Delhi School of Management

Delhi Technological University

Bawana Rd, Daulatpur Village, Rohini, New Delhi, Delhi - 110042

Financial Management and Policy Long Term Project

Submitted By:

Group: A – 2
Abhishek kumar (23/DMBA/04)
Akash Shukla (23/DMBA/09)
Ashutosh Dayal(23/DMBA/29)
Chandan Makhija(2K22/DMBA/35)
Himanshu (23/DMBA/49)
Kartik Bhardwaj (23/DMBA/128)

Section – A
Session – 2023 – 2024

Submitted To:

Dr. Archana Singh

Associate Professor
Delhi School of Management
Contents
1. INTRODUCTION..........................................................................................................................................3
1.1 TCS(Tata Consultancy Services).............................................................................................................3
1.2 Competition & Market Share:..................................................................................................................3
1.3 Share Holding Pattern:.............................................................................................................................3
1.4 Business Segments...................................................................................................................................4
2. RISK AND RETURN....................................................................................................................................5
2.1 Steps for calculating Risk & Return.........................................................................................................5
2.2 Interpretation of Risk & Return...............................................................................................................5
3. INTRINSIC VALUE OF THE TCS’ SHARE...............................................................................................6
3.1 Steps for calculating Intrinsic Value of the TCS’ Share..........................................................................6
3.2 Interpretation of Intrinsic Value of TCS’ Stock.......................................................................................6
4. BETA OF TCS USING REGRESSION ANALYSIS...................................................................................7
4.1 Steps to calculate Beta.............................................................................................................................7
4.2 Interpretation of Beta...............................................................................................................................8
5. WACC............................................................................................................................................................8
5.1 Steps to calculate WACC.........................................................................................................................8
5.2 Interpretation............................................................................................................................................9
6. CAPITAL STRUCTURE OF TCS..............................................................................................................10
7. REFERENCES.............................................................................................................................................11
 1. INTRODUCTION
1.1 TCS
Tata Consultancy Services (TCS) is an Indian multinational information technology (IT) services and
consulting company. It was founded in 1968 by Tata Group founder J.R.D. Tata and F.C. Kohli. Initially,
TCS provided punch card services to sister company Tata Steel. Over the years, TCS has grown to become
one of the largest IT services firms globally, offering a wide range of services including software
development, consulting, and business process outsourcing. It has a significant presence in several countries
and serves clients across various industries, including banking, healthcare, retail, and telecommunications.
TCS is known for its innovation, client-centric approach, and commitment to delivering high-quality
solutions.
TCS, or Tata Consultancy Services, offers a comprehensive range of services in the IT and business
consulting domain. Some of the key offerings of the company include:
1. Software Development: TCS provides custom software development services to create tailored
solutions for businesses across various industries.
2. IT Consulting: TCS offers strategic IT consulting services to help organizations leverage
technology effectively, improve processes, and achieve business goals.
3. Business Process Outsourcing (BPO): TCS provides BPO services to manage non-core business
functions such as customer support, finance, and HR outsourcing.
4. Infrastructure Services: TCS offers infrastructure management services to help businesses optimize
their IT infrastructure, including data centers, networks, and cloud services.
5. Digital Solutions: TCS specializes in digital transformation services, including digital strategy,
customer experience, analytics, and IoT solutions.
6. Enterprise Solutions: TCS provides enterprise application services, including ERP implementation,
CRM solutions, and enterprise mobility services.
7. Cybersecurity Services: TCS offers cybersecurity solutions to protect businesses from cyber threats
and ensure data security and compliance.
8. AI and Analytics: TCS leverages artificial intelligence (AI) and analytics technologies to provide
data-driven insights, predictive analytics, and AI-powered solutions.
9. Industry-Specific Solutions: TCS develops industry-specific solutions for sectors such as banking
and financial services, healthcare, retail, manufacturing, and telecommunications.
10. Research and Innovation: TCS invests in research and innovation to develop cutting-edge
technologies, solutions, and frameworks that drive digital transformation and business growth for its
clients.

Founded Employ CEO NSE BSE Industry Sector Website

ees
1968 609300 K. TCS 3894.50 Specialty IT https://
Krithivasan it and www.tcs.com
service
 1.2 Competition & Market Share:

The unique selling proposition (USP) of Tata Consultancy Services (TCS) lies in its extensive global
presence, robust technology solutions, diverse industry expertise, and a strong focus on innovation and
customer satisfaction.
 1. Revenue: TCS has a revenue of $3,917.30 million, making it one of the largest IT services
companies globally. Its substantial revenue reflects a strong market position and a wide range of
services across various industries.
2. Market Capitalization: Unfortunately, the market capitalization data for TCS is not provided in the
information you provided. Market capitalization is a key indicator of a company's overall value in
the stock market and is calculated by multiplying the share price by the number of outstanding
shares.
3. Net Income: TCS has a net income of $1,417,313.42 million, indicating a healthy profit margin and
efficient cost management strategies. A high net income signifies strong profitability, which is
essential for sustaining growth and shareholder value.
4. contribution percentage. However, market capitalization data would provide a more comprehensive
comparison in terms of overall market value and investor sentiment.
5. Strengths: TCS's strengths lie in its diversified service offerings across industries, strong client base,
global presence, technological expertise in areas like cloud computing, analytics, and digital
transformation, as well as a focus on innovation and customer satisfaction.
Overall, TCS appears to be a robust and well-established player in the IT services industry, with strong
financial performance and a strategic position for future growth and innovation.

1.3 Share Holding Pattern:

 1.4 Business Segments’

Tata Consultancy Services (TCS) operates across various business segments, each catering to different
industry needs and technological domains. Here's a brief overview of some of TCS's key business segments:
1. Banking, Financial Services, and Insurance (BFSI): TCS provides a wide range of services to
banks, financial institutions, and insurance companies. This includes core banking solutions, risk
management, regulatory compliance, digital banking platforms, and insurance claims processing.
2. Retail and Consumer Goods: TCS offers solutions to retailers and consumer goods companies,
helping them with digital transformation, supply chain optimization, customer experience
management, e-commerce platforms, and data analytics for personalized marketing.
3. Healthcare: In the healthcare sector, TCS focuses on electronic health records (EHR), patient
engagement platforms, healthcare analytics, telemedicine solutions, and regulatory compliance
services to improve patient care and operational efficiency.
4. Manufacturing: TCS assists manufacturing companies with Industry 4.0 initiatives, smart factory
solutions, supply chain management, product lifecycle management (PLM), digital twin technology,
and predictive maintenance to enhance productivity and innovation.
5. Communications, Media, and Technology (CMT): TCS serves telecommunications providers,
media companies, and technology firms with services like digital content delivery platforms, 5G
network solutions, IoT (Internet of Things) applications, cloud migration, and cybersecurity.
6. Life Sciences and Healthcare: TCS offers services to pharmaceutical companies, biotech firms, and
medical device manufacturers, including drug discovery informatics, clinical trial management,
pharmacovigilance, regulatory compliance, and patient data analytics.
7. Energy and Utilities: TCS helps energy companies and utilities with digital transformation
initiatives, renewable energy integration, smart grid solutions, energy trading platforms, asset
management, and sustainability analytics.
8. Government and Public Services: TCS provides IT solutions to government agencies and public
sector organizations, including citizen services portals, digital identity management, e-governance
platforms, cybersecurity solutions, and data analytics for policy-making.
9. Travel, Transportation, and Hospitality (TTH): TCS serves airlines, travel companies, and
hospitality providers with services like airline reservation systems, digital passenger experience
platforms, supply chain optimization, loyalty programs, and revenue management solutions.
10. Cross-Industry Solutions: Apart from industry-specific segments, TCS also offers cross-industry
solutions such as digital transformation services, cloud computing, cybersecurity, data analytics,
artificial intelligence (AI), machine learning (ML), blockchain, and Internet of Things (IoT)
platforms that cater to diverse business needs across sectors.
2. RISK AND RETURN
Average Monthly Return 1.16%
Risk (Monthly) 5.98%
Average Annual Return 14.82%
Annual Risk 20.73%
Table 1: Tata Consultancy Services Limited (Tata Consultancy Services Limited.NS) Risk and Return
2.1 Steps for calculating Risk & Return
 Data Collection: Monthly closing price data for Tata Consultancy Services Limited was obtained
from Yahoo Finance for the past 5 years.
 Calculation of Monthly Returns: Using the monthly closing prices, the monthly returns for each
month were computed using the formula:

Closing Price of Current Month−Closing Price of Previous Month

Monthly Return=
Closing Price of Previous Month

 Average Monthly Return: The average of all the monthly returns obtained over the 5-year period was
calculated.
 Calculation of Standard Deviation: The standard deviation of the monthly returns was computed to
measure the risk or volatility associated with the stock, using the formula in excel:
=STDEV.S(D5:D63)
 To annualize the average monthly return, I used the formula: (1+r )12−1 where r represents the
average monthly return obtained earlier.
 To annualize the monthly risk, monthly standard deviation multiplied by the square root of 12, since
there are 12 months in a year.
2.2 Interpretation of Risk & Return
 Average Monthly Return (1.16%): On average, TCS has generated a return of approximately 1.16%
per month over the period analyzed. This indicates that investors, on average, have seen modest
positive returns on their investments in TCS each month.
 Risk (Monthly) (5.98%): The monthly risk, or standard deviation, measures the volatility of returns.
With a monthly risk of 5.98%, TCS returns have experienced fluctuations around its average return.
Higher volatility suggests greater uncertainty in returns.
 Average Annual Return (14.82%): When the monthly returns are annualized, TCS has delivered an
average annual return of about 14.82% over the analyzed period. This figure provides an annualized
perspective on the investment performance, indicating the average return investors could expect over
a year.
 Annual Risk (20.73%): Similarly, the annualized risk or volatility of TCS returns stands at 20.73%.
This reflects the annualized measure of the fluctuations or uncertainties in returns over the entire
period.
Conclusion: In essence, while Tata Consultancy Services Limited has provided investors with positive
returns, especially when annualized, it's important to note the accompanying level of risk. The higher
volatility suggests that while the potential returns are attractive, investors should be prepared for fluctuations
in their investment values over time.
3. INTRINSIC VALUE OF THE TCS’ SHARE
Mar-23 Mar-22 Mar-21 Mar-20 Mar-19
EPS 115.19 103.62 89.27 86.71 83.05
Dividend/Share (Rs.) 115 43 38 38 73
Retention Ratio 0.00 0.59 0.57 0.56 0.12 13.04%
Return on Networth /
Equity (%) 46.61% 43.00% 37.52% 38.44% 35.19% 40.15%
Table 2: Tata Consultancy Services Limited (TCS.NS) 5 years EPS, DPS, Retention ratio and ROE
3.1 Steps for calculating Intrinsic Value of the TCS’ Share
 Calculate the Retention Ratio (RR): The retention ratio is the proportion of earnings retained by the
company to reinvest back into the business. It can be calculated as:
Retention Ratio( RR)=1−Dividend Payout Ratio The dividend payout ratio is the proportion of
earnings paid out as dividends.
 Calculate the Growth Rate (g): The growth rate (g) is calculated as the product of Return on Equity
(ROE) and the retention ratio (RR). g=ROE∗RR
 Determine the Required Rate of Return (Ke) using CAPM: The Capital Asset Pricing Model
(CAPM) is used to determine the required rate of return (Ke) for the stock.
K e =R f + β (R f −Rm )
 Calculate the Intrinsic Value (V) using DDM: The Dividend Discount Model (DDM) formula with
constant growth is used to calculate the intrinsic value of the stock.
D (1+ g)
V= o
k e −g
Where, Do =Dividend per share ¿ be paid at the end of the current period
k e=Required rate of return
g = Growth rate
3.2 Interpretation of Intrinsic Value of TCS’ Stock
G 5.23%
Do 115
D1 121.02
Ke 13.37%
Intrinsic Value of Share 1487.793719

Market Price of Share on 01/03/2024 3,882.10

Overpriced, Undervalued
Table 3: Intrinsic Value and Market Price of TCS’ Share
3.2.1 Comparison of Intrinsic Value and Market Price:
 The calculated intrinsic value of the share using the Dividend Discount Model (DDM) with constant
growth is $1,487.79
 The market price of the share on 01/03/2024 is $3,882.10.
3.2.2 Intrinsic Value vs. Market Price:
 The intrinsic value represents the theoretical fair value of the stock based on its dividends and
expected growth rate.
  Comparing the intrinsic value to the market price, we observe that the market price is significantly
higher than the calculated intrinsic value.
3.2.3 Investment Decision:
 When the market price is higher than the intrinsic value, it suggests that the stock may be overpriced
and undervalued according to the DDM model.
 Investors may consider this information in their investment decision-making process. An overpriced
& undervalued stock may not provide adequate returns relative to its intrinsic value.
3.2.4 Factors to Consider:
 While the DDM provides a useful framework for valuation, it's important to consider other factors
such as market sentiment, industry trends, and company fundamentals.
 Market prices can be influenced by various factors beyond the scope of the DDM, including investor
sentiment, macroeconomic conditions, and market speculation.
3.2.5 Conclusion:
 The discrepancy between the intrinsic value and market price suggests a potential divergence
between the stock's perceived value and its market price.
 Investors should conduct further analysis and consider additional factors before making investment
decisions based solely on the DDM valuation.

4. BETA OF TCS USING REGRESSION ANALYSIS

Beta: Beta is a measure of a stock's volatility in relation to the overall market. It is used to assess the stock's
riskiness and is calculated by comparing the stock's returns to those of the overall market.
Raw Beta 0.538
Adjusted Beta 0.69
Table 4: Raw Beta and Adjusted Beta of TCS
4.1 Steps to calculate Beta
 Data Collection: Historical daily adjusted closing prices of TCS stock and the Nifty 50 index were
collected spanning a significant period to capture various market conditions.
 Calculation of Returns: Monthly returns for both TCS stock and the Nifty 50 index were computed
using the formula:
Closing Price of Current Month−Closing Price of Previous Month
Monthly Return=
Closing Price of Previous Month
 Regression Analysis: Conducted a regression analysis using the returns of TCS stock as the
dependent variable and the returns of the Nifty 50 index as the independent variable. Estimated the
slope coefficient (beta) through linear regression using excel (Data > Data Analysis > Regression
Analysis).
 Calculation of Raw Beta: The slope coefficient obtained from the regression analysis represents the
raw beta of TCS, indicating the stock's sensitivity to market movements relative to the Nifty 50
index.
 Adjustment using Bloomberg Method: Applied the Bloomberg adjustment methodology to the raw
beta to obtain the adjusted beta. The adjustment is performed using the formula:
Adjusted Beta=(Raw Beta ×0.67)+0.33
This adjustment aims to provide a more stable estimate of the stock's systematic risk based on
Bloomberg's proprietary methodology.
4.2 Interpretation of Beta
 A beta value less than 1 indicates that the stock is less volatile than the market.
 Investors seeking stability may find TCS' stock appealing due to its lower volatility relative to the
broader market.
 The adjusted beta of 0.69 suggests that TCS' stock still maintains a relatively lower level of
volatility compared to the market.
 Investors should consider this adjusted beta along with other factors such as industry trends,
company fundamentals, and market conditions when making investment decisions.

5. WACC
5.1 Steps to calculate WACC
5.1.1 Cost of Equity
 Data Collection: Collected historical data of India's 5-Year Government Bond yield, TCS' beta
(calculated earlier), and 5-year monthly adjusted closing prices of the Nifty 50 index.
 Calculate Risk-Free Rate (Rf): Determined the risk-free rate by using the yield of India's 5-Year
Government Bond, which serves as a proxy for the risk-free return in the market.
 Calculate Market Return (Rm): Calculated the monthly returns for the Nifty 50 index using the 5-
year monthly adjusted closing prices.
 Compute the average monthly return over the 5-year period. Annualized the average monthly return
to obtain the market return (Rm) using (1+r )12−1.
 Calculate the Cost of Equity (Ke) using CAPM:
K e =R f + β (R f −Rm )
Where, K e =Cost of Equity
R f =Risk Free Return
β=Beta Coefficient
Rm =Market Return
5.1.2 Cost of Debt
 Data Collection: Gather financial data for Tata Consultancy Services Limited including interest
expense, total debt, net tax expense, and profit before tax (PBT) for the past 5 years.
 Calculate Average Yield on Debt:
 Determine the total debt by summing up long-term borrowings (B), lease liabilities (C), and
other financial liabilities (D).
 For each year, divide the interest expense by the total debt to calculate the yield on debt.
 Calculate the average yield on debt by taking the average of the yields obtained over the 5-
year period.
 Calculate Tax Shield:
 Calculate the tax shield for each year by dividing the net tax expense by the profit before tax
(PBT).
 Compute the average tax shield by taking the average of the tax shields calculated over the 5-
year period.
 Calculate Cost of Debt: Apply the formula to calculate the cost of debt:
Cost of Debt =Average Yield on Debt ×(1− Average Tax Shield)
Where:
 Average Yield on Debt is calculated in step 2.
 Average Tax Shield is calculated in step 3.

5.1.3 Weight of Debt

 Total Debt
Weight of Debt=
Total Debt + Equity
5.1.4 Weight of Equity
Total Equity
Weight of Equity=
Total Debt + Equity
5.1.5 WACC
WACC =w e∗k e +w d∗k d

Cost of Equity
Rf (India 5 Years Government Bond) 6.35%
Rm 16.50%
Rm-Rf (Market Premium) 10.16%
Beta 0.69
Ke 13.36%

Cost of Debt
Average Yield on Debt 6.14%
Tax Shield 24.88%
Kd(After tax) 4.61%

Capital Structure
of TCS Weights of
(2023) BV Components MV Weights of Components
Equity 91,206 73.14% 1,406,000 97.67%
Total Debt 33490 26.86% 33490 2.33%
Total Capital
Employed 124,696 100% 1,439,490 100%

Weight of Weight of
Component Components
(BV) Cost of Components (MV) Cost of Components
Equity 73.14% 13.36% 97.67% 13.36%
Total Debt 26.86% 4.61% 2.33% 4.61%

WACC (TCS) 11.01% 13.15%

WACC (Wipro) 10.66% 11.84%
Table 5: Cost of Equity, Cost of Debt and WACC
5.2 Interpretation
The Weighted Average Cost of Capital (WACC) is a measure of a company’s cost of capital, where each
category of capital is proportionately weighted. When comparing the WACC of TCS and Wipro, several
interpretations can be made:
 Cost of Capital: TCS has a higher WACC at 11.01% compared to Wipro at 10.66%. This suggests
that TCS has a higher overall cost of capital.
 Investment Risk: A higher WACC typically indicates that investors require a higher return for the
risk they are taking. Therefore, investors may perceive TCS as having a higher risk profile compared
to Wipro.
  Capital Structure: The difference in WACC could also reflect differences in the capital structure of
the two companies. TCS have a lower proportion of debt in its capital structure and higher cost debt,
which could increase its WACC.
 Operational Efficiency: The WACC is also influenced by operational efficiency and the company’s
ability to generate returns. A lower WACC like that of Wipro could indicate a more efficient use of
capital.
Using the book value (BV) of equity means that the calculation is based on the historical cost of equity as
recorded in the financial statements, rather than the current market value. This can affect the WACC
calculation and its interpretation, as book values may not reflect the true market conditions or the company’s
current financial situation.
In summary, while Wipro appears to have a more favorable cost of capital, the reasons behind the
differences in WACC could be multifaceted, involving risk perceptions, capital structure, operational
efficiencies, and market conditions. Companies with lower WACC are generally better positioned to fund
new projects and expansions at a lower cost, potentially leading to higher valuations. However, it’s
important to look beyond the WACC figures and understand the underlying factors contributing to these
differences for a comprehensive analysis.