In case anyone has missed the phenomenon that is TCS, it has achieved over 16% y/y growth in four of the last five quarters (with “just” 15.3% in the fifth). This quarter, it reported a y/y increase of nearly $530m in revenue. If TCS continues at this pace – and management commentary is of a strong pipeline – then revenues this fiscal year should be around $15.5bn. TCS has already overtaken CSC – who only a few years back, under its previous CEO, was talking about its ambitions to be the second largest IT service provider globally. Industry watchers need to stop thinking of TCS as “leading the pack” (again, in terms of revenue)  of the four largest Indian oriented service providers and appreciate that it is now one of the top six IT services providers globally.

And it is achieving this with margins that are consistently over 27% (FY 14 margin was 29.1%).  Even this quarter, when currency and a change in reporting for depreciation of assets (which incidentally provided a small headwind for Infosys) had a combined 152 bps impact, TCS achieved an EBIT margin of 26.3%.

Looking at some of the aspects of scale:

• Of its employee base; TCS currently has over 305,400 employees, with a footprint in 100 countries. Within six months, it is likely to have a third of a million employees. Scale in itself provides real benefits for utilization, as the bench becomes proportionally smaller
• Of some of the regions; TCS was the earliest of the Indian oriented service providers to invest significantly in Continental Europe, and is now benefiting from the increased active interest in offshoring – revenues from Continental Europe topped $1.5bn in FY 14, and are likely to be in the region of $2bn in FY 15. TCS has more recently been investing in Japan, traditionally a tough market to penetrate, where its JV with Mitsubishi should eventually bring in incremental annual revenues of over $500m
• Of some of the areas of the portfolio; to take just one example, IT infrastructure management, a business that TCS only started growing in earnest around five or six years ago, generated revenues of $1.6bn in FY 2014 - at its current rate of growth, it will be approaching a $2bn business this FY. ADM and enterprise solutions continue to be the big revenue engines for TCS, accounting for $278m of the $529m additional y/y revenue this quarter.

TCS remains very dependent on the BFSI sectors (they usually contribute around 43% of its overall revenue). This quarter, its insurance sector business was a weak spot, dragging down the revenue growth of the whole vertical group to “just” (NelsonHall estimated) 13.2%. We suspect this may be due to a ramp down at one particular large account.

TCS is big enough and broad enough, and has also demonstrated itself bold enough (for example in its penetration of the U.K. public sector), to be able to position for many types of large transformational engagements in most of the key global markets, should, of course, it find them attractive enough.

What should we see over the next year or so? In addition to the new venture in Japan, we might see an increased emphasis in marketing and communications on the IP investments it is making around solutions designed to help clients in particular sectors with their digital transformation.

(Full details of TCS Q1 FY results are provided here: http://research.nelson-hall.com/search/?avpage-views=article&searchid=29167&id=203331&fv=2)