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    PROJECT REPORT ONFINANCIAL ANALYSIS OFWIPRO LTD. AND INFOSYS

    Submitted To: Submitted By:

    Dr. N.K. Gupta Rishi Shankar Pathak

    Roll No. 254/2012

    Section-D

    PGDM(Finance)

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    Contents

    Contents..................................................................................................................... 2

    1.Strategy Analysis..................................................................................................... 4

    2.Accounting Analysis.................................................................................................9

    2.1Quality of Earnings.............................................................................................9

    2.2Horizontal analysis...........................................................................................11

    2.2.1Sources of Funds........................................................................................11

    2.2.2Assets.........................................................................................................11

    2.2.3Profit and Loss............................................................................................12

    2.2.4 Long Term Loan and Advances.................................................................13

    2.2.5Current Investments...................................................................................13

    2.3 Vertical Analysis ............................................................................................. 14

    2.2.6Sources of Funds........................................................................................14

    2.2.1Assets.........................................................................................................14

    2.2.2Profit and Loss............................................................................................15

    2.2.3 Long Term Loan and Advances.................................................................15

    2.2.4Current Investments...................................................................................162.3 Trend analysis ................................................................................................ 17

    2.3.1 Sales Turnover..............................................................................................17

    As per the Trend analysis, it can be seen that sales turnover of Wipro has

    increased considerably as compared to Infosys even though both companies are

    following increasing trend in sales from 2009-12. ................................................17

    2.3.2 Current Investments.....................................................................................17

    As per the Trend analysis, it can be seen that current investments of Wipro have

    increased in 2009-11, but decreases in 2011-12. Moreover, the current

    investments of Infosys are on increasing trend from 2009-12. ............................17

    2.3.3 Current Liabilities........................................................................................18

    As per the Trend analysis, it can be seen that current liabilities of Wipro have

    increased throughout 2009-12. Moreover, the current liabilities of Infosys have

    also increased during 2009-12. ..........................................................................18

    2.3.4 Long Term Loan and Advances...................................................................18

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    As per the Trend analysis, it can be seen that current liabilities of Wipro have

    increased throughout 2009-12. Moreover, the current liabilities of Infosys have

    also increased during 2009-12. ..........................................................................18

    2.3.5 Share Capital................................................................................................ 19

    As per the Trend analysis, it can be seen that share capital of Wipro has declineda bit during 2011-12 and share capital of Infosys has remained almost constant

    over 2009-12......................................................................................................... 19

    3Financial Analysis................................................................................................... 20

    3.1 Ratio Analysis..................................................................................................20

    3.1.1 Liquidity Ratios.............................................................................................20

    3.1.1.1 Current Ratio.............................................................................................20

    3.1.1.2 Quick Ratio................................................................................................20

    3.1.2 Profitability Ratios........................................................................................ 21

    3.1.2.2 Net Profit Margin.......................................................................................21

    3.1.2.2 Gross Profit Margin....................................................................................21

    3.1.2.3 Operating Profit Margin.............................................................................22

    3.1.3 Leverage Ratios............................................................................................22

    3.1.3.1 Debt Equity Ratio...................................................................................... 22

    3.1.3.2 Interest Coverage Ratio.............................................................................23

    3.1.4 Activity Ratios.............................................................................................. 23

    3.1.4.1 Inventory Turnover Ratio...........................................................................233.1.4.1 Debtors Turnover Ratio............................................................................. 24

    4Ratios important to various Institutes.....................................................................24

    Conclusion................................................................................................................ 39

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    1. Strategy Analysis

    Wipro Ltd:

    Wipro Ltd. is the flagship company of the Azim H Premji group. Wipro was incorporated in theyear 1945. The company started off originally as a manufacturer of vegetable ghee/vanaspati(hydrogenated vegetable oils), refined edible oils etc. Gradually, It diversified into various otherbusinesses. The group forayed into information technology business in 1982.

    Wipro is a global IT services company. The company provides comprehensive IT solutions andservices, including systems integration, information systems outsourcing, packageimplementation, software application development and maintenance, and research anddevelopment services to corporations. The company mainly operates in the US. It is

    headquartered in Karnataka, India and employs more than 108,071 people worldwide as ofMarch 2010. It has interests varying from information technology, consumer care, lighting,engineering and healthcare businesses.

    SWOT Analysis examines the companys key business structure and operations, history andproducts, and provides summary analysis of its key revenue lines and strategy.

    Strengths:

    Global R&D facility.

    Retention of the man-power is the best in the industry.

    Impressive list of clientele.

    Relatively lower receivable compared to the industry average.

    Diversified skill base across service lines

    Delivery capabilities & client satisfaction

    Commitment to go the extra mile

    Technological partnership with other software companies

    Low cost advantage

    MEGA Partnership Cisco, EMC, Microsoft, Oracle and SAP

    Weaknesses:

    Low operating margin of the other group companies.

    Free floating stock is very less.

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    Domestic market was huge but was underdeveloped

    Small player in global market

    Limited domain

    Clients not trusting the capabilities of Indian Software Cos.

    Opportunities:

    In the branded product category.

    In the consultancy area.

    In the emerging technology areas like Blue Tooth, WAP etc.

    Huge global market

    The Company has entered into the global market so now its the biggest opportunity

    available to the company.

    Huge potential in domestic market

    Threats:

    Increasing cost of human capital.

    Slowdown in the US economy.

    Will face fierce competition in the areas of e-business and ASP services.

    Competition by Indian companies in domestic market

    Presence of big companies in global market

    Exchange rate : This can be a threat to the company as the company is making profits due

    to the high exchange rate and if this rate comes down in future it can lead to a majorproblem for the company.

    High exposure to the telecom/tech sectors (36%)

    Slowdown in the banking, financial services and insurance (BFSI) sector

    Recommendations:

    Adopt the Dynamic High Technology Strategy

    Increase Global Presence

    More collaborations with other players; reduce dependence on only few players

    Leveraging the huge investments in R&D to gain competitive advantage with respect to

    other players

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    Diversify into various Sectors

    Go for quality certification

    Conclusion :

    Till today Wipro has been known for being very process oriented with a focus on quality andcost savings.Wipro long term strategy should be to create a brand image and be known forinnovation.Wipro should invest in R&D and Market research, so that It is able to innovate newsolutions for clients to cut costs or reduce time to market or improve reliability.

    Infosys Ltd:

    Infosys was started in 1981 by seven people with US$ 250. Many of the worlds most successfulorganizations rely on Infosys to deliver measurable business value. Infosys provides businessconsulting, technology, engineering and outsourcing services to help clients in over 30 countriesbuild tomorrows enterprise. Infosys Labs and its breakthrough intellectual property can beleveraged as a co-creation engine to accelerate innovation across the enterprise.

    Infosys pioneered the Global Delivery Model (GDM), based on the principle of taking work tothe location where the best talent is available, where it makes the best economic sense, with theleast amount of acceptable risk. Continued leadership around GDM enables Infosys to driveextraordinary efficiencies and free up clients resources for strategic transformation orinnovation initiatives.

    Infosys has a global footprint with 68 offices and 70 development centers in US, India, China,Australia, Japan, Middle East, UK, Germany, France, Switzerland, Netherlands, Poland, Canadaand many other countries. Infosys and its subsidiaries have 151,151 employees as on June 30,2012.

    Infosys takes pride in building strategic long-term client relationships. 99.1% of our revenuescome from existing customers (Q1 FY 13).

    Infosys gives back to the community through the Infosys Foundation that funds learning andeducation.

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    http://www.infosys.com/about/who-we-are/Pages/history.aspxhttp://www.infosys.com/global-sourcing/global-delivery-model/pages/index.aspxhttp://www.infosys.com/contact/pages/index.aspxhttp://www.infosys.com/about/who-we-are/Pages/history.aspxhttp://www.infosys.com/global-sourcing/global-delivery-model/pages/index.aspxhttp://www.infosys.com/contact/pages/index.aspx
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    SWOT Analysis Infosys

    Infosys is one of the largest businesses in India with a turnover in excess of $4 billion in 2008.The company specializes in Information Technology (IT) and consulting. N.R. Narayana Murthyand six others started the company in 1981, and it is now the largest IT company in India with its

    headquarters in Bangalore (although it was started in Pune). It employs more than 90,000 ITprofessionals and was famously rated 'Best Employer in India. It operates in a number ofbusiness sectors from banking to retail, and its services tend to encompass end-to-end ITsolutions which includes a whole bundle of added-value solutions from infrastructure to softwareengineering.

    Strengths

    Since the company is based in India its competitive advantage is enhanced. The Indian

    economy, despite weak economic indicators such as relatively high rates of inflation, haslow labor costs. The workforce has relatively high skills levels in Information

    Technology. Couple these two elementstogether and you have an operational basis thatoffers low-cost based, highly skilled competitive advantage. Trained Indian personneloften speak very good English and are sensitive to Western culture, underpinned byIndia's colonial past.

    Infosys is in a strong financial position. The business turned over more than $4 billion in

    2008. This means that it has the capital to expand, and also the basis to leverage potentialinvestors.

    The company has bases in 44 global development centres, most of which are located in

    India, although the company has offices in many developed and developing nations. Thismeans not only that Infosys is becoming a global brand but also that it has the capabilityto support the global operations of multinational clients.

    Weaknesses

    Infosys on occasion struggles in the US markets, and has particular problems in securing

    United States Federal Government contracts in North America. Since these contracts arehighly profitable and tend to run for long periods of time, Infosys is missing out onlucrative business. Added to this is the fact that its competitors do well in terms ofsecuring the same Federal business (and one should also take into account that many ofits competitors are domiciled in the US and there could be political pressure on the USGovernment to award contracts to domestic organizations).

    Despite being a huge IT company in relation to its Indian competitors, Infosys is much

    smaller than its global competitors. As discussed above, Infosys generated $4 billion in2008, which is relatively low in comparison with large global competitors such asHewlett-Packard ($91 billion), IBM ($91 billion), EDS ($21 billion) and Accenture ($18billion).

    It is sometimes argued that Infosys is weaker when it comes to high-end management

    consultancy, since it tends to work at the level of operational value creation. Competitorssuch as IBM and Accenture tend to dominate this space.

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    Opportunities

    At a time of recession in the global economy, it may appear that some companies will

    reduce take up of services that Infosys offers. However, in tough times clients tend tofocus upon cost reduction and outsourcing - with are strategies that Infosys offers. So

    hard times could be profitable for Infosys. There is a new and emerging market in China as the country undergoes a huge industrial

    revolution.

    The strategic alliance between Infosys and Schlumberger gives the IT company access to

    lucrative business in the gas and oil industries.

    There has been a trend over recent years for European and North American companies to

    base some or all of their operation in India. This is called an offshore service. Essentiallythere is a seamless link between domestic operations and services hosted in India.Examples include telecommunications companies such as British Telecom and bankssuch as HSBC that have customer service and support centres based in India. Think about

    the times that you have made calls to a support line to find that the adviser is in Mumbaior Bangalore and not in your home market.

    Threats

    India is not the only country that is undergoing rapid industrial expansion. Competitors

    may come from countries such as China or Korea where there are large pools of low-costlabor, and developing educational infrastructures such as universities and technologycolleges.

    Customers may switch to other offshore service companies in other countries such asChina or Korea.

    Other global players have realised that India has the benefit of low-cost, highly-skilled

    labor that often speaks English and is culturally sensitive to Western practices. As withall global IT players, Infosys has to compete for skilled labor and this may have the effectof driving up wage levels, and making it more difficult to recruit and retain staff.

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    2. Accounting Analysis

    2.1 Quality of Earnings

    Wipro Ltd.

    Wipro uses straight line method of depreciation and the method has not been changed for the

    past two years. Hence there is no effect on the profit on the basis of change in depreciation

    method

    Inventories are valued at lower of cost and net realizable value, including necessary provision

    for obsolescence. Cost is determined using the weighted average method. Cost of work-in-

    progress and finished goods include material cost and appropriate share of manufacturing

    overheads. Hence there is no effect on the profit on the basis of change of inventory

    valuation method

    The sales increased from Rs 263,005 millions in 2010-11 to Rs 316,829 millions in 2011-12

    while other income increased from Rs 6,807 millions to Rs 12,274 millions.

    Wipro had a cash balance of Rs. 52,033 millions on 31st Mar 2012 as against Rs. 62,328

    millions on 31st Mar 2011. Hence cash is not a problem for Wipro.

    The change of useful life of some assets was due to the assets undergoing changes due to

    renovation and modernization. Intangible assets are amortized over their estimated useful

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    life on a straight line basis.

    The provision for bad debts has changed by Rs. 225 million in 2011-12.

    Taking the above factors into consideration it can be safely concluded that the quality of earnings

    for Wipro Ltd. is quite high.

    Infosys

    Infosys uses straight line method of depreciation and the method has not been changed for

    the past two years. Hence there is no effect on the profit on the basis of change in

    depreciation method

    The companies does not hold any physical inventories.

    The sales increased from Rs 26,532 crores in 2010-11 to Rs 33,083 crores in 2011-12 while

    other income increased from Rs 1,147 crores to Rs 1,829 crores.

    Wipro had a cash balance of Rs. 19,557 millions on 31st Mar 2012 as against Rs. 15,167

    millions on 31st Mar 2011. Hence cash is not a problem for Infosys.

    The provision for bad debts has reduced by Rs. 9 crores in 2011-12.

    Taking the above factors into consideration it can be safely concluded that the quality of earnings

    for Infosys is quite high.

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    2.2 Horizontal analysis

    2.2.1 Sources of Funds

    Wipro Ltd

    There was marginal change of 0.18 in the share capital between 2010-11 and 2011-12. However

    the total liabilities increased by 13.71% indicating that the firm has been leveraging. The ROI

    however is almost comparable to the borrowing cost so the leveraging should not pose any

    problems.

    Infosys

    There was no change in the share capital between 2010-11 and 2011-12. However the total

    liabilities increased by 24.12% indicating that the firm has increased its dependence on debts.

    Thus, the debt ratio of the firm has increased and the firm has become more risky.

    2.2.2 Assets

    Wipro Ltd

    The assets of the firm have increased by 13% in 2011-12 as compared to 2010-11. This indicates

    that Wipro had good cash flows in the previous year. Also, the fixed assets disposed off during

    the year were not substantial and therefore do not affect the going concern assumption.

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    Infosys

    The assets of the firm have increased by 24% in 2011-12 as compared to 2010-11. This indicates

    that Infosys had good cash flows in the previous year and thus invested highly in assets to

    increase the overall equity of the firm.

    As compared to Wipro, Infosys had huge investment in assets in 2011 as compared to previous

    year.

    2.2.3 Profit and Loss

    Wipro Ltd

    The companys Operating Profits have declined from 21.65% in 2010-11 to 19.80 in 2011-12 by

    1.85 percent. It should be noted that although the sales in the last year have increased by 22.0

    percent. The reason that the operating profits have gone down is that the operating expenses have

    gone up.

    This can be accounted by the following:

    Employee benefits expense increased from 109,374 mn to 133,115 mn

    Changes in inventories of finished goods, work in progress and stock-in-trade increased from

    (316) mn to 449 mn

    This has ensured that the profit after tax has gone up by 10.78 percent. However there is a caveat

    that the Operating expenses are increasing at an alarming rate when compared to the increase in

    Operating profits. Thus, they do not earn sufficient operating profits in the yr. 2011-12 as a

    result, the company end up making operating losses since they didnt have sufficient non

    operating incomes every year.

    Infosys

    The companys Operating Profits have increased by 20.70 percent in 2011-12. Thus, the

    company has enjoyed good cash flows throughout the previous year and good margins.

    As compared to Wipro, the profits of Infosys were huge and thus Infosys showed a significantly

    good performance than Wipro.

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    2.2.4 Long Term Loan and Advances

    Wipro Ltd

    The long term loans and advances of Wipro have declined from 9,627 mn in 2010-11 to 9,404

    mn in 2011-12 by -2.32 percent. This shows that Wipro has recovered the dues from its debtorsand there are few debtors as compared to previous year. This is also be interpreted as the fact that

    Wipro has earned its income from majority of its debtors in the year 2011-12.

    Infosys

    The long term loans and advances of Infosys have increased from 1,244 cr in 2010-11 to 1,431 cr

    in 2011-12 by 15 percent. This shows that Infosys has not recovered enough dues from itsdebtors and there are exists a large number of debtors as compared to previous year.

    Thus, Infosys has yet to earn the income from its debtors and the delay in earnings from debtors

    has lead to significant opportunity cost on the income.

    2.2.5 Current Investments

    Wipro Ltd

    The current investments of Wipro have significantly declined from 47,950 mn in 2010-11 to

    40,409 mn in 2011-12 by -15.73 percent. This can be attributed to the fact that company had a

    fall in operating profits during the year 2011-12. Thus, it seems that company has retained its

    earnings(although small) thereby avoiding the risk involved in capital investments.

    Infosys

    The current investments of Infosys have significantly increased from 119 cr in 2010-11 to 341 cr

    in 2011-12 by 186.55 percent. This can be attributed to the fact that company had a huge rise in

    operating profits during the year 2011-12.

    Thus, Infosys as compared to Wipro, has made huge return on investments(evident from increase

    in operating profits) as a result of large amount of investment expenditure .

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    2.3 Vertical Analysis

    2.2.6 Sources of Funds

    Wipro Ltd

    There was small change of 4.19 percent in the share capital between 2010-11 and 2011-12 as per

    the vertical analysis. The share capital increase can be attributed to the fact that company has

    issued new shares to public.

    Infosys

    There was no change in the share capital between 2010-11 and 2011-12. The company has notraised any equity by selling shares to public during the fiscal year 2011-12.

    2.2.1 Assets

    Wipro Ltd

    The current assets of the firm have increased by 65.96% in 2011-12 as compared to 2010-11.

    This indicates that Wipro had good cash flows in the previous year. The company is having good

    amount of liquidity to pay off its debts.

    Infosys

    The current assets of the firm have increased by 79.48% in 2011-12 as compared to 2010-11.

    This indicates that Infosys had good cash flows in the previous year and thus invested highly in

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    assets to increase the overall equity of the firm. The company is having high liquidity and it will

    greatly help the firm in paying off its liabilities.

    As compared to Wipro, Infosys has higher liquidity in 2011 as per vertical analysis.

    2.2.2 Profit and Loss

    Wipro Ltd

    The companys Operating Profits have increased by 14.5 percent. It should be noted that

    although the sales in the last year have increased by 1.53 percent. The operating profits have

    increased by good amount indicating that company is experiencing smooth and good operations.

    Infosys

    The companys Operating Profits have increased by 22.3 percent in 2011-12. Thus, the company

    has enjoyed good cash flows throughout the previous year and good margins.

    As compared to Wipro, the profits of Infosys were huge and thus Infosys showed a significantly

    good performance than Wipro.

    2.2.3 Long Term Loan and Advances

    Wipro Ltd

    The long term loans and advances of Wipro have increased by 2.44 percent. This shows that

    Wipro has recovered the dues from its debtors and there are few debtors as compared to previous

    year. This is also be interpreted as the fact that Wipro has earned its income from majority of its

    debtors in the year 2011-12.

    Infosys

    The long term loans and advances of Infosys have increased by 4 percent. This shows that

    Infosys has not recovered enough dues from its debtors and there are exists a large number of

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    debtors as compared to previous year. Thus, Infosys has large number of debtors and the delay in

    earnings from debtors has lead to significant opportunity cost on the income.

    2.2.4 Current Investments

    Wipro Ltd

    The current investments of Wipro have significantly by 10.47 percent. This can be attributed to

    the fact that as per vertical analysis, the company is having high liquidity. Thus, the company is

    investing high in order to have more return on investments.

    Infosys

    The current investments of Infosys have significantly increased from 0.95 percent. Although, the

    liquidity of Infosys is quite high as per vertical analysis, but it seems that the company is playing

    safe by keeping the high liquidity and not investing much, thereby reducing risk.

    Thus, Wipro as compared to Infosys has made huge significant investments while both the

    companies had high liquidity.

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    2.3 Trend analysis

    2.3.1 Sales Turnover

    As per the Trend analysis, it can be seen that sales turnover of Wipro has increased considerably

    as compared to Infosys even though both companies are following increasing trend in salesfrom 2009-12.

    2.3.2 Current Investments

    As per the Trend analysis, it can be seen that current investments of Wipro have increased in

    2009-11, but decreases in 2011-12. Moreover, the current investments of Infosys are on

    increasing trend from 2009-12.

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    2.3.3 Current Liabilities

    As per the Trend analysis, it can be seen that current liabilities of Wipro have increased

    throughout 2009-12. Moreover, the current liabilities of Infosys have also increased during2009-12.

    2.3.4 Long Term Loan and Advances

    As per the Trend analysis, it can be seen that current liabilities of Wipro have increased

    throughout 2009-12. Moreover, the current liabilities of Infosys have also increased during

    2009-12.

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    2.3.5 Share Capital

    As per the Trend analysis, it can be seen that share capital of Wipro has declined a bit during

    2011-12 and share capital of Infosys has remained almost constant over 2009-12

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    3 Financial Analysis

    3.1 Ratio Analysis

    3.1.1 Liquidity Ratios

    3.1.1.1 Current Ratio

    It is also known as Working Capital Ratio, Solvency Ratio. This Ratio indicates the

    relationship between Current Assets and Current Liabilities. Ideally, the Current Assets should

    be more than Current Liabilities. If Current Ratio > 1 then the current assets are said to be

    enough to pay current obligations. Analysts consider current ratio of 2:1 to be ideal.

    Year/Company Wipro Infosys

    2011-12 2.70 4.68

    2010-11 1.45 5.11

    The current ratio of both Wipro and Infosys is well above the excepted ratio of 2:1. But, the

    credit strength of Infosys is stronger than Wipro and Infosys enjoys quite huge working

    capital and thus can meet its current liabilities easily. This also indicates that assets have

    not been put into appropriate use by Infosys.

    3.1.1.2 Quick Ratio

    It measures the ability of a company to use its near cash or quick assets to extinguish or retire its

    current liabilities immediately. It should be 1:1 or higher, however this varies widely by industry.

    In general, the higher the ratio, the greater the company's liquidity.

    Year/Company Wipro Infosys

    2011-12 2.58 4.6

    2010-11 2.2 5.02

    The quick ratio of both the companies is higher than 1. Moreover, the higher quick ratio of

    Infosys as compared to Wipro in 2011-12 suggests that Infosys can meet its financial

    obligations easily, has higher liquidity and better short term financial position as compared

    to Wipro.

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    3.1.2 Profitability Ratios

    3.1.2.2 Net Profit Margin

    When doing a simple profitability ratio analysis, net profit margin is the most often margin ratio

    used. The net profit margin shows how much of each sales dollar shows up as net income afterall expenses are paid. For example, if the net profit margin is 5% that means that 5 cents of every

    dollar is profit.

    The net profit margin measures profitability after consideration of all expenses including taxes,

    interest, and depreciation. The calculation is: Net Income/Net Sales. Both terms of the equation

    come from the income statement.

    Year/Company Wipro Infosys

    2011-12 0.126 0.256

    2010-11 0.180 0.243

    The Net Profit Margin of both the companies is below 1. Moreover, Infosys has high Net

    Profit Margin and is more profitable and efficient than Wipro. This also imply that Infosys

    has received higher returns than Wipro.

    3.1.2.2 Gross Profit Margin

    The gross profit margin looks at cost of goods sold as a percentage of sales. This ratio looks at

    how well a company controls the cost of its inventory and manufacturing of its products and

    subsequently pass on the costs to its customers. The larger the gross profit margin, the better for

    the company. The calculation is: Gross Profit/Net Sales. Both terms of the equation come from

    the company's income statement.

    Year/Company Wipro Infosys

    2011-12 0.293 0.2965

    2010-11 0.1962 0.3023

    The Gross Profit Margin of both the companies is below 1 and almost same. Moreover, the

    Gross Profit margin of Wipro has increased significantly from 2010-11 to 2011-12 and for

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    Infosys, the Gross Profit Margin has declined from 2010-11 to 2011-12, thus indicating that

    Wipro has higher operating efficiency as compared to Infosys.

    3.1.2.3 Operating Profit Margin

    Operating profit is also known as EBIT and is found on the company's income statement. EBIT

    is earnings before interest and taxes. The operating profit margin looks at EBIT as a percentage

    of sales. The operating profit margin ratio is a measure of overall operating efficiency,

    incorporating all of the expenses of ordinary, daily business activity. The calculation is:

    EBIT/Net Sales. Both terms of the equation come from the company's income statement.

    Year/Company Wipro Infosys

    2011-12 0.196 0.1957

    2010-11 0.219 0.1432

    The Operating Profit Margin of both the companies is below 1 and almost same in 2011-12.

    Moreover, the Operating Profit margin of Wipro has decreased from 2010-11 to 2011-12

    and for Infosys, the Operating Profit Margin has declined from 2010-11 to 2011-12, thus

    indicating that overall profitability of Wipro has declined and that of Infosys has increased.

    3.1.3 Leverage Ratios

    3.1.3.1 Debt Equity Ratio

    One of the most important things on a firms balance sheet is the amount of debt they have on

    their balance sheet. Debt includes the firm's current liabilities which are the obligations the firm

    intends to pay off in one year or less. The debt to equity ratio is calculated by dividing the firmstotal debt by the firms equity. Debt includes short-term debt (current liabilities on the balance

    sheet) and long-term debt. Equity includes the combination of shareholders equity (the cash paid

    in by the investors when the company sold its stock) and the companys retained earnings.

    Debt/Equity = Total Debt/Shareholders Equity.

    Year/Company Wipro Infosys

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    2011-12 0.206 -

    2010-11 0.220 -

    The Debt Equity Ratio of Wipro has reduced over past two years, thus indicating thatthere relatively higher margin of safety for creditors and is favourable from long term

    creditors view. Moreover, Infosys has no debt and thus has all equity capital in

    investments.

    3.1.3.2 Interest Coverage Ratio

    It tells how easily a company can pay interest expenses on outstanding debt. The lower the ratio,

    the more the company is burdened by debt. When the companys interest coverage ratio is only

    1.5 or lower, its ability to meet interest expenses may be questionable.

    Year/Company Wipro Infosys

    2011-12 79.32 -

    2010-11 99.37 -

    The Interest Coverage Ratio of Wipro has reduced over past two years, thus indicating a

    decrease in the capacity of the firm to pay interest expenses on outstanding debt. Moreover,Infosys has no debt and thus the interest coverage ratio is zero.

    3.1.4 Activity Ratios

    3.1.4.1 Inventory Turnover Ratio

    In accounting, the Inventory turnover is a measure of the number of times inventory is sold or

    used in a time period such as a year. The equation for inventory turnover equals the cost of goods

    sold divided by the average inventory.

    Year/Company Wipro Infosys

    2011-12 48.33 -

    2010-11 43.12 -

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    The Inventory Turnover Ratio of Wipro has increased over past two years, thus indicating

    a effective stock management and stocks are sold more frequently and hence less money is

    required for inventory maintenance. Moreover, Infosys being a pure software company

    doesnt hold any inventories.

    3.1.4.1 Debtors Turnover Ratio

    In accounting, the Inventory turnover is a relationship between sales and amount receivables.

    The shows the speed with which receivables are converted to cash. It indicates the average no. of

    times debtors are turned during the year.

    Year/Company Wipro Infosys

    2011-12 4.61 6.5

    2010-11 4.87 6.81

    The Debtor Turnover Ratio of Wipro and Infosys has decreased over past two years, thus

    indicating an ineffective debtor management. Moreover, Infosys has converted large no. of

    debtors as compared to Wipro during 2010-12 but the overall debt collection has reduced

    over the past two years for both the companies.

    4 Ratios important to various Institutes

    Ratios important to creditors:

    Short-term creditors are primarily concerned with a company's ability to meet short-term debt

    from current assets, so they concentrate on the Liquidity Ratios emphasizing cash flow. Long-

    term creditors want to be paid back in the long term, so they look to solvency ratios such as total

    debt to total stockholders' equity.

    Wipro Ltd

    The liquidity ratios of Wipro are above the standard benchmark and have increased

    during 2011-12. Thus, I would suggest the creditors to invest in Wipro as there are good

    future prospects.

    Infosys

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    The liquidity ratios of Infosys are above the standard benchmark but it should be noted

    that the liquidity ratios namely-current ratio and quick ratio have declined during 2011-12.

    Also, Infosys doesnt have any debts since all of its investment is equity capital, so

    considering the goodwill of company and decent liquidity ratios, I think creditors can

    invest in Infosys.

    Ratios important to Investors:

    Investors often look at the debt/equity ratio, the quick ratio, the current ratio to get an idea of the

    financial position of the company. Just like with your own personal finances, you want to know

    that the company has enough money to pay its bills timely and that it does not owe too much

    money.

    Wipro Ltd

    The debt equity ratio has reduced during 2011-12 and liquidity ratios have increased

    during 2011-12. Thus, I would suggest the investors to invest in Wipro as there are good

    future prospects.

    Infosys

    The liquidity ratios namely-current ratio and quick ratio have declined during 2011-12.

    Also, Infosys doesnt have any debts since all of its investment is equity capital and is under

    utilizing its assets(current ratio 5.11), so I think the prospects are grim and investors

    should take a call before investing in the firm.

    Ratios important to Management:

    Managers are interested in measuring the operating performance in terms of profitability and

    return on invested capital. They are interested in measures of operating efficiency, asset turnover,

    and liquidity or solvency. These will help them manage day-to-day activities and evaluate

    potential credit customers and key suppliers. Manager ratios serve as cash management tools by

    focusing on the management of inventory, receivables and payables. Accordingly, these ratios

    tend to focus on operating data reflected on the profit and loss statement and on the currentsections of the balance sheet. Three separate items are involved in the calculation of these ratios:

    sales, net income, and assets.

    Wipro Ltd

    The debt equity ratio has reduced during 2011-12 and liquidity ratios have increased

    during 2011-12. Also, the turnover ratios and profitability ratios have increased during

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    2011-12, but the operational efficiency is less as compared to Infosys. So, I would suggest

    the management to focus on operational efficiency and should utilize their assets properly

    as current ratio is about 2.7 for Wipro during 2011-12.

    Infosys

    The profitability ratios of Infosys are fine, but the current ratio is very high. I think there is

    management failure in Infosys as a result of which the assets are poorly utilized. So, I ould

    suggest the management to look into the situation on immediate basis and devise a way for

    proper utilization of assets.

    Ratios important to Banking and other financial institutes:

    Ratios important to banks are business entity's liquidity, solvency, return on investment,

    operating performance, asset utilization, and market measures.

    Wipro Ltd

    The debt equity ratio has reduced during 2011-12 and liquidity ratios have increased

    during 2011-12. Thus, the liquidity and returns of company during 2011-12 are

    satisfactory. So, I think the prospects are good and banks and other financial institutions

    can invest in Wipro.

    Infosys

    The liquidity ratios namely-current ratio and quick ratio have declined during 2011-12.Also, Infosys doesnt have any debts since all of its investment is equity capital and is under

    utilizing its assets(current ratio 5.11), market sentiments are also not positive for Infosys

    and the companys forecast for yr. 2012-13 is way too low as compared its competitiors. So,

    I think the prospects are grim and thus banks and other financial institutions should take a

    call before investing in the firm.

    HIGHLIGHTS OF ACCOUNTING POLICIES

    Basis of Preparation:

    These financial statements have been prepared in accordance with the generally accepted

    accounting principles in India under the historical cost convention on accrual basis. These

    financial statements have been prepared to comply in all material aspects with the accounting

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    standards notified under Section 211(3C) [Companies (Accounting Standards) Rules, 2006, as

    amended] and the other relevant provisions of the Companies Act, 1956.

    All assets and liabilities have been classified as current or non-current as per the Company''s

    normal operating cycle and other criteria set out in the Schedule VI to the Companies Act,1956.

    Based on the nature of products and the time between the acquisition of assets for processing andtheir realisation in cash and cash equivalents, the Company has ascertained its operating cycle as

    12 months for the purpose of current - non current classification of assets and liabilities.

    Revenue Recognition:

    Revenue is primarly derived from software development and related services and from licensing

    of software products. Arrangements with customers for software development are either on fixed

    price or fixed time-frame or fixed time and material basis.

    Valuation of Fixed Assets:

    WIPRO:

    Fixed assets are stated at historical cost less accumulated depreciation. Costs include expenditure

    directly attributable to the acquisition of the asset. Borrowing costs directly attributable to the

    construction or production of qualifying assets are capitalized as part of the cost.

    INFOSYS:

    Fixed assets are stated at cost, less depreciation and impairment, if any. Direct costs are

    capitalized until assets are ready for use. Capital work in progress compromises the cost of fixed

    assets that are not yet ready for their intended use. Intangible assets are recorded at the

    consideration paid for such project and are carried at cost less accumulated amortization and

    impairment. Goodwill compromises excess of purchase consideration over the fair value of the

    net assets of the acquired enterprise.

    Depreciation and Amortization:

    WIPRO:

    The Company has provided for depreciation using straightline method, at the rates specified in

    Schedule XIV to the Companies Act, 1956, except in cases of the followingassets, which are

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    depreciated based on estimated useful life, which is higher than the rates specified in Schedule

    XIV. Fixed assets individually costing Rupees five thousand orless are depreciated at 100% over

    a period of one year. Assets under finance lease are amortised over theirestimated useful life or

    the lease term, whichever is lower.

    INFOSYS:

    Depreciation on fixed assets is provided on the straight line method which is estimated by the

    management. Individual low costs project (less than Rs. 5000) are depreciated over a period of

    one year. Intangible assets are amortized on straight line basis. Leasehold improvements are

    written off over the lower of remaining lease period or life of the asset.

    Investments:

    WIPRO:

    Long term investments are stated at cost less other than temporary decline in the value of such

    investments, if any. Current investments are valued at lower of cost and fair value determined by

    category of investment. The fair value is determined using quoted market price/market

    observable information adjusted for cost of disposal. On disposal of the investment, the

    difference between its carrying amount and net disposal proceeds is charged or credited to the

    statement of profit and loss.

    INFOSYS:

    Trade investments are the investments made to enhance groups business interests. Investments

    are classified into long term or short term based on management classification at the time of their

    purchase. Cost for overseas investment comprises the Indian rupee value of the consideration

    translated at the exchange rate of the day when payments are made. Long term investments are

    carried at cost less provisions recorded to recognize any decline.

    Inventories:

    WIPRO:

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    Inventories are valued at lower of cost and net realizable value, including necessary provision for

    obsolescence. Cost is determined using the weighted average method. Cost of work-in-progress

    and finished goods include material cost and appropriate share of manufacturing overheads.

    INFOSYS:

    Infosys doesnt have any inventories.

    KEY HIGHLIGHTS OF VARIOUS COMPONENTS OF ANNUAL REPORT

    Auditors Report:

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    WIPRO:

    (a)The Company has maintained proper records showing full particulars including quantitativedetails and situation of fixed assets.

    (b)The Company has a regular programme of physical verification of its fixed assets by which allfixed assets are verified in a phased manner over a period of three years. In our opinion, thisperiodicity of physical verification is reasonable having regard to the size of the Company andthe nature of its assets. As informed to us, no material discrepancies were noticed on suchverification.(c)Fixed assets disposed off during the year were not substantial, and therefore, do not affect thegoing concern assumption.(d)The inventory, except goods-in-transit, has been physically verified by the management

    during the year. In our opinion, the frequency of such verification is reasonable.(e)The procedures for the physical verification of inventories followed by the management arereasonable and adequate in relation to the size of the Company and the nature of its business.(f)The Company is maintaining proper records of inventory. As informed to us, the discrepanciesnoticed on verification between the physical stocks and the book records were not material.(g)The Company has granted loans to four parties covered in the register maintained underSection 301 of the Companies Act, 1956 (Act). The maximum amount outstanding during theyear was Rs 4,060 millions and the year-end balance of such loans was Rs 3,969 millions (ofwhich loans amounting to Rs 3,536 millions are interest free).(h)In our opinion, the rate of interest, where applicable and other terms and conditions on which

    loans have been granted to companies, firms or other parties covered in the register maintainedunder Section 301 of the Act are not, prima facie, prejudicial to the interest of the Company.

    INFOSYS:

    (a) The Company is maintaining proper records showing full particulars, including quantitativedetails and situation, of fixed assets.(b) The fixed assets are physically verified by the Management according to a phased

    programme designed to cover all the items over a period of 2 years which, in our opinion, isreasonable having regard to the size of the Company and the nature of its assets. Pursuant to theprogramme, a portion of the fixed assets has been physically verified by the Management duringthe year and no material discrepancies between the book records and the physical inventory havebeen noticed.

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    (c) According to the information and explanation given to us, the Company procures inventoriesspecifically for the purpose of executing certain contracts and no inventory is held at any point oftime during the year. Accordingly clauses (ii)(a) and (ii)(b) of Paragraph 4 of the order are notapplicable to the Company.

    (d) The Company has granted a loan to body corporate covered in the register maintained underSection 301 of the Act. The maximum outstanding amount is26,95,65,993 and the body hasnever defaulted in payments.(e) The Company has not taken any loans, secured or unsecured, from companies, firms or other

    parties covered in the register maintained under Section 301 of the Act.

    (f) The company has no material dues but have income tax dues due to some disputes.The exactfigure can be found out in companys annual report.

    (g) The Company has no accumulated losses.

    (h) According to the records of the Company examined by us and the information andexplanation given, the Company has not defaulted in repayment of dues to any financialinstitution or bank or debenture holders as at the balance sheet date.

    Management Discussions

    WIPRO:

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    Industry /Vertical focus:

    We continue to invest significant resources in understanding and prioritizing verticals such asenergy, natural resources and utilities, banking, financial services and insurance, healthcare, lifesciences & services and retail and consumer product goods. Within these verticals, we invest in

    acquiring deep industry knowledge, understanding their information and technology andleveraging available technologies to deliver effective solutions and products to our clients andpotential clients. We seek to meet all the IT services needs of our clients in these verticals withour broad range of specialized service offerings that are designed to address their industryspecific needs.

    Geographies:

    Our prioritized investments in addition to our major markets will be focused on markets such asFrance and Germany in Europe, Canada, India, the Middle East, Asia Pacific and Africa.

    Technologies:

    We will continue to invest in the 3 disruptive technologies viz. Cloud Computing Services,Mobility Services & Analytics with the objective of providing differentiated business orientedsolutions to our customers.

    Employee Centricity:

    We believe that our employees are the heart of our organization; hence a large part of ourmanagement focus is towards strengthening and caring for our employees. Our aim is to create

    and nourish the best in class global leadership and provide them unlimited opportunities forcareer enhancement and growth. It is our aim to be a truly global company that not only servicesglobal customers but also employs people worldwide. We consciously enhance gender diversitywith 28% of our employees being women. We have 23,000 employees onsite in customerlocations of whom 38% are resident citizens. We have employees of 73 nationalities on our rolls.Our employee base is young with 65% of our employees aged less than 30 years and the averageage of 29 years.

    INFOSYS:

    The financial statements have been prepared in compliance with the companies act 1956,

    guidelines by the SEBI and Generally Accepted Accounting Principles(GAAP )in India.

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    Industry Structure and Developments:

    Changing economic and business conditions, evolving consumer preferences and rapid

    technological transformations are driving corporations to transform the manner in which they

    operate. Companies are now more focussed on their core business objectives such as revenue

    growth and profitability.

    There is increasing need for highly skilled IT professionals to optimize the business process but

    the organizations are quite reluctant to grow their in-house IT development. This has led to their

    increased dependence on other specialized corporations.

    According to Global Tech Market Outlook IT consulting and outsourcing are to grow by 6.3% in

    2012-13.

    Financial Condition:

    The sources of funds were identified as:

    Share capital

    Reserves and surplus

    Applications of funds were on fixed assets and investment like increasing stake in Infosys BPO

    and other investments on various subsidies.

    Corporate Governance Report

    WIPRO:

    Awards and Rating

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    The Company has been awarded the highest rating of Stakeholder Value and Corporate Rating 1

    (called SVG 1) by ICRA Limited, a rating agency in India being an associate of Moodys. This

    rating implies that the Company belongs to the Highest Category on the composite parameters of

    stakeholder value creation and management as also Corporate Governance practices.

    The company has been awarded the National award for excellence in Corporate Governancefrom Institute of Company Secretaries of India during the year 2004. The company has been

    given the award for excellence in Financial Reporting from Institute of Chartered Accountants of

    India during the year 2012.

    Mr. Azim H. Premji Chairman and managing Director of the Company has been awarded Long

    time Achievement Award for Excellence in Corporate Governance from Institute of Company

    Secretaries of India during the year 2011. The Company has also been assigned LAAA rating to

    Wipros long term credit. This is the highest credit quality rating assigned by ICRA Limited to

    long term instruments.

    The Companys Long Term Corporate Credit Rating by Standard and Poor (S & P), a Credit

    Rating Agency is BBB+ (Outlook Negative).

    The Company was ranked among the Top 5 in Greenpeace International Ranking Guide and

    regained its top position. The Company has been Awarded as one of the worlds Most Ethical

    Companys by Ethisphere Institute

    Shareholders Satisfaction Survey

    The Company conducted a Shareholders Satisfaction survey in July 2011 seeking views on

    various matters relating to investor services. 1,944 shareholders participated and responded to thesurvey. The analysis of the responses reflects an average rating of about 4.08 on a scale of 1 to 5.

    Around 85% of the shareholders indicated that the services rendered by the Company were

    good /excellent and were satisfied.

    We are constantly in the process of enhancing our service levels to further improve the

    satisfaction levels based on the feedback received from our shareholders. We would welcome

    any suggestions from your end to improve our services.

    Means of Communication with Shareholders / Analysis

    We have established procedures to disseminate, in a planned manner, relevant information to our

    shareholders, analysts, employees and the society at large. Our Audit Committee reviews the

    earnings press releases, SEC filings and annual and quarterly reports of the Company, before

    they are presented to the Board of Directors for their approval for release.

    News Releases, Presentations, etc.: All our news releases and presentations made at investor

    conferences and to analysts are posted on the Companys website.

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    Quarterly results: Our quarterly results are published in widely circulated national newspapers

    such as The Business Standard, the local daily Kannada Prabha. We have also commenced

    intimating quarterly results to shareholders by email from January 2011 onwards.

    Website: The Companys website contains a separate dedicated section Investors where

    information sought by shareholders is available. The Annual report of the Company, earningspress releases, SEC filings and quarterly reports of the Company apart from the details about the

    Company, Board of directors and Management, are also available on the website.

    INFOSYS:

    Corporate governance is about commitment to values and good ethical business conduct which is

    intrinsic of the management affairs at Infosys. These values and principles set the context to

    manage Infosys in a fair and transparent manner. Rating agency Crisil has been rating Infosys

    CRISIL GVC LEVEL 1 rating for several year now while ICRA assigner CRA1 to Infosys.

    SHARE PRICE ANALYSIS OF WIPRO AND INFOSYS FOR 2011-12

    WIPRO

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    Source: www.nseindia.com

    Technically, the above chart has followed following trends:

    From January 2011 to June 2011, the share price has remain in a consolidated (rangebound) trend with 450 being an important support and resistance level.

    In the period from mid-July to August 2011 the share price has seen a major fall in its

    price from 414.80 to 320.35.

    From end of August there has been a bullish trend with higher tops and higher bottoms

    till mid Feb 2012 (when it again reached is resistance at 450) and since then the share

    price is in consolidated trend till end of March 2012.

    INFOSYS

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    Source: www.nseindia.com

    Technically, the above chart has followed following trends:

    From July 2011 mid-August 2011 mid, the share price of Infosys has seen a major fall.

    From August end till October the share price has seen recovery (was in bullish trend).

    Since November 2011 till March 2012 the share price is in a range bound trend between

    2550 and 3000.

    COMPARATIVE CHART OF WIPRO AND INFOSYS FOR 2011-12

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    Source: www.nseindia.com

    Technically, the above chart has followed following trends:

    From July 2011 mid-August 2011 mid, the share prices of both Wipro and Infosys has

    seen a major fall.

    From August end till October the share prices were recovering (was in bullish trend).

    Since November 2011 till March 2012 the growth in share price of Wipro was more than

    Infosys.

    Lastly, post January 2012, the share price of Wipro has shown more growth as compared

    to Infosys in the same quarter (Q4).

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    Conclusion

    Key Improvement Areas:

    WIPRO:

    The company should focus on reducing the operating expenses as there is a decline in net

    profit although there was in net sales. The drop in net profit was due to high operating

    costs.

    The long term debts should also be controlled as long debt equity ratio has increased for

    Wipro during 2011-12.

    The company should resort to efficient working capital management techniques as return

    on working capital has decreased during 2011-12.

    Debtors turnover ratio has decreased which shows that debtors are now making payments

    more frequently.

    Inventory turnover ratio has increased, thus the company is exhibiting good sales.

    INFOSYS:

    The company has unnecessarily kept its capital in assets as current ratio is 5.11. So,

    Infosys should make proper utilization of its assets.

    Market sentiments are negative, thus the companys management should take appropriate

    steps to revive the company before it starts making losses.

    The company doesnt have any debt as all investment is through equity capital.

    Being a software firm, Infosys doesnt have any inventories.

    The company should take steps to earn its receivables from debtors as debtors turnover

    ratio has increased during 2011-12.

    I think that Wipro should be given higher rating as although the profits of Wipro

    are not as high as Infosys, but as per overall financial analysis wipro stands out overInfosys. The reason can be that Infosys has unnecessarily blocked its capital in

    assets, the amount to be recovered from debtors have increased considerably during

    2011-12 and lastly, the market sentiments are negative for Infosys(as per share price

    analysis) due to inability of Infosyss management to take decisions on time.

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    REFERENCES

    [1] www.nseindia.com

    [2] www.wipro.com

    [3] www.infosys.com

    [4] www.wikipedia.org