Tata Consultancy Services (TCS), the country’s largest player in information-technology (IT) export, has seen a sharp decline in its contribution to the Tata group’s market capitalisation in recent years though it remains the most valuable company in the conglomerate.
Its 44.8 per cent share in the combined market capitalisation of the listed Tata group companies is the lowest since March 2009 and is down sharply from the all-time high contribution of 74.4 per cent at the end of March 2020.
TCS lost 15 per cent of market capitalisation since the end of March last year as against a 13.3 per cent decline for the group on this count during the period.
At this rate, the TCS share price will underperform the group for the fifth consecutive year, which is its longest stretch of underperformance since its listing in August 2004.
The group companies had a combined market capitalisation of Rs 30.7 trillion at the end of March 2024 against TCS’ Rs 14.05 trillion at the same time.
For comparison, TCS had a market capitalisation of Rs 47,232 crore on August 25, 2005, and it accounted for 49 per cent of the group’s market capitalisation on its listing day.
The steady decline in TCS’ contribution to group market capitalisation is in line with its fall in its share in the group’s profits.
TCS is expected to account for around 55 per cent of the combined net profits of 23 listed companies in FY25, down from its all-time high contribution of 106 per cent in FY20 and 64 per cent in FY23.
However, its earnings contribution in FY25 will be higher than its decade-low contribution of 47.1 per cent in FY24.
The analysis is based on TCS’ reported net profits for FY25 and the Bloomberg earnings estimates of other group companies for Q4FY25 and their reported numbers for 9MFY25.
TCS reported consolidated net profits of Rs 48,519.8 crore in FY25, up 4.1 per cent year-on-year, growing at the slowest pace in the last four years.
The company’s net sales were up 6 per cent Y-o-Y to Rs 2.55 trillion in FY25, growing at the slowest pace in the last four years.
In comparison, the listed Tata group companies are expected to report combined net profits of around Rs 89,000 crore in FY25, down 10 per cent year-on-year.
According to analysts, a slowdown in TCS’ earnings is likely to affect the finances of Tata Sons and its ability to fund new ventures such as electronic manufacturing, semiconductors and ecommerce.
Tata Sons is the promoter and holding company of most of the Tata group companies.
“The earnings slowdown in the IT industry will create financial headwinds for quite a few promoters in India, given the sheer amount of dividend payouts by the IT companies in recent years.
"This is especially true for Tata Sons, which has used the dividend and share buyback proceeds from TCS to make large investments in new ventures in recent years besides funding losses of other companies,” said an analyst.
In the last eight years (since FY18), TCS has paid nearly 100 per cent of its annual net profits to shareholders either as equity dividend or share buyback.
In all, the software major has cumulatively paid around Rs 2.96 trillion to its shareholders since FY08.
Nearly 72 per cent of the proceeds, or Rs 2.13 trillion, accrued to Tata Sons.
The proceeds of Tata Sons from TCS by way of dividend and share buyback accounted for nearly 92 per cent of Tata Sons’ operating income during the FY17- FY24 period.
Tata Sons is yet to publish its accounts for FY25 while TCS has published its annual accounts for the financial year.
There has been a slowdown in dividend/share buyback payout by TCS in recent years, which is in line with slowdown in its earnings growth.
Its payout to shareholders in FY25 was down 5.4 per cent to Rs 44,888 crore from Rs 47,467 crore a year earlier.
And in the last three years, the payout by TCS has had a compound annual growth rate (CAGR) of just 5.8 per cent, slowing from a CAGR of 9.8 per cent during the FY19-FY22 period.
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