Why is Accenture's Market Cap Less Than Infosys'?

Accenture’s (ACN) market cap, as of June 12, is 23.54 billion; Infosys’ (INFY) market cap is $29.12 billion. Below are the recent financial figures of both the companies :

Accenture (Ending Aug-31, 2006)

Revenues - $18.2 billion

Gross profit - $4.99 billion

Operating income - $1.84 billion

Net income – 973 million

Shares outstanding : 593 million

Infosys (Ending Mar-31, 2007)

Revenues - $3.09 billion

Gross profit - $1.31 billion

Operating income - $852 million

Net income - $852 (Because the other income compensates the Income tax expense. Both are $84 million)

Shares outstanding : 571 million

Based on the above data, both companies' EPS is somewhat the same but Accenture’s market cap is 20% less than that of Infosys. The most obvious reason one can think is that Infosys’ business model of outsourcing is the best in the world and this is the reason the market is ready to pay a high premium for its stock. Following are a few points that contradict that theory.

1. Accenture does more outsourcing than Infosys. The myth is that Infosys, along with Tata consultancy services and Wipro, is part of the elite club of top outsourcing companies. But according to figures, Accenture beats all three in terms of outsourcing revenues. Accenture’s outsourcing revenues were $6.75 billion, compared to Infosys’ total revenues of $3 billion

2. Customers are willing to pay more for Accenture’s outsourcing services than Infosys'. Accenture has a total of 140,000 employees worldwide. As a rough estimate, about half of those employees are part of the outsourcing group; this makes its tally of outsourcing employees equal to that of Infosys’ 70,000 employees.

As Accenture’s outsourcing revenues are double that of Infosys, this means that the billing rate per person for Accenture’s outsourcing staff is almost double than that of Infosys.

3. Accenture is not as dependent on H1B visas. Outsourcing is based on an onshore/offshore model. Infosys has 7,100 employees working on H-1 B visas in USA. This has become a big issue in USA politics as some politicians are questioning its use.

Accenture does not publish the number of people it has in the USA on an H-1 B visa, but analysts feel they too have more than 2,000 employees on an H1B visa. However, Accenture also has around 30,000 employees who are USA citizens or permanent residents. This means that if there are any changes in immigration laws, Accenture won’t be impacted as much as Infosys will.

4. Accenture is a truly global company as far as employees are concerned. One of the big issues in IT outsourcing is finding qualified employees. A good strategy to mitigate this risk is to have a diverse global employee base, Accenture’s headcount is 140,000 employees worldwide, with 30,000 in USA, 30,000 in India and the rest spread out all over the world. This is compared to Infosys’s strength of 72,000 employees, with just 15,000 being non Indians.

5. Accenture's bread and butter is not outsourcing but consulting. If IT outsourcing and business consulting can be compared with the business of selling ice-cream and meals, then Accenture considers itself in the business of selling meals and offering good ice-cream to its customers at the end of their hearty meal. In other words, its business strategy revolves around its niche of business consulting, and IT outsourcing is an extension of it, whereas Infosys is going the other way around. It first established itself as a good place to hang out and have ice cream and now it wants to promote its new menu of some delicious meals.

So by applying our common sense of the restaurant business, it seems Accenture is better poised to sell more ice cream than Infosys selling more meals.

So what is Accenture lacking? The biggest advantage that Infosys still has is its hefty profit margin of 27%, compared to Accenture's mere 6.5%. What this means is that Accenture has to get four times more business than Infosys to earn the same income.

ACN/INFY 1-yr comparison chart

Disclosure: none

Comments

[Ciba Gator]

Wrong market cap for Accenture. They are around $34 billion or so. Shares outstanding around 850 million.

[Dayanand]

Giba,
Please refer to Accentures's stock details at Yahoo Finance finance.yahoo.com/q?s=...
In the box that shows the current stock price , you can also see the market cap.As of this morning at 10:11 am its market cap was $23.96 bn
Dayanand.

[Ciba Gator]

Dayanand,
There is no substitute for doing the research instead of relying on automated tools populated by untrained employees like Yahoo Finance. Please refer to the latest Accenture SEC filing or earnings press release in which you can see that the actual diluted shares outstanding are 867,330,893. At the current price of around $40 per share, that gives the company a market cap of around $35.7 bn.

newsroom.accenture.com...
Ciba Gator

[Dayanand]

Ciba,
I guess you are confused between the total number of shares and the number of shares outstanding. If you refer to Accenture's SEC filings (which I believe should be the most accurate source of info). Accenture has two classes of shares. They are Class-A and Class-X. Following are their details.

I have referred to Accenture's latest 10-K report for the following analysis
www.sec.gov/Archives/e...

1. "The number of shares of the registrant’s Class A common shares, par value $0.0000225 per share, outstanding as of October 12, 2006 was 584,360,126 (which number does not include 35,306,040 issued shares held by subsidiaries of the registrant). The number of shares of the registrant’s Class X common shares, par value $0.0000225 per share, outstanding as of October 12, 2006 was 237,733,470."

2. Further down in page 13 of the SEC 10-K report following is mentioned in the section ORGANIZATIONAL STRUCTURE

"Prior to our transition to a corporate structure in fiscal 2001, we operated as a series of related partnerships and corporations under the control of our partners. In connection with our transition to a corporate structure, our partners generally exchanged all of their interests in these partnerships and corporations for Accenture Ltd Class A common shares or, in the case of partners in certain countries, Accenture SCA Class I common shares or exchangeable shares issued by Accenture Canada Holdings Inc., an indirect subsidiary of Accenture SCA. Generally, partners who received Accenture SCA Class I common shares or Accenture Canada Holdings Inc. exchangeable shares also received a corresponding number of Accenture Ltd Class X common shares, which entitle their holders to vote at Accenture Ltd shareholder meetings but do not carry any economic rights."

Please note that the above statement states that the Class X shares donot carry any economic rights, so we cant count them for calculating the market cap.

3. This is futher explained in the next para which is titled "Accenture Ltd Class A Common shares and Class X common shares". It is mentioned that the holders of Class X common shares are not entitled to any dividends.

Question : What kind of shares are traded in NYSE
Answer : In page 14 it is mentioned that Class 'A' common shares are publicly traded in NYSE.

4. So in terms of calculating the market capitalization the only shares to be counted are the ones are the Class-A shares that are traded in NYSE. This means its market cap at $41.00 / share is
584,360,126 x 41.00 = $23.95 bn

Thanks,
Dayanand.

[Ciba Gator]

Nice try, but the Class X shares have nothing to do with it. Please read up on the SCA Class Class I and Accenture Canada Holdings shares. These shares are held by current and retired partners and are convertable into Class A common shares. They are not freely traded, so they are classified as minority interest. Page F-15 (footnote 2 to the financials) of the 10-K will help you out.

[Dayanand]

Well my point just was that the market cap which I was referring to , corresponds to the publicly traded shares of ACN, which in turn were compared to the market cap of publicly traded shares of INFY.

[Ciba Gator]

I don't really understand your analysis in that case. The only people who care only about the publicly traded shares are shorts who need enough stock to borrow in order to sell it short and strategic investors who wish to accumulate enough shares to gain a board seat or gain control of a company. Your headline, at the very least, is incorrect.

Not to nitpick, but if you were really trying to compare the "market cap" for the publicly traded shares only, technically you should have used a much smaller number for Infosys' share count since very few of the shares actually trade as ADS' in the US (for an apples to apples comparison to the Accenture shares that trade in the US).

[Dayanand]

I dont agree with your view on publicly traded shares. I guess it is common sense that if you have more shares in supply the stock price goes down and vice versa. So I guess any investor would be concerned about the number of publicly shares traded for that stock.

Ciba,
Let us take the example of Company 'A' and 'B'. They both have 10mn shares outstanding at the beginning of the year. At the year end if company 'A' gives out 1 million shares as stock option to employees then I am pretty sure it is going to impact the share price of company 'A' because the supply of shares has increased.

So if tomorrow Accenture decides to make public all its "SCA Class-1 shares" which you had referred to in your earlier post, dont you think that Accenture's stock price would go down because the supply of shares in the market would have increased???

[Ciba Gator]

Yes, if Company A gives out 1 million more shares then the fully diluted number of shares outstanding will increase, thereby reducing the value of the stock.

Accenture does not OWN the SCA Class-1 shares. Those are already owned by third parties. They are ALREADY in the share count. Accenture cannot decide tomorrow to make those shares public -- they have no control over them.

I do agree that the share price could go down if all of the SCA shares were to suddenly go on the market tomorrow--that assumes that the owners (not Accenture) would want to sell all their shares tomorrow. But this assumption needs to be made about Infosys' shareholders too, in that case. Infosys management owns over 10% of their shares, Fidelity owns around 2%, etc. Should we be excluding all these shares since they are not "trading"?

[Dayanand]

Ciba,
I guess we are are diverting our attention to the initial discussion. : If we want to come to any conclusion we should decide on the following points.

1. What is the number of shares outstanding for Accenture.:
In my opinion it is 584 mn shares which have been stated in its 10-k report. But in your opinion you feel the number of shares outstanding is 850 mn because you are also counting the Class-X shares which actually are not traded and dont have any economic value. they just have voting right.

2. What should be the formula to calculate market cap.
In my opinion it should be the number of shares publicly traded x stock price.
In your opinion it should be all the shares for the company x stock price.

[Ciba Gator]

Let's just deal with facts.
1) The number of shares outstanding are 867 million. This has NOTHING to do with Class X. Please refer to my post above regarding SCA Class I and Accenture Canada shares. These shares have voting rights and share equally in the economics of the company (including participating in dividends).

2) There is no "opinion" required in calculating "Market cap". This is a well defined investing term that is simply the stock price times the total number of diluted shares outstanding. The number of shares publicly traded is referred to as the "float" and it has absolutely no bearing on the quantitative value of a company.

[Dayanand]

Mentioning of facts, I guess you are not right about the economic value of shares. I had mentioned this in one of my earlier reply as well.

THE LAST LINE CLEARLY STATES THAT THE CLASS I SHARES DONOT HAVE ANY ECONOMIC VALUE
======================...

page 13 of the SEC 10-K report following is mentioned in the section ORGANIZATIONAL STRUCTURE

"Prior to our transition to a corporate structure in fiscal 2001, we operated as a series of related partnerships and corporations under the control of our partners. In connection with our transition to a corporate structure, our partners generally exchanged all of their interests in these partnerships and corporations for Accenture Ltd Class A common shares or, in the case of partners in certain countries, Accenture SCA Class I common shares or exchangeable shares issued by Accenture Canada Holdings Inc., an indirect subsidiary of Accenture SCA. Generally, partners who received Accenture SCA Class I common shares or Accenture Canada Holdings Inc. exchangeable shares also received a corresponding number of Accenture Ltd Class X common shares, which entitle their holders to vote at Accenture Ltd shareholder meetings but do not carry any economic rights."

[Ciba Gator]

THE LAST LINE CLEARLY STATES THAT THE CLASS X SHARES DO NOT CARRY ANY ECONOMIC RIGHTS.

Look, Dan Menashi, you are showing a great deal of ignorance on this subject and I am embarrassed for you. Please do your homework. Call Investor Relations and ask for some help on this subject: 917 452 5106.

[Dayanand]

Ciba,
please dont get frustrated, first of all no sensible analysyt would call an investor relations dept for getting such a basic information , its is available in the 10-k report published in SEC .

You have already agreed that the Class-X shares donot carry any economic value, now please do me another favor. Please read the first page of the 10-k report available in the following link
www.sec.gov/Archives/e...

Following is the verbage where it is clearly stated that :

"The number of shares of the registrant’s Class A common shares, par value $0.0000225 per share, outstanding as of October 12, 2006 was 584,360,126 (which number does not include 35,306,040 issued shares held by subsidiaries of the registrant). The number of shares of the registrant’s Class X common shares, par value $0.0000225 per share, outstanding as of October 12, 2006 was 237,733,470."

I am pretty sure you would come up with the comment that "Class X shares have nothing to do with the number of shares outstanding".

I guess if you want to deny the facts then I cant help you.
Thanks,
Dan

[Ciba Gator]

Dan,
For accounting purposes the SCA Class-1 shares are considered minority interest (even though, as a class, they are not controlled by a single entity). This is what is tripping you up.

Answer this: If a private equity firm wished to acquire 100% of Accenture, how much would they have to pay (ignoring acquisition premium, etc.)? If you beleive that $24 billion is the right number, then you should start assembling a group of investor IMMEDIATELY! This would be the bargain of the century.

Dan, I will stay subscribed to this thread in case you have anything else to say, but until you check your facts by calling investor relations (they are there to help investors and analysts--even the sensible ones) or by speaking to an investment professional who knows Accenture's stock, I cannot keep banging my head against your wall of ignorance. I gave you the number above--they are quite friendly.

[mike.nim]

Guys,

Different analysts have different valuation parameters for reaching a value. They, almost always, agree on at least the number of shares outstanding. But we've got to realize that different analysts have different estimates and expectations about their inputs.

According to me, shares outstanding for ACN are 778M and Stock price of $41.2, giving the stock a market cap of $32.1B. For Infosys, a stock price of $49.7 and shares outstanding of 551M - giving the stock a market cap of $27.4B.

My advice? Don't use Yahoo Finance for this. Try Google Finance (finance.google.com), or Reuters.

Hope this helps.

[Ciba Gator]

Mike, I appreciate the attempt but this is in error also.

The 778 million is the sum of Class A and Class X, but Class X shares, despite being listed on the cover of the filings for regulatory purposes, do not count as tradable shares. They do not have voting rights or economic rights. Only the SCA Class-1 shares are convertable 1-for-1 in to Class A shares, which are the ones that freely trade. The SCA shares have full voting and economic rights.

Here's a clue for you all. Look at the income statement. At the bottom there is a line called Income before Minority Interest. That is how much money the company is making. The "Minority interest" that is then subtracted to arrive at net income represents earnings attributable to the 263 million shares that are represented by SCA and Accenture Canada shares. This minority interest is what has you guys confused. It is nothing but the collection of thousands of Accenture investors (mostly employees/retured employees) who own SCA or Canada shares. They are shareholders like anyone else except that there are certain distribution restrictions on their shares (that lift gradually over time). Accenture cannot control those shares. They can buy them back like any other share if they can convince the owners to sell.

Class X is nothing. It was used as a stub in the past for certain tax issues. Accenture has been aggressively redeeming them for $0.0000225 each to get them off the books (41 million retired in the February quarter alone).

[mike.nim]

I'm not arguing over Class X, Class 1 or Class A shares. As an investor, I don't care for that. As an analyst, I don't have time for arguing over what all classes constitute shares outstanding for a company. All I know is when I speak to investor relations and they tell me what the shares outstanding are... and I recheck that number from 3 different financial reporting websites - I know I have the right market cap.

[Ciba Gator]

Mike, I call shenanigans on you. Name (initials to protect their privacy if you wish) the IR person you spoke with. I don't think you got 778 million from anyone in Accenture IR. That is something Reuters created and any service that uses Reuters data repeats. I've spoken with IR within the past three months (S.K.) and the 778 million is -- FACT -- incorrect.

[mike.nim]

Ciba,
Have you been thinking of going into fiction writing? Oh come on now, you can tell me. If not, then the least you could've done before telling that I'm lying, is to make the effort to go to Reuters and see that the market cap they've listed for Accenture is $24.9B and the market cap I've calculated is $32.1B. If you try to see, the difference is because of shares outstanding; that of 778M. Which, again if you check Reuters, has not been taken from Reuters!

I've said what I wanted to say - Accenture capitalization is greater than Infosys; contrary to this article. If you still believe what you do... there's nothing more I can do.

[Ciba Gator]

I'm staring at Reuters numbers right now and there are two share counts:
Total Shares Outstanding: 778.2
Diluted Shares Outstanding: 867.3

Mike, I am in AGREEMENT with you that Accenture's market cap is greater than Infosys, contrary to this article. That was my original argument, which the original writer has been vehemently denying. I'm also saying that your calculation is incorrect and that the correct Market Cap is closer to $36 billion based on 867 million shares.

Like I said, you did NOT check your numbers with Accenture investor relations as you claimed. Here's the number: 917-452-5106.

No Fiction, just the FACTS.

[Dayanand]

Ciba,
As you have mentioned about calling the Accenture IR twice. I was wondering if it would be a good idea for you to call them and inform them about their market cap in Yahoo Finance's website.

I am just curious that how come Accenture's IR is ignoring this issue, after all yahoo finance is one of the most popular websites and any dicrepency in its information would be taken seriously by the parties that are affected by it.

Thanks,
Dan

[Ciba Gator]

Dan,
I cannot speak for Accenture IR. Unfortunately there are many, many data services out there (Thomson, Reuters, Yahoo, Google, Excite, AOL, CapitalIQ, Bloomberg, First Call, The Markets.com, etc.) and on any number of companies there will be material errors in their databases, especially since those databases are increasingly being populated automatically or by (otherwise intelligent) people who are not experts in the subject matter. If I look at 100 companies, I will probably be able to find 100 errors, some perhaps minor, in their data on the various data services. I can't speak for Accenture's IR, but I suspect that they don't have the time or desire to hunt down and correct every error. But perhaps they would care. Perhaps in the course of your conversation with them, when they are helping you understand their share count, you can point Yahoo's error out.

By the way, Yahoo Finance is free. You get what you pay for.

[Dayanand]

so if Accenture IR does not care then why are we arguing about???.....Well if I apply your freebie theory then seekingalpha is also FREE so you get what you pay for....HA HA HA

[Ciba Gator]

Dude, you've got your picture on the top of this posting and your name attached to each article. It's your reputation, not mine. If you're trying to say that your advice and insights are worthless because seekingalpha is free, then I guess that we shouldn't waste our time reading what you write. I only posted because you seem to put up a lot of information about this sector and I thought that you actually cared about informing and educating.

Garbage In Garbage Out. I'm disappointed.

[Dayanand]

Hi Ciba,
Please dont get furious, I guess it is for people to decide if my posts are worth there time.Even if you would have written great praises about my analysis that would not mean anything to my readers.

Because I guess they are smart enough to figure out what makes sense, in fact they might find your remarks about Yahoo finance really amusing because most of my readers are directed from the financial blogs section of Yahoo Finance which I guess they find informative.

Thanks a lot for your time on writing about my blog.
Dan.

[fsaldanha]

FWIW, here is what the Value Line says about this issue:

Common shares: 811.6m (includes 184.9m class X shares)

And in a footnote: Including class A shares, class X shares and rest. (?) shares (related to class A). Class A shares have one vote, dividends, Class X shares have one vote, no dividends.

And further down:

There are 867.3m fully diluted shares