Right strategic buyouts key for Infosys to stay ahead 
March 09, 2010
Source:  ET Bureau

Is Infosys gradually losing out on its superiority in running a high quality, high margin business to its closest peers TCS and Wipro? The latest comparative analysis by ET Intelligence Group suggests that the IT company, co-founded by the legendary, NR Narayana Murthy, may have to revisit its policy of mostly organic growth.

The analysis compares revenues, operating profits and net profits of top four IT exporters publicly listed in India, including TCS, Infosys, Wipro, and HCL Technologies. Spanning across past 14 quarters, the analysis also attempts to asses how well the latter three have performed relative to TCS, which is the largest among all. To achieve this, the three operational parameters for TCS were set to the common factor of 100 and then the relative performance of the other three IT players was monitored.

The analysis shows that Infosys is gradually falling behind TCS in terms of both revenue and operating profit. For instance, Infy’s quarterly revenue was almost 80% of TCS in the December ’08 quarter. It had increased quite impressively from as low as 72% in the December ’07 quarter.

However, Infosys seems to have lost the tempo in subsequent quarters. During the three months ended December ’09, its revenue was just over 75% of TCS’. Another way to look at it is checking what happened to relative revenues of its peers. In the past three years, Wipro’s revenue relative to TCS has gradually increased from 59% to 67.5%. For HCL Tech, it rose from 30% to 40%.

This trend largely reflects growth strategies adopted by these companies. While TCS, Wipro and HCL Tech acquired companies during the period, Infosys largely relied on organic growth. But what can cause more concern is the fact that Infosys is also lagging in terms of operating profit despite its industry best margin record.

Between the March ’08 quarter and the December ’08 quarter, Infy’s operating profit was higher than that of TCS despite the fact that its revenue lagged behind TCS’. This reflected superior margins of Infy over TCS. However, here again, Infy is gradually

losing its dominance. From 113% a year ago, Infy’s operating profit relative to TCS has fallen to 89% in the December 2009 quarter. The situation is similar in the case of Wipro and HCL Tech.

It appears that TCS is at an advantage over its peers at least for now. It has regained leadership in absolute

operating profit while maintaining its lead in revenue generation. But Infy’s CFO V Balakrishnan thinks that such a comparison based on panel data (both time series and cross sectional data) may be difficult. “This is because there are lots of differences in accounting policies between companies, especially related to depreciation, amortisation of software, forex accounting, and provisions for receivables.”

However, in case of comparisons over multiple time periods, such differences tend to smoothen out. The question is whether Infosys feels the necessity to change its ‘mostly organic’ business model, given that its peers are aggressively pursuing inorganic expansion.

“It is not a question of organic versus inorganic growth. Both could hurt or help the revenue growth and profitability,” says Mr Balakrishnan. He emphasises that the game is all about doing the right strategic acquisition and executing it well. Infy has nearly

Rs 14,400 crore in liquid assets. Investors would be keen to see whether it would find a better way to spend this by taking a leaf from the strategy books of its peers.

PriceWaterhouse plans moving SEBI again for Satyam settlement
March 09, 2010
SOURCE : PTI

NEW DELHI: Audit firm PriceWaterhouse India on Monday said it may again approach the Sebi to settle the cases related to the Rs 10,000-crore Satyam fraud, after being rejected an earlier application in this regard.

"We have received a communication from Sebi (rejecting PW's consent application) with regard to the consent process relating to the audit of Satyam. We remain in contact with Sebi regarding this matter and are currently considering next steps, including the possibility of filing another consent application," PW said in a statement.

A consent order refers to settling administrative or civil proceedings between the regulator and a party who may prima facie be found to have violated laws, as per Sebi.

The firm, whose partners were involved in auditing the accounts of Satyam, has filed a consent application last October seeking an earlier settlement of the investigations against the firm in the Satyam case.

The disciplinary committee of the ICAI, which probed the scam, had found four auditors from PriceWaterhouse--S Gopalakrishnan, Srinivas Talluri, P Shiva Prasad and CH Ravindranath -- prima facie guilty of professional misconduct.

Besides several agencies, including SFIO, ICAI and CBI, the scam was also probed by Sebi which had issued a showcause notice to PW.

Wipro Infotech gets turnkey project from finmin
March 09, 2010
SOURCE: REUTERS

MUMBAI: Wipro Infotech, a unit of Wipro Ltd, said on Monday it has received a turnkey project from the to set up a financial intelligence network for the finance intelligence unit of the finance ministry.

The financial terms were not disclosed.