TCS first Indian firm to top Rs 5 lakh cr in m-cap

Market value exceeds those of Infy, Wipro, HCL Tech combined; analysts say $100 bn, or Rs 6 lakh cr, possible in 2 years

Tata Consultancy Services (TCS) on Wednesday became the first Indian company to exceed Rs 5 lakh crore in market capitalisation. The company's share price touched a 52-week high of Rs 2,580.60, taking its market cap to Rs 5.6 lakh crore ($86.5 billion, at 60 a dollar).

This is more than the combined market cap of rival information technology companies Infosys (Rs 1,92,198 crore), Wipro (Rs 1,40,481 crore) and HCL Technologies (Rs 1,07,878 crore). TCS is also ahead of global competitors like Accenture and is within striking distance of SAP's $100 billion, though it is far behind IBM's $193.70 billion.

In a list of the world's most valuable companies, TCS has moved up to 103 from 139 at the beginning of the year. SAP is at 100.

Analysts believe TCS is well on its way to reach a $100-billion market cap in the next two years. "TCS has managed to maintain industry-leading growth; it can add to this through the inorganic route," said Raamdeo Agarwal, joint managing director, Motilal Oswal Financial Services.

At its current share price, TCS needs at least 20 per cent growth to touch the $100-billion mark, which analysts say is entirely possible.

Saurabh Mukherjea, CEO of institutional equities at Ambit Capital, said: "What a lot of people have not realised is how much of a behemoth TCS has become in the past four-five years. If you look closely, it has been creating one mid-sized IT company every four-five years. Can it keep pace? I think the scale effect will kick in sometime, but if it pursues inorganic growth, it can sustain this growth. I think what will, however, matter is the quality of growth."

A CLSA report had last year said TCS had the potential to become India's first company to reach $100 billion in market cap. "Scale and innovation in delivery should help it maintain its sector-leading margins and premium valuations. TCS is on track for mid-teens revenue growth - faster than the industry average. It might not be at the forefront of technology changes, but it is catching up fast," Nimish Joshi and Rohit Kadam had said in their report.

The firm's market cap is much ahead of ONGC's (Rs 3,48,208 crore) and Reliance Industries (Rs 3,31,403 crore). The growth in market cap of TCS is reflective of the firm's consistent performance over the past few years. For the first half of this year, the company managed to surprise the Street on all key parameters - net profit, margins and volume. With a strong start to the financial year, the management reiterated its stand that the company would do better than in 2013-14. TCS' market cap has been trending upwards over the past few years. At the end of March 31, 2011, it was Rs 2,31,438 crore. This rose almost 80 per cent by the end of March 31, 2014, to Rs 4,16,860 crore. Its market cap recorded a growth of 21.67 per cent over the past three years, much ahead of Infosys (0.44 per cent) and Wipro (4.46 per cent). Reliance Industries' market cap for the same period eroded 4.32 per cent. The only other stock that has done well is HCL Technologies.

Viju George of JPMorgan Equity Research in a report last month said TCS' market cap could have an element of 'safety' premium not only because of "its superior performance in a competitive industry but also out of its peers' performance (or the lack of it). The worry arising from the latter, in particular, might increase the Street's keenness to hold TCS." The only damper to this performance could come from a dip in the US market and a volatility in the rupee, said an analyst who did wish to be named.