TCS touches $100 billion market cap, crosses Accenture in valuation
According to the recent reports, Tata Consultancy Services (TCS) has touched $100 billion in market capitalization and also is in the process to overtake the market cap of Accenture.
As per the reports, IBM remains the No. 1 in the IT services market cap pecking order, but its market cap is only about 33% higher than that of TCS, though its revenue is more than 300% higher.
Phil Fersht, CEO of IT research firm HfS, said TCS has developed a very strong culture to win any deal in the world it wants. “The firm has stayed very focused on relentless execution and is less obsessed with marketing messages and trying to sound like everyone else. The firm has created its own individual identity, which many of the other service providers are struggling to do. I sometimes call TCS the `Indian IBM’ because of the longevity of its staff and unique culture,” he said.
On TCS’s valuation being higher than that of Accenture’s despite lower revenue, Fersht said that’s because TCS’s core offering is managed services, whereas Accenture's is consulting. “When you calculate market caps, a managed services revenue dollar is always much higher than a consulting revenue dollar,” he said, noting that managed services revenue is ongoing, renewable, predictable and multi-year, while consulting involves one-time short period projects. Managed services business is much stickier and actually drives new consulting revenue too, Fersht said.
Peter Bendor-Samuel, CEO of IT consulting firm Everest Group, however, wonders if TCS’s valuation premium would persist over the next few years. Accenture, he said, is further along than TCS in its move into the new digital marketplace. “We anticipate that it will be difficult for TCS to maintain its traditional margins in digital as the business model as we understand it seems likely to demand lower margins. However, if TCS is able somehow to maintain the margin premium by some combination of IP ownership, and digital labour arbitrage, then it will be able to maintain its equity premium,” he said.
Commenting on this N Chandrasekaran, chairman, Tata Sons, said, “It is a very proud moment for all of us. TCS has been able to create value consistently by making the right investments not only in terms of technology, but also in terms of creating capabilities, building leadership and talent, seeding new markets and developing scalable world-class solutions.”