Analysis of Indian IT Companies

Posted By : Kishore B.S


Analysis of Indian IT Companies



TCS is the bell weather in IT sector and has maintained to be the large cap stock among all the IT stocks on the Indian Bourses. Recently TCS has earned the Xclent customer base award 2012 for its TCS BaNCS banking software. It  sees  better IT  spends, ramp-up in its clients in the US as compared to earlier and the fact that TCS has 8% wage hike is showing that the company is expecting more revenue growth compared to its peers. This is the company that was affected by the recession during 2008-09 because of its diversified network, at that point of time it decreased its cost by firing 300000 employees and maintained 46.7 EPS higher compared to other years.


Looking at its financials:


TCS is allocating 15% of its income to its contingent liability which shows the ability of the company to maintain its growth even in its aggressive acquisitions. It has maintained good reserves and decreasing debt which will be the safest parameters for the investor to look at to invest.


Looking at the ratios:


Debt to Equity ratio is 0.01 this means TCS has one paisa of debt to equity which shows it has low debt and the PAT is 415 times higher than the interest paid by the company. It is a low beta stock which means it will not be affected by the market forces, rather its performance is the key, it has shown a consistent EPS growth rate of 6% and the PE growth rate of 10%, using this parameter it is projected that the share price may stand at Rs.1372 in a year if the company maintains to continue its exports which inversely gain revenues from the dollar appreciation. The return on net worth is 37% which is the highest in the sector.






India’s second-largest software services exporter by Revenue’s and which is another Bellwether IT stock, has been weak in keeping its financials than other IT companies and also Analysts estimates., In spite of the initiative of leading a government effort to give every Indian citizen an ID number, a crucial initiative in a country where most people have no driver’s license, passport or even birth certificate. Apart from this the other factor that drove Infosys share price by 10% decrease in share price over the last year was due to Visa fraud charges leveled in the United States. It has continued to maintain the name of “company with politics” and bad reputation in the eyes of employees with regards to the salary hikes and work pressure. The company has been good to give employee appraisal rather than rewards, on the other side of the coin it has the ability to make any employee proficient to work in another company.






Looking at its Financials:


There is a perception among the accountants and the investors that in the presentation of the financial statement by Infosys is the best with its Zero Debt, increased revenues and reserves. Infosys has an average income growth rate of 19% and it has allocated 4% of its income to its contingent liability which is higher than past year and has been increasing YOY. Among all the other giants in the IT sector Infosys has the highest FII holding of 37.36% (as on 1 May 2012), If the company gives high growth rate in the next quarter it can become a good stock after HCL Technologies.




Looking at its ratios:


Infosys is a low beta stock. Infosys has 10% average EPS growth rate and 6% P/E over the years. If the company continues to maintain the same momentum in generating more revenues and along with the continuity in its reserves and income, it is projected that the share price could be at Rs.3772 in a year with its current average growth rate.




The company that started with the innovation and integrity in the consumer product business is now the 3rd largest IT services company in India and entered into the Forbes top 500 companies list. Wipro’s IT services and Hardware accounted for 75% of its total revenues till the year 2011 and its results has come in line with the expert expectations.  After tasting sweet success with its Glucose Powder Brand Glucovita, Wipro Consumer Care & Lighting (WCCL) now plans to launch the product in the tablet form as well, where an individual can have two tablets and get instant energy. WCCL’s first major overseas acquisition was the Singapore-based Unza Holdings for around Rs 1,000 crore in 2007, through which it operates in 40 countries.


Looking at its financials:


The consolidated result takes into account all the segments, in which the Consumer Care and Lighting accounted for more than the IT services during the year ended 2012. Wipro has 1% of its income as its contingent liability which is a good parameter for investment, it has good reserves, it has negative cash flows, and company is going to invest 100 crores this fiscal to increase the capacity in various categories, be it lighting, soaps or personal care, to meet demand.


Looking at Ratios:


Wipro is a low beta stock. Wipro has 22 Paisa debt for every rupee of its equity. The average growth of EPS is 4% and P/E is 5% the estimated price stood at Rs.527, company has PAT 82 times to its interest cost.






HCL Technologies:


It occupied 4th placein the top IT companies in INDIA and it is after the Giant TCS in generating revenues, HCL consistently has been increasing its quarterly performance, through better revenue visibility and winning the market share. The share price has gained around 25% over the past and they won about USD 2.5 billion of deals over the last couple of quarters, it is expected that in the next two quarters HCL is going to outperform in the industry over the others. According to the Technical Analysis the resistance is at 519-521 now it is trading at 512(as on 30 April 2012) which can shoot up in the future. It is the hot stock in the IT sector of INDIA. It granted employee stock options of around 206.70crores which is the different treatment of employees in the entire sector.


Looking at Financials:


It is maintaining 4% of its income as contingent liability which is the average of the industry, it has shown good income, reserves and the company have high debt when compared to the other companies so, compare with the return on the investment it has Rs.10 return on every one rupee it spends


Looking at the ratios:


Return on net worth is 22% which shows that the company has good managerial abilities. It has 22 paise of debt for every rupee it spends. It maintained average EPS growth rate of 15% and P/E of 26% which is highest in the sector, using these parameters it can be said that the price of the share will stand at Rs.687 in the future, keeping a look on its financials and ratios it is for a short term investment until and unless it decreases it debt.




Among the top four companies of the IT sector in India, TCS is the good going stock and it has ability to double its share price in the near future by its outstanding numbers, It is a stock for long term holding, next is the HCL technologies which is in the race to occupy the top rank in the sector though it is a short term investment stock and can generate more revenues in the near future with its upcoming deals and it continued in paying dividends,  Wipro is expected to grow in the near future by its investment activities and it is better to don’t step onto Wipro and Infosys till they show big numbers like TCS.







(Inputs Mr. Kommisetty V Shiva Teja, A Stock Market Institute Associate, Bangalore)


Team SMI

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