Is This Why Gopinathan Resigned?

Under Rajesh Gopinathan, who took over the reins of Tata Consultancy Services (TCS) six years ago, the company consolidated its leadership position in the Indian information technology services industry.

But it also became a slow-moving giant and lost some of its sheen to competitors -- both big and small.

Even as TCS remains the primary cash cow of Tata Group, its revenue and profit growth have slowed considerably.

In the past six years, TCS' consolidated net sales grew from Rs 1.18 trillion in the financial year ended March 2017 to an expected Rs 2.21 trillion in 2022-2023, based on its performance in the first nine months of FY23, growing at a compound annual rate (CAGR) of 11.1 per cent.

In the same period, the company's net profit grew at a CAGR of 7.7 per cent to Rs 26,289 crore (Rs 262.89 billion) in 2016-2017 to an expected Rs 41,007 crore (Rs 410.07 billion) in FY23.

The company reported net sales and net profit of Rs 1.66 trillion and Rs 33,297 crore (Rs 332.97 billion), respectively, in the first 9MFY23.

This was much lower than the growth reported by its closest peer -- Infosys -- during the period.

Based on Infosys' numbers in 9MFY23, its net sales are expected to rise to Rs 1.46 trillion in FY23, from Rs 68,484 crore (Rs 684.84 billion) in FY17, growing at a CAGR of 13.4 per cent.

In the same period, Infosys' net profit grew at a CAGR of 8.9 per cent, growing from Rs 14,353 crore (Rs 143.53 billion) in FY17 to an expected Rs 23,965 crore (Rs 239.65 billion) in 2023-2024.

The mid and small-cap IT companies grew even faster during the period.

In a way, TCS has lost some of its market share to its competitors.

As a result, TCS stock price underperformed the industry, growing at a CAGR of 17.4 per cent since March 2017, against 18.2 per cent CAGR growth in the S&P BSE IT Index during the period.

However, to Gopinathan's credit, TCS retained its edge in terms of earnings before interest, tax, depreciation, and amortisation (Ebitda) or operating margins over industry peers.

TCS reported operating margins of 27.52 per cent in 9MFY23, ahead of Infosys' Ebitda margin of 25.76 per cent in the said period.

Gopinathan kept TCS shareholders, including Tata Sons, happy with a big increase in payouts by way of equity dividends and share buybacks in six years.

In the past six years, equity dividend payout by TCS had grown at a CAGR of 29.9 per cent, from Rs 9,259 crore (Rs 92.59 billion) in FY17 to an estimated Rs 44,396 crore (Rs 443.96 billion) in FY23.