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 Industry – Fundamentally strong - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • May 29, 2000

    Software Industry – Fundamentally strong

    Indian software companies are fundamentally strong with improved financial performance, strong cash flow and increasing value added services. In the past 3 months, stock prices of software companies have come down by more than 60%. This is due to the fact that investors’ confidence in the sector is shaken. However the fundamental case for investing in the sector is still intact.

    Excellent financial performance
    In the past 12 months financial performance of the software companies improved considerably. The Y2K related work gave the software service industry strong cash flow, critical size and a satisfied customer base. The companies in the sector have become stronger to take on large projects on a variety of technology platforms. Software companies have transformed themselves from providing low value added services like coding and maintenance to high margin business of system design, IT consulting and business consulting. The cost-effectiveness and competitiveness coupled with the focus in new business areas like e-business is expected to accelerate the growth of the companies further. The low cost ensures that Indian companies are often better prepared for the e-commerce boom than their counterparts elsewhere in the world.

    The sector is financially in a good shape with operating margins of more than 30% and excellent revenue growth. The financial strength of the companies has translated into building of technical and project management skills. More significantly, the quality of growth of sector major was even better.

    Comparative financials
    Particulars NIIT Infosys Satyam Hughes Software HCL Technologies
    Sales growth 27.0% 73.0% 79.0% 57.0% 40.0%
    Net profit growth 32.0% 117.0% 79.0% 157.0% 94.0%
    Operating profit margins 34.0% 39.0% 37.0% 38.0% 15.0%
    Net profit margins 24.0% 32.0% 19.0% 28.0% 11.0%

    Valuations
    The valuations of the software companies are likely to improve as consolidation takes place in the sector. Companies with huge cash flows will be placed at an advantage as the government has recently clarified the norms for foreign acquisition. The strong underlying earnings growth coupled with cutting edge of technology in terms of services is expected to bring re-rating in the valuations.

    Comparative valuations
    Particulars NIIT Infosys Satyam Hughes Software HCL Technologies
    Market Price (Rs) 1,600 5,990 2,182 2,145 965
    P/E (x) 43 149 78 94 127
    Market Cap/Sales (x) 11 39 15 33 7

     

     

    Equitymaster requests your view! Post a comment on "Software Industry – Fundamentally strong". Click here!

      
     

    More Views on News

    Tech Mahindra: Our Revised View (Quarterly Results Update - Detailed)

    Aug 2, 2017

    A better than expected turnaround in performance results in a change in view.

    Wipro: A Decent Start to the Year (Quarterly Results Update - Detailed)

    Jul 27, 2017

    Digital services drive growth for Wipro in 1QFY18.

    Infosys: A Decent Start to FY18 (Quarterly Results Update - Detailed)

    Jul 14, 2017

    Infosys starts FY18 on an encouraging note with a stable performance.

    Ankit Shah's First Five Insider Recommendations (The 5 Minute Wrapup)

    Aug 5, 2017

    How to get exclusive insider recommendations from Ankit Shah.

    TCS: Currency Volatility Plays Spoilsport (Quarterly Results Update - Detailed)

    Jul 14, 2017

    TCS starts FY18 decently despite an adverse currency impact.

    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 IT


    Aug 18, 2017 (Close)

    COMPARE COMPANY

    MARKET STATS