Valuation in Information Technology (IT) Sector

Mr. Chander Sawhney
Vice President
+9810557353
chander@indiacp.com
It has been believed in the market that “Technology has the shelf life of a banana.” If that happens then what factors drives the value of Information Technology based companies whose survival is totally dependent on that. The answer of this question is not so easy as it appears to be, As whatever the size of organizations large or small face the same dilemma: Scare resources, choosing and deploying the right resources at right time at right place to maximize the organization performance.

Why Sub Sector Categorization is necessary

There is a difference in valuing a Company which invest in IT to increase the efficiency of its business and the Company whose survival is totally dependent on IT because Companies with a view to increase the efficiency might Invest in IT and often viewed as a cost center, and when a department is viewed solely as a cost center, budgets get squeezed year over year, but that would not be in the case of IT Co’s, as their view of investment might be different.

Therefore, to make the proper judgment on the parameters that derives the value of Companies in IT sector. We have divided the IT Sector into various Sub- Sectors.

Overview of IT Sector

The IT sector can be broadly classified into following sub-sectors:

ITES (BPO) 

Major Corporations across the world outsource their back-office operations to some companies. E.g. Employee payroll for a US company’s global workforce is maintained by an Indian BPO. Slowly the definition is expanding to Human resources, accounting, logistics, legal processes etc.

IT- Hardware

The stuff you can actually see and touch is hardware. This would include laptops, desktops, Storage devices, Networking devices, LCD, printers etc.

IT- Education

This segment provides training for employment in the other segments. This would include companies providing various certification courses, like Java, Oracle etc. These companies also provide training for employees in corporate sector.

ITES (KPO)

It refers to the outsourcing of knowledge intensive tasks and functions to outside experts.

IT- Software

These companies help in developing and implementation of different software for their clients worldwide, which could be use for documentation, security services, banking software’s etc.

IT - Search Engines

Search engines are the programs that search documents for specified keywords and returns a list of the documents where the keywords were found.

This is the start only. For Key Valuation Drivers as well as Key Valuation Parameters in IT sector and the conclusion, please click on the image below...

Valuation in Information Technology Sector by Corporate Valuation Team
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