TATA CONSULTANCY SERVICES
COMPANY ANALYSIS
Prof. Arpita Ghosh
Corporate Financial Reporting & Analysis
Section C - Group 5
NAME REG NO.
ISHEKA AGARWAL 0186/60
JAYSHREE PODDAR 0190/60
SANSKAR SARAWAGI 0222/60
VINAYAK JOSHI 0234/60
VRINDA VAISH 0239/60
EXECUTIVE
SUMMARY
Company Background & Industry Overview
Established in 1968, Tata Consultancy Services (TCS) has evolved into a prominent global player, commanding a
significant presence in IT Services and Consulting. It has achieved substantial market capitalization and a strategic
consolidation of its portfolio through more than 15 acquisitions, resulting in a refined focus on consulting-driven IT
and IT-enabled services. Central to TCS's ethos is the unwavering commitment to delivering high-quality solutions
with a strong customer-centric orientation. Beyond its corporate role, TCS actively engages in social betterment
initiatives, demonstrating a profound investment in vaccine programs and education, thus making a positive impact
on society. With a global workforce exceeding 606,331 employees, TCS has secured its place as the second-largest
IT employer globally, further reinforcing its significance in the industry. Notably, TCS's workforce inclusivity
extends to more than 201,000 women, reaffirming its commitment to diversity and equal opportunities.
The Indian tech sector anticipates an 8.4% growth to $245 billion in FY23, a contrast to the previous year's robust
15.5% surge to $226 billion driven by pandemic tech spending. NASSCOM’s CEO survey echoes cautious optimism
within the industry, acknowledging global economic uncertainties that could impact tech expenditure. Q4 FY23 saw
an unprecedented 1% decline in dollar revenues (QoQ) for Indian IT firms, attributed to a 3% drop in top 10 client
revenue, while revenues from other clients remained steady. This departure from the norm reflects sector challenges,
as top clients exercise caution in spending. Despite these challenges, TCS achieved an increase in revenue over the
IT boom years during the pandemic. TCS is one of the few IT firms to consistently pay dividends to its shareholders
and has maintained its position by paying dividends in 2023 as well. These dynamics showcase TCS's leadership
amidst broader industry trends, shaping the narrative of India's tech sector.
Key Accounting Policies
The financial statements for the year ended March 31, 2023, are prepared in accordance with Ind AS prescribed under
section 133 of the Companies Act, 2013.
•Revenue Recognition: Revenue is measured on the basis of the price on which the transaction is processed, which
is adjusted for volume discounts, performance bonuses, price concessions if any, as specified in the contract with the
customer. Revenue also excludes taxes collected from customers. Revenue from time and material is recognised on
output basis measured by units delivered, efforts expended, number of transactions processed, etc.
•Property, Plant & Equipment: Property, plant, and equipment (PP&E) are calculated at cost taking in
consideration the purchase price and any other costs of bringing the asset to its working condition for its intended
use, less accumulated depreciation, and impairment loss. Depreciation is provided for property, plant, and equipment
on a SLM basis to expense the cost less residual value over their estimated useful lives.
•Intangibles: Intangible assets includes software licenses of enduring nature and contractual rights acquired,
measured at cost at the date of acquisition. Following initial recognition, intangible assets are carried at cost less
accumulated amortization and accumulated impairment losses. Intangible assets are amortized on a straight-line basis
over their estimated useful lives ranging from 2 to 5 years from the day the asset is made available for use.
•Leases: Firstly, the company evaluates if an arrangement qualifies to be a lease as per the requirements of Ind AS
116. The Company uses significant judgement in assessing the lease term (including anticipated renewals) and the
applicable discount rate. Among the Company's lease asset classes, land leases and office leases constitute the
majority. The Company determines the lease term as the noncancellable period of a lease, together with both periods
covered by an option to extend the lease if the Company is reasonably certain to exercise that option; and periods
covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.
Trend & Common Size Analysis
Net sales have increasing constantly on a YoY basis. The company faced an increase in its financial cost (interest
expense) from 0.14% to 0.37% over the last 5 years. However, operating profits as a percentage of net sales have
remained largely constant at 46.6% over the last year driven by the trend of operating expenses that have also
remained constant over the last year at 53%.
Ratio Analysis
The asset turnover ratio has soared to 1.58x from a range of 1.30x to 1.40x in the last 5 years. However, the net profit
margin has seen a decrease from 23.82% to 20.54% in FY23. Consequently, the price to earnings ratio has also fallen
to 29.70x from 34.36x. While TCS has increased its revenues and earnings, the fall in P/E ratio may reflect the overall
poor market sentiment towards the IT industry. The ROE for the company improved and stood at 51.55% during
FY23, from 50.26% during FY23. The company's current ratio deteriorated and stood at 2.36x during FY23, from
2.49x during FY22.
DuPont Analysis
The net profitability margin has dropped from its high of 24.41% in the financial year 2019 to 20.54% in March
2023. Asset Turnover has increased over the years from 1.29 to 1.58. Similarly, the return on equity has grown from
38.85% to 51.55%. The asset to equity ratio has also shown a growing trend by increasing from 1.26 to 1.61 over the
last 5 years.
Comparative Analysis
TCS is in a favourable position with respect to the overall IT industry. Despite a slowdown in the IT industry, the
revenues for TCS have been growing while Wipro’s have been stagnating around Rs. 50000 crores, and Tech
Mahindra’s have been growing slowly. The net profit has also grown steadily for TCS and Wipro between 2023 and
2019 but have declined slightly for Tech Mahindra. The P/E ratio for Tech Mahindra has increased tremendously
over the years compared to Wipro and TCS but all three have shown a positive trend in P/E ratio.
TCS enjoys a much higher net profit margin of ~21% compared to Wipro and Tech Mahindra. With an ROA of 32%
in 2023, TCS has significantly outshined the other two companies. Similar performance has been observed in ROE,
with a 51% ROE for TCS, followed by Wipro at ~16% and then Tech Mahindra at ~15%.
Liability to Equity is the highest for TCS at 0.61 but is at 0.38, it is higher for Tech Mahindra than for Wipro at 0.36.
While all three companies enjoy a favourable Current Ratio, it is the highest for Wipro at 2.86, closely followed by
TCS at 2.36 and then Tech Mahindra at 2.07. Being a debt-free company, the Interest Coverage Ratio for TCS is the
highest at 75.37 and much lower for Wipro and Tech Mahindra at 20.51 & 28.12 respectively.
DETAILED
ANALYSIS
COMPANY BACKGROUND & INDUSTRY OUTLOOK
Background
Tata Consultancy Services (TCS) was founded in 1968 and is one of the world’s leading IT services, consulting &
business solutions companies. The company has a vast network of innovation and delivery centres and strong
partnerships with global organizations to drive growth. TCS is India’s second largest company by market cap and was
the first company in the world to achieve ₹10T in market cap in the last decade. Over the past decade, TCS has
pioneered more than 15 acquisitions, leading to the consolidation of the company’s portfolio of consulting-led IT &
IT enabled services. It is committed to providing top-quality consulting IT solutions and services to interested parties
with a customer centric approach. The company has always been a leader in social engagement, with significant
investments in vaccine leagues, education, etc. TCS is currently the second largest IT employer in the world with over
606,331 employees worldwide as of June 2023. TCS currently employs more than 201,000 women.
Nature of Company Operations
TCS provides software products in the sectors of banking, finance and insurance, healthcare and life sciences, and
technology companies & emerging technologies. The company has a market capitalization of ₹12.04 trillion and a
revenue of ₹2.25 trillion. Its headquarters is in Mumbai, and it operates in 149 locations in 49 countries. It provides
services to some of the largest conglomerates in the world, such as Google, Amazon, Adobe, Intel, IBM, Apple, etc.
TCS' main competitors include Infosys, Tech Mahindra, LTIMindtree & Wipro. TCS is one of the world’s top IT
service brands & also India’s top Big Tech company. TCS ranked 64th in Forbes’ “World’s Most Innovative
companies” ranking in 2015.
Line of Business
The most dominant sector for TCS is banking, financial services & insurance (BFSI) which constitutes 39% of
company revenues. It is followed by retail & consumer business (17%), communication, media & technology (16%),
manufacturing (11%) & others which account for the remaining 17%. It also has multiple dedicated platforms for
specific functions - TCS BANCS is a dedicated platform for Business Financial Services Information services. TCS
ION is a Virtual learning platform for educational institutes. Ignio is a leading cognitive automatization software for
Enterprise IT and Business Solutions. TCS ADD is a platform for Digital Transformation of Drug Development and
Clinical Trials. TCS HOBS is a Plug & Play Business Platform for Subscription-Based Services. TS TwinX is an AI
powered system to help drive and optimize enterprise decision-making. TCS BPS is the third largest IT outsourcing
company in India after Capgemini. The BPS division generated revenue of $1.44 billion in the financial year 2012–13
(12.5% of TCS' total revenue). Since 2006, TCS has signed multi-million contracts with American biopharma giants
like Pfizer, Lilly etc. for clinical research-data-management, biostatistics and medical writing services. TCS also
provides services to European biopharma giants like Roche, Novartis etc. for clinical data management, bio-strategy,
clinical programming, pharmaco-vigilance and RWE support to global drug development efforts. In 2007, TCS
launched its co-innovation network, a network of innovation labs, start-up alliances, university research departments,
and venture capitalists. In addition, TCS has 19 innovation labs based in three countries.
Industry Outlook
Indian technology sector growth is set to slow down to 8.4% to $245 billion in FY23, according to NASSCOM. In
FY22, the industry grew at a CAGR of 15.5% - the highest rate in 10 years - to $226 billion as the Covid-19 pandemic
forced clients to spend more on technology. According to a survey of Chief Executives by NASSCOM, the industry is
“cautiously positive” about the future and the lobby declined to comment on its FY24 target. Global GDP growth is
slowing, macroeconomic conditions are worsening, ongoing banking concerns among US/Europe banks, and war-
related uncertainty is adding to the risk of a slowdown in global enterprises' tech spending. In Q4 FY23, the Indian IT
firms' dollar revenues decreased by 1% (QoQ) for the first time in 11 quarters, due to a 3% decrease in revenue from
their top 10 clients. Revenues from clients outside the top 10 were flat QoQ. This is the third-highest sequential fall in
revenues from top 10 clients in a decade even though 20-36% of IT firms' revenue comes from the top 10 clients.
CLASSIFIED ABRIDGED BALANCE SHEET (in ₹ crores)
MULTI STEP INCOME STATEMENT (in ₹ crores)
DIRECT CASH FLOW STATEMENT (in ₹ crores)
KEY ACCOUNTING POLICIES
The financial statements of TCS Ltd are prepared in accordance with the Indian Accounting Standards (referred to as
‘Ind AS’) prescribed under section 133 of the Companies Act, 2013. Key Accounting policies are applied with intrinsic
judgment and reason to give a fair view of the state of affairs of the Company at the end of the financial year.
1.Revenue Recognition
Revenue is measured based on the price at which the transaction has been processed, which is adjusted for volume
discounts, price concessions and incentives and excludes taxes collected from customers. Revenue is recognised
upon transfer of control of promised products or services to customers in an amount that reflects the consideration
which the Company expects to receive in exchange for those products or services.
• Revenue from time, material & job contracts is recognised on output basis measured by units delivered, efforts
expended, no. of transactions processed, etc
• Revenue related to fixed price maintenance and support services contracts where the company is standing ready to
provide services is recognised based on time elapsed mode and revenue is straight-lined over period of performance
• For fixed-price contracts, revenue is recognised using percentage-of-completion method (‘POC method’) of
accounting with contract costs incurred determining the degree of completion of the performance obligation. The
contract costs used in computing the revenues include cost of fulfilling warranty obligations.
2. Leases
The Company evaluates if an arrangement qualifies to be a lease as per the requirements of Ind AS 116. It
determines the lease term as the noncancellable period of a lease, together with both periods covered by an option to
extend the lease and periods covered by an option to terminate the lease. The company considers all relevant facts
and circumstances that create an economic incentive for the company to exercise the option to extend the lease, or
not to exercise the option to terminate the lease. The discount rate is generally based on the incremental borrowing
rate specific to the lease being evaluated or for a portfolio of leases with similar characteristics.
3. Property, Plant & Equipment
Property, plant, and equipment are stated at cost comprising the purchase price and any initial directly attributable
cost of bringing the asset to its working condition, less accumulated depreciation, and impairment loss, if any.
Depreciation is provided for PP&E on a straight-line basis to expense the cost less residual value over their estimated
useful lives based on technical evaluation. The estimated useful lives and residual values are reviewed at the end of
each reporting period, with the effect of any change in estimate accounted for on a prospective basis.
3. Intangible Assets
Intangible assets are measured at cost at the date of acquisition, less accumulated amortisation, and accumulated
impairment, if any. Intangible assets consist of rights under licensing agreements and software licenses, which are
amortised over a license period, which equates the economic useful life ranging between 2-5 years on a straight-line
basis over the period of its economic useful life. Intangible assets with a finite life are evaluated for recoverability
whenever there is any indication that their carrying amounts may not be recoverable.
4. Income Taxes
Income tax expense comprises current tax expense and the net change in the deferred tax asset or liability during the
year. Current and deferred taxes are recognised in statement of profit and loss, except when they relate to items that
are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are
also recognised in other comprehensive income or directly in equity, respectively.
5. Foreign Currency Transactions
Foreign currency transactions are recorded at exchange rates prevailing on the date of the transaction. Foreign
currency denominated monetary assets and liabilities are retranslated at the exchange rate prevailing on the balance
sheet dates and exchange gains and losses arising on settlement and restatement are recognised in the statement of
profit and loss. Non-monetary assets and liabilities that are measured in terms of historical cost in foreign currencies
are not retranslated.
6. Fair value measurement of financial instruments
When the fair value of financial assets and liabilities cannot be measured based on quoted prices in active markets, it
is measured using valuation techniques like the Discounted Cash Flow model. The inputs to these models are taken
from observable markets where possible, or a degree of judgement including considerations of inputs such as
liquidity risk, credit risk and volatility is required in establishing fair values.
FINANCIAL STATEMENT ANALYSIS
Balance Sheet
• There has been an increase of ₹6,696 crores in current trade receivables. This 18.47% increase is
commensurate with the increase of 18.71% in the revenue from operations.
• There has been a decline of ₹9,149 crores in cash and cash equivalents and other balances with banks over
the previous year. This is fuelled by the increased dividend payment of ₹41,347 crores as compared to
₹13,317 crores paid last year.
• Current Loans have declined by ₹5,321 crores. This has been because of retirement of inter-corporate
deposits of ₹5,386 crores.
• The company has no borrowings and is a debt-free company. This is a reflection of the company’s strong
cash position built due to the consistent revenue growth. However, there has been an increase in trade
payables of the company by ₹3,686 crores. The company also has current and non-current lease liabilities
worth ₹5,659 crores.
• Provisions have been reduced by ₹1,098 crores, driven mainly by the reduction in provision towards legal
claim.
Income Statement
• Employee benefit expenses have increased from ₹81,097 crores to ₹96,218 crores. This was driven by
increases in salaries, incentives and allowances, and contributions to provident and other funds.
• There is an increase in other expenses, from ₹31,989 crores to ₹41,723 crores. A large part of it can be
attributed to fees to external consultants and travel expenses.
• Depreciation increased very marginally (₹3,522 crores to ₹3,940 crores) which could suggest that the
company's asset base is relatively stable and not undergoing rapid changes.
Cash Flow Statement
• There was in increase in cash spent on the purchase of investments by ₹51,895 crores. This comprised
mainly of increase in investments in corporate bonds, certificates of deposits, and commercial papers.
• Dividend paid in 2023 was ₹41,347 crores, compared to ₹13,317 crores in the previous year. This increase,
along with consistent increase in revenue from operations over the last 5 years, has led to the creation of a
positive sentiment among shareholders.
• The company paid ₹4,192 crores as tax on buybacks for equity shares during the previous years.
• There has been a consistent growth in net cash generated from operation activities over the last 5 years.
Growth has been observed in CFO, despite the overall slowdown in the IT sector.
TREND & COMMON SIZE ANALYSIS
A) Analysis of Balance Sheet Statements
B) Analysis of Income Statements
Net sales are increasing consistently on a YoY basis. But operating profits as a percentage of net sales have
remained largely constant at 46.6% over the last year driven by the trend of operating expenses that have
also remained roughly constant over the last year at ~53%. The company however increased its financial
cost (interest expense) from 0.14% to 0.37% over the last 5 years.
FINANCIAL RATIOS ANALYSIS
Profitability Ratios Efficiency Ratios
The ROE has increased from 50% to 52% whereas the In the past 5 years, trade payables t/o ratio has fallen from
net profit margin has decreased from 24% to 21%. The 19.8x to 16.0x and the working capital T/O ratio has
ROA is within a consistent range at 32%. increased from 3.5x to 4.3x.
Market Ratios Liquidity Ratios
The dividend yield at 0.36x recovered from 0.10x Both the current ratio and quick ratio have significantly
whereas the P/E ratio came down from 34.4x to 29.7x decreased from 4.2x and 4.2x to 2.4x and 2.3x
last year. respectively in the past 5 years.
Leverage Ratios Payout Ratio
The interest coverage ratio has been struggling in the The payout ratio has taken a huge jump from 0.35x to
range of 100.0x to 50.0x at 75.4x. This is significantly 1.06x. Consequently, the retention rate has reached to -
away from last 5 years high at 240.4x. 0.06x from 0.65x last year.
DUPONT ANALYSIS
TCS:
The net profitability margin has dropped from its high of 24.41% in the financial year 2019 to 20.54% in March
2023. Asset Turnover has increased over the years from 1.29 to 1.58. Similarly, the return on equity has grown
from 38.85% to 51.55%. The asset to equity ratio has also shown a growing trend by increasing from 1.26 to 1.61
over the last 5 years.
TCS Growth: The company’s sustainable growth shows a decline from 2019 levels to 2023 because of the
decreasing retention ratio even though return on equity has risen steadily from ~39% to ~51% in 5 years.
Wipro:
The net profitability margin has decreased from its value of 15.82% in the financial year 2019 to 13.54% in
March 2023. The company is showing an increasing trend over the years as the company’s asset turnover ratio
has increased for the past couple of years and the asset-to-equity ratio has remained largely constant from 2019 to
2023 around 1.36. Return on equity has decreased from 16.61% to 15.67%, in the 5 years.
Tech Mahindra:
The net profitability margin for Tech Mahindra has decreased from 16.09% in 2019 to 8.86% in 2023. The
company also witnesses a decline in return on equity from 21.8% to 14.69% over the last 5 years. However, the
asset turnover ratio has witnessed a steep incline from 0.95 to 1.19.
COMPARATIVE ANALYSIS
A) Financial Performance
TCS revenue has shown a positive trend over the years while Wipro's has been stagnating around the 50000 Cr
revenue, and Tech Mahindra has been slowly pushing its revenues over the years. The net profits have steadily
increased for TCS and Wipro between 2023 and 2019 but have declined slightly for Tech Mahindra. The P/E for
Tech Mahindra has increased tremendously over the years compared to Wipro and TCS but all three have shown
a positive trend in P/E.
B) Profitability Ratios
TCS did much better in net profit margin compared to Wipro and Tech Mahindra with a profit margin of ~21%.
ROA in 2023 for TCS was 32% which was markedly higher than both the other companies. However, Wipro
outshined Tech Mahindra in ROA. In ROE the same situation is observed with 51% ROE for TCS and followed
by Wipro at ~16% and then Tech Mahindra at ~15%
C) Liquidity & Solvency
Liability to Equity is also the highest for TCS at The Current Ratio for Wipro is the highest at 2.86
0.61 but is higher for Tech Mahindra at 0.38 than closely followed by TCS at 2.36 and then Tech
Wipro at 0.36 Mahindra at 2.07
The Interest Coverage Ratio for TCS is the highest
at 75.37 and much lower for Wipro and Tech
Mahindra at 20.51 & 28.12 respectively.
OVERALL ASSESSMENT
TCS Wipro Tech Mahindra
•TCShas the highest Profit Margin of • Intel ranked Wipro as •Tech Mahindra was ranked
20.54% among its peer set. the number one ER&D #1 in TSV IT Services &
•It is a debt free company, which supplier for 2 years in a Internet Software and
provides it a greater control. row. Services segment of Dow
•It has the highest Return on Assets • Wipro witnessed Jones Sustainability Index.
when compared to Wipro and Tech 11.5% increase in • Tech Mahindra and
Mahindra. It also enjoys a ~50% revenue in constant Microsoft joined hands to
Return on Equity, and is therefore, the currency terms. bring "Network
most efficient at converting its equity • The Board approved a Cloudification as a Service”
financing into profits. buyback for the value of and AI Ops to telecom
•The company rolled out salary 120 billion at the price operators for their 5G Core
Strengths & increase from April 1st, with its of 445 per equity share. networks.
Opportunities operating margin of 23.2%. This is the biggest • The company’s revenue
reflecting the 200-bps impact of this buyback in Wipro’s stood at ₹42,657 crores, up
hike, offset through improved history. 19.2% YoY.
efficiencies. • Wipro signed 55 large • The company exhibited a
•Despite a banking crisis in USA, TCS' deals with a total y-o-y increase in PE Ratio.
total contract value—or new deal contract value of $3.9
wins—rose to $10 billion in Q4FY23 billion, growing 66.5%
on the back of the highest number of YoY.
large deals signed in a quarter. • Cash from Operating
•TCS launched the TCS Quantum Activities increased by
Computing Lab on AWS to help 54% YoY.
enterprises explore, develop, and test • They also witnessed a
business solutions and accelerate the 14.3% increase in
adoption of quantum computing. revenue on an YoY
•Huge Customer Base: TCS serves basis.
across a diverse set of industries,
including banking, retail, and
telecommunications. Exposure to
diverse businesses dilutes the risks of a
single market or industry’s over-
dependence.
•TCS had a CEO-level attrition for • Wipro experienced a • Tech Mahindra suffered a
the first time in its history, as it stood decreasing Return on spate of downgrades with
out in the industry with virtually zero Equity. The Return on number of 'buy' calls for the
attrition at senior levels. This sudden Assets has declined on a stock down from 22 to 15
Weaknesses change may be a reflection of yearly basis from over the last one month from
underlying issues. Mar’19 till Mar’23. factors such as project
& • Attrition among women is higher • Operating Margin as a closures, a single customer
Threats than among men. percentage of revenue declaring bankruptcy,
• The company has experienced a decreased by 224 basis reduced 5G expenditures
decreasing Current Ratio. The Quick points. from enterprises.
Ratio has also declined y-o-y from • Earnings per Share • The company went through
4.16 in Mar’19 to 2.32 for Mar’23. decreased by 7%. a change in senior
• TCS has experienced a stagnating • There was 12.4 leadership.
Operating Profit Margin. decrease in Interest • It witnessed the lowest Net
Coverage Ratio on an Profit Margin, ROE and
absolute term. ROA amongst peer-set.
• There was also a 33%
decrease in Profit after Tax
from Mar’22.
