Fundamental Analysis
Fundamental Analysis of
Tata Consultancy Services
BY SUNNY MISHRA
NNEEL’S INVEST (DATA ANALYST)
Name – Sunny Mishra (Finance)
Batch – 17 May – 17 July 2021
College – Thakur Institute of Management Studies and Research
Contact – 8169375857
Email Id – mishrasunny101@gmail.com
Corporate Mentor – Neel Patel Sir
Project – Fundamental Analysis of Tata Consultancy Service
Tata Consultancy Services Ltd. (Fundamental Analysis)
Objective of Analysis
➢ Should we purchase TCS at CMP or Not ?
➢ Evaluating the Tata Consultancy Services (TCS) Investment Prospects
➢ Will help you to determine whether to invest in a company
➢ Role of company in marketplace now and in future
➢ Finding Instrinsic value of the stock for long term investing
Analysis Involves
➢ We would be going through SWOT Analysis, PESTEL Analysis of company.
➢ Internal and External Factor (Including global market overview)
➢ Possible Financial outcomes and future prospects
Short Information About Company Stock Price
➢ CMP : 3194.64 (16/June/2021)
➢ Market Cap :- 1,186,579 (cr)
➢ 52 Week High :- 3399 Rs,
➢ 52 Week Low :- 2126 Rs.
Methodology used during analysis
➢ EIC (Economic, Industry, Company)
Economy of World and India
➢ Target of $5 Trillion till 2025
➢ Service Sector is Rising
➢ Integration of Information technology with various sector of agriculture, manufacturing and services
➢ The penetration of usage of Information technology is rising
➢ The 4th Industrial Revolution will boost Infrastructure of IT and Cyber physical systems
➢ Globally America is contributing about 90% of service sector to GDP Ratio
➢ The rising information technology focus us towards the IT stocks such as TCS, Infosys, Wipro, etc.
➢ During pandemic and global slowdown of 2008 the IT stock has done very well performance
➢ 1999 Dot Com Boom led to decline in price of many stock but afterthat the Information technology
rise very high
➢ The latest technologies and their implementation increse the penetration and economy of IT
➢ Global IT Sector is $5 trillion and IT related consumer spending remains at $4 trillion which will
rise sharply
➢ The recent IPO of Zomato, Paytm, Mobikwik giving rise to various companies in IT Sector
➢ We will Analyse the IT Software Industry
➢ IT Software is base to all the development in field of IT
➢ The Economy of world and India will rise sharply and service sector is highly employed in
worldwide as the making of money in service sector is very easy to cater so there is rise in service
sector more than agriculture and manufacturing
Information Technology Industry Analysis
Indian stock market in information sector is mostly concentrated by the software companies and big giant which
are old and heavy capitalised companies supported by other business. There is negligence on part of startup
entering into public traded market.
Big companies such as TCS, Infosys, Wipro, Tech Mahindra, HCL technologies, etc. share the IT Market by
contributing the earning from export of software, services, business process management, etc.
The Zomato, Paytm IPO will increase India market cap. In service sector particularly IT sector, which will help
the emerging technologies to develop along with research and development and foreign expansion.
250
200
US $ (IN BILLION)
150
100
50
0
2010- 2011- 2012- 2013- 2014- 2015- 2016- 2017- 2018- 2019-
11 12 13 14 15 16 17 18 19 20
YEAR
IT Industry Market Size
Source : Ministry of Commerce and Industry
➢ According to Business research company, global IT serivce market cap will be $8370.95 Billion in 2021
and currently it is $7850.57 Billion
➢ India is only
➢ Fintech, Insurtech, foodtech, data related services, 5G, cyber security, etc will boost the India IT sector
to more high level
Recent acquisition of Ampion by Wipro pave a way for quality services and cyber security industry
exploitation, competitors also edge for the market share.
Company Ovrerview
Revenue Breakup
➢ Based on Industry classification, company operates in 5 key verticals i.e. Banking, finance services &
insurance (BFSI) which accounts for 39% of revenues, followed by, retail & consumer business (17%),
Communication, media & technology (16%), Manufacturing (11%) & other platforms which accounts
for the rest 17% of revenues.
Products & Platforms
➢ Company has a range of platforms for numerous services in the IT field:-
TCS BaNCS - dedicated platform for BFSI services.
TCS iON - Virtual learning platform available for educational institutions.
Ignio - leading cognitive automation software for enterprise IT and business solutions.
TCS ADD - platform for digital transformation of drug development and clinics trials.
TCS HOBS - plug & play business platform for subscription based services.
TCS TwinX - AI powered system to help stimulate and optimize enterprise decisions.
TCS Optumera - helps retailers to optimize their space, mix & price in an integrated manner.
TCS Omnistore - help touch points for effortless friction less customer experience and predictive
operations with help of AI.
Mastercraft - Digital platform to optimally automate and manage IT processes.
Jile - DevOps platform to accelerate software development and delivery and integrate DevOps tools.
Brand Value
➢ TCS’ reputation for customer-centricity, domain depth and execution excellence have made it the
preferred growth and transformation partner to leading corporations across the world. In recent years,
TCS has significantly built its presence and strengthened its brand across all major markets. It's brand
alone is valued at a value of 13.5 Billion USD.
Geographical Concentration
➢ TCS generates around 52% of total revenues from the Americas clients base, followed by Europe
(31%), India (6%) & the rest of world accounts for the rest 11% of revenues.
Heavy Dividend Payouts
➢ TCS has been a generous payer to shareholders and have paid 70% of its cash flows from FY05 to
FY20. It has paid about 80% of its cash flows as dividends since FY15.
Research & Development
➢ TCS Research and Innovation is strongly aligned with the Company’s vision of Growth and
Transformation. It continues to expand its foundational research in core computing areas. In FY20, the
company applied for ~5,200 patents and has been granted ~1,350 out of them.#
Its innovation labs are located in India and across the world and its R&D expenditure for FY20 was
1,867 crores.
Clients Base
➢ The company serves to some of the biggest conglomerates in the world like Google, Amazon, Azure,
openstack, Adobe, Intel, Bosch, IBM, Apple, Oracle, Symantec, etc. #
Presently, It has ~50 clients which pays 100 Mn. USD+ on yearly basis & ~100 clients who pays 50
Mn.+ USD on yearly basis.
Employee Base
➢ It is recognized as a top employer brand across the major markets it operates in, including North
America, Europe, UK, India, Latin America and Australia, among others.# It has an employee base of
450,000+ employees of which about 37% are women.
Its market capitalization is worth INR 11,81,218.07 Cr as of 16th April 2021, the company has reported
quarterly revenue of INR 36,017.00Cr at the end of March 2021. This company is found listed on the Bombay
Stock Exchange (BSE), having the code 532540 and on the National Stock Exchange (NSE).
The firm belongs to Tata Group, a corporation that is one of the most known brands and corporate
conglomerates worldwide. The headquarters is in Mumbai, India. It has 142 branches in 42 countries and 105
logistics centers in 20 nations. The company operates in America, Europe, Asia-Pacific, Middle East, and
Africa through subsidiaries. The shareholdings of the Group are published on the National Stock Exchange and
Bombay Stock Exchange.
The company was established as a division of electronic data processing (EDP) requirements and providing
management consultancy services in 1968 by Tata Sons Ltd. TCS was recognized as one of the top 3 companies
of IT services globally during the 50th year of its existence and one of the leading 60 firms in the USA in all
industries. It was also the worldwide most rapidly growing company by value, increasing 14.4% year on year
TCS provides an IT, BPO, technology, development and insurance services consulting-led and streamlined
Portfolio. Their specific Global Network Distribution ModelTM, known as the standard of software growth,
achieves this.
COMPANY SITUATION
SWOT ANALYSIS FOR TCS
Strengths Weakness
▪ Wide Range of Services ▪ Inability to Provide Adequate Returns to
▪ Huge Customer Base its Shareholders.
▪ Global Footprints ▪ Legal Battles
▪ Broad Network Globally ▪ Decrease in performance
▪ Skilled and Experienced Management Team.
▪ Available of Huge Cash
Opportunities Threats
▪ Growth in Service Market Globally ▪ Domestic and International Competitors
▪ Demand For Cloud-Based Solutions ▪ Changing Technological Trends
▪ Digital Market in India and Various ▪ Retaining a Sustainable Workforce
developing countries ▪ Global political circumstances (Brexit,
▪ Mobility Market USA Protectionism)
▪ Intense competition
PESTEL Analysis
Relationship with PESTEL – Political, Economical, Social, Technological, Legal,
Environmental.
POLITICAL TECHNOLOGICAL
• Government preferred firm • Dynamically changing pursuits of technology and
• The Brexit impact and USA Protectionist innovations like AI, cloud computing, etc.
Policies • Need to increase focus on products and solutions.
• Rise of China in various technologies
• Domestic oriented policies of Major EU
countries after covid 19
ECONOMIC LEGAL
• Strong market position • Previous history of data stealth
• The SEZ benefit • Workers held responsible for copying data
• Demand for higher compensation led to rise • Europe GDPR and anti competitive policies
in operating costs • Penalties in various situtations
• Increase in local hiring in various countries
such as US, UK increase cost to company.
SOCIAL ENVIRONMENTAL
• Population composition • The introduction of financial inclusion network
• TATA Brand Name for ethics and integrity • Environmental Friendly IT Infrastructure
• IT education to school students and CSR • Consulting Business for ESG (environmental, social
Actvities. and governance)
CRITICAL ISSUES
The SWOT and PESTEL analyse of TCS help us to identify some of the critical issues that the company might
be facing and of course, some distinctive issues must be mentioned.
TCS has the most Diversified geographical scope in the industry and while maintaining a diverse portfolio
helped India's largest exporter of software sail smoothly through the demand slowdown about four years ago, the
same diverse portfolio is now causing problems.
Today is time of digital innovation as business globally adopt modern technology such as AI, IOT, Cloud
computing, Blockchain, etc. Such innovation lead to cost savings, labor savings, time savings, improved
workplace productivity. The CEO of TCS, ‘Rajesh Gopinathan’ has acknowledge the change in technologies and
fast growing of various sectors.
Unemployment has affected the India very adversly and as a result, the IT sector is suffering the most. IT sector
is biggest employer in Indian economy but it is struggling through skill gap in employee while western countries
and china they shows good data about their employment skills and research and development in IT sector.
Indian companies are barred in EU and USA due to weak data protection and new domestic laws which is also
the cause of concern TCS
TCS was slammed with a Penalty of $420 million by the US in April 2016. Epic Systems, a US-based company,
accused TCS of robbing trade secrets, confidential and Epic data. Due to this incident, (4 years ago) TCS fails to
gain the trust of many US clients till the date.
All Issues can be resolved if focussed efficiently.
TCS need to work more on marketing their products and targeting direct consumer as which FAANG Companies
does in USA. And Need to invest more heavily on Research and developmemnt of technology and nurturing the
ideas and incubments labs in domestic based startups which will help the TCS to develop bigger ecosystem for
themselves.
Mission, Vision & Values
The firm defines its mission as “Our mission reflects the Tata Group's longstanding commitment to
providing excellence: To help customers achieve their business objectives by providing innovative, best-in-class
consulting, IT solutions and services and To make it a joy for all stakeholders to work with us.”
TCS project themselves as the ESG compliance in focus of environment friendly business.
According to TCS, "Our vision is to decouple business growth and ecological footprint from its operations to
address the environment bottom-line. The green approach is embedded in our internal processes and services
offerings...... From green buildings to green IT to a green supply chain, our mantra is to grow sustainably and
help our customers achieve sustainable growth through our green solutions and service offerings."
“Business, as I have seen it, places one great demand on you: it needs you to self-impose a framework of ethics,
values, fairness, and objectivity on yourself at all times.”- Ratan Tata, 2006. Tata has been a valuation-driven
corporation. Values like those of integrity, responsibility, excellence, leadership, and unity continue to push the
development and business of Tata companies. Tata is fair, truthful, open and moral. Everything they do is subject
to criticism and scrutiny of costumers. According to the company’s values, they must harmonize environmental
and social values into their businesses to ensure that what comes from people goes back to them only. Investment
in their employees and partners, enabling continuous learning and building caring and collaborative relationships
based on trust and mutual respect is one of the company’s key values.
Objectives
TCS will expand its addressable market to various new emerging areas of technology segments including IOT,
Cyber Security, Analytics and Cloud Software and Networks.
TCS is looking for acquisitin and scouting tools that can further stimulate the development of intellectual
property and extend the scope of the sector.
The organization is modifying the offices, procurement system, assessment and even conference procedures. By
2022, company is planning to be enterprise agile.
Agile allows a massive piece of work to be broken with a concept known as minimally viable product.
TCS have to undergo the massive internal transition to implement the agile model. They intend to do so in four
part: agile ready workplaces, agile ready workforce, agile ready offerings, agile ready collaboration with clients.
They aim to have more than 600 flexible workspaces by the end of the year.
There will be about 100 to 150 employees per room.
TCS will be the largest company in the world, going through this kind of agile transformation. This
transformation will ultimately help the company to drift smoothly through the changing curves of the IT market
and technologies.
TCS planning to increase investment in Research and Development, to compete in IT and deal with global
technology giants. They are opening research labs outside India to take their research abroad.
While it is certainly not a new idea to deliver great job and customer service, A strategy that cannot be
overemphasized is the idea of being customer-centered and they aim to further take this strategy forward in their
future operations. Customer-focused procurement also involves the analysis of the efficiency of vendors as per
customer requirements, maintaining an efficient and customer-service-orientated procurement process and
motivating employees to take the right decisions.
Organizational Structure
The organizational structure defines the role of the organization’s power and authority.
TCS has a mechanistic structure in which employees are subject to a formal structure and control. Laws,
protocols and a system of supervisors help work on a consistent and minimally expensive basis. TCS has a
matrix structure with specialization-based departments.
It is centralized to take decisions. At TCS the emphasis is given to the Voice of the Customer, as compared to
the Voice of the employees
Benefits and Challenges
➢ Mechanistic Structute
➢ Supportive environment
➢ Vertical process
➢ High attrition level
➢ Lack of cross functional teams
Financial Performance
Financial performance is the most important data about a company for any investor for making an investment
decision. So, lets analyze the financial performance of the company.
Financial aspects 2021 2020 2019
Total Revenue 1,64,177 1,56,949 1,46,463
Total Expenses 1,22,914 1,18,369 1,09,013
Net Income (Net Profit) 32,562 32,447 31,562
Current Assets 99,280 90,237 92,131
Total Assets 1,30,759 1,20,899 1,14,943
Current Liabilities 34,155 27,060 22,084
Total Liabilities 1,30,759 1,20,899 1,14,943
Dividend/share Rs 45 Rs 73 Rs 30
Return on Capital 47.21% 46.00% 44.97%
Employed
Current Ratio 2.91% 3.33% 4.17%
Return on Equity 37.52% 38.44% 35.18%
Reported Earnings Per Rs 86.71 Rs 86.19 Rs 83.05
Share (Basic)
Book Value per Share 235.43 226 239.73
Stock Price Rs 2928.25 Rs 2200.65 Rs 1876
Market Capital (In Rs.) 12.173 Trillion 10.798 Trillion 8.154 Trillion
Source : Moneycontrol
SWOT Analysis of Financial Statement
Strength Weakness
- Mutual fund increase their holding - Inefficient use of assets to generate profits
- Promoters increasing shareholding (400% (Return on asset declines)
in past 5.9 year) - Decline in net profit with falling profit
- Company with No Debt margin
- Growth in operating profit with increase in - Declining in net cash flow
operating margins - Promoter stock pleges is higher
- Promoter decreasing their pledge shares
- Annual Net Profit is Rising during
pandemic and after pandemic also
- Strong core business for cash generation
- Good return on capital employed
- Growth in Net Profit Margin
Opportunities Threats
- Stock near 52 week high with significant - Stock can be impacted by BREXIT
volumes - Company have high market cap but lower
- Expense is very higher and It increase year public shareholding
on year (costing can be done to reduce it) - Stock with expensive valuations
-
Latest News
➢ TCS to Invest over $300 Million in Arizona to expand operation in united states and tap
local talents
➢ TCS to take iON global after test marketing success in some market abroad (it will help
to exploit the foreign education market)
➢ TCS June Quarter Profit Jumps 29% to Rs 9,008 crore
➢ TCS partnership with OTT platform Sony Liv
➢ TCS launches SaaS based online tool
➢ Commercial bank of kuwait given contract to TCS for treasury operations
➢ TCS increase the deal with virgin galactic for airline operations
➢ TCS aims to reduce emissions by 70% in 2025 and bring down to 0 till 2030
➢ TCS top executive pay package rises by 55% in FY 21
➢ TCS CEO pay package increase to Rs 20.36 Crore
➢ TCS Buyback of shares worth Rs 9,997 crore (TCS Care about their investor)
Price during buyback (3.33 crore buyback) (price was 3000 Rs)
CMP – 3194 Rs and It’s all time high stood at Rs 3390 Rs
Comparative Analysis
Source: Moneycontrol
Comparative Analysis with Other Stock
➢ TCS Market Cap is largest in their peer companies
➢ Dividend Yield is very high for TCS
➢ PE is near to industry average (which is not good signal)
➢ Sales is higher than their peer companies which is good signal
➢ Return on capital employed is higher among all
➢ The other companies doesn’t have that much marketing which TCS has done globally about their.
Balance Sheet
Source : moneycontrol.com
Analysis of Balance Sheet
➢ The share capital is rising year on year
➢ Reserve has rising very sharply after 2015
➢ Company Borrowing declines during 2019 But it increase during 2020 and 2021 Due to covid 19 and various
other acquisitions
Cash Flow Statement
Source : moneycontrol.com
Analysis of CFS
➢ Company have huge cash flow from operating activity (which means company is performing
best in core activity)
➢ Cash flow from investing activity is negative which is saying that company is investing heavily
in their business (even they bring the buy back option) which is showing the future prospects
is good for long term holding
➢ Cash flow from financing activity is high due to increase in borrowing
➢ The company move to negative net cash flow in 2021 due to increase in financing cash flow
(negative)
o It can be cause of concern if it remains for long time
Profit & Loss Statement
Source : moneycontrol.com
Analysis of P&L Statement
➢ Sales risen sharply after 2015
➢ Expense also rising but it is surplus in operating profit
➢ Operating profit margin is also very good (even during pandemic also it shows the good
signal)
➢ Other income increases during 2018 but it declines
➢ Depreciation is very high which is cause of concern
➢ Profit before tax is Rs 43,760 Rs in 2021
➢ Net profit is Rs 32,430 (roughly $5 Billion) which is good for future prospects
➢ EPS is 87.67 Rs
➢ Dividend is very high for consistent years (which shows company has done good for long
time)
➢ Return on Equity for 10 year is 37%
➢ Compounded sales growth for 10 year is 16%
Ratios Analysis
March 2019 March 2020 March 2021
Return on capital 48% 47% 49%
employed (%)
Debtors Day 68 71 67
Inventory Turnover 2.22 2.40 2.15
Source : moneycontrol.com
➢ Reutnr on capital employed is very good which is around 50% for consistent years
➢ Debtors day
o The day required for debtors to pay for the bill
o It is very less as compared to other companies
➢ Inventory turnover ratio
o It is very good ratio for TCS
Shareholding Patterns
Source : moneycontrol.com
Analysis of Shareholding Pattern
➢ The promoter holding is very high
o Which is good signal, as promoter is holding the share which means you can also buy and
hold the share for long
➢ The FII shareholding decrease by 1-2%
➢ The domestic institutional investor decrease their share during covid and after covid the
market rise led to rise in the holdings
➢ Government has also very minority shareholding which means government can also have
influence over voting
➢ Public shareholding is 4.31% which is very less (it need to be increase to become cash flow
positive and improve company overall net cash flow)
Stock Price
Source : moneycontrol.com
➢ The largest volume was on 11 October 2019 At price of Rs 1986.85 which can be taken as the
intrinsic price but the stock is good which can be purchase at some lower price.
Source : moneycontrol.com
➢ Then company sales doesn’t decline during covid also which is good sign (that company can
face any problem or situation)
➢ The net profit margin also doesn’t decline and also they remian operating cash flow positve.
Instrinsic Value
➢ Intrinsic value calculation by 3 Model
o Expected Value / EBIDTA – It comes out to be 2034.15 Rs
▪ It is discount EV to Premium EBITDA
o Expected Value / Sales – It comes out to be 2360.92 Rs
▪ It is discount EV to Premium Sales
o Price / Sales – 2407.47 Rs
▪ It is discount price to Premium Sales
o CMP – 3194.5 Rs
▪ CMP is very higher than the Calculated Instrinsic value
What People/Expert Say About Stock
➢ TCS can rise as Mindtree (peer company) shown good result recently so TCS can also boom
as IT Sector is rising sharply
➢ Technical Expert says it is good sign to buy at Rs 3194.8 and it can be 2 to 3 times in coming
years
➢ It is F&O Stock so it will rise as it is market leader in their Industry
➢ JM finanical, HDFC finance, Nirmal Bang have increase the target for TCS to Rs 3.750
➢ ICICI set target to Rs 3800 (16 July 2021 CMP – 3194.5 Rs)
➢ Global digital technologies are expected to witness robust growth (~15-20% CAGR in the next
five years) led by robust growth in cloud, customer experience and robust growth in cloud
native technologies, believes the brokerage.
Recommendations/Conclusion
➢ For Long term and dividend we can purchase it
o IT sector will boom
o TCS is showing good result
o TCS will remain in fame as it is market leader and Tata sons is the parent company
o You can get benefit of short term by hedging in Future Market
o Its financial is very strong than others
➢ For Short Term
o We can wait as the company intrinsic value has passed and it is very higher to purchase
and you will be paying more price per stock which is PE is very high
o As the Industry PE is very high It matches to Industry PE
o The stock trades on Future and Option It is good to hold the long term stock to hedge any
benefit from F&O
Analysis through glance (In short)
Current Ratio
➢ It shows liquidity position of company (perfect is 2:1)
➢ Current asset / current liabilities
➢ TCS – 2.91 and Industry – 2.83
Debt to Equity Ratio
➢ TCS – 3.33
Return on capital Employed
➢ TCS – 52.75%
➢ EBIT/CE*100
➢ Huge funds available and good financial position and Banks are reluctant to loan.
Free Cash Flow
➢ Net Negative
➢ Operating positive
Reserves and surplus
➢ TCS – Rs 74,424 crore (2021)
PE Ratio
➢ Price to equity
➢ Market price per share / earning per share
➢ 34.7
Book Value per share
➢ Rs 235.49 For TCS
Thank you
