Company Analysis-2

A Case on IT Companies in India
Example: Infosys
   Finacle, a product of the company is
    recognized as the world's scalable open-
    ended system ba...
Financial Analysis as on March
           31 2005
   53.15% jumps in net profit
    Operating income of the company
    ...
Infosys Vs. Index
                                            Company & Index

                 7000                      ...
Return and Market Price

             Infosys (Return of Market Price % Sensex)

160%

140%

120%

100%

80%

60%
  4/1/20...
SWOT Analysis of Infosys
   Strengths:
       Good brand recall amongst decision-makers.
       Strong technical expert...
WIPRO
   Wipro is the largest company in India in
    terms of market capitalization.
   The company operates through fi...
Financial Analysis as on March
           31 2005
   The net profit growth has increased
    from 23.3% to 56.5%
   The ...
One year Wipro’s comparative
      graph with BSE




…………. – WIPRO      ………....- BSE Sensex


                Dr. Jitendr...
SWOT Analysis of Wipro
   Strengths:
        The company   has brand recognition.
        The company   provides qualit...
Satyam
   Satyam Computer Services Ltd (Satyam) is a leading
    global consulting and IT services company
   It has exc...
Financial Analysis as on March
           31 2005
   There is 36.30% growth in sales.
   There is a 28.38% growth in ope...
Company and Index
                                     Company & Index

         7000                                     ...
Return and Market Price

             Satyam (Return of Market Price % Sensex)

160%

140%

120%

100%

80%

60%
  4/1/200...
SWOT Analysis of Satyam
   Strengths:
        They have the third largest market share in India.
        Satyam has a s...
Current Ratio
                           Current Ratio

            8
            6                                       ...
Net Profit Margin =                  Profit after Tax
                                      ---------------------
        ...
Debt
Debt Equity Ratio =                           ----------------
                                                 Equit...
Total Liabilities
Debt Ratio =                     ---------------------
                                 Total Assets

  ...
Return on Equity = Profit after
Tax / Book Value of Equity

                Return on Equity
       20

       10

       ...
EBIT
 ROCE =          -------------------------------------------
                Total Assets – Current Liabilities


   ...
EPS = Profit after Tax / No. of
Outstanding Shares

                     Earning Per Share
            200.00
Rs./Share


...
Risk Analysis

         RISK COMPOSURE (2003-4)                                        RISK COMPOSURE (2004-5)
           ...
Beta Analysis

        YEARLY BETA (2003-4)                                YEARLY BETA (2004-5)

                         ...
Alpha Analysis: Alpha indicates the stock return when the market
  return is zero. A positive alpha indicates that the sto...
Infosys technologies ltd.

       Rs. Crore            Actual                                               Projected
    ...
Wipro technologies ltd.

              Rs. Crore                       Actual                                             ...
Satyam Computer Services Ltd.

            Rs. Crore                 Actual                                             Pr...
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Company Analysis 2

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Company Analysis 2

  1. 1. Company Analysis-2 A Case on IT Companies in India
  2. 2. Example: Infosys  Finacle, a product of the company is recognized as the world's scalable open- ended system based on providing core- banking solutions.  In the year 2004, it crossed the billion- revenue mark.  As on 31/03/2005, promoters held 21.76 % shares of the company while institutional investors held 47.62 %. Other investors and the general public held 11.62% and 19.01 % respectively. Dr. Jitendra Mahakud 2
  3. 3. Financial Analysis as on March 31 2005  53.15% jumps in net profit  Operating income of the company grew by 44.08%  Operating profit grew by 47.73%  Net profit margin was up by 182 basis points to 27.25% from 25.43% for the year under review. Dr. Jitendra Mahakud 3
  4. 4. Infosys Vs. Index Company & Index 7000 10000 9000 6000 8000 5000 Infosys Market Price 7000 Sensex Indices 6000 4000 5000 3000 4000 2000 3000 2000 1000 1000 0 0 1999-00 2000-01 2001-02 2002-03 2003-04 Sensex Infosys Dr. Jitendra Mahakud 4
  5. 5. Return and Market Price Infosys (Return of Market Price % Sensex) 160% 140% 120% 100% 80% 60% 4/1/2004 7/1/2004 10/1/2004 1/1/2005 Return (Market Price) Return (Sensex) Dr. Jitendra Mahakud 5
  6. 6. SWOT Analysis of Infosys  Strengths:  Good brand recall amongst decision-makers.  Strong technical expertise  Weaknesses:  Attrition amongst key professionals, especially on the delivery side.  Inability to take on the Global Big Five in terms of scale.  Opportunities:  Growth in package implementation, consulting services and availability of cash reserves to pursue acquisitions  Threats:  MNCs building offshore capabilities, anti-off shoring lobby in Western markets Dr. Jitendra Mahakud 6
  7. 7. WIPRO  Wipro is the largest company in India in terms of market capitalization.  The company operates through five principal business segments: Global IT Services and Products, IT Enabled Services, India and Asia-Pac IT Services and Products, Consumer Care and Lighting and Health Science. Dr. Jitendra Mahakud 7
  8. 8. Financial Analysis as on March 31 2005  The net profit growth has increased from 23.3% to 56.5%  The company gross profit margin is 24.9%  The company decided to lessen the dividend this year which Rs. 29 per share to Rs. 5 per share. Dr. Jitendra Mahakud 8
  9. 9. One year Wipro’s comparative graph with BSE …………. – WIPRO ………....- BSE Sensex Dr. Jitendra Mahakud 9
  10. 10. SWOT Analysis of Wipro  Strengths:  The company has brand recognition.  The company provides quality products.  The company has strong licensing networks.  The company has a strong economic base.  The company does an effective advertising campaigning.  The company is growing in international markets.  Weaknesses:  There is lack of backward and forward integration in the company.  The company’s revenues are highly dependent on its IT service sales.  The company is possibly slow in technology development.  The company has no clear future plan.  Opportunities:  IT boom back after the debacle of 9/11.  Offshore outsourcing is being increasingly accepted as a strategic imperative by more organizations today  Threats:  There are new technologies available for small engines that the company cannot compete with.  There are new entrants into the market. Dr. Jitendra Mahakud 10
  11. 11. Satyam  Satyam Computer Services Ltd (Satyam) is a leading global consulting and IT services company  It has excellent domain competencies in verticals such as Automotive, Banking & Financial Services, Insurance & Healthcare, Manufacturing, and in TIMES i.e. the Telecom, Infrastructure, Media, Entertainment & Semiconductors sector.  As on 31/03/05 the Promoters, Institutional Investors, General Public and Others held 15.67%, 66.96%, 4.47% and 12.90% of the share holding pattern of the company respectively. Dr. Jitendra Mahakud 11
  12. 12. Financial Analysis as on March 31 2005  There is 36.30% growth in sales.  There is a 28.38% growth in operating profit  Gross profit increased by 25.52%  Net profit margin increased by 238 basis points from19.40 % to 21.78% Dr. Jitendra Mahakud 12
  13. 13. Company and Index Company & Index 7000 5000 4500 6000 4000 5000 3500 Satyam Market Price 3000 4000 Sexsex 2500 3000 2000 2000 1500 1000 1000 500 0 0 1999-00 2000-01 2001-02 2002-03 2003-04 Sensex Satyam Dr. Jitendra Mahakud 13
  14. 14. Return and Market Price Satyam (Return of Market Price % Sensex) 160% 140% 120% 100% 80% 60% 4/1/2004 7/1/2004 10/1/2004 1/1/2005 Return (Market Price) Return (Sensex) Dr. Jitendra Mahakud 14
  15. 15. SWOT Analysis of Satyam  Strengths:  They have the third largest market share in India.  Satyam has a strong financial position. Company revenues and earnings have been rising steadily, a low tax rate  Weaknesses:  Satyam is smaller in size compared to its direct competitors. Infosys, Wipro, Tata, CSC, are all multibillion.  The company’s revenues are highly dependent on its IT service sales  Opportunities:  Satyam has been selected by Check Free Investment Services (CIS), to become the partner to CIS in the development of its next generation Check Free EPL(TM) platform.  Offshore outsourcing is being increasingly accepted as a strategic imperative by more organizations today  Threats:  Lot of competition in this industry including pricing pressures and technological development.  Changes in political, economic or other factors such as currency exchange rates, inflation rates affect the worldwide business in each of the company’s Operations Dr. Jitendra Mahakud 15
  16. 16. Current Ratio Current Ratio 8 6 Satyam Number 4 Infosys 2 Wipro 0 Mar Mar Mar Mar Mar Mar 2000 2001 2002 2003 2004 2005 Satyam 4.93 3.44 6.81 4.51 5.34 5.74 Infosys 4.18 2.9 3.09 3.16 2.03 3.2 Wipro 1.66 2.98 3.79 3.29 2.01 2.53 Year Dr. Jitendra Mahakud 16
  17. 17. Net Profit Margin = Profit after Tax --------------------- Net Sales Net profit margin ratio 0.5 0 Mar Mar Mar Mar Mar Mar Satyam 0.19 0.4 0.26 0.15 0.22 0.22 Infosys 0.33 0.33 0.31 0.26 0.26 0.28 Wipro 0.1 0.21 0.25 0.2 0.18 0.21 Year Satyam Infosys Wipro Dr. Jitendra Mahakud 17
  18. 18. Debt Debt Equity Ratio = ---------------- Equity 1.00 0.80 Satyam 0.60 Infosys 0.40 Wipro 0.20 0.00 Mar Mar Mar Mar Mar Mar Satyam 0.77 0.23 0.01 0.01 0.00 0.00 Infosys 0.00 0.00 0.00 0.00 0.00 0.00 Wipro 0.10 0.30 0.10 0.20 0.30 0.20 Dr. Jitendra Mahakud 18
  19. 19. Total Liabilities Debt Ratio = --------------------- Total Assets Debt Ratio 0.6 Satyam Number 0.4 Infosys 0.2 Wipro 0 Satyam 0.5 0.3 0.1 0.2 0.2 0.2 Infosys 0.2 0.2 0.2 0.2 0.4 0.2 Wipro 0.4 0.2 0.2 0.2 0.3 0.3 Year Dr. Jitendra Mahakud 19
  20. 20. Return on Equity = Profit after Tax / Book Value of Equity Return on Equity 20 10 0 Mar Mar Mar Mar Mar Mar Satyam 2.09 16.82 7.32 4.53 6.81 7.45 Infosys 2.33 2.99 2.57 2.22 2.55 9.8 Wipro 1.77 9.41 10.76 7.68 8.25 9.75 Year Satyam Infosys Wipro Dr. Jitendra Mahakud 20
  21. 21. EBIT ROCE = ------------------------------------------- Total Assets – Current Liabilities Return on Capital Employed 0.6 0.4 Satyam Rs. Infosys 0.2 Wipro 0 Satyam 0.28 0.57 0.27 0.19 0.27 0.29 Infosys 0.4 0.51 0.46 0.42 0.46 0.23 Wipro 0.38 0.39 0.38 0.28 0.3 0.36 Year Dr. Jitendra Mahakud 21
  22. 22. EPS = Profit after Tax / No. of Outstanding Shares Earning Per Share 200.00 Rs./Share 100.00 0.00 Mar Mar Mar Mar Mar Mar Satyam 23.11 17.29 14.29 9.77 17.57 23.50 Infosys 44.37 95.05 122.1 144.6 186.6 70.58 Wipro 43.22 23.38 27.54 25.85 28.93 46.82 Year Dr. Jitendra Mahakud 22
  23. 23. Risk Analysis RISK COMPOSURE (2003-4) RISK COMPOSURE (2004-5) 100% 100% 50% 50% 0% 0% SATYAM INFOSYS WIPRO SATYAM INFOSYS WIPRO Unsysystematic Risk 53.47% 69.35% 51.02% 62.78% 53.31% 43.27% Unsysystematic Risk Systematic Risk 46.53% 30.65% 48.98% Systematic Risk 37.22% 46.69% 56.73% Dr. Jitendra Mahakud 23
  24. 24. Beta Analysis YEARLY BETA (2003-4) YEARLY BETA (2004-5) 1.31 2 1.65 1.5 1.45 1.26 0.81 0.8 1.5 1 1 0.5 0.5 0 0 SATYAM INFOSYS WIPRO SATYAM INFOSYS WIPRO Dr. Jitendra Mahakud 24
  25. 25. Alpha Analysis: Alpha indicates the stock return when the market return is zero. A positive alpha indicates that the stock is under priced and negative alpha indicates that the stock is overpriced based on assets pricing model. Alpha (2004-5) 20.12% 25.00% 20.00% 9.84% 10.42% 15.00% 10.00% 5.00% 0.00% SATYAM INFOSYS WIPRO Dr. Jitendra Mahakud 25
  26. 26. Infosys technologies ltd. Rs. Crore Actual Projected Mar 2005 Mar 2006 Mar 2007 Mar 2008 Mar 2009 Mar 2010 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths PAT 1904.38 2765.09 3789.38 5168.40 6999.16 9376.59 Appropriation of profits Dividends 356.56 723.92 992.08 1353.12 1832.42 2454.85 Retained earnings 1547.82 2041.17 2797.30 3815.28 5166.74 6921.74 No.of Shareholders 270570549 270570549 270570549 270570549 270570549 270570549 EPS 70.38 102.19 140.05 191.02 258.68 346.55 P/E 31.91 31.91 31.91 31.91 31.91 31.91 Market Price 2245.95 3261.04 4469.04 6095.40 8254.53 11058.38 Intrinsic Value = Market Price/ (1+ke)^n = (11058.38)/(1+.197)^5 = Rs 4500.08 From the above table, we can observe that projected market price of share after 5 years i.e. FY2010 is Rs 11060.68. After discounting it to present value, by taking cost on equity (ke) as 19.7%, we get the intrinsic value of Rs 4500.08. As it can be seen from the above table, the market price on March 2005 is comparatively less than the calculated intrinsic value. Thus, it can be analyzed that the market price of the share is highly undervalued in comparison with its intrinsic value. Dr. Jitendra Mahakud 26
  27. 27. Wipro technologies ltd. Rs. Crore Actual Projected Mar05 Mar06 Mar07 Mar08 Mar09 Mar10 PAT 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths 1494.82 1779.14 2199.43 2719.05 3361.50 4155.86 Appropriation of profits Dividends 401.12 363.37 449.21 555.34 686.55 848.79 Retained earnings 1093.70 1415.77 1750.22 2163.71 2674.95 3307.07 No.of Shareholders 703570522 703570522 703570522 703570522 703570522 703570522 EPS 21.25 25.29 31.26 38.65 47.78 59.07 P/E 29.73 29.73 29.73 29.73 29.73 29.73 Market Price 670.95 751.79 929.39 1148.96 1420.43 1756.09 Intrinsic Value = Market Price/ (1+ke)^n = (1756.09)/(1+.2928)^5 = Rs 486.29 From the above table, we can observe that projected market price of share after 5 years i.e. FY2010 is Rs 1756.09. After discounting it to present value, by taking cost on equity (ke) as 29.28%, we get the intrinsic value of Rs 486.29. From the above table, we can observe that market price of share on 31 st mach 2005 is 670.95 which is higher than its intrinsic value i.e. Rs 486.29. Thus it can be analyzed that the market price of the share is very much overvalued in comparison with its intrinsic value. This analysis proves that from the investor point of view, this share is looking weak for the near future. Dr. Jitendra Mahakud 27
  28. 28. Satyam Computer Services Ltd. Rs. Crore Actual Projected Mar 2005 Mar 2006 Mar 2007 Mar 2008 Mar 2009 Mar 2010 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths PAT 750.26 1190.08 1601.21 2147.28 2873.76 3842.15 Appropriation of profits Dividends 180.49 214.75 288.94 387.47 518.57 693.31 Retained earnings 569.77 975.34 1312.27 1759.80 2355.20 3148.84 No.of Shareholders 319265291 319265291 319265291 319265291 319265291 319265291 EPS 23.50 37.28 50.15 67.26 90.01 120.34 P/E 17.38 17.38 17.38 17.38 17.38 17.38 Market Price 408.5 647.85 871.66 1168.92 1564.41 2091.57 Intrinsic Value = Market Price/ (1+ke)^n= (1756.09)/(1+.1965)^5 = Rs 852.92 From the above table, we can observe that projected market price of share after 5 years i.e. FY2010 is Rs 2091.57. After discounting it to present value, by taking cost on equity (ke) as 16.7%, we get the intrinsic value of Rs 852.92. As it can be seen from the above table, the market price on March 2005 is comparatively less than the calculated intrinsic value. Thus it can be analyzed that the market price of the share is very much undervalued in comparison with its intrinsic value. This analysis proves that from the investor point of view, this share is a good buy for the near future. Dr. Jitendra Mahakud 28
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