X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Software: Tata’s colossal presence - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • May 11, 2001

    Software: Tata’s colossal presence

    Dr. Nirmal Jain the managing director of Tata Infotech, has admitted to the possibility of a merger between Tata Infotech and the software giant of the Tata group, Tata Consultancy Services (TCS). With estimated revenues of Rs 29 bn in FY01 TCS is the largest software company in the country. The merger with Tata Infotech will add Rs 3 bn to its topline thus, creating a software behemoth.

    While Tata Infotech has a diversified business model (it is into software education and hardware), TCS is purely into the software business. It is due to this fact that TCS would have operating margins higher than Tata Infotech. TCS is into value added areas like high-end consulting and end-to-end solutions.

    Tata Infotech % contribution
    to revenues
    TCS % contribution
    to revenues
    Software (International) 50% High end consulting 8%
    Software (Domestic) 20% End to end solutions 40%
    Hardware and Education 30% Development and short
    term assignments
    20%
        Time and material
    related contracts
    22%

    In FY00 TCS had a net profit was Rs 6,400 m and revenues of Rs 21,150 m, which brings the net profit margins to 30%. Assuming 6% of revenues as interest and depreciation expenses the company’s operating margins comes to around 36%. Considering a 40% growth over FY00 numbers and net profit margin remaining constant the net profit figure for FY01 is expected to be about Rs 8,972 m.

    FY01E TCS Tata Infotech Combined
    Revenues (Rs m) 29,610 5,020 34,630
    Operating Margin (%) 36.0% 7.0% 31.8%
    Net Profit Margin (%) 30.3% 3.7% 26.4%
    Net Profit (Rs m) 8,972 186 9,158
    No of shares (m) 0.4 18.4 -
    Face Value 1000 10 -
    Equity capital 404 184 -
    EPS 22,199 10 -

    TCS plans to become one of the world’s largest IT consulting companies by 2010. The IT consulting space is at the highest end of the software value chain as skill set requirements not only include IT experience but also relevant industry experience. According to IDC (International Data Corp) spending on E-consulting is expected to grow at CAGR of 58% year over the next four years. The market for E-consulting will be US$ 78 bn market by 2003, up 10 times as compared to US$ 7.8 bn in 1998. The other Indian company eyeing this segment is Infosys. With the merger TCS can concentrate on areas like consulting and Tata Infotech already has experience in areas like software development and maintenance.

    TCS also is looking at creating intellectual property and has entered into the products business. The company already has products in the area of accounting, banking, insurance, securities trading and manufacturing segments. Products business has traditionally had higher operating margins. However, the element of risk is also high. The company had planned to earn 30% of its revenues from products by FY01. However, TCS is expected to earn only 5% from products for FY01.

    However, the concern with TCS is that the company has not been agile like its peers (Infosys and Wipro). It had not been able to capitalize on new opportunities like e-commerce and telecommunications software.

    Another concern with the company has been attrition. Traditionally TCS’s pay scales have been lower than the industry leaders. The company being unlisted, its employee stock option schemes seemed unattractive to employees. However, in lieu of that TCS made cash payments of approximately Rs 400 m as performance incentives. The company is also looking at redesigning the compensation packages for its employees.

    But the very fact that the company is planning to be a listed entity is a clue to how radically it is looking at doing away with all the concerns regarding it. No doubt it will continue to be a formidable force in the Indian software industry.

    The question is what valuations the markets will accord to TCS? There seems no ground for it to get anything less than the best in the industry, however a smaller topline growth compared to its peers might bring in an element of discount.

     

     

    Equitymaster requests your view! Post a comment on "Software: Tata’s colossal presence ". Click here!

      
     

    More Views on News

    TCS: Currency Volatility Plays Spoilsport (Quarterly Results Update - Detailed)

    Jul 14, 2017

    TCS starts FY18 decently despite an adverse currency impact.

    TCS: A Dull End to the Year (Quarterly Results Update - Detailed)

    Apr 21, 2017

    Client specific issues result in a dull end to FY17.

    Tata Consultancy Services (TCS): A Strong Performance (Quarterly Results Update - Detailed)

    Jan 13, 2017

    Tata Consultancy Services (TCS) has declared results for the quarter ended December 2016. The company has reported a 1.5% QoQ increase in consolidated sales while the consolidated net profit was up 0.9% QoQ.

    Tech Mahindra: Our Revised View (Quarterly Results Update - Detailed)

    Aug 2, 2017

    A better than expected turnaround in performance results in a change in view.

    Wipro: A Decent Start to the Year (Quarterly Results Update - Detailed)

    Jul 27, 2017

    Digital services drive growth for Wipro in 1QFY18.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    TCS SHARE PRICE


    Aug 18, 2017 (Close)

    TRACK TCS

    TCS - PERSISTENT SYSTEMS COMPARISON

    Compare Company With Charts

    COMPARE TCS WITH

    MARKET STATS