TCS market cap breaches $100 billion mark, ahead of rival Accenture

As India’s largest software company Tata Consultancy Services (TCS)’s market cap surpassed the $100 billion mark, the Street is seeing value in the company’s organic growth plans. TCS saw its stock price soaring to a record high of Rs 3,557 on Monday on the BSE following better than expected Q4 results posted last week.

Although TCS’ market value on a closing basis slipped to $98.1 billion, it is still more valuable than its US-listed rival Accenture, which, according to Bloomberg, was valued at $98 billion.

The only other Indian company to breach that mark has been Mukesh Ambani-led Reliance Industries, which broke the $100 billion barrier in 2007. It is now valued at about $89 billion.

While investors have spent a few quarters fretting about TCS’ lack of acquisitions, the company has shown that its organic growth approach on the business 4.0 framework is paying off with double-digit dollar growth in the fourth quarter.

In the last three years, Accenture has spent about $3.4 billion on mergers and acquisitions (M&As), of which around $1.7 billion were spent in 2017.

The majority of the 70-odd acquisitions that the NYSE-listed company made were focused on digital and cloud-related businesses, something that other Indian IT giants have done as well. But, TCS continued to maintain its stand on building internal capacity under its business 4.0 framework to drive growth.

“Reaching such a milestone demonstrates that TCS’ strategy continues to yield results and that is often against a market commentary that tends to be drawn to noisy statements of intent rather than substance,” said Tom Reuner, managing partner, HfS Research.

He added that TCS’ strategy is based on two key areas of client relationships and consistent high quality delivery. That is why TCS was able to renew and expand two mega-deals with Nielsen and Transamerica.

“It is a very proud moment for all of us. TCS has been able to create value consistently by making the right investments not only in terms of technology but also in terms of creating capabilities, building leadership and talent, seeding new markets, and developing scalable world-class solutions,’ said N Chandrasekaran, chairman, Tata Sons.

The TCS journey started in 1968 when the company provided punched cards and software services to financial institutions as well as other Tata group companies. Under its first CEO, FC Kohli, TCS reached a peak revenue of Rs 6 billion almost two decades ago. Kohli is credited with laying the foundation for TCS’ expansive training and recruitment process that groomed thousands of software professionals when the sector was just taking off in India.

His successor Subramaniam Ramadorai, not only took TCS to the global platform through a strong project delivery mechanism that TCS is now synonymous with, but he too groomed a large part of the current TCS higher management, including the next CEO and current chairman of Tata group, N Chandrasekaran. He also oversaw the listing of TCS in August 2004. Since then, TCS has witnessed a 23 per cent compounded annual growth rate (CAGR) in revenue during 2005-06 to 2016-17, about 230 basis points ahead of Infosys’ revenue growth during this period. The CAGR in TCS’ net profit at 24 per cent is also ahead of Infosys’ 18.4 per cent during this 12 year period.

Under Chandrasekaran’s leadership, the IT company saw revenue grow from Rs 1.12 trillion to Rs 4.76 trillion, making TCS the major revenue generator of the Tata conglomerate. 

“If you look at their historical performance, the ability to spot and execute large deals has helped TCS grow to this point. Of course, the executive leadership has benefited greatly from the support they received from the Tata group,” said Ashutosh Sharma, vice-president and research director, Forrester. 

Analysts also noted that TCS, unlike most peers, has successfully converted a large number of its legacy deals into digital deals whereas rivals are still working largely on small ticket digital projects.

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