Notes on Indian equities, sectors and economy

Archive for the ‘Technology’ Category

Infy Equation: 1 NRN greater than 7 business heads

Posted by fairval on January 11, 2014

A good chart from a broker report which shows the avalanche of top level resignations at Infy since the advent of NRN 2 (NRN + NRN Jr).

While, Infy is back to beating expectations, it is not yet outperforming. Over the last 365 days, CNX IT is up 60%, Infy is only up 53%, so it is still underperforming. Amongst key peers, TCS is up 74% and HCL Tech is up 104%. So while Infy’s stock seems to have revived compared to its own slumberous ways, NRN has still to show he has what it takes to make Infy the bellwether. Looks like a tough task, given the rate at which seniors are decamping.



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Changing equation in Indian IT

Posted by fairval on April 27, 2013

The following 2 graphs show the changing equations in India IT. Infy’s EBITDA margins have slid steadily in recent years. In FY13, TCS matched Infy in EBITDA margins.

EBITDA margins for top 4 Indian IT Cos


The more noteworthy point is the dramatic slide in Infy PE. At 12.5x expected FY14 eps, Infy now has a large discount over TCS (while hcl tech looks similar, it is FY13e, so on FY14 basis there should still be some discount to Infy).

Forward PE





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Infy Results prove commodity IT story is over

Posted by fairval on April 13, 2013

InfyInfy’s results make one thing amply clear – the Indian commodity IT story is over. This was beginning to appear so in the last 2 years, these results drive the point home.

That is not to say that the industry is facing de-growth, but clearly it is will now no longer be a growth sector. The industry will grow in line with growth in global IT spends, which is at best low double digits,  most likely single digit in dollar terms.

Within the top cos, Infy is clearly struggling more than others. It is no longer able to command a premium, its margins are in threat. These points to one thing: its much vaunted global IT service delivery model – is now mostly commoditized.

A mature industry, delivering an undifferentiated commodity: that is what Indian IT has come to. Infy, and others, are trying hard to make a move into consulting, and increase value add to the client. The results from this are yet to show, it seems. They are a long way away from becoming an IBM.

So how will companies create value? I think focussed midcaps firms may do better than large caps, as KPIT is showing. Also, like in any mature industry, M&A is unavoidable. Infy can no longer bank on organic growth to deliver alpha.

Right now, the best thing that Infy shareholders can hope for is – that Infy itself gets acquired.  With performance meandering, and a horde of cash, it would have been in play if this was US.

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Arvind Rao’s greek tragedy at Onmobile

Posted by fairval on August 3, 2012

Great article in Forbes India explaining what went wrong with Onmobile. Really tragic, since it all started with honest intentions..Rao borrowed money to buy his own stock, and got caught in a debt spiral.. (Great job, IG and team)

Why Arvind Rao and OnMobile went down a dark road


On November 23, 2010, Arvind Rao, the 53-year-old co-founder and CEO of OnMobile, bought approximately 6 lakh shares of his company from the open market, representing a little over 1% of the company’s total shares. Rao already owned over 10% of the company’s shares. At Rs 277 a share, he had to pony up nearly Rs 16.5 crore to acquire them.

He went ahead and borrowed money to buy the shares, thinking nothing of the interest it entailed or the fact that he’d need to put up nearly half his existing shareholding as collateral. That would turn out to be the worst decision he ever made…

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TCS vs Infy – a 2 year old post

Posted by fairval on July 18, 2012

After Q1 results, the media has gone ballistic trashing Infy. Most papers wrote about how TCS was the new bellweather, displacing Infy.

Was checking some old posts, and found this written in July’10.

TCS versus Infy, and TCS is winning

from the post — ‘When it comes to large cap Indian IT, the question for investors, particularly large investors, is mainly which stock to own – Infy, or TCS/Wipro. Infy has always been the favorite. But shud it remain to be so?  U may want to ask if u see the above data.’

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And we got Zensar right..

Posted by fairval on July 18, 2012

Thankfully, we dont track Infy, otherwise we could have been in the 9 out of 10 bracket.

We did do a report on Zensar on 23 Aug 11, at a price of Rs 127. At that time, we put a target price of Rs 230 for Mar’13, 80% upside in absolute terms. A high target price like this is not the practice in the broking industry. We raised the target price to Rs 275 in Feb’12, when the market price was Rs 168.

The stock hit a high of Rs 279 a few days ago. Just today saw a report by Religare, with a target price of Rs 350 for Marc’13.

So this was a bit of self promotion, but we had the only report on Zensar in 2011. So analysts in the case of Zensar were 100% correct (1 out of 1!)

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Only 1 in 10 analysts got it right on Infy?

Posted by fairval on July 13, 2012

Only 7 of the 70+ analysts tracking Infy had a Sell or Underperform reco as on July’12.


A Barclay’s India Strat report dated 9 July actually had Infy in top 10 recommendations!

Posted in Technology, The Science of Investing, What was that Again? | 1 Comment »

Infosys valuations steadily sliding

Posted by fairval on April 16, 2012

Infy valautions have now come down to about 14x FY13x eps (Rs 160-170 range).


This is now lower than TCS and Wipro.


The question is – whether the structural change the IT services business, and more so Infy, is going through, is over. One repeatedly hears that the days of 30% plus EBITDA margin are over. 20-25% is more sustainable for IT Services. Infy is a long way away from there. Even TVS is around 29%.

So Infy may not be quite have reached the bottom of the trough yet. Though, rupee can save it for sometime, if it dives below Rs 55 in 2012.

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Good reporting example – KPIT

Posted by fairval on March 15, 2012

Acquired company performance

Rare to see this kind of slide.

Posted in Corporate Governance, Technology | Leave a Comment »

3i Infotech in debt trouble – where’s the corporate governance

Posted by fairval on December 14, 2011

3i Infotech is in serious debt trouble, reports The Economic Times today.

Lenders, investors shun debt-laden 3i Infotech; prospect of distress sale looms

I had written earlier how 3i was a great example of a sleeping board (3i Infotech – An example of lax corporate governance) . Here, the chairman, CEO and CEO has unchanged for 8-10 years. It is clear they have practiced cowboy capitalism, and use public and borrowed funds, and run them to the ground. The destruction of other people’s money is simply amazing.

Yet, we have no change in leadership. How come these people havent been fired yet? Now, it appears the company is defaulting.

The ET story says: “The company has been facing a temporary cash flow issue as refinance is not happening on time for shorter maturity loans,” says V Srinivasan, managing director & global CEO of 3i.

3i Info was floated by ICICI Bank, and it no wonder it is still lending to 3i. The CEO is quoted saying “We have borrowedRs200 crore in long-term loans from ICICI Bank in October. Also, ICICI Bank is working on loan syndication for a long-term loan of Rs 300 crore. We are capable for paying the salaries through operations,” he adds

ICICI Bank is still the largest shareholder in 3i. Wonder if it is violating some RBI guidelines, or even corporate governance ethics, by continuing to support 3i at a time when no one wants to touch it. What’s it about ICICI, and corporate governance? The other company floated by it, First Source is in a similar mess.




Posted in Corporate Governance, Technology, What was that Again? | 1 Comment »