Infy, TCS beat Accenture in market cap

By agencies   |   Tuesday, 26 September 2006, 07:00 Hrs
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Mumbai: AccentureÂ’s market capital is now around $17billion, which is less than Infosys and Tata Consultancy Services. Both the companies have market caps exceeding $22billion, which is around 30% more than Accenture.

AccentureÂ’s performance in recent quarters seems to be erratic, which has troubled the management. Though it registered positive growths in May this year, there was a huge slump in February. AccentureÂ’s low market cap compared to Indian companies is partly due to lower price earning (P/E) ratio.

To deal with the fall, the management has announced a buyback price per share that is not greater than $24.75 nor less than $22.50. The Board of Directors authorized the use of $650 million of existing cash from operations to fund the offer, as well the use of up to an additional $123 million if Accenture Solution Construction Aid (SCA) chooses to increase the size of the offer in response to shareholder demand. This would aggregate to about 5 percent of current market cap.

Accenture has shown lower profitability due to a result of multiple factors, such as lower margins and profits and margins being highly erratic. Its operating margins are between 12 to 14 percent, while Infy showed the best margin in Indian IT, a comparable figure for it being around 30 percent. For its defence ACN (AccentureÂ’s stock symbol) claims to be a top category-consulting firm.

The company says, “As per our previous achievements, we have certain large, long-term contracts under which we have been engaged by the National Health Service in England to design, develop and deploy new patient administration, assessment and care systems for local healthcare providers and, subsequently, to provide ongoing operational services through 2013 once these systems have been deployed. “

Commenting on its quarterly figures it says, “During the second quarter of fiscal 2006, there were several developments that significantly increased the risks and uncertainties associated with these contracts and materially impacted our estimates of the contract revenues and costs we expect to record in connection with the NHS Contracts. To reflect our revised estimates with respect to design, development and deployment, we recorded a $450 million loss provision in the second quarter of fiscal 2006. During the third quarter of fiscal 2006, there were no significant developments affecting the loss provision estimates. This indicated that ACN booked revenues it shouldn’t have somewhere earlier, and reversed quarter ending February.”

Another reason ACN cited that it paid proper taxes unlike most Indian companies. ACNÂ’s tax rate has been between 30 to 35 percent, contrasting InfyÂ’s tax rate, which is around 11 percent.

On the growth rate being lower ACN seems to be growing revenues at around 12 to 15percent. This is less than half the growth rate of Indian IT. Even ACNÂ’s outsourcing business, which is about 40 percent of its total business, is growing at the rate of 15 percent per annum.

But in spite of all its recent recordings the future looks good. It showed new contract bookings for the nine months ended May 31, 2006 to be $15,437 million, an increase of $2,568 million, about 20 percent, with consulting bookings increasing by 10 percent, to $8,065 million, and outsourcing bookings increasing by 33 percent, to $7,372 million.

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