After significantly overtaking Reliance Industries (RIL) in market capitalisation, software major Tata Consultancy Services' (TCS) operational performance over the last five years has now brought it within touching distance of the petrochemicals giant in profitability terms as well. RIL currently tops the list of private firms ranked in terms of net profits.
While RIL’s net profit in FY09 was thrice that of TCS, a 29.5 per cent compounded annual growth rate (CAGR) in its net profit over the last five years has enabled TCS to inch close to RIL’s bottomline figure. During the five year period, RIL saw its net profit grow at only 7 per cent.
Even as TCS numbers for the FY14 stood at Rs 19,163 crore, short of RIL’s net profit of Rs 21,984 crore, if the two companies were to continue their CAGR track record, TCS could move ahead of RIL in the current fiscal to emerge as the company with the highest net profit. While TCS has steadily bridged the gap with RIL in terms of profitability, the stock markets have been responding to the software firm’s performance, which is being reflected in the market capitalisation charts.
Even as the oil and gas major had a higher market cap as compared to TCS till the middle of February last year, TCS overtook Reliance in that month by August 2014 had taken a lead of well over Rs 1 lakh crore. As on Thursday, TCS had a market cap of Rs 4,34,338 crore while RIL had a market cap of Rs 3,09,883 crore, thereby resulting in a gap of Rs 1.25 lakh crore between the top two firms in the market cap charts. TCS’ rise in market cap last year was supported by a growth revival in the US economy and a sharp depreciation in rupee against the dollar.
RIL on the other hand saw its growth stagnate over the last few years and surge in the topline has largely been on account of ‘other income’. A weak performance at the markets over the last few years also resulted into decline in the number of retail shareholders in RIL. In FY13, RIL witnessed a net outflow of 2.44 lakh retail investors and has lost 4 lakh retail investors in the period between March 2010 to March 2013 from 35.59 lakh to 31.59 lakh.
Neck ‘n Neck
* TCS numbers for FY14 stood at Rs 19,163 crore, short of RIL’s net profit of Rs 21,984 crore
* If the two companies grow at the current CAGR, TCS is set to race RIL in the profits game