Financial and Performance Analysis

Service Industry Information technology

Dr. Michael Porter - Term II- PGPM FLEX 2019-2021

1. Thilak gowtham T N - FX21033
2. Sathyajith - FX21023
3. Shyam Narayanan - FX21025
4. Vamsi Parthipan - FX21028
5. Vidyut - FX21029
Table of Contents
➔ Industry Overview
➔ Swot Analysis - IT services Industry
➔ Average ratios and Environment study
➔ Infosys - Timeline and overview
➔ Swot, Ratio Analysis - Infosys
➔ Tech mahindra - Timeline and Overview
➔ Swot, Ratio Analysis- Tech Mahindra
➔ Tata consultancy services - Timeline and Overview
➔ Swot, Ratio Analysis - Tata Consultancy Services
➔ Conclusion
➔ Recommendation
➔ Excel sheet attachment
➔ References
 Industry Overview

7.7% 3.97 million US$ 177

GDP contribution Jobs created billion overall turnover

37.
5300 57 %
23 Billion Startups third
Revenue is based
USD investment highest for an economy in the
in last two world on Exports
decades
 SWOT Analysis
Strength Internal factors

Highly skilled, English speaking manpower. Cheap workforce

than their Western counterparts.

According to NASSCOM, the wages difference is as high as Weakness

70-80 percent when compared to other Western
counterparts.
Lower attrition rates than on the West. Recent months have seen a rise in the level of attrition
rate among IT workers who are quitting their jobs to
Dedicated workforce aiming at making a long term career in pursue higher studies
the area.
Of late workers have shown a tendency to pursue IT as
Round-the clock benefit for Western companies due to the a full-time career.
huge time difference.
Lower response time with efficient and effective service. The cost of telecom and network infrastructure is much
higher in India than in the US.
 SWOT
Weakness
Analysis
Opportunities External factors

To capitalise and encash on the already established image of Opportunities Threats

India being portrayed as the most favoured IT destination in
the world.
Threats
Opportunities for Indian companies to work closely with
western Governments and assure their concerns and issues.
The anti-outsourcing legislation in the US state of New
India can be branded as a quality IT destination rather than a Jersey.
low-cost destination.
Three more states in the US are planning legislation
against outsourcing.

Workers in British Telecom have protested against

outsourcing of work to Indian BPO companies.

Other IT destinations such as China, Philippines and

South Africa could have an edge on the cost factor.
Industry Averages - Services Industry Environment Study
Weakness
● Though globally all industries were set back
Opportunities with a major impact on revenue due to Covid 19
Pandemic, the IT services industry was the least
affected
Opportunities Threats
To capitalise and encash on the already established image of
India being portrayed as the most favoured IT destination in
the world. ● Political policy changes such as inclusion of
GDPR in EU, Brexit in UK and change of
Threats
immigration laws in US has resulted in huge
Opportunities for Indian companies to work closely with
western Governments and assure their concerns and issues. strategic changes
The anti-outsourcing legislation in the US state of New
India can be branded as a quality IT destination rather than a ●
Jersey. However, the necessity for It powered Business
low-cost destination. services is increasing tremendously as it
facilitates
Three more states rapid
in the growth of productivity
US are planning legislationand
minimises
against outsourcing. costs

●
WorkersThis Analysis
in British is performed
Telecom on top three
have protested Indian
against
Multinational
outsourcing corporations
of work to Indian to understand the
BPO companies.
nuances of the Financials and to understand
Other ITtheir
destinations
strategic such as China, Philippines and
approach.
South Africa could have an edge on the cost factor.
List of Companies
 Started as Infosys
consultants Reached revenue benchmark
private limited by USD 100 million in 1999
7 Engineers in USD 1 Billion 2004
Pune during 1981 USD 10 Billion in 2010

Timeline

243,454 employees with

a 400 Acre training
campus at mysore with
Listed IPO on offices across the world
February 1993,
Each share Value
was INR 93
Extract from Infosys Annual report 2020

Reached revenue benchmark

USD 100 million in 1999
USD 1 Billion 2004
USD 10 Billion in 2010
 Swot Analysis - Infosys

1. Cost advantage due to a 1. Investing in the technology based

presence in India startups. Ex: Acquisition of
2. Trifacta in year 2016
Provides strong end to 2.
end business solutions Growth in spend on Digital
3. transformation technologies
Strategic Association with
Microsoft, HP, Amazon 3. Increasing demand for cloud
based solutions

S O
W T
1. Intense competition
1. Dependent on Limited markets
Example:Accenture,
like North America and europe
Capgemini and Oracle
2. It does not cover the growing
2. Change in US
markets
immigration laws
3. High Employee attrition rate
 Balance sheet ( 2016-2019) Profit and Loss ( 2016-2019)

Reached revenue benchmark

USD 100 million in 1999
USD 1 Billion 2004
USD 10 Billion in 2010

Please refer to the excel attached for more information

 Liquidity Ratio Analysis(2016-2019)

● Current ratio has dropped by close to 32 % in past four

years. This attributes to significant increase in the cash
payments or investment.

● The quick ratio has also observed to have dropped, this

indicates a lower liquidity. However the dop in quick ratio
raises concerns on the ability of Infosys to meet its short
term liabilities.

Please refer to the excel attached for more information

 Return on Investment Ratio Analysis(2016-2019)

Reached revenue benchmark

USD 100 million in 1999
USD 1 Billion 2004
USD 10 Billion in 2010

Summary

● Infosys is observed to have a steady growth in terms of

enhancing the return on investments in the past four
years.

● Among the investment ratios the investments on assets

has grown significantly indicating optimal investment of
assets.

● Moreover the return on investment capital and net worth

has stagnated. This could be attributed towards
increased cash spending.

Please refer to the excel attached for more information

 Activity / Turnover Ratio Analysis(2016-2019)

● Infosys has maintained a fairly steady turnover ratio since 2016.

An increase in turnover ratio indicates implementation of
effective asset management system in place.

● The capital employed turnover has attained a positive growth in

2019, which is considered as a significant improvement in
capital performance as when compared to previous years
where Infosys just managed to maintain it short term liabilities.

Please refer to the excel attached for more information

Coverage Ratio Analysis(2016-2019)

● Infosys has maintained a constant value in terms of interest

coverage ratios. This is attributed towards no debt incurred
infosys as a result the interest cost as well as debt to service
coverage ratio gets nullified.

● An increase in dividend cover suggest that the company has a

lot ot capital saved in terms of paying of the dividend. Infosys
has significantly increased its dividend cover in 2019 indicating
a significant increase in the payoff in terms of dividend
compared to 2018.

Please refer to the excel attached for more information

 Profitability Ratio Analysis(2016-2019)

● The PBID is observed to be maintained at similar levels in the since

the past three years. A steady rate in PBID will ensure ensure a
larger net profit.

● An increase in PBT will result in an increase in the tax interest

payable over the earnings . The PBT is observed to have dropped
in 2019 which shows decrease in the interest payable from the
earnings.

● PAT margin for Infosys has dropped in 2019 indicating a drop in

the company's earning from the expected earning.

Please refer to the excel attached for more information

 Leverage Ratio Analysis(2016-2019)

● An increase in debt to equity ratio indicates that the

company is aggressively investing in expansion
projects as a result incurs a lot of debt. Infosys is
observed to have reduced its debt to equity ratio
indicating significant drop in investment.

● The debt capital employed ratio has been fairly

constant since the past four years. This shows that
infosys has managed a significant investment through
shareholder fund or the company's capital.

Please refer to the excel attached for more information

Cash Flow Analysis (2016-2019)

● Infosys is observed to have a cash surplus in most of years

owing to its efficient asset management practices.

● The improved efficiency is also attributed towards its

enhanced it’s financial performance owing to its lower
dependability of debt.
.

Please refer to the excel attached for more information

History and Timeline

Tech Mahindra incorporated in 1986 offers Information Technology (IT) services and
solution to telecommunications sector across the world.

Its client list includes big companies like British Telecom (BT), AT&T, Motorola and
Alcatel–Lucent are among others. BT is largest client that contributes 60% to its revenues.

Services:

IT services R & D Services BPO

Milestone:

2002 2005 2006 2009 2011

Announced the Official IT Merger of Tech

Satyam BPO launched Assessed AT Level 5 Name changed to
Services Provider for the Mahindra and Mahindra
in Hyderabad of SEI CMMI by KPMG Tech Mahindra FIFA World Cup 2010TM Satyam announced
Tech Mahindra - Year 2020 at a glance
Swot Analysis - Tech Mahindra

1. Present in diversified geographies

like North America, Europe, Africa 1. Increasing demand for cloud
and Asia pacific. based solutions

2. Broad and balanced service 2. Growing enterprise mobility

portfolio market

3. Strategic Partnerships with 3. Big data projects

Google, IBM, Microsoft and SAP.

S O
W T Intense competition : The company
1. Lack of scale : Comparing with competes with large scale companies like
the competitors it generates TCS, Infosys, Wipro, HCL and IBM etc. Intense
only ⅓ rd of the revenue competition leads to pricing pressures and
threatens to erode market share

2. The majority of the revenues A slowdown in IT spending: The IT industry

are concentrated in Europe has experienced the slowdown in spending
markets globally which suggests that growth in the
industry is sluggish and there are
uncertainties in the IT market
 Liquidity Ratio Analysis (2016-2019)

● Though the industry average for the Current ratio is above 1.2 for the last
three years. Tech Mahindra had been consistently maintaining a ratio
above 2.

● Though the Company itself is supported by the strong operating cash flow,
significantly higher numbers indicated that the firm is not using the current
assets to the fullest.

● Similarly, the Quick ratio is also consistently growing and indicates the
cash richness of the company.

Please refer to the excel attached for more information

Leverage Ratio Analysis(2017-2019)

● The company has been consistently maintaining the debt

Equity ratio around 0.03-0.04, while the ideal value is 1.5-2
and industry average is around 0.76. This indicates that the
firm is not taking the advantage of finance leverages.

Please refer to the excel attached for more information

 Return on Investment Ratio Analysis(2017-2019)

● Tech Mahindra has observed to have a steady growth in terms of

enhancing the return on investments in the past four years.

● Among the investment ratios the investments on capital and net worth
has grown significantly indicating optimal investment of assets.

● Moreover the return on investment assets has stagnated. This could be

attributed towards increased cash spending.

Please refer to the excel attached for more information

 Activity / Turnover Ratio Analysis (2017-2019)

● Tech Mahindra has maintained a steady growth in turnover

ratio since 2016. An increase in turnover ratio indicates
implementation of effective asset management system in
place.

● Capital employed turnover has been positive for the last

three years unlike Infosys, though Infy is high on sales This
aspect of Tech Mahindra exhibits the operational capability
of the Company

Please refer to the excel attached for more information

Coverage Ratio Analysis (2017-2019)

● The ability to repay the loans is way higher for Tech

Mahindra.

● Both the dividend and DSCR are also higher than the
industry average which stipulates the growth

Please refer to the excel attached for more information

Profitability Ratio Analysis (2017-2019)

● Tech Mahindra is observed to be uniform in terms of its PBIT margin

contribution. This shows that there has not been any significant
managerial efforts to maintain steady earnings.

● PBT as well as PAT margin was also observed to be significantly

controlled. This shows that Tech Mahindra has not been actively
involved in any significantly large expansion activity. Moreover it also
indicates that the company gaurinees a steady output for its investors.

Please refer to the excel attached for more information

Cash flow Analysis (2017-2019)

● Tech Mahindra is increasing its Long term Inflow of cash in

recent times
● Long term Outflow of cash has been decreased drastically
which is a good sign for the company in the long run
● Long term Inflow of cash is much increased during the FY
2019 which shows the positive side and profitability to the
company

Please refer to the excel attached for more information

1. Tata Consultancy Services is an IT services, consulting and business solutions
organization that delivers real results to global business,ensuring a level of
certainty no other firm can match. TCS offers a consulting-led, integrated
portfolio of IT, BPS, infrastructure,engineering and assurance services.

2. TCS is the second largest Indian company by market capitalisation. In April 2018,

3. TCS became the first Indian IT company to reach $100 billion in market
capitalisation.

4. In 2016–2017, Parent company Tata Sons owned 72.05% of TCS; and more than
70% of Tata Sons' dividends were generated by TCS.

5. In March 2018, Tata Sons decided to sell stocks of TCS worth $1.25 billion in a
bulk deal. TCS and its 67 subsidiaries provides a wide range of information
technology-related products and services including application development,
business process outsourcing, capacity planning, consulting, enterprise software,
hardware sizing,
payment processing, software management and the technology education
services.

6. The firm's established software products are TCS BaNCS and the TCS
MasterCraft.
Year 2020 at a Glance

Extract from TCS Annual report 2020

Extract from TCS Annual report 2020
 Swot Analysis - TCS

1. Healthy balance sheet with 1. Machine to Machine solutions

strong financials
2. Emerging markets
2. Flagship company for TATA
group, backed by brand legacy 3. Recurring business from existing
3. Diversified Business portfolio clients
unlike its peers
4. Business consulting as the
4. Increasing focus on innovation potential to derive exponential
growth
S O
W T
1. Change in US immigration
1. Majority of the revenue is from
laws
the services hence there is no
proper product portfolio
2. Has faced penalty from
lawsuits affecting the brand
2. Large dependence on European
image
and North American Market
3. Brexit to impact projects in
3. It integration across industries to
EU markets
drive growth
Balance Sheet (2016 - 2019)

Please refer to the excel attached for more information

 Profit & Loss (2016 - 2019)

Please refer to the excel attached for more information

 Liquidity Ratio Analysis(2016-2019)

● The current ratio indicates the ability of the firm to meet the short
term liabilities. It can be observed that TCS has maintained a
steady current ratio except in 2017 when it was successful in
enhancing the current ratio. This could be attributed towards any
disinvestment or sale of any of their business.

● Quick ratio was also observed to be under control, although it has

dropped in 2019 compared to previous years it can be still
considered as in safe ranges.

Please refer to the excel attached for more information

 Return on Investment Ratio Analysis(2016-2019)

● The return on invested capital is observed to have improved

significantly for capitals. This is attributed towards significantly high
profitable investments.

● Return on assets is observed to have dropped since 2016, this is

attributed towards increasing purchase of low output or assets with
lower output potentials.

● Return on networth is also observed, this indicates TCS is able to make

profit with minimal capital usage. This shows that the shareholder funds
are effectively being used to drive profit.

Please refer to the excel attached for more information

 Activity / Turnover Ratio Analysis(2017-2019)

● The asset turnover ratio is observed to have increased in

the last financial year, this indicates an effective utilization of
all the assets of TCS.

● Invested capital turnover was also observed to be steadily

increasing on an year on year basis. This shows that TCS is
able to effectively managing short term assets and
liabilities.

Please refer to the excel attached for more information

 Coverage Ratio Analysis (2017-2019)

● Interest Cover Ratio is drastically reduced from 2017 to 2019

which indicates that company can easily pay its interest
expense on outstanding debt.

● DSCR ratio is higher than 2 that suggests the company is

capable of taking on more debt to facilitate growth option.

Please refer to the excel attached for more information

 Profitability Ratio Analysis(2017-2019)

● The asset turnover ratio is observed to have increased in the

last financial year, this indicates an effective utilization of all the
assets of TCS.

● Invested capital turnover was also observed to be steadily

increasing on an year on year basis. This shows that TCS is
able to effectively managing short term assets and liabilities.

Please refer to the excel attached for more information

 Leverage Ratio (2017-2019)

● Debt Equity Ratio is Zero which indicates that the firm does not have
outstanding debts to pay off hence the Profit numbers looks healthy

Please refer to the excel attached for more information

 Cash Flow Analysis (2017-2019)

● Cash inflow is the money going into a business. Normally a business is

considered healthy if its cash inflow is greater than its cash outflow.

● Considering long term Inflow value, it is pretty much higher compared to

the long term outflow

● On the other hand, Short term outflow of cash has to be scrutinized and
company should opt for some cost saving in short term outflow of cash

Please refer to the excel attached for more information

Conclusion
●
 Ratio Infosys Tech Mahindra Tata consultancy
Services

Liquidity Observed to have suffered a slight drop in Tech Mahindra is observed to have one TCS maintains a steady liquidity and
liquidity since 2016 owing to increasing of highest liquidity, this is attributed has not suffered a significant drop in
investments. towards its relatively lower investments. liquidity compared to its peers.

Leverage Infosys is observed to have the highest Tech Mahindra has the lowest leverage TCS has leverage ratio at zero. This
leverage ratio attributes aggressive ratio owing to minimal expansion shows that the revenue generated
financing on projects. from operations is sufficient ● for
meeting the year on year demand.

Profitability Infosys has maintained steady profitability Tech Mahindra has the lowest profitability TCS has constantly maintained a
levels in the past three years.This is compared to its peers. This is attributed steady growth in profitability
attributed towards effective well maintained towards lack of efficiency due to minimal margins. This shows the its ability to
cash flows and assets. investments in upgrades. translate capital gains to profits
effectively.
 Ratio Infosys Tech Mahindra Tata consultancy
Services

Activity Turnover Infosys has maintained a steady Tech Mahindra has one of the highest TCS also maintains a steady
turnover ratio in the past four years. This asset turnover ratio compared to its activity turn over. Moreover the
shows that assets are maintained with peers. This in turn translates to activity turnover of TCS is
optimal performance. improved productivity. observed to be the lowest among
its peers.

Coverage Ratio The coverage ratio is observed to be Tech Mahindra has the highest ●
TCS has had spikes in coverage
the lowest for infosys when compared to coverage ratio owing to its high ratios, but have maintained its
its peers. This is attributed towards no dependency on debts compared to value under industrially
outstanding debts shareholder funds. acceptable limits.

Return on Investment Infosys is observed to have a fairly Tech Mahindra has a low return on TCS has the highest return on
steady return on investment ratios. This investment in spite of having a high investment ratio. This is attributed
is attributed towards effective utilization asset turnover ratio. This could towards its robust asset and
of asset and capital. attributed towards low maintenance capital management practices.
of their current assets.
Industry - Recommendations

● Companies are advised to maintain a diversified product portfolio in order maximise their profits. The three
companies that are analysed either have a diversified product or diversified customer base but not both.
Hence for an Information technology related service company it is recommended to have a broad portfolio
of product and customers

● Focussing the R&D investments on latest technologies such as Artificial intelligence, Virtual reality ,
Datascience, Cloud services and solutions will help the industry to have a better sustainability among the
competition
●
● Payout to shareholder dividends can be increased in order rise funds rather than opting for debt. This
increases the trust for the shareholders and enhances the brand image

● Majority of the capital are invested in Infrastructure and training facilities, taking them completely online and
equipping the human capital with required machineries to facilitate remork work might help in reducing the
operating and new investment costs
Excel Worksheet Attachment

Please click here to view the excel sheet

The embedded link can be accessed by anyone with access to internet

References

1. https://www.moneycontrol.com/stocks/company_info/

2. https://www.infosys.com/investors/reports-filings/annual-report/annual/documents/inf
osys-ar-20.pdf

3. https://www.techmahindra.com/en-in/investors/

4. https://www.tcs.com/content/dam/tcs/investor-relations/financial-statements/2019-20/
ar/annual-report-2019-2020.pdf

5. https://www.readyratios.com/sec/industry/73/?measure=average

6. https://cs.thomsonreuters.com/ua/acct_pr/fina/cs_us_en/pdfs/fina_sample_reports.pd
f

7. https://www.equitymaster.com/research-it/annual-results-analysis/TCS/TCS-2018-19-
Annual-Report-Analysis/574
Thank you!