Tata consultancy Service

Tata Consultancy Service is an Indian multinational information Technology IT and service,

having a headquarter in Mumbai, It is a subsidiary of Tata group and operates in more than
149 location in almost 46 countries and have almost, It is India’s second largest company
according to Market capitalisation, the company got listed on exchange on august 25, 2004,
companies major portion of revenue comes from Application Development and maintenance
(44%) and Enterprise solution (15.2%). TCS is also one of the largest private employer and
the fourth largest employer among listed companies

Financial Performance of the company last 5 years

Year End 202003 201903 201803 201703 201603

Inc / Exp Performance          
Net Sales 131306 123170 97356 92693 85864
Total Income 139388 130797 103159 97261 89621
Total Expenditure 93953 88206 69551 65604 58810
PBIDT 45435 42591 33608 31657 30811
PBIT 42734 40875 31961 30082 29352
PBT 41991 40705 31931 30066 29339
PAT 33260 30065 25241 23653 23075
Cash Profit 35961 31781 26888 25228 24534
Sources of Funds          
Equity Paid Up 375 375 191 197 197
Reserves and Surplus 73993 78523 75675 77825 64816
Net Worth 73486 78640 75884 77484 64959
Total Debt 0 6 225 250 178
Application of Funds          
Gross Block 29858 21954 20396 18749 17251
Investments 27875 30469 37259 42930 24159
Cash and Bank balance 4824 8900 3487 1316 4806
Net Current Assets 55168 60136 54164 57741 42068
Total Current Liabilities 24026 18896 14058 10701 11309
Total Assets 102756 97403 88005 87311 75117
 Cash Flow          
Cash Flow from Operations 26603 23998 21587 23132 17986
Cash Flow from Investing
activities 12829 5883 5634 -15782 -4518
Cash Flow from Finance activities -39045 -27825 -26827 -10891 -9586
Free Cash flow 28294 26705 24789 24567 19194
Key Ratios          
Debt to Equity 0 0 0 0 0
Current Ratio 3.3 4.18 4.85 6.4 4.72
ROCE 56.18 52.83 41.55 42.11 52.97
RONW 43.73 38.91 32.92 33.21 41.81
PBIDTM(%) 34.6 34.58 34.52 34.15 35.88
PATM(%) 25.33 24.41 25.93 25.52 26.87
CPM(%) 27.39 25.8 27.62 27.22 28.57
Market Cues          
Price (Unit. Curr.) 1823.05 2000.4 1424.65 1215.55 1258.03
Market Capitalization 683643.8 750150 544216.3 478926.7 495661.9
EPS 88.69 80.17 66.08 60.03 58.57
Price / Book Value 9.3 9.54 7.17 6.18 7.63
CEPS 95.9 84.75 70.39 64.03 62.27
Equity Dividend % 7300 3000 5000 4700 4350
Enterprise Value 678819.8 741256 540954.3 477860.7 491033.9
Dividend Yield % 4 1.5 1.75 1.93 1.73

Relevant Ratios for the capital structure And Dividend Policy

Ratios 2020 2019 2018 2017 2016

Debt To
equity 0 0 0 0 0
Price to BV 9.3 9.54 7.17 6.18 7.63
Return on
equity 43.73 38.91 32.92 33.21 41.81
PE ratio 20.55 25 21.57 20.25 21.47
Net profit 25.33 24.4 25.92 25.51 26.87
margin
Return on 32.36 30.86 28.68 27 30.71
asset
Debt Ratio 0 .006 .25 .28 .23
EPS 88.69 80.17 66.08 60.03 58.57
Dividend Yield
% 4 1.5 1.75 1.93 1.73
Dividend
payout ratio 82% 37% 38% 39% 37 %
ROCE % 48% 48% 39% 44% 51%
TCS Profit Sharing Policy
TCS is a company that is managing the buyback and announcing the dividends, by the time
and is managing the combination from using these two systems for the maximisation of the
shareholders wealth , The company pays a regular dividend to the shareholders on the basis
of face value , it distributes the dividend quarterly in the form of interim, interim 2, interim 3
and final dividend , in October in 2019, company declared a special dividend of RS 40 per
share , in 2018 the company went for the buyback of shares worth 16000 crore. In 2017 the
company went for the similar buyback of shares worth 12000 crore The company Says that
the buyback of shares was part of its long term capital allocation policy of returning access
cash to shareholder, The company is going to follow the same route this year as well and is
going for a buyback of shares programme for up to Rs 16000 crore as well.

Capital Structure
After Gone through the Capital structure we can say that the company is almost a debt free
entity, its debt to equity is almost 0 and its long term debt to total asset is almost 0 ,It holds a
interest coverage ratio of 57.52 , which is really great for a company size like this , TCS has a
conservative capital structure , it has a very little financial risk as the capital structure does
not rely on leverage , feels like TCS is unable to take advantage of leverage and tax shield of
debt. The company is working efficiently to be debt free to maximise the EPS, so that they
can maximise the shareholders wealth over upcoming period of time, the company has a
complete capacity to meet its short term obligation comfortably.

Analysis
After observing the TCS financial we can say that it is type of company which prefer constant
growth , the company is effectively using its capital to generate profits , net profit margins are
great as compare to peers , a company with no Debt , Annual net profits are also improving
from past 2 years , the PE ratio makes it more attractive , if we see over the time the
valuations looks reasonable , revenue of the company have increased by almost 7 % ,
whereas the EPS have grown at a rate of 10.15 % from the past year which tells company is
showing a descent growth rate

Some key point if we observe we can say that during march 2016 to march 2020 , the EPS
growth at a compounding rate of 10.93, whereas the stock grow at a rate of 9.72% which
means there is a lag of more than 1 % which can be consider a good sign of undervalue stock
in march 2020 and one can consider a good background company with no debt at a
undervalue price as good piece of investment , as it is said that company market price usually
moves at a speed of its EPS , by following the same method we can find the situations where
it lags the EPS growth can be a opportunity for a buy of a stock . The company price to book
value stands at a good point where the company is little bit on higher side since its average
peer value at this point as well but if we see this over the time it remains the same which
means TCS usually trades over a premium than its peer.

Conclusion
Being backed by a strong player like TATA it automatically puts trust in the company TCS
If we see the entire growth rate in the IT industry we can see that the industry usually grows
on average rate of 12.3 % , which is a good sign that overall IT industry is a safe investment
opportunity because it is showing a good growth , being TCS from the same family we can
expect the same for them , the company is a pure debt free company and focusing on long
term capital allocation policy by returning access cash to shareholder, the company is
operating on some good profit margins along with that the company believes in shareholder
wealth maximisation and they are also a regular dividend paying company, but the company
is usually trades on a premium than its peers whether it is PE ratio or price to book value ,
which can also be sign that the investors believe in this company

Suggestion and Recommendation

 The company does not have debt which is good in senescence but it can use this is a
financial leverage for more better results if it’s get some good opportunity to invest

 Company Should focus on product segmentation where it lags and its major earning is
dependent on one segment which is not safe they should distribute their business risk .

 The company should focus on new set of technology such as block chain and cloud
mining , and should invest in new upcoming technology

 Company is lagging behind the industry standard growth rate and they should at
least achieve the industry average

 Its being said that the TCS usually don’t add fresh blood in the decision making in
their board , they should focus adding more on young blood to make a decision