Research Report: TCS

Summary

Tata Consultancy Services (TCS) is a leading Indian multinational IT services and consulting company. It operates globally, providing a wide range of technology and business solutions to clients across various industries. With a large, highly skilled workforce, TCS is known for its innovation and consistent financial performance. It is a key player in the global IT services sector.TCS is a global company with a presence in over 150 countries. It has delivery centers and offices worldwide, making it one of the largest IT services firms globally.TCS is known for its large and highly skilled workforce. It employs hundreds of thousands of professionals across the globe, making it one of the world's largest employers in the IT sector.

About Us:

Tata Consultancy Services (TCS) is an Indian multinational information technology (IT) services and consulting company. Here is some key information about TCS:

1. Overview: TCS is part of the Tata Group, one of India's largest and most respected conglomerates. It was founded in 1968 and is headquartered in Mumbai, India.

2. Services: TCS offers a wide range of services, including IT and business consulting, software development, infrastructure management, and outsourcing solutions. They serve clients in various industries, including finance, healthcare, retail, and more.

3. Global Presence: TCS is a global company with a presence in over 150 countries. It has delivery centers and offices worldwide, making it one of the largest IT services firms globally.

4. Employees: TCS is known for its large and highly skilled workforce. It employs hundreds of thousands of professionals across the globe, making it one of the world's largest employers in the IT sector.

5. Innovation: TCS is actively involved in research and innovation. They invest in emerging technologies such as artificial intelligence, blockchain, and the Internet of Things (IoT) to provide cutting-edge solutions to their clients.

6. Financial Performance: TCS has consistently demonstrated strong financial performance and is one of the most valuable companies in India. It has a reputation for delivering consistent revenue growth and profitability.

7. Corporate Social Responsibility: TCS is committed to corporate social responsibility and sustainability. They engage in various initiatives to support education, healthcare, and environmental conservation.

8. Leadership: The company's leadership plays a crucial role in its success. TCS is led by a team of experienced executives who guide the company's strategic direction.

Industry:

In 2023, the global economic outlook remains uncertain with a slowdown, recessionary fears, high inflation, and disrupted supply chains. The IT industry, however, is expected to grow by 5.1%, driven by digital initiatives in response to economic challenges.

Key priorities for the IT industry in 2023 include cloud adoption for agility and cost savings, AI projects focusing on data monetization, automation, customer engagement, and cybersecurity.

Attrition, rising wages, and skill shortages will persist as challenges. Strategic execution will be crucial for IT companies to navigate the uncertain environment.

While digital can't solve macroeconomic challenges, it can provide agility and momentum, making it a vital focus for businesses across industries in 2023.

Financials

TCS Financial Statements and Quarterly Results:

Tata Consultancy Services (TCS) Q2 FY24 results:

• Net profit increased by 8.7% YoY to ₹11,432 crore.
• Revenue from operations rose by 7.9% YoY to ₹59,692 crore.
• Operating margin expanded by 0.3% YoY to 24.3%.
• Dollar revenue was $7,210 million.
• Order book stood at $11.2 billion, a significant increase from the previous quarter.
• TCS approved a buyback of ₹17,000 crore at a price of ₹4,150 per equity share, covering 1.12% of total equity share capital. The buyback price is at a 15% premium.

Risk factors 

1. Attrition Rate: The attrition rate at TCS was 14.9% on a trailing twelve-month basis, which was an improvement from the previous quarter's 17.8%. However, this high attrition rate could still pose a risk as it might impact the company's ability to deliver on projects and could lead to increased costs related to hiring and training new employees.

2. Underperformance in Certain Sectors and Geographies: While most sectors and geographies showed growth, the Banking, Financial Services, and Insurance (BFSI) sector witnessed a degrowth of 0.5%. Communications & Media and Technology & Services also registered a degrowth of 2.1% and 2.2%, respectively. This underperformance in these sectors and geographies could be a risk if it continues in future quarters.

3. Margin Pressures: The management indicated margin pressure built up over the near term with higher attrition. This could impact profitability in the future, especially if the company is unable to manage these pressures effectively.

4. Exchange Rate Fluctuations: The company operates in multiple countries and is therefore exposed to fluctuations in foreign exchange rates. This could impact the company's revenues and profitability.

5. Expectations about Share Buyback: The TCS board approved a buyback of ₹17,000 crore at a price of ₹4,150 per equity share, which was below the street expectations of ₹4,300 to ₹4,500 per share. This could potentially impact investor sentiment.

6. Uncertainty in UK and Europe region: While the uptrend in technology spending is expected to continue, there is uncertainty in the UK and Europe region, which could lead to a challenging FY24. This geopolitical uncertainty could pose a risk to the company's financial performance.

   Valuation

   1. TCS has shown robust financial performance with consistent revenue growth and profit expansion, indicating its strong position in the IT industry.
   2. The company's order book valued at $11.2 billion demonstrates a healthy demand for its services.
   3. The buyback program at a premium of about 15% reflects management's confidence in the company's financial strength and future prospects.

   Outlook

   1. TCS is well-positioned to capitalize on the increasing global demand for digital transformation and IT services.
   2. The company's focus on innovation, cloud services, and artificial intelligence aligns with industry trends, and it is likely to drive future growth.
   3. The order book's growth and a rise in deal wins suggest a positive outlook for the company.
   4. TCS's ability to manage its operations efficiently and maintain solid profitability makes it a reliable player in the IT sector.
   5. Continued investments in enhancing its digital capabilities and global expansion are expected to contribute to future success.

    

7. Source: Company website, Stocx