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📘 TCS – Long-Term Wealth Builder in India's IT Powerhouse

Lesson 45/225 | Study Time: 15 Min

Course: Top Quality Companies

📘 TCS – Long-Term Wealth Builder in India's IT Powerhouse

Updated on: 28/07/25

Profit From It's "Sustained Value & Wealth Model" For TCS:
https://docs.google.com/spreadsheets/d/e/2PACX-1vRSzhfaAjiF1k83LOEAtU_n9uY8EWbuQMNw2tOH_AjV6bK_bJkdAYpQIcFtupm0Yw/pubhtml?gid=352024333&single=true

🏢 About the Company

Tata Consultancy Services (TCS) is a global leader in IT services, consulting, and business solutions. As part of the Tata Group, TCS has earned a reputation for delivering innovation-led growth through technology and digital transformation.

🌍 Industry & Growth Outlook

The global IT services industry is poised for multi-decade growth driven by:

Cloud computing ☁️
AI & Machine Learning 🤖
Cybersecurity 🔒
Digital transformation 💻

India contributes over $245B in IT exports, and TCS stands tall among top players. Long-term digital adoption across BFSI, healthcare, retail, and manufacturing drives a ~12% CAGR outlook for Indian IT over the next decade.

📈 Historical Financial Performance

🔹 Revenue & Net Profit Growth (FY2005–FY2025)

TCS has shown strong compounding over 20 years:

Year	Income (₹ Cr)	Net Profit (₹ Cr)
FY2005	8,103	1,832
FY2010	30,029	7,000
FY2015	94,648	19,257
FY2020	1,56,949	32,447
FY2025	2,55,324	48,797

🖼️

📉 Net Profit Margin Trend

TCS has maintained strong profitability over the decades:

🖼️

Average NPM (20Y): ~21%
FY2025 NPM: 19.1% (stable YoY)
Peak Margin: 25.2% in FY2007

📊 Historical Valuation Range (PE & PBV)

Year	High PE	Low PE	High PBV	Low PBV
FY2010	24	10	9	4
FY2015	29	20	11	8
FY2020	27	17	10	7
FY2023	33	25	15	12
FY2025	34	26	17	13

Historical PE Band: 15x–39x
Historical PBV Band: 5x–25x

➡️ Current CMP: ₹3,086
➡️ Fair Valuation Zone: PE 26–32x | PBV 13–17x

🧮 FY26 Estimates Based on Current Trends

Metric	FY25 Actual	FY26 Est.	Growth
Income	₹2,55,324 Cr	₹2,62,984 Cr	~3%
Profit	₹48,797 Cr	₹52,695 Cr	~8%
EPS	₹135.8	₹146.7	~8%
NPM	19.1%	20.1%	Improving

🧾 Q1 FY26 Insights

Financials:

Revenue: ₹63,437 Cr (+1.3% YoY)
Net Profit: ₹12,819 Cr (+5.9% YoY)
Margin: 20.2% (vs 19.3% YoY)
EPS: ₹35.27 (+6.0%)

Segmental Performance:

Segment	Revenue Share	YoY Growth	CC Growth
BFSI	39%	+7%	+1%
Consumer	16%	+2%	-3.1%
Communication	15%	-13%	-9.6%
Life Sciences & HC	10%	-7%	-9.6%
Manufacturing	10%	+2%	-4.0%

Regional Revenue (YoY Constant Currency Growth):

Region	Share	Growth
North America	48.7%	-2.7%
India	5.8%	-21.7%
MEA	2.2%	+9.4%
Asia Pacific	8.4%	+3.6%

📌 Key Note: Communication & Indian market dragged growth, while BFSI & MEA supported resilience.

💼 Major Cost Drivers (Q1 FY26)

Expense	Share of Total	Growth YoY
Employee Benefits	78%	+3.6%
Other Expenses	17%	+10%
Depreciation	3%	+12%
Cost of Equipment	2%	-66% (declining infra capex)

📊 Valuation Outlook (FY26 & Long-Term)

Metric	FY26 Est.	Long-Term CAGR
Revenue Growth	3%	12%
Profit Growth	8%	12%
EPS Growth	8%	12%
Margin Outlook	~20.1%	Stable

Valuation Summary:

PEG Ratio ~1.44 (fair)
EPS Forward Valuation at 21x–28x is reasonable for a 12% compounder
Dividend yield adds 1.5–2% stability

📌 Portfolio Allocation (Model)

Basis	Weightage
EPS Basis	1.70%
Book Value Basis	1.64%
PEG Basis	1.44%
✅ Actual Portfolio Weight	1.59%

🎯 Ideal for large-cap core portfolio with low volatility and consistent compounding.

📉 Risk & Reward Analysis

Risks:

Slowdown in BFSI or U.S. IT spending
Rising wage inflation or attrition
Currency volatility

Rewards:

Consistent earnings visibility
High dividend payout
Technological leadership in AI & cloud
Strong brand & global presence

🏁 Conclusion: Long-Term Compounding Engine

TCS continues to deliver steady, predictable, and compounding growth. Its strong fundamentals, high RoCE, improving margin profile, and attractive valuations make it a core holding for long-term investors seeking quality in India's IT sector.

📜 Disclosure

This report is intended for educational and informational purposes only. It is not a stock recommendation. Investors should conduct their own due diligence or consult a qualified advisor before making investment decisions.

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