TCS Set To Become World’s Third-Largest IT Services Company

Tata Consultancy Services Ltd (TCS) is set to surpass DXC Technology Co. to become the world’s third-largest Software Services Provider in fiscal 2018-19, marking the first change in the pecking order of the information technology (IT) outsourcing industry in two years. If TCS surpasses DXC, it will only lag behind International Business Machines Corp. and Accenture Plc.

DXC Technology, formed by the merger of Computer Sciences with a division of Hewlett Packard in 2017, needs to clock a 5.06% sequential growth in the fourth quarter to end with $20.91 billion in revenue. Most analysts believe it is unlikely that DXC will manage this growth. DXC declares its fourth-quarter earnings on 23 May. TCS grew 9.6%, or added $1.82 billion in new business, to end with $20.91 billion in revenue in the year ended 31 March. In the first nine months of 2018-19, TCS generated $15.52 billion in revenue, more than the $15.47 billion in business done by DXC.

Over the last two years, DXC has seen its revenue decline by more than $4 billion, while TCS has added $3.34 billion in incremental revenue. TCS’s strong performance over the two years has seen a change of guard at the top. In 2017, TCS entrusted Rajesh Gopinathan, who was then Chief Financial Officer, to take over as Chief Executive and succeed N. Chandrasekaran, who was named the Chairman of Tata Sons Ltd.

“TCS is widely described these days as the ‘Walmart of IT Services’—the firm can pretty much win any large deal it wants and deliver it,” said Phil Fersht, Chief Executive of US-based HFS Research. “Its size and execution focus put it in a commanding position in the market and this is almost impossible for the likes of DXC to compete with.”

TCS’s industry-leading profitability, even while recording double-digit revenue growth, is another metric that has helped investors repose faith in the company’s stock. TCS ended last year with a 25.6% operating margin, while Accenture and DXC had 14.8% and 14% profitability, respectively.

“It’s a beautiful industry. There is no other industry that has multi-decadal growth visibility. All we have to do is execute well and to make sure our capabilities are in tune with where the opportunity lies,” Gopinathan said in an interview earlier this year.


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