Business of TCS
TCS is India’s largest player in the I.T. space and has pioneered the concept of offshore IT services in 1974. Its area of operation consists of Consulting, Application Software development, maintenance & enhancement, Enterprise Solutions Implementation, Software Products and Frameworks, Software R & D, IT Enabled Services and IT Infrastructure Establishment and Maintenance.
TCS provides services in System Software, Commercial Applications and Engineering and Industrial Services and serves a number of industry verticals. Amongst these, Banking, Financial Services and Insurance is the largest (34.8%) followed by the Manufacturing Vertical (17%) and the Telecom Vertical (14.6%). TCS has added 246 customers in the last fiscal and has got 18 delivery centers outside India which includes the US, Hungary, Brazil, Uruguay and China.
At the end of last fiscal the company had more than 40000 employees on its rolls out of which 1448 are non-Indian employees. There was an addition of over 10000 employees in the last fiscal itself. While there was an attrition rate of 8% which was one of the lower ones in the Industry.
The Company ranked first in the Dataquest Best IT Employer Survey October 2004, and was adjudged the Best Employer by the Hewitt Best Employer Survey, 2004 across all industry sectors.
Financials
TCS earned 8027.58 crores in the last fiscal and the net profit was Rs.1831.42 crores, this is a healthy 22.8% of the total revenues. The company had declared a total dividend of Rs.16.50 was last fiscal, which included final and interim dividends. TCS depends on the Americas for most of its revenue with contribution from that region being 59.2% of total revenues. UK comes next which contributes 16.3%, then comes India, Continental Europe and Asia Pacific with 12.2%, 6.8% and 4% respectively. Out of the total shareholding of the company 80.64% is held by the Promoters and only about 5.85% is held with the general public.
The EPS last fiscal has been Rs.38.30 and at around a price of 1400 the P/E multiple comes out to be 35 the company can be said to be fully priced given the size and growth prospects of the company. What this simply means is that at such a price there is not bound to be much higher scope for appreciation in the stock for the investor.
Challenges and Opportunities going forward
The main challenge that the company faces is that big multinational companies are also entering the space that TCS operates in by setting up development centers in India. What this would mean is further competition, which would in turn impact prices. Given the long standing relationship which the company has with its customers it can be safely assumed that it will be able to withstand this challenge but the MNCs also come with tremendous financial muscle.
Another challenge is that like all other Indian IT companies TCS operates at the lower end of the value chain and to be a really dominant player it needs to move up the value chain. However traditionally such projects have not been granted to Indian companies and it will take some time for Indian companies to carve out their own space in the minds of the consumers and to demonstrate to them that they are also capable of handling huge pure play consulting projects.
On the positive side the market for the services that TCS offers is growing at a rapid growth and the company has bagged some big orders in the recent past as well which shows that it can maintain a steady growth rate going forward.
The table below lists other stocks in this section
which also belong to the I.T. Sector.
I.T.
