While in many regards there’s an uncanny resemblance between Tata and its India IT services’ competitors-Wipro and Infosys–such as in its offerings, offshore leverage mix (near 75%) or attrition rates (near 15%)-Tata stands out in regards to its scale. The company’s revenue is 1.6 times and 2.6 times greater than Infosys and Wipro, respectively, and this has its benefits.
While TCS’ best-in-industry attrition rate of 11.9% did not give the company, the extra boost needed to expand margins over this quarter as it is expected to lower in subsequent quarters and pay off in the future. It confirms that TCS is the best-of-breed Indian IT services firm. TCS’ status allows the company to attract and maintain India’s top talent, even amid fair competitors, such as moaty Infosys and Wipro.
It is estimated that TCS will grow at the compounded annual growth rate of 11%. This growth will be majorly driven by overall increased spend on IT services by enterprises as the IT landscape becomes more complex than ever and enterprises increasingly realize competitive edge in their products or services is distinguished foremost by their technological abilities.
Financial Strength:
Tata’s financial health is in very good shape. Tata had INR 356 billion in cash and cash equivalents as of March 2020 with zero debt, which has allowed Tata to feed significant payout to its shareholder base. Over fiscal 2014 through fiscal 2018, Tata’s average payout of its free cash flow to shareholders was 64%.
It is forecasted Tata’s dividend to grow to at least INR 53 per share in 2025 from INR 33 per share in 2020, which maintains the company’s 38% dividend payout ratio. It is expected that acquisitions over the next five years will continue to be moderate, at INR 350 million each year.
Analysts expect that Tata will fare in 2022 assuming revenue growth of nearly 18% as a result of a strong recovery from effects of COVID-19, followed by top-line growth of 11% in fiscal 2023 and long-term midcycle growth near 9% per year thereafter.
Bulls Say:
- Tata should benefit from greater margin expansion than expected in our base case as more automated tech solutions decrease the variable costs associated with each incremental sale.
- Tata should profit from a wave of demand for more flexible IT infrastructures following the COVID-19 pandemic, as more companies seek to be prepared with the onset of similar events.
- As the European market becomes more comfortable with outsourcing their IT workloads offshore, Tata should expand their market share in the growing geo.
Company Profile:
Tata Consultancy Services is a leading global IT services provider, with nearly 450,000 employees. Based in Mumbai, the India IT services firm leverages its offshore outsourcing model to derive half of its revenue from North America. The company offers traditional IT services offerings: consulting, managed services, and cloud infrastructure services as well as business process outsourcing as a service, or BPaaS.
(Source: Morningstar)
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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.