Sharekhan is bullish on Tata Consultancy Services has recommended buy rating on the stock with a target price of Rs 4200 in its research report dated September 18, 2023.
Robust deal win momentum with average deal wins of ~$8.9 bn over Q1FY23-Q1FY24 further aided by the recent large deals from JLR, Nest, and BSNL provides further resilience to the company’s revenue growth profile. TCS’s strong domain expertise, geographical presence, and ability to cross-sell make it well-positioned to grab market share during the challenging environment, as reflected from robust deal momentum. Revamp of the organisational structure undertaken by the new CEO is expected to alleviate concerns and aid in driving growth.
Outlook
We maintain Buy rating on TCS with revised PT of Rs. 4,200 (the increase in PT reflects rollover of valuation multiple to Sep 25E EPS), as we believe the company is well placed to grab cost takeout as well as digital transformation programs along with opportunities arising from vendor consolidation. At the CMP, the stock trades at 25.5x/22.8x its FY25/26E EPS.
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Facing headwinds in most verticals like BFSI (banking financial services and insurance), tech and telecom, two of the country’s top IT firms recently signed deals in agribusiness, thus diversifying their revenue stream.
Last week, Tata Consultancy Services (TCS) was selected as a strategic partner by Nordic farmers’ cooperative, Lantmannen Ekonomisk Forening (Lantmannen), to transform their IT infrastructure and provide digital workplace services. As part of the multi-year agreement, TCS will provide round-the-clock business resilient operations to Lantmannen.
In quick succession, HCLTech also announced that it has been selected by Elders, a leading Australian agribusiness, to accelerate digital transformation across Elders’ business operations. Under the multi-year IT services partnership, HCLTech will provide cutting-edge managed IT services for Elders.
Analysts say that there is a push factor for agribusinesses to accelerate their modernisation and digitally transform their business because of geopolitical uncertainties like Russia-Ukraine war and climate change.
Around 10 days before TCS signed the deal, the Swedish farmers’ cooperative announced the completion of the divestment of its operations in Russia. Last year, European nations had raised concerns of widespread cyber attacks amidst the Ukraine war, and Lantmännen took measures to prevent any such attack by shutting down several IT systems and services.
Analysts maintain that agribusiness is likely to emerge as the next big frontier for IT service providers because it is largely untapped.
DD Mishra, senior director analyst, Gartner, said, “Agribusiness is relatively untapped sector. The diversification of IT services providers into this area which is relatively less crowded can provide new opportunities”.
He said that it will be interesting to see how IT services companies explore more strategic endeavours in this sector as opportunities have been relatively less compared to BFSI, retail, healthcare, telecom and others.
Peter Bendor-Samuel, CEO, Everest group, said, that the uncertainty and increased geopolitical risk is influencing agribusiness companies in much the same way that Covid exposed the weakness in legacy systems and people driven process.
“As a result of this increased awareness and sensitivity, Lantmannen may have decided that a more resilient and agile operations can be achieved through accelerating their digital transformation. The large award to TCS is a significant step to accelerate this transformation and further de-risk its operations. It will be interesting to see how many other firms follow down the same path”, Peter said.
Tata Consultancy Services (TCS) has been selected by the Centre to upgrade the Government e-Marketplace (GeM), a platform that facilitates online purchases of goods and services by the central government departments and ministries.
The IT major’s will transform GeM into a state-of-the-art public procurement platform to accommodate the anticipated six-fold growth in gross merchandise value (GMV) over the next six years, said the company in a filing with BSE.
The commerce ministry launched GeM in 2016 and awarded a five-year contract in 2018 to a private consortium, including Intellect Design Arena and Infibeam, for the development and maintenance of the platform. The contract is set to expire this year.
However, Infibeam, in an investor presentation document filed with the BSE, on Tuesday said that current GeM contract will “potentially” continue for 18-24 months until GeM 2.0 is delivered to the government.
In May, Infibeam disclosed that it received an email from GeM rejecting their bid due to an alleged non-fulfilment of pre-qualification criteria. It further said, “The current GeM engagement is for a period of 5 years from the date of its go live, which tentatively ends around December 2023. The current engagement can further be extended for 2 more years with similar terms and conditions on completion of the initial tenure/current engagement. If an extension is awarded, the current engagement shall continue up to December 2025.”
Meanwhile, TCS in a filing said, “This e-marketplace currently handles a GMV of over Rs 2 trillion purchased by over 70,000 buyer organisations from over 6.5 million sellers and service providers, including over 800,000 medium and small enterprises. The current platform, while successful, has architectural challenges in scaling up and in meeting the evolving needs of buyers and sellers.”
TCS currently gets about 4.9% of its revenue from India. The latest deal from the government comes close on the heels of another deal that a TCS-led consortium won from BSNL in May this year. The consortium received an advance purchase order valued over Rs 15,000 crore from BSNL for the deployment of 4G network across India.
TCS is proud to partner with the nonprofit Sakhikamva Foundation for the August Go Innovate Together (goIT) Monthly Challenge. This month’s challenge is aligned with the U.N.’s Sustainable Development Goal 6: Clean Water and Sanitation.
Throughout the month, TCS and the Sakhikamva Foundation invite whole classrooms, small groups and individual students aged 6-18 to express their ideas and flex their creativity. Specifically, the goIT Monthly Challenge for August asks them to create and present concepts for digital solutions focused on promoting access to clean water and sanitation for all. Students will consider the global issue at hand and then submit a three-minute video entry before July 31. All entries will be judged by TCS employee volunteers and supporters from the TCS community following the contest’s end-of-the-month close. Entrants will receive beneficial feedback and winners may receive mentoring and other recognitions. All winning goIT Monthly Challenge innovations are also submitted into TCS’ global goIT Innovator of the Year competition which takes place late next winter.
goIT is TCS’ digital innovation and career readiness program serving students with inspiration, innovation opportunities, preparedness skills and more. Sakhikamva Foundation is a nonprofit organization committed to building a positive future for today’s youth in South Africa as well as throughout the world.
Access to clean water and sanitation benefits everyone through improved health care, better nutrition and increased economic development. The team looks forward to receiving student entries and to inspiring youth to make a difference for many generations ahead.
Learn more about, or enter, the goIT Monthly Challenge at on.tcs.com/goIT-ENG.
Tata Consultancy Services (TCS)
Tata Consultancy Services (TCS)
Tata Consultancy Services is an IT services, consulting and business solutions organization that has been partnering with many of the world’s largest businesses in their transformation journeys for over 50 years. TCS offers a consulting-led, cognitive powered, integrated portfolio of business, technology and engineering services and solutions. This is delivered through its unique Location Independent Agile™ delivery model, recognized as a benchmark of excellence in software development.
A part of the Tata group, India’s largest multinational business group, TCS has over 613,000 of the world’s best-trained consultants in 55 countries. The company generated consolidated revenues of US $25.7 billion in the fiscal year ended March 31, 2022, and is listed on the BSE (formerly Bombay Stock Exchange) and the NSE (National Stock Exchange) in India. TCS’ proactive stance on climate change and award-winning work with communities across the world have earned it a place in leading sustainability indices such as the MSCI Global Sustainability Index and the FTSE4Good Emerging Index. For more information, visit www.tcs.com
Tata Consultancy Services (TCS) revamped its organisation structure, aligning it with the $28-billion tech company’s verticals or business groups (BGs), according to an internal note by new chief executive K Krithivasan sent on Friday.
The reorg under new chief executive K Krithivasan abandons most elements of the restructuring put in place by predecessor Rajesh Gopinathan in April last year.
India’s biggest software developer also announced appointments to the leadership team, along with new heads for its seven business groups, according to a stock exchange filing early on Saturday. The earlier structure — an ambitious bet by Gopinathan to catapult TCS to a $50-billion company — had organised the company as per the size of clients.
It was said to have caused resentment among senior employees of the companies as well as clients. “It has become increasingly evident that TCS could deliver the best value to our customers by synergising our domain and contextual knowledge across units,” Krithivasan told employees in an email unveiling the changes on Friday. ET has seen the email.
Experts said that returning to the old organisational structure will be well received both by the clients and internally.
“The current organisation is confusing, with many competing components. This reversion to a much better organisation will greatly reduce client confusion and will aid in execution,” Peter Bender-Samuel, chief executive of consultancy firm Everest Group, told ET.
The new structure brings existing industry service units (ISUs) in line with the business groups. About 200 ISUs will be reporting to the seven business groups within the company.
Banking, financial services and insurance (BFSI), earlier led by Krithivasan, has been split into two. BFSI in North America will be led by Susheel Vasudevan, and by Shankar Narayanan in all other territories. Narayanan was previously president and global head of retail, consumer packaged goods (CPG), travel and hospitality. There are about a dozen such redesignations, including that of its chief innovation officer, all effective August 1.
“Based on the discussions with customers and associates over the last couple of months, we believe TCS can deliver the best value to the customers by synergising its domain and contextual knowledge across units,” the company said in a statement. “The above changes will help in deepening customer-centricity, which is pivotal to our growth.”
The senior management personnel group appointments announced in the exchange notification on Saturday included those of Harrick Vin, Shankar Narayanan, V Rajanna, Siva Ganesan, Ashok Pai and Reguraman (Regu) Ayyaswamy.
Chief technology officer K Ananth Krishnan retires on July 31 and will be replaced by Vin, said Krithivasan’s communication.
Rajashree R, formerly chief marketing officer at TCS, is no longer a member of the group, said the exchange notification. She will move from the role on July 31 after almost a two-decade stint. TCS didn’t respond to queries related to that.
Abhinav Kumar will be the interim CMO, according to Krithivasan’s note to employees.
Last year, TCS introduced four new groups — acquisitions, relationship incubation, enterprise growth and business transformation. These have been dissolved.
ET reported in March that several executives felt “disgruntled” at having to deal with smaller accounts as the bigger ones moved to other units. Customers faced difficulties in determining who the stakeholders were under the structure.
Vasudevan, who will lead the BFSI sector in North America, had been appointed last year as president of the relationship incubation group. This had managed clients below $20 million in revenue. BFSI reported over Rs 86,000 crore revenue in fiscal 2023, about 31% of the total at TCS.
Narayanan’s previous portfolio will be taken over by Krishnan Ramanujam, who had been in charge of the enterprise growth unit, which handled clients in the $20-100 million range. Retail and CPG accounted for Rs 37,500 crore revenue last fiscal, 16% of the total.
The communication, media and information services group will be led by Akhilesh Tiwari. The life sciences, healthcare, energy resources and utilities group will be led by Debashis Ghosh, who had been president of the business transformation group, which handled clients with revenue over $100 million.
Anupam Singhal will lead the manufacturing business group and the technology, software and services group will be headed by V Rajanna.
Krithivasan said the relationship incubation group will be structured under appropriate ISUs.
Siva Ganesan will lead a new TCS AI cloud practice that will combine all public cloud units. Krishna Mohan will be the deputy head of this unit. Ganesan was the global head of the Microsoft business unit.
“Generative AI has captured the imagination of enterprises and consumers alike,” said Krithivasan. “All our clients and hyper-scalers are looking to generate more business value and achieve productivity leveraging cloud and GenAI. We have also made significant early investments and launched partnerships with key players in the AI space.”
Enterprise cognitive business solutions (CBO), another new service practice, will be led by Ashok Pai, who was the global head of the TCS CBO.
“While we have developed deep capability in many industry specific business processes, we have many great opportunities to grow in enterprise functions like finance and accounting services, HR procurement etc,” said Krithivasan. “With that in mind, we will be creating an enterprise CBO unit to focus on such enterprise functions.”
All business groups can leverage this practice for IT infrastructure services and domain specific business process services, he said.
Employee volunteers from Tata Consultancy Services (TCS) in North America gave company-led Corporate Social Responsibility (CSR) programs and nonprofits a lot of time during the company’s last fiscal year, ending March 31.
In fact:
In North America alone, about 22,500 TCS employees spent 42,425 hours volunteeringand supporting social good in their local communities.
In linear hours, that’s about 4.8 years, slightly longer than it took to build the Golden Gate Bridge.
The Empire State Building in New York and the CN Tower in Toronto each took only two years to build — half as much time as TCSers in North America gave to purpose projects last year.
Good is better when it multiplies: TCS employees also donated $1.4 million worth of their time, skills and expertise to North American nonprofit organizations via in-kind services during the year.
They delivered this work through TCS’ community innovation program, Tech4Hope. Not having to spend that money on needed IT services helped those nonprofits better support their clients and deliver on their missions and services.
During the year, 1,260 North American TCS employees volunteered 1,798 hours serving as mentors and innovation competition judges for Go Innovate Together (goIT), TCS’ digital innovation and career readiness program focused on K-12 students.
In so doing, they helped transform a lot of young people into STEM thinkers and caring global citizens.
For more information about how TCS empowers, visit on.tcs.com/csr.
Tata Consultancy Services (TCS)
Tata Consultancy Services (TCS)
Tata Consultancy Services is an IT services, consulting and business solutions organization that has been partnering with many of the world’s largest businesses in their transformation journeys for over 50 years. TCS offers a consulting-led, cognitive powered, integrated portfolio of business, technology and engineering services and solutions. This is delivered through its unique Location Independent Agile™ delivery model, recognized as a benchmark of excellence in software development.
A part of the Tata group, India’s largest multinational business group, TCS has over 556,000 of the world’s best-trained consultants in 46 countries. The company generated consolidated revenues of US $22.2 billion in the fiscal year ended March 31, 2021, and is listed on the BSE (formerly Bombay Stock Exchange) and the NSE (National Stock Exchange) in India. TCS’ proactive stance on climate change and award-winning work with communities across the world have earned it a place in leading sustainability indices such as the MSCI Global Sustainability Index and the FTSE4Good Emerging Index. For more information, visit www.tcs.com
Tata Consultancy Services has dismissed four executives for allegedly receiving bribes from staffing firms that recruited contractual employees for the company, Mint reported on Saturday.
The company has also sent its global head of the Resource Management Group, ES Chakravarthy, on leave and blacklisted three recruitment firms.
The action was initiated after a whistleblower, in communication with the company’s chief executive officer and chief operating officer of TCS, had alleged that Chakravarthy had been accepting commissions from staffing firms for years, according to The Economic Times.
Following the complaint, Tata Consultancy Services had set up a panel of three executives, including chief information security officer Ajit Menon, to probe the allegations.
An unidentified executive of the company told Mint that while the scale of the irregularities is yet to be ascertained, the people involved in the alleged scam may have earned at least Rs 100 crore through commissions.
“The entire senior leadership is shocked,” another unidentified executive said. “This makes you question if there were enough guardrails, and how could such a thing happen. The disturbing thing is that we don’t know how pervasive and for how long this scam was continuing.”
The executive added that the company has hired over 3,00,000 people, including contractors since 2020. “Even if 10% of the entire recruitment was made through selected staffing firms and the staffing firm gave a commission on every person recruited, you can imagine the scale of this scandal,” the executive said.
On its part, Tata Consultancy Services refuted any “scam” in its recruitment process and added that recruitment activities in the company are not handled by the Resource Management Group.
“RMG [Resource Management Group] is responsible for allocation of available resources to various projects and in case of any shortfall, fill such requirements through contractors,” the company said in a statement.
It added that the issue relates to a breach of the company’s code of conduct by certain employees and vendors providing contractors and that no key managerial person of Tata Consultancy Services has been found to be involved.
Responding to media reports about some TCS employees accepting commissions from staffing firms for years, the company said: “No key managerial person of the company has been found to be involved.”
“RMG is responsible for allocation of available resources to various projects and in case of any shortfall, fill such requirements through contractors,” TCS said.
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Tech major Tata Consultancy Services (TCS) Friday said there was a “breach of the company’s Code of Conduct by certain employees and vendors providing contractors” in recruitment activities.
Responding to media reports about some TCS employees accepting commissions from staffing firms for years, the company said: “No key managerial person of the company has been found to be involved.”
The issue does not involve any fraud by or against the company and (has) no financial impact, TCS said.
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“The recruitment activities in TCS are not handled by the Resource Management Group (RMG) as alleged, therefore the reference to alleged scam in recruitment process is incorrect,” it said.
“RMG is responsible for allocation of available resources to various projects and in case of any shortfall, fill such requirements through contractors,” TCS said.
The new scandal has shocked the industry as major corporations are expected to have solid safeguards to prevent corruption. It is a first-of-its-kind case for TCS.
The newly uncovered scam is said to have been going on for years. The accused employees were reportedly accepting bribes from staffing firms for giving jobs to their candidates.
The scam surfaced when a whistle-blower wrote a letter to the company’s CEO and COO. This letter accused the global head of RMG, ES Chakravarthy of accepting commissions from staffing firms.
Apart from sacking four officials from its resource management group (RMG), the company has also banned three staffing firms. The head of recruitment was also sent on leave. Another official in the RBM division has been sacked as well.
TCS formed a committee of three members to probe the allegations. This included chief information security officer Ajit Menon. The accused are said to have earned at least Rs 100 crore through commissions during the scam.
Currently, TCS has 614,795 employees. The RMG division hires almost one person per minute. It uses employee referral programmes and staffing firms for new hires, including temporary staff.
(The above story first appeared on LatestLY on Jun 23, 2023 11:09 AM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).
Major margin dilution for TCS was from the manufacturing segment, which was down by 260 basis points.
Tata Consultancy Services’s (TCS) BFSI vertical secured double digit growth in FY23 despite fewer deals and weak banking demand. The Indian IT bellwether’s BFSI vertical grew 11.8 percent year-on-year in FY23. TCS’s BFSI segment made 32 percent of the company’s revenue, accounting for Rs 86,127 crore in FY23, according to the company’s annual report.
Recessionary pressures in the US have led to reduced spending by companies, impacting the revenue of Indian IT companies, which heavily rely on exporting their services to the US. The situation worsened due to the banking crisis triggered by the liquidation plans of Silvergate Capital Corporation, a cryptocurrency bank, following losses from the collapse of FTX. Additionally, Silicon Valley Bank, a startup funding bank, was shut down. Furthermore, Credit Suisse, a systematically important Swiss bank, was taken over by its rival UBS.
Poor Margin Performance
Major margin dilution for TCS was from the manufacturing segment, which was down by 260 basis points, said Motilal Oswal. Retail and Life science segments were down by 200 basis points. Another lever to dilute the margins was attributed to retention and backfilling expenses, which slid by 140 basis points.
Retailing expense is the cost incurred to retain employees in a company, whereas backfilling expense is the cost for hiring a new employee.
TCS’s last twelve months attrition rate has increased further in FY23 by 270 basis points. It currently stands at 20.1 percent. The IT major saw a net addition of over 22,000 employees in FY23. TCS’s CC revenue growth was led by the Retail and Consumer Segment, which was up 19.7 percent year-on-year, and the communications segment, which increased 14 percent year-on-year.
Outlook on TCS
TCS’s strong position in the market, orders, portfolio, and exposure to long term orders puts the the company in prime position to withstand the weakening macro-economic environment, said Motilal Oswal. The financial services company maintains a buy rating on TCS at a target price of Rs 3860.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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