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Management Discussion  
Tata Consultancy Services Ltd.
 
BSE Code 532540
ISIN Demat INE467B01029
Book Value(Rs.) 209.57
NSE Code TCS
Dividend Yield % 1.33
Market Cap(Rs. in millions) 8449244.64
P/E 28.10
EPS 80.12
Face Value(Rs.) 1  
Year End: March 2016
 

MANAGEMENT DISCUSSION AND ANALYSIS

1. A Macro view

In 2015, global economic activity remained subdued, with world output slowing down further to 3.1%1. Emerging markets and developing economies grew 4%, a year-on-year deceleration for the fifth consecutive year. Steep falls in oil prices, continued weakness in commodity prices, a slowdown in China and deep recessions in some large emerging market economies more than offset strong growth in India and some of the ASEAN economies. Developed economies which are key markets for information technology (IT) services grew a modest 1.9% in aggregate – US (2.4%), UK (2.2%), Euro Area (1.6%) and Japan (0.5%), hampered by weak demand, unfavorable demographics and low productivity growth.  

This was the weak macroeconomic backdrop against which large global corporations sought to become efficient even as they used technology to fend off business model challenges, establish competitive differentiation, show revenue & earnings growth and stay compliant in a shifting regulatory landscape.

2. Overview of the industry

The global market for outsourced IT – business process management (BPM) services grew a mere 0.4% over the prior year to $1.2 trillion. Within this, IT services registered a small decline of 0.2% year-on-year while package implementation grew 0.2% over the prior year and BPM grew 3% over the prior year. Sharp cross-currency movements during the year diminished the non-dollar denominated components of the global market when reported in USD.

In terms of the drivers of growth, the relentless quest for efficiency continued in fiscal 2016, with management teams taking a more strategic approach to structural cost take out. Digital technology adoption progressed apace, with early projects delivering better than anticipated outcomes and resulting in larger and more ambitious digital re-imagination programmes taking wing. Some industries saw additional spending triggered by regulatory compliance activities.

3. Our business

TCS is an information technology services, consulting and business solutions company, servicing large global corporations across a range of industry verticals including banking, financial services & insurance, retail & consumer packaged goods (CPG), telecom, media & entertainment, manufacturing, hi-tech, life sciences & healthcare, energy resources & utilities, travel, transportation & hospitality and government sectors.

The Company’s expertise in traditional and new age technologies extends across its full services portfolio of consulting and enterprise solutions, application development & maintenance, assurance services, engineering & industrial services, IT infrastructure services, business process services and asset leveraged solutions.

These services are delivered through its unique global network delivery model (GNDM™), recognised as the benchmark of excellence in software development. With over 353,000 employees and a global delivery footprint that covers over 145 solution centers, TCS is amongst the world’s top 10 IT service-providers.

TCS’ focus on execution excellence, its scale, domain expertise and its array of intellectual property have been recognised by customers, giving the Company tremendous traction in the various markets it operates in. The Company’s compounded annual growth rate (CAGR) since fiscal 2007 is 21.6%, with industry-leading operating margins.

4. Strategy

The Company’s strategy for longer term growth has been to (a) continually expand its addressable market by investing in newer geographies, newer industry verticals and newer service lines and (b) strengthen and deepen existing client relationships through a customer centric approach, superior execution that gives clients an experience of certainty, a full services capability and a scalable global network delivery model (GNDMTM). The first element of strategy has resulted in a de-risked business portfolio that is broadly diversified across all three dimensions: geography, industry verticals and service lines, lending the business substantial resiliency from local or sectoral business cycle volatility. Details have been provided in discussion on revenue.

The second element of strategy has resulted in very large, deep and enduring relationships with some of the world’s largest corporations. Success in this area is measured by looking at the number of customers in each revenue bucket and how they progress up the revenue buckets with time. In fiscal 2016, the Company added 8 more clients in the $100 million+ revenue band, bringing the total to 37 and in the $10 million+ revenue band, the Company added 37 clients this year, bringing the total to 298.

5. Digital technologies

TCS has been one of the earliest technology players to explicitly call out the deep impact that the digital forces would have on enterprises, consumers, governments and on societies. As enterprises dematerialised their assets and got hyper-connected, operations became more software-driven and generated masses of real time data which could be mined for actionable insights.

Our Digital Reimagination™ framework provided a holistic roadmap for our customers to bring to bear the power of these new technologies while reinventing their business models, products and services, channels, customer segments, business processes and workplaces. In fiscal 2016, digital adoption continued apace and the Company’s participation in customers’ digital spending grew substantially. With the scale and scope of digital programmes increasing beyond the pure front-end space and pervading the rest of the underlying application stack, our scale and digital capability position us very strongly to become the brferred digital partner for more and more clients.

Over half of our customers, spanning across every single industry vertical, have engaged TCS to partner them in their digital journey. Revenues from digital engagements constituted 13.8% of the Company’s revenues in fiscal 2016, while in absolute terms, the digital revenues grew by 52.2% in constant currency over fiscal 2015.

This substantial traction has been made possible by sustained, proactive investments made by TCS over the last several years across multiple areas so that when customers were ready to ramp up their investments in this exciting new space, the Company was more than ready to fulfill their requirements. Some of the investments are detailed in the following sections.

5.1 Talent development in digital space

The Company’s early lead in digital came on account of proactively scaling up the digital talent pool within the organization. In addition to expanding the Company’s hiring programme to cover a broader spectrum of diverse skills, TCS is also investing heavily in a scalable programme to re-skill the workforce and endow employees with skills – soft skills, design skills, multi-technology skills and domain skills - that are critical to stay relevant in the digital era.

At the center of this new approach is TCS’ digital learning platform - an integrated ecosystem that combines virtual, physical and experiential learning infrastructure with high quality content and available any place, any time and on any device.

The platform offers courses on a multitude of different digital tools, platforms and skill-sets, and allows individuals to pick what they want to learn, learn it the way they want to, and to the extent or depth that they require for a particular role.

From a ‘push’ model of training, the Company has moved to an employee-centric ‘pull’ model, which is more in line with the demands of the digital era and also the millennial mindset. Employee feedback has been very positive and the outcomes have far exceeded expectations. In fiscal 2016, the Company has been able to impart over 349,000 competencies to over 120,000 employees.  

5.2 Next-generation delivery model

One of TCS’ operational innovations of the last decade, which served as a very powerful differentiator was the GNDM™, characterized by a global, interconnected workforce, integrated processes and a robust, multitiered collaboration and communication infrastructure.

The GNDM™ fostered collaboration among globally distributed teams and the leveraging of common assets to seamlessly deliver consistently high service levels to customers, regardless of which part of the globe they chose to engage with TCS.

Today, the Company’s global delivery footprint covers over 145 solution centers across 19 countries, and it is now almost routine for our large customers to be serviced by globally distributed teams located out of a dozen or more delivery locations.

In the digital era, where customers are looking to TCS to help leverage new technologies to transform their businesses and gain competitive advantage, speed is of the essence, and agility is key. Consequently, new projects use ‘Agile’ or ‘DevOps’ by default.

The Company has invested in building collaborative workspaces at its delivery centers to facilitate a very different style of working that Agile / DevOps entails and fine-tuned its delivery processes and controls. There is now a large and growing body of case studies of large, globally distributed programmes successfully using our GNDM™ to leverage Agile / DevOps

5.3 Innovation

The Company’s success in emerging as the brferred transformational partner to some of the largest corporations has been on account of the highly innovative industry-specific solutions that we have proactively developed and showcased to our clients and prospects at our various innovation centers across the world, as well as at ‘innovation days’ organised with key customers and ‘innovation forum’ organised in key markets such as USA, UK and Australia.

These solutions were built through a close collaboration between domain experts within each of the industry solution units, technology experts and researchers from our R&D group. In addition to industry-focused efforts, there are several cross-unit innovation programmes working on building solutions to address real-time compliance for the enterprise, real-time agile enterprise, global data marketplaces and applications of blockchain technologies.

Software research focused on formal methods in verification & validation, design thinking, service design tools and creation of enterprise models for agile business operations. Several projects within the applications research area found successful pilot implementations among TCS customers including email analytics for problem resolution, service desk automation and image / video based auto part inspection.

Other areas of focus for the R&D team during the year were integrated computational materials engineering, high performance computing, application programme interface (API) centric development, flexible supply chains and robotics. TCS’ researchers also worked on cyber-physical systems focused on health sensing, drone based services, augmented & virtual reality, data privacy and security.

To foster the innovation culture across the organisation, TCS ran ideathons, hackathons as well as innovation award competitions. Our Innovista award competition attracted 551 entries from across the organisation of which 37 teams qualified for the finals, with winning innovations in the categories of ‘promising innovations’, ‘leading edge innovations’ and ‘dare to try innovations’.

In fiscal 2016, TCS researchers brsented about 500 papers at brmier conferences and journals. 2,842 patents were filed and 341 patents were granted during the year. The Company continually looks for innovation outside the organisation as well, scouring the start-up universe for promising candidates whose products could be positioned as a integral part of a larger solution that address customers’ business problems. Your Company has built a global start-up partnership ecosystem called COINTM (Co-Innovation Network) which actively engages with technology start-ups, academia and venture capitalists to identify innovative ideas on an ongoing basis from over 1,400 companies on our radar. TCS’ COIN connected customers to innovation incubators such as ‘Slush’ in Europe, ‘Start-up Bootcamps’ in Asia, and ‘Communitech’ in Canada. Its innovation events in Sydney, London and Silicon Valley also provided a platform for start-ups to interact with the TCS ecosystem.

The Company also got into research collaboration with reputed university research bodies as well as emerging tech companies in areas such as genomics, integrated computation materials engineering, supply chain, model driven enterprises, on ideas that might disrupt the market. TCS has forged strategic alliances with academic institutions such as MIT Media Labs and the Carnegie Mellon University.

5.4 Innovation workspaces

To better facilitate joint ideation and co-innovation with our customers, TCS has invested in building unique coinnovation workspaces designed to encourage creativity, participation and collaboration. Two such facilities were inaugurated in fiscal 2016:

(a) The digital re-imagination studio in Santa Clara, equipped with workspaces and workshops and staffed with topnotch talent from across the world. The creative-led, multi-disciplinary teams at the studio work closely with our customers’ teams, applying the principles of design thinking to ideate, develop and even prototype creative digital solutions to our customers’ business problems.

(b) The executive briefing center at our Banyan Park campus in Mumbai which provides visiting customers and prospects with an immersive experience of many of the transformational digital solutions we have already built across different industry verticals and also collaborate with our teams on developing innovative solutions to their specific business problems.

5.5 Intellectual property

TCS has had a history of investing in intellectual property, exemplified by the industry leading TCS BaNCS – a holistic suite of solutions for banks, capital market firms, insurance companies and diversified financial institutions. The Company has carried forward that tradition into the digital era and established a reputation for thought leadership and innovation among customers by investing in building out one of the largest portfolios of digital platforms and products, spanning the technology space, horizontal functions and industry-specific functions.

Every one of these products and platforms has multiple customers and is gaining market traction. In June 2015, we launched ignio™, a neural automation system for IT operations in enterprises, creating a brand new category that we call ‘services-as-a-software’. With its cognitive capabilities, ignio™ is technologically far ahead of other automation products in the market and within 9 months of launch, the product had been bought by 16 customers. The Company has filed 24 patents around ignio™ till date, and have some more in the pipeline

6. Human resources

6.1 Human resource strategy

The human resource (HR) function of the Company is focused around providing its 353,843 employees from 129 nationalities sbrad across 55 countries a meaningful and compelling environment. An environment which gives today’s diverse, multi-generational and mobile workforce the confidence to realise their potential and provide world class solutions to the customers. This positive and inspiring environment fosters innovation, stimulates performance culture and motivates employees to develop themselves personally and professionally

6.2 Talent acquisition

TCS’ talent acquisition strategy is to hire right competencies required by the business at the right time. In fiscal 2016, the Company has hired 90,182 people, 74,009 in India and 16,173 outside India, into its workforce. This is the highest gross addition

This achievement is the result of multi-pronged approach of right analytics, establishing TCS brand in the campuses, maintaining connect with prospective employees and a scalable green recruitment process. The success of integrating the new-entrants can be largely attributed to the innovative iBegin and iBelong platforms. TCS continues to remain brferred employer at the engineering campuses in India. The Company also continued its effort to recruit from colleges outside India especially in Latin America, USA, Canada, China and Hungary. The Company has been using social networking sites, gaming platforms, technology contests, etc. to attract talent as the current generation is more digital savvy.

Academic institutes are a key stake holder in the overall talent acquisition strategy of the Company. In fiscal 2016, faculty and students of over 900 institutes in India and abroad benefitted through wide range of academic interface programme (AIP) activities including technology awareness, contests and development of industry oriented curricula.

The 17th edition of Sangam, the annual meeting with the heads of the institutes, was organized at Kochi and was very well attended by participants from India and abroad. In addition, TCS is working with Government of India and state governments in establishing five IIITs, under PPP model. Through TCS research scholarship programme, the Company has been supporting 228 research scholars from 33 institutes across India.

Our unique student engagement portal “Campus Commune” continues its evolution and has more than 891,429 engineering students across 1,135 institutes as registered users. CodeVita, a global programming competition was organised through Campus Commune and this was the 4th year for this competition. 197,639 students from 3,708 institutes across the globe registered for the competition and winners were from India and Czech Republic.

6.3 Talent development, engagement and retention

Developing employee competency and improving overall organisational capabilities is the key talent development focus of TCS. We continued investing in developing necessary platform and content to provide anytime anywhere learning opportunity to our employees worldwide. Learning programmes are also aided by constant coaching and mentoring to help learners with their career development.

Talent development in the Company has three distinct tracks –   

1.initial learning programmer ilp for the trainees 

2.continuous  domain and programme to hone technical domain and process skill of the employees  on continuous basis and 

3.Lease ship development programme

A combination of learning platform (iON), digital interactive class rooms (iQlass), virtual labs and competency tracking platform (iEvolve) facilitates learning opportunities for employees worldwide. Scale, speed, sbrad and quality is ensured through these state of the art infrastructure and programme content.

Aspire, our digital ILP breaks the geographic boundaries and facilitates the new joiners to be productive much faster.

The need to strengthen and improve leadership pipeline is an important priority to keep up with the fast paced growth of the Company. Structured and systematic approaches to identify, assess, and develop leaders, starts at early stages of the career. LDP has custom made programmes for each level and career paths. Programmes are continuously reviewed and redesigned taking into consideration the dynamic nature of business and the global diverse workforce. Special programmes are launched to develop women employees for leadership roles, and they are yielding desired results.  

To give a quick start, a number of short videos (Nano programmes) have been developed to help our employees to gain knowledge on latest technological developments in the Digital space. As a special initiative, we embarked on a programme to train 100,000 employees on Digital technologies so as to be ready to meet the business demand.

Today’s new age workforce expects an employee-centric work environment where they can learn to grow and develop. ‘CareerHub’ is a platform enabling capture and fulfillment of career aspirations of employees and providing them a mentoring platform. Employees can choose their own mentor based on a match with their as pirational skill sets. ‘Inspire’, a specialized programme is used to groom and provide fast track career progression to high potentials. Structured coaching programme is used at senior leadership level to make them realise their full potential. Leadership review and assessment profile of all leaders ensures the maintenance of a healthy succession pipeline.

The Company’s in-house recognition portal ‘GEMS’ continues to recognise both team and individual performance, as well as reward employee behavior in line with the organisational values.

TCS embarks on a sustainability journey by ensuring safety and healthy well-being of associates and protecting the environment. Initiatives like ‘Safety First’ emphasise on employee safety and security. TCSFit4life initiative creates a culture of fitness in the organisation by helping to build a fraternity of health and fitness conscious employees.

‘Purpose4life’ initiative enhances employee contribution to community projects in the areas of Education, Health and Environment. Robust employee engagement platforms including Maitree help in improving employee bonding within the organization and promoting work life balance, thereby, increasing employee retention.

PULSE – TCS’ annual employee engagement and satisfaction Survey, has showed an increase in employee satisfaction and employee engagement index this year. This is a measure that the employees have a sense of ownership for their Company and their support to “One TCS” belief. This feeling of camaraderie was seen during the recent Chennai floods where employees across the Company joined hands in the relief works. Apart from providing physical support, employees contributed over Rs. 4 crores towards relief operations. In fiscal 2016, the Company’s attrition rate including BPS was 15.5%.

6.4 Talent diversity

Talent diversity and creating & sustaining an inclusive environment is important to the Company. The talent diversity framework provides structured initiatives focused at enhancing workplace diversity and inclusion at TCS.

The CoE (Center of Excellence) on accessibility, works on IT solutions for differently-abled individuals, aiding their integration into the workforce. An e-learning module, managing diverse teams (MDT), has been created specifically for managers to enable them to work in a diversity rich work environment.

The organization’s progressive policies such as extended leave, special focus on security of women employees, customised programmers for re-orientation after long leave, focused mentoring, special leadership development programmes address the needs and aspirations of over 115,000 women employees employed with TCS. TCS continues to lead and share its diversity and inclusion practices through collaboration with various external forums such as partnering with the US government in launching million women mentors (MWM) programme.

We pledged our commitment to UN Women’s ‘He-for- She’ global campaign to engage men as champions of diversity. The all-women center for business processes and IT services set up in Riyadh, is a great example of providing long-term career opportunities to women

6.5 Compliance

A robust internal check process is deployed to brvent and limit risk of non-compliance. The compliance cell within HR continues to track Acts / Laws in all countries of operation in the field of immigration, employment and labour laws. The Company approaches compliance from the stand point of reactive as well as proactive intervention.

7. Risk management and compliance

A robust enterprise compliance management (ECM) framework and process has been deployed across the Company. The process is enabled by a digital platform that provides an enterprise-wide view of compliance across global locations. The Company ensures compliance of all applicable laws globally, including those relating to employment & immigration, taxation, forex and export controls, health, safety & environment (HSE), company laws, establishment, SEZ regulations, data privacy, anti-bribery & anti-corruption regulations and IT Security. A committee at corporate level oversees and monitors the deployment of the compliance function. Changes in the applicable regulations are tracked on a global basis

PERFORMANCE HIGHLIGHTS

TCS has been a consistent value creator for all its stakeholders with industry leading performance in metrics such as revenue, profitability, market capitalization, resource pool etc. Among global IT services companies, TCS is ranked second in market capitalization and net income, third in headcount and fifth in revenues. (Source: Company reports, Gartner, Reuters). Also, TCS has maintained its track record of sharing the wealth created with its stakeholders

Cash utilisation since fiscal 2007

Of the available funds generated during fiscal 2007 to 2016, 55.87% has been appropriated towards dividend (including dividend tax and final dividend for fiscal 2016 to be paid post approval by shareholders)

Dividend

Dividend (including final dividend and dividend distribution tax) and the payout ratio computed on consolidated profits have remained consistently high. The amount of dividend appropriated (excluding special dividend) has increased 16 times in the last ten years. In fiscal 2016, the payout ratio was 42%.

FINANCIAL PERFORMANCE - (CONSOLIDATED)

The financial statements of Tata Consultancy Services Limited and its subsidiaries (collectively referred to as “TCS” or the Company) are brpared in compliance with the Companies Act, 2013 and generally accepted accounting principles in India (Indian GAAP).

The discussions herein below relate to consolidated statement of profit and loss for the year ended March 31, 2016, consolidated balance sheet as at March 31, 2016 and the consolidated cash flow statement for the year ended March 31, 2016. The consolidated results are more relevant for understanding the performance of TCS. In accordance with the Companies (Indian Accounting Standards), Rules, 2015 of the Companies Act, 2013, TCS will follow the Indian Accounting Standards (Ind AS) for brparation of its financial statements from April 1, 2016.

Significant accounting policies used for the brparation of the financial statements are disclosed in the notes to the consolidated financial statements 2 (a) to (q).

CONSOLIDATED FINANCIAL RESULTS - SUMMARY

The revenue of the Company crossed one trillion rupees and aggregated Rs. 108,646.21 crores in fiscal 2016 (Rs. 94,648.41 crores in fiscal 2015), registering a growth of 14.79%.

For a like to like comparison, the financial performance and other operating parameters relevant to fiscal 2016 have been analysed with reference to the performance in fiscal 2015, without considering the impact of one-time employee reward (referred to as ‘ex rewards’) in fiscal 2015.

Other significant financial parameters of the Company are given below:

 Earnings before interest, tax, debrciation and amortisation (EBITDA)

The EBITDA aggregated Rs. 30,589.79 crores in fiscal 2016 (Rs. 27,109.62 crores in fiscal 2015, ex rewards) – a growth of 12.84%.

Profit before tax (PBT)

PBT aggregated Rs. 31,675.87 crores in fiscal 2016 (Rs. 28,926.40 crores in fiscal 2015, ex rewards) – a growth of 9.51%.

Profit after tax (PAT)

PAT aggregated Rs. 24,291.82 crores in fiscal 2016 (Rs. 21,911.85 crores in fiscal 2015, ex rewards) – a growth of 10.86%.

Earnings per share (EPS)

EPS aggregated Rs. 123.28 in fiscal 2016 (Rs. 111.87 in fiscal 2015, ex rewards) – a growth of 10.20%.

Revenue

Analysis of revenue growth

The total revenue growth in fiscal 2016 (14.79%) was lower than that of fiscal 2015 (15.69%), primarily due to a lower business growth in fiscal 2016 (11.86%) as compared to that of fiscal 2015 (17.01%). Out of the total revenue earned in fiscal 2016, 94.17% was earned in foreign currencies. Fiscal 2016 witnessed substantial movement in exchange rates particularly affecting AUD, CAD, USD and EUR. The currency wise fluctuations during fiscal 2016 compared to those in fiscal 2015 are given below

Net impact of such movement in exchange rates on revenue of the Company has been a positive variance of 2.93% vis-a-vis Rupee in fiscal 2016 (negative variance of 1.32% in fiscal 2015).

Revenue by industry

Major industries contributing to revenue of the Company are (1) banking, financial services and insurance (BFSI), (2) manufacturing, (3) retail and consumer packaged goods (CPG), (4) telecom, media and entertainment and (5) others. ‘Others’ include (a) hi-tech, (b) life sciences and healthcare, (c) travel, transportation and hospitality and (d) energy, resources and utilities.

During fiscal 2016, revenue from all industries other than telecom, media and entertainment showed double digit growth rates. Industry wise performances are discussed in segment performance section.

Among emerging markets, Middle East & Africa and Asia Pacific recorded significant growth due to TCS’ sustained investment in market development and increasing customer acceptance of global delivery model. Among major markets, North America grew significantly better than the Company average. India, Europe, UK and Latin America registered good growth but below the Company average.

Asset leveraged solutions registered the highest growth (44.11%) well above the Company average. IS, assurance services and EIS recorded higher growth than the Company average, while growth in BPS, ADM and ES & consulting were lower.

ADM continues to be the major contributor although its relative weight to the total revenue has come down over the past years (39.86% in fiscal 2016, 52.20% in fiscal 2007) in line with our strategy of focusing on new services. Consequently, contribution from other services to total revenue has increased.

Employee costs and BA related expenses

Employee costs include salaries which have fixed and variable components, contribution to retirement funds and pension schemes. It also includes expenses incurred on staff welfare.

Overseas business expenses primarily comprise living allowances paid to employees on overseas assignments. For purpose of the management discussion and analysis (MD&A), employee related costs included in ‘overseas business expenses’ and costs related to business associates (BA) have been grouped under ‘Employee and BA related expenses’. Employee benefit and BA costs aggregated Rs. 63,395.72 crores in fiscal 2016, rebrsenting 58.35% of revenue. Such costs have increased by 16.29%. In relation to revenue, this group of expenses remained steady showing a marginal increase of 0.75% in fiscal 2016 as compared to fiscal 2015.

Overseas business expenses (other than employee allowances paid overseas)

Overseas business expenses (other than employee allowances paid overseas) include travel expenses incurred in overseas locations. These expenses as percentage of revenue have decreased from 1.21% (Rs. 1,140.71 crores) in fiscal 2015 to 1.06% (Rs. 1,161.34 crores) in fiscal 2016. Earnings before interest, tax, debrciation and amortisation (EBITDA)

In fiscal 2016, EBITDA was Rs. 30,589.79 crores (Rs. 27,109.62 crores in fiscal 2015 ex rewards). There is a decrease of 0.48% in EBITDA as a percentage of revenue, primarily attributable to increase in employee and BA related expenses.

Other income (net)

Other income decreased from Rs. 3,229.91 crores in fiscal 2015 to Rs. 3,053.87 crores in fiscal 2016 primarily due to decrease in exchange gain (net) from Rs. 1,308.47 crores in fiscal 2015 to Rs. 743.26 crores in fiscal 2016, partially offset by (1) increase in profit on redemption of mutual funds, sale of government securities & other investments (net), from Rs. 233.10 crores in fiscal 2015 to Rs. 471.89 crores in fiscal 2016 and (2) increase in interest income on bank deposits, inter-corporate deposits and bonds & debentures from Rs. 1,596.61 crores in fiscal 2015 to Rs. 1,715.53 crores in fiscal 2016 arising out of effective treasury management.

Foreign exchange forward, option and futures contracts TCS enters into foreign exchange forward, option and futures contracts to manage its exposure to exchange rate fluctuations, in accordance with its risk management policies.

TCS follows accounting principles in line with international financial reporting standard 9 (IFRS 9) to account for the aforesaid hedging instruments. Changes in the fair value of instruments designated as hedges of future cash flows are recognised directly in shareholders’ funds if they are effective in hedging the risk. The ineffective portion is recognised immediately in the statement of profit and loss. The change in the time value as well as the intrinsic value of option is accumulated in hedging reserve and is classified to statement of profit and loss when the forecasted transaction occurs.

Foreign exchange forward, option and futures contracts outstanding at the reporting dates, other than designated and the resultant gains or losses are accounted as ‘other income (net)’ in the profit and loss account for the period. Note 2 (m) to the consolidated financial statements describes the accounting policy relating to the derivative instruments and hedge accounting. Note 40 to the consolidated financial statements provide details of the derivative financial instruments entered by the Company during fiscal 2016 with comparatives for fiscal 2015.

Debrciation and amortization

Debrciation and amortisation increased from Rs. 1,798.69 crores in fiscal 2015 to Rs. 1,947.96 crores in fiscal 2016. The increase was sbrad across all asset groups, mainly attributable to freehold buildings, electrical installations, furniture and fixtures, computers, leasehold improvement and plant & machinery. In relation to revenue, this group of expenses decreased from 1.90% in fiscal 2015 to 1.79% in fiscal 2016.

Exceptional item

In fiscal 2016 there has been no item which can be termed as “exceptional”. In fiscal 2015, there was a one-time credit item of Rs. 489.75 crores shown under thehead ‘Exceptional item’, rebrsenting the net impact of change in accounting policy for debrciation necessitated due to implementation of the Companies Act, 2013.

Profit before tax (PBT)

In fiscal 2016, PBT was Rs. 31,675.87 crores (Rs. 28,926.40 crores in fiscal 2015 ex rewards). As a percentage of revenue, PBT decreased from 30.56% in fiscal 2015 to 29.16% in fiscal 2016. The decrease of 1.40% in fiscal 2016is mainly due to (1) decrease in EBITDA of 0.48%, (2) other income by 0.60% and (3) the absence of the exceptional item which had contributed 0.52% to revenue in fiscal 2015.

Tax expense

Tax expense increased to Rs. 7,300.93 crores in fiscal 2016 from Rs. 6,238.79 crores as reported in fiscal 2015. The resultant effective tax rate has decreased from 23.72% in fiscal 2015 to 23.05% in fiscal 2016.

Minority interest

Minority interest registered a decrease from Rs. 214.52 crores in fiscal 2015 to Rs. 83.12 crores in fiscal 2016, primarily due to the amalgamation of a subsidiary, CMC Limited, with the Company. As a result of the amalgamation, the Company issued 1,16,99,962 equity shares to the shareholders of CMC Limited thereby extinguishing the minority interest held in CMC Limited. Profit after tax (PAT)

The net profit in fiscal 2016 was Rs. 24,291.82 crores (22.36% of revenue) as compared to Rs. 21,911.85 crores in fiscal 2015 ex rewards (23.15% of revenue). The decrease of 0.79% in terms of revenue is primarily attributable to decrease in PBT.

Revenue by industry in fiscal 2016

In fiscal 2016, BFSI continued to contribute the largest share to revenue (40.65%) at a growth rate of 14.51%, almost same as the Company average. Verticals which contributed imbrssive growth rates are retail & CPG (19.06%) and manufacturing (18.03%). The verticals grouped in ‘Others’ also registered good growth of 14.60% - significant contributors were, life sciences & healthcare (27.12%) and travel, transportation & hospitality (18.13%).

Industry segment wise performance

In the following discussions on results of significant segments in fiscal 2016, the impact of one-time employee reward on the results in fiscal 2015 have been excluded for like to like comparison.

Banking, financial services and insurance (BFSI)

The BFSI industry segment is witnessing an increased spend on strategic initiatives like automation, digitization and simplification. Digitization is now the default strategy for banks. Increasingly vigilant regulators have ensured that governance, risk management and compliance (GRC) continue to demand an increased attention by banks. The digital revolution is redrawing the boundaries of financial services and lowering entry barriers encouraging challengers to emerge. Openings are being created for focused, fast-moving competitors. As a response, banks are renewing their focus on innovation in product creation, bundling, distribution & servicing. The key themes of innovation revolve around data, customer experience, artificial intelligence, APIs, blockchain, etc. Financial institutions are designing competition models and ecosystem tenets to tackle the dynamic environment to maintain their distinct identity and stay relevant for the future.

The Company has invested in a broad array of offerings in the areas of analytics, biometrics, blockchain, etc. It is collaborating with ‘fintech’ firms working in niche areas and looking at joint go-to-market opportunities. In fiscal 2016, the insurance industry continued to experience a soft market. Insurers have been trying to improve profits through underwriting, expense reduction and tighter scrutiny of capital investments because of poor investment yields and rate declines across most insurance lines of business. Increased competition and disruption from new players in the industry continue to impact rate and customer retention. Stricter regulatory requirements in North America, UK and Europe add brssure to the industry as a whole. These trends and market conditions are forcing insurers to change their existing business models and operate more efficiently.

The industry is under brssure to transform.

The Company has invested in business transformation through digital innovation, application & infrastructure modernization and risk management. It continues to develop digital technology-based solutions that are targeted towards delivering benefits across the insurance value chain. It has continued to grow its digital influence, and has expanded its footprint through new clients in Europe and North America.

In fiscal 2016, BFSI constituted 40.65% of Company’s revenue (40.74% in fiscal 2015), growing at 14.51% (9.83% in fiscal 2015).

Telecom, media and entertainment

As a group, telecom, media & entertainment witnessed revenue growth of 8.42 % in fiscal 2016 (13.73% in fiscal 2015).

Communications industry firms which have stayed with their traditional lines of business have seen erosion in their subscriber base and drop in margins due to entry of new media and new technology firms such as Skype, WhatsApp, and Google that piggyback unrestricted on telecom infrastructure. Telecom operators are trying to avoid becoming just simple data channels in the digital era where the value is increasingly shifting to digital content from infrastructure provisioning. Novelty around non-traditional business models like mobile payments, IoT applications brought new opportunities for the telecom industry.

Media industry firms have seen an acceleration in the shift of their business from traditional to digital during the year. Shrinking newspaper and magazine subscriptions, stagnant publishing and information services resulted in missed growth targets by entertainment and broadcast firms. Entry of born digital firms such as Facebook and Google took the business away from traditional firms.

The industry firms are therefore under brssure to reduce their cost base, including IT costs, and accelerate their transformation to digital. Overall the media industry grew slower than what was forecast earlier with the shift to digital taking away traditional revenues at a pace faster than substitution by digital growth for many firms. Mergers and acquisitions have gathered pace as a way of consolidation and capturing value from other growing parts of the value chain. What started with Comcast and NBCU accelerated with other consolidation such as Verizon - AOL, IBM - The Weather Channel, AT&T - Quickplay, Amazon Web Services - Elemental Technologies, Ericcsson – Envivo, Comscore – Rentrack and NewsCorp - Digital First Media. The communications and media firms interplay is likely to continue through 2016 and beyond.

Fundamental enablers for the overall growth of communications and media industries all point in the right direction. Proliferation of mobile devices, exponential growth in both content creation and consumption, high growth rate in particular of video consumption, proliferation of IoT to multiple sectors of all industries and a continued growth in broadband connectivity will continue to drive the industry momentum.

We are likely to see growth in over the top video, innovations such as blockchain, software defined networks and network function virtualization becoming more mainstream in 2016. Enterprise IT functions will continue to strive for efficiency whereas digital products and services will aim for time to market drivers. Cloud will gain momentum with the inhibitions around security giving way rapidly as firms realize that their enterprise data centers are no more secure than the cloud.

The Company’s rich industry experience and domain expertise enables it to deliver a suite of offerings which addresses the industry’s demand on digital products, service quality management, expansion of core capabilities into adjacencies, process automation, data monetisation, network management and implementation of next generation technologies. The Company’s key digital platforms such as Hosted OSS/BSS (HOBS), ‘Customer Intelligence and Insights’ (CI&I) gained increased customer adoption in the fiscal 2016. The Company has invested in building “Fit for Purpose” platforms and solutions which have enabled multiple service providers and enterprises across the globe to simplify their business, diversify and grow in emerging areas.

Retail and CPG

The retail segment was one of the fastest growing industry verticals in the global market for outsourced IT services.

Retailer’s IT spend is largely driven by their need to deliver a unified, personalised and frictionless experience. To enable this, there is focus on creating real time, agile and simplified enterprises powered by the digital forces. Micro-services based architecture, big data analytics, cloud, IoT, virtual reality, artificial intelligence and machine learning cognitive computing, are some of the key levers that will be employed by retailers to deliver the interconnected customer journey. The focus on security and data privacy continues to be paramount. To support the above initiatives of retail clients, the Company is investing significantly in building differentiated products, solutions and offerings. It has developed first-of-its kind, micro services enabled unified store commerce platform ‘OmnistoreTM’, digital merchandising suite ‘OptumeraTM’ and ‘OmnistockTM’ for omni-channel supply chain. TCS’ Digital Operations Studio TM is designed to help retailers deliver break-free customer experience. The retail innovation lab continues to research and develop solution to enable digital physical experience and optimised store operations.

CPG companies are working on transforming themselves in the omni-channel world where consumers are adjusting their buying habits and shifting from retail stores to e-commerce making advertisers to follow them online. CPG companies are looking to invest in the technologies such as e-commerce, omni-channel supply chain, targeted digital marketing, next generation CPG retailer collaboration, sales transformation led by cloud technologies, optimised trade promotions and IoT technologies to improve customer experience; and advanced analytics for deep consumer insights.

TCS’ CPG is making significant investments in the area of digital, sales, marketing, supply chain and analytics to help CPG companies realise their transformation journey. Some of the key CPG offerings in the above areas are:

a) digital marketing and digital commerce,

b) cloud based sales and marketing transformation,

c) omni-channel supply chain solutions,

d) next generation planning solution based on SAP IBP and

e) data ingestion platform based on advanced analytics. TCS’ CPG has been voted ‘Best in Class’ CGT readers’ choice award 2016, amongst top providers in the categories of consulting and outsourcing.

The segment revenue has recorded a growth of 19.06% in fiscal 2016 (13.44% in fiscal 2015).

Manufacturing

The manufacturing industry overall continues to demonstrate stable business performance with continued emphasis on customer centricity, digitalisation of products, portfolio balancing with services and asset productivity. In line with this, TCS’ manufacturing continues to invest in building industry specific core capabilities with focus on innovation & transformation, business advisory and re-imagination of digital enabled business models.

To capture the growth opportunities driven by the impact of emerging technologies across the manufacturing industries, TCS is focusing on building innovative solutions and accelerators that help customers address their most significant areas of competitiveness.

The Company continues to align traditional lines of services such as enterprise resource planning (ERP), customer relationship management (CRM), product lifecycle management (PLM) and military engineer service (MES) with modern digital capabilities to deliver differentiated services as new product innovation, service life cycle management, analytics as a service, digital customer experience journey, etc. Automation and digitalisation of

IT services is also contributing significantly to agile and business response services across service lines. Manufacturing industry revenue recorded a growth of 18.03% in fiscal 2016 (32.24% in fiscal 2015).

Others   

Segments combined in ‘Others’ includes:  

1.life sciences and healthcare 

2.energy resources  and utilities

3.travel transportation and hospitality 

4.hi-tech

Despite a sharp slowdown in the energy sub-segment towards the end of the fiscal year, resulting from the debrssed oil prices, all the segments grouped in ‘Others’ showed good revenue growth over fiscal 2015, reflecting the Company’s growing traction in these industries on the back of strong domain expertise and domain-specific digital solutions.

In fiscal 2016, the aggregate growth of ‘Others’ segment showed a healthy growth of 14.60%. The share of these segments in aggregate revenue remained steady at 24.34% in fiscal 2016 (24.39% in fiscal 2015). ‘Life sciences & healthcare’ registered high growth in revenue at 27.12% followed by ‘travel, transportation and hospitality’ 18.13%, ‘energy, resources and utilities’ 13.61% and ‘hi-tech’ 12.99%.

In fiscal 2016, the authorised equity share capital was increased to 460.05 crores equity shares of Rs. 1 each, pursuant to the amalgamation of its subsidiaries – WTI Advanced Technology Limited and CMC Limited. 1.17 crores equity shares were issued to the shareholders of CMC Limited in terms of the scheme of arrangement sanctioned by the High Courts of Judicature at Bombay and Hyderabad (vide note 29 to the financial statements and the section on acquisition / amalgamation in MD&A for details).

Reserves and surplus

For the purpose of consolidation of subsidiaries with the financial statement of the holding company, income and expenses are translated at average rates and the assets and liabilities are stated at closing rate. Use of such different rates for translation gives rise to exchange difference which is accumulated in foreign currency translation reserve. Foreign currency translation reserve increased from Rs. 1,051.17 crores as at March 31, 2015 to Rs. 1,418.25 crores as at March 31, 2016, due to movement in exchange rates of currencies in fiscal 2016.

The closing balance of hedging reserve account, arising out of cash flow hedges as at March 31, 2016 was a net gain of Rs. 56.77 crores (Rs. 150.75 crores net gain as at March 31, 2015). Note 40 to the consolidated financial statements gives details of movements in the hedging reserve account.

In fiscal 2016, the capital redemption reserve increased to Rs. 523.57 crores from Rs. 413.09 crores in fiscal 2015 on account of transfer of Rs. 110.48 crores pursuant to redemption of brference shares by a subsidiary. Balance in statement of profit and loss as at March 31, 2016 was Rs. 50,618.70 crores (Rs. 39,012.65 crores as at March 31, 2015) after appropriation towards equity dividend (interim and proposed final dividend), tax on dividends, transfer to general reserves, statutory reserve and capital redemption reserve.

Reserves and surplus at the end of fiscal 2016 stood at Rs. 65,163.52 crores, an increase of 29.19% over Rs. 50,438.89 crores at the end of fiscal 2015. Rs. 2,303.77 crores was transferred to the general reserve from the profit and loss account for fiscal 2016.

The Company’s long-term obligations under finance lease (refer note 5 to the consolidated financial statements) was Rs. 82.24 crores as at March 31, 2016 (Rs. 113.69 crores as at March 31, 2015). These are secured against fixed assets obtained under finance lease arrangements.

The decrease in short term borrowings (Rs. 112.96 crores as at March 31, 2016; Rs. 185.56 crores as at March 31, 2015) was mainly attributable to the reduction of Rs. 184.40 crores in unsecured bank overdraft, offset by increase in secured bank overdraft of Rs. 111.80 crores required for management of working capital. The secured loans are secured against book debts.

Trade payables (current liabilities)

Trade payables (current liabilities), rebrsenting payables for purchase of goods and services decreased from Rs. 8,830.93 crores as at March 31, 2015 to Rs. 7,539.93 crores as at March 31, 2016. As percentage of revenue, trade payables have decreased from 9.33% in fiscal 2015 to 6.94% in fiscal 2016. The decrease is primarily attributable to the one-time employee reward of Rs. 2,627.91 crores which was provided in fiscal 2015 and liquidated in fiscal 2016

Deferred tax liability (net) and deferred tax assets (net)

As stated in the accounting policies, deferred tax assets and liabilities are offset, tax jurisdiction-wise. Note 6 to the consolidated financial statements brings out details of component-wise deferred tax balances where the net values result into liabilities or assets, jurisdiction-wise. Deferred tax liability or asset is recognised on timing difference being the difference between taxable income and accounting income that originate in one period and is likely to reverse in one or more subsequent periods. Such timing differences resulting in deferred tax liability or asset usually arise on branch profit tax, debrciation and employee benefit expenses.

The net deferred tax liability was Rs. 441.17 crores as at March 31, 2016. (Rs. 342.96 crores as at March 31, 2015). As at March 31, 2016, the net deferred tax asset had a balance of Rs. 822.94 crores (Rs. 593.94 crores as at March 31, 2015). The Company assesses the likelihood of deferred tax assets getting recovered from future taxable income.

Other current liabilities

Other current liabilities increased from Rs. 3,646.59 crores as at March 31, 2015 to Rs. 5,357.45 crores as at March 31, 2016.

The increase was primarily due to:

Increase in other payables from Rs. 2,317.90 crores as  at March, 31, 2015 to Rs. 3,683.89 crores as at March  31, 2016. Other payables include (1) statutory  liabilities Rs. 1,378.59 crores as at March 31, 2016  (Rs. 1,143.66 crores as at March 31, 2015), (2) Fair  values of foreign exchange forward, option and  future contracts secured against trade receivables  Rs. 152.43 crores as at March 31, 2016 (Rs. 19.75 crores as  at March 31, 2015) and (3) Liabilities for cost related   to customer contracts Rs. 881.55 as at March 31, 2016  (Rs. 727.79 crores as at March 31, 2015)

Increase in the income received in advance fromRs. 1,062.31 crores as at March, 31, 2015 to Rs. 1,358.86 crores as at March 31, 2016. Income received in advance rebrsents advance billings to customers not recognized as revenue

Increase in the income received in advance from customers Rs. 130.76 crores as at March 31, 2015 to Rs. 164.23 crores  as at March 31, 2016

Increase in other liability Rs. 150.47 crores as at March 31, 2016 (Rs. 135.62 crores as at March 31, 2015) mainly on account of operating lease liabilities Rs. 79.87 crores as at March 31, 2016 (Rs. 57.50 crores as at March 31, 2015).

Other long-term liabilities

Other long-term liabilities decreased to Rs. 745.10 crores as  at March 31, 2016 (Rs. 825.02 crores as at March 31, 2015).

The decrease was primarily attributable to:

Decrease to other liabilities to Rs. 303.83 crores as at  March 31, 2016 (Rs. 412.98 crores as at March 31, 2015)

Decrease to capital creditors to  Rs. 61.78 crores as at  March 31, 2016 (Rs. 67.53 crores as at March 31, 2015)

Offset by increase in lease rental liabilities Rs. 379.49  crores as at March 31, 2016 (Rs. 344.51 crores as at  March 31, 2015).

The increase in short-term provisions was mainly attributable to:

Proposed final dividend on equity shares  Rs. 5,320.16 crores as at March 31, 2016 (Rs. 4,700.95 crores as at March 31, 2015)

Provision for employee benefits Rs. 1,635.30 crores as at March 31, 2016 (Rs. 1,356.15 crores as at March 31, 2015)

Tax on dividend Rs. 1,088.13 crores as at March 31, 2016 (Rs. 947.68 crores as at March 31, 2015)

Provision for current taxes Rs. 806.75 crores as at March 31, 2016 (Rs. 547.34 crores as at March 31, 2015).

Fixed assets

Additions to the gross block in fiscal 2016 amounted to Rs. 3,103.89 crores (Rs. 3,662.91 crores in fiscal 2015).

The Company has been investing in infrastructure development across various locations in India to meet its growing  business needs. In fiscal 2016, TCS has invested in state-of-the-art facilities at Mumbai, Hyderabad, Kolkata,  Thiruvananthapuram, Nagpur, Bangalore & Delhi for significant capacities.

Goodwill on consolidation

Goodwill on consolidation rebrsents the excess of purchase consideration over net asset value of acquired subsidiaries on the date of such acquisition. Such goodwill is tested for impairment annually or more frequently, if there are indications for impairment.

Goodwill on consolidation as at March 31, 2016 stood at Rs. 1,900.55 crores (Rs. 2,093.22 crores as at March 31, 2015).

Pursuant to the amalgamation of CMC Limited, the general reserve has been adjusted by the goodwill relating to this subsidiary, thereby reducing the goodwill on consolidation

Funds invested exclude earmarked balances with bank, trade investments and liabilities for purchase of government securities.

Investible funds went up by Rs. 9,635.55 crores (Rs. 22,898.21 crores as at March 31, 2015 to Rs. 32,533.76 crores as at March 31, 2016), mainly driven by:

increase in investments  Rs. 20,112.20 crores primarily due to investment in government securities amounting to  Rs. 19,367.09 crores during fiscal 2016

Increase in cash and bank balance Rs. 1,902.02 crores

Invrease in inter corporate deposits Rs. 1,507.00 crores

Offset by decrease in deposits with bank byRs. 13,885.67 crores.

Acquisition / amalgamation

Details of acquisition / amalgamation are given in note 29 to the consolidated financial statements. On April 1, 2015 (“the appointed date”), CMC Limited, a subsidiary, amalgamated with the Company in accordance with the terms of the Scheme of amalgamation sanctioned by the High Court of Judicature at Bombay vide its Order dated August 14, 2015 and the High Court of Judicature at Hyderabad vide its Order dated July 20,2015.

On July 2, 2015, the Company through its wholly owned subsidiary, Tata Consultancy Services Netherlands BV subscribed to 76% share capital of Tata Consultancy Services Saudi Arabia.

On October 30, 2015, the Company through its wholly owned subsidiaries TCS Inversiones Chile Limitada and Tata Consultancy Services Chile S.A. subscribed to 100% share capital of Technology Outsourcing S.A.C, an information technology services provider in Peru.

Trade receivables (AR) and unbilled revenue (UBR)

As a percentage of revenue, AR increased to 22.15% as at March 31, 2016 from 21.59% as at March 31, 2015. UBR as percentage of revenue declined to 3.67% in fiscal 2016 from 4.04% in fiscal 2015.

The Company monitors AR and UBR net of unearned revenues (UER) separately and collectively. The close monitoring has ensured that the AR and UBR net of UER as a percentage of revenue has remained steady (24.58% in fiscal 2016, 24.51% in fiscal 2015).

Loans and advances as at March 31, 2016 increased by Rs. 2,676.46 crores arising out of increase in short-term loans and advances by Rs. 1,435.90 crores and long-term loans and advances by Rs. 1,240.56 crores.

The increase in short-term loans and advances was primarily attributable to:

Increase in loans and advances to employee by Rs. 690.62 crores mainly to assist those impacted by  Chennai floods

Increase in inter corporate deposit Rs. 615.00 crores

Increase in other short term loans and advances by Rs. 309.88 crores primarily on account of increase in fair value of foreign exchange forward, option and  future contracts (Rs. 171.86 crores) and increase in  advance to suppliers (Rs. 130.44 crores)

Offset by decrease in brpaid expensed by  Rs. 136.10 crores.

The increase in long-term loans and advances was primarily attributable to:

Increase in inter corporate deposites Rs. 892.00 crores

Increase in advance tax net of provision for taxes Rs. 371.87 crores against demands from tax authorities, which have been contested by the Company

Increase in mat credit entitlement Rs. 81.76 crores

Offset by decrease in brpaid expenses Rs. 86.47 crores

Other current and non-current assets as at March 31, 2016 reduced by Rs. 24.30 crores primarily on account of:

Decrease in interest receivable byRs. 80.80 crores

Offset by increase in other current assets by Rs. 55.76 crores

CASH FLOW — CONSOLIDATED

The Company’s cash flows from operating, investing and financing activities, is summarised below.  The one-time employee reward, provided on accrual basis in the financial statements for fiscal 2015 was paid in fiscal  2016. In the following discussions, the impact of the one-time employee reward on cash flow from operating activities  has been excluded for like to like comparison

FINANCIAL PERFORMANCE UNCONSOLIDATED

The management discussion and analysis given below relate to the audited financial statements of Tata  Consultancy Services Limited (hereinafter referred to as TCS Limited or TCSL). The discussion should be read in  conjunction with the financial statements and related  notes to the financial statements for the year ended  March 31, 2016.

Summary

Revenue of TCS Limited aggregated Rs. 85,863.85 crores in fiscal 2016 as compared to Rs. 73,578.06 crores in fiscal 2015, registering a growth of 16.70%.

For a like to like comparison, the financial performance and other operating parameters relevant to fiscal 2016 have been analysed with reference to the performance in fiscal 2015, without considering the impact of one-time employee reward (referred to as ‘ex rewards’) in fiscal 2015.

Other significant financial parameters are:

Earnings before interest tax debrciation and  amortisation (EBITDA)

The EBITDA aggregated Rs. 26,949.21 crores in fiscal  2016 (Rs. 23,354.62 crores in fiscal 2015, ex rewards) – a  growth of 15.39%.

Profit before tax

PBT aggregated Rs. 29,116.64 crores in fiscal 2016 (Rs. 26,876.39 crores in fiscal 2015, ex rewards) – a growth of 8.34%.

Profit after  tax

PAT aggregated Rs. 22,882.70 crores in fiscal 2016 (Rs. 21,091.43 crores in fiscal 2015, ex rewards) – a growth of 8.49%.

Earnings per share

EPS aggregated Rs. 116.13 in fiscal 2016 (Rs. 107.68 in fiscal 2015, ex rewards) – a growth of 7.85%.

DIVIDEND

Decision on dividend is based on TCS Limited (unconsolidated) financials which excludes the performance of subsidiaries of TCS Limited.  

The board of directors decides on interim dividend based on the performance of TCSL during the course of the year. For fiscal 2016, TCSL declared three interim dividends of Rs. 5.5 per equity share and a final dividend of Rs. 27 per equity share has been recommended by the board of directors at its meeting held on April 18, 2016. Post approval of final dividend of Rs. 27 per equity share by the shareholders, the total dividend for fiscal 2016 would aggregate Rs. 43.5 per equity share (for fiscal 2015 Rs. 79 per equity share, including a special dividend of Rs. 40

Revenue from operations

Revenue from operations increased from Rs. 73,578.06 crores in fiscal 2015 to Rs. 85,863.85 crores in fiscal 2016, registering a growth of 16.70% (13.77% in fiscal 2015). The business growth in fiscal 2016 was at 13.04% (14.44% in fiscal 2015).

The increase in revenue growth in fiscal 2016 is mainly on account of exchange rate fluctuations (3.65% in fiscal 2016; negative 0.67% in fiscal 2015).

Debrciation and amortisation

Debrciation and amortisation increased from Rs. 1,393.77 crores in fiscal 2015 (1.89% of revenue) to Rs. 1,559.19 crores in fiscal 2016 (1.82% of revenue). The increase was sbrad across all asset groups, mainly attributable to freehold buildings, electrical installation, computers and leasehold improvements.

Exceptional item

In fiscal 2016 there has been no item which can be termed as “exceptional”. In fiscal 2015, there was a onetime credit item of Rs. 528.38 crores shown under the head ‘Exceptional item’. This was the net impact of change in accounting policy for debrciation necessitated due to implementation of the Companies Act, 2013.

Profit before tax (PBT)

In fiscal 2016, PBT was Rs. 29,116.64 crores (Rs. 26,876.39 crores, ex reward in fiscal 2015). As a percentage of revenue, PBT decreased from 36.53% in fiscal 2015 to 33.91% in fiscal 2016. The decrease of 2.62% is mainly due to:

1.decrease in divisend  income 0.99%

2.decrease in exchange gain net 0.81% 

3.impact of exceptional item relating to change in accounting policy 0.72%.

Tax expense

Tax expense increased to Rs. 6,233.94 crores in fiscal 2016 from Rs. 5,784.96 crores in fiscal 2015. As a percentage of revenue, it has decreased from 7.86% in fiscal 2015 to 7.26% in fiscal 2016. The effective tax rate has decreased marginally from 21.52% in fiscal 2015 to 21.41% in fiscal 2016.

Profit for the year (PAT)

The net profit in fiscal 2016 was Rs. 22,882.70 crores (26.65% of revenue) as compared to Rs. 21,091.43 crores in fiscal 2015, ex reward (28.67% of revenue).

Reserves and surplus

General reserve as at March 31, 2015 was Rs. 7,052.69 crores. On transfer of Rs. 2,288.27 crores from the profit and loss account and on reduction of Rs. 222.70 crores on account of merger of CMC Limited into TCSL, the general reserve as at March 31, 2016 increased to Rs. 9,118.26 crores.

Foreign currency translation reserve was Rs. 227.20 crores as at March 31, 2016 (Rs. 218.46 crores as at March 31, 2015).

The closing balance in hedging reserve account, arising out of cash flow hedges as at March 31, 2016 showed an accumulated gain of Rs. 56.77 crores ( Rs. 150.75 crores as at March 31, 2015). Note 38 to the unconsolidated financial statements gives details of movements in the hedging reserve account.

Balance in the statement of profit and loss as at March 31, 2016 was Rs. 47,247.98 crores (Rs. 35,779.06 crores as at March 31, 2015) after appropriation towards dividend on equity shares, tax on dividend, write back of tax on dividend of prior year and transfer to general reserve. Reserves and surplus as at March 31, 2016 were Rs. 58,669.82 crores (Rs. 45,220.57 crores, as at March 31, 2015), an increase of 29.74%.

Short-term and long-term borrowings

The decrease in short term borrowings (Rs. 112.96 crores as at March 31, 2016; Rs. 185.56 crores as at March 31, 2015) was mainly attributable to the reduction of Rs. 184.40 crores in unsecured bank overdraft, offset by increase in secured bank overdraft of Rs. 111.80 crores required for management of working capital. The secured loans are secured against book debts.

Long-term borrowings as at March 31, 2016 aggregated Rs. 50.06 crores (Rs. 64.71 crores as at March 31, 2015) primarily due to finance lease obligations of Rs. 49.77 crores (Rs. 64.13 crores as at March 31, 2015) which are secured against fixed assets. For details refer note 33 to the unconsolidated financial statements ‘obligations towards finance leases’.

Deferred tax liability (net) and deferred tax assets (net)

As stated in the accounting policies, deferred tax assets and liabilities are offset, tax jurisdiction-wise. Note 6 to the unconsolidated financial statements brings out details of component-wise deferred tax balances where the net values result into liabilities or assets, jurisdiction wise. Deferred tax liability or asset is recognised on timing difference being the difference between taxable income and accounting income that originate in one period and is likely to reverse in one or more subsequent periods. Such timing differences resulting in deferred tax liability or asset usually arise from items like branch profit tax, debrciation and employee benefit expenses.

The net deferred tax liability was Rs. 365.52 crores as at March 31, 2016 (Rs. 271.46 crores as at March 31, 2015). As at March 31, 2016, the net deferred tax asset had a balance of Rs. 465.83 crores (Rs. 303.47 crores as at March 31, 2015). TCSL assesses the likelihood of deferred tax assets getting recovered from future taxable income.

 Fixed assets

Significant additions to gross block in fiscal 2016 were:

Land and buildings Rs. 1,660.07 crores (Rs. 1,243.63 crores in fiscal 2015)

Computer equipment Rs. 637.50 crores (Rs. 711.64 crores in fiscal 2015)

Furniture &fixtures and electrical installation  Rs. 508.38 crores (Rs. 442.23 crores in fiscal 2015)

Office equipment Rs. 324.94 crores (Rs. 209.69 crores in fiscal 2015)

Leasehold improvement  Rs. 118.22 crores (Rs. 207.97  crores in fiscal 2015).

TCSL entered into contractual commitments with vendors who are executing various infrastructure projects. The stimated amounts of such contracts remaining to be executed on capital account and not provided for (net of advances), were Rs. 1,446.17 crores as at March 31, 2016 (Rs. 1,844.08 crores as at March 31, 2015

Trade receivables (AR) and unbilled revenue (UBR) As a percentage of revenue, AR were at 22.20% as at March 31, 2016 compared to 23.15% as at March 31, 2015.

UBR as percentage of revenue declined to 3.16% in fiscal 2016 from 3.32% in fiscal 2015.

The Company monitors AR and UBR net of unearned revenues (UER) separately and collectively. The close monitoring has ensured that the AR and UBR net of UER as a percentage of revenue has declined from 26.43% in fiscal 2015 to 25.31% in fiscal 2016.

Loans and advances as at March 31, 2016 increased by Rs. 2,621.97 crores. The increase was primarily attributable to:

Increase in inter corporate depositsRs. 1,362.00 crores placed with non-related corporate which have high credit ratings

Increase in loans and advances to employee Rs. 677.48 crores mainly to assist those affected by Chennai floods

Increase in advance tax  Rs. 345.64 crores, mainly driven by payments made against demands from tax authorities, some of which have been contested by TCSL

Increase in mat credit entitlement Rs. 158.53 crores

Increase in advance to suppliers Rs. 151.62 crores

Offset by decrease in brpaid expenses  Rs. 193.54 crores.

CASH FLOW - UNCONSOLIDATED

TCSL’s growth has been financed largely by cash generated from operations. It has sufficient cash generated from operations for meeting its working capital requirements as well as the requirements for capital expenditure.

The one-time employee reward, provided on accrual basis in the financial statements for fiscal 2015 was paid in fiscal 2016. In the following discussions, the impact of the one-time employee reward on cash flow from operating activities has been excluded for like to like comparison.  

Banking and financing arrangements

As at March 31, 2016, TCSL had available line of credit with multiple banks aggregating Rs. 6,059.00 crores, interchangeable between fund-based and non-fund based limits (Rs. 5,759.00 crores as at March 31, 2015). As at March 31, 2016 TCSL had utilised Rs. 1,756.38 crores of these limits (Rs. 1,475.31 crores utilised as at March 31, 2015).

In fiscal 2016, cash used in investing activities was Rs. 4,549.32 crores (cash provided of Rs. 611.01 crores in fiscal 2015).

During fiscal 2016, cash used in investing activities was primarily attributable to:

Net purchase of mutual funds government securities  & other investments Rs. 19,179.71 crores in fiscal 2016   (net sale Rs. 2,451.06 crores in fiscal 2015), mainly of  government securities.

Investment in fixed assets net Rs. 1,777.15 crores in  fiscal 2016 ( Rs. 2,564.49 crores in fiscal 2015)

Icd net placed  Rs. 1,362.00 crores in fiscal 2016

(ICD (net) matured Rs. 103.00 crores in fiscal 2015)

Certificate of deposit placed in fiscal 2016 Rs. 490.26 crores.

Cash provided by investing activities was primarily  attributable to:

Maturity of seposits with banks net Rs. 15,651.69 crores in fiscal 2016 (investment of Rs. 2,897.58 crores in fiscal 2015)

Inter received from investments in fixed   deposits inter-corporate deposits and bonds & debentures Rs. 1,782.83 crores in fiscal 2016 (Rs. 1,934.38 crores in fiscal 2015)

Dividends received from subsidiaries Rs. 696.05 crores in fiscal 2016 (Rs. 1,354.31 crores in fiscal 2015).

The significant items of cash used in financing activities in fiscal 2016 were payment of dividend Rs. 9,479.19 crores including dividend tax (Rs. 17,020.46 crores in fiscal 2015) and repayment of short term borrowings (net) Rs. 72.60 crores in fiscal 2016 (proceed of Rs. 185.56 crores in fiscal 2015).

INTERNAL FINANCIAL CONTROL SYSTEMS AND THEIR ADEQUACY

TCS has aligned its current systems of internal financial control with the requirement of Companies Act 2013, on lines of globally accepted risk based framework as issued by the committee of sponsoring organisations (COSO) of the treadway commission. The Internal

Control – Integrated Framework (the 2013 framework) is intended to increase transparency and accountability in an organisation’s process of designing and implementing a system of internal control. The framework requires a company to identify and analyse risks and manage appropriate responses. The Company has successfully laid down the framework and ensured its effectiveness. TCS’s internal controls are commensurate with its size and the nature of its operations. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorised use, executing transactions with proper authorisation and ensuring compliance of corporate policies. TCS has a well-defined delegation of power with authority limits for approving revenue as well as expenditure. Processes for formulating and reviewing annual and long term business plans have been laid down. TCS uses a state-of-the-art enterprise resource planning (ERP) system to record data for accounting, consolidation and management information purposes and connects to different locations for efficient exchange of information. It has continued its efforts to align all its processes and controls with global best practices.

Our management assessed the effectiveness of the Company’s internal control over financial reporting (as defined in Clause 17 of SEBI Regulations 2015) as of March 31, 2016. The assessment involved self review, peer review and external audit.

Deloitte Haskins & Sells LLP, the statutory auditors of TCS has audited the financial statements included in this annual report and has issued an attestation report on our internal control over financial reporting (as defined in section 143 of Companies Act 2013).

TCS has appointed Ernst & Young LLP to oversee and carry out internal audit of its activities. The audit is based on an internal audit plan, which is reviewed each year in consultation with the statutory auditors (Deloitte Haskins & Sells LLP) and the audit committee. In line with international practice, the conduct of internal audit is oriented towards the review of internal controls and risks in its operations such as software delivery, accounting and finance, procurement, employee engagement, travel, insurance, IT processes, including most of the subsidiaries and foreign branches.

TCS also undergoes periodic audit by specialised third party consultants and professional for business specific compliances such as quality management, service management, information security, etc.

The audit committee reviews reports submitted by the management and audit reports submitted by internal auditors and statutory auditors. Suggestions for improvement are considered and the audit committee follows up on corrective action. The audit committee also meets TCS’ statutory auditors to ascertain, inter alia, their views on the adequacy of internal control systems and keeps the board of directors informed of its major observations periodically.

Based on its evaluation (as defined in section 177 of Companies Act 2013 and Clause 18 of SEBI Regulations 2015), our audit committee has concluded that, as of March 31, 2016, our internal financial controls were adequate and operating effectively.

CAUTIONARY STATEMENT

Certain statements made in the management discussion and analysis report relating to the Company’s objectives, projections, outlook, expectations, estimates and others may constitute ‘forward looking statements’ within the meaning of applicable laws and regulations. Actual results may differ from such expectations whether exbrssed or implied. Several factors could make significant difference to the Company’s operations. These include climatic and economic conditions affecting demand and supply, government regulations and taxation, natural calamities over which the Company does not have any direct control.  

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