Macro Economics

Project Sector- IT Company- Tata Consultancy Services

Submitted To Submitted By Chandrakant Bisen JIML-11-048 Dr. R.K. Ojha sir Kopal Agarwal JIML-11-070 Archana Kandi JIML-11-FS-14 Avantika Tyagi JIML-11-043 Faisal Ahmad- JIML-11-056 Section B

Analysis Of IT Industry in India

The IT-ITES industry in India has today become a growth engine for the economy, contributing substantially to increases in the GDP, urban employment and exports, to achieve the vision of a powerful and resilient India. While the Indian economy has been impacted by the global slowdown, the IT-ITES industry has displayed resilience and tenacity in countering the unpredictable conditions and reiterating the viability of Indias fundamental value proposition. The main reasons for the successful establishment of software companies in India and its strong performance can be attributed to the following: Cost advantage- Given the labor market conditions in India, there exists substantial scope of cost arbitrage for performing services from India. This, along with a large pool of talented and English people labor force, was the genesis of the IT sectors dominance in the world IT services industry. Breadth of service offering and innovation- Service offerings have evolved from low-end application development to high-end integrated IT solutions. Quality / maturity of process- Having made its mark as a center of low-cost and wide range of service offerings, the Indian IT / ITES sector has also proved its mettle in the quality of the service offerings, as demonstrated by the fact that it hosts more than 55% of SEI CMM level five firms and the highest number of ISO certified companies. Ease of scalability- The vast and trained labor pool of technically competent, English speaking people has made it easy for the Indian companies to enter and exit this industry. Moreover, the ease with which a company can scale its operations (up or down) has been a great value driver for the success of the Indian IT / ITES service sectors growth story.

Performance of the Indian IT-ITES industry

The information technology sector has been playing a key role in fuelling the Indian economic performance which has been stellar with robust GDP growth. Indias total IT industrys (including hardware) share in the global market stands at 7%; in the IT segment the share is 4% while in the ITES space the share is 2%. The industry is dominated by large integrated players consisting of both Indian and international service providers. During the year, the share of Indian providers went up to 65-70% due to the emerging trend of monetisation of captives. MNCs however, continued to make deeper inroads into the industry and strengthened their Indian delivery centres during 2008.The continuing contribution of this sector to the Indian economy is evident from the fact that revenue generated from this sector has grown from 1.2% in FY 1998 to an estimated 5.8% in the FY 2009. The net value added by this sector to the economy is estimated at 3.5-4.1% for FY 2009.

Impact of the recession on IT sector in the Indian economy

The current global economic slowdown has made it a roller coaster ride for the world economies. Asia / Pacific is experiencing a deferred impact due to the domino effect of the current crisis. With the expectations of a sluggish GDP growth and consequent reduction in IT spending, countries / markets which have a higher dependency on the export markets are expected to be affected more than other countries /markets with stronger domestic demand.India being one of the worlds fastest-growing tech markets, thriving mainly on exports is also experiencing the tremors of the global economic crisis. IT spending as a percentage of revenue normally varies from 3.5% in manufacturing companies, 5-6% in global retail chains to about 9.5% in the banking industry. These could see marginal decline as companies will tend to hold spends on new IT deployments.

Research and Development

TCS established the first software research center in India, the Tata Research Development and Design Center, in Pune, India in 1981. TRDDC undertakes research in Software engineering, Process engineering and Systems Research. Researchers at TRDDC also developed Master-Craft (now called TCS Code Generator Framework a Model Driven Development software that can automatically create code based on a model of a software, and rewrite the code based on the user's needs. Research at TRDDC has also resulted in the development of Sujal, a low-cost water purifier that can be manufactured using locally available resources. TCS deployed thousands of these filters in the Indian Ocean Tsunami disaster of 2004 as part of its relief activities. This product has been marketed in India as Tata swach, a low cost water purifier.

BPO
TCS BPO is the second leading player in the outsourcing industry in India behind Genpact according to Dataquest survey in August 2011. TCS's BPO arm had revenues of $925 million in the year that ended in March, and 34,000 employees Other than major Indian cities, TCS BPO is also present in Tier-II locations like Pune. TCS is also expanding its BPO centre in Kolkata, where it already employs 2,000 people. Tata Consultancy Services has opened a business process outsourcing facility in the Philippines following the path of India-based BPO companies which have operations in that country.

Recent news and Development

Mr. Subramaniam Ramadorai is the vice- chairman of TCS and Mr. N. Chandrasekaran is CEO&MD of TCS now. Tata Consultancy Services signed a Rs 94-crore deal with the Karnataka government for six-year period to automate its treasury and finance department operations.Deutsche Bank has selected TCS as a strategic partner for their Production Management Transformation Initiative, within their Capital Markets Business Unit.Tata Consultancy Services has managed to receive ten large deals. TCS is planning to hire 60,000 Employees in Financial year 20112012 TCS has got contract from Credit Union Australia. Country's largest software firm Tata Consultancy Services (TCS) has received a multi-year, multi-million dollar contract to provide application support, maintenance and development services from US-based Air Liquide. A book titled The TCS Story... and Beyond published by the Penguin Group, was authored by S Ramadorai, now TCSs Vice-chairman and launched in September 2011.The book covers the 43 years journey of TCS. On the Last Trading Day of Year 2011, TCS overtook RIL to be anointed as the country's most valued firm.

Employees

TCS is one of the largest private sector employers in India with a core strength 214,770 individuals. TCS has turned into the third-largest employer among listed companies after Coal India Limited and State Bank of India. But the biggest employer in the country is Indian Railways with 16 lakhs employees. TCS's BPO arm had revenues of $925 million in the year that ended in March 2011, and has 34,000 employees TCS has one of the lowest attrition rates in the Indian IT industry.

Recognition
As a brand, TCS is the 76th Most Trusted Brand according to The Brand Trust Report, 2011.TCS has been ranked as the world's 7th greenest company in Newsweek's Green Rankings 2011. In addition, TCS is the highest ranked Asia-based company and second highest ranked globally in the Information Technology & Services company category.

Recent News about TCS

October18,2011
Markets give thumbs down to TCS numbers; brokerages advise caution
NEW DELHI: Shares of Tata Consultancy Services Ltdslipped around 8% to touch its day's low of Rs 1031.65 in early trade on Tuesday. India's top software exporter said its fiscal second-quarter net profit rose to Rs 2439 crore ($498 million), in accordance with international financial reporting standards, from Rs 2126 crore a year ago. However, Tata Consultancy Services said it does not expect to increase its prices in the near term due to global economic uncertainty, after posting a slightly lower-than-expected 14.7 percent rise in the quarterly net profit. "TCS reported all-round revenue growth of 4.7% q-o-q in dollar terms, in line with peer Infosys Ltd, but lower than our 6% estimate due to a decline in India related billing," according to a report by BofA-ML. According to the report, "Indian business has a lower annuity component and tends to be lumpy quarter to quarter. Constant currency pricing declined nearly 1% q-o-q due to quarterly fluctuations in revenue mix, including lower proportion of fixed price contracts," said the report. "TCS margins expanded nearly 100 bps on rupee, but were offset by dip in realization and cost of promotions activities. Other income declined on forex hedging loss & lower treasury income post dividend payout," said the report. Market was expecting a healthy top-line growth from TCS after Infosys reported health set of numbers. However, 4.7%QQ growth in $-revenues fell short of that mark. "With operational factors largely balancing out, EBIT margins were up 94bps q-o-q boosted by the currency move. We expect the margin trend to continue in 3Q as well with another 150+bps q-o-q benefit from a weaker currency," added the CLSA report. Europe is the second largest market for the software firms, and the euro zone debt crisis is a worry for the sector that has been looking to increase its sales to the region to hedge against their excessive exposure to the United States. Key risks to TCS Any significant appreciation of the rupee against the USD/EUR/GBP might not augur well for company's margins. A prolonged recession in the US & Europe will result in lower $ realization. While India business witnessed a decline while LATAM was muted, all other geographies witnessed decent growth trends. Both North America and Europe delivered above company average growth.

October18,2011
TCS results: Q2 net profit up 6% to Rs 2,301 crore, revenues rise 25%
MUMBAI The country's largest software exporter, Tata Consultancy Services, met revenues expectations in the second quarter but lagged street expectations on net profit as customers postponed spending on projects because of economic uncertainity and the company incurred higher costs on new staff. TCS grew net profit by 6% to Rs 2,301 crore over the year ago quarter as banks, manufacturers and other clients increased spending on IT to improve efficiency and drive business in new markets but pricing came in lower. Revenues grew 25% to Rs 11,633 crore over the year ago quarter as companies in North America and Europe continued to spend, despite worries of a sovereign default in some regions and a slowdown in others. Sequentially, net profit was down 5% and revenue up 8%. "The order book has been very good and the outlook is very bright," said TCS chief executive officer and managing director N Chandrasekaran, belying some of the worries. He said despite continuing macro-economic uncertainity, the company was getting 'postive vibes' on customer spending. "It is two disconnected worlds," he said.

Nov9,2011
Tata Consultancy wins $2.2 billion order from UK firm Friends Life, shares rally
MUMBAI/BANGALORE: Tata Consultancy Services won its second biggest ever outsourcing contract worth $2.2 billion on Wednesday from UK-based pension firm Friends Life, providing positive forecast for India's technology sector complaining of shrinking contracts and delays in decision making by top customers. The contract, TCS' second biggest deal after the company won $2.8 billion order in 2008 from Citigroup, is based on a model wherein the company will be paid for each insurance transaction and will add another 3.2 million policies to the existing Diligenta platform owned by its UK subsidiary. "According to our records, this is the largest private sector deal in the UK at least since 2005," said Ed Thomas, analyst with UK-based outsourcing advisory Ovum. "And that it comes from the insurance sector that has been depressed since the beginning of the slowdown in 2008 makes it even more important". With this contract, TCS will now manage some eight million policies in UK using the same platform, increasing the company's share of revenues earned without having to hire additional staff. Around 1900 staff ofFriends Life will get transferred to TCS' payroll as part of this transaction.

UK-based insurer Friends Life, which awarded the contract to TCS, is the second independent client that TCS's UK subsidiary Diligenta is signing on since its inception in 2006 following TCS's acquisition of insurance back-end operations of UK's Pearl Group now Phoenix Group in October 2005 of that year for an undisclosed sum. "In some ways, this is a realisation of vision that lead TCS to sign 486M deal with the Phoenix Group back in 2005 it has taken time but it has happened," Vikram Gulati, co-founder and managing director of QS Advisory. "This deal is less about margins and more about shifting gears it is large, it is head-line grabbing and most importantly it is not just about technology or labour arbitrage, it is essentially about direct impact on client's business this is what TCS (and other player with Indian heritage) want to be known for." To be sure, TCS also won a deal with UK's state pensions authority for administering the new pensions scheme being introduced in that country a deal estimated worth over 600million. Interestingly, TCS won that deal by default as others bidders pulled out contenting that the deal was not viable amid fears that it may not be profitable.

Dec30,2011
TCS overtakes RIL as India's most valued firm
MUMBAI: Reliance Industries lost its position of the country's most valued company to Tata group firm TCS this afternoon, as the shares of billionaire Mukesh Ambani-led corporate giant fell sharply in a weak market. At 1450 hours, Reliance Industries (RIL) commanded a market value of Rs 2,27,083 crore, a shade below Tata Consultancy Services' Rs 2,28,153 crore. RIL has been the country's most valued company for many years, except for a brief period in August this year, when it first lost its top slot to Coal India Ltd, then regained it and was again overtaken by another state-run firm ONGC. While RIL shares were down 2.72 per cent to Rs 693.50, its lowest level in more than a year, TCS was trading with a modest gain of 0.03 per cent at Rs 1165.70. The benchmark Sensex was 93.57 points down at 15,450.36 at that time. The marketmen were keeping an eye on the two stocks to know whether TCS would be able to retain its lead till the end of the trade today, which incidentally happens to be the last trading session of the year 2011. Earlier this month, RIL also lost its tag of the country's most influential stock to another IT firm Infosys, as measured by their weightage on the stock market barometer Sensex. RIL first slipped below Infosys in terms of Sensex weightage on December 12, and thereafter, a situation similar to game of musical chairs has been on display between the two, as they have overtaken each other on various occasions. Currently, Infosys commands a higher weight than RIL. Earlier on August 17, Coal India had toppled RIL as the country's most valued company, while the polyster-to-energy- retail conglomerate had slipped to third position below ONGC two days later on August 19.

Dec27,2011

Tata Consultancy Services not keen on Lufthansa systems buy on profit concerns
BANGALORE: India's biggest software services firm Tata Consultancy Services is not pursuing the acquisition of Lufthansa's IT arm actively anymore on concerns of profitability and hassles of reaching an agreement with the airline's labour union, at least three people familiar with the discussions said. European companies such as Lufthansa, who already outsource their IT services work to vendors including TCS and NIIT Technologies, are under pressure to shed non-core assets. For Indian tech firms seeking to grow their business beyond the top market US, such transactions promise to bring sustained revenues with local staff.

January5, 2012
TCS dethrones Reliance Industries again as country's most-valued firm
MUMBAI: Tata Group software firm TCS today dislodged Reliance Industries Ltd (RIL) as the country's most-valued firm for the second time within a week as shares of the billionaire Mukesh Ambani-led corporate giant plunged sharply. At the end of today's trade, Tata Consultancy Services(TCS) commanded a market value of Rs 2,29,474.38 crore -- the highest for any listed company in India and a shade higher than RIL's Rs 2,28,966.07 crore.

January 7, 2012
IT firms like Infosys, Wipro and TCS cut variable pay
BANGALORE: Large IT companies have begun to implement marginal cuts in employees' variable pay, an indication of the economic challenges they foresee. Brokerage firm Nomura said in a January report, "Our channel checks at tier-1 IT companies suggest marginal variable salary cuts compared to previous quarters have already started in view of the uncertainty in demand and recent performance."

January 12,2012

MUMBAI: A benchmark index for Indian equities markets on Thursday slipped into the red in noon trade led by IT stocks as bellwether Infosys lowered its guidance while reporting quarterly results. The 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange (BSE), which opened at 16,117.19 points, was ruling at 16,005.88 points, 169.98 points or 1.05 percent down from its previous close at 16,175.86 points. The 50-scrip S&P CNX Nifty of the National Stock Exchange also was trading in the positive at 4,812.9 points - down 0.99 percent or 48.05 points from its previous close