TCS has a strong position in the global IT services market, with its revenue growing faster than industry growth. However, it faces some concentration risks from its reliance on the BFSI sector and saturated North American market. TCS is diversifying into newer technologies and markets to address these risks and gain competitive advantages. Areas of focus include digital services, emerging markets, and reducing reliance on traditional application development and maintenance.

1. Tata Consultancy Services Limited (BSE:532540)
April 21, 2015
Vendor Financial Viability
Assessment

2. Financial Risk Considerations when engaging with
TCS in the future
2
Shareholder
Concentration
High control of parent
company
Concentration Risk
Focus on North America
and Financial Services
Labor intensive nature
Financial and operational
implications
Shareholder Concentration
TCS has been catering to the liquidity needs of its largest shareholder, Tata
Sons (74% shareholding), by paying out significant yearly dividends. This
reflects a potentially strong control of Tata Sons on the cash usage decisions
of TCS, indicating a certain degree of financial stability risk for the firm.
Concentration Risk
The company faces potential slowdown due to heavy dependence on the
saturated North American and UK markets, which also exposes it to currency
volatility risk (including cross currency movements and potential INR-USD
fluctuations). Further, moderate reliance on BFSI sector for revenue
generation and increasing commoditization risk, a result of focus on low-
margin services, also contribute to the concentration risk.
Labor intensive nature
Considering the labor intensive characteristic of the company, it is more
sensitive to changes in wage costs, attrition and labor policies. Any adverse
changes in these factors may have a direct repercussion on the financial
stability of the firm. Also, its occasional labor issues have given rise to
reputational concerns, potentially leading to operational challenges for TCS.

3. Table of Contents
Executive Summary 04
1.0 Business Stability 06
2.0 Financial Stability 15
3.0 Vendor Sustainability 21
4.0 SWOT Analysis 24
5.0 Appendix 27
3

4. Executive Summary
4

5. Financial Viability Assessment
HIGH (3)LOW (1)
1.40
1 2 3
Low financial stability risk due to industry-leading revenue
growth and steady profit margins, along with high focus on
sustaining a good liquidity position. Also, its low leverage
ensures its high capital strength and indicates a strong
financial stability of the company going forward.
Additionally, TCS’s credit rating was upgraded by S&P from
“BBB+” to “A” in 2014, reflecting its financial flexibility.
Effective employee cost management and increasing
productivity to ensure steady profit margins. Also,
cross selling across its services to move clients up in
their revenue band maintaining high revenue growth.
Focus on debt-free and cash accretive acquisitions
sustaining its high liquidity position.
Low-Medium business stability risk based on strong
product portfolio, investment in emerging technologies, and
strong position to leverage the industry growth. However,
its dependence on top 10 accounts, dependence on
saturated North American and UK markets, moderate
reliance on BFSI for revenue generation, and increasing
commoditization of its traditional solutions may impede the
growth to a certain extent.
Diversification in high-growth markets, with the strong
expansion plan, expansion in other verticals outside
BFSI, focus on high-margin emerging technologies,
and cost management are expected to reduce its
risks.
Low vendor integration risk due to superior horizontal
integration, partially offset by moderate dependence on
partners for delivery of services. It also faces potential risks
from compatibility considerations of various clients and of
vendors directly going to market.
Potential risks from heavy dependence on vendors
mitigated by developing proprietary products. Also,
partnership and alliance with multiple vendors ensures
it faces low compatibility hurdles, and compete
effectively in the multi-vendor environment.
Risks Mitigating Factors
Overall Vendor Rating
TCS has a low risk based on its financial stability, business model, and vendor integration risk.
5

6. 1.0 Business Stability
6

7. 1.0 Business Stability
1.1 Business Overview and Customer
Assessment
08
1.2 Product and Segments 09
1.3 Recent Developments 11
1.4 Reputational Considerations 13
1.5 Industry Outlook 14
7

8. 1.1 Business Overview and Customer Assessment
Source: Company Website; Press Releases
Headquarters Mumbai, Maharashtra
Primary Sector IT Consulting and Other Services
CEO Natarajan Chandrasekaran
CFO Rajesh Gopinathan
Head of Human Resources Ajoyendra Mukherjee
Revenue (FY 14) $14,702.6 million
Net Income (FY14) $3,198.2 million
Headcount 300,464
Operational Presence 44 countries
Market Capitalization $84,421.6 million
Legal Structure Public
Company Website www.tcs.com
Brief Description
• Tata Consultancy Services (TCS), founded in 1968, is a subsidiary of Tata Sons
Limited, an Indian holding company of the Tata Group; and provides information
technology (IT) and IT-enabled services through its 58 subsidiaries.
– Its offerings include application development and maintenance, business
intelligence, enterprise solutions, assurance services, engineering and industrial
services, IT infrastructure services, business process services, consulting, and
asset-leveraged solutions.
– It’s newer offerings include mobility, connected marketing, social computing, big
data, and cloud.
• TCS is present in 120 locations, with 26 facilities in the UK & Ireland, 21 in North
America, and 12 in India. It serves Americas, UK & Ireland, Europe, Asia Pacific,
Middle East & Africa and India markets.
• TCS is focusing on newer service lines to reduce its reliance on application
development and maintenance work, and is expanding in underpenetrated higher-
growth geographies to lessen its dependence on North America and UK.
– Further, the company also aims to develop expertise outside banking and
financial services (BFSI) vertical to drive topline growth.
Note: 1. Fiscal year of the company ends on 30 September
8
Customer Assessment
Concentration Risk Description
Client Concentration
TCS’s client concentration risk stems from higher dependence (25.2% of revenue) on its top 10 accounts, compared to its peers—
Infosys, Wipro and HCL Tech. However, this is significantly mitigated due to reliance of TCS’ customers who have made capital
investments towards legacy IT systems leading high vendor switching cost.
Industry Focus
TCS has medium revenue concentration risk due high dependence on BFSI with 40% of revenue contribution (compared to 26.4%
share of BFSI in the overall IT services market). It is mitigated by the company’s focus on broad range of other industries, including
telecom, retail & distribution, manufacturing, hi-tech, life science & health care, travel & hospitality, energy & utility and media &
entertainment.
Geographic Concentration
The company has medium geographic revenue concentration risk due to high dependence on North America and UK (which
contributed about 52%, and 16% of the revenue in Q3 2015 respectively). However, the company is expanding its geographic
presence, particularly in Continental Europe (Alti S.A. acquisition) with plans to expand in higher-growth markets, which is likely to
help it reduce its dependence on developed saturated markets.
- High Risk - Low Risk Key Considerations
Revenue concentration on BFSI segment, although looking to diversify
further in other industries
High dependence on the saturated North American market, however well
positioned to expand in other high growth markets
Low Risk Medium Risk High Risk
Business Overview

9. 1.2 Product and Segments
Source: Company Annual Report; Company Report; Press Releases; Gartner
Note: 1. Revenue share in % does not total to 100 due to rounding off error
2. List of solutions is not exhaustive
3. TME: Telecom, media and entertainment; BPO: Business Process Outsourcing
9
Key Industries - TCS Positioning
Industry Revenue Share1 (%) Market Share (%)
BFSI 42.9 2.6
Manufacturing 8.5 0.9
Retail and CPG 13.8 2.4
TME3 11.7 1.7
Others 23.0 0.8
9Low Risk Medium Risk High Risk
Key Solutions - TCS Positioning
Solutions Revenue Share1 (%) Market Share (%)
IT Outsourcing 52.0 2.6
Implementation 25.9 1.6
BPO3 12.7 1.2
Consulting 5.0 0.6
Product Support 4.3 0.4
Global IT Services Market - TCS Positioning
2013 2014 • TCS is well positioned in the global IT services market, which has further
strengthened on y-o-y basis.
‒ In 2014, TCS revenue grew by 19.1% y-o-y significantly faster the industry
growth of 1.9%
Market Share 1.3% 1.5%
Market Ranking 12 6
Key Considerations
TCS well positioned to leverage the opportunity across all major verticals
given its strong offerings suite (+)
Increasing commoditization of traditional services (-)
Focus on higher margin businesses – SMAC and digital technologies,
expected to gain competitive advantage (+)
• In 2014, TCS revenue grew by 19.1% y-o-y significantly faster the industry
growth of 1.9% ‒ indicating its sound position in the global IT services market.
• TCS’s strong product portfolio, focus on margin optimization and brand value
provides it a leverage over the peers.
• However, increasing commoditization of traditional services such as application
development and maintenance (ADM), is leading TCS to focus on innovation
and automation to add value differentiation and keep a check on costs.
• Consulting segment is a limited focus area for TCS due to strong competition
and brand value of the other multinational players, such as Accenture and IBM.
• Business process outsourcing is also facing increased competition, and TCS is
focusing increasing robotics automation by 40-50% in its BPO business to
remove irrelevant business tasks, and become cost-effective.
• TCS is targeting newer service lines in order to reduce its reliance on ADM work,
and is focusing on intellectual property development associated with social,
mobile, analytic, cloud, and robotic technologies to gain a competitive edge. The
company is planning to generate $5 billion revenue from digital vertical in next
few years.
• TCS’ BFSI segment grew over 2012-2014, post global financial crisis. The strong
demand expected in 2015 may be slightly impacted by lack of new deal wins in
Insurance business and subdued performance of Diligenta (UK-based subsidiary).
– Uncertainty regarding the $2.2 billion contract with insurer, Friends Life Group
further presents a cautious performance of the Insurance business.
• Overall, TCS is well positioned to leverage opportunities in FSI industry as it
drives automation-based cost savings for banks and deepen European customer
relationships, which is expected to drive topline. Further, the company is well
positioned to leverage strong surge in deal activity in emerging markets, such as
Continental Europe and Asia-Pacific, where it has established local presence
through acquisitions and JVs.
• TCS’s manufacturing segment grew 20.8% during 2009-2014, and the company is
expected to leverage on further opportunities by integrating ERP, managed
services and infrastructure services.
• Retail and CPG segment witnessed the highest growth of 35.5% during 2009-
2013, and the company expects a volume increase due to high investments by
the industry on consumer analytics, digital commerce and business intelligence.
• TME segment grew 16.4% during 2009-2014, however, the volume growth in this
vertical has been volatile over the past few years, on account of financial crisis,
and cost pressure among service providers and equipment vendors.
• Others vertical displayed 24.9% growth during 2009-2014 driven by life sciences
and healthcare on account of increased regulations driving IT investment,
whereas the eenergy sector is expected to slightly impact TCS’ performance due
to low demand for IT services on account of decline in crude prices.

10. 1.3 Recent Developments (1/2)
Source: Company Website; Company Annual Report; Press Releases
Date Market Events
Partnerships/
Collaborations
March 2015
TCS and iRise, a U.S.-based provider of visualization software, under a strategic partnership introduced Business Process Innovation and
Simulation & Visualization as a Service (VaaS) that will allow its clients to integrate rapid simulation and visualization capability into set up
TCS Software Development processes.
August 2014
The company collaborated with U.S.-based Cloudera, an enterprise analytics data management provider, to offer Big Data and analytics
services globally.
July 2014
TCS partnered with MapR Technologies, Inc., a provider of enterprise-grade distributed data platform, to help enterprise customers capture
big data insights.
June 2014
TCS and Siemens announced TO2Win, a new joint software and services solution for automating complex Engineer-to-Order processes. The
solution leverages domain expertise and Siemens’ Rulestream software, to automate engineering processes for manufacturers.
March 2014
TCS announced a partnership with Microsoft Business Solution to collaborate on the development of online and on premise versions of
Microsoft Dynamics CRM. As part of this partnership, TCS has developed a state of-the-art development center that will support the upcoming
releases and updates to the Microsoft Dynamics CRM Roadmap, namely Mira and Leo.
Expansion
plans
February
2015
TCS announced that it expects growth in markets like India, Latin America and Japan to help strengthen the company's prospects in FY16. It
expects revenue in Latin America to reach $1 billion by 2016 and plans to double its regional workforce to 22,000 employees.
February
2015
By the end of March 2015, the company is expected to have screened over 1,000 startups across Silicon Valley, Israel and Helsinki as part of
its search for the next big, disruptive idea. It will eventually work with around two dozens of these to take their solutions to some of its biggest
customers.
February
2015
TCS announced that it is retaining its recruitment target of 35,000 in 2015-16, citing strong momentum for the technology sector, primarily
because of the adoption of digital technology. It also informed Telangana ministry in September 2014 about its plan to add 28,000 employees
in Hyderabad, India over the next three-four years.
January 2015
The company is planning to generate $5 billion revenue from digital vertical in few years and hired 1,500 experienced staff with core digital
skills, including data scientists and professionals in domains like design visualization, user experience and `Internet of things' in 2014-2015.
December
2014
TCS announced its plans to generate $1 billion revenue from France in next five years, and is also considering to expand its business in the
European nation. To achieve this, it plans to recruit more graduates in France and send them to India for training.
June 2014
Competition Commission of India cleared the proposed joint venture between TCS and Mitsubishi Corp, saying the deal would not have
adverse impact on competition in India. In April, TCS signed an agreement to merge two units in Japan with an arm of Mitsubishi Corporation
to form an IT company with expected sales of $600 million, with TCS holding 51% of the entity.
April 2014
TCS announced the planned capital expenditure of INR4,000 crore ($630 million) for 2014-2015, it’s highest till date. It plans to spend 80% of
the total capex for building new delivery campuses and for upgrading existing ones, and remaining on upgrading technology assets.
March 2014
TCS is likely to increase investment on robotics automation in its business process outsourcing (BPO) business, with the aim to improve
revenue earned per employee. It intends to increase automation by 40% to 50% and remove irrelevant business tasks.
February
2014
TCS announced that it plans to build its own end-to-end cloud platforms in certain areas, and will also continue to work with third-party cloud
computing platforms.
10

11. 1.3 Recent Developments (2/2)
Source: Company Website; Company Annual Report; Press Releases
Date Market Events
Product
Launch
December
2014
TCS announced launch of TCS BaNCS Digital solution, which comprises both enterprise and consumer apps delivered on hybrid architecture,
providing its bank customers with an app and browser experience from a single platform and infrastructure.
December
2014
The company launched its big data product 'TCS Active Archive,' powered by technology from EMC, offering scalability, security, and cost
controls for archiving, retrieving, retaining, and managing the growing volume and variety of enterprise data.
New Facilities
October 2014
The company launched its User Experience Center of Excellence in Ohio, U.S., providing end-to-end consulting and implementation services
for SAP applications.
September
2014
Indian Prime Minister Narendra Modi inaugurated the TCS Japan Technology and Culture Academy in Japan, which has been launched to
promote integration between Indian and Japanese IT professionals.
November
2014
The company is setting up offshore development centers in India for Japanese clients aiming to increase it’s margins in the Japanese market,
which are currently in single-digits.
Management
Changes
September
2014
TCS reappointed N Chandrasekaran as the CEO and MD for another five year period as he has successfully led the company’s growth at a
strong pace, and his management has been praised particularly during the economic downturn.
July 2014
TCS appointed AS Lakshminarayanan, to head the company's Japan business and grow its revenue in the country, and drive the integration
of Japanese workforce onto the TCS processes
Others
January 2015
TCS received approval from NSE and BSE to the merger of CMC with itself, allowing it to file their scheme with the High Court. This will allow
TCS to consolidate CMC's operations in a single company with rationalized structure, greater financial strength and flexibility.
January 2015
Rajesh Gopinath, CFO of TCS, announced that the company may discontinue sharing certain growth metrics as it wants to shift from volume
and pricing growth numbers.
December
2014
TCS might lose the $2.2 billion contract it had signed with UK-based Friends Life Group in 2011, now that Friends Life is being acquired by
Aviva, which has its own vendor WNS and might prefer a single vendor over two different providers. This might adversely hit its Insurance
business, which has displayed subdued performance.
July 2014 The company launched a commercial paper program to raise INR4,000 crore ($630 million) as part of its ongoing liquidity management
June 2014
The company is piloting a digital learning project for its employees that could be extended to its campus hires, which will allow it to reduce
training time and increase utilization rate.
April 2014
The company’s management expects its loss-making unit in Brazil, Tata Consultancy Services Do Brasil Ltd, to turn profitable by the current
fiscal end. The Brazilian subsidiary has been recording net losses for at least the last five years due to slow macroeconomic environment.
February
2014
TCS announced the launch of Digital Software & Solutions Group, a new business unit encompassing emerging technologies to enhance
digital commerce and customer intelligence capabilities.
11
Key Considerations
Expansion in under-penetrated geographies, through local acquisitions and
alliances (+)
Several partnerships and alliances related to digital technologies, and the
launch of new business unit, Digital Software & Solutions Group, to focus on
emerging technologies (+)

12. 1.4 Reputational Considerations
Source: Company Website; Company Annual Report; Press Releases
Events
Litigations
• The company has been involved in 20 litigations in the past five years, which may result in financial payouts.
– In 2014, U.S.-based electronic medical records software company Epic Systems Corp.'s filed an amended lawsuit seeking an injunction and
undetermined damages from Tata America International Corp. of New York City, U.S. (TCS America). Epic has accused Tata of stealing proprietary
product information.
– In 2013, Orange County in California filed a lawsuit against TCS alleging the company for making a series of false promises and intentional
misrepresentations during the bidding process for a contract.
– In February 2013, TCS agreed to pay $30 million to settle employee class action suit in U.S. filed by two former employees challenging their practice
of requiring employees to sign over their tax refund cheques to their employer.
Employee
Retrenchment
• TCS has been surrounded by controversies since its December 2014 press conference where it announced layoffs of senior and mid-level executives
who it believes are non-performers. This has also led to considerable increase in level of insecurity among its employees.
– Speculation regarding likely termination of 30,000 employees surfaced on social media leading to increased protests through pamphlets, press
conferences, newspaper articles, aggressive social media campaigns on Facebook and Twitter, and legal cases.
• Several political parties and ruling governments of different affected states, such as labor department, the Rajya Sabha, Telangana State Government,
and Kerela State Government, were asked to intervene in the matter.
• Employees also filed the lawsuits in the court to stay their termination. In January 2015, the Madras High Court stayed the termination of a TCS
employee for two weeks directing the Labour Conciliation Officer to begin conciliation proceedings after deciding whether the Industrial Disputes Act,
1947, is applicable to the dispute. The company also revoked the termination of pregnant staffer, a week after the woman petitioned to the Madras high
court that she was a ‘workman’ as defined under the Industrial Disputes Act. TCS cited that this is in line with practice of not relieving any employees
during pregnancy.
• N Chandrasekaran, CEO of TCS, said that the management needs to relook at how the lay-off issue was handled, particularly due to widespread
employee grievances on social media. He also clarified that plan is to retrench 1% of its total staff (around 3,000) which is as per its normal annual
practice.
– In February 2015, TCS also filed a First Information Report (FIR) against "unknown persons" at the Thane police station, Mumbai, with charges of
cheating, forgery, criminal conspiracy and defamation. The company took this step after it received information that its clients have been receiving
anonymous emails to cancel their contracts with TCS.
Brand
• TCS has been the receiver of several awards, such as HR excellence, superbrand, and as a leader in different industry verticals, such as insurance,
manufacturing and retail, and solutions, such as application testing, software testing, digital transformation, by different associations and technology
research firms.
– In February 2015, TCS was recognized as the fastest growing IT Services brand globally over the last five years by Brand Finance, growing its
brand value from $2.3 billion in 2010 to $8.7 billion in 2015.
Management
Stability
• TCS’ C-level management is highly stable, with very few changes at the top over the past two years. In September 2014, it reappointed N
Chandrasekaran as the CEO and MD for another five year period due to his strong performance, particularly during the economic downturn.
Key Considerations
Several ongoing litigations which might result in financial payouts (-)
Improper management of layoffs with several controversies and protests
resulting in increased level of insecurity among employees (-)
Strong brand value, with the recognition of fastest growing brand globally (+)
12Low Risk Medium Risk High Risk

13. 1.5 Industry Outlook
Source: NASSCOM, LIVEMINT; Gartner
Key Considerations
Growing demand from emerging countries, with TCS well-positioned
to leverage the growth given its local presence (+)
SMAC expected to emerge as a major growth driver with TCS’ strong
focus on the area will enable it to leverage the growth (+)
Focus on robotics automation, which help it improve margins and
leverage the industry dynamic (+)
13Low Risk Medium Risk High Risk
Indian IT Services Sector (Domestic & Exports)
(in $ billion, 2012-2017F)
101 109 118
138
161
188
220
257
2012 2013 2014 F 2015 F 2016 F 2017 F 2018 2019
CAGR:
7.5%
CAGR:
16.8%
Global IT outsourcing industry is at its inflexion point with changes in global economic
conditions, enhanced IT spending across sectors, and focus on digitization. Owing to
advantageous factors like presence of intellectual and internet resources, lower cost
structure, multi-lingual capabilities, India has emerged as world’s largest outsourcing
destination for IT accounting for approximately 50% of the $288-300 billion market.
Vertical-specific
• Export of IT services has been the major contributor to the industry, accounting for
58% of total IT exports (excluding hardware). Traditional verticals—BFSI,
telecommunication and manufacturing—continue to remain the largest in terms of
IT adoption and are expected to grow at an average of 15%.
– TCS with its entrenched position in both the verticals, and extensive breadth
and depth of offerings compared to other competitors is well positioned to
leverage the growth.
Geographic
• Growing demand from emerging markets (EMEA) and increasing adoption of IT
outsourcing in new verticals is expected to result in alliances, partnerships, JVs
and M&As.
– TCS among its competitors is well positioned to benefit from the growth on
account of its Alti acquisition which allows it to service Continental Europe.
– Further, it’s recent JV in Japan with Mitsubishi is likely to help it enter the
difficult Japanese market, and has been touted by analysts as a strong move
given Mitsubishi’s strong local brand name, and TCS’ capabilities.
Solutions
• SMAC (cloud, mobile, analytics, big data and social media services) is
expected to emerge as a major growth driver with India expected to export $15
billion worth of SMAC software and services in 2017.This is also expected to
help Indian IT firms improve profitability margins.
• SMAC technologies currently account for less than 10% of the total revenue of
IT companies, however, according to IDC Indian IT vendors will generate
globally at least $225 billion in SMAC-related revenue in 2020.
– TCS with it’s focus on SMAC/ digital technologies, and early investment in a
Silicon Valley Customer Collaboration Center and newer service lines
(increased intellectual property development), is expected to improve it’s
competitive positioning over the long-term.
– TCS also announced the launch of Digital Software & Solutions Group to
strengthen its presence in the segment.
– According to analysts, SMAC services will help TCS expand its non-
traditional business, and become the first Indian company to cross $100
billion in market value.
Challenges
• Though the long–term outlook for the Indian IT industry appears favorable, IT
sector is witnessing a change in dynamics with the focus on automation to
increase margins.
– TCS, with the aim to improve revenue earned per employee, is focusing on
robotics automation in its BPO business, with the intention to increase
automation by 40-50% and remove irrelevant business tasks.
• Additionally, legislation restricting outsourcing or immigration in its key markets,
such as the U.S. immigration bill, may have an adverse impact on the current
business model of the industry thus putting pressure on its revenues and
profitability. Additionally, the industry is heavily exposed to foreign currency
fluctuations that can significantly impact its competitiveness.

14. 2.0 Financial Stability
14

15. 2.0 Financial Stability
2.1 Overall Financial Health Assessment 17
2.2 Operating Financials 18
2.3 Cash Flow and Debt Service Analysis 19
2.4 Stock Performance 20
15

16. 2.1 Overall Financial Health Assessment
Source: Bloomberg; Capital IQ; Press Releases; S&P
Financial Stability Assessment
Parameters 2012 2013 2014 Risk
Altman Z-Score1
15.3 15.6 16.7
Altman Z-Score (Industry Average) 5.0 5.2 5.0
Capital Strength and Credit Rating
The company’s Altman Z score is positive and significantly higher than the industry
average of 5.04 indicating high financial stability.
• The reasons for high capital strength can be attributed to the optimally high
working capital and extremely low leverage. Apart from the low debt, its
sufficiently high cash balances indicates high liquidity and low debt raising
costs. The company’s higher than industry growth in revenue and high
operating margin due to effective cost management indicates high capital
strength.
Strong liquidity due to good cash flow generation, along with healthy topline
and bottom-line growth are likely to bring stability in the company’s financial
outlook. Adding to this, TCS’s deleveraged position ensures capital
strength going forward.
Moody’s (September 2014): Moody’s affirmed the “A+” credit rating of TCS citing
its stature as the biggest BPO/IT services outsourcing company, a high market
capitalization, and dividend flexibility to support investment plans of its parent
company, Tata Sons. According to Moody’s rationale, the company holds
sufficient cash generating capacity with less capex needs and strong focus on
organic growth versus acquisitions.
S&P (December 2013): S&P upgraded the long-term corporate credit rating of
TCS from “BBB+” to “A”.
• The rating reflects its assessment that the company has the business and
financial flexibility to endure extended period of sovereign stress and yet have
enough liquidity to honor all its obligations in a timely manner.
Parameters 2012 2013 2014 Risk
Moody’s A3 A3 A3
S&P BBB+ BBB+ A
Considerations
• Financial stability assessment model is based on risk analysis of Avaya
compared to industry average; the factors for financial health assessment
include operating risk, working capital risk, debt service management and
cashflow analysis.
• Risk assessment in Altman Z-score is based on the following:
– Z-score<1.81 – Financial distress
– Z-score between 1.81 and 2.99 – Risk
– Z-score>3.00 – Safe
Overall Financial Risk HIGHLOW
Operating Risk
Working Capital Risk
Cash Flow Analysis
Short Tem Debt Service
Management Risk
Long Term Debt Service
Management Risk
HIGHLOW
HIGHLOW
HIGHLOW
HIGHLOW
HIGHLOW
16Low Risk Medium Risk High Risk
S&P Fitch Moody’s Risk
AAA-A AAA-A Aaa- A Low
BBB-B BBB-B Baa-B Medium
>=C >=C >=C High

17. 2.2 Operating Financials
Operating Performance
Working Capital
Note: 1) Risk assessment is based on annual financials; further details included in appendix
2) The adjustment of deferred revenue has been done to ensure comparable analysis
with peers
Key Considerations
Industry leading revenue growth due to high client retention (+)
Steady operating margin owing to low cost per employee (+)
High accounts receivables may threaten financial stability, even though offset by
strong current liquidity (-)
Source: Company Annual Report; Company Quarterly Report; Seeking Alpha; Analyst
Reports
Observations
• TCS has displayed a higher-than industry revenue growth, as it focuses on
margin profile of its clients, gradually moving them up in their revenue bands. It
added 3 new clients in $50M+ range and 20 in the $5M+ in Q3FY14. By FY14, its
$1M+ clients rose to 714 from 360 in 2005. The company also won 8 large deals
($100M+) in Q2FY14, which was highest among its true peers.
– High switching costs due to cross-selling across its diverse services gives
TCS a recurring revenue of 90%, indicating a stable financial growth outlook.
• TCS is focusing on new segments and regions to maintain its revenue growth.
– Investment in high-margin SMAC technologies and digital transformation
which is expected to generate $5 billion revenue in the medium-term.
– Expansion in underpenetrated markets of Asia-Pacific, Latin America, Middle
East and Continental Europe, through acquisitions/JVs. Although these
markets provide lower margins (its Japan’s model provides single-digit
margin), TCS is expected to play on the potential higher volume.
• The growth is expected to be partially offset due to currency volatility, weak
performance of its UK subsidiary, Diligenta, and lower IT spending by energy
companies due to crude price instability. However, as these businesses
combined account for ~7% of TCS’s revenue, they will not impact its financial
viability.
• TCS has industry leading profit margins primarily due to effective employee cost
management. It achieved a 6.3% reduction YoY in average employee costs over
2007-2013.
– TCS is targeting a 26-28% operating margin through a junior workforce, lean
middle management and high staff productivity. TCS’s productivity drive
resulted in a decrease of its non-employee costs from 21% (in 2005) to 13%
(in 2014) and reached an high average utilization of 83.5% in FY14.
– However, rising wage costs and potentially restrictive immigration reform are
expected to raise staff costs; reducing TCS’s ability to use offshore leverage
for onshore work and leading to potential headwinds to its margins.
• TCS’s high cash balance leads to a higher than industry-average working capital.
Its adjusted working capital increased by ~24% in FY14 primarily on account of
~93% increase in cash and equivalents, which in turn increased due to a 139%
increase in short-term bank deposits.
• The company’s Days Sales Outstanding of 88 days is higher than industry
average of 78 days. Its high average receivables (~27% of its revenue) may
threaten its financial stability, however it is offset by the company’s strong liquidity
position.
Parameters 2012 2013 2014 Risk1
Revenue ($mln) 9,606 11,601 13,653 NA
Revenue Growth (%) 14.7% 20.8% 17.7%
Gross Margin 38.1% 37.2% 38.9%
Operating Margin 27.7% 27.0% 29.1%
Net Income Margin 21.3% 22.1% 23.4%
Parameters 2012 2013 2014 Risk1
Adj. Working Capital/
Revenue2 27.6% 32.9% 34.6%
Days Sales Outstanding 87.3 89.8 88.1
Days Payable Outstanding 35.2 34.7 35.8
17Low Risk Medium Risk High Risk

18. 2.3 Cash Flow and Debt Service Analysis
Liquidity Performance
Cash Flow Analysis
Note: 1) Risk assessment is based on annual financials; further details included in
appendix
2) Levered free cash flow has been considered for analysis
3) The adjustment of deferred revenue has been done to ensure comparable
analysis with peers
4) 1 USD = 62.64INR, exchange rate as of March 11, 2015
Key Considerations
Strong annual cash generation supporting its dividends, M&A and capital
expenditures (+)
Low leverage and associated debt costs indicating capital strength (+)
High liquidity ensuring financial viability of the company (+)
Source: Company Annual Report; Company Quarterly Report; Seeking Alpha; Analyst
Reports
Parameters 2012 2013 2014 Risk1
Long-Term Debt Service Management
Debt/ Equity 0.4% 0.6% 0.6%
Net Debt/ EBITDA NM NM NM NM
Interest Coverage Ratio NM NM NM NM
Total Debt/ FCF2
0.02 0.08 0.02
Short-Term Debt Service Management3
Adj. Current Ratio 2.41x 2.93x 2.93x
Adj. Quick Ratio 2.13x 2.33x 2.59x
Adj. Cash Ratio 0.61x 0.63x 0.99x
Parameters 2012 2013 2014 Risk1
FCF/ Revenue ($mln)2
0.12 0.05 0.16
Investment Financing 66.1 62.6 240.8
18Low Risk Medium Risk High Risk
Observations
• The company’s levered free cash flow (FCF) is significantly higher than the
industry average although it is volatile in nature.
– The operating cash flows are ~77% of net income compared to industry
average of 137% due to higher than industry average receivables.
· However, the levered FCF still remains industry-leading because the
company is highly deleveraged, with its debt/equity ratio being 0.6%
compared to the industry average of 40%.
• The company’s liquidity cycle management ensures it makes only short term
investments, instead of taking longer term debt, making it almost debt-free.
However, this has led to volatility in cash flows from investment.
– During FY14, TCS invested in and redeemed mutual funds and short term
fixed deposits with banks, leading to an increase in net cash outflow due to
investment in marketable and equity securities by ~460%.
• TCS’s capital expenditure needs are limited (21% of cash flow from operations)
due to its focus on organic growth strategies instead of acquisitions, indicating
the company’s high capacity to give dividends. However, financing cash flows
are volatile due to variable dividend payouts, particularly special dividends. In
FY12, financing cash flows declined by ~25% due to payment of $439.1 million in
special dividend.
– TCS is a highly cash abundant company giving it the financial clout for
consistently paying out dividends. Over FY09-FY14, the company has
increased its average dividend payout ratio to ~35%.
– However, the dividend majorly received by Tata Sons, key shareholder with
74% stake, indicates a possibility of financial risk due to Tata Sons’
investment in other group companies and any potential liquidity crunch of the
parent may be required to be met by the cash-rich TCS. This might lead to a
strain on TCS’ cash reserves and investment capability.
• TCS’s strong annual cash generation not only supports its quarterly dividend
plans, but also its M&A, without threatening the financial stability of the company.
– Most of TCS’s acquisitions have been all-cash deals including its Alti SA
acquisition (worth $84.9 million in FY13) and Citigroup Global Services
acquisition (worth $505 million in FY09).
– TCS seeks a minimum cash return from their acquisitions, making them cash
accretive faster and ensures it maintains a largely debt-free position.

19. 60.0b
65.0b
70.0b
75.0b
80.0b
85.0b
90.0b
95.0b
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Jan-2014 Feb-2014 Mar-2014 Mar-2014 Apr-2014 May-2014 Jun-2014 Jul-2014 Aug-2014 Sep-2014 Oct-2014 Nov-2014 Dec-2014
Market Capitalization Tata Consultancy Services Share Pricing S&P BSE IT Index (BSEIT)
2.4 Stock Performance
Observations
• TCS has the highest market capitalization in India, and accounts for nearly half of Indian IT industry’s combined market capitalization.
• Some events which may have impacted the share stock performance of TCS include:
1. In January 2014, TCS share price dropped amid investor fears that TCS could lose market share to more number of smaller firms which are competing for the same
anticipated demand growth from clients, and that the company may have to fight hard for contracts in the U.S. and Europe. Also, according to analysts, at this time
the stock was trading at high valuations and due to limited upside of the stock, it faced short-term corrections.
2. In June 2014, TCS share price rose as its sequential revenue growth of 5.5% defied analysts’ estimates of 4.5%, owing to a surge in demand from overseas clients.
3. Share price rose further in August 2014 as the JV with Mitsubishi in Japan was anticipated to boost company revenue in FY15 and received positive expectations
from analysts.
4. After reaching a record high in October 2014, TCS stock witnessed a drop after its September quarter earnings failed to meet analysts’ estimates. The company
reported a net profit of $842 million below analysts’ forecast of $844 million for Q2FY15.
5. In December 2014, TCS stock price dipped after management’s announcement of subdued revenue expectations due to currency fluctuations and temporary staff
exits. The stock price gradually increased towards the end of 2014 as it assured investors of dealing with constrained profitability in FY16 with new deals and
differentiated services.
Source: Capital IQ; Press Releases
1
2
3
5
4
19

20. 3.0 Vendor Integration
20

21. 3.0 Vendor Integration
3.1 Subcontractor Dependency and Review
Adequacy Assessment
23
21

22. 3.1 Subcontractor Dependency and Review
Adequacy Assessment
Key Considerations
Extensive breadth of services enhancing horizontal integration (+)
Moderately dependence on partners, despite proprietary products (-)
Alliances with all major IT infrastructure & software providers give TCS considerable
negotiation power over pricing (+)
Subcontractor
Industry
Fragmentation/
Consolidation Level
Supply Demand Analysis Availability of Substitutes Risk
Software
Solutions
Consolidated at Top
and Fragmented at
Bottom
TCS partners with software providers to consult
clients on prices and compatibility. Software solutions
industry constitutes of large number of private and
public players leading to competitive pricing.
Proprietary product development and intense price-based
competition from vendors reduces single-vendor
dependency. However, the moderate dependency on
vendors and prospect of having them directly go to market
with their consulting services pose potential risks to TCS.
IT
Infrastructure
Services
Consolidated
IT infrastructure (providing hardware solutions to
TCS) market constitutes of few major players holding
majority of the market share, although these players
are bidding to gain market share in the declining
hardware market.
Large number of global and regional suppliers available,
hence reducing the dependence risk for TCS. Further, TCS
has partnerships and alliance with all the major service
providers, giving them access to all the equipment and
infrastructure services required.
Sub-contractor Dependency Assessment
Level of Integration
Type of Integration Description Risk
Horizontal
• TCS has an extensive range of end-to-end service offerings ranging from assurance services, ADM, BPO services, consulting and
digital services – defining its strong horizontal integration. To further its strong position, it is targeting digital technologies and
expanding its IP portfolio by investing in proprietary and co-developed solutions for high-growth sectors such as manufacturing,
healthcare and energy, thereby developing a stronger value chain of service offerings.
Vertical
• TCS has moderate dependence on its partners for delivery of services, due to its limited proprietary products such as TCS BaNCS,
it. To counter the same, TCS has diversified its alliances and partnerships across big and small players to cater to the multi-vendor
strategies of organizations; also enabling it to better manage various software compatibility considerations.
Forward
• TCS has displayed high engagement with its clients owing to an extensive Global Delivery Network of 40 centers in 22 countries.
This model is now recognized as the benchmark of excellence in software development, making TCS a preferred strategic partner
for several global clients, and giving it a recurring revenue of more than 90%.
Level of integration indicates the overall dependence of TCS on its in-house capabilities and any third-party stakeholders for its offerings.
Sub-contractor Dependency Assessment indicates the overall dependence of TCS on any third-party subcontractors that may impact the capability to render services.
22Low Risk Medium Risk High Risk

23. 4.0 SWOT Analysis
23

24. 4.0 SWOT Analysis
4.1 SWOT 26
24

25. 4.1 SWOT Analysis
Source: Company Annual Report; Analyst Reports; Press Releases
StrengthsWeakness
InternalDrivers
OpportunitiesThreats
ExternalDrivers
• Strong competitive presence: TCS is the 12th largest global IT services provider by revenue with a market share of 1.3%. It is expected to maintain its
market share given the high switching costs and strong customer relationships which enable it to maintain its competitive position.
• Strong parent backing: 74% of the shareholding is held by Tata Sons, a conglomerate with holdings in over 100 operating companies. This also gives TCS
access to the group companies for business, which it plans to expand from $350 million in 2014 to $1 billion in the future.
• Diversified suite of solutions: The company has a diversified suite of offerings with extensive breadth and depth, leading to its entrenched position within
industries such as banking, financial services, and insurance, retail, manufacturing, and telecom.
• High revenue growth and strong margins: TCS has an industry-leading revenue growth and profit margins owing to high client retention (focus on margin
profile of clients and quality of revenue) and extremely effective employee cost management.
• Strong liquidity position: The company’s cash rich position and high cash generating capacity enhances its financial stability, also giving it the leverage to
fund capital expenditure and acquisitions along with giving high dividend pay-outs.
• Customer concentration in North America: TCS has high dependence on saturated North American market, which accounts for 52% of the revenue, which
might indicate concentration risk given intense competition and commoditization in the market.
• Limited consulting offerings: TCS’ consulting practice, typically high-margin, is not very strong and has not delivered the required results, and exposes it to
commoditization.
• Dependence on top accounts: The company has slightly higher dependence (25.2% of revenue) on its top 10 accounts, compared to its peers—Infosys,
Wipro and HCL Tech.
• Focus on SMAC: SMAC, which has emerged as a major growth driver for IT outsourcing industry, represents a significant opportunity for TCS. The
company’s early investments in a Silicon Valley Customer Collaboration Center and its digital enterprise offerings should help drive its future service
relevance.
• Focus on emerging high-growth markets: The company has established local presence in France, through Alti acquisition, which gives it to the emerging
Continental European market. It’s Mitsubishi JV with Japan gives it access to the second largest IT market, post the U.S., with the higher offshoring by
Japanese corporations due to cost and increased global revenues, can be leveraged by TCS to drive topline growth.
• Investment in automation: To maintain its operating margins and maintain its competitiveness, given the emergence of low-cost innovative startups, TCS is
investing in robotics and other technology to remain relevant and maintain its market share.
• Intense competition in traditional offerings: TCS faces intense price-based competition in its traditional products due to high commoditization of the
application, development and maintenance (41.58% of revenue), and BPO (12.02% of revenue) offerings.
• Rising Attrition rate: The company has one of the lowest attrition rates in the industry, significantly lower than Infosys’ 20.4%. However, the attrition has
been rising steadily which might pose a concern.
• Impending immigration reforms: Indian IT exporters are expected to be pressured by the impending immigration bill, which makes it harder to obtain H1-B
visas., and will add to the wage costs and reduce the industry’s margins.
25

26. 5.0 Appendix
26

27. 5.0 Appendix
5.1 Product and Segments 29
5.1 Overall Financial Viability Assessment Model 30
5.2 Financial Stability Assessment Model 31
27

28. 5.1 Product and Segments
28
Tata Consultancy Services
Industry Solutions1
BFSI
• BPO services
• Assurance Services
• Enterprise Risk Management
• Capital Markets
• Retail and Commercial Banking
• IT Services
• Business Process Services
• TCS Market Infrastructure Services
• Performance and Compliance Management
Services for OFSAA
• Infrastructure Services
• Assurance Services
• Mobility Solutions and Services
• TCS BaNCS
• FATCA Reporting Solution
Manufacturing
• Aero Structures
• Aero Systems and Interiors
• Avionics
• Technical Publication Services
• Aero Engine MRO
• Digitized New Product Introduction & Life Cycle
Management
• Manufacturing Enterprise Quality
• Supply Chain Transformation
• Warehouse and Logistics Management
• Business Transformation & Consulting
• Plant Engineering Services
• Business Process Outsourcing
• Network Optimization Systems
• Manufacturing Advisory Services
Retail and CPG
• Multi Channel Enablement
• Merchandising Solutions
• Supply Chain Synchronization
• Engaging Stores
• Supplier Relationship Management
• Master Data Management
• Workforce Management Studio
• Store Transformation
• Manufacturing solutions
• Supply Chain solutions
• Digital marketing solutions
• SAP Transformation solutions
Telecom, media
and entertainment
• NextGen R&D Service – IP Networking
• Telco Cloud
• Software Defined Networks
• LTE R&D Services
• Business consulting
• Devices and Silicon Product Engineering
• WLAN / Carrier WiFi – Product Engineering and
Testing
• OSS / BSS solutions
• Media and Information Services
• Hosted solutions
• Outsourcing / Managed services
• Integrated IPTV solutions
• Mobile value-added services and service
delivery platform
Others
• Enterprise Solutions
• Digital Transformation
• Energy services
• Public sector services
• Healthcare and life sciences services
• Computer platform and services
• MRO
• BPO
• Engineering
• Legacy Systems Modernization
Note: 1. List of solutions is not exhaustive

29. Vendor financial viability assessment model primarily consist of four parameters: Financial Stability, Business Stability, Industry Outlook, and
Vendor Dependency
=
• The thermal scale provides the
overall risk rating of the vendor.
As depicted, a high risk rating for
any vendor will tip the indicator
towards red side of the scale
• The scale is rating is 1 to 3, which
indicates the level of risk/stability
on various ‘business parameters’
or ‘categories’. Hence, higher the
number, lesser the projected
business stability of the vendor.
Key
Considerations
Financial Stability1
Business Stability
• Operating Financial
• Cash Flow Analysis
• Working Capital
• Debt Assessment
• Capital Strength
• Geographic Presence
• Products and Segments
• Customer Concentration
• Reputational Risk
How to read the Scale?
Risk related to the
overall industry
and the impact of
the changing
market dynamics.
Vendor risk analysis
is primarily related to
integration, sub-
contractor
dependency risk and
relationships
+
Analysis is on qualitative
aspects of the business model
based on its product
positioning, geographic and
customer risk, along with their
strategy related risk
+
Assessment of the
financial health of the
target is from the
sustainability and
business continuity
perspective
+
Industry Outlook
• Industry Outlook
Vendor Dependency
• Level of Integration
• Sub-Contractor Dependency
20%
65%
5%
Risk Scale Overview
Low Risk (1)
Business is in good financial health and there are no concerns
around financial stability, as the outlook is positive
Medium Risk (2)
Stable business outlook. Recommendation is to retain services
and monitor periodically
High Risk (3)
Indicating volatile business outlook and questions on whether
vendor can meet long term financial needs. Recommendation
is to monitor closely and look for alternatives
Scale
Note: 1. Please refer to appendix for detailed financial stability model
HighLow
Medium
HIGHLOW
1 2 3
10%
5.1 Overall Financial Viability Assessment Model
29

30. 5.2 Financial Stability Assessment Model
Financial stability assessment model is based on vendor’s performance compared with the industry performance on primarily four broad financial
parameters: Operating, working capital, debt service management, and cash flow analysis
=
• The thermal scale provides the overall
risk rating of the vendor. As depicted,
a high risk performance on the
respective financial vendor would be
more towards the red side of the
scale
• The radar charts are on a scale of 1
to 3, which indicate the level of risk/
stability on various ‘business
parameters’ or ‘categories’. Hence,
the higher the number, the lesser the
stability of the vendor on that aspect.
• The colors on the lines of the radar
chart indicate the following:
‒ Red: high risk
‒ Orange: medium risk
‒ Green: low risk
Key Financial
Considerations
Operating Financials
Working Capital
• Revenue growth
• Gross margin and
improvement
• Operating margin and
improvement
• Net Income Margin and
improvement
• Net Working Capital
• Working Capital Cycle
How to read the chart?
Ability to mange the
working capital
management requirements
efficiently
Ability to optimize its
operation and expansions
from the cash flows+
To assess operating
performance and
improvement against
industry benchmark
+ Ability to meet it’s the long
and short-term liabilities
+
Long-Term and Short Term Debt
Service Management
• Debt/ Equity
• Net Debt/ EBITDA
• Interest Coverage Ratio
• Total Debt/ FCF
• Current ratio
Cash Flow Analysis
• Investment financing (Debt versus internal
accrual)
• Free cash flow/Net Income
Capital Strength
• Altman Z-Score (Industry)
10%
15%
25%
25%
25%
30