A Study on Financial Performance of Selected IT Companies in India

Transcription

1 A Study on Financial Performance of Selected IT Companies in India GKavitha HoD, Department of BCom (ecom), PSGR Krishnammal College for Women, CoimbatoreIndia Introduction Information technology (IT) industry in India has played a key role in putting India on the global map India is now one of the biggest IT capitals in the modern world and has presence of all the major players in the world IT sector HCL, Wipro, Infosys and TCS are few of the household names of IT companies in India IT industry in India has been one of the most significant growth contributors for the Indian economy These industries have played a significant role in transforming India s image from a slow moving bureaucratic economy to a land of innovative entrepreneurs and a global player in providing world class technology solutions and business services Information Technology sector has made significant contributions to India s economic growth in terms of GDP increase, foreign exchange earnings as well as employment generation Its contribution to GDP has increased tenfold in last decade, from 6% to 6% till 2 The sector has helped India transform from a rural and agriculturebased economy to a knowledgebased economy Besides this, the lives of people have been positively influenced by direct or indirect contribution of IT sector to various parameters such as employment, standard of living, percapita income etc In India, the IT Software segment has seen significant growth and has put India on the global map It contributes for almost 7% of the total revenues of the IT sector Indian IT companies have globally established their superiority in terms of cost advantage, availability of skilled manpower and the quality of services They have been enhancing their global delivery capabilities through a combination of organic and inorganic growth initiatives Global giants like Microsoft, SAP, Oracle, and Lenovo have already established their captive centers in India These companies recognize the advantage India offers and the fact that it is among the fastest growing IT market in the Asia Pacific region The industry continues to be a net employment generator expected to add 23, jobs in FY22, thus providing direct employment to about 28 million, and indirectly employing 8 million people However, the sector continues to face challenges of competitiveness in the globalized and modern world, particularly from countries like China and Philippines Statement of the Problem In order to function in an efficient and effective manner, every firm needs to be aware of its liquidity and financial conditions The financial position of a company can be ascertained by analyzing the financial statements of the firm This way, it is possible to identify the trends and relationships between financial statement items There is a need to strike a balance between profitability and liquidity which in turn protects the interest of creditors and investors With the recent onset of recession in the IT industry, a detailed financial analysis is required which can contribute to taking measures against the negative impact of this economic condition The companies can focus on attaining a higher level of performance by showing current financial position of an IT company in relation to other companies and creating a competitive environment Such evaluations are also useful in reforming and improving weaknesses which is done through recognition of the strengths of performed activities Thus, the study focuses on analysis of financial performance analysis of selected IT companies in India Objectives of the Study The study is aimed at analyzing the financial performance analysis of selected five IT companies in India based on years financial data The following are the objectives of the study: To analyze the financial performance of the five selected companies for years To ascertain the profitability, liquidity and solvency position of the companies Research Methodology The present study is based on the data collected from secondary sources to accomplish the objectives of the study A period of years from (22) to (22) has been covered for the study Secondary data has been used in this study for analyzing the financial performance of TCS, Infosys, Wipro, NIIT and Polaris The present study has been conducted on the basis of the data collected from wwwmoneycontrolcom Additional information has been collected from various journals, research papers, magazines EJCMR SPECIAL ISSUE, 2 wwwejcmrorg 7

2 and websites Various tools such as Ratios, Descriptive analysis, Trend analysis ANOVA have been used for the study The Indian Software IndustriesCurrent Trends, Challenges and the Future India has become an IT brand among the global countries over the years, thanks to the Indian Government policies, strong base in education, wellestablished telecommunication & infrastructure facilities and favourable market conditions that prevail Many Indian cities are now holding prominent places in the global IT map Now India stands out as one of the biggest and fastest growing economies in the world India continues to be the centre stage for strategic offshore outsourcing The Indian IT outsourcing sector, accounts for % of GDP and employs around 23 million professionals directly and many others indirectly Heavy inflow of FDI in the IT sector is expected to continue for coming years In recent years, the inflow of large volumes of FDI in to the Indian IT markets has not only boosted the industry but also the entire Indian economy Infosys Infosys (formerly Infosys Technologies) is an Indian multinational corporation that provides business consulting, information technology, software engineering and outsourcing services It is headquartered in Bangalore, Karnataka Infosys is the thirdlargest Indiabased IT services company by 2 revenues, and the fifth largest employer of HB visa professionals in the United States in FY 23 On 3 March 2, its market capitalisation was 88, crore ($3 billion), making it India's fifth largest history Infosys takes pride in building strategic longterm client relationships Over 7% of their revenues come from existing customers Infosys has global presence through its offices and development centers spread across India, China, Australia, the Czech Republic, Poland, the UK, Canada and Japan Infosys and its subsidiaries have 33,6 employees as on June 3, 2 Tata Consultancy Services TATA Consultancy Services Limited (TCSL) is a multinational information technology (IT) service; consulting and business Solution Company headquartered in IndiaTCS operates in 6 countries It is a subsidiary of the Tata Group and is listed on the Bombay Stock Exchange and the National Stock Exchange of India TCS is the largest Indian company by market capitalization and is the largest Indiabased IT services company by 23 revenuestcs is now placed among the Big most valuable IT services brands worldwide In 23, TCS is ranked th overall in the Forbes World's Most Innovative Companies ranking, making it both the highestranked IT services company and the top Indian company Wipro Limited Wipro Limited (Wipro) is a global information technology service company Wipro provides a range of IT services, software solutions and research and development services in the areas of hardware and software design to companies worldwide It uses its development centres located in India and worldwide, quality processes and global resource pool to provide IT solutions and deliver timetomarket and timetodevelopment advantages to its clients It also provides business process outsourcing (BPO) services The Company operate in three segments IT Services business segment, IT Products business segment and Consumer Care and Lighting business segment As of March 2, the company has 6, employees servicing over large enterprise & Fortune corporations with a presence in 6 countries On 3 March 2, its market capitalization was approximately 27 trillion ($28 billion), making it one of India's largest publicly traded company and seventh largest IT services firm globally NIIT Technology Solutions NIIT Technologies is a leading IT solutions organization, servicing customers in the Americas, Europe, Asia and Australia It offers services in Application Development and Maintenance, Enterprise Solutions including Managed Services and Business Process Outsourcing to enterprise in the Financial Services, Travel & Transportation, Manufacturing/Distribution, and Government sectors Our domain strengths, new approaches to customer experience management robust outsourcing capabilities, and dualshore delivery model, have made it a preferred IT partner to over 22 clients across 6 countries in these selected verticals With a talent pool of about 8 professionals, NIIT Technologies follows global standards of software development processes Polaris Founded in 3, Polaris Financial Technology Limited is a global leader in Financial Technology (FT) for Banking, Insurance, and other Financial Services The organization offers superior technology solutions through its two specialized divisions that enable clients unprecedented operational efficiency FT Services and FT Products Polaris FT Services is guided by powerful platforms and high performance practices Its technofunctional capabilities lead industry standard on several parameters The organization s specialist capability in providing solutions through delivery is apparent across its full spectrum offerings that include Testing, Infrastructure Management, Business Efficiency, Business Transformation, Data & Analytics, Mobility & Channels, and Risk & Compliance Today, Polaris high performance FT solutions run in over 2 financial institutions around the world Polaris powerful FT Products deliver the most integrated enterprise solution suite for Banking and Insurance EJCMR SPECIAL ISSUE, 2 wwwejcmrorg 8

3 Analysis and Interpretation The analysis and interpretation on "A Study on Financial Performance of Selected IT Companies in India" has been conducted on the basis of the financial statements of three major and two medium scaled IT companies in India namely TCS, Infosys, Wipro, NIIT, and Polaris The Current ratio and quick ratio is analysed in the following table Table Current Ratio and Quick Ratio Yea r Info sys TC S Wip ro Pol aris NII T Rati CR QR CR QR CR QR CR QR CR QR os NA NA CRCurrent Ratio QRQuick Ratio It is observed from the above table that the current ratio for Infosys (6) is high in the year 2 and 7 in the year 27 The lowest ratio has been observed for the year 26(273)It has also been observed that TCS showed the highest current ratio in the year 2, and the lowest ratio in the years 28 and 23 For the year 22, current ratio is the highest (83), and the lowest ratio is for the year 2 for Wipro In Polaris, the highest current ratio is for the year 2(32) and the lowest for the year 2(6)It is observed that NIIT has the highest current ratio for the year 2(27) and lowest for the year 2(2) From the above table, it is observed that Infosys showed the highest quick ratio in 2 (6) and the lowest ratio in the year in 26 (27) In TCS the highest ratio is in 26 and 2 (3) and the lowest ratio in 2 and 2 (86) For the year 26 the quick ratio is lowest for Wipro () and highest for TCS (3) It is indicates that Polaris has the highest quick ratio is in 2 (32) Quick ratio for NIIT is highest in the year 2 (2) and the lowest ratio has been observed 2 () Findings of Various Ratios The following are important findings of various ratios analyzed for the study: The liquidity ratio of Infosys is the highest among the selected IT companies The lowest current ratio has been observed for Polaris and the lowest quick ratio has been observed for NIIT Polaris has the highest debtors turnover ratio than Infosys, TCS, Wipro, Polaris and NIIT has the lowest The fixed asset turnover ratio is the highest for TCS in the year 2(622) and lowest for Wipro (323) in the year 2 The total asset turnover ratio is the highest for NIIT in the year 2 and the lowest for Infosys in the year 2 With respect to face value, NIIT shows the highest face value and TCS shows the lowest The operating profit per share and the net operating profit per share is the highest for Infosys and lowest for Polaris The operating margin has been recorded at its highest for NIIT (8877) and lowest (76) for Polaris The net profit margin has been noted to be the highest for Infosys in the year 2 and lowest for NIIT in the year 23 Wipro has a higher long term fund ratio (32) among the five IT companies and Polaris has the lowest EJCMR SPECIAL ISSUE, 2 wwwejcmrorg

4 Return on net worth has been recorded to be the highest for TCS (388) Wipro has the highest cash profit margin, gross profit margin and return on capital employed than the remaining selected companies Results of ANOVA ANOVA has been applied to find significant difference if any between companies for various ratios Current and Quick Ratio Fig Ho: On an average, all the companies have equal liquidity ratios Table2 ANOVA for Current And Quick Ratio D f Ratios Category Sum of squares Mea n squ are Current ratios Between Groups Within Groups 886 Total 3 Quick ratio Between Groups Within Groups 72 Total 386 R Significance From the above table it is understood that the significant value () is less than the level of significance, hence the null hypothesis is rejected Thus it is inferred that Infosys has higher current ratio than other companies It is observed from the quick ratio table that there is significant difference in respect of liquidity ratios of the selected companies Hence, the hypothesis has been rejected Polaris have the highest quick ratio in comparison to the remaining four companies followed by TCS (63) Debtors Turnover Ratio S i g Ho: On an average, all the companies have equal Debtors turnover ratio Table3 ANOVA of Debtors Turnover Ratio D f Ratios Category Sum of squar es Debtors turnover ratio Between Groups 7 7 Within Groups 73 6 Total Me an squ are 2 7 R 8 Si g 67 EJCMR SPECIAL ISSUE, 2 wwwejcmrorg 6

5 Significance From the above table, it can be inferred that the null hypothesis for debtors turnover ratio is rejected since the significant difference of the same is Polaris has the highest debtors turnover ratio than the other selected IT companies Investment Turnover Ratio Ho: On an average, all the companies have equal investment turnover ratio Table ANOVA for Investment Turnover Ratio D f Ratios Category Sum of squa res Fixed Assets Between Groups 3 Turnover Ratio Within Groups 72 Total Total Assets Between Groups Turnover Ratio 2 Within Groups 37 7 Total Asset Turnover Between Groups Ratio 3 Within Groups Total Mea n squ are R Sig Significance With reference to the fixed assets turnover ratio, the significant difference is, which is lesser than, thus the null hypothesis is rejected The total assets turnover ratio has a significant difference below, and the null hypothesis is rejectedtcs has higher fixed asset turnover ratio and asset turnover ratio than the other companies NIIT has higher total assets turnover ratio than the remaining four companies The significant difference of assets turnover ratio is below hence, the null hypothesis is rejected The asset turnover ratio has found high for Infosys and followed by TCS Profitability Ratio Ho: On an average, all the companies have equal for Operating Profit and Net Operating Profit per Share Table ANOVA for Operating Profit and Net Operating Profit per Share Ratios Category Sum of D Mean F S squares f square i g Operating profit per share (Rs) Between Groups Within Groups Total EJCMR SPECIAL ISSUE, 2 wwwejcmrorg 6

6 Net operating profit per share(rs) Between Groups 826 Within Groups Total Significance With respect to operating profit per share, the significant difference is so the null hypothesis is rejected as it is below the standard of Also it has been observed that operating profit per share has been observed to be the highest for Infosys at 7 followed by TCS at 7From the figures, it is clearly understood that the significant difference is extremely vast in the above given data The net operating profit per share also has a significant difference of which once again indicates that its null hypothesis is to be rejected Infosys shows higher net operating profit per share followed by NIIT, TCS (2), Wipro (28) and Polaris (88) Suggestions The current ratio of Wipro for the entire years of study is below the standard ratio 2:The Company should make an attempt to raise extra finance or extend the time it takes to pay creditors The companies showing liquidity much above the standard rate should ensure that their finance is not getting tied up in their current assets The operating profit per share and the net operating profit per share of Polaris being extremely low, needs to be boosted Polaris exhibits a very low assets turnover ratio which indicates that the assets of the company are not being put to efficient use in order to generate sales Polaris needs to study all the asset categories of the firm and analyze its usage, after which it needs to structure a plan in order to put all its assets to efficient and effective use Conclusion The growth of IT industries get attention from every corner, ie investors, job seekers, government, competitors, etc and all wants financial analysis of the company for various purposes The present study examines the growth and performance of selected IT companies in India The liquidity and profitability positions of Infosys, TCS and Wipro are found to be better, when compared to Polaris and NIIT Polaris should concentrate on their liquidity and profitability position to enhance their business prospects IT sector has made a significant contribution to India s economic growth in terms of GDP increase, foreign exchange earnings as well as employment generation It is very important that while investing in a company, an investor selects a sector, where the long term future prospects are bright So, the IT sector is expected to have good growth in long run and it is also equally important that the company should have an excellent financial track record for future prospects to meet their competitors as well as benchmarking performance to grow further References [] AshishArora A,VS Arunachalam, The Indian software services industry, Journals of Information Technology and International Development, vol3,, pp [2] Bhavesh Chadamiya, Dr Vijay Pithadia, A Study on Management of Working Capital in Selected IT companies in India, National Monthly Referred Journal of Research in Commerce & Management, vol, Issue no, 2, pp3 [3] Dimple, Ritu Jain, A Comparative Study of Working Capital Management of Infosys and Tata Consultancy Service Ltd, GRAGlobal Research Analysis, vol2, issue 2, Dec 23, pp2 [] FoziaMehtab and Arun K R Koushith, An Analysis of Financial Statements of Public Sector Enterprise(with special reference to Wipro Ltd), VSRD International Journals of Business and Management Research vol2(7), July 22, pp3332 [] Mishra, Vishal, A Study of Performance in Indian Software and Services Industry, Journal of Regional and Sectorial Economic Studies, Vol, Issue, 2, pp 6 [6] NirupamBajpai and VanitaShastri, Software industry in India: A case study International Journal Software Studies, Vol 3, issue, March, 2, pp3 [7] Pratibha Jain, Megha Mehta, A Study on Critical Analysis of TCS, IOSR Journal of Business and Management, Vol 6, Issue 2, 2, pp78 [8] Rishi Dave, Patterns of Success in the Indian Software Industry, VSRD International Journals of Business and Management Research, Vol36, Issue, June 3, pp [] wwwmoneycontrolcom [] wwwinvestopediacom [] wwwacademiacom EJCMR SPECIAL ISSUE, 2 wwwejcmrorg 62