate it by taking the current price of the stock and divide it by the Earnings Per Share (EPS). This tells you whether a stock‘s price is high or low relative to its earnings.
Projected Earning Growth – PEG Investors may consider a company with a high P/E overpriced and they may be correct. A high P/E may be a signal that traders have pushed a stock‘s price beyond the point where any reasonable near term growth is probable.However, a high P/E may also be a strong vote of confidence that the company still has strong growth prospects in the future, which should mean an even higher stock price. Because the market is usually more concerned about the future than the present, it is always looking for some way to project out. Another ratio you can use will help you look at future earnings growth is called the PEG ratio. The PEG factors in projected earnings growth rates to the P/E for another number to remember. You calculate the PEG by taking the P/E and dividing it by the projected growth in earnings. PEG = P/E / (projected growth in earnings) For example, a stock with a P/E of 30 and projected earning growth next year of 15% would have a PEG of 2 (30 / 15 = 2). What does the ―2‖ mean? Like all ratios, it simply shows you a relationship. In this case, the lower the number the less you pay for each unit of future earnings growth. So even a stock with a high P/E, but high projected earning growth may be a good value. Price to Sales – P/S We have a number of tools available to us when it comes to evaluating companies with earnings. We can add the two others on dividends and the one on return on
29 equity to the list as specific to companies that are or have made money in the past. Does that mean companies that don‘t have any earnings are bad investments? Not necessarily, but you should approach companies with no history of actually making money with caution. The Internet boom of the late 1990s was a classic example of hundreds of companies coming to the market with no history of earning – some of them didn‘t even have products yet. Fortunately, that‘s behind us.However, we still have the problem of needing some measure of young companies with no earnings, yet worthy of consideration. After all, Microsoft had no earnings at one point in its corporate life. One ratio we can use is Price to Sales or P/S ratio. This metric looks at the current stock price relative to the total sales per share. You calculate the P/S by dividing the market capof the stock by the total revenues of the company. We can also calculate the P/S by dividing the current stock price by the sales per share. P/S = Market Cap / Revenues or P/S = Stock Price / Sales Price Per Share When dealing with a young company, there are many questions to answer and the P/S supplies just one answer.Investors looking for hot stocks aren‘t the only ones trolling the markets. A quiet group of folks called value investors go about their business looking for companies that the market has passed by. Some of these investors become quite wealthy finding sleepers, holding on to them for the long term as the companies go about their business without much attention from the market, until one day they pop up on the screen, and some analyst ―discovers‖ them and bids up the stock. Meanwhile, the value investor pockets a hefty profit. Price to Book – P/B
30 Value investors look for some other indicators besides earnings growth and so on. One of the metrics they look for is the Price to Book ratio or P/B. This measurement looks at the value the market places on the book value of the company. You calculate the P/B by taking the current price per share and dividing by the book value per share. P/B = Share Price / Book Value Per Share Like the P/E, the lower the P/B, the better the value. Value investors would use a low P/B is stock screens, for instance, to identify potential candidates. Dividend Payout Ratio The Dividend Payout Ratio (DPR) is one of those numbers. It almost seems like a measurement invented because it looked like it was important, but nobody can really agree on why. The DPR (it usually doesn‘t even warrant a capitalized abbreviation) measures what a company‘s pays out to investors in the form of dividends. You calculate the DPR by dividing the annual dividends per share by the Earnings Per Share. DPR = Dividends Per Share / EPS For example, if a company paid out $1 per share in annual dividends and had $3 in EPS, the DPR would be 33%. ($1 / $3 = 33%) The real question is whether 33% is good or bad and that is subject to interpretation. Growing companies will typically retain more profits to fund growth and pay lower or no dividends. Companies that pay higher dividends may be in mature industries where there is little room for growth and paying higher dividends is the best use of profits (utilities used to fall into this group, although in recent years many of them have been diversifying) Dividend Yield if we are value investor or looking for dividend income then there are a couple of
31 measurements that are specific for us. For dividend investors, one of the telling metrics is Dividend Yield. This measurement tells you what percentage return a company pays out to shareholders in the form of dividends. Older, well-established companies tend to payout a higher percentage then do younger companies and their dividend history can be more consistent. You calculate the Dividend Yield by taking the annual dividend per share and divide by the stock‘s price. Dividend Yield = annual dividend per share / stock's price per share For example, if a company‘s annual dividend is $1.50 and the stock trades at $25, the Dividend Yield is 6%. ($1.50 / $25 = 0.06) Book Value Another way to determine a company‘s value is to go to the balance statement and look at the Book Value. The Book Value is simply the company‘s assets minus its liabilities. Book Value = Assets - Liabilities In other words, if you wanted to close the doors, how much would be left after you settled all the outstanding obligations and sold off all the assets.A company that is a viable growing business will always be worth more than its book value for its ability to generate earnings and growth. Book value appeals more to value investors who look at the relationship to the stock's price by using the Price to Book ratio. To compare companies, you should convert to book value per share, which is simply the book value divided by outstanding shares. Return on Equity Return on Equity (ROE) is one measure of how efficiently a company uses its assets
32 to produce earnings. You calculate ROE by dividing Net Income by Book Value. A healthy company may produce an ROE in the 13% to 15% range. Like all metrics, compare companies in the same industry to get a better picture. While ROE is a useful measure, it does have some flaws that can give you a false picture, so never rely on it alone. For example, if a company carries a large debt and raises funds through borrowing rather than issuing stock it will reduce its book value. A lower book value means you‘re dividing by a smaller number so the ROE is artificially higher. There are other situations such as taking write-downs, stock buy backs, or any other accounting slight of hand that reduces book value, which will produce a higher ROE without improving profits. It may also be more meaningful to look at the ROE over a period of the past five years, rather than one year to average out any abnormal numbers. Given that you must look at the total picture, ROE is a useful tool in identifying companies with a competitive advantage. All other things roughly equal, the company that can consistently squeeze out more profits with their assets, will be a better investment in the long run.
33
Technical analysis Technical analysis takes a completely different approach; it doesn't care one bit about the "value" of a company or a commodity. Technicians (sometimes called chartist) are only interested in the price movements in the market. Despite all the fancy and exotic tools it employs, technical analysis really just studies supply and Demand in a market in an attempt to determine what direction, or trend, will continue in the future. In other words, technical analysis attempts to understand the emotions in the market by studying the market itself, as opposed to its components. If you understand the benefits and limitations of technical analysis, it can give you a new set of tools or skills that will enable you to be a better trader or
investor The field of technical analysis is based on three assumptions: 1. The market discounts everything. 2. Price moves in trends. 3. History tends to repeat itself. The Market Discounts Everything A major criticism of technical analysis is that it only considers price movement, ignoring the fundamental factors of the company. However, technical analysis
34 assumes that, at any given time, a stock's price reflects everything that has or could affect the company - including fundamental factors. Technical analysts believe that the company's fundamentals, along with broader economic factors and market psychology, are all priced into the stock, removing the need to actually consider these factors separately. This only leaves the analysis of price movement, which technical theory views as a product of the supply and demand for a particular stock in the market.
Price Moves in Trends In technical analysis, price movements are believed to follow trends. This means that after a trend has been established, the future price movement is more likely to be in the same direction as the trend than to be against it. Most technical trading strategies are based on this assumption.
History Tends To Repeat Itself Another important idea in technical analysis is that history tends to repeat itself, mainly in terms of price movement. The repetitive nature of price movements is attributed to market psychology; in other words, market participants tend to provide a consistent reaction to similar market stimuli over time. Technical analysis uses chart patterns to analyze market movements and understand trends. Although many of these charts have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves. Fundamental vs. Technical Analysis Technical analysis and fundamental analysis are the two main schools of thought in the financial markets. As we've mentioned, technical analysis looks at the price movement of a security and uses this data to predict its future price movements. Fundamental analysis, on the other hand, looks at economic factors, known as fundamentals. Let's get into the details of how these two approaches differ, the criticisms against technical analysis and how technical and fundamental analysis can be used together to analyze securities.
35 The Differences Charts vs. Financial Statements At the most basic level, a technical analyst approaches a security from the charts, while a fundamental analyst starts with the financial statements.
RESEARCH METHOLOGY
Research is often described as an active, diligent and systematic process of inquiry aimed at discovering, interpreting and revising facts. This intellectual investigation produces a greater understanding of events, behavior or theories and makes practical applications through laws and theories. The term research is also used to describe a collection of information about a particular subject, and is usually associated with science and scientific method. BASIC RESEARCH: Basic research is also called as fundamental or pure research. Its primary objective is the advancement of knowledge and the theoretical understanding of the relations among the variables. It is exploratory and often driven by researcher‘s curiosity or interest. It is conducted without any practical end in mind. Basic research often lays down the foundation for further applied research. APPLIED RESEARCH: Applied research is done to solve specific, practical questions. Its primary objective is not to gain knowledge for its own sake. It is usually descriptive in nature. It is almost always done on the basis of basic research. As far as equity research is concerned there are two types of research methods that are followed: •
Fundamental analysis
•
Technical analysis
Financial statement analysis is the biggest part of Fundamental analysis also known as quantitative analysis, it involves looking at historical performance data to estimate the future performance of stocks whereas Technical analysis does not care one bit about the value of the company, it is only interested in the price movements of the company
36 s share in the market. [15]This project deals with the fundamental analysis aspect of the equity research. The researcher in this project has tried to look into the details of the financial statements of the companies, the environment surrounding the telecom sector, the latest developments in this regard, the management discussions on the part of every company and the government policies concerned with the telecom sector.
DATA COLLECTION: •
Primary data for a project is the first hand information regarding the project
being studied. In this regard the primary data for this project would be getting the necessary information from the company management by an interview, telephonic conversation or direct mail. •
Secondary data for a project would be the collection of information that has a
bearing on the outcome of the project from secondary sources like news, press releases, internet etc. The data collected for this project was from a secondary source. The data was complied with the help of sources like News articles, Internet, Capitaline software. In this research, primary data could not be gathered as the company officials could not be contacted for a one to one interview or a telephonic interview. Research objective: to do analysis IT companies for the purpose of investment in equity Type of research design: conclusive Data collection method: Primary data: unavailable Secondary data: the company site and various financial news sites Research design: it is based on historical performance data.
37
ANALYSIS
Macroeconomic analysis Analysis of IT industry: PEST analysis IT INDUSTRY IN INDIA The Indian information technology sector has been instrumental in driving the nation's economy onto the rapid growth curve. According to the Nasscom-Deloitte study, the IT/ITES industry's contribution to the country's GDP has increased to a share of 5.2 per cent in 2007, as against 1.2 per cent in 1998. Further, the IT and BPO industries are poised to clock revenues worth US$ 64 billion by the end of fiscal year 2008, registering a growth of 33 per cent with exports expected to cross US$ 40 billion and the domestic market estimated to clock over US$ 23 billion, according to a study. Simultaneously, the Indian IT services market is estimated to remain the fastest growing in the Asia Pacific region with a CAGR of 18.6 per cent, as per a study by Springboard Research. India's IT growth in the world is primarily dominated by IT software and services such as Custom Application Development and Maintenance (CADM), System Integration, IT Consulting, Application Management, Infrastructure Management Services, Software testing, Service-oriented architecture and Web services. A report by the Electronics and Software Export Promotion Council (ESC) estimates software exports to register a 33 per cent growth in the current financial year with export figures during FY 2008 expected to reach US$ 45 billion. The country's IT exports have, in fact, come quite far, starting from a few million dollars in the early 1990s. The Government expects the exports turnover to touch US$ 80 billion by 2011, growing at an annual rate of 30 per cent per annum. POLITICAL FACTORS:-
38 This is a political factor, which affects a business, which can be government rules and regulation toward that particular business environment. For IT industry the Indian political structure is stable, but there are fears of hung parliament due to a lack of clear majority in parliament creating fear of wrong investing in the minds of investor thereby reducing capital. U.S government has declared that U.S firm that outsource IT works outside the U.S will not get tax benefits, this has caused reduction in U.S BPO contract from the U.S in the last fiscal year thereby reducing revenue from the U.S. Indian government has decided to contract IT job to Indian IT companies creating more opportunities for the company and the industry at large. In software development different countries are configuration rules and regulations are considered since client demand differs because of different system requirement. NASSCOM and DELIOTTE study (impacting economy and society 2007/2008), states that Indian government has strengthened the IT act, 2000 to provide a sound legal environment for companies to operate related to security of data in transmission and storage etc this has served as a positive factor. Infosys has to put Indian relationship with different countries of business into consideration before investing. Other factors to be considered are customer protection law, competitive regulations, and terrorist attacks.
POLITICAL STABILITY: _ India suffered political instability for a few years due to the failure of any party to win an absolute majority in Parliament. However, political stability has returned since the previous general elections in 1999. However, political instability did not change India's economic course though it delayed certain decisions relating to the economy. The political divide in India is not one of policy, but essentially of personalities. Economic liberalization (which is what foreign investors are interested in) has been accepted as a necessity by all parties including the Communist Party of India (Marxist). Thus, political instability in India, in practical terms, posed no risk to foreign direct investors because any successive government has reversed no policy framed by a past government so far. You can find a comparison in Italy, which has had some 45 governments in 50 years yet, overall economic policy remains unchanged. Even if political instability is to return in the future, chances of a reversal in economic policy are next to nil. As for terrorism, no terrorist outfit is strong enough to disturb the state. Except for
39 Kashmir in the north and parts of the northeast, terrorist activity is either non- existent or too weak to be of any significance. It would take an extreme stretching of the imagination to visualize a Bangladesh-type state-disrupting revolution in India or a Kuwait-type annexation of India by a foreign power. Hence, political risk in India is practically non-existent. Likewise the IT sector does not have any influence of political stability on industry. And if the govt. changes there is little effect on the industry of that political step.
ECONOMICAL FACTORS These include factors affecting IT industry ranging from rising working pay, global recession, competition, contract availability and fee. Domestic IT spending grew by 20% and reached $20 billion in 2009. Currency fluctuations caused by the devaluation of the dollar has affected the industry during the last global recession. Real estate prices decline resulted in rental expenditure forcing customer to leave luxuries goods such as electronic and computers that need software to work. Recession cause low attribute rate due to job layouts and job cuts. India economic attraction has helped in convincing investors due to low cost advantage. With India‘s global IT spending yet to decline due to entry of new IS companies and the cause of the recession. With clients industry faced with reduction of work force due to job layoffs and unsuitable balance sheet most companies have decided not to make much expenditure in purchase, but make optimum use of existing facilities to make profits. Most debtors with financial crisis have been granted more time to pay up causing large debt deficit. With the decline of banking and financial sectors, the revenue from there is expected to decline, hurting the bottom line of IT majors
DOMESTIC IT SPENDING:India's domestic IT market will grow around 14% this year, showing a minor decline as compared to last year's growth of 16-18%. Hence, it is expected that the country will see a minor decline in IT budget coming from its domestic market. "Compared to other countries, India is in a better position. Its domestic market is expected to grow around 14% this year. We also expect that IT spend in India will see a minor decline as compared to last year. There could be some 2-3% decline as compared to last year's budget," commented Arup Roy, senior research analyst at Gartner.
40
GLOBAL IT SPENDING:Indian enterprises spending on information communications and technology (ICT) in 2005 are expected to grow at more than twice the rate in the Asia Pacific region. Enterprise spending in the Asia Pacific (APAC) on hardware next year will rise 6.3 per cent to $36.9bn, with software increasing 12.4 per cent to $5.6bn while telecom will grow 7.5 per cent to $132.5bn and IT services will gain 8.4 per cent to $33.6bn. In India, of the $22.88bn spend in 2005 on enterprise ICT, $3.34bn is the projected spend on hardware, an increase of 21.1 per cent over 2004; $0.52bn (16.4 per cent increase) on software; $16.7bn (15.5 per cent increase) on telecom and $2.32bn (18.3 per cent increase) on IT services. India will remain the highest growth market for telecommunications with around 35 million new subscribers in 2005, an 18 per cent increase from 2004, with the growth occurring in selected technologies mainly mobile. This accounts for almost one fourth of the new subscribers forecasted in Asia Pacific. Consumer segment is rapidly gaining importance, driven by adoption of mobile services. This is reflected in their increased contribution towards spending for telecommunication services, from 35 per cent in 2002 to 43 per cent in 2005. By 2008 the consumer segment will account for more than half of telecommunications spending, the report said. Gartner also said that open source and offshore IT services will continue to grow, while it warned global IT vendors to take emerging competition from China seriously with at least three Chinese IT companies becoming significant global competitors by 2010. The growth in offshore BPO services outpaces the growth in global sourcing of IT services. Offshore component of global BPO services spend is expected to grow from $3 billion (2.4 per cent of total markets spend of $124 billion in 2004) to $24 billion (15 per cent of the total markets spend of $161 billion in 2007).
REAL STATES PRICES: Decline in real estate prices has resulted reducing the rental expenditure thus the industry will grow if the real estate price goes down. ATTRITION:-\ Almost every sector in India is facing high rates of attrition these days. A recent study revealed that employees leave either because of compensation reasons or due to better growth opportunities. According to NASSCOM, Indian IT-ITES industry
41 recorded US$ 39.6 billion in revenues in 2006-07. The revenue of US$ 49-50 billion has been projected in 2007-08 at a growth rate of 24-27 per cent. The IT industry's contribution to GDP was 4.8 per cent in 2005-06 Though the IT/ITES sector is booming, it is constantly facing high attrition rates of 25% - 30%. Even the big brands are also facing the same problem. Below are the details of attrition rates of various players in IT sector. According to the survey conducted by BES and Data Quest, Sierra Atlantic recorded highest attrition rate (29%) followed by Kanbay with 25% and Accel Frontline with 20 per cent.
ECONOMIC ATTRACTION:There is a lot of economic attraction towards IT sector due to low cost advantage and other factors. India, with its low cost advantage and emergence of several private players, represents the fastest growing market. Further the geographical location of India serves it the advantage of being exactly halfway round the world from the US west coast, which is another reason why India is preferred destination of many big brands. India‘s development and contribution in world‘s information technology sector is of highest reputation. Cities like Bangalore have become the favorite(most preferred) destinations of all the big banners like HSBC, Dell, Microsoft, GE, Hewlett Packard, and several Indian multi national firms like Infosys Technologies, Wipro, and Micro land who have set up their offices in the city. It is because the city offers good infrastructure, with large floor space and great telecom facilities. This can be judged on the basis of the high growth statistics of India and the changing outlook of the companies towards India. It is because of this growth many popular brands that have not yet build up there rigid offices in the country are making it fast to have a destination in India too. For example, Sun Microsystems, a global IT major, announced in Bangalore to double the present workforce of the company's Sun India Engineering Center (IEC) from the present 1000 to 2000 in the next two years time. IEC, which is the largest R&D center for Sun outside the US, would also focus on developing products in India to suit the needs of the Indian market, which would be benchmarked globally. Also, the presence of a large number of Indians, especially engineers, in the US gave India an easy entry into the US software market.
42 SOCIAL FACTORS These are social factors affecting IT industry, which 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 labor force. Great number of institute and universities offer IT Course creating room for availability of IT professional at lower cost since there is job competition. India has to produces great numbers of IT professional each year to meet its demand. India continue to produce IT professionals each year, this has help industry for IT professionals inwards. Industries have to consider the type of services the software is meant for, age difference of users, life style of the different countries of supply. It should be noted that there will always be difference in client behaviours which is supported by the fact that different customers have different taste.
SOCIAL ISSUES;Should Industry be concern with the issue of global warming? Yes it is affected by many government laws regarding it like in china, where company with great amount of carbon emission are charge great amount of tax. Likewise being a major player in the global IT market Infosys has introduces measure to help in the reduction of carbon emission by trying to reduce its water consumption, electricity utilization, carbon emission and partnering with other companies in troubleshooting this global dilemma
EDUCATION:There are large number of universities and institutes in India offering IT education. And there are large numbers of students which ever year passed these courses and join the IT industry. The Indian labor is not only cheap but is technically skilled too to the world-class level. It is due to the Indian Education System that includes in its course curriculum the practical knowledge of the latest technology that is developed in world along with the fluency in English Language that imparts compatibility in an Indian technician to communicate and work throughout the world.
CAREER PROSPECTS In the year 2006-07, the industry hired approximately 3, 80,000 people. Out of these,
43 the ITeS sector hired 2, 00,000 people and the rest were taken by IT sector. The recruitment trends of some IT giants are given below: TCS- 35,000 Infosys- 30,000 Wipro-28,000 Satyam-20,000 Some of the areas of specialization in the IT Industry areDesigning Research and Development in Peripheral Integration Product Quality Control and Reliability Testing Computer Manufacturing Maintenance Service System Developing /Programming /Software Engineering Networking Application Programming EDP/ E- Commerce Enterprise Resource Planning (ERP) Database Warehousing and Management Operating jobs, Computer operators, Data Entry WORKING AGE POPULATION:Working age population also affects the industry a lot because every person has different value, lifestyle, attitude, and also the satisfaction level.
TECHNOLOGICAL FACTORS;TELEPHONY Cellular mobile telephony tariffs in India are the lowest in the world. A comparison of Indian cellular tariffs vis-à-vis the tariffs prevailing in comparative emerging economies in South America & Asia-Pacific region, clearly brings out the affordability of Indian cellular mobile telephone services. NEW IT TECHNOLOGY:With the evolution of SOA and semantic web services, enterprise solution heeds to the limitations of conventional enterprise systems by providing data convergence and concept reutilization with intelligence. Web2.O represents the next transition in the evolution of web applications; they promise to restore the richness, interactivity and usability lacking in many web applications. CAD:Computer-aided design (CAD) is the use of a wide range of computer-based tools that assist engineers, architects and other design professionals in their design activities. It is the main geometry authoring tool within the Product Lifecycle Management process and involves both software and sometimes special-purpose hardware. Current packages range from 2D vector based drafting systems to 3D solid and surface modellers. LEGAL ASPECTS AND POLICIES This speedy growth of IT Sector is undoubtedly due to the efforts of Indian
44 government and the other developments that took in the other parts of the globe. IT Act 2000: India became the 12th nation in the world to adopt a cyber law during 2000. • From the perspective of e-commerce in India, the IT Act 2000 and its provisions Contain many positive aspects. Firstly, the implications of these provisions for the ebusinesses would be that email would now be a valid and legal form of communication in our country that can be duly produced and approved in a court of law. • Companies shall now be able to carry out electronic commerce using the legal infrastructure provided by the Act. • Digital signatures have been given legal validity and sanction in the Act. • The Act throws open the doors for the entry of corporate companies in the business of being Certifying Authorities for issuing Digital Signatures Certificates. • The Act now allows Government to issue notification on the web thus heralding egovernance. • The Act enables the companies to file any form, application or any other document with any office, authority, body or agency owned or controlled by the appropriate Government in electronic form by means of such electronic form as may be prescribed by the appropriate Government. • The IT Act also addresses the important issues of security, which are so critical to the success of electronic transactions. The Act has given a legal definition to the concept of secure digital signatures that would be required to have been passed through a system of a security procedure, as stipulated by the Government at a later date. • Under the IT Act, 2000, it shall now be possible for corporate to have a statutory remedy in case if anyone breaks into their computer systems or network and causes damages or copies data. The remedy provided by the Act is in the form of monetary damages, not exceeding Rs. 1 crore.
Indian Copyright Act: The copyright of computer software is protected under the provisions of Indian Copyright Act 1957. Major changes to Indian Copyright Law were introduced in 1994 and came into effect from 10 May 1995. Copyright Act clearly explained: • The rights of a copyright holder
45 • Position on rentals of software • The rights of the user to make backup copies • Most importantly the amendments imposed heavy punishment and fines for infringement of copyright of software. Income Tax Deduction under sections 10A/ 10B of Income tax Act, 1961 (―IT Act‖) in respect of profits derived from export of computer software. Following undertakings are eligible to claim deduction in respect of profits derived from export of computer software under the provisions of sections 10A/ 10B of the IT Act: • Existing units which commenced operations prior to April 1, 2000 and claimed deduction under the provisions of erstwhile sections 10A/ 10B, can continue to claim such deduction under the provisions of newly substituted sections 10A/ 10B for the unexpired period of ten consecutive assessment years. Deduction would continue to be available in case of corporate re-organizations by way of amalgamation or demerger. Depreciation on computers and computer software at 60 percent As per the provisions of the IT Act, annual depreciation on computers and computer software can be claimed at the rate of 60 percent of written down value at the beginning of the relevant financial year for income tax purposes. Therefore, under the written down value method, 84 percent of cost of computers and software can be depreciated in first 2 years.
46
THE GROWTH STORY India is a preferred destination for companies looking to offshore there IT and backoffice functions. It also retains its low-cost advantage and is a financially attractive location when viewed in combination with the business environment it offers and the availability of skilled people. India's top technology firms like TCS, Infosys, Wipro and HCL are readying plans to gain a bigger share of their largest market, US, by aggressively chasing contracts being served by multinational rivals. Analysts expect the top IT firms to grow between 23-27 per cent in the FY2012 on the back of more number of discretionary projects, improved pricing, and robust business volumes. INVESTMENTS Between April 2000 and February 2011, the computer software and hardware sector received cumulative foreign direct investment (FDI) of US$ 10,705 million, according to the Department of Industrial Policy and Promotion. The total investments of EMC Corporation, a leading global player of information infrastructure solutions in India, will touch US$ 2 billion (over US$ 2.01 billion) by 2014. Russian IT security software provider, Kaspersky Lab, will be investing US$ 2 million in its India operations at Hyderabad during2011. On the back of 40 per cent revenue growth, Cognizant will invest more than US$ 500 million till 2014 to expand its campuses to add over 8 million square feet to house over 55,000 employees. Chennai-based Polaris Software Lab has announced that it is buying an 85 per cent
47 stake in San Francisco-based digital identity authentication services provider IdenTrust for US$ 20 million. The acquisition will mark Polaris' entry into the cloud computing space for financial technology solutions, the company said in a filing to the Bombay Stock Exchange. MARKET TRENDS: The Information Technology (IT) sector in India is amongst the fastest growing in the country and the world. It is expected that by the year 2008, IT software and services industry will account for 7 per cent of India‘s GDP and 35 per cent of total exports. The Indian domestic IT market grew by 29% in the financial year 2007-08 to report revenues of Rs 288, 810 crore. The revenue of the information technology sector has grown from 1.2 per cent of the gross domestic product (GDP) in FY 1998 to an estimated 5.5 per cent in FY 2008. The net value added by this sector, to the economy, is estimated to be 3.3 to 3.9 per cent for FY 2008. Contribution of it sector to the economy
2007
2008
2009
2010
2011
2012
CAGR 07-12
Domestic 90,014
110,177
133,100
158,053
182,991
209,698
18.4%
156,594
186,142
218,107
250,087
284,666
320,278
15.4%
246,609
296,319
351,207
408,139
467,657
529,976
16.5%
IT/ ITeS Market IT/ ITeS Exports Revenue India IT/ ITeS Industry Size
FOREIGN DIRECT INVESTMENT (FDI) POLICY:
48 100% FDI is permitted in the Electronic hardware sector and the Software development sector under the automatic approval route. Industrial Licensing has been virtually abolished in the Electronics and Information Technology sector except for manufacturing electronic aerospace and defense equipment.
IT / ITES EXPORT TRENDS:
The Software exports are projected to grow by $9 billion to $50 billion in fiscal 200809 from $41 billion in fiscal 2007-08 and $32 billion in fiscal 2006-07. Exports contribute nearly 65% of the Indian IT sector revenue. The United States and Britain are the biggest markets for India's booming software exports, accounting for about 80 percent of the country's $12-billion- exports per year. Key Players: The following are India‘s Tier 1 companies in the IT sector: •Tata Consultancy Services Ltd. •Wipro Technologies Ltd. •Infosys Technologies Ltd. The other key players include the following: • IBM • HCL • Patni • Polaris • Cisco •KPIT Cummins • Kanbay •i-Flex Solutions
49
In order to find out which company among the selected are good choice of investment we have to perform two type of analysis that is fundamental analysis and technical analysis. First we will be performing fundamental analysis on the profit and loss statement of the company for last four year. The companies we have chosen are the IT giants of Indian IT industry; they are TCS, INFOSYS & WIPRO. We will be analyzing this company on their profit and loss statements and various investors‘ ratios.
50
TCS COMPANY profile Tata Consultancy Services started in 1968. Mr.F.C Kohli who is presently the Deputy Chairman was entrusted with the job of steering TCS. The early days marked TCS responsibility in managing the punch card operations of Tisco. The company, which was into management consultancy from day one, soon felt the need to provide solutions to its clients as well. TCS was the first Indian company to make forays into the US market with clients ranging from IBM, American Express, Sega etc. TCS is presently the top software services firm in Asia. During the Y2K buildup, TCS had setup a Y2Kfactory in Chennai as a short-term strategy. Now, with E-business being the buzzword, the factory is developing solutions for the dotcom industries. Today, about 90 percent of TCS' revenue comes from consulting, while the rest from products. TCS has great training facilities. In addition to training around 5 percent of the revenue is spent upon its R&D centre like the Tata Research Design and Development Centre at Pune, along with a host of other centre at Mumbai and Hyderabad. It benchmarked its quality standing, invested heavily in software engineering practices and built intellectual property-in terms of patents, code and branded products. At the same time, it expanded its relationships with technology partners and organizations, increased linkages with academic institutions and incubated technologies and ideas of people within TCS and outside. TCS has already patented 12 E-Commerce solution product packages and has filed six more applications for patent licenses. Over $25 million were spent on enhancing hardware and software infrastructure. The company now has 72 offices worldwide. As many as seven centre were assessed at SEI CMM Level 5 last year(3.4 mistakes in a million opportunities).These include Chennai, Mumbai, Bangalore, Calcutta, Hyderabad and Lucknow.Several business
51 and R&D relationship with global firms like IBM, General Electric, Unigraphics Solutions have been made. The present CEO of the company is Mr.S.Ramadorai. The companies‘ strength is about 14,000.
52
Balance sheet of TCS
Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities
Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deferred Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs)
Profit and loss of TCS Income Sales Turnover Excise Duty Net Sales Other Income
Mar '11
Mar '10
Mar '09
Mar '08
12 mths
12 mths
12 mths
12 mths
295.72 195.72 0.00 100.00 19,283.77 0.00 19,579.49 35.87 5.25 41.12 19,620.61 Mar '11 12 mths
295.72 195.72 0.00 100.00 14,820.90 0.00 15,116.62 29.25 6.49 35.74 15,152.36 Mar '10 12 mths
197.86 97.86 0.00 100.00 13,248.39 0.00 13,446.25 32.63 7.74 40.37 13,486.62 Mar '09 12 mths
197.86 97.86 0.00 100.00 10,806.95 0.00 11,004.81 9.27 8.98 18.25 11,023.06 Mar '08 12 mths
6,030.16 2,607.98 3,422.18 1,345.37 5,795.49 5.37 4,806.67 224.77 5,036.81 5,063.51 5,379.75 15,480.07 0.00 3,932.39 2,490.11 6,422.50 9,057.57 0.00 19,620.61 3,938.76 99.53
4,871.21 2,110.69 2,760.52 940.72 7,893.39 6.78 3,332.30 212.31 3,551.39 4,101.84 3,183.85 10,837.08 0.00 3,352.74 3,926.61 7,279.35 3,557.73 0.00 15,152.36 3,292.50 76.72
4,359.24 1,690.16 2,669.08 685.13 5,936.03 16.95 3,717.73 479.93 4,214.61 3,910.85 1,125.33 9,250.79 0.00 3,604.18 1,450.23 5,054.41 4,196.38 0.00 13,486.62 2,924.33 136.38
3,240.64 1,300.11 1,940.53 889.74 4,509.33 17.19 3,747.01 402.24 4,166.44 3,104.74 125.28 7,396.46 0.00 2,525.56 1,187.44 3,713.00 3,683.46 0.00 11,023.06 2,726.11 111.43
Mar '11 12 mths
Mar '10 12 mths
Mar '09 12 mths
Mar '08 12 mths
29,275.41 0.00 29,275.41 486.44
23,044.84 0.39 23,044.45 182.10
22,404.00 2.08 22,401.92 -456.24
18,536.55 2.83 18,533.72 440.45
53 Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses
Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)
-0.87 29,760.98
-1.38 23,225.17
1.73 21,947.41
-0.04 18,974.13
17.75 240.00 10,190.31 8,135.57 1,097.52 821.57 0.00 20,502.72 Mar '11 12 mths 8,771.82 9,258.26 20.01 9,238.25 537.82 0.00 8,700.43 0.00 8,700.43 1,130.44 7,569.99 20,484.97 11.00 2,740.10 450.82
23.75 183.62 7,882.43 6,446.99 1,268.03 571.08 0.00 16,375.90 Mar '10 12 mths 6,667.17 6,849.27 9.54 6,839.73 469.35 0.00 6,370.38 -13.98 6,356.40 737.89 5,618.51 16,352.15 17.00 3,914.43 657.51
53.67 164.34 7,370.09 6,947.60 1,218.41 628.71 0.00 16,382.82 Mar '09 12 mths 6,020.83 5,564.59 7.44 5,557.15 417.46 0.00 5,139.69 -103.11 5,036.58 340.37 4,696.21 16,329.15 7.00 1,370.05 234.02
45.81 135.57 6,015.19 5,687.82 991.43 632.25 0.00 13,508.07 Mar '08 12 mths 5,025.61 5,466.06 3.42 5,462.64 458.78 0.00 5,003.86 -37.52 4,966.34 457.58 4,508.76 13,462.26 0.08 1,370.05 232.85
19,572.21 38.62 1,400.00 99.53
19,572.21 28.62 2,000.00 76.72
9,786.10 47.92 1,400.00 136.38
9,786.10 46.07 1,400.00 111.43
54
Key financial ratios Investment Valuation Ratios Face Value Dividend Per Share Operating Profit Per Share (Rs) Net Operating Profit Per Share (Rs) Free Reserves Per Share (Rs) Bonus in Equity Capital Profitability Ratios Operating Profit Margin(%) Profit Before Interest And Tax
Mar '11
Mar '10
Mar '09
Mar '08
1.00 14.00 44.82 149.58 97.95 79.65
1.00 20.00 34.06 117.74 75.24 79.65
1.00 14.00 61.52 228.92 134.37 59.30
1.00 14.00 51.35 189.39 110.22 59.30
29.96 27.67
28.93 26.62
26.87 24.75
27.11 24.42
55 Margin(%) Gross Profit Margin(%) Cash Profit Margin(%) Adjusted Cash Margin(%) Net Profit Margin(%) Adjusted Net Profit Margin(%) Return On Capital Employed(%) Return On Net Worth(%) Adjusted Return on Net Worth(%) Return on Assets Excluding Revaluations Return on Assets Including Revaluations Return on Long Term Funds(%) Liquidity And Solvency Ratios Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio Debt Coverage Ratios Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio Financial Charges Coverage Ratio Post Tax Management Efficiency Ratios Inventory Turnover Ratio Debtors Turnover Ratio Investments Turnover Ratio Fixed Assets Turnover Ratio Total Assets Turnover Ratio Asset Turnover Ratio
Average Raw Material Holding Average Finished Goods Held Number of Days In Working Capital Profit & Loss Account Ratios Material Cost Composition Imported Composition of Raw Materials Consumed Selling Distribution Cost Composition Expenses as Composition of Total Sales Cash Flow Indicator Ratios Dividend Payout Ratio Net Profit Dividend Payout Ratio Cash Profit Earning Retention Ratio Cash Earning Retention Ratio Adjusted Cash Flow Times
28.12 27.21 27.21 25.44 25.44 44.38 38.80 38.74
26.89 26.44 26.44 24.13 24.13 42.46 37.30 37.75
25.01 26.09 26.09 20.74 20.74 43.27 35.13 41.06
24.64 25.29 25.29 24.11 24.11 42.92 41.34 39.16
99.53
76.72
136.38
111.43
99.53
76.72
136.38
111.43
44.38
42.46
43.27
42.96
2.41 2.40 0.01 0.01
1.49 1.48 0.01 0.01
1.83 1.83 0.01 0.01
1.98 1.97 0.01 0.01
435.25 0.01 462.13
674.43 0.01 723.63
784.41 0.01 840.52
1,383.58 0.01 1,517.73
406.19
639.14
688.32
1,453.50
5,451.66 7.19 5,451.66 4.91 1.50
3,398.94 6.54 3,398.94 4.74 1.52
1,321.77 6.00 1,321.77 5.15 1.66
1,137.21 5.66 1,137.21 5.74 1.68
4.91
4.74
5.15
5.74
92.90 0.01 111.38
72.97 0.04 55.58
93.98 0.07 67.44
98.28 0.03 71.55
0.06
0.10
0.23
0.24
80.35
78.67
79.74
80.43
0.05 91.08
0.03 92.38
0.09 93.01
0.14 90.51
42.21 39.40 57.73 60.54 0.01
81.61 75.30 19.37 25.53 0.01
34.20 31.41 70.74 72.81 0.01
35.55 32.26 62.47 66.11 0.00
56
Earnings Per Share Book Value
Mar '11 38.62 99.53
Mar '10 28.62 76.72
Mar '09 47.92 136.38
Mar '08 46.07 111.43
Chart Title
1 2 3 4
the earning per share has decreased due todecrease in the no of share but theere is increase in the value of share hence the earning is increasing after a dip.
Chart Title
1 2 3 4
This ratio tells about the how much dividend is increased per share. Where we can see that company did not have increase in dividend for two years then they increased in
57 one year again that felled off in next year because they were retaining that cash for further implementation in business in order to secure future investments.
Trend analysis
The chart of price to volume of TCS stock shows the growing rate of share due to growth in the off shore business hence the stock price show appositive trend till April 2011 then due to debt crises of US cause the market price of IT stock to fall due to withdrawal of money by FII‘s and increase in inflation.
58
INFOSYS COMPANY Profile Infosys Technologies Ltd. (NASDAQ: INFY) was started in 1981 by seven people with US$ 250. Today, we are a global leader in the ―next generation‖ of IT and consulting with revenues of over US$ 4 billion.
Infosys defines, designs and delivers technology-enabled business solutions that help Global 2000 companies win in a Flat World. Infosys also provides a complete range of services by leveraging our domain and business expertise and strategic alliances with leading technology providers.
Our offerings span business and technology consulting, application services, systems integration, product engineering, custom software development, maintenance, reengineering, independent testing and validation services, IT infrastructure services and business process outsourcing.
Infosys pioneered the Global Delivery Model (GDM), which emerged as a disruptive force in the industry leading to the rise of offshore outsourcing. The GDM is based on the principle of taking work to the location where the best talent is available, where it makes the best economic sense, with the least amount of acceptable risk.
Infosys has a global footprint with over 50 offices and development centers in India, China, Australia, the Czech Republic, Poland, the UK, Canada and Japan. Infosys and its subsidiaries have 105,453 employees as on September 30, 2009 Infosys takes pride in building strategic long-term client relationships. Over 97% of our revenues come from existing customers.
Infosys Balance sheet
Mar '11
Mar '10
Mar '09
Mar '08
59
Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities
Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs)
Profit and loss statement of infosys Income Sales Turnover Excise Duty Net Sales Other Income
12 mths
12 mths
12 mths
12 mths
287.00 287.00 0.00 0.00 24,214.00 0.00 24,501.00 0.00 0.00 0.00 24,501.00 Mar '11 12 mths
287.00 287.00 0.00 0.00 21,749.00 0.00 22,036.00 0.00 0.00 0.00 22,036.00 Mar '10 12 mths
286.00 286.00 0.00 0.00 17,523.00 0.00 17,809.00 0.00 0.00 0.00 17,809.00 Mar '09 12 mths
286.00 286.00 0.00 0.00 13,204.00 0.00 13,490.00 0.00 0.00 0.00 13,490.00 Mar '08 12 mths
6,934.00 2,878.00 4,056.00 499.00 1,325.00 0.00 4,212.00 641.00 4,853.00 5,273.00 13,024.00 23,150.00 0.00 2,056.00 2,473.00 4,529.00 18,621.00 0.00 24,501.00 1,013.00 426.73
6,357.00 2,578.00 3,779.00 409.00 4,636.00 0.00 3,244.00 929.00 4,173.00 4,201.00 8,868.00 17,242.00 0.00 1,995.00 2,035.00 4,030.00 13,212.00 0.00 22,036.00 295.00 384.02
5,986.00 2,187.00 3,799.00 615.00 1,005.00 0.00 3,390.00 805.00 4,195.00 3,303.00 8,234.00 15,732.00 0.00 1,544.00 1,798.00 3,342.00 12,390.00 0.00 17,809.00 347.00 310.90
4,508.00 1,837.00 2,671.00 1,260.00 964.00 0.00 3,093.00 657.00 3,750.00 2,804.00 5,772.00 12,326.00 0.00 1,483.00 2,248.00 3,731.00 8,595.00 0.00 13,490.00 603.00 235.84
Mar '11 12 mths
Mar '10 12 mths
Mar '09 12 mths
Mar '08 12 mths
25,385.00 0.00 25,385.00 1,147.00
21,140.00 0.00 21,140.00 967.00
20,264.00 0.00 20,264.00 502.00
15,648.00 0.00 15,648.00 683.00
60 Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses
Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)
Key financial ratios of infosys Investment Valuation Ratios Face Value Dividend Per Share Operating Profit Per Share (Rs) Net Operating Profit Per Share (Rs) Free Reserves Per Share (Rs) Bonus in Equity Capital Profitability Ratios
0.00 26,532.00
0.00 22,107.00
0.00 20,766.00
0.00 16,331.00
23.00 0.00 12,464.00 2,613.00 1,834.00 36.00 0.00 16,970.00 Mar '11 12 mths 8,415.00 9,562.00 1.00 9,561.00 740.00 0.00 8,821.00 0.00 8,821.00 2,378.00 6,443.00 16,947.00 0.00 3,445.00 568.00
22.00 0.00 10,356.00 1,993.00 992.00 415.00 0.00 13,778.00 Mar '10 12 mths 7,362.00 8,329.00 2.00 8,327.00 807.00 0.00 7,520.00 0.00 7,520.00 1,717.00 5,803.00 13,756.00 0.00 1,434.00 240.00
20.00 125.00 9,975.00 1,697.00 1,367.00 172.00 0.00 13,356.00 Mar '09 12 mths 6,908.00 7,410.00 2.00 7,408.00 694.00 0.00 6,714.00 -1.00 6,713.00 895.00 5,819.00 13,336.00 0.00 1,345.00 228.00
18.00 106.00 7,771.00 1,443.00 1,214.00 132.00 0.00 10,684.00 Mar '08 12 mths 4,964.00 5,647.00 1.00 5,646.00 546.00 0.00 5,100.00 0.00 5,100.00 630.00 4,470.00 10,666.00 0.00 1,902.00 323.00
5,741.52 112.22 1,200.00 426.73
5,738.25 101.13 500.00 384.02
5,728.30 101.58 470.00 310.90
5,719.96 78.15 665.00 235.84
Mar '11
Mar '10
Mar '09
Mar '08
5.00 60.00 146.56 442.13 420.79 93.26
5.00 25.00 128.30 368.40 378.08 93.26
5.00 23.50 120.59 353.75 305.80 93.58
5.00 33.25 86.78 273.57 230.74 93.58
61 Operating Profit Margin(%) Profit Before Interest And Tax Margin(%) Gross Profit Margin(%) Cash Profit Margin(%) Adjusted Cash Margin(%) Net Profit Margin(%) Adjusted Net Profit Margin(%) Return On Capital Employed(%) Return On Net Worth(%) Adjusted Return on Net Worth(%) Return on Assets Excluding Revaluations Return on Assets Including Revaluations Return on Long Term Funds(%) Liquidity And Solvency Ratios Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio Debt Coverage Ratios Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio Financial Charges Coverage Ratio Post Tax Management Efficiency Ratios Inventory Turnover Ratio Debtors Turnover Ratio Investments Turnover Ratio Fixed Assets Turnover Ratio Total Assets Turnover Ratio Asset Turnover Ratio Average Raw Material Holding Average Finished Goods Held Number of Days In Working Capital Profit & Loss Account Ratios Material Cost Composition Imported Composition of Raw Materials Consumed Selling Distribution Cost Composition Expenses as Composition of Total Sales Cash Flow Indicator Ratios Dividend Payout Ratio Net Profit Dividend Payout Ratio Cash Profit Earning Retention Ratio Cash Earning Retention Ratio AdjustedCash Flow Times
--
--
--
--
--
--
--
--
--26.96 24.31 ---26.13
--29.59 26.36 ---25.89
--32.57 27.52 ---34.76
--30.69 27.37 ---33.09
426.73
384.02
310.90
235.84
426.73
384.02
310.90
235.84
35.84
33.69
39.80
37.77
5.11 5.02 ---
4.28 4.20 ---
4.71 4.67 ---
3.30 3.28 ---
--9,523.00
--4,116.50
--3,891.00
--5,642.00
7,184.00
3,306.00
3,257.50
5,017.00
-6.81 ---3.67
-6.37 ---3.33
-6.25 ---3.39
-5.81 ---3.47
--264.08
--224.99
--220.11
--197.74
0.09
0.10
0.09
0.11
--
--
--
--
0.12 94.38
0.41 99.69
0.40 97.88
0.56 92.59
62.28 55.86 37.34 43.83 --
28.84 25.32 70.67 74.31 --
27.03 24.15 74.60 77.16 --
49.77 44.35 50.17 55.60 --
62
Earnings Per Share Book Value
Mar '11 112.22 426.73
Mar '10 101.13 384.02
Mar '09 101.58 310.90
Mar '08 78.15 235.84
Chart Title
1 2 3 4
In Infosys the earning per share is increasing every year with a steady trend this in order to lure more investors to invest in the shares of the company, and generate more and more financing through equity. Chart Title
1 2 3 4
initially Infosys increased its DPR by retaining less and giving out more, for next 2 years they retained the earnings in order to attract more investors and then in next year they increased the DPR to retain the intrest of investors in order to get more finance from equity. Trend analysis
63
There is not very steady growth in the market price of Infosys shares, there are many up‘s and down‘s but there is growth after every trough which makes this type of investment as investors choice. Person holding the stocks of this type of company can get unexpected return on favorable market condition. For this the patient investor is required.
64
WIPRO COMPANY PROFILE
Wipro Technologies is the No.1 provider of integrated business, technology and process solutions on a global delivery platform. Wipro Technologies is a global services provider delivering technology-driven business solutions that meet the strategic objectives of our clients. Wipro has 40+ ‗Centers of Excellence‘ that create solutions around specific needs of industries. Wipro delivers unmatched business value to customers through a combination of process excellence, quality frameworks and service delivery innovation. Wipro is the World's first CMMi Level 5 certified software services company and the first outside USA to receive the IEEE Software Process Award. Wipro‘s complete range of IT Services addresses the needs of both technology and business requirements to help organizations leverage leading-edge technologies for business improvement. Wipro takes charge of the IT needs of the entire enterprise. The gamut of services extends from Enterprise Application Services (CRM, ERP, e-Procurement and SCM), to e-Business solutions. Wipro‘s enterprise solutions have served and continue to serve clients from a range of industries including Energy and Utilities, Finance, Telecom, and Media and Entertainment. Wipro‘s TIS is the largest Indian IT infrastructure service provider Wipro‘s Technology Infrastructure Services (TIS) is the largest Indian IT infrastructure service provider in terms of revenue, people and customers with more than 200 customers in US, Europe, Japan and over 650 customers in India. It is powered by the expert skills of over 6,500 technical specialists and state-of-the-art BS 15000 certified infrastructure for operations support.
A phased approach towards process standardization, process optimization and process re-engineering. Wipro BPO provides a broad range of services from customer relationship management, back office transaction processing to industry-specific solutions. The
65 key element of services delivery is an integrated approach towards providing increasing value over the entire course of our client relationships. This involves a phased approach towards process standardization, process optimization and process re-engineering
True value from technology requires an in-depth understanding of business strategy. Today‘s businesses need partners who can talk about strategy and technology in the same conversation. At Wipro, we believe true value from technology requires an indepth understanding of business strategy. Our cross-industry consulting services help you craft a vision for your organization and then provide a specific, practical business and technology framework that will make that vision a reality. Our consulting competencies spread across business, process, quality and technology consulting. We've developed a model called "Extended Engineering‖ that leverages synergies across the value chain As product manufacturers and platform vendors across the world strive to make better products with shorter development cycles and reduced total cost of ownership, we at Wipro Technologies partner with them to provide comprehensive solutions in product lifecycle management and product realization. At Wipro, we've developed a model called "Extended engineering" that allows you to leverage synergies across the value chain and progress swiftly from concept to market. We are now the world's largest contract R&D house for telecom, auto and electronics
66
Wipro Balance sheet of wipro Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities
Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs) Profit and loss of wipro Income
Mar '11 12 mths
Mar '10 12 mths
Mar '09 12 mths
Mar '08 12 mths
490.80 490.80 0.70 0.00 20,829.40 0.00 21,320.90 0.00 4,744.10 4,744.10 26,065.00 Mar '11 12 mths
293.60 293.60 1.80 0.00 17,396.80 0.00 17,692.20 0.00 5,530.20 5,530.20 23,222.40 Mar '10 12 mths
293.00 293.00 1.50 0.00 12,220.50 0.00 12,515.00 0.00 5,013.90 5,013.90 17,528.90 Mar '09 12 mths
292.30 292.30 58.00 0.00 11,260.40 0.00 11,610.70 4.00 3,818.40 3,822.40 15,433.10 Mar '08 12 mths
7,779.30 3,542.30 4,237.00 603.10 10,813.40 724.90 5,781.30 2,334.20 8,840.40 6,756.80 2,869.10 18,466.30 0.00 5,290.00 2,764.80 8,054.80 10,411.50 0.00 26,065.00 707.30 86.86
6,761.30 3,105.00 3,656.30 991.10 8,966.50 606.90 5,016.40 1,938.30 7,561.60 5,425.90 3,726.00 16,713.50 0.00 4,874.20 2,230.80 7,105.00 9,608.50 0.00 23,222.40 778.00 120.49
5,743.30 2,563.70 3,179.60 1,311.80 6,895.30 459.60 4,446.40 1,902.10 6,808.10 4,202.00 2,507.10 13,517.20 0.00 5,564.30 1,810.70 7,375.00 6,142.20 0.00 17,528.90 1,045.40 85.42
2,282.20 0.00 2,282.20 1,335.00 4,500.10 448.10 3,646.60 3,732.10 7,826.80 4,231.30 0.00 12,058.10 0.00 3,361.60 1,380.70 4,742.30 7,315.80 0.00 15,433.10 749.90 79.05
Mar '11 12 mths
Mar '10 12 mths
Mar '09 12 mths
Mar '08 12 mths
67 Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses
Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)
26,401.20 100.70 26,300.50 603.30 31.60 26,935.40
23,006.30 84.30 22,922.00 866.70 111.00 23,899.70
21,612.80 105.50 21,507.30 -480.40 -3.80 21,023.10
17,658.10 165.50 17,492.60 326.90 187.00 18,006.50
3,805.60 199.70 10,937.40 2,780.20 1,703.30 1,145.00 0.00 20,571.20 Mar '11 12 mths 5,760.90 6,364.20 58.60 6,305.60 600.10 0.00 5,705.50 0.00 5,705.50 861.80 4,843.70 16,765.60 490.80 981.80 220.40
3,768.80 141.40 9,062.80 2,145.30 1,491.40 921.80 0.00 17,531.50 Mar '10 12 mths 5,501.50 6,368.20 99.80 6,268.40 579.60 0.00 5,688.80 0.00 5,688.80 790.80 4,898.00 13,762.70 0.00 880.90 128.30
3,438.80 154.00 9,249.80 1,687.80 1,523.00 691.40 0.00 16,744.80 Mar '09 12 mths 4,758.70 4,278.30 196.80 4,081.50 533.60 0.00 3,547.90 0.00 3,547.90 574.10 2,973.80 13,306.00 0.00 586.00 99.60
3,139.30 0.00 7,409.10 299.80 557.80 2,558.00 0.00 13,964.00 Mar '08 12 mths 3,715.60 4,042.50 116.80 3,925.70 456.00 0.00 3,469.70 0.00 3,469.70 406.40 3,063.30 10,824.70 0.00 876.50 148.90
24,544.09 17.74 200.00 86.86
14,682.11 33.36 300.00 120.49
14,649.81 20.30 200.00 85.42
14,615.00 20.96 300.00 79.05
68
Investment Valuation Ratios Face Value Dividend Per Share Operating Profit Per Share (Rs) Net Operating Profit Per Share (Rs) Free Reserves Per Share (Rs) Bonus in Equity Capital Profitability Ratios Operating Profit Margin(%) Profit Before Interest And Tax Margin(%) Gross Profit Margin(%) Cash Profit Margin(%) Adjusted Cash Margin(%) Net Profit Margin(%) Adjusted Net Profit Margin(%) Return On Capital Employed(%) Return On Net Worth(%) Adjusted Return on Net Worth(%) Return on Assets Excluding Revaluations Return on Assets Including Revaluations Return on Long Term Funds(%) Liquidity And Solvency Ratios Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio Debt Coverage Ratios Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio Financial Charges Coverage Ratio Post Tax Management Efficiency Ratios Inventory Turnover Ratio Debtors Turnover Ratio Investments Turnover Ratio Fixed Assets Turnover Ratio Total Assets Turnover Ratio Asset Turnover Ratio Average Raw Material Holding Average Finished Goods Held Number of Days In Working Capital Profit & Loss Account Ratios Material Cost Composition Imported Composition of Raw
Mar '11
Mar '10
Mar '09
Mar '08
2.00 4.00 23.47 107.16 84.28 96.94
2.00 6.00 37.47 156.12 116.54 95.32
2.00 4.00 32.48 146.81 81.06 95.51
2.00 6.00 25.42 119.69 -95.68
21.90
24.00
22.12
21.24
19.14
21.07
19.22
18.29
19.62 20.40 20.40 17.96 17.96 22.34 20.41 20.69
21.47 21.60 21.60 20.97 20.97 23.06 27.68 25.24
19.64 20.27 20.27 13.53 13.53 26.77 23.76 31.34
18.63 19.74 19.74 17.19 17.19 23.23 26.51 26.51
86.86
120.49
85.42
79.05
86.86
120.49
85.42
79.05
27.20
30.12
37.17
23.32
1.45 2.20 0.22 --
1.33 2.26 0.31 0.01
1.10 1.76 0.40 0.01
2.54 2.44 0.33 0.33
99.37 0.22 109.61
53.67 0.31 59.48
23.85 0.40 26.56
30.71 0.33 34.61
93.90
55.89
18.82
31.13
43.12 4.87 43.12 3.45 1.02 3.45
45.40 4.84 45.40 3.47 0.99 3.47
56.15 5.32 56.15 3.85 1.24 3.85
39.41 5.62 39.41 7.81 1.14 7.81
73.15 5.34 142.51
53.39 6.20 150.91
66.55 4.13 102.81
--150.56
14.46 35.34
16.44 36.83
15.98 45.00
17.94 --
69 Materials Consumed Selling Distribution Cost Composition Expenses as Composition of Total Sales Cash Flow Indicator Ratios Dividend Payout Ratio Net Profit Dividend Payout Ratio Cash Profit Earning Retention Ratio Cash Earning Retention Ratio AdjustedCash Flow Times Important ratios of wipro Earnings Per Share Book Value
1.56 69.87
1.64 73.26
1.43 77.28
3.04 73.66
27.61 24.27 72.76 76.02
20.60 18.42 77.41 80.00
23.05 19.54 82.53 84.62
0.86
1.10
1.13
33.47 29.13 66.53 70.87 1.09
Mar '11
Mar '10
Mar '09
Mar '08
17.74 86.86
33.36 120.49
20.30 85.42
20.96 79.05
Chart Title
1 2 3 4
In case of Wipro earning per share is declining due to high retention of earnings to write off the debt on the cost of dividend paid to share holders due to which the earning per share is decreasing. Which is not an investor will want.
70
Chart Title
1 2 3 4
In Wipro due to high earning retention and less dividend policy they give less percentage of profit to equity share holders and retain that profit as reserve and surplus for business activity.
Chart Title
1 2 3 4
By lucking at the year on decrease in debt to equity ratio it is understood that the company wants to reduce the equity capital and raise money more by debt, long term loans and saved earnings.
Trend analysis
71
Here you can see there is growth in the price of shares but not steady there are many trough and crests in the trend of market price which indicates a stagnant growth in the value of stock i.e. the company has reached at the maturity level and the stock value will only fluctuate there.
72
CONCLUSION From the above three companies analysis we can conclude that all the three companies are choice of investment of different investors
TCS is a stable and sturdy growth company, which mostly rely on equity capital hence they will perform on a regular basis to provide good return to investors. Hence people who dose not want to worry about his investment he has a choice to invest in TCS.
INFOSYS is a value driven company who are known by the innovative methods business hence they try to keep the investors happy by giving good returns but with a risk .a person dose not worry about the risk and aim for high returns is ideal choice of investor.
WIPRO is also a top company in regards of investment but they does not give much consideration to investors of equity shares. They are very careful while using there resources in order to. Safeguard there future
73
RECOMMENDATION
As from trend of TCS we can see that the there is sturdy up trend but there is no substantial crest so the investor does not have choice to bye shares at low market price and if the market crash then the old investor would not suffer much losses, but an early investor will suffer heavy losses. Hence recommended that investor should wait for the right opportunity for investment i.e. wait for prices to fall.
As from the trend analysis of INFOSYS we conclude that the right choice for the investor to in vest in this company is at the time of drop in market price and retain till the period of substantial time as company provides good dividend to its share holders.
From the trend of market price of WIPRO it is conclusive that the company does not stress heard on market trends but they stress on profit making with much consideration of equity share holders so this company is a choice of people who like to hold the stocks for a larger lime then compared to the other
74 two companies which stress on increasing the market value. Hence long term investors choice is this company
LIMITATIONS Limitations of this study are Future changes are largely unpredictable; more so when the economic and business environment is buffeted by frequent winds of change. In an environment characterized by discontinuities, the past record proves to be a poor guide to future performance. The market behavior if irrational may give rise to – under-valuations for extended periods; over-valuations from unjustified optimism and misplaced enthusiasm for unreasonable lengths of time. The slow correction of under or over valuation poses a threat to the analysis. While conducting the research I was unable to collect data from primary source, which I feel would have had a bearing on the outcome of the research. Through interviews with the concerned authorities I could have got first hand information about the company and this could have certainly given me a broader perspective
75 on the company’s future plans.
BIBLIOGRAPHY WEBSITES: www.rathi.com www.investopedia.com www.bseindia.com www.nseindia.com www.moneycontrol.com www.indiastudychannel.com BOOKS: Investment Analysis and Portfolio Management- Prasanna Chandra.
