Strengths

1) Healthy Balance Sheet with Strong Financials: TCS has a healthy balance sheet with strong financials. Its FY17 revenues stood at $17.58 billion, a growth of 6.2% over FY 2016. It is a zero debt company with around US $5 billion (Rs. 32,533.76 crores) in investible funds as of March 2016.

2) Flagship Company of Reputed TATA Group: TCS is the flagship company of the US $ 110 billion TATA Group. The brand of ‘TATA’ has always provided credibility and reliability to TCS and has helped it win many clients.

3) Strong Dominance in Domestic Market: TCS commands a strong dominance in the domestic market as it can be seen from its order book that it bags most of the government projects in India. Though these projects command a low operating margin, it helps TCS in keeping high resource utilization. Also being an Indian company, it has the advantage of securing confidential government projects, which may not be outsourced to a foreign firm.

4) Comprehensive business portfolio with end-to-end technology service offerings: TCS has a comprehensive business portfolio spanning across geographies, industry verticals and services. Thus it can be the end-to-end technology consulting and services provider for its clients. It leverages its Global Network Delivery Model (GNDMTM) to provide round-the-clock services to its clients.

5) Impressive Client Base with 37 US $100 million clients as of FY16: TCS has a total of 37 clients who contribute US $100 million or more to its annual revenues, with 8 clients added in FY16. 73 clients fall in the US $50 million+ revenue band and TCS has overall 298 clients which fall into US $10 million+ revenue band.

Weaknesses

1) Major products absent, largely dependent on services: Services segment contribute to 90 per cent of the revenue for TCS. Also Application Development and Maintenance (ADM) contribute a major portion of services. The product segment is not well established which has a huge potential to be untapped both in the local and in the international markets and brings licensing revenues.

2) Largely dependent on North American and European markets and limited presence in Asia Pacific (APAC) region: TCS is largely dependent on North America for its business with 53.28% of its FY16 revenues being generated from the geography (1). It should focus more on Europe and Middle East regions which are lucrative markets and have further growth potential. It will help in business diversification and reduce impact in case of any adverse economic events in North America.

TCS has a comparatively low presence in the Asia Pacific region which is fast growing market. China, Indonesia, Singapore, Indonesia are some of the markets which will grow further in the next decade and companies like IBM and Accenture currently dominate these markets. It needs to build a strong market presence in the region to leverage on the potential opportunities.

References

1. TCS Annual Report 2016: http://www.tcs.com/investors/Documents/Annual%20Reports/TCS_Annual_Report_2015-2016.pdf

2. TCS Q4 2017 - PressRelease: http://investors.tcs.com/investors/Documents/Presentations/TCS_Factsheet_Q4_17.PDF

Political

1) Brexit to impact projects in UK and EU markets: United Kingdom is a major market for TCS with close to 16% of the revenue generated from the geography. Immediate impact of Brexit was the depreciation in GBP vis-à-vis the USD by almost 10-15%, which will hurt TCS’s topline and bottom-line. Another impact is the low business visibility and economic uncertainty in the environment and the new laws being passed in EU with regards to United Kingdom.

2) Preferred Technology Company for government projects in India: TCS has executed a number of projects for the Indian government and is the preferred technology provider. Its Passport Seva and Post Office projects have also been quite successful and highly appreciated.

Economic

1) Large workforce strength with higher compensation increasing operating costs: TCS has a huge workforce; 387,000 employees as of March 2017. While the attrition is steady hovering around 10-12%, it is mainly at the entry level, with maximum attrition in the experience bracket of 3-7 years. The cost of revenue Cost of revenue increased to 56.7% in FY17 from 56.05% in FY16. The attrition of employees with higher experience is considerably lower which is resulting in a flatter pyramid at the top and also increases the salary pay-out of the company.

2) Increase in local hiring in U.S and other countries to impact cost structure: TCS has been indirectly forced to increase local hiring in the countries where it serves its clients. The US, UK, Australia and some other countries have brought in tougher visa norms in 2017 which leaves increase in local hiring the only viable option. While this will increase costs for the company it will be good in the long run as engaging local talent will be beneficial for the organization.

3) Tax benefit from extension of Special Economic Zone (SEZ) scheme: Information technology companies like TCS have greatly benefited from the SEZ scheme which provide tax breaks and duty free imports of computer systems if the importers would export software services worth twice the value of the imports. Tax breaks of up to ten years are provide on setting up development centres in approved location. The scheme has been extended in India till 2020, by the finance minister in 2016 budget.

Social

1) TATA group has a brand reputation and is known for ethics and integrity which helps TCS win business: TCS is the flagship company of the US $110 billion TATA Group which has a global brand reputation and is known for its ethics and integrity in conducting business. This mage helps TCS win trust of its clients and consumers.

2) TCS is involved considerably in employee volunteer investments and IT education to school students: TCS encourages and funds numerous volunteering initiatives through employee participation. Moreover it conducts country wide educational programs in IT, design and robotics for middle-school students to help them get a head start in understanding the technology industry.

References

1. TCS Annual Report 2016: http://www.tcs.com/investors/Documents/Annual%20Reports/TCS_Annual_Report_2015-2016.pdf

2. TCS Q4 2017 - PressRelease: http://investors.tcs.com/investors/Documents/Presentations/TCS_Factsheet_Q4_17.PDF