When TCS Crossed the $100 Billion Mark

While the world is speculating which company will reach the $1 trillion market capitalization mark, India is looking at the $100 billion mark. On 23rd April, TCS became the first Indian IT company to cross the $100 billion market capitalization mark. In a $2.2 trillion economy, a company being valued at above $100 billion is a significant achievement. Reliance may have been the first to cross the $100 billion mark back in 2007. Barriers such as $100 billion are psychological in nature but are also very powerful. Only a few companies have a market capitalization of over $100 billion in the world. Since its listing in 2004, the company has steadily been growing and it’s stock price has gone up 14 times. It crossed the $10 billion mark in 2009 and the $50 billion mark in 2011. TCS is also one of the largest private sector employers in the country with almost 4,00,000 employees.

TCS being the company to breach the $100 billion mark is a development that signals many things. It wasn’t an oil company or steel company that crossed this barrier. It was a technology company developing solutions for clients across the world. It signals the rise of information technology to a new level in the country as well as a new era in the business dynamics in the country. The company with the largest market capitalization in a country signals many things. It gives an insight into the workings of the economy. The largest companies by market cap in the US are Apple, Amazon, Google (Alphabet) and Microsoft. This indicates the value composition in the country and what is valued in the country. It signals innovation, technology and future orientation.

The fundamental question is why did this happen? If one were to look at turnover, there are other companies such Reliance, IOCL, Tata Motors that have significantly more turnover. Even on the profitability front there are other companies. In absolute terms, reliance has a greater profit than TCS. In percentage terms, there are other companies that are more profitable. Then why did TCS break the $100 billion barrier and not others?

A year ago, there was a lot of pessimism about the Indian IT sector primarily because of the business models. Models that were heavily based on offshore servicing were under threat from technological disruptions. These might not have been the models that would have propelled these companies into the future. However now, the situation has changed significantly. Companies have been refocusing and reorienting.

Digital transformation is a big opportunity. And this opportunity only seems to get bigger. TCS has been shifting from servicing to building platforms with significant potential. These include AI, data analytics, IoT, etc. The applications are extremely wide ranging from cars, manufacturing to financial services. This trajectory is capable of generating $5 billion in annualized revenue. The company has been focusing on these steadily and increasing their presence in the market. For example, TCS was one of the first Indian companies to publish a report on Blockchain and various applications. Other factors include the nature of deals they are making as well as their geographical expansion, which is phenomenal across the globe

Within this context, TCS has been able to maintain rapid growth, have a good management and produce consistent profits. In absolute terms, TCS makes the second largest profits in the country. The underlying factor is the quality of leadership and their tenure. The company management has been in place for a significant period of time to ensure their vision is operationalized and achieved. This stability is very critical. Some of these ingredients are missing in their peers. While some companies, maybe profitable, management issues are aplenty. TCS has been able to manage these and grow. One cannot ignore the role the Tata group or the conglomerate has played in supporting the company.

The next significant question is which company will be next?

There are two companies that are very close to the mark – Reliance Industries and HDFC Bank. These two companies are closer to the 100 billion mark than any other companies in the country. Reliance has moved into the telecom sector with Jio and is disrupting the industry. This business venture has significant potential. The Indian banking sector is also very powerful, and with the NPA problems having found a solution, the medium-term outlook for the sector is positive. It will be interesting to see which company will be the next to breach the $100 billion mark.

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