Research Article by Mr.Joseph Jayakumar, Director, Amstar Technologies
- TCS becomes the first Indian IT company to cross $100 billion in market-cap.
- Market capitalization: Wipro within striking range of HCL Technologies.
- Q4 results: IT firms’ revenue to get cross-currency boost for next fiscal.
Information Technology is moving at a rapid pace. Last week TCS achieved a historical landmark when its market cap exceeded the $100 billion mark. India’s top four IT service companies namely TCS, Infosys, WIPRO and HCL Technologies have collectively built a revenue base of around $45 billion and have created an astonishing market cap of around $183 billion or over Rs 12 trillion which is significantly more than the overall BSE market cap at the start of this century. The combined annual wage bill of these four giants now stands at around $24 billion or at Rs 1.60 trillion and that’s just the tip of the iceberg.
The last decade for these four giants due to various factors has been phenomenal. They have collectively rewarded their shareholders to the tune of Rs 1.74 trillion without considering the fact that HCL Tech’s dividend is yet to be announced for FY 2018 in terms of dividends paid and money returned to the stakeholders through buyback of shares. In the last 10 years alone, these four companies have created an incremental market cap of over Rs 10.30 trillion.
So where are these Tech Giants heading to?
TCS has been at the forefront in creating the biggest market cap as its profit growth in the last decade has been impressive and yet consistent. Its net profit has grown nearly five-fold in the last decade (With FY 2009 considered as the base year).
While Infosys’ net profit has grown 2.7 times, the same for WIPRO has grown only by 2.1 times in this period. In terms of market cap, WIPRO has been pushed behind HCL Tech as the latter has grown its profits by more than six fold in less than a decade.
These software giant’s or shall we say tech titans have their own unique positions and sentiments in the Indian stock markets and have returned around 50 per cent of the cumulative net profits they made in the form of dividends and share buybacks to the stakeholders in the last decade.
Infosys leads the pack in rewarding the stakeholders as well as employees – it returned 51 per cent of cumulative profits, while WIPRO follows closely with 49 per cent and TCS with about 47 per cent. Employee benefit costs are also highest for Infosys at about 55 per cent of annual revenues, while TCS follows closely second with 54 per cent and WIPRO at 49 per cent.
Interestingly, Infosys is also creating a larger share of wealth for public and institutional stakeholders as the promoters’ holding in the company is less than 13 per cent as of now. In case of TCS, a predominant share of rewards has gone to Tata Sons, which presently holds nearly 72 per cent of equity stake in the company.
In contrast, a major share of wealth creation has occurred to the families and family-owned trusts as far as WIPRO and HCL Tech are concerned as the families and family-owned entities hold 60 per cent and 74 per cent stakes respectively.
Collectively, the big four in IT have a great contribution to nation building in terms of financing investments by group companies, charities, rewarding public shareholders with high cash payouts and spending nearly half of their revenues on salary bills.
Will the story be the same over the next decade with Cloud, IoT and Digitization impacting business significantly is something we all have to wait and watch as these companies collectively grew their revenues in double-digits in 7 out of last ten years but the coming decade could be different from what we are witnessing in present context.
It is estimated that these tech giants grew by just around 3 per cent on YoY basis in FY18. There are no signs of visible double-digit growth in the near future and they have been forced to create jobs in the USA. Any incremental wealth creation in the next decade therefore, would remain subdued to a large extent in the Indian Market.
Will the hierarchy of these tech giants in terms of market capitalization change dramatically in the next decade? It might be a possible scenario where we might see possibilities of land banks being unlocked or their vast infrastructures being used to foray into other services or tech businesses. They may strengthen their bases in the US under pressure, build digital platforms and consolidate with other global technology giants in this tough race to keep the growth rate going over the next decade.
Till then it’s a “Wait and Watch” scenario where these tech giants are more concerned about reskilling themselves, smart sizing themselves, digitizing themselves on all fronts and being more stakeholder friendly where Amstar sees a huge potentiality and will try to provide an extensive swing arm in their reskilling initiative for the Big 4’s extensively and contextually.