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Fundamental Analysis
Economy Analysis : The economy of India is the eleventh largest economy in the
world by nominal GDP and the fourth largest by purchasing power
parity (PPP). Following strong economic reforms from the socialist
inspired economy of a post-independence Indian nation, the country began to develop
a fast-paced economic growth, as free market principles were initiated in 1990 for
international competition and foreign investment. India is an emerging economic
power with a very large pool of human and natural resources, and a growing large
pool of skilled professionals. According to the book 'Contours of the World Economy,
1-2030AD' by Angus Maddison, India was the largest economy from the year 1 AD until
the colonial period whereupon it was taken over by other countries such as China and
the U.K. Economists predict that by 2020, India will be among the leading economies
of the world. According to the BRIC report, published by Goldman Sachs, India will be
the second largest economy after China by 2043. India's large service industry
accounts for 55% of the country's Gross Domestic Product (GDP) while the industrial
and agricultural sector contribute 28% and 17% respectively. Agriculture is the
predominant occupation in India, accounting for about 52% of employment.
The service sector makes up a further 34% and industrial sector around 14%. The labor
force totals half a billion workers. Major agricultural products include rice, wheat,
oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep, goats,
poultry and fish. Major industries include telecommunications, textiles, chemicals,
Food processing, steel, transportation equipment, cement, mining, petroleum,
machinery, information technology enabled services and pharmaceuticals.
Labor force by occupation Agriculture (52%), industry (14%), services (34%) (2009 est.)
The report predicts that the Indian IT-BPO revenues may reach US$ 225 billion in 2020.
According to DIT, the Indian software and services exports is expected to reach US$ 49.7
billion in 2009-10 as compared to US$ 47.1 billion in 2008-09, registering an increase of 5.5 per
cent in dollar terms. Further, the IT services exports is estimated to grow from US$ 25.8 billion
in 2008-09 to US$ 27.3 billion in 2009-10, showing a growth of 5.8 per cent.
The data centre services market in the country is forecast to grow at a compound annual
growth rate (CAGR) of 22.7 per cent between 2009 and 2011, to touch close to US$ 2.2 billion
by the end of 2011, according to research firm IDC India's report published in March 2010. The
IDC India report stated that the overall India data centre services market in 2009 was
estimated at US$ 1.39 billion.
As per a report by the Internet and Mobile Association of India (IAMAI) and market research
firm IMRB, the total number of Internet users in India reached 71 million in 2009. The number
of active users increased to 52 million in September 2009 from 42 million in September 2008,
registering a growth of 19 per cent year-on-year, stated the report.
According to IDC India, during January-March 2010, total PC sales in India reached 2,240,000
units registering a year-on-year increase of 33 per cent over the same period in 2009. Desktop
Mahendra K Patidar / PGDM BIF 017 / Fundamental Analysis Assignment / 29 Oct’10 3
PC sales witnessed a year-on-year increase of 18 per cent during January-March 2010, over the
corresponding period last year to reach 1,436,000 units. The sales of Notebook computers also
increased by 72 per cent year-on-year, clocking 803,000 shipments.\
Wipro Ltd, an IT services company, has entered into a strategic collaboration with
Hitachi Data Systems, to offer co-branded products and services on Hitachi
Technology in India.
Software company, Tata Consultancy Services (TCS) has won a multi-year
outsourcing contract from Norway-based telecom company, Telenor Norway to
provide application maintenance and development services.
HCL Technologies has entered into a five-year IT infrastructure outsourcing deal
with Singapore Exchange (SGX) for US$ 110 million. The company has also won a
US$ 500 million strategic IT outsourcing contract from US-based drug
manufacturer, Merck Sharp and Dohme (MSD).
Computer services firm, Mahindra Satyam has signed a four-year offshore contract
with Denmark-based IT company, KMD for US$ 48 million.
Software exporter Patni Computer Systems won a five-year IT and back-office
contract potentially worth around US$ 200 million from US-based health
insurance provider Universal American.
Between April 2000 and March 2010, the computer software and hardware sector
received cumulative foreign direct investment (FDI) of US$ 9,872.49 million,
according to the Department of Industrial Policy and Promotion.
Mahendra K Patidar / PGDM BIF 017 / Fundamental Analysis Assignment / 29 Oct’10 4
Government Initiatives :
The government has constituted the Technical Advisory Group for Unique Projects
(TAGUP) under the chairmanship of Nandan Nilekani. The Group would develop
IT infrastructure in five key areas, which includes the New Pension System (NPS)
and the Goods and Services Tax (GST)
The government set up the National Taskforce on Information Technology and
Software Development with the objective of framing a long term National IT Policy
for the country
Enactment of the Information Technology Act, which provides a legal framework
to facilitate electronic commerce and electronic transactions
Setting up of Software Technology Parks of India (STPIs) in 1991 for the promotion
of software exports from the country, there are currently 51 STPI centres where
apart from exemption from customs duty available for capital goods there are also
exemptions from service tax, excise duty, and rebate for payment of Central Sales
Tax. But the most important incentive available is 100 per cent exemption from
Income Tax of export profits, which has been extended till 31st March 2011
Government is also setting up Information Technology Investment Regions
(ITIRs). These regions would be endowed with excellent infrastructure and would
reap the benefits of co-siting, networking and greater efficiency through use of
common infrastructure and support services
Road Ahead: The Indian information technology sector continues to be one of the
sunshine sectors of the Indian economy showing rapid growth and promise..
the Indian industry is expected to reach US$ 175 billion in revenue by 2020. The
domestic component will contribute US$ 50 billion in revenue by 2020. Together, the
export and domestic markets are likely to bring in US$ 225 billion in revenue, as new
opportunities emerge in areas such as public sector and healthcare and as geographies
including Brazil, Russia, China and Japan opt for greater outsourcing.
Company Analysis:
Mar ‘06 Mar ‘07 Mar ‘08 Mar ‘09 Mar ‘10
Current Ratio 2.75 4.96 3.30 4.71 4.28
Quick Ratio 2.73 4.91 3.28 4.67 4.20
Dividend Per Share 45 11.50 33.25 23.50 25
Operating Profit Per Share 108.51 73.98 86.78 120.59 128.64
Debtors Turnover Ratio 6.52 6.90 5.81 6.25 6.37
Dividend Payout Ratio Net 58.32 19.85 49.77 27.03 28.84
Profit
Current Ratio = CA / CL
Current Ratio
5
Interpretation: We can see from the
4
graph that current ratio is fluctuating
3
YOY. But company is maintaining
2 Current Ratio higher ratio than industry average
1 which is 2.50. It shows that company is
0 maintaining their Liquidity.
Mar Mar Mar Mar Mar
‘06 ‘07 ‘08 ‘09 ‘10
Mahendra K Patidar / PGDM BIF 017 / Fundamental Analysis Assignment / 29 Oct’10 6
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