The Hindu Business Line : Market capitalisation of big 3 IT firms scales up

Hyderabad, Aug. 18 The market capitalisation of Indian technology majors TCS, Infosys and Wipro is significantly higher than that of EDS and almost on par with Accenture even though the latter are much larger in terms of revenues.

According to recent Gartner findings as of 2007, TCS with revenues of $5.7 billion and a market capitalisation of $27.8 billion, Infosys with revenues of $4.17 billion and market capitalisation of $13.2 billion and Wipro with revenues of $3.3 billion and market capitalisation of $17.3 billion, are ahead of EDS with revenues of $21.45 billion and market capitalisation of $9.4 billion.

However, when it comes to Accenture, with revenues of $22.13 billion and market capitalisation of $23.9 billion, TCS has outpaced it with market capitalisation and Infosys is lower. IBM Global Services, with revenues of $54.14 billion and market capitalisation of $149.3 billion, is perched at the top.

Research report

A Gartner report predicts that TCS, Infosys and Wipro are likely to emerge as the next generation of IT services mega vendors by 2011, offering stiff competition to IBM, Accenture and EDS.

Though these emerging mega vendors are much smaller than the current ones, they are increasingly expected to compete for the same mega deals that had been the exclusive domain of the incumbents.

According to Mr Partha Iyengar, Regional Research Director of Gartner, the investments by these three large companies in human resources, low cost and high quality services have been critical to their growth. However, their revenue per employee needs to go up to be in the bigger league. Another research firm, Forrester, which predicts the polarisation of IT vendors, has said that the top three vendors in India now drive almost half of the country’s total IT services exports by value, while in the next tier, Cognizant, HCL and Satyam still hold their ground and continue to grow.

Implications

Asked about the implications of these three firms scaling up in terms of market capitalisation, Mr Siddharth A. Pai, Partner and Managing Director of TPI India, an offshore advisory firm, told Business Line that most buyout deals so far have all been cash-driven.

“However, while market capitalisation is a nice milestone, this could have great potential to make bigger acquisitions leveraging stocks. Though a big buyout has not happened, given the drive to penetrate new markets and acquire customers, some deals are possible,” Mr Pai said.

Mr Sudin Apte, Senior Analyst at Forrester, in his report ‘Surviving the Offshore Vendor Polarisation’, warns the financial analyst community tracking IT firms that they can no more rely on the conventional offshore equation plainly linking revenue with the headcount growth.

Such metrics of the number of people added actually fuels a body-shopping mindset, he said.

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