If you had invested ₹1 lakh in TCS in 2011, that’s all you would have today

The company is the largest software services company in India operating through more than 250 offices in 46 countries.

Its reputation for customer-centricity, domain depth and execution excellence has made it the partner of choice for leading corporations around the world.

The company has been one of the biggest asset builders for investors. let’s take a look…

tcs vs nifty

if you had invested 1 lakh in TCS 10 years ago, your investment will be worth 6.32 lakh today.

This is a huge return of 532% in 10 years. On the other hand Nifty 50 would have given you a return of 266.1% during the same period.

The stock has also performed consistently since its listing on the exchanges.

Since its listing on the stock exchanges of TCS in 2004, its shares have given 2,689.7% returns. On the other hand, Nifty 50 has given a return of 991.3 percent.

As you can see, the company’s stock price has risen sharply, giving investors better returns than the market.

Better returns than your peers

If there is one company to which TCS is constantly compared, it is Infosys.

Both TCS and Infosys provide traditional and digital IT services to their clients and are actively competing for market share in the IT industry.

So how has TCS shares fared against Infosys?

In the last 10 years, TCS shares have given a return of 532% while Infosys has given a return of 409%.

Why TCS outperformed?

TCS is one of the largest Indian companies in the IT services outsourcing business. The company’s ability to effectively capture the demand for digital IT services has increased its market share compared to its competitors.

It also has an added advantage of having access to the largest talent pool in India along with the lowest job loss rates in the industry. Infosys, on the other hand, has the highest job loss rate in the industry.

The low job loss rate may actually help TCS capitalize on the growing demand for IT in the post-pandemic era.

TCS is successfully adding its clients to the $20 million, $50 million, and $100 million revenue buckets. In the last quarter of FY21, TCS bagged 30 deals, while Infosys could close only nine.

The company’s financial statements are also quite strong. Its ability to successfully close deals is clearly reflected in their growing revenue and profit margins. TCS is also ahead in terms of profit margin as compared to Infosys.

strong financial profile

TCS’ topline and bottomline have grown at a CAGR of 16% and 13.8 per cent, respectively, in the last 10 years. The company’s ten-year average net profit margin is 21.9%.

Financial services, retail, communications, manufacturing, and life sciences and healthcare are the major business sectors contributing to revenue and profit growth.

The shareholders of TCS have benefited not only through capital appreciation but also by receiving regular dividends.

The company has been continuously paying dividend to its shareholders for the last 10 years. The 10-year average dividend per annum paid by TCS is 41.2.

Whereas, the average dividend payout ratio per annum for the last 10 years is 43.9%.

In addition, TCS bought back shares worth Rs. 304.6 billion in three separate transactions over the years.

So the company is actively returning the money to the shareholders through dividends or buybacks.

Growth Story of TCS

TCS was already a 36 year old company when it decided to go public in 2004. A company that had humble beginnings as a management and technology consultancy in 1968, has now grown into one of the leading global IT services companies.

In 1971, the company won the first overseas assignment and by 1976, its export revenue had crossed the US$1 million mark.

By 2002, TCS already had a global presence and signed its first US$100m deal, making it the largest contract ever won by a software company in India.

In 2009, it became one of the top 10 global IT service providers in terms of revenue, margin, employees and market capitalization.

As of 31 March 2021, the company has 100+ customers with revenues of US$50 million each.

The company has some of the largest conglomerates in its customer base. To name a few, the company provides service to Google, Amazon, Azure, Oracle, IBM, and Apple.

TCS is one of the leading IT companies, employing more than 450,000 people in 46 different countries with low levels of industry.

During its 53 years of existence, the company has won various awards for its leadership in business, intellectual property and sustainability.

key challenges

Though TCS is one of the leaders in the IT services business, it faces stiff competition from its peers in the IT industry.

The slowdown in demand for traditional IT services is also affecting the company.

Even though the company’s digital IT services are growing at a fast pace, intense competition could lead to a loss of market share.

TCS derives the majority of its revenue from the financial services sector. And in terms of geography, most of the revenue comes from the US.

Such high concentration could affect the company’s revenue if any macroeconomic changes occur.

Future prospects look bright

Despite the challenges, TCS is one of the leading companies in the Indian IT industry.

Although revenue has slowed in the first wave of the pandemic, the end of the company’s fiscal year saw a quick turnaround.

The pandemic has spurred demand for digital transformation and TCS was quick to capture demand and secure maximum deals in March quarter 2021.

Their order book total contract value (TCV) was at an all-time high of $31.6 billion in FY21.

With a strong deal pipeline and rising demand for outsourcing and transformation services, TCS is expecting decent growth.

To know more about the company, visit TCS Financial Fact Sheet,

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(This article is syndicated from) Equitymaster.com,