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COMPANY ANALYSIS: TATA

CONSULTANCY SERVICES (TCS)

Submitted By-
Harshul Kanwar
PGDM (EM)
(18PGDM00B015)
 TATA CONSULTANCY SERVICES (TCS) ANALYSIS

HISTORY

1. Issue of Bonus Shares

Considering the financial position, the Board of Directors at its meeting held on April 19, 2018,

recommended issue of Bonus Shares, subject to approval of Members, in the ratio of one new

Equity Share of the Company of `1 each, as fully paid-up, for every one existing Equity Share of the

Company. The Bonus Shares will be issued, by capitalizing a part of its retained earnings, to those

persons who are Members as on the record date.

2. Buyback of Equity Shares

5,61,40,350 equity shares were bought back during the year, at a price of `2,850 per Equity Share

for an aggregate consideration of `16,000 crore. The Offer Size of the Buyback was 21.89% of the

aggregate paid-up equity share capital and free reserves of the Company, and represented 2.85%

of the total issued and paid-up equity share capital of the Company. The buyback process was

completed and the shares were extinguished on June 7, 2017.

3. Dividend

Based on the Company’s performance, the Directors are pleased to recommend for approval of the

members a final dividend of `29 per share for FY18 taking the total dividend to `50 per share

(previous year `47 per share). The final dividend on equity shares, if approved by the members,

would involve a cash outflow of `6,693 crore, including dividend tax. The total dividend on equity

shares including dividend tax for FY18 would aggregate `11,377 crore, resulting in a payout of

45.07% of the unconsolidated profits of the Company.

4. Transfer to reserves

The Directors have decided to retain the entire amount of `74,080 crore in the retained earnings.
 5. Company’s performance

On a consolidated basis, the revenue from operations for FY18 at `1,23,104 crore was higher by

4.40% over the previous year (`1,17,966 crore in FY17). The profit after tax attributable to

shareholders and non-controlling interests was `25,880 crore (`26,357 crore in FY17). The profit

after tax attributable to shareholders was `25,826 crore (`26,289 crore in FY17). On an

unconsolidated basis, the revenue from operations for FY18 was at `97,356 crore (`92,693 crore

in FY17). The profit for the year was `25,241 crore (`23,653 crore in FY17).

Subsequent Events (1)

 Dividends

Dividends paid during the year ended March 31, 2018 include an amount of ` 27.50 per equity

share towards final dividend for the year ended March 31, 2017 and an amount of ` 21 per equity

share towards interim dividend for the year ending March 31, 2018. Dividends paid during the

year ended March 31, 2017 include an amount of ` 27 per equity share towards final dividend for

the year ended March 31, 2016 and an amount of ` 19.50 per equity share towards interim

dividend for the year ending March 31, 2017. Dividends declared by the Company are based on

profits available for distribution. Distribution of dividends out of general reserve and retained

earnings is subject to applicable dividend distribution tax. On April 19, 2018, the Board of

Directors of the Company have proposed a final dividend of ` 29 per share in respect of the year

ending March 31, 2018 subject to the approval of shareholders at the Annual General Meeting.

 Bonus issue

The Board of Directors at its meeting held on April 19, 2018, approved a bonus issue of equity

shares, subject to the approval of the shareholders, in the ratio of one equity share of ` 1 each for

every one equity share of the Company held by the shareholders as on a record date.
Subsequent Events(2)

 Dividends

Dividends paid during the year ended March 31, 2018 include an amount of ` 27.50 per equity

share towards final dividend for the year ended March 31, 2017 and an amount of ` 21 per equity

share towards interim dividend for the year ended March 31, 2018. Dividends paid during the

year ended March 31, 2017 include an amount of ` 27 per equity share towards final dividend for

the year ended March 31, 2016 and an amount of ` 19.50 per equity share towards interim

dividend for the year ended March 31, 2017. Dividends declared by the Company are based on the

profit available for distribution. Distribution of dividend out of general reserve and Retained

earnings is subject to applicable dividend distribution tax. On April 19, 2018, the Board of

Directors of the Company have proposed a final dividend of ` 29 per share in respect of the year

ended March 31, 2018 subject to the approval of shareholders at the Annual General Meeting.

 Bonus issue

The Board of Directors at its meeting held on April 19, 2018, approved a bonus issue of equity

shares, subject to the approval of the shareholders, in the ratio of one equity share of ` 1 each for

every one equity share of the Company held by the shareholders as on a record date to be fixed

later for this purpose.

Accounting policy on Property, plant and equipment

The company follows the cost method of PPE valuation i.e. cost less accumulated depreciation. It also follows

straight-line method of depreciation and has not disclosed any change in the policy as compared to the previous

year.

Accounting policy on valuation on inventory

The company values inventory at lower of cost and net realizable value. It calculates the cost of the inventory

on weighted average basis. Also, any change in inventory valuation from previous year is not disclosed in the

accounting policy of the company.

Return ratios

Ratio 2017 Industry 2018 Industry

Average Average
Return on Equity (ROE) 30.32% 21.42% 33.27% 23.47%
Return on investment (ROI) 30.02% 22.29% 33.04% 24.17%
Return on Total Assets (%) 26.11% 17.97% 27.54% 19.5%

The return ratios are showing an upward trend both for the company and the industry. This is due to an increase

in PAT and EBIT. Whereas total equity is decreasing as compared to previous year because it has bought back

a portion of its equity shares (around 5.61 crores). Also, the total investment is decreasing due to fall in both

total equity and borrowings leading to a higher ROI. Also, the total assets are increasing at a lower rate than

EBIT leading to a higher ROTA. The increase in total assets is highly attributable to increase in loans which

includes inter corporate deposits made this year worth Rs. 1500 crores. The company is also performing well

above the industry average in both the years, which is a good sign. Thus, the return of the company has

improved as compared to the previous year.

Margin ratios

Ratio 2017 Industry 2018 Industry

Average Average
Operating Profit Margin (%) 27.53% 28.98% 26.87% 28.45%
Net Profit Margin(%) 24.32% 24.27% 24.47% 24.39%
Material Expense Ratio(%) 1.90% 2.40% 2.06% 1.82%
Employee Expense Ratio(%) 49.47% 45.61% 49.92% 45.75%
Other Expense Ratio(%) 16.97% 5.93% 16.48% 5.21%
Depreciation & Amortization 1.62% 2.22% 1.6% 2.74%
Expense Ratio(%)

As per the margin ratios are concerned, the change over the year is not much. It is increasing for some ratios but

the increase margin is not quite huge. It is also performing on the same level as industry ratios. However, the

other expenses ratio is quite high as compared to the industry average, which may be a sign of concern for the

management. A high gross margin and a low net margin are attributable to finance costs, depreciation, tax etc.;

but the difference is not high which means these expenses are in control of the organization. Also, the increase

in the net margin can be due to higher sales and other income along with lower operating expenses and D&A

ratio.

Turnover ratios

TURNOVER RATIOS
Ratio 2017 Industry 2018 Industry
Average Average
Total Assets Turnover Ratio (times) 1.10 0.73 1.15 0.80
Fixed Assets Turnover Ratio(times) 10.56 8.90 10.94 8.88
Working Capital Turnover 1.68 1.43 1.90 1.75
Ratio(times)
Debtors' Turnover Ratio 5.57 5.06 5.13 4.55
(DTR)(times)
Average Collection Period(ACP) 65.56 72.85 days 71.14 80.05 days
days days

All the ratios are increasing except debtors’ turnover ratio as compared to the previous years, which is a good

sign. The assets turnover ratio both fixed and total assets have increased due to a higher increase in total income

as compared to assets. The company is also performing well as compared to the industry standards. The

debtors’ collection period is quite less than the industry standards, which shows that the company is in a good
position to collect its receivables and maintain its liquidity position. All this means, that the company is

utilizing its assets effectively

Capital structure ratios

Ratio 2017 Industry 2018 Industry

Average Average
Debt-Equity Ratio(times) 0.001 0.01 0.001 0.01
Gearing Ratio(times) 0.003 0.11 0.003 0.09
Interest Coverage Ratio(times) 1880.13 57.93 1065.37 142.16

The company’s portion of debt is extremely low and the ratios have not changed much over the years. Total

debt and equity both have fallen but since the portion of debt is very small, the change is minimal. Also, the

performance is almost at par with the industry average. As regards to interest coverage ratio, the company has a

very good position, as the ratio is a lot higher than the industry average. This is because of a low debt leading to

lower interest costs on one hand and high EBIT on the other hand. However, the ratio is decreasing in this year

because interest is increasing at a much higher rate than EBIT.

Liquidity ratios

Ratio 2017 Industry 2018 Industry

Average Average
Current Ratio(times) 6.40 3.54 4.85 3.31
Quick Ratio(times) 6.39 3.53 4.85 3.30

As compared to the previous years, the ratio is declining because the current liabilities are increasing at a higher

rate and current assets are decreasing at a negligible rate. However, the company is still in a very good position

as compared to the industry average and has a good liquidity position. However, too high liquidity ratios would

also imply blockage of funds in current assets, which may be a cause of concern for the management.
Investor’s perspective ratios

Ratio 2017 Industry 2018 Industry

Average Average
Earnings per share (EPS) 120.04 41.71 131.86 46.81
Dividend per share (DPS) 55.56 20.22 56.03 16.27
Dividend Rate (%) 46.28 40.12 42.49 27.01
Book Value Per Share 395.96 202.73 396.31 200.56
Dividend Yield (%) 4.57 2.21 3.93 1.72
Price Earnings Ratio (Times) 10.13 17.44 42.49 16.66

All the ratios are increasing in the year except ratios related to dividends as compared to previous years

showing a good sign. The market price of the share is also increasing at a good rate. However, the PE ratio is

below the industry average, which shows a lower investor confidence as against the industry standards.

DuPont Analysis

Ratio 2017 2018

ROE 30.32% 33.27%
Net Profit Margin * TATR * 24.32%*1.10*1.15 24.47%*1.15*1.20
Leverage Ratio

The increase in ROE is attributable to increase in net profit margin, total assets turnover ratio and leverage

ratio. The leverage ratio is close to 1 because the proportion of debt is minimal for the company.

Cash flow analysis:

The cash from operating activities has reduced marginally. Cash from investing activities is positive this year as

compared to cash used in investing activities last year. This is due to increase in dividend received form

subsidiary companies, proceeds from deposits, interest received etc. The company has purchased fewer

investments as compared to last year thus reducing the investment expenditure. The cash used in financing

activities has increased this year, which is attributable to the buy back of equity shares made by the company.

The overall change in the cash and cash equivalents is positive this year. The company has used the excess cash

from operating activities for buy back of shares. Also, since the company is at a maturity stage, the investment
requirements of the company are not high. The cash flow ratios are however, reducing as compared to previous

year, but still the cash position of the company seems good.