Tata Consultancy Services Ltd – Experience certainty

Date Published: February 16, 2021

Company Overview:

Tata Consultancy Services Limited (TCS) is a subsidiary of the Tata Group, an Indian information technology consulting and business solutions company which operates in 46 countries worldwide. TCS Limited was founded in 1968 by a division of Tata Sons Limited.  Its early contracts included punched card services to TISCO (now Tata Steel), working on an Inter-Branch Reconciliation System for the Central Bank of India. In 1975 TCS made an electronic depository and trading system called SEMCOM for Swiss company. TCS also established India’s first software research and development centre called Tata Research Development and Design Centre in Pune, Maharashtra. On 25 August 2004, TCS became a Publicly Listed Company.

Some important aspects related to TCS:

1.             TCS is one of the largest employers of women with 35.3% of women employees.

2.             TCS became the first Indian IT company to reach $100 billion market capitalization with a value of $102.6 billion in Bombay Stock Exchange and a second Indian company ever after the Reliance industries that achieved the same in 2007. 

3.             TCS is ranked 10th on the Fortune India 500 list in 2018.

4.             It is the world’s 9th largest IT service provider by revenue.

5.             TCS is ranked 64th overall in Forbes World’s most innovative company ranking, making it the highest-ranked IT services company ever.

6.             In the latest, TCS, the biggest software services company, has added 12,000 jobs in the first quarter of 2019 and sent offer letters to 30,000 fresh graduates building the employment level in the country.

7.             In February 2020, Tata Consultancy Services has bagged a contract worth Rs 10,650 crore (US$ 1.5 billion) from pharma company Walgreens Boots Alliance.

Industry Overview:

The global sourcing market in India continues to grow at a higher pace compared to the IT-BPM industry. India is the leading sourcing destination across the world, accounting for approximately 55 per cent market share of the US$ 185-190 billion global services sourcing business in 2017-18. Indian IT &ITeS companies have set up over 1,000 global delivery centres in about 80 countries across the world.India has become the digital capabilities hub of the world with around 75 per cent of global digital talent present in the country.

Market Size:

The IT-BPM sector in India stood at US$177 billion in 2019 witnessing a growth of 6.1 per cent year-on-year and is estimated that the size of the industry will grow to US$ 350 billion by 2025. India’s IT &ITeS industry grew to US$ 181 billion in 2018-19. Exports from the industry increased to US$ 137 billion in FY19 while domestic revenues (including hardware) advanced to US$ 44 billion. IT industry employees 4.1 million people as of FY19.Revenue from digital segment is expected to comprise 38 per cent of the forecasted US$ 350 billion industry revenue by 2025.

Earnings per Share:

As seen from the graph the EPS has gone up to Rs. 86.10 in F.Y. 2020 from Rs. 61.59 in F.Y. 2016.

Investments/ Developments:

Indian IT’s core competencies and strengths have attracted significant investments from major countries. The computer software and hardware sector in India attracted cumulative Foreign Direct Investment (FDI) inflows worth US$ 43.58 billion between April 2000 and December 2019 and ranks second in inflow of FDI, as per data released by the Department for Promotion of Industry and Internal Trade (DPIIT).Leading Indian IT firms like Infosys, Wipro, TCS and Tech Mahindra, are diversifying their offerings and showcasing leading ideas in blockchain, artificial intelligence to clients using innovation hubs, research and development centres, in order to create differentiated offerings. In February 2020,

Company Operations:

TCS Business Operations encompass:

Finance and Accounting (F&A) services across procure to pay, order to cash, and record to report. Also help CFOs consolidate, standardize, and automate processes.

Human Resource (HR) services to help you reconfigure HR processes, and run innovative employee engagement programs.

Legal Process (LP) services for effective management of legal documents and workflows including contract management, litigation support, compliance and governance, and intellectual property services.

Customer Experience Management (CEM) services to enable enhanced interaction with customers and maintain consistency across channels.

Supply Chain Management (SCM) services that span strategic sourcing, contracts, supply chain planning and scheduling, inventory, sales orders, logistics fleets, warehouses, and aftermarket services.

Government Initiatives: On May 2019, the Ministry of Electronics and Information Technology (MeitY) launched the MeitYStartup Hub (MSH) portal.In February 2019, the Government of India released the National Policy on Software Products 2019 to develop India as a software product nationThe government has identified Information Technology as one of 12 champion service sectors for which an action plan is being developed. Also, the government has set up aRs 5,000 crore (US$ 745.82 million) fund for realising the potential of these champion service sectors.NITI Aayog is going to set up a national level programme that will enable efforts in AI^ and will help in leveraging AI^ technology for development works in the country.In the Interim Budget 2019-20, the Government of India announced plans to launch a national programme on AI* and setting up of a National AI* portal.National Policy on Software Products-2019 was passed by the Union Cabinet to develop India as a software product nation.

Road Ahead

India is the topmost offshoring destination for IT companies across the world. Having proven its capabilities in delivering both on-shore and off-shore services to global clients, emerging technologies now offer an entire new gamut of opportunities for top IT firms in India. Export revenue of the industry is expected to grow 7-9 per cent year-on-year. The industry is expected to grow to US$ 350 billion by 2025 and BPM is expected to account for US$ 50-55 billion out of the total revenue.

Recent News:

As much as 75 per cent of employees of the Tata Consultancy Services (TCS) will be working from home by the year 2025, the company has said. In figures, 4.48 lakh of its global employees will be working from home permanently by 2025. The TCS has over 448,000 of the consultants in 46 countries. This comes at a time when organisations have been forced to allow their employees to work from home, due to the coronavirus pandemic. Earlier, only 20 per cent of employees at TCS used to work from home. As of now, nearly 90 per cent of employees at the company are working from home, due to the coronavirus pandemic.

Our View:

Tata Consultancy Services (TCS) is an IT services, consulting and business solutions organization that has been partnering with many of the world’s largest businesses in their transformation journeys for the past fifty years. With revenues of over $20.9 billion in FY19, TCS is ranked among the top ten global IT service providers. Its consulting-led, cognitive-powered integrated portfolio is delivered through its unique location, independent delivery model, which is a benchmark of excellence in software development.

In the past year, TCS launched its Business 4.0™ thought leadership framework to help clients pursue their growth and transformation agendas by leveraging digital technologies along four key pillars: intelligence, agility, automation, and cloud.

The framework also identifies four business behaviours that Business 4.0 organizations adopt. They personalize at scale, leverage ecosystems, embrace risk and create exponential value. This articulation has resonated very well with the market, and resulted in TCS winning several industry-defining mega deals that leveraged its full stakeholder services strategy, investments in research and innovation, deep contextual knowledge of the client’s business, and its unmatched portfolio of products and platforms.TCS’ philosophy that there are only legacy technologies and no legacy people and its investments in the digital reskilling of the workforce at scale has helped the company build up a significant scale in newer technologies and establish leadership in the digital opportunity. The organization’s commitment to investing in people, and to providing a vibrant, engaging, and empowering workplace, has resulted in an industry-leading retention rate. TCS was recognized as a Global Top Employer by the Top Employer Institute, and as one of the Best Employers globally in the Forbes 2000 list.

As per the mean estimates of earnings projections made by brokers at Bloomberg, the estimated EPS (consolidate) for FY2021 and FY2022 stands at Rs.84.22 and Rs.94.94 respectively as compared to EPS of Rs.86.06 for FY 2020. The stock is trading at a PE of 21.19. Therefore, taking into consideration that this recommendation of Tata Consultancy Services Ltd. is being given for 1 year time horizon.

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