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Topic: IT Companies - at crossroads

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FutureBull
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Posted: 15/Jan/2012 at 2:23pm

IMO, the acquired biz would never get the same multiple at least in short term. In numerous occasions in the past big-bang acquisitions have been taken negatively. Look at HCL it acquired Axon a very critical gap(SAP implementation) in offering was filled and now the story is getting better. Similarly Cognizant acquired few small consulting companies and they are well on track.
In INFY's case everyone expects them to acquire some good biz. If they happen to do like one enterprise soft. implementation firm or a credible consulting org., it would actually rally in anticipation of better days.

‘The market always does what it’s supposed to — BUT NEVER WHEN’.

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rajeshb
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Posted: 15/Jan/2012 at 9:02pm

While companies like Infy have been talking about transition in to a non-linear growth using consulting, I don't think this transition will be very easy. I work in a bank IT and if I think of Infy, I will think of low cost development and maintenance - not consulting. I would probably use Infy consulting resources for business analysis kind of work in a project, but for business case for new product launches and strategy roadmaps etc, I would think of delloittes and IBMs of the world. This association of low cost developer is hard to kill.

I think it would be more worth while for Indian IT companies (especially the cash rich ones) to try and make in road in to product development and go aggressive in this field. This is where they can use the cash effectively to buy the product capability.

It is very interesting how Indian managements think and how some of their much larger counterparts in the west (with whom they are competing effectively) think. Before i-flex was bought over by Oracle, one of the i-flex products was in direct competition with Mantas, which almost always managed to beat i-flex in bids. This went on for some time and come Oracle - they simply asked i-flex management to buy Mantas!

As Manish said in the opening post, Indian IT companies are indeed at cross roads and new winners and losers will emerge from here.

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datta.supratik
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Posted: 15/Jan/2012 at 9:39pm

Leadership here is constantly lagging. Well let us say why leadership, the entire quality of resources are lagging. At points the companies need to understand that the horizontal growth is not enough.

'The unitary method will always not hold - 1 mother prepares a baby in 9 months do 9 mothers can prepare a baby in 1 month'

Well, that is always not the case in this industry.

Although most of the firms have introduced incentives/variable components which they can quickly not pay out if the profits are suppressed. This is why they would always hold margins.

In addition PWC and TCS always have option to degrade salary (wouldnt want post links her but search on goggle.

Never forgetting that the attrition and lay offs are also the highest in this industry.

Lets dance the party in IT off shoring as long as we can.

~Supratik

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subu76
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Posted: 16/Jan/2012 at 6:52pm

Originally posted by prabhakarkudva

The only way they can retain the above average PEs is to increase payout and buy back shares.The ones who do that should not see much derating IMO.

Hey, Infy has been a 20-24 multiple stock roughly.

If they increase their payout what do you expect the earnings multiple to become?

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prabhakarkudva
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Posted: 16/Jan/2012 at 8:23pm

I meant, to retain the PEs around these levels subuji since we are discussing if these above average PEs can be sustained by IT companies "reinventing" themselves.

Take your chances and keep them in a box until a quieter time.

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subu76
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Posted: 16/Jan/2012 at 8:30pm

Originally posted by prabhakarkudva

I meant, to retain the PEs around these levels subuji since we are discussing if these above average PEs can be sustained by IT companies "reinventing" themselves.

Cool....got it

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datta.supratik
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Joined: 23/Apr/2010
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Posted: 16/Jan/2012 at 9:04pm

The word 'reinventing' is a little bit puzzling.
I believe that most of our firms is service oriented and we have very few if any companies that actually build product or result. I mean a true OEM like Samsung and Infosys.
I wonder how this sector would re-invent itself...I probably dont know that is why I am puzzled..excuse plz
The sector should however continue to generate returns..look at IBM stake buy by Buffet.

~Supratik

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itpro
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Joined: 10/Mar/2011
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Posted: 16/Jan/2012 at 10:38am

Originally posted by manish_okhade

1) Leadership crisis - The leader generation who has determinedly driven the business is either retiring or retired. IT Service business is such type that it requires excellent leadership skills which is anything but rare to find. As on date we are clearly seeing the lack of luminary leadership in major players.

2) People factor - Go to any good campus, all top players join the companies but big daddies of IT. So due to lack of better offerings as compared to others, IT daddies are getting 2nd/3rd rate entry level players. IT companies still hope to see their future CEOs coming from among this new generation!

Well said Manish !!. I don't know about PE rating etc but IT companies are at cross roads... Leadership crisis are created by these biggies. They are focusing on cost and margin... For them every leader who is not able to get the margin is bad... and pressure is built-up... so he prefers to go to some other company. What is left is a crowd who just thinks from margin front and need not be a good people manager. Ultimately it is people's business... If they are not taken care... you are out of the game.

The companies have become so huge but there parmeters to operate them is same. They want to do game changing investment at the cost of the customer because otherwise there margin will get impacted.

Edited by itpro - 16/Jan/2012 at 10:40am

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