Aug 30, 2004|
Software: Who's the best?
As TCS, the largest software services exporter from the country, has been listed on the stock exchanges, the fight to capture the top spot on the investor's radar is likely to become even tougher for the other two software majors - Infosys and Wipro. In order to find who is the top pick among these behemoths, we conducted a poll on Equitymaster. And the result, not quite surprising, can be summarised in the graph below.
While the largest percentage (57%) of those who voted opted for TCS, Infosys and Wipro stood second and third with share of 32% and 11% respectively. However, while the response might be skewed in favour of TCS on account of the euphoric response to its very recent IPO, we believe investors need to take note of the respective performances of these three companies and their growth prospects before making any investment decision.
Comparative parameters (FY04)
* Only for Global IT services
|Sales growth (CAGR, FY01-FY04, %)
|Profits growth (CAGR, FY01-FY04, %)
|Operating margins (%)
|North America's share (% of sales)
|Onsite presence (% of sales)
|Revenue per client (Rs m)
|No. of clients (Nos.)
|Revenue per employee (Rs m)
|Profit per employee (Rs m)
|No. of employees (Nos.)
|Promoter's shareholding (%)
As seen from the table above, while TCS scores on profit growth, revenues per employee and attrition rate parameters, Infosys has an upper hand on factors like sales growth and operating margins. Also, while Wipro leads in none of the above parameters, it trails both the above companies on operating margins and attrition rate parameters. Wipro's low operating margins can be attributed to large acquisition related expenses that the company had to bear in FY04. And as far as attrition rate is concerned, Wipro trails on account of a large number of its employees working in the BPO division (Wipro Spectramind) that usually has such high employee turnover rates.
Infosys has the highest operating margins of the three mainly on account of a large proportion (45%) of its revenues coming from services rendered offshore, which have higher margins relative to onsite services. On the other hand, TCS and Wipro earn around 36% and 42% of revenues from offshore services, affecting their margins vis-à-vis Infosys. While billing rates are high for onsite services, costs are also higher thus resulting into lower margins.
Now as far as risks to investment are concerned, Infosys seems less risky a proposition than TCS and Wipro. This is on account of a lower promoter shareholding in Infosys that provides the ordinary shareholders greater liquidity in the markets. For Wipro, while promoters' shareholding stands at around 84%, it is 83% for TCS. Wipro also assumes great risk on account of a large proportion of its revenues coming from the highly volatile R&D outsourcing space. This is because, in times of downturn, expenditure on R&D is the first to get hit. This was evident from the slowdown in technology spending in 2001 and 2002.
Now, if one were to gauge the respective valuations of these companies, Wipro, is the most expensive and the major reasons for this are, as mentioned above, low liquidity and high proportion of revenues from R&D services. On the other hand, Infosys commands higher valuations to TCS mainly because the company has a higher margin profile and in our view, is poised to outperform peers going forward.
Through the above discussion, Infosys and TCS come out leaders over Wipro, at least on the basis of past performances and their business models. However, to judge the better player amongst these two would be the difficult part. While Infosys scores on key aspects like project execution, delivery and management excellence fronts, TCS has the advantage of scale (US$ 1.5 bn in revenues and over 30,000 employees) and long-term relationships with key large clients. As such, rather than ranking these companies on the basis of past performance (as there is not much difference), investors need to gauge on the basis of risks involved. And, on that account, our ranks are - Infosys, TCS, Wipro - in that order.
More Views on News
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.
Aug 16, 2017
All across the country, the old gods become devils. New, gluten-free gods take their places...
Aug 16, 2017
And what it has in common with beating the stock market too.
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Aug 14, 2017
Last week's correction is making a number of Super Investor stocks look a lot more attractive...
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 4, 2017
The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
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: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407