Segmentation Targeting And Positioning Of Tcs: Fill & Download for Free

It is common knowledge that the current market price (CMP) is a function of P.E. and EPS, whereP.E. is price to earning ratio[1][1][1][1] andEPS is Earnings per Share (calculated by Net profit/ Total outstanding shares).Since the mkt always estimates forward earnings, any stock price rise or fall is based on the future earnings of a company. Based on the growth prospects & other qualitative measures, the P.E. ratio is assigned.Each investor has his/her own assumption of the growth, acceptability of a certain value to each company. Hence, while EPS assumed for calculations might be similar among most investors, it is the P.E. ratio which decides the expected target price (at the end of a certain time interval).Coming back to your query, my views on TCS, Titan, if they are overpriced?For sample size, I have considered the last 12 years data of EPS and stock price (on Apr 1 of each year) and have extrapolated the data only for the current year, for ease of understanding.FY19 EPS is annualized (taking H1FY19 EPS into consideration)All stock prices are adjusted to stock splits, bonus & other Corp actions.Stock price for FY19 shown is stock price at the end of H1FY19 (1 Oct).5 data intervals selected for Avg P.E. calc- 13 yrs, 10 yrs, 7 yrs, 5 yrs, 3 yrs.What are the observations?The average P.E. ratio for the last 3 years is 22.99, implying that the Mar 2019 P.E. of 24.28 is expensive, assuming that the price of TCS will still be at Rs. 1934 by Mar 2019. Incase the stock price comes down to Rs. 1831, then it will be at its 3 yr average P.E.The average P.E. ratio for the last 5 years is 22.76, implying that the Mar 2019 P.E. of 24.28 is expensive, assuming that the price of TCS will be at Rs. 1934. Incase the stock price comes down to Rs. 1813, then it will be at its 5 yr average P.E.However, it is important to remember that the P.E. is higher by only 1.29X, which could be easily assigned for TCS’s qualitative parameters - stable growth, mgmt capability, good earnings performance, decent corp governance measures, risk adjusted portfolio of clients across geographies etc.So, if you think that,24.28 (current P.E.) is a decent P.E. then TCS price is fairly priced for the rest of the year.Incase you consider FY18 P.E. of 27.33, then Rs. 2177 should be its stock price by Mar 2019.Incase you consider its 10 year avg P.E. of 21.05, then Rs. 1676 should be its stock price by Mar 2019.Also, valuations should be compared with peers and not just on its previous P.E.s. Let us also consider Infosys for comparison:While TCS has been showing positive EPS growth (except for 1 time in FY15), Infosys for the first time is expected to show a negative EPS growth in FY19. But, the P.E. ratio has increased from 17.8% in FY18 to 22.8% in FY19. Does that mean Infosys is overpriced at the current price of Rs. 679?The 3 year average P.E. of Infosys is 15.99, meaning at an EPS of Rs. 35.48, the stock price should be Rs.567 only, which means the stock has to correct by a good 16.4% and stay there for the balance 4 months of FY19. But that is not going to be the case, right?If a stock is going to out perform its peers like TCS did (in stock returns), I would definitely pay higher valuations.If we compare the P.E.’s of TCS & Infosys, then after assigning lower P.E. to infosys during Dr. Vishal Sikka’s tenure, analysts/investors are giving a higher P.E. though earnings are not that good. This is the importance or additional valuation given to a stable company having improved corp. governance.So each investor to his own thought process of what is over priced or fairly priced.If fundamentals, financials were the only reason for comparison, then why is YES Bank at a P/BV of 1.3 and P.E. of only 7.7 not finding investors at all, even at a price of < Rs. 150?Coming to Titan, I don’t have any peer companies to compare considering that it has a diversified portfolio of watches, sunglasses along with jewelry catering to the premium and standard segment of customers.The company is trading at a P.E. of 58.82 based on FY19e earnings, while it is lowly valued compared to its FY18 P.E. of 76.79 and is close to its FY17 P.E.If we consider the 3 year average, Titan is trading 5.77X cheaper.If we consider the 5 year average, Titan is trading 1.62X expensive.So what do you think is a fair P.E. considering that the sentiment for the entire sector has been hit because of Nirav Modi, PCJ and other issues. Do you think that the 23.4% loss in P.E. for FY19 is sufficient enough for the pricing or you expect more reduction in P.E.?I cannot answer these points accurately, as the thought process changes from investor to investor. What is good today, might not be good tomorrow. In this dynamic scenario, what price is considered appropriate? Tomorrow if we come to know that a particular client ($100 mn category) has cancelled the order for TCS, then what to do?Immediately, the earnings will be downgraded, EPS expectations will be reduced and automatically, the P.E. will come down. At the same time, if we find the same happening for Infosys, then analysts/investors might opt to go with TCS, which can raise the valuations much higher than earlier.Price is what you pay for the quality that you can get. If you are convinced on the quality of the company, its business prospects, its financials etc and plan to hold for a long time (but with periodic reviews), then no price is too low or expensive.Simple: Would you pay 25 P.E. for TCS or 8K Miles or Vakrangee or Infibeam? Would you pay 60 P.E. for Titan or PC Jeweler or Gitanjali? Everything is relative.Financial data and source credits: Moneycontrol, Screener, Yahoo Finance, and google images.Footnotes[1] Decoding the PE ratio of a stock | The Calm Investor[1] Decoding the PE ratio of a stock | The Calm Investor[1] Decoding the PE ratio of a stock | The Calm Investor[1] Decoding the PE ratio of a stock | The Calm Investor

TATA Consultancy Services (TCS) SWOT Analysis, Competitors & USPPosted in IT & Technology, Total Reads: 24989SWOT analysis of TATA Consultancy Services (TCS) analyses the brand/company with its strengths, weaknesses, opportunities & threats. In TATA Consultancy Services (TCS) SWOT Analysis, the strengths and weaknesses are the internal factors whereas opportunities and threats are the external factors.SWOT Analysis is a proven management framework which enables a brand like TATA Consultancy Services (TCS) to benchmark its business & performance as compared to the competitors and industry. TATA Consultancy Services (TCS) is one of the leading brands in the IT & Technology sector. The table below also lists the top TATA Consultancy Services (TCS) competitors and elaborates TATA Consultancy Services (TCS) market segmentation, target group, positioning & Unique Selling Proposition (USP).TATA Consultancy Services (TCS) SWOT, Competitors, Marketing STP & Brand analysis TableTCS (Tata Consultancy Services)Parent CompanyTata GroupCategoryIT ServicesSectorIT & TechnologyTagline/SlogansExperience CertaintyUSPIndia's largest IT companyTATA Consultancy Services (TCS) STPSegmentEnterprises seeking IT solutionsTarget GroupLarge overseas enterprises along with domestic clients. Focus on emerging markets as well.PositioningTrustworthy company with big customersTATA Consultancy Services (TCS) SWOT AnalysisStrengthsBelow is the Strengths, Weaknesses, Opportunities & Threats (SWOT) Analysis of TATA Consultancy Services (TCS). Strengths are:1) High command on local and domestic market(India)2) Strong brand backing (TATA)3) Strong Ethics4) Brand Image is quite strong in markets it serves5) Employee strength of over 300000WeaknessesHere are the weaknesses in the TATA Consultancy Services (TCS) SWOT Analysis:1) Not very strong in product segmentOpportunitiesFollowing are the Opportunities in TATA Consultancy Services (TCS) SWOT Analysis:1) Emerging markets2) Product market e.g. domain targeted offerings3) Repeat Business from existing clientsThreatsThe threats in the SWOT Analysis of TATA Consultancy Services (TCS) are as mentioned:1) Attrition and Employee loyalty2) Bigger MNC's entering India and competing for global clients3) Focussing on organic growthTATA Consultancy Services (TCS) CompetitionCompetitorsBelow are the top 5 TATA Consultancy Services (TCS) competitors:1. Infosys2. Wipro Technologies3. Mahindra Satyam4. Cognizant5. IBM

About the company:TCS is an IT services, consulting and business solutions provider that has been partnering with the world’s largest businesses in their transformation journeys for the last fifty 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, a benchmark of excellence in software development.A part of the Tata group, India’s largest multinational business group, TCS has over 420,000 of the world’s best-trained consultants in 50 countries. The company generated consolidated revenues of US $20 billion for the year ended March 31, 2019 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 Dow Jones Sustainability Index (DJSI), MSCI Global Sustainability Index and the FTSE4Good Emerging Index.Pros:the company filed for 4596 patents and was granted 946.The company has emerged as a market leader in domestic as well as global market for providing IT solutions and stands second in terms of company valuable by market capital in India.The company have achieved better growth from businesses as well as due to currency exchange in the year 2019 as compared to 2018 and the aggregate growth rate was 19% in 2019 as compared to the 4.4% growth rate in 2018Return on equity has increased from 30.33% in 2019 to 38.44% in 2020Return on capital employed has also increased from 38.59% to 46% in 2020Cons:Company’s lease liability under the head of non-current liabilities have increased from 44cr in 2019 to 6906cr . An increase by 156.9 folds.The nearer future could form darker clouds for the company and it can be observed that the quarter to come can observe a dent on the top line as well as the bottom-line growth due to the effect of corona pandemic.In the year 2020, Margins have fallen for four segments out of five and aggregate margins have shown a muted growthCompany has low amount of non-investments of 2189 crores as compared to its competitor Infosys who has non-investments of 12062 crores whereas Infosys has a market capital which is 41% of TCS market capitalCompetitive Moat of TCS:TCS unlike any other tata group company is well known for its corporate governance as any IT company has one of the best working culture for its most valuable assets which are the human capital employed in the company and majority of software engineers wish to work for TCS due to their work culture and ethics towards employees .TCS is the largest IT company by market capitalization and the second most valuable for India INC, its scalability in terms of revenue over the years and maintaining an average margin of more than a quarter on sales.The expenditure structure for the whole IT industry is well positioned in such a way that the only expenditure which can increasing at double digit is those on employee benefit expenses. Thus, TCS has its low cost and high operating margins of more than one-third of sales as a moat against the whole IT industry in indiaWe believe in the years to come , scalability will play a major role for the upcoming growth in the years to come and free cash flows will also grow at a double digit growth rate as the company will require minimal amount of capital expenditure thus resulting in conversion of majority of operating cash flow into free cash flows.TAKE ON TCSWe believe Mr. market has given long term investor a good opportunity to grab by discounting TCS share due to corona fear and in the quarters to come the stock can feel a bit of pressure as nobody knowns what guidelines will be for the business in the quarters to come due to lockdown. Currently TCS trades at 21x its earning (TTM) and 17.4 times its free cashflows of FY2025 which offers a value in itself. Observing the current lockdown and work from home situation, the coming a couple of quarter will play a major role as we don’t assume potential growth rate but if TCS ends up with maintain its same number of client base then it will come with a sustainable growth of 6-8% for current year and then a double digit growth could be observedDue to the lockdown, various medium level business will urge to understand the potential growth, digitalization and IT solutions could give to their businesses. Hereby TCS could benefit from India’s phase of digitalization if it grabs this opportunity before the other IT Giant Infosys limited does. We believe once the corona will come to an end , leader in the IT Sector including TCS could see 4-5% revenue from the depreciating rupee as TCS earns 95% of its revenues from offshore countries.TCS free cashflows stand at 84% of its net profit and its good for a growth investor who are behind high free-cashflows and we forecasted the future free cashflows to grow at 4% in FY2021 due to corona and assuming that the dust settles thereafter free cash flows to grow at 8%.We observed that TCS has a average margin on sales of 26.5% from all segment of businesses it provides IT solutions but if we were to compare the margins of 2020 with that of 2019 the margins of majority segments have fallen by a small degree of 100-150 BPS which the reader can view later at the end of the this report. We believe the reason for the same was due to acquiring more clients and focusing on revenue growth at an aggregate levelFUTURE OUTLOOK OF TCSAmid giving long term suggestion (usually ten years), we have the value forecasted for the next four years only as we consider IT industry where change is only constant and as warren buffett often prefer to say that ‘change is an enemy of a wonderful business.’Currently TCS is valued at 4.20 times its revenue, taking the same model in the year 2025 we value TCS at 4.5 times its forecasted revenue which brings its market capital equals to ₹11,07,000 crores thus valuing the share at ₹2951 per shareBut valuing any company with its top line brings the feeling of the startup culture. So we also valued TCS as per its net profitsThus, we value TCS at a P/E of 25 in 2025 which brings its market capital as follows 25*49132= ₹12,28,300 thus valuing the share at ₹3275 per share.Taking a margin of safety of 16%, we value TCS at ₹2751 per share within 4–5 yearsEconomy and Industry AnalysisThe IT industry due to corona pandemic will experience either a minimal growth of 2-4% in the financial year to come. But we assume to write for a long term investor who has a time horizon of 5-10 years and in the long run ,we believe the IT industry will experience a V-shape growth wherefrom the Indian IT industry can grow at 15% compounded annually.A big group of the IT Giants in India earn majority of their revenues from the global market. Thus the global lockdown due to corona will lead some small IT companies to lose their offshore clients and some will see it as a opportunities as chaos is a ladder but the companies which overcome and meet up the demands by either work from home will benefit a lot and Mr. market has already discounted IT companies to 20-25%One of the advantageous facts about the IT industry is that it benefits itself from the depreciating rupee against US dollar where the whole Indian economy see the depreciation as a point of fear and panic for the local business. Rupee currently trades at 75 per dollar from the levels of 65 per dollar. Thus, depreciation of rupee accounts good for IT companies as leader such as Infosys and TCS earns more than 95% from global markets and in dollars. Thus this acts as a good hedging option for the expenses incurred by companies in Indian rupees.Talking about the Indian economy, we believe the GDP growth can be muted or even negative for the fiscal year 2020, the fiscal deficit targets for the current quarter has been exceeded. Some industries in the Indian economy will experience a doble digit negative growth especially the cyclical ones such as auto, construction. People in this fiscal year will be cautious even about every penny they spend keeping in mind about the cashflow in the future to come to them and many will be on the urge of losing jobs.Assuming that the corona pandemic ends by the third quarter of FY2020, the economy can register a nominal growth of 3-4% and according to us , the sectors which will be in lime light once the pandemic is over are Lending , FMCG as always , and IT industry . we believe after the pandemic is over IT industry could register a double-digit growth in both its top line (revenues) as well as its bottom lines (profits)FINANCIAL HIGHLIGHTProfit and loss account with forecastFor the year ended march 31st, 2021, the corona pandemic’s affect on the company’s business has been taken and growth rate of 4% is consideredCommon size statementGraph showing breakup for business growth in TCSOperating profits with operating profit margins for TCSEARNINGS PER SHARERevenue by regionREVENUE BY SEGMENTSCash usageCOMPETITOR ANALYSISTATA CONSULTANCY SERVICESINFOSYS LIMITEDCONCLUSION:TCS which is the market leader in IT sector has greater revenue and efficient margins than Infosys limited and thus TCS enjoy the higher margins magnitude due to its larger scalability in revenues as compared to Infosys. But lately TCS has shown muted growth in terms of margins in the year 2020 as compared to the year 2019. Unlikely the net profit margins of more than a quarter (26.83%) on the sales for TCS is not a small thing its like along with growing scalability maintaining the bottom line margins as well.VALUATIONSPer Share Valuations:Dividend Per Share: ₹85Free-Cashflow Per Share: ₹70.56 (31ST march 2019)Operating Cashflow Per Share: ₹78.9 (31ST march 2019)Price/Free-Cashflow Ratio: 25.6 timesOperating Revenue Per Share: ₹ 390.56Operating Profit Per Share: ₹99.87Current Investment Per Share: ₹69.70Non-Current Investment Per Share: ₹5.83Other Valuation Parameters as per 31st march 2020:PBIDT Margin:29.75%PBIT Margin: 27.50%PBT Margin: 26.91%Net Profit Margin: 20.67%Return On Equity: 44.72%Return On Assets: 26.74%Return On Capital Employed: 46%Valuation Matrix:HOW are we valuing TCS at current valuation ?TCS currently valued at 2.75 times its forward revenue of the FY 2025TCS currently trades at a forward P/E ratio of 13.2X (FY2025)TCS currently trades at 17.5 times its free cashflows of FY2025thank-youthe graphs and the tables are made with the help of microsoft excel and the information for the analysis is obtained from the annual report of tata consultancy services.