One of the readers asked the question - which stock is a better investment Wipro or Infosys? For people that arent familiar, both are Indian information technology companies that do offshore as well as consulting work. Both the companies are listed in the NASDAQ and are competitors to American heavy weights such as IBM and Accenture. We will provide a brief overview of the two companies here.
From Infosys website, the company's description is as follows:
Infosys Technologies Ltd. (NASDAQ: INFY) provides consulting and IT services to clients globally - as partners to conceptualize and realize technology driven business transformation initiatives. With over 69,000 employees worldwide, we use a low-risk Global Delivery Model (GDM) to accelerate schedules with a high degree of time and cost predictability.
As one of the pioneers in strategic offshore outsourcing of software services, Infosys has leveraged the global trend of offshore outsourcing. Even as many software outsourcing companies were blamed for diverting global jobs to cheaper offshore outsourcing destinations like India and China, Infosys was recently applauded by Wired magazine for its unique offshore outsourcing strategy — it singled out Infosys for turning the outsourcing myth around and bringing jobs back to the US.Infosys provides end-to-end business solutions that leverage technology. We provide solutions for a dynamic environment where business and technology strategies converge. Our approach focuses on new ways of business combining IT innovation and adoption while also leveraging an organization's current IT assets. We work with large global corporations and new generation technology companies - to build new products or services and to implement prudent business and technology strategies in today's dynamic digital environment.
From Wipro's website, the company description is as follows.
Wipro becomes the first Indian IT Service Provider to be awarded Gold-Level Status in Microsoft’s Windows Embedded Partner Program
Wipro is the world’s largest independent R&D Services Provider
Worlds 1st PCMM Level 5 software company
Wipro one among the few companies in the world to be assessed at maturity level 5 for CMMI V1.2 across offshore and onsite development centers, 2007
Worlds 1st IT Services Company to use Six Sigma
The pioneers in applying Lean Manufacturing techniques to IT services
World’s first SEI CMM/CMMI Level 5 IT services company
The first to get the BS15000 certification for its Global Command Centre
Functional RFID Enabled Concept Store and Global Data Synchronization Laboratory BS7799 and ISO 9000 certified
Among the top 3 offshore BPO service providers in the world
Wipro is a strategic partner to five of the top ten most innovative companies in the world* (*Technology Review Innovation Index 2005)
Over 40 industry facing ‘Centers of Excellence’
592 clients - 53000+ employees
46 development centers across globe
Now, let us look at the two companies from financial as well as the management view points. We will also see the future trends to see how these two companies stack up against each other.
Market cap and valuation:
Wipro has a market cap of 25 billion dollars. It has a P/E of 42 ( trailing ) and forward P/E of 32. The price to earning growth is at 1.35.
Infosys has a market cap of 33 billion dollars. It has a trailing P/E of 43 and estimated forward P/E of 32. The estimated price to earning growth is at 1.28 - slightly lower than that of Wipro.
From a valuation view point, Infosys and Wipro look quite alike with a slight advantage to Infosys in price to earning growth.
Wipro is primarily owned by Azim Premji. The management succession is not clear - though most likely it will be family owned in the same way as most of Indias conglomerates. Wipro has had a history of management attrition. In some cases, this has resulted in competitors such as Mindtree.
Infosys on the other hand is not owned by one person and is more egalatarian. The management succession is clear. Infosys is also a storied Indian company as it was the first Indian company to be listed in Nasdaq and the first to be included in the Nasdaq 100 index.
From a management and succession view point, Infosys has the advantage.
Infosys has a dividend yield of 0.9% and Wipro has a dividend yield of 0.6%. Infosys dividend has grown from 5 cents a share in 2003 to 51 cents a share in 2007. Wipro's dividend growth is sketchy - it yield about 11 cents a share now.
Infosys has a return on equity of 36% on the average for the past five years and return on asset of 30%. Both these are phenomenal numbers compared to even the best US based companies.
Wipro has a return on equity of close to 30% and return on asset of about 23% for the past five years. While these numbers are very good, they are not as good as Infosys.
Infosys's top line growth of about 35% in the most recent year moderating from a higher growth of 40%. The EPS growth has also been very strong at around 35% per year.
Wipro has had the top line growth of about 30% for the past five years while the EPS growth has been about 25%.
Infosys has a free cash flow of about 350 million dollars that has been growing steadily. Wipro has a cash flow of 280 million that has also been growing steadily.
Overall, in this section, Infosys is looking a lot stronger than Wipro.
From a valuation point of view, niether Infosys nor Wipro is cheap. While stacking the two companies side by side, Infosys has edge in almost all the segments compared to Wipro. The outsourcing/offshoring business is getting to be more competitive but both the companies are now well entrenched and should continue to do well. If I have to allocate my investment dollars between these two companies, Infosys would be my choice.