TATA CONSULTANCY SERVICES:

Tata Consultancy Services Limited (TCS) is the largest Indian multinational information
consultancy and service company, which is headquartered in Mumbai, Maharashtra. It is a
subsidiary of Tata Group which has its operations in 149 locations across 46 countries. TCS
initially started as “Tata Computer Systems” was founded in 1968 by the division of Tata Sons
Limited. On 25th August 2004, it became a publicly listed company. In 1980, it has developed
India's first programming innovative work community (Tata Research Development and Design
Center) in Pune.
 In 2005, it turned out to be the first India based and the biggest IT administration
organization to enter the bioinformatics showcase.
 In 2015, it was positioned as 64th in the Forbes World's Most Innovative Companies
positioning, which made it both the most noteworthy positioned IT benefits just as the top
Indian organization.
 As of 2018, it was ranked 11th on the Fortune India 500 list. In April 2008, it became the
1st Indian IT company to reach $100 billion market capitalization.
 TCS and its 67 subsidiaries provides a wide variety of IT related products and services
which also includes application development, business process outsourcing, enterprise
software, capacity planning, hardware sizing, payment processing, technology education
services and software management.
 TCS becomes second Indian organization to traverse Rs.8 lac cr.
Type - Public
Traded as- BSE:532540
NSE: TCS
BSE SENSEX Constituent
CNX Nifty Constituent
Industry- IT services, IT consulting
Founded- 1968
Key People- Natarajan Chandrasekaran (Chairman)
Rajesh Gopinathan (MD & CEO)
Revenue - US$ 20.9 billion (2019)
Operating income US$ 5.3 billion (2019)
Net income – US$ 4.5 billion (2019)
 VALUATION OF TATA CONSULTANCY SERVICES USING DCF

MODEL:
 Discounted Cash Flow Model: The premise of the DCF model is that the value of a
business is purely a function of its future cash flows. Thus, the first challenge in building a
DCF model is to define and calculate the cash flows that a business generates. There are two
common approaches to calculating the cash flows that a business generates.
 Unlevered DCF approach: Forecast and discount the operating cash flows. Then, when
you have a present value, just add any non-operating assets such as cash and subtract any
financing related liabilities such as debt.
 Levered DCF approach: Forecast and discount the cash flows that remain available to
equity shareholders after cash flows to all non-equity claims (i.e. debt) have been
removed.

 This approach involves 6 steps

 Analyzing Historical Performance

 Calculating cost of capital
  Forecasting performance
 Calculating terminal value
 Discounting the cash flows to the present at the weighted average cost of
capital
 Calculating the firm value and interpreting results
 Analyzing Historical Performance:
 Calculating cost of capital

 Forecasting performance: To forecast the performance of the Tata Consultancy

Services we have taken the next 10 years free or we can say levered cash flow that remain
available to equity shareholders after paying off all other non-equity claims (i.e. debt) into
consideration as to forecast the future cash flows we have taken already estimated cash flows
of the company for 3 years i.e. 2020,2021,2022 and where these estimates aren’t available we
extrapolate the previous free cash flow (FCF) from the last estimate or reported value by the
analysts. We assume companies with shrinking free cash flow will slow their rate of
 shrinkage, and that companies with growing free cash flow will see their growth rate slow,
over this period.

Period 1 2 3 4 5 6 7 8 9 10
Actual ESTIM
ATED
Particulars 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
(FCF) in 265,400 315,622 311,834 347,123 379,266. 412,452.4 447,057.1 483,447.6 521,930.0 562,849.3 606,470.2
million(Rs. 59 2 7 3 6 8 0
)
Estimated 18.92 (1.20) 11.32 9.26 8.75 8.39 8.14 7.96 7.84 7.75
growth
rate(%)
Cost of 16.20% 16.20% 16.20% 16.20% 16.20% 16.20% 16.20% 16.20% 16.20% 16.20% 16.20%
Equity
(CAPM
Model) or
WACC
Present 271608. 230928.1229 221214.41 207994.2 194651.2 181561.2 168960.8 156973.2 145674.0 135075.4
Value 8692 84 39 746 433 918 857 881 014
Present 1914641
Value of .835
10-year
Cash Flow
(PVCF)

Present Value of 10-year cash flows: At first we have calculated the present value
of each year by taking a discounting rate (r ) @16.20% which is the cost of equity
as well as WACC of the firm i.e. cost of the capital by using the following
formula:

 PV = __FV___

(1+r) n

After getting the present value for each year, we have added all the present values
and that came out to be the present value of future cash flows of next 10 years.

 Calculating terminal value: to calculate terminal value we have taken

discounted rate (r ) @16.20% which is cost of equity and WACC as well of
TCS and growth rate (g) is the rate of return prevailing on 10 year government
bond i.e. @ 6.50%.

terminal Value (growth in perpetuity approach)

(FCF2029 × (1 + g) ÷ (r – g)
 we have taken 10-year government bond rate(g) 6.50% 6657757.0
7

 Discounting the cash flows to the present at the weighted average cost of capital: We
have discounted the terminal value of cash flows of next 10 years at a discount rate of
16.20% which is nothing but the cost of equity of the firm in the following manner:
 Terminal value= Rs.6657757.07
___TV___
(1+r) n
Present Value of Terminal Value (PVTV)  TV / (1 + r)10 1482841.54
in milion Rs.)
r = 16.20%

 Calculating the firm value and interpreting results:

Equity VALUE (in 8140598.609

million Rs.)
shares outstanding in 3,752.38 current share price
(million)
intrinsic value 2169.449418 1,720.50
estimate

 CONCLUSION:

As we have seen from the above analysis that TCS has Current share price prevailing in the
market of Rs. 1720.50 whereas the intrinsic value turn out to be Rs. 2169.449 which quite more
than the current price which means that the company has been undervalued while writing as its
intrinsic value is more than current price.