Dayanand Menashi

All That's Wrong with the AIG Bailout

Has anyone thought of the liability part of AIG's balance sheet and which are the companies that are paying it. As June-30 / 2008 it had a liability of $971bn. Out of which $162bn was long term borrowings. All the people who leant that money can just forget about it because it will be next to impossible to get money from its new owner.

Infosys Needs to Diversify Out of Body-Shopping

IT outsourcing has in itself become a "CENTER OF EXCELLENCE" and calling it bodyshopping shows the ignorance towards this new business model. Achieving success in this business is as tough as achieving success is any other kind of IT business like Hardware or software development.

I feel Infosys is in the right track and have created their own circle of competance. Any further advancement should be linked with their present competence.

The latest contract from Phillips is worth $250mn . I am sure any guy who works in IT would agree the degree of complexness involved in winning such contracts.

Everyone always talks about how INFY can adapt the model of Accenture and grow further, but I would say before attempting that they should first become India's#1 IT consulting company by exceeding TCS's revenues....

Stewart's Shop of IT Consulting

I guess you have not Understood Perficient's core competance.They are not in the market for the big IT outsourcing deals.They mostly deal with projects that need quick turnaround and can solely dealt with onshore teams.

Which IT Outsourcing Stock is the Best?

Madhusudan,
I agree with your point that the core competance of offshoring gained by the Indian IT outsourcing heavy weigths cannot be mimmiced by the MNCs in few years. They would take years before they can achieve expertise in outsourcing field.

Coming back to your point on which stock is best for investment, it should be kept in mind that not all good companies are good stocks to invest. The golden rule of investing is to figure out "IS THE STOCK UNDERVALUED COMPARED TO ITS INTRINSIC VALUE".

In order to explain my point: Just consider the case of Microsoft. It is one of the best companies in the world. Their growth has been phenomenal in recent years (24% growth compounded annually).Following is their growth of net income last five years.

2002 $5.3bn
2003 $7.5bn
2004 $8.1bn
2005 $12.2bn
2006 $12.5bn

Now looking at the stock price, it was $30 in may-2002 and was around the same price in May-2007. The reason being the stock has been overvalued last few years and the market has been contantly correcting its value by reducing its P/E. Which during the dotcom bust was around 84 and has come down to around 20 now.

Following are the P/Es of some of the leading outsourcing companies.

Infy P/E = 28.5
Wipro P/E = 27.4
Cognizant P/E = 36.3

IBM P/E = 17.9
ACN P/E = 19.5
EDS P/E = 18.2

I guess your analysis should be more on evaluating the P/E of the above mentioned stocks and figuring out if they would remain the same in near future.

visit me @ annualreportanalysis.b...

NetSuite: The Next Hot Tech IPO?

Asif,
Wonderful analysis.I got your bottomline that Netsuite's CRM and E-commerce capabilities. I just had couple of points to discuss.

1.As per your article the market for small sized businesses that use ERP and SAP was 31% of $12.7bn which is around $4bn. The projected growth rate is 11%. This means that to grow at present rate the company has to successfully acquire some small players. Any insight on this???

2. As per the S-1 filing the combined accumulated deficit has been $193mn. I guess this might continue in near future before they attain profitability. Let us assume that the net accumulated deficit reaches $200mn before they start becoming profitable. What will be the time frame required to generate $200mn cash???

Thanks,
Dayanand.
visit me @ annualreportanalysis.b...

How Much Longer Will Indian Outsourcers Offer Cost Advantages?

Sankar,
If you see my equation, it boils down to the fact that the USD will change from Rs 40 to Rs 23 in 10 years.This is based on the fact that USD was Rs 16 in 1990 and Rs 40 by 1998. So actually I am still conservative in my approach.

I considered 10 years experienced professional just as a benchmark.The 3-5 exp folks comparison will also be in a similar line.

D

How Much Longer Will Indian Outsourcers Offer Cost Advantages?

Deepak,
The gist of your reply what I understand is "VALUE ADDITION". I agree with you on that point.It is the oldest business rule that has never changed nor will ever change.In essence, till you bring value addition to your customers they will keep on coming to you.The day you stop it they will go somewhere else.

Till date the Indian consulting companies were bringing the value addition of "LOWER COSTS".But companies like Accenture, previously known as Andersen consulting were established in fifties and developed there expertise in helping the customers in improving their business processes.In fact in those days a consultant was purely hired for those reasons.

<b>FIRST PROJECT BY ARTHUR ANDERSEN :</b> Accenture originated as the consulting division of Arthur Andersen which was founded in 1913 by Arthur Andersen and Clarence DeLany as Andersen, DeLany &amp; Co. Its origin goes back to 1953, when General Electric (GE) asked Arthur Andersen to undertake a feasibility study about payroll processing and manufacturing automation using computers for GE's Appliance Park manufacturing facility near Louisville, Kentucky. Arthur Andersen recommended installation of a UNIVAC I computer and printer, and GE agreed, which is the start of what became the first-ever commercial computer in the United States. Joe Glickauf was Arthur Andersen's project leader for the GE engagement and was responsible for the payroll processing automation, launching the era of data processing. Considered to be the father of computer consulting, Glickauf headed the Arthur Andersen administrative services division for 12 years.

Accenture since its first project fifty years back has mastered the art of improving business processes of its customers , the most important thing to note is that it has taken them decades to master this.The challenge for Indian IT consulting companies is to mirror this achievement in years instead of decades.

<b>WHEN CAN WE SAY INDIAN IT CONSULTING COMPANIES HAVE ACHIEVED THIS THRESHOLD? :</b> The day revenue per employee for Infy or Wipro is same as that of Accenture or HP. We all know its a long way to go....

Is Convergys a Value Play At Current Levels?

STRONG BUY.....provided you have the stomach for value investing. I mean an investment time horizon of around five years...

Wipro's Infocrossing Acquisition Could Herald A New Age of Buyouts

Yes Microsoft could buy Patni and use its resources for software development provided it suits there acquisition criteria. Microsoft bought hotmail for 400mn in 1996.As such hotmail was a free e-mail service providing very little revenue. But when it was combined with MSN it became a great asset with huge potential of getting advertising revenues.

Coming back to your point on Patni being acquired by Microsoft. Patni's resources are specializing in several technologiies: mainframe, web, SAP, microsoft to name a few....this means more than half of the resources wont be much of use for Microsoft's product development.........a cobol programmer with 10 years experience will be of little value to microsoft, and 30% of Patni's resources are COBOl experts (based on my personal experience of working in that company for 7 years).

Let us say there is an outsourcing company in India that is specializing in microsoft technologies and has about 1,000 employees and is selling at $x. If it costs Microsoft India more than $x to add 1,000 employees then obviously they would jump on that Indian outsourcing company because Microsoft will get its additional employees at a cheaper price......as of now I dont see any such company in India.

Wipro's Infocrossing Acquisition Could Herald A New Age of Buyouts

It is not necessary for an intelligent answer to contain world's all financial jargons . With my experience of interaction with an averrage investor , I guess he or she is looking for business analysis he or she understands which is PLAIN ENGLISH.

Wipro's Infocrossing Acquisition Could Herald A New Age of Buyouts

Coming out of the intricacies of finacial accounting on calculations of cash flow, lets talk PLAIN ENGLISH. As the whole deal was on cash so any shareholder will be curious to know as to what will be the time frame Wipro expects before it gets back its $400mn.As we are discussing IT outsourcing business so I guess it is not unusual to anticipate 20% ROI, because that is quite conservative compared to the growth rate of industry.

In this high growth IT outsourcing indutry if Wipro says that they will invest $400mn and wait for 10 years to get their money back (assuming your single digit ROI). The shareholders will get a heart attack.

The very reason people are investing in IT outsourcing business is because of its high growth rate.If they were to expect single digit growth rate then they might go to some less risk financial companies like Citigroup.

BASIS FOR WIPRO'S INVESTMENT : The whole world knows that Infocrossing will nobe generating $400mn in cash flow next 5 years, and that is not Wipro estimates. The reason they are taking over this infrastructure management company is to use Infocrossing's standing in the market to help its core business of application outsourcing.

Explaining this in plain english, let us say there is a IT staffing company in India that had 10 programmers who were working for Indian clients and earning about $1,000 evey month. If an American software company buys that Indian staffing company for $100,000 then they dont expect the programmers to generate a cash flow of $100,000 by working for Indian clients. What they would instead do is are-deploy those resources to develop their latest product . If they are able to develop the product in two years and sell the software product to its clients earning a net profit of $100,000 then they have recouped their investment in 5 years. Plus they have created two assets :
1. the software product that will have earning power for years to come.
2. Experienced programmers who are well versed with their product development.

STRATEGY OF REDEPLOYING THE ASSETS : This is the strategy Wipro is going to undertake once it acquires the company, it is going to re-deploy the assets in line with its business model.

Patni: Hot As Indian Curry

Friends,
Thanks for your time in reading my blog, just to give you a brief background about myself.I started my career with Patni, worked for seven years and last three years I am working independently through MNCs (by being third party contractor) on outsourcing assignments. In fact more than half of my staff is from Patni. So I know handson how the value of cooks change by changing the restaurant...)

People in the Industry very much value the experience that folks get while working for companies like PCS and TCS. The reason being these guys were the founders of IT outsourcing and have mastered the strategy of coverting fresh college grads into seasoned outsourcing pros.

Thanks,
Dayanand.

Coca-Cola: Buffett Was Right, Wall Street Was Wrong

Does this mean that KO should have been sold by Buffet in 1996 as well and re-invested in another KO of 1988 era????

Analysis of Infosys' Cash Flow Growth

The most important thing to note is the money spent on infrastructure (new offices, communication equipments, hardware etc...). It is assumed that IT consulting is the business with low capital expenditure. But the truth is somewhat different.I am sure there are very few Indian companies that have income of $800mn / year and have spent close to $1bn on infrastructure last 5 years.

With the tax benefit going to go away in 2009 and strengthening rupee, these huge capital expenditures will be studied closely by investors in future. Managing these capital expenditures will be very crucial for the growth of the company.

Infosys' Q1 Results: Gains From Rupee's Strength

Hi Thomas,
I am glad you liked my article......about aquisitions we are just seeing the one part of story.....the other part can be that a US based company like IBM or HP can aquire Infosys or Satyam and gain the core competance of outsourcing that INFY posseses.

I compare outsourcing and mainstream consulting with icecream and a flull fledged restaurant business. Following is a scenario I would like to describe.

Let us say in your town you have a restaurant that offers people good food and offers ice creams as dessert. A new joint opens up across the street that just sells a large variety of icecreams at about one fifth of price. So people start having food in the restaurant and walk to the icecream joint and enjoy the ice cream at one third of price.

Based on the above story either the restaurant can takeover the ice cream shop or the ic cream shop can takeover the restaurant. The deciding factor for investors would be whose business model would be easier to understand.

Coming back to our discussion , I guess Accenture and IBM have proved their point by ramping up their outsourcing business and generating large outsourcing revenues last few years. Companies like Infosys have yet to prove their point by ramping up their consulting practice.....

As of today people know that it is easir for a consulting company to adopt an outsourcing model than an outsourcing company adopting a consulting model.

Dayanand.