How market-cap of CNX IT stocks moved in last three years

Riken Mehta
Follow me on Twitter @mehtariken

IT stocks have been on a roll for several months now on renewed optimism in the developed economies of US and UK that will lead to more outsourcing of software contracts to Indian IT companies coupled with rupee depreciation. Let's analyse how market-cap of CNX IT companies have moved in last three years.

Infosys market-cap has surged only 7 percent in last three years as company lagged its peers with slower revenue growth, falling margins, higher attrition rate and reluctance to avoid big ticket acquisitions and sticking to old strategies. TCS   market-cap is 115 percent higher compared to Infosys today while the difference was merely 7% in 2011.

TCS topped Infy as IT bellwether and surprised the street every quarter with its consistent strong performance despite weak macro environment in US and UK in 2011 and 2012.

HCL Tech   has emerged as a dark horse in the entire pack trebling its market-cap in last three years. Improved business strategies, strong leadership, acquisition of higher bracket clients and clocked higher EBIT margins over the years.

Infosys current market-cap of Rs 214078 crore is less than TCS market-cap in Jan 2011 (Rs 226656 cr). Infosys has not even managed to cross TCS market-cap (in 2011) in last three years.

TCS current market-cap is more than combined total market-cap of remaining 18 CNX IT stocks (barring Infosys) In 2011, TCS market-cap was 14% higher compared to Infy. Today TCS market-cap is 115% higher compared to Infy.

Infosys market-cap has surged only 7% in last three years. It has underperformed 14 IT stocks in CNX IT index in last three years.

The difference of market-cap between Wipro (3rd largest) and HCL Tech (4th largest) was 74% in 2011. Today the gap between two has narrowed to 32%.

Tech Mahindra 's market-cap was less than that of Mphasis in Jan 2011. Today, Tech Mahindra's market-cap is 5 times that of Mphasis. In 2011, Mphasis was 6th largest company in terms of market-cap and today Tech Mahindra is 5th largest while Mphasis is 7th.

Tech Mahindra’s market-cap was less than combined market-cap of MindTree , Vakrangee , Hexaware, CMC and KPIT . Today Tech Mahindra’s market-cap has nearly doubled the combined market-cap of MindTree, Vakrangee, Hexaware, CMC and KPIT.

Vakrangee’s market-cap has surged from Rs 700 cr in (Jan 2011) to Rs 4700 cr (nearly 600%) in last three years.

In 2011, Vakrangee was not even a part of CNX IT index and today its 10th largest IT stock in terms of market-cap (Top 10 IT stocks).   Only 5 CNX IT stocks out of 20 have posted negative returns in last three years. Core Education has lost 91% of its market-cap in last three years. (From midcap it has become smallcap stock)

CNX IT index at multi-year high; Infosys, TCS, HCL Tech, Wipro at multi-year high

Riken Mehta
Follow me on Twitter @mehtariken 

IT stocks have been one of the biggest wealth creators for investors over the years. CNX IT index, barometer of IT stocks has recorded fresh highs since 2004. The index has gained 211 percent in last nine years while rupee has depreciated 40 percent in the same period. Heavyweights like Infosys, HCL Tech, TCS and Wipro are trading at multi-year highs as strong US economy coupled with weak rupee favours IT stocks.

N Chandrasekaran, CEO and managing director of India's largest IT software company TCS also painted bullish picture for FY15. “FY15 will be a better than FY14 as per the initial talks that we have had with our clients. We expect a good growth overall -- retail, consumer goods and services, utilities, pharma, financial services, etc," N Chandrasekaran told reporters.

 

Infosys margins at all-time low, HCL Technologies' at all-time high

 

 Riken Mehtamoneycontrol.com

The opinion on the street is unanimous for IT sector Infosys  is an underperformer, HCL Technologies  a dark horse and TCS  a consistent outperformer. This has been the view for several quarters now. Infosys’s problems are company specific and clearly the strategy of preserving margins at the cost of revenue growth has backfired.

The EBIDTA margins of Infosys in Q4 slumped to an all-time low of 23.6 percent from 31.07 percent in September 2009, best in the industry at that time. In the same period (Sept 2009 Mar 2013), HCL Tech’s margins improved by 570 basis points to 21.33 percent, close to its all-time high margins of 22.19 percent in the previous quarter.

Infosys has also lost its market share to rivals like HCLTech, TCS and Cognizant. It has been criticized for not utilizing its huge pile of cash reserves for acquisitions compared to HCL Tech and TCS who have acquired several companies in last few years. The margins of Infosys will further contract as the company is now focusing on stepping up revenues but analysts feel it’s a little too late.