X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Software: What is the right choice? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • May 3, 2004

    Software: What is the right choice?

    Through the FY04 results have emerged two Indian software majors that have crossed the crucial US$ 1 bn revenue mark - 'crucial' because size matters a lot while showcasing one's ability to scale up business in a highly human resources oriented sector.

    This landmark has raised the bar for other competitive software companies in the Indian software sector. In this write-up, we shall discuss about what these two companies have been doing and what changes are they undergoing at present.

    Infosys
    In order to move towards the higher echelons of growth, the company has remodeled its business based on domains. This is a shift from the earlier model where the company was divided into business units based on geographies. Now, there have been separate business units created within the company and each unit has competencies in a particular domain, like engineering services, telecom, retail, utility and banking & financial services. This domain specific focus has helped Infosys in aiding the company's cause of garnering high-value customers. For example, in FY04, the company won a US$ 50 m contract from the Australian telecom major for providing the latter with development services in the telecom domain.

    * 'New' services include services other than software development,
    maintenance, reengineering and products.

    Another shift that the company has witnessed is the contribution of high-end services to its total revenues. These 'new' services, apart from helping Infosys earn relative higher billing rates than basic software development and maintenance services, have also aided the company in establishing close relationships with global majors. This is because most of these new services have a high onsite component. Through increasing revenue contribution from these services, Infosys has put a foot forward into the domain of global corporations like IBM, EDS and Accenture that have proven capabilities in these high-end domains.

    Wipro
    Over the past two years of slowdown in global technology spending, Wipro had been one of the hardest hit due to its over-dependence in the technology R&D domain. However, the company has restructured its business and has reduced its dependence on R&D spending. One of the ways to attain this objective was growing inorganically, specifically in FY03. Wipro acquired Spectramind in the BPO space, NerveWire in IT consulting and Ericsson's R&D Centre in the telecom space. The company's strategy has been to acquire companies that are niche players and have high levels of competencies in their respective areas of work.

    The graph above is indicative of the wide-range of high-end services that form a part of Wipro's portfolio of offerings. While the company's acquisition strategy has put pressure on its margins and is likely to do so in the medium term, we believe that in the long-term, the acquisitions would play a key and constructive role in Wipro's growth

    Given this backdrop, what does it mean for a retail investor when it comes to choosing the right stock in the technology sector? Before you take any investment decision, ask yourself the following questions...

    1. Give the human resources intensive nature of the software sector, not all companies have the capability to scale up business. So, an investor has to ascertain this vital factor from stats like attrition rates, average revenue per employee and profit per employee. A comparative analysis with a peer group will be of great help.

    2. Secondly, what is the company's management's vision? Have they been consistent over the last five years? If one were to look at the trend in 2000 or even more recently, some companies tend to venture into businesses just because they are 'hot'! For instance, one can count the number of companies that have ventured into the BPO spectrum without any significant scale in their core businesses.

    3. The ability to deliver services to clients across the globe is of long-term significance. How many companies in the software sector have managed to grow their business despite robust expansion in the global markets? At the end of the day, scalability it extremely critical.

    4. More importantly, software is a dynamic sector and is, therefore, susceptible to changes in technology. Does the management have the required expertise and vision to be attuned with global industry trends? Remember, outsourcing is not a new thing for India. The likes of Infosys, TCS and Wipro have been doing this for more than a decade now. But count the number of companies that are making noises off late about the potential of software outsourcing.

    If you are able to derive a convincing answer to these questions, probably, you have made a right choice!

     

     

    Equitymaster requests your view! Post a comment on "Software: What is the right choice?". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 18, 2017 (Close)

    MARKET STATS