Tata Consultancy Services' $50-billion goal below its growth standards

To reach its targeted revenue of $50 billion by the end of 2029-30, the company will need to grow at a CAGR of 8.9 per cent over the next eight years to achieve that goal

Tata Consultancy Services (TCS) — the largest information technology (IT) services provider in India and the second-largest globally — recently set an ambitious goal of $50 billion in revenue by 2030. The growth required to reach this goal, however, is lower than the company’s own standards.

The company has stated that by 2030 it aims to be $50 billion in revenue, this also means that it can achieve this target even before 2030. Especially in the light of the rising demand for digital transformation and shift to cloud. 

Assuming TCS reaches its targeted revenue of $50 billion by 2030, the company will need to grow at a CAGR of 8.9 per cent over the next eight years to achieve that goal.
 

The projected growth reported over the next eight years will be less than what it achieved in 10 years.

Many analysts that Business Standard spoke to agreed that the $50-billion ambition is on expected lines.

Said an analyst who has been covering the company for years: “The growth expectations from the company as far as we know, are in that range. This does not surprise us for better or worse.”

Compared to its immediate competitors and peers Accenture and Infosys, TCS has fared much better when past data is analysed. 

Accenture reported revenues of $50.53 billion during the financial year ended August 31, 2021 (FY22 for our comparison) — up 14 per cent, from $44.3 billion a year ago.

In the past 10 years, Accenture revenues have grown at a CAGR of 6.3 per cent, slower than TCS revenue growth during the period.

According to Bloomberg analyst estimates, Accenture revenues are expected to grow 18.2 per cent in the next 12 months to reach $59.75 billion by the end of August 31.

When asked if the ambition of $50 billion is somewhat conservative in a fast-growing market, Peter Bendor-Samuel, chief executive officer of Everest Group, an advisory firm, said: “The industry has entered a megacycle and we expect robust industry growth for the foreseeable future, with strong secular trends supporting growth. That said, it is likely we are headed into recession brought on by the Ukraine war and inflation which slows growth for a year. TCS is now reaching a scale in which consistent high growth is getting tougher.”

If one looks at the growth trajectory of Infosys in the recent past, the company has managed to deliver higher revenue growth, compared to TCS. Infosys closed 2020-21 (FY21) with a year-on-year growth of 5 per cent in constant currency (CC). Compare this to TCS’ 0.8 per cent (CC) degrowth in FY21; in reporter terms, the company grew 4.6 per cent.

Does this mean Accenture and Infosys will grow faster?

“It’s a question of portfolio mix. Accenture mix is better positioned. Given the current market dynamics, TCS has a wider and more balanced mix. As the market changes, the TCS mix may improve, relative to Accenture. For example, if we go into recession, I would expect the TCS portfolio to be somewhat better positioned versus Accenture,” said Bendor-Samuel.

For nine months of FY22, Infosys has done better than the Street’s expectation on growth in all the three quarters. The company has upped its revenue guidance to 19.5 per cent to 20 per cent. It started the financial year with a revenue growth guidance of 12-14 per cent in CC. TCS does not give guidance, but the company has stated it would be back in the double-digit growth trajectory for FY22.

“I think it is a realistic ambition. This is required at a time when the technology landscape is fast changing. One also has to remember that the golden years of IT growth is a thing of past as disruptions have gone up significantly and so has competition. Overestimating growth target could be counterproductive. Rather the said growth rate is decent in today’s scenario,” said D D Mishra, senior director analyst, Gartner.

Mishra feels that TCS has done the right thing by not being aggressive on growth. “It is an achievable target, provided there are no sudden disruptions in the market and they continue doing what they are doing now. Also, this is a market where more than revenue growth, long-term sustainability is important,” he added.