22/05/2015
India's TCS Becomes The World's Second Most Valuable IT Services Firm
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TCS' operations in Chennai in southern India (source: Wikipedia Commons)
A recently-sliding Indian currency and heightened prospects of an economic rebound in its largest market, the United States, has bolstered the share price of Mumbai-based Tata Consultancy Services (TCS) and made it the world’s second most-valuable IT services company after IBM IBM -0.3%. That puts it ahead of rivals like Accenture ACN -0.42% and Hewlett-Packard HPQ +2.75%.
TCS’ market valuation recently crossed $60 billion, ahead of Accenture’s $50 billion and HP’s $43 billion, but trailing way behind IBM’s $202 billion.
“TCS has long been the 800-lb gorilla in the Indian offshore space but until recently has never really been able to take its rightful spot in the market, always overshadowed by the likes of Infosys and Wipro,” said Partha Iyengar, country manager for Gartner Research in India. “Today, they have very clearly separated themselves from the rest of the Indian pack.”
TCS is currently amongst the fastest-growing IT services companies worldwide. It has efficiently leveraged its broad and deep technical and domain capabilities. It has revamped its sales and marketing capabilities, historically its weak spots. “The results of these efforts are now seen in their highly differentiated, and justified in my personal opinion, market cap and market traction,” Iyengar said.
TCS’ stock commands a huge premium, trading at around 27 times its profits of the past 12 months, a five-year high, whereas rival IBM trades at 12 times and Accenture trades at 17 times its latest earnings per share. Its share price has spiked over 40% in the past three months.
In India, TCS topped the market capitalization of Reliance Industries, India’s most valuable company until a few months ago. In tandem, the valuations of leading Indian IT services companies have crested to multi-year highs. But TCS accounts for nearly half of the Indian IT industry’s combined market capitalization.
TCS’ Number Two position globally by value could help its branding and make it a stand out to customers. It has just bagged a five-year, multimillion euro IT infrastructure deal with SAS Scandinavian Airlines. As the world’s second most-valuable IT firm, TCS is expected to become popular amongst Indian INVESTORS as well as large global institutions. TCS is part of India’s salt-to-airline industrial conglomerate,Tata.
TCS is notable in terms of employee count and geographical spread. In March this year, its headcount was 276,196 employees. Rival IBM had 430,000 workers at last count, a bulk of them in India. In geographical reach, the North American market – a vital market for India’s outsourcing companies – accounts for half of TCS’ revenues. But a fifth of its revenues come from emerging markets.
TCS is expected to continue to show strong revenue growth. TCS’ CAGR in the past three years leading to FY13 was 22% COMPARED with 13% for Infosys and 10% for Wipro. However, TCS substantially lags behind IBM in revenues and trails Accenture,too.
