This article provides an in-depth fundamental analysis of TCS, which is the biggest IT company in India. In this article, we have Analyzed the business, financials, fundamentals, and stock performance of TCS.
This will help you evaluate is TCS better for investment. But before I proceed, please note that our analysis is only for educational purposes and not to provide stock tips. This article is to empower you with the right knowledge so that you can make an informed investment decision.
TCS Fundamental Analysis
Tata Consultancy Services is popularly known as TCS. TCS is the leading global IT services and business solutions provider. The company was founded by Faquir Chand Kohli, Tata Sons, and J.R.D. Tata.
In Europe, TCS ranked no.1 in customer satisfaction for the 8th year in a row. Across 13 European countries, TCS has a combined annual value of contracts over 40 billion Euros, with 4050 plus IT contracts.
TCS has a customer satisfaction of 82%. whereas, the industry average is 72%. TCS is the no.1 company in 12 European countries.
Tata consultancy services is no.1 in service delivery quality, no.1 in cloud capability, no.2 in account management, no.2 in proactivity, no.2 in innovation, and no.3 in business understanding.
Ranked #2 by revenue in the UK market for software and IT services. Up from #5 in 2019. Further, based on revenues earned, TCS was ranked #1 in Application and #2 in Consulting and Solutions.
TCS also ranked among the Top 100 US brands, across all industries, by Brand Finance for the sixth year in a row. TCS was ranked #59, up two places from the last year. and TCS brand value grew by $1.4 billion in the financial year 2021
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Key industry verticals of TCS are
- banking, financial services and insurance.
- Retail consumer business.
- Communications, media, and technology.
- Manufacturing.
- Life sciences & healthcare.
- Energy, resources & utilities.
- Public services.
TCS Revenue Breakup By Industry
| Industry | Segment Revenue Rs Cr | YoY Revenue Growth % | Segment Margin |
|---|---|---|---|
| Banking, Financial Services, and Insurance | 65,634 | 7.4 | 28.5 |
| Communication, Media and Technology | 27,007 | 4.2 | 29.6 |
| Retail and Consumer Business | 25,589 | 2.6 | 27.9 |
| Manufacturing | 15,950 | 3.1 | 28.1 |
| Others | 29,927 | 10.3 | 27.5 |
The majority of the revenues for TCS are from the banking, financial services, and insurance industry, 40% of the revenues or 65,634 crore rupees are from this industry.
16.5% or 27,007 crore rupees of revenues are from the communication, media, and technology industry. 15.6% or 25,589 crore rupees of the revenues are from the retail and consumer business industry. 9,7% or 15,950 crore rupees of the revenues are from the manufacturing industry and the remaining 18.2% or 29,927 crore rupees of the revenues are from others.
TCS has grown twice the rate of market growth over the last decade. the global market has grown from $1014 billion to $1355 Billion, which is 1.3X. whereas, TCS was grown from $8187 million to $22174 million, which is 2.7X.
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TCS Geographic Footprint
TCS’s geographic footprint covers North America, the United Kingdom, Continental Europe, Asia-Pacific, India, the Middle East, and Africa.
The company has a presence in 19 locations in North America, 19 Locations in LATAM ( also known as Latin America ), 20 locations in UK and Ireland, 7 locations in Europe, 1 location in MEA ( the Middle East and Africa ), 107 locations in India, 2 locations in Japan and 8 locations in APAC ( Asia-Pacific ).
TCS Revenue By Geography
Most of the people might have been shocked by seeing the revenue breakup by geography because India contributes just 5.1% to the TCS revenues. The majority of the TCS revenues are from America and Europe.
51.3% of revenues are from America, 31.9% of the revenues are from Europe, 5.1% of the revenues are from India and the remaining 11.7% of the revenues are from others.
TCS is also Selected as a ‘Superbrand’, in the US and UK. Based on the strength of its brand reputation across channels, business performance, industry-leading job creation, scale of employee training and development, and dedication to nationwide corporate social responsibility initiatives.
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Global workforce
Tata consultancy services have 4,88,649 employees, from 154 nationalities, where 36.5% of employees are women.
TCS Fundamental Analysis: Innovation
The company’s Chief Technology Officer oversees a three-horizon portfolio of investments spanning current innovation, mid-term, and long-term research.
Horizon 1:
Investment in labs across key business units to deliver innovative solutions to solve current customer problems several of TCS IP-based products released new features.
- IgnioTM released features related to cognitive procurement, digital workspace and assurance. Enabling customers to leverage the power of AI in business and IT functions.
- TCS MasterCraftTM launched new features for application development, modernization and enterprise data transformation: strengthened its go-to-market strategy with cloud service providers.
Horizon 2:
Mid-term investments in cloud-based platforms for orchestration of network technologies, robot communications, and logistics, and XR-based avatars.
- Research & innovation team creating digital twin platforms.
- TCS CogniXTm for finance was launched this year.
Horizon 3:
Futuristic investments in new areas such as DNA computing, AI for protein design, cognitive products, metamaterials, quantum computing, and sensing, and digital twins for biology.
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TCS Fundamental Analysis: Financials
| TCS | |
|---|---|
| Market Cap | 14,40,040 Cr |
| Price To Earnings ( P / E ) | 43.45 |
| Price To Book Value ( P / B ) | 17.53 |
| Price To Sales ( P / S ) | 10.59 |
| Price To Cash Flow ( P / CF ) | 42.58 |
| Sales Growth ( 5 Years ) | 9.63% |
| Profit Growth ( 5 Years ) | 6.06% |
| ROE ( 5 Years ) | 38.16% |
| ROCE ( 5 Years ) | 49.78% |
| Debt To Equity | 0 |
The market cap of the TCS is 14 lakh and 40 thousand crore rupees, which is the second-highest in India. TCS is the second biggest company after Reliance Industries in terms of market capitalization in India, and also has the second-highest weightage in the Nifty 50 Index.
From the above table, TCS financials are looking very strong. The ROE and ROCE of the TCS company are 38.16% and 49.78%, these numbers are really good. High ROE and ROCE tell that the company is efficiently generating cash by using its funds. The ROE and ROCE of TCS is higher than most of the IT companies and higher than the average of IT companies.
TCS is a debt-free company. the sales growth and profit growth are also looking good, but still, it can be even better than that.
The price to book value and price to the sales value of TCS is 17.53 and 10.59, which is slightly overvalued when compared to other IT companies.
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TCS Profit & Loss
| TCS | |
|---|---|
| Net Sales | 1,35,963 Cr |
| Profit Before Tax | 40,902 Cr |
| Net Profit | 30,960 Cr |
| EPS | 83.68 |
TCS net sales have increased from 1,31,306 crore rupees in the previous year to 1,35,963 crores in this financial year, which is just a 3.55% increase in sales. Net profit has fallen 6% from the previous year.
The reason for this is Covid. So, whenever you are considering sales growth or profit growth, or any other parameter, consider 3 years or 5 years average. To reduce the abnormality growth or any unlikely events.
EPS of TCS is the highest when compared to any other IT company.
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TCS Fundamental Analysis: Balance Sheet
| TCS | |
|---|---|
| Equity and Liabilities | |
| Share Capital | 370 Cr |
| Total Reserves | 74,424 Cr |
| Borrowings | 0 |
| Other N/C Liabilities | 2,902 Cr |
| Current Liabilities | 28,525 Cr |
| Total Liabilities | 1,06,221 Cr |
| Assets | |
| Net Block | 16,059 Cr |
| Capital WIP | 861 Cr |
| Intangible WIP | 0 |
| Investments | 2,405 Cr |
| Loans & Advances | 2,288 Cr |
| Other N/C Assets | 1,448 Cr |
| Current Assets | 83,160 Cr |
| Total Assets | 1,06,221 Cr |
How to read, analyze or understand a balance sheet.
TCS Shareholding Pattern
| Holding % | |
|---|---|
| Promoters | 72.19% |
| Public | 4.38% |
| DII | 8.01% |
| FII | 15.43% |
| Others | 0% |
TCS Cash Flow statement
| MAR 2021 | |
|---|---|
| Profit From Operations | 40,902 Cr |
| Adjustment | 73 Cr |
| Changes In Assets & Liabilities | 652 Cr |
| Tax Paid | -7,805 Cr |
| Operating Cash Flow | 33,882 Cr |
| Investing Cash Flow | -4,539 |
| Financing Cash Flow | -32,023 Cr |
| Net Cash Flow | -2,740 Cr |
How to understand a cash flow statement.
TCS Stock Performance
TCS stock price has grown at a CAGR of 26.2% over the last 5 years, 22.4% over the last 3 years, and 39.3% over the last 1 year. TCS stock has given huge returns for its investors and it will continue to give even in the future, as the demand for IT will rapidly increase in the future.
TCS Fundamental Analysis: Peer Comparison
| Company | Price Rs | Mcap Cr | P/E | P/B | P/S | EPS Rs | ROE % | ROCE % |
|---|---|---|---|---|---|---|---|---|
| TCS | 3,891 | 14,40,040 | 43.43 | 17.53 | 10.59 | 89.60 | 42.02 | 56.24 |
| Infosys | 1,699 | 7,14,697 | 38.09 | 9.42 | 8.32 | 44.61 | 27.12 | 36.79 |
| HCL Tech | 1,315 | 3,57,009 | 39.43 | 7.72 | 10.01 | 33.37 | 21.56 | 30.89 |
| Wipro | 647 | 3,54,609 | 36.66 | 7.59 | 7.05 | 17.65 | 22.06 | 25.52 |
| Tech Mahindra | 1,420 | 1,37,743 | 31.51 | 5.39 | 4.65 | 45.08 | 18.26 | 22.47 |
| L&T Infotech | 5,797 | 1,01,550 | 51.65 | 13.66 | 8.78 | 112.24 | 29.83 | 40.47 |
As we all know TCS is the biggest company in the IT sector in India and overall TCS was in the top three IT companies in the world.
From the above table, the PE of TCS is not higher or even lower when compared to the other stocks, The PE of TCS was almost equal to the industry average. from this, we can clearly say that in terms of PE, TCS is not overvalued and trading at a fair valuation.
The price to book value of TCS is higher when compared to other IT companies, this may be because the investors are hoping that TCS will perform better in the future so that they are willing to invest even at higher prices and quoting a higher price to book value.
The EPS of TCS is way higher than any other IT company except L&T, which is a positive thing.
The ROE & ROCE of TCS is also higher than any other IT company, no other company is even closer to TCS. This tells us that TCS is using its funds efficiently to generate cash.
Overall, TCS is a giant company in the IT sector, Not only in India but in the world. The company is fundamentally, financially very strong and the management is also most experienced and well balanced.
Frequently Asked Questions
Is TCS overvalued or undervalued ?
TCS is neither undervalued nor overvalued. TCS is trading at a fair valuation when compared to its peers like Infosys, Wipro, and HCL technologies. The PE multiple of TCS is trading at the industry average and the ROE & ROCE of TCS are better than any other company in the IT sector. EPS of the TCS is also very good and higher than any other company in the IT sector.
Does TCS Have Debt?
No, TCS doesn’t have any debt. TCS is a debt-free company.
What is the PE ratio of TCS?
The PE ratio of TCS is 43.43, which is slightly higher than the industry average. It doesn’t mean the stock is overvalued, because while valuing a stock we need to consider a lot of other factors along with the PE ratio.
TCS debt to equity ratio 2021?
TCS debt to equity ratio is 0, which means TCS is a debt-free company. TCS is a cash-rich company and continusly generating cash from its operations.
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