Fundamental Analysis of Tata Consultancy Services Ltd.

In this article, we will explore Tata Consultancy Services Ltd. fundamentally, understand its business model and industry, and determine whether it’s a good investment fit for you.

Tata Consultancy Services Ltd.

TCS is the flagship company of the Tata Group. It is an IT services, consulting, and business solutions organisation that partners with some of the world’s largest businesses in their transformation journey. It has been around for more than 50 years in the space.

As a part of the multinational Tata Group, TCS has more than 592,000 consultants currently in 55 countries. The company generated consolidated revenues of US $25.7 billion in the fiscal year ended March 31, 2022, and is listed on the BSE and the NSE in India. 

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Is the IT-software industry a goldmine investment?

The Indian IT industry currently stands tall as a global champion, boasting more than US $245 billion in revenue (as per FY23), and is expected to grow 15% year-on-year. The sector comprises almost 8% of India’s GDP and makes significant contributions to the economy, including in terms of employment generation.

Globally, developed countries outsource a lot of IT-software jobs to the Indian market, owing to significantly lower costs and technical expertise. Revenue generated from the export of IT services abroad amounted to more than US $194 billion last year.

Who are TCS’s competitors in the IT-software sector?

Here are some of TCS’s competitors:

• Infosys Ltd
• HCL Technologies Ltd
• Wipro Ltd
• Tech Mahindra Ltd

History of Tata Consultancy Services Ltd.

Here is a brief summary of the company through the years:

Early growth (1968 – 1990):

• Founded in Mumbai, India, Tata Consultancy Services (TCS) starts offering data processing services.
• In the 1970s, the company expanded its scope to include software development and maintenance, primarily for international clients.
• By the 1980s, it had entered the U.S. market through joint ventures and American partnerships.
• A decade later, TCS had become a pioneer in offshore outsourcing, setting up delivery centres in Asia and Eastern Europe.

Becoming a global leader (2000 – 2010):

• TCS IPOed on the BSE, becoming the first IT company to do so. Back then, its primary focus was to build capabilities like enterprise resource planning (ERP) and customer relationship management (CRM).
• In the 2010s, the company made strategic acquisitions to strengthen digital offerings, including CMC Limited (2009) and WITTENSTEIN Enterprise Systems (2015).
• Then, it became the first IT company to reach $100 billion in market cap.

Present and the future (2011 onwards):

• Now, the company has expanded its offerings largely, venturing into AI, machine learning (ML), and digital transformation.
• It has also continued to invest in strategic acquisitions, including Postbank Systems AG (2023) in order to further strengthen its presence in the European market.

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Company Profile of TCS

Pros

• The company is almost debt-free/.
• It has good Return-on-Equity numbers at 43.3% in 3 years.
• Dividends have also consistently stayed high at a dividend payout ratio of 61.4%.
• The operations of the company have also become more efficient and working capital requirements have reduced from 43.6 days to 32.8 days.
• High sustained promoter holding.

Cons

• According to some experts, the stock might be a bit overvalued, currently trading at 14 times its asset value (book value).
• Revenue growth has been lagging behind the overall industry. Over the last 5 years, revenue has grown at a yearly rate of 12.55%, vs industry average of 13.35%.

The finances

Shareholding pattern of Titan Ltd.

Here’s the shareholding pattern of Titan:

• Promoters: 72.30%
• Foreign Institutional Investors (FIIs): 12.47%
• Domestic Institutional Investors (DIIs): 10.01%
• Public: 5.17%

Promoter holding has remained constant throughout the last several quarters, which is normally a good sign. DIIs have been increasing their stake in the company since June 2022 – from 4.98% to 6.57% today. FII interest has slightly decreased during the same time period from 13.50% to 12.47%.

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Peer multiple comparison

*As on 14.01.2024

Conclusion

So, that’s a brief overview of everything you need to know about Tata Consultancy Services Ltd. before investing. This information is by no means, however, exhaustive, and we encourage you to do your own research before investing.

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