Term Project
TATA CONSULTING SERVICES LIMITED
INDUSTRY ANALYSIS
1. Business Environment Analysis
PESTLE analysis is a framework which is imperative for companies such as Tata
Consultancy Services (TCS), as it helps to understand market dynamics & improve its
business continuously.
Political Factors:
➢ Tata Consultancy Services (TCS) has established a dominant position in the
domestic market.
➢ Although the positioning of the firm is strong is India, it still depends largely upon
North American and European markets.
➢ The European Union makes up more than 20% of the revenues for the firms. 10%
of the pound value fell after the referendum regarding UK’s decision to leave EU
was announced.
Economic Factors:
➢ As mentioned in the annual report the TCS’s revenue has exceeded the figure of
$20 billion, which is almost 20 times than that in the last 16 years.
➢ They have established a strong market position in terms of securing the rank of
being the first Indian company to have a market capitalization of $100 billion in the
last ten years.
➢ Tata Consultancy Services (TCS)has always followed an unconventional path for
creating differentiated strategy, creating its market success and allocating the
capital.
➢ They truly believe in the company’s ability to maintain the high revenue growth as
well as the profitability of the firm over the longer period.
Social Factors:
➢ Over the years of its operations, Tata Consultancy Services has gained expertise
into the area of establishing and retaining the existing customers.
➢ They have designed certain set of features which are quite unique to the company
which has helped them in gaining popularity among its current set of clients.
➢ They provide a good work life balance to the employees. Although the company
has been criticized for many levels of hierarchy in the organization.
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➢ Nevertheless, the company has established a very strong financial presence across
its areas of operations which provides its client with a certain level of confidence
in the company.
➢ Since India is already the IT hub for TCS, it employs the skilled labor which are
then posted onsite for handling the clients. The skilled labor further speaks about
the stability of the company in front of the clients.
Technological Factors:
➢ Tata Consultancy Services (TCS) attributes the success of the company towards its
investment in technology and the preference given by the company to innovation.
➢ The company collaborated with Singapore Airline Operations Solution, in order to
change the ground operations with the help of digital technologies which would
further improve operational efficiency and provide an enriched customer
experience.
➢ They further launched an Intelligent Power Plant Solution in order to digitally
transform operation with the help of power utilities, by combining AI, IoT and
Digital Twin technologies.
➢ The company also revealed the Machine First Delivery Model at the North America
Customer Summit as a proper channel of providing superior experiences to the
customers.
Legal Factors:
➢ TCS has been held responsible for stealing data in the past. The case was filed by
Computer Science Corporation where Tata Consultancy Services was held
responsible of fraudulently accessing content to construct an insurance platform.
➢ According to CSC, the company was abusing its authority while accessing the
codes. The company further alleged that some TCS employee copied and then
pasted some part of CSC’s insurance source code.
➢ They were of the view that the employee not only copied the code but sent it
colleagues through e-mail.
Environmental Factors:
➢ Tata Consultancy Services truly believes that providing equitable access to
financial services to the poorest of states can act as a direct bridge out of poverty.
➢ TCS launched a financial inclusion network which plays a major role in order to
bring about a banking revolution.
➢ The idea is to create a complete ecosystem where participants are connected
through an ecosystem to facilitate a seamless delivery of banking services even in
the most remote areas.
➢ Tata Consultancy Services (TCS) has been able to launch more than 300 million +
bank accounts under the umbrella of the same mission.
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2. Industry Life Cycle Analysis
➢ TCS Product Lifecycle Management (PLM) Solutions are focused towards
providing visibility of product and performance by integrating data, knowledge and
business processes, and making them accessible across extended enterprise.
➢ PLM Solutions are more than just enablement of technology capabilities. We help
transform the way organizations manage their product related processes
transcending functional, enterprise, and geographical barriers and innovate by
leveraging the company’s intellectual assets.
➢ They have built a wide range of PLM Solutions to digitize and manage the entire
product lifecycle, from product conceptualization, to design, manufacturing,
installation, maintenance and finally retirement.
➢ They work on cutting edge PLM products to provide services and solutions across
automotive, aerospace, hi-tech, retail, and life sciences verticals.
➢ Service life-cycle management (SLM) is becoming a key driver to success. SLM
refers to the process of servicing a product through its lifetime including customer
support, service request, service planning, service execution and field service, spare
parts management, warranty management, and recalls.
➢ The impact of SLM and a desire to improve the way in which service is delivered
have become a key priority for manufacturers as the relationship between the
customer experience and service excellence becomes more tightly intertwined, with
48.0% of manufacturers noting that their SLM efforts are being led by a need to
provide a faster response to product quality issues and customer complaints.
➢ TCS offerings encompass the entire service life cycle with digital and business
solutions that support CRM, customer support, dealer management, service
planning, spare parts management, field service management, warranty
management, connected products, fleet management, and service asset
management, among other aspects of SLM.
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3. Michael Porter Five Forces Analysis
Intensity of rivalry
➢ The company has been participated in providing the services in more than ninety
nations with the video as needed, items of streaming media and media provider.
➢ There is an intense level of competition or rivalry in the media and entertainment
industry, compelling organizations to strive in order to maintain the existing
customers by means of offering services at budget friendly or sensible costs.
➢ The primary direct competitor of Amazon, since both of these companies offer
DVDs on lease, thus completing in this domain for the similar target market.
➢ Shortly, the strength of rivalry is strong in the market and it is necessary for the
company to come up with distinct and innovative offerings as the audience or
clients are more sophisticated in such modern-day innovation age.
Threats of new entrants
➢ There is a high cost of entryway in the media and entrainment market. The
entertainment industry requires a large capital amount as the business which are
taken part in providing entertainment service have bigger start-up cost.
➢ In contrast, the existing home entertainment company has actually been extensively
working on their targeted segments with the particular specialization, which is why
the threat of brand-new entrants is low.
➢ Another essential element is the strength of competition within the crucial market
gamers in the market, due to which the brand-new entrant be reluctant while
entering into the market.
Threat of substitutes
➢ The hazard of alternatives in the market pose moderate danger level in media and
the entertainment industry.
➢ The company is facing a strong competitors from the competitors using comparable
services through online streaming and rental DVDs.
➢ The standard media content provider is one of the example of the replacement
items. The client might also participate in other recreation and source of details as
compared to seeing media material and online streaming.
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Bargaining power of buyer
➢ The dynamics of media and entertainment industry permits the consumers to have
high bargaining power.
➢ The income and sales created by business are based upon the subscribers put in
varied locations all around the world.
➢ Likewise, the low expense of switching enables the consumers to look for other
media service providers and cancel their membership, thus increasing the business
threat.
➢ Due to this, the company might not charge high rates for services from the clients,
and it should keep the rates strategy according to client need.
Bargaining power of suppliers
➢ The bargaining power of supplier is high force in the market. This is because there
are couple of number of providers who produce home entertainment and media
based material.
➢ The organization is involved in production of broad product range and advancement
of activities, networks and processes for achieving success amongst the competitive
environment of industry offering it a significant benefit over competitiveness.
➢ The company's objective is principally to be the maker of sensing unit with high
quality and highly personalized company surrounded by the premium market of
sensor production in the United States of America.
➢ The aim of the company is to bring decrease in the product costs by increasing the
sales unit for every product. The organizational management is included in
determination of possible items to offer their customer in both long term and brief
term suggests.
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4. Distinct features or characteristics of the industry considered from the perspective
of investment
➢ TCS offers a consulting-led, cognitive-powered, integrated portfolio of business,
technology, and engineering services and solutions.
➢ This is delivered through its unique Location Independent Agile delivery model,
recognized as a benchmark of excellence in software development.
➢ Tata's brand name is played major role in TCS, their business activities are started
from century ago.
5. Relevant economic indicators (leading, lagging or coincident / concurrent) for the
industry
➢ Tata Consultancy Services, which controls over 40% of the capital markets
infrastructure solutions, has won a contract from the Singapore Stock Exchange to
run trading and settlement platforms for the upcoming SGX Nifty Exchange at
international financial services centre in Gandhinagar.
➢ Tata Consultancy Services (TCS) has won a multi-year deal from Western Power,
an Australian state government-owned energy company, to help digitally transform
its software systems to deliver a cleaner and more resilient energy supply.
6. How does the P/E multiple of the industry compare with others and what do you
infer from the same (For this purpose, you may have to look at sectoral data)
➢ The price to earnings ratio is calculated by taking the latest closing price and
dividing it by the most recent earnings per share (EPS) number.
➢ The PE ratio is a simple way to assess whether a stock is over or under valued and
is the most widely used valuation measure.
➢ Information Services PE ratio as of October 04, 2022 is 12.77.
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COMPANY ANALYSIS
1. SWOT Analysis
Strengths:
➢ Extensive Global reach
➢ Strong Reputed Brand Image
➢ Established Strategic alliances
➢ Robust service portfolio
➢ Excellent return on capital
Weakness:
➢ Performance of Diligenta deteriorated
➢ Legal Squabbles
➢ Product segment is not relatively impressive
Opportunities:
➢ Emerging interest in Cloud Computing
➢ M2M Solutions
➢ Transformation of Digital Universe
➢ Solutions for mobility
Threats:
➢ Competition in fierce
➢ High rate of attrition
➢ Constraints on Immigration
➢ Large Multinational Corporations
2. Analysis of ROE as follows- (For the last two completed accounting periods atleast)
2022-2021 2021-2020
PAT/PBT 0.767994691 0.756931201
PBT/EBIT 0.334148718 0.324564953
EBIT/Sales 0.886657093 0.891470894
Sales/Total Assets 1.383991819 1.292390817
Total Assets/Net Worth 1.571313801 1.462430141
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3. Work out key ratios and comment on the financial health of the company (If
possible, try to do a Du Pont based on the latest financial performance results
available)
2022-2021 2021-2020
ROE 0.644305651 0.563146776
ROS (Net Income/Sales) 0.296275331 0.297956325
Asset Turnover (Sales/Assets) 1.383991819 1.292390817
Leaverage (Assets/Equity) 1.571313801 1.462430141
ROE(DuPont Analysis) 0.644305651 0.563146776
ROE(DuPont Analysis) = ROS * Asset Turnover * Leaverage
4. Look at the P/E ratio of the company and comment on whether it is justified.
P/E Ratio as on,
Oct 2022 - 27.9
Sep 2021 - 40.4
Sep 2020 - 30.5
Sep 2019 - 24.6
Sep 2018 - 30.1
➢ The Price/Earnings ratio measures the relationship between a company's stock price
and its earnings per share.
➢ A low but positive P/E ratio stands for a company that is generating high earnings
compared to its current valuation and might be undervalued.
➢ A company with a high negative (near 0) P/E ratio stands for a company that is
generating heavy losses compared to its current valuation.
➢ Companies with a P/E ratio over 30 or a negative one are generally seen as "growth
stocks" meaning that investors typically expect the company to grow or to become
profitable in the future.
➢ Companies with a positive P/E ratio bellow 10 are generally seen as "value stocks"
meaning that the company is already very profitable and unlikely to strong growth
in the future.
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5. EVA of the company.
TCS adopted EVA in 1999, when the company had a staff of around 15000,
working at several locations across the world. Through the EVA model, TCS aimed at
creating economic value by concentrating on long term continuous improvement.
Cost of Capital Employed 2021-2022 2020-2021
in crores
Average debt 0 0
Average equity 46890 47156
Average capital employed 46890 47156
Cost of Debt 4.7 4.81
Cost of equity 8.86 9.09
WACC 8.86 9.09
COCE 415445 428648
Economic Value Added in
crores
Profit after tax 7963 8724
Add: Interest after taxes 0 0
Net operating profit after 7963 8724
taxes
COCE 415445 428648
EVA 423408 437372
6. Look at the price chart for the last one year and comment. (Use moving average or
RSI to draw any conclusions)
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7. Think of which model of valuation would be beneficial and make an attempt to use
the same.
Valuation:
Valuation refers to the process of determining the present value of a company,
investment or an asset. It can be done using a number of methods, as described below.
Analysts who want to place a value on an asset normally look at the prospective future
earning potential of that company or asset.
Methods of Valuation:
The three most common valuation methods are:
➢ DCF analysis
➢ Comparable company analysis
➢ Precedent transactions.
Discounted Cash Flow Analysis:
➢ Among these, DCF model of valuation would be beneficial.
➢ Discounted Cash Flow (DCF) analysis is an intrinsic value approach where an
analyst forecasts a business’s unlevered free cash flow into the future and discounts
it back to today at the firm’s Weighted Average Cost of Capital (WACC).
➢ A DCF analysis is performed by building a financial model in Excel and requires
an extensive amount of detail and analysis.
➢ It is the most detailed of the three approaches and requires the most estimates and
assumptions.
➢ Therefore, the effort required to preparing a DCF model may also often result in
the least accurate valuation due to the sheer number of inputs.
➢ However, a DCF model allows the analyst to forecast value based on different
scenarios and even perform a sensitivity analysis.
➢ For larger businesses, the DCF value is commonly a sum-of-the-parts analysis,
where different business units are modelled individually and added together.
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8. What risk factors would you consider in the valuation of the share?
Factors Affecting the Valuation of Shares:
The value of a share is greatly affected by the economic, political and social factors
such as:
➢ The nature of the company’s business
➢ The economic conditions of the country
➢ Other political and economic factors (e.g., possibility of nationalisation, excise duty
on goods produced etc.)
➢ The demand and supply of shares
➢ Proportion of liabilities and capital
➢ Rate of proposed dividend and past profit of the company
➢ Yield of other related shares of the Stock Exchange etc.
9. At the current market price, would you recommend the buying of the share?
Yes, I would recommend the buying the share. The brokerage said the current stock
price correction offers a good entry opportunity for long-term investment and maintained
its buy call on TCS with a revised price target of Rs 3,650.
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