Subba’s Serendipitous moments

June 14, 2007

Infosys market cap higher than that of Accenture

Filed under: Business,Competition,India,Model,Strategy — Subbaraman Iyer @ 4:38 pm
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Does anyone realize that Infosys’ market capitalization is higher than that of Accenture, despite Accenture’s revenues being 6X that of Infosys?

Here are the figures:

Accenture (Aug 31, 2006):

  1. Revenues: $18.2 billion

  2. Gross profit: $4.99 billion

  3. Operating income $1.84 billion

  4. Net income $973 million

  5. Outstanding shares 593 million

  6. Market cap (June 12) $23.54 billion

Infosys (March 31, 2007)

  1. Revenues $ 3.09 billion

  2. Gross profit $1.31 billion

  3. Operating income $ 852 million

  4. Net income $ 852 million

  5. Outstanding shares 571 million

  6. Market cap (June 12) $29.12 billion

So, despite the EPS being in the same ballpark, Infosys market capitalization is 20% higher than that of Accenture. This is despite the fact that:

  1. Accenture outsourcing revenues ($6.75 billion) is more than twice that of Accenture.

  2. Accenture has about 80,000 employees in the outsourcing division (out of a total head count of 150,000) while Infosys has about 70,000 employees in the outsourcing division

  3. This implies that Accenture has twice the billing rate per employee compared to that of Infosys.

Despite this, Accenture has only a profit margin of less than 7% compared to Infosys where the profit margin is about 27%, which implies that at the current run rate, Accenture needs to get four times more revenues to get the same net income.

I guess the financial markets are rewarding the Global delivery model, giving Infosys a much better valuation.

Accenture and Infosys comparison chart

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  1. Plainly spoken, the 27% profit comes from wage arbitrage (or wage disparity). Infosys exports labour (whatever other glorified term you use to call it). Labour is bought at Indian rates and sold at market rates, and the profit comes from the differential. This is not rocket science.
    By the way, I am not saying that the Indian software ghoda’s should be paid more, okay ! ? 😉

    Comment by J — June 16, 2007 @ 7:29 pm | Reply

  2. Sub, isn’t the first sentence supposed to read… “Does anyone realize that Infosys’ market capitalization is MORE than that of Accenture…”

    Just goes to show that INFY is highly priced… primarily due to much better GP and Net Income Margins! The key question is – can they sustain this with a rising Rupee?

    Comment by JPM — June 17, 2007 @ 5:42 pm | Reply

  3. What happen if Accenture will come with more development center in India equal to Infosys.

    Comment by Ajay Kumar — January 9, 2008 @ 6:08 pm | Reply

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