tata consultancy services ltd share price Management discussions


Overview of the Industry

The global economy recovered strongly in CY 2021 even as new variants of the COVID-19 virus fueled additional waves of the pandemic. Robust policy support in advanced economies, availability of vaccines and relaxation of pandemic restrictions helped economies bounce back, collectively expanding world output by an estimated 6.1%f

Global technology spending grew strongly in 2021 to $1.7 trillion2. The primary drivers were accelerated investments in digital transformation and cloud adoption in response to changed consumer behaviors and the need for greater operational resilience. Additionally, there was increased outsourcing by enterprises looking to free up financial as well as human resources to execute their transformation programs. A severe talent scarcity added to the outsourcing imperative. IT services grew 6.2% YoY, crossing $899 billion while BPM grew nearly 5% to reach $211 billion.

The global IT services industry continues to be a highly fragmented one, with even the largest provider having a mid-single digit market share.

TCS is among the largest IT services providers

 

1 World Economic Outlook, IMF, April 2022

2 Nasscom Strategic Review Report 2022

globally, with a market share of 2.3%, and has outperformed the market, growing significantly higher than market growth over the last decade.

This may be attributed to market share gains resulting from TCS customer-centric strategy and organization structure, a very stable management team, focused investments in building superior capabilities, better execution resulting greater customer satisfaction, and steadily expanding participation in customers growth and transformation spends.

TCS Business An Overview

TCS is an IT services, consulting and business solutions organization partnering many of the worlds largest businesses in their transformational journeys for the last 54 years. It has a global presence, deep domain expertise in multiple industry verticals and a complete portfolio of offerings - grouped under consulting and service integration, application services, digital transformation services, cloud services, engineering services, cognitive business operations, and products and platforms - targeting every C-suite stakeholder.

The company leverages all these and its deep contextual knowledge of its customers businesses to craft unique, high quality, high impact solutions designed to deliver differentiated business outcomes. These solutions are delivered using its Secure Borderless Workspaces™ (SBWS™) operating model which enables a highly distributed, Location Independent Agile™ delivery.

TCS geographic footprint covers North America, Latin America, the United Kingdom, Continental Europe, Asia-Pacific, India, and Middle-East and Africa.

TCS considers industry verticals as its primary go-to-market business segments. The key vertical clusters are: Banking, Financial Services and Insurance (BFSI), Retail and Consumer Business, Communications, Media and Technology (CMT), Manufacturing, Life Sciences and Healthcare and Others. The last category includes Energy, Resources and Utilities, Public Services and others.

Strategy for Sustainable Growth3

Customer-centricity is at the heart of TCS strategy, organization structure and investment decisions. TCS customer-centric worldview helps spot trends early, embrace business opportunities by making the right investments and mitigating risks while discharging its social and environmental responsibilities.

TCS has been broadening and deepening customer relationships by continually looking for new opportunities and newer areas in their businesses to add value, proactively investing in building newer capabilities, reskilling its workforce and launching newer services, solutions, products and platforms to address those opportunities.

In the last few years, the company has been using its investments in research and innovation, its intellectual property and deep contextual knowledge of the customers business and technology landscape to proactively pitch ideas and solutions designed to improve the clients topline and help drive competitive differentiation.

These growth and transformation (G&T) engagements are higher value engagements catering to the needs of a broader set of stakeholders in the client organization, and is helping drive a steady increase in the scope and scale of services consumed year after year, and expand TCS share of wallet, as evidenced by the client metrics.

At an aggregate level, this strategy has resulted in deep and enduring customer relationships, a vibrant and engaged workforce, industry-leading profitability, a steady expansion of the addressable market, and a proven track record in delivering longer term stakeholder value.

Enabling Investments

TCS pioneered4 the use of the word ‘digital to describe the new family of technologies that emerged in the last decade. Quick to recognize the potential of cloud, the company made investments ahead of time in launching new platform-based business models as far back as in 20095, reskilling the workforce, research and innovation, building collaborative workspaces and innovation centers, intellectual property, and alliances and partnerships. Those early investments have given TCS a head start in participating in its customers G&T journeys.

Over the last 3 years, TCS has been investing in a network of Pace Ports, co-innovation hubs in all its major markets, to provide a physical space for TCS teams to engage with clients in ideation, rapid prototyping and agile development of innovative ideas. These hubs also house researchers and members of TCS extended innovation ecosystem of start-ups and academia. Adding to the Pace Ports in Tokyo, New York, Pittsburgh and Toronto, the company inaugurated the Pace Port at Amsterdam in May 2021, and a Digital Garage in Sydney in February 2022.

TCS continued to invest in intellectual property, launching new variants within the ignio™ suite and building newer functionality and features in the TCS BaNCS™ suite, the Algo Retail suite, the TCS ADD suite, HOBS, TwinX, MasterCraft and Jile. Across each of the industry verticals, the relevant business units launched new service offerings and solutions, catering to the evolving needs of the market - such as the ESG Integration solution suite on all three hyperscaler platforms covering EU taxonomy, Sustainable IT, Green Mortgage, Carbon Bank and Cal-C (Carbon Calculator).

The company launched Cyber Defense Suite - a comprehensive suite of modular, quickly adoptable cyber security services on a single platform - to provide enterprises with a unified 360-degree visibility and predictive intelligence to proactively defend and respond against evolving risks.

TCS dedicated practice units around AWS, Microsoft Azure and Google Cloud Platform, launched in FY 2021, offer customers the full range of transformational and operational services on the respective hyperscaler stacks, spanning advisory services, migration, application and data modernization, including SaaS and enterprise productivity suites, infrastructure, cyber-security and edge.

These units have been steadily investing in training, certifications, credentials and in building solutions and intellectual property on their respective hyperscaler stacks. In FY 2022, TCS added TCS Omnistore, TCS MasterCraft, 5G Edge Suite, TwinX and its suite of sustainability solutions - namely TCS Clever Energy, TCS IP2 and TCS Envirozone - to the list of its software products and solutions available on the various hyperscaler platforms. TCS also launched Google Cloud Garages for co-innovation leveraging analytics and AI on the cloud, at its Pace Ports in Amsterdam, New York and Tokyo.

New Organization Structure

TCS rolled out a new, industry-first organization structure at the end of FY 2022 that further enhances the companys customer centricity. The new model recognizes that customers needs vary and evolve over time as they progress in their relationship journey with TCS, and enables the delivery of a curated experience best suited for each customers current stage in that journey. It does this by adding a fourth dimension - i.e. customer relationship stage - to the existing three dimensions of TCS organization structure: geography, industry vertical and service line.

Customer acquisition will continue to be done by local sales teams in the various markets. Existing customers in major markets will continue to be serviced by the same client partners, but the governance layer on top has been realigned. Instead of being governed as vertical-wise business groups, customers have now been segmented by relationship stage, and vested with three business groups:

• Relationship Incubation Group to manage new relationships which require a higher level of hand holding and a differentiated, high touch delivery;

• Enterprise Growth Group to manage relationships which are in the high growth phase;

• Business Transformation Group to manage large and mature relationships.

The companys primary reporting segments will continue to be industry verticals and geographic markets. Existing verticalized governance structures, the Industry Solution Units (ISUs) and sub-ISUs, will see their portfolios realigned and rationalized under these three business groups. Customers in emerging markets will continue to be serviced by local country-based organizations.

The sharper customer focus enabled by the new structure and the resultant curated customer experiences are expected to enhance customer intimacy, facilitate crossselling and up-selling, expand share of wallet and prepare the company for the journey ahead.

Strategic Responses to Opportunities and Threats

Opportunity / Threat TCS Approach Outcomes
Greater interest in using technology to drive business growth • Focused on developing contextual knowledge and applying that for inside-out transformations. • Expansion of addressable market.
• Growing share of G&T business adding to growth.
• Continued investments in research and innovation, TCS Pace Ports, and intellectual property.
• Higher quality revenue, lending margin resilience.
• More deeply embedded in the clients business.
• Dedicated practice with domain experts to bring together TCS differentiated capabilities from across the organization to stitch together comprehensive solutions.
• Engaging with a broader set of buyers in the client organization.
• Higher visibility within C-Suites.
• Proactive pitching of solutions to customers most pressing business problems.
• New brand tagline ‘Building on Belief to strengthen positioning as a growth and transformation partner.
Accelerated adoption of public cloud • Launched dedicated business units with end to end capabilities on each of the hyperscaler platforms. • Strong growth in cloud transformation revenues.
• Top tier partner to each of the hyperscalers.
• Continued investment by each of these units in skills, certifications, credentials, IP and accelerators.
• Preferred partner to clients seeking to use cloud native capabilities to power their growth and transformation.
• Articulated the multi-horizon cloud transformation framework.
• Made available TCS products and solutions on public clouds.
Greater acceptance of as-a-Service platforms • Strengthened alliances and launched new offerings around the popular and new SaaS products. • Stronger win-win partnerships.
• Expansion of addressable market.
• Helped ISV* clients upgrade their products to launch new SaaS versions.
• Strong growth in SaaS sales.
• Platforms drive stickier relationships, with long term revenue visibility.
• Partnering with product manufacturers to help launch innovative as-a-Service offerings using TCS Bring Things to Life IoT framework.
TCS IP:
• Launched SaaS versions of in-house product portfolio; made available on hyperscaler platforms.
• Used IP portfolio to launch new platforms that bundle IP and shared services on the cloud.
Operations optimization to fund transformation • Launched the Machine First™ Delivery Model, embedding automation deep within the enterprise to drive greater efficiencies. • Operations transformation order book of over $1Bn from Cognix since its launch.
• Reputation as a partner who helps structure selffunding business transformation programs.
• Launched the TCS Cognix™ hyper-automation suite with pre-built solutions for business and IT operations transformation.
Pandemic-forced remote working • Launched the Secure Borderless Workspaces™ operating model. • Ensured business continuity on mission-critical activities.
• Announced Vision 25x25, heralding a new hybrid working model for the longer term. • Faster ramp-up of new projects.
• More opportunities for employees, based on skills rather than their location.
• Implemented ‘talent clouds, staffing projects using AI to match skills, regardless of location.
• More flexible working arrangement, that is more gender inclusive.

Talent Management

TCS aims to attract, develop, motivate and retain diverse talent, that is critical for its continued success. The companys talent management strategy seeks to maximize the potential of every employee by creating a purpose-driven, inclusive, stimulating, and rewarding work environment, delivering outstanding employee experience, while fueling business growth.

In FY 2022, TCS made the highest ever net addition of 103,546 employees globally, taking the total employee base to 592,195, with 153 nationalities. The company crossed a key diversity milestone, with women in the workforce exceeding 200,000 during the year. Further, TCS was included in the 2022 Bloomberg Gender-Equality Index (GEI).

Industry-Leading Initiatives

• SPEED Feedforward: A pioneering initiative that takes TCS continuous feedback performance appraisal system to the next level by providing real time, objective performance data consolidated from various systems in employees goal sheets.

• ReBegin: An initiative for experienced women professionals to reinvent their career, received over 14,000 applications.

• TCS Vaccination League: A pioneering and one- of-a-kind initiative to vaccinate employees and their families across 160 locations in India, in metros as well as Tier 2/3 cities.

Employee Health and Wellbeing

Putting employee safety and wellbeing as a paramount objective, TCS provided pandemic assistance and outreach through an enhanced hospitalization policy, home health care support and access to covid care centers set up at TCS facilities in 13 cities. TCS also introduced Emergency Medical Assistance, an interest free loan to support hospitalization needs during COVID-19. Over

260,000 wellbeing calls were made to over 48,000 associates and dependents, and nearly 100,000 teleconsultations were provided to ensure proactive medical and emotional support.

The TCS Vaccination League benefited 1.2 million individuals and resulted in over 87% of employees in India getting fully vaccinated and 95% receiving at least one dose.

Talent Acquisition

TCS talent acquisition strategy is to identify, engage and hire the best talent with the right competencies required by the business at the right time to promote future business growth. Its technology-enabled, data-driven, 100% virtual hiring model has enabled quicker decision making, enhanced agility and scaled well globally, while retaining the local nuances required for building a diverse workforce.

The company remains the preferred employer at leading engineering campuses in India. Its college recruitment efforts in USA, Canada, Latin America, China and Hungary have been progressing well, with very encouraging outcomes. TCS was one of the largest job creators in IT services in several major markets, for both freshers and lateral hires.

In the United States, TCS has hired nearly 32,000 employees over the last five years.

In India, over 789,000 students from over 4,200 institutes appeared for TCS National Qualifier Tests from the safety of their homes. TCS was also among the biggest recruiters at top B-schools and national institutes.

Key Achievements:

• TCS CareersNext - TCS interactive platform to enrich the lateral talent pipeline connected over 51,000 experienced professionals, enabling them to choose from a wide palette of career opportunities that matches their passion and skill set.

• Highly successful internal referral program accounted for 30% of total joiners in FY 2022.

• TCS CodeVita™ - Season 10 of TCS flagship global coding contest saw 305K+ registrations across 85 countries.

• HackQuest - Sixth edition of TCS ethical hacking contest saw over 5800 active participants.

• TCS Academic Interface Program - Engaged 196,474 students (20,687 outside India) from 1,618 institutes (554 outside India) through workshops and faculty development programs. 3,844 interns (414 outside India) on boarded in FY 2022.

Diversity, Equity and Inclusion

TCS is an equal opportunity employer and has a well-defined and progressive Diversity, Equity and Inclusion (DEI) policy embracing all diversity parameters which includes gender, marital status, religion, race/caste, colour, age, ancestry, nationality, language, ethnic origin, socio-economic status, physical appearance, disability, sexual orientation, gender identity and/or expression and any other category protected by applicable law.

TCS recognizes that a diverse and inclusive workforce is necessary to drive innovation, foster creativity, and guide business strategies. This year TCS reached a significant milestone to become one of the few organizations in the world employing more than 200,000 women. The companys focus has been to enable better representation of women through sustained interventions at every level. Key programs include:

• iExcel: TCS flagship executive leadership development program for women after which participants receive project-based mentorship from senior leaders and emerging leaders from different businesses, generations, and cultures. So far, TCS has had 20 editions of this program, benefiting 1,290 women leaders.

• Project Synthesis: A large-scale initiative with a multiculturistic approach to teams, clients, and strategy, to help managers build a deeper understanding of inner diversity and engage with the collective community. 8,682 managers across 37 nationalities have undergone this program.

• The Diversity Maturity Matrix: In-house diversity measurement tool aims at identifying gaps and, assesses an organizations maturity in DEI provides insights on strategic planning and action to increase DEI maturity.

• Allies of Diversity - A program where senior leadership from client organizations are invited to share diversity best practices. 24 chapters across 52 different client organizations engaging 58 senior leaders have been completed.

• The Workplace Coach: A 75-hour internal coach certification program enabling individuals to become coaches. This supports individuals within the organization towards ACC certification. So far, 2 cohorts have been completed, bringing together 212 internal coaches.

• Education and Sensitization: TCS has mandatory online DEI training designed to help associates understand the key concepts of DEI and belonging, that 481,000 employees have completed.

Talent Development

TCS is focused on building and developing enduring capabilities for a future-ready workforce.

Key initiatives include:

• TCS Elevate: TCS pioneering program linking learning to career growth and reward covered over 322,000 employees. Over 13,000 employees were identified as high talent and received increased compensation.

• Contextual Masters (CMs): With a learning intensity 15% higher than average, CMs are groomed into potential G&T leaders. TCS now has over 50,000 CMs, up 169% over the year. The community has strong gender diversity, with 24% women.

• India Freshers Training: Over 100,000 trainees were onboarded during the year, the highest number ever. In addition to the Virtual Xplore foundational training program, fresher training was further intensified with 47 digital technology certifications, daily webinars, weekly online assessments, and gamified hackathons. Over 200 webinars and post-offer engagement sessions were conducted.

Key Metrics:

• TCSers invested 121 hours of learning on average during the year.

• 3.5 million digital competencies acquired; over 171,000 employees deep skilled.

• Every hour, TCS clocked 8,400 course completions; 3,000 competencies acquired.

• One hands-on learning exercise completed every 8 seconds.

• Over 160,000 G&T-ready and 20,000 G&T leaders groomed across all the segments to take up G&T opportunities.

Purpose-driven Workforce Policies

The companys progressive policies have been instrumental in creating a vibrant, equitable and inclusive workplace. In FY 2022, TCS introduced a Global Guideline on Remote Working to enable smooth transition into a hybrid work model aligned with Vision 25x25.

TCS was one of the earliest globally to have a documented policy on vaccination and a guideline for quarantine leave. Thirty new HR policies were created in the areas of health and safety, compensation and benefits, mobility, leave, performance management, working hours and workplace conduct in response to statutory amendments, business environment and changing workforce needs.

Other policies of interest like the TCS Global Policy - Whistle Blower and Statement on Modern Slavery Act were revisited, along with 118 other policies to ensure that TCS upholds the highest standards of transparency and accountability towards all stakeholders.

Talent Transformation

TCS has multiple initiatives to help employees grow in their careers:

Xcelerate - Integrated platform to capture associates aspirations and map them to future opportunities. Over 60% of TCSers have shared their aspirations and career goals in Xcelerate, and mechanisms are being developed to help them realize their ambitions.

iConnect - Collaborative tool designed to help employees reach out to senior mentors for guidance on career paths, and have face to face dialogues about their role and career.

Mentoring - TCS is promoting a culture of mentoring and coaching through systemic intervention programs, with over 37,000 mentors including over 1,500 Gold and Silver certified mentors. Over 10,000 leaders are part of the 360O inclusive feedback process.

Talent Review - TCS program to create and sustain a healthy leadership pipeline. It enables leaders to share their career aspirations and preferences of mobility, followed by an assessment of their leadership attributes.

Exciting Opportunities - Internal platform to publish niche and critical requirements to the leadership and high potential communities, thereby facilitating talent mobility. This embodies the companys philosophy of giving the first right of refusal for all leadership positions to internal candidates, thereby enabling better leadership development and building strong organizational loyalty.

Competitive Compensation

TCS business model depends on its ability to attract and retain talent in the highly competitive, global market for software engineers with graduate or post-graduate degrees in engineering and with relevant technical skills.

Compensation levels are merit based, determined by qualification, experience levels, special skills if any, and individual performance. Compensation structures are driven by prevailing practices in each country that TCS operates in. The merit based, democratized, transparent talent framework - Elevate, is designed to establish a tighter linkage between learning, skill development, career and reward. The company regularly benchmarks its compensation plans and benefits with the market to ensure competitiveness.

At TCS, three months notice is required from either side for termination6.

Engagement with Purpose

 

TCS Engagement with Purpose model reimagines employee engagement with a focus on health and wellbeing, lifelong learning, career development, living TCS values, social collaboration, and community service. A key engagement platform has been the virtual #OneTCS Channel which hosts educative and inspirational speakers to foster a sense of community.

Key Achievements:

• Radio Maitree: a unique, interactive radio program to enhance employee connect saw participation by over 23,000 employees globally.

• About 712,000 employee interactions enabled through focused interventions such as Living my Values, Build My Career and Lifelong Learning.

• Leadership Townhalls cumulatively resulted in nearly 590,000 employee interactions with business leaders on TCS values and organizational belonging.

• Over 22,000 1x1 mentoring sessions and over 15,000 1x1 HR career conversations.

TCS various employee connect and collaboration platforms are as below:

• Knome, KnowMax, GEMS: Platforms for social collaboration within the organization, learning, sharing and for rewards and recognition.

• Safety First: Initiative focused on employee safety and security.

• Fit4life: Builds a fraternity of health and fitness conscious employees and creates a culture of fitness around 42,000 active users contributed a total of 19 million kms on the portal.

• Purpose4life: Forum for volunteering for community projects in the areas of education, health and environment; over 22,000 volunteers contributed to 617,000 volunteering hours in community initiatives that supported over 353,000 beneficiaries.

• Maitree: Community of TCSers and their families who plan activities that help create a bond among employees and promote work-life balance.

• TCS Cares: Program aimed at creating robust avenues to build an emotionally strong and mentally resilient workforce.

• PULSE: TCS annual employee engagement and satisfaction survey is the organizations formal listening forum. Our Annual Employee Satisfaction Survey recorded an enthusiastic participation from associates globally, with an ASI of 80.6 and AEI of 81.0 - the highest over the last 14 years.

Employee Retention

TCS has always had the best retention rate in the industry. Its values-driven culture, progressive HR policies, and philosophy of investing in people and empowering them have made it an industry benchmark in talent retention practices. In FY 2022, IT services attrition was 17.4% on an LTM basis, the lowest among its peers.

FINANCIAL PERFORMANCE OVERVIEW

The discussions in this section relate to the consolidated, Rupee-denominated financial results pertaining to the year that ended March 31, 2022. The financial statements of Tata Consultancy Services Limited and its subsidiaries (collectively referred to as ‘TCS or ‘the Company) are prepared in accordance with the Indian Accounting Standards (referred to as ‘Ind AS) prescribed under section 133 of the Companies Act, 2013, read with the Companies (Indian Accounting Standards) Rules, as amended from time to time. Significant accounting policies used in the preparation of the financial statements are disclosed in the notes to the consolidated financial statements.

The following table gives an overview of the consolidated financial results of the company:

(Rs.in crore)

FY 2022

FY 2021 Adjusted*

FY 2021 Reported

Revenue % of Revenue % Growth Revenue % of Revenue Revenue % of Revenue
Revenue from operations 191,754 100.0 16.8 164,177 100.0 164,177 100.0
Earnings before interest, tax, depreciation and amortization (EBITDA) (before other income) 53,057 27.7 14.0* 46,546 28.4 45,328 27.6
Profit Before Tax (PBT) 51,687 27.0 14.9* 44,978 27.4 43,760 26.7
Profit after tax attributable to shareholders of the company 38,327 20.0 14.8* 33,388 20.3 32,430 19.8
Earnings per share (in ) 103.62 16.1* 89.27 86.71

* Excludes provision towards legal claim

Analysis of revenue growth

On a reported basis, TCS revenue grew 16.8% in FY 2022, compared to 4.6% in the prior year, due to accelerated spending on digital transformation initiatives, cloud adoption and increased outsourcing.

Average currency exchange rates during FY 2022 for the three major currencies are given below:

Currency Weightage (%) FY 2022 FY 2021 % Change YoY
USD 53.0 74.61 74.06 0.7
GBP 13.6 101.50 97.32 4.3
EUR 11.8 86.36 86.69 (0.4)

Movements in currency exchange rates through the year resulted in a positive impact of 1.4% on the reported revenue. The constant currency revenue growth for the year, which is the reported revenue growth stripped of the currency impact, was 15.4%.

Growth attributable to FY 2022 (%) FY 2021(%)
Business growth 15.4 (0.8)
Impact of exchange rate 1.4 5.4
Total Growth 16.8 4.6

Segment revenues, year on year growth, a brief commentary and segment margins are provided below:

Industry Vertical Segment Revenue FY 2022 (FY 2021) crore YoY Revenue Growth % Key Spending Areas Segment Margin FY 2022 (FY 2021) %
Banking, Financial Services and Insurance 75,126 14.5 • Customer journey transformation, ecosystem strategies for new products and services, fintech adoption. 26.9

(65,634)

(28.5)

• Sustainability and climate change initiatives.
• Regulatory: New credit risk and operational risk mandates, controls management, consent order management and strategic framework for risk and finance management.
• Technology: Cloud adoption, cyber security, IT estate rationalization, core platform simplification, agile and DevOps adoption.
Communication, Media and Technology 31,874 17.7 • 5G and fiber rollout, network virtualization. 29.9

(27,077)

• Data and analytics, cloud enablement, product and platform engineering.

(29.6)

• M&A, divestitures, business simplification.
• Operating model resilience, cost optimization.
Retail and Consumer Business 30,715 20.0 • Seamless and Unified Customer experience across channels, hyper personalization, last-mile delivery, marketplace, payments. 27.8

(25,589)

(27.9)

• Supply chain transformation for speed and visibility.
• Employee experience, automation, application and data modernization, cloud migration, cost optimization.
Manufacturing 18,610 16.7 • IT infrastructure modernization, cloud enablement, cybersecurity. 30.1

(15,950)

(281)

• Plant safety, remote asset management, energy efficiency and decarbonization.
• Supply chain resilience, process resilience.
• Utilities invested in connected ecosystems, smart grids and front-end digital investments to enhance customer experience.
Life Sciences and Healthcare 20,462 20.6 • COVID-19 initiatives, connected labs, clinical trials, connected instruments, digital surgery and health. 30.0

(16,968)

(31.0)

Others 14,967 15.5 • Digital marketing and analytics, mergers, acquisitions and divestitures, digital workplace transformation, ERP modernization, cloud transformation, intelligent automation, data democratization, analytics and insights, cyber security. 20.6

(12,959)

(22.9)

• IT operating model transformation, Agile & DevOps, vendor consolidation.

Business Outlook

Global growth is expected to moderate from 6.1% in 2021 to 3.6 percent in 20227, driven by withdrawal of monetary accommodation in major economies, continued supply side shortages and economic damage from the war in Ukraine. While enterprise spending on technology is expected to go up, growth is expected to moderate year on year at an industry level, leaving space for outperformance through market share gains and strong deal wins. Key themes expected to drive client spending, and continued business momentum for the company in FY 2023, include:

• G&T Themes:

• Customer Experience: Continued focus on strengthening and deepening customer relationships through digital channels, reimagination of omnichannel journeys, immersive device-agnostic experiences using XR / Metaverse, and hyperpersonalization.

• Product Innovation: Accelerated spending on servitization to provide a connected experience and enable new business models.

• Sustainability: New products and services aligned to the sustainability / SDG agenda, new systems to measure, track and reduce GHG emissions across the value chain towards Net Zero goals.

• Others: Employee experience; B2B2C / D2C; M&A; supply chain modernization for better visibility, agility and resilience; purpose-driven, collaborative ecosystems to launch new offerings and new business models; smart manufacturing with greater automation, digital twins and predictive maintenance; industry transformation.

• Technology: Cloud migration; digital workplace; data estate and application modernization; cyber security; ERP modernization; low-code, no-code adoption; 5G/Edge adoption.

• Operations: AI/ML-led transformation of IT / business operations for greater resilience and leaner operating models; managed services models.

Enterprise Risk Management

While the world and businesses are recovering from the impact of the COVID-19 pandemic of the last two years, new external and internal risks continue to challenge businesses in every possible way amplifying existing risks. Not only are the nature of risks evolving, but the speed of risk is increasing with faster time to impact. Geo-political situations like the Russia Ukraine war have further forced global businesses to revisit their operations, delivery, supply chains and contractual aspects. Operating in an uncertain and ever-changing environment, TCS global operations bring in considerable complexities and TCS robust enterprise risk management framework aids in ensuring the strategic objectives are achieved. This framework enables risk identification, risk assessment, risk response planning and actions, risk monitoring and overall risk governance. Key Risk Indicators are used to identify and assess risks. The digital platform for integrated risk management provides an enterprise-wide view of risks covering strategic, operational, compliance, financial and catastrophic risks, providing a holistic approach towards informed decision making. Risks are assessed and managed at various levels with a top-down and bottom-up approach covering the enterprise, the business units, the geographies, the functions, the customer relationships and projects.

Listed below are some of the key risks, anticipated impact on the company and mitigation strategies.

Key Risks Impact on the Company Mitigation
Volatile global political and economic scenario The company derives a material portion of its revenues from customers discretionary spending which is linked to their business outlook. • Broad-based business mix, well diversified across geographies and industry verticals.
• Monitor changing geopolitical scenarios, the potential business implications and strengthen internal controls to further safeguard against secondary risks.
Geo-political disruptions such as the war in Ukraine and resultant volatility in the global economy, or trade wars may adversely affect that outlook resulting in reduced spending which could restrict revenue growth opportunities.
• Offerings and value propositions targeting all stakeholders (in addition to the CIO) in the customer organization, covering discretionary as well as non-discretionary spends, and relevant at every point in the business cycle.
• Participate in the customers growth and transformation initiatives through services and offerings including advisory services, migration and modernization of applications and workplace transformation using location independent agile, deep contextual knowledge and data-driven analytics and dashboards.
This could also result in steep inflation globally which could impact client spending as well as increase TCS cost of doing business.
Additionally, there could be higher risk to service delivery, business continuity, cybersecurity, sanctions compliance and human rights risks in geo-politically sensitive zones. • Proactively investing in infrastructure and resourcing to satisfy anticipated customer demand for flexible products and platforms based solution offerings and subscription- based services to gain market share and new clients and markets.
• More long-term contracting models.
• Leverage business ecosystem through collaboration with partners, start-ups and alliances to participate in transformation initiatives of customers.
Disruption and uncertainty in business due to the COVID-19 pandemic While presently the severity of the disease due to COVID-19 has reduced because of increased vaccination, as immunity may wane over a period of time, there is a risk of further waves and emergence of highly transmissible and more virulent variants. • Encourage new employees to get vaccinated as per the country level internal vaccination policies, government guidelines and including facilitating booster doses as available.
• Employee well-being initiatives like 24*7 dedicated helpline for employees to address COVID-19 related help, queries for emotional support, interactive sessions, counseling services (TCS Cares), medical hotline to doctors, fitness sessions for employees and Covid Care Centres in TCS premises.
This may have an impact on the health and safety, emotional wellbeing and mobility of TCS workforce, which in turn may impact service delivery and revenues. If large numbers of employees are affected, it could result in business disruption and necessitate higher spends for ensuring business resiliency. There could be hesitation to come back to office in the near future from employees who have been working remotely from their hometowns.
• Enable employees to return to office while providing flexibility through the hybrid work model using Secure Borderless WorkSpaces (SBWSTM) for remote working, while following safe protocols like masks and social distancing in offices.
• Leverage emerging technology based tools to anticipate and be resilient for any upcoming COVID-19 waves / variants.
• The COVID-19 Apex committee at Enterprise level continues to monitor the residual risks and coordinate global efforts required, based on frequent risk assessments.
• Regular communication with customers about measures taken to maintain business services and reporting of their operations status.
• Regular coordination with key suppliers for expeditious provisioning of assets critical for business services.
• SOP for operating TCS Offices including implementing Safe Operating Zones for associates requiring to work from office, thermal screening, frequent sanitization of premises, social distancing layout etc. AI-based Workplace resilience tool implemented in Delivery Centres to aid in risk profiling and contact tracing.
• Revised Business Continuity plans which are benchmarked against ISO 22301 in place, for hybrid mode of working and to address any future waves of the pandemic.
• Remote working practices for managers and employees integrated into the Location Independent Agile delivery method, to ensure effectiveness and productivity.
• Monitor changes in regulations related to the impact due to pandemic and align internal policies accordingly.
Talent risk due to huge demand for talent globally and attrition The companys ability to attract, develop, motivate, and retain talent is critical to business success. Increase in attrition can impact TCS ability to deliver existing business engagements and grow. • Commitment to organic talent development, best in class learning and development, linkage of career growth to learning, and preference to internal talent for new leadership positions, all incentivize planning of longer-term careers in TCS.
• Focused tactical initiatives to retain talent using proactive as well as reactive initiatives; increased employee engagement.
Inability to attract experienced professionals with niche digital skills from the market, can also impact TCS ability to grow. • Leveraging top employer brand and social networking sites and talent sourcing channels to tap into the passive pool.
• Reducing talent acquisition cycle time to improve joining rates through innovative practices.
• Upskill or cross-skill employees to improve competencies.
• Engaging in various markets through investments in STEM/GoIT programs, building local talent, building reputation locally to attract talent, campus engagements, etc.
Restrictions on global mobility, location strategies Distributed software development models require the free movement of people across countries and any restrictions in key markets pose a threat to the global mobility of skilled professionals. • Ongoing monitoring of the global environment, working with advisors, partners and governments.
• Material reduction in dependency on work visas through increased hiring of local talent including freshers, use of contractors, local mobility and training in all major markets.
Restrictions on mobility due to the pandemic or geopolitical developments, or due to legislations which limit the availability of work visas or which apply onerous eligibility criteria or costs leading to project delays and increased expenses. • Leveraging the SBWSTM model to source talent from anywhere and deliver from anywhere. Use of Location Independent Agile to promote systematic collaboration and reduce the need for co-location.
• Active engagement in Science, Technology, Engineering and Math (STEM) initiatives designed to structurally increase the availability of engineering talent in major markets.
• Greater brand visibility through event sponsorships, community outreach, showcasing of investments, innovation capabilities and employment generation.
• Increased outreach to government stakeholders, trade bodies, think tanks and research institutes.
Business model challenges Rapidly evolving technologies are changing technology consumption patterns, creating new classes of buyers within the enterprise, giving rise to entirely new business models and therefore new kinds of competitors. • Investments in building scale and differentiated capabilities on emerging technologies through large scale reskilling, external hiring, research and innovation, solution development and IP asset creation leveraging deep contextual knowledge across customer specific domain, technologies and processes.
• Establishment of focused business service units providing end-to-end transformational and operational solutions on leading cloud technology platforms spanning advisory, migration and modernization and support of applications.
The COVID-19 pandemic has resulted in a major acceleration of technology investments by customers to make themselves future-proof and also to power the revival of their business. This is resulting in increased demands on the companys agility to keep pace with the rapidly changing customer expectations. Failure to cope may result in loss of market share and impact business growth. • Staying relevant to customers by constantly launching new service practices and technology solutions including a new AI-Powered business command solution to help firms assess risk profiles and protect employees returning to offices and modernizing existing offerings and solutions.
• Develop capabilities in organization divestiture and integration planning to cater to Merger and Acquisition induced demand for advisory and business consolidation related services.
There is also increased focus on vendor consolidation and corporate restructuring and mergers and acquisitions in some customer industries. • Thought leadership by propagating the Business 4.0 framework leveraging the Machine First Delivery Model (MFDMTM). Develop industry-specific best practices and Artificial Intelligence led products to enable customers derive greater business value and discover opportunities to transform and grow their businesses.
• Implement Location Independent Agile methods to mitigate location constraints and pricing and margin pressures.
• Constant scouring of the technology landscape through alliance partnerships, and strong connections in academia and the start-up ecosystem to spot new trends and technologies and launch offerings around them.
• Enhancing ability to craft and win large deals.
• Go to market solutions by working along with partners and alliances, to enable faster transformation turnaround times for clients.
Currency volatility Volatility in currency exchange movements results in transaction and translation exposure. TCS functional currency is the Indian Rupee. Appreciation of the Rupee against any major currency could impact the reported revenue in Rupee terms, the profitability and also result in collection losses. • TCS follows a currency hedging policy that is aligned with market best practices, to limit impact of exchange volatility on receivables, forecasted revenue and other current assets and liabilities.
• Hedging strategies are decided and monitored periodically by the Risk Management Committee of the Board convened on a regular basis.
Breach of data protection laws The focus on data privacy and protection of personal data has increased significantly over the last few years. Legislations like GDPR in Europe carry severe consequences for non-compliance or breach. Many other countries have enacted or are enacting their Data Privacy regulations to ensure protection of personal data. Violation of data protection laws or security breaches can result in substantive liabilities, fines or penalties and reputational impact. • Global privacy policy covering all geographies and areas of operations, which sets out the privacy principles and guidance for deployment.
• Organization structure with the Global Privacy Office to strategise, monitor and guide deployment of data privacy framework across the enterprise. Data Protection Officers and other privacy officers have been appointed for TCS entities as required by local privacy regulations to monitor and drive implementation of data protection principles. Business Privacy Leaders are appointed to deploy compliance to the data privacy framework in all functions and business units.
• Privacy Information Management Systems (ISO 27701:2019) adopted and certified.
• Continuous monitoring and analysis of changes to regulatory and legal landscape and enhancing the data privacy framework.
• Embedding privacy by design and privacy by default principles in development of new or changed internal processes or services or products. Robust and continued governance of personal data processing.
• Data protection controls and robust risk response mechanisms in place to protect personal data in the TCS ecosystem and also in the customer engagements.
• Industry standard data masking and encryption technologies to protect personal data.
• Vendors and third parties contracted with privacy obligations and tracked for compliance based on risk assessment.
• Mandatory trainings and workshops on data protection, Privacy by Design and global privacy regulations. Continuous awareness campaigns through blog posts, email broadcasts, gamification, roadshows and online events.
• Implementing and maintaining data transfer agreements, where required for the transfer of data across jurisdictions.
• Periodic reviews and audits by independent audit firm to verify compliance to obligations in addition to internal audits across the ecosystem.
Cyber attacks Risks of cyber-attacks are forever a threat on account of the fast-evolving nature of the threat. There is also an increased risk due to various pandemic themed cyber threats and attacks due to geo-political drivers. • Advanced tools based on AI/ML aiding prevention and detection requirements with quarantine capabilities, including Perimeter security controls with advanced tools, enhanced internal vulnerability detection, data leak prevention tools, defined and tested incident management and recovery process in compliance with industry best practices.
In addition to impact on business operations, a security breach could result in reputational damage, penalties and legal and financial liabilities.
Market Opportunity: • Continued reinforcement of stringent security policies and procedures including enhanced security measures and awareness building to combat pandemic-themed threats like phishing, soliciting for fraudulent causes or charities, suspicious pleas and communication through social media, text or calls.
Enterprises are increasing their investments in building cyber resilience to be able to detect and foil intrusion attempts, and limit the impact. This presents an opportunity to expand customer relationships and become the preferred cyber security partner. • Close collaboration with Computer Emergency Response Team (CERT) and other private Cyber Intelligence agencies, and enhanced awareness of emerging cyber threats.
• Enterprise-wide training and awareness programs on Information Security including the extensively used enterprise-wide communication and collaboration platforms accessed through mobile or desktop channels.
• Strict access controls including non-persistent passwords (OTP) for secure access to enterprise applications/network. Special handling of privileged administrator accounts. Rigorous access management on all Cloud deployments.
• Encryption of data, data back-up and recovery mechanisms for ensuring business continuity.
• Ability to isolate TCS enterprise network from client network and defined escalation mechanisms to handle security incidents in client environment.
• Periodic rigorous testing to validate effectiveness of controls through Vulnerability Assessment and Penetration Testing.
• Internal and external audits, red teaming, breach and attack simulation.
Market opportunity
• Investments in building local threat management centers across the world, and the launch of new services and solutions including the Cyber Defense Suite, are helping TCS gain traction in this rapidly growing opportunity.
Non-compliance to complex and changing global regulations As a global organization, the company has to comply with a complex regulatory landscape across multiple jurisdictions, covering areas such as Employment and Labour, Immigration, Taxation, Foreign Exchange and Export Control, Sanctions, Environment, Health and Safety, Anti-Bribery and Anti-Corruption, Data Privacy and so on. • Deployment of a comprehensive global compliance management framework that enables tracking of changes to applicable laws and regulations across various jurisdictions, including new countries of operations and functional areas.
• Operationalizing regulatory requirements through business policies and processes.
• Clear accountability for compliance obligations and digitized tracking of such activities with evidence and verification.
The laws and regulations are continuously evolving, increasing in number and complexity. This has resulted in greater compliance risk and cost of compliance for the company. • Periodic regulatory compliance certification, which is fully digitized enables self-governance and covers compliance across all the locations of the company.
• Adequate and effective internal controls to comply with regulations and to keep a check on unlawful and fraudulent activities and internal audits to provide assurance.
The fast pace of changes in the regulatory environment requires quick understanding of their implications and adaptation in business operations. Failure to comply could result in penalties, reputational damage and criminal prosecution. • Strong focus on fostering ethical and compliance culture; Awareness through web-based compliance training courses for all staff and regular notifications/alerts on regulatory changes communicated to stakeholders.
• Strong governance at board, executive and management level through compliance committees and compliance working groups.
Intellectual Property (IP) infringement and leakage Risk of infringement of third-party IPs by TCS may lead to potential liabilities, increased litigation and impact reputation. • TCS has established an industry leading IP management framework (IP 4.0) and accordingly has institutionalized frameworks, processes and procedures that address the risk of infringement of third-party IP while ensuring safeguarding of TCS own IP assets. This strong focus on IP-led growth driven based on the 3P (Patents, Products and Platforms) strategy is contributing significantly towards thinning the competition for TCS.
Inadequate protection of TCS IP may lead to loss of IP leading to potential loss of ownership rights, revenue and value. • TCS has established a centralized IP and Software Product Engineering group that strives to build an IP thinking culture and hence covering the IP related awareness aspects effectively.
• There is a well-defined (software) asset lifecycle governance framework that incorporates policy guidance and risk mitigation guidelines on IP, Legal, software product engineering and business-related risks.
• IP Governance program that ensures that there is right access and right use of TCS IP, customer IP, partner IP, and third-party IP in service and partner engagements.
• Other key controls include employee confidentiality agreement, training and awareness for IP protection and prevention of IP contamination and infringement. Digitized system to enable strict controls around movement of people and information across TCS product teams and customer account teams.
• Technology inventions are celebrated in TCS by running special programs such as "Invent & Inspire" wherein top inventors and their invention stories are recognized for their success and impact on business.
Litigation risks Given the scale and geographic spread of the companys operations, litigation risks can arise from commercial disputes, perceived violation of intellectual property rights and employment related matters. TCS rising profile and scale also makes it a target to litigations without any legal merit. This risk is inherent to doing business across the various countries and commensurate with risk faced by other players similarly placed in the industry. In addition to incurring legal costs and distracting management, litigations garner negative media attention and pose reputation risk. Adverse rulings can result in substantive damages. • Strengthening internal processes and controls to adequately ensure compliance with contractual obligations, information security and protection of intellectual property.
• Improved governance and controls over immigration process /increasing localization and sensitization of business managers.
• Potential disputes are promptly brought to the attention of management and dealt with appropriately.
• Team of in-house counsels in all major geographies and a network of reputed global law firms in countries it operates in.
• Robust mechanism to track and respond to notices as well as defend the companys position in all claims and litigation.
Sustainability Risks - Climate change and Environmental aspects9 Growing scientific evidence indicates that extreme weather conditions like intense winter storms, rainfall, cyclones, droughts, are attributable to climate change. As a result of changing weather and seasonal patterns, there are also increasing cases of seasonal diseases, epidemics and pandemics besides threat to human safety and business disruption. • An environmentally sustainable approach is adopted by creating green policies, processes, frameworks and infrastructure. All TCS Centers globally continue to be certified under the ISO14001:2015 Environment Management Standard.
• Delivery centers designed to withstand extreme weather events. Business Continuity plans tested periodically to ensure effectiveness.
• Green buildings, efficient operations, green IT, the use of renewable energy to reduce carbon footprint; adoption of newer technologies and methods to manage waste in line with circular economy principles.
With globally distributed operations, the company faces physical risks to life and property due to extreme weather events; transition risks resulting from disruptions in the market and emerging regulations; disruptions to operations due to water scarcity; risks of • Operational and engineering controls to minimize freshwater consumption, upgradation of water infrastructure and more water efficient systems.
• Water management through sewage treatment, recycling of treated water and rainwater harvesting.
inadvertent non-compliance to emerging regulatory requirements around circular economy, e-waste and solid waste regulations, impacting health and safety in local communities, business disruption and reputational damage. • Supply Chain sustainability through responsible sourcing.
• Year-round associate engagement on environmental awareness and sensitizing them towards nature and conservation of resources.
• Initiatives like TCS Circle4Llife™ and sustainathons to come up with technology-led innovations to safeguard environment.
Market dimension and opportunity:
• There is also a commercial opportunity to participate in customers climate change mitigation journey by leveraging TCS core competencies. Market dimension and opportunity:
• As enterprises look to reduce their own carbon footprint and cater to the growing demand more environmentally friendly products and services, it opens up new business opportunities for TCS to provide technology-led solutions to help them realize their green plans.
• As TCS moves towards its net-zero goal by 2030, being a socially responsible and purposeful organization brings opportunities to attract young talent. • Key solution areas include designing sustainability strategy, sustainability innovation, sustainable consumer analytics and sustainable dashboards.
• Additionally, TCS products and solutions such as TCS Clever Energy™, Envirozone™, ESG integration Solution, help customers accelerate their sustainability journeys.

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 the lines of the globally accepted risk-based framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. The Internal Control - Integrated Framework (the 2013 framework) is intended to increase transparency and accountability in an organizations process of designing and implementing a system of internal control. The framework requires a company to identify and analyze risks and manage appropriate responses. The company has successfully laid down the framework and ensured its effectiveness.

TCS 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 unauthorized use, executing transactions with proper authorization and ensuring compliance with corporate policies. TCS has a well-defined delegation of power with authority limits for approving contracts 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 that connects all parts of the organization, to record data for accounting, consolidation and management information purposes. It has continued its efforts to align all its processes and controls with global best practices.

TCS management assessed the effectiveness of the companys internal control over financial reporting (as defined in Regulation 17 of SEBI LODR Regulations 2015) as of March 31, 2022.

B S R & Co. LLP, the statutory auditors of TCS have audited the financial statements included in this annual report and have issued an attestation report on the companys 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 and approved by the audit committee. In line with international practice, the conduct of internal audit is oriented towards the review of internal controls and risks in the companys 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 specialized third party consultants and professionals 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 Regulation 18 of SEBI LODR Regulations 2015), TCS audit committee has concluded that, as of March 31, 2022, the companys internal financial controls were adequate and operating effectively.