Vriddhi Research 4.

0 FinStreet Vinit Shah

Company Focus: Tata Consultancy Services

Industry: IT
KEY PERFORMING INDICATORS (2014-15)
Market Cap: 498,897.81 Rupee Crore
REVENUE: 94648.4 crores
CMP: 2545.5 Rupee
EBITDA: 27,109.62 crores
BV: 258.51 Rupee
PBT: 24481.7 crores
Dividend Yield: 3.10%
PAT: 19852.2 crores
PE: 25.01
EPS: 111.87
Industry PE: 21.60

Face Value: 1.00 Rupee

Industry Overview:

India's IT industry can be divided into five main components, viz. Software Products, IT services,
Engineering and R&D services, ITES/BPO (IT-enabled services/Business Process Outsourcing)
and Hardware. Export revenues, primarily on project based IT Services continue to drive growth
with IT Services. This accounts for 54.2% of total revenues followed by BPO and Engineering
services at 19.5%, Software Products at 15.3% and hardware at 11%. Multi-year annuity based
outsourcing agreements continue to increase at a steady rate. In terms of total export and
domestic revenues, Application Development and Maintenance (ADM) still continue to be the
bread and butter for Indian IT companies; however traditional services have become increasingly
commoditized.

India is the world's largest sourcing destination for the information technology (IT) industry,
accounting for approximately 52 per cent of the US$ 124-130 billion market. The industry employs
about 10 million Indians and continues to contribute significantly to the social and economic
transformation in the country.

The IT industry has not only transformed India's image on the global platform, but has also fueled
economic growth by energizing the higher education sector especially in engineering and
computer science. India's cost competitiveness in providing IT services, which is approximately
3-4 times cheaper than the US, continues to be its unique selling proposition (USP) in the global
sourcing market.
Vriddhi Research 4.0 FinStreet Vinit Shah

Internet Based Usage and GDP Contribution

Indias internet economy is expected to touch Rs 10 trillion (US$ 161.26 billion) by 2018,
accounting for 5 per cent of the countrys gross domestic product (GDP), according to a report by
the Boston Consulting Group (BCG) and Internet and Mobile Association of India (IAMAI). In
December 2014, Indias internet user base reached 300 million, the third largest in the world,
while the number of social media users and smartphones grew to 100 million.

Public cloud services revenue in India is expected to reach US$ 838 million in 2015, growing by
33 per cent year-on-year (y-o-y), as per a report by Gartner Inc. In yet another Gartner report, the
public cloud market alone in the country was estimated to treble to US$ 1.9 billion by 2018 from
US$ 638 million in 2014. The increased internet penetration and rise of e-commerce are the main
reasons for continued growth of the data centre co-location and hosting market in India.

According to Gartner, IT service and Industry contributing 8.1% of National GDP.

Investments:

Indian IT's core competencies and strengths have placed it on the international canvas, attracting
investments from major countries. The computer software and hardware sector in India attracted
cumulative foreign direct investment (FDI) inflows worth US$ 13,788.56 million between April
2000 and December 2014, according to data released by the Department of Industrial Policy and
Promotion (DIPP).

The private equity (PE) deals increased the number of mergers and acquisitions (M&A)
especially in the e-commerce space in 2014. The IT space, including e-commerce, witnessed
240 deals worth US$ 3.8 billion in 2014, as per data from Dealogic.

India also saw a ten-fold increase in the venture funding that went into internet companies in 2014
as compared to 2013. More than 800 internet start-ups got funding in 2014 as compared to 200
in 2012, said Rajan Anandan, Managing Director, Google India Pvt Ltd and Chairman, IAMA.

Most large technology companies may have so far focused primarily on bigger enterprises, but a
report from market research firm Zinnov highlighted that the small and medium businesses will
present a lucrative opportunity worth US$ 11.6 billion in 2015 and US$ 25.8 billion in 2020.
Moreover, India has nearly 51 million such businesses of which 12 million have a high degree of
technology influence and are looking to adopt newer IT products, as per the report.

Some of the major investments in the Indian IT and ITeS sector are as follows:

Wipro has won a US$ 400 million, multi-year IT infrastructure management contract from
Swiss engineering giant ABB, making it the largest deal for the technology company.
Vriddhi Research 4.0 FinStreet Vinit Shah

Tech Mahindra has signed a definitive agreement to acquire Geneva-based SOFGEN

Holdings. The acquisition is expected to strengthen Tech Mahindras presence in the
banking segment.
Tata Consultancy Services (TCS) plans to set up offshore development centers in India
for Japanese clients in a bid to boost the company's margin in the market.
Reliance is building a 650,000 square feet (sq. ft.) data center in Indiaits 10th data center
in the countrywith a combined capacity of about 1 million sq. ft. and an overall
investment of US$ 200 million.
Intel Corp plans to invest about US$ 62 million in 16 technology companies, working on
wearable, data analytics and the Internet of Things (IoT), in 2015 through its investment
arm Intel Capital. The Indian IT industry is expected be worth US$ 15 billion and to connect
28 billion devices to the internet by 2020.
Keiretsu Forum, a global angel investor network, has forayed into India by opening a
chapter in Chennai. With this, the Silicon Valley-based network will have 34 chapters
across three continents.

Government Initiatives

The adoption of key technologies across sectors spurred by the 'Digital India Initiative' could help
boost India's gross domestic product (GDP) by US$ 550 billion to US$ 1 trillion by 2025, as per
research firm McKinsey.
Some of the major initiatives taken by the government to promote IT and ITeS sector in India are
as follows:
India and the United States (US) have agreed to jointly explore opportunities for
collaboration on implementing India's ambitious Rs 1.13 trillion (US$ 18.22 billion) Digital
India Initiative. The two sides also agreed to hold the US-India Information and
Communication Technology (ICT) Working Group in India later this year.
India and Japan held a Joint Working Group conference for Comprehensive Cooperation
Framework for ICT. India also offered Japan to manufacture ICT equipment in India.
The Government of Telangana began construction of a technology incubator in
Hyderabaddubbed T-Hubto reposition the city as a technology destination. The state
government is initially investing Rs 35 crore (US$ 5.64 million) to set up a 60,000 sq. ft.
space, labelled the largest start-up incubator in the county, at the campus of International
Institute of Information Technology-Hyderabad (IIIT-H). Once completed, the project is
proposed to be the worlds biggest start-up incubator housing 1,000 start-ups.
Bengaluru has received US$ 2.6 billion in venture capital (VC) investments in 2014,
making it the fifth largest recipient globally during the year, an indication of the growing
vibrancy of its startup ecosystem. Among countries, India received the third highest VC
funding worth US$ 4.6 billion.
Vriddhi Research 4.0 FinStreet Vinit Shah

Company Overview:

The company is a part of Tata Group, one of India's most respected business conglomerates and
most respected brands. They are headquartered in Mumbai. The company shares are listed on
the National Stock Exchange and Bombay Stock Exchange of India. Tata Consultancy Services
Ltd was incorporated in the year 1968. They offer IT infrastructure services, business process
outsourcing services, engineering and industrial services, global consulting and asset leveraged
solutions. Their segments include banking, financial services and insurance; manufacturing; retail
and distribution, and telecom.

In the year 1981, the company set up India's first IT R&D division, the Tata Research Design and
Development Centre at Pune. In the year 1985, they set up their first client-dedicated offshore
development center for Compaq (then Tandem). In the year 1999, they got SEI-CMM Level 5
certification for their Qwest, HP, SEEPZ & Sholinganallur centers. Also, in the year 20000, they
got SEI-CMM Level 5 certification for their Calcutta, Bangalore, Lucknow, Hyderabad, GEDC,
Ambattur and Ahmedabad centers. In the year 2001, the company completed the acquisition of
public sector unit, CMC Ltd.

After 2001 company has tremendously developed onshore & outsourcing business across the
world, including the countries like USA, China, Uruguay, Japan etc. Recently TCS Japan will have
60% stake with Mitsubishi Corporation having a 40% stake. The joint venture will also establish a
nearshore delivery center in Japan.

TCSs Presence: They are having 142 offices in 42 countries as well as 105 delivery centers in
20 countries.

Verticals: Company has following different verticals

Verticals

BFSI- Manufacturing- Retail &

Telecom, Media & Others-
46.04% 8.20% CPG-
Entertainment - 20.10%
14.68%
10.98%
Vriddhi Research 4.0 FinStreet Vinit Shah

Horizontal Integration: Company providing different services and solutions.

Horizontal

Business Enterprise
App Development Process Others
Solutions IT Infrastructure
& Maintenance Service (18.98%)
(15.49%) Services (11.93%)
(41.58%) (12.02%)

Shareholding Pattern:

Shareholding Pattern
ADR/GDR Free float
FIIs 0% 5%
16%

Indian inst/Mut Fund

5%

Foreign collaborators
0%

Indian Promoters
74%

Indian Promoters Foreign collaborators Indian inst/Mut Fund FIIs ADR/GDR Free float
Vriddhi Research 4.0 FinStreet Vinit Shah

Key Performance Indicators

Sales Revenue(In Cr)

100000 94,648.4
90000 81809.4
80000
70000 62989.5
60000
48893.8
50000
37324.5
40000
30028.9
30000
20000
10000
0
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Sales Revenue(In Cr)

PAT(in Cr)
19852.2
19163.9
20000
18000
16000 13917.3
14000
12000 10413.4
9068
10000
7000.6
8000
6000
4000
2000
0
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
PAT(in Cr) 7000.6 9068 10413.4 13917.3 19163.9 19852.2

PAT(in Cr)
Vriddhi Research 4.0 FinStreet Vinit Shah

Price / Book Value ratio

10
9
8
7
6
5
4
3
2
1
0
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Price / Book Value ratio

EPS
120
101.4
100 94.17

80
65.23
55.97
60
38.62
40
28.62

20

0
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

EPS
Vriddhi Research 4.0 FinStreet Vinit Shah

Cash utilization since fiscal 2005

Of the available funds generated during fiscal 2005 to fiscal 2015, 55.84% has been
appropriated towards dividend (including dividend tax and final dividend for fiscal 2015 to be
paid post approval by shareholders).

Dividend Per Share

35.0 32.0

30.0
25.0
25.0 22.0
20.0
20.0
13.5 13.0 14.0 14.0 14.0
15.0 11.5
10.0
5.0
0.0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Dividend Per Share

Vriddhi Research 4.0 FinStreet Vinit Shah

Market Capitalization:

Company having highest market capitalization more than 500000 crores.

Revenue increase by 15.7% and Net Margin increase by 21.0% compare to previous year.
Market capitalization reached at 500249 Crores, which is 19.7% up than previous financial year.
Current ratio is 2.46 and Debt-Equity ratio is 0.01 (almost debt free company), which is quite good
financials for the company.

Apart from it, here are few performance ratios of last 5 years.

Particulars Mar 2015 Mar 2014 Mar 2013 Mar 2012 Mar 2011
ROA (%) 32.07 36.94 33.30 36.52 31.30
ROE (%) 43.05 48.29 44.69 49.62 43.89
ROCE (%) 54.82 61.29 54.54 60.04 50.16
Asset Turnover(x) 1.23 1.29 1.26 1.27 1.21
Sales/Fixed Asset(x) 5.77 6.31 5.88 5.72 5.37
Working Capital/Sales(x) 3.07 2.87 3.50 4.95 6.63
Vriddhi Research 4.0 FinStreet Vinit Shah

Share Price Movement (5 Years):

Rational For Investment:

As majority of the Software industry work outsourced, rupee devaluating helps to Software
Industry as a whole for India. According to NASSCOM, IT Industry is to maintain 13-15% growth
rate for FY 15. Apart from it, software major government project like Passport Seva Project (PSP)
and website of Indian Railway online booking-IRCTC are maintained by the company. Company
expecting offer for the solutions and services required for the Smart Cities Project initiated by
India Government as well.

E-commerce boom:
India, the fourth largest base for young businesses in the world and home to 3,000 tech start-ups,
is set to increase its base to 11,500 tech start-ups by 2020, as per a report by Nasscom and
Zinnov Management Consulting Pvt Ltd.

The IT sector in India grew at a compound annual growth rate (CAGR) of 25 per cent over 2000-
2013, which is 3-4 times higher than the global IT spend, and is estimated to expand at a CAGR
of 9.5 per cent to US$ 300 billion by 2020.

"We generate lot of cash. However, we will definitely maintain a certain amount of war chest for
acquisitions. There is a significant interest from customers. Our digital business is definitely
growing faster than the rest of the company." "Digital business will generate at least $5 billion
revenues in 4-5 years,"
-N. Chandrasekaran, CEO, TCS