Tata Consultancy Services Ltd:Annual Report 2023-24 Analysis

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Revenue Growth: Consolidated revenue growth has decelerated significantly, from 17.6% (FY23) to 6.8% (FY24). Constant currency revenue growth for FY24 was 3.4%.
• Profitability: Operating margin (EBIT margin before other income) improved to 24.6% in FY24 from 24.1% in FY23. Net margin also increased to 19.3% in FY24.
• Earnings Per Share: Earnings per share showed a CAGR of 9%
• Cash Conversion: OCF as a percentage of total revenue decreased slightly to 18.7% of revenue, with Free Cash Flow accounting for 94.1% of OCF.
• Shareholder Payout: Increased by 12.8% reaching 47,445 cr.
• R&D Spend: Increased by 10% but remained at 1.1% of total revenue.

Business Segment Performance #

• BFSI: Showed moderate growth of 5.6% (FY24), with a stable segment margin of 25.9%. The demand was for customer journey transformation, payment modernization, new products, core system transformation, and GenAI/AI for personalization and fraud detection.
• Communication, Media, and Technology (CMT): Growth was 4.6% (FY24) with a segment margin decrease to 27.7% from 28.3%. Key drivers were 5G and fiber rollout, digital product innovation, and GenAI.
• Consumer Business: Grew by 4.9% (FY24) with a margin of 26.0%, slightly up from 25.7% due to demand in marketplace, social commerce, smart checkout, and resilient supply chains.
• Life Sciences and Healthcare: Grew 8.7% (FY24) , with the segment margin improved to 28.5% from 28.0%. Demand was driven by modernization of clinical landscape, digital twins for manufacturing, and GenAI for knowledge synthesis.
• Manufacturing: Showed strong growth of 10.6% (FY24), with a significant margin increase to 30.9%. Demand was linked to sustainable fuels, transportation, connected autonomous vehicles, battery technology, and electric vehicles.
• Others: This segment experienced the highest growth at 14.5% (FY24) and improved segment margin from 21.1% to 22.3%. Growth was fueled by renewable energy integrations and asset performance management.
• Geographical revenue: Growth was led by emerging market. Latin America grew by 21.1%, and India grew by 20.3%

Major Strategic Initiatives and Their Progress #

• AI and Cloud Focus: The creation of the AI.Cloud unit consolidates expertise. Over 300,000 employees were upskilled in GenAI technologies in FY24. Key partnerships were made with hyperscalers and other AI ecosystem players. TCS WisdomNext platform launched.
• Energy Transition: Investments in research on green hydrogen, biofuels, and digital platforms. Proprietary ESG framework developed.
• 5G/6G Communication: TCS is engineering 5G/6G communication stacks and setting up labs for communication infrastructure.
• Talent Upskilling: Significant focus on upskilling in areas like Cloud, AI, and Cyber Security. 51 million learning hours logged and nearly 5 million competencies acquired by employees.
• Sustainability: TCS is on track to become net zero by 2045. They are well ahead of their initial scope 1 and 2, targetting 70% reduction by 2025, by already acheiving 80% reduction in FY24.
• Nation Building Projects: TCS and partners enabling BSNL to enhance competitiveness.

Risk Landscape Changes #

• Macroeconomic and Geopolitical Volatility: Continued uncertainty impacted client decision-making, increasing the focus on cost optimization and cloud transformation projects.
• Talent Acquisition and Retention: Short supply of emerging technical skills is a persistent challenge.
• Cybersecurity: Risks have increased due to evolving threats and geopolitical factors.
• Data Protection: Growing focus on data protection and compliance, especially with the rise of GenAI, increases regulatory risk.

ESG Initiatives and Metrics #

• Environmental: TCS reduced its Scope 1 and 2 emissions by 80% in FY24 (vs. 2016 baseline). Renewable energy use increased to 74% of total energy use. Freshwater consumption was reduced.
• Social: Workforce diversity includes 152 nationalities, with women representing 35.6% of employees. Significant investment in employee training, with 51 million learning hours and 5 million competencies acquired. CSR spend was ’ 953 crore, impacting 7.1 million beneficiaries.
• Governance: High standards of corporate governance are embedded. Compliance framework and governance structure aligned with global ESG standards.

Management Outlook #

• The company anticipates continued deal flow and pipeline velocity.
• Greater opportunities are foreseen as businesses become more technology-intensive.
• The medium to long-term growth outlook is positive due to strong client relationships and the large order book (US$ 42.7 billion).
• Near-term uncertainty remains, with potential moderation in growth for FY25 if delayed decision-making persists.

Detailed Analysis #

Financial Position Analysis #

3-Year Comparative Analysis of Assets, Liabilities, and Equity (Standalone) #

(₹ crore)

Significant Changes in Major Line Items (>10% YoY) #

• Other Income (FY24 vs FY23): Increased by 36.55% (from ₹5,328 crore to ₹7,273 crore) mainly, due to higher interest and dividend income.
• Current Investments (FY24 vs FY23): Decreased by 16.47%, (from ₹35,738 crore to ₹29,840 crore).
• Non-Current Other Financial Assets (FY24 vs FY23): Increased by 16.76%, (from ₹532 crore to ₹626 crore)
• Current Other Financial Assets (FY24 vs FY23): Decreased by 12.37% (from ₹1,778 to 1,559 crore).
• Current Other Assets (FY24 vs FY23): Increased by 33.48% (from 7,789 crore to 10,397 crore), due to a significant increase in advance to related parties.
• Non-Current Unearned and deferred revenue(FY24 vs FY23): Decreased by 64.64% (from 642Cr to 226 Cr).
• Current Other Liabilities (FY24 vs FY23):Increased by 43.2% (from 3,113 Cr to 4,458 Cr).
• Current Income Tax Liabilities (FY24 vs FY23):Increased by 10.45% (from 8,271 Cr to 9,345 Cr).

Working Capital Trends #

(₹ crore)

• Working capital has decreased slightly year-over-year.

Debt Structure and Maturity Profile #

Debt Structure: #

(₹ crore)

• The primary debt component is Lease Liabilities.

Maturity Profile of Lease Liabilities: #

(₹ crore)

Off-Balance Sheet Items #

(₹ crore)

• Contingencies related to tax demands and other claims are disclosed: ₹3,032 and ₹1,819 as at March 31, 2024, and 2023, respectively
• Letter of Comfort: TCS has provided a letter of comfort for credit facilities availed by subsidiaries.
• Guarantees: Provided Guarantees to third parties on behalf of its subsidiaries.

Operating Performance Analysis of Tata Consultancy Services (TCS) - FY2024 #

Revenue Breakdown #

Segment-wise Revenue #

• Banking, Financial Services, and Insurance (BFSI): ₹90,928 crore (5.6% YoY growth)
• Communication, Media, and Technology (CMT): ₹39,391 crore (4.6% YoY growth)
• Consumer Business: ₹39,357 crore (4.9% YoY growth)
• Life Sciences and Healthcare: ₹26,745 crore (8.7% YoY growth)
• Manufacturing: ₹23,491 crore (10.6% YoY growth)
• Others: ₹20,981 crore (14.5% YoY growth)

Geographic Breakdown #

• Americas: ₹127,939 crore (2.9% YoY growth)
  • North America: 2.3% YoY growth
• Europe: ₹75,624 crore (12.1% YoY growth)
  • UK: 17.7% YoY growth
  • Continental Europe: 6.5% YoY growth
• India: ₹13,562 crore (20.3% YoY growth)
• Others: ₹23,768 crore (6% YoY growth)

Emerging Markets #

• Latin America: 21.1% YoY growth
• Middle East & Africa: 14.8% YoY growth
• Asia Pacific: 4.0% YoY growth

Cost Structure Analysis #

• Employee Cost: ₹140,131 crore (58.2% of revenue, 9.9% YoY increase)
• Other Cost of Operations: ₹41,451 crore (17.2% of revenue, 5.1% YoY decrease)
• Total Operating Expenditure: ₹176,597 crore (73.3% of total revenue)

Margin Analysis #

• Operating Margin (EBIT Margin): 24.6% (FY2024), up from 24.1% (FY2023). Excluding the legal claim: 24.2%
• Net Margin: 19.3% (FY2024), up from 18.7% (FY2023). Excluding the legal claim: 19.1%
• Quarterly Operating Margin (Q4 Exit): 26%

Non-Recurring Items #

• Settlement of legal claim: ₹958 crore (one-time exceptional item)

GAAP vs. Non-GAAP Reconciliation #

• Operating income before exceptional item: ₹63,733 crore (24.6%). Adjusted for the one-time exceptional item, operating margin is at 24.2%.

EPS Analysis #

• Basic/Diluted EPS: ₹127.74 (10.9% increase from ₹115.19 in FY2023)
• Excluding the one time settlement, the EPS is at ₹125.88 for FY24.

Cash Management: TCS Financial Analysis #

Cash Flow Analysis #

Operating Cash Flow (OCF) #

• FY2024: ₹44,338 crore
• FY2023: ₹41,965 crore

Investing Cash Flow (ICF) #

• FY2024: ₹6,026 crore
• FY2023: ₹39 crore

Working Capital Management #

Trade Receivables #

• Days Sales Outstanding (DSO) FY2024: 67 days (in USD terms)
• Days Sales Outstanding (DSO) FY2023: 65 days (in USD terms)

Trade Payables #

• FY2024: 32 days
• FY2023: 35 days

Dividend and Share Buyback #

Dividend Payout #

• FY2024: Total dividend of ₹73 per share (₹28 final dividend + ₹45 interim and special dividends)
• Dividend payout ratio FY2024: 60.8% of standalone profits

Share Buyback #

• FY2024: Completed buyback of ₹17,000 crore (4,09,63,855 equity shares at ₹4,150 per share)
• Total shareholder payout (dividend + buyback) FY2024: ₹47,445 crore (108.9% of standalone profits)
• Other equity decreased by ₹25,137 crore during the buyback.

Liquidity Position #

Cash and Cash Equivalents #

• FY2024: ₹9,016 crore
• FY2023: ₹7,123 crore

Current Ratio #

• FY2024: 2.2
• FY2023: 2.4

Financial Analysis: Key Performance Indicators #

Profitability Ratios (3-Year Trends) #

• Return on Equity (ROE): FY24: 59.4%, FY23: 51.6%, FY22: Data unavailable. Consistent increase indicates improved profitability relative to shareholder investment.
• Operating Margin (EBIT Margin): FY24: 24.2%, FY23: 24.1%, FY22: 25.3%. Margin consistency is evident, despite the slight drop in FY23.
• Net Profit Margin: FY24: 19.1%, FY23: 18.7%, FY22: 20.0%. The margin increased, showing an improvement.

Liquidity Metrics #

• Current Ratio: FY24: 2.5, FY23: 2.5, FY22: 2.6. A high and consistent current ratio indicates an excellent ability to meet short-term obligations.

Efficiency Ratios #

• Receivables Turnover: FY24: 4.5, FY23: 4.8, FY22: Data unavailable. The ratio is decreasing, signifying longer payment collection times.

Leverage Metrics #

• Debt/Equity Ratio: FY24: 0.1, FY23: 0.1, FY22: 0.0. A low and consistent debt-to-equity ratio shows TCS is not highly leveraged.
• Interest Coverage Ratio: FY24: 82.97, FY23: 74.72. The company’s ability to meet its interest expenses increased in the last year.

Segment-wise Margins #

• Banking, Financial Services and Insurance (BFSI): FY24: 25.9%, FY23: 25.9%. This high value indicates efficient use of capital in the segment.
• Communication, Media and Technology (CMT): FY24: 27.7%, FY23: 28.3%. The drop is not significant.
• Consumer Business: FY24: 26.0%, FY23: 25.7%. Small growth is present.
• Life Sciences and Healthcare: FY24: 28.5%, FY23: 28.0%.
• Manufacturing: FY24: 30.9%, FY23: 27.5%. This segment has the highest increase in margins.
• Others: FY24: 22.3%, FY23: 21.1%.

Working Capital Ratios #

• Working Capital Turnover: FY24: 3.8, FY23: 3.5, FY22: Data unavailable. The turnover is increasing, indicating higher efficiency.

Key Deviations #

• ROE: 59.4% in FY24.
• Debt/Equity ratio: 0.1.

Business Segment Performance Analysis of TCS #

Revenue and Profitability Metrics with Growth Rates #

• Banking, Financial Services, and Insurance (BFSI): FY2024 revenue was ₹90,928 crore, with 5.6% YoY growth. Segment margin was 25.9%.
• Communication, Media, and Technology (CMT): FY2024 revenue was ₹39,391 crore, with 4.6% YoY growth. Segment margin was 27.7%.
• Consumer Business: FY2024 revenue was ₹39,357 crore, with 4.9% YoY growth. Segment margin was 26.0%.
• Life Sciences and Healthcare: FY2024 revenue was ₹26,745 crore, with 8.7% YoY growth. Segment margin was 28.5%.
• Manufacturing: FY2024 revenue was ₹23,491 crore, with 10.6% YoY growth. Segment margin was 30.9%.
• Others: FY2024 revenue was ₹20,981 crore, with 14.5% YoY growth. Segment margin was 22.3%.
• Company Consolidated: FY2024, Margins were 24.6%

Market Share and Competitive Position #

• TCS is among the largest IT service providers globally, with a market share of 2.1%.
• TCS has outperformed the industry average growth significantly over the last decade.
• Ranked the second most valuable IT services brand.
• Customer satisfaction survey, TCS maintained a score of 82%, comparing with the industry average of 75%.

Key Products/Services Performance #

• TCS BaNCS™: Showed strong growth, with 29 new wins and 38 go-lives in FY 2024.
• TCS HOBS™: Leveraged to transform Celcom Axiata Berhad’s core business support systems.
• TCS TwinX™: Helped PostNord increase sorter capacity and improve operations.
• TCS OmniStore™: Helped Kingfisher orchestrate a faster and smoother checkout experience.
• ignio™: Business Health Monitoring, Business Transaction Monitoring, and hybrid and multi CloudOps with FinOps capabilities.
• ADD™: 1250+ studies onboarded by TCS ADD Platform.

Geographic Distribution and Market Penetration #

• North America: Grew 2.3% YoY, contributing a significant portion of revenue.
• United Kingdom: Grew 17.7% YoY.
• Continental Europe: Grew 6.5% YoY.
• Latin America: Highest growth at 21.1% YoY.
• India: Grew 20.3% YoY.
• Middle East & Africa: Grew 14.8% YoY.
• Asia Pacific: Grew 4.0% YoY.

Operational Efficiency Metrics #

• Employee cost as a percentage of total revenue was 58.2% in FY 2024.
• Other operating costs (excluding employee costs) were 17.2% of total revenue.
• IT services attrition rate was 12.5% in FY 2024, down 760 bps YoY.
• Employees acquired nearly 5 million competencies and logged 51 million learning hours.

Growth Initiatives and Challenges #

Growth Initiatives #

• Creation of the AI.Cloud unit.
• Significant upskilling of employees in GenAI technologies (over 300,000 employees).
• Investments in research on green hydrogen, biofuels, and digital platforms for sustainability.
• Development of indigenous 5G/6G communication stacks.
• Partnerships with hyperscalers and other AI ecosystem players.
• Helping clients migrate their workloads from owned data centers to the cloud.

Challenges #

• Macroeconomic uncertainties and geopolitical volatilities.
• Pressure on customers’ discretionary spending.
• Reprioritization of projects by customers, favoring business-critical initiatives with faster ROI.
• Demand for cost optimization and cloud transformation.

Risk Assessment by Industry #

Banking, Financial Services, and Insurance (BFSI) #

Strategic Risks #

• Severity: High, due to macroeconomic uncertainties and geopolitical volatilities impacting client spending.
• Likelihood: Medium, ongoing global economic slowdowns, and supply chain impacts.
• Trend: Increasing, with client reprioritization towards business-critical projects.
• Mitigation Strategies: Focus on cost optimization, cloud transformation, and vendor consolidation. Developing domain-specific AI/GenAI offerings.
• Control Effectiveness: Partially effective, evidenced by a strong order book (USD 42.7 billion) but muted revenue growth (5.6% YoY in reported currency).
• Potential Financial Impact: Revenue pressure from reduced discretionary spending; margin pressure from project re-examinations.

Operational Risks #

• Severity: Medium, focus on cost optimization, efficiency and automation in client engagements.
• Likelihood: High, ongoing engagements, cost optimization and cloud transformation
• Trend: Stable, ongoing engagements started during the pandemic.
• Mitigation Strategies: Vendor consolidation, cloud migration, customer experience enhancement, operating model transformation, supply chain initiatives, AI enablement.
• Control Effectiveness: Deal conversion to revenue is as planned.
• Potential Financial Impact: IT operating model, following its divestiture from Walmart.

Financial Risks #

• Severity: Medium, volatility in currency exchange rates could impact margins.
• Likelihood: Medium, inherent in global operations.
• Trend: Stable, with currency hedging strategies in place.
• Mitigation Strategies: Currency hedging policy.
• Control Effectiveness: Positive impact of 3.4% on reported revenue due to currency movements in FY2024.
• Potential Financial Impact: Profitability margins can fluctuate.

Compliance/Regulatory Risks #

• Severity: Medium, due to increasing data protection regulations (e.g., GDPR).
• Likelihood: Medium, continuous regulatory changes.
• Trend: Increasing, with heightened focus on data privacy.
• Mitigation Strategies: Global privacy policy and framework (PrivACE), ISO 27701:2019 certification.
• Control Effectiveness: Effective, no material non-compliance reported.
• Potential Financial Impact: Penalties and legal liabilities in case of data breaches.

Emerging Risks #

• Severity: High, rapid evolution of GenAI technologies.
• Likelihood: High, given the early stages of adoption.
• Trend: Increasing, with clients exploring GenAI use cases.
• Mitigation Strategies: Investment in AI/ML and GenAI training (300,000+ employees upskilled). Creation of AI.Cloud unit.
• Control Effectiveness: Early, significant investments provide a head start.
• Potential financial impact: GenAI is expected to transform every industry.

Communication, Media, and Technology (CMT) #

Strategic Risks #

• Severity: High, due to pressure on clients’ discretionary spending.
• Likelihood: Medium, ongoing reprioritization of projects.
• Trend: Stable, growth led by 5G/6G upgrades.
• Mitigation Strategies: Focus on vendor consolidation, cloud migration, and business process optimization.
• Control Effectiveness: Moderate, with 4.6% YoY revenue growth (reported currency).
• Potential financial impact: Reduced demand, slower growth.

Operational Risks #

• Severity: Medium. The roll-out of a modern 4G/5G mobile communication infrastructure is a high priority and prestigious project of the Government of India.
• Likelihood: High. The project covers 100K telecom sites,
• Trend: Stable. Telecom industry globally is upgrading communication infrastructure to 5G/6G.
• Mitigation Strategies: Cognitive Network Operations (CNOPS), geographical redundancies for each of the four zones.
• Control Effectiveness: High, 11,000 sites has been delivered.
• Potential financial impact: BSNL has added to the scope another 22,000 sites.

Financial Risks #

• Severity: Medium, due to economic slowdowns and high interest rates.
• Likelihood: Medium, depending on global economic conditions.
• Trend: Stable, with potential for improvement if economic stability emerges.
• Mitigation Strategies: Diversification of services and client base.
• Control Effectiveness: Moderate, growth seen in niche technology areas.
• Potential financial impact: Revenue and profitability fluctuations.

Compliance/Regulatory Risks #

• Severity: Medium, due to evolving data privacy and security regulations.
• Likelihood: Medium, ongoing regulatory changes.
• Trend: Increasing, with data becoming a focal point of security.
• Mitigation Strategies: Embedding AI in cybersecurity services. Compliance with relevant regulations.
• Control Effectiveness: Effective, no material non-compliance reported.
• Potential financial impact: Cost of regulatory fines.

Emerging Risks #

• Severity: High, due to fast-paced advancements in AI and GenAI.
• Likelihood: High, significant impact on business models.
• Trend: Increasing, with experimentation in various use cases.
• Mitigation Strategies: Large AI/ML and GenAI talent pool, partnerships in AI, cloud, and quantum computing.
• Control Effectiveness: Early investments showing promising results.
• Potential financial impact: Significant investment in AI/ML talent pool.

Consumer Business #

Strategic Risks #

• Severity: Medium, due to macroeconomic uncertainties.
• Likelihood: Medium, driven by consumer spending patterns.
• Trend: Stable, with cost optimization and cloud transformation.
• Mitigation Strategies: Focus on vendor consolidation and supply chain initiatives.
• Control Effectiveness: Moderate, 4.9% YoY revenue growth (reported currency).
• Potential financial impact: Cost optimization and cloud transformation.

Operational Risks #

• Severity: High. There is a pressure on customers’ discretionary spending.
• Likelihood: Medium. Demand was led by vendor consolidation.
• Trend: Increasing. TCS Omnistore TM is helping European home improvement company.
• Mitigation Strategies: Business process optimization, supply chain initiatives.
• Control Effectiveness: High, customer satisfaction.
• Potential financial impact: Roll out omnichannel customer journeys and new services

Financial Risks #

• Severity: Medium, due to fluctuations in consumer spending.
• Likelihood: Medium, dependent on economic conditions.
• Trend: Stable, with focus on cost optimization.
• Mitigation Strategies: Diversification of service offerings.
• Control Effectiveness: Moderate, supported by growth in emerging markets.
• Potential Financial impact: Fluctuations based on changes in income and spending levels.

Compliance/Regulatory Risks #

• Severity: Medium, related to data privacy and consumer protection.
• Likelihood: Medium, increasing regulatory scrutiny.
• Trend: Stable, with ongoing compliance efforts.
• Mitigation Strategies: Implementation of data privacy frameworks.
• Control Effectiveness: Effective, no material non-compliance reported.
• Potential Financial impact: Fines and legal fees.

Emerging Risks #

• Severity: High, the rise of GenAI impacting customer experience.
• Likelihood: Medium, growing adoption in retail and consumer services.
• Trend: Increasing, with focus on personalized experiences.
• Mitigation Strategies: Investment in AI-powered platforms like TCS Omnistore™.
• Control Effectiveness: Early stages, with positive results in client engagements.
• Potential Financial impact: Faster, smoother and seamless checkout experience.

Life Sciences and Healthcare #

Strategic Risks #

• Severity: Medium, due to project reprioritization by clients.
• Likelihood: Medium, driven by ROI realization timelines.
• Trend: Stable, with a focus on business-critical projects.
• Mitigation Strategies: Focus on cost optimization, cloud transformation, and AI enablement.
• Control Effectiveness: Moderate, with 8.7% YoY revenue growth (reported currency).
• Potential financial impact: Project delays and reduced discretionary spending.

Operational Risks #

• Severity: High. There are transformation programs that expects to be funded through savings from operations.
• Likelihood: High. Clients are expecting transformation to be funded through savings from operations.
• Trend: Increasing. Connected medical devices together with AI and GenAI will transform Healthcare.
• Mitigation Strategies: AI accelerating drug development by screening millions of compounds
• Control Effectiveness: High, TCS ADD TM Metadata Repository won two awards.
• Potential financial impact: Savings, efficiency and utilization of resources

Financial Risks #

• Severity: Medium, macroeconomic uncertainties affecting spending.
• Likelihood: Medium, dependent on global economic conditions.
• Trend: Stable, with focus on faster ROI realization.
• Mitigation Strategies: Financial risk management policies in place.
• Control Effectiveness: Moderate, supported by strong deal momentum.
• Potential Financial impact: Lowered profits.

Compliance/Regulatory Risks #

• Severity: High, stringent regulations in healthcare and life sciences.
• Likelihood: High, continuous regulatory changes.
• Trend: Increasing, with focus on data privacy and security.
• Mitigation Strategies: Robust compliance frameworks, adherence to relevant regulations.
• Control Effectiveness: Effective, no material non-compliance reported.
• Potential financial impact: Fines and reputational damage.

Emerging Risks #

• Severity: High, potential of GenAI to transform healthcare.
• Likelihood: High, significant advancements in AI and medical devices.
• Trend: Increasing, with early adoption and experimentation.
• Mitigation Strategies: Investments in AI/ML, GenAI talent pools, and partnerships.
• Control Effectiveness: Early stages, showing promising results.
• Potential financial impact: TCS launched TCS ADD TM, a comprehensive suit for digital transformation of drug development.

Manufacturing #

Strategic Risks #

• Severity: Medium, due to global supply chain challenges.
• Likelihood: Medium, ongoing geopolitical volatilities.
• Trend: Stable, with focus on resilience and efficiency.
• Mitigation Strategies: Rebalancing supply chains, focus on resilience and efficiency.
• Control Effectiveness: High, with 10.6% YoY revenue growth (reported currency).
• Potential financial impact: Supply chain ecosystems are being created, with India playing important role.

Operational Risks #

• Severity: High. Customer expectations around cost optimization, cloud transformation.
• Likelihood: High. Customers are expecting the same to be funded through savings from operations.
• Trend: Increasing. AI is accelerating development and helping overcome shortages of skilled resources.
• Mitigation Strategies: Digital platforms to help customers reduce emissions, and ESG frameworks.
• Control Effectiveness: TCS proprietary ESG framework enables enterprises to build transparency.
• Potential financial impact: Investment in technology.

Financial Risks #

• Severity: Medium, impact of global economic slowdown.
• Likelihood: Medium, dependent on global economic conditions.
• Trend: Stable, with focus on advanced manufacturing.
• Mitigation Strategies: Financial risk management policies.
• Control Effectiveness: Moderate, supported by growth in emerging markets.
• Potential financial impact: Profitability fluctuation.

Compliance/Regulatory Risks #

• Severity: Medium, environmental regulations and sustainability compliance.
• Likelihood: High, increasing regulatory scrutiny.
• Trend: Increasing, with focus on Scope 1/2/3 emissions reduction.
• Mitigation Strategies: Digital platforms for emission reduction, ESG framework.
• Control Effectiveness: Effective, achieved 80% reduction in Scope 1 and 2 emissions in FY 2024.
• Potential financial impact: Regulatory fines.

Emerging Risks #

• Severity: High, adoption of AI and new energy solutions.
• Likelihood: High, driving the future of automobiles.
• Trend: Increasing, with focus on advanced manufacturing.
• Mitigation Strategies: Investment in research on green hydrogen, biofuels, and digital platforms.
• Control Effectiveness: Early stages, with ongoing investments.
• Potential financial impact: Investments in research, green hydrogen, biofuels.

Others (Energy, Resources and Utilities, Public Services and Products) #

Strategic Risks #

• Severity: High, due to macroeconomic uncertainties.
• Likelihood: Medium, ongoing reprioritization of projects.
• Trend: Stable, growth led by demand for IT.
• Mitigation Strategies: Focus on vendor consolidation, cloud migration, and business process optimization.
• Control Effectiveness: Moderate, with 14.5% YoY revenue growth (reported currency).
• Potential financial impact: Reduced demand, slower growth.

Operational Risks #

• Severity: High. There is a pressure on customers’ discretionary spending.
• Likelihood: High. Demand was led by vendor consolidation.
• Trend: Increasing. There is a rise of technology enabling greater futures.
• Mitigation Strategies: TCS has consolidated AI and Cloud expertise.
• Control Effectiveness: High, customer satisfaction.
• Potential financial impact: Drive new benchmarks in productivity, efficiency and sustainability.

Financial Risks #

• Severity: Medium, due to economic slowdowns and high interest rates.
• Likelihood: Medium, dependent on global economic conditions.
• Trend: Stable, with potential for improvement if economic stability emerges.
• Mitigation Strategies: Diversification of services and client base.
• Control Effectiveness: Moderate, growth seen in niche technology areas.
• Potential financial impact: Revenue and profitability fluctuations.

Compliance/Regulatory Risks #

• Severity: Medium, due to evolving data privacy and security regulations.
• Likelihood: Medium, ongoing regulatory changes.
• Trend: Increasing, with data becoming a focal point of security.
• Mitigation Strategies: Embedding AI in cybersecurity services. Compliance with relevant regulations.
• Control Effectiveness: Effective, no material non-compliance reported.
• Potential financial impact: Cost of regulatory fines.

Emerging Risks #

• Severity: High, rapid evolution of GenAI technologies.
• Likelihood: High, significant impact on business models.
• Trend: Increasing, with experimentation in various use cases.
• Mitigation Strategies: Large AI/ML and GenAI talent pool, partnerships in AI, cloud, and quantum computing.
• Control Effectiveness: Early investments showing promising results.
• Potential financial impact: Significant investment in AI/ML talent pool.

Strategic and Management Analysis of TCS #

Long-Term Strategic Goals and Progress #

• TCS aims to achieve net-zero emissions by 2030, with a near-term target of a 70% reduction in absolute Scope 1 and 2 emissions by 2025 (vs. 2016 baseline). It exceeded its initial Scope 1 & 2 target, having achieved a 80% reduction in FY 2024.
• TCS is committed to expanding its talent, with 601,546 employees.
• TCS seeks to deepen customer relationships and participate in their strategic initiatives.

Competitive Advantages and Market Positioning #

• TCS is among the largest IT service providers globally, with a 2.1% market share.
• TCS has exhibited strong client additions and healthy client metrics, as well as benchmark-level employee retention.
• TCS is ranked as the second most valuable global IT services brand.
• TCS secured the top position in the Whitelane customer satisfaction survey for the eleventh consecutive year.
• TCS is pivoting it’s model to leverage AI.Cloud services.

Innovation Initiatives and R&D Effectiveness #

• TCS has consolidated AI and Cloud expertise with the creation of the AI.Cloud unit.
• Over 300,000 employees were upskilled on GenAI technologies in FY 2024.
• TCS has a cumulative 8,040 patents filed and 3,919 granted.
• TCS has a substantial R&D spend as a percentage of turn over, with 1.1% and 1.3% in constant and reported currency.
• TCS HOBS™, TCS TwinX™, TCS Omnistore™ are some products used for digital transformation of clients.
• TCS Launched AI Experience Zone, a multi-platform AI playground continues to develop employees with higher competencies in GenAI.

Management’s Track Record in Execution #

• TCS delivered strong performance in FY 2024, crossing ₹240,893 crore in annual revenue, a 6.8% growth over the previous year.
• Operating margin was at 24.6%*, an increase from 24.1% last year.
• The order book for FY 2024 was an all-time high of US$ 42.7 billion.
• TCS generated consolidated revenues of US$29.1 billion in the fiscal year ended March 31, 2024.
• The company has been a pioneer in the IT industry, across various technology cycles.
• TCS’s Revenue and Net Profits have grown at a compounded annual growth rate of over 18% each, over the last two decades.

Capital Allocation Strategy #

• The Board recommended a final dividend of ₹28 per share, totaling ₹73 per share for the year.
• The company completed its fifth buyback program, distributing ₹17,000 crore to shareholders.
• Total shareholder payout for the year was ₹47,445 crore.
• Average shareholder payout has been more than 100% during the last 5 years.

Organizational Changes and Their Impact #

• TCS refocused on industry and technology expertise, emphasized and refreshed core values, and doubled down on customer centricity and employee empathy.
• K Krithivasan’s transition to CEO was reported as seamless.
• Created the AI Cloud unit and investing in each business group to create their domain-specific AI/GenAI offerings.

ESG Framework #

Environmental Metrics and Targets #

• Achieved an 80% reduction in absolute carbon footprint (Scope 1 and 2) in FY 2024 over the FY 2016 baseline, exceeding the 70% reduction target by 2025.
• Increased renewable energy use to 74% of total energy use during FY 2024.
• Total Electricity consumption increased by 14.6% in the current year compared to the previous year.
• Targets a 3% year-on-year reduction in freshwater consumption across owned campuses. Water consumption increased by 18.5% Y-o-Y due to increased ‘Return To Office’ by employees. Fresh water consumed in FY2024 is 2.47 Bn Liters
• Targets reduction in waste generation and maximizing recycling and reuse. 95% of food waste was treated in biodigesters and organic waste converters in owned campuses.
• Aims for net-zero emissions by 2030.

Social Responsibility Programs #

• CSR Spend: ₹953 crore in FY 2024, impacting over 7.1 million beneficiaries.
• Key Focus Areas: Education, skilling, employment, entrepreneurship, healthcare, digital inclusion, water, climate, and sustainability.
• Youth Employment Program (YEP): Trained 19,900 students in FY 2024, with 49% being women, and groups qualified for affirmative action with 2845 students gaining employment.
• Literacy as a Service (LaaS): Empowered 20,342 learners (~99% women) in FY 2024 with functional, financial, and digital literacy.
• BridgeIT program: Digital entrepreneurs are earning their livelihood while providing much-needed last-mile services to 312,175 beneficiaries.
• go Innovate Together (goIT): Inspired 118,016 students across 42 countries in FY 2024, focusing on 21st Century Skills.
• Ignite My Future (IMF): Benefitted 312,966 students and 6,209 educators in FY 2024, and introduced a new offering: Behind the Scenes.
• Employee Volunteering (HOPE): Over 6.7 million hours dedicated to purpose projects by over 143,000 employee volunteers.

Governance Structure and Effectiveness #

• Board Composition: Nine directors, with 77.8% being Non-Executive and 55.6% being Independent, ensuring board independence. Two women directors (22.2%).
• Board Committees: Six committees, including Audit, Nomination and Remuneration, Stakeholders’ Relationship, CSR, Risk Management, and Executive Committees.
• Whistle Blower Policy: Established a vigil mechanism for reporting unethical behavior, with details available on the Company’s website.
• Code of Conduct (TCoC): The Company has adopted the TCoC for its employees including the Chief Executive Officer, Managing Director and the Executive Directors.
• Compliance: Complied with applicable Secretarial Standards and SEBI Listing Regulations.

Sustainability Investments and ROI #

• R&D Expenditure: ₹ 2,751 crore in FY 2024 (1.1% of consolidated turnover) on R&D and innovation, including areas relevant to sustainability.
• Intellectual Property: Increased IP-based offerings with new wins and go-lives in the area of sustainability.
• Investments in Sustainability: All new campuses are designed as per green building standards, along with investment in technology to optimize operational energy efficiency.
• Green Buildings: 67.3% of TCS’ office space (measured by built up area) is green-building certified.
• Capital Expenditure: Mainly includes investments in new offices, delivery centers and data center infrastructure, including green buildings.

ESG Ratings and Peer Comparison #

• Brand Finance: Ranked second most valuable IT services brand globally, with a brand value of US$19.2 billion, an increase of US$2 billion from the previous year.
• FORTUNE® Magazine: Featured in the 2024 list of the World’s Most Admired Companies.
• Top Employer: Recognized as a Global Top Employer by the Top Employers Institute for the ninth consecutive year.
• Customer Satisfaction: Ranked #1 IT service provider for customer satisfaction in Europe by Whitelane Research for the 11th consecutive time.

Regulatory Compliance and Future Preparations #

• Compliance: Compliant with all applicable environmental laws and regulations, including SEBI Listing Regulations and the Companies Act, 2013.
• Secretarial Audit: The Secretarial audit report did not contain any qualifications, reservations, or adverse remarks.
• Data Privacy: Implemented a Global Privacy policy and framework (PrivACE) to standardize privacy practices.
• Cybersecurity: Comprehensive cybersecurity measures in place, including AI/ML-based tools for threat detection.
• Future Preparedness: Monitoring emerging regulations, including carbon taxes and evolving ESG reporting frameworks.
• Tata Code of Conduct: Complies with principles of the TCoC and it serves as a guide to all employee behavior.

TCS Financial Analysis and Future Outlook #

Management Guidance and Assumptions #

• Management anticipates greater opportunities ahead as businesses become more technology-intensive.
• They project strong deal momentum and a robust order book (US$42.7 billion) providing medium to long-term growth visibility, despite near-term macroeconomic uncertainties and geopolitical volatilities.
• Return to office is a key priority.
• Cloud is seen as a strategy for business transformation.
• Management is committed to maintaining an operating margin band of 26% to 28%.
• Capital allocation policy with a high shareholder payout.

Market Growth Forecasts #

• Global IT Spending is expected to increase 8% in 2024.
• Global technology spending on IT services was close to the US$1.4 trillion mark, with IT services growing at 6.1% YoY in CY2023.

Planned Strategic Initiatives #

• AI and Cloud: Consolidation of AI and Cloud expertise with the creation of the AI.Cloud unit. Development of domain-specific AI/GenAI offerings. Upskilling of over 300,000 employees in GenAI technologies in FY 2024. Enhancements to TCS’ products and services with AI capabilities (e.g., TCS BaNCSTM, Cybersecurity services).
• Energy Transition: Investment in research on green hydrogen, biofuels, and digital platforms to reduce emissions. Proprietary ESG framework to enhance transparency and simplify compliance reporting.
• 5G/6G Communication: Pioneering engineering of 5G/6G communication stacks using open standards. Setup of two state-of-the-art labs for future-ready communication infrastructure. Investments in niche technologies like 5G SA Core, O-RAN radios.
• Talent Upskilling: Continued investment in upskilling the talent base of over 600,000 employees, with a focus on emerging technologies like Cloud, AI, and Cyber Security. Partnerships with hyperscalers and other AI ecosystem players.
• Sustainability: Adoption of Project Aalingana, Tata group’s sustainability roadmap, with the aim to be net zero by 2045. Initiatives include decarbonization, circular economy approaches, and environmental protection.
• Nation Building Programs : Including projects like BSNL.
• Deepened Partner Ecosystem.
• Set up the AI Cloud Unit.

Capital Expenditure Plans #

• Continued investment in research and innovation, building intellectual property, cloud transformation, and AI enablement.
• Addition of more green buildings to the real estate portfolio.
• Reduction of IT system power usage.
• Implementation of TCS Clever EnergyTM to optimize energy consumption.
• Planned rooftop solar of 260 KWp.

Efficiency Improvement Targets #

• Operating Margin: Commitment to a margin band of 26% to 28%.
• Productivity Gains: Deployment of AI and GenAI to drive efficiency in financial institutions and other sectors.
• Energy Efficiency: Optimization of energy consumption across campuses using TCS Clever EnergyTM.
• Weighted average PUE target of 1.65
• Fresh water consumption: 3% YOY reduction across owned campuses.

Potential Challenges and Opportunities #

• Challenges:
  • Macroeconomic uncertainty, geopolitical volatility, and customer reprioritization of projects.
  • Pressure on customers’ discretionary spending.
  • Persistent high inflation and monetary tightening in major markets.
  • Geopolitical challenges altering established supply chains.
  • Risks related to data privacy, cybersecurity, and compliance with global regulations.
• Opportunities:
  • Vendor consolidation, cloud migration and transformation, customer and employee experience enhancement.
  • Operating model transformation, business process optimization, supply chain initiatives, and sustainability.
  • AI enablement and early-stage AI-infused transformational engagements.
  • Deployment of AI and GenAI in various sectors (financial institutions, automobiles, healthcare, manufacturing, telecom).
  • Energy transition, requiring significant technology investments.
  • Rebalancing of supply chains, with India playing an important role in advanced manufacturing.
  • 5G/6G communication infrastructure upgrades.

Scenario Analysis and Sensitivity to Key Assumptions #

• Scenario 1: Delayed Decision-Making and Cash Conservation: If delayed decision-making and cash conservation continue into FY 2025, it could lead to a moderation in growth.
• Sensitivity: The analysis assumes that customer demand for cost optimization and cloud transformation remains strong. A significant shift in customer priorities away from these areas could negatively impact TCS’s growth.
• Sensitivity to Margin Targets: While TCS reported Q4 2024 margin of 26%, demonstrating their commitment to the 26-28%, a deviation from cost saving targets could negatively affect the ability to attain margins.
• Sensitivity: The sensitivity analysis of the revenue to currency movement has been disclosed to be 3.4%.
• Sensitivity: A 10% appreciation/depreciation of the respective functional currency against various foreign currencies would result in an increase/decrease of approximately ₹338 crore, in the company’s profit before tax, for the year ended 31 March 2024.
• Sensitivity: TCS is exposed to financial risk arising from changes in foreign exchange rates, interest rates, credit, and liquidity.
• Sensitivity: Remeasurement of defined employee benefit plans recorded net loss of 13 crores and 350 crores for the year ended March 31,2024 and March 31, 2023.

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• The Independent Auditor’s Report issued by B S R & Co. LLP provides an unmodified opinion on the consolidated financial statements, stating they give a true and fair view in conformity with generally accepted accounting principles in India.
• The report highlights modifications in accounting records that relate to the enabling of the audit trail feature in the accounting software, which happened in stages at the Company and at three of its Indian subsidiaries.

Key Accounting Policies and Changes #

• The consolidated financial statements are prepared in accordance with Indian Accounting Standards (Ind AS).
• Revenue recognition for fixed-price contracts uses the percentage-of-completion method, requiring significant estimations of future costs.
• There was a change in methodology for estimating emissions from certain items for the year ended March 31, 2024.
• The Company made changes to estimates and underlying assumptions on an ongoing basis.

Internal Control Effectiveness #

• The auditor’s report states that the Holding Company and its Indian subsidiaries have adequate internal financial controls with reference to financial statements, and that these were operating effectively.
• The internal financial controls were deemed adequate and effective during FY 2024, based on the framework of internal financial controls, compliance systems, and reviews performed.
• The audit trail feature in accounting software was not enabled for parts of FY24 at the Company and three of its Indian subsidiaries.

Regulatory Compliance Status #

• The Company is in compliance with the requirements of the SEBI Listing Regulations regarding corporate governance.
• The Company has devised proper systems to ensure compliance with applicable Secretarial Standards.
• There are ongoing disputes with income tax authorities in India and other jurisdictions.
• There are pending statutory dues under dispute, including income tax and sales tax.
• The Company monitors compliance with changing regulations across various jurisdictions, new countries of operations and functional areas, using a comprehensive global compliance management framework.

Legal Proceedings and Their Potential Impact #

• Claims aggregating ₹ 226 crore and ₹ 277 crore as at March 31, 2024 and 2023, respectively, against the Group are not acknowledged as debts.
• The Company settled a legal claim (Epic Systems Corporation) with a payment of ₹ 958 crore (US$115 million) recognized as an exceptional item during the reporting period. The matter concerning compensatory damages was settled in April 2022, and the matter concerning punitive damages was rejected by the Supreme Court and paid in December 2023.
• The Company and its subsidiaries have ongoing disputes with tax authorities.
• The Company’s rising profile and scale make it an attractive target for lawsuits.

Related Party Transactions #

• The Company had significant related party transactions with the Promoter Company and its subsidiaries, associates/joint ventures of the Promoter Company and their subsidiaries, and subsidiaries of the Company.
• Transactions with related parties for IT/ITE services rendered amounted to ₹ 6,086 crore for the year ended March 31, 2024.
• Procurement of goods and services from related parties amounted to ₹ 1,862 crore for the year ended March 31, 2024.
• Material related party transactions require prior approval of Members by means of an ordinary resolution, as per SEBI Listing Regulations.

Subsequent Events #

• The Board of Directors proposed a final dividend of ₹ 28 per equity share on April 12, 2024.

Analysis of Accounting Quality #

• The use of the percentage-of-completion method for revenue recognition on fixed-price contracts involves inherent estimations, which could impact the reported revenue.
• The significant estimates and judgments in accounting include revenue recognition, useful lives of assets, impairment, provisions, and income taxes.

Regulatory Risk Assessment #

• The Company is subject to a high degree of regulatory scrutiny due to its global operations and the nature of its business.
• Ongoing disputes with tax authorities in multiple jurisdictions present a notable regulatory risk.
• Changes in laws and regulations, particularly in key markets, could affect the Company’s operations and financial results.
• Compliance with regulations, including the Tata Code of Conduct and Whistle Blower Policy, is emphasized.