The Big Two

The gap between No. 1 TCS and No. 2 RIL has begun to reduce, but the difference is still significant.

By Nevin John  
Saturday, October 29, 2016

The meteoric rise of Tata Consultancy Services (TCS) has the name of its chief executive Natarajan Chandrasekaran imprinted on it. Since Chandrasekaran took over as CEO in October 2009, TCS's consolidated revenue skyrocketed to over Rs 1 lakh crore in the previous financial year from about Rs 30,000 crore in 2009/10. The profits rose to Rs 24,000 crore from Rs 7,000 crore, thanks to reengineering of its business units like banking, financial services and insurance (BFSI) and retail, broadening of geographies including in North America and Europe, and acquisition and retention of top-notch talent.

The markets, too, have showered their love on 'Chandra' in this period. In May 2012, the IT services giant had first surpassed petroleum refining major Reliance Industries (RIL) in market valuation. For the next seven to eight months, both the companies moved neck and neck. TCS took off from there and continued widening the gap till last year. For the first time since then, the gap has slightly reduced this year (see chart above). Still, TCS is valued at Rs 1.64 lakh crore above RIL in the stock market as of end-September.

All these years, the global economy was going through downturns and aftershocks. Geopolitical issues weighed heavily on the trade activities. Both TCS and RIL are more global companies considering their share of revenues from overseas - TCS has over 90 per cent revenues coming from abroad while RIL has 50-60 per cent. The five digital forces - mobility, big data, social media, cloud computing and robotics - changed the way TCS operated. And Chandrasekaran and his team showed the agility to adapt to the exponential changes. In this period, billionaire Mukesh Ambani-controlled RIL faced huge volatility in oil prices and currency fluctuations. But RIL maintained its gross refining margin, outperforming global refining benchmarks, thanks to its high-tech twin refineries in Jamnagar, which can refine most types of cheap crude and make products according to market demand. Both the giants are nimble-footed enough to take up challenges. Chandrasekaran tells Business Today that the discretionary spending in digital transformation has slowed a bit this year: "There was a pull-back in discretionary spending, but we haven't seen any cancellations fortunately. We anticipate that the negative sentiments will be reversed in the second half of this financial year." TCS is sharply focused on the opportunities in the digital transformation era. "The combined power of technologies is creating opportunities and possibilities for us," he says. Also, Chandrasekaran has inherited a prudent platform like TCS, built by his legendary predecessors Faqir Chand Kohli and S. Ramadorai.

While Chandrasekaran is focused on building TCS's digital bandwidth, Ambani has invested heavily to build a digital platform for his telecom broadband business under Reliance Jio. In the past five years, RIL's investment has exceeded the company's cumulative investment of 35 years. The largest ever investment of Rs 2.6 lakh crore comprising Rs 1,50,000 crore in Jio and Rs 1,10,000 crore in refining and petrochemicals expansion is close to completion. The market capitalisation of RIL grew 38 per cent to Rs 3.38 lakh crore in five years, while the net worth jumped 75 per cent to Rs 2,43,643 crore in the previous fiscal. Reliance Jio added 16 million subscribers in 26 days of September 2016 and it aspires to reaching 100 million by year end.

The performance of Jio can change the pecking order in the market, say industry experts. "Jio's aggressive business plan - free voice and high-speed 4G - will bring sizeable share of customers and rerate the RIL stock. So TCS's market value will be challenged by RIL in the coming days," says a market expert. The other view is that Jio will take longer to turn around because of its heavy investments, leading to muted performance of RIL in the market in the short and medium term. An RIL official says that the investments in petrochemicals and refining will also improve their cost position and enhance profitability: "The investment will help us build a larger product portfolio. For instance, the off gas cracker will help boost profit margins while pet coke gasification project will make refinery operations bottomless and enhance GRMs."

Both the companies see India as a bright spot to drive business. Chandrasekaran says, "The world is not a secure place anymore. There is risk. India is a bright spot in this scenario because of its potential? Innovation is going strong in the country. We will see some fantastic companies coming up from India," he adds.

The giants are on the roll for a larger slice of this new-age business.

@nevinji

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