Ciba Gator

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

Agree with pratshar. You don't have to use jargon, but at least focus on the actual numbers instead of just telling stories. The "average investor" is quite intelligent and capable of handling facts and figures.

Anyway, if I understand your story correctly, you are suggesting that WIT will take the infrastructure assets and people they just acquired and redeploy them to do what--applications work?

Based on your story, are you saying that Company X with huge margins and growth rates should buy Company Y that has lower margins and growth because they can redeploy Company Y's assets such that Company Y delivers margins and growth in-line with Company X?? So Microsoft should buy Patni and all of a sudden Patni will become a cash machine because they are going to develop software in the Microsoft model?

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

I promised myself that I would stop responding to your posts, but I couldn't control myself....

Net income in 2006 was $8 million, you wrote. You didn't provide a free cash flow number, but let's assume that it is in-line with net income (growing companies usually have lower free cash flow than net income since they have to spend more to grow, but let's take the optimistic view here). If so, then a 20% annual return would yield:
9.6+11.5+13.8+16.6=$51... million of cumulative cash in the next four years, not $400 million.

If you are just multiplying 20% each year times the book value of the company, that makes no sense. A 20% "ROI" implies that Infocrossing will earn roughly $25 million in 2007 (20% of $127 million "net worth"). Take a look at the income statement or analyst estimates -- is IFOX going to earn $25 million this year (triple the 2006 level!!!)? Or next?

By the way, perhaps the companies you look at have 20% ROI, but most companies earn only a slight premium to their cost of capital, which is often much lower than 20%.

Cognizant's Growth Begins To Tail Off

Consensus INCLUDES the options expense according to First Call consensus. This was a clean Beat.

Uh, what exactly is wrong with CTSH growing faster than expected while keeping their costs in check? Sounds like a REALLY GOOD thing to me.

Your EPS analysis is predicated on growth equaling headcount growth, but the utilization increases are allowing CTSH to grow faster than headcount growth. Therefore, your EPS estimates (assuming only 15k headcount/year) understates the true leverage.

What else makes you think that headcount growth will flatten out (except for "evidence" that it will be flat this year)?

Infosys' Weak Outlook: Appreciating Rupee, Rising Wages To Blame

The rupee hasn't appreciated 10% a year for a consistent period of time. To suggest that overstates reality. Wages in the US are climbing, on a nominal basis, faster than India. So rather than say that Indian engineers get 10-15% more expensive each year, do the dollar comparison--US engineers get 5%=3-4k more expensive each year versus 15% in India = 1-2k). To a buyer, who pays in dollars not in percentages, the US engineer is getting comparably more expensive each year. In any case, there just aren't enough skilled workers in the West to do these jobs and unless US kids suddenly decide they want to spend four years studying for a job that may end up in India by the time they graduate, supply in the West will never meet demand. Meanwhile India is doing a lot to improve the quality of its vast labor force--within the next few years it more likely that hundreds more thousands of people in India will be employable and wage pressure should abate. Now mix in China (where Indian companies are some of the biggest employers of cheap IT labor) and it's highly unlikely that your long-term wage theory is going to hold water.

I think your analysis is short-sighted, focusing on a handful of current data points without looking at the whole picture. Any industry or business has a collection of challenges, but there may be ways to offset those risks. Anyway, where else will you find this growth, margin, and multiple combination in the markets?

By the way, Infosys reported 13.7% attrition. Accenture, a high quality global company, recently reported 18% attrition. Hard to say that Infosys has employee retention issues--if anything they have an advantage in this area.

Infosys' Weak Outlook: Appreciating Rupee, Rising Wages To Blame

Care to do the math and show us how long it will take before your 10% wage/10% currency scenario creates any sense of parity between labor costs in the US and in India?

Also care to quantify the employee retention problem with some numbers? Say, compare INFY's employee attrition rate with other industry players such as Accenture or BearingPoint or IBM Global Services?

The headlines say that wage hikes and retention are bad, but looking beyond the headlines at the actual numbers might produce some different conclusions....

The Truth Behind Accenture’s High Return on Equity

You might want to examine ROI as a better alternative to ROE.

"Debt" hasn't really increased at all--liabilities have increased (as have assets).

The Truth Behind Accenture’s High Return on Equity

Many have that much or more. Try IBM, for instance.

The Truth Behind Accenture’s High Return on Equity

Interesting angle, but I disagree with your conclusion that "from an investor's point of view both have achieved the same result."

From an investor's point of view, Accenture has returned $100 million of capital to them. They can then reinvest that elsewhere. If the investor can get 15% returns on an alternate investment, then they are better off. Second, Accenture cannot (would not) invest in marketable securities that return 10% -- they must invest in high quality (safe principal) instruments. Accenture is not an investment company and has no business trying to obtain high yields from marketable securities.

Bottom line: Investors are very sensitive to ROE because they want companies to produce high returns on the equity that has been entrusted to them. By returning capital to shareholders via buyback and still earning the same net income (as you state above), Accenture will earn a higher ROE, which (and this is the Important Conclusion) will be VIEWED AS MORE VALUABLE BY INVESTORS than if the company earned income on marketable securities.

The Truth Behind Accenture’s High Return on Equity

I agree with your revised math.

I have no idea why you are suggesting that investors look at the lower ROE figure when comparing Accenture's ROE to other companies. Are you saying that the share buybacks are irrelevant or unusual in nature?

The Truth Behind Accenture’s High Return on Equity

Best guess is that the reduction in Paid in capital would be a good approximation for cash spent, or $943 million. 4% interest rate? That leads to $38 million in income or call it $25 million after taxes.

You already grossed up the denominator -- that was the $725 million you calculated and added back to book value. So you need to add the approx $25 million to the numerator to complete your analysis.

That boosts ROE by 1%.

You never answered the question--is your conclusion from your analysis that Accenture's ROE would be lower if they didn't buy back stock?

Which IT Outsourcing Company Gives Maximum Return on Covered Calls?

The next higher strike price for Satyam is $25 if the stock is at $24.50. Am I missing something?

Which IT Outsourcing Company Gives Maximum Return on Covered Calls?

Sorry, not sure why the original post was truncated. Here's another try:

Dan, dude, what the heck are you talking about?!?! You can't ignore time value of money "assuming" that one will hold a stock for the next six months and that capital losses in that time will be erased!!!! The central idea with options is that there IS a time value to ownership and capital. Jeez, man, quit it with the inane ramblings, you're just embarrassing yourself.

Of course Satyam looks great in your "analysis". You used a high strike price and ignored all the other variables!! Here's another look at your "analysis"--

Stock price on June-25 $24.50
Call premium for $25 for Jan-08 = $2.60
If one buys 200 shares one would invest $4,900
Max return is ($2.60 * 200) + (($25 - $24.50) * 200) = $620 = 12.7%
Min return is $2.60*200 = $520 = 10.6%

THE ACTUAL MIN RETURN IS:
-4,900 + ($2.60 * 200) = -$4,380 IF THE STOCK GOES TO $0.00

Dan, you can't IGNORE the value of the underlying stock. You can't ignore time value of money--of course if you pick a $30 strike price you will make "more money" at the "max". If you had run the analysis with a strike price of $50, you would have calculated an even greater "max" return.

This is beyond sloppy, it's just ignorant. Please try to understand what you are saying befor you say it.

Which IT Outsourcing Company Gives Maximum Return on Covered Calls?

Dan, dude, what the heck are you talking about?!?! You can't ignore time value of money "assuming" that one will hold a stock for the next six months and that capital losses in that time will be erased!!!! The central idea with options is that there IS a time value to ownership and capital. Jeez, man, quit it with the inane ramblings, you're just embarrassing yourself.

Of course Satyam looks great in your "analysis". You used a high strike price and ignored all the other variables!! Here's another look at your "analysis"--

Stock price on June-25 $24.50
Call premium for $25 for Jan-08 = $2.60

The Truth Behind Accenture’s High Return on Equity

Dan,
In the interests of my sanity I will not harp on about how you have mangled the share count/class structure of ACN's shares. I will just say that when calculating your ROE figure, you have to reduce equity by the value of the minority interest equity value when using the lower share count. That aside....

If I understand the conclusion of your analysis correctly (please correct me if I am wrong), you are saying that if Accenture had not bought back any shares since 2004 (thereby increasing treasury shares and reducing equity), then their ROE would be lower. Is that right? Two thoughts:

1) You neglected to add back interest income on the substantial amount of cash used to buy back shares. If you are making the assumption that treasury shares should remain at 6 million, then you have to assume that the cash used to buy those 30 million net shares would be throwing off substantial interest income, which would boost ROE.

2) OF COURSE if the company lets cash sit in a bank account its ROE will be lower than if it gives that cash back to shareholders. Classic capital allocation decision--maximize returns on capital. If they could take that cash and invest it in business operations or investments that would be accretive to ROE, then they would not buy back shares. But since the company does not need cash to run its operations, they give it back to shareholders.

A little too much analysis to come to a very basic answer.

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

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.