International Financial Management Project

Tata Consultancy
Services

Submitted by:
Saurabh Mahajan
MBA/0224/58
 Table of Contents

Sr. No. Topic Page No.

1. Introduction & History 3

2. Organization Structure 4

3. Revenue Distribution 5

4. Internationalization Strategy 6

5. Tax Strategy 6

6. Ownership & Financing Structure 8

7. Foreign Exchange Risk Hedging 9

8. Valuation & Stock Price 10

9. Path Ahead 11

10. References 12

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 Introduction & History
Tata Consultancy Services (TCS) is an Indian multinational information technology (IT) services
and consulting company with its headquarters in Mumbai. It is a part of the Tata Group and
operates in 149 locations across 46 countries. In July 2022, it was reported that TCS had crossed 6
lakh or 600,000 Employees worldwide.
TCS is the second largest Indian Company by market capitalization and is among the most
valuable IT service brands worldwide. In 2015, TCS was ranked 64th overall in the Forbes
"World's Most Innovative Companies" ranking, making it one of the highest-ranked IT services
companies and a top Indian company. As of 2018, it is ranked eleventh on the Fortune India 500
list. In April 2018, TCS became the first Indian IT company to reach $100 billion in market
capitalization and the second Indian company ever (Reliance Industries achieved it in 2007) after
its market capitalization stood at ₹6.793 trillion (equivalent to ₹7.7 trillion or US$97 billion in
2020) on the Bombay Stock Exchange.
In 2016–2017, parent company Tata Sons owned 72.05% of TCS and more than 70% of Tata
Sons' dividends were generated by TCS. In March 2018, Tata Sons sold stocks of TCS worth
$1.25 billion in a bulk deal. As of 15 September 2021, TCS has recorded a market capitalization of
US$200 billion, making it the first Indian IT firm to do so.
On 25 August 2004, TCS became a publicly listed company. In 2005, TCS became the first India
based IT services company to enter the bioinformatics market, and in the same year TCS changed
the tagline from “Beyond the Obvious” to "Experience Certainty". In 2006, it designed an ERP
system for the Indian Railway Catering and Tourism Corporation. By 2008, its e-business
activities were generating over US$500 million in annual revenues. TCS entered the small and
medium enterprises market for the first time in 2011, with cloud-based offerings. On the last
trading day of 2011, it overtook RIL to achieve the highest market capitalisation of any India-
based company. In the 2011–12 fiscal year, TCS achieved annual revenues of over US$10 billion
for the first time.
In May 2013, TCS was awarded a six-year contract worth over ₹11 billion (US$140 million) to
provide services to the Indian Department of Posts. In 2013, the firm moved from the 13th
position to 10th position in the League of top 10 global IT services companies and in July 2014, it
became the first Indian company with over ₹5 trillion (equivalent to ₹6.8 trillion or US$85 billion
in 2020) market capitalisation. In Jan 2015, TCS ends RIL's 23-year run as India's most profitable
firm. In Jan 2017, the company announced a partnership with Aurus, Inc., a payments technology
company, to deliver payment solutions for retailers using TCS OmniStore, a first of its kind
unified store commerce platform. In the same year, TCS China was associated as a joint venture
with the Chinese government.
TCS received the 2019 American Business Awards from Four Stevies.
On 8 October 2020, TCS surpassed Accenture in market capitalisation to become the world's
most-valuable IT company with a market cap of $144.73 billion. On 25 January 2021, TCS again
surpassed Accenture briefly, in market capitalisation to become the world's most-valuable IT
company with a market cap of $170 billion. The same day, TCS became India's most valuable
company, surpassing Reliance Industries with a market cap of ₹12.55 trillion (US$160 billion). In
2021 Tata is also one of the largest job provider in India hiring 43,000 individuals in H1 FY22. In
October 2021, N Ganapathy Subramaniam, the COO of TCS, stated that its platforms and products
business is worth approximately $3 billion. The company's platforms and products business
includes TCS' SaaS-based platforms, and according to Subramaniam, between October 2020 and
October 2021, 95% of the deals won by TCS have been for its cloud platforms and SaaS
platforms. Also, in 2021 TCS got a millennial makeover. Under the leadership of Rajashree R,
TCS Chief Marketing Officer (CMO), the company changed the tagline from "Experience
Certainty" to "Building on Belief".
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 Organizational Structure

TTCS rolled out a new, industry-first organization structure at the end of FY 2022 that further
enhances the company’s customer centricity. The new model recognizes that customers’ needs
vary and evolve over time as they progress in their relationship journey with TCS, and enables the
delivery of a curated experience best suited for each customer’s current stage in that journey. It
does this by adding a fourth dimension – i.e. customer relationship stage – to the existing three
dimensions of TCS’ organization structure: geography, industry vertical and service line.
Customer acquisition will continue to be done by local sales teams in the various markets. Existing
customers in major markets will continue to be serviced by the same client partners, but the
governance layer on top has been realigned. Instead of being governed as vertical-wise business
groups, customers have now been segmented by relationship stage, and vested with three business
groups:
• Relationship Incubation Group to manage new relationships which require a higher level of
hand holding and a differentiated, high touch delivery;
• Enterprise Growth Group to manage relationships which are in the high growth phase;
• Business Transformation Group to manage large and mature relationships.
The company’s primary reporting segments will continue to be industry verticals and
geographic markets. Existing verticalized governance structures, the Industry Solution Units
(ISUs) and sub-ISUs, will see their portfolios realigned and rationalized under these three
business groups. Customers in emerging markets will continue to be serviced by local country-
based organizations. Integrated Annual Report 2021-22 Management Discussion and Analysis
| 110 The sharper customer focus enabled by the new structure and the resultant curated
customer experiences are expected to enhance customer intimacy, facilitate cross selling and
up-selling, expand share of wallet and prepare the company for the journey ahead.

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 Revenue Distribution

The following graph showcases the revenue distribution between the different geographies
that Apple operates in from the year 2011 up till the present day

As the chart shows, America has always been the dominant source of revenue for the
company right from 2011. However, the share of other regions, namely India and Europe
have steadily grown over the years. This implies that TCS is now catering to a much more
international and globalized market than it did back in 2011. This also means it is now
exposed to the foreign exchange risk and fluctuations in the international market as a
whole.

Since 2017, most of the annual revenue of Tata Consultancy Services (TCS) were generated in the
banking, financial services, and insurance industry. For the fiscal year ended on March 31, 2022,
banking, financial services, and insurance made up 39.2 percent of Tata Consultancy Services'
revenue.

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 Internationalization Strategy

TCS global strategy structure tend towards its global operations to implement a Customer centric
and integrated approach which will help them to control external factors arising from the
Economic Meltdown in western countries. TCS's global operation units is divided into five main
divisions includes the established markets like North America K & Western Europe as well as the
new markets includes mainly Latin America, Middle east, India and Eastern Europe. TCS was the
first one to set the global delivery centre in China which distinguished TCS from other corporate
companies (Mitra, 2005).
This global strategy of TCS will Increase Company's market growth rate at the rate of 40% every
year. TCS is establishing global delivery centres outside India which demonstrate TCS as a Global
company. In recent years TCS was frequently changing its approach towards global market.

Tax Strategy

TCS is committed to comply with the applicable laws and regulations, and believes in
reporting to the respective tax authority, relevant information that is complete and accurate, in
a timely manner. TCS does not engage in aggressive and contrived tax planning or tax
structuring for the purpose of gaining tax advantages. TCS’s tax policy is to optimize the tax
cost, avail tax incentives where available, while achieving 100 percent compliance with the
spirit as well as the letter of the tax laws and regulations in all countries in which it operates.
Compliance is achieved through a robust compliance reporting and monitoring process, with
a strong governance on minimizing the tax risk. TCS has zero tolerance towards tax evasion,
or the facilitation of tax evasion, by itself or by its employees or vendors. TCS maintains open
and collaborative relationships with governments and tax authorities worldwide. Where
appropriate, TCS seeks advance clearance from tax authorities on the proposed tax treatment
of transactions, helping pre-empt future disputes.

Current income tax

The current income tax expense includes income taxes payable by the Company and its
subsidiaries in India and overseas. The current tax payable by the Company and its subsidiaries
in India is Indian income tax payable on worldwide income after taking credit for tax relief
available for export operations in Special Economic Zones (SEZs).
Current income tax payable by overseas branches of the Company is computed in accordance
with the tax laws applicable in the jurisdiction in which the respective branch operates. The
taxes paid are generally available for set off against the Indian income tax liability of the
Company’s worldwide income.
The current income tax expense for overseas subsidiaries has been computed based on the tax
laws applicable to each subsidiary in the respective jurisdiction in which it operates.
Advance taxes and provisions for current income taxes are presented in the balance sheet after
off-setting advance tax paid and income tax provision arising in the same tax jurisdiction and
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where the relevant tax paying unit intends to settle the asset and liability on a net basis.

Deferred income tax

Deferred income tax is recognised using the balance sheet approach. Deferred income tax
assets and liabilities are recognised for deductible and taxable temporary differences arising
between the tax base of assets and liabilities and their carrying amount, except when the
deferred income tax arises from the initial recognition of goodwill or an asset or liability in a
transaction that is not a business combination and affects neither accounting nor taxable profit
or loss at the time of the transaction.
Deferred income tax assets are recognised to the extent that it is probable that taxable profit
will be available against which the deductible temporary differences and the carry forward of
unused tax credits and unused tax losses can be utilised.
The carrying amount of deferred income tax assets is reviewed at each reporting date and
reduced to the extent that it is no longer probable that sufficient taxable profit will be available
to allow all or part of the deferred income tax asset to be utilised.
Deferred income tax liabilities are recognised for all taxable temporary differences except in
respect of taxable temporary differences associated with investments in subsidiaries where
timing of the reversal of the temporary difference can be controlled and it is probable that the
temporary difference will not reverse in the foreseeable future.
Deferred tax assets and liabilities are measured using substantively enacted tax rates expected
to apply to taxable income in the years in which the temporary differences are expected to be
received or settled.
For operations carried out in SEZs, deferred tax assets or liabilities, if any, have been
established for the tax consequences of those temporary differences between the carrying
values of assets and liabilities and their respective tax bases that reverse after the tax holiday
ends.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the
same taxation authority and the relevant entity intends to settle its current tax assets and
liabilities on a net basis.
Deferred tax assets include Minimum Alternate Tax (MAT) paid in accordance with the tax laws
in India, to the extent it would be available for set off against future current income tax liability.
Accordingly, MAT is recognised as deferred tax asset in the balance sheet when the asset can be
measured reliably and it is probable that the future economic benefit associated with the asset
will be realised.

Tata Consultancy Services Limited benefits from the tax holiday available for units set up under
the Special Economic Zone Act, 2005. These tax holidays are available for a period of fifteen
years from the date of commencement of operations. Under the SEZ scheme, the unit which
begins providing services on or after April 1, 2005 will be eligible for deductions of 100% of
profits or gains derived from export of services for the first five years, 50% of such profits or
gains for a further period of five years and 50% of such profits or gains for the balance period of
five years subject to fulfilment of certain conditions. From April 1, 2011, profits from units set
up under SEZ scheme are subject to Minimum Alternate Tax (MAT)

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Ownership & Financing Structure

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 Foreign Exchange Risk Hedging
The Group designates certain foreign exchange forward, currency options and futures contracts as
hedge instruments in respect of foreign exchange risks. These hedges are accounted for as cash
flow hedges. The Group uses hedging instruments that are governed by the policies of the
Company and its subsidiaries which are approved by their respective Board of Directors. The
policies provide written principles on the use of such financial derivatives consistent with the risk
management strategy of the Company and its subsidiaries. The hedge instruments are designated
and documented as hedges at the inception of the contract. The Group determines the existence of
an economic relationship between the hedging instrument and hedged item based on the currency,
amount and timing of their respective cash flows. The effectiveness of hedge instruments to
reduce the risk associated with the exposure being hedged is assessed and measured at inception
and on an ongoing basis. If the hedged future cash flows are no longer expected to occur, then the
amounts that have been accumulated in other equity are immediately reclassified in net foreign
exchange gains in the statement of profit and loss. The effective portion of change in the fair value
of the designated hedging instrument is recognised in the other comprehensive income and
accumulated under the heading cash flow hedging reserve. The Group separates the intrinsic value
and time value of an option and designates as hedging instruments only the change in intrinsic
value of the option. The change in fair value of the intrinsic value and time value of an option is
recognised in the other comprehensive income and accounted as a separate component of equity.
Such amounts are reclassified into the statement of profit and loss when the related hedged items
affect profit and loss. Hedge accounting is discontinued when the hedging instrument expires or is
sold, terminated or no longer qualifies for hedge accounting. Any gain or loss recognised in other
comprehensive income and accumulated in equity till that time remains and is recognised in
statement of profit and loss when the forecasted transaction ultimately affects profit and loss. Any
gain or loss is recognised immediately in the statement of profit and loss when the hedge becomes
ineffective.

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 Valuation & Stock Price
The fear of recession in advanced economies and ongoing geo-political tensions have impacted the
macro environment and raised concerns over IT spends. As per Gartner, the IT service spending
could be lower in 2022, 2023 vis-à-vis 2021n. Given the weak state of global economy, IT
companies may have decided to go slow on employee benefit measures. However, as per TCS
management, company does not see any budget cancellation by the clients and overall demand
environment continues to remain very strong. During 1QFY23, company’s order book is at all
time high with TCV of US$8.2bn. Given TCS size, order book and exposure to long duration
orders and portfolio, it is well positioned to withstand the weakening macro environment and ride
on the anticipated industry growth. Further, TCS has consistently maintained its market leadership
position and shown best in-class execution. On the back of its superior execution capabilities, TCS
maintain its industry-leading margin and demonstrate superior return ratios. The stock has
corrected nearly 19% from its all time high made in January 2022 and thus the valuation looks
compelling at current price.

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 Path Ahead

IT major TCS is planning to revamp the organisation structure to align with customers more
closely, as it aims to achieve USD 50 billion (about Rs 3.89 lakh crore) revenue by 2030, a
source aware of the development said on Tuesday. With this new structure, TCS plans to focus
on the customer journey, starting from acquisition incubation, growth and transformation. At
present, TCS has hundreds of ISUs under various divisions to serve customers and the
company is planning to provide a single interface to customers for accessing services. The
company, however, will not make any change in the existing customer service and sales teams
and external reporting of verticals and geographies will also remain the same.

TCS’ Integrated Business Model for Value Creation using the Five Capitals

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 References

The following websites and sources have been used to compile this project –

• https://www.tcs.com/content/dam/tcs/investor-relations/financial-statements/2021-22/ar/annual-report-
2021-2022.pdf
• https://kenney.faculty.ucdavis.edu/wp-content/uploads/sites/332/2018/03/Moving-Tata-Consultancy-
Services-into-the-Global-Top-10.pdf
• https://trendlyne.com/research-reports/stock/1372/TCS/tata-consultancy-services-ltd/
• https://www.business-standard.com/article/companies/tcs-plans-re-structuring-aims-to-achieve-50-bn-
revenue-by-2030-
122030801216_1.html#:~:text=IT%20major%20TCS%20is%20planning,billion%20in%20revenue%20in%202
021.
• https://www.tcs.com/growth-strategy
• https://en.wikipedia.org/wiki/Tata_Consultancy_Services
• https://www.livemint.com/market/stock-market-news/mcap-of-5-of-top-10-most-valued-firms-add-rs-86-
000-cr-tcs-biggest-gainer-11645333992330.html

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