IT · investment research
Tata Consultancy Services
TCS
Verdict
NO ACTION
medium confidence · 3-5 years
Composite score
58/100
Weighted across all eight pillars
Business quality
65/100
Moat, returns, balance sheet, cash, management
Valuation score
49/100
At 26.2x against a sector median of 43.8x, the price embeds roughly 13% earnings growth. Anything less has to come out of the multiple.
Decision intelligence
Every conclusion states what would make it wrong
WHAT
No action. Nothing here is compelling enough to deploy capital today.
WHY
- • Cash conversion scores 86/100 (stable) — Reported profit is backed by operating cash.
- • Industry & macro scores 80/100 (improving) — IT (India) demand is improving.
- • Growth quality scores 24/100 (deteriorating) — Top-line compounding over the reported history.
- • Management & governance scores 76/100 (deteriorating) — Whether management historically delivered what it promised.
WHERE
IT · Large cap · position sized to at most 0% of an equity portfolio.
WHEN
Re-run this analysis after the next quarterly result.
WHAT IF WRONG
- • The thesis is wrong if ROCE falls below 11% or cash conversion stays under 70% for two straight quarters.
- • Valuation support fails below ₹4,609 of fair value — a drawdown to that level is a re-underwrite, not automatically a buy.
- • Watched risk: Cyclicality — IT (India) earnings swing with the cycle, so trailing numbers flatter the peak.
WHAT NEXT
- • Read the latest quarterly cash-flow statement alongside the P&L.
- • Check US/EU tech spend — it moves the earnings base independently of execution.
- • Compare against the sector peers listed below before sizing anything.
Tata Consultancy Services is a competitively exposed it business compounding revenue at 10.8% and profit at -11.5%, earning 14.6% on capital. Quality scores 65/100 and valuation 49/100 at 26.2x. The decision is therefore no action with medium confidence — this is analysis for learning, not investment advice.
What does this business actually do?
Business understanding before ratios
Tata Consultancy Services operates in the Indian it sector with a large-cap footprint and a listed market value of about ₹1398k Cr.
Revenue is earned across 4 reported segments; profitability is driven by realisations, mix and operating leverage rather than one-off items.
Revenue drivers
- • Volume growth in the core segment
- • Realisation / pricing power
- • Mix shift toward higher-margin lines
- • Capacity utilisation
Cost drivers
- • Raw material and input costs
- • Employee cost inflation
- • Depreciation from recent capex
- • Distribution and marketing spend
Moat · 47/100
Switching costs
Deeply embedded systems make customer churn slow and expensive.
Segment mix
Growth -2.7% · margin 9.1% — Flat to declining; drags the consolidated growth rate.
Growth -5.8% · margin 23.2% — Flat to declining; drags the consolidated growth rate.
Growth 9% · margin 28.8% — Growing broadly in line with the overall business.
Growth -6.2% · margin 27.8% — Flat to declining; drags the consolidated growth rate.
Analysis pillars
Score, trend and the drivers behind each — no bare numbers
Business & moat
53/100Trend: improving · weight 14%
- MoatSwitching costs
Deeply embedded systems make customer churn slow and expensive.
- Segment concentrationDigital & cloud services is 32.4% of revenue
Revenue is spread across segments, which softens single-market shocks.
- EBITDA margin22.0%
Margin moved from 13.0% to 22.0% year on year.
Profitability & returns
38/100Trend: stable · weight 16%
- ROCE14.6%
ROCE was 14.6% a year ago. Sustained ROCE above the cost of capital is what compounds value.
- ROE14.2%
Return on equity after leverage — read alongside debt levels.
- Net margin9.7%
Share of every rupee of revenue that reaches reported profit.
Growth quality
24/100Trend: deteriorating · weight 15%
- Revenue CAGR (4y)10.8%
Top-line compounding over the reported history.
- Profit CAGR (4y)-11.5%
Profit lags revenue, so growth is being bought with margin.
- Growth sourceAsset-light / incremental
Capex is 5.0% of revenue this year.
Balance sheet
73/100Trend: deteriorating · weight 12%
- Debt / EBITDA1.02x
Leverage is serviceable from current cash generation.
- Debt / equity0.33x
Capital structure relative to shareholder funds.
- Working capital45 days
Cycle is tight, so growth is largely self-funding.
Cash conversion
86/100Trend: stable · weight 13%
- OCF / PAT110%
Reported profit is backed by operating cash.
- Free cash flow₹24,038 Cr
Cash left after maintaining and expanding the asset base.
Management & governance
76/100Trend: deteriorating · weight 14%
- Guidance delivery84% of last 8 quarters
Whether management historically delivered what it promised.
- Promoter holding21.7% (-1.84 y/y)
Promoters have been reducing ownership over the last year.
- PledgeNo pledge
No pledge disclosed in the sample data.
- Institutional flowFII -2.78 · DII +3.17
Direction of institutional ownership over the last year.
- Capital allocationSurplus cash is largely returned to shareholders…
Surplus cash is largely returned to shareholders rather than reinvested.
Industry & macro
80/100Trend: improving · weight 8%
- Demand trendimproving
IT (India) demand is improving.
- StructureConsolidated
Consolidated — a few large players hold most of the profit pool.
- Competitive intensitylow
How hard it is to keep pricing and share.
- Macro driversUS/EU tech spend, USD/INR, Wage inflation
Variables that move the earnings base regardless of company execution.
Valuation
49/100Trend: stable · weight 8%
- P/E vs sector26.2x vs 43.8x
At 26.2x against a sector median of 43.8x, the price embeds roughly 13% earnings growth. Anything less has to come out of the multiple.
- Growth-adjusted26.20 (PE/growth)
Below ~1.5 the multiple is supported by growth; above ~2.5 it depends on the market staying optimistic.
- FCF yield1.72%
Cash return on the current market value, before any growth.
Financial history
Profit, cash and returns over five reported years
| Year | Revenue | EBITDA | PAT | OCF | FCF | ROCE |
|---|---|---|---|---|---|---|
| FY2022 | ₹2.82 L Cr | ₹96,024 Cr | ₹67,217 Cr | ₹68,561 Cr | ₹45,967 Cr | 13.2% |
| FY2023 | ₹3.18 L Cr | ₹1.02 L Cr | ₹53,970 Cr | ₹56,129 Cr | ₹46,582 Cr | 17.4% |
| FY2024 | ₹3.54 L Cr | ₹60,183 Cr | ₹42,128 Cr | ₹44,656 Cr | ₹2,174 Cr | 11% |
| FY2025 | ₹3.90 L Cr | ₹50,676 Cr | ₹34,460 Cr | ₹37,217 Cr | ₹21,624 Cr | 14.6% |
| FY2026 | ₹4.26 L Cr | ₹93,635 Cr | ₹41,199 Cr | ₹45,319 Cr | ₹24,038 Cr | 14.6% |
No accounting-quality flags in the sample data.
Ownership & management
Who owns it, and have they delivered?
Promoter
21.7%
-1.84 y/y
Pledge
None
No disclosed pledge
FII
32.8%
-2.78 y/y
DII
11.4%
+3.17 y/y
Guidance delivered in 84% of the last eight quarters; average leadership tenure 19 years.
Surplus cash is largely returned to shareholders rather than reinvested.
No governance flags raised by the sample dataset.
Industry & macro context
IT (India)
Demand trend
improving
Cyclicality
high
Competition
low
Regulatory pressure
medium
Consolidated — a few large players hold most of the profit pool.
Macro drivers: US/EU tech spend · USD/INR · Wage inflation
Valuation
fair versus the sector
P/E
26.2x
Sector median P/E
43.8x
P/B
7.89x
Earnings yield
3.82%
FCF yield
1.72%
PE / growth
26.2
Estimated fair-value band ₹4,609 – ₹5,889 , built on FY2026 EPS of ₹113.8. Gap to the current price: +36%. Ranges are a modelling output, not a target price.
At 26.2x against a sector median of 43.8x, the price embeds roughly 13% earnings growth. Anything less has to come out of the multiple.
Risk register
What can break the thesis, and how it is monitored
- Cyclicalitymedium
IT (India) earnings swing with the cycle, so trailing numbers flatter the peak.
Monitor: US/EU tech spend
Ongoing thesis monitoring
The thesis is a living position, not a one-time verdict
| Metric | Currently | Thesis holds if | Thesis breaks if |
|---|---|---|---|
| ROCE | 14.6% | stays above 12% | falls for two consecutive years |
| Cash conversion | 110% | stays above 80% | drops below 70% while revenue grows |
| Revenue growth | 10.8% CAGR | tracks the 13% priced in | slows for two quarters with no margin offset |
| Promoter holding | 21.7% | stable or rising | falls sharply or fresh pledge appears |
Peers in the same sector
Compare before sizing anything
Data quality 72/100
Stated openly, as required by the product principles
- • Fundamentals in this build come from a deterministic sample dataset, not licensed exchange filings.
- • Segment, ownership and management figures are illustrative and must be verified against annual reports.
- • Educational analysis only — not a recommendation to buy or sell any security.