Industry analysis : India is the world’s largest sourcing destination, accounting for approximately 55 per cent of the US$ 146 billion market. The country’s cost competitiveness in providing Information Technology (IT) services, which is approximately 3-4 times cheaper than the US, continues to be its Unique Selling Proposition (USP) in the global sourcing market.
India’s highly qualified talent pool of technical graduates is one of the largest in the world and is available at a cost saving of 60-70 per cent to source countries. This large pool of qualified skilled workforce has enabled Indian IT companies to help clients to save US$ 200 billion in the last five years.
India’s IT industry amounts to 12.3 per cent of the global market, largely due to exports. Export of IT services accounted for 56.12 per cent of total IT exports (including hardware) from India. The Business Process Management (BPM) segment accounted for 23.46 per cent of total IT exports during FY15.
The Government of India has extended tax holidays to the IT sector for software technology parks of India (STPI) and Special Economic Zones (SEZs). Further, the country is providing procedural ease and single window clearance for setting up facilities.
Company overview : Indian Multinational IT company based in Noida Uttar Pradesh. The company operates in IT consulting, remote Infrastructure management, BPO and Operating in many sectors like Aerospace, healthcare, automotive, consumer electronics, energy and other utilities, financial services, Govt services, industrial manufacturing, life sciences, Media, entertainment, Mining, public services, retail and consumer, Semi conductors, Server and storage, telecommunications, transportation, logistics, hospitality. The Company has offices in 34 countries and having tie-ups With many big companies.
Even though, stock is not performing well, the future Outlook is clear. Automation including BPO, Application development, Infrastructure and engineering and others including cloud all part of services provided by company. Cloud, IoT and Security segment holds 20%-30% YoY grow potential as per HDFC securities. Though revenue from Application is not growing fast, and infact decline in percentage term with respect to Total revenue. Big growth is coming from Infrastructure. But as per new plan of company, the company is concentrating on IoT and cloud computing. HDFC securities also highlighted the fact that Wipro and INFOSYS Tier 1 revenue are not growing, HCL Tech is eating that segment. On some Frontier, HCL technologies performance is better then INFOSYS.
Financials and Ratios
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16
Revenue 15730.43 20830.55 25581.06 32143.66 36701.22 30780.80
Net Profit 1198.28 1950.42 3704.72 5984.62 6345.95 4733.68
Net Profit Margin 17.63 35.23 36.99 36.27 29.59 21.89
EPS 17.18 27.72 52.45 84.51 44.91 33.54
Book value 85.06 95.25 146.84 224.94 138.02 152.5
RoE 20.45 29.53 36.20 38 32.70 22
ROA 13.21 17.93 23.21 27.45 25.43 17.79
ROCE 17.36 25.51 32.57 36.33 31.86 21.55
Dividend per Share 7.5 12, 12 10 30 16
Dividend Payout % 42.93 42.58 22.54 11.70 37.59 47.56
Future Prospects : Around 60% Revenue is coming from US and 30% is coming from Europe. Both have their own challenges. IT in current situation is facing slowdown in IT Expenditure of many businesses and many companies reducing their growth rate expectations. But in recent Analyst meet, management was sound confident. Recently the FY 16 results were not so attractive but view of management and some Brokerage Houses are positive.
As I am tracking E-Commerce, I know what is future potential for Cloud Computing and IoT, this company is better placed, having network in the Sector. As the automation and digital still part of company revenue, it will be good Stock for long term portfolio. Invert if it suits your requirement.