Currently, the major offerings the Company has identified and is focusing on for achieving its growth aspirations in the industry are IT Solutions and Services (including Application Development & Maintenance, Systems Integration and Package Implementation), Consulting Services, IT Enabled Services, Banking & Financial Services, Insurance, Manufacturing, Telecommunications, Entertainment, Media and Retail.

Financial Performance

TCS reported 2006-07 global revenues of USD 4.3 billion. The results for the Year ended March 31, 2007 The Company has posted a net profit after taxes of US$ 864.90 million for the year ended March 31, 2007 (as against US$ 608.89 million for the FY2006). Total Income is US$ 3488.93 million for the year ended March 31, 2007 (as against US$ 2521.21 million for the FY2006). The Consolidated results are as follows: The Company has posted a net profit for the period of US$ 969.72 million for the year ended March 31, 2007 (as against US$ 664.89 million for the FY2006). Total Income is US$ 4353.94 million for the year ended March 31, 2007 (as against US$ 2998.18 million for the FY2006).

TCS added a net of 172 clients during FY2007 and the active client base of the company now stands at 920. The total number of clients giving the company revenues in excess of US$ 1mn hit 297 at the end of FY2007 (256 at the end of FY2006). During the year TCS had signed 3 deals each over USD 100 million and additional 9 over USD 50 million. TCS’ Financial Services Solutions Group won 51 clients during FY07 for its products. Financial Services Solutions contributed USD ~120 million in FY2007. During the quarter, the company managed to negate impact of rupee appreciation of 57 bps and maintained its EBIDTA margin at 28.3%. EPS up from Rs. 29.5 to Rs. 42.2, y-o-y growth of 43%. The company announced final dividend of Rs. 4 per share, Total dividend for FY2007 at Rs. 11.50 per share.

During FY2007, it was the European geography that was the key growth driver, growing at an rate of 82.2% YoY. In Europe, the UK grew at 87.9% YoY, while Continental Europe witnessed growth of 69.6% YoY. Thus, the European region increased its share in total revenues to 28.5% in FY2007 (22.0% in FY2006). The key US geography (North America) grew at 31.4% YoY, accounting for 43.2% of the incremental revenues this fiscal. Latin America grew at a 188.88% YoY,

Recent Developments

TCS is pursuing 10 deals over USD 50 million and at least 5 deals among them are above USD 100 million.

TCS, received an $8 million order to set up a billing system for Companhia de Telecomunicaes de Macau, the largest telecommunications firm in the territory, opened its first sales office in Macau in April.

Tata Consultancy Services Asia Pacific Pte, a subsidiary of the Tata Consultancy Services, signed a shareholder promoters agreement and other relevant commercial documents with Beijing Zhongguancun Software Park Development Co., Uniware Co., and the Tianjin Huayuan Software Area construction and Development Co., to establish China`s first industrial scale software company.

The company now has delivery centres in places like China, Mexico, Brazil and Latin America. 

TCS and Sitel, a global Business Process Outsourcing (BPO) Leader, announced that the two parties had concluded an agreement to transfer the ownership of the Company's 40 per cent stake in SITEL India to US-based Sitel Corporation for a consideration of US$ 17.732 million. Sitel India is a joint venture between the Tata Group and Sitel Corp, formed in 2000, with both parties holding 50% of the equity. Tata International Ltd, which holds a 10 per cent stake in the JV, has also agreed to sell its stake. This joint venture Company provides voice-based contact center BPO service from India. With over 4,000 Professionals, the JV is a provider of fully integrated customer care and back office processing services operating from five centers located in Mumbai, Hyderabad, Chennai and Gurgaon.

TCS has announced a strategic engagement with Parkway Hospitals, one of Asia's most prominent healthcare organisations, to provide and implement a leading healthcare information management solution for their hospitals, including Gleneagles, Mount Elizabeth, East Shore Hospitals, Parkway Laboratory Services, Medi-Rad Associates, as well as clinics globally. As part of this S$6 million engagement, under the agreement signed between the two Companies, TCS will implement advanced Hospital Management Solution (HMS,) including integration to the Oracle E-Business suite of products, building Interfaces to existing Parkway's external systems.

TCS has signed an agreement with Banco Pichincha, Ecuador's largest private bank, to provide a comprehensive outsourcing solution valued at over USS 140 million over a period of 5 years. Banco Pichincha, has over 1.5 million clients, a loan portfolio of over US$ 1.5 billion and over 232 branches spanning Ecuador, Peru, Colombia, Panama, Spain & the United States. The comprehensive solution being developed for the bank will include a complete renewal of the banks core banking solution with a TCS' BANCS solution followed by IT & BPO outsourcing of the banks operational processes. TCS will set up a new company in Ecuador, which will comprise over 500 personnel in the country supported by its offshore Business Process outsourcing (BPO) center in Chile and Global Deliver Centers across the world.. In 2005 TCS had acquired Cornicrom, the leading BPO firm in Chile.

TCS has signed a seven year agreement to provide a full range of managed IT services to Somerfield, a leading UK-based small-format food retailer. Under this new agreement, the Company will take over the entire IT operations, asset management and planning for Somerfield and provide a fully managed IT infrastructure and applications service within Somerfield, aimed at meeting its current and future business demands. As part of the agreement, the Company will manage 3rd party hardware, software and services contracts with an estimated value of over $100 million over the duration of the agreement. The Company has around 3000 people working in some 50 locations in the UK, with a further 900 plus staff at its site In Peterborough.

TCS signed a seven-year engagement with an expected value of around AUD $120 Million (USD $90 million) with Qantas to provide a range of IT application, transformation and maintenance services. The contract for the Applications Services & Transformation (AST) outsourcing program launched by Qantas is the largest single contract awarded to an Indian outsourcing company in Australia to date. Under this contract, the Company will assume full responsibility for more than 75 per cent of the total scope of Qantas (AST) program. The Company will provide support and maintenance to all of Qantas’ key IT applications for airport operations and commercial systems. With over 40 clients in travel and hospitality sector, the Company works with many global aviation clients including leading brands in APAC, Europe and the US.

TCS had acquired TCS Management (formerly called Total Communication Solutions), a privately-owned boutique consulting company in Australia for an up-front cash payment of A$ 1.7 million, plus performance payments for a total consideration of A$ 15 million over 5 years. TCSM is privately owned and has over 35 senior consultants with a total turnover of AUD $5.5M for the financial year ended June 30, 2006. The acquisition of TCSM is part of the strategy to substantially grow our Australian business and provide high-end business and IT consulting to its large Australian client base. TCSM was established in 1993 and has clients such as ANZ Bank, Commonwealth Bank of Australia (CBA), National Australia Bank (NAB) together with investment banks Macquarie and Goldman Sachs JBWere. Other key sectors TCSM will operate in are telecommunications and media, retail and the government sector. TCSM specializes in business & technology transformation bringing benefits such as strategy conversion, program alignment, portfolio balancing and navigation services. It also implements core delivery management solutions for the larger banking clients. Tata Consulting Services has been operating in Australia for over two decades and has over 500 consultants based in Australia servicing clients like BHP, Woolworth, ANZ Bank, St George Bank, Alcoa, Rio Tinto as well as the state of Victoria. In 2005, the Company acquired FNS, a Sydney-based software solutions Company for $26 million.

TCS had expanded its portfolio of banking products and consolidated its European operations after completing the acquisition of 75% equity stake in its Switzerland-based partner, TKS-Teknosoft (TKS), from the promoter for CHF 100.5 million. It gives TCS a direct presence in the key markets of Switzerland and France. The TKS acquisition also helps TCS expand its product portfolio in the banking and financial services space. As part of the transaction, the Company has also acquired ALPHA and e-Portfolio products from TKS. ALPHA gives a strong foot-hold for the Company in the private banking segment and as does e-Portfolio in the emerging wealth-management segment. The acquisition of these two products, together with existing the Company products like FNS core banking system, the QUARTZ platform for wholesale banks and its proprietary products in the treasury, custody, clearing and settlement gives customers access to a comprehensive product portfolio owned and supported by the Company. The acquisition also brings over 100 professionals into TCS, all of whom have experience in the European markets. Founded in 1985 by Pierre E, Page, TKS-Teknosoft SA is a Swiss-based software solutions provider with well-established operations in Europe. In CY2005, TKS earned revenues of CHF 71.5 million and net income of CHF 9.6 million. The firm has 115 employees.

TCS in October 2006 has announced the go-live of IMMOLS (Integrated Materials Management Online Services) - a nation-wide systems integration project addressing the computerization needs of inventory control and logistics management of the Indian Air Force. TCS IMMOLS will bring a host of benefits such as: - Efficient materials management - Assets visibility for better utilization of available resources - Provide information triggers for mid course correction in various materials management processes - Speedier demand process cycle - Speedier procurement cycle - Speedier repair cycle - Reduction in inventory levels - Improved fleet serviceability - Efficient spares accounting - Savings to the Exchequer Involving an investment outlay of around Rs 55 crore, TCS IMMOLS has been implemented in a distributed manner at various depots of IAF and replaces the current manual system of materials management in IAF at all levels of hierarchy and at all its headquarters and units across the country. In all, around 130 sites of IAF are being networked by TCS IMMOLS.

Tata Consultancy Services Asia Pacific Pte, a subsidiary of TCS, signed a Shareholder Promoters Agreement and other relevant commercial documents with Beijing Zhongguancun Software Park Development Co., Uniware Co., and the Tianjin Huayuan Software Area construction and Development Co., to establish China’s first industrial scale software company. The joint venture, Tata Consultancy Services (China) Co., will provide IT outsourcing services and solutions to the Chinese domestic market as well as the global market. Microsoft will participate in the joint venture as a strategic investor, as soon as the joint venture is established. The Company will have the majority equity stake and management control of the joint venture company. It will provide IT services and solutions to China’s domestic market as well as major markets particularly Japan as well as the rest of Asia-Pacific region, US, and Europe.

TCS’s integrated IT and BPO offerings are gaining strong traction in the Latin American market. In the financial year 2006-07, the Company has acquired 2 new key customers in the region with a total deal value of over US$ 30 million. The Company will manage the BPO & IT operations for Transantiago, the modernized integrated public transportation system planned for the capital city of Santiago, Chile. The Company has also secured a 5-year contract with a leading banking and financial group, to manage the entire set of back office operations for the bank’s loan and credit business in Chile. In November 2005, the Company had acquired Comicrom, the largest BPO firm in Chile with 1300 employees and over 100 clients in a strategy to jumpstart its BPO business in the region. Over the course of the next 3 months, a team based in the Company's regional BPO center in Santiago will commence providing services for the bank, which has 7,000 employees and over 300 branches in Chile. TCS has operations in 14 countries in the region, 150 clients and 7 delivery centers across Uruguay, Brazil & Chile.

TCS has been recommended enterprise-wide for ISO 9001:2000, BS 7799-2:2002 and BS 15000-1:2002 certifications. This is the largest, enterprise-wide multiple certification of an IT solutions organization to date. It is the companies second enterprise-wide achievement after it became the first company to be assessed enterprise-wide, for CMMI and PCMM at Level 5 in 2004.

TCS subsidiary, Diligenta, has announced that is has entered the UK BPO life assurance market having secured a $486 million deal with Pearl, the Peterborough based closed fund group. Diligenta will provide BPO services over an initial 12 year period for Pearl Group Ltd in processing and administration.

TCS has pioneered a Network Delivery ModelTM which enables the Company to service a customer’s requirement through a combination of near-shore, regional and global delivery centers and provide superior value by effectively addressing regulatory, language and time-zone requirements.

The Company had also set up Engineering and Industrial Services (EIS) as a business unit to address the fast growing global engineering services market. Today the scope of outsourced engineering services has expanded beyond product design and R&D services to include industrial services (like process engineering, plant automation and enterprise asset management). The Company claims that it is the only service provider from India with an integrated service offering across the entire engineering value cycle (i.e. product engineering, process engineering, plant operation and enterprise asset management).

In fiscal 2006, three wholly owned subsidiaries, viz, Aviation Software Development Consultancy India Limited (ASDC), Airline Financial Support Services (India) Limited (AFSL) and TCS Business Transformation Solutions Limited (TCS BTS) have been amalgamated with the Company effective from April 1, 2005 . The merger of TIL has brought into the Company’s fold 15 Fortune 500 clients as well as an enhanced systems integration and IT infrastructure service capability for servicing the Company’s global as well as domestic clients.

The Company set up a subsidiary, C-Edge Technologies Limited with State Bank of India (SBI) to provide certain specialised IT and IT enabled services in the banking sector. Setting up of C-Edge Technologies Ltd. along with SBI is aimed at leveraging the core banking and domain competencies of TCS and SBI in retail and investment banking. It would also leverage implementation capabilities in core banking in India and overseas.

Future Plans 

The Company has put in place future growth engines to drive profitable growth. These include new offerings in the consulting arena through our Global Consulting Practice or new services like Assurance and Testing, Remote Infrastructure Management, Asset-based offerings and Business Process Outsourcing, which have the potential to generate substantial business volumes over the course of the next few years. Simultaneously, the Company is expanding its global footprint by penetrating further into markets such as Latin America, Europe and Asia Pacific including China by employing its trademarked Network Delivery Model.

TCS is opening a new development centre in Morocco. It has by far the widest global network among all the top-tier software companies.

TCS has planned a capex of Rs 10,000 million for the current financial year.

TCS has made 12,000 campus offers for FY08. TCS plans to hire over 32,000 gross employees in FY08. The company plans to increase its headcount in Hyderabad to 10,000 by 2010 from over 4,200 now.

TCS is planning to open an outsourcing centre in Poland and thereby mark its presence in 34 countries across the world.

TCS may provide IT services to casinos in Macau. TCS will help these casinos to improve their 'management and security'. Tata is targeting Macau after the former Portuguese enclave overtook Las Vegas to become the world's biggest gambling city with total revenue of $6.95 billion in 2006. The projects would help boost the firm's sales in China. TCS will increase its China team to 5,000 employees within five years from about 800 at present.

Economic Trends and its implications

As per NASSCOM STRATEGIC REVIEW 2007, the Indian IT-BPO sector (including the domestic and exports segments) is growing at an estimated 28 percent in FY2007. Total revenue aggregate for the sector is expected to exceed USD 47.8 billion, nearly a ten-fold increase over the aggregate revenue of USD 4.8 billion, reported in FY1998, and direct employment is likely to cross 1.6 million.3 As a proportion of national GDP, the revenue aggregate of the Indian technology sector has grown from 1.2 percent in FY1998 to an estimated 5.4 percent in FY2007. Net value-added by this sector, to the economy, is estimated at 3-3.5 percent for FY2007.4. Service and software exports remain the mainstay of the sector; FY07 export growth likely to beat forecasts and exceed 32 percent.5 While the US and the UK remain the dominant markets, contributing to 67 percent and 15 percent of total exports respectively, firms are also keenly exploring new geographies for business development, and to strengthen their global delivery footprint. Banking, Financial Services and Insurance, and Technology (Hi-tech/ telecom) are the main verticals, accounting for nearly 60 percent of the total; Manufacturing, Retail, Media, Utilities, Healthcare and Transportation follow – also growing rapidly. Positive market indicators including large unaddressed white-spaces and the unbundling of IT-BPO mega-deals with increasing shares of global delivery, strongly support the optimism of the industry in achieving its aspired target of USD 60 billion in exports by 2010. India is uniquely advantaged to best address these opportunities. IT services exports, accounting for 55-57 percent of total exports, are growing at an estimated 36 percent and are expected to reach USD 18.1 billion in FY2007. Newer areas of application and infrastructure management, testing, etc. are gaining traction, with their share in the business-mix growing steadily. BPO continues to grow in scale and scope, with firms increasingly adopting a vertical focused approach. Total exports for this segment are expected to exceed USD 8.3 billion in FY 2006-07, growing by 32 percent over the previous year. Lastly, increasing traction in offshore product development and engineering services is supplementing India’s efforts in own IP creation. This group is growing at 22-23 percent and is expected to report USD 4.9 billion in exports, in FY 2006-07. Worldwide technology and related services spending crossed USD 1.5 trillion in 2006, growing at 7.7 percent over 2005. Healthy tech-sector performance was sustained by above forecast GDP growth across the key economies of Europe and the US, as well as in emerging markets. Outsourcing continued to be the primary growth engine with global delivery forming an integral part of most sourcing strategies. After the early enthusiasm about alternate sourcing locations, firms are reaffirming their preference for India, reflecting a maturing appreciation of its unique value-proposition. India based delivery continues to grow, driven by local firms reporting steady growth in large contract.

Worldwide technology related spends are forecast to reach USD 2.1 trillion by 2010, growing at a CAGR of more than 7 percent over 2006-2010. Growth in global sourcing is expected to outpace growth in total spends, with up to USD 110-120 billion of the total amount spent on software and services in 2010, likely to be sourced through the global delivery model. Rapid evolution of technologies and Internet applications, and the rise of pervasive computing are expected to drive a rapid and quantum increase in technology adoption by businesses and individuals. The proliferation of client devices and end-user or end-use devices at the network edge will result in the addition of billions of devices to the network edge, which will drive the need for more enterprise systems to deploy, manage, and make use of them. The effects of the internet generation entering the working age population are expected to further accelerate technology usage and adoption. The resultant increase in scale and complexity of ICT infrastructure and applications, will lead to an increased demand for skilled IT resources. The ageing demographics in most developed countries will necessitate an increasing reliance on globally dispersed talent pools to meet the demand for professionals – contributing to accelerated growth of the global sourcing phenomenon.

(Source : NASSCOM STRATEGIC REVIEW 2007)

Reputed external agencies have estimated the expected growth rates of IT spending (CAGR) over 2004-09 and market size by region, types of services, etc. Though the forecasts vary these agencies expect the IT industry to continue in its growth trajectory.

The NASSCOM – McKinsey Report 2005 estimates that the Indian IT industry has only addressed 10% of a potential market size in excess of US$ 300 billion so far. The report estimates that by 2010, of this US$ 300 billion opportunity, almost 35% or US$ 110 billion is expected to be relocated from source countries to low-cost offshore locations including India.

TCS’s global scale and integrated capabilities allow it to bid for outsourcing, off-shoring and strategic sourcing deals coming up for renewal in FY 2007-08 by capitalizing on the trend of contracts to multiple vendors replacing the traditional concept of multiple year contracts to a single vendor. Some of the key trends in the Industry that are favorable to the Company to exploit these emerging opportunities are:

(i) Clients are more comfortable to partner with large global players with scale and with uniform high quality and security processes across the enterprise.

(ii) Clients are considering Tier I Indian companies (including TCS) for mega deals (with decision cycle time of 8 to 12 months).

TCS has sizable presence in high growth sectors of India such as Infrastructure Services Retail, Banking & Financial Services, telecommunications, Entertainment, Media, Transportation, Utilities, Manufacturing, Life Sciences and Pharma.

India remains the preferred offshore destination for IT Services for its huge talent pipeline as well as its cost effective servicing capability, followed by China, Malaysia, Philippines, Singapore, Thailand, the Czech Republic and Chile.

TCS had also earlier won a US$ 250mn deal from Tata Teleservices to manage its entire IT infrastructure. With the Indian telecom market the fastest-growing in the world, adding a massive 6mn-plus customers a month, there is huge potential in this industry.

The Government of India’s initiative for E-governance is benefiting TCS.

Concerns

Higher employee costs and wage inflation will continue to adversely impact margins of software companies. The demand for specific skilled IT personnel may outpace supply, leading to an increase in salary levels.

Currency appreciation could play spoilsport in future. The appreciation in rupee will negatively impact the operating margins.

Eastern Europe is fast catching up and remains a threat for West European deals coming up for ‘outsourcing - off shoring - strategic-sourcing’, as vendors outsourcing for the first time prefer to have an outsourcer with delivery locations close to their home base.

Global IT service and consulting companies are expanding operations in India. Increased competitive pressures including higher costs as a result of wage inflation due to the intense competition for skilled human resources as well as pricing pressures due to heightened competition from global and Indian IT companies.

To cater to increasing customer demand for consultants with strong technology and domain knowledge, the Company will have to invest increasingly higher amounts in equipment, facilities and training of its personnel, who could subsequently be lured away by competitors.

The Company is expanding its global footprint and establishing operations in many countries. Due to the same, the Company carries the risk of one or more geographic markets collapsing because of unforeseen general macro-economic factors and political turmoil.

The Company’s revenues are largely denominated in foreign currency, predominantly US$, GBP and Euro. In addition to these currencies the Company also does business in Australian $, Canadian $, South African Rand and Swiss Franc among other currencies. Given the nature of the business a large proportion of the costs are denominated in Indian Rupees (INR). This exposes the Company to profit / loss on currency fluctuations.

Measures taken by TCS to mitigate risk

Company has been rapidly creating global size and scale and using best-in-class human resource policies to attract and retain talent. As a reflection of these policies, the Company has the lowest attrition rate in the Industry and is winning accolades as an employer of choice and awards for its world-class Learning and Development Program. The Company is also focused on ensuring increasing levels of employee satisfaction and retention of its global workforce.

Country level risk - The Company has comprehensive business continuity plans in place. The Company is building deep customer relationships and has a well diversified geographic spread.

Margin pressure -Company is moving into higher value added services, and also effectively managing costs. In order to enhance its ability to serve its customers better, the Company has been continuously expanding on its service and capabilities base to be a one-stop service provider, from Consulting to IT Services to Infrastructure Services to Business Process Outsourcing. The Company’s process capabilities and range of services provide a compelling value proposition for both existing and new customers. These new offerings are helping the Company acquire a new customers and drive growth through cross selling to existing customers.

Currency fluctuation -Company follows a hedging policy for the currencies such as US$, GBP and Euro, Australian $, Canadian $, South African Rand and Swiss Franc. Net exposure is calculated for each currency by deducting expected costs from revenues in that currency. The Company hedges this net currency exposure using foreign exchange forward and options contracts. The tenure of these contracts is up to one year.