Dividend Analysis of Tata Consultancy Services (TCS)

Why one must care to look into the dividend analysis of Tata Consultancy Services (TCS)?

Tata Consultancy Services (TCS) is one of the world leader in IT services.

TCS generally works in collaboration with its customers.

They redesign business implementation strategy by integrating IT, with its work culture.

This integration of IT further strengthens & improves the working style of the customer.

In terms of Brand recognition TCS has made a name for itself and also of INDIA in global map.

TCS has a strong revenue potential and it can ensure its investors consistent dividend payment in times to come.

TCS has its headquarters in Mumbai, India. TCS was founded in 1968 by J.R.D.Tata.

In year 2004 TCS was listed in Indian Stock Exchange.

As on today TCS is most valued company in terms of Market Capitalisation in Indian stock market.

TCS Financial Statements Analysis

As an investor I am very eager to know TCS’s ability to pay consistent dividends in years to come.

To top it all investors would also love to see the dividend grow at a fast pace.

We can establish this by analyzing TCS’s revenue sources and historical growth rates.

It is true that this IT service provider has seen tremendous revenue growths:

  • EBITDA growth rate,
  • EPS growth rate,
  • Free cash flow growth rate,
  • Book value growth rate.

Its last 10 years, high free cash flow growth rate has enabled TCS to pay consistent dividend to its investors.

Based on last 10-year data.

TCS has recorded growth rates as below:

  • Revenue growth rate of 21.47%,
  • EBITDA growth rate of 22.80%.
  • EPS growth rate of 5.88%.
  • Book value growth rate of 0.71%.

But what does these growth rates indicates?

Lets compare these results with a benchmark company of USA.

Our reference company is Qualcomm listed in USA.

10Year Data

Revenue Growth Rate

EBITDA Growth Rate

EPS Growth Rate

Book Value Growth Rate

Reference

17.7%

13.2%

14.4%

15%

TCS

21.47%

22.8%

5.88%

0.71%

Based on last 5-year data.

TCS has recorded growth rates as below:

  • Revenue growth rate of 21.42%.
  • EBITDS growth rate of 22.96%.
  • EPS growth rate of 20.55%.
  • Book value growth rate of 18.43%.

5Year Data

Revenue Growth Rate

EBITDA Growth Rate

EPS Growth Rate

Book Value Growth Rate

Reference

22.3%

22%

31.7%

TCS

21.42%

22.96%

20.55%

18.43%

Revenue Figures.

TCS generated over Rs 78,573.02 Crore ($12 Billion) in total revenue for the financial year ending in March’2015.

TCS reported an EPS of Rs 98.31.

TCS generated over Rs 67,787.71 Crore ($10 Billion) in total revenue for the financial year ending in March’2014.

TCS reported an EPS of Rs 94.17.

TCS generated over Rs 50,656.53 Crore ($8 Billion) in total revenue for the financial year ending in March’2013.

TCS reported an EPS of Rs 65.23.

Expected Future Trend.

Based on current trend and estimates of experts, TCS is expected to report EPS of Rs 116 in financial year ending March’2016.

Based on current trend and estimates of experts, TCS is expected to report total sales revenue of Rs 84,807 Crore ($13.5 Billion).

TCS Dividend History

In last 10 years, TCS has increased its dividend per share at growth rate of 19.32% per annum.

In last 5 years, TCS has increased its dividend per share at growth rate of 41.35% per annum.

In last 3 years, TCS has increased its dividend per share at growth rate of 53% per annum.

TCS distributed over Rs 15,473 Crore ($2.4 Billion) in dividend for the financial year ending in March’2015.

TCS reported an Dividend per share of Rs 79.

TCS distributed over Rs 6,267 Crore ($1 Billion) in dividend for the financial year ending in March’2014.

TCS reported an Dividend per share of Rs 32.

TCS distributed over Rs 4,305 Crore ($0.68 Billion) in dividend for the financial year ending in March’2013.

TCS reported an Dividend per share of Rs 22.

Dividend Payout

TCS has shown a consistent dividend pay-out in last 10 years.

On an average it has paid 41% of its net income as dividends to its shareholders.

On an average it has paid 57% of its cash from operations as dividends to its shareholders.

In last financial year ending March’2015, TCS has paid 80% of its PAT as dividends to its shareholders.

In last financial year ending March’2015, TCS has paid 94% of its “cash flow from operations” as dividends to its shareholders.

Hence we can conclude that TCS’s dividend growth is dependent on its PAT/Cash Flow growth rate.

Operating cash flow & Dividend

TCS reported net operating cash flow of Rs 16,320 Crore in the financial year ending March’2015.

It paid out an annual dividend per share of Rs 79 in the same period.

Its net operating cash flow increased by 12.2% between Mar’15 and Mar’14.

In the same period TCS increased its dividend per share by 57%.

In last 10 years, TCS’s operating cash flow has increased at the rate of 21.4% per annum.

In the same period, its dividend per share has increased at rate of 19.32% per annum.

Hence we can conclude that dividend growth rate is maintaining almost the same pace as operating cash flow growth rate.

Dividend Yield.

Based on dividend per share distribution in FY 2014-2015, dividend yield of TCS is close to 3.29% per annum.

One of the main competitors of TCS is INFOSYS which is yielding 3.8% based on dividend per share distribution in FY 2014-2015.

Another competitor of TCS is WIPRO which is yielding 2.21% based on dividend per share distribution in FY 2014-2015.

Dividend Coverage and Payout Ratio of TCS

Based on current trend and estimates of experts, TCS is expected to report EPS of Rs 116 in financial year ending March’2016.

Expected dividend payout in March’2016 for TCS will be close to 75% (as per historical trends).

In this case, dividend per share distribution will be Rs 87/share.

If the current market price (Rs 2400/share) prevails then, then dividend yield of TCS will be close to 3.6%.

Over the last 10 years, average dividend coverage ratio of TCS is 2.78.

But TCS had dividend coverage ratio of only 1.24 and dividend payout ratio of 80% in last fiscal year (March’2015).

TCS had dividend coverage ratio of 2.95 and dividend payout ratio of 33% in fiscal year ending March’2014.

TCS has experienced decreasing dividend coverage ratio and very high dividend payout ratio in fiscal year ending March’2015.

Before 2015, TCS’s dividend payout ratio and dividend coverage ratio was within acceptable range.

But its doubtful how far TCS can continue to operating with such low coverage ratios of 1.24 and high payout ratio of 80%.

It looks likely that there may be cuts in dividend payout ratio in FY2015-16 and beyond.

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