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Tata Consultancy Services (532540.BSE) - India's most valuable IT company

1/1/2014

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TCS is an IT services, consulting and business solutions company. They provide end-to-end technology and  related services to global businesses. It is the second largest IT services company in the world (behind IBM), and the most valuable company in India by market capitalization. The company has strong domain expertise in banking, financial services, insurance, consumer goods, retail, telecom, media, manufacturing, healthcare and many others. 


TCS’ services portfolio consists of application development and maintenance (42.8%), business process outsourcing (12.5%, enterprise solutions & business intelligence (15.2%),  IT infrastructure services (11.5%), assurance services (7.7%), engineering and industrial services (4.6%), asset leveraged solutions and consulting (6%). Also, they have launched several new offerings in digital technologies services - mobility, social computing, big data and cloud computing.

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Given it's sheer size and scope, the company can offer it's services on a global basis, using it's GNDM platform (Global Network Delivery), which is recognized as an industry benchmark. It means, that they can provide services and support your business anytime anywhere in the world. This gives them a huge advantage against any newcomers, plus maintains a low cost base, as most of it's employee costs come from India (47%). They are also investing more into R&D (718 Rs Cr vs. 525 Rs Cr in 2012), although it still represents around 1.5% of it's revenues. However, the company was recognized by Forbes magazine as one of the most innovative in the world, being both the highest ranked IT and Indian company on the list. Currently, they have 1280 patent applications pending, with 81 already approved.

TCS has grown sales by 28%, EPS by 33% and maintains a ROE of over 30% in the past year. They have very little long term debt and intangible assets make up only 8% of the total base, suggesting they are not overpaying too much for acquisitions. Revenue from repeat customers makes up 98.61% of total, retention of employees at their core IT business stands at 90%, very high compared to some of it's competitors. I really like the business overall, they are an established leader in many regions and fields, plus they have a lot of room in under-penetrated markets as well. The stock is trading at a relatively high level, but it's valuation is still ok. Future growth and innovation strategy is sound, providing a catalyst for further stock advance. I believe one can't do bad over the long-term by buying growing businesses at fair prices, so I'm adding this one to my portfolio.
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