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All About TCS in One Page

TCS : Can it Sustain Leadership

India’s IT services sector is a major contributor to the countries GDP. It has increased the GDP of the economy from 1.2% in 1998 to 7.7% in 2017. Even in the times of such prolonged economic slowdown, the IT services industry keeps providing cushion to achieve the nation’s growth figures. The IT services and BPO units is a major source of revenue and employment for the major chunk and the industry has been growing steadily. As the various sectors like Banking & Finance, Insurance, Manufacturing, Retail/FMCG, etc adopt digitisation, the demand for the various IT services keeps on increasing. India being a developing country, has been going through a phase of transformation which translates into a huge demand for the IT services industry. The country is years, if not decades away from being a technologically sound country which means the demand for the IT services industry is not decreasing anytime soon rather it is only going to increase. The Indians being professional in their business approach and being a source of inexpensive services, further attracts foreigners to outsource their work to India. The Indian IT scene is like an ocean, changing continuously. There are a few big sharks in the market pool and one of them being TCS.

TCS is the largest IT company in India and the tenth-largest in the world. It is one of the many affiliates of India’ most respected business conglomerate i.e. the Tata Group. It provides a large array of IT services including business consulting, information technology, business process outsourcing (BPO), infrastructure, and engineering. They work in banking, financial services and insurance; manufacturing; retail and distribution, and telecom segments.

They started their business operations back in 1968 providing management consulting services and to service their electronic data processing requirements and have come a long way ever since. They have pioneered the Indian IT services industry. They also happen to be the largest software exporter in the country.

TCS is the fourth largest employer in the country and the third-largest IT employer worldwide. In 2018 they became the first Indian company to reach $100 billion in market capitalisation. Apart from the private they also help the government. They were responsible for the redesign, maintenance and support the UIDAI portal. 

Not only are they big in India, but they also have a massive global presence as well. Currently, they have offices in 286 locations across 46 countries all over the globe. Furthermore, 92% of their workforce is Indian which means that they employ a massive chunk of the Indian working population. Not only are they big employers, their workforce comprises of 31% women which isn’t a big number still, but compared to other such mammoth organisations it is quite significant.

They are a very customer-centric organisation are known worldwide for their customer satisfaction and their exemplary performance. They have set the benchmark quite high for other players in the IT services industry in India and overseas. When one thinks of TCS, they associate innovation and reliability with the name.

TCS vs Competitors

The company’s top competitors in the world market are IBM, HP and Accenture and in the Indian market, they have HCL, Infosys and Wipro as their peers. Together IBM, HP, TCS and Accenture are called the ‘Big Four’.

They are by far the fastest-growing brands out of their competitors with the growth of 58% just in the year 2014.

TCS has a PE (price to earnings) ratio of 88.64 which shows that the investors are expecting high growth rates in the future and this clearly signifies that the company is doing well, compared to its competitors pr ratios. HCL has a PE ratio of 33.5, Infosys has a PE ratio of 36.49 and Wipro’s PE ratio is the lowest of all at 15.19.

IBM has managed to retain their market position in the IT services sector at number one, followed by HP at number two, TCS at number three and Accenture as the 4th most valuable company in the IT services sector.

TCS has a market capitalisation of US$9.40Trillion, IBM has a market capitalisation of US$110.63 Billion, HP has a market capitalisation of US$26.66Billion and Accenture has a market capitalisation of US$152.32Billion.

In the financial year 2019, TCS posted revenue of US$ 22.031Billion, IBM reported US$77.1 billion as their revenue for the same year, HP posted US$ 58.8 million as their revenue and Accenture reported $43.2 billion as their total revenue for the fiscal year 19-20. It is clear that TCS has broken all records by posting such high revenue. It comes as no surprise that investors are willing to pay premium prices for TCS stocks.

Their revenues are going through the roof and this is the product of keeping customers at the centre. Their reliability and innovation are what sets them apart in the market. Customers keep coming back to TCS due to their stellar performance and their reliable work ethic.  

This compounding growth in the revenue and the profits and a higher market capitalisation in TCS are the foremost reasons TCS has caught the attention of a lot of institutional investors who are looking for safer companies for long term investment purposes. Even in times of global unrest, TCS attracts investors looking for safer investment avenues.

TCS’s boasts double-digit growth in their revenue and net profits unlike its peers in the same industry which have only been able to grow their revenues in single digits.

A lot of research analysts attribute TCS’s success due to their global presence. They recognised the importance of expanding their business globally and did so quite rapidly say many analysts. They are now reaping the benefits of their global footprint. Diversifying into foreign markets has allowed them to raise their revenue streams and grow as a multinational. A major portion of their revenue comes from their North American operations and their European market is the second-largest contributor to their revenue stream. TCS saw an opportunity in diversifying their business to new markets and they beautifully tapped all of these markets.

In terms of revenue earned per employee, TCS’s peers are ahead of TCS, with IBM and Accenture being top two.

The slow growth of TCS’s competitors can also be attributed to the popularity of newer technologies like automation software and cloud computing, thereby making their traditional approaches redundant. This is reflected in their declining revenues or slow growth.

Leadership

Good leadership is of great importance to a company’s success. The leadership can either take the organisation to great heights or result in underperformance like in the case of Dell and blackberry. It helps an organisation actualize its organisational goals by achieving efficiency. No organisation can work without effective leaders to help lead the path to success. The leaders keep the employees motivated and on the right track. They set a clear vision for the organisation to follow going ahead.

The massive growth in the recent years of the company can also be accredited to the CEO, Mr Natarajan Chandrasekaran. When he took over in 2009, they were almost performing close to Infosys looking at their profit margins. During his tenure, he has not only doubled the figures but also made them one of the leading IT services companies in the world. He had a hands-on approach with the customers and would regularly meet with them and make sure they were satisfied with the performance. He would keep his employees motivated by sending messages of encouragement. I’m pretty sure had the employees not been motivated enough, TCS wouldn’t have achieved the success it has today.

Secondly, Mr Chandrasekaran also decentralised the decision-making process. The IT sector is a very rapidly changing Industry due to constant innovation and introduction of new technology frequently. He enabled his employees to make quick decisions. He remodelled the organisational structure of the company along vertical lines and vested the decision-making power in them to enable them to crucial decisions fast.

Corporate Actions

Initially, when TCS decide to finally go through with their IPO in 2004, the leaders didn’t feel the need to market the IPO considering the company’s popularity. Investors had been waiting for an opportunity to invest their money in TCS and the IPO was long overdue. Needless to say, they were oversubscribed ten times over. They opened the issue on July 29th 2004 and 5,54,52,600 equity shares of the face value of Rs 1 each were put on sale. In addition to this, the greenshoe option offered 83,00,000 more shares. The price of the share was Rs 775- 900 per share.

They have indeed come a long way from their IPO. Investors who stayed for the long term have made thrice the average annual compounded returns from fixed deposits. An investor who had initially made an investment of Rs 1,00,000 in TCS in 2004 would have turned it into more than Rs 23 lakhs today with a CAGR of around 18.05%. Here’s how:

An investor who invested Rs 1,00,000 in TCS would have received 118 shares (1,00,000/850).

In April 2006 they announced a bonus issue to the tune of 1:1 making the 118 shares 236 shares.

The next time they came out with a bonus issue was in April 2009 again to the tune of 1:1 making the 236 shares into 472 shares.

The latest bonus issue was in 2018 with the same ratio i.e. 1:1 turning the 472 shares into 944 equity shares. 

Today the current market price of the TCS shares is Rs 2480 meaning that the value of the shares will be 944*2480 = Rs 23,41,120

This amount is excluding the dividends paid out by the company which clearly shows how the company has grown so much since its IPO. In contrast, had the investor invested the same amount in a bank FD he would have been left with just a little over Rs 2 lakhs today.

Apart from their bonus issuing, they have declared dividends 67 times since their IPO in ’04. In the past year alone, they have declared dividend amounting to Rs 73 per share. At the current share price of Rs 2480, this results in a dividend yield of 2.94%.

TCS had a share buyback, of Rs16,000 crores, which were 1.99% of their total equity shares. They wanted the company’s free cash flow to the shareholders. The promoters of the company also participated in the share buyback offer. It went through the tender route and they accepted shares on a proportionate basis during the buyback period.  They offered Rs 2100 per equity share for the buyback.

In February of 2017, they bought back 2.85% of their total equity shares for Rs 16000 crore. They bought back 5,61,40,351 shares for Rs 2,850 per share.

Conclusion

TCS’s volume growth has enabled them to grow so much as a company. Their business momentum has been rapid and they have been taking on a larger volume of projects than its Indian counterparts.

Apart from larger volumes, TCS also continuously been dominating the IT services sector with better margins compared to its Indian peers. They reported a 26.3% operating margin compared with 25.1% of Infosys. They have been reinvesting these profits ultimately making room for higher growth.

TCS also boasts better employee utilisation than a lot of other Indian IT services organisations. Better employee utilization realizes better profits. Its is no surprise their project volumes have been increasingly looking at their employee utilization.

Apart from better employee utilization, TCS also boasts of low attrition rates. In other words, the employees of the organisation have been kept motivated to put in their best work. All of these factors translate into their combined growth as an organisation. A good environment for the employees is only better for the company in the long run. Happy employees translate into better work from the employees. All of these factors have helped them overtake Infosys in just 15 years.

Analysts and investors both have a positive outlook on the company. TCS has managed to excel in their field irrespective of small fluctuations and is expected to keep growing in the future considering the digitisation of businesses that have been going on and will continue for a long time in the future. 

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An award is something which is awarded based on Merit. Awards & Recognition are a must in Life as it provides the necessary vigour to keep progressing ahead in Life. Awards do not only acknowledge success; they recognise many other qualities: ability, struggle, effort and, above all, excellence. This is the reason that for past 22 Years we have been christined as Best Stock Market Tips Provider & we are at the 'Top' in this field. Check out our Awards by clicking on Image or Post Title Now!!

Best share market tips provider award in India

 
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