Comparative Study of Financial Performance between GPIT
and Indian IT Companies (Wipro, Infosys, Satyam and TCS)
The current size of Bangladesh IT Industry and software/ITES industry in particular is still lot smaller with a total estimated IT industry size of US$ 120 Million (including export) compared to the overall economy and the number of population (over 150 million), but over the last few years the industry has grown considerably and is expected to grow at that rate for some time. It is estimated that during the last five years the average yearly growth rate of software & ITES industry has been over 40%. The growth has been driven by both good export trends in recent years as well as the growing IT automation demand in domestic market where local demand has been led by large automation projects by telecom, banking sector and export oriented garments/textile industry.
Currently there are over five hundred (500+) registered software and ITES companies in the country employing over 20,000 ICT professionals. Out of these companies, around 60% are mainly domestic market focused while 40% are mainly export focused and significant number of companies work for both local and export clients. Among these companies one of the leading IT firms in Bangladesh is Grameenphone IT Limited.
GPIT, a wholly owned subsidiary of Grameenphone Ltd. – the leading telecommunications operator in Bangladesh, was incorporated as a private limited company in January 2010 as a separate legal entity.
In this report I have done a market study based on the information given by my organizational supervisor Biswajit Roy. The information was collected from BASIS. I have presented a market scenario of GPIT, SWOT analysis and based on that prepared SWOT matrix.
I have evaluated financial performance of GPIT based on financial ratios and compared the result with other Indian firms, namely Satyam, Infosys, TCS and Wipro. I tried to make it a comparison of IT firms of South-East Asia but due to the problem of data insufficiency I had to take four Indian firms. Various ratios have been taken into consideration in this report like Profitability Ratio, Assets Utilization Ratio, Liquidity ratio and Debt Utilization Ratio. Analysis incorporated in this report is of cross section analysis as we had data of 2010 only. So, this report can be described as a cross section analysis of GPIT, Satyam, Wipro, TCS and Infosys for the year 2010.
Throughout the report I have tried to extract information regarding firms’ various operational aspects. I have tried to outline their efficiency in asset management, expense management and also tried to figure out their financing methods. I have figured out which company performed well and which did not and also tried to explain the underlying reasons behind those varying performances. In the end I have summarized some of the critical aspects of our findings in the conclusion segment. Thus throughout the report effort has been to provide some meaningful and useful information regarding the performance of GPIT in the year 2010 which I hope would shed light in some crucial areas of the organization.
The leading telecommunications operator Grameenphone Ltd. launched its first offshoot company. It is a wholly subsidiary of GP incorporated as a private limited company in January 2010 as a separate legal entity. From GP‟s operational backbone, GPIT build competitive business IT solutions and maintain their critical IT infrastructure, allowing Grameenphone to continue giving exceptional services to over 30 million subscribers nationwide.
GPIT is an international B2B company with a profit balance and stable corporate clienteles‟ prescription medications right from day one. IT has been established with an experience of more than a decade of excellence and effort to make people‟s lives easier.
It has highly dedicated IT professionals that specialize in innovative, customized end-toend solutions. It has targets to be a dominant player on the local market for enterprise grade IT software and managed solutions and recognized globally for quality mobile and enterprise software solutions as well as its support and maintenance.
GPIT already has created the first full activity-based, automated paperless workplace in Bangladesh and creating milestones and industry benchmarks in the way it operates. GPIT‟s foremost ambition is to contribute to the growth of the local IT industry. Currently GPIT provides complete managed services to GP. In addition to the telecom industry, the company wants to be successful in banking industry by providing best IT solutions. It has a target to develop the IT business that will improve way of life, increase productivity and efficiency that will take Bangladesh to a brighter future.
Product and service offerings
GPIT try to provide end-to-end solution for all IT need of the customers. They offer different IT solutions to their customers, which includes-
Mobile solution endow with a range of service that helps the customer to gain competitive technology boundary which will help them showcase business capability and drive business growth. This solution gives the clients the chance to have the latest information at their fingertips.
Enterprise solutions are intuitive and cost-effective end-to-end solutions to transform clients‟ enterprise for outstanding results. These solutions ensure maximization of customer‟s IT investment whilst utilizing their human resources effectively. And also provide them with comprehensive support for specialized requirements by working sincerely with their business partners.
For easier accessibility to information and enhance the organization‟s cross-functional collaboration GPIT has developed communication solutions for the advancing organizations which includes unified communications (UC), PBX solutions, Multimedia and AV services.
GPIT design and maintain entire network solutions that form the backbone of customers‟ business according to the networking requirements to bridge the gaps between connectivity, security and accessibility.
Infrastructure solutions include comprehensive range of services for building and maintaining technology assets of the customers.
GPIT provide services for the infrastructure that will help customers to link infrastructure and data which can help expedite process, business intelligence and reporting objectives.
In IT consultancy they offer consultancy services in the areas of business strategy, disaster recovery, business continuity, operations, security and e-governance.
Support & Maintenance
Maintenances services are offered for technology and business processes. This includes maintenance of networks, infrastructure, communications and enterprise systems, ensure smooth performance.
Business Process Outsourcing
Under business process outsourcing GPIT provide economic solutions in carrying most cumbersome and daunting tasks of an organization which is compulsory but carrying high overhead.
Products offered by GPIT are:
- ERP (Enterprise Resource Planning)
- CRM (Customer Relationship Management)
- Core Banking
- Business Intelligence and Data Warehouse
- Call Center Solutions
- DR & Data Center
In this report I have prepared a financial study of GPIT and based on that study I have presented a comparative study between GPIT and some Indian IT Companies like:
Wipro, Infosys, Satyam and TCS. Financial Analysis refers to the assessment of a business to deal with the planning, budgeting, monitoring, forecasting, and improving of all financial details within an organization. I have prepared this analysis based on some financial statements analysis. This analysis includes: Budgeting and Budget Analysis, Financial Performance Management, Revenue Analysis, Cost Analysis, Expense Analysis, Cash Flow Analysis, Balance Sheet Analysis, Accounts Receivable Analysis, Accounts Payable Analysis, Invoicing and Billing Analysis and Profit and Loss Statements. And based on the analysis I have done ratio analysis of GPIT, which includes: Profitability Ratio, Debt Utilization Ratio, Assets Utilization Ratio and Liquidity Ratio. Under each category there are some sub categories, like under profitability ratio I have measure Profit Margin, Return on Assets and Return on equity. Profit margin of GPIT is 19.65% which is higher than Satyam but lower than other companies. But it is not a bad situation. ROA is 15.31% and this is lower than other companies. I have prepared the Du Pont Analysis of ROA, which shows that GPIT has a high profit margin of 19.65% and a low assets turnover ratio of 0.78, which is a satisfactory scenario. Under ROE part it shows that they have a ratio of 62.72% and they are utilizing higher portion of shareholders‟ investment. Like ROA I have prepares Du Pont Analysis of ROE as well, and it shows that a smaller portion of GPIT‟s total assets is financed by shareholders‟ equity and a larger portion is financed by total liabilities.
I have calculated Assets Utilization Ratios, which includes Inventory Turnover Ratio, Fixed Assets Turnover Ratio and Total Assets Turnover Ratio. Inventory Turnover Ratio of GPIT for the year 2010 is 6.20 times as it hasn‟t been efficient in utilizing their inventory to yield revenue for the company; this is lower than TCS and Wipro but higher than Satyam and Infosys. Fixed Assets Turnover Ratio is 3.63 times as they are not doing effective use of fixed assets. This ratio is higher than Wipro but lower than other three companies. Total Assets Ratio is 0.78 times and they have not been much efficient in managing its total assets to generate revenue compared to other IT firms.
Under Liquidity analysis Ratio I have calculated and presented comparative study based on current ratio and quick ratio. Here current ratio of GPIT is lowest among IT Companies but for GPIT it is gives a positive result. On the other hand quick ratio is really lower that other companies and it indicates that unlike other four companies it GPIT would need to liquidate some of its inventory if it wants to pay off all its current liabilities.
My calculation and comparative study of Debt Utilization Ratio includes Total Debt Ratio, Financial Charges Coverage and Debt/Equity Ratio. Here Total Debt Ratio and Debt/Equity Ratio are higher than Wipro, Satyam, Infosys and TCS. This indicates most of the company’s assets are financed through debt and it has the ability to pay off equity using its debt.
Based on the finding and study I can say that, although GPIT is one of the known IT Company of Bangladesh but it still has long way to go to reach to the position where other Indian IT Companies are in. in fact GPIT has the potentiality to reach the pick.
Our objectives of the project is-
- To know about the IT industry.
- To get detailed information about GPIT.
- To gain knowledge about their market position and strategies.
- To learn about their current financial process and position
- To compare with other Asian giant IT companies and gets a clear picture of GPIT‟s current situation.
The internship report has been written on the basis of information collected from primary as well as secondary sources.
Primary Data Collection
The main source of the primary data collection of my report was my discussion with my supervisor Biswajit Roy; he is a specialist of Finance Division of GPIT. He helped me to collect the essential & vital information to make my internship report.
Secondary Data Collection
The secondary data collection I have collected from several kinds of sources.
Sources of Data /information
Data has been collected from secondary sources. Necessary data and information has been collected by the following sources:
- Annual Report-2010 of Grameenphone IT LTD.
- News papers and journals.
- Internet and websites.
Methods of Data Collection
Data has been collected from secondary sources. Reviewing the materials i.e. Policy and guidelines, visiting to the concern internet website was the methods of data collections. The data and information has been collected fully form secondary information. By-
- Examine the tools and the Systems.
Bangladesh IT Market Scenario
IT Industry in Bangladesh is relatively small compared to Bangladesh‟s total GDP nearing USD100 Billion. Twenty years ago the IT industry was predominantly a hardware vendors market with little or no value addition locally. The information technology industry in Bangladesh has gradually come of age and today accounts for USD300 million in annual revenues. It is still a tiny blip compared to a GDP nearing USD100 billion.
Total size of the IT industry now is USD 300 Mn as per BASIS. Today, Bangladesh has now more than 20,000 IT professionals engaged with over 500 software and ITES companies. Among them 100 companies currently export their products to more than 30 countries. BASIS is expecting the government will allocate 5 percent budget of annual development program for the IT sector. Software and ITES industries in Bangladesh have started growing rapidly. The average yearly growth rate is over 40% for recent five years. (Source: BASIS)
A majority of the clients of Bangladeshi companies are exporting to NA, EU countries, East Asian countries and Japan. The core strengths of Bangladesh ICT sector is the young people. However skilled IT resource crunch and brain drain are also threats for this industry. India, Philippines, China, Vietnam, Ukraine are the major competitors of Bangladesh IT companies. The cost of internet access is relatively high and currently there is no other diversified national connectivity option available.
Competitive Scenario of GPIT
Local software development market is very fragmented with Southtech being the largest with 200 people and the rest having less than 100 developers. That makes GPIT division already the largest software developer in Bangladesh. The competitors will have a certification & cost advantage on GPIT, but a significant disadvantage in quality perception and experience with enterprise maintenance.
Globally a significant number of competitors can be found. The most notable are the “big four” Indian outsourcing companies TATA, Infosys, WIPRO and Satyam. In addition several of the consulting companies like IBM, Accenture etc are providing services to their customers through own Indian operations. The competition must be considered as significant; however GPIT will have a generic cost advantage especially in Bangladesh market. Other companies like Philippines, China, Vietnam, and Ukraine are also major competitors of Bangladesh IT companies.
Competition amongst direct competitors
For the mobile solutions the competition is reasonably week as there are plenty of opportunities. The same is, to some extent, true for the managed solutions on the local market, but here there are close to no competitors. For general outsourcing GPIT will be competing / be compared with companies like Wipro, TCS, and Infosys.
- Existing technical skills and experience
- Strong footprint in Telco domain
- Opportunity to leverage GP‟s corporate customer base
- 24&7 Customer Service nation wide
- Partnership with IT giants
- Internal resource capability to provide solution in multiple business areas with multiple skill sets
- Growing local demand for IT
- Digital Initiatives by government
- Global demand for low cost resource & IT Service
- Opportunity within Telenor Group & through Partner
- Need for a market leader in Bangladesh IT Industry
- Inexperience in providing solutions to external customers as IT company & outsource project management
- Lack of solution competency in domains other than Telco
- Development & process standardization readiness
- Lack of customer reference
- Lack of supply for skilled IT resources in Market
- Global player in local market (Wipro, Samsung)
- Potential competition from local companies
- Regulatory changes & political instability
- Foreign currency restrictions
GPIT Strategy to tackle threats and achieve opportunities:
- Competency development based on the upcoming demands & trends
- Collaboration with local companies and competitors for industry development
- Collaboration with universities and training institutions for skilled & ready workforce
- Strong involvement with Government, BASIS, BGMEA to utilize it in modifying industry policy & regulation for its favor GPIT Strategy to utilize strengths and overcome weakness:
- Quick utilization of low hanging fruits where both demands and competency match
- Proactive marketing & agreesive sales visit to the target varticals for local market & Telco domain for global market
- Identification & implementation of cost & efficiency project within organization
- Training & capability development for new team with increasing efficiency
- Revise benefit policy in alignment with industry average
- Immediate concentrate on the being full complaint with standardization in order to bring efficiency in process.
Financial Analysis and Comparative Study
Financial analysis refers to an assessment of the viability, stability and profitability of a business. Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to be invested in. It is prepared using ratios that make use of information taken from financial statements financial reports like income statement, balance sheet, and cash flow statement. This analysis is presented to top management as one of their bases in making business decisions.
Here I have analyzed financial situation of GPIT and presented a comparative study between GPIT and other competitors based on ratios into four categories. Those are:
- Profitability ratios
- Asset utilization ratios
- Liquidity ratios and
- Debt utilization ratios
Profitability Ratio Analysis
With the help of financial ratios we can determine a firm‟s strength to generate revenue compared to the costs incurred in the process. Higher profitability ratio would indicate that firm has the ability to generate more revenue compared to the incurred costs and vice versa. In this report we will focus on the following profitability ratios:
– Profit margin
– Return on assets
– Return on equity
The equation that needs to calculate profit margin is:
Profit margin = (Net Income/ Revenue)
This ratio helps us to compare a firm‟s net profit with its revenue generated over a particular period of time. For example, a particular firm‟s net profit margin turns out to be 8.9%, then it would mean that after considering all the expenses and revenues the company has been able to yield tk8.9 worth of net profit out of every tk100 worth of revenue. GPIT has a profit margin of 19.65%, which indicates that after considering all the expenses and revenues the company has been able to yield TK19.65 worth of net profit out of every TK100 worth of revenue.
Return on Assets
The equation that needs to calculate return on assets is: Return on Assets = (Net income / Total assets)
Return on assets or ROA gives us an idea about how the firm has utilized its assets to generate its net income. Higher value would indicate better utilization of assets. For example ROA value of 25% would mean that for every TK100 worth of assets revenue generated by the firm is TK25. GPIT has a ROA of 15.31% which means that every TK100 worth revenue generated by the firm is TK15.31.
Du Pont Analysis of ROA
The Du Pont Company was a forerunner in stressing that satisfactory return on assets may be achieved through high profit margins or rapid turnover of assets, or a combination of both. The Du Pont system causes the analyst to examine the sources of a company‟s profitability. Since the profit margin is an income statement ratio, a high profit margin indicates good cost control, whereas a high asset turnover ratio demonstrates efficient use of the assets on the balance sheet.
Different industries have different operating and financial structure. For example, in the heavy capital goods industry the emphasis is on high profit margin with a low asset turnover- whereas food processing, the profit margin is low and key to satisfactory returns on total assets is a rapid turnover of assets. Based on above calculation it shows as an IT company GPIT has a high profit margin of 19.65% and a low assets turnover ratio of 0.78, which is a satisfactory scenario.
Return on Equity
The equation that needs to calculate return on equity is:
Return on equity = (Net income / shareholders‟ equity)
This ratio helps us to understand how much revenue the company has generated utilizing the money invested by its shareholders. Again higher value would mean better utilization of shareholders invested money and vice versa. For example 35% ROE would mean that the firm has generated TK35 revenue utilizing every TK100 worth of shareholders‟ investment. And according to the calculation GPIT has a ROE of 62.72%, which means that it has generated TK62.72 revenue utilizing every TK100 worth of shareholders‟ investment.
Du Pont Analysis of Return on Equity
The DuPont System of Analysis merges the income statement and balance sheet into two summary measures of profitability: Return on Equity (ROE).
The equation which represents a modified or second version of the Du Pont formula is:
ROE = [ROA/ (1- Debt/ Assets)]
GPIT has a ROE of 62.72%, which is highest than the other IT competitors. Thus the owners of GPIT are more amply rewarded that are other shareholders in industry. This may be the result of one or two factors: a high return on total assets or a generous utilization of debt or a combination thereof. This does not necessary mean debt is a positive influence, only that it can be used to boost return on equity. The ultimate goal of any firm is to achieve maximum valuation for its securities in the market place, and this goal may or may not be advanced by using debt to increase return on equity. Because debt represents increased risk, a lower valuation of higher earnings is possible.
I have tried to evaluate the performance of GPIT and present a comparative study between GPIT and other IT companies of Asia based on various financial ratios and comparing those with three foreign IT firms. There have some interesting findings in the report, one of them is the fact that GPIT‟s profitability ratios like gross profit margin, ROA and especially ROE have been quite higher like other firms but their efficiency ratios like inventory turnover ratio, fixed asset turnover ratio have been quite low. This might seem a bit contradictory at first look but in fact it isn‟t so. A closer look at the profitability ratios will give an idea that all the profitability ratios of GPIT top the list except ROA. But ROE remained high due to heavy reliance on liabilities which created a financial leverage and did boost up ROE figure. So based on these findings a conclusion can be drawn that GPIT hasn‟t been efficient in managing their assets to generate revenue in the last year but still their profitability ratios were high because they have been able to manage their expenses in an efficient manner. These activities might have caused such variations in profitability ratios and management efficiency ratios.
There are some more interesting findings, like- even though GPIT showed high reliance on liabilities to finance their assets they had absolutely no long term debt in the year 2010. So, high percentage of their assets have financed through current liabilities. There have also been some noticeable findings of Satyam and Wipro regarding their management efficiency ratios. Inventory turnover ratio of Wipro has a very high figure but fixed assets turnover ratio and total assets turnover ratio are really poor. This might have resulted due to the fact that inventory comprises very small portion of Wipro‟s total assets. Satyam‟s case is just the opposite, their inventory turnover ratio is poor but fixed assets turnover ratio is very high. So their fixed assets might comprise a small portion of their total assets compared to inventories. Satyam‟s profitability ratios have been consistently low compared to other firms and their ROE wasn‟t promising even though they had a high long term debt equity ratio compared to other IT firms. The reason is that even though Satyam‟s long term debt ratio was much higher their debt equity ratio wasn‟t so, which means that they didn‟t rely heavily on liabilities to finance their assets. Long term liability comprised a high portion of the total liability but liability itself wasn‟t used extensively to finance their assets. That‟s why ROE remained low even though long term debt equity was high. So, based on the discussion it can be conclude that GPIT‟s performance in the year 2010 was bad compared to those other IT firms and especially if we consider the fact that GPIT is a new IT firm in the market. In the 2010 GPIT managed their expenses in a pretty efficient as it has been shown in this report but their asset management strategies haven‟t been that much efficient. So if the firm focuses on improving those areas where their inefficiencies lie and keep up the good work they did in 2010, then it may be safe to say that GPIT has a sound future ahead and might well be one of leaders in the IT market of South-East Asia.