Financial Analysis Of Companies:Tcs,Wipro,Satyam

Overview-Indian IT Services Sector:

Indian IT industry started in 1970s had a slow growth in the initial years, with most of the efforts being made by Public Sector Undertakings and other large users like defense. It started in a big way in 1984, when some real reforms were brought in by the government. However 1990s saw the real action and the Indian expertise and talent was recognised; companies started getting quality certifications like CMM which is now CMMi and had the largest share of such certifications in the world. The Indian software industry is growing at a rate of more than 50 percent a year, and the country appears to be on track to achieve IT exports of U.S. $50 billion by 2008 (Carretek n.d). The IT industry's contribution to GDP rose from 1.2 per cent in 1999-2000 to an estimated 4.8 per cent in 2005-06 (IBEF, 2007). According to Nasscom , the strength of the Indian software industry is indicated by the fact that the export revenues has grown at a Compound Annual Growth Rate of 35 %.

Advantage India:

 Largest Pool of Technical Talent

 Comparatively high exchange value

 Young working population compared to the West

 Highly educated workforce fluent in English.

 High-end technological infrastructure to connect and communicate with any part of the Globe

 Low salary compared to other countries.

 Government support for setting up companies

 Tax Holidays under STPI for 100% EOU (Export Oriented Units)

Forces driving the Industry

Three major factors affecting software industry is given below (Wilson, 2001):

Threat of new entry:

* The barrier of entry which lies in some industry does not exists in IT or software services industry. Software Company can be started with very less capital investment. It basically needs computer and the knowledge to do software. Because of this low barrier to entry and high rate of success, competition tends to be acute.

* Another threat of entry is access to distribution channels. Company will be having their own marketing team to market their products. But it can be overcome by selling through internet or through value added resellers or by combining their software with other and selling it as a combined product.

* Economies of scale exist in software industry. Developing a product is the expensive part of the process. Once a program has been written, the cost of manufacture is low. Thus the start-up company will be competing against established firms that are already in the "low cost" stage.

* Another barrier that exists is the differentiation of products. Customer loyalty would be more towards the products developed by established firms and which gives them continuous service and product updates.

Intensity of Rivalry among Existing Firms:

* It would be very difficult to compete against major players in some segments where they have competitive advantage.

* Another major factor is the R&D investment done by the companies. If the particular company doesn't have better R&D facility compared to their rivals, their products may be less demanded.

* Another important factor includes product's ability to interface with different platforms and offering competitive benefits and compensation to laborers.

Threat of Substitute Products or Services:

* With technological advances being developed at an incredible pace, the software developer is well advised to remain as informed as possible about products and services being offered in the software and hardware industries. This will allow the developer to be in a position to respond to new technologies and therefore, remain competitive.

PEST Analysis - A Macro Overview

Political:

* Strong tax incentives for inbound investors

* Strong political motivation for globalisation

* Strong reputation and trust

* Adaptive legislative framework

* Negative effect on the IT industry after 2009 as the government's initiative of Tax holiday under STPI expires (ThinkingStreet 2007).

Economic:

* Strong technical skills

* Strong export base

* Strong infrastructure links

* Competitive labour cost model

* Adaptive investment authority to technological investments

* Highly mobile work force

Societal:

* Strong science and educational culture

* Strong management culture

* Adaptive English speaking population

Technological:

* Strong R & D culture and facilities

* Strong tie-ups with western technology companies

* Adaptive to new technologies

Company Overview

Tata Consultancy Services Ltd. (532540.BO)

Wipro Technologies Ltd. (507685.BO)

Satyam Computer Services Ltd. (500376.BO)

* The symbol * which is given in the swot analysis has been derived from the ratio analysis.

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